Municipal Corp. & Ors. Vs. M/S Gayatri Construction Company & ANR.
 Insc 1322 (6 August 2008)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4912 OF 2008 (Arising
out of S.L.P. (C) No. 1129 of 2007) Pimpri Chinchwad Municipal Corporation And
Ors. .....Appellants Versus M/s Gayatri Construction Company and Anr. ....Respondents
Dr. ARIJIT PASAYAT.
in this appeal is to the judgment of a Division Bench of the Bombay High Court
allowing the Writ Petition filed by the respondents.
facts in a nutshell are as follows:
Writ Petition was filed
by respondents 1 and 2 taking the stand that respondent No.1 was awarded a
contract for the work of improvement and widening of part of the Thermax-
Telco-Bhosari road which was divided in three phases and contract for Phase-III
(Approx. 3.7 Kms.) was given to the them, whereas the tender of Phase-II with
its cost at Rs.8,61,63,048/- was awarded to another party (Approx. 3.3 Kms.)
Though the tender amount was Rs.9 crores with a discount at 9.01%, the contract
price was fixed at Rs.8,18,91,000/- and the letter by the Corporation to the
respondents was given on 7/4/2005 and the work was to be completed within 12
months from that date. There is no dispute that the work was not completed and
the corporation released an advertisement published in some of the local
newspapers on 30/6/2006 inviting tenders for the improvement and widening of
four roads, including the road which was the subject matter of the contract
awarded to the respondents i.e. Item No. 3-A - Telco road. The approximate
costs of this road in the advertisement has been shown to be Rs.30 crores as
against the original tender cost of Rs.17.6 crores. After the advertisement was
released, the respondents were issued a letter dated 19/7/2006 informing the
Corporation's decision to take action under clause 3(a) of the contract and the
respondents were called upon to remain present for final measurement on
27/6/2006. The respondents submitted a representation on 25/7/2006 and by its
letter dated 1/8/2006 the corporation reiterated its action as per the letter
dated 19/7/2006. The respondents approached the High Court on 22/8/2006 after
they had submitted another representation on 4/8/20006 to the Corporation and
the Corporation confirmed the decision to stop work. The respondents filed writ
petition challenging action of appellants in releasing the advertisement and
inviting fresh tenders on 30/6/2006 for the very same work which is part of the
contract awarded to the respondents i.e. Item No.3-A Improvement and Widening
of remaining stretch of Telco Road and consequently the attempt to terminate
the contract post facto by invoking clause 3(a) of the contract.
3 The present
appellants filed an affidavit in reply and raised a preliminary objection as to
the maintainability of the writ petition. It was contended that the writ
petitioners had an alternative remedy for enforcement of the contract. In
matters flowing from the contract, a petition under Article 226 of the
Constitution of India, 1950 (in short the `Constitution') cannot be maintained.
Further, disputed questions are involved. On merits it was also contended that
it was the contractor firm which was responsible for not maintaining the
contractual terms and in spite of the contractual period having been over, the
work could not be completed and the contractors went on insisting that the
entire stretch of the road be handed over to them so as to start and complete
the work. In short the contractors failed to complete the work in 12 months'
time and therefore the contract was terminated.
The High Court found
that though Clause 58 of the agreement provided for in house remedy of
representation for settlement of disputes that cannot stand in the way of the
writ petition being entertained. It was submitted by writ petitioners that the
cost of completing the work would be much higher than what would have been
payable to the writ petitioners. The High Court referred to the Minutes of the
Corporation and held that the writ petitioners were justified in challenging
the Corporation's action to invite fresh tenders for the work allotted to it.
It also referred to the undertaking given by the writ petitioners to the effect
that they were ready and willing to execute the work but were unable to do so
for several reasons. The High Court, therefore, directed the Corporation not to
complete the work and to maintain status quo in respect of Phase-III of Telco
Road as well as the tenders received for the said work in response to the
advertisement which was impugned before the High Court.
support of the appeal, learned counsel for the Corporation and its
functionaries submitted that the High Court lost sight of the objections raised
as regards to the maintainability of the writ petition. It was submitted that
there was cancellation of tender and fresh advertisement was issued. The
agreement provided in house mechanism in relation to dispute arising out of the
contract. The High Court did not consider this aspect. The High Court also did
not take note of the difference between the statutory contracts and
non-statutory contracts. Before the High Court the writ petition was questioned
on three grounds; (i) disputed questions relates to facts were involved; (ii)
to enforce the terms of contractual rights remedy under the Civil Law is
available, and in any event, the writ petition was not maintainable in respect
of contractual matters. It was pointed out that the writ petitioners were
seeking relief of enforcement of their contractual rights, and that several
relevant and material facts have been suppressed. In essence, it was submitted
that the above aspects have not been considered by the High Court.
response, learned counsel for the respondents-writ petitioners submitted that
the Corporation itself was guilty of not providing the requisite infrastructure
for carrying out the contractual obligations. The difficulties have been
highlighted in various representations to the Corporation. But without any
plausible reason and without following the principles of natural justice the
fresh advertisement was issued. It is also pointed out that subsequently there
appears to be the settlement of the work at a huge cost.
