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Smita Conductors Pvt. Ltd., Bombay and anr. Vs. Madhya Pradesh State Electricity Board - Court Judgment

LegalCrystal Citation
SubjectContract;Constitution
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Petn. No. 2014 of 1983
Judge
Reported inAIR1984MP44
ActsConstitution of India - Articles 226 and 300A
AppellantSmita Conductors Pvt. Ltd., Bombay and anr.
RespondentMadhya Pradesh State Electricity Board
Appellant AdvocateS. Rangarajan, ;R.P. Verma, ;V. Mohan and ;Deepak Verma, Advs.
Respondent AdvocateY.S. Dharmadhikari and ;M.L. Jaiswal, Advs.
DispositionPetition dismissed
Cases ReferredAnwar Khan Mehboob & Co. v. State of M. P.
Excerpt:
.....like the respondent cannot act arbitrarily or unreasonably causing harm and injury to a private party like the petitioners and mainly relies on a recent decision of the supreme court in gujarat state financial corpn. whether the respondent could under clause 4 (b) indefinitely defer further supplies of the conductors is a question which need not be gone into in this petition and can be best agitated in a civil suit. whether clause 4 (b) has been abused by the respondent is a matter which can well be agitated in a civil suit and need not be considered in this writ petition......praying for striking down of clause 4 (b) of the contract entered into by the parties regarding supply of conductors by the petitioner to respondent madhya pradesh electricity board, for quashing of the letter of the respondent dated 6-11-1980 asking the petitioner to defer the supplies and tor directing the respondent to issue despatch instruction for renewing the supplies as per contract. in pursuance of the notice issued to the respondent to show cause as to why the petition be not admitted, the respondent has raised written preliminary objection regarding inability of the petition. it is contended on behalf of the respondent that this court under its extraordinary jurisdiction under article 226 of the constitution can neither enforce the contract between the parties nor compel the.....
Judgment:

C.P. Sen, J.

1. This is a petition under Article 226 of the Constitution of India amongst others praying for striking down of Clause 4 (b) of the contract entered into by the parties regarding supply of conductors by the petitioner to respondent Madhya Pradesh Electricity Board, for quashing of the letter of the respondent dated 6-11-1980 asking the petitioner to defer the supplies and tor directing the respondent to issue despatch instruction for renewing the supplies as per contract. In pursuance of the notice issued to the respondent to show cause as to why the petition be not admitted, the respondent has raised written preliminary objection regarding inability of the petition. It is contended on behalf of the respondent that this Court under its extraordinary jurisdiction under Article 226 of the Constitution can neither enforce the contract between the parties nor compel the respondent to purchase particular material from a particular party at a particular price as there is no such statutory obligation nor can strike down a term of the contract as unreasonable and arbitrary especially when the petitioner entered into the ron-tract voluntarily with open eyes. The remedy of the petitioners is to rile a civil suit but it is doubtful whether the reliefs claimed can Gven be granted in a civil suit. A rejoinder has been filed by the petitioner refuting the objection.

2. Shri S. Rangarajan for the petitioners and Shri Y. S. Dharmadhikari for the respondent were heard at length on the preliminary objection,

3. The respondent invited tenders for supply of 8,350 Kms. of 6/1/2.59 mm. greased ACSR Weasel Conductor and 23,050 Kms. of 6/1/2.11 mm. greased ACSR Squirrel Conductor. The tender of the petitioners at the rate of Rs. 2,700/-per Km. for the Weasel and at the rate of Rs. 1,866/- per Km. for the Squirrel Conductors was accepted by the respondent by letter dated 22-7-1980. It was made clear that the acceptance was subject to the conditions mentioned in the letter, which shall be binding on the petitioners and no condition or stipulation to the contrary or which are inconsistent will be acceptable. Clause 4 is quoted hereinunder:--

'4. Delivery:-- (a) The supplies shall commence after 2/2 1/2 months from the date of commercial and technical clear order including Letter of Credit and supply @ 600/700 Mt of Aluminium content per quarter.

(b) The Board has the option to defer the scheduled supplies, if considered essential.'

