Supreme Court of India
M/S. A.S. MOTORS PVT. LTD.versusUNION OF INDIA AND ORS.
- Citation
- 2013 INSC 117
- Decided
- 21 February 2013
- Disposal
- Dismissed
- Bench
- T S THAKUR
Holding
The termination and forfeiture of performance security were valid and complied substantially with natural‑justice requirements, whereas the revocation of the bank guarantee was not justified, leading to dismissal of the appeal.
Summary
The National Highway Authority of India (NHAI) awarded a fee‑collection contract to A.S. Motors, which was later terminated on grounds of overcharging and other malpractices. The appellant challenged the termination, alleging violation of natural‑justice principles and lack of a factual basis for termination, as well as disputing the forfeiture of performance security and the revocation of a bank guarantee. The Supreme Court examined whether a show‑cause notice and hearing satisfied audi alteram partem, and found that the procedural safeguards were substantially complied with. It also held that the agency’s report provided a sufficient basis to conclude that the appellant breached the contract by charging excess fees. The forfeiture of performance security was upheld under the contract terms and Section 74 of the Contract Act, but the revocation of the bank guarantee was deemed unjustified. Consequently, the appeal was dismissed, leaving the termination and forfeiture intact while quashing the bank‑guarantee invocation.
Issues considered
- Did the termination of the contract comply with the principles of natural justice, particularly audi alteram partem?
- Was there a real and sufficient basis to conclude that the appellant breached the contract by charging excess fees?
- Is the forfeiture of performance security under the contract and Section 74 of the Contract Act valid?
- Was the revocation of the bank guarantee by the respondent authority justified?
Legislation cited
- Indian Contract Act, 1872s. 72, s. 74
Subjects
contract terminationnatural justiceaudi alteram partemperformance security forfeiturebank guaranteeSection 74 Contract Actexcess feeNHAIshow-cause notice
Judgment
[2013] 4 S.C.R. 409
MIS. A.S. MOTORS PVT. LTD. A
v.
UNION OF INDIA AND ORS.
(Civil Appeal No. 1517 of 2013)
FEBRUARY 21, 2013
B
[T.S. THAKUR AND GYAN SUDHA MISRA, JJ.]
Contract - Termination of, by respondent-authority -
Termination challenged on ground that principles of natural
justice requiring a fair hearing to the appellant were not C
complied with - Held: Termination of the contract was
preceded by a show-cause notice issued to the appellant and
a hearing provided to it by the competent authority - The
show-cause notice enclosed with it all relevant documents -
Issue of a show-cause notice and disclosure of material on D
the basis of which action was proposed to be taken against
the appellant was in compliance with the requirement of
fairness to the appellant - Absence of any a/legation of ma/a
tides against those taking action as also the failure of the
appellant to disclose any prejudice, all indicated that the E
procedure was fair and in substantial, if n_ot strict, compliance
with the requirements of audi alteram partem - Principles of
natural justice thus stood substantially complied with.
Contract - For collection of fee for using stretch of road
on the National Highway - Awarded to appellant - Contract F
subsequently terminated by respondent-authority -
Termination challenged on ground that there was no real
basis for the respondent-authority to hold that appellant-
contractor had committed any breach of the terms and
conditions of the contract warranting its termination - Held: G
Reports submitted by the agency employed by respondent-
authority clearly showed that appellant-contractor was
indulging in malpractices - If the report submitted by the
409 H
410 SUPREME COURT REPORTS [2013) 4 S.C.R.
A agency against whom the appellant has no allegation of
malice or other extraneous considerations to make are
accepted, no reason why the same could not furnish a safe
basis for the respondent to take action against the appellant
especially when it was abusing its position as a contractor,
B putting the public at large to unnecessary harassment and
demanding money not legally recoverable from them -
Appel/ant-contractor, thus, not entitled to claim any relief.
Contract - Termination of, by respondent-authority -
Fotfeiture of petformance security furnished by appellant-
C contractor- Justification of - Held: Justified - Such fotfeiture
was available to respondent-authority under the terms of the
contract and the provisions of s. 74 of the Contract Act did not
forbid the same - An aggrieved party is entitled to receive
compensation from the party who has broken the contract
D whether or not actual damage or loss is proved to have been
caused by the breach - Contract Act, 1872 - s. 72.
