Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors.

Judgment / Order of the Supreme Court

Judgment J.B. PARDIWALA, J. For the convenience of exposition, this judgment is divided in the following parts: - INDEX*

A. FACTUAL MATRIX 2

B. IMPUGNED ORDER 7

C. DEVELOPMENTS THAT OCCURRED DURING THE 10 PENDENCY OF THE PRESENT APPEAL.

D. SUBMISSIONS ON BEHALF OF THE APPELLANT 15

E. SUBMISSIONS ON BEHALF OF THE RESPONDENT 17

F. POINTS FOR DETERMINATION 18

G. ANALYSIS 19

i. Scope of Judicial Review of the actions of the 19 State in matters relating to Contract / Tender under Writ Jurisdiction.

* Ed. Note: Pagination as per the original Judgment.

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a. Earlier Position of Law and Misconception of the 19 State as a Largesse.

b. Concept of ‘Public Law’ Element: Scope of 25 Judicial Review in Contractual Matters.

c. Meaning and True Import of Arbitrariness of State 47 Actions in Contractual Disputes.

ii. Whether the action of cancelling the tender is 53 arbitrary or unfair and in consequence of violation of Article 14 of the Constitution?

a. Scrutiny of Internal File-Notings and Deliberations 55 of the State.

b. Concept of Public Interest in Administrative 69 Decisions.

iii. Sanctity of Public-Private Partnership Tenders 77

H. FINAL CONCLUSION 81

1Copy pinpoint1. This appeal arises out of the final judgment and order dated 25.05.2023 passed by the High Court of Calcutta in M.A.T. No. 744 of 2023 (“Impugned Order”), by which the High Court upheld the decision of the respondent to cancel the tender that had been awarded to the appellant for the maintenance of two underpasses on Public-Private Partnership basis, and thereby dismissed the writ appeal filed by the appellant. A. FACTUAL MATRIX

2Copy pinpoint2. The respondent floated a tender notice dated 12.05.2022 inviting bids for the maintenance of two underpasses on the Eastern Metropolitan Bypass and its abutting area against a License Fee for Advertisement Rights over designated sites at each underpass, for a period of 10-years. As per the aforesaid tender, the scope of work included the regular maintenance of the aforementioned underpasses and the upkeep of its garden area and electro-mechanical fittings. The relevant portion reads as under: -

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Sl. Name of Work License Fee of the Earnest Allotted Time No Yearly Charge for Money Period for the 1st year (Rs.) (Rs.) License & Work

REGULAR MAINTENANCE OF BELIAGHATA UNDERPASS TO BE QUOTED 5,00,000.00 10 (Ten) Years INCLUDING UPKEEPING OF [Rupees UNDERPASS Five Lakh PROPER, GARDEN Only] AREA, AT GRADE UNDERPASS AREA AND Online ALL ELECTRO- (Net MECHANICAL Banking/ FITTINGS AGAINST NEFT/ LICENSE FEE OF RTGS) ADVERTISEMENT RIGHTS OVER (10) YEARS. Tender ID – 2022_ KMDS_380215_1

REGULAR MAINTENANCE OF SWABHUMI UNDERPASS INCLUDING UPKEEPING OF 5,00,000.00 UNDERPASS [Rupees PROPER, GARDEN Five Lakh AREA, AT GRADE TO BE QUOTED 10 (Ten) Years Only] UNDERPASS AREA AND ALL ELECTRO- Online MECHANICAL FITTINGS AGAINST (Net LICENSE FEE OF Banking/ ADVERTISEMENT NEFT/ RIGHTS OVER (10) RTGS) YEARS. Tender ID – 2022_ KMDS_380215_1

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3Copy pinpoint3. Pursuant to the aforesaid, the tendering process was undertaken and the appellant herein on 13.06.2022 submitted his bid with a quotation of Rs. 29,55,555/- for the Beliaghata Underpass and Rs. 23,55,555/- for the Swabhumi Underpass. Out of the total bids received, the appellant’s quotations were found to be the highest and was classified as ‘H1’ for both the underpasses.

4Copy pinpoint4. Accordingly, the respondent issued two Letter of Intents dated 27.06.2022 in favour of the appellant, accepting the quotation offered by him and declaring his firm as the successful bidder for the aforementioned tender, and a formal Memorandum of Tender for Work was executed and issued to the appellant.

5Copy pinpoint5. As per the Memorandum of Tender for Work, the detailed ‘Scope of Work’ inter-alia included (i) the sweeping of floors & cleaning of the walls, stairwell, escalators, railings and glass-fixtures, (ii) regular emptying of dustbins and removal / processing of waste trash, (iii) upkeep of the garden and plants and (iv) the maintenance of light- fittings, escalators, water pumps and other electro-mechanical fixtures.

6Copy pinpoint6. Furthermore, the Special Terms & Conditions of the Memorandum, more particularly Clause 35 therein stipulated that the contract would be liable to be terminated inter-alia in the event of any failure, breach or non-compliance of any of the obligations or terms delineated in the tender by the successful bidder.

7Copy pinpoint7. Upon completion of all the formalities, the Work Orders dated 18.10.2022 were issued by the Executive Engineer, pursuant to which the appellant commenced his work in terms of the contract.

8Copy pinpoint8. On 01.12.2022, the Urban Development and Municipal Affairs Department, Government of West Bengal issued an Order directing that the maintenance of the roads and drainage of the E.M. Bypass including the two subject underpasses shall be handed over by the Kolkata Metropolitan Development Authority (KMDA) i.e., the respondent herein to the Kolkata Municipal Corporation (KMC). The said order reads as under: - “Government of West Bengal Urban Development and Municipal Affairs Department NAGARYAN, DF-8, Sector-I Salt Lake, Kolkata - 700 064 Memo No. 5783 – UDMA-22012(14)/11/2022 Date : 01.12.2022

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ORDER KMDA was the custodian for the maintenance of the E.M Bypass connecting the northern and southern part of the city and starts from northern hub Ultadanga to Garia in the South. The road length is 15.6 Km which runs along the eastern ring of the city. After careful consideration it has been decided that the maintenance of the road alongwith the drainage be handed over from KMDA to KMC with the following scope of activities. (1) The defects in carriageway would be maintained and restored by KMC henceforth. (2) The existing carriageway alongwith the surface and underground drainage would be maintained by KMC. The conservancy in and around the Eastern Bypass would also be maintained by KMC. (3) Subject to clearance from KMDA, KMC would issue NOC to all utility and service providers. The cost of road restoration from the charges to be levied is to be paid to KMC by all utility and service providers. (4) The right of collecting revenues from the advertisement displays will remain with KMDA. (5) All the structures, as the new or old Bridges, Culverts, FoBs etc. will be under the custody of KMDA. (6) All development activities along the road except for the Bridges, Culverts, FoBs etc. will be taken up by KMC. (7) KMC would remain custodian for illumination of the Bypass. (8) The green verge along the E.M. Bypass to be maintained by KMC. The order is issued in the interest of public service. Sd/- Principal Secretary to the Govt. of West Bengal”

9Copy pinpoint9. As per the aforesaid Order dated 01.12.2022, the maintenance and restoration of carriageway, structures, underground drainage and

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development activities of the E.M. Bypass Area was taken over by the KMC. However, the Order specifically, clarified that the right of collecting revenue from advertisements displayed would continue to remain with the KMDA.

