Judgement

NATARAJAN, J. :- C. A. No. 471 of 1975 by certificate and C.A. No. 3602 of 1984 and C.A. No. 461 of 1987 (arising out of S.L.P. (Civil) No. 13120 of 1985) by Special leave raise common questions of law and hence they were heard together and are disposed of by this common judgment. The judgments of the High Court in all the three cases have been rendered in accordance with the opinion rendered by a Full Bench of the High Court in a reference made in Regular Second Appeal No. 311 of 1969. The opinion of the Full Bench was sought for in the following circumstances.

2. The respondent in C.A. No. 471 of 1975 entered into an agreement with the State of Mysore to purchase paddy on its behalf under the Paddy Procurement Scheme, 1959 and to hull the paddy and supply rice. Clause 12 of the agreement relates to breach of conditions of the agreement and the consequences that would ensue on such breach. The said clause. referring to the respondent and State as first party and second party respectively is worded as under : -

"In token of the first partys willingness to abide by the above conditions, the first party has hereby deposited as security a sum of Five Hundred Rupees only with the second party and for any breach of conditions set forth hereinbefore, the first party shall be liable to pay damages to the second party as may be assessed by the second party, in addition to the forfeiture in part or whole of the amount deposited by him. Any amount that may become due or payable by the first party to the second party under any part of the agreement, shall be deemed to be and may be recovered from the first party as if they were arrears of land revenue."

3. The State alleged that the respondent had committed a breach of the contract by making short delivery of rice and demanded payment of damages assessed at Rs. 7,344.16 ps. by the Deputy Commissioner. As the respondent failed to pay the damages the State initiated proceedings under the Revenue Recovery Act to recover the amount as if it were arrears of land revenue. The Respondent filed a suit to challenge the recovery proceedings as being illegal and for a permanent injunction to restrain the State from pursuing the recovery proceedings. The trial Court dismissed the suit but the appellate Court decreed the suit. The State preferred a Second Appeal to the High Court. In the Second Appeal a reference was made to the Full Bench for its opinion since there were two conflicting decisions of Division Benches of the High Court on the questions of law raised in the appeal. The Full Bench answered the reference in the following manner:

"Where an agreement between the State and a private person provides that for any breach of any of the conditions of such agreement by such person he shall be liable to pay such damages as may be assessed by the State and that any amount that may become due or payable by such person to the State under any part of that agreement, shall be deemed to be and may be recovered from such person as if they were arrears of land revenue -

(i) the State is not competent to adjudicate upon the question whether such a person committed breach of contract and that the State is not competent to assess damages for any breach of the contract which is not admitted by the other side :

(ii) damages so assessed cannot be recovered from such person as if they were arrears of land revenue."

4. In accordance with the opinion of the Full Bench the Second Appeal preferred by the State was dismissed. The High Court, however, granted a certificate of leave to the State and that is how this appeal by certificate has come to be filed.

5. The other two appeals relate to two contractors who had entered into agreements with the State of Mysore for constructing certain buildings. As the contractors failed to complete the works their contracts were terminated and in terms of the agreements entered into by them the damages payable by them for breach of contract were assessed and the damages were sou