ORDER
N. Kumar, J.
1. The petitioner is a Corporation registered under the laws in Russia and carrying on infrastructural construction activities. The first and second respondents floated a tender-national competitive bidding for rehabilitation of the State Highways. Petitioner submitted his bid on 9-4-2003 for execution of work of rehabilitation of road from Devi Nagar to Sindhanur falling within Bellary and Raichur Districts. On 30-5-2003 petitioner's bid was accepted and was awarded contract known as contract M-11 for a price of Rs. 20,54,73,806.41. The petitioner executed the necessary agreement and furnished Bank guarantees towards performance. Respondents called upon the petitioner to commence the work from 1st of August, 2003. The period of contract was 16 months from the date of commencement of the work.
2. The case of the petitioner is after commencing the work they found that the entire road link was in a very bad condition and sought for review of the approvals. They contend after considering their request they were permitted to execute the work as per the revised upgradation proposals. According to the revised upgradation proposals the number of cross-drainage works was increased from 16 to 66 which warranted additional period of 10 months for the purpose of completing the project. The third respondent took nearly 190 days to approve the final FRL submitted by the petitioner. The cost of project went up approximately to Rs. 26 crores against the contract value of about Rs. 20 odd crores. To carry out the additional work another 5 months period had to be enlarged. All these facts were brought to the notice of the respondents. Respondents did not send any reply. However, the respondents were calling upon the petitioner to expedite the completion of the project without considering the request of the petitioner for extension of time. The on-set of monsoon further delayed the execution of the work.
3. The petitioner on their part set up a Wet Mix Macadam plant, HM plant, crusher and other equipments and machineries worth Rs. 4 crores, employed 150 workers, skilled and unskilled and they had to incur expenditure of over Rs. 1.5 crores on salaries and other allowances. The third respondent failed to release the interim payments amounting to Rs. 75 lakhs. When things stood thus, the respondents by their letter dated 22-12-2004 unilaterally, illegally, unauthorisedly and arbitrarily terminated the contract for an alleged breach of Clause 59.2(g) of the General Conditions of Contract. The claim for liquidated damages was premature. Consequently, the third respondent proceeded to invoke the Bank guarantees. In reply to the same the petitioner sent its representation dated 24-12-2004 reiterating the reasons for the said delay faced by it especially taking into account the bad road conditions, the up-gradation proposals, the escalation in the cost of the project in the upgradation, the delays faced on account of the delay in approval of FRL's, requests for certificates of exemption of excise duty, etc.
Thereafter, a meeting was called for. After several rounds of discussions, the respondents being convinced of the case of the petitioner revoked the said termination and imposed certain additional conditions which were neither a part of the original contract nor the tender nor accepted by the petitioner for completing the project on 28-1-2005. On 2-2-2005 the petitioner was called upon to fulfill the obligations contained in the letter. No time-limit was stipulated for completion. However, the petitioner received another letter dated 5-2-2005 informing the petitioner that, as the petitioner failed to fulfill the conditions at Annexure-E in the letter dated 28-1-2005 or the reminder dated 2-2-2005 the third respondent has withdrawn the revocation order dated 28-1-2005 and irrevocably terminated the contract as per Annexure-K. They also informed they would proceed to invoke the Bank guarantee. The petitioner has challenged in this writ petition the aforesaid order dated 22-12-2004 as per Annexure-F terminating the contract and the letter dated 5-2-2005 as per Annexure-K again withdrawing the revocation of the termination of the contract and the action of the third respondent invoking the Bank guarantee and for a direction to release the seized equipments, plant and machinery to the petitioner.
4. The petitioner also filed an application for amendment of the petition pleading that as per Annexure-Q, the petitioner made a proposal for completion of the work and sought for extension of time which was considered by the respondents and they have extended the time. When once the time was extended, as the contract was terminated even before the expiry of the time extended, the termination of contract by invoking Clause 59.2(g) is illegal as the same is not attracted. The maximum amount of liquidated damages was not exceeded on the day the contract was terminated, if it is calculated from the date of extension and therefore on that ground also the order of termination is liable to be quashed.
