Gujarat High Court
Aakash Exploration Services Limited ... vs Oil And Natural Gas Corporation Limited on 21 June, 2019
Equivalent citations: AIRONLINE 2019 GUJ 123
Author: J.B.Pardiwala
Bench: J.B.Pardiwala, A.C. Rao
C/SCA/7814/2019 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7814 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE A.C. RAO
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1 Whether Reporters of Local Papers may be allowed to see the
judgment ? YES
2 To be referred to the Reporter or not ?
YES
3 Whether their Lordships wish to see the fair copy of the
judgment ? NO
4 Whether this case involves a substantial question of law as to
the interpretation of the Constitution of India or any order made
NO
thereunder ?
==========================================================
AAKASH EXPLORATION SERVICES LIMITED THROUGH DIRECTOR
HEMAN NAVINBHAI HARIA
Versus
OIL AND NATURAL GAS CORPORATION LIMITED
==========================================================
Appearance:
MR HASIT DAVE(1321) for the Petitioner(s) No. 1
MR AJAY R MEHTA(453) for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE A.C. RAO
Date : 21/06/2019
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1 Leave to amend the cause title is granted. The same shall be Page 1 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT carried out forthwith.
2 Rule returnable forthwith. Mr. Ajay Mehta, the learned counsel waives service of notice of rule for and on behalf of the respondent - Corporation.
3 By this writ application under Article 226 of the Constitution of India, the writ applicant, a public limited company incorporated under the provisions of the Companies Act, 1956, through one of its Directors, has prayed for the following reliefs:
"a) This Hon'ble Court be pleased to admit and allow this petition.
b) This Hon'ble Court be pleased to issue a writ of mandamus and/or any other appropriate writ, order or direction in the nature of mandamus holding and declaring that the action of the respondent of terminating the contract of the petitioner vide termination notice dated 01.04.2019 without issuance of any show cause notice or without giving any opportunity of hearing to the petitioner is in violation of Articles 14, 16 and 19(1)(g) of the Constitution of India and be pleased to quash and set aside the same.
c) This Hon'ble Court may be pleased to issue a writ of prohibition in favour of the petitioner, prohibiting the respondent company from taking any coercive action against the petitioner company without following the due process of law and without adhering to the principles of natural justice.
d) Pending admission, hearing and/or final disposal of this petition, this Hon'ble Court be pleased to stay the execution, operation and implementation of the termination notice dated 01.04.2019 (AnnexureA) issued by the respondent.
e) Pending admission, hearing and/or final disposal of this petition, this Hon'ble Court may be pleased to direct the respondent from taking any coercive action against the petitioner from terminating the contract of the petitioner without following the due process of law or without following the principles of natural justice.
f) Such other and further relief as this Hon'ble Court may deem just, fit and expedient be granted in favour of the petitioner."Page 2 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019
C/SCA/7814/2019 JUDGMENT 4 The case of the writ applicant, in its own words, as pleaded in the writ application, is as under:
"4.1 That the respondent ONGC came out with two different open tenders for Charter Hiring of work over Rigs for its various assets situated at Ahmedabad. That one tender was floated by the respondent herein bearing No.D16BC/ 8024 dated 24.07.2018 and another such tender for hiring of rigs has been floated by the respondent through its office situated at New Delhi. The said tender was bearing No. RASSC/18005 dated 12.07.2018. The tender Which was floated by Ahmedabad Office was for the period of one year whereas, the tender floated by the respondent through its office at New Delhi was for & period of three years.
4.2 Petitioner states that the petitioner herein had f(mom 4.3) applied for both the tenders. Petitioner states that the petitioner was found to have qualified in the technical bids in both the tenders. Thereafter, the Price Bids of both the tenders were opened on two different dates. The price bid of Ahmedabad tender was opened on 24.08.2018 whereas the price bid of the New Delhi tender was opened on 06.11.2018.
4.3 Petitioner states that on 24.09.2018 petitioner wrote & letter to respondent herein stating that one Mr. Ramji Desai will attend Price bid on behalf of the petitioner company. That on 02.10.2018 petitioner company once again wrote & letter to the respondent stating that Mr. Vipul Haria and Mr. Hemang Haria is authorized by the company to represent petitioner company for negotiating the price for Ahmedabad tender.
4.4) Petitioner states that the petitioner herein had quoted the price of Rs.1,17,600.06 pd. For the tender floated by Ahmedabad offīce, whereas the price quoted by the petitioner floated by the New Delhi office of the respondent was Rs.95,652.28 pd.
4.5) Petitioner states and submits that even the respondent was well aware of the fact that the petitioner had quoted two different prices for the same work, for the two tenders floated by Ahmedabad Office and New Delhi Office of the respondent in as much as the tender floated by the Ahmedabad office was for & period of one year only whereas the tender floated by the New Delhi office was for & period of three years.
Page 3 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 4.6) Petitioner state that on 08.10.2018 petitioner once again wrote & letter to respondent offering best negotiation rates under head of Negotiated Revised Price Bid (Category1). On 10.10.2018 respondent wrote & letter to petitioner herein which was replied by petitioner by letter dated 15.10.2018 wherein Petitioner had given justification letter.
4.7) petitioner states that thereafter, the respondent herein called the petitioner for price negotiation in both the tenders. The price negotiation for the Ahmedabad tender took place on 08.11.2018 Whereas; the price negotiation for the new Delhi tender took place on 26.11.2018.
4.8) Petitioner states that thereafter the petitioner received an email from the respondent on 10.10.2018 asking for justification With regard to the difference in price quoted by the petitioner for Ahmedabad tender as well as the new Delhi tender. Petitioner herein in reply to the said email had several talks With the officers of the respondent corporation and lastly had & personal meeting With the officer of respondent on 19.11.2018 wherein it was agreed between the parties that the rate for the Ahmedabad tender would be Rs. 1,16,939.51 pd. That petitioner by letter dated 19.11.2018 had offered the best price Negotiation Rates.
4.9) Petitioner states that similarly the price negotiation for the New Delhi tender took place on 26.11.2018. That after having several negotiations as stated herein above, Letter of Intent was also issued for both the tenders. Letter of Intent dated 01.12.2018 was issued With regard to the Ahmedabad Tender while Letter of Intent dated 25.12.2018 was issued With regard to the New Delhi tender.
4.10) Petitioner states that pursuant to the Letter of Intent, petitioner also started deployed rigs at the site and started working on the site on 21.12.2018. The smooth functioning of the petitioner was going on as per the tender allotted by the Ahmedabad Office. However, to the utter shock and surprise of the petitioner, petitioner herein received an email dated 22.02.2019 requesting the petitioner to match the price of New Delhi tender With regard to the contract allotted to its Ahmedabad tender. Petitioner replied to the said email on 28.02.2019 stating that the request of the respondent to match the price cannot be accepted as the New Delhi tender was for & period of three years whereas the tender issued by Ahmedabad office was only for & period of one year. It is further stated therein that even the respondent was very well aware about the same and even it had agreed for two different price and thereafter had issued the Letter of Intent.
5) In View of the above facts and circumstances, on 01.04.2019, the respondent had issued the termination notice to the petitioner relyíng upon the clause in the tender document. That petitioner had replied to the Page 4 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT said termination order vide letter dated 09.04.2019. That in the said reply petitioner had clearly stated that none of the condition are breached by petitioner and only because there was price variation in Ahmedabad and Delhi price the said contract came to be terminated. This act of the respondent being illegal, illogical and Without application of mind and against the settled principles of law, petitioner, having left With no other alternative, petitioner has approached this Hon'ble High Court by way of the present petition under Article226 of the Constitution of India."
5 Thus, it appears from the pleadings that the writ applicant is aggrieved and dissatisfied with the action on the part of the respondent
- Corporation in terminating a concluded contract on the issue of the Rig Operating Day Rate (EDR), and that too, while the actual exploration work was in progress. It appears that the Notification of Award for charter hiring of one number of thirty Ton work over Rig for Ahmedabad Asset for a period of one year (Tender No.D16BC/8024) was issued by the Corporation in favour of the writ applicant dated 1st December 2018. The Rig Operating Day Rate was fixed at Rs.1,08,750/ plus 12% of GST. The Corporation agreed to pay the Rig Operation Day Rate accordingly, and the writ applicant started its work of exploration. After a period of almost four months, while the exploration work was in progress, all of a sudden, the Corporation, raised the issue as regards the Rig Operating Day Rate. The Corporation called upon the writ applicant to undertake the work with the EDR of Rs.85,403=59. The Corporation asked the writ applicant to continue with the work with EDR of the said amount, as in one another contract, the writ applicant quoted Rs.85,403=59 as the EDR.
6 It appears that the writ applicant objected to the same as the issue was raised in the midst of the exploration work, and that too, after the contract stood concluded on the fixed terms and conditions, as agreed upon by both the sides. The writ applicant pointed out to the Corporation that it was not fair on their part to reduce the EDR. The writ Page 5 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT applicant pointed out to the Corporation that the EDR quoted with respect to the Delhi contract had nothing to do with the contract at Ahmedabad. In such circumstances, the writ applicant submitted before the Corporation that the EDR quoted for the Delhi project cannot be applied to the project at Ahmedabad. The writ applicant pointed out to Corporation the distinguishing features between the two contracts while trying to make good its case that why the EDR differs for the two contracts. The aspects, which were highlighted by the writ applicant before the Corporation, are as under:
"1. The contract period is only for 1 year.
2. Manpower training cost has to be incurred.
3. The diesel price have increased 2025% from last contract and daily there is price hike in diesel.
4. Due to diesel price hike, our support services rates have also increased i.e. supply of water (8%), fooding (20%), security services (20%), transportation services (20%) repairing cost has increase (12%) etc.
5. The BOP has to be recertified and its cost is approx. 24 Lakhs.
6. Due to high demand of manpower, the wages of manpower have increased by 30%.
7. Due to increase in foreign exchange the import prices have increased by 2530%."
7 It appears that the Corporation, all of a sudden, decided to terminate the contract. In such circumstances, a notice of termination came to be issued upon the writ applicant dated 1st April 2019, which is at Annexure : 'A' to the writ applicant.
8 Being dissatisfied with such arbitrary, unreasonable and unfair Page 6 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT
action on the part of the respondent - Corporation, the writ applicant is here before this Court with this writ application seeking to quash the impugned notice of the termination of contract.
9 In response to the notice issued by this Court to the Corporation, the Corporation has appeared through its counsel Mr. Ajay Mehta. The stance of the Corporation, as reflected from the rely, is as under:
"7 It say and submit that the contract entered into between the parties specifically entitles the respondent Corporation to terminate the contract after giving 30 days' notice without assigning any reason. In the present case, the notice was issued on 1st April, 2019 and vide rig dehiring certificate dated 30th April, 2019 i.e. on completion of the period of one month the termination is complete. The petitioner rig had been released and the contract stands duly terminated. A copy of the rig dehiring certificate duly countersigned by rig in charge of the petitioner is annexed hereto and marked as ANNEXURER/l. I say and submit that in view of the aforesaid, the contract stands concluded and there is absolutely no question of the petitioner being entitled to any mandatory relief requiring the respondent Corporation to hire the rig as per the contract. The present contract is/was a determinable contract and the same having been terminated, there is absolutely no question of the petitioner being entitled to mandatory specific performance of such a contract in view of the provisions of section 14 of Specific Relief Act, 1963. I say and submit that if at all the petitioner is aggrieved by the termination and feels that the termination was not in accordance with law, the petitioner can always raise a claim for damages. However, there is absolutely no question of the petitioner being entitled to challenge the termination of the contract and seek mandatory performance thereof.
8. Without prejudice to the foregoing, the respondent Corporation's parawise reply is as under:
8.1 Contents of paragraph No.1 are denied. It is also a matter record that none of the directors or stake holders of the petitioner have not Filed the present petition and the petition is Filed only by a limited company which is wholly untenable as it has no fundamental rights. There is no question of the Company being entitled to protection of fundamental right guaranteed under the Constitution of India and such a right would exist only to a citizen. Since the petitioner is not a citizen, there is absolutely no question of the petitioner being entitled to maintain the present petition and on this short ground alone, the present petition deserves to be Page 7 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT dismissed.
