Karnataka High Court
The Karnataka Housing Board Cauvery ... vs The State Bank Of Hyderabad on 15 December, 2023
-1-
RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF DECEMBER 2023
PRESENT
THE HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
THE HON'BLE MR JUSTICE C M JOSHI
REGULAR FIRST APPEAL No.1238/2008 (MON)
C/w
REGULAR FIRST APPEAL No.1251/2008
REGULAR FIRST APPEAL No.1252/2008
REGULAR FIRST APPEAL Crob.No.5/2012
RFA No.1238/2008:
BETWEEN:
1 . THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN
BANGALORE - 560 009
BY ITS CHAIRMAN
2 . THE HOUSING COMMISSIONER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560 009.
3 . THE EXECUTIVE ENGINEER
THE KARNATAKA HOUSING BOARD
BELGAUM DIVISION, BELGAUM-01
4 . THE EXECUTIVE ENGINEER
KARNATAKA HOUSING BOARD
HUBLI DIVISION, CHANAKYAPURI
HUBLI-02, DHARWAD DISTRICT
ALL ARE REPTD. BY ITS SECRETARY ...APPELLANTS
(BY SRI RAGHAVENDRA A KULKARNI, ADVOCATE)
AND:
NAV VIKAS BUILDERS (P) LTD.,
2ND FLOOR, C BLOCK, AKSHAYA COMMERCIAL
COMPLEX, NO 26, VICTORIA ROAD
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RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
BANGALORE - 560 047
BY ITS MANAGING DIRECTOR ...RESPONDENT
(BY SRI.VIKAS MAHENDRA, ADVOCATE)
THIS REGULAR FIRST APPEAL IS FILED UNDER SECTION 96
R/W ORDER XLI RULE 1 OF THE CPC AGAINST JUDGEMENT AND
DECREE DT.16.06.2008 PASSED IN OS NO.11145/1997 ON THE
FILE OF THE XXVII ADDL. CITY CIVIL JUDGE, BANGALORE,
DECREEING THE SUIT FOR RECOVERY OF MONEY.
RFA No.1251/2008,
RFA No.1252/2008
BETWEEN:
1 . THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN
BANGALORE - 560 009
BY ITS HOUSING COMMISSIONER
2 . THE HOUSING COMMISSIONER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560 009
3 . THE CHIEF ENGINEER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560 009
4 . THE EXECUTIVE ENGINEER
THE KARNATAKA HOUSING BOARD
HUBLI DIVISION, CHANAKYAPURI,
HUBLI, DHARWAD DISTRICT-02
ALL ARE REPTD. BY ITS SECRETARY
KHB, BANGALORE - 560 009 ...APPELLANTS
(COMMON)
(BY SRI.RAGHAVENDRA A KULKARNI, ADVOCATE)
AND:
1. THE STATE BANK OF HYDERABAD
AUSTIN TOWN BRANCH, NO.18
VICTORIA ROAD, BANGALORE - 47
BY ITS BRANCH MANAGER
2. NAV VIKAS BUILDERS (P) LTD.,
2ND FLOOR, C BLOCK, AKSHAYA COMMERCIAL
-3-
RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
COMPLEX, NO 26, VICTORIA ROAD
BANGALORE - 560 047
BY ITS MANAGING DIRECTOR ...RESPONDENTS
(COMMON)
(BY SRI BRIJESH CHANDER GUREE, ADVOCATE FOR R1;
SRI VIKAS MAHENDRA, ADVOCATE FOR R2)
RFA NO.1251/2008 AND RFA NO.1252/2008 ARE FILED
UNDER SECTION 96 R/W ORDER XLI RULE 1 OF CPC PRAYING TO
SET ASIDE THE JUDGEMENT AND DECREE DATED 16.06.2008
PASSED BY THE XXVII ADDL. CITY CIVIL JUDGE, BANGALORE, IN
O.S.No.7462/1995 AND O.S.No.8665/1995 RESPECTIVELY
DECREEING THE SUIT FOR RECOVERY OF MONEY.
RFA CROB.No.5/2012:
BETWEEN:
NAV VIKAS BUILDERS (P) LTD.,
2ND FLOOR, C BLOCK, AKSHAYA COMMERCIAL
COMPLEX, NO 26, VICTORIA ROAD
BANGALORE - 560 047
BY ITS MANAGING DIRECTOR ...CROSS OBJECTOR
(BY SRI VIKAS MAHENDRA, ADVOCATE)
AND:
1. THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN
BANGALORE - 560009
REPTD. BY ITS HOUSING COMMISSIONER
2. THE HOUSING COMMISSIONER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560009
3. THE EXECUTIVE ENGINEER
THE KARNATAKA HOUSING BOARD
BELGAUM DIVISION, BELGAUM-01
4. THE EXECUTIVE ENGINEER
KARNATAKA HOUSING BOARD
HUBLI DIVISION, CHANAKYAPURI,
HUBLI-2, DHARWAD DISTRICT ...RESPONDENTS
(BY SRI.RAGHAVENDRA A KULKARNI, ADVOCATE)
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RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
THIS RFA.CROSS OBJECTION IS FILED UNDER ORDER XLI,
RULE-22 READ WITH SECTION 96 AND SECTION 151 OF CPC
PRAYING TO SET ASIDE THE JUDGMENT AND DECREE DATED
16.06.2008 PASSED BY THE XXVII ADDITONAL CITY CIVIL JUDGE,
BANGALORE IN O.S.11145/1997 DECREEING THE SUIT FOR
RECOVERY OF MONEY.
THESE REGULAR FIRST APPEALS AND R.F.A.CROSS
OBJECTION HAVING BEEN HEARD AND RESERVED ON 26.09.2023,
COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY,
K.S.MUDAGAL J., DELIVERED THE FOLLOWING:
JUDGMENT
These appeals and cross objection arise out of common
judgment in O.S.No.7462/1995, O.S.No.8665/1995 and
O.S.No.11145/1997 passed by the XXVII Additional City Civil
Judge, Bengaluru.
2. By the impugned judgment and decree, the trial
Court dismissed O.S.No.7462/1995 and O.S.No.8665/1995
and partly decreed O.S.No.11145/1997. The particulars of
the appeals, cross objection, suit and the ranks of the parties
who preferred the appeals and cross objection are as follows:
Sl. Appeal/Cross Suit in O.S. Ranks of parties
No. objection No. before the trial Court
1 RFA No.1238/2008 11145/1997 Defendants (KHB)
2 RFA Crob.No.5/2012 11145/1997 Plaintiffs (Contractor)
3 RFA No.1251/2008 7462/1995 Plaintiffs (KHB)
4 RFA No.1252/2008 8665/1995 Plaintiffs (KHB)
3. State Bank of Hyderabad was not made party in
O.S.No.11145/1997. The rest of the parties were common in
all three suits. Except, State Bank of Hyderabad, the other
parties in the said suits are referred to according to their
ranks in O.S.No.11145/1997 since it has larger scope and
State Bank of Hyderabad will be referred to by its name.
