2022 (11) TMI 1395 - SC - Indian Laws

Termination of Power Purchase Agreement (PPA), which was entered into by the Appellant and the first Respondent - statutory contract or not - scope of judicial review of action by the State in a matter arising from a contract - concept of public law in judicial review in a contractual matter - arbitration Clause in regard to the subject matter - case of the first Respondent is on par with Renew Energy or not - non-compliance of Article 9.1 of the PPA, namely, the effect of Appellant not issuing notice contemplated therein before issuing the impugned termination dated 07.07.2018? - challenge to award of largesse by the State or is it applicable across the Board irrespective of the stage when the matter arises in relation to a contract? WHETHER THE PPA IS A STATUTORY CONTRACT? - HELD THAT - 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 authority it would sufficiently bear the insignia of 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. WHETHER THERE IS AN ARBITRATION CLAUSE? - HELD THAT - It may not be a case where the PPA provides for an arbitration Clause capable of determining the lis in question. The situation therefore contemplated in U.P. Roof 1996 (8) TMI 453 - SUPREME COURT as laid down in ABL 2003 (12) TMI 584 - SUPREME COURT does not exist. THE IMPACT OF THE JUDGMENT IN THE FIRST WRIT PETITION - HELD THAT - The fifth Respondent is to be operated by the State Transmission Utility, which is defined in Section 2(67) as the Board (defined as the State Electricity Board) or the Government company specified by the State Government Under Section 39(1), unless it is operated by a Government company or any authority or corporation established or constituted by or under and State Act. It would, therefore, appear to us that if the fourth Respondent is the State Transmission Utility, it would be the Body to operate the fifth Respondent. The attempted disassociating of the fifth Respondent from the fourth Respondent, appears to us to be without justification. However, we leave the matter there. We may conclude nearly that all the requirements were met. There remained the metering requests and the aspects about furnishing data. They clearly appear to be matters which could have been remedied at any rate if a default notice was given. OVERWHELMING PUBLIC INTEREST - HELD THAT - The concept of overwhelming public interest has essentially evolved in the context of cases relating to the award of contract by the State. It becomes an important consideration in the question as to whether then the State with whatever free play it has in its joints decides to award a contract, to hold up the matter or to interfere with the same should be accompanied by a careful consideration of the harm to public interest. We do not go on to say that consideration of public interest should not at all enter the mind of the court when it deals with a case involving repudiation of a claim under a contract or for that matter in the termination of the contract. However, there is a qualitative difference in the latter categories of cases. Once the State enters into the contract, rights are created - In this case, it is noteworthy that the rates were in fact settled on the basis of international competitive bidding and in which as many as 182 bidders participated and the rate offered by the first Respondent was undoubtedly the lowest. The fact that power has become cheaper in the market subsequently by itself should not result in non-suiting of the complaint of the first Respondent, if it is found that a case of clear arbitrariness has been established by the first Respondent. An inspection by the CEIG would necessarily have to be carried out in which the Appellant would have to be involved to facilitate the exercise. In the facts of this case, on being satisfied, the CEIG would necessarily have to grant the re-validation of the earlier Report. It would also involve an opportunity to the CEIG to look into the aspects which have been projected by the fist Respondent itself in its letter dated 16.09.2020. The report would indeed indicate the state of affairs about all the facets. As already noticed, even under the impugned judgment dated 27.02.2020, the first Respondent would have to submit necessary applications. We would think that essentially the Appellant's attempt was to secure a reduction in the rate. The rate of the first Respondent was found to be the lowest after a clearly keenly competitive international bidding, involving a large number of bidders. The view taken by the High Court upheld - appeal dismissed.

Summary

Issues Involved:
1. Whether the PPA in question is a statutory contract.
2. Scope of judicial review in contractual matters involving the State.
3. Concept of public law in judicial review of contractual matters.
4. Existence of an arbitration clause.
5. Effect of the High Court's judgment in the earlier round of litigation.
6. Impact of disputed questions of facts on the writ petition.
7. Comparison with the Renew Energy case.
8. Effect of non-compliance with Article 9.1 of the PPA.
9. Concept of overwhelming public interest in judicial review of contractual matters.
10. Whether the Supreme Court should interfere with the High Court's judgment.

