VENKATESH CONSTRN.CO. Vs. KARNATAKA VIDYUT KARKHANE LTD.(KAVIKA)

Tags Work Contract

Supreme Court of India (Full Bench (FB)- Three Judge)

SPECIAL APPEAL DEFECTIVE, 461-462 of 2016, Judgment Date: Jan 20, 2016

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 461-462 OF 2016
(Arising out of SLP (C) Nos.29680-29681 of 2010)

VENKATESH CONSTRUCTION COMPANY ….Appellant

Versus

KARNATAKA VIDYUTH KARKHANE
LIMITED (KAVIKA) ...Respondent

J U D G M E N T

R. BANUMATHI, J.

Leave granted.

2. These appeals assail the judgment dated 15.06.2010 in R.F.A. Nos.1051
of 2003 and 1076 of 2003, by which the High Court of Karnataka vide the
common impugned judgment reversed the judgment of the trial court and
allowed the appeal of respondent-defendant. While doing so, the High Court
dismissed the cross-appeal preferred by the appellant-plaintiff.
3. Briefly stated case of the appellant-plaintiff is that
appellant-company is engaged in construction of dams and other civil works
and registered as a civil contractor for the Government of Karnataka
amongst others. The respondent-defendant invited tender on 17.08.1991 “for
constructing a compound wall along the boundary line of Kavika and also for
constructing underground sump, shed to store useful laminations and also
core assembly shop for these works”. The appellant responded to the said
tender and appellant’s tender was accepted by the respondent. On
12.02.1992, a contract was executed between the appellant and the
respondent incorporating the terms and conditions and the cost of work was
estimated at Rs.10,86,200/-. The appellant had quoted the rates on the
premise that the earth work for the foundation was to the depth of 1.5
metres and average width of 4.25 metres. However, after the work commenced,
even while digging earth to one foot depth, it was noticed that soil was
caving in and there was seepage of water from Vrushabhavathi river. The
appellant was instructed by the respondent’s engineers to dig earth up to
four metres depth until hard soil bed is reached. Accordingly, in order to
make a trench of four metres depth, appellant had to excavate earth
commencing from width of six metres at the ground level and the entire
nature of work changed and appellant had to incur additional expenses on
account of the changed plan. The changed measurements were verified by the
engineers nominated by the respondent and a payment of Rs.4,50,000/- was
made in two running bills. The respondent then asked the appellant to stop
the work till the new designs are given by the respondent which was not
forthcoming. Vide several letters appellant sought permission for
continuation of the work, but, there was no response from the respondent.
Finally, after issuing legal notice dated 15.03.1993, for which no reply
was given by the respondent. The appellant filed a civil suit being
Original Suit No.11037 of 1993 in the court of Additional City Civil Judge,
Bangalore, making a claim of rupees thirty lakhs under various heads,
interalia, on the work already completed, towards the extra earth work,
stocking of materials and also liquidated damages and others.
4. Admitting the execution of the contract dated 12.02.1992, the
respondent filed a written statement contending that the construction of
the compound wall was in accordance with the estimate and the question of
the respondent’s directing the appellant to stop the ongoing work for want
of fresh design did not arise. Respondent averred that the appellant
unilaterally stopped the work and there is no question of defendant making
further payment. It was averred that no extra work was done by the
appellant and the respondent was not liable to pay any amount either
towards the damages or towards the alleged loss sustained by the appellant.

