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CASE NO.: Appeal (civil)  7333 of 2004

PETITIONER: State of Kerala & Anr

RESPONDENT: M.A. Mathai

DATE OF JUDGMENT: 09/04/2007

BENCH: Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T

Dr. ARIJIT PASAYAT, J.

Challenge in this appeal is to the judgment rendered by a  Division Bench of the Kerala High Court dismissing the appeal  filed by the appellant-State and its functionary questioning  legality of the judgment and decree in O.S. No.859 of 1988 on  the file of the Sub Court, Trichur. The suit was filed for  recovery of money in connection with the award of work  undertaken by the respondent-plaintiff who is the contractor.

The High Court was of the view that the court below had  fixed award of damage of Rs.9,53,669/- and found that the  plaintiff was entitled to damage under other head and,  therefore, restricted the decretal amount to Rs.10,00,000/-   The appeal was accordingly dismissed.

In support of the appeal learned counsel for the appellant  submitted that the letters on which reliance had been placed  show that the contractor was not doing the work within  stipulated period and had been asked for to apply for  extension.  The basic stand of the plaintiff\026respondent was  that the extensions had been sought for and supplemental  agreements were executed not on the free will and free consent  of the plaintiff but it was due to circumstances which  prevailed at that time which necessitated the plaintiff to agree  to the commands of the defendants. To put it differently as  noted above the plaintiff had contented that it was due to  coercion that these supplemental agreements were executed.   The trial court concluded that on the threat of forfeiture, re- allocation and re-arrangement at the cost of the plaintiff the  execution of supplemental agreement was done. It is pointed  out that there was no clause for any escalation. It was wrongly  assumed by the trial court that the supplemental agreements  and declarations made by the plaintiff were not binding on  him as it was not obtained by free consent and free will and in  the normal course of events.

In response, learned counsel for the respondent  submitted that the amounts awarded were not for damages  and it was only in respect of extra work done that the amounts  has been awarded. It was submitted that the department itself  had recommended for payment for the extra work done and as  per rates under the contracts the amounts have been   awarded. Though the Government did not agree to the  proposal, that itself shows about the genuineness of the

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respondent’s claim. In respect of another contract the extra  amounts have been paid.

The trial court and the High Court appear to have been  totally confused about the nature of the suit.  The plaint itself  indicated that it was a "suit for recovery of money for  damages".  In fact the High Court itself observed at para 8 that  the primary issue related to assessment of damages. It also  found that the plaintiff was entitled to damages under various  heads.

Additionally, the trial court concluded that the  supplemental agreements (Ex. B-2 to Ex. B-6) and  Declarations (B-10 to B-14) were not at all binding on the  plaintiff.  If that was really so, there could not have been any  extension. The finding that these documents were not  obtained by free will and free consent and in the normal  course of events, to say the least, is an inferential conclusion  not supported by any evidence.   

As noted above, the trial court proceeded on the basis as  to whether plaintiff was entitled to damages and if so what is  the amount and quantum is to be fixed. It was noted that  being a suit for damages, the plaintiff was claiming so many  items of damages in terms of money involving many  calculations.  This is contrary to respondent’s plea before us.  Their stand is that the amount was not for damages but for  extra work done. As noted above it was only a suit for  damages. In General Manager, Northern Railway and another  v. Sarvesh Chopra [2002 (4) SCC 45] it was inter alia observed  as follows:

"In our country question of delay in  performance of the contract is governed by  Sections 55 and 56 of the Indian Contract Act,  1872. If there is an abnormal rise in prices of  material and labour, it may frustrate the  contract and then the innocent party need not  perform the contract. So also, if time is of the  essence of the contract, failure of the employer  to perform a mutual obligation would enable  the contractor to avoid the contract as the  contract becomes voidable at his option. Where  time is "of the essence" of an obligation, Chitty  on Contracts (28th Edn., 1999, at p. 1106,  para 22-015) states

"a failure to perform by the  stipulated time will entitle the innocent  party to (a) terminate performance of the  contract and thereby put an end to all the  primary obligations of both parties  remaining unperformed; and (b) claim  damages from the contract-breaker on  the basis that he has committed a  fundamental breach of the contract (’a  breach going to the root of the contract’)  depriving the innocent party of the  benefit of the contract (’damages for loss  of the whole transaction’)".

If, instead of avoiding the contract, the contractor accepts  the belated performance of reciprocal obligation on the part of  the employer, the innocent party i.e. the contractor, cannot  claim compensation for any loss occasioned by the non-

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performance of the reciprocal promise by the employer at the  time agreed, "unless, at the time of such acceptance, he gives  notice to the promisor of his intention to do so". Thus, it  appears that under the Indian law, in spite of there being a  contract between the parties whereunder the contractor has  undertaken not to make any claim for delay in performance of  the contract occasioned by an act of the employer, still a claim  would be entertainable in one of the following situations: (1) if  the contractor repudiates the contract exercising his right to  do so under Section 55 of the Contract Act, (ii) the employer  gives an extension of time either by entering into supplemental  agreement or by making it clear that escalation of rates or  compensation for delay would be permissible, (iii) if the  contractor makes it clear that escalation of rates or  compensation for delay shall have to be made by the employer  and the employer accepts performance by the contractor in  spite of delay and such notice by the contractor putting the  employer on terms." In the instant case both the trial court and the High  Court have without any basis come to hold that the  supplemental agreement was due to coercion etc.  For coming  to such conclusion, material had to be placed, evidence had to  be led. Mere assertion by the plaintiff without any material to  support the said stand should not have been accepted by the  trial court and the High Court.

Looked at from any angle the impugned judgment of the  High Court is without any basis and is set aside.  The appeal  is allowed but in the circumstances without any order as to  costs.