Orissa High Court
Rathi Steel And Power Ltd vs Mahanadi Coalfields Ltd. & .... ... on 9 May, 2025
Author: S.K. Panigrahi
Bench: S.K. Panigrahi
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 29-May-2025 16:37:05
IN THE HIGH COURT OF ORISSA AT CUTTACK
W.P.(C) No.985 of 2015
(In the matter of an application under Articles 226 and 227 of the
Constitution of India, 1950).
Rathi Steel and Power Ltd., .... Petitioner(s)
New Delhi & Anr.
-versus-
Mahanadi Coalfields Ltd. & .... Opposite Party (s)
Anr.
Advocates appeared in the case through Hybrid Mode:
For Petitioner(s) : Mr. Debesh Panda, Adv.
Mr. Bibhu Pr. Das, Adv.
For Opposite Party (s) : Mr. S.D. Das, Sr. Adv.
along with Mr. Haripada Mohanty, Adv.
CORAM:
DR. JUSTICE S.K. PANIGRAHI
DATE OF HEARING:-05.03.2025
DATE OF JUDGMENT:-09.05.2025
Dr. S.K. Panigrahi, J.
1. This Writ Petition is preferred by the Petitioner praying for issuance of a
writ of mandamus aggrieved by the actions of the Opposite Party No. 1
with respect to the implementation of the Coal Linkage Policy and Coal
Supply Agreement and actions in connection thereto, including
invocation of the bank guarantee.
Location: ORISSA HIGH COURT, CUTTACK
I. FACTUAL MATRIX OF THE CASE:
2. The facts giving rise to the present Petition can be summarised as
under:
a. The Petitioners relying upon the extant Coal Linkage Policies of
Opposite Party Nos. 1 and 2 had entered into a MoU dated 4.5.2005
with the State of Orissa for constructing an end use sponge iron
plant.
b. On 13.5.2005 the Petitioners had also moved an application for a
Coal Linkage.
c. The sponge iron plant was commissioned in 2007 and commercial
production started soon thereafter. The grant of Coal Linkage was
approved and a LoA was issued on 24.10.2008 in favour of the
Petitioners by Opposite Party No. 1.
d. The LoA envisaged various milestones and conditions precedent,
which admittedly were filled, a Coal Supply Agreement/Fuel
Supply Agreement (hereinafter referred to as 'CSA' or 'FSA') was
entered into between the Parties on 23.1.2009.
e. Under Clause 4.1 of the CSA, the Opposite Party No. 1 would
supply and the Petitioner would lift an "Annual Contracted
Quantity" of 1,80,000 tones per year which appears to have been
admittedly relaxed to 90,000 tones per year in view of the Petitioner
having exercised the option to surrender imported coal. In terms of
Clause 2.2, the CSA was valid for a period of 5 years from the "First
Delivery Date" which was defined in Clause 2.9.
Location: ORISSA HIGH COURT, CUTTACK
f. On the self-same date, the Parties also executed a MoU agreeing
that all the conditions precedent had been fulfilled.
g. Prior to the execution of these Agreements, the Petitioners had
furnished a security deposit in the form of a Bank Guarantee for a
sum of Rs.78,30,000/- on 22.1.2009 which was valid for a period of
64 months from that date. The amount was amended to a sum of
Rs. 86,40,000/- on 6.2.2010.
h. It is also pertinent to note that the Petitioner Company had secured
the Kesla North Coal Block in Chattisgarh by allocation letter dated
5.8.2008 issued by Opposite Party No. 2 for meeting the Petitioner's
coal requirements for its end use sponge iron plant. However, it is
submitted that the Petitioner never received any coal from the
Kesla Coal Block as the block remained encumbered and had not
been handed over at any point to the Petitioner Company for
development work.
i. In terms of the CSA, in the financial years form 2009-2012, till
February 2013, the Opposite Party has admittedly supplied and the
Petitioner has admittedly lifted the contracted quantity of coal
without any dispute.
j. Vide letter dated 15.3.2013, the Opposite Party No. 1 in response to
the Petitioner's letter dated 12.3.2013 communicated that the
normative date of production for the Petitioner's coal block was 5.2
.2013 and in terms of the guidelines and policy dated 26.2.2010
issued by the Ministry of Coal, Government of India, even normal
linkages for plans would be converted into tapering linkages from
Location: ORISSA HIGH COURT, CUTTACK
the date of allocation of the coal block. The same was in
contravention to the Petitioner's submission that neither the LoA
nor the coal block allocation letter contained any condition of
tapering. In fact, it was contended that in terms of Clause (iii) of the
allocation letter, replacement of any linkage was prohibited. It was
further pointed out that the normative date of production in terms
of the allocation letter came into effect on 5.2.2013, nevertheless, the
same was only on paper since the ground reality was at the block
was yet to be handed over to the petitioner free from
encumbrances.
