M. P. POWER MANAGEMENT COMPANY LIMITED, JABALPUR v. M/S. SKY POWER SOUTHEAST SOLAR INDIA PRIVATE LIMITED & OTHERS

The Judgment of the Court was delivered by A K. M. JOSEPH, J.

1Copy pinpoint1. Leave granted.

2Copy pinpoint2. The appellant impugns the Judgment of the High Court dated 27.02.2020 in Writ Petition No. 420 of 2019. It further challenges the B Order dated 28.12.2020 in Review Petition No. 682 of 2020. By the said Judgment in the Writ Petition, the High Court allowed the Writ Petition filed by the first respondent and quashed the Order dated 07.07.2018, which was passed by the appellant, terminating the Power Purchase Agreement (hereinafter referred to as ‘the PPA’, for short), which was entered into by the appellant and the first respondent. The review filed by the appellant was dismissed. Hence the appeals. THE FACTS

3Copy pinpoint3. The appellant, which is “a wholly owned company of the Government of Madhya Pradesh” (as described by the appellant in the D Special Leave Petition), is responsible for the bulk purchase of electricity in the State of Madhya Pradesh for onward sale/supply to the distribution utilities (DISCOMS). The appellant issued a request for proposal (RFP) dated 06.05.2015 for long-term procurement of 300 MW of solar energy through tariff-based competitive bidding. The bid of M/s Sky Power Southeast Asia Holding Limited was accepted. It was declared the successful bidder for three units of 50 MW each at different tariff rates. The bidder subsequently incorporated the first respondent, viz., M/s Sky Power Southeast Solar India Private Limited as a special purpose company. This was for developing one project of 50 MW. The rate, which is applicable in respect of the first respondent, was Rs.5.109 per unit. In respect of the other two bids, the bidder incorporated other companies, viz., M/s Sky Power Solar India Private Limited and M/s Sky Power Southeast Asia One Private Limited. The rates applicable in respect of said companies for the other two projects consisting of 50 MW each was Rs.5.298 per unit and Rs.5.051 per unit, respectively. The PPA was entered into on 18.09.2015. The agreement, inter alia, provided for pre-commissioning activities. They are described as satisfaction of conditions subsequent by the seller. The first respondent is the seller under the PPA.

4Copy pinpoint4. The Agreement contemplated completion of the conditions subsequent, within a period of 210 days. In other words, the Agreement, H

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A admittedly, provided that the first respondent was to achieve fulfilment of conditions subsequent by 15.04.2016. The Agreement further contemplates an extension of the period of fulfilment of the condition subsequent on payment of penalty for a further period of nine months. Thus, calculating 210 days and an additional nine months from 18.09.2015, which is the date of the PPA, the period would come to an end on B 15.01.2017. A communication was addressed dated 12.01.2017 by the first respondent. The first respondent purported to refer to Article 2.1 of the PPA, which, inter alia, reads as follows: “Article 2.1 Seller agrees and undertaken to duly perform and complete all of the following activities seller’s own cost and risk within 210 days from the effective Date unless such completion is affected by any force Majeure event, or if any of the Effective is specifically waived in writing by MPPMCL: a) The Seller shall obtain all Consents, Clearance and Permits required for supply of Power to MPPMCL as per the terms of this Agreement;”

5Copy pinpoint5. The first respondent purported to present certain documents and contend that there was compliance of its obligations under the PPA. This led to communication dated 22.02.2017 addressed by the appellant to the first respondent. It referred to the status of the documents, which the appellant noted. Furthermore, appellant sought certain documents. It is, inter alia, pointed out by the appellant that the first respondent had no documents in regard to 34.12 hectare of land and an unregistered lease deed for only 12 months was submitted, which could not be considered as fulfilment of the condition subsequent. Thereafter, it was stated that the PPA is liable to be terminated in terms of Article 2.5.1 of the PPA. Explanation/justification if any was called for from the first respondent. Acting on the request of the first respondent, the appellant granted time for response of the first respondent till 10.03.2017. The response, which was given on 10.03.2017, reads as follows:

G “Firstly, we are thrilled to update you that the project is under advanced construction and all equipment order for the project have been placed and construction happening on site we expect that the project will be top quality using the best equipment in the market and constructed by a top-tier EPC, for the benefit of both Sky Power and the state of MP. H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 11 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

1. Satisfaction of Condition subsequent regarding Construction A Financing MPPMCL Comment: “Loan sanction letter of Mis L&T Finance vide letter No. S07201A03/16-17 DATED 29.08.2016 Copy of facility agreement and affecting compliance documents as stated in above letters are required to be submitted” B SKY POWER comment: reference is made to paragraph 2.1.1.(b) of the PPA, reproduced below: Sd/- D.G.M. (Commerical-3) R.0. MPMCL, Bhopal” C

6Copy pinpoint6. Thereafter, the first respondent sent communication dated 14.03.2017. It reads as follows: “SKY POWER GLOBAL March 14, 2017 D To, The Managing Director MP Power Management Company Limited Bittan Market, E Bhopal-462016 Attention:Chief General Manager Commercial, MPPMC, Jabalpur. Ref: Submission of Documents to MP Power Management Company limited (“MPPMCL”) for fulfilment of Conditions subsequent by SkyPower southeast solar India private Limited F (“Sky Power”) Reference: 1. Sky Poer Letter dated 10 March 2017,

2. Sky Power Letter SKP2/MP/SOLAR MPPMCL/2015-16/06 dated 12 Jan 2017 G

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A submit that we have completed the entire acquisition for land 29, 85 Acres including balance 87.S Acres of land parcels. The relevant land registration documents have been enclosed for your perusal We hereby submit that we have duly completed land registration B for 249,85 Acer for the project Thanking you in anticipation. MIS SKYPOWER SOUTHEAST SOLAR INDIA PRIVATE LIMITED C Sd/- Shivani Jhariya (Authorized Signatory) Sd/- D.G.M. (Commerical-3) R.O. MPMCL, Bhopal” D

7Copy pinpoint7. After a gap of nearly five months, the next date, which is invoked by the appellant, is 09.08.2017. It is the case of the appellant that as the first respondent had failed to comply with the conditions subsequent, by misrepresentation and manipulation, it purported to obtain approval from the Chief Electrical Inspector General (CEIG) under Regulation 32 of the Central Electricity Authority (Measures relating to safety and electricity supply) Regulation, 2010 read with Section 162 of the Act. According to the appellant, the Report of the CEIG came to the knowledge of the appellant on 20.08.2017. Prior to the said date, the appellant purported to terminate the PPA in terms of Article 2.5.1(d) of the PPA, considering it to be mandatory by communication dated 11.08.2017. In short, according to the appellant, as the maximum period, within which, the conditions subsequent, had to be fulfilled, had run out on 15.01.2017, under the PPA, the appellant had no other option but to terminate the Agreement. This led to the first Writ Petition filed by the first respondent. The said Writ Petition, viz., Writ Petition No. 12880 of G 2017, came to be allowed by the High Court by Judgment dated 20.06.2018. The relevant portion of the Judgment reads as follows: “2. The contract has been terminated on account of 54 days delay in achieving the first milestone i.e., procurement of land, financial closure and necessary permissions from the competent authority H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 13 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

within 210 days from the date of execution of agreement for A completing the first part of the project. The only reason to terminate the agreement is that the petitioner has failed to achieve first milestone within 210 days though the condition of - procurement of land was modified after 210 days on 20.04.2016. The delay in achieving the first milestone is visited with penalty in terms of B Clause 2.5. of the agreement.

