REPORTABLE

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.8569-8570 of 2003

Krishan Lal  …Appellant

Versus

Food Corporation of India & Ors. …Respondents

O R D E R

T.S. THAKUR, J.

1. These appeals by special leave arise out of an order  

passed by the High Court of Punjab and Haryana whereby  

Civil  Writ  Petition  No.  2416 of  2002 and R.A.  No.134 of  

2002 filed by the appellant seeking refund of Rs.10 lakhs  

deposited towards security pursuant to the order passed by  

the High Court has been dismissed.

2. On 12th November, 1999 the Food Corporation of India  

invited  tenders  for  appointment  of  Handling  and  

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Transportation  Contracts  at  various  depots  including  the  

depot at Dabwali in the State of Haryana.  Several persons  

appear to have submitted their tenders in response to the  

said  tender  notice  including  M/s  R.R.S.  Chautala  &  

Company who eventually bagged the contract in question  

having  offered  to  undertake  the  contracted  work  in  

consideration of payment at 186% above the schedule of  

rates.  The appellant questioned the said allotment in Writ  

Petition No.1368 of 2000, inter alia, alleging that he had  

been  illegally  prevented  from  submitting  his  tender  by  

being  denied  the  requisite  form  for  submission  of  the  

tender. The appellant also asserted that he was ready to  

undertake the Handling and Transportation work at a much  

lower rate of 110% above the schedule of rates as against  

186% offered by the successful tenderer mentioned above.  

The appellant even offered to deposit a sum of Rs.10 lakhs  

by way of security to show his  bona fides. An affidavit to  

that effect was also, it appears, filed by the appellant.  

3. The Writ Petition filed by the appellant was eventually  

allowed by the High Court by its order dated 5th April, 2001.  

The High Court held that the decision taken by the Food  

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Corporation of India was without consideration of relevant  

facts  and was not  reasonable.  The High Court  therefore,  

found a case justifying interruption of contract and setting  

aside of the allotment of work in favour of the successful  

tenderer.  Having  said  that,  the  High  Court  issued  the  

following directions:  

“It is directed that the fifth respondent shall cease to  operate immediately.  The respondent-corporation shall  invite fresh tenders and proceed to allot the work in  accordance with law.  The petitioner shall be bound by  his offer to work at 110% above the schedule of rates.   He would deposit an amount of Rs.10 lacs by way of   security within one week from today with the office of  the  Senior  Regional  Manager,  Food  Corporation  of  India,  Chandigarh.  This  amount  shall  be  adjusted  towards  security,  etc.  if  the  work  is  allotted  to  the   petitioner.  Otherwise, it would be refunded within one  week of the final  decision regarding the allotment of   the work.”

4. In obedience to the above directions the respondent-

Food Corporation of India (FCI) invited sealed tender for  

handling and transport contact for its Dabwali depot for a  

period  of  six  months.  The  short  term  tender  notice  

required the intending tenderers to submit their  tenders  

along with  complete  documents  and the earnest  money  

prescribed in the form of a Demand Draft.  

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5. In response to the above tender notice, the appellant  

also submitted a tender offering to undertake the work @  

50% above the schedule of rates.  This offer was accepted  

by  the  respondent-Corporation  with  a  direction  to  the  

District  Manager,  FCI,  Hissar  that  no  amount  towards  

security be demanded from the appellant as the security  

amount of Rs.3,09,500/- stood deposited in the Regional  

Office. Shortly after the allotment of the contract to the  

appellant, the appellant sent a fax message expressing his  

inability to undertake the handling and transport contract  

and withdrawing the offer made by him.  By this time the  

appellant had already executed a formal agreement with  

the  respondent-Corporation  on  28th May,  2001.  In  

response,  the  respondent-Corporation  informed  the  

appellant that any withdrawal after the execution of the  

formal  agreement  was  tantamount  to  a  breach  of  the  

terms  and  conditions  of  the  contract  and  would  attract  

action under Clause X(b) of the agreement.  The appellant  

was requested to take up the handling and transport work  

within one week positively, failing which the respondent-

Corporation proposed to take recourse to Clause X(b) of  

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the agreement to get the work done at the risk and cost of  

the appellant.   

