What is concept of reimbursement of unjust enrichment regarding Government Contract?

 Taking into account the legal position as enunciated in these judgments, the impugned award holds that the absence of a contract would not deprive the respondent/contractor from a reasonable remuneration for the work performed. The view taken in the impugned award is plausible, and based on an application of law laid down in the judgements referred to therein. Reference is also apposite to the judgment of a co-ordinate bench of this Court in M.C.D. v. Ravi Kumar, MANU/DE/4058/2017, where this Court had occasioned to specifically consider an identical issue, viz :-

"(i) Whether in absence of a formal agreement/contract awarding additional works to the respondent, the respondent is entitled to make a claim for such work?"

{Para 30}

31. As regards the above issue, this court held as under :-

"12. Interpreting the said provision, Supreme Court in case of Mulamchand v. State of Madhya Pradesh MANU/SC/0009/1968 : AIR 1968 SC 1218, held that in the absence of a formal contract between Dominion of India and a private individual not in the form required by Section 175(3) of the Government of India Act, 1935, the same was void and cannot be enforced, however, at the same time, if money is deposited and goods are supplied or if services are rendered in terms of the void contract, the provisions of Section 70 of the Indian Contract Act may be applicable and where a person has lawfully done something for other not intending it to be done gratuitously and the other person enjoys the benefit thereof then such other person shall become liable to make compensation to the former in respect of, or to restore, the things so done or delivered.

 IN THE HIGH COURT OF DELHI

O.M.P. (Comm) 405/2023, IA Nos. 19196/2023 and 19198/2023

Decided On: 03.10.2023

Bharat Sanchar Nigam Ltd. Vs. Vihaan Networks Ltd.

Hon'ble Judges/Coram:

Sachin Datta, J.

Citation: MANU/DE/6799/2023.

Read full Judgment here: Click here.

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Whether the contractor is entitled to get the payment for work allegedly executed by it even if no concluded contract came into existence?

It is highlighted at the cost of repetition that works in question had been undertaken by the Claimant for which it has incurred the expenditure. This was done at the instance of USOF/BSNL. Had the work been finally awarded, the Claimant would have recovered the amount of expenditure. Since that is not done, the Claimant would be entitled to the expenditure incurred in view of the provisions of Section 70 of the Contract Act, which reads as under:

"70. Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."{Para 114}

115. This provision incorporates the doctrine Quantum Meruit. According to contract law, quantum meruit is a doctrine that states there is an inferred promise to pay a fair amount for work and the materials provided, even without a lawful, enforceable agreement between the parties. A party who carries out a worthwhile service for another party normally participates in a written, legally binding agreement or contract before fulfilling the service, especially when the party providing the service is in the business of executing that service."

 Likewise, the conclusion that the respondent/claimant was entitled to reimbursement of expenses incurred by it notwithstanding absence of a concluded contract was predicated upon Section 70 of the Contract Act which incorporates the doctrine of quantum meruit. The said view is not liable to be interfered, particularly on the touchstone of Section 34 of the A & C Act, 1996. (Para 28)

 IN THE HIGH COURT OF DELHI

O.M.P. (Comm) 405/2023, IA Nos. 19196/2023 and 19198/2023

Decided On: 03.10.2023

Bharat Sanchar Nigam Ltd. Vs. Vihaan Networks Ltd.

Hon'ble Judges/Coram:

Sachin Datta, J.

Citation: MANU/DE/6799/2023.

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Whether act of State of not deciding application of other party to contract within reasonable time amounts violation of article 14 of constitution?

 In Mansaram v. S.P. Pathak and Ors. MANU/SC/0363/1983 : (1984) 1 SCC 125 this Court has observed that when a power exists to effectuate a purpose it must be exercised within a reasonable time. It has been observed that this is all too well-settled principle to require buttressing precedent. Nonetheless, the Court refers to State of Gujarat v. Patel Raghav Natha MANU/SC/0406/1969 : (1969) 2 SCC 187 wherein the period of one year was found to be too long for the Commissioner to exercise revisional jurisdiction Under Section 211 of the Bombay Land Revenue Code. The principle of reasonable time as mentioned herein was followed recently by a Two-Judge Bench in Securities and Exchange Board of India v. Sunil Krishna Khaitan and Ors. MANU/SC/0846/2022 : (2023) 2 SCC 643. {Para 35}

36. Keeping in view the above-stated well established principles that State action irrespective of being in the contractual realm must abide by Article 14, and that a) after passage of a considerable period of time, in July, 2004 the reduction to 10000 KVA was agreed to and a new agreement to that effect was entered into; b) irrespective of the amount of reduction in KVA sought other applications were considered within a reasonable period of time; c) no reason has been put forth for keeping such application pending; d) that the Appellant duly and repeatedly followed up with the authorities to effectuate such reduction; and e) the Appellant has been unjustifiably asked to furnish costs for unutilized electricity which, in any case should not have extended beyond the period of six months (considering 'reasonable period' to consider an application, to be so), for a period much larger thereto, rendering such action unquestionably unreasonable and arbitrary.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 7224-7226 of 2009

Decided On: 06.07.2023

The Madras Aluminium Co. Ltd. Vs. The Tamil Nadu Electricity Board and Ors.

Hon'ble Judges/Coram:

B.R. Gavai, Sanjay Karol and Aravind Kumar, JJ.

Author: Sanjay Karol, J.

Citation: 2023/INSC/607, MANU/SC/0743/2023.

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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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How to appreciate evidence in suit for recovery of money for supply of goods to government department?

