The Chief Executive Officer, Kerala Infrastructure Investment Fund Board (KIIFB) vs South Indian Constructions Pvt. Ltd. & Anr.

Soumen Sen, C.J.

This appeal is arising out of a judgment and order passed by the learned Single Judge on 18^th February, 2006, in a writ petition filed by the 1^st respondent/writ petitioner, inter alia, praying for an order directing the 2^nd respondent herein to disburse the entire amount to the writ petitioner for the works already executed, overruling the objection raised by the Chief Executive Officer, Kerala Infrastructure Investment Fund Board (in short, ‘KIIFB’).

The factual circumstances leading to the filing of the writ petition are summarized below:-

The writ petitioner is engaged in contract works and was executing various projects in Government and other institutions. The writ petitioner has successfully completed the works for “Modernization of Schools to International standards as Centres of Excellence and Betterment of Infrastructure Facilities” in 19 Schools. All the works of such schools were completed to the satisfaction of the respondents. In the year 2018, works of similar nature were entrusted to different contractors in respect of 11 schools, which consists of 5 schools in Pathanamthitta, 2 schools in Malappuram and 4 schools in Thrissur District. The said contractors, however, left the work incomplete midway during the year 2020 and thereafter the respondents re-entrusted the balance work of those 11 schools to the writ petitioner. After completion of the works, the writ petitioner could not submit the final bill for the works entrusted because supplementary agreement was not executed by the 1^st respondent, Kerala Infrastructure and Technology for Education (KITE, for short), despite the approval of revised estimate. The 2^nd respondent, funding agency, is of the view that GO(P).No.54/2019/Fin. dated 4^th May, 2019 (Exhibit P5) is to be applied while preparing the Revised Estimate. The 1^st respondent in its communication dated 29^th September, 2021 (Exhibit P6) informed the writ petitioner that it had decided not to implement the said Government Order for ‘risk and cost’ for the rearranged works, of which, agreement for the original works were prior to the date of the said Government Order. The petitioner alleged that it was due to the interference of the 2^nd respondent, (the appellant herein), the payments could not be released as the 2^nd respondent objected to the 1^st respondent ignoring Exhibit P5 Government Order. The appellant was of the view that since the work was re-allotted to the writ petitioner after the issuance of Government Order (Exhibit P5), the said Government Order has to be applied while approving the Revised Estimate.

The 1^st respondent, KITE, in response to the issue raised by the KIIFB regarding the decision of KITE, not to make the same Exhibit P5 Government Order applicable to the present contract, by communication dated 24^th August, 2022 has stated as follows:-

The said decision was duly communicated to the KIIFB. In spite of such communication, KIIFB has refused to accept such recommendation and has insisted for inclusion of the same Exhibit P5 Government Order in the re-tender. As a result thereof, the 1^st respondent KITE was unable to execute the supplementary agreement, based on the Revised Estimate approved by them in favour of the writ petitioner. Instead, a draft supplementary agreement was handed over to the writ petitioner by KITE in conformity with the direction of KIIFB. Since there are certain irregularities in the agreement clauses, a representation was made by the writ petitioner with a request to remove such clauses. Thereafter, on 16^th December, 2022, KIIFB had issued only conditional approval of Revised Estimate with direction to adopt conditions in Exhibit P5 Government Order, where extra items and excess quantities are involved. The writ petitioner has contended that KIIFB has no role to play with regard to the clearance of bills for excess quantities and extra items and Exhibit P5 Government Order cannot be adopted and the insistence of KIIFB to grant only conditional approval of Revised Estimate with a direction to adopt conditions in Exhibit P5 is in violation of Clauses 36.1 and 68.1 of the General Conditions of Contract. The KIIFB under pressure from KITE has failed to execute the contract, as a result, huge amounts which have now been paid in respect of the works already completed to the satisfaction of the respondent No.1 was not released.

The writ petition was contested.

In the counter-affidavit filed by the 1^st respondent, KITE, it was stated that the works in a total of 11 schools tendered during 2018 across 3 different clusters under the project, 'Modernization of Schools to International Standards as Centres of Excellence and Betterment of Infrastructure Facilities’, (Cluster 6A: 5 Schools in Pathanamthitta district, Cluster 13A: 4 Schools in Thrissur district, and Cluster 18A: 2 Schools in Malappuram district) were partially terminated at the Risk and Cost of the original contractors due to their failure to execute the works. The 1^st respondent invited tenders for the balance of works in these schools in each cluster separately and the work for the total of 11 schools in these 3 clusters was awarded to the writ petitioner.

