1979 (1) TMI 229 - SC - Indian Laws

Whether the High Court was in error in not deciding the main issue whether the time was of the essence of the contract or not ? Held that - Having regard to the aforesaid material on record particularly the clauses in the agreement pertaining to imposition of penalty and extension of time it seems to us clear that time (12 months period) was never intended by the parties to be of the essence of the contract. Further from the correspondence on the record particularly the letter (Ex. 78) by which the contract was rescinded it does appear that the stipulation of 12 months period was waived the contractor having been allowed to do some more work after the expiry of the period albeit at his risk by making the recision effective from August 16 1956. It would be difficult to accept the High Court s finding that the recision of the contract on the part of the respondent- defendant was proper and justified on the basis that the same was neither shown to be mala fide nor unreasonable. It will thus appear clear that though time was not of the essence of the contract the respondent-defendant did not fix any further period making time the essence directing the appellant- plaintiff to complete the work within such period; instead it rescinded the contract straightaway by letter dated August 27 1956. Such recision on the part of the respondent-defendant was clearly illegal and wrongful and thereby the respondent-defendant committed a breach of contract with the result that there could be no forfeiture of the security deposit. In our view therefore the trial court was right in coming to the conclusion that the appellant-plaintiff was entitled to a refund of their full security deposit of 4, 936/- as also to 5845/- being the balance of their Bill No. 1253 dated September 20 1956 for work actually done by them and not paid for and nominal damages of 120/-. The appellant- plaintiff was also entitled to interest on the aforesaid sums and costs of suit as directed by the trial court.

Summary

Issues Involved:
1. Whether time was of the essence of the contract.
2. Whether the rescission of the contract by the respondent-defendant was wrongful and illegal.
3. Entitlement of the appellant-plaintiff to damages and refund of the security deposit.

Issue-wise Detailed Analysis:

1. Whether time was of the essence of the contract:
The court examined whether the 12-month period specified for the completion of the aqueduct construction was fundamental to the contract. The contract, executed on July 12, 1955, stipulated that the work should commence on July 5, 1955, and be completed by July 4, 1956. The appellant-plaintiff contended that the time period was not of the essence, citing the nature of construction contracts and the inclusion of clauses for extension of time and penalties for delays. The court noted that the contract included provisions for extension of time (Clause 6) and penalties for delays (Clause 2), which indicated that the parties did not intend for the 12-month period to be fundamental. The court concluded that time was not of the essence of the contract, and the stipulated period had been waived by the respondent-defendant.

2. Whether the rescission of the contract by the respondent-defendant was wrongful and illegal:
The court analyzed whether the respondent-defendant's rescission of the contract on August 27, 1956, was justified. The appellant-plaintiff argued that the rescission was wrongful as the respondent-defendant did not grant a reasonable extension of time despite the appellant-plaintiff's requests. The court found that the appellant-plaintiff had requested an extension of time before the expiry of the initial 12-month period, and the refusal to grant an extension was unreasonable. The court held that the respondent-defendant should have fixed a new period making time the essence and only rescind the contract if the appellant-plaintiff failed to complete the work within that period. The court concluded that the rescission was wrongful and illegal, constituting a breach of contract by the respondent-defendant.

3. Entitlement of the appellant-plaintiff to damages and refund of the security deposit:
Given the wrongful rescission of the contract, the court examined the appellant-plaintiff's entitlement to damages and the refund of the security deposit. The trial court had awarded the appellant-plaintiff a refund of the security deposit of Rs. 4,936/-, Rs. 5,845/- for work done under Bill No. 1253, and nominal damages of Rs. 120/-. The High Court had modified this decree, upholding the forfeiture of the security deposit and awarding only Rs. 5,845/- for the work done. The Supreme Court found that the trial court's decision was correct, as the rescission was wrongful and the appellant-plaintiff was entitled to a refund of the security deposit and the amount for the work done. The court restored the trial court's decree, awarding the appellant-plaintiff Rs. 10,901/- with interest and costs.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's judgment in F.A. No. 844 of 1961, and restored the trial court's decree. The appellant-plaintiff was awarded Rs. 10,901/- with interest and costs, confirming that the rescission of the contract by the respondent-defendant was wrongful and illegal. The High Court's decree dismissing F.A. No. 245 of 1962 was confirmed.