Kerala High Court

State Of Kerala vs Baby Varghese on 24 March, 2023

                                                            C.R.
          IN THE HIGH COURT OF KERALA AT ERNAKULAM
                           PRESENT

        THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE
                              &
       THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN
 FRIDAY, THE 24TH DAY OF MARCH 2023 / 3RD CHAITHRA, 1945

                         RFA NO. 36 OF 2019

  AGAINST THE JUDGMENT DATED 24.11.2017 IN OS 67/2013 OF
                   SUB COURT, ERNAKULAM
APPELLANTS/DEFENDANTS:

   1          STATE OF KERALA
              REPRESENTED BY DISTRICT COLLECTOR, ERNAKULAM

   2          THE EXECUTIVE ENGINEER,
              OFFICE OF THE EXECUTIVE ENGINEER, MAJOR
              IRRIGATION DIVISION, KAKKANAD, ERNAKULAM

   3          THE ASSISTANT EXECUTIVE ENGINEER,
              MAJOR IRRIGATION SUB- DIVISION, KAKKANAD,
              ERNAKULAM

              BY ADV GOVERNMENT PLEADER

              ADV. K.V. MANOJ KUMAR SR. GP


RESPONDENT/PLAINTIFF:

              BABY VARGHESE, S/O. VARGHESE, NADAKKAL HOUSE,
              KIZHUURY P.O., RAMAMANGALAM, ERNAKULAM,PIN-686
              663

              BY ADVS.
              SRI.RAJESH CHERIAN
              SRI.V.VINAY MENON
              P.T.MOHANKUMAR(K/78/1983)

       THIS    REGULAR   FIRST    APPEAL   HAVING    COME   UP   FOR

ADMISSION      ON   22.03.2023,     THE    COURT    ON   24.03.2023

DELIVERED THE FOLLOWING:
 RFA NO. 36 OF 2019

                           ..2..



                                                    C.R.
 A.MUHAMED MUSTAQUE & SHOBA ANNAMMA EAPEN, JJ.
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              R.F.A No. 36 of 2019

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    Dated this the 24th day of March, 2023

                 J U D G M E N T

A. Muhamed Mustaque, J

This appeal was filed by the State

challenging a decree allowing the plaintiff to

recover Rs.62,58,000/- together with 6% interest

from the State.

2. The plaintiff is a contractor and he was

engaged by the Public Works Department (PWD) for

dredging, cleaning and improving the boundary

canal in West Cochin known as Rameswaram-Calwati

Canal. The nature of work has been specifically

mentioned in the agreement executed between the

plaintiff and the Department. The plaintiff had a

two-fold claim. One is based on the agreement

and the other is based on the work undertaken on RFA NO. 36 OF 2019

..3..

the alleged instruction of the Department and the

local MLA. According to the plaintiff, though he

was entitled for more than Rs.97,45,032/- from

the Department, he limited his claim to Rs.47

Lakhs for the purpose of valuation and court fee.

Besides the above claim, he also demanded the

return of the retention amount of Rs.9 Lakhs and

Rs.1 Lakh deposited towards security. The

plaintiff also claimed damages to the tune of

Rs.5 Lakhs from the Department.

3. The trial court allowed all other claims

except the claim for damages. We are not able to

discern from the trial court judgment as to how

the trial court arrived at the calculation of the

amount. At the appellate stage, the learned

counsel for the appellant pointed out that a

calculation statement was made based on

measurements recorded in Ext.B2 series and that

statement was given to the trial court Judge. A

copy of the calculation statement was also made RFA NO. 36 OF 2019

..4..

available before us for perusal.

4. The learned Senior Government Pleader

Sri. K.V. Manoj Kumar pointed out that the trial

court having declined the relief as against the

declaration to the effect that the plaintiff was

not liable to execute the remaining part of the

work and that the balance work shall not be at

his risk and cost, this Court could not have

granted the decree sought by the plaintiff for

recovering the money. The learned Government

Pleader further submitted that the contract

having been terminated at the risk of the

plaintiff, he is liable to compensate the

government for the loss.

