Administrative delays cannot justify withholding a contractor’s admitted dues after completed contractual work.

The petitioner, a registered contractor, entered into an agreement with the erstwhile Patna Regional Development Authority (PRDA) on 2 September 2008 for construction of a PCC road and underground drainage from Hanuman Nagar to Sector-K.

He claimed to have completed the work in 2011 under departmental supervision and that the final bill for Rs. 2,10,663 had been prepared, but the amount remained unpaid.

Despite representations to the State authorities, payment was not released.

The Executive Engineer informed him that payment required approval from the Urban Development Department.

The State contended that, following the merger of PRDA with the Patna Municipal Corporation (PMC), PMC was the competent authority to examine the claim.

PMC did not dispute the allotment or execution of the work, but attributed the non-payment to administrative and financial difficulties concerning the erstwhile PRDA accounts and the absence of governmental sanction.

Whether the respondents could withhold the petitioner’s admitted contractual dues merely because of inter-departmental administrative difficulties and the absence of approval following the merger of PRDA with PMC?

Whether the petitioner was entitled to 12% compound interest on the delayed payment?

The Court applied the principle that a public authority cannot deny payment for work duly completed under a valid agreement merely on the ground of inter-departmental correspondence, procedural delay, or administrative difficulties.

State instrumentalities are required to act fairly, reasonably, and without arbitrariness, and must take an expeditious decision regarding admitted contractual dues.

The Court further held that compound interest cannot be granted in the absence of a statutory or contractual provision authorising it; any legally available entitlement to interest must be considered by the competent authority in accordance with law.

The Court found that the petitioner’s work had been awarded and executed, and that the respondents had not specifically disputed preparation of the final bill.

PMC’s own pleadings demonstrated that the claim had not been rejected on merits; payment was withheld only because of unresolved administrative issues concerning PRDA’s accounts and the requirement of approval from the Urban Development Department.

Applying the principle that internal governmental difficulties cannot defeat a contractor’s lawful claim after performance of the contractual obligation, the Court held that prolonged withholding of the admitted dues was arbitrary and legally unsustainable.

However, because no statutory or contractual basis for compound interest was shown, the Court declined to grant that relief.

The Urban Development and Housing Department and PMC were directed to process and release the admissible amount payable to the petitioner, if not already paid, within three months from receipt or production of the order.

If any part of the claim was found not payable, the respondents were required to pass and communicate a reasoned and speaking order within the same period.

The claim for 12% compound interest was rejected; nevertheless, any interest legally payable under a statutory or contractual provision was directed to be considered by the competent authority.