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Rashmikant Babubhai Patel and anr. Vs. Gujarat Electricity Board, Baroda and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtGujarat High Court
Decided On
Case NumberLetters Patent Appeal No. 376 of 1983 with Civil Appln. No. 4939 of 1983
Judge
Reported inAIR1986Guj12; (1985)2GLR1064
ActsConstitution of India - Articles 226 and 229
AppellantRashmikant Babubhai Patel and anr.
RespondentGujarat Electricity Board, Baroda and anr.
Appellant Advocate N.R. Oza, Adv.
Respondent Advocate K.S. Nanavati and; K.R. Vyas, Advs.
Cases Referred(vide Gujarat State Financial Corpn. v. Lotus Hotels Pvt. Ltd.
Excerpt:
.....to go into the details of all those terms and conditions except in connection with the period of delivery of transformers, payments to be made by the appellants and the right of the board to levy penalty for delayed delivery as well as to terminate the contract, shortly stated these conditions were as under: under condition 20 of the contract, in case the appellants failed to deliver the materials or any part thereof within the stipulated period of delivery or the stores being not in accordance with the specifications or the sample, the respondent board had three courses open to it. and ultimately by its letter of april 15, 1983 the respondent board informed the appellants that as the appellants have failed to deliver balance of 272 transformers by about march 1. 1983, the order for..........to go into the details of all those terms and conditions except in connection with the period of delivery of transformers, payments to be made by the appellants and the right of the board to levy penalty for delayed delivery as well as to terminate the contract, shortly stated these conditions were as under:(1) the appellants were required to supply and deliver 450 transformers in each of the quarters of three months viz. quarters commencing from march 3 and ending on june 5, 198 4 from june 5, 1981 to september 6, 1981 and from september 6, 1981 to december 5, 1981.(2) the respondent board was required under the relevant conditions regarding payment, to make the payment of 95 per cent of the value of the transformers against dispatch documents within 15/20 days after the approval of.....
Judgment:

B.K. Mehta, J.

1. Original petitioners being aggrieved with the order of the learned Single Judge (N. H. Bhatt, J.) dismissing the Special Civil Application invoking the writ jurisdiction of this court for appropriate writs, orders or directions enjoining respondent No.1 Board not to terminate the contract of supply of transformers, inasmuch as it was ultra vires the powers of the Board under Article 14 of the Constitution since it has been arbitrarily terminated, have preferred this appeal tinder Clause 15 of the Letters Patent. Before we state the necessary facts on which this challenge has been made, it should be recalled that the learned Single Judge could not persuade himself to admit the petition and thought fit to dismiss it in limine since in his opinion, once the parties enter into a contract, the questions arising in connection therewith would all be in the realm of the law of contract even though one of the contracting parties may be a public authority or a statutory body. The questions of dispute between them could not be examined from the angle of the validity under the Constitution. A few facts need be stated in order to appreciate the challenge to the impugned termination of contract.

2. In response to the invitation by the respondent Board for purchase of 1350 transformers, the appellants had submitted their tender on June 15, 1980, By a letter dated November 21, 1980, the appellants were informed that their tenders were accepted, and an order for supply of 1350 transformers of the specified description at the rate of Rs.12,980/- per transformer was placed by the respondent Board with the appellants. By a subsequent letter dated December 6, a confirmed order to the above effect was placed by the respondent Board with the appellants for supply of 1350 transformers on terms and conditions set out therein. It is not necessary to go into the details of all those terms and conditions except in connection with the period of delivery of transformers, payments to be made by the appellants and the right of the Board to levy penalty for delayed delivery as well as to terminate the contract, shortly stated these conditions were as under:

(1) The appellants were required to supply and deliver 450 transformers in each of the quarters of three months viz. quarters commencing from March 3 and ending on June 5, 198 4 from June 5, 1981 to September 6, 1981 and from September 6, 1981 to December 5, 1981.

(2) The respondent Board was required under the relevant conditions regarding payment, to make the payment of 95 per cent of the value of the transformers against dispatch documents within 15/20 days after the approval of the test certificate and the balance price of 5 per cent within 30 days after receipt of materials at the site and acceptance thereof by the respondent Board.

