Court affirms contractual clauses limiting payment to 80% of estimated rates, emphasizing judicial restraint in commercial disputes
In a significant judgment delivered on June 8, 2026, the Kerala High Court, presided over by Justice Ziyad Rahman A.A., dismissed a batch of writ petitions filed by M/s Chicago Constructions International Private Limited and others against the Kerala Water Authority (KWA). The petitioners, contractors engaged under the Jal Jeevan Mission for water infrastructure projects, contested the limitation of their payment to 80% of the estimated rates for supplied pipes and materials, instead of the higher quoted rates.
The dispute arose from contracts awarded on an item rate basis for the design, construction, and commissioning of a 22 MLD water treatment plant at Morkulangara and allied works. The contractors argued that the payment clauses in the tender and agreements, specifically clauses 8.8 and 9.14.1.6 of the Notice Inviting Tender (NIT), which permitted payment only up to 80% of the estimated or quoted rates (whichever was less), were inapplicable to item-wise contracts and unfairly capped their remuneration. They also contended that, under the Sale of Goods Act, 1930, the title to supplied goods had passed to KWA, entitling them to full payment as per quoted rates.
The Kerala Water Authority defended the payment terms, stating the clauses were consciously incorporated following a Board resolution and applicable to all contracts, including item-wise ones. They argued that the petitioners had accepted these terms while submitting their tenders and executing agreements, thereby waiving any right to challenge them later.
Justice Ziyad Rahman, after a thorough examination of the contractual documents, NIT provisions, and statutory framework, upheld the validity of the contested clauses. The court noted that the contracts were clearly item rate contracts and that the clauses limiting payment to 80% of the estimated or quoted rates were deliberately included for specific policy reasons. The court rejected the petitioners' reliance on the Sale of Goods Act, emphasizing that the supply of materials was incidental to fulfilling broader contractual obligations rather than a standalone sale.
Importantly, the court underscored the limited scope of judicial review in contractual matters, particularly those involving public works. Citing the Supreme Court's rulings in Jagdish Mandal v. State of Orissa and Tata Motors Limited v. BEST, the court emphasized that intervention is warranted only in cases of mala fide action, arbitrariness, or irrationality. Since no such malice or arbitrariness was found, the court declined to interfere with the contractual terms voluntarily accepted by the petitioners.
The judgment clarifies that contractors cannot later dispute terms they knowingly accepted and that courts will not rewrite contractual agreements or substitute their commercial judgment, especially when public interest is at stake. The ruling is expected to reinforce contractual certainty and discourage frivolous litigation challenging tender conditions in public infrastructure projects.
Bottom Line:
Contractual terms that are agreed upon by the parties and form the basis of the tender and agreement cannot later be challenged by the contracting party unless mala fide, arbitrariness, or illegality is established.
Statutory provision(s): Article 226 of the Constitution of India, Sale of Goods Act, 1930
This news report summarizes the Kerala High Court's decision that validates contractual payment limitations in public tender contracts under the Jal Jeevan Mission, emphasizing judicial deference to clear contract terms and public interest considerations.
