SRM Contractors Pvt. Ltd. V. UT of J&K and others

LPA/80/2021

AI Insights

The case involves SRM Contractors Pvt. Ltd., which executed civil works on a contract basis for the UT of J&K. The contractor filed writ petitions claiming that payments for the completed works were withheld without justification, despite the contracts being awarded through a proper bidding process. The government contended that the works were executed without administrative approval and without earmarked funds, leading to financial indiscipline. The writ court dismissed the petitions, referencing a committee report on irregularities in contract awards. However, the appellate court found that the writ court's conclusions were not supported by the committee's findings, which did not uniformly apply to all cases and recommended post facto sanctions in some instances. The appellate court emphasized the public interest in completing the contracted works and the proper bidding process followed by the contractor.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 694522 (HC-JAMMU KASHMIR AND LADAKH)
• Appeal Type: Others
• Pronouncement Date: 24-05-2022
• Assessment Year: misc
• Other Referred Cases: M/s Radhakrishna Agarwal and ors Vs State of Bihar & ors, Verigamto Naveen Vs Govt. of A.P. & ors, Kumari Shrilekha Vidyarthi and others Vs State of UP and others, ABL International Limited Vs Export Credit Guarantee Corporation of India Limited
• Laws Referred To: Companies Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PALLAVI SHARMA
• Assessee Lawyers: RAHUL PANT; ANIRUDH SHARMA
• Keywords: Arbitration clause; Civil works; Contract basis; Financial Indiscipline; Mandamus; Payment withheld; Irregularity; Anti-Corruption Bureau
• Section: 983/2020; 984/2020; 985/2020; 986/2020

Judgement Text

" HIGH COURT OF JAMMU & KASHMIR AND LADAKH AT JAMMU LPA No. 79/2021 (O&M) c/w LPA No. 80/2021 (O&M) SRM Contractors Pvt. Ltd. …..Appellant(s)/Petitioner(s) Through: Sh. Rahul Pant, Sr. Advocate with Sh. Anirudh Sharma, Advocate Vs UT of J&K and others .…. Respondent(s) Through: Ms. Pallavi Sharma, Advocate vice Mr. Ravinder Gupta, AAG Coram: HON’BLE MR. JUSTICE DHIRAJ SINGH THAKUR, JUDGE HON’BLE MR. JUSTICE RAHUL BHARTI, JUDGE JUDGMENT 24.05.2022 (OPEN COURT) Per : Thakur-J) 1. Since common questions of facts and law have arisen in the present two appeals, therefore, we propose to dispose of the same by way of this common judgment. 2. With a view to understand the background in light of which the present controversy has arisen, it is necessary to briefly state the material facts as under:-. 3. The petitioner, a Private Limited Company registered under the Companies Act, is involved in execution of civil works on contract basis. 4. The appellant filed four petitions before the Writ Court bearing WP (C) Nos. 983/2020, 984/2020, 985/2020, 986/2020 in which it was alleged that pursuant to the Notice inviting tenders for execution of works and Sr.No.46 & 47 2 LPA No. 79/2021 a/w connected matter having been found to be L1, work was allotted to the appellant which was satisfactorily completed by it but the payment was withheld without any cause or justification. The case set-up was that running account bills were submitted in regard to all four contracts which were allotted to the appellant but only partial payment was released by the respondents and rest was withheld on account of the fact that the funds were not available. 5. It was in that background that the petitioner/appellant filed four different petitions in regard to each NIT and the contracts which were successfully executed, claiming a direction in the nature of a mandamus for release of the admitted amount payable. 6. In response to the writ petitions, filed by the respondents, a preliminary objection was taken that the petition was not maintainable inasmuch as, an alternative remedy of arbitration was available to the appellant/petitioner in view of the existence of an arbitration clause in the agreement. Apart from this, the fact that the payment was not due to the petitioner/appellant was not specifically denied. What was highlighted in the reply, as reflected in paragraph 02-09 and 10 & 11 was that the balance amount, if any, due to the appellant/petitioner had already been kept in the Plan and the same would be paid on release by the Government and that the Work done liability for the years 2016-17, 2017-18 and 2018-19 had been communicated to the Government. It was, however, stated that the deductions, as permissible in terms of the provisions of the Income Tax, GST, Service Tax Labour Cess Security Deposit etc. were also required to be made by the respondents before releasing the payment in favour of the petitioner. 7. The other objection raised was that the writ petition could not be entertained in view of disputed questions having being raised in the writ petition. 