5. Before we proceed to decide the question

involved in this case, we need to state the law

regarding quantification of loss and recovery by

the State based on contract. There are different

views expressed at the Bar in regard to the

unilateral determination of loss and retention of RFA NO. 36 OF 2019

..5..

the amount due as well as also recovery by the

State based on the alleged breach of contract.

It is to be noted that the State is empowered to

recover its dues by raising demand as public dues

of revenue on land under the Revenue Recovery

Act, 1890. The question is whether the State can

unilaterally determine its loss and has any right

to retain any amount payable to the plaintiff

contractor.

6. In Union of India v. Raman Iron Foundry

[(1974) 2 SCC 231], a two judges Bench of the

Apex Court opined that based on a Government

contract, the Government had no right or

authority to appropriate the amounts of a

contractor from pending bills towards

satisfaction of its claim for damages without

independent adjudication by the adjudicating

authority. This decision was overruled by a

three judge bench decision of the Apex Court in

Kamaluddin Ansari and Co. v. Union of India RFA NO. 36 OF 2019

..6..

[(1983) 4 SCC 417]. The Apex Court is of the view

that though the Government can be injuncted from

recovering or appropriating the amount under the

bills of the contractor for the damages claimed,

it cannot be injuncted from withholding such

amount under the bills. In State of Gujarat

through Chief Secretary and Another v. Amber

Builders [(2020) 2 SCC 540], the views of the

three bench decision in Ansari's case has been

reiterated.

7. In the State, the Kerala Public Works

Department manual is followed as part of the

works awarded by the State Government and the

Public Works Department. Clause 2116.2.1

stipulates realisation of loss on account of

termination, which reads thus:

"Realisation of loss on account of termination.

An amount equal to 30% of the cost of the remaining works at agreed rates of the terminated contract shall be recovered from the defaulted contractor towards the risk and cost. The contractor shall be directed to remit the risk and cost RFA NO. 36 OF 2019

..7..

amount within three months. There is no need to wait till the work is arranged alternatively through another contractor and the total loss sustainable due to the default of the original contractor is assessed. Such loss, if any, shall be realised after completion of the work. If he fails to remit the amount within this periods following steps can be adopted for realisation of loss. The amount can be realised from the following.

EMD/Security Bill amount/retention if any due to the contract.

Any dues from department to the contractor Bank guarantee/Performance Guarantee of By filling civil suit against the contractor"

8. In the light of the above clause, PWD

can unilaterally determine the loss and retain

any amount due to the contractor under the bill

for the dues, though it cannot appropriate the

amount due calculated towards the loss. The

remedy, in such a situation, for a contractor is

to challenge the determination in an appropriate

manner. The authority of PWD to retain any amount

due under the bill cannot be questioned in the

light of the contract. However if the State or

the Department wants to recover any amount RFA NO. 36 OF 2019

..8..

towards loss in excess of the amount retained, it

has to file a suit or counter claim.

9. A problem may arise in a civil suit

filed by the contractor against the State or the

Department, where the latter would raise a claim

based on the loss calculated unilaterally by the

Department. At the Bar it was addressed that the

defendant-State or Department will have to raise

a plea of set-off or counterclaim and in the

absence of such plea of set-off or counterclaim,

such determination of loss cannot be considered

by the Civil Court. This is not a correct

position of law. Raising a plea of set-off or

counterclaim would arise only when a party has no

authority to decide upon the claim made by him.

If no challenge is made by the plaintiff, the

State or Department is entitled to retain it as

they have the authority under the contract to

retain the amount calculated unilateraly towards

the loss. The remedy in such a situation for the RFA NO. 36 OF 2019

..9..

aggrieved is to challenge such determination.

However, if the state or department wants to

recover any excess amount than the retained

amount towards the loss, they will have to raise

a plea of set-off or counter claim in such a

suit.

The legal position is as follows:

i) In a contract with the State or its

Department, if the contract allows the Department

to recover loss, the amount calculated towards

the loss cannot be directed to be paid without

there being a challenge against the determination

of loss.

ii) In a suit for recovery laid down by the

plaintiff/contractor, the State or Department

need not raise a plea of set-off or counterclaim

for any amount retained by them towards loss

based on the contract.

iii) if the state or department wants to

recover any amount over and above the retained RFA NO. 36 OF 2019

..10..

amount, they will have to file a separate suit or

will have to raise a plea of set-off or

counterclaim in a suit against them.

iv) In the absence of any contract, the

State or Department will have to raise a plea of

set-off or counterclaim in a suit filed by the

contractor.

