Ramachandra Narayan Nayak Vs Karnataka Neeravari Nigam Ltd. .

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IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 77-84 OF 2004

RAMACHANDRA NARAYAN NAYAK … APPELLANT VS.

KARNATAKA NEERAVARI NIGAM LTD. & ORS. … RESPONDENTS

J U D G M E N T

V. Gopala Gowda, J.

The appellant has filed these appeals being

aggrieved by the impugned common judgment and

decree dated 12th June, 2003 passed in RFA nos.

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C.A. Nos.77-84 of 2004

593-600/2000 by the High Court of Karnataka urging

various relevant facts and legal grounds for

setting aside the same and restoring the common

judgment and decrees dated 30th November, 1999

passed in O.S. no. 35/97 to 42/97 by the Civil

Judge (Senior Division) Gadag.

2. The brief facts are stated hereunder for the purpose of the rival factual and legal contentions

that are urged by the learned counsel on behalf of

the parties.For the sake of convenience, the

parties are referred to in this judgment as per

the ranking assigned to them in the plaints before

the trial court.

The plaintiff, the appellant herein, is a

Class I contractor. He undertakes the contract of

construction of irrigation canals and other major

works on a large scale. The plaintiff has

constructed an irrigation dam across the

Malaprabha river near Soundatti in Belgaum

District. The water from the said reservoir is to

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be supplied to agricultural lands of the farmers

in Dharwad and Belgaum Districts, through canals

to be excavated and constructed for that purpose.

For the construction of such canals in Ron taluka

in Dharwad District, a Division is established at

Ron headed by an Executive Engineer. A Chief

Engineer was appointed to supervise work whose

office was established at Belgaum.

3. The plaintiff submitted his tenders upon an invitation from the defendants, the respondents

herein, for execution of the balance work of

canals and his offer of bid was accepted. He has

deposited the earnest money in the form of bank

guarantee. On accepting the bid amount offered

by the plaintiff, parties entered into a contract

for execution of Alur combined branch and work of

canal at K.M. no.1-6 and Malaprabha right bank

canal works K.M. 97 and 102, as per the terms and

conditions agreed between them and more

particularly as stipulated in the tender notice.

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C.A. Nos.77-84 of 2004

4. Accordingly, the defendant no.4, Executive Engineer, Irrigation Department issued work orders

to the plaintiff relating to various canals on

9.11.1988, 10.3.1989 and 16.3.1989 respectively.

As per clause 2 of the agreement, the execution of

work was to be completed within a period of 15

months from the date of handing over the site to

the plaintiff excluding the monsoon season from

15th June to 15th September of the relevant years.

5. It is the case of the plaintiff that he was able to complete his part of the work such as

canal excavation, embankment, morum lining/casing

etc. within a short period deploying his staff and

machinery. Upon progress of execution of work, the

plaintiff wrote several letters dated 25.5.1990,

8.6.1990, 10.6.1990, 27.3.1991, 9.5.1991 and

14.10.1992 (Exs. P-45, P-32, P-46, P-30, P-42 and

P-19) addressed to defendant no. 4 requesting him

to supply cement, RCC templates and PCC slabs for

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C.A. Nos.77-84 of 2004

putting them to the bed of canal and for other

uses.

6. It is the further case of the plaintiff that as per the meeting which was held between the

plaintiff and defendant no.4, the proceedings

which are marked as Ex. P-20, revealed that the

cement and cement materials were in stock and were

available with defendant no.4, but he had

purposely delayed the supply of cement and cement

materials and he also did not authorize the

plaintiff to procure cement from the open market

and made certain false accusations against him.

The plaintiff placed reliance upon clause 30 of

the tender agreement wherein it is stated that the

decision of the Chief Engineer in relation to the

dispute is final.

7. It is the case of the plaintiff that despite repeated requests and demands made by him vide his

letters referred to supra, the defendant no.4

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C.A. Nos.77-84 of 2004

failed to supply cement and cement materials

required by the plaintiff to complete the work,

therefore he had no option but to terminate the

contract with the defendants. The plaintiff vide

his aforesaid letter dated 9.5.1991 to defendant

no.4, marked as Ex. P-42, asked to finalise the

bill regarding the execution of work by him and to

terminate the contracts without imposing any

penalty.

8. It is the further case of the plaintiff that on 12.10.1994, vide Ex.D-41, defendant no.3 passed

an order rescinding the contract and levied

penalty on the plaintiff, which order was

communicated to the plaintiff by defendant no.4

vide letter dated 24.10.1994 marked as Ex.D-42.

Before rescinding the contract, defendant no.3

neither issued notice nor heard the plaintiff, as

required under clause 3(d) of the agreement,

though the contract is rescinded by invoking

clause 3(d) of the agreement by him.

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9. The plaintiff, being aggrieved by the rescinding of the contract and failure on the part

of the defendants to make payments for the work

done and return of earnest money and security

deposit amount, filed eight original suit nos. 35

to 42 of 1997 against the defendants before the

Civil Judge (Senior Division) Gadag seeking for

grant of declaratory relief that the order of

rescinding the contract passed by defendant no. 3

in respect of works of canal is illegal and not

binding on him. Further, the plaintiff sought

decrees of permanent injunction restraining the

defendants from either forfeiting or adjusting the

earnest money and security deposit amount made by

him and for payment of bill amount in respect of

the work executed by him and also to restrain the

defendants from recovering the alleged risk and

cost amount from him from out of the amount due

from the works executed by him in any other

Division or Department (Exs. P-1 to P-6 produced

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C.A. Nos.77-84 of 2004

in the Original Suits) of Alur combined branch and

work of canal at K.M. no. 97 and 102 and

Malaprabha right bank canal. He had further

prayed for settlement of final bill amount in

relation to the execution of work and return of

earnest money and security deposit amount along

with 18% interest and also on the withheld amount

along with damages, costs and other reliefs.

