This article is presented in two parts, offering a comprehensive roundup of all landmark judgments on government contracts and tenders (GCT) delivered by the Supreme Court in 2024. It brings together every significant decision that reflects judicial consideration, nuanced interpretation, and the evolving principles shaping this specialised area of commercial law. This is Part II of the series, in which the judgments compiled here are as follows:
Abbreviations for various common terminologies in the judgments
|
Art. — Article |
AERA Act — Airports Economic Regulatory Authority of India Act, 2008 |
|
APTEL — Appellate Tribunal for Electricity |
BCPL — Banshidhar Construction Pvt. Ltd. |
|
BCCL — Bharat Coking Coal Ltd. |
CCI — Competition Commission of India |
|
COI — Constitution of India |
DB — Division Bench |
|
ERC — Electricity Regulatory Commission |
HC — High Court |
|
IDA — Indore Vikas Praadhikaran |
KMC — Kolkata Municipal Corporation |
|
NIT — notice inviting tender |
PoA — power of attorney |
|
PSEC — Punjab State Electricity Regulatory Commission |
PSPCL — Punjab State Power Corporation Limited |
|
RFP — request for proposal |
SBC — State Bar Council |
|
SC — Supreme Court |
SCN — show-cause notice |
|
Sec. — Section |
SG — State Government |
|
TC — Tender Committee |
TDSAT — Telecom Disputes Settlement and Appellate Tribunal |
|
TEC — Tender Evaluation Committee |
WP — writ petition |
(1) Blue Dreamz Advertising (P) Ltd. v. Kolkata Municipal Corpn.1
(Delivered on 7-8-2024)
Coram: 3-Judge Bench of B.R Gavai, Sanjay Karol and K.V. Viswanathan, JJ.
Authored by: HM K.V. Viswanathan, J.
—
The special leave petition was filed against the judgment of the Division Bench of the Calcutta High Court, which had set aside the judgment of the learned Single Judge dismissing the writ petition, and confirming the order of blacklisting passed by the Kolkata Municipal Corporation (for short, “KMC”).
Factual background
KMC invited tenders for awarding of contract for display of advertisement on street hoardings, bus passenger shelters and kiosks within its territory. The appellant was selected as a successful bidder having quoted the highest rate. However, for want of compliance of various pre-agreement formalities like alleged non-receipt of any formal work order, non-receipt of any format of bank guarantee, no objection certificate for the electric connection and other such issues, the commencement of work could not happen on all the 250 designated hoarding spots.
The Corporation on the other hand started demanding payment for the contract period on its commencement, starting June 2014 and quoted most of the demands made by the appellant as frivolous and attempted to avoid execution of the agreement. So much so the appellant was warned that the payment outstanding under the contract if not made, then coercive steps under the tender clauses would be taken. In the backdrop of this dispute between both the parties, a show-cause notice (for short, “SCN”) proposing cancellation of the whole contract was issued, quoting outstanding dues of around Rs 10.28 crores. Also thereafter, after the one-year period of the contract got over, the appellant was informed through a public notice published in the newspaper that he stands blacklisted for all the contracts/tenders to be floated by KMC. When challenge was laid to the demand notices and the blacklisting orders, the same was withdrawn with an undertaking to follow principles of natural justice (PNJ) prior to passing any order by the KMC before the Calcutta High Court.
Thereafter, fresh SCN was issued on multiple grounds alleging failure on the part of the appellant to have breached multiple stipulations of the contract, which was replied by the appellant rebutting all the grounds of SCN. Simultaneously, reference was made to the dispute along with the claim of damages by the appellant to the sole arbitrator. In the arbitration proceedings, interestingly, the claim of the appellant was partly allowed and termination order being found illegal. Damages were awarded by the arbitrator to the petitioner.
Debarment/blacklisting order
Thereafter, through its order issued in March 2016, KMC debarred/blacklisted the appellant for a period of 5 years from participating in any tender floated by it on the very same set of allegations of non-payment of huge amount and showing negligence in the performance of the contract. It was this debarment order of March 2016 that came to be challenged before the High Court. As stated supra, the arbitrator to whom the dispute was referred to and claim of damages was lodged by the appellant and also awarded a sum of around Rs 2.23 crores along with accompanying interest to the appellants.
Proceedings in the High Court
The aforesaid debarment/blacklisting order was challenged before the High Court, wherein the Single Bench quashed the said blacklisting order primarily on the ground that there was a civil dispute between the parties relating to payments owed/not owed to KMC by the appellant, which was also driven to arbitration. Relying on the judgment of B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd.2, the Single Bench held that debarment order could not be premised upon the said ground of non-payment of outstanding dues since the appellant had raised a bona fide dispute and until and unless such a dispute was resolved, he could not have been blacklisted.
Against the aforesaid judgment of the Single Bench, the matter was carried in appeal before the Division Bench by the KMC, which set aside the judgment holding that the debarment/blacklisting order was a reasoned one preceded by a due opportunity of hearing being extended to the appellant and resultantly it could not be treated as unreasonable, unfair or disproportionate.
Issues and their consideration
Accordingly, the Court framed the primary issue of consideration as to whether the order of the Corporation of March 2016 debarring the appellant for a period of 5 years was valid and justified.
Relying on the judgments of Erusian Equipment & Chemicals Ltd. v. State of W.B.3 and the B.S.N. Joshi case4, it was held that blacklisting is a form of commercial disability for any person/entity, having disastrous consequences upon his business. Whether a person defaults in making payment or not would depend upon the context in which allegations are made as also the relevant statutes operating in the field and terms, conditions of the contract. However, if the dispute arises regarding the outstanding payment, if the contractor/tenderer raises a bona fide dispute regarding the said claim, he cannot be declared as a defaulter till the aforesaid dispute is not resolved.
The Court further held that permanent debarment from future contracts for all times to come may sound too harsh and heavy a punishment to be considered reasonable, especially when substantial payments out of the disputed amount have already been made. Order of debarment/blacklisting must be passed only in those cases, where there are concerns of protecting public interest, discouraging and demoralising contractors who lack business integrity, engage in dishonest or illegal conduct or are unable to perform satisfactorily. Because of blacklisting, not only the person concerned is debarred from dealing with the employer concerned, but its dealings with other entities and other employers also gets proscribed. Therefore, in cases of ordinary breach of contract debarment for number of years tantamount to civil death since the said person is commercially ostracised universally for large number of employers and tendering companies. Therefore, in case of any ordinary breach of contract, to which explanation so offered is a bona fide dispute, then too readily passing of debarment orders is impermissible.
The Court then proceeded to examine the individual facts of the appellant and the various issues/grounds of dispute between the appellant and KMC especially pertaining to outstanding dues demanded from him. Rather the allegations, grounds and reasons quoted in the debarment order (even though detailed) fell short of rendering his conduct as so abhorrent as to justify invocation of drastic remedy of blacklisting. The appellant was thus subjected clearly to a disproportionate penalty wherein KMC had lifted a sledgehammer to crack a nut. Besides on its end the KMC despite the dispute getting amplified with the appellant, never resorted to arbitration for settlement of the dispute. The perusal of the award passed by the arbitrator demonstrates that around 10 issues were framed pertaining to the bona fide civil and monetary dispute between the parties.
Criticising the approach adopted by the Division Bench, the Supreme Court further held that merely because the blacklisting order carried reasons is not good enough, but what is to be seen is whether the reason justify invocation of such drastic penalty and whether such penalty was proportionate was the moot question. Any decision to blacklist should not only be strictly within the parameters of law but must also comport with the principles of proportionality. The Division Bench was clearly held to have overlooked the ratio of Supreme Court’s judgment in the B.S.N. Joshi case5. Accordingly, the appeal was allowed, and the blacklisting/debarment order of March 2016 was quashed by the Supreme Court.
***
(2) Kerala SEB Ltd. v. Jhabua Power Ltd.6
(Delivered on 30-9-2024)
Coram: 3-Judge Bench of D.Y. Chandrachud, C.J., J.B. Pardiwala and Manoj Misra, JJ.
Authored by: HM D.Y. Chandrachud, C.J.
The appeal arose out of the judgment of Appellate Tribunal for Electricity (for short, “APTEL”) which allowed the appeals and set aside the order of Kerala State Electricity Regulatory Commission (for short, “SEC”).
Necessary facts
Kerala State Electricity Board Limited (for short, “KSEB”) floated two separate tenders for procurement of power through a competitive bidding process under Section 63, Electricity Act, 2003. The first was for procuring 450 MW and second was for 400 MW of procurement of power. The entities which emerged as L1 bidders did not bid for the entire tender quantum, but offered to supply only half of it against the tender quantity. Accordingly, the KSEB was constrained to invite all other bidders to match the tariff quoted by the L1 bidders for the remaining quantum, but nobody came, when in the second round/bid L2 to L5 all of them conveyed their willingness to match the tariffs quoted by L1 bidder. However, though L2 had initially refused to match the tariff of the L1 bidder, his bid in the second round was accepted and justified on the ground that tariff was competitive and less than the tariff quoted by L1 in the second bid. In short, in the first bid out of the tendered quantity of 450 MW, appellant accepted offers for a quantum of 315 MW and issued letters of acceptance to L1 and L2 for 200 MW and 115 MW respectively after two rounds of bidding. Similarly, for the other bid also the similar pattern was followed, wherein as against a tendered quantity of 400 MW, appellant accepted offers for a total quantum of 550 MW. The KSEB justified the acceptance of both the bids on the ground that tariffs offered were competitive and accordingly the power supply agreements (for short, “PSA”) were executed between the selected bidders and KSEB. However, the SEC declined to grant approval to KSEB on the ground that it had deviated from the standard bidding guidelines issued by the Central Government and failed to obtain prior approval from SEC or the Central Government in relation to deviations from the tender. The SEC approved PSAs with only the L1 bidders on both the bids, but with respect to remaining PSAs, it deferred the decision to obtain the approval of Central Government along with the views of the Government of Kerala regarding the process of bidding that was adopted by the appellant. However, provisionally SEC permitted KSEB to procure power from all the bidders, which continued for a period of four years till 2023.