10Copy pinpoint10. Thereafter, in light of the aforesaid order, the Executive Engineer, KMDA under instructions issued by the competent authorities sent a notice dated 24.01.2023 to the appellant herein asking him to stop all work in respect of the maintenance of the two underpasses with immediate effect in view of the handing over of the maintenance of the E.M. Bypass to the KMC.

11Copy pinpoint11. In response to the above, the appellant sent a letter dated 25.01.2023 inter-alia pointing out that as per the Urban Development and Municipal Affairs Department’s Order dated 01.12.2022, the custody and rights of revenue of all structures, bridges, culverts etc. including the concerned underpasses, continued to remain with the respondent, and requested to recall the notice dated 24.01.2023 asking him to stop the work.

12Copy pinpoint12. However, on 07.02.2023, the respondent issued one another notice to the appellant stating that the tender for work of maintenance has been cancelled on account of a technical fault in the tender. It was stated therein that the tender was found to be ‘non-specific’ & ‘not well defined’ and that had created ambiguity resulting in financial losses to the respondent. The said Notice of Cancellation reads as under: - “Date: 07.02.2023 To,V.S. Advertising, 65/268, M.N. Sarkar Road, Siliguri, West Bengal 7340001 Sub: Cancellation of Work/Tender Sir, The cited tender is hereby cancelled by the Authority in KMDA. We would state with regret that the tender has been found having technical fault, non-specific and not well defined thus creating ambiguity for obvious reasons. By this, the Authority is incurring financial loss as well.

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We regret for the inconvenience caused to you and are ready to reimburse the cost you have so far incurred in the work. This has been decided that the license fee deposited by you and the cost incurred for construction activity and maintenance work would be refunded as per actual assessment by the divisional engineers based upon the approved drawing and execution. This is for your information with kind compliance please. Sd/- Chief Engineer-II (Bridge) Roads & Bridges Sector, KMDA”

13Copy pinpoint13. It is pertinent to note from the aforesaid that, no reference was made as regards handing over of the maintenance to KMC which was previously alluded to, for stopping all work pertaining to the tender. B. IMPUGNED ORDER

14Copy pinpoint14. Aggrieved by the aforesaid, the appellant preferred a writ petition being WPA No. 3381 of 2023 before the High Court of Calcutta assailing the respondent’s Notice dated 07.02.2023 cancelling the tender for work of maintenance of the two underpasses.

15Copy pinpoint15. The aforesaid writ petition referred to above came to be rejected by the High Court vide its order dated 24.04.2023, wherein the Ld. Single Judge held that the decision to cancel the tender had to be taken on account of the administrative exigencies and also due to the ‘change in policy’. It was further held that the decision to cancel the tender was not borne out of any ulterior motives on the part of the respondent. The decision of the learned Single Judge is based on two grounds: - (i) First, the High Court took the view that the decision to cancel the tender cannot be termed as an arbitrary action on the part of the respondent. The appellant was put to prior notice as regards the change of hands of the management of the concerned underpasses, much before the ultimate cancellation notice was issued. It further observed that, since the notice of cancellation dated 07.02.2023 specifically provided the reasons for cancelling the tender i.e., the technical faults found in the tender that

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was floated, there was no element of arbitrariness in the said action. The relevant observations read as under: - “11. [...] The effect of the administrative decision was reiterated in the stop-work request of 24.01.2023 where the reason given for the stop-work was also the “changed scenario” of handover of the maintenance work of E.M. Bypass to KMC from KMDA. Hence, the reason for the stop-work and the impugned cancellation is a change of policy for administrative convenience simpliciter. xxx xxx xxx

18. In the present case, the impugned cancellation of 07.02.2023 cannot be described as a bolt from the blue since the petitioner was put on notice of the impending change in circumstance on 24.01.2023 where the reason for the change was also conveyed to the petitioner. The order dated 01.12.2022 of the Urban Development and Municipal Affairs Department stating that the maintenance of the E.M. Bypass would be handed over from the KMDA to KMC provides the rationale for the impugned cancellation. Seen in this backdrop, it cannot be said that the impugned letter of cancellation of the tender /work was issued with an ulterior motive or for extraneous considerations. In fact, the letter of cancellation provides further reasons, namely, that the tender has been found to be non-specific and having technical faults. This would also be borne out from clauses 10 and 14 of the Special Terms and Conditions of the tender document which give rise to conflicting interpretations on the placement of the signboards. Hence, besides the administrative decision to hand over the maintenance of E.M. Bypass from KMDA to KMC, the respondent KMDA as the tendering

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authority, has a right to rectify the ambiguities in the bid document by cancelling the same.” (Emphasis supplied) (ii) Secondly, the appellant could not have redressed his grievances by invoking the writ jurisdiction of the High Court under Article 226 of the Constitution, as there was no failure of any statutory duty or public law element involved. Moreover, since the relief sought was essentially in the nature of specific performance, it could have been prayed for only under ordinary civil law and not by way of a writ petition. The relevant observations read as under: - “20. It is well settled that a contractual dispute with a public law element would be amenable to writ jurisdiction. The present dispute however arises out of a private contract for maintenance of underpasses in the E.M. Bypass and advertisement rights over certain spaces within the contracted area. The rights following out of the contract are purely private in nature and there is nothing to show that the performance of the contract or the consequence therefrom would affect the public at large or even a sizeable section of the public. A public law element is generally understood to mean the reach of an obligation to a large section of the public or the obligation affecting the lives and livelihood of the general public by its very nature. M.P. Power sounded a cautionary note in such cases where the State cites monetary gains or losses as reason for termination of a contract. This is also not’ the case at hand since the reasons given for cancellation were on a wholly different plane.”

21. The above reasons persuade this Court to hold that the remedy available to the petitioner is in the realm of private law and not under Article· 226 of the Constitution which contemplates certain tests including that the dispute must

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have a public law element. The complaint of the petitioner is essentially for the specific performance of the contractual obligation of the respondent KMDA. Doubtless, the petitioner can avail of appropriate civil remedies for redress which would include damages for breach of the contractual terms. (Emphasis supplied)

16Copy pinpoint16. Aggrieved with the aforesaid, the appellant went in appeal before a Division Bench of the High Court by way of M.A.T. No. 744 of 2023, wherein the appeal court finding no fault in the decision of the learned Single Judge, dismissed the appeal and thereby affirmed the judgment of the learned Single Judge referred to above.

17Copy pinpoint17. In view of the aforesaid, the appellant is here before this Court with the present appeal. C. DEVELOPMENTS THAT OCCURRED DURING THE PENDENCY OF THE PRESENT APPEAL.

18Copy pinpoint18. During the pendency of the present appeal, the appellant herein preferred a RTI seeking further information on the respondent’s internal note-file pertaining to the cancellation of the subject tender.

