Breach of contract

LEGAL DIGEST

The Supreme Court last week ruled that the Monopolies and Restrictive Trade Practices Commission has no power to award compensation in a case of breach of contract. It can deal with deficiency in service and unfair or restrictive trade practices, but not violation of agreement.

In this case, involving DLF Universal Ltd, the court further stated that if the contract stated that the earnest money paid by a party would not be refunded in a certain event, the commission could not go into the matter and award compensation.

The judgement dealt with a number of applicants for flats. They had defaulted in payments and therefore, the company returned their amounts after deducting the earnest money. They challenged this in the commission. It declared that DLF Universal was guilty of unfair and restrictive trade practices and they were entitled to compensation.

Bank guarantee

The Supreme Court has emphasised that a breach of contract by itself did not lead to the conclusion that there was fraud and the invocation of bank guarantee cannot be faulted on that count. The court declared so while setting aside the ruling of the Patna High Court in the case of Reliance Salt Ltd vs Cosmos Enterprises.

Cosmos, the consignment agent of Reliance, had furnished a bank guarantee through Bank of India. The bills of Reliance remained unpaid beyond the time stipulated in the contract and therefore it invoked the bank guarantee. Cosmos challenged it alleging that the invocation was vitiated by fraud.

This view of the trial court was upheld by the high court. Quashing the order, the Supreme Court observed that it was for the bank to plead a case of fraud and not the promisor.

Further, it stressed that fraud must have link with the acts of the parties before entering into the contract. Subsequent breach of contract would not render the contract itself illegal.

Railways 'slow'

The Supreme Court has commented that public institutions like the railways are "very slow" in reacting to the requests made by contractors for appointment of arbitrators to settle disputes.

In case such appointments are not made in time on the request made by the contracting party, the high court would be justified in appointing arbitrators under Section 11 of the Arbitration and Conciliation Act, 1996.

"We cannot allow administrative authorities to sleep over the matter and leave the citizens without any remedy. Authorities shall be vigilant and their failure shall certainly give rise to cause to the affected party," the court declared in the judgement in Union of India vs VS Engineering (P) Ltd.

In this case, the contractor wanted an arbitrator under the Act, while the general manager of the railway insisted on an arbitration council with two gazetted officers under the General Conditions of Contract. The high court appointed a retired high court judge as arbitrator under the Act.

The railway challenged it in the Supreme Court. It set aside the high court order appointing the judge as arbitrator. It further asked the general manager to appoint the arbitral tribunal within 30 days. Beyond that period, the high court would be "fully justified in appointing an arbitrator under Section 11 of the Act," the Supreme Court said.

Regular employees

The Supreme Court has set aside the ruling of the Gujarat High Court in the case of ONGC vs Engineering Mazdoor Sangh which dealt with regularisation of seasonal employees. The PSU employs thousands of persons between November and May and their services are terminated off-season.

When the union sought their regularisation, the industrial tribunal allowed those who had completed 240 days of continuous work to be recruited to new vacancies.

The high court went further and treated some of them as regular employees, and with retrospective effect. The Supreme Court restored the tribunal's order.

Excise plea

The Supreme Court has dismissed the appeal of the Commissioner of Central Excise claiming a duty of 20 per cent from Mysore Electricals Industries Ltd for its product, called single panel circuit breaker. The company was paying 5 per cent duty on the product.

The revenue authorities argued that a circular was issued changing the classification of the product. But the excise tribunal rejected their contention. The Supreme Court ruled that the new classification would take effect only from the date of the circular in 1994.

Arbitration

The Supreme Court has set aside the judgement of the Calcutta High Court in the dispute between Ambica Construction and the railways in which an arbitrator found the claim of the firm genuine. The railways challenged the award in the high court.

It struck down the award on the ground that the firm had filed a "no claims certificate" according to Section 43(2) of the General Conditions of Contract of the Railway and therefore it could not raise further claim.

The firm appealed to the Supreme Court. It ruled that notwithstanding the Railway's General Conditions, the firm was entitled to invoke arbitration under the Arbitration and Conciliation Act, 1996.

Minority bodies

The Supreme Court has held that the grant of aid to the minority educational institutions did not take away their right to claim immunity from state's interference in the management and appointments including that of the principal of such institutions.

"Having regard to the key role played by the principal in the management and administration of the educational institution, there can be no doubt that the right to choose the principal is an important part of right of administration and even if the institution is aided there can be no interference with the said right," the apex court said.

This was stated by the court while delivering the judgement on the appointment of a principal in a private minority-aided college in Kerala.