Holding

A contractor's refusal to perform his obligations because the other party fails to provide reasonable facilities constitutes a breach, not abandonment, and the High Court's reduction of the decree is set aside.

Summary

The appellant, a registered contractor, was awarded a work order for a water supply scheme but faced non‑availability of specified pipes and was asked to substitute them, leading him to seek a modified rate. The respondents subsequently directed him to stop the pipeline work and commence a different project, while also delaying payment of his bills, after which they threatened to withdraw the work order and impose a fine. The appellant sued for recovery of sums including security deposit, overheads and loss of profit; the trial court awarded a partial decree of Rs 24,97,077, which the High Court reduced to Rs 7,19,412 on the ground of alleged abandonment. On appeal, the Supreme Court examined Sections 67 and 75 of the Indian Contract Act, holding that a contractor’s refusal to continue work when the other party fails to provide reasonable facilities is a breach, not abandonment, and that the respondents did not invoke their rescission rights. Consequently, the Court set aside the High Court’s order and restored the trial court decree. The appeal was allowed.

Issues considered

Whether the contractor's refusal to continue work amounts to abandonment of contract under the Indian Contract Act.
Whether the respondents were entitled to reduce the decree on the basis of alleged abandonment.
Whether Sections 67 and 75 of the Contract Act apply to excuse non‑performance caused by the promisee's neglect.

Legislation cited

Code of Civil Procedure, 1908s. 96
Indian Contract Act, 1872s. 67, s. 75

Subjects

abandonment of contractcontract breachSection 67Section 75quantum meruitcontract modificationnon‑payment of billsrescind contractcivil appealcontract law

Judgment

[2022] 2 S.C.R. 839 839

SHRIPATI LAKHU MANE A
v.
THE MEMBER SECRETARY, MAHARASHTRA WATER
SUPPLY AND SEWERAGE BOARD & ORS.
(Civil Appeal No. 556 of 2012) B
MARCH 30, 2022
[HEMANT GUPTA AND V. RAMASUBRAMANIAN, JJ.]
Contract Act, 1872: ss.67 and 75 – Neglect or refusal on
part of promisee to afford reasonable facilities for performance of
C
the promise – Appellants, a registered contractor of state government,
issued a work order for execution of work at the cost of Rs.80,45,034/
-, 47% above the estimated cost – Appellant was informed about
the non-availability of pipes stipulated in the contract – Since
respondents wanted change in work order by substituting pipes of
different diameter, the appellant demanded modified rate – Due to D
this dispute, respondent instructed the appellant to stop the pipeline
work and start the work of construction of another work – Bills
raised by appellant were not honoured in time, therefore he did not
proceed with the work – Respondent issued threat to withdraw the
work and to levy fine – Appellant filed suit for recovery of a sum of
E
Rs. 51,35,289/- – Trial court decreed the suit partially directing the
respondents to pay 24,97,077/- with 10% interest to the appellant –
High Court allowed the appeal filed by respondent partially and
reduced the decree amount to Rs.7,19,412/- – On appeal, held: The
entire sequence of events showed that appellant was not guilty of
anything including abandonment – Clause 3(a) of the contract F
enabled the respondents to rescind the contract, forfeit the security
deposit and entrust the work to another contractor at the risk and
costs of the appellant – This clause was never invoked by
respondents – Material changes done in work order without the
finalization of the modified rates caused the non-performance of
G
contract – Hence, the respondent cannot accuse the appellant of
abandonment and non-performance of the contract – The refusal
of a contractor to continue to execute the work, unless the reciprocal
promises are performed by the other party, cannot be termed as
abandonment of contract – It was the respondents who made it
difficult for the appellant to execute the contract as per the terms H
839
840 SUPREME COURT REPORTS [2022] 2 S.C.R.