(3) The respondent Board was entitled to levy penalty for delayed delivery under condition No. 8 of the contract. It was agreed by and between the parties that in case, the materials are not delivered within the period stipulated in the order, the appellants would be liable to pay, at the discretion of the competent authority of the Board, a penalty to the Board up to 1 1/2 percent per week on the price, subject to the maximum of 10 per cent reckoned on the contract value of such materials including the portion supplied. But before imposing such penalty, the respondent Board was required to consider the reasons, if any, which were beyond the control of the appellants for delayed delivery.

Under condition 20 of the contract, in case the appellants failed to deliver the materials or any part thereof within the stipulated period of delivery or the stores being not in accordance with the specifications or the sample, the respondent Board had three courses open to it. It could recover from the appellants liquidated damages as agreed or penalty computed according to condition No, 8. In the alternative, the Board may purchase, after due notice to the appellants, at their risk and consequences the stores short delivered or stores of similar description without cancelling the contract. It can, in the alternative cancel the contract.

3. It is common ground that the appellants have supplied 240 transformers before the commencement of the first quarter i.e. March 3, 1981. It appears that the respondent Board had re-scheduled the delivery programme by its letter dated May 13. 1981. The Board indicated that it required the delivery of about 805 transformers up to March, 1982, and adjusting 240 transformers already delivered, up to April 30, 1981, the balance of 565 transformers were required to be delivered up to March, 1982, and that the appellants should deliver the transformers at uniform monthly rate commencing from May, 1981 at 10 percent of the balance quantity of the transformers which were required to be supplied up to March, 1982. In other words, the appellants were required to deliver about 56 transformers every month commencing from May. 1981. It is also common ground that the appellants could not supply the stores as per this rescheduled programme, but in all supplied about 18 transformers during the period between May 17, 1981 and October 22, 1981. This omission required the respondent Board to re-schedule the delivery programme which it did by its letter dated October 22,1981, and the appellants were permitted to supply at the rate of 84 transformers per month commencing from October 81, and ending in February 1982. The respondent Board clarified by the said letter that the penalty for delay in supply from April 1981 to September, 1981 would not be levied. It is an admitted position that the appellants had supplied in all 420 transformers as required by the respondent Board up to February 16, 1982. It should be noted at this stage that there was some grievance made on behalf of the appellants about the payment of the price of the stores so delivered. However, by a letter dated April 27, 1982, the respondent Board intimated to the appellants a fresh delivery schedule for the remaining 672 transformers and asked the appellants to deliver about 80 transformers per month commencing from April, 1982 and ending in January, 1983 excluding the delivery for the months of July and August 1982, and deliver the remaining 32 transformers in the month of February, 1983. It is also common ground that the appellants delivered 80 transformers in May and July, 1982, 40 transformers in September and October, 60 transformers in November, 20 transformers in December, 1982 and 80 transformers in January, 1983, thus in all aggregating to 400 transformers. It appears that the appellants had by their letter dated February 23, 1983 informed the respondent Board that even though 30 transformers were ready and offered for inspection, only 10 were inspected by its Inspecting Officer on March 10, 1983, with the result that 20 transformers were lying with the appellants un-inspected. It also appears that the appellants had by repeated reminders by their letters dated March 15, 1983. March 18, 1983, March 25, 1983 and March 30, 1983 intimated to the respondent Board that the number of transformers as indicated in the said letters were ready for inspection. They also informed the respondent Board that they had also procured raw materials for all the transformers to be supplied to the respondent Board. By their letter dated March 18, 1983, the appellants requested the respondent Board to release the payment deducting the penalty for delayed delivery of the transformers during the period from May, 1982 to February, 1983. The respondent Board, however, did not respond favourably. The respondent Board was further informed by a letter dated April 7, 1983 that 108 transformers were ready for inspection by about April 15. 1983. It was requested to depute the Inspecting Officer for that purpose. The board had not responded at all to those letters; and ultimately by its letter of April 15, 1983 the respondent Board informed the appellants that as the appellants have failed to deliver balance of 272 transformers by about March 1. 1983, the order for supply of transformers was cancelled as per condition No. 20 of the contract. It is this decision of the Board which aggrieved the appellants who have moved this Court for appropriate writs. orders or directions as aforesaid.

