M/S Lakshmi Civil Engineering Services Pvt. Ltd. v. Kerala Water Authority

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE A.V.RAMAKRISHNA PILLAI** **TUESDAY, THE 11TH DAY OF FEBRUARY 2014/22ND MAGHA, 1935** **WP(C). No.29615 of 2012 (B) ----------------------------** ## **PETITIONER(S): --------------** **M/S.LAKSHMI CIVIL ENGINEERING SERVICES PVT.LTD., HAVING ITS BRANCH OFFICE AT MATHEWS SONS GATEWAY, 2ND FLOOR, VYTTILA, KOCHI - 19 REPRESENTED BY ITS POWER OF ATTORNEY HOLDER SRI.K.C.JAMES.** **BY ADVS.SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH SRI.P.BENNY THOMAS SRI.K.JOHN MATHAI** **RESPONDENT(S): --------------** **1. THE KERALA WATER AUTHORITY 'JALA BHAVAN' THIRUVANANTHAPURAM - 695 001REPRESENTED BY ITS MANAGING DIRECTOR.** **2. THE SUPERINTENDING ENGINEER, KERALA WATER AUTHORITY PH CIRCLE, KANNUR - 670 001.** **3. THE EXECUTIVE ENGINEER, KERALA WATER AUTHORITY PROJECT DIVISION, MATTANNUR, KANNUR - 670 702.** **R1-R3 BY ADV. SRI.GEORGE MATHEW, SC, KWA** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11-02-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **WP(C). No.29615 of 2012 (B)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:-** - **P1:COPY OF THE NOTICE INVITING TENDER DATED NIL BEARING NO.10/200809/PHC/KNR/SPAN.** - **P2:- COPY OF THE LETTER BEARING NO.LCES/T30/08-09 DATED 16.10.2008 FROM THE PETITIONER TO THE 1ST RESPONDENT.** - **P3:- COPY OF THE LETTER BEARING NO.LCES/T38/08-09 DATED 10.01.2009 FROM THE PETITIONER TO THE 1ST RESPONDENT.** - **P4:COPY OF THE LETTER BEARING NO.LCES/T40/08-09 DATED 2.3.2009 FROM THE PETITIONER TO THE FIRST RESPONDENT.** - **P5:COPY OF THE PROCEEDINGS OF THE MANAGING DIRECTOR OF THE KERALA WATER AUTHORITY BEARING NO.KWA/HO/WN-1/KNR/TD-35/94/08/SPAN, DATED 13.3.2009.** - **P6:COPY OF THE LETTER NO.KWA/PHC/KNR/D1-352/2008, DATED 18.3.2009 ISSUED BY THE 2ND RESPONDENT TO THE PETITIONER.** - **P7:- COPY OF THE LETTER BEARING NO.LCES/T-46/09-10 DATED 6.7.2009 FROM THE PETITIONER TO THE 3RD RESPONDENT.** - **P8:COPY OF THE LETTER BEARING NO.LCES/T-65/08-09 DATED 12.12.2009 FROM THE PETITIONER TO THE 3RD RESPONDENT.** - **P9:COPY OF THE LETTER BEARING NO.A1/2225/09 DATED 18.12.2009 FROM THE 3RD RESPONDENT TO THE PETITIONER.** - **P10:- COPY OF THE LETTER BEARING NO.LCES/T-67/09-10 DATED 21.01.2010 FROM THE PETITIONER TO THE 3RD RESPONDENT.** - **P11:- COPY OF THE LETTER BEARING NO.LCES/07-10-11 DATED 26-04-2010 FROM THE PETITIONER TO THE 3RD RESPONDENT.** - **P12:- COPY OF THE COMPLETION CERTIFICATE ISSUED TO THE PETITIONER ON 02.09.2011 BY THE EXECUTIVE ENGINEER.** - **P13:- COPY OF THE LETTER DATED 6.8.2012 ISSUED BY THE PETITIONER TO THE RESPONDENT.** - **P14:COPY OF LETTER DATED 25.8.2012 ISSUED BY THE MANAGING DIRECTOR OF THE RESPONDENT.** ## **RESPONDENTS' EXHIBITS:-** - **R1(A):- COPY OF SPECIAL CONDITIONS APPENDED TO THE AGREEMENT.** - **R1(B):- COPY OF LETTER NO.KWA/PHC/KNR/D1-3527/08 DTD.12.05.2010.** - **R1(C):- COPY OF LETTER KWA/PRDN/MTR/D1-286/09 DTD.04.02.2012.** /True Copy/ **P.A to Judge** **KRJ** ## **A.V.RAMAKRISHNA PILLAI, J.** = = = = = = = = = = = = = = = = = W.P(C) No.29615 of 2012 = = = = = = = = = = = = = = = = = = Dated this the 11[th] day of February, 2014 ## **JUDGMENT** The petitioner which is a company registered under the provisions of Companies Act, 1956 mainly engaged in the works related to lying pipe lines, has come up before this Court for a declaration that the action of the respondents in applying clauses 8.20 to 8.20.4 to the contract in question for the purpose of reduction of the amounts payable on account of reduction of raw material prices is contrary to the agreed conditions and also for a direction to the respondents to recalculate the amounts payable to the petitioner in respect of the works allotted to them by Ext.P6 without applying the aforesaid clauses in respect of downward revision of raw material price. 2. The petitioner invited tenders for a work titled “SPAN WSS to Anjarakandy, Muzhappilangad, Kadirur, Eranholi, Peralassery and adjoining Panchayats in Kannur District”, in the year 2008. The petitioner submitted tender for the work covered under Ext.P1 and its offer being the lowest, it was invited for discussions with the Technical Committee of the 1[st] respondent, in relation to the WP(C).29615/12 ## **-:2:-** concerned work. Following several negotiations, the petitioner finally offered to do the work at 61.99% above the estimated probable amount of contract (PAC) with the specific condition that the provisions contained in clauses 8.20 to 8.20.4 of Ext.P1 should not be applied in the case of any downward revision of raw material prices; it is alleged. 3. After commencement of the work, the petitioner noticed that the running account bills submitted by the petitioner were being paid by applying the conditions prescribed in clauses 8.20 to 8.20.4 of Ext.P1. The petitioner, therefore, took up the matter with the 3[rd] respondent, who by letter dated 18.12.2009, informed the petitioner that price variation clauses are applicable to the contract in question. 