6. It  is  common  ground  that  the  appellant  did  not  

undertake  the  work.  He  cited  some  security  problems  

which  according  to  the  appellant  prevented  him  from  

discharging his contractual obligations.  Not only that the  

appellant demanded the refund of Rs.10 lakhs which stood  

deposited with the respondent-Corporation pursuant to the  

direction  issued  by  the  High  Court  in  the  writ  petition  

referred  to  earlier.  Upon  refusal  of  the  respondent-

Corporation  to  refund  the  amount  in  question  the  

appellant filed Writ Petition No.2416 of 2002 in the High  

Court  of  Punjab and Haryana for  a mandamus directing  

the respondent-Corporation to refund the same. The High  

Court  dismissed the  said  petition holding that  since  the  

parties had entered into a written contract  their  mutual  

rights  and obligations  were  governed by the terms and  

conditions of the said contract.  The High Court observed:  

“It  appears  from  the  record  of  the  case  and  in   particular Annexure-P-5 dated 20.6.2001 addressed to  the  petitioner  by  the  F.C.I.  that  the  petitioner  had  executed agreement in the office on 28.5.2001 and his   offer  at  50% ASOR was  accepted  by  the  office  vide  

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telegram dated 25.5.2001, a copy whereof was sent to  the  petitioner  through  registered  post.  It  has  been  clearly mentioned in Annexure-P-5 that the F.C.I had  accepted the offer of the petitioner and that being so,   in  our  view,  a  concluded  contract  had  come  into  existence.  Withdrawal of offer would certainly attract  relevant condition of the contract.  “The contract that  has been arrived at between the parties has not been  placed on records.  The terms of contract in the event a  party, after its offer has been accepted, may back out,   are,  thus,  not  known.  There  is,  however,  sufficient  indication forthcoming from Annexure-P-5 that Clause  10(b) would apply in the event of contractor may not  carry out the work allotted to him.  This clause too has  not been shown to us nor made a part of pleadings.  All   that we would, thus, like to observe at this stage is that   once  the  parties  have  arrived  at  concluded contract,  the  terms  thereof  would  alone  determine  the  rights  inter se parties. Be that as it may, petitioner cannot   ask  for  refund  of  Rs.10  Lacs  on  the  dint  of  orders  passed in his earlier petition bearing No.1368 of 2000  as it is only in the event work was not to be allotted to  him  that,  he  could  ask  for  refund  of  the  money  deposited by him.”

7. We have heard learned counsel for the parties at some  

length.  The material facts are not in dispute. It is not in  

dispute that the amount of Rs.10 lakhs was deposited by  

the appellant in terms of the order of the High Court in Writ  

Petition  No.1368  of  2000.  The  said  amount  had  to  be  

refunded to the appellant if the work was not allotted to the  

appellant upon the issue of the fresh tenders.  In case the  

appellant  succeeded  in  bagging  the  contract  the  amount  

was to be adjusted towards security. This clearly implied  

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that  the  order  passed  by  the  High  Court  envisaged  a  

situation where the appellant would not succeed in securing  

the contract pursuant to the fresh tender process, in which  

event  the  amount  deposited  by  the  appellant  had  been  

refundable  in toto.  In  case,  however,  the  appellant  

succeeded  in  bagging  the  contract  which  obviously  

depended  upon  whether  he  offered  the  lowest  rate  for  

undertaking the work in question, the amount deposited by  

him had to be adjusted towards security in relation to the  

said contract.  It  is  also  not  in dispute that  a short-term  

tender  was  issued  pursuant  to  the  direction  of  the  High  

Court and that the security amount required to be furnished  

by the  appellant  was limited to a sum of  Rs.3,09,500/-.  

