*THE HON’BLE SMT. JUSTICE T. MEENA KUMARI AND *THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY +WRIT APPEAL No.496 of 2003 % 04-2-2009 # The Superintending Engineer, T.G.P. Circle, Cuddapah, & another. … Appellants Vs. $ M/s. Pioneer Builders, Plot No.652, Road No.3, Banjara Hills, Hyderabad, rep., by its Partner Sri B. Radhakrishna Reddy. … Respondent ! Counsel for the appellants : GP for Irrigation & CAD ^Counsel for the respondent: Sri S.R. Ashok, Senior counsel. < Gist: > Head Note: ? Cases referred: 1. 1993 (2) ALT 80 (DB) 2. AIR 1977 SC 1496 3. (1996) 6 SCC 22 4. (2000) 6 SCC 293 5. (2004) 12 SCC 327 6. (2005) 6 SCC 657 7. AIR 1989 SC 1642 8. AIR 1990 SC 1031 9. (1991) 1 SCC 212 10. (2004) 3 SCC 553 11. (2008) 10 SCC 404 12. (1994) 4 SCC 104 13. (1979) 3 SCC 489 IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE FOURTH DAY OF FEBRUARY, TWO THOUSAND NINE ONLY PRESENT: THE HON’BLE SMT. JUSTICE T. MEENA KUMARI AND THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY WRIT APPEAL No.496 of 2003 Between: The Superintending Engineer, T.G.P. Circle, Cuddapah, & another. … Appellants AND M/s. Pioneer Builders, Plot No.652, Road No.3, Banjara Hills, Hyderabad, rep., by its Partner Sri B. Radhakrishna Reddy. … Respondent Counsel for the appellants : GP for Irrigation & CAD Counsel for the respondent : Sri S.R. Ashok Senior counsel This Court made the following: THE HON’BLE SMT. JUSTICE T. MEENA KUMARI AND THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY WRIT APPEAL No.496 of 2003 JUDGMENT:- (Per C.V.NAGARJUNA REDDY,J) This writ appeal arises out of order dated 04.02.2003 in WP.No.10925 of 2001 of the learned Single Judge, whereby he allowed the writ petition filed by the respondent – writ petitioner. The brief facts, relevant for disposal of this appeal, are as under: The respondent is a registered contractor with the irrigation department of the Government of A.P. It was entrusted with execution of a part of work “formation of earthen bund” under agreement No.1/88-89. Due to certain reasons, which are not germane to be discussed, the work spilled beyond the scheduled date of completion. The parties entered into four supplemental agreements bearing agreement Nos.16/93-94, 1/95096, 3/96-97 and 25/96-97 dated 17.09.1993, 02.05.1995, 22.06.1996 and 07.08.1996 respectively. The respondent claimed that the work was completed on 21.08.1996 and its further security and earnest money deposits to the tune of about Rs.16,00,000/- were not paid to it. Another work was awarded to the respondent pertaining to the Telugu Ganga Project Main Canal under agreement No.25/98- 99. During the course of execution of this work, appellant No.2 issued communication dated 08.11.2000 to the effect that audit objections were raised in respect of agreement No.1/88-89, that excess payment to the extent of Rs.59.18 lakhs was made to the respondent on account of erroneous computation of the amount payable under the item of work “loading and unloading” of excavated earth. This was followed by another communication emanating from the appellants wherein while reiterating their stand on excess payment, they proposed recovery of Rs.68.34 lakhs from the work bills pertaining to agreement No.25/98-99. These two communications are questioned in WP.No.10925 of 2001 filed by the respondent on multiple grounds. Before the learned Single Judge, the respondent-writ petitioner mainly urged three contentions, namely; that (i) the impugned action of the appellants in seeking to recover the alleged excess payment was in violation of principles of natural justice, as the same was not preceded by any notice and opportunity to the respondent, (ii) Clause 71 of the Preliminary Specifications to APDSS per se does not apply to agreement No.1/88-89, as the work was executed and the respondent’s obligations under the contract was discharged and (iii) even if Clause 71 applies, the same cannot be invoked in respect of the amount purportedly paid under mistake without prior determination of the respondent’s liability. The appellants resisted the contentions of the respondent by questioning the very maintainability of the writ petition filed raising disputes under a concluded contract. They have further urged that in view of the judgment of the Division Bench of this Court in Executive Engineer, Irrigation Circle-3, Nizamabad v. C.Raghava Reddy[1], no prior determination of the respondent’s liability need be made. The learned Single Judge rejected the contention of the appellants on the maintainability of the writ petition. He also held that the impugned action was in violation of principles of natural justice, as no prior opportunity was given to the respondent. While dealing with the judgment of the Division Bench in Executive Engineer (1 supra), the learned Judge held that while the ratio laid down therein is unexceptionable, Clause 71 of PS to APDSS ex facie does not apply to the case on hand, as the contract in respect of which the respondent is found due of the amounts was completely executed and that Clause 71 applies only to cases where the contracts were under the execution stage. The learned Judge went a step further and held that in view of Clause 73, the appellants are at liberty to file a suit, establish their case of mistaken payment and seek recovery of the amounts. We have heard the learned