3. Similar communication terminating the contract was set aside by this Court in Writ Petition No.12432/2017 (Renew Clean Energy Private Limited vs M.P. Power Management Company Limited and another) vide order dated 18.08.2017. In the said petition, the petitioner has admittedly commissioned the power project within C the time prescribed except that there was delay of 16 days in achieving the first milestone. The said order has been affirmed on 05.04.2018 by the Hon’ble Supreme Court in Civil Appeal No.3600/ 2018 (M.P. Power Management Company Limited vs Renew Clean Energy Private Limited and another). D

4. The parties are not ad idem about the stage of commissioning of the power project in the present petition.

5. Mr. Kaurav sought to justify the termination of the Power Purchase Agreement (PPA) asserting that the petitioner has not commissioned the power project within the time fixed in the agreement, but the lack of commissioning of power project is not the reason for terminating of the contract. Since, such is not the reason mentioned in the order terminating the agreement, therefore, the respondents cannot supplement the reasons for termination of the contract by virtue of additional assertions in the return and/or in the arguments raised in view of the Supreme Court decision in Mohinder Singh Gill v. Chief Election Commissioner (1978) 1 SCC 405.

6. In view of the fact that the similar reason of termination of the agreement has not been found to be justified in the matter of G Renew Clean Energy Private Limited (supra), therefore, the impugned communication dated 11.08.2017 is hereby set aside. However, liberty is granted to the respondents to pass fresh orders in terms of Power Purchase Agreement dated 18th September, 2015 in accordance with law.” H

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8Copy pinpoint8. On 07.07.2018, the appellant issued the fresh termination notice. This came to be challenged by the first respondent by Writ Petition No. 420 of 2019. After exchange of pleadings, by the first impugned judgment dated 27.02.2020, the High Court set aside the termination order. Thereafter the appellant in September, 2020 filed review petition which came to be dismissed by the second impugned order. On 15.04.2021 this B court issued notice and stayed the impugned orders.

9Copy pinpoint9. We have heard Mr. K.M. Natraj, learned Additional Solicitor General on behalf of the appellant and Dr. A.M. Singhvi, learned Senior Counsel along with Mr. Naman Nagrath, learned Senior Counsel on behalf of the first respondent. We also heard Shri V. Giri, learned Senior C Counsel appearing for the fifth respondent (Madhya Pradesh State Load Despatch Centre).

10Copy pinpoint10. Shri K.M. Natraj, learned Additional Solicitor General submits that the impugned judgments are clearly unsustainable. He would firstly point out that the writ petition filed by the first respondent is not maintainable. The PPA in question is not a statutory contract and therefore interference with the order terminating the contract was not justifiable. In this regard he drew support from the judgment of this Court in Kerala State Electricity Board and Another v. Kurien E. Kalathil and Others 1. He would next contend that the PPA contemplated provisions to resolve disputes. He further contended that first respondent should have resorted, if at all, to a civil suit to claim redress. He pointed out that a writ petition is a public law remedy. The contract in question not being statutory in nature, there was no public law element so as to justify the approach under Article 226. He would next contend that there is no basis for the High Court to have interfered at all. This is a case where broadly the contract contemplated fulfilment of conditions at two stages. The first stage related to various conditions that had to be fulfilled by the first respondent which are described as conditions subsequent in the PPA. They are also aptly described as the pre-commissioning stage. The PPA clearly contemplated fulfilment of these conditions on an indisputable basis on or before 15.01.2017. In arriving at this date, the maximum period of 9 months contemplated under the PPA as the period which can be extended on payment of penalty is also included. However, the first respondent did not fulfil the conditions subsequent except with a further delay of 56 days. The PPA clearly provides that if the time limit is 1 H (2000) 6 SCC 293

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 15 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

exceeded which in this case was 15.01.2017, the appellant shall terminate the contract. This is not a question of power or a discretion. This is a right which inhered with the appellant, a party to a contract. In this regard he would emphasise that while the State may be burdened with the obligation to act in a fair manner, it does not take away the rights available to the State as a party to a contract to exercise the right with it under the contract. In other words, the appellant as State within the meaning of Article 12 should not be denied the very right which could be duly exercised by a private party if it stood in the shoes of the appellant in similar circumstances. This is all that has been done by the appellant. Coming to the second stage, namely, commissioning of the project by the first respondent, our attention was drawn to Article 2.6 of the PPA. C He contended that agreement contemplated commissioning of plant within 12 months from the date of the financial closure subject to Force Majeure. He would point out that there were no circumstances for invoking Force Majeure. The period of 12 months from the date of financial closure determined the maximum period within which the commissioning had to take place. He would submit that first respondent was in breach of even commissioning. Therefore, on that score also, there is no justification for the High Court to have interfered in the matter. He would further submit that there is another vital circumstance which should have dissuaded the High Court from granting relief. The case threw up disputed questions of facts. On the one hand, it was the case of the first respondent, that the first respondent had proceeded to do everything within the time which is a period of two years from 18.09.2015, the date of the PPA, and it was only if commissioning was not done within the said period that what is described in the agreement as Seller’s default occurs. Here is a case where the first respondent had not actually on the ground carried out necessary installation. In this regard, he would contend that while the CEIG has given its approval, the approval was granted without the first respondent having complied its obligations under the contract. In this regard essentially two aspects are projected. It is firstly pointed out that while the first writ petition was pending consideration, the appellant carried out an inspection on 19.04.2018. A G report ensued on 21.04.2018. It was revealed that the approval which is granted by the CEIG may not advance the case of the first respondent as certain lacunae emerged. It was found by the inspecting team of the appellant that in the blocks 9 and 10 (the project of 50MW consisted of 10 blocks of 5 MW each), 61 inverters were missing. It was further H

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A revealed that in regard to 258 invertors, there was duplication of numbers. In other words, without there being the professed numbers of invertors as required under the contract, the approval of the CEIG was procured. In fact, this aspect, which when it was discovered by the appellant, formed the foundation for the review petition but was not favourably considered by the High Court. A writ petition in the facts of this case would not lie. He would submit that while a writ petition may be maintainable when the State is awarding its largesse in the form of award of contract, once it enters into a contract there would arise no occasion for the court to do judicial review and strike it down. Action taken by the state as contracting party when it is within the four walls of the contract is immune in public law proceedings. That an action may lie for breach of contract where the aggrieved party can seek damages should have weighed with the court. He would further contend that there is yet another dimension which has been overlooked by the High Court. The overwhelming public interest in the facts of this case did not favour the writ court interfering in the matter. In this regard he would expatiate by pointing out that the interference by the High Court will produce the following results: The PPA casts an obligation on the appellant to purchase power at the rate of Rs.5.109 per unit for a period of 25 years. Power is available in the market at a far cheaper rate. The inevitable result of implementing the order of the High court would be that the appellant would have to purchase power at a much higher rate and what is more disturbing and should have troubled the High Court to decline jurisdiction is the aspect that the increased rate would have to be passed on to the end consumer. Put it differently, when the appellant being entitled to terminate the contract and would be in a position to purchase power at a cheaper rate and charge the consumers at the lower rate, by the court granting relief to the first respondent, the appellant is compelled to purchase power at the higher rate and that too for a long period of 25 years, and what is more, compelled to pass on the burden to the hapless consumer. Thus, public interest in fact in the case lay in the court declining to grant relief to the first respondent. He would further point out that the impugned judgment does not deal with any of the aspects, be it the factual dimensions or the legal requirements. The judgment is bereft of discussion of the contentions raised by the appellant. He would therefore contend that the impugned judgments should be set aside and appeals allowed. H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 17 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

