In its recent judgment delivered in U.P. Power Transmission Corporation Ltd. v. CG Power and Industrial Solutions Ltd., the Supreme Court made certain observations as to the scope of interference under Article 226 of the Constitution in contractual matters, more specifically, in the specific context of contracts containing an arbitration clause. These observations have, however, led to uncertainty, as will be demonstrated.
Uttar Pradesh Power Transmission Corporation Ltd. (UPPTCL) and CG Power and Industrial Solutions Ltd. (CG Power) entered into a “framework agreement” for the construction of sub-stations, pursuant to which four (4) contracts were executed. At the root of the present controversy is two (2) letters which UPPTCL had issued to CG Power, calling upon it to make payment of “labour cess” under Section 3 of the Building and Other Construction Workers Welfare Cess Act, 1996 r/w Section 2 of the Building and Other Construction Workers’ (Regulation of Employment and Condition of Service) Act, 1996. The combined effect of these legislations was to impose a “cess” on the total cost of construction, at such rate not exceeding 2% and not less than 1% thereof.
UPPTCL, however, sought to levy and collect such “cess” solely on the basis of an “audit report”, following an audit conducted under the instructions of the Senior Accountant General. CG Power had filed a writ petition in the Allahabad High Court, by which it assailed such demand of “cess” solely on the basis of an “audit report”.
Both the Allahabad High Court and the Supreme Court took the view that such “cess” could not have been levied solely on the basis of an “audit report”. Instead, such “cess” could have been levied and collected only in the manner as prescribed under the legislations as specified above, and not otherwise (i.e., not in the absence of an order of levy and assessment).
Views expressed as to the maintainability of the writ petition in view of the existence of an arbitration clause
In the instant case, the general conditions as applicable, contained an arbitration clause, the existence of which was not in dispute. Interestingly, UPPTCL did not even disclose the existence of such arbitration clause in its reply (to the writ petition), let alone oppose the maintainability of the said writ petition on this ground. As will be discussed shortly, the Allahabad High Court could have declined to exercise its jurisdiction under Article 226 of the Constitution in the event that the existence of such arbitration clause was brought to its attention.
The Supreme Court, however, observed that the existence of an arbitration clause will not debar the High Court from exercising its jurisdiction under Article 226 of the Constitution. It took the view that it is well settled that relief under Article 226 of the Constitution may be granted in contractual matters as well. Although this was not dispositive of the case at hand, the observations thus made by the Supreme Court have left open a window for confusion.
Discourse thus far
In its judgment in State of Gujarat v. Meghji Pethraj Shah Charitable Trust, the Supreme Court not only held that a writ petition is not maintainable in a contractual matter, but also held that no relief under Article 226 of the Constitution is “available” in case of contracts which are not “statutory” in nature. The Supreme Court has time and again thereafter, elucidated upon the concept of a “statutory” contract.
The Supreme Court had, in its judgment in State of U.P. v. Bridge & Roof Co. (India) Ltd., held that a contract which is governed by the provisions of the Contract Act, 1872 will not be a “statutory contract”. This has, therefore, limited the concept of a “statutory” contract. However, it is only in its judgment in India Thermal Power Ltd. v. State of M.P., did the Supreme Court hold that even a contract entered into in the exercise of an enabling power conferred by a statute would not, by itself, be a “statutory” contract. The Supreme Court further held that such a contract is a “statutory” one only to the extent to which a statute either prescribes certain terms and conditions to be contained in such contract, or has the effect of incorporating such terms and conditions by way of reference. In the facts of that case, the Supreme Court held that a power purchase agreement is a “statutory” contract only to the extent to which it contains certain provisions regarding determination of tariff and other statutory requirements, and not otherwise.
In its judgment in Kerala SEB v. Kurien E. Kalathil, the Supreme Court held that a dispute arising out of the terms of a contract entered into by a statutory body, would also have to be settled by the ordinary principles of contract law. It further held that the mere fact that one of the parties to such a contract is a statutory body will not, by itself, operate so as to exclude the ordinary principles of contract law.
In its judgment in Harbanslal Sahnia v. Indian Oil Corpn. Ltd., the Supreme Court seems to have adopted a different interpretation. This is in spite of the fact that all of the aforesaid judgments, including that in the Harbanslal case, were delivered by two-Judge Benches. It was held that the rule of exclusion of writ jurisdiction by reason of availability of an alternative remedy, is a “rule of discretion” and not one of “compulsion”. The Supreme Court held that in spite of the availability of an “alternate remedy”, the High Court may still exercise its writ jurisdiction in the event that: (i) the writ petition seeks enforcement of fundamental rights; (ii) there is a failure of the principles of natural justice; and (iii) the orders or proceedings are wholly without jurisdiction or the vires of an Act is under challenge. In the facts of that case, the Supreme Court took the view that the High Court ought to have exercised its jurisdiction under Article 226 as above, as the dispute, which arose out of the termination of a dealership would attract the first two (2) contingencies.
The Supreme Court had, in its judgment in Pimpri Chinchwad Municipal Corpn. v. Gayatri Construction Co., held that the High Court ought not to have entertained a writ petition in a dispute which could have been settled by way of the “in-house” remedy as provided for. However, the Supreme Court expressed its unwillingness to adjudicate upon the merits of the controversy in that case, given the advanced stage of completion of work under the tender, which formed the subject-matter of that dispute.
In a recent judgment delivered as on 6-1-2021 in Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., the Supreme Court dealt with and answered the question of whether the arbitral process could be interfered with under Articles 226/227 of the Constitution. While doing so, the Supreme Court held that it is not prudent for the courts to exercise their discretion beyond the procedure prescribed under the Arbitration and Conciliation Act, 1996 (Arbitration Act). Instead, such discretion ought to be exercised in “exceptional rarity”, in the event that a party is left without a remedy under the statute, or clear “bad faith” is demonstrated. This, as the Supreme Court observed, is with a view to ensuring that the arbitral process is conducted in a fair and efficient manner, consistent with the legislative intention underlying the Arbitration Act. In the facts of that case, the Supreme Court saw no reason to interfere with the unilateral appointment of an arbitrator, as such appointment was made in accordance with the arbitration clause. It may be noted that the judgment in Bhaven Construction was delivered by a three-Judge Bench of the Supreme Court, while the judgment under discussion, and all other judgments as cited, were delivered by two-Judge Benches thereof.
Having regard to all the judgments as cited, it appears to be the case that the Supreme Court has, as a general principle, adopted restraint while exercising its jurisdiction under Article 226 of the Constitution in contractual matters. The concept of a “statutory” contract has only limited the exercise of such discretion, inasmuch as a contract entered into under a statute, or one to which a statutory body is a party, would not become a “statutory contract”. The judgment in the Bhaven Construction case only operates so as to further limit the scope of such interference in the specific context of contracts containing an arbitration clause.
In the instant case, had the Supreme Court delved into the issue of scope of interference under Article 226 of the Constitution in contractual matters, it could have held that an objection as to the maintainability of a writ petition on the ground of existence of an arbitration clause would have to be taken at the earliest available opportunity. Having said that, the observations as made by the Supreme Court in the judgment under discussion are at variance with the view as taken by it in the Bhaven Construction case. This is only likely to lead to uncertainty as to the scope of interference under Article 226 of the Constitution in contractual matters.
† Advocate, Delhi High Court, e-mail: ashwinichawla.net.in.