k. Vide letter dated 4.12.2023, the Petitioner once again wrote to the
Opposite Party No. 1 reiterating its submissions and further
pointing out that as the quantity of coal supplied was being
reduced, the rate charged was almost 20-40% extra which was
compelling the Petitioner to stop production as they could not
afford to lift the coal at such an exorbitant rate.
l. It is admitted that the Petitioner's operations became unviable and
it shut down its plant from February, 2013. Therefore, during the
financial year 2013-14, the Petitioner did not lift the quantity of coal
mandated under the CSA.
m. Clause 2.7 of the CSA stated that the CSA shall expire by efflux of
time on 31.1.2014, i.e. five years after the First Delivery dated
1.2.2009.
n. Despite not being able to lift the ACQ during the financial year of
2013-14, up until the date of expiry of the CSA, i.e. 31.1.2014, the
Location: ORISSA HIGH COURT, CUTTACK
Petitioners did not receive any demand, notice, claim or dispute
notice from the Opposite Party No. 1 till 15.5.2014.
o. On 15.5.2014, the Opposite Party No. 1 addressed a letter to the
Petitioner stating that since the level of lifting for the year 2013-14
was less than 30% of the ACQ, Clause 16.1.4 pertaining to
termination was attracted. By the said letter dated 15.5.2014, notice
was served upon the Petitioner that the CSA would stand
terminated after 30 days from the date of issuance of notice.
p. The Petitioner responded to the aforesaid notice on 10.6.2014
reiterating its earlier submissions and requesting the Opposite
Party No. 1 to withdraw the notice and renew the CSA for the full
quantity of coal without tapering.
q. At some point in May/June, 2014, the Opposite Party No. 1
threatened to invoke the Bank Guarantee furnished by the
Petitioner. However, when the Petitioners extended the validity of
the bank guarantee to showcase their bonafide till 21.5.2015 at the
request of the Opposite Party No.1, the threat was not carried out
immediately.
r. Despite efforts being made to allegedly amicably settle the dispute,
the Opposite Party No. 1 issued letter dated 3.1.2015 to Canara
Bank invoking the bank guarantee furnished by the Petitioners.
This fact came to light when Canara Bank vide email dated 5.1.2015
intimated to the Petitioner Company that it was required to arrange
funds to honour the bank guarantee.
Location: ORISSA HIGH COURT, CUTTACK
s. The Petitioner approached this Court immediately thereafter by
filing a writ petition seeking ad interim ex parte order restraining
the Opposite Party from encashing the Bank Guarantee. Upon
mentioning on 7.1.2015, this Court directed the matter to be listed
on 8.1.2015. However, despite the same being intimated to the
Opposite Parties and to Canara Bank, the bank guarantee was
encashed on 7.1.2015. In view of the same, the Writ Petition was
withdrawn with liberty to file a fresh petition.
t. Therefore, the present Writ Petition was filed on 16.1.2015.
However, much water has since flown under the bridge. In the year
2021, it is submitted that the sponge iron plant of the Petitioner
Company in Potapali had to be sold. In view of the same, the
Petitioner Company restricts its prayer to the first and second
reliefs sought by it, i.e. quashing and setting aside the alleged
illegal letters of termination and declaring the letter dated 3.1.2015
seeking invocation of the Bank Guarantee as illegal and passing
consequential orders in respect of the funds received by Opposite
Party No. 1.
3. Against these arbitrary and illegal actions, the instant Petition has been
preferred. As the facts leading up to the instant Petition have been laid
down, this Court shall endeavour to summarise the contentions of the
Parties and the broad grounds that have been raised to seek the exercise
of this Court's writ jurisdiction.
Location: ORISSA HIGH COURT, CUTTACK
II. PETITIONER'S SUBMISSIONS:
4. The Ld. Counsel for the Petitioner submits that the writ petition is of a
public law character and relates to public law functions on the part of
the opposite parties for arbitrarily applying the tapering policy and also
arbitrarily increasing the price of coal by 40% leading to the arbitrary
termination of the CSA and consequential encashment of the bank
guarantee.
