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High Court Of Delhi
MARWAR TENT FACTORY - Appellant
Versus
UNION OF INDIA - Respondent
Decided On : 10/01/1973
CONTRACT - CLAUSES 18 AND 18A - INTERPRETATION - NO RIGHT TO ADJUDICATE - APPROPRIATION OF ADMITTED OR ADJUDICATED SUMS - NO SET-OFF OF UNASCERTAINED AMOUNTS - HEARING NECESSARY BEFORE CREATING LIABILITY - NO DEPRIVATION OF PROPERTY WITHOUT AUTHORITY OF LAW - WRIT MAINTAINABLE.
Fact of the Case:
The petitioner, a tent manufacturer, entered into a contract with the Union of India to supply tents worth Rs. 62,03,650. 00. After inspection and acceptance of the tents, 95% of the agreed purchase price was paid to the petitioner. The balance 5% was also paid after receipt of the consignments by the consignee. After a lapse of over two years, the Director General of Supplies and Disposals demanded Rs. 92,363. 00 as compensation for breach of warranty of the contract, threatening to deduct this amount from any of the petitioner's pending or future bills. The petitioner challenged this demand by filing a writ petition.
Finding of the Court:
The court held that clauses 18 and 18a of the General Terms and Conditions governing the contract did not confer a right on the purchaser to adjudicate its claim for damages and convert it into a binding debt recoverable from the contractor. The court further held that the demand for Rs. 92,363. 00 was not a legally recoverable debt due from the petitioner and the threat to appropriate the amount of this demand from any pending or future bills of the petitioner was illegal. The court also held that the demand for Rs. 92,363. 00 was violative of the principles of natural justice as the petitioner was not given an opportunity to be heard before creating the liability against him.
Issues: 1. Whether clauses 18 and 18a of the General Terms and Conditions governing the contract conferred a right on the purchaser to adjudicate its claim for damages and convert it into a binding debt recoverable from the contractor? 2. Whether the demand for Rs. 92,363. 00 was a legally recoverable debt due from the petitioner? 3. Whether the threat to appropriate the amount of this demand from any pending or future bills of the petitioner was illegal? 4. Whether the demand for Rs. 92,363. 00 was violative of the principles of natural justice?
Ratio Decidendi: 1. Clauses 18 and 18a of the General Terms and Conditions governing the contract did not confer a right on the purchaser to adjudicate its claim for damages and convert it into a binding debt recoverable from the contractor because: - A claim for payment of a sum of money as compensation or damages is a mere right to sue for a certain amount and is not a debt due from the contractor. - The purchaser had no power to adjudicate its claim for damages and convert it into a binding debt recoverable from the contractor. - To read the power to adjudicate to be implicit in the clause would be to constitute the purchaser a Judge in its own cause, which is against the canons of interpretation and contrary to the basic principles of natural justice. 2. The demand for Rs. 92,363. 00 was not a legally recoverable debt due from the petitioner because: - A claim for damages raised by the purchaser is not a debt or sum legally recoverable or due as much from the contractor. - Clause 18 does not carry, by implication, a right or power for the purchaser to authorise it to quantify the damages if the contractor disputes the claim raised against it. 3. The threat to appropriate the amount of this demand from any pending or future bills of the petitioner was illegal because: - The respondents could not create a demand for Rs. 92,363. 00 against the petitioner in the sense of being a legally recoverable debt due from it. - The demand, if intended to be binding and operative against the petitioner, is violative of the principles of natural justice as the petitioner was not given an opportunity to be heard before the issuance of the impugned demand. 4. The demand for Rs. 92,363. 00 was violative of the principles of natural justice as the petitioner was not given an opportunity to be heard before creating the liability against him.
Final Decision: The court quashed the impugned demand for Rs. 92,363. 00 and the direction to the Pay and Accounts Officer to deduct this amount from any pending or future bills of the petitioner. The court also held that this shall not prevent the respondents from having their claim for damages, if any, referred to in this letter, duly assessed and quantified in accordance with law and then enforce recovery and payment of the amount adjudged to be due to them from the petitioner by resorting to clauses 18 or 18a.
( 1 ) THE petitioner (in CW 357/71) claims to be a tent manufacturer on the approved list of contractors of the Directorate General of supplies and Disposals, Govt, of India. In pursuance of the acceptance of tender dated March 13, 1968 the petitioner agreed to supply tents of a total cost of Rs. 62,03,650. 00 of the agreed apecifications and quality to the Union of India. According to the terms and conditions of the contract, 95 per cent of the agreed purchase price of the tents was to be paid after inspection and acceptance of the same by the inspecting Officer and on proof of their despatch. The balance 5 per cent was to be paid after their receipt in good good condition by consignee. Petitioner supplied total contracted quantity in nine consignments, tendered for inspection during the months of June, July, August and September, 1968. All the consignments were inspected by the Inspecting Officer and accepted. On proof of their despatch 95 per cent of the price was paid to the petitioner. The balance 5 per cent was also paid to it after receipt of the consignments by the consignse on the basis of three certificates issued by the consignee in September, 1968 that they were received in good condition. After a lapse of over two years, thereafter, by letter dated March 9, 1971 the Director General of Supplies and Disposals, New Delhi called on the petitioner to pay a sum of Rs. 92,363. 00 as compensation for breach of a warranty of the contract. Failing payment, the letter said, the Pay and Accounts Officer, New Delhi will be asked to deduct this amount from any of the petitioner s pending or future bills. The petitioner has prayed for the quashing of this letter. The demand for Rs. 92,363. 00 and the threat to deduct this amount from the pending or future bills, the petitioner maintains, is wholly illegal and without jurisdiction and amounts to deprivation of his property without the authority of law. The petitioner also contends that he was never heard before creating the liability against him and the threat to deduct this amount from the other monies due and payable to it "being penal in nature" is liable to be quashed.
( 2 ) IN the counter affidavit, the respondents maintain that the writ petition is not maintainable as Article 226 of the Constitution cannot he invoked in the matter of determination of rights and obligations of the parties arising out of contract. On merits it is urged that the tents when received by the consignees were not found to be of the specifications governing the supplies and the respondents were within their rights to set off their dues and adjust the same from the pending and future bills of the petitioner under clauses 18 and 18a of the agreed General Terms and Conditions which governed the contract. The demand for the payment of Rs. 92,363. 00 is maintained to be perfectly legal and in order.
( 3 ) THE preliminary objection as to maintainability of the writ petition cannot be decided in the abstract. Before dealing with this question, we, therefore, advert to the con- tentions that need to be examined on merits.
( 4 ) IT is admitted between the parties that General Terms and Conditions govern the contract is question. Clause 18 of these terms reads as under :
18. RECOVERY OF SOME 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. It 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 purch
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