Case: 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 21st 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.The first respondent invoking clause 44.1 and 53.1 of the agreement served a notice to the appellant on 9th 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.Pending adjudication before the Arbitral Tribunal, the first respondent issued notice to the appellant dated 17th March, 2017 for package 3712 and package 3714 to recover alleged damages. In furtherance thereof, respondent no. 2(General Manager of the 1st respondent) issued the communication in which he asked respondent no. 3(Collector, Sheopur, M.P.) to take steps in respect of agreement no. 11 and agreement no. 12 towards alleged liquidation damages as arrears of land revenue for the aforesaid packages that came to be challenged by the appellant by filing the Writ Petition Nos. 4087 and 4088 of 2017 and it was specifically stated in Para XIX of the petition indicating that what has been claimed by the respondents as liquidated damages is sub judice before the Arbitral Tribunal and action taken by the respondents pending arbitral proceedings is unwarranted.After hearing the parties, petitions came to be dismissed by the High Court vide judgment impugned dated 26th February, 2018 on the premise that General Manager of the 1st respondent has initiated the proceedings under clause 53.1 of the agreement and once the liquidated damages have been quantified by the authority, the action cannot be faulted with for initiating the recovery proceedings distinguishing the judgment of the full Bench of the Madhya Pradesh High Court on which the reliance was placed by the appellant in B.B. Verma and another Vs. State of M.P. and another AIR 2008 MP 202(FB) which is a subject matter of challenge in the instant appeals.

Court's reasoning:
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 adjudicated.In terms of the clauses 44.1 read with 53.1 of the agreement, it emerges that if there are liquidated damages to be payable upon termination of contract by the contractor, inbuilt redressal system has been provided under Clause 24 which, in the instant cases, was invoked through the General Manager of the 1 st respondent and the party aggrieved thereof can certainly approach to the Arbitral Tribunal constituted under the Adhiniyam, 1983 in terms of clause 25 of the agreement.Indisputedly, in the instant cases, for both the two agreement nos. 11 and 12, the general manager of the 1 st respondent quantified the liquidated damages as alleged and that has been the subject matter of challenge raised by the appellant in the reference petitions filed before the Arbitral Tribunal under Section 7 of the Adhiniyam, 1983 which is still pending adjudication and once the remedial mechanism provided under the Adhiniyam, 1983 has been availed by the appellant which is pending adjudication, the respondents were not justified in initiating the recovery proceedings without awaiting the outcome of the arbitral proceedings. It is the settled principles of law that a party to an agreement cannot be an arbiter in his own cause.We are also of the considered view that once the dispute is pending adjudication before the Arbitral Tribunal constituted under the Adhiniyam, 1983 in terms of clause 25 of the agreement, the respondent, in the facts and circumstances, was not justified to raise demand on termination of contract claiming liquidated damages and the respondent cannot become an arbiter in its own cause and unless the dispute is settled by a procedure prescribed under the law, the respondents would not be held to be justified in initiating recovery proceedings invoking the procedure under the Land Revenue Act.The submission of the learned counsel for the respondents that the liquidated damages were determined by the General Manager of the 1st respondent after adjudication in terms of clause 24 of the agreement and accordingly, the respondents were justified in initiating recovery proceedings is without substance for the reason that clause 24 of the agreement provides an inbuilt mechanism but the decision of the competent authority is to be examined invoking clause 25 for arbitration by the Arbitral Tribunal on a reference if made under Section 7 of the Adhiniyam, 1983.Indisputedly, in the instant cases, the reference petition is pending before the Arbitral Tribunal in reference to the liquidated damages claimed by the respondents. As long as the dispute remained pending adjudication, it was not justified on the part of the respondents to initiate recovery proceedings invoking the procedure under the Land Revenue Act without awaiting the outcome of the arbitral proceedings.