4. The brief facts of the case are as follows:
Defendant No.1 Karnataka Housing Board ('KHB' for
short) is a statutory body constituted under the Karnataka
Housing Board Act, 1962. Defendant Nos.2 to 4 are the
Officers of defendant No.1 in various cadres. To
commemorate centenary birth anniversary of
Dr.B.R.Ambedkar, the Government of Karnataka floated a
scheme named as 'Ashraya Scheme' to provide houses and
sites to the people belonging to the weaker sections of the
society. In that regard, the Government of Karnataka issued
the Government orders bearing G.O.No.HUD 407 KHB 91
dated 24.06.1991 and G.O.No.HUD 535 KHB 91 dated
04.11.1991 proposing to build 1,75,000 houses in rural
areas, 30,000 houses in Bangalore urban areas and 30,000
houses in other urban areas. The Government entrusted the
matter to defendant No.1 KHB. The cost of the house in rural
areas was fixed at Rs.15,000/- and in urban areas fixed at
Rs.16,000/-.
5. In that regard, defendant No.1 KHB floated the
tenders by advertising in Deccan Herald, English daily
newspaper on 14.11.1991 from the contractors for execution
of the project in respect of seven assembly constituencies in
Dharwad District namely, Byadagi, Ranebennur, Hirekerur,
Hangal, Shiggaon, Shirahatti and Haveri. Similarly, the
tenders were called for nine assembly constituencies in
Belgaum District namely Ramdurga, Parasgad, Bailhongala,
Kittur, Khanapur, Belgaum Corporation, Uchgaon, Bagewadi
and Gokak.
6. On 27.11.1991, the plaintiff/building contractor
submitted its tender to the Chief Engineer, K.H.B. The
defendants issued letter of intent (Ex.P5 regarding Dharwad)
dated 23.01.1992 accepting the tender of the
plaintiff/contractor to execute the work.
7. Subsequently, defendant No.1/KHB and the
plaintiff entered into two separate contracts for construction
of 8079 houses in the aforesaid seven constituencies of
Dharwad District and for construction of 10251 houses in
nine constituencies referred to above in Belgaum District. The
contracts in respect of nine assembly constituencies in
Belgaum District and seven assembly constituencies in
Dharwad District were executed on 23.03.1992. The work
orders in respect of both the assembly constituencies were
issued.
8. As per the contract, the work was to be
completed within six months from the date of handing over
of the sites to the plaintiff excluding three months of
monsoon session. As per the contract, 5% of the project
costs was to be paid by way of mobilization of amount and
that was paid to the plaintiff on 28.01.1992. Regarding that
the plaintiff had to provide Bank guarantees. The bank
guarantees were issued by State Bank of Hyderabad, Austin
Town Branch, Bangalore. The said bank is defendant No.1 in
O.S.No.7462/1995 and O.S.No.8665/1995.
9. The work orders were issued on 30.03.1992. On
14.05.1992 the plaintiff/contractor requested defendant
No.1/KHB to release mobilization amount. On furnishing
bank guarantees defendant No.1 released Rs.34,84,500/- out
of mobilization amount of Rs.61,29,750/-. Therefore, State
Bank of Hyderabad, Austin Town Branch, Bangalore was
made as party in O.S.No.7462/1995 and O.S.No.8665/1995.
10. On 20.10.1992, defendant No.1/KHB issued letter
through defendant No.4/Executive Engineer of Hubli Division
(Ex.P79) and on 11.08.1992 defendant No.3/Executive
Engineer of Belgaum terminated the contract on the ground
that the plaintiff committed breach of terms of the agreement
and he failed to complete the work as per the agreement.
The bank guarantees were invoked under letter dated
09.11.1992 (Ex.P13 in O.S.No.7462/1995). On 14.03.1995
the Bank repealed the Bank guarantee on the ground that
the invocation was not in terms of Bank guarantee.
11. Plaintiff/contractor filed O.S.No.11145/1997
against the defendants seeking recovery of Rs.5,36,38,077/-
with interest at 18% p.a. contending that the
defendants/KHB without performing their part of contract
illegally terminated the contract.
12. The plaintiff/contractor contended that it had
invested huge manpower and other infrastructure at a larger
cost. But the defendants/KHB did not hand over the sites for
commencement of the construction. The plaintiff further
contended that the contracts were terminated even without
the expiry of stipulated time, thereby it had suffered financial
losses. The plaintiff further contended that by such illegal
cancellation of the contract, its reputation is also affected.
Therefore plaintiff claimed damages on different heads to the
tune of Rs.5,36,38,077/- as aforesaid.
13. The defendants contended that despite handing
over the sites, the plaintiff did not commence the work and
wherever it was commenced, the plaintiff had showed
marginal progress in the work, therefore the defendants were
forced to terminate the contract. According to the
defendants, the termination of the contract was in
accordance with law, therefore they sought dismissal of
O.S.No.11145/1997.
14. The defendants/KHB filed O.S.No.7462/1995
seeking recovery of Rs.53,66,130/- and O.S.No.8665/1995
seeking recovery of Rs.40,73,685/- from the
plaintiff/contractor and State Bank of Hyderabad who had
issued the bank guarantees. Thereafter the
plaintiff/contractor filed O.S.No.11145/1997 against the
defendants claiming damages as aforesaid in respect of
Dharwad and Belgaum Constituencies. The defendants/KHB
in those suits claimed that the contractor did not execute the
work as per the time schedule despite the authorities
releasing the mobilization of funds to the tune of
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Rs.61,29,750/- despite handing over the sites, therefore the
authorities were forced to terminate that contract. The
defendants in those suits further contended that the
contractor is liable to refund the mobilization amount. It was
contended that the bank without valid reason illegally
declined to invoke the bank guarantees and pay the funds,
therefore the Bank is also liable to pay the said funds.
15. On the basis of the pleadings of the parties, in all
the three suits, the following issues were framed.
1. Whether the 1st plaintiff-Board has performed its
part of the contract referred to in the plaint?
2. Whether the plaintiffs prove the breach of the
terms of the contract by the 2nd defendant as
pleaded?
3. Whether the termination of the contract referred
to in the plaint by the 1st plaintiff-Board is valid?
4. Whether the 1st plaintiff-Board is entitled to force
the bank guarantees of the 2nd defendant given by
the 1st defendant?
5. Whether the suit is barred by law of limitation?
6. Whether the suit is not maintainable?
7. Whether the plaintiffs are estopped in law from the
above delay and default on the part of the 2nd
defendant as contended by the 2nd defendant?
8. Whether the 1st plaintiff-Board is entitled to
recover the interest as claimed?
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9. Whether the plaintiffs are entitled to recover the
suit claim from the defendants?
1. Do the plaintiffs prove that the 2nd defendant has
committed breach of contract dated 23.03.1992
and as such they incurred loss of Rs.26,45,250/-
as averred?
2. Do the plaintiffs further prove valid invocation of
bank guarantee as per the terms stipulated?
3. Does the 1st defendant proves that it has utilized
the mobilization advance paid by the plaintiffs?
4. Are the plaintiffs entitled to the interest as
claimed?
5. Are the plaintiffs entitled to the suit claim?
6. If so, against which of the defendants?
7. What relief?
1. Whether the plaintiff proves that defendants have
handed over only 1155 sites in Dharwad District
and thus committed breach of contract?
2. Whether the plaintiff proves that the 3rd defendant
has handed over only 206 sites in Belgaum District
as against 10251 sites and thus committed breach
of contract?
3. Whether the plaintiff proves that the defendants
have committed breach by not handing over the
sites by arbitrarily terminating the contract
prematurely?
4. Whether the suit is bad for want of notice under
Section 72 of the KHB Act, 1962?