In 2020, appellant moved SEC for approval of fuel surcharge rate under some of the unapproved power purchase agreements (for short, “PPA”) which were not approved and SEC directed the KSEB to limit the payments at the rate of L1 bidder in the second bid until the PSAs were approved. SEC thereafter finally declined to grant approval for various PSAs and held that tariff determined by the appellant did not follow a transparent process and grossly deviated from standard bidding guidelines. It further held that deviations by KSEB were against public and consumer interest and created long-term financial implications for the State as a whole. This brought KSEB and other bidders before the APTEL in appeal. In the meanwhile, during the pendency of appeal before the APTEL, Government of Kerala invoking Section 108, Electricity Act issued a policy direction directing the SEC to reconsider/review their orders passed earlier dated 10-5-2023, through which approval to various PSAs was declined as stated supra. The appeal before the APTEL was accordingly withdrawn with the liberty to approach again if needed against the original order passed by the SEC dated 10-5-2023. Thereafter, the KSEB again moved the review petition before the SEC, after issuance of direction by the State Government, when the review petitions came to be allowed and all the 4 PSAs were approved in view of public interest highlighted by the State Government in its directions issued under Section 108, Electricity Act. The review was allowed on the ground that directions by the State Government constituted “any other sufficient reasons” under Order 47 Rule 1, Civil Procedure Code, 1908 read with Section 94.
Two of the aggrieved bidders, then moved APTEL in appeal afresh challenging the order passed in review by the SEC on the ground that review jurisdiction was improperly exercised as subsequent direction issued by the State Government could not have been taken into consideration for reviewing the previous order dated 10-5-2023. APTEL allowed all the appeals; set aside the order of SEC holding broadly that review order was passed improperly and that SEC was not bound by the directives of the State Government to influence its quasi-judicial powers and exercise them in a particular manner. APTEL further held that power of regulating the price of supply/procurement or electricity must be determined solely based on Sections 62 and 63, Electricity Act, and not based on directions issued by the State Government.
Consideration of findings of APTEL by the Supreme Court
The Supreme Court concurred with the findings of APTEL that SEC could not have been influenced by the policy directions issued by the State Government, especially when it was exercising its adjudicatory functions and discretion. Referring to the judgment of A.P. TRANSCO v. Sai Renewable Power (P) Ltd.7, the Court restated that under the Electricity Act supremacy is available with the regulatory commissions and State is not expected to take any policy decision or planning which would adversely affect the functioning of the regulatory commission or interfere with its functions. The State Government has minimal role in the above said regard and that SEC is to be only guided by the directions issued by the State Government, and not automatically bound by them. The powers of the State Government under Section 108 cannot in any manner control the exercise of quasi-judicial power by the State Commission based on directions issued by the State Government.
The Supreme Court further held that even the findings of APTEL on exercise of review jurisdiction by the SEC in light of the State Government’s direction was misplaced. The parameters of exercising review jurisdiction were not properly pointed out or explained whilst allowing the review petition. It was obligatory for the SEC to have pointed out errors manifest on record serious enough to review the previous order which could not have been so reviewed otherwise. Thus, the Supreme Court declined to interfere with the order of the APTEL, setting aside the review order passed by SEC, but restored the original appeal filed against the original order dated 10-5-2023 by KSEB before APTEL. The appeal so restored was directed to be considered on all other grounds except those already decided earlier by APTEL and affirmed by the Supreme Court. The appeals were accordingly disposed of.
***
(3) Banshidhar Construction (P) Ltd. v. Bharat Coking Coal Ltd.8
(Delivered on 4-10-2024)
Coram: 2-Judge Bench of Bela M. Trivedi and Satish Chandra Sharma, JJ.
Authored by: HM Bela M. Trivedi, J.
—
This appeal arose from the judgment and order dated 18-7-2024 of the Jharkhand High Court at Ranchi, dismissing the challenge by appellant, Banshidhar Construction Pvt. Ltd. (for short, “BCPL”) to the rejection of its technical bid by Respondent 1, Bharat Coking Coal Ltd. (for short, “BCCL”). The High Court judgment upheld the Tender Evaluation Committee’s (for short, “TEC”) decision to disqualify the appellant for alleged non-compliance with the notice inviting tender, while accepting and awarding the tender to Respondent 8 (for short, “R-8”) despite its failure to submit mandatory eligibility documents within the stipulated time. The appellant sought a declaration that rejection of its bid was arbitrary and the acceptance of R-8’s bid was in breach of tender terms, and prayed for setting aside the TEC’s decision and directions for a fair tender process.
Brief facts
The appellant BCPL participated in the tender process initiated by BCCL, a subsidiary of Coal India Limited for the reopening, development, and operation of the coal mine in Bastacolla Area on a revenue sharing basis for a period of twenty-five years. The tender was floated through notice inviting tender dated 16-8-2023. The bid submission deadline was fixed as 1-12-2023, and BCPL submitted its technical and financial bids electronically before the last date with all required documents including a Board resolution and a power of attorney (for short, “PoA”) dated 7-11-2023 and notarised on 14-11-2023.
On 4-12-2023, the TEC of BCCL opened the technical bids but, subsequently on 6-5-2024, rejected the bid of BCPL for non-compliance with clause 10 of the notice inviting tender vide tender summary reports dated 7-5-2024, alleging irregularity in the PoA’s notarisation, claiming that the PoA was executed after the bid documents were signed. On the other hand, R-8 was allowed to cure the non-submission of mandatory audited financial documents (self-certified and notarised) after the deadline upon BCCL’s clarification notice, despite these documents being necessary for technical qualification.
The financial bids of the only two technically qualified bidders, BCPL and R-8, were opened on 7-5-2024, following which R-8 was declared the successful bidder. BCPL filed a writ petition challenging the decision to disqualify its technical bid and the acceptance of R-8’s bid despite its initial non-compliance. The Jharkhand High Court upheld BCCL’s decisions.
Issues for consideration
(a) Whether BCCL was justified in rejecting the appellant’s technical bid on the ground of non-compliance with clause 10 of the notice inviting tender?
(b) Whether acceptance of R-8’s bid despite the absence of mandatory documents violated principles of fairness and transparency?
Analysis of submissions
The appellant contended that clause 10 only required a notarised PoA to be uploaded before the deadline and the timing of notarisation relative to bid signing was immaterial. The PoA was uploaded on time with other documents, and the rejection was therefore hypertechnical being an unfair procedural impediment. BCPL stressed that R-8’s non-compliance with critical qualification criteria at submission, i.e. failure to furnish audited financials, was surreptitiously overlooked by permitting late submission post-bid-opening, violating a “pari materia principle of equal treatment”. The appellant argued that the decision regarding R-8’s bid should be judged in light of the “Wednesbury reasonableness principle” and the “doctrine of public trust”, insisting that administrative decisions in public procurement must not only be reasonable but also uphold public confidence by being free from arbitrariness and mala fides. The appellant relied on constitutional guarantees and precedents including Tata Cellular v. Union of India9, Sterling Computers Ltd. v. M & N Publications Ltd.10 and Ramana Dayaram Shetty v. International Airport Authority of India11 to underscore fairness and public trust.
R-8 to the contrary submitted that there was no pleading of mala fide against R-8 and courts should avoid magnifying minor procedural lapses into major errors. R-8’s contract and the coal mining agreement were significant post-decision steps relevant to project continuity. This submission was made to highlight the importance of commercial wisdom and public interest.
BCCL maintained that notarisation must precede bid signing to confer valid authority. It defended the TEC’s discretion and reliance on established tendering norms, invoking the “doctrine of limited judicial intervention” in expertise-driven administrative processes, consistent with the judgments of Central Coalfields Ltd. v. SLL-SML (Joint Venture Consortium)12 and Michigan Rubber (India) Ltd. v. State of Karnataka13. It contended that scrutiny must defer to commercial wisdom and project exigency. R-8 claimed procedural compliance through clarification mechanisms and stressed the public interest in project continuity.
Court’s analysis
The Court in its consideration extensively reviewed clause 10 and the statutory framework, holding that the notice inviting tender required notarisation to be completed before the submission deadline, rather than before the execution of each document. BCPL’s PoA complied with this requirement. The irregularity cited by TEC was not material and did not justify rejecting BCPL’s bid. Reliance was placed on Section 2, Power of Attorney Act, 1882, regarding retroactivity of authority.
Regarding R-8’s bid, the Court ruled mandatory financial documentation was an essential eligibility criterion and failure to submit it by deadline was fatal. Permitting R-8 to cure this defect after bid opening was arbitrary and constituted violation of Article 14. The Court reinforced judicial principles limiting review to arbitrariness and mala fides as laid down in the Tata Cellular case, Sterling Computers Ltd. case and Jagdish Mandal v. State of Orissa14. The Court rejected the argument that contract execution or public interest shielded arbitrary actions. The public law remedy of injunction and quashing was warranted for breach of procurement fairness. The “fait accompli” of a concluded contract was not a defence.
Further, the Court noted that procedural defects cannot be ignored merely because a contract has been executed or steps have been taken towards project implementation. The fairness of the tender process must be preserved at all stages.
Conclusion
The Supreme Court eventually held that the rejection of the appellant’s bid on the grounds of a technical irregularity related to notarisation was unwarranted and discriminatory in the circumstances. By allowing a similarly deficient bid of R-8 to be accepted and the contract awarded to them, BCCL violated the fundamental principles of fairness, transparency, and equality enshrined in the Constitution. The Court emphasised that government authorities must adhere to the essential terms of tender conditions uniformly, and any deviation or favouritism in the process amounts to arbitrary conduct, justifying judicial review. Accordingly, the Court set aside the decision of BCCL; declared the bid rejection and subsequent award as arbitrary and illegal, and directed the initiation of a fresh, unbiased tender process to uphold the principles of equitable treatment and good governance in public procurement.
***
(4) Airports Economic Regulatory Authority of India v. Delhi International Airport Ltd.15
(Delivered on 18-10-2024)
Coram: 3-Judge Bench of D.Y. Chandrachud, C.J., J.B. Pardiwala and Manoj Misra, JJ.
Authored by: HM D.Y. Chandrachud, C.J.