Contract - Termination of, by respondent-authority -
Revocation of bank guarantee furnished by appellant-
E contractor - Justification - Held: Not justified as respondent-
authority had already recovered the penalty levied by it and
also fotfeited the petformance security - Though in terms of
clause 1B(b) of the contract, the respondent-authority had the
right to estimate the excess of collection by the appellant-
F contractor and recover the same from it, however, nothing on
record whether any such estimation was made by the authority
and if so the basis on which that was done - Without a proper
estimation of the excess received by the appellant-contractor,
it was not open to the respondent-authority to invoke the bank
G guarantee.
Administrative Law - Natural justice - Rules of - Held:
Are not rigid, immutable or embodied rules - To an extent
there has been a shift from the earlier thought that even a
technical infringement of the rules is sufficient to vitiate action.
H
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 411
Administrative Law - Natural justice - Doctrine of audi A
'
alteram partem - Object of - Held: Is to strike at arbitrariness
and want of fair play.
National Highway Authority of India Ltd. (NHAI) had
allotted to the appellant a contract fc,r collection of fee for B
use of a 42 km stretch of road on the Morena-Gwalior
Section of National Highway No.3. Complaints were made
alleging that the appellants had violated c;ontractual
stipulations between the parties. This resulted in
termination of the collection contract by the competent C
authority (respondent).
Aggrieved, the appellant filed writ petition. The High
Court while dismissing the writ petition upheld the
imposition of penalty and forfeiture of performance
security by the respondent-authority, but quashed the D
revocation of bank guarantee.
In the instant appeal, the appellant contended that
termination of the contract between the parties was
legally bad not only because the principles of natural E
justice requiring a fair hearing to the appellant were not
complied with, but also because there was no real basis
for the respondent-authority to hold that the appellant had
committed any breach of the terms and conditions of the
contract warranting its termination. The issue relating to
F
forfeiture of performance security and revocation of bank
guarantee also came up for consideration before this
Court. .·
Dismissing the appeal, the Court
G
HELD: 1.1. Rules of natural justice are not rigid,
immutable or embodied rules that may be capable of
being put in straitjacket nor have the same been so
evolved as to apply universally to all kind of domestic
tribunals and enquiries. What the Courts in essence look
H
412 SUPREME COURT REPORTS (2013) 4 S.C.R.
A for in every case where violation of the principles of
natural justice is alleged is whether the affected party was
given reasonable opportunity to present its case and
whether the administrative authority had acted fairly,
impartially and reasonably. The doctrine of audi alteram
B partem is thus aimed at striking at arbitrariness and want
of fair play. A Court examining a complaint based on
violation of rules of natural justice is entitled to see
whether the aggrieved party had indeed suffered any
prejudice on account of such violation. To that extent
c there has been a shift from the earlier thought that even
a technical infringement of the rules is sufficient to vitiate
the action. [Para 8] [420-A-C, D-EJ
1.2. In the case at hand, the termination of the
contract between the parties was preceded by a show-
0 cause notice issued to the appellant and a hearing
provided to it by the competent authority. The show-
cause notice issued to the appellant enclosed with it all
relevant documents including the complaints received
against the appellant from various quarters and a copy
E of the report submitted by the agency engaged for
verifying the allegations against the appellant. The
appellant had unsuccessfully challenged the show-cause
notice in a Writ Petition before the High Court. The High
Court had while refusing to interfere in the matter
F directed the appellant to submit a reply to the notice. The
appellant had accordingly appeared before the authority,
submitted its written statement and was heard in support
of its case that it had not committed any default. In the
reply or at the hearing, the appellant had not alleged any
G mala fide, bias or prejudice against the officers dealing
with the matter or the agency employed by them for
collecting and verifying facts. Principles of natural justice
thus stood substantially complied with. The contention
that the appellant should have been given an opportunity
H to cross-examine the persons whose statements had
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 413
been recorded by the agency in the course of its inquiry A
and verification was rightly rejected by the High Court
keeping in view the nature of the inquiry which was
primarily in the realm of contract, aimed at finding out
whether the appellant had committed any violation of the
contractual stipulations between the parties. Issue of a B
show-cause notice and disclosure of material on the
basis of which action was proposed to be taken against
the appellant was in compliance with the requirement of
fairness to the appellant who was likely to be affected by
the proposed termination. Absence of any allegation of c
mala fides against those taking action as also the failure
of the appellant to disclose any prejudice, all indicated
that the procedure was fair and in substantial, if not strict,
compliance with the requirements of Audi Alteram
. Partem. [Para 15] [425-D-H; 426-A-C] D
Suresh Koshy George v. University of Kera/a AIR 1969
SC 198: 1969 SCR 317; Keshav Mills Co Ltd. v. Union of
India (1973) 1 SCC 380: 1973 (3) SCR 22; P.O. Agrawal v.