10. Defendant no. 4 filed written statement opposing the prayers made in the original suits

and denied various allegations made in the

plaints, except admitting the execution of the

contract with the plaintiff for execution of the

canal work to complete the balance work of

construction of the canal in relation to the

project in Dharwad district. The same is adopted

by defendant nos. 1 to 3 accepting the execution

of the contract with the plaintiff. It is further

admitted by defendant no.4 that plaintiff has done

some work and the defendant’s Department was to

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supply cement after the raw materials, i.e. metal,

sand etc. required was collected for bed concrete

and slab lining, but the excavated canal was not

trimmed and dressed to the required section.

Therefore, the defendant no. 4 was not bound to

supply cement and cement materials, in fact the

plaintiff was even requested to make his own

arrangements for procuring cement from the open

market as per para 7 of Schedule 'A' of the

agreement.

11. It is further pleaded in the written statement that the plaintiff without following the

terms and conditions of the contract, with an

illegitimate motive, purposely stopped the work

and abandoned it in the middle, knowing fully well

that the balance work will be completed at his

cost as per the tender clauses and he requested to

terminate the work without any penalty to be

imposed against him as per the contract agreement.

Defendant no.4 further pleaded that the plaintiff

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was at fault and did not resume the work when he

was requested to complete the work as per the

agreement. As such, considering the facts and

circumstances of the case, defendant no. 4 was

directed to take action against the plaintiff as

per the tender conditions of contract work and

accordingly the contract was rescinded and he was

informed of the action taken by the Chief Engineer

by imposing maximum penalty upon him and

forfeiture of earnest money and security deposit

amount. Defendant no.4 denied the various

allegations made by the plaintiff against him and

prayed for dismissal of the suits both on merits

as well as on the question of limitation, besides

declaratory relief and other reliefs sought for by

the plaintiff.

12. The trial court has framed nearly nine issues for its determination. The suits went for trial.

Common evidence is recorded in all the original

suits. The plaintiff examined himself and got

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marked 73 documents as exhibits and defendants

examined eight witnesses and got marked 136

documents in support of their case. After hearing

the arguments, the learned trial judge decided

issue nos. 1 to 5 in the affirmative, issue nos. 6

to 8 in negative and issue no. 9 in the

affirmative and the suits of the plaintiffs were

decreed in part by recording reasons in the common

judgment.

13. The correctness of the common judgment of the trial court and decrees passed in the original

suits of the plaintiff was challenged by the

defendants before the High Court of Karnataka

urging various legal contentions questioning the

correctness of the findings and reasons recorded

on the aforesaid contentious issues and requested

the High Court to set aside the impugned common

judgment and decrees as the same are erroneous and

suffer from error in law. The High Court, after

adverting to the relevant necessary facts,

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formulated the points for its consideration and

answered the same in favour of the defendants and

against the plaintiff by recording its reasons

holding that the finding of fact and reasons

recorded by the trial court on the contentious

issues are vitiated on account of erroneous

reasoning for non-consideration of the material

evidence on record in favour of the defendants and

in the absence of evidence in favour of the

plaintiff, the same are answered in affirmative

and therefore it has reversed the common judgment

and decrees by allowing the appeals. The

correctness of the same is challenged in all these

civil appeals by urging the following questions of

law:

1) Whether the order dated 12.10.1994 passed

by defendant no.3 rescinding the contract,

communicated by defendant no.4 vide letter

dated 24.10.1994, is valid and justified

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in the facts and circumstances of the

case?

2) Whether the High Court is justified in

setting aside the judgment and decrees of

the trial court without giving cogent

reasons?

3) Whether the plaintiff is entitled to

recover the cost of the work executed by

him in respect of the disputed contract?

4) Whether the defendant no.3 is justified in

imposing penalty, forfeiture of earnest

money, security deposit and withholding

bill amount and the same is in accordance

with the terms and conditions of the

contract?

5) Whether the High Court is justified in

taking hyper technical view in the regular

first appeals without justification?

14. It is contended by Mr. Kirti S. Javali, the learned counsel on behalf of the plaintiff

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that the impugned judgment passed by the High

Court is unwarranted and uncalled for as it has

ignored the admissible evidence adduced on record

by the plaintiff which is accepted by the learned

trial judge on proper appreciation of pleadings

and evidence and has accorded the reliefs as

prayed for in the original suits by assigning

valid and cogent reasons on the contentious issues

framed by him. The High Court has ignored the

evidence adduced by the plaintiff and the

defendants, particularly, the DWs 1 to 6 and 8,

whose evidence unimpeachably and conclusively

proves the case of the unilateral breach of

contract by the defendants besides that they have

acted most irresponsibly as a result of which it

was impossible for the plaintiff to complete the

contract work. Further, it is urged that the High

Court has completely ignored the admission made by

the witnesses of the defendants, wherein the

plaintiff also adduced positive evidence to show

that the defendants had committed breach of

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contract. Therefore, it is urged that the High

Court has committed an error of jurisdiction and

the impugned judgment is liable to be set aside.

15. It is further contended that the High Court has failed to consider the important and

admitted fact that the defendants, after the earth

work excavated by the plaintiff, were required to

supply cement, RCC templates and PCC slabs for

putting them to bed of canal and for other use.

It is also admitted by the defendants that the

cement was in stock and the plaintiff was not

informed to procure the same from the open market

after obtaining due permission and further it is

also an admitted fact that the defendants never

informed the plaintiff that there was no stock of

the said materials much less supplying the same as

and when required. Further, it is contended that

it is evident from the facts pleaded and the

evidence on record that the defendants are guilty

of breach of contract without any fault of the

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plaintiff and they forfeited the earnest money and

security deposits. Therefore, the findings and

reasons recorded on the contentious points by the

High Court in the impugned judgment are contrary

to the legal evidence on record. Hence, the said

findings recorded on contentious points framed by

the High Court are erroneous in law and the same

are liable to be set aside.

