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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1770 OF 2005

STATE OF GUJARAT  … APPELLANT

VERSUS

M/S KOTHARI AND ASSOCIATES … RESPONDENT

J U D G M E N T

VIKRAMAJIT SEN, J.

1 This Appeal lays siege to the decision of the Division Bench of the High Court  

of Gujarat at Ahmedabad which dismissed the appeal of the Appellant before us while  

allowing  the  cross-objection  filed  by  the  Plaintiff/Respondent  by  holding it  to  be  

entitled to claim interest for an extended period.  For the reasons which will follow,  

we have set aside these concurrent findings against the Appellant State, principally on  

the  ground  that  the  claim  of  the  Respondent  stood  barred  by  the  principles  of  

prescription as contained in the Limitation Act, 1963.

  2 The Appellant State invited tenders for providing lining to the main canal line.

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The Respondent, a registered partnership, submitted a tender that was accepted by the  

Appellant State. Thereafter a regular agreement was entered into according to which  

the Respondent would have from 15th November to 14th June as its working period.  

Under the Work-Order dated 24.9.1976, the Respondent was required to complete the  

work within 18 months,  i.e.  on or  before 23.3.1978.  The case of  the Respondent,  

which we have no cause to disbelieve, is that there were repeated and consecutive  

delays in handing over the site due to which the Respondent could not complete the  

work within the stipulated time. The first season was to extend from 15.11.1976 to  

14.7.1977, but the canal  was only made available on 15.1.1977 and even then the  

cement was not issued to the Respondent by the Appellant State till 31.1.1977. The  

second season was to extend from 15.11.1977 to 23.3.1978, but the canal was handed  

over on 15.3.1978. At the Respondent’s request, the contract period was extended to  

14.6.1978, but the Appellant State specifically stated that no compensation would be  

payable for the extension. Pursuant to a written request by the Respondent, a third  

season from 15.11.1978 to 14.6.1979 was granted, but yet again the site was handed  

over as late as on 15.3.1979. The Respondent sought further time to complete the  

project,  and was consequently  granted  a  fourth season which was to  extend from  

15.11.1979 to 29.6.1980. The site was once again made available with delay only on  

15.3.1980. The work was finally completed on 20.6.1980. It is noteworthy that in each  

request for an extension, the Respondent sought compensation for monetary loss due  

to  the extended time limit,  but  while  allowing each extension the Appellant  State  

denied the claim for compensation each time. The Respondent’s case was that as per

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the contract period, 342 days should have been made available to it to conduct the  

stipulated work, but as a result of the delay in handing over the site and the materials,   

the Respondent had to seek extensions,  and nevertheless managed to complete the  

project in 288 working days, thus indicating that there was no laxity on its part. The  

Respondent signed the Final Bill under protest on 1.1.1982; and the Security Deposit  

was refunded on 27.1.1982. Thereupon, the Respondent addressed a statutory notice  

under  Section  80  of  the  C.P.C.  dated  7.8.1983  to  the  Appellant  State,  claiming  

damages as a result of the additional costs incurred due to the abovementioned delays.  

The Respondent eventually filed a suit on 25.1.1985 seeking damages under thirteen  

different heads,  including price escalation in labour due to the prolongation of the  

work, price escalation in fuel lubricants etc., overstay of capital and machinery, and  

overheads such as staff, kitchen, office etc.

3 The Trial Court found that the delay was caused by the Appellant State; that  

work was completed by the Respondent well within the number of days contractually  

allocated to complete it.   Noting that under Section 73 of the Indian Contract Act  

compensation is payable for any loss or damage for breach of a contract, the Trial  

Court granted compensation under twelve of the thirteen heads of claims itemised by  

the Respondent. In terms of its Judgment dated 4.5.1991 the Trial Court observed that  

the factual matrix pertaining to these amounts claimed have remained uncontroverted,  

and accordingly decreed the suit. The Respondent was granted Rs.13,61,571/- with  

interest  at  12  per  cent  per  annum with  effect  from 7.8.1983  viz.  the  date  of  the  

statutory notice. The Appellant State appealed against the decree and the Respondent

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filed a counter-claim seeking interest from the date of written demand of the suit claim  

instead of from the date of statutory notice. The High Court, vide its judgment dated  

30.7.2003,  dismissed  the  appeal  filed  by  the  Appellant  State  and  allowed  the  

Respondent’s cross objection, granting interest thereon from 5.3.1982.  