4. Two questions arise for our, consideration in this appeal. Firstly whether the appellants are entitled to invoke writ Jurisdiction for enforcement of rights arising out of the contract and secondly whether there is any justification for the relief which has been pray6d for in the petition out of which this appeal arises In the D. F. 0., South.Kheri v. Ram Sanehi Singh 11971) 3 SCC 864: (AIR 1973 SC 205), the Supreme Court ruled that it was difficult to hold that merely because the source of the right which the respondent claimed was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority he must resort to a suit and not to a petition by way of a writ. The Supreme Court reaffirmed its earlier decision in K. N. Guruswamy v. State of Mysore, (1955) 1 SCR 305: (AIR 19.54 SC 592), where it has held that a petition under Article 226 was maintainable even if the right to relief arose out of an alleged breach of contract, where the action challenged was of a public authority invested with statutory power. Again in E: E. & C. Ltd v. State of W. B. AIR 1975 SC 266, the Supreme Court held that the State which has the right to trade has also the duty to observe equality. The Government cannot choose to exclude persons by discrimination. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation-, and when the State Government acts to the prejudice of a person it has to be supported by legality. This principle was clarified by the Supreme Court in its subsequent decision in Radhakrishna Agarwal v. State of Bihar (AIR 1977 SC 1496). Chief Justice Beg (as he then was, who spoke for the Court ruled that at the threshold when the State enters into contracts with citizens it is bound by the obligations and must act within constitutional limitations. But once the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. The Supreme Court in Radhakrishna's case approved three classifications made by the Patna High Court in R. K. Agrawal v. State, AIR 1977 Pat 65, representing typical cases in which breaches of alleged contractual obligations by the State or its agents were the basis of the cause of action. It is pertinent to set out precisely the classifications which read as under:

'The Patna High Court had, very rightly divided the types of cases in which breaches of alleged obligation by the State or its agents can be set up into three types. These were stated as follows:

(i) Where a petitioner makes a grievance of breach of promise on the part of the State in cases where an assurance or promise made by State he has acted to his prejudice and predicament, but the agreement is short of a contract within the meaning of Art. 299 of the Constitution:

(ii) Where the contract entered into between the person aggrieved and the State is in exercise of a statutory power under certain Act or Rules framed thereunder and the petitioner alleges a breach on the pan of the State; and

(iii) Where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of the parties are governed by the terms of the contract, and the petitioner complains about breach of such contract by the State.

The Supreme Court pointed out that the line of decisions commencing with Union of India v. M/s. Anglo-Afgan Agencies, AIR 1968 SC 718 and Century Spinning and , v. Ulhasnagar Municipal Council, AIR 1971 SC 1021 represent first category of cases; the line of decisions in D. F. 0., South Kheri v. Ram Sanehi Singh, AIR 1973 SC 205, K. N. Guruswamy v. State of Mysore, AIR 1954 SC 592 and G. S. F. C. v. Lotus Hotels P. Ltd. (1983) (2) 24 Guj LR (Notes) 1352: AIR 1983 SC 848) represent the second category of cases; and the line of decisions in Radhakrishna Agarwal v. State of Bihar AIR 1977 Pat 65 and Divisional Forest Officer v. Bishwanath Tea Co. Ltd, AIR 1981 SC 1368 represent the third category where the contract was non-statutory and the rights and obligations of the patties were purely contractual.

