^. ":';:-" ''\ •^ ^ -si g *v 'l~Sii -1^^ '^'s' ,,-%^^ t /'J' l' / HIGH^QURT OF CHHATTISGARH, BILASPUR D.B. Hon'ble Shri Raieev Gupta. C.J. & Hon^ble Shri^uniljCiimaiLSinha, J. W.P.ICt No.1514/2008 M/s Lanco Amarkantak Power Private Limited Versus South Eastern Coalfields Ltd. and two others ORDER Sd/- SunilKumarSinha Judge HON'BLE SHRI JUSTICE RAJEEV GUPTA J Sd/- Chief Justice Post for.order : /<?'-/-1^)/2008 _J ''°- saf- l-/-/10/2008 l' ' / HIGH COURT OF CHHATTISGARH, BILASPUR CORANI: Hon'ble Shri Raieev Gupta, C.J. & Hon'ble Shri Sunil Kumar Sinha, J. Writ Petition (C) No. 1514 of 2008 PETITIONER M/s Lanco Amarkantak Power Private Limited, Through its Director (Project) A. Pattabhiraman Aged about 61 years, S/o. Shri T.K. Ananthanarayana, Lanco Amarkantak Power Pvt. Ltd. Village- Pathadi, Post Tikeja Distt. Korba Corporate Office Plot No. 130 Road No.2 Banjara Hills Hydrabad (A.P.) Versus RESPONDENTS South Eastern Coalfields Ltd. Through its Chairman-Cum-Managing-Director Seepat Road, Bilaspur (C.G.) Director (Tech) (Oprn) South Eastern Coal Fields Seepat Road, Bilaspur (C.G.) Chief General Manager (Sales & Marketing) South Eastern Coal Fields Seepat Road, Bilaspur (C.G.) (Writ Petition under Article 226 ofthe Constitution of India) Appearance: Mr. Shanti Bhushan and Mr. Prashant Jayaswal, Senior Advocates with l\4r. Sanjay K. Pathak, Mr. Harpreet Singh & Mr. Ajay Mishra, Advocates for the petitioner. Mr. Vivek Tankha and Dr. N.K. Shukla, Senior Advocates with Ms. Ritu Mishra, Advocate for the respondents. Writ Petition (0 No. 1514 of2008 ORDER (16.10.2008) Following order of the Court was delivered by Sunil Kumar Sinha, J. (1) The petitioner is a company registered under the Companies Act, 1956. It proposed to establish a coal based power plant of 1200 MW capacity, in phases, near Korba in Chhattisgarh. Since in a coal based power plant, requirement of coal is a must, therefore, the petitioner approached the South Eastern Coal Fields Ltd. (for short 'SECL'),which is a subsidiary of Coal India Limited,and finally the petitioner and the SECL entered into a coal supply agreement dated 31.12.2005. The petitioner pleaded that as per condition giving in clause 2.4 of the agreement it achieved financial closure for the first 300 MW Unit on 20.9.2005 and the same was informed to the respondents/SECL vide letter dated 4.2.2006. In further compliance of the conditions of the agreement, the petitioner gave bank guarantees of Rs.5,87,50,000/- and Rs.1,77,50,000/- on account of earnest money (EM) deposit as required by SECL and work of the establishment of the power plant was going on. The petitioner further pleaded that all of a sudden, vide letter dated 27/28-2-2007, the SECL informed the petitioner that the agreement has become liable for termination on certain grounds, which are : (a) The SECL has not received information of financial closing of the plant within one year of the signature date/within one week after it occurs (Refer. clause 2.3 & 2.4); (b) It has not received intimation of all necessary requisite sanctions, approvals, licenses, consents including environmental clearance in respect of the plant within one year of signature date (Refer^clause 2.3 B; .-^•^. sl 'sisy Writ Petition (C) No. 1514 of2008 (c) It has not received the bank guarantee towards commitment advance within one year from the signature date (Refer clause 2.6 B) & (d) It has not received intimation about "Four Month Window" within 30 days of the financial closing (Refer clause 4.3 B), (It may be added that financial closing itselfwas necessary latest by 31.12.2006). The petitioner replied to the same vide a letter dated 28.2.2007, wherein the petitioner apprised the respondent that entire information sought from the petitioner was already given to the respondent but once again the copies of the same are being appended with the letter. The case of the petitioner is that the reply filed against the notice was kept for consideration and in the meantime, the petitioner also asked about the exact amount of the bank guarantee to be submitted towards the commitment advance. The SECL vide its letter dated 7.3.2007 directed the petitioner to furnish the bank guarantee of Rs.15,30,000,00/- towards the commitment advance, which the petitioner fulfilled on 8.3.2007. Thereafter, vide a letter dated 8.1.2008, the petitioner requested the SECL to commence supply of coal from June, 2008 onwards but the respondents (SECL) abruptly issued an order dated 29.2.2008 to the petitioner, by which, it was informed that the agreement dated 31.12.2005 was terminated and the BGs towards EMD/Security deposit/Commitment Advance are invoked. It is at this stage the writ petition was filed and the order dated 29.2.2008 terminating the agreement dated 31.12.2005 was challenged in the writ petition. (2) Mr. Shanti Bhushan, learned Senior Advocate, appearing for the petitioner, referring to the letter dated 28.2.2007 (Annexure-P/9), argued iy^ -'%. .if^^^' i/^'ii' \ t %fc":'.^, 1 <t: ^.y.A; "^^' ^c'; feB<~ Writ Petition f0 No. 1514 of 2008 .