M.S. Khurana Engineering Limited Petitioner(S) v. Ahmedabad Municipal Corporation & 1 (S)

Akil Kureshi, J.:— Petitioner has challenged the action of the respondents-AMC and its authority of seeking to recover sum of Rs. 51,23,740.71 from ongoing contract works of the petitioner. These prayers are made in following background.

2. Petitioner is a company registered under the Companies Act and is engaged in construction related activities. Petitioner was awarded contract by the AMC for Kankariya Lake Front Development, a project undertaken in the city of Ahmedabad for an amount of Rs. 27.12 crores (rounded off). There are disputes regarding the completion, time consumption and satisfactory work performance by the petitioner in carrying out such project. Both sides have made allegations and counter allegations which we are not going to decide in this petition. Crux of the matter is that, on the premises of unsatisfactory work of the petitioner, AMC has raised a demand of Rs. 51.23 lacs. Had the matter rested there, our role would have been rather limited since disputes are essentially arise out of bilateral contractual relations and number of disputed question of facts are involved. However, the respondents are trying to recover such amount from the ongoing contract of the petitioner with the AMC. In this context, counsel for the petitioner submitted that the respondent-authorities cannot make such recoveries without any quantification, without any authority of law and in any case from the payments due to the petitioner in connection with the other ongoing contract works.

3. Learned counsel for the respondents, however, submitted that the petitioner had not carried out the work according to the specifications, there have been huge delays and the petitioner has breached various terms of the contract.

4. As noted, we are confined to the question of the power of the respondents to recover the said amount from the petitioner's other ongoing contracts. In this context, we may refer to the decision of the Division Bench of this Court dated 16.9.2009 in LPA No. 6 of 1997 in which while confirming the decision of the learned Single Judge, the Division Bench made following observations.

“Learned Single Judge in para-6 of the judgment compared Clause 18 of the Standard Contract and Clause 26 of the Tender Conditions. Clause 18 of the Standard Contract has been interpreted by the Apex Court in the case of Union of India v. Air Foam Industries (P) Ltd. (Supra) interpreting the words any claim for the payment of a sum of money of clause 18 of the Contract, the Apex Court held that the above words occurring in Clause 18 of the contract must be read not in isolation but in the context of the whole clause, for the intention of the parties is to be gathered not from one part of the clause or the other but from the clause taken as a whole. Apex Court held if so read, Clause 18 does no more than merely provide an additional mode of recovery to the purchaser, and the purchaser is entitled to exercise the right conferred under that clause only where there is a claim for a sum which is presently due and payable by the contractor. Above-referred decision came up for consideration before the three Judges's Bench of the Apex Court in the case of H.M Kamaluddin Ansari and Co. v. Union of India, (Supra), wherein the Court impliedly over-ruled reasoning of the judgment in Union of India v. Air Foam Industries (P) Ltd. (Supra), but all the same, while interpreting Clause 18, the Apex Court took the view that clause gives wide powers to the Union of India to recover the amount claimed by appropriating any sum then due or which at any time thereafter may become due to the contractor under other contracts. When we look at Clause 26 of the Tender Condition in the instant case, it altogether stands on different footing. Question of appropriation of amount in respect of any other contract arises only when the claim of the State Government is crystallized. Otherwise, any objection raised by the Contractor against other claims of the State Government in respect of other contracts would be effectively frustrated. In the instant case, the State Government has preferred a Civil Suit in which the contractor has taken various defences. All those defences would be set at naught and a possible judgment in favour of the contractor would be rendered otiose if interpretation of the State Government is accepted on Clause 26.

We are of the view that only in cases where the claim is crystallized, the State Government can set off and adjust those amounts from the money due and payable in respect of the other contract. So far as the facts of the present case, we are of the view that the judgment rendered by the Apex Court in the case of M/s. Lakshmichand & Balchand (Supra) would squarely apply. Interpreting Clause 71 of the Contract, the Apex Court held as under:

In regard to the claim to adjustment on the second count the position is more controversial The claim is founded in the doctrine of equitable set off, but we do not find evidence before us to bring the case within the operation of the doctrine. It is not a case where cross demands rise out of the same transaction or the demands are so connected in their nature and circumstances that they can be looked upon as part of one transaction. Nor can assistance be derived from Clause 71. The benefit of that provision can be claimed only if the amount sought to be retained is an ascertained sum, an amount which can be readily adjusted against the amount payable under the other contract. Here, the amount sought to be adjusted has yet to be determined as a liability against the contractor. It has been disputed by the appellant. Accordingly, Clause 71 cannot be invoked. xxx xxx

In our view, Clause 26 would come to the rescue of the State Government only if the amount is adjusted towards a claim which is crystallized, not otherwise. We, therefore, fully endorse the view of the learned Single Judge on the interpretation of Clause 26”.

5. Thus it is well settled that without quantification and crystallization of the amount of recovery, the employer of the contract cannot unilaterally recover such amounts from the ongoing contract work of the same contractor in connection with another contract. In the said decision, Clause 26 of the contract which permitted such recovery was interpreted as to mean that recovery would be permissible only if the amount is adjusted towards the claim which is crystallized but not otherwise.

6. That being the position, respondents cannot be allowed to recover said sum from the payments due and payable to the petitioner in connection with the other ongoing contract works. To that limited extent, petition must succeed. It is therefore, provided that such amount shall not be recovered from the petitioner's payments due in connection with the other contract works. However, this would not prevent the respondents from seeking recovery through other means as permissible in law. Petition is disposed of accordingly. Direct service is permitted.