2016 Supreme(SC) 750

SUPREME COURT OF INDIA
T.S. Thakur, CJI., A.M. Khanwilkar, J.
Mahanadi Coalfields Ltd. & Ors. – Appellants
Vs.
M/s. Dhansar Engineering Co. Pvt. Ltd & Anr. – Respondents
Civil Appeal No. 9732 of 2016 (arising out of S.L.P.(Civil) No. 11876 of 2013)
Decided On : 27-09-2016

IMPORTANT POINTS
High Court in exercise of powers under Article 226 cannot go beyond the pleadings.
A clause of the contract cannot be read in isolation, other terms and conditions of the contract must be read as a whole.

Headnote:(a) Constitution of India – Article 226 – Respondents challenging only letter dated 8th December 2004 – High Court quashing the same – High Court also quashing Approval Order dated 3rd November 2005 without any challenge – Not sustainable. (Para 17)

       (b) Interpretation of contract – Clause 5 – A clause of the contract cannot be read in isolation – Other terms and conditions of the contract must be read as a whole. (Para 18)

       (c) Interpretation of contract – Clause 5 – Authorising appellants to reduce or increase the tendered quantity by +/– 30% during subsistence of contract – Contract extended till 15th July 2004 – Order attaining finality – Appellants well within powers to allot extra 30% work on 11th June 2004. (Para 19)

       (d) Interpretation of contract – Clause 5 – 45 clear days notice for extra quantity of work – Only if appellants required respondents to increase the machine capacity by upto 30% extra “daily” quantity – Instantly, appellants merely allotting extra 30% quantity without requiring the respondents to increase the daily quantity – Not unjustified. (Para 21, 23)

       (e) Interpretation of contract – Penalty – Appellant not suffering any loss of production due to backing out of respondents – However, appellants had to get the work done at higher rate – Absence of notice to respondents before imposing penalty – Respondents could have invoked Clause 30.3 for reconsideration of penalty – Instead they approached High Court – High Court holding the demand to be impermissible – In view of setting aside of the impugned judgment, respondents given liberty to approach appellants – Question whether demand vitiated in absence of notice left open. (Para 24)

       (1969) 2 SCC 554; (2014) 9 SCC 105; (1991) 1 SCC 212 – Referred

       (f) Constitution of India – Article 226 – Availability of alternative remedy – Maintainability of writ petition – Not necessary to consider in present matter. (Para 25)

       (2007) 9 SCC 593; (2003) 2 SCC 107; (2011)5 SCC 697; (2007) 10 SCC 88; (1998) 8 SCC 1 – Referred

       Facts of the case:

       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.

       The respondents were declared the lowest bidder and work order was issued in favour of the respondents and a formal agreement was executed between the parties.

       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, 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. The respondents requested the appellants to extend the time frame for completion of the remaining contract upto 15th July 2004 as the contract period was only till 15th April, 2004.

       Extension of three months time was granted while reserving the right to impose penalty.

       As the contract period was subsisting till 15th July 2004, 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 or next tender rate whichever is lower, amounting to Rs. 252.42 Lakh. The respondents however, reiterated that the contract be treated as closed -as they were on the verge of completing the quantity specified in the contract by 15th June 2004.

       After a fresh tender process and a letter of intent was issued in favour of third party (Sainik Mining and Allied Services) but at a higher rate of Rs.31.50 per cubic meter.

       The bills submitted by the respondents for the work executed under the contract dated 26th May 2003 were considered by the Board of the appellants

       The Board of the appellants 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. Consequently an approval order for recovery of penalty was issued by the appellants on 3rd November 2005

       The Division Bench of the High Court allowed the Writ Petition filed by the respondents.

       Finding of the Court:

       Impugned judgment cannot be sustained.

       Result: Appeal allowed.