Holding

Contractual disputes with a public‑law element involving a State are within the writ jurisdiction of Article 226, and the High Court may grant equitable relief such as interest, rendering FCI's withholding of payment unjustified.

Summary

The respondents, manufacturers of levy sugar, supplied the commodity to the Food Corporation of India (FCI) and the Uttar Pradesh Power Corporation Ltd. (UPPCF) under the Essential Commodities Act, 1955. After the Central Government sanctioned the respondents' claims, FCI withheld payment, citing alleged shortages of sugar between 1983 and 1995 and demanding a no‑dues certificate. The respondents filed writ petitions under Article 226, which the High Court initially split into two categories, directing payment for supplies to the government but relegating claims against FCI to a civil suit; on review, the High Court ordered payment of interest. The appellants contended that the dispute was purely contractual and thus not maintainable as a writ, and that interest could not be awarded in review. The Supreme Court held that contractual disputes involving a State instrumentality and a public‑law element are amenable to writ jurisdiction, that a writ court may grant equitable relief including interest, and that FCI’s withholding of payment was without legal justification. Consequently, the Court modified the High Court’s order to direct payment of the amount with interest as awarded by the Single Judge and dismissed the appeals.

Issues considered

Whether a contractual dispute involving a State instrumentality and a public‑law element is maintainable under Article 226 of the Constitution.
Whether the High Court could direct payment of interest in a review proceeding of a writ petition.
Whether the Food Corporation of India could lawfully withhold payment on the ground of alleged shortages of levy sugar.

Legislation cited

Essential Commodities Act, 1955s. 3(2)(f), s. 3(3C)

Subjects

writ jurisdictioncontractual disputepublic law elementEssential Commodities Actlevy sugarinterestreview jurisdictionArticle 226State liability

Judgment

[2008] 1 S.C.R. 663

FOOD CORPORATION OF INDIA & ANR. A
v.
M/S SEIL LTD. & ORS.
(C.A. No. 370 of 2008)
JANUARY 11, 2008
B
{S.B. SINHA AND J.M. PANCHAL, JJ.)
• +
Constitution of India, 1950:
Article 226 rlw Articles 12, 14, 298 and 299 - Government
contracts - Supply of levy sugar- FCI withholding payment - c
Writ petition by supplier- Maintainability of- Held. Contractual
disputes involving public law element are amenable to writ
jurisdiction - There did not exist any factual dispute - FCI,
being a State within the meaning of Article 12 withheld payment
without any legal justification - Single Judge rightly reviewed D
the judgment and directed payment of interest - Review -
Interest - Essential Commodities Act, 1955 - S.3(2)(f) -
Supply of levy sugar.
Article 226 - Writ petition - Judgment- Review of- Held:
E
A writ court exercises its power of review under Article 226 itself
- It not only acts as a court of law but also as a court of equity
-- Equity.

,. Legal Maxim - Actus curiae nemamim gravibit -
Applicability of. F
•'
The respondents supplied levy sugar in terms of
s.3(2)(f) of the Essential Commodities Act, 1955 to the
. appellant-Food Corporation of India as also to the UPPCF.
Claims were lodged for the price of levy sugar both with
the FCI as also with the Central Government. The G

"""'.,, Government sanctioned the claim in respect of the sugar
supplied to the UPPCF, but the appellant withheld the
payment, inter alia, on the premise of shortage in supply
of sugar during the period 1983 to 1995, and demanded
663 H
664 SUPREME COURT REPORTS [2008] 1 S.C.R.

