2005 Supreme(Kar) 276

Karnataka High Court
O.J.S.C.CORPORATION TRANSSTROY, moscow, RUSSIA - Appellant
Versus
GOVERNMENT OF KARNATAKA - Respondent
Decided On : 04-15-05
W.P. : 6078 of 2005

Headnote:Termination of Contract

       GOVERNMENT CONTRACTS

       Termination of Contract - After a contract is concluded, during its implementation, if one of the party to the contract being State or an instrumentality of the State terminates the contract on the ground of breach committed by the other party, whether the order of termination could be assailed in a writ petition? If so, what is the scope of judicial review in such matter.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249 ; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848: (1983)3 SCC 379: (1983)3 Comp L.J 202 (SC) ; AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293 ; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       Termination of Contract

       KARNATAKA TRANSPARENCY IN PUBLIC PROCUREMENT ACT, 1999 - Section 6 - Termination of Contract - After a contract is concluded, during its implementation if one of the party to the contract being a State or an instrumentality of the State terminates the contract on the ground of breach committed by the other party, whether the order of termination could be assailed in a Writ Petition? If so, what is the scope of judicial review in such matter.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249 ; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848:(1983)3 SCC 379: (1983)3 Comp L.J 202 (SC); AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       CONSTITUTION OF INDIA - Constitution of India - Decision in a precedent - Article 141 - Decision in a precedent - What is - Policy of courts in re. [N. Kumar, J]: The observations in a judgment have to be understood in the context in which they are made, the subject-matter of the proceedings and what exactly the learned Judges intended in making those observations. The generality of the expressions which are found there are not intended to be expositions of the whole law but governed and qualified by the particular facts of the case in which such expressions are to be found.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848: (1983)3 SCC 379: (1983)3 Comp L.J 202 (SC); AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       Constitution of India - Powers under - Article 226 - Powers under - Interference with contractual powers of State. [N. Kumar, J]: (1) Judicial review is permissible both at the pre-contract stage and post-contract stage though the scope of interference varies depending upon the stage of review. The scope of judicial review in post contractual matters is very much narrower. (2) In pre-contract stage the action of the State or its instrumentality has to satisfy the test of reasonableness as enunciated by the Supreme Court in various decisions interpreting Article 14 of the Constitution of India. Action should be fair, just, reasonable and devoid of arbitrariness. (3) The pre-contract stage squarely falls within the realm of public law character and, therefore, the decision must not only be tested by principles of Wednesbury s principles of reasonableness but must be free from arbitrariness not affected by bias or actuated by mala fides. (4) Post-contract stage falls within the realm of private law. But nonetheless the requirement of Article 14 and contractual obligations are not alien concepts. They can co-exist. (5) Every holder of a public office by virtue of which he acts on behalf of a State or public body is ultimately accountable to the people in whom sovereignty vest. Therefore, even in this private law sphere when a public officer exercises power it is in the nature of a public duty and, therefore, as his action is in import of public interest that factor alone is sufficient to import at least the minimum requirements of public law obligations. The requirement of Article 14 being the duty to act fairly, justly and reasonably, such action of a public officer in discharge of public duty should conform to the said requirement of law. (6) The order terminating a contract on the ground of breach of terms of the contract is no vitiated for not disclosing the reasons, the application of mind, by way of consideration of the case of the defaulting party. Such an order when challenged in court could be justified by producing the relevant records and showing the application of mind to the said material after following the principles of natural justice which would meet the requirements of law as Courts are only concerned with the process of decision making and not the decision itself. (7) Even when some defect is found in the decision making process, the Court must exercise its discretionary power under Article 226 with great caution and circumspection and should exercise ti only in furtherance of public interest and not merely on the making out a legal point. (8) Writ petition against a state and its instrumentality, arising out of contractual obligation is maintainable. Even disputed questions of fact could be gone into, if necessary by recording of evidence. Monetary claims can also be entertained. But the normal rule is not to entertain such claims. But, only in exceptional cases when the circumstances warrant such an interference, the Court has the power and could be exercised. In other words, only in rarest of rare cases the exercise of power is justified. It is not want of power or jurisdiction. It is a case of self restraint. (9) A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by state or a statutory body. (9) A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by State or a statutory body. (10) The interpretation and implementation of a covenant in a contract ordinarily cannot be the subject-matter of writ petition, and the same has to be determined according to the principles of the Contract Act.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848: (1983)3 SCC 379: (1983)3 Comp L.J 202 (SC); AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       Constitution of India - Requirements of Article - Article 14 - Requirements of Article - Post - Contractual stage - Is within the reason of positive law - Nonetheless, requirements of Article 14 are not alien.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249 ; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848: (1983)3 SCC 379: (1983)3 Comp L.J 202 (SC); AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       Requirements of Article

       CONSTITUTION OF INDIA - Article 14 - Requirements of Article - Post - Contractual stage - Is within the reason of positive law - Nonetheless, requirements of Article 14 are not alien.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249 ; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848: (1983)3 SCC 379: (1983)3 Comp L.J 202 (SC); AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       Decision in a precedent

       CONSTITUTION OF INDIA - Article 141 - Decision in a precedent - What is - Policy of courts in re.

