TaxTMI 
TaxTMI 
2012 (8) TMI 1219
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....ndent National Textile Corporation Ltd. (NTCL). (b) A direction to NTCL not to create any third party right/interest in, and not to dispose off any land machinery and/or any fixed assets of the 11 Textile Mills covered by each of the MOUs (5 covered by the MOU with KSL, 4 covered by the MOU with Eskay and 2 covered by the MOU with Jay Bharat) (c) Direct the NTCL to take all such steps that are necessary to preserve the value of the 11 textile Mills and to furnish a full and complete discharge of all its obligations under the MOU. Since the facts of the three cases are identical; the respondent is common, and common arguments have been advanced in respect of them, I am disposing of these petitions by this common order. For the sake of convenience, I am dealing with, and would refer to the facts of KSL. The position, on facts, of the other two petitioners is no different. Case of the petitioner as pleaded. 2. KSL, the petitioner claims to be a company engaged in the business of textiles and real estate. The respondent NTCL is a Central Public Sector Enterprise under the Ministry of Textiles, which was incorporated for managing the affairs of sick textile un....
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....bids for private participation to form a joint venture along with NTC for reviving/modernizing the said textile mills, with NTC holding 51% of the issued, subscribed and paid up equity share capital of such joint venture company. C. Based on the bids submitted by various private parties, the Strategic Partner, has on October 18, 2008 been declared as the successful bidder for forming joint venture with NTC, holding 49% of the issued, subscribed and paid up equity share capital of the joint venture company, for owning, operating, running of the following mills (hereinafter individually and collectively, as the case may be referred to as "said Textile Mill)): 1. RBBA Spg. & Wvg. Mills, Post Box No. 6, Hinganghat-442301 2. Savatram Ramprasad Mills, Tilak Road, Akola-444001. 3. Chalisgaon Textile Mills, Chalisgaon-424101 4. Dhule Textile Mills, Dhule-424001 5. Nanded Textile Mills, Nanded-431601. D. Accordingly, NTC has agreed to incorporate a company, which will act as the joint venture vehicle inter se between NTC and the Strategic Partner, which will in turn own, operate and run the said Textile Mill. E. However....
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....d in Article 1.2 above, NTC will within 20(Thirty) days from the date of obtaining the necessary approvals from the BIFR and the relevant government authorities in the matter specified in Article 1.2 above, to its full satisfaction, incorporate a special purpose vehicle under the provisions of the Companies Act, 1956, as its wholly owned subsidiary, which will act as the joint venture company inter se between NTC and the Strategic Partner (hereinafter referred to as "JVC"). The name of the JVC will be the existing name of the said Textile Mill and will be approved by NTC. Initially, the Memorandum and Articles of Association ("MoA and AoA") of the JVC will be in the standard form of MoA and AoA prescribed by NTC for its subsidiary companies. Costs payable specifically in relation to the incorporation of the JVC, including stamping of the Memorandum of Association and Articles of Association of JVC, will be borne in equal proportion between NTC and the Strategic Partner. 1.4 Upon incorporation of the JVC in the matter specified above, NTC, the Strategic Partner and the JVC will take and complete at the following steps, to the full satisfaction of NTC: (i) Within 30....
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....sfaction of NTC. 2.1 This MoU shall come into force on the date of execution hereof and shall be valid for a term of 240 (Two Hundred and Forty) days from the date of execution hereof unless mutually extended or till the execution of the Definitive Agreements, whoever is earlier. It is clarified that this MoU shall be superseded by the Definitive Agreements. IV. Representation and Warranties 41. Each of the Parties represents and warrants that: (i) it is duly organised and validly existing under the laws of India, and has full power and authority to enter into this MoU and to perform its obligations under this MoU; (ii) the execution and delivery of this MoU and the performance by it of its obligations under this MoU have been duly and validly authorized by all necessary corporate actions on the part of it. This MoU constitutes a legal, valid and binding obligation on its part enforceable against it in accordance with its terms; 4.2 The Strategic Partner has prior to the date of execution of this MoU (i) undertaken and satisfactorily completed a business, technical, financial and legal due diligence of the said Textile Mill; (ii....
