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HIGH COURT OF KERALA
P. B. Suresh Kumar, J
JYOTHI BASU V – Appellant
Versus
KERALA WATER AUTHORITY – Respondent
WP(C) NO. 12930 OF 2021
Based on the provided legal document, the key points are as follows:
The case concerns whether the Water Authority's requirement that contractors bear interest beyond one year on dues owed is unconscionable and thus unenforceable (!) (!) .
The contractors had given undertakings to pay interest beyond one year, which the court found to be a term that enables the Water Authority to recover the entire amount disbursed towards interest if funds are insufficient to honor bills within the stipulated period (!) .
The court identified the term requiring contractors to bear interest beyond one year as unconscionable because it creates a gross imbalance in bargaining power, especially given that the Water Authority is a public body exercising stronger bargaining power over the contractors (!) .
The court emphasized that such unconscionable clauses are contrary to principles of fairness, public policy, and constitutional guarantees of equality and justice (!) (!) (!) .
It was noted that contracts or clauses entered into by entities with unequal bargaining power, especially those affecting large groups or the public interest, are subject to judicial scrutiny and can be declared void if found unconscionable or unreasonable (!) (!) .
The court highlighted that the law seeks to prevent unfair terms in standard or prescribed forms, especially when they impose disproportionate burdens on weaker parties, and such terms are considered void as they violate public policy (!) (!) .
The court concluded that the Water Authority’s orders, which enforce these unconscionable interest clauses, are unjust and therefore quashed (!) .
Overall, the decision underscores the importance of fairness and equality in contractual relations involving public bodies and contractors, affirming that unconscionable terms that exploit weaker parties are not enforceable.
| Table of Content |
|---|
| 1. contractors claim unfair interest terms. (Para 1 , 2) |
| 2. arguments over the reasonableness of interest obligations. (Para 5 , 6) |
| 3. discussion on unconscionable terms in public contracts. (Para 7 , 8) |
| 4. outcome: unfair contracts struck down. (Para 9) |
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 th
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