Allowed

N.Jayachandran v. Proprietor, M/S. Accurate Extractions

Kerala HC3 Mar 2023CRP/2105/2001

Case brief

AI extract

What is this about?

The High Court dismissed an appeal and revisions seeking recovery of 4% commission paid by a bidder to a third party for securing a government supply contract. Holding that commission agreements in public auctions are opposed to public policy, the court quashed the decree for commission recovery while dismissing the commission claims against the respondent.

What did the court decide?

The appeal allowed by setting aside the trial court's decree; the suit dismissed; the revision petitions dismissed.

N.Jayachandran Vs Proprietor, M/S. Accurate… — Contract and Commercial Disputes | Kerala HC (2023)

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE P.SOMARAJAN

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FRIDAY, THE 3RD DAY OF MARCH 2023 / 12TH PHALGUNA, 1944

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AS NO. 266 OF 2001

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AGAINST THE DECREE AND JUDGMENT DATED 10.10.2000 IN OS 1111/1994 OF PRINCIPAL SUB COURT, THIRUVANANTHAPURAM

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APPELLANT/DEFENDANT:

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THE PROPRIETOR,M/S.ACCURATE EXTRUSIONS,
H-3, RATLAMKOTHI, KANCHAN BAGH, INDORE - 452001
BY ADVS.
SRI.JAMES KURIAN
K.K.VIJAYAN

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RESPONDENT/PLAINTIFF:

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1N.JAYACHANDRAN,PRORIETOR,
M/S. HYDRO AIDS, POOJAPPURA, THIRUVANANTHAPURAM.
ADDL.R2THE KERALA WATER AUTHORITY REPRESENTED BY THE MANAGING
DIRECTOR IS IMPLEADED AS ADDITIONAL RESPONDENT 2 IN THE
APPEAL, VIDE ORDER DATED 20/12/22 IN AS 266/01.

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R1 BY ADVS.ANOOP BHASKAR

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 AMMU MANOHARAN NARAYANAN
R2 BY ADV.P.M.JOHNY

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THIS APPEAL SUIT HAVING COME UP FOR HEARING ON 03.03.2023,
ALONG WITH CRP.2105/2001, 2106/2001, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE P.SOMARAJAN

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FRIDAY, THE 3^RD DAY OF MARCH 2023 / 12TH PHALGUNA, 1944

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CRP NO. 2105 OF 2001

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AGAINST THE ORDER DATED 7.8.2001 IN IA 2760/2001 IN OS 1111/1994 OF
PRINCIPAL SUB COURT, THIRUVANANTHAPURAM

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REVISION PETITIONER/COUNTER PETITIONER/PLAINTIFF:

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N.JAYACHANDRAN, PROPRIETOR, M/S HYDRO AIDS, POOJAPPURA, THIRUVANANTHAPURAM

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BY ADVS.
N.JAYACHANDRAN(Party-In-Person)
ANOOP BHASKAR
AMMU MANOHARAN NARAYANAN

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RESPONDENT/PETITIONER/DEFENDANT:

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THE PROPRIETOR, M/S. ACCURATE EXTRACTIONS, H3,
RATHLAMKOTHI, KANCHANBAGH, INDORE

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BY ADV SRI.JAMES KURIAN

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THIS CIVIL REVISION PETITION HAVING COME UP FOR HEARING ON
03.03.2023, ALONG WITH AS.266/2001 AND CONNECTED CASES, THE COURT
ON THE SAME DAY DELIVERED THE FOLLOWING:

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE P.SOMARAJAN

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FRIDAY, THE 3^RD DAY OF MARCH 2023 / 12TH PHALGUNA, 1944

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CRP NO. 2106 OF 2001

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AGAINST THE ORDER DATED 7.8.2001 IN I.A.2802/2001 IN OS 1111/1994
OF PRINCIPAL SUB COURT, THIRUVANANTHAPURAM

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REVISION PETITIONER/PETITIONER/PLAINTIFF:

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N.JAYACHANDRAN, PROPRIETOR, M/S HYDRO AIDS, POOJAPPURA,
THIRUVANANTHAPURAM

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BY ADVS.
N.JAYACHANDRAN(Party-In-Person)
ANOOP BHASKAR
AMMU MANOHARAN NARAYANAN

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RESPONDENT/COUNTER PETITIONER/DEFENDANT:

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THE PROPRIETOR, M/S.ACCURATE EXTRACTIONS, H3,
RATHLAMKOTHI, KANCHANBAGH, INDORE

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BY ADV SRI.JAMES KURIAN

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THIS CIVIL REVISION PETITION HAVING COME UP FOR HEARING ON
03.03.2023, ALONG WITH AS.266/2001 AND CONNECTED CASES, THE COURT
ON THE SAME DAY DELIVERED THE FOLLOWING:

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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JUDGMENT

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The prime questions came up for consideration
are whether it is permissible to employ a third
person on commission basis in a public auction
conducted by the State Government and whether it
would oppose public policy as embedded under
Section 23 of the Indian Contract Act, if so, to
what extent, such contract/agreement would stand
unenforceable, apart from the issue pertaining to
legality and sustainability of the decree granted
by the trial court in the factual scenario
involved in the case.