16. Further, it is submitted that the High Court has failed to consider the findings and

reasons recorded in paras 16,17,18 and 18A of the

trial court judgment. However, it has accepted

the excuses given by the defendants that the

plaintiff should not have demanded cement before

collecting sand and metal. In this regard, the

High Court has ignored the pleadings and evidence

placed on record with regard to collecting the

sand and metal for execution of work.

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17. It is further submitted that it was nothing but high handedness on the part of the

defendants that they have not only caused undue

harassment to the plaintiff but also caused great

loss to him by committing breach of the terms and

conditions of the contract. Further, the High

Court has failed to consider the evidence of the

defendants who have supported the claim of the

plaintiff which is referred to in para 19 of the

judgment of the trial court. Further, the High

Court erred in re-appreciating the evidence

elicited from the defendants’ witnesses during

their cross examination, wherein they have

admitted that plaintiff has carried out all the

earth work as per specifications. When he demanded cement and cement materials from defendant no.4

for execution of further work, the same were not

supplied to him. Therefore, it is very clear that

in spite of repeated demands made by the

plaintiff, cement and cement materials were not

supplied to him by defendant no. 4. Therefore,

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the impugned common judgment of the High Court is

contrary to the facts and legal evidence on

record. Hence, the same is not sustainable in

the eye of law and is liable to be set aside.

18. Further, it is contended by Mr. Kirit S. Javali, the learned counsel for the plaintiff

that the High Court has failed to appreciate the

evidence of defence witnesses who themselves have

admitted in their evidence that as they did not

supply cement and cement materials, the

gradation test also could not be carried out.

The plea that since sand and metal were not

collected by the plaintiff and defendant no. 4

did not supply cement and cement materials by

giving lame excuses and therefore the same could

not have been accepted by the High Court to

reverse the finding of fact recorded by the trial

court on the contentious issues in favour of the

plaintiff. The High Court has accepted the

grounds pleaded by the defendants in their

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appeals, that, the plaintiff did not construct

any shed or make provision for storing the cement

at the work site and this stand was taken up by

them for the first time only at the time of

adducing evidence and there is no pleading to

this effect in their written statement. Further,

the ground of appeals urged by them is that the

evidence of DW 8 with regard to non supply of

cement was that the plaintiff did not submit the

construction programme to enable the defendants

to supply the required quantity of cement and

cement materials, this evidence is without there

being any pleading in this regard, and further,

he has stated that the defendants also did not

supply cement as the plaintiff had not trimmed

the canal and had not collected the sand and

metal for conducting gradation test. Therefore,

it is contended by the learned counsel on behalf

of the plaintiff that the common judgment and

order of the High Court is contrary to the facts

and evidence on record.

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19. Ms. Hetu Arora Sethi, the learned counsel appearing on behalf of the defendants in these

appeals has sought to justify the findings and

reasons recorded on the contentious points answered

by the High Court contending that the High Court

being the appellate authority, the appeals being in

continuation of original proceedings, has

reappraised the oral and documentary evidence and

found fault with the findings of fact recorded by

the trial court on the contentious issues framed by

it and the same are erroneous and therefore must be

set aside. It is further contended that the

plaintiff has not fulfilled his contractual

obligations as he has not executed the contract work

and therefore, the Chief Engineer has rightly

rescinded the contract and levied the penalty and

forfeited earnest money and security deposit amount

and withheld the final bill amount and therefore,

the impugned judgment in these appeals at the

instance of the plaintiff need not be interfered

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with by this Court in exercise of its jurisdiction

under Article 136 of the Constitution.

20. It was further contended on behalf of the plaintiff that the defendants had not even

informed the plaintiff the reasons for not

supplying the cement and cement materials, the

High Court has failed to take into consideration

the evidence of the defendants witnesses, with

regard to the meeting held on 23.3.1992 in the

Chambers of Chief Engineer, Belgaum, the

proceedings of the meeting are marked as ex. P-20,

the plaintiff, defendant no. 4 and other officers

of the Department were present in the said

meeting, and the work of construction of canal for

8 kms. was discussed and it was found that the

defendant no. 4 had purposely delayed the supply

of cement to the plaintiff on untenable grounds.

Further, DW1, the Executive Engineer, admitted in

his evidence that on the basis of proceedings

drawn in the Chief Engineer's chambers that

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departmental action was also proposed against

defendant no. 4 and the subsequent action proposed

against him would support the contention of the

plaintiff that it is due to the fault of the

Department, more particularly of the defendant no.

4, the contract work had to be stopped in the

middle by the plaintiff. The Ex. P-20 puts

blame on defendant no. 4 for stoppage of work by

the plaintiff. Even in the letter dated

11.12.1992 issued by the Government of Karnataka,

marked as Ex. P-23, it is observed that the

concerned Executive Engineer has come in the way

of contract by not supplying the cement in time to

the plaintiff and the action of the Executive

Engineer in terminating two contracts is not

approved. The aforesaid important aspects of the

matter has not been considered by the High Court

in reversing the judgment of the trial court by

passing the impugned judgment and it is contrary

to the facts and evidence on record. Therefore,

the same is liable to be set aside and the

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judgment and decrees of the trial court are to be

restored.

21. It was further contended that the High Court has failed to appreciate that the defendants were

not supplying cement free of cost but for charges

which were to be deducted from the final bill of

the plaintiff. The plaintiff had requested

defendant no.4 for the supply of cement and it was

for him to decide as to how he could have stored

the cement or made provision for the same.

