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IN THE HIGH COURT OF DELHI AT NEW DELHI
PRATHIBA M. SINGH, J.
North Delhi Municipal Corporation & Anr. – Appellants
Versus
Sanjeev Oberoi – Respondent
RFA 445 of 2017 & CM APPLs.16194 & 16195 of 2017
Decided On : 22-03-2018
The Court held that the clauses in the General Conditions of Contract relating to non-payment of bills indefinitely, though the bills are passed by the Executive Engineer and non-payment of interest for delayed payment, would be illegal and invalid. The Court further held that the Corporation cannot postpone the payment to the Contractor, indefinitely. The issuance of the tender and the work order in favor of the Contractor has to be on the pre-condition that funds are available with the Corporation. To ask the Contractor to wait endlessly for his payment is wholly arbitrary. The Corporation which hands over the works contract to the Contractor cannot say “Do the work now, I will pay when I have the money”. Even if such a clause has been signed and accepted by the Contractor, it does not make the clause valid inasmuch as it would render a fundamental condition of contract being hit by provisions of the Indian Contract Act, 1872 (hereinafter, ‘Contract Act’). Every contract, to be valid, has to have consideration and the indefinite postponement of consideration would be wholly unconscionable.
Fact of the Case:
The Contractors were awarded work orders by both the NrDMC and the EDMC. 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 favor of the Contractors. 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.
Finding of the Court:
The Court held that the clauses in the General Conditions of Contract relating to non-payment of bills indefinitely, though the bills are passed by the Executive Engineer and non-payment of interest for delayed payment, would be illegal and invalid. The Court further held that the Corporation cannot postpone the payment to the Contractor, indefinitely. The issuance of the tender and the work order in favor of the Contractor has to be on the pre-condition that funds are available with the Corporation. To ask the Contractor to wait endlessly for his payment is wholly arbitrary. The Corporation which hands over the works contract to the Contractor cannot say “Do the work now, I will pay when I have the money”. Even if such a clause has been signed and accepted by the Contractor, it does not make the clause valid inasmuch as it would render a fundamental condition of contract being hit by provisions of the Indian Contract Act, 1872 (hereinafter, ‘Contract Act’). Every contract, to be valid, has to have consideration and the indefinite postponement of consideration would be wholly unconscionable.
Issues: 1. 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? 2. Whether the refund of earnest money/security deposit can be delayed in view of Clauses 17 and 45 of the General Conditions of Contract? 3. Whether interest is payable on delayed payments/refunds and if so, for which period?
Ratio Decidendi: The Court held that the clauses in the General Conditions of Contract relating to non-payment of bills indefinitely, though the bills are passed by the Executive Engineer and non-payment of interest for delayed payment, would be illegal and invalid. The Court further held that the Corporation cannot postpone the payment to the Contractor, indefinitely. The issuance of the tender and the work order in favor of the Contractor has to be on the pre-condition that funds are available with the Corporation. To ask the Contractor to wait endlessly for his payment is wholly arbitrary. The Corporation which hands over the works contract to the Contractor cannot say “Do the work now, I will pay when I have the money”. Even if such a clause has been signed and accepted by the Contractor, it does not make the clause valid inasmuch as it would render a fundamental condition of contract being hit by provisions of the Indian Contract Act, 1872 (hereinafter, ‘Contract Act’). Every contract, to be valid, has to have consideration and the indefinite postponement of consideration would be wholly unconscionable.
Final Decision: The Court held that the clauses in the General Conditions of Contract relating to non-payment of bills indefinitely, though the bills are passed by the Executive Engineer and non-payment of interest for delayed payment, would be illegal and invalid. The Court further held that the Corporation cannot postpone the payment to the Contractor, indefinitely. The issuance of the tender and the work order in favor of the Contractor has to be on the pre-condition that funds are available with the Corporation. To ask the Contractor to wait endlessly for his payment is wholly arbitrary. The Corporation which hands over the works contract to the Contractor cannot say “Do the work now, I will pay when I have the money”. Even if such a clause has been signed and accepted by the Contractor, it does not make the clause valid inasmuch as it would render a fundamental condition of contract being hit by provisions of the Indian Contract Act, 1872 (hereinafter, ‘Contract Act’). Every contract, to be valid, has to have consideration and the indefinite postponement of consideration would be wholly unconscionable.
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 work order No.112 dated 19th September 2014, for the sum of Rs.3,41,301/-. The work was to be completed within three months and the Contractor contends that before the expiry of 3 months the work was completed. The Contractor pleads that the final bill was submitted to the Engineer-in-Charge for approval on 11th November 2014. The final bill was passed by the Engineer-in-Charge on 24th November, 2014 and a total payment of Rs.2,92,637/- was to be made to the Contractor. The security deposit amount was Rs.30,973/-. Thus, the total sum of Rs.3,23,610/- was liable to be paid as per the Contractor. Despite repeated requests, the amount was not paid. Legal notice dated 26th May, 2015 was issued to the Corporation. Thereafter, the subject suit for recovery of Rs.3,23,610/- was filed. The Contractor, thus, claimed recovery of the following sums:
(a) Principal amount of Rs.2,92,637/-
(b) Refund of security amount of Rs.30,973/-.
(c) Interest for delayed payments.
7. The Corporation filed its written statement and pleaded as under:
“2. That the suit of the plaintiff is premature and as such the same is liable to be dismissed. 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 North DMC. 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 Quart
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