DDA vs M.S. Satna Cement Works and Others

V.K. Jain, J.

IA No. 6410/2006 (by Defendant No. 1 under Order VII Rule 11 CPC)

This is an application under Order VII Rule 11 CPC for rejecting the plaint.

The plaintiff has filed this suit for recovery of Rs. 33,65,599/-. It is alleged in the plaint that the Defendant No. 1, which is a Unit of Defendant No. 2 entered into an Agreement with the plaintiff for supply of 75,000 MT of non levy cement with 10% deviation. Under the Agreement, the supply was to commence on 10.5.1985 and was to be completed by 9.11.1985. It is further alleged that the Defendants, however, commenced supply only in July, 1985 and the last supply was made in February, 1987.

Clause 2 of the Agreement between the parties provides as under:

The time allowed for carrying out the supply and the dates of delivery of the materials mentioned in the tender shall be strictly observed by the contractor and shall be deemed to be of the essence of the contract and the contractor shall deliver the materials on or before the dates mentioned in the tender. Should the contractor fail to delivery the materials on or before the stipulated dates, he shall pay as agreed liquidated damages, and not by way of penalty, an amount equal to one per cent or such smaller amount as the Suptdg. Engineer, DDA (whose decision in writing shall be final) may decide on the amount of the estimated cost of the whole work as shown in the tender for every day that the contractor shall exceed the time of the delivery and the delivery of the materials may be in arrears. Provided always that the entire amount of liquidated damages shall not exceed 10% (ten percent) of the estimated cost of the work as shown in the tender.

The legal proposition in the matter is well- settled. The Court while considering an application for rejection of the plaint can look into only the averments made in the plaint and the documents filed by the plaintiff. The defence taken by the Defendant is not to be considered while examining such an application and validity of the documents filed by the plaintiff also cannot be examined at this stage.

Admittedly, the plaintiff invoked arbitration clause contained in the Agreement on 18.3.1991 and an Arbitrator was appointed on 1.5.1991, to adjudicate upon the disputes between the parties. During pendency of the arbitration proceedings, the Executive Engineer of plaintiff/DDA referred the matter to Director (Material Management), whose decision was to be final and binding between the parties in terms of Clause 2 of the Agreement, to decide the amount of liquidated for late supply of the cement. The Arbitrator vide order dated 21.9.2005 took a view that the claim pertaining to Clause 2 of the Agreement was beyond the purview of arbitration. The Director (Material Management) had, in the meanwhile, vide his decision dated 31.8.2004 decided to levy compensation amounting to Rs. 924615 on the Defendants.

Now, the plaintiff has claimed the aforesaid amount of Rs. 9,24,615/- along with interest thereon from 18.3.1991 to 1.2.2005 at the rate of 18% per annum, amounting to Rs. 24,40,984/-.

The case of the Defendants in the application under consideration is that the case of the plaintiff being barred by limitation, the plaint is liable to be rejected. Their contention is that since the supply of cement according to the plaintiff was required to be completed by 9.11.1985, the cause of action for filing the suit arose on that date and the plaintiff could have filed the suit within three years from that date or at best within three years from 23.2.1987 when the last supply of cement was made by them to the plaintiff. Having been filed as late as on 17.1.2006 the suit, according to the Defendants, is clearly barred by limitation.

The case of the plaintiff with respect to limitation is two-fold. Its first plea is that they had no cause of action to file a suit for recovery of liquidated damages before 31.8.2004 when the damages were determined by Director (Material Management), the authority designated for this purpose vide Clause 2 of the contract. Its second contention is that since it had referred the claim for liquidated damages to the Arbitrator appointed on 1.5.1991, in terms of the arbitration clause contained in the Agreement, it had been prosecuting the proceedings before the Arbitrator, with due variance, in the belief that he had jurisdiction to entertain the claim for levy of compensation and therefore, it is entitled to benefit of Section 14 of the Limitation Act and the period during which the proceedings were pending before the arbitrator is required to be excluded while computing the period of limitation. This is also their case that it were the Defendants who had delayed the arbitration proceedings by first obtaining stay of the proceedings from the Civil Court at Satna, then by filing an appeal before the High Court of Madhya Pradesh and obtaining a stay order and thereafter by filing a petition in this Court for appointment of an Arbitrator.

