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High Court Of Madhya Pradesh
D. M. DHARMADHIKARI, M. V. TAMASKAR
P.C.RAJPUT - Appellant
Versus
STATE OF MADHYA PRADESH - Respondents
CIV. REVN. 474 Of 1988
Decided On : 07/22/1992
CONTRACT - Arbitration - Dispute - Fundamental Breach - Escalation Clause - Interpretation of Contract Clauses - Applicability of Arbitration Act, 1940 - Jurisdiction of Arbitration Tribunal - Construction of Works Contract - Extension of Time - Waiver of Breach - Site Conditions - Approach Roads - Contractual Obligations - Termination of Contract.
Fact of the Case:
The applicant, a contractor, entered into a contract with the State Government of Madhya Pradesh for the construction of masonry structures on the right bank of the main canal of Kolar Project. The work was to be completed within 12 months, but the period was extended on the request of the contractor and remained in operation for 29 months. However, the contract was terminated due to the contractor's refusal to execute the work. The contractor raised various disputes, including fundamental breaches by the State, escalation in wages and costs, and idling of labor, before the Arbitration Tribunal.
Finding of the Court:
1. The Arbitration Tribunal found that the State was responsible for certain breaches, including not handing over the entire work site and not making quarries available. However, the Court held that these breaches were not fundamental breaches that would entitle the contractor to terminate the contract. 2. The Court also held that the contractor was not entitled to escalation in wages and costs as the escalation clause had been deleted from the contract agreement. 3. The Court further held that the contractor was not entitled to any damages for loss of profit as he had not raised the claim before the authorities as required under the contract agreement.
Issues: 1. Whether the State's breaches were fundamental breaches that would entitle the contractor to terminate the contract. 2. Whether the contractor was entitled to escalation in wages and costs. 3. Whether the contractor was entitled to damages for loss of profit.
Ratio Decidendi: 1. A fundamental breach is a breach that goes to the root of the contract and entitles the innocent party to treat the contract as repudiated. In the present case, the Court held that the State's breaches were not fundamental breaches as they did not go to the root of the contract. 2. An escalation clause is a clause in a contract that provides for an adjustment in the contract price to reflect changes in the cost of labor, materials, or other factors. In the present case, the Court held that the contractor was not entitled to escalation as the escalation clause had been deleted from the contract agreement. 3. Damages for loss of profit are awarded to compensate the innocent party for the loss of profits that it would have earned if the contract had been performed. In the present case, the Court held that the contractor was not entitled to damages for loss of profit as he had not raised the claim before the authorities as required under the contract agreement.
Final Decision: The Court allowed the revision petition filed by the State Government and set aside the award of the Arbitration Tribunal to the extent that it had granted the contractor's claim for escalation. The Court also dismissed the contractor's revision petition and upheld the award of the Arbitration Tribunal in respect of the other claims.
( 1 ) THIS revision shall also govern the disposal of Civil Revision No. 481 of 1988 (State Govt. of Madhya Pradesh v. P. C. Rajput ).
( 2 ) THE applicant/claimant had entered into a contract with the State Govt. of Madhya Pradesh on 26-10-1983 for construction of masonry structures on the right bank of the main cannal of Kolar Project in Kms. 6 to 11 including the gap filling in masonry structures. The work also included construction of five road bridges. The work was to be completed by 26-10-1984. The period of contract was 12 months.
( 3 ) THE work order was issued on 27-10-1983. After the completion of twelve months i. e. 26-10-1984 the same was extended on request of the claimant/applicant and remained in operation till 29 months up to 28-686. However, the contract was terminated on 28-3-86 on the refusal of the applicant/contractor to execute the work vide Ex. P-3. The construction cost of masonry structure of B. B. M. C. of Kolar Project in Kms. 6 to 11 including the gap filling was estimated at Rs. 6. 20 lakhs and cost of construction of earth work of B. B. M. C. Kolar Project Kms. 11 to 16 was estimated at Rs. 7. 93 lakhs.
( 4 ) THE claimant raised the following disputes in reference petition : (1) The respondents did not fulfil the reciprocal promises which were stipulated as per the terms of the contract/agreement. The work as such could not be started by the applicant for about six months. (2) The complete work site was not handed over. (3) The quarries for store and sand were not made available. (4) Steel and cement were not supplied regularly at work site. (5) Revised drawings and designs were not given in time. (6) Payment of running bills and grant of secured advances were not prompt. (7) Difficulties and problems which cropped up from time to time in the execution of the work were not resolved by the respondents, taking active steps. (8) The user of canal road was obstructed. (9) Approach roads were not built promptly. (10) Rates for extra items were not settled and (11) Various hinderances and bottlenecks were placed by the department. As such on the following seven counts the claim was filed before the Arbitration Tribunal at Bhopal. (1) Overhead expenses and loss of profit. 3,62,500-00 (2) Escalation in wages, costs of material etc. 40,000-00 (3) Idling of labour etc. 38,450-00 (4) Excess recovery of interest on mobilisation advances. 6,650-00 (5) Final bill amounting to : 1,55,000-00 (6) Refund of security deposit and other amounts withheld, and 23,976-00 (7) Interest antelite. 23,424-00 total Rs. 6,50,000-00 the department on the other hand submitted that the department was not responsible for any breach of reciprocal promises. That contractor right from the beginning acted in a careless, negligent and unbusiness like manner. He had neither an engineer nor a site officer nor did he care to attend the pre-tender conference nor did he take any steps to make an inspection of sites before start of work. It was obligatory on the part of the contractor to make himself aware of the contract conditions and existing quarries, sites, roads, culverts etc.
( 5 ) IT was also submitted by the department that the applicant did not submit construction programme nor he adhered to any systematic work plan in order to give positive results in respect of the execution of the contract in question. He was paid running bills regularly. He did not make any indents for steel. The applicant even though responsible for construction of the approach roads, did not take any steps in the matter. Despite several reminders the applicant did not resume the work and as such the contract had to be terminated vide Ex. P-3 dated 28-3-86 and a recovery of Rs. 1,13,568-96 ordered. ( 6 ) THE Tribunal after recording the evidence and hearing both the parties returned the following findings : (1) That the entire work site was in black cotton area in which no work of excavation etc. was possible during four months of rainy season
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