6th February, 2012

Petitioner Counsel: Shri P. A. KHOLKAR
Respondent Counsel: Shri V. RODRIGUES

Cases Cited:
State of Kerala Vs. K. Bhaskaran, AIR 1985 Kerala 49 [Para 9,15]
M/s. A.T. Brij Paul Singh and others Vs. State of Gujarat, =(1984) 4 SCC 59 [Para 9,16]
Dwarka Das Vs. State of Madhya Pradesh and another, AIR 1999 SC 1031 [Para 9,17]

JUDGMENT

JUDGMENT :- The plaintiff of Special Civil Suit no. 59 / 96/ A has filed this appeal against the Judgment, Order and Decree dated 30/08/2003 passed by the learned Civil Judge, Senior Division at Ponda ("Trial Judge" for short), in the said Special Suit.

2. The parties shall hereinafter be referred to in the manner in which they appear in the cause title of the said Special Civil Suit no. 59/96/A.

3. The plaintiff had filed the said suit for recovery of an amount of Rs. 3,77,234.65 from the defendants as compensation along with interest at the rate of 25% per annum (p.a.) from 07/07/1995 till the date of full and final payment.

4. Case of the plaintiff, in short, is as follows:

He is a PWD contractor undertaking the works of constructing the roads and bridges for the PWD for the last 10 years. The defendant no.1 floated a tender for the work of construction of a bypass at Gadno, Caranzel in village panchayat Marcaim. The plaintiff submitted his quotation and his tender was accepted by the defendants for the contract amount of Rs. 19,48,231.00. The work was thereafter allotted to the plaintiff and formal contract was signed as per the work order and the contract dated 05/04/1994. As per the said contract, the work was to be commenced on 14/04/1994 and the time limit of completion of work was 450 days including monsoon and thus the date stipulated for completion of the work was 07/07/1995. Immediately after getting the work order, the plaintiff made arrangements to start the work by mobilizing the labour force, obtaining and arranging for supplies of the required construction material needed for the work. However the defendant no.1 failed to provide to the plaintiff the land required for the work. The land, where the work was to be carried out, was not acquired by the government even till the stipulated date of completion of work i.e. 07/07/1995. The defendant no.1 therefore committed a fundamental breach of contract by failure to provide the site required for work due to which the plaintiff suffered huge losses as stated below:

(a) If the plaintiff had completed the said work in time, he would have earned anticipated profit thereon at least of Rs. 2,82,234.65 being 15% of the value of the work. These profits were denied to the plaintiff because of breach of contract by the defendants and therefore defendants are liable to compensate the plaintiff for the same.

(b) After the work was allotted to the plaintiff, the plaintiff made arrangement for carrying out the work and had paid advance of a sum of Rs. 40,000/- to the suppliers for the supply of laterite rubble stones, metal and sand. Since defendants could not provide the plaintiff with the site required for the work, he could not transport any of the material to the site and the advances paid by the plaintiff were lost permanently. Hence, the plaintiff is entitled to be compensated by the defendants for the said amount of Rs.40,000.00.

(c) The plaintiff has paid Rs. 25,000.00 to his piece work labour contractors in advance to ensure the presence of the labour force for executing the work. However since the defendants did not give the possession of the site to the plaintiff till 07/07/1995, the work could not be started. Hence the plaintiff is entitled to be compensated on this count also.

(d) The plaintiff had deposited with the defendants an Earnest Money Deposit (EMD) of Rs. 20,000.00 alongwith the tender for the work. After the work was allotted to the plaintiff, the said deposit was converted into a part of security deposit. Since the plaintiff was not able to start any work, due to the fundamental breach of contract by the defendants, the plaintiff is entitled to the refund of the said amount of Rs. 20,000.00.

The plaintiff therefore sent a legal notice by registered A.D. to the defendant no.2 on 24/04/1996 and called upon the defendants to pay the said amounts alongwith interest. The defendant no. 2 received the notice on 25/04/1996 but did not comply with the same and even did not reply. Hence the suit.