<>•;. ^? that all the grounds raised by the SECL in its letter dated 27/28-2-2007 were fully explained to them, but the SECL did not pay any attention to the contents of the letter. He would submit that it was informed to the SECL that the petitioner has achieved the financial closure for the 300 MW Unit on 20.9.2005, which was informed to the SECL on 4.2.2006. The petitioner had also obtained all necessary approvals for the project and the bank guarantee of Rs.7,65,00,000/- was also furnished at the time of signing coal supply agreement. The petitioner company has also expressed that the company had written a letter dated 4.2.2006 requesting for waiver of Payment Advance and the company is awaiting for a favourable response. However the company is ready to furnish the bank guarantee towards commitment advance at the earliest. With regard to Four Month Window, the petitioner had informed that the project construction had made substantial progress and would be requiring coal dispatches during the Four Month Window commencing from 1st April, 2008 to 31st July, 2008. He also argued that the termination of the agreement amounts to an arbitrary order passed by the authority of public undertaking which is 'State' within the meaning of Article 12 ofthe Constitution and is therefore in contravention of Article 14 ofthe Constitution. (3) Mr. Vivek Tankha, learned Senior Advocate, appearing for the respondents, while justifying the grounds for termination of the contract, mainly argued that there is an arbitration clause in the agreement dated 31.12.2005 and the petitioner without taking recourse underthe provisions contained in the said clause, has rushed to this Court invoking extra- ordinary jurisdiction underArticle 226 ofthe Constitution, therefore, in view of the above this petition would not be maintainable. He would submit that ''-A1 ;-i Writ Petition (C) No. 1514 of2008 the petitioner herein has filed the writ petition for enforcing a contract qua contract and praying for enforcing the terms and conditions of the contract which cannot be decided by the High Court. He submitted that it is also well settled that the High Court would not entertain a writ petition involving disputed questions of fact particularly when the alternative remedy by way of recourse to arbitration is available to the petitioner. (4) The first question raised before us is,whether in the facts and circumstances of the case, a writ petition under Article 226 of the Constitution would lie or the petitioner's remedy lies elsewhere in terms of the arbitration clause admittedly present in the agreement between the parties? (5) Arguing the point ofjurisdiction, Mr. Shanti Bhushan, learned Senior Advocate, firstly referred to the judgment of the Apex Court rendered in the matter of LIC of /ndra^and another -Vs- Consumer Education & Research Centre and others, (1995} 5 SCC 482. He took us to Para 24 to 29 of the judgment, in which the earlier decided cases are quoted by the Apex Court. They are as follows: 5.1 In Dwarkadas Marfatia & Sons -Vs- Board of Trustees of the Port of Bombav. (1989) 3 SCC 293, it was held by the Apex Court that "The Corporation must act in accordance with certain constitutional conscience and whether they have so acted must be discernible from the conduct of such Corporations. Every activity of public authority must be informed by reasons and guided by the public interest. All exercises of discretion or power by public authority must be judged by that standard. In that case when the Writ Petition (C) No. 1514 of2008 building owned by the port trust was exempted from the Rent Act, on terminating the tenancy for development when possession was sought to be taken, it was challenged under Article 226 that the action of the port trust was arbitrary and no public interest would be served by terminating the tenancy. In that context, the Apex Court held that even in contractual relations the Court cannot ignore that the public authority must have constitutional conscience so that any interpretation put up must be to avoid arbitrary action, lest the authority would be permitted to flourish as imperium in imperio. Whatever be the activity of the public authority, it must meet the test ofArticle 14 and judicial review strikes an arbitrary action." 5.2 In MahabirAuto Stores-Vs- India Oil Coron., (1990) 3 SCC 752, it was held by the Apex Court that "The State when acting in its executive power, enters into contractual relations with the individual, Article 14 would be applicable to the exercise of the power. The action of the State or its instrumentality can be checked under Article 14. Their action must be subject to rule of law. If the governmental action even in the matter of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. Rule of reason and rule against arbitrariness and discrimination, rules of fair play, natural justice are part of the rule of law applicable in situation or action by State/instrumentality in dealing with citizens. Even though the rights of the citizens, therefore, 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 and natural justice, equality '"s. .SVh Writ Petition (0 No. lil4of2008 and non-discrimination. It is well settled that there can be "malice in law". It was also further held by the Apex Court that whatever be the act of the public authority in such monopoly or semi-monopoly, it must be subject to rule of law and must be supported by reasons and it should meet the test of Article 14." 