Following The Signing Of The Contract, The Party Was Restrained From Questioning The Amount Imposed

CAUSE TITLE:

The Chief Engineer, Water vs Rattan India Power Ltd. 

DATE OF ORDER:

13th January 2023

JUDGE(S):

Hon'Ble Justice, Pamidighantam Sri Narasimha

PARTIES:

Petitioner: THE CHIEF ENGINEER, WATER RESOURCES DEPARTMENT & ORS

Respondent: RATTAN INDIA POWER LIMITED THROUGH ITS DIRECTOR & ORS.

SUBJECT:

The Hon’ble Supreme Court (hereinafter referred to as ‘Supreme Court’ or ‘the Court’) stated that the parties cannot contest the amount of consideration stipulated in a contract if they sign it and provide an undertaking in compliance with its conditions. Justices S. Ravindra Bhat and PS. Narasimha of the Supreme Court were asked to decide in this Civil Appeal whether a party to a contract has the right to contest the amount of payment after the contract has been signed.

IMPORTANT PROVISIONS:

Indian Contract Act 1872

• Section 10 - states that all agreements constitute contracts if they are freely entered into by parties who are legally able to do so, are formed for a legal consideration, have a legal purpose, and are not specifically disregarded by this declaration.
• Section 25 – states that unless contract is in written and registered, a promise to pay compensation for services rendered, or a commitment to pay a debt that is legally banned from collection, an agreement with no consideration is invalid.

Principle of Estoppel 

• Estoppel is founded on the idea that it would be unfair for a person to be able to deny the truth in a court action after wilfully persuading another individual to accept and act on a declaration through conduct or in any other way.

BRIEF FACTS BEFORE FILING OF THE WRIT:

• The State of Maharashtra's Irrigation Department issued a circular on February 21, 2004, that stipulated that if water is diverted for uses other than irrigation, the entity utilizing the water is required to pay Rs. 50,000 per acre in irrigation restoration fees. According to the circular, no water may be redirected until an agreement is reached between the government and the sector in question.
• The successor of Respondent No. 1 in this case, Sophia Power Company Ltd.2, had plans to build a 2640MW thermal power plant. To that objective, SPCL made a message to the Maharashtra Industrial Development Corporation on December 12, 2007, confirming the accessibility of 240 million litres of water per day to support the efficient operation of the thermal power plant.
• In response to an application submitted by SPCL, a competent committee assembled by the State of Maharashtra gave in-principle permission for SPCL's use of water during its meeting on February 21, 2008. This preliminary permission was contingent upon SPCL covering the costs of the investment and irrigation restore. The Appellant in this case was identified by the high-powered committee as the development agency.
• The Vidarbha Irrigation Development Corporation gave final licence for SPCL's thermal power plant to use water on July 25, 2008, in exchange for SPCL paying a total of Rs. 549.98 crores, which includes Rs. 317.8 crores in capital expenses and Rs. 232.18 crores in irrigation restoring charges. Since the entire number of hectares that would lose irrigation owing to 2 hereafter termed to as "SPCL," the irrigation restoration charge which was set at Rs. 232.18 crores.
• 23219 hectares of water were diverted to SPCL's thermal power plant. This effectively meant that, instead of paying the standard amount of Rs. 50,000 per hectare for irrigation restoration charges, SPCL was ordered to pay Rs. 1,00,000 per hectare.
• On August 16, 2008, the appellant notified SPCL that they would be conserving the necessary amount of water, pending SPCL's payment of Rs. 549.98 crores. The Appellant also sent out a request letter to that regard on September 26, 2008. Notably, the Maharashtra government's Water Resources Department raised the cost of irrigation restoration from Rs. 50,000 to Rs. 100,000 per acre on March 1, 2009. This directive becomes operative on April 1, 2009. This was objected by the respondent.
• They couldn't have drew water from the dam without making a deal. Another letter was sent out, stating that because the in-principle distribution was made and the final sanction was granted at the then-current rate of Rs. 50,000 per hectare, they may be permitted to pay the irrigation restoration payment in five equal instalments
• On June 1, 2011, Respondent No. 1 issued the Appellant a letter requesting a similar prolongation to the one it had already submitted, along with the aforementioned request. The Appellant responded by granting an extension until May 31, 2012, in a letter dated 8 June 2011. The Appellant, however, gave no guarantees in response to Respondent No. 1's additional request for a remission or decrease of the irrigation repair fee.
• Respondent No. 1 made a new letter on May 10, 2012, requesting a reduction of the aforementioned fee as well as permission to pay it in 5 equal instalments because it had not received a response to its request for a waiver or adjustment of the irrigation repair cost.
• Eventually, a water supply agreement was signed by the appellant and respondent no. 1 on May 22, 2012. This agreement specifically says that Respondent No. 1 must pay a fee of Rs. 100,000 for the restoration of irrigation. This agreement signifies ad idem agreement on the payment amount for irrigation repair. Essentially, Respondent No. 1 submitted an assurance to settle the irrigation repair cost at the rate of Rs. 100,000 per acre in 5 equal instalments on the same day that the undertaking was issued.