5. Whether the suit is barred in view of Arbitration
Clause 26 of the Contract?
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6. Whether the suit is bad for mis-joinder of parties
and cause of action?
7. Whether the plaintiff proves that it has suffered
damages of Rs.5,36,380-77 in respect of Belgaum
and Dharwad Districts?
8. Whether the defendants prove that they have
handed over all the 10,251 sites in Belgaum
District as pleaded?
9. Whether the defendants prove that they have
handed over 8079 sites in Dharwad District as
pleaded?
10. Whether the defendants prove that this Court has
no jurisdiction to entertain and try this suit?
11. Whether the plaintiff is entitled to the reliefs
sought for?
12. What decree or order?
16. In O.S.No.7462/1995, the official of the
authorities was examined as PW.1 and Ex.P1 to P15 were
marked. In O.S.No.8665/1995 the very same witness was
examined as PW.1 and Ex.P1 to P15 were marked. After
recording of the evidence of the plaintiff in
O.S.No.7462/1995 and O.S.No.8665/1995, it appears that
those suits were consolidated with O.S.No.11145/1997. In
that suit, on behalf of the plaintiff therein, PWs.1 to 4 were
examined and Exs.P1 to P126 were marked. On behalf of the
defendants therein, DWs.1 to 3 were examined and Exs.D1
to D8 were marked.
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17. By the impugned common judgment and order,
the trial Court dismissed O.S.No.7462/1995 and
O.S.No.8665/1995 and decreed O.S.No.11145/1997 holding
that the defendants themselves were guilty of breach of
terms of contract and the termination of the contract was
illegal. The trial Court decreed O.S.No.11145/1997 for
recovery of Rs.4,61,38,077/- with interest at 18% per annum
on Rs.33,14,383/- and at 6% per annum on
Rs.4,17,56,250/-. Plaintiff filed O.S.No.11145/1997 as
indigent person with the permission of the Court, therefore
the Court fee was ordered to be recovered as the first charge
on the decreetal amount.
Submissions of Sri Vikas Mahendra, learned counsel for the
plaintiff/Cross Objector:
18. The defendants' own document and the
admissions of their own witnesses show that there was clear
breach of terms of the contract by the defendants. The
evidence adduced by the plaintiff clearly shows that it
suffered damages due to such illegal termination of the
contracts. Therefore, the finding of the trial Court that the
defendants are liable to pay damages to the plaintiff is sound
and reasonable. However, the trial Court committed error in
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rejecting the claim of Rs.75,00,000/- on the head of general
damages and awarding interest only at 6% p.a. on
Rs.4,17,56,250/- since the transaction was commercial
transaction, the trial Court should have awarded interest at
18% p.a. on the same also. The contention of the
defendants that the trial Court had no territorial jurisdiction is
wholly unsustainable. As the defendants themselves filed
two other suits regarding the same cause of action before the
very same Court, all other contentions of the defendants in
the appeal and cross objection are unsustainable. The
appeals of the defendants are liable to be dismissed and the
cross objection shall be allowed.
19. In support of his contentions, he relies on the
following judgments:
1. Pathumma v. Kuntalan Kutty1
2. Kiran Singh v. Chaman Paswan2
3. The Associated Cement Company Ltd. v. State of
Karnataka3
4. RSDV Finance Co. Pvt. Ltd. v. Shree Vallabh
Glass Works Ltd.4
5. K.P.Kanga Rao v. K.V.Venkatesham5
(1981) 3 SCC 589
AIR 1954 SC 340
RFA No.151/2003 D.D.30.11.2009
(1993) 2 SCC 130
(2015) 13 SCC 514
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6. Bhagwandas Goverdhanas Kedia v. Girdharilal
Parshottamadas and Co.6
7. A.B.C.Laminart Pvt. Ltd. v. A.P.Agencies, Salem7
8. M/s Malaprabha Co-Operative Spring Mills Ltd.,
Belgaum Dist. V. M/s Buildment Pvt. Ltd.8
9. A.T.Brij Paul Singh v. State of Gujarat9
10. Mohd. Salamatullah v. Govt. of Andhra
Pradesh
11. Dwarkadas v. State of Madhya Pradesh11
12. ITC Zeneca Ltd v. Shri Balaji Agro Traders12
13. The Managing Director, J and K Handicrafts v.
M/s Good Luck Carpets13
14. Karnataka State Financial Corporation v. Sri
Nithyananda Bhavan14
15. Syndicate Bank v. West Bengal Cements
Limited15
16. The Managing Director Bhoruka Textiles Limited
v. M/s Kashmiri Rice Industries16
17. Maharashtra state Electricity Distribution Co.
Ltd. v. Datar Switchgear17
18. Hindustan Construction Co. Ltd. v. State of
Bihar18
19. Madhya Pradesh Power Generation Company
Limited v. Ansaldo Energia Spa19
20. BT Patil and sons v. The Chief Engineer20
AIR (1966) SC 543
AIR 1989 SC 1239
ILR 2013 KAR 94
AIR 1984 SC 1703
AIR 1977 SC 1481
AIR 1999 SC 1031
RFA No.917/2002 DD 13.10.2009
AIR 1990 SC 864
AIR 1982 Kant 179
AIR 1989 Del 107
RFA No.982/2007 DD 29.01.2008
(2018) 3 SCC 133
(1999) 8 SCC 436
(2018) 16 SCC 661
WA No.672/2007 DD 04.07.2011
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21. P.Dasaratharama Reddy Complex v. Government
of Karnataka21
22. Hind Construction Contractors v. State of
Maharashtra22
23. Mahabir Auto Stores v. Indian Oil Corporation23
24. Gopal Krishnaji Ketkar v. Mahomed Haji Latif24
Submissions of Sri Raghavendra Kulkarni, learned Counsel
for the defendants/appellants:
20. The Government of Karnataka had entrusted the
construction work to defendant No.1 and therefore the suit
without impleading the Government is bad for non-joinder of
necessary parties. The work in question had to be executed
in Belgaum District and Dharwad District. Therefore, the
Court at Bangalore had no territorial jurisdiction to adjudicate
the suit in O.S.No.11145/1997. The plaintiff failed to execute
the work within the time stipulated, thereby there was
breach of contract. Hence, the defendants/authorities were
justified in terminating the contract. There was arbitration
clause in the agreement. In the light of the said agreement,
the suit was barred by said arbitration clause. The trial Court
was not justified in awarding damages of Rs.4,61,38,077/-
on the basis of Exs.P106 to P110 which are un-audited
AIR 2014 SC 168
AIR 1979 SC 720
AIR 1990 SC 1031
AIR 1968 SC 1413
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accounts. The trial Court should have noticed that the suit for
damages without seeking declaration regarding termination
of the contracts were not maintainable. The findings of the
trial Court that the sites were not handed over to the plaintiff
was contrary to the evidence on record. Dismissal of the suit
of the authorities for recovery of mobilization of funds was
illegal. The bank have not encashed the bank guarantees
illegally and declined to encash the same. Therefore the trial
Court should have passed the decree against them for
recovery of bank guarantees. The trial Court decreed the suit
of the contractor and dismissed the suit of the defendants on
erroneous appreciation of the evidence on record. Therefore
the appeals of the authorities deserve to be allowed and the
cross objection of the contractor is liable to be dismissed.
