Geo Foundations and Structures Private Limited v. Union of India and Lakshadweep Harbour Works (The Andaman and Lakshadweep Harbour Works, Ministry of Shipping) with Deputy Chief Engineer, Lakshadweep Harbour Works added

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE T.R.RAMACHANDRAN NAIR** ## **FRIDAY, THE 6TH DAY OF JULY 2012/15TH ASHADHA 1934** ## **WP(C).No. 8302 of 2012 (K)** **--------------------------------------** **PETITIONER:** **-------------------** **GEO FOUNDATIONS AND STRUCTURES PRIVATE LIMITED, 6TH FLOOR, ALPHA PLAZA, K.P.VALLON ROAD, KADAVANTHRA, KOCHI - 20, REPRESENTED BY ITS PRESIDENT.** **BY SRI.RENJITH THAMPAN, SENIOR ADVOCATE, ADV. SRI.V.M.KRISHNAKUMAR.** **RESPONDENTS:** **------------------------** **1. THE UNION OF INDIA, REP. BY SECRETARY, DEPARTMENT OF SHIPPING ROAD,TRANSPORT AND HIGHWAYS, NEW DELHI, PIN - 110 001.** ***2.THE LAKSHADWEEP HARBOUR WORKS, KAVARATHY, 682 555, REP. BY ITS CHIEF ENGINEER, PIN - 682 555.** ## ***R2 SUBSTITUTED AS:** **“THE ANDAMAN AND LAKSHADWEEP HARBOUR WORKS, MINISTRY OF SHIPPING, GOVERNMENT OF INDIA, MALSYAPURI, WELLINGTON ISLAND, PIN - 682 029, REPRESENTED BY OFFICER IN CHARGE”.** ***R2 IS SUBSTITUTED AS PER ORDER DATED 22.05.2012 IN IA.6184/2012.** **W.P.(C).NO. 8302/2012-K :** ## ****3. DEPUTY CHIEF ENGINEER** **LAKSHADWEEP HARBOUR WORKS, KAVARATHY PIN - 682 555.** ****ADDED** ## **“ MALSYAPURI** **WILLINGTON ISLAND, PIN - 682 029** ****ADDED AS PER ORDER DATED 22.05.2012 IN IA.6184/2012.** **R1 BY SRI.P.PARAMESWARAN NAIR,A.S.G OF INDIA, R2 & R3 BY ADV. SRI.S.RADHAKRISHNAN,S.C.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 26-06-2012, ALONG WITH W.P.(C).NO. 12050/2012, THE COURT ON 06/07/2012 DELIVERED THE FOLLOWING:** ## **W.P.(C).NO.8302/2012-K:** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXT.P-1: TRUE COPY OF THE RELEVANT PAGE OF THE AGREEMENT NO.LHW/DCE/ART-07/2005-2006.** **EXT.P-2: TRUE COPY OF THE DETAILS OF THE EQUIPMENTS PLANTS, AND OTHER ITEMS STORED BY THE PETITIONER AT THE WORK SITE OF JETTY. EXT.P-3: TRUE COPY OF THE LETTER DATED 07.02.2012 OF THE 3RD RESPONDENT.** **EXT.P-4: TRUE COPY OF THE LETTER DATED 08.02.2012 ISSUED BY THE PETITIONER TO THE 3RD RESPONDENT. EXT.P-5: TRUE COPY OF THE TENDER NOTICE NO.DCE/KVT/DB/T-35/2011-12 DATED 31.01.2012 OF THE 3RD RESPONDENT. EXT.P-6 TRUE COPY OF THE LETTER DATED 27.02.2012 ISSUED BY THE PETITIONER TO THE 3RD RESPONDENT.** ## **RESPONDENTS' EXHIBITS: NIL.** ## **//TRUE COPY//** ## **P.A. TO JUDGE.** **Prv.** ## **T.R. Ramachandran Nair, J.** **- - - - - - - - - - - - - - - - - - - - - - - -** ## **W.P.(C) Nos. 8302 & 12050 of 2012** **- - - - -- - - - - - - - - - - - - - - - - - - - -** ## **Dated this the 6th day of July, 2012** ## **JUDGMENT** Both these writ petitions are filed by the same petitioner and they were heard together. 2. The petitioner was granted a contract by the respondents for the execution of the work relating to construction of Reinforce Cement Concrete (RCC) Jetty on bored pile foundation including two numbers of Mooring Dolphin at the eastern side of the Kavarathy Island. The value of the contract was Rs.6,25,24,471/-. An agreement was executed and the first page of the same has been produced as Ext.P1. The period of completion of the contract is fixed as 24 months. 3. The petitioner has pointed out in para 2 of W.P.(C) No.8302/2012 that there was some delay in completion of the work due to frequent bad weather and other reasons. In May 2007 a natural disaster had also occurred, wherein the entire piling gantry along with machinery and materials were totally washed away causing huge loss. Some other difficulties also arose with regard to the transportation of men and materials and the difficulty was there to obtain sand for the completion of the work. WPC.8302 & 12050/2012 - 2- It is averred in para 3 that the petitioner was able to complete 74% of the work and all the works except one which is valued at Rs.1,25,00,000/-, have been completed. 4. Ext.P2 produced in W.P.(C) No.8302/2012 contains the details of equipments, plants and other items stored by the petitioner at the work site which are valued at Rs.1,93,92,056/-. The petitioner had submitted the bills for the works done at Rs.5,56,11,889/- and he was paid an amount of Rs.3,41,08,705/- and the balance payable, according to the petitioner, is Rs.2,00,67,083/-. Apart from the same, the earnest money deposit of Rs.14,44,000/-, security deposit of Rs.16,82000/- and the performance bank guarantee of Rs.31,25,000/- are also there. 5. The controversy herein has arisen in the light of the cancellation of the contract invoking clause 14 of the agreement, by letter dated 7.2.2012 by the third respondent, which is produced as Ext.P3 in W.P.(C) No.8302/2012. The petitioner thereafter sent Ext.P4 letter seeking to exempt him from further penal action. Ext.P5 is the retender notice issued by the respondents. 6. In W.P.