Facts of the Case

Raipur Smart City Limited invited proposals through a request dated 17 December 2020 for selection of a bidder for the design, development, implementation, operation and maintenance of Smart Parking Management at the Multi-Level Car Parking situated at EAC Colony, Raipur, on an annual licence fee basis.

The petitioner, M/s Moon Caterers, participated in the bidding process and was declared the L-1 and successful bidder. A Licence Agreement was executed between the parties on 06 July 2021. The licence period was fixed for five years, extendable for another five years at the discretion of the competent authority. The annual licence fee was fixed at ₹15,11,926.

The petitioner furnished performance security of approximately ₹7,56,000 and, after fulfilment of the contractual conditions and payment of the first instalment, a work order dated 13 September 2021 was issued for operation and maintenance of the Smart Parking Management facility.

The petitioner alleged that difficulties subsequently arose because parking charges relating to approximately 800 passes issued for employees of the Collectorate, Police, Zila Panchayat and other departments remained unpaid. The petitioner further raised issues concerning an outstanding electricity bill pertaining to the period when the Multi-Level Parking facility was under construction and alleged that demand drafts submitted towards instalments and GST were not presented by the respondent authority within time.

The dispute escalated after an incident concerning alleged slaughter of a goat and public nuisance in or around the MLCP premises. Preventive proceedings were initiated, and the respondent authority relied upon the incident as a material ground for contractual action.

By letter dated 15 July 2022, Raipur Smart City Limited terminated the Licence Agreement, forfeited the performance bank guarantee of ₹7,56,000 and directed payment of the balance licence fee of ₹2,97,345.

Aggrieved by the termination, the petitioner invoked Article 226 of the Constitution of India and challenged the legality, propriety and correctness of the impugned action.

Issues Involved

  1. Whether a writ petition under Article 226 of the Constitution of India was maintainable in a dispute arising from a non-statutory commercial contract containing a dispute-resolution mechanism.
  2. Whether the existence of contractual remedies or a dispute-resolution clause completely barred exercise of the High Court’s writ jurisdiction.
  3. Whether Raipur Smart City Limited, being a State instrumentality, acted arbitrarily, irrationally or unreasonably while terminating the Licence Agreement.
  4. Whether the alleged incident concerning inappropriate use of the parking premises and alleged criminal activity justified the extreme contractual consequence of termination.
  5. Whether the termination was disproportionate when Clause 3.16 of the Licence Agreement separately contemplated graded penalties for contractual violations.
  6. Whether invocation of Clause 5.1.1(h), concerning failure to pay an instalment of annual licence fee within the prescribed period, was justified in view of the petitioner’s assertion that instalments had been regularly tendered through demand drafts.
  7. Whether forfeiture of the performance bank guarantee could survive when the termination action itself was challenged as arbitrary and disproportionate.

Petitioner’s Arguments

The petitioner contended that the termination action violated the principles of natural justice because no proper opportunity of hearing was granted before issuance of the impugned termination letter.

It was argued that the respondent authority acted arbitrarily, irrationally and unjustly. According to the petitioner, the preventive proceedings referred to in the impugned letter were only for maintenance of peace and remained under consideration or investigation.

The petitioner submitted that the reasons assigned in the termination letter and the contractual clauses invoked by the respondent were inconsistent with each other.

It was further argued that the alleged goat-slaughter incident did not occur within the parking area contractually handed over to the petitioner. According to the petitioner, the incident took place in an adjacent open area and the map subsequently relied upon by the respondent was not supplied as part of the agreement at the time of handing over possession.

The petitioner denied personal involvement in the alleged slaughter activity and contended that the persons allegedly involved had been restrained from working within the MLCP limits.

The petitioner also challenged the allegation of licence-fee default and relied upon copies of demand drafts to assert that instalments had been regularly tendered according to the prescribed schedule.

A significant argument was founded upon Clause 3.16 of the agreement. The petitioner submitted that the contract itself prescribed graded penalties for violations, including use of parking space for purposes other than parking. Therefore, immediate termination was alleged to be arbitrary and excessive.

