LPA No. 264/2010 Page 1 of 29 * THE HIGH COURT OF DELHI AT NEW DELHI Judgment Reserved on : 11th August, 2010 % Judgment Pronounced on: 18th October, 2010 + LPA 264/2010 ABW INFRASTRUCTURE LTD. & ANR. ..... Appellants Through: Mr. Sunil Kumar, Senior Advocate with Mr. Harsharan Singh and Mr. Dhiraj, Advocates. versus RAIL LAND DEVELOPMENT AUTHORITY ..... Respondent Through: Mr. Soli J. Sorabjee, Senior Advocate with Mr. Amit Kumar, Mr. Ashish Kumar, Mr. Ritesh Ratnam and Mr. Shashank, Advocates. CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN 1. Whether reporters of the local papers be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes DIPAK MISRA, CJ In this intra court appeal, the legal substantiality and vulnerability of the order dated 10.12.2009 passed by the learned Single Judge in W.P.(C) No.13590/2009 is called in question. 2. The factual scores as undraped are that the appellants – petitioners (hereinafter referred to as „the appellants‟), M/s ABW Infrastructure Ltd., on the basis of the highest tender bid of Rs.1026 crores, was awarded project for development of plot at Sarai Rohilla, Kishanganj, New Delhi as per letter LPA No. 264/2010 Page 2 of 29 of acceptance dated 19.5.2008 with the stipulation that the said amount was to be paid by the appellants to the respondent, Rail Land Development Authority (for short „the RLDA‟), in installments. The first installment was fixed at Rs.513 crores which was to be paid within 30 days from 19.5.2008, i.e., the date of issue of letter of acceptance. The appellants did not pay the first installment. It had only given a performance guarantee of Rs.10 crores and had made other payments amounting to Rs.29 crores to the respondents towards interest and success fee. 2. It is worth noting, at one point of time, the RLDA, the respondent herein, desired to review the project allotted to the appellants and resile from the letter of acceptance which compelled the appellants to file WP(C) No.4320/2008 wherein this Court, on 12.8.2008, directed the respondents to abide by the contract awarded to the appellants vide letter dated 19.5.2008. Be it noted, in the said order, this Court had quashed the communication dated 24.5.2008 by which the respondent had taken a decision to review the order. 3. After the said order was passed, the appellants did not pay Rs.513 crores but approached the RLDA for amendment of the tender terms. The said amendment was sought on 24.4.2009 after expiry of 8 months from the date of order passed in WP(C) No.4320/2008, i.e., 12.8.2008. The appellants sought renegotiation of the terms of the tender. Similar request was reiterated by letter dated 16.7.2009. As set forth, the RLDA, by letter dated 20.8.2009, agreed to examine the request of the appellants for LPA No. 264/2010 Page 3 of 29 modification of the existing agreement to the extent mentioned therein. The learned Single Judge, as is evincible from the order impugned, has referred to the said letter and analysed the same to arrive at the conclusion that the said communication clearly mentions that the modifications suggested and pending consideration would be applicable and valid only if a renewed Joint Bidding Agreement was submitted to the RLDA and the agreement was signed and, hence, till the signing of the agreement, the parties were obligated to be bound by the original obligations. The learned Single Judge further held that on a scrutiny of the said letter, it was clear as crystal that the appellants should communicate their willingness to go ahead with the project within 10 days of issuing the aforesaid letter. In pursuance of the aforesaid letter, the appellants sent a letter dated 29.8.2009 which indicated, according to the learned Single Judge, no unconditional and absolute acceptance. Thereafter, the RLDA, on 18.9.2009, circulated a draft modified development agreement asking the appellants to offer comments on the said document clearly outlining the paragraph / clause which was not in accord with the decision communicated by the RLDA through their letter dated 20.8.2009. It has further clarified that the agreement sent to the appellants for their comments was merely a draft and would be finalized only after approval of the competent authority. As is evincible, the appellants, on 7.10.2009, entered into correspondence with the RLDA raising various objections to several clauses of the draft agreement and suggested amendment. They gave a list of suggestions / amendments for favourable consideration and incorporation in the modified development LPA No. 264/2010 Page 4 of 29 agreement. The RLDA, by letter dated 9.10.2009, informed the appellants that on consideration of the suggestions for amendment and modification, the same were not acceptable. Thereafter, the appellants sent two letters dated 16.10.2009 and 19.10.2009 which were responded to by the RLDA expressing its inability to accept the same. The RLDA invoked the bank guarantee and the appellants, vide CM No.15228/2009, assailed the action for invoking the bank guarantee and for quashment of the communications dated 1.12.2009 and 2.12.2009. 