Case: Krishan Lal Vs. Food Corpn. Of India

suffered or incurred by the corporation due the contractors negligence or unworkment like performance of any of the services under the contract. XI (f) In the event of termination of the contract envisaged in clause X, of the Senior Regional Manager shall have the rights of forfeit the entire or part of the amount of security deposit lodged by the contractors or to appropriate the Security Deposit or any part thereof in or towards the satisfaction of any sum due to be claimed for any damages, losses, charged expenses or cost that may be suffered or incurred by the Corporation. 8. It was argued on behalf of the appellant that even the widest and most favourable interpretation of the above terms would not entitle the respondent-Corporation to forfeit any amount besides the security deposit and recover any damages, losses or cost that may be suffered or incurred by the respondent-Corporation in getting the contracted work executed through some other agency. Such being the position the respondent-Corporation could at best forfeit the sum of Rs.3,09,500/- towards security deposit and a sum of Rs.2,17,274/- which the respondent- Corporation claimed to have incurred towards extra expenditure in getting the work executed at the risk and cost of the appellant. The extra expenditure incurred by the respondent-Corporation after termination of the contract allotted to the appellant, it is noteworthy, has been quantified by the respondent-Corporation in para 5(i) & (ii) of the counter-affidavit filed on its behalf. The respondent- Corporation has inter alia said: I say that during the contract period of six months of the petitioner, the Respondent Corporation had to incur an extra expenditure of Rs.2,17,274/- and suffered heavy losses. I say that security amount of Rs.10 lakhs was furnished by the petitioner as security for fulfilment of contract in terms of High Court order. Even after depositing Rs.10 lakhs as per the High Court Orders, the petitioner did not resume the work and the entire amount of Rs. 10 lakhs was rightly forfeited against excess payment made towards alternative arrangements made at the risk and cost of the petitioner. I say that the amount of Rs.10lakhs was stand forfeited under Clause X(b) read with Clause XI(f) of the contract. 9. It was in the light of the above assertions, argued Mr. Jha, learned counsel for the appellant, that the respondent- Corporation could not lay any claim against the amount in question in excess of Rs.3,09,500/ plus Rs.2,17,274/- and that the balance amount was liable to be refunded to the appellant. 10. On behalf of the respondent-Corporation it was argued that the appellant ought to have resorted to the arbitration clause under the agreement instead of filing a writ petition in the High Court. Alternatively, it was argued that the security deposit having been made under the orders of the High Court, the entire amount of Rs.10 lakhs was liable to be forfeited on the failure of the appellant to work once the same was allotted to him. 11. It is true that there was an arbitration clause in the agreement executed between the parties. It is equally true that, keeping in view the nature of the controversy, any claim for refund of the amount deposited by the appellant could be and ought to have been raised before the Arbitrator under the said arbitration. The fact, however, remains that the High Court had entertained the writ petition as early as in the year 2002 and the present appeals have been pending in this Court for the past ten years or so. Relegating the parties to arbitration will not be feasible at this stage especially when the proceedings before the Arbitrator may also drag on for another decade. Availability of an alternative remedy for adjudication of the disputes is, therefore, not a ground that can be pressed into service at this belated stage and is accordingly rejected. 12. Equally untenable is the alternative argument that since the amount of Rs.10 lakhs had been deposited pursuant to the order passed by the High Court the same was liable to be forfeited in toto in the event of any breach of the agreement between the parties. The deposit was, no doubt, made pursuant to the direction of the High Court but the said direction did not go further to say that in case the appellant committed a breach of the agreement executed between the parties, any such breach would result in the forfeiture of the entire amount of Rs.10 lakhs. A closer reading of the order passed by the High Court leaves no manner of doubt that the amount was deposited but was refundable in case the contract was not allotted and was adjustable towards security if the appellant succeeded in emerging as the successful tenderer. In the event of adjustment of the amount towards security the breach of the contract would have led to the forfeiture of the security amount alone and not the entire amount deposited by the appellant. 13. Even so, the terms of the contract provided for execution of the contracted work through another agency at the risk and cost of the appellant. It is not in dispute that the respondent-Corporation had engaged an alternative agency for getting the work executed. It is also not in dispute that an extra amount was incurred by the respondent-Corporation in that regard. If that be so, the amount lying with the respondent-Corporation could be utilised for recovery of the loss. The respondent- Corporation could therefore make a claim for recovery of the extra expenditure, incurred by it. We must mention, in fairness to Mr. Jha, that the respondent-Corporations right to forfeit the security amount or to recover the extra expenditure incurred in getting the work executed from alternative agency was not disputed by him. 14. That being the position, the respondent-Corporation would be entitled to retain a sum of Rs.3,09,500/ plus Rs.2,17,274/- = Rs.5,26,774/-. The balance amount of Rs.4,73,226/- ought to have been refunded to the appellant on the admitted factual and contractual premise.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]11. It is true that there was an arbitration clause in the agreement executed between the parties. It is equally true that, keeping in view the nature of the controversy, any claim for refund of the amount deposited by the appellant could be and ought to have been raised before the Arbitrator under the said arbitration. The fact, however, remains that the High Court had entertained the writ petition as early as in the year 2002 and the present appeals have been pending in this Court for the past ten years or so. Relegating the parties to arbitration will not be feasible at this stage especially when the proceedings before the Arbitrator may also drag on for another decade. Availability of an alternative remedy for adjudication of the disputes is, therefore, not a ground that can be pressed into service at this belated stage and is accordingly rejected12. Equally untenable is the alternative argument that since the amount of Rs.10 lakhs had been deposited pursuant to the order passed by the High Court the same was liable to be forfeited in toto in the event of any breach of the agreement between the parties. The deposit was, no doubt, made pursuant to the direction of the High Court but the said direction did not go further to say that in case the appellant committed a breach of the agreement executed between the parties, any such breach would result in the forfeiture of the entire amount of Rs.10 lakhs. A closer reading of the order passed by the High Court leaves no manner of doubt that the amount was deposited but was refundable in case the contract was not allotted and was adjustable towards security if the appellant succeeded in emerging as the successful tenderer. In the event of adjustment of the amount towards security the breach of the contract would have led to the forfeiture of the security amount alone and not the entire amount deposited by the appellant13. Even so, the terms of the contract provided for execution of the contracted work through another agency at the risk and cost of the appellant. It is not in dispute that the respondent-Corporation had engaged an alternative agency for getting the work executed. It is also not in dispute that an extra amount was incurred by the respondent-Corporation in that regard. If that be so, the amount lying with the respondent-Corporation could be utilised for recovery of the loss. The respondent- Corporation could therefore make a claim for recovery of the extra expenditure, incurred by it. We must mention, in fairness to Mr. Jha, that the respondent-Corporations right to forfeit the security amount or to recover the extra expenditure incurred in getting the work executed from alternative agency was not disputed by him14. That being the position, the respondent-Corporation would be entitled to retain a sum of Rs.3,09,500/ plus Rs.2,17,274/- = Rs.5,26,774/-. The balance amount of Rs.4,73,226/- ought to have been refunded to the appellant on the admitted factual and contractual premise.