8.2 Contents of paragraph No. 2 are a matter of record.
8.3 With reference to paragraph No. 3, there is absolutely no question of the petitioner being entitled to challenge the termination notice dated 1St April, 2019 since the same is absolutely in line with the provisions of the contract and there is no question of the petitioner being aggrieved there with. A copy of the contract is annexed hereto and marked as ANNNEXURE R2.
8.4 Contents of paragraph No.4 are a matter of record. However, the tender numbers indicated are incorrect. The tender floated by ONGC, Ahmedabad is D16BC18024 whereas the tender floated by the corporate office Delhi is ZNSAC18005. It is also a matter record that copies of both the tender documents are not annexed to the petition though the same is referred to and only the tender notice issued by the corporate office has been annexed as AnnexureB. The respondent craves leave to refer to and rely upon both the tender documents as and when required.
8.5 With reference to paragraph No.4.2, it is incorrect that the price bid of Ahmedabad tender was opened on 24th of August, 2018 as alleged.
The price bid was opened on 24th of September, 2018.
8.6 Contents of paragraph No. 4.3 are of no consequence and in any event are a matter of record.
8.7 With reference to 4.4, it is a matter of fact that the petitioner had quoted an EDR of Rs.1,17,600.06 in response to the Ahmedabad tender.
8.8 With reference to paragraph No. 4.5, the tenders were floated at different locations for the same work. The tender floated by Ahmedabad Asset of ONGC was for a period of one year whereas the tender floated by the corporate office, New Delhi was for a period of three years. The tender by Corporate office for the same work was floated on 12.07.2018. The instant tender was floated on 24.07.2018 with specific clause for foreclosure of the contract for meeting the shortterm requirement of the respondent till the finalization of the contract through Delhi Office of the respondent and until mobilization of the equipment thereunder. It is pertinent to mention that the petitioner quoted the same rig bearing No. RJ 04 EA 0701 in the instant tender as quoted for tender floated through Delhi office being fully aware of the fact that the petitioner might have to deploy the rig through tender floated by Delhi Office for the same work even before the expiry of the contract period in the Instant tender.
8.9 Contents of paragraph No. 4.6 are a matter of record. The respondent however craves leave to refer to and rely upon the record if as Page 8 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT and when required.
8.10 With reference to paragraph No. 4.7, 1st price negotiation for the Ahmedabad tender was held on 3rd October, 2018 and not on 8th November, 2018 as is mentioned. The New Delhi tender was not at all in question and the respondent does not deal with the same.
8.11 With reference to paragraph No. 4.8, it is also a matter record that the petitioner had submitted a letter after price negotiation whereby the rate quoted was Rs.1,16,939.51 per day.
8.12 With reference to 4.9, reference to New Delhi tender is not relevant tothe facts of the present case. It is also a matter record that notification of award was issued by Ahmedabad Asset on 1st December, 2018 and letter of award was issued by the Delhi office on 28th December, 2018. It is also pertinent to note that AnnexureH indicated in paragraph No. 4.9, letter of award issued by ONGC, Delhi without rate (para 6.1).
8.13 With reference to paragraph No. 4.10, notification of award dated 1.12.2018 issued to the petitioner for hiring of work over rig bearing registration No.RJO4EA0701 with EDR (day rate of Rs.1,16,939.51). However, after coming to know the fact that ONGC Delhi had issued a letter of award dated 28th December, 2018 for exactly the same work rig bearing registration RJO4EAO701 with EDR of Rs.85,403.59 which was 26.96% lower than the rate agreed to for Ahmedabad Asset. Since the rate of the same rig awarded by ONGC Delhi was 26.96% lower for same Rig, same location (i.e for ONGC Ahmedabad) & same scope of work, an effort was made by requesting the petitioner to match down the rate of ONGC Ahmedabad with the rate of ONGC Delhi but the petitioner refused the same. Reference to various correspondences between the parties is a matter of record, however, the respondent craves leave to refer and rely on the record in this regard.
9. With reference to paragraph No.5, since the rates were not matched down by the contractor and since as per the provisions of the contract, it was open for the respondent Corporation to terminate the contract, termination notice dated 1St April, 2019 was issued as per clause No.5(v) of notification of award as well as clause No.2.4(v) and clause No.29.3 of the Special Conditions of Contract which stipulates as under:
Clause No.5 of Notification of Award "The operators shall have the option to terminate the contract any time before expiry of the term period of one year by giving 30 days' prior notice in writing."
Clause No.2.4(v) and clause No.29.3 of the Special Conditions of Contract Page 9 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT read as under:
"In addition to the provisions elsewhere in the contract and notwithstanding the provisions stated in clause 18 of the General Conditions of Contract, the operator (ONGC) shall have the right to terminate this contract by giving 30 days' advance notice to the contractor without assigning any reason whatsoever and no cause or damage or any compensation shall be payable by the operator except for the work already done by the contractor."
10. Accordingly, as per the provisions the contract indicated hereinabove, the respondent Corporation issued termination notice dated 1St April, 2019 and as per AnnexureR/l dated 30th April, 2019, the rig in question had been released and is now no longer operational/functional with the respondent Corporation. I say and submit that termination having been completed, there is no question of the petitioner demanding that the termination be set aside. There is absolutely no question of the petitioner being entitled to any mandatory specific performance of contract in view of the specific provisions of section 14 of the Specific Relief Act. I say and submit that the present petition is thoroughly untenable. It is denied that the act of the respondent is illegal, illogical, without application of mind or against settled principles of law as alleged or at all. This is a contractual right exercised by the respondent Corporation and there is absolutely no question of the petitioner being entitled to challenge the same since it is in line with the terms and conditions of the contract.
11. Contents of various grounds are specifically denied. It is denied that the termination notice is wrong, illegal, without application of mind or against the principles of natural justice as alleged or at all. It is also a matter record that the contract duly signed by and between the parties entitles the respondent Corporation to terminate the contract and the respondent Corporation acted in line there with, there is no question of the petitioner challenging the same.
12. With reference to ground (D), it is denied that any reasons were required to be given for termination. The clause hereinabove reproduced clearly provides that the respondent Corporation is entitled to terminate the same without assigning any reason whatsoever.
13. With reference to grounds (F) and (G), it is denied that any expenses have been incurred or investment had been made. The rig in question has been in possession of the petitioner and as a matter of fact, the same had been offered by the petitioner for the Delhi contract for which, mobilization would have to be commenced by the petitioner and the rig would be operational whereby the petitioner would be earning the specified rates. It is thus denied that any alleged huge investment had been made by the petitioner. In any event, even presuming while speciħcally Page 10 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT denying that any such investment had been made, the same is a question of damages which the petitioner would have to prove by leading evidence and is not a matter which is justiciable under Article 226 of the Constitution of India.
14. With reference to ground (H), it is denied that termination is mala ride, illogical, without application of mind or in violation of Articles 14 and 19(1)(g) of the Constitution of India. It is also a matter record that after termination of the petitioner's contract, no other party has been awarded any contract by the respondent Corporation and hence, there is absolutely no justification in the allegation of the termination being mala fīde. The petitioner as a matter of fact was trying extract 26.96% higher rate from the respondent Corporation which is a public sector undertaking and such loss could not be borne by a public sector undertaking which would be totally illegal and in the circumstances, the termination is wholly justified."
● SUBMISSIONS ON BEHALF OF THE WRIT APPLICANT: 10 Mr. Hasit Dave, the learned counsel appearing for the writ
applicant vehemently submitted that the respondent - Corporation is a Public Sector Undertaking and is "State" within the meaning of the Article 12 of the Constitution of India. Mr. Dave would submit that the action on the part of the Corporation in, all of a sudden, terminating a concluded contract, and that too, for no fault on the part of the writ applicant, could be termed as absolutely illegal, unreasonable and arbitrary. Mr. Dave would submit that the Corporation could not have terminated the contract once it stood concluded and the writ applicant started performing his part of the contract. Mr. Dave submitted that the contract came to be terminated only on the ground of price variation in the Ahmedabad tender and Delhi tender. Mr. Dave also submitted that without giving any opportunity of hearing, all of a sudden, the impugned notice of termination came to be served upon the writ applicant. It is submitted that the writ applicant has not committed breach of any of the terms and conditions of the tender document. Mr. Dave pointed out that Page 11 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT after the issuance of the letter of intent dated 1st December 2018, the writ applicant started supplying Rigs at the site and started the work of exploration. The writ applicant, on contract being concluded, invested a huge amount considering that the work was to go on for a period of one year.
11 According to Mr. Dave, the impugned notification of termination is in violation of Articles 14, 16 and 19(1)(g) of the Constitution of India.
12 Mr. Dave pointed out that his client was called upon by the Corporation for negotiating the price bid though the rate quoted by the writ applicant was the lowest. Even in the course of the negotiations, the price was reduced to Rs.1,16,939=51. At the relevant point of time, the issue with regard to the difference in the price quoted by the writ applicant for the same type of work in two different tenders issued by the Ahmedabad and Delhi Offices respectively was exhaustively discussed. At the relevant point of time, the writ applicant had made itself very clear that the tender of Ahmedabad office was only for a period of one year, whereas the tender issued by the New Delhi office was for a period of three years. It is only after the deal was finalized that the letter of intent was issued to the writ applicant.
13 In such circumstances referred to above, Mr. Dave prays that the case on hand being one of violation of Articles 14, 16 and 19(1)(g) of the Constitution of India, and there being merit in the matter, the writ application may be entertained and the relief, as prayed for, may be granted.
Page 12 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT ● SUBMISSIONS ON BEHALF OF THE CORPORATION: 14 Mr. Ajay Mehta, the learned counsel appearing for the
Corporation has raised two preliminary objections as regards the maintainability of this writ application. The first objection with regard to maintainability of this writ application is on the ground that the petition has been preferred only by the company through one of its Directors. The company, being of a legal entity and not being a citizen, is not entitled to complain of breach or violation of the fundamental right under Article 19(1)(g) of the Constitution of India. Mr. Mehta submitted that the writ petition, at the instance of the company alone, cannot be said to be maintainable. The second objection raised by Mr. Mehta as regards the maintainability of this writ application is that a writ of mandamus cannot be issued for enforcement of the private rights of the parties who have entered into a contract falling under the domain of private law irrespective of the fact whether the contract has been entered into between two private individuals or by an individual, on the one hand, and the State, on the other hand, and that the remedy of the aggrieved party lies in obtaining the necessary relief by filing a civil suit seeking specific performance of contract or damages. Mr. Mehta, the learned counsel appearing for the Corporation laid much stress on the fact that in the case on hand, the contract is nonstatutory in nature. He further submitted that the contract is not one falling within the ambit of Article 299 of the Constitution of India. He submitted that as the matter is governed by a contract / agreement between the parties, the writ petition is not maintainable since it is not a public law remedy and is not available for any private law field, e.g. where the matter is governed by a nonstatutory contract.
15 Mr. Mehta, the learned counsel appearing for the Corporation, in support of his two preliminary objections as regards the maintainability Page 13 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT of this writ application, has placed strong reliance on the decision of the Supreme Court in the case of Divisional Forest Officer vs. Bishwanath Tea Co. Ltd. reported in AIR 1981 SC 1368.
