I have given due thought to the contentions of the rival parties. The freedom which exists under the realm of private contract in respect of the performance of contractual obligation does not apply in the same measure where the Government is a party. Every action of the Government has to pass the rigorous inquisition of fair play, lack of arbitrariness, and its being founded on good and sound reasons. Government's freedom to contract as well as freedom to break free from the obligations of a contract is now rightly restricted in diverse manners. While the Government may enjoy the role of distribution of largesse, it may also suffer from the vulnerability of committing errors or perpetrating an inequitable or unjust implementation of its policies through its faceless and unidentifiable officers and agents. It, Therefore, behoves the Court to treat Government contracts in a manner altogether different to that of the compact between private parties. Reliance of Ms. Jyoti Singh on the decisions mentioned above is of no avail as the learned authors of the judgments have taken care to highlight the fact that they had to pronounce upon contracts between private parties. The Hon'ble Supreme Court has opined that even where the State is empowered by a particular clause in a contract to terminate it by a notice simplicitor, the only possible construction that can be given to such a clause is that the reasons which prevailed upon it for justifying the termination need not be conveyed to the adversary. The Apex Court has clarified that such a clause does not permit the taking of arbitrary, biased, unreasonable or an ill-informed decisions.
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Delhi High Court
Pioneer Publicity Corporation vs Delhi Transport Corporation And ... on 27 February, 2003
Equivalent citations: 2003 IIAD Delhi 469, 2003 (1) ARBLR 672 Delhi, 103 (2003) DLT 442, 2003 (2) RAJ 132, 2004 50 SCL 331 Delhi
Bench: V Sen
1. This petition has been filed under Section 9 of the Arbitration and Conciliation Act, 1996, praying that Respondent No. 1, Delhi Transport Corporation, (hereinafter referred to as the DTC) be restrained from taking down or defacing the advertisement panel at the back, as well as on the side panels of DTC buses. The `Terms and Condition of the Tender' contains an Arbitration clause. It is also not disputed that in the event of disputes arising between the parties these would be referrable to an Arbitrator for his decision.
2. It appears that a contract was entered into between the parties in September, 2000 in respect of the `back panel right side space and inside space above window panel' for the period 8.9.2000 to 27.9.2003 in terms of which the Petitioner had to pay a sum of Rs. 10,12,74,984.00 in equal monthly Installments of Rs. 21,10,322/-. There is a clause in this Agreement which stipulates that any decrease or increase in the number of buses will not in any manner change/alter the monthly rental fees. By Clause 9(C) the parties were competent to terminate the contract without assigning any reason, but on giving three months notice in writing. This clause has been invoked by the DTC and after the expiry of three months the contract between the parties was sought to have been terminated with effect from 2.2.2003. This letter dated 2.11.2002 is reproduced in extensio :
"To The Pioneer Publicity Corporation, 227 , Office Complex, Jhandawalan (M-1) NEW DELHI-110055 SUB:- Notice for termination of contract.
Sir, The contract for advertisement on buses of D.T.C. was awarded to you vide letter No. Pub/2000/4(15/633 dated 5.9.2000 for East, West, North Zone, and South Zone (w.e.f. 20.11.2000).
The matter has been reviewed by the competent authority in view of the directions of the Hon'ble Supreme Court as well as of Govt. of N.C.T. of Delhi and it has been decided to discontinue the advertisement on buses forthwith on the DTC buses.
Accordingly, this three months notice is served upon you in accordance with Clause No. 9(C) of the agreement that your contracts under reference shall stand terminated W.e.f. 1.02.2003. This notice will become operative W.e.f. 2.11.2002. You are therefore requested to remove all the back panels/inside plates (Left & right over the windowpanes) side paintings and Nut Bolts fitted on the DTC buses within the stipulated period failing which this will be done by DTC at you risk and costs.
This issue with the approval of the competent authority.
Yours faithfully, sd/-
Manager (A) Publicity"
3. The Petitioner contends that its subsequent written reminders and requests for furnishing the details of the direction passed by the Hon'ble Supreme Court and by the Government of NCT of Delhi has not been replied to. A recall notice dated 4.1.2003 was issued on behalf of the Petitioner to the DTC. But since no Reply was received thereto and apprehending that the DTC would act upon its notice dated 2.11.2002 the Petitioner has filed the present petition.