—
The proceedings were instituted under Section 31, Airports Economic Regulatory Authority of India Act, 2008 (for short, “AERA Act”) challenging the judgments of the Telecom Disputes Settlement and Appellate Tribunal (for short, “TDSAT”) being the Appellate Tribunal under the AERA Act, possessing the competence to hear appeals against orders of AERA. The Supreme Court answered in the present judgment the preliminary objection to the maintainability of the appeals before it on the ground that AERA being a quasi-judicial body not permitted to file appeal against the judgment of the TDSAT and therefore whether the appeals at the instance of AERA were maintainable or not. The judgment also examines the ancillary question whether AERA is a quasi-judicial authority or an adjudicatory body under the provisions of the AERA Act.
Statutory background and the essential submissions
The AERA Act is an act establishing AERA for various purposes, inter alia being regulation of tariff and other charges for aeronautical services rendered at airports; monitoring the performance standards of airports and other incidental and connected matters. Various functions of AERA have been stipulated vide Section 13 AERA Act, one of the essential ones being the determination of tariff, to be carried out on the basis of 7 factors provided under Section 13(1)(a). The tariff is to be determined once in 5 years and can be amended anytime within the 5 years in public interest. Likewise, TDSAT is a statutorily established Tribunal under Section 17, Telecom Regulatory Authority of India Act, 1997, being notified as appellate authority for the purposes of the AERA Act. It enjoys by virtue of Section 17 the original as well as appellate jurisdiction to adjudicate any dispute that arises between various class of litigants provided thereunder along with original jurisdiction against any direction, decision or order of AERA.
It was contended on behalf of the respondents that AERA can never be an aggrieved party at any stage of the proceedings and therefore incompetent to file appeal before TDSAT. Under Section 18(2) read with Section 31 AERA Act, TDSAT cannot be a “person aggrieved” by any decision, direction, or order made by the authority so as to prefer appeal before the TDSAT. AERA exercising the power of tariff determination is discharging the quasi-judicial exercise, against which no appeal lies before the TDSAT. AERA cannot be both a contesting party and the also redetermine tariff if TDSAT remands the matter back to AERA on its own appeal and it would lead to a possible operation of bias.
The AERA on the contrary contended that AERA is concerned with the outcome of the decision by the TDSAT on the aspect of “tariff determination” in its own interest as a regulatory body and in the interest of the general public. AERA is always a contesting respondent whenever its decisions are challenged before the TDSAT, even though taken as a regulatory authority. AERA is not a quasi-judicial authority in the complete sense but a regulator which performs multiple functions other than determination of tariff. There is no concept of institutional bias under Indian jurisprudence and an institution of authority is independent of its officers who act under it.
Issues for consideration
In view of the submissions on both the sides, the Court framed following issues for its consideration:
(a) whether AERA has a right to contest an appeal against its order determining tariff for aeronautical services before the TDSAT, and then consequently prefer an appeal against the order of the TDSAT before this Court under Section 31 AERA Act; and
(b) even if AERA does not have a right to contest an appeal against its order determining tariff for aeronautical services before the TDSAT, does it have a right to prefer an appeal against the order of TDSAT before this Court in terms of Section 31 AERA Act.
Appeal at the instance of “adjudicatory authority” and necessary parties in case of regulatory proceedings.
The Court then proceeded to discuss that authorities exercising quasi-judicial function cannot defend their orders in appeal and whether AERA is per se a quasi-judicial authority. Referring to the judgments of Savitri Devi v. District Judge, Gorakhpur16 Mohd. Oomer v. S. Noorudin17, Jindal Thermal Power Co. Ltd. v. Karnataka Power Transmission Corpn. Ltd.18, Hari Vishnu Kamath v. Syed Ahmad Ishaque19, Udit Narain Singh Malpaharia v. Additional Member Board of Revenue20 and Jogendrasinhji Vijaysinghji v. State of Gujarat21 and other host of judgments, the Court reiterated the proposition that a judicial or quasi-judicial authority can never be a respondent in appeal preferred against its own judgment. However, this is circumscribed by certain other factors, the first one being guided by the nature of relief sought. A judicial or quasi-judicial authority may be required to be impleaded as a party in a challenge against its order if it is a case of writ of certiorari, where the very authority, jurisdiction and power of the authority concerned is being questioned by the aggrieved party. “Judges speak only through their judgments” and every judicial authority is called upon to justify their decisions in the Court of Appeal; it breaks down the entire edifice of the judicial system. Even judicial officers cannot be impleaded in appellate proceedings arising out of any civil decisions. This is all because of the principle that authority exercising adjudicatory functions is required to be a “neutral arbitrator” which does not possess any personal interest in the outcome of proceedings before it. Drawing parallels with the Electricity Regulatory Commission (for short, “ERC”) the Court held that ERC is not required to be impleaded as a respondent in appeal against its orders, which becomes functus officio after rendering its decision in the dispute preferred by it.
However, the Court drew an exception to the above principle holding that where the statutory authority is performing both adjudicatory and regulatory functions, it may have a vital interest in the lis bearing on matters of public interest and thus be impleaded as a necessary or proper party to the appellate proceedings. A tribunal is entitled to defend its orders and appeal only if it is so provided by the law vesting powers in the Tribunal to be so impleaded in the appellate proceedings.
Referring to the judgment of Sayed Yakoob v. K.S. Radhakrishnan22, the Court held that as tribunals they were not interested in the merits of disputes in any sense and were not required to be impleaded as a party. However, in Bar Council of Maharashtra v. M.V. Dabholkar23, the Supreme Court held that the State Bar Council (for short, “SBC”) was an aggrieved person because there was no lis in the proceedings before the Disciplinary Committee of SBC. The outcome of the proceedings prejudicially affected their interest, which was acting in the statutory capacity to further and promote the rights and privileges of the advocates and the purity and dignity of the profession. Drawing parallels with the Competition Act, 2002, the Court held that the said enactment expressly provides that the Competition Commission of India (for short, “CCI”) has a right to present its case before the Appellate Tribunal, or even file an appeal before the Supreme Court against an order of the Appellate Tribunal. Since CCI is discharging its functions as a party vitally interested in the elimination of anti-competitive practices, therefore the representation of CCI becomes necessary for the effective adjudication in view of its expertise in the field. For this reason the Supreme Court in the judgment of CCI v. SAIL24, held that because of the role conferred upon it by the statute, it was a necessary party to be impleaded as respondent in appeal against its order, even if the statute did not expressly provide so.
After discussing host of judgments, accordingly the following principles were discerned and deduced by the Supreme Court as follows:
(a) an authority (either a judicial or quasi-judicial authority) must not be impleaded in an appeal against its order if the order was issued solely in exercise of its “adjudicatory function”;
(b) an authority must be impleaded as a respondent in the appeal against its order if it was issued in exercise of its regulatory role since the authority would have a vital interest in ensuring the protection of public interest; and
(c) an authority may be impleaded as a respondent in the appeal against its order where its presence is necessary for the effective adjudication of the appeal in view of its domain expertise.
Test for determining “quasi-judicial” and “adjudicatory functions” being performed by any authority
The Court then proceeded to answer whether AERA is undertaking an adjudicatory function whilst determining tariff under Section 13 AERA Act. The test to be adopted was whether the authority in question was exercising adjudicatory power or merely performing a regulatory or administrative function. Tracing the history of law laying down the tests for identifying quasi-judicial functions, the Court referred to Express Newspapers (P) Ltd. v. Union of India25, to reiterate the basic test of applicability of the principles of audi alteram partem to proceedings, coupled with the duty to act judicially on the part of the authority exercising such functions. The Court further referred to Province of Bombay v. Khushaldas S. Advani26 and Indian National Congress (I) v. Institute of Social Welfare27, to state that whenever determination of facts affecting the rights and liabilities of parties takes place, there the exercise becomes quasi-judicial in nature. However, the distinction between quasi-judicial and administrative functions has been reduced to a mere artificial formality, since all administrative functions today are presumed to be affecting the rights and liabilities of subjects before them. This is because with the evolution of the doctrine of fairness, reasonableness and non-arbitrariness post the landmark judgment in Maneka Gandhi v. Union of India28, the functional test for distinguishing between both the categories (viz. quasi-judicial and administrative) has completely disappeared. Therefore, a new test has evolved, substituting the traditional test of quasi-judicial function, the test being that the authority must be performing an “adjudicatory function”.
The question therefore is about the tests to identify whether a function is “adjudicatory in nature or not”. Referring to the Constitution Bench judgment in Shri Sitaram Sugar Co. Ltd. v. Union of India29, the Court restated that price fixation (or tariff determination) is ordinarily a legislative measure, though it may assume an adjudicatory character if it is specific to an individual case. If the fixation involves consideration of individual factors rather than broad, objective criteria and is directed towards a specific entity, it takes the nature of an adjudicatory function. The question remains is “whether the function is specific to an individual or meant for general application”. If the determination is general and policy-based, it is legislative in nature; if it is individual and fact-specific, it is adjudicatory.
Whether the tariff determination by AERA constitutes an adjudicatory or a regulatory function
Referring to the Constitution Bench judgment of the Supreme Court in PTC India Ltd. v. CERC30, in the context of the Electricity Act, 2003, the Court held that tariff determination was regarded as a regulatory function, unless the statute expressly makes such exercise quasi-judicial. Until such express conferment exists, tariff determination remains a regulatory exercise. This view was later reiterated by the Supreme Court in GRIDCO Ltd. v. Western Electricity Supply Company of Orissa Ltd.31, again in the context of the Electricity Act, 2003.
Analysing the various provisions of the AERA Act, especially Section 15 and the guidelines framed thereunder, the Court held that AERA performs a regulatory function while determining tariff under Section 13. The existence of 7 statutory factors under Section 13(1)(a) for tariff determination reflects the underlying policy considerations for assessing various parameters. AERA as a regulatory authority, is concerned with the economic viability of airports across the country and is guided by public and economic considerations which are purely non-adjudicatory. Therefore, the factors enumerated under Section 13(1)(a) are policy-based and confer upon the authority a regulatory role, not an adjudicatory one. Under Section 13(4), AERA is required to hold consultations, allowing all stakeholders to submit their views before arriving at a reasoned decision. This procedural obligation does not render the function adjudicatory, but rather, reinforces its regulatory and participatory character.
