Andhra Pradesh High Court - Amravati
Navayuga Machilipatnam Port Limited vs The State Of Andhra Pradesh, on 25 August, 2022
Author: R. Raghunandan Rao
Bench: R. Raghunandan Rao
IN THE HIGH COURT OF ANDHRA PRADESH
***
W.P.No.12980 of 2019
Between:
# Navyauga Machilipatnam Port Limited,
Having its registered Office at
8-2-293/82/A/379A & 379A,
2nd Floor, Plot No.379, Road No.10,
Jubilee Hills, Hyderabad - 500033,
Rep by its Authorised Signatory,
Mr. Y. Ramesh S/o. Koteswara Rao
... PETITIONER
AND
$ 1. The State of Andhra Pradesh, rep. by its Principal Secretary, Energy,
Infrastructure & Investment (Ports) Department, Secretariat,
Velagapudi, Guntur District.
2. The Director of Ports, Government of Andhra Pradesh, Port
Administrative Building, Beach Road, P.B. No.11, Kakinada - 533001,
East Godavari District.
3. The Tahsildar, Machilipatnam Taluk, Krishna District.
... RESPONDENTS
Date of Judgment pronounced on : 25.08.2022
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
1. Whether Reporters of Local newspapers : Yes/No
May be allowed to see the judgments?
2. Whether the copies of judgment may be marked : Yes/No
to Law Reporters/Journals:
3. Whether The Lordship wishes to see the fair copy : Yes/No
Of the Judgment?
2 RRR,J
W.P.No.12980 of 2019
*IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
*HONOURABLE SRI JUSTICE R. RAGHUNANDAN RAO
+ W.P.No.12980 of 2019
% Dated:25.08.2022
Between:
# Navyauga Machilipatnam Port Limited,
Having its registered Office at
8-2-293/82/A/379A & 379A,
2nd Floor, Plot No.379, Road No.10,
Jubilee Hills, Hyderabad - 500033,
Rep by its Authorised Signatory,
Mr. Y. Ramesh S/o. Koteswara Rao
... PETITIONER
AND
$ 1. The State of Andhra Pradesh, rep. by its Principal Secretary, Energy,
Infrastructure & Investment (Ports) Department, Secretariat,
Velagapudi, Guntur District.
2. The Director of Ports, Government of Andhra Pradesh, Port
Administrative Building, Beach Road, P.B. No.11, Kakinada - 533001,
East Godavari District.
3. The Tahsildar, Machilipatnam Taluk, Krishna District.
... RESPONDENTS
! Counsel for Petitioner : Sri Dammalapati Srinivas Sr. Counsel
Representing Smt. S. Pranathi
^Counsel for Respondents : Advocate General
<GIST :
>HEAD NOTE:
3 RRR,J
W.P.No.12980 of 2019
? Cases referred:
1. (2004) 3 SCC 553
2. (2021) SCC OnLine SC 99
3. (2020) SCC OnLine SC 847
4. (2020) 19 SCC 241
5. (1975) 1 SCC 199
6. (2001) 5 SCC 101
7. (1999) 6 SCC 237
8. (2000) 7 SCC 529
9. (2003) 4 SCC 557
10. (2005) 6 SCC 321
11. (2006) 2 ALD 585
12. (1980) 4 SCC 379
13. (1984) 1 SCC 43
14. (1996) 3 SCC 364
15. (1993) 4 SCC 727
16. (2015) SCC OnLine Del 10220 = (2015) 4 Arb LR 335
17. (2010) EWCA Civ 1051 (2011) ETMR 10
18. (2016) EWHC 525 (Comm)
19. (1991) 1 SCC 412
20. (2018) 11 SCC 508
4 RRR,J
W.P.No.12980 of 2019
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
W.P.No.12980 of 2019
ORDER:
The State of Andhra Pradesh, which is the 1st respondent herein, in pursuance of its intention to develop an all weather deep water port at Machilipatnam, Krishna District, vide G.O.Ms.No.2 Infrastructure & Investment (Ports-I) Department, dated 30.01.2008, awarded the contract of developing such a port to a consortium of companies. Pursuant to this award, a Concession Agreement dated 21.04.2008 was executed. The consortium of companies had incorporated a company by the name M/s. Vajra Sea Port Pvt. Ltd, as a special purpose vehicle to execute the Concession agreement. The name of this company was subsequently changed to M/s. Machilipatnam Port Limited and thereafter, to M/s. Navayuga Machilipatnam Port Limited. The said special purpose vehicle is the writ petitioner in the present writ petition.
2. The petitioner on 28.08.2009 informed 1st respondent that some of its promoters had exited the project and sought permission for inducting another company called Navayuga Engineering Company Pvt., Ltd., as the lead promoter. This request was accepted by the 1 st respondent, which issued G.O.Ms.No.7 dated 15.04.2010, for such a change. After the induction of the new lead promoter, a revised Concession agreement dated 07.06.2010 was executed whereby the petitioner was to develop, build, own, operate and maintain the port at it's own cost and expense during the Concession period and to transfer the port to the Government of Andhra Pradesh at the end of the concession 5 RRR,J W.P.No.12980 of 2019 period. After the induction of the new lead promoter, the name of the petitioner was changed to M/s. Navayuga Machilipatnam Port Limited.
3. Under the revised Concession Agreement (hereinafter referred to as "the Concession") the petitioner was to implement and construct a Green Field All Weather Deep Water Multi Purpose Port at Machilipatnam, on the land, which was to be given by the 1st respondent on a leasehold basis. The concession envisaged an initial period of construction and development of the port, which was termed as "inoperation period", defined under Clause 1.37 of the Concession and a operation period of 30 years after the inoperation period. The operation period would start from the commercial operation date, which was defined in Clause 1.10 to mean the date on which the petitioner is entitled to commence operation of the Port or part of the Port facilities. The inoperation period or the development period and the milestones for such development are set out in Clause 4.3, which is set out here.
"4.3 Major Milestones during Implementation of the Project:
a) The following major milestones with regard to implementation of the Port Project shall be achieved.
i) Completion of Detailed Project Report for Port Development by Concessionaire within 6 months from the commencement Date.
ii) Achievement of Financial Closure by concessionaire within 12 months from the commencement Date.
iii) Completion of construction of Port Development within 36 months from the Commencement Date.
iv) Invest the amount agreed as per the Detailed proposal for Port Development.
v) Preparation of plans for future developments whenever that traffic volumes warrant such expansions like addition of berths / terminals and allied port infrastructures.
b) Starting from the Commencement Date of this Agreement, the Concessionaire shall commence the construction/ implementation, strictly adhering to the Project Development Plan and implementation schedule as given in the Detailed Project Report any variation from 6 RRR,J W.P.No.12980 of 2019 the Project Development Plan shall be carried out only with the prior written approval of GoAP.
c) For non-achievement of the milestones within the specified period as given in Clause (a) (i) to (vi) above the Performance Security in the form of Bank Guarantee shall be encashed.
In case of two defaults in succession, GoAP may also consider termination of this Agreement. No prior notice will be given before encashment of Bank Guarantees.
d) The Performance Security amount will be reduced pro- rata to the construction cost. The Bank Guarantee amount will be re-worked every quarter based on the report of the independent Engineer and the Concessionaire will replace the existing Bank Guarantee with a fresh bank guarantee.
e) GoAP shall release the Performance Security within 30 days of achievement of respective milestones. 4.31 Project Implementation Schedule:
1) Inoperation period 36 months
2) Commencement date Zero date
3) Financial Closure 12 months from Zero date
4) Completion of port 36 months from zero date or
Development as per the Detailed Project
Report approved by Government.
