Sanjay Vaghji Rathod vs Government Of India And 2 Ors
2022 Latest Caselaw 7834 Bom

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                                                                            Sayali Upasani
                               IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                   ORDINARY ORIGINAL CIVIL JURISDICTION
                                           IN ITS COMMERCIAL DIVISION
                                   SUMMONS FOR JUDGMENT NO. 3 OF 2020
                                                  IN
                                 COMMERCIAL SUMMARY SUIT NO. 990 OF 2019
SANTOSH
SUBHASH
KULKARNI              Sanjay Vaghji Rathod                                  ... Plaintiff
Digitally signed by
SANTOSH
                                        Versus
                      Government of India & Ors                         ...Defendants
SUBHASH
KULKARNI
Date: 2022.08.12
21:11:45 +0530



                      Mr. N.D. Jaywant, for Plaintiff.
                      Mr. Yogesh Bhate i/b Dharmesh Joshi, for Defendant Nos. 1
                            and 3.
                      Mr. Ashutosh Shukla, for Defendant No. 2.

                                                    CORAM:     N. J. JAMADAR, J.

                                                    DATED :    11 AUGUST, 2022
                      ORDER:-

1. This Commercial Division Summary Suit is instituted for

recovery of a sum of Rs.12,51,73,033.77/-, comprising of

Rs.9,92,23,670.65/-, being outstanding amount of running bills

raised in respect of the works contract and Rs.2,59,49,363.12/-,

being the interest component.

2. The material averments in the plaint can be summarised as

under:

(a) The plaintiff deals in the business of construction

under the name and style of M/s Sanjay construction. The

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defendant Nos.2 and 3 are the instrumentalities of Government of

India, defendant no.1.

(b) The defendant No.2 had floated a tender on behalf of

defendant No.3 for structural repairs and allied civil work of SDF

Building Nos.1 to 6 and Gems & Jewellery Building Nos.1, 2 and 3

in the premises of defendant No.3. The plaintiff had submitted a

tender. On 17th February, 2017, the defendant No. 2 issued a letter

of intent, to award the contract for structural repairs to SDF

Building Nos.1, 2, 3 and 4 at the premises of defendant No.3, to

the plaintiff. Eventually, on 20th March, 2017, an agreement came

to be executed between the plaintiff and defendant No.2,

incorporating the terms and conditions. Vide communication

dated 15th November, 2017, the defendant No.2 revised the scope

of work order and the revised costs of the work was pegged at

Rs.25,33,93,331/-. The defendant No.3 appointed M/s Tekburo

Engineering Pvt. Ltd. as Structural Consultants and M/s Conspro

Management Services as Project Management Consultants for the

said work.

(c) The plaintiff claims that the plaintiff executed the work

in accordance with the terms of the contract and raised running

bills from time to time. As the payments of the running bills were

not forthcoming there was exchange of correspondence between

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the plaintiff and defendant No.2, on the one part, and defendant

No.2 and defendant No.3, on the other part. The plaintiff asserts

that the payments in respect of R.A. bills dated 20 th March, 2017,

19th April, 2017, 5th May, 2017, 6th June, 2017, 22nd August, 2017,

11th September, 2017 and 2nd December, 2017 (Exhibits-L to L6) to

the plaint remained outstanding. A final bill was raised by the

plaintiff on 23rd May, 2018, for a sum of Rs.18,76,619.59/-. It is

further averred that the Project Management Consultant has

certified that the work was satisfactorily executed. Even IIT,

Mumbai, who carried third party audit, certified that the

structural as well as non-structural repair work was satisfactorily

executed by the plaintiff.

(d) The plaintiff made repeated demands by addressing

series of communications. The defendant No.2 informed the

plaintiff that the approval was awaited from the concerned

Ministry of Government of India which controls the affairs of

defendant No.3, and the payment would be made after the

requisite approval. Since an amount of Rs.9,92,23,670.65/-,

remained outstanding, the plaintiff addressed notices to the

defendants including one under the provisions of Section 80 of

the Code of Civil Procedure, 1908. As the demand was not met

despite service of notice, the plaintiff was constrained to institute

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this suit for recovery of the aforesaid amount along with further

interest.

