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Citation Codes
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Case Number
Attorney(S)
  • For the Appellant: Government Pleader
Judges
  • George Vadakkel, J.
Acts
  • S. 175(3) of the Government of India Act, 1935, corresponding to Article 299 of the Constitution,
  • provisions of the Kerala Revenue Recovery Act, 1968.5.
  • provisions of the Kerala Revenue Recovery Act, 1968,
  • REVENUE RECOVERY ACT
  • Kerala Revenue Recovery Act, 1968,
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • For the Appellant: Government Pleader
Judges
  • George Vadakkel, J.
Acts
  • S. 175(3) of the Government of India Act, 1935, corresponding to Article 299 of the Constitution,
  • provisions of the Kerala Revenue Recovery Act, 1968.5.
  • provisions of the Kerala Revenue Recovery Act, 1968,
  • REVENUE RECOVERY ACT
  • Kerala Revenue Recovery Act, 1968,
See more information ...
Smart Summary

Structured Summary of the Judgment

Factual and Procedural Background

The petitioner participated in an auction held on 19-12-1975 for the right to collect residual tree growth (fire-wood and timber) from Oil Palm Plantation Coupe No. VIII B. He made the necessary earnest deposit, his bid was highest, and he complied with the requirement to deposit Rs. 10,000 or one-third of the bid on 19-12-1975. The 4th respondent (Conservator of Forests) confirmed his bid on 3-1-1976, and the petitioner was informed on 7-1-1976.

The petitioner sought an extension of time to pay the balance up to 21-3-1976; respondents say extension was only until 20-2-1976. On 23-2-1976 a forest-fire occurred in Coupe No. VIII B and the petitioner alleges significant destruction/damage to trees and residual growth (Ext. PI is the mahazar). Pursuant to the sale notice (Ext. R1) the petitioner executed an agreement on the date of auction (Ext. R2) which purported to be made by the Government of Kerala (though it states execution by the Divisional Forest Officer for and on behalf of the Governor). Ext. R2 contained clauses obliging the bidder to keep the offer firm for three months, permitting forfeiture of the part value on default, and purporting to make sums due enforceable under the Revenue Recovery Act.

The transaction did not proceed to formal execution. The petitioner submitted representations (Ext. P3 and Ext. P4 dated 1-3-1976) explaining inability to execute the formal contract because of the fire; the Divisional Forest Officer replied by Ext. P3 (9-3-1976) that the petitioner remained liable under Ext. R2 and that complaints could not be entertained before execution of the agreement. Ext. P5 (July 1976) informed petitioner that his request in Ext. P4 could not be allowed.

The Divisional Forest Officer issued Ext. P6 (26-12-1977), demanding Rs. 59,255.43 and warning that failure to pay within fifteen days would result in proceedings under the Kerala Revenue Recovery Act, 1968. The petitioner approached the High Court on 6-1-1978 seeking quashing of Ext. P6 by writ of certiorari.

Legal Issues Presented

  1. Whether the sum claimed in Ext. P6 (Rs. 59,255.43) can be recovered from the petitioner under the provisions of the Kerala Revenue Recovery Act, 1968.
  2. Whether Ext. R2 agreement is a contract in compliance with Article 299(1) of the Constitution, and if not, whether the Government can rely on Ext. R2 to constitute itself the adjudicatory authority to assess and recover damages arising from re-sale of the Coupe.
  3. Whether Section 79 of the Kerala Forest Act, 1961, read with the sale notice (Ext. R1), permits recovery under the Kerala Revenue Recovery Act of sums claimed as damages for re-auction without prior adjudication of liability and quantum.
  4. Whether claims for unliquidated damages can be treated as presently recoverable debts under the Revenue Recovery procedure without adjudication by a competent authority.

Arguments of the Parties

Petitioner's Arguments

  • The petitioner contended that a forest-fire on 23-2-1976 destroyed or damaged many trees and the residual growth, rendering him unable to execute the formal contract (Ext. P3 and Ext. P4).
  • He sought cancellation of the auction in his favour because execution of the contract would cause him heavy damage due to the fire; that request was refused (Ext. P5).
  • The petitioner challenged the form of Ext. P6 which threatened recovery under the Kerala Revenue Recovery Act, 1968, arguing that the sum claimed could not be recovered under that Act.
  • He also raised broader contentions that property in the firewood and timber had not passed to him because of the fire and that the substratum of the contract did not exist; however the Court did not decide these contentions in the writ proceedings.

