Gujarat High Court
M/S Global S.S. Construction Pvt. Ltd. vs Chief General Manager, (Mechnical-I/C ... on 30 July, 2021
Author: J.B.Pardiwala
Bench: J.B.Pardiwala, Vaibhavi D. Nanavati
C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 11391 of 2020
With
CIVIL APPLICATION (FOR DIRECTION) NO. 1 of 2020
In
R/SPECIAL CIVIL APPLICATION NO. 11391 of 2020
With
R/SPECIAL CIVIL APPLICATION NO. 13888 of 2020
With
R/SPECIAL CIVIL APPLICATION NO. 276 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S GLOBAL S.S. CONSTRUCTION PVT. LTD.
Versus
CHIEF GENERAL MANAGER, (MECHNICAL-I/C SEM.)
==========================================================
Appearance:
MR BHARGAV HASURKAR(5640) for the Petitioner(s) No. 1
MR AKSHAT KHARE(5912) for the Respondent(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 30/07/2021
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C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)
1. Since the issues in all the captioned writ-applications are inter-related and the parties are also the same, those were taken up for hearing analogously and are being disposed of by this common judgment and order.
2. In the Special Civil Application No.11391 of 2020 the writ-applicant seeks to challenge the action of the respondents in forfeiting the security deposit and also the issue of show cause notice calling upon the writ-applicant to show cause why he should not be put on holiday-mode. The writ-applicant has also prayed to restrain the respondents from encashing the bank guarantee.
3. In the Special Civil Application No.276 of 2021 the writ- applicant seeks to challenge the order banning him for a period of two years consequent to the show cause notice referred to above and challenged in the connected writ- application.
4. In the Special Civil Application No.13888 of 2020 the subject matter of challenge is the illegal exclusion of the writ- applicant from a tender process, wherein although the writ- applicant was adjudged to be technically competent, yet was not permitted to participate in view of the order putting the writ-applicant on a holiday-mode.
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5. We first take up the Special Civil Application No.276 of 2021. By this writ-application under Article 226 of the Constitution of India the writ-applicant has prayed for the following reliefs:-
"(A) The Hon'ble Court be pleased to admit and allow this Special Civil Application.
(B) The Hon'ble Court be pleased to issue writ of certiorari calling for records and proceedings in reference to banning the petitioner from having business dealings with the respondent relying upon the report of the enquiry conducted by the respondents in respect to its decision dated 16.12.2020 having reference No.MHN/MM/ST/CONTRACT/270/2015-16 and after perusing such records and proceedings, be pleased to quash and set aside the impugned decision at Annexure A taken by the respondent of banning the petitioner for two years from having business dealings with the respondent.
(C) The Hon'ble Court be pleased to stay the impugned decision dated 16.12.2020 having reference No. MHN/MM/ST/ CONTRACT/270/2015-16 pending admission, hearing and final disposal of the Special Civil Application.
(D) The Hon'ble Court be pleased to pass any other just and proper order as deemed fit in favor of the applicant."Page 3 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021
6. It appears from the materials on record that the respondent - ONGC issued a tender notice dated 9.8.2016 for hiring of services for operation and maintenance of South Santhal ETP, ONGC, Mehsana Asset. The bid offered by the writ-applicant came to be accepted and he was awarded contract to run and manage the ETP for a period of five years.
7. It further appears that although the writ-applicant succeeded in getting the contract awarded in his favour, yet problems cropped up between the parties from day one. The ONGC issued a show cause notice dated 31.8.2020 to the writ- applicant (Annexure-G page-68) calling upon the writ-applicant to show cause why the writ-applicant should not be put on holiday or in other words should not be blacklisted. The show cause notice reads thus;
"To, M/S. Global S S Construction Pvt. Ltd., 12, Nishant Shopping Center, Seven Bungalows, Andherl Mumbai.400053 Tel: 022-26341398/ 022-26341624 FAX: 022-26343381 Sub: Notice for banning your firm for unsatisfactory performance / failure of services, leading to termination of contract no. MHN/MM/ST/Contract/270/2015-16/9030007471 for 'Hiring of services for Operation & maintenance of South Santhal ETP for a period of five years' With reference to above contract followings are the findings:
1. M/S. Global S S Construction Pvt. Ltd, Mumbai was Page 4 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 awarded the contract for Hiring of services for Operation & maintenance of South Santhal ETP for a period of five years.
The contract period was from 14.082016 to 13.08.2021.
2. The contract was to "Operate and Maintain the 4000m3/Day Effluent Treatment Plant of South Santhal ET in accordance with the Scope Of Work, Technical Specifications, Special Conditions of Contract, Price Schedule and other terms & conditions specified at Annexure-B of the contract of contract no. 903007471.
3. It is observed that right from the beginning of the contract, serious violations of conditions of the contract had begun to take place. Indicative violations which were repeatedly brought to the notice of M/S. Global S S Construction Pvt. Ltd, Mumbai, verbally and in writing, were:
I. Frequent Non-availability of dozing chemicals such as PAC & DOPE at the plant and consequently failure to meet the desired quality of the treated water. This resulted in reduction in injectivity of the disposal wells and increase in well maintenance costs. The provisioning and supply chain management of the chemicals was completely in the scope of M/S. Global S S as per the contract.
II. Non-availability of M/S Global SS's site-coordinator at SS ETP for long periods at a stretch on multiple occasions leading to serious problems of plant operation, maintenance management, record-keeping and coordination between ONGC & the O&M agency. This absence of site-coordinator was in contravention to the requirement of Essential O & M Crew specified under Appendix-2 of Annexure-B of the contract.
III. Non-conformity to the maintenance and safety requirements contained in the contract. The complete absence /non-adherence to a systematic planned preventive maintenance schedule of process, mechanical & electrical equipment not only led to premature deterioration of their condition but also seriously impacted the safety integrity of the plant, which is a long-term loss to ONGC. It was observed that even basic maintenance consumables were not maintained at the site. As a result it was found that the plant was being Page 5 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 operated without redundancies since many of the equipment remained under prolonged break-downs. Contractor personnel were not provided with proper PPE and safety shoes as has been mandated in the contract. The MVT training for the contractual manpower, which was a mandatory and statutory obligation under the contract, non-compliance being punishable offence under law, was found not imparted to the contractual personnel.
IV. Non-payment of wages to O&M personnel. It was also brought to the notice of ONGC on various occasions by the O&M personnel that they were not being paid their wages, which was a violation of the conditions and also statutory obligation under the contract V. Abandonment of the plant by the contractual persons on 06.07.2020 citing non-payment of wages thereby completely bringing the plant to a standstill and seriously jeopardizing ONGC's operations in Santhal field.
VI. The gross violation and non-compliance of contract conditions, had serious impact not only on the quality of the treated water, but also significantly compromised the health of the equipment and safety adequacy of the plant.
ONGC's concerns regarding these issues of non-performance were conveyed right through the duration of the contract verbally as well as through numerous written communications.
4. In view of the continuously deteriorating services, and also the critical importance of the effluent treatment function of ONGC's operations, ONGC issued numerous notices advising M/S Global S S Construction Pvt. Ltd, Mumbai to take immediate steps for correcting the performance and compliance of contractual conditions and obligations. However, no response or effort was evident from your side.
5. The services under the contract had completely failed and repeated requests, advices and directives of ONGC over a three year period had yielded no adequate and satisfactory response from M/S Global S S Construction Pvt. Ltd, Mumbai and finally due to the complete failure of O & M services on Page 6 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 06.07.2020, ONGC terminated the contract and invoked the performance bank guarantee submitted against the instant tender.
6. Consequent to the termination of the contract, Competent authority has approved the initiation of enquiry against M/S Global S S Construction Pvt. Ltd,(Vendor code:838505), as per provision of Clause 18.6 of contract and the enquiry proceeding is governed by ONGC's Integrated Material Management Manual & General Conditions of the Contract, wherein undersigned is appointed as Enquiry Officer.
7. The undersigned in the capacity of Enquiry officer has observed that M/S Global S S Construction Pvt. Ltd, Mumbai's failure to abide by the contract condition, leading to severely hampering operations and inconveniencing ONGC and posing serious impact not only on the quality of the treated water, but also significantly compromising the health of the equipment & safety adequacy of the plant, construes a breach of the contract and renders M/S Global S S Construction Pvt. Ltd, Mumbai, liable for action as per relevant terms and conditions and procedure of ONGC. Undersigned seeks explanation of non-performance of M/S. Global S S Construction Pvt. Ltd part.
M/S Global S S Construction Pvt. Ltd, Mumbai, may likely to explain/ clarify their position regarding non-performance of contract conditions.
In keeping with principles of Natural Justice, you are hereby called upon to show-cause the circumstances/reasons of termination as elaborated above, in writing, within 15 days (Fifteen days) from the date of issue of this notice with relevant documentary evidence and submit justification as why your company M/S Global S S Construction Pvt. Ltd, Mumbai, along with its allied concerns, partners, associates or Director or proprietor involved in any capacity should not be put on holiday, failing which it shall be presumed that you have nothing to say in the matter/you have no further argument/explanation to furnish, and it would be assumed that M/S Global S S Construction Pvt. Ltd, Mumbai, do not have any objection to ONGC taking further ex-part decision as Page 7 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 deemed fit.
