Supreme Court of India
MAHANADI COALFIELDS LTD. & ORS.versusM/S. DHANSAR ENGINEERING CO. PVT. LTD. & ANR.
- Citation
- 2016 INSC 920
- Decided
- 27 September 2016
- Disposal
- Case Partly allowed
- Bench
- T S THAKUR
Holding
The contractor was bound to complete the extra 30% work within the subsisting contract period and is liable for the penalty and compensation for the financial loss caused by its non‑performance.
Summary
Mahanadi Coalfields Ltd. awarded a contract to Dhansar Engineering for coal extraction, with a clause allowing the quantity to be varied by +/-30% during the contract. The company extended the contract period to July 2004 and, on 11 June 2004, ordered an additional 30% work. The contractor, citing financial loss, sought to close the contract and later withdrew, prompting the company to award the remaining work to a third party at a higher rate and impose a penalty. The High Court quashed the penalty, but the Supreme Court held that the contractor was bound to complete the extra work within the subsisting contract period and was liable for penalty and compensation for the loss incurred by the company. The Court allowed the contractor to make a representation on the penalty but otherwise upheld the company's claim. The appeal was partly allowed, setting aside the High Court's order.
Issues considered
- The scope and applicability of clause 5 allowing +/-30% variation without a 45‑day notice at the contract's end
- Whether the contractor was obligated to complete the extra 30% work within the original/extended contract period
- Validity of the penalty imposed for non‑performance of the increased quantity
- Whether the contractor should have resorted to the dispute‑settlement mechanism under clause 31 instead of a writ petition
- Whether the company could recover the financial loss arising from paying a higher rate to a third party
Subjects
contractvariation clausepenaltybreach of contractextension of timefinancial losswork contractnotice period
Judgment
[2016] 7 S.C.R. 127
MAHANADI COALFIELDS LTD. & ORS. A
v.
MIS. DHANSAR ENGINEERING CO. PVT. LTD. & ANR.
(Civil Appeal No. 9732of2016)
SEPTEMBER 27, 2016
B
[T. S. THAKUR, CJI AND A. M. KHANWILKAR, J.]
Contract - Work contract - For extraction and transfer of
Coal/Coal Measure Strata by deploying surface 111iners - As per
the terms and conditions of the tender docu111ent as well as the
agreement, the tender quantity could be reduced or increased by
30% on the sa111e ter111s and conditions - Ti111e for co111pletion of c
contract work was extended at the request of the contractor - During
the subsistence of the contract period appellant-company passed
order for increase of 30% extra quantity - The contractor requested
the company for closure of contract and informed its intention to
withdraw fro111 operation after full contract period due to financial D
hardship - The. company therefore gave lhe re111aining work to a
third party at higher rate - Co111pany i111posed penalty on the
contractor for non-execution of lhe remaining work - The penalty
was inclusive of the financial loss incurred by the company due to
allocation ofthat work at higher rate - Contractor filed writ petition -
Petition allowed by High Court - On appeal, held: Clause 5 of the E
agreement empoil'ered lhe company to increase or reduce the quantify
of work by 30%, whilst the contract was subsisting - Therefore,
obligation of contractor to complete the extra work in ter111s of the
contract within the contract period or extended period was
imperative - Contractor co111mitted breach of contractual obligation F
in not completing the balance work - The contractor is liable to
compensate for the financial loss suffered by the company in
assigning the remaining work at higher rate - However, liberty is
granted to the contractor to make representation to the co111pany
requesting to waive the penally in terms of the contract.
Partly allowing the appeal, the Court G
HELD: 1. Clause 5 of the Contract 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 261h May 2003
posits authority in the appellants to reduce or increase the
tendered quantity by +/- 30%, whilst the contract is subsisting. H
127
128 SUPREME COURT REPORTS [2016) 7 S.C.R.
A Indisputably, the original contract period was upto IS•h April, 2004.