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2. It is the defendant who came up in appeal
against the grant of decree by the trial court for
recovery of a sum of Rs.1,86,490/- by way of
commission to the plaintiff. Two civil revision
petitions are also preferred against the order
passed in I.A.No.2760/2001 and I.A.No.2802/2001
directing release of an amount of Rs.10 lakhs from
the court deposit to the respondent by accepting
the bank guarantee furnished.

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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3. It is based on Ext.A2 communication issued by

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the defendant to participate in the auction/tender of
Kerala Water Authority for the supply of PVC pipes
after the bidding of tender, Ext.B11 agreement was
entered into by the defendant with the Kerala Water
Authority for the supply of PVC pipes. The specific
case advanced by the plaintiff is that the defendant
in turn issued Ext.A2 letter to the plaintiff
expressing their willingness to pay commission at the
rate of 4% of the tender amount in the event of
successful bidding of tender in their favour.

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4. The concept of public tender is intended to

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give sufficient transparency in the dealings of State
Government or public authority with private persons
and it shall not be amenable for any kind of
commission to a third person so as to get any public
tender or auction. Any arrangement made between the
person who bid the tender with any other third person
for payment of commission based on the tender amount
would stand hit by public policy as embodied under
Section 23 of the Contract Act. Any agreement either
to facilitate or to prevent attendance in a public

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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auction or tender or agreement to prevent or
facilitate public tender by a third person would come
under the mischief of Section 23 of the Contract Act
as it is opposed to public policy, which would
ultimately destruct the very principle in conducting
a public tender/public auction. The Apex Court in
Gurmukh Singh v. Amar Singh [(1991) 3 SCC 79] had
laid down the very principle while dealing with a
case wherein six bidders participated in an auction
in which the parties to the auction in turn
contracted that the appellant would participate on
their behalf in a public auction to purchase the
evacuee property and the appellant would convey half
the property, purchased at the auction, to the
respondent would be injurious to the debtor and
against public policy. It is further held that an
agreement between all competing bidders at an auction
sale to form a ring and peg down the price and
purchase the property at a knock-out price would be
injurious to the debtor and against the public
policy.

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5. In the instant case, the agreement between the

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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plaintiff and the successful bidder, the defendant to
pay 4% of the tender amount to the plaintiff would
indirectly enhance the cost of goods to be supplied
to the extent of 4%. It would really escalate the
amount to be paid under the tender and would be
injurious to the State Government or the authority
under the State Government, the Kerala Water
Authority. Hence, if the case advanced by the
plaintiff is accepted for getting 4% of the tender
amount by way of commission, it would amount to
perpetuating an illegality and would fall under the
mischief of Section 23 of the Contract Act. This has
to be distinguished from a genuine agreement between
the parties to bid or with a third person to exchange
or to sub-contract any work or any part thereof under
the tender and it shall not be a prior understanding
or prior agreement, but should be an independent one,
uninfluenced by any prior act before or at the time
of tender or the liability thereunder either to
reduce or to escalate. Bidding of a tender on a
higher rate influenced by any commission to be
payable to a third person or any of the participant

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AS No.266/2001 &
CRP.NOS. 2105/2001, 2106/2001

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of the bid would stand opposed to public policy and
will come under the mischief of Section 23 of the
Contract Act. Necessarily, such kind of agreement for
getting commission cannot be enforced through court,
otherwise it would amount to perpetuating the
illegality or to sanctify the act opposed to public
policy. Hence, the decree granted by the trial court
cannot be sustained. The trial court ought to have
dismissed the suit as it is opposed to public policy
and for enforcement of something opposed to public
policy.

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The appeal will stand allowed by setting aside
the decree and judgment of the trial court and the
suit will stand dismissed. Both the C.R.Ps. will
stand dismissed accordingly.

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Sd/-

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P.SOMARAJAN JUDGE

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msp

N.Jayachandran v. Proprietor, M/S. Accurate Extractions

Case brief

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What did the court decide?

N.Jayachandran v. Proprietor, M/S. Accurate Extractions

Case brief

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