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CASE NO.: Appeal (civil)  4854 of 2000

PETITIONER: Kerala State Science & Technology Museum

RESPONDENT: Rambal Company & Ors

DATE OF JUDGMENT: 02/08/2006

BENCH: ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T

WITH CIVIL APPEAL NO. 3211 OF 2006 (Arising out of SLP (C) No. 7048/2001)

ARIJIT PASAYAT, J.  

       Challenge in these appeals is to the judgment of a  Division Bench of the Kerala High Court holding that  quantification of damages done and demanded from the  respondent No.1 cannot be legally sustained and accordingly  they were set aside. The writ petition was directed to be placed  before the Division Bench by a learned Single Judge.  But the  question referred by learned Single Judge i.e. question of  limitation was left open to be adjudicated by the appropriate  authority in accordance with law.   

The background facts in a nutshell are as follows :-

The respondent No.1 had entered into Ext. P1 agreement  with the appellant-Kerala State Science and Technology,  Thiruvananthapuram which is a society registered under the  Travancore Cochin Literary and Scientific Societies  Registration Act, 1995, on 16.05.1988 for the construction of  planetarium building of the Kerala State Science and  Technology Museum and allied Civil Works. Dispute having  arisen between the parties the agreement came to be  terminated by Ext. P2 termination notice dated 03.11.1989  issued by the appellant. Ext. P2 was followed by Ext. R1(c)  letter from the managing Partner of the respondent No.1  allegedly admitting the breach of contract. Suit notice dated  06.11.1990 issued by the appellant to the respondent No.1  which was replied by it as per Ext. P3 dated 31.12.1990  repudiating the alleged breach and raising a counter-claim.  According to the respondent No.1 there was a long silence  after Ext. P3 which was broken on 12.01.1998 on which date  it received Ext. P4 demand notice from the Deputy Tahsildar  (RR), Thiruvananthapuram under Section 34 of the Revenue  Recovery Act 1968 calling upon it to remit an amount of  Rs.22,10,303/- with future interest at the rate of 12% from  01.04.97. On receipt of Ext. P4 the respondent No.1 moved the  High Court with Arbitration Request No.2/98 under Section  11 of the Arbitration and Conciliation Act, 1996 for the  appointment of an arbitrator for resolution of all disputes and  differences between the parties concerning the performance of  the work under Ext. P1 agreement. The request was resisted  by the appellant contending, inter-alia, that there is no

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provision for arbitration in Ext. P1 agreement. It was also  contended that as per clause 54 of Ext P1 agreement, there is  a specific exclusion of resolution of disputes by arbitration and  the Civil Courts at Thiruvananthapurarn alone are clothed  with jurisdiction to resolve the disputes arising between the  parties out of Ext.P1 agreement. In other words, not only Ext.  P1 does not contain an arbitration clause, on the contrary,  Ext. P1 specifically rules out arbitration as a mode of  settlement of disputes or claims arising out of Ext. P1.  Accepting the said contentions the High Court rejected the  request. After the said order was passed by the High Court,  the respondent No.1 filed writ petition, being O.P. No.  22633/98 to quash Ext. P4 demand notice and for other  reliefs which came to be disposed of by judgment dated  17.11.98 directing the District Collector to consider and pass  orders on the representation preferred by the respondent No.1  within one month from the date of receipt of a copy of the  judgment. Pending issuance of orders by the District Collector  as aforesaid, the demand notice as evidenced by Ext. P4 was  stayed. As a sequel to the judgment, the District Collector  passed an order rejecting Ext. P8. Upon rejection of Ext.P8 by  District Collector’s order Ext.P4 was revived and the  respondent No.1 was called upon to pay the amount  mentioned therein being the loss suffered by the appellant in  re-arranging the work at the risk and cost of the respondent  No.1.  It was at this stage, that the said respondent moved the  High Court by filing a writ petition praying for the issuance of  a writ of certiorari or any other appropriate writ, direction or  order quashing the order and Ext.P4 demand notice as illegal  and arbitrary and for the issuance of a writ of mandamus  declaring that revenue recovery proceedings may be initiated  against the respondent No.1 only after prior adjudication by a  court of law or any other independent judicial/quasi-judicial  body and other reliefs.

When the writ petition came up for hearing before learned  Single Judge, it was contended by the learned counsel for the  writ-petitioner that since breach of contract is not admitted, the  first respondent (present appellant), standing in the position of  another party to the contract, cannot unilaterally assess the  damage alleged to have sustained by it on account of the alleged  default on the part of the writ-petitioner. It was also contended  that the amount demanded as per Ext. P4 is time barred.  Further contention of the writ-petitioner was that since the  entire proceedings are barred, a time barred debt cannot be  recovered by recourse to revenue recovery proceedings. Stand of  the first respondent (present appellant) it is a society owned by  the State and, therefore, Article 112 of the Limitation Act, 1963  (in short the ’Limitation Act’) is applicable and in that view, the  demand raised is well within time. In view of the nature of the  contentions raised, learned Single Judge felt that the matter  should be placed before a Division Bench.

