Non-Reasoned Monetary Demands and Retention of Contractual Deposits Without Issuing Work Orders Violate Natural Justice Principles

The Petitioner was awarded a contract for collecting advertisement fees (hoardings/unipoles) by the Municipal Corporation, Morena, for the period 06.03.2024 to 05.03.2025.

The agreement provided for renewal for a second and third year with a 5% premium escalation.

Prior to expiry, the Petitioner applied for renewal, and the Respondent Corporation tentatively approved it via communication dated 06.02.2025, directing the Petitioner to deposit 25% of the premium, a new FDR, and post-dated cheques.

The Petitioner complied with all conditions by 04.03.2025.

However, the Corporation failed to issue a formal work order, remained silent for six months, and then issued an impugned order on 03.09.2025 denying renewal and demanding "charges" of Rs. 9,359/- per day for unauthorized use since March 2025.

1. Whether the Respondent’s demand for daily charges of Rs. 9,359/- was legally sustainable under the contract or statutory law.

2. Whether the denial of renewal after accepting the Petitioner's compliance and deposits violated the principles of natural justice and the doctrine of estoppel.

The Court primarily applied the Principles of Natural Justice, which mandate that any administrative action entailing serious civil and financial consequences must be preceded by a show-cause notice and a hearing.

It further relied on the doctrine of Unjust Enrichment, prohibiting a party from retaining benefits (deposits) without providing the corresponding contractual consideration.

Additionally, the Court examined Clause 17 of the Agreement, which governs proportionate refunds or payments upon contract termination but does not authorize unilateral imposition of daily penalties for "unauthorized use" absent specific contractual or statutory power.

The Court found that the Petitioner had fulfilled all conditionalities for renewal as specified in the Corporation's letter dated 06.02.2025.

The Corporation’s conduct of accepting and retaining the security deposits and post-dated cheques for six months without communication created an inequitable situation where they could not later claim the Petitioner’s activities were "unauthorized" solely to levy daily charges.

The Court rejected the Corporation’s reliance on Clause 17, noting that no clause in the agreement authorized the specific daily rate of Rs. 9,359/-.

Furthermore, the impugned order was found to be procedurally flawed as it was passed without a show-cause notice, violating the audi alteram partem rule.

However, since the renewal period (2025-2026) had largely lapsed during litigation, the Court noted that a specific direction for renewal was now infructuous.

While the Court declined to order a renewal of the contract due to the efflux of time, it held that the Corporation’s retention of the Petitioner’s deposits without a work order amounted to unjust enrichment; consequently, the Court directed the Respondent to refund all deposits and return the FDRs and post-dated cheques within sixty days.