JOSHI TECHNOLOGIES INTERNATIONAL INC. v. UNION OF INDIA & ORS.

A IV of the Constitution contains 'Directive principles of State Policy' which are fundamental in the governance of the country and are aimed at securing social and economic freedoms by appropriate State action which is complementary to individual fundamental rights B guaranteed in part Ill for protection against excesses of State action, to realise the vision in the preamble. This being the philosophy of the constitution, can it be said that it contemplates exclusion of Art. 14 non arbitrariness which is basic to rule of law from State c actions is contractual field when all actions of the State are meant fore public good and expected to be fair and just? 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 Art. 14 in 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 contractual where the bargaining power is unequal so that these are not negotiated contracts but standard from contracts between unequal.

22. There is an obvious difference in the contracts between private parties and contracts to which the State G is a party. Private parties are concerned only with their personal interest whereas the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it for public good and in public interest. The impact of every State action is also on public interest. This factor alone is sufficient to import

JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1097 UNION OF INDIA & ORS. [A. K. SIKRI, J.]

at least the minimum requirements of public law obligations and impress with this character the contracts made by the State or its instrumentality. It is a different mater that the scope of judicial review in respect of disputes scope of judicialreview 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 Art. 14 by alleging that the c 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 D Art. 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 Art. 14 of non- E arbitrariness at the hands of the State in any of its actions.

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34. In our opinion, the wide sweep ofArt. 14 F undoubtedly takes within its fold the impugned circular issued by the State of U.P. in exercise of its executive power, irrespective of the precise nature of appointment of the Government counsel in the districts and the other rights, contractual or statutory, which the appointees may have. It is for this reason that we base our decision on the ground that independent of any statutory right, available to the appointments, and assuming for the purpose of this case that the rights flow only from the contract of appointment, the impugned circular, issued

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A in exercise of the executive power of the State, must satisfy Art. 14 of the Constitution and if it is shown to be arbitrary, it must be struck down. However, we have referred to certain provisions relating to initial appointment, termination or renewal of tenure to B indicate that the action is controlled at least by settled guidelines, followed by the State of U.P. for a long time. This too is relevant for deciding the question of arbitrariness alleged in the present case"

64Copy pinpoint64. Similarly, in State of Gujarat v. M.P. Shah Charitable Trust14 , this Court reiterated the principles that. 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, for example, where the matter is governed by a non-statutory contract.

65Copy pinpoint65. At this stage, we would like to discuss ·at length the judgment of this Court in ABL International Ltd. (supra), on which strong reliance is placed upon by the counsel for both the parties. In that case, various earlier judgments right from the year 1954 were taken note of. One such judgment which the Department in support of their case had referred to was the decision of Apex Court in case LIC of India v. Escorts Ltd. 15 wherein the Court had held that ordinarily in matter relating to contractual obligations, the Court would not examine it unless the action has some public law character attached to it. The following passage from the said judgment was relied upon by the respondents:

G "If the action of the State is related to contractual obligations or obligations ?rising out of the tort, the court may riot 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 H "(194) 3 sec 552 "(1986) 1 sec 264

JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1099 UNION OF INDIA & ORS. [A. K. SIKRI, J.)

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 c or an instrumentality of the State ventures into t~e 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 D 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 if seeks to change · the management, by a resolution of the company, like any other shareholder." E This Court dealt with this judgment in the following manner:

"We do not think Court in the above case has, in any manner, departed from the view expressed in the earlier judgments in the case cited hereinabove. This Court in the case of Life Insurance Corporation of India (Supra) proceeded on the facts of that case and held that a relief by way of a writ petition may not ordinarily be an appropriate remedy. This judgment does not lay down that as a rule in matters of contract the court's jurisdiction under Article 226 of the Constitution is ousted. On the contrary, the use of the words "court may not ordinarily examine it unless the action has H

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A some public law character attached to it" itself indicates that in a given case, on the existence of the required factual matrix a remedy under Article 226 of the Constitution will be available."

66Copy pinpoint66. Insofar as the argument of the respondents in the said case that writ petition on contractual matter was not maintainable unless it is shown that the authority performs a public function or discharges a public duty, is concerned, it was answered in the following manner: c "22. We do not think the above judgment in VST Industries Ltd. (supra) supports the argument of the learned counsel on the question of maintainability of the present writ petition. It is to be noted that VST D Industries Ltd. against whom the writ petition was filed was not a State or an instrumentality of a State as contemplated under Article 12 of the Constitution, hence, in the normal course, no writ could have been issued against the said industry. But it was the E contention of the writ petitioner in that case that the said industry was obligated under the concerned statute to perform certain public functions, failure to do so would give rise to a complaint under Article 226 against a private body. While considering such argument, this F Court held that when an authority has to perform a public function or a public duty if there is a failure a writ petition under Article 226 of the Constitution is maintainable. In the instant case, as to the fact that the respondent is an instrumentality of a State, there is no G dispute but the question is: was first respondent discharging a public duty or a public function while repudiating the claim of the appellants arising out of a contract ? Answer to this question, in our opinion, is found in the judgment of this Court in the case of Kumari. H

JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1101 UNION OF INDIA & ORS. [A. K. SIKRI, J.]

Shri Lekha Vidyarthi & Ors. vs. State of U.P.& Ors. A [1991] (1) SCC 212] wherein this Court held: •

"The impact of every State action is also on public interest. It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and· not the nature of function, contractual or otherwise which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters."

