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TMI Blog2012 (8) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 undertakings in the private sector, ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nture 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, pending execution of the necessary definitive agreements, including the Underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 (Thirty) days of the date of incorporation, execute the Undertaking Transfer Agreement for each Textile Mill in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) been satisfied with the completion of legal documentation in relation to the transaction contemplated herein; and (iii) been satisfied that no material adverse change to N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 name of the JV Company and also proposed the name of the directors. A joint inventory of plant and machinery, measurement of land and note of assets and liabilities was taken. In January 2009 NTCL informed KSL that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 petitioner did not take possession of the mill lands. The respondent claims that it has always remained in exclusive possession of the mill lands/premises. The petitioner's claim to have possession and/or poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, on performance by the parties of their respective obligations under the MOU, does not mean that that the MOU was a mere agreement to agree . The exact content of the Definitive Agreements was known in advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 obligations, which are dependent on the performance of obligation by the first party, unless the first party has performed its obligations. 27. Petitioner submits that MOU provided that termination could have been done immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 terminate the contract. It is submitted that the respondent has acted arbitrarily and whimsically. Being a state instrumentality, the respondent's actions cannot be arbitrary or unfair, else they would offend Article 14 of the Constitution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads 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 contract which is in its nature determinable; (d) a contract the performance of which involves the performance of a continuous duty which the court cannot supervise. 38. He submits that all four contingencies set out above are made out in the present case. He contends that the contract contained in the MOU (eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Stroh Brewery Company, AIR 2000 Del 450, which in turn has relied upon the supreme court judgment of Indian Oil Corporation Ltd. V. Amritsar Gas service and Others, (1991) 1 SCC 533. The extract relied upon by the respondent is as follows- 14. The effect of breach of a contract by a party seeking to specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 JV Company. The learned ASG submits that so long as the share structure of 49:51 was to remain, the majority of the directors on the Board (5 out of 8) were to be appointed by the respondent. Therefore, the control of the JV Company was to remain principally with the respondent only. He has drawn the court's attention to clause 3 of MOU, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 129, and; Noble Resources Ltd. v. State of Orissa Anr, (2006) 10 SCC 236. 51. Mr. Tripathi urged that a contract is in the realm of private law. Contract by a statutory body need not necessarily mean a statutory contract. Commercial activities of a statutory body need not necessarily raise issues of public law. It is further contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of assets of sick mills is taking place under the mandate of the group of Ministers, in view of section 11A of the Sick Textile Undertaking (Nationalization) Act, 1974. A contract by an instrumentality of the state is not a purely commercial transaction, like one between purely private parties. Rather it is a contract with public interest attac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 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 India v. Millennium Mumbai Broadcast (P) Ltd., (2006) 10 SCC 510, where the Hon'ble Supreme court has held that the provisions of the Specific Relief Act would not apply to contracts which are governed by statutory provisions. 60. In the end, Mr. Venugopal submits that in this petition under section 9 the Court is taking only a prima- facie view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 referred to the decision in one Von Hatzfeldt-Wildenburg vs. Alexender, [1912] 1 Ch. 284, wherein it had been held that if the documents or letters relied on, as constituting a contract, contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of further contract is a condition or term of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, too many speculative assumptions would be needed to estimate the correct valuation of the petitioner's proposed 49% shareholding in the said JV companies. It is not that such opportunities are available in the business world in routine. The shareholding in the proposed JV Companies cannot be acquired off the shell . With the acquisition of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 'Chitty on Contracts' observed: About the aspect of the supervision, in paragraph 27.016 the learned Author succinctly puts it; it is submitted that difficulty of supervision should not of itself be regarded as a bar to specific performance but only as one of many factors to be taken into account in determining whether this form of relief is to be gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 as it thinks fit. (c) Where the Court makes any order for the registration of any document, it may make such order as it thinks fit as to the expenses of registration. The said argument is, therefore, without any substance. 