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2023 Supreme(Online)(KER) 18699
HIGH COURT OF KERALA
A.J.DESAI, CJ, V. G. Arun, J
B.A. AMOO – Appellant
Versus
MINISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISES – Respondent
WA 1191 2023
BABU JOSEPH KURUVATHAZHA, K.V.MANOJ KUMAR, SRI. V.V.JOSHI, SC, KWA, SRI. SUVIN R.MENON, CGC
Central Government advisories do not impose binding obligations on state contracts regarding Performance Guarantees.
Headnote:
Performance Guarantee - Contract Law - Various Sections Listed - The court held that the Memorandums issued by the Central Government were advisory and not binding on the State, thus upheld the demand for the Additional Performance Guarantee as per state directives, subject to conditions regarding the value of work completed.
Fact of the Case:
The appellant, a successful bidder for a contract, challenged the demand for a Performance Guarantee and Additional Performance Guarantee by the Kerala Water Authority through a writ petition, arguing for exemptions based on Government Office Memorandums.
Issues: Whether the appellant could be exempted from providing the Additional Performance Guarantee based on the conditions set out in the central government Office Memorandums and subsequent state government orders.
Ratio Decidendi: The court found no binding obligation from the Central Government’s advisories over state matters and upheld state authority in determining terms for Performance Guarantees.
Final Decision: The writ appeal was dismissed, upholding the demand for Additional Performance Guarantee.
JUDGMENT
V.G.ARUN, J.
Being the successful bidder for a work contract, the appellant was issued with Ext.P1 Letter of Acceptance by the Kerala Water Authority. The conditions in the Letter of Acceptance required the appellant to furnish security/performance guarantee worth Rs.4,85,400/- and Additional Performance Guarantee worth Rs.19,82,300/-. Aggrieved by the demand for Performance Guarantee and Additional Performance Guarantee, the writ petition was filed seeking the following reliefs;
i). issue a writ of mandamus or any other appropriate writ, order or direction commanding the respondents to permit the petitioner to execute the agreement, in pursuant to Ext.P1 selection notice, without furnishing the security deposit/performance guarantee and additional performance guarantee, forthwith.
ii). issue any appropriate writ, order or direction declaring that the respondents are bound to follow the directions issued by the Government of India in Ext.P4 Office Memorandum and Ext.P9 policy in the matter of additional performance security/guarantee, in its true letter and spirit, without dilution;
iii). issue a writ of mandamus or any other appropriate writ, order or direction commanding the 4th respondent to consider and dispose of Ext.P11 representation, in the light of Ext.P4 OM and Ext.P9 policy, forthwith;
2. The learned Single Judge heard the writ petition, along with other similar matters, and disposed of the writ petitions with the following directions;
1. If the work in accordance with the agreement is completed by the contractors, no Additional Performance Guarantee shall be insisted upon.
2. If the work has progressed to a level exceeding
80%, the tendering authority is left with the liberty to take a decision as to whether any Additional Performance Guarantee is to be insisted upon, taking into account the efficiency, reputation, men and machinery engaged, and other positive factors of the respective contractors.
3. If the work has exceeded 30% of the total work, then the tendering authority is directed to secure Additional Performance Guarantee proportionate to the balance work.
4. In all other cases, the contractors/petitioners are directed to furnish an Additional Performance Guarantee to the tendering authority as specified in the tender documents within three weeks from the date of receipt of a copy fo this judgment.
5. In cases where a Performance guarantee is furnished by the contractors in spite of its relaxation up to 31/03/2023, the said amounts can be adjusted against the Additional Performance guarantee required in the circumstances specified above.
6. In cases where 100% bank guarantee is furnished, instead of 50% by way of treasury fixed deposit, the same is permitted to be continued in the facts and circumstances, if the work has exceeded 30% of the total work.
7. If the tenders are invited on the basis of the Percentage Rate Contracts, then the contractors are liable to furnish the Additional Performance Guarantee on the basis of (X-10)% of the estimated PAC.
8. If the tenders are invited on the basis of Items Rates Contract, then the contractors are liable to furnish Additional Performance Guarantee for each item of work on the basis of (X-10)% of the estimated amount for each item of work.
9. I make it clear that the directions are issued as above taking into account the peculiar facts, features and circumstances involved in these cases consequent to the interim orders granted; and it shall not be treated as a precedent, except in regard to the writ petitions pending in the above context.
3. The common judgment was challenged by some of the other original petitioners in W.A. Nos. 725 of 2023 and connected cases. This Court, by judgment dated 14/08/2023, disposed of the writ appeals with the following directions;
“15. Considering the above aspects, we allow these appeals and set aside the judgment passed by the learned Single Judge. It is made clear that the appellants would not be liable to execute the Additional Perfor
