Full Judgment Text
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S).67266729 OF 2019
(Arising out of SLP(C ) No(s). 14361439 of 2019)
M/S. TULSI NARAYAN GARG,
SARAWAGI MOHALLA, SHEOPUR
THROUGH ITS PROPRIETOR
TULSI NARAYAN GARG …..APPELLANT(S)
VERSUS
THE M.P. ROAD DEVELOPMENT
AUTHORITY, BHOPAL & OTHERS …..RESPONDENT(S)
O R D E R
Rastogi, J.
1. The instant appeals are directed against the common
th
judgment dated 26 February, 2018 and order in review petitions
th
dated 7 September, 2018 of the High Court of Madhya Pradesh
filed at the instance of the present appellant quantifying the
liquidated damages assessed by the officer of the respondents to
Signature Not Verified
be recoverable pending adjudication before the Arbitral Tribunal
Digitally signed by
SATISH KUMAR YADAV
Date: 2019.09.07
12:57:52 IST
Reason:
constituted under the Madhya Pradesh Madhyastham Adhikaran
1
Adhiniyam, 1983(hereinafter being referred to as “Adhiniyam,
1983”).
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
th
work order was issued on 6 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
st
order, the date of completion was twelve months, i.e. till 21
October, 2009. The first respondent, invoking clause 52 of the
work agreement nos. 11 and 12, terminated the agreement for
th th
slow progress of work on 7 October, 2013 and 27 October,
2014 respectively.
2
3. The first respondent invoking clause 44.1 and 53.1 of the
th
agreement served a notice to the appellant on 9 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
th
dated 6 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.
4. Pending adjudication before the Arbitral Tribunal, the first
th
respondent issued notice to the appellant dated 17 March, 2017
for package 3712 and package 3714 to recover alleged damages.
In furtherance thereof, respondent no. 2(General Manager of the
st
1 respondent) issued the communication in which he asked
respondent no. 3(Collector, Sheopur, M.P.) to take steps in
3
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.
5. After hearing the parties, petitions came to be dismissed by
th
the High Court vide judgment impugned dated 26 February,
st
2018 on the premise that General Manager of the 1 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.
4
6. The main thrust of the submission of learned counsel for
the appellant is that when the alleged liquidated damages
st
quantified by the General Manager of the 1 respondent are
pending adjudication before the Arbitral Tribunal, the further
action which has been initiated for making recovery pursuant to
the notice served as an arrears of land revenue is unwarranted
and in support of his submission, reliance has been placed not
only on the full Bench judgment of the High Court of Madhya
Pradesh but also on the Order of this Court passed in Civil
th
Appeal No. 5169 of 2016 dated 13 May, 2016 and taking
assistance thereof, learned counsel submits that the recovery
proceedings initiated by the respondents pursuant to the
damages quantified invoking clause 53.1 of the contract pending
adjudication are unjustified and such action initiated deserves to
be quashed and set aside. However, what being claimed by the
respondents will always be open to be examined by the Arbitral
Tribunal and obviously the outcome will be binding on the
parties subject to their rights available under the law.
7. Per contra, learned counsel for the respondents, on the
other hand, while supporting the finding of the impugned
5
judgment submits that once the adjudication has been made by
the General Manager of the Authority after the show cause notice
being served and liquidated damages having been quantified, no
error was committed by the respondents in initiating the recovery
proceedings and the judgment on which the appellant has placed
reliance of which a reference has been made has no application
in the instant cases and this what the High Court has observed
in the impugned judgment needs no interference.
8. We have considered the submissions made by the parties
and with their assistance perused the material available on
record.
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
th th
Adhiniyam, 1983 on 5 October, 2016 and 20 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.
25. Arbitration
Either party will have the right of appeal against the
decision of the competent authority, nominated under
Clause 24, to the Madhya Pradesh Arbitration Tribunal
constituted under Madhya Pradesh Madhyastham
Adhikaran Adhiniyam 1983 provided the amount of
claim is more than Rs. 50,000/.
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.
53. Payment upon Termination
53.1 If the contract is terminated because of a
fundamental breach of contract by the contractor, the
Engineer shall issue a certificate for value of the work
done and materials ordered less liquidated damages, if
any, less advance payments received up to the date of
the issue of the certificate and less the percentage to
apply to the value of the work not completed as
indicated in the Contract Data. If the total amount due
to the Employer exceeds any payment due to the
Contractor, the difference shall be recovered from the
security deposit and performance security, if any
amount is still left unrecovered it will be a debt
payable to the Employer.”
10. 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
st
the 1 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.