The proviso to Section 17 of the Electricity Act obligates “TDSAT to obtain the opinion of AERA on any matter relating to a dispute pending before it”. This demonstrates that AERA, being an expert regulatory body, has a definite interest in the outcome of such proceedings. Similarly, the expression “as the case may be” occurring in Section 18(5) must be read to mean that AERA cannot be statutorily excluded as a respondent in appeals against its orders before the TDSAT. Accordingly, AERA has the right to file an appeal before the Supreme Court under Section 31 AERA Act, if it is aggrieved by any order of the TDSAT affecting the tariff determined by it. In view of the foregoing analysis, the Supreme Court held that the appeals filed by AERA under Section 31 of the Electricity Act against the orders of the TDSAT were maintainable.
***
(5) Nabha Power Ltd. v. Punjab State Power Corpn. Ltd.32
(Delivered on 5-11-2024)
Coram: 3-Judge Bench of B.R. Gavai, K.V. Viswanathan and Prashant Kumar Mishra, JJ.
Authored by: HM K.V. Viswanathan, J.
—
The appeal arose from the final judgment of the Appellate Tribunal for Electricity (for short, “APTEL”) confirming the order passed by the Punjab State Electricity Regulatory Commission (for short, “SEC”). The Court limited itself to the adjudication of issue pertaining to Mega Power Policy and the effect of the Press Release dated 1-10-2009 on the execution of the PPA by the SEC.
The Central Government had issued certain exemptions from customs duty exercising powers under Section 25, Customs Act, 1962for certain goods being utilised for setting up any Mega Power Project. The Mega Power Policy of 2006 was made applicable, wherein a power project was entitled to the benefit of certain exemptions under the Customs notification if it met certain conditions provided under the policy for grant of mega power status. On the date of competitive bidding, what was invoked was the Mega Power Policy of 2006 providing various benefits like zero customs duty, deemed export benefits and income tax benefits to the power projects.
The process of bidding culminating in the execution of a power purchase agreement.
When the above legal regime was in force, on 10-6-2009, the Punjab State Power Corporation Limited (for short, “PSPCL”) through its wholly owned subsidiary and special purpose vehicle Nabha Power Limited, issued a request for proposal (for short, “RFP”) for selection of various developers through a tariff-based bidding process for procurement of power on long-term basis from the designated power stations. Under this RFP, the successful bidder was one so selected pursuant to the bidding document so issued and was required to enter a PPA and other RFP documents. In the meanwhile, Press Release titled as “Modification of Mega Power Policy” came to be issued by the Central Government, whereby certain conditions for being classified as a Mega Power Project were dispensed with and additional incentives and benefits were provided. Under the RFP, 2-10-2009 was determined as the cut-off date for consideration of change in law.
Accordingly, the bidding process was carried out and L&T Power Development Limited emerged as the successful bidder. Simultaneously the Customs Notification issued earlier on 1-3-2002 was also amended on 11-12-2009, wherein certain provisions were modified relating to exemption from customs duty for establishment of Mega Power Plants. Thereafter, Mega Power Policy of 14-12-2009 was notified, titled as “Revised Mega Power Policy”, wherein essentially mandatory condition on inter-State sale of power for getting mega power status was removed; and various other benefits, exemptions and tax incentives were provided to goods being utilised for setting up Mega Power Projects. The power-purchasing States were also required to carry out distribution reforms as laid down in the aforesaid Revised Mega Power Policy by the Central Government.
In the above backdrop on 18-1-2010, the PPA was formally entered into between Nabha Power Limited and respondent PSPCL. The respondent PSPCL sought an affidavit from the appellant for compliance of amended/modified entries as mentioned under the amending Customs Notification of 11-12-2009. At this stage the appellant claimed from respondents that benefits available in view of cabinet decision dated 1-10-2009 (published through the Press Release as mentioned supra) be made available to them. In view thereof, the requirement of an affidavit was opposed by the appellant. Ultimately after lot of correspondences the appellant submitted an undertaking in the specified format, reserving their right to contest the applicability of cabinet decision as evinced and mentioned in the Press Release dated 1-10-2009.
Proceedings before the SEC and APTEL
Eventually in May 2012 appellant approached the SEC under Section 86(1)(f), Electricity Act contending that they were entitled for benefits as announced through the Press Release dated 1-10-2009, which published the decision of the Union Cabinet regarding certain benefits, incentives and exemptions as available to Mega Power Projects. Thus, issue which the SEC was called upon to decide was — “whether the legal regime stood altered on 1-10-2009 or on 11-12-2009 or 14-12-2009 respectively?”. The appellant claimed that change in law could not be affected once it was notified and implemented on 1-10-2009 to the disadvantage/prejudice of the appellants.
The SEC held that since the formal notification of the Revised Mega Power Policy came to be issued only on 14-12-2009, therefore issuance of Press Release had no effect, and the benefit of the said revised policy cannot be granted with effect from 1-10-2009. It was only in December 2009 that the Gazette Notification notifying the decision of the Government and the Revised Power Policy was issued. The APTEL in appeal confirming the order of the SEC held that the law existing on the date of execution of the PPA was the policy of 2006 and not that of December 2009.
The APTEL accepted the respondent’s contention that cabinet’s decision as published through a Press Release dated 1-10-2009 was only the intent or proposal to implement something in future and not to give effect to the revised policy on 1-10-2009 itself. The Revised Mega Power Policy is deemed to have been issued and come into effect only from the date of its Gazette Notification, viz. on 14-12-2009 and not before.
Issue for consideration
In view of the above, the Court therefore framed the solitary issue for consideration as to whether the Press Release of 1-10-2009 announcing the decision of the Union Cabinet about approval of certain modifications envisaged in the then existing Mega Power Policy, is covered within the meaning of the expression “law as defined in clause 1.1 of the RFP/PPA and if so did the extant legal regime as on 1-10-2009 undergo a change from the said date”?
Analysis and reasoning
The Court then proceeded to answer the issue placed before it by firstly referring to clause 13.1.1, defining “change in law” and clause 13.3 regarding “notification of change in law”. The seller was required to give a notice of change in law whilst claiming any advantage being adversely affected by it by giving a notice to the procurer of such change in law. Applying the “golden rule of interpretation of contracts”, the Court held that every contractual stipulation and clause must be construed in their grammatical and ordinary sense, except in cases where modification becomes necessary to avoid absurdity, inconsistency or repugnancy. Referring to the judgments of Nabha Power Ltd. v. Punjab State Power Corpn. Ltd. 33 and Adani Power (Mundra) Ltd. v. Gujarat ERC34, the Court held that it cannot contradict any express term of the contract by applying the “business efficacy test”, but must adhere to the plain and literal interpretation of the terms in the agreement.
The Press Release dated 10-2-2009 issued by the Central Government announcing the Cabinet’s decision approving the modified Mega Power Policy did not tantamount to any order or notification in legal parlance. The Press Release never enacted, adopted, promulgated or repealed any existing law or effected any new law. Plus, the said Press Release cannot be treated as a “law” attracting the mandate of clause 13.1 of the agreement. Therefore, on the date of execution of the PPA extant policy was the Mega Power Policy of 2006 promulgated duly by the Central Government through the Ministry of Power and applicable to all PPAs. Since the said policy of 2006 was never superseded on the date of the Press Release, viz. 1-10-2009, therefore the press release cannot be treated as altering/amending or repealing the existing law. The change of law happened not with the issuance of the Press Release but with the formal notification introducing and implementing the revised Mega Power Policy. The Press Release created no vested rights on any party, as a right vests only when all the facts have occurred which must by law occur for the person in question to have the right crystallised. In the absence of any repeal of the previously issued Customs Notification of March 2002 and the Power Policy of August 2006 prior to December 2009, the repeal cannot be inferred by necessary implication. Referring further to the judgment of B.K. Srinivasan v. State of Karnataka35, the Court held that for the subordinate legislation to take effect, it must be published or promulgated in some suitable manner, regardless such publication or promulgation is not prescribed by the parent statute. It takes effect only from such date of publication or promulgation, and not otherwise.
The Court further held that the RFP itself obligated the bidder to satisfy itself about the extant legal regime before executing the PPA and the bidder appellant was bound by the said stipulation. The Court found that the Revised Mega Power Policy was notified in the gazette to be introduced with effect from 11-12-2009 itself and the Press Release could not have led to assumption that the Customs Notification of 2002 would stand amended automatically by conferral of benefits of the amended notification. Referring to the judgment of Maharashtra State Electricity Distribution Co. Ltd. v. Adani Power Maharashtra Ltd.36, the Court held that neither the decision of the Cabinet Committee on Economic Affairs, nor the Press Release can be treated as relevant date for change in law, but only that date when the Office Memorandum came to be formally issued. The judgments of SEC and APTEL were accordingly affirmed, and the appeal was dismissed by the Supreme Court.
***
(6) Indore Vikas Praadhikaran v. Shri Humud Jain Samaj Trust37
(Delivered on 25-11-2024)
Coram: 2-Judge Bench of Bela M. Trivedi and Satish Chandra Sharma, JJ.
Authored by: HM Satish Chandra Sharma, J.
The appeal arose out of an order dated 8-2-2022 of the Madhya Pradesh High Court at Indore, which set aside an earlier order of the learned Single Judge dismissing a writ petition filed by the respondent, Shri Humad Jain Samaj Trust challenging the rejection of their highest bid for leasing land by the appellant, Indore Vikas Praadhikaran (for short, “IDA”), and the issuance of a fresh tender with a higher reserve price. The Division Bench’s order directing that the land plot be allotted to the respondent upon payment of the revised reserve price fixed in the fresh tender prompted the present appeal.
Factual matrix
The appellant IDA issued an advertisement on 17-7-2020, inviting bids for leasing out land admeasuring 3,382 square meters situated in Indore with the terms and conditions specified in the notice inviting tender (for short, “NIT”) and a reserve price fixed at Rs 21,120 per square meter. The respondent emerged as the highest bidder offering Rs 25,671.90 per square meter. Upon evaluation, the Tender Committee (for short, “TC”) discovered that an outstanding property tax amounting to Rs 1.25 crores on the land in question was not considered in the initial reserve price calculation. Therefore, the TC recommended rejecting all bids and issuing a fresh tender with a revised reserve price of Rs 26,000 per square meter. The Board of IDA accepted this recommendation on 27-7-2021, and informed the respondent about bid rejection on 23-8-2021. The respondent’s earnest money was also refunded on 1-10-2021. Subsequently, a fresh NIT was issued on 17-11-2021, which the respondent did not participate in. The respondent challenged the rejection and fresh tender issuance before the High Court.
