17 Nov 2022 3:15 AM GMT
In a judgment delivered on Wednesday (16 Nov 2022), the Supreme Court explained the scope of judicial review of action by the State in a matter arising from a non- statutory contract.The mere fact that relief is sought under a contract which is not statutory, will not entitle the State in a case by itself to ward-off scrutiny of its action or inaction under the contract, if the complaining...
In a judgment delivered on Wednesday (16 Nov 2022), the Supreme Court explained the scope of judicial review of action by the State in a matter arising from a non- statutory contract.
The mere fact that relief is sought under a contract which is not statutory, will not entitle the State in a case by itself to ward-off scrutiny of its action or inaction under the contract, if the complaining party is able to establish that the action/ inaction is, per se, arbitrary, the bench of Justices KM Joseph and Hrishikesh Roy observed.
The bench observed thus while dismissing an appeal filed against the Madhya Pradesh High Court judgment which quashed the order passed by the MP Power Management Company Limited (a wholly owned company of the Government of Madhya Pradesh) , terminating the Power Purchase Agreement (PPA), which was entered into by it with Sky Power Southeast Solar India Private Limited.
In appeal, the Apex Court found that the contract in question, i.e., the PPA, is not a statutory contract. It added that even if it is a non-statutory contract, there is no absolute bar in dealing with a cause of action based on acts or omission by the State or its instrumentalities even during the course of the working of a contract.
While upholding the High Court judgment, the Apex Court bench, referring to various earlier judgments, summarized the principles regarding the scope of judicial review in contractual matters:
MP Power Management Company Limited vs Sky Power Southeast Solar India Private Limited | 2022 LiveLaw (SC) 966 | SLP(C) 4609-4610 OF 2021 | 16 Nov 2022 | Justices KM Joseph and Hrishikesh Roy
For Appellant(s) Mr. K. M. Natraj, ASG (Not Present) Mr. Anish Kumar Gupta, AOR Mrs. Archana Preeti Gupra, Adv. Ms. Rita Gupta, Adv. Mr. N. Choudhary, Adv. Mr. Guneet Sheoran, Adv. Mr. Rohit Singh, Adv. Mr. Venugopal Abhay, Adv. Mr. Viabhav Verma, Adv. Mr. Vinayak Sharma, Adv.
For Respondent(s) Mr. Ramanuj Kumar, Adv. Mr. Manpreet Lamba, Adv. Ms. Priyal Modi, Adv. M/S. Cyril Amarchand Mangaldas, AOR Mr. Rajesh Kumar, AOR Mr. Aashish Vernand, Adv. Mr. Raj Kumar Prasad, Adv. Mr. Pramhans Sahini, Adv.
Constitution of India, 1950 ; Article 226 - Judicial Review in Contractual matters - Even if it is a non-statutory contract, there is no absolute bar in dealing with a cause of action based on acts or omission by the State or its instrumentalities even during the course of the working of a contract - A monetary claim arising from a contract may be successfully urged by a writ applicant but the premise would not be a mere breach of contract. Being part of public law the case must proceed on the basis of there being arbitrariness vitiating the decision. The matter should not fall within a genuinely disputed question of facts scenario. The dispute which must be capable of being resolved on a proper understanding of documents which are not in dispute may furnish a cause of action in a writ court. - Principles summarized (Para 78, 54)
Constitution of India, 1950 ; Articles 298, 162 - For the purpose of Article 298, the broader concept of State, as defined in Article 12 of the Constitution, which, no doubt, would include a fully owned Government Company, is inapposite and inapplicable - A Company, would not be entitled to exercise the executive power contemplated in Article 162 of the Constitution, which is the power with the Union or the State Governments. (Para 17)
Constitution of India, 1950 ; Article 14, 226 - Arbitrariness - When an act is to be treated as arbitrary ? The court must carefully attend to the facts and the circumstances of the case. It should find out whether the impugned decision is based on any principle. If not, it may unerringly point to arbitrariness. If the act betrays caprice or the mere exhibition of the whim of the authority it would sufficiently bear the insignia of arbitrariness. In this regard supporting an order with a rationale which in the circumstances is found to be reasonable will go a long way to repel a challenge to state action. No doubt the reasons need not in every case be part of the order as such. If there is absence of good faith and the action is actuated with an oblique motive, it could be characterised as being arbitrary. A total non-application of mind without due regard to the rights of the parties and public interest may be a clear indicator of arbitrary action. A wholly unreasonable decision which is little different from a perverse decision under the Wednesbury doctrine would qualify as an arbitrary decision under Article 14. Ordinarily visiting a party with the consequences of its breach under a contract may not be an arbitrary decision. (Para 48)
Statutory Contract - A contract containing prescribed terms and conditions being mandatory under the Statute, results in the contract becoming a Statutory Contract - Referred to India Thermal Power Ltd. v. State of M.P (Para 19,26)
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