TaxTMI 
TaxTMI 
2018 (3) TMI 2061
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....s'. The facts in each appeal are different and hence separate judgements are being passed in each of the appeals. 2. Briefly, these are cases where various work orders were placed on Contractors by both the Corporations. The works were executed by the Contractors and thereafter, the Engineer-in-Charge has passed the final bills. Payments in respect thereof were not made. Suits for recovery were filed by the Contractors. The Trial Court decreed the suits in favour of the Contractors. 3. In respect of each of the work orders, the Contractors seek either/all of the following payments: a. Payment of the principal amount as passed in the final bill; b. Refund of security deposit; c. Interest on account of late payment of the principal amount, as also due to delay in refund of security deposit. 4. The Corporations rely on Clauses 7 and 9 of the General Conditions of Contract in respect of payment of principal amount and interest, read with the amendment of 19th May, 2006. In respect of the security deposit, the Corporations rely on Clauses 17 and 45 of the General Conditions of Contract for Municipal Corporation of D....
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.... shall be made strictly on queue basis i.e. first the past, liabilities will be cleared and after that the release of payment for passed bills will be in order of the demand received at Head Quarter under particular head of account. Thus, it is submitted that the delay in making the payment do not attract any liability and the plaintiff is not entitled to any interest on account of delay in payment as per the amended rules incorporated by circular dated 19.05.2006 in N.I.T Tender conditions. The plaintiff, after going through & understanding the terms and conditions of NIT as well as tender documents, had participated in the Tender and executed the work." 8. The Corporation also contended that no bills were submitted by the Contractor but it was the Engineer-in-Charge who passed the bill for principal amount of Rs. 2,92,637/-. It was, however, admitted that the final bill was sent to the Head quarter for payment on queue basis. The written statement avers as under: "6-7 Para 6 & 7 of the plaint are wrong and denied. It is denied that the plaintiff has been running from pillar to post in defendant's office requesting for release the said amount. It is further denied that....
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.... interest, its period, rate or whether it is payable by defendant to plaintiff are concerned, they are the mixed questions of fact and law, requiring leading of evidence by the parties at the opportune time and shall be adjudicated after adducing of evidence by the parties." 11. On 8th February, 2016, the following issues were framed in the matter: "ISSUES 1) Whether the plaintiff is entitled for refund of earnest money/security deposit, as claimed, or not? Onus of proof of parties. 2) Whether the plaintiff is entitled for interest? If so, on what amount, at what rate and for which period? OPP 3) Relief." 12. The Contractor led the evidence of Shri Sanjeev Oberoi, proprietor of the firm, as PW-1 who stated in cross examination as under: "It is correct to suggest that I participated in Notice Invited Tender (NIT) dated 21.08.2014 and was aware of its terms and conditions. I am not aware of the circular dated 19.05.2006 of defendant corporation and the conditions laid therein. I had submitted only one bill on completion of work order. I had not filed original or copy of the submitted bill in this case. It is incorrect to suggest that....
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....ecided on the question of Principal and grant of interest on Principal amount. 17. History of litigations between contractors and Corporations - EDMC/ Nr.DMC in the Delhi High Court. (i) Order No. 1 - Order dated 1st December, 2016 passed in lead matter RFA 786/2016 and 192/2016 - These orders were passed in appeals preferred by the Nr.DMC and EDMC, respectively - In this order, a Learned Single Judge of this Court records that a consensus has been arrived between the Corporations and Contractors in the following terms: "2. On 17.11.2016, with the consent of the parties, the following order was passed : "6. After interacting with the counsels for the parties, a consensus has been arrived at and the following consent order is passed:- (i) The appellants shall file fresh compilations, complete in all respects in respect of the respondents and the other contractors, irrespective of whether they have filed any appeals/suits of recovery or not, so that there is a clarity about their priority in the wait list. (ii) The appellants undertake to strictly adhere to the timeline mentioned in the compilation, for releasing payments to the respond....
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.... to seek legal recourse for execution of the impugned judgments and decrees and claim interest on the decretal amount from day one. (xi) The respondents undertake that in view of the settlement arrived at with the appellants, as recorded above, they shall not take any steps to file execution petitions in respect of the impugned judgments and decrees, subject matter of the present appeals, for the period mentioned hereinabove. (xii) As for the already pending execution petitions, orders passed in these proceedings shall be placed on record so that they can be disposed of by the concerned courts on the basis of the consent order, with liberty granted to the respondents to file fresh execution petitions in case of default on the part of the appellants, as has been detailed above." 18. The said order further records in paragraph Nos. 14 to 17 as under: "14. The said offer is however unacceptable to the counsels for the respondents who submit that they would rather pursue the pending suits for payments of the security amount with interest etc. as the time line mentioned by the appellants for release of the payments is too long. 15. It is therefore ....