19Copy pinpoint19. The Public Information Officer, KMDA vide its reply dated 18.08.2023 provided the internal file-notings of the respondent on the aforesaid tender. In the internal file-notings of the respondent, the following entries / notes are relevant: - a) As per Note #91 dated 30.12.2022, the respondent in view of the maintenance of the concerned underpasses being handed over to KMC, was contemplating the possibility of cancelling the tender for work. The relevant noting reads as under: - “Note # 91 Recently maintenance of EM Bye pass has been handed over to KMC. Thus, in this changed scenario we may cancel the work order. 03/01/2023 11:51 AM FIRHAD HAKIM CHRMN (KMDA)”

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b) As per Note #95 dated 10.01.2023, the respondent instructed that the tender be cancelled in view of the maintenance of the concerned underpasses being handed over to KMC. However, since the respondent was in doubt as regards the legality & validity of such decision, it opined that the opinion of the Legal Department may be sought first before any action of cancellation is taken. However, as an interim measure, it decided to issue a notice to stop all work in respect of the tender. The relevant noting reads as under: - “Note # 95 [...] Now, as instructed by the competent authority of KMDA keeping in view of the recent changed scenario of handing over of maintenance of E.M. Bypass from KMDA to KMC, cancelling the work order as instructed may require judicious action towards implementing the same and to make it lawful, legal advice from Law-Cell, KMDA may be required so that, KMDA doesn’t fall in any legal obligation. However, for immediate compliance of the order, a notice to stop the works in all respect with regards to the two above-mentioned tenders may be served to the agency for immediately stopping his all activities at site till further notice. As instructed, a draft Letter is attached herewith for his kind perusal and direction in this regard. [...] 10/01/2023 02:55 PM PARTHA PROTIM GHOSH EE (RBBRDG) (KMDA)” c) Again, in Note #96, it was noted that since the competent authority of the respondent was desirous to cancel the tender, the respondent was of the view that the opinion of its legal cell be obtained first before such action is taken. The relevant noting reads as under: - “Note # 96 [...] As per Note#91¸Competent Authority desires to cancel the Work Order.

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In Note#95¸a draft letter has been attached for approval towards issuance to the agency to stop any type of work related to this project.

Considering the Chronological development and acceptance by Authority, the matter may kindly be viewed lawfully, so that, if it is cancelled by this end, no legal action is taken by the Agency.

Submitted for necessary action.

13/01/2023 02:13 PM SANTANU PATRA SE (RBBRDG) (KMDA)”

d) In Note #97 dated 16.01.2023, the respondent has noted that since the competent authority had decided to cancel the work tender there was no option but to cancel it. However, the respondent once again insisted that a legal opinion may be sought first, in order to avoid further litigations. The relevant noting reads as under: -

“Note # 97

Sub: Cancellation of Work Order of Mainte- nance of two Underpasses

A concurrence of Law Cell, KMDA may kindly be obtained before cancelling the Work Order of the existing agency. There is no different opinion than to get this cancelled, once this has been decided by the Authority but a legal opinion may be sought for avoiding further litigations. [...]

16/01/2023 04:38 PM SUBHANKAR BHATTACHARYA CE (RBBRDG) (KMDA)”

e) Thereafter, it could be seen from Note #101 dated 19.01.2023, that the other officials of the authority also concurred with the respondent’s opinion to first seek advice of its legal cell on the possible consequences in the event the tender for work is cancelled. The relevant observations read as under: -

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“Note # 101 As concurred by the Authority the legal aspects and the possible consequences may be reviewed and opined back prior to cancelling the Work Order. The draft of order for stopping work further is enclosed, which may kindly be seen and commented. For kind concern of Law Cell with request to revert back with further advice and opinion on above please. 19/01/2023 02:28 PM SUBHANKAR BHATTACHARYA CE (RBBRDG) (KMDA)” f) However, before the legal cell of the respondent could give any definite opinion on the legal implications of cancelling the tender, it appears from the records, more particularly Note #108 dated 24.01.2023 that the concerned minister during his visit instructed the officials of the respondent on his own to cancel the tender, upon which the respondent undertook the steps to duly comply with such instructions. The relevant noting reads as under: - “Note # 108 For immediate compliance of HMIC’s instruction. This is as per the instruction given during his visit to Un- nanyan Bhavn today in presence of KMDA Officials. 24/01/2023 05:16 PM SUBHANKAR BHATTACHARYA CE (RBBRDG) (KMDA)” g) Pursuant to the above, as per Note #109 dated 02.02.2023, the Tender Committee of the respondent convened a meeting wherein the proposal for cancellation of the aforesaid tender was finalized and placed for approval. The relevant noting reads as under: - “Note # 109 As per the discussion held in the 5th meeting of Tender Committee, KMDA, proposal for cancel- lation of this tender, as per the Note #91 for this

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changed scenario vide memo : 5783-UDMA- 22012(14)/11/2022 Dt. 01-12-2022 maintenance of E.M. Bypass has been handed over to KMC from KMDA, is placed herewith for approval please. [...] 02/02/2024 02:31 PM SANTANU PATRA SE (RBBRDG) (KMDA)” h) Thereafter, as per the last entry in the internal notings – Note #110 dated 03.02.2023, the respondent floated one another proposal seeking approval to cancel the tender, which culminated into the final notice of cancellation dated 07.02.2023 which is the subject matter of challenge in the present litigation.

20Copy pinpoint20. During the course of hearing of this appeal, it was brought to the notice of this Court that after the work order issued in favour of the appellant was cancelled, the respondent floated a fresh tender dated 15.05.2023 for the work of maintenance of the very same underpasses, the selection process for which stood completed and that the tender had been awarded along with the work order(s) to one another third-party agency.

21Copy pinpoint21. This Court was further apprised of the order dated 16.09.2023 passed by the Urban Development and Municipal Affairs Department, Government of West Bengal, modifying its earlier order dated 01.12.2022 to the extent that both i) the operation & maintenance of 37 bridges, flyovers, underpasses, etc. including the concerned two underpasses along with ii) the right to collect revenue towards the advertisement rights for the said structures, shall be taken over by KMC from KMDA. The said letter reads as under: - “Government of West Bengal Urban Development and Municipal Affairs Department NAGARYAN, DF-8, Sector-I Salt Lake, Kolkata - 700 064

Memo No. 5271 – UDMA-22012(14)/11/2022 Date : 16.09.2023

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ORDER In continuation with the order issued vide no. 5783-UDMA- 22012(14)/11/2022 dated 01.12.2022, it has been further decided that the operation and maintenance of the 37 bridges, flyovers, foot over bridges, under pass & culverts attached herewith to be taken over by KMC from KMDA. In that case the revenues earned from advertisements and displays erected on these assets (including the piers of the bridges) to be accrued to KMC. This order shall take immediate effect. Sd/- Principal Secretary to the Govt. of West Bengal”

22Copy pinpoint22. In view of the fact that a fresh tender had already been awarded to a third-party, coupled with the fact that the right to collect revenue from the advertisements for the concerned underpasses had been handed over to KMC, the counsel for the respondent submitted that the matter had since become infructuous. D. SUBMISSIONS ON BEHALF OF THE APPELLANT

23Copy pinpoint23. Mr. Shyam Divan, the learned Senior Counsel appearing for the appellant submitted that the impugned notice of cancellation dated 07.02.2023 is manifestly arbitrary and tainted with extraneous considerations. He submitted that though the impugned notice purports to cancel the tender on the ground of being ambiguous and non-specific, but in reality the said action was at the behest of the concerned Minister-In-Charge who directed such cancellation without any justifiable cause. In this regard he placed strong reliance on the internal-file notings of the respondent.

