MAHANADI COALFIELDS LTD. & ORS. versus M/S. DHANSAR ENGINEERING CO. PVT. LTD. & ANR.
[2016] 7 S.C.R. 127, Supreme Court of India, 2016
Outcome: Case Partly allowed (Granted)
Segment: Ratio
[2016] 7 S.C.R. 127 
MAHANADI COALFIELDS LTD. & ORS. 
v. 
MIS. DHANSAR ENGINEERING CO. PVT. LTD. & ANR. 
(Civil Appeal No. 9732of2016) 
SEPTEMBER 27, 2016 
[T. S. THAKUR, CJI AND A. M. KHANWILKAR, J.] 
Contract - Work contract - For extraction and transfer of 
Coal/Coal Measure Strata by deploying surface 111iners - As per 
the terms and conditions of the tender docu111ent as well as the 
agreement, the tender quantity could be reduced or increased by 
30% on the sa111e ter111s and conditions - Ti111e for co111pletion of 
contract work was extended at the request of the contractor - During 
the subsistence of the contract period appellant-company passed 
order for increase of 30% extra quantity - The contractor requested 
the company for closure of contract and informed its intention to 
withdraw fro111 operation after full contract period due to financial 
hardship - The. company therefore gave lhe re111aining work to a 
third party at higher rate - Co111pany i111posed penalty on the 
contractor for non-execution of lhe remaining work - The penalty 
was inclusive of the financial loss incurred by the company due to 
allocation of that work at higher rate - Contractor filed writ petition -
Petition allowed by High Court - On appeal, held: Clause 5 of the 
agreement empoil'ered lhe company to increase or reduce the quantify 
of work by 30%, whilst the contract was subsisting - Therefore, 
obligation of contractor to complete the extra work in ter111s of the 
contract within
the contract period or extended period was 
imperative - Contractor co111mitted breach of contractual obligation 
in not completing the balance work - The contractor is liable to 
compensate for the financial loss suffered by the company in 
assigning the remaining work at higher rate - However, liberty is 
granted to the contractor to make representation to the co111pany 
requesting to waive the penally in terms of the contract. 
Partly allowing the appeal, the Court 
A 
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HELD: 1. Clause 5 of the Contract cannot be read in 
isolation. The other terms and conditions of the contract must be 
read as a whole. Clause 5 of the agreement dated 261h May 2003 
posits authority in the appellants to reduce or increase the 
tendered quantity by +/- 30%, whilst the contract is subsisting. 
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SUPREME COURT REPORTS 
[2016) 7 S.C.R. 
Indisputably, the original contract period was upto IS•h April, 2004. 
At the instance of the respondents, the same stood extended till 
ts•h July 2004. The extra 30% work was allotted to the 
respondents on 11 •h June 2004, before expiry of the extended 
contract period i.e. 151h July 2004. As the contract period was 
extended and that decision was allowed to attain finality, it 
inevitably obliged the respondents to fulfill all the contractual 
stipulations under the original agreement including to complete 
the assigned quantity of work - be it original quantity or extra 
quantity - before tS•h July 2004. The fact that they had to suffer 
financial loss due to low contract rate could not be cited as an 
excuse to extricate from that contractual qbligation. [Para 18] 
J148-F-H; 149-AJ 
2. Failure to comply with the contractual obligation of 
executing the original quantity of work or the extra work, as the 
case may be, must visit the respondents with liability to 
compensate the appellants in terms of other express clauses of 
the contract to the extent of unfinished work and in particular 
the financial loss suffered by the appellants for getting the same 
work executed through a third agency at a higher rate. The fact 
that the respondents executed 108.47% of work before lS'h July 
2004, could be no justification to relieve them of their obligation 
to compensate the appellants with suitable amount for
the 
unfinished contract work (out of 130%). [Para 19) (149-B-C] 
3. It is not correct to say that the extra quantity of work 
could not have been allotted to them, absent 45 clear days notice 
that too at the fag end of the contract period. It is one thing to say 
that the contractor should be given suffieient time to complete 
the extra work commensurate with the extra quantity required 
to be executed by him. However, in law, it is not open to contend 
that even though the contract period is still subsisting, the 
principal (appellants) could not have exercised its option to 
increase the quantity of work to the extent permissible under 
that clause, to be executed by the contractor within the contract 
period. The principal (appellants) could be asked to exercise 
their option to extend the contract period beyond ts•h July, 2004, 
to enable the respondents to complete the unfinished extra work. 
If such request were to be made by the respondents, there would 
have been corresponding obligation on the appellants to extend
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
ENGINEERING CO. PVT. LTD. & ANR. 
the contact period commensurate with the increased quantity of 
work in terms of clause 5 of the agreement. The respondents, 
instead, opted to walk out of the contract for the sole reason that 
the contract rate agreed by them was very low and was causing 
financial loss to them. That can be no just reason to not fulfill 
their contractual obligation. [Para 20] (149-D-G] 
4. Tile stipulation in clause 5 providing for 45 clear days 
notice was not an impediment for the appellants to allot extra 
quantity of work upto 30%, whilst the contract period was 
subsisting.The said stipulation would come into play only if the 
respondents were also called upon to increase the machine 
capacity by upto 30% extra "daily" quantity. In the present case, 
the appellants merely allotted extra 30% quantity without 
requiring the respondents to increase the daily quantity. There 
is markl'd difference between increasing the extra quantity during 
the contract period and that of increasing the extra "daily" 
quantity. [Para 21] [149-H; 150-A-B] 
5. The respondents are not right in contending that the 
appellants-Company had no authority to grant extension of time 
to complete the enhanced quantity. This is evidenct from the other 
contractual terms such as Clause 11.0 - providing for variation in 
the scheduled quantity, extent and rate; Clause 13 - time for 
completion of contract and more particularly Clause
14.0 - for 
extension of date of completion. Clause 14.0 (e) was available 
and ought to have been invoked by the respondents in this 
situation. [Para 22] [150-F-G] 
6. The respor.tlents 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. [Para 23] (151-B-C] 
7. It is 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. 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 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
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. 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. [Para 24] (151-F-H; 
152-A-C] 
Mau/a Bux v. Union ~f India (1969) 2 SCC 554 : 1970 
(1) SCR 928; Gorkha Security Sen1ices " Government 
(NCT of Delhi) & Ors. (2014) 9 SCC 105; Kumari 
Shrilekha Vidyarthi & Ors v. State of U.P. (1991) 1 SCC 
212 : 1990 (1) Suppl. SCR 625 - referred to. 