 The plaintiff has filed affidavit under Order 18 Rule 4 CPC reiterating the plaint averment saying that he has supplied the material to the Block Development Officer Farasgaon valued at Rs. 61,464/-. In the cross examination he has admitted that no order has been issued in his favour for supply of material. It has stated that as per document (Ex.P-4) he was directed to supply material, which was supplied by him and additional to that order supply was demanded which he has provided and receipt has been obtained. He has also stated that he has no knowledge whether the material supplied to the defendants has been mentioned in the stock register or not. He has reiterated that for supply of goods two cheques of Rs. 20,000/- and 40,000/- have been issued on 14.07.2000, but the said cheques were not honoured and returned unpaid due to insufficient fund in the account on 10.01.2001. He has further admitted that he has filed a complaint before Chief Judicial Magistrate under section 138 of Negotiate Instruments Act which was dismissed for want of prosecution. {Para 6}

7. The defendants have examined in their support Devi Prasad Rai, Principal Govt. Higher Secondary School Farasgaon and BEO Farasgaon who has deposed in his examination-in-chief that tender is called when purchase of material is valued more than twenty thousand and tender will be allotted to the lowest quoted persons. As per office of Block Education Officer there is no mention about payment to plaintiff in cash or through cheque, if any material is received in the office then it has to be mentioned in the stock register. He has further stated that plaintiff has not given any bill to Block Education Officer, Farasgaon and purchase order has not been issued by the office. The witness was cross examined and in the cross examination he has denied that any order was given to the plaintiff. He has also denied that cheque (Ex.P-5) has been issued from the office. He has denied that plaintiff

is entitled to get interest on the some dues and he has stated that since no record is available in the office he has given this statement.

It is well settled legal position, that the genuineness of the document has to be proved by the plaintiff who relies upon the document and thereafter it is for the defendants to dislodge the

credibility of the document as fake, sham and bogus document. In the present case, the plaintiff has failed to establish that the work order was issued in his favour and genuineness of the challan has also not been proved. It is incumbent upon the plaintiff to examine the witnesses who has delivered the goods and thereafter the concerning officer has put his signature on the challan, no witnesses was examined by the plaintiff in his support. It is well settled practice in the government department that supply order is always made in writing but no

work order has been placed by the plaintiff before the trial Court. 

19. In the light of the law laid down by Hon'ble Supreme Court and considering the fact that the plaintiff has failed to prove that he has supplied the material despite this, the learned trial Court has held that plaintiff has supplied material to the defendants and he is entitled to receive Rs. 60,000/- along with interest @ 6% per annum from 2004 till the payment is actual made is perverse, contrary to record and deserves to be set aside by this Court.

HIGH COURT OF CHHATTISGARH, BILASPUR

FA No. 120 of 2007

State of Chhattisgarh  Vs M/s. Hindustan Supply Agency, 

Hon'ble Shri Justice Narendra Kumar Vyas

Judgment Delivered on 20/04/2022

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Whether government can refuse to grant disability pension to employee if he has waived his right to claim disability pension?

 As held by this Court, a Right to Equality guaranteed

under Article 14 of the Constitution of India would also apply

to a man who has no choice or rather no meaningful choice,

but to give his assent to a contract or to sign on the dotted

line in a prescribed or standard form or to accept a set of

rules as part of the contract, however unfair, unreasonable

and unconscionable a clause in that contract or form or rules

may be. We find that the said observations rightly apply to

the facts of the present case. Can it be said that the mighty

Union of India and an ordinary soldier, who having fought for

the country and retired from Regular Army, seeking reemployment

in the Territorial Army, have an equal

bargaining power. We are therefore of the considered view

that the reliance placed on the said document would also be

of no assistance to the case of the respondents.

25. The respondents herein are directed to grant disability

pension to the appellant in accordance with the rules and

regulations as are applicable to the Members of the

Territorial Army with effect from 1st January 2012. The

respondents are directed to clear arrears from 1st January

2012 within a period of three months from the date of this

judgment with interest at the rate of 9% per annum. {Para 23}

 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2275 OF 2019

PANI RAM  Vs  UNION OF INDIA 

Author: B.R. GAVAI, J.

Dated: DECEMBER 17, 2021.

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Can Municipal corporations include a term in the works contract that they will make payments to the contractor as and when funds in a particular budget head are available?

  As per Himani Alloys Ltd. v. Tata Steel Ltd. (2011) 15 SCC 273 cited by the Corporation, the test for the invoking of Order XII Rule 6 of the CPC being that the admission so made must clear and unequivocal, on the face of which it is impossible for the party making it to succeed. In the light of the stand in the written statement, there is a clear admission as to the final bill amount as also that the Contractor has to wait in a queue. Thus the Trial Court has rightly invoked the provisions of Order XII Rule 6.{Para 55}

Conclusions and Findings

56. The General Conditions of Contract i.e., clauses 7 and 9 which are admittedly part of the work orders issued by both the NrDMC and the EDMC are being tested in these batch of cases. A contract which stipulates that the consideration would be paid in an unforeseen time in the future based on certain factors which are indeterminable, would in effect be a contract without consideration. Even if the contract is held to be a valid contract, then the concept of `reasonableness' has to be read into the same. Section 46 of the Contract Act and the explanation thereto is clear that “what is a reasonable time is a question of fact in each case.” A Corporation which gets works executed cannot therefore include terms in the contract which are per se unconscionable and unreasonable as -

a) There is no fixed time period as to when the funds would be available;

b) There is also no fixed mechanism to determine as to when and in what manner the head of account is to be determined and as to how the Contractor would acquire knowledge of these two facts;

c) There is also no certainty as to how many persons are in the queue prior to the Contractor and for what amounts;

d) There is enormous ambiguity in the receipt under the particular heads of accounts.

