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Is writ petition under Article 226 maintainable to enforce the contractual obligation of the State or its instrumentality

In the opinion of the Hon’ble Supreme Court, this question was no more res integra and had been settled by a large number of judicial pronouncements. The Hon’ble Court referred to the judgment rendered in the case of

# K.N. Guruswamy v. State of Mysore, AIR 1954 SC 592

and followed subsequently in the case of

# D.F.O. v. Ram Sanehi Singh, (1973) 3 SCC 864

wherein it was observed that it was unable to hold that merely becausesource of the right which the Respondent claims was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority, he must resort to a suit and not to a petition by way of a writ. It observed that in view of the judgment rendered in the case of K.N. Guruswamy (Supra), there can be no doubt that the petition was maintainable, even if the right to relief arose out of an alleged breach of contract, where the action challenged was of a public authority invested with statutory power. The Apex Court in ABL International Ltd. (Supra) also noted the observations made in the case of

# Gujarat State Financial Corporation versus Lotus Hotels (P) Ltd; (1983) 3 SCC 379

wherein following the earlier judgment rendered in the case of

# Ramana Dayaram Shetty Versus International Airport Authority of India, (1979) 3 SCC 489

it was held at para-9 and 11 that instrumentality of the State being ‘other authority’ under Article 12 cannot commit breach of a solemn undertaking to the prejudice of the other party which acted on that undertaking or promise and put itself in a disadvantageous position.

27. Their Lordships drew support from the judgment rendered by the Apex Court in the case of

# Gunwant Kaur Versus Municipal Committee, Bhatinda, (1969) 3 SCC 769

wherein disputed questions of fact were raised in a writ petition. It was held that the High Court is not deprived of its jurisdiction to entertain a petition under Article 226 merely because in considering the petitioner’s right to relief questions of fact may fall to be determined. In a petition under Article 226 the High Court has jurisdiction to try issues both of fact and law. Exercise of the jurisdiction is, it is true, discretionary, but the discretion must be exercised on sound judicial principles. When the petition raises questions of fact of a complex nature, which may for their determination require oral evidence to be taken, and on that account the High Court is of the view that the dispute may not appropriately be tried in a writ petition, the High Court may decline to try a petition. Rejection of a petition in limine will normally be justified, where the High Court is of the view that thepetition is frivolous or because of the nature of the claim made or dispute sought to be agitated, or that the petition against the party against whom relief is claimed is not maintainable or that the dispute raised thereby is such that it would be inappropriate to try it in the writ jurisdiction, or for analogous reasons.. In the case of

# Century Spg. and Mfg. Co. Ltd. Versus Ulhasnagar Municipal Council, (1970) 1 SCC 582

view observed in the case of Gunwant Kaur (Supra) found support. The Apex Court held that merely because a question of fact is raised, the High Court will not be justified in requiring the party to seek relief by somewhat lengthy, dilatory and expensive process by a civil suit against a public body. The observations of the Apex Court in the case of

# Kumari Shrilekha Vidyarthi v. State of U.P., (1991) 1 SCC 212

were also approvingly relied upon at para-23 of the Report. The clear principle which emanate from the observations of the Apex Court are that once the State or its instrumentality 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 Constitution of India. In the background of the discussions made on the maintainability of the writ petition in contractual matters, the Apex Court at para-24 observed that it is futile to contend that the action of the first Respondent, impugned in the writ petition, do not have a touch of public function or discharge of a public duty. Further, the Hon’ble Court relying upon the judgment rendered in the case of

# U.P. Pollution Control Board Versus Kanoria Industrial Ltd., (2001) 2 SCC 549

while dealing with the question of refund of money in a writ petition and after discussing the earlier case law on the subject including that of

# Suganmal Versus State of M.P., AIR 1965 SC 1740

came to the conclusion that the judgment cannot be read as laying down the law that no writ petition at all can be entertained where claim is made for only refund of money consequent upon declaration of law that levy and collection of tax / cess is unconstitutional or without the authority of law. It was further observed that it is one thing to say that the High Court has no power under Article 226 of the Constitution to issue a writ ofmandamus for making refund of the money illegally collected. It is yet another thing to say that such power can be exercised sparingly depending on facts and circumstances of each case. The entire discussions relating to maintainability of writ petition under Article 226 of Constitution of India to enforce the contractual obligation of the State or its Instrumentality, by an aggrieved party, have been summarized in the following legal principles at paragraphs 27 and 28 in the case of ABL International Ltd. (Supra), which is quoted hereunder.

“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.

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.”

28. The Apex Court in the facts of the said case was also of the clear opinion that repudiation of the claim of the appellant by the first Respondent an Instrumentality of the State was in contravention of the aforesaid requirement of Article 14 of Constitution of India. It was further held that the Writ Court can issue suitable direction to set right the arbitrary action of the first Respondent. This judgment has been relied by the Hon’ble Supreme Court in the case of Zonal Manager, Central Bank of India (Supra) wherein also, scope of judicial review / interference in contractual matters was in question. It was held that the appellant Bank discharging public function as a State under Article 12, was obliged to returnthe title deeds to the Respondents in view of settlement of dues on the date of filing of the writ petition by arrangement made by another Nationalized Bank namely State Bank of India. The Apex Court also followed the decision in the case of

# Karnataka State Forest Industries Corpn. v. Indian Rocks, (2009) 1 SCC 150

wherein their Lordship Hon’ble Mr. Justice S.B. Sinha reiterated the principle, quoted as under:

“38. Although ordinarily a superior court in exercise of its writ jurisdiction would not enforce the terms of a contract qua contract, it is trite that when an action of the State is arbitrary or discriminatory and, thus, violative of Article 14 of the Constitution of India, a writ petition would be maintainable. (see ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd.)

39. There cannot be any doubt whatsoever that a writ of mandamus can be issued only when there exists a legal right in the writ petition and a corresponding legal duty on the part of the State, but then if any action on the part of the State is wholly unfair or arbitrary, the superior courts are not powerless. Reliance placed by Mr. Divan on G.J. Fernandez v. State of Mysore is not apposite. In that case, it was held (AIR p. 1757 para. 12]).

“12. Thus under Article 162, the State Government can take executive action in all matters in which the Legislature of the State can pass laws. But Article 162 itself does not confer any rule-making power on the State Government in that behalf” 29. Now coming to the facts of the present case, there are no undisputed facts, so far as the foundational basis for invocation of Bank Guarantee by the Respondent CCL is concerned. The Respondent CCL is an instrumentality of the State which falls under the expression “Authority” under Article 12 of the Constitution of India.


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