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Judgment
Sunil Kumar Sinha, J.—The Ministry of Railways through the Railway Board invited open tenders for manufacture and supply of Turnout Concrete sleepers vide NIT Nos. CS-96 of 1990 and CS-117 of 1996. In the first NIT, the total quantity of supply was 2000 sets and in the second NIT it was 1000 sets. The bids offered by the petitioners were accepted and two contracts, Annexure-P-1 & Annexure-P-2, were entered into for supply of contractual quantities of 2000 and 1000 sets respectively. Admittedly, the petitioners made supply of 1400 nos. of sets under contract Annexure-P-1 and 671 nos. of sets under contract Annexure-P-2. By letter No. 7515 dated 10/13.12.1999 (Annexure-P-3), the concerned authority of the respondents informed the petitioners that the Railway Administration had finalized some fresh contracts against Railway Board''s NIT No. CS-130 of 1998 at a lower rate and that the petitioners should communicate upto 15.12.1999 their acceptance of the said lower rate in respect of 30% of the total quantities under the said two contracts, failing which, the quantities under the said two contracts would be reduced by 30% by operation of the negative option clauses. As the matter could not be finalized between the parties, another communication dated 23.05.2001 (Annexure-P-13) was issued to the petitioners for confirmation of their willingness to manufacture and supply the sleepers as per reduced rates. Since the petitioners were not agreeable to supply the remaining 30% quantities at the reduced rate, the above two communications i.e. communication dated 10/13.12.1999 (Annexure-P-3) and communication dated 23.05.2001 (Annexure-P-13) have been challenged in the writ petition with a prayer to direct the respondents not to give any effect to the above communications and to restore back the 30% cut in the contractual quantities with a further direction to declare that the action of invoking negative option clauses of the contracts Annexure-P-1 and P-2 is voided both by malice in law as well as malice in fact and is null, void and non-est. Mr. Vivek Chopra, learned counsel appearing on behalf of the petitioners, argued that the negative option clauses have been invoked without any rhyme and reason; such invocations amount to unilateral variation in the contracts; they further amount to interfere with the integrity of the contracts; permissible variations were only possible on increasing or decreasing in demands and not on any other basis like availability of materials on lower rates.
On the other hand, Mr. Vinay Harit, learned Senior Advocate appearing on behalf of the respondents, opposed these arguments and supported the action taken by the respondents. He argued that as per negative option clauses in the agreements, the respondents were fully justified to reduce the quantities to the extent of 30% in the above facts and circumstances of the case.
We have heard learned counsel for the parties at length and have also perused the records of the writ petition.
To appreciate the rival contentions raised by learned counsel for the parties, let us firstly see, what the negative option clauses are in the respective contracts. Clause 4.1.2 is negative option clause in contract Annexure-P-1 and clause 4.1.5 is negative option clause in contract Annexure-P-2. The above clauses in two contracts read as under:-
Clause 4.1.2 of contract Annexure-P-1 Clause 4.1.2 of contract Annexure-P-1
The purchaser reserves the right to vary the contract quantity by + 30% at its sole discretion at the same price, terms and conditions of the initial orders, however, the right to vary the contract quantity by + 30% shall be exercised atleast 30 days in advance of due date of completion of contract quantity.
Clause 4.1.5 of contract Annexure-P-2 Clause 4.1.5 of contract Annexure-P-2
The purchaser reserves the right to vary the contract quantity by + 30% at its sole discretion at the same price, terms and conditions of the initial orders.
Mr. Chopra has argued that the above clauses give absolute power to the Railways to modify the terms of contracts, which shall amount to interfering with the integrity of the contracts. He cited two decisions in this regard i.e. Maddala Thathiah Vs. Union of India (UOI), and National Fertilizers Vs. Puran Chand Mangia [OVERRULED],
In National Fertilizers, referring to Maddala Thathiah, the Supreme Court observed in para 23 as follows: -
We may also state that under the general law of contracts, once the contract is entered into, any clause giving absolute power to one party to override or modify the terms of the contract at his sweet will or to cancel the contract-even if the opposite party is not in breach, will amount to interfering with the integrity of the contract (per Rajamanner, C.G. in Maddala Thathiah Vs. Union of India (UOI), On appeal to this Court, in that case in Union of India (UOI) Vs. Maddala Thathiah, , the conclusion was upheld on other grounds. The said judgment of the Madras High Court was considered again in Central Bank of India Ltd. Vs. Hartford Fire Insurance Co. Ltd., . but the principle enunciated by Rajamanner C.J. was differed from. (See discussion on this aspect in Mulla''s Contract Act, (10th Edn) pp. 371-72 u/s 31 of the Indian Contract Act.)