5. On the above pleadings, trial court framed seven issues. To
substantiate the claim, appellant-plaintiff examined four witnesses and
produced thirty three documents. On behalf of respondent-defendant, DW-1-
Jagadeesh Kumar-Deputy Manager was examined and five documents were
produced. Upon consideration of evidence adduced by the parties, the first
three issues were answered in favour of the appellant-plaintiff viz.: (i)
appellant’s claim as to extra work; (ii) respondent’s direction to stop
the running work for want of revised design and (iii) due to stoppage of
work side embankment began to fall in the trench due to the seepage of
water and involving double work for the appellant-plaintiff to remove the
fallen loose earth. Taking note of the fact that the respondent had paid
only a sum of Rs.4,36,575/- to the appellant out of the assessed value of
Rs.5,82,100/-, trial court calculated the balance of Rs.1,45,525/- as the
balance amount payable in respect of completed portion of the work. On the
value of building material stock, trial court awarded Rs.1,00,000/- as
against the appellant’s claim of Rs.6,00,000/-. Trial court decreed the
suit in respect of extra earth work, embankment work and other heads and
directed the defendant to pay in all a sum of Rs.3,23,000/- to the
appellant with proportionate cost and interest on the said amount at 12%
per annum from the date of the suit till the date of realization.
6. Being aggrieved, respondent as well as the appellant preferred
appeals before the High Court and both the appeals were heard together and
disposed of by the impugned judgment. Referring to the contract, the High
Court held that the written contract governs the terms between the parties
and any variation thereof ought to be in terms of the provisions of clause
11 of the contract and the appellant having not gone through the procedure
envisaged under clause 11, the appellant cannot putforth a claim for a
higher payment on the premise that it has executed some extra work over and
above the stipulated quantity of the work. The High Court reversed the
judgment of the trial court observing that the trial court acted more like
an arbitrator in examining the suit claim and that the trial court erred in
passing the decree in favour of the appellant-plaintiff for a sum of
Rs.3,23,000/- with interest and proportionate cost.
7. Learned counsel for the appellant Mr. Partha Sil has contended
that the High Court failed to appreciate that the change in work which
materially changed the nature of intended work mentioned in the tender
document which was admitted by DW-1-Jagadeesh Kumar during trial. It was
further submitted that the High Court erred in ignoring the evidence
adduced by the appellant which clearly establish that the respondent
directed the appellant to stop the work resulting in double work due to
soil caving in trenches causing severe financial loss and hardship to the
appellant. It was submitted that upon appreciation of evidence when the
trial court recorded findings of fact, the High Court was not right in
reversing the same.
8. Per contra, learned Senior Counsel for the respondent Mr. P.
Vishwanatha Shetty submitted that appellant was appointed to complete the
given work as per the terms of the contract and it was the duty of the
appellant to collect the relevant information before making an offer and
the appellant was not justified in making an exaggerated claim of rupees
thirty lakhs which is thrice the estimated cost of the work. It was
submitted that the appellant failed to prove that he had purchased material
and they were brought to the site and there is no acceptable evidence to
show that the appellant had stored large quantities of material in the
site. It was submitted that the plea of the appellant that he was orally
asked to stop the work and to await revised design is totally baseless and
the High Court rightly reversed the judgment of the trial court.
9. We have carefully considered the rival contention and perused the
impugned judgment and also the judgment of the trial court and other
material on record.
10. PW-1-Venkatesh, who is the proprietor of the appellant-company stated
that the alignment of compound wall to be constructed is in line with the
existing flow of water from the river and that excavation for the compound
wall was done in the river itself and when the work commenced, water
started collecting in the trenches and the plaintiff had to dewater the
same simultaneously. PW-1 further stated that the appellant requested the
respondent to consider the matter and accord sanction for extra items
namely, making temporary drain, dewatering work and that the appellant had
to do extra work for removal of loose earth and this caused double work for
the appellant. PW-3-Hanumegowda, working as a supervisor under the
appellant corroborated the version of PW-1 and stated that while doing the
foundation work, seepage water from river flooded in and collected in
trenches and the appellant had to do extra work in dewatering and removal
of loose earth. PW-3 further stated that as per the estimate, depth of the
earth excavation for the foundation work was only four feet and while
digging the trenches it was found that the soil was loose and that the
engineers of the respondent told the appellant to dig the earth to a
further depth till hard soil bed is reached and on this score also, the
appellant had to do extra work. The version of PWs 1 and 3 is fortified by
letter dated 06.05.1992 (Ex. P4) sent by the appellant to the respondent
stating that there was seepage of water in the trench and that embankment
had fallen in the trench and that the appellant has to do extra work in
dewatering and removing the loose soil. Inspite of repeated letters (Exs.
P4 and P5), there was no response from the respondent.
11. DW-1-Jagadeesh Kumar working as Deputy Manager with the respondent
had stated that the parties were not aware of the soil strength at the time
of entrustment of the work to the appellant. However during cross-
examination, DW-1 admitted that before commencement of work, both parties
were unaware of nature of different strata of soil. He also stated that in
case soil testing had been done before, the records would have been
available with the respondent. But no such record was produced by the
respondent. Be it noted that the defendant has not adduced any evidence to
discredit the testimony of PWs 1 and 3 that extra work was required to be
done on account of seepage of water and soil caving in and widening and
deepening the trench. On appreciation of evidence of PWs 1 and 3 and other
documentary evidence, the trial court recorded the findings of fact that
the appellant had to do extra work incurring additional expenditure.
12. In so far as the direction of the respondent to stop the work,
