IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE TWENTY THIRD DAY OF JULY TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE GODA RAGHURAM WRIT PETITION NO : 12979 of 2008 And WRIT PETITION NO : 13034 of 2008 WRIT PETITION NO : 12979 of 2008 Between: 1 M/s. Sushee Hitech Constructions Ltd., rep. by its Power of Attorney Holder, E.Krishnaiah, S/o. Sri BalaKistaiah, Office at Raghava College, Plot No.2 Dwarakapuri Colony, Panjagutta, Hyderabad. 2 E.Krishnaiah, S/o. Sri BalaKistaiah, Power of Attorney Holder of M/s. Sushee Hitech Constructions Ltd., Office at Raghava College, Plot No.e Dwarakapuri Colony, Panjagutta, Hyderabad. ..... PETITIONER(S) AND 1 State of A.P., Rep. by the superintending Engineer, Handi Nivas Sujala Sravanthi (H.N.S.S.) Circle, Anantapur. 2 Chief Engineer ( Projects), Irrigation & CAD DEpartment, Ananthapur 3 Superintending Engineer, AVR HNSS Circle No.1, Kurnool, Kurnool District. 4 The Executive Engineer, AVR, HNSS Division 2, Kurnool, Kurnool District. 5 The Pay and Accounts Officer ( Works & Projects ), Kurnool, Kurnool District. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Aﬃdavit ﬁled herein the High Court will be pleased to to issue a writ in the nature of Mandamus or any other appropriate writ direction or order declaring the memo.No.CE(P)/ATP/P-15/146 knl, dated 09/04/2008 of the Chief Engineer ( Projects) I& CAD Department, Anantapur, and the consequential Memo. No.SE/HNSS-I/KNL/TS/AEEE2/P.24/W/150 HQ, dated 15-05-2008 of the Superintending Engineer, AVR HNSS Circle No.1, Kurnool, the 3rdrespondent herein, adn also Lr.No.PAO/KNL/Sn.I/EPC/2008-09/11, dated 16/04/2008 of the pay and Accounts Oﬃcer, Kurnool, the 5th respondent herein directing recovery of 2% on contract price towards maintenance charge over and above the 5% retention amount in respect of Package No.24 of H.N.S.s.Canal, Awarded to the 1st petitioner under Agreement no.SHE 6 EPC/2004-05, dated 25-02-2005, as illegal and viod; and pass Counsel for the Petitioner:MR.P.PRATAP REDDY Counsel for the Respondent No.: GP FOR IRRIGATION & COMM AREA DEV. WRIT PETITION NO : 13034 of 2008 Between: 1 M/s. Sushee Hitech Constructions Limited, rep. by its Power of Attorney Holder E.Krishnaiah S/o.Sri Balakistaiah Office at Raghava College, Plot No.2, Dwarakapuri Colony, Panjagutta, Hyderabad. 2 E.Krishnaiah S/o.Balakistaiah Power of Attorney Holder of M/s. Sushee Hitech Constructions Limited, Office at Raghava College, Plot No.2, Dwarakapuri Colony, Panjagutta, Hyderabad. ..... PETITIONER(S) AND 1 State of Andhra Pradesh, rep. by the Superintending Engineer, Handi Nivas Sujala Sravanthi (H.N.S.S.) Circle, Anantapur. 2 Chief Engineer (Projects) Irrigation & CAD Department, Anantapur. 3 Superintending Engineer, AVR HNSS Circle No.1, Kurnool, Kurnool District. 4 The Executive Engineer, AVR HNSS Division 3, Kurnool. 5 The Pay and Accounts Officer (Works & Projects), Kurnool, Kurnool District. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Aﬃdavit ﬁled herein the High Court will be pleased to to issue a Writ, in the nature of a Writ of Mandamus or any other appropriate Writ, direction or order, declaring the action of the respondents in deducting 2% maintenance charges over and above 5% retention amount provided under the agreement and the Memo. No.CE(P)/ATP/P-15/146 knl, dated 09.04.2008 of the Chief Engineer (Projects) I & CAD Department, Anantapur, and the consequential Memo. No. SE/HNSS-I/KNL/TS/AEE2/P.24/W/150 HQ, dated 15.5.2008 of the Superintending Engineer, AVR HNSS Circle No.1, Kurnool, the 3rd respondent herein, and also Lr.No.PAO/KNL/Sn.I/EPC/2008-09/11, dated 16.4.2008 of the Pay and Accounts Oﬃcer, Kurnool, the 5th respondent herein issued in pursuance of the Accountant General's letter directing recovery of 2% on contract price towards maintenance charges over and above the 5% retention amount in respect of Package No.27 of H.N.S.S. Canal, awarded to the 1st petitioner under Agreement No. SHE 7 EPC/2004-05, dated 25.2.2005, as illegal and void; and pass such further or other orders. Counsel for the Petitioner:MR.P.PRATAP REDDY Counsel for the Respondent No.: GP FOR IRRIGATION & COMM AREA DEV. The Court made the following common order: THE HON’BLE SRI JUSTICE GODA RAGHURAM W.P.No.12979 of 2008 and W.P.No. 13034 of 2008 Oral Common Order: Heard Sri E. Manohar, learned senior counsel instructed by Sri P. Pratap