ivil Appeal Nos
483 and 1769 of 1969
Appeal from the Judgment and Order dated 910 9 1968 of the Bombay High Court in First Appeal Nos
844 of 1961 and 245 of 1962
M C Bhandare J section Sinha and K J John for the Appellants
R H Dhebar B V Desai and M N Shroff for the Respondent
The Judgment of the Court was delivered by TULZAPURKAR J
These appeals by certificate of fitness granted by the High Court of Judicature at Bombay are directed against that Court s common judgment and decree dated September 910 1968 passed in two cross appeals being First Appeal Nos
245 of 1962 and 844 of 1961
1149 A contract for the construction of an aqueduct across the Alandi River at Mile No 2 of the Nasik Left Bank Canal of the total value of Rs 107000 was granted to the appellant plaintiff originally a partnership but later a proprietary firm of contractors by the respondent defendant the State of Maharashtra after the former s tender was accepted on June 17 1955
On July 2 1955 the Executive Engineer issued the work order to the appellant plaintiff directing him to commence the work by July 5 1955 intimating in clear terms that the stipulated date for starting the work would be reckoned from July 5 1955
The formal regular Contract in prescribed From B 21 of 1955 56 exhibit 34 containing the terms and conditions as well as the Schedules specifications etc
was executed by the parties on July 12 1955
A security deposit of Rs 4936 was kept by the appellant plaintiff with the respondent defendant
The period for completion of work was fixed as 12 months from the date stipulated for commencement of the work that is to say it was expected to be completed on or before July 4 1956
It appears that on the ground that the appellant plaintiff had not completed the work as expected within the stipulated time the Executive Engineer by his letter dated August 27 1956 exhibit 78 rescinded the said contract with effect from August 16 1956
After serving a notice under section 80 of the Civil Procedure Code the appellant plaintiff filed a suit being Special Civil Suit No 23 of 1959 on August 28 1959 in the Court of the Joint Civil Judge Senior Division Nasik making a claim for Rs 65000 in the aggregate against the respondent defendant alleging wrongful and illegal recision of the contract on the part of the respondent defendant
The appellant plaintiff s case was that the initial fixation of July 5 1955 as the date for commencement of the work was nominal that the area where the work was to be done had usually heavy rainfall rendering it impossible to carry out any work from July to November and that therefore it was the practice of the Public Works Department to deduct the period of monsoon in case of such type of works and that the appellant plaintiff had been orally informed that this period would be deducted or not taken into account for calculating the period of 12 months under the contract and that on this assurance he had commenced the work towards the end of December 1955
His case further was that in any event time was not of the essence of the contract that on account of several difficulties such as excessive rains lack of proper road and means of approach to the site rejection of materials on improper grounds by Government Officers etc over which he had no control the completion of the work was delayed and that the extension of the time which was permissible under the contract had been wrongfully refused by the officers of the respondent defendant
Ac 1150 cording to him none of these factors had been taken into account by the Government while refusing the extension and the contract was wrongfully rescinded and therefore the respondent defendant was liable in damages
The total claim of Rs 65000 comprised six items 1 Rs 4936 being the amount of security deposit wrongfully forfeited by the respondent defendant 2 Rs 10254 being the amount due to him for the actual work done by him under Bill No 1253 dated September 20 1956 and which had not been paid for 3 Rs 7375 being the value of the material collected by him on the site for work but which had been rendered useless on account of wrongful recision the 4th and 5th items sounded in damages while the last item was interest from date of recision to the date of the suit
The State of Maharashtra resisted the claim contending that time was of the essence of the contract that the date fixed for commencement was real and not nominal and the 12 months period was fixed after all aspects of the matter had been taken into account it was further contended that the appellant plaintiff knew the situation of the site and the so called difficulties that there was no excuse for him for not doing the work during the months of July to November that the appellant plaintiff failed to carry out the proportionate work during the periods fixed in the contract and that since the appellant plaintiff had rendered himself incompetent to complete the work in proper time it had to rescind the contract and the recision was proper and for adequate reasons it was further contended that the State was entitled to forfeit the security deposit which it did on the date when the contract was rescinded
The several items claimed by the appellant plaintiff were denied by the State