8. 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. [Para 24] [152-
D-E] 
Popcorn Enterainment vs. 
City Development 
Corporation, (2007) 9 SCC 593; Harbanslal Sahnia 
& Anr. vs. Indian Oil Corporation Ltd. & Ors. (20fl3) 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; Whirlpool Corporation vs. Registrar of Trade 
Marks, Mumbai (1998) 8 SCC 1 - referred to. 
1970 (1) SCR 928 
(2014) 9 sec 105 
Case Law Reference 
referred to 
1990 (1) Suppl. SCR 625 
2007 (3) SCR 17 
referred to 
referred to 
referred to 
referred to 
(2003) 2 sec 101 
Para 24 
Para24 
Para24 
Para 25 
Para 25
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 
131 
ENGINEERING CO. PVT. LTD. 
2011 (5) SCR 397 
2007 (9) SCR 715 
1998 (2) Suppl. SCR 359 
referred to 
referred to 
referred to 
Para 25 
Para 25 
Para 25 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9732 
of2016. 
A 
From the Judgment and Order dated 07.11.2012 of the High Court 
B 
of Orissa, Cuttack in W. P. (C) No. I 093 of 2006. 
Gourab Banerji, Sr. Adv., K. N. Madhusoodhanan KN., T. G. 
Narayanan Nair, S. A. Haseeb, Sahil Tagotra, Advs. for the Appellants. 
Rakesh Dwivedi, Sr. Adv., Arunabh Chowdhury, Anupam Lal Das, 
Vaibhav Tomar, Ms. Shruti Choudhry, Karma Dorjee, Anirudh Singh, 
Ms. Barna) i Chowdhury, Ad vs. for the Respondent. 
The Judgment of the Court was delivered by 
A. M. KHANWILKAR, J. I. Leave granted. 
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2. This appeal challenges the judgment of the Division Bench of 
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the High Court of Orissa at Cuttack dated 71h November 2012 in Writ 
Petition (Civil) No. I 093/2006. 
3. Briefly stated, on 2"d December 2002 the appellants issued notice 
inviting tenders for the work of extraction and transfer of Coal/Coal 
Measure Strata (CMS) by deploying "Surface Miners" on hiring basis 
E 
at various Open Cast Projects, inter-alia, at Lakhanpur. 
The respondents were declared the lowest bidder having quoted 
Rs.17/- per cubic meter for the stated.contract. A letter of intent was 
issued in favour of the respondents on 4•h April,2003 which was accepted 
by the respondents on 141h April, 2003. Work order was
issued in favour 
F 
of the respondents on 23'd April, 2003 and a formal agreement was 
executed between the parties on 26'h May 2003. The relevant clauses 
of the agreement are clauses 2 to 5 which read as under: 
"2) Time shall be considered as one of the essence of the 
contract and the time for the completion e-f the contract shall 
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be counted from 16.04.2003 of from the date of issue of L.O.L 
to which terms the contractor agreed at the time when his 
tender was accepted and the contract shall be completed by 
15. 04.2004 provided, sufficient face is provided by the 
management. 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
A 
3) The ll'ork order has already been issued for a period of 
one year for a quantity of 49,50, 000 Cum. At the rate of 
Rs. 17. 00/Cum. for an amount of Rs. 8,41, 5 0. 000. 00. 
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4) The contractor shall re-deploy the Swface Miner in other 
OCPs as per direction of the Company. 
5) The tendered quantity may be reduced or increased by +/-
30%. No claim shall lie on the company for such variation in 
guantitv whether increase or decrease. The tenderer must be 
in a position to increase the machine capacity upon 30% extra 
daily quantity within 45 days notice." 
(emphasis supplied) 
4. As the agreement refers to the terms and conditions of the 
tender document, we may usefully refer to the relevant clauses therein. 
"11.0 VARIATION IN SCHEDULED QUANTITY EXTENT AND 
RATE 
The quantity given in the "Schedule of Quantity s provisional 
and is meant to indicate the extent of the ll'ork and to provide 
a uniform basis for tendering and any variation either by 
addition or omission shall not vitiate the contract. 
E · 
The tendered quantitv may be reduced or increased by 30%. 
No claim shall be on the company for such variation in 
quantity whether increase or decrease. Tenderer must be in a 
position to increase the machine capacily ll'ilhin 45 davs notice 
to achieve the extra increased quantity. 
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If the additional altered or substituted ll'ork includes any item 
of work for which no "rate is specified in the contract,
"rate" 
for such item shall be determined by the Company 
Headquarters in the following manner:-
The rate shall be derived from the rate for similar or near 
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similar item of work awarded in the Company, or 
The rate shall be derived from contractors rate claimed for 
such item of work supported by analysis of the rate claimed 
by the contractor. The rate to be determined by the Company 
Headquarters as may be considered reasonable taking into 
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account percentage of profit and overhead not exceeding ten
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 
133 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
percent or on the basis of market rate. if any prevailing at the 
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time when work was done. 
However, the Engineer-in-charge shall be at liberty to cancel 
the instruction by giving notice in writing and to arrange to 
carry out the work in such manner as he considers advisable 
under the circumstances. The contractor shall under no 
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circumstances suspend the work in the plea of non-settlement 
of rates. 
The time ofco111pletion of the originally contracted work shall 
be extended/reduced by the Company in lhe proportion that 
the additional/reduced work (in value) hears to the original 
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contracted work (in value). as 111ay be assessed and certified 
by the Engineer-in-charge. 
The company through its Engineer-in-charge or his 
representative, on behalf of the company, shall have power 
to 0111it any part of the work for any other reason and the 
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contractor shall be bound to cany oul the work in accordance 
with the instruction given to Engineer-in-change. No clai111 
for extra chargeslda111ages shall be 111ade by the contractor 
on these grounds. 
