Disputed breach of contract cannot be self-adjudicated; damages recovery requires prior independent determination and fair hearing.

Where breach of contract is disputed, a contracting party, including the State or its instrumentality, cannot itself decide breach and quantify damages for recovery. Liability must first be determined by an independent adjudicatory forum before any recovery proceedings are taken. A unilateral demand issued without prior adjudication and without a fair opportunity on the disputed liability offends Article 14 and natural justice, and is legally unsustainable. The document also notes that the question of limitation was left open for decision in accordance with law.

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Issues: (i) whether, in the absence of an admitted breach, one contracting party could itself determine breach and quantify damages and recover them through revenue recovery proceedings; (ii) whether the impugned demand and rejection orders were vitiated for want of prior adjudication and fairness.

Issue (i): whether, in the absence of an admitted breach, one contracting party could itself determine breach and quantify damages and recover them through revenue recovery proceedings.

Analysis: The contract dispute was not one where breach stood admitted. The reply notice issued by the petitioner disputed the allegation of default and attributed delay and failure to the other side. In such a situation, the power to assess damages is only incidental to a prior determination that breach occurred. A party to the contract cannot act as judge in its own cause and decide both the existence of breach and the quantum of loss. Where breach is disputed, that question has to be decided by an independent forum and only thereafter can recovery of damages be pursued in accordance with law.

Conclusion: The respondent could not unilaterally adjudicate the alleged breach or quantify damages for recovery.

Issue (ii): whether the impugned demand and rejection orders were vitiated for want of prior adjudication and fairness.

Analysis: The demand was issued after a long lapse of time without prior adjudication by an independent authority and without fair opportunity on the disputed liability. Such unilateral action entailing civil consequences offended the requirements of Article 14 and the principles of natural justice. The conduct in reviving the demand after years of silence, without resolving the foundational dispute, was treated as inconsistent with fair play and arbitrary in law.

Conclusion: The demand notice and the order rejecting the representation were legally unsustainable.

Final Conclusion: The impugned recovery demand and the consequential rejection order were quashed, while the question of limitation was left open for decision in accordance with law.

Ratio Decidendi: Where breach of contract is disputed, the contracting party, including the State or its instrumentality, cannot itself adjudicate breach and assess damages for recovery; such liability must first be determined by an independent adjudicatory forum.

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