Reddy for the petitioners and the learned Government Pleader for Irrigation and Command Area Development for the respondents. These two writ petitions by the same petitioners assail the Memo bearing reference No.CE(P)/ATP/P-15/146Knl dated 09-04-2008 (for short ‘the Memo dated 09-04-2008’) of the 2nd respondent; the consequential Memo bearing reference No.SE/HNSS1/KNL/TS/AEE2/P.24/W/150 HQ dated 15-05-2008 (for short ‘the Memo dated 15-05-2008’) issued by the 3rd respondent and further challenging the letter dated 16-04-2008 bearing reference No. PAO/KNL/Sn.1/EPC/2008-09/11 of the 5th respondent, which cumulatively visit the petitioners with the civil consequences of withholding (by the respondent Nos. 1 to 4), the amounts due and payable to the 1st petitioner under the packages – 24 and 27 of HNNS Project. The 1st petitioner succeeded at the tender and was awarded two packages – 24 and 27 in respect of the HNSS Project. In terms of Clause 47 of the Conditions of Contract (agreed to between the parties)in Part-A Volume-1 (for short ‘Conditions of Contract’) of the agreement entered into between the parties, the Department of Irrigation may retain 5% of the amount due from each of the running bills payable to the Contractors towards the deposit for ensuring the petitioners’ obligations during the ‘Defects Liability Period’. Clause 47.1 of the Conditions of Contract enables such retention while obligating the Department to release the amount so accumulated and after the completion of the contract to the Contractor in spells of Rs.50,00,000-00 against bank guarantees to be furnished by the Contractor. Clause 47.2 however enjoins release of 2.5% (of the 5% retainable amount) on completion of the whole of the works while enabling retention of the other 2.5% till the Defects Liability Period has passed and the Engineer-in-Charge of the Works certiﬁes that all the ‘defects’ notiﬁed to the Contractor before the end of the Defects Liability Period have been corrected. The 1st petitioner-contractor does not dispute its liability and the corollary right of the Department to retain 5% in each of the running bills towards ensuring the obligation of the petitioners under the Defects Liability clauses, the details of which are contained in Section-V in Special Condition of Contract, Volume 1. What the petitioners aggrieved by is the retention of additional amounts unrelated to and not covered by Clause 47 of the Conditions of Contract. The Pay & Accounts Oﬃcer, Finance (Works & Projects) Department, Kurnool – the 5th respondent addressed a letter dated 16-04-2008 to the 2nd respondent ‘requesting’ the 2nd respondent to issue suitable instructions to the Engineering Oﬃcials under his jurisdiction to recover 2% towards maintenance charges from the bills of the Contractors. The 5th respondent in this letter intimated that the price break up schedule of the contracts have been noticed by the Accountant General’s Oﬃce to have failed to provide a distinct subcomponent to regulate the payments to the contracting agencies during the maintenance period as a consequence of which the Contractor is seen to be entitled to receive the entire contract price before the maintenance period actually started; the Chief Engineer (Purchases) Kadapa is seen to have issued orders to recover 2% on every running bill paid to the Contractors towards post project completed on maintenance works. In Ananthapur similar practice is seen to have not been followed and therefore the 5th respondent addressed the 2nd respondent to issue suitable instructions. Consequent on the above letter of the 5th respondent, the 3rd respondent by a letter dated 15-05-2008 addressed the 4th respondent to recover 2% on the contract price towards maintenance charges in respect of packages 24 and 25 (Package 24 pertains to the petitioners) ‘to avoid discrimination from one package to another and also to uphold the Government interest’. Sri E. Manohar, the learned senior counsel for the petitioners contends that the respondent Nos. 1 to 4 have no power, authority or jurisdiction qua any term or condition incorporated in the Conditions of Contract which entitles the respondents to withhold any amount in excess of the amounts stipulated in Clause 47 of the Conditions of Contract (retaining of a percentage from running bills) towards maintenance during the Defects Liability Period. The