Point of Law: Contract – Water Authority - Petitioners would not have given such undertakings, had they been put notice that Water Authority would be in a position to realise even entire amounts disbursed or a substantial portion thereof, if Water Authority is unable to find funds for honouring their bills.

JUDGMENT :

Petitioners are contractors undertaking civil construction works for various agencies including the Kerala Water Authority (the Water Authority). They have approached this court aggrieved by Exts.P6 and P7 orders of the Finance Manager and Chief Accounts Officer of the Water Authority.

2. The facts relevant for adjudication of the dispute, as discernible from the pleadings and the submissions made at the Bar are the following :

Since the Water Authority could not disburse the admitted dues to the contractors in respect of the works satisfactorily executed by them on time due to paucity of funds, a scheme was evolved for early disbursement of the dues to the contractors so as to ease their financial burden. The scheme evolved is that if the contractor exercises option to pay interest for the amounts payable to him, the Water Authority would disburse the dues by borrowing money from the bank, after deducting the interest payable for the said amount for a period of one year. As per the prevailing practice, the contractor is required to exercise option for the said purpose in the form of an undertaking and once the undertaking is given, the Water Authority would disburse the dues less the interest for the period of one year from the account of an overdraft facility enjoyed by it from the bank exclusively for the said purpose. The arrangement is that as and when the bill raised in respect of the work executed by the contractor gets matured, the Water Authority would liquidate the liability with respect to the borrowing made. The petitioners are contractors who have exercised option to pay interest and received payments due from the Water Authority in respect of the works executed by them, less the interest, in terms of the scheme. The bills raised in respect of the works executed by the petitioners did not, however, mature for payment within one year and consequently, the Water Authority had to pay interest to the bank for the borrowings made for the period exceeding one year. The second respondent, the Finance Manager and the Chief Accounts Officer of the Water Authority, in the circumstances, issued Exts.P6 and P7 orders, in terms of which he has ordered to recoup the deficit interest from the forthcoming bills and other amounts payable to the petitioners from the Water Authority. The undertakings given by the petitioners to the Water Authority for effecting payments in terms of the scheme aforesaid contains a term to the effect that the contractors would be liable to pay interest for the amounts borrowed beyond the period of one year also, if the bills in respect of the works executed by them do not get matured for payment within one year. The petitioners would contend that the said term is an unconscionable one and hence not enforceable. It is stated by the petitioners that in order to effect payment of the admitted dues to the similarly placed contractors, the State Government is issuing financial instruments to the contractors assuring payment within one year so as to enable the contractors to discount the same from the specified banks; that the charges levied by banks for discounting the said instruments is only 5% of the amounts disbursed and that the contractors are required to bear only 50% of the said charges. According to the petitioners, the Water Authority which is an instrumentality of the State cannot fasten a liability higher than one fastened by the State Government on similarly placed contractors in the matter of effecting the payments admittedly due to them. The petitioners, in the circumstances, seek orders quashing Exts.P6 and P7 orders. They also seek directions to the respondents to refrain from saddling the liability to pay interest on them, for the period exceeding one year. The petitioners further seek directions to the respondents to refrain from realising the amounts covered by Exts.P6