4. Mr. Chandhiok, learned Senior counsel appearing for the Petitioner has contended that disputes had arisen on an earlier occasion also. By its letter dated 13.8.2001 the DTC had stated that a policy decision had been taken that thenceforward no DTC bus shall have any advertisement displayed on the right side of the bus and, therefore, the contract could not be continued with. Clause 9(C) was invoked and was enforced. It was also stated that thenceforth DTC buses shall have advertisements displayed only on the rear side of the bus as well as small portions inside the bus above the seat of the conductor and fresh tenders would be invited from the prospective bidders. OMP No. 234/2001 was filed and eventually the Arbitral Tribunal passed Status Quo Orders on 9.11.2001, and stayed the order of termination issued by the DTC. In OMP No. 366/2001 the DTC was restrained from opening the Tenders received in reply to its advertisement dated 4.11.2001 and 6.11.2001 and from accepting any of them. The parties thereafter arrived at a compromise as a consequence of which the Claim pending before the Sole Arbitrator was withdrawn and an Award was passed to this effect.
5. Ms. Jyoti Singh, learned counsel appearing for the DTC has contended that the contract could be terminated strictly in accordance with its terms and since it envisages its termination by three months notice simplicitor no interference was called for by this Court. It is also her contention that if the prayers in the petition are granted it would be tantamount to the Court directing and decreeing the specific performance of the contract. She forcefully contended that this would not be a proper course to adopt in view of Section 9 of the Specific Relief Act especially since the contract was determinable. Therefore, Section 14 of the Specific Relief Act immediately comes into play. It is further contended by her that the principal requisite for the grant of relief would be for the Court concluding that the termination was bad and illegal and this determination should properly be left to the Arbitrator. Ms. Jyoti Singh has relied on a decision of a Single Judge of this Court in Classic Motors Ltd. Vs. Maruti Udyog Ltd., where it was held that- "In view of the long catena of decisions and consistent view of the Supreme Court, I hold that in private commercial transaction the parties could terminate a contract even without assigning any reason with a reasonable period of notice in terms of such a Clause in the agreement. The submission that there could be no termination of an agreement even in the realm of private law without there being a cause or the said cause has to be valid strong cause going to the root of the matter, therefore, is apparently fallacious and is accordingly rejected." Ms. Singh has also relied on another decision of the same learned Single Judge in Tata Teleservices Ltd. And others Vs. Union of India 1999(2) Arb. LR. 76 (Delhi) in which my learned brother found that no prima facie case for the grant of an injunction against the encashment of a bank guarantee had been made out. Ms. Singh has also cited a decision of the Hon'ble Division Bench in Rajasthan Breweries Ltd. Vs. The Stroh Brewery Company, 2000(3) Arb. LR 509 (Delhi). The Bench had observed that "In the absence of specific clause authorising and enabling either party to terminate the agreement in the event of happening of the events specified therein, from the very nature of the agreement, which is private commercial transaction, the same could be terminated even without assigning any reason by serving a reasonable notice. At the most, in case ultimately it is found that termination was bad in law or contrary to the terms of the agreement or of any understanding between the parties or for any other reason, the remedy of the appellants would be to seek compensation for wrongful termination but not a claim for specific performance of the agreements and for that view of the matter learned Single Judge was justified in coming to the conclusion that the appellant had sought for an injunction seeking to specifically enforce the agreement. Such an injunction is statutorily prohibited with respect of a contract, which is determinable in nature." (underlining added). Ms. Jyoti Singh has also cited a decision of the Hon'ble Supreme Court in the case entitled M/s. Indian Oil Corporation Ltd. Vs. Amritsar Gas Service & Ors. , . She has specifically relied on paragraph 14 of the judgment which is therefore reproduced below:
"14. The question now is of the relief which could be granted by the arbitrator on its finding that termination of the distributorship was not validly made under clause 27 of the Agreement. No doubt, the notice of termination of distributorship dated 11.3.1983 specified the several acts of the distributor on which the termination was based and there were complaints to that effect made against the distributor which had the effect of prejudicing the reputation of the appellant-Corporation; and such acts would permit exercise of the right of termination of distributorship under clause 27. However, the arbitrator having held that clause 27 was not available to the appellant-Corporation, the question of grant of relief on that finding has to proceed on that basis. In such a situation, the Agreement being revokable by either party in accordance with clause 28 by giving thirty days' notice, the only relief which could be granted was the award of compensation for the period of notice, that is, 30 days. The Plaintiff-respondent No. 1 is, therefore, entitled to compensation being the loss of earnings for the notice period of thirty days instead of restoration of the distributorship. The award has, therefore, to be modified accordingly. The compensation for thirty days notice period from 11.3.1983 is to be calculated on the basis of earnings during that period disclosed from the records of the Indian Oil Corporation Ltd."
