IN THE HIGH COURT OF JUDICATURE AT PATNA CWJC No.10173 of 2008 M/s Ram Barai Singh and Company, a partnership firm, through its partner Sri Ram Barai Singh, Son of Late Basudeo Singh, Resident of Village-Jogbani, P.S.-Jogbani, District-Araria. …….. Petitioner. VERSUS 1. The State of Bihar, through the Secretary, Water Resources Department, Government of Bihar, Sinchai Bhawan, 3rd Secretariat, Patna. 2. The Secretary, Water Resources Department, Government of Bihar, Sinchai Bhawan, 3rd Secretariat, Patna. 3. The Engineer-in-Chief (North), Water Resources Department, Government of Bihar, Patna. 4. The Chief Engineer, Water Resources Department, Darbhanga. 5. The Superintending Engineer (Western Kosi Canal Circle), Madhubani. 6. The Executive Engineer, Western Kosi Canal Division No. 1, Benipatti camp Rahika, District-Madhubani. …. Respondents. ----------------- Advocate for the Petitioner : Mr. Mrigank Mauli Mr. Sajal Kumar Sinha. Advocate for the State : JC to GA-4 Mr. Harshvardhan. ------------------- 06 18.02.2009 Respondents have filed counter affidavit and pleadings are complete, with consent of parties the writ petition is being disposed of at the stage of admission itself. The petitioner is a registered contractor and inter alia undertakes large works of civil construction etc. including major canal repair works for the Water Resources Department, Government of Bihar. Petitioner had entered into agreement no. 5F2 of 1988-89 for several cross drainage work on the western Kosi main canal. The Engineer-in-charge for the purposes of implementation of the said agreement and the work thereunder was Executive Engineer, respondent no. 6. The total scope of the work was estimated at about Rs. 249/- lacs - 2 - and the petitioner had agreed to do the work of about 14.75% above meaning for about Rs. 285.72/- lacs. The agreement was executed by respondent no. 6, the Executive Engineer on behalf of State. One unique condition was incorporated in the agreement (Annexure-1). It provided that if the work was completed in time the petitioner would be entitled to an additional amount as labour escalation cost keeping in view the enhancement in minimum wages as per government notification. The work was to be completed within 16 months, excluding rainy season, which takes the date of completion to 06.02.1991. In terms of Clause 11 and the labour escalation cost Clause the Executive Engineer (respondent no. 6) was the competent authority to supervise the work, its implementation and the Superintending Engineer was the final authority to decide matters with regard to payment etc. Immediately on agreement being executed, petitioner started the work, which was basically of two parts. Substantial work was of cross drainage and then there was construction of wing walls of special design. When petitioner started the work and started digging up for foundation laying and pilling for constructing wing walls, the Engineers found defect in the designs and petitioner was asked to stop work in respect of four wing walls, thus leaving the excavation done for foundation work incomplete. Designs were taken back for corrections and redesigning. These facts are not in dispute. Petitioner finding that other parts of the agreement involving other works could be independently continued, with - 3 - permission of the Engineers started with the other parts of the works awaiting fresh designs of the four wing walls. In the mean time rainy season of 1989-90 intervened, filling up the foundation excavation done for the wing walls, as by then designs had not been finalized. Much time having been wasted waiting for the designs of the four wing walls. By March 1990 petitioner completed 90% of the balance work and then requested the Executive Engineer, who was the Engineer- in-charge under the agreement, that as the designs of wing walls was yet to be finalized and the rest of the work was completed well within the time stipulated in the agreement he should close the agreement or grant extension for completion of work depending upon the supply of designs of the four wing walls. Petitioner also requested that as rest of the work has been completed, petitioner became entitled to the labour escalation cost, as promised under the agreement as an incentive for timely completion of work. These facts are again not in dispute. It is not in dispute that it was ultimately only in November 1990 after delay of more than one and half years that fresh designs for the wing walls were supplied. The Executive Engineer in charge noticing the aforesaid fact accepted petitioner’s contention and recommended payment of labour escalation price under the agreement for the work which was completed, because the rest of work could not be completed because of the State own default in giving the plans for construction. He then forwarded his acceptance for the recommendations and approvals of the Superintending Engineer concerned, who as stated above was the final - 4 - authority in the matter. It is not in dispute that the Superintending Engineer also concurred with the Executive Engineer and recommended payments as also agreed to grant extension of time for completion of work, as requested by the petitioner, virtually extending it to February 1992, considering the intervening rainy seasons, when no work could be done for a long periods of six months. Having taken this view, he then forwarded the matter to the respondent-Chief Engineer (Irrigation). On receipt of this recommendation, the Chief Engineer agreed with the recommendation and directed for payment of escalated labour cost for the work completed by the petitioner and accepted that because of the delay in finalizing and giving the design for construction of wing walls time extension was due up to February 1992 forwarded the same with his favourable recommendation to the Engineer-in-Chief at Patna under his Memo No. 2401 dated 15.12.1990 (Annexure-3). As would be seen in the same memo he directed the Superintending Engineer to ensure payment of escalated labour cost to the petitioner. These facts are also not in dispute. Petitioner was told that in stead of closing the contract he could finish the contract