Respondents' / Government Pleader's Arguments

  • The Government Pleader relied on clause 3 of Ext. R2 to contend that the Government had been constituted the adjudicatory authority to determine loss or damage caused by re-sale and to recover the determined amount from the petitioner.
  • As an alternative, the Government Pleader relied on Section 79 of the Kerala Forest Act, 1961, which permits recovery, as if an arrear of land revenue, of “all money payable” under notices relating to sale of timber or forest produce issued by a Divisional Forest Officer; he submitted Ext. R1 sale notice created such a liability and thereby permitted resort to the Kerala Revenue Recovery Act.
  • The respondents relied on the fact that the Coupe had been re-auctioned (last on 29-6-1977) and that there was a deficiency at re-auction which, they asserted, rendered the earlier bidder (petitioner) liable at his risk and loss for the resulting shortfall recoverable from him.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Union of India v. Raman Iron Foundry, (1974) 2 SCC 231 : AIR 1974 SC 1265 Principle that a claim for unliquidated damages does not give rise to a debt until liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. The Court relied on this authority to hold that unliquidated damages cannot be treated as a presently recoverable debt under the Revenue Recovery procedure absent adjudication of liability and quantum.
K.P. Chowdhry v. State of M.P., A.I.R. 1967 S.C. 203 Interpretation of Article 299 (and earlier corresponding S.175(3) of the Government of India Act, 1935): three conditions for a binding contract involving the Government and consequences of non-compliance. The Court applied these principles to determine that non-compliance with Article 299(1) (contract not expressed to be by the Governor) rendered Ext. R2 unenforceable as a contract, so respondents could not rely on it to constitute themselves adjudicatory authority.
State of Bihar v. Karam Chand Thapar Brothers Ltd., A.I.R. 1962 S.C. 110 One of the earlier decisions establishing the three conditions required (expression by Governor, writing, and authorised execution) for enforceable Government contracts under the corresponding pre-Constitution provision. Referenced as part of the line of authority confirming that contracts not fully complying with Article 299(1) are not binding and cannot be enforced.
Bhikraj Jaipuria v. Union of India, A.I.R. 1962 S.C. 113 Another authority in the trilogy of cases explaining requirements for enforceable contracts by Government under the pre-Constitution provision. Referred to as supporting authority for the requirement that governmental contracts must comply strictly with Article 299(1) formalities.
State of West Bengal v. K.K. Mondal & Sons, A.I.R. 1962 S.C. 779 Part of the decisions explaining the mandatory formal requirements for Government contracts under the earlier statutory framework corresponding to Article 299. Referred to as part of the legal foundation establishing that failure to satisfy Article 299(1) requirements negatesthe existence of a contract enforceable by or against the Government.

Court's Reasoning and Analysis

The Court structured its reasoning around two principal legal questions: (1) whether Ext. R2 constituted a binding contract in compliance with Article 299(1) of the Constitution so as to permit the Government to act as the adjudicatory authority for damages; and (2) whether sums claimed as damages could be recovered under the Kerala Revenue Recovery Act, 1968, and Section 79 of the Kerala Forest Act, 1961, without prior adjudication of liability and quantum.

On Article 299(1): The Court examined Ext. R2 and concluded that while the execution formalities (execution by authorised person) appeared satisfied, the first mandatory requirement of Article 299(1)—that the contract be "expressed to be made by the President, or by the Governor of the State"—was not met. Ext. R2 was expressed to be made by the "Government of the State of Kerala" rather than being expressly made by the Governor. Relying on the line of Supreme Court authority (including K.P. Chowdhry and earlier decisions), the Court held that this non-compliance is not a formal nicety but fatal: a contract not in full compliance with Article 299(1) is no contract at all and cannot be enforced by the Government or by the other party. Consequently, the respondents could not rely on clause 3 of Ext. R2 to assert that the Government had been constituted the adjudicatory authority to determine loss or damage arising from re-sale.

On Section 79 of the Kerala Forest Act and the Revenue Recovery Act: The learned Government Pleader urged that Section 79 (which permits recovery of "all money payable" under sale notices relating to timber as if an arrear of land revenue) combined with the sale notice (Ext. R1) entitled the Government to recover the claimed amount under the Kerala Revenue Recovery Act. The Court considered that while Ext. R1 permitted re-auction and contemplated that the defaulting bidder might be liable for damages, Ext. R1 did not constitute a mechanism that adjudicated liability or set out who would adjudicate quantum. The Court reiterated the principle from Union of India v. Raman Iron Foundry that a claim for unliquidated damages does not become a debt until liability and damages are adjudicated by a court or other adjudicatory authority. Section 79 allows resort to the Revenue Recovery Act only for sums that are presently payable (liquidated/ascertained); it does not permit treating unliquidated damages as an arrear of land revenue absent prior adjudication.