At the instance of the respondents, the same stood extended till
ts•h July 2004. The extra 30% work was allotted to the
respondents on 11 •h June 2004, before expiry of the extended
contract period i.e. 151h July 2004. As the contract period was
extended and that decision was allowed to attain finality, it
B
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 tS•h July 2004. The fact that they had to suffer
financial loss due to low contract rate could not be cited as an
c excuse to extricate from that contractual qbligation. [Para 18]
J148-F-H; 149-AJ
2. 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
D 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 lS'h July
2004, could be no justification to relieve them of their obligation
E to compensate the appellants with suitable amount for the
unfinished contract work (out of 130%). [Para 19) (149-B-C]
3. It is not correct to say that the extra quantity of work
could not have been allotted to them, absent 45 clear days notice
that too at the fag end of the contract period. It is one thing to say
F that the contractor should be given suffieient 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
G
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 ts•h July, 2004,
to enable the respondents to complete the unfinished extra work.
If such request were to be made by the respondents, there would
H have been corresponding obligation on the appellants to extend
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 129
ENGINEERING CO. PVT. LTD. & ANR.
the contact period commensurate with the increased quantity of A
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. [Para 20] (149-D-G]
B
4. Tile stipulation in 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.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, c
the appellants merely allotted extra 30% quantity without
requiring the respondents to increase the daily quantity. There
is markl'd difference between increasing the extra quantity during
the contract period and that of increasing the extra "daily"
quantity. [Para 21] [149-H; 150-A-B] D
5. 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 is evidenct from 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 E
extension of date of completion. Clause 14.0 (e) was available
and ought to have been invoked by the respondents in this
situation. [Para 22] [150-F-G]
6. The respor.tlents committed breach of their contractual
obligation, in not completing the balance work out of 130% of F
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. [Para 23] (151-B-C]
G
7. It is 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. 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
H
130 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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. Even if this appeal
B
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. [Para 24] (151-F-H;
152-A-C]
Mau/a Bux v. Union ~f India (1969) 2 SCC 554 : 1970
c (1) SCR 928; Gorkha Security Sen1ices " Government
(NCT of Delhi) & Ors. (2014) 9 SCC 105; Kumari
Shrilekha Vidyarthi & Ors v. State of U.P. (1991) 1 SCC
212 : 1990 (1) Suppl. SCR 625 - referred to.
8. However, that would not absolve the respondents from
D 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
E representation made by the respondents for recall or modification
of the penalty amount is pending consideration. [Para 24] [152-
D-E]
Popcorn Enterainment vs. City Development
Corporation, (2007) 9 SCC 593; Harbanslal Sahnia
F & Anr. vs. Indian Oil Corporation Ltd. & Ors. (20fl3) 2
SCC 107; Union of India & Ors. vs. Tantia Construction
Pvt. Ltd. (2011) 5 SCC 697; M P. State Agro Industries
Development Corpn. & Anr. vs. Jahan Khan (2007) 10
SCC 88; Whirlpool Corporation vs. Registrar of Trade
Marks, Mumbai (1998) 8 SCC 1 - referred to.
G Case Law Reference
1970 (1) SCR 928 referred to Para 24
(2014) 9 sec 105 referred to Para24
1990 (1) Suppl. SCR 625 referred to Para24
2007 (3) SCR 17 referred to Para 25
H (2003) 2 sec 101 referred to Para 25
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 131
ENGINEERING CO. PVT. LTD.
2011 (5) SCR 397 referred to Para 25 A
2007 (9) SCR 715 referred to Para 25
1998 (2) Suppl. SCR 359 referred to Para 25
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9732
of2016.
From the Judgment and Order dated 07.11.2012 of the High Court B
of Orissa, Cuttack in W. P. (C) No. I 093 of 2006.
Gourab Banerji, Sr. Adv., K. N. Madhusoodhanan KN., T. G.
Narayanan Nair, S. A. Haseeb, Sahil Tagotra, Advs. for the Appellants.
Rakesh Dwivedi, Sr. Adv., Arunabh Chowdhury, Anupam Lal Das,
Vaibhav Tomar, Ms. Shruti Choudhry, Karma Dorjee, Anirudh Singh,
c
Ms. Barna) i Chowdhury, Ad vs. for the Respondent.
