Delhi HC: To ask Contractor to Wait for his Payment Endlessly is Arbitrary

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March 27, 2018

Case name: North Delhi Municipal Corporation & Anr. v. Amit Tanwar

Date of Judgement: March 22, 2018

In the case, a batch of petitions was taken up by the Delhi High Court in which the common cause of action pertained to disputes between Contractors/Plaintiffs on the one hand and the North Delhi Municipal Corporation and East Delhi Municipal Corporation (collectively referred to as `Corporations’). In these cases various work orders were placed on Contractors by both the Corporations. The works were executed by the Contractors and thereafter, the Engineer-in-Charge has passed the final bills. However, payments in respect thereof were not made and subsequently suits for recovery were filed by the Contractors.

In the case, Delhi High Court took a strong note of non-payment to contractors on account of unavailability of funds. The Court inter alia made the following observations:

  • That a Corporation cannot postpone the payment to the Contractor, indefinitely. The issuance of the tender and the work order in favour of the Contractor has to be on the pre-condition that funds are available with the Corporation.
  • That to ask the Contractor to wait endlessly for his payment is wholly arbitrary. The Corporation which hands over the works contract to the Contractor cannot say “Do the work now, I will pay when I have the money”.
  • That even if such a clause has been signed and accepted by the Contractor, it does not make the clause valid inasmuch as it would render a fundamental condition of contract being hit by provisions of the Indian Contract Act, 1872. Every contract, to be valid, has to have consideration and the indefinite postponement of consideration would be wholly unconscionable.
  • That Corporations which form a part of the State as envisaged under Article 12 of the Constitution have to conduct their activities in accordance with law and public policy. Instrumentalities of States ought to be saddled with a higher responsibility to behave reasonably and not arbitrarily.
  • That it can be no justification for a Corporation to claim that it would float the tender, it would issue the works contract, it would get the work executed, its Engineer would supervise the work, the Engineers would pass the bills, but yet no payment would be made. Such a luxury ought not to be available to anyone, even a private individual/corporation who enters into a contract, let alone a State Corporation.

The entire case can be accessed here.