Pendency Of Vigilance Inquiry Is Not A Ground To Withhold Payment For Admittedly Executed Contract Works: Andhra Pradesh High Court

"The State and its instrumentalities cannot withhold legitimate payments on extraneous considerations. Administrative inaction cannot be allowed to defeat a legitimate claim, particularly when the respondents do not dispute the execution of the works or demonstrate any lawful impediment to the release of the admitted dues." Andhra Pradesh High Court, in a significant ruling dated October 12, 2026, held that the pendency of a vigilance inquiry cannot be cited as a valid justification for indefinitely withholding payments for contract works that have been admittedly executed by a contractor.

Justice K. Sreenivasa Reddy, while disposing of a batch of writ petitions, observed that vigilance findings are merely advisory in nature and that administrative authorities cannot evade their statutory obligations to release payments for completed works based on the mere pendency of an inquiry.

The petitioner, a contractor, had executed various road works in Chittoor district under agreements entered into with the respondent authorities. Despite the satisfactory completion of these works, which were duly measured, recorded in the M-Book, and certified by Quality Control authorities, the respondents failed to release the pending bill amounts. The State contended that payments were kept on hold due to a pending vigilance inquiry regarding alleged irregularities in the execution of the works.

The court was primarily tasked with determining whether the State could withhold legitimate and undisputed payments for executed works solely on the ground that a vigilance inquiry was ongoing. The court also examined the maintainability of a writ petition for the recovery of money claims where the underlying work performed by the contractor is not in dispute.

Maintainability of Writ Petitions for Contractual Dues

The court reiterated that it is not an inviolable rule that money claims cannot be adjudicated under writ jurisdiction. Relying on the Supreme Court’s decision in M/s. Utkal Highways Engineers and Contractors v. Chief General Manager & Ors., the court emphasized that where the State acts arbitrarily, even in the realm of contract, the High Court is empowered to interfere under Article 226 of the Constitution of India. Non-payment of admitted dues without lawful justification constitutes an arbitrary exercise of power.

"The High Courts, exercising their jurisdiction under Article 226 of the Constitution of India, not only have the power to issue a Writ of Mandamus or in the nature of Mandamus, but are duty-bound to exercise such power, where the Government or a public authority has failed to exercise or has wrongly exercised discretion conferred upon it."

Irrelevance of Pendency of Vigilance Reports

The court observed that vigilance inquiries are independent of the administrative and statutory functions relating to the processing of payments. The bench noted that vigilance authorities are not empowered to restrain competent departments from settling claims of contractors. Furthermore, vigilance findings are merely recommendatory; if any irregularity is detected later, the State retains the legal right to initiate recovery proceedings, but it cannot use the "pendency of an inquiry" as a shield to deny or postpone legitimate payments.

"Mere pending receipt of the Vigilance Inquiry Report is not a ground to withhold the payments. Pendency of a file before the Vigilance Department, without any incidence, cannot be a ground to indefinitely postpone or deny the payment for the works duly executed."

State’s Obligation to Act Fairly

The court expressed dissatisfaction with the respondents' contention that they could not file counter-affidavits because the files were with the Vigilance Department. In the era of digitalization, such an excuse is untenable. The court emphasized that if the State could not afford the works, it should not have invited tenders. Once the work is executed and accepted, the State is under a constitutional obligation to pay for the services rendered.

"There cannot be any dispute that the vigilance inquiry is independent of the statutory and administrative functions of the executing Departments relating to the scrutiny, processing, and release of payments."

Final Directions and Safeguards

The court directed the respondents to settle the petitioner's dues within four months. To balance the interests of the State and the contractor, the court mandated that the petitioner must execute an indemnity bond. This bond will ensure that if the vigilance inquiry eventually uncovers any deficiency or excess payment, the petitioner will be liable to repay the amount. This safeguards the public exchequer while ensuring that contractors are not left in a state of financial ruin due to administrative inertia.

The ruling reinforces the principle that the State cannot act as a recalcitrant debtor. By holding that administrative inaction and vague vigilance-based excuses cannot defeat a contractor's right to payment for admitted works, the court has upheld the rule of law and the sanctity of contractual obligations of the State.

Date of Decision: 12 October 2026