Notwithstanding anything to the contrary contained in this Agreement, the Commencement Date and the Project Implementation Schedule indicated above shall be extended suitably if Condition Precedent specified under item (l) of Clause 3.2.1 is not fulfilled by GoAP."
4. Clause 4.7 provided that the 1st respondent would give extension of time for the implementation of the Port Development as per the Project Development Plan, in case of Force Majuere or other reasons.
5. While speaking of handing over of Ac.6262.19 of land, the Concession also states that the land that is to be given under the Concession is described in Schedule - E of the Concession. However, no details were set out under Schedule - E of the Concession as to the location or extent of land being handed over under the Concession. It is admitted on all sides that the 1st respondent had initially handed over Ac.412.57 of land in the year 2008 itself. After the execution of the 7 RRR,J W.P.No.12980 of 2019 Concession, the petitioner sought clarification on the extent of land that would be shown under Schedule - E and also sought for the handing over of the said land at the earliest for commencing implementation of the Concession. The first letter addressed by the petitioner in this regard is the letter dated 07.07.2010 reminding the 1st respondent of the requirements of a State Support Agreement as well as finalisation of the details of the land. From the handwriting seen in the said letter dated 07.07.2010, filed by the petitioner, it appears that the extent of land had been reduced to Ac.5324.00. This was subsequently confirmed by the petitioner by its letter dated 10.09.2014.
6. The petitioner raised the issue of non-compliance of the conditions precedent mentioned in Clause 3.2.1 by way of letter dated 25.04.2012. The petitioner, in its letter dated 27.08.2014, requested the 1st respondent to hand over the entire extent of land on the ground that it is a condition precedent under Clause 3.2.1 of the Concession. This contention was raised in subsequent communications of the Petitioner also. In reply to the letter dated 27.08.2014, the 1st respondent, by letter No.462/Ports.I/2014, dated 10.09.2015, had agreed for extension of time in terms of Clause 4.7 of the Concession by extending the major milestones for project implementation schedule, by changing the commencement date from the date of execution of the Concession, viz., 07.06.2010 to the date of approval of the revised detailed Project Report. The petitioner had initially submitted a Detailed Project Report. Subsequently, the Petitioner again submitted a revised Detailed Project Report, which was approved by the 1st respondent by G.O.Ms.No.15 dated 12.05.2016.
8 RRR,J W.P.No.12980 of 2019
7. As mentioned above, the 1st respondent had initially handed over Ac.412.57 of land in 2008. Thereafter, no further extent of land was handed over to the petitioner, till 10.03.2017, when the Port Officer, Machilipatnam, by letter No.Lr.No.A4/MTM Port/2017, dated 10.03.2017 had called upon the petitioner to take possession of Ac.2082.82 cents of Government land and Ac.519.05 cents of assigned land which was ready for approval. In reply to this letter, the petitioner by letter dated 14.03.2017 took the stand that the entire extent of Ac.5324.00 that was proposed to be handed over to the petitioner, should be made ready and that the petitioner would only accept the entire extent of land after external infrastructure as per the provisions of the Concession and the right of way to the Port project area, free from all encumbrances, is given to the petitioner. After this communication from the petitioner, there was other correspondence between the 1st respondent and the petitioner for payment of lease amounts and that management of the Concession to enable the Machilipatnam Urban Development Authority to monetise the land that was proposed to be handed over to the petitioner. The petitioner had also sought to submit a revised detailed project report after the 1 st revised detailed project report was approved by the 1st respondent by G.O.Ms.No.15 dated 12.05.2016.
8. The 1st respondent, by G.O.Ms.No.66, dated 08.08.2019 terminated the Concession dated 07.06.2010. The 1st respondent contended, in G.O.Ms.No.66 that, the refusal of the petitioner to start implementation of the concession by commencing development of the initial land parcel of Ac. 412.57, the inability of the petitioner to achieve financial closure, the refusal of the petitioner to receive the additional land of Ac.2985.00, the attempt of the petitioner to extend the time frame of 9 RRR,J W.P.No.12980 of 2019 the implementation period by presenting a fresh revised detailed project report, would amount to a fundamental breach of the contract entitling the 1st respondent to terminate the contract in the light of Section 39 of the Indian Contract Act, 1872 along with a right to seek damages against the petitioner under Section 75 of the Indian Contract Act. The said order of termination also states that the petitioner could have commenced development of the Port with the initial Ac.412.57 handed over in October, 2008 itself.
9. Aggrieved by the said order of termination, the petitioner has approached this Court by way of the present writ petition. The contentions of the petitioner, in support of the writ petition, as set out in the written arguments filed on behalf of the petitioner, are as follows:
a) The GoAP failed to comply with the Conditions Precedent viz., providing right to way to the Port Project free from all encumbrances;
providing permission/licence to enter upon and utilize the area within the Port boundaries for the construction; finalizing the State Support Agreement. The Conditions Precedent are to be fulfilled in full for the obligations of the petitioner to commence under the Agreement. As the Government had failed to fulfil the same, the obligations of the petitioner to commence the project never started. The contemporaneous conduct of the parties, as is evident from the detailed communication, is relevant for determining and deciding the writ petition.
b) The 1st respondent unilaterally cancelled the Agreement, without adhering to the Termination procedure that has been contemplated in the Agreement.
c) Reaching Financial Closure is dependent on the GoAP handing over the land as per the terms of the Agreement. The timeline for major 10 RRR,J W.P.No.12980 of 2019 milestones, of which Financial Closure is also a part, was extended from time to time. The last explicit extension was granted on 10.09.2015 (page No.213), on the ground that the land was not handed over to the petitioner. The inaction of the GoAP, in giving the land to the petitioner for development, is the reason for the non-achievement of financial closure.
10. The respondents have filed their counter in the case. The case of the respondents is that the petitioner, from the inception of the Concession, had not evinced any interest in implementing the Concession and was only indulging in correspondence to prolong the issue. The respondents contend that the Concession never contemplated handing over of the entire extent of land in one go and as such the said contention of the petitioner has to be rejected. However, the initial transfer of Ac.412.57 in the year 2008 was sufficient for the petitioner to commence implementation of the Concession and in any event, the rejection of the land offered in 2017 to an extent of Ac.2900.00 would clearly show that the petitioner had refused to perform his part of the Concession and has effectively disabled itself from performing it's part of the Concession and consequently there is a fundamental breach of the Concession entitling the 1st respondent to terminate the same without having to give notice and adhere to the procedure according to which the contract was to be terminated under Clause 10 of the Concession.
