Maharashtra Industrial ... vs Govardhani Construction Company ...
2021 Latest Caselaw 2767 Bom

FA956.13(j)                                                                     1/55


            IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                      NAGPUR BENCH, NAGPUR.

                         FIRST APPEAL NO.956 OF 2013

1.   Maharashtra Industrial Development Corporation
     A Corporation constituted under the provisions of the
     Maharashtra Industrial Development Act 1961,
     having its registered address at Udyog Sarthi,
     Marol Industrial Area, Mahakali Caves Road,
     Andheri (East), Mumbai -400 093
     through its Chief Executive Officer.

2.   Additional Chief Engineering,
     Maharashtra Industrial Development Corporation,
     Udyog Bhavan, 4th floor, Civil Lines,
     Nagpur.

3.   The Executive Engineer,
     Maharashtra Industrial Development Corporation,
     Akola Division, Akola.                                  ..APPELLANTS
                                                          (Orig. Defendants)
                                    Versus.

Govardhani Construction Company
A partnership firm, duly registered under the
Indian Partnership Act 1932, through its Partner-
Vijay Narayan Mhatre,
Aged about 55 years, Occupation: Business,
having its office at 60-61, Prabhat Centre, Sector 6,
C.B.D.Belapur, Navi Mumbai - 400 614                      ..RESPONDENT
                                                          (Orig. Plaintiff)
                                      ....

Shri M.M.Agnihotri, Advocate for the appellants/defendants. Shri C.S.Kaptan, Senior Advocate with Shri J.B.Gandhi, Advocate for respondent/plaintiff.

.....

CORAM : A. S. CHANDURKAR AND N. B. SURYAWANSHI JJ.

Date on which the arguments were heard : 25.01.2021 Date on which the judgment was pronounced : 11.02.2021

FA956.13(j) 2/55

Judgment : (Per A.S.Chandurkar, J.)

The appellants are the original defendants who are aggrieved

by the decree passed in Special Civil Suit No.99/2009 on 10.04.2012

whereby the suit for recovery of the losses suffered by the plaintiff on

account of breach of the contract has been partly decreed and the

defendants have been directed to pay an amount of Rs.2,16,53,217.36

with interest @9% per annum from the date of filing of the suit till

realisation of the decreetal amount.

2. The facts relevant for deciding the appeal as can be gathered

from the pleadings of the parties are being referred to. The parties are

described as per their status in the trial Court. According to the plaintiff, it

is a partnership firm engaged in undertaking contracts of civil and

electrical works. The firm is registered as Class-I contractor with the

Public Works Department of the State of Maharashtra and claims to be an

expert in undertaking construction and road works. In 2002 the

first defendant -Maharashtra Industrial Development Corporation (MIDC)

issued a tender notice calling bids for the proposed construction of roads

with surface dressing at Transport Nagar, Akola Industrial area. The

plaintiff submitted its bid and on 30.01.2003 five bids that were received

came to be opened. The bid submitted by one - Phenix Engineers and

Contractors was the lowest at 38.59% below the tender estimated rates.

FA956.13(j) 3/55

The bid submitted by the plaintiff was the second lowest being 28.49%

below the tender estimated rates. On 12.05.2003 the MIDC issued a letter

to the plaintiff informing it that the tender submitted by the plaintiff was

accepted by the MIDC. The plaintiff was accordingly directed to deposit

security amount of Rs.10,06,520/- as well as additional security amount in

the sum of Rs.20,12,040/-. These amounts were directed to be deposited

within seven days from the date of the said letter and the plaintiff's

representative was directed to remain present with all necessary

documents. According to the plaintiff, by virtue of this communication the

bid submitted by the plaintiff was accepted. The work that was awarded

to the plaintiff was of an urgent nature and hence with a view to

commence the same immediately, the plaintiff took steps and mobilized

its staff, labourers as well as the requisite plant and machinery at the site.

It is then the case of the plaintiff that pursuant to the letter dated

12.05.2003 the plaintiff through its representative sought to submit the

requisite bank guarantees on 23.05.2003. The MIDC however neglected

to accept the said bank guarantees and on 28.05.2003 the MIDC informed

the plaintiff that though the said bank guarantees were sought to be

presented on 27.05.2003, the same could not be accepted till 30.05.2003.

The MIDC stated that after receiving instructions from the superior

Officers the bank guarantees would be accepted.

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3. It is then the case of the plaintiff that in the meanwhile the

contractor who had submitted the lowest bid namely Phenix Engineers

filed Writ Petition bearing No. 2059/2003 in this Court challenging the

allotment of the tender in favour of the plaintiff. The plaintiff was

impleaded as respondent no.5 in the said writ petition. On 15.05.2003

this Court passed an ad-interim order in terms of prayer clause (ii) of the

writ petition thereby restraining the MIDC from issuing the work order to

the plaintiff. The plaintiff was not aware about filing of the aforesaid writ

petition and passing of the interim order. Hence with a view to complete

the work expeditiously the plaintiff had organized its engineering staff,

labourers as well as plant and machinery on the work site for commencing

the work. After getting knowledge of the ad-interim order passed in the

writ petition, the plaintiff met the Officers of the MIDC and informed the

officers of the MIDC that it had already organized its engineers along with

labourers, plant and machinery at the work site. The MIDC moved Civil

Application No.5349/2003 praying that the ad-interim order granted on

15.05.2003 be vacated. In the preliminary submissions filed on behalf of

the MIDC dated 11.06.2003 it had been specifically stated that the work in

question had been awarded to the plaintiff and necessary directions had

been issued to the plaintiff for commencing the work. Ultimately on

10.12.2003, Writ Petition No.2059/2003 came to be dismissed for want of

prosecution and the order of injunction stood vacated.

FA956.13(j) 5/55

4. The plaintiff has further pleaded that after the dismissal of the

said writ petition it again approached the MIDC to accept the bank

guarantees and sought issuance of necessary directions for commencing

the work at the work site. According to the plaintiff the plant and

machinery which was already at the site had to be kept idle for all this

period. On 30.12.2003 the MIDC informed the plaintiff that the tender

submitted by it was under consideration and the plaintiff was directed to

re-validate its offer till 30.04.2004. According to the plaintiff in view of

the acceptance of the offer on 12.05.2003, the MIDC was not justified in

stating that the offer made by it should be re-validated. There was

exchange of communication between the parties and on 07.04.2004 the

MIDC informed the plaintiff that there was no agreement entered into

between them nor had any work order been issued. According to the

plaintiff, it informed the MIDC on 16.04.2004 that the contract had

already been entered into between the parties and that the signing of the

agreement was formal in nature. The plaintiff also called upon the MIDC

to take inventory of the idle plant and machinery that had been brought

on the work site. This was not done by the MIDC. Without terminating

the contract that was awarded to the plaintiff, the MIDC proceeded to allot

the same to another contractor. On 10.01.2006 the plaintiff issued a

communication demanding compensation of Rs.3,26,00,000/- from the

MIDC on account of loss suffered by it due to breach of the contract by the

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MIDC. This letter was replied on 08.06.2006 stating therein that the

matter would be considered by the MIDC and its decision would be

communicated to the plaintiff. After further exchange of communications

the plaintiff proceeded to file the suit on 19.06.2009 claiming losses

suffered by it on account of breach of the contract to the tune of

Rs.3,26,00,000/- mainly on the ground that its labourers as well as plant

and machinery were lying idle at the work site for about three hundred

and nineteen days.

5. In the written statement filed by the third defendant the claim

as made was denied. It was pleaded by the the said defendant that no

work order for commencing the work in question was issued to the

plaintiff and therefore, there was no question of the plaintiff undertaking

such work. According to the defendants, by the letter dated 12.05.2003

the plaintiff was merely requested to deposit the security deposit amount

within a period of seven days as mentioned in the said letter. It was then

pleaded that in view of the ad-interim order passed in the Writ Petition

No.2059/2003 by the High Court the work order could not be issued to

the plaintiff as it had not complied with the necessary terms and

conditions. It was then stated that as per the letter dated 30.12.2003 the

defendants had requested the plaintiff to extend the validity of the rates

quoted by it up to 30.01.2004 but the same was not done. Since the

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plaintiff did not extend the validity period of its offer, the defendants were

not in a position to issue the work order. It was denied that the plaintiff

suffered losses to the tune of Rs.3,26,00,000/- as claimed. It was denied

that the labour as well as the plaint and machinery of the plaintiff was

lying at the site for a period of three hundred and nineteen days. It was

then pleaded that the suit was barred by limitation and it was therefore

liable to be dismissed.

