Karnataka HC: No Specific CBI Order for Withholding Contractor’s Dues Produced Before Court

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 05.10.2026

Karnataka HC: No Specific CBI Order for Withholding Contractor’s Dues Produced Before Court

The Karnataka High Court has dealt with an important issue concerning the withholding of a contractor’s bills, security deposits and performance guarantees by the Railways in the backdrop of a pending CBI corruption case. The Division Bench observed that where contractual dues are withheld on the basis of contractual provisions or alleged CBI directions, an identifiable decision must exist so that the contractor can exercise the remedies available in law.

The Court, however, did not direct immediate release of the money. Instead, after the Railways stated that it would reconsider the matter and take a fresh decision, the appeal was disposed of while preserving the contractor’s right to pursue appropriate remedies.

Background of the Case

• M/s Anusha Constructions had been awarded various contracts for execution of works by the South Western Railway. Letters of acceptance relating to the contracts were issued on 4 January 2018, 8 March 2019, 14 March 2019 and 29 April 2019.
• According to the contractor, it substantially executed the contracted works and raised bills, but the amounts remained outstanding.
• The dispute subsequently became complicated by allegations that the contractor had bribed certain Railway officials. The Central Bureau of Investigation (CBI) investigated the matter and filed a charge sheet on 11 March 2024 in RC 15(A)/2022 before the Special Court for CBI cases at Bengaluru. The criminal proceedings remained pending at the time of the High Court’s decision.
• The Railways withheld payments which, according to Anusha Constructions, were due for works already executed.

Earlier Writ Proceedings

• Anusha Constructions initially approached the Karnataka High Court in W.P. No. 5962/2024, seeking directions for release of payments against its invoices.
• On 28 August 2024, the Court disposed of that petition by directing the authorities to consider the contractor’s representation. The contractor thereafter submitted a representation dated 9 September 2024.
• The representation was rejected through an endorsement dated 30 September 2024, prompting another challenge in W.P. No. 29196/2024.

Single Judge Declines to Entertain the Writ Petition

• The learned Single Judge declined to entertain the petition, principally because the controversy arose out of contractual agreements between the parties.
• The contracts admittedly contained arbitration clauses. The Single Judge further observed that, insofar as any dispute constituted an “excepted matter”, the contractor could approach the jurisdictional civil court.
• Anusha Constructions challenged that order before the Division Bench through the present writ appeal.

Railway Relies on Illegal Gratification Clauses

• The Railways’ impugned endorsement relied upon Articles 18(1) and 18(2) of the General Conditions of Contract (GCC).
• Article 18(1) deals with illegal gratification. It provides, among other consequences, that a bribe, commission, gift or advantage offered in connection with obtaining or executing a Railway contract may expose the contractor to rescission of the contract and liability for resulting loss or damage. The Railway is also entitled under the clause to deduct amounts payable from the contractor’s bills, security deposit or other dues.
• Article 18(2) prohibits certain monetary dealings with Railway employees and permits rescission of contracts for violation. It further provides that disputes concerning commission of such an offence or compensation payable to the Railway are to be determined by the General Manager of the Railway, whose decision is stated to be final and conclusive.

High Court Examines Railway’s Power to Withhold Amounts

• The Division Bench noted that the GCC provisions permit Railway authorities to make deductions from a contractor’s bills or security deposit for recovery of loss or damage arising from a relevant decision, including one concerning rescission of the contract.
• The Court also noticed that Article 18(2) specifically contemplated a determination by the Railway’s General Manager concerning disputes over the alleged offence or compensation payable to the Railways.
• The crucial problem, however, was that no such decision had yet been taken by the General Manager.

No Specific CBI Direction Produced

• Anusha Constructions also contended that the Railway authorities had withheld its payments pursuant to directions issued by the CBI.
• But the proceedings revealed an important fact: no specific order or direction of the CBI for withholding the amounts had been issued or identified before the Court.
• The High Court therefore found itself faced with a situation where money was allegedly being withheld, but neither a formal decision under Article 18 of the GCC nor a specific CBI order forming the basis of such withholding was in place.

Contractor Was Effectively Precluded From Exercising Remedies

• The Division Bench highlighted the practical legal consequence of this situation.
• If the General Manager passed a decision under Article 18 of the GCC, Anusha Constructions could challenge or otherwise pursue remedies against that decision. Similarly, if the money was being withheld pursuant to an identifiable CBI direction, the contractor could pursue remedies against that direction.
• But in the absence of either decision, the contractor was effectively unable to challenge the basis on which its money continued to be withheld.

The Court expressly observed:

“Thus, the appellant is effectively precluded from availing its remedies, at this stage.”

This observation forms the central significance of the judgment.

Railways Agrees to Take a Fresh Decision

• During the hearing, counsel appearing for the Railways stated that the authorities would consider the matter afresh and take a decision.
• The Railways further stated that if it decided to invoke Articles 18(1) or 18(2) of the GCC, that decision would be communicated to Anusha Constructions.
• In view of this statement, the Division Bench considered it unnecessary to issue any further directions.

High Court Does Not Fault Single Judge’s Order

• Importantly, the Division Bench did not overturn the Single Judge’s conclusion that the dispute was essentially contractual in nature.
• The Court held that the Single Judge’s decision not to entertain the writ petition could not be faulted, particularly since the contractor was not precluded from pursuing the appropriate remedies available to it.
• Accordingly, the writ appeal was disposed of with the aforesaid observations.

What the Judgment Does — and Does Not — Decide

• The judgment should not be understood as an order directing the Railways to immediately release the security deposits, performance guarantees or unpaid final bills.
• Nor did the High Court adjudicate whether the corruption allegations against Anusha Constructions were established. The CBI prosecution was expressly recorded as pending trial.
• Instead, the immediate consequence is that the Railways stated before the Division Bench that it would reconsider the case and take a fresh decision. If Articles 18(1) or 18(2) are invoked, that decision is to be communicated to the contractor, enabling it to pursue appropriate legal remedies.

Legal Significance

• The ruling is significant for government contractors, Railway contractors and public procurement disputes where contractual payments are withheld because of parallel criminal or vigilance proceedings.
• The judgment indicates that where the governing contract contemplates a specific determination before adverse contractual consequences follow, the absence of such a decision may create a serious procedural difficulty: the contractor may be left without an identifiable decision against which a remedy can be exercised.
• At the same time, the judgment reinforces that disputes concerning contractual payments, particularly where the agreement contains an arbitration mechanism, will not automatically warrant exercise of writ jurisdiction merely because one contracting party is a government authority.

Key Takeaway

The Karnataka High Court’s decision strikes a balance between the Railways’ contractual rights and the contractor’s right to pursue an effective remedy. While it did not order release of the withheld amounts, it recorded the Railways’ commitment to reconsider the matter and take a fresh decision. If the Railways invokes the illegal-gratification provisions of the GCC, that decision must be communicated to the contractor, which can then avail itself of the remedies available in law.

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Source: Karnataka High Court

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