IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH & THE HONOURABLE MR. JUSTICE M.L.JOSEPH FRANCIS WEDNESDAY, THE 23RD DECEMBER 2009 / 2ND POUSHA 1931 AS.No. 507 of 1998(B) -------------------- OS.38/1994 of SUB COURT, KASARAGOD .................... APPELLANT: -------------- TENCO PRIVATE LIMITED REPRESENTED BY THE MANAGING DIRECTOR M C MOHAMMAD KUNHI, R/AT MUNDOL THEKKIL VILLAGE KASARAGOD DISTRICT. BY ADV. SRI.KODOTH SREEDHARAN RESPONDENTS --------------- 1. THE KERALA STATE ELECTRICITY BOARD REPRESENTED BY THE SECRETARY VIDYUTH BHAVAN, THIRUVANANTHAPURAM 2. THE EXECUTIVE ENGINEER KERALA STATE ELECTRICITY BOARD CIRCLE OFFICE KASARAGOD 3. DEPUTY CHIEF ENGINEER OFFICE OF THE CHIEF ENGINEER, K.S.E.B, KASARGOD BY ADV. SRI. C K KARUNAKARAN, SC, KSEB THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 23/12/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K. M. JOSEPH & JOSEPH FRANCIS JJ., - - - - - - - - - - - - - - - - - - - - - - - - - - - - A. S. NO: 507 OF 1998 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 23rd of December, 2009. JUDGMENT K. M. Joseph J., The appellant is the plaintiff in a suit for recovery of money. The Trial court has dismissed the suit. 2. The brief case of the appellant is as follows: The appellant has entered into an agreement on 9.2.1987 for the supply of 1,500 numbers 8 metre long RCC poles and 1,000 numbers 9 metre long R.C.C poles to the first respondent. The poles were to be exclusively used by the respondents. The steel and cement for manufacturing the poles were to be supplied by the respondents. Ext.A5 is an agreement and it was executed on 9.2.1987. The respondents were liable to pay excise duty for lifting the poles. It is the further case of the appellant that the estimate made by the defendant would indicate that excise duty would not be included in A. S. NO: 507 OF 1998 :2: the tender amount. The casting work was to be completed within three months. But the respondents were not able to supply the materials in time and there was some delay in completing the work. 3. The respondents demanded the appellant to pay the excise duty. From time to time the respondents made some payment to the appellant to be paid to the government to pay excise duty. An amount of Rs.1,39,196/- was paid, and out of that the appellant remitted only Rs.1,03,901/-. The balance amount (Rs.35,295/-) is with the appellant and this is to be adjusted towards the amount due from the respondents to the appellant. In view of the delay in supplying the materials by the respondents, the work could not be completed in time. It also took almost three years to supply the materials. The appellant/ plaintiff could have undertaken similar works if the work was completed in time. Plaintiff estimated Rs.8,000/- per month under this head and the damages caused to him on account of the delay in the supply of raw materials was claimed at Rs.3,00,000/-. A. S. NO: 507 OF 1998 :3: 4. It is the further case of the plaintiff that the gross value of the work done by the appellant in casting the poles was Rs.9,19,595/-, after providing cost of materials, the sales tax etc. The balance due to the appellant towards value of the work is Rs.2,10,213/-. Out of the same, the respondents paid Rs.71,017/-. After adjusting Rs.35,295/- the appellant claimed the gross value of the balance work at Rs.1,03,901/- and interest at 12½% per annum. It is the further case of the appellant that it disputed the liability to pay the excise duty to the government and had incurred Rs.11,000/- as expenses for conducting the case for the purpose of avoiding payment of excise duty. It is said that this was incurred on behalf of the respondents. It is stated that the respondents have not paid the amount so far. The claim is not barred by limitation. 5. Another claim is that the respondents did not remove the poles in time and the appellant was not able to use the yard for any other purpose. The rent for such yard would not be less than Rs.1,000/- per month. Accordingly they have claimed damages of A. S. NO: 507 OF 1998 :4: Rs.36,000/-, at the rate of Rs.1,000/- per month for three years immediately proceeding the suit. 6. The respondents contended inter alia that the suit is barred by limitation. The appellant quoted labour portion of the expenses at the rate of 3% below the estimate and the agreement is thus for Rs.4,46,584/-. It is contended that the excise duty is to be paid by the contractor. The contract specifically states that the contract amount is inclusive of all taxes, duties etc. The Excise authorities charged excise duty for the poles cast at the yard and the appellant disputed the demand. The excise department issued show cause notice to the board which was withdrawn. The Apex Court held that the contractor should be regarded as the manufacturer and the duty is to be demanded from them. The specific case of the respondents is that the advance amount payable towards excise duty was a temporary arrangement and was subject to the final decision. The delay in supplying materials for the work was not much. The work was completed on 30.3.89. They paid the net amount payable A. S. NO: 507 OF 1998 :5: to the plaintiff. The lifting of the balance poles was prevented by the plaintiff, it is contended. The court raised six issues, including the question as to whether the suit is barred and found that there was no merit in the suit and accordingly it was dismissed. 