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1978 Supreme(J&K) 29
IN THE HIGH COURT OF JAMMU AND KASHMIR AT JAMMU
I.K. Kotwal,Gh. Mohammad Mir, JJ.
Union Of India - Appellant
Versus
S. Kesar Singh - Respondent
LPA No. 18/1977
Decided On : 17 May, 1978
Advocate For Appellant: V.S. Malhotra
Advocate For Respondent: S.P. Gupta
The cancellation of a contract without any justification is illegal and the contractor is entitled to compensation for the breach of contract.
Headnote:
CONTRACT - Cancellation of contract - Unilateral cancellation - Measure of compensation - Arbitration clause - Applicability of O.2 R.2 C.P.C. - Limitation - Interest.
Fact of the Case:
The respondent, a contractor, entered into a contract with the appellants, the Government of India, to supply charpoys to the Army. The contract was later cancelled by the appellants without any justification. The respondent filed a suit for damages for breach of contract, refund of security deposits, payment of balance price of charpoys supplied, interest on the amount illegally withheld by the appellants, and expenses incurred during arbitration proceedings.
Finding of the Court:
The court held that the cancellation of the contract was illegal and unjustified. The court also held that the respondent was entitled to claim compensation for the charpoys yet to be delivered by him according to the profit he would have earned in the event of delivery being complete, refund of his security deposit, payment of balance price of the charpoys supplied, interest on the amount illegally withheld by the appellants, and costs of arbitration proceedings.
Issues: 1. Whether the cancellation of the contract was legal and justified? 2. Whether the respondent was entitled to claim compensation for the charpoys yet to be delivered by him according to the profit he would have earned in the event of delivery being complete? 3. Whether the respondent was entitled to refund of his security deposit? 4. Whether the respondent was entitled to payment of balance price of the charpoys supplied? 5. Whether the respondent was entitled to interest on the amount illegally withheld by the appellants? 6. Whether the respondent was entitled to costs of arbitration proceedings? 7. Whether the suit was barred under O.2 R.2 C.P.C.? 8. Whether the suit was barred by limitation?
Ratio Decidendi: 1. The court held that the cancellation of the contract was illegal and unjustified because the respondent had not failed to make supplies within a reasonable time and the contract was not cancelled on that account. 2. The court held that the respondent was entitled to claim compensation for the charpoys yet to be delivered by him according to the profit he would have earned in the event of delivery being complete, as the measure of compensation for breach of contract is the difference between the contract price and the actual price of the goods. 3. The court held that the respondent was entitled to refund of his security deposit as the appellants had no right to forfeit the same. 4. The court held that the respondent was entitled to payment of balance price of the charpoys supplied as the appellants had no right to withhold the same. 5. The court held that the respondent was entitled to interest on the amount illegally withheld by the appellants as he had been deprived of the use of his own money and thereby wrongfully withhold the same to his detriment. 6. The court held that the respondent was not entitled to costs of arbitration proceedings as the arbitration clause did not survive the cancellation of the contract. 7. The court held that the suit was not barred under O.2 R.2 C.P.C. as the cause of action in the earlier suit and the present suit was not the same. 8. The court held that the suit was not barred by limitation as the period between the commencement of arbitration proceedings and the award being set aside by the court had to be excluded in computing the period of limitation.
Final Decision: The appeal was dismissed with costs.
1. This appeal under the Letters Patent is aimed at oversetting the judgment of a learned Single Judge of this Court, whereby he has passed a decree in the amount of Rs. 91,727/- in favour of the respondent against the appellants with costs. The facts which have led to the filling of this appeal may be briefly recounted as below.
2. In response to a tender notice issued by the Chief Engineer Western Command, Simla, the respondent offered to supply 14,439 Charpoys fitted with mosquito not frames with gutties and clumps at the rate of Rs. 19/- per charpoy for the use of troops stationed in Jammu. This offer was accepted by the Chief Engineer Western Command on 8-12-1956 and a deed of contract came to be executed between the President of India and the respondent, according to which, the entire supply was to be completed by 31-12-1957. The respondent had supplied only 2045 charpoys, when on 21-10-57 further work was suspended by the Engineer-in-charge vide a notice sent by him to the respondent in terms of clause 6 of the agreement. This was followed by another notice issued by the Officer Commanding 969 Works Section on 31-3-1958 informing the respondent that the remaining charpoys were to be supplied by him without mosquito not frames at a rate less by Rs. 4.33 from the rate already fixed per charpoy and calling upon him to indicate whether these terms were acceptable to him. The respondent, in reply thereto, even though questioned the right of the Officer Commanding to make the proposed deviation in the terms of the contract, yet offered to supply the remaining charpoys without mosquito not frames, but only at a rate to be reduced by Rs. 1.50 per charpoy instead of Rs. 4.33 as suggested by the Officer Commanding, The contract was ultimately cancelled with effect from 29-5-1958 by the Headquarters Western Command Engineers Simla Branch by a notice dated 22-5-1958 sent to the respondent in terms of clause 28 of the agreement and the respondent was further told that the supply according to the contract would be completed through other sources at his cost. The respondent without losing much time filed a suit for perpetual injunction of 31-5-1958 against the appellants and others in the court of Sub Judge, Jammu, restraining them from carrying out the work either departmentally or through other agency and further directing them to accept the supplies from the respondent in terms of the agreement. The defendants, it appears, made an application under Section 34 of the Arbitration Act for staying the proceedings in the suit in terms of clause 36 of the agreement which made provision for arbitration. The court trying the suit vide its order dated 16-8-1958 stayed the suit and allowed the parties to refer their disputes to an arbitrator. Thereafter, the disputes were referred to the sole arbitration of one M. L. Baheja who entered upon the reference and ultimately made this award on 19-4-1963. The award favoured the appellants. Consequently an application to make the same a rule of the court was moved by the appellants in the High Court. A learned Single Judge of this Court (J. N. Bhat J), who heard the application as well as the objections to the award filed by the respondent. Eventually set aside the award on 29-3-1966. The appellants challenged the order of the learned Single Judge in a Letters Patent appeal but without any success and the appeal was dismissed by a Division Bench of this Court on 9-5-1968.
3. The present suit was brought by the respondent on the plea that the appellants had no right to vary the terms of the contract unilaterally and cancel the same on the failure of the respondent to agree to the terms proposed by them as the contract was not a lump sum contract within the meaning of clause 5 of the agreement. He also alleged that he was always ready to make the supplies in accordance with the terms of the contract and the work orders issued thereunder from time to time but the department did not accept