16 Mr. Mehta submitted that even otherwise on merits, the writ applicant has no case. Mr. Mehta submitted that even if this Court takes the view that the writ application is maintainable in law still for the purpose of enforcing the contractual obligation, the writ applicant is not entitled to grant of any relief, as prayed for, in this writ application. Mr. Mehta submitted that the decision taken by the Corporation to terminate the contract cannot be said to be, in any manner, illegal or violative of any rights of the writ applicant under the Constitution of India. Mr. Mehta submitted that the termination of contract cannot be said to be in violation of Articles 14, 16 and 19(1)(g) of the Constitution. According to Mr. Mehta, the action on the part of the Corporation cannot be termed as highhanded, arbitrary, unreasonable or unfair. Mr. Mehta invited the attention of this Court to the Notification of Award dated 1st December 2018, which is at Annexure : 'H' to this writ application. Mr. Mehta submitted that in the Notification of award, there is a clear stipulation that the the Operator shall have the option to terminate the contract at any time before the expiry of the firm period of one year by giving thirty days prior notice in writing. Mr. Mehta submitted that Clause 5 of the Notification of Award further stipulates that the Operator shall have the option to terminate the contract at any time. Mr. Mehta submitted that it is true that a particular rate was fixed after due negotiation between the parties. Mr. Mehta also conceded to the fact that the Corporation agreed to pay the price fixed to the writ applicant. Mr. Mehta submitted that in fact, it was a mistake on the part of the Corporation in finalizing the contract on a particular rate. Mr. Mehta submits that in another contract issued by the office at Delhi, for the Page 14 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT very same type of work, the writ applicant quoted Rs.85,403=59, and in such circumstances, later, while the work was in progress, the Corporation thought fit to once again call upon the writ applicant and persuade him to continue the work with respect to the Ahmedabad tender at the rate of Rs.85,403=59. Mr. Mehta submits that the negotiation failed, as the writ applicant declined to continue the work at rates lesser than what was fixed. In such circumstances, according to Mr. Mehta, the Corporation thought fit to terminate the contract. Mr. Mehta submits that for the mistake committed by the Corporation, public interest should not suffer. According to Mr. Mehta, if higher rate is to be paid to the writ applicant, the public exchequer would suffer, and therefore, keeping in mind the larger public interest, the decision was taken to terminate the contract. In such circumstances, Mr. Mehta submits that the grievance redressed by the writ applicant is without any basis. Mr. Mehta submitted that the writ application is devoid of merit and deserves to be rejected.
● ANALYSIS: 17 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 the Corporation is justified in terminating a concluded contract.
18 As an objection has been raised with regard to the maintainability of this writ application on the two counts referred to above, we need to first deal with the question whether this writ application invoking Article 226 of the Constitution of India is maintainable or we should relegate the writ applicant to avail of any other alternative remedy before the appropriate forum in accordance with law.
Page 15 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 19 We propose to first look into the decision of the Supreme Court in
the case of Divisional Forest Officer (supra), on which strong reliance has been placed by Mr. Mehta, the learned counsel appearing for the Corporation wherein a Tea Company tried to enforce through writ petition the right to remove timber without the liability to pay royalty. The Court noticed that the company was not enforcing its right under any statute, but was seeking to enforce a contractual right under the specific terms of contract of lease agreed to between the Company and the Government. In the facts and circumstances of the case, the Supreme Court took the view that such contractual right could not have been enforced in a writ petition. While allowing the appeal filed by the Divisional Forest Officer against the judgement of the High Court, the Supreme Court observed as under:
"7. But we would first address ourselves to the question of law. Art. 226 confers extraordinary jurisdiction on the High Court to issue high prerogative writs for enforcement of the fundamental rights or for any other purpose. Undoubtedly, the respondent contended that its fundamental right under Art. 19 (1) (g) to carry on trade has been violated. The High Court overlooked the wellsettled legal position that a juristic person such as a Corporation is not entitled to any of the freedoms guaranteed by Art. 19. The respondent was the sole petitioner in the High Court. It is a company incorporated under the Companies Act. The fundamental right claimed under Art. 19 (1) (g) is to practice any profession or carry on any occupation, trade or business. The respondent (company) contended that it had a right to carry on its trade or business of cultivating and raising a tea garden and as part of it to cut timber and remove the same from the leased area without the payment of royalty and that insistence upon payment of royalty unsupported by law is an unreasonable restriction denying the fundamental right guaranteed to the respondent. Art. 19 (1) (g) guarantees the fundamental freedom to a citizen. The respondent not being a citizen was not entitled to complain of breach or violation of fundamental right under Art. 19 (1) (9). (See State Trading Corporation of India Ltd. v. The Commercial Tax Officer Vishakhapatnam (1964) 4 SCR 99 : (AIR 1963 SC 1811) and Tata Engineering and Locomotive Co. v. State of Bihar 1950 SCR 869 : (AIR 1951 SC 41 or (1964) 6 SCR 885 : AIR 1965 SC 40?)) However, the shareholders of a company can complain of infringement of their fundamental rights (See Bennett Coleman and Co. v. Union of India, Page 16 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT (1973) 2 SCR 757 : (AIR 1973 SC 106). Such is not the case pleaded.
Therefore the writ petition on the allegation of infringement of fundamental right under Art. 19 (1) (g) at the instance of respondent company alone was not maintainable.
8. It is undoubtedly true that High Court can entertain in its extraordinary jurisdiction a petition to issue any of the prerogative writs for any other purpose. But such writ can be issued where there is executive action unsupported by law or even in respect of a Corporation there is a denial of equality before law or equal protection of law. The Corporation can also file a writ petition for enforcement of a right under a statute. As pointed out earlier, the respondent (Company) was merely trying to enforce a contractual obligation. To clear the ground let it be stated that obligation to pay royalty for timber cut and felled and removed is prescribed by the relevant regulations. The validity of regulations is not challenged. Therefore, the demand for royalty is supported by law. What the respondent claims is an exception that in view of a certain term in the indenture of lease, to wit, Clause 2, the appellant is not entitled to demand and collect royalty from the respondent. This is nothing but enforcement of a term of a contract of lease. Hence, the question whether such contractual obligation can be enforced by the High Court in its writ jurisdiction.
9. Ordinarily, where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed, or the party may sue for damages. Such a suit would ordinarily be cognizable by the Civil Court. The High Court in its extraordinary jurisdiction would entertain a petition either for specific performance of contract or for recovering damages. A right to relief flowing from a contract has to be claimed in a Civil Court where a suit for specific performance of contract or for damages could be filed. This is so well settled that no authority is needed. However, we may refer to a recent decision bearing on the subject. In Har Shankar v. The Deputy Excise and Taxation Commissioner (1975) 3 SCR 254 : (AIR 1975 SC 1121), the petitioners offered their bids in the auctions held for granting licences for the sale of liquor. Subsequently, the petitioners moved to invalidate the auctions challenging the power of the Financial Commissioner to grant liquor licences. Rejecting this contention, Chandrachud J., speaking for the Constitution Bench at page 263 (of SCR) : (at p. 1125 of AIR) observed as under :
"Those who contract with open eyes must accept the burdens of the contract along with its benefits. The powers of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned by those who had their venture succeeded, would have relied upon those very powers to found a legal claim. Reciprocal rights and obligations arising out of contract do not Page 17 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract. By such a test no contract could ever have a binding force."
Again at page 265 (of SCR) : (at p. 1126 of AIR) there is a pertinent observation which may be extracted.
"Analysing the situation here, a concluded contract must be held to have come into existence between the parties. The appellants have displayed ingenuity in their search for invalidating circumstances but a writ petition is not an appropriate remedy for impeaching contractual obligations."
This apart, it also appears that in a later decision, the Assam High Court itself took an exactly opposite view in almost identical circumstances. In Woodcrafts Assam v. Chief Conservator of Forests, Assam, AIR 1971 Assam 92, a writ petition was filed challenging the revision of rates of royalty for two different periods. Rejecting this petition as not maintainable, a Division Bench of the High Court held that the complaint of the petitioner is that there is violation of his rights under the contract and that such violation of contractual obligation cannot be remedied by a writ petition. That exactly is the position in the case before us. Therefore, the High Court was in error in entertaining the writ petition and it should have been dismissed at the threshold."
20 Thus, the Supreme Court said two things in the aforesaid judgement. First, it took the view that the writ petition was filed only by the company and the company not being a citizen, was not entitled to complain of breach or violation of the fundamental right under Article 19(1)(g) of the Constitution, and secondly, where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed, or the party may sue for damages. The Supreme Court took the view that the High Court, in its extraordinary jurisdiction, should not entertain a petition either for specific performance of contract or for recovering damages. The aforesaid decision of the Supreme Court on which strong reliance has been placed on behalf of the Corporation by now is almost four decades old. The law as regards the maintainability of a writ petition even in contractual matters has developed substantially Page 18 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT over a period of time. We would like to look into this issue exhaustively.
21 We would like to clarify that the first objection as regards the maintainability of this petition, as raised by Mr. Mehta, on the ground that this petition has been preferred only by the company through one of its Directors and company, not being a citizen, is not entitled to complain of breach or violation of fundamental rights under Article 19(1)(g) of the Constitution of India, would not survive, as this Court permitted the writ applicant to amend the cause title, and thereby, one Mr. Hemang Navinbhai Haria, one of the Directors, has been joined as the writ applicant No.2 in the petition.
● STATUTORY CONTRACTS AND THE PRIVATE CONTRACTS
AWARDED BY THE STATUTORY BODIES:
22 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 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.Page 19 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019
C/SCA/7814/2019 JUDGMENT 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 nonstatutory 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 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 subjectmatter 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 Page 20 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 quasijudicial 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 Page 21 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 appellantGovernment 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 plantload factor as may be laid down by 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 Page 22 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 respondentswrit petitioners to seek such remedy, if so advised, as is available in law. We do not express any opinion in that regard."
23 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 nonstatutory 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:
Page 23 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT "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."
24 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 quasijudicial 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 that where the contract entered into between the State and the person aggrieved is nonstatutory 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 Article 14 of the Constitution, should the High Court decline to entertain the writ application on the premise that the contract is nonstatutory in nature.
25 The following facts are not in dispute:
[1] The Corporation is a "State" within the meaning of Article 12 of the Constitution of India.
[2] It is conceded by the learned counsel appearing for the Corporation that there are no disputed or complicated questions of fact involved in the present writ petition.
[3] Mr. Mehta, the learned counsel appearing for the Corporation fairly submitted that having regard to the terms of the contract and the facts of the present case, the parties cannot go for arbitration.Page 24 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019
C/SCA/7814/2019 JUDGMENT [4] The Corporation entered into a contract with the writ applicant.
[5] The Corporation agreed to the rates quoted by the writ applicant, and ultimately, finalized the contract.
[6] The contract stood concluded.
[7] The writ applicant started with the work, as assigned to him, under the contract.
[8] The Corporation, after four months from the date of execution of the contract and the work, realized that it should not have agreed to the rate of EDR, as fixed after due negotiations with the writ applicant.
[9] The Corporation admits its socalled mistake, but is trying to justify its action of terminating a concluded contract in the name of public interest.
26 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 Page 25 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 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 Page 26 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT nondiscriminatory 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 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. ....Page 27 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019
C/SCA/7814/2019 JUDGMENT 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 nondiscrimination in the type of the transactions and nature of the dealing as in the present case." (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 undertakings 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 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 Page 28 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 coexist." (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."
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 nonarbitrariness at the hands of the State in any of its actions."
18. Learned AdvocateGeneral, 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 Page 29 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT according to the learned AdvocateGeneral 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 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 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 Page 30 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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?"
27 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 nonstatutory 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 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 Page 31 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 Page 32 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 1292003. 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 respondentsappellants 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 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.
Page 33 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 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 nonstatutory 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 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 counteraffidavit. 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."
28 Thus, the Courts have maintained a distinction between the statutory contracts, on one hand, and nonstatutory ones, on the other. While judicial review was held to be permissible, both as regards the Page 34 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 evaluation of such administrative power is judicial review, as provided for under Articles 32 and 226 of the Constitution of India.
29 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.
30 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 Page 35 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 nonstatutory 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.""
31 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 36 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT "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."
32 In the context of the ratio of the decision in the case of ABL International Ltd. (supra), we may unhesitatingly say that in the case on hand, there are no serious disputed questions of fact. On the contrary, the facts are glaring and very clear. The Corporation itself has admitted its mistake, but is trying to justify its action of terminating a concluded contract in the name of public interest. Whether the Corporation is justified or not shall be looked into by us later, after we answer the preliminary objection as regards the maintainability of the present writ application.
33 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 Page 37 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 quasiadministrative 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. ..."
34 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 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 Page 38 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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."
35 We may note that the law in this regard as developed through a catena of judgments is that in pure contractual matters the extra ordinary 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.
36 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 precondition 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.
