Civil Appeal No 2010 of 1969
From the Judgment and Decree dt
11 7 68 of the Bombay High Court in Appeal No 534 of 1960
Girish Chandra and M N Shroff for the appellant
A G Ratnaparkhi for the respondent
The Judgment of the Court was delivered by KOSHAL J
The facts giving rise to this appeal by the two defendants who are the State of Maharashtra and one of its Executive Engineers on certificate granted by the High Court of Bombay against its judgment dated 11th July 1968 may be briefly stated
In the year 1955 defendant No 1 decided to construct an aqueduct over Kulthi Nala situated in Malegaon Sub Division of Nasik district
The Executive Engineer Nasik Irrigation Division invited tenders for the work which was entrusted to the plaintiff in acceptance of his tender on conditions reduced to writing in the form of exhibit 66
The estimated cost of the work was Rs 15585400 and it was to be completed within 12 months from the date of the written order to commence it which happened to be the 16th of May 1955
The plaintiff paid a sum of Rs 1558 as earnest money and another of Rs 3896 as security deposit to defendant No 1
Clauses 2 and 3 of the contract in accordance with which the work was to be executed provided as follows 2 The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor xx xx The work shall throughout the stipulated period of the contract be proceeded 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 xx xx xx may decide xx 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 190 in 14 of time 110 of the work in 12 of time 410 of the work in 34 of time 810 of the work xx xx xx xx xx xx 3 In any case in which under any clause or clauses of this contract the contractor shall have rendered himself liable to pay compensation amounting to the whole of his security deposit xx xx xx xx or in the case of abandonment of the work owing to serious illness or death of the contractor or any other cause the Executive Engineer xx xx xx shall have power to adopt any of the following courses a to rescind the contract of which rescission notice in writing to the contractor under the hand of the Executive Engineer shall be conclusive evidence and in that case the security deposit of the contractor shall stand forfeited and be absolutely at the disposal of the Government
b xx xx xx xx xx xx c xx xx xx xx xx xx In the event of any of the above courses being adopted by the Executive Engineer the contractor shall have no claim to compensation for any loss sustained by him
 Clauses 4 and 5 of the contract related to action to be taken when the progress of any particular portion of the work was found unsatisfactory
Provision was made in the contract for interim payments of running bills submitted by the plaintiff and for final payment to him against a certificate of completion of the work
Clause 6 of the contract provided for extension of time during which the work was to be completed in pursuance of applications to be made by the plaintiff
A provision was made in clause 14 of the contract for extension of time as a consequence of additions to or alteration in the work
The plaintiff started executing the work and by December 1955 running payments amounting to Rs 13967 in all had been made to him against bills submitted by him
In the month of March 1956 Shri Y A Shinde defendant No 2 came to occupy the post of Executive Engineer in Nasik Irrigation Division and called upon the plaintiff to speed up the execution of the work as the progress thereof was not satisfactory
However the work continued to be executed at a snail s pace and on May 9 1956 the plaintiff made an application 191 exhibit 54 for extension of the time fixed for completion of the work by a period of six months
That application was rejected by defendant No 2 who informed the plaintiff accordingly through a letter dated June 15 1956 exhibit 55 which stated inter alia that the reasons put forth by the plaintiff for extension of the time limit were not convincing that the application had not been received within the time prescribed in that behalf by clause 6 of the contract and that the proportion of the work executed did not conform to the condition contained in clause 2 of the contract the value of the work executed till then being only Rs 25000 
The letter further informed the plaintiff that he had become liable to pay compensation under clause 2 of the contract and called upon him to show cause why action should not be taken against him under clause 3 thereof
Ultimately by letter dated October 30 1956 exhibit 48 the plaintiff was informed that it had been decided to burden him with compensation at the rate of Rs 5 per day for the entire period commencing on the 16th of May 1956 and ending with the completion of the work and that if the plaintiff failed to show satisfactory progress within a month of the date of the letter defendant No 2 would be compelled to increase the rate of compensation and take suitable penal action against the plaintiff
The work not having made much progress and the plaintiff having stopped its execution he was informed by a letter dated January 17 1957 exhibit 49 that the contract stood rescinded under clause 3 thereof
The defendants also forfeited the security deposit which had by then swelled presumably on account of the addition of interest to Rs 4679 although this amount has been erroneously described by the High Court as consisting of the earnest money of Rs 1558 and the security deposit of Rs 3896 
In his suit the plaintiff claimed a refund of the said amount of Rs 4679  another sum of Rs 2500 on account of the balance due to him for part execution of the work and still another sum of Rs 4000 by way of damages
The trial court found that the plaintiff had failed to prove that any sum was due to him for execution of the work or by way of damages but further held that the forfeiture of the security deposit was illegal
It therefore granted a decree to the plaintiff for the sum of Rs 4679 only with interest at 3 per cent per annum from the date of the suit till realisation and also proportionate costs of the suit
Aggrieved by the decree passed by the trial court the defendants went up in appeal to the High Court and the plaintiff filed his cross objections to the decree appealed from which was maintained by the 192 High Court in its entirety
The High Court agreed with the findings of the trial court and on the question of rescission of the contract observed as follows In our view in law the contract could not be rescinded subsequent to the expiry of the due date for the performance thereof
The right to rescind a contract is the right to put it to an end and such right cannot exist after due date for the performance expires
The right to rescind the contract is the right to accept anticipatory breach thereof by the promissor ie prior to the expiry of the date of the performance of the contract
This right arises in favour of the promisee under section 39 of the Contract Act
A contract cannot be abandoned by either side either by a promissor or a promisee after the expiry of the due date for performance thereof