3 LPA No. 79/2021 a/w connected matter 8. The matter, having been considered by the Writ Court, the petitions were dismissed vide judgement and order dated 23.02.2021. One fact which needs to be noticed is that during the pendency of the writ proceedings, pursuant to the directions dated 05.06.2020 passed by the writ court the respondents were asked to file a better affidavit. In the said affidavit, it was stated that the floods which affected the Kashmir valley in September, 2014 had caused substantial damages to the roads and villages and the basic infrastructure in Kashmir which was quite deplorable causing severe hardships to the commuters. It was stated that with a view to provide proper roads, the Department took up the macadamization programme in hand in a big way during 2015-2016 and onwards also. The macadamisation programme is stated to have got the approval of the then State Government. 9. In the affidavit, the following chart has been reproduced with a view to show the work done for all the years from 2015 to 2019, the expenditure involved, the availability of funds, work done and the pending claims. The said chart for facility of reference is reproduced hereinbelow:- S. No. Year Availability of funds Work done Expenditure Pending work done claim 1. 2015-16 330.00 337.71 270.00 67.61 2. 2016-17 500.00 511.29 467.52 43.77 3. 2017-18 711.41 1021.47 692.15 329.32 4. 2018-19 300.00 393.87 300.00 93.87 Total (A) 1,841.41 2,264.34 1,729.67 534.57 10. The affidavit further states that the Government constituted a fact- finding Committee to look into the irregularity in awarding and implementation of macadamization contracts from the years 2010-2018 and the Committee submitted its report and recommendations to the Government. The reference extract of the recommendation is reproduced hereinbelow: 4 LPA No. 79/2021 a/w connected matter a) Where Administrative Approval (AA) has been accorded and tender documents confirmed availability of funds, as against demanded, and works have been carried out within the tendered cost. But Liabilities have still not been paid, such claims can be met first after due fulfillment of formalities. b) Where AA Has Been Accorded and Funds Availability has been indicated, but extra work has been carried out, work done claims can be met after procedural formalities have been completed up to 50% on Certification of concerned chief engineers provided such extra works do not exceed 50%. Any other reasonable limit of original cost length. c) Where AA has not been accorded, But funds availability have been indicated as available/Demanded in tender, AA can be accorded post facto after due verification and claims entertained up to 50% at this stage pending further verification. d) Where AA has not been accorded nor tender has been issued, such claims need to be referred to vigilance for enquiry against officials/officers associated with such works and further view may be taken only after receipt of enquiry report. 11. Another supplementary affidavit was filed in compliance to the directions of the Writ Court dated 26.06.2020. Paragraph 7 of the said affidavit is relevant and is reproduced as under: 7. That it is respectfully submitted that as per findings of the committee, some works were executed without accord of Administrative Approval, Technical Sanctions and in some cases the scope of work was also changed besides, some works had been executed without the tendering process. It is evident from the tender notices annexed by the petitioner with the writ petition that these were issued without availability of funds and knowing fully that no funds have been earmarked by the department for the works mentioned in the tender notice, the petitioner responded to these notices and was declared successful in the bidding process. Having applied with full knowledge that there are no 5 LPA No. 79/2021 a/w connected matter funds earmarked for the works be has executed, the petitioner cannot force the respondents for release of fund instantly. In fact issuing of tender notices without any funds and participation of the petitioner in these tendering processes seems all a nexus. Issuing these tender notices without availability of funds and absence of approval of the government has amounted to financial indiscipline and irregularity. 12. It thus, appears that whereas initially the Government’s response was not at all aimed at questioning the allotment of the contract in favour of the appellant-petitioner who claimed that the contract was allotted in a bidding process duly executed, neither was it found that the allotment of the works made in favour of the petitioner were bad and illegal in terms of the committee’s report reproduced hereinabove. In the second affidavit filed pursuant to the direction of the court, a stand was taken that the appellant-petitioner had executed and participated in the bidding process and was declared successful and had executed the works with full knowledge that there were no funds earmarked by the department for the works executed, and therefore, the stand was that the petitioner could not force the respondents for release of funds ”instantly” and that issuance of tender notices without availability of funds and absence of approval of the Government amounted to financial indiscipline and irregularity. 