The Division Bench proceeded on the basis as if the main  question that arose for consideration was where a breach of  conditions of a contract is not admitted, whether is open for  the contractee to adjudicate upon the disputed question of  breach as well as to assess the damages arising from the  breach.  Though the High Court take note of the fact that the  appellants placed reliance on the document Ex.RI (C) to  contend that there was admitted breach of contract which  resulted in termination of the contract, the respondent No.1  disputed the position and submitted that no breach of  contract can be spelt out as seen from the document Ex.P3.   High Court came to the conclusion that one of the contracting

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parties cannot adjudicate upon a disputed question of breach  as well as assess the damage arising from the breach. It,  however, noted that the position would be different where  there is no dispute or there is consensus between the  contracting parties regarding breach of conditions.  In such a  case an officer of the State even though a party to the contract  will be well within its right in assessing the damages in view of  the specific terms of clause 12 of the Contract.

In support of the appeals, learned counsel for the  appellants submitted that there was no dispute about breach  of contract.  In fact, in the letter dated 14.2.1990 Ex.R1(C) it  was accepted that there was breach of contract. The relevant  portions of the document read as follows :

"We fully realize that the above demand  put forth by the then General Manger  Sreekumar asking for enhancement of rates is  against the spirit of the agreed contract and  that is why the museum and the Government  took the decision to rearrange the work  through some other agency at out risk and  cost.

We therefore, humbly request you to  kindly permit us to withdraw the company’s  letter referred above and offer the said work by  our company.

1.      We are ready to complete the work  without any change in the rates for all  times of work that we have agreed  previously.

2.      We are ready to complete the work in  all aspects without even giving us any  Mobilisation advance by the museum.

3.      We request for an extension of 12  months time to complete the work in all  respects and we will strive our level best  to finish the same much in advance."

It was further submitted that before the learned Single  Judge it was not disputed that there was a breach of contract.  In fact, the only point urged before learned Single Judge  related to the question whether the claim was barred by time.   Stand was that a time barred demand cannot be enforced  through revenue recovery proceedings. That was the issue  which forms subject-matter of dispute and considering the  importance of that matter, learned single judge felt that the  matter should be heard by a Division Bench. It was submitted  that when a reference is made by learned Single Judge to the  Division Bench on a particular issue, the Division Bench  cannot travel beyond that issue and decide other matters.

       In response, learned counsel for the respondent No.1  submitted that in fact there was no reference by learned Single  Judge, who only held that considering the importance of the  matter the case should be heard by a Division Bench. It is also  submitted that there was dispute regarding breach of  conditions of contract.   

It is fairly well settled that when reference is made on a

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specific issued either by a learned Single Judge or Division  Bench to a larger Bench i.e. Division Bench or Full Bench or  Constitution Bench, as the case may be, the Larger Bench  cannot adjudicate upon an issue which is not the question  referred.  (See: Kesho Nath Khurana v. Union of India and  Others [1981 (Supp.) SCC 38], Samaresh Chandra Bose v. The  District Magistrate, Burdwan and Others [1972 (2) SCC 476]  and K.C.P. Ltd. v. State Trading Corporation of India and  Another [1995 Supp. (3) SCC 466]. In the instant case, there was no reference to Division  Bench. Learned Single Judge felt that in view of the  contentions, a Division Bench should hear the case.   

We find that before learned Single Judge there was  practically no dispute that there was breach of conditions of  contract.  In fact learned Single Judge noted the position as  follows:

"The question of termination of contract with  effect from 25.11.1989 is not disputed.   Petitioner did not challenge the termination  order.  As per the terms of the contract, if it is  re-tendered, the difference in the re-tender  amount and the loss suffered have to be paid  by the petitioner apart from the liquid  damages."

                                       (Underlined for emphasis)

The learned Single Judge also noted that the main  contention of the writ petitioner was that the amount  demanded was time barred.  Reference was made to Section  71 of the Kerala Revenue Recovery Act, 1968. Therefore, it was  contended before learned Single Judge that when the matter is  time barred even if the demand is correct it cannot be enforced  through revenue recovery proceedings. Stand of the appellants  on the contrary was that the society is owned by the State  and, therefore, Article 112 of the Limitation Act, 1963 is  applicable and the demand was raised within time.   

       Considering the rival submissions learned Single Judge  held that in view of the nature of contention the matter should  be heard by a Division Bench.

       Unfortunately the Division Bench did not consider the  contentions which were raised before the learned Single  Judge. It also did not record any positive finding as to whether  the document relied upon by the appellant clearly established  admission of a breach of contract. The portion of the order of  learned Single Judge, quoted above, suggests that there was  no dispute when read in the context of the letter dated  14.2.1990.  

As rightly contended by learned counsel for the appellant  the basic issue related to the question whether the demand  was barred by limitation.  As noted above the Division Bench  of the High Court did not examine this question.

Above being the question we set aside the order of the  Division Bench and remit the matter back for fresh  consideration limiting the examination to the question whether  the demand by barred by limitation. Interim order dated  1.10.1999 shall be operative till the disposal of the matter by  the Division Bench. We make it clear that merely because  interim protection has been given that shall not be considered

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to be expression of opinion on merits.

The appeals are disposed of accordingly. No costs.