Authored By Kiran Raj

The Madhya Pradesh High Court at Jabalpur, in a judgment dated November 28, 2024, upheld an order issued by the Collector of Mandla directing the refund of the first installment of the bid amount to a contractor engaged for the recovery of weekly market charges. Justice Vivek Agarwal ruled that the contract's execution was frustrated due to the second wave of the COVID-19 pandemic, which constituted a force majeure event, rendering the contractor unable to recover charges as there were no organized weekly markets during this period.

The dispute arose following a tender issued by Nagar Parishad, Bamhani Banjar, District Mandla, inviting bids for the collection of weekly market recovery charges. The respondent, Ashish Kachhwaha, emerged as the highest bidder and deposited an earnest money amount of ₹50,000 along with 25% of the bid amount totaling ₹4,63,445. However, before the work could commence, the second wave of COVID-19 struck in April 2021, leading to restrictions that halted the organization of weekly markets.

In light of these developments, the contractor sought relief, filing applications in April 2021 requesting that the instalments for the period be waived due to the pandemic. Subsequently, the contractor requested the refund of his earnest money and the first installment, citing the impossibility of executing the contract due to the absence of weekly markets.

The municipal council, however, rejected the contractor's claims, arguing that his conduct in depositing the first installment established a formal agreement. They contended that the contractor was bound by the contract and was not entitled to a refund. The matter was escalated to the Collector of Mandla, who ruled in favor of the contractor, allowing the forfeiture of the earnest money but directing the municipal council to refund the first installment. The municipal council challenged this decision before the High Court.

Justice Agarwal, after examining the facts and legal submissions, observed that the contract's execution was rendered impossible due to the COVID-19 pandemic, a situation beyond the contractor's control. The judgment stated, “The controversy is whether the contract could not be executed and given effect to due to force majeure or certain lapses on the part of the contractor. The answer is that prima facie the contract could not be executed due to force majeure i.e., the outbreak of the second wave of COVID-19.”

The Court noted that the pandemic severely affected public activities, and the absence of weekly markets during the relevant period prevented the contractor from fulfilling his obligations under the contract. The Court ruled that it would be unjust to penalize the contractor for circumstances beyond his control.

The Court further remarked, “The action of the Collector, Mandla, when tested, appears reasonable to direct the municipal authority to forfeit the earnest money but refund the amount of the first installment on account of the fact that due to force majeure, the contractor was stopped from making recovery of the weekly market recovery charges as there was no organization of the market.”

The High Court upheld the Collector’s order, concluding that the directive to refund the first installment was reasonable and in consonance with the principle of fairness in contractual matters. The Court dismissed the municipal council’s writ petition and directed them to make the refund within one month from the date of receiving the certified copy of the judgment.

Case Title: Nagar Parishad Bamhani Banjar District Mandla M.P. vs. Collector and Others
Case Number: Writ Petition No. 12898 of 2022
Bench: Justice Vivek Agarwal

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