INITIATION OF WRIT PETITION 

• Respondent No. 1 filed a writ petition before the High Court of Justice of Bombay disputing the notification of August 16, 2008, and the demand letter of September 26, 2008, six months after the water supply agreement was signed. A division bench of the Bombay High Court declined to revoke the communications in its decision dated 22.11.2012 on the grounds that the Respondent No.1 has acknowledged its obligation to pay irrigation restoration charges at the rate of Rs. 100,000 per acre by accepting the agreement dated 22.05.2012. According to the High Court, it was not possible to issue an order that would prevent the agreement's compliance.
• The High Court, however, ruled that Respondent No. 1's request for a decrease in the irrigation restoration price must be resolved within eight weeks. If the request is granted, Respondent No. 1 may then pursue legal measures to get a refund or to have the excess amount paid adjusted. The Water Resources Department of the State of Maharashtra evaluated Respondent No. 1's request for a decrease in the irrigation restoration price in accordance with the High Court's ruling and denied the request in an order dated 29.01.2013.
• The State of Maharashtra brought a civil appeal before the Supreme Court challenging the Division Bench's decision of the High Court of Judicature at Bombay at Nagpur, which reduced the irrigation restoration charges that the Respondent had agreed to pay from Rs. 100,000 per hectare to Rs. 50,000 per hectare. It is crucial to point out that this verdict had the intended effect of lowering the Respondent's overall responsibility for irrigation restoration costs from Rs. 232.18 Crores to Rs. 116.09 Crores.

ISSUES ROSE:

• Whether an either party of the said contract has the power to dispute the sum of consideration just after contract is signed.

ARGUMENTS ADVANCED BY THE APPELLANT

• In the current case, on May 22, 2012, the Appellant and Respondent No. 1 had made a deal. According to this agreement, Respondent No. 1 must pay an amount of Rs. 1,000,000 per acre as an irrigation repair payment. As a result, the Respondent No. 1 is not justified in objecting to the charge of Rs. 100,000 given that it has previously authorised it. In reality, Respondent No. 1 had also given an assurance that day that it would pay the agreed-upon amount within a certain amount of time.
• The main thrust of the appellant's arguments was that a "contract is sacred" and that it must be adhered to. The appellants further complained that the impugned judgement is against the terms of their 22 May 2012 contract with Respondent No. 1.

ARGUMENTS ADVANCED BY THE RESPONDENT

• It was objected by the Respondent through a letter to the Minister of Maharashtra's Water Resources Department on January 25, 2011, for the first time upon the imposition of costs of Rs. 100,000 for irrigation repair. 
• It believed that since many other power producers had received exemptions from the capital contribution tax and the irrigation restoration price, it too may qualify for such an exemption. Respondent No. 1 asked that they be permitted to enter into an agreement for the delivery of water as required by the circular dated 21.02.2004 while this request was being considered. 
• Respondent No. 1 is restrained from expressing a concern about the consideration sum because the Appellant requested Rs. 1,000,000 as irrigation repair fees, or payment for the deviation of Signature Not Certified Digitally signed by Sanjay Kumar, in all of its correspondence on January 13, the water for industrial usage that had previously been set aside for irrigational 15:53:57 IST.
• Respondent No. 1 did not offer an absolute commitment when he signed the agreement, despite appearing to do so. This project was contingent on the resolution of Respondent No. 1's many requests for a decrease in the payment for irrigation restoration. That the 01.03.2009 Government Circular will be effective going forward and won't affect contracts that are already in progress.

ANALYSIS BY THE COURT:

• "Appellant and Respondent No. 1 had an agreement on May 22, 2012," the court ruled. According to this contract, Respondent No. 1 must pay an amount of Rs. 1,000,000 per acre as an irrigation repair payment. As a result, the Respondent lacks grounds to contest the Rs. 100,000 levy since it authorised it. Additionally, Respondent No. 1 had made a commitment to pay the agreed-upon amount in a predetermined amount of time. We should observe that the Appellant specified Rs. 1,000,000 per acre in irrigation repair fees right from the start, in the sanction decision, the demand notice, and all of its communications. All of these correspondences are incorporated into the agreement of May 22, 2012.
• "Signing the agreement and providing an undertaking will estop Respondent No.1 from disputing the imposition of Rs. 1,00,000 as irrigation repair charges," the Court stated. There is a legitimate basis for prejudice against the Respondent Company compared to other businesses that have received an exclusion, and the Respondent Company has not received any special benefit. The Appellant's explanation in its response to this effect is acceptable and adequate. When Respondent No. 1 signed a contract wilfully and intentionally knowing quite well the legal and commercial repercussions, we are not happy with the strategy used by the High Court.
• Eventually, the court decided that "Respondent No. 1 is restrained from contesting the consideration sum since the Appellant requested Rs. 100,000 as irrigation recovery costs, or consideration for diverting water that has been previously set it apart for irrigational uses for industrial use, in all of its correspondence. Even the agreement between the parties themselves set down the same sum. On the date the contract was signed, Respondent No. 1 really issued an undertaking stating that they will pay the consideration."

CONCLUSION

When the respondent voluntarily and intentionally entered into an agreement, recognizing very well legal and commercial repercussions, the Court was not pleased with the strategy used by the High Court. While allowing the appeal, the Supreme Court emphasised that the High Court made a mistake by not only granting the writ petition but also substituting its opinion for the terms of the contract.