4. Before the writ court, it was prayed that a mandamus should be issued to the RLDA to agree to the suggestions and the amendments proposed by them to the draft agreement since the stand of the RLDA is absolutely arbitrary and smacks of unreasonableness. The learned Single Judge, after exposition of the facts and the stand and stance put forth by the parties, came to hold that the appellants had themselves accepted the communication dated 19.5.2008 and this Court had opined that the letter of acceptance would constitute the contract between them; that the appellants wanted to renegotiate the terms of the contract which was considered by the RLDA and a draft agreement was circulated and the appellants wanted change in the draft agreement which was not accepted by the RLDA; that in the case at hand, there has been no wrongful termination of a contract by a government company which enjoys monopoly status; that the State or instrumentalities of the State can evolve rational method to arrive at a decision and can fix their own terms of invitation to tender which are normally not to be interfered with; that on the earlier occasion, the appellants had filed a writ LPA No. 264/2010 Page 5 of 29 petition contending, inter alia, that there was a concluded contract and the amendments and suggestions requested by the appellants have not been accepted by the RLDA; that the appellants had not deposited Rs.513 crores till the date of filing of the writ petition; that the decisions referred in Mahabir Auto Stores and others v. India Oil Corporation and others, AIR 1990 SC 1031, ABL International Limited and Anr. v. Export Credit Guarantee Corporation of India Limited and Ors., (2004) 3 SCC 553, K.N. Guruswamy v. State of Mysore and others, 1955 (1) SCR 305, the DFO, South Kheri and others v. Ram Sanehi Singh, AIR 1973 SC 205, Gujarat State Financial Corporation v. Lotus Hotels Private Limited, AIR 1983 SC 848 and Life Insurance Corporation of India v. Escorts Limited and others, 1986 (8) ECC 189, Purvankara Projects Ltd. v. Hotel Venus International, (2007) 10 SCC 33, Air India Limited v. Cochin International Airport Limited, (2000) 2 SCC 617 and Monarch Infrastructure Private Limited v. Commissioner, Ulhasnagar Municipal Coropration, (2000) 5 SCC 287 are not applicable to the case at hand and that the writ petition was devoid of any substance. Being of this view, the learned Single Judge dismissed the writ petition. 5. Questioning the legal sustainability of the order passed by the learned Single Judge, Mr. Sunil Kumar, learned senior counsel for the appellants, has raised the following contentions: (i) The learned Single Judge has failed to appreciate the necessity for making suitable and necessary changes in the draft development agreement LPA No. 264/2010 Page 6 of 29 failing which the project had become unworkable and the said amendments were imperative in the facts and circumstances of the case. (ii) The writ court has not appreciated that the appellants were not praying for issue of mandamus to the respondents to accede to the suggestions and amendments proposed by the appellants to the draft agreement, but were agitating a plea that the respondents, after having accepted to revise the development agreement in terms of the suggestions made by the appellants, as is evincible from the communication dated 20.8.2009, declined to carry out the consequential changes which exhibits unfair and arbitrary action on the part of the respondents which is impermissible in law. (iii) The respondent has acted totally arbitrarily and unreasonably inasmuch as the lease deed which had been executed for the first track of land could not have been cancelled and the amount paid on that score could not have been forfeited. The respondent is under obligation to permit development of area in proportion to the investment made enabling private equity players and others referred to by the appellants in its communications dated 16.10.2009 and 19.10.2009 to invest in the project and achieve financial closure. The action of the respondent smacks of unfairness since during the pendency of the writ petition, the respondent issued a notice of termination dated 1.12.2009 requiring the appellants to make the payment within seven days but invoked the bank guarantee furnished by the appellants on 2.12.2009. LPA No. 264/2010 Page 7 of 29 (iv) The learned Single Judge has committed illegality by not taking note of the fact that the issue of entering into a contract or not entering into a contract by an instrumentality of the State rests on the touchstone of reasonableness and when it is manifest that the respondent has shown total unreasonableness, the writ court would have been well advised to interfere and not throw the writ petition as not being entertainable. 