10. The suit in this case was filed on

14.01.2013. The three points that arise for

consideration in this matter are:-

i). The calculation of the amount of

Rs.47,00,000/- as cost of unpaid work, as per

the agreement.

ii). The right of the plaintiff to recover

the cost of extra work not covered by the

agreement.

iii).The right of Authority or the State to

recover the loss.

Point No.i

The plaintiff appears to have relied on RFA NO. 36 OF 2019

..11..

Ext.B2 series measurement for calculating the

amount recovered. It is not discernible from the

impugned judgment as to how the trial Judge

arrived at the amount with reference to the

measurement referred to in Ext.B2 series. It is

the fundamental principle in adjudication that

disputed claims have to be substantiated on legal

evidence. The trial court could have directed the

plaintiff to file the calculation statement

detailing the measurements and amount claimed and

mark the same as an exhibit. This could have

given an opportunity to the defendants to object

to the calculation. The trial Judge completely

erred in framing the issue and assimilating the

evidence thereon to decide the issue. We are,

therefore, of the view that the calculation shall

be reworked after remand.

Point No.ii

Admittedly, the additional work has been

carried out in respect of the four branch canals. RFA NO. 36 OF 2019

..12..

The Government refused sanction for the

additional work. Nobody has a case that the

plaintiff has not done any additional work. The

additional work also has been recorded in Ext.B2

series. That means, the additional work was done

with the consent and knowledge of the Department.

This would probablise the case of the

plaintiff/contractor that the additional work was

done at the behest of the local MLA and as

instructed by PWD officials. Under Section 70 of

the Indian Contract Act, 1872, a person who

enjoys the benefits of non-gratuitous act is

bound to make compensation to the person from

whom such service is availed. Therefore, the

administrative sanction is an internal matter

between the Government and the Department. Thus,

the defendants are bound to pay for the

additional work done by the plaintiff. However,

we again see here that no calculation has been

made for the additional work carried out. RFA NO. 36 OF 2019

..13..

Therefore, for the purpose of calculation, the

matter has to be remanded back to the trial

court.

Point No.iii

The suit was filed on 14.01.2013. The written

statement was filed on 22.05.2013. In the written

statement, no specific plea has been raised on

the determination of loss and the recovery to be

effected from the plaintiff. It is seen from the

proof affidavit filed by PW1 that the plaintiff

was terminated from the contract by an order

dated 30.01.2013 at his risk and costs,

forfeiting the security deposit based on the

agreement. It is also seen that by an order dated

25.01.2014, the contractor was found liable to

pay Rs.54,98,879/-. The suit was disposed of only

on 24.11.2017. The plaintiff had no case that he

was not aware of the determination of loss. In

fact, pending suit, the plaintiff challenged the

determination of loss in a writ petition filed RFA NO. 36 OF 2019

..14..

Court did not interfere with the termination of

the contract. This Court, taking note of the

pendency of the civil suit, relegated the parties

to workout their remedy before the civil court.

This judgment has been marked as Ext.A17. The

learned counsel for the plaintiff/contractor

pointed out to the observation of this Court in

para 5, which reads thus:

"It is settled law that, if at all any loss has been resulted, it cannot be quantified and realised by one of the parties to the contract and the same has to be got adjudicated by appropriate Forum. This being the position, it is open for the respondents to take appropriate proceedings, in accordance with law, to get the alleged loss/ amount quantified . It is also open for them to file counter claim, if so advised, in the civil suit filed by the petitioner as O.S.67 of 2013 before the Sub Court, Ernakulam and to pursue the matter accordingly."

Therefore, the argument is that without a

plea of set-off or counterclaim, the State or the

Department cannot now raise a claim based on

loss. It is true that in intra-party cases, RFA NO. 36 OF 2019

..15..

certain observations have been made in regard to

the claim made by the Department. It is to be

noted that it was only an observation and no

issue has been adjudicated. The challenge itself

has been negatived in the writ petition with a

liberty to work out their remedy in civil court.

In such circumstances, the plaintiff ought to