Full Judgment Text
*IN THE HIGH COURT OF DELHI AT NEW DELHI
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% Date of decision: 15 December, 2015
+ W.P.(C) No.11621/2015
CCPL DEVELOPERS PVT. LTD. & ANR. ….. Petitioners
Through: Mr. Parag P. Tripathi, Sr. Adv. with
Mr. Ashish Mohan and Mr. Mohit
Kumar, Advs.
Versus
GAIL (INDIA) LIMITED ….. Respondent
Through: Mr. Arvind Nayar, Mr. Shashi Mohan
and Ms. Nanda Devi Deka, Advs.
CORAM:-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
CM No.30820/2015 (for exemption)
1. Allowed, subject to just exceptions.
2. The application is disposed of.
W.P.(C) No.11621/2015 & CM No.30819/2015 (for stay)
3. The petition seeks quashing of (i) Article 14 of the Gas Sales
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Agreement (GSA) dated 26 December, 2008 between the petitioner No.1
and the respondent GAIL (India) Limited on the ground of being onerous,
arbitrary, illegal, mala fide , unreasonable, harsh and against public policy
and thus void; and (ii) quashing of Article 19 of the said Agreement to the
W.P.(C) No.11621/2015 Page 1 of 21
extent that it does not provide for right of termination to the petitioners in
the event of the petitioners being unable or unwilling to purchase / consume
gas allocated by respondent particularly due to non-requirement, on the
ground of being onerous, arbitrary, illegal, mala fide , unreasonable, harsh
and against public policy and thus void.
4. It is the case of the petitioners:
(i) that the petitioners are engaged in the business of constructing
and managing Shopping Complexes, Malls and other real estate and
for the purposes of the various units in the East Delhi Mall, situated at
plot No.1, Kaushambi, Ghaziabad, Uttar Pradesh were in need of
Regenerated Liquefied Natural Gas (RLNG) as an alternate source for
generation of electricity at the Mall during power cuts;
(ii) that the respondent at the relevant time was the only supplier of
RLNG in the area where the aforesaid Mall is located and anyone, in
the year 2004, if in need of RLNG, could enter into a contract for
supply thereof with the respondent only; the respondent was thus then
enjoying monopolistic position and had superior bargaining power;
W.P.(C) No.11621/2015 Page 2 of 21
(iii) that the petitioners accordingly approached the respondent and
the respondent made the petitioners sign a standard form agreement
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dated 14 September, 2004 with the price stated therein being
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valid until 1 January, 2009 and a new agreement to be executed
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by 30 September, 2008;
(iv) that the respondent made the petitioners sign a new contract
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namely Gas Sale Agreement (GSA) dated 26 December, 2008
on the dotted lines; the terms and conditions mentioned in the
said agreement were pre-determined by the respondent and are
patently onerous and formulated without discussing or taking
consent of the petitioners; the respondent even then was the only
supplier of RLNG in the area where the Mall of the petitioners is
located;
(v) that the entire contract nowhere provides for termination of
the same by the petitioners as buyer in the event of the petitioners
not willing to buy RLNG or having no further requirement for the
same or if unable to run their business for any reason whatsoever;
W.P.(C) No.11621/2015 Page 3 of 21
(vi) that the provision in the agreement for payment by the
petitioners for allocated RLNG despite non-consumption thereof
is patently unfair, unreasonable, illegal, arbitrary and unjust and
against public policy and violative of Article 14 of the
Constitution of India;
(vii) that the petitioners now, because of the better availability of
the power supply from the grid, have no further requirement for
RLNG and their requirement for RLNG has thus substantially
reduced;
(viii) that even till now only 60% of the units in the mall are
occupied and the balance 40% are lying vacant;
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(ix) that the petitioners vide communication dated 14 May,
2013 to the respondent informed of the aforesaid and requested
the respondent not to charge the petitioners for the minimum
quantity which the petitioners in the agreement had agreed to
consume and / or pay for;
W.P.(C) No.11621/2015 Page 4 of 21
(x) that however inspite of repeated reminders of the
petitioners, the respondent did not effect any change and has been
demanding from the petitioners the price of minimum quantity of
RLNG which the petitioners under the agreement aforesaid had
agreed to pay for and has illegally and unauthorizedly invoked
the Letter of Credit furnished by the petitioners in terms of the
agreement aforesaid with the respondent;
(xi) that the petitioners challenged the said action of the
respondent by filing OMP(I) No.117/2015 before this Court but
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which petition was dismissed vide order dated 27 March, 2015;
(xii) that thereafter negotiations were held between the parties
and though a settlement was arrived at and the petitioners also
paid the amounts in terms of settlement to the respondent but the
respondent has continued to seek enforcement of the aforesaid
Letter of Credit furnished by the petitioners, in a patently
fraudulent and illegal manner;
W.P.(C) No.11621/2015 Page 5 of 21
(xiii) that the petitioners again filed a petition under Section 9 of
the Arbitration and Conciliation Act, 1996 being OMP (I)
No.573/2005 before this Court and vide interim order wherein the
parties were directed to maintain status quo with respect to the
Letter of Credit and the petitioners directed to revive the Letter of
Credit;
(xiv) that aggrieved from the direction for revival of the Letter of
Credit, the petitioners filed an appeal being FAO (OS)
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No.611/2015 but which was dismissed as not pressed on 4
November, 2015;
(xv) that upon the dismissal of the appeal, Canara Bank being
the banker of the petitioners and which had at the instance of the
petitioners furnished the Letter of Credit, for renewing the Letter
of Credit asked the petitioners to furnish 100% margin money;
(xvi) that the petitioners made an application in OMP(I)
No.573/2015 supra for impleadment of Canara Bank and a
W.P.(C) No.11621/2015 Page 6 of 21
direction was issued to Canara Bank to renew / revive the bank
guarantee;
(xvii) that the proceedings in the said OMP are still pending;
(xviii) that the respondent being a State within the meaning of
Article 12 of the Constitution of India is liable to act fairly even
in contractual matters and cannot ask the petitioners to pay for
the gas which has not been consumed by the petitioners.