57. These clauses in effect say that the Contractor is left with no remedy if the Corporation does not pay for the work that has been executed. Such a Clause would be illegal and contrary to law. Such clauses, even in commercial contracts, would be contrary to Section 25 read with Section 46 of the Contract Act.

58. The clauses do not specify an outer time limit for payment. The expression reasonable time has to be `a time'. The concept of time itself is ensconced with specificity and precision. Clause 9 is the opposite of being precise. It is as vague and ambiguous as it could be because it depends on factors which are totally extraneous to the contract, namely -

 Allotment of funds to the Corporation by the Government;

 Allotment of funds in a particular head;

 Allotment of funds for payments who are in queue prior to the contractor;

59. Thus, these factors, which are beyond the control of the Contractor and which would govern the payment of consideration, make the said clauses of the contract completely unreasonable. The clauses have to thus, be read or interpreted in a manner so as to instill reasonableness in them.

60. By applying the above said principles, in respect of final bills raised by Contractors for works executed, that have been approved by the Engineer-in-Charge, the Clauses have to be read in the following manner:

a) Reasonable time for making of payments of final bills in respect of work orders up to Rs.5 lakhs shall be 6 months and work orders exceeding Rs.5 lakhs shall be 9 months from the date when the bill is passed by the Engineer-in-Charge.

b) The queue basis can be applicable for the payments to be made in chronology. However, the outer limit of 6 months and 9 months cannot be exceeded, while applying the queue system.

c) The payments are held to become due and payable immediately upon the expiry of 6 months and 9 months and any non-payment would attract payment of interest for the delayed periods.

d) A conjoint reading of Clauses 7 & 9 along with the amendment dated 19th May, 2006, clearly shows that for the payment of bills, the contractors have to follow the queue basis and as and when the amount is available under the particular head of account, the amount would be payable. The amendment does not, however, have a condition that no interest is payable for delayed payment. Such a condition exists only in Clause 7. Clause 9, therefore, when read with the amendment has to mean that the Corporation itself considers 6 months and 9 months to be the reasonable periods for which the payments of the final bills can be held back.

e) To the extent that queue basis is applied only for clearing of payments which do not extend beyond the period of 6 months and 9 months period, it is reasonable. However, if the queue basis is applied in order to make Contractors wait for indefinite periods for receiving payments, then the same would be unreasonable and would have to therefore be read down.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

 RFA 160/2017 & CM APPL. 5807/2017 (Stay)

NORTH DELHI MUNICIPAL CORPORATION  Vs VIPIN GUPTA 

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Guidelines of Delhi high court for avoidance of delay in payment of contractual amount to contractor in government contract

 The present guidelines are being issued in all the appeals. The Court has had the opportunity of perusing the trial court records in all these 43 appeals. A perusal of the records reveals the following:-

1. In most cases, the Contractors who are awarded the work orders do not submit the interim or final bills to the Engineer-in-Charge for approval;

2. The final measurement recordal is done by the Engineer-in-Charge;

3. The final bill is also prepared and passed by the Engineer-in-Charge on his own accord and the Contractor then accepts it;

4. The procedure for obtaining labour clearance certificate from the Labour Officer is not followed;

5. Once the bills are passed, Contractors are made to wait endlessly for their payments on the ground of non-availability of funds;

6. Even for refunds of Security Deposit and Earnest money deposits, the Contractor is made to wait till the final payment is made;

7. The measurement books and the photographs of work, actually carried out, are not produced in evidence.

The above process is contrary to the General Conditions of Contract. It is therefore, necessary and important that all the steps of the Contract are followed by the Contractors and the Corporations. The following guidelines are being passed:

1. Along with the work order, all the Clauses of the General Conditions of Contract should be attached;

2. On the award of the Work order, periodic inspections of the work being carried out should be done by the Engineer-in-Charge;

3. If possible, photographs of the works at different stages should be taken and maintained on the record;

4. Interim bills should be submitted by the Contractor – duly certifying the work which has been carried out;

5. Final bills should be submitted by the Contractor – duly certifying the work carried out along with photographs;

6. The Bill should be scrutinised by the Engineer-in-Charge, works should be recorded in the measurement book and thereafter, the bill should be passed;

7. Once the Bill is passed, the payment schedule of 6 months and 9 months should be adhered to. Delay in payments would result in Interest being levied;

8. For refunds of Security deposit and Earnest Money deposit, the Contractor should unscrupulously comply with the conditions in Clauses 17 and 45. For refunds to be made, payment of final bill need not be awaited. Once the conditions of Clauses 17 and 45 are complied with and the final bill is passed, refunds ought to be made;

9. In suits relating to recovery of Contractor’s dues, all the evidence including the NIT, General Conditions of Contract, periodic inspection reports, Final bill as submitted, Final bill as passed, Measurements carried out, Photographs etc., should be produced and duly exhibited.

10. IT infrastructure ought to be created to maintain records of the work orders, inspection reports, final bills, photographs etc., digitally, as it is noticed that the trial court record does not contain all the relevant documents and in several cases, different versions of clauses are relied upon by both sides, bills are not properly understandable and there is no evidence of actual inspections or measurements having been taken. Maintenance of digital records will make it more transparent and easily accessible for the officials and for production in the Court in case of future litigation.

