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M/S Madhoor Buildwell Pvt. Ltd. v. Yeola Municipal Council

Civil Appeal · 2019 INSC 1133Decided 4 Oct 2019
Civil Appeal No. 7798 of 2019
Justice L. Nageswara Rao · Justice Hemant Gupta

Background

A contractor was awarded a tender by the Yeola Municipal Council to lay an underground sewer system under a centrally sponsored urban infrastructure scheme. After completing about 35% of the work, the contractor was not paid because the Central Government had not released the sanctioned funds, and the scheme itself was discontinued after March 2015. The Bombay High Court dismissed the contractor's writ petition seeking a direction to the Central and State Governments to disburse funds, and the contractor appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that while the State Level Sanctioning Committee and the Ministry of Urban Development had approved the sewer project in principle, the Ministry of Finance's concurrence, necessary for actual release of funds, was never obtained before the scheme's expiry, and no money was ever released for this particular municipal council. Since there was no privity of contract between the contractor and the Central Government, and no sanctioned funds existed, the Court found no illegality in the High Court's order refusing to direct payment. However, recognising that sewage infrastructure is a genuine public necessity, the Court directed the State Government to consider and approve the sewer scheme under its own funding within three months, failing which it should seek funds from the Centre under the successor AMRUT scheme.

Lesson Learnt

A contractor who undertakes government work cannot compel payment from a government body merely because an inter-departmental communication discussed a project: actual sanction and release of funds by the competent authority is what creates an enforceable obligation, and courts will not conjure one from preliminary correspondence alone.

Official source (sci.gov.in)View Judgment (PDF)

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