1975 (5) TMI 92 - HC - Indian Laws

Summary

Issues Involved:
1. Maintainability of the writ petition under Article 226.
2. Legality of the demand for payment and forfeiture of the security deposit.
3. Right of the respondents to adjust or recover the claimed amount from pending or future bills.
4. Entitlement to refund of withheld amounts.
5. Release of the bank guarantee.

Detailed Analysis:

1. Maintainability of the Writ Petition under Article 226:
The respondents contended that the writ petition was not maintainable under Article 226 of the Constitution as it involved disputed questions of fact arising out of a contract. They argued that the petitioner should have sought recourse to arbitration as provided in the contract. The court noted that the petitioner sought to challenge the actions of the respondents as being illegal, mala fide, and against principles of natural justice, which could be considered under Article 226.

2. Legality of the Demand for Payment and Forfeiture of the Security Deposit:
The respondents demanded Rs. 2,57,337.00 for breach of contract and forfeited the security deposit of Rs. 54,900.00. The court observed that the demand was a mere claim for money based on an alleged breach of contract, which should be resolved through ordinary civil proceedings or arbitration. The court cited the Supreme Court's decision in M/s. Burmah Construction Company v. The State of Orissa, emphasizing that such claims should be adjudicated in civil suits or arbitration, not under Article 226.

3. Right of the Respondents to Adjust or Recover the Claimed Amount from Pending or Future Bills:
The court examined Clause 18 of the General Conditions of Contract, which allows the purchaser to recover sums due by appropriating the security deposit or any sums due under the contract or other contracts. The Supreme Court's decision in Union of India v. Raman Iron Foundry clarified that Clause 18 applies only to sums presently due and payable, not to disputed claims for damages. The court concluded that the respondents had no right to adjust or recover the claimed amount from pending or future bills without adjudication.

4. Entitlement to Refund of Withheld Amounts:
The petitioner sought a refund of amounts withheld by the respondents. The court referred to the Supreme Court's decision in M/s. Burmah Construction Company v. The State of Orissa, which held that claims for money due under a contract should be pursued through civil suits, not writ petitions. The court also noted that the respondents could refuse to pay amounts due under other contracts if they had a valid defense, and the contractor's remedy would be to seek recovery in an appropriate forum.

5. Release of the Bank Guarantee:
The petitioner requested the release of the bank guarantee amounting to Rs. 54,900.00. The court held that the respondents could not adjust or recover their claim from the security amount without adjudication. However, the court also noted that the security was furnished for the claim arising under the contract, and the question of release would arise only after adjudication of the claim.

Conclusion:
The writ petition was partly allowed. The court quashed the portion of the respondents' letter dated August 20, 1973, in which they purported to adjust or deduct the security amount and recover the balance from pending bills. The respondents were directed not to adjust or recover their claim from the security amount or pending/future bills until adjudication. No order as to costs was made.