Contractor Cannot Be Denied Payment For Extra Work Approved By Railways Through Their Actions: Bombay High Court

The Bombay High Court bench of Justice Somasekhar Sundaresan has held that a contractor cannot be denied payment for extra work that, while beyond the original scope of the agreement, was clearly consented to by the other party through its conduct. When such work is accepted, measured, and not objected to contemporaneously, the benefiting party cannot later claim it was beyond the contract's scope. To allow this would amount to unjust enrichment. Brief Facts: This Petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the arbitral award dated May 31, 2023, arising from a contract dated September 24, 2018, for railway construction work between Wardha and Nanded. The contract, valued at approximately ₹124.96 crores, required completion by May 23, 2020, with provisions for a performance bank guarantee and security deposit of ₹6.24 crores each. The Contractor completed assigned work worth ₹108.73 crores under six RA Bills, all cleared by the Railways. Due to delays caused by land acquisition issues and the Covid-19 lockdown, the Contractor sought extensions under Clauses 17-A(ii) and 17-A(iii) of the GCC. The Railways, without dispute, granted an extension until December 31, 2020, without penalty and accepted price variation. Work continued under the extended period, with a joint measurement on June 22, 2020, and the seventh RA Bill raised for ₹138.78 crores on July 13, 2020. However, the Railways withheld payment, claiming the excess work fell under “restricted quantities.” According to the RA Bills raised, the total value of the work carried out by the Contractor was Rs.~147 crores while what was paid by the Railways was Rs.~124.95 crores. This lies at the heart of the disputes between the parties. The Railways wrote to the Contractor asking it to complete the work while the Contractor wrote to the Railways that the work could not be carried out under the conditions imposed by the Railways. This stand-off led to the arbitration proceedings, which led to the Impugned Award. The Arbitral Tribunal held that the Railways had not alleged that the excess work was unauthorized or unapproved. In fact, previous RA Bills included payments for similar extra work. Given that the additional work was executed, jointly measured, approved, and not objected to at the relevant time, the Tribunal held that the Contractor's claim for the excess work was justified and must be honoured. Challenging the above award, the Railways submitted that under Clause 41 of the GCC, excess work cannot be claimed unless supported by a formal written instrument approving it. Therefore, the Arbitral Tribunal erred in allowing the claim, acting beyond the contractual framework. It was further submitted that the Impugned Award violates Article 299 of the Constitution, which mandates that contracts executed under the executive power of the State must be formally expressed in the name of the President or Governor and duly authorized. The absence of such compliance renders the award legally unsustainable. Observations: The court noted that the work was executed in line with the Agreement under the active supervision of Railways officials, especially during the Covid-19 lockdown. Extensions were granted based on ground realities. Despite alleging deficiencies, the Railways made no counterclaim in arbitration. Joint measurements, approved RA Bills, and prior conduct confirmed acceptance of excess work. It observed that the Arbitral Tribunal rightly held that the Railways' conduct indicated consensual and documented expansion of work, and it could not rely on the absence of a formal amendment to deny payment. The Tribunal's findings are reasonable, well-supported, and cannot be faulted. It further held that this case does not concern an unexecuted agreement but rather a fully executed and implemented contract. During performance, the parties established a clear working framework under which the work progressed. It further added that the severe impact of the Covid-19 lockdown, including mass labour migration, must be judicially acknowledged. Despite prior approval and supervision of the work by Railways officials, the Railways' later claim of inadequate manpower is inconsistent. Given the approvals and joint measurements, the Arbitral Tribunal was fully justified in its findings and the view taken in the Impugned Award. The court further noted that the contract was validly executed following a formal tender process and is governed by the GCC, including Clause 41, which requires written modifications. However, joint measurements recorded in the measurement book, RA Bills prepared by the Railways, and written extensions under Clauses 17-A(ii) and (iii) confirm mutual acceptance of additional work and delay. Despite alleging overpayment, the Railways filed no counterclaim. Based on the above, it...

Contractor Cannot Be Denied Payment For Extra Work Approved By Railways Through Their Actions: Bombay High Court

Mohd Malik Chauhan

Tags