A originally agreed – High Court’s order is set asdie and trial court’s
order restored.
Contract Act, 1872: Abandonment – It is fundamental to the
Law of Contract that whenever a material alteration takes place in
the terms of the original contract, on account of any act of omission
B or commission on the part of one of the parties to the contract, it is
open to the other party not to perform the original contract – This
will not amount to abandonment – Moreover, abandonment is
normally understood, in the context of a right and not in the context
of a liability or obligation – A party to a contract may abandon his
rights under the contract leading to a plea of waiver by the other
C party, but there is no question of abandoning an obligation.
Allowing the appeal, the Court
HELD: 1. Refusal of a contractor to continue to execute
the work, unless the reciprocal promises are performed by the
D other party, cannot be termed as abandonment of contract. A
refusal by one party to a contract, may entitle the other party
either to sue for breach or to rescind the contract and sue on a
quantum meruit for the work already done. The respondents did
not choose the option of rescinding the contract and suing for
damages in terms of clause 3 (a) and (b). It was the respondents
E who made it difficult for the appellant to execute the contract as
per the terms originally agreed. [Para 22][848-A-B, F-G]
2. The High Court was clearly in error in overturning the
judgment of the Trial Court with regard to the aforesaid 3 heads
of claims, on a wrong understanding that there was abandonment
F of contract on the part of the appellant. Hence this appeal is
allowed. The impugned judgment and decree of the High Court
are set aside and the judgment and decree of the Trial Court are
restored. [Para 23][848-G-H]
CIVIL APPELLATE JURISDICTION: Civil Appeal No.556 of
G 2012.
From the Judgment and Order dated 24.04.2009 of the High Court
of Judicature at Bombay in First Appeal No.528 of 1998.

H
SHRIPATI LAKHU MANE v. THE MEMBER SECRETARY, MAHARASHTRA 841
WATER SUPPLY AND SEWERAGE BOARD

Vinay Navare, Sr. Adv., Ms. Gwen Karthika, Ms. Abha R. A
Sharma, Advs. for the Appellant.
Sunil Murarka, Satyajit A. Desai, Siddharth Gautam, Himanshu
Sharma, Satyakam Sharma, Ms. Anagha S. Desai, Advs. for the
Respondents.
The Judgment of the Court was delivered by B

V. RAMASUBRAMANIAN, J.
1. The plaintiff in a suit for recovery of money has come up with
the above appeal challenging the judgment and decree of the High Court
of Judicature at Bombay in a regular appeal under Section 96 of the C
Code of Civil Procedure, 1908, by which the decree granted by the Trial
Court for recovery of Rs.24,97,077/- together with interest at 10% per
annum was modified into a decree for recovery of Rs.7,19,412/- together
with interest.
2. We have heard Mr.Vinay Navare, learned senior counsel for D
the appellant, and Mr. Sunil Murarka, learned counsel for the respondents.
3. The appellant is a registered contractor with the Government
of Maharashtra. In a tender for the execution of the work of Regional
Rural Piped Water Supply Scheme for Dabhol-Bhopan and other villages
in Ratnagiri District, the appellant became the successful tenderer. He
E
was issued with a work order on 03.07.1986, for the execution of the
work at the cost of Rs.80,45,034/-, which was 47% above the estimated
cost. The time for the completion of the work was stipulated as 30 months.
But it appears that Respondent No.3 herein issued a letter dated
28.07.1986 informing the appellant that the work order was kept in
abeyance. After a few representations, Respondent No.3 informed the F
appellant vide letter dated 17.12.1986 to start the work.
4. Though the appellant started executing the work from
29.12.1986, he was informed about the non-availability of C-1 pipes and
cement pipes of the diameter stipulated in the contract. Later, the
respondents wanted a change in the terms of the work order by G
substituting pipes of different diameter. Therefore, the appellant started
demanding modified rate.
5. When the above dispute was brewing, Respondent No.3
instructed the appellant, vide letter dated 02.03.1987 to stop the pipeline
work and start the work of construction of another work at a different H
842 SUPREME COURT REPORTS [2022] 2 S.C.R.

A place namely Panchanadi. By another letter dated 04.03.1987, the
Respondent No.2 informed the appellant about a modification which
involved the construction of one head-work at Karjai and another at
Panchanadi. A work order dated 01.07.1987 was also issued in respect
of these head-works.
B 6. Compounding the agony of the appellant, the bills raised by him
were not honoured in time due to shortage of funds. Therefore, the
appellant did not proceed with the work. As a result, Respondent No.2
issued a threat to withdraw the work order and also to levy a fine of
Rs.10/- per day from 01.03.1988. Ever since then, the parties were at
loggerheads, which ultimately led to the appellant filing a suit for recovery
C of a sum of Rs.51,35,289/-
7. The aforesaid claim of Rs.51,35,289/- comprised of several
heads of claim such as (i) value of the work done; (ii) release of the
security deposit; (iii) compensation; and (iv) damages etc.

