Kerala High Court
Kenny Manuel vs Kerala Police Housing & Construction ... on 20 February, 2002
Author: K.A. Abdul Gafoor
Bench: K.A. Abdul Gafoor
JUDGMENT K.A. Abdul Gafoor, J.
1. The petitioner is a Contractor who had satisfactorily executed a work in connection with the construction of quarters at A.R. Camp, Kottayam. He has approached this Court challenging Ext. P5 and seeking a declaration that respondents 1 and 2 are not entitled to withhold the retention amount and the security amount in respect of the work in question. By Ext. P5 the second respondent had directed the petitioner to extend the period of bank guarantee beyond 9.12.2001 threatening that failure shall result in invocation of the bank guarantee without any further notice.
2. Certain facts are necessary for the disposal of the case. Facts are as follows.
3. The petitioner and the first respondent entered into a contract for construction of quarters at AR Camp, Kottayam. The work has been satisfactorily completed. According to the petitioner, he had, as per Ext. PI handed over the completed building and premises back to the officer concerned. Ext. PI is not disputed by respondents 1 and 2. A final bill will be settled by the party who had awarded the work only if the construction had been satisfactorily completed. Ext. P2 is the letter from the first respondent, which reads as follows:
"The final bill for the above referred work is processed and ready. You are requested go through the bills and accord your acceptance of the bill by certifying that "the bill has been accepted in full and final settlement of the agreement."
This letter by the first respondent is also not disputed by the first respondent. This is sufficient enough to conclude that the contention of the petitioner that the work had been satisfactorily completed and the final bill in respect of the work relating to the quarters at A.R. Camp, Kottayam had been settled, cannot be disputed any more by the first and second respondents. Later the petitioner informed the Engineer of the first respondent in Ext. P3 that the defects liability period in respect of the work was also over and requested for release of the retention and security cannot already pending with the first respondent.
4. Retention amount is one retained in terms of Clause (1) of the agreement between the parties which also form as one among the tender conditions. Clause 1 reads as follows:
The persons/persons whose tender(s) may be accepted (hereinafter called the contractor) shall permit Government at the time of making any payment to him for work done under the contract to deduct a sum at the rate of 10% of the gross amount of each running bill till the sum along with the sum already deposited as earnest money, will amount to security deposit of 10% of the tendered value of the work subject to a maximum of Rs. 5,00,000/-. Such deductions will be made and held by Corporation by way of Security Deposit unless he/they has/have deposited the amount of security at the rate mentioned above in cash or in the form of Government Securities or fixed deposits receipts or Guarantee Bonds of any schedule Bank or the State Bank of India in accordance with the form annexed hereto. In case a fixed deposit receipt of any bank is furnished by the contractor to the Corporation as part of the security deposit and the Bank is unable to make payment against the said fixed deposit receipt, the loss caused thereby shall fall on the contractor and the contractor shall forthwith on demand furnish additional security to the Corporation to make good the deficit.
All compensations or the other sums of money payable by the contractor under the terms of this contract may be deducted from, or paid by the saleof a sufficient partof his security deposit or from the interest arising there from, or from any sums which may be due to or may become due to contractor by Corporation on any account whatsoever and in the event of his Security Deposit being reduced by reason of any such deductions or sale or aforesaid, the contractor shall within 10 days make good in cash or Guarantee Bond in favour of the Corporation or fixed deposit receipt tendered by the State Bank of India or by Scheduled Banks (in case of guarantee offered by Scheduled banks, the amount shall be within the financial limits prescribed by the Reserve Bank of India) or Government Securities (if deposited for more than 12 months) endorsed in favour of the Corporation any sum or sums which may have been deducted from, or raised by sale of his security deposit or any part thereof. The security deposit shall be collected from the running bills of the contractor at the rates mentioned above and the Earnest money if deposited in cash at the time of tenders will be treated a part of the Security Deposit."
Thus the first respondent is entitled to retain 10% of the bill amount as and when submitted. In this case admittedly by the parties, the petitioner had in advance furnished bank guarantee towards the amount to be retained to the maximum of Rs. 5 lakhs. It is that retention money which has to be released so that the petitioner can release the bank guarantee. It is at that point of time the impugned letter Ext. P5 had been issued. When the bill in respect of the work of quarters at Kottayam has been finally settled and the liability period has also expired; there arise no question of any further liability arising out of that work at Kottayam. It was inspite of that the Bank guarantee in respect of the retention money is again directed to be renewed beyond 9.12.2001 in Ext. P5, with a threat that failure will result in invocation of bank guarantee. It is in the above circumstances petitioner has approached this Court challenging Ext. P5.
5. It is submitted by the counsel for the first respondent that Ext. P5 is a letter alone invoking certain provisions of the agreement entered into by the parties. Therefore, it is not one liable to be judicially reviewed. It is further contended by the first respondent that Ext. P5 is a notification of a clause in the agreement between the parties. Notwithstanding the expiry or performance of the contract, the bank guarantee is enforced. This court shall not interfere with, unless any irretrievable injury or injustice resulting there from is shown. It is further contended relying on clause 25 of the agreement that whatever dispute arising out of the contract shall be amenable for the jurisdiction of the court in Thiruvananthapuram. Therefore no Writ Petition will He. It is again contended that the clause agitated in this case is arising out of a contract and therefore based on the decision reported in Geetha Timbers & Anr. v. State ofKerala & Ors. (1990 (1) KLJ 538) and Joy v. Superintending Engineer (1990 (2) KLT 146), this court shall not interfere with the Ext. P5 whereby bank guarantee is threatened to be invoked. In respect of the invocation of the bank guarantee the petitioner relies on the recent decision of the Supreme Court in Federal Bank v. VM. Jog Engineering . Ltd. and Ors. 2001 (1) SCC 663.
