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S. Jagat Singh Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtDelhi High Court
Decided On
Case NumberRegular First Appeal No. 133D of 1964
Judge
Reported inILR1978Delhi582
ActsArbitration Act, 1940 - Sections 37; Limitation Act, 1908 - Schedule - Article 115
AppellantS. Jagat Singh
RespondentUnion of India
Advocates: S.L. Bhatia,; Amarjit Singh,; K.N. Kataria and;
Cases ReferredP. v. P.
Excerpt:
.....of the government of india. the appellant treated it as a breach of the contract and abandoned the work claiming damages for breach of the contract by the respondent pursuant to which the respondent cancelled the work at risk and cost and got the remaining work completed, and which formed the subject matter of the counter claim made by it. the contract contained an arbitration clause. the proceedings of the arbitration commenced on september 21, 1949, and concluded on february 20, 1959 when the award was set aside and the reference was also superseded. the suit was filed by the appellant on december 10, 1959. it was claimed in the pliant that the period form september 21, 1949 to february 20, 1959, was to be excluded under section 37 of the arbitration act, 1940, and on the basis that..........took up this position, the appellant treated it as a breach of the contract and abandoned the work claiming damages for breach of the contract by the union pursuant to which the union apparently got the remaining work completed allegedly at the risk of the appellant, which forms subject matter of the counter claim made by it. the contract contained an arbitration clause. the proceedings of the arbitration commenced on september 21, 1949, and concluded on february 20, 1959, when the award was set aside and the reference was also superseded. the suit was filed by t appellant on december 10, 1959. it was claimed in the plaint that the period from september 21, 1949, to february 20, 1959, was to be excluded under section 37 of the arbitration act, 1940, and on the basis that the cause.....
Judgment:

H.L. Anand, J.

(1) This appeal arises out of a suit filed by the appellant against the Union for recovery of Rs. 67,000 on the basis of a contract for the construction of certain works and in the alternative on the basis of quantum remit. The claim was contested by the Union, inter alia, on the plea of bar of limitation. The Union also set up a counter claim. The trial Court dismissed the claim of the appellant, both on the merits and on account of the bar of limitation. The counter-claim of the Union prevailed with the result that the appellant, who came to the Court with a claim of Rs. 67,000 against the Union, got in return a decree against him for Rs. 49,759.12 with costs.

(2) According to the appellant, the appellant entered into a contract with the Government of India for the construction of two additional wings in the Rangers College at Dehradun (Ex.D-l/A). 'The tender was formally accepted on behalf of the Governor General of India in Council by the then Additional Chief Engineer on July 24, 1947, and the formal contract was signed by the then Executive Engineer in 1949. In terms of the contract work was to start on November 27, 1946, and to be completed by June 1947. It has been a common case of the parties that the work on the contract could not commence as agreed as the Union failed to hand over part of the site of work and to supply some of the material for the work. It has also not been in dispute that on account of the delay, the context in which the contract had been entered into was considerably changed on account of the partition of India and the disturbed conditions preceding and following it with the result that the appellant, who had carried out some work until August 11, 1947, abandoned the work and claimed payment for the work done on the basis of quantum meruit. It has also been a; common case of the parties that subsequently the question as to the resumption of the work by the appellant on the basis of revised rates in view of the unforeseen intervening circumstances was discussed between the representatives of the appellant and the Union and certain decisions with regard to the terms of resumption of work were arrived at which were set out in a letter of May 13, 1948, from the Superintending Engineer, Central Circle, Central Public Witness D., New Delhi, to the appellant, P-63. This is how the letter runs :-

'CENTRALPUBLIC Works Department

From

THESuperintending Engineer

CENTRALCircle, Central Public Witness D.

New Delhi.

To

R.S. Jawala Singh Jagat Singh, 6 Hardwar Road, Dehra Dun.

NO.764-C/FRI/DD Dated New Delhi, the 13th May, 1948

SUBJECT: Construction of two permanent Additional Wings to the Rangers College at F.R.I. Dehra Dun.

Dear Sir,

WITHreference to your letter No. RC/261 dated the 10th April, 1948 addressed to the Additional Chief Engineer, I have to inform you that the following decisions were taken by the Additional Chief Engineer at the Joint meeting on the 4th May, 1948 in his office, where the undersigned Executive Engineer and Rai Sahib Jawala Singh Jagat Singh contractors were also present.

