Monday, October 26, 2015



                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 1770 OF 2005

STATE OF GUJARAT                                   … APPELLANT

                               J U D G M E N T


1     This Appeal lays siege to the decision of the Division  Bench  of  the
High Court of Gujarat  at  Ahmedabad  which  dismissed  the  appeal  of  the
Appellant  before  us  while  allowing  the  cross-objection  filed  by  the
Plaintiff/Respondent by holding it to be entitled to claim interest  for  an
extended period.  For the reasons which  will  follow,  we  have  set  aside
these concurrent findings against the Appellant State,  principally  on  the
ground that the claim of the Respondent stood barred by  the  principles  of
prescription as contained in the Limitation Act, 1963.
   2  The Appellant State invited tenders for providing lining to  the  main
canal line. The Respondent, a registered  partnership,  submitted  a  tender
that was accepted by the Appellant State.  Thereafter  a  regular  agreement
was entered into according to which the  Respondent  would  have  from  15th
November to 14th June as its working  period.  Under  the  Work-Order  dated
24.9.1976, the Respondent was  required  to  complete  the  work  within  18
months, i.e. on or before 23.3.1978. The case of the  Respondent,  which  we
have no cause to disbelieve, is that there  were  repeated  and  consecutive
delays in handing over the site  due  to  which  the  Respondent  could  not
complete the work within the  stipulated  time.  The  first  season  was  to
extend from 15.11.1976 to 14.7.1977, but the canal was only  made  available
on 15.1.1977 and even then the cement was not issued to  the  Respondent  by
the Appellant State till 31.1.1977. The second season  was  to  extend  from
15.11.1977 to 23.3.1978, but the canal was handed over on 15.3.1978. At  the
Respondent’s request, the contract period was  extended  to  14.6.1978,  but
the Appellant State  specifically  stated  that  no  compensation  would  be
payable for the extension. Pursuant to a written request by the  Respondent,
a third season from 15.11.1978 to 14.6.1979 was granted, but yet  again  the
site was handed over as late as on 15.3.1979. The Respondent sought  further
time to complete the project, and was consequently granted a  fourth  season
which was to extend from 15.11.1979 to 29.6.1980. The site  was  once  again
made available with delay only on 15.3.1980. The work was finally  completed
on 20.6.1980. It is noteworthy that in each request for  an  extension,  the
Respondent sought compensation for monetary loss due to  the  extended  time
limit, but while allowing each extension  the  Appellant  State  denied  the
claim for compensation each time. The Respondent’s case was that as per  the
contract period, 342 days should have been made available to it  to  conduct
the stipulated work, but as a result of the delay in handing over  the  site
and the materials, the Respondent had to seek extensions,  and  nevertheless
managed to complete the project in 288 working days,  thus  indicating  that
there was no laxity on its part. The Respondent signed the Final Bill  under
protest on 1.1.1982; and the Security Deposit  was  refunded  on  27.1.1982.
Thereupon, the Respondent addressed a statutory notice under Section  80  of
the C.P.C. dated 7.8.1983 to the Appellant  State,  claiming  damages  as  a
result of the additional costs incurred due to  the  above mentioned  delays.
The Respondent eventually filed a suit on 25.1.1985  seeking  damages  under
thirteen different heads, including price escalation in labour  due  to  the
prolongation  of  the  work,  price  escalation  in  fuel  lubricants  etc.,
overstay of capital and machinery, and overheads  such  as  staff,  kitchen,
office etc.
3     The Trial Court found that the  delay  was  caused  by  the  Appellant
State; that work was completed by the Respondent well within the  number  of
days contractually allocated to complete it.  Noting that under  Section  73
of the Indian Contract Act compensation is payable for any  loss  or  damage
for breach of a contract, the Trial Court granted compensation under  twelve
of the thirteen heads of claims itemised by the Respondent. In terms of  its
Judgment dated 4.5.1991 the Trial Court observed  that  the  factual  matrix
pertaining to  these  amounts  claimed  have  remained  uncontroverted,  and
accordingly decreed the suit.  The  Respondent  was  granted  Rs.13,61,571/-
with interest at 12 per cent per annum with effect from  7.8.1983  viz.  the
date of the statutory notice.  The  Appellant  State  appealed  against  the
decree and the Respondent filed a counter-claim seeking  interest  from  the
date of written demand of the  suit  claim  instead  of  from  the  date  of
statutory notice.  The  High  Court,  vide  its  judgment  dated  30.7.2003,
dismissed  the  appeal  filed  by  the  Appellant  State  and  allowed   the
