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1999 Supreme(Mad) 84
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE K. SAMPATH
K.N. Keerthi Rao
Versus
The General Manager, Southern Railways, Madras-3 and another.
S.A. No. 1402 of 1986
Decided On : 30-01-1999
Mr.M.V. Venkataseshan, Advocate for Appellant. Mr.P.B. Krishnamurthy, Advocate for Respondents.
The execution of an agreement is a condition precedent to the formation of a contract, and in the absence of a concluded contract, there can be no claim for damages or forfeiture of security deposit.
Headnote:
CONTRACT - Formation - Execution of Agreement - Whether execution of agreement is a condition precedent to the formation of a contract - Whether there was a concluded contract between the parties - Whether the railway administration was entitled to forfeit the Earnest Money Deposit (EMD).
Fact of the Case:
The appellant, a registered contractor, submitted a tender for repair works to railway quarters. The railway administration accepted the tender and directed the appellant to furnish security and commence work within specified timeframes. The appellant acknowledged the communication and requested the administration to prepare an agreement for the work. However, the appellant later wrote to the administration stating that he was withdrawing his tender as the administration had not prepared the agreement. The administration responded that the agreement was ready for execution and that the appellant had commenced work. The appellant denied commencing work and reiterated that there was no concluded contract as no agreement had been executed. The administration sent a letter rescinding the contract and forfeiting the security deposit. The appellant filed a suit for a declaration that the letter was illegal and for a permanent injunction restraining the administration from taking any action in pursuance of the letter.
Finding of the Court:
The trial court decreed the suit in favor of the appellant, holding that there was no concluded contract between the parties and that the administration was not justified in forfeiting the EMD. On appeal, the lower appellate court reversed the decision, holding that there was a concluded contract and that the administration was entitled to forfeit the EMD.
Issues: 1. Whether there was a concluded contract between the parties on the facts and circumstances of the case. 2. Whether the lower appellate court was right in holding that the defendants were entitled to forfeit the entire sum of Rs.22,069.
Ratio Decidendi: 1. The court held that there was no concluded contract between the parties as the execution of the agreement was a condition precedent to the formation of a contract. The mere acceptance of the tender without the execution of the agreement did not amount to a concluded contract. 2. The court held that the railway administration was not entitled to forfeit the EMD as there was no concluded contract and the administration had not proved any loss occasioned by the alleged default on the part of the appellant.
Final Decision: The second appeal was allowed, setting aside the decision of the lower appellate court and restoring the judgment of the trial court.
.1. The plaintiff in O.S.No.2962 of 1982 on the file of the XIV Asst. City Civil Judge is the
.appellant. He filed the suit for a declaration that the letter dated 13. 1982 marked as Ex.A13 in the suit sent by the respondents was illegal, null and void and against the principles of natural justice and therefore not sustainable in law and for a permanent injunction restraining them and their men from taking any action in pursuance of the said letter on the following averments:
.2. The appellant was a registered contractor with Southern Railways for doing certain repair works to leaky roofs in Perambur Railway Quarters. He submitted his tender on 13. 1981 in the prescribed form to the respondents and on 24. 1981 under Ex.A4 the Divisional Railway Manager wrote to the appellant that his tender had been accepted. The appellant was directed to furnish security within 7 days therefrom in a sum of Rs.22,069 and he was further requested to commence the work within 7 days and to attend the office of the respondents to sign the agreement within 14 days as per the conditions of the tender document. Under the original of Ex.A5 letter, the appellant acknowledged the receipt of the communication Ex.A4 and also requested the railway administration to take the security deposit amount from the running bills. He further requested the administration to prepare an agreement for the work and intimate as early as possible. On 28. 1981 under the original of Ex.A6 the appellant wrote to the railway administration stating that though he performed his part of the contract the railway administration did not prepare the agreement and keep the same ready for execution and without the said agreement he could not proceed with the work and that he was withdrawing his tender as the railway administration did not act as per the terms of the tender document. Thereafter the railway administration sent a reply under Ex.A7 on 4/9. 1981 stating that the administration prepared the agreement and kept the same ready for execution by the appellant long ago and in fact information was sent to the appellant in that regard through his agent one Gopal but the appellant did not come and sign the agreement, that there was no breach committed by the railway administration of the terms of the tender document. It was further stated that the contract between the parties had been validly concluded on 24. 1981 itself under Ex.A4 and the execution of agreement was only a formality. It was further stated in the communication that the appellant commenced the work but did not proceed further. He was directed to resume the work immediately. Under the original of Ex.A8 dated 10. 1981 the appellant reiterated that the railway administration did not perform its duty in preparing the agreement and keeping the same ready for execution by him. The appellant did not go to the railway office and execute the agreement nor did he restart the work. By Ex.A13 dated 13. 1982 the railway administration rescinded the contract and forfeited the security deposit amount of Rs.22,069. The appellant objected to this letter and to the forfeiture of the security deposit and after issue of notice under the Original Ex.A5 filed the suit for the reliefs already mentioned.
3. The substance of the respondents defence was that the execution of the agreement was only a formality to be observed by the parties and the contract had already been concluded between the parties on 24. 1981 itself under Ex.A4. As the appellant committed breach of agreement the letter dated 13. 1982 was sent to the appellant rescinding the contract and forfeiting the security deposit. The letter was perfectly valid and it could not be questioned on any acceptable principle of law. No relief could be granted to the appellant. The suit was liable to be dismissed.
4. The appellant filed a rejoinder denying the various averments in the written statement of the respondents and reiterating the plaint averments and contending t
