The Chief Executive Officer, Zilla Panchayath vs Southern Marketing Agencies (Regd.)

Ravi V. Malimath, J.—The case of the plaintiff is that, it is a registered partnership firm carrying on the business in marketing and supply of food-grains to the various institutions including the Government Institution. First defendant is the Deputy Commissioner, Mysuru District, Mysuru and second defendant is a Chief Executive Officer, Zilla Panchayath, Krishnaraja Boulevard Road, Mysuru District who is controlling, over all the hostels being run by the Social Welfare Department for Backward Class and Backward Tribe community for supply of essential commodities like food grains, edible oils and such other items required. Second defendant had called for a tender for supply of those articles. In pursuance to the same, the tenders were received. The plaintiff also had submitted his tender. It was accepted and an agreement was entered into between the plaintiff and the defendants on 31.05.2003. The plaintiff has agreed to deposit the EMD amount of Rs. 1,68,948/- with terms and conditions to supply the essential commodities like food-grains every month within a week from the date of receipt of the indent. In pursuance to the agreement entered into between the plaintiff and the second defendant, the plaintiff started making supply of the essential commodities like food-grains every month and agreed to deliver the same to the spot as directed by the second defendant. As per the terms and conditions of the agreement, the plaintiff was supplying the food-grains and other material as and when it was being indented by the various institutions and the Receiving Officer who is incharge would make an endorsement acknowledging the receipt of goods and the condition of the goods. Thereafter, the plaintiff would prepare bills and submit the same for payment and on verification, the bills would be paid.

It is the further case of the plaintiff that, though the entire goods being ordered had been supplied, the entire amount was not paid by the second defendant. Infact, the plaintiff received part payments for the materials supplied for the months of June, July and August 2003 from the defendants and the balance amount has not been paid due to paucity of funds. The second defendant did not place the indent for the months of September, October, November and December 2003 and hence, the plaintiff did not supply the materials for the said periods. The plaintiff made an enquiry with the defendants. Defendant No. 2 informed him that a notice has been issued and the EMD has been forfeited for non-performance of the terms of agreement. The defendants denied the liability to return the EMD amount. Hence, the plaintiff filed the suit for recovery of Rs. 1,90,700/- with future interest at 12% per annum from the date of suit till realization of the EMD amount.

On service of suit summons, defendant Nos. 1 and 2 appeared before the Court. The second defendant filed the written statement contending that the suit is not maintainable as it is hit by Section 295 of the Karnataka Panchayat Raj Act, 1993 and that the plaintiff has to exercise his remedy under the said Act and that there is legal bar for the Civil Court to entertain the suit. Second defendant further contended that the plaintiff has not supplied good quality goods. Goods were not supplied within the stipulated time and the goods supplied were not the specified goods. Inspite of repeated request to the plaintiff to replace with good quality goods and the specified material in place of bad quality goods materials and non-specified goods materials, the same was not done by the plaintiff. Infact, the plaintiff had written a letter to the second defendant on 16.08.2003 stating that he would not supply food-grains to the college hostels, situated at Mysuru City and H.D. Kote and did not make any supply, since he has not received any payment and has thus violated the terms and conditions of the agreement. For all these grounds, it was pleaded that the forfeiture is just and proper and sought for dismissal of the suit.

Based on the pleadings, the trial Court framed the following issues:

"i) Whether the plaintiff proves that defendants have illegally confiscated the EMD amount of the plaintiff?

ii) Whether the defendants proves that the suit is bad for misjoinder of party?

iii) Whether the defendants prove that the suit is not maintainable for the reasons stated in para No. 4 of the written statement?

iv) Whether the plaintiff is entitled for the relief claimed in the plaint?

v) To what decree or order?"

In support of the case, the plaintiff examined himself as P.W. 1 and marked 63 exhibits. The defendants examined one witness and marked 20 exhibits. The trial Court answered Issue Nos. 1, 2 and 4 in the negative and Issue No. 3 in the affirmative. The suit was dismissed. Aggrieved by the same, the plaintiff filed an appeal before the First Appellate Court which set aside the Judgment and decree of the trial Court and decreed the suit partly by directing the second defendant to pay the EMD amount of Rs. 1,68,948/- within two months with interest at 6% per annum from the expiry of two months. Hence, the present second appeal by the second defendant.

By order dated 01.12.2011, the appeal was admitted to consider the following substantial questions of law:--

"i) Whether the findings of the Lower Appellate Court that the appellant/defendant has not proved the fact of Exs. D7 & D8 having been dispatched by RPAD, are perverse being contrary to the documentary evidence -Exs. D20(a) & D20(b)?

ii) Whether the judgment of the Lower Appellate Court reversing the judgment of the trial Court dismissing the suit of the respondent/plaintiff is perverse being contrary to the documentary evidence-Ex. D9 dated 26.09.2003, whereunder EMD amount was confiscated to the Government, though the same has not been challenged by the respondent/plaintiff?

iii) Whether the findings of the Lower Appellate Court that the appellant/defendant has not proved that the EMD amount has been confiscated for the inability on the part of the respondent/plaintiff to supply food grains as per contract, is perverse being contrary to the contents of the order under Ex. D.9, correctness of which had not been challenged by the plaintiff?"