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....s and when funds become available, payments would be released to the Contractors on the basis of the priority in the waiting list. No out of turn payments would be released. The list of the Contractors would be uploaded on the website; iii) Interest would be payable after a period of three years and 90 days from the date when the bill is passed by the concerned division; iv) Interest would not run for a period of three years and 90 days as mentioned above; v) Upon the expiry of the said period, if amounts remain outstanding, the said interest @ 9 % p.a. on the principal amount for the remaining period shall be paid; vi) The said interest @ 9% p.a. shall be liable to be paid for a period of two years; vii) If after the period of two years, amounts remain outstanding, the Contractor shall be free to pursue their legal remedies and seek execution of the judgments and decrees passed in their favour and also claim interest on the decretal amount as per their respective entitlement from day one; viii) No execution shall be filed for the period agreed. In so far as security amount and interest is concerned, as per paragraph 15, the Con....
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....and substance continues to remain is that payment will be made in queue in terms of Clause 9 of the Contract with the earlier final bills prepared being paid earlier to the final bills which are prepared later." (iv) Order No. 4 - Order dated 9th October, 2017 in RFA 847/2017 and RFA 849/2017 - In these matters also the appeals were disposed of in terms of Order No.1. The relevant portion of the order reads as under: "...."3. I do not find any inconsistency or conflict in the order passed by this Court on 25.09.2017 with the judgment passed by a learned Single Judge of this Court on 01.12.2016 in RFAs 192/2016 and 786/2016. The sum and substance continues to remain is that payment will be made in queue in terms of Clause 9 of the Contract with the earlier final bills prepared being paid earlier to the final bills which are prepared later. 4. Appeals are accordingly disposed of." 3. These appeals are therefore also disposed of in terms of the order dated 27.9.2017 passed in RFA Nos. 835/2017, 836/2017 and 837/2017 decided on 27.9.2017. 4. RFAs stand disposed of accordingly." For the sake of convenience, this order would ....
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....with Special Leave Petitioner (Civil) No. 9623 of 2017. All amounts admitted to be due to the petitioner will be paid by the respondent- Corporation in the meantime." 25. On 5th January, 2018, in several appeals/SLPs arising out of Order No. 1, the Supreme Court passed the following order: "Delay condoned. In this group of cases some of the petitioners have been paid the principal amount and the earnest money whereas some of the petitioners have been paid only the principal amount. Some of the petitioners have not been paid even the principal amount. Such of the petitioners who have not been paid the principal amount/earnest money/security deposit be paid the amounts due under the aforesaid heads. The present Special Leave Petitions have been filed against order(s) of the High Court which appears to be consent order(s). Disputes have been raised that the petitioners have not given their consent. We are not inclined to go into the said aspect of the matter. However, we leave it open for the petitioners to agitate the said question before the High Court, if they are so advised. With the aforesaid observation, the present Special Leave P....
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....f Control for Cricket in India 2014 (141) DRJ 518. 29. There are two different sets of appeals in this batch. The first batch of appeals are those in which the order dated 1st December, 2016 was passed in respect of the same work orders. The second set of appeals arises out of different work orders, though sometimes the contractors are the same. To the extent the appeals relate to the same work order, the parties shall be bound by the 1st December, 2016 order. However, the said order cannot apply in the second set of cases as the transactions are completely separate and distinct. The appeals arise out of completely different suits. Consent terms of different proceedings and transactions cannot be imposed. Moreover, even insofar as the first set of appeals are concerned, Contractors have pressed for the relief of interest on Principal amounts. Order Nos. 1 to 4 do not constitute precedents as they were based on the initial consent order which stood modified/merged in the orders passed by the Supreme Court. The question of consent was also left open by the Supreme Court for being re-agitated. Even in the first set of appeals where the issue of security deposit and interest thereon....
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....o be Regarded as Advances: No payment shall be made for work estimated to cost Rs. Twenty thousand or less till after the whole of the work shall have been completed and certificate of completion given. For works estimated to cost over Rs. twenty thousand, the interim or running account bills shall be submitted by the contractor for work executed on the basis of such recorded measurement on the format of the department in the triplicate on or before the date of every month of the fixed for the same by the Engineer-in-Charge. The contractor shall not be the entitled to be paid any such interim payment if the gross work done together with the note payment/adjustment of advances of material collected, if any, since the last such payment is less then the amount specified in Schedule 'F' in which case the interim bill shall be prepared on the appointed date of month after the requisite progress is achieved. Engineer-in-charge shall arrange to have the bill verified by taking or causing to be taken, where necessary, the requisite measurement of the work. In the event of the failure of the contractor to submit the bills. progress is achieved. Engineer-in-Charge shall prepar....