11. Sri Dammalapati Srinivas, learned Senior Counsel appearing for the petitioner, in support of the contentions raised above, made the following submissions:
a) Clause 3.2.1 states that the rights and obligations of the petitioner are subject to the satisfaction, in full, of the conditions 11 RRR,J W.P.No.12980 of 2019 precedent set out in Clause 3.2.1 and the petitioner is not required to take any steps unless such conditions are fulfilled in full. One of the conditions set out in Clause 3.2.1 (b)(i) is the grant of right of way for the Port Project free from all encumbrances. The term "right of way" would mean handing over of the entire extent of land of Ac.6262.19 cents. Clause 3.6 of the Concession grants the petitioner the right to create a charge over the Port assets. Clause 1.46 defines Port assets to include land which is to be handed over by the 1st respondent. Accordingly the term "right of way"
would include handing over of the entire land as a condition precedent before any liability can be cast on the petitioner. The contemporaneous conduct of the 1st respondent, in extending time on the ground that land had not been handed over shows that both parties understood that handing over of the entire extent of land was a condition precedent.
b) Clause 1.56 defines State Support Agreement as an Agreement to be entered between the 1st respondent and the petitioner envisaging various supports and incentives provided by the Government of A.P. Clause 3.2.1 (d) stipulates that execution of such a State Support Agreement is a condition precedent, without which, the petitioner need not proceed further in implementation of the project.
c) Clause 4.3.1 incorporates a non-obstante clause that if the condition precedent, specified in item (l) of Clause 3.2.1, is not fulfilled by the 1st respondent, the commencement date and project implementation schedule shall be extended. This would mean that there is a mandatory duty on the part of the 1st respondent, to extend time under Clause 4.7 if the said condition precedent is not fulfilled.
d) The Concession requires the petitioner to raise funds either by way of raising capital or obtaining financial assistance for the purpose of
12 RRR,J W.P.No.12980 of 2019 developing the Port. One of the methods of raising finance was to obtain financial assistance by giving the leasehold rights of the petitioner as security to its lenders. Such a security can be created and finances obtained only upon land being handed over to the petitioner. There was an implied term to this effect, as the petitioner would otherwise be unable to obtain financial closure. Non-handing over of the land in one go, at the beginning of the implementation of the concession, shows that there was a failure of one of the fundamental terms due to which the petitioner was entitled for extension of time. The 1st respondent itself had admitted this breach by granting extension of time by its letter dated 10.09.2015 wherein the commencement date was changed from the date of execution of the Concession to the date of the approval of the Revised Detailed Project Report.
e) Clause 10 of the Concession stipulates the manner in which the Concession can be terminated. Clause 10.4 requires the non-defaulting party to issue a notice to the offending party pointing out the breaches of the Concession and granting time to the offending party to rectify the said breaches. However, both the parties were to undertake consultation and attempt to resolve the issues before the Concession can be terminated. In the present case, this procedure has not been followed by the 1 st respondent and as such, the termination of the Concession is clearly illegal and has to be set aside.
f) The contention of the respondent that the petitioner had refused, under the letter dated 10.03.2017, to accept transfer of land, without any reason and with a view to hide its inability to execute the Project, is incorrect. The petitioner had refused to accept the said land as the land was not free from encumbrances. The Tahsildar, in his report dated 13 RRR,J W.P.No.12980 of 2019 31.03.2017, had stated that 932 Acres of the proposed land was under
encroachment. The 1st respondent, in paragraph 24 of it's Counter affidavit had admitted that there was an encroachment over an extent of Ac.539.45 cents of land.
g) The contention of the respondents that the petitioner could have commenced implementation of the Concession with Ac.412.57 cents handed over in 2008 is incorrect. The said land was not sea facing and was away from the coast line and the question of developing Port facilities on the said Ac.412.57 cents does not arise. Further, adequate access to the said land was not given for any construction or development to be carried out on the said land.
h) On the question of maintainability of the writ petition, the following judgments make it amply clear that the writ petitions are maintainable even in cases of contractual disputes:
1) ABL International Ltd., and Anr., vs. Export Credit Guarantee Corporation of India Ltd., and Ors.,1;
(paragraphs 23 and 27)
2) Unitech Limited and Ors., vs. Telangana State Industrial Infrastructure Corporation (TSIIC) and Ors.,2; (paragraphs 38 to 46)
3) State of U.P., vs. Sudhir Kumar Singh and Ors.,3 (paragraphs 8 to 24)
4) Popatrao Vyankatrao Patil vs. State of Maharashtra and Ors.,4 (Paragraphs 11 to 14) 1 (2004) 3 SCC 553 2 (2021) SCC OnLine SC 99 3 (2020) SCC OnLine SC 847 4 (2020) 19 SCC 241 14 RRR,J W.P.No.12980 of 2019
12. The learned Advocate General appearing for the respondents made the following submissions:
a) Clause 3.2.1 does not envisage the handing over of the entire extent of land as a condition precedent. The term right of way, relied upon by the petitioner, cannot and does not include handing over of the land.
b) The initial extent of 412.57 cents of land handed over in 2008 may not have been sea facing. However the further extent of Ac.2556.00 of land offered in 2017 was along the coast line and was sufficient for the petitioner to commence implementation of the concession.
c) Extension of time is mandatory only in the event of non-
satisfaction of sub-clause (l) of Clause 3.2.1. However, there is no sub- clause (l) in Clause 3.2.1 and as such there is no mandatory requirement for extension of time.
d) The Detailed Project Report, initially prepared by the petitioner, would also show that the petitioner did not require the entire land to be handed over for commencing implementation of the Concession. The Project Report structures the implementation of the Concession in phases and land would be required as per the stage of development. The Detailed Project Report envisages development of the Port up to the year 2038 and in such circumstances, the question of handing over the entire extent of land in one go does not arise. The contention that there is a implied term of handing over of the land, as contended by Sri Dammalapati Srinivas, learned Senior Counsel, is incorrect. The Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd., and Anr., vs. State of Gujarat 15 RRR,J W.P.No.12980 of 2019 and Anr.,5 and in the case of Her Highness Maharani Shantidevi P. Gaikwad vs. Savjibai Haribai Patel And Ors.,6 had held that the conduct of parties cannot be taken into account for interpreting a contract where the terms are express and unambiguous.
e) Mere absence of a notice prior to an adverse order does not violate the principles of natural justice unless prejudice can be made out on account of non-issuance of a notice prior to the adverse order. He relies upon the following judgments.
1. M.C. Mehta vs. Union of India and Ors.7
2. Aligarh Muslim University and Ors., vs. Mansoor Ali Khan8
3. Canara Bank and Ors., vs. Debasis Das and Ors.,9
4. Canara Bank vs. V.K. Awasthy10
5. K. Swarna Kumari, Subordinate Judge vs. Government of Andhra Pradesh11
7. K.L. Tripathi vs. State Bank of India13
8. State Bank of Patiala vs. S.K. Sharma14
9. Managing Director, ECIL, Hyderabad and Ors., vs. B. Karunakar and Ors.,15 5 (1975) 1 SCC 199 6 (2001) 5 SCC 101 7 (1999) 6 SCC 237 8 (2000) 7 SCC 529 9 (2003) 4 SCC 557 10 (2005) 6 SCC 321 11 (2006) 2 ALD 585 12 (1980) 4 SCC 379 13 (1984) 1 SCC 43 14 (1996) 3 SCC 364 15 (1993) 4 SCC 727 16 RRR,J W.P.No.12980 of 2019
f) The breach of contract by the petitioner is a foundational breach of contract and as such the procedure set out in Clause 10 need not be followed. Reliance is placed on the following judgments:
1. Air India Ltd., vs. GATI Ltd.,16 (paragraph 56);
2. Force India Formula One Team Ltd., vs. Etihad Airways PJSC & Anr.,17 (paragraphs 2, 12, 17, 19, 20, 84 to 87, 98 and 99)
3. Vinergy International (Pvt.) Ltd., vs. Richmond Mercantile Limited FZC18 (paragraphs 22 and 23) Consideration of the Court:
13. Sri Dammalapati Srinivas, learned Senior Counsel appearing for the petitioner had relied upon certain judgments to contend that the writ petition is maintainable even though it is essentially a contractual dispute. The respondent had initially raised an objection to the maintainability of the writ petition. However, the same has not been pressed during the arguments. In the circumstances, consideration of the judgments cited on behalf of the petitioner may not be necessary. As such, the writ petition is maintainable.