substance of the petitioners’ challenge is on the contention that the recoveries are in illegal exercise of the executive power of the State and not qua any Conditions of the Contract either expressed or compellingly implied from the terms of the Contract. On behalf of the respondent Nos. 1 to 4 a counter aﬃdavit is ﬁled by the 3rd respondent. The 3rd respondent primarily contends that the writ petition is not maintainable as alternative remedies are available to the petitioners either by way of an arbitral remedy in respect of claims up to Rs.50,000-00 in value or before the Civil Court of competent jurisdiction by way of a regular suit, for claims in excess of Rs.50,000-00. The pleadings in the counter aﬃdavit of the 3rd respondent in defence of the petitioners’ allegations and contentions on the substance of the petitioners’ grievance are unambiguous and unclear. However, the basic thrust of the respondents’ defence appears to be that since there is a general obligation of the EPC Contractor (which the 1st petitioner undoubtedly and indisputably is) to maintain the works executed by the 1st petitioner including the associated works (for a period of two years or two Karif crop seasons from the date of issuance of completion certiﬁcate in respect of the total work, whichever is later), the withholding is in order. The petitioners do not deny the liability in terms of the clauses in Section-V of the Special Condition of Contract enumerated in Part-A Volume1 of the agreement terms between the parties. The question however is whether there is any clause in the contract between the parties which enables retention of any amounts (either quantiﬁed or as a per centage of the running bills) towards ensuring the performance by the 1st petitioner-Contractor of the obligation to maintain the works executed during the agreed upon maintenance period. Except clause-47.1 and 47.2 in the Conditions of the Contract set out in Part-A Volume-1 (which enable the deduction of 5% from the running bills towards ensuring the execution/performance by the Contractor during the defects maintenance period), no other clause has been brought to the notice of this Court (either in the counter aﬃdavit by the 3rd respondent or by the learned Government Pleader) which enables, entitles or authorizes the respondents to withhold any amount from the running bills payable to the 1st petitioner. The learned Government Pleader would however suggest that since there is an obligation of the Contractor to maintain the executed work for a period of two years or two Karif Crop seasons whichever is later, under the agreed upon terms set out in Section-V of the Special Condition of Contract (referred to supra), the respondents are acting in public interest in retaining the amounts towards ensuring the maintenance of the works executed by the petitioners for the two year period. It is sub silentio conceded by the respondents (by the equivocal assertions in the counter aﬃdavit) that there is no clause in the contract which enables the retention of any amount beyond the 5% amount set out in Clause 47 of the contract. In substance, on behalf of respondent Nos. 1 to 4 it is contended that the public interest motivations of these respondents is the singular source of power and entitlement to retain amounts beyond the 5% stipulated in clause 47 of the Contract. Where the State is a party to a contract, the mere fact that the State enters into a contractual relationship with private institutions or individuals, under the rubric of a contractual instrument, does not wholly relieve the State from its constitutional and public law obligations. It does not appear to be the principle that when the State acts in its executive capacity it is obliged to conform to constitutional and Public law obligations but when it acts through a contractual instrument, it enjoys absolute and untrammeled immunity and is wholly liberated from constitutional and public law limitations. True it is that in the sphere of contracts including commercial contracts, a substantial play in the joints is available to the State, to negotiate the terms of its relationship with contracting parties including private contracting parties in a manner that in the State’s assessment would best subserve the commercial interest of the State. When a State enters into a contractual relationship and the interpretation is as