11Copy pinpoint11. Per contra, Dr. A.M. Singhvi, learned Senior Counsel for the first respondent would point out that there is absolutely no basis for maintaining the appeal in the facts. He would point out that this is a case where the first respondent turned out to be the lowest bidder in respect of the project in question and what is more an incredible number of 182 bidders participated. It is trouncing its competitors that the holding company of the first respondent turned out to be the lowest bidder (here we must notice that during the course of the arguments the appellant did propose that first respondent could come up with proposal which apparently should involve rates lower than the contract rate so that the public interest concern is adequately addressed whereas the first respondent pointed out since it has planned for the project on the basis which made it the lowest bidder, it would not be feasible for it to reduce the rate any further). Dr. Singhvi pointed out that there is no basis for discriminating the case of the first respondent and M/s. Renew Energy. It is pointed out that the High Court in the first round of litigation had interfered with the termination order following the judgment in Renew D Energy. In the case of Renew Energy, it could achieve fulfilment of the conditions subsequent with a delay of 16 days which was condoned finally. In the case of the first respondent, the delay happened to be 56 days. Otherwise, their cases are similar. Renew Energy was allowed to commission whereas the first respondent was at the receiving end of discrimination without any basis. He would point out that the first respondent under the contract had 24 months from 18.09.2015 to commission the project. Well before the expiry of 24 months, the project was ready. The respondent was prevented from commissioning. A party cannot take advantage of its own wrong. He would point out that the law has not stood still after this Court adopted a hands off approach in the decision in Radhakrishna Agrawal and others v. State of Bihar and others2. Imbibing the grand mandate in Article 14 that it behoves the State to steer clear of unfairness in all its acts, this Court has weaved a taboo against arbitrary action by the state even after it entered into a contract. He would point out in this regard the judgment of this Court in ABL International Ltd. v. Export Credit Guarantee Corpn. of India G Ltd.3 and the decisions following the same approving of the writ court granting relief in contractual matters also. He would point out that, present arbitrariness, be it after a contract is entered into, the State has no place 2 (1977) 3 SCC 457 3 (2004) 3 SCC 553 H

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A to hide when action is challenged and its action must pass the scrutiny of the constitutional court. It must demonstrate that the action was fair. The action of the State falls far short of the exacting standard of fairness that the Constitution demands in the case at hand for the following reasons:

12Copy pinpoint12. Outbidding an unusually large body of competitors, a bid based on competitive tariff, the first respondent which is a global player in Renewable Energy (solar power) bids at a rate which was very much acceptable to the appellant and investment was made by the first respondent in the region of nearly Rs. 350 crores. There was an initial hiccup. One of the conditions subsequent was that the first respondent had to acquire land for the project by way of sale deeds. There were insuperable obstacles which upon the first respondent pointing them out to the appellant, the appellant realized the genuine difficulty and amended the Article. This, in fact, would necessarily mean that the period of 210 days would commence not from the date of the agreement but thereafter on the basis of the amended Article. The first respondent engaged the services of a company for the purposes of purchase and installation of the parts of the project. It had procured, inter alia the invertors which were to be installed, from abroad. There are irrefutable documents in the form of invoices, bills of lading, lorry receipts which fortify the first respondent in its stand that it had installed all the invertors. The project was ready to take off well within 24 months. The first respondent would suffer grave avoidable financial loss, besides fall in esteem as a global player, if the termination dated 07.07.2018 is allowed to stand. Under the contract, the first respondent was obliged to sell power at an agreed rate for a period of 25 years. The fact that in view of the play of market forces, there has been a fall in the price of solar power and it would be open to the appellant to procure solar power at a cheaper rate should not allow the appellant to resile from its contractual obligations. In fact, it is pointed out that the appellant is purchasing power even now at even higher rates. Being State under Article 12, the appellant should not be permitted to seek shelter under the theory of alternate remedies. This G Court is reminded of the chronology of events commencing from the date of the PPA in the year 2015. The first respondent has succeeded before the High court on two occasions. In this regard he would point out that in the impugned termination order dated 07.07.2018, the appellant has purported to revive the closed chapter relating to non-fulfilment of conditions subsequent. The contention runs that by the judgment in the

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 19 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

first writ petition the impugned order therein which was based on the first respondent not fulfilling the conditions subsequent was quashed. This was done being inspired by the judgment of the High court in the case of Renew Energy which has received the seal of approval by this Court as well. As far as the only other aspect about commissioning not being in time Dr. Singhvi addressed two submissions. Firstly, he would point out that admittedly, the appellant has not issued the pre-termination notice contemplated in Article 9.1 of the PPA. This suffices to sustain the judgment. Secondly, equally importantly the appellant has acted arbitrarily in not realizing that the first respondent had 24 months to commission the project and before the expiry of the same, the respondent was fully ready to fulfil its obligation. The learned senior counsel would also submit that contention of there being disputed questions of fact is premised on red herrings. In this regard he would point out that on 09.07.2017, a notice was issued by the first respondent to the appellant calling upon the appellant to inspect and it would be ready to commission the project and that it was ready to supply power. However, no inspection was carried by the appellant till 19.04.2018. The competent body namely the CEIG had carried out inspection which spread over a few days. The Body was fully satisfied with the first respondent being compliant. All that happened was after the inspection, in September, 2017 since the first respondent was visited with the first order of termination dated 11.08.2017 which was challenged in the High Court, there was a shortage of personnel around the project site. This facilitated thefts of the parts which were installed. FIRs promptly registered in September 2017 should rule out the possibility of the case of theft being an afterthought. This is as the inspection was carried by the appellant much later on 19.04.2018. It is further pointed out that as far as the duplication is concerned in the number of certain invertors, it has been established as inconsequential by the first respondent. The inspection and the report of the CEIG cannot be lightly brushed aside on such a case. Still furthermore, it is pointed out that having regard to the massive cost of the project which stood at nearly Rs. 350 crores, what is involved is a miniscule percentage. In this regard learned counsel would emphasise the contravention of Article G 9.1 under which the appellant was obliged to serve a notice in case of the alleged seller’s default for not commissioning the project in 24 months from the date of PPA. If such a notice had been given, the first respondent would have had an opportunity if at all even proceeding on the basis of appellant’s contention being tenable to procure invertors which are H

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A portable and available in the market and redress the problem. When the project has progressed in the manner, it had to deny the first respondent the fruits of its labour, acting under a solemn contract awarded to it would be clearly unfair. The mere fact that there had been a fall in the market price of solar power should not persuade this Court to find that there is no overwhelming public interest. In this regard he also sought to draw support from recent Judgment of this Court in Vice Chairman & Managing Director, City and Industrial Development Corporated of Maharashtra Ltd. and Another v. Shishir Realty P. Ltd. and others. He would further point out that solar power being renewable energy and green energy must be encouraged and it was on this basis that the first respondent participated in the global tender and was selected, upon it being the lowest bidder amongst a large number of bidders. Dr. Singhvi would point out that for various reasons the contract in question is a statutory contract. He would submit that any rate irrespective of being statutory contract or not, it is but a fact in deciding whether the writ applicant should be relegated to an alternate remedy. The jurisdiction of the High Court under Article 226 in the overpowering presence of Article 14 would embrace the power to strike at arbitrary action by the State, even in the working out of rights in a non-statutory contract.