6. Mr. Soli J. Sorabjee, learned senior counsel appearing for the RLDA, resisting the aforesaid submissions and supporting the order of the learned Single Judge, has advanced the following proponements: (i) The appellants committed breach of contract on many an occasion putting the RLDA to immense jeopardy and, therefore, it is not entitled to invoke the equitable and extra-ordinary jurisdiction of this Court. (ii) The RLDA has not acted in an arbitrary or unfair manner but as a prudent owner would behave under such circumstances within the reasonable parameters and, hence, the communication terminating the contract cannot be found fault with. (iii) Once a finding had been arrived at in the earlier writ petition that there was a concluded contract and was binding on the parties, the appellants could not have sought amendments in the original contract in a unilateral manner putting forth terms which suited them. (iv) The amendments which were proposed by the appellants were considered by the Board of RLDA and the same were not accepted by the LPA No. 264/2010 Page 8 of 29 Board and such non-acceptance is based on a commercial principle and, therefore, the writ court has correctly not delved upon the same. (v) The conduct of the appellants, as is evident from the communications and actions, would not entitle them to any kind of relief in exercise of jurisdiction under Article 226 of the Constitution of India inasmuch as it not only pertains to disputed questions of fact but also certain aspects which are founded on commercial norms and are difficult to be delved into in a writ petition. (vi) The changes sought for in the agreement and denial thereof by the RLDA involve many a factor and the said aspects cannot be adverted to by the writ court and, therefore, the learned Single Judge has appositely declined to entertain the writ petition. 7. To appreciate the rivalised submissions raised at the Bar, it is essential to refer to certain chronology of events. The Railways (Amendment) Act, 2005 [No.47 of 2005] came into force on 15.9.2005 by bringing certain amendments to the Railways Act, 1989. The purpose of bringing the amendment was to supplement their financial resources through non-tariff measures like commercial utilization of land and the air space by constituting a separate authority called the RLDA under the Railways Act, 1989 which could exclusively deal with the commercial development of railway land and the air space above such land. Section 4-E confers power on the authority to enter into agreements and execute contracts. In pursuance of the amended provisions, the Railways took certain areas for LPA No. 264/2010 Page 9 of 29 development and, accordingly, the bids were called for a project for development of plot at Sarai Rohilla, Kishanganj, New Delhi. A letter of acceptance was sent on 19.5.2008. In the said letter of acceptance, it was mentioned that the financial bid of Rs.1026 crores (rupees one thousand and twenty six crores only) was accepted and the consortium of the appellants had been declared as the „Selected Bidder‟ for the project subject to the fulfillment of certain terms and conditions incorporated therein. Clause (g) of the said letter of acceptance dealt with „Payments by the Developer‟. The relevant clauses (g)(i) and (g)(vii), being germane for the present purpose, are reproduced below: “Payments by the Developer (g) You shall pay to RLDA the Upfront Lease Premium quoted by you / your Consortium as under: (i) A sum of Rs.513,00,00,000/- (Rupees Five hundred and thirteen Crores only) being the First Instalment i.e. 50% (Fifty percent) of the Upfront Lease Premium, vide demand draft / banker‟s cheque in favour of Rail Land Development Authority and payable at Delhi, within 30 days from the date of the issue of this Letter of Acceptance. You shall also furnish alongwith the first instalment, Bank Guarantees in the format prescribed in the RFP, for the amounts equal to the second and third instalments of the Upfront Lease Premium plus applicable taxes, as mentioned in paras (ii) and (iii) below, which shall remain valid for a period of 30 days beyond the respective due dates. (vii) If at the time of handling over of the land, the area of the plot leased is found to be at variance from that stated in the RFP document, then the difference in Upfront Lease Premium payable to RLDA / receivable by you will be determined pro-rata, based on the total Upfront Lease Premium payable. It is clarified that such adjustment in area shall be effected only for the leased