Predicated on these decisions it has been contended on behalf of the Respondent that the prayer for injunction should be rejected as the Petitioner had adequate remedy of proving damages, if any, in arbitration proceedings.
6. The submission of learned Senior counsel for the Petitioner is that the important and obviously distinguishing feature between the cases cited on behalf of the Respondent and the case in hand is that is that the Respondent is not a public body and the contract is not between private parties. He has drawn attention to the fact that the order of the Hon'ble Supreme Court which is now sought to be implemented was passed as far back as in 1997 and along with the order the Government of NCT of Delhi, was in existence when the contract was awarded and when the previous dispute was compromised and the contract was allowed to continue. It is also contended that since Clause-9(C) had earlier been invoked and then withdrawn, it could not be employed again. He has emphasised that there has been no change in the circumstances subsequent to the entire matter being reviewed; and post the withdrawal of the case by the Petitioner. Reliance has been placed on Kumari Shrilekha Vidyarthi and Others Vs. State of U.P. And Others, which was authored by Hon'ble Mr. Justice J.S. Verma, as His Lordship then was, along with the IOC case (supra) and Ester Industries Ltd. Vs. U.P. State Electricity Board and Ors. , . In somewhat similar circumstances, the Hon'ble Supreme Court had in paragraph 13 of Kumari Shrilekha's case (supra) spelt out the circumstances in which the principle of promissory estoppel would apply against the State in the following words:
"13. The learned Additional Advocate General contended that clause (3) of para 7.06 says that the appointment of a District Government Counsel is only professional engagement terminable at will on either side and not appointment to a post under the government; and the government has the power to terminate the appointment at any time `without assigning any cause'. He contended that this power to terminate the appointment at any time without assigning any cause and the clear statement that the appointment is only professional engagement terminable at will on either side is sufficient to indicate that the relationship is the same as that of a private client and his counsel. In our opinion, this provision has to be read not in isolation, but in the context in which it appears and along with the connected provisions, already referred to. The expression `professional engagement' is used therein to distinguish it from `appointment to a post under the government' in the strict sense. This, however, does not necessarily mean that a person who is not a government servant holding a post under the government does not hold any public office and the engagement is purely private with no public element attaching to it. This part of clause (3) of para 7.06 means only this and no more. The other part of clause (3) which enables the government to terminate the appointment `at any time without assigning any cause' can also not be considered in the manner suggested by the learned Additional Advocate General. The expression `at any time' merely means that the termination may be made even during the subsistence of the term of appointment and `without assigning any cause' means without communicating any cause to the appointee whose appointment is terminated. However, `without assigning any cause' is not to be equated with `without existence of any cause'. It merely means that the reason for which the termination is made need not to be assigned or communicated to the appointee. It was held in Liberty Oil Mills v. Union of India that the expression `without assigning any reason' implies that the decision has to be communicated, but reasons for the decision have not to be stated; but the reasons must exist, otherwise, the decision would be arbitrary. The non-assigning of reasons or the non-communication thereof may be based on public policy, but termination of an appointment without the existence of any cogent reason in furtherance of the object for which the power is given would be arbitrary and, therefore, against public policy. Clause (3) of para 7.06 must, therefore, be understood to mean that the appointment of a District Government Counsel is not to be equated with appointment to a post under the government in the strict sense, which does not necessarily mean that it results in denuding the office of its public character; and that the appointment may be terminated even during currency of the term by only communicating the decision of termination without communicating the reasons which led to the termination. It does not mean that the appointment is at the sweet will of the government which can be terminated at any time, even without the existence of any cogent reason during the subsistence of the term. The construction, suggested on behalf of the State of U.P. of this provision, if accepted, would amount to conceding arbitrary power of termination to the government, which by itself is sufficient to reject the contention and thereby save it from any attack to is validity.".
(underlining added) Mr. Chandhiok has also contended that since the Contract itself stipulated that damages could not be claimed the objections pertaining to the provisions of Specific Relief Act cannot come into play. It is his submission that Section 9 of the Arbitration and Conciliation Act is of the widest amplitude, even greater than that contained in Order XXXIX of the Code of Civil Procedure. Nevertheless Rule 2 of that Order contemplates the issuance of an injunction restraining the Defendant from committing a breach of contract or other injury of any kind, irrespective of the compensation claimed in the suit or not.