Further, the High Court should have noticed that

non-completion of the work by the plaintiff is due

to non supply of cement by defendant no. 4 and, he

also did not supply even the templates and lugs

required for putting bed concrete in the excavated

canal. The High Court further should have

noticed that the defendants have not adduced any

evidence to show that there was no stock of cement

which was required to be supplied in terms of the

contract to the plaintiff. The High Court ought

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to have considered the entire evidence on record

particularly that the plaintiff is not at fault

for non-completion of work as per the contract.

Therefore, the impugned judgment and order is

contrary to the facts and legal evidence on

record. Hence, the same is liable to be set

aside.

22. With reference to the aforesaid rival factual and legal contentions, the following points would

arise for our consideration:-

1. Whether the findings and reasons of the

High Court in reversing the findings recorded

by the trial court on contentious issue nos.

1 to 3 and 6 and dismissing the suits of the

plaintiff by answering the point nos.1 and 2

in the affirmative by passing the impugned

judgment are correct?

2. Whether the findings and reasons recorded

by the High Court on the contentious point

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nos.1 and 2, in favour of the defendants in

the impugned judgment are legal and valid?

3. Whether the High Court is justified in

holding that the rescission of the contract

of the plaintiff by reversing the finding on

issue no. 4 and answering the point nos. 3

and 4 in the affirmative is valid and the

action taken by the Department in imposing

penalty and forfeiting of earnest money,

security deposit and withholding bill amount

of the plaintiff is justified?

4. What order is to be passed?

23. Answers to point nos. 1 and 2 : The first and second points are answered together, as they are

interrelated, in favour of the plaintiff by

assigning the following reasons:

We have carefully perused the pleadings and

evidence of the parties on record and considered

the rival factual and legal submissions made on

their behalf and the findings recorded by the

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trial court in its judgment on the contentious

issue nos. 1 to 3 and 6 and point nos. 1 and 2 by

the High Court to answer the aforesaid points.

The trial court in its judgment while answering

the contentious issues nos. 1 to 5 in the

affirmative and issue nos. 6 to 8 in the negative

in favour of the plaintiff, has elaborately

referred to the pleadings and evidence on record,

particularly the evidence elicited from the

defendants’ witnesses by the plaintiff's counsel

in the cross examination, viz. from DW 1 the

Executive Engineer, MRBC Ron, DW 2 the retired

Executive Engineer, MRBC Division no.5 Sub

division no.18 in Mallapur, DW 4 the Assistant

Executive Engineer, MRBC, Division no.5, Sub-

division no.18, Mallapur and DW 5 the Assistant

Engineer, MRBC, Division no. 5, Sub-division

no.18 Mallapur, and also referred to the

documentary evidence, namely the letters

correspondence made by the plaintiff with the

Executive Engineer Defendant no.4 requesting him

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to supply the cement and cement materials for the

purpose of execution of the work as agreed upon

in the contract. The learned trial judge has

recorded the findings of fact on the contentious

issue nos. 1 & 2 in the affirmative holding that

the plaintiff has proved that defendant no.4 did

not supply cement and cement articles for

completion of the work though he had requested

him on several occasions by his letters, which

are marked as Exs. P-30, P-32, P-41, P-42, P-45

and P- 46 referred to supra and also referred to

the admission made in the cross examination of

the defendant witnesses namely DWs 1, 2, 4 and 5.

The trial court has rightly further held that the

plaintiff had proved the fact that due to non

supply of cement and cement materials by the

defendant no.4 as agreed upon in the contract,

the progress of the work could not be carried out

by him and therefore it was held that he was not

at fault for non completion of the agreed work.

The findings of fact recorded by the learned

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trial judge on the aforesaid contentious issues

are in the affirmative after referring to the

pleadings and evidence of the plaintiff and

defence witnesses and also considering the

submissions made by the learned counsel on behalf

of the plaintiff, that there is no condition in

the tender agreement to collect the sand and

metal before making a demand for the supply of

cement and cement materials from defendant no.4.

It was further held by the learned trial judge

that according to the case of the defendants,

collection of the sand and metals is required for

conducting gradation test, and even to carry out

such a gradation test cement is required and it

is an undisputed fact that the defendant no.4 has

neither supplied nor authorized the plaintiff to

procure the cement and cement materials from the

open market and on account of non supply of the

same the plaintiff had to keep his men and

machinery idle for months together, which has

resulted in heavy losses for him and after

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informing the defendant no.4, the plaintiff had

moved his men and machinery from the work site.

Further, the proceedings held in the meeting on

23.3.1992 in the Chamber of the Chief Engineer,

Belgaum, which document is marked as exhibit P-20

has been referred to by the learned trial judge

wherein it is observed that due to injudicious

act of defendant no.4 in not supplying cement and

cement materials to the plaintiff, the contract

work had to be stopped by him and further

departmental action was also proposed against him

for his inaction in supplying the cement and

cement materials to the plaintiff. Therefore,

learned trial judge has rightly arrived at the

conclusion on facts and evidence on record and

recorded the findings of fact and held that the

plaintiff has proved that the contract work could

not be completed due to the fault of the

Department itself and its officer i.e. the

defendant no.4, and the plaintiff cannot be

blamed. The learned trial judge has also

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considered legal submission made on behalf of the

defendants that the plaintiff did not seek

permission from the defendant no.4 for procuring

cement from the open market and the further

contention urged on behalf of the defendants was

that delay in taking possession of the work site

shows that plaintiff had no real intention of

completing the work within the time limit and the

trial court has rightly rejected the same by

recording valid reasons. The plaintiff had

demanded supply of cement for the entire 8 k.ms.