site area, without any change in the Redevelopment Area of 4.37 Hectares given on license basis.” LPA No. 264/2010 Page 10 of 29 8. Clause (4) deals with execution of the development agreement and lease deed and the same, being relevant, is reproduced below: “(4) RLDA shall execute the Development Agreement with the Developer after all the following conditions have been met: a) Receipt of the first installment of the Upfront Lease Premium along with bank guarantees for the second and third installments from the Developer within the specified time limit, b) Receipt of Performance Bank Guarantee from the Developer c) Incorporation of the SPV (the Developer) d) Minimum paid up capital subscribed by the SPV as required under law. e) Payment of Success Fees to IL&FS Infrastructure Development Corporation Limited as mentioned above. f) Any other condition mentioned in this LOA.” 9. From the aforesaid communication, it is clear as crystal that the first, second and third installments were to be paid by 18.6.2008, 18.2.2009 and 18.11.2009 respectively. When the matter stood thus, the RLDA issued communication dated 24.5.2008 for review as the Government was desirous of reviewing the allotment of the Railway land. Being grieved by the said communication, the appellants preferred W.P.(C) No.4320/2008 which was disposed of on 12.8.2008 by a Division Bench of this Court and it was held as follows: “7. We have perused the records of the case and heard the Counsel for the Parties. In the circumstances and the submissions made hereinabove, we are of the view that the grievances of the Petitioners are justified. The concluded contract had come into existence evidenced by LPA No. 264/2010 Page 11 of 29 the Letter of Acceptance issued on 19th May, 2008 to the Petitioners. The said contract is also in public interest as the bid of the Petitioners is about Rs. 250 Crores higher than the next bidder. The Petitioners, after the acceptance of the contract, have committed themselves financially. Even upto date no decision on the proposed review has been taken. The Respondent No. 1 cannot be permitted to frustrate the said contract when no decision on the review has been taken. 8. We, therefore, allow this writ petition. The impugned communication dated 24.5.2008 is quashed and the Respondents are directed to abide by the Contract awarded to the Petitioners vide letter dated 19th May, 2008. We, however, make it clear that, as also agreed by the Counsel for the petitioners on instruction that the Petitioner shall not claim any equity or damages against the Respondents for any delay caused by the issuance of impugned communication and will abide by the terms of the Original Letter of Acceptance dated 19th May, 2008, deeming as if the same was issued with effect from today. All financial and other commitments/obligations will be completed on the basis of the said Letter of Acceptance dated 19th May, 2008. No order as to costs. 10. On a perusal of the aforesaid order, it is clear as crystal that the Division Bench held that the contract was a concluded one and the appellants cannot claim any equity or seek damages against the respondent for any delay caused by the issuance of the impugned communication and would abide by the terms of the original letter of acceptance dated 19.5.2008 deeming the same was issued with effect from that day and all financial and other commitments / obligations would be completed on the basis of the said letter of acceptance dated 19.5.2008. It is not in dispute that extensions were granted for payment of the amount as earlier agreed. Despite the aforesaid verdict, the appellants did not pay Rs.513 crores but approached the RLDA for amendment of the tender notice. The first communication LPA No. 264/2010 Page 12 of 29 was made on 24.4.2009. The said letter was a communication to the respondent whereby the respondent had required the appellants to honour the obligations by 30.4.2009. As is patent, in the said communication, the appellants had asked for amendments and renegotiation of the terms of the tender. In the said letter, many a term and condition was incorporated. We think it appropriate to quote the following portion from the said letter: “In such a scenario, there is a pressing need for the RLDA to apprise itself more fully of actions taken by other Government organization seeking to preserve existing contracts and not having to face the rigors of retendering in rapidly changing market conditions. Further, the following facts would reveal that RLDA don‟t want to appreciate the prevailing economic and financial downturn in the market and is not interested in successful execution of the subject project. 