State Bank of India (2006) 8 SCC 776: 2006 (1) Suppl. SCR
454; Maharashtra State Board of Secondary and Higher E
Education v. K.S. Gandhi & Ors. (1991) 2 SCC 716: 1991 (1)
SCR 772; Maharashtra State Board of Secondary and Higher
Secondary Education & Anr. v. Paritosh Bhupeshkumar
Sheth & Ors. (1984) 4 SCC 27; Union of India v. Mohan Lal
Kapoor (1973) 2 SCC 836: 1974 (1) SCR 797; Aligarh F
Muslim University v. Mansoor Ali Khan (2000) 7 SCC 529:
2000 (2) Suppl. SCR 684 - relied on.
Charan Lal Sahu v. Union of India (Bhopal Gas Disaster)
(1990) 1 SCC 613: 1989 (2) Suppl. SCR 597 - referred to. G
Russe/ v. Duke of Norfolk 1949 1 All ER 109; Ridge v.
Baldwin (1963) 2 W.L.R. 935 - referred to.
Administrative Law (Sir Willam Wade), 9th Edn. pp. 468-
471 - referred to. H
414 SUPREME COURT REPORTS [2013] 4 S.C.R.
A 2.1. There is no error of law, nor is there any
perversity in the appreciation of the material available
before the respondents. The reports submitted by the
agency employed by the respondent-Authority was
damning for the appellant and clearly showed that the
B appellant was indulging in malpractices like charging
excess fee from the owners/drivers of the vehicles using
the stretch of road covered by the contract. If the report
submitted by the agency against whom the appellant has
no allegation of malice or other extraneous
c considerations to make are accepted, there is no reason
why the same could not furnish a safe basis for the
respondent to take action especially when the appellant
was abusing its position as a contractor, putting the
public at large to unnecessary harassment and exaction
of money not legally recoverable from them. The material
0
collected could and was rightly made a basis for the
termination of contract by the competent authority. [Para
19] [428-8-F]
2.2. The appellant was not entitled to claim any relief
E in exercise of its extra ordinary writ jurisdiction of the High
Court. The High Court could have relegated the appellant
to seek redress in an appropriate civil action before a
competent civil Court, whether for damages or recovery
of the amount forfeited by the respondent. The High
F Court has not done so. It has given partial relief to the
appellant to the extent of holding that the invocation of
the bank guarantee was not justified in the light of the
forfeiture of performance security and the amount of
penalty. In any event there is no room for interfering with
G the order passed by the High Court in exercise of
jurisdiction under Article 136 of the Constitution which
too is both extraordinary and discretionary in nature.
[Para 20] [428-F-H; 429-A-B]
2.3. The appellant had breached the contractual
H
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 415
stipulations, harassed innocent citizens to cough up A
more than what they were in law required to pay and thus
undeservedly enriched itself before it turned to the Court
to claim relief in the extraordinary writ jurisdiction of the
High Court on equitable considerations. Such an attempt
. could and ought to have been frustrated by the High B
Court, as indeed has been done, no matter only partially.
