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Judgment
The Court proceedings have been conducted through Video Conference.
Heard Mr. N. Dutta, learned Senior counsel assisted by Mr. N. Sarkar, for the petitioners. Also heard Mr. B. Sharma, learned standing counsel,
N.F. Railway, appearing for respondent Nos.1 and 3 and Mr. G.N. Sahewalla, learned Senior counsel assisted by Mr. M. Sahewalla, appearing for the
respondent No.2. As such no formal steps for notice are called for.
Issue notice, returnable on 16.06.2021.
Learned Senior counsel for the petitioners, however, seeks some interim protection.
According to the petitioner, the petitioner No.2 had entered into several agreements with the Railway authorities for catering service in the
passenger trains, and one such agreement is annexed as Annexure-6 to the petition, referred to as Master License Agreement, under which the
Railway authorities are entitled to revise the tariff of the items being sold by the contractor in the trains and the authorities are also entitled to revise
the license fee.
According to the learned Senior counsel for the petitioners, however, any increase in the license fee will be subject to re-assessment of the sales as
provided under Clause 8.3 of Article 8 of the Master License Agreement, which provides that in case of any revision in catering tariff, the licensee
shall be allowed to sell food/meals at the revised rates to the passengers and in that event, the license fee payable to Railway shall be varied based on
the re-assessment of sale, from the date of revision of catering tariff. In other words, any increase in the license fee, however, will be preceded by re-
assessment of the sale by the Railway authorities. As a corollary, if no re-assessment of sale has been made, the question of increase of license fee
will not arise, as provided under Clause 8.3 of Article 8 of the Master License Agreement.
It has been submitted that for this re-assessment of the sale, one of the relevant considerations will be the volume of sale and quantum of sale
proceeds. It has been submitted that, it is a matter of fact that during this Covid pandemic period, because of the reduced railway traffic, sale has gone
down considerably, even if the tariff had been increased. Therefore, increase in tariff for the food items sold may not necessarily lead to increased
volume of sale.
However, the authorities have issued the impugned demand notice dated 13.05.2021 through the General Manager of the respondent No.2
addressed to the Group General Managers of the various Railways informing the revision of license fees to the extent of 15.50% on the quoted license
fee (exclusive of taxes) of all SBD and non SBD contracts for on board catering services in Mail Express trains, for the period w.e.f. 18.11.2019 to
22.03.2020 (126 days) due to increase in rates as per CC-60/2019. Accordingly, all the Zones were directed to take immediate corrective action for
implementation of these instructions forthwith and outstanding (payable/receivable), if any, were directed to be corrected/ paid/ adjusted. It was also
mentioned that the said revision of license fee had been reconsidered taking into account various factors like prevailing Covid-19 pandemic situation,
change in scope of work, non-viability of meaningful sales assessment in present scenario and limited period of impact of CC-60/2019, in concurrence
with finance associate.
It has been submitted that first of all, the said revision could not have been effected as there was no re-assessment of sales as mentioned above.
Further, this impugned order itself indicates acknowledgement on the part of the authorities that such re-assessment of sale had not been undertaken
purportedly on account of the prevailing Covid-19 pandemic. It has been submitted that this course of action is not tenable in view of the specific
provision under the Agreement which provides that the licensee shall maintain proper and full records of the accounts etc. and as such there could not
have been any difficulty on the part of the Railway authorities to call for the records for the purpose of re-assessment of sales.
Further, the Railways under Article 14 of the Master License Agreement have a right to conduct periodic audits.
According to the learned Senior counsel for the petitioners, the authorities instead of invoking the aforesaid provisions of the Master License
Agreement and without undertaking any re-assessment of sale has issued this demand notice.
It has been further submitted that this demand notice has been sought to be given retrospective effect from the date of revision of the rates, i.e.,
from 18.11.2019 whereas, the impugned increase in license fee was proposed to be made vide impugned communication on 25.05.2021 which is based
on the decision taken on 13.05.2021, which is not permissible in law.
It has been accordingly, submitted that this course of action adopted by the authorities tantamounts to rewriting the terms of the contract
agreement which is not permissible.
