MAHANADI COALFIELDS LTD. & ORS. versus M/S. DHANSAR ENGINEERING CO. PVT. LTD. & ANR.

Citation: [2016] 7 S.C.R. 127 · Decided: 27-09-2016 · Supreme Court of India · Bench: T.S. THAKUR · Disposal: Case Partly allowed

Judgment (excerpt)

[2016] 7 S.C.R. 127 
MAHANADI COALFIELDS LTD. & ORS. 
v. 
MIS. DHANSAR ENGINEERING CO. PVT. LTD. & ANR. 
(Civil Appeal No. 9732of2016) 
SEPTEMBER 27, 2016 
[T. S. THAKUR, CJI AND A. M. KHANWILKAR, J.] 
Contract - Work contract - For extraction and transfer of 
Coal/Coal Measure Strata by deploying surface 111iners - As per 
the terms and conditions of the tender docu111ent as well as the 
agreement, the tender quantity could be reduced or increased by 
30% on the sa111e ter111s and conditions - Ti111e for co111pletion of 
contract work was extended at the request of the contractor - During 
the subsistence of the contract period appellant-company passed 
order for increase of 30% extra quantity - The contractor requested 
the company for closure of contract and informed its intention to 
withdraw fro111 operation after full contract period due to financial 
hardship - The. company therefore gave lhe re111aining work to a 
third party at higher rate - Co111pany i111posed penalty on the 
contractor for non-execution of lhe remaining work - The penalty 
was inclusive of the financial loss incurred by the company due to 
allocation of that work at higher rate - Contractor filed writ petition -
Petition allowed by High Court - On appeal, held: Clause 5 of the 
agreement empoil'ered lhe company to increase or reduce the quantify 
of work by 30%, whilst the contract was subsisting - Therefore, 
obligation of contractor to complete the extra work in ter111s of the 
contract within the contract period or extended period was 
imperative - Contractor co111mitted breach of contractual obligation 
in not completing the balance work - The contractor is liable to 
compensate for the financial loss suffered by the company in 
assigning the remaining work at higher rate - However, liberty is 
granted to the contractor to make representation to the co111pany 
requesting to waive the penally in terms of the contract. 
Partly allowing the appeal, the Court 
A 
B 
c 
D 
E 
F 
G 
HELD: 1. Clause 5 of the Contract 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 261h May 2003 
posits authority in the appellants to reduce or increase the 
tendered quantity by +/- 30%, whilst the contract is subsisting. 
H 
127 
128 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016) 7 S.C.R. 
Indisputably, the original contract period was upto IS•h April, 2004. 
At the instance of the respondents, the same stood extended till 
ts•h July 2004. The extra 30% work was allotted to the 
respondents on 11 •h June 2004, before expiry of the extended 
contract period i.e. 151h 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 tS•h 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 qbligation. [Para 18] 
J148-F-H; 149-AJ 
2. 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 respondents executed 108.47% of work before lS'h 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%). [Para 19) (149-B-C] 
3. It is not correct to say that the extra quantity of work 
could not have been allotted to them, absent 45 clear days notice 
that too at the fag end of the contract period. It is one thing to say 
that the contractor should be given suffieient 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 con

Excerpt shown. Read the full judgment & AI analysis in Lexace.