of work, which comes to about 22 to 23 thousand

bags of cement but he had not made any provision

for storing such cement and the same perishes

faster than sand and metal. He had not even

collected sand and metal required for conducting

gradation test. The further contention that in

spite of the request made by defendant no.4 to

the plaintiff to resume the work and complete the

same, he had not completed the work, though he

knew fully well the consequences of abandoning

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work in the middle without any reasonable cause

would entail serious civil consequences and

therefore, the fault lies with the plaintiff and

not with the defendants. The above said factual

submissions made by the learned counsel on behalf

of the defendants were examined by the trial

judge with reference to the pleadings and

evidence on record and the same were rightly

answered against the defendants. The learned

trial judge in his judgment at paragraphs 16, 17,

18 and 18A adverted to the evidence elicited in

the cross examination of DWs 1, 2, 3 and 4 and

recorded the positive finding on the contentious

issues nos. 1 and 2, in the affirmative. DW 1 has

admitted in his cross examination that there was

no condition in the tender agreement to collect

sand and metal before demanding cement from the

Department and further admitted that after

completing the earth work, the plaintiff demanded

cement by his letter dated 25.5.1990, which is

marked as Ex. P- 45. He further admitted in his

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cross examination that the plaintiff had written

letter to the defendant no.4 stating that he

would commence the bed concrete work next week,

if 2731 bags of cement is supplied to him. Such

quantity of cement is required for 1 k.m. work

and further the evidence elicited in his cross

examination shows that cement, template and the

lugs were not supplied by defendant no.4 to the

plaintiff and he could not complete the work. He

has further admitted that defendant no.4 had to

give authorization to the plaintiff to procure

cement from the open market and since he did not

inform the plaintiff regarding the grant of such

authorization, he could not procure cement from

the open market for want of such authorization.

Since the cement, templates and the lugs were not

supplied for all the kilometers of work by

defendant no.4, the plaintiff could not complete

the work. The plaintiff had also written a

letter to defendant no.4 to conclude the contract

for the reason that he could not finish the same

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for non supply of cement, template and lugs. DW

1 further admitted in his cross examination that

they were not required to supply cement free of

charge to the plaintiff but the defendants would

deduct the cost of cement in the bill amount

payable to him. It was further admitted in his

cross examination that defendant no.4 asked the

plaintiff to resume the work, as stated in the

evidence of DW 1, as the labour charges and

material charges were already increased and

therefore, the plaintiff did not agree for

resuming the work for executing the same at old

rates.

24. Further, the evidence elicited by the plaintiff's counsel from DW 2, the retired

Executive Engineer, is extensively referred to by

the learned trial judge in his judgment wherein he

has stated that for bed concrete, trimming work

fixing templates and lugs, cement is required. He

further admitted in his evidence that for

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C.A. Nos.77-84 of 2004

execution of the above said works mixing of

cement, sand and metal, gradation test was to be

conducted to ascertain their proportion and if,

the defendants do not supply the cement, gradation

test cannot be conducted. He also further

admitted that the defendants did not inform the

plaintiff that they have sufficient stock of

cement and he could collect sand and metal for

execution of work. The Department did not supply

cement and the plaintiff had informed the superior

officers of the Department stating that the work

is halted for non supply of cement and further

stated in his evidence to the effect that if mud

mixes with sand and metal, it cannot be used

without washing and for such washing more expenses

will have to be incurred by the plaintiff.

Further, he had admitted in his cross examination

that authorization was required for the plaintiff

to procure cement from open market. DW-4 also has

deposed to the same effect, which supports the

case of the plaintiff.

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C.A. Nos.77-84 of 2004

25. DW-4, the Asstt. Executive Engineer in MRBC, Division 5, Sub-division no.18, DW-5 who was

working as Asstt. Engineer in the same Division

and DW-7 who was working as Jr. Engineer at the

relevant point of time of work have also admitted

in their cross examination that they did not ask

the plaintiff to procure cement from the open

market and in spite of repeated requests made by

the plaintiff, the defendant no. 4 did not supply

the cement. DW-8, the then Executive Engineer

also admitted in his cross examination that though

plaintiff had written several letters to defendant

no.4 for supply of cement, the Department did not

supply cement and he had admitted that due to non

supply of cement, the plaintiff had to stop the

work and due to stoppage of work the plaintiff's

men and machineries had to suffer loss on that

count.

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C.A. Nos.77-84 of 2004

26. After adverting to the evidence elicited in the cross examination of the aforesaid

defendant witnesses the trial judge has analyzed

and appreciated the same properly and came to the

right conclusion and recorded the findings of fact

at paragraph 18 of the trial court judgment on the

contentious issue nos. 1 to 3 in the affirmative.

Further, the defence taken by the defendants at

the time of adducing the evidence without pleading

in their written statement, regarding non supply

of cement, is that the plaintiff had not submitted

the construction programme to them to enable

defendant no.4 to supply the required quantity of

cement and the cement materials. The learned

trial judge rightly made observation on the

relevant issue in his judgment that defendant no.4

was not supposed to supply cement at free of cost

to the plaintiff but charges for the same were to

be deducted at the time of disbursement of amount

in the final bill. Therefore, when the request

was made by the plaintiff with defendant no.4 for

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C.A. Nos.77-84 of 2004

supply of cement, it was for him to see how to

store cement safely and how to make best use of

the same for the purpose of completing the

contract work. The trial judge further recorded

the finding of fact and held that the defendants

neither supplied cement though it was in stock nor

authorized the plaintiff to procure the cement

from the open market. Defendant no.4 did not

inform the plaintiff regarding refusal to supply

the cement. It would have made no difference to

the Department if it had supplied cement earlier

or later. The DW 1 has admitted the same in his

evidence on the basis of the proceedings recorded

in the meeting held on 23.3.1992, which is marked

as Ex. P-20. In the said proceedings blame was put

on defendant no.4 for stoppage of work and the

following facts were noticed and recorded:

“ a) Instead of putting the blame on the

contractor for not collecting sand, jelly

etc., the contractor might have allowed to

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C.A. Nos.77-84 of 2004

procure the cement from the open market as

per clauses of the agreement;

b) Cement was available with department

when the contractor had placed his demand

for cement;

c) Instead of issuing cement as demanded

by the contractor the then EE prolonged

the issue and had insisted to collect the

sand, jelly etc before issue of cement.”

