# MAHANADI COALFIELDS LTD. & ORS v. MIS. DHANSAR ENGINEERING CO. PVT. LTD. & ANR - **Citation:** [2016] 7 S.C.R. 127 - **Court:** Supreme Court of India - **Decided:** 2016-09-27 - **Case number:** Civil Appeal No. 9732of2016 - **Bench:** T. S. Thakur, A. M. Khanwilkar - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mahanadi-coalfields-ltd-ors-v-mis-dhansar-engineering-co-pvt-ltd-anr-31590 - **Pages:** 27 ## Headnote 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 ## Text _Characters 0–39,745 of 56,481. This is a partial read: ask again with offset=39745 for what follows._ [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 contractor within the contract period. The principal (appellants) could be asked to exercise their option to extend the contract period beyond ts•h July, 2004, to enable the respondents to complete the unfinished extra work. If such request were to be made by the respondents, there would have been corresponding obligation on the appellants to extend MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR ENGINEERING CO. PVT. LTD. & ANR. 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. [Para 20] (149-D-G] 4. Tile stipulation in 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.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 markl'd difference between increasing the extra quantity during the contract period and that of increasing the extra "daily" quantity. [Para 21] [149-H; 150-A-B] 5. 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 is evidenct from 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. [Para 22] [150-F-G] 6. The respor.tlents 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. [Para 23] (151-B-C] 7. It is 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. 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 129 A B c D E F G H 130 A B c D E F G H SUPREME COURT REPORTS [2016] 7 S.C.R. 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 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. 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. [Para 24] (151-F-H; 152-A-C] Mau/a Bux v. Union ~f India (1969) 2 SCC 554 : 1970 (1) SCR 928; Gorkha Security Sen1ices " Government (NCT of Delhi) & Ors. (2014) 9 SCC 105; Kumari Shrilekha Vidyarthi & Ors v. State of U.P. (1991) 1 SCC 212 : 1990 (1) Suppl. SCR 625 - referred to. 8. 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 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. [Para 24] [152D-E] Popcorn Enterainment vs. City Development Corporation, (2007) 9 SCC 593; Harbanslal Sahnia & Anr. vs. Indian Oil Corporation Ltd. & Ors. (20fl3) 2 SCC 107; Union of India & Ors. vs. Tantia Construction Pvt. Ltd. (2011) 5 SCC 697; M P. State Agro Industries Development Corpn. & Anr. vs. Jahan Khan (2007) 10 SCC 88; Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai (1998) 8 SCC 1 - referred to. 1970 (1) SCR 928 (2014) 9 sec 105 Case Law Reference referred to 1990 (1) Suppl. SCR 625 2007 (3) SCR 17 referred to referred to referred to referred to (2003) 2 sec 101 Para 24 Para24 Para24 Para 25 Para 25 MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 131 ENGINEERING CO. PVT. LTD. 2011 (5) SCR 397 2007 (9) SCR 715 1998 (2) Suppl. SCR 359 referred to referred to referred to Para 25 Para 25 Para 25 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9732 of2016. A From the Judgment and Order dated 07.11.2012 of the High Court B of Orissa, Cuttack in W. P. (C) No. I 093 of 2006. Gourab Banerji, Sr. Adv., K. N. Madhusoodhanan KN., T. G. Narayanan Nair, S. A. Haseeb, Sahil Tagotra, Advs. for the Appellants. Rakesh Dwivedi, Sr. Adv., Arunabh Chowdhury, Anupam Lal Das, Vaibhav Tomar, Ms. Shruti Choudhry, Karma Dorjee, Anirudh Singh, Ms. Barna) i Chowdhury, Ad vs. for the Respondent. The Judgment of the Court was delivered by A. M. KHANWILKAR, J. I. Leave granted. c 2. This appeal challenges the judgment of the Division Bench of D the High Court of Orissa at Cuttack dated 71h November 2012 in Writ Petition (Civil) No. I 093/2006. 3. Briefly stated, on 2"d 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 E at various Open Cast Projects, inter-alia, at Lakhanpur. 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•h April,2003 which was accepted by the respondents on 141h April, 2003. Work order was issued in favour F of the respondents on 23'd April, 2003 and a formal agreement was executed between the parties on 26'h 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 e-f the contract shall 'G be counted from 16.04.2003 of from the date of issue of L.O.L 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. H 132 SUPREME COURT REPORTS [2016] 7 S.C.R. A 3) The ll'ork 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, 5 0. 000. 