6. The plaintiff examined about five witnesses in support of its

claim while the defendants examined one witness. After considering the

entire material on record the learned Judge of the trial Court recorded a

finding that there was a concluded contract between the parties pursuant

to the letter of acceptance dated 12.05.2003 issued by the defendants. It

was further held that when the defendants had accepted the proposal of

the plaintiff by issuing the communication dated 12.05.2003, there was no

reason for the defendants to seek extension of the validity period of the

rates quoted by the plaintiff. After recording a finding that the labour,

plant and machinery of the plaintiff remained idle for two hundred and

sixty six days, the plaintiff was held entitled to claim damages on account

of the loss caused to it after acceptance of its offer. The trial Court

granted the claim for loss sustained to the tune of Rs.2,16,53,217.36 by

partly decreeing the suit and the decreetal amount was directed to be paid

FA956.13(j) 8/55

with interest @9% per annum from the date of the suit till its realisation.

Being aggrieved the defendants have come up in appeal.

7. Shri M.M.Agnihotri, learned counsel for the appellants-

defendants in support of the appeal made the following submissions :

(a) That the trial Court committed an error in recording a finding

that there was a concluded contract between the parties due to which the

plaintiff was entitled to claim damages from the defendants. He

submitted that though the defendants had issued a communication dated

12.05.2003-Exhibit 46 to the plaintiff and had accepted the offer made by

the plaintiff which was 28.49% below the offset price, the conditions

stipulated in the tender notice as well as in that communication had not

been complied with. The demand draft towards the amount of initial

security deposit as well as the demand draft for an additional security

deposit which was required to be submitted within seven days was not

submitted in its entirety. Though the plaintiff on 23.05.2003-Exhibit 47

sought to submit bank guarantee nos. 2 and 3 for an amount of

Rs.1,07,000/- each, the demand draft for the additional security deposit

was never tendered. According to him, stamp duty of Rs.30,200/- along

with necessary stamp papers for preparing the agreement was also not

furnished by the plaintiff. He then submitted that mere issuance of the

communication dated 12.05.2003 did not have the effect of there being a

FA956.13(j) 9/55

concluded contract between the parties. The communication dated

12.05.2003 merely informed the plaintiff that the rates quoted by it were

acceptable to the defendants and nothing more. Unless the agreement

was entered into between the parties, it could not be said that there was a

concluded contract between the parties. In that regard he sought to place

reliance on the decisions in Maharshi Dayanand University and anr. Vs.

Anand Coop.L/C Society Ltd. And anr. (2007) 5 CC 295, Dresser Rand

S.A. Vs. Bindal Agro Chem Ltd and anr. (2006) 1 SCC 751, Vedanta

Limited Vs. Emirates Trading Agency Llc. (2017) 13 SCC 243, PSA

Mumbai Investments Pte. Ltd. Vs. Board of Trustees of the Jawaharlal

Nehru Port Trust and anr. (2018) 10 SCC 525 and Rushi Kiran Logistics

Private Ltd. Vs. Board of Trustees of Kandla Port Trust and others (2015)

13 SCC 233 to urge that there was no concluded contract between the

parties. He also referred to the provisions of the Indian Contract Act,

1872 ( for short, the Act of 1872) to substantiate his contentions.

(b) It was then submitted that the suit as filed was barred by

limitation inasmuch as the defendants on 07.04.2004 itself had issued a

communication-Exhibit 64 to the plaintiff taking the stand that in absence

of any agreement and issuance of work order, it was not possible

to consider the claim as made by the plaintiff in its letter dated

16.01.2004. The cause of action having arisen on 07.04.2004 it was

necessary for the plaintiff to have filed the suit within a period of three

FA956.13(j) 10/55

years from this date. The subsequent communications issued by the

defendants and especially the communication dated 20.06.2006 at Exhibit

70 did not extend the period of limitation as was wrongly held by the trial

Court. This communication merely stated that the claim as made by the

plaintiff had been forwarded to the superior authorities and further action

would be taken after the response from the superior authorities. The

provisions of Section 18 of the Indian Limitation Act, 1963 (for short, 'the

Act of 1963') would not be applicable in these circumstances. The trial

Court committed an error in holding that the suit as filed was within

limitation.

(c) It was then submitted that as per the tender notice-Exhibit 77

the plant and machinery of the contractor was required to be brought at

the site only after it was so permitted by the defendants. Referring to

Clause 45 of the tender notice, it was submitted that no written

instructions were issued by the Engineer In-charge to the plaintiff either to

enter upon or commence the work in question. Merely by issuing

communication dated 27.05.2003-Exhibit 50 the plaintiff was not justified

in bringing its plant and machinery as well as the labour at the site. In

any event it was submitted that the documentary evidence brought on

record by the plaintiff in that regard was not reliable. Moreover, the claim

for compensation based on the machinery user rates 2003-04/Exhibit 58

pertaining to the Irrigation Department could not have been relied upon

FA956.13(j) 11/55

by the trial Court for determining the amount of compensation. The

learned counsel further submitted that Writ Petition No.2059/2003 filed

by M/s. Phenix Engineers was pending in this Court from 15.05.2003 to

10.12.2003. After dismissal of the said writ petition the defendants called

upon the plaintiff by issuing communication dated 30.12.2003-Exhibit 48

to re-validate its offer by 30.01.2004. This was for the reason that as per

the tender notice the validity of the offer was for one hundred and twenty

days from the date of opening of the tender or application for refund

whichever was later. Since the period of more than one hundred and

twenty days had elapsed from the opening of the tender and in the light of

issuance of letter of intent dated 12.05.2003, the defendants were

justified in calling upon the plaintiff to re-validate its offer. The plaintiff

by refusing to do so on 16.01.2004-Exhibit 59 displayed its absence of

willingness to carry out the work in question at the rates quoted by it in its

bid. Even on this count the plaintiff was not entitled to claim damages for

the alleged loss sustained by it from the defendants.

(d) In the alternative and without prejudice to the aforesaid

submissions, the learned counsel submitted that assuming that there was a

concluded contract between the parties, the plaintiff could at the highest

make a claim for being compensated for the period from 10.12.2003

which was the date on which Writ Petition No. 2059/2003 was dismissed

till 16.04.2004 when the plaintiff removed its plant and machinery from

FA956.13(j) 12/55

the site. In any event since the defendants issued a fresh tender notice in

January 2004, the plaintiff could not seek damages after such action by

the defendants. He also referred to Clause 15 (B) of the tender notice at

Exhibit 77 to urge that any claim on account of unforeseen circumstances

was required to be made within a period of one month of such claim being

arisen. It was thus submitted that without properly construing the various

documents on record, the trial Court committed an error in holding that

there was a concluded contract between the parties and the suit seeking

compensation for the losses suffered was filed within limitation.

According to him, on a proper appreciation of the entire material on

record as well as on a correct application of the relevant legal provisions,

it was clear that the suit as filed was liable to be dismissed. He therefore

submitted that the impugned judgment be set aside and the appeal be

allowed.

8. On the other hand Shri C.S.Kaptan, learned Senior Advocate

for the respondent-plaintiff supported the impugned judgment and urged

that :

(a) By virtue of the communication dated 12.05.2003-Exhibit 46,

the offer made by the plaintiff was accepted by the defendants. There was

no material on record to hold that the acceptance of the plaintiff's offer

was conditional in nature. Though a reference was made to the

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communication at serial no.2 dated 25.04.2003 issued by the Head Office

of the defendants, the same was not brought on record. The plaintiff in

compliance with the condition of furnishing bank guarantee towards the

initial security deposit and the additional security deposit had prepared

the bank guarantees for being furnished to the defendants on 23.05.2003

itself. The bank guarantees were not accepted by the defendants and

instead the communication dated 28.05.2003 -Exhibit 49 came to be

issued. Thus within a period of seven days as directed by the defendants

the plaintiff had presented the bank guarantees but the defendants failed

to accept the same. In this context, the learned Senior Advocate sought to

refer to clause in the tender notice-Exhibit 77 and the conditions therein

with regard to furnishing of the security deposit. By such conduct, the

plaintiff had demonstrated its readiness and willingness to comply with

the conditions imposed by the defendants but it was the defendants who

failed to accept the bank guarantees. It was then submitted that

furnishing of the bank guarantees was subsequent to the acceptance of the

plaintiff's offer and the bank guarantees were only for the purposes of

securing the performance of work in question by the plaintiff. Furnishing

of the security deposit could not be treated as a condition precedent for

the contract. By virtue of the communication dated 12.05.2003-Exhibit 46

there was a concluded contract between the parties and there was no

document on record to indicate any contrary intention on the part of the

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defendants. The learned Senior Advocate referred to the provisions of the

Act of 1872 in that regard and sought to place reliance on the decisions in

Sardar SuchaSingh Vs. Union of India and ors. 1987 Supp. SCC 127,

Union of India Vs. A.L.Rallia Ram. AIR 1963 SC 1685, State of Uttar

Pradesh and ors. Vs. Combined Chemicals Company Private Ltd. (2011) 2

SCC 151, Jawahar Lal Barman Vs. The Union of India, AIR 1962 SC 378

and M/s. Davecos Garments Factory and anr. Vs. State of Rajasthan

(1970) 3 SCC 874 to submit that the trial Court was legally correct in

holding the contract to be duly entered into and concluded between the

parties.