(Rajesh Khati) GM (Electrical) Enquiry Officer Surface Team ONGC, Mehsana"
8. The writ-applicant responded to the above referred show cause notice by filing reply dated 11.9.2020. In its reply, the writ-applicant took the stance that his performance was not good as there were many shortcomings and deficiencies in the plant itself. The writ-applicant informed the ONGC that it should not be held responsible for the turbidity and filterability. In other words, the writ-applicant pointed out to the ONGC that the plant was not designed for removing the turbidity and filterability from the trade effluent. The writ- applicant also made a request that he may be afforded personal hearing before any final decision is taken.
9. Ultimately, the ONGC thought fit to terminate the contract vide order dated 16.12.2020. The order of termination reads thus :-
"By Regd. Post & email to:
M/S GLOBAL S. S. CONSTRUCTION PVT. LTD, SHOPPING CENTRE, SEVEN BUNGLOWS ANDHERI(W), MUMBAI 400053 E-mail:
Vendor code: 838505 WITHOUT PREJUDICE Sub: Banning of business dealings with M/S GLOBAL S. S. CONSTRUCTION PVT. LTD, SHOPPING CENTRE, SEVEN Page 8 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 BUNGLOWS, ANDHERI(W), MUMBAI 400053 (ONGC vendor code: 838505) Ref:
1. Contract no. MHN/MM/ST/CONTRACT/270/2015-
16/9030007471 dated 09.08.2016 for hiring of services for operation and maintenance of South Santhal ETP, ONGC Mehsana Asset.
2. ONGC letter no. MHN/MM/ST/CONTRACT/270/2015-16 dated 27.08.2020 for suspension business dealings with M/S GLOBAL S. S. CONSTRUCTION PVT. LTD.
3 ONGC's show cause notice vide letter no.
MHN/MM/ST/CONTRACT/270/2015-16 dated 31.08.2020 issued to M/S GLOBAL S. S. CONSTRUCTION PVT. LTD.
4. Reply of M/S GLOBAL S. S. CONSTRUCTION PVT. LTD dated 11.09.2020 to the show cause notice of ONGC.
1. WHEREAS, Contract no. MHN/MM/ST/CONTRACT/270/ 2015-16/9030007471 was awarded on your firm, M/S GLOBAL S. S. CONSTRUCTION PVT. LTD, vide NOA dated 14.06.2016 for hiring of services of O&M for South Santhal ETP, ONGC, Mehsana for a period of 5 years.
2. AND WHEREAS, vide multiple communications, your firm was repeatedly directed to take corrective actions to remedy the deficiencies in your rendered services AND WHEREAS, it came to the notice of ONGC that your firm abandoned the plant in violation of all contractual, legal and statutory commitments under the above referred contract.
3. AND WHEREAS, in view of your failure to remedy the deficiencies in your rendered services and failure to comply with the requisition contained in the multiple notices issued by ONGC and your abandonment of the Site, the subject contract was terminated Vide letter no.MHN/MM/ST/CONTRACT/270/2015-16 dated 16.07 2020 on account of unsatisfactory performance on part of your firm and business dealings were suspended With your firm, M/S GLOBAL Page 9 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 S. S. CONSTRUCTION PVT. LTD, vide ONGC letter no.MHN/MM/ST/CONTRACT/270/2015-16 dated 27.08.2020.
4. AND WHEREAS, ONGC initiated enquiry on account of termination of contract no. MHN/MM/ST/CONTRACT/270/2015- 16/9030007471 as per clause no. 18.6 of general conditions of the contract against M/S GLOBAL S. S. CONSTRUCTION PVT. LTD.
5. AND WHEREAS, after giving reasonable opportunity to the contractor and considering all documents placed before him including reply of the contractor dated 11.09.2020, the enquiry officer, after making an impartial, prudent and careful consideration of all the facts, has come to conclusion that the responsibility for the situation leading to termination of the contract lies fully with the contractor.
6. AND whereas Competent Authority of ONGC has accepted the recommendation of enquiry officer and has decided to put the contractor on holiday for a period of two years from the date of suspension of business dealings.
7. THEREFORE, M/S GLOBAL S. S. CONSTRUCTION PVT. LTD, 12, "NISHANT", SHOPPING CENTRE, SEVEN BUNGLOWS, MUMBAI 400053 (ONGC vendor code:838505) along with its allied concern(s), partners(s) or associate(s) or director(s) or proprietor(s) involved in any capacity is hereby put on holiday for a period of 2 years from the date of suspension of business dealings, i.e. from 27.08.2020 to 27.08.2022.
During the aforementioned period of banning, i.e. from 27.08.2020 - 27.08.2022, neither any tender enquiry will be issued to M/S GLOBAL S. S. CONSTRUCTION PVT. LTD, 12, "NISHANT", SHOPPING CENTRE, SEVEN BUNGLOWS, ANDHERI(W), MUMBAI 400053 (ONGC vendor code:838505), along with its allied concern(s), partners(s) or associate(s) or director(s) or proprietor(s) involved in any capacity by ONGC against any type of tender nor their offer will be considered by ONGC against any ongoing tender(s) where contract between ONGC and that particular contractor (as a bidder) has not been concluded.
Page 10 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 Ajay Bhargava ED-AM ONGC, Mehsana Asset Copy to:
1. ED-Chief MM, ONGC, 2nd Floor, Pandit Deen Dayal Upadhyaya Urja Bhawan, 5, Nelson Mandela Marg, Vasnt Kunj, New Delhi - 110070
2. CGM-Head PMC, 2nd Floor, Pandit Deen Dayal Upadhyaya Urja Bhawan, 5, Nelson Mandela Marg, Vasnt Kunj, New Delhi - 110070
3. CGM-Head VMC, 2nd Floor, Pandit Deen Dayal Upadhyaya Urja Bhawan, 5, Nelson Mandela Marg, Vasnt Kunj, New Delhi - 110070
4. Head ICE, 13th Floor, Core-4, Scope Minar, Laxmi Nagar, Delhi - 110092 with request to block the vendor code -
838505 in SRM E-tender portal"
10. Being dissatisfied with the aforesaid order terminating the contract the writ-applicant has come up before this Court with the present writ-application.
11. Mr. Bhargav Hasurkar, the learned counsel appearing for the applicant vehemently submitted that the impugned order is erroneous and illegal as the mandatory thirty days notice as stipulated in the terms and conditions of the agreement was not issued. He would submit that the impugned order terminating the contract has ultimately led to the order placing his client in the holiday list/blacklisted and such action has been challenged by way of the connected writ-application i.e. the Special Civil Application No.11391 of 2020.Page 11 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 11.1 Mr. Hasurkar fairly pointed out that after the contract came to be terminated his client invoked the arbitration clause and called upon the ONGC to appoint an arbitrator. According to Mr. Hasurkar, the ONGC declined to appoint any arbitrator. In such circumstances, the writ-applicant had to come before this Court by filing application under Section 11 of the Arbitration Act for getting an arbitrator appointed. Mr. Hasurkar pointed out that such application is pending in this High Court as on date.
11.2 Mr. Hasurkar would submit that although a show cause notice was issued to his client yet no opportunity of personal hearing was given before terminating the contract. In such circumstances referred to above, Mr. Hasurkar prays that there being merit in his writ-application the same be allowed and the impugned order be quashed and set aside.
12. On the other hand, this writ-application has been vehemently opposed by Mr. Akshat Khare, the learned counsel appearing for the ONGC. Mr. Khare invited the attention of this Court to few relevant general conditions of the contract. He first invited our attention to Clause 18.4. The same reads thus :-
"18.4 Termination for unsatisfactory performance If the ONGC considers that the performance of the CONTRACTOR is unsatisfactory or, not upto the expected Page 12 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 standard, the ONGC shall notify the CONTRACTOR in writing and specify in detail the cause of such dissatisfaction. The ONGC shall have the option to terminate this Agreement by giving 30 days' notice in writing to the CONTRACTOR, if, CONTRACTOR fails to comply with the requisitions contained in the said written notice issued by the ONGC."
12.1 Thereafter he invited the attention of this Court to Clause 18.6. The same reads thus :-
"18.6 Consequences of termination In all cases of termination herein set forth, the obligation of the ONGC to pay shall be limited to the period upto the termination. Notwithstanding the termination of this Agreement, the parties shall continue to be bound by the provisions of this Agreement that reasonably require some action or forbearance after such termination.
In case of termination of Contract herein set forth, except under 18.1 and 18.2, and/or annulment of the contract due to non-submission of Performance Security (as per clause 36 of Annexure-I), following actions shall be taken against the Contractor:
i. ONGC shall conduct an inquiry against the Contractor and consequent to the conclusion of the inquiry, if it is found that the fault is on the part pf the Contractor, then they shall be put on holiday [i.e neither any tender enquiry be issued to such a Contractor by ONGC against any type of tender nor their offer will be considered by ONGC against any ongoing tender(s) where contract between ONGC and that particular Contractor (as a bidder) has not been concluded) for a period of two years from the date the order for putting the Contractor on holiday is issued. However, he action taken by ONGC for putting that Contractor on holiday shall not have any effect on other ongoing contract(s), if any with that Contractor which shall continue till expiry of their term(s).
ii. Pending completion of the enquiry process for putting the Contractor on holiday. ONGC shall neither issue any tender Page 13 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 enquiry to the defaulting Contractor nor shall consider their offer in any ongoing tender."