5. By way of Written Statement, the defendants resisted the plaintiff's claim. The case of the defendants, in short, is as follows :

The Civil Court has no jurisdiction in view of the arbitration clause in the agreement. It is false that the Defendant no.1 failed to provide to the plaintiff the site for work. The land, which was not acquired, was only a small portion of land at Marcaim side and the plaintiff could have started the work from Gaunem side and if he had done so, he could have completed at least 80% of the work. The land, which was acquired was meant for filling and for approach road to the main road. The portion from Gaunem side was under water and the plaintiff neither bothered to start the work nor did he make any arrangements by mobilizing the work force and obtaining and arranging construction material. The defendants therefore have not committed any breach of contract and are not liable to pay any amount as compensation.

6. The Plaintiff examined himself as PW 1 and produced the documents namely the work order dated 5/4/1994 as Exhibit PW.1/A; receipt issued by the defendant no. 1 for Rs.20,000/- towards EMD as Exhibit PW.1/B; payment vouchers, respectively for Rs.5,000/- and Rs. 20,000/- , issued by one Philip Costa, regarding advance payment made towards labour to be engaged for the work of construction of bypass at Gadno, Caranzal in Marcaim Constituency as PW.1/C(Colly); payment voucher for Rs. 40,000/-, issued by one R. S. Karmali regarding advance payment made towards procurement of metal to be used for the work of construction of bypass at Gadno, Caranzal in V.P. Marcaim constituency, as Exhibit PW.1/D; letter dated 6/7/1990 addressed by the Executive Engineer to the plaintiff as Exhibit PW.1/E; notice dated 24/4/1996 sent by the plaintiff to the Chief Secretary Government of Goa, under section 80 of the Code Of Civil Procedure, as Exhibit PW.1/F; and postal receipt and the A/D card as Exhibit PW.1/G colly. The defendants examined one Shri C.A. Joseph, Assistant Engineer, Sub-Div III, works Division VI, Roads, P.W.D. Vasco as DW-1 and he also produced various documents namely the report dated 7/6/1996 prepared by DW.1 as Exhibit DW.1/A; letter dated 8/2/93 sent by the plaintiff to the Superintending Engineer as Exhibit DW.1/B; plan showing the land to be acquired as Exhibit DW.1/C; General rules and directions of the Government regarding item rate tender and contract works and the conditions of contract, as Exhibit DW.1/D(Colly); work order dated 5/4/1994 as Exhibit DW.1/E; authority letter given to DW.1 as Exhibit DW.1/F; and letter dated 17/6/1994 sent by the plaintiff to the Assistant Engineer as Exhibit DW.1/AA. The defendants also examined one Shri M.P. Velayudhan, Junior Engineer of the same department as DW2.

7. The learned Trial Judge, after consideration of the evidence on record, held that the Civil Court has no jurisdiction in view of the arbitration clause. The learned Trial Judge further held that the plaintiff has otherwise failed to prove that he is entitled to recover the sum of Rs. 3,77,234.65 along with interest or otherwise any sum from the defendants. The suit therefore came to be dismissed.

8. Heard arguments. The learned advocate Shri P.A. Kholkar argued on behalf of the plaintiff whereas learned Additional Government Advocate Shri V. Rodrigues argued on behalf of the defendants.

9. The learned advocate Shri P.A. Kholkar argued that the trial Judge, without reading the clause no. 25 of the agreement has returned the finding that he has no jurisdiction in the matter. He argued that the value of the claims being above Rs. 50,000/-, the Civil Court had jurisdiction. He pointed out that the suit was filed within the time limit prescribed by said clause no. 25. He relied upon the following judgements: : (i) "State of Kerala, vs. K. Bhaskaran" (AIR 1985 KERALA 49); (ii) "M/s. A.T. Brij Paul Singh and others vs. State of Gujarat" [(1984) 4 SCC 59]; and (iii) "Dwarka Das Vs State of Madhya Pradesh and another"(AIR 1999 SC 1031). Relying upon the said citations, Shri. P.A. Kholkar, learned Counsel for the plaintiff, contended that the plaintiff is entitled to 15% of the total contract value as compensation towards estimated profit and further compensation towards actual losses, since the defendants committed fundamental breach of the contract by not providing the site to start the work till the stipulated date of completion of the work, due to which the contract was discharged. He, therefore, argued that the suit ought to have been decreed as prayed for.

