Union Of India & Ors vs M/S. Imeco Ltd. & Anr
2023 Latest Caselaw 1658 Cal/2

                IN THE HIGH COURT AT CALCUTTA
                    Civil Appellate Jurisdiction
                           Original Side

Present :-      Hon'ble Mr. Justice I. P. Mukerji
                Hon'ble Mr. Justice Biswaroop Chowdhury

                                APO 79 of 2014
                                WPO 162 of 2012


                              Union of India & Ors.
                                       Vs.
                              M/s. IMECO Ltd. & Anr.


 For the appellant                  :-   Mr. Ajit Kumar Chaubey, Adv.


 For the respondents                :-   Mr. Biswaroop Bhattacharya,

Mr. Tirthankar Nandi, Adv, Mr. Abhrajit Mitra, Sr. Adv, Mr. Saykya Sen, Ms. Nilanjana Adhya, Mr. Nikunja Berlia, Ms. Sonali Pal, Advs.

 Judgment on                        :-   25.07.2023.


 I. P. Mukerji, J.:-

This is an appeal from the judgment and order dated 18th October, 2012

made by a learned single judge of this court in exercise of its writ

jurisdiction. The writ application was allowed.

Two points of great importance are raised in this matter.

The first and foremost relates to the territorial jurisdiction of this court to

entertain the application.

The second relates to the power of the writ court in an undisputed

contractual claim to compel a contracting party to make payment to the

other contracting party, at the instance of the sub-contractor. In this

process, the sub-contractor could expect payment from its principal, the

other contracting party. The point regarding the territorial jurisdiction of this court could be well answered after discussion and adjudication of the

second point.

The second point is this: The general law of contract is quite plain. A

contract can only be enforced by one party to it against the other. Barring

some exceptional circumstances, it cannot be enforced by a third party.

This is known as the law of privity of contract.

The general law of contract would not have allowed IMECO's claim for their

dues arising out of this sub-contract against the appellant. In this writ

application IMECO has claimed its dues by asking for a writ of mandamus

to be issued commanding the appellant to release the amount due to BEML

Ltd. So that by that process it would receive payment.

A writ of mandamus is issued by the writ court to compel the government

or a body akin to a state under Article 12 of the Constitution of India

(collectively the state) to do its duty. The person applying before the court,

in other words, the writ petitioner, should have sufficient locus standi. This

means that he should enjoy the right of entitlement to performance of that

duty by the state. If in a contract a claim is undisputed, unquestionably a

party to the contract with the state has the right of obtaining amongst

other things, payment under it and the state a duty to make such payment.

It is now well settled that the court will enforce such duty in its writ

jurisdiction only if some public law element is involved, say for example,

arbitrariness, unfairness, discrimination, malice and so on.

Now, suppose the state (first contracting party) contracts with another

party (second contracting party), which in this case is a government

company, an instrumentality under Article 12 of the Constitution of India.

Also suppose that the second contracting party whether private or a state

instrumentality has lawfully made a sub-contract with another party to

perform the contract. Let us also assume that the contract between the first

contracting party and the second contracting party has been fully

performed through the sub-contractor. Further, a sum is due and payable

by the first contracting party to the second contracting party under the

contract. Similarly, under the sub-contract a sum is payable by the second

contracting party to the sub-contractor.

The question which arises is whether the sub-contractor has got sufficient

locus to move the writ court to compel the first contracting party to make

payment to the second contracting party. Upon such payment there is

every likelihood of the sub-contractor also being paid.

In general law relating to contract since there is no privity of contract

between the sub-contractor and the first contracting party, the sub-

contractor has no claim against him.

If there is a sum due and owing by the state, a contracting party to the

other party to the contract, it has the obligation to discharge that liability.

A contracting party which is a state under Article 12 has an obligation to

act honestly and fairly towards its contractors by releasing any admitted

amount arising out of a contract to the other contracting party and not to

hold on to payment unnecessarily. If the other contracting party has

lawfully entered into a sub-contract, the first contracting party has some

obligation towards the sub-contractor to the extent of making payment to

the second contracting party. In this way, the sub contractor may be paid.

In my opinion a sub contractor has sufficient interest or locus standi to

maintain a writ application. He enjoys a right against the state, the first

contracting party, to compel him to discharge his duty to make payment to

the other contracting party so that as a result, the sub contractor has the

prospect of receiving payment as well.

Now, I come to the question whether this court has lack of territorial

jurisdiction to entertain, try and determine the writ application.