12.2 According to Mr. Khare, as the ONGC found the performance of the writ-applicant unsatisfactory it thought fit to terminate the contract. Mr. Khare would submit that the show cause notice issued by the ONGC dated 31.8.2020 makes the picture abundantly clear. He would submit that not only the performance of the writ-applicant was found to be unsatisfactory, but the writ-applicant is guilty of abandoning the plant during the covid period. This led to a serious impact not only on the quality of the treated water but also significantly on the performance of the equipments and safety of the plant.
12.3 Mr. Khare invited the attention of this Court to few relevant averments made in the affidavit-in-reply. We quote those averments as under :-
"9. I further say & submit that the petitioner is trying to take shelter of pandemic situation for its non-performance of contract and trying to invoke Force Majure. It is to state that the Government of India had imposed a nationwide lockdown by order dated 24.03.2020 under Disaster Management Act, 2005 with effect from 2503.2020 due to Covid-19 pandemic situation. The copy of the notification dated 2 .03.2020 is annexed herewith and marked as Annexure-R-III As per the said order the essential services were permitted to continue after maintaining SOPs (Standard Operating Procedures).Under the said lockdown order, the plant and operation of oil industries were considered as an essential service. Thus, it was incumbent upon respondent to operate its SSEPT which could run smoothly only after efficient treatment of ETP for Page 14 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 which the maintenance and operation of the said ETP plant was awarded to the present petitioner. Thereby, meaning the activities and the scope of work under the subject contract was covered under the essential services.
10. I further say & submit that the petitioner instead of supporting respondent for smooth functioning of SSETP, had actually abandoned the contract during the lockdown period and had tried to invoke Force Majeure clause no.23.0 by its letter dated 29.05.2020 (Page No.62). In the said letter, the petitioner had pleaded lockdown due to Covid-19 pandemic situation for discontinuation of contract and invoking of force majeure. The respondent, vide its email dated 01.06.2020 and 09.06.2020(Page No.63), had replied to petitioner by communicating their decisions for rejecting such force majeure on the ground that
(a). there were no restrictions for essential services in District, Mehasana during the lockdown period from 23.03.2020 to 31.05.2020 and
(b). during the unlock period starting from 01.06.2020 such restrictions were further relaxed for all purposes by Government of India.
It is important to note that the petitioner had knowingly suppressed ONGC's reply email dt. 01/06/2020 in which ONGC had given above stated reasons for rejecting claim of Force Majeure. The copy of said ONGC email dt. 01/06/2020 is annexed herewith and marked as Annexure -- R-IV. Thus, as per the settled position of law by Hon'ble Supreme Court in case of (2017) 14 SCC 80, Energy Watchdog and ors vs Central Electricity Regulatory Commission and ors., there was no permanent inability of the petitioner for non-performance of contract.
11. I further say and submit that ONGC. vide letter dated 06.07.2020 (Page No.64), had intimated the petitioner about deficiency in performance of the contract as well as abandoning the contract site which had created a Labour unrest due to non-payment of wages by it. Thus, ONGC by the said letter had also intimated the petitioner about abandonment of contract and further action to be taken by Page 15 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 ONGC against the contractor under the contractual provision.
It is further submitted that based on the aforesaid facts and inability of the petitioner to perform the contract, ONGC was compelled to terminate the contract by its letter dated 16.07.2020 (Page No.65) on account of abandoning of contract by petitioner. It said termination letter, ONGC had also intimated about forfeiting of bank guarantees and putting the contractor on holiday period resulting into banning for two years. In reply to the said termination notices, the petitioner, vide its letter dated 18.07.2020 (Page No. 66), had alleged various allegations against the respondent and tried to substantiate its absence due to Covid-19 and requested ONGC to continue its contract. It is to be noted that the said letter dated 18.07.2020 is self-contradictory to the petitioner's earlier letter dated 29.05.2020 which clearly proves the mala-fide intention of the petitioner to take undue benefit out of nationwide lockdown.
12. I further say and submit that after termination of the contract by ONGC, it had issued letter dated 27.08.2020forintimating the petitioner about suspension till the proceedings for putting petitioner onholiday for a period of two years is decided. The copy of said ONGC letter dt. 27/08/2020 is annexed herewith and marked as Annexure-R-V. Subsequently, ONGC had also issued show cause notice dated 31.08.2020 (Page No. 68) by pointing out all deficiency & breach in performance of the contract even prior to lockdown period and had called upon the petitioner to substantiate its reasons for the same. Against the said Show Cause Notice, the Petitioner had replied by its letter dt.11/09/2020. The Copy of reply letter dt. 11/09/2020 is annexed herewith and marked as Annexure R-VI. Subsequently, the Enquiry Officer had concluded the enquiry and had recommended for putting petitioner on holiday period of 2 years. Thereafter, the competent authority had accepted the recommendation of enquiry officer and by letter dt.16/12/2020 (page no. 27) had intimated the petitioner about putting petitioner on holiday for 2 years from 27.08.2020 to 27.08.2022.
13. I say and submit that it is evident from the above facts that the petitioners have failed to perform the contract since Page 16 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 inception and are now trying to take advantage a force majeure clause in guise of nationwide lockdown between the 23.03.2020 to 21.05.2020. It is to state that as per clause No.23 of GCC, it has been agreed between the parties that a force majeure shall mean an Act of God, war, civil riots, fire, flood, directly affecting the performance of the contract. Under the said clause it is also to agree that the petitioner was required to give notice in writing for force majeure within 72 hours of beginning of such cause. Whereas in the instance case the lockdown was implemented by official order dated 23.03.2020 which was highly circulated in media and petitioner had claimed such force majeure after expiry of entire lockdown period by letter dated 29.05.2020.
ii) Moreover, as per Clause No.23, if the force majeure continued for more than a period two months, then ONGC had the option of cancelling the subject contract at its discretion without any liability. But in present case it is petitioner who had rescind the contract by its letter dt.29/05/2020.
iii) It is important to note that various other contractors who were engaged in operation and maintenance of the various other activities of the plant had continued to perform the contract even during the lockdown period also which proves that there was no real restriction for such essential services by the contractor.
Thus, the petitioner had failed to point out special equities or situation which had compelled the petitioner to not perform the subject contract since 2016 and also during the lock down period. The petitioner had also failed to provide any reason for his nonperformance of the contract for a period prior to lockdown since awarding of the contract. Thus, the action initiated by ONGC against the petitioner is per the contractual provision and based on the unsatisfactory performance since awarding of the contract till the date of termination.
14. I respectfully say and submit that ONGC vide letter dt. 27.08.2020 while suspending business with petitioner under subject contract had explicitly intimated that it would not affect the on going contract awarded to petitioner. Thus, Page 17 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 Petitioner cannot suffer any damages in the ongoing contracts which it had stated in the petitioner. It is pertinent to note that performance of contracts is assed on individual contract basis. So, a contractor may be able to perform some contract but it may fail to perform in another contract due to not being able to handle the increased scale of business or peculiar location of contract. Thus, ONGC had only put petitioner on holiday and not black listed it. The purpose of putting contractors on holiday is to gain experience from failure in performance of contract and to evolve in scale & size within 2 years to re-bidding in the tenders of the respondent. Thus, the banning is only beneficial to petitioner for not continue losses & get over loaded with contractual liabilities. Therefore, decision of putting petitioner on holiday for 2 years cannot be termed as harsh or punitive actions of ONGC.
15. I lastly say and submit that the petitioner had already invoked arbitration clause No.27 by its letter dated 22.09.2020. It is submitted that as per arbitration Clause No.27, all disputes or differences or questions or disagreements with respect to construction meaning, operation, effect, interpretation and breach can be referred to first OEC and then to arbitration. It is to note that :
i) Whereas in the instant case when the petitioner had itself abandoned the contract by its letter dated 29.05.2020 which had resulted into termination of the contract by ONGC by letter dated 16.07.2020, there cannot be said to be any disputes or differences or disagreements in such facts.
ii) Furthermore, the Petitioner in present petition had challenged the decision of ONGC for putting it on holiday period of 2 years which is only a consequence of termination of contract. Thus, in event of abandoning the contract, it is now not open to petitioner to raise grievance about its consequences. Even for the sake of argument also such decision of ONGC can only be regarded as differences between the parties at best and for the same the petitioner has already availed remedy available under section 11 of Arbitration and Conciliation Act, 1996."Page 18 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 12.4 In the last, Mr. Khare submitted that as the writ- applicant has already invoked the arbitration clause and his application filed under Section 11 of the Arbitration Act is pending before this Court, this Court may not interfere with the impugned order of termination of contract.
Analysis :-
13. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether we should entertain this writ-application imposing the order of termination of contract ?
14. The Supreme Court in Pimpri Chinchwad Municipal Corporation & Ors. Vs. Gayatri Construction Company & Anr. (2008) 8 SCC 172 after drawing a distinction between the statutory contracts and the private contracts awarded by the statutory bodies and after placing reliance on the various earlier judgments of the Supreme Court held in following paras as under:
"7. In matters relating to maintainability of writ petitions in contractual matters there are catena of decisions dealing with the issue.