[Para 21] [430-B-C]
Ha/sbury's Laws of England Fourth Edition Vol.-16,
pp.874-876 - referred to.
c
3. The High Court has taken the view that apart from
a penalty of Rs.2,41,097/-, National Highway Authority
had already recovered a sum of Rs.2,20,00, 125/- out of the
bank drafts furnished by the appellant towards
performance security; that thus the total amount received D
by the authority was more than the amount payable to it
under the contract if the same had been performed
diligently till the end of the contract period and invocation
of the bank guarantee for recovery of any further amount
was therefore unjustified. There is no appeal by the E
Authority against that part of the judgment, although it
was argued on behalf of the Authority that in terms of
clause 18(b) of the contract, the Authority had the right
to estimate the excess of collection by the appellant-
contractor and recover the same from it. However, there F
is nothing on record whether any such estimation was
made by the Authority and if so the basis on which that
was done. Without a proper estimation of the excess
received by the appellant, it was not open to the
respondent to invoke the bank guarantee and recover the G
entire amount of Rs.2,20,00,125/- covered by the same.
The High Court was, in that view, correct in holding that
invocation of bank guarantee was not justified. [Paras 22,
24] [430-D-F; 431-F-G, H; 432-A-B]
4. Insofar as the recovery of the performance.secu~ty H
416 SUPREME COURT REPORTS (2013] 4 S.C.R.
A of Rs.2,20,00, 125/- from out of the bank drafts furnished
by the appellant is concerned, such a forfeiture was
available to the respondent-Authority under the terms of
the contract and the provisions of Section 74 of the
Contract Act did not forbid the same. An aggrieved party
B is entitled to receive compensation from the party who
has broken the contract whether or not actual damage
or loss is proved to have been caused by the breach and
that the Court has, subject to the outer limit of the penalty
stipulated, jurisdiction to award such compensation as
c it deems reasonable having regard to the circumstances
of the case. This would essentially be a mixed question
of law and fact that a Writ Court could not possibly
decide. The appellant could and indeed ought to have
sought its remedies in a proper civil action if it
questioned the reasonableness of the amount
0
recoverable by the appellant in terms of the contractual
stipulations. [Para 25] [432-C-D, E-G]
Fateh Chand v. Balkishan Das AIR 1963 SC 1405: 1964
SCR 515; Union of India v. Ramam Iron Foundry (1974) 2
E SCC 231: 1974 (3) SCR 556 and SAIL v. Gupta Brother Steel
Tubes (2009) 10 SCC 63 - relied on.
Case Law reference:
1969 SCR 317 relied on Para 9
F
1949 1 All ER 109 referred to Para 9
1973 (3) SCR 22 relied on Para 10
(1963) 2 W.L.R. 935 referred to Para 10
G 2006 (1) Suppl. SCR 454 relied on Para 11
1989 (2) Suppl. SCR 597 referred to Para 11
1991 (1) SCR 772 relied on Para 12
H (1984) 4 sec 21 relied on Para 13
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 417
1974 (1) SCR 797 relied on Para 13 A
2000 (2) Suppl. SCR 684 relied on Para 14
1964 SCR 515 relied on Para 25
1974 (3) SCR 556 relied on Para 25 8
(2009) 10 sec 63 relied on Para 25
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1517 of 2013.
From the Judgment & Order dated 08.08.2007 of the High C
Court of Madhya Pradesh, Judicature Jabalpur, Bench, Gwalior
in Writ Appeal No. 491 of 2007.
A.K. Chitale, Niraj Sharma, Sumi! Kumar Sharma for the
Appellant. D
Gurab Banerjee, ASG, Praveen Jain, Tanupriya, Hacib (for
M.V. Kini & Associates) for the Respondents.
The Judgment of the Court was delivered by
E
T.S. THAKUR, J. 1. Leave granted.
2. This appeal by special leave arilles out of an order
dated 8th August, 2007, passed by a Division Bench of the
High Court of Madhya Pradesh at Jabalpur whereby Writ Appeal
F
No.491 of 2007 filed by the appellant has been dismissed and
the order passed by the learned Single Judge dismissing Writ
Petition No.720 of 2007 affirmed. Multiple rounds of litigation
between the parties have been aptly recapitulated in the order
passed by the Single Judge of the High Court in Writ Petition G
No.720/2007 and refreshed by the Division Bench of the High
Court while dismissing the writ appeal filed against the same.
