HIND CONSTRUCTION CONTRACTORS v. THE STATE OF MAHARASHTRA
Citation: [1979] 2 S.C.R. 1147; 1979 INSC 21
Court: Supreme Court of India
Bench: Y.V. CHANDRACHUD , V.D. TULZAPURKAR, A.P. SEN
Judgment date:
Case summary
1979 INSC 21. Supreme Court of India judgment dated 1979-01-30. HIND CONSTRUCTION CONTRACTORS v. THE STATE OF MAHARASHTRA. Read the judgment and case...
Judgment text
1148 SUPREME COURT REPORTS [1979] 2 s. c. R. HIND CONSTRUCTION CONTRACTORS • v. THE STATE OF MAHARASHTRA /{]Jluary 30, 1979 [Y. V. CHANDRACHUD, C. J. , V. 0. TuLZAPURKAR AND A. P. SEN, JJ. ] Contract Act-Contract not completed within stipulated time. No term in contract making tin1e, the essence of contract-Tests for deciding if tin1e was of essence. The appellant entered into a contract with the respondent for the execution of a work the essential term of which was that the contract should be completed in 12 months from the commencement of the work. On the ground that the appellant had not completed the work within the stipulated time the respondent rescinded the contract. In his suit for damages for illegal and wrongful recision of the contract the appellant claimed that the date for commencement of the work was merely nominal and that in any case time was not of the essence of the contract. The appellant also alleged that on account of several difficulties such as exce.
ssive rains in the area, lack of proper road and means of approach to the site, rejec~ tion of materials on improper grounds by the Government officers, completion of the work was delayed, extension of time was wrongfully. refused by the officers of the Government, and that none of these factors had been taken into account by the Government while refusing to give extension of time, and in ultimately rescinding the contract. Holding that time was not of the essence of the contract the trial Court de. creed the suit, but disallowed certain claims of the appellant. On appeal by both sides the High Court, without deciding the question whether time was of the essence of the contract, held thnt the recision of the contract was not arbitrary and unreasonable or unjustified.
On further appeal to this Court it was contended on behalf of the appellant that (i) the High Court was in error in not deciding the main question whether or not time was essence of the contract; and (ii) it was not the appellant's case that the recision was mala fide and that, therefore, the High Court erred in considering that question. Allowing the appeal, HELD : The question whether or not time was of the essence of the con- ' tract would essentially be a question of the intention of the parties to be gathered from the terms of the contract. Even where the parties he. ve expressly provided that time is of the essence of the contract such stipulation would have to be read alongwith other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental.
For instance if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clause would be construed as rendering inefftctivc the express provision relating to the time being of the essence of the cont1act. fl155A-B] Halsbury', Laws of England, Vol. 4 p. 1174 referred to. • 8 (1) In the instant case, having regard to the terms of the car.
tract particularly the clauses pertaining to the imposition of penalty and extension of time~ time was never intended by the parties to be of the essence of the contract The letter by which the contract was rescinded clearly waived the stipulation of 12 months' period, the contractor having been allo,ved to do some more work after th ~ completed the if ·' work even within the next three months and, therefore, the respondent's officers had rightly rescinded the contract and, therefore, it was the appellant-plaintiff and not the respondent-defendant who had com-l mitted a breach of the contract. However, the High Court took the . , 17-119 SCI/79 If( ' ~ .. ;icw that for such breach on the part of the appellant-plaintiff, the respondent-defendant, on a reading of the els. 2 and 3 of the Condi- , tions of Contract, was not entitled both to levy compensation and also to forfeit the security deposit.
Accordingly, the High Court upheld the forfeiture of the S restoration of the decree passed by the trial Court and not press any ll other item forming the subject-matter of the original claim in the suit. On the other hand, counsel for the respondent-defendant sought to support the judgment P. nd decree of the High Court on both the grounds first that time was of the essence of the contract having regard to the express provision contained in cl. (2) of the "Conditions of Contract" and, therefoP", on appellant-plaintiff's failure to complete " .
