Case: Indian Explosives Ltd. & Another Vs. Coal India Ltd. & Others

1. The appellants in the three appeals who had approached the High Court under Article 226 of the Constitution of India have been non-suited on the ground that the contract entered into by them with the Coal India Ltd. for supply of explosives was in the realm of a private contract involving no public law element and, hence, not amenable to scrutiny in the exercise of jurisdiction under Article 226 of the Constitution. Aggrieved these appeals have been filed. 2. We have perused the order of the High Court under challenge and have heard the learned counsels for the parties. 3. The grievance raised by the appellants, as writ petitioners, which have been refused an adjudication on merits, is that a supplementary clause in the contract/agreement which has the effect of novation of the contract has been unilaterally inserted therein by the respondent - Coal India Ltd. It was urged that the said supplementary clause clearly nullifies the clear understanding and terms of the original contract contained in Clause XV. Clase XV of the Original Contract and the supplementary clause inserted are in the following terms: CLAUSE XV - PERFORMANCE 1(A). Review of your product performance will be made on the basis of fragmentation/muck piling costs per Cu.M. and Capacity improvement achieved for the total system. In the event of your Product not providing satisfactory results mutually agreed upon, proportionate reduction in prices for the Products which failed will be made. You are to provide optimum blast design for each mine benchwise and render all related including provisioning of vibration monitoring. In the event of failure of Blast, the cost of Explosives used in the Blast, and all other incidental charges will be recovered from you. B) If there is a complaint for low powder factor, you must be penalized/ supply restricted for continuous poor performance. The management of the respective subsidiary companies, would then divert the balance quantity (supposed to be allotted to you and there is a product complaint for low powder factor etc. against your past supplies) to the other manufacturers (on pro-rata basis) whose products are having better powder factor. This diversion of quantities due to poor product performance should be made with the approval of D(T) of concerned subsidiary companies. 2. The limits of Velocity of Detonation, Density and Cap/Booster Sensitivity which will govern at the time of Random Testing of the products ordered on you are indicated below:- Sl.Particulars of Test to be conductedLimit of RangesEmulsionSlurry 1.Velocity of Detonation (m/sec.)Fresh SampleAfter sleepage in water (24 hrs.)4000+/- 5004000+/- 500800+/- 500800+/- 500 2.Density (gm/cc)Fresh SampleAfter sleepage in water (24 hrs.)1.15+/- 0.051.15+/- 0.051.15+/- 0.101.15+/- 0.10 3.Cap/Booster SensitivityFresh SampleAfter sleepage in water (24 hrs.)Sample should fire with 100 gm. Cast Booster.Sample should fire with 100 gm. Cast Booster. *** SUPPLEMENTARY CLAUSE XV (PERFORMANCE CLAUSE) The weighted average Powder Factor separately for Coal and OB for 10 years commencing from 2004-05 to 1995-96 and that of 2004-05 shall be worked out mine-wise. The higher of weighted average Powder Factor for 10(ten) years (from 2004-05 to 1995-96] and that of 2004-05 shall be hereinafter referred to as the minimum yield. The mine-wise achievement of Powder Factor should not be less than the minimum yield referred to above. For every 1% (one per cent) or part thereof, decrease in Powder Factor of Coal/OB compared to the minimum yield as above, commensurate deduction of the cost of explosives and accessories shall be made. Such computation for deduction shall be made on monthly basis. 4. The difference between Clause XV as per the original agreement and the supplementary clause inserted is that while under the original agreement the quality/effectiveness of the product supplied was to be tested by means of mutual negotiations and discussions in the event of a complaint, under the supplementary clause, the powder factor which was determinative of the quality of the product was specified. 5. Coal India Limited is a Government Company and the majority shareholding is still with the Government of India. It is the Government of India, who, therefore, commands a majority in the Board of Directors. Being a Government Company it is amenable to Government directions and control and, therefore, has been held by this Court in Coal India Ltd. v. Saroj Kumar Mishra, (2007) 9 SCC 625 to be a State within the meaning of Article 12 of the Constitution of India. 6. This Court has consistently taken the view that a private contract entered by the State, so long as it disclose a public law element would have to meet the test of Article 14 of the Constitution of India so far as its terms and conditions and application thereof are concerned. In view of the Corporate structure (shareholdings) of Coal India Limited and the decision of this Court in Coal India Ltd. (supra), we do not see how the fairness of the actions of Coal India Limited called into question in the writ petitions would not be liable to be tested on the anvil of Article 14 of the Constitution of India if we are to hold that the unilateral insertion of the supplementary clause in the contract between the parties amounted to a novation of the contract and the changed terms have been given effect to the prejudice of the appellant. 7. Having perused Clause XV of the Original agreement and the Supplementary Clause (extracted above) we are inclined to hold that the Supplementary Clause clearly travels beyond the intent of the parties as expressed in the original agreement. The said clause has been thrust upon the contractor(s) and has been worked, as subsequent events discloses, to his/its detriment. The State cannot be expected to conduct its affairs even in commercial matters in a manner which expressly negates the mandate of Article 14 of the Constitution. In the present case, not only that, the supplementary clause has been given retrospective effect from the date of the original agreement. 8. It is, therefore, our considered view that the supplementary clause constitutes a novation of the contract which could not have been done unilaterally and such unilateral action on the part of the Coal India Limited violates Article 14 of the Constitution of India and, therefore, liable to correction in exercise of the writ jurisdiction. No question of appreciation of evidence can and does arise to answer the above question which to us is self-evident from a mere examination of the two clauses in question. If the action of the State is per se arbitrary as we are inclined to hold in the present case we do not think it to be in consonance with the cause of justice to relegate the aggrieved party to an alternative remedy as has been done by the High Court. To secure justice is the ultimate aim of all principle of law and we must hold accordingly.

Decision reasoning: 1[ds]6. This Court has consistently taken the view that a private contract entered by the State, so long as it disclose a public law element would have to meet the test of Article 14 of the Constitution of India so far as its terms and conditions and application thereof are concerned. In view of the Corporate structure (shareholdings) of Coal India Limited and the decision of this Court in Coal India Ltd. (supra), we do not see how the fairness of the actions of Coal India Limited called into question in the writ petitions would not be liable to be tested on the anvil of Article 14 of the Constitution of India if we are to hold that the unilateral insertion of the supplementary clause in the contract between the parties amounted to a novation of the contract and the changed terms have been given effect to the prejudice of the appellant7. Having perused Clause XV of the Original agreement and the Supplementary Clause (extracted above) we are inclined to hold that the Supplementary Clause clearly travels beyond the intent of the parties as expressed in the original agreement. The said clause has been thrust upon the contractor(s) and has been worked, as subsequent events discloses, to his/its detriment. The State cannot be expected to conduct its affairs even in commercial matters in a manner which expressly negates the mandate of Article 14 of the Constitution. In the present case, not only that, the supplementary clause has been given retrospective effect from the date of the original agreement8. It is, therefore, our considered view that the supplementary clause constitutes a novation of the contract which could not have been done unilaterally and such unilateral action on the part of the Coal India Limited violates Article 14 of the Constitution of India and, therefore, liable to correction in exercise of the writ jurisdiction. No question of appreciation of evidence can and does arise to answer the above question which to us ist from a mere examination of the two clauses in question. If the action of the State is per se arbitrary as we are inclined to hold in the present case we do not think it to be in consonance with the cause of justice to relegate the aggrieved party to an alternative remedy as has been done by the High Court. To secure justice is the ultimate aim of all principle of law and we must hold accordingly.