F.A.C.T. Engineering Works vs Kerala Industries

S. Sankarasubban, J.—This appeal is filed by the defendant in O.S. No.156 of 1988 on the file of the Additional Sub Court, Ernakulam. The suit was filed by the present respondent. The respondent had entered into a contract with the appellant for the work of fabrication, erection, testing and calibration of roof storage tanks at Cochin Refineries Ltd. The suit was field on the ground that even though the respondent completed the work as per the terms of the contract, the appellant had illegally recovered a sum of R s. 1,86,548.12 as liquidated damages from the final bill amount due to the plaintiff. The respondent/ plaintiff sought for a declaration that the appellant is not entitled to levy any liquidated damages on account of the performance of the contract on the ground that there was no breach of contract on his part. The plaintiff also claimed for recovery of certain amounts, which were withheld by the appellant, on various heads like shortage in stock, cost of diesel, etc. The total claim comes to Rs.1,06,600 under the different claims.;

The appellant/defendant field a written statement and contended that as per the agreement between the parties, time was the essence of contract and the plaintiff had undertaken to complete the work within five months from the date of receipt of the letter of intent or from the date of release of work front. The letter of intent was issued to the plaintiff on 13th September, 1983 and the work front for the first tank was released on 13th September, 1983 and the work front for the second tank was released on 30th December, 1983. The plaintiff could not complete the work within the agreed time and the time was extended to 23rd April, 1984. The plaintiff completed the work only on 16th March, 1985, after 11 months from the stipulated date for completion of the work causing irreparable loss and injury to the defendant. According to the appellant, since the plaintiff committed breach of contract by not completing the work within the stipulated time under clause 9.4.1. of the work order, the defendant was entitled to collect compensation and liquidated damages to an extent of 1/2 per cent of the total order value of contract for every week or part thereof, that the work may remain incomplete beyond the time schedule agreed by the parties or subsequently revised, subject to a maximum of 10 per cent of the total order value. In accordance with Clause 9.4.1 of the contract the defendant recovered a sum of Rs. 1,86,458.12 from the plaintiff.

On the basis of the above pleadings, the court below raised as many as eight issues. The Court below gave a declaration that the defendant was not entitled to levy liquidated damages and then gave a decree for recovery of an amount of Rs.1,06,600. It is challenging the above decree that the present appeal is filed.

No Cross, Appeal or separate appeal has been filed by the plaintiff. Issues 2 and 3 are, whether the delay in completion of the work was caused due to the lapses of the defendant? And whether the defendant is entitled to invoke the liquidated damage cause? So far as issue Nos. 4 to 6 are concerned, they found against the plaintiff and hence, it is not necessary for us to consider that issues. No. 7 is whether the plaintiff is entitled to the declaration sought for?

Learned counsel for the appellant submitted that Clause 9.4.1 of the conditions of contract enables the appellant to realise liquidated damages, from the plaintiff in case the contract was not completed in time. According to the defendant, the work was not completed in time by the plaintiff, while the plaintiff would contend that there was no breach of contraction his part. It is also admitted an amount of Rs.1,86,458.12 has been withheld by the defendant on ground that it was the amount with regard to the liquidated damages due to the defendant. The first attack made by the learned counsel for the appellant is that the declaration prayed for is not maintainable and that no proper court fee has paid for the recovery of Rs. 1,06,600. According to the learned counsel for the appellant, under S. 34 of the Specific Relief Act, a suit for mere declaration will not lie. What it prayed for in the case is for a declaration that he defendant is not entitled to levy an liquidated damages.According to the counsel, the should have been further relief prying for refund of the amount, which had been withheld by the appellant as liquidated damages. Further, it is stated that in the plaint, the relief is valued at Rs. 300 under S. 25(d)(ii) of the Kerala Court Fees and Suits Valuation Act, This valuation is not correct. Further argument of the learned counsel for the appellant is that the court below was not correct in holding that he defendant file a separate suit and prove that it had incurred loss by the breach of contract on the part of the plaintiff. Learned counsel contended that the plaintiff has come with the suit for a declaration that the defendant is not entitled to levy liquidated damages. Counsel further contended that the view of the court below that it is only on the further termination of the work that the liquidated damages can be recovered by the defendant is not correct. Another argument made by the learned counsel for the appellant is that the court free was paid for Rs.1,06,600. This amount was claimed under various heads. This has not relation with the liquidated damages. These reliefs were denied by the court below. But the court granted a decree for Rs.1,06,600 without any prayer and without any court fee being paid there on.