Referring to the preliminary submissions filed on behalf of the

defendants in Writ Petition No. 2059/2003-Exhibit 53, it was submitted

that the defendants had taken a specific stand therein that the tender of

the plaintiff had been accepted and the work was allotted to it. Reference

was also made to the urgency in undertaking the said work. It was not

open for the defendants to take a contrary stand to the one taken in the

said preliminary submissions. Moreover, the defendants had brought

their plant, machinery and labour at the site on 27.05.2003 as indicated

by the document at Exhibit 50. This was done in view of the defendants

letter of acceptance dated 12.05.2003-Exhibit 46. There was no

suggestion given by the defendants to the witnesses examined by the

plaintiff that the plant, machinery and labour were not brought at the site

FA956.13(j) 15/55

on 27.05.2003. The loss sustained for the period of three hundred and

nineteen days was rightly claimed by the plaintiff. Reference was also

made to the other communication at Exhibit 49 to indicate that the offer

made by the plaintiff stood accepted and only formal documents were to

be executed. In the light of the stand taken by the defendants it was clear

that there was a concluded contract between the parties and this finding

did not call for any interference.

(b) That the trial Court rightly held the suit to be filed within

limitation. Referring to the various communications exchanged between

the parties and especially reminder issued by the plaintiff on 08.06.2006-

Exhibit 69 as well as the reply given by the defendants on 20.06.2006-

Exhibit 70 informing the plaintiff that the claim as made in the letter

dated 08.06.2006 had been sent to the superior authorities for

consideration, it was urged that the reply dated 20.06.2006 clearly

indicated that even on that date the defendants were considering the

claim for recovery of losses as made by the plaintiff. The suit filed on

19.01.2009 was therefore within limitation. The learned Senior Advocate

referred to the provisions of Section 18 of the Act of 1963 to urge that the

reply dated 20.06.2006 amounted to an acknowledgment by the

defendants which had the effect of extending the period of limitation. In

that regard, reliance was placed on the decisions in Food Corporation of

India Vs. Assam State Co-operative Marketing & Consumer Federation

FA956.13(j) 16/55

Ltd.and ors. (2004) 12 SCC 360, M/s. Lakshmirattan Cotton Mills Co.Ltd.

and anr. Vs. The Aluminium Corporation of India Ltd. (1971) 1 SCC 67

and M/s. Aries and Aries Vs. Tamil Nadu Electricity Board AIR 2017 SC

1897.

(c) That the claim for damages on account of the plant, machinery

and labour remaining idle from 27.05.2003 to 16.01.2004 had been

rightly allowed. Referring to the documents at Exhibits 54, 55 and the

rate list at Exhibit 58, it was submitted that the plaintiff's witnesses were

not cross-examined on these relevant documents. The rates indicated in

Exhibit 58 had been rightly applied for determining the amount of loss

sustained. There was no serious challenge to the contents of the

communication dated 27.05.2003-Exhibit 50. The learned Senior

Advocate then sought to distinguish the decisions relied upon by the

learned counsel for the appellants/defendants and submitted that the

same were not applicable in the facts of the present case. It was thus

submitted that no case had been made out by the defendants to interfere

with the judgment of the trial Court and the appeal was liable to be

dismissed.

9. After we had concluded the hearing of the appeal and reserved

the same for judgment, it was noticed that in the light of the ad-interim

order passed in Writ Petition No. 2059/2003 on 15.05.2003 by this Court,

FA956.13(j) 17/55

the defendant had been restrained from issuing any work order in favour

of the plaintiff. This position continued till 10.12.2003. The applicability

of the provisions of Section 56 of the Act of 1872 therefore was required

to be considered. However since this aspect was not argued by either of

the learned counsel for the parties, by invoking the provisions of Order XLI

Rule 2 of the Code of Civil Procedure, 1908, the following order was

passed on 15.01.2021 :

"We had heard the learned counsel for the parties at length and had thereafter reserved the judgment.

It is seen from the record of the trial Court vide Exhibits 53 and 57 that Writ Petition No.2059/2003 had been filed by M/s. Phenix Engineers for challenging the acceptance of tender of the respondent-plaintiff. In that writ petition the High Court on 15.05.2003 passed an ad-interim order restraining the appellants-defendants from issuing any work order in favour of the respondent-plaintiff. This writ petition was thereafter dismissed for want of prosecution on 10.12.2003.

In the light of this position obtaining from the record, the question as regards effect of the ad-interim order of injunction and consequently applicability of the provisions of Section 56 of the Indian Contract Act, 1872 arises for consideration. This aspect was not argued by either of the learned counsel for the parties. We however find that this aspect does arise for consideration in the light of the material on record in the form of Exhibits 53 and 57.

Thus in terms of the provisions of Order XLI Rule 2 of the Code of Civil Procedure, 1908, an opportunity is granted to the parties to address the Court on the following question :

"Whether in the facts and circumstances of the case, the provisions of Section 56 of the Indian Contract Act, 1872 would be attracted in the light of the ad-interim order dated 15.05.2003 in Writ Petition No.2059/2003 ?

FA956.13(j) 18/55

Put up on 19.01.2021 for hearing on this question alone."

10. Accordingly the learned counsel for the parties were heard on

the question of applicability of the provisions of Section 56 of the Act of

1872. The learned counsel for the defendants submitted that after

issuance of the communication dated 12.05.2003-Exhibit 46 an

unsuccessful bidder had filed Writ Petition No.2059/2003 before this

Court challenging the acceptance of the tender of the plaintiff. By virtue

of the ad-interim order passed in the said writ petition on 15.05.2003 the

defendants were restrained from issuing any work order in favour of the

plaintiff. It was submitted that the work in question was to be completed

within a period of twelve months including monsoon. However the

aforesaid writ petition remained pending for a period of almost seven

months and it was disposed of only on 10.12.2003. It was therefore

impossible to complete the work in question in the remaining period of

five months. For the said reason the defendants had on 30.12.2003-

Exhibit 48 requested the plaintiff to re-validate its offer as contained in its

bid. On account of operation of the ad-interim order from 15.05.2003 to

10.12.2003 the defendants were not in a position to proceed further in

accordance with the earlier communication dated 12.05.2003-Exhibit 46.

Neither the plaintiff nor the defendants were responsible for this situation

and therefore by virtue of the provisions of Section 56 of the Act of 1872

the contract assuming it to be concluded had been frustrated. Reference

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was also made to the provisions of Section 65 of the Act of 1872 to urge

that the defendants did not gain any advantage whatsoever by virtue of

the ad-interim order passed in the writ petition. On the contrary after

dismissal of the writ petition on 10.12.2003, the defendants immediately

on 30.12.2003 called upon the plaintiff to re-validate its offer so that the

work in question could be completed. This indicated that the defendants

were not at fault and therefore there was no question of any breach of the

agreement being committed by the defendants. Consequently, there was

no basis to award any amount in favour of the plaintiff on that count. To

substantiate the aforesaid contentions reliance was placed on the

decisions in Satyabrata Ghose Vs. Mugneeram Bangur and Co. and anr.

AIR 1954 SC 44, Mohammed Gazi Vs. State of M.P. and ors. (2000) 4

SCC 342, Huda and anr. Vs. Dr. Babeswar Kanhar and anr. (2005) 1 SCC

191, South East Asia Marine Engineering and Constructions Ltd.

(SEAMEC Ltd) Vs. Oil India Ltd. (2020) 5 SCC 164 and Delhi

Development Authority Vs. Kenneth Builders and Developers Pvt. Ltd. and

ors. (2016) 13 SCC 561. It was thus submitted that even on this count no

relief could have been granted to the plaintiff.

11. Responding to the aforesaid submissions, the learned Senior

Advocate for the plaintiff submitted that the defendants did not raise any

defence whatsoever as to the applicability of Section 56 of the Act of 1872.