Before the learned Single Judge, the respondent argued that “by no stretch of imagination, his bid could have been cancelled as he was the highest bidder” and that he was “ready to negotiate in the matter”, submitting that the bid was cancelled without assigning any valid reason. IDA filed a detailed reply, relying heavily on the terms and conditions of the NIT, particularly Condition 6, which empowered the IDA to accept or reject any or all bids.
The Single Judge dismissed the writ petition, holding that the petitioner Trust is not entitled to any relief as no contract was executed at any point of time nor any letter of allotment was issued in its favour. Aggrieved, the respondent preferred a writ appeal. The Division Bench allowed the appeal and directed the IDA to allot the land to the respondent, if he was willing to pay Rs 26,000 per square meter, noting that the second tender attracted no bids higher than this revised reserve price. Accordingly, the Division Bench set aside the Single Judge’s order and concluded that if Respondent 1 paid the revised rate, the land to be allotted to him.
Contentions before the Supreme Court
The IDA, aggrieved by the order of the Division Bench, has preferred the present appeal before the Supreme Court. Referring to the judgments of State of Jharkhand v. CWE-SOMA Consortium38 and HUDA v. Orchid Infrastructure Developers (P) Ltd.39, the appellants argued that no vested right accrues to the highest bidder prior to acceptance and issuance of an allotment letter. In light of Condition 6 of the NIT dated 17-7-2020, the IDA was entitled to accept or reject any or all bids at its discretion. The cancellation of the respondent’s bid followed the discovery by the TC in its meeting dated 25-9-2020 of an outstanding property tax liability amounting to Rs 1,25,82,262 on the subject land, a material fact which was initially not considered in the reserve price. Taking into account the location of the plot, the property tax liability to be discharged by the Municipal Corporation, and the potential for enhanced future revenue through retendering, the rejection of the respondent’s bid was justified.
On the other hand, the learned counsel for Respondent 1 contended that as the highest bidder under the original NIT, the respondent’s bid of Rs 25,671.90 per square meter ought to have been accepted, and he should have been declared the successful bidder forthwith. It was argued that non-participation in the subsequent NIT issued on 17-11-2021 did not extinguish the respondent’s claim. Reliance was placed on the decision in Eva Agro Feeds (P) Ltd. v. Punjab National Bank40, asserting that arbitrary cancellation of a tender without valid reason is impermissible, and the writ petition rightly was allowed in favour of the respondent by the Division Bench.
Analysis of the Supreme Court and consideration
Upon thorough examination of the record and after hearing learned counsel for both parties, this Court observed that the respondent, despite having the highest bid of Rs 25,671.90 per square meter in the initial NIT dated 17-7-2020, did not acquire any vested right or concluded contract in the absence of formal acceptance or issuance of an allotment letter. The cancellation of the tender was premised upon material facts, primarily the discovery of an outstanding property tax liability amounting to Rs 1,25,82,262 on the land, which was not factored into the reserve price initially fixed by the IDA. This defect in the tender terms necessitated the lawful decision to cancel the first tender and issue a fresh tender with an increased reserve price of Rs 26,000 per square meter. The Court recognised that such actions fell within the discretionary powers vested in the IDA, as enshrined in Condition 6 of the NIT, which authorises it to accept or reject bids at its discretion.
The Court reiterated the principle established in the CWE-SOMA Consortium case and ï·ŸHYPERLINK “https://www.scconline.com/DocumentLink.aspx?q=JTXT-0000019798″Tata Cellular 41 that the scope of judicial review over administrative decisions concerning tenders and contract awards is confined to ensuring the decision-making process was not tainted by arbitrariness, mala fides, or procedural infirmity. The judiciary does not sit as an appellate authority to substitute its decision for that of the administrative body. In this light, the Division Bench’s order directing the allotment of land to the respondent, alongside fixing the reserve price, constituted impermissible encroachment upon the IDA’s administrative domain and contractual freedom. that the scope of judicial review over administrative decisions concerning tenders and contract awards is confined to ensuring the decision-making process was not tainted by arbitrariness, mala fides, or procedural infirmity. The judiciary does not sit as an appellate authority to substitute its decision for that of the administrative body. In this light, the Division Bench’s order directing the allotment of land to the respondent, alongside fixing the reserve price, constituted impermissible encroachment upon the IDA’s administrative domain and contractual freedom.
The Court further distinguished the present case from the precedent of the Eva Agro Feeds case, wherein auction was cancelled arbitrarily and without any explanation constituting manifest unfairness. Contrarily, in the instant matter, the cancellation was undertaken in good faith to rectify a fundamental error in the initial tender terms and with proper reasons. Moreover, the respondent’s decision to abstain from participating in the fresh tender process further undermined any claim to a vested right to allotment.
Conclusions
Accordingly, the Court set aside the impugned order dated 8-2-2022 by allowing the appeal before it. The appellant IDA was held entitled to issue a fresh NIT for disposal of the subject land, thereby ensuring adherence to fair competition and maximising public revenue. The Court further directed disposal of the land be affected in future solely through public auction or issuance of fresh tenders, in accordance with applicable statutory and contractual provisions. Absent acceptance of the bid and allotment letter issuance, no vested right in favour of the respondent accrued simpliciter by virtue of being the highest bidder.
***
(7) Celir LLP v. Sumati Prasad Bafna42
(Delivered on 13-12-2024)
Coram: 2-Judge Bench of J.B. Pardiwala and Manoj Misra, JJ.
Authored by: HM J.B. Pardiwala, J.
—
The petitions were filed under the provisions of the Contempt of Courts Act, 1971 (for short, “COC Act”) read with Articles 129 and 142(2), Constitution of India seeking institution of contempt proceedings against the respondents contemnors for disobedience of the earlier final judgment of the Court passed in Celir LLP v. Bafna Motors (Mumbai) (P) Ltd43., There were four different parties to the contempt proceedings, viz. the petitioner as the successful auction purchaser; Respondent 1 (R-1) as original borrower, Respondent 4 (R-4) as a Director of a company, Respondent 2 (R-2) as a subsequent transferee/third-party purchaser of the auctioned property from the original borrower and lastly Respondent 3 (R-3) as the bank which was a secured creditor being the lender institution.
Factual matrix pertaining to the facts up to the final judgment dated 21-9-2023
The original borrower had availed credit facilities from the R-3 bank from time-to-time, in lieu of which a mortgage was created on a parcel of land admeasuring 16,200 square metres with super structure standing on it. The borrower defaulted in repayment of the said loan borrowed by it, when the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “SARFAESI Act”) proceedings were instituted against him with the lender bank taking symbolic possession of the secured asset. Eventually there were multiple rounds of auction, which failed for want of successful bidding for auction of the mortgaged property over and above the reserved price, with 8 attempts of auction having failed. In the 9th attempt the reserve price was fixed at Rs 105 crore and this time the auction was successful, which was made subject to the outcome of securitisation proceedings pending before the Debts Recovery Tribunals (DRT). The petitioner in this 9th auction was the successful highest bidder, who resultantly became the auction purchaser and deposited the necessary earnest money and 25% of the bid amount within the time-frame prescribed by the bank.
The proceedings in the meanwhile remained pending before the DRT, which reserved for final orders its judgment after prolonged final arguments. In the meanwhile, the borrower approached the High Court challenging the auction sale convened by the bank, whilst permitting the borrower to redeem the mortgage of the secured asset. However, the legality of the 9th auction, successfully executed in favour of the petitioner was never challenged on any ground, nor the auction/sale notice preceding thereof. The borrower expressed their willingness before the High Court to pay up total sum of Rs 129 crores for redeeming the mortgage by 31-8-2023 which was accepted by the bank and the High Court eventually through its judgment allowed the borrowers to redeem the mortgage of the secured asset subject to payment of the conceded amount. Against the judgment of the High Court, appeals were preferred, in which no interim stay or status quo was granted initially. During the pendency of the said special leave petition (SLP), the entire amount was paid by the original borrower, with the bank allowing him to redeem the whole property by releasing it from the mortgage through a registered release deed. On the very same day, the property was transferred by the borrower to the third parties through a registered transfer deed, viz. to R-2 and R-4.
The Supreme Court through its final judgment dated, 21-9-2023 (which is a subject-matter of contempt proceedings) eventually set aside the High Court order holding that borrower could not have been permitted to redeem the mortgage after successful conclusion of the auction sale by the bank and accordingly the petitioner was directed to pay the entire amount to the bank, whereafter the bank was directed to issue the sale certificate formally in favour of the borrower. The appeal thus came to be allowed filed at the behest of the petitioner by the Supreme Court earlier.
Subsequent developments and acts alleged to constitute contemptuous conduct of the respondents.
After the appeal was allowed as aforestated by the Supreme Court, multiple attempts were made both by the bank as well as the petitioner to seek physical possession of the subject property, which however proved to be of no avail. A civil suit was also instituted by the subsequent transferees of the borrower seeking a declaration that they are the owners and title-holder of the secured asset (sold in auction to the petitioner). The borrower on the other hand preferred Section 17 applications before the DRT challenging the grant of possession order passed under Section 14 by the District Magistrate in favour of the bank permitting the transfer of physical possession from the original borrower in the hands of the bank. The civil court meanwhile directed status quo to be maintained and restrained the bank from taking any steps towards obtaining the physical possession of the secured State on the suit filed by the subsequent transferees.
The dubious action of the borrower respondent and all the subsequent transferees which took place admittedly after the final judgment of the Court constrained the petitioner to approach the Supreme Court with the present contempt petitions. The petitioner contended before the Supreme Court that aforementioned acts constituted abject refusal on the part of the borrower and the subsequent transferees to comply with the directions of the Supreme Court passed in the earlier judgment, constituting a contempt in itself. The original borrower and the subsequent transferees all acted in tandem with each other to frustrate the implementation of decision of the Supreme Court by misleading various authorities and instituting proceedings before different forums and thereby thwart any attempt of the petitioner to obtain physical possession and original title deeds of the secured asset sold in auction to them.