(C) No.8302/2012 mainly it is contended that Ext.P3 is issued in violation of clause 14 of the agreement and the maximum WPC.8302 & 12050/2012 - 3- compensation that can be levied against the petitioner is 10% of the tendered amount, going by clause 14 itself. The total undisbursed amount to the petitioner will be at Rs.4,55,00,000/- which includes the value of materials, the earnest money deposit, the performance bank guarantee, the security deposit and the amount due as per the final bill. It is pointed out that the materials brought by the petitioner are remaining idle and the petitioner is entitled to get back the same and he submitted a letter as per Ext.P6 in that regard. Alternatively it is prayed that the value of materials may be assessed with notice to him. Contending that the respondents are not taking any action in the matter, W.P.(C) No.8302/2012 has been filed. 7. In W.P.(C) No.12050/2012, the challenge is against Ext.P8 letter issued by the third respondent to the Bank revoking the bank guarantee to the tune of Rs.31,26,300/- submitted by the petitioner. 8. Heard Shri Ranjith Thampan, learned Senior Counsel for the petitioner and learned Assistant Solicitor General for the respondents. 9. Learned Senior Counsel for the petitioner submitted that clause 14 of the agreement produced as Ext.P1 in W.P.(C) No.8302/2012 (Ext.P1 (a) in W.P.(C) No.12050/20120), requires a prior notice to the petitioner and in the absence of a notice, the termination itself is bad. It is pointed out WPC.8302 & 12050/2012 - 4- that the action is highly arbitrary and illegal. Learned Senior Counsel invited my attention to the various aspects including the details of the calculation made by the petitioner, produced as Ext.P7 in W.P.(C) No.12050/2012 and the averments in the counter affidavit and reply affidavit of the petitioner. Learned Senior Counsel therefore contended that at any rate, the balance bill amount will have to be disbursed and the cost of materials have to be reckoned, apart from the release of the security amount, earnest money deposit and the performance bank guarantee. It is submitted that the petitioner shall be allowed to remove the materials, as otherwise it will become a waste and if the respondents are delaying the matter, it will cause undue hardship to the petitioner and the value of the materials also will be considerably reduced. Learned Senior Counsel submitted that the petitioner is having expertise for removing the materials also. Learned Senior Counsel relied upon the decisions of the Apex Court in **State of Karnataka v. S.R. Rice Mills** (AIR 1987 SC 1359) and **Automotive Tyre Manufacturers Association v. Designated Authority and others** {(2011) 2 SCC 258} to contend for the position that the termination of the contract, that too without notice is clearly illegal. 10. The stand of the respondents, going by the averments in the WPC.8302 & 12050/2012 - 5- counter affidavit in W.P.(C) No.12050/2012 is that the clause relied upon by the petitioner as per Ext.P1 is part of the C.P.W.D. Form 8 which is not related to the agreement in question and the true copy of the relevant page of the agreement executed by the petitioner and the department has been produced as Ext.R1(a) therein. It is submitted that the above clauses are totally different. The petitioner had to complete all the works within a span of 24 months, i.e. on or before 1.9.2007. During the initial 20 months period only 25% of the works alone has been done. The fact that there was an inclement weather and high waves hit on the jetty on 16.5.2007 and the bored piles completed by the petitioner were washed away, has been admitted. It is stated that the petitioner showed exaggerated amount of loss. The department had been making payments promptly and those details have not been made available by the petitioner in the writ petition. After considering the difficulties pointed out by the petitioner, due extension has been granted upto 31.12.2010, as per the request of the petitioner produced as Ext.R1(b). 11. The respondents point out that the petitioner has completed only 71% of the works within a period of 75 months. The department has released payment for the work done upto 30.8.2011, valued at WPC.8302 & 12050/2012 - 6- Rs.4,41,34,202/-. It is stated that clause 14 enables termination of the work in such circumstances and the work was retendered at the approved rate in June 2004. Ext.R1(c) is the extract of Tolls and Plants. The dues to be recovered have been informed to the petitioner as per Ext.R1(d) letter which has been suppressed by the petitioner. It is stated in para 9 of the counter affidavit that the value shown for the materials and gantry is not at all acceptable. The details of the calculations have been given in para 10 of the counter affidavit. The net amount due to the petitioner is shown as Rs.33,43,653.88. From this amount, the cost towards dismantling the piling gantry has to be deducted and it can be assessed only after the same is removed. The