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As a result there was no evidence led by the defendants on this aspect. It

was then submitted that for the purposes of applicability of the provisions

of Section 56 of the Act of 1872, there had to be an agreement to do an

impossible act. The ad-interim order passed in Writ Petition

No.2059/2003 did not make the agreement between the parties to

undertake construction of the roads an act which was impossible. In

absence of the contingency of there being an agreement to do an

impossible act, the provisions of Section 56 of the Act of 1872 were not at

all applicable. In any event, the ad-interim order ceased to operate on

10.12.2003 and the subsequent conduct of the defendants in issuing the

communication dated 30.12.2003-Exhibit 48 calling upon the plaintiff to

re-validate its offer amounted to waiving the impossibility of performance

of the agreement. In fact, by virtue of the latter part of Section 56 of the

Act of 1872, the plaintiff was entitled to be compensated especially with

regard to the deployment of its plant, machinery and labour. The learned

Senior Advocate referred to illustration (d) to Section 65 as well as the

provisions of Section 73 of the Act of 1872. The plaintiff being always

ready and willing to perform its part of the agreement, it was the

defendants who committed breach of the agreement. The contract in

question having been duly concluded there was no reason to deny the

prayer for grant of compensation for the losses suffered by the plaintiff. In

that regard the learned Senior Advocate referred to paragraphs 16-17 of

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the decision in Satyabrata Ghose (supra) as well as the decision in

Bhagwandas Goverdhandas Kedia Vs. M/s. Girdharilal Parshottamdas and

Co. and ors. AIR 1966 SC 543. The decisions relied upon by the learned

counsel for the defendants were also sought to be distinguished.

12. In the light of the rival submissions of the learned counsel for

the parties the following points arise for consideration :

(a) Whether the plaintiff has proved that there was a concluded

contract between the parties ?

(b) In the light of pendency of the Writ Petition No.2059/2003

whether the provisions of Section 56 of the Indian Contract Act, 1872 are

attracted in the facts of the case ?

(c) Whether the plaintiff has proved that the defendants

committed a breach of the contract and if yes, whether the plaintiff is

entitled to claim damages from the defendants ?

(d) Is the suit as filed barred by limitation ?

13. Both the parties have relied upon documentary evidence in

support of their respective stands. It would therefore be necessary at the

outset to refer to the relevant documentary evidence that is available on

record. Pursuant to the tender notice issued by the third defendant bids

were invited for construction of WBM roads with surface dressing

treatment in Transport Nagar Layout. As per the tender notice dated

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14.08.2002 the tender forms were to be issued from 19.08.2002 till

03.10.2002. These were pre-qualification forms which were to be

submitted within a period of four days from being issued. The third

defendant was then to issue blank tender forms to pre-qualified

contractors between 16.12.2002 and 20.12.2002. The tender form which

is at Exhibit 77 indicates that the earnest money to be deposited was

Rs.1,68,000/-. Initial security deposit was 3% of the tender cost or

estimated cost whichever was higher and the security deposit from the RA

bills was 2% of the tender cost or estimated cost whichever was higher.

The time limit for completion of the work was twelve months including

monsoon. Clause 5 of the tender document reads thus :

Time Limit :

"The time limit for the completion of the work shall be 12 (Twelve) months from the date mentioned in the work order inclusive of monsoon."

The operative period of the contract was to commence from the date of

issuance of the work order. Clause 2 of the tender document reads thus :

Conditions referred to in paragraph-I "(i) The Operative Period of the contract shall mean the period commencing from the date of the work order issued to the contractor and ending on the date when the time allowed for the work specified in the Memorandum of Tender for the work expires, taking into consideration the extension of time if any, for completion of the work granted by Engineer-in-charge under the relevant extension is necessitated on account of default of the contractor."

The validity of the offer was to be one hundred and twenty days from the

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date of opening of the tender or the application for refund whichever was

later. As per the directions contained in the tender form, the tenderer was

required to duly sign and complete the printed form. Envelope No.1 was

to contain challan for earnest money or exemption certificate issued by the

defendants. A copy of the current certificate of registration, income-tax

certificate as well as rate analysis was also to be submitted in that

envelope. In envelope no.2 the offer to be made by the tenderer was to be

submitted without any condition. A contractor whose offer was proposed

to be accepted and who was to be invited for execution of the agreement

was required to pay stamp duty which was 3% as stipulated. Reference to

other material conditions of the tender document would be made at later

stage.

14. It is not in dispute that the plaintiff submitted its bid and on

12.05.2003 the third defendant issued a communication to the plaintiff

which is at Exhibit 46. As per this communication the plaintiff was

informed that the bid submitted by it was 28.49% less than the offset price

of Rs.3,35,50,648/-. The amount of bid was Rs.2,39,92,068/-. As per

reference note no.2 the plaintiff's bid had been accepted. Note no.2 refers

to a communication dated 25.04.2003 written by the Chief Executive

Officer, Maharashtra Industrial Development Corporation, Mumbai. The

plaintiff was then directed that it should deposit initial security deposit

FA956.13(j) 24/55

which was 3% amounting to Rs.10,06,520/- by way of demand draft.

Similarly additional security deposit to the extent of 6% being

Rs.20,13,040/- was also be deposited by way of demand draft. The

plaintiff was then informed that if the initial security deposit was being

paid further amount of Rs.30,200/- being the value of stamp papers be

kept ready. If the security deposit was being submitted in the form of

bank guarantee, adhesive stamp paper of Rs.100/- was directed to be kept

ready and the plaintiff was called to attend the office of the third

defendant for executing the agreement. The plaintiff was accordingly

requested to complete the formalities for executing the agreement within

a period of seven days from the issuance of that letter. In response

thereto the plaintiff on 23.05.2003 issued a letter to the third defendant

which is at Exhibit 47 stating therein that bank guarantee nos. 2 and 3

dated 23.05.2003 for Rs.10,07,000/- each towards 6% additional security

deposit for the tender work were being submitted and the said bank

guarantees were valid upto 23.08.2004. On 27.05.2003 the plaintiff

issued a communication to the third defendant which is at Exhibit 50

stating therein that in view of the letter issued by the third defendant on

12.05.2003 machinery was brought at the site. The site was accordingly

requested to be surveyed. The third defendant on 28.05.2003 informed

the plaintiff that in terms of its letter dated 12.05.2003 the representative

of the plaintiff had attended the office of the third defendant on

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27.05.2003 along with the bank guarantees. However because of certain

administrative difficulties, it was not possible to accept the bank

guarantees till 30.05.2003 and hence the bank guarantees were returned

to the representative. After receiving the orders from the superior

authorities the third defendant informed the plaintiff that the bank

guarantees would be accepted.

15. In the meanwhile Writ Petition No.2059/2003 came to be filed

by M/s. Phenix Engineers challenging the award of tender by the

defendants in favour of the plaintiff. This writ petition was filed on

15.05.2003 in which the MIDC through its officers were arrayed as

respondent nos. 2 to 4 while the plaintiff was arrayed as respondent no.5.

This Court on 15.05.2003 passed the following order :

"Notice before admission, returnable on 30.05.2003.

AGP waives service of respondent no.1. He wants time to file reply.

Time granted. Reply should be filed within the returnable date.

In the meantime, there will be ad-interim order in terms of prayer clause (ii)."

The plaintiff and the defendants are ad-idem that by virtue of

this ad-interim order the defendants were restrained from issuing the

work order to the plaintiff. In the said writ petition the third defendant

filed its submissions on record which are at Exhibit 53 dated 11.06.2003.

In these submissions, reference has been made to the passing of the ad-

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interim order dated 15.05.2003 and it has been further stated that the

third defendant was served with a copy of the writ of the ad-interim order

on 19.05.2003. It has also been stated in the said submissions that the

proposal submitted by the plaintiff was found feasible and workable due

to which it was chosen to perform the job. The defendants accepted the

tender of the plaintiff for allotting it the work. It is seen from the record

of Writ Petition No. 2059/2003 that the ad-interim order came to be

continued on 30.05.2003 and it continued to operate thereafter. The

plaintiff entered appearance in the said proceedings on 28.07.2003. On

10.12.2003 in view of the statement made on behalf of the counsel for the

original petitioner that the said counsel was unable to proceed with the

writ petition for want of instructions, the writ petition came to be

dismissed for want of prosecution. This order is at Exhibit 57.

16. Thereafter on 30.12.2003 the third defendant issued a

communication to the plaintiff calling upon it to extend the period of

validity of its offer. This communication is at Exhibit 48 . In response

thereto the plaintiff on 16.01.2004 issued a communication to the third

defendant in which it was stated that there was no reason to seek

extension of the validity period of the offer as sought by it. It was also

stated that a decision be taken at the earliest failing which the staff and

machinery which was at the site would be removed. On 07.04.2004 the

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third defendant issued a communication to the plaintiff which is at Exhibit

64 stating therein that as no agreement had been entered into with the

plaintiff and no work order to commence the work had been issued, the

request for joint inventory of the machinery did not deserve consideration.

In reply thereto the plaintiff on 16.04.2004 took the stand that on

payment of the earnest money deposit and acceptance of the tender the

contract between the parties stood concluded. It was also stated that

signing of the agreement was only a formality as the plaintiff's offer had

been accepted by the defendants. This communication is at Exhibit 62.