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.... 5. Under the said MOU, NTCL and KSL agreed to incorporate a joint venture company with 51% of the issued, subscribed and paid up capital with NTCL, and the remaining 49% with KSL. The JV Company was to own, operate and run the Textile Mills for a period of 33 years which was extendable for two additional terms of 33 years. The MOU contained several obligations to be performed by the parties within the indicative time frame as provided in the MOU. Further, the term of the MOU was provided to be as 240 days from the date of its execution, unless the parties mutually extended the same. 6. KSL furnished five bank guarantees of Rs. 25, 00, 000 (twenty five lakhs) for each textile mill towards earnest money deposit in favour of NTCL. These bank guarantees were valid for 240 days but later on they were extended till December 10, 2010. Further, in addition to the aforesaid bank guarantees, on 14th November 2008 KSL also deposited an amount of Rs. 3, 60, 00, 000 as an advance towards consideration for acquisition of shares in the JV Company. All the three petitioners have made an aggregate payment of Rs. 8.40 crores to the respondent NTCL. 7. Pursuant to the MOU, KSL suggested the ....
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..... However, NTCL vide letters dated 13th January 2010 and 2nd July 2010 requested KSL to appoint security guards for maintaining the mills. 13. On 14th September 2010, NTCL terminated the MOU citing the reason that pursuant to clauses 2.1 and 5.1 of the MOU, as the Definitive Agreements were not executed by KSL, NTCL had the right to terminate the MOU. Similarly, the MOUs entered into by the other two petitioners were also terminated by NTCL. 14. It is in the background of these circumstances that the present petitions have been preferred by the petitioners. Case of the Respondent as pleaded 15. The respondent generally denies the case of the petitioners. It relies upon clauses 2.1 and 5.1 of the MOU. Its case is that, admittedly, the petitioner had not entered into any definitive agreement with the NTCL pursuant to the MOU, even till the date of filing of the reply. The MOU lapsed due to efflux of time on 12.07.2009 as no definitive agreement was entered into within 240 days of the execution thereof. The respondent categorically submits that it had not given up possession of any of the mills and/or the mill lands in favour of the petitioner pursuant to the MOU and the p....
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.... namely, the contract will come into being if the terms and conditions set out therein, i.e., the execution of the definitive agreements in clause 1.4, are fulfilled. The respondent submits that clause 11.4 of the MOU provides that any amendment thereto has to be in writing and signed by each party. No amendment in relation to clause 11.4, regarding the term of the MOU, was ever signed. It is also argued that by virtue of clause 11.6 of the MOU, no case of waiver can be advanced by the petitioner. 20. The respondent further submits that the MOU is not a specifically enforceable contract because money is an adequate relief and compensation for its non-performance, assuming that there is non-performance of the MOU on the part of the respondent. The respondent invokes Section 41(e) and Section 14 of the Specific Relief Act, 1963, to submit that the MOU is incapable of being specifically performed. Petitioner's submissions 21. Mr. Krishnan Venugopal, Learned Senior counsel for the petitioner submits that upon the acceptance of KSL's bid and the execution of the MOU, a concluded contract came into existence. The fact that the Definitive agreements remained to be signed,....
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.... yet to be executed. He submits that clauses 4.1 (ii) and clause 11.1 make it clear that parties understood the MOU to be a binding agreement and a concluded contract. Consideration of Rs. 8.40 crores had flown under the three MOUs from the three petitioners to the respondent. Reliance is placed on Trimex International FZE Ltd. v. Vedanta Aluminium Ltd (2010) 3 SCC 1. It is argued that the MOU is, therefore, enforceable. 26. Petitioner submits that NTCL cannot be permitted to terminate the MOU on the sole ground that 240 days period for KSL to execute the Definitive Agreements under clause 5.1 of the MOU had expired, when the only reason that petitioner could not do so was, because NTCL failed to perform its obligations that were condition precedent for executing the Definitive Agreements. Termination letter itself makes it clear that NTCL did not claim any breach of the MOU on the part of petitioner. Termination is unilateral and arbitrary. Termination is contrary to the provisions of section 51 and 52 of Contract Act. These provisions lay down the principle that, when reciprocal promises are made by the parties, one party cannot require the other party to perform its obligatio....