For the above reasons in our view the abandonment of the work of the contract as mentioned in sub clause a of the clause relate to anticipatory breach of the contract by the contractor before the due date for the performance thereof
In this case the Executive Engineer purported to rescind the contract which had become dead some time in August 1956
He purported to do so on the ground that the contractor had abandoned the contract some time in October 1956
The Executive Engineer in our view had no power under clause 3 to rescind the contract having regard to the facts and circumstances which we have already pointed out above
The forfeiture of the security deposit on the footing that the contract was validly rescinded must be held to be unjustified and untenable
 It was on the basis of this conclusion that the trial court s decree for Rs 4679 passed in favour of the plaintiff was affirmed
On the 9th of June 1969 however the High Court certified the case to be a fit one for appeal by the defendants to the Supreme Court under sub clause c of clause 1 of article 133 of the Constitution of India
At that stage defendant No 1 agreed to pay the costs of the respondent in the proceedings before the Supreme Court
Learned counsel for the appellants has challenged the correctness of the observations made by the High Court and reproduced above
Those observations according to him run counter to the tenor of clauses 2 and 3 of the contract governing the execution of the work and we are of the opinion that his criticism thereof is justified
Although in clause 2 of the contract it was specifically mentioned that time was of the essence of the agreement between the parties all 193 that was meant was that in case the work was not completed within the time originally specified in that behalf the plaintiff would be liable to pay such compensation for delay in execution as was fixed by the Superintending Engineer within the limits laid down in the clause
This becomes clear not only from the provision appearing in clause 2 and stating that the contractor shall pay as compensation an amount equal to 1 per cent or such smaller amount as the Superintending Engineer may decide for every day that the work remains uncommenced or unfinished after the proper dates but also from the contents of clause 3 of the contract which would become operative only if the plaintiff renders himself liable to pay compensation in accordance with clause 2 or abandons the work either on account of serious illness or death or for any other cause and it is then that the contract would become liable to rescission
Clauses 2 and 3 have to be read together and interpreted with reference to each other and their provisions read as one single whole clearly mean that the contract was to continue to be in force till the completion of the work or its abandonment
The time was of the essence of the contract only in the sense that if the plaintiff completed it within the original period of one year he would not be liable to pay any compensation but that in case he overstepped the said time limit he would have to compensate the defendants for every day of the delay in completing the work and that the right to rescission would accrue to the defendant No 2 only when the compensation due exceeded the amount of the security deposit or the plaintiff abandoned the work
Till the time the contract was rescinded therefore it was fully in force and the rescission was consequently well founded being squarely covered by clause 3 of the contract sub clause a of which conferred on the Executive Engineer the right to forfeit the security deposit Far from being illegal the forfeiture was fully justified and the High Court s finding to the contrary is liable to be reversed
In the result the appeal succeeds and is accepted the decree of the High Court is set aside and the suit of the plaintiff is dismissed in its entirety
In accordance with the undertaking given by defendant No 1 on the 9th June 1969 to the High Court when it certified the case to be a fit one for appeal to this Court the plaintiff shall be entitled to the costs incurred by him in this Court
In respect of costs in the two courts below we make no order
PBR Appeal allowed


Summary:
Clause 2 of a works contract entered into by the plaintiff respondent with the defendant appellant stipulated that time was of the essence of the contract that time of one year allowed for carrying out the work shall be strictly observed by the contractor and that the contractor shall pay compensation at a certain percentage for every day when the work remained unfinished after the proper dates
One of the three courses open to the defendant under cl
3 was to rescind the contract in case the contractor rendered himself liable to pay compensation or abandoned the work owing to serious illness or death of the contractor or any other cause and in that event security deposit of the contractor was to stand forfeited
It was also provided in that clause that in the event of any of the above courses being adopted by the defendant the contractor shall have no claim to compensation for any loss sustained by him
The work remained unfinished beyond the stipulated time
The defendant rejected the contractor s request for extension of time and eventually rescinded the contract under cl
3 and forfeited the security deposit
In the plaintiff s suit for refund of security deposit and payment of certain other sums the trial court holding that the forfeiture of security deposit was legal granted a decree for its refund
On appeal the High Court held that the right to rescind a contract being a right to put an end to it it could not exist after the date for its performance had expired and that in this case the right of rescission having been exercised after the expiry of the date of contract the impugned action of the defendant in rescinding the contract was unjustified
Allowing the appeal  HELD 1
The rescission of the contract was well founded and the forfeiture of the security deposit was justified
193 F 2
Although cl
2 specifically mentioned that time was of the essence of the contract all that was meant was that in case the work was not completed within the originally specified time the plaintiff would be liable to pay such compensation for delay in execution as was fixed within the limits of that clause
This is clear not only from clause 2 but also from clause 3
These two clauses must be read together
So read the contract was to continue to be in force till the completion of the work or its abandonment
Time was of the essence only in the sense that if the plaintiff completed it within the original period of one year he would not be liable to pay any compensation but in case he overstepped that limit he would have to compensate for every day of delay and that the right 189 to rescission would accrue only when compensation due exceeded the amount of the security deposit or the plaintiff abandoned the work
Till the time it was rescined the contract was in force
193 A C