lawweb.in http://www.lawweb.in/2015/05/when-jurisdiction-of-high-court-can-be.html?pfstyle=wp When jurisdiction of High court can be invoked in case of contractual dispute between state and private party? The position thus summarized in the aforesaid principles has to be understood in the context of discussion that preceded which we have pointed out above. As per this, no doubt, there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, can refuse to exercise. It also follows that under the following circumstances, 'normally', the Court would not exercise such a discretion: (a) the Court may not examine the issue unless the action has some public law character attached to it. (b) Whenever a particular mode of settlement of dispute is provided in the contract, the High Court would refuse to exercise its discretion under Article 226 of the Constitution and relegate the party to the said made of settlement, particularly when settlement of disputes is to be resorted to through the means of arbitration. (c) If there are very serious disputed questions of fact which are of complex nature and require oral evidence for their determination. (d) Money claims per se particularly arising out of contractual obligations are normally not to be entertained except in exceptional circumstances. 69) Further legal position which emerges from various judgments of this Court dealing with different situations/aspects relating to the Civil Appeal No. 6929 of 2012 contracts entered into by the State/public Authority with private parties, can be summarized as under: (i) At the stage of entering into a contract, the State acts purely in its executive capacity and is bound by the obligations of fairness.
When jurisdiction of High court can be invokedin case of contractual dispute between state andprivate party?
The position thus summarized in the aforesaid principles has tobe understood in the context of discussion that preceded whichwe have pointed out above. As per this, no doubt, there is noabsolute bar to the maintainability of the writ petition even incontractual matters or where there are disputed questions of factor even when monetary claim is raised. At the same time,discretion lies with the High Court which under certaincircumstances, can refuse to exercise. It also follows that underthe following circumstances, 'normally', the Court would notexercise such a discretion:(a) the Court may not examine the issue unless the action hassome public law character attached to it.(b) Whenever a particular mode of settlement of dispute isprovided in the contract, the High Court would refuse to exerciseits discretion under Article 226 of the Constitution and relegate theparty to the said made of settlement, particularly when settlementof disputes is to be resorted to through the means of arbitration.(c) If there are very serious disputed questions of fact which are ofcomplex nature and require oral evidence for their determination.(d) Money claims per se particularly arising out of contractualobligations are normally not to be entertained except inexceptional circumstances.69)Further legal position which emerges from various judgments ofthis Court dealing with different situations/aspects relating to theCivil Appeal No. 6929 of 2012
contracts entered into by the State/public Authority with privateparties, can be summarized as under:(i)At the stage of entering into a contract, the State acts purelyin its executive capacity and is bound by the obligations offairness.
(ii)State in its executive capacity, even in the contractual field,is under obligation to act fairly and cannot practice somediscriminations.(iii) Even in cases where question is of choice or consideration ofcompeting claims before entering into the field of contract, factshave to be investigated and found before the question of aviolation of Article 14 could arise. If those facts are disputed andrequire assessment of evidence the correctness of which can onlybe tested satisfactorily by taking detailed evidence, Involvingexamination and cross- examination of witnesses, the case couldnot be conveniently or satisfactorily decided in proceedings underArticle 226 of the Constitution. In such cases court can direct theaggrieved party to resort to alternate remedy of civil suit etc.(iv) Writ jurisdiction of High Court under Article 226 was notintended to facilitate avoidance of obligation voluntarily incurred.(v) Writ petition was not maintainable to avoid contractualobligation. Occurrence of commercial difficulty, inconvenience or
hardship in performance of the conditions agreed to in thecontract can provide no justification in not complying with theterms of contract which the parties had accepted with open eyes.It cannot ever be that a licensee can work out the license if hefinds it profitable to do so: and he can challenge the conditionsunder which he agreed to take the license, if he finds itcommercially inexpedient to conduct his business.(vi) Ordinarily, where a breach of contract is complained of, theparty complaining of such breach may sue for specificperformance of the contract, if contract is capable of beingspecifically performed.Otherwise, the party may sue fordamages.(vii) Writ can be issued where there is executive actionunsupported by law or even in respect of a corporation there isdenial of equality before law or equal protection of law or if can beshown that action of the public authorities was without giving anyhearing and violation of principles of natural justice after holdingthat action could not have been taken without observing principlesof natural justice.(viii)Ifthe
contractbetweenprivatepartyandtheState/instrumentality and/or agency of State is under the realm ofa private law and there is no element of public law, the normal
course for the aggrieved party, is to invoke the remedies providedunder ordinary civil law rather than approaching the High Courtunder Article 226 of the Constitutional of India and invoking itsextraordinary jurisdiction.(ix) The distinction between public law and private law element inthe contract with State is getting blurred. However, it has not beentotally obliterated and where the matter falls purely in private fieldof contract. This Court has maintained the position that writpetition is not maintainable. Dichotomy between public law andprivate law, rights and remedies would depend on the factualmatrix of each case and the distinction between public lawremedies and private law, field cannot be demarcated withprecision. In fact, each case has to be examined, on its factswhether the contractual relations between the parties bearinsignia of public element. Once on the facts of a particular case itis found that nature of the activity or controversy involves publiclaw element, then the matter can be examined by the High Courtin writ petitions under Article 226 of the Constitution of India tosee whether action of the State and/or instrumentality or agencyof the State is fair, just and equitable or that relevant factors aretaken into consideration and irrelevant factors have not gone intothe decision making process or that the decision is not arbitrary.
(x) Mere reasonable or legitimate expectation of a citizen, in sucha situation, may not by itself be a distinct enforceable right, butfailure to consider and give due weight to it may render thedecision arbitrary, and this is how the requirements of dueconsideration of a legitimate expectation forms part of theprinciple of non-arbitrariness.(xi) The scope of judicial review in respect of disputes fallingwithin the domain of contractual obligations may be more limitedand in doubtful cases the parties may be relegated to adjudicationof their rights by resort to remedies provided for adjudication ofpurely contractual disputes.
70)Keeping in mind the aforesaid principles and after considering thearguments of respective parties, we are of the view that on thefacts of the present case, it is not a fit case where the High Courtshould have exercised discretionary jurisdiction under Article 226of the Constitution. First, the matter is in the realm of purecontract. It is not a case where any statutory contract is awarded.71)As pointed out earlier as well, the contract in question was signedafter the approval of Cabinet was obtained. In the said contract,there was no clause pertaining to Section 42 of the Act. Theappellant is presumed to have knowledge of the legal provision,
namely, in the absence of such a clause, special allowancesunder Section 42 would impermissible. Still it signed the contractwithout such a clause, with open eyes. No doubt, the appellantclaimed these deductions in its income tax returns and it waseven allowed these deductions by the Income Tax Authorities.Further, no doubt, on this premise, it shared the profits with theGovernment as well. However, this conduct of the appellant oreven the respondents, was outside the scope of the contract andthat by itself may not give any right to the appellant to claim arelief in the nature of Mandamus to direct the Government toincorporate such a clause in the contract, in the face of thespecific provisions in the contract to the contrary as noted above,particularly, Article 32 thereof. It was purely a contractual matterwith no element of public law involved thereunder.72)Having considered the matter in the aforesaid prospective, wecome to the irresistible conclusion that the appellant is not entitledto the relief claimed. Though it may be somewhat harsh on theappellant when it availed the benefit of Section 42 for few yearsand acted on the understanding that such a benefit would begiven to it, but we have no option but to hold that PSCs did notprovide for this benefit to be given to the appellant and thecontract can be amended only if both the parties agree to do so,and not otherwise. Therefore, we are constrained to dismiss theappeal for the reasons given above.REPORTABLEIN THE SUPREME COURT OF INDIACIVIL APPELLATE JURISDICTIONCIVIL APPEAL NO. 6929 OF 2012
JOSHI TECHNOLOGIES INTERNATIONAL INC......APPELLANT(S)VERSUSUNION OF INDIA & ORS......RESPONDENT(S)Dated;MAY 14, 2015.A.K. SIKRI, J.