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....oreover, when respondent acted in accordance with MOU even after expiry of 240 days, they have waived their right to terminate the MOU under clause 5.1. Reliance is placed on P. D'Souza v. Shondrilo Naidu, (2004) 6 SCC 649 and Panchanan Dhara v. Monmatha Nath Maity (dead), (2006) 5 SCC 340. 30. Learned senior counsel also submitted that the principle of contra proferentem, i.e. a document has to be read against the interest of the party who drafted it, would be applicable in the present case against the respondent. He submits that all the documents including the MOU and the definitive agreements were drafted solely by the respondent and their terms and clauses could not be negotiated by the petitioner. So, if any part of the agreement is unclear or ambiguous, than that clause should be construed against the respondent. Similarly, clause 5.1 should be construed against the respondent in this case. He referred to cases of Bank of India v. K. Mohandas, (2009) 5 SCC 313, and United India Insurance Co. Ltd. v. Pushpalaya Printers, (2004) 3 SCC 694, to substantiate his point. 31. The petitioner further submitted that the respondent has not been able to give any reason to termin....
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.... main thrust of the argument of the learned ASG is that the injunctive relief as claimed by the petitioner cannot be granted as the so called contract contained in the MOU cannot be specifically enforced. He relies on section 41(e) of Specific Relief Act, which, inter-alia, reads as under- 41. Injunction when refused- An injunction cannot be granted- x x x x x x x x x (e) To prevent the breach of a contract the performance of which would not be specifically enforced; x x x x x x x x x 37. He submits that contracts which cannot be enforced are enumerated in section 14 of Specific Relief Act., which, inter-alia, reads as under: 14. Contracts not specifically enforceable. - (1) The following contracts cannot be specifically enforced, namely, - (a) a contract for the non-performance of which compensation in money is an adequate relief; (b) a contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms; (c) a contrac....
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....nd it confers a unilateral right upon the respondent to terminate the MOU at any time after 240 days of the signing of the MOU, if the definitive agreements are not executed till then to the fullest satisfaction of the respondent. He also places reliance on clause 5.2 which confers the right to terminate the MOU on both the parties, by giving a prior notice of 30 days in writing, upon happening of any of the events mentioned in clause 5.2. 43. Respondent submits that from a reading of the abovementioned clauses it is clear that the agreement/MOU, by its very nature, is determinable. The petitioner may be entitled to claim damages on termination, if the termination is found to be invalid, but there is no question of specific performance. He submits that this Court cannot be called upon to adjudicate on the aspect of whose fault it is, for which the definitive agreements have not been executed, and that question will be decided in arbitration. Reliance is placed on the decision of this Court in Bharat Catering Corpn. Vs. Indian Railway Catering & Tourism Corp. Ltd (IRCTC), 164 (2009) DLT 530(DB) 44. Strong reliance is placed by Mr. Tripathi on Rajasthan Breweries Ltd. v. The St....
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....n seeking to specifically enforce the agreement. Such an injunction is statutorily prohibited with respect of a contract, which is determinable in nature. The application being under the provisions of Section 9(ii)(e) of the Arbitration and Conciliation Act, relief was not granted in view of Section 14(i)(c) read with Section 41 of the Specific Relief Act. It was rightly held that other clauses of Section 9 of the Act shall not apply to the contract, which is otherwise determinable in respect of which the prayer is made specifically to enforce the same. (Emphasis supplied) 45. Respondent also places reliance on Clause 11.4 of MOU which provides that: This MOU may be amended only by an instrument in writing signed by each party to this MOU. 46. Mr. Tripathi submits that there was no amendment in relation to the clause regarding the term of the MOU, and no extension of the time period stipulated for execution of the definitive agreements was agreed to or granted. Secondly, in view of clause 11.6 of the MOU, the petitioner cannot advance a case of waiver. 47 Respondent submits that the agreement is not for sale of land. It is simply for sale of shares in a J....