21. In support of his contentions, he relies on the
following judgments:
1. Athmanathaswami Devasthanam v.
K.Gopalaswami25
2. Angile Insulations v. Davy Ashmore India Ltd.26
3. M/s.Malaprabha Co-operative Spinning Mills
Ltd. v. M/s Buildmet Pvt. Ltd.27
4. A.V.M. Sales Corporation v. Anuradha Chemicals
Private Limited28
AIR 1965 SC 338
(1995) 4 SCC 153
2012 (3) KCCR 2304 (DB)
(2012) 2 SCC 315
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5. ONGC Ltd. v. M/s. Modern Construction and
Co.29
6. National Thermal Power Corporation Ltd. v.
Flowmore Pvt. Ltd.30
7. Hindustan Steel Workers Construction Ltd. vs.
G.S.Atwal & Co. (Engineers) Pvt. Ltd.31
8. State of Maharashtra v. M/s.National
Construction Company32
9. Daewoo Motors India Ltd. v. Union of India.33
10. Laliteshwar Prasad Singh v. S.P.Srivastava34
11. M/s. MSK Projects (I) (JV) Ltd. v. State of
Rajasthan35
12. Ravinder Kumar Sharma v. State of Assam.36
Submissions of Sri Brijesh Chander Guree, learned Counsel
for the Bank:
22. The invocation of the bank guarantees were not
in accordance with terms of the bank guarantees. Therefore,
the Bank was not liable to encash the bank guarantees in
favour of KHB. Nothing was elicited to show that the bank
had arbitrarily rejected the claim for invocation of the bank
guarantees. Therefore the suits were rightly dismissed by the
trial Court. The said judgments as against the Bank do not
warrant any interference.
AIR 2014 SC 83
(1995) 4 SCC 515
AIR 1996 SC 131
AIR 1996 SC 2367
(2003) 4 SCC 690
(2017) 2 SCC 415
AIR 2011 SC 2979
AIR 1999 SC 3571
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23. On consideration of the submissions of both side
and on examination of the records, the points that arise for
consideration are:
(i) Whether the finding of the trial Court that the
defendants in O.S.No.11145/1997 are guilty of
breach of the terms of the contract is
sustainable?
(ii) Whether the finding of the trial Court that the
time was not the essence of the contract is
sustainable?
(iii) Whether the trial Court was justified in holding
that it had the jurisdiction to try
O.S.No.11145/1997?
(iv) Whether the impugned common judgment and
decree in O.S.No.7462/1995, O.S.No.8665/1995
and O.S.No.11145/1997 is sustainable?
Analysis
Reg. Point No.1 Breach of contract:
24. In all these three suits, common questions of law
and facts are involved. The admitted facts of the case are as
follows:
That defendant No.1/KHB floated a scheme called
'Ashraya Scheme' to provide houses and sites to the people
belonging to the weaker section of the society, by issuing the
Government Orders No.HUD 407 KHB 91 dated 24.06.1991
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and No.HUD 535 KHB 91 dated 04.11.1991 proposing to
build 1,75,000 houses in rural areas, 30,000 houses in
Bangalore urban areas and 30,000 houses in other urban
areas. On 14.11.1991, the Government entrusted the project
to defendant No.1/KHB. Cost of the houses in rural areas and
in urban areas was fixed at Rs.15,000/- and Rs.16,000/-
each respectively. Accordingly, defendant No.1 on
14.11.1991 invited the tenders from the contractors. The
tenders of the plaintiff were accepted and agreements were
entered into between the defendants and the plaintiffs for
construction of 8079 houses in 7 assembly constituencies
namely Byadagi, Ranibennur, Hirekerur, Hanagal, Shiggaon,
Shirahatti and Haveri in Dharwad district and 10,251 houses
in 9 assembly constituencies namely Ramdurga, Parasgad,
Bailhongala, Kittur, Khanapur, Belgaum Corporation,
Uchgaon, Bagewadi and Gokak in Belgaum district. The letter
of intent and work orders were issued for release of the
mobilization fund. The defendants took the bank guarantees
from the plaintiff issued by State Bank of Hyderabad. The
documents were separately marked in three suits, therefore
there is duplication of exhibits and witnesses. The trial Court
at least after consolidation of the suits should have
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consolidated the exhibits' numbers and the witnesses'
numbers for easy reference. Since O.S.No.11145/1997 is the
comprehensive suit and related to both Belgaum and
Dharwad constituencies, the documents in that case can be
referred for the purpose of these appeals.
25. The description of the documents/exhibits and
the particulars are set out in the table below:
Ex. Description Related constituencies
No.
P15 Separate Agreements Byadagi, Ranebennur,
to P21 for each Hirekerur, Hanagal,
constituencies in Shiggaon, Shirahatti and
Dharwad District Haveri
P22 General conditions of
contract
P6 to Separate agreement Ramadurg, Parasgad,
P14 for each Bailahongal, Kittur,
constituencies in Khanapura, Belgaum
Belgaum District. Corporation, Uchgoan,
Bagevadi and Gokak
26. On the request of the plaintiff, the defendants
released a sum of Rs.34,84,500/- as mobilization fund for the
work in Byadagi, Ranebennur, Hirekerur and Hanagal
constituencies and Rs.26,45,250/- with regard to Shirahatti,
Haveri and Shiggaon constituencies respectively. Regarding
Belgaum District constituency, no mobilization fund was
released. Thus the total mobilization fund released to the
plaintiff was Rs.61,29,750/-. The defendants terminated the
- 22 -
contracts regarding Dharwad District by letters dated
20.10.1992 and 22.12.1992 and Belgaum District by letter
dated 11.08.1992 on the ground that the plaintiff failed to
construct the houses as per the time schedule. Whereas the
plaintiff contends that the defendants themselves failed to
handover the sites as per the agreement, therefore they
were guilty of breach of contract and liable to pay the
damages.
27. The defendants' Counsel contended that the work
should have been completed within six months from the date
of agreement. Whereas the plaintiff contends that the work
had to be completed within six months from the date of the
delivery of the possession of the sites and in those six
months, three months' monsoon period has to be excluded.
Therefore this Court has to find out what was the time
schedule agreed.
28. As rightly pointed by the trial Court, all the
agreements were similar and contain the same clauses.
Clause 2(b) in all the agreements so far it relates to the time
schedule reads as follows:
"Program of work
(b) The Time allowed for carrying out the work
as entered in the tender shall be strictly observed by the
- 23 -
contractor, it shall be reckoned from the day of handing
over to the contractor, the work site area either full or in
parts."
29. In Clause 6 of the agreement, the clause
regarding period of construction is as follows:
"6. Period of construction- six months excluding
monsoon......................."
30. As per condition No.11, it was agreed that the
time allowed for the work from the date of the work order to
the contractor is six months period excluding the rainy
season from 15th June to 15th September. The defendants'
witnesses have unequivocally admitted that the time
stipulated starts to run after handing over the possession of
the sites. J.K.Sridharamurthy, the Manager of KHB who is
examined as PW.1 in the defendants' suit unequivocally
admitted that the time stipulated for construction of the
houses was nine months including the monsoon period and
that nine months had to be reckoned from the date of
delivery of the possession of the sites. The conditions of
agreement further show that the concerned Executive
Engineer had to conduct monthly review of the progress of
work and Chief Engineer had to conduct bimonthly review of
the progress of the work. The agreement further provides for
- 24 -
extension of time by the defendants to the plaintiff for
completion of the work in case the work is not completed on
time, on being satisfied about the reason for extension.