/11 the event of any deviation being ordered which in the 
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opinion of the contractor changes radically the original scope 
and nature of the contract, the contractor shall under no 
circu111stances smpend the work, either original or altered or 
substituted and the dispute/disagreement as to the nature of
deviation or the rate to be paid therefore shall be resolved 
separately with the company. 
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13. TIME FOR COMPLETION OF CONTRACT 
Time is the essence of the contract. 
The contractual period of work shall be as specified in 
NIT/LOI Agreement. The work shall be deemed to have 
commenced within 60 days of the issue of Letter of Intent at 
all the places and should be able to execute I 00% of the 
daily awarded quantity fro111 6/th day fro111 the date of issue 
of LOI. 
Agreement should be executed before the release of/", 
on Ale. bill. 
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SUPREME COURT REPORTS 
(2016] 7 S.C.R. 
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For fai/z;re to reach the desired quantity from 61'" day of 
issue of LOI, contractor shall be liable for penalty @ 20% of 
amount for shortfall quantity i.e. (shortfall quantity x awarded 
rate x 20%). 
The contractor must be prepared to work continuously 
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for three shifts a day and all the working days in a yem: 
If the contractor, without valid reason, commits default in 
commencing the execution of the work within 60 days from 
the date of issue of LOI or fails to altain within specified date 
of issue of Letter of Intent, the required quantity to give the 
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ultimate output as per the schedule of quantity, the company 
shall without prejudice to any other right or remedy, be at 
liberty, by giving I 5 days notice in writing to the contractor, 
to forfeit the Earnest Money deposited by him and to terminate 
the contract. 
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· 14.0 EXTENSION OF DATE OF COMPLETION 
On happening of any event causing delay as stated 
hereunder, the contractor shall apply for time extension to 
the CGMIGM of the Area. 
a) Abnormally bad weather 
b) Serous loss or damage by fire 
c) Civil Commotion, strike or lockout affecting execution of 
work 
d) Non-availability of working force or site which is the 
responsibility of the company to supply. 
e) Any other cause which. at the sole discretion of the 
company. is beyond the control of the contractor. 
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The contractor may request the company in writing for
extension of time within I 4 days of happening of such event 
ceasing delay stating the period for which extension is 
desired. the company may. considering the eligibility of the 
request. give a fair and reasonable exte11sion of time of 
completion of the work. Such extension shall be commu11icated 
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MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
135 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
to the contractor, in writing, by the company through the 
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Engineer-in-charge within 1 month of the date of receipt of 
such request. 
30.0 
DEFAULT AND PENALTY 
30.1 LOSS OR DAMAGE 
Any loss or anv expenditure for damages incurred by company 
will be recoverable from the contractor whether fitlly or partly 
if such expenditure for damages have been caused either 
directly or indirectly due to any negligence or failure on the 
part of the contractor. 
30.2. SHORTFALL PENALTY IN MECHANICAL EXCAVATION 
AND LOADING 
The average daily quantity of the quarter shall be worked 
out by dividing the mutually agreed quarterly al/oiled quantity 
by the working days of the quarter, ending on 30'" June, 30'" 
September, 31" December & 31" March Average daily quantity 
of a quarter must conform to average daily quantity of the 
year contractual period. 
In the event of the Contractors failure to comply with the rate 
of rate of progress as per the agreed progress chart the 
contractor shall be liable to pay a penalty on the quantity by 
which the contractor has fallen short from the allotted 
quarterly quantity at the rate of 20% of the awarded rate. 
For failure of produce size coal as per NIT (-JOO 111111 size), 
the contactor shall also be liable for penalty at the rate of 
20% of the awarded rate for such over size quantity. 
The shortfall penalty will be recovered concurrently
from the 
running bill which will be adjusted annually suh}ect to that 
the total penalty is limited to 20% of (Annual Shortfall Quantity 
x Rate). 
30.3 WA/VAL OF PENALTY 
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The company may at its sole discretion waive the pqyment of 
penalty in full or in part in request received from the contractor 
depending the merit o[lhe case if the entire work is completed 
within the date as specified in the contract or within extended 
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136 
SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
A 
period approved without imposing penalty. 
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31.0. SETTLEMENT OF DISPUTE 
Except where otherwise provided for in the contract, all 
questions and disputes relating to meaning of the scope, 
specification and instructions herein before mentioned and 
as to any other question, claim right matter or thing 
whatsoever in any way arising out of or relating to the 
contract, instructions, orders or these conditions or otherwise 
concerning the works or the execution or failure to execute . 
the same whether arising during the progress of the work or 
after the completion or abandonment thereof, shall be referred 
to the Chairman-Cum-Managing Director of the Company or 
any other person authorized by him. 
It is also a terms of the Contract if the contractor (s) do/does 
not make any demand for any claim(s) in writing 90 days of 
receiving the intimation from the company that the bill is ready 
for payment or of the date of receiving payment whichever is 
earlier, the claim of the Contractor(s) will be deemed to have 
been waived and absolutely barred and the Company shall 
be released and discharged of all liabilities under the contract 
in respect of these claims. " 
(emphasis supplied) 
5. The respondents commenced the work of surface miners at 
Lakhanpur and completed around 70% of the awarded quantity by the 
end ofFebruary 2004. Due to financial problems faced by the respondents 
vi de letter dated l 3m
February 2004, they requested the appellants to 
allow them to close the contract by invoking power to reduce the quantity 
by 30% of awarded quantity, under clause 11 of the general terms and 
conditions of the NIT; and to issue fresh tender for the remaining work. 
The appellants did not accede to the said request and informed the 
respondents vide letter dated l 6'h February 2004, stating that the 
agreement is for performing the contract upto 100% of awarded value 
and provision of executing extra 30% quantity on the same terms and 
conditions. The respondents requested the appellants vide letter dated 
9'h May 2004 to extend the time frame for completion of the remaining 
contract 1:1pto l 5'h July 2004 as the contract period was only till I 5'h 
April, 2004. The said letter reads thus:
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 
137 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
ANNEXURE-P8 
A 
DHANSAR ENGINEERING CO. PVT. LTD., 
P.O. Dhansar 
Dhanbad - 828106 (Jharkhand) 
Ph: 0326 - 3071611707 4. 
