Refusal of a Contractor to Continue to Execute the Work Unless the Reciprocal Promises are Performed by the Other Party, Cannot Be Termed As Abandonment of Contract
When the promisor or a promisee refuses to executed his part of the terms in a contract and the other party expressly or impliedly consents to such non-execution, the contract is said to be abandoned. In other words, the contract is said to have been abandoned if both the parties fail to perform or one party fails to perform and the other party does not object or dispute such non-performance or non-fulfillment of obligation within a reasonable time. If the other party objects or disputes such non-performance or non-fulfillment of obligation within a reasonable time, the act of the first party shall then be called breach of contract. ‘Abandonment of contract’ is not defined in the Indian Contract Act, 1872. It is different from breach of contract which has been defined under Section 73 of Indian Contract Act.
In a recent judgment delivered by the Hon’ble Supreme Court of India[1], the Court clarified what shall not be terms as abandonment of contract. The Court held that “It is fundamental to the Law of Contract that whenever a material alteration takes place in the terms of the original contract, on account of any act of omission or commission on the part of one of the parties to the contract, it is open to the other party not to perform the original contract [there is an express provision to this effect under section 67 of the Indian Contract Act, 1872]. Such non-performance will not amount to abandonment.”
As per the facts of the case, the Appellant, a registered contractor with the Government of Maharashtra, entered into a contract for work for Regional Rural Piped Water Supply Scheme to be implemented in certain villages. The Appellant was issued a work order but only to be deferred by the Respondents subsequently that too without conveying any reasons whatsoever. Finally when the Appellant was asked to commence the work, essential material for the execution of work (pipes of a particular diameter) were not made available and the Respondents conveyed their intention to alter the terms of the work order by substituting the original material with an alternative one (i.e. pipes of varied diameter). Therefore, the Appellant demanded modified rate accordingly. The Respondents, thus, asked the Appellant to discontinue the work related to pipelines and directed to start work of different nature on other work sites. Additionally, although the Appellant executed a part of work, against which the invoices were raised, the Respondent failed to honour the same citing shortage of funds as an excuse. Therefore, the Appellant did not proceed with the work and on Respondent issuing a threat to withdraw the work order and to levy a fine, the Appellant filed a suit for recovery for a sum that included value of the work done, release of the security deposit, compensation and damages. The Trial Court partially decreed the amount. Aggrieved by the said judgment, the Respondents filed a regular civil appeal before the High Court of Judicature at Bombay. The High Court allowed the appeal partially and reduced the decree amount. The Appellant, thus, approached the Supreme Court.
After examining different heads of claims made by the Appellant before the Trial Court, and the extent to which these heads of claims were allowed by the Trial Court, and the heads of claims allowed by the High Court in the impugned judgment, the Court observed that three heads of claims namely (i) the release of security deposit (ii) overheads for the period from January 1989 to 30.09.1990 and (iii) loss of profits, were disallowed by the High Court mainly because the Appellant had abandoned the work under the main contract per the High Court.
Therefore, the question for consideration before the Hon’ble Supreme Court was whether there was abandonment on the part of the Appellant.
After analyzing the sequence of event, the Court found that the Appellant was not guilty of anything including abandonment. The Court further observed that the Respondents never invoked the clause in the contract which enabled the latter to rescind the contract, forfeit the security deposit and entrust the work to another contractor at the risk and costs of the Appellant. The Respondents did not allege breach of contract on part of the Appellant at any point of time. They even omitted to take any recourse under section 75 of the Contract Act to seek compensation for the damage sustained through the nonfulfillment of the contract. Instead the Respondents attributed abandonment to the Appellant. The Court took note of Section 67 of the Indian Contract Act, 1872 which lays down that if any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal. Thus the refusal of a contractor to continue to execute the work, unless the reciprocal promises are performed by the other party, cannot be termed as abandonment of contract. After the commencement of work there was a change in the diameter of the pipes supplied by the Respondents for carrying out the contract and the Respondents made request for the performance of additional work without finalization of the modified rates as requested by the Appellant on account of change in the diameter of the pipes. This was held to be a material alteration by the Court on part of the Respondents and when a material alteration takes place in the terms of the original contract, on account of any act of omission or commission on the part of one of the parties to the contract, it is open to the other party not to perform the original contract which shall not amount to abandonment. Further clarifying the concept of ‘abandonment of contract’, the Court explained that “… the abandonment is normally understood, in the context of a right and not in the context of a liability or obligation. Moreover, abandonment is normally understood, in the context of a right and not in the context of a liability or obligation. A party to a contract may abandon his rights under the contract leading to a plea of waiver by the other party, but there is no question of abandoning an obligation. In this case, the appellant refused to perform his obligations under the work order, for reasons stated by him. This refusal to perform the obligations, can perhaps be termed as breach of contract and not abandonment.” The Court therefore allowed the appeal and set aside the order of the High Court.