D 8. Before the Trial Court, the appellant examined himself as PW-
1 and marked several documents as exhibits. On the side of the
respondents, 5 witnesses were examined as DWs 1 to 5 and the
respondents also marked several documents.
9. Eventually, the Trial Court, by a judgment and decree dated
E 02.02.1998 decreed the suit partially, directing the respondents to pay to
the appellant, a sum of Rs. 24,97,077/- together with interest at 10% per
annum from the date of the suit till realization.
10. Aggrieved by the decree so granted, the respondents filed a
regular civil appeal under Section 96 of the Code of Civil Procedure,
F 1908 on the file of the High Court of Judicature at Bombay. The appellant
did not file any appeal though the suit was decreed partially.
11. By a judgment and decree dated 24.04.2009, impugned in this
appeal, the High Court allowed the appeal partially and reduced the
decree amount to Rs.7,19,412/-. Therefore, the plaintiff has come up
with the above appeal.
G
12. Before we proceed to consider the grounds of attack and the
rival contentions, it will be useful to see the different heads of claims
made by the appellant before the Trial Court, the heads of claims and
the extent to which these heads of claims were allowed by the Trial
Court, and the heads of claims allowed by the High Court in the impugned
H
SHRIPATI LAKHU MANE v. THE MEMBER SECRETARY, MAHARASHTRA 843
WATER SUPPLY AND SEWERAGE BOARD [V. RAMASUBRAMANIAN]

judgment. For easy appreciation, they are presented in a tabular column A
as follows:-

B

C

13. As could be seen from the above table, what was allowed by D
the Trial Court under three heads of claims namely, (i) the release of
security deposit to the tune of Rs.2,21,000; (ii) over-heads for the period
from January 1989 to 30.09.1990 to the tune of Rs. 5,63,115/-; and (iii)
loss of profits to the tune of Rs.9,73,250/-, were disallowed by the High
Court. Therefore, the appeal before us is actually confined only to these
E
3 heads of claims.
14. The main and perhaps the only reason why the High Court
rejected the claims under the aforesaid 3 heads, was that the appellant
had abandoned the work under the main contract and that therefore
neither the question of release of security deposit nor the question of
payment of overheads nor the question of allowing a claim for loss of F
profit, did arise. Therefore, the only issue that arises for consideration in
this appeal before us is as to whether there was abandonment of work
by the appellant.
15. In order to see whether there was abandonment on the part
of the appellant, it is necessary to have a look at the timeline of events, G
as reflected by the documentary evidence on record. The timeline was
as follows:-

1
Though the amount totals to Rs. 24,77,027/-, the decree of the trial court was for Rs.
24,97,077/- H
844 SUPREME COURT REPORTS [2022] 2 S.C.R.

A (i) The work order was issued to the appellant on 03.07.1986 and
an agreement was registered. The agreement stipulated a period of 30
months for the completion of the work;
(ii) By a letter dated 28.07.1986, the respondents informed the
appellant that the execution of the work order shall be kept in abeyance.
B Though no reason was indicated in the letter, the respondents took a
stand later that it was due to “administrative exigencies”;
(iii) After nearly 5 months, a letter dated 17.12.1986 was issued
directing the appellant to commence work;
(iv) While the case of the appellant was that his obligation to
C commence the execution of the contract came into effect on 03.07.1986,
the case of the respondents in the written statement was that the date of
commencement of the work should be taken only as 17.12.1986, which
was the date on which the order for keeping the work-order in abeyance
was lifted;
D (v) Within a few days, the appellant notified the respondents, about
the non-availability of C-1 pipes and cement pipes of the diameter
originally agreed. When the respondents wanted to replace the pipes
with pipes of different dimension, the appellant demanded a fresh rate to
be finalized, through a letter dated 20.02.1987. This fact is admitted in
E paragraph 8 of the written statement;
(vi) Even before the issue raised in the letter dated 20.02.1987
could be resolved, the respondents issued another letter dated 02.03.1987
instructing the appellant to stop the pipeline work and start the work at
Panchanadi. Though the respondents claimed in paragraph 9 of their
F written statement that the letter dated 02.03.1987 merely called upon
the appellant to concentrate on the construction of head-work, it is
nevertheless admitted that the said letter contained the words, “please
be stopped”, in so far as the pipeline work is concerned;
(vii) According to the respondents, they issued a telegram dated
02.04.1987 calling upon the appellant to start the work of laying the
G
pipelines;
(viii) By a letter dated 04.03.1987, the plaintiff was informed that
the Scheme was undergoing modifications. While the appellant claimed
that the modification involved one head-work at Panchanadi and another
head-work at Karjai, the respondents claimed in paragraph 10 of the
H
SHRIPATI LAKHU MANE v. THE MEMBER SECRETARY, MAHARASHTRA 845
WATER SUPPLY AND SEWERAGE BOARD [V. RAMASUBRAMANIAN]