up to February 1992 and he was being paid the labour escalation cost, accepting the same, the designs having been received in November 1990 and such payment being made. There is no dispute that the work was completed in extended time by February 1992. Thereafter all petitioner’s bills were duly paid and accounts settled without any penalty whatsoever for any delay on part of the petitioner. - 5 - At this juncture, I may notice one stand of the petitioner. It is stated and submitted that had the Engineer-in-charge (Executive Engineer), Superintending Engineer and the Chief Engineer not granted it labour escalation cost and not told him that the time was extended up to February 1992, he would have pressed the authority for closing the contract there and then State having delayed the matter of finalizing the designs for over one and half years petitioner could legitimately plead abandoning the rest of the work, but on the said assurance of payment he completed the work and true to the promise and assurance all bills were settled and paid without penalty. For the due performance of the agreement the petitioner had to deposit earnest money. From time to time deductions were made on account of security deposit from bills, which totaled to about Rs. 30/- lacs. On completion of the contract and settlement of all bills this was due for refund/release. Substantial amount of this Rs. 30/- lacs was cash deductions and the balance was in the shape of NSC pledged to the government. Even though this amount had to be refunded by the State immediately on settlement of accounts, it was not so done and was held back. It may be noticed that the total cash component of the security was about Rs. 13.25 lacs, which was liable to be refunded to the petitioner on completion of the entire work in the year 1992 itself, which as stated above was not done immediately. It may also be noticed that the amount of labour escalation cost that was paid to the petitioner was about Rs. 9.53 lacs, which was paid to the petitioner in the year - 6 - 1991/92. In the year 2002, petitioner was ultimately paid after a delay over 10 years the refund of security but without any compensation for the undue delay. It is then petitioner came to know that in the mean time the Engineer-in-Chief (North), Water Resources Department, Patna had directed by his order dated 30.05.2001 and communicated to the Chief Engineer under Memo No. 1640 dated 09.06.2001 (Annexure-4) that petitioner’s request for extension of period for completion of contract was granted subject to the condition that the labour escalation cost would not be payable and Rs. 9.53 lacs paid earlier on this account were to be recovered. It may be noted that the time extension was granted to petitioner on department’s failure to supply correct designs in time, way back in 1990, designs thereafter being supplied in November, 1990, extension approved by the Superintending Engineer and the Chief Engineer in 1991 and the contract was completed by May, 1992, bills were also settled then without penalty. On coming to know of this arbitrary ex parte order passed after delay of 10 years, petitioner represented to the Executive Engineer, who asked him to correspond with higher authorities. Petitioner was also aggrieved by non-grant of compensation by way interest on the undue delay refund of security. Accordingly, petitioner filed C.W.J.C. No. 3686 of 2005, which came to be disposed of by this Court on 20.09.2006 (Annexure-7). In the said writ application C.W.J.C. No. 3686 of 2005, this Court held that as there was undue delay in refund of security - 7 - money of about 10 years without any reasonable cause, the State was liable to compensate the petitioner by payment of 12% interest from one year after the last work was done by the petitioner till it was refunded. Petitioner’s grievance against the order of the Engineer- in-Chief regarding non liability to pay labour escalation cost was inter alia that under the agreement it was the Executive Engineer and the Superintending Engineer who were the final authority to decide the matter, had decided it in favour of the petitioner, with whom the Chief Engineer also agreed, interference by the Engineer-in-Chief and that too after more than 10 years and that too without giving an opportunity of hearing was wholly bad and illegal. While this matter was argued on behalf of State it was urged that if State was liable to pay interest on the delay refund of security on alleged parity of reasoning, if petitioner had to refund labour escalation cost then the petitioner should also pay interest on the refund to be made. This contention of the State was rejected by this Court on the ground that there was neither parity of fact nor parity of reasoning. It was held that refund of earnest money was an obligation of State, which was discharged after undue delay and as such petitioner was to be compensated. Whereas, even if, it was to be held that labour escalation cost was wrongly paid, petitioner was not at fault and the competent authority having decided in favour of the petitioner, petitioner could not be made to pay interest on the amount required to be refunded. However, the matter was remanded to the Engineer-in-Chief to decide afresh with regard to liability in respect of labour escalation cost after - 8 - hearing the petitioner, as the decision had been taken without hearing the petitioner. State seemingly being aggrieved by the said decision of the Court preferred a Letters Patent Appeal being L.P.A. No. 877 of 2006, which was disposed of on 11.02.2007 (Annexure-8). In the L.P.A. State did not challenge the first part of the order of this Court in the writ proceedings. Thus, the liability of the State to pay interest on delayed refund of earnest money became final. State Challenged the order of the Writ Court in so far as it held petitioner not liable to pay interest, even in case it were to refund the labour escalation cost paid to it by the State. In the L.P.A. judgment, it was held that as the matter has been remanded by the Writ Court to the Engineer-in-Chief he would be competent to decide the question of interest also in respect of labour