Section 3 of the Limitation Act explicitly states that “every suit instituted,
appeal preferred, and application made after the prescribed period shall be dismissed,
although limitation has not been set up as a defence.” It is thus incumbent upon the
Court to satisfy itself that the suit is not barred by limitation, regardless of whether
such a plea has been raised by the parties. In Union of India vs. British India
Corporation Ltd (2003) 9 SCC 505, it has been opined that “the question of
limitation is a mandate to the forum and, irrespective of the fact whether it was raised
or not, the forum must consider and apply it, if there is no dispute on facts.” It is thus
irrelevant that the Appellant State had not raised the issue of limitation before the Trial
Court. A duty was cast on the Court to consider this aspect of law, even on its own
initiative, and since it failed to do so, the Appellant State was competent to raise this
legal question in appeal or indeed even in any successive appeal. Close to a century
ago, in Lachhmi Sewak Sahu vs. Ram Rup Sahu AIR 1944 Privy Council 24, it has
been held that the point of limitation is available to be urged even in the Court of last
resort. Furthermore, we are not confronted with a situation where the plea of
limitation is a mixed question of fact and law, or where additional evidence needs to
be adduced. The submissions of Learned Counsel for the Respondent to the effect that
the Appellant is foreclosed and precluded from urging the plea of the bar of limitation
are meretricious and are rejected.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1770 OF 2005
STATE OF GUJARAT … APPELLANT
VERSUS
M/S KOTHARI AND ASSOCIATES … RESPONDENT
Dated;October 16, 2015.
VIKRAMAJIT SEN, J.
1 This Appeal lays siege to the decision of the Division Bench of the High Court
of Gujarat at Ahmedabad which dismissed the appeal of the Appellant before us while
allowing the cross-objection filed by the Plaintiff/Respondent by holding it to be
entitled to claim interest for an extended period. For the reasons which will follow,
we have set aside these concurrent findings against the Appellant State, principally on
the ground that the claim of the Respondent stood barred by the principles of
prescription as contained in the Limitation Act, 1963.
2 The Appellant State invited tenders for providing lining to the main canal line.
The Respondent, a registered partnership, submitted a tender that was accepted by the
Appellant State. Thereafter a regular agreement was entered into according to which
the Respondent would have from 15th November to 14th June as its working period.Page 2
2
Under the Work-Order dated 24.9.1976, the Respondent was required to complete the
work within 18 months, i.e. on or before 23.3.1978. The case of the Respondent,
which we have no cause to disbelieve, is that there were repeated and consecutive
delays in handing over the site due to which the Respondent could not complete the
work within the stipulated time. The first season was to extend from 15.11.1976 to
14.7.1977, but the canal was only made available on 15.1.1977 and even then the
cement was not issued to the Respondent by the Appellant State till 31.1.1977. The
second season was to extend from 15.11.1977 to 23.3.1978, but the canal was handed
over on 15.3.1978. At the Respondent’s request, the contract period was extended to
14.6.1978, but the Appellant State specifically stated that no compensation would be
payable for the extension. Pursuant to a written request by the Respondent, a third
season from 15.11.1978 to 14.6.1979 was granted, but yet again the site was handed
over as late as on 15.3.1979. The Respondent sought further time to complete the
project, and was consequently granted a fourth season which was to extend from
15.11.1979 to 29.6.1980. The site was once again made available with delay only on
15.3.1980. The work was finally completed on 20.6.1980. It is noteworthy that in each
request for an extension, the Respondent sought compensation for monetary loss due
to the extended time limit, but while allowing each extension the Appellant State
denied the claim for compensation each time. The Respondent’s case was that as per
the contract period, 342 days should have been made available to it to conduct the
stipulated work, but as a result of the delay in handing over the site and the materials,
the Respondent had to seek extensions, and nevertheless managed to complete the
project in 288 working days, thus indicating that there was no laxity on its part. The
Respondent signed the Final Bill under protest on 1.1.1982; and the Security Deposit
was refunded on 27.1.1982. Thereupon, the Respondent addressed a statutory notice
under Section 80 of the C.P.C. dated 7.8.1983 to the Appellant State, claiming
damages as a result of the additional costs incurred due to the abovementioned delays.