13Copy pinpoint13. Shri V. Giri, learned senior counsel for respondent No.5 would support the appellant in its stand that the first respondent was in clear breach of the contract. It is the case of fifth respondent that there are various steps to be undertaken and completed under regulations extant before which commissioning can be permitted. It is the case of the fifth respondent that the first respondent could not therefore be said to have acted in compliance with the regulations and therefore cannot be heard to say that it had commissioned the project.

14Copy pinpoint14. Shri K.M. Natraj, Additional Solicitor General would submit that the judgment of the High court in the first-round litigation left it open to the appellant to take fresh proceedings under the contract. It is for the said reason that the said judgment was not challenged by the appellant. G He would also point out at any rate even proceeding on the basis that the High Court is bound by the earlier judgment at any rate, as far as this Court is concerned, it would be free to consider the issue as to whether on account of there being an admitted delay of 53 days by the first respondent beyond the maximum time contemplated under the contract for fulfilling conditions subsequent, whether the appellant was justified H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 21 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

being duty bound in the matter of terminating the contract? He further pointed out that there was a distinction in the case of the first respondent and the case of Renew Energy. In the case of Renew Energy, this Court while refusing to interfere with the judgment of the High Court had made it clear that it is not pronouncing on the question as to the delay in fulfilling the conditions subsequent and its impact. Secondly, it is pointed out that in the case of Renew Energy, the said company had gone ahead and commissioned the project and the only aspect was the delay of 16 days whereas in the case of the first respondent the contract was liable to be terminated both for the reasons that the conditions subsequent was not fulfilled within the maximum time and also for the reason that the first respondent had not commissioned the project within the time provided under the contract.

15Copy pinpoint15. After hearing the learned counsel for the parties, we find that the following points arise for our consideration. (1) Whether the PPA in question, is a statutory contract? D (2) What is the scope of judicial review of action by the State in a matter arising from a contract and what is the effect of the contract not being statutory? What is arbitrariness? (3) What is the concept of public law in judicial review in a contractual matter? E (4) Whether there is an arbitration clause in regard to the subject matter? (5) Whether the order dated 07.07.2018 terminating the contract based on first respondent not fulfilling the conditions subsequent is sustainable having regard to the judgment rendered by the High Court in the earlier round of litigation on 20.06.2018? And will the said judgment bar the appellant from terminating the contract on the ground of non-fulfilment of conditions subsequent? (6) Whether the writ petition must be dismissed as the case involves disputed questions of facts? (7) Whether the case of the first respondent is on par with Renew Energy?

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A (8) What is the effect of non-compliance of Article 9.1 of the PPA, namely, the effect of appellant not issuing notice contemplated therein before issuing the impugned termination dated 07.07.2018? (9) What is overwhelming public interest in the context of B judicial review in a contractual matter? Is the concept applicable only to cases which involve challenge to award of largesse by the State or is it applicable across the Board irrespective of the stage when the matter arises in relation to a contract? C (10) Whether this Court should interfere with the judgment of the High Court in the totality of facts?

16Copy pinpoint16. Before we proceed to consider the question whether what is involved is a statutory contract or not, we may make the following prefatory remarks: D Under Article 298 of the Constitution, the Executive Power of the Union and each State, inter alia, extends to making of contracts for any purpose. Article 299 provides for manner in which contracts made in the exercise of the executive power of the Union or the State is to be made.

17Copy pinpoint17. In this case, we are dealing not with a case where a contract has been made by the State in exercise of its executive power within the meaning of Article 298. The PPA is a contract which has been entered into by the appellant, which is a fully owned Government Company. It is one thing to hold that the appellant, as a fully owned Government F Company, would be State for the purpose of Article 12 of the Constitution of India and, quite another, to find that a contract is one which is made in the executive power of the State within the meaning of Article 162 of the Constitution. What is contemplated, is the power of the Union or the State read in conjunction with Article 73 and Article 162 of the Constitution of India, respectively. In other words, for the purpose of Article 298, the G broader concept of State, as defined in Article 12 of the Constitution, which, no doubt, would include the appellant, is inapposite and inapplicable. The appellant, being a Company, would not be entitled to exercise the executive power contemplated in Article 162 of the Constitution, which is the power with the Union or the State Governments. In this regard we H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 23 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

may notice that the present avtar of Article 298 is born by substituting in A 1956 the original version and the present version reads as follows: - “298. Power to carry on trade, etc. The executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose: B Provided that — (a) the said executive power of the Union shall, in so far as such trade or business or such purpose is not one with respect to which Parliament may make laws, be subject in each State to legislation by the State; and C

(b) the said executive power of each State shall, in so far as such trade or business or such purpose is not one with respect to which the State Legislature may make laws, be subject to legislation by Parliament.” D It is pertinent to notice the Objects and Reasons. “Clause 19.-In this clause it is proposed to revise and amplify the scope of article 298, mainly to make it clear that Union Government, as well as the State Governments, are competent to carry on any commercial or industrial undertaking, whether E or not it is related to a matter within the legislative competence of the Union, or, as the case may be, of the State. Similarly, the holding, acquisition and disposal of property and the making of contracts by the Union or a State could be for any purpose without constitutional impropriety. At the same time, the revised article provides that this extended executive power of the Union F and of the States will be subject, in the former case, to legislation by the State, and in the latter case, to legislation by Parliament.” WHETHER THE PPA IS A STATUTORY CONTRACT?

18Copy pinpoint18. Moving on to the concept of the Statutory Contract, the learned Additional Solicitor General, no doubt, sought to draw considerable G support from the Judgment of this Court reported in Kerala SEB and another v. Kurien E. Kalathil and others4. That was a case, which involved, a Writ Petition filed by a contractor, who was awarded the

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A work of construction of a dam, staking a claim, for enhanced minimum wages, which the contractor claimed, he had paid to his workers. There was no dispute that the workmen were entitled to the enhanced wages under a Notification. The appellant-Board, however, contended that the respondent-contractor had failed to prove the payment of the enhanced wages to the workmen. The High Court allowed the Writ Petition and this Court, while setting aside the Judgment, proceeded to make the following statement: “10. We find that there is a merit in the first contention of Mr Raval. Learned counsel has rightly questioned the maintainability of the writ petition. The interpretation and implementation of a clause in a contract cannot be the subject- matter of a writ petition. Whether the contract envisages actual payment or not is a question of construction of contract. If a term of a contract is violated, ordinarily the remedy is not the writ petition under Article 226. We are also unable to agree with the observations of the High Court that the contractor was seeking enforcement of a statutory contract. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. We are also unable to agree with the observation of the High Court that since the obligations imposed by the contract on the contracting parties come within the purview of the Contract Act, that would not make the contract statutory. Clearly, the High Court fell into an error in coming to the conclusion that the contract in question was statutory in nature.

11. A statute may expressly or impliedly confer power on a F statutory body to enter into contracts in order to enable it to discharge its functions. Dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not by itself affect G 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 H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 25 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

any issue of public law. In the present case, it has not been shown how the contract is statutory. The contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil court or in arbitration if provided for in the contract. Whether any amount is due and if so, how much and refusal of the appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ petition. The contractor should have relegated to other remedies.”

