Case Note & Summary
The dispute arose from a contract between the State of Gujarat and a contractor for protective measures for a road bridge across river Ambica. The contractor was issued a work order on June 3, 1981 under Agreement No. B-1/17 of 1981-82. There was delay in handing over work sheet and specifications, but the trial court found that the land was Government land with no hurdles and that the contractor himself left the construction work despite sufficient time and reasonable opportunity. The trial court held the contractor had revoked the contract and left the site. On appeal, the Gujarat High Court in First Appeal No. 3875/95 dated August 21, 1995 directed the State to refund the security deposit, holding the State not entitled to forfeiture. The State appealed by special leave. The Supreme Court condoned delay and granted leave. The core legal issue was whether the contractor had abandoned the work and whether forfeiture of security deposit under Clause 3 of the contract was valid. The Court examined Clause 3, which empowered the Executive Engineer to rescind the contract and forfeit the security deposit absolutely in cases of abandonment of work due to any cause. It held that the trial court's finding of abandonment was conclusive and that the forfeiture was perfectly valid. The respondent's argument that time was not the essence of the contract and therefore rescission was invalid was rejected because the Court was not examining validity of rescission but the fact of abandonment. The precedent in M/s Hind Construction Contractors v. State of Maharashtra was distinguished on the ground that in that case the contract was not rescinded and work was executed after extended time, whereas here the contractor had abandoned the contract. Accordingly, the Supreme Court allowed the appeal, set aside the High Court direction to refund security deposit, and held the forfeiture valid. No costs were awarded.
Headnote
A) Contract Law - Abandonment of Work and Forfeiture of Security Deposit - Clause 3 of Agreement No. B-1/17 of 1981-82 - On abandonment of work by contractor, Executive Engineer empowered to rescind contract and security deposit stands forfeited - The trial court found that the respondent-contractor had left the work and site despite sufficient opportunity; the Supreme Court held that the forfeiture of security deposit was valid and the High Court erred in directing refund - Held that abandonment attracts Clause 3 (Paras Not mentioned). B) Contract Law - Time as Essence of Contract - Clause 3 of Agreement No. B-1/17 of 1981-82 - When contractor abandons work, question whether time was essence is irrelevant - Respondent argued time not essence and rescission invalid; Court distinguished M/s Hind Construction Contractors v. State of Maharashtra, A.I.R. 1979 SC 720 where work was executed after extended time and contract not rescinded - Held that time essence question does not arise because respondent abandoned contract (Paras Not mentioned).
Issue of Consideration
Whether the High Court erred in holding that the State was not entitled to forfeit the security deposit; whether the respondent-contractor had abandoned the contract and the rescission was valid in law.
Final Decision
Appeal allowed; no costs. The High Court judgment directing refund of security deposit was set aside; forfeiture of security deposit by the State was held valid.
Law Points
- Clause 3 of contract permits rescission and forfeiture of security deposit upon abandonment of work
- Executive Engineer empowered to rescind
- time not essence of contract irrelevant when contractor abandons work
- Hind Construction Contractors v. State of Maharashtra distinguished