'IThas been decided and agreed to by the contractors that they shall carry out the unfinished items of work or part thereof which could have been done before the receipt of C. I. sheets for roofing at the rates based on the sanctioned tender for those items of work which the contractors could not do on account of non Supply of materials by the Government due to the prevailing disturbed conditions etc. fresh rates excluding contractor's 10 per cent profit, will be worked out on the market rates, providing in the analysis the issue rates for materials which are to be supplied by the Government as are agreed to in the original contract. To the fresh rates worked out thus, a percentage abatement arrived at from the original estimated rate and tendered rate (excluding contractor's 10 per cent profit) in both cases for (torn) will be allowed on each of these rates (torn) before adding contractor's 10 per cent profit on items other than materials slupplied by Government. The method of working out the detailed rates and final approval thereto will rest with Additional Chief Engineer.

ITis, thereforee, requested that the work may please be taken in hand at once.

YOURS faithfully

SD/-

RIPDUMANSingh

SUPERINTENDINGEngineer

CENTRALCircle

12-5-48.'

It is also a common case of the parties that on the basis of the representations contained in the letter, the appellant resumed the work and carried out a part of it until the Union 'took a some result' when in his letter of August 26/28, 1948, P-33, the appellant was informed by the Superintending Engineer that the decision to allow revised rates for the completion of the work, set out in Exhibit P-63, were subject to the approval of 'the Government of India' implying thereby that the decision referred to in the letter Ex.P-63 was not final and the appellant was bound to complete the work on the original rates until the same had been approved by the Government. It has been a common case of the parties that when the Government took up this position, the appellant treated it as a breach of the contract and abandoned the work claiming damages for breach of the contract by the Union pursuant to which the Union apparently got the remaining work completed allegedly at the risk of the appellant, which forms subject matter of the counter claim made by it. The contract contained an arbitration clause. The proceedings of the arbitration commenced on September 21, 1949, and concluded on February 20, 1959, when the Award was set aside and the reference was also superseded. The suit was filed by t appellant on December 10, 1959. It was claimed in the plaint that the period from September 21, 1949, to February 20, 1959, was to be excluded under Section 37 of the Arbitration Act, 1940, and on the basis that the cause of action arose on February 7 1949, the suit was within time. The suit was contested by the Union both on the merits and on the ground that it was barred by time. A counter claim for Rs. 49,759.12 was made by the Union arising out of the completion of the work which wets left incomplete by the appellant. By its judgment and decree of March 30, 1964, appealed against, the trial Cote, inter alia, held that the initial delay in making the site available and in supplying the necessary material for the work on the part of the Union did not justify the suspension of work, even though it entitled the appellant to extension of time for the completion of the work, that there was no agreement for the revision of the rates when the appellant resumed the work and the appellant was, thereforee, bound to complete the entire work on the basis of the rates originally agreed to between these parties in Exhibit D-1/A; that in any event the suit was barred by time even if the period allowed under Section 37 of the Arbitration Act was to be excluded from consideration; and that the counter claim was fully justified, in that in abandoning the work the appellant was acting in breach of the contract entitling the Union to get the work completed at the cost of the appellant. The suit of the appellant was, thereforee, dismissed with costs and the counter claim of the Union was decreed with costs.

(3) The suit was tried on the basis of 16 issues. However, the questions that survive for decision in appeal are :

(1)Whether the appellant has stay claim aganist the Union, either on the basis of the original contract, or any modified contract or on the basis of quantum merit, or on the principle of equitable/promissory estoppel or otherwise;

(2)If so, whether the claim is barred by time; and

(3)Whether the counter claim of the Union is justified.

(4) It would be convenient to consider the second question first in view of the impact of decision of the question on the claim. If the claim is barred by time, it would be hardly necessary to determine the nature of it or the extent of it.

(5) On the question of limitation, three contentions were urged on, behalf of the appellant :--

(A)In computing the period of limitation the exclusion of the period consumed by the proceedings of arbitration should have been extended to the further period from February 7, 1949 to September 21, 1949.

(B)The claim being based on the doctrine of quantum meruit was to be governed by Article 120 of the Limitation Act, 1908, which gave the appellant six years limitation.

