Case: Mahanadi Coalfields Ltd.  Vs. Dhansar Engineering Company Pvt.Ltd.&amp;Anr

of the contract (extended) period.23. In our opinion, clause 5 did not prohibit the principal (appellants) to allot upto extra 30% quantity of work, for want of 45 clear days of subsisting contract period. Whereas, that option could be exercised by the appellants at any time until the contract period was subsisting, which in this case was until 15th July 2004. In the present case, such notice regarding increase of work upto 30% permissible under clause 5 of the agreement, was given on 11th June 2004. On this finding, it must follow that the respondents committed breach of their contractual obligation, in not completing the balance work out of 130% of work (i.e. 130 - 108.47%). To that extent the respondents became liable to compensate the appellants including by way of penalty and in particular towards the financial loss caused to the appellants due to assigning the unfinished work to a third agency (contractor) at a higher rate. The amount demanded by the appellants includes the difference of contractual rate and the actual loss suffered by the appellants for completing the unfinished work through a third agency (contractor) at a higher rate, as is noticed from the communication dated 8th December 2004 sent to the respondents.24. The respondents, would then contend that, the appellants without giving any opportunity to the respondents unilaterally imposed penalty and despite the noting of the General Manager that there was no loss of production to the appellants. Similarly, a doubt was expressed by the Project Officer regarding giving extra work to the respondents at the fag end of the contract period. The respondents have relied on the decision of this Court in Maula Bux vs. Union of India (1969) 2 SCC 554 ), in which it has been held that “where a sum is named in the contract in the nature of a penalty, where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by it.” It is, however, indisputable that financial loss was suffered by the appellants on account of assigning the unfinished work to a third agency (contractor) at a higher rate. In that, the contract rate for the same work to be done by the respondents would have been at Rs. 17/- per cubic meter, which the appellants were required to get it executed at the rate of Rs. 31.50 per cubic meter through a third agency. The fact that no loss of production was suffered by the appellants cannot relieve the respondents of that liability. It is a different matter that the respondents were not put to notice before the final decision was taken by the appellants to recover the financial loss along with penalty. The respondents could have approached the appellants for reconsideration of their demand towards penalty, in terms of Clause 30.3 of the contract; and persuade the appellants to waive the penalty amount to be recovered from them. The respondents, however, chose to straightway approach the High Court by way of Writ Petition. Notably, the High Court has not set aside the penalty amount as such, but the entire demand being impermissible. Since we have reversed the findings and conclusion of the High Court and even if this appeal succeeds, the respondents can be granted an opportunity to make a representation to the Appellants - company, who in turn can deal with the same in accordance with law. If the appellants accept the claim of the respondents about the unjustness of penalty or quantum thereof, they would be free to withdraw or modify their claim for recovery of penalty amount, if so advised. In the event, the appellants reject the representation, they will be free to recover the amount as demanded towards penalty along with interest accrued thereon, as may be permissible in law. However, that would not absolve the respondents from the financial liability arising due to difference of rate of contract and the actual cost incurred by the appellants to complete the unfinished work out of 130% of the contract quantity, through a third agency at a higher rate. That can be recovered by the appellants from the respondents along with interest accrued thereon at such rate, as may be permissible in law, even if the representation made by the respondents for recall or modification of the penalty amount is pending consideration. Considering the above, it is not necessary for us to burden this judgment with the contention of the respondents that the penalty imposed without any notice or hearing to the respondents is vitiated; as also the decisions relied in support of that contention in the case of Gorkha Security Services vs. Government (NCT of Delhi) & Ors. (2014) 9 SCC 105 )and Kumari Shrilekha Vidyarthi & Ors vs. State of U.P. (1991) 1 SCC 212 )25. Similarly, it is not necessary for us to burden this judgment with the decisions relied on by the respondents, to contend that existence of alternative remedy is no bar to entertain a Writ Petition under Article 226 of the Constitution of India, as held in the cases of Popcorn Enterainment vs. City Development Corporation (2007) 9 SCC 593 ), Harbanslal Sahnia & Anr. vs. Indian Oil Corporation Ltd. & Ors. (2003) 2 SCC 107 ), Union of India & Ors. vs. Tantia Construction Pvt. Ltd. (2011)5 SCC 697) , M.P. State Agro Industries Development Corpn. & Anr. Vs. Jahan Khan (2007) 10 SCC 88 )and Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai (1998) 8 SCC 1 ). For, we have already examined the merits of the controversy and more so granted liberty to the respondents to make representation to the appellants on the question of justness of the demand towards penalty or the quantum thereof. It will be open to the respondents to pursue remedy in that behalf, as may be permissible in law. We are not expressing any opinion one way or the other on the issue of penalty amount. All questions in that behalf are left open.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]23. In our opinion, clause 5 did not prohibit the principal (appellants) to allot upto extra 30% quantity of work, for want of 45 clear days of subsisting contract period. Whereas, that option could be exercised by the appellants at any time until the contract period was subsisting, which in this case was until 15th July 2004. In the present case, such notice regarding increase of work upto 30% permissible under clause 5 of the agreement, was given on 11th June 2004. On this finding, it must follow that the respondents committed breach of their contractual obligation, in not completing the balance work out of 130% of work (i.e. 130 - 108.47%). To that extent the respondents became liable to compensate the appellants including by way of penalty and in particular towards the financial loss caused to the appellants due to assigning the unfinished work to a third agency (contractor) at a higher rate. The amount demanded by the appellants includes the difference of contractual rate and the actual loss suffered by the appellants for completing the unfinished work through a third agency (contractor) at a higher rate, as is noticed from the communication dated 8th December 2004 sent to thefact that no loss of production was suffered by the appellants cannot relieve the respondents of that liability. It is a different matter that the respondents were not put to notice before the final decision was taken by the appellants to recover the financial loss along with penalty. The respondents could have approached the appellants for reconsideration of their demand towards penalty, in terms of Clause 30.3 of the contract; and persuade the appellants to waive the penalty amount to be recovered from them. The respondents, however, chose to straightway approach the High Court by way of Writ Petition. Notably, the High Court has not set aside the penalty amount as such, but the entire demand being impermissible. Since we have reversed the findings and conclusion of the High Court and even if this appeal succeeds, the respondents can be granted an opportunity to make a representation to the Appellants - company, who in turn can deal with the same in accordance with law. If the appellants accept the claim of the respondents about the unjustness of penalty or quantum thereof, they would be free to withdraw or modify their claim for recovery of penalty amount, if so advised. In the event, the appellants reject the representation, they will be free to recover the amount as demanded towards penalty along with interest accrued thereon, as may be permissible in law. However, that would not absolve the respondents from the financial liability arising due to difference of rate of contract and the actual cost incurred by the appellants to complete the unfinished work out of 130% of the contract quantity, through a third agency at a higher rate. That can be recovered by the appellants from the respondents along with interest accrued thereon at such rate, as may be permissible in law, even if the representation made by the respondents for recall or modification of the penalty amount is pending consideration. Considering the above, it is not necessary for us to burden this judgment with the contention of the respondents that the penalty imposed without any notice or hearing to the respondents ishave already examined the merits of the controversy and more so granted liberty to the respondents to make representation to the appellants on the question of justness of the demand towards penalty or the quantum thereof. It will be open to the respondents to pursue remedy in that behalf, as may be permissible in law. We are not expressing any opinion one way or the other on the issue of penalty amount. All questions in that behalf are left