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J. I. Leave granted.
2. This appeal challenges the judgment of the Division Bench of D
the High Court of Orissa at Cuttack dated 71h November 2012 in Writ
Petition (Civil) No. I 093/2006.
3. Briefly stated, on 2"d 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 E
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 4•h April,2003 which was accepted
by the respondents on 141h April, 2003. Work order was issued in favour F
of the respondents on 23'd April, 2003 and a formal agreement was
executed between the parties on 26'h 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 e-f the contract shall 'G
be counted from 16.04.2003 offrom the date of issue of L.O.L
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.
H
132 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 3) The ll'ork 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, 5 0. 000. 00.
4) The contractor shall re-deploy the Swface Miner in other
OCPs as per direction of the Company.
B 5) The tendered quantity may be reduced or increased by +/-
30%. No claim shall lie on the company for such variation in
guantitv 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."
c (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
D RATE
The quantity given in the "Schedule of Quantity s provisional
and is meant to indicate the extent of the ll'ork and to provide
a uniform basis for tendering and any variation either by
addition or omission shall not vitiate the contract.
E· The tendered quantitv 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 capacily ll'ilhin 45 davs notice
to achieve the extra increased quantity.
F If the additional altered or substituted ll'ork 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
G similar item of work awarded in the Company, or
The rate shall be derived from contractors 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
H account percentage of profit and overhead not exceeding ten
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 133
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
percent or on the basis of market rate. if any prevailing at the A
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 B
circumstances suspend the work in the plea of non-settlement
of rates.
The time ofco111pletion of the originally contracted work shall
be extended/reduced by the Company in lhe proportion that
the additional/reduced work (in value) hears to the original c
contracted work (in value). as 111ay 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 0111it any part of the work for any other reason and the D
contractor shall be bound to cany oul the work in accordance
with the instruction given to Engineer-in-change. No clai111
for extra chargeslda111ages shall be 111ade by the contractor
on these grounds.
/11 the event of any deviation being ordered which in the E
opinion of the contractor changes radically the original scope
and nature of the contract, the contractor shall under no
circu111stances smpend 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. F
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 G
all the places and should be able to execute I 00% of the
daily awarded quantity fro111 6/th day fro111 the date of issue
of LOI.
Agreement should be executed before the release of/",
on Ale. bill. H
134 SUPREME COURT REPORTS (2016] 7 S.C.R.
A For fai/z;re to reach the desired quantity from 61'" 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
B for three shifts a day and all the working days in a yem:
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 altain within specified date
of issue of Letter of Intent, the required quantity to give the
C ultimate output as per the schedule of quantity, the company
shall without prejudice to any other right or remedy, be at
liberty, by giving I 5 days notice in writing to the contractor,
to forfeit the Earnest Money deposited by him and to terminate
the contract.
D .................... ..
· 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 CGMIGM of the Area.
E
a) Abnormally bad weather
b) Serous loss or damage by fire
c) Civil Commotion, strike or lockout affecting execution of
work
F d) Non-availability of working force or site which is the
responsibility of the company to supply.
e) Any other cause which. at the sole discretion of the
company. is beyond the control of the contractor.
G The contractor may request the company in writing for
extension of time within I 4 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 exte11sion of time of
completion of the work. Such extension shall be commu11icated
H
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 135
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
to the contractor, in writing, by the company through the A
Engineer-in-charge within 1 month of the date of receipt of
such request.
30.0 DEFAULT AND PENALTY
30.1 LOSS OR DAMAGE B
Any loss or anv expenditure for damages incurred by company
will be recoverable from the contractor whether fitlly 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.
c
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 al/oiled quantity
by the working days of the quarter, ending on 30'" June, 30'" D
September, 31" December & 31" 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 E
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 (-JOO 111111 size),
the contactor shall also be liable for penalty at the rate of
F
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 suh}ect to that
the total penalty is limited to 20% of (Annual Shortfall Quantity
x Rate).