Present appeal impugnes the judgment and order dated28.05.2012 passed by the High Court of Delhi, thereby dismissingthe writ petition which was filed by the appellant. It so happenedthat the appellant had entered into two contracts dated20.02.1995 with the Union of India, through Ministry of Petroleumand Natural Gas (MoPNG) in the year 1992 relating to explorationof certain oil fields which the Union of India had selected inGujarat and other States. These contracts were on productionsharing basis for Dholka and Wavel Oil Fields respectively. Itstarted the production after entering into the contract and filed itsincome tax return on the income generated from the aforesaidCivil Appeal No. 6929 of 2012Page 1 of 66Page 1production. In the returns, the appellant claimed benefit of Section42 of the Income Tax Act, 1961 (hereinafter referred to as the'Act'). Section 42 is a special provision for deductions in the caseof business for prospecting, etc. for mineral oil. It provides forcertain additional allowances as are specified in the agreement,details thereof would be taken note of hereinafter. We may,however, point out here itself that such allowances, as stipulatedin the Section, are to be specifically mentioned in the agreementas well, which is entered into with the Central Government and itis also necessary that such an agreement has been laid on theTable of each House of Parliament.2)The Income Tax Authorities extended the benefit of grantingdeductions under the aforesaid provisions from the year 2001-02(assessment years onwards) when the appellant commencedcommercial production in the aforesaid two oil fields. However,while making assessment for the Assessment Year 2005-06, theAssessing Officer observed that there were no such provisionsmade in the Agreements which were signed between the CentralGovernment and the appellant and in the absence of such
stipulation in the agreement, the appellant was not entitled to thebenefit of deductions under Section 42 of the Act. Realising thatthe Agreements did not contain such a provision, the appellantCivil Appeal No. 6929 of 2012Page 2 of 66Page 2wrote to the MoPNG stating that though there was such anarrangement agreed to as per the understanding between the twoparties, non-inclusion thereof was an inadvertent omission in theContracts that were signed. The MoPNG wrote to Ministry ofFinance (MoF) accepting the aforesaid omissions and requestedthe MoF to give clarification in this behalf. As no clarification camefrom the MoF, the Assessing Officer disallowed the claim fordeduction under Section 42(1)(b) and 42(1)(c) of the Act. At thisstage, the appellant preferred writ petition under Article 226 of theConstitution of India in the High Court of Delhi with the followingprayers.“Therefore it is most respectfully prayed that this Hon'bleCourt may be pleased to issue:-(I)(ii)A writ, direction or order declaring that the petitioner isentitled, in respect of the two Production SharingContracts dated 20.02.1995 executed with the petitionerfor the Dholka and Wavel Oil Fields in Gujarat, to thebenefit of the said deductions (set forth in Article 16 of theMPSC and reproduced in Annexure P1) under Section 42of the Income-Tax Act, 1961, from the date of theseProduction Sharing Contracts, as has been stated anddeclared by the respondent no. 1 (i.e., the Ministry ofPetroleum and Natural Gas) in several of itscommunications; and that the petitioner is entitled to thesaid Deductions on the same footing as all othercontractors who have executed PSCs with the Union ofIndia;A writ, order or direction in the nature of certiorariquashing the impugned order dated 31.12.2007 issued byRespondent No. 1; the notice dated 28.03.2008 forre-opening of the petitioner's income-tax assessments forthe Assessment Years 2001-2002; 2002-2003 and2003-2004 and the notice dated 01.05.2008 for re-openingCivil Appeal No. 6929 of 2012
Page 3 of 66Page 3(iii)3)the assessment for the Assessment Year 2004-05; andSuch other writ order or direction as this Hon'ble Courtmay deem just and proper in the circumstances of thecase and in the interest of justice, be passed in favour ofthe petitioner.”This writ petition which has been dismissed by the High Courtvide impugned judgment dated 28.05.2012 holding that theappellant is not entitled to any deductions under Section 42 of theAct in the absence of stipulations to this effect in the Contractssigned between the parties. This decision is the subject matter ofchallenge before us in the present appeal.4)Now, the facts in detail:The Union of India (“UOI”), through the MoPNG, issued aNotice Inviting Tenders in August 1992 (“1992 NIT”), along with aModel Production Sharing Contract (“MPSC”), for “Developmentof Oil and Gas Fields”from various companies in relation tosome selected oil fields in Gujarat and other States. Article 16 ofthe above-mentioned MPSC contained a specific provision, whichprovided certain financial benefits and deductions in relation totaxes etc. that would be allowed to contractors/developers, as perthe requirements of Section 42 of the Act.5)The MoF by its Office Memorandum dated 18.06.1992, raised anissue that Section 293-A of the Act would not apply to contracts ofthe nature mentioned above, and that benefits under the specialCivil Appeal No. 6929 of 2012Page 4 of 66Page 4provisions of Section 42 of the Act would not be available toforeign companies, such as the appellant, which enter into suchcontracts with the Central Government. The MoPNG by its OfficeMemorandum, dated 22.06.1992 (“OM”) referred the issue to theMinistry of Law, Justice and Company Affairs specifically seekingits opinion on applicability of Section 42 and Section 293-A of theAct to the 1992 NIT and the MPSC.6)
The Ministry of Law gave its opinion dated 21.07.1992 to theeffect that benefit of both Section 293A and Section 42 should beextended to foreign companies in order to make their participationin these oil fields viable.7)The appellant (along with its erstwhile joint venture partner Larsenand Toubro Ltd., whose stake was also subsequently acquired bythe appellant) submitted its bid dated 29.03.1993 in response tothe 1992 NIT.8)The appellant was allotted the Dholka abnd Wavel Oil Fields inGujarat near Ahmedabad, by the MoPNG. Two production sharingcontracts, each dated 20.02.1995, were executed by the appellantwith the MoPNG for Dholka and Wavel Oil Fields, respectively(the “Two PSCs”). According to the appellant, since noamendments to Article 16 of MPSC had been suggested norcontemplated b y the Union of India, it was (and is) the belief andCivil Appeal No. 6929 of 2012Page 5 of 66Page 5legitimate expectation of the appellant that all the benefits,financial or otherwise, offered in Article 16 of the MPSC to theprospective bidders were duly included in the above two PSCs.9)From 2001 the appellant commenced commercial production fromthe Dholka and Wavel Oil Fields (delayed on account of the UOI'sdelay in handling over the fields) and availed the benefits ofSection 42 Deductions provided in Article 16 of the MPSC, whichwere duly allowed by the concerned Income Tax Officer atAhmedabad. The UOI's share of petroleum profit was alsodetermined in accordance with the assumption that, and on theconsideration that the appellant was entitled to the benefit of theSection 42 deductions and the UOI consequently also enjoyed alarger quantum as petroleum profits that it otherwise would have.The accounts and calculations of the appellant claiming theSection 42 deductions and passing on the benefit to the UOI inthe form of an increased quantum of petroleum profit in terms ofthe two PSCs , were duly audited and approved by the MoPNG'sgovernment auditors.10)While the things proceeded in the aforesaid manner, it sohappened in the case of some other Production Sharing
Contracts, which did not specifically contain the fiscal benefits andthe deduction envisaged by Article 16 of the MPSC, the IncomeCivil Appeal No. 6929 of 2012Page 6 of 66Page 6Tax Authorities questioned the basis on which such assesses hadclaimed deduction/ allowances under Section 42. This move ofthe Income Tax Authorities prompted the MoPNG to write OMdated 17.06.2005 to the MoF, Department of Revenue to clarify tothe relevant Income-Tax Authorities that the provisions of Section42 of the Income-Tax Act would be applicable to all PSCs,including those thirteen (13) PSCs executed by the Union of India,which did not expressly contain these provisions, for the purposeof computing profits and gains, after allowing the Section 42deductions. The appellant's two PSCs are among these thirteen(13) PSCs referred to by the MoPNG in this Office Memorandum.The OM noted that it would not be equitable and fair if Section 42deductions were denied in respect of these 13 PSCs.11)Since the entire dispute pertains to deductions under Section 42of the Act, at this stage we reproduce the said provisionshereunder:“42. Special provision for deductions in the case ofbusiness for prospecting, etc., for mineral oil.—[(1)]For the purpose of computing the profits or gains ofany business consisting of the prospecting for orextraction or production of mineral oils in relation towhich the Central Government has entered into anagreement with any person for the association orparticipation 90[of the Central Government or anyperson authorised byagreement has beenHouse of Parliament),of, or in addition to,Civil Appeal No. 6929 of 2012it in such business] (whichlaid on the Table of eachthere shall be made in lieuthe allowances admissiblePage 7 of 66Page 7under this Act, such allowances as are specified in
the agreement in relation—(a) to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee;(b) after the beginning of commercial production, to expenditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physicalassets used in that connection, except assets on whichallowance for depreciation is admissible under Section32:[Provided that in relation to any agreement enteredinto after the 31st day of March, 1981, this clause shallhave effect subject to the modification that the words andfigures "except assets on which allowance fordepreciation is admissible under Section 32" had beenomitted; and](c) to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified inthe agreement;and such allowances shall be computed and made in themanner specified in the agreement, the other provisions of thisAct being deemed for this purpose to have been modified tothe extent necessary to give effect to the terms of theagreement:[(2) Where the business of the assessee consisting of theprospecting for or extraction or production of petroleum andnatural gas is transferred wholly or partly or any interest in suchbusiness is transferred in accordance with the agreementreferred to in sub-section (1), subject to the provisions of thesaid agreement and where the proceeds of the transfer (so faras they consist of capital sums)—(a)are less than the expenditure incurred remainingunallowed, a deduction equal to such expenditure remainingunallowed, as reduced by the proceeds of transfer, shall beallowed in respect of the previous year in which such businessor interest, as the case may be, is transferred;Civil Appeal No. 6929 of 2012
Page 8 of 66Page 8(b)exceed the amount of the expenditure incurred remainingunallowed, so much of the excess as does not exceedthe difference between the expenditure incurred inconnection with the business or to obtain interest thereinand the amount of such expenditure remainingunallowed, shall be chargeable to income-tax as profitsand gains of the business in the previous year in whichthe business or interest therein, whether wholly or partly,had been transferred:Provided that in a case where the provisions of thisclause do not apply, the deduction to be allowed forexpenditure incurred remaining unallowed shall be arrived atby subtracting the proceeds of transfer (so far as they consistof capital sums) from the expenditure remaining unallowed.Explanation.—Where the business or interest in suchbusiness is transferred in a previous year in which suchbusiness carried on by the assessee is no longer in existence,the provisions of this clause shall apply as if the business is inexistence in that previous year;(c) are not less than the amount of the expenditure incurredremaining unallowed, no deduction for such expenditureshall be allowed in respect of the previous year in whichthe business or interest in such business is transferred orin respect of any subsequent year or years:[Provided that where in a scheme of amalgamation ordemerger, the amalgamating or the demerged company sellsor otherwise transfers the business to the amalgamated or theresulting company (being an Indian company), the provisionsof this sub-section—(i) shall not apply in the case of the amalgamating or thedemerged company; and(ii) shall, as far as may be, apply to the amalgamated or theresulting company as they would have applied to theamalgamating or the demerged company if the latter hadnot transferred the business or interest in the business.][Explanation.—For the purposes of this section, "mineral oil"includes petroleum and natural gas.]”12)Meanwhile, the Income-Tax Officer, Ward I(3) (hereinafter referred
Civil Appeal No. 6929 of 2012Page 9 of 66Page 9to as the “ITO Wd I (3)) issued a notice dated 09.06.2006 underSection 143 (2) of the Income Tax Act to the appellant for theAssessment Year 2005-2006 and asked the appellant to justify itsclaim for the Section 42 deductions. The ITO Wd I(3) also issuedanother notice to the appellant under Section 142(1) of theIncome-Tax Act, seeking various details and data relevant to thesaid Assessment Year. The case was later transferred to theAssistantDirectorofIncome-Tax(InternationalTaxation),Ahmedabad (“ADIT”). The ADIT also raised the question ofapplicability of the Section 42 deductions to the two PSCsexecuted by the appellant for the reason that such a clause wasnot specifically included in these two PSCs.13)A Joint Secretary of the MoPNG vide his communication dated11.04.2007 wrote to the MoF specifically admitting that in 11PSCs, a reference to Section 42 deductions had been omitted byoversight. It was also stated that contracts signed in respect ofother fields at the same time contained the provision for Section42 deductions. It was specifically stated that “Petroleumoperations are a high risk business and it may not be equitableand fair if companies are not allowed to claim allowances for theirexpenditure. Besides it would be difficult to justify differentstandards for different PSCs signed under one regime.”Civil Appeal No. 6929 of 2012Page 10 of 66Page 10(emphasis supplied). A clarification was also sought from the MoFto the revenue authorities that the Section 42 deductions shouldbe uniformly granted irrespective of whether the PSCs containedthe relevant clause or not. It is pertinent to note that in this letter,the appellant was listed by the MoPNG as having the provisionfor Section 42 deductions in its two PSCs, which though factuallyincorrect, again underscores the bona fide belief of the UOIthrough the MoPNG that the appellant had been granted the
Section 42 deductions in respect of its two PSCs.14)However, MoF did not issue any such clarification. In the absenceof such a clarification from the Ministry of Finance, the ADITdisallowed appellant's claim for deduction under Section 42(1)(b)and Section 42(1)(c) of the Income Tax Act, made in theappellant'sIncome-TaxReturnfortheAssessmentYear2005-2006, on the ground that a specific reference to the Section42 deduction has not been made3 expressly in the two PSCs(hereinafter the “ADIT's Order”). As a result, the ADIT issued ademand notice under Section 156 of the Income Tax Act to theappellant, demanding payment of Rs. 1,24,45,509.00 (rupees onecrore twenty four lakhs forty five thousand five hundred and nineonly) by way of additional tax, interest and penalty. The appellantpreferred an appeal against the ADIT's order before the relevantCivil Appeal No. 6929 of 2012Page 11 of 66Page 11Commissioner of Income Tax (Appeals) in Ahmedabad anddeposited the sum of Rs.40,00,000/- (rupees forty lakhs only), asrequired by ADIT, while himself staying the demand raised byAssessment Order.This appeal has been dismissed by theCommissioner of Income Tax (Appeals) and a further appeal isnow pending before the Income Tax Appellate Tribunal.15)In the meanwhile, on 24.12.2007, the appellant required theUnion of India, through the MoPNG and the MoF, to issue anappropriate clarification/amendment with respect to the two PSCsexecuted with the appellant, taking a stance that it was always theintention of the Union of India, at all stages, to give the benefits ofSection 42 Deductions of the Income Tax Act, read with Article 16of the MPSC, to all the entities who had entered into PSCs with it,including the appellant with the plea that the non-inclusion of thisprovision in the two PSCs signed with the appellant was a clericalerror/oversight. This was followed by reminder dated 19.3.2008
again requesting the Union of India, through the MoPNG and theMoF, to issue an appropriate clarification/amendment with respecto the two PSCs executed with the appellant.16)No such clarification came forward. On the other hand, the ADITissued notice dated 28.3.2008 to the appellant under Section 148of the Income Tax Act for reopening the appellant's Income TaxCivil Appeal No. 6929 of 2012Page 12 of 66Page 12Returns for the Assessment Years 2001-2002, 2002-2003,2003-2004 and 2004-2005.At this juncture, the Secretary,MoPNG, wrote communication dated 28.04.2008 to the MoFpointing about the said accidental omissions again in the contract.The MoF was, accordingly, requested to extend the benefits ofSection 42 Deductions to the 13 PSCs (including the appellant'stwo PSCs) in line with all other signed PSCs.17)As, in the meantime, the ADIT was going ahead with theproceedings pursuant to the notice under Section 148 of the Actdeciding to reopen the assessment of the appellant in respect ofassessment years 2001-02 to 2004-05, the appellant sent onemore representation dated 23.06.2008 on the same lines onwhich it had been making the similar representations earlier. Nopositive response was, however, received. Exasperated, theappellant approached the High Court by way of writ petition underArticle 226 of the Constitution. Counter affidavits to the writpetition was filed by the respondent – Authorities takingpreliminary objection pertaining to territorial jurisdiction of the HighCourt of Delhi and also raising the ground of alternate remediesavailable in the law in the form of appeal before the ITAT whichhad already been preferred by the appellant. Rejoinder theretowas filed by the appellant. Thereafter, another counter affidavit onCivil Appeal No. 6929 of 2012Page 13 of 66Page 13merits was filed by the respondent no. 1. In this counter affidavit,stand was taken by the respondents that MPSC would not applyto appellant's two PSCs. The appellant filed rejoinder to thiscounter affidavit controverting the stand which was taken by therespondent.