The High Court order did not provide for a situation where  

the security  amount required under the contract  may be  

Rs.3,09,500/-  for  other tenderers  but  Rs.10 lakhs in the  

case  of  the  appellant.  That  a  formal  agreement  was  

executed between the parties is also admitted before us as  

indeed it was before the High Court. Withdrawal of the offer  

tantamount to refusal to undertake the contract, hence a  

breach of the terms of the contract, and shall attract the  

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penal  provisions  contained  in  the  same  is  also  not  in  

question.  Our  attention  was,  in  this  regard,  drawn  by  

learned counsel for the appellant to Clause X (b) and XI (f)  

of the agreement which read as under:  

“X(b) The Senior  Regional  Manager shall  also have  without  prejudice  to  other  rights  and  remedies,  the  right, in the even of breach by the contractors of any of  the terms and conditions of the contract to terminate  the contract forthwith and to get the work done for the  unexpired period of the contract at the risk and cost of  the  contractors  and/or  forfeit  the  security  deposit  at  any  part  thereof  for  the  sum  of  sums  due  for  any  damages, losses, charges, expenses of costs that may  be  suffered  or  incurred  by  the  corporation  due  the  contractor’s  negligence  or  unworkment  like  performance of any of the services under the contract.

XI  (f)  In  the  event  of  termination  of  the  contract   envisaged in clause X, of the Senior Regional Manager   shall have the rights of forfeit the entire or part of the  amount of security deposit lodged by the contractors or  to appropriate the Security Deposit or any part thereof  in  or  towards the satisfaction of  any sum due to be  claimed for any damages, losses, charged expenses or  cost  that  may  be  suffered  or  incurred  by  the  Corporation.”

8. It was argued on behalf of the appellant that even the  

widest  and  most  favourable  interpretation  of  the  above  

terms  would  not  entitle  the  respondent-Corporation  to  

forfeit any amount besides the security deposit and recover  

any  damages,  losses  or  cost  that  may  be  suffered  or  

incurred  by  the  respondent-Corporation  in  getting  the  

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contracted  work  executed  through  some  other  agency.  

Such being the position the respondent-Corporation could  

at best forfeit the sum of Rs.3,09,500/- towards security  

deposit and a sum of Rs.2,17,274/- which the respondent-

Corporation  claimed  to  have  incurred  towards  extra  

expenditure in getting the work executed at the risk and  

cost of the appellant. The extra expenditure incurred by the  

respondent-Corporation  after  termination  of  the  contract  

allotted  to  the  appellant,  it  is  noteworthy,  has  been  

quantified by the respondent-Corporation in para 5(i) & (ii)  

of the counter-affidavit filed on its behalf. The respondent-

Corporation has inter alia said:

“I say that during the contract period of six months of  the petitioner, the Respondent Corporation had to incur  an  extra  expenditure  of  Rs.2,17,274/-  and  suffered  heavy  losses.   I  say  that  security  amount  of  Rs.10  lakhs  was furnished by the petitioner  as security  for  fulfilment  of  contract  in  terms  of  High  Court  order.  Even after depositing Rs.10 lakhs as per the High Court   Orders, the petitioner did not resume the work and the  entire  amount  of  Rs.  10  lakhs  was  rightly  forfeited  against  excess  payment  made  towards  alternative  arrangements  made  at  the  risk  and  cost  of  the  petitioner.  I say that the amount of Rs.10lakhs was  stand  forfeited  under  Clause  X(b)  read  with  Clause  XI(f) of the contract.”   

9. It was in the light of the above assertions, argued Mr.  

Jha, learned counsel for the appellant, that the respondent-

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Corporation could not lay any claim against the amount in  

question in excess of Rs.3,09,500/ plus Rs.2,17,274/- and  

that the balance amount was liable to be refunded to the  

appellant.  

10. On behalf of the respondent-Corporation it was argued  

that the appellant ought to have resorted to the arbitration  

clause under the agreement instead of filing a writ petition  

in  the  High  Court.  Alternatively,  it  was  argued  that  the  

security deposit having been made under the orders of the  

High Court, the entire amount of Rs.10 lakhs was liable to  

be forfeited on the failure of the appellant to work once the  

same was allotted to him.   