It is in that view unnecessary for us to recount the entire factual
background in which the controversy in this appeal arises except
to the extent it is absolutely necessary for us to do so for the
disposal of this appeal. H
418 SUPREME COURT REPORTS [2013] 4 S.C.R.
A 3. National Highway Authority of India Ltd. (NHAI for short)
invited tenders for award of a contract for collection of fee for
the use of National Highways from Km. 61.00 to Km.103 on
Morena-Gwalior Section of National Highway No.3. Appellant
too among others made an offer which was accepted by the
B NHAI in terms of its letter dated 14th March, 2006 asking the
appellant to submit a demand draft for a sum of Rs.2,20,00, 125/
- towards performance security and a bank guarantee for a
similar amount to be valid for a period of 15 months for the due
observance of the terms and conditions contained in the
c contract. Both these requirements were satisfied by the
appellant with the result that a contract for collection of user fee
commencing from 1st April, 2006 to 31st March, 2007 was
finally allotted in its favour. It is not in dispute that pursuant to
the said allotment the appellant started collecting the prescribed
fee as per the terms and conditions of the agreement and also
0
started depositing monthly instalments stipulated under the
same.
4. Certain violations were in due course noticed by the
NHAI including complaints to the effect that the appellant was
E collecting excess fee from vehicles passing through Toll Plaza.
This resulted in the termination of the collection contract by the
competent authority in terms of a letter dated 27th July, 2006,
and forfeiture of the performance security of Rs.2,20,00, 125/-.
Termination ordered by the respondent triggered litigation
F between the parties that took several rounds before the High
Court. We are not immediately concerned with the nature of
those proceedings and the orders passed in the same from
time to time. What is important is that the termination of the
contract had once been quashed by the High Court whereupon
G the same was terminated for a second time after a show-cause
notice and a personal hearing to the appellant in compliance
with the direction issued by the High Court in its order dated
25th January, 2007.
5. Aggrieved by the fresh termination of the contract as
H
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 419
[T.S. THAKUR, J.]
also the forfeiture ordered by the competent authority, the A
appellant filed Writ Petition No.720 of 2007 before the High
Court of Madhya Pradesh. By his order dated 18th June, 2007,
a Single Judge of the High Court allowed the said petition in
part and while upholding imposition of penalty and forfeiture of
performance guarantee, quashed the revocation of the bank B
guarantee by the respondent, as unfair and unreasonable
having regard to the fact that the respondent had already
received Rs.7,33,33,750/- towards collection charges,
Rs.2,20,00, 125/- towards forfeiture of the performance security
and a penalty amount of Rs.2,41,097/- making a total of c
Rs.9,55,74,970/- which was more than Rs.8,80,00,500/- the
amount contracted to be paid to the respondent. The High Court
held that the termination of the contract and the forfeiture of the
performance security for the breaches committed by the
appellant were perfectly justified in the light of the report D
submitted by the agency deployed by the respondent to collect
material regarding overcharging of fee and other violations
committed by the appellant.
6. Feeling aggrieved by the order passed by the Single
Judge of the High Court the appellant preferred Writ Appeal E
No.491 of 2007 which was heard and dismissed by a Division
Bench of the High Court by its order dated 8th August, 2007.
The present appeal assails the correctness of the said order.
7. We have heard learned counsel for the parties at some F
length who have taken us through the record including the
orders passed by the High Court from time to time.
