Supplemental Agreement Signed Under Threat Of Contract Termination Cannot Negate Contractor's Claim For Extra Expenditure: Kerala High Court

"Agreements executed under compelling circumstances cannot be foisted upon the plaintiff to negate the additional expenditure incurred during the extended period", Kerala High Court on March 19, 2026 partly allowed an appeal filed by the State of Kerala against a decree granted to a contractor for extra expenditure incurred due to delay in completing an irrigation canal construction work.

A Division Bench of Justice Sathish Ninan and Justice P. Krishna Kumar held that supplemental agreements executed under threat of contract termination are not binding to defeat legitimate claims, that the expert's calculation was erroneous in adding tender excess over market rates, and that since both parties shared responsibility for the delay, the contractor was entitled to only one-half of the extra expenditure assessed.

The respondent-contractor was awarded the work of constructing the MVIP Kuravilangad distributory under an agreement dated October 5, 2007, with a completion deadline of October 7, 2008. The work was completed only on July 31, 2009, due to public agitation against blasting of rocks, a Panchayat stop memo, police interference, and interim injunctions obtained by local residents in two suits before the Munsiff's Court, Pala. The contractor filed a suit claiming extra expenditure incurred during the extended period. The trial court decreed ₹60,70,071/- with 6% interest based on an expert report.

Whether the contractor was responsible for the delay; whether supplemental agreements precluded the claim for enhanced rates; whether the expert's calculation of extra expenditure was correct; and whether the Supreme Court's ruling in General Manager, Northern Railway v. Sarvesh Chopra barred the claim.

Shared Responsibility for Delay — Neither Party Wholly to Blame

The Court found that the contractor could not entirely escape responsibility for the delay by sheltering behind the suits and Panchayat proceedings — the injunctions only restrained blasting operations not sanctioned under law and did not impose an absolute prohibition. However, the Court held equally that the contractor could not be held solely responsible. Critically, there was no evidence that the State made any attempt to intervene and ensure smooth execution of the work. "It cannot be said that the plaintiff was solely responsible for the delay — the defendants also failed to take any steps to ensure that the work was smoothly carried out." On the totality of facts, the Court awarded one-half of the assessed extra expenditure.

Expert's Calculation Erroneous — Tender Excess Cannot Be Added to Market Rate

The expert had assessed extra expenditure at market rates prevailing during 2008-09 and then added a 40% tender excess on top. The Court found this calculation plainly erroneous. The tender excess of 40% over PAC was a feature of the original 2004 schedule of rates — it reflected the contractor's premium over the schedule at the time of tendering. Once the expert had already assessed costs at actual 2008-09 market rates, adding the tender excess amounted to double-counting. "When the expert had assessed the cost at the market rate that prevailed during the period 2008-09, the tender excess could not have been added to it — such calculation is apparently erroneous."

Supplemental Agreements Under Compulsion Not Enforceable

The State relied on supplemental agreements wherein the contractor had undertaken to carry out extended work at the original contract rates. The trial court had found — and the High Court affirmed — that refusal to execute these agreements would have resulted in termination of the contract, leaving the contractor with no choice. Agreements wrested under such compelling circumstances and threat of termination cannot be used to defeat a contractor's legitimate claim for additional expenditure actually incurred during the extended period. The Court declined to follow General Manager, Northern Railway v. Sarvesh Chopra on the facts, holding that pinning the contractor to 2004 schedule of rates for work completed in 2008-09 would be harsh and inequitable.

The Court accordingly modified the decree to ₹24,53,677/- — comprising ₹20,09,108/- being one-half of the corrected extra expenditure and ₹4,44,569/- being the retained amount — with interest at 6% per annum from the date of suit till realisation, along with proportionate costs.

Date of Decision: March 19, 2026