3. The defendants entered appearance upon being served with

the writ of summons. Thereupon, the plaintiff took out a

summons for judgment. The defendant Nos. 1 and 3 have resisted

the claim by filing an affidavit of Executive Assistant to the

Development Commissioner and Estate Manager in the office of

Development Commissioner, defendant No.3, and have sought an

unconditional leave to defend the suit.

4. At the outset, the tenability of the suit is assailed on the

ground that there is no privity of contract between the plaintiff

and defendant No. 3. The suit is thus stated to be bad for

mis-joinder of the parties. The defendant No.3 has thereafter

adverted to the circumstances in which the defendant No.2 came

to be appointed as a Project Management Consultant for

defendant No.3. The substance of the defence of defendant No.3 is

that the tender was floated by defendant No.2, works contract was

also executed by defendant No.2 and, at the instance of defendant

No.2, the defendant No.3 has released partial payment towards

the entire works contract. It later transpired that the appointment

of defendant No.2, by the then Development Commissioner of

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defendant No.3, was not in consonance with the rules and,

therefore, a vigilance enquiry was initiated.

5. On the merits of the claim, the defendant No.3 contends

that the third party inspection carried out by IIT, Mumbai has

revealed that there were several deficiencies in the work executed

by the plaintiff. Thus, the plaintiff cannot be said to have executed

the works contract in conformity with the terms and conditions of

the contract. Therefore, the question as to whether the plaintiff is

entitled to recover the amount of the bills raised by the plaintiff

for the works contract, the quality of which was found to be

inferior, raises a triable issue. Hence, unconditional leave to

defend the suit be granted.

6. The defendant No.2 has also filed an affidavit-in-reply and

sought an unconditional leave to defend the suit. It is contended

that the defendant No. 2 is a Multi State Co-operative Society

registered under the Multi-State Co-Operative Societies Act, 2002

and works under the aegis of the Ministry of Agriculture. The role

of defendant No.2 was only that of a Project Management

Consultant. The defendant No.2 was to receive a fee of 3% of the

project value for rendering the services as a Project Management

Consultant to defendant No.3. It had floated the tenders, executed

the agreement and issued work orders in the capacity of an agent

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of known principal. Therefore, the action against the defendant

No.2 is legally infirm.

7. I have heard Mr. Jaywant, the learned Counsel for plaintiff,

Mr. Yogesh Bhate, the learned Counsel for defendant Nos. 1 and

3, Mr. Ashutosh Shukla, the learned Counsel for defendant No.2,

at length.

8. To start with, it may be apposite to note uncontroverted

facts. The fact that the defendant No.2 was acting as a Project

Management Consultant for the defendant No.3 is

incontrovertible. The floating of the tender by defendant No. 2 for

structural repairs and allied civil work of SDF Building Nos. 1 to 6

and Gems & Jewellery Building Nos.1, 2 and 3 in the premises of

SEEPZ-SEZ, the defendant no.3, is incontrovertible. Nor is it in

dispute that the plaintiff's bid for structural repairs and allied

civil works of SDF 1, 2, 3 and 4 buildings came to be accepted,

under the letter of acceptance dated 17 th February, 2017 (Exhibit-

C). Indisputably, the said acceptance was preceded by the

approval granted by the defendant No.3 vide communication

dated 16th February, 2017 (Exhibit-B) addressed to the General

Manger of the defendant No.2. Armed with the said approval and

consequent to the acceptance conveyed by the plaintiff, it is

incontestable that, an agreement dated 20th March, 2017, came to

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be executed between the plaintiff and defendant No.2. Issuance of

the revised work order vide communication dated 15th November,

2017 (Exhibit-E) is also incontestable. Evidently, the parties are

not at issue over the fact that the plaintiff executed the work in

accordance with the agreement and revised work order. Raising

running bills and part payment therefor are also not much in

contest.