Southern Railway, the respondent No. 2 in the writ application, the

appellant before us (the appellant) in or about the years 2007-2008 arrived

at a policy decision to increase the passenger carrying capacity of AC three

tier and sleeper class railway coaches by insertion of an additional berth

(middle berth) between the lower and upper berths "on the longitudinal side

of existing coaches". BEML Ltd., the respondent No. 1 in the writ

application and the respondent No. 2 in this appeal (BEML) is a

Government of India company in which the government holds 54% of its

share capital.

The appellant entered into a contract with BEML for supply and fitting of

these berths. BEML in turn entered into a sub-contract with IMECO, the

writ petitioner and the respondent No. 1 in this appeal (IMECO), to carry

out this contract.

Admittedly, as far as the contract between the appellant and BEML was

concerned, it was executed outside the jurisdiction of this court. Its

performance and discharge had also no connection with the territories over

which this court exercises its writ jurisdiction. However, the sub contract

between BEML and IMECO was executed according to the pleading in

paragraph 5 of the writ petition which is uncontroverted in the branch

office of IMECO at 26, R.N. Mukherjee Road, Kolkata - 700001 within the

jurisdiction of this court.

This contract was ultimately not carried out and the obligations of the

parties terminated by mutual agreement. IMECO had a claim against

BEML for payment for part of the work which had been completed by them.

It is absolutely true that the entire cause of action with regard to the first

contract between the appellant and BEML was outside the jurisdiction of

this court. Both the appellant and BEML have their places of business well

outside the territorial jurisdiction of the High Court. But, the other part of

the cause of action which is certainly a large part of it, was the contract

between BEML and IMECO which according to the averment in the writ

petition was entered into in Calcutta within the jurisdiction of this court.

This writ consists of several causes of action in a chain relating to

execution of contracts and sub-contracts and their performance of the

contract, payment, discharge and so on. A part of this chain is certainly

located within the jurisdiction of this court. Therefore, this court had the

territorial jurisdiction to entertain the writ. So, this point is also answered

against the appellants.

Now, the facts in short are these.

The appellant awarded a contract to BEML for supply and the fitment of

longitude middle berths in 589 "GSCN coaches and 126 ACCN coaches".

BEML ltd. had sub-contracted the work assigned to them by the contract to

IMECO ltd. Mr. Chaubey, learned Advocate for the appellant showed us

Clause 7 of the agreement between the parties (Page 143 of the paper book)

which did not allow sub-contracting.

In this particular case sub-contracting by BEML to IMECO was approved

and accepted by the appellant by their conduct. Having approved or

acquiesced in this act the appellants are now estopped from contending

that BEML had wrongfully sub-contracted the agreement to IMECO.

In the part of the contract pertaining to GSCN coaches, 146 coaches had

been fitted with these berths by 18th February, 2009. Materials for 18

coaches were also supplied but not utilized, leaving a balance of 425

coaches in which neither the berths were fitted nor materials supplied to

the appellant. As far as ACCN coaches were concerned upto 18th February,

2009, 6 had been fitted with berths and materials supplied for 34 coaches.

In relation to 86 coaches neither the berths were fitted nor materials

supplied.

For whatever reason the Railways thought that there was no point going

ahead with the agreement. The Railway Board by its letter dated 18th

February, 2009 terminated the contract. This termination seems to have

been accepted by BEML. The Railway Board by its decision on 30th March,

2009 stated that payment could be made to BEML for berths already

manufactured and made ready but not fitted till the issue of the

notification. BEML was asked to submit the "Rites" inspection certificate

relating to the finished products manufactured prior to the cancellation of

the agreement. This date was reckoned to be 24th February, 2009.

It was also stated in the communication that the material cost for one such

berth in SCN coaches was Rs.1,10,070/-, the cost for 425 berths being

(1,10,070 x 425) = Rs.4,67,79,750/-. The cost for one berth in ACCN

coaches was Rs.1,02,400/-, the cost of 86 berths being (1,02,400 x 86) =

Rs.88,06,400/-. "Total financial implication for settling material cost for

GSCN and ACCN coaches.....equals Rs.5,55,86,150/-." The above remarks

were made by the Senior Divisional Mechanical Engineer of Southern

Railway. (See Pgs. 103 -104 of the paper book.)

In that communication an additional fund of Rs.5.56 crores was

requisitioned to make the above payment. Instruction was issued to the

appropriate authorities to dispose of the berths. In the communication the

decision of the Railway Board dated 30th March, 2009 was mentioned. It

was stated therein that by that decision the Railway Board had instructed

payment to the vendors whose contract has been cancelled.