5. Respondent 3 has filed a detailed counter traversing all the allegations made in the writ petition. They deny that they ever agreed for extension of time or for awarding any additional time. They contend that they have paid four work bills raised by the petitioner. They specifically contend after the contract was awarded to the petitioner on 18-7-2003 they issued a notice to the petitioner calling upon them to commence the work and they handed over site on that day. The petitioner prepared the work programme and construction methodology as per Annexure-R3 and according to the same the petitioner was expected to complete the work by 2nd November, 2004. The said work programme also sets in detail the monthly targets the petitioner would achieve wherein they had made provision for monsoon period as well. The petitioner was not serious about implementing the project as is clear from the correspondences and minutes of the meetings held. Still ample opportunity was given to the petitioner to complete the project. Finally, the Engineer by his letter dated 17-9-2004 set out the various defaults committed by the petitioner in implementing the contract and it was clearly mentioned that these defaults would be considered as fundamental breach of contract as per Clause 59.2(g). Petitioner accepted the letter, did not send any reply and, therefore, they were constrained to terminate the contract on 22-12-2004. Thereafter, the petitioner approached the respondents and requested to revoke the order of termination. They wrote letters informing the respondents that they are fully mobilized to execute and complete the project and that they would execute the work as per the original terms and conditions of the contract and that it would complete the works by July 2005 as per Annexure-R8. Respondent considered the representations of the petitioner and deliberated on the same. Further, it also took into account that once the termination was enforced, it would per force have to initiate re-tendering of the contract work and the possibility that higher rates would have to be paid in this event could also not be ruled out. At the same time, the respondent has to take appropriate safeguards to ensure that the petitioner would have to implement the work in all seriousness and as per a strict timeline. Therefore, in the letter dated 28-1-2005 they imposed conditions for completing the work expeditiously. When the petitioner did not show interest in completing the work after complying with the conditions of the letter dated 28-1-2005, in order to avoid hardship to public and road users they had no option except to withdraw the revocation order. In fact, the contract stood irrevocably terminated. The actions of the third respondent are eminently fair, reasonable and justified in the facts and circumstances of the case and call for no interference from this Court. The contract was to be completed by the end of November 2004. However, in February 2005 the petitioner has only managed to complete work in respect of 3 kms. of work as compared to 41 kms. which he ought to have completed. This colossal delay and lackadaisical approach to a project of immense public importance and public interest ought not to be countenanced or condoned. Therefore, they have sought for dismissal of the writ petition.
6. From the material on record the undisputed facts which emerge are as under:
The petitioner was the successful bidder for execution of work of rehabilitation of road from Devinagar to Sindhnur which is about 43 kms. Petitioner's bid was accepted on 30-5-2003 and the value of the contract is Rs. 20,54,73,806.41. The contract had to commence on 18-7-2003 but the site was handed on 1-8-2003. The work of milestone 1 measuring 20 kms. was to be completed within a period of nine months, i.e., on or before 30-4-2004. The work of milestone 2 measuring 23 kms. had to be completed before 30-11-2004. The correspondences produced shows the petitioner has pleaded several difficulties for completion of the project within the stipulated period and sought for extension of time. Admittedly the project was not completed within the stipulated period. As against the total length of 43 kms. hardly petitioner has completed 3 kms. The respondents have pointed out in their letter the slow progress of the work, the deficiencies on the part of the petitioner and have called upon them to stick to the time schedule and complete the project. When the petitioner did not complete the project, by their letter dated 22-12-2004 as per Annexure-F, the respondents terminated the contract on the ground of fundamental breach of contract as specified in Clause 59.2(g) of the General Conditions of Contract which reads as under:
'59.2 Fundamental breaches of contract include, but shall not be limited to the following.--
(a) to (f) ...
(g) the contractor has delayed the completion of the works by the number of days for which the maximum amount of liquidated damages can be paid as defined in the contract data'.
