WA/2521/2005 of The AP State Civil Supplies Corporation Ltd., Vs K. Venkatrami Reddy, on 23 December 2005

Per R. Subhash Reddy, J

Feeling aggrieved by order dated 29.11.2005 passed by the learned SingleJudge in Writ Petition No.24348 of 2005, the appellant has filed this appeal.

The respondent-writ petitioner was appointed as food grains transport contractor forthe year 2005-2006 in Kurnool District. He entered into an agreement with the CivilSupplies Corporation on 25[th] of July, 2005 and commenced the work. On 5[th] ofAugust, 2005, when the appellant was transporting 255 quintals of rice in the truckbearing No.AP-21 W-3105 from State Warehousing Corporation, Kurnool to aMandal Level Stockist Point, Sirvel, the truck was seized on the ground that thestock meant for Public Distribution System was being illegally diverted toHyderabad. Pursuant to the seizure, a case was registered being Crime No.106 of2005 on the file of P.S. Kurnool. In compliance of order dated 23.9.2005 passed bythis Court in Criminal Petition No.4725 of 2005 for release of the stock, the seizedstock of rice was released in favour of the respondent who made over the same tothe concerned authorities. Subsequently, the respondent was discharged in CrimeNo.106 of 2005.

At the stage of settlement of claim of the respondent, the Corporation withheld a sumof Rs.4,57,935/- representing cost of the rice which is said to have been diverted forbeing illegally sold at Hyderabad. The respondent applied to the Corporation forrelease of the amount by asserting that the diversion in the route of the truck waswithout his knowledge and when the truck was missing with the load of commodity,he himself made a complaint to the police and subsequently delivered the stock atMandal Level Stockist Point, Sirvel. He further pleaded that there was no loss to theappellants on account of the said incident, and, in that view of the matter, no amountcan be withheld from the bills payable to him. However, his claim was rejected videorder dated 10.11.2005, passed in proceedingsNo.PDS.2/Movt/FG.5(13)/11387/2005-06, stating that it was not possible to refundthe said amount of Rs.4,57,935.50 as it was withheld in terms of the agreemententered into. It is pertinent to mention that the said representation was rejected bythe Vice Chairman and Managing Director of the Andhra Pradesh State Civil Supplies Corporation Limited. The said rejection order was challenged before thelearned Single Judge mainly on the ground that in absence of any loss or damagecaused to Corporation on account of seizure of the truck with load of commodity,which was ultimately returned to the Department, Corporation cannot withhold anyamount from the bills payable to the respondent-writ petitioner.

The appellants herein filed counter affidavit in the writ petition, opposing the reliefclaimed by the respondent. It was averred that the amount was deducted inaccordance with the terms of contract because the respondent had violated thecondition of contract.

The learned Single Judge allowed the writ petition by observing that there was nolegal basis for withholding part of the amount payable to the writ petitioner(respondent herein).

Shri D. Linga Rao, learned counsel for the appellant argued that the direction givenby the learned Single Judge for payment of Rs.4,57,935/- to the respondent isvitiated by an error of law and, therefore, the impugned order is liable to be set aside.Learned counsel emphasized that the amount was deducted from the bills of therespondent because he was found guilty of having acted in violation of theconditions of contract. Learned counsel then argued that the writ petition filed by therespondent should not have been entertained because he has got an effectivealternative remedy of arbitration. In support of his argument, learned counsel placedreliance on the judgment of the Supreme Court in the case of Orissa Agro IndustriesCorporation Limited vs. Bharati Industries.

Analysis

On the other hand, Shri P. Raghavendra Reddy, learned counsel for the respondentargued that the premise on which the appellants withheld the amount payable to hisclient was legally untenable because, as a matter of fact, no loss was caused to theCorporation on account of the so-called diversion of the truck. Shri Reddy pointedout that the respondent had himself made a complaint to the police regardingmissing of truck and when the truck was traced out and seized, the respondentdelivered the rice to the concerned party after obtaining release order from the HighCourt. Learned counsel read out the conditions of contract to show that theCorporation can recover amount only in the event of any loss having been causeddue to the act of the contractor and not otherwise. He then submitted that the remedyof arbitration cannot be treated as an effective remedy because the representation made by the respondent was rejected by none else than the Vice Chairman andManaging Director of the Corporation who could be designated as arbitrator.

We have considered the submissions of the learned counsel. For deciding allimportant questions arising in the appeal, it will be useful to notice Clause 11 andClauses 23(i) and (ii) of agreement dated 25.7.2005 entered between the parties.The same read as under:

“11. Loss sustained by Corporation:

The contractor shall indemnity the Corporation for any loss or damagesustained by it due to the improper performance of the work done by thecontractor under this agreement. Such loss sustained by the Corporationmay be recovered from the bills payable to the Contractor, from theSecurity Deposit and Bank Guarantee furnished by the Contractor, underthis agreement or under any other agreement of the Contractor with theCorporation. Should the above sums be not sufficient to cover the fullamount recoverable, the contractor shall pay the Corporation on demandthe balance amount due. Otherwise, the Corporation is at liberty to recoverthe amount due under R.R. Act.

23. Arbitration:

i. The contractor shall prefer a demand, if any, in writing to the VC &Managing Director for arbitration in respect of any claim underthis agreement within three months from the date oftermination or completion of the agreement, failing which thedemand shall be deemed to have been waived absolutelytime barred and the Corporation shall be discharged andreleased of all liabilities under this agreement in respect ofsuch demand.

ii. On receipt of a demand from the contractor within the prescribed time,disputes and differences arising out of, or, in any waytouching or concerning this agreement, except such matters,the decision of which is expressly provided for in the agreement, shall be referred to the Arbitration as perArbitration and Conciliation Act, 1996.”

A bare reading of Clause 11 re-produced above shows that it obligates thecontractor to indemnify the corporation for any loss or damage sustained by it due toimproper performance of the work done by the contractor. The Corporation canrecover the amount from the bills payable to the contractor.

The facts of this case show that the Corporation did not suffer any loss onaccount of the so-called diversion of the stock of rice. This was not controverted bythe appellants. Not only this, learned counsel for the appellants fairly stated that thestock which was alleged to have been diverted was ultimately handed over to theCorporation. It is thus clear that the Corporation had not suffered any loss or damagedue to improper performance of the work on the part of the contractor. As a corollary,it must be held that the respondent was not obliged to indemnify the Corporation forthe so-called loss and the latter was not entitled to recover the amount from the billsof respondent.

The argument of the learned counsel for the appellant that the learned SingleJudge should have relegated the respondent to the remedy of arbitration in terms ofClause 23 of the agreement merits rejection, because it is an undisputed positionthat the representation made by the appellant was rejected by the Vice Chairmanand Managing Director of Corporation vide his order dated 20.7.2005. Once thearbitrator himself had taken a decision in the matter, no useful purpose would beserved by relegating the respondent to the remedy of arbitration.

For the foregoing reasons, we do not find any valid ground to interfere withthe order of the learned Single Judge. Writ Appeal is accordingly dismissed. Noorder as to costs.

R. SUBHASH REDDY, J

23[rd] December, 2005

G.S. SINGHVI, CJ

Ajr/msnr/vtv