10. On the contrary, Shri. V. Rodrigues, learned Additional Government Advocate, argued that in the present case, the defendants had not terminated the contract and in fact the plaintiff was called for discussion and that in the agreement there is no clause for automatic discharge by efflux of time and actually there is a clause for extension of the period of contract. He further argued that the plaintiff who, has himself put an end to the contract, is not entitled to claim estimated profit as compensation. He further argued that the evidence on record sufficiently proves that the site towards Gaunem side was available to the plaintiff and he could have started the work from that side which he did not do. He also argued that the plaintiff has not produced convincing material on record to prove that he had made arrangement for material or had paid any advance amount to the suppliers of material. He also argued that the evidence on record is not sufficient to prove that the plaintiff had paid any amount to the piece work labour contractor in advance. Even otherwise, according to Shri V. Rodrigues, the said amount of Rs. 40,000.00 and Rs. 25,000.00 would be included in the calculation of the estimated profits and could not have been claimed separately. He therefore argued that the suit has been rightly dismissed by the Trial Court.

11. I have gone through the entire material on record.

12. The first point that arises for determination is whether the Trial Court had jurisdiction to entertain and decide the suit. A perusal of the clause no.25 of the contract which is the arbitration agreement reveals that in cases where the claims of the contractor exceed Rs.50,000.00, there shall be no arbitration and the matter will have to be settled through a civil suit in the court of Civil Judge, Senior Division of competent jurisdiction, within the State of Goa only, filed within 90 days from the date of rejection of such claim by the department. As pointed out by learned Shri Kholkar, the plaintiff gave notice to the defendants which is dated 24/04/1996 (Exhibit PW.1/F) by which the defendants were called upon to finalise and pay the claim within a period of 60 days from the date of receipt of the notice and the plaintiff has filed the suit on 24/09/1996 which is within 90 days from the expiry of the stipulated period of 60 days, since the defendants did not comply with the notice. In my view, therefore, the Trial Court had jurisdiction in the matter. The finding of the Trial Court on issue no. 2 framed in the suit, being erroneous, is therefore quashed and set aside.

13. The next point for determination is whether there is breach of contract committed by the defendants, contrary to law and to the terms of the contract, due to which the plaintiff is entitled to recover the amount claimed by him along with interest.

14. So far as the claim of the amount of Rs.40,000.00 and Rs.25,000.00 totaling to Rs.65,000.00, is concerned, the same is regarding the alleged advances paid to the suppliers towards the cost of material and to the piece work labour contractor towards the labour force. Profit is calculated by deducting the cost of the materials and other additional costs/expenditures towards transport of materials, labour force, etc. Hence, once the claim is made towards estimated profits, no separate claim towards the advances paid for securing materials and labour could be made.

15. In the case of "State of Kerala, Vs. K. Bhaskaran" (Supra), the Kerala High Court has held thus:

"where under a works contract given by the government it was apparent from the nature of the work and the mode of execution of the work that the request of the contractor for cement was quite reasonable and the Government ought to have complied with the request and the government was not giving proper reasons for denying the request, the conclusion was warranted that the contractor was not at fault in not commencing the work and this conclusion obviously led to the further conclusion that by cancelling the contract the Government committed breach of contract. (Para 8)

In the case of breach of contract, the party guilty of breach of contract is liable only for reasonable foreseeable losses- those that a normally prudent person, standing in his place possessing his information when contracting would have had reason to foresee as probable consequences of future breach. In the case of breach of a works contract the breach of contract prevents the gains of party wronged, i.e. contractor, and thereby he sustains loss. In other words, gains prevented qualify as loss sustained. No special rules apply to loss of profits. Claims for such losses are governed by the same general principles that regularly control damages for breach of contract. Of course, plaintiff- contractor is obliged to prove with reasonable certainty, not with fatalistic sureness that defendant's breach prevented gains or otherwise resulted in loss for the plaintiff, nor is he bound to prove with mathematical exactitude the amount of gain or loss in question. Thus if the plaintiff sues to recover profits lost, he need show convincingly that in the normal course of events, he would have realized a gain which he estimated, had the defendant performed his part of the contract. In the context, he has to produce the best estimate of the amount allowed by the circumstances. Fairly persuasive evidence, the most convincing and best available under the particular circumstances of the case will suffice. (Paras 12, 13)