5. Furthermore, it is contended that the Opposite Party No.1 did not suffer
any financial loss due to non-lifting of coal. Once the Opposite Party
No.1 encashed the bank guarantee being aware that the petitioner had
asserted that no loss was caused due to non-lifting of coal, it had the
burden to initiate appropriate proceedings before a court of competent
jurisdiction and prove in accordance with law with respect to the exact
amount of loss caused to it. It is settled law that the Opposite Party No.1
could only retain that part of the encashed money, as gets declared as
"reasonable compensation" in terms of Section 74 of the Indian Contract
Act, 1872. In the absence of proof of any loss, the Opposite Party No.1
had no right to retain the money it has received by illegally and
arbitrarily encashing the performance bank guarantee.
III. OPPOSITE PARTY NO. 1'S SUBMISSIONS
6. On the other hand, Ld. Counsel for Opposite Party No. 1, submits that
the writ petition is not maintainable in as much as the same involves
seriously disputed questions of fact which cannot be gone into an
application under Article 226 of the Constitution of India.
Location: ORISSA HIGH COURT, CUTTACK
7. Furthermore, it is submitted that the petition arises from a dispute
which is purely contractual in nature without any statutory element and
as such the same may not be adjudicated upon in exercise of
extraordinary jurisdiction available to this Court and the appropriate
forum is the civil court. It is further contended that a perusal of the
prayers would go on to show that the petitioner is in essence seeking a
refund of money which is a purely money claim and the same does not
fall within the purview of the extraordinary jurisdiction that can be
exercised by this Court under Article 226.
IV. ISSUES FOR CONSIDERATION
8. Having heard the parties and perused the materials available on record,
this court here has identified the following issues to be determined:
A. Whether this Court can exercise its writ jurisdiction in the
realm of contracts?
B. Whether this Court can exercise its writ jurisdiction in the
absence of any public law element in a matter pertaining to a
contract?
C. Whether this Court ought to interfere in the facts of the present
case?
V. ISSUE A: WHETHERTHIS COURT CAN EXERCISE ITS WRIT
JURISDICTION IN THE REALM OF CONTRACTS?
9. In the judgment of the Supreme Court rendered by a Bench of two
learned Judges decided in Shrilekha Vidyarthi v. State of U.P.1 , the
Court was concerned with a challenge to a general order by which the
(1991) 1 SCC 212
Location: ORISSA HIGH COURT, CUTTACK
appointment of all government counsel in all the districts of the State of
U.P. came to be terminated. The writ petition was filed under Article 32
of the Constitution of India. Important and apposite are the following
observations:
"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.
***
24. The State cannot be attributed the split personality of
Dr Jekyll and Mr Hyde in the contractual field so as to
Location: ORISSA HIGH COURT, CUTTACK
impress on it all the characteristics of the State at the
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 characterise 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.
***
27. Unlike a private party whose acts uninformed by reason
and influenced by personal predilections in contractual
matters may result in adverse consequences to it alone
without affecting the public interest, any such act of the
State or a public body even in this field would adversely
affect the public interest. ...
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
Location: ORISSA HIGH COURT, CUTTACK
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."
10. As to what constitutes arbitrariness is captured in Para 36 of the
Shrilekha Vidyarthi case (supra) and it reads as follows:
"36. The meaning and true import of arbitrariness is more
easily visualised than precisely stated or defined. The
question, whether an impugned act is arbitrary or not, is
ultimately to be answered on the facts and in the
circumstances of a given case. An obvious test to apply is to
see whether there is any discernible principle emerging from
the impugned act and if so, does it satisfy the test of
reasonableness. Where a mode is prescribed for doing an act
and there is no impediment in following that procedure,
performance of the act otherwise and in a manner which
does not disclose any discernible principle which is
reasonable, may itself attract the vice of arbitrariness. Every
State action must be informed by reason and it follows that
an act uninformed by reason, is arbitrary. Rule of law
contemplates governance by laws and not by humour,
whims or caprices of the men to whom the governance is
entrusted for the time being. It is trite that "be you ever so
high, the laws are above you". This is what men in power
must remember, always."
11. This Court notices that as to what constitutes arbitrariness fell for
consideration by the Supreme Court in a case which involved
cancellation of the examination held as part of a recruitment process,
Location: ORISSA HIGH COURT, CUTTACK
in East Coast Railway v. Mahadev Appa Rao2. The following passages
are reproduced herein which are apposite for this case :
"19. Black's Law Dictionary describes the term "arbitrary"
in the following words:
'arbitrary. adj.--1. Depending on individual discretion;
specif., determined by a Judge rather than by fixed rules,
procedures, or law. 2. (Of a judicial decision) founded on
prejudice or preference rather than on reason or fact. This
type of decision is often termed arbitrary and capricious.'