earnest money deposit, security deposit and performance guarantee will be adjusted against the dues for completing the work at the risk and cost of the petitioner. Various letters issued to the petitioner, have been produced as Ext.R1(e). It is averred that the petitioner was called for various meetings by the Chief Engineer & Administrator the Deputy Chief Engineer at various dates and the minutes have been produced as Ext.R1(f). Thereafter, a show cause notice was issued as per Ext.R1(g) and the department was forced to terminate the part of work in view of the default committed by the petitioner. WPC.8302 & 12050/2012 - 7- 12. It is pointed out that in clause 14 there is no particular provision to restrict the liabilities on account of loss and damages at 10%. With regard to the retender that is accepted now, it is mentioned in para 14 that the tender has been called for Rs.1,26,86,000/- at the rate of the Technically Sanctioned Estimate of 2004. The lowest tender has been accepted to an amount of Rs.2,18,28,180/-. With regard to the letter issued to the Bank as per Ext.P8, it is stated that the balance work has been executed at the risk and cost of the original contractor, viz. the petitioner, and if the petitioner is remitting the damages and other legal dues to the Government, the department is ready to return the bank guarantee and machineries. It is averred that the materials and construction machineries have been taken possession of the department in compliance with the provisions of clause 14 only and there is no arbitrary acts in that matter. It is also stated that the machineries will be returned to the petitioner after recovering the damages to the Government which can only be assessed after completion of the works. Ext.R1(d) is the letter issued to the petitioner wherein the detailed calculations have been shown. 13. Therefore, in a nutshell, the contention raised by the respondents is that the respondents are empowered under the terms of Ext.R1(a), to WPC.8302 & 12050/2012 - 8- terminate the contract at the risk and cost of the petitioner after taking over the materials stored at the site and in retaining them, there is no arbitrariness in the matter. 14. The point vehemently argued by the learned Senior Counsel for the petitioner is want of notice prior to the termination. In this context, the relevant clause relied upon by the petitioner is clause 14 of Ext.P1(a) produced in W.P.(C) No.12050/2012. Ext.P1(a) and clause 14 containing the agreement executed by the petitioner produced by the respondents as Ext.R1(a) are different. Ext.R1(a) empowers the Accepting Authority to cancel the contract in full or part if the contractor commits default in complying with any of the terms and conditions of the contract. It also provides for the Engineer-in-Charge to determine the amount to be recovered from the contractor and it also enables the Engineer-in-Charge to sell any or all of the contractor's materials, constructional plant, implements, temporary buildings, etc. and apply proceeds of sale thereof towards the satisfaction of any sums due from the contractor under the contract, if the contractor fails to pay the amount. 15. The question of want of notice prior to the termination and before the finalisation of the amount recoverable, has been vehemently WPC.8302 & 12050/2012 - 9- pointed out by the learned Senior Counsel for the petitioner. It is not covered by any of the provisions of Ext.R1(a). Apart from the same, herein going by the averments in the counter affidavit, the show cause notice issued to the petitioner is produced as Ext.R1(g) along with the counter affidavit dated 29.5.2012. Therein, the petitioner is asked to show cause within 15 days, why an action under clause 14 of the agreement will not be taken against him. In the reply affidavit filed by the petitioner, the petitioner is not denying the receipt of show cause notice. 16. The judgment of the Apex Court in **Automotive Tyre Manufacturers Association's case** {(2011) 2 SCC 258}, relied upon by the learned Senior Counsel for the petitioner, has emphasised requirement to follow the principles of natural justice in respect of a quasi judicial function. Therein, the matter was considered under the Customs Tariff Act, 1975 (Sections 9A and 9C). Therein the predecessor Designated Authority conducted investigation and recorded preliminary findings and the successor gave the final findings. The applicability of the principles of natural justice in respect of the administrative action as well as quasi judicial functions have been reiterated. 17. Obviously, herein, the said principles will not have any WPC.8302 & 12050/2012 - 10- application. The petitioner was served with a show cause notice prior to termination and the principles governing quasi judicial functions cannot have any application here, since the respondents are acting in terms of the provisions of the agreement. 