19Copy pinpoint19. As to what is a statutory contract, fell for consideration before this Court in the case reported in India Thermal Power Ltd. v. State of M.P. and others5. Incidentally, it dealt with generation, distribution and supply of electricity and, what is more, emanated from the State of Madhya Pradesh. While negotiations were going on between the respondent-State, Electricity Board and independent power producers, on the basis of State inviting offers from potential private investors, for establishing power projects, the Central Government amended the earlier Tariff Notification. The Electricity Board decided to prioritize the projects, which offered the least tariff. The appellant-independent power producer challenged the said decision in a Writ Petition. It must be noticed that MoU and Power Purchase Agreement had been entered into by the appellant therein. The Division Bench of the High Court took the view that the PPAs therein were statutory contracts, entered into under Sections 43 and 43(A) of the Electricity Supply Act, 1948. This Court, while dealing with this aspect and rejecting the contention that the Electricity Board could not unilaterally alter the conditions of the contract and invite bids, held as follows: “11. It was contended by Mr Cooper, learned Senior Counsel appearing for appellant GBL and also by some counsel appearing for other appellants that the appellant/ IPPs had entered into PPAs under Sections 43 and 43-A of the Electricity Supply Act and as such they are statutory contracts and, therefore, MPEB had no power or authority to alter their terms and conditions. ………………

5 (2000) 3 SCC 379 H

26 SUPREME COURT REPORTS [2022] 5 S.C.R.

A ……… Merely because a contract is entered into in exercise of an enabling power conferred by a statute that by itself cannot render the contract a statutory contract. If entering into a contract containing the prescribed terms and conditions is a must under the statute then that contract becomes a statutory contract. If a contract incorporates certain terms and conditions in it which are statutory then the said contract to that extent is statutory. A contract may contain certain other terms and conditions which may not be of a statutory character and which have been incorporated therein as a result of mutual agreement between the parties. Therefore, the PPAs can be regarded as statutory only to the extent that they contain provisions regarding determination of tariff and other statutory requirements of Section 43-A(2). Opening and maintaining of an escrow account or an escrow agreement are not the statutory requirements and, therefore, merely because D PPAs contemplate maintaining escrow accounts that obligation cannot be regarded as statutory.” (Emphasis supplied)

20Copy pinpoint20. The decision in India Thermal Power Ltd. (supra), dealing E with the concept of statutory contract, came to be considered in the light of Section 6A of U.P. Industrial Area Development Act of 1976. The said provision reads as follows: “6A. Power to authorize a person to provide infrastructure or amenities and collect tax or fee. - Notwithstanding F anything to the contrary contained in any other provisions of this Act and subject to such terms and conditions as may be specified in the regulations, the Authority may, by agreement, authorize any person to provide or maintain or continue to provide or maintain any infrastructure or amenities under this Act and to collect taxes or fees, as the G case may be, levied therefor.”

21Copy pinpoint21. This Court interpreting a contract entered into under Section 6A in Jaypee Kensington Boulevard Apartments Welfare Association and others v. NBCC (India) Ltd. and others6, took the view that the

H 6 (2022) 1 SCC 401

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 27 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

agreement in question did not acquire the status of a statutory contract merely for having been executed in terms of the power under Section 6A.

22Copy pinpoint22. The contention of the respondent is that the PPA is a statutory contract since it incorporates essential features such as tariff determined through bidding (paragraph-4.7-CUF, paragraph-4.4-change in law, paragraph-4.5-payment security, paragraph-4.6-and bidding process, paragraphs-5.4 and 5.5-prescribed under the guidelines for tariff based competitive process for grid connected power project based on renewable energy resources issued by the MNRE under Section 63 of the Act).

23Copy pinpoint23. The respondent relies on India Thermal Power Ltd. (supra) C to contend that if the contract incorporates certain statutory terms and conditions, it is statutory.

24Copy pinpoint24. Section 63 of the Electricity Act, 2003, reads as follows: “63 (Determination of tariff by bidding process) Notwithstanding anything contained in Section 62, the appropriate Commission shall D adopt the tariff, if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government.”

25Copy pinpoint25. In the PPA in question, under the definition clause (Article 1), bidding guidelines have been defined as follows: E “Bidding Guidelines” shall mean the “Guidelines for Tariff Based Competitive Bidding Process for Grid Connected Power Projects Based on Renewable Energy Sources” issued by Government of lndia, Ministry of New and Renewable Energy on December, 2012 under Section - 63 of the Electricity Act and as amended from time to time;”

26Copy pinpoint26. We are of the view that it may not be appropriate to describe the PPA as a Statutory Contract. Section 63 of the Electricity Act, 2003 must be understood in the background of immediately preceding provision, viz., Section 62, In a paradigm shift from the earlier regime, the task of determining the tariff has been conferred on the appropriate Commission. Section 62 indicates the procedure. Section 63, on the other hand, compels the Commission to adopt the tariff determined through a transparent process of bidding. However, the transparent process of bidding must be in accordance with the guidelines issued by the Central Government. H

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A Thus, it is for the purpose of applying the tariff determined under Section 63 for the purpose of adopting the tariff under Section 62, that the guidelines issued by the Central Government become relevant. It is true that there is reference to the guidelines made under Section 63 in the PPA. However, it is for the purpose of conducting the bidding that the guideline would become relevant. That the tariff has been arrived at in accordance with the transparent process of bidding, which is in tune with the guidelines under Section 63, may not be sufficient to make the PPA a Statutory Contract. What is contemplated in India Thermal Power Limited (supra), is that a contract containing prescribed terms and conditions being mandatory under the Statute, results in the contract becoming a Statutory Contract. If this test is applied, we fail to see how the reference to the bidding guidelines, under which the bids were made and finally the PPA is entered into, can be treated as tantamounting to saying that the PPA contains prescribed statutory terms and conditions as an indispensable part of a Statute. We are not shown also as to how the PPA can be described as containing terms and conditions, which are statutory in nature. The expression ‘terms and conditions’, which are statutory in nature, must be understood as those statutory terms and conditions, which provide for rights and obligations of the contracting parties. Such reference is conspicuous by its absence in the PPA. It is common case that the appellant is incorporated under the Companies E Act. It is not a statutory body or a corporation. Therefore, we would come to the conclusion that we cannot describe the contract as a Statutory Contract. We must also notice that the PPA is not made either in purported compliance with the statutory dictate, either in the form of parent enactment or a subordinate legislation. The terms and conditions of the PPA are not transplanted into the PPA from any Statutory provision. F The appellant being company under the Companies Act, would be free as any other contracting party, subject, no doubt, to its position as an instrumentality of the State under Article 12 of the Constitution of India and the law otherwise. Moreover, the terms, which are relevant to the lis before us, viz, the Articles relating to the fulfilment of the condition G subsequent and the provisions relating to commissioning, sellers’ default and power of termination, are not demonstrated to be statutory in nature. What is the scope of judicial review of action by the State in a matter arising from a contract and what is the effect of the contract not being statutory? H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 29 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

What is the concept of public law in judicial review in a A contractual matter? What is ‘arbitrary’ action?

