Dda vs M.S. Satna Cement Works & Ors.
2010 Latest Caselaw 5508 Del

        THE HIGH COURT OF DELHI AT NEW DELHI

%                             Date of decision: 03.12.2010

+           CS(OS) No.415/2006

DDA                                               .....Plaintiff

                            - versus -

M.S. SATNA CEMENT WORKS & ORS.                 .....Defendants

Advocates who appeared in this case:
For the Plaintiff:      Mr. Bhupesh Narula, Advocate.

For the Defendant:            Mr. Rakesh Mukhija, Advocate.

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may
   be allowed to see the judgment? No.

2. To be referred to the Reporter or not? No.

3. Whether the judgment should be reported
   in Digest? No.

V.K. JAIN, J. (ORAL)

IA No.6410/2006 (by defendant No.1 under Order VII Rule 11 CPC)

1. This is an application under Order VII Rule 11 CPC

for rejecting the plaint.

2. The plaintiff has filed this suit for recovery of

Rs.33,65,599/-. It is alleged in the plaint that the

defendant No.1, which is a Unit of defendant No.2 entered

into an Agreement with the plaintiff for supply of 75,000 MT

of non levy cement with 10% deviation. Under the

Agreement, the supply was to commence on 10.5.1985 and

was to be completed by 9.11.1985. It is further alleged that

the defendants, however, commenced supply only in July,

1985 and the last supply was made in February, 1987.

3. Clause 2 of the Agreement between the parties

provides as under:-

"The time allowed for carrying out the supply and the dates of delivery of the materials mentioned in the tender shall be strictly observed by the contractor and shall be deemed to be of the essence of the contract and the contractor shall deliver the materials on or before the dates mentioned in the tender. Should the contractor fail to delivery the materials on or before the stipulated dates, he shall pay as agreed liquidated damages, and not by way of penalty, an amount equal to one per cent or such smaller amount as the Suptdg. Engineer, DDA (whose decision in writing shall be final) may decide on the amount of the estimated cost of the whole work as shown in the tender for every day that the contractor shall exceed the time of the delivery and the delivery of the materials may be in arrears. Provided always that the entire amount of liquidated damges shall not exceed 10% (ten percent) of the estimated cost of the work as shown in the tender."

4. The legal proposition in the matter is well- settled.

The Court while considering an application for rejection of

the plaint can look into only the averments made in the

plaint and the documents filed by the plaintiff. The defence

taken by the defendant is not to be considered while

examining such an application and validity of the

documents filed by the plaintiff also cannot be examined at

this stage.

5. Admittedly, the plaintiff invoked arbitration clause

contained in the Agreement on 18.3.1991 and an Arbitrator

was appointed on 1.5.1991, to adjudicate upon the disputes

between the parties. During pendency of the arbitration

proceedings, the Executive Engineer of plaintiff/DDA

referred the matter to Director (Material Management),

whose decision was to be final and binding between the

parties in terms of Clause 2 of the Agreement, to decide the

amount of liquidated for late supply of the cement. The

Arbitrator vide order dated 21.9.2005 took a view that the

claim pertaining to Clause 2 of the Agreement was beyond

the purview of arbitration. The Director (Material

Management) had, in the meanwhile, vide his decision dated

31.8.2004 decided to levy compensation amounting to

Rs.924615 on the defendants.

6. Now, the plaintiff has claimed the aforesaid

amount of Rs.9,24,615/- along with interest thereon from

18.3.1991 to 1.2.2005 at the rate of 18% per annum,

amounting to Rs.24,40,984/-.

7. The case of the defendants in the application under

consideration is that the case of the plaintiff being barred by

limitation, the plaint is liable to be rejected. Their

contention is that since the supply of cement according to

the plaintiff was required to be completed by 9.11.1985, the

cause of action for filing the suit arose on that date and the

plaintiff could have filed the suit within three years from

that date or at best within three years from 23.2.1987 when

the last supply of cement was made by them to the plaintiff.

Having been filed as late as on 17.1.2006 the suit, according

to the defendants, is clearly barred by limitation.

8. The case of the plaintiff with respect to limitation is

two-fold. Its first plea is that they had no cause of action to

file a suit for recovery of liquidated damages before

31.8.2004 when the damages were determined by Director

(Material Management), the authority designated for this

purpose vide Clause 2 of the contract. Its second

contention is that since it had referred the claim for

liquidated damages to the Arbitrator appointed on 1.5.1991,

in terms of the arbitration clause contained in the

Agreement, it had been prosecuting the proceedings before

the Arbitrator, with due variance, in the belief that he had

jurisdiction to entertain the claim for levy of compensation

and therefore, it is entitled to benefit of Section 14 of the

Limitation Act and the period during which the proceedings

were pending before the arbitrator is required to be excluded

while computing the period of limitation. This is also their

case that it were the defendants who had delayed the

arbitration proceedings by first obtaining stay of the

proceedings from the Civil Court at Satna, then by filing an

appeal before the High Court of Madhya Pradesh and

obtaining a stay order and thereafter by filing a petition in

this Court for appointment of an Arbitrator.