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....not granted by the competent authority. The Engineer-in-Charge in his sole discretion on the basis of a certificate from the Asstt. Engineer to the effect that the work has been completed upto the level in question make interim advance payments without detailed measurements for work done (other than foundations, items to be covered under finishing items) upon lintel level (including sunshade etc.) and slab level, for each floor working out at 75% of the assessed value. The advance payment so allowed shall be adjusted in the subsequent interim bill by taking detailed measurements thereof. CLAUSE-9 Payment of final bill The final bill shall be submitted by the contractor in the same manner as specified in interim bills within three months of physical completion of the work or within one month of the date of the final certificate of completion furnished by the Engineer-in-Charge whichever is earlier. No further claims shall be made by the contractor after submission of the final bill and these shall be deemed to have been waived and extinguished. Payment of those items of the bill in respect of which there is no dispute and of items in dispute, for quantitie....
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.... MCD will prepare the same and in such an event the contractor will not be entitled to any claims whatsoever due to delay in payment including that of interest. 2. Clause 17: The security deposit shall not be refunded before expiry of one year from the date of completion of work. 3. Clause 45: Security deposit shall not be refunded till the contractor produces clearance certificate from the Labour Officer. 4. Clause 9: Contractor will get payment of his passed bills depending upon availability of funds in particular head 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 nonavailability of funds in particular head of account of MCD. All Chief Engineers are hereby requested to direct the concerned EEs to take care of above mentioned clauses of agreement while pleading Arbitration/Court Cases at initial level itself. Sd/- Chief Engineer (Plg.)" 35. On the basis of the above Clauses, amendment and Circular, the submission of the Corporation is that: a) For both advance payment and for final bills, the payment has to be certified by Engineer-i....
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.... 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: "7. ...A careful reading of the said clause indicates that it stipulates two different time periods for making payment. In cases where tendered value of the work is upto Rs.5 lakhs, payment is required to be made within three months and where the tendered value of the work exceeds Rs.5 lakhs, the payment is to be made within six months. Learned counsel for the defendant submitted that the contract uses the expressi....
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.... by the Department and dismantled materials (i) If the Tendered value of work is upto Rs. 5 lakhs : 3 months (ii) If the Tendered value of work exceeds Rs. 5 lakhs : 6 months " 41. 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 Sin....
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....ith open eyes. In Central Inland Water Transport Corporation Limited and Anr. v. Brojo Nath Ganguly and Anr. (1986) 3 SCC 156, the Supreme Court held: "89. ....The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the....
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....uch contracts will not fall within the four corners of the definition of "undue influence" given in Section 16(1). Further, the majority of such contracts are in a standard or prescribed form or consist of a set of rules. They are not contracts between individuals containing terms meant for those individuals alone. Contracts in prescribed or standard forms or which embody a set of rules as part of the contract are entered into by the party with superior bargaining power with a large number of persons who have far less bargaining power or no bargaining power at all. Such contracts which affect a large number of persons or a group or groups of persons, if they are unconscionable, unfair and unreasonable, are injurious to the public interest. To say that such a contract is only voidable would be to compel each person with whom the party with superior bargaining power had contracted to go to court to have the contract adjudged voidable. This would only result in multiplicity of litigation which no court should encourage and would also not be in the public interest. Such a contract or such a clause in a contract ought, therefore, to be adjudged void. While the law of contracts in Englan....
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....carry you." The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Endery by Town Football Club Ltd. v. Football Association Ltd. 1971 Ch. 591. "With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles." Had the timorous always held the field, not only the doctrine of public policy but even the Common Law or the principles of Equity would never have evolved. Sir William Holdsworth in his "History of English Law", Volume III, page 55, has said: In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them. It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfec....
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....ent was issued, Respondent 2 had no other means of livelihood and was dependent on the grant of Indane Gas agency by IOCL for sustenance of himself and his family members. The letter of allotment contains standard terms and Respondents 2 and 3 had no opportunity to vary the same. 33. Condition 8 of the letter of allotment provides for unilateral termination of distributorship without assigning any reason which is liable to be read down in the light of Article 14 of the Constitution of India as well as observations made by this Court in Central Inland Water Transport Corpn. Ltd. case......" 48. In Nilofer Siddiqui (supra), the Court found that the distributorship had been terminated arbitrarily and unfairly. On the strength of Article 14 of the Constitution of India and the decision in Brojo Nath Ganguly and Anr. (supra), the Supreme Court read down the provisions of the condition of the contract that gave unfettered powers of termination to the IOCL and restored the distributorship of the petitioner. Thus, irrespective of the bargaining power of the parties, the clauses of a contract have to abide by the test of reasonableness and have to be conscionable. 49. In the ....