to the terms of such contract; where the contract is a non-statutory contract and t he lis is at the post threshold stage, normally the Court relegates the disputing parties to an alternative, available remedy, be it arbitral or to the Civil Court of competent jurisdiction since fundamentally no public law issues present themselves for consideration and also since disputed questions of fact require to be resolved. Where however the complaint is as to a threshold discriminatory treatment by the State in the matter of entering into a contract, or with regard to farming out of State largesse or in circumstances, where the parties’ reciprocal obligations are governed by Statutory terms, public law scrutiny is available. These principles are well established and are impregnated into our administrative law vide M/s. Radhakrishna Agarwal & others v. State of Bihar & others1. In the case on hand, it is the speciﬁc case of the petitioners that there is no contractual term enabling the respondents to withhold any amount in excess or in addition to the amounts covered by Clause 47 of the Conditions of Contract. The learned Government Pleader appearing for the respondent Nos. 1 to 4 does not demur from this contention of the petitioners. The counter aﬃdavit by the 3rd respondent on behalf of respondent Nos. 1 to 4 does not also either expressly or by any compelling implication canvass, project or place before this Court any clause in the contract which even approximately suggests a liability of the 1st petitioner and thus a corollary entitlement of respondent Nos. 1 to 4, to withhold from the running bills payable to the petitioners any amounts in excess of the amounts covered by Clause 47. The reliance by and on behalf of the respondents on the 1st petitioner’s obligations to maintain the executed works for the purpose stipulated in the Special Condition of Contract is an event that is a non -sequitor in the context of the respondents authority to withhold any amounts from the petitioners’ bills. If the petitioners fail to perform upon the terms of its maintenance obligation, the respondents may have a cosmos of remedies available against the petitioners. For withholding amounts from the running bills of the petitioners towards insurance for future performance of the petitioners obligations during the maintenance period, the respondents need the authority of a contractual term akin or similar to clause 47. In the absence of any such clause, the conduct of the respondents in withholding additional and further amounts from the petitioners’ bills is not a conduct that is even proximally referable to the terms of contract between the parties. It is executive action simplicitor, unprocessed by contractual rights or obligations. Such executive action is, it is axiomatic, amenable to public law scrutiny under Article 226 of the Constitution of India. To buttress the defence to the maintainability of the writ petitions, the learned Government Pleader relies on an unreported judgment dated 10-04-2006 in G.V. Pratap Reddy v. Govt. of A.P. and others in W.P.No. 17689 of 1995; the judgment of a learned Division Bench of this Court in Reliable Power Systems (P) Ltd. v. Government of India2 and another judgment of the learned Division Bench of this Court in Govt. of A.P. v. Sri Rama Engineering Constructions (E & C)3. In the judgment dated 10-04-2006 in W.P.No. 17689 of 1995, the challenge was to the action of the Irrigation Department of the State Government withholding some amounts from the bills payable to the petitioner-contractor on the ground that the petitioner had excavated soil from a prohibited area of the works entrusted to it under a contract and failed to backﬁll the excavated area. Clearly therefore it was a situation where there is an alleged violation of the contract in the mater of execution of such contract and withholding of amounts was towards ensuring performance by the Contractor or for restitution of the transgression. Factually therefore the matter fell within the contractual compass in a post non statutory contractual situation. It is in such factual context and considering the fact that the petitioner therein had an alternative remedy by way of civil suit or the arbitral remedy, that the Court declined to entertain the petition under Article 226 of the Constitution of India. In the decision reported in Reliable Power