14. Before going into the facts of the case, it is necessary to deal with another issue raised by the petitioner. It is the contention of the petitioner that the conduct of the parties should be taken into account while interpreting the terms of the concession agreement. The Hon'ble Supreme Court dealt with this issue in Godhra Electricity Co. Ltd. and Anr., vs. State Of Gujarat and Anr., (supra) and held as follows: 16
(2015) SCC OnLine Del 10220 = (2015) 4 Arb LR 335 17 (2010) EWCA Civ 1051 (2011) ETMR 10 18 (2016) EWHC 525 (Comm)
17 RRR,J W.P.No.12980 of 2019
16. We are not certain that if evidence of subsequent acting under a document is admissible, it might have the result that a contract would mean one thing on the day it is signed but by reason of subsequent event it would mean something a month or year later. Subsequent "interpreting" statements might not always change the meaning of a word or a phrase. A word or a phrase is not always crystal clear. When both parties subsequently say that by the word or phrase which, in the context, is ambiguous, they meant this, it only supplies a glossary as to the meaning of the word or phrase. After all, the inquiry is as to what the intention of the parties was from the language used. And, why is it that parties cannot clear the latent ambiguity in the language by a subsequent interpreting statement? If the meaning of the word or phrase or sentence is clear, extrinsic evidence is not admissible. It is only when there is latent ambiguity that extrinsic evidence in the shape of interpreting statement in which both parties have concurred should be admissible. The parties themselves might not have been clear as to the meaning of the word or phrase when they entered into the contract. Unanticipated situation might arise or come into the contemplation of the parties subsequently which would sharpen their focus and any statement by them which would illuminate the darkness arising out of the ambiguity of the language should not be shut out. In the case of an ambiguous instrument, there is no reason why subsequent interpreting statement should be inadmissible.
"The question involved is this: Is the fact that the parties to a document, and particularly to a contract, have interpreted its terms in a particular way and have been in the habit of acting on the document in accordance with that interpretation, any admissible guide to the construction of the document? In the case of an unambiguous document, the answer is 'No.' (See Odgers' Construction of Deeds and Statutes, 5th Edn. by G. Dworkin, pp. 118-19)."
But, as we said, in the case of an ambiguous one, the answer must be "yes". In Lamb v. Goring Brick Co. [(1932) 1 KB 710, 721] a selling agency contract contained the words "the price shall be mutually agreed". Documents showing the 18 RRR,J W.P.No.12980 of 2019 mode adopted for ascertaining the price were put in evidence without objection. In the court of appeal Greer, L.J. said:
"In my opinion, it is not necessary to consider how this contract was acted on in practice. If there had been an ambiguity and the intention of the parties had been in question at the trial, I think it might have been held that the parties had placed their own construction on the contract and, having acted upon a certain view, had thereby agreed to accept it as the true view of its meaning."
15. In, Her Highness Maharani Shantidevi P. Gaikwad vs. Savjibai Haribai Patel And Ors. (supra), the Hon'ble Supreme Court was considering a challenge to an unilateral termination of an agreement, based on a clause in the agreement. The contention of the affected party was that the conduct and intendment of the parties, in relation to this clause, was that there was no right of unilateral termination of the contract with either party. Consequently, the said understanding and conduct of the parties should be taken into account and the unilateral termination be set aside. The Hon'ble Supreme court negatived this contention and held as follows:
49. We are unable to agree with the approach of the High Court and find substance in the contention of Mr Nariman. Clause (17) is in the nature of express stipulation that before delivery of possession, the contract could be unilaterally terminated. When there is no ambiguity in the clause, the question of intendment is immaterial. The fact that the clause is couched in a negative form is of no consequence. The intention is clear from the plain language of clause (17) of the agreement. In the case in hand, Section 202 has no applicability. It is not a case of agency coupled with interest. No interest can be said to have been created on account of the plaintiff being permitted to prepare the Scheme and take ancillary steps. The plaintiff could not get possession before declaration under Section 21 of the ULC Act. Mr Dhanuka also contended that the agreement is not 19 RRR,J W.P.No.12980 of 2019 determinable is clear from the conduct of original Defendant 1 and also what he stated in the affidavit-cum-declaration dated 10-2-1978 about agreement not being terminable. The contention of learned counsel is that what original Defendant 1 has said in the said document is his interpreting statement which is admissible in law and this interpreting statement and also his conduct, clearly shows that the agreement was not terminable by original Defendant 1. Strong reliance has been placed on Godhra Electricity Co. Ltd. v. State of Gujarat [(1975) 1 SCC 199 : (1975) 2 SCR 42] in particular on the following passage: (SCC pp. 205-06, para 11) "11. In the process of interpretation of the terms of a contract, the court can frequently get great assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or in receiving performances under it. Parties can, by mutual agreement, make their own contracts; they can also by mutual agreement remake them. The process of practical interpretation and application, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it is merely a further expression by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of contract that they had originally. The American courts receive subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. This concurrence may be evidenced by the other party's express assent thereto, by his acting in accordance with it, by his receipt without objection of performances that indicate it, or by saying nothing when he knows that the first party is acting on reliance upon the interpretation."
50. There is no merit in the contention of Mr Dhanuka.
The decision relied upon by Mr Dhanuka is not applicable to unambiguous documents. That is clear from the decision itself. In respect of unambiguous documents, Odgers' Construction of Deeds and Statutes, 5th Edn., by G. Dworkin at pp. 118-19, has been quoted in the aforesaid decision as under:
20 RRR,J W.P.No.12980 of 2019 "The question involved is this: Is the fact that the parties to a document, and particularly to a contract, have interpreted its terms in a particular way and have been in the habit of acting on the document in accordance with that interpretation, any admissible guide to the construction of the document? In the case of an unambiguous document, the answer is 'No'."
51. It has been held that "in the case of an ambiguous instrument, there is no reason why subsequent interpreting statement should be inadmissible". In the present case we are concerned with an unambiguous document and, therefore, we have to go by its plain meaning. Further, the affidavit-cum-declaration only reiterated what was contained in the agreement. It did not enlarge the agreement. It did not substitute any clause in the agreement. It was not a document executed between the parties. It was a document executed by original Defendant 1 alone for the purposes of filing it before the competent authority. Clause 17 of the agreement does not call for any other interpretation except that the contract could be unilaterally rescinded before delivery of possession.
16. The law is fairly settled that, the subsequent understanding and conduct of the parties can be taken into account, while interpreting a contract, only where the language is ambiguous. The Court, while interpreting an unambiguous document, would not be taking into account, the subsequent conduct or understanding of the parties as a guide for interpretation of the said document. Accordingly, the conduct of the parties would come up for consideration only where this court finds ambiguity in the language of the Concession. In the present case, Clause 3.5, as discussed below is clear and unambiguous and the conduct of the parties would not be relevant for interpreting the terms and conditions of this agreement.
17. Sri Dammalapati Srinivas, learned Senior Counsel has also relied upon the judgement of the Hon'ble Supreme Court in M.O.H. 21 RRR,J W.P.No.12980 of 2019 Uduman and Ors., vs. M.O.H. Aslum19, to contend that the intention of the parties should be gathered from the language of the contract read as a whole and the terms of the contract should be given it's ordinary sensible meaning. There can be no quarrel with this proposition, which is binding on this court. However, the ratio in this judgement is not at variance with the ratio laid down by the judgements extracted above.
