Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON: MARCH 05, 2012
% PRONOUNCED ON: MARCH 21, 2012
+ RFA(OS) 69/2007
ATUL LIMITED ..... Appellant
Represented by : Mr.M.K.Pathak, Adv. for
Mr.Anil Seth, Advocate.
versus
NATIONAL RESEARCH AND DEVELOPMENT
CORPORATION OF INDIA ..... Respondent
Represented by : Mr.B.B.Sawhney, Sr.Adv.
instructed by Mr.Sunil
Kumar, Advocate.
CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE PRATIBHA RANI
PRATIBHA RANI, J.
1. The appellant is aggrieved by judgment and decree
dated 03.07.2007 in CS(OS) No.2080/1993 passed by learned
Single judge whereby the suit filed by National Research and
Development Corporation of India, respondent herein,
seeking damages to the tune of ` 52.25 lacs was decreed with
costs and future interest @ 6% p.a. from the date of filing of
the suit till its realisation.
2. The facts leading to this long drawn litigation are that
United Nations Industrial Development Organisation
(hereinafter referred to as UNIDO), as part of its development
plan, in agreement with United Nations Development
Programme (hereinafter referred to as UNDP) and
Government of Vietnam, wanted to set up plants for
production of dyes and pigments. On 16.05.1989 UNIDO
invited proposal No.89/30 – Project No.DP/VIE/85/001 – ‘Pilot
RFA(OS). Nos.69/2007 Page 1 of 20
Production of Dyes and Pigments – Part-II’. UNIDO sent a
communication to this effect to National Research and
Development Corporation of India (hereinafter referred to as
NRDC) inviting to submit written proposal/tender for setting
up of two pilot plants on turnkey basis in Ho Chi Minh City,
Vietnam. The invitation had provision for sub-contracting by
NRDC.
3. The appellant Atul Products Ltd. (hereinafter referred to
as ATUL) expressed its interest in the project and sought
clarification about the nature and scope of the work. After
discussion, ATUL was asked to expedite the issuance of
budgetary offer regarding the project for onward
transmission to UNIDO by 04.08.1989. ATUL vide its
communication dated 29.07.1989, while sending the
budgetary proposal expressed its capability to handle the
project, claiming as under :-
„.......................
Atul Products Limited (ATUL) and its associate companies from
one of the largest chemical complexes of India producing 300
million (U.S.$) worth of wide range of chemicals. ATUL has
been in business of dyes, dye intermediates and industrial
chemicals since 1949. Over the years ATUL has diversified
into agrochemicals such as 2,4-D acid and its salts, Diuron,
Isoproturon etc. and bulk drugs.
We have history of cordial collaborations with major
multinationals like American, Cyanamid Company of U.S.A.,
Ciba-Geigy Limited of Switzerland and Imperial Chemical
Industries PLC of U.K. We also have well knit marketing
organisation all over the country. ATUL belongs to the Lalbhai
Group, a leading business house in India.
...............‟
4. Relying on the budgetary proposal and the
representation made by appellant, NRDC sent the proposal to
UNIDO quoting the contract price $ 3,22,340 for the natural
dyes pilot plant and $ 3,49,170 for synthetic dyes pilot plant,
specifying a period of 15 months for completion and
RFA(OS). Nos.69/2007 Page 2 of 20
introducing ATUL as its associate. UNIDO awarded the
contract to NRDC vide its communication dated 03.10.1989
subject to acceptance by NRDC. The acceptance was sent by
NRDC without any delay on 05.10.1989. Dr. M.K.Jain, General
Manager (Planning and Project) of the appellant,
representative of UNIDO and respondent – NRDC also
participated in the meeting that took place at site in Vietnam
th st
on 20 and 21 November, 1989 wherein various issues were
discussed in detail including requirement of conversion of dry
powder to paste and also the requirement of chilled water
plant. The minutes of the meeting formed part of the
contract as well sub-contract.
5. NRDC pleaded that the contract with ATUL, to execute
the projects awarded by UNIDO, concluded when ATUL sent
to it the agreement of 3.11.1989, on stamp papers signed by
Mr.S.S.Lalbhai, its Managing Director. The formal contract
between UNIDO and NRDC was finally signed by UNIDO on
15.02.1990 and by NRDC on 12.03.1990.