4. The value of the total supply to be made was 6,66,75,900/-. The respondent issued its Letter of Credit dated 22-9-1980 for rupees 2.2. crores and the petitioners supplied 4000 Km. of Weasel and 4000 Km. of Squirrel Conductors i.e. approximately one third of the total supply. However, by letter dated 6-11-1980 the respondent asked the petitioners to defer further supply as per Clause 4 (b) of the contract due to 'unavoidable circumstances and informed that suitable programme will be intimated later in due course. The petitioners thereupon sent a series of letters and telegrams to the respondent and the Joint President of the petitioner company met the Technical Member of the respondent. In the meanwhile, the respondent invited fresh tenders to be opened on 12-2-1982 for supply of similar types ol Conductors and the petitioner offered to co-operate by making additional supply of 4350 Kms of Weasel Conductors at Rs. 2,413 per Km and 19,650 Kms of Squirrel Conductor at Rs. 1602/- per Km i.e. at reduced rates, without prejudice to its rights under the earlier contract by its letter dated 12-2-1982 followed by other letters and Telex messages but with no response. So as a final attempt, the representatives of the petitioner company and those of Cable and Conductor Manufacturers Association of India (CACMAI) met the Chief Minister of M. P. and other officers including those of the respondent on 2-7-1983 at Bhopal and they were apprised of the difficulties faced by the petitioner because of sudden deferring of further supply of Conductors, It was explained that the petitioners, had not only planned its production well ahead of the delivery schedule, but also arranged for its finance in order to enable it to fulfil and discharge its obligations under the contract. Due to the arbitrary and uncalled, for stoppage of the supplies, the petitioners had to close its Gaziabad factory and lay off its workers. Although a month elapsed, there was no further communication and so the petitioners filed this petition.

5. The petitioners contend:--

(i) Under Clause 4 (b) of the contract, the respondent has clothed itself with uncanalised, vague and arbitrary power giving itself option to defer the schedule supplies 'if considered essential', without arty guideline for what is essential;

(ii) The respondent is debarred by the principle of promissory estoppel by going back on the solemn obligations undertaken by it in discharge of its statutory functions;

(iii) The respondent cannot capriciously and without justification whatsoever indefinitely defer issue of despatch instruction to force the petitioners to reduce the contracted price and also to manoeuvre supply of aluminium at reduced rate from the public sector undertaking BALCO in lieu of the electricity dues, to other manufacturers and thereby getting supply of ACSR Conductors from them at cheaper prices;

(iv) The respondent under cover of Clause 4 (b) of the contract wants to take advantage of the prices of aluminium conductors having gone down but overlooking thai if the prices have gone up and the petitioners failed to supply, penalty would have been imposed on the company;

(v) The above contract was entered into by the respondent for the supply of conductors in discharge of its statutory-duties relating to production and distribution of electricity under the Electricity (Supply) Act, 1948; and

(vi) The power of the respondent to defer supplies is neither absolute nor uncontrolled, it could be exercised in a reasonable manner, a party who has committed fundamental breach of contract may not be able to rely on an exemption clause in his favour contained in the contract.

6. Therefore, what the petitioners want to say is that Clause 4 (b) is liable to be struck down for giving arbitrary and unguided power to the respondent to defer the supplies if considered essential. Even if the clause cannot be held to be bad, still the supplies can only be stopped 'if considered essential' and the respondent has to act fairly and reasonably being a statutory corporation. It cannot indefinitely defer the supplies without disclosing the reason for deferring the supplies. It is no ground to defer the supplies because prices of aluminium conductors have come down or because- of financial constraints. There is no provision in the contract for reduction in the prices, Oa the other hand there is provision for increasing the prices when the prices go up. The petitioners want to invoke Article 226 in its favour by saying that the respondent under, the Electricity (Supply) Act has a statutory duty to distribute electricity and for this purpose has to lay transmission lines. Conductors are essential component for the transmission lines and since the respondent is not manufacturing conductors, it has to enter into contracts for supply of conductors. As such the contract for supply of conductors entered into by the respondent was in performance of its statutory duty. So it has to be seen whether the contract was entered into by the respondent with the petitioners was in discharge of its statutory duty and then only it would be possible to invoke Article 226 in aid, of the petitioners. It is not disputed that the respondents, being a statutory corporation, it is a state within the meaning of Article 12 of the Constitution. The Court can compel the authority under Article 226 to fulfil its representation within the scope of its authority which raises a promissory estoppel, where the petitioners have altered its position on the basis of that representation where the contract is short of a contract under Article 299 of the Constitution.

7. Basu on Shorter Constitution, Eighth Edition, at page 478 has commented as under by relying on the pronouncements of the Supreme Court in various cases: --

(I) Mandamus will not issue to enforce a privtae contract and the remedy, if any, is private law, e.g. a suit for damages or specific performance.

The State can enter into a contract with an individual just as any other individual can, and the contract, as such, does not change its legal character merely because the other party to the con-ract is the State, hence mandamus will not issue.

(II) But the Court may interfere under Article 226 where, though the cause of action arises out of or pertains to a contract, there is some other feature which brings the cause within the sphere of public law i.e. because of the exercise by the State of its sovereign power, apart from the contract, e.g. --

(a) For breach of contract, where the breach itself violates a fundamental right;

(b) Where, in refusing to enter into a contract with the petitioner, the State has violated a statutory provision and

(c) Where the breach if contract involves the breach of statutory obligations i.e. where the order complained of was made by a statutory Authority in exercise of its statutory power.