18. The other decision relied upon by the learned Senior Counsel for the petitioner is **S.R.Rice Mills' case** (AIR 1987 SC 1359), especially para 7 thereof. This was relied upon to show that the authority under the contract is not entitled to fix the damages unilaterally and there should be an adjudication in the matter. The facts of the case show that after the termination of the contract, the State demanded payment of damages assessed at Rs.7344.16 and since the contractors failed to pay the damages, the State initiated proceedings under the Revenue Recovery Act to recover the amount as if it were arrears of land revenue. This was challenged in a suit by one of the contractors which ultimately reached the Supreme Court in appeal and the other two contractors challenged the same under Article 226 of the Constitution of India and a further appeal from it was taken before the Supreme Court and both the matters were heard together. In para 7 of the judgment, the Apex Court after referring to clause 12 of the agreement, held as follows: WPC.8302 & 12050/2012 - 11- “On a plain reading of the words it is clear that the right of the second party to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. If it was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions, the wording of Clause 12 would have been entirely different. It cannot also be argued that a right to adjudicate upon an issue relating to a breach of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions.” 19. Herein, to find out whether the said principle will apply to the facts of the case, the reliefs sought for in the writ petitions have to be verified. In W.P.(C) No.8302/2012, reliefs (i) to (iv) sought are extracted below: i. Issue a writ in the nature of mandamus commanding the respondents to permit the petitioner to return the materials mentioned in Ext.P2 from the work site at Kavarathy within such time as may fixed by this Hon'ble Court. ii. In the alternative issue a writ in the nature of mandamus commanding the respondents to get the materials mentioned in Ext.P2 valued by an independent agency with notice to the petitioner, take over the same and pay the value to the petitioner within such time as may be fixed by this Hon'ble Court. iii. Issue a writ in the nature of mandamus commanding the WPC.8302 & 12050/2012 - 12- respondents to finalise the amount due to the petitioner pursuant to Ext.P1 and disburse of the amount due to the petitioner less 10% of the tender amount as per clause 14 of Ext.P1, within such time as may be fixed by this Hon'ble Court. iv. Issue a writ in the nature of mandamus commanding the 3[rd] respondent to consider and pass orders on Ext.P5 after affording an opportunity of hearing the petitioner within such time as may be fixed by this Hon'ble Court.” In W.P.(C) No.12050/2012, reliefs (i) and (ii) are the following: “i. Call for records leading to Ext.P8 and issue a writ in the nature of certiorari quashing Ext.P8. ii. issue a writ in the nature of mandamus commanding the 3[rd] respondent to consider and pass orders on Ext.P9 within such time as may be fixed by this Hon'ble Court after notice to the petitioner and until then stay all further proceedings pursuant to Ext.P8.” In the first writ petition, the petitioners are seeking for return of the materials or in the alternative, to get the value of the materials assessed by an independent agency, to take over the same and to pay the value to the petitioner, to finalise the amount due to the petitioner and to disburse the same, less 10% of the tender amount as per clause 14 of Ext.P1. The further prayer is to direct the respondents to consider and pass orders on Ext.P5 which is a representation. Therefore, the proceedings issued as per Ext.P3, WPC.8302 & 12050/2012 - 13- cancelling the contract at the risk and cost of the petitioner, is not sought to be quashed. Ext.R1(d) produced along with the counter affidavit in W.P.(C) No.12050/2012 which contains the details of the liabilities and loss of damages, is also not under challenge in these two writ petitions. What is challenged is Ext.P8 in W.P.(C) No.12050/2012 which is a letter addressed to the Bank revoking the bank guarantee. 20. Therefore, even though learned Senior Counsel for the petitioner relied upon the judgment of the Apex Court in **S.R. Rice Mills' case** (AIR 1987 SC 1359), in the absence of a challenge against the above proceedings, the issue need not be gone into in detail by this Court, especially since the petitioner will have to resort to the remedy of arbitration, if provided, or to approach the civil court since what is involved is only the interpretation of the terms of the contract. In fact, in the reply affidavit in para 2, the petitioner has stated thus: “At the outset it is submitted that the petitioner disputes all the factual aspects as well as the accounts and figures pleaded in the counter affidavit. These disputes are not within the scope of this writ petition. It is reiterated that the value of materials, machinery etc. mentioned in Ext.P3, which are not in possession of the respondents are correct. Likewise, the final bill of completed WPC.8302 & 12050/2012 - 14- work mentioned in Ext.P4 also is correct. These amounts are due to the petitioner. This will have to be decided in an independent adjudication in accordance with the scheme of the agreement.” Thus, the petitioner also seeks for an independent adjudication of the matter with reference to the various aspects pointed out therein. 