Present appeal impugnes the judgment and order passed by the High Court of Delhi, thereby dismissing the writ petition which was filed by the appellant.
No Acts & Articles mentioned in this case
Page 1 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6929 OF 2012
JOSHI TECHNOLOGIES INTERNATIONAL INC. .....APPELLANT(S)
VERSUS
UNION OF INDIA & ORS. .....RESPONDENT(S)
J U D G M E N T
A.K. SIKRI, J.
Present appeal impugnes the judgment and order dated
28.05.2012 passed by the High Court of Delhi, thereby dismissing
the writ petition which was filed by the appellant. It so happened
that the appellant had entered into two contracts dated
20.02.1995 with the Union of India, through Ministry of Petroleum
and Natural Gas (MoPNG) in the year 1992 relating to exploration
of certain oil fields which the Union of India had selected in
Gujarat and other States. These contracts were on production
sharing basis for Dholka and Wavel Oil Fields respectively. It
started the production after entering into the contract and filed its
income tax return on the income generated from the aforesaid
Civil Appeal No. 6929 of 2012 Page 1 of 66
Page 2 production. In the returns, the appellant claimed benefit of Section
42 of the Income Tax Act, 1961 (hereinafter referred to as the
'Act'). Section 42 is a special provision for deductions in the case
of business for prospecting, etc. for mineral oil. It provides for
certain 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 stipulated
in the Section, are to be specifically mentioned in the agreement
as well, which is entered into with the Central Government and it
is also necessary that such an agreement has been laid on the
Table of each House of Parliament.
2)The Income Tax Authorities extended the benefit of granting
deductions under the aforesaid provisions from the year 2001-02
(assessment years onwards) when the appellant commenced
commercial production in the aforesaid two oil fields. However,
while making assessment for the Assessment Year 2005-06, the
Assessing Officer observed that there were no such provisions
made in the Agreements which were signed between the Central
Government and the appellant and in the absence of such
stipulation in the agreement, the appellant was not entitled to the
benefit of deductions under Section 42 of the Act. Realising that
the Agreements did not contain such a provision, the appellant
Civil Appeal No. 6929 of 2012 Page 2 of 66
Page 3 wrote to the MoPNG stating that though there was such an
arrangement agreed to as per the understanding between the two
parties, non-inclusion thereof was an inadvertent omission in the
Contracts that were signed. The MoPNG wrote to Ministry of
Finance (MoF) accepting the aforesaid omissions and requested
the MoF to give clarification in this behalf. As no clarification came
from the MoF, the Assessing Officer disallowed the claim for
deduction under Section 42(1)(b) and 42(1)(c) of the Act. At this
stage, the appellant preferred writ petition under Article 226 of the
Constitution of India in the High Court of Delhi with the following
prayers.
“Therefore it is most respectfully prayed that this Hon'ble
Court may be pleased to issue:-
(I)A writ, direction or order declaring that the petitioner is
entitled, in respect of the two Production Sharing
Contracts dated 20.02.1995 executed with the petitioner
for the Dholka and Wavel Oil Fields in Gujarat, to the
benefit of the said deductions (set forth in Article 16 of the
MPSC and reproduced in Annexure P1) under Section 42
of the Income-Tax Act, 1961, from the date of these
Production Sharing Contracts, as has been stated and
declared by the respondent no. 1 (i.e., the Ministry of
Petroleum and Natural Gas) in several of its
communications; and that the petitioner is entitled to the
said Deductions on the same footing as all other
contractors who have executed PSCs with the Union of
India;
(ii)A writ, order or direction in the nature of certiorari
quashing the impugned order dated 31.12.2007 issued by
Respondent No. 1; the notice dated 28.03.2008 for
re-opening of the petitioner's income-tax assessments for
the Assessment Years 2001-2002; 2002-2003 and
2003-2004 and the notice dated 01.05.2008 for re-opening
Civil Appeal No. 6929 of 2012 Page 3 of 66
Page 4 the assessment for the Assessment Year 2004-05; and
(iii)Such other writ order or direction as this Hon'ble Court
may deem just and proper in the circumstances of the
case and in the interest of justice, be passed in favour of
the petitioner.”
3)This writ petition which has been dismissed by the High Court
vide impugned judgment dated 28.05.2012 holding that the
appellant is not entitled to any deductions under Section 42 of the
Act in the absence of stipulations to this effect in the Contracts
signed between the parties. This decision is the subject matter of
challenge before us in the present appeal.
4)Now, the facts in detail:
The Union of India (“UOI”), through the MoPNG, issued a
Notice Inviting Tenders in August 1992 (“1992 NIT”), along with a
Model Production Sharing Contract (“MPSC”), for “Development
of Oil and Gas Fields” from various companies in relation to
some selected oil fields in Gujarat and other States. Article 16 of
the above-mentioned MPSC contained a specific provision, which
provided certain financial benefits and deductions in relation to
taxes etc. that would be allowed to contractors/developers, as per
the requirements of Section 42 of the Act.
5)The MoF by its Office Memorandum dated 18.06.1992, raised an
issue that Section 293-A of the Act would not apply to contracts of
the nature mentioned above, and that benefits under the special
Civil Appeal No. 6929 of 2012 Page 4 of 66
Page 5 provisions of Section 42 of the Act would not be available to
foreign companies, such as the appellant, which enter into such
contracts with the Central Government. The MoPNG by its Office
Memorandum, dated 22.06.1992 (“OM”) referred the issue to the
Ministry of Law, Justice and Company Affairs specifically seeking
its opinion on applicability of Section 42 and Section 293-A of the
Act to the 1992 NIT and the MPSC.
6)The Ministry of Law gave its opinion dated 21.07.1992 to the
effect that benefit of both Section 293A and Section 42 should be
extended to foreign companies in order to make their participation
in these oil fields viable.
7)The appellant (along with its erstwhile joint venture partner Larsen
and Toubro Ltd., whose stake was also subsequently acquired by
the appellant) submitted its bid dated 29.03.1993 in response to
the 1992 NIT.
8)The appellant was allotted the Dholka abnd Wavel Oil Fields in
Gujarat near Ahmedabad, by the MoPNG. Two production sharing
contracts, each dated 20.02.1995, were executed by the appellant
with the MoPNG for Dholka and Wavel Oil Fields, respectively
(the “Two PSCs”). According to the appellant, since no
amendments to Article 16 of MPSC had been suggested nor
contemplated b y the Union of India, it was (and is) the belief and
Civil Appeal No. 6929 of 2012 Page 5 of 66
Page 6 legitimate expectation of the appellant that all the benefits,
financial or otherwise, offered in Article 16 of the MPSC to the
prospective bidders were duly included in the above two PSCs.
9)From 2001 the appellant commenced commercial production from
the Dholka and Wavel Oil Fields (delayed on account of the UOI's
delay in handling over the fields) and availed the benefits of
Section 42 Deductions provided in Article 16 of the MPSC, which
were duly allowed by the concerned Income Tax Officer at
Ahmedabad. The UOI's share of petroleum profit was also
determined in accordance with the assumption that, and on the
consideration that the appellant was entitled to the benefit of the
Section 42 deductions and the UOI consequently also enjoyed a
larger quantum as petroleum profits that it otherwise would have.
The accounts and calculations of the appellant claiming the
Section 42 deductions and passing on the benefit to the UOI in
the form of an increased quantum of petroleum profit in terms of
the two PSCs , were duly audited and approved by the MoPNG's
government auditors.
10)While the things proceeded in the aforesaid manner, it so
happened in the case of some other Production Sharing
Contracts, which did not specifically contain the fiscal benefits and
the deduction envisaged by Article 16 of the MPSC, the Income
Civil Appeal No. 6929 of 2012 Page 6 of 66
Page 7 Tax Authorities questioned the basis on which such assesses had
claimed deduction/ allowances under Section 42. This move of
the Income Tax Authorities prompted the MoPNG to write OM
dated 17.06.2005 to the MoF, Department of Revenue to clarify to
the relevant Income-Tax Authorities that the provisions of Section
42 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 purpose
of computing profits and gains, after allowing the Section 42
deductions. 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 42
deductions were denied in respect of these 13 PSCs.
11)Since the entire dispute pertains to deductions under Section 42
of the Act, at this stage we reproduce the said provisions
hereunder:
“42. Special provision for deductions in the case of
business for prospecting, etc., for mineral oil.—[(1)]
For the purpose of computing the profits or gains of
any business consisting of the prospecting for or
extraction or production of mineral oils in relation to
which the Central Government has entered into an
agreement with any person for the association or
participation
90
[of the Central Government or any
person authorised by it in such business] (which
agreement has been laid on the Table of each
House of Parliament), there shall be made in lieu
of, or in addition to, the allowances admissible
Civil Appeal No. 6929 of 2012 Page 7 of 66
Page 8 under 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 physical
assets used in that connection, except assets on which
allowance for depreciation is admissible under Section
32:
[Provided that in relation to any agreement entered
into after the 31st day of March, 1981, this clause shall
have effect subject to the modification that the words and
figures "except assets on which allowance for
depreciation is admissible under Section 32" had been
omitted; 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 in
the agreement;
and such allowances shall be computed and made in the
manner specified in the agreement, the other provisions of this
Act being deemed for this purpose to have been modified to
the extentnecessary to give effect to the terms of the
agreement:
[(2) Where the business of the assessee consisting of the
prospecting for or extraction or production of petroleum and
natural gas is transferred wholly or partly or any interest in such
business is transferred in accordance with the agreement
referred to in sub-section (1), subject to the provisions of the
said agreement and where the proceeds of the transfer (so far
as they consist of capital sums)—
(a) are less than the expenditure incurred remaining
unallowed, a deduction equal to such expenditure remaining
unallowed, as reduced by the proceeds of transfer, shall be
allowed in respect of the previous year in which such business
or interest, as the case may be, is transferred;
Civil Appeal No. 6929 of 2012 Page 8 of 66
Page 9 (b) exceed the amount of the expenditure incurred remaining
unallowed, so much of the excess as does not exceed
the difference between the expenditure incurred in
connection with the business or to obtain interest therein
and the amount of such expenditure remaining
unallowed, shall be chargeable to income-tax as profits
and gains of the business in the previous year in which
the business or interest therein, whether wholly or partly,
had been transferred:
Provided that in a case where the provisions of this
clause do not apply, the deduction to be allowed for
expenditure incurred remaining unallowed shall be arrived at
by subtracting the proceeds of transfer (so far as they consist
of capital sums) from the expenditure remaining unallowed.