5. The senior counsel for the petitioners has been heard.
6. It has been enquired from the senior counsel for the petitioners
whether not the dispute between the parties is purely contractual, without
any public law element therein and if that be so, how is the public law
remedy of a writ petition under Article 226 of the Constitution of India
available to the petitioners particularly when the petitioners, in relation to
the same disputes, have also invoked the arbitration clause in the
agreement between the parties. Attention of the senior counsel for the
petitioners has been invited to the dicta of the Supreme Court in Joshi
Technologies International Inc. Vs. Union of India (2015) 7 SCC 728
W.P.(C) No.11621/2015 Page 7 of 21
dealing not only with the aspect of maintainability of writ petitions in
contractual matters but also with the aspect of variation / rectification of
contracts, as the petitioners in the present case also are seeking. It has
further been enquired, whether not the real relief which the petitioners
are claiming by way of this writ petition is a restraint against the
respondent from encashment of the bank guarantee furnished by the
petitioners in favour of the respondent inasmuch as the monetary claims
under the agreement of the respondent against the petitioners otherwise
raised can always be disputed by the petitioners and will have to be
enforced by the respondent either before the Civil Court or in arbitration.
7. The senior counsel for the petitioners of course has contended that
the availability of the alternative remedy of arbitration under the
contractual clause cannot be a ground to defeat the writ petition under
Article 226 of the Constitution of India if otherwise maintainable. It is
contended that if the respondent which qualifies as a State, in contractual
matters also, acts arbitrarily and unfairly, a writ petition would be
maintainable. A compilation of judgments is handed over though
W.P.(C) No.11621/2015 Page 8 of 21
reference during the hearing is made only to paras 23 and 24 of Life
Insurance Corporation of India Vs. Rajiv Khosla 186(2012) DLT 266
(DB) to contend that the Division Bench of this Court therein in writ
jurisdiction held the clauses in the insurance policy to be unfair and to
Japan Travel Services Vs. All Nippon Airways Co. Ltd.
MANU/DE/2953/2009 to contend that an arbitrator being a creature of
an agreement cannot strike down any clause in the agreement as unfair,
unreasonable and unjust.
8. I am unable to agree.
9. The claim of the petitioners in the writ petition is based on contract
and as aforesaid is essentially an attempt to restrain the respondent from
encashing the bank guarantee. Else, the respondent, to enforce its
monetary claims under the agreement will have to resort to proceedings
for recovery thereof either in a suit or in arbitration and the petitioners
can defend the said claims on all grounds as are urged in this petition.
Supreme Court in Joshi Technologies International Inc. supra after review
of host of earlier judgments on the subject inter alia held as under:
W.P.(C) No.11621/2015 Page 9 of 21
“ 68. The Court thereafter summarized the legal position in the following
manner: ( ABL International Ltd. Vs. Export Credit Guarantee
Corporation of India Ltd. (2004) 3 SCC 553 paras 27-28)
“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 Corporation Vs.
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."
W.P.(C) No.11621/2015 Page 10 of 21
69. The position thus summarized in the aforesaid principles has to be
understood in the context of discussion that preceded which we have
pointed out above. 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, can refuse to exercise. It also follows that under
the following circumstances, “normally”, the Court would not exercise
such a discretion:
69.1. The Court may not examine the issue unless the action has some public
law character attached to it.
69.2. Whenever a particular mode of settlement of dispute is provided in the
contract, the High Court would refuse to exercise its discretion under
Article 226 of the Constitution and relegate the party to the said made of
settlement, particularly when settlement of disputes is to be resorted to
through the means of arbitration.
69.3. If there are very serious disputed questions of fact which are of complex
nature and require oral evidence for their determination.
69.4. Money claims per se particularly arising out of contractual obligations are
normally not to be entertained except in exceptional circumstances.
70. Further, the legal position which emerges from various judgments of this
Court dealing with different situations/aspects relating to contracts
entered into by the State/public authority with private parties, can be
summarized as under:
70.1. At the stage of entering into a contract, the State acts purely in its
executive capacity and is bound by the obligations of fairness.
70.2. State in its executive capacity, even in the contractual field, is under
obligation to act fairly and cannot practice some discriminations.
W.P.(C) No.11621/2015 Page 11 of 21
70.3. 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
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 court can
direct the aggrieved party to resort to alternate remedy of civil suit, etc.
70.4. Writ jurisdiction of High Court under Article 226 was not intended to
facilitate avoidance of obligation voluntarily incurred.
70.5. Writ petition was not maintainable to avoid contractual obligation.
Occurrence of commercial difficulty, inconvenience or hardship in
performance of the conditions agreed to in the contract can provide no
justification in not complying with the terms of contract which the parties
had accepted with open eyes. It cannot ever be that a licensee can work
out the licence if he finds it profitable to do so: and he can challenge the
conditions under which he agreed to take the licence, if he finds it
commercially inexpedient to conduct his business.
