The learned Judge in North Delhi Municipal Corporation Vs.
Vipin Gupta (supra) was dealing with a batch of appeals passed in similar suits wherein the appellant-corporations were relying on clause 7 and clause 9 to delay payment to contractors who had executed the work as per their respective work orders. The relevant portion of the judgment dated 22nd March, 2018 in RFA 160/2017 is reproduced hereinbelow:-
“Conclusions and Findings
“56. The General Conditions of Contract i.e., clauses 7 and
9 which are admittedly part of the work orders issued by
both the NrDMC and the EDMC are being tested in these
batch of cases. A contract which stipulates that the
consideration would be paid in an unforeseen time in the
future based on certain factors which are indeterminable,
would in effect be a contract without consideration. Even if
the contract is held to be a valid contract, then the concept of
`reasonableness' has to be read into the same. Section 46 of
the Contract Act and the explanation thereto is clear that
“what is a reasonable time is a question of fact in each
case.” A Corporation which gets works executed cannot
therefore include terms in the contract which are per se
unconscionable and unreasonable as –
a) There is no fixed time period as to when the
funds would be available;
b) There is also no fixed mechanism to determine
as to when and in what manner the head of
account is to be determined and as to how the
Contractor would acquire knowledge of these two
facts;
c) There is also no certainty as to how many
persons are in the queue prior to the Contractor
and for what amounts;
d) There is enormous ambiguity in the receipt
under the particular heads of accounts.
57. These clauses in effect say that the Contractor is left with
no remedy if the Corporation does not pay for the work that
has been executed. Such a Clause would be illegal and
contrary to law. Such clauses, even in commercial contracts,
would be contrary to Section 25 read with Section 46 of the
Contract Act.
58. The clauses do not specify an outer time limit for
payment. The expression reasonable time has to be `a time'.
The concept of time itself is ensconced with specificity and
precision. Clause 9 is the opposite of being precise. It is as
vague and ambiguous as it could be because it depends on
factors which are totally extraneous to the contract, namely
Allotment of funds to the Corporation by
the Government;
Allotment of funds in a particular head;
Allotment of funds for payments who are
in queue prior to the contractor;
59. Thus, these factors, which are beyond the control of the
Contractor and which would govern the payment of
consideration, make the said clauses of the contract
completely unreasonable. The clauses have to thus, be read
or interpreted in a manner so as to instill reasonableness in
them. {Para 9}
The learned Single Judge of this Court in North Delhi Municipal Corporation Vs. Vipin Gupta (supra) took note of this fact and observed as under:-
“33. It is slightly unfathomable as to how the Corporation can
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. 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”. 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 (hereinafter, „Contract Act‟). Every contract, to be
valid, has to have consideration and the indefinite
postponement of consideration would be wholly
unconscionable.
IN THE HIGH COURT OF DELHI AT NEW DELHI
RFA (COMM) 6/2021 & CM APPLs. 10185-10188/2021
NORTH DELHI MUNICIPAL CORPORATION Vs M/S. BARAHI CONSTRUCTION
Date of Decision: 15th March, 2021
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
HON'BLE MS. JUSTICE ASHA MENON
Author: MANMOHAN, J (Oral):
1. Present appeal has been filed challenging order dated 7th January,
2021 passed by learned District Judge (Commercial court-05), Central
Delhi, Tis Hazari in CS(COMM) 683/2020, whereby the respondent’s
application under Order XII Rule 6 has been allowed and the suit has
been decreed against the appellant.
2. Briefly stated, the facts of the present case are that Respondent-
Plaintiff was awarded five work orders on 1/4/2016 and it completed the same within stipulated time, to the satisfaction of the appellant. The final
bills for all work orders amounting to Rs. 38,34,799/- were approved by
the appellant. However, the payment was not released within prescribed
time. Thereafter, the respondent-plaintiff sent a legal notice to the
appellant to which the appellant replied stating that the payments would
be made after the amount is released by the SDM/Delhi Government. The
respondent-plaintiff then filed the suit for recovery before the District Court.
3. Appellant contested the suit and admitted its liability to pay the
amount of passed bills but stated that work orders were placed at the
request of SDM/Delhi Govt. and due to non receipt of payment from
them, the payment to the respondent-plaintiff could not be released.
During the pendency of the suit, respondent-plaintiff had made an offer to
the appellant to pay the principal amount by 31st December, 2020 upon
which the interest and costs would be waived off. However, the appellant
refused the said offer and filed an application under Order VII Rule 11.
Subsequently, the respondent-plaintiff filed an application under Order
XII Rule 6 in which the impugned order has been passed.