Thereafter on 28.07.2004 the third defendant again informed the plaintiff

that since there was no agreement between the parties the question of

taking an inventory did not arise. This communication is at Exhibit 61.

Ultimately on 10.01.2006 the plaintiff issued a letter to the third

defendant stating therein that on account of the plant and machinery of

the plaintiff remaining idle at the site for a considerable period, the

plaintiff had to suffer losses. By stating that there was a breach of the

contract on the part of the defendants, a demand of Rs.3,26,00,000/- was

made by the plaintiff from the defendants towards the loss sustained. This

letter is at Exhibit 68. Another communication giving various details was

again issued by the plaintiff on 08.06.2006 which is at Exhibit 69. In

response thereto the third defendant on 20.06.2006 informed the plaintiff

that the claim made by the plaintiff had been forwarded to the superior

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authorities and in case the claim as made was accepted by the said

authorities, further steps would be taken in the matter. It is thereafter

that on 19.06.2009 the plaintiff proceeded to file the present suit seeking

damages from the defendant to the tune of Rs.3,26,00,000/-.

17. Whether there was a concluded contract between the parties ?

It is not in dispute that pursuant to the tender notice issued by

the defendants, the plaintiff had submitted its bid and on 12.05.2003-

Exhibit 46 the third defendant informed the plaintiff that its bid being

28.49% below the offset price was accepted in view of the communication

dated 25.04.2003 issued by the Chief Executive Officer of the MIDC. The

third defendant then called upon the plaintiff to furnish demand drafts or

bank guarantees towards the initial security deposit as well as the

additional security deposit. Further necessary stamp papers and adhesive

stamps were directed to be deposited for completion of the agreement.

The agreement was to be signed within a period of seven days from the

issuance of the letter. According to the plaintiff, issuance of this

communication indicated that the defendants by accepting the bid of the

plaintiff being the lowest and communicating such acceptance to the

plaintiff resulted in there being a concluded contract between the parties.

On the other hand, according to the defendants since the bank guarantees

were directed to be submitted and the agreement was to be duly signed

unless the same was done, it could not be said that there was a concluded

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contract between the parties. The learned counsel for the parties referred

to the provisions of the Act of 1872 to substantiate their stands.

Under Section 7 of the Act of 1872 in order to convert a

proposal into a promise the acceptance must be absolute and unqualified

and it must be expressed in some usual and reasonable manner, unless

the proposal prescribes the manner in which it is to be accepted. If such

manner is prescribed in the proposal and the acceptance is not made in

that manner the proposer could within a reasonable time after the

acceptance is communicated to him, insist that his proposal be accepted in

the prescribed manner and not otherwise. In the recent decision of the

Hon'ble Supreme Court in M/s. Padia Timber Company (P) Ltd. Vs. The

Board of Trustees of Visakapatnam Port Trust JT 2021(1) SC 44

it has been held that offer and acceptance must be based or founded on

three components, that is, certainty, commitment and communication.

We find that the proposal of the plaintiff, that is its bid came to be

accepted by the defendants by virtue of the communication dated

12.05.2003-Exhibit 46. This acceptance was absolute and unqualified. It

was expressed in an usual and reasonable manner. The bid submitted by

the plaintiff did not prescribe a particular manner in which it was to be

accepted and hence the latter part of Section 7 of the Act of 1872 would

not be applicable. The defendants in clear terms had informed the

plaintiff that its bid being the lowest had been accepted and

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the plaintiff was called upon to complete the formalities for the execution

of the agreement.

18. While answering the question as to whether the acceptance of

the proposal was absolute or not, the surrounding circumstances as well

as the manner in which the parties proceeded in the matter have also to

be taken into consideration. These aspects have to be seen from the point

of view of the parties to the contract. As stated above the decision of the

defendants to accept the bid of the plaintiff resulted in one of the

unsuccessful bidders filing Writ Petition No.2059/2003 challenging that

action of the defendants. The third defendant sought to justify the

acceptance of the bid of the plaintiff in those proceedings by filing

preliminary submissions-Exhibit 53. It would be necessary to refer to the

stand taken by the third defendant in those proceedings as reflected in its

preliminary submissions. It is to be noted that the plaintiff herein was the

respondent no.5 in Writ Petition No.2059/2003. In paragraph 7 of the

preliminary submissions, it was stated as under :

"The respondent no.5 had duly submitted its rate analysis along with the tender. After taking into consideration all the factors, the answering respondent and other co-respondents thought it fit that the proposal given by the respondent was feasible and workable and therefore he was justified to perform the job".

Similarly in paragraph 8 it has been stated as under :

"It may be pointed out here that there is no major

FA956.13(j) 31/55

variation in the rates quoted by the respondent no.5 and its feasibility the tender has been duly accepted."

In paragraph 9 it was further stated as under :

"Looking to these facts and urgency it was thought fit by the respondent to accept the tender of the respondent no.5 and allot him the work."

Perusal of these submissions made on affidavit by the third

defendant clearly indicate that the bid submitted by the plaintiff was

unconditionally accepted by the defendants and the work under the

tender was to be allotted to it. Having taken such stand in Writ Petition

No.2059/2003, it would be futile for the defendants to now urge that

there was no concluded contract between the plaintiff and the defendants.

19. No doubt, the defendants sought to urge that the bank

guarantees towards the initial security and the additional security deposit

were not furnished by the plaintiff nor was the agreement signed between

the parties and hence no work order was issued to the plaintiff.

According to them the communication dated 12.05.2003-Exhibit 46 was

merely a prelude to the contract as observed in Dresser Rand S.A.

(supra). Though this may be true, it cannot be lost sight of the fact that

on 23.05.2003-Exhibit 47, the plaintiff sought to furnish the bank

guarantee bearing nos. 2 and 3 for an amount of Rs.10,07,000/- each. On

28.05.2003-Exhibit 49 the third defendant admitted the fact that the

plaintiff's representative had on 27.05.2003 attended the office of the

FA956.13(j) 32/55

third defendant along with the bank guarantees but due to administrative

reasons the bank guarantees could not be accepted till 30.05.2003. The

third defendant also informed the plaintiff that after receiving the orders

from the superior authorities the bank guarantees would be accepted. It is

undisputed that on 15.05.2003 an ad-interim order was passed in Writ

Petition No.2059/2003 and this order was served on the third defendant

on 19.05.2003. Even though the third defendant may be justified in not

accepting the bank guarantees on 27.05.2003 due to the ad-interim order

passed by this Court restraining the defendants from issuing the work

order to the plaintiff, the fact remains that the plaintiff was not to be

blamed for this state of affairs. The plaintiff was duly communicated that

its tender had been accepted on 12.05.2003-Exhibit 46 and accordingly it

took the steps to complete the formalities. In these facts when the ad-

interim order precluded the defendants from issuing the work order after

15.05.2003, we find that by communicating the acceptance of the

plaintiff's bid on 12.05.2003-Exhibit 46 there was a concluded contract

between the parties. Absence of execution of a formal agreement in

favour of the plaintiff and the issuance of a work order by the defendants

cannot be a reason in these facts to hold that there was no concluded

contract. The ratio of the decisions in State of U.P., Jawahar Lal Barman

and A.L.Rallia Ram (supra) support this conclusion.

Another aspect that cannot be ignored is the stand taken by the

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third defendant in issuing the communication dated 30.12.2003-Exhibit

48 after Writ Petition No.2059/2003 was dismissed. The third defendant

called upon the plaintiff to extend the validity of its offer till 31.01.2004.

Such request would not have been made by the third defendant if there

was no concluded contract between the parties pursuant to the acceptance

the bid of the plaintiff on 12.05.2003-Exhibit 46. As held in Dresser Rand

S.A. (supra) a letter of intent could be construed as a letter of acceptance

if such intention is evident from its terms. On consideration of the overall

material on record the intention of the defendants is clear that the offer of

the plaintiff was accepted resulting in a concluded contract between them.

Point (a) is accordingly answered by holding that by virtue of acceptance

of the plaintiff's bid, which was communicated to it on 12.05.2003-Exhibit

46, there was a concluded contract between the parties. This finding

recorded by the trial Court is confirmed.

20. Whether the contract between the parties was frustrated ?

It is an undisputed fact on record that the plaintiff issued a

communication to the defendant on 12.05.2003-Exhibit 46 stating that the

offer made by the plaintiff which was 28.49% lower than the offset price

was accepted by the defendant in view of the communication dated

25.04.2003 issued by the Chief Executive Officer of the MIDC. In terms of

the tender notice the plaintiff was called upon to furnish initial security

deposit of 3% as well as additional security deposit of 6%. Similarly, the

FA956.13(j) 34/55

plaintiff was called upon to furnish appropriate stamp duty for execution

of the agreement and all this compliance was to be done within a period

of seven days from the issuance of the said letter. However before expiry

of this period of seven days, on 15.05.2003 an ad-interim order was

passed in Writ Petition No.2059/2003 filed at the behest of M/s. Phenix

Engineers by which the defendants herein were restrained from issuing

the work order in favour of the plaintiff. It is further not in dispute that

this ad-interim order continued to operate and ultimately on 10.12.2003

the said writ petition came to be dismissed for want of prosecution which

order is at Exhibit 57.