8
11. Indisputedly, in the instant cases, for both the two
st
agreement nos. 11 and 12, the general manager of the 1
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.
12. This exposition of law has been considered by this Court in
State of Karnataka Vs. Shree Rameshwara Rice Mills
1987(2) SCC 160. Relevant para 7 is extracted as
Thirthahalli
under:
On a consideration of the matter we find
“7.
ourselves unable to accept the contentions of Mr
Iyenger. The terms of clause 12 do not afford scope
for a liberal construction being made regarding the
powers of the Deputy Commissioner to adjudicate
upon a disputed question of breach as well as to
assess the damages arising from the breach. The
9
crucial words in clause 12 are “and for any breach of
conditions set forth hereinbefore, the first party shall
be liable to pay damages to the second party as may
be assessed by the second party”. On a plain reading
of the words it is clear that the right of the second
party to assess damages would arise only if the
breach of conditions is admitted or if no issue is
made of it. If is was the intention of the parties that
the officer acting on behalf of the State was also
entitled to adjudicate upon a dispute regarding the
breach of conditions the wording of clause 12 would
have been entirely different. It cannot also be argued
that a right to adjudicate upon an issue relating to a
breach of conditions of the contract would flow from
or is inhered in the right conferred to assess the
damages arising from a breach of conditions. The
power to assess damages, as pointed out by the Full
Bench, is a subsidiary and consequential power and
not the primary power. Even assuming for
argument's sake that the terms of clause 12 afford
scope for being construed as empowering the officer
of the State to decide upon the question of breach as
well as assess the quantum of damages, we do not
think that adjudication by the officer regarding the
breach of the contract can be sustained under law
because a party to the agreement cannot be an
arbiter in his own cause. Interests of justice and
equity require that where a party to a contract
disputes the committing of any breach of conditions
the adjudication should be by an independent
person or body and not by the other party to the
contract. The position will, however, be different
where there is no dispute or there is consensus
between the contracting parties regarding the breach
of conditions. In such a case the officer of the State,
even though a party to the contract will be well
within his rights in assessing the damages
occasioned by the breach in view of the specific
terms of clause 12.”
(emphasis supplied)
13. Taking assistance of the judgment of this Court, the full
Bench of the Madhya Pradesh High Court also in the case
reported in B.B. Verma and another (supra) observed that the
10
Government or its officers were not justified to initiate recovery
proceedings which is disputed by the contractor as payable
under the contract by the State Government pending decision of
the Arbitral Tribunal constituted under the Adhiniyam, 1983. It
goes without saying that when the contractor disputes the
damages claimed by the Authority or any Officer in its behalf,
such an amount cannot be said to be due under the contract and
cannot be recovered as arrear of land revenue until adjudicated
in the pending reference before the Arbitral Tribunal.
14. In
Virendra Sharma Vs. State of Madhya Pradesh and
th
Ors. (Civil Appeal No. 5169 of 2016 decided on 13 May, 2016),
in the similar circumstances, this Court has considered the
terms and conditions of the contract of which a reference has
been made where the contract was terminated on the ground that
the contractor could not complete the work within the stipulated
period and the department suffered huge losses. When the
demand was raised by the department that was challenged by the
contractor invoking arbitration and pending adjudication, the
recovery which was invoked by the respondents was not
11
considered to be legally sustainable in law. The extract of the
order is as under:
O R D E R
“Leave granted.
Admitted facts are that the appellant was
awarded a contract by the respondents. The
contract was terminated on the ground that the
appellant could not complete the work within the
stipulated period. The Superintendent Engineer
also arrived at a conclusion that because of the
alleged breach of contract by the appellant,
Department had suffered loss and the amount of
such loss be returned. The appellant did not agree
with the same and as per the procedure prescribed
in the contract, invoked arbitration.
Admittedly, the matter is before the
Arbitrator and no adjudication has taken place. It
has yet to determine as to whether the decision of
the Superintendent Engineer that the Department
has suffered the loss, is correct or not.
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.”
15. We are also of the considered view that once the dispute is
pending adjudication before the Arbitral Tribunal constituted
12
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.
16. The submission of the learned counsel for the respondents
that the liquidated damages were determined by the General
st
Manager of the 1 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.
17. 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
13
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.
18. Consequently, the appeals succeed and are accordingly
th
allowed. The judgments of the High Court impugned dated 26
th
February, 2018 & 7 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.
…………………………J.
(N.V. RAMANA)
…………………………J.
(INDIRA BANERJEE)
..……………………….J.
(AJAY RASTOGI)
NEW DELHI
th
30 August, 2019
14
15