Jharkhand High Court Mandates Payment of Contractor Dues Following Voluntary Performance Guarantee Release Admission

In a significant ruling, the High Court of Jharkhand at Ranchi has affirmed that a state entity’s voluntary return of a performance bank guarantee acts as a binding admission of satisfactory work completion. Justice Ananda Sen, presiding over the case, directed the payment of outstanding dues totaling months of work performed by M/S. Eagle Infra India Limited for the Jharkhand Urban Infrastructure Development Company Limited (JUIDCO).

Unresolved Liabilities and Contractual Deadlines

The dispute originated from the "Harmu River Rejuvenation Project," initiated in 2015. While the primary project concluded in 2018, the contractor continued Operation and Maintenance (O&M) services until October 31, 2023. Following the expiry of the agreement, the contractor alleged that JUIDCO failed to release its final billing (R.A. Bill No. 29), withheld O&M payments, and continued to demand the maintenance of a bank guarantee despite the contract's closure. The petitioner contended that they were forced to remain on-site because the project site was never formally handed back to the authorities.

The Tug-of-War Over Admitted Dues

The petitioner argued that official communications served as proof of work completion and that the withholding of funds was arbitrary. Conversely, JUIDCO defense counsel asserted that the matter involved complex questions of fact—such as project quality and technical scrutiny—that should be relegated to arbitration, noting that the petitioner's ongoing site presence lacked a formal extension agreement. However, JUIDCO’s counsel eventually admitted during the proceedings that the performance bank guarantee had been released to the contractor just days prior.

Legal Reasoning: Conduct as Evidence

Justice Ananda Sen emphasized that constitutional writ jurisdiction is appropriate for money claims when the dispute does not require complex or elaborate evidence. Citing established jurisprudence, the Court noted that there is no absolute bar against settling contractual monetary disputes under Article 226 of the Constitution of India. Importantly, the Court held that the respondents cannot claim that work was unsatisfactory while simultaneously releasing the very performance guarantee meant to secure that same work. This "admission by conduct" effectively nullified the respondents' attempt to create a "feigned" dispute regarding work quality.

Key Observations

  • "This voluntary release of the Bank Guarantee in favour of the petitioner now will have a great ramification in this case."
  • "The work has been completed by the petitioner is not disputed."
  • "The question of viability of the project cannot be raised after the contract has been awarded to complete the project."
  • "This act of release of Bank Guarantee is an admission of the respondent by conduct in support of the fact of unblemished completion of the work."

Final Directions

In light of these findings, the High Court ordered the respondents to settle all outstanding payments, including the R.A. Bill No. 29 and the sixteen months of post-contract maintenance work, within sixty days. Furthermore, the Court mandated that these payments include interest at a rate of 10% per annum from the date they became due. This decision reinforces that state projects cannot unilaterally withhold payments for services accepted through conduct, shielding contractors from long-term, expensive litigation in civil courts for clearly admitted dues.