24Copy pinpoint24. He submitted that the reasons assigned for cancelling the tender in the impugned notice are not to be found in the entire file of notings maintained by the respondent. He further pointed out that the file of the internal notings indicate that, before the respondent could take a judicious call the concerned minister issued a specific direction on the basis of which the cancellation was undertaken & that to without any application of mind.

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25Copy pinpoint25. Mr. Divan also submitted that no orders to stop the work could have been issued by the respondent on account of handing over of the maintenance to another authority, because even after the handover, the respondent continued to operate & maintain the underpasses including the licensing rights for advertisements.

26Copy pinpoint26. He further submitted that, although the terms of the contract provided for assigning cogent grounds for termination, yet the same was not followed and instead the respondent arbitrarily proceeded to cancel the tender.

27Copy pinpoint27. In the last, Mr Divan submitted that the contention as regards the financial losses being suffered is erroneous, as the respondent voluntarily accepted the bid that was submitted by the appellant, and even as per the notings in the file the tender was generating more revenue than earlier. E. SUBMISSIONS ON BEHALF OF THE RESPONDENT

28Copy pinpoint28. Mr. Rakesh Dwivedi, the learned Senior Counsel appearing for the respondent submitted that the present matter being purely a contractual dispute was rightly not entertained by the High Court in exercise of its writ jurisdiction under Article 226 of the Constitution of India.

29Copy pinpoint29. He further submitted, that the decision to cancel the tender was bona fide and had to be taken considering the technical faults in the same. He submitted, that there was ambiguity in the tender as regards whether it was lawful to put up advertisements at the places outside the underpasses, due to which, many interested bidders might not have participated in the tender. The respondent was of the view that a higher license fee could be fetched by rectifying such ambiguity.

30Copy pinpoint30. Mr. Dwivedi also submitted that the decision to cancel the tender had to be taken to enable the respondent to float separate tenders, one for the maintenance of the underpasses and the other for the licensing advertisement rights. Thus, the decision was taken in public interest. He submitted that the decision to cancel the tender was on the basis of a change in the policy, and thus cannot be said to be arbitrary.

31Copy pinpoint31. He further submitted that no reliance could have been placed on the notings in the file maintained by the respondent, as the file notings

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are only internal deliberations. Such notings cannot be construed as decisions of the respondent and thus, creates no right in favour of the appellant.

32Copy pinpoint32. In the last, Mr Dwivedi submitted that since during the pendency of the present appeal, the operation, maintenance and the licensing rights for the advertisements have been taken over by a third party, the present appeal has been rendered infructuous. F. POINTS FOR DETERMINATION

33Copy pinpoint33. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the two pivotal questions that fall for our consideration are as under: - I) What is the scope of judicial review of the actions of the State in the matters relating to contract / tender disputes under writ jurisdiction? II) Whether the action on the part of the respondent herein in cancelling the tender vide its notice dated 07.02.2023 was amenable to the writ jurisdiction of the High Court? If so, whether the said action could be termed as arbitrary or unfair and in consequence of violation of Article 14 of the Constitution of India? G. ANALYSIS i. Scope of Judicial Review of the actions of the State in matters relating to Contract / Tender under Writ Jurisdiction. a. Earlier Position of Law and Misconception of the State as a Largesse.

34Copy pinpoint34. Over the years, the scope of judicial review and the extent to which a Court can interfere in disputes arising out of contracts or tenders has seen a significant development, marked by a nuanced understanding of the critical role of administrative discretion. The judicial quest in administrative matters has always been to find a right balance between i) allowing leeway to the States in deciding the exercise of their administrative discretion in matters pertaining to policy and ii) the need to ensure fairness and propriety in such administrative actions.

35Copy pinpoint35. Earlier, the position of law was that any dispute arising out of a contract entered into with the State or its instrumentalities could not

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be adjudicated by the court under its writ jurisdiction, as in all such cases, it could be said that the ‘real grievance’ was essentially only one being that of breach of a contract for which the appropriate remedy would be an ordinary suit and not a writ petition. One of the earliest judicial pronouncements in this regard is the decision of this Court in Radhakrishna Agarwal & Ors. v. State of Bihar & Ors. reported in (1977) 3 SCC 457 wherein the following relevant observations were made: - “19. [...] None of these cases lays down that, when the State or its officers purport to operate within the contractual field and the only grievance of the citizen could be that the contract between the parties is broken by the action complained of, the appropriate remedy is by way of a petition under Article 226 of the Constitution and not an ordinary suit. There is a formidable array of authority against any such a proposition. [...]” (Emphasis supplied)

36Copy pinpoint36. It was further explained by this Court in Radhakrishna Agarwal (supra) that once the State or its instrumentalities enter into a contract, any dispute arising out of that contract cannot be decided in writ jurisdiction as their relations no longer remain governed by the constitutional provisions, and it is only the contract which thereafter determines the rights and obligations of the parties. Any claim to a right flowing from a contract cannot be redressed through the writ jurisdiction except where some statute steps in and confers some special statutory power or obligation on the State in the contractual field or if the agreement is in the nature of a statutory contract. The relevant observations read as under: - “10. [...] But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation of Article 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in

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and confers some special statutory power or obligation on the State in the contractual field which is apart from contract.

11. In the cases before us the contracts do not contain any statutory terms or obligations and no statutory power or obligation which could attract the application of Article 14 of the Constitution is involved here. Even in cases where the question is of choice or consideration of competing claims before an entry 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 only be tested satisfactorily by talking 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. Such proceedings are summary proceedings reserved for extraordinary cases where the exceptional and what are described as, perhaps not quite accurately, “prerogative” powers of the Court are invoked. We are certain that the cases before us are not such in which powers under Article 226 of the Constitution could be invoked.” (Emphasis supplied)

37Copy pinpoint37. Similar view as above, was reiterated by this Court in Premji Bhai Parmar & Ors. v. Delhi Development & Ors. reported in (1980) 2 SCC 129 at para 8 and in Divisional Forest Officer v. Bishwanath Tea Co. Ltd. reported in (1981) 3 SCC 238 wherein it was held that any right to relief flowing from a breach of contract cannot be entertained under the extraordinary writ jurisdiction of the court, even if the action of the State or its instrumentality was unauthorized in law. The relevant observations read as under: - “9. Ordinarily, where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed, or the party may sue for damages. Such a suit would ordinarily be cognizable by the civil

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court. The High Court in its extraordinary jurisdiction would not entertain a petition either for specific performance of contract or for recovering damages. A right to relief flowing from a contract has to be claimed in a civil court where a suit for specific performance of contract or for damages could be filed. This is so well-settled that no authority is needed.

