Contract Doesn't Become “Statutory” Merely Because One Party Is An Instrumentality Of State: Allahabad High Court
The Allahabad High Court has held that a contract does not become a “statutory contract” merely because one of the contracting parties is an instrumentality of the State falling within Article 12 of the Constitution of India. It held that where a party's rights arise only from a purely commercial contract, that does not bar the State entity from floating a tender for competition venture,...
The Allahabad High Court has held that a contract does not become a “statutory contract” merely because one of the contracting parties is an instrumentality of the State falling within Article 12 of the Constitution of India.
It held that where a party's rights arise only from a purely commercial contract, that does not bar the State entity from floating a tender for competition venture, and the party has no legal right to challenge such tender.
The bench of Justice Atul Sreedharan and Justice Vivek Saran held,
“Merely one of the parties i.e. the corporation being an instrumentality of State which may come within the ambit of Article 12 of the Constitution of India will not ipso-facto mean that any contract would be a statutory contract. Admittedly, whatever the rights which the petitioner have, would arise from the contractual obligation as stated above.”
Petitioner, M/s Moga Dhaba With Family Hall, operates a Yatri Plaza for air-conditioned buses on the Moradabad-Delhi route near Gajraula, a facility it secured through a bidding process held by the U.P. State Road Transport Corporation. The arrangement is governed by a contract dated October 19th, 2024.
Almost a year later, on July 16th, 2025, the Corporation issued a fresh e-tender inviting bids for another Yatri Plaza for air-conditioned buses on the same route, along with plazas on two other routes. Without participating in the tender, the petitioner approached the High Court seeking quashing of the e-tender and a direction to the Corporation to decide its representation.
Petitioner argued that a second plaza on the same route breached the Corporation's policy dated November 26th, 2020, under which an additional plaza on a route could be opened only where more than 300 buses plied on it. It was further argued that a competing plaza would divide its customer and injure the commercial interest in which it had invested heavily.
The Corporation and the private respondents countered that the petitioner had no right to prevent a second plaza. It was argued that the number of plazas on a route was for the Corporation to decide. It was submitted that the governing contract was purely commercial and it nowhere barred the Corporation from opening another plaza on the same route or even at the same spot. They added that the 2020 document was a set of non-statutory guidelines and that competition among operators would benefit travellers.
Finding the contract to be purely commercial and not statutory, the Court held that the petitioner's rights were not beyond the contract, which nowhere restrained the Corporation from opening another plaza.
“ None of the covenants contents in the contract dated 19.10.2024 prohibit or restrain the corporation from opening yet another Yatri Plaza (for A.C. Buses) in the vicinity, where the petitioner is operating a Yatri Plaza (for A.C. Buses). The petitioner could not have a better right than what arises out of the contractual obligations.”
Relying on the Supreme Court's decision in Vinoy Kumar v. State of U.P., it reiterated that relief under Article 226 rests on the existence of a right in the person invoking it, and that a petitioner not personally affected by the impugned order ordinarily has no locus to sue.
“The petitioner has been unable to demonstrate what legal wrong or legal injury has been caused by the issuance of the advertisement impugned.”
On the alleged breach of the 2020 policy, the Court held that it was no more than guidelines issued by the Corporation's Managing Director, not framed under any statute and therefore without binding force. It held that a violation of these guidelines gives no right to dispute a decision.
It further observed that the clause the petitioner relied on prescribed no minimum number of buses for opening a plaza for air-conditioned buses, and that both the guidelines and the tender provided for separate plazas for air-conditioned buses apart from those for ordinary services. The petitioner's claim that only 60 buses plied the route was disputed and being a disputed question of fact, could not be gone into in writ jurisdiction.
The Court relied on the Supreme Court's decision in Jagdish Mandal v. State of Orissa, wherein it was held that awarding contracts is essentially a commercial function in which courts will not interfere, even where a procedural aberration is shown, so long as the decision is bona fide and in public interest. It held that judicial review cannot be invoked to protect private interest at the cost of public interest.
The Court held that the petitioner had shown no arbitrariness or bias. It also held that a second plaza in the vicinity was not against public interest, since more plazas would foster healthier competition and better service to passengers halting for refreshment.
Accordingly, the writ petition was dismissed.
Case Title: M/s Moga Dhaba With Family Hall v. State of U.P. and 2 others