A CASE ANALYSIS ON

“TULSI NARAYAN GARG V. THE M.P. ROAD DEVELOPMENT AUTHORITY,

SUBMITTED TO:

(Mr. VISHAL BERA)

(ASSISTANT PROFESSOR)

(FACULTY OF “ARBITRATION AND DISPUTE RESOLUTION”)

SUBMITTED BY:

Ayush Kumar Singh

ROLL NO.- 17FLICDDN01034

BATCH (2017-2022)

DATE OF SUBMISSION:

10TH NOVEMBER 2021

ICFAI LAW SCHOOL,

ICFAI UNIVERSITY, DEHRADU

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 TULSI NARAYAN GARG V. THE M.P. ROAD DEVELOPMENT
AUTHORITY, BHOPAL AND ORS.

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S).67266729 OF 2019

(Arising out of SLP (C) No(s). 14361439 of 2019)

Date: 30 August, 2019

Bench: N.V. Ramana, Hon’ble Ms. Banerjee, Ajay Rastogi

M/S. Tulsi Narayan Garg………………………………………………….…. Appellant

VERSUS

The M.P. Road Development Authority, Bhopal & Others…………………. Respondents

SUMMARY OF FACTS

The appellant in this case was a sole proprietorship. The appellant and the first respondent
reached an agreement in which the appellant agreed to build and maintain two roadways. As
a result, the completion deadline was set at 12 months, with the final date being on October
21, 2009. However, as a state party, the first respondent invoked clause 52 of the agreement
and terminated the relationship, citing the appellant's sluggish work progress as a
justification. The first respondent also used clauses 44.1 and 53.1 of the agreement and sent
the appellant a notice to determine liquidated damages, which the appellant contested in the
Madhya Pradesh High Court. The matter was settled, with the appellant having the option of
appealing the order through an arbitral panel, which he did before the MP arbitral tribunal
under section 7 of the Adhiniyam, 1983. The respondent served notice to the appellant for
specific packages to recover above-mentioned damages while the case was pending. The

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appellant then contested this action, claiming that the issue of damages was still under
consideration by the arbitral panel.

ISSUE RAISED

 Whether a party to an agreement may be an arbiter in his own cause?

RULE INVOLVED

The following are the clauses of the agreement between the first respondent and the appellant
that are relevant to this case:

Cl 24- Dispute redressal system

"If any dispute or difference of any kind whatsoever shall arise in connection with or arising
out of this Contract, the execution of Works, or the maintenance of the Works thereunder,
whether before or during the progress of Works, or after the termination, abandonment, or
breach of the Contract, it shall, in the first instance, be referred for settlement to the
competent authority, described along with their powers in the Contract." The competent
authority must communicate his decision to the Contractor within 45 days of receiving a
written request from the Contractor. The Contractor's decision in respect of each matter so
referred shall be final and binding, subject to review as specified below. If the Work is
already underway, the Contractor should continue to execute the Works, including
maintenance, with all due diligence till receipt of the competent authority's decision as
aforesaid."

Cl- 25 Arbitration

"Either party will have the right to appeal to the Madhya Pradesh Arbitration Tribunal created
under Madhya Pradesh Madhyastham Adhikaran Adhiniyam 1983 against the judgement of
the competent body, nominated under Clause 24, if the amount of the claim is more than Rs.
50,000/-."

Cl- 44 Liquidated damages

"44.1 For the time during which the Completion Date is later than the Intended Completion
Date, the Contractor shall pay liquidated damages to the Employer at the rate per week or
part thereof mentioned in the Contract Data. If the Contractor fails to meet the milestones set
forth in the Contract Data, liquidated damages at the same rate will be withheld. However, if
the Contractor meets the next milestone, the amount of liquidated damages that has been
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withheld will be restored to the Contractor through a change in the following payment
certificate. The total amount of liquidated damages is limited to the amount specified in the
Contract Data. Liquidated damages may be deducted from compensation due to the
Contractor by the Employer. The Contractor's other liabilities are unaffected by the payment
of liquidated damages.

Cl-53 Payment upon termination

"53.1 If the contract is terminated due to the contractor's fundamental breach of contract, the
Engineer shall issue a certificate for the value of the work completed and materials ordered,
less liquidated damages, if any, less advance payments received up to the date of the
certificate's issuance, and less the percentage to apply to the value of the work not completed
as indicated in the Contract Data." If the entire amount owing to the Employer exceeds any
payment due to the Contractor, the difference will be recovered from the security deposit and
performance security; if any amount remains unrecovered, it will be considered a debt owed
to the Employer."

DECREE PASSED BY THE SUPREME COURT

In terms of clause 25 of the agreement, the Court of Arbitration for India is regarded to be in
violation of section 25 of the Adhiniyam, 1983. The respondent's demand for liquidated
damages on contract termination was not warranted, and the respondent cannot become an
arbiter in its own cause.