31. Therefore the question is whether the defendants
handed over the possession of the sites soon after the
agreements and the date of termination was after six months
of such delivery of possession of the sites to the plaintiff. The
defendants terminated the contracts relating to the
constituencies of Dharwad and invoked the bank guarantees
on the ground that the work was not completed within the
scheduled time. To show that the sites were not handed over
within the scheduled time, the plaintiff relied on Exs.P1 and
P2 the charts prepared by it about delivery of possession of
the sites. Ex.P1 is the chart relating to the constituencies in
Belgaum District and Ex.P2 relates to the constituencies in
Dharwad District. For the purpose of easy grasp, the
relevant particulars in Exs.P1 and P2 are extracted as below:
Description Constituency
Bagewadi Bailhongala Kittur Ramadur Parasgad Khanapur Belgaum Uchgaon Gokak
ga Corpn.
Total No. of 1097 1147 1097 1147 1147 1147 1150 1097 1222
sites
supposed to
be handed
over by KHB
at
Commenceme
nt of contract
- 25 -
Total No. of 101 80 25 Nil Nil Nil Nil Nil Nil
sites handed
over till date
of cancellation
of contract
Dates of 20 sites on 20 sites on 25 Not Not Not Not Not Not
handover of 15.7.92 20.7.92 sites on applicable applicabl applicabl applicabl applicabl applic
sites 15 sites on 60 sites on 15.7.92 e e e e able
20. 7.92 22.7.92
66 sites on
11.8.92
Completion 20 houses 20 houses 25 Not Not Not Not Not Not
date as per on 15.3.93 on 15.3.93 houses applicable applicabl applicabl applicabl applicabl applic
contract 15 houses on e e e e able
on 15.3.93 60 houses 15.3.93
66 houses on 15.3.93
on 15.3.93
Date of 11/8/92 11/8/92 11/8/9 11/8/92 11/8/92 11/8/92 11/8/92 11/8/92 11/8/9
contract
Balance time 20 houses - 20 houses 25 Not Not Not Not Not Not
for completion 7 months - 7 months houses applicable applicabl applicabl applicabl applicabl applic
still available -7 e e e e able
on date of 15 houses -
60 houses months
cancellation of 7 months
- 7 months
contract
66 houses -
7 months
No. of joint
progress Nil Nil Nil Nil Nil Nil Nil Nil
review Nil
meetings held
by Executive
Engineer as
required by
clause 2 (c) of
agreement
No. of
progress Nil Nil Nil Nil Nil Nil Nil Nil Nil
reviews by
Chief Engineer
in terms of
Clause 2 (c)
of agreement
Description Constituency
Haveri Shirhatti Shiggaon Byadagi Ranebennu Hirekarur Hangal
r
Total No. of sites
supposed to be 1147 1147 1197 1147 1197 1097 1147
handed over by
KHB at
- 26 -
Commencement of
contract
Total No. of sites
handed over till 249 684 182 32 Nil Nil Nil
date of cancellation
of contract
Dates of handover 50 sites on 283 sites 28 sites on 32 sites Not Not 8 sites on
of sites 24.4.92 on 20.7.92 on applicable applicable 13.10.92
07.08.92 26.9.92
76 sites on 25 sites on
10.9.92 179 sites 23.9.92
on 24.9.92
123 sites 94 sites on
on 222 sites 5.11.92
15.10.92 on
03.11.92 35 sites on
12.11.92
Completion date as 50 houses 283 28 houses 32 Not Not 8 houses
per contract on 23.1.93 houses on on 15.3.93 houses on applicable applicable on
15.3.93 25.03.93 14.4.93
76 houses 25 houses
on 15.3.93 179 on 22.3.93
houses on
123 23.3.93 94 houses
houses on on 4.5.93
14.4.93 222
houses on 35 houses
2.5.93 on 11.5.93
Date of cancellation 22/12/1992 22/12/1992 22/12/1992 20/10/199 20/10/1992 20/10/1992 20/10/19
Balance time for 50 houses- 283 houses 28 houses- 3 32 houses Not Not 8 houses
completion still 1 month - 3 months months - 5 applicable applicable - 6
available on date of months months
cancellation of 76 houses 179 houses 35 houses -
contract - 3 months - 3 months 3 months
123 houses 222 houses 94 houses -
- 4 months - 4.5 4.5 months
months
35 houses -
4.5 months
No. of joint
progress review
meetings held by
Executive Engineer Nil Nil Nil Nil Nil Nil Nil
as required by
clause 2 (c) of
agreement
No. of progress
reviews by Chief
Engineer in terms Nil Nil Nil Nil Nil Nil Nil
of Clause 2 (c) of
agreement
- 27 -
32. Exs.P1 and P2 were not disputed by the
defendants in any manner either in the cross-examination of
the plaintiff's witnesses or in the evidence of defendants'
witnesses. Nothing was produced to show that the sites
referred to in Exs.P1 and P2 were handed over to the
contractor in variance with the entries in Exs.P1 and P2.
J.K.Sridharamurthy official of defendants/KHB in his cross-
examination admitted that his statement in affidavit by way
of examination in chief that the construction should have
been completed within six months was incorrect. He has
admitted that the time stipulated including the monsoon
period was nine months and that had to be calculated from
the date of delivery of possession of sites to the contractor.
Though he claimed that the sites were handed over to the
contractor according to the schedule, he further states that
he cannot give such dates of delivery of possession of sites.
At another breath, he states that despite writing several
letters, the plaintiff did not come forward to take possession
of the sites in respect of four assembly constituencies. But
the said letters were not produced before the Court and he
admitted non-production of the same. He further admitted
that the contracts were terminated even before expiry of
- 28 -
stipulated period. Under the circumstances, the trial Court
was justified in relying on Ex.P1 and P2 and the oral evidence
of the plaintiffs' witnesses.
33. Ex.P1 shows that the defendants did not hand
over a single site in Ramdurga, Parasgad, Khanapura,
Ucchgaon, Gokak, Belgaum corporation etc. It further shows
that the defendants handed over only 101 out of 1097 in
Bagewadi constituency, 80 out of 1147 in Bailhongal, 25 out
of 1097 in Kittur Constituencies. Ex.P1 further shows that
the period for completion of the construction of the houses in
those constituencies was expiring on 15.03.1993. Whereas,
the contract was terminated on 11.08.1992 i.e., seven
months before the expiry of the stipulated period. So far as
Ramadurg, Parasgad, Khanapur, Belgaum Corporation,
Ucchgaon and Gokak, the time for commencement of the
work itself had not started.
34. Ex.P2 shows that the defendants had not handed
over single site in Ranebennur, Hanagal and Hirekerur
Constituencies. In Byadagi constituency as against 1147
sites, only 32 sites were handed over. So far as Haveri and
Shirahatti only 249 and 684 out of 1147 in each taluk were
- 29 -
handed over and in Shiggoan out of 1197 sites only 182 sites
were handed over. Ex.P2 and other evidence on record goes
to show that, the time for completion of the contract in those
constituencies was about to expire on 23.01.1993,
15.03.1993, 14.04.1993, 23.03.1993, 02.05.1993,
22.03.1993, 04.05.1993 and 11.05.1993 (based on data
available regarding delivery of the possession of the sites).
