RAMACHANDRA NARAYAN NAYAK Vs KARNATAKA NEERAVARI NIGAM LTD. .
Bench: CHANDRAMAULI KR. PRASAD,V. GOPALA GOWDA
Case number: C.A. No.-000077-000084 / 2004
Diary number: 19170 / 2003
Advocates: E. C. VIDYA SAGAR Vs
ANITHA SHENOY
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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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C.A. Nos.77-84 of 2004
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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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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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C.A. Nos.77-84 of 2004
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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Page 34
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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Page 37
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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Page 38
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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Page 39
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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Page 40
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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Page 41
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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Page 42
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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Page 45
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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Page 46
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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Page 47
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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Page 48
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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Page 49
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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Page 50
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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Page 51
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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Page 53
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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C.A. Nos.77-84 of 2004
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