A careful perusal of Clause 2 of the Agreement between the parties would show that the amount of the liquidated damages to be paid by the contractor to DDA was to be decided by the Superintending Engineer of DDA whose decision in this regard was to be treated final. The amount of liquidated damages could be one per cent, of the estimated cost of the late work, which in this case would mean price of the cement to be supplied by the Defendants, for each day the contractor exceeded the time of delivery or such smaller amount as the Superintending Engineer might decide. However, the total amount of liquidated damages was not to exceed 10% of the estimated cost of work, which in this case would mean 10% of the price of the cement to be supplied by the Defendants to the plaintiff.

Till the designated authority adjudicated on the amount to be paid by the plaintiff as liquidated damages ,there could have been no cause of action for the plaintiff to file any suit against the Defendants for recovery of liquidated damages. It is not as if the quantum of liquidated damages was fixed in the Agreement between the parties. Only the upper limit of the damages which could be awarded to the plaintiff was fixed under Clause 2 of the Agreement and the Superintending Engineer would have been well within his right to fix an amount smaller than 10% of the price of the goods to be supplied by the Defendants to the plaintiff. In fact, in this case, the amount of liquidated damages, fixed by Director (Material Management) of DDA was only 10% of the price of the goods to be supplied by the Defendants, though it could have been up to 10 times that amount.

Since the decision by the Director (Material Management), deciding the amount of liquidated damages payable by the Defendants to the plaintiff was rendered only on 31.8.2004, the prescribed period of limitation is to commence only from that date. The suit having been filed on 17.1.2006, within three years from that date is, therefore, well within time.

One plea taken by the Defendants is that even Director (Material Management) of DDA could not have levied liquidated damages on 31.8.2004, more than three years after the last date stipulated in the Agreement for supply of cement by the Defendants. However, while considering the application under Order VII Rule 11 of CPC, the Court is not called upon to decide this question and therefore, the question as to whether the suit has been filed within the prescribed period of limitation or not is to be decided on the assumption that Director (Material Management) was well within his right to levy liquidated damages on 31.8.2004.

The learned Counsel for the Defendants states that since the Defendants vide letter dated 13.2.1985 had written to DDA that they would not be responsible for any damage due to late supply of cement, due to non-availability of wagons and movement restrictions imposed by Railways and also due to natural calamity, labour strike and other constraints, they are not liable to pay any amount to the plaintiff towards liquidated damages. He further states that this letter was also made a part of the agreement between the parties.

At this stage, the Court cannot examine the defence taken by the Defendants. For the purpose of deciding this application, the allegations made in the plaint are to be taken as correct and on their face value. The case of the plaintiff, based on Clause 2 of the supply agreement is that time was the essence of the contract as expressly agreed by the parties and in the event of delay in supply of cement by the Defendants, they would be entitled to liquidated damages not exceeding 10% of the price of the material agreed to be supplied to the plaintiff. This is not the case of the Defendants in the written statement that delay in supply of cement occurred on account of non-availability of wagons, movement restrictions imposed by Railways, any natural calamity or labour strike. The case set up by them in the written statement is that the plaintiff was required to make 100% to the Defendants and since it failed to make payment, accordingly that led to delay in supply of material. In any case, the cause for the delay in supply of material is a question which can be adjudicated only during trial.

Since the plaintiff had no cause of action to file any suit for recovery of the amount of liquidated damages before 31.8.2004 when the decision of the Superintending Engineer came to be rendered, I need not go into the question as to whether the plaintiff is entitled to benefit of Section 14 of the Limitation Act on account of the proceedings which were pending before the Arbitrator from May, 1991 till 21.9.2005 and in which the plaintiff had also raised claim for liquidated damages against the Defendants.

I find no merit in this application and the same is hereby dismissed.

CS(OS) No. 415/2006

List for framing of issues on 10.3.2011.

IA No. 6409/2006

The learned Counsel for the Defendants does not press this application.

Dismissed as not pressed