Adherence to the above shall ensure that the works are duly carried out as per the quality standards prescribed and there is proper record of work being done. Once the work is carried out payments ought not to be delayed, inasmuch as delay in payments compromises on availability of quality civil work for the Corporations, who take care of basic amenities for citizens such as roads, pavements, civil works, sewerage lines etc.

These guidelines shall be read along with the judgments pronounced today in these appeals.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

 RFA 160/2017 & CM APPL. 5807/2017 (Stay)

NORTH DELHI MUNICIPAL CORPORATION  Vs VIPIN GUPTA 

CORAM:

JUSTICE PRATHIBA M. SINGH

Date of decision :22nd March, 2018

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Can an arbitrator award interest on delayed payment of the contractual amount in a government contract?

  In the case of Bright Power Projects (supra), it has been opined by this Court that unless otherwise agreed by the parties, the Arbitral Tribunal can award interest at reasonable rate for a period commencing from that date when the cause of action arises till the date of the award. In the dispute which forms the subject ­matter of this appeal, being the agreement, there was no specific exclusion of payment of interest on delayed payment in relation to the local currency component.

12. On the other hand, the specific term of the agreement entered into by and between the parties provided for payment of interest on delayed payment as terms of the contract. What was not specifically agreed upon was the rate at which such interest would be paid. The blank space in the “appendix to the bid”, in our opinion, cannot be construed as cancellation of the clause providing for payment of interest of delayed release of funds. We do not think the Appellate Court or the Arbitration Court was right in adopting the approach that by not specifying the blank space provided for filling in the interest rate. We are of the view that to come to such an inference, active exclusion of payment of interest under that head was necessary to have been incorporated in the agreement. Though the case of G.C. Roy (supra) was delivered in a dispute to which the 1940 Act was applicable, the Constitution Bench of this Court has laid down certain general proposition or principle on the aspect of grant of interest. This general proposition was referred to by the Tribunal. It has been held in paragraph 43.1 of the Report (in the case of G.C. Roy):­
“43. The question still remains whether arbitrator has the power to award interest pendent lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.....”

13. The underlying principle guiding award of interest is that interest payment is essentially compensatory in nature. But as we have already observed, in the case before us, interest on delayed payment formed part of the contract itself. The agreement did not contain any express exclusion clause on payment of interest on delayed payment whether on component of payment in foreign currency or local currency. We accept the reasoning of the Tribunal on the basis of which it rejected the respondents’ plea of waiver. 

Supreme Court

JUSTICE SURYA KANT JUSTICE ANIRUDDHA BOSE

M/s. Oriental Structural Engineers Pvt. Ltd. Vs. State of Kerala

CIVIL APPEAL NO. 3454 OF 2011

22nd April 2021

Author: ANIRUDDHA BOSE, J.

Citation: 2021 ALL SCR (ONLINE) 242

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Whether a party can refuse to pay damages for delay caused in the performance of the contract due to its conduct taking the defence of contractual term?

 Clause 59 prima facie prohibits the claim for compensation by the Contractor on account of the delays and defaults or whatever reasons and that only reasonable extension of time is permissible. The learned Arbitrator considering this issue interpreted the same to mean the escalation of prices is not covered by Clause 59 and what is contemplated under Section 59 is only compensation for the delays committed and it never prohibited the Contractor from claiming the escalation charges. When once the term of the contract has been interpreted, which is always permissible for the Arbitrator under Clause 73, which is widely worded, the interpretation placed by the Arbitrator has to be accepted. Therefore, when once the Arbitrator is clothed with the jurisdiction by virtue of Clause 73, temporary injunction is always open for him to interpret and construe the terms of the contract. The Department having failed to handover the site properly in accordance with the terms and conditions of the contract and having disabled the Contractor from executing the work as per the schedule on account of the various obstacles created including the non-initiation of the Land Acquisition proceedings, can it be said that still Clause 59 can be successfully invoked by the Department. It is well settled law that a person, who breaches the contract or who violates the contract is liable for damages or consequences and this clause cannot be interpreted to mean that whatever the defaults or breaches committed by the Department, the Department becomes immune from consequences. Such stipulation in the contract is highly arbitrary and unreasonable and the Division Bench of this Court has already held such a stipulation, even though it was agreed by the parties, but at the same time, when it is patently one sided and suppressed the Contractor, it cannot be said to be valid contract. Such a contract can be said to be opposed to the public policy. Obviously, it goes to establish that the Department cannot interfere with the integrity of the contract. While at the same time the Contractor cannot be allowed to interfere with the integrity of the contract, the primary intendment of the Clause 59 is not to allow the Contractor to go for compensation. On the other hand, the Department is entitled to grant reasonable extension which implies that reasonable extension of time without disturbing the work schedule is permissible, but when unreasonable extension is granted, it cannot be said that the Clause 59 also covers the situation. In case of a contract, which is liable to be executed within 12 months, a reasonable extension of one or two months can be granted by the authorities in which event, the Contractor will not be liable to claim compensation. But, if the extension is granted for a wholly unreasonable period and left asking the Contractor not to claim compensation is not contemplated under Section 59. The reasonable extension of time is sine qua non for invoking Clause 59, if the extension is unreasonable, Clause 59 will come into play. Admittedly, in the instant case, it was completed in 1985 and the work which was scheduled to be completed within 15 months has taken 5 years and which was accepted and the learned Arbitrator found that the delays were completely attributable to the Department. Therefore, even though extension was granted, since the extension is not a reasonable extension and in the guise of extending the time, the Contractor cannot be allowed to suffer the loss of escalation of the prices and connected liabilities. {Para 93}

Andhra High Court

T.A. Choudhary vs State Of A.P. And Ors. on 1 May, 2003

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Whether arbitrator can grant increase in prices if there is delay in performance of contract due to fault of one party?