Thereafter,therespondentfiledanothersupplementary affidavit stating that MoF had not concurred withthe proposal to extend the benefit of deductions under Section 42of the Act vide MoF O.M. dated 11.11.2009. Short affidavits werealso filed by MoF as well as ADIT taking the position that theappellant was not entitled to benefit of Section 42 of the Act.Rejoinder to these short affidavits was filed by the appellant.Rejoinder was also filed to the supplementary affidavit which hasbeen filed by respondent no. 1. The appellant also filed additionalaffidavit dated 28.02.2012 giving details of other small sizeddiscovered oil fields PSCs, who were awarded contracts under1992 NIT, submitting that they were identical to the appellant andin their case clause was inserted giving benefit under Section 42of the Act. It was pleaded that since they were identically situatedas the appellant herein, denying such a benefit to the appellantamounted to hostile discrimination. By another affidavit filed bythe appellant, it also tried to demonstrate that respondent no. 1had accepted the calculation of petroleum profits on theCivil Appeal No. 6929 of 2012Page 14 of 66Page 14assumption that the deduction under Section 42 was available tothe appellant; otherwise the appellant would have enjoyedincreased profits . It was, thus, sought to be demonstrated thateven while profit sharing, shares were calculated keeping in viewthe deductions under Section 42 of the Act thereby giving betterand increased profit sharing to the Government as well.18)The matter was ultimately heard by the High Court which hasdismissed the writ petition by passing detailed judgment on28.05.2012. Before we come to the arguments of the appellantchallenging the correctness of this judgment, it may beappropriate to take note of reasons which have been given by theHigh Court in support of the view it has taken.IMPUGNED JUDGMENT19)The High Court took note of the basic and primary contention ofthe appellant which was that there was a clear understanding
between the MoPNG and the appellant that in the contract to besigned between the parties benefits under Section 42 of the Actwould be admissible. The NIT issued by the Government wasbased on this basic understanding but due to inadvertentoversight and error on the part of the MoPNG the contract, whichwas ultimately signed, omitted to include such a clause.Therefore, on account of mistake of the Ministry, which even itCivil Appeal No. 6929 of 2012Page 15 of 66Page 15admitted in its communications when the dispute regardingadmissibility of deduction under Section 42 of the Act arose, theappellant should not be allowed to suffer. More so, when it wasnot responsible for the said error.20)It may be pertinent to point out that the High Court did not acceptthe preliminary objections raised by the respondent and afterrepelling the same, it adverted to the subject matter of the writpetitions. On the merits of the issue involved, the High Courtformulated two questions . These are:“(1) Whether benefit under Section 42 of the Act wasenvisaged in the 1992 NIT and in the PSCs, but dueto oversight or mistake, the same was not includedand mentioned in the written contract, and if so, theeffect thereof?(2) If the question is decided in favour of theappellant, the second aspect is whether a directioncan be issued for grant of benefit under Section 42 ofthe Act to the appellant, with a further direction thatthe contract should be laid before the Parliamentafter incorporating the said clause?”21)Dealing with the first question, High Court rejected the plea of theappellant that 1992 NIT included and referred to the MPSC asincorrect. It is pointed out that the 1992 NIT did not refer to theMPSC and did not stipulate that MPSC shall form part of thetender documents. It is further stated by the High Court that in1992 NII, there was no reference to MPSC or that the terms andconditions of the MPSC shall be included in, or be a part of, theCivil Appeal No. 6929 of 2012Page 16 of 66Page 16
PSCs. It is also observed that there is no document or clause inthe bid given by the appellant under the 1992 NIT to the effectthat the MPSC or clause 16.2 of the same would be applicableand should be a part of the PSCs. In the tender submitted by theappellant there was no specific stipulation to include any clausewith regard to the benefit under Section 42 of the Act. The HighCourt has further observed that written contracts were signedbetween the appellant and MoPNG in the name of President on20.,02.1995. Clause 15 of these contracts which pertain to“Taxes, Royalties, Rentals, Customs duties etc.” though mentionsabout the applicability of fiscal, there is no reference to Section 42of the Act in this Clause.22)The High Court further pointed out that there was no letter orcorrespondence written by the appellant from 1995 onwardsstating that non-inclusion of Section 42 benefit was due tooversight. Insofar as three letters written by the MoPNG, namely,letters dated 17-06-2005, 11-04-2007 and 28-04-2008 areconcerned wherein this Ministry admitted that there was anunintentional lapse and omission in not incorporating the provisionof admissible deduction under Section 42 of the Act, the HighCourthasbrushedasidethesecommunicationsasinter-ministerial correspondence. These letters were apparentlyCivil Appeal No. 6929 of 2012Page 17 of 66Page 17written on the request of the appellant or NIKO ResourcesLimited.Itisfurthermentionedthatthesearenot
contemporaneous letters written at the time when PSCs weresigned.23)The High Court has also commented that though in these letters itis mentioned that Section 42 deductions were omitted by“oversight” in fact there was no such oversight in as much as theMoPNG itself in its counter affidavit has specifically stated that nosuch benefit was envisaged, considered or granted at the timewhen the PSCs were negotiated and awarded. Averments madein this behalf in the counter affidavit filed by the MoPNG areextensively quoted. To verify this position, the High Court alsoexamined and went through the original files relating topreparation and finalisation of tender documents and madefollowing remarks in this behalf.“In order to verify and examine the correct factualposition, we had asked the respondent Ministry ofPetroleum and oversight in as much as the MoPNGitself in its counter affidavit has specifically statedthat no such benefit was envisaged, considered orgranted at the time Natural Gas to produce theoriginal files relating to preparation and finalization oftender documents. They were produced before us on21st February, 2012. We examined the original recordsand found that under the terms and conditions, as wellas in the notes, no benefit under Section 42 of the Actwas envisaged or was required to be granted. We alsorecorded the statement of the learned AdditionalSolicitor General that the three letters mentioned aboveCivil Appeal No. 6929 of 2012Page 18 of 66Page 18were factually incorrect and, therefore, no legal right onthe basis of the letters accrues/arises. Thus, nostatement or promise, that advantage under Section 42would be available to the successful bidder, waspromised or made.”24)Insofar as plea of discrimination between 13 PSCs (whichincluded the appellant), who are not given the benefit of Section42 of the Act vis-a-vis other PSCs where such a benefit has beenextended, the High Court has accepted the explanation put forthby the respondents to the effect that these 13 PSCs formed a
different class in as much as their contract was in respect of smalloil fields which had already been discovered and, therefore, therisk factor was less.On the other hand, other PSCs were inrespect of undiscovered oil fields and for this reason benefit underSection 42 had been granted to them.25)On the aforesaid reasoning, the High Court concluded thatappellant was fully aware of Clause 16.2 of MPSC whichspecifically makes reference to benefit under Section 42 of theAct, but did not advert to and refer to the same in their tender bidand did not ask for this benefit. Therefore, it was not possible toaccept the contention of the appellant that benefit under Section42 of the Act was inadvertently missed out, or due to an act ofoversight, not included in the contract. On this finding, the HighCourt chose not to examine the second issue. Post by it in para 9Civil Appeal No. 6929 of 2012Page 19 of 66Page 19of the impugned judgment and noted by us above.26)We would also like to mention that in the penultimate para, theHigh Court has expressed its displeasure and anguish over theaverments made by respondent no. 1 in the additional affidavitdated 23-03-2012 where respondent no. 1 even denied the factthat petroleum profits were not shared between the Governmentand the appellant after making the calculations with reference tobenefit under Section 42 of the Act. In letter dated 11.11.2009written by the MoF, Department of Revenue this fact is specificallyadmitted and, therefore, respondent no. 1 should have beencareful in making such averments in the said additional affidavitwhich were contrary to the record, even if it was uncomfortable torespondent no. 1.27)Mr. Ganesh, learned senior counsel appearing for the appellantsubmitted that the High Court had failed to appreciate andcognise the basic issue which had arisen in the instant case aboutthe admissibility of the benefit of Section 42 of the Act in respectof two production sharing contracts (PSCs) between the appellantand the Government. He submitted that the claim for the benefitof the aforesaid provision was predicated on the followinggrounds:
(a) The Ministry of Petroleum & Natural Gas (MoPNG) had invited bidsCivil Appeal No. 6929 of 2012Page 20 of 66Page 20for the said oilfields on the basis of a Model Production SharingContract (MPSC) which specifically and unequivocally providedthat the benefit of Section 42 would be granted.(b)The appellant's bids for the said two oilfields were clearly andindisputably submitted on the footing that the MPSC would governthe contract between the parties. In fact, in its bid, the appellantonly referred to those clauses of the MPSC which the appellantwanted to be slightly modified, to which the Government had noobjection. Thus, the appellant's bids were on the basis of theMPSC which provided the benefit of Section 42.(c) Respondent no. 1 itself admitted that the contract was entered into,keeping in view the stipulations/terms contained in the MPSCand, therefore, MPSC had to be read into the contract. It wasalso argued that these facts were specifically confirmed byrespondent no. 1 itself in its three letters dated17-06-2005,11-04-2007 and 28-04-2008.(d)It was, thus, argued that as held in the case of Godhra ElectricityCo. Ltd. And Another v. State of Gujarat1, it is the mutualunderstanding of the parties to a contract which determines theconstruction that the court will place on it and this principlesquarely applied in the present case.1(1975) 1 SCC 199Civil Appeal No. 6929 of 2012Page 21 of 66Page 21(e) The accounts of the venture were drawn up on the footing that thedeductionsunderSect5ion42wereavailableandthat,
accordingly, the Income Tax liability would stand reduced. On thisfooting, a significantly higher amount was computed as the profitshare payable to the Government of India under the PSC, whichwas received by the Government year after year.(f) The reference made by MoPNG to the Ministry of Law in June/ July1992 and the written opinion given by the Ministry of Law also bythemselvesclearlyestablishedthattheintentionoftheGovernment from the very beginning was to grant the benefit ofSection 42.(g) The I.T. Department itself granted the deductions under Section 42for several years right upto Assessment Year 2004-05 and thensuddenly and unaccountably changed its mind and turned asomersault.(h)The benefit of Section 42 was, in fact, granted to several othersmall-sized discovered oilfields.The appellant had filed anadditional affidavit dated 28.02.2012 giving particulars of at least11 other small-sized discovered oilfields to which benefit ofSection 42 was given. Even though the contents of the affidavitremaineduntraversed,thesamehasbeencompletelydisregarded by the High Court.”Civil Appeal No. 6929 of 2012Page 22 of 66Page 2228)Relying on the aforesaid material on which Mr. Ganesh laid greatemphasis, his plea was that the High Court did not consider theaforesaid aspects in its right perspective and arrived at a wrong