The Respondent eventually filed a suit on 25.1.1985 seeking damages under thirteen
different heads, including price escalation in labour due to the prolongation of the
work, price escalation in fuel lubricants etc., overstay of capital and machinery, and
overheads such as staff, kitchen, office etc.
3 The Trial Court found that the delay was caused by the Appellant State; that
work was completed by the Respondent well within the number of days contractually
allocated to complete it. Noting that under Section 73 of the Indian Contract Act
compensation is payable for any loss or damage for breach of a contract, the Trial
Court granted compensation under twelve of the thirteen heads of claims itemised by
the Respondent. In terms of its Judgment dated 4.5.1991 the Trial Court observed that
the factual matrix pertaining to these amounts claimed have remained uncontroverted,
and accordingly decreed the suit. The Respondent was granted Rs.13,61,571/- with
interest at 12 per cent per annum with effect from 7.8.1983 viz. the date of the
statutory notice. The Appellant State appealed against the decree and the Respondent
filed a counter-claim seeking interest from the date of written demand of the suit claim
instead of from the date of statutory notice. The High Court, vide its judgment dated
30.7.2003, dismissed the appeal filed by the Appellant State and allowed thePage 4
4
Respondent’s cross objection, granting interest thereon from 5.3.1982.
4 The Appellant State has contended that the High Court ignored its myriad
objections/submissions in connection with the various different heads; that the bills
paid from time to time by the Respondent including the Final Bill were accepted
without any remonstration or reservation being raised, thereby inexorably leading to
the conclusion that the suit was clearly an afterthought; and that the suit was barred by
limitation as the claims were raised after a lapse of more than three years from the
arising of the causes of action. It is only the last contention to which we shall advert
our attention.
5 It would be pertinent to note that the issue of limitation was not pleaded as a
ground before the Trial Court or the High Court. It was pressed for the first time in the
course of oral arguments before the High Court. Nonetheless, it has been discussed in
the impugned Order. The High Court, noting the contention raised by the Respondent
that the point of limitation was a mixed question of fact and law and could therefore
not be adjudicated at this point, held that even if it could be adjudicated, the suit
would not be barred by principles of prescription as it was based on a series of
successive breaches committed by the Appellant State, and in such circumstances the
date of the last breach was relevant. The High Court was of the opinion that limitation
need not mandatorily be computed on the basis of each cause of action. It held the
date of return of the Security Deposit as the last date of payment for the work done,
and concluded that the suit had been filed within three years from this date. The suit
was therefore found to be within the prescribed period of limitation.
6 Section 3 of the Limitation Act explicitly states that “every suit instituted,
appeal preferred, and application made after the prescribed period shall be dismissed,
although limitation has not been set up as a defence.” It is thus incumbent upon the
Court to satisfy itself that the suit is not barred by limitation, regardless of whether
such a plea has been raised by the parties. In Union of India vs. British India
Corporation Ltd (2003) 9 SCC 505, it has been opined that “the question of
limitation is a mandate to the forum and, irrespective of the fact whether it was raised
or not, the forum must consider and apply it, if there is no dispute on facts.” It is thus
irrelevant that the Appellant State had not raised the issue of limitation before the Trial
Court. A duty was cast on the Court to consider this aspect of law, even on its own
initiative, and since it failed to do so, the Appellant State was competent to raise this
legal question in appeal or indeed even in any successive appeal. Close to a century
ago, in Lachhmi Sewak Sahu vs. Ram Rup Sahu AIR 1944 Privy Council 24, it has
been held that the point of limitation is available to be urged even in the Court of last
resort. Furthermore, we are not confronted with a situation where the plea of
limitation is a mixed question of fact and law, or where additional evidence needs to
be adduced. The submissions of Learned Counsel for the Respondent to the effect that
the Appellant is foreclosed and precluded from urging the plea of the bar of limitation
are meretricious and are rejected. We shall now proceed to consider whether the suit
was in fact barred by limitation.
7 The period of li
mitation would be computed under either Article 55 or Article 113, both of which are
laid out below of the facility of reference:
Description of Suit Period of
Limitation
Time from which
period begins to run
Art 55. For
compensation for the
breach of any contract,
express or implied, not
herein specially
provided for.
Three years When the contract is
broken or (where there
are successive breaches)
when the breach in
respect of which the suit
is instituted occurs or
(where the breach is
continuing) when it
ceases.
