M/S Jacob Machine Tools v. State of Kerala & Others

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE A.HARIPRASAD TUESDAY, THE 8TH DAY OF MARCH 2016/18TH PHALGUNA, 1937 AS.No. 646 of 2000 (E) ----------------------AGAINST THE JUDGMENT AND DECREE IN OS NO. 1417/1993 of PRINCIPAL SUB COURT, THIRUVANANTHAPURAM DATED 30-03-1999 APPELLANT(S)/PLAINTIFF: ------------------------ * M/S.JACOB MACHINE TOOLS HAVING ITS UNIT AT THAMPANOOR, THIRUVANANTHAPURAM, REP. BY ITS PROPRIETOR, ISSAC JACOB, S/O.LATE K.I.JACOB, M/S.JACOBS MACHINE TOOLS, THAMPANOOR, THIRUVANANTHAPURAM. DIED. ADDL.APPELLANTS2 TO 5 IMPLEADED. ## ADDL.APPELLANTS 2 TO 5 IMPLEADED: ADDL.APPL.NO.2. DOLLY ISSAC, W/O.LATE ISSAC JACOB,AGED 60 YEARS, R/AT KAVANAL ENCLAVE, MULAVANA, VANCHIYOOR P.O., THIRUVANANTHAPURAM. ADDL.APPL.NO.3. JACOB KAVANAN ISSAC, S/O.LATE JACOB,AGED 37 YEARS, R/AT KAVANAL ENCLAVE, MULAVANA, VANCHIYOOR P.O., THIRUVANANTHAPURAM. ADDL.APPL.NO.4. ROSHAN ISSAC, S/O.LATE JACOB,AGED 35 YEARS, R/AT KAVANAL ENCLAVE, MULAVANA, VANCHIYOOR P.O., THIRUVANANTHAPURAM. ADDL.APPL.NO.5. ISSAC JEROME, S/O.LATE JACOB,AGED 30 YEARS, R/AT KAVANAL ENCLAVE, MULAVANA, VANCHIYOOR P.O., THIRUVANANTHAPURAM. *LEGAL HEIRS OF THE DECEASED 1ST APPELLANT ARE IMPLEADED AS ADDL.APPELLANTS 2 TO 5 AS PER ORDER DATED 25.01.2010 ON IA NO.133/2010. BY ADV. SRI.G.S.REGHUNATH RESPONDENT(S)/DEFENDANTS: - ---------------------------- 1. STATE OF KERALA , REP. BY ITS CHIEF SECRETARY, GOVT. OF KERALA, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 2. THE CHIEF SECRETARY, GOVERNMENT OF KERALA, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. ASNO.646/2000 2 3. THE DIRECTOR OF PORTS, OFFICEOF THE DIRECTORATE OF PORTS, VELLAYAMBALAM, THIRUVANANTHAPURAM. BY GOVERNMENT PLEADER SHRI SHYSON P. MANGUZHA THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 25.02.2016 ALONG WITH AS. NO.711/2000, THE COURT ON 08-03-2016, DELIVERED THE FOLLOWING: ## **ANTONY DOMINIC & A.HARIPRASAD, JJ.** **--------------------------------------** ## **A.S.Nos.646 & 711 of 2000** **-------------------------------------Dated this the 8[th] day of March, 2016** ## **COMMON JUDGMENT** ## Hariprasad, J. Dissatisfied with the judgment and decree in O.S.No.1417 of 1993 on the file of the Principal Sub Court, Thiruvananthapuram, both the plaintiff and defendants have come up in separate appeals. For the sake of convenience, parties are hereinafter referred to as the plaintiff and defendants. 2. Heard Sri.G.S.Reghunath, learned counsel for the plaintiff and Sri.Shyson P. Manguzha, learned Government Pleader for the defendants. 3. Shorn of unnecessary details, the relevant facts are as follows: 3[rd] defendant is the Director of Ports. On behalf of the 1[st] defendant State, 3[rd] defendant issued a notice inviting tenders for fabrication, construction and supply of three self propelled steel cargo barges, apiece having a capacity of 200 tonnes, for Neendakara Port. Tender notice No.13/87/88 was published for the purpose. Tender submitted by the plaintiff in response to the notice was accepted as per Ext.A4 dated 10.03.1988. Ext.A5 agreement was executed between the plaintiff and 3[rd] defendant for execution of the work. The drawings were approved by the inspection 2 AS Nos.646 & 711/2000 agency and countersigned by an engineer working under the 3[rd] defendant. In the quotation submitted by the plaintiff, it was specifically stated that the rate quoted will be valid only for 30 days from 21.10.1987. Work order was given to the plaintiff only on 10.03.1988. In Ext.A5, it has been provided that price escalation will be given for steel, engine, gear box and stern gear. Since the work order was not given in 30 days as stipulated, the plaintiff is entitled to price escalation as stated in clause (3) of Ext.A5. Plaintiff is entitled to `10,56,201/- by way of price escalation. As per the agreement, the first payment should have been made immediately after laying the keel and on the production of bank guarantee, which was furnished on 24.11.1988. The first stage payment was released only on 14.03.1989. Thus there was a delay of 106 days caused by the defendants in releasing the first stage payment. Originally, Mercantile Marine Department (MMD, in short) was appointed as inspection agency by the 3[rd] defendant. Subsequently, the 3[rd] defendant changed the inspection agency by appointing M/s.Descon. The change of inspection agency caused considerable delay in the execution of work and it was attributable to the defendants only. Delay had occurred in accepting and approving the drawings on account of the change