Delhi High Court Expounds: Doctrine Of Fairness Cannot Be Used For Invoking Contractual Obligation When One Party Is State

Overview

• On 09 April 2021, Justice Hon’ble Justice Sanjeev Sachdeva of Delhi High Court in the case of, MEP Infrastructure Development Ltd. Vs. South Dehli Municipal Corporation and Ors., observed that there is a vital difference between the administrative law and contractual law decisions and the concept of administrative law and fairness should not be mixed up with the fair or unfair terms of the contract. The duty to act fairly cannot be imported into a contract to modify and/or alter its terms and/or to create an obligation upon the State Government which is not there in the contract.

Background of the Case

• On 21 July 2017, SDMC floated a tender inviting offers/bids from the interested parties to collect Toll tax and ECC from specified commercial vehicles at 124 Toll Plaza/post/barriers location bordering Delhi.
• The bid was won by the petitioner and his proposal was accepted.
• The Petitioner had offered to pay a weekly sum of Rs.23.13 crores, totaling Rs. 1,206 crores per annum for two years with effect from 01.10.2017 and thereafter to enhance the weekly amount to Rs. 24.29 Crores, i.e., Rs. 1,266 crores per annum with effect from 01.10.2019 after giving effect to 5% enhancement.
• A contract was signed between the petitioner and respondent no.2 on 28 Sept 2017.
• However, there has been a leakage in respect to the specified commercial vehicles using free lanes to avoid and escape payment of Toll tax and the petitioner wrote letters to the respondent corporation informing about the same and about its inability to deploy officials on the free lanes to collect Toll tax and penalty.
• Respondent No.1 on 04 June 2018 issued a notice to the petitioner to not collect Toll and ECC from any other lane than the allotted six lanes and directed the petitioner to maintain the flow of the traffic and avoid unnecessary traffic jams and segregate commercial traffic from diversion point.
• On 23 July 2018, the petitioner by letter claimed set-off of Rs. 5.96 Crores from Toll tax payable by the petitioner as a force majeure event as per the contract agreement because of the strike called by the All India Motor Transport Congress.
• The Petitioner could not keep up with the obligations of the contract and therefore owing to default, Respondent No.1 that is South Delhi Municipal Corporation issued a notice of termination to the petitioner on 16 March 2020 which became effective from 14 April 2020 and the respondent also issued a notice inviting tenders on 28 April 2020.
• The Petitioner has filed the present writ petition to invalidate the notice of termination among other things including the appointment of an independent adjudicator.

Petitioner’s Contention

• The learned counsel of the Petitioner submitted that due to force majeure event there has been a high reduction of traffic volume and it was an impossible task for the Petitioner to make the deposits. It was contented by the counsel that the spread of Coronavirus is a force majeure event.
• The counsel also submitted that the SDMC has acted upon a misconception and issued a notice of termination on 16 March 2020 thinking that the petitioner has violated the order dated 02 March 2020.
• The learned counsel further relying on the judgments of the Apex Court in the cases of, ABL International Ltd v. Export Credit Guarantee Corpn. of India Ltd., (2004) 3 SCC 564 and HSIDC v. Hari Om Enterprises, (2009) 16 SCC 208, contended that once a State becomes a party to a 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 and if the respondent acted in contravention to such requirement that a writ can be issued by the Court to set right the arbitrary actions of the Respondent.

Respondent’s Contention

• The learned counsel, appearing, on behalf of the respondent first of all has objected to the maintainability of the Writ Petition.
• It was submitted by the learned counsel that the Petitioner had entered into a contract with the Respondent Corporation, by participating in the bidding process of the tender released by the Respondent Corporation and therefore the disputes raised are contractual in nature and purely be governed by the terms of Agreement between the parties.
• It is also submitted that the conditions in which the Toll was needed to be collected was fully disclosed and the Petitioner has accepted the terms and conditions of the bid and agreed to pay the sum mentioned in the offer by him unconditionally in the contract.
• It was further submitted by the learned counsel of the Respondent that the Plea of the Petitioner that force majeure clauses would apply is misconceived. It is submitted that the defence of force majeure in the relation to the performance of obligations under a contract is a contractual dispute and a Petition for judicial review cannot be used as a mechanism for resolution of contractual disputes arising out of a force majeure clause in a contract.
• It is also submitted that the lockdown started on 23 March 2020 and the termination notice was issued prior to the lockdown and even after the lifting of the lockdown the Petitioner made no attempt to overcome the shortfalls but kept giving reasons to defend itself.
• It was finally submitted that Petitioner does not merit any relief under Article 226 of the Indian Constitution as the Petitioner is guilty of several contractual breaches.

Delhi High Court’s Observation

• The Honorable Judge in the present case was Justice Sanjeev Sachdeva.
• The Court while giving the judgment analyzed the contract between both the parties and also relied upon and looked up to various judgments passed by the Supreme Court in this regard and then made the observations.
• The Court observed that the duty to act fairly cannot be imported into a contract to modify and/or alter its terms and/or to create an obligation upon the State Government which is not there in the contract.
• The Court also observed that all the contractual disputes have to be settled under the stipulations of the Contract. If the stipulations do not provide for any alternative dispute resolution mechanism, they have to be settled in terms of the Contract Act in a court of law.
• The Court said that, since the petitioner voluntarily agreed to pay a fixed amount per annum, it cannot now seek to contend that Corporation cannot seek more than the actual amount collected towards toll tax from commercial vehicles entering Delhi. It was a tender stipulation and Petitioner accepted the same and made its bid. Petitioner is silent about what would happen in case it collects more than what it has agreed to pay.
• The Court also said that Article 226 of the Indian Constitution cannot be invoked by the petitioner to get out of the contractual obligations of the contract or to make modifications in the contract.

Judgment of the Court:

• After observing and analyzing every aspect, the Court delivered its judgment.
• The Court held that the Writ Petition filed by the Petitioner under Article 226 of the Constitution of India as not maintainable.
• The Court further said that the parties have to resolve the dispute and enforce their rights following the Contract Act in appropriate civil proceedings before the appropriate Court.
• The Writ Petition was dismissed by the Honorable Court and all interim orders were vacated.

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