Art. 113. Any suit for
which no period of
limitation is provided
elsewhere in this
Schedule
Three years When the right to sue
accrues.
8 It would be pertinent, at this point, to recall the decision of this Court in
Gannon Dunkerley and Co. Ltd. vs. Union of India (1969) 3 SCC 607, though that
matter dealt with the provisions of the Indian Limitation Act, 1908. The
Appellants/Plaintiff therein filed a suit seeking an enhanced rate of compensation in
light of the deviation in the nature of the work being rendered more complex, the
increase in costs due to undue prolongation of the period of work, the increase in the
quantity of work, and the grant of contracts to other competing parties at substantially
higher rates. This Court held that the “suit filed by the appellant Company is not a suit
for compensation for breach of contract express or implied: it is a suit for enhanced
rates because of change of circumstances, and in respect of work not covered by the
contract.” The claim for enhanced rates was found to arise outside the contract and
for this reason was not in the genre of an action for compensation for breach of
contract. It was therefore held that the claim was not covered under Article 115 of the
1908 Act (which is in pari materia to Article 55 of the Limitation Act), and would
have to fall within the ambit of Article 120 of the 1908 Act (which is akin to Article
113 of the Limitation Act). The facts at hand are dissimilar to those in Gannon
Dunkerley in that the damages sought by the present Respondent are for work
covered by the contract, and the change in circumstances was directly caused by
breaches ascribable to the Appellant State in not handing-over the site on time.
Facially, the suit claims are damages incurred due to the extension of the contract
period and the resultant damages are incurred by the Respondent. The suit would
therefore fall within the ambit of Article 55. Article 113, which is a residuary
provision, cannot be resorted to. Page 8
8
9 It also appears to us that the contract was clearly not broken as the Respondents
chose to keep it alive despite its repeated breaches by the Appellant State. The factual
matrix presents a situation of successive or multiple breaches, rather than of a
continuous breach, as each delay in handing over the canal/site by the Appellant State
constituted to a breach that was distinct and complete in itself and gave rise to a
separate cause of action for which the Respondent could have rescinded the contract
or possibly claimed compensation due to prolongation of time and resultant escalation
of costs. Of course the Respondent is enabled to combine all these causes of action in
one plaint, as postulated in the C.P.C provided each claim is itself justiciable. Even
the Respondent has argued before the High Court that the suit was based on
successive breaches committed by the Appellant State. In our opinion, the suit was
required to be filed within three years of the happening of each breach, which would
constitute a distinct cause of action. Article 55 specifically states that in respect of
successive breaches, the period begins to run when the breach in respect of which the
suit is instituted, occurs. In this vein, Rohtas Industries Ltd vs. Maharaja of
Kasimbazar China Clay Mines ILR (1951) 1 Cal 420 is apposite as it has held that
when a party agrees to deliver certain goods every month for a duration spanning
certain years, the cause of action for breach for failure to deliver in a particular month
arises at the end of that month and not at the end of the period of the contract. The
situation before us is similar in that the cause of action had arisen on each occasion
when the Appellant State failed to hand over the site at the contractually stipulated
time. Specifically, the limitation periods arose on 15.11.1976, 15.11.1977, 15.11.1978
and 15.11.1979, i.e. on the first day of each season, when the Respondent State
committed a breach by failing to hand over the site. Thus the period of limitation did
not commence at the termination of the contract period or the date of final payment.
The High Court’s conclusion that the last date of breach and last date of payment were
relevant, not each cause of action, was thus patently erroneous. For each breach, a
corresponding amount of damages for additional costs could have been sought. The
suit, however, was filed on 25.1.1985, well after the limitation period of three years
for even the final breach, as the various causes of action became time barred on
15.11.1979, 15.11.1980, 15.11.1981 and 15.11.1982 respectively.