' the san1e \Vithin the stipula~cJ thne the recision of the contract \Vas legal and justified and secondly, that even if time was not of the essence of the contract, having regard to the circumstances the Hish Court rightly came to the conclusion that the recision of the contrnct by the respondent-defendant could not be regarded as unreasonable or unjustified and that, thernfore, the appellant-plaintiff being in breach the security deposit had been rightly forfeited. The first question that arises for our consideration, therefore, is whether time was of the essence of the contract that was executed between the parties on July 12, 1955 (Ex. 34). It cannot be di•puted that question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract. The contract in the instant case is for the construction of an aqueduct across the Alandi River at Mile No.
2 of the Nasik Left Bank Canal and unquestionably 12 months' period commencing from the date of the commencem~rrt of the work had been specified within which the construction had to b~ + completed by the appellant-plaintiff. Indisputably, in the work order dated July 2, 1955 the Executive Engineer had directed the appellant-plaintiff to commence the work by July 5, 1955 intimating in clear • terms that the stipulated date for starting the work would be reckoned ! i:om July 5, 1955. Both the trial court as well as the High Court ~ ( have found that mentioning of July 5, 1955 as the date for starting the work was not nominal but was real date intended to be acted upon by the parties. It is, therefore, clear that 12 months' period mentioned for the completion of the work was to expire on July 4, 1956. The question is whether this period of 12 months so specified in the contract was of the essence of ! he contract or not ? On the one hand, counsel for the a~JX'.
llant·plaintiff con~~nded that the contract being analogous to a buildmg contract the period of 12 months would not ordinarily be of the essence of the contract as the subject-matter there· of was not such as to make completion to time essential, that an agree- • ment to complete it within reasonable time would be implied and that reasonable time for completion would be allowed. On the other hand counsel for the respondent-defendant contended that time had been expressly made of the essence of the contract and in that behalf re-liance was placed upon cl. (2) of the "Conditions of Contract" where not only time was stated to be of the essence of the contract on the part of the contractor but even for completion of proportionate works specific periods had been specified and, therefore, the appellant- ' plaintiff's failure to complete the work within the stipulated period entitled the respondent-defendant to rescind it. In the latest 4th edn.
of Halsbury's Laws of England in regard to building and engineering contracts the statement of law is to be found in Vol. 4, Para 1179, which runs thus :- " 1179. Where time is of the essence of the contract. The expression time is of the essence means that a breach of the condition as to the time for performance will entitle the innocent party to consider the breach as a repudiation of the contract. Exceptionally, the completion of the work by a specified date may be a condition precedent to the contractor's right to claim payment. The parties may expressly provide that time is of the essence of the contract and where there is power to determine the contract on a failure to complete by the specified date, the stipu1atio'n as to time will be fundamental.
Other provisions of the contract may, on the construction of the contract, exclude an inference that the completion of the works by a particular date is fundamenta~ time is not of the essence where a sum is payable for each week that the work remains incomplete after the date fixed, nor where the parties contemplate a postponement of completion. Where time has not been made of the essence of the contract or, by reason of waiver, the time fixed has ceased to be applicable, the employer may by notice fix a reasonable time for the completion of the work and dismiss the contractor on a failure to complete by the date so fixed. " (Emphasis supplied) ' It will be clear from the aforesaid statement of law that even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other HIND CONSTRUCTION CONTRACTORS v. MAHARASHTRA 1155 (Tulzapurkar, J. ) provisions of the contract and such other provisions ma.
y, on construction of the contract, exclude the inference that the completion -0f the work by a particular date was intended to be fundamentJl, for instance, if the contract were to include causes providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken rel! 'ains unfinished on the expiry of the time provided in the contract suLh clauses would be construed as rendering inctiective the express pro~'sion relating to the time being of the essence of contract. The emphas1' 'd portion of the aforesaid statement of law is based on Lamprell v. Billericay Union('), Webb v. Hughes(') and Charles Rickards Ltd. v. Oppen- 3 heim ( ). It is in light of the aforesaid position in law that we will have to consider the several clauses of the contract Ex. 34 in the case. The material clauses in this behalf are els.