The Court of Arbitration for Sport has dismissed claims that the 1st respondent's liquidated
damages were decided after adjudication by the General Manager. Invoking clause 25 for
arbitration by the Arbitral Tribunal on a reference made under Section 7 of the Adhiniyam,
1983, the competent authority's decision is to be considered.

The respondents' decision to begin recovery actions under the Land Revenue Act without
waiting for the conclusion of the Arbitral Tribunal proceedings on the respondents' liquidated
damages claim in the first and second cases was not justified, according to the Court of
Appeal.

The impugned High Court judgements dated February 26, 2018 and September 7, 2018 are
hereby quashed and set aside. The Arbitral Tribunal may not be swayed or prevented by the
observations made, and must determine the pending reference petition independently and in
conformity with the law.
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The appeal stands disposed of.

ANALYSIS

The appellant's lawyer argued that if the alleged liquidated losses remain pending
adjudication before the Arbitral Tribunal, the first respondent's notice for the recovery of
damages is invalid. However, the respondents' lawyer argued that if the appellant has been
served with a show-cause notice and the first respondent's General Manager has adjudicated
and calculated the liquidated damages, then there is no reason to start the recovery
procedures.

If sections 44.1 and 53.1 are read together, it can be argued that if the contractor is compelled
to pay liquidated damages after the contract is terminated, clause 24 can be applied,
according to the Supreme Court. In addition, clause 25 of the agreement allows the aggrieved
party to file a complaint with the Arbitral Tribunal, which was established under the
Adhiniyam Act of 1983. As a result, the first respondent's General Manager cited clauses 24
and the appellant went to the Arbitral Tribunal.

The alleged liquidated damages are the subject of a dispute by the appellant before the
Arbitral Tribunal under section 7 of the Adhiniyam, 1983, and the judgement is still pending;
consequently, the respondents' beginning the recovery proceedings is a mistake. As a result,
no party to a contract can be a judge in its own case. It is also a frequent legal premise. It is
also a frequent legal premise. The Supreme Court used paragraph 7 of the State of Karnataka
vs Shree Rameshwara Rice Mills Thirthahalli1 ruling in support of this assertion. In the
matter of B.B. Verma and others vs State of Madhya Pradesh and others 2, the High Court of
Madhya Pradesh cited this decision.

The appellant referred the case of B.B. Verma and others vs State of Madhya Pradesh and
others vs State of Madhya Pradesh and others vs State of Madhya Pradesh and others vs State
of Madhya Pradesh and others vs State of Madhya Pradesh and others vs State of Madhya
Pradesh and others vs State of Madhya Pradesh and others vs State of Madhya Pradesh and
others In this case, the Madhya Pradesh High Court held that if a contractor disputes damages
claimed by an authority or an officer acting on its behalf, such damages cannot be considered
due according to agreement and thus cannot be recovered by invoking provisions of the Land
Revenue Act, which is still pending adjudication before the Arbitral Tribunal.

1
1987 AIR 1359, 1987 SCR (2) 398
2
2008 (1) MPHT 17
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Virendra Sharma vs. State of M.P. and Others 3, a case similar to the instant appeals, is
pending arbitration adjudication.

According to the Supreme Court's decision, the respondents were not justified in claiming
liquidated damages after the agreement was terminated by relying on the Land Revenue Act's
provisions. The respondents should have waited for the ongoing adjudication before the
Arbitral Tribunal because clause 25 of the same agreement also mentions a right of appeal to
the Madhya Pradesh Arbitral Tribunal, which the appellant has exercised.

The panel of three judges, consisting of Hon'ble Mr. Justice Ajay Rastogi, Hon'ble Mr.
Justice Nuthalapati Venkata Ramana, and Hon'ble Ms. Justice Indira Banerjee, reiterated that
no party to a contract can be an arbiter in its own dispute.

As a result, the Supreme Court of India granted the appeals and stated that the Arbitral
Tribunal's procedures would not be influenced by this decision.

CONCLUSION

The respondents are not entitled to recovery measures unless the matter is settled using a way
approved by the law. It would be pointless to claim that the same would be decided by the
respondents because the agreement itself, under clauses 24 and 25, provides for a process for
dispute settlement. As a result, the respondents' decision to begin recovery procedures
pending the outcome of the case is unjustified. In the same way that no one may be a judge in
his own case, no party to an agreement can be an arbitrator in his own case. Natural justice
principles state as much. In a different set of circumstances, if the parties agreed on the
commission of the breach, the responder could have calculated the damages in accordance
with the agreement. However, it would be against the rules of justice, equality, and good
conscience in this circumstance.

As a result, it is evident that if a contractor contests a claim made by a government agency,

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Civil Appeal No. 5169 of 2016
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