10 There is another perspective on the method or manner in which limitation is to
be computed. We have already narrated that the Respondent, on every occasion when
the extension was sought by it, had requested to be compensated for delay. The
Appellant State had granted the extensions but had repudiated and rejected the
Respondent’s claims for damages. The effect of these events would be that the cause
of action for making the claim for damages indubitably arose on each of those
occasions. It is certainly arguable that the Appellant State may have also been
aggrieved by the delay, although the facts of the case appear to be unfavourable to this
prediction, since delay can reasonably be laid at the door of the Appellant. The
Respondent, however, could prima facie be presumed to have accepted a renewal or
extension in the period of performance but with the rider that the claim for damages
had been abandoned by it. If this assumption was not to be made against the
Respondent, it would reasonably be expected that the Respondent should have filed a
suit for damages on each of these occasions. In a sense, a fresh contract would be
deemed to have been entered into between the parties on the grant of each of the
extensions. It is therefore not legally possible for the Respondent to contend that
there was a continuous breach which could have been litigated upon when the contract
was finally concluded. In other words, contemporaneous with the extensions granted,
it was essential for the Respondent to have initiated legal action. Since this was not
done, there would be a reasonable presumption that the claim for damages had been
abandoned and given a go-by by the Respondent.
11 In a works contract, more often than not, delays occur, and that is why it is
assumed that time is not of the essence. Where extensions are asked for and granted,
there must be a clear and discernable stand on behalf of either of the parties that the
extension is granted and/or accepted without prejudice to the claim of damages. It has
become commonplace that neither party lodges a claim for damages, but waits for the
end of the contract to raise these disputes, taking advantage of the nebulous and
equivocal nature of the transactions between them. This, however, is not the position
that obtains before us since the Appellant State had categorically posited that the
claim for damages for the alleged delay on its part would not be entertained.
12 The Respondent has sought to place reliance on Section 19 of the Limitation
Act. It would be apposite to reproduce this Section:
19. Effect of payment on account of debt or of interest on legacy.—
Where payment on account of a debt or of interest on a legacy is made
before the expiration of the prescribed period by the person liable to pay
the debt or legacy or by his agent duly authorised in this behalf, a fresh
period of limitation shall be computed from the time when the payment
was made.Page 11
11
This Section would not come to the aid of the Respondent, as the suit before us is not
for payment on account of a debt or of interest on legacy, but is a suit for damages for
additional costs incurred as a result of the extension of the contract period. This Court
in Union of India vs. Raman Iron Foundry 1974 (2) SCC 231, after placing reliance
on Jones v. Thompson [1858] 27 L.J.Q.B. 234, has opined that a claim for damages
does not give rise to a debt until the liability is adjudicated and damages have been
assessed by a decree or any order of a Court or any other adjudicatory authority or
forum. Furthermore, in J.C. Budharaja vs Chairman, Orissa Mining Corporation Ltd.
and Anr (2008) 2 SCC 444, it has been held that the effect of Section 19 would be to
allow a fresh period of limitation with regard to the 'existing debt' in respect of which
acknowledgment and payment has been made. It would not extend the period of
limitation for any fresh claim, or any amount not accepted by the other party. In the
factual scenario before us, the payment of the Final Bill and Security Deposit could
not be construed to accept or acknowledge the damages raised by the Respondent and
therefore Section 19 would not per se extend the period of limitation. Furthermore,
there could be no extension under Section 18 on account of the acknowledgement in
writing, as at each point that the Respondent raised a claim for damages, it was
specifically refuted by the Appellant State, and the amounts that were accepted by the
Appellant State were limited to the liabilities within the contract, not fresh liabilities
for damages.
13 The Respondent has also argued that since notice under Section 80 of the
C.P.C. was served to the Appellant State claiming damages on 7.8.1983, a period of
two months from the date of the notice would have to be excluded when calculating
the period of limitation, as per Section 15(2) of the Limitation Act. It has relied on
M/s Disha Constructions vs. State of Goa (2012) 1 SCC 690 to this end. However,
since the limitation period for the last breach alleged by the Respondent itself ended
on 15.11.1982 and the notice under Section 80 C.P.C. is dated 7.8.1983, this
provision is irrelevant. The notice perforce should have been issued before the suit
became time barred, and only if so done would the period have been extended for a
further two months.
14 It is thus clear that the Respondent failed to file the suit for damages within the
period prescribed in the Limitation Act. The suit is required to be dismissed on this
ground alone. The impugned Order is, therefore, set aside, and the Appeal is allowed,
but with no order as to costs.
……………………………..J.
(VIKRAMAJIT SEN)
……………………………..J.
(SHIVA KIRTI SINGH)
New Delhi,
October 16, 2015.
