Supplemental Agreements Signed Under Economic Duress Are Void—Contractor Entitled to Verified Payments Despite No Damages for Delay: Kerala High Court

“Where a Contractor Continues with Performance Despite Employer’s Breach, Section 55 Bars Damages—But Not Recovery for Work Done”, In a detailed and precedent-reinforcing judgment Kerala High Court has ruled that supplemental agreements executed under threat of withheld payments are vitiated by economic duress and unenforceable, while simultaneously holding that a contractor who continues the work despite delay caused by the employer is barred from claiming damages under Section 55 of the Indian Contract Act, 1872. However, the Court allowed recovery for verified extra works and partial claims supported by evidence, after applying contractual tender deductions.

The Division Bench of Justice Sathish Ninan and Justice P. Krishna Kumar allowed the defendants’ appeal in part, and in doing so, revisited several settled principles relating to coercion in contracts, evidentiary standards in civil appeals, and the interpretation of tender clauses in public works contracts.

“Contractor Who Elects to Proceed with Work After Employer’s Breach Cannot Seek Damages Under Section 55”

The controversy arose from a 1987 tender floated by the Travancore Devaswom Board for construction of a parking facility at Pamba. The plaintiff, O.M. Mathew, was the successful bidder with a quote 17.6% below the estimated cost. However, due to the defendants’ failure to obtain prior forest clearance, the work site was handed over several months late.

The High Court found no ambiguity in the factual position and held the employer squarely responsible for the delay. “When the defendants invited tender for the work, they did not have permission from the Forest Department for cutting trees,” noted the Bench. But despite this breach, the contractor did not repudiate the agreement and chose to carry on with the contract.

The Court clarified that in such circumstances, Section 55 of the Indian Contract Act becomes decisive. “The plaintiff having not opted to repudiate the work under Section 55... and having chosen to proceed with the contract, he is not entitled for damages,” the Court declared, reaffirming that the legal consequence of continuing the contract is a waiver of the right to claim compensation for delay.

“Supplemental Agreements Extracted by Withholding Payments Are Products of Economic Duress”

An equally critical question before the Court was the validity of multiple supplemental agreements that the contractor had signed during the project. These agreements, which extended time and formalised extra items of work, were alleged to have been signed under coercion.

The Trial Court had already found that the contractor executed them under the threat of non-payment, and not voluntarily. The High Court upheld that finding without hesitation, observing, “The execution of the agreements was not voluntary, but was under economic duress.”

The Bench concluded that economic duress, particularly in public contracts where timely payments are crucial for survival of contractors, vitiates consent. As the Court remarked, “No materials could be placed before us to substantiate the findings to be erroneous.” The supplemental agreements, being voidable under Section 15 of the Contract Act, were therefore unenforceable against the contractor.

“Appellate Court Can Reassess Entire Evidence Where Trial Court Fails to Record Proper Findings”

Though the trial court had ruled in favour of the plaintiff on several heads of claim, the High Court took exception to the lack of any substantive analysis of evidence. “The trial court, without any consideration of the evidence on record, straightaway proceeded to accept the other claims of the plaintiff,” the Bench observed.

In what serves as a reminder of the scope of a Regular First Appeal, the High Court made it clear that where a lower court fails to assess evidence, the appellate court has both the power and duty to do so. “We proceed to consider the claims one by one,” the judgment stated, before engaging in a meticulous examination of measurement books, communication records, and contractual clauses.

“Measurement Book is the Governing Document in Public Works Claims—Bald Assertions Cannot Substitute Documentary Evidence”

One of the claims disallowed was for cutting and stacking of timber, where the contractor had claimed a significantly higher rate than what was paid. However, the High Court found that the claim was based on a bald assertion with no supporting data.

In contrast, claims for jungle clearance (second time), felling and conveying timber, blasting rock, and excavation beyond depth were partially allowed because they were supported by entries in the Measurement Book (Ext.B3) and correspondence from departmental officials.

The Court emphasised that “Ext.B3—the Measurement Book—is the critical evidentiary basis for assessing execution and entitlement in public works contracts” and refused to entertain claims that were not reflected in it or adequately corroborated.

“Tender Deduction Applies to Extra and Additional Works—Rates Must Align with Contractual Formula”

A major contractual interpretation was the application of the 17.6% tender deduction to the amount finally awarded to the plaintiff. The contractor had originally quoted that deduction on estimated rates, but argued that it should not apply to extra works.

Rejecting that argument, the Court applied clauses 23.3 (iii), (iv), and (v) of the contract to hold that “tender deduction is applicable to extra and additional works if rates are derivable from similar items in the contract”. Since most of the sanctioned items were traceable to existing rate structures, the Court held that:

“None of the works under the heads noted supra can be said to be works in respect of which the rates could not be derived from similar items of the contract. Therefore, the tender deduction is liable to be applied.”

The final amount of Rs.3,44,794/- was thus reduced by 17.6%, resulting in a net recoverable amount of Rs.2,84,110/-.

“Interest of 12% Till Decree and 6% Thereafter Is Fair in Commercial Claims—Claim of 18.5% Excessive”

The contractor had claimed interest at 18.5%, but the Court deemed that rate excessive in the context of prevailing commercial banking standards. “Considering the prevailing commercial rate of interest in banking transactions,” the Court held, “the plaintiff is entitled for interest at the rate of 12% per annum from the date of suit till decree and 6% thereafter.”

“In the result,” the Division Bench concluded, “the appeal is allowed in part. Setting aside the decree and judgment of the trial court, a decree is passed allowing the plaintiff to realise an amount of Rs.2,84,110/- with interest at the rate of 12% per annum from the date of suit till the date of decree and thereafter at the rate of 6% till realisation from the first defendant.”

This judgment reaffirms essential principles in contract law and civil procedure, especially in public works disputes—that economic duress can render agreements void, that continuation of contract waives damages for delay, and that extra works must be proven through documentary and contractual evidence, all while keeping the contractual rate structures and deductions intact.

Date of Decision: 11 December 2025