2022 Supreme(SC) 1170

SUPREME COURT OF INDIA
K.M. JOSEPH, HRISHIKESH ROY, JJ.
M.P. Power Management Company Limited - Appellant
Versus
M/s. Sky Power Southeast Solar India Private Limited & Others – Respondents
Civil Appeal Nos. 8515-8516 of 2022 (Arising out of SLP (C) Nos.4609-4610 OF 2021)
Decided on : 16-11-2022

IMPORTANT POINTS
(1) Power Purchase Agreement is not a Statutory Contract.
(2) Dispute which must be capable of being resolved on a proper understanding of documents which are not in dispute may furnish a cause of action in a writ court – Termination of contract again may not be immune if it is found to be afflicted with vice of arbitrariness.
(3) Termination of a contract results in intrusion into and deprivation of valuable rights which are vouchsafed to awardee of contract.
(4) Distinction between public law and private law has concededly been reduced to nearly imperceptible terms but distinction in law remains.

Headnote:

(A) Constitution of India – Articles 162 and 298 – Power Purchase Agreement (‘PPA’) – Termination of – PPA is a contract which has been entered into by appellant which is a fully owned Government Company – It is one thing to hold that appellant, as a fully owned Government Company, would be State for the purpose of Article 12 of Constitution of India and, quite another, to find that a contract is one which is made in executive power of State within meaning of Article 162 of Constitution – What is contemplated is power of Union or State read in conjunction with Article 73 and Article 162 of Constitution of India, respectively – Appellant, being a Company, would not be entitled to exercise executive power contemplated in Article 162 of Constitution which is power with Union or State Governments. (Para 17)

(B) Electricity Act, 2003 – Section 63 – Power Purchase Agreement (‘PPA’) – Termination of – It is common case that appellant is incorporated under Companies Act – It is not a statutory body or a corporation – Court cannot describe the contract as a Statutory Contract – PPA is not made either in purported compliance with statutory dictate, either in form of parent enactment or a subordinate legislation – Terms and conditions of PPA are not transplanted into PPA from any Statutory provision – Appellant being company under Companies Act, would be free as any other contracting party, subject to its position as an instrumentality of State under Article 12 of Constitution of India and law otherwise. (Para 26)

(C) Constitution of India – Article 14 – Arbitrary decision – If the act betrays caprice or mere exhibition of whim of authority it would sufficiently bear insignia of arbitrariness – In this regard supporting an order with a rationale which in circumstances is found to be reasonable will go a long way to repel a challenge to state action – Reasons need not in every case be part of order as such – If there is absence of good faith and action is actuated with oblique motive, it could be characterized as being arbitrary – A total non-application of mind without due regard to rights of parties and public interest may be a clear indicator of arbitrary action – A wholly unreasonable decision which is little different from a perverse decision under Wednesbury doctrine would qualify as an arbitrary decision under Article 14 – Ordinarily visiting a party with consequences of its breach under a contract may not be an arbitrary decision. (Para 48)

(D) Constitution of India – Article 32/226 – Judicial review of State action – Writ jurisdiction is a public law remedy – A matter, which lies entirely within a private realm of affairs of public body, may not lend itself for being dealt with under the writ jurisdiction of Court – Mere fact that relief is sought under a contract which is not statutory, will not entitle respondent-State in a case by itself to ward-off scrutiny of its action or inaction under the contract if complaining party is able to establish that action/ inaction is, per se, arbitrary – Existence of an alternate remedy is a matter to be borne in mind in declining relief in a Writ Petition in a contractual matter – While there is no prohibition in Writ Court even deciding disputed questions of fact, particularly when dispute surrounds demystifying of documents only, Court may relegate the party to remedy by way of a civil suit – Existence of a provision for arbitration which is a forum intended to quicken pace of dispute resolution, is viewed as a near bar to entertainment of a Writ Petition – In a case State is a party to contract and a breach of a contract is alleged against State, a civil action in appropriate Forum is maintainable – However, every case involving breach of contract by State, cannot be dressed up and disguised as a case of arbitrary State action – Violation of natural justice has been recognised as a ground signifying presence of a public law element and can found a cause of action premised on breach of Article 14. (Para 54)

(E) Constitution of India – Article 32/226 – Power Purchase Agreement (‘PPA’) – Termination of – PPA is not a statutory contract – Even if it is a non-statutory contract, there is no absolute bar in dealing with a cause of action based on acts or omission by State or its instrumentalities even during course of working of a contract – Monetary claim arising from a contract may be successfully urged by a writ applicant but premise would not be a mere breach of contract – Being part of public law case must proceed on the basis of there being arbitrariness vitiating the decision – Matter should not fall within a genuinely disputed question of facts scenario – Dispute which must be capable of being resolved on a proper understanding of documents which are not in dispute may furnish a cause of action in a writ court – Termination of contract again may not be immune if it is found to be afflicted with vice of arbitrariness – Interference again may be refused if court finds that case really belongs to small area with unclear contours where it can be appropriated as a private law dispute – Distinction between public law and private law has concededly been reduced to nearly imperceptible terms but distinction in law remains. (Para 78)

(F) Contract Act, 1872 – Section 63 – Principle of Public Interest – Once State enters into contract, rights are created – If case is brought to constitutional court and it is invited to interfere with State action on the score that its action is palpably arbitrary, if action is so found then an appeal to public interest must be viewed depending on facts of each case – If aspect of public interest flows entirely on the basis that rates embodied in contract which is arbitrarily terminated has with passage of time become less appealing to State or that because of free play of market forces or other developments, there is a fall in rate of price of services or goods then this cannot become determinative of question as to whether court should decline jurisdiction – Fact that power has become cheaper in market subsequently by itself should not result in non-suiting of complaint of first respondent if it is found that a case of clear arbitrariness has been established by first respondent – Public interest cannot also be conflated with an evaluation of monetary gain or loss alone. (Paras 88 and 89)

(G) Government Contract – Power Purchase Agreement (‘PPA’) – Termination of – Termination of a contract results in intrusion into and deprivation of valuable rights which are vouchsafed to awardee of contract – Action of appellant in departing from unambiguous regime of PPA without any justification would make its actions arbitrary – PPA clearly provided for issuance of a default notice, providing an opportunity to remove defect – This obligation has been observed in its breach – Essentially appellant’s attempt was to secure a reduction in rate – Rate of first respondent was found to be lowest after a clearly keenly competitive international bidding, involving a large number of bidders – View taken by High Court upheld. (Paras 115, 126, 128, 130 and 131)

Facts of the case:

Appellant impugns Judgment of High Court dated 27.02.2020 in Writ Petition No. 420 of 2019. It further challenges Order dated 28.12.2020 in Review Petition No. 682 of 2020. By said Judgment in Writ Petition, High Court allowed the Writ Petition filed by the first respondent and quashed Order dated 07.07.2018, which was passed by appellant, terminating Power Purchase Agreement (‘PPA’) which was entered into by appellant and first respondent. Review filed by appellant was dismissed.

Findings of Court:

Inspection by the CEIG would necessarily have to be carried out in which the appellant would have to be involved to facilitate the exercise. In the facts of this case, on being satisfied, CEIG would necessarily have to grant the re-validation of earlier Report. It would also involve an opportunity to the CEIG to look into the aspects which have been projected by fist respondent itself in its letter dated 16.09.2020.

Result : Appeals dismissed.