Whereas the contract was terminated on 20.10.1992 and
22.12.1992. That was much before the agreed time.
35. The plaintiff contended that the defendants had
to mark out the sites and deliver the same to it to execute
the work. The plaintiff further contended that in some places
the defendants directed the plaintiff to construct the houses
without such demarcation and the local people laying claim
over the same obstructed for taking possession. Another
Official by name B.R.Hosur, the Executive Engineer, who was
examined as PW.2 states that he has given his evidence
based on the records and he has no personal knowledge
about the facts in question. He further admits that he had no
knowledge about the affairs of defendant No.1 relating to
Belgaum District. He admits that marking out the sites
means marking the exact location of the places where the
- 30 -
houses had to be constructed. Though he claims that
separate work orders were issued in respect of different
villages, he says that he is unaware of it. According to him,
the xerox copies of the work orders are available in the office
records. He unequivocally admits that the defendants had to
handover possession of sites to the plaintiff for taking out the
construction work. One Mohammed Fayazuddin, the
Executive Engineer of defendant No.1 deposed about the
works in Dharwad district. According to him, there are
records in the office of the first defendant to show the dates
on which the sites were handed over to the plaintiff in
respect of different constituencies in Dharwad District.
According to him, the said documents were in
correspondence file. As rightly pointed out by the trial Court,
no such records were produced to prove that the sites were
handed over to the plaintiff as alleged.
36. One T.Mallanna, the Executive Engineer of first
defendant was examined as PW.4. He states in his cross-
examination that he has no personal knowledge about the
contract in question and he is giving evidence based on the
available records and the information gathered by him. He
admitted that no sites were handed over to the plaintiff in
- 31 -
respect of six assembly constituencies in Belgaum District. He
himself admits that he is not able to state about exact
number of sites which were handed over to the plaintiff in
respect of Bagewadi, Bailhongal and Kittur constituencies.
Relying on Exs.P51 and 52 an attempt was made to say that
despite the correspondence by defendant No.4 the plaintiff
itself did not receive the sites. But the above discussed
evidence shows that the defendants failed to prove that the
sites were handed over to the plaintiff on marking. Thus
there was breach of contract on the part of the defendants in
not delivering the sites as agreed.
37. The defendants contended that wherever the
sites were delivered, the work was not executed as per the
time schedule or the progress of the work was very slow.
Therefore the agreements were terminated. The defendants
could ascertain the progress of the work only if they
conducted a review of the work as per the clauses of the
agreements in that regard stated supra.
38. To prove that the work was in progress and the
defendants without any work review falsely alleged slow
progress in the work, the plaintiffs' relied on the evidence of
- 32 -
S.K.Mathur, the Managing Director of the plaintiff who is
examined as PW.1/DW.1 and Exs.P42, P76, P77, P83, P115
to P122. Ex.P42 is a letter dated 07.05.1992 addressed by
defendant No.4 the Executive Engineer, Hubli Division to
defendant No.1. The said document is not disputed. In that
document defendant No.4 himself had admitted that the
excavation work in respect of 50 houses at Karajagi railway
station site was in progress. That letter further shows that
within 2 months of entering into contract, such progress was
made. The witness J.K.Sridhar Murthy admitted that there
was progress in the work entrusted to the plaintiff with
reference to the sites handed over to it. Ex.P76 was marked
through S.K.Mathur. The said admitted document shows that
the plaintiff had made arrangements for exclusive supply of
blocks from three manufacturers. The said document further
shows that the plaintiff was entering into contracts with some
other vendors for supply of power, water, labour and
procuring the machines from Shirke machines and made
arrangements for procuring cements, jalli stones and
deployed the technical staff etc. Ex.P77 is another such work
progress report. Ex.P115 is the letter dated 24.11.1992
addressed by defendant No.4 to the Manager of State Bank
- 33 -
of Hyderabad. In that letter, defendant No.4 himself had
admitted that the work is going on. Exs.P116 to P122 show
that the plaintiff was working on the project. Those
documents also show that they were facing problems in
taking possession of the sites due to some litigation. In
Ex.D1 the letter dated 06.08.1992 (marked in
O.S.No.8665/1995) addressed by defendant No.4 to the
plaintiff, he himself admits that the work is in progress and
the construction of the houses were to be completed by the
end of March 1993.
39. In the light of the aforesaid documents and the
evidence, the burden was on the defendants to prove that
there was slow progress in the work. The defendants did not
produce any material to show that the Executive Engineer
and Chief Engineer conducted the work review as stipulated
in the agreement. The defendants' witnesses unequivocally
admitted that they have not produced any document to show
that such work review was conducted. Therefore the
contention that there was slow progress or no progress in the
work was rightly rejected by the trial Court. Contrary to their
own lapses, the defendants under Exs.P79 and P80 dated
20.10.1992, 22.12.1992 terminated the contracts relating to
- 34 -
7 constituencies in Dharwad district and under Ex.P78 dated
11.08.1992 terminated the contract relating to 9
constituencies of Belgaum District arbitrarily.
40. The trial Court on sound appreciation of the
evidence has returned the finding that the defendants were
guilty of breach of contract and the termination of contracts
were illegal. The said finding does not warrant any
interference.
Reg. Time being the essence of contract:
41. As noted above, the works were to be completed
within nine months including monsoon season. The said 9
months had to be computed from the date of delivery of
possession of sites. Further the contracts provide for
extension of time by the Executive Engineer on review of the
work on the basis of the progress achieved. The contention
that there was no progress in the work is already rejected.
The terms of the contract show that there was provision for
extension of time for completion of the work. Admittedly,
under Ex.D1 (O.S.No.8556/1995) defendant No.4 had
extended time for execution of the work in respect of
Dharwad District till March 1993.
- 35 -
42. Clause 2(d) of the condition of the contract under
Ex.P22 states that, if there is delay on the part of the
contractor to perform the work, according to Clause 2(b) &
(c) they shall be liable to pay penalty at certain percent of
the estimated costs of the balance work which could extend
upto 7½ %. Thus it is clear that the contract contained the
clause for extension of time and imposition of penalty in
cases of default.
43. The Hon'ble Supreme Court in para 8 of the
judgment in Hind Constructions Contractor's case referred to
supra held as follows:
"8. It will be clear from the aforesaid statement
of law that even where the parties have expressly
provided that time is of the essence of the contract
such a stipulation will have to be read along with
other provisions of the contract and such other
provisions may, on construction of the contract,
exclude the inference that the completion of the work
by a particular date was intended to be fundamental,
for instance, if the contract were to include causes
providing for extension of time in certain
contingencies or for payment of fine or penalty for
every day or week the work undertaken remains
unfinished on the expiry of the time provided in the
contract such clauses would be construed as rendering
ineffective the express provision relating to the time
being of the essence of contract. The emphasised
portion of the aforesaid statement of law is based on
- 36 -
Lamprell v. Billericay Union, Webb v. Hughes and
Charles Rickards Ltd. v. Oppenheim. ........................."
(Emphasis supplied)
44. Thus it becomes clear that even if one clause of
the contract says that time was the essence of the contract
and if there were clauses for extension of time and imposition
of penalty, then the clause with regard to time being the
essence of the contract renders ineffective. The trial Court
considering the aforesaid facts and circumstances and the
aforesaid judgment of the Hon'ble Supreme Court rightly
rejected the contention that time was the essence of the
contract.