finding that the appellant did not ask for the benefit of Section 42of the Act.29)He further submitted that strong reliance was placed by the HighCourt on the contents of a file which was produced by respondentno. 1 relating to the preparation of tender documents. However,this file was not shown to the appellant or its counsel and theappellant was, thus, denied any opportunity of dealing with thesame. He pointed out that the appellant had specifically filed anapplication dated 28-02-2012 praying that the Court should notconsider the contents of the said file or alternatively the copies ofthe documents in the file be supplied to the counsel of theappellant. On this application, the Court had made observation on12.03-2012 to the effect thatit was not going to place anyreliance on the contents of the file and with these observationsthe application was dismissed. However, in the impugnedjudgment, the High Court has rested its conclusion on the basis ofsome contents in the file. He further submitted that the Courtshould not have disregarded the letters of the respondent no. 1 onthe ground that they were not contemporaneousCivil Appeal No. 6929 of 2012letters. HisPage 23 of 66Page 23submission was that right upto the year 2005, the benefit ofSection 42 was extended to the appellant and, therefore, therewas no occasion for the appellant to approach respondent no. 1to ask for such a clarification. He further submitted that relianceplaced by the High Court on certain paras of the counter affidavitof respondent no. 1 was totally erroneous as such a stand takenin the counter affidavit was contrary to the letters which wereaddressed by the respondent no. 1 itself to the MoF but accordingto him, the manner in which the plea of discrimination was dealtwith by the High Court was also erroneous ignoring the specificplea taken by the appellant in its additional affidavit dated28-02-2012 giving particulars of a number of small-sized oil fieldsto which Section 42 benefit was given and the Government hadnot controverted those averments. He submitted that apart fromthe plea, 13 oil fields (which included the appellant) all other oilfields, whether large, medium or small sized, and whetherdiscovered or exploratory, were given the benefit of Section 42 of
the Act. Therefore, the respondents had acted in a grosslyarbitrary and discriminatory manner.30)Last submission of Mr. Ganesh was that the issue regardingMandamus to be issued to the respondents for amending thecontract and including the clause for granting the benefit ofCivil Appeal No. 6929 of 2012Page 24 of 66Page 24Section 42 of the Act was not even gone into, though, it wasspecifically argued. He further submitted that when the othercontracting parties, namely, MoPNG specifically admitted that thisprovision was left our inadvertently, the Court should have given adirection for amendment of the Contract. In order to support hissubmission that such a direction can be issued by the High Courtin exercise of its powers under Article 226 of the Constitution, hereferred to the following judgments:(i) (ii) GSFC Vs. Lotus Hotels Ltd.3(iii) Kumari Shrilekha Vidyarthi Vs. State of U.P.4(iv) 31)K.N. Guruswamy Vs. State of Mysore2ABL International Ltd. Vs. Export Credit Guarantee Corpn.5Mr. Arijit Prasad, Advocate, who appeared for all the respondentscounteredtheaforesaidsubmissionsemphaticallyandpassionately. He argued that insofar as income tax department isconcerned it could extend the benefit of deductions admissibleunder Section 42 of the Act only when the assessee, namely, theappellant in the instant case, fulfilled the conditions for suchdeductions stipulated in that Section. For this purpose, the income23451955 (1) SCR 305(1983) 3 SCC 379(1991) 1 SCC 212
(2004) 3 SCC 553Civil Appeal No. 6929 of 2012Page 25 of 66Page 25tax authorities were supposed to look into the PSCs only and asfar as the contracts between the Government and the appellantare concerned, admittedly there was no such stipulation therein.Nor these contracts were placed before both the House ofParliament. Therefore, the order of the Assessing Authorities intune with legal provisions. He further submitted that in any casethe appeal of the appellant was pending before the ITAT and itwas for the ITAT to go into the submissions made by theappellants on the admissibility of deduction under Section 42 ofthe Act.32)In respect of the three letters which were written by therespondent no. 1, his submission was that no reliance could havebeen placed on those letters and the matter had to be examinedon the basis of record. The High Court had, for this purpose,examined the original files on the basis of which it was clearlyfound that the averments made in the three letters ware not bornout of records.33)He also made detailed submissions to support the findings of theHigh Court that there was no inadvertent omission in failing tomake any stipulation with regard to extending the benefits ofSection 42 of the Act and on the contrary insofar as the appellantand 12 other similar parties are concerned, there was a deliberateCivil Appeal No. 6929 of 2012Page 26 of 66Page 26decision not to extend such a benefit. He also argued that in anycase plea of discrimination could not be taken in the matters ofcontract in private law field.34)Reacting to the relief of mandamus sought by the appellantseeking directions against Respondent No. 1 to amend thecontract, his plea was that such a prayer, in the realm ofcontractual relationship between the parties, was inadmissible. Hepleaded that PSCs are in the nature of contract agreed to bebetween two independent contracting parties and each of thePSCs are distinct from the other and is not a copy of MPSC. He
also pointed out that before signing the PSC, the approval of theCabinet is obtained, which reflects that the PSCs as submitted tothe Cabinet, has the approval of one of the contracting party, i.e.Government of India. Therefore, the appellant could not claim tobe oblivious of the provisions of law or the contents of the contractat the time of signing and was precluded from seekingretrospective amendment as a matter of right when no such rightis conferred under the contract. In support of his submission thatthe doctrine of fairness and reasonableness applies only in theexercise of statutory or administrative actions of a State and not inthe exercise of a contractual obligation and that the issues arisingout of contractual matters will have to be decided on the basis ofCivil Appeal No. 6929 of 2012Page 27 of 66Page 27the law of contract and not on the basis of the administrative law,he referred to and relied upon the judgments in Pradeep KumarSharma v. U.P. Finance Corporation6 and A.B.L. InternationalLimited (supra).35)From the reading of the writ petition filed in the High Court, theimpugned judgment rendered by the High Court thereupon, andalso having regard to the arguments advanced before us whichhave already been taken note of, it is apparent that the fulcrum ofthe issue, which has to be focused and to be answered, pertainsto the benefit of the deductions permissible under Section 42 ofthe Act. In fact, as is clear from the prayers made by the appellantin the writ petition, the very first direction which the appellantsought was to declare that the appellant is entitled to suchdeductions in terms of the two PSCs dated 20-02-1995. Incidentalissues, while deciding the aforesaid primary issue, which arisesrelate to the construction of the terms of the said PSCs and alsothe nature of the contracts which the parties intended to. Anotherissue relates to the jurisdiction of the High Court under Article226 of the Constitution to pass Mandamus for amending thePSCs. All these issues are formulated in the precise formhereunder:6(2012) 100 SCC 424Civil Appeal No. 6929 of 2012Page 28 of 66Page 28
(i)Whether in terms of the provisions contained in two ProductionSharing Contracts (PSCs) dated 20-02-1995 executed betweenthe appellant and the Central Government, appellant is entitled tothe special allowances stipulated under Section 42 of the Act?(ii)Whether Model Production Sharing Contract (MPSC) can be readas part of and incorporated in the PSCs?(iii)Whether there was any intention between the contracting parties,namely, the MoPNG and the appellant for giving benefit ofdeductions under Section 42 of the Act?(iv)If so, whether non-inclusion of such a provision in the contract canbe treated as accidental and unintentional omission.(v)If the answer to question no. (iv) is in the affirmative, whethermandamus can be issued by the Court to the parties to amendthe contract and incorporate provisions to this effect?36) We would now proceed to answer these questions seriatum.37) Answer to question No. (i) – First and foremost aspect which hasto be kept in mind while answering this issue is that the IncomeTax Authorities while making assessment of income of anyassessee have to apply the provisions of the Income Tax Act andmake assessment accordingly. Translating this as generalproposition contextually, what we intend to convey is that theAssessing Officer is supposed to focus on Section 42 of the ActCivil Appeal No. 6929 of 2012Page 29 of 66Page 29on the basis of which he is to decide as to whether deductionsmentioned in the said provision are admissible to the assesseewho is claiming those deductions. In other words, the AssessingOfficer is supposed to find out as to whether the assessee fulfillsthe eligibility conditions in the said provision to be entitled to suchdeductions.We have already reproduced the language ofSection 42, which deals with special provisions of deductions inthe case of business for prospecting, etc. for mineral oil. Since,the appellant herein, in its income tax returns for the assessmentyear in question, i.e., Assessment Year 2005-06, had claimed thedeductions mentioned in Section 42(1)(b) and (c) of the Act, we
should take note of the nature of these deductions. Section 42(1)(b) provides for deductions of expenditure incurred in respect ofdrilling or exploration activities or services or in respect of physicalassets used in that connection, except for those assets on whichallowance for depreciation is admissible under Section 32.Section 42(1)(c) speaks of allowances pertaining to the depletionof mineral oil in the mining area. In order to be eligible to thedeductions, certain conditions are stipulated in this very sectionwhich have to be satisfied by the assessees. As is clear from thereading of this Section, these conditions are as under:(a) it grants such special allowances to those assessees who carry onCivil Appeal No. 6929 of 2012Page 30 of 66Page 30business in association with the Central Government or with anyperson authorized by it;(b) business should relate to prospecting for, extracting or producingmineral oils, petroleum or natural gas;(c)there has to be an agreement in writing between the CentralGovernment and the assessees in this behalf;(d) it is also a requirement that such an agreement has been laid onthe Table of each House of Parliament;(e) the allowances which are claimed are to be necessarily specified inthe agreement entered into between the two contracting parties;and(f) allowances are to be computed and made in the manner specifiedin the agreement.38)From the nature of allowances specified in this provision, it isclear that such allowances are otherwise inadmissible on generalprinciples, for e.g. allowances relating to diminution or exhaustionof wasting capital assets or allowances in respect of expenditurewhich would be regarded as on capital account on the ground thatit brings an asset of enduring benefit into existence or constitutesinitial expenditure incurred in setting up the profit earningmachinery in motion.It is for this reason this Section itselfclarifies that the provisions of this Act would be deemed to haveCivil Appeal No. 6929 of 2012Page 31 of 66Page 31
been modified to the extent necessary to give effect to the termsof the agreement, as otherwise, the other provisions of the Actspecifically deny such deductions. A fortiorari, the PSC enteredinto between the parties becomes an independent accountingregime and its provisions prevail over generally acceptedprinciples of accounting that are used for ascertaining taxableincome (See – Commissioner of Income Tax, Dehradun & Anr.v. Enron Oil and Gas India Limited 7). Thus, by virtue of thisSection, it is the PSC which governs the field as without it, suchdeductions are not permissible under the Act. IF PSC also doesnot contain any stipulation providing for such allowances, theAssessing Officer would be unable to give the benefit of thesedeductions to the assesee.39)We would also like to point out, at this juncture itself, that thisCourt held in CIT v. Enron Expat Service Inc.8 that the mere factthat the assessee had offered to pay tax under Section 44 (BB) ofthe Act in some of the earlier years will not operate as an estoppelto claim the benefit of Double Taxation Avoidance Agreement(DTAA), where the assessee operates under the same PSCwhich was before the Court. While holding so, the Court hadfollowed its earlier judgment in the case of Enron Oil and Gas78(2008) 15 SCC 33(2010) 327 ITR 626Civil Appeal No. 6929 of 2012Page 32 of 66Page 32India Limited (Supra).40)In the present case, it is an admitted fact that conditionsmentioned in Section 42 of the Act are not fulfilled. In the twoPSCs, no provision is made for making admissible the aforesaidallowances to the assessee. It is obvious that the AssessingOfficer could not have granted these allowances/deductions to theassessee in the absence of such stipulations, a mandatoryrequirement, in the PSCs.41)The appellant is conscious of this position. It is for this reason theattempt of the appellant was to read the provisions of MPSC intothe agreement. That bring us to the second issue.