4. Learned senior counsel for the appellant submits that learned
District Judge failed to appreciate that the relief sought for by the
respondent under the garb of application under Order XII Rule 6 CPC
was beyond the scope of the terms and conditions of the contract.
5. He states that learned District Judge failed to appreciate that the
work orders were placed at the request of SDM/Delhi Government and due to non-receipt of payment from them, the payment to the contractor
cannot be released.
6. He further states that there was a condition in the NIT that the
payment of the Bills will depend upon availability of funds in a particular
head of account and even the payments will be made on queue basis i.e.
first and past liabilities to be given priorities and after those clearance, the
payment to the contractor will be released after the demand of the bills is
received from the concerned SDM and that no interest shall be paid on
the bill amount.
7. He emphasizes that there are judgments passed by the learned
Single Judge of this Court wherein the queue basis payment had been
approved. In support of his contention, he relies upon the judgments of
the learned Single Judges in RFA 786/2016, RFA 818/2017 and RFA
835/2017. According to him, these judgments take a contrary view to the
one taken in RFA 160/2017 decided on 22nd March, 2018 by a different
learned Single Judge of this Court.
8. This Court is of the view that the present appeal is liable to be
dismissed inasmuch as a learned Single Judge of this Court in ‘North
Delhi Municipal Corporation Vs. Vipin Gupta’ RFA 160/2017 has dealt
with all the grounds urged herein and the same are no longer res integra.
It is relevant to point out that the appellant herein had preferred an SLP
against the aforesaid order of the learned Single Judge, which came to be
dismissed vide order dated 03rd January, 2019.
9. The learned Judge in North Delhi Municipal Corporation Vs.
Vipin Gupta (supra) was dealing with a batch of appeals passed in similar suits wherein the appellant-corporations were relying on clause 7 and clause 9 to delay payment to contractors who had executed the work as per their respective work orders. The relevant portion of the judgment dated 22nd March, 2018 in RFA 160/2017 is reproduced hereinbelow:-
“Conclusions and Findings
“56. The General Conditions of Contract i.e., clauses 7 and
9 which are admittedly part of the work orders issued by
both the NrDMC and the EDMC are being tested in these
batch of cases. A contract which stipulates that the
consideration would be paid in an unforeseen time in the
future based on certain factors which are indeterminable,
would in effect be a contract without consideration. Even if
the contract is held to be a valid contract, then the concept of
`reasonableness' has to be read into the same. Section 46 of
the Contract Act and the explanation thereto is clear that
“what is a reasonable time is a question of fact in each
case.” A Corporation which gets works executed cannot
therefore include terms in the contract which are per se
unconscionable and unreasonable as –
a) There is no fixed time period as to when the
funds would be available;
b) There is also no fixed mechanism to determine
as to when and in what manner the head of
account is to be determined and as to how the
Contractor would acquire knowledge of these two
facts;
c) There is also no certainty as to how many
persons are in the queue prior to the Contractor
and for what amounts;
d) There is enormous ambiguity in the receipt
under the particular heads of accounts.
57. These clauses in effect say that the Contractor is left with
no remedy if the Corporation does not pay for the work that
has been executed. Such a Clause would be illegal and
contrary to law. Such clauses, even in commercial contracts,
would be contrary to Section 25 read with Section 46 of the
Contract Act.
58. The clauses do not specify an outer time limit for
payment. The expression reasonable time has to be `a time'.
The concept of time itself is ensconced with specificity and
precision. Clause 9 is the opposite of being precise. It is as
vague and ambiguous as it could be because it depends on
factors which are totally extraneous to the contract, namely
Allotment of funds to the Corporation by
the Government;
Allotment of funds in a particular head;
Allotment of funds for payments who are
in queue prior to the contractor;
59. Thus, these factors, which are beyond the control of the
Contractor and which would govern the payment of
consideration, make the said clauses of the contract
completely unreasonable. The clauses have to thus, be read
or interpreted in a manner so as to instill reasonableness in
them.
60. By applying the above said principles, in respect of final
bills raised by Contractors for works executed, that have
been approved by the Engineer-in-Charge, the Clauses have
to be read in the following manner:
a) Reasonable time for making of payments of
final bills in respect of work orders up to Rs.5
lakhs shall be 6 months and work orders
exceeding Rs.5 lakhs shall be 9 months from the
date when the bill is passed by the Engineer-in-
Charge.
b) The queue basis can be applicable for the
payments to be made in chronology. However, the
outer limit of 6 months and 9 months cannot be
exceeded, while applying the queue system.
c) The payments are held to become due and
payable immediately upon the expiry of 6 months
and 9 months and any non-payment would attract
payment of interest for the delayed periods.
d) A conjoint reading of Clauses 7 & 9 along with
the amendment dated 19th May, 2006, clearly
shows that for the payment of bills, the contractors
have to follow the queue basis and as and when
the amount is available under the particular head
of account, the amount would be payable. The
amendment does not, however, have a condition
that no interest is payable for delayed payment.