PW-1 stated that during the first week of April, 1992 officials of the
respondent had asked the appellant to stop the work for getting the design
from the architect on account of seepage of water. PW-2-Raghavendra Rao
working as Civil Engineer in the appellant company, has also corroborated
the version of PW-1 and stated that the respondent asked the appellant to
stop the work and that the work could be resumed later. Though DW-1 stated
that the defendant did not issue any letter to the plaintiff complaining
against the stopping of work, he also stated that the plaintiff was orally
told about the same. By perusal of various letters, it is seen that
inspite of number of letters by the appellant seeking permission to
continue the work, there was no response from the respondent. Absence of
any response on the part of the respondent, only indicates that the
respondent was aware of the change of nature of work.
13. PW4-Naresh Kumar-architect had stated about his visit to the work
site at the request of the respondent for preparing the design after the
masonry wall for the length of hundred metres was over and that he gave the
revised design and PW-4 estimated the cost of the work as per the revised
design at rupees twenty lakhs. PW-4 was engaged to prepare the design
suitable to the soil strength only because of the change in the nature of
the work. Otherwise the need for engaging PW-4 for preparing new design
would not have arisen if the earlier design would have been suitable. On
appreciation of evidence, trial court rightly answered issue No.2 in favour
of the appellant that the respondent asked the appellant to stop the
running work for want of revised design.
14. The High Court took note of clause 11 of the contract dated
12.02.1992 which states that the contractor is not authorized to do any
extra work or make any alteration without the previous consent in writing
of the respondent. High Court set aside the findings recorded by the trial
court holding that the parties are governed by the terms of the written
contract and any variation with the terms of the agreement was required to
be done strictly adhering to clause 11 of the contract. While saying so,
the High Court brushed aside the admission by DW-1 that extra work was done
by the appellant and the High Court was not right in ignoring the same to
hold that the admission of DW-1 cannot have the effect on the contractual
obligation of the parties. It is to be pointed out that the respondent has
not raised the plea relying upon clause 11 of the contract. Further, by
perusal of Ex.P2 dated 20.12.1991, a letter addressed by the appellant to
the respondent informing the respondent about the extra work which needs to
be done and the fact that PW-4 was engaged by the respondent to prepare the
new design for the work, it is evident that the respondent was aware of the
fact of the change in the nature of work and that there is alteration in
the work done by the appellant. When the evidence and material clearly
depict the change of nature of work involved and when the extra work to be
done was also admitted by DW-1, parties cannot be expected to go for a
revised agreement/contract. Moreover, having regard to the fact that the
work was to be completed within a specified time-frame, the parties cannot
be expected to go for a second round of negotiation and reframe the terms
and conditions of the work. While so, the High Court was not right in
placing reliance upon clause 11 of the contract to reverse the findings of
fact recorded by the trial court.
15. So far as the claim of the appellant that it suffered loss due to
loss of stock of material, PWs 1 and 3 have stated that they have stocked
the material of worth about rupees six lakhs at the work site. The
appellant also produced several letters (Exs. P5, P6 and P7) by which the
appellant has informed the respondent that there was no progress in the
work and that the building material are lying waste. Apart from these
letters, the appellant has also produced photographs (Exs. P18 to P28) to
substantiate their claim that the building material like bricks, size
stones and other materials were stocked at the work site. Even though the
appellant has claimed rupees six lakhs on account of loss of the material
stocked, as the appellant had not produced any bill relating to purchase of
material nor produced authentic trip sheet, the trial court rightly
awarded rupees one lakh only on account of loss of building material. As
noticed earlier, based on the evidence of PWs 1 and 3 and other documents,
the trial court has awarded amount on various other heads viz., the amount
payable in respect of:- (i) extra earth work; (ii) embankment work; (iii)
extra soiling work; (iv) extra bed concrete work and (v) extra stone
masonry work. The amount so awarded by the trial court under various heads
is based on evidence and material on record.
16. The Appellate Court may not interfere with the finding of the trial
court unless the finding recorded by the trial court is erroneous or the
trial court ignored the evidence on record. The High Court reversed the
decree passed by the trial court without discussing oral and documentary
evidence and several grounds raised before the trial court. The High Court
veered away from the main issue and went on to elaborate on the law of
arbitration and the mode of setting aside the arbitral award under Section
34 of the Arbitration Act, which in our view, was not warranted. Without
considering the oral and documentary evidence, the High Court erred in
interfering with the factual findings recorded by the trial court and the
impugned judgment is liable to be set aside.
17. Trial court directed the respondent to pay a sum of Rs.3,23,000/- to
the appellant with interest at the rate of 12% per annum from the date of
suit till the date of realization. To award interest from the date of suit
to date of decree and from the date of decree till the date of realization
is entirely discretionary. The terms of the contract do not specify any
rate of interest. In the facts and circumstances of the case and having
regard to the fact that the matter is pending for over two decades and in
the interest of justice, it is appropriate that the interest of 12% per
annum awarded by the trial court is reduced to 6% per annum.
18. In the result, the impugned judgment is set aside and the appeals are
allowed. The judgment and decree passed by the trial court is restored
with the modification of reduction of interest at 6% per annum from the
date of the suit till the date of realization. In the facts and
circumstances of the present case, no order as to costs in these appeals.

…………………….…CJI.
(T.S. THAKUR)

………………………….J.
(A.K. SIKRI)

..………………………..J.

(R. BANUMATHI)
New Delhi;
January 20, 2016

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