of inspection agency. Almost four months had been lost in that respect. During April, 1989 to July, 1989, there were unprecedented additional power cut, which was taken care of in Ext.A5. The first vessel was delivered by the plaintiff on 27.12.1989 and the AS Nos.646 & 711/2000 3 second vessel was on 14.03.1990. The third vessel was delivered on 18.08.1990. The vessels could not be delivered on time only on account of the laches and fault on the part of the 3[rd] defendant. Plaintiff carried out the work as per the directions of the inspection agency. The fourth stage payment was released to the plaintiff after inspection and certification by the authorised persons. No complaints of deviation in the design, etc. were made during the inspection of the vessels or at the time of making the payments. Balance 5% of the agreed amount and price escalation value were demanded by the plaintiff on 05.03.1991. The amount due under the bank guarantee was released to the plaintiff by the 3[rd] defendant as per Ext.A20 letter dated 11.06.1991. The inspection agency issued Ext.A19 certificate on 04.12.1991 certifying that the construction and fabrication has been done by the plaintiff in accordance with the specifications and drawings. The vessels were put to operation by the 3[rd] defendant and no complaints have been made by the defendants at any time. The plaintiff approached this Court by filing original petitions for appropriate directions for disposing of the representations submitted to the Government. Without complying with the directions, the 3[rd] defendant issued Ext.A32 Government Order dated 23.01.1993 raising false allegations. For the first time, the 3[rd] defendant raised allegations in Ext.A32 that the approved design of construction was deviated. Plaintiff had done the work to the satisfaction of the authorities concerned and the vessel was taken 4 AS Nos.646 & 711/2000 possession by complying with all the formalities. 3[rd] defendant is estopped from raising any such contention. The claim raised on behalf of the defendants that a sum of `21,32,190/- was due to the Government from the plaintiff by way of loss is totally untenable. The defendants admitted that the plaintiff was entitled to a stage payment of `7,22,660/-. The defendants unlawfully contended that after adjusting the said amount for the alleged loss sustained by the Government, plaintiff was liable to pay `15,82,030/to the Government. This contention raised by the defendants is illegal. Therefore, the plaintiff caused to issue Ext.A34 lawyer notice under Section 80 of the Code of Civil Procedure calling upon the defendants to release an amount of `19,14,261/- with 26% interest per annum as per Ordinance No.15 of 1992 issued by the Central Government. Ext.A35 is the reply sent by the 3[rd] defendant refuting the plaintiff's claims. 4. 3[rd] defendant filed a written statement. Acceptance of the tender submitted by the plaintiff is admitted by the defendants. Ext.A5 shows in detail the specifications of construction of barges and the mutual rights and obligations. According to the defendants, plaintiff did not construct the vessels as per the specifications in the agreement and he failed to comply with the conditions in Ext.A5, thereby caused irreparable loss to the Government. The officers attached to the 3[rd] defendant and the inspection agency omitted to note the failure of the plaintiff during their inspection and while issuing the certificates of completion. Defendants 5 AS Nos.646 & 711/2000 strongly believed that there was tacit understanding between the plaintiff and the officers concerned and also the inspection agency. They conspired to cause loss to the Government. Defendants have already initiated disciplinary actions against the erring officers. Plaintiff flouted the specifications for spacing of transverse frames and thickness of the side shell plates. The drawings submitted by the plaintiff were not as per the departmental specifications. Plaintiff is not entitled to recover any amount. On the contrary, the State suffered loss due to the imperfect construction of the barges. The defendants have every right to recover the amount from the plaintiff. 5. At the time of trial, two witnesses were examined on the side of the plaintiff. No one testified on behalf of the defendants. Exts.A1 to A35 are the documents produced and marked on the side of the plaintiff. There is no documentary evidence adduced by the defendants. 