Page 1 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO…9732../2016

(arising out of S.L.P.(Civil) No.11876/2013)

Mahanadi Coalfields Ltd. & Ors. …Appellants

Vs.

M/s. Dhansar Engineering Co. Pvt.Ltd & Anr. .....Respondents

J U D G M E N T

A.M.KHANWILKAR,J.

Leave granted.

2.This appeal challenges the judgment of the Division Bench of

the High Court of Orissa at Cuttack dated 7

th

November 2012 in

Writ Petition (Civil) No. 1093/2006.

3.Briefly stated, on 2

nd

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 at various Open Cast Projects, inter-alia, at Lakhanpur.

Page 2 2

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

th

April, 2003 which

was accepted by the respondents on 14

th

April, 2003. Work order

was issued in favour of the respondents on 23

rd

April, 2003 and a

formal agreement was executed between the parties on 26

th

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 of the contract

shall be counted from 16.04.2003 of from the date of issue

of L.O.I. 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.

3) The work 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. 8,41,50,000.00.

4) The contractor shall re-deploy the Surface Miner in

other OCPs as per direction of the Company.

5) The tendered quantity may be reduced or increased

by +/- 30%. No claim shall lie on the company for such

variation in quantity 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. ”

(emphasis supplied)

Page 3 3

4.As the agreement refers to the terms and conditions of the

tender document, we may usefully refer to the relevant clauses

therein.

“11.0VARIATION IN SCHEDULED QUANTITY EXTENT AND

RATE

The quantity given in the “Schedule of Quantity’s provisional

and is meant to indicate the extent of the work and to provide

a uniform basis for tendering and any variation either by

addition or omission shall not vitiate the contract.

The tendered quantity 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 capacity within 45 days

notice to achieve the extra increased quantity.

If the additional altered or substituted work 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:-

a)The rate shall be derived from the rate for similar or near similar

item of work awarded in the Company, or

b)The rate shall be derived from contractor’s 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

account percentage of profit and overhead not exceeding ten

percent or on the basis of market rate, if any prevailing at the

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

circumstances suspend the work in the plea of non-settlement

of rates.

Page 4 4

The time of completion of the originally contracted work shall

be extended/reduced by the Company in the proportion that

the additional/reduced work (in value) bears to the original

contracted work (in value), as may 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

omit any part of the work for any other reason and the

contractor shall be bound to carry out the work in accordance

with the instruction given to Engineer-in-change. No claim for

extra charges/damages shall be made by the contractor on

these grounds.

In the event of any deviation being ordered which in the

opinion of the contractor changes radically the original scope

and nature of the contract, the contractor shall under no

circumstances suspend 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.

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 all the places and should be able to execute 100% of

the daily awarded quantity from 61th day from the date of

issue of LOI.

Agreement should be executed before the release

of 1

st

, on A/c. bill.

For failure to reach the desired quantity from 61

th

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 for three shifts a day and all the working days

in a year.

Page 5 5

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 attain within

specified date of issue of Letter of Intent, the required quantity

to give the ultimate output as per the schedule of quantity, the

company shall without prejudice to any other right or remedy,

be at liberty, by giving 15 days notice in writing to the

contractor, to forfeit the Earnest Money deposited by him and

to terminate the contract.

………………… .

14.0EXTENSION OF DATE OF COMPLETION

On happening of any event causing delay as stated

hereunder, the contractor shall apply for time extension to the

CGM/GM of the Area.

a) Abnormally bad weather

b) Serous loss or damage by fire

c)Civil Commotion, strike or lockout affecting execution of

work

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.

The contractor may request the company in writing for

extension of time within 14 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 extension of time of

completion of the work. Such extension shall be

communicated to the contractor, in writing, by the company

through the Engineer-in-charge within 1 month of the date of

receipt of such request.

……………………

30.0 DEFAULT AND PENALTY

30.1LOSS OR DAMAGE

Any loss or any expenditure for damages incurred by

company will be recoverable from the contractor whether fully

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.