Print Page
appeal preferred, and application made after the prescribed period shall be dismissed,
although limitation has not been set up as a defence.” It is thus incumbent upon the
Court to satisfy itself that the suit is not barred by limitation, regardless of whether
such a plea has been raised by the parties. In Union of India vs. British India
Corporation Ltd (2003) 9 SCC 505, it has been opined that “the question of
limitation is a mandate to the forum and, irrespective of the fact whether it was raised
or not, the forum must consider and apply it, if there is no dispute on facts.” It is thus
irrelevant that the Appellant State had not raised the issue of limitation before the Trial
Court. A duty was cast on the Court to consider this aspect of law, even on its own
initiative, and since it failed to do so, the Appellant State was competent to raise this
legal question in appeal or indeed even in any successive appeal. Close to a century
ago, in Lachhmi Sewak Sahu vs. Ram Rup Sahu AIR 1944 Privy Council 24, it has
been held that the point of limitation is available to be urged even in the Court of last
resort. Furthermore, we are not confronted with a situation where the plea of
limitation is a mixed question of fact and law, or where additional evidence needs to
be adduced. The submissions of Learned Counsel for the Respondent to the effect that
the Appellant is foreclosed and precluded from urging the plea of the bar of limitation
are meretricious and are rejected.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1770 OF 2005
STATE OF GUJARAT … APPELLANT
VERSUS
M/S KOTHARI AND ASSOCIATES … RESPONDENT
Dated;October 16, 2015.
VIKRAMAJIT SEN, J.
1 This Appeal lays siege to the decision of the Division Bench of the High Court
of Gujarat at Ahmedabad which dismissed the appeal of the Appellant before us while
allowing the cross-objection filed by the Plaintiff/Respondent by holding it to be
entitled to claim interest for an extended period. For the reasons which will follow,
we have set aside these concurrent findings against the Appellant State, principally on
the ground that the claim of the Respondent stood barred by the principles of
prescription as contained in the Limitation Act, 1963.
2 The Appellant State invited tenders for providing lining to the main canal line.
The Respondent, a registered partnership, submitted a tender that was accepted by the
Appellant State. Thereafter a regular agreement was entered into according to which
the Respondent would have from 15th November to 14th June as its working period.Page 2
2
Under the Work-Order dated 24.9.1976, the Respondent was required to complete the
work within 18 months, i.e. on or before 23.3.1978. The case of the Respondent,
which we have no cause to disbelieve, is that there were repeated and consecutive
delays in handing over the site due to which the Respondent could not complete the
work within the stipulated time. The first season was to extend from 15.11.1976 to
14.7.1977, but the canal was only made available on 15.1.1977 and even then the
cement was not issued to the Respondent by the Appellant State till 31.1.1977. The
second season was to extend from 15.11.1977 to 23.3.1978, but the canal was handed
over on 15.3.1978. At the Respondent’s request, the contract period was extended to
14.6.1978, but the Appellant State specifically stated that no compensation would be
payable for the extension. Pursuant to a written request by the Respondent, a third
season from 15.11.1978 to 14.6.1979 was granted, but yet again the site was handed
over as late as on 15.3.1979. The Respondent sought further time to complete the
project, and was consequently granted a fourth season which was to extend from
15.11.1979 to 29.6.1980. The site was once again made available with delay only on
15.3.1980. The work was finally completed on 20.6.1980. It is noteworthy that in each
request for an extension, the Respondent sought compensation for monetary loss due
to the extended time limit, but while allowing each extension the Appellant State
denied the claim for compensation each time. The Respondent’s case was that as per
the contract period, 342 days should have been made available to it to conduct the
stipulated work, but as a result of the delay in handing over the site and the materials,
the Respondent had to seek extensions, and nevertheless managed to complete the
project in 288 working days, thus indicating that there was no laxity on its part. The
Respondent signed the Final Bill under protest on 1.1.1982; and the Security Deposit
was refunded on 27.1.1982. Thereupon, the Respondent addressed a statutory notice
under Section 80 of the C.P.C. dated 7.8.1983 to the Appellant State, claiming
damages as a result of the additional costs incurred due to the abovementioned delays.