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.... India v. Escorts Ltd., (1986) 1 SCC 264. In this case the Hon'ble Supreme Court held that, "if the action of the State is related to contractual obligations or obligations arising out of the tort, the court may not ordinarily examine it unless the action has some public law character attached to it. Broadly speaking, the court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field". He also relied upon Puravankara Projects Ltd. v. Hotel Venus International, (2007) 10 SCC 33, wherein the court held that in commercial transactions the State can choose its own method to arrive at its decision. The Court also observed that the principle of fairness or reasonableness cannot be invoked to amend, alter or vary the expressed terms of the contract between the parties. He also placed reliance on M/s Radhakrishna Agarwal Vs. State of Bihar & Ors, (1977) 3 SCC 457; Assistant Excise Commissioner & Ors. Vs. Issac Peter, (1994) 4 SCC 104; ONGC Vs. Streamline Shipping Co. Pvt. Ltd., AIR 2002 Bom 420; Kerala State Electricity Board Vs. Kurien E. Kalathil, (2000) 6 SCC 293; Premji Bhai v. DDA,(1980) 2 SCC 1....
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....vision that entitles the respondent to unilaterally terminate the contract because the precondition is that the petitioner should have refused to sign, or failed to sign the definitive agreements in the manner specified in the MOU, which implies that the respondent should have signed or should have been ready and willing to sign the definitive agreements. Therefore, it is a condition precedent to termination of the MOU that the respondent should have done, all that that it was obliged to do. Then alone the question of the petitioners failure would arise. However, in present case, the respondent failed to comply with the condition precedent for over one year after expiry of initial period of 240 days. 55. Mr. Venugopal submits that the present contract is not a pure commercial contract, but was entered into to salvage the sick public textile mills and has a public purpose attached to it. He submits that respondent is a public body and has been assigned a public purpose. It cannot act arbitrarily and unreasonably without cause. He submits that the agreements have been imbued with an element of public interest because they have been entered into after a public tender. The transfer ....
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.... the Constitution to which the appellant-Corporation as an instrumentality of the State would be subject particularly in view of the recent decisions of this Court in M/s. Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay [1989] 2 SCR 751, Mahabir Auto Stores and Ors. v. Indian Oil Corporation and Ors. and Shrilekha Vidyarthi etc. etc. v. State of UP, and Ors. AIR 1991 SC 537, This is on account of the fact that the suit was based only on breach of contract and remedies flowing therefrom and it is on this basis alone that the arbitrator has given his award. Shri Salve is, therefore, right in contending that the further questions of public law based on Article 14 of the Constitution do not arise for decision in the present case and the matter must be decided strictly in the realm of private law rights governed by the general law relating to contracts with reference to the provisions of the Specific Relief Act providing for non-enforceability of certain types of contracts. It is, therefore, in this background that we proceed to consider and decide the contentions raised before us. (Emphasis supplied) 59. Petitioner also places reliance on Union of Ind....
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....earned ASG did not press this defence with any seriousness and proceeded to argue the case on the assumption that the MOU in question is a binding agreement. In any event, it appears from clause 4.1(ii) that the parties understood the MOU as creating legal, valid and binding obligations on the parties. Both the parties acted in terms of the MOU to a certain extent. Forms of formal agreements i.e. definitive agreements formed part of the MOU and, therefore, the parties were aware of the essential terms of the definitive agreements even when they signed the MOU. 63. The petitioner has placed reliance on various decisions to support the submission that the MOU constitutes a binding contract between the parties. The Hon'ble Supreme Court in Kollipara Sriramulu (supra) observed that a mere reference to a future formal contract will not prevent a binding bargain between the parties. There are cases where the reference to a future contract is made in such term as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the circumstances of each case. 64. The Hon'ble Supreme Court referre....
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....consider whether the relief sought by the petitioner cannot be granted, because the MOU/Agreement is not specifically enforceable by reference to various Clauses of Section 14 (1) of the Specific Relief Act. 68. Clause (a) of the Section 14(1) provides that the Contract for the non performance of which compensation is an adequate relief, would not be specifically enforceable. The MOU was entered into as a consequence of petitioner emerging as the successful bidder for the management of various sick textile mills, of the respondent. As to what is the expenditure that the petitioner would entail in rehabilitating the sick textile mills and what is the possible return that the petitioner may derive upon such rehabilitation, as and when it takes place, is uncertain and not possible of estimation. The petitioner agreed to acquire 49% shareholding in the proposed JV Companies which were to be set up to take over the businesses of the sick textile mills. The worth of the said 49% shareholding of the proposed JV Companies would obviously dependent upon the business success of the textile mill, once they are rehabilitated. I agree with the petitioner's submission that, prima facie, t....
