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Sunday, February 24, 2013

sec.74 of contract Act- The scope of Section 74 has been the subject matter of several pronouncements of this Court including the Constitution Bench decisions in Fateh Chand v. Balkishan Das AIR 1963 SC 1405, Union of India v. Ramam Iron Foundry (1974) 2 SCC 231 and SAIL v. Gupta Brother Steel Tubes (2009) 10 SCC 63. The common thread that runs through all these pronouncements is that an aggrieved party is entitled to receive compensation from the party who has broken the contract whether or not actual damage or loss is proved to have been caused by the breach and that the Court has, subject to the outer limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to the circumstances of the case. This would essentially be a mixed question of law and fact that a Writ Court could not possibly decide. The appellant could and indeed ought to have sought its remedies in a proper civil action if it questioned the reasonableness of the amount recoverable by the appellant in terms of the contractual stipulations.


Page 1
 
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.  1517  OF 2013
(Arising out of S.L.P. (C) No.2490 of 2008)
M/s A.S. Motors Pvt. Ltd. …Appellant
Versus
Union of India & Ors. …Respondents
J U D G M E N T
T.S. THAKUR, J.
1. Leave granted.
2. This appeal by special leave arises out of an order dated 8
th
August,  2007,  passed  by  a  Division  Bench  of  the  High  Court  of
Madhya  Pradesh  at  Jabalpur  whereby  Writ  Appeal  No.491  of  2007
filed by the appellant has been dismissed and the order passed by the
learned  Single  Judge  dismissing  Writ  Petition  No.720  of  2007
affirmed.
Multiple rounds of litigation between the parties have been
aptly  recapitulated  in  the  order  passed  by  the  Single  Judge  of  the
High Court in Writ Petition No.720/2007 and refreshed by the Division
Page 2
Bench of the High Court while dismissing the writ appeal filed against
the same. It is in that view unnecessary for us to recount the entire
factual  background  in  which  the  controversy  in  this  appeal  arises
except to the extent it is absolutely necessary for us to do so for the
disposal of this appeal.
3. National  Highway  Authority  of  India  Ltd.  (NHAI  for  short)
invited tenders for award of a contract for collection of fee for the use
of National Highways from Km. 61.00 to Km.103 on Morena-Gwalior
Section of National Highway No.3. Appellant too among others made
an offer which was accepted by the NHAI in terms of its letter dated
14
th
 March, 2006 asking the appellant to submit a demand draft for a
sum of  Rs.2,20,00,125/-  towards  performance  security and  a  bank
guarantee for a similar amount to be valid for a period of 15 months
for the due observance of the terms and conditions contained in the
contract.  Both  these  requirements  were  satisfied  by  the  appellant
with the result that a contract for collection of user fee commencing
from  1
st
 April,  2006  to  31
st
 March,  2007  was  finally  allotted  in  its
favour.  It is not  in  dispute  that  pursuant  to  the  said allotment  the
appellant started collecting the prescribed fee as per the terms and
conditions  of  the  agreement  and  also  started  depositing  monthly
instalments stipulated under the same.
4. Certain  violations  were  in  due  course  noticed  by  the  NHAIPage 3
including  complaints  to  the  effect  that  the  appellant  was  collecting
excess fee from vehicles passing through Toll Plaza. This resulted in
the termination of the collection contract by the competent authority
in  terms  of  a  letter  dated  27
th
 July,  2006,  and  forfeiture   of  the
performance  security  of  Rs.2,20,00,125/-.  Termination  ordered  by
the  respondent  triggered  litigation  between  the  parties  that  took
several  rounds  before  the  High  Court.   We  are  not  immediately
concerned  with  the  nature  of  those  proceedings  and  the  orders
passed in the same from time to time.  What is important is that the
termination of the contract had once been quashed by the High Court
whereupon the same was terminated for a second time after a showcause notice and a personal hearing to the  appellant in compliance
with  the  direction  issued  by  the  High  Court  in  its  order  dated  25
th
January, 2007.