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....f Rs. 25,000, she was to be altogether absolved from all liability to make payment of the balance amount of sale consideration. While construing the disputed contract embodied in the sale deed, the real covenant cannot be so construed that an absolute obligation arising under it can be allowed to be destroyed by a subsequent clause contained in the same deed. In re Tewkesbury Gas Company Tysoe v. The Company 1911 2 Ch. 279, a company had issued a series of debentures each of which contained a covenant by the company that it would 'on or after' January 1, 1898, pay to' the registered holder of the debenture the principal sum thereby secured. The debenture then stated as follows: "The debentures to be paid off will be determined by ballot, and six calendar months' notice will be given by the company of the debentures drawn for payment." The company never paid off any of the debentures or held any ballot. In an action by one of the debenture-holders, it was held that on the construction of the covenant and in the events that had happened the principal money secured by the debenture was presently due and payable, and that, if the provision as to balloting and notice mea....
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.... reasonable time. Section 46 of the Contract Act provides that where, by a contract a promissory is to perform his promise without application by the promisee and no time for performance is specified, the engagement must be performed within a reasonable time and the question "what is reasonable time" is, in each particular case, a question of fact. We have already indicated that the contract between the parties was not extinguished by the passing of the decree, that it subsisted notwithstanding the decree. It was an implied term of the contract and, therefore, of the decree passed thereon that the parties would perform the contract within a reasonable time. To put it in other words, as the contract subsisted despite the decree and as the decree did not abrogate or modify any of the express or implied term of the contract, it must be presumed that the parties to the decree had the obligation to complete the contract within a reasonable time." 53. Learned counsel for the Corporation has relied upon Bank of India v. K. Mohandas (2009) 5 SCC 313 and Super Poly Fabriks Ltd. v. Commissioner of Central Excise, Punjab (2008) 11 SCC 398 to argue that the contract has to be read as a whol....
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....posite. 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. 56. The counsel for the Corporation also relies upon New Bihari Biri Leaves Co. v. State of Bihar (1981) 1 SCC 537 to submit that once a party has accepted the terms of the contract and takes the advantage of the terms which are in his favour, he cannot then repudiate the other parts of the contract. This is again a general principle. The payment of consideration goes to the root of a contract. Without consideration, there is no valid contract. The contractor, apart from having the work orders placed on him, and making the deposit of the earnest money/security amount has executed the contract after making his own expenditure in terms of the material used and the payments to labour and other overheads. Under the contract entered into with the Corporation apart from placing of the work order and hoping of clearance of the final bills, there is no other term of which the other Contractor has taken advantage of. Any term of the contract....
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....ecifies the reasonable time. However, the same is sought to be diluted by specifying that this period shall be adhered to `as far as possible'. The queue system and availability of funds are deemed by the Corporation to override the 6 months and 9 months period. There is no reason as to why the court should consider that the intention was to prescribe no upper limit for making of payment and leave the period for payment as an open ended one. Question No. 2 - Refund of Security deposit 59. In respect of each work order, the Contractors have to deposit 10% as the security deposit at the initial stage. Upon the payment of the final bill and after issuance of labour clearance certificate, the security deposit is liable to be refunded. The Contractors have, in some of the appeals included the security deposit amount in the principal amount claimed and in some other cases the refund of security deposit has been sought for separately. In either case, there is no doubt that the security deposit is liable to be refunded after the submission of the documents, certificates from the Labour Officer. Clause 17 and Clause 45 relating to refund of security deposit reads as under: ....
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....r to intimate if any complaint is pending against the contractor in respect of the work. If complaint is pending on record till after 3 months after completion of the work and/or no communication is received from the Labour Officer to this effect till six months after the date of completion it will be deemed to have received the clearance certificate and the security Deposit will be released if otherwise due." 60. Clauses 17 and 45 relating to security deposits have also been interpreted in the Circular dated 10th June 2014, as under: "Clause 17:- The security deposit shall not be refunded before expiry of one year from the date of completion of work. Clause 45:- Security deposit shall not be refunded till the contractor produces clearance certificate from the Labour Officer. 61. A perusal of all the aforementioned Clauses reveals that: a) For refund of security deposit, a clearance certificate is needed from the Labour Officer; b) Once the work is completed, the Contractor would apply for the clearance certificate under intimation to the Engineer-in-Charge; c) The Engineer-in-Charge has to communicate to the Labour Officer if ther....