Such a condition exists only in Clause 7. Clause 9,
therefore, when read with the amendment has to
mean that the Corporation itself considers 50
months and 9 months to be the reasonable periods
for which the payments of the final bills can be
held back.
e) To the extent that queue basis is applied only
for clearing of payments which do not extend
beyond the period of 6 months and 9 months
period, it is reasonable. However, if the queue
basis is applied in order to make Contractors wait
for indefinite periods for receiving payments, then
the same would be unreasonable and would have
to therefore be read down.
10. The appellant has sought to distinguish the aforesaid judgment on
the ground that the clause 9 has subsequently been amended and the
Learned Single Judge had dealt with pre-amendment clause 9. It is
pertinent to note that pre-amendment clause 9 prescribed a time period
for making payments i.e. payment of bills of upto Rs. 5 Lac had to be
made within a period of Six months from the date of passing of bill and in
case of bills of more than Rs. 5 Lac, the payment had to be made within a
period of 9 months. The same has been amended by office order dated
10th June, 2014. The amended clause 9 now reads as under:-
“The contractor will get payment of his passed bills
depending upon on availability of funds in particular heads
of account. Payment will be made strictly on queue basis. No
interest will be payable to contractor in case if delay in
payment on account of non-availability of funds in particular
head of accounts of MCD.”
11. Perusal of the amended clause 9 shows that the appellants have
deliberately removed the time period prescribed for making payments in
order to ‘overcome’ the directions issued by the learned Single Judge of
this Court in RFA 160/2017. In fact, this is not the first time the appellant
has adopted this mechanism inasmuch as they had previously amended
clause 9 to include the “queue basis payment” to neutralize judgment of
another learned Single Judge of this Court in Jagbir Singh Sharma v.
Municipal Corporation of Delhi in CS(OS) 1797/2007. The learned
Single Judge of this Court in North Delhi Municipal Corporation Vs.
Vipin Gupta (supra) took note of this fact and observed as under:-
“33. It is slightly unfathomable as to how the Corporation can
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. 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”. 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 (hereinafter, „Contract Act‟). Every contract, to be
valid, has to have consideration and the indefinite
postponement of consideration would be wholly
unconscionable. In fact a Single Judge of this Court in Jagbir
Singh Sharma v. Municipal Corporation of Delhi [order dated
15th July, 2007 in CS(OS) 1797/2007] (hereinafter, „Jagbir
Singh‟), while dealing with Clause 9 of the General
Conditions of Contract (as it then stood) has held as
under:…………
xxx xxx xxx
35. A perusal of the old Clause 9 reveals that there was an
actual limit for making of payment i.e. 3 months and 6 months
and in the context of the said Clause, it was held in Jagbir
Singh (supra) that “every endeavor should be made by MCD
to make payment with the time period stipulated in Clause 9”.
In the case of Jagbir Singh (supra), the Corporation, in its
leave to defend application had submitted that payment would
be made as and when funds in a particular budget head are
available with it. This Court categorically rejected this stand
of the Corporation by holding “Ex facie, the stand taken in
the leave to defend applications cannot be accepted and has
to be rejected”. This Court held that the Contractors have no
role to play in the internal affairs of the Corporation. But a
perusal of the present Clause i.e., the new Clause 9 of the
General Conditions of Contract shows that what was
expressly rejected by this Court, even as a defense in the leave
to defend application in Jagbir Singh (supra), has now come
to be added in the Clause itself along with a second element of
a queue basis, which were not part of the earlier Clause and
has now been made part of the new Clause. It is, however,
completely incongruous that the addition of conditions of
availability of funds and queue basis has been made, while at
the same time retaining an upper limit of 6 months and 9
months as against the earlier 3 months and 6 months in
Clause 9 of the General Conditions of Contract. Clause 9 is,
therefore, in the teeth of the judgment of this court in Jagbir
Singh (supra) and is nothing but an attempt to neutralize the
said judgment. A Corporation which gets works executed
cannot therefore include a term in the contract which is per se
unconscionable and unreasonable as –
a) There is no fixed time period as to when the
funds would be available;
b) There is also no fixed mechanism to determine
as to when and in what manner the head of
account is to be determined and as to how the
contractor would acquire knowledge of these two
facts;
c) There is also no certainty as to how many
persons are in the queue prior to the Contractor
and for what amounts;
d) There is enormous ambiguity in the receipt
under the particular heads of accounts.
