Writ Jurisdiction in Breach of Contract

Narottam Kumar Sharma & Associates

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Tehno Legal, Commercial Law and Arbitration Consultant

Writ Jurisdiction in Breach of Contract

Introduction:

The Government is the largest Employer's of Contractors for execution of Public Works, through open tenders and Contracts executed between the Parties. During implementation of the Contract, disputes are bound to occur and the same are to be resolved either through the Dispute Resolution

Mechanism provided in the Contract or appropriate legal recourse. Despite the prohibitive time and cost, disputes involving interpretation of terms of the Contract or complex issues of fact and Law have to be taken through tedious legal process.

The Contractors, however, on many occasions are faced with glaring injustice and denial of due entitlements, even in cases where the Contract provisions are clear and the facts are also not in dispute. The Contractors are compelled to go through lengthy, tedious and costly legal process, even in cases, where hardly there is any scope for a dispute. Denial of such indisputable rights and entitlements leads to blockage of large sums and at times causes such disastrous effect on cash flow that the Contractor may not survive to see the results of the litigation.

We are concerned with such cases, in this discussion. Whether the Contractor has any remedy for speedy relief in such a situation or he is bound to suffer at the hands of arbitrary, unjust and unreasonable actions of the Public Authority in complete disregard of the Contract Provisions and the factual position.

Writ Jurisdiction :-

Part 3 of the Constitution incorporated the fundamental rights, to ensure the basic human liberties.

To fortify these rights into actual liberties, detailed legal provisions were incorporated in the constitution itself, to safeguard these rights, under Article 32 and an almost parallel provision was provided under Article 226.

Article 32 granted citizens the right to move to Supreme Court with appropriate proceedings for

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Tehno Legal, Commercial Law and Arbitration Consultant enforcement of the rights conferred by this part of the constitution. Article 226 of the Constitution further provided that, notwithstanding anything in Article 32, every High Court shall have power to issue any person or Authority including in appropriate cases, any Government within it’s jurisdiction, directions, orders or writs for enforcement of any of the rights conferred by Part-3 and for any other purpose.

It is trite that the scope of Writ Jurisdiction, is not a routine jurisdiction but an extraordinary jurisdiction meant for extraordinary purpose. It is to grant an efficacious and speedy remedy against any violation of fundamental rights. The technical rules of procedure attached to the Civil

Courts are not strictly applicable to the Writs and therefore result in an expeditious relief.

Disputed question of facts cannot be decided in a Summary Proceeding, and therefore, must be decided by Civil Courts after recording of due evidence. The relief under the Writs is also not available, generally, where an effective alternate remedy is available. The basic idea is to prevent the people from approaching Writ Courts indiscriminately. The power of the Court under the Writ

Jurisdiction are, however, discretionary and does not have any absolute bar.

The Writ Jurisdiction mainly provides for the protection of fundamental rights, which are to be enforced against the State. Art icle 12 of the Constitution defines “State” as “the State includes the

Government and Parliament of India and the Government and Legislature of each of the States and all local or other Authorities within the territory of India or under the control of the Government of India.” With the growing horizon of Law, in respect of enforcement of fundamental rights, the concept of the “State” has been extended by way of judicial construction.

The Writ jurisdiction of the Courts in the matters of discrimination in the Public Law Domain and also in contractual matters at the threshold of Award of the Contracts is well recognized and is not in dispute. The question, we are faced with, is whether the relief under Writ Jurisdiction would be available even in matters of breach of Contract?

Legal Position :

The issue regarding validity of Writ Jurisdiction in contractual matters, after the Award of the




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Contract, has received attention of the Courts regularly. In the last two decades, a gradual recognition has come that the relief under Writ Jurisdiction is not only available at the threshold of the Contract but also in the matters of breaches of Contract after the Award of the Contract, of course with limitations.

One of the landmark Judgment dealing with this subject is in case of Kumari Shrilekha Vidyarthi etc. V/s State of UP and others decided on 20 th September (AIR 1991 SC 537). In this matter, the main issue before the Supreme Court was validity of a Circular issued by Law Ministry,

Government of Uttar Pradesh seeking to terminate the engagement of Government Counsels. The

State had opposed the challenge to the Circular on the ground that appointments to the Offices of

Government Counsel in the districts is purely contractual depending on the terms of the Contract and is in the nature of an engagement of a counsel by a Private Party, who can be changed at any time at the will of the litigant there being no right in the counsel to insist on continuance of the engagement.

It was further contended by the State that, the relationship being purely contractual, which cannot be continued against the will of either Party , there is no scope for the argument that the ‘State’ does not have the right to change the Government Counsel at its will.

It was further contended that, the terms of appointment allowed the

Government the power to terminate the appointment at any time without assigning any cause.