Reg. Jurisdiction:
45. Learned Counsel for the defendants vehemently
argued that the works in question were to be executed in
Dharwad and Belgaum, defendant Nos.3 and 4 were the
residents of Belgaum and Dharwad respectively, therefore,
City Civil Court had no territorial jurisdiction to try the suit.
Section 20(b)(c) of CPC states that the suit can be filed
before the Court within whose jurisdiction any one of the
defendants resides or works or carries its business or cause
of action to suit wholly or in part arises.
- 37 -
46. As rightly pointed out by the trial Court, the suit
agreements were executed in Bangalore, defendant Nos.1
and 2 reside within the jurisdiction of the trial Court namely
XXVII Additional City Civil and Sessions Judge, Bangalore.
Therefore the suit was well within the territorial jurisdiction of
the trial Court. Further the defendants themselves filed the
suits before the very same Court in O.S.No.7462/1995 and
O.S.No.8665/1995 in relation to the contracts of 7
constituencies of Dharwad district claiming that the said
Court has jurisdiction. Therefore the contention that the trial
Court lacked territorial jurisdiction to entertain
O.S.No.11145/1997 is ridiculous and absurd. Suffice it to say
that innumerable judgments relied on by learned Counsel for
the defendants are not applicable to the facts of the present
case. The finding of the trial Court on that point is in
accordance with law and evidence on record.
Reg. Common impugned judgment in O.S.No.7462/1995,
O.S.No.8665/1995 and O.S.No.11145/1997:
47. Defendants of O.S.No.11145/1997 filed
O.S.No.7462/1995 for recovery of Rs.53,66,130/- and
O.S.No.8665/1995 for recovery of Rs.40,73,685/- with
interest at 18% per annum against the contractor and the
- 38 -
Bank on the ground that the contracts were terminated. The
said suits were filed claiming that the contractor failed to
perform his part of the contract and on termination of the
contract they are liable to refund mobilization funds released
by KHB with interest and the Bank was liable to encash the
bank guarantees on the request of KHB. It was contended
that the Bank wrongfully declined to encash the bank
guarantees, therefore the bank and the contractor were
jointly and severally liable to pay the said amount with
interest 18% p.a. Whereas the contractor claims that the
termination of the contract itself was illegal and by such
illegal termination he suffered damages to the tune of
Rs.5,36,38,077/-. Both contractor and the bank contended
that invocation of the bank guarantees was not in accordance
with the terms of the bank. Therefore they are not liable to
pay any amount. The contractor claims that as against that
the defendants themselves were liable to pay compensation
of Rs.5,36,38,077/ - with interest at 18% per annum under
different heads as per the table below:
Sl. Details In Rupees In Rupees
No
.
1 15% profit on the contract value 1,83,89,250/-
for construction 8079 houses in
Dharwad District-Contract value
is Rs.12,25,85,000/-
- 39 -
2 Expenditure incurred by the
plaintiff on executing the works
for Dharwad contract 70,75,981/-
Less Mobilisation advance
received from Karnataka 61,29,750/- 9,46,231/-
Housing Board.
3 Expenditure incurred by the
plaintiff in executing the works
for Belgaum contract 23,68,152/-
4 Interest on items 2 and 3 above
from the date of incurring to 10,67,444/-
date:
5 General damages on account of
loss of 5 business and loss of
reputation: 75,00,000/-
Total 3,02,71,077/-
6 15% profit on the contract value 2,33,67,000/-
for construction of 10,251
houses in Belgaum District
already included in plaint:
Contract value
Rs.15,57,80,000/-
Total Claim: 5,36,38,077/-
48. While answering the aforesaid point it is already
held that the termination of the contracts by the defendants
are arbitrary and illegal. In the similar circumstances, the
Hon'ble Supreme Court in para 12 of the judgment in
Mahabir Auto Stores's case referred to supra held that the
defendants terminated the contract even without giving any
opportunity to the plaintiff to justify itself. Therefore it was
held that when the State or the statutory bodies enter into
contract with the citizens, it should be reasonably fair.
Referring to its several earlier judgments in that paragraph it
was held that even though the rights of the citizens are in the
- 40 -
nature of contractual right, the manner, the method and the
motive of decision of entering or not entering into contract
are subject to judicial review on the touchstone of relevance
or reasonableness, fair play, natural justice, equality and non
discrimination in the type of the transactions and the nature
of the dealing.
49. The plaintiff contended that the defendants
wanted to give the contract to one Swarnamukhi Building
Components Ltd. and Akshaya Constructions for extraneous
consideration. Therefore, they terminated their contract with
the plaintiff without any reasons under the colour that the
progress of the work was slow. According to the contractor,
such termination is colourable exercise of the power.
50. The plaintiff's witnesses viz., B.R.Hosur,
Mohammed Fayazuddin and Mallanna in their cross-
examination unequivocally admitted that immediately after
termination of the contract, the defendants without re-
tendering entrusted the same to one Swarnamukhi Building
Components in Dharwad District and to one Akshaya
Constructions in Belgaum District. Their evidence further
shows that even before termination of the contracts
pertaining to Belgaum District, they have entrusted the
- 41 -
contracts to Akshaya Constructions relating to that district
without re-tendering. Therefore there is lot of force in the
contention of the plaintiff that termination of the contracts
against it were malafide and for extraneous consideration of
favouring the aforesaid two contractors.
51. The witnesses S.K.Mathur and H.Sreenivasan are
the plaintiff's Managing Director and Chartered Accountant
respectively. S.K.Mathur reiterated how they arrived at the
damages claimed by them. They have deposed about the
arrangements which were made to execute the work,
whether the sites were handed over to the contractor.
Rs.94,44,133/- was claimed as expenditure incurred by the
contractor, as per their account books consisting of ledger
books Exs.P85 to P93. They rely on Exs.P94 to
P105/vouchers to support the expenditure incurred by the
contractor.
52. The witnesses have spoken about Exs.P106 to
P110 the auditors reports with balance sheets for four years
from 1991-1992 to 1995-1996. Both witnesses state that
accounts were maintained regularly in usual course and the
same were submitted to the Income Tax Authorities and the
- 42 -
Registrar of Companies. According to their evidence Ex.P111
was the Chartered Accountant's certificate for the total
expenditure on the project with bifurcation between Dharwad
and Belgaum District.
53. The plaintiff claimed that since they had taken
out work in those districts during that time, the contractor
had not accepted any other work. Exs.P85 to P93 were
account books relating to the suit contracts only. According
to their evidence, the plaintiff has incurred expenditure of
Rs.70,75,981/- for Dharwad District on deducting
mobilization advance of Rs.61,29,750/- received from the
Board, the loss suffered by the contractor regarding Dharwad
District is Rs.9,46,231/-.
54. According to the plaintiff's evidence, the plaintiff
incurred expenditure of Rs.23,68,152/-. Admittedly regarding
Belgaum District, no mobilization funds were released. The
plaintiff's witnesses have spoken about arrangements made
to execute the work in question like establishment of six
concrete block making factories in Dharwad and Belgaum
Districts, obtaining the lands in question from Town Municipal
Council, Haveri and conducting of reconnaissance survey etc.