Fax: 0326 303294 
Ref No. DECO/NIT 27612004 
To 
The chief General Manager 
Lakhanpur Area 
Mahanadi Coalfields Ltd., 
(Throu~h proper channel) 
P. 0. Jorabaga 
Via Be/pahar 
Dist. :Jhars11guda(Orissa) 
Ph.: 066./5 -233222 
SITE 
E-mail- decopl'ci dte. vsnl.net. in 
Date: 09. 05.2004 
Sub: WORK OF EXTRACTION AND TRANSFER OF COAL/ 
COAL MEASURE STRATA BY DEPLOYING SURFACE MINER 
ON HIRING AT LAKHANPUR OCP OF LAKHANPUR AREA 
(NIT - 276) VIDE WORK ORDER NO. MCLICGM/LKPAI 
SO(M)/SUR. MINER/2003-041001 DATED 23.04.2003. 
Dear Sir, 
Management is fully aware that tender rate of Rs. 171-
per Cum for the work is all ti111e low and wholly zmworkable. 
We are working at this rate at a colossal loss. 
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We started the work almost at the approach of monsoon 
on 16. 04.2003 and we could not also speed up progress 
because of transportation restriction between 11.00 A.M & 
4. 00 P.M against heat wave alert and thereafter on-set of G 
heavy rains consequenting upon bad, water-logged & slippery 
road followed by short supply of rakes. With all these 
operational hazards beyond our control, we could acco111plish 
34. 74 Lakhs Cum upto 31.03.2004. 
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SUPREME COURT REPORTS 
[20 ! 6] 7 S.C.R. 
As our financial loss was soaring day by day, we had 
requested for foreclosure of the work after we have completed 
70% of the work but this was not agreed to by GM(TC) vide 
his letter No. 1251 dated 26.03.2004. 
Therefore, being under contractual obligation we had, no 
other alternative but to apply for extension of time upto 
15.07.2004 and would request you to kindly treat the contract 
as closed with the completion of the above mvarded quantity 
as we are ill-afford to bear further loss. 
Thanking You, 
Yours faithft1lly, 
Sdl-
For Dhansar Engineering Co. Pvt. Ltd." 
6. This request of the respondents was considered by the appellants 
in its 681h Meeting of the Board. Extension of three months time was 
granted while reserving the right to impose penalty. The respondents 
were informed accordingly vide letter dated S1h June 2004. As a result of 
this decision, the contract period was extended until IS1h July 2004 on 
the same terms and conditions agreed upon. As the contract period was 
subsisting till J Sth July2004, the appellants issued an approval order dated 
11th June 2004 to increase of 30% extra quantity i.e. 14.8 Lakh cubic 
meter at the existing rate of next tender rate or .whichever is lower, 
amounting to Rs. 252.42 Lakh. The respondents by letter dated J Jth 
June 2004, however, reiterated that the contract be treated as closed -
as they were on the verge of completing the quantity
specified in the 
contract by I S1h June 2004. The said letter reads thus: 
"ANNEXURE-P9 
DHANSAR ENGINEERING CO. PVT. LTD., 
P. 0. Dhansar 
Dhanbad - 828106 (Jharkhand) 
Ph: 0326 - 30716117074. 
Fax: 0326 303294 
Ref No. DECO/NIT 27612004 
P. 0. Jorabaga 
Via Belpahar 
Dist.: Jharsuguda (Orissa) 
Ph.: 06645 -233222 
SITE 
E-mail - decopl0 dte. vsnl. net. in 
Dale: 11.06.2004
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
139 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
To 
• 
A 
The chief General Manager 
Lakhanpur Area 
Mahanadi Coalfields Ltd., 
Sub: NIT NO. 276-EXTRACT/ON AND TRANSFER OF COAL/COAL 
MEASURE STRATA BY DEPLOYING SURFACE MINER ON HR/NG 
B 
BASIS AT LAKHANPUR OCP OF MCL 
Dear Sir, 
We would like to inform you that the order quantity of 49.50 lakh 
Cum is in the verge of completion, and is expected that this quantity 
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will be fully completed by 15.06.2004. 
In this connection kindly refer to our letter No. DECO/NIT -2761 
2004 dated 09. 05.2004 under which we had requested your good-self 
to treat the contract as closed with the completion of the quantity of 
49.50 lakh Cum. In reiterating our request we would inform you that 
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we may be forced to stop the machine as it is giving trouble and we are 
not able to repair the machine for dire scarcity ofjimd 
Thanking You, 
Yours faithfully, 
Sd/-
For Dhansar Engineering Co. Pvt. Ltd. 
E 
Copy to: 
I) The Director (Technical) MCL, Bur/a, 
2) The General Manager, Lakhanpur Area. " 
7. The respondents by another letter dated 61h July 2004 seeking 
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closure of contract due to financial hardship, stated that they were 
withdrawing their operations. The appellants, however, by letter dated 
7•h July 2004 called upon the respondents to continue with the remaining 
work assigned under the contract which was still subsisting; and also 
noted that the respondents had by then
completed only I 05% of the 
contract work out of 130%. The said communication reads thus: 
G 
"ANNEXURE -P12 
"UNDER JURISDICTION OF SAMBALPUR COURT ONLY" 
MAHANADI COALFIELDS LIMITED 
(A SUBSDIARY OF COAL INDIA LIMITED) 
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SUPREME COURT REPORTS 
[2016) 7 S.C.R. 
A 
Corporate Office 
Office o.fthe Chief General Manager 
M.C.l. Complex 
LAKHANPVRAREA 
Jagriti Vihar 
P. 0. bandhabahal - Via: Belpahar 
Bur/a - 768018 
Dist.: Jharsuguda, Pin 768217 
Dist: Sambalpur (Orissa) phone: 33202, STD CODE: 06645 
8 
Ref No. MCLICGMILKPAISO(M)/932 
Dale: 07.07.2004 
To 
Mis Dhansar Engineering Co. pvt. ltd. 