A for a no dues certificate. On writ petitions filed by the
respondents, the Single Judge of the High Court
classified the cases into two categories: (i) supplies made
to the State Government, the Central Government and
their agencies, and (ii) supplies made to the appellant. In
B respect of (i) the Court opined that a direction for making
the payment should be made, but as regards (ii), the
respondents were relegated to the remedy of a civil suit + ;
for recovery of their dues. On a review petition filed by
the respondents, the Single Judge directed payment of
c interest as well. The writ appeals of the FCI having been
dismissed by the Division Bench of the High Court, it filed
the instant appeals.
It was contended for the appellants, inter alia, that
transactions between the parties being contractual in
D nature, no writ petition was maintainable and; in any event,
the direction to pay interest in review proceedings was ,..
impermissible.
Dismissing the appeals, the Court
E HELD: 1.1 Contractual disputes involving public law
element are amenable to writ jurisdiction. When supply
of sugar was made in terms of a statutory order as also
on the directions issued by the Central Government and
in the cases there did not exist any factual dispute, there
F is no reason as to why the writ petitions would not be ..
maintainable. Article 14 of the Constitution of India has
received a liberal interpretation over the years. Its scope
has also been expanded by creative interpretation of the
court. The law has developed in this filed to a great extent.
[Para 10,17] [669-D, E; 672-B, C]
G
ABL International Ltd. & Anr. vs. Export Credit Guarantee
Corporation of India Ltd. & Ors., (2004) 3 SCC 553 - relied
on.
Mis Burmah Construction Co. vs. The State of Orissa &
H
FOOD CORPORATION OF INDIA & ANR. v. 665
MIS SEIL LTD. & ORS .
...
A Ors. AIR 1962 SC 1320 - held in applicable. A
1.2 The High Court, in an appropriate case, may grant
such relief to which the writ petitioner would be entitled
to in law as well as in equity. In the instant case, no
disputed question of fact is involved. The Central
Government not only scrutinized the bills but also verified B

~ . the claims of the respondents. A direction was issued to
make payment. Appellant, which is a 'State' within the
meaning of Article 12 of the Constitution of India, withheld
payment without any legal justification. It could not have
withheld payment on the basis of the purported shortages c
in supply of sugar under the contracts made by the
respondents many many years back, save and except
under the terms of binding contract. [Para 17, 10, 12]
[669-F, H; 670-A; 672-C, DJ
D
2. A writ court exercises its power of review under
Article 226 of the Constitution of India itself. While
exercising the said jurisdiction, it not only acts as a court
of law but also as a court of equity. A clear error or
omission on the part of the court to consider a justifiable
claim on its part would be subject to review, amongst E
others, on the principle of actus curiae neminem gravabit
(An act of the courts shall prejudice none). It can,
therefore, not be said that while exercising its review

t
.. jurisdiction, no interest on the principal sum could have
been directed to be granted by the High Court. Single F
Judge of the High Court rightly reviewed the judgment
and granted relief to the respondents. [Para 17]
[672-D, E, F]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 370
G
of 2008.
, )I'
From the final Judgment and Order dated 7.12.2005 and
24.1.2006 of the High Court of Delhi at New Delhi in L.P.A. Nos.
331-332, 451-452, 1131/2005 and C.M. No. 1252/2006 in
L.P.A. No. 331/2005 respectively. H
666 SUPREME COURT REPORTS [2008] 1 S.C.R.

A WITH A

C.A. Nos. 371 and 372 of 2008.
Amarendra Sharan, A.S.G., Ajit Pudussery, K. Vijay Kumar,
Rekha Bakshi and Vivek Singh for the Appellants.
B Sudhir Chandra Agarwal, Praveen Kumar, Manish Bishnoi
and T.V. George for the Respondents.
The Judgment of the Court was delivered by .. i