42)Answer to question no. (ii) - Endeavour of Mr. Ganesh, on thisaspect, was to show that the bids were invited on the basis ofterms stated in the MPSC which specifically mentioned aboutdeductions under Section 42 of the Act. He also endeavored todemonstrate that thee appellant had submitted its bid keeping inview such a categorical stipulation in the MPSC. He also pointedout that on MPSC, opinion of Law Ministry was solicited videMemo dated 22-06-1992 and that the Ministry of Law gave itsopinion dated 21-07-1997 opining that benefit of both Sections293(A) and Section 42 of the Act should be extended to theforeign companies in order to make their participation in these oilCivil Appeal No. 6929 of 2012Page 33 of 66Page 33fields viable. As per the appellant, it was also made abundantlyclear by the Ministry of Law that it was in relation to “foreigncompanies to be engaged in exploration, development andproduction of oil ion small sized oil and gas fields under theproposed Production Sharing Contract”, thus, drawing nodistinction between fields to be explored and those alreadydiscovered and also making specific reference to the MPSC.Taking sustenance from the aforesaid material, a passionate pleawas made by Mr. Ganesh to read the provisions of Section 42contained in MPSC, as opined by the Ministry of Law, into thePSCs which were ultimately signed between the parties.43)In order to appreciate this argument, we shall have to traversethrough the PSCs dated 20-02-1995 which were ultimately signedbetween the Government and the appellant. We would like tomention here that when this argument was being advanced by thelearned senior counsel for the appellant the Court asked him toproduce the copy of PSCs, which were otherwise not brought onthe record as the Court wanted to find out as to whether therewas any such intention expressed in the agreement, namely, toincorporate the provisions of MPSC or the correspondenceexchanged between the parties earlier to the signing of thisagreement. On our asking, the appellant has placed on record theCivil Appeal No. 6929 of 2012Page 34 of 66Page 34copy of these PSCs. On going through the same, we find that
intention expressed is just to the contrary.It is rather madecrystal clear in the agreement that this agreement is the solerepository of the terms on which it is signed and nothing elsewould be looked into for this purpose. It is so reflected in thefollowing clauses in the agreement:“(5) The Government has agreed to enter into thisContract with the Companies with respect to the areareferred to in Appendices A & B of this Contract on theterms and conditions herein set forth.”Article 1 – In this Contract, unless the context requiresotherwise, the following terms shall have the meaningascribed to the then hereunder:xxxxxxxxxArticle 1.18”Contract” means this agreement andthe Appendices mentioned herein and attached heretoand made an integral part hereof and any amendmentsmade thereto pursuant to the terms hereof.Article 32 - ENTIRE AGREEMENT, AMENDMENTS,WAIVER AND MISCELLANEOUS32.1 This Contract supersedes and replaces any previous agreement of understanding between the Parties, whether oral or written, on the subject matter hereof, prior to the Effective Date of this Contract.32.2 This Contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the Parties, which shall state the date upon which the amendment ormodification shall become effective.32.3 No waiver by any Party of any one or more obligations or defaults by any other Party inCivil Appeal No. 6929 of 2012Page 35 of 66Page 35the performance of this Contract shalloperate or be construed as a waiver of anyother obligations or defaults whether of a
like or of a different character.32.4 32.5 In the event of any conflict between any provisions in the main body of this Contract and any provision in the Appendices, the provision in the main body shall prevail.32.6 44)The provisions of this Contract shall inure tothe benefit of and be binding upon theParties and their permitted assigns andsuccessors in interest.The headings of this Contract are forconvenience of reference only and shall notbe taken into account in interpreting theterms of this Contract.”Intention behind the aforesaid clauses is more than apparent,namely, not to look into any other document or correspondencewhich took place between the parties prior to the signing of thisagreement. Not only this, even the so-called “understanding”between the parties is to be ignored as well. It is, therefore,impermissible for the appellant to take the aid of MPSC or theclauses contained therein while construing the terms of PSCs.Therefore, it was not even open to the Income Tax Authorities togo beyond the stipulations contained in the PSCs while makingthe assessment and had to exclusively remain within theprovisions of the Agreement. On that touchstone, the AssessingOfficerhadnooptionbuttodenythebenefitofdeductions/allowances claimed by the appellant in its income taxCivil Appeal No. 6929 of 2012Page 36 of 66Page 36returns filed for the Assessment Year 2005-06. This bring us tothe next question.
45)Answer to question no. (iii) - We have already noted that Article32.2 categorically provides that this Contract shall not beamended, modified, varied or supplemented in any respect exceptby an instrument in writing signed by all the parties, which shallstate the date upon which the amendment or modification shallbecome effective. In continuation to what has been observed byus while answering point no. (ii) above, it becomes apparent thatthe question of any intention to the contrary between the partiesdoes not arise. It is because of the reason that Article 32 of theAgreement specifically supersedes any understanding betweenthe parties prior to the effective date of this contract.46)The matter is, however, compounded by certain acts ofrespondent no. 1 and made complex to some extent by theIncomeTaxAuthoritiesingivingbenefitoftheseallowances/deductions under Section 42 of the Act to theappellant under these very PSCs in respect of earlier assessmentyears. Further, this very state of affairs continued for few yearsinsofar as giving such a benefit by the Income Tax Authorities isconcerned it may not pose a serious problem. We have alreadyheld above that on proper construction of the provisions ofCivil Appeal No. 6929 of 2012Page 37 of 66Page 37Section 42 of the Act and application of these provisions to theinstant case, the appellant was not entitled to any suchdeductions under the PSCs. Thus, when in law no such deductionwas permissible as per the PSCs in the present form, even if suchdeduction was given wrongly in the earlier years that would notamount to a wrong act on the part of the Income Tax Authoritiesand, therefore, would not enure to the benefit of the appellant inthe Assessment Year in question as well. The appellant cannotsay that merely because this benefit is extended in the previousyears; albeit wrongly, this wrong act should continue to
perpetuate. There is no estoppel against law. We have taken noteof the judgment of this Court in Enron Expat Service Inc.(Supra) where the assessee had offered to pay tax under Section44(BB) of the Act in the earlier years wrongly and the Court heldthat it would not operate as an estoppel to claim the benefit ofDTAA for the Assessment Year in question when it was found thatthe assessee was otherwise entitled to it. Same principle applies,though it is a converse situation where assessee has not offeredto pay tax wrongly [which was the situation in Enron ExpatService Inc. (Supra)] and instead the tax authorities haveextended the benefit wrongly to the assessee.47)With this, we come to more crucial aspect, namely, the threeCivil Appeal No. 6929 of 2012Page 38 of 66Page 38letters written by the MoPNG in response to the appellant'scommunications seeking its clarification. Undoubtedly, in thesethree letters the MoPNG has accepted that intention between theparties was to give the benefit of allowances under Section 42 ofthe Act to the appellant herein. So much so, the MoPNG evenrequested the MoF to give its nod for amending the contract byincorporating such a provision which was allegedly left outinadvertently.48)Our first remark is that the approach of the High Court in dealingwith this aspect may not be entirely correct. In the first instance, ithas embarked upon the issue as to whether such an omissionwas by way of “oversight” or it was unintentional. Whileundertaking this enquiry, it has side tracked the language of thethree letters and instead gone by the stand taken in the counteraffidavit filed by respondent no. 1 where, in para 4 of the counteraffidavit, respondent no. 1 pleaded to the contrary. Clearly, thesaid stand taken in the counter affidavit filed in the High Courtwas contrary to the contents of the three letters dated 17.06.2005,11.04.2007 and 28.04.2008. Significantly, respondent no. 1neither disowned those letters nor tried to explain away thoseletters. No plea was raised to the effect that the person who wrotethose letters was not authorized to do so or he had taken the saidCivil Appeal No. 6929 of 2012Page 39 of 66Page 39
stand in the letters which was contrary to the records. No doubt,the High Court has observed that it had looked into original recordin order to verify and examine the correct factual position.However, as demonstrated by Mr. Ganesh, on an applicationmade by the appellant in the High Court for giving the copies ofsuch records, the High Court had observed that those recordswould not be seen nut ultimately relied upon these records. Wedo not know whether the High Court is correct in its conclusion asto whether the contents of the three letters are contrary to recordsand the averments made in para 4 of the counter affidavit are inconformity with the records, in as much as these records have notbeen produced for our perusal. However, on going through theterms of the PSCs it becomes apparent that such an exercise isnot even required.49)It is stated at the cost of repetition that Article 32 of the contractsupersedes any understanding between the parties. Thus, even ifit is presumed that there was an understanding between theparties before entering into an agreement to the effect that benefitof Section 42 deduction shall be extended to the appellant, thatunderstanding vanished into thin air with the execution of the twoPSCs. Now, for all intent and purpose, it is only the PSCs signedbetween the parties, which can be looked into. We answer thisCivil Appeal No. 6929 of 2012Page 40 of 66Page 40question accordingly.50)Undoubtedly, the appellant is also conscious of such a limitationand is aware of the fact that unless there is a clear stipulation inthe PSCs for grant of benefit of special allowances under Section42 of the Act, it would be difficult, nay impossible, for the appellantto sail through. It is for this reason Mr. Ganesh, learned seniorcounsel for the appellant made a fervent plea that respondentsbe directed to carry out the amendment in the contract to includestipulation with regard to Section 42 as well. That bring us to thenext question about the permissibility of such a prayer.51)Answer to question no.(iv) & (v) – These issues have threefacets, namely:(i) Whether there is a prayer to this effect in the writ petition?