00. B c D 4) The contractor shall re-deploy the Swface 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 guantitv 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) 4. As the agreement refers to the terms and conditions of the tender document, we may usefully refer to the relevant clauses therein. "11.0 VARIATION 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 ll'ork and to provide a uniform basis for tendering and any variation either by addition or omission shall not vitiate the contract. E · The tendered quantitv 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 capacily ll'ilhin 45 davs notice to achieve the extra increased quantity. F If the additional altered or substituted ll'ork 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:- The rate shall be derived from the rate for similar or near G similar item of work awarded in the Company, or The rate shall be derived from contractors 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 H account percentage of profit and overhead not exceeding ten MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 133 ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] percent or on the basis of market rate. if any prevailing at the A 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 B circumstances suspend the work in the plea of non-settlement of rates. The time ofco111pletion of the originally contracted work shall be extended/reduced by the Company in lhe proportion that the additional/reduced work (in value) hears to the original c contracted work (in value). as 111ay 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 0111it any part of the work for any other reason and the D contractor shall be bound to cany oul the work in accordance with the instruction given to Engineer-in-change. No clai111 for extra chargeslda111ages shall be 111ade by the contractor on these grounds. /11 the event of any deviation being ordered which in the E opinion of the contractor changes radically the original scope and nature of the contract, the contractor shall under no circu111stances smpend 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. F 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 I 00% of the daily awarded quantity fro111 6/th day fro111 the date of issue of LOI. Agreement should be executed before the release of/", on Ale. bill. G H 134 SUPREME COURT REPORTS (2016] 7 S.C.R. A For fai/z;re to reach the desired quantity from 61'" 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 B for three shifts a day and all the working days in a yem: 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 altain within specified date of issue of Letter of Intent, the required quantity to give the C ultimate output as per the schedule of quantity, the company shall without prejudice to any other right or remedy, be at liberty, by giving I 5 days notice in writing to the contractor, to forfeit the Earnest Money deposited by him and to terminate the contract. D .................... .. E F · 14.0 EXTENSION OF DATE OF COMPLETION On happening of any event causing delay as stated hereunder, the contractor shall apply for time extension to the CGMIGM 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. G The contractor may request the company in writing for extension of time within I 4 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 exte11sion of time of completion of the work. Such extension shall be commu11icated H MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 135 ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] to the contractor, in writing, by the company through the A Engineer-in-charge within 1 month of the date of receipt of such request. 30.0 DEFAULT AND PENALTY 30.1 LOSS OR DAMAGE Any loss or anv expenditure for damages incurred by company will be recoverable from the contractor whether fitlly 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. 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 al/oiled quantity by the working days of the quarter, ending on 30'" June, 30'" September, 31" December & 31" 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 (-JOO 111111 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 suh}ect to that the total penalty is limited to 20% of (Annual Shortfall Quantity x Rate). 30.3 WA/VAL OF PENALTY B c D E F G The company may at its sole discretion waive the pqyment of penalty in full or in part in request received from the contractor depending the merit o[lhe case if the entire work is completed within the date as specified in the contract or within extended H 136 SUPREME COURT REPORTS [2016] 7 S.C.R. A period approved without imposing penalty. B c D E F G H 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 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 ofFebruary 2004. Due to financial problems faced by the respondents vi de letter dated l 3m 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 l 6'h 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'h May 2004 to extend the time frame for completion of the remaining contract 1:1pto l 5'h July 2004 as the contract period was only till I 5'h April, 2004. The said letter reads thus: MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 137 ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] ANNEXURE-P8 A DHANSAR ENGINEERING CO. PVT. LTD., P.O. Dhansar Dhanbad - 828106 (Jharkhand) Ph: 0326 - 3071611707 4. Fax: 0326 303294 Ref No. DECO/NIT 27612004 To The chief General Manager Lakhanpur Area Mahanadi Coalfields Ltd., (Throu~h proper channel) P. 0. Jorabaga Via Be/pahar Dist. :Jhars11guda(Orissa) Ph.: 066./5 -233222 SITE E-mail- decopl'ci dte. vsnl.net. in Date: 09. 