Back
2018 Supreme(Del) 394
IN THE HIGH COURT OF DELHI AT NEW DELHI
PRATHIBA M. SINGH, J.
North Delhi Municipal Corporation & Anr. – Appellants
Versus
Mohit Gupta – Respondent
RFA 573 of 2017& CM APPLs. Nos. 21410 of 2017 (Stay) & 21412 of 2017 (Delay)
Decided On : 22-03-2018
For the Appellant :Mr. Sunil Goel, Standing Counsel for Nr.DMC with Ms. Supreet Bimbra, Mr. Mayank Goel, Advocates, Mr. S.C. Meena, EE (Project Narela)
Clauses in a contract that allow for indefinite delay in payments and non-payment of interest are illegal, unconscionable, and unreasonable.
Headnote:
The Court held that the clauses in the General Conditions of Contract, which allowed the Corporation to delay payments indefinitely and not pay any interest for the delayed payment, were illegal, unconscionable, and unreasonable. The Court also held that the Corporation could not rely on the queue system to justify the delay in payments as it was not a fixed mechanism and there was no certainty as to when and in what manner the head of account was to be determined. The Court further held that the Trial Court was right in invoking Order XII Rule 6 of the CPC as the admissions made by the Corporation in its written statement were clear and unequivocal.
Fact of the Case:
The Contractors filed suits for recovery of payments due from the Corporations for work orders placed on them. The Corporations relied on Clauses 7 and 9 of the General Conditions of Contract, which allowed them to delay payments and not pay any interest for the delayed payment. The Corporations also relied on the amendment of 2006 to the General Conditions of Contract and a Circular issued in 2014, which stated that payments would be made strictly on a queue basis.
Finding of the Court:
The Court held that the clauses in the General Conditions of Contract, which allowed the Corporation to delay payments indefinitely and not pay any interest for the delayed payment, were illegal, unconscionable, and unreasonable. The Court also held that the Corporation could not rely on the queue system to justify the delay in payments as it was not a fixed mechanism and there was no certainty as to when and in what manner the head of account was to be determined. The Court further held that the Trial Court was right in invoking Order XII Rule 6 of the CPC as the admissions made by the Corporation in its written statement were clear and unequivocal.
Issues: 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? Whether the suit was liable to be decreed under Order XII Rule 6 CPC?
Ratio Decidendi: The Court held that the clauses in the General Conditions of Contract, which allowed the Corporation to delay payments indefinitely and not pay any interest for the delayed payment, were illegal, unconscionable, and unreasonable. The Court also held that the Corporation could not rely on the queue system to justify the delay in payments as it was not a fixed mechanism and there was no certainty as to when and in what manner the head of account was to be determined. The Court further held that the Trial Court was right in invoking Order XII Rule 6 of the CPC as the admissions made by the Corporation in its written statement were clear and unequivocal.
Final Decision: The Court decreed the suit for the admitted principal amount and directed the Corporation to make the payments within a period of eight weeks, failing which, interest @ 12% p.a. would be payable upon the expiry of the said period till date of payment. The Court also issued certain guidelines to be followed by the Contractors and the Corporations in future.
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 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.
Background of the case
5. In the present case, the following work orders were placed on the Contractor by the Corporation:
S. No.
Work Order No.
Contractual Amount (Rs.)
Dated
1.
EE(CLZ-M-IV)/SYS/2012-2013/231
Rs. 4,77,737/-
27.12.2012
2.
EE(CLZ-M-IV)/SYS/2012-2013/232
Rs. 4,08,656/-
27.12.2012
3.
EE(CLZ-M-IV)/SYS/2012-2013/371
Rs. 7,29,276/-
02.03.2013
4.
EE(CLZ-M-IV)/SYS/2012-2013/372
Rs. 7,76,648/-
02.03.2013
5.
EE(CLZ-M-IV)/SYS/2014-2015/64
Rs. 3,81,550/-
12.11.2014
6.
EE(CLZ-M-IV)/SYS/2014-2015/283
Rs. 2,05,558/-
09.01.2015
7.
EE(CLZ-M-IV)/SYS/2014-2015/176
Rs. 1,69,000/-
15.12.2014
8.
EE(CLZ-M-IV)/SYS/2014-2015/256
Rs. 2,43,000/-
06.01.2015
9.
EE(CLZ-M-IV)/SYS/2014-2015/274
Rs. 2,43,000/-
07.01.2015
10.
EE(CLZ-M-IV)/SYS/2014-2015/39
Rs. 1,75,500/-
13.10.2014
11.
EE(CLZ-M-IV)/SYS/2014-2015/100
Rs. 2,53,975/-
25.11.2014
12.
EE(CLZ-M-IV)/SYS/2014-2015/33
Rs. 3,32,906/-
13.10.2014
13.
EE(CLZ-M-IV)/SYS/2014-2015/36
Rs. 4,38,366/-
13.10.2014
14.
EE(CLZ-M-IV)/SYS/2014-2015/37
Rs. 2,58,497/-
13.10.2014
15.
EE(CLZ-M-IV)/SYS/2014-2015/38
Rs. 2,97,302/-
13.10.2014
16.
EE(CLZ-M-IV)/SYS/2014-2015/40
Rs. 3,78,005/-
13.10.2014
17.
EE(CLZ-M-IV)/SYS/2014-2015/42
Rs. 1,69,000/-
13.10.2014
18.
EE(CLZ-M-IV)/SYS/2014-2015/248
Rs. 2,08,540/-
02.01.2015
19.
EE(CLZ-M-IV)/SYS/2014-2015/326
Rs. 2,53,929/-
09.01.2015
6. Security deposit to the tune of Rs.5,07,028/- had also been deposited in respect of aforementioned work orders. It is averred by the Contractor that the Engineer-in-Charge prepared and passed the first and final bills of the Contractor on various dates for a total sum as detailed below:
S. No.
Work Order No.
Amount of passed (first and final) bill in Rs.
Amount of Security Deposit in Rs.
Date of passing bill
1.
231
Rs. 4,06,201/-
Rs. 38,095/ + Rs. 9,550/-
06.06.2013
2.
232
Rs. 3,43,382/-
Rs. 32,555/- + Rs. 8,200/-
06.06.2013
3.
371
Rs. 6,22,571/-
Rs. 55,561/- + Rs. 13,900/-
24.10.2013
4.
372
Rs. 6,47,719/-
Rs. 62,792/- + Rs. 14,800/-
28.02.2014
