JOSHI TECHNOLOGIES INTERNATIONAL INC. vs. UNION OF INDIA & ORS.

The High Court took note of the basic and primary contention of the appellant which was that there was a clear 0 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 E 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 admitted in its communications when the dispute regarding admissibility of deduction under Section 42 of the Act arose, the appellant F should not be allowed to suffer. More so, when it was not responsible for the said error.

It may be pertinent to point out that the High Court did not accept the preliminary objections raised by the G 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: H

Dealing with the first question, High Court rejected the plea of the appellant that 1992 NIT included and referred o 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 E be included in, or be a part of, the 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 F 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 G to "Taxes, Royalties, Rentals, Customs duties etc." though mentions about the applicability offiscal, there is no reference to Section 42 of the Act in this Clause.

The High Court further pointed out that there was H no letter or correspondence written by the appellant from JOSHI TECHNOLOGIES INTERNATIONAL ING •: 1067 1995 onwards stating that non-inclusion of Section 42 benefit A 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 B Section 42 of the Act, the High Court has brushed aside these communications as inter-ministerial correspondence. These letters were apparently written on the request of the appellant or NIKO Resources Limited. It is further mentioned that these are not contemporaneous letters written at the C time when PSCs were signed.

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 D 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 E 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•1 February, 2012. We examined the original records and F G H

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 D 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 E undiscovered oil fields and for this reason benefit under Section 42 had been granted to them.

On the aforesaid reasoning, the High Court concluded that appellant was fully aware of Clause 16.2 of F 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 G 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 of the impugned judgment and noted by us above. H

We would also like to mention that in the JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1069 penultimate para, the High Court has expressed its A 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 B 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 C 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 D 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 E grounds: (a) The Ministry of Petroleum & Natural Gas (MoPNG) had invited bids for the said oilfields on the basis of a Model Production Sharing Contract (MPSC) which F 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 G 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 H

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 o for the benefit of Section 42 of the Act.

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 E 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 F 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 G 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 H

Last submission of Mr. Ganesh was that the issue regarding Mandamus to be issued to the respondents for F amending the contract and including the clause for granting the benefit of 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 G 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: '(1983) 3 sec 379 '(1991) 1 sec 212 • (2004) 3 sec 553 H

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 D 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 ~efore signing the PSC, the approval of the Cabinet is obtained, which reflects that the PSCs as submitted to the Cabinet, E 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 F 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 G contractual obligation and that the issues arising out of contractual matters will have to be decided on the basis of 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 Corporation6 and A.B.L. H International Limited (supra). ' (2012) 1 oo sec 424

From the reading of the writ petition filed in the A 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 B 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, C 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 juri iction of the High Court 0 under Article 226 of the Constitution to pass Mandamus for amending the PSCs. All these issues are formulated in the precise form hereunder: (i) Whether in terms of the provisions contained in two Production Sharing Contracts (PSCs) dated 20-02- E 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) F . 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 G 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. H

We would now proceed to answer these questions seriatum.

Answer to question No. (i)- First and foremost aspect which has to be kept in mind while answering this c 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 D Officer is supposed to focus on Section 42 of the Act 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 E 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, F 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 G 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.

Section 42(1){c) speaks of allowances H pertaining to the depletion of mineral oil in the mining area.

From the nature of allowances specified in this provision, it is clear that such allowances are otherwise F 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 G 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 been modified to the extent necessary to give effect to the terms of the agreement, as otherwise, the other H

We would also like to point out, at this juncture itself, that this Court held in CIT v. Enron Expat Service D 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 E the Court. While holding so, the Court had followed its earlier judgment in the case of Enron Oil and Gas India Limited (Supra).

In the present case, it is an admitted fact that F 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 G such stipulations, a mandatory requirement, in the PSCs. H

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 7 (2008) 15 sec 33 8 (2010) 327 ITR 626

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 G being advanced by the learned senior counsel for the appellant the Court asked him to produce the copy of PS Cs, which were otherwise not brought on the record as the Court wanted to find out as to whether there was any such intention H

1 This Contract supersedes and replaces any G previous agreement of understanding between the Parties, whether oral or written, on the subject matter hereof, prior to the Effecfa·e Date of this Contract.

2 This Contract shall not be amended, modified, H varied or supplemented in any respect except by an .::i.::iosHI TECHNOLOGIES INTERNATIONAL INC. v.

3 No waiver by any Party of any one or more obligations or defaults by any other Party in 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.

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.

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 ~hall prevail.

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."

Intention behind the aforesaid clauses is more than apparent, namely, not to look into any other document 1081 A B c D E or correspondence which took place between the parties prior to the signing of this agreement. Not only this, even the F 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 G 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 H

Answer to question no. (iii) - We have already noted that Article 32.2 categorically provides that this Contract B shall not be amended, modified, varied or supplemented in any respect except by an in'strument 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 C 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 D between the parties prior to the effective date of this contract.

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 E 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 F construction of the provisions of 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 G 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 H cannot say that merely because this benefit is extended in 1JOSHI TECHNULOGIES INTERNATIONAL INC. v. 10~?r the previous years; albeit wrongly, this wrong act should A 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(88) of the Act in the earlier years wrongly and the Court held that it would not operate 8 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 C Expat Service Inc. (Supra)] and instead the tax authorities have extended the benefit wrongly to the assessee.