11. It is true that there was an arbitration clause in the  

agreement executed between the parties. It is equally true  

that,  keeping in view the nature of the controversy,  any  

claim for refund of the amount deposited by the appellant  

could  be  and  ought  to  have  been  raised  before  the  

Arbitrator  under  the  said  arbitration.  The  fact,  however,  

remains  that  the  High  Court  had  entertained  the  writ  

petition  as  early  as  in  the  year  2002  and  the  present  

appeals have been pending in this Court for the past ten  

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years or so.  Relegating the parties to arbitration will not be  

feasible  at  this  stage  especially  when  the  proceedings  

before the Arbitrator may also drag on for another decade.  

Availability of an alternative remedy for adjudication of the  

disputes is,  therefore,  not  a ground that can be pressed  

into  service  at  this  belated  stage  and  is  accordingly  

rejected.  

12. Equally  untenable  is  the  alternative  argument  that  

since  the  amount  of  Rs.10  lakhs  had  been  deposited  

pursuant to the order passed by the High Court the same  

was liable to be forfeited in toto in the event of any breach  

of the agreement between the parties. The deposit was, no  

doubt, made pursuant to the direction of the High Court but  

the said direction did not go further to say that in case the  

appellant committed a breach of the agreement executed  

between the parties, any such breach would result in the  

forfeiture  of  the  entire  amount  of  Rs.10  lakhs.  A  closer  

reading of the order passed by the High Court leaves no  

manner of doubt that the amount was deposited but was  

refundable in case the contract was not allotted and was  

adjustable  towards security  if  the appellant  succeeded in  

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emerging  as  the  successful  tenderer.  In  the  event  of  

adjustment of the amount towards security the breach of  

the contract would have led to the forfeiture of the security  

amount alone and not the entire amount deposited by the  

appellant.

13. Even  so,  the  terms  of  the  contract  provided  for  

execution of the contracted work through another agency  

at the risk and cost of the appellant.  It is not in dispute  

that  the  respondent-Corporation  had  engaged  an  

alternative agency for getting the work executed.  It is also  

not in dispute that an extra amount was incurred by the  

respondent-Corporation in that regard. If  that be so, the  

amount  lying  with  the  respondent-Corporation  could  be  

utilised  for  recovery  of  the  loss.  The  respondent-

Corporation could therefore make a claim for recovery of  

the extra expenditure, incurred by it.  We must mention, in  

fairness to Mr. Jha, that the respondent-Corporation’s right  

to  forfeit  the  security  amount  or  to  recover  the  extra  

expenditure  incurred  in  getting  the  work  executed  from  

alternative agency was not disputed by him.   

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14. That  being  the  position,  the  respondent-Corporation  

would  be  entitled  to  retain  a  sum  of  Rs.3,09,500/  plus  

Rs.2,17,274/-  =  Rs.5,26,774/-.  The  balance  amount  of  

Rs.4,73,226/- ought to have been refunded to the appellant  

on the admitted factual and contractual premise.   

15. In the result, we allow this appeal, set aside the order  

passed  by  the  High  Court  and  direct  the  respondent-

Corporation to refund the balance amount of Rs.4,73,226/-  

to the appellant within a period of three months from today  

failing which the said amount shall start earning interest @  

10% p.a. from the date of expiry of the stipulated period of  

three  months  mentioned  above.   We  are  consciously  

making no order  for  payment of  interest  on the amount  

held refundable to the appellant, for we are of the opinion  

that the appellant had without any real intention to perform  

the work in question got the earlier contract terminated by  

a  judicial  order  and  put  the  Corporation  through  the  

unnecessary  botheration  and  consequential  prejudice  of  

calling for fresh tenders.  The appellant, it appears to us,  

was  interested  only  in  scoring  a  point  over  his  rival  for  

whatever  reasons  he  had  in  view.  The  conduct  of  the  

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appellant  has,  therefore,  dissuaded  us  from  directing  

payment of any interest to him on the amount that is held  

refundable.

16. These  appeals  are,  with  above  directions  &  

observations, allowed and disposed of leaving the parties to  

bear their own costs.     

……………………..…………….. …J.

                     (T.S. THAKUR)

……………………………….…… …J.

 (GYAN SUDHA MISRA) New Delhi February 24, 2012

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