Termination of contract as per Indian contract Act

 Contract termination under the Indian Contract Act, 1872 refers to the legal ending of contractual obligations between parties. The Act provides several mechanisms through which contracts may be terminated, each with specific legal implications and procedures.

Key Modes of Contract Termination

1) Performance of Contract

The most natural way a contract terminates is through completion, where all parties fulfill their contractual obligations. Section 37 of the Act mandates that "the parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act"

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Whether the government can claim liquidated damages from other party while extending time for completion of project contrary to terms of contract?

5.2 In the communication granting extension of time with levy

of penalty, penalty is levied by the State Government

invoking Clause 3.5.5(v) of the OPWD Code. However, it is

required to be noted that Clause 3.5.5(v) of the OPWD

Code shall be applicable in a case where the contract is

terminated. It permits the appropriate authority/State to

terminate the contract with penalty when the progress of

work is not as per the conditions of contract. Here, it is not

a case of termination of the contract. Therefore, Clause

3.5.5(v) of the OPWD Code which has been invoked in the

communication granting extension of time but with levy of

penalty shall not be applicable at all.

5.3 So far as the reliance placed upon Clause 3.5.30 of the

OPWD Code by learned counsel appearing on behalf of the

State is concerned, even under the said clause, there is no

provision for imposition of penalty while granting extension

of time. Clause 3.5.30 only provides that while

communicating to the contractor of extension of time, he

must be informed that extension is granted without

prejudice to State Government’s right to levy compensation

under relevant clause of the contract. If the relevant clause

of the contract is seen and/or considered, there is no

condition stipulated in the contract that while granting the

extension of time, there may be levy of penalty. The

relevant clause with respect to the extension of time is

Clause-4, which has been reproduced hereinabove. Neither

the contract nor the OPWD code provides for imposition of

penalty while extending the contract. Therefore, levy of

penalty while granting extension of time is wholly without

authority of the law and is illegal. The same has been

rightly set aside by the High Court.

5.4 Even otherwise, it is required to be noted that before the

levy of penalty of a particular percentage, while granting

extension of time, no opportunity of being heard has been

given to the contractor as to why the penalty may not be

imposed while granting extension of time and at what rate.

In a given case, the State Government might be justified in

imposing the penalty while granting the extension.

However, the contractor must be put to notice that

extension of time can be granted on imposition of

reasonable penalty. However, without putting the

contractor to notice, unilaterally, the State is not justified

in levying the penalty while granting extension of time.

6. In view of the above and for the reasons stated above, the

High Court has rightly set aside the penalty levied while

granting extension of time. 

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4934 OF 2022

The State of Odisha & Ors. Vs Radheshyam Agrawal 

Author: M.R. SHAH, J.

Dated: MARCH 24, 2023.

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Whether public authorities are bound to follow principles of natural justice while terminating a contract as per the terms of the agreement?

 In M/s Radhakrishna Agarwal Vs. State of Bihar, (1977) 3 SCC

457, it is held that in case of enforcement of contractual rights and liabilities the normal remedy of filing a civil suit is available to the aggrieved party and, therefore, the High Court will not exercise its prerogative writ jurisdiction to enforce such contractual obligation. In M/s Radhakrishna Agarwal (supra) it

is further held that a question of the distinction between an administrative and quasi-judicial decision can only arise in the exercise of powers under statutory provisions. Rules of natural justice are attached to the performance of certain functions regulated by statutes or rules made thereunder involving decisions affecting rights of parties. When a contract is sought to be terminated by the Officers of the State, purporting to act under the terms of an agreement between parties, such action is not taken in purported exercise of a statutory power at all. The limitations imposed by rules of natural justice cannot operate upon powers which are governed by the terms of an agreement exclusively. Thus in view of settled legal position, I am of the view that the petitioner is not even entitled to admission of this petition as issuance of notice being not a binding precedent applicable to invoke doctrine of 'stare decisis', and the order passed by the Hon'ble Division Bench being in different arena, no indulgence is required as petitioner has an alternative remedy of approaching the civil court if there is no arbitration clause in the agreement and if there is an arbitration clause then he has a duty to approach the arbitrator in terms of the arbitration clause in the agreement.

IN THE HIGH COURT OF MADHYA PRADESH

AT JABALPUR

WRIT PETITION No. 21169 of 2022

M/S KESHAV KANSHKAR  Vs THE PRINCIPAL SECRETARY DEPARTMENT OF ENERGY MANTRALAYA VALLABH BHAWAN

BEFORE

HON'BLE SHRI JUSTICE VIVEK AGARWAL

Dated:  20th OF SEPTEMBER, 2022.

Read full Judgment here: Click here

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Whether court can refer dispute to arbitration if main agreement is terminated?

Be that as it may on and after the receipt of the refund of amount of Rs. 50,00,000/- being advance paid by the petitioner to the respondent, there was no legal recourse resorted to by the petitioner to establish his right under the agreement for sale. The attempt of the petitioner to set up a case that the respondent on his own volition deposited a sum of Rs. 50 lakhs into his Bank Account without the petitioner seeking for refund is a very hard story to believe, more particularly noting the subsequent conduct of the petitioner. Thus, it has to be concluded that the agreement for sale stood terminated for all purposes and the question of contending that the arbitration agreement still continuous to survive is untenable.