       [N. Kumar, J]: The observations in a judgment have to be understood in the context in which they are made, the subject-matter of the proceedings and what exactly the learned Judges intended in making those observations. The generality of the expressions which are found there are not intended to be expositions of the whole law but governed and qualified by the particular facts of the case in which such expressions are to be found.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848: (1983)3 SCC 379: (1983)3 Comp L.J 202 (SC); AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       Powers under

       CONSTITUTION OF INDIA - Article 226 - Powers under - Interference with contractual powers of State.

       [N. Kumar, J]: (1) Judicial review is permissible both at the pre-contract stage and post-contract stage though the scope of interference varies depending upon the stage of review. The scope of judicial review in post contractual matters is very much narrower. (2) In pre-contract stage the action of the State or its instrumentality has to satisfy the test of reasonableness as enunciated by the Supreme Court in various decisions interpreting Article 14 of the Constitution of India. Action should be fair, just, reasonable and devoid of arbitrariness. (3) The pre-contract stage squarely falls within the realm of public law character and, therefore, the decision must not only be tested by principles of Wednesbury s principles of reasonableness but must be free from arbitrariness not affected by bias or actuated by mala fides. (4) Post-contract stage falls within the realm of private law. But nonetheless the requirement of Article 14 and contractual obligations are not alien concepts. They can co-exist. (5) Every holder of a public office by virtue of which he acts on behalf of a State or public body is ultimately accountable to the people in whom sovereignty vest. Therefore, even in this private law sphere when a public officer exercises power it is in the nature of a public duty and, therefore, as his action is in import of public interest that factor alone is sufficient to import at least the minimum requirements of public law obligations. The requirement of Article 14 being the duty to act fairly, justly and reasonably, such action of a public officer in discharge of public duty should conform to the said requirement of law. (6) The order terminating a contract on the ground of breach of terms of the contract is no vitiated for not disclosing the reasons, the application of mind, by way of consideration of the case of the defaulting party. Such an order when challenged in court could be justified by producing the relevant records and showing the application of mind to the said material after following the principles of natural justice which would meet the requirements of law as Courts are only concerned with the process of decision making and not the decision itself. (7) Even when some defect is found in the decision making process, the Court must exercise its discretionary power under Article 226 with great caution and circumspection and should exercise ti only in furtherance of public interest and not merely on the making out a legal point. (8) Writ petition against a state and its instrumentality, arising out of contractual obligation is maintainable. Even disputed questions of fact could be gone into, if necessary by recording of evidence. Monetary claims can also be entertained. But the normal rule is not to entertain such claims. But, only in exceptional cases when the circumstances warrant such an interference, the Court has the power and could be exercised. In other words, only in rarest of rare cases the exercise of power is justified. It is not want of power or jurisdiction. It is a case of self restraint. (9) A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by state or a statutory body. (9) A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by State or a statutory body. (10) The interpretation and implementation of a covenant in a contract ordinarily cannot be the subject-matter of writ petition, and the same has to be determined according to the principles of the Contract Act.

       Cases Referred: AIR 1964 SC 592: 1954 SC 644: (1955)1 SCR 305; AIR 1959 SC 149: 1959 SCJ 1207: (1959) 35 ITR 190 (SC); AIR 1967 SC 1170: (1967)2 SCR 454; AIR 1973 SC 205: (1971)3 SCC 864; AIR 1975 SC 266: (1975)1 SCC 70; AIR 1977 SC 1496: (1977)3 SCC 457: (1977)3 SCR 249; AIR 1980 SC 1992: (1980)4 SCC 1; AIR 1983 SC 848: (1983)3 SCC 379: (1983)3 Comp L.J 202 (SC); AIR 1986 SC 1370: (1986)1 SCC 264: (1986)59 Comp Case 548 (SC); AIR 1989 SC 1642: (1989) 3 SCC 293; AIR 1989 SC 1076: (1989)2 SCC 116; AIR 1991 SC 537: (1991)1 SCC 212; AIR 1995 SC 1811: (1995)5 SCC 482; (1999)7 SCC 89: 1999(7) Supreme 311; AIR 2000 SC 801: (2000)2 SCC 617; AIR 2000 SC 2573: (2000)6 SCC 293; (2004)3 SCC 553: (2004)118 Comp Case 213 (SC).

       Exercise of Writ Jurisdiction

       NATURAL JUSTICE - Commercial activity of State - Interference with when warranted.

       [N. Kumar, J]: When the State enters into contract in respect of a commercial activity and if it were to terminate the contract there is no reason why the State as a party to contract should be subjected to State its reasons. When the order terminating the contract is not passed in the capacity of a statutory functionary there is no obligation to give reasons in the order itself. In contractual matters when the order terminating the contract is challenged on the ground that no reasons are given for passing the impugned order or that the impugned order does not disclose application of mind or that it is passed in violation of principles of natural justice, the authority may produce its records to justify the impugned order. At that stage it is open to the Court to look into the records made available and it shows justification for the impugned action, no case for interference is made out, as it is settled law that what the Court is concerned is with the decision making process than the decision itself.

       Decision in a precedent

       PRECEDENTS - Decision in a precedent - What is - Policy of courts in re.

       [N. Kumar, J]: The observations in a judgment have to be understood in the context in which they are made, the subject-matter of the proceedings and what exactly the learned Judges intended in making those observations. The generality of the expressions which are found there are not intended to be expositions of the whole law but governed and qualified by the particular facts of the case in which such expressions are to be found.