70.6. 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.
70.7. Writ can be issued where there is executive action unsupported by law or
even in respect of a corporation there is denial of equality before law or
equal protection of law or if 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.
W.P.(C) No.11621/2015 Page 12 of 21
70.8. If the contract between private party and the State/instrumentality and/or
agency of State is under the realm of a private law and there is no 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 Constitutional of India and invoking
its extraordinary jurisdiction.
70.9. The distinction between public law and private law element in the
contract with State is getting blurred. However, it has not been totally
obliterated and where the matter falls purely in private field of contract.
This 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 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.
70.10. Mere reasonable or legitimate expectation of a citizen, in such a situation,
may not by itself be a distinct enforceable right, but failure to consider
and give due weight to it may render the decision arbitrary, and this is
how the requirements of due consideration of a legitimate expectation
forms part of the principle of non-arbitrariness.
W.P.(C) No.11621/2015 Page 13 of 21
70.11. 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.”
[Emphasis added]
10. The contract entered into by the petitioners with the respondent
contains an arbitration clause and which has also been invoked by the
petitioners. The Supreme Court, in the dicta aforesaid has clearly held
that in such cases writ petitions are not to be entertained. Not only so,
the issue arising for adjudication has no public law character attached to
it. In fact, the senior counsel for the petitioners has not even attempted
to argue so. Further, as aforesaid, the real claim in the writ petition is but
to thwart encashment of bank guarantee furnished under a contract. The
contract between the parties is strictly in the realm of private law.
11. Moreover, the petitioners in effect are seeking amendment /
rectification of the contract entered into with the respondent. The said
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contract was entered into first on 14 September, 2004 and renewed on
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26 December, 2008. The petitioners have throughout been aware of the
terms and conditions thereof and at no time objected thereto. A question
W.P.(C) No.11621/2015 Page 14 of 21
would arise whether the Court can order the contract to be rectified /
amended. The said aspect also has been dealt with in Joshi Technologies
International Inc. supra as under:
“54. As noted above, the contention of the Respondent is that PSCs are in
the nature of a contract agreed to between the two independent contracting
parties. It is also mentioned that before the signing of the PSCs, the approval of
Cabinet is obtained which reflects that the PSC as submitted to the Cabinet has
the approval of one of the contracting parties, namely, Government of India in
this case. When it is signed by the other party it means that it has the approval
of both the parties. Therefore, a contracting party cannot claim to be oblivious
of the provisions of the law or the contents of the contract at the time of signing
and, therefore, later on cannot seek retrospective amendment as a matter of right
when no such right is conferred under the contract. Even the doctrine of fairness
and reasonableness applies only in the exercise of statutory or administrative
actions of the State and not in the exercise of contractual obligation and issues
arising out of contractual matters are to be decided on the basis of law of
contract and not on the basis of the administrative law. No doubt, under certain
situations, even in respect of contract with the State relief can be granted Under
Article 226. We would, thus, be dealing with this aspect in some detail.
55. Law in this aspect has developed through catena of judgments of this
Court and from the reading of these judgments it would follow that in pure
contractual matters extraordinary remedy of writ 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 its 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.
W.P.(C) No.11621/2015 Page 15 of 21
72. As pointed out earlier as well, the contract in question was signed after
the approval of the Cabinet was obtained. In the said contract, there was no
clause pertaining to Section 42 of the Act. The Appellant is presumed to have
knowledge of the legal provision, namely, in the absence of such a clause,
special allowances under Section 42 would be impermissible. Still it signed the
contract without such a clause, with open eyes. No doubt, the Appellant claimed
these deductions in its income tax returns and it was even allowed these
deductions by the Income Tax Authorities. Further, no doubt, on this premise, it
shared the profits with the Government as well. However, this conduct of the
appellant or even the respondents, was outside the scope of the contract and that
by itself may not give any right to the appellant to claim a relief in the nature of
mandamus to direct the Government to incorporate such a clause in the contract,
in the face of the specific provisions in the contract to the contrary as noted
above, particularly, Article 32 thereof. It was purely a contractual matter with
no element of public law involved thereunder.”
[Emphasis added]
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12. Mention may also be made of order dated 18 March, 2015 of the
Supreme Court in Civil Appeal No.3053/2015 arising out of SLP (C)
no.15689/2011 titled National Highways Authority of India Vs. MEIL-
EDB LLC (JV) wherein the view taken by the Division Bench of this Court
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in judgment dated 10 March, 2011 in W.P.(C) No.8418/2010 titled M/s.