6. A.S.No.711 of 2000 is the appeal filed by the defendants. After hearing the learned Government Pleader and on perusal of the grounds in the memorandum of appeal, it can be seen that the defendants challenge the trial court's judgment and decree mainly on the grounds that the court below should have considered that the plaintiff failed to construct the barges according to the design and specifications approved by the department, that the delay caused in the construction of vessels was attributable to the plaintiff alone, that the plaintiff had committed breach of 6 AS Nos.646 & 711/2000 contract and, therefore, the defendants are liable to be compensated for the loss sustained, that the plaintiff failed to establish that he is entitled to get the claim for price escalation, that the lower court failed to take note of the case of the defendants that both the inspection agency and some officers under the 3[rd] defendant colluded together in order to unduly help the plaintiff and thereby caused loss to the defendants and that the court below should have accepted the case of the defendants that the plaintiff was legally bound to compensate the defendants. It is very important to note at this juncture that except filing a written statement, the defendants have not produced any document to substantiate their contentions nor did they adduce any oral evidence. In fact there is no effective challenge to the testimony of the plaintiff's witnesses. For the said reasons, it is contended by the learned counsel for the plaintiff that the defendants are estopped from challenging the correctness of the lower court's judgment and decree. There is considerable force in this argument of the plaintiff. 7. Grounds urged in A.S.No.646 of 2000, the appeal filed by the plaintiff, are mainly that the court below wrongly held that the plaintiff was not entitled to the rate of interest claimed in the plaint, that the court below should have found that the plaintiff was entitled to claim compound interest at least at the rate of 17% per annum in view of Section 4 of the Act 32 of 1993 and that the suit should have been decreed as prayed for. Even though at the time of hearing, learned counsel for the plaintiff raised a 7 AS Nos.646 & 711/2000 contention that the amount of 5% of the cost of three vessels detained by the defendants comes to `8,85,060/- and the payment ordered by the court below in this head as `4,02,300/- is incorrect, we find no specific ground raised in the appeal memorandum in respect of this contention. 8. The rights and obligations of the parties emanate from Ext.A5 agreement. It is an admitted fact that the plaintiff is a company registered as a small scale industry with the Department of Industries and Commerce, Government of Kerala. It entered into an agreement with the 3[rd] defendant representing the State of Kerala to construct and hand over three 200 tonnes self propelled steel cargo barges for the use of the Government. It is seen that the tender submitted by the plaintiff was accepted by the Government. The terms and conditions in Ext.A5 show that the plaintiff was directed to deposit `4,26,438/-, being the 5% estimated value of the contract as security deposit, in the form of letter of guarantee from the State Bank of India. Admittedly, the plaintiff has complied with this condition. Regarding the price escalation later claimed by the plaintiff, it is mentioned that in respect of steel, engine, gear box and stern gear payment should be made. The first vessel was agreed to be delivered within 10 months from the date of Ext.A5. Second vessel was to be delivered within 15 months from the date of Ext.A5 and the third vessel had to be handed over within 20 months from the said date. Admittedly, there was delay in handing over the vessels. Plaintiff would contend that delay 8 AS Nos.646 & 711/2000 occurred on account of the defendants' lethargy and negligence. Although the defendants would contend that the plaintiff was responsible for the delay, no evidence was adduced to substantiate that contention. Insofar as the plaintiff's contention about the delay is concerned, it has come out in evidence that the original inspection agency, viz., MMD, appointed by the defendants was changed and later M/s.Descon was appointed. There was considerable delay on account of this. It is also the case of the plaintiff that unprecedented power cut during the period was also a reason for the delay. In Ext.A5 agreement, it is mentioned that the Government agreed not to invoke penal provision for the delay against the plaintiff for reasons which can be described as _force-majeure_ . Evidence on the side of the plaintiff would show that the delay was on account of the defendants' laches and the plaintiff cannot be blamed for that. Therefore, the claim of the defendants against the plaintiff for compensation on account of delay is unsustainable. 