"Contractor Couldn't Collect Market Fee Due To COVID-19": Madhya Pradesh HC Upholds Order Directing Municipality To Refund Bid Money

The Jabalpur bench of the Madhya Pradesh High Court upheld a Collector's order directing a municipal council to refund the first instalment of the bid amount to a Contractor–engaged for recovering weekly market charges, after noting that the money could not be recovered on account of second wave of Covid-19 terming it as "force majeure".

Justice Vivek Agarwal in his order observed, “The controversy is that whether the contract could not be executed and given effect to due to force majeure or on account of certain lacunas on the part of the Contractor and the answer is that prima facie the contract could not be given effect to on account of the force majeure i.e. the outbreak of the second wave of Covid-19.”

"Thus, when this fact is taken into consideration then the action on the part of the State made through the Collector, Mandla when tested appears to be reasonable to direct the Municipal Authority to forfeit the amount of the earnest money but refund the amount of the first instalment on account of the fact that due to force majeure, the Contractor was stopped from making recovery of the weekly market recovery charges as there was no organization of market in the wake of Covid-19 Phase-II breakdown,” the court added.

For context, weekly markets set up in a government designated area where small vendors set up their shops (make shift) on market days, wherein the job of the contractor is to collect a fixed fee–weekly market recovery charges–from the vendors who set up these shops. The contractor pays a fixed amount to the municipal/government authority which is known as license/tender fee, and he in turn generates profits from the revenue collected from vendors by way of the weekly market recovery charges.

The court was hearing a petition by the Nagar Parishad, Bamhani Banjar, District Mandla challenging the order of Collector, Mandla which said that the Chief Municipal Officer is entitled to only forfeit the amount of the earnest money paid by the Contractor while the remaining amount should be refunded to the him.

A notice inviting offers for collection of weekly market recovery charges was floated by the petitioner municipal council and in pursuance to it the private respondent being the highest bidder had furnished his earnest money of Rs. 50,000. Thereafter, his bid was accepted.

The Chief Municipal Officer had informed the Contractor to deposit 25% of the bid amount tottaling to Rs.4,63,445 within twenty-four hours otherwise his bid shall stand cancelled.

The Contractor had deposited the required sum with a request to the Municipal Authority to make a public announcement that the persons participating in the collection of weekly market recovery charges will also be liable to pay the amount of GST along with the market tax.

On April 3, 2021, an application was filed by the Contractor to the Chief Municipal Officer that on account of non-convening of the weekly market, the instalments for the period concerned be condoned as second phase of Covid-19 has set in.

On August 27, 2021 the Chief Municipal Officer informed the Contractor that he can approach the State Government for cancellation of the contract and for refund of the amount.

Thereafter, the Contractor informed the Chief Municipal Officer that on account of pandemic of Covid-19, no recovery could be made from the market and since there was no authorization letter given by the Municipal Council nor any agreement was executed and he is facing undue loss. He thus requested that his earnest money along with the first instalment of the bid should be refunded to him.

The counsel for the petitioner submitted that the Contractor was later asked to continue with the work of weekly market recovery charges but he did not agree when the matter was taken before the Collector. The counsel placed reliance on a judgement by apex court to contend that by conduct of the Contractor in depositing the first instalment, there had come in existence of formal agreement though it was not executed on paper and, therefore, the Respondent/Contractor is not entitled to violate the contract and claim refund. Subsequently he approached the Collector, Mandla who directed the Nagar Parishad, Bamhani Banjar, District Mandla to forfeit the earnest money amount of Rs.50,000 and return the amount of the first instalment deposited by the petitioner. Against this the municipal council approached the high court.

The council argued that due to the conduct of theContractor in depositing the first instalment, there had come in existence of formal agreement though it was not executed on paper. Therefore, the Respondent Contractor is not entitled to wriggle out of the contract and claim refund.

After considering the arguments of both the parties, the court observed, “When the order of the Collector, Mandla is tested in the light of the fact that the second wave of Covid-19 has set in April when the Contractor was to begin his work and that continued to harass, depress and threaten the common citizens till atleast September, 2021 then after having lost almost six months' period of recovery, the Contractor was helpless due to such situation of the force majeure. It is not a case where on a situation of Contractor's own making, he had sought to wriggle out of the so called commitment to collect the weekly market recovery charges for the Nagar Parishad.”

Upholding the collector's order as reasonable the court asked the municipal council to make the refund within one month from the date of receiving the high court's certified copy of the present order.

Case Title: Nagar Parishad Bamhani Banjar District Mandla M.P. Versus Collector And Others, Writ Petition No. 12898 of 2022

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