6. It is further the case of NRDC that after receiving the
communication dated 12.01.1990 regarding change of
Project Incharge, a drastic change in the stand of ATUL was
noticed by NRDC. On 03.02.1990 a telex message was sent
conveying that the contract in its existing form was not
acceptable to them and wanted incorporation of certain
additional clauses and asked NRDC to keep the contract
papers in abeyance. The meetings followed on 07.02.1990
and 09.02.1990 between the representatives of the parties
but due to nature of changes sought to be included, matter
could not be resolved. ATUL sent another letter dated
09.03.1990 specifying other additional clauses which became
RFA(OS). Nos.69/2007 Page 3 of 20
progressively more drastic.
7. The communication exchanged between ATUL and
NRDC and minutes recorded of various rounds of meetings,
to resolve the issues, reveal that stand taken by ATUL was
that scope of the contract has been enlarged due to change
in the end project desired from paste to Powder which
required changes in specifications/designs resulting in delay
and cost escalation. As per NRDC, this was contrary to the
representation made earlier by ATUL specifying that the
manufacturing process would produce dry powder and that
powder could be converted to paste by a step forward. ATUL
wanted to pull out and in the meeting held at ATUL’s place
rd
on 2nd and 3 August, 1990 it was suggested that NRDC
should obtain only knowhow and basic engineering from it
and thereafter entrust work of procurement/erection and
commission of plant to some other party.
8. NRDC, during meeting with Managing Director of ATUL
nd rd
on 2 & 3 August, 1990 pointed out that the quotations
submitted to UNIDO was on the basis of quotations of ATUL,
against stiff global competition and therefore, NRDC had to
complete the project as it involved not only the name of
NRDC but India as a whole. Though the Managing Director of
ATUL agreed to stand by its commitments and contractual
obligations, the draft of revised sub-contract sent by ATUL on
12.09.1990 indicated otherwise, which was not acceptable to
NRDC. The tussle ultimately resulted in putting ATUL to
notice vide letter dated 19.09.1990 that in case of its failure
to fulfill its contractual obligations, NRDC would have no
alternative but to get the project executed at their risk and
cost. As anticipated, vide communication dated 01.10.1990,
RFA(OS). Nos.69/2007 Page 4 of 20
ATUL desired to repudiate the sub-contract signed by it if the
revised draft of sub-contract was not acceptable to NRDC.
Finding no option, NRDC served the legal notice dated
25.10.1990 claiming damages for breach of the contract but
liability was denied by ATUL vide its reply dated 06.11.990.
9. Completion of project being the question of national
prestige, alternative arrangements were made by NRDC for
implementing the agreement with UNIDO by utilizing the
services of other associates/consultants, namely the Regional
Research Laboratory (Jammu) and of the Council for Scientific
& Industrial Research in relation to the synthetic dyes and
pigments plant. After negotiating the sub-contract in March,
1991, the project commenced and completed on 09.05.1992
in respect of natural dyes plant and on 14.05.1993 in respect
of synthetic dyes. But for completing the project the
respondent had to pay heavy price and incurred additional
cost of ` 52,25,000/-.
10. After this face saving exercise, it was time to make
ATUL feel the heat for the reason that the project could be
commissioned after spending a huge sum of
`1,33,37,008.50p against the anticipated cost of ` 77 lacs. To
claim this additional cost which the respondent had to incur
just because of the breach committed by the appellant,
CS(OS) No. 2080/1993 was filed.
11. In the written statement, the plea taken by ATUL in
respect of contract of 03.11.1989 is not that of total denial.
Though admitting its execution by Managing Director, its
conclusiveness has been challenged on the ground that it
was not signed by NRDC. Another plea taken is that even if it
is treated to be a ‘concluded contract’ between ATUL and
RFA(OS). Nos.69/2007 Page 5 of 20
NRDC, the back to back contract could not have been
executed till execution of contract between UNIDO and NRDC
which was signed by UNDIO in February, 1990 and by NRDC
in March, 1990. In the absence of any valid contract
between NRDC and ATUL, neither a breach could have been
committed nor damages could have been awarded.