The Court therefore concluded that (a) Ext. R2 could not be relied upon to constitute the Government as adjudicatory authority because it failed to comply with Article 299(1), and (b) Ext. R1 and Section 79 could not convert an unadjudicated claim for damages into a sum recoverable under the Revenue Recovery Act. The Court expressly declined to decide other factual or substantive disputes raised by the petitioner—such as whether property in the timber had passed to him or whether the substratum of the contract existed—observing that those issues were not properly resolvable in proceedings under Article 226.

Holding and Implications

Holding: The Court's final decision was to allow the writ petition to the following extent: the amount mentioned in Ext. P6 notice is not liable to be recovered from the petitioner under the provisions of the Kerala Revenue Recovery Act, 1968. There shall be a declaration to that effect. The petition is allowed to that extent and there is no order as to costs.

Implications:

  • Direct effect: The petitioner is protected from the use of the Kerala Revenue Recovery Act, 1968, to recover the specific sum demanded in Ext. P6; the Government cannot proceed under that revenue recovery procedure on the basis asserted in Ext. P6.
  • On government contracts: The judgment reinforces that Article 299(1) formalities are mandatory; a purported contract not expressed to be made by the Governor (where required) cannot be treated as a binding contract enabling enforcement or conferral of adjudicatory authority on the Government under its terms.
  • On recovery of damages: The decision reaffirms the principle that unliquidated damages require adjudication before being enforceable as a debt; statutory provisions permitting recovery as an arrear of land revenue are attracted only when a sum is presently payable (i.e., liquidated or adjudicated).
  • Broader precedent: The Court did not purport to resolve the subsidiary factual disputes (such as passage of property or failure of substratum) and did not state that it was laying down any novel general rule beyond these applications of existing law. No new broader precedent beyond the application of the cited principles is indicated in the judgment.
Show full summary ...

    Vidhyadharan v. State Of Kerala

    JUDGMENT

    1. The petitioner participated in the auction held on 19-12-1975 of the right to collect the residual tree growth (fire-wood and timber) from Oil Palm Plantation Coupe No. VIII B after making the necessary earnest deposit. His bid was the highest. He also complied with the condition that a bidder whose bid was knocked down should deposit Rs. 10,000/- or one-third of the bid amount by making the payment as aforesaid on 19-12-1975 itself. His bid was confirmed by the 4th respondent, Conservator of Forests, on 3-1-1976, and he was informed of that on 7-1-1976. Pursuant to the provisions governing the sale in the sale notice, the petitioner sought for extension of time for the payment of the balance amount upto 21-3-1976. According to the petitioner time was granted upto 21-3-1976 as sought for, but according to respondents time was extended only upto 20-2-1976. On 23-2-1976 there was a forest-fire in Coupe No. VIII B mentioned above and according to the petitioner, as a result thereof many trees and much of the residual growth were destroyed or damaged. Ext. PI is the mahazar in that regard. The petitioner participated in the auction sale as aforesaid pursuant to Ext. R1 sale notice dated 21-11-1975. On the date of auction itself Ext. R2 agreement was executed. That agreement, though says that the same has been executed by the Divisional Forest Officer (who is mentioned therein) for and on behalf of the Governor of the State of Kerala, it is expressed to be made by the Government of the State of Kerala. Under that agreement which is also executed by the petitioner herein, he undertook that he shall keep his offer firm for a minimum period of three months from the date of auction as mentioned in the Schedule attached to the said agreement, and shall not withdraw his offer. He also covenanted therein that in default of the aforesaid undertaking he agrees to have the part value remitted by him at the time of the auction forfeited to the Government, and that any loss caused to the Government by the resale of the Coupe at, his risk and loss shall be recoverable from him under the provisions of the Revenue Recovery Act. Ext. R2 agreement further says that in case the petitioner fails to execute the formal agreement incorporating the terms and conditions governing the contract, the Government shall have power and authority to recover from the petitioner any loss or damage caused to Government by such, re-sale as may be determined by the Government. It is further agreed therein that all sums found due to the Government under or by virtue of Ext. R2 agreement shall be recoverable from the petitioner and his properties under the provisions of the Revenue Recovery Act for the time being in force, as though such sums are arrears of land revenue and in such manner as the Government may deem fit.