From the aforesaid facts on record it becomes clear that though

the defendants had accepted the offer made by the plaintiff and had

written to it on 12.05.2003 to complete the various formalities as per the

tender notice to enable execution of the contract, the same could not be

done as the defendants were restrained by the order dated 15.05.2003

from issuing any work order to the plaintiff.

21. It is in the aforesaid facts that the applicability and effect of the

provisions of Section 56 of the Act of 1872 is required to be considered.

Section 56 of the Act of 1872 reads thus :

"Section 56- Agreement to do impossible act.-An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful - A contract to do an act which,

FA956.13(j) 35/55

after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-

performance of act known to be impossible or unlawful - Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise".

Perusal of the aforesaid provision and the tender notice

indicates that the tender with regard to construction of roads was not an

agreement to do an impossible act and was therefore not void. The

second part of Section 56 however stipulates that if after making a

contract an event occurs which could not be prevented by the promisor or

the contract becomes unlawful then such contract becomes void when the

act becomes impossible or unlawful. It is clear from the facts on record

that by virtue of the ad-interim order dated 15.05.2003 passed in Writ

Petition No.2059/2003 restraining the defendants from issuing the work

order to the plaintiff, it became impossible for the defendants to go ahead

with the execution of the agreement in favour of the plaintiff. The

execution of such agreement after 15.05.2003 in the light of the ad-

interim restraint order would have also made it unlawful on the part of

the defendants as such execution of the agreement would have been in

breach of the ad-interim order. We thus find that the second part of

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Section 56 of the Act of 1872 would come into operation and would apply

to the facts of the present case. The latter portion of Section 56 of the Act

of 1872 contemplates knowledge of the promisor or the aspect of getting

knowledge with reasonable diligence which the promisee did not know

doing of which to be impossible or unlawful then the promisor is required

to compensate the promisee for any loss which the promisee sustains

through the non-performance of the promise. It is not the case of either of

the parties that the other party knew about the ad-interim order and took

the advantage of the same. In the light of the aforesaid, the effect of the

ad-interim order of restraint that operated from 15.05.2003 till

10.12.2003 when Writ Petition No.2059/2003 came to be dismissed for

want of prosecution vis-a-vis Section 56 of the Act of 1872 will therefore

have to be considered.

22. One of the earliest decisions recognising and considering

application of the doctrine of frustration is by the Nagpur High Court in

Kesarichand Vs. Governor-General in Council 1949 ILR (Nagpur) 718.

Vivian Bose J (as His Lordship then was) observed that the doctrine of

frustration was nothing but a rule of law invented by Judges to meet an

impossible situation. It is something outside and independent of the

parties and their will : something beyond their control. It occurs when a

violent outside force suddenly dashes against the adventure which forms

FA956.13(j) 37/55

the basis of the contract. It was held that the doctrine was a special case

of "impossibility" and as such was dealt with in Section 56 of the Act of

1872. It has also been observed that the contract either dies or it does

not. If it dies, it dies as a whole at the moment of frustration and

therefore both sides are excused from further performance. If it dies, it

dies forthwith. The Court cannot remake the contract between the parties

but can only determine whether the frustrating event killed the adventure.

23. The leading decision of the Hon'ble Supreme Court with regard

to applicability of the provisions of Section 56 has been rendered in

Satyabrata Ghose (supra). Therein the parties to the dispute had entered

into an agreement for sale of land. Before the contract could be

completed, the land in question came to be requisitioned by the State. A

plea was raised on behalf of the defendant that as a result of the orders of

requisition the contract was frustrated. Approving the decision in

Kesarichand (supra) it was observed that the word "impossible" used in

Section 56 of the Act of 1872 was not limited to physical or literal

impossibility. The performance of an act even if it was not literally

impossible could always become impractical and useless from the point of

view of the object and purpose which the party had and if an untoward

event or change of circumstances upsets the very foundation upon which

the parties had rested their bargain, it could be said that the promisor

FA956.13(j) 38/55

found it impossible to do the act which he promised to do. Reference was

made to the law prevailing in England in the context of doctrine of

impossibility and it was then observed that such situation in India would

be required to be dealt with by Sections 32 and 56 of the Act of 1872. It

was observed therein as under :

"In the large majority of cases however the doctrine of frustration is applied not on the ground that the parties themselves agreed to an implied term which operated to release them from the performance of the contract. The relief is given by the Court on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement. Here there is no question of finding out an implied term agreed to by the parties embodying a provision for discharge, because the parties did not think about the matter at all nor could possibly have any intention regarding it.

When such an event or change of circumstance occurs which is so fundamental as to be regarded by law as striking at the root of the contract as a whole, it is the Court which can pronounce the contract to be frustrated and at an end. The court undoubtedly has to examine the contract and the circumstances under which it was made.

The belief, knowledge and intention of the parties are evidence, but evidence only on which the Court has to form its own conclusion whether the changed

FA956.13(j) 39/55

circumstances destroyed altogether the basis of the adventure and its underlying object - 'Vide Morgan Vs. Manser' 1947-2 All ER 666 (L). This may be called a rule of construction by English Judges but it is certainly not a principle of giving effect to the intention of the parties which underlies all rules of construction. This is really a rule of positive law and as such comes within the purview of Section 56 of the Indian Contract Act".

"20. It is well settled and not disputed before us that if and when there is frustration the dissolution of the contract occurs automatically. It does not depend, as does rescission of a contract on the ground of repudiation or breach, or on the choice or election of either party. It depends on the effect of what has actually happened on the possibility of performing the contract: Per Lord Wright in ... '1944 AC 265 at p. 274(I). What happens generally in such cases and has happened here is that one party claims that the contract has been frustrated while the other party denies it. The issue has got to be decided by the court 'ex post facto', on the actual circumstances of the case......'1944 AC 265 at p. 274(I)"

24. The aforesaid law has thereafter been consistently followed in

various subsequent decisions of the Hon'ble Supreme Court. In the light

of the facts of the present case, it would be also necessary to refer to the

decision of the Hon'ble Supreme Court in Shanti Vijay and Company and

ors. Vs. Princess Fatima Fouzia and ors. (1979) 4 SCC 602 . The dispute

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therein related to removal of trustees of the Trust called 'H.E.M. Nizam's

Jewellery Trust. One of the beneficiaries initiated proceedings under

Section 74 of the Indian Trusts Act, 1882 for removal of the Trustee In-

charge on account of the alleged dereliction of duty, negligence and other

grounds. In those proceedings an application for temporary injunction

seeking to restrain the trustees from taking any further steps towards

finalisation of the sale of jewellery came to be filed. On 14.03.1978 the

trial Court granted an ad-interim injunction restraining the trustees from

taking any steps to finalise the sale of the jewellery. This order of

injunction was however vacated on 27.03.1978. Examining the question

as to whether on account of the order of injunction the provisions of

Section 56 of the Act of 1872 were attracted, it was held that after the

acceptance of tender by four trustees on 09.03.1978 by virtue of

resolution dated 08.03.1978, the contract was frustrated on account of

grant of an ad-interim injunction by the trial Court on 14.03.1978. On

account of grant of such injunction, the alleged contract could not be

performed and the balance consideration could not be tendered by the

stipulated date as long as the order of injunction operated. In those facts

it was held that there was a frustration of the contract.

25. On a careful consideration of the provisions of Section 56 of the

Act of 1872 we find that after issuance of the letter of intent in favour of

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the plaintiff dated 12.05.2003-Exhibit 46 an ad-interim order was passed

by this Court on 15.05.2003 restraining the defendants from issuing the

work order to the plaintiff. As per the statement made by the defendants

in its preliminary submissions in the said writ petition-Exhibit 56 the

defendants got knowledge of the ad-interim order on 19.05.2003 and

hence from that date they were precluded by the order of the Court from

issuing the work order. Any step taken after that date by the defendants

of issuing the work order would have made the same unlawful being in

breach of the ad-interim order at least till the period the ad-interim order

was operating. Issuing the work order after 15.05.2003 or for that matter

on or after 19.05.2003 when the defendants got knowledge of the ad-

interim order would have amounted to breach of the ad-interim order and

thus unlawful. In the teeth of the ad-interim order which is the frustrating

event the performance of the contract by either party became impossible.

In these facts therefore there is no scope to invoke the provisions of

Section 65 of the Act of 1872 when the defendants did not derive any

advantage on account of the ad-interim order.

