M/S Tulsi Narayan Garg vs The M.P. Road Development Authority

2. The facts in brief culled out from the record and relevant for the purpose are that the appellant is a proprietorship firm registered as Class ‘A’ contractor. In response to the notice inviting tender for construction and maintenance of rural road under the Pradhan Mantri Gram Sadak Yojna for package no. 3712 and package no. 3714 consisting of two roads(i.e. constructed one way relating to Vijaypur to Chota Kheda way (2 km) and second, relating to Sonthava to Advad way (7.750 km) change 5240 meter in DPR slab culvert and protection wall, tender was awarded to the appellant and in furtherance, the work order was issued on 6th October, 2008 and pursuant thereto, agreement no. 11 and agreement no. 12 was executed between the appellant and the first respondent. As per the work order, the date of completion was twelve months, i.e. till 21 st October, 2009. The first respondent, invoking clause 52 of the work agreement nos. 11 and 12, terminated the agreement for slow progress of work on 7th October, 2013 and 27th October, 2014 respectively.

3. The first respondent invoking clause 44.1 and 53.1 of the agreement served a notice to the appellant on 9 th October, 2015 for determining the liquidated damages that came to be challenged by the appellant by filing of a Writ Petition No. 7003 of 2015 before the High Court of Madhya Pradesh. In the first instance, that writ petition came to be disposed of vide order dated 6th September, 2016 with liberty to the appellant to challenge order of termination before the Arbitral Tribunal under the provisions of the Adhiniyam, 1983. In terms of the liberty afforded, the appellant filed a reference petition against the termination of agreement and damages claimed by the first respondent before the Madhya Pradesh Arbitral Tribunal under Section 7 of the Adhiniyam, 1983 and as informed to this Court that is still pending adjudication before the Arbitral Tribunal.

9. It is not disputed that the termination of the agreement no. 11 and agreement no. 12 and consequential liquidated damages claimed by the respondents have been questioned by the appellant in reference petitions filed under Section 7 of the Adhiniyam, 1983 on 5th October, 2016 and 20th March 2017 respectively and both the references are pending adjudication before the Arbitral Tribunal where the dispute in reference to the claim of liquidated damages of the respondents is yet to the 6 adjudicated. It will be appropriate, at this stage, to take note of the clauses of the agreement relevant for the present purpose which are extracted as under:­ “24. Dispute Redressal System If any dispute or difference of any kind what­so­ever shall arises in connection with or arising out of this Contract or the execution of Works or maintenance of the Works thereunder, whether before its commencement or during the progress of Works or after the termination, abandonment or breach of the Contract, it shall, in the first instance, be referred for settlement to the competent authority, described along with their powers in the Contract Data, above the rank of the Engineer. The competent authority shall, within a period of 45 days after being requested in writing by the Contractor to do so, convey his decision to the Contractor. Such decision in respect of every matter so referred shall, subject to review as hereinafter provided, be final and binding upon the Contractor. In case the Work is already in progress, the Contractor shall proceed with the execution of the Works, including maintenance thereof, pending receipt of the decision of the competent authority as aforesaid, with all due diligence.

44. Liquidated Damages 44.1 The Contractor shall pay liquidated damages to the Employer at the rate per week or part thereof stated in the Contract Data for the period that the Completion Data is later than the Intended Completion Date. Liquidated damages at the same rate shall be withheld if the Contractor fails to achieve the milestones prescribed in the Contract Data. However, 7 in case the Contractor achieves the next milestone the amount of the liquidated damages already withheld shall be restored to the Contractor by adjustment in the next payment certificate. The total amount of liquidated damages shall not exceed the amount defined in the Contract Data. The Employer may deduct liquidated damages from payments due to the Contractor. Payment of liquidated damages shall not affect the Contractor’s other liabilities.

In these circumstances, inasmuch as the amount becomes due and payable only after adjudication, we are of the view that the recovery of the said amount cannot be made invoking the procedure of Land Revenue Act. The recovery orders are, accordingly, set aside. It would, however, be open to the Department to take further steps only after the Award is rendered by the Arbitrator depending upon the outcome thereof.

The appeal stands disposed of.”

18. Consequently, the appeals succeed and are accordingly allowed. The judgments of the High Court impugned dated 26 th February, 2018 & 7th September, 2018 are hereby quashed and set aside. It is further made clear that what has been observed by us is only for the purpose of disposal of the instant appeals and the Arbitral Tribunal may not be influenced/inhibited by the observations made and decide the pending reference petition independently in accordance with law. No costs.

19. Pending application(s), if any, stand disposed of.