    2. It is the admitted case that the transaction did not proceed any further. According to the petitioner he submitted a representation dated 1-3-1976 referred to in Ext. P3 reply dated 9-3-1976 stating that on account of the forest-fire he is not in a position to execute the formal contract. By Ext. P3 reply the petitioner was informed by the Divisional Forest Officer that according to the provisions contained in Ext. R2 agreement, the petitioner is bound to remit the balance dues and execute the agreement for the work. Ext. P3 further says that before the execution of the agreement in accordance with the sale notice and Ext. R2 agreement, no complaint in the matter can be entertained by his office. The petitioner appears to have submitted another representation before the Government, a copy whereof is marked herein as Ext. P4. That representation is dated 1-3-1976. By Ext. P5 communication the petitioner was informed that the request made in Ext. P4 cannot be allowed. In Ext. P4 the petitioner had requested that the auction in his favour be cancelled as he would be heavily damnified by proceeding to execute the contract by reason of the forest-fire. Ext. P5 was sent in July, 1976.

    3. It is the case of the petitioner that he received Ext. P6 proceedings of the Divisional Forest Officer dated 26-12-1977, demanding him to pay a sum of Rs. 59,255.43. Ext. P6 also informed the petitioner that failing to remit the aforesaid amount within fifteen days from the date of Ext. P6 proceedings as per the countersigned chalan which appears to have also been sent along with it, proceedings would be taken under the provisions of the Revenue Recovery Act without further notice. It is at this stage that the petitioner had approached this Court on 6-1-1978 praying that Ext. P6 demand be quashed by a writ of certiorari.

    4. From the argument advanced by the learned counsel for the petitioner, it appears that the main grievance of the petitioner herein is that the endorsement on Ext. P6 says that proceedings would be taken under the provisions of the Kerala Revenue Recovery Act, 1968, to recover the sum demanded thereby. At any rate, as regards the liability of the petitioner for the demand itself or the correctness of the amount mentioned therein, it is not possible for this Court to enter a finding. The question for consideration therefore is as to whether the sum mentioned in Ext. P6 notice can be sought to be recovered by the respondents under the provisions of the Kerala Revenue Recovery Act, 1968.

    5. It is by now well-settled that “a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority” (see Union Of India v. Raman Iron Foundry ., (1974) 2 SCC 231 : AIR. 1974 SC. 1265). It is also possible that parties to a contract may constitute any one of them the adjudicatory authority as regards the adjudication of the liability relating to damages. The first question for consideration therefore is as to whether the parties herein have constituted any one of the respondents the adjudicatory authority as regards the damages arising out of the failure of the petitioner to proceed with the execution of the contract. Here it is necessary to mention that on the failure of the petitioner to proceed to execute the formal contract, the Coupe in question was re-auctioned on several occasions and lastly on 29-6-1977. It is on the basis that there was a deficiency at the re-auction on 29-6-1977 and that re-auction was at the risk and loss of the petitioner that the amount mentioned in Ext. P6 has been directed to be remitted by him.

    6. The learned Government Pleader relied on the provision in clause 3 of Ext. R2 agreement to contend for the position that the Government has been constituted the adjudicatory authority in this regard. Under that clause, as already indicated, on failure of the petitioner to execute the formal agreement incorporating the terms and conditions governing the contract, the Government shall have power and authority to recover from him any loss or damage caused to Government by such re-sale as may be determined by the Government. No doubt, the parties purport to have constituted the Government the adjudicatory authority as regards loss or damage caused to Government on account of re-sale of the Coupe in question. But the further question arises as to whether Ext. R2 agreement is a contract in compliance with Article 299 of the Constitution. Under that Article, all contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise. The decisions of the Supreme Court make it clear that what is required under Article 299 is not an idle formality and that on the other hand the provisions contained therein are mandatory. In K.P Chowdhry v. State of M.P (A.I.R 1967 S.C 203) it has been pointed out that the earlier decisions of that Court concerning S. 175(3) of the Government of India Act, 1935, corresponding to Article 299 of the Constitution, required three conditions to be satisfied before a binding contract against the Government could arise. The said three conditions are: “(i) the contract must be expressed to be made by the Governor or the Governor-General, (ii) it must be executed in writing and (iii) the execution should be by such persons and in such manner as the Governor or the Governor-General by might direct or authorise”. The decisions referred to therein are State of Bihar v. Karam Chand Thapar Brothers Ltd. (A.I.R 1962 S.C 110), Bhikraj Jaipuria v. Union Of India (A.I.R 1962 S.C 113), and State of West Bengal v. K.K Mondal and Sons (A.I.R 1962 S.C 779). These principles were approvingly referred to in K.P Chowdry v. State of M.P (A.I.R 1967 S.C 203). Therein the Supreme Court pointed out that two consequences follow from the aforesaid decisions. The first consequence pointed out is that “There can be no implied contract between the Government and another person, the reason being that if such implied contracts between the Government and another person were allowed, they would in effect make Article 299(1) useless”. The second consequence mentioned therein is that “if the contract between Government and another person is not in full compliance with Article 299(1) it would be no contract at all and could not be enforced either by the Government or by the other person as a contract.”

