Supreme Court affirms breach of contract and awards damages for loss of profit.

The Supreme Court upheld the High Court's finding that the respondent breached the contract by unjustly rescinding it. The appellant was awarded Rs. 2 lakhs for loss of profit, in addition to the amount granted by the High Court, with interest and proportionate costs. The majority of the claims for compensation for loss sustained while executing the work and extra items executed by the contractor were rejected, except for a minimal amount awarded under various sub-heads.

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Issues Involved:
1. Legality of the rescission of the contract.
2. Entitlement to damages for loss of expected profit.
3. Compensation for loss sustained while executing the work.
4. Compensation for extra items executed by the contractor.

Summary:

1. Legality of the Rescission of the Contract:
The trial court held that the rescission of the contract by the defendant was not illegal. However, the High Court disagreed and found that the respondent-State was not justified in rescinding the contract u/s Clause (3) of the contract document. The Supreme Court upheld the High Court's finding, agreeing that the respondent was guilty of breach of contract.

2. Entitlement to Damages for Loss of Expected Profit:
The High Court acknowledged that a contractor is entitled to claim damages for loss of profit when the party entrusting the work commits a breach of the contract. The High Court referred to Hudson's Building and Engineering Contract, noting that head-office overheads and profit typically range between 3 to 7% of the total price. However, it rejected the claim for lack of adequate proof. The Supreme Court found this inconsistent with another judgment by the same High Court, which had accepted 15% of the value of the remaining work as a reasonable measure of damages for loss of profit. The Supreme Court awarded the appellant Rs. 2 lakhs under this head.

3. Compensation for Loss Sustained While Executing the Work:
The High Court substantially rejected the claim of Rs. 1,19,686/- for compensation for loss sustained while executing the work, allowing only Rs. 12,055.90 p. under various sub-heads. The Supreme Court agreed with the High Court's detailed evaluation and reasoning, upholding the rejection of the majority of the claim.

4. Compensation for Extra Items Executed by the Contractor:
The High Court also rejected the claim of Rs. 1 lakh for extra items executed by the contractor, except for the amount included in the Rs. 12,055.90 p. awarded. The Supreme Court concurred with the High Court's assessment and reasoning, maintaining the rejection of the claim under this head.

Conclusion:
The Supreme Court partly allowed the appeal, awarding the appellant Rs. 2 lakhs for loss of profit, in addition to the amount awarded by the High Court, with interest at 6% from the date of the suit and proportionate costs. The court fee was ordered to be recovered proportionately from both the appellant and the respondent.

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