An authority accepting contractual services cannot deny payment solely for belated performance security submission.

The respondents issued two tenders for hiring vehicles for official use, containing Clause 23 of Chapter IV, which required the successful bidder to furnish a Performance Guarantee within 30 days of the Letter of Acceptance, with limited extension up to 60 days subject to penal interest; failure thereafter would result in termination and forfeiture of the earnest money.

The petitioner was declared successful in both tenders and supplied vehicles during the entire contract period.

Although the petitioner submitted the Performance Guarantee belatedly, the respondents did not terminate the contracts and continued accepting the petitioner’s services. No agreement was executed and no payment was made for the services rendered.

Following the petitioner’s representations and an application under the Right to Information Act, 2005, the respondents stated that payment was not considered because the Performance Guarantee had been submitted beyond the prescribed period and no agreement had been executed.

The petitioner challenged that decision in the writ petition.

Whether the respondents could deny payment for services accepted throughout the contract period on the ground that the Performance Guarantee was submitted beyond the period prescribed in Clause 23 and no formal agreement was executed.

Whether the respondents’ decision not to release payment was arbitrary, disproportionate and contrary to their own tender terms and conditions.

What relief and procedure should follow upon setting aside the respondents’ decision.

Clause 23(a) of Chapter IV of the tender terms required submission of the Performance Guarantee within 30 days of the Letter of Acceptance, permitted extension up to 60 days with 15% penal interest for delay beyond 30 days, and contemplated termination and forfeiture of earnest money if the guarantee was not submitted within 60 days.

The court applied the administrative-law principles that State action must be non-arbitrary, reasonable and proportionate, and that a public authority must act consistently with its own tender conditions.

Where a contracting authority accepts and utilises services despite a contractual default, it cannot subsequently rely on that default in an arbitrary or disproportionate manner to deny all payment for the accepted services.

No separate statutory provision or judicial precedent was relied upon in the judgment.

The court accepted that the petitioner had failed to submit the Performance Guarantee within the prescribed period.

However, under Clause 23, the respondents’ contractual remedy was to terminate the contract and forfeit the earnest money upon the stipulated default. Instead, they continued accepting the petitioner’s vehicles and services for the entire contract period, while neither terminating the contracts nor promptly enforcing the stipulated consequences.

Having accepted the benefit of the petitioner’s performance, the respondents could not later deny all payment solely because the Performance Guarantee was belated or no formal agreement had been executed.

The court therefore found the respondents’ decision inconsistent with their own tender conditions and arbitrary, unreasonable and disproportionate to the petitioner’s breach.

The respondents were directed to reconsider the petitioner’s claim after granting an opportunity of hearing and to complete that exercise within six weeks from receipt of the order.

If any amount was found payable under the tender terms, it was to be disbursed within two weeks of the decision, together with interest at 7% per annum from the date of entitlement until actual payment.

The writ petition was accordingly disposed of.