12. The issues that arose for determination before learned
Single Judge are :-
„1. Whether this Court does not have jurisdiction to try
and decide the suit?
2. Whether the plaint is signed and verified by a duly
authorized person?
3. Whether the contract signed on behalf of the
defendant by its Managing Director and handed over to the
plaintiff is not binding on and enforceable against the
defendant?
4. Whether after signing of the contract referred to in
issue No.3, the plaintiff materially varied and enlarged the
scope of work as alleged in paras 8 and 9 of the written
statement? If so, what is the effect?
5. Whether the defendant committed breach of its
contractual obligations and/or breach of duty of care towards
the plaintiff in preparing and submitting budgetary offers?
6. If the finding on issue No.5 is in the affirmative,
whether the plaintiff is entitled to recover damages from the
defendant for such breach? If so, the quantum thereof?
7. Relief.‟
13. Learned Single Judge holding the Court at Delhi is
vested with the territorial jurisdiction to decide the suit and
that the suit has been instituted by duly authorized person,
concluded that the contract signed on behalf of ATUL by its
Managing Director and handed over to NRDC is binding and
enforceable against ATUL. While returning finding on issue
No.4 that the scope of work was not enlarged as claimed by
ATUL and that ATUL had committed breach of its contractual
obligation, the suit bearing CS(OS) No.2080/1993 filed by
NRDC was decreed for a sum of ` 52.25 lacs with costs and
RFA(OS). Nos.69/2007 Page 6 of 20
future interest @ 6% p.a. from the date of filing of the suit till
its realisation.
14. The impugned judgment and decree has been
challenged by ATUL mainly on the ground that there was no
concluded contract between the parties. The back to back
contract could have been entered into only after execution of
contract between UNIDO and NRDC which was executed on
12.03.1990. The contract dated 03.11.1989 signed by
Managing Director of ATUL was only a ‘draft agreement’
which is clear from the fact that it has not been signed by
both the parties. Subsequently, there was another modified
agreement signed by NRDC only and not by the appellant. So
the agreements remained ‘draft agreements’ only and
contract remained inconclusive. The learned Single Judge
could not have awarded the damages on the strength of
inconclusive sub-contract especially when the agreement by
the principal i.e. NRDC with UNIDO was executed on
12.03.1990.
15. As reflected by us in the proceedings dated 05.03.2012,
during hearing, we did not get assistance from learned
counsel for the parties, thus opportunity was given to file
written submissions.
16. Written submissions have been filed on behalf of the
parties. The appellant filed written submissions on issues
No.3 to 6. It has been urged that learned Single Judge failed
to note that no agreement was executed despite various
meetings as parties could not agree to the conditions of the
contract. The agreement was signed by the appellant alone
and not by the respondent as it was not acceptable to it.
During the meetings held on 20.11.1989 and 21.11.1989 in
RFA(OS). Nos.69/2007 Page 7 of 20
Vietnam, the draft list of specifications alongwith tender
specifications including basic equipment drawings of the
equipment list for synthetic dyes and pigments was handed
over to Dr.Atal of UNIDO for his study and comments and
EEDP stated it was interested in ‘powder’ and not ‘paste’.