Explanation.—Where the business or interest in such
business is transferred in a previous year in which such
business carried on by the assessee is no longer in existence,
the provisions of this clause shall apply as if the business is in
existence in that previous year;
(c) are not less than the amount of the expenditure incurred
remaining unallowed, no deduction for such expenditure
shall be allowed in respect of the previous year in which
the business or interest in such business is transferred or
in respect of any subsequent year or years:
[Provided that where in a scheme of amalgamation or
demerger, the amalgamating or the demerged company sells
or otherwise transfers the business to the amalgamated or the
resulting company (being an Indian company), the provisions
of this sub-section—
(i) shall not apply in the case of the amalgamating or the
demerged company; and
(ii) shall, as far as may be, apply to the amalgamated or the
resulting company as they would have applied to the
amalgamating or the demerged company if the latter had
not 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 2012 Page 9 of 66
Page 10 to as the “ITO Wd I (3)) issued a notice dated 09.06.2006 under
Section 143 (2) of the Income Tax Act to the appellant for the
Assessment Year 2005-2006 and asked the appellant to justify its
claim for the Section 42 deductions. The ITO Wd I(3) also issued
another notice to the appellant under Section 142(1) of the
Income-Tax Act, seeking various details and data relevant to the
said Assessment Year. The case was later transferred to the
Assistant Director of Income-Tax (International Taxation),
Ahmedabad (“ADIT”). The ADIT also raised the question of
applicability of the Section 42 deductions to the two PSCs
executed by the appellant for the reason that such a clause was
not specifically included in these two PSCs.
13)A Joint Secretary of the MoPNG vide his communication dated
11.04.2007 wrote to the MoF specifically admitting that in 11
PSCs, a reference to Section 42 deductions had been omitted by
oversight. It was also stated that contracts signed in respect of
other fields at the same time contained the provision for Section
42 deductions. It was specifically stated that “Petroleum
operations are a high risk business and it may not be equitable
and fair if companies are not allowed to claim allowances for their
expenditure. Besides it would be difficult to justify different
standards for different PSCs signed under one regime.”
Civil Appeal No. 6929 of 2012 Page 10 of 66
Page 11 (emphasis supplied). A clarification was also sought from the MoF
to the revenue authorities that the Section 42 deductions should
be uniformly granted irrespective of whether the PSCs contained
the relevant clause or not. It is pertinent to note that in this letter,
the appellant was listed by the MoPNG as having the provision
for Section 42 deductions in its two PSCs, which though factually
incorrect, again underscores the bona fide belief of the UOI
through 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 absence
of such a clarification from the Ministry of Finance, the ADIT
disallowed appellant's claim for deduction under Section 42(1)(b)
and Section 42(1)(c) of the Income Tax Act, made in the
appellant's Income-Tax Return for the Assessment Year
2005-2006, on the ground that a specific reference to the Section
42 deduction has not been made3 expressly in the two PSCs
(hereinafter the “ADIT's Order”). As a result, the ADIT issued a
demand notice under Section 156 of the Income Tax Act to the
appellant, demanding payment of Rs. 1,24,45,509.00 (rupees one
crore twenty four lakhs forty five thousand five hundred and nine
only) by way of additional tax, interest and penalty. The appellant
preferred an appeal against the ADIT's order before the relevant
Civil Appeal No. 6929 of 2012 Page 11 of 66
Page 12 Commissioner of Income Tax (Appeals) in Ahmedabad and
deposited the sum of Rs.40,00,000/- (rupees forty lakhs only), as
required by ADIT, while himself staying the demand raised by
Assessment Order. This appeal has been dismissed by the
Commissioner of Income Tax (Appeals) and a further appeal is
now pending before the Income Tax Appellate Tribunal.
15)In the meanwhile, on 24.12.2007, the appellant required the
Union of India, through the MoPNG and the MoF, to issue an
appropriate clarification/amendment with respect to the two PSCs
executed with the appellant, taking a stance that it was always the
intention of the Union of India, at all stages, to give the benefits of
Section 42 Deductions of the Income Tax Act, read with Article 16
of the MPSC, to all the entities who had entered into PSCs with it,
including the appellant with the plea that the non-inclusion of this
provision in the two PSCs signed with the appellant was a clerical
error/oversight. This was followed by reminder dated 19.3.2008
again requesting the Union of India, through the MoPNG and the
MoF, to issue an appropriate clarification/amendment with respect
o the two PSCs executed with the appellant.
16)No such clarification came forward. On the other hand, the ADIT
issued notice dated 28.3.2008 to the appellant under Section 148
of the Income Tax Act for reopening the appellant's Income Tax
Civil Appeal No. 6929 of 2012 Page 12 of 66
Page 13 Returns 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 MoF
pointing about the said accidental omissions again in the contract.
The MoF was, accordingly, requested to extend the benefits of
Section 42 Deductions to the 13 PSCs (including the appellant's
two PSCs) in line with all other signed PSCs.
17)As, in the meantime, the ADIT was going ahead with the
proceedings pursuant to the notice under Section 148 of the Act
deciding to reopen the assessment of the appellant in respect of
assessment years 2001-02 to 2004-05, the appellant sent one
more representation dated 23.06.2008 on the same lines on
which it had been making the similar representations earlier. No
positive response was, however, received. Exasperated, the
appellant approached the High Court by way of writ petition under
Article 226 of the Constitution. Counter affidavits to the writ
petition was filed by the respondent – Authorities taking
preliminary objection pertaining to territorial jurisdiction of the High
Court of Delhi and also raising the ground of alternate remedies
available in the law in the form of appeal before the ITAT which
had already been preferred by the appellant. Rejoinder thereto
was filed by the appellant. Thereafter, another counter affidavit on
Civil Appeal No. 6929 of 2012 Page 13 of 66
Page 14 merits was filed by the respondent no. 1. In this counter affidavit,
stand was taken by the respondents that MPSC would not apply
to appellant's two PSCs. The appellant filed rejoinder to this
counter affidavit controverting the stand which was taken by the
respondent. Thereafter, the respondent filed another
supplementary affidavit stating that MoF had not concurred with
the proposal to extend the benefit of deductions under Section 42
of the Act vide MoF O.M. dated 11.11.2009. Short affidavits were
also filed by MoF as well as ADIT taking the position that the
appellant 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 has
been filed by respondent no. 1. The appellant also filed additional
affidavit dated 28.02.2012 giving details of other small sized
discovered oil fields PSCs, who were awarded contracts under
1992 NIT, submitting that they were identical to the appellant and
in their case clause was inserted giving benefit under Section 42
of the Act. It was pleaded that since they were identically situated
as the appellant herein, denying such a benefit to the appellant
amounted to hostile discrimination. By another affidavit filed by
the appellant, it also tried to demonstrate that respondent no. 1
had accepted the calculation of petroleum profits on the
Civil Appeal No. 6929 of 2012 Page 14 of 66
Page 15 assumption that the deduction under Section 42 was available to
the appellant; otherwise the appellant would have enjoyed
increased profits . It was, thus, sought to be demonstrated that
even while profit sharing, shares were calculated keeping in view
the deductions under Section 42 of the Act thereby giving better
and increased profit sharing to the Government as well.
18)The matter was ultimately heard by the High Court which has
dismissed the writ petition by passing detailed judgment on
28.05.2012. Before we come to the arguments of the appellant
challenging the correctness of this judgment, it may be
appropriate to take note of reasons which have been given by the
High Court in support of the view it has taken.
IMPUGNED JUDGMENT
19)The High Court took note of the basic and primary contention of
the appellant which was that there was a clear understanding
between the MoPNG and the appellant that in the contract to be
signed between the parties benefits under Section 42 of the Act
would be admissible. The NIT issued by the Government was
based on this basic understanding but due to inadvertent
oversight and error on the part of the MoPNG the contract, which
was ultimately signed, omitted to include such a clause.
Therefore, on account of mistake of the Ministry, which even it
Civil Appeal No. 6929 of 2012 Page 15 of 66
Page 16 admitted in its communications when the dispute regarding
admissibility of deduction under Section 42 of the Act arose, the
appellant should not be allowed to suffer. More so, when it was
not responsible for the said error.
20)It may be pertinent to point out that the High Court did not accept
the preliminary objections raised by the respondent and after
repelling the same, it adverted to the subject matter of the writ
petitions. On the merits of the issue involved, the High Court
formulated two questions . These are:
“(1) Whether benefit under Section 42 of the Act was
envisaged in the 1992 NIT and in the PSCs, but due
to oversight or mistake, the same was not included
and mentioned in the written contract, and if so, the
effect thereof?
(2) If the question is decided in favour of the
appellant, the second aspect is whether a direction
can be issued for grant of benefit under Section 42 of
the Act to the appellant, with a further direction that
the contract should be laid before the Parliament
after incorporating the said clause?”