5. Aggrieved by the fresh termination of the contract as also the
forfeiture ordered by the competent authority, the appellant filed Writ
Petition No.720 of 2007 before the High Court of Madhya Pradesh. By
his order dated 18
th
 June, 2007, a  Single Judge of the  High Court
allowed  the  said  petition  in  part  and  while  upholding  imposition  of
penalty  and  forfeiture  of  performance  guarantee,  quashed  the
revocation of the bank guarantee  by the respondent, as unfair and
unreasonable  having  regard  to  the  fact  that  the  respondent  hadPage 4
already  received  Rs.7,33,33,750/-  towards  collection  charges,
Rs.2,20,00,125/- towards forfeiture of the performance security and
a  penalty  amount  of  Rs.2,41,097/-  making  a  total  of
Rs.9,55,74,970/- which was more than Rs.8,80,00,500/- the amount
contracted to be paid to the respondent.  The High Court held that
the termination of the contract and the forfeiture of the performance
security for the breaches committed by the appellant were perfectly
justified in the light of the report submitted by the agency deployed
by the  respondent  to collect material regarding overcharging of fee
and other violations committed by the appellant.
6. Feeling aggrieved by the order passed by the Single Judge of
the  High Court the appellant preferred Writ Appeal No.491 of 2007
which was heard and dismissed by a Division Bench of the High Court
by its order dated 8
th
 August, 2007. The present appeal assails the
correctness of the said order.
7. We have heard learned counsel for the parties at some length
who have taken us through the record including the orders passed by
the High Court from time to time.
8. It was argued on behalf of the  appellant that termination of
the contract between the parties was legally bad not only because the
principles of natural justice requiring a fair hearing to the appellant
were not complied with but also because there was no real basis forPage 5
the  respondent-authority  to  hold  that  the  appellant  had  committed
any breach of the terms and conditions of the contract warranting its
termination. We find no merit in either one of the contentions.  The
reasons are not far to see.  Rules of natural justice, it is by now fairly
well settled, are not rigid, immutable or embodied rules that may be
capable  of  being  put  in  straitjacket  nor  have  the  same  been  so
evolved as to apply universally to all kind of domestic tribunals and
enquiries.  What the Courts in essence look for in every case where
violation of the principles of natural justice is alleged is whether the
affected party was given reasonable opportunity to present its case
and whether the administrative authority had acted fairly, impartially
and reasonably.  The doctrine of  audi alteram partem is thus aimed
at  striking  at  arbitrariness  and  want  of  fair  play.   Judicial
pronouncements on the subject have, therefore, recognised that the
demands  of  natural  justice  may  be  different  in  different  situations
depending upon  not  only the  facts and  circumstances of each  case
but also on the powers and composition of the Tribunal and the rules
and  regulations  under  which  it  functions.   A  Court  examining  a
complaint based on violation of rules of natural justice is entitled to
see whether the aggrieved party had indeed suffered any prejudice
on account of such violation.  To that extent there has been a shift
from  the  earlier  thought  that  even  a  technical  infringement  of  thePage 6
rules is sufficient to vitiate the action. Judicial pronouncements on the
subject are a legion.  We may refer to only some of the decisions on
the subject which should in our opinion suffice.
9.       In  Suresh Koshy George  v.  University of  Kerala,  AIR
1969 SC 198, this Court while examining the content and the sweep
of  the  rules  approved  the  view  expressed  in  Russel  v.  Duke  of
Norfolk, [1949] 1 All ER 109 in the following words:
“7.  … … The rules of natural justice are not embodied rules.
The question whether the requirements of natural justice have
been  met  by  the  procedure  adopted  in  a  given  case  must
depend  to  a  great  extent  on  the  facts  and  circumstances  of
the case in point, the constitution of the Tribunal and the rules
under which it functions.