5.3 In Kumari Shrilekha Vidvarthi -Vs- State of U.P.. (1991) 1 SCC 212, the Apex Court in para 22 pointed out that "The private parties are concerned only with their personal interest but the public authority are expected to act for public good and in public interest. The impact of every action is also on public interest. It imposes public law obligation and impresses with that character, the contracts made by the State or its instrumentality: (SCC pp.236-37, para 22) "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 nof relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under er- *%. 'E?,- ;SK^' Writ Petition (C) No. 1514 of2008 Article 14 of non-arbitrariness at the hands of the State in any of its actions." 5.4 In Food Corpn. of India -Vs- Kamdhenu Cattle Feed Industries, (1993) 1 SCC 71 {SCC at p. 76 in para 8} the Apex Court held that: "the mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness, a necessary concomitant of the rule of law. Every legitimate expectation is a relevant factor requiring due consideration in a fair decision- making process." 5.5 In Sterlina Computers Ltd. -Vs- M & N Publications Ltd., (1993) 1 SCC 445 {SCC at p. 464, para 28}, it was held by the Apex Court that "Even in commercial contracts where there is a public element, it is necessary that relevant considerations are taken into account and the irrelevant consideration discarded." 5.6 In Union of India -Vs- Graphic Industries Co.. (1994) 5 SCC 398, the Apex Court held that "Even in contractual matters public authorities have to act fairly; and if they fail to do so approach under Article 226 would always be permissible because that would amount to violation ofArticle 14 ofthe Constitution." 5.7 In General Assurance Spcietv Ltd. -Vs- Chandumull Jain, AIR 1966 SC 1644, the Apex Court held that "The actions of the State, its instrumentality, any public authority or person whose \, ( 5</ Writ Petition (C'l No. 1514 of2008 actions bear insignia of public law element or public character are amenable to judicial review and the validity of such an action would be tested on the anvil ofArticle 14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and private law remedy is now narrowed down. The actions of the appellants bear public character with an imprint of public interest element in their offers regarding terms and conditions mentioned in the appropriate table inviting the public to enter into contract of life insurance. It is not a pure and simple private law dispute without any insignia of public element. The Apex Court said, therefore, there would be no hesitation to hold that the writ petition is maintainable to test the validity of the conditions laid in Table 58 term policy and the party need not be relegated to a civil action." (6) Mr.Shanti Bhushan, then cited the judgment of ABL International Ltd. and another-Vs- Exeort Credjt Guarantee Corporation of India Ltd. and others. (2004) 3 SCC 553. The principles laid down in this matter regarding the maintainability of the writ petition in contractual matters are: (a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable. t'; •V, '^5^—?-^.. % iS ''S?5'""". ? Tl%.^.' ^ .'- 'K 'W-''"'^' 10 Writ Petition (•C) No. 1514 of 2008 (b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule. (c) A writ petition involving a consequential relief of monetary claim is also maintainable. (7) He then referred to the judgment of the Apex Court rendered in the matter of Kumari Shrilekha Vidyarthi (supra) and deeply canvassed that if it is shown that the act of the State or its instrumentality is arbitrary and, therefore violative of Article 14 of the Constitution, there can be no impediment in striking down the impugned act irrespective of the question whether an additional right, contractual or statutory, if any, is also available to the aggrieved persons. (8) With reference to the availability of the arbitration clause in contractual matters, learned Senior counsel then cited the judgment of Harbanslal Sahnia and another-Vs- Indian Oil Corpn. Ltd. and others, ^2003) 2 SCC 1Q7.The Apex Court held in the said judgment that the rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion. It was laid down that in an appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. :7 11 Writ Petition (C) No. 1514 of2008 t>. In the said case, there was an arbitration clause in the agreement and the High Court took the view that since there was a remedy by way of recourse to arbitration, the writ petition would not be maintainable. The Apex Court held that the facts and circumstances of the case would show that the petitioners' licence was cancelled relying on an irrelevant and non-existent fact and the case of the petitioners attract applicability of the first two contingencies. The Apex Court observed that the petitioners' dealership, which was their bread and butter, came to be terminated for an irrelevant and non-existent cause, therefore, in such circumstances, the petitioners should have been allowed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings. (9) We have carefully considered the arguments advanced by the Counsel for the petitioner. We have no doubt that if an action of the State or its instrumentality or the authority or a body, which is State within the meaning ofArticle 12, is violative ofthe equality clause ofArticle 14, a writ petition would be maintainable, notwithstanding the fact that the pith of the