21)Dealing with the first question, High Court rejected the plea of the
appellant that 1992 NIT included and referred to the MPSC as
incorrect. It is pointed out that the 1992 NIT did not refer to the
MPSC and did not stipulate that MPSC shall form part of the
tender documents. It is further stated by the High Court that in
1992 NII, there was no reference to MPSC or that the terms and
conditions of the MPSC shall be included in, or be a part of, the
Civil Appeal No. 6929 of 2012 Page 16 of 66
Page 17 PSCs. It is also observed that there is no document or clause in
the bid given by the appellant under the 1992 NIT to the effect
that the MPSC or clause 16.2 of the same would be applicable
and should be a part of the PSCs. In the tender submitted by the
appellant there was no specific stipulation to include any clause
with regard to the benefit under Section 42 of the Act. The High
Court has further observed that written contracts were signed
between the appellant and MoPNG in the name of President on
20.,02.1995. Clause 15 of these contracts which pertain to
“Taxes, Royalties, Rentals, Customs duties etc.” though mentions
about the applicability of fiscal, there is no reference to Section 42
of the Act in this Clause.
22) The High Court further pointed out that there was no letter or
correspondence written by the appellant from 1995 onwards
stating that non-inclusion of Section 42 benefit was due to
oversight. Insofar as three letters written by the MoPNG, namely,
letters dated 17-06-2005, 11-04-2007 and 28-04-2008 are
concerned wherein this Ministry admitted that there was an
unintentional lapse and omission in not incorporating the provision
of admissible deduction under Section 42 of the Act, the High
Court has brushed aside these communications as
inter-ministerial correspondence. These letters were apparently
Civil Appeal No. 6929 of 2012 Page 17 of 66
Page 18 written on the request of the appellant or NIKO Resources
Limited. It is further mentioned that these are not
contemporaneous letters written at the time when PSCs were
signed.
23)The High Court has also commented that though in these letters it
is mentioned that Section 42 deductions were omitted by
“oversight” in fact there was no such oversight in as much as the
MoPNG itself in its counter affidavit has specifically stated that no
such benefit was envisaged, considered or granted at the time
when the PSCs were negotiated and awarded. Averments made
in this behalf in the counter affidavit filed by the MoPNG are
extensively quoted. To verify this position, the High Court also
examined and went through the original files relating to
preparation and finalisation of tender documents and made
following remarks in this behalf.
“In order to verify and examine the correct factual
position, we had asked the respondent Ministry of
Petroleum and oversight in as much as the MoPNG
itself in its counter affidavit has specifically stated
that no such benefit was envisaged, considered or
granted at the time Natural Gas to produce the
original files relating to preparation and finalization of
tender documents. They were produced before us on
21
st
February, 2012. We examined the original records
and found that under the terms and conditions, as well
as in the notes, no benefit under Section 42 of the Act
was envisaged or was required to be granted. We also
recorded the statement of the learned Additional
Solicitor General that the three letters mentioned above
Civil Appeal No. 6929 of 2012 Page 18 of 66
Page 19 were factually incorrect and, therefore, no legal right on
the basis of the letters accrues/arises. Thus, no
statement or promise, that advantage under Section 42
would be available to the successful bidder, was
promised or made.”
24) Insofar as plea of discrimination between 13 PSCs (which
included the appellant), who are not given the benefit of Section
42 of the Act vis-a-vis other PSCs where such a benefit has been
extended, the High Court has accepted the explanation put forth
by the respondents to the effect that these 13 PSCs formed a
different class in as much as their contract was in respect of small
oil fields which had already been discovered and, therefore, the
risk factor was less. On the other hand, other PSCs were in
respect of undiscovered oil fields and for this reason benefit under
Section 42 had been granted to them.
25)On the aforesaid reasoning, the High Court concluded that
appellant was fully aware of Clause 16.2 of MPSC which
specifically makes reference to benefit under Section 42 of the
Act, but did not advert to and refer to the same in their tender bid
and did not ask for this benefit. Therefore, it was not possible to
accept the contention of the appellant that benefit under Section
42 of the Act was inadvertently missed out, or due to an act of
oversight, not included in the contract. On this finding, the High
Court chose not to examine the second issue. Post by it in para 9
Civil Appeal No. 6929 of 2012 Page 19 of 66
Page 20 of the impugned judgment and noted by us above.
26)We would also like to mention that in the penultimate para, the
High Court has expressed its displeasure and anguish over the
averments made by respondent no. 1 in the additional affidavit
dated 23-03-2012 where respondent no. 1 even denied the fact
that petroleum profits were not shared between the Government
and the appellant after making the calculations with reference to
benefit under Section 42 of the Act. In letter dated 11.11.2009
written by the MoF, Department of Revenue this fact is specifically
admitted and, therefore, respondent no. 1 should have been
careful in making such averments in the said additional affidavit
which were contrary to the record, even if it was uncomfortable to
respondent no. 1.
27)Mr. Ganesh, learned senior counsel appearing for the appellant
submitted that the High Court had failed to appreciate and
cognise the basic issue which had arisen in the instant case about
the admissibility of the benefit of Section 42 of the Act in respect
of two production sharing contracts (PSCs) between the appellant
and the Government. He submitted that the claim for the benefit
of the aforesaid provision was predicated on the following
grounds:
(a) The Ministry of Petroleum & Natural Gas (MoPNG) had invited bids
Civil Appeal No. 6929 of 2012 Page 20 of 66
Page 21 for the said oilfields on the basis of a Model Production Sharing
Contract (MPSC) which specifically and unequivocally provided
that the benefit of Section 42 would be granted.
(b) The appellant's bids for the said two oilfields were clearly and
indisputably submitted on the footing that the MPSC would govern
the contract between the parties. In fact, in its bid, the appellant
only referred to those clauses of the MPSC which the appellant
wanted to be slightly modified, to which the Government had no
objection. Thus, the appellant's bids were on the basis of the
MPSC 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 MPSC
and, therefore, MPSC had to be read into the contract. It was
also argued that these facts were specifically confirmed by
respondent no. 1 itself in its three letters dated 17-06-2005,
11-04-2007 and 28-04-2008.
(d) It was, thus, argued that as held in the case of Godhra Electricity
Co. Ltd. And Another v. State of Gujarat
1
, it is the mutual
understanding of the parties to a contract which determines the
construction that the court will place on it and this principle
squarely applied in the present case.
1(1975) 1 SCC 199
Civil Appeal No. 6929 of 2012 Page 21 of 66
Page 22 (e) The accounts of the venture were drawn up on the footing that the
deductions under Sect5ion 42 were available and that,
accordingly, the Income Tax liability would stand reduced. On this
footing, a significantly higher amount was computed as the profit
share payable to the Government of India under the PSC, which
was received by the Government year after year.
(f) The reference made by MoPNG to the Ministry of Law in June/ July
1992 and the written opinion given by the Ministry of Law also by
themselves clearly established that the intention of the
Government from the very beginning was to grant the benefit of
Section 42.
(g) The I.T. Department itself granted the deductions under Section 42
for several years right upto Assessment Year 2004-05 and then
suddenly and unaccountably changed its mind and turned a
somersault.
(h) The benefit of Section 42 was, in fact, granted to several other
small-sized discovered oilfields. The appellant had filed an
additional affidavit dated 28.02.2012 giving particulars of at least
11 other small-sized discovered oilfields to which benefit of
Section 42 was given. Even though the contents of the affidavit
remained untraversed, the same has been completely
disregarded by the High Court.”
Civil Appeal No. 6929 of 2012 Page 22 of 66
Page 23 28)Relying on the aforesaid material on which Mr. Ganesh laid great
emphasis, his plea was that the High Court did not consider the
aforesaid aspects in its right perspective and arrived at a wrong
finding that the appellant did not ask for the benefit of Section 42
of the Act.
29)He further submitted that strong reliance was placed by the High
Court on the contents of a file which was produced by respondent
no. 1 relating to the preparation of tender documents. However,
this file was not shown to the appellant or its counsel and the
appellant was, thus, denied any opportunity of dealing with the
same. He pointed out that the appellant had specifically filed an
application dated 28-02-2012 praying that the Court should not
consider the contents of the said file or alternatively the copies of
the documents in the file be supplied to the counsel of the
appellant. On this application, the Court had made observation on
12.03-2012 to the effect that it was not going to place any
reliance on the contents of the file and with these observations
the application was dismissed. However, in the impugned
judgment, the High Court has rested its conclusion on the basis of
some contents in the file. He further submitted that the Court
should not have disregarded the letters of the respondent no. 1 on
the ground that they were not contemporaneous letters. His
Civil Appeal No. 6929 of 2012 Page 23 of 66
Page 24 submission was that right upto the year 2005, the benefit of
Section 42 was extended to the appellant and, therefore, there
was no occasion for the appellant to approach respondent no. 1
to ask for such a clarification. He further submitted that reliance
placed by the High Court on certain paras of the counter affidavit
of respondent no. 1 was totally erroneous as such a stand taken
in the counter affidavit was contrary to the letters which were
addressed by the respondent no. 1 itself to the MoF but according
to him, the manner in which the plea of discrimination was dealt
with by the High Court was also erroneous ignoring the specific
plea taken by the appellant in its additional affidavit dated
28-02-2012 giving particulars of a number of small-sized oil fields
to which Section 42 benefit was given and the Government had
not controverted those averments. He submitted that apart from
the plea, 13 oil fields (which included the appellant) all other oil
fields, whether large, medium or small sized, and whether
discovered or exploratory, were given the benefit of Section 42 of
the Act. Therefore, the respondents had acted in a grossly
arbitrary and discriminatory manner.
30)Last submission of Mr. Ganesh was that the issue regarding
Mandamus to be issued to the respondents for amending the
contract and including the clause for granting the benefit of
Civil Appeal No. 6929 of 2012 Page 24 of 66
Page 25 Section 42 of the Act was not even gone into, though, it was
specifically argued. He further submitted that when the other
contracting parties, namely, MoPNG specifically admitted that this
provision was left our inadvertently, the Court should have given a
direction for amendment of the Contract. In order to support his
submission that such a direction can be issued by the High Court
in exercise of its powers under Article 226 of the Constitution, he
referred to the following judgments:
(i)K.N. Guruswamy Vs. State of Mysore
2
(ii)GSFC Vs. Lotus Hotels Ltd.