Madhucon Projects Ltd Vs. National Highways Authority of India was for
consideration. The Division Bench of this Court, in writ jurisdiction, had
interfered with the action of the National Highways Authority of India
(NHAI) of forfeiture of Bid Security reasoning that such forfeiture by way
W.P.(C) No.11621/2015 Page 16 of 21
of damages, by invocation of Bank Guarantee, could not be effected without
the NHAI proving the damages. The Supreme Court held:
“We are confronted with a situation when there is a contract between the
parties, duly signed by the Respondent which restricts forfeiture of 5% of
the value of the Bid Security ostensibly not by way of a penalty. Of
course, as is to be expected, the Respondent disagrees and on the
contrary submits that the deduction / forfeiture is in terrorem and is
punitive in nature. A Writ Court may at least as a temporary or
preliminary view decide whether the damages imposed by an Authority
amenable to writ jurisdiction such as NHAI indubitably are punitive or
not, but it should abjure from going into the minute calculation. That
controversy should be left to the Civil Court to decide, i.e. whether the
deduction / forfeiture, in the present instance of 5% of the value of the
Bid Security is punitive or otherwise. We think that the course that
commends itself to us is to relegate the parties to the Civil Courts to
determine whether any damages had been suffered by the National
Highways Authority of India and if so whether the deduction of 5% was a
fair pre-estimate or was punitive in nature. Since the parties have been
bona fide prosecuting writ proceedings in the event of the plaintiff seeks
enlargement / extension of time for filing of a Suit, the Courts in seisin
will keep all the circumstances in view before passing an order.”
13. From the aforesaid also it follows that a final decision with respect to
the contractual rights of the parties is not permissible in writ jurisdiction.
14. Not only so, the pleas on the basis of which the petitioners claim the
relief would require adjudication of i) whether the respondent at the relevant
time was enjoying a monopolistic position; in this regard it would also have
W.P.(C) No.11621/2015 Page 17 of 21
to be considered what other sources of energy besides RLNG were available
to the petitioners for generating power; ii) whether the parties were unequal
in bargaining power; iii) whether or not any negotiations took place between
the parties; iv) whether any of the terms of the contract are onerous to the
petitioners; v) whether the non-requirement now of the petitioners of RLNG
is on commercial considerations or otherwise; vi) whether the agreement
between the parties is specifically enforceable by the respondent as is
contended by the petitioners, and all of which are factual controversies and
adjudication whereof can only be by giving an opportunity to the parties to
lead evidence and cross-examine the witnesses of each other and for which
also a writ petition is not the appropriate remedy.
15. Supreme Court in R.L. Kalathia & Co. Vs. State of Gujarat (2011) 2
SCC 400 has reiterated that if a party which has executed a discharge
agreement or discharge voucher alleges that the execution of such discharge
agreement or discharge voucher was on account of fraud, coercion or undue
influence practiced by the other party and thus the said agreement / voucher
is void and cannot be acted upon, raises a disputed question of fact and to
establish which an opportunity to lead evidence has to be given and merely
W.P.(C) No.11621/2015 Page 18 of 21
on the basis of such agreement / discharge voucher, the claim cannot be
summarily dismissed. The same is the position here.
16. No merit is also found in the contention of the senior counsel for the
petitioners that the relief as sought in this petition, of certain clauses of the
contract entered into by the petitioners with the respondent being void on
the ground of being onerous, arbitrary, illegal, unreasonable, unjust and
against the public policy, does not lie before the Arbitrator for the reason of
the Arbitrator being a creature of the same contract. The said contention is
in negation of Section 16(1)(b) of the Arbitration and Conciliation Act, 1996
which provides that the Arbitral Tribunal may rule on any objection with
respect to the existence or validity of the arbitration agreement and for that
purpose a decision by the Arbitral Tribunal that the contract is null and void
shall not entail ipso-jure the invalidity of the arbitration clause.
17. Supreme Court in Reva Electric Car Co. (P) Ltd. Vs. Green Mobil
(2012) 2 SCC 93, in exercise of jurisdiction under Section 11(4) and (6) of
the Arbitration Act, held that the arbitration clause which forms part of the
contract has to be treated as an agreement independent of the other terms of
the contract and to ensure that there is no misunderstanding, Section
W.P.(C) No.11621/2015 Page 19 of 21
16(1)(b) of the Act further provides that even if the Tribunal concludes that
the contract is null and void, it should not result as a matter of law in any
automatic invalidation of the arbitration clause. The said principle was
recently reiterated in Ashapura Mine-Chem Limited Vs. Gujarat Mineral
Development Corporation (2015) 8 SCC 193. I am therefore with respect
unable to agree with the observation to the contrary in Japan Travel
Services supra.
18. As far as reliance by the petitioners on Life Insurance Corporation
of India supra is concerned, all that was held therein was that an unfair and
irrational clause in a contract is amenable to judicial review. In the facts of
that case, finding that insurance is a social security measure and holding that
it should be consistent with constitutional animation and conscience of
socio-economic justice enshrined in the Constitution, public law remedy
was deemed appropriate. However, in United India Insurance Company
Ltd. Vs. Manubhai Dharmasinhbhai Gajera (2008) 10 SCC 404 on which
reliance was placed by the Division Bench, it was specifically recorded that
in that case existence of jurisdiction of power of judicial review to strike
down a clause in the contract was not in question and it was clarified that
W.P.(C) No.11621/2015 Page 20 of 21
same would have no application for the purpose of modification, alterations
and additions of a term of the contract and that each case must be considered
on its own facts. Here, as aforesaid, the real motive behind this petition is to
seek restraint against encashment of Bank Guarantee which appears to have
been already invoked. I have recently in GAIL (India) Ltd. Vs. Petroleum
and Natural Gas Regulatory Board MANU/DE/3603/2015 dealt in detail
with the aspect of maintainability of writ petition for interfering with Bank
Guarantee and held the same to be not maintainable. Need is not felt to
reiterate the reasoning here.
19. There is thus no merit in the petition.
Dismissed.
No costs.
RAJIV SAHAI ENDLAW, J.