Learned Senior counsel further submits that even though this agreement contains an arbitration clause as provided under Article 20 thereof, a
minute scrutiny of the said Article would reveal that before any matter is referred to arbitration, there must have been an initial attempt by the parties
to amicably settle the dispute through highest level of negotiations and discussions and in spite of such an endeavour and if the dispute is not resolved
beyond 30 days of negotiations, then the provisions of Arbitration and Conciliation Act, 1996 can be invoked.
It has been submitted that in the present case, there was no such attempt on the part of the Railway authorities to amicably settle the dispute or claim
made.
It has been, accordingly, submitted that in spite of presence of the arbitration clause, this Court is empowered to intervene if the act of the authorities
appears to be patently arbitrary and unreasonable, for which learned Senior counsel for the petitioners has relied on a decision of the Hon’ble
Supreme Court rendered in Civil Appeal No.317/2021 (Unitech Limited & Ors. Vs. Telangana State Industrial Infrastructure Corporation (TSIIC) &
Ors.), decided on 17.02.2021, in which the Hon’ble Supreme Court had made the following observations:-
“33 A two judge Bench of this Court in ABL International Ltd. v. Export Credit Guarantee Corporation of India (2004) 3 SCC 553 [ABL
International] analyzed a long line of precedent of this Court [K.N. Guruswamy v. State of Mysore, AIR 1954 SC 592, Gujarat State Financial
Corporation. v. Lotus Hotels (P) Ltd. (1983) 3 SCC 379, Gunwant Kaur v. Municipal Committee, Bhatinda, (1969) 3 SCC 769] to conclude that writs
under Article 226 are maintainable for asserting contractual rights against the state, or its instrumentalities, as defined under Article 12 of the Indian
Constitution. Speaking through Justice N Santosh Hegde, the Court held:
“27. ...the following legal principles emerge as to the maintainability of a writ petition:
(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.
(b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases
as a matter of rule.
(c) A writ petition involving a consequential relief of monetary claim is also maintainable.â€
This exposition has been followed by this Court, and has been adopted by three-judge Bench decisions of this Court in State of UP v. Sudhir Kumar
2020 SccOnline SC 847 and Popatrao Vynkatrao Patil v. State of Maharashtra Civil Appeal 1600 of 2000 (Supreme Court of India). The decision in
ABL International, cautions that the plenary power under Article 226 must be used with circumspection when other remedies have been provided by
the contract. But as a statement of principle, the jurisdiction under Article 226 is not excluded in contractual matters. Article 23.1 of the Development
Agreement in the present case mandates the parties to resolve their disputes through an arbitration. However, the presence of an arbitration clause
within a contract between a state instrumentality and a private party has not acted as an absolute bar to availing remedies under Article 226
[Harbanslal Sahnia v. Indian Oil Corporation Ltd., (2003) 2 SCC 104; Ram Barai Singh & Co. v. State of Bihar & Ors., (2015) 13 SCC 592]. If the
state instrumentality violates its constitutional mandate under Article 14 to act fairly and reasonably, relief under the plenary powers of the Article 226
of the Constitution would lie. This principle was recognized in ABL International:
“28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court
should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any
other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ
petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks
[(1998) 8 SCC 1] .) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of
other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate
of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction.â€
(emphasis supplied)
Therefore, while exercising its jurisdiction under Article 226, the Court is entitled to enquire into whether the action of the State or its instrumentalities
is arbitrary or unfair and in consequence, in violation of Article 14. The jurisdiction under Article 226 is a valuable constitutional safeguard against an
arbitrary exercise of state power or a misuse of authority. In determining as to whether the jurisdiction should be exercised in a contractual dispute,
the Court must, undoubtedly eschew, disputed questions of fact which would depend upon an evidentiary determination requiring a trial. But equally, it
is well-settled that the jurisdiction under Article 226 cannot be ousted only on the basis that the dispute pertains to the contractual arena. This is for the
simple reason that the State and its instrumentalities are not exempt from the duty to act fairly merely because in their business dealings they have
entered into the realm of contract. Similarly, the presence of an arbitration clause does oust the jurisdiction under Article 226 in all cases though, it still
needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked. The jurisdiction under Article 226
was rightly invoked by the Single Judge and the Division Bench of the Andhra Pradesh in this case, when the foundational representation of the
contract has failed. TSIIC, a state instrumentality, has not just reneged on its contractual obligation, but hoarded the refund of the principal and interest
on the consideration that was paid by Unitech over a decade ago. It does not dispute the entitlement of Unitech to the refund of its principal.â€
Accordingly, it has been submitted that in the present case, as it is quite apparent that the authorities had acted in an unreasonable, arbitrary manner,
this Court may intervene by directing the authorities not to act upon this demand notice issued on 25.05.2021 based on the impugned communication
dated 13.05.2021.
