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IN THE HIGH COURT OF KERALA AT ERNAKULAM
A.K.Jayasankaran Nambiar, Syam Kumar V.M., JJ.
Indian Space Research Organization (Isro) Department Of Space, Government Of India,
Liquid Propulsion Systems Centre, Valiamala P.O., Thiruvananthapuram - Appellant
Vs.
M/s. Roopam Engineers And Contractors Private Limited Represented By Its Managing Director V.S. Mytheen - Respondent
W.A.NO.1262 Of 2023
Decided On : 05-08-2024
CONTRACT LAW - PRICE ESCALATION - Clause 10C(ii) of General Conditions of Contract, Section 62 of the Indian Contract Act - The court interpreted Clause 10C(ii) of the General Conditions of Contract, which pertains to price escalation, emphasizing that the clause applies when the completion period extends beyond 12 months. The court also referenced Section 62 of the Indian Contract Act regarding novation, concluding that the extension of the contract period due to delays justified the application of the price escalation clause, influencing the decision to uphold the writ petitioner's claim for compensation.
Fact of the Case:
The appellants, a Government of India organization, awarded a contract for establishing a Mechanical Testing Research Laboratory. Due to delays caused by the Covid-19 pandemic, the work commencement was postponed, and the respondent sought compensation for price escalation under the contract's terms, which was initially denied by the appellants.
Finding of the Court:
The court found that the learned Single Judge correctly interpreted the contract terms, particularly the price escalation clause, and ruled that the prolonged delay in the project justified the respondent's claim for compensation.
Issues: Whether the respondent was entitled to price escalation under Clause 10C(ii) of the General Conditions of Contract despite the initial contract period being less than 12 months, and whether the writ court had jurisdiction to intervene in this contractual dispute.
Ratio Decidendi: The court held that the extension of the contract period due to delays effectively transformed the nature of the contract, allowing the application of the price escalation clause. It also affirmed that the writ court could intervene in contractual disputes involving state entities if arbitrary actions are demonstrated.
Final Decision: The Writ Appeal was dismissed, upholding the decision of the learned Single Judge that the respondent was entitled to claim price escalation due to the extended duration of the contract.
JUDGMENT :
A.K. Jayasankaran Nambiar, J.
The respondents 1 to 4 in W.P.(C).No.17515 of 2022 are the appellants before us aggrieved by the judgment dated 09.12.2022 of the learned Single Judge in the writ petition.
2. The brief facts necessary for disposal of this Writ Appeal are as follows:
The 1st appellant is a Government of India organisation for promoting the development and application of Space Science and Technology. It had invited tenders for establishment of a Mechanical Testing Research Laboratory for Propulsion Systems – Liquid Propulsion Systems Centre [LPSC] at Valiyamala, Thiruvananthapuram. Ext.P1 notice of tender was issued on 04.05.2019 and the period of completion of the work was stipulated as 12 months. The minimum validity of the tender was 120 days from the last date of receipt of tender. On account of a delay in technical evaluation and approval for opening of a price bid, the respondent/writ petitioner was requested to extend the validity of the tender on various occassions, which was apparently agreed to by the respondent without any objections or demur. Eventually, the technical bid was opened on 17.06.2019, and the price bid was opened on 05.11.2019. The work order was issued to the petitioner on 16.03.2020, and the agreement for the work was executed with the petitioner on 19.03.2020.
3. It would appear that even before the work could commence pursuant to the issuance of the work order, the Government of India declared a complete lock-down in connection with the Covid-19 pandemic on 22.03.2020. The 1st appellant therefore intimated the respondent of the fact of lock-down. Thereafter, upon the partial lifting of the lock-down, there was a need to re-prioritize the works and therefore an administrative decision was taken by the 1st appellant to postpone the execution of work awarded to the respondent by six months. Accordingly, Ext.P11 letter dated 23.06.2020 was issued to the respondent seeking his willingness to execute the work at a later date strictly as per the work order and the agreement that was executed. Ext.P11 letter was accepted by the respondent unconditionally by issuing Ext.R1(a) communication dated 24.06.2020. Pending confirmation of budget availability due to the re-prioritization of works post lock-down, the 1st appellant once again wrote to the respondent by Ext.P13 letter dated 21.12.2020 seeking his willingness to execute the work at a later date after four months, again strictly in accordance with the work order and the agreement executed. The said letter was also unconditionally accepted by the respondent by Ext.R1(b) communication dated 07.01.2021. Thereafter Ext.P14 letter dated 10.03.2021 was issued by the 1st appellant to the respondent to commence the construction activities for the work awarded within 15 days, and the site was handed over to him on 24.03.2021.
4. While so, the respondent/writ petitioner, by Ext.P15 letter dated 12.03.2021, requested the appellants to consider the application of Clause 10C(ii) of the General Conditions of the Contract that dealt with price escalation to the contract awarded to him. The letter was issued in the phase of the express provisions of the contract which made it clear that the price escalation clause was applicable only to contracts where the stipulated period for completion of the contract was beyond 12 months. The appellants considered the said request of the respondent along with another similar request dated 08.03.2022 and rejected the same by Ext.P17 communication dated 10.03.2022. A further reiteration of the request by the respondent on 17.03.2022 was also similarly rejected by Ext.P19 communication dated 19.04.2022. In the writ petition, the respondent/writ petitioner impugned Exts.P17 and P19 communications issued by the 1st appellant inter alia on the contention that in view of the extension granted for commencement of the work awarded to the respondent, and by implication an extension of the time for completion of the work under
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