DECEMBER 15, 2015
bs/gsr
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(corrected and released on 12 January, 2016)
W.P.(C) No.11621/2015 Page 21 of 21
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% Date of decision: 15 December, 2015
+ W.P.(C) No.11621/2015
CCPL DEVELOPERS PVT. LTD. & ANR. ….. Petitioners
Through: Mr. Parag P. Tripathi, Sr. Adv. with
Mr. Ashish Mohan and Mr. Mohit
Kumar, Advs.
Versus
GAIL (INDIA) LIMITED ….. Respondent
Through: Mr. Arvind Nayar, Mr. Shashi Mohan
and Ms. Nanda Devi Deka, Advs.
CORAM:-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
CM No.30820/2015 (for exemption)
1. Allowed, subject to just exceptions.
2. The application is disposed of.
W.P.(C) No.11621/2015 & CM No.30819/2015 (for stay)
3. The petition seeks quashing of (i) Article 14 of the Gas Sales
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Agreement (GSA) dated 26 December, 2008 between the petitioner No.1
and the respondent GAIL (India) Limited on the ground of being onerous,
arbitrary, illegal, mala fide , unreasonable, harsh and against public policy
and thus void; and (ii) quashing of Article 19 of the said Agreement to the
W.P.(C) No.11621/2015 Page 1 of 21
extent that it does not provide for right of termination to the petitioners in
the event of the petitioners being unable or unwilling to purchase / consume
gas allocated by respondent particularly due to non-requirement, on the
ground of being onerous, arbitrary, illegal, mala fide , unreasonable, harsh
and against public policy and thus void.
4. It is the case of the petitioners:
(i) that the petitioners are engaged in the business of constructing
and managing Shopping Complexes, Malls and other real estate and
for the purposes of the various units in the East Delhi Mall, situated at
plot No.1, Kaushambi, Ghaziabad, Uttar Pradesh were in need of
Regenerated Liquefied Natural Gas (RLNG) as an alternate source for
generation of electricity at the Mall during power cuts;
(ii) that the respondent at the relevant time was the only supplier of
RLNG in the area where the aforesaid Mall is located and anyone, in
the year 2004, if in need of RLNG, could enter into a contract for
supply thereof with the respondent only; the respondent was thus then
enjoying monopolistic position and had superior bargaining power;
W.P.(C) No.11621/2015 Page 2 of 21
(iii) that the petitioners accordingly approached the respondent and
the respondent made the petitioners sign a standard form agreement
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dated 14 September, 2004 with the price stated therein being
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valid until 1 January, 2009 and a new agreement to be executed
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by 30 September, 2008;
(iv) that the respondent made the petitioners sign a new contract
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namely Gas Sale Agreement (GSA) dated 26 December, 2008
on the dotted lines; the terms and conditions mentioned in the
said agreement were pre-determined by the respondent and are
patently onerous and formulated without discussing or taking
consent of the petitioners; the respondent even then was the only
supplier of RLNG in the area where the Mall of the petitioners is
located;
(v) that the entire contract nowhere provides for termination of
the same by the petitioners as buyer in the event of the petitioners
not willing to buy RLNG or having no further requirement for the
same or if unable to run their business for any reason whatsoever;
W.P.(C) No.11621/2015 Page 3 of 21
(vi) that the provision in the agreement for payment by the
petitioners for allocated RLNG despite non-consumption thereof
is patently unfair, unreasonable, illegal, arbitrary and unjust and
against public policy and violative of Article 14 of the
Constitution of India;
(vii) that the petitioners now, because of the better availability of
the power supply from the grid, have no further requirement for
RLNG and their requirement for RLNG has thus substantially
reduced;
(viii) that even till now only 60% of the units in the mall are
occupied and the balance 40% are lying vacant;
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(ix) that the petitioners vide communication dated 14 May,
2013 to the respondent informed of the aforesaid and requested
the respondent not to charge the petitioners for the minimum
quantity which the petitioners in the agreement had agreed to
consume and / or pay for;
W.P.(C) No.11621/2015 Page 4 of 21
(x) that however inspite of repeated reminders of the
petitioners, the respondent did not effect any change and has been
demanding from the petitioners the price of minimum quantity of
RLNG which the petitioners under the agreement aforesaid had
agreed to pay for and has illegally and unauthorizedly invoked
the Letter of Credit furnished by the petitioners in terms of the
agreement aforesaid with the respondent;
(xi) that the petitioners challenged the said action of the
respondent by filing OMP(I) No.117/2015 before this Court but
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which petition was dismissed vide order dated 27 March, 2015;
(xii) that thereafter negotiations were held between the parties
and though a settlement was arrived at and the petitioners also
paid the amounts in terms of settlement to the respondent but the
respondent has continued to seek enforcement of the aforesaid
Letter of Credit furnished by the petitioners, in a patently
fraudulent and illegal manner;
W.P.(C) No.11621/2015 Page 5 of 21
(xiii) that the petitioners again filed a petition under Section 9 of
the Arbitration and Conciliation Act, 1996 being OMP (I)
No.573/2005 before this Court and vide interim order wherein the
parties were directed to maintain status quo with respect to the
Letter of Credit and the petitioners directed to revive the Letter of
Credit;
(xiv) that aggrieved from the direction for revival of the Letter of
Credit, the petitioners filed an appeal being FAO (OS)
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No.611/2015 but which was dismissed as not pressed on 4
November, 2015;
(xv) that upon the dismissal of the appeal, Canara Bank being
the banker of the petitioners and which had at the instance of the
petitioners furnished the Letter of Credit, for renewing the Letter
of Credit asked the petitioners to furnish 100% margin money;
(xvi) that the petitioners made an application in OMP(I)
No.573/2015 supra for impleadment of Canara Bank and a
W.P.(C) No.11621/2015 Page 6 of 21
direction was issued to Canara Bank to renew / revive the bank
guarantee;
(xvii) that the proceedings in the said OMP are still pending;
(xviii) that the respondent being a State within the meaning of
Article 12 of the Constitution of India is liable to act fairly even
in contractual matters and cannot ask the petitioners to pay for
the gas which has not been consumed by the petitioners.