Page 39 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 37 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 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 nonstatutory 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."
38 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 Page 40 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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."
39 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 Page 41 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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."
40 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...
xxxxx
7. ...It is true that many matters could be decided after referring to the contentions raised in the affidavits and counteraffidavits, 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 nonsupply of road permits by the appellants would justify breach of contract by the respondent would 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."
41 The general principles which may be culled out from the Page 42 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT aforementioned judgments is that in a case where the contract entered into between the State and the person aggrieved is of a nonstatutory 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.
42 The remedy under Article 226 of the Constitution being an extraordinary remedy, it is not intended to be used for the purpose of declaring 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.
43 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:
Page 43 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 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.
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 Page 44 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 High Court in writ petitions under Article Page 45 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 decisionmaking 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 nonarbitrariness.
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."
44 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.
45 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 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 Page 46 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 nonfulfillment 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 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.
46 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 Page 47 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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 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 decisionmaking 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.
47 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 Page 48 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT to allot the contract, gets open to judicial review provided that there is an element of public interest involved in the case.
48 The question, however, which, now arises for consideration is this:
if the terms and conditions are agreed upon and finalized and on the basis of the same, the NOA is issued and the party in whose favour the NOA is issued commences the work, whether, at a later stage, while the work is in progress, can the Corporation say that Rig Operating Day Rate fixed is on a higher side and the contractor should reduce the same. This question needs to be answered keeping in mind that the Corporation has fairly conceded to its mistake, but, as noted above, the Corporation is trying to justify its action of terminating the contract in the name of public interest.
49 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 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)).
Page 49 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 50 What logically follows from the above discussion is that in the
third stage, which consists of the performance of the contract, the remedy of the parties to the contract for breach of any of the terms and conditions of the contract would, ordinarily, lie in the civil court of competent jurisdiction unless the parties have, under the terms of the contract, agreed to refer such a dispute to arbitration. Thus, no writ would be issued, under Article 226, for a mere breach of the terms and conditions of the contract, particularly, when, for settlement of such a dispute, there is a provision for arbitration.
51 What may, now, be noted is that a breach of obligation by the State or its agents falls, as indicated in Radha Krishna Agarwal's case (supra), into three categories:
(i) where a petitioner makes a grievance of breach of promise, on the part of the State, on the ground that on the 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 some Act or Rules framed thereunder and the petitioner, in the case of such a statutory contract, alleges a breach of obligation on the part of the State; and
(iii) where the contract, entered into between the State and the person aggrieved, is not statutory, but 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 a Page 50 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT contract by the State.
52 So far as the first category of cases is concerned, these cases, according to Radha Krishna Agarwal (supra), would attract Article 226 in order to enforce the doctrine of estoppel, for, the State or the public bodies are as much bound, as private individuals, to carry out the obligations incurred by them, because the parties, seeking to bind the authorities, have altered their position to their disadvantage or have acted to their detriment on the strength of the representations made by those authorities. (See Union of India v. M/s. Anglow Agencies AIR 1968 SC 718; Century Spinning and Manufacturing Co. Ltd. v. Ulhas Nagar Municipal Co. [AIR 1971 SC 1021]; Robutson v. Minister of Pensions (1949) 1 King's Bench 227. See also Motilal Padampat Sugar Mills Co. Ltd. v. State of UP [AIR 1979 SC 621]; State of Punjab v. Nestle India Ltd. (2004) 136 STC 35; Shri Guru Ashish Wire Industries v. State of Gujarat (1994) 92 STC 286, Suprabhat Steels v. State of Bihar [1995 (2) PLJR 536] and Union of India v. Godfrey Philips India Ltd. [AIR 1986 SC 806]).
53 As far as the second category of cases are concerned, there can be no doubt, observes the Apex Court, in Radha Krishna Agarwal (supra), that since such cases involve statutory contracts, creating rights and obligations of a statutory nature, such obligations can be enforced by taking resort to writ jurisdiction. (See K.N. Guruswamy v. State of Mysore AIR 1954 SC 992).
54 However, the third category of cases relate to breach of contract 'pure and simple'. In such cases, holds the Apex Court in Radha Krishna Page 51 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT Agarwal (supra), remedy under Article 226 is not appropriate, for, a writ of mandamus, under Article 226, is issued for enforcing public duty and not a private duty. A mere breach of contract or a mere demand for nonpayment of dues, in the absence of any other ground, is nothing, but a demand for recovery of money. In such cases, the remedy under Article 226 would not, ordinarily, be available.
55 Before proceeding further, what may be noted is that a writ of mandamus is a public remedy and this remedy lies, when a public authority fails to perform the duty entrusted to it by law. In other words, a writ is issued against a person, who has a legal duty to perform, but has failed or neglected to do so. Distinguishing a case, wherein a public duty of a State is sought to be enforced, and a case, wherein a contractual obligation of a State is sought to be enforced, Professor Wade, in his wellknown treatise, 'Administrative Law', makes it clear that while a public duty is enforceable by the public law remedy of a writ of mandamus, a contractual duty is enforceable, as a matter of private law, through the avenues of civil courts. The observations made, in this regard, by Professor Wade read, thus, "...A distinction which needs to be clarified is that between public duties enforceable by mandamus, which are usually statutory and duties arising merely from contract. Contractual duties are enforceable as matters of private laws by the ordinary contractual remedies, such as damages, injunction, specific performance and declaration. They are not enforceable by mandamus, which in the first place is confined to public duties and secondly is not granted where there are other adequate remedies."
56 What, now, needs to be noted is that howsoever thin and subtle to the distinction may be, there is, indeed, a real and definite line of demarcation not only between a public wrong and a private wrong, but Page 52 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT also between a public law remedy and private law remedy. Article 226 is preeminently a public law remedy and is not, generally, available as a remedy against private wrongs. Resort to Article 226 can be had to enforce various rights of the public or to compel the public or statutory authorities to discharge their public duties and/or to act, in the realm of their public functions, within the bounds of law. The remedy under Article 226 can, no doubt, be availed of even against a private body or person; but the scope of the right of mandamus is limited to enforcement of public duty. In minimum possible words, but with extreme exactitude, clarified the Supreme Court, in Binny Limited and Anr. v. Sadasivan and Ors.[(2005) 6 SCC 657] , the position of law, in this regard, in these words, "29. Thus, it can be seen that a writ of mandamus or the remedy under Article 226 is preeminently a public law remedy and is not generally available as a remedy against private wrongs. It is used for enforcement of various rights of the public or to compel public/statutory authorities to discharge their duties and to act within their bounds. It may be used to do justice when there is wrongful exercise of power or a refusal to perform duties. This writ is admirably equipped to serve as a judicial control over administrative actions. This writ could also be issued against any private body or person, specially in view of the words used in Article 226 of the Constitution. However, the scope of mandamus is limited to enforcement of public duty. The scope of mandamus is determined by the nature of the duty to be enforced, rather than the identity of the authority against whom it is sought. If the private body is discharging a public function and the denial of any right is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial, but, nevertheless, there must be the public law element in such action."
57 Thus, in the face of succinctly laid down position of law with regard to the issuance of a writ of mandamus under Article 226, what one has to bear in mind is that in a case of private wrong, in order to invoke the writ jurisdiction under Article 226, two conditions must be Page 53 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT satisfied, namely, (i) the identity of the person, against whom the writ is sought, as a person or body, which is amenable to writ jurisdiction, and
(ii) the nature of duty, which is sought to be enforced, is a public duty or has an element of public interest. In a given case, one may, perhaps, ignore the first prerequisite, namely, the identity of the person or body as a person or body amenable to writ jurisdiction, but the second prerequisite, as indicated hereinbefore, cannot be ignored, for, in the absence of public interest or in the absence of breach of public duty or in the absence of any public wrong having been committed, no recourse to Article 226 is possible.
58 What also needs to be cautiously noted is that a constitutional or statutory duty is a public duty and enforceable by a writ of mandamus. To put in differently, the rights and duties go handinhand. When a right is given to a person by a State, the State cast upon itself a duty to enforce such a right. Logically, therefore, when a person is given fundamental right by the Constitution, a duty rests on the State to ensure that the person realizes his fundamental rights. In a given case, therefore, if a person, aggrieved by a breach of contract, shows that though the breach is in the realm of a contract, the duty, sought to be enforced, is a constitutional or statutory duty, the remedy of a writ of mandamus may not be refused, for, it is the constitutional obligation of the High Court, under Article 226, to enforce the constitutional and statutory duties of the State and its instrumentalities.
59 The question, therefore, is as to whether every breach of governmental obligation to pay its dues, under a contract, falls outside the purview of Article 226:
"This brings us to a more important question and the question is : Will the Page 54 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT constitutional remedy of Article 226 never be available against a State even if the State refuses to carry out its contractual obligations with ulterior motives, mala fide, irrationally, arbitrarily, unreasonably, unfairly, whimsically or when the State, demonstratively discriminates, while making payment of its dues? Shall the writ court withdraw its hand resignedly and helplessly by saying that a writ of mandamus is a public law remedy and no writ of mandamus would be issued to any State directing it not to discriminate or act irrationally, arbitrarily, unreasonably, unfairly, whimsically, mala fide or with ulterior motives, while refusing or omitting to make payment of its dues arising out of contracts? Can a breach of contract ever give rise to any constitutional obligation of the State to make payment of its dues ? Made it clear a three Judge Bench, in Radha Krishna Agarwal (supra), that every breach of contract by the State or by its officers is not a breach of public duty, for, such a proposition would make every breach of contract by the State or its agents subject of interference by the High Court in its extraordinary jurisdiction under Article 226 and, hence, remedy of a writ of mandamus cannot be had for every breach of contract. The relevant observations made, in this regard, in Radha Krishna Agarwal (supra), run, thus, "Learned Counsel contends that in the cases before us breaches of public duty are involved. The submission made before us is that, whenever a State or its agents or officers deal with the citizen, either when making a transaction or, after making it, acting in exercise of powers under the terms of contract between the parties, there is a dealing between the State and the citizen which involves performance of "certain legal and public duties". If we were to accept this very wide proposition, every case of a breach of contract by the State or its agents or its officers would call for interference under Article 226 of the Constitution. We do not consider this to be a sound proposition at all"."
59 What is, now, of immense importance to note is that the case of Radha Krishna Agarwal (supra) was a case of pure and simple breach of contract. In such cases of breach, remedy of payment of damages is available to the person, who suffers alleged breach of contract. It is in such fact situation that the law with regard to invoking of the High Court's extraordinary jurisdiction, under Article 226, was discussed in Radha Krishna Agarwal (supra). The law, laid down in Radha Krishna Agarwal (supra), cannot, therefore, be extended to cases, which are not cases of mere breach of contract, but much more than that. This is clear from the fact that in paragraph 2 of Radha Krishna Agarwal (supra), Page 55 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT the Supreme Court observed:
"...Primarily, the case of the petitioners is that of a breach of contract for which the State would be liable, ordinarily, to pay damages if it had broken it."
60 What emerges from the above discussion is that the remedy, available under Article 226, is an extraordinary remedy and is not intended for the purpose of declaring private rights of the parties. For the purpose of enforcing contractual rights and obligations, the remedy of filing of a civil suit is available to the aggrieved party and, hence, a High Court will not exercise its prerogative writ jurisdiction to enforce such contractual rights or obligations. A writ or direction in the nature of mandamus would not, therefore, lie to enforce private rights or contractual rights or obligations or even to avoid such obligations or rights. Contracts, which are nonstatutory, and the rights, which are purely contractual and governed only by the terms of the contract, cannot be enforced by any writ or order under Article 226 of the Constitution of India. There is formidable array of authorities, which may be referred to in this regard. (See Lekhraj S. Laluani v. N.M. Shah Deputy CustodiancumManaging Officer, Bombay AIR 1966 SC 334; Radha Krishna Agarwal (supra); Divisional Forest Officer v. Biswanath Tea Co. Ltd. (supra); State Bank of Haryana v. Jage Ram AIR 1980 SC 2018; Bihar Eastern Gangetic Fishermen Cooperative Society Ltd v. Sipahi Singh AIR 1977 SC 2149; Bareilly Development Authority v. Ajay Pal Singh AIR 1989 SC 1076 ; Life Insurance Corporation of India v. Escorts Ltd. AIR 1986 SC 1370; and Kulchinder Singh v. Hardayal Singh Brar AIR 1976 SC 2216 ).