(C)In computing the period of limitation under Article 120, the appellant was entitled to the exclusion of the period consumed by proceedings of arbitration.

(6) The contention at (a) above is clearly unsustainable. The period that could be excluded under section 37(5) of the Indian Arbitration Act, 1940, and which had been excluded by the trial Court, is 'the period 'between the comencement of the arbitration and the date of the order of the Court'. All that had happened during the period, which is sought to be included in the period to be excluded was that the appellant made a claim on the Union, pursued it and it was turned down. The last letter in the series is of September 21, 1949, from the Assistant Secretary to the Government of India to the appellant in which, after reiterating the rejection of the claim, it was pointed out that if the appellant disputed the 'justification of the action taken by the Central Public Works Department, the remedy lies in referring the matter to arbitration under clause 25 of the aforesaid agreement'. These were essentially pre-atbitration approaches to the Government for the acceptance of the claim and could by no stretch of imagination be treated as being within the phrase 'commencement of the arbitration' used in sub-section (5) of section 37. There would, thereforee, be no justification for extending the scope of the exclusion beyond that which has been done by the trial Court.

(7) As for contention at (b) above, it was urged that the claim was based on the doctrine of quantum meruit which was de hors the contract and was, thereforee, outside Article 115 of the Limitation Act, 1908, and since there was no specific provision with regard to such aclaim elsewhere in the Limitation Act, 1908, the residuery Article 120 would cover the claim with the result that the appellatat would have a six year limitation and a suit could be filed within six years of the date on which the cause of action' arose. It is no doubt true that the claim based on the doctrine of quantum merit is outside the contract, Ex. D-1/A, but unfortunately for the appellant that would not take the claim outside Article 115 because Article 115 is not confined to claims arising out of express contracts and the Article would extend to claims arising out of 'implied' contracts as well. It is well settled that the doctrine of quantum meruit is based on the principle of implied contract to pay for the work that a person may have done for another without intending it to be gratutious, and that being so, even such a claim would be within Article 115 and could not, thereforee, attract the residuary Article. This contention must, thereforee, . fail. As for contention at (c) above, the appellant would no doubt be entitled to the benefit of section 37(5) of the Arbitration Act to exclude the period taken in proceedings of arbitration even if Article 120 was attracted. This is so because the application of sub-section (5) of section 37 is not confined to cases in which the claim is made under the contract which provides for the arbitration clause. All that sub-section (5) of section 37 requires is a nexus between the subject matter of proceedings of arbitration and the proceedings sought to be commenced. Section 37 is, in fact, analogous to the provisions of section 14 of the Limitation Act, 1908. It follows, thereforee, that if the claim could be legitimately governed by Article 120 and the appellant was entitled to a limitation of six years, the claim would have been within time on an exclusion of the period during which the proceedings of arbitration were admittedly pending. Unfortunately for the appellant, however, it is not possible to give to the appellant the benefit of Article 120. This con- tention, thereforee, does not further the case of the appellant either.

(8) In view of the bar of limitation, it would be futile to consider the first question and it is, thereforee, unnecessary to determine the nature of the claim of the appellant or its extent except in so far the consideration of certain facets of the question would begermane to the decision of the third question.

(9) Whether the counter claim of the Union is justified is the last question that must be considered. It is obvious that the claim of the Union could be justified only if the appellant committed a breach of the contract, for such a breach would entitle the Union to put an end to the contract and get the unfinished work completed at the risk of the appellant and claim the amount from the appellant which.the Union may have had to pay for completing the work left unfinished by the appellant. This would involve a consideration of the question if in acting the way the appellant did, he was acting reasonably under the compulsion of adverse circumstances or circumstances otherwise beyond his) control or was acting in disregard of his obligation under the contract. It would also involve the consideration as to the precise nature of the representation made on behalf of the Union in Ex. P-63, the extent to which the appellant acted on the representation to his prejudice and the effect, if any, of the refusal of the Union to stand by its commitment.