8. In Russel v. Duke of Norfolk, [1949] 1 All ER 109 at p.118,
Tucker, L.J., observed:
“There  are,  in  my  view,  no  words  which  are  of  universal
application to every kind of inquiry and every kind of domestic
tribunal. The requirements of natural justice must depend on
the circumstances of the case, the nature of the inquiry, the
rules  under  which  the  Tribunal  is  acting,  the  subject  matter
that  is  being  dealt  with,  and  so  forth.  Accordingly,  I do  not
derive much assistance from the definitions of natural justice
which  have  been  from  time  to  time  used,  but,  whatever
standard  is  adopted,  one  essential  is  that  the  person
concerned should have a reasonable opportunity of presenting
his case.”
10. In  Keshav Mills Co Ltd. v. Union of India, (1973) 1 SCC
380 this Court extracted with approval the observations of Lord Reid
in Ridge v. Baldwin, (1963) 2 W.L.R. 935 and said:
“8. … … We do not think it either feasible or even desirable to
lay down any fixed or rigorous yard-stick in this manner. The
concept of natural justice cannot be put into a straight-jacket.
It  is  futile,  therefore,  to  look  for  definitions  or  standards  of
natural  justice  from  various  decisions  and  then  try  to  apply
them to the facts of any given case. The only essential point
that  has  to  be  kept  in  mind  in  all  cases  is  that  the  personPage 7
concerned should have a reasonable opportunity of presenting
his  case  and  that  the  administrative  authority  concerned
should  act  fairly,  impartially  and  reasonably.  Where
administrative officers are concerned, the duty is not so much
to  act  judicially  as  to  act  fairly.  See,  for  instance,  the
observations of Lord Parker in In re H.K. (an infant), (1967) 2
QB 617.  It  only  means  that  such  measure  of natural  justice
should be applied as was described by Lord Reid in Ridge v.
Baldwin case (supra) as “insusceptible of exact definition but
what  a  reasonable  man  would  regard  as  a  fair  procedure  in
particular  circumstances”.  However,  even  the  application  of
the concept of fair-play requires real flexibility. Everything will
depend  on  the  actual  facts  and  circumstances  of  a  case.  As
Tucker, L.J., observed in Russell v. Duke of Norfolk, [1949] 1
All ER 109:
“The requirements of natural justice must depend on the
circumstances  of  the  case,  the  nature  of  the  enquiry,
the rules under which the tribunal is acting, the subjectmatter that is being dealt with and so forth.”
11. Reference may also be made to P.D. Agrawal v. State Bank
of  India,  (2006)  8  SCC  776,  where  this  Court  approved  the
observations made by Mukharji, J. in Charan Lal Sahu v. Union of
India, (Bhopal Gas Disaster)  (1990) 1 SCC 613, in the following
words:
“30.  The  principles  of  natural  justice  cannot  be  put  in  a
straitjacket  formula.  It  must  be  seen  in  circumstantial
flexibility.  It  has  separate  facets.  It  has  in  recent  time  also
undergone a sea change.
31. In  Ajit  Kumar  Nag  v.  G.M.  (PJ),  Indian  Oil  Corprn.
Ltd. (2005)  7  SCC 764, a three-Judge Bench  of this Court
opined: (SCC pp.785-86, para 44)
“44. We are aware of the normal rule that a person must have
a  fair  trial  and  a  fair  appeal  and  he  cannot  be  asked  to  be
satisfied  with  an  unfair  trial  and  a  fair  appeal.  We  are  also
conscious of the general principle that pre-decisional hearing
is  better  and  should  always  be  preferred  to  post-decisional
hearing.  We  are  further  aware  that  it  has  been  stated  that
apart from laws of men, laws of God also observe the rule of
audi alterem partem. It has been stated that the first hearing
in  human  history  was given  in  the Garden  of Eden. God did
not  pass  sentence  upon  Adam  and  Eve  before  giving  an
opportunity  to  show  cause  as  to  why  they  had  eaten  the
forbidden  fruit.  (See R. v. University  of Cambridge [1723]  1
Str 557)  But we are also aware that the principles of naturalPage 8
justice are not rigid or immutable and hence they cannot be
imprisoned  in  a  straitjacket.  They  must  yield  to  and  change
with  exigencies  of  situations.  They  must  be  confined  within
their  limits  and  cannot  be  allowed  to  run  wild.  It  has  been
stated:  “  ‘To  do  a  great  right’  after  all,  it  is  permissible
sometimes ‘to do a little wrong’.” [Per Mukharji, C.J. in Charan
Lal  Sahu  v. Union  of India, (Bhopal Gas Disaster)   (1990)  1
SCC  613,  at  705,  para  124.]  While  interpreting  legal
provisions,  a  court  of  law  cannot  be  unmindful  of  the  hard
realities  of  life.  In  our  opinion,  the  approach  of  the  court  in
dealing  with  such  cases  should  be  pragmatic  rather  than
pedantic,  realistic  rather  than  doctrinaire,  functional  rather
than formal and practical rather than ‘precedential’.”