7. I have given due thought to the contentions of the rival parties. The freedom which exists under the realm of private contract in respect of the performance of contractual obligation does not apply in the same measure where the Government is a party. Every action of the Government has to pass the rigorous inquisition of fair play, lack of arbitrariness, and its being founded on good and sound reasons. Government's freedom to contract as well as freedom to break free from the obligations of a contract is now rightly restricted in diverse manners. While the Government may enjoy the role of distribution of largesse, it may also suffer from the vulnerability of committing errors or perpetrating an inequitable or unjust implementation of its policies through its faceless and unidentifiable officers and agents. It, therefore, behoves the Court to treat Government contracts in a manner altogether different to that of the compact between private parties. Reliance of Ms. Jyoti Singh on the decisions mentioned above is of no avail as the learned authors of the judgments have taken care to highlight the fact that they had to pronounce upon contracts between private parties. The Hon'ble Supreme Court has opined that even where the State is empowered by a particular clause in a contract to terminate it by a notice simplicitor, the only possible construction that can be given to such a clause is that the reasons which prevailed upon it for justifying the termination need not be conveyed to the adversary. The Apex Court has clarified that such a clause does not permit the taking of arbitrary, biased, unreasonable or an ill-informed decisions.
8. Applying these principles to the present case, I am left in no doubt that the DTC has not been able to adequately justify its action for terminating the Contract before it was otherwise determinable (i.e. after three years), on the grounds disclosed by it above. The reasons which are now sought to be relied upon were in existence at the time when the Contract was entered into and also when it was given a fresh lease of life after the compromise. This is not to say that the DTC like any other public body would be precluded from correcting errors which have been occasioned due to an oversight of the law or legally valid directions and binding judicial Orders. In the present case the DTC has failed to disclose any happening which has made it aware of the judgment of the Hon'ble Supreme Court or of directions of the Government of NCT of Delhi. As far as I can see it, its actions are whimsical and devoid of reasons. I cannot ignore the fact that bus-shelters have been constructed which contain and comprise attractive and fetching advertisements. Quite recently dhalows or garbage collection centers, public lavatories etc. comprising even larger and more attractive advertisements have mushroomed all over the capital. These ventures equally pose traffic distraction and hazards. In the NDMC area it is permissible to carry advertisements on lamp-posts. Is it then open to the State, or any of its instrumentalities to predicate its decision to terminate a contract on grounds which it does not adhere to itself. The Court cannot turn a blind eye to the fact that the advertisements on bus shelters, dhalows, public lavatories and garbage collection centers is a larger traffic hazard than advertisements on the back of a DTC bus. So far as advertisements inside these buses are concerned it is difficult to comprehend any reason or manner in which these advertisements would act as traffic hazards. In regard to `side panels', these are altogether outside the vision of traffic proceeding in the same direction as well as on the opposite direction on which the DTC bus is proceeding. The judgment of the Hon'ble Supreme Court in P. Narayan Bhatt Vs. State of Tamil Nadu & Ors. , CA 2803/2001 is apposite and relevant. The Apex Court accepted the appeal against the finding of the High Court that the mere visibility of the hoarding to the traffic is sufficient for either removing the hoarding or from refusing to grant a license or from renewing a license. Mr. Chandhiok has also pointed out that the Commissioner-Secretary, Transport Department, Government of NCT had filed an affidavit in Writ Petition No. 13029/1985 titled M.C. Mehta Vs. Union of India pending before the Hon'ble Supreme Court praying that the advertisements and hoardings be permitted on Kiosks and street lamp posts as also on DTC bus shelters with appropriate restrictions of size and the colour as such advertisements or hoardings would generate necessary funds for the agency. I cannot appreciate the Respondent's stand that its decision to put an end to the Contract was to implement the direction of the State Government. This is merely an ipse dixit. Keeping in view the provisions of Order XXXIX Rule 2 it is no longer possible to contend that the Court does not possess power to prohibit or prevent the breach of contract. If this is possible in the realm of private contracts, it is an obligation in the realm of pubic enterprises. Furthermore, the provisions of Specific Relief Act relied upon by Ms. Singh are not attracted for the simple reason that the contract itself prohibits the claim of grant of compensation. A distinction must be drawn between a termination and determination. The present contract was determinable in the context of the Specific Relief Act on the expiry of three years. It could be terminated prior thereto but as has been laid down by the Hon'ble Supreme Court, where this power is to be employed by the State, it should be founded and predicated on good and expressed reasons and it should be unbiased. After the expiry of two and a half years of the contract nothing new has crept up to sufficiently justify its precipitated termination.
9. In these circumstances, the prayers contained in the petition are allowed and the DTC is restrained from taking down or defacing the advertisements portrayed on the back, side panels and inside panels of the DTC buses.
10. Petition is allowed. There shall be no order as to costs.
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