It was denied that the material of the value of Rs 7375 remained on the site or that it was responsible for its non removal from the site
Regarding items 4 and 5 the State denied its liability to pay the same as it was the appellant plaintiff who had committed the breach of the contract
As regards the amount due under Bill No 1253 dated September 20 1956 for the actual work done it was contended that the State had to deduct the amount of penalty leviable under the contract and for the actual cement supplied to the appellant plaintiff and after making deductions in that behalf only a sum of Rs 700 would be due to the appellant plaintiff
On a consideration of the documentary evidence including the terms and conditions of the contract exhibit 34 and the oral evidence led by the parties the learned trial Judge held that the date July 5 1955 fixed as the date for commencement of the work was not nominal but that time was not of the essence of the contract between the 1151 parties that the respondent defendant State Government had wrongfully rescinded the contract that the appellant plaintiff was entitled to damages but that he had not established the two items claimed as damages and he was entitled to a nominal sum of Rs 120 as damages
He further held that since the recision of the contract was wrongful the State was not entitled to forfeit the security deposit nor levy any penalty
He accordingly decreed the appellant plaintiff s claim in respect of refund of security deposits and as regards the amount of Bill No 1253 dated September 20 1956 for actual work done he held that a sum of Rs 5845 only would be due to him after giving credit for Rs 4409 due from the appellant plaintiff to the State
He accordingly decreed the appellant plaintiff s suit to the extent of Rs 10901 with interest thereon at 6 per annum from the date of recision till date of suit and allowed proportionate costs to him
Two appeals were preferred against the aforesaid decree of the trial court one by the appellant plaintiff in respect of the claims that had been disallowed First Appeal No 245 of 1962 and the other by the State in respect of the claims allowed against it First Appeal No 844 of 1961
Curiously enough the High Court did not decide the main issue that arose between the parties namely whether time was of the essence of the contract as it took the view that a decision on that question was really unnecessary for disposal of the appeals
It proceeded to decide the appeals on the assumption that time was not of the essence of the contract by considering the question whether the recision of the contract by the State could be regarded as mala fide or so unreasonable that it must in the place of the judgment of the officers concerned substitute its own judgment and hold that the recision was wrongful
The High Court observed that even the appellant plaintiff had not alleged any mala fide on the part of any of the officers of the State but had pressed into service five or six factors the non consideration whereof by the respondent defendant rendered the recision of the contract arbitrary unreasonable and therefore unjustified
After discussing each one of those five or six factors the High Court held that some of them had not been proved by the appellant plaintiff while others did not head to the inference that the recision of the contract was arbitrary unreasonable or unjustified
It found that by about July 21 1956 vide exhibit Engineer s letter exhibit 74 the appellant plaintiff had done only 13rd of the contract work and that in the circumstances the appellant plaintiff could not have completed the work even within the next three months and therefore the respondent s officers had rightly rescinded the contract and therefore it was the appellant plaintiff and not the respondent defendant who had committed a breach of the contract
However the High Court took the 1152 view that for such breach on the part of the appellant plaintiff the respondent defendant on a reading of the cls
2 and 3 of the Conditions of Contract was not entitled both to levy compensation and also to forfeit the security deposit
Accordingly the High Court upheld the forfeiture of the security deposit made by the respondent defendant and while modifying the trial court s decree it confirmed it only to the extent of Rs 5845  being the amount due to the appellant plaintiff for the work actually done by him under Bill No 1253 and which had not been paid
In the result the appellant plaintiff s appeal was dismissed and that of the State was partly allowed with appropriate order of proportionate costs
In support of the present appeal counsel for the appellant plaintiff raised two or three contentions
In the first place he contended that the High Court was in error in not deciding the main issue whether the time was of the essence of the contract or not  He urged that the said issue could not be avoided in the manner done by the High Court for if time was not of the essence of the contract then just before the expiry of the 12 months  period or immediately after its expiry it was up to the respondent defendant to grant some reasonable time to the appellant plaintiff for completing the work undertaken and make the same the essence of the contract and only if the work was not completed by the appellant plaintiff within that time the contract could have been rescinded on the ground that the appellant plaintiff had committed a breach of a contract