Mr. G.N. Sahewalla, learned Senior counsel for the respondent No.2 in response, has submitted that as far as the petitioner No.1 is concerned, he
does not have any locus standi to file this petition though the petitioner No.2 may have, and as such the petition cannot be entertained in the present
form.
It has been further submitted that since the petitioner No.2 has already submitted a representation before the authorities on 27.05.2021, the petitioner
No.2 can certainly await the decision of the authorities and as such there may not be any necessity on the part of this Court to pass any interim order
at this stage.
Learned Senior counsel for the respondent No.2 also has submitted that the revision is only to the extent of 15.5% though the extent of revision could
be upto 65% and as such, it is being a marginal increase in the present context, does not deserve any interference of this Court.
Having heard the learned Senior counsel for the parties on the issue of interim, this Court is satisfied that the petitioner no.2 has been able to
establish a prima facie case for passing certain protective interim order in his favour.
It is to be noted that in view of Clause 8.3 of Article 8 of the Agreement, revision of licence fee is contingent upon re-assessment of the sales.
Thus, without there being a re-assessment, there could not have been a revision of the license fee. From the pleadings, it appears that, however, there
was no such exercise of re-assessment undertaken by the Railways Authorities before the said revision of license fee was made. It also appears that
the Railway authorities had not even made any attempt to make a re-assessment by resorting to the provisions of Article 14 of the Agreement and by
directing the contractors to make available the accounts in terms of Clause 6.33 of Article 6 of the Agreement by informing the contractors. In other
words, there is nothing on record to indicate that the Railway authorities either had made any re-assessment of the sales, nor made any attempt to
make any such re-assessment, which they could have done by invoking the aforesaid provisions of the Master License Agreement. There is nothing
also on record to show that the authorities had informed the concerned contractors of their intention to increase the license fee. Of course, these are
factual aspects which certainly can be clarified by the respondent authorities later by filing their response to the same. However, the facts revealed as
of now, and the law, certainly are favourably inclined towards the petitioner no.2.
It may be also noted that, even if the respondents take the plea that pandemic situation did not permit undertaking such a re-assessment exercise, it
cannot be overlooked that it would amount to rewriting the terms of contract, which would not be permissible, unless the parties agree, of which there
is no such evidence. If the aforesaid revision of licence fees is allowed, even if it is marginal, without re-assessment, it amounts to changing the terms
of the contract.
It has been mentioned very clearly in Clause 8.3 of Article 8 of the Agreement that the license fees may be varied based on the re-assessment of
sale. It may be noted that what this clause provides is for variation of the licence fee. Therefore, without making any re-assessment, how do the
Authorities arrive at the decision to increase the license fees? If the frequency of running of passenger trains has been reduced and if there be
corresponding decrease in the sale of items, will it necessarily lead to increase of licence fees even if the tariff is increased? And why not decrease?
In other words, will it lead to variation only on the higher side and not in the lower side? This obviously cannot be based on any guess work, which
appears to have been done. This exercise should be based on certain definitive data of the sale during the relevant period which can be made available
by the contractors only which apparently has not been done. Without obtaining the necessary sale accounts from the contractor, it will be case of pure
guess work on the part of the Respondents.
In the light of the above, this Court is of the view that the impugned actions taken by the Railways Authorities cannot be considered to be
reasonable, rather, appear to be arbitrary and hence, warrant intervention at of this Court at this stage.
Accordingly, while the Railway authorities would be at liberty to dispose of the representation dated 27.05.2021 submitted by the petitioner No.2
within a period of 2(two) weeks from today, this Court directs that, in the interim and until further order, the Railway authorities shall not resort to any
coercive action against the petitioner No.2 in terms of the impugned demand notice dated 25.05.2021 read with impugned decision dated 13.05.2021.
List accordingly on 16.06.2021.