(10) It is not in dispute that the appellant had agreed to carry out the work entrusted to him on the basis of rates which had been agreed to between the parties vide original contract. Ex. D-1/A. It is also undisputed that on account of default on the part of the Union to make the site available and to supply the material required for the work, there was delay in the commencement of the work. It is also beyond controversy that in view of the delay, unforeseen circumstances and situation arose which changed the whole extent in which the contract was entered into and, inter alia, made labour force scarce as well as costlier, besides raising the cost of material that may have to be secured by the appellant, in view of the rather unsettled and abnormal conditions on account of civil strife preceding and following the partition of India. It is true, and this is how the trial Court has looked at the problem, that the default on the part of the Union did not entitle the appellant to abandon the work, even though these circumstances could have justified an extension of time within which the work had to commence or eventually to be completed. The abandonment of the work by the appellant was not, thereforee, justified. This was, however, neither treated as a breach of the contract nor was it taken advantage of by Government because Government neither cancelled the contract at that stage nor entrusted it to any other contractor for completion apparently because it realised that the situation was partly of its making and partly because of adverse circumstances over which the appellant, in any event, had no control. The fact that in the unfortunate situation that emerged labour was not only scarce. but there had been increase in the cost both of material and labour was apparently considered justified by Government and this probably was the reason why no precipitate action was taken on behalf of Government even after the appellant could be said to have been at least technically in default. What transpired subsequently is of considerable significance and there was considerable controversy before us as to its nature and true impact. It is admitted that the situation arising out of abandonment of work by the appellant was discussed and considered at a very high level between the representatives of the appellant and the representatives of Government, including the Additional Chief Engineer, as a sequel to which the Superintending Engineer, Central Circle, wrote on May 13, 1948, a letter to the appellant. Ex. P-63, the contents of which have been extracted above, conceding in categorical terms the right to the appellant, notwithstanding the stipulation to the contrary in the original contract, to be paid for future work at the enhanced rates, even though some ambiguity was left in the latter as to how the revised rates would be worked out. The letter clearly sets out a decision arrived at by the Additional Chief Engineer, It is important to bear in mind that it is only the representation in the latter and the promise of enhanced rates that ultimately persuaded a recalcitrant contractor to resume the work and agree to complete it. Two things clearly emerge from this communication. In the first instance, the act of the appellant in abandoning the work earlier was clearly waived and secondly, the right of the appellant to complete the remaining work at enhanced rates was conceded by an authority, which was competent to bind the Government in that the formal acceptance was by an authority of equivalent status. It is not in dispute that the appellant resumed the work on the basis of this representation and continued to carry it out until the Government took, what the appellant has described, and to our mind correctly, as 'a somersault' with the letter of August 26/28, 1948, referred to above, by which the appellant was informed by the Superintending Engineer that the decision to allow revised rates for the completion of the work set out in Ex. P-63, was subject to the approval of 'the Government of India', thereby implying as if the decision arrived at earlier was tentative and the appellant was, thereforee, bound to complete the work on original rates until the same had been approved of by Government It is at this stage that the appellant threatened to abandon the work on the ground that the decision did not need an approval and eventually, when this contention was not accepted, carried out the threat treating the position taken by Government as constituting a breach of the contract.

(11) The first question that, thereforee, requires consideration is as to the effect of the letter of May 13, 1948. Whether this letter constituted a valid modification of the original contract If not, whether the revised rates envisaged in the letter bound the Government and the Government was, thereforee, bound to pay the appellant at the revised rates either on the principle of promissory or equitable estopple or otherwise These are the questions that arise for determination.

(12) Exhibit D-1/A, the original contract, admittedly followed the formal acceptance of tender by the then Additional Chief Engineer, who was competent to accept it and entered into a binding contract on behalf of the then Governor General of India in Council. The constitutional requirements of a valid contract for and on behalf of the Governor General of India in Council or the Union of India, after the enforcement of the Constitution of India, do not enjoin that such a contract must be by a deed or by a formal written contract. A binding contract by tender and acceptance can also come into existence if the acceptance is by a person duly authorised in this behalf. Such a valid contract could also be spelt out of correspondence or other writing so long as the obligation is accepted by an officer who is competent to bind the Governor General in Council or the President of India, as the case may be. It is true that the letter of May 13, 1948, Exhibit P-63, is not signed by the Additional Chief Engineer, who was competent to enter into a contract. It is, however, am official letter issued by the Superintending Engineer which sets out the factum of an agreement arrived at between the appellant and the Additional Chief Engineer and if the Additional Chief Engineer was competent to enter into a valid contract on behalf of Government, there is no reason why this letter does not constitute a written agreement between the appellant and the Government binding it to pay to the appellant for the work to be completed at the enhanced rates. In that view of the matter, Exhibit P-63, was capable of modifying the original contract between the parties in relation to the rates at which the remaining work had to be done and, thereforee, bound the Government to pay to the appellant for the work at the enhanced rates subject, of course, to the necessary details of the rates being worked out by the Additional Chief Engineer, whose decision was to be final. There is neither anything in the constitutional requirement nor in the terms of the letter Which made it subject to the approval of any other authority or the obligation under which made it dependent on approval by any other authority. Interestingly enough, the letter did not even visualise that it was to be followed by a formal agreement as is common in cases where a formal acceptance of a tender is made. The appellant was. thereforee, within his rights to claim enhanced rates on the basis of the aforesaid letter and consequently to refuse to carry out the work further if government resoled from that agreement.