Government Pleader for Irrigation and CAD for the appellants and Sri S.R. Ashok, learned Senior counsel for the respondent. We have also carefully perused the record. At the outset, we may dispose of the issue of maintainability of the writ petition. As regards the maintainability of a writ petition under Article 226 of the Constitution of India for adjudication of disputes arising under a concluded non-statutory contract between a private party and the State or its instrumentalities, there is virtual dichotomy in the views expressed by the Supreme Court. While the view expressed in M/s. Radhakrishna Agarwal and others v. State of Bihar and others[2] followed by the judgments in State of U.P. and others v. Bridge and Roof Co., (India) Limited[3], Kerala State Electricity Board v. Kurien E. Kalathil[4], State of Jammu and Kashmir v. Ghulam Mohd. Dar[5], Binny Limited v. V.Sadasivan[6] disfavored entertainment and adjudication of such disputes by the High Courts exercising power under Article 226 of the Constitution of India, the Apex Court has taken a more liberal view in M/s. Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay[7], Mahabir Auto Stores and others v. Indian Oil Corporation and others[8] and Kum.Shrilekha Vidyarthi & others v. State of U.P & others[9] and interfered with the decisions taken under concluded contracts on the touchstone of Article 14 of the Constitution of India. In ABL International Ltd., v. Export Credit Guarantee Corporation of India Limited[10] the Supreme Court reiterated the view reflected in the latter line of cases. In paragraphs 10 and 23, it held as under: “It is clear from the above observations of this Court in the said case, though a writ was not issued on the facts of that case, this Court has held that on a given set of facts if a State acts in an arbitrary manner even in a matter of contract, an aggrieved party can approach the court by way of writ under Article 226 of the Constitution and the court depending on facts of the said case is empowered to grant the relief. This judgment in K. N. Guruswamy v. The State of Mysore and Others –AIR 1954 SC 592 - was followed subsequently by this Court in the case of D. F. O. v. Ram Sanehi Singh – (1973) 3 SCC 864 - wherein this Court held: "by that order he has deprived the respondent of a valuable right. We are unable to hold that merely because the source of the right which the respondent claims was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority he must resort to a suit and not to a petition by way of a writ. In view of the judgment of this Court in K. N. Guruswamy’s case [1955 (1) SCR 305], there can be no doubt that the petition was, maintainable, even if the right to relief arose out of an alleged breach of contract, where the action challenged was of a public authority invested with statutory power”. (Emphasis supplied). “It is clear from the above observations of this Court, once State or an instrumentality of State is a party to the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants the first respondent as an instrumentality of the State has acted in contravention of the above said requirement of Article 14 then we have no hesitation that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent”. In its very recent judgment in United India Insurance Company Limited v. Manubhai Dharmasinhbhai Gajera and others[11] the Supreme Court having referred to its observations made in Excise Commissioner v. Issac Peter[12] on the application of Article 14 and the doctrine of fairness or the duty to act fairly or reasonably by the State and its instrumentalities even in the contractual field, drew a distinction between the Court’s power of judicial review at the threshold of formation of a contract and the cases where the terms and conditions of the contract are to be enforced. It held that in the former case, the Court’s jurisdiction is wider and in the latter, it is not. It is apt to reproduce para 39 of the judgment hereinbelow: “Another distinction in the approach of the Court in this behalf must also be borne in mind, namely, that a court may exercise its power of judicial review at the threshold of formation of a contract as was the case in Ramana Dayaram Shetty v. International Airport Authority of India[13] and the cases where the terms and conditions of contract are to be enforced. Whereas in the former case, the court’s jurisdiction is wider, in the latter, it is not. We may, however, hasten to add that it does not mean that the court shall not interfere even in a case where the term of the contract is against the public polity or where in enforcing the same the State acts arbitrarily, unfairly or unreasonably or makes discrimination amongst the persons similarly situated.” (Emphasis added). A careful analysis of the judgments of the Supreme Court referred to above reveals that the earlier conservative view of non- interference in cases arising under non-statutory contracts has given way to a some what liberal approach of limited interference. In effect, the Constitutional law limitations on the State actions while acting in administrative sphere are also applied even to contractual sphere. Though ordinarily the superior Courts relegate the parties to the common law remedies such as arbitration (wherever such a provision in the concluded contracts is made) or a civil