It was further stated that GO(P)No.54/2019/Fin dated 4^th May, 2019 is regarding execution of public works on item rate contracts particularly for regulating abnormally high quoted and abnormally low quoted items. In the initial stage, the 1^st respondent had proposed that GO(P)No.54/2019/Fin. dated 4^th May, 2019 shall not apply to such rearranged works based on the legal opinion received. However, in the meeting chaired by the 2^nd respondent (Chief Executive Officer, KIIFB) with the 1^st respondent on 29^th November, 2022 it was clarified that for the re-tendered works, G.O.(P) No.54/2019/Fin. dated 4^th May, 2019 is applicable. Based on the above meeting, 1^st respondent informed the Petitioner vide letter dated 31^st December, 2022 that the decision of 2^nd respondent is to implement G.O.(P) No.54/2019/Fin. dated 4^th May, 2019.

It is further stated that the 2^nd respondent was approached for a clarity in the matter on 30^th December, 2022. However, in its reply dated 4^th March, 2023, the KIIFB, confirmed that the decision of the 2^nd respondent in the meeting held on 29^th November, 2022 is final and the same was intimated to the writ petitioner by letter dated 13^th April, 2023. The 2^nd respondent being the funding agency has to take appropriate action as deemed necessary for raising payments due to the writ petitioner.

The 2^nd respondent in its counter affidavit has stated that the writ petitioner has completed the works of 11 schools under Exhibits P1, P2 and P3 agreements during the period spanning from 14^th December, 2021 to 30^th December, 2023 and around 90% of the payments has already been released to the petitioner. The final Revised Estimate submitted by the 1^st respondent had been returned by the 2^nd respondent during the period from 17^th November, 2022 to 3^rd October, 2023 for re-submitting the same in compliance with the Exhibit P5 Government Order. But the 1^st respondent has not re-submitted the same in accordance with Exhibit P5 Government Order. As the works of these schools were tendered and agreements executed after the implementation of said Government Order, the 2^nd respondent has directed the 1^st respondent SPV to re-submit the estimates after complying with Exhibit P5 Government Order. In respect of 2 schools, i.e. GHS Kozhenchery and GHSS Vechoochira Colony, the 1^st respondent has submitted the final Revised Estimate complying with Exhibit P5 Government Order, and hence, was approved by KIIFB. But, the final bills with respect to the approved projects have not yet been submitted by the SPV. For GHSS Vechoochira Colony, the contractor has executed the supplementary agreement complying with Exhibit P5 Government Order and one part bill [Running Account Bill (RAB 04)] was also released. Exhibit P5 Government Order is a general order which have been made applicable to all works tendered or contracted or being executed after the date of the said Exhibit P5 Government Order, i.e. 4^th May, 2019 and the writ petitioner cannot claim an exception on the basis of misleading and frivolous interpretations. A bare perusal of Exhibit P5 Government Order would amply reveal that as per the instructions issued therein, the said Government Order is applicable to all the works since 4^th May, 2019 and the relevant clauses of Standard Bidding Document and Kerala PWD Manual 2012 shall be modified accordingly. It is a well settled legal principle that any contract between the parties is subject to law and public policies. Framing laws is the sovereign right of the State and this is not subservient to any contract between two businesses. Needless to say that in the case of any conflict between a contract and the law, the latter prevails. Hence, Exhibit P5 suffers from legal infirmity.

The specific challenge in the writ petition is thus against the applicability of Exhibit P5 Government Order, as far as the works executed by the writ petitioner under Exhibits P1 to P3 agreements. The Government Order (Exhibit P5) was issued on 4^th May, 2019 whereas, Exhibits P1, P2 and P3 agreements were executed in the year 2020, that is, after the issuance of Exhibit P5 Government Order. A bare perusal of Exhibits P1, P2 and P3 agreements would show that there is no reference to Exhibit P5 Government Order.