13. In the background of the aforementioned facts and affidavits on record, the writ petitions finally came to be dismissed. What was held precisely by the writ Court was: (i) that there was some nexus inasmuch as the petitioner/appellant had participated in the tendering processes having full knowledge of non-availability of funds; (ii) that issuance of tender notices without availability of funds and in the absence of approval of the Government amounted to financial indiscipline and irregularity; and (iii) that 6 LPA No. 79/2021 a/w connected matter the entire matter, therefore, had been referred to the Anti-Corruption Bureau. This was stated in reference to the report of the Committee to which the writ Court extensively referred to in Paragraphs 9 and 10 of the judgment. Paragraph 9 requires to be reproduced partially omitting the report of the Committee which has already been referred in the preceding paragraph. 9. A perusal of the aforesaid chart shows that execution of the work was more than the availability of funds. How without the funds being available the work was executed is really a mystery. The amount due for the work done was found to be Rs. 534.57 crores during the year 2019-20. Rs. 350 crores were allocated in the year. Out of which Rs. 262.87 crores were earmarked for clearing the pending dues. However, when the matter was examined in detail by the Finance Department, it was found that there was lot of discrepancies in execution of works. Vide Government order dated 11.05.2019, a fact finding committee was constituted to look into the irregularities in awarding the contracts for the years 2010- 18. The committee submitted its report. The findings, as have been reproduced in paragraph 5 of the aforesaid affidavit, are extracted below: (i) xxxxxx (ii) Xxxxxx Paragraph 10 is also also reproduced as under : 10. Based on the aforesaid recommendations, the Government has referred the whole case to the Anti-Corruption Bureau for investigation. It is further provided in the affidavit that proper action under rules will be taken against all those officers/officials who are found to be indulged in omission and commission by the Anti-Corruption Bureau. In paragraph-7 of the aforesaid affidavit it is stated that even m the tender notice annexed by the petitioner, it is mentioned that the NIT was issued without availability of funds. As the petitioner had participated in the tendering process and 7 LPA No. 79/2021 a/w connected matter was found to be a successful bidder, having full knowledge of non-availability of funds, he cannot be permitted to raise the issue at this stage. There seems to be some nexus. Issuance of tender notice without availability of funds and absence of approval of the Government amounts to financial indiscipline and irregularity. 14. In view of the aforementioned background, the petitions were dismissed. Counsel for the appellant states that the view expressed by the writ court was clearly untenable and that as the writ Court had failed to appreciate that only because the works in questions were allotted despite there being no administrative approval and without availability of funds was not a ground to deny the appellant-petitioner the legitimate amount which is payable on account of works having being executed by the appellant. It is stated that even a reference to the report of the Committee on which overwhelming reliance was placed by the learned Single Judge was not apt, inasmuch as, only those cases were directed to be referred to the Vigilance Organization where neither there was any administrative approval nor had there been a tendering process. Counsel for the appellant urged that if the report was to be read in its entirety, it would make clear that those contracts which had been allotted in a proper bidding process even without the administrative approval would call for payment. It was urged that it was nobody’s case that in the contracts allotted to the petitioner, there was no administrative approval, inasmuch as, funds had been allotted for the contracts which were allotted to the petitioner and, in any case, assuming there was no administrative approval, yet, in terms of report of the Committee not only the works executed by the contractors but even extra works not exceeding 50 per cent were required to be paid for. 8 LPA No. 79/2021 a/w connected matter 15. Having gone through the judgment and the documents on record, we feel that the view expressed by the writ Court while dismissing the petitions cannot be accepted at all. The presumption that there was a nexus as a result of which contracts were allotted only because there was no administrative approval accorded and no funds made available, is a conclusion which we cannot accept for the simple reason that the Committee constituted to go into the issue had only reported some cases where the works were allotted without any bidding process. 