Consequently, they addressed a letter as per Annexure-G to the fourth respondent-Bank for encashing the Bank guarantee of Rs. 3,31,36,270.00. In reply to the said letter they replied by their letter at Annexure-R8 informing the respondents that they would execute the work in M-11 as per the original terms and conditions of contract and they have programmed to complete by July 2005 subject to the full cooperation from the respondent and except for any reasons beyond their control and they will maintain the road of the M-11 packages as per the terms and conditions of contract and they would reconfirm the BG's submitted after receipt of revocation order. They requested for revocation of the cancellation order. On consideration of the said request and the undertaking the respondents as per Annexure-H by their letter dated 28-1-2005 revoked the termination order subject to the conditions mentioned in the said letter and made it clear that the revocation order will come into effect only from the date on which the petitioner complies with all the requirements mentioned therein. On 2nd February, 2005 as per Annexure-J the Project Director called upon the petitioner to fulfill the requirements immediately. The petitioner sent a reply as per Annexure-R12, dated 3-2-2005 informing the respondents that their Project Director has gone to Moscow to decide the issue regarding additional financing of the contract packages. However, on 5-2-2005 without reference to the said letter the respondents proceeded to withdraw the order of revocation of termination with immediate effect and stated that the contract has been irrevocably terminated.
7. This Court after hearing both the parties granted an interim order of stay of termination of contract as well as encashment of Bank guarantee. After the order of stay, the parties met together and had discussions about the conditions imposed in the order of revocation of the termination and ultimately the petitioner accepted all the conditions except two conditions. They are:
(1) The contractor-OJSC Corporation shall give an additional Bank guarantee of Rs. 4.11 crores equivalent to 20% of the contract value towards additional performance guarantees;
(2) M/s. OJSC Corporation shall bear the cost towards additional charges of technical audit service consultants to be incurred due to the revocation of the termination order.
8. Learned Senior Counsel Sri R.N. Narasimha Murthy appearing for the petitioner assailing the impugned action of the respondents contend, when on a representation made by the petitioner against the termination of the contract in public interest the same was reconsidered and the termination was revoked, while revoking the termination they have imposed conditions which are ex facie arbitrary. Though the petitioner was able to accede to almost all the conditions insofar as stipulation providing for furnishing a Bank guarantee to the extent of 20% of the tendered amount was not acceptable and they were ready to furnish Bank guarantee to the extent of 4%. Even without giving them sufficient time the said revocation was also withdrawn in a very arbitrary manner. Therefore, he submits the order withdrawing the revocation dated 5-2-2005 is arbitrary and liable to be quashed. Even otherwise, he contends the original order of termination dated 22-12-2004 is arbitrary inasmuch as even before the expiry of the agreed period a contract is terminated on the ground that the petitioner has failed to complete the project within the stipulated period contrary to the stipulations contained in the contract. Therefore, it is a clear case of arbitrary action on the part of the State and both the orders are liable to be quashed on the short ground.
9. Per contra, the learned Advocate General contends the petitioner has been given sufficient opportunity to make amends to his inaction and in spite of the same he has not fulfilled the terms of the contract and as against the total length of 43 kms. when he has not even completed 3 kms. even after the agreed period in public interest they had no option except to terminate the contract and in the facts and circumstances it cannot be said that the action of the State is arbitrary.
10. Learned Counsels for the third respondent contends the dispute between the parties is purely a contractual matter, in particular arising out of a commercial contract and, therefore, the question whether the termination of the contract is proper or not cannot be gone into in these writ proceedings as the facts are disputed and the petitioner has an alternate and efficacious remedy to agitate his rights. Otherwise, it amounts to enforcement of contract which is not permissible in law. Even otherwise the termination of the contract is just and proper and is in public interest and, therefore, no case for interference with the impugned orders are made out.
11. From the aforesaid facts and the submissions made two questions do arise for consideration. They are.--
(1) After a contract is concluded, during its implementation if one of the party to the contract being a State or an instrumentality of the State terminates the contract on the ground of breach committed by the other party, whether the order of termination could be assailed in a writ petition? If so, what is the scope of judicial review in such matter?
(2) In the facts and circumstances of this case, whether a case for interference with the impugned orders is made out?
12. Question No. (1).--The learned Counsels appearing for the parties have cited before me a catena of decisions of the Supreme Court on the point.