written statement, that the head- work at Karjai, was already included in A
the original tender itself. However, the respondents admitted that there
was at least one modification, imposed by their letter dated 04.03.1987;
(ix) The fact that the appellant sent a representation dated
04.11.1987 raising 2 issues namely [1] the issue of non-payment of bills
due to paucity of funds and [2] the issue of delay in sanction of the B
modified rate already proposed on 20.02.1987 for the work of laying
pipes of different dimension, is admitted by the respondents in paragraph
11 of the written statement, though they disputed the correctness of the
contents of the said letter. Interestingly, the averments of the appellant
in paragraph 11 of the plaint about the reply dated 02.12.1987 in response
to the appellant’s representation dated 04.11.1987, was not at all dealt C
with by the respondents in paragraph 11 of their written statement;
(x) It was at this juncture, that Respondent No.3 issued a letter
dated 22.02.1988, imposing a fine of Rs.10/- per day w.e.f. the date of
the said letter. By this letter the appellant was also called upon to start
the work by 01.03.1988; D

(xi) Despite the appellant’s objections, another letter dated
22.03.1988 was issued, reiterating the proposal for imposing a fine and
calling upon the appellant to start work;
(xii) In fact, in the letter dated 22.03.1988, the respondents admitted E
for the first time that the subject work was split into two parts and that
the proposed revised rates were as provided therein;
(xiii) Subsequently, there were several communications in April,
June, July and August, 1988 all of which pointed to a disagreement on
the revised rates on account of the modifications and the non-payment F
of bills;
(xiv) While according to the appellant the execution of the work
under the contract was to commence on 03.07.1986 with a liability to
complete it by 03.01.1989, the contention of the respondents was that
the execution of the work was to commence only in December, 1986
G
and that therefore the liability to complete the work expired only in June,
1989;
(xv) However, admittedly, the respondents increased the fine
amount from Rs.10/- per day to Rs.25/- per day vide their letter dated
19.04.1989. By another letter dated 06.10.1989, the respondents informed
H
846 SUPREME COURT REPORTS [2022] 2 S.C.R.

A the appellant that though the time for completion of the project expired
on 17.06.1989 and though the appellant did not ask for any extension, he
was being granted extension up to 31.12.1989.
16. The entire sequence of events narrated in the preceding
paragraph would show that the appellant was not guilty of anything
B including abandonment. Admittedly, Clause 3(a) of the contract enabled
the respondents to rescind the contract, forfeit the security deposit and
entrust the work to another contractor at the risk and costs of the
appellant. This clause was never invoked by the respondents. Therefore,
we are surprised, especially in the light of the communications from
February, 1988 up to October, 1989 as to how the High Court could have
C found the appellant guilty of abandonment.
17. In fact, Section 67 of the Indian Contract Act, 1872 makes it
clear that if any promisee neglects or refuses to afford the promisor
reasonable facilities for the performance of his promise, the promisor is
excused by such neglect or refusal. Section 67 together with the illustration
D contained there under reads as follows:-
“67. Effect of neglect of promisee to afford promisor
reasonable facilities for performance.—If any promisee
neglects or refuses to afford the promisor reasonable facilities for
the performance of his promise, the promisor is excused by such
E neglect or refusal as to any non-performance caused thereby.”
Illustration
A contracts with B to repair B’s house.
B neglects or refuses to point out to A the places in which his
F house requires repair.
A is excused for the non-performance of the contract, if it is caused
by such neglect or refusal.”
18. In the case on hand, the respondents issued the work order on
03.07.1986 but directed the work order to be kept in abeyance by a
G subsequent letter dated 28.07.1986. After this stalemate was lifted by a
letter dated 17.12.1986, two things happened namely, (i) a change in the
diameter of the pipes supplied by the respondents for carrying out the
contract; and (ii) request for the performance of additional work without
finalization of the modified rates. Therefore, the respondents cannot even
H accuse the appellant of non-performance of the contract.
SHRIPATI LAKHU MANE v. THE MEMBER SECRETARY, MAHARASHTRA 847
WATER SUPPLY AND SEWERAGE BOARD [V. RAMASUBRAMANIAN]

