The Andhra Pradesh High Court has reaffirmed that state instrumentalities cannot evade payment obligations for completed public works merely due to financial constraints. In a clear affirmation of constitutional fiduciary duty, the Court directed immediate payment of an admitted debt, setting a critical precedent for contractors dealing with public agencies.
Background & Facts
The Dispute
The petitioner, Kethi Krishna Reddy, a contractor, entered into an agreement with the Andhra Pradesh State Housing Corporation Limited (APSHCL) for the execution of temporary water supply works under the Navaratnalu Pedalandariiki Illu scheme. The work was undertaken at A Jagananna Colony, Kattubadi Palem 2 - 284 Plots (1st Ward), Buchireddypalem Nagar Panchayat, with Layout ID 09182LA001415, pursuant to Agreement No. EE(P.H) Nellore. Agt. No. 29/2022-23 dated 24.06.2022.
Key Facts
- The petitioner completed all works as per the agreement and submitted final bills for payment.
- The respondent authorities finalized the bills and acknowledged the liability.
- The amount due and admitted by the respondents was Rs. 8,29,302/-.
- Despite finalization of bills and completion of works, no payment was released.
- The petitioner faced severe financial hardship and operational disruption due to non-payment.
- The respondent Corporation, in its written submission dated 01.04.2026, admitted the liability but cited financial incapacity as the reason for delay.
Procedural History
- 24.06.2022: Agreement executed between petitioner and APSHCL.
- Completion of works: Date not specified, but admitted by respondents.
- Bill finalization: Occurred prior to filing of writ petition.
- Non-payment: Continued for an indefinite period after bill finalization.
- 23.04.2026: Writ Petition No. 8037/2026 filed before the Andhra Pradesh High Court.
The Parties' Positions
Petitioner: Argued that the respondents’ refusal to pay an admitted amount after completion of work is arbitrary, violative of Article 14, and breaches the State’s constitutional obligations as a welfare state. He emphasized the hardship caused to a small contractor who relies on timely payments for operational continuity.
Respondents: Did not dispute the completion of work or the quantum of liability. The Managing Director of APSHCL submitted written instructions dated 01.04.2026, requesting three months’ time to release the amount due to financial constraints.
Relief Sought
The petitioner sought a writ of mandamus directing the respondents to immediately pay Rs. 8,29,302/- with interest at 24% per annum for the delay, and to compensate for the financial and physical hardship caused.
The Legal Issue
The central question was whether a public sector undertaking, acting as an instrumentality of the State under Article 12 of the Constitution, can withhold payment for admitted contractual works on grounds of financial incapacity, and whether such inaction violates constitutional obligations.
Arguments Presented
For the Petitioner
Learned counsel for the petitioner relied on the principle that the State, as a welfare state, has a constitutional duty under Part IV of the Constitution to ensure timely payment for services rendered in public welfare schemes. He argued that non-payment despite admission of liability amounts to arbitrary action under Article 14 and breaches the fiduciary relationship between the State and its contractors. He cited Kapila Hingorani v. State of Bihar to underscore that the State cannot shirk its obligations merely because its instrumentalities face financial difficulties.
For the Respondent
The Standing Counsel for APSHCL conceded the liability but submitted that the Corporation was facing acute financial constraints and requested three months’ time to release the amount. He relied on internal administrative instructions dated 01.04.2026 to justify the delay, without disputing the legality or morality of the petitioner’s claim.
The Court's Analysis
The Court examined the nature of APSHCL as a statutory corporation established under the Andhra Pradesh State Housing Corporation Act, and held that it qualifies as an instrumentality of the State under Article 12. The Court emphasized that such entities perform public functions and are bound by constitutional obligations.
"The State may not be liable in relation to the day to day functioning of the Companies, but its liability would arise on its failure to perform the constitutional duties and functions by the public sector undertakings, as in relation thereto the State's constitutional obligations. The State acts in a fiduciary capacity. The failure on the part of the State in a case of this nature must also be viewed from the angle that the statutory authorities have failed and/or neglected to enforce the social welfare legislations enacted in this behalf..."
The Court rejected the argument that financial incapacity could justify non-payment. It held that such a defence, if accepted, would undermine the very foundation of public contract law and erode public trust in state-led welfare initiatives. The Court noted that the petitioner had fulfilled his contractual obligations and that the State’s duty to pay for completed work is non-negotiable.
Regarding interest, the Court observed that while the petitioner had not specifically pleaded contractual terms entitling him to interest, the Managing Director & Ors. v. Sree Balaji Constructions & Ors. precedent clarified that interest claims must be pursued in civil court if not provided for in the agreement. The Court declined to award interest in this writ petition but preserved the petitioner’s right to seek it in a civil forum.
The Verdict
The writ petition was allowed in part. The Court directed the respondents to release the admitted amount of Rs. 8,29,302/- to the petitioner within three months from the date of receipt of a copy of this order. The petitioner is at liberty to approach a civil court for interest, if so advised. No order as to costs. All pending miscellaneous petitions are closed.
What This Means For Similar Cases
State Cannot Hide Behind Financial Constraints
- Practitioners representing contractors against public agencies can now invoke Kapila Hingorani to argue that financial hardship is not a valid defence for non-payment of admitted dues.
- Any delay beyond reasonable timelines after bill finalization may be challenged as arbitrary under Article 14.
Fiduciary Duty of State Instrumentalities
- Public sector undertakings executing welfare schemes are bound by constitutional obligations, not merely contractual ones.
- Courts will treat non-payment as a breach of the State’s duty under Part IV of the Constitution, even in the absence of a specific statutory provision.
Interest Claims Require Separate Civil Action
- Writ petitions under Article 226 are not the appropriate forum to claim interest unless expressly provided in the contract.
- Contractors must preserve evidence of contractual terms and file separate civil suits for interest, damages, or compensation for delay.