20. To the same effect is the meaning given to the expression
"arbitrary" by Corpus Juris Secundumwhich explains the
term in the following words:
'Arbitrary.--Based alone upon one's will, and not upon any
course of reasoning and exercise of judgment; bound by no
law; capricious; exercised according to one's own will or
caprice and therefore conveying a notion of a tendency to
abuse possession of power; fixed or done capriciously or at
pleasure, without adequate determining principle, non-
rational, or not done or acting according to reason or
judgment; not based upon actuality but beyond a reasonable
extent; not founded in the nature of things; not governed by
any fixed rules or standard; also, in a somewhat different
sense, absolute in power, despotic, or tyrannical; harsh and
unforbearing. When applied to acts, "arbitrary" has been
held to connote a disregard of evidence or of the proper
weight thereof; to express an idea opposed to administrative,
executive, judicial, or legislative discretion; and to imply at
least an element of bad faith, and has been compared with
"willful".
***
23. Arbitrariness in the making of an order by an authority
can manifest itself in different forms. Non-application of
mind by the authority making the order is only one of them.
(2010) 7 SCC 678
Location: ORISSA HIGH COURT, CUTTACK
Every order passed by a public authority must disclose due
and proper application of mind by the person making the
order. This may be evident from the order itself or the record
contemporaneously maintained. Application of mind is best
demonstrated by disclosure of mind by the authority making
the order. And disclosure is best done by recording the
reasons that led the authority to pass the order in question.
Absence of reasons either in the order passed by the
authority or in the record contemporaneously maintained is
clearly suggestive of the order being arbitrary hence legally
unsustainable."
12. More recently, in M.P. Power Management Co. Ltd. v. Sky Power
Southeast Solar India (P) Ltd.3,the Supreme Court held:
"75. We would, therefore, sum up as to when an act is to be
treated as arbitrary. The Court must carefully attend to the
facts and the circumstances of the case. It should find out
whether the impugned decision is based on any principle. If
not, it may unerringly point to arbitrariness. If the act
betrays caprice or the mere exhibition of the whim of the
authority it would sufficiently bear the insignia of
arbitrariness. In this regard supporting an order with a
rationale which in the circumstances is found to be
reasonable will go a long way to repel a challenge to State
action. No doubt the reasons need not in every case be part
of the order as such. If there is absence of good faith and the
action is actuated with an oblique motive, it could be
characterised as being arbitrary. A total non-application of
mind without due regard to the rights of the parties and
public interest may be a clear indicator of arbitrary action.
A wholly unreasonable decision which is little different from
a perverse decision under the Wednesbury doctrine would
qualify as an arbitrary decision under Article 14.
Ordinarily visiting a party with the consequences of its
breach under a contract may not be an arbitrary decision."
(2023) 2 SCC 703
Location: ORISSA HIGH COURT, CUTTACK
13. The exercise of writ jurisdiction in contractual matters, particularly
when one of the parties is the State or an instrumentality thereof, has
been a subject of significant judicial examination. Article 14 of the
Constitution mandates equality before the law and equal protection of
the laws. It serves as a cornerstone for administrative law in India,
setting a high standard for fairness, non-arbitrariness, and
reasonableness in State action. These principles must permeate every act
of the State, including those undertaken within the framework of
contracts. Writ jurisdiction under Article 226 of the Constitution is wide
and not confined to enforcement of fundamental rights alone. The High
Courts can issue writs for "any other purpose," thereby encompassing
situations where a public authority, while acting in a contractual setting,
breaches constitutional mandates of fairness and reasonableness. The
State cannot adopt a dual personality -- public while entering a contract
and private while performing it -- to evade its constitutional duties.
14. Therefore, writ jurisdiction can indeed be exercised in contractual
matters involving the State, especially when the impugned action has a
public law element, is arbitrary, or violates the principles of natural
justice and on that count the present petition is maintainable.
VI. ISSUE B: WHETHERTHIS COURT CAN EXERCISE ITS WRIT
JURISDICTION IN THE ABSENCE OF ANY PUBLIC LAW
ELEMENT IN A MATTER PERTAINING TO A CONTRACT?