10. In substance, this was a suit for refund of a royalty alleged to be unauthorisedly recovered and that could hardly be entertained in exercise of the writ jurisdiction of the High Court.” (Emphasis supplied)

38Copy pinpoint38. We do not propose to dwell any further, on the position of law that existed earlier, and leave it at rest with one last reference to the decision of this Court in Bareilly Development Authority & Anr. v. Ajai Pal Singh & Ors. reported in (1989) 2 SCC 116, wherein this Court once again reiterated that no writ can be issued in contractual disputes between the State and an aggrieved party where the rights or claims arise or stem only from the terms of the contract. The relevant observations read as under: - “22. There is a line of decisions where the contract entered into between the State and the persons aggrieved is non- statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India so as to compel the authorities to remedy a breach of contract pure and simple [...]” (Emphasis supplied)

39Copy pinpoint39. Thus, for a period of time the courts recognized that there was a clear brightline distinction between when a State or its instrumentalities could be said to be acting in its executive capacity and when it could be said to be acting in its private capacity, with the existence of a ‘contractual relation’ inter-se the parties being the determinative factor. Wherever, there was a contract, the State’s relations and all its actions were said to be within the field of a contract i.e., within the realm of private law, and the courts would resile from interfering with the same under their writ jurisdiction or embarking upon a judicial review of such actions.

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40Copy pinpoint40. Such reluctance on the part of the courts stemmed from its understanding that State or any of its instrumentalities must have the flexibility or the discretion to take decisions that are in the best interest of the public and efficient governance. Government being the decision-maker of the State is said to be the best judge of when a contract or an agreement is in its interest and by its extension in the interest of the public, and as such the courts should not interfere in the State’s discretion to award or terminate contracts. One another reason why contractual disputes were precluded from being espoused under the writ jurisdiction of the courts was due to the summary nature of such proceedings, which do not allow for an exhaustive review unlike civil suits. [See: Radhakrishna Agarwal (supra) at para 11]

41Copy pinpoint41. This simplistic approach of the courts in deeming every act and action of the State which was complained of as nothing more than a ‘contractual dispute’ or a case of ‘breach of contract’ often led to the State abusing its position and acting unfairly under the misconceived notion, that all its actions such as award of contracts or tenders were nothing but a ‘largess’ – a generosity bestowed upon its citizens, which it can at its own whims choose to deny, alter, modify, or take away without any consequences. This often led to a conflation of power with duty, and resulted in every arbitrary exercise of power by the State under the guise of a ‘contractual dispute’ to remain unchecked and undisputable before the courts and out of the reach of judicial review, undermining the rights of the citizen to have their interests safeguarded and protected. We may in this regard refer to M/s Indian Medicines Pharmaceuticals Corp Ltd. v. Kerala Ayurvedic Co- operative Society Ltd. reported in (2023) SCC OnLine SC 5 wherein this Court speaking eruditely through one of us, Dr. D.Y. Chandrachud, CJI made the following pertinent observations: - “11 The welfare State plays a crucial role in aiding the realisation of the socioeconomic rights which are recognised by the Constitution. Social welfare benefits provided by the State under the rubric of its constitutional obligations are commonly understood in the language of ‘largesse’, a term used to describe a generous donation. Terming all actions of government, ranging from social security benefits, jobs, occupational licenses, contracts and use of public resources – as government largesse results in doctrinal misconceptions. The reason is that this

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conflates the State’s power with duty. The Constitution recognises the pursuit of the well-being of citizens as a desirable goal. In doing this the Constitution entrusts the State with a duty to ensure the well-being of citizens. Government actions aimed at ensuring the well-being of citizens cannot be perceived through the lens of a ‘largess’. The use of such terminology belittles the sanctity of the social contract that the ‘people of India’ entered into with the State to protect and safeguard their interests. xxx xxx xxx

13. In the early 1950s’, judicial review of the process of concluding contracts by government was limited. The courts allowed the State due deference on the ground of governmental policy. In C.K Achuthan v. State of Kerala, AIR 1959 SC 490 a Constitution Bench of this Court held that it is open to the Government ‘to choose a person to their liking, to fulfil contracts which they wish to be performed.’ The Court observed that when one party is chosen over another, the aggrieved party cannot claim the protection of Article 14 since the government has the discretion to choose with whom it will contract.” (Emphasis supplied)

42Copy pinpoint42. Before proceeding further to discuss how the scope of judicial review came to be evolved, we would like to refer to the observations made by this Court in M.C. Mehta v. Union of India reported in (1987) 1 SCC 395 which are significant, and read as under: - “31. [...] Law has to grow in order to satisfy the needs of the fast changing society and keep abreast with the economic developments taking place in the country. As new situations arise the law has to be evolved in order to meet the challenge of such new situations. Law cannot afford to remain static. We have to evolve new principles and lay down new norms which would adequately deal with the new problems which arise in a highly industrialised economy. [...]” (Emphasis supplied)

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b. Concept of ‘Public Law’ Element: Scope of Judicial Review in Contractual Matters.

43Copy pinpoint43. Over a period of time the courts recognized the crucial role of judicial oversight in preventing the abuse of power and maintaining public confidence in the administrative process. Courts developed various doctrines and principles to guide their review, such as the principles of natural justice, reasonableness and proportionality. These principles ensured that the administrative actions are not arbitrary, discriminatory or capricious. By enforcing such standards, the courts also ensured that the rule of law was maintained and the individual rights were protected.

44Copy pinpoint44. The interplay between judicial review and administrative discretion has been a dynamic process. As new challenges and complexities kept on arising before the courts as regards the State’s actions and governance, it continued to refine its approach. This ongoing dialogue between the courts and the executive branch contributed to the development of a more accountable and transparent administrative framework, paving the way for the exercise of judicial review even in the realm of contractual disputes to achieve a fine balance between efficiency and fairness in policy decisions on the one hand and the rights of individuals and overall public interest on the other.

45Copy pinpoint45. In Mahabir Auto Stores & Ors. v. Indian Oil Corporation reported in (1990) 3 SCC 752, this Court expressed doubts over the correctness of the earlier position of law, that actions of the State in the private contractual field cannot be questioned in writ jurisdiction. This Court further held that even if the inter-se relation of parties with the State is governed purely by a contract, the method, motive and decision of the State would be subject to judicial review on the grounds of relevance and reasonableness, fair play, natural justice, equality and non-discrimination. The relevant observations read as under: - “12. [...] It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject

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to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non- discrimination in the type of the transactions and nature of the dealing as in the present case.