13. On this point there are two line of decisions. One view holding that Article 14 of the Constitution is attracted before the conclusion of the contract and once the contract is concluded, notwithstanding the fact that one of the party to the contract is a Government or instrumentality of the State, the rights and obligation of the parties are governed by the law of contract like any other private contract and the actions of the parties are not amenable to writ jurisdiction under Article 226 or 32 of the Constitution. The other view is even after the conclusion of the contract if the contract is terminated by the State or instrumentality of the State, it has to stand the test of reasonableness on the anvil of Article 14 of the Constitution. Therefore, it is necessary to look into the law on the point carefully as enunciated by the Supreme Court.
14. The Supreme Court in the case of K.N. Guruswamy v. State of Mysore and Ors., : [1955]1SCR305 has held where the source of a right was contractual but the action complained of was the purported exercise of a statutory power, relief could be claimed under Article 226.
15. The Supreme Court in the case of Basheshar Nath v. Commissioner of Income-tax, Delhi and Rajasthan and Anr., : [1959]35ITR190(SC) , held, Article 14 protects us from both legislative and administrative tyranny of discrimination.
16. In State of Madhya Pradesh and Anr. v. Thakur Bharat Singh, : [1967]2SCR454 it has been held that even executive action must not be exercised arbitrarily but must have the authority of law to support it.
17. The Supreme Court in the case of D.F.O., South Kheri and Ors. v. Ram Sanehi Singh, : AIR1973SC205 held, merely because the source of the right was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority suit is the remedy and not a writ petition. 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, writ petition is maintainable.
18. In Erusian Equipment and Chemicals Limited v. State of West Bengal and Anr., : [1975]2SCR674 it was held, Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has therefore the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot chose to exclude persons by discrimination. When the State acts to the prejudice of a person, it has to be supported by legality.
19. The Supreme Court in the case of Radhakrishna Agarwal and Ors. v. State of Bihar and Ors., : [1977]3SCR249 held, after the State or its agents have entered into the field of the 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.
20. The Supreme Court in the case of Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir and Anr., : [1980]3SCR1338 held the constitutional power conferred on the Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner, it has to be exercised for the public good. Every activity of the Government has a public element in it and it must therefore, be informed with reason and guided by public interest. Every action taken by the Government must be in public interest, the Government cannot act arbitrarily and without reason and if it does, its action would be liable to be invalidated.
21. In Gujarat State Financial Corporation v. Lotus Hotels Private Limited, : AIR1983SC848 it was held, the State cannot commit breach of a solemn undertaking to the prejudice of the other party which acted under an obligation and put itself in a disadvantageous position. It cannot be said in such circumstances, the only remedy for the aggrieved party would be suing damages for breach and that it could not compel the Corporation for specific performance of the contract under Article 226.
22. A Constitution Bench of the Supreme Court in the case of Life Insurance Corporation of India v. Escorts Limited and Ors., : 1986(8)ECC189 held, if the action of the State is related to contractual obligation 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.
23. The three Judges Bench of the Supreme Court in the case of Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay : [1989]2SCR751 held, that every activity of a public authority especially in the background of the assumption on which such authority enjoys immunity from the rigours of the Rent Act, must be informed by reason and guided by the public interest. All exercise or discretion or power by public authorities as the respondent in respect of dealing with tenants in respect of which they have been treated separately and distinctly from other landlords on the assumption that they would not act as private landlords must be judged by that standard. If a governmental policy or action even in contractual matters fails to satisfy the test of reasonableness, it would be unconstitutional. Being a public body even in respect of its dealing with its tenant, it must act in public interest and an infraction of that duty is amenable to examination either in civil suit or in writ jurisdiction.
24. In the case of Bareilly Development Authority and Anr. v. Ajay Pal Singh and Ors. : [1989]1SCR743 it is held that, 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.
25. In Kumari Shrilekha Vidyarthi and Ors. v. State of Uttar Pradesh and Ors. : AIR1991SC537 the Supreme Court has held that the appointment and its concomitants viewed as purely contractual matters after the appointment is made, also attract Article 14 and exclude arbitrariness permitting judicial review of the impugned State action.
The personality of the State, requiring regulation of its conduct in all spheres by requirements of Article 14, does not undergo such a radical change after the making of a contract merely because some contractual rights accrue to the other party in addition. It is not as if the requirements of Article 14 and contractual obligations are alien concepts, which cannot co-exist. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion. This is more so when the modern trend is also to examine the unreasonableness of term in such contracts where the bargaining power is unequal so that these are not negotiated contracts but standard form contracts between unequals. 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. The State cannot be attributed the split personality of in the contractual field so as to impress on it all the characteristics of the State at the threshold while making a contract requiring it to fulfill 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.
