2016 (4) TMI 1 - SC - Indian Laws

Supreme Court overturns High Court decision in contractual dispute emphasizing civil courts for factual disputes

State of Kerala & Ors. Versus M.K. Jose

The Supreme Court set aside the High Court's decision in a contractual dispute over a terminated road improvement contract. The Court emphasized that the ... Termination of contract awarded and forfeiting the security deposit placed by the contractor for the work to the state and further stating that the work had been put an end to at the cost and risk of the contractor - High Court of Kerala has reversed the decision of the learned Single Judge whereunder he had declined to interfere with the order of the Secretary, Public Works Department, Road and Projects of the State terminating the contract - Held that:- There was no disputed question of fact, but it required interpretation of the terms of the contract of insurance. Similarly, if the materials that come on record from which it is clearly evincible, the writ court may exercise the power of judicial review but, a pregnant one, in the case at hand, the High Court has appointed a Commission to collect the evidence, accepted the same without calling for objections from the respondent and quashed the order of termination of contract. The procedure adopted by the High Court, if we permit ourselves to say so, is quite unknown to exercise of powers under Article 226 in a contractual matter. We can well appreciate a Committee being appointed in a Public Interest Litigation to assist the Court or to find out certain facts. Such an exercise is meant for public good and in public interest. For example, when an issue arises whether in a particular State there are toilets for school children and there is an assertion by the State that there are good toilets, definitely the Court can appoint a Committee to verify the same. It is because the lis is not adversarial in nature. The same principle cannot be taken recourse to in respect of a contractual controversy. It is also surprising that the High Court has been entertaining series of writ petitions at the instance of the respondent, which is nothing but abuse of the process of extraordinary jurisdiction of the High Court. The Appellate Bench should have applied more restraint and proceeded in accordance with law instead of making a roving enquiry. Such a step is impermissible and by no stretch of imagination subserves any public interest. Thus the appeal is allowed and the judgment and order passed by the Appellate Bench is set aside. Issues Involved:1. Termination of Contract2. Jurisdiction of High Court under Article 2263. Appointment of Commission by the Appellate Bench4. Disputed Questions of Fact in Writ Jurisdiction5. Appropriate Legal Forum for Contractual DisputesDetailed Analysis:1. Termination of Contract:The respondent was awarded a contract for road improvements, which was to be completed by 26.12.2011. Despite multiple extensions, the contractor failed to complete the work. Consequently, the contract was terminated, and the security deposit was forfeited by the Public Works Department (PWD). The termination was challenged in W.P.(C) No. 22541 of 2013, where the learned Single Judge directed the measurement of the completed work before finalizing any tender for the remaining work.2. Jurisdiction of High Court under Article 226:The Appellate Bench of the High Court reversed the Single Judge's decision, quashing the termination order based on the Commission's report, which indicated that the contractor had completed 72.24% of the revised estimate. The Supreme Court questioned whether the High Court should have exercised its writ jurisdiction under Article 226 in a contractual matter, emphasizing that such jurisdiction should not be extended to contractual disputes involving disputed questions of fact.3. Appointment of Commission by the Appellate Bench:The Appellate Bench appointed two Advocates as joint commissioners to inspect the site and submit a report. The Commission, assisted by a retired Assistant Executive Engineer, reported that 72.24% of the revised estimate was completed. The Supreme Court criticized this approach, stating that a writ jurisdiction should not be extended to conduct a roving enquiry through a Commission, especially without granting the State an opportunity to file objections.4. Disputed Questions of Fact in Writ Jurisdiction:The Supreme Court reiterated that writ petitions under Article 226 are not appropriate for adjudicating disputes involving breach of contract and disputed questions of fact. Citing precedents like State of Bihar v. Jain Plastics and Chemicals Ltd., the Court emphasized that such disputes should be resolved in a civil suit where evidence can be properly examined.5. Appropriate Legal Forum for Contractual Disputes:The Court highlighted that contractual disputes should be resolved by the appropriate legal forum, not through writ jurisdiction. It referenced cases like National Highways Authority of India v. Ganga Enterprises, which held that disputes relating to contracts are not suitable for writ petitions. The Court also discussed exceptions where writ jurisdiction might be invoked, such as in cases involving clear documentary evidence or interpretation of contract clauses, as seen in ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd.Conclusion:The Supreme Court allowed the appeal, setting aside the Appellate Bench's judgment. The Court emphasized that the High Court should not have entertained the writ petition in a contractual dispute involving disputed facts and should have refrained from appointing a Commission for fact-finding. The appropriate forum for such disputes is a civil court, where evidence can be thoroughly examined. The Court refrained from imposing costs, considering the circumstances of the case.