8. In National Highways Authority of India v. Ganga Enterprises : AIR2003SC3823 , it was inter alia held as follows:
"6. The respondent then filed a writ petition in the Page 19 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 High Court for refund of the amount. On the pleadings before it, the High Court raised two questions viz.: (a) whether the forfeiture of security deposit is without authority of law and without any binding contract between the parties and also contrary to Section 5 of the Contract Act; and (b) whether the writ petition is maintainable in a claim arising out of a breach of contract. Question (b) should have been first answered as it would go to the root of the matter. The High Court instead considered Question (a) and then chose not to answer Question (b). In our view, the answer to Question (b) is clear. It is settled law that disputes relating to contracts cannot be agitated under Article 226 of the Constitution of India. It has been so held in the cases of Kerala SEB v. Kurien E. Kalathil : AIR2000SC2573 ; State of U.P. v. Bridge & Roof Co. (India) Ltd. MANU/SC/0969/1996 : AIR1996SC3515 and Bareilly Development Authority v. Ajai Pal Singh :
[1989]1SCR743 . This is settled law. The dispute in this case was regarding the terms of offer. They were thus contractual disputes in respect of which a writ court was not the proper forum. Mr Dave, however, relied upon the cases of Verigamto Naveen v. Govt. of A.P. MANU/SC/0570/2001 : AIR2001SC3609 ) and Harminder Singh Arora v. Union of India :
[1986]3SCR63 . These, however, are cases where the writ court was enforcing a statutory right or duty. These cases do not lay down that a writ court can interfere in a matter of contract only. Thus on the ground of maintainability the petition should have been dismissed."
9. In Kerala State Electricity Board and Anr. v. Kurien E. Kalathil and Ors.: AIR2000SC2573, this Court dealt with the question of maintainability of petition under Article 226 of the Constitution and the desirability of exhaustion of remedies and availability of alternative remedies, as also difference between statutory contracts and non-statutory contracts. In paras 10 and 11 of the judgment it was noted as follows:
"10. We find that there is a merit in the first Page 20 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 contention of Mr Raval. Learned Counsel has rightly questioned the maintainability of the writ petition. The interpretation and implementation of a clause in a contract cannot be the subject-matter of a writ petition.
Whether the contract envisages actual payment or not is a question of construction of contract. If a term of a contract is violated, ordinarily the remedy is not the writ petition under Article 226 . We are also unable to agree with the observations of the High Court that the contractor was seeking enforcement of a statutory contract. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. We are also unable to agree with the observation of the High Court that since the obligations imposed by the contract on the contracting parties come within the purview of the Contract Act, that would not make the contract statutory. Clearly, the High Court fell into an error in coming to the conclusion that the contract in question was statutory in nature.
11. A statute may expressly or impliedly confer power on a statutory body to enter into contracts in order to enable it to discharge its functions. Dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied. The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act. Every act of a statutory body need not necessarily involve an exercise of statutory power. Statutory bodies, like private parties, have power to contract or deal with property. Such activities may not raise any issue of public law. In the present case, it has not been shown how the contract is statutory. The contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article226 of the Constitution of India. That is a matter for adjudication Page 21 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 by a civil court or in arbitration if provided for in the contract. Whether any amount is due and if so, how much and refusal of the appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ petition. The contractor should have relegated to other remedies."
10. Reference can also be made to State of Gujarat and Ors. v. Meghji Pethraj Shah Charitable Trust and Ors :
[1994]3SCR163 . In para 22 it was observed as follows:
"22. We are unable to see any substance in the argument that the termination of arrangement without observing the principle of natural justice (audi alteram partem) is void. The termination is not a quasi-judicial act by any stretch of imagination; hence it was not necessary to observe the principles of natural justice. It is not also an executive or administrative act to attract the duty to act fairly. It was - as has been repeatedly urged by Shri Ramaswamy - a matter governed by a contract/agreement between the parties. If the matter is governed by a contract, the writ petition is not maintainable since it is a public law remedy and is not available in private law field, e.g., where the matter is governed by a nonstatutory contract. Be that as it may, in view of our opinion on the main question, it is not necessary to pursue this reasoning further."
11. Again in State of U.P. And Ors. v. Bridge & Roof Company (India) Ltd. : AIR1996SC3515 , this Court dealt with the issue in paras 15 and 16 in the following manner:
"15. In our opinion, the very remedy adopted by the respondent is misconceived. It is not entitled to any relief in these proceedings, I.e., in the writ petition filed by it. The High Court appears to be right in not pronouncing upon any of the several contentions raised in the writ petition by both the parties and in merely reiterating the effect of the order of the Deputy Commissioner made under the proviso to Section 8D(1).
16. Firstly, the contract between the parties is a contract in the realm of private law. It is not a statutory contract. It is governed by the provisions of the Contract Act or, maybe, also by certain provisions Page 22 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 of the Sale of Goods Act. Any dispute relating to interpretation of the terms and conditions of such a contract cannot be agitated, and could not have been agitated, in a writ petition. That is a matter either for arbitration as provided by the contract or for the civil court, as the case may be. Whether any amount is due to the respondent from the appellant-Government under the contract and, if so, how much and the further question whether retention or refusal to pay any amount by the Government is justified, or not, are all matters which cannot be agitated in or adjudicated upon in a writ petition. The prayer in the writ petition, viz., to restrain the Government from deducting a particular amount from the writ petitioner's bill(s) was not a prayer which could be granted by the High Court under Article 226. Indeed, the High Court has not granted the said prayer."
12. At para 11 of India Thermal Power Ltd. v. State of M.P. And Ors. : [2000]1SCR925 , it was observed as follows:
"11. It was contended by Mr. Cooper, learned Senior Counsel appearing for appellant GBL and also by some counsel appearing for other appellants that the appellant/IPPs had entered into PPAs under Sections 43 and 43A of the Electricity Supply Act and as such they are statutory contracts and, therefore, MPEB had no power or authority to alter their terms and conditions. This contention has been upheld by the High Court. In our opinion the said contention is not correct and the High Court was wrong in accepting the same. Section 43 empowers the Electricity Board to enter into an arrangement for purchase of electricity on such terms as may be agreed. Section 43A(1) provides that a generating company may enter into a contract for the sale of electricity generated by it with the Electricity Board. As regards the determination of tariff for the sale of electricity by a generating company to the Board, Section 43(1)(2) provides that the tariff shall be determined in accordance with the norms regarding operation and plant-load factor as may be laid down by Page 23 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 the authority and in accordance with the rates of depreciation and reasonable return and such other factors as may be determined from time to time by the Central Government by a notification in the Official Gazette. These provisions clearly indicate that the agreement can be on such terms as may be agreed by the parties except that the tariff is to be determined in accordance with the provision contained in Section 43A(2) and notifications issued thereunder. Merely because a contract is entered into in exercise of an enabling power conferred by a statute that by itself cannot render the contract a statutory contract. If entering into a contract containing the prescribed terms and conditions is a must under the statute then that contract becomes a statutory contract. If a contract incorporates certain terms and conditions in it which are statutory then the said contract to that extent is statutory. A contract may contain certain other terms and conditions which may not be of a statutory character and which have been incorporated therein as a result of mutual agreement between the parties. Therefore, the PPAs can be regarded as statutory only to the extent that they contain provisions regarding determination of tariff and other statutory requirements of Section43A(2) . Opening and maintaining of an escrow account or an escrow agreement are not the statutory requirements and, therefore, merely because PPAs contemplate maintaining escrow accounts that obligation cannot be regarded as statutory."
13. Therefore, the High Court ought not to have entertained the writ petition. Additionally, it appears that by order dated 17.1.2007 interim stay of the impugned order was granted and was continued by order dated 12.2.2007. It is pointed out by learned Counsel for the appellants that since the order of the High Court was stayed and there was urgency in the matter fresh tenders were called for. Three persons submitted the bids and the work has already been allotted and a considerable portion of the work has already been completed. In view of aforesaid, we set aside the impugned order of the High Court and direct dismissal of the writ petition. It is however open to the respondents-writ petitioners to seek such Page 24 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 remedy, if so advised, as is available in law. We do not express any opinion in that regard."
15. Applying the aforesaid principles to the facts of the present case, Mr. Mehta submitted that the issue with regard to the legality and validity of termination of a non-statutory contract cannot be agitated by invoking the writ jurisdiction of this Court under Article 226 of the Constitution of India. Mr. Mehta placed reliance on the decision of the Supreme Court in the case of State of Gujarat vs. Meghji Pethraj [1994(3) SCC 552], wherein, the Apex Court observed as follows:
"If the matter is governed by a contract, the writ petition is not maintainable since it is a public law remedy and is not available in private law field, e.g., where the matter is governed by a non-statutory contract."
16. In the very same judgement, the Supreme Court considered the argument that the termination of agreement without observing the principles of natural justice is void. The Supreme Court has specifically observed that the termination of contract is not a quasi-judicial act and it is also not an executive or administrative act. It is a matter governed by contract / agreement between the parties. The question before this Court is whether the contract has been cancelled on a ground de hors any of the terms of the contract and which is per se violative of Article 14 of the Constitution ? Should the High Court decline to entertain the writ application on the premise that the contract is non-statutory in nature ?
Page 25 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021
17. In the aforesaid context, we may refer to a Full Bench decision of the Patna High Court in the case of M/s. Pancham Singh vs. The State [AIR 1991 Patna 168], Justice N.P. Singh (as His Lordship then was), speaking for the Bench, had observed as under:
"11. In view of the plea taken on behalf of the respondents in respect of cancellation of the work order and agreement executed in favour of the petitioner for construction of the spillway in question, it has been urged that the contract has been cancelled not on ground of any breach of the terms of the agreement by the petitioner but because of the alleged revision of the design and the drawing in respect of the project in question resulting in reduction of the estimated cost of construction. In other words, even according to the respondents, the ground for cancellation of the work order and the agreement is not referable to any of the terms of the agreement but is de hors the said agreement. It has been pointed out that the ground for cancellation does not flow from the terms of the agreement, but based on a subsequent development in connection with the project in question. In this background the question, which has to be answered, is as to whether on the facts and in the circumstances of the present case it can be said that this case is covered by category (iii), indicated in the judgment of the case of Radhakrishna Agarwal (AIR 1977 SC 1496) (supra), so that the writ application is to be dismissed, directing the petitioner to seek remedy before the appropriate forum.