21. The question whether the writ petitions are maintainable in such circumstances, will have to be considered by this Court, since what is involved is the true interpretation of the terms of the contract and the issue is no longer res integra in the light of a binding decision of the Apex Court in **Kerala State Electricity Board and another v. Kurien E. Kalathil and others** {(2000) 6 SCC 293} wherein the maintainability of a writ petition in a contractual matter, involving disputes relating to the terms of the contract, was considered in the light of the alternate remedies available. In paragraphs 10 and 11, the Apex Court stated the principle thus: “10. We find that there is a merit in the first contention of Mr. Raval. Learned counsel has rightly questioned the maintainability of the writ petition. The interpretation and implementation of a clause in a contract cannot be the subject-matter of a writ petition. Whether the contract envisages actual payment or not is a question of construction of contract., If a term of contract is violated, ordinarily the remedy is not the writ petition under Article 226. WPC.8302 & 12050/2012 - 15- We are also unable to agree with the observations of the High Court that the contractor was seeking enforcement of a statutory contract. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. We are also unable to agree with the observation of the High Court that since the obligations imposed by the contract on the contracting parties come within the purview of the Contract Act, that would not make the contract statutory. Clearly, the High Court fell into an error in coming to the conclusion that the contract in question was statutory in nature. 11. A statute may expressly or impliedly confer power on a statutory body to enter into contracts in order to enable it to discharge its functions. Dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied. The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act. Every act of a statutory body need not necessarily involve an exercise of statutory power. Statutory bodies, like private parties, have power to contract or deal with property. Such activities may not raise any issue of public law. In the present case, it has not been shown how the contract is statutory. The contract between the parties is in the realm of private law. It is not a statutory contract. The WPC.8302 & 12050/2012 - 16- disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil court or in arbitration if provided for in the contract. Whether any amount is due and if so, how much and refusal of the appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ petition. The contractor should have relegated to other remedies.” It was held therein that “the contract between the parties is in the realm of private law and it is not a statutory contract and the disputes relating to interpretation of the terms and conditions of such a contract, could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil court or in arbitration if provided for in the contract. “ These principles will squarely apply herein, since the petitioner is aggrieved by certain actions by relying upon the terms of clause 14 of the agreement and reliefs are sought accordingly. Apart from that, various other disputed questions of fact are also involved including the amount due to the petitioner, dispute regarding the amount claimed by the respondents and other aspects. The petitioner will have to resort to the remedy of arbitration, if any, provided or to file a civil suit. 22. In W.P.(C) No.12050/2012 what is challenged is the revocation WPC.8302 & 12050/2012 - 17- of the bank guarantee and according to the respondents, it was done in terms of the provisions of the contract. Learned Senior Counsel for the petitioner submitted that the sudden revocation of the bank guarantee during the pendency of W.P.(C) No.8302/2012 cannot be justified. 23. Since the entire matter will have to be agitated before the appropriate forum, this Court will not be justified in entering findings on disputed questions of facts. It is made clear that I have considered the various aspects only for the limited purpose of this case and it will not be treated as a finding on the merits of the larger disputes between the parties. Leaving open the remedy of the petitioner to approach the appropriate forum, the writ petitions are dismissed. No costs. ## **(T.R. Ramachandran Nair, Judge.)** ## **kav/**