6. It is contended by the petitioner in reply that Ext. P5 really affects the petitioner. The bank guarantee furnished by the petitioner is in respect of the retention amount to be retained out of the several bills of the petitioner in terms of clause (1) of the agreement as extracted above. In lieu thereof the petitioner had furnished a bank guarantee in advance for the maximum amount provided for in Ext. PI. When the contract had been satisfactorily executed as is reflected in Ext. P2 letter of the first respondent itself there arise no question of invocation of that bank guarantee in respect of the retention money arising out of a particular agreement for doing a work which had already been satisfactorily completed. Therefore Ext. P5 will prejudicially affect the petitioner.
7. I have to consider the legality or otherwise of the challenge against Ext. P5 in the perspective of these contentions.
8. I have already found based on Ext. P2 that the first respondent cannot any more dispute the satisfactory completion of the work relating to the quarters at A.R. Camp, Kottayam for which the liability period also had expired. New Bills also had been settled as is revealed by Ext. P2. Retention money admittedly by the parties is in terms of clause (1) of the agreement in question as extracted above. That agreement is relating to the work of AR Camp at Kottayam, which has been satisfactorily concluded. Necessarily any bank guarantee provided in lieu of retention money can be invoked, only if there is violation of any of the terms in that contract. Admittedly, violation of the agreement in respect of the work in AR Camp at Kottayam is raised by the first respondent in this O.P. Necessarily bank guarantee provided in lieu of retention amount from out of the bills payable in respect of that work cannot be invoked when that work has been satisfactorily completed and final bill has been settled.
9. It is submitted by the first respondent that clause 29 A of the agreement enables the first respondent or any of the Engineers or officers working under the first respondent to withhold or retain any amount by way of lien. The petitioner had on 24.11.1998 entered into another agreement for construction of a building under the first respondent itself at Perumbavoor. The petitioner backed out of that contract. It had been agreed that retender if necessitated shall be at the risk and cost of the petitioner. The work was retendered. Another person had tendered the work and that person is now continuing the work. The petitioner submits that, that re-tender by the subsequent contractor was for a lesser amount than that quoted by the petitioner. So there arise no question of any risk and loss to be fastened on the petitioner nor there arise any question of incurring loss to the first respondent because of the retendering of the work. It is submitted by the first respondent, in this regard, that it is not known' whether the subsequent contractor will continue the work or will abandon the work in future. In case the subsequent contractor, whom the first respondent alleges to be a nominee of the petitioner himself, abandons the work, there is chance of loss to the first respondent. That loss has to be made good by the petitioner.
10. I am at a loss to understand this fictitious proposition. As at present the existing contractor has not fallen out of the agreement. As at present no amount had been quantified against the petitioner as risk and loss. There is no whisper in the affidavits filed by the first respondent that by reason of the conduct of the petitioner and loss had been sustained to the first respondent or any such loss has been quantified. In the absence of that, there arise no question of invocation of Section 29A of the agreement in question, on which the first respondent now relies on to sustain Ext. P5. So far as no amount arising out of an earlier contract is adjudged as due from the petitioner. Thus in effect the first respondent is invoking the bank guarantee furnished by the petitioner in lieu of the retention money for work in Kottayam which had been satisfactorily completed, against a liability which may or may not arise in future in respect of another work in Perumbavoor for which another contractor has been engaged already by the first respondent. The liability that may raise is in case of new contractor abandons the work. Such liability cannot be termed as a claim by the first respondent in respect of payment of a sum of money arising out of an earlier contract". It is still to be quantified. Necessarily, invocation of bank guarantee in respect of such a fictitious liability will necessarily result in the irretrievable injury to the petitioner. Naturally Ext. P5 wherein invocation of bank guarantee is threatened can be interfered with even going by the decision of Supreme Court reported in Federal Bank Ltd. v. V.M. Jog Engineering Ltd. and Ors. (2001 (1) SCC 663).
11. The contention of the first respondent that Ext. P5 is not amenable for judicial review also cannot be accepted. Ext. P5 directs the petitioner to arrange for renewal of existing bank guarantee which the petitioner has furnished for a particular work which had already been completed. The petitioner is at the threat of invocation of that bank guarantee as mentioned above in respect of the work for which no loss had so far arisen. Therefore, Ext. P5 visits the petitioner with adverse civil consequence. That is issued by the officer in the names of an authority which satisfies the test of an instrumentality of State under Article 12 of the Constitution. It is not disputed. Necessarily Ext. P5 can be subjected to judicial review.
12. Merely because clause 25 of the agreement provides that any dispute with regard to the matter arising out of the contract will be amenable decision by the Courts at Thiruvanarvthapuram, it cannot be taken that the jurisdiction vested in this court under Article 226 to challenge an executive order, like Ext. P5 is taken away. Even though Ext. P5 is in the form of letter, it contains a decision for invocation of bank guarantee if the petitioner does not abide by the directions contained therein. So, it had all the trappings of an order having consequences. Therefore, it is amenable for challenge in this proceeding.
Necessarily Ext. P5 shall be quashed. I do so. O.P. is allowed. There will be no order as to costs.