As such, all powers so vested in him are meant to be exercised for public good and promoting the public interest. This is equally true of all actions even in the field of contract. Thus every holder of a public office is a trustee whose highest duty is to the people of the country and, therefore, every act of the holder of a public office, irrespective of the label classifying that act, is in discharge of public duty meant ultimately for public good.
26. In Life Insurance Corporation of India and Anr. v. Consumer Education and Research Centre and Ors. : AIR1995SC1811 it was held, 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.
27. In the case of Style (Dress Land) v. Union Territory, Chandigarh and Anr., : AIR1999SC3678 the Bench consisting of two learned Judges held governmental actions are required to be based on standards which are not arbitrary or unauthorised. Even the administrative orders and not (sic only) quasi-judicial are required to be made in a manner of consonance with the rules of natural attributes of the property. While exercising the powers of judicial review the Court can look into the reasons given by the Government in support or its action but cannot substitute its own reasons. The Court can strike down an executive order, if it finds the reasons assigned were irrelevant and extraneous. The Courts are more concerned with the decision making process than the decision itself.
28. The Supreme Court in the case of Air India Limited v. Cochin International Airport Limited and Ors. : [2000]1SCR505 held, the award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision considerations which are paramount are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that is not open to judicial scrutiny. It can enter into negotiations before finally deciding to accept one of the offers made to it. Price need not always be the sole criterion for awarding a contract. It is free to grant any relaxation, for bona fide reasons, if the tender conditions permit such a relaxation. It may not accept the offer even though it happens to be the highest or the lowest. But the State, its Corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. Though that decision is not amenable to judicial review, the Court can examine the decision making process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness. The State, its Corporations, instrumentalities and agencies have the public duty to be fair to all concerned. Even when some defeat is found in the decision making process the Court must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The Court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it conies to a conclusion that overwhelming public interest requires interference, the Court should intervene.
29. The Supreme Court in the case of Kerala State Electricity Board and Anr. v. Kurien E. Kalathil and Ors. : AIR2000SC2573 held, 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. 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. A statute may expressly or impliedly confer power on a statutory body 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 statutory or public body will not of 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.
30. After reviewing almost all the cases aforementioned, the Supreme Court in recent judgment in ABL International Limited and Anr. v. Export Credit Guarantee Corporation of India Limited and Ors., (2004)3 SCC 653 : (2004)118 Comp Cas 213 held, that merely because one of the parties to the litigation raises a dispute in regard to the facts of the case, the Court entertaining such petition under Article 226 of the Constitution is not always bound to relegate the parties to a suit. In an appropriate case the writ Court has the jurisdiction to entertain a writ petition involving disputed questions of fact and there is no absolute bar for entertaining a writ petition even if the same arises out of a contractual obligation and/or involves some disputed questions of fact. 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:
(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.
The Court 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. 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.
31. The propositions of law laid down in the aforesaid cases must be read in the context of facts established in each case. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made therein. Apart from Article 141 of the Constitution of India, the policy of Courts is to stand by precedent and not to disturb settled point. When Court has once laid down a principle of law as applicable to certain state of facts, it will adhere to that principle, and apply it to all future cases where facts are substantially the same. A deliberate and solemn decision of Court made after argument on question of law fairly arising in the case, and necessary to its determination, is an authority, or binding precedent in the same Court, or in other Courts or equal or lower rank in subsequent cases where the very point is again in controversy unless there are occasion when departure is rendered necessary to vindicate plain, obvious principles of law and remedy continued injustice. The only thing in a Judge's decision binding as an authority upon a subsequent Judges is the principle upon which the case was decided. It is unsafe to extract sentence here and there from a judgment and to build upon it. Those words in the said judgments cannot be interpreted as the wordings of the statute. The observations in a judgment have to be understood in the context in which they are made, the subject-matter of the proceedings and what exactly the learned Judges intended in making those observations. The generality of the expressions which are found there are not intended to be expositions of the whole law but governed and qualified by the particular facts of the case in which such expressions are to be found.