Respondent’s cross objection, granting interest thereon from 5.3.1982.
4     The Appellant State has contended that  the  High  Court  ignored  its
myriad objections/submissions  in  connection  with  the  various  different
heads; that the bills paid from time to time  by  the  Respondent  including
the Final Bill were accepted without any remonstration or reservation  being
raised, thereby inexorably leading to  the  conclusion  that  the  suit  was
clearly an afterthought; and that the suit was barred by limitation  as  the
claims were raised after a lapse of more than three years from  the  arising
of the causes of action. It is only the last contention to  which  we  shall
advert our attention.
5     It would be pertinent to note that the issue  of  limitation  was  not
pleaded as a ground before the  Trial  Court  or  the  High  Court.  It  was
pressed for the first time in the course of oral arguments before  the  High
Court.  Nonetheless, it has been discussed in the impugned Order.  The  High
Court, noting the contention raised by the  Respondent  that  the  point  of
limitation was a mixed question of fact and law and could therefore  not  be
adjudicated at this point, held that even if it could  be  adjudicated,  the
suit would not be barred by principles of prescription as it was based on  a
series of successive breaches committed by the Appellant State, and in  such
circumstances the date of the last breach was relevant.  The High Court  was
of the opinion that limitation need  not  mandatorily  be  computed  on  the
basis of each cause of action. It held the date of return  of  the  Security
Deposit as the last date of payment for the work done,  and  concluded  that
the suit had been filed within three years from  this  date.  The  suit  was
therefore found to be within the prescribed period of limitation.
6     Section 3 of the Limitation Act explicitly  states  that  “every  suit
instituted, appeal preferred, and  application  made  after  the  prescribed
period shall be dismissed, although limitation has not  been  set  up  as  a
defence.” It is thus incumbent upon the Court to  satisfy  itself  that  the
suit is not barred by limitation, regardless of  whether  such  a  plea  has
been raised by the parties. In Union of India vs. British India  Corporation
Ltd  (2003)  9  SCC  505,  it  has  been  opined  that  “the   question   of
limitation is a mandate to the forum and, irrespective of the  fact  whether
it was raised or not, the forum must consider and apply it, if there  is  no
dispute on facts.”  It is thus irrelevant that the Appellant State  had  not
raised the issue of limitation before the Trial Court. A duty  was  cast  on
the Court to consider this aspect of law, even on its  own  initiative,  and
since it failed to do so, the Appellant State was competent  to  raise  this
legal question in appeal or indeed even in any successive appeal.  Close  to
a century ago, in Lachhmi Sewak  Sahu  vs.  Ram  Rup  Sahu  AIR  1944  Privy
Council 24, it has been held that the point of limitation  is  available  to
be urged even  in  the  Court  of  last  resort.  Furthermore,  we  are  not
confronted with a  situation  where  the  plea  of  limitation  is  a  mixed
question of fact and law, or where additional evidence needs to be  adduced.
The submissions of Learned Counsel for the Respondent  to  the  effect  that
the Appellant is foreclosed and precluded from urging the plea  of  the  bar
of limitation are meretricious and are rejected.   We shall now  proceed  to
consider whether the suit was in fact barred by limitation.
7     The period of limitation would be computed under either Article 55  or
Article 113, both of which are laid out below of the facility of reference:
|Description of Suit  |Period of          |Time from which period |
|                     |Limitation         |begins to run          |
|Art 55.    For       |Three years        |When the contract is   |
|compensation for the |                   |broken or (where there |
|breach of any        |                   |are successive         |
|contract, express or |                   |breaches) when the     |
|implied, not herein  |                   |breach in respect of   |
|specially provided   |                   |which the suit is      |
|for.                 |                   |instituted occurs or   |
|                     |                   |(where the breach is   |
|                     |                   |continuing) when it    |
|                     |                   |ceases.                |
|Art. 113.   Any suit |Three years        |When the right to sue  |
|for which no period  |                   |accrues.               |
|of limitation is     |                   |                       |
|provided elsewhere in|                   |                       |
|this Schedule        |                   |                       |