17. The grievance of the appellant is that learned Single
Judge failed to consider that during the various meetings
held from time to time, the consensus could not be arrived at
and the agreement did not finalize. The undated draft
agreement signed by the respondent and forwarded to the
appellant reveal that conditions therein are different from the
conditions of the agreement signed by the appellant. It has
been urged that the learned Single Judge failed to take into
consideration the documents dated 07.11.1989, 20.11.1989,
21.11.1989, 03.05.1990, 03.02.1990, 07.02.1990,
09.03.1990, 12.04.1990, 26.04.1990, 27.04.1990,
08.05.1990, 22.05.1990, 30.05.1990, 31.05.1990,
07.07.1990, 17.07.1990, 27.07.1990, 02.08.1990,
03.08.1990, 12.09.1990, 19.09.1990. These documents
make it clear that parties were not ad-idem on the conditions
and different draft agreements were prepared but not agreed
by both the parties and no agreement was signed and
executed by both the parties. Their conduct made it clear
that they wanted to proceed only after execution of the
agreement and no advance payment was released by the
respondent to the appellant. Learned counsel for the
appellant has relied upon AIR 1999 SC 504 Rickmers
Verwaltung Gimb H. Vs. Indian Oil Corporation Ltd. , AIR 1991
Allahabad 343 Satya Prakash Goel Vs. Ram Krishan Mission ,
AIR 1996 SC 1373 U.P.Rajkiya Nirman Nigam Ltd. Vs. Indure
RFA(OS). Nos.69/2007 Page 8 of 20
Pvt. Ltd. , AIR 2006 SC 871 Dresser Rand S.A. Vs. M/s Bindal
Agro Chem Ltd. & Anr. , (1975) 1 SCC 199 The Godhra
Electricity Co. Ltd. Vs. The State of Gujarat and Anr. and AIR
1962 SC 366 Murlidhar Chiranjilal Vs. Harish Chandra
Dwarkadar , in support of his submissions.
18. The entire controversy revolves around the agreement
executed by Sh.S.S.Lalbhai, Managing Director of ATUL and
delivered at the office of NRDC. As the appellant is claiming
it to be a ‘draft agreement’, of 03.11.1989 which did not
constitute a ‘concluded contract’ between the parties, we
also propose to note only such evidence that would be
relevant for discussion on the points raised in the appeal.
19. The respondent while giving sequence of events,
supported the impugned judgment contending that
respondent was constrained to carry out its contractual
obligations towards UNIDO by making expeditious and
alternative arrangement and utilized the services of other
associates/consultants, namely the Regional Research
Laboratory (Jammu) and of the Council for Scientific &
Industrial Research in relation to the synthetic dyes and
pigments plant. After negotiating the sub-contract in March,
1991, the project commenced and completed on 09.05.1992
in respect of natural dyes plant and on 14.05.1993 in respect
of synthetic dyes. Due to breach of contract by the appellant,
for completing the project the respondent incurred additional
cost of ` 52,25,000/- which has rightly been awarded by
learned Single Judge.
20. From the rival pleadings of the parties, it could be
gathered that the main disputes are :
RFA(OS). Nos.69/2007 Page 9 of 20
(i) Whether the agreement signed by Sh.S.S.Lalbhai,
Managing Director of ATUL and delivered in the office of
NRDC at Delhi was a draft/model agreement or a concluded
contract;
(ii) Whether the back to back contract between NRDC and
ATUL could be entered into before execution of formal
agreement between UNIDO and NRDC;
(iii) Whether the scope of contract was enlarged by UNIDO
and NRDC to such an extent that without revision of the
contract, it could not have been executed; and
(iv) Whether the appellant has committed breach of contract
thus making it liable to pay damages under the default
clause No.4.07 of the agreement signed by Mr.S.S.Lalbhai,
Managing Director of ATUL.
21. The contract signed by Sh.S.S.Lalbhai, Managing
Director of ATUL is on a stamp paper purchased on
21.09.1989 running into 23 pages. The heading of the
contract is given as :-
„CONTRACT
between
NATIONAL RESEARCH DEVELOPMENT CORPORATION
and
M/S ATUL PRODUCTS LIMITED
for the
provisions of services relating to the
establishment of pilot plants for the production
of selected synthetic dyestuff and pigments
and selected natural dyes and pigments
in
VIETNAM‟
This contract contains all the details of the project and in this
contract, ATUL has referred itself as Sub-Contractor. It
further incorporates that NRDC had informed UNIDO about
the sub-contractor engaged as associate for implementing
the project in Vietnam.
RFA(OS). Nos.69/2007 Page 10 of 20
22. On page 2 of the contract, the opening lines are:-
„WHEREAS the SUB CONTRACTOR has expressed his readiness
and willingness to provide the services and perform all work as
detailed hereinafter.‟
23. Clause No.4.01 is material for our purpose and the
same is extracted hereunder :-
‘4.01 Entry into Effect of the Contract
This Sub Contract shall be deemed to be effective from
rd
3 November 1989 which was the date of the
Contractor’s confirming acceptance of the Corporation’s
award.’