(ii) If it was intended to give such a benefit before entering into theagreement, whether this intention gives any right to the appellantto seek an amendment?(iii)Whether the Court has the power to issue Mandamus or directionto the Government?52)We have reproduced the prayers made in the writ petition.Obviously, no prayer for issuance of Writ of Mandamus ordirection of this nature is specifically made. Prayer clause showsthat there are two prayers made in the writ petition. First relates toCivil Appeal No. 6929 of 2012Page 41 of 66Page 41directing the Authorities to grant benefit under Section 42 of theAct in terms of PSCs dated 22.02.1995, i.e. it is confined withinthe scope of the said contracts. Though, the appellant wants thatwhile construing these contracts MPSCs and other severalcommunications between the parties should be looked into andgiveneffectto.Wehavealreadyheldthatallsuchcommunications would be extraneous and it is only the terms ofPSCs dated 20.02.1995 which can be looked into. Second prayeraims at seeking quashing of orders dated 31.12.2007 and noticesdated 28.03.2008 and 01.05.2008 vide which income taxassessments for Assessment Years 2001-02, 2002-03, 2003-04;AND 2004-05 respectively are sought to be re-opened.53)Mr. Ganesh, however, submitted that such a prayer should beculled out from prayer no. (iii) which is residual in nature.Ordinarily, it would be difficult to read into this prayer clause arelief of substantive nature of issuing the writ of mandamus.However, we find that there are specific averments to this effect inthe body of the writ petition as well as in the grounds. More
pertinently this relief was specifically pressed and argued in theHigh Court which was even entertained by the High Court withoutany objections from the respondent to the contrary. Therefore, weare inclined to examine the plea on merits, though reluctantly.Civil Appeal No. 6929 of 2012Page 42 of 66Page 4254)Let us presume that there was such an intention. In fact, it is sostated in the three letters dated17-06-2005, 11-04-2007 and28-04-2008 which are written by MoPNG and not disowned by it.Still such an intention would not make any difference and for thispurpose we again revert back to Article 32 which has alreadybeen reproduced above. Not only prior understanding betweenthe parties stood superseded as mentioned in Article 32.1, Article32.2 which is crucial to answer this question, bars anyamendment, modification etc. to the said contract except by aninstrument in writing signed by all the parties. Thus, unlessrespondents agree to amend, modify or varied/supplemented theterms of the contract, no right accrues to the appellant in thisbehalf.55)We have to keep in mind that the contract in question is governedby the provisions of Article 299 of the Constitution. These areformal contracts made in the exercise of the Executive power ofthe Union (or of a State, as the case may be) and are made onbehalf of the President (or by the Governor, as the case may be).Further, these contracts are to be made by such persons and insuch a manner as the President or the Governor may direct orauthorize. Thus, when a particular contract is entered into, itsnovation has to be on fulfillment of all procedural requirements.Civil Appeal No. 6929 of 2012Page 43 of 66Page 43No doubt, there is an exception to this principle, viz. even in theabsence of a contract according to the requirements of Article 299of the Constitution, doctrine of promissory estoppel can still beinvoked against the Government.However, no such case ispleaded by the appellant. To dilate upon the aforesaid propositionfurther, we take along third facet of this issue as, to some extent,
they are over-lapping. Fact remains that even when MoPNGrequested MoF for giving consent to amend the contract, no suchauthorisation came from MoF. Whether, in such a case, can theCourt issue a Mandamus?56)As noted above, the contention of the respondent is that PSCsare in the nature of a contract agreed to between the twoindependent contracting parties. It is also mentioned that beforethe signing of the PSCs, the approval of Cabinet is obtainedwhich reflects that the PSC as submitted to the Cabinet has theapproval of one of the contracting parties, namely, Government ofIndia in this case. When it is signed by the other party it meansthat it has the approval of both the parties. Therefore, acontracting party cannot claim to be oblivious of the provisions ofthe law or the contents of the contract at the time of signing and,therefore, later on cannot seek retrospective amendment as amatter of right when no such right is conferred under the contract.Civil Appeal No. 6929 of 2012Page 44 of 66Page 44Even the doctrine of fairness and reasonableness applies only inthe exercise of statutory or administrative actions of the State andnot in the exercise of contractual obligation and issues arising outof contractual matters are to be decided on the basis of law ofcontract and not on the basis of the administrative law. No doubt,under certain situations, even in respect of contract with the Staterelief can be granted under Article 226. We would, thus, bedealing with this aspect in some detail.57)Law in this aspect has developed through catena of judgments ofthis Court and from the reading of these judgments it would followthat in pure contractual matters extraordinary remedy of writunder Article 226 or Article 32 of the Constitution cannot beinvoked. However, in a limited sphere such remedies areavailable only when the non-Government contracting party is ableto demonstrate that its a public law remedy which such partyseeks to invoke, in contradistinction to the private law remedysimplicitor under the contract. Some of the case law to bringhome this cardinal principle is taken note of hereinafter.58)Significantly, in Andi Mukta Sadguru Shree Muktajee VandasSwami Suvarna Jayanti Mahotsav Smarak Trust & Ors. v. R.
Rudani & Ors.9 as well, this Court made it clear that if the rights9(1989) 2 SCC 691Civil Appeal No. 6929 of 2012Page 45 of 66Page 45are purely of private character, no mandamus can be issued.Thus, even if the respondent is a 'State', other condition whichhas to be satisfied for issuance of a writ of mandamus is thepublic duty. In a matter of private character or purely contractualfield, no such public duty element is involved and, thus,mandamus will not lie.59)First case which needs to be referred is Bareilly DevelopmentAuthority Vs. Ajai Pal Singh and others 10. That was the casewhere Appellate Authority had undertaken construction of dwellingunits for people belonging to different income groups and the costat which such flats were to be allotted to the allottees. However, itwas mentioned that the cost stated was only estimated cost andsubject to increase or decrease according to rise or fall in theprice at the time of completion of property. The authorityincreased the cost and monthly installment rates which itdemanded from the allottees were almost doubled and cost andratesofinstallmentsinitiallystatedinthebrochure.Respondents/allottees filed writ petition challenging the same andin this context question of maintainability of the writ petition arose.High Court, relying upon the judgment of the Supreme Court inthe case of Ramana Dayaram Shetty Vs. Airport Authority of10 [1989] 1 SCR 743Civil Appeal No. 6929 of 2012Page 46 of 66Page 46India11 allowed the writ petition by observing as under :-"It has not been disputed that the contesting oppositeparty is included within the term `other authority'
mentioned under Article 12 of the constitution.Therefore, the contesting opposite parties cannot bepermitted to act arbitrarily with the principle whichmeets the test of reason and relevance. Where anauthority appears acting unreasonably, this court isnot powerless and a writ of mandamus can be issuedfor performing its duty free from arbitrariness orunreasonableness.”60)In appeal filed by the Authority, this Court, on facts, noted that therespondents had applied for registration only by acceptance ofterms and conditions contained in the brochure. Moreover,subsequently letter was written by the Authority about theenhancement of the cost of the houses/flats as well as increase inmonthly installments. Rate of yearly interest requesting allotteesto give their written acceptance and the respondents exceptrespondent No.4 had sent their written acceptance and it was onthe basis of the written acceptance that name of first respondentwas included in the draw and he was successful in gettingallotment of a particular house. The court observed thatrespondents were under no obligation to seek allotment of house/flats even if they had registered themselves. Notwithstanding, thevoluntarily registered themselves as applicants only after fully11 (1979) IILLJ 217 SCCivil Appeal No. 6929 of 2012Page 47 of 66Page 47understanding the terms and conditions of the brochure includingrelating to variance in prices. On the basis of these facts, thisCourt observed that the aforesaid observations of the High Courtrelying upon Ramana Dayaram Shetty case were not correct.Thus observed the Court, speaking through Ratnavel Pandian. J.:“The finding in our view, is not correct in the light ofthe facts and circumstances of this case becausein Ramana Daya Shetty case, there was noconcluded contract as in this case. Even concedingthat the BDA has the trappings of a state or wouldbe comprehended in 'other authority' for thepurpose of Article 12 of the constitution, whiledetermining price of the houses/flats constructedby it and the rate of monthly installments to bepaid, the Authority or its agent after entering into
the field of ordinary contract acts purely in itsexecutive capacity. Thereafter the relations are nolonger governed by the constitutional provisions butby the legally valid contract which determines therights and obligations of the parties inter se. In thissphere they can only claim rights conferred uponthem by the contract in the absence of anystatutory obligations on the part of the authority (i.e.BDA in this case) in the said contractual field.22. There is a line of decisions where the contractentered into between the state and the personsaggrieved is non-statutory and purely contractualand the rights are governed only by the terms ofthe contract, no writ or order can be issued underArticle 226 of the Constitution of India so as tocompel the authorities to remedy a breach ofcontract pure and simple Radhakrishna AgarwalVs. State of Bihar (Supra), Premi Bhai Parmar Vs.Delhi Development Authority and DFO Vs.Biswanath Tea Company Ltd."61) Next case of relevance is the Divisional Forest officer Vs.Civil Appeal No. 6929 of 2012Page 48 of 66Page 48Bishwanath Tea Co. Ltd.12 In that case respondents took onlease certain land from the Government. Initially, period of leasewas 15 years. The lease was to be extended for cultivation andraising tea garden and was subject to condition set out in theLease Agreement and generally to Assam Land & RevenueRegulation and Rules made thereunder. Respondent Companyapproached appellant seeking permission to cut 7000 cub.ft. oftimber. Appellant took the stand that as the timber was requiredfor a particular use which was not within the Grant, full royalty willbe payable on timber so cut and removed. Respondent companypaid the amount of royalty under protest and filed writ petitionunder Article 226 of the Constitution in the High Court alleging thatupon a true construction of the relevant clauses of the Grant asalso proviso to Rule 37 of the Settlement Rules, it was entitled tocut and remove timber without payment of royalty and, therefore,the recovery of royalty being unsupported by law, the appellantwas liable to refund the same. A preliminary objection was takenby the appellant to the maintainability of the writ petition on the
ground that claim of the respondent flows from terms of lease andsuch contractual rights and obligations can only he enforced in acivil court. This preliminary objection was overruled by the High12 [1981] 3 SCR 662Civil Appeal No. 6929 of 2012Page 49 of 66Page 49Court which proceeded to hear the matter and allowed writpetition of the respondent company. In appeal by the appellant tothis Court, the decision of the High Court was reversed holdingthat writ as not maintainable. Following observations may usefullybe quoted:-"8. It is undoubtedly true that High Court can entertainin its extraordinary jurisdiction a petition to issue anyof the prerogative writs for any other purpose. Butsuch writ can be issued where there is executiveaction unsupported by law or even in respect ofcorporation there is a denial of equality before law orequal protection of law. The Corporation can also filea writ petition for enforcement of a right under astatute. As pointed out earlier, the respondentcompany was merely trying to enforce a contractualobligation. To clear the ground let it be stated thatobligation to pay royalty for timber cut and felled andremoved is prescribed by the relevant regulations, thevalidity of regulations is not challenged. Therefore, thedemand for royalty is supported by law. What therespondent claims is an exception that in view of acertain term in the indenture of lease, to writ, Clause2, the appellant is not entitled to demand and collectroyalty from the respondent. This is nothing butenforcement of a term of a contract of lease. Hence,the question whether such contractual obligation canbe enforced by the High Court in its writ jurisdiction.9.Ordinarily, where a breach of contract iscomplained of, a party complaining of such breachmay sue for specific performance of the contract, ifcontract is capable of being specifically performed, orthe party may sue for damages. Such a suit wouldordinarily be cognizable by the Civil Court. The HighCourt in its extraordinary jurisdiction would entertain a