9. It was agreed that the defendants would make payments to the plaintiff in the following manner: _“i. 20% on keel laying; ii. 25% on completion of hull; iii. 25% on lowering of main engines & gear boxes; iv. 25% on launching; & v. 5% on handing over the vessel.”_ 9 AS Nos.646 & 711/2000 The agreed price of each vessel, excluding sales tax and other dues, was `26,82,000/-. The amounts payable were worked out on the basis of this figure. Plaintiff has a contention that the first stage of payment was to be made immediately after laying the keel of the vessel(s) and on production of bank guarantee from a nationalised bank as stipulated in the agreement. It was not honoured by the defendants. It is the grievance of the plaintiff that there was inordinate delay in paying the amounts by the defendants. According to the plaintiff, the defendants are liable to compensate the plaintiff on this account. That apart, 5% of the value detained by the defendants was not paid along with the agreed cost of escalation. 10. Learned counsel for the defendants based on the averments in paragraph 11 of the written statement contended that the claim for price escalation raised by the plaintiff is not based on any reliable facts. It is admitted in the written statement that the plaintiff is entitled for price escalation only at `7,62,867.88. It is the contention of the defendants that due to the wrong doings of the plaintiff, the defendants suffered loss of `15,82,030/- and the defendants are entitled to set off the cost of price escalation towards this loss. Ext.A32 notice was issued stating these facts. On a perusal of Ext.A32, it can be seen that it was issued subsequent to the orders in the writ petitions filed by the plaintiff. Learned counsel for the plaintiff, therefore, contended that the rift between officers in the 3[rd] defendant's department prompted the 3[rd] defendant to issue Ext.A32. Even 10 AS Nos.646 & 711/2000 though there are accusations in Ext.A32 that the plaintiff was responsible for the delay in delivering the barges, as we have already seen, the facts proved in this case would show that the defendants were responsible for the delay and therefore no penalty can be claimed by the defendants from the plaintiff. 11. Another complaint raised in Ext.A32 is that there are deviations made by the plaintiff in the design approved by the defendants. In paragraph 6 of Ext.A32, some defects have been pointed out. It is interesting to note that it is for the first time through Ext.A32 such a complaint comes out from the defendants. Learned counsel for the plaintiff relied on various documents, mainly Exts.A19 and A20, and the oral evidence adduced by the plaintiff to show that the defendants had paid all the amounts due to the plaintiff, except 5% of the value of the vessels, that they released the bank guarantee stipulated in Ext.A5 and they after testing, took possession of the vessels. Possession of the vessels was handed over by the plaintiff after satisfactorily testing the same by the competent agency. It is, therefore, the contention of the plaintiff that the defendants are estopped from raising any contention that the barges were defective and it did not conform to the prescribed standards. We find that the contention of the plaintiff in this regard is acceptable. Assertions made by the witnesses on the side of the plaintiff were not effectively controverted in cross-examination. That apart, no independent evidence 11 AS Nos.646 & 711/2000 was adduced by the defendants, nor did they produce any document to show that the plaintiff had deviated from the approved design and specifications in making the barges. Therefore we are of the view that the trial court rightly repelled this contention of the defendants. 