C 
Site Office: P. 0. Jorabaga, Via - Belpahar. 
Dist: Jharsuguda (Orissa) 
Pin: 768217. 
Ref {I) Work order No. MCLICGMLILKPAISOM{M)!Sur Miner/2003-
041001 dated 23. 04.2003 for Exlraction am/Trans.fer of Coal/Coal 
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measure strata by deploying 'Su~(ace Miners" on hiring basis at 
lakhanpur OCP (NIT-276). 
Sub: Contract of Swface Miner work at lakhnapur OCP (under NIT 
No. 276) 
E 
Dear Sir. 
F 
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H 
Kindly re.fer to your letter No. DECO/NJT-27612004 dated 6.07.2004 
on the above subject. 
This is to bring to your notice that as per clause No.2 of the work 
order forming part of the agreemenl the tendered quantity can be 
increased by 30% and no claim shall lie on the company for such 
variation till date only 105% (approx.) of the awarded quantity 
has been executed by you. There is no communication fro111 MCL-
HQ for ftnali:rntion of new contract for the above work till date. 
Jn such condition you are requested to continue your operation of 
surface 111iner at lakhanpur OCP till co111pletion of 30% extra 
quantity. Withdrawal of operations of Swface Miner at this stage 
will seriously affect
dispatch of coal to our Pit head customer 
{OPGC) and other linkage customers earning a bad name to the 
company. 
Thanking You,

MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
141 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
Yours faithfully, 
A 
Copy to: 
SD/-
GENERAL MANAGER 
LAKHANPUR AREA 
The Chairman-cum-Managing Directo1; MCL Buria 
B 
The Director (T), MCL, Bur/a 
The General Manager (TC), MCL HQ, Bur/a 
The Slaff Officer (Mining) LKPA" 
8. The respondents, however, renewed their request to the c 
appcll.1;11' to allow them to close the contract vide letters dated Slh July 
2004 amt 121" July 2004. The respondents finally wrote to the appellants 
on 151" July 2004 which reads thus: 
"ANNEXURE-Pl5 
DHANSAR ENGINEERING CO. PVT. LTD., 
P.O. Dhansar 
Dhanbad- 828106 (Jharkhand) 
Ph: 0326-307161/7074. 
Fax: 0326 303294 
Ref: No. DECO/NIT 276/2004 
Date: 15.07.2004 
To 
The General Manager, 
Lakhanpur Area, MCL, 
SITE 
P.O. Jorabaga 
Via Belpahar 
Dist.: Jharsuguda (Orissa) 
Ph.: 06645 -233222 
E-mail-decopl@dte.vsnl.net.in 
Sub: Closing Down of work of Surface Miner at lakhanpur OCP under 
D 
E 
F 
NITNo.276 
G 
Dear Sir, 
A copy ofour letter No. DECO/NIT/2004 dated 12.07.2004 addressed 
to CMD MCL Burla with copies to D(T) and GM(TC), MCL HQ is 
enclosed herewith for your information. 
H
142 
SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
A 
As notified this is to inform you that we are stopping the work 
and withdrawing from operations at Lakhanpur OCP with effect from 
16.07.2004 (FN). It is not out of place to mention that we had been 
expressing out intention to abandon execution after completing I 00% of 
the work on account ofour un-economical plight out has been continuing 
wit the execution to cooperate with the management to arrange next 
B 
recourse, so as to ensure that the production schedule of Lakhanpur 
c 
D 
E 
F 
G 
H 
OCP does not suffer any set back. 
· 
We could not however elicit any communication to our letters or 
any sympathetic decision from the·management. In the meanwhile the 
contract period also expired by 15.07 .2004. 
In view of the above situation we have no other alternative but to 
withdraw from operation after working the full period of the contract. 
You are therefore requested to kindly take up final measurement as on 
15.07.2004 and finalise the contract. 
Thanking you and assuring you of our best cooperation to all 
time come. 
Copy to: 
Yours faithfully, 
Sci/-
For Dhansar Engineering Co. Pvt. Ltd. 
I. The CMD, MCL, Burla Fax No. 0663 -2432066/2542366 
2. The D(T), MCL, Burla, Fax No. 0663-2542509 
3. TheGM (TC),MCL, Burla, Fax No. 0663-2542629." 
9. As the respondents had already informed the appellants of 
their intention to withdraw from operation after the full contract period, 
a fresh tender process was commenced by the
appellants which 
culminated with a letterofintent in favourofthird party (Sainik Mining 
and Allied Services) but at a higher rate ofRs.31.50 per cubic meter. 
I 0. The bills submitted by the respondents for the work executed 
under the contract dated 26'h May 2003 were considered by the Board 
of the appellants in its 72"d meeting. The decision taken in the said meeting 
was communicated to the .respondents by letter dated 81h December 
2014 which reads thus:
MAHANADI COALFIELDS LTD. & ORS. v. MIS. DHANSAR 
143 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
"ANNEXURE R/9 
A 
MAHANADI COALFIELDS LIMITED 
(A subsidiary of Coal India Limited) 
P.O. -Jagruti Vihar, Burla, Distt. Sambalpur-768020 (Orissa) 
Gram: SAMBCOAL,: 
Fax: (0663)2542770 
Phone: PBX:- (0663) 2542461 to 2542469 
B 
Ref.1\o. MCUSBP/GM(TC)/200411047 
Dt. 08.12.2004 
To, 
General Manager, 
Lakhanpur Area 
Dear Sir, 
Enclosed herewith please find a copy of Extract from the Draft 
Minutes of the 72"• meeting of the Board of Directors of MCL held on 
271h November, 2004 at Kolkata in respect of imposing penalty by way of 
forfeiture of Earnest Money Deposit of Rs. 20.00 lakhs to Mis. Dhansar 
Engineering (P) Ltd., for non-performance of 130% of the total contracted 
quantity under NIT - 276. The relevant extract is appended below:-
" The Board deliberated on the subject in detail and in 
consideration of the facts and circumstances highlighted in the agenda 
note and in recognition of the clarification offered during deliberation, 
decided that penalty as proposed in the agenda note in terms of the 
pr_ovisions of the contract be imposed on Mis Dhansar Engineering pvt. 
