Clauses in a contract that allow for indefinite delay in payment and non-payment of interest are illegal and invalid.

Prathiba M. Singh, J.

1. These are a batch of appeals which have arisen out of disputes between Contractors/Plaintiffs (hereinafter, ‘Contractors’) on the one hand and the North Delhi Municipal Corporation (hereinafter, ‘NrDMC’) and East Delhi Municipal Corporation (hereinafter, ‘EDMC’), on the other. NrDMC and EDMC are collectively referred to as ‘Corporations'. The facts in each appeal are different and hence separate judgments are being passed in each of the appeals.

2. Briefly, these are cases where various work orders were placed on Contractors by both the Corporations. The works were executed by the Contractors and thereafter, the Engineer-in-Charge has passed the final bills. Payments in respect thereof were not made. Suits for recovery were filed by the Contractors. The Trial Court decreed the suits in favour of the Contractors.

3. In respect of each of the work orders, the Contractors seek either/all of the following payments:

(a). Payment of the principal amount as passed in the final bill;

(b). Refund of security deposit;

(c). Interest on account of late payment of the principal amount, as also due to delay in refund of security deposit.

4. The Corporations rely on Clauses 7 and 9 of the General Conditions of Contract in respect of payment of principal amount and interest, read with the amendment of 19th May, 2006. In respect of the security deposit, the Corporations rely on Clauses 17 and 45 of the General Conditions of Contract for Municipal Corporation of Delhi Works (hereinafter, ‘General Conditions of Contract’). In addition, the Corporations also rely upon Circular dated 10th June 2014 signed by the Chief Engineer, MCD which was issued in the nature of a clarification. The questions that have arisen in all these cases are -

(i) Whether payment of the principal amount can be delayed in view of Clause 7 and Clause 9 of the General Conditions of Contract read with the amendments?

(ii) Whether the refund of earnest money/security deposit can be delayed in view of Clauses 17 and 45 of the General Conditions of Contract?

(iii) Whether interest is payable on delayed payments/refunds and if so, for which period?

5. Arguments have been addressed by Mr. Sunil Goel and Ms. Mini Pushkarna on behalf of the Corporations - NrDMC and EDMC, respectively. On behalf of the Contractors in some matters, Mr. Vinay Kumar has made submissions.

Background of the case

6. In the present case, the Contractor was awarded three work orders being 230, 117 & 173 for Rs.1,94,772/-, Rs.1,45,827/- & Rs.1,81,883/- respectively. The final bills were passed on 16th August, 2013, 30th December, 2013 and 30th December, 2013 respectively but no payment was made. Security deposits were also made by the Contractor. Notice was issued on 1st August, 2015 and upon not receiving payment the Contractor filed a suit for recovery of Rs.4,73,052/-. Security refund of Rs.42,864/- was also sought.

7. In the written statement, the Corporation contended as under:

“2. That the suit of the plaintiff is pre-mature and as such the same is liable to be dismissed. The plaintiff has not complied with the terms and conditions and guidelines as detailed in the NIT and Tender Documents. Even otherwise there is a specific condition in the Agreement entered into between the parties that the payment of bill will depend on availability of funds in particular head of account from time to time in EDMC. The payment of bills shall be made strictly on queue basis i.e. first the past liabilities will be cleared and after that the release of payment for passed bills will be in order of the demand received at Head Quarter under particular head of account. Thus, it is submitted that the delay in making the payment do not attract any liability and the plaintiff is not entitled to any interest an account of delay in payment as per the amended rules incorporated vide circular dated 19/05/2006 in N.I.T./Tender conditions. The plaintiff, after going through & understanding the terms and condition