Non-Payment Of Dues : Karnataka HC Dismisses Plea By Construction Company To Wind Up BDA [Read Order]

Karnataka High Court junks plea filed by IL&FS construction company seeking directions to wind up Bangalore Development Authority for non-payment of dues.

Observing that "The word company cannot be imported from any other statute in order to bring in the purview of BDA Act, (Bengaluru Development Authority)," the Karnataka High Court has dismissed a petition filed by a private construction company, claiming BDA is a State Government company and should be wind up, for not paying dues.

A bench of Justice P B Bajanthri while dismissing the petition filed by IL&FS Engineering And Construction Company Limited, imposed a cost of Rs 50,00 on the company, which is to be remitted to the Chief Minister's Relief Fund, within eight weeks.

Case background

The Company and BDA entered into contract on 09.12.2005 for the construction of six lane outer- ring road with a two lane service road on either sides, connecting Mysore Road and Magadi Road from Kilometre 51.880 to Kilometer 56.700. The contract price was agreed upon for a sum of Rs.53,53,50,000. The contract period was for 18 months from December 19,2005 to June 18, 2007. The petitioner is stated to have completed the project in terms of the contract.

The company had certain disputes with BDA during the execution of work. High Court had appointed sole arbitrator to resolve the dispute among the petitioner and BDA. An award was passed on 31.3.2014 while awarding a sum of Rs.19,97,42,927 and interest amount a sum of Rs.15,97,39,612. BDA did not settle the payment in terms of the award.

In this regard, the petitioner sent a communication on May, 27, 2015 to release payment along with interest for the period in effecting payment. Further, a bill was raised for a sum of Rs.36,05,11,539 and the BDA released a sum of Rs.20,00,00,000 and Rs.11,49,03,813 on 12.8.2014 and 26.8.2014, respectively. The BDA refused to pay the balance amount of Rs.5,07,45,298 on the score that due to certain deduction value added tax @ 5.5% instead of 4% under the contract's General Conditions. Further, BDA withheld a sum of Rs.1,42,00,000 in terms of advice of the office of the Controller of Accounts and Auditor General without furnishing any details.

Due to non-payment of balance amount company filed petition seeking for direction to the Government of Karnataka to wind up the BDA for non-compliance payment of award dated March 31, 2014 and further to appoint Official Liquidator to take over assets of the BDA and discharge its liabilities.

Petitoner argued:

BDA has failed to implement the award in full, unnecessarily certain amounts have been withheld which is contrary to the contract executed among the petitioner and BDA. Therefore, BDA is to be wind up while appointing the Official Liquidator. BDA is like a State Government company in view of sub

Section 2 of Section 3 of the Bangalore Development Authority Act, 1976. Further, it was said that BDA- authority shall be a body corporate. Therefore, it is a State Government Company. There is a total failure on the part of the BDA in not complying the arbitral award which has attained finality. BDA is bound by the arbitration award and has failed to pay the dues of the petitioner in terms of the award.

Moreover, it was said that "BDA being the local authority of the State Government it should be model authority. Being a Governmental agency, while handling administration like execution of developmental work which should meet the social justice and fairness in each and every action.

BDA argued:

BDA is a local authority. No doubt, under sub Section 2 of Section 3 of the Act, 1976 the word 'body corporate' has been incorporated that does not give the status of a state company. Ingredients to determine company are not forthcoming under the Act, 1976 so as to attract the provisions of the Companies Act, 1956.

Also, If there is any dispute in implementation of the award by the BDA, petitioner has remedy of execution of the award dated March 31, 2014 before the appropriate Forum. The present petition is nothing but arm twisting of BDA to settle the alleged dispute.

Court observed:

"Combined reading of definition of local authority under the Act, 1976 r/w Section 3(31) of the General Clauses Act, BDA is enrolled with all the usual attributes and characteristics of the local authority and there is no reason to hold that it is not a local authority. Therefore, the contention of the petitioner that BDA is a Governmental company cannot be appreciated in view of the fact that local authority is not forthcoming in the Companies Act and BDA is not registered under companies Act, so as to attract winding up of proceedings against BDA. 'Local authority' definition cannot be imported from any other statute so as to read in the Companies Act 1956."

It also said that "Sub-Section 3(e) of the Land Acquisition Act, 1894 provides for definition of 'Company' whereas similarly BDA Act, do not deal with definition of 'Company'. Consequently, the word 'Company' cannot be imported from any other statute in order to bring in the purview of BDA Act, petitioner has not made out a case." 

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