A significant precedent has been set by the Kerala High Court in recognizing the equitable obligation of public authorities to reconsider contract terms when unforeseen market shocks render performance commercially unviable. The Court’s directive to the Public Works Department to examine a contractor’s representation for price escalation - guided by prior government orders - affirms that administrative discretion must be exercised fairly and consistently, especially when precedent exists.
Background & Facts
The Dispute
The petitioner, Shaji Mathew, is a contractor who entered into an agreement with the Public Works Department (PWD) on 25.06.2025 for the execution of "General Balance work S/F 2122, improvements and providing BM and BC to Varattar Bridge in M.C.Road to Kallissery-Eraviperoor Road." The contract was awarded at fixed rates. Subsequently, the price of bitumen and allied materials surged sharply due to global geopolitical tensions, making continued performance at the contracted rates financially unsustainable.
Key Facts
- The petitioner submitted Ext.P6 representation on or before 05.04.2026, seeking price escalation or relief from contractual obligations due to the unprecedented rise in bitumen prices.
- Ext.P1: Government of India notification dated 09.03.2026 on bitumen price revision.
- Ext.P2: Government of Kerala Order dated 13.11.2018 granting price escalation to contractors during a prior market crisis.
- Ext.P3: GO(RT) 2816/20/FIN dated 17.04.2020, granting relief during another price spike.
- Ext.P4: Government Order dated 25.09.2020, extending similar relief.
- Ext.P5: Government Order dated 30.04.2021, issued during the COVID-19 pandemic, adjusting rates for infrastructure contracts.
- Ext.P7: Bharat Petroleum Corporation Limited rate list for bitumen effective 01.03.2026.
- Ext.P8: Updated bitumen price list effective 01.04.2026, showing further increase.
- The petitioner’s representation (Ext.P6) remains pending before the 2nd respondent, the Superintending Engineer, PWD Roads, South Circle, Thiruvananthapuram.
Procedural History
- 25.06.2025: Contract executed between petitioner and PWD.
- 09.03.2026: Central Government issues notification on bitumen price revision.
- 01.03.2026 & 01.04.2026: Bharat Petroleum issues successive price hikes for bitumen.
- On or before 05.04.2026: Petitioner submits Ext.P6 representation to the 2nd respondent.
- 08.04.2026: Writ Petition (C) No. 14740 of 2026 filed before the Kerala High Court.
The Parties' Positions
For the Petitioner: The petitioner argued that the sudden and substantial increase in bitumen prices - exacerbated by international conflict - constitutes an unforeseen supervening circumstance. He relied on the State’s own past conduct (Ext.P2 - P5), where similar price escalations were accommodated, to assert a legitimate expectation of equitable treatment. He did not seek automatic relief but only that his representation be considered in light of established precedent.
For the Respondents: The State did not oppose the petition substantively. The Government Pleader acknowledged the pending nature of Ext.P6 and conceded that the matter required administrative consideration, without committing to any outcome.
Relief Sought
The petitioner sought a direction to the 2nd respondent to consider Ext.P6 representation and pass appropriate orders after affording him a hearing, without seeking immediate monetary relief or contract modification.
The Legal Issue
Whether a public authority is obligated to consider a contractor’s representation for price escalation under a fixed-rate contract when similar relief has been granted in the past under comparable circumstances, and whether administrative inaction in such cases violates principles of fairness and legitimate expectation.
Arguments Presented
For the Petitioner
The petitioner relied on the doctrine of legitimate expectation, citing State of Kerala v. K. Mohanan and Union of India v. Hindustan Development Corporation, to argue that when the State has previously granted relief under materially similar conditions, it cannot arbitrarily refuse to consider a comparable claim. He emphasized that the price surge was external, unforeseeable, and beyond his control, and that the State’s own past orders (Ext.P2 - P5) created a pattern of equitable response. He further contended that denying consideration would amount to arbitrary administrative action under Article 14 of the Constitution.
For the Respondent
The State did not advance substantive counter-arguments. The Government Pleader acknowledged the pending status of Ext.P6 and accepted that the matter required administrative review, without disputing the petitioner’s reliance on past orders or the principle of consistency.
The Court's Analysis
The Court observed that the petitioner’s grievance was not for immediate monetary relief but for a fair and timely administrative decision on his representation. It noted that the State had, on multiple occasions between 2018 and 2021, granted price escalation to contractors facing similar market shocks, including during the pandemic. The Court held that such consistent administrative practice creates a legitimate expectation that similar claims will be treated with equal consideration.
"The State cannot invoke the sanctity of contract to deny equitable relief when it has itself, on multiple occasions, recognized that unforeseen market conditions necessitate deviation from fixed rates. To refuse consideration now, without reason, would be arbitrary and violative of the principle of non-arbitrariness under Article 14."
The Court further emphasized that the petitioner had not sought judicial intervention to fix new rates, but only to compel the administrative authority to perform its duty of considering the representation. The Court found no justification for delay or non-decision, particularly when the representation was supported by contemporaneous market data and historical precedent.
The Verdict
The writ petition was allowed. The 2nd respondent, the Superintending Engineer, PWD Roads, South Circle, Thiruvananthapuram, is directed to consider the petitioner’s representation (Ext.P6) and pass appropriate orders after affording him a personal hearing, within one month from the date of receipt of a copy of this judgment. The orders must be reasoned and informed by the State’s prior decisions (Ext.P2 - P5) and the current market conditions documented in Ext.P1, P7, and P8.
What This Means For Similar Cases
Administrative Consistency Is Legally Binding
- Public departments cannot selectively apply past relief policies; consistent administrative practice creates enforceable legitimate expectations.
- Contractors may now cite prior government orders as binding precedent when seeking equitable adjustments under fixed-rate contracts.
Non-Decision Is a Violation of Natural Justice
- Administrative silence on representations involving material financial hardship constitutes a breach of Article 14 and the duty to act fairly.
- Courts will intervene not to substitute their judgment, but to compel reasoned decision-making within a fixed timeframe.
Precedent-Based Relief Is Recognized in Public Contracts
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Even in the absence of a force majeure clause, courts may recognize external market shocks as grounds for equitable reconsideration if the State has previously acknowledged such conditions.
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Practitioners should systematically document and cite past government orders in similar cases to establish a pattern of administrative conduct.
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Always include copies of prior government orders as exhibits when filing representations.
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Demand written acknowledgment of receipt of representations to prevent administrative delay.
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Where relief has been granted in the past under similar conditions, argue legitimate expectation as a standalone ground for judicial review.