It is a matter of great surprise how inspite of the above decision of the

Railway Board as sought to be enforced by the appellant, one Baja Pillai

Venugoptal, a senior Divisional Mechanical Engineer working for the same

Southern Railway administration has in his affidavit affirmed on 23rd

March, 2012 in the writ application made the following assertion in

Paragraph 13 thereof:-

"13. With reference to the statements and/or allegations contained in

paragraph no. 20 of the said petition, save what are matters of records,

the same are denied and disputed. I further state that Railway is not party

to the contract between M/s. BEML and its partners and hence it is not

aware of any dispute. Railways have not admitted the claim of M/s. BEML

who is respondent no.1 herein for the sums claimed on the basis of

manufacture before the cut off date. Railways have not been furnished

with the raw materials certificates which are to be given before the

manufacture is done, nor has respondent no.l M/s. BEML submitted proof

of purchase of raw materials. M/s. BEML, who is respondent no.1 herein

has also not raised any dispute under Arbitration Clause of the said

contract, as per provision of 9 and 10 of the contract even though 2 years

and 11 months have lapsed from the date of contract closure."

It is difficult to comprehend how a Railway officer at a later point of time

can resile from an admission made at an earlier point of time by another

senior officer.

Nevertheless, the averments made in paragraph 13 of the said affidavit of

the Railways have to be considered.

The appellant should immediately act in terms of the circular of the

Railway Board dated 30th March, 2009 and to make payment to BEML

considering the note of the Senior Divisional Mechanical Engineer at

Pgs.103-104 of the paper book and upon verification of the records

regarding the quality and quantity of supply by IMECO to take care of the

averments in paragraph 13 of the affidavit-in-opposition quoted above.

The appellant should make payment of the bills of BEML within two

months of communication of this letter. BEML in turn will make payment

to IMECO within a further period of one month.

I see no reason to interfere with the impugned judgment and order. It is

affirmed. This appeal is dismissed affirming the judgment and order of the

learned trial judge with the additional orders made above.

(I. P. MUKERJI, J.)

Biswaroop Chowdhury, J.

I have perused the judgment delivered by my learned brother and agree to

the grounds mentioned therein. However I add the following grounds.

The Writ Petition in which the impugned order was passed was instituted

by the respondent no - 1 M/S. IMECO Ltd against the appellant seeking a

direction upon the appellant to release the dues of BEML ltd for the

purpose of payment to respondent no - 1. It is true that under general law

of contract there is no enforceable right of respondent no - 1, M/S IMECO

Ltd against the appellant but where respondent no - 2 which is a

government undertaking and "State" within meaning of Article 12 of the

Constitution of India is unable to discharge its obligation regarding

payment of dues to the respondent no - 1 for non-payment of dues by the

Appellant to the respondent no - 1, the respondent no - 1 has a right under

Article 226 of the constitution of India.

In the modern era of welfare state when there is governmental action on a

vast scale a procedure to obtain speedy and effective redress against an

illegal exercise of power by the Executive is extremely desirable. Through

writs the High Courts are able to control to some extent the administrative

authorities in the modern administrative age. The writ system provides an

expeditious and less expensive remedy than any other remedy available

through the normal Court-Process. In the case of secretary ONGC Limited

V VU Warrier reported in AIR - 2005 S.C it is observed that power under

Article 226 can be exercised by the High Court to reach injustice wherever

it is found.

Government Authority has a duty to act fairly, reasonably, and impartially

to any person or organisation whether in contractual capacity or otherwise.

It has an obligation to honour the debt of a contracting party when it is due

and payable unless the claim is rejected be a reasoned order upon following

principles of natural justice. When due to non-release of statutory fund or

payment of contractual debt, by Government Authority to any Government

undertaking the said undertaking is unable to pay the workers, creditors or

sub-contractors, the parties who do not receive the payment and suffer

hardship may make a representation to the Government Authority and

move the High Court under Article 226 of the Constitution of India. The

Court in such a situation may not refer the parties to a regular civil Court

to enforce the right under contract but direct the Government Authority to

release the debts in accordance with law. Such a direction would be just

and reasonable and mitigate hardships, and prevent multiplicity of

litigation. When a government undertaking does not dispute the payment

due to a sub-contractor nor is there intentional delay or mala fide in

making payment but ground of non-payment is on account of non-receipt

of fund from Government Authority no fruitful purpose would be served by

referring the contracting parties to Civil Court as after suffering decree also

the Government Undertaking will be unable to pay debt due to non-

availability of fund. Thus the writ petition is maintainable. I do not find any

error of the impugned order of the trial court. The order of trial court is

affirmed.

Certified photocopy of this order, if applied for, be supplied to the parties

upon compliance with all requisite formalities.

(BISWAROOP CHOWDHURY, J.)