MAHANADI COALFIELDS LTD. & ORS. Vs. DHANSAR ENGINEERING COMPANY PVT.LTD.&ANR
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 9732 of 2016, Judgment Date: Sep 27, 2016
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO…9732../2016
(arising out of S.L.P.(Civil) No.11876/2013)
Mahanadi Coalfields Ltd. & Ors. …Appellants
Vs.
M/s. Dhansar Engineering Co. Pvt.Ltd & Anr. .....Respondents
J U D G M E N T
A.M.KHANWILKAR,J.
Leave granted.
2. This appeal challenges the judgment of the Division Bench of the High
Court of Orissa at Cuttack dated 7th November 2012 in Writ Petition (Civil)
No. 1093/2006.
3. Briefly stated, on 2nd December 2002 the appellants issued notice
inviting tenders for the work of extraction and transfer of Coal/Coal
Measure Strata (CMS) by deploying “Surface Miners” on hiring basis at
various Open Cast Projects, inter-alia, at Lakhanpur.
The respondents were declared the lowest bidder having quoted Rs.17/- per
cubic meter for the stated contract. A letter of intent was issued in
favour of the respondents on 4th April, 2003 which was accepted by the
respondents on 14th April, 2003. Work order was issued in favour of the
respondents on 23rd April, 2003 and a formal agreement was executed between
the parties on 26th May 2003. The relevant clauses of the agreement are
clauses 2 to 5 which read as under:
“2) Time shall be considered as one of the essence of the contract and
the time for the completion of the contract shall be counted from
16.04.2003 of from the date of issue of L.O.I. to which terms the
contractor agreed at the time when his tender was accepted and the contract
shall be completed by 15.04.2004 provided, sufficient face is provided by
the management.
3) The work order has already been issued for a period of one year for a
quantity of 49,50,000 Cum. At the rate of Rs. 17.00/Cum. for an amount of
Rs. 8,41,50,000.00.
4) The contractor shall re-deploy the Surface Miner in other OCPs as per
direction of the Company.
5) The tendered quantity may be reduced or increased by +/- 30%. No
claim shall lie on the company for such variation in quantity whether
increase or decrease. The tenderer must be in a position to increase the
machine capacity upon 30% extra daily quantity within 45 days notice.”
(emphasis supplied)
4. As the agreement refers to the terms and conditions of the tender
document, we may usefully refer to the relevant clauses therein.
“11.0 VARIATION IN SCHEDULED QUANTITY EXTENT AND RATE
The quantity given in the “Schedule of Quantity’s provisional and is meant
to indicate the extent of the work and to provide a uniform basis for
tendering and any variation either by addition or omission shall not
vitiate the contract.
The tendered quantity may be reduced or increased by 30%. No claim shall be
on the company for such variation in quantity whether increase or decrease.
Tenderer must be in a position to increase the machine capacity within 45
days notice to achieve the extra increased quantity.
If the additional altered or substituted work includes any item of work for
which no “rate is specified in the contract, “rate” for such item shall be
determined by the Company Headquarters in the following manner:-
The rate shall be derived from the rate for similar or near similar item of
work awarded in the Company, or
The rate shall be derived from contractor’s rate claimed for such item of
work supported by analysis of the rate claimed by the contractor. The rate
to be determined by the Company Headquarters as may be considered
reasonable taking into account percentage of profit and overhead not
exceeding ten percent or on the basis of market rate, if any prevailing at
the time when work was done.
However, the Engineer-in-charge shall be at liberty to cancel the
instruction by giving notice in writing and to arrange to carry out the
work in such manner as he considers advisable under the circumstances. The
contractor shall under no circumstances suspend the work in the plea of non-
settlement of rates.
The time of completion of the originally contracted work shall be
extended/reduced by the Company in the proportion that the
additional/reduced work (in value) bears to the original contracted work
(in value), as may be assessed and certified by the Engineer-in-charge.
The company through its Engineer-in-charge or his representative, on behalf
of the company, shall have power to omit any part of the work for any other
reason and the contractor shall be bound to carry out the work in
accordance with the instruction given to Engineer-in-change. No claim for
extra charges/damages shall be made by the contractor on these grounds.
In the event of any deviation being ordered which in the opinion of the
contractor changes radically the original scope and nature of the contract,
the contractor shall under no circumstances suspend the work, either
original or altered or substituted and the dispute/disagreement as to the
nature of deviation or the rate to be paid therefore shall be resolved
separately with the company.
13. TIME FOR COMPLETION OF CONTRACT
Time is the essence of the contract.
The contractual period of work shall be as specified in NIT/LOI
Agreement. The work shall be deemed to have commenced within 60 days of
the issue of Letter of Intent at all the places and should be able to
execute 100% of the daily awarded quantity from 61th day from the date of
issue of LOI.
Agreement should be executed before the release of 1st, on A/c.
bill.
For failure to reach the desired quantity from 61th day of
issue of LOI, contractor shall be liable for penalty @ 20% of amount for
shortfall quantity i.e. (shortfall quantity x awarded rate x 20%).
The contractor must be prepared to work continuously for three
shifts a day and all the working days in a year.