On maintainability, the petitioner argued that Article 226 constituted a valuable constitutional safeguard against arbitrary exercise of State power. Merely because the dispute arose in a contractual setting, the High Court’s jurisdiction could not be completely excluded where a State instrumentality violated Article 14 by acting unfairly or unreasonably.

The petitioner relied, inter alia, upon Unitech Limited and Others vs Telangana State Industrial Infrastructure Corporation (TSIIC) and Others, 2021 SCC OnLine SC 99, and the principles recognised in ABL International Ltd. vs Export Credit Guarantee Corporation of India Ltd., to submit that writ jurisdiction is not absolutely barred in contractual matters involving State instrumentalities.

Respondent’s Arguments

Raipur Smart City Limited raised a preliminary objection to maintainability. It submitted that Article 6 of the agreement provided a dispute-resolution mechanism and, therefore, the petitioner could not directly invoke the writ jurisdiction of the High Court.

The respondent contended that the dispute arose from a purely commercial and non-statutory contract and belonged to the realm of private law. Accordingly, ordinary contractual remedies, civil proceedings or the agreed dispute-resolution mechanism were said to be appropriate.

The respondent alleged that the area licensed to the petitioner included not only the constructed multi-level parking structure but also surrounding open areas intended for two-wheeler parking and associated roads.

Photographs and a pen drive were relied upon to contend that a goat was slaughtered in the open parking area and that a goat had also been tied inside the constructed MLCP area. According to the respondent, the incident generated a law-and-order situation and resulted in police and administrative intervention.

The respondent asserted that the petitioner was responsible for activities conducted within the licensed premises and alleged that the conduct violated the terms and conditions of the agreement.

It was further argued that the conduct could attract Section 257 of the Chhattisgarh Municipal Corporation Act, 1956 and Section 269 of the Indian Penal Code.

The respondent defended termination and forfeiture of the performance bank guarantee as being strictly in accordance with the contractual clauses. It also alleged non-payment of amounts within the prescribed period and maintained that the balance demand had been correctly calculated.

The respondent further submitted that Clause 3.16, concerning penalties, and Clause 5.1, concerning termination, were separate and distinct contractual mechanisms capable of independent operation. According to the respondent, imposition of a penalty did not prevent termination.

In support of the objection concerning writ maintainability and contractual disputes, reliance was placed upon several authorities, including:

Pimpri Chinchwad Municipal Corporation vs Gayatri Construction Co., (2008) 8 SCC 172

Kerala State Electricity Board vs Kurien E. Kalathil, (2000) 6 SCC 293

Radhakrishna Agarwal vs State of Bihar, (1977) 3 SCC 457

M/s Utkal Highways & Others vs State of Chhattisgarh & Another, AIR 2006 Chh 29

National Highways Authority of India vs Ganga Enterprises, (2003) 7 SCC 410

Food Corporation of India vs Jagannath Dutta, 1993 Supp (3) SCC 635

State of Bihar vs Jain Plastics and Chemicals Ltd., (2002) 1 SCC 216

Joshi Technologies International Inc. vs Union of India & Others, AIR 2015 SC (Supp) 1889

Court’s Findings

The High Court examined the contractual provisions and the competing authorities concerning the exercise of writ jurisdiction in contractual matters.

The Court recognised that disputes arising purely from non-statutory contracts may ordinarily be governed by principles of private law and contractual remedies. However, it also recognised that writ jurisdiction under Article 226 is not completely excluded merely because the dispute arises in a contractual field.

Relying upon the principles emerging from Unitech Limited and Others vs TSIIC and Others, ABL International Ltd. vs Export Credit Guarantee Corporation of India Ltd., and Tata Cellular vs Union of India, (1994) 6 SCC 651, the Court emphasised that State instrumentalities remain subject to the constitutional obligation to act fairly and reasonably.

The Court observed that judicial review may examine whether the decision-making authority exceeded its powers, committed an error of law, breached the rules of natural justice, reached a conclusion that no reasonable authority could reach, or abused its powers.