IN THE HIGH COURT OF MADRAS

O.P. No. 646 of 2013

Decided On: 18.09.2015

Appellants: B. Murugeswaran
Vs.
Respondent: Amir Jamal and Ors.

Hon'ble Judges/Coram:T.S. Sivagnanam, J.

Citation:AIR 2016 (NOC)408 Mad

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Whether contract once terminated can be revived at the option of one of parties?

Learned senior counsel further submitted that the
respondents terminated the contract on 15.12.1977, that is,
within two month. The question of waiver of a condition would
not at all arise so as to revive the contractual obligations into

existence and thereby claim his contractual rights under the
contract so revived. It is settled position of law that once a
contract has been terminated, either on the breach of the
terms of the contract by one party and subsequent repudiation
by the other or by frustration of the contract due to
circumstances beyond the control of either of the parties, the
contract legally comes to an end between the parties. Then
there is no question of any contract/agreement subsisting
between the parties, what follows is only the legal
consequences which may have been contemplated in the terms
of the contract e.g. liquidated damages, etc. However, the
parties are at liberty to mutually novate the contract by
bringing into existence a new contract altogether which would
replace the old contract between the parties and the terms of
the new contract take the place of the old contractual terms.
It will not only be illogical but also absurd to contend that
once the contract has been terminated by a party, it will still
subsist in the background and either of the parties may be
able to waive a condition attached to that contract so as to
revive that contract from a period of slumber. This will in fact

amount to saying that even though a contract has been
terminated by putting it to an end but it is actually still
available, at the option of one of the parties, to be revived back
to its original form and content through unilateral waiver of a
contractual condition. In order to substantiate this claim,
learned senior counsel placed reliance on K. Narendra vs.
Riviera Apartments (P) Ltd. (1999) 5 SCC 77 which held as
under:-
“36….. We are clearly of the opinion that at one point of time
the contract had stood frustrated by reference to Section 56
of the Contract Act. We do not think that the subsequent
events can be pressed into service for so reviving the
contract as to decree its specific performance”.
 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
 CIVIL APPEAL NO. 1148 OF 2010
Nandkishore Lalbhai Mehta .... Appellant(s)
Versus
New Era Fabrics Pvt. Ltd. & Ors. .... Respondent(s)
 WITH
CIVIL APPEAL NOs. 1131-1132 OF 2010
Citation;(2015) 9 SCC 755

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Whether a contract which is once terminated can be revived by one party unilaterally?

 Learned senior counsel further submitted that the
respondents terminated the contract on 15.12.1977, that is,
within two month. The question of waiver of a condition would
not at all arise so as to revive the contractual obligations into

existence and thereby claim his contractual rights under the
contract so revived. It is settled position of law that once a
contract has been terminated, either on the breach of the
terms of the contract by one party and subsequent repudiation
by the other or by frustration of the contract due to
circumstances beyond the control of either of the parties, the
contract legally comes to an end between the parties. Then
there is no question of any contract/agreement subsisting
between the parties, what follows is only the legal
consequences which may have been contemplated in the terms
of the contract e.g. liquidated damages, etc. However, the
parties are at liberty to mutually novate the contract by
bringing into existence a new contract altogether which would
replace the old contract between the parties and the terms of
the new contract take the place of the old contractual terms.
It will not only be illogical but also absurd to contend that
once the contract has been terminated by a party, it will still
subsist in the background and either of the parties may be
able to waive a condition attached to that contract so as to
revive that contract from a period of slumber. This will in fact

amount to saying that even though a contract has been
terminated by putting it to an end but it is actually still
available, at the option of one of the parties, to be revived back
to its original form and content through unilateral waiver of a
contractual condition. In order to substantiate this claim,
learned senior counsel placed reliance on K. Narendra vs.
Riviera Apartments (P) Ltd. (1999) 5 SCC 77 which held as
under:-
“36….. We are clearly of the opinion that at one point of time
the contract had stood frustrated by reference to Section 56
of the Contract Act. We do not think that the subsequent
events can be pressed into service for so reviving the
contract as to decree its specific performance”.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1148 OF 2010
Nandkishore Lalbhai Mehta .... Appellant(s)
Versus
New Era Fabrics Pvt. Ltd. & Ors. .... Respondent(s)
WITH
CIVIL APPEAL NOs. 1131-1132 OF 2010

R.K. Agrawal, J.
Civil Appeal No. 1148 of 2010
Dated;JULY 8, 2015.

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Whether plaintiff can seek specific performance of contract when said contract is terminated?

 Further the Supreme Court of India in the case of I.S.

SIKANDAR VERSUS K. SUBRAMANI 2014 (1) SCALE 1 has laid down that in the absence of a prayer, seeking declaratory relief to declare the termination of Agreement of Sale as bad in law , the original suit filed by the Plaintiffs for grant of decree for specific performance in respect of the suit property on the basis of Agreement of Sale and consequential relief of decree for permanent injunction is not maintainable in law. Further it has laid down that the relief sought for by the Plaintiffs for grant of decree for specific performance of execution of sale deed in respect of the suit property in his favour on the basis of non existing Agreement of Sale is wholly unsustainable in law.

Delhi High Court

Surjit Singh Bhatia & Others vs Tej Raj Singh Goel (Huf) on 1 July, 2014

Author: Sanjeev Sachdeva

        CS(OS) 1447/2010   

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