M J Antony: Searching for a convenient forum

OUT OF COURT

Rushing to the high court with contractual disputes may not be a good strategy, according to a Supreme Court decision.

Since writ petitions move faster than civil suits, litigants tend to move the high courts or the Supreme Court straightaway in contractual or labour disputes, bypassing the lower courts. But the propriety of this legal strategy is doubtful and there is a plethora of judgements wherein the Supreme Court has given decisions on this subject. But it appears they never exhaust the grey areas. Even last week, the Supreme Court was grappling with the issue in Noble Resources Ltd vs State of Orissa.

In this case, the private company was pitted against a PSU. Since a government firm is clothed with the status of "state" under the Constitution of India, the private company moved a writ petition in the Orissa High Court, alleging breach of contract. The high court dismissed the petition, opining that it involved the enforcement of a contract and therefore a writ petition was not maintainable.

The private company moved the Supreme Court arguing that when a state-owned monopoly acted unfairly and unjustly, the action violated the equality clause in Article 14 of the Constitution and therefore, a writ petition would be maintainable. On the other hand, the PSU contended that the matter involved disputed questions of fact and required appreciation of evidence and examination of witnesses, which is not the function of the high court.

One of the leading cases on this point was decided by the Supreme Court two years ago in ABL International Ltd vs Export Credit Guarantee Corporation of India. According to that decision, a writ petition would be maintainable even if it involved some disputed questions of fact. There is no absolute rule that in all cases involving disputed questions of fact, the party should go to the civil court. In that case, the court said that if by the repudiation of the private company's claim, the state had acted in contravention of Article 14 then, "we have no hesitation in holding that a writ court can issue suitable directions to set right the arbitrary actions of the state-owned corporation."

Therefore, contractual matters are not beyond the realm of judicial review. But the question is how far this concession could be allowed. For example, in Directorate of Education vs Educomp Datamatics Ltd (2004), the Supreme Court maintained that although the terms of invitation to tender might not be open to judicial scrutiny, the court could examine the award of contract by the government or its agencies in exercising its power of judicial review to prevent arbitrariness and favouritism. One of the main conditions for judicial interference is that the matter should involve public interest.

Another ground for interference is when there is serious allegation of malafide or ulterior motive. In Asia Foundation & Construction vs Trafalgar House Construction India Ltd (1997), the Supreme Court said: "Though the principle of judicial review cannot be denied so far as exercise of contractual powers of government bodies are concerned, it is intended to prevent arbitrariness or favouritism and it is exercised in larger public interest or if it is brought to the notice of the court that in the matter of award of a contract, the power has been exercised for any collateral purpose."

In the present matter of Noble Resources Ltd, the Supreme Court applied the principles it had laid down in earlier decisions, and dismissed the appeal. Each case must be ultimately decided on its own set of facts, according to the court. In this case, an award of damages under Specific Relief Act would be an adequate remedy for any breach of contract and a writ was not appropriate.

Sometimes, even industrial disputes are promptly taken to the high court. Last year, the Supreme Court drew the line in such cases in two judgements, involving Binny Ltd and Ciba Specialty Chemicals Ltd. The employees invoked the non-discriminatory provision in Article 14 and the right to life and livelihood enshrined in Article 21 of the Constitution. Apart from these fundamental rights, the cases involved obligations under Section 23 of the Contract Act, which invalidated agreements that are against public policy.

The court's view was that in appropriate cases, the public policy principle could justify interference in matters involving employment in PSUs, but not private companies. However, if the private body is discharging a public function and the denial of right is in connection with the public duty imposed on the body, writs can be enforced. The difficulty in practice is that it is hard to distinguish between public law and private law remedies as the line is too thin, and it is a mine of gold for nit-picking lawyers.