18. The admitted facts on both sides, for the purpose of this writ petition, are that a timeline, under Clause 4.3.1 of the concession, was fixed for the development of the Port. This timeline required the petitioner to file and obtain approval of a Detailed Project Report from the 1 st respondent, within 6 months of execution of the concession, obtain financial closure, within 12 months of the execution of the concession, for ensuring sufficient funds for development of the Port and complete development of the Port or that part of the Port which would enable the petitioner to commence commercial operations in the Port, within 36 months of execution of the concession or as per the time fixed under the Detailed project report approved by the 1st respondent. This time frame was amended by way of the letter of the 1st respondent dated 10.09.2015. This amendment changed the commencement date from the date of execution of the Concession agreement to the date of approval of the Revised Detailed Project Report. The said date of approval of the Revised Detailed Project Report is 12.05.2016. This would mean that financial closure was to be achieved by 12.05.2017 and Port development was to be completed by 12.05.2019 or as on the dates fixed under the Detailed Project Report. G.O.Ms.No.15, dated 12.05.2016, granting approval of the revised detailed project report, in Paragraph 7, states that 19 (1991) 1 SCC 412 22 RRR,J W.P.No.12980 of 2019 Phase-I development was divided into two parts of Stage-I and State-II. Phase-I Stage-I development was proposed to be completed by 2017-18 and the over all phase-I consisting of Stage-I and Stage -II development was to be completed by 2021-2022. By the time, the order of termination dated 08.08.2019 was issued, the petitioner had not achieved financial closure or undertaken any development of the Port.
19. The petitioner, while accepting these facts, has taken the stand that the question of the petitioner undertaking any activity towards development of the Port would arise only after the conditions precedent, under Clause 3.2.1 (b) and (d) have been satisfied, in full. As the conditions precedent, viz., handing over of land, execution of the State Support Agreement and granting right of way, have not been fulfilled, the petitioner cannot be called upon to commence development of the Port. As the primary contention of the Petitioner is the non satisfaction of the conditions precedent, set out in Clause 3.2.1, it would be necessary to ascertain who would be responsible for fulfilling the said conditions. Clause 3.2 reads as follows:
3.2 CONDITIONS PRECEDENT 3.2.1 - The rights and obligations of the concessionaire under this Agreement are subject to the satisfaction in full of the following conditions precedent to be fulfilled on or before Financial Closure as per the Detailed Proposal unless any such condition has been waived as provided in Clause 3.2.2.
(a) Concessionaire shall have obtained all such Applicable Permits unconditionally or if subject to conditions then all such conditions have been satisfied in full and such Applicable Permits are and shall be kept in full force and effect for the relevant period during the subsistence of this Agreement;
(b) The Concessionaire shall have been granted the following in connection with the Project including;
23 RRR,J W.P.No.12980 of 2019
(i) Right of way for the Port Project free from all encumbrances, and;
(ii) Permission/licence to enter upon and utilize the area within the Port boundaries for the construction pursuant to and in accordance with this Agreement.
(c) The Concessionaire shall have been granted all State and Central Government clearances and permits under the Applicable Laws, including those relating to environmental protection and conservation from the Ministry of Environment and Forests. GoAP shall fulfill its obligations under 2.1, 2.2, 2.3 and 2.4 of the State Support Agreement Provided however that the grant of such clearances and permits shall be subject to the Concessionaire having submitted the due applications requests and requisitions as required by the Government Authority;
(d) The Concessionaire shall have entered into the State Support Agreement with GoAP;
(e) Certified true copies of all Project Agreements, in particular, the financing documents, the EPC Contract, O&M Contract, if any and the Shareholders Agreement have been delivered by the Concessionaire to GoAP;
(f) The Project Development Fee has been paid by the Concessionaire to the CGA in full;
(g) The performance Security in full has been provided by the Concessionaire to GoAP;
(h) All of the representations and warranties of the Concessionaire set forth in Clause 15 are true and correct as on date of this Agreement:
(i) GoAP shall have received from the Concessionaire copies (certified as t4rue copies by an authorized officer of the Concessionaire) of the constitutional documents of the Concessionaire;
(j) GoAP shall have received copies (certified as true copies by a Director of the Concessionaire) of all resolutions adopted by the Board of Directors of the Concessionaire authorizing the execution, delivery and performance by
24 RRR,J W.P.No.12980 of 2019 the Concessionaire of this Agreement and each of the Project Agreements;
(k) GoAP shall have received from the Indian legal counsel of the Concessionaire a legal opinion with respect to the authority of the Concessionaire to enter into this Agreement and the Project Agreements and the Financing Documents and the enforceability of the provisions thereof; and 3.2.2 Any of the conditions precedent set forth in Clause 3.2.1, save and except condition of Sub-clause (a), (bb) and
(l) thereof, may be waived fully or partially6 by GoAP at anytime in its sole discretion.
3.2.3 Obligation to Satisfy the Conditions Precedent. The concessionaire shall make all reasonable endeavours to procure the satisfaction in full of the conditions precedent set out in Clause 3.2.1 above and conditions set forth in Sub-clauses (a), (b), (c), (e), and (l) of Clause 3.2.1. Each Party shall bear its respective cost and expense of satisfying such condition precedent. 3.2.4 If the Concessionaire does not satisfy its obligations under Clause 3.2.3 on or before the Financial Closure as per the Detailed Proposal and the GoAP has not waived, fully or partially, such conditions precedent under Clause 3.2.1, then GoAP may, notwithstanding anything to the contrary contained in this Agreement, terminate this Agreement in accordance with provisions of Clause 10 without being liable in any manner whatsoever to the Concessionaire and forfeit the Performance Security and the Project Development Fee, provided that where GoAP does not fulfill its obligations under Clause 3.2.4, it shall refund in full the Performance Security. Besides, GoAP shall also reimburse to the Concessionaire the cost incurred by it towards the preparation of the Detailed Project Report."
20. Clause 3.2.4. states that if the Petitioner does not satisfy it's obligations under Clause 3.2.3 on or before Financial Closure, the 1 st respondent would be entitled to terminate the contract in accordance with 25 RRR,J W.P.No.12980 of 2019 the provisions of Clause 10 of the Concession. Similarly, the petitioner is entitled to terminate the concession if the 1st respondent does not fulfil it's obligations under Clause 3.2.3. This would mean that the Petitioner is responsible for the satisfaction of some of the conditions precedent and the 1st respondent responsible for the other conditions precedent. Clause 3.2.3 stipulates that (a) the petitioner shall make all reasonable endeavours to procure the satisfaction, in full, of the conditions precedent set out in Clause 3.2.1. and (b) the 1st respondent shall make all reasonable endeavours to procure the satisfaction in full of the conditions precedent set out in Sub Clauses (a) (b) (c) (e) and (l). Clause 3.2.2 empowers the 1st respondent to waive, all the conditions precedent in clause 3.2.2, except sub clauses (a) (b) (c) (e) and (l). A conjoint reading of Clauses 3.2.2 and 3.2.3 leads to the conclusion that the 1 st respondent is responsible for satisfying Sub Clauses (a) (b) (c) (e) and (l) of Clause 3.2.1 and the petitioner would be responsible for satisfying the remaining conditions precedent. A curious fact is that there is no Sub Clause (l) to Clause 3.2.1.