According to him such course of action on the part of the respondent defendant was obligatory when the initial period of 12 months was not of the essence especially when the request of the appellant plaintiff for extension of time was pending before the concerned officers of the Government since before the expiry of the initial period
He contended that instead of adopting the aforesaid course the respondent defendant had without making time of the essence of the contract rescinded the same with effect from August 16 1956 by a letter dated August 27 1956 exhibit 78 which recision must be regarded as wrongful and illegal
Secondly counsel contended that the High Court further erred in considering the question whether the recision of the contract by the State was either mala fide or wholly unreasonable and therefore unjustified
He pointed out it was not the appellant plaintiff s case that the recision was mala fide and according to him the question was not whether the recision of the contract on the part of the respondent defendant was unreasonable and therefore unjustified but whether the respondent defendant was entitled in law to rescind the contract in the manner done when time was not of the essence of the contract
He further urged that the High Court had clearly erred in assuming that the appellant plaintiff 1153 could not have completed the work even within the next three months and therefore the contract was rightly rescinded by the respondent defendant
He however fairly stated that even if this Court held in his favour that the recision was wrongful and therefore the respondent defendant had committed a breach he would merely press for the restoration of the decree passed by the trial Court and not press any other item forming the subject matter of the original claim in the suit
On the other hand counsel for the respondant defendant sought to support the judgment and decree of the High Court on both the grounds first that time was of the essence of the contract having regard to the express provision contained in cl
2 of the Conditions of Contract and therefore on appellant plaintiff s failure to complete the same within the stipulated time the recision of the contract was legal and justified and secondly that even if time was not of the essence of the contract having regard to the circumstances the High Court rightly came to the conclusion that the recision of the contract by the respondent defendant could not be regarded as unreasonable or unjustified and that therefore the appellant plaintiff being in breach the security deposit had been rightly forfeited
The first question that arises for our consideration therefore is whether time was of the essence of the contract that was executed between the parties on July 12 1955 exhibit 34
It cannot be disputed that question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract
The contract in the instant case is for the construction of an aqueduct across the Alandi River at Mile No 2 of the Nasik Left Bank Canal and unquestionably 12 months  period commencing from the date of the commencement of the work had been specified within which the construction had to be completed by the appellant plaintiff
Indisputably in the work order dated July 2 1955 the Executive Engineer had directed the appellant plaintiff to commence the work by July 5 1955 intimating in clear terms that the stipulated date for starting the work would be reckoned from July 5 1955
Both the trial court as well as the High Court have found that mentioning of July 5 1955 as the date for starting the work was not nominal but was real date intended to be acted upon by the parties
It is therefore clear that 12 months  period mentioned for the completion of the work was to expire on July 4 1956
The question is whether this period of 12 months so specified in the contract was of the essence of the contract or not  On the one hand counsel for the appellant plaintiff contended that the contract being analogous to a building contract the period of 12 months would not 1154 ordinarily be of the essence of the contract as the subject matter there of was not such as to make completion to time essential that an agreement to complete it within reasonable time would be implied and that reasonable time for completion would be allowed
On the other hand counsel for the respondent defendant contended that time had been expressly made of the essence of the contract and in that behalf reliance was placed upon cl
2 of the Conditions of Contract where not only time was stated to be of the essence of the contract on the part of the contractor but even for completion of proportionate works specific periods had been specified and therefore the appellant plaintiff s failure to complete the work within the stipulated period entitled the respondent defendant to rescind it
In the latest 4th edn of Halsbury s Laws of England in regard to building and engineering contracts the statement of law is to be found in Vol 4 Para 1179 which runs thus 1179
Where time is of the essence of the contract