13. The existence of the power of judicial review however depends upon the nature and right involved in the facts and circumstances of the particular case. It is well settled that there can be “malice in law”. Existence of such “malice in law” is part of the critical apparatus of a particular action in administrative law. Indeed “malice in law” is part of the dimension of the rule of relevance and reason as well as the rule of fair play in action. xxx xxx xxx

20. [...] we are of the opinion that it would be appropriate to state that in cases where the instrumentality of the state enters the contractual field, it should be governed by the incidence of the contract. It is true that it may not be necessary to give reasons but, in our opinion, in the field of this nature fairness must be there to the parties concerned, and having regard to the large number or the long period and the nature of the dealings between the parties, the appellant should have been taken into confidence. Equality and fairness at least demands this much from an instrumentality of the State dealing with a right of the State not to treat the contract as subsisting. We must, however, evolve such process which will work.” (Emphasis supplied) [See also: Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay : (1989) 3 SCC 293 at para 27.]

46Copy pinpoint46. In LIC v. Consumer Education & Research Centre reported in (1995) 5 SCC 482, the Court held that the law as it stood earlier that a State or its instrumentality whose action is hedged with public element cannot be called into question because such action was in the field of private law is no longer a good law. The relevant observations read as under: - “23. Every action of the public authority or the person acting in public interest or any act that gives rise to public element,

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should be guided by public interest. It is the exercise of the public power or action hedged with public element (sic that) becomes open to challenge. If it is shown that the exercise of the power is arbitrary, unjust and unfair, it should be no answer for the State, its instrumentality, public authority or person whose acts have the insignia of public element to say that their actions are in the field of private law and they are free to prescribe any conditions or limitations in their actions as private citizens, simpliciter do in the field of private law. Its actions must be based on some rational and relevant principles. It must not be guided by irrational or irrelevant considerations. Every administrative decision must be hedged by reasons. [...] xxx xxx xxx

26. This Court has rejected the contention of an instrumentality or the State that its action is in the private law field and would be immuned from satisfying the tests laid under Article 14. The dichotomy between public law and private law rights and remedies, though may not be obliterated by any strait-jacket formula, it would depend upon the factual matrix. The adjudication of the dispute arising out of a contract would, therefore, depend upon facts and circumstances in a given case. The distinction between public law remedy and private law field cannot be demarcated with precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The distinction between public law and private law remedy has now become too thin and practicably obliterated.” (Emphasis supplied)

47Copy pinpoint47. This Court in Consumer Education & Research Centre (supra) further held that the writ jurisdiction of the courts cannot be shackled by technicalities and that any action of the State which has a public law element or a public character, such actions by their nature are required to be just, fair, reasonable & in the interest of public, and as such they would be amenable to judicial review. As to what is meant by actions bearing insignia of public law element, this Court held that wherever the action of a State or its instrumentality in the sphere of

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contractual relations is enjoined with a duty or an obligation to the public, such actions could be said to bear the insignia of a public element. The relevant observation reads as under: - “27. In the sphere of contractual relations the State, its instrumentality, public authorities or those whose acts bear insignia of public element, action to public duty or obligation are enjoined to act in a manner i.e. fair, just and equitable, after taking objectively all the relevant options into consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or appear arbitrary in its decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and guided by the public interest. xxx xxx xxx

29. [...] The arms of the High Court are not shackled with technical rules or procedure. The actions of the State, its instrumentality, any public authority or person whose actions bear insignia of public law element or public character are amenable to judicial review and the validity of such an action would be tested on the anvil of Article

14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and private law remedy is now narrowed down. [...]” (Emphasis supplied)

48Copy pinpoint48. In another decision of this Court in Shrilekha Vidyarthi (Kumari) v. State of U.P. reported in (1991) 1 SCC 212 it was held that every

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action of the State that has some degree of impact on the public interest, can be challenged under writ jurisdiction to the extent that they are arbitrary, unfair or unreasonable, irrespective of the fact that the dispute falls within the domain of contractual obligations. It was further held, that it is the nature of a government body’s personality which characterizes the action as having a public law element, and not the field of law where such action is taken. The relevant observation reads as under: - “22. There is an obvious difference in the contracts between private parties and contracts to which the State 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 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 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 Article

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 Article 14 of non-arbitrariness at the hands of the State in any of its actions. xxx xxx xxx

24. The State cannot be attributed the split personality of Dr Jekyll and Mr Hyde in the contractual field so as to impress on it all the characteristics of the State at the

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threshold while making a contract requiring it to fulfil the obligation of Article 14 of the Constitution and thereafter permitting it to cast off its garb of State to adorn the new robe of a private body during the subsistence of the contract enabling it to act arbitrarily subject only to the contractual obligations and remedies flowing from it. 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. There is a basic difference between the acts of the State which must invariably be in pubic interest and those of a private individual, engaged in similar activities, being primarily for personal gain, which may or may not promote public interest. Viewed in this manner, in which we find no conceptual difficulty or anachronism, we find no reason why the requirement of Article 14 should not extend even in the sphere of contractual matters for regulating the conduct of the State activity. xxx xxx xxx

28. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public 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.” (Emphasis supplied)

49Copy pinpoint49. In Verigamto Naveen v. Govt. of A.P. & Ors. reported in (2001) 8 SCC 344 this Court held that where a breach of contract involves

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the decision-making authority exceeding its power or violating the principles of nature justice or its decision being borne out of perversity, then such cancellation of contract can certainly be scrutinized under the writ jurisdiction. This is because such an exercise of power by the authority is apart from the contract. The relevant observation reads as under: - “21. [...] Though there is one set of cases rendered by this Court of the type arising in Radhakrishna Agarwal case [(1977) 3 SCC 457 : AIR 1977 SC 1496] much water has flown in the stream of judicial review in contractual field. In cases where the decision-making authority exceeded its statutory power or committed breach of rules or principles of natural justice in exercise of such power or its decision is perverse or passed an irrational order, this Court has interceded even after the contract was entered into between the parties and the Government and its agencies. [...] Where the breach of contract involves breach of statutory obligation when the order complained of was made in exercise of statutory power by a statutory authority, though cause of action arises out of or pertains to contract, brings it within the sphere of public law because the power exercised is apart from contract. The freedom of the Government to enter into business with anybody it likes is subject to the condition of reasonableness and fair play as well as public interest. After entering into a contract, in cancelling the contract which is subject to terms of the statutory provisions, as in the present case, it cannot be said that the matter falls purely in a contractual field. Therefore, we do not think it would be appropriate to suggest that the case on hand is a matter arising purely out of a contract and, therefore, interference under Article 226 of the Constitution is not called for. This contention also stands rejected.” (Emphasis supplied)

50Copy pinpoint50. Similarly in Binny Ltd. & Anr. v. Sadasivan & Ors. reported in (2005) 6 SCC 657 this Court in view of the increasing trend of the State and its instrumentalities to use contracts as a means for dispensing their regulatory functions, held that whenever a contract is used for

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a public purpose, it will be amenable to judicial review. The relevant observations read as under: - “30. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. But nevertheless, it may be noticed that the Government or government authorities at all levels are increasingly employing contractual techniques to achieve their regulatory aims. It cannot be said that the exercise of those powers are free from the zone of judicial review and that there would be no limits to the exercise of such powers, but in normal circumstances, judicial review principles cannot be used to enforce contractual obligations. When that contractual power is being used for public purpose, it is certainly amenable to judicial review. The power must be used for lawful purposes and not unreasonably.” (Emphasis supplied)