Ltd. For non-performance of 130% of the total contracted quantity under 
NIT-276. 
Proposed in the Agenda Note 
Clause No. 16-(Forfeiture of Earnest Money) 
The contractor is liable for forfeiture Money Deposit under 
Clause No. l6(a) and l 6(d) which reads as under:-
[ 6(2) withdraws his offer
during the validity period of offer. 
I 6(a) fails to execute the order as per terms and conditions thereof. 
In the present case the EMD is Rs. 20.00 lakhs. 
Clause No. 30.2 (Shortfall penalty in Mechanical excavation and loading) 
130% of Contract Quantity-63,70,000.00 Cu.m. 
Final quantity executed-53,49,437.55 Cu.m. 
Balance quantity to be executed- 10,20,562.45 Cu.m. 
Working rate 
-Rs. 17.00 perCu.m. 
20% of working rate 
Rs. 3.40 per Cu.m. 
Payable penalty for not executing 
Upto 130% quantity 
Rs.34,69,91 l.OO 
c 
D 
E 
F 
G 
H
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[2016] 7 S.C.R. 
A 
These penalties may be imposed individually or collectively 
B 
c 
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H 
depending on the decision taken by the Management. The imposition 
of penalty may be decided on the background that the contractor working 
at a very low rate has executed I 08.4 7% in spite of incurring heavy 
losses and withdrew only when the new contract was finished ensuring 
that there is no loss of production. 
Encl : As above" 
Yours faithfully 
Sd/- lllegible 
General Manager (TC) 
11. The Board of the appellants in its 78111 Meeting decided to 
impose penalty for non-execution of the balance contract work by the 
respondents and including the financial loss incurred by the appellants 
due to allocation of that work to third party at higher rate. Jn terms of 
that decision, an approval order for recovery of penalty was issued by 
the appellants on J'd November 2005 which reads thus: 
MAHANADI COALFIELDS LIMITED 
(A subsidiwy of Coal India limited) 
P. 0. - Jagriti Vihar 
Bur/a - 768018 
Distt: Sambalpur-768020 (Orissa) 
"ANNEXURE -19 
Gram: SAMBCOAL,: 
Fax: (0663) 2542770 
Phone: PBX:- 2542461to2542470 
Ref No. MCLISBPIGM(TC)/200511100 
Date: 03.11.2005 
APPROVAL ORDER 
Sub: Imposition of penalty to Mis Dhansar Engineering Company Pvt. 
Ltd., under NIT-276 (DI; 01.12.2002) for the work of "Extraction and 
Transfer of Coal/Coal Measure Strata by deploying "Surface Miners" 
on hiring basis at lakhanpur OCP, Lakhanpur Area. 
On recommendation
of the commil/ee to examine the issue on 
imposition of penalty under NIT -276 dated 02.12.2002 to Mis Dhansar 
Engineering Company Pvt. ltd .. for the work of "Extraction and 
Transfer of Coal/Coal Measure Strata by deploying "Swface Miners" 
on hiring basis at Lakhanpur OCP, lakhanpur Area, the same has
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
145 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
been pgreed by D(T) !D(F)ID(P)/CMDIMCl. The MCl Board in its 
A 
78'• meeting held on 27. 10.2005 under item No. 78.C/20 has been 
pleased to approve the proposal of imposition of penalty in terms of 
provision of the contract to Mis. Dhansar Engineering Company Pvt. 
ltd. '73y non performance of 130% of total contacted under NIT-276 
(dt: 02. 12.2002) for an amount of Rs. 1,57,40,655.22 (Rupees One 
Crore Fifty-seven lakh Forty Thousand Six Hundred Fifty-five and 
B 
paisa Twenty-two only) under the Clause - 30. 1 (loss or damage) of 
the agreement. 
Sd/- General Manager (TC) 
Distribution: 
1. GM lakhanpur Area 
2. CGM(F) MCl, HQ 
3. TS to CMD, MCl 
4. TS to D(T), MCl 
5. Secy. To D(F), MCl 
6. Sanction Order file" 
12.Aggrieved, the respondents filed Writ Petition under Article 
226 of the Constitution oflndia and prayed as follows: 
"PRAYER 
c 
D 
In the circumstances, it is therefore prayed that Your lordships be 
graciously pleased to issue a Rule NISI in the nature of certiorari 
calling upon the Opposite Parties, to show cause as why the impugned 
E 
letter dated 08.12.2004 vide Annexure-22 issued by the General 
Manager (TC), Mahanadi Coal Fields limited, Opposite party No.2 
imposing penalty shall not be quashed and if the Opposite Parties fail 
to show cause or show insufficient cause make the said Rule absolute. 
AND 
Issue a Writ in the nature of mandamus
directing the Opposite parties 
F 
to pay a sum of Rs. 79,01,434.60 to the Petitioner No.I Company, 
which has been illegally withholding by the Opposite parties. 
AND 
Issue a Writ in the· nature of Mandamus directing the Opposite 
Parties to pay interest@ 18% per annum as the Opposite Parties have 
illegally withhold the outstanding dues of Rs. 79,01,434.60 of 
G 
Petitioner No. I Company since 15. 07.2004. 
A/VD 
fssue such other Writ/Writs, Order/Orders, Direction/Directions 
as this Hon 'ble Court may deem it fit and proper. 
And/or this act of Kindness the Petitioner shall as_in duty bound 
ever pray. " 
H
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l 3. The Writ Petition was opposed by the appellants by filing reply 
affidavit. The appellants raised preliminary objection about the 
maintainability of the Writ Petition. On merits, the appellants asserted 
that the demand raised against the respondents was in accord with the 
terms and conditions of the contract and ifthe respondents were aggrieved 
by the same they were free to resort to the procedure for settlement 
under clause 31 of the agreement. The Division Bench of the High Court, 
however, allowed the Writ Petition preferred by the respondents on the 
finding that it was not permissible for the appellants to allot extra work 
to the respondents at the fag end of the contract period in terms of 
clause 5 of the contract which envisaged giving 45 clear days notice for 
variation of the quantity under the contract. That notice was given to the 
respondents only on J J <h June 2004 even though the extended contract 
period was to expire on J S<h July 2004. The Court held that, surprisingly 
after extending the contract period on S<h June 2004, within six days on 
11th June 2004 the appellants decided to enhance the contract quantity 
by 30%. That was not a bonafide act and was unacceptable. The Court 
also held that the appellants had not offered any explanation as to in 
what circumstances decision to impose penalty was taken by the Board 
of Directors. The Court further noted that the
respondents had executed 
the contract upto I 08.4 7% at a very low rate, and incurred heavy losses 
in that regard. Further, a new contract for Lakhanpur OCP was already 
awarded and there was no loss of production caused to the appellants. 
