Contractor’s Compensation Restored: Supreme Court Overturns High Court’s Ruling on Abandonment

The case of Shripati Lakhu Mane vs. The Member Secretary, Maharashtra Water Supply and Sewerage Board & Ors. is a landmark ruling concerning contractual disputes in government projects. The Supreme Court’s verdict addresses key issues of contractual obligations, abandonment, and compensation in public works contracts.

This appeal arose from a contractual dispute between the appellant, a government contractor, and the Maharashtra Water Supply and Sewerage Board. The appellant, dissatisfied with the High Court’s reduction of his awarded compensation, approached the Supreme Court, which ultimately ruled in his favor.

Background of the Case

The dispute originated from a government contract for executing a Regional Rural Piped Water Supply Scheme in Ratnagiri District, Maharashtra. The appellant was awarded the contract on July 3, 1986, for a total cost of Rs. 80,45,034/-. The stipulated completion period was 30 months.

However, a series of administrative changes and delays, including:

The initial suspension of work by the government.
Unavailability of specified construction materials.
Modifications in the project’s specifications.
Non-payment of dues to the contractor.

These issues led to a prolonged dispute over payments and contractual obligations.

Arguments Presented by the Petitioner

The petitioner, Shripati Lakhu Mane, contended that:

The project delays and material changes were due to the government’s inefficiency.
He was asked to modify the project midway, which required additional costs.
Despite completing significant portions of the project, payments were not made on time.
He was unjustly accused of abandoning the project when, in fact, he was waiting for government approvals.
He was entitled to compensation for the delays and modifications.

Arguments Presented by the Respondent

The Maharashtra Water Supply and Sewerage Board countered by stating:

The contractor had abandoned the project before completion.
The claims for additional payments were unjustified.
The security deposit and other compensations should not be released.

Proceedings Before the Trial Court and High Court

The case was initially heard by the Trial Court, which awarded the contractor:

Rs. 24,97,077/- as compensation.
10% interest per annum on the awarded amount.

The government challenged this ruling in the High Court, which reduced the compensation to Rs. 7,19,412/-, citing alleged abandonment by the contractor.

Supreme Court’s Observations

The Supreme Court reviewed the sequence of events and observed:

The contract was awarded on July 3, 1986, but later suspended.
On December 17, 1986, the suspension was lifted, and work resumed.
Several modifications were ordered by the government, causing delays.
Payments were not made on time, leading to work stoppages.
The government continued extending the project completion timeline until December 1989.

These findings led the Supreme Court to conclude that the contractor had not abandoned the project. Instead, delays were caused by the government’s administrative changes and non-payment of dues.

Legal Precedents Considered

The Court cited relevant legal principles, including:

Section 67 of the Indian Contract Act, 1872: A promisor cannot be held liable if the promisee prevents performance.
Halsbury’s Laws of England: If a contract is breached due to the other party’s actions, the non-breaching party is entitled to compensation.

Supreme Court’s Verdict

Based on the evidence, the Supreme Court ruled:

The contractor did not abandon the project.
The High Court erred in reducing the awarded compensation.
The full compensation of Rs. 24,97,077/- should be reinstated.
Interest payments as ordered by the Trial Court should be restored.

Additionally, the Court noted that the contractor had withdrawn some deposited amounts under a bank guarantee, which was to be discharged immediately.

Impact of the Judgment

This ruling has significant implications:

It reinforces the rights of contractors to claim compensation for government-induced delays.
It highlights the need for clear contractual obligations in public projects.
It ensures that contractors are not unfairly accused of abandonment when the delay is caused by administrative lapses.

The judgment serves as an important precedent in contractual disputes involving public infrastructure projects.

Petitioner Name: Shripati Lakhu Mane.
Respondent Name: The Member Secretary, Maharashtra Water Supply and Sewerage Board & Ors..
Judgment By: Justice Hemant Gupta, Justice V. Ramasubramanian.
Place Of Incident: Maharashtra.
Judgment Date: 30-03-2022.

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