P.M. Paul v. Union of India [1989 Supp (1) SCC 368] is a case which is almost identical on facts. In this matter the work could not be completed during the period of the contract and the contractor was accordingly granted extension of time to complete the same. By an order of this Court, the dispute was referred to an arbitrator on the reference as to who was responsible for the delay in the completion of the work, what were to be the repercussions of the delay and how to apportion the responsibility and the consequences. The arbitrator made an award in favour of the contractor which was duly challenged by the Union of India with the matter finally reaching this Court at the instance of the contractor and this is what the Court had to say : (SCC p. 373, para 13)

“13. It was submitted that if the contract work was not completed within the stipulated time which it appears was not done then the contractor has got a right to ask for extension of time, and he could claim difference in price. This is precisely what he has done and has obtained a portion of the claim in the award. It was submitted on behalf of the Union of India that failure to complete the contract was not the case. Hence, there was no substance in the objections raised. Furthermore, in the objections raised, it must be within the time provided for the application under Section 30 i.e. 30 days during which the objection was not specifically taken, we are of the opinion that there is no substance in this objection sought to be raised in opposition to the award. Once it was found that the arbitrator had jurisdiction to find that there was delay in execution of the contract due to the conduct of the respondent, the respondent was liable for the consequences of the delay, namely, increase in prices. Therefore, the arbitrator had jurisdiction to go into this question. He has gone into that question and has awarded as he did.”{Para 19}

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 3376-3337 of 2008

Decided On: 07.05.2008

Associated Construction  Vs. Pawanhans Helicopters Pvt. Ltd.

Hon'ble Judges/Coram:

Tarun Chatterjee and H.S. Bedi, JJ.

Author: H.S. Bedi, J.

Citation: AIR2008SC 2911, 2008(2)ARBLR473(SC ), 2008 (3) AWC 3048 (SC ), 2008-4-LW926, 2009(1)RC R(C ivil)34,

2008(8)SC ALE451, (2008)16SC C 128,MANU/SC/7630/2008

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Whether claimant can be granted escalation charges proportionate to delay caused by other side?

This will require the Court to consider the additional plea urged on behalf of the Plaintiff, namely, that the High Court was not justified in reversing the decree passed by the learned trial Court so far as 50% of the escalation charges is concerned.

12. The High Court in coming to the aforesaid conclusion took the view that the specific clause in the agreement which obliges the Plaintiff to continue to offer his rates for the entire duration of the contract prohibits grant of the said claim. We have also noticed that it is the Defendant's own case that it was responsible for the delay to the extent of nineteen and half (19 1/2) months that had occurred in the execution of the contract whereas the Plaintiff was responsible for the delay of the remaining fifteen and half (15 1/2) months. The said specific admission on the part of the Defendant and the finding arrived at by the High Court on the aforesaid basis could not have permitted the High Court to reverse the decree passed by the learned trial Court on the aforesaid count which coincidentally entitled the Plaintiff to only 50% of the escalation charges, as claimed. The aforesaid percentage (50%) roughly corresponds to the percentage of the delay attributable to the Plaintiff out of the total delay of 35 months. The clause in the contract which obliged the Plaintiff to continue to offer the rates initially offered by him would, naturally, be for the duration of the contract and cannot work to his peril for the period of delay for which the Department was admittedly responsible. Such a construction of the clause in the contract would not be reasonable. We, therefore, reverse the aforesaid finding of the High Court and hold that the Plaintiff would be entitled to the 50% of the escalation charges as decreed by the learned trial Court.

IN THE SUPREME COURT OF INDIA

C.A. No. 1034/2008

Decided On: 21.03.2017

 Aries & Aries Vs.  Tamil Nadu Electricity Board

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How to ascertain limitation for claiming compensation for extra work done?

Article 18 of the Limitation Act, 1963 provides for tiling of a suit for recovery of money for work done by the Plaintiff, within three years from the date when the work is done, in a situation where no time has been fixed for payment. Article 55 of the Limitation Act, 1963 on the other hand, provides for limitation of three years from the date of breach of a contract in a case of a suit for compensation for damages arising out of such breach. Article 113 of the Limitation Act, 1963 is the residuary provision which provides for a suit to be instituted within three years from the date when the right to sue accrues.

10. In the present case, de hors the correspondences that had been exchanged by and between the parties after the date of final payment i.e. 13th January, 1981, the aforesaid date of final payment would have been crucial for determination of the period of limitation for filing the instant suit. However, in the present case, from the correspondences that had been exchanged after the date of final payment it clearly appears that the Plaintiff after receipt of the payment on 13th January, 1981, reiterated its claim for additional payment on different counts including escalation and for extra works done. The Defendant instead of rejecting the said claim entertained the same and kept the matter pending. Finally on 6th November, 1981 (Exhibit P-2) the said claims were rejected. If the claims raised by the Plaintiff were entertained and rejected finally on 6th November, 1981, it would be reasonable to assume that the cause of action for the suit in respect of the said rejected claims arose on 6th November, 1981 and the suit could have been filed at any point of time prior to the expiry of three years from the said date i.e. 6th November, 1981 in view of Article 113 of the Limitation Act, 1963. The suit having been filed on 6th November, 1984, the same, therefore, will have to be considered to be within the period of limitation. The High Court, therefore, was not justified in holding the contrary.