Learned Counsel for the second defendant/appellant contends that the order of the First Appellate Court is erroneous. That the First Appellate Court has committed a grave error in misdirecting itself. That there is no need to issue any notice to the plaintiff, as per Clause No. 7 of the agreement vide Ex. D.5. The said clause in the agreement states that, if there is any error committed by the plaintiff in supplying good quality materials at the places directed by second defendant or if there is no supply of materials within a stipulated period or there is any delay in supplying the goods or if the goods supplied is of poor quality goods, they are entitled to terminate the contract without notice and as such the EMD amount stands forfeited. That, no notice of the same is required. However, the First Appellate Court has misdirected itself and has wrongly decreed the suit of the plaintiff.

On the other hand, learned Counsel for the respondent/plaintiff defends the order of the First Appellate Court. He submits that there is no material to substantiate the contentions of the defendant/appellant that the plaintiff had supplied poor quality goods and belatedly. Hence, the appeal may be dismissed.

Heard learned Counsels and examined the documents.

The admitted facts are that, the tender notification being called for, the tender of the plaintiff was accepted as per Ex. P2 and terms and conditions of the tender were produced at Ex. P3. Ex. P4 to 58 are the indents, Ex. P59 is the copy of the notice, Ex. P60 and 61 are the acknowledgements, Ex. P62 is the reply notice and Ex. P63 is the copy of the rejoinder. Ex. P62 is the reply notice contending that the notice issued to him has not been appropriately served and there is no material to indicate forfeiture of EMD amount has been served on him. Therefore, in the absence of any notice, forfeiture of EMD amount by the second defendant is contrary to the terms and conditions of the agreement. Clause No. 7 of the agreement would indicate specifically that, there can be termination of the contract as well as the forfeiture of the EMD amount which would take place without any due notice on the plaintiff who had supplied poor quality goods or belatedly. Therefore, the issue whether the notice has been served regarding forfeiture of EMD amount does not arise for consideration. The same stands explained by Clause No. 7 of the agreement. Clause No. 7 of the agreement reiterate that no notice is required to be issued to the plaintiff. The question as to whether the notice has been served or not or even otherwise does not arise for consideration. The parties have accepted waiver of notice.

The contention of the defendant/appellant with regard to maintainability of the appeal vis-�-vis Section 295 of the Karnataka Panchayat Raj Act, does not arise for consideration, since it was not in force. Therefore, no answer on this point is necessary.

What is of greater significance is the letter dated 16.08.2003 written by the plaintiff and the letter dated 01.09.2003 marked as Ex. D18. Ex. D18 is a letter written by the plaintiff to the defendant seeking to withdraw the letter written by him dated 16.08.2003. He has stated that in terms of the letter dated 16.08.2003 he had informed the second defendant that he will not make any supply of the goods for the reasons assigned therein. Therefore, in terms of Ex. D18, letter dated 01.09.2003, he requests that he may be permitted to withdraw the letter dated 16.08.2003. Subsequently the letter dated 01.09.2003 would clearly show that there was a specific intention of the plaintiff in not making any supply of the goods to the defendant. It runs contrary to the terms and conditions of the agreement entered into between the plaintiff and the defendants. The plaintiff is not entitled to state that he would stop supplying the good quality goods contrary to the conditions of the said agreement. Therefore, on this ground also, the conduct of the plaintiff cannot be brushed aside since he has deliberately attempted not to supply the food-grains. The same runs contrary to the terms of the agreement. Forfeiture of the EMD amount is therefore justifiable.

Both the Courts below have committed an error in considering Clause No. 7 of the agreement entered into between the plaintiff and the defendant. The service of notice is not the issue involved in the suit. Therefore, the first substantial question of law whether the defendant has proved the fact of Exs. D7 and D8 having been dispatched by RPAD or not does not arise for consideration.

The second substantial question of law whether the Judgment of the Lower Appellate Court in reversing the judgment of the trial Court and the same being contrary to the documentary evidence-Ex. D9 is held in the negative. It is answered by holding that the Judgment of the First Appellate Court in reversing the Judgment of the trial Court is perverse and contrary to the documentary evidence. The third substantial question of law is answered by holding that the findings of the Lower Appellate Court is erroneous in holding that the defendants have not proved that the EMD amount has been confiscated on the inability on the part of the plaintiff to supply the food grains as per the contract. The substantial questions of law are accordingly answered. In view of the substantial questions of law being answered, the plaintiff would not be entitled for recovery of EMD amount.

Consequently, the appeal is allowed. The Judgment and decree dated 04.11.2010 passed by the VI Additional District Judge, Mysuru in RA No. 1160/2009 is set aside. The Judgment and the decree dated 09.10.2009 passed by the Court of the Small Causes and C.J. (Sr. Dn), Mysuru in OS No. 417/2004 dismissing the suit stands confirmed.

Parties to bear the costs.