With this, we come to more crucial aspect, namely, the three letters written by the MoPNG in response to the D 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 E give its nod for amending the contract by incorporating such a provision which was allegedly left out inadvertently.

Our first remark is that the approach of the High Court in dealing with this aspect may not be entirely correct. F 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 G 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, H

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 F 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 G this question accordingly.

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 H allowances under Section 42 of the Act, it would be difficult,

Answer to question no. (iv) & (v) - These issues have three facets, namely: (i) Whether there is a prayer to this effect in the writ c 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? D

We have reproduced the prayers made in the writ petition. Obviously, no prayer for issuance of Writ of E 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 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 F 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 G 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- H

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 B 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 C 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.

Let us presume that there was such an intention. o 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 E 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 F agree to amend, modjfy or varied/supplemented the terms of the contract, no right accrues to the appellant in this behalf.

We have to keep in mind that the contract in question is governed by the provisions of Article 299 of the G 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 H manner as the President or the Governor may direct or l JOSHI TECHNOLOGIES INTERNATIONAL INC. v. t087 authorize. Thus, when a particular contract is entered into, A its novation has to be on fulfillment of all procedural requirements. 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 estoppal can still be invoked against the B 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 C such authorisation came from MoF. Whether, in such a case, can the Court issue a Mandamus?

As noted above, the contention of the respondent is that PSCs are in the nature of a contract agreed D 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. E 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, F therefore, later on cannot seek retrospective amendment as a matter of right when no such right is conferred under the contract. 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 G 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, H

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 B 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 C contradistinction to the private law remed.Y simplicitor under the contract. Some of the case law to bring home this cardinal principle is taken note of hereinafter.

Significantly, in Andi Mukta Sadguru Shree o 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 are purely of private character, no mandamus can be issued. Thus, even if the respondent is a 'State', other condition which has to be E 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. F

First case which needs to be referred is Barei/ly Development Authority v. Ajai Pal Singh and others10• 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 G 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 H e (1989) 2 sec e91 10 [1989) 1 SCR 743

In appeal filed by the Authority, this Court, on facts, noted that the respondents had applied for registration only E 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 F 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 G respondents were under no obligation to seek allotment of house/ flats even if they had registered themselves. Notwithstanding, the voluntarily registered themselves as 11 (1979) llLLJ 217 S(; H

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 Vs. Biswanath Tea Company Ltd."

Next case of relevance is the Divisional Forest generally to Assam Land & Revenue Regulation and Rules made thereunder. Respondent Company approached C 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 D 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 E 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 F and such contractual rights and obligations can only he enforced in a civil court. This preliminary objection was overruled by the High 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 G High Court was reversed holding that writ as not maintainable. Following observations may usefully be quoted:- 12 [1981] 3 SCR 662 H

It is undoubtedly true that High Court can entertain in its ex1raordinary juri iction 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 juri iction.

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 juri iction 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 .... ".

The question came up for consideration again in A the case of Kumari Shrilekha Vidyarthi etc. etc. v. State . of U.P. and others13. 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. B 28.2.1990, irrespective of the fact whether the term of the incumbents had expired or was subsisting. Validity of this GD. 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 C 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 D 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". E F

The Court then examined the nature of G 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 13 AIR 1991 SC 537 H

We are, therefore, unable to accept the argument of the Ld. Addi. 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 er:;· 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.

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 arise for consideration in the present case.

Even otherwise and sans the element so obvious H in these appointment and its concomitants viewed as JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1095 purely contractual matters after the appointment is A made, also attract Art. 14 and exclude arbitrariness permitting judicial review of the impugned state action. This aspect is dealt with hereafter.

Even apart from the premises that 'office' or post B 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 c 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 D 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 E only by private law, principles applicable to private individuals whose rights f:Jw 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 F • 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 G co- exist.

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 H State action must be aimed at achieving this goal. Part

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

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

In our opinion, the wide sweep ofArt. 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 1097 A B c D E F G H

Similarly, in State of Gujarat v. M.P. Shah Charitable Trust14 , 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, where the matter D is governed by a non-statutory contract.

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 E 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 F 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: G "If the action of the State is related to contractual obligations or obligations ?rising out of the tort, the court may riot 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 H "(194) 3 sec 552 "(1986) 1 sec 264

Insofar as the argument of the respondents in the c D E F G H 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:

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 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.

It is clear from the above observations of this Court, o 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 E 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." F

The Court thereafter summarized the legal position in the following manner:

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 G H

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 juri iction." G

The position thus summarized in the aforesaid principles has to be understood in the context of discussion that preceded which we have pointed out above. As per this, no doubt, there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there H are disputed questions of fact or even when monetary claim

Further tegal position which emerges from various judgments of this Court dealing with different situations! aspects relating to the contracts entered into by the State! public Authority with private parties, can be summarized as F 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. G (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 H

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 juri iction under Article 226 of the Constitution. F First, the matter is in the realm of pure contract. It is not a case where any statutory contract is awarded.

As pointed out earlier as well, the contract in question was signed after the approval of Cabinet was G 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, namely, in the absence of such a clause, special allowances under Section 42 would impermissible. Still it signed the contract without such a H clause, with open eyes. No doubt, the appellant claimed

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 D 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 contract can E 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. F Devika Gujral Appeal dismissed.