Page 6 6

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 allotted quantity by

the working days of the quarter, ending on 30

th

June, 30

th

September, 31

st

December & 31

st

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

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 (-100 mm size), the

contactor shall also be liable for penalty at the rate of 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 subject to that

the total penalty is limited to 20% of (Annual Shortfall

Quantity x Rate).

30.3WAIVAL OF PENALTY

The company may at its sole discretion waive the payment of

penalty in full or in part in request received from the

contractor depending the merit of the case if the entire work is

completed within the date as specified in the contract or

within extended 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 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 after

the completion or abandonment thereof, shall be referred to

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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

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.”

(emphasis supplied)

5.The respondents commenced the work of surface miners at

Lakhanpur and completed around 70% of the awarded quantity by

the end of February 2004. Due to financial problems faced by the

respondents vide letter dated 13

th

February 2004, they requested

the appellants to 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 16

th

February 2004, stating that the 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

th

May 2004

Page 8 8

to extend the time frame for completion of the remaining contract

upto 15

th

July 2004 as the contract period was only till 15

th

April,

2004. The said letter reads thus:

ANNEXURE-P8

DHANSAR ENGINEERING CO. PVT. LTD.,

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-mail – decopl@dte.vsnl.net.in

Ref: No. DECO/NIT 276/2004 Date: 09.05.2004

To

The chief General Manager

Lakhanpur Area

Mahanadi Coalfields Ltd.,

(Through 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 (NIT – 276) VIDE WORK ORDER NO. MCL/CGM/LKPA/

SO(M)/SUR. MINER/2003-04/001 DATED 23.04.2003.

Dear Sir,

Management is fully aware that tender rate of

Rs. 17/- per Cum for the work is all time low and wholly

unworkable. 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 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

accomplish 34.74 Lakhs Cum upto 31.03.2004.

Page 9 9

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 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 awarded

quantity as we are ill-afford to bear further loss.

Thanking You,

Yours faithfully,

Sd/-

For Dhansar Engineering Co. Pvt. Ltd.”

6.This request of the respondents was considered by the

appellants in its 68

th

Meeting of the Board. Extension of three

months time was granted while reserving the right to impose

penalty. The respondents were informed accordingly vide letter

dated 5

th

June 2004. As a result of this decision, the contract

period was extended until 15

th

July 2004 on the same terms and

conditions agreed upon. As the contract period was subsisting till

15

th

July 2004, the appellants issued an approval order dated

11

th

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 11

th

June 2004, however, reiterated that the contract

Page 10 10

be treated as closed - as they were on the verge of completing the

quantity specified in the contract by 15

th

June 2004. The said

letter reads thus:

“ ANNEXURE – P9

DHANSAR ENGINEERING CO. PVT. LTD.,

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-mail – decopl@dte.vsnl.net.in

Ref: No. DECO/NIT 276/2004 Date: 11.06.2004

To

The chief General Manager

Lakhanpur Area

Mahanadi Coalfields Ltd.,

Sub: NIT NO. 276 – EXTRACTION AND TRANSFER OF

COAL/COAL MEASURE STRATA BY DEPLOYING SURFACE

MINER ON HRING 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 will be fully completed by

15.06.2004.

In this connection kindly refer to our letter No.

DECO/NIT – 276/2004 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 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 of fund.

Thanking You,

Yours faithfully,

Sd/-

For Dhansar Engineering Co. Pvt. Ltd.

Page 11 11

Copy to: 1) The Director (Technical) MCL, Burla,

2) The General Manager, Lakhanpur Area.”

7.The respondents by another letter dated 6

th

July 2004 seeking

closure of contract due to financial hardship, stated that they were

withdrawing their operations. The appellants, however, by letter

dated 7

th

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 105% of the contract work out of 130%. The said

communication reads thus:

“ ANNEXURE –P12

“UNDER JURISDICTION OF SAMBALPUR COURT ONLY”

MAHANADI COALFIELDS LIMITED

(A SUBSDIARY OF COAL INDIA LIMITED)

Corporate Office Office of the Chief General

Manager

M.C.L. Complex LAKHANPUR AREA

Jagriti Vihar P.O. bandhabahal – Via:

Belpahar

Burla – 768018 Dist.: Jharsuguda, Pin 768217

Dist: Sambalpur (Orissa) phone: 33202, STD CODE: 06645

Ref: No. MCL/CGM/LKPA/SO(M)/932 Date: 07.07.2004

To

M/s Dhansar Engineering Co. pvt. Ltd.