Systems (2 supra), the petitioner sought a declaration that the action of the State (Government of India) in withholding the amounts due in respect of a concluded commercial contract is illegal and arbitrary. A learned single Judge of this Court dismissed the writ petition and the learned Division Bench conﬁrmed the dismissal and restated the principle that the Court under Article 226 of the Constitution of India does not pass orders that tantamount to modifying of contract nor would issue a Mandamus for enforcing contractual obligations. A similar principle is reiterated in the judgment reported in Sri Rama Engineering Constructions (3 supra) by another learned Division Bench which reiterated the well established principle that in commercial transactions arising out of non-statutory contracts, particularly where seriously disputed questions of fact are involved, the petitioners must be relegated to the ordinary remedy of civil suit. The area of judicial scrutiny of the contracts of public authorities has been elaborately and successively visited in several precedents binding and persuasive. It may not be necessary for a ritualistic parade of familiar law. Suffice it to note that the Supreme Court in ABL International Ltd., v. Export Credit Guarantee Corpn., of India Ltd.,4 again elucidated the relevant principles on this aspect of our public law jurisprudence. The principles have been summarized in paragraph No.53 of this judgment and the Apex Court has held that “when an instrumentality of the State acts contrary to the public good and public interest unfairly, unjustly and unreasonably in its contractual, constitutional or statutory obligations, it really acts contrary to the constitutionally guarantee found in Article 14 of the Constitution” and is thus amenable to scrutiny under Article 226 of the Constitution of India. Earlier in this judgment, the Apex Court has held that once the State or an instrumentality of the State is a party to the contract, it is an obligation in law to act fairly, justly and reasonably as a concomitant of its obligation under Article 14 of the Constitution of India. In the case on hand, the action of the respondents in withholding amounts from the running bills payable to the petitioners towards insuring against a possible avoidance by the 1st petitioner of its obligations under the maintenance requirements is not traceable nor justiﬁed (either in the counter aﬃdavit of the 3rd respondent or by the learned Government Pleader) qua any term of the contract. Therefore, this action is not an action qua the contract between the parties. Shorn oﬀ of hyper-technicalities, for the work executed by the 1st petitioner the State is liable to pay some amounts under the contract; it is entitled to retain from the running bills 5% in terms of clause 47. The State however seeks to retain more than the amounts permitted under clause 47. For this there is no term of the contract. That there is no term of the contract is undisputed. Where there is no contractual foundation the dispute is not one arising out of or under the terms of contract. It is executive action simplicitor and therefore eminently amenable to scrutiny under Article 226 of the Constitution of India. On the analysis of the facts and circumstances of this case and on considering the relevant legal principles presented for consideration and on application of the principles deducible from the precedential authorities referred to, this Court is of the considered view that the objection by the respondents to the maintainability of the writ petitions is to be rejected and it is accordingly rejected. It is declared that the respondents are not entitled to retain any amounts from the running bills of the contractor except as warranted by and in terms of clause 47 of the Conditions of Contract set out in Part-A Volume 1 of the contract between the parties relating to packages 24 and 27 of HNSS Project or as may be retained under any other speciﬁc clause of the contract. The deduction of 2% amounts towards maintenance charges over and beyond the 5% (referable to Clause 47) cannot be retained under the color of clause 47. The writ petitions are disposed of in terms of the declaration as above. No costs. ____________________ GODA RAGHURAM, J Dated: 23-07-2008 pvks 1 AIR 1977 SC 1496 2 . 2003 (5) ALD 690 (DB) 3 2005 (3) ALD 281 (DB) 4 (2004) 3 SCC 553