Refusal Of Contractor To Execute Work Unless Reciprocal Promises Are Met By Other Party Can't Be Termed Abandonment Of Contract : Supreme Court

A Bench comprising Justices Hemant Gupta and V. Ramasubramanian allowed the appeal assailing the order of the Bombay High Court, which had reduced the amount decreed by the Trial Court, solely on the ground that the contractor had abandoned the work under the contract.

Factual Background

The appellant, who is a registered contractor with the State of Maharashtra became the successful tenderer in a tender for execution of work of Regional Rural Piped Water Supply Scheme for Dabhol-Bhopan and other villages in Ratnagiri District. A work order was issued on 03.07.1986 and an agreement, which stipulated a period of 30 months for completion of the work was registered. By a letter dated 28.07.1986, the respondents informed the appellant that the work is to be kept in abeyance. Almost after 5 months, on 17.12.2986, the appellant was directed to commence work. Soon, the respondents were notified by the appellant about non-availability of C-1 Pipes and cement pipes of the diameters originally agreed. When the respondents wanted pipes of different dimensions, by a letter dated 20.02.1987, the appellant demanded a modified rate. By a letter dated 02.03.1987, the respondents asked the appellant to stop the pipeline work and start the work of construction at a different location. The appellant was later informed about a modification which involved the construction of some head-works and eventually a work order was issued on 01.07.1987 in this regard. The bills raised by the appellant were not honoured due to shortage of funds and in view of the same, it refused to proceed with the work. Consequently, the respondents issued a threat to withdraw the work order and impose a fine of Rs. 10 per day from 01.03.1988. The appellant filed a suit for recovery of a sum of Rs. 51,35,289 under several heads. The Trial Court decreed the suit and directed the respondents to pay Rs. 24,97,077 along with interest at 10% per annum from date of filing till realisation. On appeal, the Bombay High Court reduced the decree amount to Rs. 7,19,412 by disallowing three out of nine heads of claims.

Analysis by the Supreme Court

The Court limited its scrutiny to the three heads of claims, viz, release of security deposit; overheads for the period from January 1989 to 30.09.1990; and loss of profits, that had been allowed by the Trial Court but rejected by the High Court. The Apex Court noted that the High Court had rejected these claims solely based on the contention that the appellant had abandoned the work under the main contract. After considering the timeline of the events, the Supreme Court was of the view that the appellant was not guilty of abandonment. It noted that Clause 3(a) of the contract which enabled the respondents to rescind the contract, forfeit the security deposit and entrust the work to another contractor was not invoked by the respondent. Referring to Section 67 of the Indian Contract Act, 1872, the Court stated -

"...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."

Taking note of the fact that material alterations in the terms of the original contract were made by the respondents, the Court noted -

"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."

It further observed that a right can be abandoned but not an obligation like in the present case. The refusal to perform obligation can be breach of contract but non abandonment. However, the respondents have neither claimed breach of contract nor rescinded the contract or sought compensation by invoking Section 75 of the Contract Act. Therefore, the Court noted -

"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."

Case Name: Shripati Lakhu Mane v. The Member Secretary, Maharashtra Water Supply And Sewerage Board And Ors.

Citation: 2022 LiveLaw (SC) 331

Case No. and Date: Civil Appeal No. 556 of 2012 | 30 Mar 2022

Corum: Justices Hemant Gupta and V. Ramasubramanian

Headnotes

Section 67 of the Indian Contract Act, 1872 - 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 - 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. [Para 17]

Abandonment of Contract - 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. [Para 19]

Abandonment of Contract - 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 - the refusal to perform the obligations, can perhaps be termed as breach of contract and not abandonment. [Para 19]

Abandonment of 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. 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. [Para 22]