27Copy pinpoint27. In Radhakrishna Agarwal and Ors. v. State of Bihar and 7 Ors. writ petitions were filed against orders of the State Government revising the rate of royalty under a lease. The contention was both against the revision of rate of royalty during the period of the lease and the cancellation of the lease on various grounds. Though an attempt was sought to draw support from the judgment of this Court in Erusian Equipment and Chemicals Limited v. State of West Bengal8, the Court took the view that the said case involved discrimination at the threshold or at the time of deciding as to whether the Government should enter into the contract. The Court took the view that the only question which normally arises in such cases is as to whether the action complained of was in conformity with the agreement. We may notice the earlier opinions of this Court which came to be dealt with in the following statement: D “We do not think that any of these cases could assist the appellants or is at all relevant. None of these cases lays down that, when the State or its officers purport to operate within the contractual field and the only grievance of the citizen could be that the contract between the parties is broken by the action complained of, the appropriate remedy is by way of a petition under Article 226 of the Constitution and not an ordinary suit. There is a formidable array of authority against any such a proposition. In Lekhraj Satramdas Lalvani v. N.M.Shah, Deputy Custodian-cum- Managing Officer, Bombay (supra) this Court said: “In our opinion any duty or obligation falling upon a public servant out of a contract entered into by him as such public servant cannot be enforced by the machinery of a writ under Article 226 of the Constitution.” In Banchhanidhi Rath v. The State of Orissa and Ors.9, this Court declared: G “If a right is claimed in terms of a contract such a right cannot be enforced in a writ petition.” 7 (1977) 3 SCC 457 8 (1975) 1 SCC 70 9 (1972) 4 SCC 781 H

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A In Har Shankar and Ors. vs. The Dy. Excise and Taxation Commr. and Ors.10, a Constitution Bench of this Court observed: “The appellants have displayed ingenuity in their search for invalidating circumstances but a writ petition is not an appropriate remedy for impeaching contractual obligations.”

28Copy pinpoint28. The Court also took the view “the correct view is that it is the contract and not the executive power regulated by the Constitution which governs the relations of the parties on facts apparent in the case before us”. No doubt the learned Additional Solicitor General asserts that the destiny of the appeals before us must be governed by the law laid down in Radhakrishna Agarwal (supra). However, as shall be presently noticed the law has not stood still.

29Copy pinpoint29. In Ramana Dayaram Shetty v. International Airport Authority of India11 this court inter alia held as follows: “10. Now, there can be no doubt that what para (1) of the notice prescribed was a condition of eligibility which was required to be satisfied by every person submitting a tender. The condition of eligibility was that the person submitting a tender must be conducting or running a registered IInd Class hotel or restaurant and he must have at least 5 years’ experience as such and if he did not satisfy this condition of eligibility, his tender would not be eligible for consideration. This was the standard or norm of eligibility laid down by Respondent 1 and since the Respondents 4 did not satisfy this standard or norm, it was not competent to Respondent 1 to entertain the tender of Respondents 4. It is a well-settled rule of administrative law that an executive authority must be rigorously held to the standards by which it professes its actions to be judged and it must scrupulously observe those standards on pain of invalidation of an act in violation of them. This rule was enunciated by Mr Justice Frankfurter in Viteralli v. Saton [359 US 535 : Law Ed (Second series) 1012] G where the learned Judge said: “An executive agency must be rigorously held to the standards by which it professes its action to be judged .… Accordingly, if dismissal from employment is based on a defined procedure, even 10 (1975) 1 SCC 737 H 11 (1979) 3 SCC 489

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though generous beyond the requirements that bind such agency, A that procedure must be scrupulously observed .... This judicially evolved rule of administrative law is now firmly established and, if I may add, rightly so. He that takes the procedural sword shall perish with the sword.” This Court accepted the rule as valid and applicable in India in A.S. B Ahluwalia v. Punjab [(1975) 3 SCC 503, 504 : 1975 SCC (L&S) 27 : (1975) 3 SCR 82] and in subsequent decision given in Sukhdev v. Bhagatram [(1975) 1 SCC 421, 462 : 1975 SCC (L&S) 101 : (1975) 3 SCR 619], Mathew, J., quoted the above- referred observations of Mr Justice Frankfurter with approval. It may be noted that this rule, though supportable also as an emanation from Article 14, does not rest merely on that article. It has an independent existence apart from Article 14. It is a rule of administrative law which has been judicially evolved as a check against exercise of arbitrary power by the executive authority. If we turn to the judgment of Mr Justice Frankfurter and examine it, we find that he has not sought to draw support for the rule from the equality clause of the United States Constitution, but evolved it purely as a rule of administrative law. Even in England, the recent trend in administrative law is in that direction as is evident from what is stated at pp. 540-41 in Prof Wade’s “Administrative Law”, 4th Edn. There is no reason why we should hesitate to adopt this rule as a part of our continually expanding administrative law. Today with tremendous expansion of welfare and social service functions, increasing control of material and economic resources and large scale assumption of industrial and commercial activities by the State, the power of the executive Government to affect the lives of the people is steadily growing. The attainment of socio-economic justice being a conscious end of State policy, there is a vast and inevitable increase in the frequency with which ordinary citizens come into relationship of direct encounter with State power-holders. This renders it necessary to structure and restrict the power of the executive Government so as to prevent its arbitrary application or exercise. Whatever be the concept of the Rule of Law, whether it be the meaning given by Dicey in his “The Law of the Constitution” or the definition given by Hayek in his “Road to Serfdom” and “Constitution of Liberty” or the exposition set forth by Harry Jones in his “The Rule of Law and H

32 SUPREME COURT REPORTS [2022] 5 S.C.R.

A the Welfare State”, there is as pointed out by Mathew, J., in his article on “The Welfare State, Rule of Law and Natural Justice” in “Democracy, Equality and Freedom” [ Upendra Baxi, Ed. : Eastern Book Co., Lucknow (1978) p. 28] “substantial agreement in juristic thought that the great purpose of the rule of law notion is the protection of the individual against arbitrary exercise of power, wherever it is found”. It is indeed unthinkable that in a democracy governed by the rule of law the executive Government or any of its officers should possess arbitrary power over the interests of the individual. Every action of the executive Government must be informed with reason and should be free from arbitrariness. That is the very essence of the rule of law and its bare minimal requirement. And to the application of this principle it makes no difference whether the exercise of the power involves affectation of some right or denial of some privilege.” This case while it dealt with the issue of arbitrariness at the stage of award of largesse by the State, it paved the way for future development in this field of law.

30Copy pinpoint30. No doubt, in Bareilly Development Authority and another v. Ajai Pal Singh and others12, the appellant-Authority constituted under the U.P. Planning and Development Act, 1973, issued advertisement offering to register the names of applicants desirous of purchasing houses/ flats. The terms and conditions were sought to be revised. The Court went on to hold as follows: “22. There is a line of decisions where the contract entered into between the State and the persons aggrieved is non-statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India so as to compel the authorities to remedy a breach of contract pure and simple — Radhakrishna Agarwal v. State of Bihar [(1977) 3 SCC 457 : (1977) 3 SCR 249], Premji Bhai Parmar v. Delhi Development Authority G [(1980) 2 SCC 129 : (1980) 2 SCR 704] and DFO v. Biswanath Tea Company Ltd. [(1981) 3 SCC 238 : (1981) 3 SCR 662]”

31Copy pinpoint31. In Mahabir Auto Stores and others v. Indian Oil Corporation and others13, the appellant complained that the respondent, 12 (1989) 2 SCC 116 H 13 (1990) 3 SCC 752