61 However, the principle that in an appropriate case, writ Page 56 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT
jurisdiction can be invoked even to enforce a contractual obligation of the State or its instrumentality was made clear by the Apex Court, in K.N. Guruswamy v. State of Mysore AIR 1954 SC 592, wherein the Apex Court held that when a party, interested in a contract, claims that he has not received the same treatment and has not been given a chance as someone else, he is entitled to maintain a petition under Article 226.
62 Close on the heels of the decision of the Apex Court in K.N. Guruswamy (supra) is the decision, in DFO, South Kheri v. Ram Sanehi Singh [AIR 1973 SC 205]. This was a case in which it was contended, on behalf of the appellant, before the Supreme Court that since the dispute arose out of the terms of the contract and the DFO, under the terms of the contract, had the authority to modify any action taken by the subordinate forest authority, remedy of the respondent lied in instituting an action in the civil court and that the writ petition was not maintainable. Turning down this plea, the Supreme Court held that the impugned order had been passed by a public authority modifying the order of the subordinate forest officer without giving the respondent any opportunity of having his say in the matter and since, by the order so passed, respondent had been deprived of a valuable right, it cannot be said that a petition under Article 226 would not be maintainable merely because of the fact that the source of right of the respondent is traceable to a contract, which is not statutory in nature. The relevant observations of the Supreme Court, in Ram Sanehi Singh (supra), run, thus:
"We are unable to hold that merely because the source of the right which the respondent claims was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority he must resort to a suit and not to a petition by way of a writ. In view of the judgment of this court in K.N. Guruswamy's case (1995) 1 SCR 305 there can be no doubt that the petition was maintainable, even if Page 57 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT the right to relief arose our of an alleged breach of contract, where the action challenged was of a public authority invested with statutory power."
63 From the decision in Ram Sanehi Singh (supra), what clearly surfaces is that even when there is a breach of contract, a writ petition under Article 226 is maintainable if the administrative order like the one on hand in terminating the contract arbitrarily on a flimsy ground is passed by a public authority, in breach of the terms of the contract, is against the principles of natural justice. Clearly, therefore, when a State decides to terminate a concluded contract while the work is actually in progress, and that too, by admitting its mistake in fixing the EDR, such an arbitrary decision, in our opinion, cannot be said to be wholly beyond the reach of Article 226, for, what the contractor, in such a case, would be asking the writ Court to do is to force the State to act in accordance with its constitutional obligation by adhering to the letter and spirit of Articles 14 and 21 of the Constitution.
64 In fact, it was made clear by the Apex Court, speaking through Krishna Iyer, J, in Kulchinder Singh and Ors. v. Hardayal Singh Brar and Ors. [AIR 1976 SC 2216], that writ jurisdiction cannot be invoked to enforce the terms of a contract merely because the contract involves a State, a statutory body or a public body, but statutory duty or sovereign and public function of a State can, indeed, be enforced by a writ court. The relevant observations made, in Kulchinder Singh (supra), run thus, "....The writ petition, stripped of embroidery and legalistics, stands naked as a simple contract between the staff and the society....At its best, the writ petition seeks enforcement of a binding contract but the neat and necessary repellant is that the remedy of Article 226 is unavailable to enforce a contract qua contract....What is immediately relevant is not whether the respondent is State or public authority but whether what is enforced is a statutory duty or sovereign or public function of a public authority. Private law may involve a State, a statutory body, or a public body in contractual or tortious actions. But they cannot be siphoned off into the writ jurisdiction."
Page 58 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 65 In its decision, in Dwarka Das Marfatia & Sons v. Board of
Trustees of the Port of Bombay [AIR 1989 SC 1642], a threeJudge Bench of the Supreme Court, having taken note of Rampratap Jaydayal v. Dominion of India reported in (1952) LR 54 Bom. 927 and Escorts Ltd. (supra), held that though the field of letting and eviction of tenants is, normally, governed by the Rent Act and Port Trust is statutorily exempted from the operation of the Rent Act on the basis of its public/governmental character, legislative assumption or expectation, as noted in the observations of Chagla, CJ in Rampratap Jaydayal (supra), cannot make such conduct a matter of contract pure and simple and that these Corporations must act in accordance with certain constitutional conscience and whether they have so acted, must be discernible from the conduct of such corporations. The Apex Court clarified, in Dwarka Das Marfatia & Sons (supra), that it is not correct to suggest that in the light of the decision in Radha Krishna Agarwal (supra), a State's contractual dealings do not ever fall under public law domain and is not subject to judicial review. The Court, in M/s. Dwarka Das Marfatia & Sons (supra), also clarified that even the Constitution Bench decision, in Escort Ltd.(supra), does not wholly exclude State's all actions, in contractual matters, from the court's power of judicial review.
66 The Apex Court further made it clear, in Dwarka Das Marfatia (supra), that every action/activity of the Trust, which is a State within the meaning of Article 12, must be subject to Article 14 and must be reasonable and taken only upon lawful and relevant grounds of public interest and whenever there is arbitrariness in the State action, Article 14 springs in and judicial review strikes such an action down. Making its views emphatic, the Supreme Court further made it clear, in Dwarka Page 59 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT Das Marfatia (supra), that whatever be the activity of the public authority, it should meet the test of Article 14 and that the decision in Escort Ltd. (supra), if read properly, does not detract from the aforesaid principles.
67 The observations made, in this regard, by the Apex Court, in Dwarka Das Marfatia & Sons (supra), read as under:
"22. Our attention was drawn to the observations of this court in Radhakrishna Agarwal and Ors. v. State of Bihar and Ors. Reliance was also placed on the observations of this court in Life Insurance Corpn of India v. Escorts Ltd. and Ors. (1985) 3 Suppl SCR 909, in support of the contention that the public corporations' dealing with tenants is a contractual dealing and it is not a matter for public law domain and is not subject to judicial review. However, it is not the correct position. The Escorts' decision reiterated that every action of the State 'or an instrumentality of the State, must be informed by reason. Indubitably, the respondent is an organ of the State under Article 12 of the Constitution. In appropriate cases, as was observed in the last mentioned decision, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. But it has to be remembered that Article 14 cannot be construed as a charter for judicial review of State action, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions.
23. The contractual privileges are made immune from the protection of the Rent Act for the respondent because of the public position occupied by the respondent authority.
Hence, its actions are amenable to judicial review only to the extent that the State must act validly for a discernible reason not whimsically for any ulterior purpose. Where any special right or privilege is granted to any public or statutory body on the presumption that it must act in certain manner, such bodies must make good such presumption while acting by virtue of such privileges. Judicial review to oversee if such bodies are so acting is permissible.
24. The field of letting and eviction of tenants is normally overned by the Rent Act. The Port Trust is statutorily exempted from the operation of Rent Page 60 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT Act on the basis of its public/Government character. The legislative assumption or expectation as noted in the observations of Chagla CJ in Rampratap Jaidayal's case (supra) cannot make such conduct a matter of contract pure and simple. These corporations must act in accordance with certain constitutional conscience and whether they have so acted, must be discernible from the conduct of such corporations. In this connection, reference may be made on the observations of this court in S.P. Rekhi v. Union of India AIR 1981 SC 212, reiterated in M.C. Mehta and Ans. v. Union of India and Ors. (1987) 1 SCC 395 : AIR 1987 SC 1086 , wherein at p. 148, this court observed:
It is dangerous to exonerate corporations from the need to have constitutional conscience; and so, that interpretation, language permitting, which makes governmental agencies, whatever their mean amenable to constitutional limitations must be adopted by the court as against the alternative of permitting them to flourish as an imperium in imperio.
25. Therefore, Mr Chinai was right in contending that every action activity of the Bombay Port Trust which constituted "State" within Article 12 of the Constitution in respect of any right conferred or privilege granted by any Statute is subject to Article 14 and must be reasonable and taken only upon lawful and relevant grounds of public interest. Reliance may be placed on the observations of this court in E.P. Royappa v. State of Tamil Nadu AIR 1974 SC 555; Maneka Gandhi v. Union of India (1978) 1 SCC 248 : (AIR 1978 SC 597) ; R.D. Shetty v. The International Airport, Authority of India and Ors. AIR 1979 SC 1628;
Kasturi Lal Lakshmi Reddy v. State of J & K and Ans. AIR 1980 SC 1992; Ajay Hasia v. Khadi Mujib Sehravardi and Ors. etc. AIR 1981 SC 487 .
Where there is arbitrariness in State action, Article 14 springs in and judicial review strikes such an action down. Every action of the Executive Authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, it should meet the test of Article 14. The observations in paras 101 and 102 of the Escorts' case (supra) read properly do not detract from the aforesaid principles.
27. We are inclined to accept the submission that every activity of a public authority especially in the background of the assumption on which such authority enjoys immunity from the rigours of the Rent Act, must be informed by reason and guided by the public interest. All exercise of discretion or power by public authorities as the respondent, in respect of dealing with tenants in respect of which they have been treated separately and distinctly from other landlords on the assumption that they would not Page 61 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT act as private landlords must be judged by that standard.
If a governmental policy or action even in contractual matters fails to satisfy the test of reasonableness, it would be unconstitutional. See the observations of this court in Kasturi Lal Lakshmi Reddy, (supra) and R.D. Shetty v. The International Airport Authority of India and Ors. (Emphasis is supplied) 68 What is also necessary to note, in the case of Dwarka Das Marfatia (supra), is that this was a case, where the relationship between the parties to the dispute, being that of landlord and tenant, was essentially contractual in nature, yet the Apex Court held that such a dispute is not wholly outside the purview of Article 226, for, a State's action, even under contractual relationship, has to withstand the tests of Article 14. Though to evict or not to evict a tenant is a decision governed by contractual relationship of landlord and tenant, the fact remains that while taking the decision to evict a tenant, State or public body, as the landlord, must take the decision in the public interest and while taking such a decision, State or public body cannot act arbitrarily, unreasonably, whimsically, capriciously or with ulterior motives nor can a State or public body, while taking such a decision, discriminate between one tenant and another and must, therefore, act according to 'constitutional conscience'.
69 If the decision, in Dwarka Das Marfatia (supra), is carefully read, it becomes more than abundantly clear that though at the first blush, the decision, in Radha Krishna Agarwal (supra), appears to have laid down that the remedy of every breach of contract lies in civil suits and writ jurisdiction would never be applicable to enforce even constitutional obligations of the State in contractual matters, the later decision of the Apex Court, in Dwarka Das Marfatia (supra), clearly Page 62 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT shows that having considered the decision in Radha Krishna Agarwal (supra) and also the Constitution Bench decision in Escorts Ltd. (supra), it has clearly held that there is no absolute bar to the exercise of jurisdiction under Article 226 in a contractual matter, particularly, when the act or conduct of the State or its instrumentality is challenged on the anvil of Article 14. It is also clear from Dwarka Das Marfatia (supra) that a writ court will enforce even a contractual obligation of the State if the breach of obligation by the State fails to satisfy the test of reasonableness under Article 14, for, in such a case, what the writ court would be enforcing is the constitutional duty of the State, though such a duty might have arisen in the realm of contractual obligation. It has been further made clear, in Dwarka Das Marfatia (supra), that even in contractual matters, the State's action must be reasonable, lawful and 'on relevant ground of public interest'.