suit, in specific situations such as term of contract being against the public policy or while enforcing a term of contract the State acts arbitrarily, unfairly or unreasonably or makes discrimination amongst the persons similarly situated, they exercise extraordinary jurisdiction under Article 226 or Article 32 of the Constitution in such particular situations. On the analysis as above, we cannot accept the contention of the learned Government Pleader that the learned Single Judge ought not to have entertained the writ petition as it raised a dispute arising under a concluded contract. If it is eventually found that the appellants acted arbitrarily in seeking to deduct from the bills under the later contract, the alleged liability of the respondent arising under the earlier contract, we are of the view that the writ petition is certainly maintainable. The question then is whether the action of the appellants suffers from such arbitrariness? The fact that after the parties entered into four supplemental agreements, the execution of work was completed and all the bills were paid except refund of EMD and further security deposit is not in dispute. It is about five years later that the appellants found that certain excess payments were made to the respondent. According to them, the respondent was paid amounts towards loading and unloading twice instead of paying once as per the contract. The question whether the payment made to the respondent was contrary to the terms of contract and whether the excess payment was made on account of mistake or not can be decided only after putting the respondent on notice and eliciting its views. Such a procedure would have ensured that the respondent had a reasonable opportunity of putting forth its case besides creating a possibility for the parties to settle the dispute amicably, obviating the necessity of litigation. Therefore, even while acting under a contract, the appellants, who are the officers of the State, are expected to act in a fair and reasonable manner, more so, when they sought to rake up an issue almost five years after making payment to the respondent. The appellants failed to follow the procedural fairness, which is a sine qua non for the State and its officers while dealing with their subjects irrespective of whether they act in administrative or contractual field. Viewed from this angle, we are of the considered opinion that the impugned letters and the consequential action of the appellants in proposing to effect recoveries from the later contract towards the amounts allegedly payable under the earlier contract cannot be sustained, as it smacks of arbitrariness. Though the learned Single Judge had invalidated the impugned communication on the ground of violation of principles of natural justice, in our view it is more appropriate to quash the said communication on the anvil of Article 14 and by applying doctrine of fairness. The learned Government Pleader strenuously contended that the learned Single Judge committed a serious error in holding that Clause 71 of the PS to APDSS has no application to this case and that the appellants shall be free to file a civil suit for recovery. Sri S.R. Ashok, learned Senior counsel appearing for the respondent, while stoutly supporting the view of the learned Single Judge sought to add a new dimension to the case by placing reliance on Clause 72. Having carefully considered the submissions of the learned counsel for the parties, we are of the view that the learned Single Judge having declared the impugned communication as invalid, as the respondent was not afforded a prior opportunity, should not have proceeded further and given findings on the applicability or otherwise of Clause 71 and the requirement of filing a suit by the appellants for recovery of the disputed amount. When once the impugned communication is quashed and the appellants are given liberty to take a decision afresh after hearing the respondent, it is not necessary for this Court to delve into other aspects, because those questions would arise only if the appellants take a decision adverse to the interest of the respondent. Hence, we are of the view that the findings of the learned Single Judge on the applicability or otherwise of Clause 71 and the legal remedies available to the appellants for recovery are quite unnecessary and are accordingly set aside. The order of the learned Judge quashing the impugned communication is, however, affirmed. We leave the parties free to raise the aforementioned two issues as and when such a necessity arises in future. On the premises as above, the writ appeal is disposed of by modifying the order of the learned Single Judge to the extent indicated above. The appellants shall be left free to take a decision afresh, after giving a show cause notice and reasonable opportunity of being heard to the respondent. As a sequel to disposal of the writ appeal, WAMP.Nos.898 and 899 of 2003 and 44 of 2007 are disposed of as infructuous. T. MEENA KUMARI, J C.V.NAGARJUNA REDDY, J Date: 03.02.2009 ES L.R Copies to be marked. [1] 1993 (2) ALT 80 (DB) [2] AIR 1977 SC 1496 [3] (1996) 6 SCC 22 [4] (2000) 6 SCC 293 [5] (2004) 12 SCC 327 [6] (2005) 6 SCC 657 [7] AIR 1989 SC 1642 [8] AIR 1990 SC 1031 [9] (1991) 1 SCC 212 [10] (2004) 3 SCC 553 [11] (2008) 10 SCC 404 [12] (1994) 4 SCC 104 [13] (1979) 3 SCC 489