05.2004 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. MCLICGM/LKPAI SO(M)/SUR. MINER/2003-041001 DATED 23.04.2003. Dear Sir, Management is fully aware that tender rate of Rs. 171per Cum for the work is all ti111e low and wholly zmworkable. We are working at this rate at a colossal loss. B c D E F 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 G 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 acco111plish 34. 74 Lakhs Cum upto 31.03.2004. H 138 A B c D E F G H SUPREME COURT REPORTS [20 ! 6] 7 S.C.R. 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 mvarded quantity as we are ill-afford to bear further loss. Thanking You, Yours faithft1lly, SdlFor Dhansar Engineering Co. Pvt. Ltd." 6. This request of the respondents was considered by the appellants in its 681h 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 S1h June 2004. As a result of this decision, the contract period was extended until IS1h July 2004 on the same terms and conditions agreed upon. As the contract period was subsisting till J Sth July2004, the appellants issued an approval order dated 11th 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 J Jth June 2004, however, reiterated that the contract be treated as closed - as they were on the verge of completing the quantity specified in the contract by I S1h June 2004. The said letter reads thus: "ANNEXURE-P9 DHANSAR ENGINEERING CO. PVT. LTD., P. 0. Dhansar Dhanbad - 828106 (Jharkhand) Ph: 0326 - 30716117074. Fax: 0326 303294 Ref No. DECO/NIT 27612004 P. 0. Jorabaga Via Belpahar Dist.: Jharsuguda (Orissa) Ph.: 06645 -233222 SITE E-mail - decopl0 dte. vsnl. net. in Dale: 11.06.2004 MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 139 ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] To • A The chief General Manager Lakhanpur Area Mahanadi Coalfields Ltd., Sub: NIT NO. 276-EXTRACT/ON AND TRANSFER OF COAL/COAL MEASURE STRATA BY DEPLOYING SURFACE MINER ON HR/NG B 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 C will be fully completed by 15.06.2004. In this connection kindly refer to our letter No. DECO/NIT -2761 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 D 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 ofjimd Thanking You, Yours faithfully, Sd/- For Dhansar Engineering Co. Pvt. Ltd. E Copy to: I) The Director (Technical) MCL, Bur/a, 2) The General Manager, Lakhanpur Area. " 7. The respondents by another letter dated 61h July 2004 seeking F closure of contract due to financial hardship, stated that they were withdrawing their operations. The appellants, however, by letter dated 7•h 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 I 05% of the contract work out of 130%. The said communication reads thus: G "ANNEXURE -P12 "UNDER JURISDICTION OF SAMBALPUR COURT ONLY" MAHANADI COALFIELDS LIMITED (A SUBSDIARY OF COAL INDIA LIMITED) H 140 SUPREME COURT REPORTS [2016) 7 S.C.R. A Corporate Office Office o.fthe Chief General Manager M.C.l. Complex LAKHANPVRAREA Jagriti Vihar P. 0. bandhabahal - Via: Belpahar Bur/a - 768018 Dist.: Jharsuguda, Pin 768217 Dist: Sambalpur (Orissa) phone: 33202, STD CODE: 06645 8 Ref No. MCLICGMILKPAISO(M)/932 Dale: 07.07.2004 To Mis Dhansar Engineering Co. pvt. ltd. C Site Office: P. 0. Jorabaga, Via - Belpahar. Dist: Jharsuguda (Orissa) Pin: 768217. Ref {I) Work order No. MCLICGMLILKPAISOM{M)!Sur Miner/2003041001 dated 23. 04.2003 for Exlraction am/Trans.fer of Coal/Coal D measure strata by deploying 'Su~(ace Miners" on hiring basis at lakhanpur OCP (NIT-276). Sub: Contract of Swface Miner work at lakhnapur OCP (under NIT No. 276) E Dear Sir. F G H Kindly re.fer to your letter No. DECO/NJT-27612004 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 agreemenl 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 fro111 MCLHQ for ftnali:rntion of new contract for the above work till date. Jn such condition you are requested to continue your operation of surface 111iner at lakhanpur OCP till co111pletion of 30% extra quantity. Withdrawal of operations of Swface 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, MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 141 ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] Yours faithfully, A Copy to: SD/- GENERAL MANAGER LAKHANPUR AREA The Chairman-cum-Managing Directo1; MCL Buria B The Director (T), MCL, Bur/a The General Manager (TC), MCL HQ, Bur/a The Slaff Officer (Mining) LKPA" 8. The respondents, however, renewed their request to the c appcll.1;11' to allow them to close the contract vide letters dated Slh July 2004 amt 121" July 2004. The respondents finally wrote to the appellants on 151" July 2004 which reads thus: "ANNEXURE-Pl5 