If the contractor, without valid reason, commits default in
commencing the execution of the work within 60 days from the date of issue
of LOI or fails to attain within specified date of issue of Letter of
Intent, the required quantity to give the ultimate output as per the
schedule of quantity, the company shall without prejudice to any other
right or remedy, be at liberty, by giving 15 days notice in writing to the
contractor, to forfeit the Earnest Money deposited by him and to terminate
the contract.
………………….
14.0 EXTENSION OF DATE OF COMPLETION
On happening of any event causing delay as stated hereunder, the
contractor shall apply for time extension to the CGM/GM of the Area.
Abnormally bad weather
Serous loss or damage by fire
Civil Commotion, strike or lockout affecting execution of work
Non-availability of working force or site which is the
responsibility of the company to supply.
Any other cause which, at the sole discretion of the company, is beyond the
control of the contractor.
The contractor may request the company in writing for extension of time
within 14 days of happening of such event ceasing delay stating the period
for which extension is desired. The company may, considering the
eligibility of the request, give a fair and reasonable extension of time of
completion of the work. Such extension shall be communicated to the
contractor, in writing, by the company through the Engineer-in-charge
within 1 month of the date of receipt of such request.
……………………
30.0 DEFAULT AND PENALTY
30.1 LOSS OR DAMAGE
Any loss or any expenditure for damages incurred by company will be
recoverable from the contractor whether fully or partly if such expenditure
for damages have been caused either directly or indirectly due to any
negligence or failure on the part of the contractor.
30.2. SHORTFALL PENALTY IN MECHANICAL EXCAVATION AND LOADING
The average daily quantity of the quarter shall be worked out by dividing
the mutually agreed quarterly allotted quantity by the working days of the
quarter, ending on 30th June, 30th September, 31st December & 31st March
Average daily quantity of a quarter must conform to average daily quantity
of the year contractual period.
In the event of the Contractors failure to comply with the rate of rate of
progress as per the agreed progress chart the contractor shall be liable to
pay a penalty on the quantity by which the contractor has fallen short from
the allotted quarterly quantity at the rate of 20% of the awarded rate.
For failure of produce size coal as per NIT (-100 mm size), the contactor
shall also be liable for penalty at the rate of 20% of the awarded rate for
such over size quantity.
The shortfall penalty will be recovered concurrently from the running bill
which will be adjusted annually subject to that the total penalty is
limited to 20% of (Annual Shortfall Quantity x Rate).
30.3 WAIVAL OF PENALTY
The company may at its sole discretion waive the payment of penalty in full
or in part in request received from the contractor depending the merit of
the case if the entire work is completed within the date as specified in
the contract or within extended period approved without imposing penalty.
31.0. SETTLEMENT OF DISPUTE
Except where otherwise provided for in the contract, all questions and
disputes relating to meaning of the scope, specification and instructions
herein before mentioned and as to any other question, claim right matter or
thing whatsoever in any way arising out of or relating to the contract,
instructions, orders or these conditions or otherwise concerning the works
or the execution or failure to execute the same whether arising during the
progress of the work or after the completion or abandonment thereof, shall
be referred to the Chairman-Cum-Managing Director of the Company or any
other person authorized by him.
It is also a terms of the Contract if the contractor (s) do/does not make
any demand for any claim(s) in writing 90 days of receiving the intimation
from the company that the bill is ready for payment or of the date of
receiving payment whichever is earlier, the claim of the Contractor(s) will
be deemed to have been waived and absolutely barred and the Company shall
be released and discharged of all liabilities under the contract in respect
of these claims.”
(emphasis supplied)
5. The respondents commenced the work of surface miners at Lakhanpur and
completed around 70% of the awarded quantity by the end of February 2004.
Due to financial problems faced by the respondents vide letter dated 13th
February 2004, they requested the appellants to allow them to close the
contract by invoking power to reduce the quantity by 30% of awarded
quantity, under clause 11 of the general terms and conditions of the NIT;
and to issue fresh tender for the remaining work. The appellants did not
accede to the said request and informed the respondents vide letter dated
16th February 2004, stating that the agreement is for performing the
contract upto 100% of awarded value and provision of executing extra 30%
quantity on the same terms and conditions. The respondents requested the
appellants vide letter dated 9th May 2004 to extend the time frame for
completion of the remaining contract upto 15th July 2004 as the contract
period was only till 15th April, 2004. The said letter reads thus:
ANNEXURE-P8
DHANSAR ENGINEERING CO. PVT. LTD.,
SITE
P.O. Dhansar P.O. Jorabaga
Dhanbad – 828106 (Jharkhand) Via Belpahar
Ph: 0326 – 307161/7074. Dist.: Jharsuguda (Orissa)
Fax: 0326 303294 Ph.: 06645 -233222
E-mail – decopl@dte.vsnl.net.in
Ref: No. DECO/NIT 276/2004 Date: 09.05.2004
To
The chief General Manager
Lakhanpur Area
Mahanadi Coalfields Ltd.,
(Through proper channel)
Sub: WORK OF EXTRACTION AND TRANSFER OF COAL/COAL MEASURE STRATA BY
DEPLOYING SURFACE MINER ON HIRING AT LAKHANPUR OCP OF LAKHANPUR AREA (NIT –
276) VIDE WORK ORDER NO. MCL/CGM/LKPA/ SO(M)/SUR. MINER/2003-04/001 DATED
23.04.2003.