32. From the aforesaid catena of case-law it is clear judicial review would apply to the exercise of contractual powers by Government and public authorities in order to prevent arbitrariness or favoritism. It must be remembered the power of the High Court under Article 226 of the Constitution is plenary in nature. No limitations on the exercise of such power is permissible. The limitation is only by way of self restraint. Judicial review is a grant weapon in the hands of the Judges, but the Judges must observe the constitutional limits set up by our parliamentary system upon the exercise of this plenary power. Judicial review is not an appeal from a decision but a review of the manner in which the decision was made. The Courts do not review the merits of the decision in support of which the application for judicial review is made but, decision making process itself. Judicial review is a protection and not a weapon. Fair-play in action is an essential requirement. Similarly, free play in the joints is also a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. The doctrine that powers must be exercised reasonably has to be reconciled with no less important doctrine that the Court must not usurp the discretion of the public authority which Parliament appointed to take the decision. If the decision is within the confines of reasonableness, it is no part of the Court's function to look further into its merits.
33. In contractual sphere one has to bear in mind two distinct facets i.e., before a contract is entered into or a pre-contract stage and post-contract stage. A pre-contract stage falls within the public law domain whereas the post-contract stage falls within the private law domain. Insofar as pre-contract stage is concerned, there is no difficulty. It falls within the administrative sphere. The State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a second facet.
34. There is a line of decisions which has taken the view that where the contract entered into between the State and the persons aggrieved is nor-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. The termination of contract is not a quasi-judicial act by any stretch of imagination; hence it is not necessary to observe the principles of natural justice. It is also not an executive or administrative act to attract the duty to act fairly. When the Government is trading with the public, the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone but if it does so, it must do so fairly without discrimination and without unfair procedure. The State has a right to trade. The State there has the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. When the State acts to the prejudice of a person, it has to be supported by legality. The rights of the parties are governed by contract/agreement between the parties and if there is a breach of the terms of contract it falls within private law field and writ petition is not maintainable since it is a public law remedy. 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.
35. The interpretation and implementation of a clause in a contract ordinarily cannot be the subject-matter of a writ petition. 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. The fact that one of the parties to the agreement is a statutory or public body will not of 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.
36. Even in post-contract stage and private law domain there is no unfettered discretion. A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is fair-play in action and in other words follow the principles of natural justice. In contracts having commercial element, some more discretion has to be conceded to the authorities so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. But, even in such matters they have to follow the norms recognised by Courts while dealing with public property. 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.
Every holder of a public office by virtue of which he acts on behalf of the State or public body is ultimately accountable to the people in whom the sovereignty vests. With the diversification of State activity in a Welfare State requiring the State to discharge its wide ranging functions even though its several instrumentalities, which requires entering into contracts also, it would be unreal and not pragmatic, apart from being unjustified to exclude contractual matters from the sphere of State actions required to be non-arbitrary and justified on the touchstone of Article 14.
37. When the State enters into contract in respect of a commercial activity and if it were to terminate the contract there is no reason why the State as a party to contract should be subjected to State its reasons. When the order terminating the contract is not passed in the capacity of a statutory functionary there is no obligation to give reasons in the order itself. In contractual matters when the order terminating the contract is challenged on the ground that no reasons are given for passing the impugned order or that the impugned order does not disclose application of mind or that it is passed in violation of principles of natural justice, the authority may produce its records to justify the impugned order. At that stage it is open to the Court to look into the records made available and it shows justification for the impugned action, no case for interference is made out, as it is settled law that what the Court is concerned is with the decision making process than the decision itself.
38. Even when some defect is found in the decision making process the Court must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The Court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the Court should intervene.
39. 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 host of other relevant circumstances. The State cannot be attributed the dual personality in the contractual field. It cannot be permitted to cast off its garb of State once the contract is concluded to adorn the new role of a private body during the subsistence and working of the contract and remedies flowing from it, as public interest, public law character and public duty exists from the inception of the contracts till its completion.
