Writ Court Has Jurisdiction Over Non-Statutory Contractual Dispute If State Acts Arbitrarily: Kerala High Court

The High Court was considering a writ appeal filed by the Indian Space Research Organization (ISRO) challenging the order in the writ petition that directed them to reconsider the price escalation clause in their contract due to delays caused by the COVID-19 pandemic.

The Division Bench comprising Justice A.K.Jayasankaran Nambiar and Justice Syam Kumar V.M. relied upon Apex Court judgment in M.P. Power Management Company Limited, Jabalpur v. Sky Power Southeast Solar India Private Limited and Others (2023) to state that merely seeking relief under a non-statutory contract does not automatically exempt the State from scrutiny of its actions or inactions if the complaining party can demonstrate that these actions or inactions are inherently arbitrary.

ISRO (appellant) awarded the contract to M/S.Roopam Engineers and Contractors Private Limited (respondent) for the establishment of a Mechanical Testing Research Laboratory for Propulsion Systems at the Liquid Propulsion Systems Centre in Thiruvananthapuram.

According to the tender notice issued in May 2019, the project was to be completed within 12 months. The agreement for the work was signed in March 2020, but the project faced delays due to the Covid-19 lockdown, resuming only in 2021.

The respondent requested ISRO to reconsider Clause 10C(ii) of the General Conditions of the Contract, which addresses price escalation, arguing that they should be compensated for the increased cost of materials due to the delayed start of work caused by the pandemic.

ISRO denied this request, asserting that the price escalation clause applied only to contracts with completion periods extending beyond 12 months.

The writ petition was disposed of stating that ISRO must have considered possible hikes in rates of materials and labour costs over the one-year delay caused by Covid-19. The Court ruled that ISRO being an instrument of the State under Article 12 must act fairly and justly and held that the respondent was entitled to claim compensation for price escalation as per Clause 10C(ii) of the General Conditions of Contract.

ISRO contended that the writ was not maintainable in a purely contractual matter since there was no element of public interest involved in it. It was also argued that the respondent had agreed to continue the work on the same terms and conditions despite the delay in the commencement of work. It was stated that the remedy of the respondent was to approach a Civil Court to get the benefit of the price escalation clause.

The Court examined the scope of the Writ Courts to interfere in a contractual dispute when the State entity acted in an arbitrary manner and without application of mind. It stated that the action of a State entity disregarding the rights of the parties and public interest indicates arbitrary action. It stated that the action of a State entity without good faith to pursue hidden motives also exhibits arbitrariness.

The Court stated that Writ Court need not always refer contractual dispute to Civil Court especially if the State's claim of disputed facts requiring civil litigation is merely a pretext.

It said, “There would be a myriad circumstances where there may not be any necessity to drive a party to a litigation before the civil court especially when the contention by the State, that there are disputed questions of fact necessitating a recourse to the civil court, is found to be merely illusory. As reiterated by the Court, the need to deal with disputed questions of fact, cannot be made a smokescreen to guillotine a genuine claim raised in a writ petition, when the actual resolution of a disputed question of fact is unnecessary to grant the relief to a writ applicant.”

In the facts of the case, the Court stated that it would be grossly unfair and unreasonable for the ISRO to argue that the respondent's claim for price escalation should be assessed as if the work was to be completed within less than 12 months even though the contract's duration was being extended well beyond the original 12-month period.

The Court went on to state that the respondent cannot be stated to have waived of its right to seek benefit under the price escalation clause merely because it acceded to commence the work under the contract belatedly. It stated that the respondent agreed to commence work later as per ISRO's request due to the COVID-19 lockdown does not imply a waiver of their right to claim price escalation, especially when the work could realistically only be completed more than two years after the site was handed over.

Accordingly, the writ appeal was dismissed.

Counsel for Appellants: Advocate G. Harikumar (Gopinathan Nair)

Counsel for Respondents: Senior Advocate P K Suresh Kumar, Advocates C. Harikumar, Sandra Sunny, Arun Kumar M.A

Citation: 2024 LiveLaw (Ker) 509

Case Title: Indian Space Research Organization V M/S.Roopam Engineers And Contractors Private Ltd

Case Number: W.A.NO.1262 OF 2023

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