2023 Supreme(Kar) 510

IN THE HIGH COURT OF KARNATAKA AT BENGALURU
KRISHNA S. DIXIT, J.
Karnataka EMTA Coal Mines Limited – Petitioner
Versus
Karnataka Power Corporation Limited – Respondent
Writ Petition No. 1517 of 2012
Decided On : 19-09-2023

Writ jurisdiction can be invoked in contractual matters involving public law elements. Principles of natural justice apply to contracts with public law elements. The penalty mentioned in the agreement is in the nature of liquidated damages. The report of CAG/AG and the opinion of the Advocate General cannot be the sole basis for a demand without giving the affected party an opportunity to participate in the proceedings.

Headnote:

The court examines Article 10 of the Fuel Supply Agreement (FSA) and concludes that the penalty mentioned in the agreement is in the nature of liquidated damages. The court also discusses the provisions of the Indian Contract Act, 1872, including sections 73 and 74, which deal with the recovery of damages for breach of contract. The court refers to various legal principles and precedents to interpret and apply these provisions in the context of the case. The court also considers the role of the Comptroller and Auditor General (CAG) and the Advocate General (AG) in the audit process and the basis for the impugned demand.

Fact of the Case:

Petitioners, companies incorporated under the Companies Act, are complaining against a letter from KPCL demanding penalties. The impugned letter demands penalties for non-commencement of coal supply, recovery of difference in cost for arranging supply of coal, and short supply of coal. The petitioners argue that the clauses of the Fuel Supply Agreement do not authorize KPCL to quantify damages and levy penalty without judicial determination. KPCL argues that the clauses authorize it to assess damages and determine compensation/penalty for breach. The court frames questions for determination, including whether contractual disputes can be examined in writ jurisdiction, whether principles of natural justice apply to private contracts, and whether the penalty mentioned in the agreement is in the nature of liquidated damages. The court discusses these questions and concludes that writ jurisdiction can be invoked in contractual matters involving public law elements, principles of natural justice apply to contracts with public law elements, and the penalty mentioned in the agreement is in the nature of liquidated damages. The court also examines the basis of the impugned demand, including the CAG/AG audit report and the opinion of the Advocate General. The court finds that the report and opinion cannot be the sole basis for the demand and that the petitioners were not given an opportunity to participate in the audit proceedings. The court quashes the impugned order to the extent it levies penalties and remands the matter to KPCL for de novo determination of the amount payable by the petitioners for the actual cost of procurement of coal from alternative source.

Finding of the Court:

The court examines the questions framed for determination, including whether contractual disputes can be examined in writ jurisdiction, whether principles of natural justice apply to private contracts, and whether the penalty mentioned in the agreement is in the nature of liquidated damages. The court concludes that writ jurisdiction can be invoked in contractual matters involving public law elements, principles of natural justice apply to contracts with public law elements, and the penalty mentioned in the agreement is in the nature of liquidated damages. The court also examines the basis of the impugned demand, including the CAG/AG audit report and the opinion of the Advocate General. The court finds that the report and opinion cannot be the sole basis for the demand and that the petitioners were not given an opportunity to participate in the audit proceedings.

Ratio Decidendi: Writ jurisdiction can be invoked in contractual matters involving public law elements. Principles of natural justice apply to contracts with public law elements. The penalty mentioned in the agreement is in the nature of liquidated damages. The report of CAG/AG and the opinion of the Advocate General cannot be the sole basis for a demand without giving the affected party an opportunity to participate in the proceedings.

Result: The court quashes the impugned order to the extent it levies penalties and remands the matter to KPCL for de novo determination of the amount payable by the petitioners for the actual cost of procurement of coal from alternative source.