16. In those cases where funds were not available and where the bidding process has been resorted to, but there was no administrative approval, the Committee had not, at all, suggested that the works executed be not paid for. In fact, the Committee had recommended that in such cases post facto sanction be accorded for grant of administrative approval. All the cases therefore need not to have been painted with the same brush on the premise that the entire matter had been referred to the Anti Corruption Bureau. It is not denied that the works were executed for public purpose for constructing roads and repairing the roads which had been damaged in the aftermath of the rain and heavy floods which was experienced in the erstwhile State of Jammu and Kashmir. In fact, the action of the contractors while executing the works even without there being any promise of immediate payment and without there being adequate funds available, deserved appreciation especially in a case where there was a proper bidding process adopted to get the best rates for executing such works. 17. Interestingly, counsel for the appellant states that after the impugned judgment passed in four writ petitions which were filed in regard to the contracts, the appeals have been preferred only in regard to the writ petition bearing WP(C) Nos. 983 and 986 of 2020 because the claims made in regard to WP(C) Nos. 984 and 985 have already been allowed and the 9 LPA No. 79/2021 a/w connected matter payments made. If that be so, it does appear that the Government was ever averse to making payment to those bonafide contractors who were allotted the contracts to restore the roads to avoid unnecessary inconvenience to the citizens. 18. One of the arguments which was raised during the course of hearing was with regard to the maintainability of petition under Article 226 for purpose of enforcing the contractual obligations. This, however, is no longer res integra. 19. The extent of applicability of Article 14 in contractual matters, where the State was a party, came up for consideration in the case of “M/s Radhakrishna Agarwal and ors Vs State of Bihar & ors,” reported in (1977) 3 SCC 457, wherein the Apex Court held as under:- “10. It is thus clear that the Erusian Equipment & Chemicals Ltd.'s case (supra) involved discrimination at the very threshold or at the time of entry into the field of consideration of persons. with whom the Government could contract at all. At this stage, no doubt, the State acts purely in its executive capacity and is bound by the obligations which dealings of the State with the individual citizens import into every transaction entered into in exercise of its constitutional powers. But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation of Article 14 or of any other constitutional provision when the State of its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from contract.” 20. Subsequently, however, in “Verigamto Naveen Vs Govt. of A.P. & ors,” reported in (2001) 8 SCC 344, the Apex Court held that if the 10 LPA No. 79/2021 a/w connected matter breach of contract involved breach of statutory obligation when the order complained of was made in exercise of statutory power by a statutory authority, though cause of action even when arising out of contract, brought it within the sphere of public law. It was held in paragraph 21 as under:- “21. In cases where the decision making authority exceeded its statutory power or committed breach of rules or principles of natural justice in exercise of such power or its decision is perverse or passed an irrational order, this Court has interceded even after the contract was entered into between the parties and the Government and its agencies. We may advert to three decisions of this Court in M/s Dwarkadas Marfatia & Sons vs. Board of Trustees of the Port of Bombay; Mahabir Auto Stores & Ors. vs. Indian Oil Corporation & Ors.; and Srilekha Vidyarthi vs. State of U.P.. Where the breach of contract involves breach of statutory obligation when the order complained of was made in exercise of statutory power by a statutory authority, though cause of action arises out of or pertains to contract, brings within the sphere of public law because the power exercised is apart from contract.” 21. In “Kumari Shrilekha Vidyarthi and others Vs State of UP and others,” reported in (1991)1 SCC 212, it was held that:- “20 ……………..