12. On going through the entire materials placed before us, we are of the view that the appeal at the instance of the defendants is bereft of any merit. In the absence of any evidence adduced and also in the wake of failure to elicit any favourable answer in the cross-examination of plaintiff's witnesses, the defendants cannot be heard to say that they are entitled to get any relief against the plaintiff. To crown all these things, the defendants have neither set up a counter claim, nor filed an independent suit to realise the alleged loss from the plaintiff. Therefore, we have no hesitation to hold that the appeal at the instance of the defendants has to fail. 13. The appeal filed by the plaintiff raises predominantly a question as to the rate of interest. It is admitted that the plaintiff is a small scale industry. Ext.A5 agreement was executed on 20.06.1988. Plaintiff relied on the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and an Ordinance, which was a precursor to the Act. Admittedly, neither the Act nor the Ordinance was in force at the time when the parties executed Ext.A5. Learned counsel for the plaintiff therefore fairly conceded in the light of the decision in **Shakti Tubes Ltd. v. State of Bihar ((2009) 7 SCC 673)** that the claim for interest 12 AS Nos.646 & 711/2000 under the Act or Ordinance may not be sustainable. We hold that neither the Act nor the Ordinance has any application to this case. Therefore, the claim for interest at the rate of 5% points above the floor rate for comparable lending has no application to this case. 14. Learned counsel contended that the plaintiff is entitled to get 17% interest. According to him, the grant of interest at the rate of 12% per annum by the court below is incorrect. Learned counsel for the plaintiff relied on Section 80 of the Negotiable Instruments Act to contend that the plaintiff is entitled to claim 18% interest per annum in such cases. Section 80 of the Negotiable Instruments Act deals with the rate of interest when no rate is specified in the instrument. We are unable to accept this contention for the reason that the provisions in the Negotiable Instruments Act deal with negotiable instruments only and it cannot be bodily lifted and applied in respect of a claim for interest under a different circumstance. Therefore, the above mentioned Section has no application to the plaintiff's claim. Considering the facts and circumstances and in the absence of any evidence to show that what was the lending rate of nationalised banks at the relevant time, we are of the view that the court below has granted a reasonable rate of interest to the plaintiff and no interference in that regard is warranted. 15. Even though the plaintiff has not taken up any specific ground in the appeal, learned counsel for the appellant/plaintiff contended that the AS Nos.646 & 711/2000 13 court below should have seen that 5% of the value detained by the defendants would come to `8,85,060/-. It is also contended that there is an express admission of this amount in Ext.A32 as well as in the written statement. We have gone through the averments in Ext.A32 saying that an amount of `8,85,060/- less penalty amount for the delay was payable to the plaintiff firm, had the firm supplied barges as per the departmental specifications. As already seen above, the defendants are not entitled to recover any penalty from the plaintiff. However, the court below did not consider this admission as it militates against the arithmetical calculations. The principle in Section 58 of the Evidence Act is that a fact admitted need not be proved. However, it is equally clear that ervery admission can be explained. The court has power to direct a party to prove a fact _de hors_ the admission by the other side. There is no material produced by the plaintiff to show that the amount of `8,85,060/- mentioned in Ext.A32 reflected a correct figure. The value of each barge determined in Ext.A5 was `26,82,000/-, excluding the sales tax and other dues. Therefore, the amount calculated by the court below in this head at `4,02,300/- is the correct value. As mentioned above, the plaintiff has not challenged this aspect in the appeal memorandum. Therefore, we are of the view that the contention raised by the plaintiff for enhancement of 5% value of the vessels cannot be accepted. Court below has already granted escalation value in respect of all the three vessels. Therefore, any increase in the 5% AS Nos.646 & 711/2000 14 amount, for which the plaintiff is undoubtedly entitled, will only result in double benefit to the plaintiff. Therefore, we decline the prayer of the plaintiff in this regard. Considering the facts and circumstances, we do not find any fault in the judgment and decree passed by the court below. Therefore, we hereby confirm the same. In the result, the appeals are dismissed confirming the judgment and decree passed by the court below. No order as to costs. All pending interlocutory applications will stand closed. ## **ANTONY DOMINIC, JUDGE.** ## **A. HARIPRASAD, JUDGE.** **cks** 15 AS Nos.646 & 711/2000 **ANTONY DOMINIC & A.HARIPRASAD, JJ.** **A.S.Nos.646 & 711 of 2000** ## **COMMON JUDGMENT** **8[th] March, 2016**