5. The senior counsel for the petitioners has been heard.
6. It has been enquired from the senior counsel for the petitioners
whether not the dispute between the parties is purely contractual, without
any public law element therein and if that be so, how is the public law
remedy of a writ petition under Article 226 of the Constitution of India
available to the petitioners particularly when the petitioners, in relation to
the same disputes, have also invoked the arbitration clause in the
agreement between the parties. Attention of the senior counsel for the
petitioners has been invited to the dicta of the Supreme Court in Joshi
Technologies International Inc. Vs. Union of India (2015) 7 SCC 728
W.P.(C) No.11621/2015 Page 7 of 21
dealing not only with the aspect of maintainability of writ petitions in
contractual matters but also with the aspect of variation / rectification of
contracts, as the petitioners in the present case also are seeking. It has
further been enquired, whether not the real relief which the petitioners
are claiming by way of this writ petition is a restraint against the
respondent from encashment of the bank guarantee furnished by the
petitioners in favour of the respondent inasmuch as the monetary claims
under the agreement of the respondent against the petitioners otherwise
raised can always be disputed by the petitioners and will have to be
enforced by the respondent either before the Civil Court or in arbitration.
7. The senior counsel for the petitioners of course has contended that
the availability of the alternative remedy of arbitration under the
contractual clause cannot be a ground to defeat the writ petition under
Article 226 of the Constitution of India if otherwise maintainable. It is
contended that if the respondent which qualifies as a State, in contractual
matters also, acts arbitrarily and unfairly, a writ petition would be
maintainable. A compilation of judgments is handed over though
W.P.(C) No.11621/2015 Page 8 of 21
reference during the hearing is made only to paras 23 and 24 of Life
Insurance Corporation of India Vs. Rajiv Khosla 186(2012) DLT 266
(DB) to contend that the Division Bench of this Court therein in writ
jurisdiction held the clauses in the insurance policy to be unfair and to
Japan Travel Services Vs. All Nippon Airways Co. Ltd.
MANU/DE/2953/2009 to contend that an arbitrator being a creature of
an agreement cannot strike down any clause in the agreement as unfair,
unreasonable and unjust.
8. I am unable to agree.
9. The claim of the petitioners in the writ petition is based on contract
and as aforesaid is essentially an attempt to restrain the respondent from
encashing the bank guarantee. Else, the respondent, to enforce its
monetary claims under the agreement will have to resort to proceedings
for recovery thereof either in a suit or in arbitration and the petitioners
can defend the said claims on all grounds as are urged in this petition.
Supreme Court in Joshi Technologies International Inc. supra after review
of host of earlier judgments on the subject inter alia held as under:
W.P.(C) No.11621/2015 Page 9 of 21
“ 68. The Court thereafter summarized the legal position in the following
manner: ( ABL International Ltd. Vs. Export Credit Guarantee
Corporation of India Ltd. (2004) 3 SCC 553 paras 27-28)
“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 Corporation Vs.
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."
W.P.(C) No.11621/2015 Page 10 of 21
69. The position thus summarized in the aforesaid principles has to be
understood in the context of discussion that preceded which we have
pointed out above. 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, can refuse to exercise. It also follows that under
the following circumstances, “normally”, the Court would not exercise
such a discretion:
69.1. The Court may not examine the issue unless the action has some public
law character attached to it.
69.2. Whenever a particular mode of settlement of dispute is provided in the
contract, the High Court would refuse to exercise its discretion under
Article 226 of the Constitution and relegate the party to the said made of
settlement, particularly when settlement of disputes is to be resorted to
through the means of arbitration.
69.3. If there are very serious disputed questions of fact which are of complex
nature and require oral evidence for their determination.
69.4. Money claims per se particularly arising out of contractual obligations are
normally not to be entertained except in exceptional circumstances.
70. Further, the legal position which emerges from various judgments of this
Court dealing with different situations/aspects relating to contracts
entered into by the State/public authority with private parties, can be
summarized as under:
70.1. At the stage of entering into a contract, the State acts purely in its
executive capacity and is bound by the obligations of fairness.
70.2. State in its executive capacity, even in the contractual field, is under
obligation to act fairly and cannot practice some discriminations.
W.P.(C) No.11621/2015 Page 11 of 21
70.3. 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
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 court can
direct the aggrieved party to resort to alternate remedy of civil suit, etc.
70.4. Writ jurisdiction of High Court under Article 226 was not intended to
facilitate avoidance of obligation voluntarily incurred.
70.5. Writ petition was not maintainable to avoid contractual obligation.
Occurrence of commercial difficulty, inconvenience or hardship in
performance of the conditions agreed to in the contract can provide no
justification in not complying with the terms of contract which the parties
had accepted with open eyes. It cannot ever be that a licensee can work
out the licence if he finds it profitable to do so: and he can challenge the
conditions under which he agreed to take the licence, if he finds it
commercially inexpedient to conduct his business.
