The judgment establishes that contracts made in the exercise of executive power must comply with Article 299 of the Constitution of India. It also emphasizes the importance of fairness in State actions in contractual obligations.

Tejinder Singh Dhindsa, J.

The present judgment shall decide R.S.A. No. 1660 of 1989 titled as State of Haryana through Executive Engineer, Haryana, P.W.D. Public Health Division, Kurukshetra Vs. Sh. Chaman Lal Mukhija and R.S.A. No. 534 of 1990 titled as Sh. Chaman Lal Mukhija Vs. State of Haryana through Executive Engineer, Haryana, P.W.D. Public Health Division, Kurukshetra as both the second appeals emanate from the common judgment dated 27.2.1989 passed by the Additional District Judge, Kurukshetra.

The State of Haryana through Executive Engineer, P.W.D. Public Health Division, Kurukshetra, plaintiff instituted a suit against Sh. Chaman Lal Mukhija, defendant for recovery of Rs.2,13,912.89 ps. It was pleaded that the State of Haryana through the Executive Engineer invited tenders for execution of a sewerage scheme for Thanesar Town at an estimated cost of Rs.4 lacs. The defendant had submitted his tender, the same was accepted and such acceptance was conveyed through letter dated 20.11.1973. As per plaintiff a valid contract thus came into existence. For executing the work the bricks were to be supplied by the department at the control rate prevailing in January, 1973 and the date of commencement of work was fixed as 11.2.1974 and the same was to be completed within one year of its commencement. It was pleaded that the defendant did not start the work and rather insisted that the permit of bricks as per control rate be supplied to him as for a certain period i.e. in the months of February/March, 1974 bricks could not be made available at the control rate, accordingly, the defendant had been informed that he could arrange for the same from the open market and the department would make the extra payment i.e. to make good the difference in market price and the control rate. Still, the defendant did not commence the work. Thereafter, the department having arranged bricks at the control rate informed the defendant vide letter dated 1.5.1974 but still the defendant avoided the performance of his part of the contract. It was pleaded that the Executive Engineer had been authorized to levy compensation up to 10% of the estimated cost of the work in the event of the contractor failing to carry on the work in time and as such vide order dated 25.6.1974 the Executive Engineer fastened a liability of Rs.40,000/-towards compensation on the defendant for intentionally not commencing the work which was equivalent to 10% of the estimated cost of work. Ultimately, on 23.8.1974 a decision was taken and conveyed to the defendant that the work in question was being withdrawn from him so as to be got executed from some other contractor or agency. Accordingly, fresh tenders were invited and the work was allotted to one Gian Chand, who executed the work at a cost of Rs.3,95,864.30 ps. It was pleaded that the cost of work at the rates that had been offered by the defendant would have been Rs.2,99,164.41 ps. and as such the plaintiff State had incurred extra expenses of Rs.96,699.89 ps and for which the defendant was liable to pay such amount. The defendant had deposited Rs.8,000/- towards earnest money/security at the time of submission of tender and such amount had been adjusted against the compensation of Rs.40,000/- that had been levied by the Executive Engineer. Resultantly, a sum of Rs.32,000/- as balance amount of compensation and Rs.96,699.89 ps. by way of damages i.e a total sum of Rs.1,28,699.89 ps. was due and recoverable from the defendant. The plaintiff-State further prayed that it was entitled to interest @ 12% per annum on the compensation amount of Rs.32,000/-w.e.f. 25.6.1974 and on the damages amount of Rs.96,699.89 ps from the date the final bill had been submitted by Gian Chand i.e. 13.12.1976 till the filing of the suit. The interest as per State was quantified to be Rs.85,213/- and resultantly the suit for recovery of a total sum of Rs.2,13,912.89 ps had been instituted.

The defendant contested the suit raising the plea