M/s. Chaitayna Geo Surveys vs State of Karnataka and Others. Writ Petition 10392/2020.
Judgment Link: http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/352115/1/WP10392-20-09-12-2020.pdf
Relevant paragraphs: 8 &9. The State, when it enters into a contract, must do so fairly without discrimination, arbitrariness and unreasonableness. Any act of the State should withstand the test of judicial review under Article 14 of the Constitution. This power of review is normally exercised by the constitutional courts to rein any unbridled executive functioning. In a democratic State, rule of law is of paramount importance and the Courts are required to act as guardians of rule of law. Arbitrariness and unfairness in a contract defies the basics of rule of law. The respondent No.1 is the beneficiary of the work done by the petitioner and it is clear from the facts and circumstances of the case that the instrumentalities of respondent No.1 have acted in a arbitrary and unfair manner after the work is completed.
10. The Hon’ble Apex Court in the case of ABL Internatiional Ltd. and Ors. –vs- Export Credit Guarantee Corporation of India Ltd. and Ors. 1 has held as under:
“23. It is clear from the above observations of this Court, once State or an instrumentality of State is a party to the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. .”
11. In the very same judgment, the Hon’ble Apex Court considered the question of maintainability of a writ petition against a State for enforcement of right arising out of a contractual obligation. The Hon’ble Apex Court at para-29 of the aforesaid judgment has held as under:
“29. From the above discussion of ours, following legal principles emerge as to the maintainability of a writ petition:-
- In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.
- Merely because some disputed questions of facts arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule.
- A writ petition involving a consequential relief of monetary claim is also maintainable.”
12. The Apex Court in the case of KUMARI SHRILEKHA VIDYARTHI ETC., VS STATE OF U.P. AND OTHERS – AIR 1991 SC 537, has held that State action in contractual matter can be reviewed under Article 14 of the Constitution. In paragraphs 22, 23, 24, 28 & 29 of the said decision, the Apex Court has held as under:
“22. There is an obvious difference in the contracts between private parties and contracts to which the State is a party, Private parties are concerned only with their personal interest whereas the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it, for public good and in public interest. The impact of every State action is also on public interest. This factor alone is sufficient to import at least the minimal requirements of public law obligations and impress with this character the contracts made by the State or its instrumentality. It is a different matter that the scope of judicial review in respect of disputes failing within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its actions.
23. Thus, in a case like the present, if it is shown that the impugned State action is arbitrary and, therefore, violative of Article 14 of the Constitution, there can be no impediment in striking down the impugned act irrespective of the question whether an additional right, contractual or statutory, if any, is also available to the aggrieved persons.
27. The State cannot be attributed the split personality of Dr. Jekyll and Mr. Hyde in the contractual field so as to impress on it all the characteristics of the State at the threshold while making a contract requiring it to fulfil the obligation of Article 14 of the Constitution and thereafter permitting it to cast off its garb of State to adorn the new robe of a private body during the subsistence of the contract enabling it to act arbitrarily subject only to the contractual obligations and remedies flowing from it. It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and not the nature of function, contractual or otherwise, which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters. There is a basic difference between the acts of the State which must invariably be in public interest and those of a private individual, engaged in similar activities, being primarily for personal gain, which may or may not promote public interest. Viewed in this manner, in which we find no conceptual difficulty or anachronism, we find no reason why the requirement of Article 14 should not extend even in the sphere of contractual matters for regulating the conduct of the State activity.
28. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public element for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Article 14.
29. It can no longer be doubted at this point of time that Article 14 of the Constitution of India applies also to matters of governmental policy and if the policy or any action of the Government, even in contractual matters, fails to satisfy the test of reasonableness, it would be unconstitutional ”
Compiled by S. Basavaraj, Daksha Legal.
Daksha Legal 