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2026 Supreme(Gau) 686
THE GAUHATI HIGH COURT, (HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
MRIDUL KUMAR KALITA, ANJAN MONI KALITA, JJ.
M/s Peto Dumpum Enterprise, represented by Mrs Yamje Loriak Tamin, Daughter of Kirjom Dulom and Anr. - Petitioners
Versus
The Union of India, represented by the Secretary, Govt. of India, Ministry of Defence and Ors. – Respondents
WA/18 of 2025
Decided On : 07-05-2026
Important Points
Subject
Civil Law - Contract Law
Act Referred
Headnote
(B) Privity of Contract - Sub-contractor - Main contract - Obligations - Sub-contractor not a party to the main contract - Rights and liabilities arising from the main contract are not binding on the sub-contractor - Disputes regarding the invocation of bank guarantees and deduction of damages by the employer against a sub-contractor are to be resolved through civil litigation. (Paras 4, 8, 12, 14)
Facts of the case:
An entity entered into an agreement with a contractor to execute a portion of a project. The contractor defaulted, leading to the termination of the main contract by the employer. The employer invoked the bank guarantee and deducted liquidated damages. The sub-contractor challenged these actions, claiming no privity of contract with the employer. The lower court directed a joint verification of work and relegated the remaining disputes to a civil court.
Findings of Court:
The court found that the dispute regarding the percentage of work completed and the justification for liquidated damages involved complex questions of fact. It held that the employer cannot unilaterally determine breach or impose damages without adjudication.
Issues: Whether the employer can unilaterally impose liquidated damages on a sub-contractor and whether the writ court should adjudicate disputes involving the invocation of bank guarantees and contractual breaches.
Ratio Decidendi: The court held that under the relevant contract law, the determination of breach and the imposition of liquidated damages require an adjudicatory process. Since the sub-contractor is not a party to the main contract, and given the existence of disputed facts, the writ court correctly relegated the parties to a civil court.
Result: Appeal dismissed.
For the Petitioner: P.J. Saikia, Arun Yun,Maryum Sora, Geli Taye, Kemo Lollen, K.J. Saikia, Manisha Nirola
For the Respondent: Marto Kato, GA (AP), DSGI.
| Table of Content |
|---|
| 1. factual overview of the tender, sub-contracting relationship, and the originating writ petition. (Para 1 , 2 , 3) |
| 2. arguments concerning privity of contract, liability for liquidated damages, and the status of bank guarantees. (Para 4 , 5 , 7 , 8 , 9 , 10) |
| 3. court's identification of material disputed questions of fact that precludes adjudication under writ jurisdiction. (Para 11 , 12 , 13 , 14) |
| 4. requirement for competent forum determination of breach and liquidated damages under sections 73 and 74 of the indian contract act. (Para 15 , 16 , 17) |
JUDGMENT :
Anjan Moni Kalita, J.
Heard Mr. P. J. Saikia, learned Senior Counsel assisted by Ms. M. Nirola, learned counsel for the appellants. Also heard Mr. M. Kato, learned DSGI appearing for the Respondent Nos. 1 to 4 and Ms. P. Pangu, learned Government Advocate appearing for the Respondent No. 5.
2. The instant intra-court appeal has been filed by the Appellants assailing the Judgment and Order dated 04.03.2025, passed by the learned Single Judge in WP(C) No. 03 (AP) of 2024.
3. The facts leading to the filing of the instant writ appeal are briefly summarised herein below:
A. The Appellants and one M/s Velecha Engineering Ltd., had entered into a Memorandum of Understanding (MoU) on 13.10.2020, for submitting a tender for “Construction and Up- gradation of Tato-Mechuka Road on EPC mode” (herein after referred to as ‘Contract Work’). As per the said MoU, the tender is to be submitted in the name of the aforesaid M/s Velecha Engineering Ltd., and if the work is awarded to M/s Velecha Engineering Ltd., the Appellants will be entitled to execute the entire work, on back to back basis. In the tender process, M/s Velecha Engineering Ltd., came out as a successful bidder and Letter of Acceptance was issued in favour of M/s Velecha Engineering Ltd. As per the terms of the MoU, the Appellants submitted the Bank Guarantee, for the successful tenderer, i.e., M/s Velecha Engineering Ltd., for a sum of Rs.2,03,49,000/- (Rupees Two Crores Three Lakhs and Forty Nine Thousand) only for the aforesaid Contract Work. However, the Respondent No. 3, vide it’s letter dated 07.10.2021, approved the Appellants as the sub-contractor only for 49% of the value of the Contract Work, amounting Rs.33,23,67,000/- (Rupees Thirty Three Crores Twenty Three Lakhs and Sixty Seven Thousand) only under the aforesaid M/s Velecha Engineering Ltd. The Appellants started the execution of the work and completed 49% of the Contract Work. However, further progress could not be made as the authority failed to settle approximately about 1.25 Km area, for which an amount of Rs. 20,00,00,000/- (Rupees Twenty Crores) only had been earmarked and due to rejection of the prayer of the aforesaid M/s Velecha Engineering Ltd., for extension of time, the Appellants apprehended that the authorities may impose liquidated damages on the aforesaid bills, which were yet to be submitted. The Appellants faced with the aforesaid, submitted a representation to the respondent authorities on 28.11.2023, praying for releasing the Bank Guarantee and not to impose liquidated damages on the bills. While the aforementioned representation was pending, the respondent authorities terminated the Contract with the aforesaid M/s Velecha Engineering Ltd., vide it’s letter dated 16.12.2023. In view of the aforesaid termination, the Appellants approached this High Court by filing the aforesaid writ petition for release of their dues and other consequential reliefs.
B. The respondent authorities by filing their Affidavit-in-opposition denied the contentions made by the Appellants in the writ petition. The stand taken by the respondent authorities was that the respondent authorities had given the Contract Work to M/s Velecha Engineering Ltd., on 15.06.2021 and on their request for approval of the Appellants as a sub-contractor, to execute 49% value of the Contract Work, as per Clause 4.2 of EPC contract, the same was approved by the authorities, vide