26. Though it was urged by the learned Senior Advocate for the

plaintiff that the defendants in their written statement did not raise

the defence of applicability of Section 56 of the Act of 1872, it is clear on a

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perusal of paragraphs 8 to 10 of the written statement - Exhibit 11 that in

view of the order of stay granted by the High Court the work order could

not be issued to the plaintiff. PW1 Vijay Mhatre - Exhibit 19 admitted in

his cross-examination that the work had been stayed due to the order

passed by the High Court. The parties were thus aware of the fact that in

view of the ad-interim orders passed by the High Court, the work in

question had been stayed. It was not necessary for the defendants to

specifically refer to the provisions of Section 56 of the Act of 1872 in the

written statement. This Court is required to examine the legal effect of

the provisions of Section 56 of the Act of 1872 in the light of the

undisputed position that on 15.05.2003 the High Court by an ad-interim

order in Writ Petition No.2059/2003 had restrained the defendants from

issuing the work order to the plaintiff. This contention of the learned

Senior Advocate therefore cannot be accepted. In our view the trial Court

erred in not considering the legal effect of the provisions of Section 56 of

the Act of 1872 in the light of the undisputed facts on record. We

therefore hold that for the period from 19.05.2003 which is the date on

which the defendants got knowledge of the ad-interim order passed in

Writ Petition No.2059/2003 till 10.12.2003 on which date the said writ

petition was dismissed for want of prosecution, it had become impossible

for the defendants to issue the work order in favour of the plaintiff. The

letter of intent though issued on 12.05.2003, it could not be taken to its

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logical end and thus there was a frustration of the contract especially

when the order of restraint operated from 15.05.2003 for a period of

almost seven months. The operation of the contract became unfeasable

after 10.12.2003 as the validity of the rates quoted was to operate for a

period of one hundred and twenty days from opening of the tender.

Point (b) is answered by holding that under Section 56 of the Act of 1872

the contract between the parties stood frustrated.

27. Whether the defendants breached the contract for which the plaintiff can claim compensation ?

It having been held that there was a concluded contract

between the parties, the plaintiff's claim for compensation for the loss

caused on account of breach of the contract by the defendants would have

to be examined as held in Vedanta Ltd.(supra). The claim of the plaintiff

for seeking monetary compensation is on account of loss caused due to its

plant, machinery and labour remaining idle. The loss has been claimed on

the premise that for about three hundred and nineteen days the plant,

machinery and labour were lying idle at the work site and despite various

requests made by the plaintiff the inventory of the same was not taken by

the defendants. In this regard, the plaintiff has relied upon the

communication at Exhibit 27.05.2003-Exhibit 50 which was issued to the

third defendant informing it that the plaintiff, in view of the

communication dated 12.05.2003-Exhibit 46, had brought its machinery

FA956.13(j) 44/55

at the work site and hence the third defendant should survey the same.

The stand of the third defendant as reflected in its communication dated

28.07.2004-Exhibit 61 issued to the plaintiff was that since there was no

agreement entered into between the parties there was no question of

taking any inventory or inspecting the machinery at the site.

28. It would therefore be necessary to determine whether the

plaintiff was justified in bringing its plant, machinery and labour at the

work site on 27.05.2003 as alleged. In the plaint it has been averred that

on the directions of the defendants it had mobilised its plant, machinery

and labour at the site. No doubt, the defendants have disputed issuing

any such directions as well as such plant, machinery and labour being

brought on the site on 27.05.2003 and the same remaining idle. The trial

Court in paragraph 22 of its judgment has proceeded to hold that

notwithstanding the denial by the defendants it was likely that on the

basis of oral instructions the plaintiff had possibly brought its plant,

machinery and labour at the site. Assuming the same having been

brought at the site it would be necessary to examine whether such act on

the part of the plaintiff was justified under the tender conditions.

Clause 45 of the tender notice-Exhibit 77 reads as under : Entering upon or commencing any portion of work Clause 45 - The contractor shall not enter upon or commence any portion of work except with the written authority and instructions of the Engineer-in-charge or of his subordinate in-charge of the work. Failing such

FA956.13(j) 45/55

authority the contractor shall have no claim to ask to measurements of or payment for work. (emphasis supplied)

A plain reading of this clause indicates that unless the Engineer In-charge

or his subordinate instructed the contractor in writing, it would not be

open for the contractor to either enter upon or commence any portion of

the work. It has also been stated that in absence of any such direction

given under the authority of the Engineer In-charge the contractor would

have no claim to seek for measurements or payment for the work. It is an

admitted position that there is no document on record to indicate that the

Engineer in-charge in terms of Clause 45 of the tender notice had

permitted the plaintiff in writing to either enter upon or commence any

portion of the work. In absence of any such written authority being given

to the plaintiff there would be no basis for the plaintiff either to call upon

the defendants to take an inventory and inspect the work site for that

purpose. In the light of the clear stipulation in Clause 45 of the tender

notice-Exhibit 77, we find that there was no basis whatsoever for the

plaintiff to bring its plant, machinery and labour at the work site as

alleged on 27.05.2003.

29. The matter can be viewed from another angle. On 15.05.2003

an ad-interim order was passed in Writ Petition No. 2059/2003

restraining the defendants from issuing any work order in favour of the

FA956.13(j) 46/55

plaintiff. The defendants got knowledge about this order on 19.05.2003

and the plaintiff had also been arrayed as respondent no.5 in the said writ

petition. On 28.05.2003-Exhibit 49 the defendants informed the plaintiff

that the bank guarantees would be accepted after receiving instructions

from the higher authorities and the same would not be accepted till

30.05.2003. This was obviously on account of the ad-interim order dated

15.05.2003 and the fact that the returnable date in the said writ petition

was 30.05.2003. On being served with the copy of the writ petition and

the ad-interim order passed therein coupled with the fact that the ad-

interim order was subsequently continued on 30.05.2003, a prudent

contractor would have removed his plant, machinery and labour if it had

been brought at the site for being utilized at some other site as there was a

restraint from issuing any work order and consequently from undertaking

the work as per the tender notice. It is hard to believe that despite

knowledge of the ad-interim order passed on 15.05.2003 in Writ Petition

No.2059/2003, the plaintiff would permit its plant, machinery and labour

to remain idle at the site at least till 10.12.2003 when the said writ

petition came to be dismissed. On the touchstone of preponderance of

probability we find that the stand taken by the plaintiff that it permitted

its plant, machinery and labour to remain idle at the site at least till

10.12.2003 in the face of the ad-interim order dated 15.05.2003 does not

appear probable. Thus in absence of any written authority as

FA956.13(j) 47/55

contemplated by Clause 45 of the tender notice, the plant, machinery and

labour could not have been brought at the site. We therefore find that

there was no legal basis whatsoever for the plaintiff to claim loss on

account of its plant, machinery and labour remaining idle at the site. As

held earlier, the contract having been frustrated on account of the ad-

interim order dated 15.05.2003 it cannot be held that the defendants

committed any breach of the contract. In any event, in absence of any

written authority from the Engineer-in-charge the plaintiff could not have

mobilised its plant, machinery and labour at the site on 27.05.2003.

There is no basis whatsoever for the plaintiff to claim compensation for

the loss sustained on that count.

30. After dismissal of Writ Petition No.2059/2003 on 10.12.2003

the defendants on 30.12.2003-Exhibit 48 called upon the plaintiff to re-

validate its offer by extending the validity period. This is sought to be

justified by the defendants on the ground that Condition No.14 in the

tender notice-Exhibit 77 stipulated that the validity of the offer made by

the contractor would be for a period of one hundred and twenty days

from opening of the tender or an application for refund whichever was

later. In the present case the offer as made by the plaintiff was accepted

by the defendants on 12.05.2003 and after about one hundred and twenty

days from opening of the tender Writ Petition No.2059/2003 continued to

FA956.13(j) 48/55

pend in the High Court. The time limit for completing the work being

twelve months from the issuance of the work order, in the facts of the case

we find that the defendants were justified in calling upon the plaintiff to

extend the validity period of its offer. The period that had elapsed from

15.05.2003 till 10.12.2003 in view of the ad-interim order passed in Writ

Petition No.2059/2003 was not attributable to any act of the defendants.

Despite conveying its acceptance to the plaintiff's offer on 12.05.2003 the

defendants were restrained from issuing the work order. When the

defendants were in a position to proceed further with the agreement by

issuing the work order after 10.12.2003, the plaintiff was rightly called

upon to extend the validity period of its offer. It therefore cannot be said

that by issuing the communication dated 30.12.2003-Exhibit 48 the

defendants took an unsustainable step of calling upon the plaintiff to

extend the validity period of its offer. The defendants therefore did not

commit any breach of the contract which even otherwise was frustrated.