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....oner towards completing its obligations were taken note of and the Court concluded that ouster of the petitioner before it from the contract would cause irreparable loss and injury. The principle applied was nonetheless one incorporated in Section 10 of the Specific Relief Act. In Decro Wall International (supra) the Court of Appeal in England held that time, effort and money are relevant factors in determining whether damages would be appropriate remedy to a party complaining of breach or not. In Thames Valley Power (supra) the Queen's Bench Division held that the market forces are relevant aspects while calculating damages and can be used to show the difficulty in so calculating. The Court took note of the fact that the agreement was for supply of gas for a long period and depriving a party of the same would be substantially depriving the party of the whole benefit that contract intended to give them. 73. In Old World Hospitality (supra) the Court was dealing with the objection based on Section 14(1)(d) of the Specific Relief Act, on the ground that the specific performance of the contract would require constant supervision. The Court while quoting the learned Author '....
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.... thinks fit. (4) The decree-holder shall deliver to the Court a copy of the draft with such alterations (if any) as the Court may have directed upon the proper stamp-paper if a stamp is required by the law for the time being in force; and the Judge or such officer as may be appointed in this behalf shall execute the document so delivered. (5) The execution of a document or the endorsement of a negotiable instrument under this rule may be in the following form, namely :- CD., Judge of the Court of (or as the case may be), for A.B. in suit by E.F. against A.B. and shall have the same effect as the execution of the document or the endorsement of the negotiable instrument by the party ordered to execute or endorse the same. (6) (a) Where the registration of the document is required under any law for the time being in force, the Court, or such officer of the court as may be authorised in this behalf by the Court, shall cause the document to be registered in accordance with such law. (b) Where the registration of the document is not so required, but the decree-holder desires it to be registered, the Court may make such order ....
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.... is a term of automatic rescission/ dispensation with the performance of the promise, or discharge of the contract (See Section 62, 63 of the Indian Contract Act, 1872). The said clause also provides that the contract shall not so come to an end, if mutually extended or till the execution of the definitive agreements, whichever is earlier. So the contract would have come to end on the expiry of 240 days period, but for the mutual extension which could have fixed an outer limit or a new time schedule, or could be open ended. In the present case, it seems to be the latter. In the case of an extension with a fresh time schedule, the use of the disjunctive "or" in clause 2.1 would have implied the extinction of obligations of the parties at the time so expiring, or execution of definitive agreements, whichever would have been earlier in time. However, where the extension was without fixing any outer time limit, it would automatically survive till the execution of the definitive agreements. Since I am of the view that the extension in this case was without fixing an outer limit, clause 2.1 became inoperable till the execution of the definitive agreements. The only other clause under whi....
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....2d 892, 894. 22. Relying on Scarf v. Jardine 7 AC 345 this court in R.S. Amar Nath Mehra & Co. (Supra) further observed: Novation is a legislative expression of the common law of England. It is a term derived from English civil law and it means-that there being a contact in existence some new contract is substituted for it either between the same parties or between different parties, the consideration being the discharge of the old contract. 23. In Kailash Nath & Associates v. New Delhi Municipal Committee 99(2002)DLT361, this court held that in building contracts, multiplicity of reciprocal promises usually exist. In its rudimentary aspect, the Builder/Contractor undertakes to complete the work according to time and specification, and the owner correspondingly agrees to make payments. However usually there are many other obligations, such as supply of material and/or drawings etc. to be performed at different stages of the contract. A default in respect of any of them would result in delay, giving rise to claims for damages. In a typical building contract, the work is to be completed within a specified period. The owner must make the site available, and ....
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.... 28. The reference to the decision in Rajasthan Breweries (supra) is also not of relevance as the agreement in question ceases to be determinable as the contingency has already occurred and the right waived by the respondent. Reliance placed on Cogent Silver Fibre Pte Ltd. Vs. Noble Fibre Technologies Inc. & Ors, 127 (2006) DLT 707 by the respondent also appears to be misplaced. In that case the Court raised a serious doubt as to whether the MOU constituted a complete agreement. That does not appear to be the position in the present case. Further, it was held that the MOU was determinable in nature. As I have already observed, prima facie, it appears that on account of the conduct of the parties there was novation of the contract. i.e. MOU between the parties, and the MOU was no longer determinable accept upon the occurrence of contingencies mentioned therein (except from the failure of the parties to enter into definitive agreements within 240 days of the execution thereof). Thirdly, the Court held that the plaintiff could be compensated in money in the facts of that case, which does not appear to be so in the facts of the present case. 81. Reliance placed on Vipin Bhiman....