5. We should remind ourselves that the decision in Lotus Hotels Pvt. Ltd's case referred to by the Supreme Court arose out of the decision of this Court, where the learned Single judge(N. H Bhatt, J.) rested his decision against the Corporation on the basis of promissory estoppel as well as unreasonable breach of contract entered into by a public body in exercise of its statutory duties [vide G. S. F. C.v. Lotus Hotels Pvt. Ltd. (1982) 23(2) Guj LR 49: (AIR 1982 Guj 198)] On further appeal to the Supreme Court at the instance of G. S.F.C. the Supreme Court confirmed the decision of the High Court mainly on the ground of arbitrarily acting in a matter of contract entered into by a statutory body in exercise of its statutory rights (vide Gujarat State Financial Corpn. v. Lotus Hotels Pvt. Ltd. AIR 1983 SC 848). In view of this settled position we must hold that the respondent Board entered into the present contract with the appellants in exercise of its statutory power for the fulfilment of its statutory obligation viz to supply electricity to the consumers and the distributing licensees in the State; and, therefore, it cannot be said that the matter was lying purely in the contractual sphere. This would be a case falling in the second category as indicated by Patna High Court and approved by the Supreme Court in Radha Krishna Agrawal's case (AIR 1977 SC 1496) where the contract entered into between person aggrieved and the State is in exercise of a statutory power under the Act or the Rules framed thereunder and the party alleged breach on the part of the Board which is 'other authority' within the meaning of Article 12 of the Constitution. It, therefore, cannot act beyond its constitutional limitations which are shortly stated obligations to act in a reasonable, just and fair manner. If, therefore it can be shown successfully by the appellants in the instant case that the respondent Board has acted in an arbitrary or unreasonable manner in terminating the contract, the petition would be maintainable and the writ jurisdiction of this Court could be invoked. The next question which is relevant for our purpose is as to whether the appellants are entitled to any relief which they have prayed for. After carefully considering the submissions made by Mr. Oza, the learned advocate for the appellants, we are afraid that it would be difficult for us to sustain the grievance made on behalf of the appellants that the respondent Board has acted in an arbitrary manner in this case or it was actuated by extraneous considerations and, therefore the action was vitiated on account of legal malafides. In order to substantiate the challenge to the termination of the contract, three-fold submission has been made. Firstly it is urged that the respondent board could not have unilaterally re-scheduled the delivery period. We do not think that there is much substance in this contention for the simple reason that the extensions which were granted were more by way of concession and indulgence to the appellants, inasmuch as the number of transformers which were originally agreed to be delivered was reduced in this re-scheduled delivery programme. Secondly, it was urged that the respondent board has arbitrarily withheld the payments of the bills against supply of the stores in question. There also seems to be some dispute between the appellants and the respondent Board which contends that since the delivery of transformers was not accompanied with the test certificates, the payments were required to be withheld. This is again a disputed question of fact on which we cannot agree with the learned advocate for the appellants that the action of withholding payments beyond the time stipulated in the relevant clause of the contract was ex facie arbitrary. Thirdly, it was urged that the respondents Board having exercised one of the courses open to it under condition 20 which provided for termination of contract, (Sic) viz. imposing of the penalty, it could not have terminated the contract; and in so far as it terminated the contract, it acted in an arbitrary manner. Here also we find ourselves handicapped since no material has been placed before us to show that the respondent Board has exercised its power of imposing penalty under condition 20 of the contract. It should be re-called that the Board has the power of recovering penalty under condition No. 8 for delayed delivery of stores. It has also a substantive power under condition 20 in preference to termination of the contract to recover penalty as provided for in condition 8. In other words, these two powers viz. for delayed delivery of stores and for breach of contract are two separate powers operating in different fields; and, therefore, unless it is shown by uncontrovertible evidence or admitted that this power was exercised under condition 20, we do not think that this contention is open to the learned, advocate for the appellants. It is, therefore, difficult for us to agree with him that the termination of contract was based on extraneous consideration. It has been further urged that the respondent Board terminated the contract as there was recession in the market and, therefore, it was actuated with the consideration of effecting economy in the purchase of stores. The alleged ground for termination of contract viz. recession in market, can be a valid ground for contending that there is an unlawful breach of contract. However, even on merits, we have no sufficient evidence to show as to when the market started going down; after what lapse of time the contract was terminated and what was the approximate price of the transformer at the relevant date when the contract was terminated; and, therefore, we do not think we would be justified in examining this contention closely more particularly because in the letter of termination of contract, it has been stated that this termination has been resorted to under condition 20 and the denial in the affidavit in reply that the termination was not actuated with the motives attributed to the Board. We, however, make it clear that we are not expressing any opinion as to who has made breach of contract and even assuming that the breach of contract is by the appellants, the Board was justified in terminating the contract considerable time after the expiry of last delivery period viz. February, 1983.

6. The learned advocate for the appellants, therefore, urged that the respondent Board after the expiry of the period of contract in February, 1983 did not immediately terminate the contract or in any case it did not intimate to the appellants that it was no more interested in purchasing the balance number of transformers. The appellants, were, therefore, encouraged to change their position to their prejudice, inasmuch as they manufactured balance number of transformers; and, therefore, the respondent Board was estopped on the principle of promissory estoppel from terminating the contract. Though this contention appears to be attractive, on close scrutiny, we do not think that it can be sustained. Obvious answer to this contention is that as long as the contract remained in force, there was no question of promissory estoppel or a quasi-contract coming into existence at all. In that view of the matter, therefore, we do not think that we would be justified in interfering with the order passed by the learned single Judge.

7. In the result, this appeal is dismissed with no order as to costs.

8. As the main appeal is disposed of, Civil Application No. 4939 of 1983 stands disposed of with no order as to costs.

9. Appeal dismissed.


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