G
30.3 WA/VAL OF PENALTY
The company may at its sole discretion waive the pqyment of
penalty in full or in part in request received from the contractor
depending the merit o[lhe case if the entire work is completed
within the date as specified in the contract or within extended H
136 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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
B 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
c 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
D 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. "
E
(emphasis supplied)
5. The respondents commenced the work of surface miners at
Lakhanpur and completed around 70% of the awarded quantity by the
end ofFebruary 2004. Due to financial problems faced by the respondents
vi de letter dated l 3m February 2004, they requested the appellants to
F 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 l 6'h February 2004, stating that the
G 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
9'h May 2004 to extend the time frame for completion of the remaining
contract 1:1pto l 5'h July 2004 as the contract period was only till I 5'h
April, 2004. The said letter reads thus:
H
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 137
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
ANNEXURE-P8 A
DHANSAR ENGINEERING CO. PVT. LTD.,
SITE
P.O. Dhansar P. 0. Jorabaga
Dhanbad - 828106 (Jharkhand) Via Be/pahar
Dist. :Jhars11guda(Orissa) B
Ph: 0326 - 30716117074.
Fax: 0326 303294 Ph.: 066./5 -233222
E-mail- decopl'ci dte. vsnl.net. in
Ref No. DECO/NIT 27612004 Date: 09. 05.2004 c
To
The chief General Manager
Lakhanpur Area
Mahanadi Coalfields Ltd., D
(Throu~h 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
E
(NIT - 276) VIDE WORK ORDER NO. MCLICGM/LKPAI
SO(M)/SUR. MINER/2003-041001 DATED 23.04.2003.
Dear Sir,
Management is fully aware that tender rate of Rs. 171- F
per Cum for the work is all ti111e low and wholly zmworkable.
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 G
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 acco111plish
34. 74 Lakhs Cum upto 31.03.2004.
H
138 SUPREME COURT REPORTS [20 ! 6] 7 S.C.R.
A 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
B 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 mvarded quantity
as we are ill-afford to bear further loss.
Thanking You,
c Yours faithft1lly,
Sdl-
For Dhansar Engineering Co. Pvt. Ltd."
6. This request of the respondents was considered by the appellants
in its 68 1h Meeting of the Board. Extension of three months time was
D granted while reserving the right to impose penalty. The respondents
were informed accordingly vide letter dated S1h June 2004. As a result of
this decision, the contract period was extended until IS 1h July 2004 on
the same terms and conditions agreed upon. As the contract period was
subsisting till JSth July2004, the appellants issued an approval order dated
E 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 J Jth
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 I S1h June 2004. The said letter reads thus:
F "ANNEXURE-P9
DHANSAR ENGINEERING CO. PVT. LTD.,
SITE
P. 0. Dhansar P. 0. Jorabaga
Dhanbad - 828106 (Jharkhand) Via Belpahar
G Ph: 0326 - 30716117074. Dist.: Jharsuguda (Orissa)
Fax: 0326 303294 Ph.: 06645 -233222
E-mail - decopl0 dte. vsnl. net. in
Ref No. DECO/NIT 27612004 Dale: 11.06.2004
H
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 139
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
To • A
The chief General Manager
Lakhanpur Area
Mahanadi Coalfields Ltd.,
Sub: NIT NO. 276-EXTRACT/ON AND TRANSFER OF COAL/COAL
MEASURE STRATA BY DEPLOYING SURFACE MINER ON HR/NG B
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 C
will be fully completed by 15.06.2004.