8     It would be pertinent, at this point, to recall the decision  of  this
Court in Gannon Dunkerley and Co. Ltd. vs. Union of India (1969) 3 SCC  607,
though that matter dealt with the provisions of the Indian  Limitation  Act,
1908. The Appellants/Plaintiff therein filed  a  suit  seeking  an  enhanced
rate of compensation in light of the deviation in the  nature  of  the  work
being  rendered  more  complex,  the  increase  in  costs   due   to   undue
prolongation of the period of work, the increase in the  quantity  of  work,
and the grant of contracts  to  other  competing  parties  at  substantially
higher rates. This Court held that the “suit filed by the appellant  Company
is not a suit for compensation for breach of contract  express  or  implied:
it is a suit for enhanced rates because of change of circumstances,  and  in
respect of work not covered by the contract.”  The claim for enhanced  rates
was found to arise outside the contract and for this reason was not  in  the
genre of  an  action  for  compensation  for  breach  of  contract.  It  was
therefore held that the claim was not covered under Article 115 of the  1908
Act (which is in pari materia to Article 55  of  the  Limitation  Act),  and
would have to fall within the ambit of Article 120 of the  1908  Act  (which
is akin to Article 113 of  the  Limitation  Act).  The  facts  at  hand  are
dissimilar to those in Gannon Dunkerley in that the damages  sought  by  the
present Respondent are for work covered by the contract, and the  change  in
circumstances was directly caused by  breaches ascribable to  the  Appellant
State in not handing-over the site on time. Facially, the  suit  claims  are
damages incurred due to  the  extension  of  the  contract  period  and  the
resultant damages are incurred by the Respondent.  The suit would  therefore
fall within the ambit of Article 55.  Article  113,  which  is  a  residuary
provision, cannot be resorted to.
9     It also appears to us that the contract was clearly not broken as  the
Respondents chose to keep it alive despite  its  repeated  breaches  by  the
Appellant State. The factual matrix presents a situation  of  successive  or
multiple breaches, rather than of a continuous  breach,  as  each  delay  in
handing over the canal/site by the Appellant State constituted to  a  breach
that was distinct and complete in itself and gave rise to a  separate  cause
of action for which the Respondent could  have  rescinded  the  contract  or
possibly claimed compensation due to  prolongation  of  time  and  resultant
escalation of costs. Of course the Respondent  is  enabled  to  combine  all
these causes of action in one plaint, as postulated in  the  C.P.C  provided
each claim is itself justiciable.  Even the  Respondent  has  argued  before
the High Court that the suit was based on successive breaches  committed  by
the Appellant State. In our opinion, the  suit  was  required  to  be  filed
within three years of the happening of each breach, which  would  constitute
a distinct cause of action. Article 55 specifically states that  in  respect
of successive breaches, the period begins to run when the breach in  respect
of which the suit is instituted, occurs.  In this  vein,  Rohtas  Industries
Ltd vs. Maharaja of Kasimbazar China Clay Mines ILR  (1951)  1  Cal  420  is
apposite as it has held that when a party agrees to  deliver  certain  goods
every month for a duration spanning certain years, the cause of  action  for
breach for failure to deliver in a particular month arises  at  the  end  of
that month and not at the end of the period of the contract.  The  situation
before us is similar in  that  the  cause  of  action  had  arisen  on  each
occasion when the Appellant State failed  to  hand  over  the  site  at  the
contractually stipulated time. Specifically, the  limitation  periods  arose
on 15.11.1976, 15.11.1977, 15.11.1978 and 15.11.1979, i.e. on the first  day
of each season, when the Respondent State committed a breach by  failing  to
hand over the site. Thus the period of limitation did not  commence  at  the
termination of the contract period or the date of final  payment.  The  High
Court’s conclusion that the last date of breach and  last  date  of  payment
were relevant, not each cause of action, was thus  patently  erroneous.  For
each breach, a corresponding amount of damages for  additional  costs  could
have been sought. The suit, however, was filed on 25.1.1985, well after  the
limitation period of three years for even the final breach, as  the  various
causes of action became time barred on  15.11.1979,  15.11.1980,  15.11.1981
and 15.11.1982 respectively.
10    There is  another  perspective  on  the  method  or  manner  in  which
limitation  is  to  be  computed.   We  have  already  narrated   that   the
Respondent, on every occasion when the  extension  was  sought  by  it,  had
requested to be compensated for delay.  The Appellant State had granted  the
extensions but had repudiated  and  rejected  the  Respondent’s  claims  for
damages.  The effect of these events would be that the cause of  action  for
making the claim for damages indubitably arose on each of  those  occasions.
It is certainly arguable  that  the  Appellant  State  may  have  also  been
aggrieved by the delay,  although  the  facts  of  the  case  appear  to  be