3
(iii)Kumari Shrilekha Vidyarthi Vs. State of U.P.
4
(iv) ABL International Ltd. Vs. Export Credit Guarantee Corpn.
5
31)Mr. Arijit Prasad, Advocate, who appeared for all the respondents
countered the aforesaid submissions emphatically and
passionately. He argued that insofar as income tax department is
concerned it could extend the benefit of deductions admissible
under Section 42 of the Act only when the assessee, namely, the
appellant in the instant case, fulfilled the conditions for such
deductions stipulated in that Section. For this purpose, the income
21955 (1) SCR 305
3(1983) 3 SCC 379
4(1991) 1 SCC 212
5(2004) 3 SCC 553
Civil Appeal No. 6929 of 2012 Page 25 of 66
Page 26 tax authorities were supposed to look into the PSCs only and as
far as the contracts between the Government and the appellant
are concerned, admittedly there was no such stipulation therein.
Nor these contracts were placed before both the House of
Parliament. Therefore, the order of the Assessing Authorities in
tune with legal provisions. He further submitted that in any case
the appeal of the appellant was pending before the ITAT and it
was for the ITAT to go into the submissions made by the
appellants on the admissibility of deduction under Section 42 of
the Act.
32)In respect of the three letters which were written by the
respondent no. 1, his submission was that no reliance could have
been placed on those letters and the matter had to be examined
on the basis of record. The High Court had, for this purpose,
examined the original files on the basis of which it was clearly
found that the averments made in the three letters ware not born
out of records.
33)He also made detailed submissions to support the findings of the
High Court that there was no inadvertent omission in failing to
make any stipulation with regard to extending the benefits of
Section 42 of the Act and on the contrary insofar as the appellant
and 12 other similar parties are concerned, there was a deliberate
Civil Appeal No. 6929 of 2012 Page 26 of 66
Page 27 decision not to extend such a benefit. He also argued that in any
case plea of discrimination could not be taken in the matters of
contract in private law field.
34)Reacting to the relief of mandamus sought by the appellant
seeking directions against Respondent No. 1 to amend the
contract, his plea was that such a prayer, in the realm of
contractual relationship between the parties, was inadmissible. He
pleaded that PSCs are in the nature of contract agreed to be
between two independent contracting parties and each of the
PSCs are distinct from the other and is not a copy of MPSC. He
also pointed out that before signing the PSC, the approval of the
Cabinet is obtained, which reflects that the PSCs as submitted to
the Cabinet, has the approval of one of the contracting party, i.e.
Government of India. Therefore, the appellant could not claim to
be oblivious of the provisions of law or the contents of the contract
at the time of signing and was precluded from seeking
retrospective amendment as a matter of right when no such right
is conferred under the contract. In support of his submission that
the doctrine of fairness and reasonableness applies only in the
exercise of statutory or administrative actions of a State and not in
the exercise of a contractual obligation and that the issues arising
out of contractual matters will have to be decided on the basis of
Civil Appeal No. 6929 of 2012 Page 27 of 66
Page 28 the law of contract and not on the basis of the administrative law,
he referred to and relied upon the judgments in Pradeep Kumar
Sharma v. U.P. Finance Corporation
6
and A.B.L. International
Limited (supra).
35)From the reading of the writ petition filed in the High Court, the
impugned judgment rendered by the High Court thereupon, and
also having regard to the arguments advanced before us which
have already been taken note of, it is apparent that the fulcrum of
the issue, which has to be focused and to be answered, pertains
to the benefit of the deductions permissible under Section 42 of
the Act. In fact, as is clear from the prayers made by the appellant
in the writ petition, the very first direction which the appellant
sought was to declare that the appellant is entitled to such
deductions in terms of the two PSCs dated 20-02-1995. Incidental
issues, while deciding the aforesaid primary issue, which arises
relate to the construction of the terms of the said PSCs and also
the nature of the contracts which the parties intended to. Another
issue relates to the jurisdiction of the High Court under Article
226 of the Constitution to pass Mandamus for amending the
PSCs. All these issues are formulated in the precise form
hereunder:
6(2012) 100 SCC 424
Civil Appeal No. 6929 of 2012 Page 28 of 66
Page 29 (i)Whether in terms of the provisions contained in two Production
Sharing Contracts (PSCs) dated 20-02-1995 executed between
the appellant and the Central Government, appellant is entitled to
the special allowances stipulated under Section 42 of the Act?
(ii) Whether Model Production Sharing Contract (MPSC) can be read
as 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 of
deductions under Section 42 of the Act?
(iv)If so, whether non-inclusion of such a provision in the contract can
be treated as accidental and unintentional omission.
(v)If the answer to question no. (iv) is in the affirmative, whether
mandamus can be issued by the Court to the parties to amend
the 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 has
to be kept in mind while answering this issue is that the Income
Tax Authorities while making assessment of income of any
assessee have to apply the provisions of the Income Tax Act and
make assessment accordingly. Translating this as general
proposition contextually, what we intend to convey is that the
Assessing Officer is supposed to focus on Section 42 of the Act
Civil Appeal No. 6929 of 2012 Page 29 of 66
Page 30 on the basis of which he is to decide as to whether deductions
mentioned in the said provision are admissible to the assessee
who is claiming those deductions. In other words, the Assessing
Officer is supposed to find out as to whether the assessee fulfills
the eligibility conditions in the said provision to be entitled to such
deductions. We have already reproduced the language of
Section 42, which deals with special provisions of deductions in
the case of business for prospecting, etc. for mineral oil. Since,
the appellant herein, in its income tax returns for the assessment
year in question, i.e., Assessment Year 2005-06, had claimed the
deductions 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 of
drilling or exploration activities or services or in respect of physical
assets used in that connection, except for those assets on which
allowance for depreciation is admissible under Section 32.
Section 42(1)(c) speaks of allowances pertaining to the depletion
of mineral oil in the mining area. In order to be eligible to the
deductions, certain conditions are stipulated in this very section
which have to be satisfied by the assessees. As is clear from the
reading of this Section, these conditions are as under:
(a) it grants such special allowances to those assessees who carry on
Civil Appeal No. 6929 of 2012 Page 30 of 66
Page 31 business in association with the Central Government or with any
person authorized by it;
(b) business should relate to prospecting for, extracting or producing
mineral oils, petroleum or natural gas;
(c) there has to be an agreement in writing between the Central
Government and the assessees in this behalf;
(d) it is also a requirement that such an agreement has been laid on
the Table of each House of Parliament;
(e) the allowances which are claimed are to be necessarily specified in
the agreement entered into between the two contracting parties;
and
(f) allowances are to be computed and made in the manner specified
in the agreement.
38)From the nature of allowances specified in this provision, it is
clear that such allowances are otherwise inadmissible on general
principles, for e.g. allowances relating to diminution or exhaustion
of wasting capital assets or allowances in respect of expenditure
which would be regarded as on capital account on the ground that
it brings an asset of enduring benefit into existence or constitutes
initial expenditure incurred in setting up the profit earning
machinery in motion. It is for this reason this Section itself
clarifies that the provisions of this Act would be deemed to have
Civil Appeal No. 6929 of 2012 Page 31 of 66
Page 32 been modified to the extent necessary to give effect to the terms
of the agreement, as otherwise, the other provisions of the Act
specifically deny such deductions. A fortiorari, the PSC entered
into between the parties becomes an independent accounting
regime and its provisions prevail over generally accepted
principles of accounting that are used for ascertaining taxable
income (See – Commissioner of Income Tax, Dehradun & Anr.
v. Enron Oil and Gas India Limited
7
). Thus, by virtue of this
Section, it is the PSC which governs the field as without it, such
deductions are not permissible under the Act. IF PSC also does
not contain any stipulation providing for such allowances, the
Assessing Officer would be unable to give the benefit of these
deductions to the assesee.
39)We would also like to point out, at this juncture itself, that this
Court held in CIT v. Enron Expat Service Inc.
8
that the mere fact
that the assessee had offered to pay tax under Section 44 (BB) of
the Act in some of the earlier years will not operate as an estoppel
to claim the benefit of Double Taxation Avoidance Agreement
(DTAA), where the assessee operates under the same PSC
which was before the Court. While holding so, the Court had
followed its earlier judgment in the case of Enron Oil and Gas
7(2008) 15 SCC 33
8(2010) 327 ITR 626
Civil Appeal No. 6929 of 2012 Page 32 of 66
Page 33 India Limited (Supra).
40)In the present case, it is an admitted fact that conditions
mentioned in Section 42 of the Act are not fulfilled. In the two
PSCs, no provision is made for making admissible the aforesaid
allowances to the assessee. It is obvious that the Assessing
Officer could not have granted these allowances/deductions to the
assessee in the absence of such stipulations, a mandatory
requirement, in the PSCs.
41)The appellant is conscious of this position. It is for this reason the
attempt of the appellant was to read the provisions of MPSC into
the agreement. That bring us to the second issue.
42)Answer to question no. (ii) - Endeavour of Mr. Ganesh, on this
aspect, was to show that the bids were invited on the basis of
terms stated in the MPSC which specifically mentioned about
deductions under Section 42 of the Act. He also endeavored to
demonstrate that thee appellant had submitted its bid keeping in
view such a categorical stipulation in the MPSC. He also pointed
out that on MPSC, opinion of Law Ministry was solicited vide
Memo dated 22-06-1992 and that the Ministry of Law gave its
opinion dated 21-07-1997 opining that benefit of both Sections
293(A) and Section 42 of the Act should be extended to the
foreign companies in order to make their participation in these oil
Civil Appeal No. 6929 of 2012 Page 33 of 66
Page 34 fields viable. As per the appellant, it was also made abundantly
clear by the Ministry of Law that it was in relation to “foreign
companies to be engaged in exploration, development and
production of oil ion small sized oil and gas fields under the
proposed Production Sharing Contract”, thus, drawing no
distinction between fields to be explored and those already
discovered and also making specific reference to the MPSC.
