Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

CIVIL APPEAL NO.556 of 2012
SHRIPATI LAKHU MANE                                      ... APPELANT(S)
AND SEWERAGE BOARD & ORS.                       
V. Ramasubramanian
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   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
the   appellant,   and   Mr.   Sunil   Murarka,   learned   counsel   for   the
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 Dabhol­Bhopan and
other   villages   in   Ratnagiri   District,   the   appellant   became   the
successful   tenderer.   He   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 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 non­availability of C­1 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
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   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 head­work at
Karjai and another at Panchanadi. A work order dated 01.07.1987
was also issued in respect of these head­works.
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 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.
8. Before the Trial Court, the appellant examined himself as PW1 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
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,
1908 on the file of the High Court of Judicature at Bombay. The
appellant   did   not   file   any   appeal   though   the   suit   was   decreed
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.
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 judgment. For easy appreciation, they are
presented in a tabular column as follows:­
S.No. Heads of Claim Amount claimed 
in Plaint (Rs.)
Amount awarded 
by Trial court (Rs.)
Amount awarded   
by High Court Rs.)
1. Value of work done but not
paid,   up   to   the   date   of
withdrawal of work
12,25,864 28,418 28,418
2. Value of work done under
extra item
5,82,250 4,42,944 4,42,944
3. Release of security deposit 2,21,000 2,21,000 Disallowed
4. Idle labour 1,57,000 1,57,000 1,57,000
5. Idle machinery    91,000    91,000    91,000
6. Overheads 5,63,115 5,63,115 Disallowed
7. Loss of Profit       11,55,000 9,73,250 Disallowed
8. Interest at 18% p.a. up to
date of Suit
      11,38,860 Disallowed Disallowed
9. Notice Charges                 300         300 Not allowed
            TOTAL       51,34,389 24,77,0271 7,19,362
1 Though the amount totals to Rs. 24,77,027/­, the decree of the trial court was for Rs. 24,97,077/­
13. As could be seen from the above table, what was allowed by
the Trial Court under three heads of claims namely, (i) the release of
security deposit to the tune of Rs.2,21,000; (ii) over­heads 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 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 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, as reflected by the documentary evidence on record. The
timeline was as follows:­
(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.   Though   no   reason   was   indicated   in   the   letter,   the
respondents took a stand later that it was due to “administrative
(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
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 work­order in abeyance was lifted;
(v) Within a few days, the appellant notified the respondents,
about the non­availability of C­1 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 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 written statement that the letter
dated 02.03.1987 merely called upon the appellant to concentrate
on the construction of head­work, 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 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   head­work   at
Panchanadi   and   another   head­work   at   Karjai,   the   respondents
claimed in paragraph 10 of the written statement, that the headwork at Karjai, was already included in 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 non­payment of
bills due to paucity of funds and [2] the issue of delay in sanction of
the 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 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;
(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 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 non­payment 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 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   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
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   found   the   appellant   guilty   of
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 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
neglect or refusal as to any non­performance caused thereby."
A contracts with B to repair B’s house. 
B neglects or refuses to point out to A the places in which his
house requires repair. 
A is excused for the non­performance 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
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 accuse the appellant of
non­performance of the contract.
19. 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 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 party, but there is
no question of abandoning an obligation. In this case, the appellant
refused to perform his obligations under the work­order, for reasons
stated by him. This refusal to perform the obligations, can perhaps
be termed as breach of contract and not abandonment. 
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   compensation   for   the   damage
sustained   through   the   non­fulfillment   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
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 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 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 co­exist with the
specific stand of the respondents that the period of contract was
extended up to December, 1989.
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   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 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
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.
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.”
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 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 before the High Court, the
respondents   deposited   a   sum   of   Rs.42,98,168/­   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   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
shall stand discharged.
24. The appeal is allowed. There will be no order as to costs.
    (Hemant Gupta)
(V. Ramasubramanian)
New Delhi
March 30, 2022


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