Page 12 12

Site Office: P.O. Jorabaga, Via – Belpahar,

Dist: Jharsuguda (Orissa)

Pin: 768217.

Ref: (1) Work order No. MCL/CGML/LKPA/SOM(M)/Sur

Miner/2003-04/001 dated 23.04.2003 for Extraction and

Transfer of Coal/Coal measure strata by deploying ‘Surface

Miners” on hiring basis at Lakhanpur OCP (NIT-276).

Sub: Contract of Surface Miner work at Lakhnapur OCP (under NIT

No. 276)

Dear Sir,

Kindly refer to your letter No. DECO/NIT-276/2004 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 agreement the tendered

quantity can be 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 from MCL-HQ for finalization of new contract

for the above work till date.

In such condition you are requested to continue

your operation of surface miner at Lakhanpur OCP till

completion of 30% extra quantity. Withdrawal of operations of

Surface 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,

Yours faithfully,

SD/-

GENERAL MANAGER

LAKHANPUR AREA

Copy to:

The Chairman-cum-Managing Director, MCL Buria

The Director (T), MCL, Burla

The General Manager (TC), MCL HQ, Burla

The Staff Officer (Mining) LKPA”

Page 13 13

8.The respondents, however, renewed their request to the

appellants to allow them to close the contract vide letters dated 8

th

July 2004 and 12

th

July 2004. The respondents finally wrote to the

appellants on 15

th

July 2004 which reads thus:

“ ANNEXURE – P15

DHANSAR ENGINEERING CO. PVT. LTD.,

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-mail –

decopl@dte.vsnl.net.in

Ref: No. DECO/NIT 276/2004 Date:

15.07.2004

To

The General Manager,

Lakhanpur Area, MCL,

Sub: Closing Down of work of Surface Miner at lakhanpur OCP

under NIT No. 276

Dear Sir,

A copy of our 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.

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

Page 14 14

abandon execution after completing 100% of the work on

account of our un-economical plight out has been continuing

wit the execution to cooperate with the management to

arrange next 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 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.

Yours faithfully,

Sd/-

For Dhansar Engineering Co. Pvt. Ltd.

Copy to:

1.The CMD, MCL, Burla Fax No. 0663

-2432066/2542366

2.The D(T), MCL, Burla, Fax No. 0663 – 2542509

3.The GM (TC), MCL, Burla, Fax No. 0663 – 2542629.”

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 letter of intent in favour of third party

Page 15 15

(Sainik Mining and Allied Services) but at a higher rate of Rs.31.50

per cubic meter.

10.The bills submitted by the respondents for the work executed

under the contract dated 26

th

May 2003 were considered by the

Board of the appellants in its 72

nd

meeting. The decision taken in

the said meeting was communicated to the respondents by letter

dated 8

th

December 2014 which reads thus:

“ANNEXURE R/9

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

Ref. No. MCL/SBP/GM(TC)/2004/1047 Dt. 08.12.2004

To,

General Manager,

Lakhanpur Area

Dear Sir,

Enclosed herewith please find a copy of Extract

from the Draft Minutes of the 72

nd

meeting of the Board of

Directors of MCL held on 27

th

November, 2004 at Kolkata in

respect of imposing penalty by way of forfeiture of Earnest

Money Deposit of Rs. 20.00 lakhs to M/s. Dhansar

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

Page 16 16

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 provisions of

the contract be imposed on M/s 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 Clause No. 16(a) and 16(d) which reads as

under:-

16(2) withdraws his offer during the validity period of offer.

16(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.

- 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 per Cu.m.

- 20% of working rate Rs. 3.40 per Cu.m.

