Orissa High Court
Case Details
Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 IN THE HIGH COURT OF ORISSA AT CUTTACK W.P.(C) No.985 of 2015 (In the matter of an application under Articles 226 and 227 of the Constitution of India, 1950). Rathi Steel and Power Ltd., New Delhi & Anr. Mahanadi Coalfields Ltd. & Anr. …. Petitioner(s) -versus- …. Opposite Party (s) Advocates appeared in the case through Hybrid Mode: For Petitioner(s) For Opposite Party (s) : : Mr. Debesh Panda, Adv. Mr. Bibhu Pr. Das, Adv. Mr. S.D. Das, Sr. Adv. along with Mr. Haripada Mohanty, Adv. CORAM: DR. JUSTICE S.K. PANIGRAHI DATE OF HEARING:-05.03.2025 DATE OF JUDGMENT:-09.05.2025 Dr. S.K. Panigrahi, J. 1. This Writ Petition is preferred by the Petitioner praying for issuance of a writ of mandamus aggrieved by the actions of the Opposite Party No. 1 with respect to the implementation of the Coal Linkage Policy and Coal Supply Agreement and actions in connection thereto, including invocation of the bank guarantee. Page 1 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 I. FACTUAL MATRIX OF THE CASE: 2. The facts giving rise to the present Petition can be summarised as under: a. The Petitioners relying upon the extant Coal Linkage Policies of Opposite Party Nos. 1 and 2 had entered into a MoU dated 4.5.2005 with the State of Orissa for constructing an end use sponge iron plant. b. On 13.5.2005 the Petitioners had also moved an application for a Coal Linkage. c. The sponge iron plant was commissioned in 2007 and commercial production started soon thereafter. The grant of Coal Linkage was approved and a LoA was issued on 24.10.2008 in favour of the Petitioners by Opposite Party No. 1. d. The LoA envisaged various milestones and conditions precedent, which admittedly were filled, a Coal Supply Agreement/Fuel Supply Agreement (hereinafter referred to as ‘CSA’ or ‘FSA’) was entered into between the Parties on 23.1.2009. e. Under Clause 4.1 of the CSA, the Opposite Party No. 1 would supply and the Petitioner would lift an “Annual Contracted Quantity” of 1,80,000 tones per year which appears to have been admittedly relaxed to 90,000 tones per year in view of the Petitioner having exercised the option to surrender imported coal. In terms of
Legal Reasoning
Clause 2.2, the CSA was valid for a period of 5 years from the “First Delivery Date” which was defined in Clause 2.9. Page 2 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 f. On the self-same date, the Parties also executed a MoU agreeing that all the conditions precedent had been fulfilled. g. Prior to the execution of these Agreements, the Petitioners had furnished a security deposit in the form of a Bank Guarantee for a sum of Rs.78,30,000/- on 22.1.2009 which was valid for a period of 64 months from that date. The amount was amended to a sum of Rs. 86,40,000/- on 6.2.2010. h. It is also pertinent to note that the Petitioner Company had secured the Kesla North Coal Block in Chattisgarh by allocation letter dated 5.8.2008 issued by Opposite Party No. 2 for meeting the Petitioner’s coal requirements for its end use sponge iron plant. However, it is submitted that the Petitioner never received any coal from the Kesla Coal Block as the block remained encumbered and had not been handed over at any point to the Petitioner Company for development work. i. In terms of the CSA, in the financial years form 2009-2012, till February 2013, the Opposite Party has admittedly supplied and the Petitioner has admittedly lifted the contracted quantity of coal without any dispute. j. Vide letter dated 15.3.2013, the Opposite Party No. 1 in response to the Petitioner’s letter dated 12.3.2013 communicated that the normative date of production for the Petitioner’s coal block was 5.2 .2013 and in terms of the guidelines and policy dated 26.2.2010 issued by the Ministry of Coal, Government of India, even normal linkages for plans would be converted into tapering linkages from Page 3 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 the date of allocation of the coal block. The same was in contravention to the Petitioner’s submission that neither the LoA nor the coal block allocation letter contained any condition of
Legal Reasoning
tapering. In fact, it was contended that in terms of Clause (iii) of the allocation letter, replacement of any linkage was prohibited. It was further pointed out that the normative date of production in terms of the allocation letter came into effect on 5.2.2013, nevertheless, the same was only on paper since the ground reality was at the block was yet to be handed over to the petitioner free from encumbrances. k. Vide letter dated 4.12.2023, the Petitioner once again wrote to the Opposite Party No. 1 reiterating its submissions and further pointing out that as the quantity of coal supplied was being reduced, the rate charged was almost 20-40% extra which was compelling the Petitioner to stop production as they could not afford to lift the coal at such an exorbitant rate. l. It is admitted that the Petitioner’s operations became unviable and it shut down its plant from February, 2013. Therefore, during the financial year 2013-14, the Petitioner did not lift the quantity of coal mandated under the CSA. m. Clause 2.7 of the CSA stated that the CSA shall expire by efflux of time on 31.1.2014, i.e. five years after the First Delivery dated 1.2.2009. n. Despite not being able to lift the ACQ during the financial year of 2013-14, up until the date of expiry of the CSA, i.e. 31.1.2014, the Page 4 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 Petitioners did not receive any demand, notice, claim or dispute notice from the Opposite Party No. 1 till 15.5.2014. o. On 15.5.2014, the Opposite Party No. 1 