Writ remedy and unilateral recovery: State instrumentality cannot deduct contractual payments for unliquidated damages without adjudication.

Writ jurisdiction remained available despite the contractual setting because the challenge targeted allegedly arbitrary State action, and consequential monetary relief was also maintainable. KPCL could not unilaterally deduct amounts or demand reimbursement of reject cost solely on the basis of a CAG report where the contracts did not authorise such deduction, the coal supplied met contractual parameters, and liability had not been adjudicated. Unliquidated damages do not become recoverable as a debt until assessed by a competent authority, so the unilateral recovery was held arbitrary and unsustainable; the impugned communications were quashed and reimbursement of deductions was directed.

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Issues: (i) whether the writ petitions were maintainable notwithstanding the contractual nature of the dispute; and (ii) whether KPCL could unilaterally deduct Rs. 90 per MT and demand reimbursement of the alleged reject cost solely on the basis of the CAG report.

Issue (i): whether the writ petitions were maintainable notwithstanding the contractual nature of the dispute.

Analysis: The dispute involved State instrumentalities and the challenge was to allegedly arbitrary action. In matters where State action is said to be arbitrary or discriminatory, writ jurisdiction is available even if the controversy arises out of contractual obligations. Monetary relief consequential to such challenge is also maintainable.

Conclusion: The writ petitions were maintainable.

Issue (ii): whether KPCL could unilaterally deduct Rs. 90 per MT and demand reimbursement of the alleged reject cost solely on the basis of the CAG report.

Analysis: The contracts did not provide for deduction of the kind claimed by KPCL, nor did they prescribe that only a particular mode of washing coal had to be adopted. The coal supplied satisfied the contractual parameters and was accepted for use. In the absence of adjudication of liability, and in view of the settled principle that unliquidated damages do not become a debt until assessed by a competent authority, KPCL could not effect unilateral deductions. The CAG report, by itself, could not be treated as conclusive proof of liability or as the sole basis for recovery.

Conclusion: KPCL's unilateral deductions and recovery demands were arbitrary and unsustainable in law.

Final Conclusion: The challenged communications were quashed, recovery on the basis of the CAG report was restrained, and the petitioners were held entitled to reimbursement of the amounts deducted.

Ratio Decidendi: A State instrumentality cannot unilaterally withhold or deduct contractual payments on an asserted claim for unliquidated damages without adjudication, and an audit report alone cannot furnish a conclusive basis for such recovery when the action is arbitrary and unsupported by the governing contracts.

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