IN THE SUPREME COURT OF INDIA

C.A. No. 1034/2008

Decided On: 21.03.2017

 Aries & Aries Vs.  Tamil Nadu Electricity Board

Hon'ble Judges/Coram:

Ranjan Gogoi and Navin Sinha, JJ.

Citation:(2018) 12 SCC 393

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Whether earnest money can be forfeited even if there is no forfeiture clause in contract?

 Reading of Section 74 would go to show that in order to forfeit the sum deposited by the contracting party as "earnest money" or "security" for the due performance of the contract, it is necessary that the contract must contain a stipulation of forfeiture. In other words, a right to forfeit being a contractual right and penal in nature, the parties to a contract must agree to stipulate a term in the contract in that behalf. A fortiori, if there is no stipulation in the contract of forfeiture, there is no such right available to the party to forfeit the sum.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 7665 of 2009

Decided On: 25.10.2017

 Suresh Kumar Wadhwa Vs.  State of M.P. and Ors.

Hon'ble Judges/Coram:

R.K. Agrawal and Abhay Manohar Sapre, JJ.

Citation:(2017) 16 SCC757

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Whether arbitrator can allow claim on ground of equity and contrary to terms of contract?

It is thus clear that the arbitral tribunal has awarded the said claim based on equity and contrary to the terms of the contract. The arbitral tribunal could not have decided the matter based on equity in a commercial contract. The respondent had been awarded several contracts of similar nature and was fully aware that the petitioner had not guaranteed any profit to the respondent in respect of these contracts. Merely because the respondent found the contract less profitable or non-profitable after execution of the contract, that could not be a ground for awarding any claim by the arbitral tribunal. The respondent was bound to comply with its obligation under the contract.{PARA 77

78. In paragraph 27 of the impugned award, the arbitral tribunal has held that at the relevant time, the petitioner herein was in a superior bargaining position since they were, to all intents and purposes, monopoly purchasers of the services being offered and therefore, the contractor had little choice available with him. To secure employment in the field of operation of vessels with another party was virtually impossible. It is held that in the instant case, the employment was being offered by an agency of the state from whom the operator had a right to except fair treatment. It is clear that the arbitral tribunal has erroneously applied the principles of law laid down by the Supreme Court in the case of Central Inland Water Transport case which does not apply to a commercial contract. The respondent had submitted its bid with open eyes and being a contractor in the field for last several decades could not even raise such plea that the contract was one sided or that the respondent had no bargaining power while entering into a contract with the petitioner. The award shows total perversity on this issue.

IN THE HIGH COURT OF BOMBAY

Arbitration Petition No. 549 of 2013

Decided On: 09.06.2017

 Oil and Natural Gas Corporation Ltd. Vs. Interocean Shipping (India) Pvt. Ltd.

Hon'ble Judges/Coram:

R.D. Dhanuka, J.

Citation: 2017(5) Bom CR 8

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When contractor is not entitled to claim damages from government?

There is another perspective on the method or manner in which limitation is to be computed. We have already narrated that the Respondent, on every occasion when the extension was sought by it, had requested to be compensated for delay. The Appellant State had granted the extensions but had repudiated and rejected the Respondent's claims for damages. The effect of these events would be that the cause of action for making the claim for damages indubitably arose on each of those occasions. It is certainly arguable that the Appellant State may have also been aggrieved by the delay, although the facts of the case appear to be unfavourable to this prediction, since delay can reasonably be laid at the door of the Appellant. The Respondent, however, could prima facie be presumed to have accepted a renewal or extension in the period of performance but with the rider that the claim for damages had been abandoned by it. If this assumption was not to be made against the Respondent, it would reasonably be expected that the Respondent should have filed a suit for damages on each of these occasions. In a sense, a fresh contract would be deemed to have been entered into between the parties on the grant of each of the extensions. It is therefore not legally possible for the Respondent to contend that there was a continuous breach which could have been litigated upon when the contract was finally concluded. In other words, contemporaneous with the extensions granted, it was essential for the Respondent to have initiated legal action. Since this was not done, there would be a reasonable presumption that the claim for damages had been abandoned and given a go-by by the Respondent.

11. In a works contract, more often than not, delays occur, and that is why it is assumed that time is not of the essence. Where extensions are asked for and granted, there must be a clear and discernable stand on behalf of either of the parties that the extension is granted and/or accepted without prejudice to the claim of damages. It has become commonplace that neither party lodges a claim for damages, but waits for the end of the contract to raise these disputes, taking advantage of the nebulous and equivocal nature of the transactions between them. This, however, is not the position that obtains before us since the Appellant State had categorically posited that the claim for damages for the alleged delay on its part would not be entertained.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 1770 of 2005

Decided On: 16.10.2015

 State of Gujarat Vs. Kothari and Associates

Hon'ble Judges/Coram:

Vikramajit Sen and Shiva Kirti Singh, JJ.

Citation:(2016) 14 SCC 761

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What is scope of judicial review in matters relating to award of contract by state?

