Party Estopped From Questioning Amount Levied As Per Contract After Signing It : Supreme Court

The Supreme Court has held that signing a contract and issuing an undertaking in accordance with the contract would estop the parties from challenging the amount of consideration as specified within the terms of the contract.  

The issue before the Supreme Court bench comprising Justices S Ravindra Bhat and PS Narasimha in this Civil Appeal was whether a party to a contract is entitled to question the amount of consideration after signing the contract. 

Facts Leading To The Civil Appeal 

The matter before the top court concerned the levy of ‘irrigation restoration charge’ by the Appellant as per Government Resolution dated 01.03.2009.The respondent and other similarly placed companies use water for industrial purposes, which is otherwise reserved for irrigation of agricultural land. The usage of water for industrial purposes is seen as loss of water for irrigation, and in order to compensate for the same, the said charge is levied and collected by the Appellant. These charges are levied after taking into account the total number of hectares which will be deprived of irrigation due to the diversion of water for industrial use. 

The Respondent company had set up a thermal power plant for which they had sought 240 million litres of water per day to facilitate the smooth running of the thermal power plant. In principle approval was given to them by the Appellant subject to the payment of irrigation restoration charges by the Respondent. The company was directed to pay Rs.1,00,000 per hectare as irrigation restoration charge, as against the prevalent rate of Rs.50,000 per hectare. A demand letter to that effect was issued on 26-09-2008.

It is important to note that on 01-03-2009, the Appellant increased the irrigation restoration charges from Rs.50,000 to Rs.1,00,000 per hectare. However, the Respondent No. 1, on 25.01.2011, for the first time issued a letter to the Ministry protesting against the levy of Rs.1,00,000 as irrigation restoration charges. The Respondent No. 1 sent several more such letters and requests subsequently to the Appellant. However, the Appellant gave no commitment to consider the request or grant exemption. 

The Respondent No. 1 then freshly sought for payment of the amount in equal instalments apart from the earlier request of reducing the charges. The request for payment in equal instalments was granted however, request for reduction in the levy was again denied. 

Ultimately, on 22.05.2012, the Appellant and Respondent No.1 entered into a water supply agreement which stated that the Respondent No.1 shall pay a sum of Rs.1,00,000 as irrigation restoration charge. On the same day, Respondent No.1 also issued an undertaking to deposit the irrigation restoration charge at the rate of Rs.1,00,000 per hectare in 5 equal instalments. 

Brief Judicial History

6 months after entering into the agreement, the Respondent No. 1 challenged the demand letter issued by the Appellant. By its order dated 22.11.2012, a division bench of the Bombay High Court refused to quash the communications on the ground that the Respondent No.1 had accepted its liability to pay irrigation restoration charge at the rate of Rs.1,00,000 per hectare by signing the agreement dated 22.05.2012. However, the High Court held that Respondent No.1’s plea for reduction of the irrigation restoration charge shall be decided within a period of 8 weeks by the Appellant.

In compliance of the order passed by the High Court, the Water Resources Department of the State of Maharashtra considered the request of Respondent No.1 for reduction of the irrigation restoration charge, and through its order dated 29.01.2013, rejected the said request. Aggrieved by the rejection of its representation, Respondent No.1 preferred a writ petition before the High Court of Judicature of Bombay at Nagpur challenging the decision dated 29.01.2013.

The Civil appeal before the top court filed by the State of Maharashtra originated against the judgment of the Division Bench of the High Court of Judicature at Bombay at Nagpur, whereby the High Court had reduced the ‘irrigation restoration charges’ which the Respondent had contracted to pay, from Rs.1,00,000 per hectare to Rs.50,000 per hectare. It is important to note here that this judgment had the effect of reducing the total liability of the Respondent towards irrigation restoration charges from Rs. 232.18 Crores to Rs.116.09 Crores.

Respondent's Arguments  

The arguments made by the Respondent No. 1 before the top court was mainly in four parts: 

i. That it is the rate prevailing on the date of grant of in-principle approval by the high-powered committee which would govern Respondent No.1

ii. That a few similarly placed companies were given the relief which Respondent No.1 was seeking

iii. That the undertaking given by Respondent No.1 after signing the agreement was not an unconditional one. This undertaking was subject to the outcome of the numerous representations made by Respondent No.1 for reduction of the irrigation restoration charge

iv. That the Government Circular dated 01.03.2009 will apply prospectively and will not apply to ongoing contracts.

Appellant's Arguments 

The crux of the arguments put forward by the Appellant was that a "contract is sacrosanct" and it must be followed. The Appellants also contented that the impugned order is in the teeth of the agreement dated 22.05.2012 entered into between the Appellant and Respondent No.1.

Analysis by the Court 

The court discussed four important aspects of the case.   

1. Challenge Unjustified: The Court held, "Appellant and Respondent No. 1 had entered into an agreement on 22.05.2012. This agreement categorically stated that Respondent No.1 would pay a sum of Rs.1,00,000 per hectare towards irrigation restoration charge. Therefore, the Respondent No.1 is not justified in challenging the levy of Rs.1,00,000 when it itself had agreed to the same. In fact, on the same day, Respondent No.1 had also issued an undertaking that it would pay the stipulated sum within a specific period of time. We may note here that right from the very beginning i.e., in the sanction order, the demand notice and in all its letters, the Appellant had stipulated a sum of Rs.1,00,000 per hectare as irrigation restoration charges. All these communications get subsumed in the agreement dated 22.05.2012." "The agreement and the undertaking reflects consensus ad idem," the court added. 

2. Principle of Estoppel: The Court said, "signing the agreement and issuing an undertaking would estop Respondent No.1 from challenging the levy of Rs.1,00,000 as irrigation restoration charges." 

3. Differential Treatment: The Respondent Company has not been accorded any differential treatment and there is reasonable basis for discrimination with other companies that have been granted exemption. This is a reasonable and sufficient explanation by the Appellant in its reply to this effect. 

4. Wrong Approach by the High Court: We are not satisfied with the approach adopted by the High Court when Respondent No.1 itself has willfully and deliberately entered into an agreement knowing fully well the legal and business consequences.

Judgment 

The court finally held that "Respondent No.1 is estopped from challenging the consideration amount because the Appellant, in all its communications, had sought for an amount of Rs.1,00,000 as irrigation restoration charges i.e., consideration for diversion of water for industrial use, which was earlier reserved for irrigational purposes. Even the contract entered into between the parties prescribed the same amount. In fact, Respondent No.1 agreed to the pay the consideration by issuing an undertaking on the date of signing of the contract."  

Case Title: THE CHIEF ENGINEER, WATER RESOURCES DEPARTMENT & ORS. VERSUS RATTAN INDIA POWER LIMITED THROUGH ITS DIRECTOR & ORS. CIVIL APPEAL No. 8550 of 2022 ARISING OUT OF SLP (C) No. 28161 of 2016 

Citation : 2023 LiveLaw (SC) 32

For Appellant(s) Mr. Rajat Sehgal, AOR

For Respondent(s) Mr. E. C. Agrawala, AOR Mr. Anand Dilip Landge, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Bharat Bagla, Adv. Ms. Kirti Dadheech, Adv.

Indian Contract Act 1872 - Principle of Estoppel: - Signing the agreement and issuing an undertaking would estop Respondent No.1 from challenging the levy of Rs.1,00,000 as irrigation restoration charges- Court refuses to challenge the levy of 'irrigation restoration charges' by the Water Department from a company for supplying water for industrial purposes as per agreement-

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