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SUPREME COURT OF INDIA
P.N. BHAGWATI AND P.K. GOSWAMI, JJ.
Union of India, Appellant
Versus
Raman Iron Foundry, Respondent.
Civil Appeal No. 1330 of 1973:
Civil Appeal Nos. 1330, 1224 and 1225 of 1973, D/-.
Where clause 18 of the contract between the Union of India (the appellant and purchaser) and the contractor (respondent) provided that whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or part of the security if any deposited by the contractor and if no security was deposited or security deposited was insufficient then by appropriating any sum then due or which at any time thereafter shall become due to the contract under the contract or any other contract with the purchaser and if such sum be not sufficient to cover the full amount recoverable the contractor shall pay on demand to the purchaser the balance remaining due.
The respondent claimed damages to the extent of Rs.2, 35, 800/-from the appellant and the latter made a counter claim of damages to the tune of Rs. 2, 28, 900/-as against the respondent and by his letter dated 30.3.71 the Asst. Director of Supplies demanded payment of the said sum by 30.4.71 and in the event of non-payment threatend to deduct the sum from the pending bills of the contractor under other contracts.
The contractor filed an application under Section 20 of the Arbitration Act 1940 before the Delhi High Court. The High Court ordered the arbitration agreement to be filed and referred the matter to arbitration.
On the contractor apprehending that the Union of India would recover its claim out of other bills, he filed an application under Section 41 and the High Court issued an interim injunction restraining the Union of India from effecting recovery of the amounts claimed to be due from other pending bills of the respondent. It was contended before the Supreme Court (on appeal) that the order of interim injuction could not be sustained.
Firstly, on the ground that the amount covered by other pending bills of the contractor were not the subject matter of reference and, secondly because clause 18 authorises the purchaser to recover its dues under the contract in question by appropriating any sum then due or which at any other time may become due to the contractor either under the contract in question or any other contract and that the purchaser was entitled to do even if there was a claim for damages which was disputed by the contractor.
Held, that though the words "any claim for the payment of a sum of money" occurring in clause 18 are wide enough to cover a claim for damages, but these words can not be read in isolation but have to be read structurally and in the context of other provisions of the contract. The intention of the parties is not to be gathered from one part of clause 18 alone but from all the clauses taken as a whole. (Para 8)
When there is an obligations to pay a sum of money at a future date it is a 'debt owing' and when there is an obligation to pay a sum of money in present it is a debt due. Thus interpreted, clause 18 read with its heading "Recovery of sum due" dealt with a sum that is due and presently recoverable by the mode indicated therein. (Para 10)
When there is a breach of contract the party in breach does not so instanti incur any pecuniary obligation nor does the party complaining of the breach becomes entitled to a debt due from the other party. The aggrieved party has only the right to sue for damages. No pecuniary liability, arises till the court had determined the matter. (Para 11)
A claim for damages for breach of contract is not a claim for sum presently due and payable and the purchaser is not entitled in exercise of the right conferred by clause 18 to recover the amount of such claim by appropriating other sums due to the contractor.(Para 11)
Held further, that the claim for damages in the present case formed the subject matter arbitration proceeding and untill such claims adjudicated upon, the amount can not be recovered or appropriated to other amount. When a claim for damages was pending adjudication before the arbitrator, the court was justified in issuing ad interim injunction. (Para 6, 27)
Judgment
BHAGWATI, J.:- These appeals raise an interesting question relating to the interpretation of Cl. 18 of the General Conditions of Contract contained in the Standard Form of Contract No. D.G.S. & D. 68. That is the standard form in which contracts are entered into by the Central Purchase Organization of the Government of India for purchase of stores from third parties described as contractors and the question of interpretation which arises for determination is, therefore, one of some importance, affecting as it does a large number of people who enter into such contracts with the Government of India. The facts giving rise to these appeals follow a common pattern and it would, therefore, be sufficient if we set out the facts relating to Civil Appeals Nos. 1224 and 1225 of 1973. They bring out clearly the point which arises for consideration in all the three appeals.
2. The respondent tendered for supply of certain quantity of foam compound to the appellant and its tender was accepted by the appellant by Acceptance of Tender dated 16th July, 1968. The Acceptance of Tender was subject to the General Condition of Contract contained in the Standard Form of Contract No. D.G.S. & D. 68. The only clauses of the General Conditions of Contract which are material for our purpose are clauses 18 and 24 and they read as follows:
"18. Recovery of Sums due:
Whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor, and for the purpose aforesaid, shall be entitled to sell and/or, realise securities forming the whole or part of any such security deposit. In the event of the security being insufficient, the balance and if no security has been taken from the contractor, the entire sum recoverable shall be recovered by appropriating any sum then due or which at any time thereafter may become due to the contractor under the contract or any other contract with the purchaser or the Government or any person, contracting through the Secretary, if such sum even be not sufficient to cover the full amount recoverable, the contractor shall on demand pay to the purchaser the balance remaining due.
.................................................................."
"24. Arbitration :
In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract, (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of an Officer in the Ministry of Law, appointed to be the arbitrator by the Director General of Supplies and Disposals. It will be no objection that the arbitrator is a Government servant, that he had to deal with the matters to which the contract relates or that in the course of his duties as a Government servant he has expressed views on all or any of the matters in dispute or difference. The award of the arbitrator shall be final and binding on the parties to this contract.
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Work under the contract shall, if reasonable possible, continue during the arbitration proceeding and no payment due to or payable by the purchaser shall be withheld on account of such proceedings.
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The performance of this contract ran into difficulties and a dispute arose between the parties giving rise to claims by either party against the other. The respondent contended that the appellant had committed a breach of the contract and was, therefore, liable to pay to the respondent a sun of Rs. 2,35,800/-by way of damages suffered by the respondent by reason of the breach of the contract. The appellant, on the other hand, said that it was the respondent who had committ
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