Dear Sir,
Management is fully aware that tender rate of Rs. 17/- per Cum
for the work is all time low and wholly unworkable. We are working at this
rate at a colossal loss.
We started the work almost at the approach of monsoon on
16.04.2003 and we could not also speed up progress because of
transportation restriction between 11.00 A.M. & 4.00 P.M. against heat wave
alert and thereafter on-set of heavy rains consequenting upon bad, water-
logged & slippery road followed by short supply of rakes. With all these
operational hazards beyond our control, we could accomplish 34.74 Lakhs Cum
upto 31.03.2004.
As our financial loss was soaring day by day, we had requested
for foreclosure of the work after we have completed 70% of the work but
this was not agreed to by GM(TC) vide his letter No. 1251 dated 26.03.2004.
Therefore, being under contractual obligation we had, no other
alternative but to apply for extension of time upto 15.07.2004 and would
request you to kindly treat the contract as closed with the completion of
the above awarded quantity as we are ill-afford to bear further loss.
Thanking You,
Yours faithfully,
Sd/-
For Dhansar Engineering Co. Pvt. Ltd.”
6. This request of the respondents was considered by the appellants in
its 68th Meeting of the Board. Extension of three months time was granted
while reserving the right to impose penalty. The respondents were informed
accordingly vide letter dated 5th June 2004. As a result of this decision,
the contract period was extended until 15th July 2004 on the same terms and
conditions agreed upon. As the contract period was subsisting till 15th
July 2004, the appellants issued an approval order dated 11th June 2004 to
increase of 30% extra quantity i.e. 14.8 Lakh cubic meter at the existing
rate of next tender rate or whichever is lower, amounting to Rs. 252.42
Lakh. The respondents by letter dated 11th June 2004, however, reiterated
that the contract be treated as closed - as they were on the verge of
completing the quantity specified in the contract by 15th June 2004. The
said letter reads thus:
“ANNEXURE – P9
DHANSAR ENGINEERING CO. PVT. LTD.,
SITE
P.O. Dhansar P.O. Jorabaga
Dhanbad – 828106 (Jharkhand) Via Belpahar
Ph: 0326 – 307161/7074. Dist.: Jharsuguda (Orissa)
Fax: 0326 303294 Ph.: 06645 -233222
E-mail – decopl@dte.vsnl.net.in
Ref: No. DECO/NIT 276/2004 Date: 11.06.2004
To
The chief General Manager
Lakhanpur Area
Mahanadi Coalfields Ltd.,
Sub: NIT NO. 276 – EXTRACTION AND TRANSFER OF COAL/COAL MEASURE
STRATA BY DEPLOYING SURFACE MINER ON HRING BASIS AT LAKHANPUR OCP OF MCL
Dear Sir,
We would like to inform you that the order quantity of 49.50
lakh Cum is in the verge of completion, and is expected that this quantity
will be fully completed by 15.06.2004.
In this connection kindly refer to our letter No. DECO/NIT –
276/2004 dated 09.05.2004 under which we had requested your good-self to
treat the contract as closed with the completion of the quantity of 49.50
lakh Cum. In reiterating our request we would inform you that we may be
forced to stop the machine as it is giving trouble and we are not able to
repair the machine for dire scarcity of fund.
Thanking You,
Yours faithfully,
Sd/-
For Dhansar Engineering Co. Pvt. Ltd.
Copy to: 1) The Director (Technical) MCL, Burla,
2) The General Manager, Lakhanpur Area.”
7. The respondents by another letter dated 6th July 2004 seeking closure
of contract due to financial hardship, stated that they were withdrawing
their operations. The appellants, however, by letter dated 7th July 2004
called upon the respondents to continue with the remaining work assigned
under the contract which was still subsisting; and also noted that the
respondents had by then completed only 105% of the contract work out of
130%. The said communication reads thus:
“ANNEXURE –P12
“UNDER JURISDICTION OF SAMBALPUR COURT ONLY”
MAHANADI COALFIELDS LIMITED
(A SUBSDIARY OF COAL INDIA LIMITED)
Corporate Office Office of the Chief General Manager
M.C.L. Complex LAKHANPUR AREA
Jagriti Vihar P.O. bandhabahal – Via: Belpahar
Burla – 768018 Dist.: Jharsuguda, Pin 768217
Dist: Sambalpur (Orissa) phone: 33202, STD CODE: 06645
Ref: No. MCL/CGM/LKPA/SO(M)/932 Date: 07.07.2004
To
M/s Dhansar Engineering Co. pvt. Ltd.
Site Office: P.O. Jorabaga, Via – Belpahar,
Dist: Jharsuguda (Orissa)
Pin: 768217.
Ref: (1) Work order No. MCL/CGML/LKPA/SOM(M)/Sur Miner/2003-04/001 dated
23.04.2003 for Extraction and Transfer of Coal/Coal measure strata by
deploying ‘Surface Miners” on hiring basis at Lakhanpur OCP (NIT-276).