xxx xxx xxx
xxx xxx xxx
39.  Decision  of  this  Court  in  S.L.  Jagmohan,  (1980)  4  SCC
379, whereupon Mr Rao placed strong reliance to contend that
non-observance  of  principle  of  natural  justice  itself  causes
prejudice  or  the  same  should  not  be  read  “as  it  causes
difficulty of prejudice”, cannot be said to be applicable in the
instant  case.  The  principles  of  natural  justice  as  noticed
hereinbefore,  have  undergone  a  sea  change.  In  view  of  the
decisions of this Court in State Bank of Patiala v. S.K. Sharma,
(1996)  3  SCC  364  and  Rajendra  Singh  v.  State  of  M.P.,
(1996)  5  SCC  460  the  principle  of  law  is  that  some  real
prejudice  must  have  been  caused  to  the  complainant.  The
Court  has  shifted  from  its  earlier  concept  that  even  a  small
violation shall result in the order being rendered a nullity. To
the  principle/doctrine  of  audi  alteram  partem,  a  clear
distinction has been laid down between the cases where there
was  no  hearing  at  all  and  the  cases  where  there  was  mere
technical infringement  of the principle. The Court applies the
principles of natural justice having regard to the fact situation
obtaining in each case. It is not applied in a vacuum without
reference to the relevant facts and circumstances of the case.
It  is  no  unruly  horse.  It  cannot  be  put  in  a  straitjacket
formula. (See Viveka Nand Sethi v. Chairman, J&K Bank Ltd.
(2005) 5 SCC 337 and State of U.P. v. Neeraj Awasthi, (2006)
1 SCC 667. See also Mohd. Sartaj v. State of U.P., (2006) 2
SCC 315)
    (emphasis supplied)
12. In Maharashtra  State  Board  of  Secondary  and  Higher
Education v. K.S. Gandhi & Ors., (1991) 2 SCC 716,  this Court
while reiterating the legal position observed:
“22. … … The omnipresence and the omniscience (sic) of thePage 9
principle  of  natural  justice  acts  as  deterrence  to  arrive  at
arbitrary  decision  in  flagrant  infraction  of  fair  play.  But  the
applicability of the principles of natural justice is not a rule of
thumb or a strait-jacket formula as an abstract proposition of
law. It depends on the facts of the case, nature of the inquiry
and the effect of the order/decision on the rights of the person
and attendant circumstances.”
13. In Maharashtra  State  Board  of  Secondary  and  Higher
Secondary Education & Anr. v. Paritosh Bhupeshkumar Sheth
& Ors. (1984) 4 SCC 27, this Court reiterated the the observations
made  by  Matthew,  J.  in  Union  of  India  v.  Mohan  Lal  Kapoor,
(1973) 2 SCC 836  that it was not expedient to extend the horizons
of  natural  justice  involved  in  the  audi  alteram  partem rule  to  the
twilight zone of mere expectations, however great they might be.
14. We may finally refer to the decision of this Court in Aligarh
Muslim  University  v.  Mansoor  Ali  Khan,  (2000)  7  SCC  529,
where this Court with approval quoted the following observations of
Sir Willam Wade (Administrative Law, 9
th
 Edn. pp.468-471)
“… …  it is not possible to lay down rigid rules as to when the
principles of natural justice are to apply, nor as to their scope
and extent…  There must also have been some real prejudice
to  the  complainant;  there  is  no  such  thing  as  a  merely
technical infringement of natural justice. The requirements of
natural justice must depend on the facts and circumstances of
the case, the nature of the inquiry, the rules under which the
tribunal is acting, the subject-matter to be dealt with and so
forth.”