4 The  Appellant  State  has  contended  that  the  High  Court  ignored  its  myriad  

objections/submissions in connection with the various different heads; that the bills  

paid from time to time by the Respondent  including the Final  Bill  were accepted  

without any remonstration or reservation being raised, thereby inexorably leading to  

the conclusion that the suit was clearly an afterthought; and that the suit was barred by  

limitation as the claims were raised after a lapse of more than three years from the  

arising of the causes of action. It is only the last contention to which we shall advert  

our attention.  

5 It would be pertinent to note that the issue of limitation was not pleaded as a  

ground before the Trial Court or the High Court. It was pressed for the first time in the  

course of oral arguments before the High Court.  Nonetheless, it has been discussed in  

the impugned Order. The High Court, noting the contention raised by the Respondent  

that the point of limitation was a mixed question of fact and law and could therefore  

not  be adjudicated at this point,  held that  even if  it  could be adjudicated,  the suit  

would  not  be  barred  by principles  of  prescription  as  it  was  based  on  a  series  of   

successive breaches committed by the Appellant State, and in such circumstances the  

date of the last breach was relevant.  The High Court was of the opinion that limitation  

need not mandatorily be computed on the basis of each cause of action. It held the

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date of return of the Security Deposit as the last date of payment for the work done,  

and concluded that the suit had been filed within three years from this date. The suit  

was therefore found to be within the prescribed period of limitation.  

6 Section  3  of  the  Limitation  Act  explicitly  states  that  “every  suit  instituted,  

appeal preferred, and application made after the prescribed period shall be dismissed,  

although limitation has not been set up as a defence.” It is thus incumbent upon the  

Court to satisfy itself that the suit is not barred by limitation, regardless of whether  

such  a  plea  has  been  raised  by  the  parties.  In Union  of  India  vs.  British  India  

Corporation  Ltd  (2003)  9  SCC  505,  it  has  been  opined  that  “the  question  of  

limitation is a mandate to the forum and, irrespective of the fact whether it was raised  

or not, the forum must consider and apply it, if there is no dispute on facts.”  It is thus  

irrelevant that the Appellant State had not raised the issue of limitation before the Trial  

Court. A duty was cast on the Court to consider this aspect of law, even on its own  

initiative, and since it failed to do so, the Appellant State was competent to raise this  

legal question in appeal or indeed even in any successive appeal.  Close to a century  

ago,  in Lachhmi Sewak Sahu vs. Ram Rup Sahu AIR 1944 Privy Council 24, it has  

been held that the point of limitation is available to be urged even in the Court of last  

resort.  Furthermore,  we  are  not  confronted  with  a  situation  where  the  plea  of  

limitation is a mixed question of fact and law, or where additional evidence needs to  

be adduced. The submissions of Learned Counsel for the Respondent to the effect that  

the Appellant is foreclosed and precluded from urging the plea of the bar of limitation  

are meretricious and are rejected.   We shall now proceed to consider whether the suit

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was in fact barred by limitation.   

7 The period of limitation would be computed under either Article 55 or Article  

113, both of which are laid out below of the facility of reference:

Description of Suit Period of  Limitation

Time from which  period begins to run

Art  55.     For  compensation  for  the  breach of any contract,  express or implied, not  herein  specially  provided for.

Three years When  the  contract  is  broken  or  (where  there  are successive breaches)  when  the  breach  in  respect of which the suit  is  instituted  occurs  or  (where  the  breach  is  continuing)  when  it  ceases.

Art. 113.   Any suit for  which  no  period  of  limitation  is  provided  elsewhere  in  this  Schedule

Three years When  the  right  to  sue  accrues.   

8 It  would  be  pertinent,  at  this  point,  to  recall  the  decision  of  this  Court  in  

Gannon Dunkerley and Co. Ltd. vs. Union of India (1969) 3 SCC 607, though that  

matter  dealt  with  the  provisions  of  the  Indian  Limitation  Act,  1908.  The  

Appellants/Plaintiff therein filed a suit seeking an enhanced rate of compensation in  

light of the deviation in the nature of the work being rendered more complex, the  

increase in costs due to undue prolongation of the period of work, the increase in the  

quantity of work, and the grant of contracts to other competing parties at substantially  

higher rates. This Court held that the “suit filed by the appellant Company is not a suit   

for compensation for breach of contract express or implied: it is a suit for enhanced  

rates because of change of circumstances, and in respect of work not covered by the

