Bombay HC: If An Employee Is Exonerated In Disciplinary Proceedings, Interest Ought To Be Provided On Delayed Payment Of Retirement Benefits

 Thus, from a bare perusal of the order dated 09.05.2023, it is evident that the order imposing penalty dated 30.09.2008 and the rejection order dated 09.01.2013 were set aside on the ground of procedural irregularities. The said orders being set aside, S.M. Pillay would have to be treated as having retired on 31.01.2007 with a clean slate, consequently, being entitled to his retiral benefits, pension, etc. on the date of his retirement. The said payments were withheld on account of the pending disciplinary proceedings. In view of the exoneration of S.M. Pillay in the disciplinary proceedings, the Petitioner would be entitled to interest on the delayed payment. Retirement benefits being due to him w.e.f. the date of his retirement, the delay in payment would have to be considered from 31.01.2007. {Para 9}

10. With reference to the contention of the learned Advocate for the Respondents that the proceedings filed by S.M. Pillay against the penalty order being abated, consequently Petitioner not being entitled to interest, will have to be rejected in view of the specific observation in the order dated 09.05.2023 which has set aside the penalty order on the ground of procedural irregularity. Mere observation that the proceedings stood abated would not come to the aid of the Respondent No.2 to deny Petitioner interest on delayed payments of the retiral benefits payable to S.M. Pillay. This is more so on account the fact that his retiral dues were withheld on account of the pending disciplinary proceedings.

11. S.M. Pillay retired from service on 31.01.2007 upon attaining the age of superannuation. Though S.M. Pillay was placed on the suspension on 22.01.2007, he was served with the charge memo on 05.02.2007. It is trite law that the departmental proceedings is not initiated merely by issuance of show cause notice, it is initiated only when charge-sheet is issued (see Union of India & Others versus K.V. Jankiraman MANU/SC/0445/1991 : 1991:INSC:209 : (1991) 4 SCC 109). Mr. Bhaskar Reddy, learned Advocate for the Petitioner submitted that the said Rules do not contemplate disciplinary proceedings after retirement of the employees. Mr. Tushad Kakalia, learned Advocate for Respondent No.2 was unable to point out any provision in the said Rules which would enable the Respondent No.2 to initiate or continue proceedings upon the retirement of its employees. This is an additional ground to hold that S.M. Pillay was denied his retirement dues, upon his retirement.

12. Upon exoneration of S.M. Pillay, the period of suspension Petitioner i.e. 22.01.2007 to 31.01.2007 would have to be considered on duty and consequently, he would be entitled to his full pay during the said period, less the subsistence allowance paid during the said period. 

IN THE HIGH COURT OF BOMBAY

Writ Petition No. 1918 of 2025

Decided On: 17.04.2025

Maheshwari Shanmugam Pillay Vs. Union of India and Ors.

Hon'ble Judges/Coram:

R.V. Ghuge and Ashwin D. Bhobe, JJ.

Author: Ashwin D. Bhobe, J.

Citation: 2025:BHC-AS:17375-DB,MANU/MH/2387/2025.

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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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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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