70 What emerges from the above discussion is that when a writ petition is filed alleging breach of contractual obligation by the State or its instrumentality, the High Court shall determine whether the writ petitioner is merely demanding to enforce his contractual rights or he has raised some important questions of law and/or constitutional issues. If he aims at merely enforcing his contractual rights and raises no important question of law or constitutional issue, writ jurisdiction will not be invoked; but if the writ petitioner raises a constitutional issue, there is no absolute bar to the exercise of jurisdiction under Article 226 even in a contractual matter. This position of law was made clear in Life Insurance Corporation of India v. Asha Goel (2001) 2 SCC 160, wherein the court observed as under:
"10. Article 226 of the Constitution confers extraordinary jurisdiction on Page 63 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT the High Court to issue high prerogative writs for enforcement of the fundamental rights or for any other purpose. It is wide and expansive. The Constitution does not place any fetter on exercise of the extraordinary jurisdiction. It is left to the discretion of the High Court. Therefore, it cannot be laid down as a general proposition of law that in no case the High Court can entertain a writ petition under Article 226 of the Constitution to enforce a claim under a life insurance policy. It is neither possible nor proper to enumerate exhaustively the circumstances in which such a claim can or cannot be enforced by filing a writ petition. The determination of the question depends on consideration of several factors like, whether a writ petitioner is merely attempting to enforce his/her contractual rights or the case raises important questions of law and constitutional issues, the nature of the dispute raised; the nature of inquiry necessary for determination of the dispute, etc. The matter is to be considered in the facts and circumstances of each case. While the jurisdiction of the High Court to entertain a writ petition under Article 226 of the Constitution cannot be denied altogether, courts must bear in mind the selfimposed restriction consistently followed by High Courts all these years after the constitutional power came into existence in not entertaining writ petitions filed for enforcement of purely contractual rights and obligations which involve disputed questions of facts. The courts have consistently taken the view that in a case where for determination of the dispute raised, it is necessary to inquire into facts for determination of which it may become necessary to record oral evidence a proceeding under Article 226 of the Constitution, is not the appropriate forum. The position is also well settled that if the contract entered between the parties provide an alternate forum for resolution of disputes arising from the contract, then the parties should approach the forum agreed by them and the High Court in writ jurisdiction should not permit them to bypass the agreed forum of dispute resolution. At the cost of repetition it may be stated that in the above discussions we have only indicated some of the circumstances in which the High Court have declined to entertain petitions filed under Article 226 of the Constitution for enforcement of contractual rights and obligation; the discussions are not intended to be exhaustive. This Court from time to time disapproved of a High Court entertaining a petition under Article 226 of the Constitution in matters of enforcement of contractual rights and obligation particularly where the claim by one party is contested by the other and adjudication of the dispute requires inquiry into facts. We may notice a few such cases; Mohd. Hanif v. State of Assam (1969) 2 SCC 782; Banchhanidhi Rath v. State of Orissa, (1972) 4 SCC 781 : (AIR 1972 SC 843 : 1972 Lab IC 431); Smt. Rukmanibai Gupta v. Collector, Jabalpur, (1980) 4 SCC 556 : (AIR 1981 SC 479), Food Corporation of India v. Jagannath Dutta, 1993 Supp (3) SCC 635 : (1993 AIR SCW 1425 : AIR 1993 SC 1494) and State of H. P. v. Raja Mahendra Pal, (1999) 4 SCC 43 : (1999 AIR SCW 1376 : AIR 1999 SC 1786).Page 64 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019
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11. The position that emerges from the discussions in the decided cases is that ordinarily the High Court should not entertain a writ petition filed under Article 226 of the Constitution for mere enforcement of a claim under a contract of insurance. Where an insurer has repudiated the claim, in case such a writ petition is filed, the High Court has to consider the facts and circumstances of the case, the nature of the dispute raised and the nature of the inquiry necessary to be made for determination of the questions raised and other relevant factors before taking a decision whether it should entertain the writ petition or reject it as not maintainable. It has also to be kept in mind that in case an insured or nominee of the deceased insured is refused relief merely on the ground that the claim relates to contractual rights and obligations and he/she is driven to a longdrawn litigation in the civil court it will cause serious prejudice to the claimant/other beneficiaries of the policy. The pros and cons of the matter in the context of the factsituation of the case should be carefully weighed and appropriate decision should be taken. In a case where claim by an insured or a nominee is repudiated raising a serious dispute and the court finds the dispute to be a bona fide one which requires oral and documentary evidence for its determination then the appropriate remedy is a civil suit and not a writ petition under Article 226 of the Constitution.
Similarly, where a plea of fraud is pleaded by the insurer and on examination is found prima facie to have merit and oral and documentary evidence may become necessary for determination of the issue raised, then a writ petition is not an appropriate remedy."
71 Moreover, when a writ court finds that the refusal to extend constitutional remedy of Article 226 to enforce a contractual right or obligation would drive a person, knocking at the doors of a writ court, to a longdrawn litigation in the civil court causing serious prejudice to the person seeking relief against the State, the writ court may not, according to Asha Goel (supra), decline to interfere in such a matter and hence, reminds the Apex Court in Asha Goel (supra), thus: "the pros and cons of the matter in the context of the fact situation of the case should be carefully weighed and appropriate decision should be taken". From the law, so laid down in Asha Goel (supra), it becomes transparent that when noninterference by a writ court would drive a person to a long drawn civil litigation causing serious prejudice to him, the writ court's interference is not only desirable, but even necessary.
Page 65 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 72 Telling the writ applicant to go and file a civil suit either for
claiming damages, will be nothing, but doing gross injustice with the writ applicant. We must remind ourselves of what Justice P.N. Bhagwati observed in the case of M/s. Hindustan Sugar Mills vs. The State of Rajasthan and others reported in AIR 1981 SC 1681. We quote the observations:
"1...We thought that in the absence of any such clause in the contract there would be no legal liability on the Central Government to pay to the appellant the amount of sales tax in the freight component of the price in respect of transactions of sale of cement entered into by the appellant with the Director General of Supplies and Disposals and that is why we observed in the judgement "it is true and we are aware that there is no legal liability on the Central Government to do so but it must be remembered that we are living in a democratic society governed by the rule of law and every Government which claims to be inspired by ethical and moral values must do what is fair and just to the citizen regardness of legal technicalities. We hope and trust that the Central Government will not seek to defeat the legitimate claim of the assessee for reimbursement of sales tax on the amount of freight by adopting a legalistic attitude." These observations were made on the assumption that there was no legal liability on the Central Government to reimburse the appellant in respect of the amount of sales tax on the freight component of the price, and we, therefore, wanted to impress on the Central Government that even if there was no such legal liability, the Central Government must pay up the amount, of sales tax on the freight component of the price and do what is fair and just to the citizen. But now we find from the application for review that there is, in fact, clause 8 (1) in the Rate Contract with the Director General of Supplies and Disposals which provides that "sales tax, if legally leviable, will be paid in addition to the price given in clause (4) of the Rate Contract" This clause clearly stipulates that whatever is the amount of sales tax legally leviable from the appellant would be reimbursed by the Central Government to the appellant. The Central Government is plainly under a liability to pay to the appellant the amount of sales tax in respect of freight component of the price since that is held to be chargeable to the appellant both under the Central Sales Tax Act 1956 and the Rajasthan Sales Tax Act. 1954. The assumption on which we made the above observations has been shown to be unfounded and these observations must, therefore, stand deleted from the judgement in so far as they relate to contracts with the Director General of Supplies and Disposals which contained clause 8 (1) or any other similar clause providing for Page 66 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT payment by the Central Government of the amount of sales tax legally leviable from the appellant. Where there is such a clause, the Central Government is bound to pay the amount of sales tax on the freight component of the price and we hope and trust that the Central Government will honour its legal obligation and not drive the appellant to file a suit for recovery of the amount of such sales tax .We hopefully expect that the Central Government will not try to shirk its legal obligation by resorting to any legal technicalities. for we maintain that in a democratic society governed by the rule of law, it is the duty of the State to do what is fair and just to the citizen and the State should not seek to defeat the legitimate claim of the citizen by adopting a legalistic attitude but should do what fairness and justice demand."
73 From the decision in Asha Goel (supra), what emerges is that ordinarily, a High Court should not entertain a writ petition, under Article 226, for mere enforcement of claims under a contract; however, the Constitution having not placed any fetters on the exercise of extraordinary jurisdiction by the High Court under Article 226, it is in the discretion of the High Court to interfere or not to interfere in a contractual matter. No exercise of discretionary power can be unfettered, unguided, unsettled or arbitrary, and, hence, the position of law, on a given subject, should not be completely unforeseen and legal decisions must have some standards or parameters in order to enable the people at large to know as to what the position of law, on a given subject, is. Considered, thus, exercise of jurisdiction under Article 226 cannot be unfettered or arbitrary. However, it is not possible to enumerate exhaustively the circumstances in which a writ application even in contractual matter would lie, for, exercise of jurisdiction would depend upon a considerable number of factors, such as, the question as to whether the writ petitioner is merely attempting to enforce his or her contractual rights or has raised important questions of law or constitutional issues, the nature of the dispute raised and the nature of enquiry necessary for determination of the dispute, etc. In short, exercise of jurisdiction would depend on the facts and circumstances of each given case. While jurisdiction of the High Court to entertain a writ Page 67 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT petition, under Article 226, cannot be denied altogether, the courts must bear in mind the selfimposed restrictions constitutionally followed by the High Courts not to, ordinarily, entertain writ petitions for enforcement of purely contractual rights and obligations, particularly, when determination of such questions necessitates taking of oral evidence or when the parties had agreed to resolve their disputes, arising out of the contract, in the alternative forum selected by them.
74 Keeping in mind the position of law, as discussed above, we are not impressed by the preliminary objection raised by Mr. Mehta, the learned counsel appearing for the Corporation as regards the maintainability of this writ application. We hold that having regard to the arbitrary action on the part of the Corporation being a "State" within the meaning of Article 12 of the Constitution of India, this writ application under Article 226 of the Constitution deserves to be looked into on its own merits.
75 To put the entire controversy at rest, we may refer to and rely upon a very recent pronouncement of the Supreme Court in the case of M/s. Surya Constructions vs. The State of Uttar Pradesh and others [Civil Appeal No.2610 of 2019 decided on 8th March 2019], wherein, in clear terms, the Supreme Cort has observed as under:
"It is clear, therefore, from the aforesaid order dated 22.03.2014 that there is no dispute as to the amount that has to be paid to the appellant. Despite this, when the appellant knocked at the doors of the High Court in a writ petition being Writ Civil No. 25216/2014, the impugned judgment dated 02.05.2014 dismissed the writ petition stating that disputed questions of fact arise and that the amount due arises out of a contract. We are afraid the High Court was wholly incorrect inasmuch as there was no disputed question of fact. On the contrary, the amount payable to the appellant is wholly undisputed. Equally, it is well settled that where the State behaves arbitrarily, even in the realm of contract, the High Court could interfere under Article 226 of the Constitution of India ['ABL International Ltd. and Another v. Export Credit Guarantee Page 68 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT Corporation of India and Others' (2004 (3) SCC 553)]."
76 Our final conclusions, 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 nonstatutory 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 by aggrieved person would be maintainable.
[2] The Courts have maintained distinction between statutory contracts, on one hand, and nonstatutory 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 Page 69 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT 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. 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.
77 We now propose to go into the merits of the matter.
78 Fairness in State action is the soul of good governance. Every action of the State where it infringes the constitutional mandate or is opposed to basic rule of law or suffers from the infirmity of patent arbitrariness, judicial intervention is inevitable. Government enjoys great freedom while entering into contracts with private parties, but even that freedom is circumscribed by the rule of fairness, transparency and objectivity. It is more so where the Government is dealing with State largesse. The State holds monopoly in certain fields and where this privilege of monopoly is utilized for the purposes of allocation of works, it takes the colour of State largesse as both the State or its instrumentalities or public statutory bodies and the bidder are expected to benefit from such distribution and/or allocation of such works by way of contracts.
79 The impugned order of termination dated 1st April 2019 reads thus:
Page 70 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT "No.AMD/AMDASSET/SUPPORT/MM/ASSETMM/2018/157047 Date : 01.04.2018 NOTICE To, M/s. Aakash Exploration Services Ltd.
424, 4th Floor, Shukan Mail˙ B/H Visat Petrol Pump,.