The Respondent eventually filed a suit on 25.1.1985 seeking damages under thirteen
different heads, including price escalation in labour due to the prolongation of the
work, price escalation in fuel lubricants etc., overstay of capital and machinery, and
overheads such as staff, kitchen, office etc.
3 The Trial Court found that the delay was caused by the Appellant State; that
work was completed by the Respondent well within the number of days contractually
allocated to complete it. Noting that under Section 73 of the Indian Contract Act
compensation is payable for any loss or damage for breach of a contract, the Trial
Court granted compensation under twelve of the thirteen heads of claims itemised by
the Respondent. In terms of its Judgment dated 4.5.1991 the Trial Court observed that
the factual matrix pertaining to these amounts claimed have remained uncontroverted,
and accordingly decreed the suit. The Respondent was granted Rs.13,61,571/- with
interest at 12 per cent per annum with effect from 7.8.1983 viz. the date of the
statutory notice. The Appellant State appealed against the decree and the Respondent
filed a counter-claim seeking interest from the date of written demand of the suit claim
instead of from the date of statutory notice. The High Court, vide its judgment dated
30.7.2003, dismissed the appeal filed by the Appellant State and allowed thePage 4
4
Respondent’s cross objection, granting interest thereon from 5.3.1982.
4 The Appellant State has contended that the High Court ignored its myriad
objections/submissions in connection with the various different heads; that the bills
paid from time to time by the Respondent including the Final Bill were accepted
without any remonstration or reservation being raised, thereby inexorably leading to
the conclusion that the suit was clearly an afterthought; and that the suit was barred by
limitation as the claims were raised after a lapse of more than three years from the
arising of the causes of action. It is only the last contention to which we shall advert
our attention.
5 It would be pertinent to note that the issue of limitation was not pleaded as a
ground before the Trial Court or the High Court. It was pressed for the first time in the
course of oral arguments before the High Court. Nonetheless, it has been discussed in
the impugned Order. The High Court, noting the contention raised by the Respondent
that the point of limitation was a mixed question of fact and law and could therefore
not be adjudicated at this point, held that even if it could be adjudicated, the suit
would not be barred by principles of prescription as it was based on a series of
successive breaches committed by the Appellant State, and in such circumstances the
date of the last breach was relevant. The High Court was of the opinion that limitation
need not mandatorily be computed on the basis of each cause of action. It held the
date of return of the Security Deposit as the last date of payment for the work done,
and concluded that the suit had been filed within three years from this date. The suit
was therefore found to be within the prescribed period of limitation.
6 Section 3 of the Limitation Act explicitly states that “every suit instituted,
appeal preferred, and application made after the prescribed period shall be dismissed,
although limitation has not been set up as a defence.” It is thus incumbent upon the
Court to satisfy itself that the suit is not barred by limitation, regardless of whether
such a plea has been raised by the parties. In Union of India vs. British India
Corporation Ltd (2003) 9 SCC 505, it has been opined that “the question of
limitation is a mandate to the forum and, irrespective of the fact whether it was raised
or not, the forum must consider and apply it, if there is no dispute on facts.” It is thus
irrelevant that the Appellant State had not raised the issue of limitation before the Trial
Court. A duty was cast on the Court to consider this aspect of law, even on its own
initiative, and since it failed to do so, the Appellant State was competent to raise this
legal question in appeal or indeed even in any successive appeal. Close to a century
ago, in Lachhmi Sewak Sahu vs. Ram Rup Sahu AIR 1944 Privy Council 24, it has
been held that the point of limitation is available to be urged even in the Court of last
resort. Furthermore, we are not confronted with a situation where the plea of
limitation is a mixed question of fact and law, or where additional evidence needs to
be adduced. The submissions of Learned Counsel for the Respondent to the effect that
the Appellant is foreclosed and precluded from urging the plea of the bar of limitation
are meretricious and are rejected. We shall now proceed to consider whether the suit
was in fact barred by limitation.
7 The period of li
mitation would be computed under either Article 55 or Article 113, both of which are
laid out below of the facility of reference:
Description of Suit Period of
Limitation
Time from which
period begins to run
Art 55. For
compensation for the
breach of any contract,
express or implied, not
herein specially
provided for.
Three years When the contract is
broken or (where there
are successive breaches)
when the breach in
respect of which the suit
is instituted occurs or
(where the breach is
continuing) when it
ceases.