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....titute, alter or amend their contract by mutual consent. The contract cannot take away the right of the parties to mutually agree to alter or amend the same, or the manner in which the contract is so altered or amended. Even if parties had earlier agreed to a mode for making such an amendment, there cannot be any absolute rule or proposition that the amendment cannot be made otherwise, if the parties mutually decide to give up the term laying down such a restriction. The difficulty would be only in proving such an amendment or change in the contract, but that by itself cannot mean that under no circumstances the parties, mutually, cannot so amend or alter the contract. Perhaps the element of burden and onus would lie heavily on the party who submits that there was such an amendment, if denied by the other party. However, in a case where such novation or alteration is writ large from the conduct of the parties, the question of evidence may also not present a great difficulty. 84. In the present case, the facts and circumstances relied upon by the petitioner, which have gone unrebutted materially, prima facie, establish such a mutual agreement altering the original contract so as ....
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....egitimate rights. The plaintiff had accepted the decision by the defendant that the income from the Fitness Centre should go to the defendant and as a matter of fact that plaintiff had not objected to anything that is directed to be done by the defendant. Having entered in to a contract and having lulled the plaintiff into a sense of security and the guarantee of continuance of the contract and having stopped the work for nearly five months and having asked the plaintiff to resume work pursuant to the decision of the Governing Council on 10th of November, 1994 it is not open to the defendant to say "I do not want you. I will be incurring loss even though my Auditors or my lawyers may have different opinion. I go by my Malhotra Committee's Report". In my view, this can never be accepted. It is against all canons of principles of law besides being contrary to the principles of natural justice. It is also against the principles of fairness. Therefore, I find no difficulty in coming to the conclusion that the plaintiff has made out a, prima facie, strong case for the grant of injunction. 89. The principle was again reiterated by another learned Single Judge of this Hon'ble C....
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....hich included catering of food even. Therefore, all these judgments are not squarely applicable to the facts of the present case. Learned Counsel for the petitioner on the other hand relies upon the judgments in Mahabir Auto v. Indian Oil Corporation, (1990) 3 SCC 752 : AIR 1990 SC 1031 and Pioneer Publicity v. Delhi Transport Corporation, 103 (2003) DLT 442. He argues that the contract may be determinable in nature but since it was for setting up a unique project for which petitioner had procured tailor-made equipment, which could not be utilized anywhere else, specific performance may be ordered. It is argued that in case the petitioner is left to pursue the remedy of damages only it would result in its ruination, as it has already pumped in over Rs. 115 crores in the project. He further argues that there may be a discretion with respondent No. 1 to terminate or not the contract but this discretion should not be exercised arbitrarily without there being goods grounds for terminating the contract. It is submitted that respondent No. 1 is an instrumentality of the State and must act in a fair, just and equitable manner. 13. It is true that the Franchisee Agreement between ....
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....have to pay this amount as damages. Since the respondent No. 1 is an instrumentality of the State and the damages are not to go from the pockets of its officers, a plea is easily raised that the petitioner should seek damages. The respondent No. 1 and its officers dealing with the Franchisee Agreement should appreciate that risk of paying such heavy damages should not be taken lightly. Public money has to be protected with utmost care and concern. Hazardous and adventurous pleas should not be taken when public money is at stake. (Emphasis supplied) x x x x x x x x x 17. After considering the submissions made by learned Counsel for the parties and considering the facts and circumstances of this case and as discussed hereinbefore also, this Court is of the considered view that Section 14 of the Specific Relief Act does not stand in the way of the Court to grant the relief as prayed in as much as by the impugned act of respondent No. 1 the petitioner may be unreasonably ousted from Indian market and, therefore, compensation in terms of money may not be adequate relief. The contract may be determinable in nature but the instrumentality of the State has to act....
