UNION OF INDIA AND OTHERS v. TANTIA CONSTRUCTION PRIVATE LIMITED [(2011) 5 SCC 697]

The Concept

Breach of contract which gives rise to a right to terminate the contract is called a repudiatory breach. A repudiatory breach hits at the root of a contract and makes the performance of the contract impossible. A repudiatory breach occurs if one of the parties does not intend to perform his part of the contract.

In such situations, typically, the option available to the other party is either to terminate the contract or to continue the contract by rectifying the breach. What amounts to repudiatory breach is decided on a case to case basis. 

Facts

Eastern Central Railway (“Petitioner’) granted the contract for construction work to the Respondent company. Later on, due to certain exigencies, the scope of work was sought to be increased to include the extension of the viaduct. The Petitioner asked the Respondent Company to consent to the increased scope of work. The Respondent refused to do so.

A separate tender process was conducted to find a suitable contractor to carry out the extension of the viaduct. The response to the fresh tender was minimal. The Respondent company then wrote to the petitioner on April 12, 2008 and agreed to  execute the varied contract at the same rate, terms and conditions of the contract agreement, but on condition of increase in  price based on Price Variation Clause.

On April 27, 2008, the Respondent company submitted its schedule for the left-over work, which was accepted by the petitioner. However, later on when the Respondent company was called upon to execute the entire work (including the additional work), the Respondent company stated that they had consented only to complete the existing scope of contract and not the extended work.

Consequently, the petitioner rescinded the contract due to refusal of the contractor to finish the entire work including the extended work. The matter was decided in Respondent company’s favour in both, the lower court and the High Court. Hence, the petitioner appealed before the Supreme Court. 

Issue

Whether the refusal of the Respondent to perform the extended scope of work warrants termination of the contract or not?

Arguments by the Petitioner

  1. The agreement executed between the parties allowed the scope of work to be changed. Hence, the petitioners were entitled to increase the scope and the Respondent company was under an obligation to complete the increased scope of work as well. 
  2. The Respondent company vide their letter dated April 12, 2008 had agreed to take on the varied work at the same rate and terms but at a higher price. It was only after this that the petitioner asked the Respondent to finish the entire work and on account of failure of the Respondent to do so, terminated the contract. Hence, it cannot be said that the petitioner is compelling the Respondent company to complete the work.  
  3. The scope of the work did not change, despite the variation of the design and planning. It was merely the case of the quantity of work decreasing in one sense and increasing in the other. The costs involved due to such variation were also worked out and a fresh cost was also arrived at. Hence, the Respondent was bound to accept the work. 
  4. The contract provided for dispute resolution by arbitration, hence there is no writ jurisdiction. 

Arguments by the Respondents

  1. The Respondent by its letter dated April 12, 2008 had offered to help the Petitioner subject to the price variation clause. 
  2. It was never the intention of the Respondent to complete the entire work (including the extension of the viaduct) on the same rates and terms. Such an offer was confined to the original scope of work. 
  3. The intention of the Respondent can be made out by the fact that they wrote in the letter dated April 12, 2008 that they would have no claim for reduction in quantity by more than 25% in the agreement.
  4. Petitioner’s argument that the relief of the Respondent Company lay in arbitration proceedings and not by way of a Writ Petition was devoid of substance on account of the various judicial decisions holding that an alternate remedy did not place any fetters on the powers of the High Court under Article 226 of the Constitution.

Judgment

The Hon’ble Supreme Court dismissed the Appeal and gave following reasons for the decision:

  1.  The letter dated 12th April, 2008, did not cover the extended work on account of the alteration of the design and was confined to the work originally contracted for. 
  2. The Respondent company has satisfactorily explained their position regarding their offer being confined only to the balance work of the original Tender and not to the extended work. The delay occasioned in starting the work was not on account of any fault or lapses on the part of the Respondent company, but on account of the fact that the project design of the work to be undertaken could not be completed and ultimately involved change in the design itself. 
  3. It was not a case of mere increase or decrease of scope of work but a substantial alteration.
  4. The assumption of the petitioner that the Respondent was willing to undertake work at the old rates was erroneous and termination of the contract, therefore is unjustified and should be set aside.
  5. An alternative remedy is not a bar to the writ jurisdiction of the High Court and the Supreme Court.

Reflective Question

Would the decision be different, if the Respondent company had agreed to specifically carry out all the work including the extended scope of work?