addressed a letter to the Petitioner stating that since the level of lifting for the year 2013-14 was less than 30% of the ACQ, Clause 16.1.4 pertaining to termination was attracted. By the said letter dated 15.5.2014, notice was served upon the Petitioner that the CSA would stand terminated after 30 days from the date of issuance of notice. p. The Petitioner responded to the aforesaid notice on 10.6.2014 reiterating its earlier submissions and requesting the Opposite Party No. 1 to withdraw the notice and renew the CSA for the full quantity of coal without tapering. q. At some point in May/June, 2014, the Opposite Party No. 1 threatened to invoke the Bank Guarantee furnished by the Petitioner. However, when the Petitioners extended the validity of the bank guarantee to showcase their bonafide till 21.5.2015 at the request of the Opposite Party No.1, the threat was not carried out immediately. r. Despite efforts being made to allegedly amicably settle the dispute, the Opposite Party No. 1 issued letter dated 3.1.2015 to Canara Bank invoking the bank guarantee furnished by the Petitioners. This fact came to light when Canara Bank vide email dated 5.1.2015 intimated to the Petitioner Company that it was required to arrange funds to honour the bank guarantee. Page 5 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 s. The Petitioner approached this Court immediately thereafter by filing a writ petition seeking ad interim ex parte order restraining the Opposite Party from encashing the Bank Guarantee. Upon mentioning on 7.1.2015, this Court directed the matter to be listed on 8.1.2015. However, despite the same being intimated to the Opposite Parties and to Canara Bank, the bank guarantee was encashed on 7.1.2015. In view of the same, the Writ Petition was withdrawn with liberty to file a fresh petition. t. Therefore, the present Writ Petition was filed on 16.1.2015. However, much water has since flown under the bridge. In the year 2021, it is submitted that the sponge iron plant of the Petitioner Company in Potapali had to be sold. In view of the same, the Petitioner Company restricts its prayer to the first and second reliefs sought by it, i.e. quashing and setting aside the alleged illegal letters of termination and declaring the letter dated 3.1.2015 seeking invocation of the Bank Guarantee as illegal and passing consequential orders in respect of the funds received by Opposite Party No. 1. 3. Against these arbitrary and illegal actions, the instant Petition has been preferred. As the facts leading up to the instant Petition have been laid down, this Court shall endeavour to summarise the contentions of the Parties and the broad grounds that have been raised to seek the exercise of this Court’s writ jurisdiction. Page 6 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 II. PETITIONER’S SUBMISSIONS:
Decision
4. The Ld. Counsel for the Petitioner submits that the writ petition is of a public law character and relates to public law functions on the part of the opposite parties for arbitrarily applying the tapering policy and also arbitrarily increasing the price of coal by 40% leading to the arbitrary termination of the CSA and consequential encashment of the bank guarantee. 5. Furthermore, it is contended that the Opposite Party No.1 did not suffer any financial loss due to non-lifting of coal. Once the Opposite Party No.1 encashed the bank guarantee being aware that the petitioner had asserted that no loss was caused due to non-lifting of coal, it had the burden to initiate appropriate proceedings before a court of competent jurisdiction and prove in accordance with law with respect to the exact amount of loss caused to it. It is settled law that the Opposite Party No.1 could only retain that part of the encashed money, as gets declared as “reasonable compensation” in terms of Section 74 of the Indian Contract Act, 1872. In the absence of proof of any loss, the Opposite Party No.1 had no right to retain the money it has received by illegally and arbitrarily encashing the performance bank guarantee. III. OPPOSITE PARTY NO. 1’S SUBMISSIONS 6. On the other hand, Ld. Counsel for Opposite Party No. 1, submits that the writ petition is not maintainable in as much as the same involves seriously disputed questions of fact which cannot be gone into an application under Article 226 of the Constitution of India. Page 7 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 7. Furthermore, it is submitted that the petition arises from a dispute which is purely contractual in nature without any statutory element and as such the same may not be adjudicated upon in exercise of extraordinary jurisdiction available to this Court and the appropriate forum is the civil court. It is further contended that a perusal of the prayers would go on to show that the petitioner is in essence seeking a refund of money which is a purely money claim and the same does not fall within the purview of the extraordinary jurisdiction that can be exercised by this Court under Article 226. IV. ISSUES FOR CONSIDERATION 8. Having heard the parties and perused the materials available on record, this court here has identified the following issues to be determined: A. Whether this Court can exercise its writ jurisdiction in the realm of contracts? B. Whether this Court can exercise its writ jurisdiction in the absence of any public law element in a matter pertaining to a contract? C. Whether this Court ought to interfere in the facts of the present case? V. 9. ISSUE A: WHETHERTHIS COURT CAN EXERCISE ITS WRIT JURISDICTION IN THE REALM OF CONTRACTS? In the judgment of the Supreme Court rendered by a Bench of two learned Judges decided in Shrilekha Vidyarthi v. State of U.P.1 , the