State Instrumentalities Must Deal With Citizens Fairly: Kerala High Court Orders Release Of Amount Withheld In Excess Of Quantified Loss In Road Project

The Kerala High Court recently held that the Government cannot retain any amount in excess of the loss already quantified by it with regard to the amount due to a contractor on the premise of breach of contract.“The State and its instrumentalities are expected to deal with the citizens in a fair manner in all circumstances.”, the court observed in this regard.

The division bench comprising of Justice A Muhamed Mustaque and Justice Shoba Annamma Eapen was considering an appeal filed by a contractor, for recovery of claims and release of security deposit for work done for the Kerala State Construction Corporation in relation to a road project. The contract was awarded to the appellant but was subsequently terminated at the risk and cost of the appellant and another contractor was engaged for completion of the work.

It was argued on behalf of the appellant that the court is bound to issue appropriate directions in case of an arbitrary action of the state or any of its instrumentalities. The writ jurisdiction of the court can be invoked in such a case and the court is not precluded from issuing directions in the matter of a contract, the appellant averred.

However, the senior government pleader appearing for the state opposed the appeal by referring to clause 2116.2.1 in the PWD manual, revised in 2012, that pertains to “realisation of loss on account of termination”. According to the said clause an amount equivalent to 30% of the cost of the remaining work at the agreed rates of the terminated contract can be recovered from the defaulting contractor towards risk and cost. It was contended that the appellant is bound by the contract and the above clause of the PWD manual.

The court held that when the loss has already been quantified, the remainder of the admitted amount owed to the appellant cannot be withheld by the government.

“In a normal course, if the Government had not quantified the loss, the Court cannot order release of the amount agreed to be recovered, based on the contract. But that does not mean that the Court cannot order release of the withheld amount in excess of the loss already quantified by the public officials. The admitted amount in this matter cannot be withheld except for the loss to be calculated by the Government. The stipulation in the PWD Manual to recover 30% of the cost of the remaining works to offset the possible loss likely to suffer on breach of contract by the contractor. If the amount has been already calculated withholding any amount beyond the alleged loss suffered is arbitrary and illegal.”

The court ordered release of the admitted amounts except the amount towards damages and loss. The security deposit was also ordered to be released to the appellant by the court. The court however made it clear that for any other claim of the contractor, which is outside of the admitted claims, the contractor would have to approach a civil court.

Senior Advocate K.L Varghese appeared for the appellant.

Case Title: K C Antony V State of Kerala and Others

Citation: 2023 LiveLaw (Ker) 106

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