12. Apart from the case of Radhakrishna Agarwal (supra) Supreme Court has considered the scope of Article 226 of the Constitution in connection with contractual obligations of the State with the citizen, in other cases in the light of Article 14 of the Constitution. In the well Page 26 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 known case of Ramana Dayaram Shetty v. The international Airport Authority of India (AIR 1979 SC 1628) it was pointed out that "modern welfare State which is committed to egalitarian values and dedicated to the rule of law", has to act while awarding contract, under the constitutional mandate of Article 14, as also the judicially evolved rule of administrative law. It was pointed out : -
"It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant. "
It was also pointed out : -
"It is indeed unthinkable that in a democracy governed by the rule of law the executive Government or any of its officers should possess arbitrary power over the interests of the individual. Every action of the executive Government must be informed with reason and should be free from arbitrariness. That is the very essence of the rule of law and its bare minimal requirement. " (Emphasis added) It was also said: -
"This rule also flows directly from the doctrine of equality embodied in Art. 14. It is now well settled as a result of the decisions of this Court in E. P. Royappa v. State of Tamil Nadu, (1974) 2 SCR 348: (AIR 1974 SC 555) and Maneka Gandhi v. Union of India, (1978) 1 SCC 248: AIR 1978 SC 597 that Page 27 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires that State action must not be arbitrary but must be based on some rational and relevant principle which is non-discriminatory it must not be guided by any extraneous or irrelevant consideration, because that would be denial of equality. The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterise every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot, therefore, act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational and non-discriminatory."
13. In the case of M/s. Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir (AIR 1980 SC 1992) again it was reiterated: -
"Whatever be its activity, the Government is still the Government and is, subject to restraints inherent in its position in a democratic society. The constitutional power conferred on the Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner."
14. It was impressed in the case of Maneka Gandhi v. Union of India (AIR 1978 SC 597), that rule of reason, rule against arbitrariness and discrimination, rule of fair play and natural justice are part of the rule of law applicable in the actions by the State instrumentality.
15. Recently in the case of Mahabir Auto Stores v. Indian Oil Corporation, (AIR 1990 SC 1031) the same question was considered. In that case the petitioners' firm was Page 28 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 carrying on business of sale and distribution of lubricants for 18 years on the basis of supply being made by Indian Oil Corporation. Abruptly the supply of lubricants was stopped to the firm by the Indian Oil Corporation without any notice or intimation. In that connection it was pointed out as follows :
"In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi monopoly dealings, it should meet the test of Article 14 of the Constitution. If a Government action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. ....
It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-
discrimination in the type of the transactions and nature of the dealing as in the present case."Page 29 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 (Emphasis added)
16. In yet another case of M/s. State Enterprises etc. v. The City and Industrial Development Corporation of Maharashtra Ltd. (1990) 2 JTSC 401 it was said by the Supreme Court : -
"In recent times, judicial review of administrative action has become expansive and is becoming wider day by day. The traditional limitations have been vanishing and the sphere of judicial scrutiny is being expanded. State activity too is becoming fast pervasive.
As the State has descended into the commercial field and giant public sector under-takings have grown up, the stake of the public exchequer is also large justifying larger social audit, judicial control and review by opening of the public gaze; these necessitate recording to of reasons for executive, actions including cases of rejection of highest offers. That very often involves long stakes and availability of reasons for action on the record assures credibility to the actio disciplines public conduct and improves the culture of accountability. Looking for reasons in support of such action provides an opportunity for an objective review in appropriate cases both by the administrative superior and by the judicial process;" (Emphasis added)
17. Recently in connection with termination of the appointment of the District Government Counsel by the State Government of Uttar Pradesh the same question was considered by the Supreme Court in the case of Kumari Shrilekha Vidyarthi v. State of U.P. ((1990) 3 SCJ
336) where it was pointed out : -
"Applicability of Article 14 to all executive actions of the State being settled and for the o same reason Page 30 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 its applicability at the threshold to the making of a contract in exercise of the executive power being beyond dispute, can it be said that the State can thereafter cast off its personality and exercise unbridled power unfettered by the requirements of Article 14 in the sphere of contractual matters and claim to be governed therein only by private law principles applicable to private individuals whose rights flow only from the terms of the contract without anything more? We have no hesitation in saying that the personality of the State, requiring regulation of its conduct in all spheres by requirements of Article 14, does not undergo such a radical change after the making of a contract merely because some contractual rights accrue to the other party in addition. It is not as if the requirements of Article 14 and contractual obligations are alien concepts, which cannot co- exist." (Emphasis added) It was further said: -
"We have no doubt that the Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. In our opinion, it would be alien to the constitutional Scheme to accept the arguments of exclusion of Article 14 in the contractual matters. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion. This is more so when the modern trend is also to examine the unreasonableness of a term in such contracts where the bargaining power is unequal so that these are not negotiated contracts but standard from contracts between unequals."Page 31 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 It was then said : -
"However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non- arbitrariness at the hands of the State in any of its actions."
18. Learned Advocate-General, appearing for the State, in view of the aforesaid judicial pronouncements could not contend that as the dispute relates to contractual obligations between the petitioner and the State, a writ application under Article 226 of the Constitution is not maintainable, where grievance has been made about arbitrariness and lack of fair play on the part of the State, violative of Article 14 of the Constitution. But according to the learned Advocate-General in none of the cases referred to above, any formal agreement had been executed in terms of Article 299 of the Constitution and, as such, any observation or direction in connection with those contractual obligations shall not be applicable to the facts of the present case. In other words, this case is covered by category (iii) mentioned in the case of Radhakrishna Agarwal (AIR 1977 SC 1496) (supra). It was also pointed out on behalf of the respondents that in the case of Radhakrishna Agarwal (supra) Supreme Court held that once the State or its agents have entered into the field of ordinary contracts, no question of violation of Article 14 or of any other constitutional provision arises. In this connection reference was made to the Page 32 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 following observations: -
"But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation of Art.14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the state in the contractual field which is apart from contract."
19. It is true that in none of the cases referred to above any formal agreement had been executed between the persons concerned and the State; the observations in respect of applicability of Article 14 of the Constitution, in connection with contractual obligations has been made in connection with the contracts in general. But at the same time the observation in the case of Radhakrishna Agarwal (supra) that once the State or its agents have entered into the field of ordinary contract no question arises of violation of Article 14 or any other constitutional provision, must be read in connection with the grievances referable to breach of the terms of duly executed agreement. I have already pointed out above, that there will be difference, where the cancellation is because of the breach of any of the terms of the contract and where cancellation of the contract, is on a ground de hors the terms of the contract. In my view, where an agreement executed in accordance with Article 299 of the Constitution is cancelled on a ground which is not referable to any of the terms of the contract, and is per se violative of Article 14 of the Constitution, this Court can exercise the jurisdiction under Article 226 of the Page 33 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 Constitution. This can be appreciated by an example. After execution of an agreement in accordance with Article 299 of the Constitution, the contractor is asked by the authority concerned not to proceed with the construction of the project on the ground that later it has been discovered that such contractor is not resident of the district in which the project is to be constructed. Can it be urged in such a situation, that as the contractor has entered into an agreement with the State Government he cannot invoke the jurisdiction of this Court under Article 226 of the Constitution and he should be directed to knock the door of civil Court for damages or specific performance of the contract although the order is per se violative of Article 14 of the Constitution?"
18. A Division Bench of the Calcutta High Court in the case of The Director of Supply and Disposals and Anr. vs. M/s. Vijay Shree Ltd. and Or. reported in AIR 2006 Calcutta 46 had the occasion to consider the question whether a writ petition is absolutely barred in the matters of non-statutory contract with the "State". V.S. Sirpurkar, C.J. (as His Lordship then was), speaking for the Bench, had observed as under:
"17. This brings us on the wider issue as to whether the writ petition was maintainable and whether it could have been entertained in the circumstances of the case. The Apex Court from time to time has held that the High Court should not ordinarily entertain the writ petition under Article 226 of the Constitution where disputed questions of facts are involved while considering the questions arising out of the contracts where one of the parties is the State. The Apex Court has discouraged the High Courts from entertaining a writ petition under Article 226, particularly when such contracts are not the statutory contracts. In LIC of India v. Escorts Ltd., reported in (1986) 1 SCC 264 : (AIR 1986 SC 1370, the Apex Court declared that if the action of the State related to Page 34 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 contractual obligations was not to be ordinarily examined by the Court unless such action had some public law character attached to it. The Court further expressed the difficulty involved in demarcating the public law domain and the private law field and further ordered that the question must be decided in each case with reference to the particular action. The Supreme Court in the same case observed that where the State assumes to itself the ordinary role its right and liability should be tested as an ordinary contracting party. There can however, be no doubt that in this decision it was not held that the High Court's jurisdiction under Article 226 in the matters of contract was totally barred. The Supreme Court in the earlier cases like K. N. Guruswamy v. State of Mysore, reported in AIR 1954 SC 592 and D.F.O. v. Ram Sanehi Singh, reported in (1973) 3 SCC 864 : (AIR 1973 SC 205), had also held that the writ petitions would be maintainable in the sense that there would be no absolute bar to the exercise of the jurisdiction. It was observed by the Supreme Court in State of Bihar v. Jain Plastics and Chemicals Ltd. reported in (2002) 1 SCC 216 : (AIR 2002 SC
206), that seriously disputed questions or rival claims of the parties with regard to the breach of contract are to be investigated and determined on the basis of evidence which may be led by parties in a properly instituted civil suit rather than by a Court issuing prerogative writs.