40. From the aforesaid discussion, the parameters of judicial review in contractual matters could be stated as under:
(1) Judicial review is permissible both at the pre-contract stage and post-contract stage though the scope of interference varies depending upon the stage of review. The scope of judicial review in post contractual matters is very much narrower.
(2) In pre-contract stage the action of the State or its instrumentality has to satisfy the test of reasonableness as enunciated by the Supreme Court in various decisions interpreting Article 14 of the Constitution of India. Action should be fair, just, reasonable and devoid of arbitrariness.
(3) The pre-contract stage squarely falls within the realm of public law character and, therefore, the decision must not only be tested by principles of Wednesbury's principles of reasonableness but must be free from arbitrariness not affected by bias or actuated by mala fides.
(4) Post-contract stage falls within the realm of private law. But nonetheless the requirement of Article 14 and contractual obligations are not alien concepts. They can co-exist.
(5) Every holder of a public office by virtue of which he acts on behalf of a State or public body is ultimately accountable to the people in whom sovereignty vests. Therefore, even in this private law sphere when a public officer exercises power it is in the nature of a public duty and, therefore, as his action is in import of public interest that factor alone is sufficient to import at least the minimum requirements of public law obligations. The requirement of Article 14 being the duty to act fairly, justly and reasonably, such action of a public officer in discharge of public duty should conform to the said requirement of law.
(6) The order terminating a contract on the ground of breach of terms of the contract is no vitiated for not disclosing the reasons, the application of mind, by way of consideration of the case of the defaulting party. Such an order when challenged in Court could be justified by producing the relevant records and showing the application of mind to the said material after following the principles of natural justice which would meet the requirements of law as Courts are only concerned with the process of decision making and not the decision itself.
(7) Even when some defect is found in the decision making process, the Court must exercise its discretionary power under Article 226 with great caution and circumspection and should exercise it only in furtherance of public interest and not merely on the making out a legal point.
(8) Writ petition against a State and its instrumentality, arising out of contractual obligation is maintainable. Even disputed questions of fact could be gone into, if necessary by recording of evidence. Monetary claims can also be entertained. But the normal rule is not to entertain such claims. But, only in exceptional cases when the circumstances warrant such an interference, the Court has the power and could be exercised. In other words, only in rarest of rare cases the exercise of power is justified. It is not want of power or jurisdiction. It is a case of self restraint.
(9) A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by State or a statutory body.
(10) The interpretation and implementation of a covenant in a contract ordinarily cannot be the subject-matter of writ petition, and the same has to be determined according to the principles of the Contract Act.
41. Question No. (2).--Sri R.N. Narasimha Murthy, the learned Senior Counsel, contended as per Annexure-Q, the petitioner sought for time upto 31-10-2005 to complete the project M-11 by their letter dated 14-7-2004. The respondents as per Annexure-R after considering the said proposal have granted time sought for. The said time expires only on 31-10-2005. Therefore, they could not have invoked Clause 59.2(g) and terminated the contract. If from that day delay is calculated unless the number of days for which the maximum amount of liquidated damages could be paid as defined in contract data is achieved, the contract could not have been terminated. Contract data specifically provides the liquidated damages payable for the whole of the works as Rs. 2,81,200 per day and that for the milestones are Rs. 1,30,800.00 per day for milestone 1 and Rs. 2,81,200.00 per day for the entire work i.e., milestone 2. So calculated it would not cross 10% of the total cost of the contract. Therefore, the termination of the contract not only is premature but is arbitrary.
42. There is no substance in the said contention. Clause (R) on which reliance is placed has to be read as a whole. The said clause sets out the delay in completion of the project, fundamental breach committed by the petitioner and it also says the contract is liable to be terminated. It is in that background their proposal for extension of time was considered. It is specifically stated that taking note of the arrangements proposed to augment adequate financial resources and accelerate the progress by deployment of additional machinery it was decided to provide a last opportunity 'without prejudice to the rights of the employer' in the contracts to demonstrate the petitioner's commitment to complete the works subject to fulfilling the conditions mentioned therein. The conditions mentioned in respect of contract M-11 are by 15-9-2004 they should complete 2 kms., by 15-10-2004 4 kms., by 31-10-2004 5 kms. and from 1-11-2004 2.90 kms. per month. Admittedly the petitioner has not done the said work. Time was extended subject to those conditions. Once the petitioner has not complied with the said conditions he is not entitled to the benefit of the aforesaid extension of time, at any rate in calculating the liquidated damages the later of the day cannot be the criteria. On a proper calculation the liquidated damages payable is more than 10% of the contract. In fact the amount of liquidated damages as per the calculation would be two times the minimum prescribed. Therefore, it cannot be said that the order of termination is premature or arbitrary.