9. It seems that the disputes arose between the parties when

the amount covered by the running bills (Exhibit L to L6)

remained outstanding. The claim of the plaintiff that out of the

total costs of Rs.23,72,16,934.64/-,he was paid a sum of

Rs.12,72,69,206/-, and an amount Rs.9,92,23,670.65/-,

remained outstanding has not been seriously controverted.

10. In the aforesaid backdrop, the quality of the defences sought

to be raised by the defendants warrants consideration. At the

outset, it is interesting to note that both defendant Nos. 2 and 3

contend that there was no privity of contract between the plaintiff

and the respective answering defendant and the contract was

between the plaintiff and the defendant(s) other than the

answering defendant.

11. Mr. Ashutosh Shukla, the learned Counsel for the defendant

No.2 would urge that the defendant No.2 had merely acted as an

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agent of the defendant No.3. The defendant No.2 was a Project

Management Consultant and was to receive a consultancy fee of 3

% of the contract value. Mr. Shukla, invited the attention of the

Court to the provisions contained in Sections 194 and 195 of the

Indian Contract Act, 1872 to bolster up the submission that the

appointment of the plaintiff by the defendant No. 2 to execute the

work for defendant No.3 was of such a nature that the plaintiff

himself became an agent of defendant No.3. Emphasis was laid

on the illustration (a) appended to Section 194 of the Indian

Contract Act, 1872.

12. For a proper appreciation, Sections 194 and 195 of the

Indian Contract Act, 1872, are extracted below.-

"194. Relation between principal and person duly appointed by agent to act in business of agency.--Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him. --Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

Illustrations

(a) A directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A's agent for the conduct of the sale.

(b) A authorizes B, a merchant in Calcutta, to recover the moneys due to A from C & Co. B instructs D, a solicitor, to take legal proceedings against C & Co. for the recovery of the money. D is not a sub-agent, but is solicitor for A.

Section 195: Agent's duty in naming such person. In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and, if he does this, he is

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not responsible to the principal for the acts or negligence of the agent so selected.

Illustrations

(a) A instructs B, a merchant, to buy a ship for him. B employs a ship-surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is lost. B is not, but the surveyor is, responsible to A.

(b) A consigns goods to B, a merchant, for sale. B, in due course, employs an auctioneer in good credit to sell the goods of A, and allows the auctioneer to receive the proceeds of the sale. The auctioneer afterwards becomes insolvent without having accounted for the proceeds. B is not responsible to A for the proceeds."

13. At the outset, before adverting to appreciate the

aforesaid submission, it would be imperative to note that an

identical challenge raised by the defendant No.2 in Summons

for Judgment No.52 of 2019 in Commercial Summary Suit

No.1237 of 2019 and Summons for Judgment No.51 of 2019

in Commercial Summary Suit No.1230 of 2019 and

connected matter, instituted by the other contractors, arising

out of the very same approval granted by defendant No.3

dated 16th February, 2017, in respect of the same project, was

repelled by this Court. In fact, in the said suits, the

defendant No.2 herein was the sole defendant and the

defendant Nos. 1 and 3 herein were not impleaded as party

defendants to the said suits.

14. It is pertinent to note that the defence that there was no

privity of contract between the plaintiff and defendant No. 2

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did not see the light of the day till the affidavit-in-reply came

to be filed on behalf of the defendant No.2. Conversely, as is

evident from the undisputed facts noted above, the tender

was floated by the defendant No.2, the work orders were

issued by defendant No.2 and the agreement incorporating

terms and conditions of the contract was also executed by

defendant No. 2. The agreement between the plaintiff and

defendant No. 2 does not give an indication that the

defendant No. 2 was merely an executing agency. On the

contrary, from the perusal of the documents on record an

inference becomes sustainable that contract was executed by

the defendant No.2 in its own rights and authority.