Where the contractor to whom a works contract was entrusted by the government, clearly stated in the plaint in his suit for damages for breach of contract, that the estimate amount of the contract was made by government reckoning a profit of 10% and this fact was not denied by the State in their written statement and nowhere it was stated in the written statement that the damage claimed was excessive, arbitrary or unjustifiable and it was admitted that normally a 10% profit also is taken as an element in the preparation of the estimate of contract, no interference with the decree estimating the loss of contractor at 10% government estimate of contract was called for." (Paras 20 and 21)

16. In the case of "M/s. A.T. Brij Paul Singh and others" (Supra), the Hon'ble Supreme Court has held that:

"Ordinarily, when a contractor submits his tender in response to the invitation to tender for a works contract, a reasonable expectation of profit is implicit in it and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract. Where, therefore, the party entrusting the work commits breach of contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What would be the measure of profit would, however, depend upon facts and circumstances of each case. While estimating the loss of profit for the breach of contract it would be unnecessary to go into the minutest details of the work executed in relation to the value of the works contract. A broad evaluation would be sufficient. (Paras 9, 10 and 12)

Once it is held in consonance with the views of the High Court in the present case as well as in the cognate appeal that the respondent Government was guilty of breach of contract having unjustifiably rescinded the contract, part of which was already performed and for performing which the appellant, a Poona based contractor had transported machinery and equipment from Poona to the work site near Rajkot in Saurashtra, certainly he would be entitled to damages. In the facts and circumstances of the present case, the appellant should be awarded Rs. 2 lacs under the head "loss of expected profit" for breach of contract by the respondent." (Paras 8 and 12)

17. Lastly, in the case of "Dwarka Das" (supra), also the contract was found to have been illegally rescinded by Government. The Apex court has held that the claim by contractor for recovery of amount as damages as expected profit out of contract cannot be disallowed on ground that there was no proof that he suffered actual loss to the extent of amount claimed on account of breach of contract.

18. In all the cases supra, relied upon by Shri Kholkar, the learned counsel for the plaintiff, what had happened was that the Government had rescinded the contract and had thus committed breach of the contract. In the above three cases, while interpreting the provisions of section 73 of the Contract Act, the Apex Court has held that damages can be claimed by a contractor where the Government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages Court should make a broad evaluation instead of going into minute details. In the present case, as has been rightly argued by Shri. V. Rodrigues, learned Additional Government Advocate, the contract has neither been terminated by the defendants nor has been rescinded by the plaintiff.. On the contrary, the plaintiff, by notice dated 24/04/1996 which is at exhibit PW.1/ F, informs the defendants that the contract has got discharged by breach on the part of the department, by not acquiring the land on or before 07/07/1995, which is the date of completion of the work. A perusal of the conditions of said contract which is at Exhibit DW1/D(Colly) shows that though it is stated that time allotted for work is 450 days including monsoon however it is nowhere stated in the contract that the same shall stand discharged or terminated automatically upon expiry of the 450 days. On the contrary the clause no.5 of the said contract reads as follows:

"CLAUSE 5. If the contractor shall desire an extension of time for completion of work on the grounds of his having been unavoidably hindered in its execution or any other grounds, he shall apply in writing to the Engineer-in-charge within 30 days of the date of hindrance on account of which he desires such extension as aforesaid, and the Engineer-in-Charge shall, if in his opinion (which shall be final) reasonable grounds be shown therefore, authorise such extension of time if any, as may, in his opinion, be necessary or proper."

