After Signing A Contract, A Party Is Prohibited From Contesting The Amount Imposed By It, According To The Supreme Court.

According to the Supreme Court, the parties cannot contest the amount of consideration stipulated in a contract if they sign it and issue an undertaking in compliance with its conditions.

The subject of whether a party to a contract has the right to contest the amount of consideration after signing the contract was brought before the Supreme Court bench made up of Justices S. Ravindra Bhat and PS. Narasimha in this Civil Appeal.

Facts 

The issue before the top court relating to the appellant's imposition of an "irrigation restoration charge" by a government resolution dated 01.03.2009. The respondent and other businesses in a similar position use water that is typically only used for irrigation of agricultural land for industrial uses. Water used for industrial uses is viewed as a loss of water for irrigation, hence the Appellant imposes and collects the aforementioned price as compensation. These fees are assessed after accounting for all the hectares that will go without irrigation as a result of water being diverted for industrial use.

To ensure the efficient operation of the thermal power plant, the respondent company built a thermal power plant and requested 240 million liters of water daily. The Appellant in principle approved them, under the condition that the Respondent pays irrigation repair fees. As opposed to the standard cost of Rs. 50,000 per hectare, the corporation was ordered to pay Rs. 1,00,000 per hectare as an irrigation rehabilitation fee. On September 26, 2008, a demand letter was sent out in that regard.

Note that the Appellant increased the irrigation rehabilitation fees from Rs. 50,000 to Rs. 100,000 per hectare on March 1, 2009. But on January 25, 2011, Respondent No. 1 sent the Ministry a letter for the first time objecting to the imposition of Rs. 100,000 in fees for irrigation restoration. Following that, the Appellant received numerous additional letters and requests from Respondent No. 1. However, the Appellant made no promise that it would take the request into account or grant the exemption.

In addition to the prior request for a reduction in the costs, Respondent No. 1 subsequently made a new request for payment of the sum in equal installments. The request for payment in equal installments was approved, but the request for a charge decrease was once more turned down.

Finally, on May 22, 2012, the Appellant and Respondent No. 1 signed a water supply agreement in which it was stipulated that Respondent No. 1 would pay Rs. 1,000,000 as an irrigation repair fee. Respondent No. 1 also issued an undertaking that same day to pay the irrigation restoration charge in 5 equal installments at the rate of Rs. 100,000 per hectare.

Brief Judicial History 

Respondent No. 1 contested the Appellant's demand letter six months after the agreement was signed. By its order dated November 22, 2012, a division bench of the Bombay High Court declined to strike down the communications because Respondent No. 1 had agreed to pay an irrigation restoration charge at a rate of Rs. 100,000 per hectare by signing the agreement dated May 22, 2012, which made it liable for that payment. The High Court did rule that the Appellant had eight weeks to decide on Respondent No. 1's request for a decrease in the irrigation repair fee.

The Water Resources Department of the State of Maharashtra took Respondent No. 1's request for a reduction in the irrigation restoration charge into consideration by the High Court's ruling and rejected the request in an order dated 29.01.2013. Respondent No. 1 filed a writ petition before the High Court of Judicature of Bombay at Nagpur contesting the judgment dated 29.01.2013, incensed by the rejection of its representation.

The State of Maharashtra filed a civil appeal with the highest court challenging the Division Bench of the High Court of Judicature at Bombay's decision to lower the "irrigation repair charges" that the Respondent had agreed to pay from Rs. 1,000,000 per hectare to Rs. 50,000 per hectare. This verdict has the critical consequence of lowering the Respondent's overall responsibility for irrigation restoration costs from Rs. 232.18 Crores to Rs. 116.09 Crores.

Respondent's Arguments  

Respondent No. 1's arguments before the Supreme Court generally fell into four categories:

i. That Respondent No. 1 would be governed by the rate in effect on the date the powerful committee granted its in-principle approval.

ii. That some businesses in similar situations received the relief that Respondent No. 1 was requesting.

iii. That Respondent No. 1's assurance provided after signing the contract was not a binding one. This project was dependent on the resolution of Respondent No. 1's many requests for a decrease in irrigation restoration costs.

iv. That the Government Circular from March 1, 2009, will take effect immediately and won't affect contracts that are already in progress.

Appellant's Arguments 

The main focus of the appellant's arguments was that a "contract is sacrosanct" and that it must be adhered to. The Appellants further argued that the impugned order violates their and Respondent No. 1's agreement, which was signed on May 22, 2012.

Analysis by the Court 

Four crucial facets of the case were examined by the court.

1. Challenge Unjustified: According to the court, "Appellant and Respondent No. 1 had a contract on May 22, 2012. 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, Respondent No. 1 is not justified in objecting to the levy of Rs. 100,000 given that it had previously authorized it. No. 1 had also given an assurance that day that it would pay the agreed-upon amount within a certain amount of time. We should observe that the Appellant specified Rs. 1,000,000 per acre in irrigation restoration fees right from the start, in the sanction order, the demand notice, and all of its communications. All of these correspondences are incorporated into the agreement of May 22, 2012. " The court said, "The agreement and the undertaking reflect consensus and idem."

2. Estoppel principle: According to the court, "signing the agreement and issuing an undertaking would prevent Respondent No.1 from challenging the levying of Rs. 1,00,000 as irrigation restoration charges."

3. Differential Treatment: There is a legitimate basis for discrimination against the Respondent Company compared to other businesses that have received an exemption, and the Respondent Company has not received any differential treatment. The Appellant's explanation in its reply to this effect is reasonable and sufficient.

4. Incorrect Approach by the High Court: In light of Respondent No. 1's own willful and deliberate entering into an agreement while fully aware of the legal and commercial repercussions, we are dissatisfied with the High Court's approach.

Judgment 

Finally, the court decided that "Respondent No. 1 is restrained from contesting the consideration amount because the Appellant requested Rs. 100,000 as irrigation restoration expenses, or consideration for diverting water that was previously set aside for irrigation purposes for industrial use. Even the agreement between the parties itself set down the same sum. On the day the contract was signed, Respondent No. 1 issued an undertaking stating that they will pay the consideration."