{"id":261796,"date":"1987-02-24T00:00:00","date_gmt":"1987-02-23T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/state-of-karnataka-etc-vs-shri-rameshwara-rice-mills-on-24-february-1987"},"modified":"2015-05-08T08:57:39","modified_gmt":"2015-05-08T03:27:39","slug":"state-of-karnataka-etc-vs-shri-rameshwara-rice-mills-on-24-february-1987","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/state-of-karnataka-etc-vs-shri-rameshwara-rice-mills-on-24-february-1987","title":{"rendered":"State Of Karnataka Etc vs Shri Rameshwara Rice Mills … on 24 February, 1987"},"content":{"rendered":"
Supreme Court of India<\/div>\n
State Of Karnataka Etc vs Shri Rameshwara Rice Mills … on 24 February, 1987<\/div>\n
Equivalent citations: 1987 AIR 1359, 1987 SCR (2) 398<\/div>\n
Author: S Natrajan<\/div>\n
Bench: Natrajan, S. (J)<\/div>\n
           PETITIONER:\nSTATE OF KARNATAKA ETC.\n\n\tVs.\n\nRESPONDENT:\nSHRI RAMESHWARA RICE MILLS THIRTHAHALLI ETC.\n\nDATE OF JUDGMENT24\/02\/1987\n\nBENCH:\nNATRAJAN, S. (J)\nBENCH:\nNATRAJAN, S. (J)\nREDDY, O. CHINNAPPA (J)\n\nCITATION:\n 1987 AIR 1359\t\t  1987 SCR  (2) 398\n 1987 SCC  (2) 160\t  JT 1987 (1)\t578\n 1987 SCALE  (1)448\n\n\nACT:\n    Indian  Contract Act<\/a>,  1872--s.  73\t --Agreement--Clause\n12Interpretation   of--Right   to   assess   damages\twhen\narises--Damages\t for breach of condition  of  agreement--As-\nsessment  to be made by an independent body and not by\tpar-\nties to the contract.\n    Revenue  Recovery Act<\/a>--Damages for breach of  conditions\nof contract--Whether recoverable as arrears of land revenue.\n\n\n\nHEADNOTE:\n    Clause  12\tof the agreements  separately  entered\tinto\nbetween\t the  respondents and the  appellant-State  provided\nthat  \"for  any breach of conditions the  first\t party\t(the\nrespondent)  shall  be liable to pay damages to\t the  second\nparty (the State) as may be assessed by the second party  in\naddition  to the forfeiture in part or full of the  security\namount deposited by the first party and that any amount that\nmay  become due or payable by the first party to the  second\nparty under any part of the agreement, shall be deemed to be\nand  may be recovered from the first party as if  they\twere\narrears of land revenue.\n    According  to  the\tState the  respondents\tcommitted  a\nbreach of their respective contract and, therefore, demanded\npayment of damages as assessed by the authorities represent-\ning the State. As the respondents failed to pay the damages,\nthe  State initiated recovery proceedings under the  Revenue\nRecovery  Act<\/a>. The respondents challenged the recovery\tpro-\nceedings by filing suit\/writ petition.\n    The\t Full Bench of the High Court dismissed\t the  Second\nAppeal (out of which C .A. No. 471 of 1975 arises) preferred\nby  the\t State holding that the State is  not  competent  to\nadjudicate upon the question whether the respondent  commit-\nted  breach of contract, that the State is not competent  to\nassess\tthe damages for any breach of contract not  admitted\nby the respondent and that the damages so assessed cannot be\nrecovered as if they were arrears of land revenue. Following\nthis  decision,\t the High Court allowed the  writ  petitions\nfiled  by  the other respondents and  quashed  the  recovery\nproceedings.\n399\n    In\tthe appeal to this Court on behalf of the  State  it\nwas  contended that the authorities representing the  State,\neven  though  a party to the agreement are  empowered  under\nClause\t12 to not only assess the damages occasioned by\t the\nbreach of the conditions but also to adjudication any  issue\nconcerning the commission of the breach itself.