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contract.”  The claim for enhanced rates was found to arise outside the contract and  

for  this  reason was not  in  the genre of  an action for  compensation  for  breach of  

contract. It was therefore held that the claim was not covered under Article 115 of the  

1908 Act (which is  in pari materia to Article 55 of the Limitation Act), and would  

have to fall within the ambit of Article 120 of the 1908 Act (which is akin to Article  

113  of  the  Limitation  Act).  The  facts  at  hand are  dissimilar  to  those  in  Gannon  

Dunkerley in  that  the  damages  sought  by  the  present  Respondent  are  for  work  

covered by the  contract,  and  the  change in  circumstances  was  directly  caused  by  

breaches  ascribable  to  the  Appellant  State  in  not  handing-over  the  site  on  time.  

Facially, the suit  claims are damages incurred due to the extension of the contract  

period and the resultant damages are incurred by the Respondent.   The suit would  

therefore  fall  within  the  ambit  of  Article  55.   Article  113,  which  is  a  residuary  

provision, cannot be resorted to.  

9 It also appears to us that the contract was clearly not broken as the Respondents  

chose to keep it alive despite its repeated breaches by the Appellant State. The factual  

matrix  presents  a  situation  of  successive  or  multiple  breaches,  rather  than  of  a  

continuous breach, as each delay in handing over the canal/site by the Appellant State  

constituted to a breach that  was distinct  and complete in itself  and gave rise to a  

separate cause of action for which the Respondent could have rescinded the contract  

or possibly claimed compensation due to prolongation of time and resultant escalation  

of costs. Of course the Respondent is enabled to combine all these causes of action in  

one plaint, as postulated in the C.P.C provided each claim is itself justiciable.  Even

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the  Respondent  has  argued  before  the  High  Court  that  the  suit  was  based  on  

successive breaches committed by the Appellant State. In our opinion, the suit was  

required to be filed within three years of the happening of each breach, which would  

constitute a distinct cause of action. Article 55 specifically states that in respect of  

successive breaches, the period begins to run when the breach in respect of which the  

suit  is  instituted,  occurs.   In  this  vein,  Rohtas  Industries  Ltd  vs.  Maharaja  of  

Kasimbazar China Clay Mines ILR (1951) 1 Cal 420 is apposite as it has held that  

when a party agrees to deliver certain goods every month for a duration spanning  

certain years, the cause of action for breach for failure to deliver in a particular month  

arises at the end of that month and not at the end of the period of the contract. The  

situation before us is similar in that the cause of action had arisen on each occasion  

when the Appellant State failed to hand over the site at the contractually stipulated  

time. Specifically, the limitation periods arose on 15.11.1976, 15.11.1977, 15.11.1978  

and  15.11.1979,  i.e.  on  the  first  day  of  each  season,  when  the  Respondent  State  

committed a breach by failing to hand over the site. Thus the period of limitation did  

not commence at the termination of the contract period or the date of final payment.  

The High Court’s conclusion that the last date of breach and last date of payment were  

relevant, not each cause of action, was thus patently erroneous. For each breach, a  

corresponding amount of damages for additional costs could have been sought. The  

suit, however, was filed on 25.1.1985, well after the limitation period of three years  

for  even the final  breach,  as the various  causes  of  action  became time barred  on  

15.11.1979, 15.11.1980, 15.11.1981 and 15.11.1982 respectively.

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10 There is another perspective on the method or manner in which limitation is to  

be computed.  We have already narrated that the Respondent, on every occasion when  

the extension was sought  by it,  had requested  to  be compensated  for  delay.   The  

Appellant  State  had  granted  the  extensions  but  had  repudiated  and  rejected  the  

Respondent’s claims for damages.  The effect of these events would be that the cause  

of  action  for  making  the  claim  for  damages  indubitably  arose  on  each  of  those  

occasions.   It  is  certainly  arguable  that  the  Appellant  State  may  have  also  been  

aggrieved by the delay, although the facts of the case appear to be unfavourable to this  

prediction,  since  delay  can  reasonably  be  laid  at  the  door  of  the  Appellant.  The  

Respondent, however, could prima facie be presumed to have accepted a renewal or  

extension in the period of performance but with the rider that the claim for damages  

had  been  abandoned  by  it.   If  this  assumption  was  not  to  be  made  against  the  