7. We heard the learned counsel for the appellant, Sri. Kodoth Sreedharan and the learned counsel appearing on behalf of the respondents. 8. Learned counsel for the appellant would submit that the trial court erred in dismissing the suit. He would contend that there was a breach of contract by the defendants in not supplying the raw materials. There was much delay in supplying the raw materials. On account of the delay, clearly the appellant is entitled to compensation, as there is admitted breach by the defendants in supplying the raw materials. He further contended that the trial court has clearly erred in not finding that excise duty was payable by the board. In this context he would take us through the documentary evidence. In particular, he relied on Ext.A12. He A. S. NO: 507 OF 1998 :6: would point to the admitted fact that the excise duty was paid by the respondents. He further contended that Rs.11,000/- was incurred by him as expenses and this was on the basis of the direction by the respondents to ventilate the grievance regarding payment of excise duty before the authorities. Lastly he contended that several poles were not removed and the appellant is entitled to compensation. 9. Learned counsel for the respondents, on the other hand, contended that there is no merit in the appeal. He would further contend that as far as the delay in supply of raw materials is considered, apart from Clause 14 of the Contract, this is a case whether at the time when the performance of the reciprocal obligation was accepted by the appellant, there was no indication that the appellant will claim compensation for the belated performance of obligation by the department. He would also submit that actually the suit is barred by limitation. He would support the findings. 10. The appellant/ plaintiff has filed the suit claiming money A. S. NO: 507 OF 1998 :7: under four different heads. The first claim was for compensation of lumpsum amount of Rs.3,00,000/- (Rs. Three lakhs only). Rs.3,00,000/- is apparently arrived at by claiming compensation at the rate of Rs.8,000/- per month for a period of three years. This claim has been rejected by the court below on account of two grounds. Firstly it was found that Clause 14 stands as an obstacle for the appellant claiming compensation. Secondly it is found that the appellant has not proved his claim. 11. We will examine the claim of the appellant for compensation. The contract provided for making of the poles within a period of three months. The respondent undertook the liability of supplying the steel and cement. Therefore there was a reciprocal obligation on the part of the respondents to supply these materials. There is a delay on the part of the respondents in supplying the materials. But the question arises as to whether the appellant is entitled for compensation as claimed by the appellant. Clause 14 of the Ext.A5 agreement reads as follows: A. S. NO: 507 OF 1998 :8: “Various facilities and departmental supply of materials proposed to be supplied by the department as stipulated in the tender conditions are strictly subject to the condition that the contractor will have no claim for any compensation on account of failure or delay on the part of the Board in rendering these facilities or supplying these materials, tools and plant etc.” 12. Learned counsel for the appellant would contend that the said clause which bars the claim for compensation is against the provision of Section 23 of the Contract Act, in so far as such Clause is against the mandate of Section 73 of the Contract Act. He would also rely upon the following two decisions, namely General Manager, Northern Railway and another v. Sarvesh Chopra (2002(4) SCC 45) and State of Kerala v. Mathai (2007(2) KLT 513 (SC)). 13. He also relied on the judgment of the Apex court in M/s. A.T. Brij Paul Singh and Others v. State of Gujarat (1984(4) SCC 59), wherein the Apex Court held as follows: A. S. NO: 507 OF 1998 :9: “Ordinarily, when a contractor submits his tender in response to an invitation to tender for a works contract, a reasonable expectation of profit is implicit in it and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract. Where, therefore, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What would be the measure of profit would, however, depend upon facts and circumstances of each case. While estimating the loss of profit for the breach of contract it would be unnecessary to go into the minutest details of the work executed in relation to the value of the works contract. A broad evaluation would be sufficient.” 14. Per contra the learned counsel for the respondent would bring to our notice the judgment in State of Andhra Pradesh v. M/s. Associated Engineering Enterprises, Hyderabad (AIR 1990 AP 294). In this judgment, the Division bench of the Andhra Pradesh High Court considered Section 55 of Contract Act and also A. S. NO: 507 OF 1998 :10: the effect of Clause 59 of APDSS, which barred the claim for compensation “on account of delays and hindrances to work from any cause whatever”. The delays and hindrances included were the stoppage, hindrances and delays on the part of the department. The Division Bench upheld the case of the respondents that the claim of the contractor was barred. 