The expression time is of the essence means that a breach of the condition as to the time for performance will entitle the innocent party to consider the breach as a repudiation of the contract
Exceptionally the completion of the work by a specified date may be a condition precedent to the contractor s right to claim payment
The parties may expressly provide that time is of the essence of the contract and where there is power to determine the contract on a failure to complete by the specified date the stipulation as to time will be fundamental
Other provisions of the contract may on the construction of the contract exclude an inference that the completion of the works by a particular date is fundamental time is not of the essence where a sum is payable for each week that the work remains incomplete after the date fixed nor where the parties contemplate a postponement of completion
Where time has not been made of the essence of the contract or by reason of waiver the time fixed has ceased to be applicable the employer may by notice fix a reasonable time for the completion of the work and dismiss the contractor on a failure to complete by the date so fixed Emphasis supplied It will be clear from the aforesaid statement of law that even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other 1155 provisions of the contract and such other provisions may on construction of the contract exclude the inference that the completion of the work by a particular date was intended to be fundamental for instance if the contract were to include causes providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract
The emphasised portion of the aforesaid statement of law is based on Lamprell vs Billericay Union Webb vs Hughes and Charles Rickards Ltd vs Oppenheim
It is in light of the aforesaid position in law that we will have to consider the several clauses of the contract exhibit 34 in the case
The material clauses in this behalf are cls
2 and 6 of the Conditions of Contract which run as follows Clause 2 The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be reckoned from the date on which the order to commence work is given to the contractor
The work shall throughout the stipulated period of the contract be proceeded with with all due diligence time being deemed to be of the essence of the contract on the part of the contractor and the contractor shall pay as compensation an amount equal to one per cent or such smaller amount as the Superintending Engineer whose decision in writing shall be final may decide of the amount of the estimated cost of the whole work as shown by the tender for every day that the work remains uncommenced or unfinished after the proper dates
And further to ensure good progress during the execution of the work the contractor shall be bound in all cases in which the time allowed for any work exceeds one month to complete
14 of the work in 14 of the time 12 of the work in 12 of the time 34 of the work in 34 of the time
Clause 6 If the contractor shall desire an extension of the time for completion of the work on the ground of his having been unavoidably hindered in its execution or 1156 on any other ground he shall apply in writing to the Executive Engineer before the expiry of period stipulated in the tender or before expiry of 30 days from the date on which he was hindered as aforesaid or on which the cause for asking for extension occurred whichever is earlier and the Executive Engineer may if in his opinion there are reasonable grounds for granting an extension grant such extension as he thinks necessary or proper
The decision of the Executive Engineer in this matter shall be final
 Two aspects emerge very clearly from the aforesaid two clause
In the first place under cl
6 power was conferred upon the Executive Engineer to grant extension of time for completion of the work on reasonable grounds on an application being made by the contractor appellant plaintiff in that behalf in other words in certain contingencies parties had contemplated that extension of time would be available to the contractor
Such a provision would clearly be inconsistent with parties intending to treat the stipulated period of 12 months in cl 2 as fundamental
Similarly in cl 2 itself provision was made for levying and recovering penaltycompensation from the appellant plaintiff at specified rates during the period the work shall remain unfinished after the expiry of the fixed date
Such provision also excludes the inference that time 12 months period was intended to be of the essence of the contract
Further with regard to the provision that is to be found in cl
2 whereunder a time schedule for proportionate work had been set out namely 14 of the work in 14 of the time 12 of the work in 12 of the time and 34 of the work in 34 of the time the evidence of the Superintending Engineer Pandit DW 1 is very eloquent
In para 13 of his deposition this is what he has stated In the agreement exhibit 31 the rate of work is based on the valuation 14th time mentioned means 14th in 12 months
The suit contract is for Rs 107000 
14th work means the work of about Rs 27000 
It is not possible to do the work of Rs 27000 in 14th time as the days were rainy
This was not reasonable