In this connection kindly refer to our letter No. DECO/NIT -2761
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 D
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 ofjimd
Thanking You,
Yours faithfully,
Sd/-
For Dhansar Engineering Co. Pvt. Ltd. E
Copy to: I) The Director (Technical) MCL, Bur/a,
2) The General Manager, Lakhanpur Area. "
7. The respondents by another letter dated 61h July 2004 seeking F
closure of contract due to financial hardship, stated that they were
withdrawing their operations. The appellants, however, by letter dated
7•h 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 I 05% of the
contract work out of 130%. The said communication reads thus: G
"ANNEXURE -P12
"UNDER JURISDICTION OF SAMBALPUR COURT ONLY"
MAHANADI COALFIELDS LIMITED
(A SUBSDIARY OF COAL INDIA LIMITED)
H
140 SUPREME COURT REPORTS [2016) 7 S.C.R.
A Corporate Office Office o.fthe Chief General Manager
M.C.l. Complex LAKHANPVRAREA
Jagriti Vihar P. 0. bandhabahal - Via: Belpahar
Bur/a - 768018 Dist.: Jharsuguda, Pin 768217
Dist: Sambalpur (Orissa) phone: 33202, STD CODE: 06645
8
Ref No. MCLICGMILKPAISO(M)/932 Dale: 07.07.2004
To
Mis Dhansar Engineering Co. pvt. ltd.
C Site Office: P. 0. Jorabaga, Via - Belpahar.
Dist: Jharsuguda (Orissa)
Pin: 768217.
Ref {I) Work order No. MCLICGMLILKPAISOM{M)!Sur Miner/2003-
041001 dated 23. 04.2003 for Exlraction am/Trans.fer ofCoal/Coal
D measure strata by deploying 'Su~(ace Miners" on hiring basis at
lakhanpur OCP (NIT-276).
Sub: Contract of Swface Miner work at lakhnapur OCP (under NIT
No. 276)
E Dear Sir.
Kindly re.fer to your letter No. DECO/NJT-27612004 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 agreemenl the tendered quantity can be
F
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 fro111 MCL-
HQ for ftnali:rntion of new contract for the above work till date.
Jn such condition you are requested to continue your operation of
G
surface 111iner at lakhanpur OCP till co111pletion of 30% extra
quantity. Withdrawal of operations of Swface 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,
H
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 141
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
Yours faithfully, A
SD/-
GENERAL MANAGER
LAKHANPUR AREA
Copy to:
The Chairman-cum-Managing Directo1; MCL Buria B
The Director (T), MCL, Bur/a
The General Manager (TC), MCL HQ, Bur/a
The Slaff Officer (Mining) LKPA"
8. The respondents, however, renewed their request to the c
appcll.1;11' to allow them to close the contract vide letters dated Slh July
2004 amt 121" July 2004. The respondents finally wrote to the appellants
on 15 1" July 2004 which reads thus:
"ANNEXURE-Pl5
DHANSAR ENGINEERING CO. PVT. LTD., D
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
E-mail-decopl@dte.vsnl.net.in
Ref: No. DECO/NIT 276/2004
Date: 15.07.2004
To F
The General Manager,
Lakhanpur Area, MCL,
Sub: Closing Down of work of Surface Miner at lakhanpur OCP under
NITNo.276 G
Dear Sir,
A copy ofour 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. H
142 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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 I 00% of
the work on account ofour un-economical plight out has been continuing
wit the execution to cooperate with the management to arrange next
B 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
c 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.
D
Yours faithfully,
Sci/-
For Dhansar Engineering Co. Pvt. Ltd.
E
Copy to:
I. The CMD, MCL, Burla Fax No. 0663 -2432066/2542366
2. The D(T), MCL, Burla, Fax No. 0663-2542509
3. TheGM (TC),MCL, Burla, Fax No. 0663-2542629."
F
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 letterofintent in favourofthird party (Sainik Mining
and Allied Services) but at a higher rate ofRs.31.50 per cubic meter.