18. The learned Senior Counsel for the petitioner, Mr. Pratap Chatterjee, invited our attention to ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. reported in (2004) 3 SCC 553. He pointed out that in this decision the Supreme Court had taken into consideration practically all the cases on the question of the tenability of a writ petition under Article 226 in the matters of contractual obligations of the State. The learned counsel contends that the Supreme Court has held in this decision in the clearest possible terms that the writ petition is not absolutely barred in such matters.
Our attention was invited to paragraph 19 which is as under :
"19. Therefore, it is clear from the above enunciation of law that merely because one of the parties to the litigation raises a dispute in regard to the facts of the Page 35 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 case, the court entertaining such petition under Article 226 of the Constitution is not always bound to relegate the parties to a suit. In the above case of Gunwant Kaur (AIR 1970 SC 802 this Court even went to the extent of holding that in a writ petition, if the facts require, even oral evidence can be taken. This clearly shows that in an appropriate case, the writ Court has the jurisdiction to entertain a writ petition involving disputed questions of fact and there is no absolute bar for entertaining a writ petition even if the same arises out of a contractual obligation and/or involves some disputed questions of fact."
19. The learned counsel also took us through the paragraph where the Supreme Court has referred to its judgement in Kumari Shrilekha Vidyarthi v. State of U. P., reported in (1991) 1 SCC 212 : (AIR 1991 SC 537). Ultimately, the learned senior counsel pointed out from the observations in paragraph 23 that once the State or an instrumentality of the State is a party of the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India and where the State acts in contravention of the abovesaid requirement, a writ Court can issue suitable directions to set right the arbitrary actions. Developing his argument and applying it to the present case, the learned counsel argued that in the writ petition itself the basic prayer was for quashing the "order" dated 2nd June 2003 passed by the Jute Commissioner. The learned counsel further pointed out that once that order was quashed and declared to be illegal and invalid, the necessary relief of payment would automatically follow which was prayed for in prayer clause (G) of the writ petition. The learned counsel pointed out that the said order was per se arbitrary inasmuch as the respondents had no power to withhold a payment against a different lot on the ground that the earlier lot supplied was defective. This, according to the learned counsel, clearly amounted to not only the breach of contract, but an action which is totally arbitrary and without any justification in law.
20. We have already shown that in the first place this was not an "order" passed. It was merely a communication. Again Page 36 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 there was no total and final refusal to pay the amount. The amount was only "withheld" temporarily which would be clear from the contents of paragraph 3 of the said letter dated 12-9-2003. In that letter itself, there is a clear reference to the matter being settled with Purchase Officer. Not only this, but thereafter also even before the writ petition was filed, the writ petitioner had shown its readiness to settle the matter regarding the payment. We have already pointed out earlier that the matter could have been settled only after the joint inspection of the damaged goods. Therefore, it was clear that there was no finalized action on the part of the original respondents-appellants herein to refuse the payment. Could such action then be, viewed as an arbitrary action where there was clearly an invitation on the part of the State instrumentality to settle the dispute ? In our opinion, this could not be said to a finalized action and therefore, this could not be viewed to be an appropriate case where a remedy could be sought for by the writ petitioner by way of a writ petition.
21. In the same judgement itself in paragraph 27 and paragraph 28, the Supreme Court has held as under :
"27. From the above discussion of ours, the following legal principles emerge as to the maintainability of a writ petition.
(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.
(b) Merely because some disputed questions of facts arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule.
(c) A writ petition involving a consequential relief of monetary claim is also maintainable.
28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the Court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution of India is plenary in Page 37 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks) (AIR 1999 SC 22). And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction."
22. Considering this, it would have to be held that though the writ petition is not absolutely barred in the matters of non-statutory contract with the State, the factual situation has to be tested to see whether it should be entertained. There would be a lot of differences between the two concepts of tenability of the petition and the propriety to entertain the same. As has been held by the Supreme Court above, the High Court has a discretion to entertain or not to entertain a petition and it is again reiterated that the High Court will not normally exercise as plenary right to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14. We have already pointed out that in this case, it could not be said that there is any unreasonableness on the part of the present appellants. On the other hand, we are of the clear opinion that the writ petitioner, without any justification, straightway rushed to file a writ petition even when there was an invitation to settle the dispute and when no final action was taken by the appellants. There was, in fact, no refusal on the part of the appellants to pay the amount in question. What was done, was "withholding" the amount till there was a joint inspection and till the matters were resolved in between the parties in connection with the damaged goods supplied by the writ petitioners. Thus, in our opinion, the writ petition should not have been entertained firstly because it was a premature writ petition and secondly it pertained to the Page 38 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 disputed questions of facts which questions we have already shown in the earlier part of the judgement. Undoubtedly, those questions could not have been solved merely on the basis of the affidavit and counter-affidavit. Another reason for not entertaining the writ petition as the availability of the (alternative) remedy of filing the civil suit where all the disputed questions could have been solved by allowing parties to lead the evidence. We are, therefore, not in a position to agree with the learned single Judge and would choose to dismiss the writ petition."
19. Thus, the Courts have maintained a distinction between the statutory contracts, on one hand, and non-statutory ones, on the other. While judicial review was held to be permissible, both as regards the award and cancellation of the contracts of the former category, the same was confined to certain aspects in the latter category. If the termination of contract is on the ground that a party thereto had violated the conditions therefor, such party is invariably required to work out his remedies as provided for under the relevant contracts, viz., arbitration or civil suit, as the case may be. However, where an element of administrative exercise is undertaken and executive power is exercised, considerations and parameters are somewhat different. The evaluation of such administrative and executive exercise, which in turn had given rise to the cancellation of the contract, would almost be unsusceptible of adjudication by a civil court. The reason is that the exercise of such administrative or executive power is not guided by the clauses in the contract. It is traceable to the inherent executive powers of the State and the only recognised mode of Page 39 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 evaluation of such administrative power is judicial review, as provided for under Articles 32 and 226 of the Constitution of India.
20. It goes without saying that the respondent herein is a "State" within the meaning of Article 12 of the Constitution of India. Its conduct in all fields including a contract is expected to be fair and reasonable. It is not supposed to act arbitrarily, capriciously or whimsically. The law is well settled that if an action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India or its action is absolutely arbitrary or unfair, a writ petition would be maintainable even in the contractual field.
21. In the matter of Noble Resources Ltd. vs. State of Orissa and another [(2006) 10 SCC 236], the Supreme Court has held that:
"14. Respondent 2 is "State" within the meaning of Article 12 of the Constitution of India. Its conduct in all fields including a contract is expected to be fair and reasonable. It was not supposed to act arbitrarily, capriciously or whimsically.
15. It is trite that if an action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India, a writ petition would be maintainable even in the contractual field. A distinction indisputably must be made between a matter which is at the threshold of a contract and a breach of contract; whereas in the former the court's scrutiny would be more intrusive, in the latter the court may not ordinarily exercise its discretionary jurisdiction of judicial review, unless it is found to be violative of Article Page 40 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 14 of the Constitution. While exercising contractual powers also, the government bodies may be subjected to judicial review in order to prevent arbitrariness or favouritism on their part. Indisputably, inherent limitations exist, but it would not be correct to opine that under no circumstances a writ will lie only because it involves a contractual matter.
16. This dicta of law was laid down by this Court as far back in 1977, wherein this Court in Radhakrishna Agarwal v. State of Bihar [(1977) 3 SCC 457] accepted the division of types of cases made by the Patna High Court in which breaches of alleged obligation by the State or its agents could be set up. It reads as under:
"(i) Where a petitioner makes a grievance of breach of promise on the part of the State in cases where on assurance or promise made by the State he has acted to his prejudice and predicament, but the agreement is short of a contract within the meaning of Article 299 of the Constitution;
(ii) where the contract entered into between the person aggrieved and the State is in exercise of a statutory power under certain Act or rules framed thereunder and the petitioner alleges a breach on the part of the State; and
(iii) where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of the parties are governed by the terms of the contract, and the petitioner complains about breach of such contract by the State."
22. Further, in the matter of ABL International Ltd. and another v. Export Credit Guarantee Corporation of India Ltd. and others [(2004) 3 SCC 553], the Supreme Court has held that:
Page 41 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 "A writ petition involving serious disputed questions of facts which requires consideration of evidence which is not on record, will not normally be entertained by a court in the exercise of its jurisdiction under Article 226 of the Constitution, but there is no absolute rule that in all cases involving disputed questions of fact the parties should be relegated to a civil suit. It has even been held [in Gunwant Kaur case, (1969) 3 SCC 769)] that in a writ petition, if the facts require, oral evidence can be taken. This clearly shows that in an appropriate case, the writ court has the jurisdiction to entertain a writ petition involving disputed questions of fact and there is no absolute bar for entertaining a writ petition even if the same arises out of a contractual obligation and/or involves some disputed questions of fact."