The scope of judicial review in matters relating to
award of contract by the State and its instrumentalities is
settled by a long line of decisions of this Court. While these
decisions clearly recognize that power exercised by the
Government and its instrumentalities in regard to allotment
of contract is subject to judicial review at the instance of an
aggrieved party, submission of a tender in response to a
notice inviting such tenders is no more than making an offer
which the State or its agencies are under no obligation to
accept. The bidders participating in the tender process
cannot, therefore, insist that their tenders should be

accepted simply because a given tender is the highest or
lowest depending upon whether the contract is for sale of
public property or for execution of works on behalf of the
Government. All that participating bidders are entitled to is
a fair, equal and non-discriminatory treatment in the matter
of evaluation of their tenders. It is also fairly well-settled
that award of a contract is essentially a commercial
transaction which must be determined on the basis of
consideration that are relevant to such commercial decision.
This implies that terms subject to which tenders are invited
are not open to the judicial scrutiny unless it is found that
the same have been tailor made to benefit any particular
tenderer or class of tenderers. So also the authority inviting
tenders can enter into negotiations or grant relaxation for
bona fide and cogent reasons provided such relaxation is
permissible under the terms governing the tender process.
9. Suffice it to say that in the matter of award of contracts
the Government and its agencies have to act reasonably and
fairly at all points of time. To that extent the tenderer has an
enforceable right in the Court who is competent to examine
whether the aggrieved party has been treated unfairly or

discriminated against to the detriment of public interest.
(See: Meerut Development Authority v. Association of
Management Studies and Anr. etc. (2009) 6 SCC 171
and Air India Ltd. v. Cochin International Airport Ltd.
(2000) 1 SCR 505).
 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10751 OF 2013
(Arising out of S.L.P. (C) No.18405 of 2012)
Maa Binda Express Carrier and Anr
V
Northeast Frontier Railway and Ors. 
Citation : (2014) 3 SCC 760.

Dated:November 29, 2013

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Leading Supreme court judgment on Damages

Justice Bhagwati (as His Lordship then was)
speaking for the Bench examined the issue in great
detail in the light of law laid down by English and
Indian Courts. The learned Judge in his distinctive
style of writing after examining the entire case law on
the subject held that an expression "sum due"
occurring in Clause 18 would mean a sum for which
there is an existing obligation to pay in praesenti or in

other words which is presently payable and due and,
therefore, recovery of only such sums can be made
subject matter of Clause 18 which is presently payable
and due. It was held that a claim, which is neither
due and nor payable, cannot be made subject matter
of Clause 18. It was further held that Clause 18 does
not create a lien on other sums due to the contractor
or give to the purchaser a right to retain such sums
until his claim against the contractor is satisfied. It
was also held that a claim for damages for breach of
contract is not a claim for a sum presently due and
payable and the purchaser is not entitled in exercise of
the right conferred upon it under Clause 18 to recover
the amount of such claim by appropriating other sums
due to contractor.
39) Their Lordships approved the view taken by
Chagla C.J. in the case of Iron and Hardware (India)
Co. vs. Firm Shamlal and Bros., AIR 1954 Bom.423
by observing in para 11 as under.

“11. ………………………………………………….The same
view has also been taken consistently by different
High Courts in India. We may mention only a few
of the decisions, namely, Jabed Sheikh v. Taher
Mallik,AIR 1941 Cal 639 S. Milkha Singh v. N.K.
Gopala Krishna Mudaliar, AIR 1956 Punj 174 and
Iron and Hardware (India) Co. v. Firm Shamlal
and Bros., AIR 1954 Bom 423. Chagla, C.J. in the
last mentioned case, stated the law in these terms:
(at pp. 425-26)
In my opinion it would not be true to
say that a person who commits a breach of
the contract incurs any pecuniary liability,
nor would it be true to say that the other
party to the contract who complains of the
breach has any amount due to him from the
other party.
As already stated, the only right which
he has is the right to go to a Court of law and
recover damages. Now, damages are the
compensation which a Court of law gives to a
party for the injury which he has sustained.
But, and this is most important to note, he
does not get damages or compensation by
reason of any existing obligation on the part
of the person who has committed the breach.
He gets compensation as a result of the fiat
of the Court. Therefore, no pecuniary liability
arises till the Court has determined that the
party complaining of the breach is entitled to
damages. Therefore, when damages are
assessed, it would not be true to say that
what the Court is doing is ascertaining a
pecuniary liability which already existed. The
Court in the first place must decide that the
defendant is liable and then it proceeds to
assess what that liability is. But till that
determination there is no liability at all upon
the defendant.

This statement in our view represents the correct
legal position and has our full concurrence. A claim
for damages for breach of contract is, therefore,
not a claim for a sum presently due and payable
and the purchaser is not entitled, in exercise of the
right conferred upon it under clause 18, to recover
the amount of such claim by appropriating other
sums due to the contractor. On this view, it is not
necessary for us to consider the other contention
raised on behalf of the respondent, namely, that on
a proper construction of clause 18, the purchaser
is entitled to exercise the right conferred under
that clause only where the claim for payment of a
sum of money is either admitted by the contractor,
or in case of dispute, adjudicated upon by a court
or other adjudicatory authority. We must,
therefore, hold that the appellant had no right or
authority under clause 18 to appropriate the
amounts of other pending bills of the respondent in
or towards satisfaction of its claim for damages
against the respondent and the learned Judge was
justified in issuing an interim injunction
restraining the appellant from doing so.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4814 OF 2016

M/s Gangotri Enterprises Ltd.  V Union of India & Ors. 
Dated:May 05, 2016.

Citation:(2016) 11 SCC 720

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When encashment of bank guarantee is not permissible?