Sub: Contract of Surface Miner work at Lakhnapur OCP (under NIT No. 276)
Dear Sir,
Kindly refer to your letter No. DECO/NIT-276/2004 dated 6.07.2004 on
the above subject.
This is to bring to your notice that as per clause No.2 of the work order
forming part of the agreement the tendered quantity can be increased by 30%
and no claim shall lie on the company for such variation till date only
105% (approx.) of the awarded quantity has been executed by you. There is
no communication from MCL-HQ for finalization of new contract for the above
work till date.
In such condition you are requested to continue your operation of
surface miner at Lakhanpur OCP till completion of 30% extra quantity.
Withdrawal of operations of Surface Miner at this stage will seriously
affect dispatch of coal to our Pit head customer (OPGC) and other linkage
customers earning a bad name to the company.
Thanking You,
Yours faithfully,
SD/-
GENERAL MANAGER
LAKHANPUR AREA
Copy to:
The Chairman-cum-Managing Director, MCL Buria
The Director (T), MCL, Burla
The General Manager (TC), MCL HQ, Burla
The Staff Officer (Mining) LKPA”
8. The respondents, however, renewed their request to the appellants to
allow them to close the contract vide letters dated 8th July 2004 and 12th
July 2004. The respondents finally wrote to the appellants on 15th July
2004 which reads thus:
“ANNEXURE – P15
DHANSAR ENGINEERING CO. PVT. LTD.,
SITE
P.O. Dhansar P.O. Jorabaga
Dhanbad – 828106 (Jharkhand) Via Belpahar
Ph: 0326 – 307161/7074. Dist.: Jharsuguda (Orissa)
Fax: 0326 303294 Ph.: 06645 -233222
E-mail – decopl@dte.vsnl.net.in
Ref: No. DECO/NIT 276/2004 Date: 15.07.2004
To
The General Manager,
Lakhanpur Area, MCL,
Sub: Closing Down of work of Surface Miner at lakhanpur OCP under
NIT No. 276
Dear Sir,
A copy of our letter No. DECO/NIT/2004 dated 12.07.2004 addressed to CMD
MCL Burla with copies to D(T) and GM(TC), MCL HQ is enclosed herewith for
your information.
As notified this is to inform you that we are stopping the work and
withdrawing from operations at Lakhanpur OCP with effect from 16.07.2004
(FN). It is not out of place to mention that we had been expressing out
intention to abandon execution after completing 100% of the work on account
of our un-economical plight out has been continuing wit the execution to
cooperate with the management to arrange next recourse, so as to ensure
that the production schedule of Lakhanpur OCP does not suffer any set back.
We could not however elicit any communication to our letters or any
sympathetic decision from the management. In the meanwhile the contract
period also expired by 15.07.2004.
In view of the above situation we have no other alternative but to withdraw
from operation after working the full period of the contract.
You are therefore requested to kindly take up final measurement as on
15.07.2004 and finalise the contract.
Thanking you and assuring you of our best cooperation to all time come.
Yours faithfully,
Sd/-
For Dhansar Engineering Co. Pvt. Ltd.
Copy to:
The CMD, MCL, Burla Fax No. 0663 -2432066/2542366
The D(T), MCL, Burla, Fax No. 0663 – 2542509
The GM (TC), MCL, Burla, Fax No. 0663 – 2542629.”
9. As the respondents had already informed the appellants of their
intention to withdraw from operation after the full contract period, a
fresh tender process was commenced by the appellants which culminated with
a letter of intent in favour of third party (Sainik Mining and Allied
Services) but at a higher rate of Rs.31.50 per cubic meter.
10. The bills submitted by the respondents for the work executed under
the contract dated 26th May 2003 were considered by the Board of the
appellants in its 72nd meeting. The decision taken in the said meeting was
communicated to the respondents by letter dated 8th December 2014 which
reads thus:
“ANNEXURE R/9
MAHANADI COALFIELDS LIMITED
(A subsidiary of Coal India Limited)
P.O. – Jagruti Vihar, Burla, Distt. Sambalpur-768020 (Orissa)
Gram : SAMBCOAL,: Fax : (0663) 2542770
Phone : PBX :- (0663) 2542461 to 2542469
Ref. No. MCL/SBP/GM(TC)/2004/1047 Dt. 08.12.2004
To,
General Manager,
Lakhanpur Area
Dear Sir,
Enclosed herewith please find a copy of Extract from the Draft
Minutes of the 72nd meeting of the Board of Directors of MCL held on 27th
November, 2004 at Kolkata in respect of imposing penalty by way of
forfeiture of Earnest Money Deposit of Rs. 20.00 lakhs to M/s. Dhansar
Engineering (P) Ltd., for non-performance of 130% of the total contracted
quantity under NIT – 276. The relevant extract is appended below:-
“The Board deliberated on the subject in detail and in
consideration of the facts and circumstances highlighted in the agenda note
and in recognition of the clarification offered during deliberation,
decided that penalty as proposed in the agenda note in terms of the
provisions of the contract be imposed on M/s Dhansar Engineering pvt. Ltd.
For non-performance of 130% of the total contracted quantity under NIT-276.