70.6. 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.
70.7. Writ can be issued where there is executive action unsupported by law or
even in respect of a corporation there is denial of equality before law or
equal protection of law or if 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.
W.P.(C) No.11621/2015 Page 12 of 21
70.8. If the contract between private party and the State/instrumentality and/or
agency of State is under the realm of a private law and there is no 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 Constitutional of India and invoking
its extraordinary jurisdiction.
70.9. The distinction between public law and private law element in the
contract with State is getting blurred. However, it has not been totally
obliterated and where the matter falls purely in private field of contract.
This 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 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.
70.10. Mere reasonable or legitimate expectation of a citizen, in such a situation,
may not by itself be a distinct enforceable right, but failure to consider
and give due weight to it may render the decision arbitrary, and this is
how the requirements of due consideration of a legitimate expectation
forms part of the principle of non-arbitrariness.
W.P.(C) No.11621/2015 Page 13 of 21
70.11. 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.”
[Emphasis added]
10. The contract entered into by the petitioners with the respondent
contains an arbitration clause and which has also been invoked by the
petitioners. The Supreme Court, in the dicta aforesaid has clearly held
that in such cases writ petitions are not to be entertained. Not only so,
the issue arising for adjudication has no public law character attached to
it. In fact, the senior counsel for the petitioners has not even attempted
to argue so. Further, as aforesaid, the real claim in the writ petition is but
to thwart encashment of bank guarantee furnished under a contract. The
contract between the parties is strictly in the realm of private law.
11. Moreover, the petitioners in effect are seeking amendment /
rectification of the contract entered into with the respondent. The said
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contract was entered into first on 14 September, 2004 and renewed on
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26 December, 2008. The petitioners have throughout been aware of the
terms and conditions thereof and at no time objected thereto. A question
W.P.(C) No.11621/2015 Page 14 of 21
would arise whether the Court can order the contract to be rectified /
amended. The said aspect also has been dealt with in Joshi Technologies
International Inc. supra as under:
“54. As noted above, the contention of the Respondent is that PSCs are in
the nature of a contract agreed to between the two independent contracting
parties. It is also mentioned that before the signing of the PSCs, the approval of
Cabinet is obtained which reflects that the PSC as submitted to the Cabinet has
the approval of one of the contracting parties, namely, Government of India in
this case. When it is signed by the other party it means that it has the approval
of both the parties. Therefore, a contracting party cannot claim to be oblivious
of the provisions of the law or the contents of the contract at the time of signing
and, therefore, later on cannot seek retrospective amendment as a matter of right
when no such right is conferred under the contract. Even the doctrine of fairness
and reasonableness applies only in the exercise of statutory or administrative
actions of the State and not in the exercise of contractual obligation and issues
arising out of contractual matters are to be decided on the basis of law of
contract and not on the basis of the administrative law. No doubt, under certain
situations, even in respect of contract with the State relief can be granted Under
Article 226. We would, thus, be dealing with this aspect in some detail.
55. Law in this aspect has developed through catena of judgments of this
Court and from the reading of these judgments it would follow that in pure
contractual matters extraordinary remedy of writ 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 its 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.
W.P.(C) No.11621/2015 Page 15 of 21
72. As pointed out earlier as well, the contract in question was signed after
the approval of the Cabinet was obtained. In the said contract, there was no
clause pertaining to Section 42 of the Act. The Appellant is presumed to have
knowledge of the legal provision, namely, in the absence of such a clause,
special allowances under Section 42 would be impermissible. Still it signed the
contract without such a clause, with open eyes. No doubt, the Appellant claimed
these deductions in its income tax returns and it was even allowed these
deductions by the Income Tax Authorities. Further, no doubt, on this premise, it
shared the profits with the Government as well. However, this conduct of the
appellant or even the respondents, was outside the scope of the contract and that
by itself may not give any right to the appellant to claim a relief in the nature of
mandamus to direct the Government to incorporate such a clause in the contract,
in the face of the specific provisions in the contract to the contrary as noted
above, particularly, Article 32 thereof. It was purely a contractual matter with
no element of public law involved thereunder.”
[Emphasis added]
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12. Mention may also be made of order dated 18 March, 2015 of the
Supreme Court in Civil Appeal No.3053/2015 arising out of SLP (C)
no.15689/2011 titled National Highways Authority of India Vs. MEIL-
EDB LLC (JV) wherein the view taken by the Division Bench of this Court
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in judgment dated 10 March, 2011 in W.P.(C) No.8418/2010 titled M/s.