31. Perusal of the impugned judgment of the trial Court indicates

that it has not given the desired importance to the undisputed fact that by

virtue of the ad-interim order dated 15.05.2003 passed in Writ Petition

No.2059/2003 the defendants were restrained from issuing the work

order to the plaintiff. On the contrary after holding that by virtue of the

communication dated 12.05.2003-Exhibit 46 there was a concluded

FA956.13(j) 49/55

contract between the parties, the trial Court found that the act of the

plaintiff of bringing at the site the plant, machinery and labour to be

justified despite referring to Clause 45 of tender notice at Exhibit 77. In

paragraph 21 of the impugned judgment, the trial Court has proceeded to

hold that since there was an urgency in undertaking the work under the

tender, the plaintiff was justified in bringing its plant, machinery and

labour at the site on 27.05.2003 possibly on the basis of oral instructions

from the defendants though the same was denied. It is on that basis that

the trial Court has proceeded to hold that since the plant, machinery and

labour of the plaintiff remained idle for about two hundred and sixty six

days, the plaintiff was found entitled to be granted the amount of loss

sustained by it for that period. Neither was the person who gave such oral

instructions named by the plaintiff nor was any witness examined in that

behalf. There is no sufficient evidence on record to prove such plant,

machinery and labour being brought at the site after due instructions from

the defendants. As held earlier in absence of any written authority by the

Engineer In-charge as required by Clause 45 of the tender notice, the

plaintiff was not justified in bringing its plant, machinery and labour at the

site on 27.05.2003 and retaining it thereafter for about three hundred and

nineteen days. The learned Judge of the trial Court therefore misdirected

herself in proceeding on this basis and the findings recorded in that regard

in the impugned judgment cannot be sustained. Point (c) is answered

FA956.13(j) 50/55

accordingly.

32. Bar of limitation :

According to the defendants after Writ Petition No.2059/2003

was dismissed, communication dated 30.12.2003-Exhibit 48 issued to the

plaintiff calling upon it to extend the validity of its offer. The plaintiff on

16.01.2004-Exhibit 59 did not agree to this request made by the

defendants. On 07.04.2004-Exhibit 64 the defendants took the stand that

as no agreement had been entered into with the plaintiff and no work

order had been issued, there was no question of permitting the plaintiff to

go ahead with the work in question. This according to the defendants

gave a cause of action to the plaintiff to seek legal redress against the

defendants. The cause of action accrued on 07.04.2004 and as the suit

was filed on 19.06.2009 it was urged that it was filed beyond the

prescribed period of limitation. On the other hand, according to the

plaintiff despite the stand taken on 07.04.2004 that no agreement had

been entered into between the parties and there was no work order

issued, the plaintiff on 10.01.2006-Exhibit 68 had informed the

defendants that on account of mobilisation of the plant, machinery and

labour which were thereafter required to be kept idle, there was a breach

of contract on the part of the defendants and a claim of Rs.3,26,00,000/-

came to be made by the plaintiff. This demand came to be reiterated in

FA956.13(j) 51/55

the letter dated 08.06.2006-Exhibit 69 issued by the plaintiff. The third

defendant on 20.06.2006-Exhibit 70 informed the plaintiff that the claim

made by the plaintiff was under consideration of the Office of the

Executive Engineer, Akola. Similarly the proposal in that regard had been

sent to the superior authorities and if a positive response was received,

the claim would be considered. It was further stated that if any dues were

found payable by the Office of the Executive Engineer, the same would be

accordingly informed and complied with. This communication, according

to the plaintiff, amounted to an acknowledgment of liability in writing as

contemplated by Section 18 of the Act of 1963 and thus the fresh period of

limitation ought to be computed from 20.06.2006. On that count the suit

as filed on 19.06.2009 was within limitation according to the plaintiff.

33. It is true that the defendants on 07.04.2004-Exhibit 64 had

taken a stand that in the absence of any agreement between the parties

and there being no work order issued in favour of the plaintiff the cause of

action accrued in favour of the plaintiff for seeking compensation on

account of the alleged loss incurred by it pursuant to the steps stated to be

taken by it from 27.05.2003 onwards. However prior to expiry of the

period of limitation of three years from 07.04.2004, the third defendant

on 20.06.2006-Exhibit 70 informed the plaintiff that the claim made by it

for being compensated on account of the loss sustained by it due to

FA956.13(j) 52/55

deployment of its plant, machinery and labour at site was under

consideration coupled with an assurance that if anything was found due

the plaintiff would be informed and the needful would be done. This

communication issued by the third defendant in clear terms expresses an

intention to pay the plaintiff any amount found due to the plaintiff. In

other words it would amount to an acknowledgment of liability as

contemplated by Section 18 of the Act of 1963. In this regard,

useful reference may be made to the following observations in

the case of J.C.Budhraja Vs. Chairman, Orissa Mining Corporation Ltd .,

2008 (3) Mh L J 33 (S.C.)

"18. It is now well settled that a writing to be an acknowledgment of liability must involve an admission of a subsisting jural relationship between the parties and a conscious affirmation of an intention of continuing such relationship in regard to an existing liability. The admission need not be in regard to any precise amount nor by expressed words. If a defendant writes to the plaintiff requesting him to send his claim for verification and payment, it amounts to an acknowledgment. But if the defendant merely says, without admitting liability, it would like to examine the claim or the accounts, it may not amount to acknowledgment. In other words, a writing, to be treated as an acknowledgment of liability should consciously admit his liability to pay or admit his intention to pay the debt."

34. Complete reading of the communication dated 20.06.2006-

Exhibit 70 clearly reflects the intention of the defendants that if any claim

was found due and payable to the plaintiff the same would be duly paid

FA956.13(j) 53/55

by them. No doubt, the third defendant had also stated that the claim was

under consideration of the superior authorities but at the same time the

third defendant also stated that if any amount was found due by its office,

necessary compliance would be made and the plaintiff would be informed

accordingly. As held in Shapoor Freedom Mazda and M/s. Lakshmirattan

Cotton Mills Co.Ltd. (supra) the intention to admit jural relationship can

be inferred by implication from the nature of admissions and surrounding

circumstances. A liberal construction of the statement in question is

required to be given. The other decisions relied upon by the learned

Senior Advocate for the plaintiff in this regard also support his contention

that by virtue of the communication dated 20.06.2006-Exhibit 70, the

defendants expressed their intention to pay the plaintiff any amount

found due. Thus by virtue of the provisions of Section 18 of the Act of

1963 that communication amounted to an acknowledgment of liability in

writing. Though initially the cause of action for seeking compensation for

the alleged losses arose on 07.04.2004-Exhibit 64, prior to the expiry of

limitation of three years the third defendant on 20.06.2006-Exhibit 70

expressed an intention to pay the plaintiff any amount if found due. By

virtue of this communication the fresh period of limitation was required to

be computed from 20.06.2006-Exhibit 70. Ultimately on 21.02.2008-

Exhibit 73 the third defendant informed the plaintiff that in the absence of

any written agreement between the parties it would not be possible to

FA956.13(j) 54/55

take any joint inventory as requested. Thus the suit as filed on

19.06.2009 is within three years thereof. We therefore hold that the suit

as filed is within limitation and the finding in that regard recorded by the

trial Court is upheld. Point (d) stands answered accordingly.

35. We thus conclude by holding that pursuant to the bid

submitted by the plaintiff which was accepted by the defendants on

12.05.2003-Exhibit 46 there was a concluded contract between the

parties. However before the work order could be issued to the plaintiff,

the High Court in Writ Petition No.2059/2003 preferred by an

unsuccessful bidder restrained the defendants on 15.05.2003 from issuing

the work order to the plaintiff. That writ petition was ultimately disposed

of on 10.12.2003. As a result of the ad-interim order of restraint the

contract between the parties stood frustrated especially when the rates

quoted by the plaintiff were to be operative for a period of one hundred

and twenty days from opening of the bid. In the absence of any written

instructions being issued to the plaintiff under Clause 45 of the tender

notice, it was not justified in seeking to mobilise its plant, machinery and

labour at the site. Though the suit for recovery of the amount of loss

sustained by the plaintiff for breach of the contract was filed within

limitation, the plaintiff is not entitled to succeed as the contract itself was

frustrated, there was no breach committed by the defendants and

FA956.13(j) 55/55

mobilisation of plant, machinery and labour by the plaintiff as alleged was

in breach of the tender conditions.

As a sequel to the aforesaid, the judgment of the trial Court

cannot be sustained and it is accordingly set aside. The suit filed by the

plaintiff stands dismissed. The First Appeal is allowed leaving the parties

to bear their own costs.

The amount deposited by the appellants pursuant to the order

dated 19.12.2012 is permitted to be withdrawn by the appellants with

accrued interest.

[




                        JUDGE                            JUDGE




Andurkar..