The captions of all the agreements have clearly mentioned as ‘Balance works’. The caption of the agreement in respect of 4 schools in Thrissur district reads as “Modernisation of Schools to International Standards as Centre of Excellence in 4 schools in Thrissur District – Balance Works – Cluster 13A”. In respect of Pathanamthitta District, it is described as “Rearrangement of Balance Works in 5 Schools”, and in respect to Malappuram district, the caption of the agreement reads as “Rearrangement of Balance Works in 2 Schools – Cluster 18A”. The captions of all the three agreements unmistakably show that they were entered into only for the purpose of completing the balance works and KITE has consciously not incorporated the Government Order dated 4^th May, 2019 because of the continuity of the work left incomplete. It was not treated as a fresh tender for a new project. The dispute arose with regard to the extra work and extra items for the work done additionally or in alteration or substitution of the original work. The writ petitioner has relied upon the GCC Clause No.36.1 which states as follows.

The relevant clauses of the Government Order, G.O.(P) No.54/2019/Fin. dated 4^th May, 2019, are as follows:-

It is the contention of the writ petitioner that since the GCC Clause No.36.1 and G.O.(P)No.54/2019/Fin. dated 4^th May, 2019 are in contradiction, the conditions stated in GCC Clause No.68.1 will be considered by which GCC Clause No. 36.1 will prevail.

The writ petitioner has referred to GCC Clause No.68.1, which states as follows:

It thus appears that when the final quantity of work done differs from Bill of Quantities (BOQ), no change in the rate of that item mentioned in the contract can be considered unless such item accounts for an amount more than 10% of the contract price and the actual quantity of work executed under that item exceeds the quantity set out in the BOQ by more than 25%. In Exhibit P1 agreement, the contract amount was ₹20.91 Crores. It is claimed that many items were used in excess due to the requirement at the site and as demanded by the 1^st respondent. This had resulted in the deviation to the original BOQ, however, none of the excess items used were more than 10% of the contract price. It is claimed that same is the case for the works covered under Exhibit P2 and Exhibit P3 agreements. For the purpose of determination of the rates, reference was made to Clause 23(3)(i) of Annexure 1 in Section 6 of GCC, which reads as follows:

The writ petitioner relying upon the aforesaid clauses has submitted that if an extra item work is done additionally or in alteration or on substitution, the rate of extra items shall be derived from the similar item exists in the contract. If similar item does not exist in the contract, the rate can be arrived at current rate available in department data.

The justification for releasing the bills in terms of the agreements is based on the GCC Clauses 36.1, 68.1, 23.3(i) and 23.3(iii) and the approval by the 1^st respondent (KITE) of the Revised Estimate (RE) in its 51^st and 53^rd Technical Committee meetings dated 7^th April, 2022 and 23^rd July, 2022.

Undoubtedly, the Technical Committee of the 1^st respondent is the most competent person to decide the requirement and suitability of such items and on being satisfied of its requirement has approved the Revised Estimate. In fact, the 1^st respondent seems to be reluctant to execute the supplementary agreement in view of insistence by the 2^nd respondent to incorporate Exhibit P5 Government Order in the supplementary agreement and to apply the said Government Order for the purpose of revising the rates. The Revised Estimate was only approved conditionally and not on the basis of the original agreement conceived, reduced in writing and executed by the parties.

In the aforesaid perspective, the learned Single Judge was of the view that in absence of any reference to Exhibit P5 Government Order in Exhibits P1, P2 and P3 agreements, at this stage, the funding agency cannot object to the release of the said fund merely on the ground that the said agreements do not refer to the Government Order issued on 4^th May, 2019.

The complexion of the original cause of action has undergone a substantial change by reason of disclosure of Supplementary Agreement No.25 dated 15^th July, 2023 for “Excess Quantity and Extra Items” to the Original Agreement No. KITE – INFRA/works/16/2019-20 dated 17^th March, 2020, Supplementary Agreement No.24 dated 10 July, 2022 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/works/16/2019-20 dated 17^th March, 2020, Supplementary Agreement No.27 dated 13^th October, 2023 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/ works/16/2019-20 dated 17^th March, 2020, Supplementary Agreement No.13 dated 13^th October, 2023 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/works/01/2020-21 dated 14^th May, 2020, Supplementary Agreement No.10 dated 15^th June, 2023 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/works/01/2020-21 dated 14^th May, 2020, Supplementary Agreement No.11 dated 4^th July, 2023 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/works/01/2020-21 dated 14^th May, 2020, Supplementary Agreement No.09 dated 15^th June, 2023 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/works/01/2020-21 dated 14^th May, 2020, Supplementary Agreement No.12 dated 18/01/2023 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/works/02/2020-2021 dated 29 May, 2020, Supplementary Agreement No.11 dated 11/01/2023 for “Excess Quantity and Extra Items” to the Original Agreement No.KITE-INFRA/works/02/2020-2021 dated 29 May, 2020.