far as existence of the alternative remedy is concerned Clause 58 of the
agreement is relevant. The same reads as under:
"Clause 58- All
disputes & differences of any kind whatever arising out of or in connection
with the contractor the carrying out of the work (whether during the progress
of the work or after their complete & whether before or after the
determination, abandonment or breach of the contract) shall be referred to
& settled by the City Engineer. But, if the contractor be dissatisfied with
the decision of the City Engineer or as to withholding by the City Engineer of
any certificate to which the contractor may within 60 days after receiving notice
of such decision give a written notice to the other party requiring that may
claim to entitled then & in any such case the contractor such matter in
dispute be referred to in open before a Committee as mentioned below. Such
written notice shall specify the manner which are in disputes & such
disputes or difference of which such notice has been given & no other shall
be & is hereby referred committee consisting of the Commissioner, Pimpri
Chinchwad Municipal Corporation, the city engineer and project 7 management
consultant, the decision taken by the parties will be final and binding on both
Such reference except
as to the withholding of any certificate to which the contractor to be entitled
shall not be opened or entered upon until after the completion or alleged
completion of the works or until after the practical cessation of the City
Engineer. Provided always that the Corporation shall not withhold the payment
of an Interim Certificate not the Contractor in any way delay the carrying out
of the works by reason of any such matters, question or dispute being referred
to the Committee but shall proceed with the work with all the diligence &
shall, until the decision of the Committee abide by the decision of the City
Engineer & no award of the Committee shall relive the contractor of his
obligations to adhere strictly to the City Engineer's instructions with regard
to the actual carrying out of the works. The Owner & the Contractor hereby
also agree that the said reference to the Committee under this clause shall be
a condition precedent to any right of action under the Contract."
matters relating to maintainability of writ petitions in contractual matters
there are catena of decisions dealing with the issue.
National Highways Authority of India v. Ganga Enterprises (2003 (7) SCC 410),
it was inter alia held as follows:
respondent then filed a writ petition in the High Court for refund of the
amount. On the pleadings before it, the High Court raised two questions viz.:
(a) whether the forfeiture of security deposit is without authority of law and
without any binding contract between the parties and also contrary to Section 5
of the Contract Act; and (b) whether the writ petition is maintainable in a
claim arising out of a breach of contract. Question (b) should have been first
answered as it would go to the root of the matter. The High Court instead
considered Question (a) and then chose not to answer Question (b). In our view,
the answer to Question (b) is clear. It is settled law that disputes relating
to contracts cannot be agitated under Article 226 of the Constitution of India.
It has been so held in the cases of Kerala SEB v. Kurien E. Kalathil (2000 (6)
SCC 293), State of U.P. v. Bridge & Roof Co. (India) Ltd. (1996 (6) SCC 22)
and Bareilly Development Authority v. Ajai Pal Singh 1989 (2) SCC 116. This is
settled law. The dispute in this case was regarding the terms of offer.
They were thus
contractual disputes in respect of which a writ court was not the proper forum.
Mr Dave, however, relied upon the cases of Verigamto Naveen v. Govt. of A.P.
(2001 (8 SCC 344)) and Harminder Singh Arora v. Union of India (1986 (3) SCC
These, however, are
cases where the writ court was enforcing a statutory right or duty. These cases
do not lay down that a writ court can interfere in a matter of contract only.
Thus on the ground of maintainability the petition should have been
Kerala State Electricity Board and Anr. v. Kurien E. Kalathil and Ors. (2000
(6) SCC 293), this Court dealt with the question of maintainability of petition
under Article 226 of the Constitution and the desirability of exhaustion of
remedies and availability of alternative remedies, as also difference between
statutory contracts and non-statutory contracts. In paras 10 and 11 of the
judgment it was noted as follows:
find that there is a merit in the first contention of Mr Raval. 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 a 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.
statute may expressly or impliedly confer power on a statutory body to enter
into contracts in order to enable it to discharge its functions. Dispute
arising out of the terms of such contracts or alleged breaches have to be
settled by the ordinary principles of law of contract. The fact that one of the
parties to the agreement is a statutory or public body will not by itself
affect the principles to be applied.
The disputes about
the meaning of a covenant in a contract or its enforceability have to be determined
according to the usual principles of the Contract Act. Every act of a statutory
body need not necessarily involve an exercise of statutory power. Statutory
bodies, like private parties, have power to contract or deal with property.
Such activities may not raise any issue of public law. In the present case, it
has not been shown how the contract is statutory. The contract between the
parties is in the realm of private law. It is not a statutory contract. The
disputes relating to interpretation of the terms and conditions of such a
contract could not have been agitated in a petition under Article 226 of the
Constitution of India. That is a matter for adjudication by a civil court or in
arbitration if provided for in the contract. Whether any amount is due and if
so, how much and refusal of the appellant to pay it is justified or not, are
not the matters which could have been agitated and decided in a writ petition.
The contractor should
have relegated to other remedies."