15. Coming to the case at hand we find that the termination of the
contract between  the parties was preceded by a show-cause notice
issued to the appellant and a hearing provided to it by the competentPage 10
authority.   The  show-cause  notice  issued  to  the  appellant  on  24
th
November, 2006 enclosed with it all relevant documents including the
complaints received against the appellant from various quarters and a
copy of the report submitted by the agency engaged for verifying the
allegations  against  the  appellant.  The  appellant  had  unsuccessfully
challenged the show-cause notice in Writ Petition No.6338 of 2006,
before the High Court. The High Court had while refusing to interfere
in the matter directed the appellant to submit a reply to the notice.
The appellant had accordingly appeared before the authority on 12
th
January,  2007,  submitted  its  written  statement  and  was  heard  in
support of its case that it had not committed any default. In the reply
or at the hearing, the appellant had not alleged any mala fide, bias or
prejudice against the officers dealing with the matter or the agency
employed  by  them  for  collecting  and  verifying  facts.   Principles  of
natural justice thus stood substantially complied with. The contention
that the  appellant should have been  given an  opportunity to crossexamine  the  persons  whose  statements  had  been  recorded  by  the
agency  in  the  course  of  its  inquiry  and  verification  was  rightly
rejected by the High Court keeping in view the nature of the inquiry
which  was  primarily in  the  realm  of  contract,  aimed  at  finding  out
whether the appellant had committed any violation of the contractual
stipulations between the parties.  Issue of a show-cause notice andPage 11
disclosure of material on the basis of which action was proposed to be
taken against the appellant was in compliance with the requirement
of  fairness  to  the  appellant  who  was  likely  to  be  affected  by  the
proposed  termination.   Absence  of  any  allegation  of  mala  fides
against  those  taking  action  as  also  the  failure  of  the  appellant  to
disclose any prejudice, all indicated that the procedure was fair and in
substantial,  if  not  strict,  compliance  with  the  requirements  of  Audi
Alteram  Partem.  The  first  limb  of  the  challenge  mounted  by  the
appellant, therefore, fails and is hereby rejected.  
16. Coming  then  to  the  question  whether  the  respondentAuthority had material enough to justify termination of the contract.
The High Court has referred in detail to the report submitted by the
agency  deployed  for  collection  of  evidence  and  verification  of  the
allegations  and  come  to  the  conclusion  that  the  respondent  was
perfectly justified in adopting the method and the procedure adopted
by  it  in  the  instant  case  for  collection  of  information  and  evidence
regarding the alleged malpractices being committed by the appellant.
The Single Judge of the High Court has while dealing with this aspect
observed:
“There  is  no  allegations  of  mala  fide,  personal  prejudice  or
bias against any of the members of agency which conducted
the  discreet  inquiry.   In  the  facts  and  circumstances  of  the
case I am of the considered view that the method adopted by
the National Highway Authority to detect the illegalities being
committed by the petitioner is a fair and reasonable method
and it has not caused any prejudice or bias to the petitioner.Page 12
There is no material available on record on the basis of which
the report submitted by the agency as contained in Annexure
R/7  can  be  discarded  by  this  Court,  this  report  cannot  be
rejected merely on the ground that it is collected behind the
back of the  petitioner.  The nature  of irregularity  committed
by the petitioner can be detected only if a discreet enquiry in
the  manner  as  done  by  the  respondents  have  acted  in  a
manner  which  is  violative  of  the  principle  of  natural  justice.
The report submitted was placed before the petitioner he was
given  opportunity  of  submitting  his  defence  and  explanation
both  in  writing  and  personally.   Records  indicated  that
petitioner was unable to produce any cogent material to show
that this report is unsustainable and cannot be relied upon.”