unfavourable to this prediction, since delay can reasonably be laid  at  the
door of the  Appellant.  The  Respondent,  however,  could  prima  facie  be
presumed  to  have  accepted  a  renewal  or  extension  in  the  period  of
performance but  with  the  rider  that  the  claim  for  damages  had  been
abandoned by it.  If  this  assumption  was  not  to  be  made  against  the
Respondent, it would reasonably be expected that the Respondent should  have
filed a suit for damages on each of these occasions. In  a  sense,  a  fresh
contract would be deemed to have been entered into between  the  parties  on
the grant of each of the extensions.  It is therefore not  legally  possible
for the Respondent to contend that  there  was  a  continuous  breach  which
could have been litigated upon when the contract was finally concluded.   In
other words, contemporaneous with the extensions granted, it  was  essential
for the Respondent to have initiated  legal  action.   Since  this  was  not
done, there would be a reasonable presumption that  the  claim  for  damages
had been abandoned and given a go-by by the Respondent.
11    In a works contract, more often than not, delays occur,  and  that  is
why it is assumed that time is not of the  essence.   Where  extensions  are
asked for and granted, there must  be  a  clear  and  discernable  stand  on
behalf of either of  the  parties  that  the  extension  is  granted  and/or
accepted  without  prejudice  to  the  claim  of  damages.  It  has   become
commonplace that neither party lodges a claim for  damages,  but  waits  for
the end of the contract to raise these disputes,  taking  advantage  of  the
nebulous and equivocal nature  of  the  transactions  between  them.   This,
however, is not the position that obtains  before  us  since  the  Appellant
State had categorically posited that the claim for damages for  the  alleged
delay on its part would not be entertained.
12    The Respondent has sought to place  reliance  on  Section  19  of  the
Limitation Act. It would be apposite to reproduce this Section:
19. Effect of payment on account of debt or  of  interest  on  legacy.—Where
payment on account of a debt or of interest on a legacy is made  before  the
expiration of the prescribed period by the person liable to pay the debt  or
legacy or by his agent duly authorised in this behalf,  a  fresh  period  of
limitation shall be computed from the time when the payment was made.
This Section would not come to the  aid  of  the  Respondent,  as  the  suit
before us is not for payment on account of a debt or of interest on  legacy,
but is a suit for damages for additional costs incurred as a result  of  the
extension of the contract period. This Court in Union  of  India  vs.  Raman
Iron  Foundry  1974  (2)  SCC  231,  after  placing  reliance  on  Jones  v.
Thompson [1858] 27 L.J.Q.B. 234, has opined that a claim  for  damages  does
not give rise to a debt until the liability is adjudicated and damages  have
been assessed by a decree or any order of a Court or any other  adjudicatory
authority or forum.  Furthermore, in  J.C.  Budharaja  vs  Chairman,  Orissa
Mining Corporation Ltd. and Anr (2008) 2 SCC 444, it has been held that  the
effect of Section 19 would be to allow a fresh  period  of  limitation  with
regard to the  'existing  debt'  in  respect  of  which  acknowledgment  and
payment has been made. It would not extend the period of limitation for  any
fresh claim, or any amount not accepted by the other party. In  the  factual
scenario before us, the payment of  the  Final  Bill  and  Security  Deposit
could not be construed to accept or acknowledge the damages  raised  by  the
Respondent and therefore Section 19 would not per se extend  the  period  of
limitation. Furthermore, there could be no extension  under  Section  18  on
account of the acknowledgement  in  writing,  as  at  each  point  that  the
Respondent raised a claim for damages, it was specifically  refuted  by  the
Appellant State, and the amounts that were accepted by the  Appellant  State
were limited to the liabilities within the contract, not  fresh  liabilities
for damages.
13    The Respondent has also argued that since notice under Section  80  of
the C.P.C. was served to the Appellant State claiming damages  on  7.8.1983,
a period of two months from  the  date  of  the  notice  would  have  to  be
excluded when calculating the period of limitation, as per Section 15(2)  of
the Limitation Act. It has relied on M/s Disha Constructions  vs.  State  of
Goa (2012) 1 SCC 690 to this end.  However, since the limitation period  for
the last breach alleged by the Respondent itself  ended  on  15.11.1982  and
the notice under Section 80 C.P.C. is  dated  7.8.1983,  this  provision  is
irrelevant. The notice perforce should have  been  issued  before  the  suit
became time barred, and only if so done would the period have been  extended
for a further two months.
14    It is thus clear that the Respondent  failed  to  file  the  suit  for
damages within the period prescribed in the Limitation  Act.   The  suit  is
required to be dismissed on this  ground  alone.   The  impugned  Order  is,
therefore, set aside, and the Appeal is allowed, but with  no  order  as  to


New Delhi,
October 16, 2015.

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