51Copy pinpoint51. The decision of this Court in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. reported in (2004) 3 SCC 553 is significant and was the turning point in the scope of judicial review in contractual matters. In this landmark ruling, this Court decisively laid down and approved that a relief against a State or its instrumentalities in matters related to contractual obligations can be sought under the writ jurisdiction. The relevant observations read as under: - “23. It is clear from the above observations of this Court, once the State or an instrumentality of the State is a party of 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 the first respondent as an instrumentality of the State has acted in contravention of the abovesaid requirement of Article 14, then we have no hesitation in holding that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent. xxx xxx xxx

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27. From the above discussion of ours, the following legal 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 contractual obligation is maintainable. (b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule. (c) A writ petition involving a consequential relief of monetary claim is also maintainable.” (Emphasis supplied)

52Copy pinpoint52. At the same time, this Court in ABL (supra) cautioned that the power to issue writs under Article 226 being discretionary and plenary, the same should only be exercised to set right the arbitrary actions of the State or its instrumentality in matters related to contractual obligations. The relevant observations read as under: - “28. However, while entertaining an objection as to the 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. 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 Corpn. v. Registrar of Trade Marks) 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 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.” (Emphasis supplied)

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53Copy pinpoint53. In Noble Resources Ltd. v. State of Orissa reported in (2006) 10 SCC 236 this Court for the purposes of judicial review of contractual disputes recognized a distinction between a matter where the contract is at the threshold and at the stage of breach. It held that at the threshold, the court’s scrutiny is more intrusive & expansive while at the stage of breach it is discretionary except where the action is found to be arbitrary or unreasonable. The relevant observations read as under: - “15. It is trite that if an action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India, a writ petition would be maintainable even in the contractual field. A distinction indisputably must be made between a matter which is at the threshold of a contract and a breach of contract; whereas in the former the court’s scrutiny would be more intrusive, in the latter the court may not ordinarily exercise its discretionary jurisdiction of judicial review, unless it is found to be violative of Article 14 of the Constitution. While exercising contractual powers also, the government bodies may be subjected to judicial review in order to prevent arbitrariness or favouritism on their part. Indisputably, inherent limitations exist, but it would not be correct to opine that under no circumstances a writ will lie only because it involves a contractual matter.” (Emphasis supplied)

54Copy pinpoint54. The law on the subject with which we are dealing was laid down exhaustively by this Court in its decision in Joshi Technologies International Inc. v. Union of India & Ors. reported in (2015) 7 SCC 728, and the position was summarised as under: - “69. The position thus summarised 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 are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, it can refuse to exercise. It also follows that under the following

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circumstances, “normally”, the Court would not exercise such a discretion: 69.1. The Court may not examine the issue unless the action has some public law character attached to it. 69.2. 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 Constitution and relegate the party to the said mode of settlement, particularly when settlement of disputes is to be resorted to through the means of arbitration. 69.3. If there are very serious disputed questions of fact which are of complex nature and require oral evidence for their determination. 69.4. Money claims per se particularly arising out of contractual obligations are normally not to be entertained except in exceptional circumstances.

70. Further, the legal position which emerges from various judgments of this Court dealing with different situations/ aspects relating to contracts entered into by the State/ public authority with private parties, can be summarised as under: 70.1. At the stage of entering into a contract, the State acts purely in its executive capacity and is bound by the obligations of fairness. 70.2. State in its executive capacity, even in the contractual field, is under obligation to act fairly and cannot practise some discriminations. 70.3. Even in cases where question is of choice or 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 of the Constitution could arise. If those facts are disputed and require assessment of evidence the correctness of which can only be tested satisfactorily by taking detailed evidence, involving examination and cross-examination of witnesses, the case could not be conveniently or satisfactorily decided

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in proceedings under Article 226 of the Constitution. In such cases the Court can direct the aggrieved party to resort to alternate remedy of civil suit, etc. 70.4. Writ jurisdiction of the High Court under Article 226 of the Constitution was not intended to facilitate avoidance of obligation voluntarily incurred. 70.5. 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 had accepted with open eyes. It cannot ever be that a licensee can work out the licence if he finds it profitable to do so: and he can challenge the conditions under which he agreed to take the licence, if he finds it commercially inexpedient to conduct his business. 70.6. 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. 70.7. Writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if it 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. 70.8. If the contract between private party and the State/ instrumentality and/or agency of the State is under the realm of a private law and there is no element of public 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 Constitution of India and invoking its extraordinary jurisdiction. 70.9. The distinction between public law and private law element in the contract with the State is getting blurred.

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However, it has not been totally obliterated and where the matter falls purely in private field of contract, this Court has maintained the position that writ petition is not maintainable. The dichotomy between public law and private law rights and remedies would depend on the factual matrix of each case and the distinction between the 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 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. 70.10. 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 legitimate expectation forms part of the principle of non-arbitrariness. 70.11. 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.” (Emphasis supplied)

55Copy pinpoint55. Thereafter, this Court in its decision in M.P. Power Management Co. Ltd., Jabalpur v. Sky Power Southeast Solar India Pvt. Ltd. & Ors. reported in (2023) 2 SCC 703 exhaustively delineated the scope of judicial review of the courts in contractual disputes concerning public authorities. The aforesaid decision is in the following parts: -

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i. Scope of Judicial Review in matters pertaining to Contractual Disputes: - This Court held that the earlier position of law that all rights against any action of the State in a non-statutory contract would be governed by the contract alone and thus not amenable to the writ jurisdiction of the courts is no longer a good law in view of the subsequent rulings. Although writ jurisdiction is a public law remedy, yet a relief would still lie under it if it is sought against an arbitrary action or inaction of the State, even if they arise from a non-statutory contract. The relevant observations read as under: - “53. [...] when the offending party is the State. In other words, the contention is that the law in this field has witnessed an evolution and, what is more, a revolution of sorts and a transformatory change with a growing realisation of the true ambit of Article 14 of the Constitution of India. The State, he points out, cannot play the Dr. Jekyll and Hyde game anymore. Its nature is cast in stone. Its character is inflexible. This is irrespective of the activity it indulges in. It will continue to be haunted by the mandate of Article 14 to act fairly. There has been a stunning expansion of the frontiers of the Court’s jurisdiction to strike at State action in matters arising out of contract, based, undoubtedly, on the facts of each case. It remains open to the Court to refuse to reject a case, involving State action, on the basis that the action is, per se, arbitrary. [...] i. It is, undoubtedly, true that the writ jurisdiction is a public law remedy. A matter, which lies entirely within a private realm of affairs of public body, may not lend itself for being dealt with under the writ jurisdiction of the Court. ii. The principle laid down in Bareilly Development Authority (supra) that in the case of a non statutory contract the rights are governed only by the terms of the contract and the decisions, which are purported to be followed, including