Further, in the letter Ex. P-23 written by the

Government of Karnataka to the Chief Engineer it

is observed that the concerned Executive Engineer

has come in the way of the plaintiff to execute

the contract work for non supply of cement in

time to him and the proposed action of

terminating two contracts is not approved by it.

Therefore, the learned trial judge after

adverting to the oral evidence of the defendant

witnesses referred to supra and the documentary

evidence Ex. P-20 and Ex. P-23 and other

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C.A. Nos.77-84 of 2004

documentary evidence, has rightly arrived at the

conclusion on facts and held that the plaintiff

could not complete the work due to non supply of

cement and cement materials by defendant no.4 and

he also did not supply templates and lugs

required for putting bed concrete in the

excavated canal. The plaintiff had requested the

defendants to conclude his contract and return

the earnest money, security deposit and other

amounts withheld by them. Reference was also

made to the letter dated 13.1.1993, marked as

Ex. P-21 of the defendant no.4, asking the

plaintiff to continue the contract work and

furnish his clear consent regarding the same. The

plaintiff did not accept the same for the reason

that his men and machinery were moved from the

work site and the contract has come to an end.

Therefore, learned trial judge has rightly

answered the contentious issue nos. 1 and 2 in

the affirmative. The same was erroneously set

aside by the High Court by recording its findings

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C.A. Nos.77-84 of 2004

on fact without proper analysis and re-

appreciation of evidence on record and wrongly

applied the terms and conditions of the contract

to the fact situation of the case in hand and

accepted the case of the defendants and has set

aside the findings in the relevant issues without

noticing the fact that it is the defendants, who

had committed breach of contract and therefore

the plaintiff could not complete the agreed work

under the contract.

27. The findings of fact recorded by the learned trial judge in his judgment have been reversed by

the High Court, ignoring the pleadings and legal

evidence on record and therefore we have to hold

that the findings of the High Court are erroneous.

We have very carefully examined that portion of

the impugned judgment to answer the point nos. 1

and 2 framed by us in these appeals for our

consideration. The learned Division Bench of the

High Court has adverted to the relevant clause 11

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C.A. Nos.77-84 of 2004

at para 15 of its judgment regarding supply of

materials to the plaintiff that may be required

from time to time to be used by him for the

purpose of execution of works as agreed in the

contract and clause 11(A)(i), which provides that

the contractor shall see that only the required

quantities of materials are indented with the

Junior Engineer of the Department and the same

shall be supplied to him. The said condition of

the agreement as provided in the above clause is

not complied with by the plaintiff is the finding

recorded by the High Court. As per the said

clause, the plaintiff was required to be supplied

with cement and cement materials by defendant no.

4, from time to time on presentation of indents

signed by him or his authorized representative and

counter signed by the Department officers, and in

this regard, the High Court has referred to both

oral and documentary evidence and held that the

plaintiff had not presented any indent signed by

him or his authorized representative to the

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C.A. Nos.77-84 of 2004

Department for supply of cement to the Junior

Engineer, who in turn sent it to the Assistant

Executive Engineer by recommending the same who in

turn was required to send it to the Divisional

office for supply of the same. The further finding

is that the evidence adduced by the defendants in

this regard is unchallenged by the plaintiff and

undisputedly, neither indent nor proof for

submitting the same to the defendants is placed

before the Court by the plaintiff to show that he

had presented any indent with the Department for

supply of cement and cement materials and the High

Court has referred to para 18 of the trial court

judgment and also to Exs. P - 31, 37, 45, 59, 65

and 70 the same are marked as Exs. D- 28, 62, 76,

102, 116 and 132 respectively and reversed the

findings recorded on the above contentious issues

1 to 3, 5 and 6 by the trial court by recording

its reasons. The correctness of the said findings

and reasons are examined by us to find out whether

the same is tenable on facts and in law. Further,

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C.A. Nos.77-84 of 2004

the High Court has stated in the impugned judgment

by reversing finding of fact recorded on the

contentious issues referred to supra by the trial

court by answering the contentious points formed

by it and held that nowhere in the said letters it

is mentioned that any indent had been prepared or

presented by either the plaintiff or his

authorized representative to the defendants in

connection with request to supply cement and other

materials to him. Therefore, it has held that

there is non compliance of the condition nos. 2.05

and 2.06 of the agreement referred to above by the

plaintiff and further it is not the case of the

plaintiff that in the tender contract he was

required to be supplied with cement and cement

materials without any indent made as such. In this

regard, we record our findings as under.

28. After the plaintiff took possession of the site of the works for execution of work, he wrote

several letters as per exhibits referred to supra

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C.A. Nos.77-84 of 2004

with a request to the defendants for supply of

cement and cement materials and the said letters

are very important for the reason that the

plaintiff has been persistently demanding

defendant no.4 for supply of cement and cement

materials as agreed to be supplied to him for

execution of work. The aforesaid findings of the

High Court adverted to in the preceding paragraph

are erroneous in law for the reason that the High

Court has placed reliance on the evidence of DW-8

regarding non submission of indents by the

plaintiff as per the terms of the contract and

general conditions of the tender, which evidence

is wholly inadmissible in law, as the same was

allowed to be placed on record by the trial court

without pleading in their written statement. Apart

from the said reason, the defendants in their

cross-examination have categorically admitted that

the cement and cement materials were not supplied

to the plaintiff for execution of work and in fact

in the various letters written by the plaintiff

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C.A. Nos.77-84 of 2004

marked as exhibits referred to supra he has

specifically demanded for supply of cement and

cement materials, the same were accepted by the

defendants but they did not insist the plaintiff

to submit indents and construction programme and

therefore the said letters must be construed as

such. Ignoring the substantive evidence on record,

the High Court has reversed the findings of fact

on the contentious issues referred to supra, which

are wholly unsustainable in law.