Learned counsel for the respondent/plaintiff contended that evidence in this case will show that there was no breach of contract on the side of the plaintiff. Further, it is stated that even if there breach of contract, it was incumbent on the side of the defendant that even if there is breach of contract, it was incumbent on the side of the defendant to prove in a court of law and then only recover the damages, So far as the contention raised regarding the declaration is concerned, learned counsel for the respondent contended that S. 34 of the Specific Relief Act is not exhaustive. There can be suit for declaration or other claims other than those mentioned in S. 34 of the above Act. Further learned counsel contended that a reading of the pleadings will show that what the plaintiff had pleaded was for a declaration that the levy of liquidated damages is illegal and for recovery of the amount, which was withheld as liquidated damages. Learned counsel further contended that the court fee paid is correct.

The first question to be considered is with regard to the nature of the declaration made by the plaintiff. In paragraph 20 of the plaint, it is stated as follows:" It is therefore, submitted that whatever delay in completion of work as occurred, has been occasioned due to the lapses of the defendant in affording facilities for the work and meeting its reciprocal obligations of the contract whereas on payment of final bill large amounts have been recovered under the pretext of liquidated damages. It is submitted that the defendant has not properly accounted for the delay caused by he defendant nor invoked the liquidated damages clause at the appropriate time as required as per the extent provisions of law. It is also submitted that the defendant has not suffered any loss particularly since the defendant was doing the work for Cochin Refineries Limited and Cochin Refineries Limited has never imposed any liquidated damages on the defendant on account of delay if any execution of the work and as such there is no reason for any recovery towards alleged compensation by way of liquidated damages." In paragraph 21 of the plaint, the plaintiff further submits that the plaintiff has not caused fro any delay in the execution of the work nor caused any loss to the defendant, if at all delay has been caused assuming but not conceding. It was also submitted that so long as there is no loss occasioned by he plaintiff to the defendant, as per the extent provisions of law, the plaintiff cannot be mulcted with any liability thereof, the other had the defendant is liable for the loss the plaintiff had to sustain on account of doing the work in the period beyond that originally stipulated and consequent extra expenditure, loss on account of idling of plaintiff''s establishment and loss on account of reduced outturn retaining the establishment for long time that originally stipulated. The defendant has recovered an amount of Rs.1,86,458.12 which the plaintiff''s entitled to and claims to be released and paid by the defendant. Paragraphs 22 to 25 deal with the other claims of the plaintiff which according to the plaintiff, had been illegally recovered by the defendant. In paragraph 26 of the plaint, the plaintiff stated that the plaintiff had repeatedly requested for settlement of plaintiff''s account and claims as detailed above, however in vain. The plaintiff therefore, ultimately caused a notice through advocate to the defendant. In reply, the defendant has only chosen to refuse the claims of the plaintiff, even though certain facts were admitted. In relief reliefs (i) to (iv) deal with individual claims. Relief No. (v) deals with declaration. Relief N. (vi) prays for the grant of interest and relief No. (vii) prays for grant of cost. A reading of paragraphs 20 and 21 of the plaint along with the reliefs would show that what the plaintiff had actually wanted was a declaration that levy of Rs.1,86,458.12 as liquidated damages is illegal as there was violation of the terms of the contract by the defendant. So are as the relief of declaration is concerned, it is now trite law that "S. 42 merely gives statutory recognition is well-recognised type of declaratory relief and subject it to a limitation, but it cannot be deemed to exhaust every of declaratory relief or to circumscribe the jurisdiction of courts to give declarations of right in appropriate cases falling outside S. 42" wide Veruareddi Ramaraghava Reddy and Others Vs. Konduru Seshu Reddy and Others, Thomas, J. in the decision reported in Ashok Kumar Srivastav v. National Insurance Company Ltd. and Ors. (1984) 4 SCC 361 held as follows: "The position remains the same under the present Act also. Hence the mere fact that a suit which is not maintainable under S. 34 of the Act is not to persist with its disability of non-admission of civil courts even outside the contours of Chapter II of the Act. S. 34 is enough to open the corridors of civil courts to admit suits field for a variety of declaratory reliefs." Thus, according to us, a suit for declaratory relief is maintainable. According to us, the prayer made in the sit in conjunction with paragraph 20 and 21 makes it clear that the plaintiff wants a declaration to the effect that imposition of liquidated damages is illegal and for recovery of the amount withheld on the basis. But now the court fee paid is not correct The plaintiff has paid court fee only under S. 25(d)(ii) of the Kerala Court Fees and Suits Valuation Act. S. 25 of the Kerala Court Fees and Suits Valuation Act deals with suits for declaration. Here, the plaintiff has valued the suit as though it is not capable of valuation. According to us, this will come under S. 25(d)(i) of the above Act, which states s follows:"where the subject -matter of the suit is capable of valuation, fee shall be computed on the market value of the property". As already stated, the plaintiff has virtually prayed for recovery of Rs.1,86,458.12 and hence, he ought to have paid court fee for that amount. Without paying the court fee this should not have been considered by the court below.