Taking sustenance from the aforesaid material, a passionate plea
was made by Mr. Ganesh to read the provisions of Section 42
contained in MPSC, as opined by the Ministry of Law, into the
PSCs which were ultimately signed between the parties.
43)In order to appreciate this argument, we shall have to traverse
through the PSCs dated 20-02-1995 which were ultimately signed
between the Government and the appellant. We would like to
mention here that when this argument was being advanced by the
learned senior counsel for the appellant the Court asked him to
produce the copy of PSCs, which were otherwise not brought on
the record as the Court wanted to find out as to whether there
was any such intention expressed in the agreement, namely, to
incorporate the provisions of MPSC or the correspondence
exchanged between the parties earlier to the signing of this
agreement. On our asking, the appellant has placed on record the
Civil Appeal No. 6929 of 2012 Page 34 of 66
Page 35 copy of these PSCs. On going through the same, we find that
intention expressed is just to the contrary. It is rather made
crystal clear in the agreement that this agreement is the sole
repository of the terms on which it is signed and nothing else
would be looked into for this purpose. It is so reflected in the
following clauses in the agreement:
“(5) The Government has agreed to enter into this
Contract with the Companies with respect to the area
referred to in Appendices A & B of this Contract on the
terms and conditions herein set forth.”
Article 1 – In this Contract, unless the context requires
otherwise, the following terms shall have the meaning
ascribed to the then hereunder:
xxx xxxxxx
Article 1.18”Contract” means this agreement and
the Appendices mentioned herein and attached hereto
and made an integral part hereof and any amendments
made thereto pursuant to the terms hereof.
Article 32 - ENTIRE AGREEMENT, AMENDMENTS,
WAIVER AND MISCELLANEOUS
32.1 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 or
modification shall become effective.
32.3 No waiver by any Party of any one or more
obligations or defaults by any other Party in
Civil Appeal No. 6929 of 2012 Page 35 of 66
Page 36 the performance of this Contract shall
operate or be construed as a waiver of any
other obligations or defaults whether of a
like or of a different character.
32.4 The provisions of this Contract shall inure to
the benefit of and be binding upon the
Parties and their permitted assigns and
successors in interest.
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 The headings of this Contract are for
convenience of reference only and shall not
be taken into account in interpreting the
terms of this Contract.”
44)Intention behind the aforesaid clauses is more than apparent,
namely, not to look into any other document or correspondence
which took place between the parties prior to the signing of this
agreement. 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 the
clauses contained therein while construing the terms of PSCs.
Therefore, it was not even open to the Income Tax Authorities to
go beyond the stipulations contained in the PSCs while making
the assessment and had to exclusively remain within the
provisions of the Agreement. On that touchstone, the Assessing
Officer had no option but to deny the benefit of
deductions/allowances claimed by the appellant in its income tax
Civil Appeal No. 6929 of 2012 Page 36 of 66
Page 37 returns filed for the Assessment Year 2005-06. This bring us to
the next question.
45)Answer to question no. (iii) - We have already noted that Article
32.2 categorically provides that 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 or modification shall
become effective. In continuation to what has been observed by
us while answering point no. (ii) above, it becomes apparent that
the question of any intention to the contrary between the parties
does not arise. It is because of the reason that Article 32 of the
Agreement specifically supersedes any understanding between
the parties prior to the effective date of this contract.
46)The matter is, however, compounded by certain acts of
respondent no. 1 and made complex to some extent by the
Income Tax Authorities in giving benefit of these
allowances/deductions under Section 42 of the Act to the
appellant under these very PSCs in respect of earlier assessment
years. Further, this very state of affairs continued for few years
insofar as giving such a benefit by the Income Tax Authorities is
concerned it may not pose a serious problem. We have already
held above that on proper construction of the provisions of
Civil Appeal No. 6929 of 2012 Page 37 of 66
Page 38 Section 42 of the Act and application of these provisions to the
instant case, the appellant was not entitled to any such
deductions under the PSCs. Thus, when in law no such deduction
was permissible as per the PSCs in the present form, even if such
deduction was given wrongly in the earlier years that would not
amount to a wrong act on the part of the Income Tax Authorities
and, therefore, would not enure to the benefit of the appellant in
the Assessment Year in question as well. The appellant cannot
say that merely because this benefit is extended in the previous
years; albeit wrongly, this wrong act should continue to
perpetuate. There is no estoppel against law. We have taken note
of the judgment of this Court in Enron Expat Service Inc.
(Supra) where the assessee had offered to pay tax under Section
44(BB) of the Act in the earlier years wrongly and the Court held
that it would not operate as an estoppel to claim the benefit of
DTAA for the Assessment Year in question when it was found that
the assessee was otherwise entitled to it. Same principle applies,
though it is a converse situation where assessee has not offered
to pay tax wrongly [which was the situation in Enron Expat
Service Inc. (Supra)] and instead the tax authorities have
extended the benefit wrongly to the assessee.
47)With this, we come to more crucial aspect, namely, the three
Civil Appeal No. 6929 of 2012 Page 38 of 66
Page 39 letters written by the MoPNG in response to the appellant's
communications seeking its clarification. Undoubtedly, in these
three letters the MoPNG has accepted that intention between the
parties was to give the benefit of allowances under Section 42 of
the Act to the appellant herein. So much so, the MoPNG even
requested the MoF to give its nod for amending the contract by
incorporating such a provision which was allegedly left out
inadvertently.
48)Our first remark is that the approach of the High Court in dealing
with this aspect may not be entirely correct. In the first instance, it
has embarked upon the issue as to whether such an omission
was by way of “oversight” or it was unintentional. While
undertaking this enquiry, it has side tracked the language of the
three letters and instead gone by the stand taken in the counter
affidavit filed by respondent no. 1 where, in para 4 of the counter
affidavit, respondent no. 1 pleaded to the contrary. Clearly, the
said stand taken in the counter affidavit filed in the High Court
was contrary to the contents of the three letters dated 17.06.2005,
11.04.2007 and 28.04.2008. Significantly, respondent no. 1
neither disowned those letters nor tried to explain away those
letters. No plea was raised to the effect that the person who wrote
those letters was not authorized to do so or he had taken the said
Civil Appeal No. 6929 of 2012 Page 39 of 66
Page 40 stand in the letters which was contrary to the records. No doubt,
the High Court has observed that it had looked into original record
in order to verify and examine the correct factual position.
However, as demonstrated by Mr. Ganesh, on an application
made by the appellant in the High Court for giving the copies of
such records, the High Court had observed that those records
would not be seen nut ultimately relied upon these records. We
do not know whether the High Court is correct in its conclusion as
to whether the contents of the three letters are contrary to records
and the averments made in para 4 of the counter affidavit are in
conformity with the records, in as much as these records have not
been produced for our perusal. However, on going through the
terms of the PSCs it becomes apparent that such an exercise is
not even required.
49)It is stated at the cost of repetition that Article 32 of the contract
supersedes any understanding between the parties. Thus, even if
it is presumed that there was an understanding between the
parties before entering into an agreement to the effect that benefit
of Section 42 deduction shall be extended to the appellant, that
understanding vanished into thin air with the execution of the two
PSCs. Now, for all intent and purpose, it is only the PSCs signed
between the parties, which can be looked into. We answer this
Civil Appeal No. 6929 of 2012 Page 40 of 66
Page 41 question accordingly.
50)Undoubtedly, the appellant is also conscious of such a limitation
and is aware of the fact that unless there is a clear stipulation in
the PSCs for grant of benefit of special allowances under Section
42 of the Act, it would be difficult, nay impossible, for the appellant
to sail through. It is for this reason Mr. Ganesh, learned senior
counsel for the appellant made a fervent plea that respondents
be directed to carry out the amendment in the contract to include
stipulation with regard to Section 42 as well. That bring us to the
next question about the permissibility of such a prayer.
51)Answer to question no. (iv) & (v) – These issues have three
facets, 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 the
agreement, whether this intention gives any right to the appellant
to seek an amendment?
(iii)Whether the Court has the power to issue Mandamus or direction
to the Government?
52)We have reproduced the prayers made in the writ petition.
Obviously, no prayer for issuance of Writ of Mandamus or
direction of this nature is specifically made. Prayer clause shows
that there are two prayers made in the writ petition. First relates to
Civil Appeal No. 6929 of 2012 Page 41 of 66
Page 42 directing the Authorities to grant benefit under Section 42 of the
Act in terms of PSCs dated 22.02.1995, i.e. it is confined within
the scope of the said contracts. Though, the appellant wants that
while construing these contracts MPSCs and other several
communications between the parties should be looked into and
given effect to. We have already held that all such
communications would be extraneous and it is only the terms of
PSCs dated 20.02.1995 which can be looked into. Second prayer
aims at seeking quashing of orders dated 31.12.2007 and notices
dated 28.03.2008 and 01.05.2008 vide which income tax
assessments 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 be
culled out from prayer no. (iii) which is residual in nature.
Ordinarily, it would be difficult to read into this prayer clause a
relief of substantive nature of issuing the writ of mandamus.
However, we find that there are specific averments to this effect in
the body of the writ petition as well as in the grounds. More
pertinently this relief was specifically pressed and argued in the
High Court which was even entertained by the High Court without
any objections from the respondent to the contrary. Therefore, we
are inclined to examine the plea on merits, though reluctantly.