petition either for specific performance of contract orfor recovering damages. A right to relief flowing from acontract has to be claimed in a Civil Court where asuit for specific performance of contract or fordamages could be filed....".Civil Appeal No. 6929 of 2012Page 50 of 66Page 5062)The question came up for consideration again in the case ofKumari Shrilekha Vidyarthi etc. etc. v. State of U.P. andothers13. In that case, State of U.P. had issued Government orderdated 6.2.1990 whereby appointments of all GovernmentCounsels (Civil, Criminal, Revenue) in all the Districts of the Stateof U.P. were terminated w.e.f. 28.2.1990, irrespective of the factwhether the term of the incumbents had expired or wassubsisting. Validity of this G.D. was challenged by many of theseGovernment Counsels whose appointments were terminated andone of the issues to be determined by the court was as to whetherwrit petition was maintainable challenging this G.D., as accordingto the Respondent State the appointment of these GovernmentCounsel was purely contractual and writ petition to enforce thecontract was not maintainable. After noticing this argument of therespondents, the Supreme Court formulated the question to bedecided in the said case, in the following words:“The learned Additional Advocate General did notdispute that if Art. 14 of the Constitution of India isattracted to this case all State actions, theimpugned circular would be liable to be quashed ifit suffers from the vice of arbitrariness. However,his argument is that there is no such vice. In theultimate analysis, it is the challenge of arbitrarinesswhich the circular must challenge of arbitrarinesswithstand in order to survive. This really is the mainpoint evolved for decision by us in the presentcase".13 AIR 1991 SC 537Civil Appeal No. 6929 of 2012Page 51 of 66Page 5163)The Court then examined the nature of appointment of the
Government counsel in the Districts with reference to the variouslegal provisions including legal Remembrance Manual andSection 24 Code of Criminal procedure as well as decision ofSupreme Court in which character of engagement of aGovernment counsel was considered. After analyzing theseprovisions and case law, the Supreme Court concluded in thefollowing manner, describing the nature of appointment of DistrictGovernment counsel:“17. We are, therefore, unable to accept theargument of the Ld. Addl. Advocate General thatthe appointment of District Government Counsel bythe State Government is only a professionalengagement like that between a private client andhis lawyer, or that it is purely contractual with nopublic element attaching to it, which may beterminated at any time at the sweet will of theGovernment excluding judicial review. We havealready indicated the presence of public elementattached to the 'office' or post of DistrictGovernment Counsel of every category covered bythe impugned circular. This is sufficient to attractArticle 14 of the Constitution and bring the questionof validity of the impugned circular within the scopeof judicial review.18. The scope of judicial review permissible in thepresent case, does not require any elaborateconsideration since even the minimum permittedscope of judicial review on the ground ofarbitrariness or unreasonableness or irrationality,once Art. 14 is attracted, is sufficient to invalidatethe impugned circular as indicated later. We neednot, Therefore, deal at length with the scope ofjudicial review permissible in such cases sinceseveral nuances of that ticklish question do notCivil Appeal No. 6929 of 2012Page 52 of 66Page 52arise for consideration in the present case.19. Even otherwise and sans the element soobvious in these appointment and its concomitantsviewed as purely contractual matters after theappointment is made, also attract Art. 14 and
exclude arbitrariness permitting judicial review ofthe impugned state action. This aspect is dealt withhereafter.20. Even apart from the premises that 'office' orpost of D.G.Cs. has a public element which aloneis sufficient to attract the power of judicial review fortesting validity of the impugned circular on the anvilof Art. 14, we are also clearly of the view that thispower is available even without that element on thepremise that after initial appointment, the matter ispurely contractual. Applicability of Art. 14 to allexecutive actions of the State being settled and forthe same reason its applicability at the threshold tothe making of a contract in exercise of theexecutive power being beyond dispute, can it besaid that the State can thereafter cast off itspersonality and exercise unbridled powerunfettered by the requirements of Art. 14 in thesphere of contractual matters and claim to begoverned therein only by private law, principlesapplicable to private individuals whose rights flowonly from the terms of the contract without anythingmore ? We have no hesitation in saying that thepersonality of the State, requiring regulation of itsconduct in all spheres by requirements of Art. 14does not undergo such a radical change after themaking of a contract merely, because somecontractual rights accrue to the other party inaddition. It is not as if the requirements of Art. 14and contractual obligations are alien concepts,which cannot co- exist.21. The preamble of the Constitution of Indiaresolves to secure to all its citizens Justice, socialeconomic and political: and Equality of status andopportunity. Every State action must be aimed atachieving this goal. Part IV of the Constitutioncontains 'Directive principles of State Policy' whichare fundamental in the governance of the countryand are aimed at securing social and economicCivil Appeal No. 6929 of 2012Page 53 of 66Page 53
freedoms by appropriate State action which iscomplementary to individual fundamental rightsguaranteed in part III for protection againstexcesses of State action, to realise the vision in thepreamble. This being the philosophy of theconstitution, can it be said that it contemplatesexclusion of Art. 14 non arbitrariness which is basicto rule of law from State actions is contractual fieldwhen all actions of the State are meant fore publicgood and expected to be fair and just ? we have nodoubt that the Constitution does not envisage orpermit unfairness or unreasonableness in Stateactions in any sphere of its activity contrary to theprofessed ideals in the preamble. In our opinion, itwould be alien to the Constitutional scheme toaccept the argument of exclusion of Art. 14 incontractual matters. The scope and permissiblegrounds of judicial review in such matters and therelief which may be available are different mattersbut that does not justify the view of its totalexclusion. This is more so when the modern t rendis also to examine the unreasonableness of a termin such contractual where the bargaining power isunequal so that these are not negotiated contractsbut standard from contracts between unequal.22. There is an obvious difference in the contractsbetween private parties and contracts to which theState is a party. Private parties are concerned onlywith their personal interest whereas the State whileexercising its powers and discharging its functions,acts indubitably, as is expected of it for public goodand in public interest. The impact of every Stateaction is also on public interest. This factor alone issufficient to import at least the minimumrequirements of public law obligations and impresswith this character the contracts made by the Stateor its instrumentality. It is a different mater that thescope of judicial review in respect of disputesscope of judicial review in respect of disputesfalling within the domain of contractual obligationsmay be more limited and in doubtful cases theparties may be relegated to adjudication of their
rights by resort to remedies provided foradjudication of purely contractual disputes.However, to the extent, challenge is made on theground of violation of Art. 14 by alleging that theCivil Appeal No. 6929 of 2012Page 54 of 66Page 54impugned act is arbitrary, unfair or unreasonable,the fact that the dispute also falls within the domainof contractual obligations would not relieve theState of its obligation to comply with the basicrequirements of Art. 14. To this extent, theobligation is of a public character invariably inevery case irrespective of there being any otherright or obligation in addition thereto. An additionalcontractual obligation cannot divest the claimant ofthe guarantee under Art. 14 of non-arbitrariness atthe hands of the State in any of its actions.xx xx xx34. In our opinion, the wide sweep of Art. 14undoubtedly takes within its fold the impugnedcircular issued by the State of U.P. in exercise of itsexecutive power, irrespective of the precise natureof appointment of the Government counsel in thedistricts and the other rights, contractual orstatutory, which the appointees may have. It is forthis reason that we base our decision on theground that independent of any statutory right,available to the appointments, and assuming forthe purpose of this case that the rights flow onlyfrom the contract of appointment, the impugnedcircular, issued in exercise of the executive powerof the State, must satisfy Art. 14 of the Constitutionand if it is shown to be arbitrary, it must be struckdown. However, we have referred to certainprovisionsrelatingtoinitialappointment,termination or renewal of tenure to indicate that theaction is controlled at least by settled guidelines,
followed by the State of U.P. for a long time. Thistoo is relevant for deciding the question ofarbitrariness alleged in the present case"64)Similarly, in State of Gujarat v. M.P. Shah Charitable Trust14,this Court reiterated the principles that if the matter is governed bya contract, the writ petition is not maintainable since it is a publiclaw remedy and is not available in private law field, for example,14 (194) 3 SCC 552Civil Appeal No. 6929 of 2012Page 55 of 66Page 55where the matter is governed by a non-statutory contract.65)At this stage, we would like to discuss at length the judgment ofthis Court in ABL International Ltd. (supra), on which strongreliance is placed upon by the counsel for both the parties. In thatcase, various earlier judgments right from the year 1954 weretaken note of. One such judgment which the Department insupport of their case had referred to was the decision of ApexCourt in case LIC of India v. Escorts Ltd.15 wherein the Courthad held that ordinarily in matter relating to contractualobligations, the Court would not examine it unless the action hassome public law character attached to it. The following passagefrom the said judgment was relied upon by the respondents:“If the action of the State is related to contractualobligations or obligations arising out of the tort, thecourt may not ordinarily examine it unless theaction has some public law character attached to it.Broadly speaking, the court will examine actions ofState if they pertain to the public law domain andrefrain from examining them if they pertain to theprivate law field. The difficulty will lie in demarcatingthe frontier between the public law domain and theprivate law field. It is impossible to draw the linewith precision and we do not want to attempt it. Thequestion must be decided in each case withreference to the particular action, the activity inwhich the State or the instrumentality of the State isengaged when performing the action, the publiclaw or private law character of the action and ahost of other relevant circumstances. When the
State or an instrumentality of the State venturesinto the corporate world and purchases the sharesof a company, it assumes to itself the ordinary role15 (1986) 1 SCC 264Civil Appeal No. 6929 of 2012Page 56 of 66Page 56of a shareholder, and dons the robes of ashareholder, with all the rights available to such ashareholder. There is no reason why the State as ashareholder should be expected to state itsreasons when it seeks to change the management,by a resolution of the company, like any othershareholder."This Court dealt with this judgment in the following manner:“We do not think Court in the above case has, inany manner, departed from the view expressed inthe earlier judgments in the case citedhereinabove. This Court in the case of LifeInsurance Corporation of India (Supra) proceededon the facts of that case and held that a relief byway of a writ petition may not ordinarily be anappropriate remedy. This judgment does not laydown that as a rule in matters of contract thecourt's jurisdiction under Article 226 of theConstitution is ousted. On the contrary, the use ofthe words "court may not ordinarily examine itunless the action has some public law characterattached to it" itself indicates that in a given case,on the existence of the required factual matrix aremedy under Article 226 of the Constitution will beavailable."66)Insofar as the argument of the respondents in the said case thatwrit petition on contractual matter was not maintainable unless itis shown that the authority performs a public function ordischarges a public duty, is concerned, it was answered in thefollowing manner:“22. We do not think the above judgment in VSTIndustries Ltd. (supra) supports the argument of thelearned counsel on the question of maintainabilityof the present writ petition. It is to be noted that
