High Court of KeralaSingle Judge2017-09-22Writ petition disposed of with directions.

M/S CEEBUILD COMPANY (P) LTD & Sandeep Kabra v. Kerala State Electricity Board & others

Case / Petition Number:WP(C).No. 11568 of 2012 (U)

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: A. MUHAMED MUSTAQUE, J.
Judgment Date: 2017-09-22
Court Decision / Holding: The High Court held that the Board’s claims must be adjudicated and cannot be withheld unilaterally. The petition is disposed with directions: the Board may withhold the amount for six months from today. If no order from a competent civil court extends retention, the withheld amount shall be released to the petitioners with 6% interest from the date the amount would have been due for release. The Court emphasised resort to civil remedy for determining compensation and disallowed unilateral retention in the absence of adjudication.
Final Disposition: Writ petition disposed of with directions.

Parties to the Case

Appellants / Petitioners

M/S CEEBUILD COMPANY (P) LTD
Sandeep Kabra

Respondents

Kerala State Electricity Board, Thiruvananthapuram
The Chief Engineer (TC & M), KSEB, Thiruvananthapuram
The Executive Engineer, Regional State Division, KSEB, Aluva

Legal Representation & Advocates

Counsels for Petitioners

• Indu Susan Jacob
• Eby Augustine

Counsels for Respondents

• N. Raphy Raj, SC
• T. R. Rajan, SC
• Jaice Jacob, SC

Case Synopsis & Summary

This writ petition challenges the termination of a contract for the supply of 8500 sets of 11 kV 400 A AB switches by the petitioners, a contract awarded after tender for Rs. 7,15,27,500/-. The delivery schedule required 1000 units within 45 days of the purchase order and the remaining quantity at 1500 units per month, with time strictly observed except under force majeure or as per revised instructions from the Board. The petitioners delivered 1500 switches and were paid after deductions of 1% penalty for late delivery and a 10% retention on security; the Board subsequently forfeited Rs. 35,76,375 as security. The petitioners contend that time was not the essence of the contract and that the termination was arbitrary, especially since delays were partly attributable to the Board’s own failure to provide technical details and approve samples. They argue that the Board cannot withhold amounts without adjudication and seek refunds. The Board relies on clause 22 (set-off) and clause 16 (1% per delay, up to 10%), and argues that penalties follow proven delay under Section 73 of the Indian Contract Act, 1872, to be enforced through proper procedure. The High Court holds that the Board’s claims require adjudication and cannot be withheld unilaterally. It disposes the petition with directions: the Board may withhold for six months, after which withheld amounts must be released with 6% interest if no civil order extends retention, clarifying that civil remedy is the proper channel for compensation.

Provisions of Law Cited

Section 73, Indian Contract Act, 1872

Legal Doctrines & Maxims

Time was not the essence of the contract (the petitioners argue delays were not fatal to performance).
Penalties under Section 73 of the Indian Contract Act require proof of delay and adjudication; pre-estimated damages must be determined through due process.

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioners contend that time was not the essence of the contract and that termination is arbitrary given delays were largely caused by the Board’s failure to provide technical details and approve samples. They assert that the Board cannot withhold sums without a proper adjudicatory process and seek refund of the security deposit and the retained amount. They rely on precedents such as Union of India v Rampur Distillery and Chemical Co. Ltd; Hind Construction Contractors v State of Maharashtra; Masum Hussain v State of M.P; Abdulla v State of Kerala; Rama Chandra Narayan Nayak v Karnataka Neeravari Nigam Ltd to support their position on adjudication and non-arbitrary termination.

Contentions of Respondents

The Board argues that Clause 22 permits set-off and Clause 16 imposes a 1% daily delay penalty (up to 10%), and that penalties arise under Section 73 of the Contract Act only with proven delay and through proper proceedings. It maintains that withholding payments is lawful to secure claims and that termination was justifiable given alleged delays, pending adjudication.

Cited Precedents (5)