4. In reply, the petitioner addressed several letters to the 3[rd] respondent regarding non-applicability of clauses 8.20 to 8.20.4 of Ext.P1 in the case of downward revision of raw material prices to the contract in question. Since, there was no response from the office of the 3[rd] respondent, the representatives of the petitioner personally met the Executive Engineer, Project Division, Mattannur, and appraised him of the non-applicability of clauses 8.20 to 8.20.4; it is alleged. WP(C).29615/12 ## **-:3:-** 5. According to the petitioner, the Executive Engineer, Mattannur informed the petitioner that the matter has been referred to the superiors and requested that the work on the project be completed as per the schedule and also promised that an amicable solution could be arrived at in respect of the issue whether clauses 8.20 to 8.20.4 of Ext.P1 would be applied to the contract in question. 6. The petitioner further alleges that, thereafter the representatives of the petitioner approached the Superintendent Engineer, PH Circle, Kannur and he also informed that the matter was being considered at the highest level. The petitioner further alleges that the work was completed in all respects by 31.05.2011 and the petitioner was issued with the completion certificate on 02.09.2011. Though the petitioner expected that the issue relating to the deduction of contract amount by applying clauses 8.20 to 8.20.4 of Ext.P1 would be resolved in its favour and that the amounts withheld by applying the aforesaid clauses would be released, the final payments to the petitioner were released on 25.08.2012 without releasing the payments withheld by the application of the aforesaid clauses. It is in this context, the petitioner has approached this Court. WP(C).29615/12 **-:4:-** 7. The respondent authority filed a detailed counter wherein the stand taken by them was that the petitioner has executed the agreement with the 2[nd] respondent on 19.3.2009 vide agreement No.47/2008-09/SE/PHC/KNR after accepting the conditions of the work order which is a part of the agreement. A copy of the special conditions was produced as Ext.R1(a) along with the counter. According to the respondent, it was not mentioned anywhere in the work order issued by the 2[nd] respondent that the letter of contractor mentioned as Exts.P3 and P4 would be a part of the agreement. 8. The definite stand taken by the respondent in their counter is that clauses 8.20 to 8.20.4 of NIT was not excluded while issuing work order by the 2[nd] respondent and instead, the petitioner accepted and signed the special conditions of work order which once again confirms the applicability of price variation clause and accordingly, executed the agreement. 9. I have heard the learned counsel for the petitioner and the learned standing counsel for the respondents quite in extenso. 10. While the learned counsel for the petitioner maintained the stand that the action of the respondents in applying clauses 8.20 to 8.20.4 of Ext.P1 for the purpose of reducing the amount WP(C).29615/12 ## **-:5:-** payable to the petitioner for the work allotted to it vide Ext.P6 is illegal and unsustainable in law, the learned counsel for the respondent water authority, per contra, submitted that those clauses form part of the concluded contract and the petitioner cannot claim exclusion from the purview of those clauses. 11. The price variation clauses (clauses 8.20 to 8.20.4) of Ext.P1 agreement reads as follows: ## **8.20.1 Price Variation of PVC Pipe** - (a)The prices quoted shall be subject to price variation in the price of PVC resin as detailed below. The prices of PVC pipes quoted shall be based on the exfactory price of PVC pipes (basic Price exclusive of ED) as on 5 days prior to the date of submission of Tender corresponding to the then prevailing IPCL PVC resin grade 67ER092. The tenders shall offer their rates based on this resin price only and the resin price at which the rates are quoted shall also be specifically mentioned in the offer for confirmation of this condition. The price variation shall be effected according to the ratio 1:0.95 ie. for ever increase/decrease of the prices of PVC resin by One Rupee per tonne, the corresponding increase or decrease in price of PVC pipes will be applied at the rate of Rs. 0.95/- tonne. For the purpose of the price variation, the standard weight of PVC pipes per meter shall be considered. For orders involving pre- WP(C).29615/12 ## **-:6:-** delivery inspection, the resin prices prevailing one month prior to the date of offer for inspection shall be applicable provided the offer for inspection is made within the date specified in approved procurement schedule. - (b)If the offer for inspection is delayed or if the