\nDismissing the Appeals,\n    HELD:  1. On a plain reading of the words in Clause\t 12:\n\"and  for any breach of conditions set forth  herein-before,\nthe first party shall be liable to pay damages to the second\nparty  as may be assessed by the second party\", it is  clear\nthat  the right of the second party to assess damages  would\narise only if the breach of conditions is admitted or if  no\nissue is made of it. If it was the intention of the  parties\nthat  the  officer acting on behalf of the  State  was\talso\nentitled  to adjudicate upon a dispute regarding the  breach\nof  conditions\tthe  wording of Clause 12  would  have\tbeen\nentirely  different.  A right to adjudicate  upon  an  issue\nrelating to a breach of conditions of the contract would not\nflow or is not inhered in the right conferred to assess\t the\ndamages\t arising from a breach of conditions. The  power  to\nassess\tdamages is a subsidiary and consequential power\t and\nnot the primary power. [403A-C]\n    2.\tAdjudication by the Officer regarding the breach  of\nthe  contract cannot be sustained under law because a  party\nto  the\t agreement cannot be an arbiter in  his\t own  cause.\nInterests  of justice and equity require that where a  party\nto  the\t contract disputes the committing of any  breach  of\nconditions  the\t adjudication should be\t by  an\t independent\nperson\tor body and not by the other party to the  contract.\nThe  position will, however, be different where there is  no\ndispute\t or there is consensus between the contracting\tpar-\nties regarding the breach of conditions. In such a case\t the\nOfficer\t of  the State even though a party to  the  contract\nwill  be  well within his rights in  assessing\tthe  damages\noccasioned  by the breach in view of the specific  terms  of\nClause 12. [403D-F]\n    3.\tThe Full Banch while taking the view that the  State\nis not entitled to recover damages as arrears of land  reve-\nnue because damages for breach of conditions will not amount\nto  \"money due under the contract\" has wrongly\trelied\tupon\nthe  decision of this Court in Divisional Forest Officer  v.\nMool Chand<\/a> AIR 1971 SC 694. Here the Court is concerned with\ncases  where the agreement entered into between the  Govern-\nment  and  the\tprivate persons\t specifically  provides\t for\nrecovery  of  damages as arrears of land revenue.  The\tFull\nBench  has  failed to notice that even\tthough\tthe  damages\nbecome payable on ac-\n400\ncount of breach of conditions of contract, the liability  to\npay damages does not fail outside the terms of the  contract\nbut within the terms of the contract. The words \"any  amount\nthat  may  become due or payable by the first party  to\t the\nsecond\tparty under any part of this agreement\" have  to  be\nread  in conjunction with the earlier portion of the  Clause\nstipulating  liability\ton the party  contracting  with\t the\nState to pay damages for breach of conditions. Therefore, it\nfollows\t that  though damages become payable on\t account  of\nbreach\tof  conditions of the  agreement  they\tnevertheless\nconstitute amount payable under the contract, that is, under\none of the terms of the contract imposing liabilities to pay\ndamages for breach of conditions. Therefore, the opinion  of\nthe  Full  Bench  in so far as the recovery  of\t damages  as\narrears\t of land revenue is concerned is not  in  accordance\nwith law. [403H; 404A-F]\n\n\n\nJUDGMENT:\n<\/pre>\n
    CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  471  of
\n1975. etc.
\n    From the Judgment and Order dated 25.9.72 of the  Karna-
\ntaka High Court in Regular Second Appeal No. 311 of 1969.
\nB.R.L. Iyengar and T.R. Ramasesh for the Appellants.
\n    M.S. Ganesh, R.B. Datar, Mrs. B. Tamta, N. Nettar,\tS.S.
\nJabali and B .P. Singh for the Respondents.