Detailed Analysis:

1. Whether the PPA in question is a statutory contract:
The Supreme Court analyzed whether the Power Purchase Agreement (PPA) between the parties was a statutory contract. It concluded that the PPA was not a statutory contract. The Court noted that the PPA was entered into by a government-owned company, but it was not made under the executive power of the State within the meaning of Article 298 of the Constitution. The terms and conditions of the PPA were not mandated by any statute but were based on mutual agreement between the parties.

2. Scope of judicial review in contractual matters involving the State:
The Court examined the evolution of judicial review in contractual matters involving the State. It acknowledged that while traditionally, contractual disputes were considered to be outside the scope of writ jurisdiction, the law has evolved to allow judicial review in cases where the State's action is arbitrary, unreasonable, or unfair. The Court emphasized that the State must act fairly and justly in all its actions, including contractual matters, and such actions are subject to judicial review under Article 14 of the Constitution.

3. Concept of public law in judicial review of contractual matters:
The Court reiterated that the State cannot act arbitrarily in contractual matters and must adhere to the principles of fairness and reasonableness. It highlighted that even in the realm of contracts, the State's actions must be informed by reason and must not be arbitrary. The Court cited various judgments to support the principle that the State's actions in contractual matters are subject to judicial review to ensure they comply with the constitutional mandate of non-arbitrariness.

4. Existence of an arbitration clause:
The Court examined the dispute resolution clauses in the PPA and concluded that the PPA did not contain an arbitration clause that would cover the disputes in question. Therefore, the situation contemplated in the earlier judgment in State of U.P. v. Bridge & Roof Co. (India) Ltd., which involved an arbitration clause, did not apply in this case.

5. Effect of the High Court's judgment in the earlier round of litigation:
The Supreme Court analyzed the impact of the High Court's judgment in the earlier round of litigation, which had set aside the initial termination notice issued by the appellant. The Court concluded that the High Court's judgment had effectively decided the issue of non-fulfillment of conditions subsequent, and the appellant could not reopen this issue. The liberty granted by the High Court to pass fresh orders was limited to the aspect of commissioning the project and did not extend to revisiting the issue of conditions subsequent.

6. Impact of disputed questions of facts on the writ petition:
The Court acknowledged that the case involved disputed questions of facts, particularly regarding the readiness of the project for commissioning. However, it emphasized that the existence of disputed facts does not automatically preclude the exercise of writ jurisdiction. The Court held that the writ petition could be entertained if the disputed questions of fact could be resolved based on documentary evidence without the need for a detailed examination of witnesses.

7. Comparison with the Renew Energy case:
The Court compared the case of the first respondent with that of Renew Energy, where the High Court had set aside a similar termination notice. It noted that the High Court had found that the delay in achieving the first milestone was condoned in the case of Renew Energy, and the first respondent's case was similar. The Court concluded that the High Court's judgment in the earlier round of litigation had effectively settled the issue of conditions subsequent, and the appellant could not revisit this issue.

8. Effect of non-compliance with Article 9.1 of the PPA:
The Court examined Article 9.1 of the PPA, which required the appellant to issue a default notice and provide a three-month period for the respondent to rectify the default before terminating the agreement. The Court found that the appellant had not complied with this requirement and had instead issued a termination notice without giving the respondent an opportunity to remedy the default. The Court held that this non-compliance rendered the termination notice invalid.

9. Concept of overwhelming public interest in judicial review of contractual matters:
The Court addressed the appellant's argument that public interest lay in not purchasing power at a higher rate from the respondent. It emphasized that public interest cannot be determined solely based on monetary considerations. The Court noted that the rates in the PPA were determined through a competitive bidding process, and the respondent's bid was the lowest. It concluded that the appellant's attempt to secure a reduction in the rate did not justify the arbitrary termination of the contract.

10. Whether the Supreme Court should interfere with the High Court's judgment:
The Supreme Court concluded that the High Court's judgment did not warrant interference. It upheld the High Court's decision to set aside the termination notice and directed the appellant to comply with the contractual obligations. The Court emphasized that the appellant's actions were arbitrary and did not comply with the requirements of the PPA. The appeals were dismissed, and the parties were directed to bear their own costs.