inspection is offered during the extended delivery period, no price increase shall be allowed. However, any decrease in price one month prior to the date of offer for inspection during the extended delivery period shall be made applicable and the reduced price only shall be allowed. For claiming the revision in price of pipes based on revised IPCL PVC resin price, the supplier shall furnish documentary proof from IPCL or such other authorised national agency / manufacturer of resin regarding the revision of resin price. It shall be the responsibility of the supplier to intimate the purchase about the increase as well as fall in resin price from time to time. - (c)Offers which are not in conformity with the above conditions shall be rejected. ## **8.20.2 Price Variation of CI / DI / MS Pipes** The prices to be quoted by the tenderers are firm except for the variations (up or down) in price of Pig Iron - as announced / certified by SAIL or such Government Organisations / Statutory body. The price quoted shall be considered as that corresponding to the cost of Pig Iron 5 days before the last date for submission of the tender. Variation in cost of Ductile WP(C).29615/12 ## **-:7:-** Iron, CI pipes will be allowed if the cost of Pig Iron varies on the date of offer of materials for inspection at the manufacturers premises. For working out the price variation, the cost of Pig Iron that was prevailing 30 days before the date of offer for inspection of materials will be considered for comparison against the rate on the date of submission of tender. The change in price per metric tonne of finished product against change in price per metric tonne of raw materials shall be quoted by the tenderer. Whether the contractor likes to takes the benefit of the price variation clause or not it shall be his responsibility to furnish relevant records in proof of prices of raw material at the time of his tender submission and the time of offer for inspection of materials. If the prices of raw materials has decreased during the period before the offer for inspection of materials, KWA will deduct proportionately from the cost of materials. ## **8.20.3 Cost of Reinforcement Steel** The prices of reinforcement steel of Steel Authority of India will be considered as the basic price for considering price variation of reinforcement bars. The tenderer shall have to supply reinforcement from Sail or Vizag steel for availing his benefit and shall indicate his basic price of steel and over head charges separately in the bid submission. Price of reinforcement steel shall be considered for price variation based on the project implementation programme submitted by the tenderer and the reinforcement for each activity WP(C).29615/12 ## **-:8:-** will be expected as arrived at the site at least 15 days before the scheduled date of each activity. At any case, the rate allowed as per the price variation clause for supply of steel shall not be more than the actual cost of steel and transportation charges with over head charges not exceeding 10% of cost and transport charges. ## **8.20.4 Price variation for supply of cement** The prices for supply of product from Malabar cement will be considered as the basic price for considering price variation of cement. For the purpose of evaluating variation in price, the tenderer shall indicate the basic price of cement, conveyance charges & his overheads if any separately in the quoted price for agreement. The difference in basic price as on 3 days before the date of submission of tender and the date of supply of cement at site will be considered for allowing price variation. The date of supply of cement at site shall be as per the agreed schedule of different activity and the benefit of price variation will not be available for activities delayed from the agreed schedule for what so ever reasons. At any case, the price so allowed shall not be more than the actual price and conveyance of the cement together with a maximum of 10% overheads charges.” 12. The learned counsel for the petitioner would submit that a reference to Exts.P3 and P4 which were made a part of contract by Ext.P6 would show that the aforesaid clauses of Ext.P1 would WP(C).29615/12 **-:9:-** not have been applied to the work allotted to the petitioner since on the basis of negotiations these clauses were specifically excluded in the case of downward revision of raw material prices. 13. The petitioner submitted its tender for the work covered by Ext.P1 and its offer being the lowest, it was invited for discussions with the Technical Committee. It is not disputed. Following the discussions with the Technical Committee, the petitioner submitted Ext.P2 letter offering some rebate in the rate quoted, subject to certain conditions. 