Sabarmati, Ahmedabad380 005 Email: [email protected] Sub: Termination of Contract No. AMD/AMD
ASSET/SUPPORT/MM/ASSETMM/2018/157047/9010028922 dated 01.12.2018
1. ONGC, Ahmedabad Asset awarded Notification of Award (NOA) dated 1.12.2018 and signed Contract Agreement No. 9010028922 with M/s. Aakash Exploration Services Ltd Ahmedabad (Hereinafter referred to as the 'Contractor') for Hiring of 01 No 30 Ton Work Over Rig for a period of 01 year for Ahmedabad Asset with the provision that the Operator (ONGC) shall have the option to terminate this contract at any time before the expiry of the firm period of contract of one year on giving 30 days prior notice in writing.
2. Another Contract No. 9010029090 dtd. 28.12.2018 for Hiring the same work Over Rig for a period of 03 year for Ahmedabad Asset was awarded by Delhi Office against Tender No ZNSAC18005 with EDR of Rs. 85403 59 Since EDR rate of Contract No 9010029090 awarded by Delhi office is much lower than the EDR rates awarded by Ahmedabad Asset in Contract No. 9010028922 an opportunity was given to you to match down the rates with EDR of Rs. 8540359 but instead of matching, you have refused to match the rates and requested to continue the said Contract (9010028922) on same rates vide your mail dtd 7.03.2019 which is against the clause no. 5] v) of NOA, Clause No. 3.v) and special condition of Contract (SCC) clause no. 2.4. v) of Contract Agreement which stipulates as under :
Operator shall have the option to terminate the Contract at an time before the expiry of the firm period of One year by giving 30 days prior notice in writing.Page 71 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019
C/SCA/7814/2019 JUDGMENT Further as per SCC clause No. 29.3 of Contract Agreement, it is clearly indicated that "In addition to provisions contained elsewhere in the contract and notwithstanding the provisions stated in clause 18 of General conditions of the contract the operator (ONGC) shall have the right to Terminate this contract by giving Thirty (30) days 5 advance notice to contractor without assigning any reasons whatsoever and no costs or damages or any compensation shall be payable by the operator except for the work already done by the contractor".
3. In view of above. ONGC hereby gives this 30 days advance notice to Contractor M/s. Aakash Exploration Services Ltd. Ahmedabad, that Contract No. 9010028922 for Hiring of 01 No 30 Ton Work Over Rig for a period of 01 year shall be terminated w.e.f. 1.05.2019 in accordance with Clause No. no. 5].v) of NOA, Clause No. 3.v), special condition of Contract (SCC) clause no. 2.4. v) & SCC clause No. 29.3 of Contract Agreement and without prejudice to ONGC's right to avail other rights and remedies as per the provisions of contract.
sd/ (A K Srivasva) GMHead MM"
80 The Notification of award reads thus:
"No.AMD/AMDASSET/SUPPORT/MM/ASSETMM/2018/15/157047 Dated : 01.12.2018 To, M/s. Aakash Exploration Services Ltd.
424, 4th Floor, Shukan Mail˙ B/H Visat Petrol Pump,.
Sabarmati, Ahmedabad380 005 Email: [email protected] SUBJECT: NOTIFICATION OF AWARD (NOA) FOR CHARTER HIRING OF 01 NO. OF 30 TON WORK OVER RIG FOR AHMEDABAD ASSET FOR A PERIOD OF 01 YEAR [TENDER NO. D16BC18024].
Reference: 1) Your eResponse No. 650088309 dated 16.08.2018
Page 72 of 85
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C/SCA/7814/2019 JUDGMENT
2) Your Negotiation Letter No AESPL/ONGC
AMD/WOR/05/18 dtd. 19.11.2018
With reference to your offer against subject tender and subsequent correspondences, ONGC hereby places Notification of Award (NOA) of Contract No. 9010028922 for hiring of 01 No 30 Ton Work Over Rig for a period of 01 year for Ahmedabad Asset on following rates. Terms and Conditions:
1.0] SCHEDULE OF RATES :
Rates applicable for the services to be rendered under this contract shall be as per Schedule of Rates (AppendixA) enclosed with the NOA.
2.0] SCOPE OF WORK :
The scope of work/specification shall be in accordance with technical specifications, Scope of Work, special Terms and Conditions as contained in subject Tender.
3.0] MOBILIZATION PERIOD :
The contractor will mobilize Work Over Rig(s) duly inspected by Third Party Inspection Agency and accepted by ONGC, and make it available at the specified location from 60 days from the date of issue of Notification of Award (LOA).
4.0] Details of offered 30 Ton Work Over Rig: AAKASHVI.
5.0] DURATION OF THE CONTRACT:
(i) The contract will be for a period of one year, from the commenœment date of contract.
(ii) The contract shall stand automatically extended on same rates, terms and conditions to cover the time necessary to complete or abandon, to the satisfaction of ONGC. The Well in progress at the end of the term of the contract.
(iii) Operator shall have the option to terminate this contract at any time during the last 30 days before the expiry of contract if the last well being worked over is completed or abandoned prior to such expiry date and in the opinion of operator, another well cannot be completed within the remaining contract period.
(iv) This contract shall terminate upon expiry of the contract.
Or Page 73 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT Under the circumstances referred to Union clause 2.4 (iii) above
(v) The Operator shall have the option to terminate this contract at any time before the expiry of the firm period of one year by giving 30 days prior notice in writing.
6.0] SECURITY DEPOSIT :
Please submit Performance Bank Guarantee/Demand Draft amounting to Rs.52,07,350.00 (Rs. Fifty Two Lakhs Seven Thousand Three hundred Fifty only) valid up to 31.01.2020 as per ONGC's proforma available in the tender document, within 15 (Fifteen) days of issue of this NOA I.e. on or before 16.12.2018.
In case the contractor fails to submit the Security Deposit / Performance Bank Guarantee within the stipulated date, ONGC can take action as per conditions specified in the tender.
7.0] OTHER TERMS AND CONDITION:
All other terms and conditions of the contract shall be as per subject tender and subsequent correspondences.
8.0] DETAILED CONTRACT:
The detailed contract will be signed by both parties within 15 days from the date of submission of the PBG. Accordingly, after submission of PBG. It is requested to depute your authorized representative holding valid power of attorney, for signing of detailed contract, under intimation to this office.
9.0] For the purpose of commencement of activities under the contract, this NOA will constitute a binding contract between contractor and ONGC.
10.0] For execution of the contract. Please contact Head Well Services, ONGC, 1at Floor, Avant Bhavan, Ahmedabad Asset, Ahmedabad380 005 (Phone: 0792326 6116).
For all correspondence in this regard and reference in PBG. Please quote Contract No. 9010028922 dated 01.12.2018.
Kindly acknowledge the receipt of this NOA.
sd/ (A.K.Srivastava) GMHead (MM)"
Page 74 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT 81 The document with regard to the special conditions of contract
has been annexed at page : 107 along with the affidavitinreply filed by the Corporation. Clause 2.4 is with respect to the duration of contract. It reads thus:
"2.4 Duration of contract
(i) The contract will be for a period of one year, from the commencement date of contract.
(ii) The contract shall stand automatically extended on same rates, terms and conditions to cover the time necessary to complete or abandon, to the satisfaction of ONGC, the Well in progress at the end of the term of the contract.
(iii) Operator shall have the option to terminate this contract at any time during the last 30 days before the expiry of contract if the last well being worked over is completed or abandoned prior to such expiry date and in the opinion of operator, another well cannot be completed within the remaining contract period.
(iv) This contract shall terminate upon expiry of the contract.
Or Under the circumstances referred to Under clause 2.4 (iii) above
(v) The Operator shall have the option to terminate this contract at any time before the expiry of the firm period of one year by giving 30 days prior notice in writing."
82 With regard to the right to terminate the contract, as contained in the Notification of Award dated 1st December 2018 is concerned, Mr. Dave, the learned counsel appearing for the writ applicant has placed strong reliance on a decision of the Supreme Court in the case of Indian Oil Corporation vs. Nilofer Siddiqui reported in 2015 (16) SCC 125. It was a case of termination of distributorship of LPG. The Supreme Court, while agreeing with the contention advanced by the learned counsel Page 75 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT appearing for the respondent that the condition No.8 of the letter of allotment was unconscionable as it gave IOCL an unfettered right to terminate the distributorship without assigning any reasons, the Supreme Court observed as under:
"34...In the instant case, respondent no.2 is far weaker in economic strength and has no bargaining power with IOCL. At the time when the letter of allotment was issued, respondent no.2 had no other means of livelihood and was dependent on the grant of Indane Gas agency by IOCL for sustenance of himself and family members. The letter of allotment contains standard terms and respondent nos. 2 and 3 had no opportunity to vary the same. Condition no.8 of letter of allotment provides for unilateral termination of distributorship without assigning any reason which is liable to be read down in the light of Article 14 of Constitution of India as well as observations made by this court in Central Inland Water Transport Corporation Ltd. & anr. etc. vs. Brojo Nath Ganguly & anr., (1986) 3 SCC 156. The relevant paragraph cited by the learned senior counsel is reproduced hereunder:
"89. Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of 19th century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak? Should the courts sit back and watch supinely while the strong trample underfoot the rights of the weak? We have a Constitution for our country. Our judges are bound by their oath to "uphold the Constitution and the laws". The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this Page 76 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today's complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances."
83 Mr. Dave, the learned counsel appearing for the writ applicant also placed reliance on the decision of the Supreme Court in the case of Industrial Assistance Group Government of Haryana vs. Ashutosh Ahluwalia reported in 2001 (4) SCC 350, wherein a plot was alloted by the Government in favour of the respondent therein. The allottee accepted the offer and deposited the earnest money. The contract between the parties stood concluded. The allottee was alloted the plot in the higher potential zone. In the meantime, the policy changed, and according to the changed policy, such plots could only be sold by auction. The allotment came to be cancelled on such ground. The validity of such cancellation was challenged. The Supreme Court, ultimately, observed as under:
Page 77 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019C/SCA/7814/2019 JUDGMENT "7. Mr. Mahabir Singh submitted that the Appellants were bound to comply with the directions of the Government issued on 15th July, 1996. He submitted that as per these directions the plot could only be sold in a open auction and as the process of allotment had not been completed inasmuch as the Deed had not been executed in favour of the 1st respondent the Appellants were bound to refund the application money and put up the plot for auction. He relied upon the case of M. P. Ration Vikreta Sangh Society v. State of M.P. reported in (1981) 4 SCC 535 :
(AIR 1981 SC 2001) for the preposition that the frame of a scheme is a matter of Government policy in which Court's interference could not be called for. He also relied upon the case of Principal, Madhav Institute of Technology and Science v. Rajendra Singh Yadav reported in (2000) 6 SCC 608 : (2000 AIR SCW 2683 : AIR 2000 SC 2487) for the same preposition. He submitted that therefore the impugned Order could not be sustained and should be set aside. Alternatively, he submitted that if an allotment had to be made to the 1st respondent, then it should be at the rates now prevailing. He submitted that even if the Court is not willing to direct the 1st respondent to pay the rates now prevailing, the Court should direct payment of some higher rate. In support of this submission he relied upon the case of HUDA v. Sunit Rekhi reported in 1989 Supp (2) SCC 169 : (AIR 1989 SC 1637). In this case there has been a sale of large number of plots by the Development Authority. Subsequently, the allotments were sought to be set aside and the plots were proposed to be sold by fresh auction. Majority of the old allottees purchased the plots in the fresh auction at a higher rate. Some of the old allottees did not accept this and filed a Writ Petition. This Court ultimately held that as the majority had paid a higher rate it would be unfair to allow the minority to get the plots at old rates and directed payment of 50% more than the old rate. Those directions were given on the peculiar facts of that case and not as a matter of principle. Such a direction can have no application to the facts of the present case.
8. In our view, the impugned order suffers from no infirmity. The Appellants could not have, on the basis of the changed Policy of 15th July, 1996, refused to complete the formalities so far as the 1st Respondent is concerned. In the case of 1st respondent there had already been an allotment. Thus the process of allotment had been completed. In this view of the matter the Commission was right in issuing the directions that it did. As the allotment was completed the 1st respondent could not be asked to pay any rate higher than the one of which he had been allotted the plot. We see no reason to interfere."