    7. I am afraid that the second consequence mentioned above arises in this case and that Ext. R2 agreement cannot be treated as a contract at all in so far as it cannot be said that the said contract has been in full compliance with Article 299(1) of the Constitution. Though the second part of Article 299(1), which requires that all such contracts shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise, appears to be satisfied so far as Ext. R2 agreement is concerned, the first part of that Article has not been complied with, in that, it is not expressed to be made by the Governor but by the “Government of the State of Kerala”. If that be so, Ext. R2 is no contract at all and cannot be enforced either by the Government or by the petitioner. The result is, the respondents cannot rely on any provision in Ext. R2 agreement in support of the contention that the Government has been constituted the adjudicatory authority as regards the loss or damage caused to the Government on account of the re-sale of the Coupe in question by reason of the default of the petitioner to execute the formal agreement.

    8. Faced with this difficulty, the learned Government Pleader sought to support the threatened proceedings under the Kerala Revenue Recovery Act, 1968, by relying on S. 79 of the Kerala Forest Act, 1961. S. 79 of the said Act reads as follows:

    “79. Recovery of money due to Government:—All money, other than fines, payable to the Government under this Act or any rule made thereunder, or on account of timber or forest produce or of expenses incurred in the execution of this Act in respect of timber or forest produce or under any contract relating to timber or forest produce including any sum recoverable thereunder for the breach thereof or in consequence of its cancellation or under the terms of a notice relating to the sale of timber or forest produce by auction or by invitation of tenders, issued by or under the authority of a Divisional Forest Officer, and all compensation awarded to the Government under this Act may, if not paid when due, be recovered under the law for the time being in force, as if it were an arrear of land revenue.”

    9. The submission is that under S. 79 all money payable under the terms of a notice relating to the sale of timber or forest produce by auction or by invitation of tenders, issued by or under the authority of a Divisional Forest Officer are recoverable under the provisions of the Kerala Revenue Recovery Act, 1968, as if the same are an arrear of land revenue. According to the learned Government Pleader, Ext. R1 sale notice dated 21-11-1975 provides that if the bidder defaults to execute the formal agreement, the bid is liable to be cancelled and the Coupe is liable to be re-auctioned at the risk and loss of the bidder. This provision, may, no doubt, enable the respondents to re-auction the Coupe and perhaps, would make the earlier bidder liable for damages caused thereby to the Government. But then the question arises as to who is to adjudicate upon the liability for and quantum of damages as regards which there is no provision in Ext. R1 sale notice. In so far as none of the respondents have been constituted the adjudicatory authority in that behalf as per Ext. R1 sale notice, and in so far as without such an adjudication it cannot be said that the petitioner is liable in damages, I do not think that Ext. R1 sale notice is of any assistance to contend for the proposition that the provisions of the Kerala Revenue Recovery Act, 1968, are attracted to the instant case. As earlier pointed out the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of Court or other adjudicatory authority (Union Of India v. Raman Iron Foundry ., (1974) 2 SCC 231 : AIR 1974 SC. 1265). S. 79 enables the Government to have resort to the provisions of the Kerala Revenue Recovery Act, 1968 only to recover “all money payable” or in other words a sum presently due and not unliquidated damages.

    10. No doubt, the petitioner has got a larger contention, namely, that the property in the fire wood and timber in the coupe in question has not passed to the petitioner in so far as before execution of the formal contract the trees were destroyed by fire and also on the ground, according to him, that the substratum of the contract does not exist. As already indicated in the beginning of this judgment, it is neither possible nor feasible, to decide those questions in these proceedings under Article 226 of the Constitution. I make it clear that I have not pronounced thereon. In view of what is stated above, the only relief that the petitioner is now entitled is a declaration that the amount mentioned in Ext P6 notice is not liable to be recovered from the petitioner under the provisions of the Kerala Revenue Recovery Act, 1968. There shall be a declaration to that effect. This writ petition is allowed to the above extent. There will be no order as regards costs.

    11. Allowed.

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    Comments

    Vidhyadharan v. State Of Kerala
    (Jan 24, 1980)