 The witness in para 12 of his deposition has also given the following admission It is not specifically mentioned in the agreement exhibit 34 that the suit work was urgent and that it was to be completed within 12 months
In this agreement exhibit 34 1157 there are the clauses of imposing a penalty and extension of time Having regard to the aforesaid material on record particularly the clauses in the agreement pertaining to imposition of penalty and extension of time it seems to us clear that time 12 months period was never intended by the parties to be of the essence of the contract
Further from the correspondence on the record particularly the letter exhibit 78 by which the contract was rescinded it does appear that the stipulation of 12 months  period was waived the contractor having been allowed to do some more work after the expiry of the period albeit at his risk by making the recision effective from August 16 1956
Once either of the aforesaid conclusions is reached it would be difficult to accept the High Court s finding that the recision of the contract on the part of the respondent defendant was proper and justified on the basis that the same was neither shown to be mala fide nor unreasonable
It must be observed that it was never the case of the appellant plaintiff that the recision of the contract on the part of the respondent defendant was mala fide
Counsel for the appellant plaintiff further pointed out and in our view rightly that the five or six factors namely 1 the contract having been given at the thresh old of monsoon the period of monsoon 4 months ought not to have been reckoned 2 absence of proper road and approach to the work site during the rainy season and a couple of months thereafter 3 unreasonable rejection by the Government Officers of material brought on the site which material was later on allowed to be used 4 difficulty in procuring labour due to malarious climate at the site 5 delay in issuing quarry permit and 6 extra time taken for doing extra work that was entrusted ought to have been taken into account were put forward by the appellant plaintiff merely for the purpose of showing that the refusal to extend the time by the Superintending Engineer although recommended by the SDO and Executive Engineer was unreasonable and not for showing that the recision of the contract was unreasonable or unjustified
In our view the question would not be whether the recision of the contract was unreasonable and therefore unjustified but whether the recision of the contract in the circumstances of the case was wrongful and illegal
If time was not of the essence of the contract or if the stipulation as to the time fixed for completion had by reason of waiver ceased to be applicable then the only course open to the respondent defendant was to fix some time making it the essence and if within the time so fixed the appellant plaintiff had failed to complete the 1158 work the respondent defendant could have rescinded the contract
The High Court has taken the view that the contract was rightly rescinded by the respondent defendant because by about July 21 1956 vide letter exhibit 74 the appellant plaintiff had done work of the value of Rs 35000 as against the tender value of Rs 107000  that is to say only 13rd of the total work had been completed and therefore even though time was not of the essence of the contract the appellant plaintiff in the circumstances could not have completed the work even within the next three months
In our view this approach adopted by the respondent defendant and upheld by the High Court is not correct
Long before the expiry of the period of 12 months the appellant plaintiff had by his letter dated June 6 1956 exhibit 68 requested for extension of period of completion up to the end of December 1956 this request was repeated by another letter dated June 23 1956 exhibit 69
May be the reasons or grounds on which the request was made may not have appealed to the Superintending Engineer but some reasonable time making it the essence ought to have been granted
In this behalf it may be stated that the SDO by his letter exhibit 69 had recommended extension upto December 1956 as sought while by his letter dated June 23 1956 exhibit 70 addressed to the Superintending Engineer the Executive Engineer had recommended that extension of time up to October 30 1956 may be granted to the appellant plaintiff with clear intimation that if he failed to complete the work by then the maximum penalty allowable under cl 2 namely 10 of the cost of the work will be inflicted on him but the recommendation did not receive approval of the Superintending Engineer
It appears that the appellant plaintiff had an interview with the Superintending Engineer on August 24 1956 when a written representation exhibit 99 was handed over and the whole position was sought to be explained to the Superintending Engineer but within three days of the interview by the letter dated August 27 1956 exhibit 78 the contract was rescinded and the full security deposit was forfeited to Government
It will thus appear clear that though time was not of the essence of the contract the respondent defendant did not fix any further period making time the essence directing the appellant plaintiff to complete the work within such period instead it rescinded the contract straightaway by letter dated August 27 1956