S.B. SINHA, J. Leave granted.
c 1. Parliament of India enacted Essential Commodities Act,
1955 (The Act). In terms of Section 3(2)(f) thereof, the Central
Government is empowered to direct any manufacturer of sugar
to sell the said commodity to the Central Government or a State
Government or to a body owned or controlled by them for the
D purpose of making it available to the public at a fair price. It is
commonly known as 'levy sugar'. Price of such levy sugar is
fixed by the Central Government in exercise of its power under
Section 3(3C) of the Act on yearly basis. 'Sugar year'
commences from the month October of the year. Price of levy
E sugar although is required to be notified at that time, admittedly,
there exists a practice to notify the previous year's price as a
levy sugar on an adhoc basis price in October and final price
therefor is notified later on.
2. Pursuant to or in furtherance of a notification issued by
F the Central Government under the Act and the directions issued
by the competent authority from time to time, levy sugar was
.. ~

supplied by the respondents to the agencies of Central
Government as also the appellant.
3. Respondents herein received allotment letters for supply
G of sugar both to FCI as also UPPCF. Claims were lodged for
the price of levy sugar both with the FCI as also the Directorate
of Sugar, Ministry of Food. The Central Government sanctioned
the claim of the respondent in respect of the sugar supplied to
UPPCF. It made similar claim in respect of the sugar supplied
H to the appellant. Appellant, hcwever, demanded for a no dues
FOOD CORPORATION OF INDIA & ANR. v. 667
MIS SEIL LTD. & ORS. [S.B. SINHA, J.]
A certificate. It raised other objections including weight and quality A
of the sugar in relation to the supplies made to the Central
Government. Respondents contended that no complaint having
been made by the Central Government in this connection, the
action of the appellant was totally unjustified.
We may, however, notice that withholding of payment was, B
inter alia, made by the appellant for the alleged shortages in
~ ' supply of sugar during the period 1983 to 1995.
4. Respondents filed writ applications before the High
Court of Delhi. A learned Single Judge of the said Court c
classified the cases into two categories; (1) supplies made to
the State Government, the Central Government; and their other
agencies in respect whereof the appellant only had the authority
to make payment, and (2) supplies made to the appellant.
5. So far as the supplies made to the Central Government D
and other agencies are concerned, it was held that a direction
for making the payment should be made but in respect of the
supplies made to the appellant; any resolution setting the
controversy was held to be impermissible in a writ proceeding
therefor and the respondents were relegated to the remedy of a E
civil suit for recovery of respect of the amount claimed by them.
,' 6. A review petition was filed by the respondents
pointing out that no direction has been made in regard to
... payment of interest and by a judgment and order dated 29th
F
.. April, 2005 interest was directed to be paid .
7. Appeals preferred thereagainst by the appellant herein
have been dismissed by a Division Bench of the High Court by
reason of the impugned judgment.
8. Mr. Amarendra Sharan, learned Additional Solicitor G
General of India appearing on behalf of the appellant submitted:
~
1. Transactions between the parties being contractual
in nature, no writ petition was maintainable.
2. Respondents, having alleged breach of contract on H

1
668 SUPREME COURT REPORTS [2008] 1 S.C.R.

A the part of the appellant, the writ petition should not
have been entertained.

3. Several disputed questions of fact including the
quality and quantity of sugar having been raised, the

B
High Court committed a serious error in determining
the said question in a writ proceeding.
•
4. In any event, direction to pay interest in the review ~ 1 •

proceeding was wholly impermissible in law.

Mr. Sudhir Chandra Agarwal, learned senior counsel
C appearing for the respondents, on the other hand, contended :
1. Supply of sugar having been made in terms of a
statutory order, the writ petition was maintainable.
2. Food Corporation of India could not have withheld
D payment in respect whereof there was no dispute.