75. The third aspect on section 14 pertains to the agreement being determinable in nature. In Atlas Interactive (supra), the learned Single Judge of this Court in para 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 which the contract could come to end is clause 5.1- which empowers the respondent to terminate the MOU, albeit, on the happening of a contingency and not before the same. 78. Under clause 5.1, respondent had a right to terminate the MOU forthwith in the event of the definitive agreements not being executed to the fullest satisfaction of NTC within 240 days of the execution of the MOU. Therefore, the right to term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on his failure to do so within the agreed time, it would be unfair to hold the Contractor bound to his time of delivery or performance. The Contractor may, however, estimate that despite the delay in handing over the site, he would nonetheless be able to complete the project within the contracted time. He may succumb to the pressure on the likelihood of his security deposit being forfeited; or the uncertainty and delay in collecting damages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted 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 Bhimani (supra) is of no avail as the Court held in the facts of that case that the relief of specific performance was barred in view of Section 14(3)(c) of the Specific Relief Act. I have already dealt with the aforesaid aspect, and prima facie, found in favour of the petitioner. This case in my view has no application in the facts of the present case. 82. The decision in Ram Awadh (supra), Sopan Sukhdeo Sable (supra) and Shri Brahm Dev Narang (supra) have ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. 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 to constitute novation or waiver on part of the respondent of some of the rights accrued in its favour and, in particular, the right to terminate the contract upon the expiry of the original term of the MOU, i.e. 240 days. 85 It need not be forgotten that any interpretation clause 2.1 and 5.1, so far as the same are ambiguous, would preferably be made against the respondent, as the contract was drafted by the respondent in the standard form and the doctrine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiff 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 Court (as his Lordship then were) in Pioneer Publicity Corporation (supra), in the following words: I have given due thought to the contentions of the rival parties. The freedom which exists under the realm of private contract in respect of the performance of contractual obligation does not apply in the same measure where the Government is a party. Every action of the Government has to pass the rigorous inquisition of fair play, lack of arbitrariness, and its be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the parties could be terminated by giving one month's notice or could be determined even after commissioning of the project but considering the fact that the petitioner has invested fairly large amount in the project which is unique and the respondent No. 1 is an instrumentality of the State which remains under an obligation to act in a just and fair manner, it has to be seen as to whether the decision of respondent No. 1 to terminate the Franchisee Agreement is prima facie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in a fair and just manner and not arbitrarily. This principle may hold good between private parties but not in those cases where the highhandedness appears to be on the part of the State or its instrumentality. It also cannot be said that the contract between the parties runs into minute details or the Court cannot enforce specific performance of its material terms nor it can be said that the contract involves performance of continuous duty, which the Court cannot supervise. The Franchisee Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, 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 adopt that remedy and invoke the extraordinary jurisdiction of the High Court under Article 226. The existence of an effective alternative remedy - in this case, provided in the contract itself - is a good ground for the court to decline to exercise its extraordinary jurisdiction under Article 226. (Emphasis supplied). 93. The above highlighted extract clearly shows that the nature of remedy i.e. whether it is a civil proceeding or an arbitration or a writ proceeding, does not have a bearing on the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aras 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 instrumentality of the State is a party of the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants the first respondent as an instrumentality of the State has acted in contravention of the abovesaid requirement of Article 14, then we have no hesitation in holding that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 informed by reason. Indubitably, the respondent is an organ of the State under Article 12 of the Constitution. In appropriate cases, as was observed in the last mentioned decision, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. But it has to be remembered that Article 14 cannot be construed as a charter for judicial review of State action, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. x x x x x x x x x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Insurance Corporation as also the Central Government. They cannot be ignored. The said directions are not said to be in derogation of the statutory provisions. Their validity is not under challenge. 97. The fact that some of the aforesaid decisions were rendered in writ proceedings under Article 226 of the Constitution of India challenging the decision of the State has been arbitrary, though arising out of contractual matters between the State and the citizen makes no difference. As aforesaid, even the Civil Court or an Arbitrator is competent to undertake the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 arbitration proceedings and to secure an award in its favour, it may be met with a fait accompli. The arbitration proceedings are already in progress since the arbitral tribunal has been constituted. The interim protection has continued in favour of the petitioner since 01.10.2010, that being the first hearing of the matter, and there is no reason to disturb the said status quo during the pendency of the arbitral proceedings. Even if the respondents were to succeed in the arbitration proceedings, they would then be in a position to proceed further in the matter of r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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