21. As the responsibility of satisfying sub clause (d) is that of the petitioner, non satisfaction of this Sub Clause cannot be a ground to refuse commencement of work. In fact, Clause 3.2.4 empowers the 1st Respondent to terminate the Concession if the State Support agreement has not been obtained by the petitioner by the time of the financial closure. The contention of the petitioner to this extent would have to be rejected.
22. Sri Dammalapati Srinivas, learned Senior Counsel, contends that Clause 3.2.1 (b) (i) and (ii) stipulates, as a condition precedent, the right of the petitioner to have a right of way and licence/permission to 26 RRR,J W.P.No.12980 of 2019 enter upon and utilise the area within the Port boundaries for construction of the Port. This would mean that the Petitioner would be entitled to enter into any part of the land which would form part of the port boundaries. The meaning of the term "Port boundaries", which has not been defined in the Concession, would have to be understood as the entire extent of 5342 acres of land which would ultimately form part of the port area. The said extent is discernible on the basis of the definitions of "Port assets" in clause 1.46 and "Project" on Clause 1.48.
23. The term "right of way" has not been defined in the Concession and its meaning and scope would have to be ascertained. The New Oxford American dictionary defines it as the legal right, established by grant from an owner or long usage (by prescription) to pass along a specific route through property belonging to another. The Meriam Webster Dictionary defines it as a legal right of passage over another person's ground; the area over which a right of way exists; the strip of land over which is built a public road; the land occupied by a railroad especially for its main line; the land used by a public utility (as for a transmission line) ; a precedence in passing accorded to one vehicle over another by custom, decision or Statute; the right of traffic to take precedence; and the right to take precedence over others. Grant of right of way is at best a grant of access to the site. This would not include handing over to the person, being granted right of way, the possession of the land to which access is sought through the right of way.
24. Clauses 1.46 and 1.48 read as under:
1.46 Port Assets "Port Assets" mean and include but are not limited to the following 27 RRR,J W.P.No.12980 of 2019
(a) Land (including submerged land, if any) transferred by GoAP to the Concessionaire;
(b) Water area inside Port boundaries as notified by GoAP as seaward port limits;
(c) Other immovable assets like internal roads, rails, breakwaters, buildings etc., and moveable assets like equipment, cranes etc., constructed or provided by the Concessionaire under this Agreement; and
(d) Tugs, pilot launches and other flotilla for providing Port Services to the ships, within the limits of Machilipatnam Port.
1.48 Project or Port Project The "Project" is limited to areas inside defined Port boundaries and, includes but is not limited to, the construction, provision of facilities such as navigation channel, harbor basin, breakwater, aids to navigation, docks, berths, storage (both, covered and open) internal roads, rails, conveyor systems, cargo handling facilities and systems, utilities such as water supply, power supply, bunkering facilities, sewage systems etc., communication facilities, ship repair facilities and all other engineering structural facilities etc., and its associated infrastructure facilities, for the development of the Port at Machilipatnam, Andhra Pradesh.
25. "Port assets" as defined under Clause 1.46 includes land which is transferred by the 1st respondent to the petitioner. This would mean land which is already transferred and cannot be stretched to mean the entire land proposed to be transferred. This sub clause does not lend itself to the interpretation that, the entire land that would finally comprise the Port area, is required to be handed over at the inception of the Concession itself. Clause 1.48 does not assist the petitioner any further in this regard. In such circumstances, clause 3.2.1(b) (ii) would mean that 28 RRR,J W.P.No.12980 of 2019 the petitioner is entitled to enter into any or all parts of the land handed over, from time to time, to the petitioner.
26. This issue is put beyond the pale of any doubt, when Clause 3.5 is taken into account. Clause 3.5 reads as follows:
3.5 Ownership of Port Assets
(a) The land owned by GoAP shall be made available to the Concessionaire on lease basis as specified in Schedule 'E' of Draft Concession Agreement, free from all encumbrances during the Concession Period. The ownership of the waterfront shall always vest with the GoAP.
(b) The ownership of all assets constructed, purchased or provided by the Concessionaire, for implementation of the Project and operation of the Port forming part of Port shall, until transfer to GoAP, in accordance with the Agreement, be with the Concessionaire.
27. This clause clearly states that the land would be handed over during the Concession period. The phrase "during the concession period" is clear and unambiguous. It does not mean at the inception, but during the Concession period. Accordingly, it must be held that Clause 3.2.1(b) does not require the entire land to be handed over, in one go, at the very inception of the concession as a condition precedent to the Concession.
28. Sri Dammalapati Srinivas, learned Senior Counsel, in the alternative, contends that the purpose of the Concession is the development of a deep sea water Port which requires land adjoining the sea to be handed over to the petitioner. In the absence of the said land being handed over to the petitioner, the question of the petitioner being called upon to develop the Port would not arise. Apart from this, one of 29 RRR,J W.P.No.12980 of 2019 the means and methods of raising finance, for the development of the Port was to raise loans and financial assistance by giving the leasehold rights of the petitioner as security to the lenders. He submits that even though these two requirements are not set out explicitly in the Concession, the same would have to be read into the terms of the Concession and invokes the principle of Business efficacy and officious bystander, as set out by the Hon'ble Supreme Court in Nabha Power Limited (NPL) vs. Punjab State Power Corporation Limited (PSPCL) and Anr.,20. He would contend that the 1st respondent could not have expected the petitioner to develop a Port on a landlocked land parcel and it is only upon the 1st respondent handing over the land facing the sea that the petitioner could be expected to commence development. As the land in an extent of Ac.412.57 cents handed over to the petitioner in the year 2008 is a land locked parcel, the question of any default on the part of the petitioner in developing the port would not arise. Further, the inability of the 1st respondent to hand over the entire extent of land to the petitioner had resulted in the petitioner being unable to achieve financial closure.
29. The learned Advocate General, fairly concedes that the land parcel of Ac.412.57 cents originally handed over in 2008 was not adjoining the sea. However, he contends that about 2601 acres of land adjoining the sea was offered to the petitioner in the year 2017 and the same was refused by the petitioner and as such the petitioner cannot contend that he could not commence work on account of non-availability of land.
30. The opposing contentions mentioned above raise two issues before this Court. Firstly, - whether there is an implied term that the 20 (2018) 11 SCC 508 30 RRR,J W.P.No.12980 of 2019 entire land has to be handed over in one go to enable the petitioner to obtain financial closure; and secondly, - whether there is an implied term that the land adjoining the sea would have to be given and such a term can be read into the contract even if there is no such explicit understanding recorded in the Concession.
31. Before going into these issues, it is necessary to notice the principles of "business efficacy" and "officious bystander". These principles which arose from the judgement of the Court of Appeal in England in the case of "The Moorcock" (1889) LR 14 PD 64 (CA) and Shirlaw V. Southern Foundries (1926) LTD. (1939) 2 KB 206 :: (1939) 2 ALL ER 113 (CA) as set out in Shirlaw are as follows:
"I recognise that the right or duty of a court to find the existence of an implied term or implied terms in a written contract is a matter to be exercised with care; and a court is too often invited to do so upon vague and uncertain grounds. Too often also such an invitation is backed by the citation of a sentence or two from the judgment of Bowen, L.J. in The Moorcock [The Moorcock, (1889) LR 14 PD 64 (CA)] . They are sentences from an extempore judgment as sound and sensible as all the utterances of that great Judge;
but I fancy that he would have been rather surprised if he could have foreseen that these general remarks of his would come to be a favourite citation of a supposed principle of law, and I even think that he might sympathise with the occasional impatience of his successors when The Moorcock [The Moorcock, (1889) LR 14 PD 64 (CA)] is so often flushed for them in that guise.