19. It is fundamental to the Law of Contract that whenever a A
material alteration takes place in the terms of the original contract, on
account of any act of omission or commission on the part of one of the
parties to the contract, it is open to the other party not to perform the
original contract. This will not amount to abandonment. Moreover,
abandonment is normally understood, in the context of a right and not in
B
the context of a liability or obligation. A party to a contract may abandon
his rights under the contract leading to a plea of waiver by the other
party, but there is no question of abandoning an obligation. In this case,
the appellant refused to perform his obligations under the work-order,
for reasons stated by him. This refusal to perform the obligations, can
perhaps be termed as breach of contract and not abandonment. C
20. It is interesting to note that the respondents did not choose, (i)
to allege breach of contract against the appellant; and (ii) consequently
to invoke the right to rescind the contract under clause 3(a). The
respondents, if they were justified in doing so, could have taken recourse
to the remedy available under Section 75 of the Contract Act and sought D
compensation for the damage sustained through the non-fulfillment of
the contract. On the contrary they attributed abandonment to the appellant
(without understanding the true purport of the word ‘abandonment’)
and refused to honour the claims made by the appellant.
21. The finding of the High Court that there was abandonment of E
contract, was on the basis that after the second bill was cleared in May,
1987, the work under the main contract did not progress. This finding
goes completely contrary to yet another finding that the period of the
contract was up to June, 1989 and that the respondents themselves granted
extension of time to complete the contract up to 31.12.1989, despite
there being no request from the appellant. We fail to understand as to F
how a person who abandoned the contract in May, 1987 could be granted
extension of time up to December, 1989 on the very understanding of
the respondents that the contract was up to June, 1989. In fact, the High
Court recorded a finding in paragraph 9 of the impugned judgment that
according to DWs 3, 4 and 5, the power to rescind under clause 3(a) of G
the tender was invoked and the security deposit forfeited. This was not
how the respondents pitched their claim even in the written statement.
In any case such a finding cannot co-exist with the specific stand of the
respondents that the period of contract was extended up to December,
1989.
H
848 SUPREME COURT REPORTS [2022] 2 S.C.R.

A 22. The refusal of a contractor to continue to execute the work,
unless the reciprocal promises are performed by the other party, cannot
be termed as abandonment of contract. A refusal by one party to a
contract, may entitle the other party either to sue for breach or to rescind
the contract and sue on a quantum meruit for the work already done.
Paragraph 694 of Volume 9, Fourth Edition of Halsbury’s Laws of
B
England, may be usefully extracted to highlight the remedies available
to a party to the contract, if the other party absolutely refuses to perform
his part of the contract.
“694. Work done under a contract terminated for breach.
Where one party has absolutely refused to perform, or has rendered
C
himself incapable of performing, his part of the contract, he puts
in the power of the other party either to sue for a breach of it, or
to rescind the contract and sue on a quantum meruit for the work
actually done. Thus, where a publisher engaged an author to write
a work but abandoned the project, the author was entitled to
D recover reasonable remuneration without tendering the completed
work; and where a defendant wrongfully revoked the plaintiff’s
authority to sell his land after the latter had found a purchaser, the
plaintiff recovered reasonable remuneration for his work and labour
up to that date.
E This type of quantum meruit claim is analogous to claims
for the repayment of money on total failure of consideration. In
both cases, the contract must be at an end before the claim can
be brought; but once the contract is at an end there is a logical
difficulty in saying that the claim is contractual.”
F The respondents did not choose the option of rescinding the contract
and suing for damages in terms of clause 3 (a) and (b). It was the
respondents who made it difficult for the appellant to execute the contract
as per the terms originally agreed.
23. In the light of the above, we are of the view that the High
G Court was clearly in error in overturning the judgment of the Trial Court
with regard to the aforesaid 3 heads of claims, on a wrong understanding
that there was abandonment of contract on the part of the appellant.
Hence this appeal is allowed. The impugned judgment and decree of the
High Court are set aside and the judgment and decree of the Trial Court
are restored. It appears that during the pendency of the first appeal
H
SHRIPATI LAKHU MANE v. THE MEMBER SECRETARY, MAHARASHTRA 849
WATER SUPPLY AND SEWERAGE BOARD [V. RAMASUBRAMANIAN]

before the High Court, the respondents deposited a sum of Rs.42,98,168/ A
- towards the amount decreed by the Trial Court. As seen from paragraph
16 of the impugned judgment of the High Court, the amount deposited
by the respondents before the High Court was withdrawn by the appellant
on 13.01.1999 by furnishing a bank guarantee. Therefore, while modifying
the decree, the High Court directed the appellant to return the balance
B
amount, failing which the Trial Court was empowered to encash the
bank guarantee for the remainder amount. In view of this, while ordering
the issue of notice in the special leave petition and granting interim stay,
this Court directed the appellant to keep the bank guarantee alive. Now
that we are allowing the appeal setting aside the judgment of the High
Court and restoring the judgment of the Trial Court, the bank guarantee C
shall stand discharged.
24. The appeal is allowed. There will be no order as to costs.

Devika Gujral Appeal allowed.
D

E

F

G

H