Issues for determination
After hearing all the parties, the Court framed various issues and questions for its consideration, as follows:
(i) Whether any act of contempt could be said to have been committed by Respondents 1 to 4 respectively of the judgment and order dated 21-9-2023 passed by the Court? In other words, whether the respondents in light of the aforesaid decision of this Court were duty bound to cancel the release deed dated 28-8-2023 and hand over the physical possession along with the original title deeds of the secured asset to the petitioner herein?
(ii) Whether, the proceedings arising out of S.A. No. 46 of 2022 could have continued after the Court’s judgment and order dated 21-9-2023 directing the issuance of the sale certificate of the secured asset to the petitioner herein? In other words, whether the petitioner by virtue of the sale certificate dated 27-9-2023 is said to have acquired a clear title to the said property?
(iii) Whether the transfer of the secured asset in favour of the subsequent transferee by way of the assignment agreement dated 28-8-2023 is hit by lis pendens? In other words, whether the absence of any registration in accordance with Section 52 TPA as amended by the State of Maharashtra renders the lis pendens inapplicable?
Abuse of process of court and collateral challenge to the auction in different forums despite the final judgment
The borrower as stated above never challenged the legality of 9th auction sale, nor the sale certificate issued in favour of the petitioner initially. So much so, no pleadings are also not there in the writ petition filed originally before the High Court attributing illegality to the said 9th auction proceedings by the original borrower. The High Court also whilst allowing the writ petition (which judgment later came to be set aside) had also observed that proceedings pending before the DRT do not survive since the adjudication is being done by the High Court itself. The borrower thus waived their right to pursue the SARFAESI proceedings before the DRT, which was also not reserved by the High Court as being open and available to the original borrower. Having therefore waived/abandoned its right to challenge the legality or validity of the 9th auction proceedings, the right to pursue their remedy before the DRT also stood disappeared. By virtue of the doctrine of election, once the borrower chose High Court as the forum for espousing his grievance, it was obligatory for him to bring within the fold all the possible issues and grounds in respect of the validity of the said auction. His failure to do so cannot lead to a second bite at the cherry and relitigating what he has already litigated before the High Court in the previous round.
Even before the Supreme Court when the judgment of the High Court was being defended, the borrower never took any grounds alleging the inherent invalidity of the 9th auction proceedings. Even in the review petition preferred by the borrower, the Supreme Court found that such a ground was missing.
“Henderson principle” and “constructive res judicata”
The Court then proceeded to discuss the “Henderson principle”, also popularly known as “constructive res judicata” contained under Explanation VII to Section 11 CPC. This principle addresses the issue of multiplicity in litigation and obligates any party to raise all claims and issues that could and ought to be raised in any litigation, which cannot thereafter be allowed to be relitigated in subsequent proceedings. Referring to the judgment of Henderson v. Henderson44, the Supreme Court held that parties whenever they are litigating are required to bring forward their whole case; they are not permitted to reopen the lis in respect of issues which might have been brought forward as part of the subject in contest, but were not so brought forward. Referring further to the judgment of Johnson v. Gore Wood & Co.45, the House of Lords had held that such a conduct of the party of relitigating the issue amounts to misusing or abusing the process of Court as a means for unjust harassment to his adversary. The underlying public interest of any suit proceeding is that there should be finality in litigation and party should not be vexed twice in the same subject-matter.
The “Henderson principle” was approvingly referred and applied by the Indian Courts in State of U.P. v. Nawab Hussain46 and Devilal Modi v. STO47. The Supreme Court has held that the underlying rule of constructive res judicata is applicable equally to writ proceedings and is consistent with considerations of public policy. The Court discussed four situations wherein second and subsequent proceedings between the same parties, the doctrine of constructive res judicata and bar against abuse of process may be invoked: (i) cause of action estoppel, where the entirety of a decided cause of action is sought to be relitigated; (ii) issue estoppel or, “decided issue estoppel”, where an issue is sought to be relitigated which has been raised and decided as a fundamental step in arriving at the earlier judicial decision; (iii) extended or constructive res judicata, i.e. “unraised issue estoppel”, where an issue is sought to be litigated which could, and should, have been raised in a previous action but was not raised; and (iv) a further extension of the aforesaid to points not raised in relation to an issue in the earlier decision, as opposed to issues not raised in relation to the decision itself.
Accordingly, the Court held that conduct of borrower in the present case was nothing, but an abuse of process being hit by the bar of constructive res judicata. The plea of the borrower that previous round of proceedings never assailed the validity or legality of 9th auction proceeding is nothing but a textbook case of abuse of process of law, since it amounted to deliberate fragmentation of issues for being litigated piecemeal. By accepting such an assertion, the Court indirectly accepts the assertion that the whole judgment delivered already in the previous round is flawed and Court could have made declaration on each issue fundamental to the ultimate decision.
The Supreme Court then proceeded to discuss the applicability of doctrine of election as an extension of rule of estoppel to the various litigations instituted at the behest of original borrower. Holding that one cannot approbate and reprobate simultaneously, the doctrine of election implies that a person gets precluded by his actions or conduct or silence when he does not assert a right on the occasion available to him which he otherwise would have had. Taking inconsistent pleas by any party, makes its conduct far from satisfactory and that parties cannot blow hot and cold by taking inconsistent stands and prolonged proceedings unnecessarily. Since the borrower never asserted for revival of the DRT proceedings on the validity of the sale certificate, nor ever paid for the same, approaching and reopening the remedy of DRT for the same cause of action clearly amounted to circumventing the decision of the Supreme Court already rendered previously and collaterally challenged the determination of rights therein. The Supreme Court had never held that sale certificate so issued to the petitioner was subject to outcome of the DRT proceedings, and therefore approaching the DRT again for a declaration of its invalidity was impermissible.
“Doctrine of lis pendens” and its applicability in view of the Maharashtra State Amendment to, Section 52, Transfer of Property Act, 1882
The Court then elaborated the concept of lis pendens as implying that nothing new can be introduced during the pendency of any petition, and if at all anything new is introduced, the same would be subject to final outcome of the petition. The only exception is when the said property is transferred under the authority of the Court, and on terms imposed by it. Even if the third party to whom the property is transferred is not a party to the proceedings, it is bound by the result of the same, even if the third party did not have any notice of the suit of proceedings. Referring to the judgments of Jayaram Mudaliar v. Ayyaswami48 and Sanjay Verma v. Manik Roy49, the Court held that lis pendens rests the Court with the control or dominion over the subject-matter of litigation, so that it cannot be removed outside the power of the courts to deal with it at the end of the pending litigation. No party can claim exemption from the application of this doctrine on the ground of bona fide or good faith. Section 52 TPA applies to all purchasers during the pendency of the suit proceedings, irrespective of the suit property being purchased in good faith or not. The transfer made during the pendency of such proceedings is always subject to the final result of the litigation. Therefore, since the assignments and transfers were made by the original borrower of the secured asset in favour of all the subsequent transferees on the date, when proceedings were pending before the Supreme Court, the transfer would clearly be hit by lis pendens. The Maharashtra State Amendment to Section 52 requires a requirement of registration of notice of pendency in respect of any property which is the subject-matter of such litigation. The Court held that such provision cannot override the “doctrine of lis pendens”, as it would be against the principles of equity and public policy. Subsequent purchasers cannot as a matter of absolute right claim any title to the property solely on the ground of want of registration of any notice of pendency. Thus, Section 52 would not ipso facto be rendered inapplicable, merely because the notice of pendency is not registered. Rather it would always be the discretion of the Court to scrutinise and examine whether the doctrine ought to be applied with or not when the notice is not registered.
The Supreme Court found that the subsequent transferees despite being aware of the pending proceedings before it never bothered to get themselves impleaded itself as a necessary party and therefore applying the “doctrine of pari delecto” (in equal fault, the law aids neither party) the subsequent transferee was not entitled for any benefit when it was equally at fault of not being impleaded in the suit proceedings. The Court whilst exercising contempt jurisdiction can always pass directions for reversal of the transaction in question that had taken place lis pendens by declaring such transactions to be void and unenforceable. Thus, the third-party rights which were created by the original borrower were held to be void, without any legal sanctity.
On the issue of whether conduct of the original borrower and the subsequent transferees amounted to contempt, the Court held that whenever any order of the High Court is set aside, it is not necessary that express direction must be issued for each and every aspect of the decision. The parties are duty-bound to act with common sense and to ensure that order of the Court is obeyed in both letter and spirit. Even the courts and tribunals should not venture to examine and interpret the orders of superior courts and the impact on their proceedings, as the same would amount to relitigating the very same issue. Rather the parties must be delegated to seek clarification from the Supreme Court, which passed the order and adjourned to further proceeding sine die. The borrowers and subsequent transferees were therefore found to have acted in gross contempt of the directions of the Supreme Court, but the Supreme Court let them off by directing them to comply and transfer the physical possession of the mortgaged property in favour of the petitioner.
Setting aside of auction sale after confirmation
The Court then addressed an important aspect as to when the sale of secured asset can be set aside after auction, when the sale has been confirmed. Referring to the judgments of B. Arvind Kumar v. Govt. of India50, LICA (P) Ltd. v. Official Liquidator51, Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd.52, Ram Kishun v. State of U.P.53, PHR Invent Educational Society v. UCO Bank54 and V.S. Palanivel v. Sri Lakshmi Hotels (P) Ltd. (Liquidator)55, the Court reiterated the following principles with respect to setting aside of public auction after the sale has been confirmed, either by the Court or by the authority conducting it:
(a) When the auction sale is confirmed, the sale becomes absolute and the title thereby vests in the auction purchaser. The purpose of open auction is to get the most remunerative price with the highest possible public participation, thereby restricting the discretion of the courts in interfering with them until and unless it suffers from any fraud, inadequate pricing or under bidding. Interference of courts must always be fettered with circumspection and cannot be set at naught lightly and on ordinary grounds. Where public money is to be recovered, such recovery should be done expeditiously, in accordance with the procedure prescribed by the law. Unless fundamental procedural error has occurred or sale certificate had been obtained by misrepresentation or fraud, the auction sale cannot be set aside.