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Radhakrishna Agarwal (supra), may not continue to hold good, in the light of what has been laid down in ABL (supra) and as followed in the recent judgment in Sudhir Kumar Singh (supra). iii. The mere fact that relief is sought under a contract which is not statutory, will not entitle the respondent-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.” (Emphasis supplied) (ii) Exercise of Writ Jurisdiction in disputes at the stage prior to the Award of Contract: - An action under a writ will lie even at the stage prior to the award of a contract by the State wherever such award of contract is imbued with procedural impropriety, arbitrariness, favouritism or without any application of mind. In doing so, the courts may set-aside the decision which is found to be vitiated for the reasons stated above but cannot substitute the same with its own decision. The relevant observations read as under: - "iv. An action will lie, undoubtedly, when the State purports to award any largesse and, undoubtedly, this relates to the stage prior to the contract being entered into [See R.D. Shetty (supra)]. This scrutiny, no doubt, would be undertaken within the nature of the judicial review, which has been declared in the decision in Tata Cellular vs. Union of India.” (Emphasis supplied) (iii) Exercise of Writ Jurisdiction after the Contract comes into Existence: - This court held that even after the contract comes into existence an action may lie by way of a writ to either (I) obviate an arbitrary or unreasonable action on part of the State or (II) to call upon it to honour its obligations unless there is a serious or genuine

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dispute as regards the liability of the State from honouring such obligation. Existence of an alternative remedy or a disputed question of fact may be a ground to not entertain the parties in a writ as long as it is not being used as smokescreen to defeat genuine claims of public law remedy. The relevant observations read as under: - "v. After the contract is entered into, there can be a variety of circumstances, which may provide a cause of action to a party to the contract with the State, to seek relief by filing a Writ Petition. vi. Without intending to be exhaustive, it may include the relief of seeking payment of amounts due to the aggrieved party from the State. The State can, indeed, be called upon to honour its obligations of making payment, unless it be that there is a serious and genuine dispute raised relating to the liability of the State to make the payment. Such dispute, ordinarily, would include the contention that the aggrieved party has not fulfilled its obligations and the Court finds that such a contention by the State is not a mere ruse or a pretence. vii. The existence of an alternate remedy, is, undoubtedly, a matter to be borne in mind in declining relief in a Writ Petition in a contractual matter. Again, the question as to whether the Writ Petitioner must be told off the gates, would depend upon the nature of the claim and relief sought by the petitioner, the questions, which would have to be decided, and, most importantly, whether there are disputed questions of fact, resolution of which is necessary, as an indispensable prelude to the grant of the relief sought. Undoubtedly, while there is no prohibition, in the Writ Court even deciding disputed particularly when questions the dispute of fact, surrounds demystifying of documents only, the Court

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may relegate the party to the remedy by way of a civil suit. viii. The existence of a provision for arbitration, which is a forum intended to quicken the pace of dispute resolution, is viewed as a near bar to the entertainment of a Writ Petition (See in this regard, the view of this Court even in ABL (supra) explaining how it distinguished the decision of this Court in State of U.P. and others v. Bridge & Roof Co., by its observations in paragraph-14 in ABL (supra)]. ix. The need to deal with disputed questions of fact, cannot be made a smokescreen to guillotine a genuine claim raised in a Writ Petition, when actually the resolution of a disputed question of fact is unnecessary to grant relief to a writ applicant. x. The reach of Article 14 enables a Writ Court to deal with arbitrary State action even after a contract is entered into by the State. A wide variety of circumstances can generate causes of action for invoking Article 14. The Court’s approach in dealing with the same, would be guided by, undoubtedly, the overwhelming need to obviate arbitrary State action, in cases where the Writ remedy provides an effective and fair means of preventing miscarriage of justice arising from palpably unreasonable action by the State.” (Emphasis supplied) (iv) Exercise of Writ Jurisdiction after Termination or Breach of the Contract: - A relief by way of a writ under Article 226 of the Constitution will also lie against a termination or a breach of a contract, wherever such action is found to either be palpably unauthorized or arbitrary. Before turning away the parties to the remedy of civil suit, the courts must be mindful to see whether such termination or breach was within the contractual domain or

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whether the State was merely purporting to exercise powers under the contract for any ulterior motive. Any action of the State to cancel or terminate a contract which is beyond the terms agreed thereunder will be amenable to the writ jurisdiction to ascertain if such decision is imbued with arbitrariness or influenced by any extraneous considerations. The relevant observations read as under: - "xi. Termination of contract can again arise in a wide variety of situations. If for instance, a contract is terminated, by a person, who is demonstrated, without any need for any argument, to be the person, who is completely unauthorised to cancel the contract, there may not be any necessity to drive the party to the unnecessary ordeal of a prolix and avoidable round of litigation. The intervention by the High Court, in such a case, where there is no dispute to be resolved, would also be conducive in public interest, apart from ensuring the Fundamental Right of the petitioner under Article 14 of the Constitution of India. When it comes to a challenge to the termination of a contract by the State, which is a non-statutory body, which is acting in purported exercise of the powers/ rights under such a contract, it would be over simplifying a complex issue to lay down any inflexible Rule in favour of the Court turning away the petitioner to alternate Fora. Ordinarily, the cases of termination of contract by the State, acting within its contractual domain, may not lend itself for appropriate redress by the Writ Court. This is, undoubtedly, so if the Court is duty-bound to arrive at findings, which involve untying knots, which are presented by disputed questions of facts. Undoubtedly, in view of ABL Limited (supra), if resolving the dispute, in a case of repudiation of a contract, involves only appreciating the true scope of documentary material in the light of pleadings, the Court

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may still grant relief to an applicant. We must enter a caveat. The Courts are today reeling under the weight of a docket explosion, which is truly alarming. If a case involves a large body of documents and the Court is called upon to enter upon findings of facts and involves merely the construction of the document, it may not be an unsound discretion to relegate the party to the alternate remedy. This is not to deprive the Court of its constitutional power as laid down in ABL (supra). It all depends upon the facts of each case as to whether, having regard to the scope of the dispute to be resolved, whether the Court will still entertain the petition. xii. In a case the State is a party to the contract and a breach of a contract is alleged against the State, a civil action in the appropriate Forum is, undoubtedly, maintainable. But this is not the end of the matter. Having regard to the position of the State and its duty to act fairly and to eschew arbitrariness in all its actions, resort to the constitutional remedy on the cause of action, that the action is arbitrary, is permissible (See in this regard Kumari Shrilekha Vidyarthi and others v. State of U.P. and others). However, it must be made clear that every case involving breach of contract by the State, cannot be dressed up and disguised as a case of arbitrary State action. While the concept of an arbitrary action or inaction cannot be cribbed or confined to any immutable mantra, and must be laid bare, with reference to the facts of each case, it cannot be a mere allegation of breach of contract that would suffice. What must be involved in the case must be action/inaction, which must be palpably unreasonable or absolutely irrational and bereft of any principle. An action, which is completely malafide, can hardly be described as a fair action and may, depending on the facts, amount to