Court rules against state government’s belated claims of unintended benefits, mandates refund of Rs.10 crores to M/s Gammon Engineers within three weeks.
In a significant ruling, the Telangana High Court has ordered the state government to refund a security deposit of Rs.10 crores to M/s Gammon Engineers and Contractors Private Limited. The Division Bench comprising Justices Moushumi Bhattacharya and Gadi Praveen Kumar delivered the verdict on July 9, 2026, dismissing the government's appeal and supporting the contractor's challenge against the withholding of the security deposit.
The dispute stemmed from the government withholding the security deposit, alleging that M/s Gammon Engineers received unintended benefits from Central Excise Duty exemptions during the execution of the Kalwakurthy Lift Irrigation Scheme. However, the court found these claims to be belated and lacking in merit, particularly since the contract was executed and the audit objections were dropped.
Justice Bhattacharya, delivering the judgment, emphasized that the state could not alter the contract value or impose liabilities post-execution, especially when a clean chit was given by audit authorities. The court criticized the state’s attempt to revive charges as arbitrary and unreasonable, stating that the government was trying to avoid refunding the security deposit by inventing charges.
The court also addressed the inconsistency in the Single Judge’s order, which allowed the government to proceed with an enquiry while directing the refund. The Division Bench clarified that once the security deposit refund was directed, any enquiry into unintended benefits was contradictory and should not proceed.
The ruling comes after M/s Gammon Engineers successfully completed the contract, with the operation and maintenance period ending in August 2021. Despite an audit officer's confirmation in April 2024 that objections were dropped, the state attempted to demand repayment of alleged excess amounts. However, the court noted that the exemption notifications were in effect before the tender was floated, and the state should have accounted for them in the contract’s terms.
This decision underscores the importance of adhering to contractual terms and the impropriety of raising objections post-completion without substantial basis. The High Court's directive mandates the government to refund the Rs.10 crores security deposit within three weeks, marking a crucial victory for the contractor.
Bottom line:-
State government cannot withhold security deposit of the contractor based on belated and arbitrary claims of unintended benefit due to tax exemptions, especially after completion of the contract and issuance of a clean chit by audit authorities.
Statutory provision(s): Contract Law, Administrative Law, Judicial Review