Court was concerned with a challenge to a general order by which the 1(1991) 1 SCC 212 Page 8 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 appointment of all government counsel in all the districts of the State of U.P. came to be terminated. The writ petition was filed under Article 32 of the Constitution of India. Important and apposite are the following observations: import at the State or is sufficient to the contracts made by “22. There is an obvious difference in the contracts between private parties and contracts to which the State is a party. Private parties are concerned only with their personal interest whereas the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it, for public good and in public interest. The impact of every State action is also on public interest. This factor alone least the minimal requirements of public law obligations and impress with this character its instrumentality. It is a different matter that the scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non- arbitrariness at the hands of the State in any of its actions. *** 24. The State cannot be attributed the split personality of Dr Jekyll and Mr Hyde in the contractual field so as to Page 9 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 impress on it all the characteristics of the State at the threshold while making a contract requiring it to fulfil the obligation of Article 14 of the Constitution and thereafter permitting it to cast off its garb of State to adorn the new robe of a private body during the subsistence of the contract enabling it to act arbitrarily subject only to the contractual obligations and remedies flowing from it. It is really the nature of its personality as State which is significant and must characterise 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. There is a basic difference between the acts of the State which must invariably be in pubic interest and those of a private individual, engaged in similar activities, being primarily for personal gain, which may or may not promote public interest. Viewed in this manner, in which we find no conceptual difficulty or anachronism, we find no reason why the requirement of Article 14 should not extend even in the sphere of contractual matters for regulating the conduct of the State activity. *** 27. Unlike a private party whose acts uninformed by reason and influenced by personal predilections in contractual matters may result in adverse consequences to it alone without affecting the public interest, any such act of the State or a public body even in this field would adversely affect the public interest. … 28. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body being undoubtedly on public Page 10 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 interest, the requisite public element for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Article 14.” 10. As to what constitutes arbitrariness is captured in Para 36 of the Shrilekha Vidyarthi case (supra) and it reads as follows: “36. The meaning and true import of arbitrariness is more easily visualised than precisely stated or defined. The question, whether an impugned act is arbitrary or not, is ultimately to be answered on the facts and in the circumstances of a given case. An obvious test to apply is to see whether there is any discernible principle emerging from the impugned act and if so, does it satisfy the test of reasonableness. Where a mode is prescribed for doing an act and there is no impediment in following that procedure, performance of the act otherwise and in a manner which does not disclose any discernible principle which is reasonable, may itself attract the vice of arbitrariness. Every State action must be informed by reason and it follows that an act uninformed by reason, is arbitrary. Rule of law contemplates governance by laws and not by humour, whims or caprices of the men to whom the governance is entrusted for the time being. It is trite that “be you ever so high, the laws are above you”. This is what men in power must remember, always.” 11. This Court notices that as to what constitutes arbitrariness fell for consideration by the Supreme Court in a case which involved cancellation of the examination held as part of a recruitment process, Page 11 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 in East Coast Railway v. Mahadev Appa Rao2. The following passages are reproduced herein which are apposite for this case : “19. Black’s Law Dictionary describes the term “arbitrary” in the following words: ‘arbitrary. adj.—1. Depending on individual discretion; specif., determined by a Judge rather than by fixed rules, procedures, or law. 2. (Of a judicial decision) founded on prejudice or preference rather than on reason or fact. This type of decision is often termed arbitrary and capricious.’ 20. To the same effect is the meaning given to the expression “arbitrary” by Corpus Juris Secundumwhich explains the term in the following words: ‘Arbitrary.