10. Reference can
also be made to State of Gujarat and Ors. v. Meghji Pethraj Shah Charitable
Trust and Ors. (1994 (3) SCC 552). In para 22 it was observed as follows:
"22. We are
unable to see any substance in the argument that the termination of arrangement
without observing the principle of natural justice (audi alteram partem) is
The termination is
not a quasi-judicial act by any stretch of imagination; hence it was not
necessary to observe the principles of natural justice. It is not also an
executive or administrative act to attract the duty to act fairly. It was -- as
has been repeatedly urged by Shri Ramaswamy -- a matter governed by a
contract/agreement between the parties. If the matter is governed by a
contract, the writ petition is not maintainable since it is a public law remedy
and is not available in private law field, e.g., where the matter is governed
by a non-statutory contract. Be that as it may, in view of our opinion on the
main question, it is not necessary to pursue this reasoning further."
11. Again in State of
U.P. and Ors. v. Bridge & Roof Company (India) Ltd. (1996 (6) SCC 22), this
Court dealt with the issue in paras 15 and 16 in the following manner:
"15. In our
opinion, the very remedy adopted by the respondent is misconceived. It is not
entitled to any relief in these proceedings, i.e., in the writ petition filed
by it. The High Court appears to be right in not pronouncing upon any of the
several contentions raised in the writ petition by both the parties and in
merely reiterating the effect of the order of the Deputy Commissioner made
under the proviso to Section 8-D(1).
16. Firstly, the
contract between the parties is a contract in the realm of private law. It is
not a statutory contract. It is governed by the provisions of the Contract Act
or, maybe, also by certain provisions of the Sale of Goods Act.
Any dispute relating
to interpretation of the terms and conditions of such a contract cannot be
agitated, and could not have been agitated, in a writ petition. That is a
matter either for arbitration as provided by the contract or for the civil
court, as the case may be. Whether any amount is due to the respondent from the
appellant-Government under the contract and, if so, how much and the further
question whether retention or refusal to pay any amount by the Government is
justified, or not, are all matters which cannot be agitated in or adjudicated
upon in a writ petition. The prayer in the writ petition, viz., to restrain the
Government from deducting a particular amount from the writ petitioner's
bill(s) was not a prayer which could be granted by the High Court under Article
226. Indeed, the High Court has not granted the said prayer."
para 11 of India Thermal Power Ltd. v. State of M.P. and Ors. (2000 (3) SCC
379), it was observed as follows:
"11. It was
contended by Mr. Cooper, learned Senior Counsel appearing for appellant GBL and
also by some counsel appearing for other appellants that the appellant/IPPs had
entered into PPAs under Sections 43 and 43-A of the Electricity Supply Act and
as such they are statutory contracts and, therefore, MPEB had no power or
authority to alter their terms and conditions. This contention has been upheld
by the High Court. In our opinion the said contention is not correct and the
High Court was wrong in accepting the same.
Section 43 empowers
the Electricity Board to enter into an arrangement for purchase of electricity
on such terms as may be agreed.
provides that a generating company may enter into a contract for the sale of
electricity generated by it with the Electricity Board. As regards the
determination of tariff for the sale of electricity by a generating company to
the Board, Section 43(1)(2) provides that the tariff shall be determined in
accordance with the norms regarding operation and plant-load factor as may be
laid down by the authority and in accordance with the rates of depreciation and
reasonable return and such other factors as may be determined from time to time
by the Central Government by a notification in the Official Gazette. These
provisions clearly indicate that the agreement can be on such terms as may be
agreed by the parties except that the tariff is to be determined in accordance
with the provision contained in Section 43-A(2) and 14 notifications issued
thereunder. Merely because a contract is entered into in exercise of an
enabling power conferred by a statute that by itself cannot render the contract
a statutory contract. If entering into a contract containing the prescribed
terms and conditions is a must under the statute then that contract becomes a
statutory contract. If a contract incorporates certain terms and conditions in
it which are statutory then the said contract to that extent is statutory. A
contract may contain certain other terms and conditions which may not be of a
statutory character and which have been incorporated therein as a result of
mutual agreement between the parties. Therefore, the PPAs can be regarded as
statutory only to the extent that they contain provisions regarding
determination of tariff and other statutory requirements of Section 43-A(2).
Opening and maintaining of an escrow account or an escrow agreement are not the
statutory requirements and, therefore, merely because PPAs contemplate
maintaining escrow accounts that obligation cannot be regarded as
the High Court ought not to have entertained the writ petition. Additionally,
it appears that by order dated 17.1.2007 interim stay of the impugned order was
granted and was continued by order dated 12.2.2007. It is pointed out by
learned counsel for the appellants that since the order of the High Court was
stayed and there was urgency in the matter fresh tenders were called for. Three
persons submitted the bids and the work has already been allotted and a considerable
portion of the work has already been completed.
In view of aforesaid,
we set aside the impugned order of the High Court and direct dismissal of the
writ petition. It is however open to the respondents-writ petitioners to seek
such remedy, if so advised, as is available in law. We do not express any
opinion in that regard.
appeal is allowed. There shall be no order as to costs.
(Dr. ARIJIT PASAYAT)