84 Mr. Dave also placed reliance on a decision of the Supreme Court Page 78 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT in the case of Mahavir Auto Stores and others vs. Indian Oil Corporation and others reported in AIR 1990 SC 1031, wherein, the Supreme Court had observed as under:
"It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in M/ s. Radha Krishna Agarwal v. State of Bihar, (1977) 3 S.C. 457: (AIR 1977 SC 1496). It appears to us, at the outset, that in the facts and circumstances of the case, the respondent company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual parties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. See M/s. Radha Krishna Agarwal v. State of Bihar at p. 462 (at SCC) : (at p. 14991500 of AIR) (supra), but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. In a situation of this nature certain activities of the respondent company which constituted State under Article 12 of the Constitution may be in certain circumstances subject to Article 14 of the Constitution in entering or not entering into contracts and must be reasonable and taken only upon lawful and relevant consideration, it depends upon facts and circumstances of a particular transaction whether hearing is necessary and reasons have to be stated. 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 semimonopoly dealings, it should meet the test of Article 14 of the Constitution. If a Governmental action even ,in the matters of entering or not entering into contracts, fails to satisfy the test of reasoned ableness, the same would be unreasonable. In this connection reference may be made to E. P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3 : (AIR 1974 SC 555); Maneka Gandhi v. Union of India, (1978) 1 SCC 248:
(AIR 1978 SC 597), Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722: (AIR 1981 SC 487); R. D. Shetty v. International Airport Page 79 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT Authority of India, (1979) 3 SCC 489: (AIR 1979 SC 162) and also Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293 : (AIR 1989 SC 1642). 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 nondiscrimination in the type of the transactions and nature of the dealing as in the present case."
"The existence of the power of judicial review however depends upon the nature (of) and the right involved in the facts and circumstances of the particular case. it is well settled that there can be "malice in law".
Existence of such "malice in law" is part of the critical apparatus of a particular action in administrative law. Indeed "malice in law" is part of the dimension of the rule of relevance and reason as well as the rule of fair play in action."
"We are of the opinion that in all such cases whether public law or private law rights are involved, depends upon the facts and circumstances of the case. The dichotomy between rights and. remedies cannot be obliterated by any straight jacket formula . It has to be examined in each particular case. Mr. Salve sought to urge that there are certain cases under Article 14 of arbitrary exercise of such "power" and not cases of exercise of a "right"
arising either under a contract or under a Statute. We are of the opinion that that would depend upon the factual matrix.
Having considered the facts and circumstances of the case and the nature of the contentions and the dealings between the parties and in view of the present state of law, we are of the opinion that decision of the State/public authority under Article 298 of the Constitution, is an administrative decision and can be impeached on the ground that the decision is arbitrary or violative of Article 14 of the Constitution of India on any of the grounds available in public law field..."
85 There is no doubt that the Corporation has the option or right to terminate the contract at any time before the expiry of the firm period of one year by giving thirty days prior notice in writing. However, this clause of termination by itself does not empower the Corporation to take an arbitrary decision or rather act an unfair and unreasonable manner. The principles of natural justice are embodied in Article 14 of the Page 80 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT Constitution of India. One of the facets of the principles of natural justice is fairness. We are not impressed by the submission of Mr. Mehta that the Corporation having realized its mistake in fixing a particular rate is justified at a later stage, to revise the rates in public interest. The Corporation is also not justified in submitting that the writ applicant was given an opportunity to revise the rates if at all he wanted to continue with the work and as he declined, the Corporation had no option, but to terminate the contract. At the cost of repetition, we state that after due deliberations, at all stages, and with eyes wide open, the Corporation entered into a contract with the writ applicant at a particular EDR. The contract was finalized. The writ applicant started the work of contract. He worked for almost four months without any complaint of any nature, and all of a sudden, the issue with regard to the EDR was raised by the Corporation. The Corporation, at any cost, wants the writ applicant to match his EDR with the EDR fixed in the contract issued by the Delhi Office. The writ applicant has explained as to why the rate of EDR, so far as the case on hand is concerned, is on a higher side compared to the contract of the Delhi office. In our opinion, once the contract stood concluded with all the terms and conditions being finalized, all of a sudden, the Corporation could not have raised the issue of EDR in the name of public interest. Mr. Dave, the learned counsel appearing for the writ applicant is right in submitting that the termination clause could have been invoked by the Corporation provided his client was at fault in any manner or was guilty of committing breach of any terms and conditions of the tender document. The termination clause in the contract does not give an unbridled power to the Corporation being a "State" within the meaning of Article 12 of the Constitution of India to terminate the contract on its own whims and caprice.
86 The manner in which the Corporation proceeded to pass the order Page 81 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT
terminating the contract and have tried to justify their illegal action in the name of bona fide mistake and public interest has really disturbed us a lot. The Corporation having entered into a contract must, in all fairness, be held bound by its terms. Only on compelling, lawful and just reasons, can it be allowed to wriggle out of terms of an agreement solemnly entered into by the parties formerly in accordance with Article 299 of the Constitution. In the name of public interest and public revenue, the Corporation, being a "State" within the meaning of Article 12 of the Constitution, cannot be permitted to commit breaches of its own agreements. The "State", while entering into contracts and in the field of business, is expected to be consistent and fair in its relationship with the citizens or association of citizens. That is the difference between the dealings with the State and ordinary selfinterested businessman. Any action of the State, which is not informed by fairness and reason, is constitutionally invalid on the touchstone of Article 14 of the Constitution and merely because the right sought to be enforced by a citizen is based on a contract, is no ground to refuse him the constitutional remedy under Article 226 of the Constitution of India. In the aforesaid context, we may refer to and rely upon a decision of the Madhya Pradesh High Court in the case of Bastar Oil Mills and Industries Ltd. and Anr. vs. State of M.P. and Ors. reported in 1999 (2) MPJR 622, wherein, Justice D.M. Dharmadhikari (as His Lordship then was) had observed as regards the duty of the "State" to act fairly in the matters of contract as under:
"23. The agreement Clauses 5,6 and 7 contain the method of revision: The State having entered into a contract must in all fairness be held bound by its terms. Only on compelling lawful and just reasons can it be allowed to wriggle out of the terms of an agreement solemnly entered into by the parties formally in accordance with Article 299 of the Constitution. When supplies are made to units in tribal areas promoted by the State under written agreement, and to the others by mode of auction or tender, sudden change to uniform method of price revision which is said to be a policy Page 82 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT decision of the State is clearly breach of the terms of the agreement entered with the petitioner. As has been already stated above, the State Government has not invoked its powers under Section 3 and 5 of the Act of 1987. Clauses 5 and 7 of the agreement AnnexureP/Z do not in any manner appear to be in breach of any provisions of the Act of 1987. The State in its discretion and with its eyes Wide open agreed for revision of price of sal seed in the manner laid down in Clauses 5 to 7 of the agreement. In the above situation, merely because for the available quantity of sal seed in the supply season under consideration other traders and industrial units in open market are willing to pay higher price cannot be said to be a valid justification to refuse supply to the petitioner under the terms of the contract which is a unit promoted by the State in tribal area. Permitting the State. in the manner as has been done by it, to wriggle out of contractual terms agreed by it and contrary to the provisions of Act of 1987, would result in shaking the credibility and confidence of the traders and industrial units set up on the basis of the agreements and undertakings given by the Government. In the name of public interest and public revenue, the State cannot be permitted to commit breaches of its own agreements. The sudden shift from the agreed policy of revision of price, and by insisting on supplies to be made on competitive marked price is bound to starve the units in tribal areas for want of raw material on reasonable price and defeat the object of the agreement. A long term 12 years' agreement for supply was reached with a particular method of revision of price. The industrial policies framed by the State in order to ensure fairness in dealing with citizens should not be allowed to be changed frequently and suddenly in the manner as has been done. That is the difference between the relationship of State and a citizen and inter se relationship of two industries or businessmen. Public revenue is only one valid consideration before the State while distributing its largesse but that cannot be the sole basis when wider public interest as contemplated and laid down in the agreement was to guarantee supply of raw material at reasonable rates on long basis to industries promoted by the State itself in tribal areas to indirectly benefit the tribals engaged as labours in the sal seed industry. It is further to be noted that the revision of price has not been made, as contemplated by the agreement, in due time before1 st of April of the year and the revision of rates under challenge in this petition was made after much delay resulting in retrospective revision of price with demand of difference of price from a back date in relation to supplies already made and raw material consumed in the industry.
[24] In entering into the agreement in question, the lesser financial ability of units in tribal areas was in contemplation of the Government while comparing them with industrial units in other areas with better financial resources. Fixation of competive market price in the manner as has been done by the State might completely jeopardise the existence of the units in tribal areas. The sudden shift or change of policy by State in revision of price of sal seed to be' supplied is subversive of their own earlier industrial Page 83 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT policy and the contract entered into on that basis. 'Fairness of action' which is a mandate of Article14 of the Constitution to the State forbids the State from acting unfairly in breach of contract in the so called name of public revenue and public 'interest. The State while entering into contracts and in the field of business is expected to be consistent and fair in its relationship with citizens or Association of citizens. That is the difference between dealings with the State and ordinary self interested businessmen. Any action of the State which is not informed by fairness and reason is constitutionally invalid on the touchstone of Article 14 and merely because the right sought to be enforced by a citizen is based on a contract is no ground to refuse him constitutional remedy under Article 226 of the Constitution."
87 We may also refer to and rely upon a Division Bench decision of the Allahabad High Court in the case of M/s. Shyam Gas Company vs. State reported in AIR 1991 Allahabad 129. The observations made by Justice A.P. Misra (as His Lordship then was) are very much apt so far as the facts of the present case are concerned. We quote the observations:
"37. The State must act fairly and reasonably does not only flow from Art. 14 of the Constitution. A State is always expected to act fairly to its subjects for which no law is necessary. Art. 14 merely enshrines this principle. Even in the matter of entering into contract under Art. 229, right flowing from Art. 298 for carrying on trade etc. the State is always expected to act fairly and reasonably. The act of fairness by the State is always expected right from the stage of initiating of the contract, entering into the contract, performance of the terms of the contract of enforcement of the contract."
"39. In fact, a social structure of a society is always strong with sound economy fairness in every conduct, behaviour, motive of action is inherent in every citizen and the State. It is this lack of fairness in the citizen brings forth the police power of the State to enforce law through obligations of the State to restrict such individuals from bringing disarray to the social order. Laws are laid down to keep check on such violations. In the modern time what was unthinkable in the ancient time that a king or Ruler would do any wrong to its subjects, the State its substitute cannot be equated on the same pedastal. It is when State not acting fairly, transgressing its power and obligations affecting citizens right they are controlled by courts through the constitutional provisions. This again is only for checking unfairness, unreasonableness of the State. Thus, State even performing contractual obligations under terms of contract, without obliterating it even while literally following terms of contract cannot be expected to act Page 84 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019 C/SCA/7814/2019 JUDGMENT unfairly or unreasonably. The terms of the contract is for an object to be achieved and if in performing the contract the State acts unfairly, unreasonably, though it enforces the contract in literal words, then the Court can always examine each act of the State Government to test whether it is exercising that power for enforcement of that contract or for some ulterior purpose or unfairly against public policy unreasonably. If the Court comes to the conclusion on the facts of each case by removing the veil of State purporting to exercise powers under the contract but acting unfairly or arbitrarily, the Courts should always strike down such an action."
88 In the overall view of the matter, we hold that the action on the part of the respondent - Corporation in terminating the contract vide termination Notification dated 1st April 2019 is not sustainable in law being violative of Articles 14, 16 and 19(1)(g) of the Constitution of India.
89 In the result, this writ application succeeds and is hereby allowed. The impugned notice of termination dated 1st April 2019 (at Annexure :
'A' to the petition) is hereby quashed and set aside. The Corporation is directed to abide by the terms and conditions of the contract and permit the writ applicant to continue with the work under the contract in accordance with the terms of the agreement. Rule is made absolute.
(J. B. PARDIWALA, J) (A. C. RAO, J) CHANDRESH Page 85 of 85 Downloaded on : Sun Jun 30 13:13:50 IST 2019