Civil Appeal No. 6929 of 2012 Page 42 of 66
Page 43 54)Let us presume that there was such an intention. In fact, it is so
stated in the three letters dated 17-06-2005, 11-04-2007 and
28-04-2008 which are written by MoPNG and not disowned by it.
Still such an intention would not make any difference and for this
purpose we again revert back to Article 32 which has already
been reproduced above. Not only prior understanding between
the parties stood superseded as mentioned in Article 32.1, Article
32.2 which is crucial to answer this question, bars any
amendment, modification etc. to the said contract except by an
instrument in writing signed by all the parties. Thus, unless
respondents agree to amend, modify or varied/supplemented the
terms of the contract, no right accrues to the appellant in this
behalf.
55)We have to keep in mind that the contract in question is governed
by the provisions of Article 299 of the Constitution. These are
formal contracts made in the exercise of the Executive power of
the Union (or of a State, as the case may be) and are made on
behalf of the President (or by the Governor, as the case may be).
Further, these contracts are to be made by such persons and in
such a manner as the President or the Governor may direct or
authorize. Thus, when a particular contract is entered into, its
novation has to be on fulfillment of all procedural requirements.
Civil Appeal No. 6929 of 2012 Page 43 of 66
Page 44 No doubt, there is an exception to this principle, viz. even in the
absence of a contract according to the requirements of Article 299
of the Constitution, doctrine of promissory estoppel can still be
invoked against the Government. However, no such case is
pleaded by the appellant. To dilate upon the aforesaid proposition
further, we take along third facet of this issue as, to some extent,
they are over-lapping. Fact remains that even when MoPNG
requested MoF for giving consent to amend the contract, no such
authorisation came from MoF. Whether, in such a case, can the
Court issue a Mandamus?
56)As noted above, the contention of the respondent is that PSCs
are in the nature of a contract agreed to between the two
independent contracting parties. It is also mentioned that before
the signing of the PSCs, the approval of Cabinet is obtained
which reflects that the PSC as submitted to the Cabinet has the
approval of one of the contracting parties, namely, Government of
India in this case. When it is signed by the other party it means
that it has the approval of both the parties. Therefore, a
contracting party cannot claim to be oblivious of the provisions of
the law or the contents of the contract at the time of signing and,
therefore, later on cannot seek retrospective amendment as a
matter of right when no such right is conferred under the contract.
Civil Appeal No. 6929 of 2012 Page 44 of 66
Page 45 Even the doctrine of fairness and reasonableness applies only in
the exercise of statutory or administrative actions of the State and
not in the exercise of contractual obligation and issues arising out
of contractual matters are to be decided on the basis of law of
contract and not on the basis of the administrative law. No doubt,
under certain situations, even in respect of contract with the State
relief can be granted under Article 226. We would, thus, be
dealing with this aspect in some detail.
57)Law in this aspect has developed through catena of judgments of
this Court and from the reading of these judgments it would follow
that in pure contractual matters extraordinary remedy of writ
under Article 226 or Article 32 of the Constitution cannot be
invoked. However, in a limited sphere such remedies are
available only when the non-Government contracting party is able
to demonstrate that its a public law remedy which such party
seeks to invoke, in contradistinction to the private law remedy
simplicitor under the contract. Some of the case law to bring
home this cardinal principle is taken note of hereinafter.
58)Significantly, in Andi Mukta Sadguru Shree Muktajee Vandas
Swami Suvarna Jayanti Mahotsav Smarak Trust & Ors. v. R.
Rudani & Ors.
9
as well, this Court made it clear that if the rights
9(1989) 2 SCC 691
Civil Appeal No. 6929 of 2012 Page 45 of 66
Page 46 are purely of private character, no mandamus can be issued.
Thus, even if the respondent is a 'State', other condition which
has to be satisfied for issuance of a writ of mandamus is the
public duty. In a matter of private character or purely contractual
field, no such public duty element is involved and, thus,
mandamus will not lie.
59)First case which needs to be referred is Bareilly Development
Authority Vs. Ajai Pal Singh and others
10
. That was the case
where Appellate Authority had undertaken construction of dwelling
units for people belonging to different income groups and the cost
at which such flats were to be allotted to the allottees. However, it
was mentioned that the cost stated was only estimated cost and
subject to increase or decrease according to rise or fall in the
price at the time of completion of property. The authority
increased the cost and monthly installment rates which it
demanded from the allottees were almost doubled and cost and
rates of installments initially stated in the brochure.
Respondents/allottees filed writ petition challenging the same and
in this context question of maintainability of the writ petition arose.
High Court, relying upon the judgment of the Supreme Court in
the case of Ramana Dayaram Shetty Vs. Airport Authority of
10 [1989] 1 SCR 743
Civil Appeal No. 6929 of 2012 Page 46 of 66
Page 47 India
11
allowed the writ petition by observing as under :-
"It has not been disputed that the contesting opposite
party is included within the term `other authority'
mentioned under Article 12 of the constitution.
Therefore, the contesting opposite parties cannot be
permitted to act arbitrarily with the principle which
meets the test of reason and relevance. Where an
authority appears acting unreasonably, this court is
not powerless and a writ of mandamus can be issued
for performing its duty free from arbitrariness or
unreasonableness.”
60)In appeal filed by the Authority, this Court, on facts, noted that the
respondents had applied for registration only by acceptance of
terms and conditions contained in the brochure. Moreover,
subsequently letter was written by the Authority about the
enhancement of the cost of the houses/flats as well as increase in
monthly installments. Rate of yearly interest requesting allottees
to give their written acceptance and the respondents except
respondent No.4 had sent their written acceptance and it was on
the basis of the written acceptance that name of first respondent
was included in the draw and he was successful in getting
allotment of a particular house. The court observed that
respondents were under no obligation to seek allotment of house/
flats even if they had registered themselves. Notwithstanding, the
voluntarily registered themselves as applicants only after fully
11(1979) IILLJ 217 SC
Civil Appeal No. 6929 of 2012 Page 47 of 66
Page 48 understanding the terms and conditions of the brochure including
relating to variance in prices. On the basis of these facts, this
Court observed that the aforesaid observations of the High Court
relying 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 of
the facts and circumstances of this case because
in Ramana Daya Shetty case, there was no
concluded contract as in this case. Even conceding
that the BDA has the trappings of a state or would
be comprehended in 'other authority' for the
purpose of Article 12 of the constitution, while
determining price of the houses/flats constructed
by it and the rate of monthly installments to be
paid, the Authority or its agent after entering into
the field of ordinary contract acts purely in its
executive capacity. Thereafter the relations are no
longer governed by the constitutional provisions but
by the legally valid contract which determines the
rights and obligations of the parties inter se. In this
sphere they can only claim rights conferred upon
them by the contract in the absence of any
statutory 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 contract
entered into between the state and the persons
aggrieved is non-statutory and purely contractual
and the rights are governed only by the terms of
the contract, no writ or order can be issued under
Article 226 of the Constitution of India so as to
compel the authorities to remedy a breach of
contract pure and simple Radhakrishna Agarwal
Vs. 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 2012 Page 48 of 66
Page 49 Bishwanath Tea Co. Ltd.
12
In that case respondents took on
lease certain land from the Government. Initially, period of lease
was 15 years. The lease was to be extended for cultivation and
raising tea garden and was subject to condition set out in the
Lease Agreement and generally to Assam Land & Revenue
Regulation and Rules made thereunder. Respondent Company
approached appellant seeking permission to cut 7000 cub.ft. of
timber. Appellant took the stand that as the timber was required
for a particular use which was not within the Grant, full royalty will
be payable on timber so cut and removed. Respondent company
paid the amount of royalty under protest and filed writ petition
under Article 226 of the Constitution in the High Court alleging that
upon a true construction of the relevant clauses of the Grant as
also proviso to Rule 37 of the Settlement Rules, it was entitled to
cut and remove timber without payment of royalty and, therefore,
the recovery of royalty being unsupported by law, the appellant
was liable to refund the same. A preliminary objection was taken
by the appellant to the maintainability of the writ petition on the
ground that claim of the respondent flows from terms of lease and
such contractual rights and obligations can only he enforced in a
civil court. This preliminary objection was overruled by the High
12[1981] 3 SCR 662
Civil Appeal No. 6929 of 2012 Page 49 of 66
Page 50 Court which proceeded to hear the matter and allowed writ
petition of the respondent company. In appeal by the appellant to
this Court, the decision of the High Court was reversed holding
that writ as not maintainable. Following observations may usefully
be quoted:-
"8. It is undoubtedly true that High Court can entertain
in its extraordinary jurisdiction a petition to issue any
of the prerogative writs for any other purpose. But
such writ can be issued where there is executive
action unsupported by law or even in respect of
corporation there is a denial of equality before law or
equal protection of law. The Corporation can also file
a writ petition for enforcement of a right under a
statute. As pointed out earlier, the respondent
company was merely trying to enforce a contractual
obligation. To clear the ground let it be stated that
obligation to pay royalty for timber cut and felled and
removed is prescribed by the relevant regulations, the
validity of regulations is not challenged. Therefore, the
demand for royalty is supported by law. What the
respondent claims is an exception that in view of a
certain term in the indenture of lease, to writ, Clause
2, the appellant is not entitled to demand and collect
royalty from the respondent. This is nothing but
enforcement of a term of a contract of lease. Hence,
the question whether such contractual obligation can
be enforced by the High Court in its writ jurisdiction.
9. Ordinarily, where a breach of contract is
complained of, a party complaining of such breach
may sue for specific performance of the contract, if
contract is capable of being specifically performed, or
the party may sue for damages. Such a suit would
ordinarily be cognizable by the Civil Court. The High
Court in its extraordinary jurisdiction would entertain a
petition either for specific performance of contract or
for recovering damages. A right to relief flowing from a
contract has to be claimed in a Civil Court where a
suit for specific performance of contract or for
damages could be filed....".
