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2005 Supreme(Kar) 369
Karnataka High Court
UTTAR PRADESH STATE BRIDGE CONSTRUCTION corporation LIMITED, - Appellant
Versus
LUCKNOW bangalore DEVELOPMENT AUTHORITY - Respondent
Decided On : 06-22-05
Writ Appeal : 2629 of 2005
ABDUL KHADER, G.V.SHANTHARAJU, M.ARUN PONAPPA, VIJAYA SHANKAR
The court held that the respondent's action in withdrawing the concession and issuing the notice of termination of the contract was arbitrary and violative of Article 14 of the Constitution because the respondent had agreed to the changes and extensions of time, but later withdrew the concessions without giving the appellant an opportunity to be heard.
Headnote:
The court held that the respondent's action in withdrawing the concession and issuing the notice of termination of the contract was arbitrary and violative of Article 14 of the Constitution. The court also held that there was no arbitration clause in the agreement between the parties and that the appellant was not precluded from seeking relief from the court in the writ proceedings. The court further held that time was not the essence of the contract and that the appellant was entitled to specific performance of the contract. Finally, the court held that the respondent's action was not motivated by public interest and that the appellant was not responsible for the delay in completion of the project.
Fact of the Case:
The appellant, a public undertaking, was awarded two contracts by the respondent, a Bangalore Development Authority, for the construction of a grade separator and a flyover. The appellant encountered various problems during the course of construction, including changes in the design and methodology, which necessitated additional time and cost. The respondent agreed to the changes and extensions of time, but later withdrew the concessions and issued notices of termination of the contracts. The appellant challenged the respondent's action by filing writ petitions in the High Court.
Finding of the Court:
The court held that the respondent's action in withdrawing the concession and issuing the notice of termination of the contract was arbitrary and violative of Article 14 of the Constitution. The court also held that there was no arbitration clause in the agreement between the parties and that the appellant was not precluded from seeking relief from the court in the writ proceedings. The court further held that time was not the essence of the contract and that the appellant was entitled to specific performance of the contract. Finally, the court held that the respondent's action was not motivated by public interest and that the appellant was not responsible for the delay in completion of the project.
Issues: 1. Whether the respondent's action in withdrawing the concession and issuing the notice of termination of the contract was arbitrary and violative of Article 14 of the Constitution? 2. Whether there was an arbitration clause in the agreement between the parties and whether the appellant was precluded from seeking relief from the court in the writ proceedings? 3. Whether time was the essence of the contract? 4. Whether the appellant was entitled to specific performance of the contract? 5. Whether the respondent's action was motivated by public interest? 6. Whether the appellant was responsible for the delay in completion of the project?
Ratio Decidendi: 1. The court held that the respondent's action in withdrawing the concession and issuing the notice of termination of the contract was arbitrary and violative of Article 14 of the Constitution because the respondent had agreed to the changes and extensions of time, but later withdrew the concessions without giving the appellant an opportunity to be heard. 2. The court held that there was no arbitration clause in the agreement between the parties and that the appellant was not precluded from seeking relief from the court in the writ proceedings because the arbitration clause was not specific and did not provide for a private forum to resolve disputes. 3. The court held that time was not the essence of the contract because the agreement contained clauses that provided for extension of time and payment of penalty for delay. 4. The court held that the appellant was entitled to specific performance of the contract because the respondent's action in withdrawing the concession and issuing the notice of termination of the contract was arbitrary and unreasonable, and because the appellant had already completed a substantial portion of the work. 5. The court held that the respondent's action was not motivated by public interest because the respondent had not considered the impact of its action on the public and because the appellant had offered to complete the project at a lower cost than the respondent's estimate. 6. The court held that the appellant was not responsible for the delay in completion of the project because the delay was caused by the respondent's own actions in withdrawing the concession and issuing the notice of termination of the contract.
Final Decision: The court allowed both writ appeals, set aside the impugned orders of the learned Single Judge, quashed the notices of termination of the contract issued by the respondent, and restored the status quo ante to the letters withdrawing the concessions given by the respondent to the appellant.
( 1 ) LEGALITY of the termination of the contract entered into by the bangalore Development Authority ('bda' for short) with the Uttar pradesh State Bridge Construction Corporation Limited ('appellant-Corporation' for short), which has been upheld by the learned single Judge, is the subject-matter of these two appeals and as the issues involved are in principle identical, the two appeals are being disposed of by this common judgment.
( 2 ) THE facts that are material for our purpose are as under: the BDA, which is the first respondent herein, has taken up infrastructure developmental work in Bangalore City and as a part of it, by its notice inviting tender dated 4-11-2002 invited tenders on turnkey basis for construction of Grade Separators/flyovers at various places viz. : 1. The intersection of Airport Road and intermediate ring road junction; 2. Bangalore Dairy Circle; and
( 3 ) JAYADEVA Institute of Cardiology Circle. The appellant-construction Corporation, a public undertaking wholly owned by the Government of Uttar Pradesh and incorporated under the provisions of the Indian Companies Act, 1956, was set up in the year 1973 and since then, it has been known for specialised work in the field of construction of bridges, hydraulic and other structures and over the years built up a reputation and has to its credit, construction of bridges of national importance and also several projects in other countries. The appellant's response to the tender was accepted by the BDA and as a consequence, the BDA entered into a comprehensive contract of agreement with the appellant-Corporation as per agreement dated 27-1-2003 (Annexure-G ). As per the contract of agreement, the appellant was required to construct a grade separator near Mico Layout Junction (Jayadeva Institute of Cardiology), Bangalore. This agreement was followed by Work order dated 1-2-2003 as per Annexure-H. It was made clear in the said work order that the work of construction of grade separator near Mico Layout Junction has been entrusted to the appellant-Corporation at a total cost of Rs. 1,756. 59 lakhs and work was to comence on 1-2-2003 and the project to be completed on 31-5-2004. Likewise, in respect of construction of flyover at the intersection of airport Road and intermediate ring road junction, the BDA entered into an agreement with the appellant on the very same day i. e. , 27-1-2003 and pursuant to the same, work order dated 1-2-2003 as per annexure-Gl was issued and the work of construction of the flyover was entrusted to the appellant at a total cost of Rs. 2,669. 43 lakhs. The date of commencement and the date of completion in respect of two work orders being one and the same i. e. , 1-2-2003 and 31-5-2004 respectively, the appellant commenced the work in right earnest on 1-2-2003. In the course of the work taken up by the appellant, it was felt by the appellant that the General Arrangement Drawing (GAD) given to it, by the BDA required certain modification and redoing, following redesigning of underwater portion and all these changes were necessitated due to the fact that when the work commenced, it was noticed that the water table was found at 2 metres from the ground level, instead of 4. 2 metres to 4. 8 metres from the original specification and in view of this major problem encountered by the appellant, substantial changes, in design and methodology were cited as per the letter dated 2-6-2004 (Annexure-J ). In the said letter, the appellant also sought for extension of time for the reasons, which were beyond its control. The BDA confirmed by its letter dated 7-9-2004 as per Annexure-K about the water table being met at 2 metres from the ground level and requested the appellant to submit modified drawing in respect of the flyover at Mico Layout Junction. Further correspondence between the parties continued with regard to various aspects of the work. The appellant also sought additional cost to the tune of Rs. 63. 61 lakhs for the extra