Proposed in the Agenda Note
Clause No. 16 – (Forfeiture of Earnest Money)
The contractor is liable for forfeiture Money Deposit under
Clause No. 16(a) and 16(d) which reads as under:-
16(2) withdraws his offer during the validity period of offer.
16(a) fails to execute the order as per terms and conditions thereof.
In the present case the EMD is Rs. 20.00 lakhs.
Clause No. 30.2 (Shortfall penalty in Mechanical excavation and loading)
130% of Contract Quantity – 63,70,000.00 Cu.m.
Final quantity executed – 53,49,437.55 Cu.m.
Balance quantity to be executed – 10,20,562.45 Cu.m.
Working rate - Rs. 17.00 per Cu.m.
20% of working rate Rs. 3.40 per Cu.m.
Payable penalty for not executing
Upto 130% quantity Rs. 34,69,911.00
These penalties may be imposed individually or collectively depending
on the decision taken by the Management. The imposition of penalty may be
decided on the background that the contractor working at a very low rate
has executed 108.47% in spite of incurring heavy losses and withdrew only
when the new contract was finished ensuring that there is no loss of
production.
Yours faithfully
Sd/- Illegible
General Manager (TC)
Encl : As above”
11. The Board of the appellants in its 78th Meeting decided to impose
penalty for non-execution of the balance contract work by the respondents
and including the financial loss incurred by the appellants due to
allocation of that work to third party at higher rate. In terms of that
decision, an approval order for recovery of penalty was issued by the
appellants on 3rd November 2005 which reads thus:
“ANNEXURE -19
MAHANADI COALFIELDS LIMITED
(A subsidiary of Coal India Limited)
P.O. – Jagriti Vihar
Burla – 768018
Distt: Sambalpur-768020 (Orissa)
Gram : SAMBCOAL,: Fax : (0663) 2542770
Phone : PBX :- 2542461 to 2542470
Ref: No. MCL/SBP/GM(TC)/2005/1100 Date: 03.11.2005
APPROVAL ORDER
Sub: Imposition of penalty to M/s Dhansar Engineering Company Pvt. Ltd.,
under NIT-276 (Dt; 01.12.2002) for the work of “Extraction and Transfer of
Coal/Coal Measure Strata by deploying “Surface Miners” on hiring basis at
lakhanpur OCP, Lakhanpur Area.
On recommendation of the committee to examine the issue on
imposition of penalty under NIT – 276 dated 02.12.2002 to M/s Dhansar
Engineering Company Pvt. Ltd., for the work of “Extraction and Transfer of
Coal/Coal Measure Strata by deploying “Surface Miners” on hiring basis at
Lakhanpur OCP, Lakhanpur Area, the same has been agreed by D(T)
/D(F)/D(P)/CMD/MCL. The MCL Board in its 78th meeting held on 27.10.2005
under item No. 78.C/20 has been pleased to approve the proposal of
imposition of penalty in terms of provision of the contract to M/s. Dhansar
Engineering Company Pvt. Ltd. By non performance of 130% of total contacted
under NIT -276 (dt: 02.12.2002) for an amount of Rs. 1,57,40,655.22 (Rupees
One Crore Fifty-seven Lakh Forty Thousand Six Hundred Fifty-five and paisa
Twenty-two only) under the Clause – 30.1 (loss or damage) of the
agreement.
Sd/- General Manager (TC)
Distribution:
GM Lakhanpur Area
CGM(F) MCL, HQ
TS to CMD, MCL
TS to D(T), MCL
Secy. To D(F), MCL
Sanction Order file”
12. Aggrieved, the respondents filed Writ Petition under Article 226 of
the Constitution of India and prayed as follows:
“PRAYER
In the circumstances, it is therefore prayed that Your Lordships be
graciously pleased to issue a Rule NISI in the nature of certiorari calling
upon the Opposite Parties, to show cause as why the impugned letter dated
08.12.2004 vide Annexure-22 issued by the General Manager (TC), Mahanadi
Coal Fields Limited, Opposite party No.2 imposing penalty shall not be
quashed and if the Opposite Parties fail to show cause or show insufficient
cause make the said Rule absolute.
AND
Issue a Writ in the nature of mandamus directing the Opposite parties to
pay a sum of Rs. 79,01,434.60 to the Petitioner No.1 Company, which has
been illegally withholding by the Opposite parties.
AND
Issue a Writ in the nature of Mandamus directing the Opposite Parties
to pay interest @ 18% per annum as the Opposite Parties have illegally
withhold the outstanding dues of Rs. 79,01,434.60 of Petitioner No.1
Company since 15.07.2004.
AND
Issue such other Writ/Writs, Order/Orders, Direction/Directions as
this Hon’ble Court may deem it fit and proper.
And for this act of Kindness the Petitioner shall as in duty bound ever
pray.”
