SRINAGAR: The High Court of Jammu & Kashmir and Ladakh has dismissed an appeal by the Union Territory administration and upheld an order directing the J&K Lake Conservation and Management Authority (LCMA) to release a Call Deposit Receipt (CDR) of Rs 2,24,750 to a contractor, holding that the Authority could not withhold money deposited for one contract to recover compensation liabilities arising from an entirely different project. A Division Bench comprising Justice Sindhu Sharma and Justice Shahzad Azeem held that although the principal employer may have a legal right to seek indemnification from a contractor, that right must be enforced through legally recognised proceedings and cannot be unilaterally exercised by retaining security connected with another contract.
The judgment, pronounced on August 18, 2026, dismissed Letters Patent Appeal (LPA) No. 132/2023 filed by the Union Territory of Jammu and Kashmir, the Vice-Chairman of the LCMA, the Superintending Engineer and the Executive Engineer of Lake Division-II against a July 13, 2023 judgment of a Single Judge. The Single Judge had quashed a communication dated July 31, 2017 through which the LCMA had refused to release the CDR furnished by contractor Gulzar Ahmad Wagra, son of Wali Mohammad Wagra of Sikendrapora Rainawari, Srinagar, and had directed release of the amount.
Wagra had deposited the CDR of Rs 2,24,750 after being awarded a contract for construction of a sewer line at Nigeen pursuant to NIT No. 27 of 2007-08 dated January 16, 2008. The dispute arose after the sewer project could not be completed because of repeated objections and access problems involving land belonging to the Tourism Department, private landowners and houseboat owners.
According to the LCMA, Wagra had failed to commence the work within the stipulated period despite repeated communications. He eventually started work on December 1, 2008, but the Tourism Department stopped the execution. A revised alignment near Nigeen Bridge was subsequently proposed, but houseboat owners objected, saying the sewer line would obstruct access to their houseboats. An attempt to take the alignment through private land also met resistance from landowners who apprehended damage to their houses. The Authority maintained that Wagra ultimately declined to resume the work after the issue with the Tourism Department was resolved.
The contractor disputed that account. He told the court that he had excavated about 320 metres of trench to a depth of six metres before the work was obstructed by local landowners and houseboat owners. According to him, the difficulties were brought to the Authority’s notice, following which several meetings were held and it was eventually decided to terminate the contract while compensating him for the work already executed. He claimed Rs 11.80 lakh for the work and sought return of the Rs 2,24,750 CDR.
The dispute over the CDR was further complicated by a separate contract Wagra had undertaken at Habbak. During execution of that work, two labourers engaged by him, Manzoor Ahmad Gunjoo and Abdul Hamid Akhoon, died in the course of their employment. Their legal heirs approached the Commissioner under the Workmen’s Compensation Act, and compensation of Rs 4,33,820 was awarded in each case against the LCMA as the principal employer.
The Authority challenged those awards before the High Court after depositing the amounts as required by law, but its appeals were dismissed and the legal heirs subsequently withdrew the compensation. The LCMA consequently claimed that it had incurred a liability of Rs 8,67,640 and was entitled to recover that amount from Wagra. It retained his Nigeen CDR, as well as the value of material, to indemnify itself against that liability.
Wagra had earlier approached the High Court through OWP No. 997/2011, seeking payment of Rs 11.80 lakh for the work he claimed to have executed at Nigeen and refund of his CDR. On February 3, 2016, the writ petition was disposed of with the consent of the parties, with the Vice-Chairman directed to consider his claim for release of the CDR and compensation for the work in light of recommendations contained in an Executive Engineer’s communication dated May 5, 2009.
The Vice-Chairman subsequently rejected the contractor’s claim through communication dated July 31, 2017, holding that the CDR could not be released in view of the Workmen’s Compensation Act. Wagra challenged that decision in OWP No. 2022/2017.
The Single Judge, while deciding the petition on July 13, 2023, held that although the principal employer could have a right under Section 12(2) of the Workmen’s Compensation Act to recover compensation paid to workers or their legal heirs from the contractor, the LCMA could not use the CDR furnished for an entirely different contract as a means of enforcing that right.
The Single Judge accordingly quashed the July 31, 2017 communication and directed the Authority to release the CDR of Rs 2,24,750 to Wagra, while leaving him at liberty to pursue any claim for compensation for the work executed at Nigeen through appropriate legal proceedings.
The LCMA challenged that decision before the Division Bench through LPA No. 132/2023. The appeal was heard by Justice Sindhu Sharma and Justice Shahzad Azeem. The government was represented by Government Advocate Furqan Yaqub, while Wagra was represented by Senior Advocate N. A. Beigh, assisted by Advocate Sofi Manzoor. The matter was reserved on April 2, 2026, and judgment was pronounced on August 18, 2026.
The Division Bench said the central question was not whether the LCMA had a right to seek indemnification from the contractor, but whether the method adopted by the Authority to recover the alleged liability was legally permissible.
The Bench agreed with the Single Judge that Section 12(2) of the Workmen’s Compensation Act gives a principal employer a right to seek indemnification from a contractor for compensation paid to workers or their legal heirs. However, it held that the provision did not authorise the principal employer to unilaterally appropriate or withhold money connected with another independent contract.
“The right of indemnity contemplated under Section 12(2) is required to be enforced in accordance with law before the Competent Forum,” the Bench held.
The Bench relied on the Supreme Court’s judgment in Union of India v. Raman Iron Foundry, (1974) 2 SCC 231, which held that an unliquidated claim for damages does not become a debt until liability is adjudicated and damages are assessed by a court or other competent adjudicatory authority.
It also referred to the Supreme Court’s decision in M/S Gangotri Enterprises Limited v. Union of India, (2016) 11 SCC 720, where the court held, among other things, that amounts claimed under one contract could not be recovered by encashing security furnished for another contract where the claimed liability had not been adjudicated.
In Wagra’s case, the Division Bench found no specific recovery or lien clause in the Nigeen contract authorising the LCMA to adjust the alleged liability arising from the Habbak project against the CDR furnished for the Nigeen work. The Authority, therefore, could not bypass due process by withholding the security.
The Bench held that a right to indemnification could be enforced by establishing the claim before a competent forum or, where legally permissible, by adjustment within the particular contract in which the liability arose. It found that unilaterally withholding the CDR relating to the separate Nigeen contract amounted to executive high-handedness and was contrary to principles of natural justice and contractual propriety.
The court made clear, however, that its decision did not extinguish any legitimate claim the LCMA might have against Wagra. Since the Authority remained free to pursue whatever remedy was available to it under law for recovery of the alleged Rs 8,67,640 liability, dismissal of the appeal would not prevent such proceedings.
Finding no error of law or perversity in the Single Judge’s judgment, the Division Bench dismissed the LPA and affirmed the July 13, 2023 order directing release of the Rs 2,24,750 CDR to Wagra.
The judgment was pronounced on August 18, 2026, by Justice Sindhu Sharma and Justice Shahzad Azeem at the Srinagar seat of the High Court.