…………Applicability of Article 14 to all executive actions of the State being settled and for the same reason its applicability at the threshold to the making of a contract in exercise of the executive power being beyond dispute, can it be said that the State can unbridled power unfettered by the requirements of Article 14 in the sphere of contractual matters and claim to be governed therein only by private law principles applicable to private individuals whose rights flow only from the terms of the contract without anything more? We have no hesitation in saying that the personality of the State, requiring regulation of its conduct in all spheres by requirements of Article 14, does not undergo such a radical change after the making of a contract merely because some contractual rights accrue to the other party in addition. It is not as if the 8 LPA No. 137/2020 requirements of Article 14 and contractual obligations are alien concepts. which cannot co-exist. The Preamble of the Constitution of India resolves to secure to all its citizens Justice, social. Economic and political; and Equality of status and opportunity. Every State action must be aimed at achieving this goal. Part IV of the Constitution 11 LPA No. 79/2021 a/w connected matter contains `Directives Principles of State Policy which are fundamental in the governance of the country and are aimed at securing social and economic freedoms by appropriate State action which is complementary to individual fundamental rights guaranteed in Part III for protection against excesses of State action to realise the vision in the Preamble. This being the philosophy of the Constitution, can it be said that it contemplates exclusion of Article 14-- non-arbitrariness which is basic to rule of law from State actions in contractual field when all actions of the State are meant for public good and expected to be fair and just? We have no doubt that the Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. In our opinion, it would be alien to the Constitutional Scheme to accept the argument of exclusion of Article 14 in contractual matters. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion. This is more so when the modern trend is also to examine the unreasonableness of a term in such contracts where the bargaining power is unequal so that these are not negotiated contracts but standard form contracts between unequals.” 22. In paragraph 22, the Court further proceeded to hold:- “22. There is an obvious difference in the contracts between private parties and contracts to which the State is a party, Private parties are concerned only with their personal interest whereas the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it, for public good and in public interest. The impact of every State action is also on public interest. This factor alone is sufficient to import at least the minimal requirements of public law obligations and impress with this character the contracts made by the State or its instrumentality. It is a different matter that the scope of judicial review in respect of disputes failing within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that 9 LPA No. 137/2020 the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also fails within the domain of 12 LPA No. 79/2021 a/w connected matter contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its actions.” 23. The above issue was also considered at length in ABL International Limited Vs Export Credit Guarantee Corporation of India Limited and noticing the various judgments on the point, the following legal principles were crystallized regarding maintainability of the writ petition: a. “In an appropriate case, a writ petition as against the State or an instrumentality of the State arising out of the contractual obligations is maintainable. b. Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases, as a matter of rule. c. A writ petition involving the consequential benefit of monetary claims is also maintainable.” 24. The Apex Court further proceeded to hold that in entertaining the writs under Article 226, the Court has the discretion to entertain or not to entertain the petition and with reference to “Whirlpool Corporation Vs Registrar of Trade Marks, Mumbai & ors,” reported in 1998(8) SCC 1, it was held that the prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the writ jurisdiction. 13 LPA No. 79/2021 a/w connected matter 25. Testing the facts of the present case on the touchstone of the law discussed above, we find that the impugned judgment and order is untenable both on reasoning and the law. The same is, accordingly, set aside and the appeals are allowed. The official respondents shall determine the amount which is admittedly payable to the appellant strictly in terms and conditions of the contract agreement and the works executed on spot. Any amount which is disputed may be a subject matter of an adjudication by taking resort to the arbitration clause which is contained in the contract agreement. 26. Disposed of accordingly. (Rahul Bharti) Judge (Dhiraj Singh Thakur) Judge Jammu 24.05.2022 Abinash Whether the order is speaking : Yes / No Whether the order is reportable : Yes / No "