13. The Writ Petition was opposed by the appellants by filing reply
affidavit. The appellants raised preliminary objection about the
maintainability of the Writ Petition. On merits, the appellants asserted
that the demand raised against the respondents was in accord with the terms
and conditions of the contract and if the respondents were aggrieved by the
same they were free to resort to the procedure for settlement under clause
31 of the agreement. The Division Bench of the High Court, however, allowed
the Writ Petition preferred by the respondents on the finding that it was
not permissible for the appellants to allot extra work to the respondents
at the fag end of the contract period in terms of clause 5 of the contract
which envisaged giving 45 clear days notice for variation of the quantity
under the contract. That notice was given to the respondents only on 11th
June 2004 even though the extended contract period was to expire on 15th
July 2004. The Court held that, surprisingly after extending the contract
period on 5th June 2004, within six days on 11th June 2004 the appellants
decided to enhance the contract quantity by 30%. That was not a bonafide
act and was unacceptable. The Court also held that the appellants had not
offered any explanation as to in what circumstances decision to impose
penalty was taken by the Board of Directors. The Court further noted that
the respondents had executed the contract upto 108.47% at a very low rate,
and incurred heavy losses in that regard. Further, a new contract for
Lakhanpur OCP was already awarded and there was no loss of production
caused to the appellants. On these basis, the Division Bench allowed the
Writ Petition in the following terms:
“16. Accordingly, the letter dated 8.12.2004 of the General Manager (T.C)
Mahanadi Coalfields Limited under Annexure-22 proposing to levy shortfall
penalty as well as, its Approval Order dated 03.11.2005 under Annexure-A to
the counter affidavit are hereby quashed. The outstanding dues payable to
the petitioner be released in its favour within the period of thirty days
along with simple interest @ 8% per annum to be computed from the date of
conclusion of contract, i.e. from 16.7.2004. The bank guarantee furnished
by the petitioners, pursuant to the direction of this Court dated 28.7.2009
are hereby directed to be cancelled and consequently, directed that the
same be returned to the petitioners forthwith.
The writ petition is allowed with the aforesaid terms. No Costs.”
14. Aggrieved, the appellants have filed the present appeal. This Court
passed an interim order on 12th April, 2013, directing to maintain status
quo as it existed on that date until further orders.
15. According to the appellants the High Court has committed manifest
error in entertaining the Writ Petition. Firstly, in respect of a purely
contractual matter and moreso when efficacious remedy under clause 31 of
the contract was available to the respondents for redressal of their
grievance. Secondly, on merits the High Court has misconstrued and
misapplied the contractual terms and in particular clause 5 of the
contract. However, if the terms and conditions of the contract are read as
a whole, it leaves no manner of doubt that the appellants had the
discretion to extend the original contract period; and having done so at
the request of the respondents, the respondents were bound by the terms of
the contract till 15th July 2004. Further, before that date at any point of
time, it was open to the appellants to reduce or increase the contract
quantity upto 30%. The sole plea of the respondents for their inability to
perform the contract was founded on financial difficulty and sufferance of
further loss due to low contract rate. That can be no consideration for
walking out of the contract. Moreso, after the extra quantity was allocated
the respondents could have asked for further time for completing the extra
work, if they were not in a position to complete the same within the
contract period. That request could have been considered by the appellants
appropriately. The respondents did not do so. Instead, they insisted to
withdraw from operation merely because the rate of contract was not
affordable to them. Resultantly, the appellants had to allot the extra
quantity of unfinished work by the respondents, to third party at a higher
rate. The fact that the appellants did not suffer any loss of production,
it does not follow that no financial loss was suffered by the appellants
due to higher rate paid for the unfinished extra work. The appellants were,
therefore, justified in recovering the difference of rate in respect of
unfinished extra work and penalty therefor. That was a legitimate demand
under the terms and conditions of the contract between the parties.
16. The respondents, on the other hand, contend that it was unfair on the
part of the appellants not to allow the respondents to close the contract
as per the original contract and within the extended contract period i.e.
upto 15th July 2004. Further, the respondents cannot be made liable for the
unfinished extra quantity of work as that was allotted only on 11th June
2004, leaving very little time for the respondents to complete the same for
which the appellants should blame themselves. According to the respondents,
the High Court was right in concluding that clause 5 of the agreement did
not permit the appellants to allot an extra quantity of work to the extent
of 30% at the fag end of the extended contract period, absent 45 clear days
notice mandated therein. Further, the High Court has passed an equitable
order also keeping in mind that the respondents had already executed
108.47% of the contract work by suffering heavy losses, which fact is
substantiated from the execution of new contract at the rate of Rs.31.50
per cubic meter as against the rate of Rs.17/- per cubic meter payable to
the respondents. It is also contended that the demand for penalty amount
is unilateral and without any just cause. The same is illegal. Hence,
contends the learned counsel, the appeal be dismissed.
17. Having heard the learned counsel for the parties at some length, we
find force in the plea of the appellants. The challenge in the Writ
Petition filed by the respondents was limited to the letter dated 8th
December 2004, issued by the General Manager of the appellants. The
respondents had not challenged the extension of contract period till 15th
July 2004 vide letter dated 5th June 2004, the decision of the appellants
to allot an extra quantity of 30% work and much less the decision of the
Board to impose penalty taken on 27th October, 2005 and communicated to the
respondents vide Approval Order dated 3rd November 2005. The High Court,
however, has not only set aside the letter dated 8th December 2004 but also
the Approval Order dated 3rd November 2005.