15. For the foregoing reasons, I am afraid to accede to the

submission on behalf of the defendant No. 2 that it had

merely named an agency to act for the principal in the

business of agency and thus the plaintiff became an agent of

the principal. The jural relationship between the plaintiff

and defendants, especially, defendant no.2, does not seem to

be governed by the provisions contained in Sections 194 and

195, extracted above.

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16. The submission on behalf of the defendant Nos.1 and 3

that there was not privity of contract between the defendant

Nos.1 and 3 and the plaintiff is equally fallacious. As

indicated above, the defendant No. 2 after carrying out the

exercise of tendering the work had submitted the proposal to

award the contract to the agencies selected by it, to the

defendant no.3. Vide communication dated 16th February,

2017 (Exhibit-B), the defendant No.3 approved the said

proposal indicating the distinct projects to be entrusted to

different agencies and total costs of the works. Indisputably,

the work was executed by the plaintiff at the premises of

defendant No.3. In the circumstances, the claim of the

defendant Nos.1 and 3 that it had no concern with the

contract executed by defendant No. 2 with the plaintiff

cannot be said be a bona fide defence. What accentuates the

situation is the fact that the defendant Nos. 2 and 3 both

appear to be, in a sense, agencies of the State. Yet the

defendant Nos. 2 and 3 endeavoured hard to shift the onus

on each other.

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17. This take me to the second plank of the defence of

deficiency in the work executed by the plaintiff. It would be

contextually relevant to note that the defendant No. 2 does

not profess to contend that the work executed by the plaintiff

was either unsatisfactory or of inferior quality. In contrast

the defendant asserts that the work carried out by the

plaintiff was satisfactory and the Project Management

Consultant appointed by defendant No.3 had also certified

the said fact. Even IIT, Mumbai, the third party auditor, had

also found the work satisfactory.

18. Evidently, a cleavage emerges in the defences of

defendant Nos. 2 and 3. The aforesaid stand of defendant

No.2 that the work carried out by the plaintiff was in

conformity with the work order and terms of the contract

detracts materially form the endeavor of the defendant No.3

to seek leave to defend on the ground that there were

deficiencies in the work executed by the plaintiff.

19. Nonetheless, I am inclined to briefly appraise the worth

of the said defence sought to be urged on behalf of the

defendant No.3. First and foremost, the said defence did not

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see the light of the day till the affidavit-in-reply came to be

filed. Secondly, it is imperative to note that the M/s Conspro

Management Services, the Project Management Consultant

appointed by defendant No.3 had certified vide letter dated

23rd October, 2018, that the entire work was completed as per

scope of tender and the requirement of the client. The said

certificate reads as under.-

"It is certified that the work of above captioned work is satisfactorily (100%) completed. All test report are satisfactory and are in order the same have been already submitted to you. Additionally the quality of work and specification of work are found satisfactory. As the Tender conditions a third party audit for the quality was also carried out through IIT Mumbai and the report of satisfactory completion is also available with you.

We request to you please issue Work Completion Certificate to the contractor for the work "Structural Repairs and allied civil works of SDF 1 to 4 Buildings." Physically work has been completed as per scope & requirement of client in all aspects & full financially payment is balance as you well aware."

20. Satisfactory completion of the work has been certified

by the Project Management Consultant appointed by

defendant No.3 in clear and unambiguous terms. Moreover,

the Project Management Consultant has also adverted to the

fact that in accordance with the conditions of the contract,

IIT Mumbai, the third party auditor, carried out the audit

and found the work satisfactory.

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21. Mr. Bhate, the learned Counsel for the defendant Nos. 1

and 3 attempted to wriggle out of the situation by canvassing

a submission that the report of IIT Mumbai, the third party

auditor, points out defects in the work executed by the

plaintiff.

22. As the defendant Nos. 1 and 3 endeavored to cling to

the report of IIT Mumbai, to bolster up the defence of

deficiency in service it may be expedient to extract relevant

part of the concluding remarks and recommendations of IIT

Mumbai. They read as under.-

"1. The structural as well as non-structural repair work executed by the Agencies is found to be satisfactory, in general.