\nThe Judgment of the Court was delivered by
\n    NATARAJAN,\tJ.C.A.\tNo. 471 of 1975 by  certificate\t and
\nC.A. No. 3602 of 1984 and C.A. No. 461 of 1987 (arising\t out
\nof S.L.P. (Civil) No. 13120 of 1985) by Special Leave  raise
\ncommon\tquestions of law and hence they were heard  together
\nand  are disposed of by this common judgment. The  judgments
\nof the High Court in all the three cases have been  rendered
\nin  accordance with the opinion rendered by a Full Bench  of
\nthe High Court in a reference made in Regular Second  Appeal
\nNo.  311 of 1969. The opinion of the Full Bench\t was  sought
\nfor in the following circumstances.\n<\/p>\n
    The\t respondent in C.A. No. 471 of 1975 entered into  an
\nagreement with the State of Mysore to purchase paddy on\t its
\nbehalf under the Paddy Procurement Scheme, 1959 and to\thull
\nthe  paddy and supply rice. Clause 12 of the  agreement\t re-
\nlates  to  breach  of conditions of the\t agreement  and\t the
\nconsequences  that  would  ensue on such  breach.  The\tsaid
\nclause,\t referring to the respondent and the State as  first
\nparty
\n401<\/span>
\nand second party respectively is worded as under:-\n<\/p>\n
\t      “In token of the first party’s willingness  to
\n\t      abide by the above conditions, the first party
\n\t      has hereby deposited as security a sum of Five
\n\t      Hundred Rupees only with the second party\t and
\n\t      for any breach of conditions set forth herein-
\n\t      before, the first party shall be liable to pay
\n\t      damages to the second party as may be assessed
\n\t      by  the second party, in addition to the\tfor-
\n\t      feiture in part or whole of the amount  depos-
\n\t      ited by him. Any amount that may become due or
\n\t      payable by the first party to the second party
\n\t      under  any  part of the  agreement,  shall  be
\n\t      deemed  to  be and may be recovered  from\t the
\n\t      first  party as if they were arrears  of\tland
\n\t      revenue.”<\/p><\/blockquote>\n
    The\t State alleged that the respondent had\tcommitted  a
\nbreach of the contract by making short delivery of rice\t and
\ndemanded  payment of damages assessed at  Rs.7,344.16ps.  by
\nthe Deputy Commissioner. As the respondent failed to pay the
\ndamages\t the State initiated proceedings under\tthe  Revenue
\nRecovery Act<\/a> to recover the amount as if it were arrears  of
\nland  revenue. The respondent filed a suit to challenge\t the
\nrecovery  proceeding  as being illegal and for\ta  permanent
\ninjunction to restrain the State from pursuing the  recovery
\nproceedings.  The  trial court dismissed the  suit  but\t the
\nAppellate  Court  decreed the suit. The\t State\tpreferred  a
\nSecond\tAppeal\tto the High Court. In the  Second  Appeal  a
\nreference  was made to the Full Bench for its opinion  since
\nthere were two conflicting decisions of Division Benches  of
\nthe High Court on the questions of law raised in the appeal.
\nThe  Full  Bench  answered the reference  in  the  following
\nmanner:-\n<\/p>\n
\t      “Where  an agreement between the State  and  a
\n\t      private person provides that for any breach of
\n\t      any  of  the conditions of such  agreement  by
\n\t      such  person  he shall be liable to  pay\tsuch
\n\t      damages  as may be assessed by the  State\t and
\n\t      that any amount that may become due or payable
\n\t      by such person to the State under any part  of
\n\t      that agreement, shall be deemed to be and\t may
\n\t      be recovered from such person as if they\twere
\n\t      arrears of land revenue–\n<\/p><\/blockquote>\n
\t\t     (i)  the  State  is  not  competent  to
\n\t      adjudicate  upon the question whether  such  a
\n\t      person  committed breach of contract and\tthat
\n\t      the State is not competent to assess
\n\t      402<\/span>
\n\t      damages  for any breach of the contract  which
\n\t      is not admitted by the other side:\n<\/p><\/blockquote>\n
\t\t    (ii)  damages  so  assessed\t cannot\t  be
\n\t      recovered\t from  such person as if  they\twere
\n\t      arrears of land revenue”.<\/p><\/blockquote>\n
    In\taccordance  with the opinion of the Full  Bench\t the
\nSecond Appeal preferred by the State was dismissed. The High
\nCourt, however, granted a certificate of leave to the  State
\nand  that is how this appeal by certificate has come  to  be
\nfiled.\n<\/p>\n
    The other two appeals relate to two contractors who\t had
\nentered\t into agreements with the State of Mysore  for\tcon-
\nstructing  certain buildings. As the contractors  failed  to