The Court analysed Clause 3.16 of the Licence Agreement, which separately prescribed penalties for contractual violations. The relevant variations included use of parking space for purposes other than parking and criminal activity in the parking area. The contractual scheme contemplated graded consequences, including 2% of annual licence fee for a first complaint, 4% for a second complaint, and 10% and/or termination for a third complaint.

The Court also considered Clauses 5.1.1(h), 5.1.1(i) and 5.1.3, under which the respondent authority purported to terminate the agreement.

Regarding alleged non-payment, the Court noticed the petitioner’s specific assertion, supported by copies of demand drafts, that three instalments had regularly been paid or tendered according to the prescribed schedule. This was relevant to the respondent’s invocation of Clause 5.1.1(h).

The Court held that although the authority was competent to impose a penalty for criminal activity in the parking area or use of parking space for purposes other than parking, and could in an appropriate case take the extreme step of termination, such action remained subject to judicial review.

The High Court held that whenever action of the State or its instrumentality is arbitrary, unreasonable or contrary to the constitutional mandate of Article 14, the writ court may exercise jurisdiction under Article 226.

The Court also relied upon K. Sreedhara Reddy vs Conservator of Forests, (1976) 1 SCC 107, for the principle that the severity of contractual action should correspond to the gravity of the breach. A grave breach may justify termination, whereas an inconsequential breach may call for a lighter penalty.

After examining the entire factual background, allegations and contractual framework, the Court concluded that the power to terminate the Licence Agreement had not been exercised in a rational and equitable manner.

The High Court expressly found that the termination action was too harsh and disproportionate to the allegations levelled against the petitioner.

Accordingly, Raipur Smart City Limited was held not justified in terminating the Licence Agreement on the grounds and reasons mentioned in the impugned letter.

Court Order

The High Court quashed the impugned letter dated 15 July 2022 by which Raipur Smart City Limited had terminated the Licence Agreement relating to the design, development, implementation, operation and maintenance of Smart Parking Management at the MLCP situated at EAC Colony, Raipur, on an annual licence fee basis.

The writ petition was allowed.

No order as to costs was made.

Important Clarification

The judgment does not establish that every contractual dispute involving the State or a State instrumentality is automatically maintainable under Article 226 of the Constitution.

The important distinction is that writ jurisdiction may be exercised where the impugned action of the State or its instrumentality demonstrates arbitrariness, irrationality, unfairness, unreasonableness or violation of the constitutional mandate under Article 14.

The existence of a contractual dispute-resolution mechanism does not operate as an absolute bar in every case. At the same time, the High Court must exercise writ jurisdiction with circumspection, particularly where disputed questions of fact require a detailed evidentiary trial.

The judgment further clarifies that even where a contract authorises termination, the exercise of such power is not beyond judicial review when exercised by a State instrumentality. The decision must remain rational, equitable and proportionate to the alleged breach.

The Court’s reasoning also highlights that where a contractual framework itself provides graded penalties for violations, immediate resort to the extreme consequence of termination may be judicially examined for proportionality.

Sections / Constitutional and Statutory Provisions Involved

Article 226 of the Constitution of India – Writ jurisdiction of the High Court.

Article 14 of the Constitution of India – Requirement that State action and action of State instrumentalities be fair, reasonable and non-arbitrary.

Sections 107, 116(3) and 151 of the Code of Criminal Procedure, 1973 – Preventive proceedings referred to in connection with the incidents forming part of the termination controversy.

Section 257 of the Chhattisgarh Municipal Corporation Act, 1956 – Invoked in the respondent’s defence concerning the alleged activity at the premises.

Section 269 of the Indian Penal Code, 1860 – Referred to by the respondent in relation to the alleged conduct.

Clause 3.16 of the Licence Agreement – Penalty for violations.

Clauses 5.1.1(h), 5.1.1(i) and 5.1.3 of the Licence Agreement – Contractual provisions concerning termination, non-payment of licence fee, use of the project for purposes other than those prescribed, and consequences of breach

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