On these basis, the Division Bench allowed the Writ Petition in the 
following terms: 
"16. Accordingly, the letter dated 8.12.2004 of the General 
Manager (T.C) Mahanadi Coalfields Limited under Annexure-
22 proposing to levy shortfall penalty as well a~. its Approval 
Order dated 03.11.2005 under Annexure-A to the counter 
affidavit are hereby quashed . . The outstanding dues payable 
to the petitioner be released in its favour within the period of 
thirty days along with simple interest @ 8% per annum to be 
computed from the date of conclusion of contract, i.e. from 
16. 7.2004. The bank guarantee furnished by the petitioners, 
pursuant to the direction of this Court dated 28. 7.2009 are 
hereby directed to be cancelled and consequently, directed 
that the same be returned to the petitioners forthwith. 
The writ petition is allowed with the aforesaid terms. No 
Costs."
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
14.Aggrieved, the appellants have filed the present appeal. This 
Court passed an interim order on I 21h April, 2013, directirig to maintain 
status quo as it existed on that date until further orders. 
15. According to the appellants the High Court has committed 
manifest error in entertaining the Writ Petition. Firstly, in respect of a 
purely contractual matter and moreso when efficacious remedy under 
clause 31 of the contract was available to the respondents for redressal 
of their grievance. Secondly, on merits the High Court has misconstrued 
and misapplied the contractual terms and in particular clause 5 ofthe 
contract. However, ifthe terms and conditions of the contract are read 
as a whole, it leaves no manner of doubt that the appellants had the 
discretion to extend the original contract period; and having done so at 
the request of the respondents, the respondents were bound by the terms 
of the contract till 151h July 2004. Further, before that date at any point of 
time, :: was open to the appellants to reduce or increase the contract 
quantity upto 30%. The sole plea of the respondents for their inability to 
perform the contract was founded on financial difficulty and sufferance 
offurther loss due to low contract rate. That can be no consideration for 
walking out of the contract. Moreso, after the extra quantity was allocated 
the respondents could have
asked for further time for completing the 
extra work, if they were not in a position to complete the same within 
the contract period. That request could have been considered by the 
appellants appropriately. The respondents did not do so. Instead, they 
insisted to withdraw from operation merely because the rate of contract 
was not affordable to them. Resultantly, the appellants had to allot the 
extra quantity of unfinished work by the respondents, to third party at a 
higher rate. The fact that the appellants did not suffer any loss of 
production, it does not follow that no financial loss was suffered by the 
appellants due to higher rate paid for the unfinished extra work. The 
appellants were, therefore, justified in recovering the difference of rate 
in respect of unfinished extra work and penalty therefor. That was a 
legitimate demand under the terms and conditions of the contract between 
the parties. 
16. The respondents, on the other hand, contend that it was unfair 
on the part of the appellants not to allow the respondents to close the 
contract as per the original contract and within the extended contract 
period i.e. upto I 51h July 2004. Further, the respondents cannot be made 
liable for the unfinished extra quantity of work as that was allotted only 
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on 11th June 2004, leaving very I ittle time for the respondents to complete 
the same for which the appellants should blame themseh .... ,. According 
to the respondents, the High Court was right in concluding that clause 5 
of the agreement did not permit the appella1its to allot an extra quantity 
of work to the extent of 30% at the fag end of the extended contract 
period, absent 45 clear days notice mandated therein. Further, the High 
Court has passed an equitable order also keeping in mind that the 
respondents had already executed 108.4 7% of the contract work by 
suffering heavy losses, which fact is substantiated from the execution 
of new contract at the rate of Rs.31.50 per cubic meter as against the 
rate of Rs.17 /- per cubic meter payable to the respondents. It is also 
contended thatthe demand for penalty amount is unilateral and without 
any just cause. The same is illegal. Hence, contends the learned counsel, 
the appeal be dismissed. 
17. Having heard the learned counsel for the parties at some length, 
we find force in the plea of the appellants. The challenge in the Writ 
Petition filed by the respondents was limited to the letter dated 8th 
December 2004, issued by the General Manager of the appellants. The 
respondents had not challenged the extension Of contract period till 15th 
July 2004 vide letter dated 5th June 2004, the decision of the appellants 
to allot an extra quantity
of30% work and much less the decision of the 
Board to impose penalty taken on 27th October, 2005 and communicated 
to the respondents vide Approval Order dated 3rd November 2005. The 
High Court, however, has not only set aside the letter dated 8th December 
2004 but also the Approval Order dated 3rd November 2005. 
18. For doing so, the High Court has taken support from clause 5 
of the Contract. That clause cannot be read in isolation. The other terms 
and conditions of the contract must be read as a whole. Clause 5 of the 
agreement dated 26th May 2003 posits authority in the appellants to reduce 
or increase the t.endered quantity by +/- 30%, whilst the contract is 
subsisting. Indisputably, the original contract period was upto J 5th April, 
2004. At the instance of these respondents, the same stood extended till 
J 5th July 2004. The extra 30% work was allotted to the respondents on 
11th June 2004, before expiry of the extended contract period i.e. 15th 
July 2004. As the contract period was extended and that decision was 
allowed to attain finality, it inevitably obliged the respondents to fulfill all 
the contractual stipulations under the original agreement including to 
complete the assigned quantity of work- be it original quantity or extra
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
quantity- before l 5'h July 2004. The fact that they had to suffer financial 
loss due to low contract rate could not be cited as an excuse to extricate 
from that contractual obligation. 