Their deposition was supported by Exs.P26 to P32 and
- 43 -
Ex.P46, the letter dated 31.07.1992 issued by the Chief
Administrative Officer regarding lease of land for block
making factories and the plaintiff's letter dated 19.12.1992 to
the Board. Admittedly part of the work was executed. Due to
abrupt termination of the contracts, except mobilization of
the funds received, no other amount was received by the
contractor. The plaintiff assessed damages at 15% of the
contract value for the construction of 8079 houses in
Dharwad District. The defendants did not dispute that the
contract value of Dharwad District was 12,25,85,000/- and
Belgaum District was 15,57,80,000/- respectively.
55. The Hon'ble Supreme Court in the judgment in
A.T.Brij Paul Singh. V. State Of Gujarat37 held that the
contractor is entitled to 15% of balance of price of the works
as damages in cases of breach of contract. The trial Court
applied the same and accepted that the claim of the plaintiff
for Rs.1,83,89,250/- in respect of Dharwad District and
Rs.2,33,67,000/- in respect of Belgaum District by way of
15% of the profits of the contract value.
56. Since the matters arise out of the commercial
contract, the plaintiff claimed Rs.10,67,444/- by way of
AIR 1984 SC 1703
- 44 -
interest at the rate of 18% per annum. The expenditure
incurred by it was Rs.33,14,383/- (Rs.9,46,231/- +
Rs.23,68,152/-). Since the transaction in question is
commercial in nature, the trial Court rightly allowed the
interest at 18% per annum claimed by the plaintiff.
57. The plaintiff claimed Rs.75,00,000/- by way of
general damages due to arbitrary termination of the contract
due to which his reputation was foiled and he suffered
business loss also. Except the self serving evidence of
S.K.Mathur/DW.1 there was no other independent evidence
to show that due to termination of the contract, reputation of
the plaintiff was lowered in the society and such loss and
reputation had a dent on his business prospects.
58. So far as loss of business suffered by him, he
claimed 15% of the project costs as damages on the head of
loss of profit. He had not commenced the work in Belgaum
District and he had not executed substantial portion of the
work in Dharwad District due to not handing over of the sites.
On that count also, the trial Court has awarded damages of
Rs.2,33,67,000/-. After awarding such compensation, again
awarding compensation on the head of business loss
amounts to duplication. According to the plaintiff's evidence
- 45 -
itself, he did not take up any other work for the purpose of
execution of the work in dispute. When he says that he has
put all his men and material for the purpose of his work, as
rightly pointed out by the trial Court, he accepting other
works during the same period does not arise and more so
that is not acceptable. Therefore the trial Court was fully
justified in rejecting such claim of Rs.75,00,000/-.
Reg. Interest:
59. The plaintiff claimed interest at 18% per annum
on all the items of damages claimed by it. The actual
expenditure or the investment made by the plaintiff was
Rs.9,46,231/- and Rs.23,68,152/-. The rest of the damages
was by way of loss of profit for the contract period. The
damages of Rs.1,83,89,250-/- and Rs.2,33,67,000/- was in
all amounting to Rs.4,17,56,250/- was granted by way of
profit without execution of the work. Therefore the trial Court
justifiably awarded interest at 18% per annum on the
expenditure incurred by the plaintiff and awarded interest at
6% per annum on the award by way of profits. Under such
circumstances, it cannot be said that the trial Court exercised
discretion arbitrarily in awarding interest. Moreover the
defendants are public authorities. The damages have to be
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paid from public funds. On that count also, awarding interest
at 18% per annum on the damages is not appropriate. Under
such circumstances, the judgments relied on by learned
Counsel for the plaintiff cannot be justifiably applied to the
facts of the present case regarding interest.
Reg. Bar by Arbitration clause:
60. So far as the contention regarding suit being
barred by arbitration clause, as rightly pointed out by the
trial Court, such plea should have been taken soon before
filing of the written statement. Firstly, that was not seriously
urged before this Court. Secondly, the defendants should
have raised such contention before filing of the written
statement, as per Section 8 of the Arbitration Act, 1996.
Further the defendants themselves filed other two suits
waiving arbitration clause. Therefore, the trial Court rightly
rejected the contention of maintainability of the suit in view
of arbitration clause in the agreement.
Reg. Invocation of Bank guarantees:
61. Much was argued on behalf of the defendants
that the Bank committed default in declining to encash the
bank guarantees and that amounts to violation of the terms
of the bank guarantee, therefore, the Bank is liable to make
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good the sums of the bank guarantees with interest. Whereas
the bank claimed that the bank guarantees were not invoked
in accordance with the terms of the bank guarantee,
therefore, it was justified in declining to encash the bank
guarantees.
62. In view of the finding of this Court that the
defendants themselves were guilty of breach of contract,
they are not entitled to invoke the bank guarantees. If the
bank guarantees were permitted to be encashed, that would
have led to miscarriage of justice and multiplicity of the
proceedings, as the plaintiff had to again take recourse for
recovery of the said amount. Therefore, the defendants were
not entitled to invoke bank guarantees.
63. As per Clause 2 of the Bank guarantee bonds, the
defendants were required to make demand invoking Bank
guarantees in following the terms that amount is claimed as
damages by way of loss or damage caused to or would be
caused to or suffered by KHB by reason of any breach by
the said contractor of any of the terms or conditions
contained in the said agreement or by reasons of the
contractor's failure to perform the said agreement.
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64. Ex.P10 (O.S.No.8665/1995) is the letter which is
similar to the other letters invoking bank guarantees. In the
said letter, there was no whisper that the bank guarantee is
being invoked and the amount is being claimed by way of
loss or damage caused to or would be caused to or suffered
by KHB as contemplated under Clause 2 of the Bank
guarantee bond. The Bank claims that since the bank
guarantees invocation letters did not include that clause, it
was not liable to encash the bank guarantees. Since the said
material clause was not incorporated in invocation letters, it
cannot be said that the bank's rejection to encash them was
arbitrary.
65. Having regard to the aforesaid facts and
circumstances of the case the judgments in National Thermal
Power Corporation Ltd.'s, Hindusthan Steel Workers
Constructions Ltd., State of Maharastra's and Daewoo
Motors India ltd.'s cases referred to supra relied on by
learned Counsel for the defendants on this point cannot be
justifiably applied to the facts of this case.
Reg. Non-joinder of parties:
66. So far as the contention that the suit was barred
for non-joinder of the parties, the records show that the
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defendants in O.S.No.11145/1997 had not raised such
contention before the trial Court and no issues were framed
on the said contention. As against that, they contended that
the suit was bad for mis-joinder of the parties. Therefore it is
not open to them to raise such contention for the first time
before this Court.
67. The above discussions show that the trial Court
on sound appreciation of all the evidence, the applicable law
and supplying sound reasons has partly decreed the suit in
O.S.No.11145/1997 and dismissed O.S.No.7462/1995 and
O.S.No.8665/1995. It can be said that the impugned
judgment and order is well written judgment. Therefore there
are no grounds to interfere with the same. Hence the
following:
ORDER
RFA No.1238/2008, RFA No.1251/2008, RFA
No.1252/2008 and RFA Cross objection No.5/2012 are
hereby dismissed.
The judgment in O.S.No.7462/1995, O.S.No.8665/1995
and O.S.No.11145/1997 are hereby confirmed.
No order as to costs.
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The original title deeds furnished, if any, as security by
respondent No.1 in R.F.A.No.1238/2008 shall be returned to
him.
Sd/-
JUDGE
Sd/-
JUDGE
KSR