2. Comparing to the damage in the buildings, exhaustive structural and non- structural repairs of the buildings had been carried out by the agency.

3. The structural and non-structural repair works in the buildings had also been carried out at the places which were appearing to be good at the time of initial audit & inspection and were not considered in the initial estimate.

4. It is strongly recommended to execute Plaster work on top priority of the treated structural Elements, as keeping the treated Structural Elements open to atmosphere will result in failure of the treatment.

5. In order to enhance the life of the building, it is further strongly recommended to take up the balance Structural repair work of External and Internal faces of all buildings on top priority without further loss of time by using micro concrete, Epoxy Grouting, new reinforcement if required, shear keys and E-Glass fibre wrapping of 900 gsm, where loss of cover concrete is more than 25 mm and for loss of cover concrete up to 25 mm, the Structure shall be Repaired by using Polymer modified mortar and also execute the Plaster work on top priority of the treated surface, as keeping the treated surface open to atmosphere will result in failure of the treatment."

23. On a plain reading of the aforesaid remarks, I am

afraid, the defendant Nos. 1 and 3 can draw any support and

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sustenance from the aforesaid remarks to buttress the

defence that the third party auditor reported that there were

deficiencies in the work executed by the plaintiff. Clause 1

and 2, extracted above, unequivocally certify that the work

executed by the agencies was found to be satisfactory and

exhaustive structural and non-structural repairs of the

building had been carried out by the agencies. Clause 4

undoubtedly refers to the necessity to execute Plaster work,

on top priority. Clause 5 is of recommendatory nature.

However, it would be impermissible to read the aforesaid

remarks in such a fashion as to infer that the work executed

by the plaintiff was not found to be satisfactory.

24. Both the defences sought to be raised on behalf of the

defendants, in the circumstances of the case, can not be said

to be either a positive or a fair and reasonable defence. It

seems that the real reason for non payment of the bills raised

by the plaintiff was the inter se dispute between the

defendant Nos. 2 and 3, over the very appointment of the

defendant No. 2 as the Project Management Consultant. An

issue seems to have arisen regarding the validity of the

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appointment of defendant No.2, purportedly on account of

breach of GFR rules, and the said matter is being examined

from vigilance angle. This dispute is wholly irrelevant for the

determination of the controversy at hand, especially in the

context of the fact that the plaintiff had executed the entire

work under the terms of the contract and it has been duly

certified to be satisfactory by the Project Management

Consultant as well as third party auditor.

25. The conspectus of aforesaid discussion is that none of

defences sought to be raised by the defendants is of such

nature as to warrant an unconditional leave to defend the

suit. The claim of the plaintiff comprises outstanding amount

of the bills and interest thereon. It is pertinent to note that

there is no clause in the contract for payment of interest in

the event of delay in payment of the amount R.A. bills. The

rate at which the defendants are liable to pay interest would

thus be a matter for adjudication. Hence, it would be

appropriate to grant leave to the defendants to defend the

suit on the condition of deposit of the principal outstanding

amount.

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26. Hence, the following order.

ORDER

(i) Leave is granted to the defendant Nos. 1 to 3 to defend

the suit subject to the defendants depositing in this

Court a sum of Rs.9,92,23,670.65/-(Nine Crores

Ninety Two Lakhs Twenty Three Thousand Six

Hundred and Seventy and Sixty Five paisa only-)

within a period of eight weeks from today.

(ii) If the aforesaid deposit is made within the stipulated

period, this suit shall be transferred to the list of

Commercial Causes and the defendants shall file their

written statement within a period of 30 days from the

date of deposit;

(iii) If this conditional order of deposit is not complied with

within the stipulated period as mentioned earlier, the

plaintiff shall be entitled to apply for an ex parte

decree against the defendants after obtaining a non-

deposit certificate from the Prothonotary and Senior

Master of this Court.

The summons for judgment stands accordingly

disposed of.

[N. J. JAMADAR, J.]