15. In the case before the Apex Court, namely, General Manager, Northern Railway and another v. Sarvesh Chopra (2002(4) SCC 45), the Apex Court, after referring to the aforesaid decision of the Andra Pradesh High Court, held as follows: “13. A Division Bench decision of the High Court of Andhra Pradesh in State of A.P. v. Associated Engineering Enterprises, Hyderabad is of relevance. Jeevan Reddy, J (as His Lordship then was), speaking for the Division Bench, held that where clause 59 of the standard terms and conditions of the contract provided that neither party to the contract shall claim compensation “on account of delays or hindrances to the work from A. S. NO: 507 OF 1998 :11: any cause whatever”, an award given by an arbitrator ignoring such express terms of the contract was bad. We find ourselves in agreement with the view so taken”. Thereafter the Apex Court held as follows: “In our country question of delay in performance of the contract is governed by Section 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in prices of material and labour, it may frustrate the contract and then the innocent party need not perform the contract. So also, if time is of the essence of the contract, failure of the employer to perform a mutual obligation would enable the contractor to avoid the contract as the contract becomes voidable at his option. Where time is “of the essence” of an obligation. Chitty on Contracts (28th Edn., 1999, at p.1106, para 22-015) states. a failure to perform by the stipulated time will entitle the innocent party to (a) terminate performance of the contract and thereby put an end to all the primary obligations of both parties A. S. NO: 507 OF 1998 :12: remaining unperformed: and (b) claim damages from the contract-breaker on the basis that he has committed a fundamental breach of the contract (a breach going to the root of the contract') depriving the innocent party of the benefit of the contract ('damages for loss of the whole transaction') If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, the innocent party i.e, the contractor, cannot claim compensation for any loss occasioned by the non- performance of the reciprocal promise by the employer at the time agreed, “unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so”. Thus, it appears that under the Indian law, in spite of there being a contract between the parties where under the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so A. S. NO: 507 OF 1998 :13: under Section 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms.” 16. The Apex Court, in State of Kerala v. Mathai (2007(2) KLT 513 (SC)), has reiterated whatever has been stated by it in para 15 of the judgment in General Manager, Northern Railway and another v. Sarvesh Chopra (Supra). Therefore, on the one hand, we notice that the judgment of the Division Bench of the Andhra Pradesh High court in regard to Clause 59 has been approved as noted in paragraph 13. The Apex court has further found that in case there is delayed performance of contract in three contingencies, in view of the Section 55 of the Contract Act, the A. S. NO: 507 OF 1998 :14: contractor will be enabled to compensation as referred to in para 15 of the judgment in General Manager, Northern Railway and another v. Sarvesh Chopra (Supra). 17. This is the state of the law. If we apply the aforesaid principles to the facts of the case, we must ask whether the appellant falls in any of the three categories mentioned above. There is no dispute that the appellant has not repudiated the contract. Equally there is no agreement executed between the parties, under which the defendants have agreed to pay the compensation at higher rates on account of the delayed performance of reciprocal obligation in supplying steel and cement. The appellant brought Ext.A18 to our notice. In Ext.A18, which is dated 15.1.1990, the appellant complains of the retention of the final amount due. There is no claim or reservation of the claim the appellant would be making on account of delayed performance of obligations by the respondents. As a matter of fact, Ext.A18 is not issued at the time of acceptance of delayed performance. But even on a perusal of Ext.A18, we A. S. NO: 507 OF 1998 :15: cannot make out any case of the appellant reserving a right to claim compensation or giving notice to the defendants that it will make a claim for compensation on account of delayed supply of the steel and cement. In fact the claim itself is only for the demand of the balance value, which is withheld by the defendant, in view of the payment of Rs.1,39,196/- by them as advance for the payment of the excise duty. Therefore, we would think that even going by the decisions of the Apex court relied on by the learned counsel for the appellant, we cannot hold that the appellant falls in any of the three categories which have been declared by the Apex court. 18. We notice that there is no scope for applying the principle mentioned in M/s.A.T. Brij Paul Singh and others v. State of Gujarat (1984 (4) SCC 59). In this case, one of the claims raised by the contractor was that on account of breach of the contract by the employer, there was a reduction in profit. There is no such claim in this case. The claim of the appellant as already noted was that only because of the delayed performance by way of delay in A. S. NO: 507 OF 1998 :16: supplying the raw materials, the appellant could not take up other work. Apart from the statements of the appellant as PW1 that he lost Rs.8,000/- per month and then he could not take up any contract, as correctly noticed by the Court below, there are no materials to show that there was loss to the appellant. The trial court has correctly negatived the claim for compensation of Rs.3,00,000/. 