Judicial Review by Supreme Court in Contractual Matters: Whether Permissible?

Contractual rights are the set of rights available to persons who enter into a valid contract with one another. Contract rights usually involve business matters, including the provision of products and services. In the modern scenario people create entered into agreements depending upon their requirement in multiple ways by which they restricts their liabilities and rights and for smooth functioning of their business and profit generation activities. Even Government departments like Railways (IRCTC), roadways, PWD, Electrical departments and even municipal councils etc for performance of certain activities like for construction of roads, electrical installations, sewer management, public transports, transportation and numerous other activities for achieving higher performance and greater efficiency entered into Public Private Partnerships (PPP mode) and their general rights are governed by Indian Contract law and the terms and conditions they entered into b/w them by formulating a contractual agreement and sometime depending upon the special situations will be governed by special statute, if any, present in the system. Now to avoid future disputes or to settle the manner in which future disputes will be taken care off, parties formulate the terms and conditions of agreement.

It is well settled that if any agreement is entered into between the State and the person which is of a non­statutory character then the relationship is governed purely in terms of a contract between the parties, in such situations writ would not lie to enforce a civil liability which is based on private law arising purely out of a contract. The proper remedy in such cases would be to file a civil suit for claiming damages, injunctions or specific performance or such appropriate reliefs in a civil court. However, if in contractual matters where disputed questions of fact or monetary claims have been raised, there may not be an absolute bar to the maintainability of the writ petition, the discretion can be exercised by the High Court only in a case where the contracting party is able to demonstrate that it is a public law remedy it seeks to invoke in contradistinction to a private law remedy simpliciter under the contract.

That Hon'ble Supreme Court in C.A.No.4092 of 2000 reported as Kerala State Electricity Board and Another v. Kurien E. Kalathil and Others, (2000) 6 SCC 293 in para 11 observed that the contract between the parties is in the realm of private law and not a statutory contract and the matter could not have been agitated in the writ petition.

That Hon'ble Supreme Court in Kerala State Electricity Board & Anr. Vs. Kurien E.Kalathil & Ors. (Civil Appeal Nos.3164-3165 of 2017 decided on March 09, 2018) concluded that whether any amount is due under a contract is not a matter which can be agitated and decided in a writ petition since disputes arising out of the terms of a contract or alleged breach have to be settled by the ordinary principles of law of contract. The Supreme Court further observed that even if a Statute expressly or impliedly confers powers on a statutory body to enter into a contract in order to enable it to discharge its functions, such an activity will not raise any issue of public law. The contract between the parties would remain in the realm of private law and would not be a statutory contract. The observations are as follows:- "10. Learned counsel has rightly questioned the maintainability of the writ petition. The interpretation and implementation of a clause in a contract cannot be the subject-matter of a writ petition. Whether the contract envisages actual payment or not is a question of construction of contract. If a term of contract is violated, ordinarily the remedy is not the writ petition under Article 226. We are also unable to agree with the observations of the High Court that the contractor was seeking enforcement of a statutory contract. 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. We are also unable to agree with the observation of the High Court that since the obligations imposed by the contract on the contracting parties come within the purview of the Contract Act, that would not make the contract statutory. Clearly, the High Court fell into an error in coming to the conclusion that the contract in question was statutory in nature.

That Hon'ble Supreme Court in Divisional Forest Officer Vs. Vishwanath Tea Company Ltd. (1981) 3 SCC 238 the question of maintainability of a writ petition in respect of a claim arising out of the contractual rights and obligations flowing from the terms of a lease was considered, and it was held as follows:­

'8. It is undoubtedly true that High Court can entertain in its extraordinary jurisdiction a petition to issue any of the prerogative writs for any other purpose. But such writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is a denial of equality before law or equal protection of law. The Corporation can also file a writ petition for enforcement of a right under a statute. As pointed out earlier, the respondent (company) was merely trying to enforce a contractual obligation. To clear the ground let it be stated that obligation to pay royally for timber cut and felled and removed is prescribed by the relevant regulations. The validity of regulations is not challenged. Therefore, the demand for royalty is unsupported by law. What the respondent claims is an exception that in view of a certain term in the indenture of lease, to wit, clause 2, the appellant is not entitled to demand and collect royalty from the respondent. This is nothing but enforcement of a term of a contract of lease. Hence, the question whether such contractual obligation can be enforced by the High Court in its writ jurisdiction.

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 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.”

In the case of State of Bihar Vs. Jain Plastics & Chemicals Ltd. (2002) 1 SCC 216 a grievance was sought to be raised against deduction of an amount from the final bill to be paid to the contractor due to breach of contract by him. The petition was allowed by the High Court. The matter was taken to the Supreme Court wherein it was held that even if it was possible to decide the question raised in the petition on the basis of affidavits and counter affidavits, it would not be proper to exercise extraordinary jurisdiction under Article 226 of the Constitution in cases of alleged breach of contract.

That the Hon'ble Supreme Court in Directorate of Education v. Educomp Datamatics Ltd., (2004) 4 SCC 19, Court held: '9. It is well settled now that the courts can scrutinise the award of the contracts by the Government or its agencies in exercise of their powers of judicial review to prevent arbitrariness or favouritism. However, there are inherent limitations in the exercise of the power of judicial review in such matters.

However, in Tata Cellular vs. Union of India (1994) 6 SCC 651, the Hon'ble Supreme Court has held that judicial review of government contracts was permissible in order to prevent arbitrariness or favouritism. Further in Air India Limited vs. Cochin International Airport Ltd (2000) 2 SCC 617, the Hon'ble Supreme Court once again stressed the need for overwhelming public interest to justify judicial intervention in contracts involving the State and its instrumentalities. It was held that Courts must proceed with great caution while exercising their discretionary powers and should exercise these powers only in furtherance of public interest and not merely on making out a legal point.

That Madras High Court in case of Jasmine Ebenezer Arthur v. HDFC ERGO General Insurance Company Limited and Others (decided on June 6, 2019) held that a writ petition is maintainable against a private body, if it has a public duty imposed on it. Consequently, an insurance company is amenable to the writ jurisdiction of a court, as it performs public functions and have a public duty imposed on it.

In view of aforesaid discussion, the general principles which may be culled out from the aforementioned judgments is that in a case where the contract entered into between the State and the person aggrieved is of a non­statutory character and the relationship is governed purely in terms of a contract between the parties, in such situations the contractual obligations are matters of private law and a writ would not lie to enforce a civil liability arising purely out of a contract. The proper remedy in such cases would be to file a civil suit for claiming damages, injunctions or specific performance or such appropriate reliefs in a civil court. Pure contractual obligation in the absence of any statutory complexion would not be enforceable through a writ. Whereas if any public law element in contract or if any public functions are involved then aggrieved party may file proper writ to Hon'ble High Court for adjudication of rights.

 

Kapil Chandna 
on 15 November 2019
Published in Constitutional Law
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