DHANSAR ENGINEERING CO. PVT. LTD., P.O. Dhansar Dhanbad- 828106 (Jharkhand) Ph: 0326-307161/7074. Fax: 0326 303294 Ref: No. DECO/NIT 276/2004 Date: 15.07.2004 To The General Manager, Lakhanpur Area, MCL, SITE P.O. Jorabaga Via Belpahar Dist.: Jharsuguda (Orissa) Ph.: 06645 -233222 E-mail-decopl@dte.vsnl.net.in Sub: Closing Down of work of Surface Miner at lakhanpur OCP under D E F NITNo.276 G Dear Sir, A copy ofour 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. H 142 SUPREME COURT REPORTS [2016] 7 S.C.R. A 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 abandon execution after completing I 00% of the work on account ofour un-economical plight out has been continuing wit the execution to cooperate with the management to arrange next B recourse, so as to ensure that the production schedule of Lakhanpur c D E F G H 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. Copy to: Yours faithfully, Sci/- For Dhansar Engineering Co. Pvt. Ltd. I. The CMD, MCL, Burla Fax No. 0663 -2432066/2542366 2. The D(T), MCL, Burla, Fax No. 0663-2542509 3. TheGM (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 letterofintent in favourofthird party (Sainik Mining and Allied Services) but at a higher rate ofRs.31.50 per cubic meter. I 0. The bills submitted by the respondents for the work executed under the contract dated 26'h May 2003 were considered by the Board of the appellants in its 72"d meeting. The decision taken in the said meeting was communicated to the .respondents by letter dated 81h December 2014 which reads thus: MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 143 ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] "ANNEXURE R/9 A 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 B Ref.1\o. MCUSBP/GM(TC)/200411047 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"• meeting of the Board of Directors of MCL held on 271h November, 2004 at Kolkata in respect of imposing penalty by way of forfeiture of Earnest Money Deposit of Rs. 20.00 lakhs to Mis. 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 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 pr_ovisions of the contract be imposed on Mis 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. l6(a) and l 6(d) which reads as under:- [ 6(2) withdraws his offer during the validity period of offer. I 6(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 perCu.m. 20% of working rate Rs. 3.40 per Cu.m. Payable penalty for not executing Upto 130% quantity Rs.34,69,91 l.OO c D E F G H 144 SUPREME COURT REPORTS [2016] 7 S.C.R. A These penalties may be imposed individually or collectively B c D E F G H 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 I 08.4 7% in spite of incurring heavy losses and withdrew only when the new contract was finished ensuring that there is no loss of production. Encl : As above" Yours faithfully Sd/- lllegible General Manager (TC) 11. The Board of the appellants in its 78111 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. Jn terms of that decision, an approval order for recovery of penalty was issued by the appellants on J'd November 2005 which reads thus: MAHANADI COALFIELDS LIMITED (A subsidiwy of Coal India limited) P. 0. - Jagriti Vihar Bur/a - 768018 Distt: Sambalpur-768020 (Orissa) "ANNEXURE -19 Gram: SAMBCOAL,: Fax: (0663) 2542770 Phone: PBX:- 2542461to2542470 Ref No. MCLISBPIGM(TC)/200511100 Date: 03.11.2005 APPROVAL ORDER Sub: Imposition of penalty to Mis Dhansar Engineering Company Pvt. Ltd., under NIT-276 (DI; 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 commil/ee to examine the issue on imposition of penalty under NIT -276 dated 02.12.2002 to Mis Dhansar Engineering Company Pvt. ltd .. for the work of "Extraction and Transfer of Coal/Coal Measure Strata by deploying "Swface Miners" on hiring basis at Lakhanpur OCP, lakhanpur Area, the same has MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 145 ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] been pgreed by D(T) !D(F)ID(P)/CMDIMCl. The MCl Board in its A 78'• 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 Mis. Dhansar Engineering Company Pvt. ltd. '73y 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 B 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 oflndia and prayed as follows: "PRAYER c D 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 E 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 F to pay a sum of Rs. 79,01,434.60 to the Petitioner No.I 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 G Petitioner No. I Company since 15. 07.2004. A/VD fssue such other Writ/Writs, Order/Orders, Direction/Directions as this Hon 'ble Court may deem it fit and proper. And/or this act of Kindness the Petitioner shall as_in duty bound ever pray. " H 146 A B c D E F G H . SUPREME COURT REPORTS [2016] 7 S.C.R . l 3. 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 ifthe 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 the quantity under the contract. That notice was given to the respondents only on J J