8. Under the Electricity (Supply) Act, the State Electricity Boards are constituted for the coordinated development of the generation, supply and distribution of electricity within the State. The case of the petitioners is that under Section 18(e) of the Act, the respondent amongst others is charged with the duty to prepare and carry out schemes for transmission, distribution and generally for promoting the use of electricity within the State. So the respondent is obliged under the Act to lay transmission lines for distribution of electricity. Section 2(15) provides that other expressions not enumerated earlier, have the meanings respectively assigned to them in the Electricity Act 1910. Section 2(f) of the latter Act defines 'electric supply lines' as meaning a wire, conductor or other means for distribution for conveying, transmitting or distributing energy; in Section 2(n) 'works' includes electric supply line and any building, plant, machinery, apparatus and any other thing of whatever description required to supply energy. So the conductors are essential components for laying of transmission lines. Since the respondent is not manufacturing its own conductors it has to enter into contracts to buy conductors from others. So it is said that there is a statutory duty or obligation to make purchases of conductors from others and enter into contracts. We are unable to accept the contention. The contract with the petitioners was not entered into by the respondent in pursuance of its statutory duty, no such duty is cast on the impendent to enter into contracts to purchase conductors. One of its duties is laying of transmission lines. May be conductors are 'essential components for erecting transmission lines and at present the respondent is not manufacturing any conductors and has to purchase the same from other suppliers. According to us, statutory duty is to lay transmission lines and discretion has been given to the respondent as to how best to carry out the work. The conductors required, for laying down of the transmission lines may be manufactured by itself or purchased from the market by the respondent. There is no such statutory obligation to make a purchase or for that matter any particular type of conductor from any particular purchaser. In such a case, though the Court may compel the respondent for laying a transmission line, it cannot compel it to perform it in a manner directed by the Court. So the transaction between the petitioners and the respondent is purely contractual and has to be enforced like any other contract by filing a civil suit. It is not for us to consider at this stage as to whether the respondent had the power or it was justified in deferring the supply indefinitply. The matter can well be agitated in a civil suit.

9. The Supreme Court in Harshankar v. Dy. E. & T. Commr.. AIR 1975 SC 1121 has held as under :--

'Contractual obligations-- A writ petition is not an appropriate remedy for impeaching validity of contractual obligations -- Liquor shops, auction sale of to licensees -- conditions of sale -- van-dees cannot subsequently apply under Article 226, for writ to avoid enforcement against them, of their obligations under the terms of auction.'

In Shamlal v. State of Punjab AIR 1978 SC 2045 the Supreme Court held that contractual obligations cannot be avoided by licensee -- recourse to writ petition is not proper. Further in Radhakrishna Agarwal v. State of Bihar AIR 1977 SC 1496 the Supreme Court has held as follows:--

'Where the State Government leased out some forest land to appellants to collect and exploit sal seeds for 15 years on payment of royalty at a certain rate and when the State, under the terms of leases, revised the rate of royalty and, thereafter, cancelled the leases for breach of certain conditions the petitioners-appellants challenged the orders of revision of rate and cancellation of leases as illegal by writ proceedings under Article 226:

Held that (i) the contracts did not contain any statutory terms or obligations and no statutory power or obligation which could attract the application of Article 14 was involved.

(ii) It was the contract and not the executive power regulated by the Constitution which governed the relations of the parties on the facts apparent in the instant cases. They involved questions of pure alleged breaches of contract. No writ or order could issue under Article 226 in such cases to compel the authorities to remedy a breach of contract pure and simple.'

In State of Haryana v. Jage Ram AIR 1980 SC 2018 the Supreme Court has opined that bidders cannot wriggle out of their vountarily incurred contractual obligations by invoking writ jurisdiction. The Supreme Court in D. F. O. v. Bishvanath Tea Co. AIR 1981 SC 1368 has stated that when breach of statutory provision, not proved, right cannot be enforced in a writ petition. The Supreme Court in State of Punjab v. Dial Chand Gian Chand & Co. AIR 1983 SC 743 laid down that order of High Court in granting damages in a writ petition is without jurisdiction.