\ncomplete  the works their contracts were terminated  and  in
\nterms  of  the agreements entered into by them\tthe  damages
\npayable by them for breach of contract were assessed and the
\ndamages\t were  sought  to be recovered as  arrears  of\tland
\nrevenue.  Both\tthe contractors filed writ  petitions  under
\nArticle 226<\/a> of the Constitution and challenged the  validity
\nof  the assessment of the damages and the recovery  proceed-
\nings.  Following  the ruling of the Full Bench\treferred  to
\nabove  the  High Court allowed both the writ  petitions\t and
\nquashed the proceedings for recovery of damages. Against the
\njudgments  of  the High Court the State\t has  preferred\t the
\nother two appeals.\n<\/p>\n
    Mr.\t B.R.L. Iyenger, learned counsel for  the  appellant
\ncontended  that the terms of clause 12 of the agreement\t are
\nwide  and comprehensive enough to hold that the Deputy\tCom-
\nmissioner representing the State has competence and sanction
\nto  decide whether any breach of the conditions of the\tcon-
\ntract  had been committed and also to determine the  quantum
\nof  damages  payable  for the breach. In  other\t words,\t the
\nargument  was  that the Deputy Commissioner, even  though  a
\nparty  to the agreement is empowered under Clause 12 to\t not
\nonly  assess  the damages occasioned by the  breach  of\t the
\nconditions but also to adjudicate upon any issue  concerning
\nthe  commission of the breach itself. The  learned  counsel,
\ntherefore,  submitted that the opinion rendered by the\tFull
\nBench  and the judgments rendered in pursuance\tthereof\t are
\nunsustainable  and hence the appeals by the State should  be
\nallowed.\n<\/p>\n
    On\ta  consideration  of the matter\t we  find  ourselves
\nunable\tto accept the contentions of Mr. Iyenger. The  terms
\nof Clause 12 do not afford scope for a liberal\tconstruction
\nbeing made regarding the power
\n403<\/span>
\nof  the\t Deputy Commissioner to adjudicate upon\t a  disputed
\nquestion of breach as well as to assess the damages  arising
\nfrom the breach. The crucial words in clause 12 are “and for
\nany  breach of conditions set forth hereinbefore, the  first
\nparty shall be liable to pay damages to the second party  as
\nmay be assessed by the second party”. On a plain reading  of
\nthe words it is clear that the right of the second party  to
\nassess damages would arise only if the breach of  conditions
\nis  admitted  or if no issue is made of it. If\tit  was\t the
\nintention  of the parties that the officer acting on  behalf
\nof the State was also entitled to adjudicate upon a  dispute
\nregarding the breach of conditions the wording of Clause  12
\nwould have been entirely different. It cannot also be argued
\nthat  a\t right\tto adjudicate upon an issue  relating  to  a
\nbreach\tof conditions of the contract would flow from or  is
\ninhered in the right conferred to assess the damages arising
\nfrom a breach of conditions. The power to assess damages, as
\npointed\t out by the Full Bench, is a subsidiary\t and  conse-
\nquential power and not the primary power. Even assuming\t for
\nargument’s sake that the terms of Clause 12 afford scope for
\nbeing  construed as empowering the officer of the  State  to
\ndecide\tupon  the question of breach as well as\t assess\t the
\nquantum of damages, we do not think that adjudication by the
\nOfficer\t regarding  the breach of the contract can  be\tsus-
\ntained under law because a party to the agreement cannot  be
\nan arbiter in his own cause. Interests or justice and equity
\nrequire\t that where a party to a contract disputes the\tcom-
\nmitting of any breach of conditions the adjudication  should
\nbe  by\tan independent person or body and not by  the  other
\nparty  to the contract. The position will, however, be\tdif-
\nferent\twhere  there  is no dispute or\tthere  is  consensus
\nbetween\t the  contracting parties regarding  the  breach  of
\nconditions.  In such a case the Officer of the\tState,\teven
\nthough\ta  party  to the contract will be  well\t within\t his
\nrights in assessing the damages occasioned by the breach  in
\nview of the specific terms of Clause 12.\n<\/p>\n
    We\tare,  therefore, in agreement with the view  of\t the
\nFull  Bench that the powers of the State under an  agreement
\nentered\t into  by  it with a private  person  providing\t for
\nassessment of damages for breach of conditions and  recovery
\nof the damages will stand confined only to those cases where
\nthe breach of conditions is admitted or it is disputed.