3. Lawful payment cannot be withheld on the purported
plea of non-supply of entire quantity of sugar in the
earlier years.
E 8. Admittedly, supplies were made to FCI and UPPCF in
terms of the allotment orders received by the respondents. The
Central Government verified the bills in terms of the circular
letters issued by it from time to time. The claim in terms of the
said circulars was to be submitted to the Directorate of Sugar
F directly. Appellant was merely to pay the difference in the prices 4
of sugar for the years in question keeping in view the price ..
notification dated 22.10.1993 and 17 .1.1994. Bills were
forwarded to the Food Corporation of India by the concerned
authority for making payment
G Appellant, in its counter affidavit before the High Court,
inter alia, averred that as in respect of supply of sugar in earlier
years, certain claims had been made by it, payment was rightly
withheld, stating:
"Since the shortages mentioned in the preceding paras
H

r
..
FOOD CORPORATION OF INDIA & ANR. v. 669
M/S SEIL LTD. & ORS. [S.B. SINHA, J.]
,>,
were detailed in the seal intact wagons, therefore, the A
petitioners were fully respondible/liable for compensating
the losses caused to the Respondents on this account.
However, there happened some delay in working out
compiling the accurate shortages ~tour level and as such
factual position could not be intimated to the petitioners in B
time. The shortages relates for the period from 1983 to
l 1995 i.e. 12 years."
~
9. We have noticed that the mode in which supplies were
to be made have been laid down in the circular letters issued by
the Central Government. The responsibility of the mill owner was c
to supply at the rail head. The fact that transportations of the
commodity were made only by rail is not in dispute. If any
shortage was found during transit, in terms of the policy decision
of the Central Government, claims were to be raised by the
appellant with the Railway Authorities. D
~ 10. When supply of sugar was made in terms of a statutory
order as also on the directions issued by the Central Government
and in the cases there did not exist any factual dispute, we do
not see any reason as to why the writ petitions would not be
maintainable. E

It is now no longer res integra that contractual disputes
involving public law element are amenable to writ jurisdiction. In
these cases, the Central Government not only scrutinized the
; bills but also verified the claims of the respondents. A direction F
.. was issued to make payment. Appellant, which is a 'State' within
the meaning of Article 12 of the Constitution of India, withheld
payment without any legal justification.
11. The High Court referred to several letters issued by
the Central Government to arrive at the conclusion that where G
- '~ sugar had been lifted by a third party without any complaint,
protest or demur of shortages, there was no reason as to why
payment therefor could not be made.
12. Appellant could not have withheld payment on the basis
H
670 SUPREME COURT REPORTS [2008] 1 S. C.R.

A of the purported shortages in supply of sugar under the contracts f.._

made by the re!spondents many many years back, save and
"
except under the terms of binding contract.
13. We have noticed herein before that the High Court had
divided the cases in two categories. In regard to the supplies
B made by the respondents to the Central Government and/or its
agencies wherewith appellants had no concern, it could not have
denied payment on the pretext of shortage or quality of the sugar ' t
supplied, particularly, when the recipient did not raise such a
question.
c
14. The Central Government, issued a letter dated 17th
November, 1972 on which reliance has been placed by the
appellant itself before the High Court; clause (vii) whereof reads
as under:
D "On receipt of dispatch instructions, the District Manager
at dispatching and will arrange full payment including excise
duty to the mills for road movement. As regards, movement
by rail full payment may be made in two installments; first
being @ Rs.15/- per quintal. After making initial payment
E inspection of the stocks should be arranged and mills
should be asked and perused to place indents for wagons
immediately. Balance amount will be paid to the Mills as
soon as wagons are placed. To save time lag, cheques/
demand drafts should be kept ready and handed over the
F mills as soon as wagons are made available, as the mills ~
may hesitate loading wagons unless full payment is made .
particularly when the cosignees will be FCI and ownership
of the Cargo will be changed as soon as stocks are loaded.
Excise duty will also be paid along with the final payment
for stocks RRs will be freight to pay and in favour of FCI
G
as consignee. Payment shall be made through cheques
and in case of any objection from the mill regarding "-
acceptance of the cheques, payments may be made either
by demand draft or cheques certified as good for payment.
Funds shall be arranged by the District Managers directly
H
FOOD CORPORATION OF INDIA & ANR. v. 671
M/S SEIL LTD. & ORS. [S.B. SINHA, J.)