(b) Courts must scrutinise the seriousness of the objection raised to the validity of the auction sale and not every irregularity or procedural lapse will upset or invalidate the auction sale.
In the present case, apart from the ground that there was a lack of 15 days gap between the notice of sale and notice of auction no other legality was imputed to 9th auction proceedings by the original borrower. Further during the previously convened 8 auctions, the borrower never made any endeavour to redeem the mortgage or showed any interest in relation thereto. It is only when the 9th auction got successful, that the original borrower suddenly woke up and got interested in redeeming the property. Therefore, mere irregularity or deviation from a rule, which does not have any fundamental procedural error cannot nullify the validly convened auction proceedings and courts must be mindful in interfering with such auctions where no substantial injury seems to have been caused on account of such irregularity. Accordingly, the Court held that the 9th auction proceeding did not suffer from any fundamental error as to nullify and declare the auction proceedings as illegal.
Restitutory powers of the court in contempt proceedings
Referring to the judgments of Mazdoor Sangh v. Baranagore Jute Factory Plc., 56 and State Bank of India v. Vijay Mallya57, the Court held that in contempt proceedings, court not only has a duty to issue appropriate directions for remedying or rectifying the things done in violation of its orders but also the power to take restitutive measures at any stage of the proceedings. The majesty of law demands that appropriate directions be issued by the Court so that any advantage secured as a result of such contumacious conduct is completely nullified. The benefits reaped by the contemnor do not enure to or continue to the advantage of the contemnor or anyone claiming under him.
Accordingly, the Supreme Court set aside the sale effected by original borrower in favour of third parties/subsequent transferees and directed for handing over of physical possession along with original title deeds in the hands of the petitioner. The 9th auction proceedings so convened in favour of the petitioner were also confirmed and title conferred by the sale certificate issued by the bank was declared to be absolute.
***
(8) Noida Toll Bridge Co. Ltd. v. Federation of Noida Residents Welfare Assn.58
(Delivered on 20-12-2024)
Coram: 2-Judge Bench of Surya Kant and Ujjal Bhuyan, JJ.
Authored by: HM Surya Kant, J.
—
The appeal arose out of judgment of Allahabad High Court at the instance of Noida Toll Bridge Company Ltd. (for short, “NTBCL”), which through its judgment impugned held Articles 13 and 14 of the concession agreement to be bad in law and restrained NTBCL from living and recovering user fees or toll upon commuters using the DND flyway. The dispute revolved around interpretation of provisions of concession agreement dated 12-11-1997 (for short, “concession agreement”) executed between NTBCL, the New Okhla Industrial Development Authority (for short, “NOIDA”) and the Infrastructure Leasing and Financial Services (for short, “IL&FS”). Vide the concession agreement, NTBCL was appointed as the authority for implementation of the DND flyway, including the levying and collection of tolls from the commuters using the same.
Necessary facts
One memorandum of understanding (MoU) was entered into between NOIDA, Delhi administration and IL&FS for construction of the DND flyway for enabling non-governmental investment in infrastructure development. The DND flyway was proposed to be developed as a build own operate transfer (for short, “BOOT”) basis. In the concession agreement NOIDA and IL&FS were the “sponsors” and NTBCL was the “concessionaire”. The respondent Federation of Noida Residents Welfare Association and Others is a registered association of residents of various residents of Noida District. The respondent approached the High Court through a public interest litigation (PIL) writ petition seeking a direction of discontinuance of toll charged from the users of Delhi—Noida Direct (DND) flyway as also annulment of both the MoU as well as the concession agreement. The High Court allowing the writ petition, through its final judgment held Articles 13 and 14 to be arbitrary and invalid in law, for violating Article 14, Constitution of India.
When the appeal was preferred before the Supreme Court, on 11-11-2016 the Court directed the Comptroller and Auditor General (for short, “CAG”) to verify and provide necessary statistical facts pertaining to total project cost and submissions of excessive charging of toll from the commuters by NTBCL.
Issues for consideration
After recording the rival contentions of all the contesting parties, the Court framed following issues for its consideration, paraphrased as follows:
(i) Whether the writ petition purportedly filed in public interest was maintainable before the High Court?
(ii) Whether the non-floating of tenders was justified in the instant case?
(iii) Whether the power to levy fees could be delegated to the appellant and if so, whether it was a case of excessive delegation?
(iv) Whether Article 14 of the concession agreement read with the formula used therein is opposed to public policy?
(v) Whether the total project cost and returns thereon have been recovered by the appellant?
(vi) Whether Noida is entitled to recover dues from the appellant, in regards to the display of outdoor advertisements?
Maintainability of the writ petition and locus standi of the respondent
The Court proceeded to adjudicate the preliminary issue of maintainability of the writ petition PIL, locus standi of the respondents and other such issues affecting the very maintainability of the writ petition.
On the issue of locus standi of the respondent PIL petitioner, referring to the judgments of Chennai Metropolitan Water Supply and Sewerage Board v. T.T. Murali Babu59 and Ramana Dayaram Shetty v. International Airport Authority of India60, the Court held that it was always looked beyond the surface to assess whether the litigation has been genuinely initiated in the interest of the public or as a result of mischief. The essence of PIL lies in its aims to remedy genuine public wrongs or injuries rather than being driven by personal vendetta or malice. Thus, since the respondents approach the High Court in good faith for safeguarding the interests of Noida residents being subjected to unreasonable toll by the appellants, therefore they clearly had locus standi to maintain the writ petition before the High Court.
Examining the preliminary objection of delay and laches on the part of respondent petitioner in approaching the High Court for challenging the MoU and concession agreement executed way back in 1992 and 1997 respectively, the Court held that law of limitation does not apply to writ proceedings. In the present case, the cause of action for the respondents arose actually only after a reasonable period when the project proponent had recovered the actual cost of the project after executing the project for a reasonable time. The report of the CAG furnished before the Court also demonstrated that perhaps members of Respondent 1 association were being subjected to illegal toll by the concessionaire and illegal levying of such user fees or tolls constituted a continuing cause of action. Delay and laches therefore became a hyper technical objection, which was clearly untenable.
On the objection relating to limited scope of judicial intervention in commercial contract matters, the Court held that even in matters concerning contracts or monetary claims writ petitions are maintainable wherever State action is challenged as arbitrary or capricious. Referring to the judgment of Joshi Technologies International Inc. v. Union of India61, the Court held that courts are justified in intervening for ascertaining and determining whether State has adhered to the principles embodied under Article 14, Constitution of India. In the present case, the concession agreement involved various public authorities and their conduct, which clearly is subject to judicial scrutiny. Further the contract was one which significantly impacted the public and the Court observed that if on scrutiny it finds that the contract disproportionately favoured a private entity at the expense of public welfare, then judicial intervention or review cannot be held to be restricted.
Validity of the concession agreement awarded to NTBCL
The Court found that NTBCL had entered into an agreement with Noida to execute a project, which involved an overwhelming public element comprising public funds and public assets. Thus, the fundamental requirement was that such a project must have been grounded in a just, transparent and well-defined policy known to the public beforehand much in advance and free from bias or favouritism. The Government must not be found acting in a manner benefiting private entities at the expense of the State, lest it would undermine the State’s constitutional obligations. In the above backdrop, the Court found that the concession agreement executed between Noida, IL&FS and NTBCL was conspicuously silent regarding issuance of any tender or inviting bids from other competitors. Referring to the judgments of City and Industrial Corpn. of Maharashtra Ltd. v. Shishir Realty62 and Meerut Development Authority v. Assn. of Management Studies63, the Court held that courts are justified in reviewing cases where the terms of invitation of any tender appear tailored to favour a particular person or entity and to ensure that bias or favouritism does not infiltrate the bidding process. Government procedures or policies must not merely enrich private entities by overshadowing public interest and therefore it is imperative for the Court to scrutinise whether such actions vitiate the constitutional mandate of equality.
The Court found in the context of circumstances at hand that there was no basis at all to claim that following a transparent process of inviting a tender for awarding of the whole contract would have been detrimental to the proposed project. NTBCL was a non-existent entity on the date of execution of the MoU between Noida and IL&FS, which came to be incorporated only 4 years after the execution of the MoU. Thus, the justification tendered by NTBCL that there was no other infrastructure development company at the time when the whole project was conceived is a self-serving claim by an entity who is a sole beneficiary of the State largesse. Thus the selection of NTBCL without following any proper procedure and without a transparent process of tendering was nothing but an opaque device resorted to in contravention of Article 14, Constitution of India.
Delegation of power to levy fees or toll and its validity
The Court then proceeded to examine various clauses, in particular clause 13 of the concession agreement, which authorised NTBCL to collect fees/toll from various commuters of the DND flyover. It found that on the date of execution of the concession agreement, Section 6, U.P. Industrial Area Development Act, 1976 was applicable, wherein NOIDA as an authority was authorised to levy tolls and collect fees in the manner so prescribed. Section 6-A was introduced through Amending Act of 1999, w.e.f. 14-8-1998, wherein the authority was authorised to delegate the powers of collecting tolls towards the maintenance of any infrastructure or amenities. Section 6-A permitted delegation of authority only to “collect taxes or fees levied by the authority”, but not the delegation of the very power to “levy taxes or fees”. The power to levy taxes or fees remained exclusively vested in the authority even after introduction of Section 6-A, and what could have been delegated was the power only to “collect such taxes or fees”, which could not have been delegated to any person with whom agreement for maintenance of infrastructure or amenities was executed. Thus, NOIDA was found to have grossly overstepped its authority by delegating the very “power to levy fees” to NTBCL through the concession agreement, thereby exceeding the scope of its delegation. The Court found that power to delegate must always be expressly discernible in the principal act itself and in the absence of such provisions, no circuitous method can be adopted to extract such power. Not only the NTBCL was delegated with the power to levy such tolls and charges, but also to revise the same from time to time. The provisions of the concession agreement therefore became ultra vires the provisions of the 1976 Act, which were otherwise vested in public authorities. The findings of the High Court in this regard were affirmed and upheld by the Supreme Court.
