The Delhi High Court, on Thursday, laid down guidelines for adherence by Contractors as well as authorities while making payments to such Contractors, noting that they are made to wait endlessly for their payments on the ground of non-availability of funds.
Adherence to these guidelines, Justice Pratibha M. Singh observed, "shall ensure that the works are duly carried out as per the quality standards prescribed and there is proper record of work being done."
The Court further cautioned that once the work is carried out, the payments ought not to be delayed, "as delay in payments compromises on the availability of quality civil work for the Corporations, who take care of basic amenities for citizens such as roads, pavements, civil works, sewerage lines etc."
The Court was hearing a batch of appeals arising out of disputes between Contractors, and the North Delhi Municipal Corporation (NDMC) and the East Delhi Municipal Corporation (EDMC). The disputes primarily concerned non-payment of dues to these Contractors, despite Trial Court orders in their favor.
While analyzing the clauses of the General Conditions of Contract, the Court noted that Clause 9 of the same provided that Contractors would be paid depending upon the availability of funds. Opining that leaving no remedy for the Contractor while the authorities can delay the payment indefinitely would be "illegal and contrary to lay", the Court observed,
"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."
The Court further referred to various provisions of the Indian Contract Act to assert that such an open-ended clause without any time limit for payment would be unreasonable and unfair, explaining, "The Corporation being an instrumentality of State, such a contract would also be opposed to public policy under Section 23 of the Contract Act. Section 46 of the Contract Act is also clear that if no time for performance of a contract is specified, it has to be performed within a reasonable time. Reading these provisions together, it is clear that an open-ended Clause which in effect says that the payment shall be made at an undetermined time in the future, subject to availability of funds, in a particular head of accounts is wholly unreasonable and such a term would also be unfair."
It then noted that the Clause provides a time limit for payment of final bills as 6 months (for tendered value of work up to Rs. 5 lakhs) and 9 months (for the tendered value of work exceeding Rs. 5 lakhs).
The Court found it "equally strange" that the non-payment was being justified on the ground of unavailability of funds, noting, "Running the Corporation is not the business of the Contractor. It is for the Corporation to manage its affairs as per the funds available with it and it cannot be a defense that the Contractor should bear the brunt of non-payment for years, of works executed by him."
It then decreed the Contractors' suits, and issued the following guidelines: