2017 (8) TMI 1602 - HC - Indian Laws

Court rules recovery notices unjustified, violating Article 14. Petitioner advised arbitration for speedy resolution.

The court found in favor of the petitioner, ruling that the State authorities were not justified in issuing recovery notices without prior adjudication by ... Recovery of disputed amount - petitioner has failed to execute the work awarded to it within the time stipulated - whether writ petition against action of the State authorities seeking to recover disputed amount would be maintainable or not? - HELD THAT:- This question is no longer res integra and in ABL INTERNATIONAL LTD. & ANR. VERSUS EXPORT CREDIT GUARANTEE CORPORTION OF INDIA LIMITED & ORS. [2003 (12) TMI 584 - SUPREME COURT] it was held that writ petition is maintainable in case of contractor taking recourse to extraordinary remedy seeking to invoke writ jurisdiction of Court, alleging action of State authorities as arbitrary and unreasonable. Jurisdiction - whether the State authorities are justified in issuing notice for recovery of the aforesaid subject amount in dispute without having due adjudication by the competent authorities? - HELD THAT:- The State authorities cannot recover the above-stated amount from the petitioner without due and prior adjudication by the competent authority, the impugned notices are liable to be quashed. The notices issued by the Superintending Engineer and the Engineer-in-Chief dated 20-8- 2015 and 4-8-2015, respectively, are arbitrary, unreasonable and violative of Article 14 of the Constitution of India, the same are therefore, liable to be quashed - Petition disposed off. Issues Involved:1. Maintainability of the writ petition against the action of the State authorities seeking to recover the disputed amount.2. Justification of the State authorities in issuing notice for recovery without due adjudication by competent authorities.Issue-wise Detailed Analysis:1. Maintainability of the writ petition:The court examined whether a writ petition is maintainable in cases where a contractor challenges the recovery actions of State authorities. The court referenced the Division Bench decision in *M/s. Macadum Makers v. State of Chhattisgarh* and others, which relied on Supreme Court rulings in *ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd.*, *Karnataka State Forest Industries Corporation v. Indian Rocks*, *Sushila Chemicals Private Ltd. v. Bharat Coking Coal Limited*, and *Kisan Sahkari Chini Mills Ltd. v. Vardan Linkers*. These cases established that a writ petition is maintainable when a contractor invokes the court's writ jurisdiction, alleging the State's actions as arbitrary and unreasonable.2. Justification of the State authorities in issuing notice for recovery without due adjudication:The court considered whether the State authorities were justified in issuing recovery notices without adjudication by competent authorities. The court referenced *State of Karnataka v. Shri Rameshwara Rice Mills Thirthahalli*, where it was held that a party to a contract cannot be an arbiter in its own cause. The Supreme Court emphasized that adjudication should be by an independent person or body, not by one of the contracting parties.Further, the court cited a Division Bench decision in *A.K. Construction Company v. The State of M.P.*, which held that the government could not recover amounts unless adjudicated by a court or arbitration tribunal. The court also referenced *Bharat Sanchar Nigam Ltd. v. Motorola India Pvt. Ltd.*, which reinforced that a party cannot be a judge in its own cause, and *J.G. Engineers Pvt. Ltd. v. Union of India*, which distinguished between adjudicating a breach and assessing damages.The court also mentioned *M/s. Gangotri Enterprises Ltd. v. Union of India*, where the Supreme Court ruled that sums claimed as damages, not yet adjudicated in arbitration, cannot be recovered or encashed against bank guarantees.Conclusion:Based on the above precedents and legal principles, the court concluded that the State authorities could not recover the disputed amount from the petitioner without prior adjudication by a competent authority. The recovery notices issued by the Superintending Engineer and the Engineer-in-Chief were deemed arbitrary, unreasonable, and violative of Article 14 of the Constitution of India. Consequently, the notices were quashed, and the petitioner was advised to seek adjudication/arbitration as per the contract's arbitration clause. The court directed the arbitration proceedings to be completed expeditiously, ideally within three months, with the petitioner's cooperation.Final Order:The writ petition was allowed to the extent indicated, with no order as to costs.