G
I 0. The bills submitted by the respondents for the work executed
under the contract dated 26'h May 2003 were considered by the Board
of the appellants in its 72"d meeting. The decision taken in the said meeting
was communicated to the .respondents by letter dated 81h December
2014 which reads thus:
H
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 143
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
"ANNEXURE R/9 A
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 B
Ref.1\o. MCUSBP/GM(TC)/200411047 Dt. 08.12.2004
To,
General Manager,
Lakhanpur Area c
Dear Sir,
Enclosed herewith please find a copy of Extract from the Draft
Minutes of the 72"• meeting of the Board of Directors of MCL held on
27 1h November, 2004 at Kolkata in respect of imposing penalty by way of
forfeiture of Earnest Money Deposit of Rs. 20.00 lakhs to Mis. Dhansar D
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 E
pr_ovisions of the contract be imposed on Mis 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 F
Clause No. l6(a) and l 6(d) which reads as under:-
[ 6(2) withdraws his offer during the validity period of offer.
I 6(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. G
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 perCu.m.
20% of working rate Rs. 3.40 per Cu.m.
Payable penalty for not executing
Upto 130% quantity Rs.34,69,91 l.OO
H
144 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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 I 08.4 7% in spite of incurring heavy
losses and withdrew only when the new contract was finished ensuring
that there is no loss of production.
B
Yours faithfully
Sd/- lllegible
General Manager (TC)
Encl : As above"
c
11. The Board of the appellants in its 78 111 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. Jn terms of
that decision, an approval order for recovery of penalty was issued by
D the appellants on J'd November 2005 which reads thus:
"ANNEXURE -19
MAHANADI COALFIELDS LIMITED
(A subsidiwy of Coal India limited)
P. 0. - Jagriti Vihar
E Bur/a - 768018
Distt: Sambalpur-768020 (Orissa)
Gram: SAMBCOAL,: Fax: (0663) 2542770
Phone: PBX:- 2542461to2542470
Ref No. MCLISBPIGM(TC)/200511100 Date: 03.11.2005
F
APPROVAL ORDER
Sub: Imposition ofpenalty to Mis Dhansar Engineering Company Pvt.
Ltd., under NIT-276 (DI; 01.12.2002) for the work of "Extraction and
Transfer ofCoal/Coal Measure Strata by deploying "Surface Miners"
G on hiring basis at lakhanpur OCP, Lakhanpur Area.
On recommendation of the commil/ee to examine the issue on
imposition ofpenalty under NIT -276 dated 02.12.2002 to Mis Dhansar
Engineering Company Pvt. ltd.. for the work of "Extraction and
Transfer of Coal/Coal Measure Strata by deploying "Swface Miners"
H on hiring basis at Lakhanpur OCP, lakhanpur Area, the same has
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 145
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
been pgreed by D(T) !D(F)ID(P)/CMDIMCl. The MCl Board in its A
78'• 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 Mis. Dhansar Engineering Company Pvt.
ltd. '73y 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 B
paisa Twenty-two only) under the Clause - 30. 1 (loss or damage) of
the agreement.
Sd/- General Manager (TC)
Distribution:
1. GM lakhanpur Area
2. CGM(F) MCl, HQ c
3. TS to CMD, MCl
4. TS to D(T), MCl
5. Secy. To D(F), MCl
6. Sanction Order file"
D
12.Aggrieved, the respondents filed Writ Petition under Article
226 of the Constitution oflndia 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 E
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 F
to pay a sum of Rs. 79,01,434.60 to the Petitioner No.I 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 G
Petitioner No. I Company since 15. 07.2004.
A/VD
fssue such other Writ/Writs, Order/Orders, Direction/Directions
as this Hon 'ble Court may deem it fit and proper.
And/or this act ofKindness the Petitioner shall as_in duty bound
ever pray. " H
146 . SUPREME COURT REPORTS [2016] 7 S.C.R .
A l 3. 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 ifthe respondents were aggrieved
by the same they were free to resort to the procedure for settlement
B
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
c variation of the quantity under the contract. That notice was given to the
respondents only on J J<h June 2004 even though the extended contract
period was to expire on J S<h July 2004. The Court held that, surprisingly
after extending the contract period on S<h 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
D
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 I 08.4 7% at a very low rate, and incurred heavy losses
in that regard. Further, a new contract for Lakhanpur OCP was already
E 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-
F 22 proposing to levy shortfall penalty as well a~. 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
G 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
H Costs."