8. It was argued on behalf of the appellant that termination
of the contract between the parties was legally bad not only
because the principles of natural justice requiring a fair hearing G
to the appellant were not complied with but also because there
was no real basis for the respondent-authority to hold that the
appellant had committed any breach of the terms and
conditions of the contract warranting its termination. We find no
merit in either one of the contentions. The reasons are not far H
420 SUPREME COURT REPORTS [2013] 4 S.C.R.
A to see. Rules of natural justice, it is by now fairly well settled,
are not rigid, immutable or embodied rules that may be
capable of being put in straitjacket nor have the same been so
evolved as to apply universally to all kind of domestic tribunals
and enquiries. What the Courts in essence look for in every case
B where violation of the principles of natural justice is alleged is
whether the affected party was given reasonable opportunity to
present its case and whether the administrative authority had
acted fairly, impartially and reasonably. The doctrine of audi
alteram partem is thus aimed at striking at arbitrariness and
c want of fair play. Judicial pronouncements on the subject have,
therefore, recognised that the demands of natural justice may
be different in different situations depending upon not only the
facts and circumstances of each case but also on the powers
and composition of the Tribunal and the rules and regulations
under which it functions. A Court examining a complaint based
0
on violation o( rules of natural justice is entitled to see whether
the aggrieved party had indeed suffered any prejudice on
account of such violation. To that extent there has been a shift
from the earlier thought that even a technical infringement of the
rules is sufficient to vitiate the action. Judicial pronouncements
E on the subject are a legion. We may refer to only some of the
decisions on the subject which should in our opinion suffice.
9. In Suresh Koshy George v. University of Kera/a, AIR
1969 SC 198, this Court while examining the content and the
F sweep of the rules approved the view expressed in Russel v.
Duke of Norfolk, [1949] 1 All ER 1·09 in the following words:
"7....... The rules of natural justice are not embodied
rules. The question whether the requirements of natural
justice have been met by the procedure adopted in a
G
given case must depend to a great extent on the facts
and circumstances of the case in point, the constitution
of the Tribunal and the rules under which if functions.
8. In Russel v. Duke of Norfolk, [1949] 1 All ER 109 at
H p. 118, Tucker, L.J., observed:
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 421
[T.S. THAKUR, J.]
"There are, in my view, no words which are of A
universal application to every kind of inquiry and every
kind of domestic tribunal. The requirements of natural
justice must depend on the circumstances of the case,
the nature of the inquiry, the rules under which the
Tribunal is acting, the subject matter that is being dealt B
with, and so forth. Accordingly, I do not derive much
assistance from the definitions of natural justice which
have been from time to time used, but, whatever standard
is adopted, one essential is that the person concerned
should have a reasonable opportunity of presenting his c
case."
10. In Keshav Mills Co Ltd. v. Union of India, (1973) 1
SCC 380 this Court extracted with approval the observations
of Lord Reid in Ridge v. Baldwin, (1963) 2 W.L.R. 935 and
said: 0
"8. . . . . . . We do not think it either feasible or even
desirable to lay down any fixed or rigorous yard-stick in
this manner. The concept of natural justice cannot be put
into a straight-jacket. It is futile, therefore, to look for E
definitions or standards of natural justice from various
decisions and then try to apply them to the facts of any
given case. The only essential point that has to be kept
in mind in all cases is that the person concerned should
have a reasonable opportunity of presenting his case F
and that the administrative authority concerned should
act fairly, impartially and reasonably. Where
administrative officers are concerned, the duty is not so
much to act judicially as to act fairly. See, for instance,
the observations of Lord Parker in In re H.K. (an infant), G
(1967j 2 QB 617. It only means that such measure of
natural justice should be applied as was described by
Lord Reid Jn Ridge v. Baldwin case (supra) as
"insusceptible of exact definition but what a reasonable
man would regard as a fair procedure in particular H
422 SUPREME COURT REPORTS [2013) 4 S.C.R.
A circumstances". However, even the application of the
concept of fair-play requires real flexibility. Everything will
depend on the actual facts and circumstances of a case.
As Tucker, L.J., observed in Russell v. Duke of Norfolk,
[1949] 1 All ER 109:
B
''The requirements of natural justice must depend
on the circumstanees of the case, the nature of the
enquiry, the rules under which the tribunal is acting,
the subject- matter that is being dealt with and so
forth."
c
11. Reference may also be made to P. D. Agrawal v. State
Bank of India, (2006) 8 SCC 776, where this Court approved
the observations made by Mukharji, J. in Charan Lal Sahu v.
Union of India, (Bhopal Gas Disaster) (1990) 1 SCC 613, in
D the following words:
"30. The principles of natural justice cannot be put in a
straitjacket formula. It must be seen in circumstantial
flexibility. It has separate facets. It has in recent time also
undergone a sea change.
