Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(AP) 1089

IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
RAVI CHEEMALAPATI, J.
M/S. K.C.L-J.C.C.G(JV), Rep., By Its Chief Executive Officer J.S.N. Reddy – Petitioner
Versus
The State Government Of Andhra Pradesh, Rep., By Its Principal Secretary, Irrigation & Command Area Development Department – Respondent
Writ Petition No. 5939 of 2014
Decided On : 15-04-2026

Advocates Appeared:
For the Petitioner: V.R. Reddy Kovvuri
For the Respondents: GP For Irrigation & Comm Area Dev, GP For Irri And Cad (AP)

A government department cannot unilaterally impose new financial conditions or obligations via retrospective clarifications that modify the express terms of a previously signed and binding agreement between the state and a contractor.

Headnote:(A) Contract Law - Mobilization Advance - Agreement conditions vs. departmental clarification - Petitioner availed mobilization advance for machinery as per original agreement clauses - Department attempted to charge 15% interest based on a retrospective departmental clarification prohibiting advances for pre-owned machinery - Court held that departmental clarifications cannot override or unilaterally modify binding contractual terms - Impugned demand for differential interest held unsustainable. (Paras 6, 12, 13, 14, 15)

Facts of the case:
The petitioner, a Joint Venture, was awarded a contract and received a mobilization advance for machinery as per the agreement. Years later, based on a Vigilance and Enforcement report and a subsequent departmental clarification, respondents demanded differential interest at 15% and withheld bank guarantees, claiming the machinery was pre-owned and ineligible for the advance originally granted.

Findings of Court:
The court found that the agreement did not prohibit pre-owned machinery or distinguish between new and old ownership for the purpose of mobilization advance. The retrospective application of a departmental clarification to impose new financial burdens was deemed illegal and arbitrary.

Issues: Whether departmental instructions issued post-contract can unilaterally alter the terms of a signed agreement and whether the petitioner is liable to pay enhanced interest for using pre-owned machinery not expressly prohibited by the primary contract.

Ratio Decidendi: Once a contract is signed, parties are strictly bound by its original terms. A unilateral clarification cannot impose new obligations, modify existing conditions, or add financial burdens not previously anticipated by the parties.

Result: Writ petition allowed; impugned demand notices set aside.

ORDER :

RAVI CHEEMALAPATI, J.

This Writ Petition is filed assailing the Memo No.16832/Ser.VII(V&E-2)/2006-13, dated 07.01.2014 issued by respondent no.1 requesting respondent no.4 to recover mobilization advance with interest at the rate of 15% per annum from the date of report of the Vigilance and Enforcement and consequential action of respondent no.4 in insisting the petitioner to pay a sum of Rs.1,99,52,238/- as interest @ 15% per annum through his letter No.AB/A2/M.A/99M, dated 10.12.2014 and also withholding of the Bank Guarantees even after repayment of the mobilization advance as per the terms and conditions of the Agreement No.68/2004-2005, dated 14.03.2005 entered into by the petitioner with respondent no.3, being arbitrary, illegal, colourable exercise of power, unilateral, contrary to the terms and conditions of the agreement and violative of principles of natural justice apart from fundamental rights guaranteed under the Constitution.

2. The averments of the writ affidavit, in brief, are that pursuant to a tender notification the petitioner submitted tender and was awarded contract considering the eligibility criteria and accordingly agreement No.68/2004- 2005, dated 14.03.2005 was entered into between petitioner and respondent no.3, as per which the awarded work has to be completed within 24 months, however with an option of extension of time under the circumstances specified at condition No.24.7. It is further stated in the affidavit that the time was extended till 31.03.2015 for completion of the balance work. That as per condition No.49.1, the awardee of the contract is permitted to avail the facility of mobilization advance in two installments equivalent to 10% of the contract amount i.e. 5 % for labour mobilization and 5% for machinery and equipment and the awardee shall furnish bank guarantee to be effective until the advance loan was completely repaid. That as per the said condition, an amount of Rs.8,75,00,000/- was released to the petitioner as mobilization advance, for which the petitioner furnished bank guarantee of Rs.10,50,00,000/-. That as per condition No.49.4, the respondents are entitled to collect mobilization advance by charging interest @ 8 % per annum from the date when mobilization advance is made, however if completion is delayed due to the circumstances beyond the control of the contractor, interest will be waived for the period for which extension is granted. That as per condition No.49.5, the value of the Bank Guarantee for mobilization advance payment can be progressively reduced by the amount repaid by the contractor.

It is further stated in the writ affidavit that, respondent no.4-Executive Engineer, addressed letter dated 10.02.2014 stating that as per memo dated 07.01.2014, he was requested to recover mobilization advance with interest @ 15% per annum from the date of report of the Vigilance and Enforcement on the ground that the Vigilance and Enforcement pointed out that release of mobilization advance of Rs.3,10,00,000/- was irregular, and accordingly he proposed to recover a sum of Rs.1,99,52,238/- towards interest and called upon the petitioner to pay the amount within 10 days, else, necessary action would be taken as per conditions of the agreement.

It is further stated in the writ affidavit that, earlier when the respondent no.4 called for an explanation through letter No.AB/A1/W2/P.7/590M, dated 13.09.2006 in so far as the observations made in the report of the Vigilance and Enforcement, the petitioner submitted explanation on 18.09.2006, but no final orders were communicated, however, the letter dated 10.02.2014 demanding payment of amount was issued.

It is further stated in the writ affidavit that in response to the letter dated 10.02.2014, the petitioner submitted written representation dated 22.02.2014 bringing to the notice of respondent no.4 that the amount advanced towards mobilization advance of Rs.10,84,41,741/- and interest thereon of Rs.2,33,40,273/-, a total sum of Rs.1

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