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....Ltd. v. Tata Steel Ltd. (2011) 15 SCC 273 cited by the Corporation, the test for the invoking of Order XII Rule 6 of the CPC being that the admission so made must clear and unequivocal, on the face of which it is impossible for the party making it to succeed. In the light of the stand in the written statement, there is a clear admission as to the final bill amount as also that the Contractor has to wait in a queue. Thus the Trial Court has rightly invoked the provisions of Order XII Rule 6. Question No. 3- Whether Interest is payable? 66. The question that now arises is as to whether interest is payable on the principal amount and the delay in refund of security deposit. This question has been considered by two Single Judges of this Court in cases involving almost identical clauses in R.K. Pabbi v. DDA [CS(OS) No. 1368/2012 dated 9th January, 2014] and Varinder Jeet Singh v. Municipal Corporation of Delhi & Anr. 2013 (134) DRJ 284 (hereinafter, 'Varinder Jeet Singh'), which in turn relied upon the decision of a Single Judge of this Court in Jagbir Singh (supra).The judgement in Varinder Jeet Singh (supra), after discussing the law on the subject held: "15. It is sett....
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...."5. In view of the ratio laid down in the case of M/s N.K. Garg Co. (supra), it is held that the appellant/defendant cannot claim on the basis of Clause 9, that it is not liable to pay interest. The court below has thus rightly decreed the suit for the rate of interest at 8/9% per annum." 68. This judgment has relied upon another judgment of a Single Judge of this Court in Union of India v. N.K. Garg 2015 (224) DLT 668 (hereinafter, 'N.K. Garg') wherein the Court had held that non-payment of interest would be contrary to the provisions of the Interest Act, 1978. The Corporation argues that the judgment in N.K. Garg (supra) has been stayed by a Division Bench of this Court in FAO(OS) No. 73/2016 vide order dated 9th March, 2016. However, the judgment in Prem Chand Gupta (supra) has not been reversed or set aside. In fact, the order in Prem Chand Gupta (supra) has also been reiterated subsequently on 14th September, 2017, when the Corporation had sought recall of the order dated 17th July, 2017 on the ground that the judgment in N.K. Garg (supra) had been stayed. While dealing with the judgment in N.K. Garg (supra), the Single Judge of this Court reiterated the order dated 17th Ju....
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....estion of award of interest in commercial contracts has been discussed by the Supreme Court in Union of India Vs. M/s. Bright Power Projects (I) P. Ltd (2015) 7 SCALE 638 (hereinafter `Bright Power') and recently in Chittaranjan Maity Vs. Union of India (2017) 9 SCC 611 (hereinafter `Chittaranjan Maity'). Both these cases dealt with the prohibition of award of interest in the context of Section 31(7)(a) of the Arbitration & Conciliation Act, 1996 (hereinafter, '1996 Act'). In these two cases the Supreme Court held that when the terms of the agreement had prohibited award of interest, the arbitrator could not award interest pendente lite. 71. Clause 9 in the present case, which deals with interest not being liable to be paid, merely stipulates as under: "Clause 9.............. No interest shall be payable to the contractor in case of delay in payment on account of non-availability of fund in the particular head of account of MCD. (i) If the tendered value of work is upto Rs. 5 lacs: 6 months (ii) If the tendered value of work exceeds Rs. 5 lacs: 9 months" 72. The Clause in the present case does not prohibit award of interest. It merely stipul....
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.... (iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case almost all the Courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred" 73. The judgment of the Constitution Bench in G.C. Roy (supra) was under the Arbitration Act, 1940 where a provision similar to Sec....
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....en 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. 79. 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 ....
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....y, therefore, if payments are made, whether on a queue basis or otherwise, beyond the period of 6 months and 9 months, interest is payable. 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. f) The Security amount/Earnest money deposited would be refundable upon the fulfilment of the conditions contained in Clauses 17 and 45 of the General Conditions of Contract. Interest would be payable on delayed payments. Final decree on facts: 83. The Trial Court, in its judgment dated 21st November 2016, has granted interest on the principal amount. However, this issue is now covered by the order dated 1st December, 2016 wherein interest is liable to be paid only after expiry of period of three years and 90 days. Since no SLP was filed against the said order, parties are, thus, bound by the said order dated 1st December, 2016. However, refund of security is being ....