2 and 6 of the "Conditions of Contract" which run as follows : "Clause 2 :-The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be reckoned from the date on which the order to commence work is given to the contractor. The work shall throughout the stipulated period of the contract be proceeded with, with all due diligence (time being deemed to be of the essence of the contract on the part of the contractor) and the contractor shall pay as compensation an amount equal to one per cent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide, of the amount of the estimated cost of the whole work as shown by the tender for every day that the work remains uncommenced, or un-p finished, after the proper dates. And further to ensure ' ' good progress during the execution of the work, the.
contractor shall be bound, in all cases in which the time allowed for any work exceeds one month, to complete. t of the work in t of the, time t of the work in t of the time t of the work in t of the time" . • "Cfause 6 :-If the contractor shall desire an extension of the time for completion of the work on the ground ' of his having been unavoidably hindered in its execution or (1) [184913 Exch 283 at 308. (2) [1870] L. R. 10 Eq 281. (3) [ 1950] l KB 616, on any other ground, he shall apply in writing to the Executive Engineer before the expiry of period stipulated in the tender or before expiry of 30 days from the date on which he was hindered as aforesaid or on which the cause for asking for extension occurred, whichever is earlier ' and the Executive Engineer, may if in his opinion there arc reasonable grounds for granting an extension, grant such extension as he thinks necessary or proper. The decision of the Executive Engineer in this matter shall be final.
" Two aspects emerge very clearly from the aforesaid two clauses, In the first place under cl. 6 power was conferred upon the Executive Engineer to grant extension of time for completion of ~e work on reasonable grounds on an application being made by the contractor (appellant•plaintifI) in that behalf; in other words, in certain contingencies parties had contemplated that extension of time would be available to the contractor. Such a provision would clearly be inconsistent with parties intending to treat the stipulated period of 12 months in cl. 2 as fundamental. Similarly, in cl. 2 itself provision was made for levying and recovering penaltyI compensation from the appellant-plaintiff at specified rates during the period the work shall remain unfinished after the expiry of the fixed date. Such provision also excludes the inference that time ( 12 months period) was intended to be of the essence of the contract. Further with regard to the provision that is to be found in c!.
2 whereunder a time schedule for proportionate work had been set out (namely, t of the work in t of the time, t of the work in t of the time and ! of the work in i of the time ) , the evidence of the Superintending Engineer Pandit (D. W. 1) is very eloquent. In para 13 of his deposition this is what he has stated : "In the agreement (Ex. 3· ~) the rate of work is based on the valuation tth time mentioned means tth in 12 months. The suit contract is for Rs. 1,07,000/-. Hh work means the work of about Rs. 27,000/-. IL is not \" possible to do the work of Rs. 27,000/- in tth time as the days were rainy. This was not reasonable. " The witness in para 12 of his deposition has also given the following , admission :- "It is not specifically mentioned in the agreement (Ex. 34), that the suit work was urgent and that it was to be completed within 12 months. In this agreement (Ex. 34) HIND CONSTRUCTION CONTRACTORS V. MAHARASHTRA 1 I 5 7 (Tulzapurkar, l.
) there are the clauses of imposing a penalty and extension of time. " Having regard to the aforesaid material on recor;;, particularly the <:lauses in the agreement pertaining to imposition of penalty and extension of time it seems to us clear that time (12 months period) was never intended by the parties to be of the essence of the contract. Further from the correspondence on the record, particularly, the letter (Ex. 78) by ,which the contract was rescinded it does appear that the stipulation of 12 months' period was waived, the contractor having been allowed to do some more work after the expiry of the period, albeit at his risk, by making the recision effective from August 16, 1956. Once either of the aforesaid conclusions is reached it would be difficult to accept the High Court's finding that the recision of the contract on the part of the respondent-defendant was proper and justified on the basis that the same was neither shown to be mala fide nor unreasonable.
It must be observed that it was never the case of the appellant-plaintiff that the recision of the contract on the part of the respondent-defendant was ma/a fide.
Counsel for the appellant-plaintiff further pointed out and, in our view, rightly that the five or six factors, namely, ( 1) the contract having been given at the thresh-old of monsoon, the period of monsoon ( 4 months) ought not to have been reckoned, (2) absence of proper road and approach to the work site during the rainy season and a couple of months there· after, (3) unreasonable rejection by the Government Officers of material brought on the site, which material was later on allowed to be used, ( 4) difficulty in procuring labour due to malarious climate at the site, (5) delay in issuing quarry permit and (6) extra time taken for doing extra work that was entrusted ought to have been taken into account_:_were put forward by the appellant-plaintiff merely for the purpose of showing that the refusal to extend the time by the Superintending Engineer although recommended by the S. D. O.
and Executive Engineer was unreasonable and not for showing that the ·recision of the contract was unreasonable or unjustified. In our view, the question would not be whether the recision of the contract was unreasonable and, therefore, unjustified but whether the recision of the contract in the circumstances of the case was wrongful and illegal. If time was not of the essence of the contract or if the stipulation as to the time fixed for completion had, by reason of waiver, ceased to be applicable then the only course open to the, respondent' R defendant was to fix some time making it the essence and if within the' time so fixed the appellant-plaintiff had failed tr ~. omplete the 1158 SUPREME COURT RHPORT5 [1979 I 2 S. C. R. work the respondent-defendant could have rescinded the contract. The High Court has taken the view that the contract was rightly rescinded by the. respondent-defendant because by about July 21, 1956 (vide letter Ex. 74).
the appellant-plaintiff had done work of the value of Rs. 35,000/- as against the tender value of Rs. 1,07,000/-, ' that is to say, only I/3rd of the total work had been completed and, ' therefore, even though time was not of the essence of the contract, the appellant-plaintiff, in the circumstances, could not have completed the work even within the next three months. In our view, this approach adopted by the respondent-defendant and upheld by the High Court is not correct. Long' before the expiry of the period of 12 months the appellant-plaintiff had by his letter dated June 6, 1956 (Ex. 68) requested for extension of period of completion up to the end of December, 1956; this request was repeated by another letter dated June 23, 1956 (Ex. 69). May be the reasons or grounds on which the request was made may not have appealed to the Superintending Engineer but some reasonable time making it the essence ought 0 to have been granted. In this behalf it may be stated that the S. D. O.
by his letter (Ex. 69) had recommended extension upto December 1956 as sought while by his letter dated June 23, 1956 (Ex. 70) addressed to the Superintending Engineer, the Executive Engineer had recommended that extension of time up to October 30, 1956 may be granted to the appellant-plaintiff with clear intimation that if he failed to complete the work by then, the maximum penalty allowable under cl. 2, namely, 10% of the cost of the work will be inflicted on him, but the recommendation did not receive approval of the Superintending Engineer. It appean; that the appellant-plaintiff had an interview with the Superintending Engineer on August 24, 1956 when a written representation (Ex. 99) was handed over and the whole position was sought to be explained to the Superintending Engineer but within three days of the interview by the letter dated August 27, 1956 (Ex. 78) the contract was rescinded and the full security deposit was fof'-feited to Government.
It will thus appear clear that though time was not of the essence of the contract, the respondent-defendant did not fix any further period making time the essence directing the appellant-plaintiff to complete the work within such period; instead it nscinded the contract straightaway by letter dated August 27, 1956. Such recision on the part of the respondent-defendant was clearly illegal and wrongful and thereby the respondent-defendant committed ' breach of contract, with the result that there could be no forfeiture of the security deposit. In our view, therefore, the trial court was right in coming to the conclusion that the appellant-plaintiff was entitled to a rdund of their full security deposit of Rs. 4,936/- as also .. _ . ,_,HIND CONSTRUCTION CONTRACTORS V. MAHARASHTRA • 1159 • (Tulzapurkar, J. ) A to Rs. 5845/- being the balance of their Bill No. 1253 dated September 20, 1956 for work actually done by them and not paid for and nominal damages of Rs. 120/-.
The appellant-plaintiff was also entitled to interest on the aforesaid sums and costs of suit as directed by the trial court. In the result we allow the appeal, set aside the common judgment B and decree in F. A. No. 844 of 1961 passed by the High Court and rnstore that of the trial court. The appellant-plaintiff will get costs of this appeal as also costs of F. A. No. 844 of 1961. The High Court's decree dismissing F. A. No. 245 of 1962 is confirmed. P. B. R. Appeal allowed. '
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