A.Ramalingeswara Reddy vs The Vice Chairman And Managing ...
2022 Latest Caselaw 1965 AP

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     HON'BLE SRI JUSTICE D.V.S.S.SOMAYAJULU

             WRIT PETITION No.16394 of 2014

ORDER:

This Court has heard Sri P. Veera Reddy, learned

senior counsel appearing for the petitioner, learned

Government Pleader for Civil Supplies and Sri P. Hema

Chandra, learned standing counsel representing the

respondents 1 to 3-Civil Supplies Corporation.

The petitioners before this court are the legal heirs of

the deceased contractor for the respondent-civil supplies

corporation.

Sri P. Veera Reddy, learned senior counsel for the

petitioners submits that the petitioner was awarded a work of

transportation of food grains for the years 2008-09 and a

contract dated 29.03.2008 was entered into. The learned

senior counsel submits that the petitioner fulfilled all the

statutory contractual conditions by depositing the security

deposit, EMD, bank guarantee etc., and an agreement dated

08.04.2008 was entered into.

On 17.10.2008, 300 bags of food grains, weighing

approximately 14.805 Metric Tons were given for

transportation to the petitioner, engaged a lorry bearing

No.AP 02 T 0546 to transport the same. According to the

learned senior counsel the driver of the lorry diverted the

stocks. Realizing that the lorry did not reach the destination

the petitioner approached the 3rd respondent and also the

police and lodged a complaint. It transpires that the driver

attempted to divert the said stocks, FIR No.85 of 2008 was

registered. In view of the diversion of stocks, the petitioner's

contract was also suspended. Later, the learned senior

counsel points out that the lorry was traced, the driver was

arrested and the law took it's own course. Further, learned

senior counsel points out that the petitioner was not made an

accused in the case. The charge sheet was also filed before

the Judicial First Class Magistrate Court. The 14.795 MTs of

rice, which was tracked and recovered, were handed over to

the respondents. Learned senior counsel also points out that

basing on the orders of the Hon'ble Sessions Judge,

Ananthapur in Criminal Revision Petition No. 28 of 2009 the

seized stock was directed to be handed over to the District

Manager, Civil Supplies, Anantapur for disposal. Accordingly,

the Joint Collector, who is the 2nd respondent herein

permitted the sale of the seized stocks also. It is submitted

that the seized stocks were also directed to be handed over to

various Fair Price Shops pursuant to the proceedings of the

Tahsildar on 31.01.2010. Learned senior counsel, therefore,

submits that the entire stock of diverted rice was brought

back into the system and distributed through the Fair Price

Shops. He, therefore, submits that the respondents did not

sustain any loss whatsoever. Learned senior counsel also

points out that against the action taken by the respondents

against the Contractor-petitioner W.P.No.3268 of 2009 was

also filed. Learned single Judge after considering the facts

noticed that a penalty of recovery Rs.2,66,499/- towards the

double the economic cost of the goods diverted was levied.

While disposing the W.P.No.3268 of 2009 the Court, however,

held that the amount already recovered was the double the

amount of cost of goods diverted is valid recovery as per the

terms of the contract. The other amounts that were withheld

i.e., bank guarantee, security deposit etc., was held to be

disproportionate. Against the orders of the learned single

Judge a Writ Appeals were also filed by the Contractor and

also by the Civil Supplies Corporation. These were numbered

as W.A.Nos.340 and 638 of 2014. By a common order dated

10.04.2014, these Writ Appeals were disposed of. Learned

senior counsel also points out that the order of the learned

trial Judge setting aside the termination of the contract of the

present petitioner was upheld, but the "double penalty" was

upheld. The Division Bench also held that a fresh show

cause notice should be issued to the petitioner and a de novo

inquiry is to be conducted. Accordingly, a show cause notice

was issued on 28.04.2014 pursuant to the orders of the

Division Bench, wherein the issue of the termination of the

contract, forfeiture of the security deposit, bank guarantee

and pending bills was directed to be reconsidered. To the

show cause notice issued the petitioner gave a detailed reply

raising among other issues the fact that no loss is caused to

the Corporation and that all further actions should be

dropped. The contractor cited certain case law also in the

said reply notice and requested the Corporation to release the

bank guarantee, security deposit and also the pending bills.

Learned senior counsel submits that despite the said detailed

reply, the impugned order dated 07.06.2014 was passed.

Learned senior counsel submits that without considering the

reply or the legal and factual issues raised the impugned

order has been passed. Learned senior counsel submits that

the order is bereft of reasons and does not consider the actual

issues that are raised by the present petitioner. He also

submits that in the absence of any loss being caused,

forfeiture of the security deposit, refusal to return the bank

guarantee and also retaining the pending bills, is not called

for. Therefore, learned senior counsel argues that the

amounts pending should be directed to be returned with

interest along with security deposit, bank guarantee etc.

