Unjust Enrichment Cannot Be the Characteristic of a Government: Kerala High Court Orders 12% Interest on Delayed Payments

High Court criticizes government delay, mandates fair compensation for contractor after 11 years of withheld payment.
Ernakulam, July 19, 2024 – The Kerala High Court has ruled in favor of L. Satheek, a contractor seeking interest on delayed payments from the National Highway Authorities. Justice T.R. Ravi, presiding over the case, ordered a 12% annual interest on the withheld amount, highlighting the government’s obligation to uphold fair treatment and avoid unjust enrichment.

L. Satheek, aged 65 and the managing partner of K. Lakshmanan and Co., filed a writ petition (WP© No. 17963 of 2022) against several respondents from the Ministry of Road Transport and Highways and the Public Works Department (PWD). Satheek sought interest on a sum of ₹19,33,205/- that was deducted for allegedly substandard bitumen use and delayed in payment from March 31, 2010, until June 11, 2020, when the amount was finally sanctioned. Subsequent representations for interest on the delayed payment led to a government order (Ext.P10) in 2021, which granted interest at a rate “1% less than the bank rate.”

The court found that the government had unjustly withheld the payment and recognized the contractor’s entitlement to interest. The decision to deduct the payment for bitumen shortfall was deemed “not justifiable” as per the minutes of a meeting chaired by the Chief Engineer (MoRTH).

Justice Ravi criticized the respondents for the 11-year delay in acknowledging the contractor’s right to the withheld amount. He underscored the principle that contractors should not be subjected to financial strains due to delayed government payments. “Having extracted work from the petitioner, it is not open to the Government, which is a welfare State, to mete out such treatment to the contractors,” he stated.

The judgment drew on Supreme Court precedents, including Hansa V. Gandhi vs. Deep Shankar Roy & Ors. [(2013) 12 SCC 776] and State of Tamil Nadu and another vs. Saket India Ltd. [(2011) 15 SCC 485], which set a 12% interest rate for delayed payments as reasonable.

Justice Ravi remarked, “The payment of ₹4,86,488/- as interest, accounting for merely 2.4% of the total delayed amount, is as good as no payment at all.” He further stated, “Unjust enrichment cannot be the characteristic of a Government.”

The Kerala High Court’s decision mandates the respondents to pay the petitioner interest at 12% per annum from March 31, 2010, to the payment date, deducting the previously paid amount. The judgment reinforces the judiciary’s commitment to protecting contractors from financial losses due to administrative delays, setting a significant precedent for future cases involving delayed payments by government bodies.

Date of Decision: July 19, 2024