NIRANJAN LAL DALMIA Vs. UNION OF INDIA

JUDGEMENT

(1.) What is the legal nature of the action or inaction of theovernment in refusing or failure to pay the price of the goods supplied to it by the petitioner? What if the Government does so because it says that it has a claim for damages against the seller of the goods which is neither admitted nor has yet been adjudicated upon? Is it only a breach of contract and as such to be the subject-matter of either arbitration or suit? Or is it illegal executive action by Government which can be quashed by a writ in the nature of mandamus? This is the core of controversy in the present case.

(2.) The tender of the petitioner for the supply of 10,000 Nos. of tents 180 Ibs. MK-3 Vat OG. amounting to Rs. 4,30,000.00 to be supplied by November 30, 1968 was accepted by the Union of India (Respondents) on February 24, 1968. The period of delivery was extended by the respondents on certain conditions. On August 18, 1969 the respondents cancelled the contract of the petitioner alleging that the petitioner had failed to deliver the goods before November 30, 1963 which date was subsequently extended to February 15, 1969 and May 31, 1969. The petitioner was told that the extra expenditure incurred in the risk purchase necessitated by the petitioner's failure to perform the contract would be intimated to the petitioner without prejudice to the rights of the respondents as per the terms and conditions of the contract. On April 18, 1975 the respondents informed the petitioner that they were entitled to claim from him a sum of Rs. 32,250.00 towards general damages. On the petitioner's failure to pay the same further action as per terms and conditions of the contract would be taken against him. What action the respondents would take as per terms and conditions of the contract has not yet been stated. Whether the respondents would make a claim against the petitioner in arbitration or by way of a civil suit is not yet known. It is only when some definite action is taken against the petitioner by the respondents to prove their claim for damages and to recover the same after adjudication that the petitioner can be said to have some cause of action against the respondents. Till then a writ petition like the present one filed by the petitioner would be premature.

(3.) Shri C. N. Murty, counsel for the petitioner, however, prays that the letter of April 18, 1975 may be read in the context of a previous office order No. 46 dated February 12, 1975 issued by the respondents consequent on the decision of the Supreme Court in Union of India v. Raman Iron Foundry and Union of India v. Air Foam Industries Pvt. Ltd., AIR 1974 S.C. 1265, (1) Clause 18 of the General Conditions of Contract which are attached to all contracts of the respondents stated that whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum firstly by appropriating the security furnished by the contract. In the event of the security being insufficient, "the entire sum recoverable shall be recovered by appropriating any sum then due or which at any time thereafter may become due to the contractor under the contract or any other contract with the purchaser or the Government......... (and) if such sum even be not sufficient to cover the full amount recoverable, the contractor shall on demand pay to the purchaser the balance remaining due". It was argued for the Government before the Supreme Court in Raman Iron Foundry and Air Foam Industries case that clause 18 would apply even when a mere claim for payment of sum of money arises out of the contract against the contractor and that it was not necessary that a sum of money must be actually due and payable from the contractor to the purchaser. Rejecting the contention, it was held by the Supreme Court that the Government could exercise the right conferred by clause 18 only when the claim is for a sum which is presently due and payable by the contractor. The sum becomes due and payable only when it is either admitted by the contractor or has been adjudicated upon (in an arbitration or in a suit). Till then the Government cannot recover the said claim from money admittedly due from the Government to the contractor and cannot appropriate the said money towards the claim. The office order No. 46 of February 12, 1975 issued on the advice of the Ministry of Law, therefore, directthe officers of the Directorate General of Supplies and Disposals that the demand for damages from the contractor should be made in the form which is Annexure I to the said circular. The demand of April 18, 1975 is in that form. Counsel for the petitioner argues that the Government have, therefore, obviously decided to withhold the payment of Rs. 32,250.00 payable to the petitioner by the Government to enable the Government to take necessary action to have the claim of the Government finally determined by an arbitrator or a court of law in terms of the contract. Counsel for the petitioner points out that the Supreme Court has held that the Government does not have a lien on the amount due from the Government to the petitioner and it cannot, therefore, withhold the payment of the said amount to the petitioner.