Maddala Thathaiah and National Fertilizers were considered by a three Judges bench of Supreme Court in Her Highness Maharani Shantidevi P. Gaikwad Vs. Savjibai Haribai Patel and Others etc. etc., . The Supreme Court, overruling the above two judgments, observed in para 57 that "Under general law of contracts any clause giving absolute power to one party to cancel the contract does not amount to interfering with the integrity of the contract. The acceptance of the argument regarding invalidity of contract on the ground that it gives absolute power to the parties to terminate the agreement would also amount to interfering with the rights of the parties to freely enter into the contracts. A contract cannot be held to be void only on this ground. Such a broad proposition of law that a term in a contract giving absolute right to the parties to cancel the contract, is itself enough to void it, cannot be accepted".
In view of all this, the above contention raised by Mr. Chopra cannot be accepted. On the above principle, it cannot be said that if there are negative option clauses giving absolute right to one party to modify the terms of the contracts it shall amount to interfere with the integrity of the contracts. We may understand that in realm of contract laws the parties to the contract are free to settle their terms with their free consent and the terms like above are not impermissible in law. The concept of variation is a common feature of work contract. The reason behind it, which also appears to be logical, is that in many works the parties at the time of beginning may not be having correct idea of the total requirement or the increase or decrease in the requirement in the entire span of the contract, therefore, if a negative option clause is stipulated in the contract that would not only be permissible, but would be logical and valid. However, as observed in National Fertilizers, the power of the employer to vary the terms relating to work quantities of contract cannot be unlimited. In the instant case, the parties have agreed to give the rights to the employer to vary the contract quantities by + 30%. This shows that the power of the employer to vary the contract''s quantities was limited to the above extent only. Therefore, such power given to the employer for variation to the extent of 30% in the contract quantities, shall never amount to interfere with the integrity of the contracts.
Mr. Chopra has next contented that the invocations of negative option clauses amount to unilateral variation. In Build India Construction System Vs. Union of India (UOI), 3, the Supreme Court held that the contract may also give unilateral power to one of the party to vary the obligation and if such power can be spelled out from the terms of the contract and is held to be lawful then an unilateral variation of obligation by one party shall be binding on the other party to the contract. In the instant case, there is no question of uncertainty. We have already mentioned the terms of both the contracts. The terms are clear and unambiguous. The terms clearly give power to the employer to unilaterally vary the contract quantities to the extent of 30% on either side. We are of the view that the above terms in the contracts were binding on the petitioners and the petitioners cannot say that limited variations to the extent of 30%, as stipulated in the contracts, were unilateral variations without any foundation.
Mr. Chopra has next argued that the above variations were without any rhyme and reason and they were only permissible on increasing or decreasing of the demands and not on any other basis. Admittedly, the basis for invoking negative option clauses in the instant case is that sleepers were available to the Railways on a lower rate through other agreement. In the negative option clauses there is no stipulation of the conditions, on which, the above clauses shall be invoked. The above clauses are free and independent clauses and they give absolute power to the employer to vary the contract quantities by + 30% at its sole discretion. Increasing or decreasing demands at the relevant time, may be the factors for invoking these clauses, but if on any other reasonable ground, the clauses are invoked, the action cannot be said to be impermissible in law. If in due course of time, the goods were available on lower rates which were going to effect public exchequer to a large extent, there was no wrong committed by the Railway Authorities when they invoked the negative option clauses of the subject contracts. The Railway Authorities did not cancel or terminate the contracts of the petitioners on that account. Infact, they had made proposals to the petitioners to supply the remaining 30% of contract quantities on the lower rates. The action appears to be one of modification to save public money, which was well within jurisdiction of the Railway Authorities as per the above terms of contracts, which we have already held to be valid.
Mr. Chopra has also argued that the action was unfair and arbitrary, and the decision was taken in unreasonable manner. The argument appears to be misconceived. "There is a vital distinction between administrative and contractual law decisions. The concept of administrative law and fairness should not be mixed up with fair or unfair terms of the contract. Duty to act fairly which is sought to be imported into a contract to modify and/or alter its terms and/or to create an obligation upon the State Government which is not there in the contract is not covered by any doctrine of fairness or reasonableness. The duty to act fairly and reasonably is a doctrine developed in administrative law field to ensure the rule of law and to prevent failure of justice when the action is administrative in nature. Just as the principles of natural justice ensure fair decision where function is quasi-judicial, the doctrine of fairness is evolved to ensure fair action when the function is administrative. But the said principle cannot be invoked to amend, alter or vary the expressed terms of the contract between the parties (See Assistant Excise Commissioner and Others Vs. Issac Peter and Others, and Puravankara Projects Ltd. Vs. Hotel Venus International and Others,
For the foregoing reasons, we do not find any substance in the writ petition. The writ petition, therefore, is liable to be dismissed and is hereby dismissed.
Interim order granted on 21.06.2001 stands vacated. No cost.