HEADNOTE
Executive Director, GMIDC & Ors. v. M/s Gurunanak Industries (now G.N.I. Infrastructure Pvt. Ltd.) & Anr.
Court: Bombay High Court (Aurangabad Bench)
Bench: Justices Arun R. Pedneker & Vaishali Patil-Jadhav
Date of Judgment: January 17, 2026
Citation: 2026:BHC-AUG:1677-DB
Laws / Sections Involved: Limitation Act, 1963 – Articles 18 & 55; Code of Civil Procedure, 1908 – Section 80
Keywords: Commercial appeal, price escalation clause, running account bills, limitation, government contracts, Clause 56 tender
Summary
The Bombay High Court allowed a commercial appeal filed by State irrigation authorities and set aside a decree awarding ₹5.76 crore towards price escalation under a construction contract. While holding that the contractor’s suit was within limitation, the Court ruled that escalation under Clause 56 of the tender must be calculated bill-wise for each Running Account (R.A.) Bill and not by averaging escalation over the entire contract period of nearly 20 years. The Court held that the Commercial Court had erred in permitting recomputation of escalation at the final bill stage despite escalation having already been granted and accepted in each R.A. Bill. Emphasising the contractual scheme and purpose of price variation clauses, the Court concluded that the contractor was not entitled to any additional escalation amount and allowed the appeal with costs.
Court’s decision
The Aurangabad Bench of the Bombay High Court allowed the Commercial Appeal filed by the State authorities and set aside the judgment and decree dated 9 August 2019 passed by the Commercial Court, Jalna. While affirming that the contractor’s suit was within limitation, the Court held that the contractor was not entitled to ₹5.76 crore towards additional price escalation. The Bench ruled that escalation had already been correctly computed and paid in each Running Account Bill and could not be recalculated afresh at the final bill stage.
Facts
The dispute arose from a contract awarded in 1995 for construction of the Nimna Dudhana Project earthen dam in Jalna district. The original contract period of 24 months was extended multiple times, with the work ultimately completed in June 2013. The contractor received payments through 56 Running Account Bills over nearly two decades, including escalation amounts under Clause 56 of the tender. The final bill (R.A. Bill No.57) was paid in April 2016. Alleging incorrect computation of escalation, the contractor filed a commercial suit in 2017 seeking recovery of ₹5.76 crore with interest.
Issues
The principal issues before the High Court were whether the suit was barred by limitation, and whether the contractor was entitled to recompute price escalation for the entire contract period at the stage of the final bill despite having accepted escalation amounts in earlier Running Account Bills.
Appellants’ arguments
The State authorities argued that the suit was barred by limitation as the work had been completed in 2013. On merits, they contended that Clause 56 envisaged computation of price escalation period-wise for each Running Account Bill, and that escalation had already been granted and accepted from R.A. Bill No.1 to No.57. It was submitted that the contractor could not reopen settled bills after nearly 20 years by seeking an averaged escalation calculation for the entire contract duration.
Respondent’s arguments
The contractor argued that limitation commenced only upon preparation and payment of the final bill in April 2016, making the suit timely. On escalation, it was contended that Clause 56 required averaging of indices over the operative period of the contract and that the authorities had underpaid escalation by incorrectly applying the formula in individual Running Account Bills.
Analysis of the law
On limitation, the Court held that although physical work was completed in 2013, the final bill was settled only in April 2016, and therefore the cause of action crystallised upon partial payment of the final bill. The suit filed in December 2017 was thus within limitation and governed by Article 55 of the Limitation Act. However, on merits, the Court closely analysed Clause 56 and distinguished between the “operative period of the contract” and the “period under consideration” for each bill.
Precedent analysis
The Court referred to principles governing running accounts and contractual escalation clauses, reiterating that interim payments under Running Account Bills are meant to address contemporaneous price fluctuations and not to generate retrospective windfall claims. Reliance on precedent emphasised that escalation clauses must be strictly construed in accordance with contractual language.
Court’s reasoning
The Bench held that Clause 56 clearly mandates computation of escalation based on the cost of work done during the period covered by each Running Account Bill. Accepting the contractor’s interpretation would require recomputation of escalation for the entire contract period as a single unit, which was contrary to the contractual scheme. Since escalation had already been paid in each R.A. Bill and no specific error was shown in those bills, the Court ruled that the contractor’s final claim was unsustainable.
Conclusion
The Bombay High Court set aside the Commercial Court’s decree awarding ₹5.76 crore with interest to the contractor and allowed the appeal with costs. The Court held that while the suit was within limitation, the claim for additional escalation was legally untenable.
Implications
This ruling clarifies that price escalation clauses in government contracts operate bill-wise and contemporaneously, and contractors cannot reopen settled Running Account Bills at the final stage to seek enhanced escalation. The judgment provides significant guidance for interpretation of escalation clauses in long-duration infrastructure contracts involving public authorities.
Case law references
• State of Maharashtra v. Hindustan Construction Company Ltd. (Bom HC, 2013)
Holding: Limitation in contract claims depends on accrual of cause of action.
Application: Distinguished while holding suit within limitation.
• Principles on running account bills and escalation clauses
Holding: Escalation must follow contractual formula and billing periods.
Application: Applied to reject recomputation at final bill stage.
FAQs
Q1. Can escalation be recalculated at the final bill stage?
No. The Court held that escalation must be computed bill-wise and cannot be recomputed retrospectively for the entire contract period.
Q2. When does limitation start in such contract disputes?
Limitation begins when the final bill is partially paid or liability is denied, not merely on physical completion of work.
Q3. Why was the Commercial Court’s decree set aside?
Because it permitted an interpretation of the escalation clause contrary to the contract and allowed a windfall claim.