43. Insofar as the contention that imposition of 20% of the tendered value as the additional Bank guarantee to be furnished is arbitrary, it is to be noticed that the petitioner has been given in all four contracts. In respect of other contracts the petitioner has agreed to furnish 20% of the Bank guarantee. When it came to the present contract which is terminated, he contends imposition of the aforesaid condition is arbitrary. Therefore, when once the petitioner has agreed to furnish the Bank guarantee to the extent of 20% in similar contracts when the same condition is imposed in the present contract it cannot be said to be arbitrary. Even otherwise, it is to be noticed that the petitioner is a foreign company. They have committed breach of the terms of all the 4 contracts given to them. As against the total length of 43 kms., hardly 3 kms. work has been done, even after expiry of the original period stipulated. The respondents are executing this work under a project funded by the World Bank which has provided 80% of the cost of the project. Respondents are answerable to them. In the even of petitioner committing default again if the same work is to be entrusted to others, having regard to the passage of time, the cost of project will go up and the State has to bear the additional expenses. In the process public interest suffers. Keeping in mind these aspects, the record of the petitioner in the past, their commitment to the World Bank, in order to make sure that the petitioner shall not commit default and even if they commit default no prejudice is caused to the public interest, they have insisted on 20% of the tendered amount as additional Bank guarantee it cannot be said to be arbitrary in the circumstances of the case and, therefore, there is no substance in the said contention.
44. From the aforesaid discussion it is clear the petitioner, a foreign company, has been given four contracts. As against the total length of 43 kms., the petitioner is able to complete only 3 kms. even after the original period stipulated is over. The record shows in all the four contracts entrusted to them, they have miserably failed to achieve the targets fixed. Even after the stipulated period they are unable to lay the road beyond 2 to 5 kms. On the contrary other contractors to whom similar work have been entrusted have completed the projects within the stipulated period. The petitioner has spent considerable time in correspondence in pointing out the difficulties faced by them and requesting for extensions. The net result is the public are prevented from having good roads which is of vital importance to the public and the State. The record of the petitioner clearly shows that it is unable to perform its obligations of the contract. The respondents are answerable to the public. In the public interest, after giving sufficient opportunity to the petitioner to make amends to his defaults, when they are convinced that the petitioner is unable to complete the project, if they have decided to cancel the contract or impose conditions to comply with the terms of the contract, the respondents cannot be found fault with. Their actions cannot be termed arbitrary. The material on record justifies the action of the respondents in passing the impugned orders and in invoking the Bank guarantee. Under these circumstances, though the respondents are performing the public duty in terminating the contract, the said power is exercised in public interest for good reasons. The petitioners have been given ample opportunities to put forth their case, and to perform their obligations under the contract. They have been issued notice pointing out the deficiencies in their work and they have been given sufficient time and opportunity to expedite the work. Thus, principles of natural justice has been followed. The petitioners are not taken by surprise. No mala fides are alleged against the respondents. In the circumstances, the respondents have terminated the contract as per the stipulation contained in the contract itself, in public interest. The action of the respondents is fair, just, reasonable and do not offend Article 14 of the Constitution and has been exercised keeping in mind the public interest. Therefore, no case for judicial review of the action of the respondents in passing the impugned orders is made out.
45. Notwithstanding the dismissal of this writ petition it is open to the petitioner to agitate his rights, if any, flowing from the contract, according to the principles of Contract Act, before the appropriate forum, including the validity of the termination of the contract, and seek the reliefs to which they are entitled to in law. The forum which determines the rights of the parties to the contract shall do so in accordance with law and on merits, without in any way being influenced by any observations made by this Court in this order.
46. Hence, I pass the following order.--
(a) Writ petition is dismissed.
(b) Interim order granted stands vacated.
(c) No costs.