DATE: 24th November, 2020
JUDGES:
- Indira Banerjee
- S. Ravindra Bhat
PARTIES: Chief Executive Officer and Vice Chairman Gujarat Maritime Board(APPELLANT)
Asiatic Steel Industries Ltd and ors. (RESPONDENT)
SUBJECT
AN OVERVIEW
1. In the present case the hearing an appeal against the judgement of High Court of Gujarat through which the High Court allowed the writ petition filed by the respondent in the present case and directed the Gujarat Maritime board to the refund along with 6% interest.
2. The appellant in this case had issued a notice for allotment of plot for the purpose of ship-breaking for which the respondent had made the highest bid and thus, was allotted the plot for a sum of Rs 3, 61, 20,000. The earnest money deposit paid was a sum of Rs.5,00,000.
3. Later on, the allottees approached the board and stated that there was difficulty in commercial operations due to the connectivity to the plots and the existence of rocks inhibiting beaching of ships on the plot for the purpose of ship-breaking. The board through a notice stated an amount of Rs. 3, 61, 20,000 but without interest and that too only to the second respondent and not Asiatic Steel Industries.
4. Aggrieved, the respondent filed a writ petition in the High Court of Gujarat seeking
(i) refund of USD $ 1,153,000 with interest of 12% per annum compounded quarterly, to the third respondent, M/s Industeel Investment Holdings (hereafter “Industeel”, which had made the payment originally on behalf of Asiatic Steel); and
(ii) refund of earnest money of ₹5,00,000/- with interest of 12% per annum, compounded quarterly to Asiatic Steel.
5. The high court directed the board to pay the earnest money along with 10% interest and 6% interest on the principal form.
6. Aggrieved by this judgement, the appellant has filed a petition before the Supreme Court of India. It was contended by the board that according to sections 73 and 75 of the Indian Contract Act, compensation can be claimed only for loss or damage caused by breach of contract or cancellation of contract. None of these happened in the present scenario. Also, as per section 64 and 65 of the act, restoration of benefits and compensation can be awarded in case of void and voidable contracts which is not case here.
7. It was also contended that the board had already refunded the entire amount to Asiatic Steel.
8. The respondent on the other hand contended that the board agreed and promised to remove rocks from the surrounding area and develop an infrastructure. The board already took 4 years to take actions on its promise. Other bidders also suffered from the same issue and approached the court for relief. It was further stated that the board did not fulfil its promise due to which the respondent could not start commercial production and had to abandon the site. In the course of these events the respondent incurred heavy losses.
9. The respondent further submits that the fact that the Board agreed to refund the premium and the earnest money shows their acceptance that they have been unable to provide the promised plots.
10. It was further argued that the the primary obligation of the Board was to provide a suitable plot for ship breaking and it does not imply that the Board can allot any piece of land that is of no utility to the bidder, and be absolved of liability.
11. To this argument the appellant responded that the case in of a contractual dispute and without breach, compensation cannot be ordered.
IMPORTANT PROVISION
INDIAN CONTRACT ACT
- Section 73- Compensation for loss or damage caused by a breach of contract-When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract.-When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation.-In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.
- Section 75- Party rightfully rescinding contract, entitled to compensation-A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract.
- Section 64- Consequences of rescission of a voidable contract-When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received
- Section 65- Obligation of person who has received advantage under void agreement, or contract that becomes void-When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.
ISSUE
The key issues before the court in the present case are as below:-
- Whether interest on payment should be calculated from 24.03.1995 to 15.04.2002, or from 19.05.1998?
- Whether the earnest money of 5,00,000 should be refunded?
- Whether interest should be calculated at 10% p.a. or 12% p.a.?
ANALYSIS OF JUDGEMENT
- Answering the contentions put forward by both the appellant and respondents, the court observed that Board never responded to the letters sent by the respondent. Also, the board did not respond to Asiatic Steel’s request for permission to carry out the clearance work. And, the board was ready to refund the amount with interest whenever any other bidder approached but it was silent whenever Asiatic Steels approached it. Therefore, the court observed that the board’s action left the respondent choice other than taking the matter before the court.
- The court expressly stated that the Board’s action in entirely unacceptable. As a public body charged to uphold the rule of law, its conduct had to be fair and not arbitrary. Its conduct reveals that it wished that the parties should approach the court, before it took a decision. This behavior of deliberate inaction to force a citizen or a commercial concern to approach the court, rather than take a decision, justified on the anvil of reason (in the present case, a decision to refund) means that the Board acted in a discriminatory manner.
- Further the court observed that the Asiatic Steel did not pay the entire amount as dated 08.11.1994. Rather, the principal consideration was submitted on 24.03.1995. Thus, the Supreme Court observed that, on this issues the High Court was at fault and directed to pay interest on ₹3,61,20,000 from 22.03.1995 to 19.05.1998.
- Therefore, the court dismissed the appeal stating that the conduct of Board betrays a callous and indifferent attitude.
CONCLUSION
- The decision of the Supreme Court in the present case is undoubtedly laudable and bold. At first glance, the case would completely seem to be contractual dispute which in normal instances would require breach of contract for compensation and only a civil suit would be permissible.
- However, in the present circumstances, the manner adopted by the board had left no other choice for the respondents than to approach the court. Public bodies are an instrumentality and it has to ensure that it protects its own interest and along with it ensures fairness. It cannot act arbitrarily at its own whims.
- Therefore, the acts of a public authority have to be guided by public trust.
Click here to download the original copy of the judgement
