Supreme Court Upholds Rejection of Claims for Extra Work in Construction Contract: National Building Construction vs. State of Maharashtra (23 August 2017)

Can a contractor claim additional payments for work beyond the original contract? The Supreme Court of India recently addressed this question in a case involving a construction contract dispute. The court examined whether a contractor was entitled to extra payments for stone pitching and water lead, ultimately ruling against the contractor. This judgment highlights the importance of adhering to contract terms and providing sufficient evidence for claims.

This case, M/s. National Building Construction vs. State of Maharashtra & Ors., was decided on 23 August 2017. The judgment was delivered by a bench of Justices Dipak Misra and A.M. Khanwilkar, with Justice A.M. Khanwilkar authoring the opinion.

Case Background

M/s. National Building Construction, a partnership firm, secured a contract from the State of Maharashtra to construct the Nishanghat Minor Irrigation Tank. The firm completed the work on June 16, 1982. However, they disputed the final payment, claiming they had performed extra work for which they were not compensated. The firm filed a suit seeking additional payments for extra stone revetment, excavation work, and extra lead for water and sand.

Timeline

Course of Proceedings

The Trial Court initially ruled in favor of the construction firm on October 29, 1991, awarding them ₹4,98,769.87 with interest. The State of Maharashtra appealed to the High Court of Judicature at Bombay, Nagpur Bench. The High Court partly allowed the appeal on September 1, 2009, modifying the Trial Court’s decree. The High Court rejected claims for extra payments for stone pitching and extra lead for water. The construction firm then appealed to the Supreme Court.

Legal Framework

The dispute centered around the interpretation of the contract agreement and the applicable Government/CSR (Common Schedule of Rates) rates. The contract specified that for work exceeding 25% of the tender quantity, payment would be as per the CSR. The CSR rates for stone pitching were initially listed in square meters instead of cubic meters for the financial year 1981-82, leading to a dispute. Additionally, the contract stipulated that rates for earthwork included watering and compaction, with no extra payment for these items.

Arguments

The construction firm argued that the rectification of CSR rates was an afterthought and inadmissible since it was not pleaded in the written statement. They also contended that they were entitled to extra payment for water lead as they had to transport water from a distance. The State of Maharashtra countered that the CSR rates had a typographical error which was later corrected, and the contractor was paid at a higher rate than the corrected rate. They further argued that the contract explicitly stated that no extra payment would be made for water lead.

The State of Maharashtra, in their written statement, asserted that the payment for stone revetment was made as per CSR rates. They stated:

“It is submitted that as per clause 38 of the agreement, the quantity exceeded by more than 25% of the tender quantity is to be paid as per CSR during which the work executed and the plaintiff was paid as per this condition… the plaintiff’s claim for CSR 81-82 i.e. Rs. 97.30 is not correct as the rate of pitching in CSR 81-82 was given as Rs. 24.25 per M2 by the Govt. and no rate for per cubic meter is given in this CSR.”

The State also submitted that the Superintending Engineer had instructed to increase the rates for the year 1981-82 by 30% above the CSR 1980-81 for items not included in the Government Sanctioned CSR for 1981-82.

The witness for the State, DW1, stated that the pitching rates in the CSR of 1981-82 were mentioned in square meters and not in cubic meters. He further stated that the Superintending Engineer had corrected the pitching rates of CSR 1981-82 and informed them accordingly.

The construction firm argued that the High Court should not have disregarded their claim for extra water lead, especially when the State’s witness admitted the need for additional water.

The construction firm also contended that the State was obligated to act fairly and reasonably in the contract.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the High Court was correct in rejecting the claim for extra payment for stone pitching (Claim No. 1).
2. Whether the High Court was correct in rejecting the claim for extra lead for water (Claim No. 3).

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following:

• Contract terms and conditions between the parties.
• Common Schedule of Rates (CSR) for the relevant period.
• Evidence presented by both parties, including oral and documentary evidence.

Judgment

The Supreme Court upheld the High Court’s decision, stating that the High Court was correct in rejecting the claim of the appellant in respect of pitching of stones and additional lead for water.

The Court observed that the High Court’s finding of facts was in consonance with the pleadings and evidence produced by the State.

The Court held that the effect of correcting the typographical error in the CSR rates is to restate the correct position as applicable for the relevant period and not one of modification of the rates.

The Court also noted that the High Court had justly rejected the plea that the State was bound to pay at the rate stated in the CSR, even if it was a mistake.

The Court stated that the Trial Court had misled itself in misreading the pleadings and discarding the legal evidence relied upon by the State.

Regarding the claim for additional lead for water, the Court held that the claim was not supported by the express terms of the contract document.

The Court stated that:

“The High Court has justly rejected this plea by giving an illustration that if the CSR rates were to be misprinted as Re.1 or Rs. 2 per cubic metre for the financial year 1981-82, the appellant would not have agreed to be bound by such rate.”

The Court also stated:

“The Claim of the appellant under this head is not supported by express terms of the contract document.”

The Court further stated:

“We find that the finding of facts recorded by the High Court is in consonance with the pleading in the written statement and the oral and documentary evidences produced by the respondents (defendants) in that behalf.”

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the principle of contract adherence and the importance of factual accuracy. The Court emphasized that parties are bound by the terms of their contracts and that claims for extra payments must be supported by clear evidence and contractual provisions. The Court also highlighted that the rectification of the CSR rates was not a modification of rates but a correction of a typographical error, which was crucial in deciding the case.

Logical Reasoning

Key Takeaways

• ✓ Contractors must adhere strictly to the terms and conditions of their contracts.
• ✓ Claims for extra payments must be supported by clear evidence and contractual provisions.
• ✓ Typographical errors in official documents can be corrected, and parties cannot claim benefits based on such errors.
• ✓ Courts will prioritize the actual terms of the contract over claims that are not supported by the agreement.
• ✓ Evidence presented must be consistent with pleadings in the written statement.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that parties are bound by the explicit terms of their contracts, and claims for extra payments must be supported by clear evidence and contractual provisions. This judgment reinforces the principle that typographical errors in official documents do not create a basis for claims if the error is corrected and the party was paid more than the corrected rate. There is no change in the previous position of law.

Conclusion

In conclusion, the Supreme Court dismissed the appeal, upholding the High Court’s decision to reject the construction firm’s claims for extra payments related to stone pitching and water lead. The Court emphasized the importance of adhering to contract terms, providing sufficient evidence for claims, and the correction of typographical errors in official documents. This judgment serves as a reminder for contractors to carefully review and comply with contract terms and to ensure that all claims are supported by clear evidence and contractual provisions.