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 33 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

which was a company incorporated under the Companies Act was denying or discontinuing to deal with the appellant, which had been dealing with the respondent for nearly eighteen years. We listen to the following words spoken by this Court: “12. It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in Radha Krishna Agarwal v. State of Bihar [(1977) 3 SCC 457]. It appears to us, at the outset, that in the facts and circumstances of the case, the respondent company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual parties. Article 14 of the D Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. See Radha Krishna Agarwal v. State of Bihar [(1977) 3 SCC 457] at p. 462, but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the E State to account for its actions in its manifold activities by stating reasons for such actions. In a situation of this nature certain activities of the respondent company which constituted State under Article 12 of the Constitution may be in certain circumstances subject to Article 14 of the Constitution in entering or not entering into contracts and must be reasonable and taken only upon lawful and relevant consideration; it depends upon facts and circumstances of a particular transaction whether hearing is necessary and reasons have to be stated. In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and H

34 SUPREME COURT REPORTS [2022] 5 S.C.R.

A must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. In this connection reference may be made B to E.P. Royappa v. State of Tamil Nadu [(1974) 4 SCC 3 : 1974 SCC (L&S) 165], Maneka Gandhi v. Union of India [(1978) 1 SCC 248], Ajay Hasia v. Khalid Mujib Sehravardi [(1981) 1 SCC 722 : 1981 SCC (L&S) 258], R.D. Shetty v. International Airport Authority of India [(1979) 3 SCC 489] and also Dwarkadas C Marfatia and Sons v. Board of Trustees of the Port of Bombay [(1989) 3 SCC 293]. It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non- discrimination in the type of the transactions and nature of the dealing as in the present case.

17. We are of the opinion that in all such cases whether public law or private law rights are involved, depends upon the facts and circumstances of the case. The dichotomy between rights and remedies cannot be obliterated by any strait-jacket formula. It F has to be examined in each particular case. Mr Salve sought to urge that there are certain cases under Article 14 of arbitrary exercise of such “power” and not cases of exercise of a “right” arising either under a contract or under a statute. We are of the opinion that that would depend upon the factual matrix.

G 18. Having considered the facts and circumstances of the case and the nature of the contentions and the dealing between the parties and in view of the present state of law, we are of the opinion that decision of the State/public authority under Article 298 of the Constitution, is an administrative decision and can be impeached on the ground that the decision is arbitrary or violative H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 35 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

of Article 14 of the Constitution of India on any of the grounds available in public law field. It is true that there is discrimination between power and right but whether the State or the instrumentality of a State has the right to function in public field or private field is a matter which, in our opinion, depends upon the facts and circumstances of the situation, but such exercise of power cannot be dealt with by the State or the instrumentality of the State without informing and taking into confidence, the party whose rights and powers are affected or sought to be affected, into confidence. In such situations most often people feel aggrieved by exclusion of knowledge if not taken into confidence.” (Emphasis supplied] C

32Copy pinpoint32. In the judgment of this Court rendered by a Bench of two learned Judges decided in Shrilekha Vidyarthi (Kumari) v. State of U.P14, the court was concerned with a challenge to a general order by which the appointment of all government counsel in all the districts of the state of U.P. came to be terminated. The writ petition was filed under Article D 32 of the Constitution of India. Important and apposite are the following observations: “22. There is an obvious difference in the contracts between private parties and contracts to which the State is a party. Private parties are concerned only with their personal interest whereas the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it, for public good and in public interest. The impact of every State action is also on public interest. This factor alone is sufficient to import at least the minimal requirements of public law obligations and impress with this character the contracts made by the State or its instrumentality. It is a different matter that the scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply 14 (1991) 1 SCC 212 H

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A with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its actions. B

24. The State cannot be attributed the split personality of Dr Jekyll and Mr Hyde 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 fulfil the obligation of Article 14 of the Constitution and thereafter permitting it to cast off its garb of State to adorn the new robe of a private body during the subsistence of the contract enabling it to act arbitrarily subject only to the contractual obligations and remedies flowing from it. It is really the nature of its personality as State which is significant and must 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. The requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters. There is a basic difference between the acts of the State which must invariably be in pubic interest and those of a private individual, engaged in similar activities, being primarily for personal gain, which may or may not promote public interest. Viewed in this manner, in which we find no conceptual difficulty or anachronism, we find no reason why the requirement of Article 14 should not extend even in the sphere of contractual matters for regulating the conduct of the State activity.

27. Unlike a private party whose acts uninformed by reason and influenced by personal predilections in contractual matters may result in adverse consequences to it alone without affecting the public interest, any such act of the State or a public body even in this field would adversely affect the public interest.

28. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 37 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

being undoubtedly on public interest, the requisite public element for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Article 14.” B (Emphasis supplied)

33Copy pinpoint33. As to what constitutes arbitrariness is captured in paragraph 36 and it reads as follows: “36. The meaning and true import of arbitrariness is more easily visualized than precisely stated or defined. The question, whether an impugned act is arbitrary or not, is ultimately to be answered on the facts and in the circumstances of a given case. An obvious test to apply is to see whether there is any discernible principle emerging from the impugned act and if so, does it satisfy the test of reasonableness. Where a mode is prescribed for doing an act and there is no impediment in following that procedure, performance of the act otherwise and in a manner which does not disclose any discernible principle which is reasonable, may itself attract the vice of arbitrariness. Every State action must be informed by reason and it follows that an act uninformed by reason, is arbitrary. Rule of law contemplates governance by laws and not by humour, whims or caprices of the men to whom the governance is entrusted for the time being. It is trite that ‘be you ever so high, the laws are above you’. This is what men in power must remember, always.”

34Copy pinpoint34. The pronouncement made by this Court would later become the springboard or the charter for the further evolution of the concept of public law element as also premise for the superior courts invoking Article 14 in various contractual matters.

35Copy pinpoint35. In State of U.P and others v. Bridge and Roof Company (India) Ltd.15, the Court was dealing with a case of a writ petition filed by the respondent therein which was a public sector corporation and seeking payment allegedly due from the appellant state. The Court noted that the contract in question contained Articles providing inter alia for

15 (1996) 6 SCC 22 H

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A settlement of disputes by reference to arbitration. The very resort to Article 226 was found to be misconceived in the circumstances. The Court also laid down as follows: - “Firstly, the contract between the parties is a contract in the realm of private law. It is not a statutory contract. It is governed by the provisions of the Contract Act or maybe, also by certain provisions of the Sale of Goods Act. Any dispute relating to interpretation of the terms and conditions of such a contract cannot be agitated, and could not have been agitated, in a writ petition. That is a matter either for arbitration as provided by the contract or for the civil court, as the case may be. Whether any amount is due to the respondent from the appellant-Government under the contract and, if so, how much and the further question whether retention or refusal to pay any amount by the Government is justified, or not, are all matter which cannot be agitated in or adjudicated upon in a writ petition. The prayer in the writ petition, viz., to restrain the D Government from deducting a particular amount from the writ petitioner’s bill(s) was not a prayer which could be granted by the High Court under Article 226. Indeed, the High Court has not granted the said prayer.”