17. In the appeal preferred against the above order, the appellant
had  made  a  grievance  only  in  regard  to  two  aspects  covered  by
question nos. (III) and (V) , formulated by the  Single Judge in the
following words:
(III)  Whether  the  action  for  termination  of  the  contract  is
done by the competent authority and whether cancellation of
the  contract  is  based  on  proof  of  breach  committed  by  the
petitioner?
(V) Whether  the provision of Section 74 of the Contract Act
applies in the present case and forfeiture of the performance
security  and  revocation  of  bank  guarantee  is  arbitrary  and
unfair warranting interference by this Court?”
                                                     
18. While dealing with question No.III above, the Division Bench
held:
“In  respect  of  issue  No.  III,  the  learned  Writ  Court  while
relying  upon  various  facts  brought  on  record  gave  a
categorical  finding  in  paragraph  21  that  the  modus operandi
adopted  by  the  petitioner  of  charging  higher  rate  from  road
was a clear breach of contract and under clause 18(a) of the
Contract  Agreement,  the  same  was  determined,  and  also
entitled the national Highway Authority of India to impose and
realize the penalty  for such breach as stipulated therein.  In
our  considered  opinion  the  Writ  Court  did  not  faulter  in
recording the aforesaid finding.”
19. There is,  in  our  opinion,  no  error  of  law,  nor  is  there  any
perversity  in  the  appreciation  of  the  material  available  before  thePage 13
respondents. The reports submitted by the agency employed by the
respondent-Authority  was  damning  for  the  appellant  and  clearly
showed that the appellant was indulging in malpractices like charging
excess fee from the owners/drivers of the vehicles using the stretch
of  road  covered  by  the  contract.  Nothing  in  particular  has  been
pointed out to us to persuade us to take a contrary view. If the report
submitted  by  the  agency  against  whom  the  appellant  has  no
allegation of malice or other extraneous considerations to make are
accepted, we see no reason why the same could not furnish a safe
basis for the respondent to take action especially when the appellant
was abusing its position as a contractor, putting the public at large to
unnecessary  harassment  and  exaction  of  money  not  legally
recoverable from them. The material collected could and was rightly
made  a  basis  for  the  termination  of  contract  by  the  competent
authority.
20. The upshot of the findings recorded by the High Court which
we have  affirmed in the  foregoing paragraphs  is that  the  appellant
was not entitled to claim any relief in exercise of its extra ordinary
writ  jurisdiction  of  the  High  Court.   The  High  Court  could  have
relegated the appellant to seek redress in an appropriate civil action
before a competent civil Court, whether for damages or recovery of
the  amount  forfeited  by  the  respondent.   The  High  Court  has  notPage 14
done so.  It has given partial relief to the appellant to the extent of
holding that the invocation of the bank guarantee was not justified in
the light of the forfeiture of performance security and the amount of
penalty.  In any event we see no room for interfering with the order
passed by the High Court in exercise of our jurisdiction under Article
136 of the Constitution of India which too is both extraordinary and
discretionary  in  nature.   We  may  in  this  connection  refer  to  the
following  passage  from  Halsbury’s  Laws  of  England  Fourth
Edition Vol.-16 pages 874-876, which sums up the legal position in
England as to the right of a party who has not come to the Court with
perfect  propriety  of  conduct  and  with  clean  hands,  to  claim  an
equitable relief.
1305. He who comes into equity must come with clean hands.
A court of equity refuses relief to a plaintiff whose conduct in
regard  to  the  subject  matter  of  the  litigation  has  been
improper. This was formerly expressed by the maxim "he who
has committed  iniquity  shall  not have equity",  and relief  was
refused where a transaction was based on the plaintiff's fraud
or misrepresentation, or where the plaintiff sought to enforce a
security  improperly  obtained,  or  where  he  claimed  a  remedy
for  a  breach  of  trust  which  he  had  himself  procured  and
whereby  he  had  obtained  money.  Later  it  was  said  that  the
plaintiff in equity must come with perfect propriety of conduct,
or with clean hands. In application of the principle a person will
not be allowed to assert his title to property which he has dealt
with so as to defeat his creditors or evade tax, for he may not
maintain an action by setting up his own fraudulent design.
