2006 (8) TMI 635 - SC - Indian Laws

Quantification of damages done and demanded, cannot be legally sustained and accordingly they were set aside - Demand was barred by limitation - breach of conditions of a contract - Challenged the judgment of a Division Bench of the Kerala High Court - HELD THAT - Unfortunately the Division Bench did not consider the contentions which were raised before the learned Single Judge. It also did not record any positive finding as to whether the document relied upon by the appellant clearly established admission of a breach of contract. The portion of the order of learned Single Judge, quoted above, suggests that there was no dispute when read in the context of the letter. As rightly contended by learned counsel for the appellant the basic issue related to the question whether the demand was barred by limitation. As noted above the Division Bench of the High Court did not examine this question. Above being the question we set aside the order of the Division Bench and remit the matter back for fresh consideration limiting the examination to the question whether the demand by barred by limitation. Interim order shall be operative till the disposal of the matter by the Division Bench. We make it clear that merely because interim protection has been given that shall not be considered to be expression of opinion on merits. The appeals are disposed of accordingly.

Summary

Issues:
1. Dispute regarding quantification of damages in a terminated contract.
2. Validity of demand notice and arbitration clause in the contract.
3. Application of limitation period to the demand raised.
4. Authority to assess damages in case of breach of contract.

Issue 1: Dispute regarding quantification of damages in a terminated contract:
The case involved a terminated agreement between the parties for construction work. The appellant terminated the contract due to alleged breach by the respondent. The respondent disputed the breach and raised a counter-claim. The High Court held that the appellant could not unilaterally quantify damages in case of disputed breach. However, the High Court noted that if there was consensus on the breach, the appellant could assess damages as per the contract terms.

Issue 2: Validity of demand notice and arbitration clause in the contract:
The appellant issued a demand notice to the respondent for a specific amount. The respondent challenged the demand notice and sought arbitration under the Arbitration and Conciliation Act, 1996. The appellant contended that the contract excluded arbitration and only civil courts had jurisdiction. The High Court rejected the arbitration request. The respondent then filed a writ petition challenging the demand notice and seeking relief. The Single Judge referred the matter to a Division Bench due to the importance of the issue.

Issue 3: Application of limitation period to the demand raised:
The respondent argued that the demand was time-barred and could not be enforced through revenue recovery proceedings. The appellant, being a state-owned society, claimed that the demand was within the limitation period under Article 112 of the Limitation Act, 1963. The Single Judge referred the case to a Division Bench for consideration.

Issue 4: Authority to assess damages in case of breach of contract:
The appellant contended that there was no dispute about the breach of contract as admitted by the respondent in a letter. The Single Judge noted that the termination of the contract was not disputed. The main contention was whether the demand was time-barred. The Division Bench did not address this crucial issue. The Supreme Court set aside the Division Bench's order and remitted the matter back for fresh consideration solely on the question of whether the demand was barred by limitation. The interim order was to remain in effect until the Division Bench's decision.

In conclusion, the Supreme Court disposed of the appeals without costs, emphasizing the need for a fresh examination by the Division Bench solely on the limitation issue, clarifying that the interim protection did not indicate a stance on the merits of the case.