19. The further question to be considered is whether the appellant is justified in contending that the appellant was not liable to pay the excise duty. We would at once notice Clause 6 (b) of the Notice for Inviting Tenders for Work in Ext.A5, which reads as follows: “The tenderers are bound to study the estimate rates from their own rates for their own information only, work out the net PAC after deducting the cost of Departmental supply of materials, work out relation between the Departmental net PAC and Tenderer's net PAC by percentage which may either fall above or below the departmental PAC. After A. S. NO: 507 OF 1998 :17: this, the tenderers need quote only a single rate as a percentage, above or below or at the rates as given in additional conditions of contract in the form furnished below the schedule of work. Contract amount is inclusive of all taxes, duties, seigniorage etc, which are or may become payable by the contractor under the existing or future laws or rules of the country during the course of execution of the contract.” 20. A perusal of the Clause appears to us to be unambiguous that what the parties have agreed to be the accepted PAC, was to be inclusive of all taxes and duties under any other existing laws or future laws. The contention of the learned counsel for the appellant however is that the conduct of the parties is also relevant to determine the question is to who is liable to pay the excise duty. He would submit that the parties actually contemplated the payment of excise duty by the defendants. He would point out that this was clear from Ext.A12. This is a letter addressed by the Executive A. S. NO: 507 OF 1998 :18: Engineer to the Managing Director of appellant company dated 21.8.89. It reads as follows: “As you know, K.S.E. Board had made a temporary arrangement for the payment of Excise duty for R.C.C. poles cast by you at Kanhangad consequent on the award of the customs, excise and gold (control) Appellate Tribunal, New Delhi vide its order dated 1.2.'88. Your status as the manufacturer of the posts stands decided by the Tribunal under the said order. But pending detailed examination of all the aspects connected with the issue and to ensure steady flow of poles from the casting yard, this division has been providing you the required funds as advance for payment of Excise duty subject to certain conditions. The position being so, you will take notice that refund of Excise duty on any account out of the payment made by you to the Central Excise Department from the advance made available to you from time to time since 1.2.1988 is due to the K.S.E. Board. Excess amount of Excise duty if any, levied by the local officers of the Central Excise A. S. NO: 507 OF 1998 :19: Department, over and above the rate applicable to an SSI unit is to be got refunded by filing refund applications as per rules. So if you have remitted Excise duty for poles cast at any time at a rate higher than that would have been admissible under the concessions granted to SSI Units by the Central Excise Department, be it on whatever basis of objection and mode of assessment. You will immediately file refund application with the Central Excise department as per rules, if not already done, under intimation to this office. This procedure should be followed strictly in respect of all payment of Excise duty by you out of the advance provided by the K.S.E. Board. Please note that any loss to the K.S.E. Board on account of your failure to comply with the above said directions would be recoverable from you. Please also ensure that all payments of Excise Duty, the assessment of which is not in conformity with your status as a local SSI Unit under the relevant rules of the Central Excise Department, is made under protest only as per the procedure prescribed for it, as already instructed”. A. S. NO: 507 OF 1998 :20: 21. If it were not that respondents were liable, what was the reason for the board to ask the plaintiff to take up the matter with the authority and to seek refund and make over the amount, which may be received by way of refund to the board. He would further contend that if the appellant is shouldered the liability under Central Excise Act, it will be unjust, and it is pointed out that the parties have not reckoned the excise duty payment as appellant's liability and it was complained that the respondent is liable in this regard. 22. Ext.B3 is the excise duty file. Undoubtedly, the defendant have paid a sum of Rs.1,39,196/- as payment for excise duty to the appellant. The case of the respondent is that the said conduct is justified with reference to the emergent need for the board to get delivery of the poles as the clearing of the poles was being held up on account of non payment of excise duty. The communication dated 1.11.91 issued by the board reads inter alia as follows : “The Board after considering the issue in details A. S. NO: 507 OF 1998 :21: orders that (1) The PSC/RCC Pole Casting contracts be categorised as follows: (i) Cases where there is no mention about payment of Excise Duty. (ii) Cases where it is mentioned that Excise Duty be paid as an Extra payment. (iii) Cases where it has been specifically mentioned that the