14. Ext.P4 is the letter dated 10.1.2009 issued by the petitioner to the Managing Director of the respondent wherein the petitioner has expressed its inability to reduce the price quoted below 65% of the PAC under any circumstances. However, work was finally awarded to the petitioner at 61.99% of the estimate PAC on account of the reduction in the quoted rate in respect of particular item of work. Therefore, it was argued by the learned counsel for the petitioner that the respondent authority cannot, at any rate, apply the aforesaid clauses to the work in question. 15. The learned standing counsel for the respondents would submit that while approving the tender of the petitioner, the respondents did not accept to exempt the price variation clause WP(C).29615/12 **-:10:-** 8.20 as demanded by the petitioner. It was argued by the learned standing counsel that after receipt of the work order, the petitioner executed the agreement after accepting the conditions of price variation, and if there was any objection to accept the price variation conditions, the petitioner could have rejected the offer of the 2[nd] respondent to take up the work. I cannot accept the said contention. It appears from record that there were serious negotiations after the tender was accepted by the petitioner, who was the highest bidder. If the respondent authority was so particular that the aforesaid variation clause would be adhered to, they should not have asked the petitioner to come for negotiations to reduce the price quoted. 16. It is admitted by the respondents that the petitioner got PAC at 68.34% above the estimated PAC. On negotiations, the petitioner came down to 65% and later, to 61.99%. This, according to the petitioner, was on the legitimate expectation that the variation clauses made mention of above would not be applied in the present case. By compelling the petitioner to go for negotiations and to reduce the quoted price, the respondent authority made the petitioner to believe that the aforesaid clauses would not be enforced. WP(C).29615/12 ## **-:11:-** 17. Ext.P6 is the letter dated 18.3.2006 by which the tender of the petitioner was accepted for an amount of 94,46,92,140/-₹ which is 61.99% above the estimate rates. In that letter, the negotiation letter sent by the petitioner were referred to. It reads as follows; - “Ref:- 1. This office Tender No.10/2008-09/PHC/KNR/SPAN dtd. 22-9-08. 2. Proceedings No.KWA/HO/WN-1/KNR/TD-35/94/08/ SPAN Thiruvananthapuram dtd 13-03-2009. 3. Your negotiation Letter (1) No. LCES/T30/08-09 dated 16-10-08, (2) LCES/T38/08-09 dated 10-01-09 and (3) LCES/T340/08-09 dated 02-03-09 part of the agreement”.” (emphasis added) This would tend to indicate that the negotiation letter sent by the petitioner was treated as part of the agreement by the respondent authority. On the basis of that, the petitioner has completed the work to the satisfaction of the respondent. 18. Here, I would like to refer to the following words of Lord Cairns in Hughes v. Metropolitan Railway Company [(1877) 2 AC 439]:- “It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results ......... afterwards by their own act or with their own consent enter upon a course of WP(C).29615/12 ## **-:12:-** negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.” 19. The aforesaid words of Lord Cairns inspired Lord Denning to lay down the principle of doctrine of promissory estoppel in High Trees' case (1956-1 ALL ER 256):- “......It is the first principle on which all courts of equity proceed................... that it will prevent a person from insisting on his strict legal rights - whether arising under a contract, or on his title deeds, or by statute - when it would be inequitable for him to do so having regard to the dealings which have taken place between the parties.” 20. The principle of promissory estoppel applies with equal force against the Government as well as the Governmental agencies unless there is an over riding public interest. Indian Courts have adopted the principle of promissory estoppel in fullness and it has been recognised as affording a cause of action to the person to whom the promise is made and the requirement of consideration has not been allowed to stand in the way of **-:13:-** WP(C).29615/12 enforcement of such promise. 21. On a consideration of the entire materials now placed on record, this Court is of the definite view that there is absolutely no justification for the respondent authority to enforce clauses 8.20 to 8.20.4 of Ext.P1 against the petitioner. Therefore, the petitioner is entitled to succeed. In the result, the writ petition is allowed. The respondents are directed to re-calculate the amounts payable to the petitioner in respect of the work allotted to it by Ext.P6 without applying clauses 8.20 to 8.20.4 of Ext.P1 agreement in respect of the downward revision of raw material prices and to pay the amounts due to the petitioner on this account, within a period of three months from today. Sd/- ## **A.V.RAMAKRISHNA PILLAI JUDGE** krj /True Copy/ P.A to Judge