The said contract also makes proper arrangements for compensation to be paid to the plaintiff in the event of escalation of prices of materials, wages of labour required for execution of the said work, etc. The plaintiff, by letter dated 17/6/1994, which is at Exhibit DW.1/AA informed the Assistant Engineer, S.D.I.W.D.XVIII(RC), P.W.D., that the work could not be carried out due to objection of land owners. The plaintiff, by this letter, requested the defendants to obtain N.O.C. from land owners so that the work can be commenced and prayed that the stipulated period of contract be extended till L.A. probelm is finalized. Learned Shri Kholkar has contended that the first letter received by the plaintiff informing him about the land acquisition problem was after the date stipulated for the completion of the work had expired. The above is factually not correct. The date of completion of work was 7/7/1995 and by letter dated 6/7/1995 (Exhibit PW.1/E), the Executive Engineer had requested the plaintiff to attend his office on 12/7/1995 for discussion regarding the said work, as there was L.A. problem. Since the plaintiff was called for discussion regarding the said work on 12/7/1995, which date is after the date stipulated in the contract for completion of the said work, it only means that the government was not inclined to rescind the contract by efflux of time. The plaintiff did not wait for the said L.A. problem to be finalized, though he himself prayed for extension of the period of contract till the said problem was solved.. The plaintiff has not given any explanation as to why he did not attend the office of the Executive Engineer on 12/7/1995.

19. It is the case of the defendants that there was objection only from Marcaim side whereas there was no objection for work from Gaunem side and the plaintiff could have started the work from that side. DW.1 has stated that the plaintiff during one meeting told him that there is some problem at Marcaim side as the owners of the property towards that side were raising objection. However he has added that the land towards Gaunem side belonged to the Comunidade of Gaunem and there was no objection from anyone for starting work from that side.

20. It is another contention of Shri Kholkar, learned counsel for the plaintiff, that under the contract it was the duty of the defendant to provide for the entire site required for the work within the time limit fixed for completion of work which is 450 days and since the defendant failed to provide the land for construction of Bypass, it amounts to refusal by the defendants to perform their promise, due to which the plaintiff was entitled to repudiate/terminate the contract and claim the amount by way of damages. In this regard , he has relied upon section 39 of the Contract Act. Section 39 of the Contract Act provides as under:

"39. Effect of refusal of party to perform promise wholly.- When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified by words or conduct, his acquiescence in its continuance."

21. There was no agreement between the plaintiff and the defendants that the government would acquire the land. The need to acquire the land from Marcaim side arose on account of objection of the owners of the land on that side. Failure of the defendants to provide to the plaintiff, land from Marcaim side was not deliberate but due to unforeseen circumstances. The plaintiff, by letter dated 17/6/1994 (Exhibit PW.1/AA), informed the defendant that the work could not be carried out due to objection of land owners. The plaintiff requested the defendant to obtain N.O.C. from the land owners. The plaintiff requested the defendant to extend the stipulated period of completion, not only for some fixed further period from 7/7/1995 but for unlimited period, till L.A. problem was finalised. The defendant no. 1, by letter dated 6/7/1995 (Exhibit PW.1/E) requested the plaintiff to attend his office on 12/7/1995 for discussion regarding the said work as there was L.A. problem. The defendants did not refuse to perform their promise under the the contract in its entirety but called the plaintiff for discussion to solve the problem. That did not give any cause to the plaintiff to put an end to the contract. In fact, by praying to extend the period of the completion work till the L.A. problem is finalised, the plaintiff has acquiesced in continuance of the contract. Section 39 of the Contract Act cannot come to the rescue of the plaintiff.

22. In view of the above, the plaintiff has failed to prove that there was breach of contract by the defendants, contrary to law and to the terms of the contract. Hence, the question of demanding compensation at the rate of 15% of the total value of the contract, towards estimated profits, does not arise.