29. In view of the aforesaid specific conditions and clauses in the agreement, the request of the

plaintiff with the Department to supply cement in

entirety within a week, even in the absence of

indents the demand of the plaintiff for supply of

cement and other materials as per his requirement

from time to time to use the same in the execution

of contract work was very much there by writing

number of letters which are exhibited and the same

was not met by the defendants by pleading and

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C.A. Nos.77-84 of 2004

adducing evidence. The fact remains that

defendants have neither supplied the cement and

cement materials to the plaintiff as requested by

the plaintiff through his series of letters marked

as exhibits referred to supra nor have they

replied to him asking him to submit the indents.

In view of these admitted facts, the High Court

should not have placed reliance upon the

inadmissible evidence of DW 8, to set aside the

findings of fact recorded by the trial court on

the aforesaid contentious issues. Further, para 22

of the impugned judgment refers to the Department

asking the plaintiff to furnish the construction

programme as contemplated in general condition

no.1.10 of the tender document. This is clear from

the letters dated 26.6.1990, 28.6.1990 and

30.6.1990 placing reliance upon evidence of DW-8

Gangareddy, by the High Court to come to its

conclusion to reverse the findings of the trial

court recorded on contentious issue nos. 1 to 3, 5

& 6, as he has stated in his evidence that as per

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C.A. Nos.77-84 of 2004

tender agreement, the plaintiff-contractor should

have submitted construction programme for the

contract period of 15 months to the defendants,

but he has not submitted it to them and therefore

it has found fault with the finding of the trial

court in holding that the defendant no.4 has not

supplied cement and cement materials to the

plaintiff for execution of work and set aside the

same. It is further erroneously observed by the

High Court in the impugned judgment that the

evidence of DW-8 remained unchallenged by the

plaintiff, as it has accepted the inadmissible

evidence regarding non submission of construction

programme by the plaintiff, the said evidence of

DW-8 is without pleading of the defendants and

therefore it should not have relied upon the same

and reversed the findings of the trial court on

the contentious issues. In view of the foregoing

reasons, the High Court’s conclusion and its

finding in holding that the plaintiff had failed

to comply with the said general conditions of the

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C.A. Nos.77-84 of 2004

tender and he committed breach of contract is

wholly untenable in law. Further, its reference

and reliance to clause 44(b) of the agreement and

non supply of the cement and its materials, that

the Government shall not be, in any way, liable on

account of any delay in supply of such material

also cannot be accepted by this Court in view of

the observations made by the Chief Engineer in the

proceedings drawn in the meeting held on 23.3.1992

which document is marked as Ex. P-20. After

placing strong reliance upon the said clause for

non submission of letter of indent by the

plaintiff, though demand has been made as per the

letters referred to supra by the plaintiff, and

letters of the defendants referred to supra, and

that payment of bill amount is being made to the

plaintiff and therefore the question of concluding

contract by defendant no.3 does not arise. The

defendant no.4 had requested him to bear with the

Department. By the time the letters were written

to the plaintiff by defendant no. 4, the plaintiff

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C.A. Nos.77-84 of 2004

had already shifted his men and machinery from the

site and accordingly informed the Department about

the same. The High Court has erroneously held

that the plaintiff could not have relied solely on

the evidence of DW-8 regarding non furnishing of

construction programme for supply of cement and

cement materials to him and he had abandoned the

tender work in the middle, and recorded its

finding by reversing the finding of the trial

court. The said finding of the High Court that the

Executive Engineer has stated in his evidence that

plaintiff did not take permission from defendant

no.4 to procure cement and cement material as per

his evidence is contrary to the terms of the

contract. So also the evidence of DWs 3 and 4 in

this regard could not have been placed reliance

upon by the High Court to set aside the finding of

the trial court. For the reasons stated supra and

evidence of DWs 2, 3, 4 and 5, reliance was placed

upon the evidence of DW-8 by the High Court, as

he stated in his evidence that the plaintiff did

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C.A. Nos.77-84 of 2004

not do canal dressing, trimming work and concrete

work, which is wholly erroneous as the same is

contrary to the terms and conditions of the

contract and substantive evidence on record in

favour of the plaintiff.

30. Further, the trial court has referred to the evidence of DWs 3, 4, 5, 7 and 8 and held that the

plaintiff had done canal work and canal bund,

murrom lining embankment work, however for the

gradation test required to be done as stated by

DW-8, the same could not be done without cement,

according to the evidence of DWs 2, 3 and 4, as

cement was necessary for plaintiff to do the bed

concrete and trimming work. The finding of the

High Court was that only a certain quantity of

cement was required by the plaintiff but he had

requested for supply of entire quantity of cement

from the Department and not the required quantity

for execution of the said works, which were to be

attended at that stage of request made by him is

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C.A. Nos.77-84 of 2004

once again erroneous in law and cannot be allowed

to sustain in law. Further, it has erroneously

observed that the plaintiff had not constructed

any godown for storing the cement at the work site

and he had not stored sufficient sand and metal,

in this regard, the trial court has placed

reliance upon the evidence of DWs.2, 3, 4, 7 and 8

and recorded the finding holding that non supply

of cement and cement materials to the plaintiff is

contrary to the terms and conditions of the

agreement. The High Court has found fault with the

above findings of the trial Court on the

contentious issue nos. 1 and 2 and held that the

trial court has arrived at erroneous finding,

therefore, it has answered the point Nos. 1 and 2

framed by it against the plaintiff and set aside

the findings recorded by the trial court on

contentious issue nos. 1 and 2 in its judgment.

Consequently, the first appeals of the defendants

were allowed.