9. A careful perusal of Clause 2 of the Agreement

between the parties would show that the amount of the

liquidated damages to be paid by the contractor to DDA was

to be decided by the Superintending Engineer of DDA whose

decision in this regard was to be treated final. The amount

of liquidated damages could be one per cent, of the

estimated cost of the late work, which in this case would

mean price of the cement to be supplied by the defendants,

for each day the contractor exceeded the time of delivery or

such smaller amount as the Superintending Engineer might

decide. However, the total amount of liquidated damages

was not to exceed 10% of the estimated cost of work, which

in this case would mean 10% of the price of the cement to

be supplied by the defendants to the plaintiff.

10. Till the designated authority adjudicated on the

amount to be paid by the plaintiff as liquidated damges,

there could have been no cause of action for the plaintiff to

file any suit against the defendants for recovery of liquidated

damages. It is not as if the quantum of liquidated

damages was fixed in the Agreement between the parties.

Only the upper limit of the damages which could be

awarded to the plaintiff was fixed under Clause 2 of the

Agreement and the Superintending Engineer would have

been well within his right to fix an amount smaller than

10% of the price of the goods to be supplied by the

defendants to the plaintiff. In fact, in this case, the amount

of liquidated damages, fixed by Director (Material

Management) of DDA was only 10% of the price of the goods

to be supplied by the defendants, though it could have been

up to 10 times that amount.

Since the decision by the Director (Material

Management), deciding the amount of liquidated damages

payable by the defendants to the plaintiff was rendered only

on 31.8.2004, the prescribed period of limitation is to

commence only from that date. The suit having been filed

on 17.1.2006, within three years from that date is,

therefore, well within time.

11. One plea taken by the defendants is that even

Director (Material Management) of DDA could not have

levied liquidated damages on 31.8.2004, more than three

years after the last date stipulated in the Agreement for

supply of cement by the defendants. However, while

considering the application under Order VII Rule 11 of CPC,

the Court is not called upon to decide this question and

therefore, the question as to whether the suit has been filed

within the prescribed period of limitation or not is to be

decided on the assumption that Director (Material

Management) was well within his right to levy liquidated

damages on 31.8.2004.

12. The learned counsel for the defendants states that

since the defendants vide letter dated 13.2.1985 had written

to DDA that they would not be responsible for any damage

due to late supply of cement, due to non-availability of

wagons and movement restrictions imposed by Railways

and also due to natural calamity, labour strike and other

constraints, they are not liable to pay any amount to the

plaintiff towards liquidated damages. He further states that

this letter was also made a part of the agreement between

the parties.

13. At this stage, the Court cannot examine the

defence taken by the defendants. For the purpose of

deciding this application, the allegations made in the plaint

are to be taken as correct and on their face value. The case

of the plaintiff, based on Clause 2 of the supply agreement

is that time was the essence of the contract as expressly

agreed by the parties and in the event of delay in supply of

cement by the defendants, they would be entitled to

liquidated damages not exceeding 10% of the price of the

material agreed to be supplied to the plaintiff. This is not

the case of the defendants in the written statement that

delay in supply of cement occurred on account of non-

availability of wagons, movement restrictions imposed by

Railways, any natural calamity or labour strike. The case

set up by them in the written statement is that the plaintiff

was required to make 100% to the defendants and since it

failed to make payment, accordingly that led to delay in

supply of material. In any case, the cause for the delay in

supply of material is a question which can be adjudicated

only during trial.

14. Since the plaintiff had no cause of action to file any

suit for recovery of the amount of liquidated damages before

31.8.2004 when the decision of the Superintending

Engineer came to be rendered, I need not go into the

question as to whether the plaintiff is entitled to benefit of

Section 14 of the Limitation Act on account of the

proceedings which were pending before the Arbitrator from

May, 1991 till 21.9.2005 and in which the plaintiff had also

raised claim for liquidated damages against the defendants.

15. I find no merit in this application and the same is

hereby dismissed.

16. CS(OS) No.415/2006

List for framing of issues on 10.3.2011.

IA No.6409/2006

The learned counsel for the defendants does not press

this application.

Dismissed as not pressed.

(V.K. JAIN) JUDGE

DECEMBER 03, 2010 vk