Honorable Court in the judgment observed that, applicability of Article 14 to all executive actions of the ‘State’ being settled and for the same reason its applicability at the threshold to the making of a

Contract, exercise of the executive power being beyond dispute, Can it be said that the State can thereafter cast off its personality and exercise unbridled power unfettered by the requirements of

Article 14 in the sphere of contractual matters and claim to be governed therein only by private law principles applicable to private individuals, whose rights flow only from the terms of 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 making of a contract merely because some contractual right accrue to the other party in addition.




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It is not as if the requirements of Article 14 and contractual obligations are alien concepts, which cannot coexist. The Preamble of the Constitution of India resolves to secure to all its citizens, justice, social, economic and political and equality of status and opportunity. Every state action must be aimed at achieving this goal.

Honorable Supreme Court further held that, 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 argument of exclusion of Article 14 in contractual matters.

The Court further observed that, the impact of every state action is also on public interest. This factor alone is sufficient to import at least the minimal requirements of public law obligations and impress with this character the contracts made by the state or its instrumentality. It is a different matter that 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. However, to the extent challenge is made on the ground of violation of Article 14 by alleging that the imputed 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 obligations of public character, invariably in every case irrespective of there being any other right or obligations in addition thereto, an additional contractual obligation cannot divest the claimant of guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its action. Thus, in a case like the present, if it is shown that the impugned State action is arbitrary, and therefore, violation of Article 14 of the

Constitution, there can be no impediment in striking down the impugned act irrespective of the question whether an additional right, contractual or statutory, if any, is also available to the aggrieved persons.

The Honorable Court goes on to say that, we have no hesitation in saying that the ultimate impact of all actions of the State or Public body being undoubtedly on public interest, the requisite public




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Tehno Legal, Commercial Law and Arbitration Consultant element for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters after the Contract has been made from the purview of judicial review to test its validity on the anvil of Article 14. It can no longer be doubted at this point of time that Article 14 of the Constitution of India applies also to matters of government policy and if the policy or any action of the government, even in contractual matters, fails to satisfy the test of reasonableness, it would be unconstitutional.

These basic principles set out in the judgment of the Honorable Supreme Court laid the foundation for further development and grant of relief in contractual disputes.

The subject was extensively dealt in yet another judgments pronounced by Hon’ble Supreme Court in ABL International Limited and Another V/s Export Credit Guarantee Corporation of India Ltd and others decided on 18 th December 2003, (2004)3 SCC 553. The matter in dispute was a Contract of Insurance executed between ABL International Limited and Export Credit Guarantee

Corporation of India Ltd. (ECGCIL).

ABL International having not succeeded in persuading ECGCIL to adhere to the Contract of insurance between the Parties had filed a writ petition before single judge of Calcutta High Court for quashing of the letters of repudiation issued by the ECGCIL. The Writ Petition was allowed by the single Judge despite coming to the conclusion that, the dispute arose out of the Contract and

ECGCIL being ‘State’ under Article 12 was bound by the terms of the Contract. The Division Bench of the High Court, however, held that the claim involved disputed question of fact and therefore could not be executed in a Writ proceeding and set aside the judgement of the learned single

Judge. The matter was referred to Honorable Supreme Court by way of SLP.

Honorable Supreme Court recorded that, one of the questions that falls for our consideration is whether a Writ Petition under Article 226 of the Constitution of India is maintainable to enforce contractual obligation of the State or its instrumentality by an aggrieved Party ?

The excerpts from the Judgement relevant to the issue are reproduced here below :




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“Para 9 - In our opinion, this question is no more res-integra and is settled by a large number of judicial pronouncements of this Court. In K N Guruswamy V/s State of Mysore, (1955)1 SCR 305, this Court held.

The next question is whether the Appellant can complain of this by way of Writ? In our opinion, he could have done so in an ordinary case. The Appellant is interested in these Contracts and has a right under the Laws of the State to receive the same treatment and be given the same chance as anybody else. We would, therefore, in the ordinary course have given the Appellant the Writ, he seeks but owning to time which this matter has taken to reach us (a consequence for which the

Appellant is in no way to blame for he has done all he could to have an early hearing), there is barely a fortnight of the Contract left to go. A Writ would be ineffective and as it is not our practice to issue meaningless Writs, we must dismiss this Appeal and leave the Appellant content with an enun ciation of the Law.”

Para 10 – It is clear from the above observation of this Court in the said case that, Writ was not issued on the facts of that case, this Court has held that on a given set of facts, if State acts in an arbitrary manner even in a matter of Contract, an Aggrieved Party can approach the Court by way of Writ under Article 226 of the Constitution and the Court depending on the facts of the said case is empowered to grant relief.

This Judgement of K.N. Guruswamy V/s State of Mysore was followed subsequently by this Court in case of DFO, South Kheri V/s Ram Sanehi Singh (1971) 3 SCC 864, wherein this Court held

SCC page 865 Para 4.

“By that Order, he has deprived the Respondent of a valuable right. 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 arbitration unlawful action on the part of a public authority he must resort to suit and not a Petition by way of a writ. In view of K.N. Guruswamy judgement, there can be no doubt that the Petition is maintainable even if the right to relief arose out of an alleged breach of Contract, where the action challenged was of a public authority invested with statutory powers.”