matter was contractual. But if disputed questions of fact and law are raised requiring detailed examination in depth, may be that some evidence, oral or documentary, also required, the appropriate course would be availing of the other remedy than a writ petition filed under Article 226. (10) In the matter of ABL International Ltd. (supra), while laying down the above principles, the Apex Court added that while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution, the Court should bear in mind the fact that the power to issue prerogative writs under Article 226 is plenary in nature and the High Court / g 12 Wrjt Petition (Q No. 1514 of2008 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 and this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the mandate ofArticle 14 orfor other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction. In the said judgment while laying down the principles regarding entertaining a writ petition in contractual matters, the Apex Court has referred to the judgment rendered in the matter of Sfa(e of U.P. and others -Vs- Bridae & Roof Co. (India) Ltd.. AIR 1996 SC 3515, in which it was held as under: "Further, the contract in question contains a clause providing inter alia for settlement of disputes by reference to arbitration. The arbitrators can decide both questions of fact as well as questions of law. When the contract itself provides for a mode of settlement of disputes arising from the contract, there is no reason why the parties should not follow and adopt that remedy and invoke the extraordinary jurisdiction of the High Court under Article 226. The existence of an effective alternative remedy - in this case, provided in the contract itself - is a good ground for the court to decline to exercise its extraordinary jurisdiction under Article 226." (11) The Supreme Court categorically observed in ABL International Ltd. judgment that since there was an arbitration clause in Bridge & Roof Companies' case (supra), the Court refused to invoke the remedy under Article 226 of the Constitution in the said matter. Whereas, in ABL's case, 13 WntPetitionIClNo. 1514 of 2Q08 c; there was no such arbitration clause in the contract and in this context, it was observed by the Apex Court that it is well known that if the parties to a dispute had agreed to settle their dispute by arbitration and if there is an agreement in that regard, the courts will not permit recourse to any other remedy without invoking the remedy by way of arbitration, unless of course both the parties to the dispute agree on another mode of dispute resolution. (12) Therefore, in the realm of contractual matters a line can be drawn and they may be classified in two groups. First, in which, there is an agreement of arbitration between the parties and the second, in which, there is no such agreement and the disputes may be dealt with by the civil courts. In almost all the cases cited by Mr. Shanti Bhushan, except the one i.e. Harbanslal's (supra), there were no arbitration agreements and in such situation, the writ petitions were entertained and were held to be maintainable. (13) In Harbanslal's case, the Apex Court has used the words like "in appropriate cases". These words have great significance. In addition to such words, the Apex Court has given three contingencies, which we have referred to above. If we examine the case in hand with reference to the contingencies referred to in the matter of Harbanslal's, we find that none of the contingencies are there in this matter, as there is no question of enforcement of any of the fundamental rights, neither there is failure of principles of natural justice nor the present is a case where there is a question of order or proceedings being wholly without jurisdiction nor the vires of an Act is challenged. The Harbanslal's case is distinguishable _ c-1.- —..—-- -saa^, it' ;..-s«»^ 14 Writ Petition (C~) No. 1514 of2008 because the Apex Court found it to be an appropriate case in the prevailing facts and circumstances as the first two contingencies were found attracted and it was observed by the Apex Court that it was a case in which the bread and butter of the petitioners came to be terminated for an irrelevant and non-existent cause and perhaps in all these prevailing circumstances only, the Apex Court found it to be an appropriate case for exercising of writ jurisdiction by passing the remedy available under the arbitration clause. (14) The judgment of Harbanslal (supra) was later cited in the matter of Mrs. Sanjana M. Wis -Vs- Hindustan Petro CorRoration Ltd., AIR 2005 SC 3454. It was argued that a public law remedy cannot be held to be not available to a person aggrieved only on the ground of existence of an arbitration clause; although fundamental right at the hands of the State is alleged to have been breached. It was also argued that from the chain of events, it would appear that the respondent had condoned the lapses on the part of the appellant in the matter of alleged violations of the conditions of the agreement and only insisted on payment of the alleged dues in terms of the notice issued on that behalf and strong reliance was placed on Harbanslal's case. On the above arguments in the matter, the Apex Court observed vide Para 16 & 17 as under: "16. We may, however, notice that the Bench