A from the Head Office as is being done in the case of food A
grain purchase.
Posting of additional staff at the mill point is under
consideration and after decision is taken follow up action
should be taken by the Regional Managers. The staff at
B
the mill would be responsible to undertake inspection of
quality, check weighment, indent of wagons and look to
~
I other general arrangements about transport and
dispatch .... These transport charges will be incorporated
by the mills in the bills and will be paid by FCI. Wagons will
be booked against clear RRs in the name of receiving c
District Managers and would be sent to the letter promptly.

Stocks by rail shall move against clear RRs and it shall
therefore be the responsibility of the receiving District
Managers to account for the weight of sugar properly. In
D
case of any shortage/damages of sugar in transit, the
claims for the same should be lodged promptly with the
railways, in accordance with the standing instructions on
the subject."
15. Jurisdiction of the High Court to entertain a writ E
application involving contractual matter was considered by a
Bench of this Court in ABL International Ltd. & Anr. v. Export
Credit Guarantee Corporation of India Ltd. & Ors. [(2004) 3
SCC553] wherein upon referring to a large number of decisions,
it was held: F
. )
"23. It is clear from the above observations of this Court,
once the State or an instrumentality of the State is a party
of the contract, it has an obligation in law tb act fairly, justly
and reasonably which is the requirement of Article 14 of
the Constitution of India. Therefore, if by the impugl}ed G
repudiation of the claim of the appellants the' first
-)
respondent as an instrumentality of the State has acted in
contravention of t~e abovesaid requirement of Article 14,
then we have no hesitation in holding that a writ court can
issue suitable directions to set right the arbitrary actions H
672 SUPREME COURT REPORTS [2008] 1 S.C.R.

A of the first respondent." f.-

16. Reliance placed by Mr. Sharan on Mis. Burmah
Construction Companyv. The State ofOrissa & Ors. [AIR 1962
SC 1320] is not apposite. Claim made therein was a pure money
claim. It was in that situation observed that the High Court
B normally does not entertain a petition under Article 226 of th&
Constitution to enforce a civil liability arising out of a breach of
contract to pay an amount of money due to the claimant. ~ ,,,
17. Article 14 of the Constitution of India has received a
c liberal interpretation over the years. Its scope has also been
expanded by creative interpretation of the court. The law has
developed in this field to a great extent. In this case, no disputed
question of fact is involved.
The High Court, in an appropriate case, may grant such
D relief to which the writ petitioner would be entitled to in law as
well as in equity.
We do not, thus, find any substance in the contention of
Mr. Sharan that while exercising its review jurisdiction, no interest
on the principal sum could have been directed to be granted by
E the High Court. A writ court exercises its power of Review under
Article 226 of the Constitution of India itself. While exercising
the said jurisdiction, it not only acts as a court of law but also as
a court of equity. A clear error or omission on the part of the
court to consider a justifiable claim on its part would be subject
F to review; amongst others on the principle of actus curiae
neminem gravabit (An act of the courts shall prejudice none). ..
We appreciate the manner in which the learned Judge accepted
his mistake and granted relief to the respondents.

G
18. We, however, although agree with the opinion of the
Division Bench of the High Court on the legal principle in regard
to payment of interest, as has been enunciated by it, having
regard to the fact that the respondents did not prefer any appeal,
"-
are of the opinion that increase in the rate of interest, as has
been directed by the Division Bench, cannot be upheld.
H

-
FOOD CORPORATION OF INDIA & ANR. v. 673
M/S SEIL LTD. & ORS. [S.B. SINHA, J.]

19. We, therefore, in modification of the order passed by A
the Division Bench, direct that the appellant would pay the
amount in question with interest as awarded by the learned
Single Judge of the High Court.
20. Subject to above, the appeals are dismissed.
Respondents are also entitled to costs quantified at 8
.. . Rs.1,00,000/- (Rupees one lakh only) in each case.
R.P. Appeals dismissed.

)