The next question to be considered is as to whether the defendant is entitled to withhold Rs.1,86,458.12 as liquidated damages. Issue N. 2 raised in this case is whether the delay in completion of the work was caused due to the lapses of the defendant? Issue No.3 is whether the defendant is entitled to invoke the liquidated damage clause? The court below took the view that issue No.2 need not be decided in this case, because the defendant can recover liquidated damages only after establishing before a court of law that the plaintiff has committed breach of contract. Unless such a suit is filed, the court below of the view that it cannot be raised in the present suit. We are not able to follow the reasoning of the court below. Here is a case where the plaintiff has approached this court praying for recovery of the amount, which has been detained by the defendant on the ground that it is liquidated damages. The defendant is entitled to levy liquidated damages only if there is breach of contract by the plaintiff. It is not necessary for the defendant to file a suit to establish hat he plaintiff has committed breach of contract. In a situation like in the present case, the plaintiff has come for recovery of the amount. Hence issue No.2 ought to have been considered by the court below. Issue No.3 has been omitted to be considered by the court below for reasons stated above with regard to issue No.2. According to us, the view expressed by the court below is not correct. After having found that it is not going to decide issue Nos. 2 and 3, it has given a decree for Rs.1,06,600 to the plaintiff without court fee being paid there on. Actually, the amount of liquidated damages is Rs.1,86,458.12. Since, no court fee had been paid and since issue Nos. 2 and 3 had been framed in the suit, the court below went wrong in ordering Rs.1,06,600 without deciding issue Nos. 2 and 3. Hence, we set aside the decree granted by the court below in favour of the plaintiff recovery of Rs.1,06,600.

Learned counsel for the plaintiff then urged that it was on the wrong understanding that the below held hat issue Nos. 2 and 3 need not be decided and hence, the case should be remanded to the trial court for decision on issue Nos. 2 and 3. At this juncture, learned counsel for the appellant submitted that since liquidated damages had been specified in the contract itself the appellant has every right to appropriate the amount specified as liquidated damages without any further adjudication. Learned counsel cited a decision of the Supreme Court reported in Sir Chunilal V. Mehta and Sons, Ltd. Vs. The Century Spinning and Manufacturing Co., Ltd., wherein it is stated that once the amount is specified as liquidated damages, the party who is entitled to the same is entitled to appropriate the amount. Learned counsel for the respondent then submitted that as per the Indian Law of Contract, even if an amount is specified as liquidated damages, the person who is entitled to the same has prove that he has suffered loss and the amount of loss has to be determined. The maximum amount that can be paid is liquidated damages mentioned in the contract. Learned counsel relied on the decisions in Fateh Chand Vs. Balkishan Das, and State of Kerala v. United Shippers and Dredgers 1982 KLT 738 Learned counsel also relied on a Supreme Court decision reported in Union of India (UOI) Vs. Raman Iron Foundry, .Recently, this Bench held in A.S. Nos. 66 and 367 of 1991 that even though a certain sum is mentioned as liquidated damages, the party, who is entitled to the same, can recover only so much of the amount has been suffered as loss. In this case, we find that no oral evidence has been adduced. Even though in the plaint, the plaintiff has complained that the defendant has committed breach, the defendant in the pleading put the blame on the plaintiff. Further, documentary evidence has been adduced. But no oral evidence has been adduced to sow that he breach was on the part of the plaintiff or the defendant and there is also no evidence to show regarding the actual loss suffered by the defendant. As a matter of fact, the defendant in paragraph 21 of the written statement has stated that the defendant has always extended all co-operation and help and has even gone out of the way of the terms of contract in extending a helping hand by offering facilities so as to see that the work is completed at the earliest. Due to the prolongation of the work the defendant had to engage additional supervisory staff and had to suffer extra over-heads for which plaintiff alone is answerable. The fact that the Cochin Refineries Limited did not recover or claim any liquidated damages from the defendant is beside the point. Liquidated damages fixed by the contract ha.s no reciprocity with any claim of liquidated damages by the Cochin Refineries. As the defendant had suffered loss due to the negligence and delay on the part of the plaintiff it was only lawful for the defendant to recover liquidated damages as per the contract. We find, no evidence has been adduced by both parties on this aspect. Learned counsel on both sides requested for affording them an opportunity to adduce evidence regarding issue Nos. 2 and 3. After our anxious consideration, we are of the view that interest of justice requires that both the parties should be given an opportunity to adduce further evidence on this question. We do so on the following conditions.

The suit is remanded for consideration of issue Nos. 2,3 and 8 by the court below on condition that the plaintiff values the relief of declaration at Rs.1,86,458.12 and pays courts fee on the same within the time to be fixed by the court below. The parties shall appear in the court below on 18th June 2001. In case, the valuation is not made as above and court fee is not paid within the time fixed by the court below, then the suit shall liable to be dismissed. If the court fee is paid, then both the parties, shall be allowed to adduce evidence on issue Nos.2 and 3 and after hearing the parties, the court shall be dispose of the suit.

In the result, is allowed. The judgment and decree of the court below granting an amount of Rs.1,06,600 to the plaintiff are set aside.