Coming now to the facts of the case at hand, we
find that wordings of Clause 62 of the contract in
question with which we are concerned is identical to

that of Clause 18 of Union of India (DGS&D) (supra).
Clause 62 of GCC provides for determination of
contract owing to default of contractor. The relevant
portion of Clause 62 reads as under:
“The amounts thus to be forfeited or
recovered may be deducted from any
moneys then due or which at any time
thereafter may become due to the Contractor
by the Railway under this or any other
contract or otherwise.”
42) On perusal of the record of the case, we find that
firstly, arbitration proceedings in relation to the
contract dated 22.08.2005 are still pending. Secondly,
the sum claimed by the respondents from the
appellant does not relate to the contract for which the
Bank Guarantee had been furnished but it relates to
another contract dated 22.08.2005 for which no bank
guarantee had been furnished. Thirdly, the sum
claimed by the respondents from the appellant is in
the nature of damages, which is not yet adjudicated
upon in arbitration proceedings. Fourthly, the sum
claimed is neither a sum due in praesenti nor a sum

payable. In other words, the sum claimed by the
respondents is neither an admitted sum and nor a
sum which stood adjudicated by any Court of law in
any judicial proceedings but it is a disputed sum and
lastly, the Bank Guarantee in question being in the
nature of a performance guarantee furnished for
execution work of contract dated 14.07.2006 (Anand
Vihar works) and the work having been completed to
the satisfaction of the respondents, they had no right
to encash the Bank Guarantee.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4814 OF 2016
(ARISING OUT OF SLP(C) No. 27052 of 2012)
M/s Gangotri Enterprises Ltd. 
V
Union of India & Ors. 
Dated:May 05, 2016.

Citation:(2016) 11 SCC 720

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Whether government can terminate contract without assigning any reason?

 We agree with the contentions advanced by
Mr. Sibal that condition no.8 of the letter of
allotment is unconscionable as it gives IOCL an
unfettered right to terminate the distributorship
without assigning any reason. In the instant case,
respondent no.2 is far weaker in economic strength
and has no bargaining power with IOCL. At the time
when the letter of allotment was issued, respondent
no.2 had no other means of livelihood and was
dependent on the grant of Indane Gas agency by IOCL
for sustenance of himself and family members. The
letter of allotment contains standard terms and
respondent nos. 2 and 3 had no opportunity to vary
the same. Condition no.8 of letter of allotment
provides for unilateral termination of
distributorship without assigning any reason which is
liable to be read down in the light of Article 14 of
Constitution of India as well as observations made by
this court in Central Inland Water Corporation
Limited’s case (supra). The relevant paragraph cited
by the learned senior counsel is reproduced
hereunder:
“89. Should then our courts not advance with
the times? Should they still continue to cling
to outmoded concepts and outworn ideologies?
Should we not adjust our thinking caps to match
the fashion of the day? Should all
jurisprudential development pass us by, leaving
us floundering in the sloughs of 19th century
theories? Should the strong be permitted to
push the weak to the wall? Should they be
allowed to ride roughshod over the weak? Should
the courts sit back and watch supinely while
the strong trample underfoot the rights of the
weak? We have a Constitution for our country.
Our judges are bound by their oath to “uphold
the Constitution and the laws”. The
Constitution was enacted to secure to all the
citizens of this country social and economic
justice. Article 14 of the Constitution
guarantees to all persons equality before the
law and the equal protection of the laws. The
principle deducible from the above discussions
on this part of the case is in consonance with
right and reason, intended to secure social and
economic justice and conforms to the mandate of
the great equality clause in Article 14. This
principle is that the courts will not enforce
and will, when called upon to do so, strike
down an unfair and unreasonable contract, or an
unfair and unreasonable clause in a contract,
entered into between parties who are not equal
in bargaining power. It is difficult to give an
exhaustive list of all bargains of this type.
No court can visualize the different situations
which can arise in the affairs of men. One can
only attempt to give some illustrations. For
instance, the above principle will apply where
the inequality of bargaining power is the
result of the great disparity in the economic
strength of the contracting parties. It will
apply where the inequality is the result of
circumstances, whether of the creation of the
parties or not. It will apply to situations in
which the weaker party is in a position in
which he can obtain goods or services or means
of livelihood only upon the terms imposed by
the stronger party or go without them. It will
also apply where a man has no choice, or rather
no meaningful choice, but to give his assent to
a contract or to sign on the dotted line in a
prescribed or standard form or to accept a set
of rules as part of the contract, however
unfair, unreasonable and unconscionable a
clause in that contract or form or rules may
be. This principle, however, will not apply
where the bargaining power of the contracting
parties is equal or almost equal. This
principle may not apply where both parties are
businessmen and the contract is a commercial
transaction. In today’s complex world of giant
corporations with their vast infrastructural
organizations and with the State through its
instrumentalities and agencies entering into
almost every branch of industry and commerce,
there can be myriad situations which result in
unfair and unreasonable bargains between
parties possessing wholly disproportionate and
unequal bargaining power. These cases can
neither be enumerated nor fully illustrated.
The court must judge each case on its own facts
and circumstances.”
31. Further, it has been rightly contended by the
learned senior counsel Mr. Sibal by placing reliance
upon Mahabir Auto Stores’s case (supra) that IOCL
being a Government of India Undertaking is bound to
act fairly, reasonably and its conduct is subject to
scrutiny on the touchstone of Article 14 of the
Constitution of India.
REPORTABLE
 IN THE SUPREME COURT OF INDIA
 CIVIL APPELLATE JURISDICTION
 CIVIL APPEAL NO.7266 OF 2009
INDIAN OIL CORPORATION LTD
 V
NILOUFER SIDDIQUI & ORS
Dated:December 1, 2015
Citation:(2015) 16 SCC125

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