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....ve. This Court in the case of LIC of India [(1986) 1 SCC 264] proceeded on the facts of that case and held that a relief by way of a writ petition may not ordinarily be an appropriate remedy. This judgment does not lay down that as a rule in matters of contract the court's jurisdiction under Article 226 of the Constitution is ousted. On the contrary, the use of the words "court may not ordinarily examine it unless the action has some public law character attached to it" itself indicates that in a given case, on the existence of the required factual matrix a remedy under Article 226 of the Constitution will be available. The learned counsel then relied on another judgment of this Court in the case of State of U.P. v. Bridge & Roof Co. (India) Ltd. [(1996) 6 SCC 22] wherein this Court held: (SCC p. 31, para 21) Further, the contract in question contains a clause providing inter alia for settlement of disputes by reference to arbitration. The arbitrators can decide both questions of fact as well as questions of law. When the contract itself provides for a mode of settlement of disputes arising from the contract, there is no reason why the parties should not follow and ado....
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....tution is maintainable. In the instant case, as to the fact that the respondent is an instrumentality of a State, there is no dispute but the question is: was the first respondent discharging a public duty or a public function while repudiating the claim of the appellants arising out of a contract' Answer to this question, in our opinion, is found in the judgment of this Court in the case of Kumari Shrilekha Vidyarthi v. State of U.P. [(1991) 1 SCC 212 : 1991 SCC (L&S) 742] wherein this Court held: (SCC pp. 236-37, paras 22 & 24) The impact of every State action is also on public interest. ... It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and not the nature of function, contractual or otherwise, which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters. 23. It is clear from the above observations of this Court, once the State or an instrumen....
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....dent do have a touch of public function, particularly in view of the background furnished by the petitioner of the manner in which the sick textile mills were sought to be rehabilitated by the government through the instrumentality of the respondent. 95. In an earlier decision in Dwarkadas Marfatia (supra), the decision in LIC Vs. Escorts (supra) had come up for consideration before a three judge bench of the Apex Court. The majority speaking through Hon'ble Mr. Justice Sabyasachi Mukherji observed that: 22. Our attention was drawn to the observations of this Court in Radhakrishna Agarwal v. State of Bihar [(1977) 3 SCC 457 : (1977) 3 SCR 249]. Reliance was also placed on the observations of this Court in Life Insurance Corpn. of India v. Escorts Ltd. [(1986) 1 SCC 264 : 1985 Supp 3 SCR 909, in support of the contention that the public corporations dealing with tenants is a contractual dealing and it is not a matter for public law domain and is not subject to judicial review. However, it is not the correct position. The Escorts decision [(1986) 1 SCC 264 : 1985 Supp 3 SCR 909] reiterated that every action of the State or as instrumentality of the State, must be info....
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....oint. The point is what would be the effect. Would it mean that two concepts, namely, Article 12 of the Constitution and Section 24-A of the 1972 Act are different? If they are not, in a given case, it may be possible to hold that even while the State shall have more liberty to enter into a contract or fix the terms and conditions thereof having regard to the field of competition opened by reason of taking away of its monopoly status, but there exists a distinction between the acts of a private player and the State. We, however, do not mean to say that even in the field of contract qua contract, the State is not free to negotiate its terms; what we mean to say is that its action cannot be arbitrary. Role of both are different. A private player, as the law stands now, may not be bound to comply with the constitutional requirements of the equality clause but the appellants are. 56. There exists a distinction between a private player in the field and a public sector insurance company. Whereas a private player in the field is only bound by the statutory regulations operating in the field, the public sector insurance companies are also bound by the directions issued by General ....
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..... 99. From the facts narrated above, it, prima facie, appears that there is no justification offered by the respondent for the sudden termination of the MOU without furnishing any reasons thereof, when both the parties and, in particular, the petitioner, had taken all the steps that were expected of it in furtherance of the MOU. I may note that the respondent has not even offered to explain or justify its conduct in terminating the MOU and its defence is only that the termination is in terms of the MOU. Prima facie, I am, therefore, of the view that the termination of the MOU vide letter dated 14.09.2010 is arbitrary, irrational and illegal. 100. The result of the aforesaid discussion is that I find that the petitioner has made out a prima facie case in its favour for grant of an injunction against the respondent from giving effect to the termination of the MOU dated 14.09.2010. The balance of convenience lies in preserving the subject matter of the dispute. If the respondent is permitted to give effect to the termination letter and, consequently, to deal with the subject matter of the MOU, namely, the textile mills in question, even if the petitioner were to succeed in the a....