These documents have been produced under Order XLI Rule 27 of the Code of Civil Procedure at the appellate stage for consideration by the Appellate Court. We find these documents to be relevant for adjudication and hence, we admit these documents. These documents have been executed by the KITE and M/s. South Indian Constructions Pvt. Ltd. in respect of the three agreements which were the subject matter of the writ petition.

These documents ought to have been introduced either by the writ petitioner or by the 2^nd respondent, as these documents had been executed prior to the filing of the writ petition. There is no reflection of these documents in the writ petition at all. The writ petitioner as well as KITE was under a duty and obligation to disclose these documents as they had all been executed prior to the filing of the writ petition and by the very nature of the agreements, are supplementary agreements to the main agreements based on which the writ petitioner has completed the balance work. The relevance of the said supplementary agreements with regard to the applicability of Exhibit P5 Government Order dated 4^th May, 2019 is evident from the preamble and recitals thereof. The relevant clauses read as follows:

The said recitals and clauses usually agreed by and between the writ petitioner and KITE are relevant to the determination of the issue raised in the writ petition, wherein the writ petitioner has, in fact, sought a declaration that the Government Order would not apply to the agreements in question which arose out of a re-tender.

The argument advanced at this stage by the learned counsel for the writ petitioner that had it been known to the writ petitioner at the time when the relevant clauses of the Government approved Standard Bidding Document is sought to be revised by the Government Order dated 4^th May, 2019, the writ petitioner would have taken a conscious decision both with regard to participation in the tender process and in quoting the item-wise rates. However, it appears that, during the pendency of the contract, when the parties were considering the approval of the Revised Estimates, it was decided that the writ petitioner and KITE shall accept the approval of the Revised Estimate by KIIFB, subject to the condition that the rates for certain extra items proposed would be limited in the interim bills. The payment so limited in the interim bills would be taken into consideration while making the final payment in the final bills based on the final approval of Revised Estimate and rates. The subsequent conduct of the parties would show that the writ petitioner as well as the KITE had agreed that KIIFB would have the final say regarding the final approval of the Revised Estimate and rates.

An impression was given during the hearing that the writ petitioner had gradually accepted the said condition as huge payment was due and payable. However, nothing prevented the writ petitioner from disclosing the supplementary agreements and contend that such conditions could not have been imposed or insisted upon by KITE at all at the instance of KIIFB.

The learned Single Judge carried an impression as we were until we examined the supplementary agreements, that the insistence of KITE at a later date to accept the supplementary agreements prepared in conformity with Exhibit P5 Government Order was arbitrary. However, after considering the supplementary agreements disclosed by KIIFB, we no more carry such impression as the writ petitioner as well as KITE appears to have voluntarily executed the said agreements. It is because of such subsequent developments that the observation of the learned Single Judge that the KITE had consciously entered into such agreements in spite of the existence of the Government Order and, therefore, KIIFB could not insist upon its applicability, cannot now be sustained. The said view was possible without the supplementary agreements that had surfaced at the time of hearing of the appeal.

However, at the same time, we cannot ignore the fact that there has been excess quantity and extra items used for the purpose of completing the work and at this stage, revisiting the BOQ in respect of the extra quantities supplied by the contractor/writ petitioner for the completion of the said projects cannot be revised, as the KITE being the beneficiary of the said project had itself demanded and required alteration to the BOQ involving excess quantities and extra items for the purpose of finishing the unfinished work and it is not in dispute that the writ petitioner has successfully completed the works assigned under the three contracts.

Under such circumstances, the appellant KIIFB is directed to release the payments on the basis of the rates to be determined under Exhibit P5 Government Order dated 4^th May, 2019 in respect of the extra items and excess quantities used for the purpose of completion of the balance works. At this stage, any insistence upon re-examining the Revised Estimates with reference to the excess quantities over and above the BOQ, or what the appellant KIIFB may now perceive to be actually required, would cause serious prejudice to the 1^st respondent/writ petitioner and would be inequitable.

Accordingly, we dispose of the writ appeal by directing the appellant KIIFB to release payments of the pending bills in terms of the aforesaid direction within a period of eight weeks from the date of receipt of a copy of this judgment.