(13) Assuming, however, that the aforsaid letter did not constitute a valid modification of the original contract, either because it fell short of any constitutional requirement or because of anything in its form or substance, it nevertheless contained a categorical representation on behalf of Government that the appellant would be entitled to be paid at the enhanced rates for all future work. It is undisputed that the appellant acted on the representation to his prejudice, in that a part of the incomplete work was carried out on the basis of the representation contained in the letter, and would entitle the appellant to invoke the doctrine of promissory estoppel enunciated by Denning, J. (as he then. was) in the case of Central London Property Trust Ltd. v. High Trees House Ltd.,l and made popular in India by the decision of the Supreme Court in the case of Union of India v. Anglo Afgan Agencies. 2 It is true that since the aforesaid decisions, there has been some dilution of the efficiency of the doctrine of promissory estoppel as a basis for a fresh cause of action because of the doctrine of consideration and later Lord Denning himself took the opportunity in the case of Combe v. Combe (3) to restate the position thus:-

'THEprinciple stated in the High Trees case ............does not create new causes of action where none existed before. It only prevents a party from insisting upon his street legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties ...... The principle, as I understand it, is that, where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then. once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him; but he must accept their legal relations subject to the qualifications which he himself has so introduced, even though it is not supported in point of law by any consideration but only by his word.

SEEINGthat the principle never stands alone as giving cause of action in itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action. The doctrine of consideration is too firmaly fixed to be overthrown by a side-wind. Its ill effects have been largely mitigated of late, but it still remains a cardinal necessity of the formation of a contract, though not of its modification or discharge.'

There, is however, no doubt of the efficiency of the doctrine, to use the expression of Birkett, LJ., one of the other Judges in the case 'as a shield' if 'not as a word'. While a final formulation, according to Cheshire & Fifoot (4), of the doctrine awaits further judicial decision and discussion, four points emerge from the decided cases and it would be sufficient to quote the following three points :-

'(1)If a promise is given by one party to a contract not to insist upon his rights under that contract and there is no consideration for the promise, the promisecannot sue upon it.

(2)If the promisor breaks this promise and sues on the original contract, the promisemay use the promise by way of defense.

(3)To succeed in this defense the promisemust persuade the court that it is 'inequitable' to allow the promisor to sue on the original contract.

If the promisehas himself been guilty of unconscionable conduct the court will certainly not allow the equity to; be pleaded. But in the present context as elsewhere the word 'inequitable' has a more technical significance. The promisemust have acted or omitted to act in reliance upon the promise, and by this act or omission he must have altered his position for the worse. Thus in the New Zealand case of P. v. P. he was induced not to take advantage of his statutory powers.'

It is difficult to justify the conduct of Government in putting an end to the contract and entrusting the work to another contractor on the justifiable refusal of the appellant to proceed with the work as a sequel to the recantation by it of the categorical position taken on its behalf in the letter of May 13, 1948. If Government was bound to pay the contractor at the enhanced rate and the decision was not subject to approval of any other authority, as has been found above, the Government was bound by it irrespective of whether the letter constituted a valid contract, or required the aid of the doctrine of promissory estoppel. The refusal of the contractor was fully justified and would not entitle Government either to put an end to the contract or to take recourse to another contractor to have the work completed at the risk of the contractor. There was no breach on the part of the contractor which could justify the conduct of Government or its counter claim.

(14) In the result, the appeal succeeds in part. the claim of the appellant fails and so does the counter claim of the Union. In the peculiar circumstances, parties would bear their respective costs throughout.


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