For my part, I think that there is a test that may be at least as useful as such generalities. If I may quote from an essay which I wrote some years ago, I then said:
'Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest 31 RRR,J W.P.No.12980 of 2019 some express provision for it in their agreement, they would testily suppress him with a common "Oh, of course!" ' At least it is true, I think, that, if a term were never implied by a Judge unless it could pass that test, he could not be held to be wrong."
32. The Hon'ble Supreme Court in Nabha Power Limited vs. Punjab State Power Corporation Limited and Anr., (supra) after an extensive review of English Law and Indian Law, had formulated these principles in the following manner:
48. Lastly, in Satya Jain v. Anis Ahmed Rushdie [Satya Jain v. Anis Ahmed Rushdie, (2013) 8 SCC 131 : (2013) 3 SCC (Civ) 738] , Ranjan Gogoi, J., elucidated the well-
established principles of the classic test of business efficacy to achieve the result of consequences intended by the parties acting as prudent businessmen. It was opined as under: (SCC pp. 143-44, paras 33-35) "33. The principle of business efficacy is normally invoked to read a term in an agreement or contract so as to achieve the result or the consequence intended by the parties acting as prudent businessmen. Business efficacy means the power to produce intended results. The classic test of business efficacy was proposed by Bowen, L.J. in The Moorcock [The Moorcock, (1889) LR 14 PD 64 (CA)] . This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied--the bare minimum to achieve this goal. If the contract makes business sense without the term, the courts will not imply the same. The following passage from the opinion of Bowen, L.J. in The Moorcock [The Moorcock, (1889) LR 14 PD 64 (CA)] sums up the position:
(PD p. 68) '... In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each 32 RRR,J W.P.No.12980 of 2019 party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances.'
34. Though in an entirely different context, this Court in United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera [United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera, (2008) 10 SCC 404] had considered the circumstances when reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously intended by and between the parties thereto. Certain observations in this regard expressed by courts in some foreign jurisdictions were noticed by this Court in para 51 of the Report. As the same may have application to the present case it would be useful to notice the said observations: (SCC p. 434) '51. ... "... 'Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander, were to suggest some express provision for it in their agreement, they would testily suppress him with a common "Oh, of course!" ' Shirlaw v. Southern Foundries (1926) Ltd. [Shirlaw v. Southern Foundries (1926) Ltd., (1939) 2 KB 206 : (1939) 2 All ER 113 (CA)] , KB p. 227."
*** "... An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them:
it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, formed part of the contract which the parties made for themselves." Trollope and Colls Ltd. v. North West Metropolitan Regl. Hospital Board [Trollope and Colls Ltd. v. North West Metropolitan Regl. Hospital Board, (1973) 1 WLR 601 : (1973) 2 All ER 260 (HL)] , WLR p. 609 C-D : All ER p. 268a-b.' (emphasis in original)
35. The business efficacy test, therefore, should be applied only in cases where the term that is sought to be read as implied is such which could have been clearly 33 RRR,J W.P.No.12980 of 2019 intended by the parties at the time of making of the agreement. ..."
Our view
49. We now proceed to apply the aforesaid principles which have evolved for interpreting the terms of a commercial contract in question. Parties indulging in commerce act in a commercial sense. It is this ground rule which is the basis of The Moorcock [The Moorcock, (1889) LR 14 PD 64 (CA)] test of giving "business efficacy" to the transaction, as must have been intended at all events by both business parties. The development of law saw the "five condition test" for an implied condition to be read into the contract including the "business efficacy" test. It also sought to incorporate "the Officious Bystander Test"
[Shirlaw v. Southern Foundries (1926) Ltd. [Shirlaw v. Southern Foundries (1926) Ltd., (1939) 2 KB 206 : (1939) 2 All ER 113 (CA)] ]. This test has been set out in B.P. Refinery (Westernport) Proprietary Ltd. v. Shire of Hastings [B.P. Refinery (Westernport) Proprietary Ltd. v. Shire of Hastings, 1977 UKPC 13 : (1977) 180 CLR 266 (Aus)] requiring the requisite conditions to be satisfied:
(1) reasonable and equitable; (2) necessary to give business efficacy to the contract; (3) it goes without saying i.e. the Officious Bystander Test; (4) capable of clear expression;
and (5) must not contradict any express term of the contract. The same penta-principles find reference also in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [Investors Compensation Scheme Ltd. v. West Bromwich Building Society, (1998) 1 WLR 896 :
(1998) 1 All ER 98 (HL)] and Attorney General of Belize v. Belize Telecom Ltd. [Attorney General of Belize v. Belize Telecom Ltd., (2009) 1 WLR 1988 (PC)] Needless to say that the application of these principles would not be to substitute this Court's own view of the presumed understanding of commercial terms by the parties if the terms are explicit in their expression. The explicit terms of a contract are always the final word with regard to the intention of the parties. The multi-clause contract inter se the parties has, thus, to be understood and interpreted in a manner that any view, on a particular clause of the contract, should not do violence to another part of the contract.
34 RRR,J W.P.No.12980 of 2019
33. In view of Clause 3.5 and the other circumstances mentioned above, it is clear that there is no condition precedent that the entire land has to be given at the very inception. Consequently, it cannot be taken that financial closure was dependent on the entire land being obtained. Further Clause 4.6 only entitles the petitioner to offer leasehold rights as security and that does not in any manner create an implied condition casting burden on the 1st respondent to hand over the entire extent of land. One of the five tests, prescribed by the Hon'ble Supreme Court, is the requirement that the implied term should not contradict any express term of the contract. In the present case, the implied term propounded by the Petitioner would contradict clause 3.5. In that view of the matter, the principles of "business efficacy" or "Officious bystander"
have no application to this issue.
34. The second contention of the petitioner that there is an implied term of the respondent handing over the land adjacent to the sea would have to be considered. The purpose of the Concession Agreement is to develop a deep water sea port. Necessarily that would mean that the land handed over to the petitioner would have to be adjacent to the sea. This condition is so obvious that there need not be a specific statement in the Concession that land adjoining the sea should be transferred to the petitioner. In such circumstances, the principle enunciated by the Hon'ble Supreme Court set out in the above judgment would be clearly applicable to the present case and the liability of the petitioner to commence development of the Port would only start upon the 1st respondent handing over the land, adjoining the sea, to the petitioner.
35. An offer was made, by letter dated 10.3.2017, to hand over about 2601 acres of land, adjoining the sea, to the petitioner. The 35 RRR,J W.P.No.12980 of 2019 petitioner, by its letter dated 14.03.2017, stated that it would accept the said land only upon the 1st respondent handing over the entire extent of 5342 acres, free from all encumbrances, along with development of external infrastructure and grant of right of way to the Port project area free from all encumbrances. As already held, by this court, there was no condition precedent that the entire land required for the completed development of the Port had to be handed over, prior to the financial closure, before the petitioner would commence implementation of the project. The requirement, that all the external infrastructure had to be completed, before the land can be accepted by the petitioner, was not part of the terms or conditions of the contract. This is a new unilateral condition imposed by the petitioner.