escalation cost. Petitioner then filed his detailed representation (Annexure-9), which was rejected by reasoned order dated 20.05.2008 (Annexure-10) by the Engineer-in-Chief, which order has been impugned in the present writ application. The reason for rejecting petitioner’s claim for labour escalation is to be found in paragraph 8 of the impugned order (Annexure-10). The only reason is that as per agreement the work had to be finished by the petitioner by 06.02.1991, but, in fact, the petitioner finished the work in May, 1992, as such petitioner not having finished the work in time, he was not entitled to labour escalation cost, as per agreement. With regard to delay on part of Department itself in supplying the revised designs, it was stated that out of the total cost of - 9 - the work of about Rs. 287 lacs petitioner had finished substantial work and work worth of Rs. 66 lacs were left, which could proportionately have been easily completed in the remaining four months, meaning thereby by 06.02.1991. Petitioner challenges this order and the reasoning therein. It is submitted on behalf of petitioner that Engineer-in- Chief under the agreement was not competent to decide this issue, as under the agreement the authorities were the Executive Engineer and the final authority was the Superintending Engineer, who had decided it in favour of the petitioner. It was not a departmental matter, but matter under the agreement, the authorities under the agreement alone were competent to decide this matter. The second submission was that Engineer-in-Chief in 2001 itself had agreed to grant extension obviously noticing the one and half years delay in furnishing revised designs, now he was changing his views only for the purposes of denying legitimate dues of the petitioner. It was further submitted that rational given to justify that work could still be completed in four months, notwithstanding delay in giving designs, solely based on monetary proportionality figures, being de hors of ground reality and was totally a fanciful reason. Work of constructing wing walls was intricate and technical matter and could not be compared with other work, which was dominantly earth filling and minor work. The theory of proportionality and that too comparing cost and time was most illogical. Having considered the matter, in my view, first it must be realized that it is now well established by series of decisions that - 10 - State even in contractual matters is not relieved of its obligation under Article 14 of the Constitution with regard to fairness, reasonableness and non-arbitrariness (Reference may be made to the case of Ramana Dayaram Shetty Vs. The International Airport Authority of India & Ors. AIR 1979 Supreme Court 1628 and in particular paragraph 12 thereof, and line of cases thereafter) as well as the case of M/s Hindustan Sugar Mills Vs. The State of Rajasthan & Ors. AIR 1981 Supreme Court 1681, wherein the Apex Court had held that in a democratic government it is not open to the government to resort to technicalities to defeat the legitimate claim of the citizens. It must do what is just and fair and not to drive the citizens to suits. Keeping these principles in mind and the facts as they are not in dispute, in my considered view, the whole exercise by the Engineer-in-Chief both in the first order of 2001 and the second order of 2008 is only to some how or the other firstly deny the petitioner his legitimate right to receive the labour escalation cost and then to create a demand of interest only to offset State liability to pay interest on the inordinate delay in refund of security money of over ten and half years. The reason is thus neither legitimate nor bona fide, it is with oblique purpose and ulterior motive far removed from ground reality. There is yet another reason for this Court holding so. In 1990 itself, there being inordinate delay in supplying the designs, petitioner had prayed for closing the contract and could legitimately have pressed for the same, having completed the rest of the contract. He was persuaded to carry on with the work on extension having been granted and payment of labour - 11 - escalation being made. Petitioner having completed the work with new designs within the extended time and having received payments, cannot now be asked to refund the labour escalation cost, as State would be estopped from changing its position. It would be inequitous if not grossly arbitrary to permit the State to do so. Petitioner, in my view is also right in assailing the order on the ground that mere monetary figures cannot be taken into account to ascertain the period required for the work, as it is well known that in a contract different types of works at different stages take different times depending on nature of work and the progress of work is never directly proportional to the cost of work being done. This is misconceived logic with no basis, as adopted by the Engineer-in-Chief. It is simply to deny petitioner’s legitimate dues. This amply clear from the first order of Engineer-in-Chief passed in 2001(Annexure-4), where he was satisfied that time extension had to be granted but conditioned it with refund of labour escalation cost which itself was contradiction. Now again an illogical ground is given to achieve the same end. This is clearly an attempt for unjust enrichment on part of government and undue loss to petitioner. This is snot sustainable. It is grossly arbitrary, unreasonable and violative of Article 14 of the Constitution. Petitioner may also be legitimately correct in submitting that once the authorities competent under the agreement to decide the issue on behalf of the department, it decided the issue, Engineer-in-Chief could not sit over in appeal and such a decision and action would be de hors the agreement. Thus, I have no hesitation in holding that denial of - 12 - labour escalation cost to the petitioner is not sustainable either in fact or in law. It is mere pretence of an excuse to virtually deny the petitioner the refund of security and interest liability thereon. In the result, Annexure-10 is quashed and the writ petition is allowed. Trivedi/ (Navaniti Prasad Singh, J.)