23. Regarding the claim of Rs. 40,000.00 and Rs. 25,000.00 totaling to Rs. 65,000.00, as actual loss, is concerned, as already stated earlier, the same is regarding the alleged advances paid to the suppliers towards the cost of material and to the piece work labour contractor towards the labour force. PW 1 has stated that he made an arrangement for procuring labour, material and the machinery. He has stated that he has spent an amount of Rs. 40,000.00 for supply of material required for the said construction of road and the said material included rubble stones, metal and sand and that he could not take the said material to the site nor could get back the sum of Rs. 40,000.00 paid by him to the supplier with whom he had placed the order. PW 1 further states that he has spent an amount of Rs. 25,000.00 for procuring labour in order to undertake the said work of construction of road. He has produced two xerox copies of payment voucher one for Rs. 5,000.00 and another for Rs. 20,000.00 respectively dated 27/05/1994 and 28/05/1994 as Exhibits PW.1/C(Colly) and these receipts according to PW 1 are towards advance amount paid towards labour to be engaged for the construction of the bypass road. PW1 has stated that the said amount of Rs. 25,000.00 was paid to one Shri Philip Costa of Quepem. However, the said Shri Philip Costa of Quepem has not been examined to prove the receipts of the said amount. PW1 has produced another payment voucher dated 14/12/1994, as Exhibit PW.1/D, for having paid advance money of Rs. 40,000/-, for procurement of metal to be used for the work of construction of bypass . The person to whom, allegedly, the said amount was paid, namely Shri R, S, Karmali has not been examined. The said receipts were marked as Exhibit PW1/C(Colly) and Exhibit PW.1/D, under objection from learned advocate for the defendants who objected by stating that the said documents cannot be marked as Exhibit unless the person who has issued the said vouchers/ receipts, is examined. In spite of such objection, the plaintiff did not examine those witnesses.

24. In any case the plaintiff, prior to getting the tender, had written to the defendants a letter dated 08/12/1993 which is at Exhibit DW1/B wherein he informed that he is having sizable quantity of metal, sand and centering and shuttering material at his stock and that required labour force is also available with him due to which he had quoted workable and competitive rate. From this letter, it can be said that the plaintiff has falsely stated that he had to make arrangements for labour etc. by making advance payment. In fact, he was already having the said arrangements with him. Besides the above, the plaintiff (PW.1) had undertaken four to five construction jobs of different nature of PWD during the period 1994-95 and those works were going on at different places.

25. Hence, the plaintiff has failed to prove that he had already spent Rs. 65,000/- towards procurement of labour and material, for the purposes of the construction of the Bypass at Gadno, Caranzal.

26. Admittedly, the plaintiff had deposited EMD of Rs. 20,000.00 along with the tender for the work and after work was allotted to the plaintiff, the said deposit was converted into a part of security deposit. Admittedly, the plaintiff had not commenced the said work. According to the defendant the plaintiff is not entitled to the refund of the said Rs. 20,000.00. The plaintiff by notice dated 24/4/1996 had inter-alia claimed refund of the said amount of Rs. 20,000.000 but the defendant chose not to deny the same, by sending a reply. In the peculiar circumstances of the present case where admittedly the work was not even commenced by the plaintiff, who claims that this was due to non-availability of site, in my view, the plaintiff is entitled to refund of the said amount of Rs. 20,000.00 alongwith interest. The date of completion of work was 7/7/1995. The plaintiff had sent notice to the defendant on 24/4/1996, claiming interest at the rate of 21% p.a., compounded quarterly, from 7/7/1995 till realization, In the suit, filed on 24/9/1996, the plaintiff, however, claimed interest at the rate of 25% p.a. as from 7/7/1995 till full and final payment. As there is no evidence on record regarding the rate of interest to be awarded, in my view, the reasonable rate of interest would be 12% p.a. and the same should be calculated from the date of filing of suit i.e. from 24/9/1996 till the date of decree and 6% p.a. from the date of decree to the date of actual payment.

27. Under the circumstances above, the appeal partly succeeds. The impugned judgment, order and decree is not in accordance with the settled principles of law and therefore the same is liable to be quashed and set aside in so far as the order of total dismissal of the suit.

28 . In the result, the appeal is partly allowed.

(a) The impugned Judgment and Decree is quashed and set aside.

(b) The suit is partly decreed. The plaintiff is entitled to refund of earnest money deposit of Rs. 20,000.00 alongwith interest at the rate of 12% p.a. from the date of filing of the suit till the date of decree and at the rate of 6% p.a. from the date of decree till the date of actual payment.

(c) The parties to bear their own costs in this appeal. Decree accordingly.

(d) ppeal stands disposed of accordingly.

Appeal Partly allowed.