24. It is admitted case of the parties that this contract duly
signed by Managing Director of ATUL, was left at the office of
NRDC by ATUL in November, 1989 before leaving India to
attend the meeting in Vietnam.
25. The disputed point, whether the agreement signed by
Mr.S.S.Lalbhai, Managing Director of ATUL and handed over
to the respondent was a draft agreement, has been dealt
with by learned Single Judge discussing issue No.3 in para 22
to 36 of the impugned judgment. While referring to the
communication dated 06.07.1989 and 29.07.1989 alongwith
budgetary proposal by the appellant as well as award of the
contract by UNIDO to NRDC, acceptance of the award of
contract by NRDC, learned Single Judge held that contract
stood completed between NRDC and UNIDO. Learned Single
Judge, after perusal of the letter, observed that parties were
ad-idem as far as execution of contract was concerned. Even
appellant’s representative attended the meeting in Hanoi,
th st
Vietnam on 20 and 21 November, 1989 and minutes were
duly signed by Project Incharge Dr.M.K.Jain who also raised
the point that chilled water plant was not within the scope of
the contract. It was only after the appellant sent duly
RFA(OS). Nos.69/2007 Page 11 of 20
executed contract that representative arranged for the air
fare, stay of the representative of the appellant and bore the
expenses incurred during their visit to Vietnam. The
reasoning given by learned Single Judge is that not only the
correspondence between the parties which spells out the
intent of the parties, it is also the action of the parties as a
consequence to this correspondence which makes it
abundantly clear that the parties were ad-idem on the
question that a contract was concluded between the parties
and the project of establishing pilot plants for manufacturing
of dyes and pigments was on.
26. Legal position in this regard is well settled. We find it
apposite to refer Kollipara Srivamulu Vs. T.Aswathanarayana
(Supra), wherein it was held:-
A mere reference in a future formal contract in an oral
agreement will not prevent a binding bargain between the
parties. The fact that the parties refer to the preparation of an
agreement by which the terms agreed upon are to be put in a
more formal shape does not prevent the existence of a binding
contract. There are, however, cases where the reference to a
future contract is made in such terms as to show that the
parties did not intend to be bound until a formal contract is
signed.; The question depends upon the intention of the
parties and the special circumstances of each particular case.
The fact of a subsequent agreement being prepared may be
evidence that the previous negotiation did not amount to a
concluded agreement, but the mere fact that persons wish to
have a formal agreement drawn up does not establish the
proposition that they cannot be bound by a previous
agreement. (1857) 6 HLC 238 and (1912) 1 Ch 284 and (1878)
3 AC 1124 and AIR 1933 PC 29 Bel on.
27. Preparation of formal contract was a ritual to be
performed in due course but the contract between NRDC and
UNIDO concluded on 05.10.1989 when NRDC conveyed its
acceptance for this award of contract.
RFA(OS). Nos.69/2007 Page 12 of 20
28. The communication exchanged between the parties
through letters, telex, meetings, nowhere indicate even
remotely that the appellant had ever given the impression
explicitly or impliedly that a binding contract would be only
on execution of formal written contract between NRDC and
UNIDO. In view of the legal position discussed above, the
agreement signed by the Managing Director of the appellant
company could neither be termed as ‘draft agreement’ nor
as ‘model contract’.
29. The existence of conclusive contract between ATUL
and NRDC was never in dispute. The minutes of meeting
nd rd
held at ATUL’s place on 2 and 3 August, 1990 admit
this fact as is clear from the portion extracted
hereunder:-
“RECORD NOTE OF DISCUSSIONS HELD AT ATUL FROM
AUGUST 2 – 3, 1990
Present:
1. Dr.A.Venkateshwarlu, GM, Atul.
2. Shri A.R.Ranadive, Atul.
3. Shri J.D.Shah, Atul.
4. Shri Rajeshwar Dayal, C.E., NRDC.
1. At the outset, Atul Team informed that they do not
have people to spare for going to Vietnam for the erection
work and neither they are geared up to take this kind of work.
They desired to know whether NRDC and Atul can come
out of the Contract? If not, then matter could be
discussed to find a way out to carry on the job.