Art. 113. Any suit for
which no period of
limitation is provided
elsewhere in this
Schedule
Three years When the right to sue
accrues.
8 It would be pertinent, at this point, to recall the decision of this Court in
Gannon Dunkerley and Co. Ltd. vs. Union of India (1969) 3 SCC 607, though that
matter dealt with the provisions of the Indian Limitation Act, 1908. The
Appellants/Plaintiff therein filed a suit seeking an enhanced rate of compensation in
light of the deviation in the nature of the work being rendered more complex, the
increase in costs due to undue prolongation of the period of work, the increase in the
quantity of work, and the grant of contracts to other competing parties at substantially
higher rates. This Court held that the “suit filed by the appellant Company is not a suit
for compensation for breach of contract express or implied: it is a suit for enhanced
rates because of change of circumstances, and in respect of work not covered by the
contract.” The claim for enhanced rates was found to arise outside the contract and
for this reason was not in the genre of an action for compensation for breach of
contract. It was therefore held that the claim was not covered under Article 115 of the
1908 Act (which is in pari materia to Article 55 of the Limitation Act), and would
have to fall within the ambit of Article 120 of the 1908 Act (which is akin to Article
113 of the Limitation Act). The facts at hand are dissimilar to those in Gannon
Dunkerley in that the damages sought by the present Respondent are for work
covered by the contract, and the change in circumstances was directly caused by
breaches ascribable to the Appellant State in not handing-over the site on time.
Facially, the suit claims are damages incurred due to the extension of the contract
period and the resultant damages are incurred by the Respondent. The suit would
therefore fall within the ambit of Article 55. Article 113, which is a residuary
provision, cannot be resorted to. Page 8
8
9 It also appears to us that the contract was clearly not broken as the Respondents
chose to keep it alive despite its repeated breaches by the Appellant State. The factual
matrix presents a situation of successive or multiple breaches, rather than of a
continuous breach, as each delay in handing over the canal/site by the Appellant State
constituted to a breach that was distinct and complete in itself and gave rise to a
separate cause of action for which the Respondent could have rescinded the contract
or possibly claimed compensation due to prolongation of time and resultant escalation
of costs. Of course the Respondent is enabled to combine all these causes of action in
one plaint, as postulated in the C.P.C provided each claim is itself justiciable. Even
the Respondent has argued before the High Court that the suit was based on
successive breaches committed by the Appellant State. In our opinion, the suit was
required to be filed within three years of the happening of each breach, which would
constitute a distinct cause of action. Article 55 specifically states that in respect of
successive breaches, the period begins to run when the breach in respect of which the
suit is instituted, occurs. In this vein, Rohtas Industries Ltd vs. Maharaja of
Kasimbazar China Clay Mines ILR (1951) 1 Cal 420 is apposite as it has held that
when a party agrees to deliver certain goods every month for a duration spanning
certain years, the cause of action for breach for failure to deliver in a particular month
arises at the end of that month and not at the end of the period of the contract. The
situation before us is similar in that the cause of action had arisen on each occasion
when the Appellant State failed to hand over the site at the contractually stipulated
time. Specifically, the limitation periods arose on 15.11.1976, 15.11.1977, 15.11.1978
and 15.11.1979, i.e. on the first day of each season, when the Respondent State
committed a breach by failing to hand over the site. Thus the period of limitation did
not commence at the termination of the contract period or the date of final payment.
The High Court’s conclusion that the last date of breach and last date of payment were
relevant, not each cause of action, was thus patently erroneous. For each breach, a
corresponding amount of damages for additional costs could have been sought. The
suit, however, was filed on 25.1.1985, well after the limitation period of three years
for even the final breach, as the various causes of action became time barred on
15.11.1979, 15.11.1980, 15.11.1981 and 15.11.1982 respectively.