36. The petitioner would now contend that the offer of the said land was refused as a part of the land was still under encroachment. However, no such objection was raised in the letter dated 14.03.2017. In fact, the land was refused on the ground that the entire extent of 5342 acres was not being handed over. In the circumstances, it must be held that the refusal of the petitioner to accept the aforesaid 2601 acres of land is without any basis and the liability of the petitioner, to commence development of the Port or achieve financial closure, would have to be deemed to have started, at the very least, from March 2017. The period of 12 months from March 2017 available to the petitioner for achieving financial closure would end on 10.03.2018. The further period set out in the approved Detailed Project Report would permit the petitioner to complete Phase-I Stage-I by 2017-2018 and Stage-II by 2021-2022 or in the alternative permit completion of the entire project by August 2019. However, no steps were taken by the petitioner in this regard.
36 RRR,J W.P.No.12980 of 2019
37. In these circumstances it must be held that the petitioner had breached the condition that it would achieve financial closure within one year of the commencement date. It would also have to be held that the petitioner, by refusing the offer of the land, had essentially disabled itself from implementing the development of the Port.
38. Sri Dammalapati Srinivas, learned Senior Counsel contends that even if it were to be assumed that the petitioner had committed breach of the conditions of the Concession, the petitioner was entitled for the benefit of the termination procedure set out in Clause 10 which would have granted time to the petitioner to rectify the breaches, if any, or to raise the issue of whether there was any breach on the part of the petitioner. He contends that the termination of the Concession without following this procedure renders the termination an illegal termination.
39. In reply, the learned Advocate General would submit that various judgments on the principles of natural justice had stated that mere absence of a notice prior to an adverse order does not violate the principles of natural justice unless prejudice can be made out on account of non-issuance of a notice prior to the adverse order. He relies upon the following judgments.
1. M.C. Mehta vs. Union of India and Ors.
2. Aligarh Muslim University and Ors., vs. Mansoor Ali Khan
3. Canara Bank and Ors., vs. Debasis Das and Ors.,
4. Canara Bank vs. V.K. Awasthy
5. K. Swarna Kumari, Subordinate Judge vs. Government of Andhra Pradesh
7. K.L. Tripathi vs. State Bank of India
8. State Bank of Patiala vs. S.K. Sharma 37 RRR,J W.P.No.12980 of 2019
9. Managing Director, ECIL, Hyderabad and Ors., vs. B. Karunakar and Ors.,
40. Apart from this, he also relies on the following judgments to contend that in the event of a foundational breach of the terms of a contract, the injured party can immediately terminate the said contract and the said termination cannot be treated to be an illegal termination on account of the said termination not being in accordance with the procedure set out in the contract.
41. The procedure, for termination of the Concession, set out in Clause 10.10, requires a notice of intent to terminate to be sent to the defaulting party, with details of default being set out in the notice. Following the service of the notice, the parties shall consult for a period of 90 days or such further time, mutually agreed upon, along with the lenders to consider steps for rectifying the defaults. At the end of this consultation period, it would be open to the non defaulting party to terminate the Concession by issuing the notice of termination. This Notice of Termination to take effect after 90 days of issue of the termination notice.
42. This procedure has not been followed by the 1st respondent and the termination of the Concession is not in accordance with the procedure set out in Clause 10.10 of the Concession.
43. The learned Advocate General relies upon the above judgements, relating to Principles of Natural Justice, to contend that an order or proceeding, passed in violation of principles of natural justice, including orders passed without following procedure and without notice, would not be illegal or void, unless prejudice caused on account of such violation can be shown. He contends that issuance of a notice to cure 38 RRR,J W.P.No.12980 of 2019 defects is only a formality which would make no difference as the time granted for financial closure and for further steps had already elapsed and the cure period would make no difference to the outcome of the issue.
44. It is true that a State player, who is a party to a contract, has a higher responsibility and Standard of conduct, and this Court would step in where there is any such derogation from the expected standard of conduct. However, the present case is a contractual dispute and needs to be adjudicated on the basis of the terms and conditions of the contract. The complaint of the petitioner is violation of the terms and conditions of the contract and not principles of natural justice. The said judgements would not be applicable to this case.
45. The learned Advocate General had also contended that the breach of contract by the petitioner is a foundational breach of contract and as such the procedure set out in Clause 10 need not be followed. Reliance is placed on the following judgments:
a. Air India Ltd., vs. GATI Ltd., (paragraph 56);
b. Force India Formula One Team Ltd., vs. Etihad Airways PJSC & Anr., (paragraphs 2, 12, 17, 19, 20, 84 to 87, 98 and
99) c. Vinergy International (Pvt.) Ltd., vs. Richmond Mercantile Limited FZC (paragraphs 22 and 23)
46. The common law principle, in England, is that in the case of a repudiatory breach, the injured party is entitled to terminate the contract. In both the English Judgements, cited above, this right was also incorporated in the terms of the Contract, which also prescribed a procedure for termination. However, the contracts were terminated by the injured parties without granting the cure period to rectify the 39 RRR,J W.P.No.12980 of 2019 shortcomings. These terminations were challenged on the ground that they had not adhered to the procedure set out in the contracts. In both the cases the courts took the view that since the right of termination was available to the injured parties both under the terms of the contract and under Common law, it was permissible to the injured party to fall back on Common Law principles and terminate the contract without having to follow the procedure set out in the contract.
47. The aforesaid principles of Common Law are contained in Section 39 of the Indian Contract Act, which reads as follows:
Section-39. Effect of refusal of party to perform promise wholly.- When a party to a contract has refused to perform, or disabled himself from performing, his promise in it's entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in the continuance.
48. In the commentary of Pollock and Mulla, 15th Edition, on the Contract Act, the scope of the term "refused to perform", has been explained thus:
"A renunciation may occur when one party refuses to perform his obligations under the contract in some essential respect, either by expressly so declaring it, or by words or conduct demonstrating an intention not to perform."
49. In Air India Limited vs. Gati Ltd., (supra), the Hon'ble High Court of Delhi, held that in case of a repudiatory breach of Contract, it would be open to the injured party, under Section 39 of the Contract Act, to simply accept the repudiation by the offending party, and in such cases the procedure set out in the contract need not be followed. This court is in 40 RRR,J W.P.No.12980 of 2019 respectful agreement with the view taken by the Hon'ble High Court of Delhi.
50. In this case, the petitioner by refusing to accept the land offered by the 1st respondent, in March 2017, on the ground that the petitioner is entitled to obtaining possession over the entire extent of land in one go, had refused to discharge its obligations under the terms of the concession to keep receiving the land during the concession period and take up development of the port. By failing to achieve financial closure by March 2018, the petitioner had effectively refused to perform its obligation under the Concession, and the 1st respondent while issuing G.O.Ms.No.66, dated 08.08.2019, relied upon Section 39 of the Contract Act, to terminate the Concession. The case of petitioner before this Court is that it would not take any steps for achieving financial closure or undertake any step towards the development of the Port, unless the entire extent of land is handed over as a condition precedent. By this stand, which is not in consonance with the terms of the Concession, the petitioner has effectively refused to perform it's obligation under the Concession and has committed repudiatory breach of the Concession. In such a situation, non adherence to the procedure set out in the Concession would not vitiate the said termination.
51. In the circumstances, the Writ Petition fails and is accordingly dismissed. There shall be no order as to costs. As a sequel, pending miscellaneous petitions, if any, shall stand closed.
_________________________ R. RAGHUNANDAN RAO, J.
25th August, 2022 Js.
41 RRR,J W.P.No.12980 of 2019 HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO W.P.No.12980 of 2019 25th August, 2022 Js.