Learned standing counsel, however, argues that the

forfeiture of these amounts is in accordance with the terms of

the contract and after considering the explanation only. It is

submitted that it is an admitted fact that the stocks were

diverted. The record filed by the petitioner himself clearly

established the same, as per the learned standing counsel.

Relying upon the terms of the work order and Clause 3(iii),

the learned standing counsel argues that the petitioner

contractor is responsible for the transportation of the

material. He argues that as per Clause 8 (iv) and (v) of the

agreement the respondents are absolutely justified in the

action taken. Even if there is a diversion of the truck the

petitioner is responsible and the respondents have the right to

terminate the contract, forfeit the security deposit, bank

guarantee and also the pending bills. Learned standing

counsel submits that as per condition 8(iv) the contract and

his representative is responsible in case of diversion of stocks

under the Essential Commodities Act. Learned standing

counsel points out that the contractor is responsible for the

acts of his agents including the truck owner, driver and

cleaner of the truck, in which the stocks are loaded for the

transportation. Relying upon these clauses of agreement,

learned standing counsel argues that the impugned order is

correct and therefore, there is no cause made out for

interference.

COURT:

After examining the submissions made by the learned

senior counsel and the learned standing counsel for

respondents along with record of this case, this Court is of the

opinion that the essential facts are not really in dispute.

Amongst the documents filed by the petitioners, this

Court notices that the letter issued by the Inspector of Police,

which is at page 58, Ex.P.10 of the material documents. As

per this letter the contractor and the owner of the lorry are

not responsible for the actual commission of the offence and it

is the driver of the lorry, who was held to be responsible for

the actual commission of the offence. The proceedings of the

SDPO, Anantapur, show that a direction was granted to delete

the name of the contractor and the owner of the lorry from the

list of accused. Thereafter the seized stock of 300 rice bags

was directed to be handed over to the Manager of the

respondent-corporation, who received the same. In the

charge sheet it is clear that the contractor is an not accused.

Thereafter, pursuant to the proceedings of the Court,

including the revision petition in Crl.R.P.No.28 of 2009 the

seized stocks were directed to be handed over to the District

Manager, Civil Supplies Corporation. The Joint Collector

passed orders to release the stocks, which was seized.

Accordingly, the seized stocks were handed over to the

District Manager, Anantapur, APSCSCL.

By proceedings dated 31.01.2010 the seized stock of

14.795 MTs was handed over for distribution through the Fair

Price Shops. This is evidenced by an order dated 31.01.2010

and the letter of the respondent corporation dated

15.03.2010. Thus, this Court finds the entire stock of 14.795

MTs was disposed through the six fair price shops and an

amount of Rs.29,590/- was realized. Thus, this Court finds

that there is no pecuniary loss caused to the Corporation.

In W.P.No.3268 of 2009 filed by the petitioner, the

deceased 1st petitioner, this aspect was taken note of by the

learned single Judge. The order of termination of the

contractor, which is challenged in the said writ was set aside

by the learned single Judge. Learned single Judge came to

the conclusion that the impugned order visited severe penal

and civil consequences on the contractor. Ultimately, in

paragraph 28 of the order learned single Judge held that the

amount of penalty which was levied i.e., to double the cost of

the amount diverted can be sustained and the contractor has

no claim over the same. The Writ petition was allowed

directing the respondents to issue a fresh show cause notice

for the other part of the claim. This order was again upheld

in the Writ Appeals filed and a fresh show cause notice is

directed to be issued. Accordingly, the show cause notice

dated 28.04.2014 was issued and a detailed reply was given,

running into a few pages.

The contractor very clearly asserted that the diverted

stocks were re-entrusted for disposal and sales through the

PDS system. It is asserted that the entire stock of 14.295

MTs were again utilized by the respondent-corporation and

therefore, there is no loss to the respondent corporation.

Clause 8 (vi) of agreement was held to be not applicable and

the forfeiture of the deposit, bank guarantee etc., is

questioned. Four judgments were also relied upon by the

petitioner contractor in his reply. These are mentioned in

paragraph 21 of the reply notice.

The order in Writ Appeal directed the respondents to

consider the contentions urged and to pass a speaking order

after receiving the reply.

The next issue for consideration is whether the

impugned order is in line with the law on the subject

including the reply of the respondents.

