Contractual payments: HC directs CS to formulate SOP, issues multiple directives

Srinagar, Sep 26: The High Court of J&K and Ladakh on Friday directed the Chief Secretary to formulate and implement a Standard Operating Procedure (SOP) to ensure that no admitted dues arising from completed contractual works are withheld beyond a period of sixty days from the date of submission of final bills provided all the codal formalities are completed.

A bench of Justice Wasim Sadiq Nargal directed for framing the SOP as it underscored that constitutional governance does not permit the State to hide behind bureaucratic excuses while depriving its contractors of their rightful dues. “The dignity of governance lies not merely in rule-making, but in timely honouring of obligations, duty which the State, as a model litigant, is expected to uphold scrupulously,” the court said.

The Court made it clear that while formulating and implementing the SOP, the directions issued and observation made by it to ensure the effective enforcement of contractual payments expeditiously to uphold the principle of fairness and accountability be adhered to in letter and spirit.

To ensure the effective enforcement of the payments, the court issued a slew of directions to ensure the statutory and contractual obligation by the government. Obligation to Pay Post Completion: Once the work has been executed strictly in accordance with the terms and conditions set out in the tender and the agreement, the respondents(authorities) shall be under a clear statutory and contractual obligation to release the due payment without any undue or arbitrary delay.

Rejection of Post-facto Administrative Objections: After the execution of work, the respondents shall not be permitted to raise objections pertaining to administrative approvals, sanction of funds, or diversion of funds as grounds to withhold or delay payment.

Payment of Interest on Delayed Amounts: In cases, where the delay in payment is not attributable to the contractors, the respondents shall be liable to pay interest on the outstanding amount at the prevailing rates in nationalized banks, calculated from the date the payment fell due until the actual date of payment.

Personal Accountability for Malafide Conduct: Where delay or withholding of payment arises from negligence, omission, or mala fide conduct on the part of any officer or official, the accrued interest shall be recovered from the salary or emoluments of such officer, thereby fixing personal accountability and deterring arbitrary exercise of power.

Constitutional and Welfare Considerations: A welfare State cannot legitimately plead “paucity of funds” when payments for works already executed and utilized are withheld. In cases of habitual or willful withholding, apart from interest, the Court may impose exemplary costs against the erring department, to be deposited with the State Legal Services Authority for utilisation towards public welfare purposes.

The court issued these directions while deciding a plea wherein it directed the government to release the outstanding principal amount of Rs 97,87,012 to a contractor who had completed various works in 2017.

The court rejected plea of limitation raised by the authorities, underlining that once liability is admitted and the State continues to enjoy the fruits of the work executed by contractor, it cannot be permitted to turn around and deny payment on the plea of limitation.

“What emerges from the record is that the liability is admitted by the respondents themselves. Once liability is admitted, the only question that remains is with respect to delay in release of payment,” the court said. “Such delay, in the opinion of this Court, requires to be enquired into so that responsibility can be fixed upon the officers concerned.” If contractors are compelled to knock at the doors of the Court Day in and day out for release of legitimate dues, the fault lies not with the contractor but with the authorities, the court said. “This Court notes with concern that such cases of withholding of admitted dues are repeatedly coming before Court, reflecting systemic inaction,” the court said, adding, “it cannot not turn a blind eye to such grievances on hyper-technical pleas of limitation, when non-payment of the admitted liability being acknowledged by the respondents from time to time is a recurring cause till the amount is released”.

The Court observed that it could not overlook the recurrent tendency of authorities to withhold payments on flimsy pretexts, thereby subjecting contractors to unnecessary hardship.

In order to ensure accountability, the court said that in cases where the delay in releasing payments is due to the lapse or negligence of officers concerned, the burden of interest liability shall not fall on the public exchequer, but shall be recoverable from the salary components of such erring officers who occasioned the delay.

The Court noted that the continued failure to honour such financial obligations despite repeated acknowledgments, finalisation of bills, and utilization of the work executed amounts to a systemic breach of public trust and administrative accountability.“This conduct also undermines the larger goals of nation-building, for it discourages lawful commercial engagement with the State, hampers infrastructure development, and erodes investor and contractor confidence particularly among small and medium enterprises that form the backbone of public works execution”.