Case Name	Citation	Treatment	Explanation
Union of India vs Rampur Distillery and Chemical Co.Ltd	1973 KHC 838	Mentioned Only	Cited by the petitioners to support arguments about termination and compensation, but the judgment does not explicitly apply or distinguish this authority.
Hind Construction Contractors (M/s) vs State of Maharashtra	1979 KHC 519	Mentioned Only	Cited as authority by petitioners; not explicitly discussed or distinguished in the court’s reasoning.
Masum Hussain vs State of M.P and others	1981 KHC 857	Mentioned Only	Cited by petitioners; no direct application or interpretation discussed in the judgment.
Abdulla vs. State of Kerala	2001 KHC 822	Mentioned Only	Cited by petitioners; not evaluated or distinguished in the decision.
Rama Chandra Narayan Nayak vs Karnataka Neeravari Nigam Ltd and others	2013 KHC 4757	Mentioned Only	Cited by petitioners; no substantive treatment in the judgment.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE** **FRIDAY, THE 22ND DAY OF SEPTEMBER 2017/31ST BHADRA, 1939** **WP(C).No. 11568 of 2012 (U)** **---------------------------PETITIONERS :** - **-----------** **1. M/S. CEEBUILD COMPANY (P) LTD,** - **23A, NETHAJI SUBASH ROADM 2ND RLOOR, ROOM NO 17, KOLKATTA 7000001, REPRESENTED BY ITS DIRECTOR SANDEEP KABRA, S/O KRISHNA KABRA, 15, BALLYGUNGE PARK, ROAD, CALCUTTA 700019** **2. SANDEEP KABRA, DIRECTOR M/S CEEBUILD COMPANY (P) LTD, S/O KRISHAN KABRA, 15, BALLYGUNGE PARK ROAD CALUTTA 700019** **BY ADVS.SMT.INDU SUSAN JACOB SRI.EBY AUGUSTINE** **RESPONDENTS :** **1. KERALA STATE ELECTRICITY BOARD, THIRUVANANTHAPURAM,695001** **2. THE CHIEF ENGINEER (TC & M), KSEB, THIRUVANANTHAPURAM 695001** **3. THE EXECUTIVE ENGINEER,** - **REGIONAL STATE DIVISION, KSEB, ALUVA 683001** **R1 TO R3 BY SRI.N.RAPHY RAJ, SC, BY ADV. SRI.T.R.RAJAN,SC, BY SRI.JAICE JACOB,SC,** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 22-09-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **bp** ## **WP(C).No. 11568 of 2012 (U)** **------------------------------------------------** ## **APPENDIX** **PETITIONER(S) EXHIBITS :** **----------------------** **EXT. P1: TRUE COPY OF THE PURCHASE ORDER DATED 19-10-2009** - **EXT. P2: TRUE COPY OF THE LETTER DATED 18-11-2009 ISSUED BY THE PETITIONER TO THE 3RD RESPONDENT** - **EXT. P3: TRUE COPY OF THE AGREEMENT DATED 08-12-2009 BETWEEN PETITIONER AND 2ND RESPONDENT** - **EXT. P4: TRUE COPY OF THE AMENDMENT OF PURCHASE ORDER DATED 25-01-2010** - **EXT. P5: TRUE COPY OF THE LETTER DATED 27-01-2010 ISSUED TO THE 2ND RESPONDENT** - **EXT. P6: TRUE COPY OF LETTER DATED 10-02-2010 GRANTING APPROVAL OF THE SAMPLE** - **EXT.P7: TRUE COPY OF LETTER DATED 15-02-2010 ISSUED BY THE 2ND RESPONDENT** - **EXT.P8: TRUE COPY OF THE LETTER DATED 22-02-2010 ISSUED BY THE 2ND RESPONDENT** - **EXT.P9: TRUE COPY OF THE LETTER DATED 13-05--2010** - **EXT.P10: TRUE COPY OF THE LETTER DATED 01-06-2010 ISSUED BY THE 2ND RESPONDENT** - **EXT.P11: TRUE COPY OF THE LETTER DATED 03-06-2010** - **EXT.P12: TRUE COPY OF THE REPRESENTATION DATED 08-06-2010** - **EXT.P13: TRUE COPY OF THE REP; DATED 09-07-2010** - **EXT.P14: TRUE COPY OF THE PURCHASE ORDER DATED 28-12-2010** **WP(C).No. 11568 of 2012 (U)** **------------------------------------------------** **EXT.P15: TRUE COPY OF THE LETTER DATED 10-02-2011 ISSUED TO THE 2ND RESPONDENT** **EXT. P16: TRUE COPY OF THE REPRESENTATION DATED 28-11-2011** **RESPONDENTS' EXHIBITS :** **---------------------** **EXT.R1(a): COPY OF THE SHOWCASE NOTICE DT 26/3/2010 ISSUED BY THE R2 TO THE 1ST PETITIONER.** **EXT.R1(b): COPY OF THE SHOWCASE NOTICE DT 29/4/2010 ISSUED BY THE R2 TO THE 1ST PETITIONER. EXT.R1(c): COPY OF THE DRAFT MINUTES OF THE PURCHASE COMMITTEE MEETING HELD ON 19/1/2010.** **//TRUE COPY//** **P.A. TO JUDGE** **bp** ## **A. MUHAMED MUSTAQUE, J.** ------------------------------------ ## W.P. (C) No.11568 of 2012 ------------------------------------ Dated this the 22[nd] day of September, 2017 ## **J U D G M E N T** The petitioners and the Kerala State Electricity Board entered into a contract whereby the petitioners agreed to supply 8500 sets of 11 KV 400 A AB switches for a total consideration of Rs.7,15,27,500/-. This contract was awarded pursuant to a tender notification. As per the contract, the delivery period is as follows: ## “Delivery period and schedule:- Delivery shall commence within 45 days from the date of purchase order with a quantity of 1000 Nos. and thereafter the balance quantity should be delivered within 5 months at the rate of 1500 Nos./month to the Executive Engineer, Regional Stores Division, Kundara, Aluva & Kallai or anywhere in Kerala. Delivery period noted above cannot be altered except under recognized force-majeure conditions or under revised instructions from this office. Clarifications sought for or amendments issued will **W.P.