15. Law in this aspect has developed through catena of judgments of the
Supreme Court and from the reading of these judgments it would
follow that in pure contractual matters the extraordinary remedy of writ
Location: ORISSA HIGH COURT, CUTTACK
under Article 226 or Article 32 of the Constitution cannot be invoked.
However, in a limited sphere such remedies are available only when the
non-Government contracting party is able to demonstrate that it is a
public law remedy which such party seeks to invoke, in
contradistinction to the private law remedy simpliciter under the
contract. Some of the case law to bring home this cardinal principle is
taken note of hereinafter.
16. Significantly, in Andi MuktaSadguru Shree MuktajeeVandas Swami
Suvarna Jayanti Mahotsav Smarak Trust v. V.R. Rudani4, the Apex
Court made it clear that if the rights are purely of private character, no
mandamus can be issued. Thus, even if the respondent is "State", the
other condition which has to be satisfied for issuance of a writ of
mandamus is the public duty. In a matter of private character or purely
contractual field, no such public duty element is involved and, thus,
mandamus will not lie.
17. The first case which needs to be referred is Bareilly Development
Authority v. Ajai Pal Singh.5That was the case where the appellate
authority had undertaken construction of dwelling units for people
belonging to different income groups and the cost at which such flats
were to be allotted to the allottees. However, it was mentioned that the
cost stated was only an estimated cost and subject to increase or
decrease according to rise or fall in the price at the time of completion of
property. The Authority increased the cost and monthly instalment
(1989) 2 SCC 691
(1989) 2 SCC 116
Location: ORISSA HIGH COURT, CUTTACK
rates which it demanded from the allottees were almost doubled and
cost and rates of instalments initially stated in the brochure. The
respondents/allottees filed writ petition challenging the same and in this
context, the question of maintainability of the writ petition arose. The
High Court, relying upon the judgment of the Supreme Court
in Ramana Dayaram Shetty v. International Airport Authority of
India 6allowed Ajai Pal Singh v. Bareilly Development Authority7by
observing as under :
"16. ... It has not been disputed that the contesting opposite
party is included within the term "other authority"
mentioned under Article 12 of the Constitution. Therefore,
the contesting opposite parties cannot be permitted to act
arbitrarily with the petitioners and its action must be in
conformity with the principle which meets the test of reason
and relevance. Where an authority appears acting
unreasonably, this Court is not powerless and a writ of
mandamus can be issued for performing its duty free from
arbitrariness or unreasonableness."
18. In appeal filed by the Authority, the Supreme Court in Ajai Pal Singh
(supra), on facts, noted that the respondents had applied for registration
only by acceptance of terms and conditions contained in the brochure.
Moreover, subsequently a letter was written by the Authority about the
enhancement of the cost of the houses/flats as well as increase in
monthly instalments and the rate of yearly interest requesting allottees
to give their written acceptance and the respondents except four had
(1979) 3 SCC 489
1986 SCC OnLine All 110
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sent their written acceptance and it was on the basis of the written
acceptance that the name of the first respondent was included in the
draw and he was successful in getting allotment of a particular house.
The Court observed that the respondents were under no obligation to
seek allotment of house/flats even if they had registered themselves.
Notwithstanding, they voluntarily registered themselves as applicants
only after fully understanding the terms and conditions of the brochure
including relating to variance in prices.
19. On the basis of these facts, the Supreme Court observed that the
aforesaid observations of the High Court relying upon Ramana
Dayaram Shetty (supra) were not correct. Thus observed the Court,
speaking through RatnavelPandian, J. :
"21. This finding in our view, is not correct in the light of
the facts and circumstances of this case because in Ramana
Dayaram Shetty case [(1979) 3 SCC 489 : (1979) 2 LLJ
217] there was no concluded contract as in this case. Even
conceding that the BDA has the trappings of a State or
would be comprehended in 'other authority' for the purpose
of Article 12 of the Constitution, while determining price of
the houses/flats constructed by it and the rate of monthly
instalments to be paid, the 'authority' or its agent after
entering into the field of ordinary contract acts purely in its
executive capacity. Thereafter the relations are no longer
governed by the constitutional provisions but by the legally
valid contract which determines the rights and obligations
of the parties inter se. In this sphere, they can only claim
rights conferred upon them by the contract in the absence of
any statutory obligations on the part of the authority (i.e.
BDA in this case) in the said contractual field.