18. For doing so, the High Court has taken support from clause 5 of the
Contract. That clause cannot be read in isolation. The other terms and
conditions of the contract must be read as a whole. Clause 5 of the
agreement dated 26th May 2003 posits authority in the appellants to reduce
or increase the tendered quantity by +/– 30%, whilst the contract is
subsisting. Indisputably, the original contract period was upto 15th April,
2004. At the instance of these respondents, the same stood extended till
15th July 2004. The extra 30% work was allotted to the respondents on 11th
June 2004, before expiry of the extended contract period i.e. 15th July
2004. As the contract period was extended and that decision was allowed to
attain finality, it inevitably obliged the respondents to fulfill all the
contractual stipulations under the original agreement including to complete
the assigned quantity of work - be it original quantity or extra quantity
- before 15th July 2004. The fact that they had to suffer financial loss
due to low contract rate could not be cited as an excuse to extricate from
that contractual obligation.
19. Failure to comply with the contractual obligation of executing the
original quantity of work or the extra work, as the case may be, must visit
the respondents with liability to compensate the appellants in terms of
other express clauses of the contract to the extent of unfinished work and
in particular the financial loss suffered by the appellants for getting the
same work executed through a third agency at a higher rate. The fact that
the respondents executed 108.47% of work before 15th July 2004, could be no
justification to relieve them of their obligation to compensate the
appellants with suitable amount for the unfinished contract work (out of
130%).
20. Presumably to get over this position, the respondents relying on
clause 5 of the agreement would contend that the extra quantity of work
could not be allotted to them, absent 45 clear days notice that too at the
fag end of the contract period. This argument, in our opinion, is a
complete misreading of the said clause. It is one thing to say that the
contractor should be given sufficient time to complete the extra work
commensurate with the extra quantity required to be executed by him.
However, in law, it is not open to contend that even though the contract
period is still subsisting, the principal (appellants) could not have
exercised its option to increase the quantity of work to the extent
permissible under that clause, to be executed by the contractor within the
contract period. The principal (appellants) could be asked to exercise
their option to extend the contract period beyond 15th July, 2004, to
enable the respondents to complete the unfinished extra work. If such
request were to be made by the respondents, there would have been
corresponding obligation on the appellants to extend the contact period
commensurate with the increased quantity of work in terms of clause 5 of
the agreement. The respondents, instead, opted to walk out of the contract
for the sole reason that the contract rate agreed by them was very low and
was causing financial loss to them. That can be no just reason to not
fulfill their contractual obligation.
21. Relying on the third sentence (last sentence) in clause 5, it was
contended that the employer could not have increased the tendered quantity
in absence of 45 clear days notice. We agree with the appellants that the
said stipulation would come into play only if the respondents were also
called upon to increase the machine capacity by upto 30% extra “daily”
quantity. In the present case, the appellants merely allotted extra 30%
quantity without requiring the respondents to increase the daily quantity.
There is marked difference between increasing the extra quantity during the
contract period and that of increasing the extra “daily” quantity. In the
case of latter, the contractor would be required to step up the machine
capacity for which giving of 45 clear days notice to him is necessary.
Suffice it to observe that the stipulation in the third sentence of clause
5 providing for 45 clear days notice was not an impediment for the
appellants to allot extra quantity of work upto 30%, whilst the contract
period was subsisting.
22. The respondents had then relied on the notings of the Project Officer
dated 26th January 2005 to contend that assigning of extra work to the
respondents at the fag end of the contract period was doubted even by the
said officer. The observations of the Project Officer cannot be the basis
to construe the scope of Clause 5 of the contract. Besides, it was only an
inter-departmental communication which was duly considered at different
level in the office of the appellants, but finally it is the decision of
the Board of Directors of the appellants that must prevail. As a matter of
fact, Clause 5 of the agreement empowers the appellants to increase or
reduce the quantity of work upto permissible limit whilst the contract was
subsisting. That power having been exercised, the obligation of the
contractor to complete the extra work in terms of the subject contract
within the contract period or extended contract period was imperative. The
respondents are not right in contending that the appellants-Company had no
authority to grant extension of time to complete the enhanced quantity.
This contention deserves to be stated to be rejected, keeping in mind the
other contractual terms such as Clause 11.0 - providing for variation in
the scheduled quantity, extent and rate; Clause 13 - time for completion of
contract and more particularly Clause 14.0 - for extension of date of
completion. Clause 14.0 (e) was available and ought to have been invoked by
the respondents in this situation. It postulates that for any other cause
not specifically provided in sub-clauses (a) to (d) of the same Clause, at
the sole discretion of the appellants, the date of completion could be
extended, if it was found to be necessary because of situation beyond the
control of the contractor. That clause could be invoked for the situation
in which the respondents were placed due to extra work allocated to them at
the fag end of the contract (extended) period.
23. In our opinion, clause 5 did not prohibit the principal (appellants)
to allot upto extra 30% quantity of work, for want of 45 clear days of
subsisting contract period. Whereas, that option could be exercised by the
appellants at any time until the contract period was subsisting, which in
this case was until 15th July 2004. In the present case, such notice
regarding increase of work upto 30% permissible under clause 5 of the
agreement, was given on 11th June 2004. On this finding, it must follow
that the respondents committed breach of their contractual obligation, in
not completing the balance work out of 130% of work (i.e. 130 - 108.47%).
