Only the contractual employer or its authorized delegate may validly terminate a contract.

The respondent-contractor was awarded a PMGSY road-construction and maintenance contract valued at ₹3,09,48,000, with a nine-month completion period.

After the award, the only bridge allegedly available for transporting construction materials became dilapidated.

Three extensions were granted, and the last extension expired in October 2008.

By letter dated 26 May 2010, the Executive Engineer rescinded the contract on the ground that, although the physical progress was stated to be 87.5%, no work had been carried out for 28 days.

The contractor instituted a title suit seeking declarations that the rescission, corrigendum reducing the progress to 67%, and imposition of penalty and liquidated damages were illegal, along with recovery of ₹2,98,76,518.39 and compensation.

The State and departmental authorities challenged that decree in the present first appeal under Section 96 read with Order XLI Rule 1 CPC.

During the appeal, the appellants sought to introduce alleged authorisation letters under Order XLI Rule 27 CPC, but the application was dismissed because the documents had not been produced during the trial and their delayed production was not satisfactorily explained.

Whether the Executive Engineer, who had not executed the contract on behalf of the employer, was authorised under the contract or by delegation to rescind the respondent’s contract?

Whether the rescission order dated 26 May 2010 was legally sustainable on the ground of fundamental breach, including alleged non-activity for 28 days?

Whether the respondent had completed 87.5% of the work, or only 67%, at the time of rescission?

Whether the imposition of penalty and liquidated damages, and the consequential monetary relief granted by the Trial Court, were justified?

The appeal was governed by Section 96 read with Order XLI Rule 1 CPC, permitting an appeal from an original decree, while Order XLI Rule 27 CPC permits additional evidence at the appellate stage only in the circumstances specified by that provision.

Under Clause 1.1 of the General Conditions of Contract, the “Employer” is the party named in the contract data who employs the contractor, and under Clause 52.1 only the Employer, or an authority validly authorised by the Employer, may terminate the contract for fundamental breach.

The Court applied the principle that an administrative or contractual power must be exercised by the competent authority or by a duly delegated authority.

It also applied the evidentiary principle of preponderance of probabilities and assessed the reliability of the competing progress reports, measurement records, and admissions.

The contract had been executed between the Chief Engineer, PWD (Roads), who was the contractual “Employer,” and the respondent.

The rescission order, however, was issued by the Executive Engineer.

Since no delegation of the termination power had been proved during the trial, and the proposed authorisation letters were rightly excluded under Order XLI Rule 27 CPC, the Executive Engineer lacked demonstrated authority to rescind the contract.

The Court rejected the appellants’ argument that the issue of authority had not been specifically pleaded, holding that the legality of the rescission was directly covered by Issue No. 3 and that the appellants could have produced proof of delegation during the trial.

On the extent of work completed, the Court preferred the 87.5% figure recorded in the rescission order over the later 67% corrigendum.

The earlier departmental record showed 76.37% progress as of 9 September 2009, and the respondent’s assertion that work continued thereafter was not effectively controverted.

The alleged Measurement Book evidence was not accepted because the appellants failed to produce the relevant original Measurement Book, while the computer-generated documents had been prepared shortly before the witness’s affidavit and lacked identifying particulars, seals, and signatures.

The Court therefore found that the 87.5% figure was more consistent with the evidentiary record.

The rescission order dated 26 May 2010 was therefore illegal.

The Court further upheld the finding that the respondent had completed approximately 87.5% of the contractual work and rejected the later unsupported assessment of 67%.

Consequently, the imposition of penalty and liquidated damages was set aside, and the monetary relief for the outstanding contractual dues, including ₹2,98,76,518.39 with interest at 6% per annum, was affirmed.

The appeal was dismissed with costs, and the Trial Court record was directed to be returned to the concerned court.