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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 -- Radhakrishna Agarwal v. State
of Bihar[(1977) 3 SCC 457] , Premji Bhai
Parmar v. DDA [(1980) 2 SCC 129] and Divl. Forest
Officer v. Bishwanath Tea Co. Ltd. [(1981) 3 SCC 238 :
(1981) 3 SCR 662] "
20. The next case of relevance is Divl. Forest Officer v. Bishwanath Tea Co.
Ltd. 8. In that case the respondents took on lease certain land from the
Government. Initially, period of lease was 15 years. The lease was to be
extended for cultivation and raising tea garden and was subject to
condition set out in the lease agreement and generally to the Assam
Land and Revenue Regulations and Rules made thereunder. The
respondent Company approached the appellant seeking permission to
cut 7000 cubic ft of timber. The appellant took the stand that as the
timber was required for a particular use which was not within the grant,
full royalty will be payable on timber so cut and removed. The
respondent Company paid the amount of royalty under protest and
filed a writ petition under Article 226 of the Constitution in the High
Court alleging that upon a true construction of the relevant clauses of
the grant as the also the proviso to Rule 37 of the Settlement Rules, it
was entitled to cut and remove timber without payment of royalty and,
(1981) 3 SCC 238
Location: ORISSA HIGH COURT, CUTTACK
therefore, the recovery of royalty being unsupported by law, the
appellant was liable to refund the same.
21. A preliminary objection was taken by the appellant to the
maintainability of the writ petition on the ground that claim of the
respondent flows from terms of lease and such contractual rights and
obligations can only be enforced in a civil court. This preliminary
objection was overruled by the High Court which proceeded to hear the
matter and allowed the writ petition of the respondent Company. In
appeal by the appellant to this Court, the decision of the High Court
was reversed holding that writ was not maintainable. The following
observations may usefully be quoted :
"8. It is undoubtedly true that the 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 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 royalty 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 writ, 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
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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."
22. Similarly, in State of Gujarat v. M.P. Shah Charitable Trust9 , the Apex
Court reiterated the principles that if the matter is governed by a
contract, the writ petition is not maintainable since it is a public law
remedy and is not available in private law field, for example, where the
matter is governed by a non-statutory contract.
23. At this stage, it would be apposite to discuss at length the judgment of
the Supreme Court in ABL International Ltd.,10on which strong reliance
is placed by the counsel for both the parties. In that case, various earlier
judgments right from the year 1954 were taken note of. One such
judgment which the Department in support of their case had referred to
was the decision of the Apex Court in LIC v. Escorts Ltd.11 wherein the
Court had held that ordinarily in a matter relating to contractual
obligations, the Court would not examine it unless the action has some
(1994) 3 SCC 552
(2004) 3 SCC 553
(1986) 1 SCC 264
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public law character attached to it. The following passage from the said
judgment was relied upon by the respondents :
"12. '102. ... If the action of the State is related to
contractual obligations or obligations arising out of the
tort, the court may not ordinarily examine it unless the
action has some public law character attached to it. Broadly
speaking, the court will examine actions of State if they
pertain to the public law domain and refrain from
examining them if they pertain to the private law field. The
difficulty will lie in demarcating the frontier between the
public law domain and the private law field. It is impossible
to draw the line with precision and we do not want to
attempt it. The question must be decided in each case with
reference to the particular action, the activity in which the
State or the instrumentality of the State is engaged when
performing the action, the public law or private law
character of the action and a host of other relevant
circumstances. When the State or an instrumentality of the
State ventures into the corporate world and purchases the
shares of a company, it assumes to itself the ordinary role of
a shareholder, and dons the robes of a shareholder, with all
the rights available to such a shareholder. There is no reason
why the State as a shareholder should be expected to state its
reasons when it seeks to change the management, by a
resolution of the company, like any other shareholder.'
(Escorts Ltd. case [(1986) 1 SCC 264] , SCC p. 344, para
102)"
24. The Supreme Court dealt with this judgment in the following manner :
"13. We do not think this Court in the above case has, in
any manner, departed from the view expressed in the earlier
judgments in the case cited hereinabove. This Court
in LIC [(1986) 1 SCC 264] proceeded on the facts of that
case and held that a relief by way of a writ petition may not
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ordinarily be an appropriate remedy. This judgment does
not lay down that as a rule in matters of contract the court's
jurisdiction under Article 226 of the Constitution is ousted.
On the contrary, the use of the words 'court may not
ordinarily examine it unless the action has some public law
character attached to it' itself indicates that in a given case,
on the existence of the required factual matrix a remedy
under Article 226 of the Constitution will be available."