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Para 11 – In case of Gujarat State Financial Corporation V/s Lotus Hotels Private Limited 1983 (3)

SCC 379. This Court following an earlier judgement in Ramana Dayaram Shetty V/s International

Airports Authority of India (1979)3 SCC 489 held that, the instrumentality of the State, which would be an Authority under Article 12 cannot commit breach of a solemn undertaking to the prejudice of the Other Party, which acted on that undertaking or promise and put itself in the disadvantageous position. The Appellant Corporation created under the State Financial Corporation Act falls within the provisions of other Authority in Article 12 and if it backs out from such a promise it cannot be said that the only remedy for the aggrieved Party would be suing for damages for breach and that it could not compel the Corporation for specific performance of the Contract under Article 226 ”.

In the same Judgment, Honorable Court further opined that, there is no absolute rule that in all cases involving disputed questions of fact, the Parties should be relegated to a Civil Suit. Relying upon the Judgment of the Honorable Supreme Court in Smt. Gunwant Kaur and Others V/s

Municipal Council, Bhatinda and Others and Century Spinning and Manufacturing Company

Limited and Another V/s The Ulhasnagar Municipal Council and Another, AIR 1970 SC 802 and

AIR 1971 SC 1021 respectively, it was held that, “merely because a question of fact is raised the

High Court will not be justified in requiring the Party to seek relief by the somewhat lengthy, dilatory and expensive process by a Civil Suit against a Public Body. The questions of facts raised by the petition in this case are elementary.”

In the case of Smt. Gunwant Kaur, this Court even went to the extent of holding that, “in a Writ

Petition, if facts required, 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.”

Replying to the objections of the Respondent that the Officer while discharging the contractual obligations was not performing public function, the Court referred to the Judgement in Kumari

Shrilekha Vidyarthi wherein it was held that , “Once the State or Instrumentality of the State, is a

Party to the Contract, it has an obligation in Law to act fairly, justly and reasonably, which is the




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Tehno Legal, Commercial Law and Arbitration Consultant requirement of Article

14 of the Constitution of India.”

By a thorough review and analysis of the Laws laid down by the previous judgments, the Hon’ble

Court laid down the legal principles for maintainability of a Writ Petition as follows : a) in an appropriate case, a Writ Petition as against the State or an Instrumentality of a State arising out of contractual obligation is maintainable; b) merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain Writ Petition in all cases as a matter of rule; c) a Writ Petition involving a consequential relief of monetary claim is also maintainable.

The Court, however, cautioned that, “this plenary right of the High Court to issue the 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, th e Court thinks it necessary to exercise the said jurisdiction.”

The issue was yet again dealt by the Honorable Supreme Court in deciding the case Zonal

Manager, Central Bank of India V/s Devi ISpat Limited and Others (2010)9 SCR 417. In this case also, the Honorable Court relying on the earlier Judgments yet again confirmed the legal principle, in this regard, as follows :- a) In the Contract, if there is Clause for arbitration, normally Writ Court should not invoke its jurisdiction; b) the existence of effective alternative remedy provided in the Contract itself is a good ground to exercise its extraordinary jurisdiction under Article 226; c) If the instrumentality of the STATE acts contrary to the public interest unfairly, unjustly, unreasonably, discriminatory and violative of Article 14 of the Constitution of India in its contractual or statutory obligation, writ petition would be maintainable. However, a legal right must exist and corresponding legal duty on the part of the STATE and if any action on the part of the STATE is wholly unfair or arbitrary, Writ Courts can exercise their power.




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The Principle has been also upheld by Honorable Supreme Court in judgement in Coal India Ltd and Others V/s Alok fuels Pvt. Ltd. and Others case, decided on 15 th September 2010 (2) CTLJ

354 (SC), as follows :-

“It is settled by a series of decisions of this Court starting from Kumari Shrilekha

Vidyarthi V/s State of UP (1991)1 SCC 212 that, even in the domain of contractual matters the High Court can entertain a Writ Petition on the ground of violation of

Article 14 of the Constitution of India 1950, when the impugned act of the State or its instrumentality is arbitrary, unfair or unreasonable or in breach of obligations under public law.”

Conclusion :

This important issue affecting the contracting fraternity is therefore a well settled principle now, as clearly laid down in the various judgments discussed herein above. The Contractor’s are, therefore, not left entirely remediless in the face of any unjust, arbitrary and unreasonable action of the Public Authority even in case of performance of their contractual obligation. No doubt, the requirement for getting relief under Writ Jurisdiction, in the presence of an Arbitration Clause, is still very demanding. The fact, however, remains that there is no absolute bar to grant relief even in case of existence of an Arbitration Clause and it is under the discretion of the Court to grant relief based on the circumstances of each case.



Writ Jurisdiction in Breach of Contract

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