—Based alone upon one’s will, and not upon any course of reasoning and exercise of judgment; bound by no law; capricious; exercised according to one’s own will or caprice and therefore conveying a notion of a tendency to abuse possession of power; fixed or done capriciously or at pleasure, without adequate determining principle, non- rational, or not done or acting according to reason or judgment; not based upon actuality but beyond a reasonable extent; not founded in the nature of things; not governed by any fixed rules or standard; also, in a somewhat different sense, absolute in power, despotic, or tyrannical; harsh and unforbearing. When applied to acts, “arbitrary” has been held to connote a disregard of evidence or of the proper weight thereof; to express an idea opposed to administrative, executive, judicial, or legislative discretion; and to imply at least an element of bad faith, and has been compared with “willful”. *** 23. Arbitrariness in the making of an order by an authority can manifest itself in different forms. Non-application of mind by the authority making the order is only one of them. 2(2010) 7 SCC 678 Page 12 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 Every order passed by a public authority must disclose due and proper application of mind by the person making the order. This may be evident from the order itself or the record contemporaneously maintained. Application of mind is best demonstrated by disclosure of mind by the authority making the order. And disclosure is best done by recording the reasons that led the authority to pass the order in question. Absence of reasons either in the order passed by the authority or in the record contemporaneously maintained is clearly suggestive of the order being arbitrary hence legally unsustainable.” 12. More recently, in M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India (P) Ltd.3,the Supreme Court held: it would sufficiently bear the “75. We would, therefore, sum up as to when an act is to be treated as arbitrary. The Court must carefully attend to the facts and the circumstances of the case. It should find out whether the impugned decision is based on any principle. If not, it may unerringly point to arbitrariness. If the act betrays caprice or the mere exhibition of the whim of the insignia of authority arbitrariness. In this regard supporting an order with a rationale which in the circumstances is found to be reasonable will go a long way to repel a challenge to State action. No doubt the reasons need not in every case be part of the order as such. If there is absence of good faith and the action is actuated with an oblique motive, it could be characterised as being arbitrary. A total non-application of mind without due regard to the rights of the parties and public interest may be a clear indicator of arbitrary action. A wholly unreasonable decision which is little different from a perverse decision under the Wednesbury doctrine would qualify as an arbitrary decision under Article 14. Ordinarily visiting a party with the consequences of its breach under a contract may not be an arbitrary decision.” 3(2023) 2 SCC 703 Page 13 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 13. The exercise of writ jurisdiction in contractual matters, particularly when one of the parties is the State or an instrumentality thereof, has been a subject of significant judicial examination. Article 14 of the Constitution mandates equality before the law and equal protection of the laws. It serves as a cornerstone for administrative law in India, setting a high standard for fairness, non-arbitrariness, and reasonableness in State action. These principles must permeate every act of the State, including those undertaken within the framework of contracts. Writ jurisdiction under Article 226 of the Constitution is wide and not confined to enforcement of fundamental rights alone. The High Courts can issue writs for "any other purpose," thereby encompassing situations where a public authority, while acting in a contractual setting, breaches constitutional mandates of fairness and reasonableness. The State cannot adopt a dual personality — public while entering a contract and private while performing it — to evade its constitutional duties. 14. Therefore, writ jurisdiction can indeed be exercised in contractual matters involving the State, especially when the impugned action has a public law element, is arbitrary, or violates the principles of natural justice and on that count the present petition is maintainable. VI. ISSUE B: WHETHERTHIS COURT CAN EXERCISE ITS WRIT JURISDICTION IN THE ABSENCE OF ANY PUBLIC LAW ELEMENT IN A MATTER PERTAINING TO A CONTRACT? 15. Law in this aspect has developed through catena of judgments of the Supreme Court and from the reading of these judgments it would follow that in pure contractual matters the extraordinary remedy of writ Page 14 of 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 29-May-2025 16:37:05 under Article 226 or Article 32 of the Constitution cannot be invoked. However, in a limited sphere such remedies are available only when the non-Government contracting party is able to demonstrate that it is a public law remedy which such party seeks to invoke, in contradistinction to the private law remedy simpliciter under the contract. Some of the case law to bring home this cardinal principle is taken note of hereinafter. 16. Significantly, in Andi MuktaSadguru Shree MuktajeeVandas Swami Suvarna Jayanti Mahotsav Smarak Trust v. V.R. Rudani4, the Apex Court made it clear that if the rights are purely of private character, no mandamus can be issued. Thus, even if the respondent is “State”, the other condition which has to be satisfied for issuance of a writ of mandamus is the public duty. In a matter of private character or purely contractual field, no such public duty element is involved and, thus, mandamus will not lie. 17. The first case which needs to be referred is Bareilly Development Authority v. Ajai Pal Singh.5That was the case where the appellate authority had undertaken construction of dwelling units for people belonging to different income groups and the cost at which such flats were to be allotted to the allottees. However, it was mentioned that the cost stated was only an estimated cost and subject to increase or decrease according to rise or fall in the price at the time of completion of property. The Authority increased the cost and monthly instalment