Such recision on the part of the respondent defendant was clearly illegal and wrongful and thereby the respondent defendant committed a breach of contract with the result that there could be no forfeiture of the security deposit
In our view therefore the trial court was right in coming to the conclusion that the appellant plaintiff was entitled to a refund of their full security deposit of Rs 4936 as also 1159 to Rs 5845 being the balance of their Bill No 1253 dated September 20 1956 for work actually done by them and not paid for and nominal damages of Rs 120 
The appellant plaintiff was also entitled to interest on the aforesaid sums and costs of suit as directed by the trial court
In the result we allow the appeal set aside the common judgment and decree in FA No 844 of 1961 passed by the High Court and restore that of the trial court
The appellant plaintiff will get costs of this appeal as also costs of FA No 844 of 1961
The High Court s decree dismissing FA No 245 of 1962 is confirmed
PBR Appeal allowed


Summary:
The appellant entered into a contract with the respondent for the execution of a work the essential term of which was that the contract should be completed in 12 months from the commencement of the work
On the ground that the appellant had not completed the work within the stipulated time the respondent rescinded the contract
In his suit for damages for illegal and wrongful recision of the contract the appellant claimed that the date for commencement of the work was merely nominal and that in any case time was not of the essence of the contract
The appellant also alleged that on account of several difficulties such as excessive rains in the area lack of proper road and means of approach to the site rejection of materials on improper grounds by the Government officers completion of the work was delayed extension of time was wrongfully refused by the officers of the Government and that none of these factors had been taken into account by the Government while refusing to give extension of time and in ultimately rescinding the contract
Holding that time was not of the essence of the contract the trial Court decreed the suit but disallowed certain claims of the appellant
On appeal by both sides the High Court without deciding the question whether time was of the essence of the contract held that the recision of the contract was not arbitrary and unreasonable or unjustified
On further appeal to this Court it was contended on behalf of the appellant that i the High Court was in error in not deciding the main question whether or not time was essence of the contract and ii it was not the appellant s case that the recision was mala fide and that therefore the High Court erred in considering that question
Allowing the appeal  HELD The question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract
Even where the parties have expressly provided that time is of the essence of the contract such stipulation would have to be read alongwith other provisions of the contract and such other provisions may on construction of the contract exclude the inference that the completion of the work by a particular date was intended to be fundamental
For instance if the contract were to include clauses providing 1148 for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clause would be construed as rendering ineffective the express provision relating to the time being of the essence of the contract
1155A B Halsbury s Laws of England Vol
4 p 1174 referred to
i In the instant case having regard to the terms of the contract particularly the clauses pertaining to the imposition of penalty and extension of time time was never intended by the parties to be of the essence of the contract
The letter by which the contract was rescinded clearly waived the stipulation of 12 months  period the contractor having been allowed to do some more work after the expiry of the period
1157B ii The approach adopted by the respondent and upheld by the High Court was not correct
Long before the expiry of the period of 12 months the appellant had requested for extention of the period of completion
Even if the grounds made out by the appellant were not agreeable to the Superintending Engineer some reasonable time making it the essence of the contract ought to have been granted
Instead of making time of the essence at some stage or the other the respondent rescinded the contract which was clearly illegal and wrongful
1158C iii It was never the case of the appellant that the recision of the contract was mala fide
The various reasons given by the appellant for delay in executing the work were put forward merely for showing that the refusal to extend time by the Superintending Engineer was unreasonable or unjustified
The question was not whether the recision of the contract was unreasonable and therefore unjustified but whether the recision was wrongful and illegal
If time was not of the essence or if the stipulation as to the time fixed for completion had by reason of the waiver ceased to be applicable then the only course open to the respondent was to fix some time making it the essence and if within the time so fixed the appellant had failed to complete the work the respondent could have rescinded the contract
1157D G