Madhucon Projects Ltd Vs. National Highways Authority of India was for
consideration. The Division Bench of this Court, in writ jurisdiction, had
interfered with the action of the National Highways Authority of India
(NHAI) of forfeiture of Bid Security reasoning that such forfeiture by way
W.P.(C) No.11621/2015 Page 16 of 21
of damages, by invocation of Bank Guarantee, could not be effected without
the NHAI proving the damages. The Supreme Court held:
“We are confronted with a situation when there is a contract between the
parties, duly signed by the Respondent which restricts forfeiture of 5% of
the value of the Bid Security ostensibly not by way of a penalty. Of
course, as is to be expected, the Respondent disagrees and on the
contrary submits that the deduction / forfeiture is in terrorem and is
punitive in nature. A Writ Court may at least as a temporary or
preliminary view decide whether the damages imposed by an Authority
amenable to writ jurisdiction such as NHAI indubitably are punitive or
not, but it should abjure from going into the minute calculation. That
controversy should be left to the Civil Court to decide, i.e. whether the
deduction / forfeiture, in the present instance of 5% of the value of the
Bid Security is punitive or otherwise. We think that the course that
commends itself to us is to relegate the parties to the Civil Courts to
determine whether any damages had been suffered by the National
Highways Authority of India and if so whether the deduction of 5% was a
fair pre-estimate or was punitive in nature. Since the parties have been
bona fide prosecuting writ proceedings in the event of the plaintiff seeks
enlargement / extension of time for filing of a Suit, the Courts in seisin
will keep all the circumstances in view before passing an order.”
13. From the aforesaid also it follows that a final decision with respect to
the contractual rights of the parties is not permissible in writ jurisdiction.
14. Not only so, the pleas on the basis of which the petitioners claim the
relief would require adjudication of i) whether the respondent at the relevant
time was enjoying a monopolistic position; in this regard it would also have
W.P.(C) No.11621/2015 Page 17 of 21
to be considered what other sources of energy besides RLNG were available
to the petitioners for generating power; ii) whether the parties were unequal
in bargaining power; iii) whether or not any negotiations took place between
the parties; iv) whether any of the terms of the contract are onerous to the
petitioners; v) whether the non-requirement now of the petitioners of RLNG
is on commercial considerations or otherwise; vi) whether the agreement
between the parties is specifically enforceable by the respondent as is
contended by the petitioners, and all of which are factual controversies and
adjudication whereof can only be by giving an opportunity to the parties to
lead evidence and cross-examine the witnesses of each other and for which
also a writ petition is not the appropriate remedy.
15. Supreme Court in R.L. Kalathia & Co. Vs. State of Gujarat (2011) 2
SCC 400 has reiterated that if a party which has executed a discharge
agreement or discharge voucher alleges that the execution of such discharge
agreement or discharge voucher was on account of fraud, coercion or undue
influence practiced by the other party and thus the said agreement / voucher
is void and cannot be acted upon, raises a disputed question of fact and to
establish which an opportunity to lead evidence has to be given and merely
W.P.(C) No.11621/2015 Page 18 of 21
on the basis of such agreement / discharge voucher, the claim cannot be
summarily dismissed. The same is the position here.
16. No merit is also found in the contention of the senior counsel for the
petitioners that the relief as sought in this petition, of certain clauses of the
contract entered into by the petitioners with the respondent being void on
the ground of being onerous, arbitrary, illegal, unreasonable, unjust and
against the public policy, does not lie before the Arbitrator for the reason of
the Arbitrator being a creature of the same contract. The said contention is
in negation of Section 16(1)(b) of the Arbitration and Conciliation Act, 1996
which provides that the Arbitral Tribunal may rule on any objection with
respect to the existence or validity of the arbitration agreement and for that
purpose a decision by the Arbitral Tribunal that the contract is null and void
shall not entail ipso-jure the invalidity of the arbitration clause.
17. Supreme Court in Reva Electric Car Co. (P) Ltd. Vs. Green Mobil
(2012) 2 SCC 93, in exercise of jurisdiction under Section 11(4) and (6) of
the Arbitration Act, held that the arbitration clause which forms part of the
contract has to be treated as an agreement independent of the other terms of
the contract and to ensure that there is no misunderstanding, Section
W.P.(C) No.11621/2015 Page 19 of 21
16(1)(b) of the Act further provides that even if the Tribunal concludes that
the contract is null and void, it should not result as a matter of law in any
automatic invalidation of the arbitration clause. The said principle was
recently reiterated in Ashapura Mine-Chem Limited Vs. Gujarat Mineral
Development Corporation (2015) 8 SCC 193. I am therefore with respect
unable to agree with the observation to the contrary in Japan Travel
Services supra.
18. As far as reliance by the petitioners on Life Insurance Corporation
of India supra is concerned, all that was held therein was that an unfair and
irrational clause in a contract is amenable to judicial review. In the facts of
that case, finding that insurance is a social security measure and holding that
it should be consistent with constitutional animation and conscience of
socio-economic justice enshrined in the Constitution, public law remedy
was deemed appropriate. However, in United India Insurance Company
Ltd. Vs. Manubhai Dharmasinhbhai Gajera (2008) 10 SCC 404 on which
reliance was placed by the Division Bench, it was specifically recorded that
in that case existence of jurisdiction of power of judicial review to strike
down a clause in the contract was not in question and it was clarified that
W.P.(C) No.11621/2015 Page 20 of 21
same would have no application for the purpose of modification, alterations
and additions of a term of the contract and that each case must be considered
on its own facts. Here, as aforesaid, the real motive behind this petition is to
seek restraint against encashment of Bank Guarantee which appears to have
been already invoked. I have recently in GAIL (India) Ltd. Vs. Petroleum
and Natural Gas Regulatory Board MANU/DE/3603/2015 dealt in detail
with the aspect of maintainability of writ petition for interfering with Bank
Guarantee and held the same to be not maintainable. Need is not felt to
reiterate the reasoning here.
19. There is thus no merit in the petition.
Dismissed.
No costs.
RAJIV SAHAI ENDLAW, J.
DECEMBER 15, 2015
bs/gsr
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(corrected and released on 12 January, 2016)
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