A.S. Motors (P) Ltd. v. Union of India, (2013) 10 SCC 114
Government Contracts/Tenders
Cancellation/Termination
Termination of contract for breach of express essential condition of contract contained in a termination clause (Cl. 18 of
contract herein) - Method of collection of information and evidence as to such breach via an agency deployed for the
purpose by respondent Authority - Discreet inquiry - Permissibility of - Contract for collection of fee for use of National
Highway between NHAI and appellant - Breach of contractual stipulations - Findings of report submitted by agency
deployed by respondent NHAI for conducting inquiry into malpractices of appellant formed basis for termination of
contract, imposition of penalty, forfeiture of performance security and invocation of bank guarantee - Legality of - High
Court held that respondent was justified in adopting such method for collection of information and evidence against
appellant, and confirmed imposition of penalty and forfeiture of performance guarantee as per Cl. 18 of the contract, but
quashed revocation of bank guarantee for recovery of any further amount as unfair and unreasonable - Held, report
submitted by the agency employed by respondent NHAI was damning and clearly showed appellant was indulging in
malpractices like charging excess fee from owners/drivers of the vehicles using stretch of road covered by the contract -
Material collected could and was rightly made a basis for termination of contract by the competent authority - Appellant
breached contractual stipulations, harassed innocent citizens to cough up more than what they were required to pay in
law and thus undeservedly enriched itself before it turned to the Court to claim relief in the extraordinary writ jurisdiction
of High Court on equitable considerations - Such an attempt could and ought to have been frustrated by High Court, as
has been rightly done,
Contract and Specific Relief
Remedies/Relief
Disgorgement of gains of wrongdoer - Clause in contract permitting the estimation and recovery of any wrongful gain
made by contractor - Need for proper estimation of wrongful gain that is sought to be recovered - Termination of contract,
imposition of penalty, forfeiture of performance security and invocation of bank guarantee by respondent Authority due to
wrongful breaches of express essential condition of contract contained in a termination clause (Cl. 18 of contract herein),
by appellant - However, wrongful gain made thereby by appellant not estimated - Stipulation in toll concession contract
that on termination of contract where contractor found to be charging excess user fee, besides imposition of penalty
Authority would be entitled to estimate and recover excess collection of fee - Respondent Authority terminating contract,
imposing penalty forfeiting performance security and in addition invoking bank guarantee - Total amount thus recovered
by respondent Authority being more than amount payable under the contract, invocation of bank guarantee set aside by
High Court - Held, under Cl. 18(b) of the contract Authority was also entitled to estimate the excess collection made by
appellant and recover the same from it - However, there is nothing on record whether any such estimation was made by
the Authority and if so basis on which that was done - Without a proper estimation of the excess received by appellant, it
was not open to respondent to invoke the bank guarantee - Hence, High Court's view is justified in present case,
Contract and Specific Relief
Remedies/Relief
Damages - Stipulated damages, penalty clauses and earnest money deposits - Applicability of S. 74 of Contract Act,
1872 - Forfeiture of performance security - Reasonableness of - Proper forum to challenge the same - Held, under S. 74
of the Contract Act an aggrieved party is entitled to receive compensation from the party who has broken the contract
whether or not actual damage or loss is proved to have been caused by the breach and the court has, subject to the
outer limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to the
circumstances of the case - In present case, forfeiture of performance security was available to respondent under S. 74
of Contract Act and the terms of the contract expressly providing for the same in Cl. 18(c) thereof: The termination under
this clause shall make the contractor liable for unconditional forfeiture of the performance security - Appellant could have
sought its remedies in a proper civil action if it questioned reasonableness of the amount recoverable in terms of the
contract - High Court in exercise of extraordinary jurisdiction under Art. 226 of Constitution had rightfully thought it fit not
to interfere on this aspect in light of conduct of appellant, (2013) 10 SCC 114-C
Administrative Law
Natural Justice
Right of cross-examination - When available - Termination of contract preceded by a show-cause notice and a hearing
given by competent authority although opportunity of cross-examination of persons whose statements were recorded by
the agency on whose report termination was based, not given - If principles of natural justice infringed - Held, rules of
natural justice are not rigid, immutable or embodied rules capable of being put in straitjacket nor apply universally to all
kind of domestic tribunals and enquiries - Where violation of principles of natural justice is alleged, courts will see
whether affected party was given reasonable opportunity to present its case and whether the administrative authority had
acted fairly, impartially and reasonably - In present case, contention that appellant should have been given an
opportunity of cross-examination rightly rejected by High Court keeping in view that nature of the inquiry was primarily in
the realm of contract, aimed at finding out whether appellant had committed any violation of the contractual stipulations
between the parties - Issue of a show-cause notice and disclosure of material on the basis of which action was proposed
to be taken against the appellant, was in compliance with requirement of fairness to appellant who was likely to be
affected by the proposed termination - Absence of any allegation of mala fides against those taking action or agency that
had collected the information establishing the breaches, as also failure of the appellant to disclose any prejudice, all
indicated that procedure adopted by respondent was fair and in substantial, if not strict, compliance with requirements of
audi alteram partem,
Natural Justice
Nature of inquiry and contextual situation to be seen to adjudge whether principles of natural justice have been
substantially complied with - Held, rules of natural justice are not rigid, immutable or embodied rules capable of being put
in straitjacket nor apply universally to all kind of domestic tribunals and enquiries - Where violation of principles of natural
justice is alleged, courts will see whether affected party was given reasonable opportunity to present its case and
whether the administrative authority had acted fairly, impartially and reasonably, (2013) 10 SCC 114-E
Government Contracts/Tenders
Cancellation/Termination
Termination of contract for breach of express essential condition of contract contained in a termination clause (Cl. 18 of
contract herein) - Discreet inquiry - Method of collection of information and evidence as to such breach via an agency
deployed for the purpose by respondent Authority - Principles of natural justice - Extent to which need to be complied
with - Held, the same did not extend to the extent of the respondent Authority being under an obligation to permit
appellant contractor to cross-examine the persons of the agency who had submitted the report which established the
breaches,
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