Forum: Supreme Court of India
Bench: Justice D. Y. Chandrachud and Justice M. R. Shah.
Case No: Civil Appeal No. 317 of 2021, arising out of SLP (C) No 9010 of 2019.
Date of Decision: 17.02.2021
The Hon'ble Supreme Court has reiterated its view on the power and extensions conferred on the High Courts in a writ jurisdiction under Article 226 of the Constitution and has observed that the jurisdiction under Article 226 cannot be ousted only on the basis that the dispute pertains to the contractual arena, and thus, the State and its instrumentalities are not exempt from the duty to act fairly merely because in their business dealings they have entered into the realm of contract. The Court has further observed that the presence of an arbitration clause doesn't oust the jurisdiction under Article 226 in all cases, though, it still needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked.
In an already set precedent, the Supreme Court in ABL International Ltd v Export Credit Guarantee Corporation of India [ABL Case][1] has held earlier that Writs under Article 226 are maintainable for asserting contractual rights against the state, or its instrumentalities, as defined under Article 12 of the Indian Constitution.
Emphasising the set precedent in ABL Case, the Hon'ble Court further noted that this exposition has been followed by this Court, and has been adopted by three-judge Bench decisions of this Court in State of U.P. v. Sudhir Kumar[2] and Popatrao Vynkatrao Patil v. State of Maharashtra[3]. The decision in ABL International cautions that the plenary power under Article 226 must be used with circumspection when other remedies have been provided by the contract. But as a statement of principle, the jurisdiction under Article 226 is not excluded in contractual matters.
The instant petition had been filed by Telangana State Industrial Infrastructure Corporation before the Supreme Court contending that the High Court should not have entertained a Writ Petition filed before it under Article 226 of the Constitution in ‘a pure-contractual’ matter which also contains an Arbitration Clause.
In this case, the Division Bench of the Telangana High Court upheld the order of a Single Judge of the High Court on the liability of TSIIC to make a refund of an amount of 165 Crores Rupees to Unitech. (The matter pertains to a contractual dispute between Unitech and TSIIC). The Order was passed by the Single Judge allowing the writ petition filed by Unitech. The Division Bench however made a modification to the prior order and confined the TSIICs liability to pay interest only with effect from 14 October 2015.
However, the Bench comprising Justice D. Y. Chandrachud and Justice M. R. Shah took note of the set precedents and were also of the view that State or any of its instrumentality will not be exempted from acting fairly in their business dealings on the ground that they have entered into a contract.
The Bench was of the view that the Public Law Remedy is available for enforcing legal rights which are subject to well-settled parameters. While exercising its jurisdiction under Article 226, the Court is entitled to enquire whether the action of State or any of its instrumentality was arbitrary or unfair or in violation of Article 14 guaranteed by the Constitution.
Article 226 is not only a public law remedy but also acts as a constitutional safeguard against any arbitrary or unfair action of the State or in case of misuse of power by the State or its instrumentality.
The Court further observed that it should not be right to claim that in a contractual dispute arising between State and any private individual, Article 226 does not hold its rightful authority. In the given case, the State instrumentality has acted arbitrarily, and thus, Article 226 has been rightly invoked, however, the Court further cautioned that in matters of a contractual dispute, the Courts are required to test the disputed question of fact which depends on evidentiary determination where a trial is also required.
The Supreme Court bench further quoted that even in the domain of contract, State and its instrumentality cannot claim an exemption from the public law to act fairly. The Supreme Court in its ruling observed that the Telangana High Court has rightly invoked the jurisdiction under Article 226 of the Constitution, as, TSIIC had failed to fulfill the contractual obligations arising out of the contract entered by Unitech and TSIIC. The Bench further found out that TSIIC arbitrarily hoarded the refund of the principal & interest amount on the consideration paid by Unitech in advance a decade ago, to which Unitech was rightly entitled.
Finally, the Bench laid down that Article 226 cannot be ousted only on the ground that the case relates to a contractual dispute or that an arbitration clause is present. However, onus would be on the petitioner to show that the state has acted arbitrarily in contractual duties and it will be a question of fact in each case whether writ would be maintainable or whether arbitration is better alternative remedy.
The Supreme Court taking note of the actions done by TSIIC throughout the contract period stated that State or any of its instrumentality is bound to act fairly under Article 14. Investors rely on the representations made by the State while investing in public projects, and thus, are legitimately entitled to assert that the representations must be fulfilled and to enforce the compliance of the duties which have been contractually assumed.
The Supreme Court Bench thus allowed the appeal filed by Unitech and also set aside the direction of the Division Bench of the High Court which confined the liability to pay interest only with effect from 14 October 2015.
Read Judgment:
[1] (2004) 3 SCC 553.
[2] AIR 2020 SC 5215.
[3] Civil Appeal 1600 of 2000 (Supreme Court of India), MANU/SC/0084/2021.