Civil Appeal No. 6929 of 2012 Page 50 of 66
Page 51 62)The question came up for consideration again in the case of
Kumari Shrilekha Vidyarthi etc. etc. v. State of U.P. and
others
13
. In that case, State of U.P. had issued Government order
dated 6.2.1990 whereby appointments of all Government
Counsels (Civil, Criminal, Revenue) in all the Districts of the State
of U.P. were terminated w.e.f. 28.2.1990, irrespective of the fact
whether the term of the incumbents had expired or was
subsisting. Validity of this G.D. was challenged by many of these
Government Counsels whose appointments were terminated and
one of the issues to be determined by the court was as to whether
writ petition was maintainable challenging this G.D., as according
to the Respondent State the appointment of these Government
Counsel was purely contractual and writ petition to enforce the
contract was not maintainable. After noticing this argument of the
respondents, the Supreme Court formulated the question to be
decided in the said case, in the following words:
“The learned Additional Advocate General did not
dispute that if Art. 14 of the Constitution of India is
attracted to this case all State actions, the
impugned circular would be liable to be quashed if
it suffers from the vice of arbitrariness. However,
his argument is that there is no such vice. In the
ultimate analysis, it is the challenge of arbitrariness
which the circular must challenge of arbitrariness
withstand in order to survive. This really is the main
point evolved for decision by us in the present
case".
13AIR 1991 SC 537
Civil Appeal No. 6929 of 2012 Page 51 of 66
Page 52 63)The Court then examined the nature of appointment of the
Government counsel in the Districts with reference to the various
legal provisions including legal Remembrance Manual and
Section 24 Code of Criminal procedure as well as decision of
Supreme Court in which character of engagement of a
Government counsel was considered. After analyzing these
provisions and case law, the Supreme Court concluded in the
following manner, describing the nature of appointment of District
Government counsel:
“17. We are, therefore, unable to accept the
argument of the Ld. Addl. Advocate General that
the appointment of District Government Counsel by
the State Government is only a professional
engagement like that between a private client and
his lawyer, or that it is purely contractual with no
public element attaching to it, which may be
terminated at any time at the sweet will of the
Government excluding judicial review. We have
already indicated the presence of public element
attached to the 'office' or post of District
Government Counsel of every category covered by
the impugned circular. This is sufficient to attract
Article 14 of the Constitution and bring the question
of validity of the impugned circular within the scope
of judicial review.
18. The scope of judicial review permissible in the
present case, does not require any elaborate
consideration since even the minimum permitted
scope of judicial review on the ground of
arbitrariness or unreasonableness or irrationality,
once Art. 14 is attracted, is sufficient to invalidate
the impugned circular as indicated later. We need
not, Therefore, deal at length with the scope of
judicial review permissible in such cases since
several nuances of that ticklish question do not
Civil Appeal No. 6929 of 2012 Page 52 of 66
Page 53 arise for consideration in the present case.
19. Even otherwise and sans the element so
obvious in these appointment and its concomitants
viewed as purely contractual matters after the
appointment is made, also attract Art. 14 and
exclude arbitrariness permitting judicial review of
the impugned state action. This aspect is dealt with
hereafter.
20. Even apart from the premises that 'office' or
post of D.G.Cs. has a public element which alone
is sufficient to attract the power of judicial review for
testing validity of the impugned circular on the anvil
of Art. 14, we are also clearly of the view that this
power is available even without that element on the
premise that after initial appointment, the matter is
purely contractual. Applicability of Art. 14 to all
executive actions of the State being settled and for
the same reason its applicability at the threshold to
the making of a contract in exercise of the
executive power being beyond dispute, can it be
said that the State can thereafter cast off its
personality and exercise unbridled power
unfettered by the requirements of Art. 14 in the
sphere of contractual matters and claim to be
governed therein only by private law, principles
applicable to private individuals whose rights flow
only from the terms of the contract without anything
more ? We have no hesitation in saying that the
personality of the State, requiring regulation of its
conduct in all spheres by requirements of Art. 14
does not undergo such a radical change after the
making of a contract merely, because some
contractual rights accrue to the other party in
addition. It is not as if the requirements of Art. 14
and contractual obligations are alien concepts,
which cannot co- exist.
21. The preamble of the Constitution of India
resolves to secure to all its citizens Justice, social
economic and political: and Equality of status and
opportunity. Every State action must be aimed at
achieving this goal. Part IV of the Constitution
contains 'Directive principles of State Policy' which
are fundamental in the governance of the country
and are aimed at securing social and economic
Civil Appeal No. 6929 of 2012 Page 53 of 66
Page 54 freedoms by appropriate State action which is
complementary to individual fundamental rights
guaranteed in part III for protection against
excesses of State action, to realise the vision in the
preamble. This being the philosophy of the
constitution, can it be said that it contemplates
exclusion of Art. 14 non arbitrariness which is basic
to rule of law from State actions is contractual field
when all actions of the State are meant fore public
good and expected to be fair and just ? we have no
doubt that the Constitution does not envisage or
permit unfairness or unreasonableness in State
actions in any sphere of its activity contrary to the
professed ideals in the preamble. In our opinion, it
would be alien to the Constitutional scheme to
accept the argument of exclusion of Art. 14 in
contractual matters. The scope and permissible
grounds of judicial review in such matters and the
relief which may be available are different matters
but that does not justify the view of its total
exclusion. This is more so when the modern t rend
is also to examine the unreasonableness of a term
in such contractual where the bargaining power is
unequal so that these are not negotiated contracts
but standard from contracts between unequal.
22. There is an obvious difference in the contracts
between private parties and contracts to which the
State is a party. Private parties are concerned only
with their personal interest whereas the State while
exercising its powers and discharging its functions,
acts indubitably, as is expected of it for public good
and in public interest. The impact of every State
action is also on public interest. This factor alone is
sufficient to import at least the minimum
requirements of public law obligations and impress
with this character the contracts made by the State
or its instrumentality. It is a different mater that the
scope of judicial review in respect of disputes
scope of judicial review in respect of disputes
falling within the domain of contractual obligations
may be more limited and in doubtful cases the
parties may be relegated to adjudication of their
rights by resort to remedies provided for
adjudication of purely contractual disputes.
However, to the extent, challenge is made on the
ground of violation of Art. 14 by alleging that the
Civil Appeal No. 6929 of 2012 Page 54 of 66
Page 55 impugned act is arbitrary, unfair or unreasonable,
the fact that the dispute also falls within the domain
of contractual obligations would not relieve the
State of its obligation to comply with the basic
requirements of Art. 14. To this extent, the
obligation is of a public character invariably in
every case irrespective of there being any other
right or obligation in addition thereto. An additional
contractual obligation cannot divest the claimant of
the guarantee under Art. 14 of non-arbitrariness at
the hands of the State in any of its actions.
xx xx xx
34. In our opinion, the wide sweep of Art. 14
undoubtedly takes within its fold the impugned
circular issued by the State of U.P. in exercise of its
executive power, irrespective of the precise nature
of appointment of the Government counsel in the
districts and the other rights, contractual or
statutory, which the appointees may have. It is for
this reason that we base our decision on the
ground that independent of any statutory right,
available to the appointments, and assuming for
the purpose of this case that the rights flow only
from the contract of appointment, the impugned
circular, issued in exercise of the executive power
of the State, must satisfy Art. 14 of the Constitution
and if it is shown to be arbitrary, it must be struck
down. However, we have referred to certain
provisions relating to initial appointment,
termination or renewal of tenure to indicate that the
action is controlled at least by settled guidelines,
followed by the State of U.P. for a long time. This
too is relevant for deciding the question of
arbitrariness alleged in the present case"
64)Similarly, in State of Gujarat v. M.P. Shah Charitable Trust
14
,
this Court reiterated the principles that if the matter is governed by
a contract, the writ petition is not maintainable since it is a public
law remedy and is not available in private law field, for example,
14(194) 3 SCC 552
Civil Appeal No. 6929 of 2012 Page 55 of 66
Page 56 where the matter is governed by a non-statutory contract.
65)At this stage, we would like to discuss at length the judgment of
this Court in ABL International Ltd. (supra), on which strong
reliance is placed upon by the counsel for both the parties. In that
case, various earlier judgments right from the year 1954 were
taken note of. One such judgment which the Department in
support of their case had referred to was the decision of Apex
Court in case LIC of India v. Escorts Ltd.
15
wherein the Court
had held that ordinarily in matter relating to contractual
obligations, the Court would not examine it unless the action has
some public law character attached to it. The following passage
from the said judgment was relied upon by the respondents:
“If the action of the State is related to contractual
obligations or obligations arising out of the tort, the
court may not ordinarily examine it unless the
action has some public law character attached to it.
Broadly speaking, the court will examine actions of
State if they pertain to the public law domain and
refrain from examining them if they pertain to the
private law field. The difficulty will lie in demarcating
the frontier between the public law domain and the
private law field. It is impossible to draw the line
with precision and we do not want to attempt it. The
question must be decided in each case with
reference to the particular action, the activity in
which the State or the instrumentality of the State is
engaged when performing the action, the public
law or private law character of the action and a
host of other relevant circumstances. When the
State or an instrumentality of the State ventures
into the corporate world and purchases the shares
of a company, it assumes to itself the ordinary role
15(1986) 1 SCC 264
Civil Appeal No. 6929 of 2012 Page 56 of 66
Page 57 of a shareholder, and dons the robes of a
shareholder, with all the rights available to such a
shareholder. There is no reason why the State as a
shareholder should be expected to state its
reasons when it seeks to change the management,
by a resolution of the company, like any other
shareholder."
