Doctrine of fairness can’t to be used for invoking contractual obligation when one party is State: High Court of Delhi

In case of contracts freely entered into with the State, there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State), for the purpose of altering or adding to the terms and conditions of the contract, merely because it happens to be the State. This was decided in the case of MEP Infrastructure Developers Ltd. vs. South Delhi Municipal Corporation and Ors. [W.P.(C) 2241/2020 & CM APPL. 7822/2020] by the Hon’ble Justice Sanjeev Sachdeva in the High Court of Delhi.

The brief facts of the case are that Toll Tax & ECC Collection Agreement was signed between the aforesaid respondent Corporation and the petitioner, the developers. As per the Contract Agreement, Petitioner was entitled to collect penalty from specified commercial vehicles evading toll tax by using free lanes. However, there has been leakage in collection because of specified commercial vehicles using free lanes to escape payment of toll tax and the inability of Petitioner to deploy its officials on the free lanes to collect toll tax and penalty. A letter was then issued to the Petitioner instructing it not to collect Toll & ECC from other than the allotted lanes and directing Petitioner to maintain the flow of traffic to avoid unnecessary traffic jam. The petitioner claimed a set off of Rs. 5.96 Crores from the toll tax as a force majeure event as per the Contract Agreement after the All India Motor Transport Congress strike. Owing to default, the SDMC issued notice of termination to the petitioner and also a notice for inviting tenders. This writ petition was filed to invalidate this termination among other things including the appointment of an independent adjudicator.

The counsel for the petitioner stated that due to Force Majeure event there has been a gross reduction of traffic volume and it was not possible for the Petitioner to make the deposits. It is submitted that the SDMC has acted under a misconception that there has been a violation of the order dated 02.03.2020 and has erroneously issued the letter of Termination on 16.03.2020. It was further contended that once the State or an instrumentality of the 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 and if the Respondent as an instrumentality of the State has acted in contravention of the requirement of Article 14, then a writ court can issue suitable directions to set right the arbitrary actions of the Respondent

Counsels appearing for the Respondent have objected to the maintainability of the Writ Petition. It is submitted that the disputes raised are contractual in nature and purely governed by the terms of the Agreement between the parties. It is submitted 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.

The court looked into the merits of the case and heavily relied upon the case of Excise Commr. v. Issac Peter, (1994) 4 SCC 104 and concluded that the Corporation is alleged to have acted purely within the four corners of the Contract Agreement and sought to exercise its rights under the Contract Agreement to enforce the obligations imposed upon the Petitioner. Adding to it “Petitioner has the remedy of enforcing its rights under the Contract Agreement in terms of the contract act before an appropriate Civil Forum. This court in exercise of powers under Article 226 of the Constitution of India would not go into a purely contractual dispute.”

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