23. In the matter of Tata Cellular v. Union of India [(1994) 6 SCC 561], the Supreme Court has laid down certain principles for exercise of the power of judicial review which are as under:
"94. The principles deducible from the above are:
(1) The modern trend points to judicial restraint in administrative action.
(2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.
(3) The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible.
(4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such Page 42 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 decisions are made qualitatively by experts.
(5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.
(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure. ..."
24. In the matter of Jagdish Mandal v. State of Orissa [(2007) 14 SCC 517], the Supreme Court has held as under: -
"22. Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides. Its purpose is to check whether choice or decision is made "lawfully" and not to check whether choice or decision is "sound". When the power of judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be borne in mind. A contract is a commercial transaction. Evaluating tenders and awarding contracts are essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review, interfere even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. The power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court. Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by Page 43 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 exercising power of judicial review, should be resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succour to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:
(i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone;
OR Whether the process adopted or decision made is so arbitrary and irrational that the court can say: "the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached";
(ii) Whether public interest is affected. If the answers are in the negative, there should be no interference under Article
226. Cases involving blacklisting or imposition of penal consequences on a tenderer/contractor or distribution of State largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action. "
25. We may note that the law in this regard as developed through a catena of judgments is that in pure contractual matters the extraordinary remedy of a writ under Article 226 of the Constitution of India cannot be invoked, and such remedies are available in a limited sphere only when the contracting party is able to demonstrate that the remedy it seeks to invoke is a public law remedy, in contradistinction to a private law remedy under a contract.Page 44 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
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26. The legal position in this regard is that where the rights which are sought to be agitated are purely of a private character no mandamus can be claimed, and even if the relief is sought against the State or any of its instrumentality the pre-condition for the issuance of a writ of mandamus is a public duty. In a dispute based on a pure contractual relationship there being no public duty element, a mandamus would not lie.
27. In this regard we may draw reference to the judgment of the Supreme Court in the case of Bareilly Development Authority vs. Ajay Pal Singh [AIR 1989 SC 1076] wherein it was held that even though the development authority had the trappings of a State, in a matter pertaining to determination of the price of the flats constructed by it and the rate of monthly installments to be paid, the authority after entering into the field of an ordinary contract was acting purely in its executive capacity, and the right and obligations of the parties inter se would be governed only as per the terms of the contract. The observations made in the judgment are as follows:
"21. This finding in our view is not correct in the light of the facts and circumstances of this case because in Ramana Dayaram Shetty Vs. International Airport Authority of India [(1979) 3 SCC 489] there was no concluded contract as in this case. Even conceding that the BDA has the trappings of a State or would be comprehended in 'other authority' for the purpose of Article 12 of the Constitution, while determining price of the houses/flats constructed by it and the rate of Page 45 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 monthly installments to be paid, the 'authority' or its agent after entering into the field of ordinary contract acts purely in its executive capacity. Thereafter the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines the rights and obligations of the parties inter se. In this sphere, they can only claim rights conferred upon them by the contract in the absence of any statutory obligations on the part of the authority (i.e. BDA in this case) in the said contractual field.
22. There is a line of decisions where the contract entered into between the State and the persons aggrieved is non- statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India so as to compel the authorities to remedy a breach of contract pure and simple - Radhakrishna Agarwal & Ors. v. State of Bihar (1977) 3 SCC 457, Premji Bhai Parmar & Ors. v. Delhi Development Authority & Ors. (1980) 2 SCC 129 and Divl.
Forest Officer v. Bishwanath Tea Company Ltd. (1981) 3 SCC
238."
28. We may also refer to the judgment in the case of LIC vs. Escorts Ltd. [AIR 1986 SC 1370], wherein it was held that in a matter relating to the contractual obligations the Court would not ordinarily examine it unless the action has some public law character attached to it. The observations made in the judgment are as follows:-
"102. ...If the action of the State is related to contractual obligations or obligations arising out of the tort, the court may not ordinarily examine it unless the action has some public law character attached to it. Broadly speaking, the court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field. It is impossible to draw the line with Page 46 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 precision and we do not want to attempt it. The question must be decided in each case with reference to the particular action, the activity in which the State or the instrumentality of the State is engaged when performing the action, the public law or private law character of the action and a host of other relevant circumstances. When the State or an instrumentality of the State ventures into the corporate world and purchases the shares of a company, it assumes to itself the ordinary role of a shareholder, and dons the robes of a shareholder, with all the rights available to such a shareholder. There is no reason why the State as a shareholder should be expected to state its reasons when it seeks to change the management, by a resolution of the company, like any other shareholder."
29. In Premji Bhai Parmar vs. Delhi Development Authority [AIR 1980 SC 738], a petition filed under Article 32 before the Supreme Court contending that the surcharge collected by the authority in respect of a flat purchased by the petitioner was illegal, the petition was dismissed with the following observations:
"8. ...petition to this Court under Article 32 is not a proper remedy nor is this Court a proper forum for reopening the concluded contracts with a view to getting back a part of the purchase price paid and the benefit taken. ..... But after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation of Article 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory Page 47 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 power or obligation on the State in the contractual field which is apart from contract."
30. In the case of State of Bihar vs. Jain Plastics & Chemicals Ltd. [AIR 2002 SC 206], a grievance was sought to be raised against the deduction of an amount from the final bill to be paid to the contractor due to breach of contract by him. The petition was allowed by the High Court. The matter was taken to the Supreme Court wherein it was held that even if it was possible to decide the question raised in the petition on the basis of affidavits and counter affidavits, it would not be proper to exercise extraordinary jurisdiction under Article 226 of the Constitution in cases of alleged breach of contract. The observations made by the Supreme Court are as follows:
"2. Limited question involved in this appeal is -- whether the High Court ought not to have exercised its jurisdiction under Article 226 of the Constitution of India for granting relief in case of alleged breach of contract.
3. Settled law -- writ is not the remedy for enforcing contractual obligations. It is to be reiterated that writ petition under Article 226 is not the proper proceedings for adjudicating such disputes. Under the law, it was open to the respondent to approach the court of competent jurisdiction for appropriate relief for breach of contract...
x x x x x
7. ...It is true that many matters could be decided after referring to the contentions raised in the affidavits and counter-affidavits, but that would hardly be a ground for exercise of extraordinary jurisdiction under Article 226 of the Constitution in case of alleged breach of contract. Whether the alleged non-supply of road permits by the appellants would justify breach of contract by the respondent would Page 48 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 depend upon facts and evidence and is not required to be decided or dealt with in a writ petition. Such seriously disputed questions or rival claims of the parties with regard to breach of contract are to be investigated and determined on the basis of evidence which may be led by the parties in a properly instituted civil suit rather than by a court exercising prerogative of issuing writs."
31. The general principles which may be culled out from the aforementioned judgments is that in a case where the contract entered into between the State and the person aggrieved is of a non-statutory character and the relationship is governed purely in terms of a contract between the parties, in such situations the contractual obligations are matters of private law and a writ would not lie to enforce a civil liability arising purely out of a contract. The proper remedy in such cases would be to file a civil suit for claiming damages, injunctions or specific performance or such appropriate reliefs in a civil court. Pure contractual obligation in the absence of any statutory complexion would not be enforceable through a writ.
32. The remedy under Article 226 of the Constitution being an extraordinary remedy, it is not intended to be used for the purpose of declaring the private rights of the parties. In the case of enforcement of contractual rights and liabilities the normal remedy of filing a civil suit being available to the aggrieved party, this Court may not exercise its prerogative writ jurisdiction to enforce such contractual obligations.
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33. We may gainfully refer to the judgment in the case of Joshi Technologies International Inc. vs. Union of India [AIR 2015 SC (Supp) 1889], wherein the entire legal position in this regard has been taken note of and summarized in the following terms:-
"69. The position thus summarised in the aforesaid principles has to be understood in the context of discussion that preceded which we have pointed out above. As per this, no doubt, there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, it can refuse to exercise. It also follows that under the following circumstances, "normally", the Court would not exercise such a discretion:
69.1. The Court may not examine the issue unless the action has some public law character attached to it.
69.2. Whenever a particular mode of settlement of dispute is provided in the contract, the High Court would refuse to exercise its discretion under Article 226 of the Constitution and relegate the party to the said mode of settlement, particularly when settlement of disputes is to be resorted to through the means of arbitration.
69.3. If there are very serious disputed questions of fact which are of complex nature and require oral evidence for their determination.
69.4. Money claims per se particularly arising out of contractual obligations are normally not to be entertained except in exceptional circumstances.Page 50 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
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70. Further, the legal position which emerges from various judgments of this Court dealing with different situations/aspects relating to contracts entered into by the State/public authority with private parties, can be summarised as under:
70.1. At the stage of entering into a contract, the State acts purely in its executive capacity and is bound by the obligations of fairness.
70.2. State in its executive capacity, even in the contractual field, is under obligation to act fairly and cannot practise some discriminations.
70.3. Even in cases where question is of choice or consideration of competing claims before entering into the field of contract, facts have to be investigated and found before the question of a violation of Article 14 of the Constitution could arise. If those facts are disputed and require assessment of evidence the correctness of which can only be tested satisfactorily by taking detailed evidence, involving examination and cross-examination of witnesses, the case could not be conveniently or satisfactorily decided in proceedings under Article 226 of the Constitution. In such cases the Court can direct the aggrieved party to resort to alternate remedy of civil suit, etc. 70.4. Writ jurisdiction of the High Court under Article 226 of the Constitution was not intended to facilitate avoidance of obligation voluntarily incurred.