36. These clauses in effect say that the Contractor is left with
no remedy if the Corporation does not pay for the work that
has been executed. Such a Clause would be illegal and
contrary to law.
37. 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. 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.”
12. The learned Single Judge in North Delhi Municipal Corporation
Vs. Vipin Gupta (supra) has further categorically held that the conditions
being imposed on the contractors by the appellant are “so vague and
ambiguous into the future that at no point would a Contractor, who had
executed the work order, be able to demand payment.” The relevant
observation on this aspect is reproduced hereinbelow: -
“48. The learned counsel for the Corporation also relies
upon Cauvery Coffee Traders, Mangalore v. Hornor
Resources (International) Co. Ltd. (2011) 10 SCC 420
(hereinafter, „Cauvery Coffee Traders‟) to argue that
Contractors cannot approbate and reprobate. Since
Contractors wanted to obtain benefits under the work order
and the terms of the work order (including the General
Conditions of Contract) were well known to them, they
cannot then argue that “I want the work order but without
clause 7 & 9”. This argument would have been acceptable
and appealing if the Clause under the contract had some
reasonable time limit fixed for the payment to be made, while
following a queue system. However, the Corporation argues
that there is no time limit fixed at all. There are too many
contingencies and conditions that are stipulated in order to
make payment, namely:
(i) funds should be available with the
Corporation;
(ii) funds should be available under specific head;
(iii) the Contractors’ turn to be paid should arise;
and
(iv) Interest would not be paid for the delayed
period.
49. These four conditions are so vague and ambiguous into
the future that at no point would a Contractor, who had
executed the work order, be able to demand payment. On the
one hand, the Contractor is expected to obtain all the
construction material at his own expenses, employ labour at
his own expenses and execute the work order. Thereafter, he
has to submit his bills to the Corporation and the Engineerin-
Charge has to pass the said bills. So far, the conditions
are reasonable. However, to say that even after the bills are
passed the payment would be made if and when the funds are
available, if and when Contractor’s turn comes, is in effect
to say that it would make the payment in 1 year, 5 years, 10
years or not pay at all. Such a condition in any contract
would be illegal, unconscionable and unreasonable. There is
no question of estoppel by election in such a case. In
Cauvery Coffee Traders (supra) the Supreme Court's
observation on approbate and reprobate was in the context
of a transaction that stood concluded `after extensive and
exhaustive bilateral deliberations'. The position in the
present cases is the opposite. Here it is a standard form
contract which is to be accepted without much choice. The
only choice before a Contractor is simply to not to apply for
or accept the work order itself. Thus, the authority cited on
this proposition would not apply.”
13. In view of the aforesaid, this Court is of the view that the amended
clause 9 is in the teeth of the judgment of the learned Single Judge of this
Court in North Delhi Municipal Corporation Vs. Vipin Gupta (supra)
and yet another attempt of the appellant to indefinitely and arbitrarily
delay payment to contractors.
14. This Court is in agreement with the findings of the learned District
Judge that despite there being clear directions by this Court in similar
cases, the appellant has continued to flout the directions of this Court and
unnecessarily delayed the payments to the contractors. The appellant has
continued to contest suits and file appeals on similar grounds that have
been dismissed by this Court.
15. This Court is of the opinion that there are no contradictory orders
of different learned Single Judges of this Court as contended by the
appellant inasmuch as the other order dated 01st December, 2016 in RFA
786/2016 and RFA 192/2016 passed by another learned Single Judge was
in terms of a previous consent order dated 17th November, 2016 after the
appellant and respondent had arrived at a comprehensive settlement. The
same was followed by another learned Single Judge in RFA 818/2017
decided on 25th September, 2017 as well as RFA 835/2017 decided on
27th September, 2017.
16. It is pertinent to mention that the legality of Clause 7 and 9 was not
adjudicated upon in any of these cases. It was only in the judgment dated
22nd March, 2018 passed in RFA 160/2017 whereby a learned Single
Judge of this Court considered the matter in detail on merits and passed a
comprehensive order.
17. This Court is also of the view that if the appellant has any remedy against the SDM/Delhi Government, it shall be free to invoke the same in accordance with law.
18. Keeping in view the aforesaid, this Court finds no reason to
interfere with the impugned order or differ from the view expressed by
the learned Single Judge in North Delhi Municipal Corporation Vs.
Vipin Gupta (supra).
19. Consequently, present appeal along with pending applications,
being bereft of merits, is dismissed.
MANMOHAN, J
ASHA MENON, J
MARCH 15, 2021
js/rn
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