The  maxim  does  not,  however,  mean  that  equity  strikes  at
depravity  in  a  general  way;  the  cleanliness  required  is  to  be
judged  in  relation  to  the  relief  sought,  and  the  conduct
complained of must have an immediate and necessary relation
to the equity sued for; it must be depravity in a legal as well
as  in  a  moral  sense.  Thus,  fraud  on  the  part  of  a  minor
deprives him of his right to equitable relief notwithstanding his
disability.  Where  the  transaction  is  itself  unlawful  it  is  notPage 15
necessary to have recourse to this principle. In equity, just as
at  law,  no  suit  lies  in  general  in  respect  of  an  illegal
transaction,  but  this  is  on  the  ground  of  its  illegality,  not  by
reason of the plaintiff's demerits."
21. Judged in the light of the above, the appellant had breached
the  contractual stipulations, harassed innocent citizens to  cough up
more  than  what  they  were  in  law  required  to  pay  and  thus
undeservedly  enriched  itself  before  it  turned  to  the  Court  to  claim
relief  in  the  extraordinary  writ  jurisdiction  of  the  High  Court  on
equitable considerations.  Such an attempt could and ought to have
been  frustrated  by  the  High  Court,  as  indeed  has  been  done,  no
matter only partially.
22. That brings us to the only other ground of challenge relating
to  invocation  of  the  Bank  Guarantee  by  the  National  Highway
Authority of India which according to the appellant was arbitrary and
unfair in the facts and circumstances of the case.
The High Court has
taken the view that apart from a penalty of Rs.2,41,097/-, National
Highway Authority had already recovered a sum of Rs.2,20,00,125/-
out  of  the  bank  drafts  furnished  by  the  appellant  towards
performance  security.  
The  total  amount,  thus,  received  by  the
authority was more than the amount payable to it under the contract
if the same had been performed diligently till the end of the contractPage 16
period. Invocation of the bank guarantee for recovery of any further
amount was in that view held to be unjustified by the High Court.
23. There  is no appeal by the  Authority against that part of the
judgment, although it was argued on behalf of the Authority that in
terms of clause 18(b) of the contract, the Authority had the right to
estimate  the  excess  of  collection  by  the  appellant-contractor  and
recover the same from it.  Clause 18 may be extracted in extenso at
this stage:
“18. Penalty for charging excess fee :
(a) In  case,  it  is  observed  and/or  established  to  the
satisfaction  of  the  Authority  that  the  Contractor  has
charged  fee  in  excess  of  the  prescribed  rate,  the
Authority  may  terminate  the  contract  forthwith  and/or
may  impose  a  penalty  of  Rs.  One  lakh  or  an  amount
equivalent of one day’s fee receivable by the Authority,
which  ever  is  higher  and  may  provide  the  Contractor
another  opportunity  of  continuing  the  Fee  Collection.
However,  in  no  case,  the  authority  shall  afford  more
than one opportunity to the Contractor.
(b) The  Authority  also,  reserves  the  right  to  estimate  the
excess  collection  of  fee  made  by  the  Contractor  and
recover  the  same,  which  will  be  over  and  above  the
penalty  imposed  and  to  be  recovered  from  the
Contractor.
(c) The  termination  under  this  clause  shall  make  the
Contractor  liable  for  unconditional  forfeiture  of  the
Performance Security.”
24. It  is  evident  from  a  simple  reading  of  the  above  that  the
Authority  was competent  to  terminate  the  contract  if the  appellant
was found charging in excess of the prescribed rate of fee. Apart fromPage 17
termination of the contract any violation in the nature of excess fees
being  charged  could  result  in  imposition  of  a  penalty  in  terms  of
clause 18(a) (supra).   
What is significant is that in terms of clause 18
(b)  besides  termination  of  the  contract  and  levy  of  penalty  the
Authority was also entitled to estimate the excess collection made by
the  appellant  and  recover  the  same  from  it.   