To that extent the respondents became liable to compensate the appellants
including by way of penalty and in particular towards the financial loss
caused to the appellants due to assigning the unfinished work to a third
agency (contractor) at a higher rate. The amount demanded by the appellants
includes the difference of contractual rate and the actual loss suffered by
the appellants for completing the unfinished work through a third agency
(contractor) at a higher rate, as is noticed from the communication dated
8th December 2004 sent to the respondents.
24. The respondents, would then contend that, the appellants without
giving any opportunity to the respondents unilaterally imposed penalty and
despite the noting of the General Manager that there was no loss of
production to the appellants. Similarly, a doubt was expressed by the
Project Officer regarding giving extra work to the respondents at the fag
end of the contract period. The respondents have relied on the decision of
this Court in Maula Bux vs. Union of India[1], in which it has been held
that “where a sum is named in the contract in the nature of a penalty,
where loss in terms of money can be determined, the party claiming
compensation must prove the loss suffered by it.” It is, however,
indisputable that financial loss was suffered by the appellants on account
of assigning the unfinished work to a third agency (contractor) at a higher
rate. In that, the contract rate for the same work to be done by the
respondents would have been at Rs. 17/- per cubic meter, which the
appellants were required to get it executed at the rate of Rs. 31.50 per
cubic meter through a third agency. The fact that no loss of production
was suffered by the appellants cannot relieve the respondents of that
liability. It is a different matter that the respondents were not put to
notice before the final decision was taken by the appellants to recover the
financial loss along with penalty. The respondents could have approached
the appellants for reconsideration of their demand towards penalty, in
terms of Clause 30.3 of the contract; and persuade the appellants to waive
the penalty amount to be recovered from them. The respondents, however,
chose to straightway approach the High Court by way of Writ Petition.
Notably, the High Court has not set aside the penalty amount as such, but
the entire demand being impermissible. Since we have reversed the findings
and conclusion of the High Court and even if this appeal succeeds, the
respondents can be granted an opportunity to make a representation to the
Appellants - company, who in turn can deal with the same in accordance with
law. If the appellants accept the claim of the respondents about the
unjustness of penalty or quantum thereof, they would be free to withdraw or
modify their claim for recovery of penalty amount, if so advised. In the
event, the appellants reject the representation, they will be free to
recover the amount as demanded towards penalty along with interest accrued
thereon, as may be permissible in law. However, that would not absolve the
respondents from the financial liability arising due to difference of rate
of contract and the actual cost incurred by the appellants to complete the
unfinished work out of 130% of the contract quantity, through a third
agency at a higher rate. That can be recovered by the appellants from the
respondents along with interest accrued thereon at such rate, as may be
permissible in law, even if the representation made by the respondents for
recall or modification of the penalty amount is pending consideration.
Considering the above, it is not necessary for us to burden this judgment
with the contention of the respondents that the penalty imposed without any
notice or hearing to the respondents is vitiated; as also the decisions
relied in support of that contention in the case of Gorkha Security
Services vs. Government (NCT of Delhi) & Ors.[2] and Kumari Shrilekha
Vidyarthi & Ors vs. State of U.P. [3]
25. Similarly, it is not necessary for us to burden this judgment with
the decisions relied on by the respondents, to contend that existence of
alternative remedy is no bar to entertain a Writ Petition under Article 226
of the Constitution of India, as held in the cases of Popcorn Enterainment
vs. City Development Corporation[4], Harbanslal Sahnia & Anr. vs. Indian
Oil Corporation Ltd. & Ors.[5], Union of India & Ors. vs. Tantia
Construction Pvt. Ltd.[6], M.P. State Agro Industries Development Corpn. &
Anr. Vs. Jahan Khan[7] and Whirlpool Corporation vs. Registrar of Trade
Marks, Mumbai[8]. For, we have already examined the merits of the
controversy and more so granted liberty to the respondents to make
representation to the appellants on the question of justness of the demand
towards penalty or the quantum thereof. It will be open to the respondents
to pursue remedy in that behalf, as may be permissible in law. We are not
expressing any opinion one way or the other on the issue of penalty amount.
All questions in that behalf are left open.
26. Accordingly, we partly allow this appeal. The judgment of the
Division Bench dated 7th November 2012 is set aside. The reliefs claimed
by the respondents in the Writ Petition are disposed of in the above terms.
27. The appeal is partly allowed in the above terms with no order as to
costs.
………………………………….CJI
(T.S. Thakur)
…………………………………..J.
(A.M.Khanwilkar)
New Delhi,
September 27, 2016
-----------------------
[1] [2] (1969) 2 SCC 554
[3] [4] (2014) 9 SCC 105
[5] [6] (1991) 1 SCC 212
[7] [8] (2007) 9 SCC 593
[9] [10] (2003) 2 SCC 107
[11] [12] (2011)5 SCC 697
[13] [14] (2007) 10 SCC 88
[15] [16] (1998) 8 SCC 1
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