2. NRDC informed that the Contract has been obtained
on the basis of the quotation of Atul and the basic
contract duly signed by MD, Atul conveying various
financial and technical aspects and with the help of various
Government machinery………………
……………
………
It was pointed out to him that the quotations submitted by
NRDC was on the basis of the quotations received from APL
RFA(OS). Nos.69/2007 Page 13 of 20
and against a stiff global competition, the orders were
procured by NRDC using various channels and, therefore,
NRDC has to complete the project as it involves not only the
name of NRDC but India as a whole.”
30. The above discussion in the meeting lead to only one
conclusion that meeting presupposed that there existed a
contract between the parties.
31. Now we deal with the contention that back to back
contract with Sub-Contractor could not have been executed
till execution of formal contract between NRDC and UNIDO
which was completed on 12.03.1990. The argument has no
legs to stand as the budgetary proposal sent by appellant to
UNIDO through NRDC was accepted by UNIDO. The
communication in this regard was made to NRDC on
03.10.1989 which is extracted as under :-
„...........
Pleased to advise that NRDC of INDIA has been approved by
UNIDO for award of contract for reference project Part-1 and 2
at a total cost of United States Dollars five hundred and
seventy-six thousand five hundred and ten (US$ 576,510)
based on UNIDO Terms of Reference dated 15 March, 1989 and
terms of your proposal dated 8 August 1989:
.........................
........................
Subject to your acceptance of this award and pending
preparation of formal contract, this telex constitutes
your full authority to being implementation of a project
up to Unites States Dollars five hundred and seventy-six
thousand and five hundred and ten (US$ 576,150) . You
may submit your first invoice on acceptance. Please refer to
contract No.89/139/GYL in all future correspondence.‟
32. Its acceptance by NRDC vide communication dated
05.10.1989 cleared confusion, if any, in the mind of sub-
contractor about conclusiveness of the negotiation. The
contract concluded when acceptance was communicated
and dispatched to UNIDO by NRDC on 05.10.1989. The
relevant portion of this communication reads as under :-
RFA(OS). Nos.69/2007 Page 14 of 20
„...........
Thank you for award of contract for setting up pilot plant for
production of dyes and pigments in Vietnam at a total cost of
th
US$ 576,510 in response to our proposal dated 8 August,
1989. We are glad to accept this award of contract for
the above pilot plants. We are initiating action on the
implementation of the project. Our first invoice for the
initial payment of US$ 120,000 would be sent to you shortly. In
case you have any specific invoice format, kindly fax the same
to us. Please also let us know when the formal contract would
be ready for signing.
Assuring you of our best attention at all times.
With my warmest regards.‟
33. We now deal with the reasoning of learned Single Judge
that scope of contract was not enlarged. Rather NRDC
agreed to bear the cost of chilled water plant during the
meeting held on 20.11.1989 and 21.11.1989 in Vietnam.
34. While returning finding on issue No.4, in paras 37 to 44
of the impugned judgment, the learned Single Judge rightly
dealt with all the aspects projected as enlargement of scope
of contract. After referring that EEDP wanted only in powder
form and only when it was to be converted in paste form,
that required extra step to be taken. For chilled water plant
NRDC agreed to bear the burden. The capacity of plants to be
set up, remained the same. The five ton capacity was with
respect to chilled water plant, cost of which NRDC agreed to
bear. We concur with the reasoning and finding delivered on
this aspect by learned Single Judge.
35. We have enough material to sustain the finding of
learned Single Judge that ATUL had breached the contract
and under the default clause no.4.07, liable to pay the
damages suffered by NRDC for getting contractual obligation
performed through other agencies paying huge amount of
` 1,33,37,008.50p.
RFA(OS). Nos.69/2007 Page 15 of 20
36. While NRDC was taking all steps to release the payment
to the appellant on bank guarantee, the project incharge was
busy in sending the communication indicative of repudiating
the contract. The contents of communication dated
03.02.1990 and 05.02.1990 sent by telex are similar.
“The subject contract in its present form is not
acceptable to atul as we notice some serious
shortcomings (.) There exists a need for incorporation of
certain clauses to make it expedient with the scope of project
work envisaged (.) Therefore, please keep the contract
papers in abeyance until revisions are incorporated (.)