25. Insofar as the argument of the respondents in the said case that writ
petition on contractual matter was not maintainable unless it is shown
that the authority performs a public function or discharges a public
duty, is concerned, it was answered in the following manner :
"22. We do not think the above judgment in VST Industries
Ltd. [VST Industries Ltd. v. Workers' Union, (2001) 1 SCC
298 : 2001 SCC (L&S) 227] supports the argument of the
learned counsel on the question of maintainability of the
present writ petition. It is to be noted that VST Industries
Ltd. [VST Industries Ltd. v. Workers' Union, (2001) 1 SCC
298 : 2001 SCC (L&S) 227] against whom the writ petition
was filed was not State or an instrumentality of a State as
contemplated under Article 12 of the Constitution, hence, in
the normal course, no writ could have been issued against
the said industry. But it was the contention of the writ
petitioner in that case that the said industry was obligated
under the statute concerned to perform certain public
functions; failure to do so would give rise to a complaint
under Article 226 against a private body. While considering
such argument, this Court held that when an authority has
to perform a public function or a public duty, if there is a
failure a writ petition under Article 226 of the Constitution
is maintainable. In the instant case, as to the fact that the
respondent is an instrumentality of a State, there is no
dispute but the question is : was the first respondent
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discharging a public duty or a public function while
repudiating the claim of the appellants arising out of a
contract? Answer to this question, in our opinion, is found
in the judgment of this Court in Shrilekha
Vidyarthi v. State of U.P. [(1991) 1 SCC 212 : 1991 SCC
(L&S) 742] wherein this Court held : (SCC pp. 236-37,
paras 22 & 24)
'22. ... The impact of every State action is also on public
interest.
***
24. ... It is really the nature of its personality as State which
is significant and must characterise all its actions, in
whatever field, and not the nature of function, contractual
or otherwise, which is decisive of the nature of scrutiny
permitted for examining the validity of its act. The
requirement of Article 14 being the duty to act fairly, justly
and reasonably, there is nothing which militates against the
concept of requiring the State always to so act, even in
contractual matters.'
23. It is clear from the above observations of this Court, once
the State or an instrumentality of the State is a party to the
contract, it has an obligation in law to act fairly, justly and
reasonably which is the requirement of Article 14 of the
Constitution of India. Therefore, if by the impugned
repudiation of the claim of the appellants 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."
26. The Apex Court thereafter summarised the legal position in the
following manner:
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"27. From the above discussion of ours, 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 facts 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 [(1998) 8 SCC 1] .) And this plenary right of the
High Court to issue a prerogative writ will not normally be
exercised by the Court to the exclusion of other available
remedies unless such action of the State or 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."
27. Therefore, the legal position which emerges from various judgments of
the Apex Court dealing with different situations/aspects relating to
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contracts entered into by the State/public authority with private parties,
can be summarised as under:
i. At the stage of entering into a contract, the State acts
purely in its executive capacity and is bound by the
obligations of fairness.
ii. State in its executive capacity, even in the contractual
field, is under obligation to act fairly and cannot
practise some discrimination.
iii. 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 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.
iv. 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.
v. Writ can be issued where there is executive action
unsupported by 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.
vi. 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
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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.
28. 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 circumstances, "normally", the Court would not exercise such
a discretion.
i. The Court may not examine the issue unless the action
has some public law character attached to it.
ii. Whenever a particular mode of settlement of dispute is
provided in the contract, the High Court ought to
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.
iii. If there are very serious disputed questions of fact
which are of complex nature and require oral evidence
for their determination.
iv. Money claims perse particularly arising out of
contractual obligations are normally not to be
entertained except in exceptional circumstances.
29. In a case the State is a party to the contract and a breach of a contract is
alleged then 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
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constitutional remedy on the cause of action, that the action is arbitrary,
is permissible.
30. 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.
31. The distinction between public law and private law element in the
contract with the State is getting blurred. However, it has not been
totally obliterated and where the matter falls purely in private field of
contract, the Supreme 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.
32. The scope of judicial review in respect of disputes falling within the
domain of contractual obligations are limited and in doubtful cases the
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parties may be relegated to adjudication of their rights by resort to
remedies provided for adjudication of purely contractual disputes.
VII. ISSUE C: WHETHERTHIS COURT OUGHT TO INTERFERE IN THE
FACTS OF THE PRESENT CASE?