23. It is clear from the above observations of this Court, o once State or an instrumentality of State is a party to 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. Therefore, if by the impugned repudiation of the claim of the appellants E the first respondent as an instrumentality of the State has acted in contravention of the above said requirement of Article 14 then we have no hesitation that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent." F

67Copy pinpoint67. The Court thereafter summarized the legal position in the following manner:

"27. From the above discussion of ours, following legal G 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 H

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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 B 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 c 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 is plenary in nature and is not limited by any other provisions of the Constitution. D 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 E Corporation vs. Registrar of Trade Marks, Mumbai & Ors. [1998 (8) SCC 1). 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 F 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."

68Copy pinpoint68. The position thus summarized 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 H are disputed questions of fact or even when monetary claim

JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1103 UNION OF INDIA & ORS. [A. K. SIKRI, J.]

is raised. At the same time, discretion lies with the High Court A which under certain circumstances, can refuse to exercise. It also follows that under the following circumstances, 'normally', the Court would not exercise such a discretion:

(a) the Court may not examine the issue unless the B action has some public law character attached to it.

(b) 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 c Constitution and relegate the party to the said made of • settlement, particularly when settlement of disputes is to be resorted to through the means of arbitration.

(c) If there are very serious disputed questions of fact ..... u which are of complex nature and require oral evidence for their determination.

(d) Money claims per se particularly arising out of contractual obligations are normaliy not to be entertained except in exceptional circumstances. E

69Copy pinpoint69. Further tegal position which emerges from various judgments of this Court dealing with different situations! aspects relating to the contracts entered into by the State! public Authority with private parties, can be summarized as F under:

(i) At the stage of entering into a contract, the State acts purely in its executive capacity and is bound by the obligations of fairness. G

(ii) State in its executive capacity, even in the contractual field, is under obligation to act fairly and cannot practice some discriminations. H (iii) Even in cases where question is of choice or

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A 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 could arise. If those facts are disputed and require assessment of evidence the correctness of which can B 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 court can direct the c aggrieved party to resort to alternate remedy of civil suit etc.

(iv) Writ jurisdiction of High Court under Article 226 was not intended to facilitate avoidance of obligation voluntarily incurred.

(v) 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 llad accepted with open eyes. It cannot ever be that a licensee can work out the license if he finds it profitable to do so: and he can challenge the conditions under which he agreed to take the license, if he finds it commercially inexpedient to conduct his business.

(vi) 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.

H (vii) Writ can be issued where there is executive action

JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1105 UNION OF INDIA & ORS. [A. K. SIKRI, J.]

unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if 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.

(viii) If the contract between private party and the State/ instrumentality and/or agency of State is under the realm of a private law and there is no element of public c 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 Constitutional of India and invoking its extraordinary jurisdiction. D

(ix) _The distinction between public law and private law element in the contract with State is getting blurred. However, it has not been totally obliterated and where the matter falls purely in private field of contract. This E Court has maintained the position that writ petition is not maintainable. Dichotomy between public law and private law, rights and remedies would depend on the factual matrix of each case and the distinction between 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 226 of the Constitution of India to see whether action of the State and/or instrumentality or agency of the State is H

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A fair, just and equitable or that relevant factors are taken into consideration and irrelevant factors have not gone into the decision making process or that the decision is not arbitrary.

B (x) 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 C legitimate expectation forms part of the principle of non- arbitrariness.

(xi) The scope of judicial review in respect of disputes falling within the domain of contractual obligations may o 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.

70Copy pinpoint70. Keeping in mind the aforesaid principles and after considering the arguments of respective parties, we are of the view that on the facts of the present case, it is not a fit case where the High Court should have exercised discretionary jurisdiction under Article 226 of the Constitution. F First, the matter is in the realm of pure contract. It is not a case where any statutory contract is awarded.

71Copy pinpoint71. As pointed out earlier as well, the contract in question was signed after the approval of Cabinet was G obtained. In the said contract, there was no clause pertaining to Section 42 of the Act. The appellant is presumed to have knowledge of the legal provision, namely, in the absence of such a clause, special allowances under Section 42 would impermissible. Still it signed the contract without such a H clause, with open eyes. No doubt, the appellant claimed

JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1107 UNION OF INDIA & ORS. [A. K. SIKRI, J.]

these deductions in its income tax returns and it was even allowed these deductions by the Income Tax Authorities. Further, no doubt, on this premise, it shared the profits with the Government as well. However, this conduc;t of the appellant or even the respondents, was outside the scope of the contract and that by itself may not give any right to the appellant to claim a relief in the nature of Mandamus to direct the Government to incorporate such a clause in the contract, in the face of the specific provisions in the contract to the contrary as noted above, particularly, Article 32 thereof. It was purely a contractual matter with no element of public law involved thereunder.

72Copy pinpoint72. Having considered the matter in the aforesaid prospective, we come to the irresistible conclusion that the appellant is not entitled to the relief claimed. Though it may be somewhat harsh on the appellant when it availed the benefit of Section 42 for few years and acted on the understanding that such a benefit would be given to it, but we have no option but to hold that PSCs did not provide for this benefit to be given to the appellant and the contract can be amended only if both the parties agree to do so, and not otherwise. Therefore, we are constrained to dismiss the appeal for the reasons given above.

There shall, however, be no orders as to costs. F

Devika Gujral Appeal dismissed.