There  is  nothing  on
record  before  us  whether  any  such  estimation  was  made  by  the
Authority and if so the basis on which that was done. The failure of
the  Authority  to  estimate  accurately  could  jeopardise  its  claim  for
recovery by a simple invocation of the bank guarantee.  It may have
been  a  different  matter  if  the  Authority  had  estimated  the  excess
amount accurately and sought to recover the same by invocation of
the  bank  guarantee  but  without  a  proper  estimation  of  the  excess
received  by  the  appellant,  it  was  not  open  to  the  respondent  to
invoke  the  bank  guarantee  and  recover  the  entire  amount  of
Rs.2,20,00,125/- covered by the same. 
The High Court was, in that
view, correct  in  holding that  invocation  of bank  guarantee  was not
justified  having  regard  to  the  fact  that  the  Authority  had  already
recovered the penalty levied by it and also forfeited the performance
security  amount  of  Rs.2,20,00,125/-  in  the  form  of  bank  drafts
furnished by the appellant.
  Page 18
25. Insofar  as  the  recovery  of  the  performance  security  of
Rs.2,20,00,125/-  from  out  of  the  bank  drafts  furnished  by  the
appellant is concerned, we have no difficulty in holding that such a
forfeiture was available to the respondent-Authority under the terms
of the contract and the provisions of Section 74 of the Contract Act
did not forbid the same. The scope of Section 74 has been the subject
matter  of  several  pronouncements  of  this  Court  including  the
Constitution  Bench  decisions  in  Fateh  Chand  v.  Balkishan  Das
AIR  1963  SC  1405, Union  of  India  v.  Ramam  Iron  Foundry
(1974)  2  SCC  231 and  SAIL  v.  Gupta  Brother  Steel  Tubes
(2009) 10 SCC 63. The common thread that runs through all these
pronouncements  is  that  an  aggrieved  party  is  entitled  to  receive
compensation from the party who has broken the contract whether or
not  actual  damage  or  loss  is  proved  to  have  been  caused  by  the
breach  and  that  the  Court  has,  subject  to  the  outer  limit  of  the
penalty  stipulated,  jurisdiction  to  award  such  compensation  as  it
deems  reasonable  having  regard  to  the  circumstances  of  the  case.
This would essentially be a mixed question of law and fact that a Writ
Court  could  not  possibly  decide.   The  appellant  could  and  indeed
ought  to  have  sought  its  remedies  in  a  proper  civil  action  if  it
questioned  the  reasonableness  of  the  amount  recoverable  by  the
appellant in terms of the contractual stipulations.    Page 19
26. In the result this appeal fails and is dismissed but in the facts
and circumstances, without any order as to costs.
……… ……………….…..…J.
       (T.S. Thakur)
      ……………………………..…J.
             (Gyan Sudha Misra)
New Delhi
February 21, 2013Page 20
ITEM NO.1B               COURT NO.9             SECTION IVA
            S U P R E M E   C O U R T   O F   I N D I A
                         RECORD OF PROCEEDINGS
                   
C.A. No........../2013 @
Petition(s) for Special Leave to Appeal (Civil) No(s).2490/2008
(From the judgement and order  dated 08/08/2007 in WA No.491/2007 of
The HIGH COURT OF M.P AT JABALPUR)
M/S. A.S. MOTORS PVT. LTD.                        Petitioner(s)
                 VERSUS
U.O.I. & ORS.                                     Respondent(s)
Date: 21/02/2013  This Petition was called on for JUDGMENT today.
For Petitioner(s)    Mr. Niraj Sharma,Adv.
For Respondent(s)    Mr. Praveen Jain,Adv.
Mr. T.S. Sidhu,Adv.
Ms. Pallavi Mohan,Adv.
Mr. Ganesh Kamath,Adv. For
M/S. M.V. Kini & Associates
The Court made the following
                               J U D G M E N T
Hon'ble Mr. Justice T.S. Thakur pronounced  Judgment of the
Bench  comprising  His  Lordship  and  Hon'ble  Mrs.  Justice  Gyan
Sudha Misra.
Leave granted.
The appeal is dismissed in terms of the signed judgment.
(N.K. Goel)
Court Master
(Veena Khera)
Court Master
(Signed “Reportable” Judgment is placed on the file)