Respondent, it would reasonably be expected that the Respondent should have filed a  

suit for damages on each of these occasions. In a sense, a fresh contract would be  

deemed to have been entered into between the parties on the grant of each of the  

extensions.  It  is therefore not legally possible for the Respondent to contend that  

there was a continuous breach which could have been litigated upon when the contract  

was finally concluded.  In other words, contemporaneous with the extensions granted,  

it was essential for the Respondent to have initiated legal action.  Since this was not  

done, there would be a reasonable presumption that the claim for damages had been  

abandoned and given a go-by by the Respondent.

11 In a works contract, more often than not, delays occur, and that is why it is

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assumed that time is not of the essence.  Where extensions are asked for and granted,  

there must be a clear and discernable stand on behalf of either of the parties that the  

extension is granted and/or accepted without prejudice to the claim of damages. It has  

become commonplace that neither party lodges a claim for damages, but waits for the  

end of  the  contract  to  raise  these  disputes,  taking advantage  of  the  nebulous  and  

equivocal nature of the transactions between them.  This, however, is not the position  

that  obtains before us since  the Appellant  State  had categorically  posited  that  the  

claim for damages for the alleged delay on its part would not be entertained.    

12 The Respondent has sought to place reliance on Section 19 of the Limitation  

Act. It would be apposite to reproduce this Section:

19.  Effect  of  payment  on  account  of  debt  or  of  interest  on legacy.— Where payment on account of a debt or of interest on a legacy is made  before the expiration of the prescribed period by the person liable to pay  the debt or legacy or by his agent duly authorised in this behalf, a fresh  period of limitation shall be computed from the time when the payment  was made.

This Section would not come to the aid of the Respondent, as the suit before us is not   

for payment on account of a debt or of interest on legacy, but is a suit for damages for  

additional costs incurred as a result of the extension of the contract period. This Court  

in Union of India vs. Raman Iron Foundry 1974 (2) SCC 231, after placing reliance  

on Jones v. Thompson [1858] 27 L.J.Q.B. 234, has opined that a claim for damages  

does not give rise to a debt until the liability is adjudicated and damages have been  

assessed by a decree or any order of a Court or any other adjudicatory authority or  

forum.  Furthermore, in J.C. Budharaja vs Chairman, Orissa Mining Corporation Ltd.  

and Anr (2008) 2 SCC 444, it has been held that the effect of Section 19 would be to

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allow a fresh period of limitation with regard to the 'existing debt' in respect of which  

acknowledgment  and payment  has  been made. It  would  not  extend the  period of  

limitation for any fresh claim, or any amount not accepted by the other party. In the  

factual scenario before us, the payment of the Final Bill and Security Deposit could  

not be construed to accept or acknowledge the damages raised by the Respondent and  

therefore Section 19 would not  per se extend the period of limitation. Furthermore,  

there could be no extension under Section 18 on account of the acknowledgement in  

writing,  as  at  each point  that  the Respondent  raised a  claim for  damages,  it  was  

specifically refuted by the Appellant State, and the amounts that were accepted by the  

Appellant State were limited to the liabilities within the contract, not fresh liabilities  

for damages.  

13 The Respondent  has  also  argued that  since  notice  under  Section  80 of  the  

C.P.C. was served to the Appellant State claiming damages on 7.8.1983, a period of  

two months from the date of the notice would have to be excluded when calculating  

the period of limitation, as per Section 15(2) of the Limitation Act. It has relied on  

M/s Disha Constructions vs. State of Goa (2012) 1 SCC 690 to this end.  However,  

since the limitation period for the last breach alleged by the Respondent itself ended  

on  15.11.1982  and  the  notice  under  Section  80  C.P.C.  is  dated  7.8.1983,  this  

provision is irrelevant. The notice perforce should have been issued before the suit  

became time barred, and only if so done would the period have been extended for a  

further two months.

14 It is thus clear that the Respondent failed to file the suit for damages within the

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period prescribed in the Limitation Act.  The suit is required to be dismissed on this  

ground alone.  The impugned Order is, therefore, set aside, and the Appeal is allowed,  

but with no order as to costs.

……………………………..J. (VIKRAMAJIT SEN)  

……………………………..J. (SHIVA KIRTI SINGH)

New Delhi, October 16, 2015.