It is best that we meet and discuss the issues first hand any
date during feb. 5 – 10, 1990 (.) Dr. Bibhas ray of our delhi
office will get in touch with you to fix timings for such a
meeting (.) Regards.”
37. To trace the breaches, we have already extracted the
nd rd
minutes of meeting held at ATUL’s place on 2 and 3
August, 1990. In the meeting, ATUL desired to know how to
come out of the contract.
38. While NRDC was communicating with UNIDO in respect
of funds for hot oil unit to be provided by UNDP, the situation
at home front was getting from bad to worse, true colours
were shown byATUL . Mr.N.K.Sharma, Managing director of
NRDC wrote to the Managing Director of ATUL and we find it
relevant to extract the contents of that letter to reflect upon
the issue :-
“ Dear Shri Lalbhai,
It was a pleasure to have met you during my visit to your
th th
plant on 7 and 8 September, 1990.
I explained to you, our deep concern at the delay in signing
of the sub-contract agreement between Atul and NRDC. I hope
that I have clarified all the points raised by you and your
colleagues to your full satisfaction. I am sure that you
appreciate our point of view that it is not possible to agree to
any major revisions in the sub-contract agreement. However,
RFA(OS). Nos.69/2007 Page 16 of 20
we would definitely consider some of the minor points which
you had raised. I shall be grateful if you could fax the revised
th
agreement as was indicated by you, by 11 September, 1990”.
39. The response of ATUL was in the form of communication
dated 12.09.1990 Ex.PW3/B sending the revised contract.
The reaction on the revised contract sent by ATUL can be
gathered from another letter dated 19.09.1900 by
Mr.N.K.Sharma, Managing Director of NRDC to Sh.S.S.Lalbhai,
Managing Director of ATUL. Paras 1 and 2 of first page and
contents on page 3 of the letter make the situation clear.
The relevant portion of the letter is as under :-
„Dear Shri Lalbhai,
Sub : Pilot Plants for Natural & Synthetic dyes at Vietnam
under UNIDO Project.
I was utterly dismayed on going through the revised draft
contract in respect of the above project sent by your
th
Dr.Venkateshwarlu, General Manager on 12 September 1990.
This does not reflect the discussions that we had during my
visit to Atul on September, 7 & 8, 1990.
We would once again like to reiterate that it is highly improper
for Atul to go back on the commitments made earlier to the
th
Corporation vide your offer dated 29 July 1989, on the basis
of which NRDC had quoted to UNIDO and later signed the
contract.
.......................
..........................
May I also draw your attention to Clause 4.07, “Default by the
Sub-Contractor” in the sub-contract agreement, signed by you,
which clearly specifies that the “sub-contractor shall be solely
responsible for any reasonable costs of completion, including
such costs which are incurred by the Corporation over and
above the originally agreed Contract price stipulated
hereinbefore.” We therefore, propose to proceed with the
project on our own, with or without other suitable sub-
contractors at your risk and cost without any further reference
to you. This letter may be treated as a notice of default under
Clause 4.07 of the sub-contract.
While we are initiating legal action against your company both
for damages and for failure to perform as per commitment
made, I would implore you once again to reconsider the matter
th
and to respond positively by 30 September, 1990, failing
RFA(OS). Nos.69/2007 Page 17 of 20
which we will presume that M/s. Atul does not wish to abide by
the commitments made regarding this sub-contract.
This letter is issued without prejudice to our rights and claims
in law.
With my kind regards.‟
nd
40. The minutes of the meeting held at ATUL’s place on 2
rd
and 3 August, 1990 are admitted documents. The relevant
portion of the discussion of Mr.Rajeshwar Dayal, Chief
Engineer with Mr.S.S.Lalbhai is extracted as under :-
“The undersigned again met Shri Sunil Lalbhai after the
rd
discussions were over on 3 August, 1990, when he was
informed that since Atul desires drastic changes in the basic
points on which our quotation to UNIDO was based. NRDC is
not able to accept either the suggestion that it should find out
a Sub-Contractor for procurement of the equipment and
erection at Vietnam nor the escalation in the equipment cost
or giving total export benefits to Atul, as all these points were
the basis of the initial agreement between Atul and NRDC,
which was signed by Shri Sunil Lalbhai.