- Payable penalty for not executing

Upto 130% quantity Rs. 34,69,911.00

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 108.47% in spite of incurring heavy losses

and withdrew only when the new contract was finished

ensuring that there is no loss of production.

Yours faithfully

Sd/- Illegible

General Manager (TC)

Encl : As above”

Page 17 17

11.The Board of the appellants in its 78

th

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. In terms of that decision, an approval order for recovery of

penalty was issued by the appellants on 3

rd

November 2005 which

reads thus:

“ANNEXURE -19

MAHANADI COALFIELDS LIMITED

(A subsidiary of Coal India Limited)

P.O. – Jagriti Vihar

Burla – 768018

Distt: Sambalpur-768020 (Orissa)

Gram : SAMBCOAL,: Fax : (0663) 2542770

Phone : PBX :- 2542461 to 2542470

Ref: No. MCL/SBP/GM(TC)/2005/1100 Date:

03.11.2005

APPROVAL ORDER

Sub: Imposition of penalty to M/s Dhansar Engineering

Company Pvt. Ltd., under NIT-276 (Dt; 01.12.2002) for the

work of “Extraction and Transfer of Coal/Coal Measure Strata

by deploying “Surface Miners” on hiring basis at lakhanpur

OCP, Lakhanpur Area.

On recommendation of the committee to examine

the issue on imposition of penalty under NIT – 276 dated

02.12.2002 to M/s Dhansar Engineering Company Pvt. Ltd.,

for the work of “Extraction and Transfer of Coal/Coal

Measure Strata by deploying “Surface Miners” on hiring basis

at Lakhanpur OCP, Lakhanpur Area, the same has been

Page 18 18

agreed by D(T) /D(F)/D(P)/CMD/MCL. The MCL Board in its

78

th

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 M/s. Dhansar

Engineering Company Pvt. Ltd. By 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 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

3.TS to CMD, MCL

4.TS to D(T), MCL

5.Secy. To D(F), MCL

6.Sanction Order file”

12.Aggrieved, the respondents filed Writ Petition under Article

226 of the Constitution of India 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 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 to pay a sum of Rs. 79,01,434.60 to the Petitioner

Page 19 19

No.1 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 Petitioner No.1 Company since

15.07.2004.

AND

Issue such other Writ/Writs, Order/Orders,

Direction/Directions as this Hon’ble Court may deem it fit and

proper.

And for this act of Kindness the Petitioner shall as in duty

bound ever pray.”

13.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 if the

respondents were aggrieved by the same they were free to resort to

the procedure for settlement 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 variation of

Page 20 20

the quantity under the contract. That notice was given to the

respondents only on 11

th

June 2004 even though the extended

contract period was to expire on 15

th

July 2004. The Court held

that, surprisingly after extending the contract period on 5

th

June

2004, within six days on 11

th

June 2004 the appellants decided to

enhance the contract quantity by 30%. That was not a bonafide act

and was unacceptable. The Court 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

108.47% at a very low rate, and incurred heavy losses in that

regard. Further, a new contract for Lakhanpur OCP was already

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-22 proposing to levy shortfall penalty as well as, 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

Page 21 21

annum to be computed from the date of conclusion of contract,

i.e. from 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 Costs.”

14.Aggrieved, the appellants have filed the present appeal. This

Court passed an interim order on 12

th

April, 2013, directing 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 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 of the contract. However, if the 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 the request of the

respondents, the respondents were bound by the terms of the

contract till 15

th

July 2004. Further, before that date at any point of

Page 22 22

time, it 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 of further 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 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 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.

Page 23 23

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 15

th

July 2004. Further, the

respondents cannot be made liable for the unfinished extra quantity

of work as that was allotted only on 11

th

June 2004, leaving very

little time for the respondents to complete the same for which the

appellants should blame themselves. According to the respondents,

the High Court was right in concluding that clause 5 of the

agreement did not permit the appellants 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 Court has passed an equitable order also keeping in mind that

the respondents had already executed 108.47% 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 contended that the demand for penalty

amount is unilateral and without any just cause. The same is

Page 24 24

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 Petition filed by the respondents was limited to the letter

dated 8

th

December 2004, issued by the General Manager of the

appellants. The respondents had not challenged the extension of

contract period till 15

th

July 2004 vide letter dated 5

th

June 2004,

the decision of the appellants to allot an extra quantity of 30% work

and much less the decision of the Board to impose penalty taken on

27

th

October, 2005 and communicated to the respondents vide

Approval Order dated 3

rd

November 2005. The High Court, however,

has not only set aside the letter dated 8

th

December 2004 but also

the Approval Order dated 3

rd

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 and conditions of the contract must be read as a whole.