1. That whereas the reserve price for the subject project by RLDA was fixed at Rs.675 crores, the second highest bidder had offered a price of Rs.757 crores only. It was our Consortium which had given an offer of Rs.1,026 crores representing, even at that point of time an excellent value realization for the RLDA. It would be apparent to mention here that since the award of the contract, the property prices have gone down by 35 to 40% and the present market value of the subject Plot is not more than INR 650 Crores. 2. That surprisingly, after accepting our bid and creating a valid contract, RLDA signified to us its intention to “review” the matter of allotment of railway land at Sarai Rohilla on 90 years lease for essentially residential purpose. This step of RLDA forced us to seek necessary remedy through the courts at Delhi. After a crucial period of three months, the sanctity of the contract was upheld by the Honorable Delhi High Court by its judgment order dated 12th August, 2008. Even after the judgment of the Honorable High Court the uncertainty remained in the matter as RLDA intended to file appeal in the Apex Court against the judgment. As such, the position of uncertainty created by the RLDA affected our efforts to tie up the financial arrangements LPA No. 264/2010 Page 13 of 29 with various institutions. The time when the Project was awarded was ripe and the banks / financial institutions were anxious to finance the project. Had RLDA not created uncertainty in the matter after the issue of Letter of Award, we would have certainly achieved the financial closure in due time. With the prevailing uncertainty in the matter the banks and the financial institutions started loosing their interest in the Project. 3. That since November, 2008 we have been requesting RLDA to consider the alternative proposals submitted by us. Although, time and again RLDA has been convening meetings with us but they remain inconclusive even after spending long hours in the meetings. 4. That in the last few months there has been an unprecedented economic and financial crisis all over the world. Real estate has been especially hard hit. Correct in real estate prices, globally and in India, is a well documented fact which requires little elaboration. All over the globe, the governments and authorities are giving bail out packages to the companies to protect them from financial meltdown. Apex bank has given guidance to Banks / Financial Institutions to revise the payment schedule of loans given to real estate companies.” After so stating, the appellants referred to their earlier letter dated 21.1.2009 and ultimately stated thus: “We also propose to submit a Development Agreement Plan before signing of the development agreement in which we will demarcate the entire project size of 11.37 hectares of land five equal parts including the structures to be built thereon and one part will be leased to us with the respective installment. We guarantee that we will not have any claim on the land until the same is specifically leased to us on payment of installment as specified herein above. We are also enclosing herewith the business plan mentioning clearly how the payments will be made to RLDA over the period of time. We would like to mention here that we shall bring our contribution for payment of the upfront lease premium through internal LPA No. 264/2010 Page 14 of 29 accruals / Pvt. Equity and Bank Loan over the period of time. We wish to reiterate that we are committed to pay the contractual amount of Rs.1,026 crores to the RLDA and are keen to execute the project without any further delay.” 11. After the said letter, the correspondences continued between the parties and the respondent intimated the appellants on 29.6.2009 that the letter of acceptance is liable to be terminated and the Bid Security submitted by the appellants shall be forfeited by the RLDA without being liable for any consideration to them whatsoever in case of failure by the consortium/ developer to comply with the terms and conditions contained in the letter of acceptance and the provisions of the RFP document. Thereafter, the appellants, vide letter dated 16.7.2009, apart from enumerating many aspects, stated thus: “In case the Development Agreement is executed and the contract proceeds, the maximum period for which the interest could be payable by us would be only for about three months (viz. 12.10.08 to 18.11.08 and 12.03.2009 to 30.04.2009. The decision for implementation and payment of first installment was conveyed by RLDA only on 11.09.2008 after the court case). As an alternative and to be fair to both the parties, we request that the issue of amount of accrued interest payable till the date of payment of first installment of the upfront lease premium may be referred to arbitration by an independent committee or arbitrator for decision on the matter. We undertake to abide by the decision of the committee in this regard and