19. Failure to comply with the contractual obligation of executing 
the original quantity of work or the extra work, as the case may be, must 
visit the respondents with liability to compensate the appellants in terms 
of other express clauses of the contract to the extent of unfinished work 
and in particular the financial loss suffered by the appellants for getting 
the same work executed through a third agency at a higher rate. The 
fact that the respondents executed I 08.4 7% of work before l 5'h July 
2004, could be no justification to relieve them of their obligation to 
compensate the appellants with suitable amount for the unfinished contract 
work (out of 130%). 
20. Presumably to get over this position, the respondents relying 
on clause 5 of the agreement would contend that the extra quantity of 
work could not be allotted to them, absent 45 clear days notice that too 
at the fag end of the contract period. This argument, in our opinion, is a 
complete misreading of the said clause. It is one thing to say that the 
contractor should be given sufficient time to complete the extra work 
commensurate with the extra quantity required to•be executed by him. 
However, in law, it is not
open to contend that even though the contract 
period is still subsisting, the principal (appellants) could not have exercised 
its option to increase the quantity of work to the extent permissible under 
that clause, to be executed by the contractor within the contract period. 
The principal (appellants) could be asked to exercise their option to extend 
the contract period beyond J 5•h July, 2004, to enable the respondents to 
complete the unfinished extra work. If such request were to be made by 
the respondents, there would have been corresponding obligation oi~ the 
appellants to extend the contact period commensurate with the increased 
quantity of work in terms of clause 5 of the agreement. The respondents, 
instead, opted to walk out of the contract for the sole reason that the 
contract rate agreed by them was very low and was causing financial 
loss to them. That can be no just reason to not fulfill their contractual 
obligation. 
21. Relying on the third sentence (last sentence) in clause 5, it 
was contended that the employer could not have increased the tendered 
quantity in absence of 45 clear days notice. We agree with the appellants 
that the said stipulation would come into play only if the respondents 
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were also called upon to increase the machine capacity by upto 30% 
extra "daily" quantity. In the present case, the appellants merely allotted 
extra 30% quantity without requiring the respondents to increase the 
daily quantity. There is marked difference between increasing the extra 
quantity during the contract period and that of increasing the extra "daily" 
quantity. In the case of latter, the contractor would be required to step 
up the machine capacity for which giving of 45 clear days notice to him 
is necessary. Suffice it to observe that the stipulation in the third sentence 
of clause 5 providing for 45 clear days notice was not an impediment for 
the appellants to allot extra quantity of work upto 3 0%, whi 1st the contract 
period was subsisting. 
22. The respondents had then relied on the notings of the Project 
Officer dated 26'h January 2005 to contend that assigning of extra work 
to the respondents at the fag end of the contract period was doubted 
even by the said officer. The observations of the Project Officer cannot 
be the basis to construe the scope of Clause 5 of the contract. Besides, 
it was only an inter-depa11mental communication which was duly 
considered at different level in the office of the appellants, but finally it 
is the decision of the Board of Directors of the appellants that must 
prevail. As a matter of fact, Clause 5 of the agreement empowers the 
appellants to
increase or reduce the quantity of work upto permissible 
limit whilst the contract was subsisting. That power having been 
exercised, the obligation of the contractor to complete the extra.work in 
terms of the subject contract within the contract period or extended 
contract period was imperative. The respondents are not right in 
contending that the appellants-Company had no authority to grant 
extension of time to complete the enhanced quantity. This contention 
deserves to be stated to be rejected, keeping in mind the other contractual 
terms such as Clause 11.0 - providing for variation in the scheduled 
quantity, extent and rate; Clause 13 - time for completion of contract 
and more particularly Clause 14.0- for extension of date of completion. 
Clause 14.0 (e) was available and ought to have been invoked by the 
respondents in this situation. It postulates that for any other cause not 
specifically provided in sub-clauses (a) to (d) of the same Clause, at the 
so.le discretion of the appellants, the date ofcompletion could be extended, 
ifit was found to be necessary because of situation beyond the control 
of the contractor. That clause could be invoked for the situation in which 
the respondents were placed due to extra work allocated to them at the 
fag end of the coritract (extended) period.
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
23. ln our opinion, clause 5 did not prohibitthe 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 J 5•h July 2004. In the present case, such notice 
regarding increase of work upto 30% permissible under clause 5 of the 
agreement, was given on 11 •h 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 -
I 08.4 7%). 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 8'
11 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 Managerthat 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 Mau/a Bux vs. U11io11 of lntlia1, 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. th1.: party 
claiming compensation must prove the loss suffered by it." It is, however, 
indisputable that financial loss was suffered by the appellants on account 
ofassigning 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 
1 (1969) 2 sec 554 
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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, butthe 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 Appel I ants - 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 ifthe 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 Gorklta Security Services vs. 
Govemment (NCT of Del/ii) & Ors. 1 and Kunwri Slirileklia Vidyartlli 
& Ors vs. State of U.P. 3 
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 Corporation4, Harbanslal 
Sallnia & Anr. vs. Indian Oil Corporation Ltd. & Ors.-', Union of 
2 (2014) 9 sec 105 
3(1991) I SCC212 
' (2007) 9 sec 593 
' (2003) 2 sec 101
MAHANADI COALFIELDS LTD. & ORS. v. M/S. DHANSAR 
ENGINEERING CO. PVT. LTD. [A. M. KHANWILKAR, J.] 
India & Ors. vs. Tantia Construction Pvt. Ltd.•, M.P. State Agro 
Industries Developmen_t Corpn. & Anr. Vs. Jalwn Kllan 7 and 
Whirlpool Corporation vs. Registrar of Trade Marks, M umbai8• 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. 
26. Accordingly, we partly allow this appeal. The judgment of the 
Division Bench dated 7'h November 2012 is set aside. The reliefs claimed 
by the respondents in the Writ Petition are disposed of in the above 
terms. 
27. The appeal is partly allowed in the above terms with no order 
as to costs. 
Kalpana K. Tripathy 
' (2011)5 sec 697 
' (2007) 1 o sec 88 
• (1998) 8 sec 1 
Appeal partly allowed. 
153 
A 
B 
c 
D