After a brief discussion, Shri Sunil Lalbhai said that he would
try to contact Dr.M.K.Jain, who is no longer in their service, but
may like to work for Atul to complete this project and he would
th
talk to NRDC by 7 August, 1990 after discussing with
Dr.M.K.Jain. He also said that Atul would go ahead with this
project irrespective of whether there is loss or profit.‟
41. The response of the appellant was in the form of
communication dated 01.10.1990 repudiating the contract.
When Atul backed out of the contract despite being put to
notice and attention being drawn to default liability, the
respondent had no option but to get the project completed
through other agencies which NRDC could ultimately achieve.
The alternative arrangement had to be made by NRDC on
war footing under tremendous pressure from UNIDO and
UNDP as can be inferred from the communication Ex.PW2/31
RFA(OS). Nos.69/2007 Page 18 of 20
to 35 between UNIDO and NRDC. The learned Single judge
has rightly awarded the damages to the tune of `52.25 lacs
which was the amount actually spent over and above ` 77
lacs quoted by ATUL. There is no illegality or infirmity in the
impugned judgment. Resultantly, the appeal fails.
42. Before bringing down the curtain on issues, we need to
note that change of Project Incharge at the crucial stage by
ATUL was one of the major factor for non-performance of the
contract. It not only spelled financial doom but also loss of
face and credibility at national and international level.
43. We are at pain to note that during the meeting dated
nd rd
2 and 3 August, 1990 at ATUL’s place, Sh.S.S.Lalbhai,
Managing Director of ATUL assured to contact Dr.M.K.Jain,
the earlier Project Incharge who had left the company by that
time, to revive the ties and get the project completed but
failed to honour the commitment. The positive attitude of
Dr.M.K.Jain, earlier Project Incharge, who had already left
ATUL, but expressed willingness to get the project completed
has been referred in the minutes of meeting and extracted
here :-
„The undersigned ( Mr.Rajeshwar Dayal ) met Dr.M.K.Jain at
Bombay and discussed the matter in details with him. Dr.Jain
said that he views the Vietnam project as his personal
commitment and is prepared to complete the job as a
Consultant to NRDC and he shall be able to get all the works
done and hand over the plant to Vietnamese authorities.‟
44. The proposal by UNIDO from NRDC was invited vide
communication dated 16.05.1989. There is communication
dated 06.07.1989 by ATUL, a company based in Gujarat,
referring their undated discussion and the proposal. It is not
the case of NRDC that any notice inviting tender was
published or made public through any mode. Who was the
RFA(OS). Nos.69/2007 Page 19 of 20
link behind this undated discussion prior to sending proposal
dated 06 July, 1989 from ATUL, remains unidentified.
45. It appears that ATUL, after having the contract from
UNIDO served in a platter through its link, resorted to arm
twisting to maximize the profit as there was no competitor in
sight. This can be gathered from the various letters
exchanged between the parties. Till Dr.M.K.Jain remained
the Project Incharge, representative of ATUL were making
rounds of NRDC to discuss the issues. But when
Dr.A.Venkateshwarlu, General Manager (R&D) was made the
Project Incharge, he started throwing bouncers to NRDC
through communications to either revise the contract on
their dictate or call it off. The situation became so ugly that
the Managing Director and Chief Engineer of NRDC had to
pay ‘Courtesy Visit’ and hold meetings at ATUL’s place to
somehow make them agreeable to perform. Record reveals
that there was no ‘Due Diligence’ exercise by NRDC to assess
the capability and track record of ATUL prior to handing over
the project of such magnitude and national importance. The
tall claims made by ATUL were taken on their face value
resulting in such disastrous situation that cost of the project
became secondary and saving face at international forum
became primary.
46. Noting as above, the appeal is hereby dismissed with
cost.
PRATIBHA RANI, J.
PRADEEP NANDRAJOG, J.
March 21, 2012
‘ st‟
RFA(OS). Nos.69/2007 Page 20 of 20