Kerala High Court Directs Adjustment of Performance Guarantee Against Pending Bills in WP(C) 29818/2025 - 2026-06-08

Resolution in Sight: Kerala High Court Facilitates Bank Guarantee Adjustment for Contractor

In a recent order regarding a commercial dispute over public infrastructure payments, the High Court of Kerala has provided a clear roadmap for resolving a deadlock between Reena Engineers And Contractors Pvt. Ltd. and the Kerala Water Authority (KWA). Justice Ziyad Rahman A.A. oversaw the resolution, which effectively prioritizes the adjustment of a performance guarantee against pending dues rather than its encashment.

The Conflict: A Balancing Act of Guarantees

The dispute centered on a performance guarantee furnished by the petitioner, Reena Engineers And Contractors, valued at ₹1,03,17,250. Seeking relief under Article 226 of the Constitution, the petitioner requested that the court compel the KWA to adjust this guarantee amount against bills already audited and certified for the project in question. The petitioner’s primary concern was the potential encashment of their bank guarantee, which would have imposed an immediate financial burden despite the existence of substantial pending payments due to the firm by the Authority.

Administrative Concurrence and Legal Pathways

During the hearing, the standing counsel for the Kerala Water Authority presented a significant administrative development. A concurrence certificate issued by the Chief Accounts Officer, dated April 28, 2025, indicated that the Authority was itself amenable to the release of the performance guarantee against the pending net amount of ₹7,74,39,786.

The court took note of these evolving circumstances, which turned a contentious litigation into a procedural compliance exercise. The respondent’s willingness to adjust the guarantee, provided that certain administrative formalities—such as the filing of a revised KPW form and the proper reflection of the deduction during the generation of the Print Payment Advice (PPA)—are met, paved the way for the court’s intervention.

Key Observations

The judgment reflects the court’s role in ensuring administrative efficiency through direct, time-bound instructions:

• "[C]oncurrence for releasing the performance guarantee/additional performance guarantee to the extent of Rs.1,03,17,250/- out of the total net amount of pending Rs.7,74,39,786/- is issued."
• "The Executive Engineer concerned shall issue a proceeding in this regard and the contractor shall duly sign the revised KPW form/ CB3 before the issue of proceedings."
• "The Executive Engineer shall deduct the guarantee amount from the bill at the time of generating the Print Payment Advice (PPA)."

The Verdict: A Time-Bound Settlement

The Court’s decision is a pragmatic resolution that avoids the harsh remedy of bank guarantee encashment in favor of a balanced accounting adjustment. Justice Ziyad Rahman A.A. directed the competent authorities among the respondents to finalize the order for the release and adjustment of the guarantee within one week from the date of receipt of the judgment.

This ruling highlights a growing judicial preference for resolving administrative payment disputes through reconciliation and adherence to established departmental procedures, rather than protracted litigation. For future contractors working with state agencies, this case reinforces the validity of utilizing audited and certified bills as a tool to mitigate the impact of performance guarantees.