10. The petitioners contend that a statutory corporation like the respondent cannot act arbitrarily or unreasonably causing harm and injury to a private party like the petitioners and mainly relies on a recent decision of the Supreme Court in Gujarat State Financial Corpn. v. Lotus Hotels Pvt. Ltd. AIR 1983 SC 848 wherein it has been laid down as under:--

'Evidence Act-- Section 115 -- Promissory estoppel -- Gujarat State Financial Corporation entered into agreement in performance of its statutory duty to advance loan to a company -- Acting on undertaking the company proceeded, to undertake and execute project of setting up a 4-Star Hotel -- Company incurred huge expenses and suffered liabilities to set up hotel -- Held, principle of promissory estoppel would stop Corporation from backing out of its obligation --Corporation would be 'other authority' within Article 12 -- Writ of mandamus could be issued directing Corporation to perform its statutory duty.' In that case the Gujarat State Financial Corporation took the plea that the loan was conditional upon the Industrial Development Bank of India undertaking to refinance the loan. This was negatived by the Courts below also by the Supreme Court that it was not so conditional. However, it has been found that the loan was granted to M/s. Lotus Hotels Pvt. Ltd. by the Corporation in exercise of its statutory function under Section 25(1)(g) of the State Financial Corporation Act, 1951. It is one of the duties of the Corporation that they may grant loans. Therefore, it was held that on the principle of promissory estoppel the Corporation cannot be permitted to back out from its obligations of providing the loan when the respondent acting on that promise took up the construction of a 4-Star Hotel and they would not have incurred the expenses if they knew that the loan would not be forthcoming. Here in the present case the respondent deferred further supplies in pursuance of Clause 4 (b) of the contract entered into between the parties. So there is no question of any promissory estoppel. In the absence of Clause 4 (b) the principle of promissory estoppel could have been invoked in favour of the petitioners. The petitioners had supplied conductors of the 1/3 of the total value for one quarter and thereafter further supplies were stopped. As per Clause 4 (a) the petitioners were to commence supplies after 2 1/2 months from the date of commercially and technically clear order including opening of Letters of credit. May be the petitioners were required to arrange for funds and gear up their production to keep the time schedule. But further supplies could be stopped under Clause 4 (b). It is not clear why the petitioners agreed to enter into a contract having such a clause giving right to the respondent to stop supplies at any time if considered essential. Whether the respondent could under Clause 4 (b) indefinitely defer further supplies of the conductors is a question which need not be gone into in this petition and can be best agitated in a civil suit. It has also not been explained as to why the petitioners kept quiet for about 3 years before invoking the extraordinary jurisdiction of this Court under Art 226 of the Constitution. As has been observed earlier, there was no statutory obligation on the part of the respondent in entering into contract for supply of conductors and the relations between the parties is purely contractual. So the aforesaid decision is of no help to the petitioners. The next decision relied upon is D. F. O. South Kheri v. Ram Sanehi, AIR 1973 SC 205 wherein the Supreme Court held that where the action of a public authority invested with statutory powers is challenged, the writ petition is maintainable even if the right to relief arises out of an alleged breach of contract. The Supreme Court in that case found that right to relief flows from the contract entered into by the respondent but the order of the Divisional Forest Officer cancelling the contract to cut timber was passed without calling for an explanation from the respondent and without giving any opportunity of hearing and there was violation of the principles of natural justice. So the order has been set aside on that count in exercise of writ jurisdiction because every citizen is protected against exercise of arbitrary authority by the State or its officers. While stopping further supplies the respondent was not called upon to give an opportunity to the petitioners or opportunity of hearing under the contract , and the respondent could defer further supplies under Clause 4 (b). The next case relied upon is Ramana v. I. A. Authority of India, AIR 1979 SC I62S wherein the Supreme Court held as under :--

'Constitution of India, Articles 12 & 14 International Airport Authority is State -- Tenders called for running restaurant and snack bars -- Qualifications laid down as requisite -- It cannot accept tender of person who does not fulfil tha requisite qualifications.' In that case tenders were invited from registered IInd Class Hoteliers having at least 5 years' experience for putting up and running a IInd Class Restaurant and two Snack Bars at the Airport. The tender of a person who did not have that experience was accepted and so it was held that there was violation of Article 14 of the Constitution. There is no allegation of any breach of Article 14 in the present case. Lastly reliance is placed on a passage of Denning L. J. in John Lee & Son v. Railway Executive, (1949) 2 All ER 581 that above all, there is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused. It would, therefore, be a very serious question whether the defendants are free to exempt themselves in the wide terms which are here contended for. It seems to me preferable that a limited construction -should be put on the clause so that it should be valid. Whether Clause 4 (b) has been abused by the respondent is a matter which can well be agitated in a civil suit and need not be considered in this writ petition. Lastly it was contended that in view of Article 300A of the Constitution no person can be deprived of his property without authority of law. By the impugned action of the respondent, the petitioners have been deprived of their contract which is a property. Firstly, the petitioners have not been deprived of their contract, part of the contract has been executed while the remaining has been suspended, as per Clause 4 (b) of the contract. So it cannot be said that there is deprivation without any authority of law. Whether the action of respondent was justified or not is a different matter. The Supreme Court in Anwar Khan Mehboob & Co. v. State of M. P., AIR 1966 SC 1637 has held that a bare contractual right does not constitute property.

11. With the result, we accept the preliminary objection and dismiss the petition.


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