As stated by the learned senior counsel and in line with

the orders in Writ Appeal, the penalty amount of

Rs.2,66,499/- has been held to be due to the respondent-

corporation by the learned single judge and later by the

Division Bench. Any question about the said amount cannot

be reagitated once again. The larger issue is about the recent

order being passed. Time and again the highest courts of the

land have held when a reasoned order is to be passed along

with reasons the same should be ex facie visible from the

reading of the order itself. If the impugned order is examined

against the background of the settled law on the subject with

regard to reasons it is clear that there is no discussion

whatsoever about the issues raised by the contractor in his

reply to the show cause notice. The reply which is filed, from

paragraph 9 onwards, raises the issue of sale of the diverted

stocks and the utilization of the sale proceeds by the

respondent corporation. The Writ Petition No.3268 of 2009

and the order in the Writ Appeal Nos.340 and 638 of 2014 are

discussed in paragraphs 12 and 13 of the reply. In paragraph

15 it is asserted that the entire diverted stock was brought

back into the system and the sale proceeds were also realized

/ utilized. Therefore, it is asserted that there are no damages

/ loss etc., that are sustained by the Corporation. It is stated

in paragraph 15 that no loss is caused to the corporation and

the petitioner is not liable under Clause 8(vi). In paragraph

19 it is again asserted that an amount of Rs.2,66,499/- was

already taken by the Corporation and again the show cause

notice was issued for forfeiting the bank guarantee, security

deposit and pending bills. The law on the subject and the

need for reasons being furnished after considering the reply

are very clear. Reasons are the hallmark of justice. They

show the application of mind (Victoria Memorial Hall v

Howrah Ganatantrik Nagarik Samity 1). The impugned

order in the opinion of this Court does not discuss the issues

raised by the contractor. For the purpose of forfeiture of the

security deposit and the other claims, Clauses 8(iv) and 8(vi)

are to be seen. Under Clause 8(iv) also the Corporation shall

have a right to suspend the contract at any time without

notice, without assigning reasons if the contractor or his

representative is involved in a case of diversion of stocks or

under the Essential Commodities Act or any other Act. Under

the Clause 8 (v) the Corporation has a right to forfeit the

security deposit, bank guarantee and pending bills in the

event of failure or diversion of trucks. Under the Clause 8 (vi)

the Corporation shall have a right to terminate the contract

and to get the work done for the unexpired period of the

contract at the petitioner's risk and cost and forfeit the

security deposit or any part thereof, in addition to claim the

(2010) 3 SCC 732

bank guarantee amount for any damages, loss charges etc.,

that may be suffered by the Corporation. Therefore, this

Court is of the opinion that while the respondent corporation

has a right to suspend the contract or to terminate the same

but it can only forfeit the security deposit for any "loss",

"damages" sustained by the Corporation. Maula Bux v

Union of India2 is the leading case on this issue. In the case

on hand the Corporation has recovered the cost of the rice

diverted by getting the same back into the PDS system

pursuant to the orders of the Joint Collector. The seized

stock was brought back into the system pursuant to the

orders of the Joint Collector and Courts referred to above and

a sum of Rs.2,66,999/- was also recovered from the petitioner

contract. Apart from this, this Court notices that the

respondents did not sustain any monetary loss. This

forfeiture, retention etc., these are in the nature of the

penalty. As per the settled law on the subject the question of

awarding compensation or recovery of compensation will only

arise if there is a "loss". Compensation as per the term

means making good the loss. If no loss is sustained

respondents cannot automatically forfeit the security deposit

or make other claims.

This Court reiterates that rice has already been

brought into the PDS system, and an amount of Rs.2.66

lakhs has already been recovered. This has been upheld by

(1969) 2 SCC 554)

the learned single judge vide its orders dated 26.11.2013 in

W.P.No.3268 of 2009 and in the Writ Appeal Nos.340 and 638

of 2014, any further recovery in the form of forfeiture of the

security deposit, bank guarantee and pending bills would

amount to unjust enrichment. Therefore, this Court holds

that the impugned order suffers from two fundamental flaws.

(1) It does not consider the detailed reply and the case law

and the implications of the case law submitted by the

respondents. (2) The point raised by the contractor that no

loss is caused to the Corporation has not been considered at

all by the respondents. The case law submitted has also not

been considered by the respondents. Therefore, this Court

has no hesitation to hold that the respondents should be

directed to forthwith release the security deposit of

Rs.10,00,000/-, Bank Guarantee of Rs.15,00,000/- and

pending bills of the petitioner along with interest at the rate of

6% per annum from February, 2009 till the date of actual

payment. The respondent Corporation which is an

instrumentality of the State has a duty to act as a model

employer. It cannot enrich itself at the cost of a contractor.

Retention of all these amounts would be contrary to law and

also amount to unjust enrichment.

The contractor's legal heirs are fighting this battle since

long after the contractor expired. The respondent-corporation

did not sustain any loss as a result of the diversion of the

stock. Double the amount of the value of the stock has

already been realized. Therefore, the retention of the other

monies due to the contractor are held to be bad in law.

With the above observation, the Writ Petition is

allowed. There shall be no order as to costs.

Consequently, the Miscellaneous Applications pending,

if any, shall also stand closed.

__________________________ D.V.S.S.SOMAYAJULU, J Date:22.04.2022 Ssv