70.5. Writ petition was not maintainable to avoid contractual obligation. Occurrence of commercial difficulty, inconvenience or hardship in performance of the conditions agreed to in the contract can provide no justification in not complying with the terms of contract which the parties had accepted with open eyes. It cannot ever be that a licensee can work out the licence if he finds it profitable to do so: and he can challenge the conditions under which he agreed to take the licence, if Page 51 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 he finds it commercially inexpedient to conduct his business.
70.6. Ordinarily, where a breach of contract is complained of, the party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed. Otherwise, the party may sue for damages.
70.7. Writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if it can be shown that action of the public authorities was without giving any hearing and violation of principles of natural justice after holding that action could not have been taken without observing principles of natural justice.
70.8. If the contract between private party and the State/instrumentality and/or agency of the State is under the realm of a private law and there is no element of public law, the normal course for the aggrieved party, is to invoke the remedies provided under ordinary civil law rather than approaching the High Court under Article 226 of the Constitution of India and invoking its extraordinary jurisdiction.
70.9. The distinction between public law and private law element in the contract with the State is getting blurred.
However, it has not been totally obliterated and where the matter falls purely in private field of contract, this Court has maintained the position that writ petition is not maintainable. The dichotomy between public law and private law rights and remedies would depend on the factual matrix of each case and the distinction between the public law remedies and private law field, cannot be demarcated with precision. In fact, each case has to be examined, on its facts whether the contractual relations between the parties bear insignia of public element. Once on the facts of a particular case it is found that nature of the activity or controversy involves public law element, then the matter can be examined by the Page 52 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 High Court in writ petitions under Article 226 of the Constitution of India to see whether action of the State and/or instrumentality or agency of the State is fair, just and equitable or that relevant factors are taken into consideration and irrelevant factors have not gone into the decision-making process or that the decision is not arbitrary.
70.10. Mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirements of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness.
70.11. The scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. "
34. The principle of law discernible from the aforesaid decision is that in contractual matter, where disputed questions of fact have been raised, there cannot be any absolute bar to the maintainability of the writ petition. The High Court may be justified in exercising its discretion only in a case when the contracting party is able to demonstrate it seeks to invoke public law remedy in contradistinction to provide remedy simplicitor under the contract.
35. A governmental contract, even if commercial in nature, involves, broadly speaking, four stages. The first stage relates to the floating of tenders by publishing notice inviting tenders. At this stage, the authority concerned is required to formulate Page 53 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 the terms and conditions subject to which the tenders would be invited and also the terms and conditions of the contract, which, if entered into, govern the parties. These terms and conditions will obviously include all the legibility criteria for a person to participate in the tender process. After the notice inviting tender is published and the tenders are received, the second stage of such a contract commences. This stage involves the process of taking of the decision to allot the contract or not to allot the contract at all and cancel the entire process. This stage would include the selection of the person or the party to whom the contract shall be allotted. This stage ends with the allotment of the contract or with the decision not to allot the contract at all and cancel the entire tender process. The third stage of the contract essentially covers the stage of performance of the contract. This stage would include commencement of the performance of the allotted contract and would, normally, end with the completion of the allotted contract. During this stage, there may arise the question of breach of the contract, because of non-fulfillment of the terms and conditions of the contract by either party to the contract. The fourth stage of such a contract arises, when, on completion of his part of the contract, the contractor or supplier raises his demand for making payment of his bills. This fourth stage can, however, be divided into two categories. There may be a case, where the amount demanded is not disputed and yet the dues of the contractor are not paid Page 54 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 compelling thereby the contractor to seek avenues for obtaining payment of his dues. In this fourth stage, there may, however, be a case, where the correctness of the demand for payment raised by the contractor is disputed, denied or challenged by the authority, who had allotted the contract. In such a case, too, the contractor may be driven to take recourse to such avenues as may be open to him, in law, for the purpose of enabling him to obtain his dues in terms of the demand that he may have made.
36. It may, now, be pointed out that at the first stage of a contract, which requires the authorities concerned to formulate the terms and conditions subject to which the tenders would be invited or the contract would be allotted, many factors are taken into account. The decision as to what terms shall be included in the tender is really a policy decision, for, it is the authority issuing the notice inviting tender, which is the best judge to determine as to what terms and conditions would be required for successful completion of the work or the project concerned. Thus, it is, primarily, for the authority issuing the NOA to decide what particular terms and conditions should be incorporated in the NOA. However, when the invitation to tender is floated, the second stage, which consists of the process of selection of the person for awarding the contract, commences and this process comes to an end, when a decision either awarding the contract or cancelling the entire tender process is taken. The decision to award the contract is not Page 55 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 open to judicial review; but the decision making process, which leads to the ultimate decision, is, according to the law laid down in TATA Cellular v. Union of India reported in (1994) 6 SCC 651, open to judicial review. In Raunaq International Ltd. v. IVR Construction Ltd and Ors. [AIR 1993 SC 393], the Apex Court has made it clear that though the decision to award a contract is not open to judicial review, the decision-making process, which leads to the ultimate decision, is, indeed, open to judicial review provided that there is an element of public interest involved in the case requiring a review by the Court of the administrative decision to allot the contract.
37. To put it differently, while settling the terms to be incorporated in the invitation to tender, the authorities concerned must have complete freedom, for, the terms of the tender are in the realm of the freedom to contract and it is for the authorities concerned to decide as to what would be the terms of the contract. But when the authorities concerned award the contract, the decision making process, leading to the decision to allot the contract, gets open to judicial review provided that there is an element of public interest involved in the case.
38. What may be further noted is that at the first and the second stage of the contracts, when the government or any of its instrumentalities sets up the terms and conditions of the Page 56 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 contract or takes a decision to allot the contract, it acts purely in its executive capacity and its action is, therefore, open to judicial review, though in a limited way, as indicated hereinabove. However, when the third stage is reached and a contract is entered into by the government or its instrumentality, on the one hand, and the contractor, on the other, the parties are no longer governed by Constitutional provisions, but by the terms of the contract. Hence, when a State, purporting to act within the field allotted to it under the terms and conditions of a contract, performs an act, the rights and obligations of the parties would be, ordinarily, governed by the law that governs the terms and conditions of the contract. The mere fact that one of the parties to such a contract is the State or its instrumentality will not make a contract amenable to writ jurisdiction. (See Radhakrishna Agarwal v. State of Bihar (supra)).
39. Our aforesaid discussion, as regards the maintainability of this writ application, may be summarized thus:
[1] Where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual, but such contract has been cancelled on a ground de hors any of the terms of the contract, and which is per se violative of Article14 of the Constitution, the High Court in such case can exercise its jurisdiction under Article 226 and the writ petition under Article 226 Page 57 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 by aggrieved person would be maintainable.
[2] The Courts have maintained distinction between statutory contracts, on one hand, and non-statutory ones, on the other. While judicial review was held to be permissible, both as regards award and cancellation of the contracts of the former category, the same was confined to certain aspects in the latter category. If the termination of contract is on the ground that a party thereto had violated the conditions therefor, such party is invariably required to work out his remedies as provided for under the relevant contracts, viz., arbitration or civil suit, as the case may be. However, where an element of administrative exercise is undertaken and executive power is exercised, considerations and parameters are somewhat different.
[3] Generally, the Court should not exercise its writ jurisdiction to enforce the contractual obligation. The primary purpose of a writ mandamus, is to protect and establish rights and to impose a corresponding imperative duty existing in law. It is designed to promote justice ( ex debito justiceiae). The grant or refusal of the writ is at the discretion of the Court.
[4] The discretion must be exercised by the Court on grounds of public policy, public interest and public good.Page 58 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021
C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 The writ is equitable in nature and thus, its issuance is governed by equitable principles.
[5] The prime consideration for the issuance of the said writ is, whether or not substantial justice will be promoted.
40. As noted above the writ-applicant has filed an appropriate application under Section 11 of the Arbitration Act before this Court for appointment of arbitrator. Prima facie we are not convinced with the case put up by the Corporation that the writ-applicant is not entitled to invoke the arbitration clause. We fail to understand why the Corporation is reluctant to go for arbitration. On one hand, the writ-applicant has been banned from all further operations for a period of two years and on the other the Corporation does not even want to go for arbitration. However, it shall be open for the writ-applicant to pursue his Section 11 application pending before this Court. If ultimately the application is allowed and arbitrator is appointed, then all the disputes between the parties shall be resolved through the mode of arbitration.
41. Prima facie we do not find any palpable or material infirmity going to the root of the matter warranting immediate interference by this Court. Even otherwise it is difficult for this Court in exercise of its writ jurisdiction to go into the questions whether the Corporation was justified in terminating Page 59 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021 C/SCA/11391/2020 JUDGMENT DATED: 30/07/2021 the contract and banning the writ-applicant having regard to the materials on record.
42. So far as the Special Civil Application No.13888 of 2020 is concerned, there is nothing we can do, as the order of banning would definitely come in the way of the writ-
applicant.
43. In the aforesaid view of the matter, all the three writ- applications fail and are hereby rejected. We once again clarify that it shall be open for the writ-applicant to pursue his Section 11 application pending in this High Court and the said application shall be decided expeditiously without being influenced in any manner by any of the observations made by this Court.
(J. B. PARDIWALA, J) (VAIBHAVI D. NANAVATI,J) K.K. SAIYED Page 60 of 60 Downloaded on : Sun Aug 22 16:00:27 IST 2021