36Copy pinpoint36. In Verigamto Naveen v. Govt. of A.P. and others16, the case E involved, mining leases granted to a corporation and a sub-lease, which was permitted by the Government. Thereafter, the permission was sought to be withdrawn. The withdrawal of the permission, was the subject matter of challenge in writ proceedings, inter alia. Against, the Order of the Full Bench of the High Court, (which is reported in AIR 1995 A.P.1), F appeals were carried to this Court. On the issue relating to the jurisdiction of the Court in cases arising out of contract, this Court held as follows: “21. … Though there is one set of cases rendered by this Court of the type arising in Radhakrishna Agarwal case [(1977) 3 SCC 457 : AIR 1977 SC 1496] much water has flown in the stream of G judicial review in contractual field. In cases where the decision- making authority exceeded its statutory power or committed breach of rules or principles of natural justice in exercise of such power or its decision is perverse or passed an irrational order, this Court has interceded even after the contract was entered into between 16 H (2001) 8 SCC 344

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 39 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

the parties and the Government and its agencies. We may advert to three decisions of this Court in Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay [(1989) 3 SCC 293], Mahabir Auto Stores v. Indian Oil Corpn. [(1990) 3 SCC 752] and Shrilekha Vidyarthi (Kumari) v. State of U.P. [(1991) 1 SCC 212 : 1991 SCC (L&S) 742 : AIR 1991 SC 537] Where the breach of contract involves breach of statutory obligation when the order complained of was made in exercise of statutory power by a statutory authority, though cause of action arises out of or pertains to contract, brings it within the sphere of public law because the power exercised is apart from contract. The freedom of the Government to enter into business with anybody it likes is subject to the condition of reasonableness and fair play as well as public interest. After entering into a contract, in cancelling the contract which is subject to terms of the statutory provisions, as in the present case, it cannot be said that the matter falls purely in a contractual field. Therefore, we do not think it would be appropriate to suggest that the case on hand is a matter arising purely out of a contract and, therefore, interference under Article 226 of the Constitution is not called for. This contention also stands rejected.” (Emphasis supplied) The basis for interference was located in a statute which made its presence felt.

37Copy pinpoint37. In Binny Ltd. and Another v. V. Sadasivan and Others17, this Court was dealing with termination of services of respondents who were working as Members of the Management, staff of the appellant company. The appellant company purported to terminate their services. F The respondents thereupon filed a writ petition under Article 226 of the constitution of India. The appellant company contended that it was neither a public authority nor did its action involve a public law element, and a writ of Mandamus would not lie. The High Court granted only the declaratory relief to the effect that the termination was illegal. We notice the following: - G “30. 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. But nevertheless, it may be noticed that the 17 (2005) 6 SCC 657 H

40 SUPREME COURT REPORTS [2022] 5 S.C.R.

A Government or government authorities at all levels are increasingly employing contractual techniques to achieve their regulatory aims. It cannot be said that the exercise of those powers are free from the zone of judicial review and that there would be no limits to the exercise of such powers, but in normal circumstances, judicial review principles cannot be used to enforce contractual obligations. B When that contractual power is being used for public purpose, it is certainly amenable to judicial review. The power must be used for lawful purposes and not unreasonably.” (Emphasis supplied)

38Copy pinpoint38. The Court went to hold that the decision of the employer to terminate the services of the employees could not be said to have any element of public policy. The Court did not find any public element in the termination of the employees. We may at once notice that the appellant in the said case was not a public sector unit as the appellant in the present case. D

39Copy pinpoint39. In G. Bassi Reddy v. International Crops Research Institute and another18, the services of the appellant came to be terminated by the respondent-ICRISAT. The Court went on to hold that the respondent could not be treated as State under Article 12. The Court further proceeded to hold that the Writ Petition was not maintainable against the E respondent, noticing that neither was the respondent set up by a Statute nor were its activities statutorily controlled.

40Copy pinpoint40. ABL (supra) marks a milestone, as it were, in the matter of the superior court interfering in contractual matters where the State is a player even after the contract is entered into. A petition was filed under F Article 226 wherein the respondent which was incorporated under the Companies Act repudiated an insurance claim made by the appellant- writ petitioner. This Court undertook an elaborate discussion of the earlier case law. We find that this Court dealt with several obstacles which were sought to be posed by the respondent. They included disputed G questions of facts being involved, availability of alternate remedy, and the case involving entertaining a money claim. This court went on to hold as follows: “27. From the above discussion of ours, the following legal principles emerge as to the maintainability of a writ petition: 18 H (2003) 4 SCC 225

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 41 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

(a) In an appropriate case, a writ petition as against a State or an A 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. B (c) A writ petition involving a consequential relief of monetary claim is also maintainable.”

41Copy pinpoint41. No doubt, we must also notice para 28 which serves as an admonition against considering the availability of the remedy under Article 226 as an absolute charter to invoke jurisdiction in all cases. C

“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 D Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1].) And this plenary right of the E 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.” F (Emphasis supplied)

42Copy pinpoint42. We may also notice how this Court steered clear of the criticism that it was not following the principle laid down by this Court in State of U.P. v. Bridge & Roof Co. (India) Ltd.19. The Court noted G that the said case did involve a contract which contained an arbitration clause. It is found that in the case before it there was no arbitration clause. In regard to the question as to whether the first respondent in the said case was discharging a public duty or public function was involved 19 (1996) 6 SCC 22 H

42 SUPREME COURT REPORTS [2022] 5 S.C.R.

A while repudiating the claim of the appellants arising out of the contract, the Court drew support from the judgment in Kumari Shrilekha Vidyarthi (supra).

43Copy pinpoint43. In Noble Resources Ltd. v. State of Orissa 20, this court followed ABL (supra). However, in the facts of the said case again the matter involving refusal by a public authority to honour the contract in the matter of purchase of Iron ore, the Court held as follows: “15. It is trite that if an action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India, a writ petition would be maintainable even in the contractual field. A distinction indisputably must be made between a matter which is at the threshold of a contract and a breach of contract; whereas in the former the court’s scrutiny would be more intrusive, in the latter the court may not ordinarily exercise its discretionary jurisdiction of judicial review, unless it is found to be violative of Article 14 of the Constitution. While exercising contractual powers also, the government bodies may be subjected to judicial review in order to prevent arbitrariness or favouritism on their part. Indisputably, inherent limitations exist, but it would not be correct to opine that under no circumstances a writ will lie only because it involves a contractual matter.”

44Copy pinpoint44. The court went on to approve of ABL (supra) and observed that this Court had declared that no decision lays down as an absolute rule that in all cases of disputed questions of fact, the parties should be relegated to a civil Court. We may also notice paragraph 29: “29. Although the scope of judicial review or the development of F law in this field has been noticed hereinbefore particularly in the light of the decision of this Court in ABL International Ltd. [(2004) 3 SCC 553] each case, however, must be decided on its own facts. Public interest as noticed hereinbefore, may be one of the factors to exercise the power of judicial review. In a case where G a public law element is involved, judicial review may be permissible. (See Binny Ltd. v. V. Sadasivan [(2005) 6 SCC 657 : 2005 SCC (L&S) 881] and G.B. Mahajan v. Jalgaon Municipal Council [(1991) 3 SCC 91]”

20 H (2006) 10 SCC 236

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 43 POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]

45Copy pinpoint45. Of further relevance to notice is the case of the respondent therein that only because the price of iron ore increased in the international market, the appellant had filed the writ petition only in February 2004. It was found that the said contention was not wholly misconceived. Thereafter the court went on to following observations: “41. The submission of Mr Desai that rise in international price would not by itself be a relevant consideration to rescind the contract may be correct, but then the same was not the sole ground for Respondent 2 to refuse to supply iron ore fines to the appellant.

42. Moreover, certain serious disputed questions of fact have arisen for determination. Such disputed questions of fact ordinarily could not have been entertained by the High Court in exercise of its power of judicial review.”