This Court dealt with this judgment in the following manner:
“We do not think Court in the above case has, in
any manner, departed from the view expressed in
the earlier judgments in the case cited
hereinabove. This Court in the case of Life
Insurance Corporation of India (Supra) proceeded
on the facts of that case and held that a relief by
way of a writ petition may not ordinarily be an
appropriate remedy. This judgment does not lay
down that as a rule in matters of contract the
court's jurisdiction under Article 226 of the
Constitution is ousted. On the contrary, the use of
the words "court may not ordinarily examine it
unless the action has some public law character
attached to it" itself indicates that in a given case,
on the existence of the required factual matrix a
remedy under Article 226 of the Constitution will be
available."
66)Insofar as the argument of the respondents in the said case that
writ petition on contractual matter was not maintainable unless it
is shown that the authority performs a public function or
discharges a public duty, is concerned, it was answered in the
following manner:
“22. We do not think the above judgment in VST
Industries Ltd. (supra) supports the argument of the
learned counsel on the question of maintainability
of the present writ petition. It is to be noted that
VST Industries Ltd. against whom the writ petition
was filed was not a State or an instrumentality of a
State as contemplated under Article 12 of the
Constitution, hence, in the normal course, no writ
Civil Appeal No. 6929 of 2012 Page 57 of 66
Page 58 could have been issued against the said industry.
But it was the contention of the writ petitioner in
that case that the said industry was obligated under
the concerned statute to perform certain public
functions, failure to do so would give rise to a
complaint under Article 226 against a private body.
While considering such argument, this Court held
that when an authority has to perform a public
function or a public duty if there is a failure a writ
petition under Article 226 of the Constitution is
maintainable. In the instant case, as to the fact that
the respondent is an instrumentality of a State,
there is no dispute but the question is: was first
respondent discharging a public duty or a public
function while repudiating the claim of the
appellants arising out of a contract ? Answer to this
question, in our opinion, is found in the judgment of
this Court in the case of Kumari Shri Lekha
Vidyarthi & Ors. vs. State of U.P.& Ors. [1991] (1)
SCC 212] wherein this Court held:
“The impact of every State action is also on
public interest. It is really the nature of its
personality as State which is significant and
must characterize all its actions, in whatever
field, and not the nature of function,
contractual or otherwise which is decisive of
the nature of scrutiny permitted for examining
the validity of its act. The requirement of Article
14 being the duty to act fairly, justly and
reasonably, there is nothing which militates
against the concept of requiring the State
always to so act, even in contractual matters."
23. It is clear from the above observations of this
Court, once State or an instrumentality of State is a
party to the contract, it has an obligation in law to
act fairly, justly and reasonably which is the
requirement of Article 14 of the Constitution of
India. Therefore, if by the impugned repudiation of
the claim of the appellants the first respondent as
an instrumentality of the State has acted in
contravention of the above said requirement of
Article 14 then we have no hesitation that a writ
court can issue suitable directions to set right the
arbitrary actions of the first respondent."
67)The Court thereafter summarized the legal position in the
Civil Appeal No. 6929 of 2012 Page 58 of 66
Page 59 following manner:
“27. From the above discussion of ours, following
legal principles emerge as to the maintainability of
a writ petition :-
(a) In an appropriate case, a writ petition as against
a State or an instrumentality of a State arising out
of a contractual obligation is maintainable.
(b) Merely because some disputed questions of
facts arise for consideration, same cannot be a
ground to refuse to entertain a writ petition in all
cases as a matter of rule.
(c) A writ petition involving a consequential relief of
monetary claim is also maintainable.
28. However, while entertaining an objection as to
the maintainability of a writ petition under Article
226 of the Constitution of India, the court should
bear in mind the fact that the power to issue
prerogative writs under Article 226 of the
Constitution is plenary in nature and is not limited
by any other provisions of the Constitution. The
High Court having regard to the facts of the case,
has a discretion to entertain or not to entertain a
writ petition. The Court has imposed upon itself
certain restrictions in the exercise of this power
[See: Whirlpool Corporation vs. Registrar of Trade
Marks, Mumbai & Ors. [1998 (8) SCC 1]. And this
plenary right of the High Court to issue a
prerogative writ will not normally be exercised by
the Court to the exclusion of other available
remedies unless such action of the State or its
instrumentality is arbitrary and unreasonable so as
to violate the constitutional mandate of Article 14 or
for other valid and legitimate reasons, for which the
court thinks it necessary to exercise the said
jurisdiction."
68)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
Civil Appeal No. 6929 of 2012 Page 59 of 66
Page 60 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 Page 60 of 66
Page 61 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.
(ii)State in its executive capacity, even in the contractual field,
is under obligation to act fairly and cannot practice some
discriminations.
(iii) Even in cases where question is of choice or consideration of
competing claims before entering into the field of contract, facts
have to be investigated and found before the question of a
violation of Article 14 could arise. If those facts are disputed and
require assessment of evidence the correctness of which can only
be tested satisfactorily by taking detailed evidence, Involving
examination and cross- examination of witnesses, the case could
not be conveniently or satisfactorily decided in proceedings under
Article 226 of the Constitution. In such cases court can direct the
aggrieved party to resort to alternate remedy of civil suit etc.
(iv) Writ jurisdiction of High Court under Article 226 was not
intended to facilitate avoidance of obligation voluntarily incurred.
(v) Writ petition was not maintainable to avoid contractual
obligation. Occurrence of commercial difficulty, inconvenience or
Civil Appeal No. 6929 of 2012 Page 61 of 66
Page 62 hardship in performance of the conditions agreed to in the
contract can provide no justification in not complying with the
terms of contract which the parties had accepted with open eyes.
It cannot ever be that a licensee can work out the license if he
finds it profitable to do so: and he can challenge the conditions
under which he agreed to take the license, if he finds it
commercially inexpedient to conduct his business.
(vi) Ordinarily, where a breach of contract is complained of, the
party complaining of such breach may sue for specific
performance of the contract, if contract is capable of being
specifically performed. Otherwise, the party may sue for
damages.
(vii) Writ can be issued where there is executive action
unsupported by law or even in respect of a corporation there is
denial of equality before law or equal protection of law or if can be
shown that action of the public authorities was without giving any
hearing and violation of principles of natural justice after holding
that action could not have been taken without observing principles
of natural justice.
(viii) If the contract between private party and the
State/instrumentality and/or agency of State is under the realm of
a private law and there is no element of public law, the normal
Civil Appeal No. 6929 of 2012 Page 62 of 66
Page 63 course for the aggrieved party, is to invoke the remedies provided
under ordinary civil law rather than approaching the High Court
under Article 226 of the Constitutional of India and invoking its
extraordinary jurisdiction.
(ix) The distinction between public law and private law element in
the contract with State is getting blurred. However, it has not been
totally obliterated and where the matter falls purely in private field
of contract. This Court has maintained the position that writ
petition is not maintainable. Dichotomy between public law and
private law, rights and remedies would depend on the factual
matrix of each case and the distinction between public law
remedies and private law, field cannot be demarcated with
precision. In fact, each case has to be examined, on its facts
whether the contractual relations between the parties bear
insignia of public element. Once on the facts of a particular case it
is found that nature of the activity or controversy involves public
law element, then the matter can be examined by the High Court
in writ petitions under Article 226 of the Constitution of India to
see whether action of the State and/or instrumentality or agency
of the State is fair, just and equitable or that relevant factors are
taken into consideration and irrelevant factors have not gone into
the decision making process or that the decision is not arbitrary.
Civil Appeal No. 6929 of 2012 Page 63 of 66
Page 64 (x) Mere reasonable or legitimate expectation of a citizen, in such
a situation, may not by itself be a distinct enforceable right, but
failure to consider and give due weight to it may render the
decision arbitrary, and this is how the requirements of due
consideration of a legitimate expectation forms part of the
principle of non-arbitrariness.
(xi) The scope of judicial review in respect of disputes falling
within the domain of contractual obligations may be more limited
and in doubtful cases the parties may be relegated to adjudication
of their rights by resort to remedies provided for adjudication of
purely contractual disputes.
70)Keeping in mind the aforesaid principles and after considering the
arguments of respective parties, we are of the view that on the
facts of the present case, it is not a fit case where the High Court
should have exercised discretionary jurisdiction under Article 226
of the Constitution. First, the matter is in the realm of pure
contract. It is not a case where any statutory contract is awarded.
71)As pointed out earlier as well, the contract in question was signed
after the approval of Cabinet was obtained. In the said contract,
there was no clause pertaining to Section 42 of the Act. The
appellant is presumed to have knowledge of the legal provision,
Civil Appeal No. 6929 of 2012 Page 64 of 66
Page 65 namely, in the absence of such a clause, special allowances
under Section 42 would impermissible. Still it signed the contract
without such a clause, with open eyes. No doubt, the appellant
claimed these deductions in its income tax returns and it was
even allowed these deductions by the Income Tax Authorities.
Further, no doubt, on this premise, it shared the profits with the
Government as well. However, this conduct of the appellant or
even the respondents, was outside the scope of the contract and
that by itself may not give any right to the appellant to claim a
relief in the nature of Mandamus to direct the Government to
incorporate such a clause in the contract, in the face of the
specific provisions in the contract to the contrary as noted above,
particularly, Article 32 thereof. It was purely a contractual matter
with no element of public law involved thereunder.
72)Having considered the matter in the aforesaid prospective, we
come to the irresistible conclusion that the appellant is not entitled
to the relief claimed. Though it may be somewhat harsh on the
appellant when it availed the benefit of Section 42 for few years
and acted on the understanding that such a benefit would be
given to it, but we have no option but to hold that PSCs did not
provide for this benefit to be given to the appellant and the
Civil Appeal No. 6929 of 2012 Page 65 of 66
Page 66 contract can be amended only if both the parties agree to do so,
and not otherwise. Therefore, we are constrained to dismiss the
appeal 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 Page 66 of 66
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