Clause 5 of the agreement dated 26

th

May 2003 posits authority in

the appellants to reduce or increase the tendered quantity by +/–

Page 25 25

30%, whilst the contract is subsisting. Indisputably, the original

contract period was upto 15

th

April, 2004. At the instance of these

respondents, the same stood extended till 15

th

July 2004. The extra

30% work was allotted to the respondents on 11

th

June 2004, before

expiry of the extended contract period i.e. 15

th

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 quantity - before 15

th

July 2004. The fact that they had to

suffer financial 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 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

Page 26 26

respondents executed 108.47% of work before 15

th

July 2004, could

be no justification to relieve them of their obligation to compensate

the appellants with suitable amount for the unfinished contract

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 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 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 15

th

July, 2004, to enable the

respondents to complete the unfinished extra work. If such request

Page 27 27

were to be made by the respondents, there would have been

corresponding obligation on the 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

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 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 up the machine

Page 28 28

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%, whilst the contract period was subsisting.

22.The respondents had then relied on the notings of the Project

Officer dated 26

th

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, it was only an inter-departmental 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 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

Page 29 29

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 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 specifically provided in sub-clauses (a) to (d) of

the same Clause, at the sole discretion of the appellants, the date of

completion could be extended, if it 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 fag end of

the contract (extended) period.

23.In our opinion, clause 5 did not prohibit the principal

(appellants) to allot upto extra 30% quantity of work, for want of 45

clear days of subsisting contract period. Whereas, that option could

Page 30 30

be exercised by the appellants at any time until the contract period

was subsisting, which in this case was until 15

th

July 2004. In the

present case, such notice regarding increase of work upto 30%

permissible under clause 5 of the agreement, was given on 11

th

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 - 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. 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

th

December

2004 sent to the 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 Manager that

Page 31 31

there was no loss of production to the appellants. Similarly, a doubt

was expressed by 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 Maula Bux

vs. Union of India

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, the party claiming

compensation must prove the loss suffered by it.” It is, however,

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. 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 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 SCC 554

Page 32 32

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, but the entire demand being impermissible. Since 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 Appellants - 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 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 and the actual

cost incurred by the appellants to complete the unfinished work out

Page 33 33

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 representation made by the

respondents for recall or modification of the 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 Gorkha Security Services vs.

Government (NCT of Delhi) & Ors.

2

and Kumari Shrilekha

Vidyarthi & 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 Enterainment vs. City Development Corporation

4

,

2 (2014) 9 SCC 105

3 (1991) 1 SCC 212

4 (2007) 9 SCC 593

Page 34 34

Harbanslal Sahnia & Anr. vs. Indian Oil Corporation Ltd. &

Ors.

5

, Union of India & Ors. vs. Tantia Construction Pvt. Ltd.

6

,

M.P. State Agro Industries Development Corpn. & Anr. Vs.

Jahan Khan

7

and Whirlpool Corporation vs. Registrar of

Trade Marks, Mumbai

8

. 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 of justness of

the demand towards penalty or the quantum 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

th

November 2012 is set aside. The reliefs

claimed by the respondents in the Writ Petition are disposed of in

the above terms.

5 (2003) 2 SCC 107

6 (2011)5 SCC 697

7 (2007) 10 SCC 88

8 (1998) 8 SCC 1

Page 35 35

27. The appeal is partly allowed in the above terms with no order

as to costs.

………………………………….CJI

(T.S. Thakur)

…………………………………..J.

(A.M.Khanwilkar)

New Delhi,

September 27, 2016