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C.A. Nos.77-84 of 2004

31. It is needless to observe that the conclusion and findings arrived at by the High Court on the

basis of re-appreciation of evidence is contrary

to the pleadings and evidence on record, the trial

judge being the fact finding authority has duly

considered the entire evidence after proper

analysis and it has recorded the finding of fact

on the contentious issue nos. 1,2,3,5 and 6 in

favour of the plaintiff.

32. Answer to point no.3 - The High Court, on the issue of rescission of the contract with the

plaintiff by defendant no.3, vide order dated

12.10.1994, which order was communicated by

defendant no.4 to the plaintiff, has relied on

letters sent by the defendants to the plaintiff,

wherein he was requested to resume and complete

the work and all the items of tender as agreed

upon by him. The High Court has erroneously

recorded the finding of fact stating that no

infirmity can be found in the action taken by the

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C.A. Nos.77-84 of 2004

Department in rescinding the agreement and levying

of penalty and forfeiture of earnest money,

security deposit and withholding of final bill

amount, as the plaintiff did not resume work nor

had he shown his willingness to resume or complete

the work as per the terms and conditions of the

agreement, nor did he request for any fresh terms

and conditions to complete the same, and so the

Department was left with no option but to rescind

the tender agreement. We find the above findings

of the High Court in reversing the finding of the

trial court on issue nos. 4, 5 and 7 are wholly

untenable both on facts and in law and we have to

hold that the rescinding of the contract by

defendant no.3 is illegal, and penalty imposed

upon the plaintiff and forfeiture of earnest

money, security deposit and withholding of bill

amount after rescinding the contract is not legal

and valid as the plaintiff himself has requested

the defendants to conclude the contract without

any penalty or the risk and cost amount.

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C.A. Nos.77-84 of 2004

Defendant no. 3 passed the order of rescinding the

contract, without issuing any show cause notice or

holding an enquiry, as required under clause 3(d)

of the contract and therefore the learned trial

judge has rightly recorded the findings on the

aforesaid contentious issues in favour of the

plaintiff and rightly held that the rescinding of

the contract was not justified. The unilateral

rescission of the contract of the plaintiff by

defendant No. 3 is arbitrary and unreasonable. The

action of defendant no.3 in rescinding the

contract has resulted in serious civil

consequences of imposition of penalty and

forfeiture of the earnest money deposit amount,

security deposit and withholding the bill amount

in relation to the execution of the work by the

plaintiff. Therefore, defendant no. 3 before

rescinding the contract, by invoking his power

under clause 3(d) of the agreement, should have

complied with the conditions mentioned in the said

clause as the same is mandatory. The rescinding of

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C.A. Nos.77-84 of 2004

the contract is also bad in law for one more

reason that the State Government has accorded

permission to defendant no.3- the Chief Engineer,

Irrigation (North), Belgaum to rescind the

contract as per terms and conditions of the

agreement vide letter dated 29.8.1994, which

document is marked as Ex. D-40. The Chief Engineer

directed the Superintending Engineer, M.R.B.C.

Circle, Dharwad to levy penalty and rescinded the

contract vide letter dated 12.10.1994, which

document is marked as Ex. D-41, the relevant

portions of this letter is extracted below :

“(ii) to rescind the contract and to take up the balance work at the risk and cost of the contract as per clause-3 of Agreement.

In addition to the above, the expenditure incurred towards the work charged establishment if any, beyond the tender period till the date of rescinding the agreement may be recovered, duly observing all the formalities of the agreement. The Superintending Engineer is requested to call for tenders for the balance works.”

We have to infer from the last unnumbered

paragraph of the said letter, that the contract of

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C.A. Nos.77-84 of 2004

the plaintiff is rescinded. Thus, we have to hold

that defendant no.3 rescinded the contract, which

order is communicated by defendant no.4 vide

letter 24.10.1994 which document is marked as Ex.

D-42. The reliance placed by defendant no.3 and

the Superintending Engineer upon the approval of

the Government in its letter Ex.D-40 for

rescinding of the contract with the plaintiff is

fallacious, as the Government has very clearly

stated in its letter referred to supra, that the

contract of the plaintiff has to be rescinded and

penalty be imposed as per the conditions of the

agreement. Therefore, the finding recorded by the

High Court on this contentious point in the

impugned judgment is liable to be set aside.

Accordingly, we set aside the same by answering

the point no.3 in favour of the plaintiff.

33. For the foregoing reasons, we are of the view that the findings and reasons recorded by the

High Court on the contentious points framed by it

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C.A. Nos.77-84 of 2004

are totally erroneous both on facts and in law and

therefore the same are required to be interfered

with by this Court and hence the appeals must

succeed. In view of the findings and reasons

recorded by this Court on point nos. 1, 2 and 3 in

favour of the plaintiff, point no.4 is accordingly

answered in favour of the plaintiff. Hence, we

set aside the impugned judgment and decrees dated

12th June, 2003 passed by the High Court of

Karnataka in RFA nos. 593-600/2000 and we restore

the common judgment and decrees of the trial court

in the original suits, except modification with

regard to rate of interest from 18% to 9%.

34. The defendants are directed to repay the earnest money and security deposit amount and also

finalize the bill of the plaintiff for the work

executed by the plaintiff and pay the same with

interest @ 9% per annum within six weeks from the

date of receipt of the copy of this judgment.

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Accordingly, the appeals are allowed, with no

order as to costs.

……………………………………………………………J. [CHANDRAMAULI KR. PRASAD]

…………………………………………………………J. [V. GOPALA GOWDA]

New Delhi, August 27, 2013.

58

RAMACHANDRA NARAYAN NAYAK Vs KARNATAKA NEERAVARI NIGAM LTD. .

RAMACHANDRA NARAYAN NAYAK Vs KARNATAKA NEERAVARI NIGAM LTD. .