(C) No.11568/2012** **2** not entitle the supplier for extension of delivery time”. 2. Alleging delay in delivery, the contract was cancelled. It is the case of the Electricity Board that the petitioner-contractor failed to provide sample as agreed in clause 11 of the contract. 3. The petitioners effected delivery of 1500 switches. They were also paid after deducting 1% penalty for belated delivery and another 10% towards guarantee amount. Consequent upon termination, the Board forfeited the security deposit of Rs.35,76,375/- lakhs. The petitioners approached this Court for refund of the security deposit as well as the amount retained from the bill amounting to Rs.12,00,028/-. There is no scope for deciding upon the validity of termination. 4. The petitioners' main case is that time was not the essence of the contract and therefore, the mere delay in delivery will not entail the Board to terminate the contract. Therefore, the termination itself is arbitrary. It is also the case of the petitioners that there was considerable delay on the part of the Board in providing technical particulars and also for approving the samples. Therefore, in such circumstances, the Board cannot **W.P.(C) No.11568/2012** **3** withhold the amount. The petitioners are also having a case that without there being an adjudication to sustain the claim for compensation, the Board could not have withheld the amount by way of penalty. It is also submitted that one of the parties cannot unilaterally determine compensation. Learned counsel for the petitioners relied on the decisions in _**Union of India** vs._ _**Rampur Distillery and Chemical Co.Ltd**_ (1973 KHC 838), _**Hind Construction Contractors (M/s)** vs._ _**State of Maharashtra**_ (1979 KHC 519), _**Masum Hussain**_ vs. _**State of M.P and others**_ (1981 KHC 857), _**Abdulla**_ vs. _**State of Kerala**_ (2001 KHC 822) and in Rama _**chandra Narayan Nayak**_ vs. _**Karnataka Neeravari Nigam Ltd. and others**_ (2013 KHC 4757). 5. Per contra, learned Standing Counsel for the Board, by referring to clause 22 of the contract, would argue that the Board has every right to appropriate and set off any payments due to the Board and therefore, there is no illegality in withholding the amount. 6. Clause 16 of the contract refers to imposition of penalty at the rate of 1% for the delay subject to a maximum penalty of **W.P.(C) No.11568/2012** **4** 10%. However, to claim such penalty, it must be shown that there was delay on the part of the petitioners. Since there is serious dispute regarding the delay involved on the part of the petitioners as the petitioners have a case that time was not the essence of the contract, this Court is of the view that penalty as referable under the contract cannot be imposed against the petitioners unilaterally. Further, penalty would be understood in terms of Section 73 of the Contract Act, 1872. Penalty can be claimed only by way of pre estimated compensation or damages. For that also, the Board has to establish such claims through the proper process. 7. It is to be noted that a detailed counter affidavit has been filed in the matter on behalf of the Board. Though the Board had attempted to justify the reason for termination, nevertheless the Board failed to canvass basis of calculation of compensation for the loss sustained by them. The Board also attempted to justify forfeiture of the security deposit with reference to clause 23 of the contract. In relation to the contract, the Board can only be considered as a party to the contract. There is no provision as such in the clause to forfeit the **W.P.(C) No.11568/2012** **5** security deposit. Therefore, the Board can forfeit or withhold any amount from the petitioners only to secure the amount from the petitioners after determining the compensation payable to them. For that, they will have to resort the civil remedy. 8. In such circumstances, this Court is of the view that the claim of the Board has to be affirmed through adjudicatory process and without adjudication, the Board cannot withhold the amount. Therefore, this writ petition is disposed of with the following directions: The Board is permitted to withhold the amount for a period of six months from today. In the event of failure to obtain any order from the competent civil court for continuation of the retention, the amount as withheld shall be released to the petitioners on expiry of the above period. It is made clear that the entire amount shall be released to the petitioners with 6% interest from the date on which the amount is liable to be released to the petitioners as per the contract. Sd/- ## **A. MUHAMED MUSTAQUE JUDGE** smp