Invalidity of Article 14 of the concession agreement as being opposed to public policy
The Court then proceeded to examine the validity of Article 14 of the concession agreement titled “Total Cost of the Project”, wherein a calculation methodology was provided. The Court found that various stipulations of Article 14 provided for continual escalation of total project cost thereby transforming the concession agreement into a perpetual arrangement ensuring that NTBCL would never return the assets to NOIDA even after 100 years. Article 14 was thus of perpetual in nature, permitting NTBCL to recover user fees/toll indefinitely, and therefore became opposed to public policy, being inherently unjust and arbitrary and liable to be severed from the concession agreement. It was also found to have violated the principles of financial propriety. NTBCL did not apply economic prudence and allowed liberal increases in benefits, concessions and remuneration to its employees, management and contractors, etc. which led to continuous increase in the total project cost due to the formula contained under clause 14. The drafting of Article 14 appeared to be a collusive exercise involving various officers of IL&FS, NTBCL and that of NOIDA authority. The formula outlined under Article 14 read with Annexure F of the concession agreement therefore was palpably unreasonable and contravened Article 14, Constitution of India.
Clauses 2.3 and 2.4 permitted repeated two-year extensions until full recovery of the total project cost is realised, which also proved that the concession agreement was cleverly designed to remain perpetually operational. Contracts loaded with such unreasonable terms were held to be undoubtedly opposed to public policy and be accordingly adjudged void. The Court accordingly invoked the doctrine of severability for severing the incurable parts of the contract from the whole.
The Court also found that there was never any independent valuation of competing claims of total project cost as calculated by NTBCL, which was done for the first time in the report submitted before the Court by the CAG after carrying out a detailed audit. Referring to the judgment of Mandsaur Transport Assn. v. State of M.P.64, the Court held that no person or entity can be allowed to make undue and unjust profit from public property at the cost of the public at large. There was no reason for the collection of the toll to continue if the State Government (or the concessionaire) had recovered the cost of construction and maintenance several times over. Thus, the public was clearly held to have been defrauded in the overall manner of calculation of total project cost and continual recovery of toll fees from commuters of the DND flyover.
Accordingly, the Court concluded by holding that clause 14 of the concession agreement was not only unreasonable, but also unfairly worded and liable to be declared invalid.
Conclusion and directions
Accordingly, after undertaking a detailed comprehensive analysis of the whole matter and various stipulations of the concession agreement, the Court returned the following conclusions and directions in the matter:
(a) The High Court was held to have rightly entertained the writ petition, which was clearly maintainable as a PIL and there were no delay and laches in approaching the High Court.
(b) The contract awarded to NTBCL through the concession agreement by the State authorities and NOIDA was unfair, unjust and inconsistent with constitutional norms, with clauses 13 and 14 being inherently unconstitutional and arbitrary in nature, being opposed to public policy.
(c) NTBCL has already recovered the project cost and earned substantial profits from the whole project, eliminating any justification for the continued imposition or collection of user fees or tolls from the various commuters.
Accordingly, the appeal was dismissed by answering all the issues against the appellant.
———
(9) Rewa Tollway (P) Ltd. v. State of M.P.65
(Delivered on 19-7-2024)
Coram: 2-Judge Bench of Vikram Nath and Ahsanuddin Amanullah, JJ.
Authored by: HM Vikram Nath, J.
The appeals arose out of the judgment passed by the High Court of Madhya Pradesh in batch of petitions, wherein the primary question was as to “whether a transaction where the right to collect tolls is given in lieu of the amount spent by the concessionaire in the construction of roads, bridges, etc. under the build—operate—transfer (for short, “BOT”) scheme amounts to a “lease” as contemplated under Section 105, Transfer of Property Act, 1882 (for short, “TP Act”) and Section 2(16), Stamp Act, 1899 (for short, “Stamp Act”)?”. Further question also arose about the extent of liability of the lessee concessionaire to pay stamp duty for the execution of the contract under proviso (c) to clause (c) of Entry 33, Schedule 1(A) to the Stamp Act, amended through amending Act of 2002.
Necessary facts
Madhya Pradesh Rajya Setu Nirman Nigam Limited (for short, “MPRSNN”) invited tender for reconstruction, strengthening, widening and rehabilitation of road situated at Satna, Maihar, Parasimod and Umaria. In pursuance of the tender, bid of the appellant was accepted and letter of acceptance was issued in August 2002. Around the same time of the concession agreement, Entry 33 of Schedule 1(A) underwent amendment with the insertion of proviso (c) to clause (c), wherein the levy of stamp duty was fixed at the rate of 2 per cent of the amount spent on the project relating to agreement to lease and right to collect the toll. Accordingly, in view of the amended provisions of Entry 33, the Collector (Stamps), Bhopal directed for recovery of deficit stamp duty amounting to Rs 1.08 crores and recovery notice was also issued in pursuance thereof levying the stamp duty at the rate of 2 per cent on the agreement. The challenge laid by the petitioners to the said levy and recovery of stamp duty before the High Court failed, against which the appeal was preferred before the Supreme Court.
Contentions and consideration of the issues by the court
The petitioners contended that “concession agreement does not qualify to be a lease”, to be subjected to the rate of stamp duty under the provisions of the TP Act. It was further contended that in view of the doctrine of promissory estoppel and legitimate expectation, the State Government was estopped from levying stamp duty as amended under the schedule, as the Chief Secretary had earlier issued a clarification with respect to agreements executed under the BOT scheme that stamp duty shall not be payable on such agreements in the State of Madhya Pradesh. It was throughout the intention of the State not to charge stamp duty and treat concession agreement as a license simpliciter, but unfortunately the said agreement had been treated as a lease. Further after March 2008 all the BOT scheme agreements have been executed on a stamp paper of Rs 100 and therefore, the petitioners claimed that their agreement should also have been exempt from payment of stamp duty. All other agreements after March 2008 had been exempt from payment of stamp duty.
The respondents on the other hand contended that the concession agreement qualifies to be a “lease” under the Section 2(16), Stamp Act, of which includes any instrument by which tolls of any description are let.
Court then analysed the history of stamp duty payable on the lease agreements under the Stamp Act, which was originally 8% of the market value under Entry 22 of Schedule 1(A) of the Stamp Act. However, after insertion of the proviso through the amendment, stamp duty chargeable on the lease under BOT project for tolls/bridges came to be quantified at 2 per cent of the amount spent by the lessee and thus in a way the rate of stamp duty was reduced from 8 per cent to 2 per cent, that too on the amount spent by lessee.
Interpreting the “doctrine of legitimate expectation” as argued by the petitioners to be applicable to the case, the Court held that the said doctrine simply provides a framework for judicial review of executive actions, policy changes, and legislative decisions. At the highest it entitles the applicant of a right to a fair hearing before a decision negating a promise or withdrawing an undertaking from which an expectation of a certain outcome or treatment arises. The said doctrine nowhere creates any absolute right to the/of the expected outcome. Whenever an expectation is deemed legitimate on the part of party pleading advantage of the same, it entitles the individual with the chance to be show-caused before the expectation is denied and receive an explanation for the denial. However, it is not necessary that legitimate expectation may always result in relief, particularly when public interest, policy changes, or other valid reasons justify deviation from the expected course of action. Therefore, the “doctrine of legitimate expectation” at the highest serves only as a procedural safeguard ensuring fairness in administrative decisions and policy changes. The government’s authority to revise policies in public interest always remains paramount, with the interference by the judiciary available only when arbitrariness, unreasonableness or lack of public interest exists.
On the contention relating to applicability of “doctrine of promissory estoppel”, the Court held that being an equitable doctrine, it cannot be invoked against the exercise of legislative power. Referring to the judgment of Hero Motocorp Ltd. v. Union of India66, the Court reiterated that no estoppel exists against the legislature or the government exercising powers in public or sovereign capacity. A prior executive decision cannot bar the State Legislature from enacting a law or framing any policy contrary to or in conflict with the previous executive decision in furtherance of any larger public interest. Therefore, the contention of promissory estoppel on the part of, restraining the change of decision by the State Government was also turned down by the Supreme Court.
The Court then examined the next contention as to whether the concession agreement is a “lease” or a “bond” or a “license”. Referring to various provisions of the TP Act, the Court held that any instrument through which tolls of any description are being let out, falls under the category of “lease”. Referring to the judgments of Associated Hotels of India Ltd. v. R.N. Kapoor67, the Court reiterated that the expression “lease” under the Stamp Act has a wider meaning as compared to its original meaning contained under Section 105 TP Act. Vide Section 2(16), Stamp Act, lease includes various categories of documents set out therein. By fiction, any instrument through which tolls of any description are let is considered as a lease for the purpose of payment of stamp duty under the Stamp Act. Accordingly, the view taken by the High Court was affirmed by the Supreme Court treating the concession agreement as a lease agreement.
The Court then proceeded to determine the plea regarding levy of excess stamp duty contrary to the provisions of the Entry 33, proviso (c) to clause (c). The Court found that the liability of the lessee to pay any stamp duty on the concession agreement is restricted to the amount spent on his part and not spent by the lessor or any other stakeholder. The total cost of the project vis-à-vis the amount spent by the lessee must be seen, on which only the stipulated rate of stamp duty is applicable. The Court further found that the amount spent by the lessee on the concession agreement was not exactly 50 per cent of the total amount but slightly different. Accordingly, the Court relegated the matter to the Collector (Stamps) for adjudication of the precise amount payable as stamp duty by the concessionaire. If any excess stamp duty was found to have been paid or realised by the Government, it was directed to be refunded within a period of two months from the date of final determination by the Collector.
Accordingly, the appeal was partly allowed by the Supreme Court with the aforesaid directions.
*Expert in constitutional, civil and commercial laws and practising Advocate at the Supreme Court of India.
**3rd year student, Dharmashastra National Law University, Jabalpur.
17. 1951 SCC OnLine Bom 87 : AIR 1952 Bom 165.
20. 1962 SCC OnLine SC 130 : AIR 1963 SC 786.
25. 1958 SCC OnLine SC 23 : 1959 SCR 12.
44. (1843) 3 Hare 999.
47. 1964 SCC OnLine SC 17 : AIR 1965 SC 1150.
51. (2000) 6 SCC 79 : (1996) 85 Comp Cas 788.