10 There is another perspective on the method or manner in which limitation is to
be computed. We have already narrated that the Respondent, on every occasion when
the extension was sought by it, had requested to be compensated for delay. The
Appellant State had granted the extensions but had repudiated and rejected the
Respondent’s claims for damages. The effect of these events would be that the cause
of action for making the claim for damages indubitably arose on each of those
occasions. It is certainly arguable that the Appellant State may have also been
aggrieved by the delay, although the facts of the case appear to be unfavourable to this
prediction, since delay can reasonably be laid at the door of the Appellant. The
Respondent, however, could prima facie be presumed to have accepted a renewal or
extension in the period of performance but with the rider that the claim for damages
had been abandoned by it. If this assumption was not to be made against the
Respondent, it would reasonably be expected that the Respondent should have filed a
suit for damages on each of these occasions. In a sense, a fresh contract would be
deemed to have been entered into between the parties on the grant of each of the
extensions. It is therefore not legally possible for the Respondent to contend that
there was a continuous breach which could have been litigated upon when the contract
was finally concluded. In other words, contemporaneous with the extensions granted,
it was essential for the Respondent to have initiated legal action. Since this was not
done, there would be a reasonable presumption that the claim for damages had been
abandoned and given a go-by by the Respondent.
11 In a works contract, more often than not, delays occur, and that is why it is
assumed that time is not of the essence. Where extensions are asked for and granted,
there must be a clear and discernable stand on behalf of either of the parties that the
extension is granted and/or accepted without prejudice to the claim of damages. It has
become commonplace that neither party lodges a claim for damages, but waits for the
end of the contract to raise these disputes, taking advantage of the nebulous and
equivocal nature of the transactions between them. This, however, is not the position
that obtains before us since the Appellant State had categorically posited that the
claim for damages for the alleged delay on its part would not be entertained.
12 The Respondent has sought to place reliance on Section 19 of the Limitation
Act. It would be apposite to reproduce this Section:
19. Effect of payment on account of debt or of interest on legacy.—
Where payment on account of a debt or of interest on a legacy is made
before the expiration of the prescribed period by the person liable to pay
the debt or legacy or by his agent duly authorised in this behalf, a fresh
period of limitation shall be computed from the time when the payment
was made.Page 11
11
This Section would not come to the aid of the Respondent, as the suit before us is not
for payment on account of a debt or of interest on legacy, but is a suit for damages for
additional costs incurred as a result of the extension of the contract period. This Court
in Union of India vs. Raman Iron Foundry 1974 (2) SCC 231, after placing reliance
on Jones v. Thompson [1858] 27 L.J.Q.B. 234, has opined that a claim for damages
does not give rise to a debt until the liability is adjudicated and damages have been
assessed by a decree or any order of a Court or any other adjudicatory authority or
forum. Furthermore, in J.C. Budharaja vs Chairman, Orissa Mining Corporation Ltd.
and Anr (2008) 2 SCC 444, it has been held that the effect of Section 19 would be to
allow a fresh period of limitation with regard to the 'existing debt' in respect of which
acknowledgment and payment has been made. It would not extend the period of
limitation for any fresh claim, or any amount not accepted by the other party. In the
factual scenario before us, the payment of the Final Bill and Security Deposit could
not be construed to accept or acknowledge the damages raised by the Respondent and
therefore Section 19 would not per se extend the period of limitation. Furthermore,
there could be no extension under Section 18 on account of the acknowledgement in
writing, as at each point that the Respondent raised a claim for damages, it was
specifically refuted by the Appellant State, and the amounts that were accepted by the
Appellant State were limited to the liabilities within the contract, not fresh liabilities
for damages.
13 The Respondent has also argued that since notice under Section 80 of the
C.P.C. was served to the Appellant State claiming damages on 7.8.1983, a period of
two months from the date of the notice would have to be excluded when calculating
the period of limitation, as per Section 15(2) of the Limitation Act. It has relied on
M/s Disha Constructions vs. State of Goa (2012) 1 SCC 690 to this end. However,
since the limitation period for the last breach alleged by the Respondent itself ended
on 15.11.1982 and the notice under Section 80 C.P.C. is dated 7.8.1983, this
provision is irrelevant. The notice perforce should have been issued before the suit
became time barred, and only if so done would the period have been extended for a
further two months.
14 It is thus clear that the Respondent failed to file the suit for damages within the
period prescribed in the Limitation Act. The suit is required to be dismissed on this
ground alone. The impugned Order is, therefore, set aside, and the Appeal is allowed,
but with no order as to costs.
……………………………..J.
(VIKRAMAJIT SEN)
……………………………..J.
(SHIVA KIRTI SINGH)
New Delhi,
October 16, 2015.
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