\n    The further question requiring consideration is  regard-
\ning the power of the State to recover damages as arrears  of
\nland revenue under the Revenue Recovery Act<\/a>. The Full  Bench
\nhas taken the view that the State is not entitled to recover
\ndamages\t as  arrears  of land revenue  because\tdamages\t for
\nbreach of conditions will not amount to
\n404<\/span>
\n“money\tdue under the contract”. The Full Bench\t has  relied
\nupon  a decision of this Court in Divisional Forest  Officer
\nv.  Mool  Chand<\/a>, AIR 1971 S.C. 694 in support of  its  view.
\nThis  decision cannot be an authority for the view taken  by
\nthe  Full Bench because it has been rendered with  reference
\nto facts which are entirely different. What fell for consid-
\neration\t in that case was whether a tender amount  could  be
\nrecovered from a defaulting forest contractor as arrears  of
\nland  revenue when Section 75<\/a> of the Forest  Regulation\t and
\nRule  10  of the Rules made thereunder did not\tprovide\t for
\nsuch  realisation.  We are, however,  concerned\t with  cases
\nwhere the agreement entered into between the Government\t and
\nthe  private persons specifically provides for\trecovery  of
\ndamages as arrears of land revenue. What the Full Bench\t has
\nfailed\tto  notice is that even though\tthe  damages  become
\npayable on account of breach of conditions of the  contract,
\nthe liability to pay damages does not fall outside the terms
\nof  the contract but within the terms of the  contract.\t The
\nwords  “any  amount that may become due or  payable  by\t the
\nfirst  party  to  the second party under any  part  of\tthis
\nagreement”  have to be read in conjunction with the  earlier
\nportion\t of  the clause stipulating liability on  the  party
\ncontracting  with  the State to pay damages  for  breach  of
\nconditions. Therefore, it follows that though damages become
\npayable on account of breach of conditions of the  agreement
\nthey  nevertheless  constitute\tamounts\t payable  under\t the
\ncontract i.e. under one of the terms of the contract  impos-
\ning  liability to pay damages for breach of  conditions.  To
\nillustrate  the\t position if the agreement  provides  for  a
\nliquidated  sum being paid as damages for breach  of  condi-
\ntions instead of a sum to be assessed by the Deputy  Commis-
\nsioner,\t it cannot be said that the specified  damages\twill
\nnot  be money due under the contract and hence\tthe  damages
\ncannot\tbe  recovered under the Revenue Recovery  Act<\/a>.\tWhat
\napplies to specified damages will likewise apply to  damages
\nwhich  are quantified after assessment. We, therefore,\thold
\nthat the opinion of the Full Bench in so far as the recovery
\nof  damages and arrears of land revenue is concerned is\t not
\nin accordance with law.\n<\/p>\n
    As\tit is not disputed that in all the three  cases\t the
\nOfficers  acting  on behalf of the State have not  only\t as-
\nsessed\tthe damages but have also acted as arbiters  in\t the
\ndispute\t regarding the alleged breach of contract, the\tHigh
\nCourt  was  justified in dismissing the Second\tAppeal\tpre-
\nferred by the State in R.S.A. No. 311 of 1969 and in  allow-
\ning the writ petitions filed by the two contractors. All the
\nappeals, therefore, have to fail and will accordingly  stand
\ndismissed.  The parties will pay and bear  their  respective
\ncosts.\n<\/p>\n
A.P.J.\t\t\t\t\t\t     Appeals\ndismissed.\n\t\t\t\t1<\/span>\n?405\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India State Of Karnataka Etc vs Shri Rameshwara Rice Mills … on 24 February, 1987 Equivalent citations: 1987 AIR 1359, 1987 SCR (2) 398 Author: S Natrajan Bench: Natrajan, S. (J) PETITIONER: STATE OF KARNATAKA ETC. Vs. RESPONDENT: SHRI RAMESHWARA RICE MILLS THIRTHAHALLI ETC. DATE OF JUDGMENT24\/02\/1987 BENCH: NATRAJAN, S. (J) BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-261796","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nState Of Karnataka Etc vs Shri Rameshwara Rice Mills ... on 24 February, 1987 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/state-of-karnataka-etc-vs-shri-rameshwara-rice-mills-on-24-february-1987\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"State Of Karnataka Etc vs Shri Rameshwara Rice Mills ... on 24 February, 1987 - 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