Writ Petition Not Maintainable For Establishing New Rights In Contractual Disputes, But To Safeguard Rights Granted In Agreement: Allahabad HC

The Allahabad High Court has held that a writ petition in contractual disputes is maintainable if it has been filed to protect the rights which were created by the contract/ agreement. It held that new rights cannot be sought to be created under the contract by way of writ under Article 226 of the Constitution of India.

M/s Jai Prakash Associates (JAL) defaulted in payments of leased rent, premium and interest thereof, lease deeds for the entire 1000 Hectare of land under the Special Development Zone Project were cancelled by Yamuna Expressway Industrial Development Authority (YEIDA). The cancellation of lease and allotment was challenged and upheld by the High Court on various grounds.

Inter alia, counsel for YEIDA challenged the maintainability of the writ petition on the grounds that it was a purely contractual dispute which could not be gone into in writ jurisdiction.

The bench of Justice Manoj Kumar Gupta and Justice Kshitij Shailendra relied on Rajasthan State Industrial Development and Investment Corporation and another Vs. Diamond & Gem Development Corporation Limited and another, where the Apex Court had held that though general interference in contractual disputes should be refrained, a writ can be issued where an existing right under a contract/ agreement is infringed upon. It was held that a writ cannot be issued to create a new right.

Further reliance was placed on ABL International v. Export Credit Guarantee Corporation, where the Apex Court held that under Article 14 of the Constitution of India, the State is duty bound to act fairly, justly and reasonably. It was held that only because the dispute would fall within the domain of contractual disputes, the State would not be absolved its obligations under Article 14.

In M.P. Power Management Company Ltd, Jabalpur vs SKY Power Southeast Solar India Private Ltd and others, the Supreme Court, relying on its judgment in ABL International, held that

“In a case the State is a party to the contract and a breach of a contract is alleged against the State, a civil action in the appropriate Forum is, undoubtedly, maintainable. But this is not the end of the matter. Having regard to the position of the State and its duty to act fairly and to eschew arbitrariness in all its actions, resort to the constitutional remedy on the cause of action, that the action is arbitrary, is permissible.”

The bench headed by Justice Gupta held that jurisdiction of the writ Courts under Article 226 of the Constitution of India can be extended to contractual disputes, however, discretion must be exercised regarding interference in such disputes.

Further, the Court relied on Joshi Technologies International INC. Vs. Union of India where the Supreme Court held that contractual disputes can be gone into if there is some public law character attached to it to see that the action of the State is fair, just and equitable and whether relevant factors are taken into consideration in the decision-making process and the decision is not arbitrary. It held that

“Writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if it can be shown that action of the public authorities was without giving any hearing and violation of principles of natural justice after holding that action could not have been taken without observing principles of natural justice.”

The Apex Court further held that where there is no element of public law involved the parties must be relegated to remedies available in civil law.

Upholding the maintainability of the writ petition, the High Court held that

“The impugned order of cancellation is being challenged as an illegal, arbitrary and disproportionate executive fiat. The petitioner is not seeking to establish any new right but attempting to safeguard its rights under the allotment made in its favour. The impugned order itself recites that it was passed not only to protect the interest of YEA but also the sub-lessees and homebuyers. It thus seeks to subserve larger public interest.”

Accordingly, the Court proceeded to decide the writ petition on its merits, and accordingly upheld the cancellation of the lease.

Case Title: M/s Jai Prakash Associates Ltd v. State of U.P. and another [WRIT - C No. - 6049 of 2020]

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