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 147
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
14.Aggrieved, the appellants have filed the present appeal. This A
Court passed an interim order on I 21h April, 2013, directirig 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 B
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 ofthe
contract. However, ifthe 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 c
the request of the respondents, the respondents were bound by the terms
of the contract till 15 1h July 2004. Further, before that date at any point of
time, :: 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 D
offurther 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 E
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 F
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.
G
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 I 51h July 2004. Further, the respondents cannot be made
liable for the unfinished extra quantity of work as that was allotted only
H
148 SUPREME COURT REPORTS [2016] 7 S.C.R.
A on 11th June 2004, leaving very Iittle time for the respondents to complete
the same for which the appellants should blame themseh . . ,. According
to the respondents, the High Court was right in concluding that clause 5
of the agreement did not permit the appella1its 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
B
Court has passed an equitable order also keeping in mind that the
respondents had already executed 108.4 7% 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
c contended thatthe 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
D 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 of30% work and much less the decision of the
Board to impose penalty taken on 27th October, 2005 and communicated
E 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
F 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 t.endered quantity by +/- 30%, whilst the contract is
subsisting. Indisputably, the original contract period was upto J 5th April,
2004. At the instance of these respondents, the same stood extended till
G J5th 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
H
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 149
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
quantity- before l 5'h July 2004. The fact that they had to suffer financial A
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 B
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 I08.4 7% of work before l 5'h July
2004, could be no justification to relieve them of their obligation to
compensate the appellants with suitable amount for the unfinished contract c
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 D
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 E
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 J5•h 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 oi~ the F
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 G
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
H
150 SUPREME COURT REPORTS [2016) 7 S.C.R.
A 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
B
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%, whi 1st the contract
period was subsisting.
c 22. The respondents had then relied on the notings of the Project
Officer dated 26'h 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,
D it was only an inter-depa11mental 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
E 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
F 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
G specifically provided in sub-clauses (a) to (d) of the same Clause, at the
so.le discretion of the appellants, the date ofcompletion could be extended,
ifit 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
H fag end of the coritract (extended) period.
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 151
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
23. ln our opinion, clause 5 did not prohibitthe principal (appellants) A
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 J5•h July 2004. In the present case, such notice
regarding increase of work upto 30% permissible under clause 5 of the
B
agreement, was given on 11 •h 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 -
I 08.4 7%). 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 c
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 8'11 December 2004 sent to the
D
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 Managerthat there was no
loss of production to the appellants. Similarly, a doubt was expressed by
E
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 Mau/a Bux vs. U11io11 of lntlia 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. th1.: party
claiming compensation must prove the loss suffered by it." It is, however, F
indisputable that financial loss was suffered by the appellants on account
ofassigning 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 G
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
1
(1969) 2 sec 554 H
152 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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, butthe entire demand being impermissible. Since
B
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 Appel Iants - 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
c 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
D
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 ifthe representation made by the respondents for recall or
E modification ofthe 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 Gorklta Security Services vs.
Govemment (NCT ofDel/ii) & Ors. 1 and Kunwri Slirileklia Vidyartlli
F & 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
G Enterainment vs. City Development Corporation 4, Harbanslal
Sallnia & Anr. vs. Indian Oil Corporation Ltd. & Ors.-', Union of
2
(2014) 9 sec 105
3
(1991) I SCC212
' (2007) 9 sec 593
H ' (2003) 2 sec 101
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 153
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.]
India & Ors. vs. Tantia Construction Pvt. Ltd.•, M.P. State Agro A
Industries Developmen_t Corpn. & Anr. Vs. Jalwn Kllan 7 and
Whirlpool Corporation vs. Registrar of Trade Marks, M umbai8• 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 ofjustness of the demand towards penalty or the quantum
B
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 7'h November 2012 is set aside. The reliefs claimed c
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.
D
Kalpana K. Tripathy Appeal partly allowed.
' (2011)5sec 697
osec 88
' (2007) 1
sec 1
• (1998) 8
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