33. The parties entered into an arrangement for supply of coal under a LOA
dated 24.10.2008. In the LOA, the understanding was that a fuel supply
agreement would be executed, and the commitment guarantee therein
would be converted into a contract performance guarantee, which was a
condition precedent to signing of the FSA. The FSA dated 23.1.2009, was
thereafter executed in terms of the LOA. The bank guarantee that has
been in cash by respondent number one is admittedly dated 22.1.2009.
34. On the same day, a MOU was also executed between the parties that
contains the following provisions:
a. Article 6(i): The MOU shall form an integral part of
the CSA dated 23.1.2009.
b. Article 6(iv): Effective date of CSA shall be the date of
signing of the MOU.
c. Article 6(v): The first delivery date was 1.2.2009, i.e.
the 1st of the month following the date of signing the
MOU.
35. Article 2.2 of the CSA states that the CSA was to remain in force
commencing from the Effective Date "till the end of five years from the
first Delivery Date". As the first delivery date was 1.2.2009, the CSA
would remain in force till 31.3.2014 unless as per Article 2.7, the parties
agree in writing to extend the Agreement.
36. Furthermore, the Bank Guarantee dated 22.1.2009 in terms of Article 3.3.
was to remain valid till three months from the expiry of the Agreement
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and therefore, ought to have been cancelled or invalidated from
31.4.2014.
37. It is also pertinent to take note of the Opposite Party No. 1's right to
terminate the CSA with prior notice to the Petitioner if the Level of
Lifting fell below 30% as per Article 16.1.4 by issuance of notice within
60 days of the end of the relevant year.
38. However, when the Opposite Party No. 1 sent the termination notice in
May, 2015, the Petitioner No. 1 did not immediately raise a dispute and
instead relied on discussions to seek extension of the Agreement as well
as clarifications on non-application of the tapering policy to it.
Moreover, the Petitioner also extended the validity of the Bank
Guarantee despite not being obligated to do so.
39. When the Opposite Party No. 1 did not respond to the discussions and
proceeded to invoke the Bank Guarantee, the Petitioner rushed to this
Court to seek relief.
40. The applicability of the Coal Linkage Policy, whether Kesla Coal Block
was handed over to the Petitioner, if the Petitioner's company shut
down due to the alleged illegal application of the Coal Linkage Policy
by the Opposite Party are questions of fact that cannot be gone into by
this court at this juncture and in the present proceedings.
41. The invocation of the Bank Guarantee, whether the same was justified
in light of the Petitioner's conduct of extending the validity, not raising
a dispute, are also questions of fact which would require this Court to
act as an umpire and meticulously peruse evidence instead of simply
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establishing whether or not the Opposite Party acted in an arbitrary
manner.
42. It is settled law that bank guarantee is an independent and distinct
contract between the bank and the beneficiary and is not qualified by
the underlying transaction and the validity of the primary contract
between the person at whose instance the bank guarantee was given
and the beneficiary. Unless fraud or special equity exists, is pleaded and
prima facie established by strong evidence as a triable issue, the
beneficiary cannot be restrained from encashing the bank guarantee
even if dispute between the beneficiary and the person at whose
instance the bank guarantee was given by the bank, had arisen in
performance of the contract or execution of the works undertaken in
furtherance thereof. The bank unconditionally and irrevocably
promised to pay, on demand, the amount of liability undertaken in the
guarantee without any demur or dispute in terms of the bank
guarantee. The object behind is to inculcate respect for free flow of
commerce and trade and faith in the commercial banking transactions
unhedged by pending disputes between the beneficiary and the
contractor.
43. Keeping in mind the aforesaid principles and after considering the
arguments of the respective parties, this court is of the view that on the
facts of the present case, it is not a fit case where the High Court should
exercise discretionary jurisdiction under Article 226 of the Constitution.
The matter is in the realm of pure contract.
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VIII. CONCLUSION:
44. This Court, therefore, comes to the irresistible conclusion that the
Petitioner is not entitled to the relief claimed. This Court is constrained
to dismiss the Petition for the reason that there ought not to be any
exercise of writ jurisdiction in purely contractual matters which have no
element of public law involved. However, the Petitioner shall be at
liberty to take recourse to any other appropriate remedy in law, if so
advised. The Writ Petition stands dismissed. There shall, however, be
no order as to costs.
45. Interim order, if any, passed earlier stands vacated.
(Dr.S.K. Panigrahi)
Judge
Orissa High Court, Cuttack,
Dated the 9th May, 2025/