VST Industries Ltd. against whom the writ petitionwas filed was not a State or an instrumentality of aState as contemplated under Article 12 of theConstitution, hence, in the normal course, no writCivil Appeal No. 6929 of 2012Page 57 of 66Page 57could have been issued against the said industry.But it was the contention of the writ petitioner inthat case that the said industry was obligated underthe concerned statute to perform certain publicfunctions, failure to do so would give rise to acomplaint under Article 226 against a private body.While considering such argument, this Court heldthat when an authority has to perform a publicfunction or a public duty if there is a failure a writpetition under Article 226 of the Constitution ismaintainable. In the instant case, as to the fact thatthe respondent is an instrumentality of a State,there is no dispute but the question is: was firstrespondent discharging a public duty or a publicfunction while repudiating the claim of theappellants arising out of a contract ? Answer to thisquestion, in our opinion, is found in the judgment ofthis Court in the case of Kumari Shri LekhaVidyarthi & Ors. vs. State of U.P.& Ors. [1991] (1)SCC 212] wherein this Court held:“The impact of every State action is also onpublic interest. It is really the nature of itspersonality as State which is significant andmust characterize all its actions, in whateverfield, and not the nature of function,contractual or otherwise which is decisive ofthe nature of scrutiny permitted for examiningthe validity of its act. The requirement of Article14 being the duty to act fairly, justly andreasonably, there is nothing which militatesagainst the concept of requiring the Statealways to so act, even in contractual matters."23. It is clear from the above observations of thisCourt, once State or an instrumentality of State is aparty to the contract, it has an obligation in law to
act fairly, justly and reasonably which is therequirement of Article 14 of the Constitution ofIndia. Therefore, if by the impugned repudiation ofthe claim of the appellants the first respondent asan instrumentality of the State has acted incontravention of the above said requirement ofArticle 14 then we have no hesitation that a writcourt can issue suitable directions to set right thearbitrary actions of the first respondent."67)The Court thereafter summarized the legal position in theCivil Appeal No. 6929 of 2012Page 58 of 66Page 58following manner:“27. From the above discussion of ours, followinglegal principles emerge as to the maintainability ofa writ petition :-(a) In an appropriate case, a writ petition as againsta State or an instrumentality of a State arising outof a contractual obligation is maintainable.(b) Merely because some disputed questions offacts arise for consideration, same cannot be aground to refuse to entertain a writ petition in allcases as a matter of rule.(c) A writ petition involving a consequential relief ofmonetary claim is also maintainable.28. However, while entertaining an objection as tothe maintainability of a writ petition under Article226 of the Constitution of India, the court shouldbear in mind the fact that the power to issueprerogative writs under Article 226 of theConstitution is plenary in nature and is not limitedby any other provisions of the Constitution. TheHigh Court having regard to the facts of the case,has a discretion to entertain or not to entertain awrit petition. The Court has imposed upon itselfcertain restrictions in the exercise of this power[See: Whirlpool Corporation vs. Registrar of TradeMarks, Mumbai & Ors. [1998 (8) SCC 1]. And thisplenary right of the High Court to issue aprerogative writ will not normally be exercised by
the Court to the exclusion of other availableremedies unless such action of the State or itsinstrumentality is arbitrary and unreasonable so asto violate the constitutional mandate of Article 14 orfor other valid and legitimate reasons, for which thecourt thinks it necessary to exercise the saidjurisdiction."68)The position thus summarized in the aforesaid principles has tobe understood in the context of discussion that preceded whichwe have pointed out above. As per this, no doubt, there is noCivil Appeal No. 6929 of 2012
absolute bar to the maintainability of the writ petition even incontractual matters or where there are disputed questions of factor even when monetary claim is raised. At the same time,discretion lies with the High Court which under certaincircumstances, can refuse to exercise. It also follows that underthe following circumstances, 'normally', the Court would notexercise such a discretion:(a) the Court may not examine the issue unless the action hassome public law character attached to it.(b) Whenever a particular mode of settlement of dispute isprovided in the contract, the High Court would refuse to exerciseits discretion under Article 226 of the Constitution and relegate theparty to the said made of settlement, particularly when settlementof disputes is to be resorted to through the means of arbitration.(c) If there are very serious disputed questions of fact which are ofcomplex nature and require oral evidence for their determination.(d) Money claims per se particularly arising out of contractualobligations are normally not to be entertained except inexceptional circumstances.69)Further legal position which emerges from various judgments ofthis Court dealing with different situations/aspects relating to theCivil Appeal No. 6929 of 2012
contracts entered into by the State/public Authority with privateparties, can be summarized as under:(i)At the stage of entering into a contract, the State acts purelyin its executive capacity and is bound by the obligations offairness.
(ii)State in its executive capacity, even in the contractual field,is under obligation to act fairly and cannot practice somediscriminations.(iii) Even in cases where question is of choice or consideration ofcompeting claims before entering into the field of contract, factshave to be investigated and found before the question of aviolation of Article 14 could arise. If those facts are disputed andrequire assessment of evidence the correctness of which can onlybe tested satisfactorily by taking detailed evidence, Involvingexamination and cross- examination of witnesses, the case couldnot be conveniently or satisfactorily decided in proceedings underArticle 226 of the Constitution. In such cases court can direct theaggrieved party to resort to alternate remedy of civil suit etc.(iv) Writ jurisdiction of High Court under Article 226 was notintended to facilitate avoidance of obligation voluntarily incurred.(v) Writ petition was not maintainable to avoid contractualobligation. Occurrence of commercial difficulty, inconvenience orCivil Appeal No. 6929 of 2012Page 61 of 66Page 61hardship in performance of the conditions agreed to in thecontract can provide no justification in not complying with theterms of contract which the parties had accepted with open eyes.It cannot ever be that a licensee can work out the license if hefinds it profitable to do so: and he can challenge the conditionsunder which he agreed to take the license, if he finds itcommercially inexpedient to conduct his business.(vi) Ordinarily, where a breach of contract is complained of, theparty complaining of such breach may sue for specificperformance of the contract, if contract is capable of beingspecifically performed.Otherwise, the party may sue fordamages.(vii) Writ can be issued where there is executive actionunsupported by law or even in respect of a corporation there isdenial of equality before law or equal protection of law or if can beshown that action of the public authorities was without giving anyhearing and violation of principles of natural justice after holdingthat action could not have been taken without observing principlesof natural justice.(viii)
IfthecontractbetweenprivatepartyandtheState/instrumentality and/or agency of State is under the realm ofa private law and there is no element of public law, the normalCivil Appeal No. 6929 of 2012Page 62 of 66Page 62course for the aggrieved party, is to invoke the remedies providedunder ordinary civil law rather than approaching the High Courtunder Article 226 of the Constitutional of India and invoking itsextraordinary jurisdiction.(ix) The distinction between public law and private law element inthe contract with State is getting blurred. However, it has not beentotally obliterated and where the matter falls purely in private fieldof contract. This Court has maintained the position that writpetition is not maintainable. Dichotomy between public law andprivate law, rights and remedies would depend on the factualmatrix of each case and the distinction between public lawremedies and private law, field cannot be demarcated withprecision. In fact, each case has to be examined, on its factswhether the contractual relations between the parties bearinsignia of public element. Once on the facts of a particular case itis found that nature of the activity or controversy involves publiclaw element, then the matter can be examined by the High Courtin writ petitions under Article 226 of the Constitution of India tosee whether action of the State and/or instrumentality or agencyof the State is fair, just and equitable or that relevant factors aretaken into consideration and irrelevant factors have not gone intothe decision making process or that the decision is not arbitrary.Civil Appeal No. 6929 of 2012Page 63 of 66Page 63(x) Mere reasonable or legitimate expectation of a citizen, in sucha situation, may not by itself be a distinct enforceable right, butfailure to consider and give due weight to it may render thedecision arbitrary, and this is how the requirements of due
consideration of a legitimate expectation forms part of theprinciple of non-arbitrariness.(xi) The scope of judicial review in respect of disputes fallingwithin the domain of contractual obligations may be more limitedand in doubtful cases the parties may be relegated to adjudicationof their rights by resort to remedies provided for adjudication ofpurely contractual disputes.70)Keeping in mind the aforesaid principles and after considering thearguments of respective parties, we are of the view that on thefacts of the present case, it is not a fit case where the High Courtshould have exercised discretionary jurisdiction under Article 226of the Constitution. First, the matter is in the realm of purecontract. It is not a case where any statutory contract is awarded.71)As pointed out earlier as well, the contract in question was signedafter the approval of Cabinet was obtained. In the said contract,there was no clause pertaining to Section 42 of the Act. Theappellant is presumed to have knowledge of the legal provision,Civil Appeal No. 6929 of 2012Page 64 of 66Page 64namely, in the absence of such a clause, special allowancesunder Section 42 would impermissible. Still it signed the contractwithout such a clause, with open eyes. No doubt, the appellantclaimed these deductions in its income tax returns and it waseven allowed these deductions by the Income Tax Authorities.Further, no doubt, on this premise, it shared the profits with theGovernment as well. However, this conduct of the appellant oreven the respondents, was outside the scope of the contract andthat by itself may not give any right to the appellant to claim arelief in the nature of Mandamus to direct the Government toincorporate such a clause in the contract, in the face of thespecific provisions in the contract to the contrary as noted above,particularly, Article 32 thereof. It was purely a contractual matterwith no element of public law involved thereunder.72)Having considered the matter in the aforesaid prospective, wecome to the irresistible conclusion that the appellant is not entitledto the relief claimed. Though it may be somewhat harsh on theappellant when it availed the benefit of Section 42 for few yearsand acted on the understanding that such a benefit would be
given to it, but we have no option but to hold that PSCs did notprovide for this benefit to be given to the appellant and theCivil Appeal No. 6929 of 2012Page 65 of 66Page 65contract can be amended only if both the parties agree to do so,and not otherwise. Therefore, we are constrained to dismiss theappeal for the reasons given above.There shall, however, be no orders as to costs..............................................J.(A.K. SIKRI).............................................J.(ROHINTON FALI NARIMAN)NEW DELHI;MAY 14, 2015.Civil Appeal No. 6929 of 2012