E
31. In Ajit Kumar Nag v. G.M. (PJ), Indian Oil Corprn. Ltd.
(2005) 7 SCC 764, a three-Judge Bench of this Court
opined: (SCC pp. 785-86, para 44)
F "44. We are aware of the normal rule that a person must
have a fair trial and a fair appeal aRd he cannot be asked
to be satisfied with an unfair trial and a fair appeal. We
are also conscious of the general principle that pre-
decisional hearing is better and should always be
G preferred to post-decisional hearing. We are further aware
that it has been stated that apart from laws of men, laws
of God also observe the rule of audi alterem partem. It
has been stated that the first hearing in human history
was given in the Garden of Eden. God did not pass
sentence upon Adam and Eve before giving an
H
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 423
[T.S. THAKUR, J.]
opportunity to show cause as to why they had eaten the A
forbidden fruit. (See R. v. University of Cambridge [1723]
1 Str 557) But we are also aware that the principles of
natural justice are not rigid or immutable and hence thev
cannot be imprisoned in a straitjacket. Thev must vield
to and change with exigencies of situations. They must B
be confined within their limits and cannot be allowed to
run wild. It has been stated: " To do a great right' after
all, it is permissible sometimes 'to do a little wrong'." [Per
Mukharii. C.J. in Charan Lal Sahu v. Union of India.
(Bhopal Gas Disaster) (1990) 1 SCC 613. at 705. para c
124.l While interpreting legal provisions, a court of law
cannot be unmindful of the hard realities of life. In our
opinion. the approach of the court in dealing with such
cases should be pragmatic rather than pedantic. realistic
rather than doctrinaire. functional rather than formal and
0
practical rather than 'precedential'."
xxx xxx xxx
xxx xxx xxx
E
39. Decision of this Court in S.L. Jagmohan, (1980) 4
SCC 379, whereupon Mr Rao placed strong reliance to
contend that non- observance of principle of natural
justice itself causes prejudice or the same should not be
read "as it causes difficulty of prejudice", cannot be said F
to be applicable in the instant case. The principles of
natural justice as noticed hereinbefore. have undergone
a sea change. In view of the decisions of this Court in
State Bank of Patiala v. S.K. Sharma. (19961 3 SCC 364
and Rajendra Singh v. State of M.P.. (19961 5 SCC 460
the principle of law is that some real prejudice must have G
been caused to the complainant. The Court has shifted
from its earlier concept that even a small violation shall
result in the order being rendered a nullity. To the
principle/doctrine of audi alteram partem. a clear
distinction has been laid down between the cases where H
424 SUPREME COURT REPORTS [2013] 4 S.C.R.
A there was no hearing at all and the cases where there was
mere technical infringement of the principle. The Court
applies the principles of natural justice having regard to
the fact situation obtaining in each case. It is not applied
in a vacuum without reference to the relevant facts and
B circumstances of the case. It is no unruly horse. It cannot
be put in a straitjacket formula. (See Viveka Nand Sethi
v. Chairman, J&K Bank Ltd. (2005) 5 SCC 337 and State
of U.P. v. Neeraj Awasthi, (2006) 1 SCC 667. See also
Mohd. Sartaj v. State of U.P., (2006) 2 SCC 315)
c (emphasis supplied)
12. In Maharashtra State Board of Secondary and Higher
Education v. K.S. Gandhi & Ors., (1991) 2 SCC 716, this
Court while reiterating the legal position observed:
D
"22 ....... The omnipresence and the omniscience (sic)
of the principle of natural justice acts as deterrence to
arrive at arbitrary decision in flagrant infraction of fair play.
But the applicability of the principles of natural justice is
not a rule of thumb or a strait-jacket formula as an
E
abstract proposition of law. It depends on the facts of the
case, nature of the inquiry and the effect of the order/
decision on the rights of the person and attendant
circumstances. "
F 13. In Maharashtra State Board of Secondary and Higher
Secondary Education & Anr. v. Paritosh Bhupeshkumar
Sheth & Ors. (1984) 4 SCC 27, this Court reiterated the the
observations made by Matthew, J. in Union of India v. Mohan
Lal Kapoor, (1973) 2 SCC 836 that it was not expedient to
G extend the horizons of natural justice involved in the audi
alteram partem rule to the twilight zone of mere expectations,
however great they might be.
14. We may finally refer to the decision of this Court in
H A/igarh Muslim University v. Mansoor Ali Khan, (2000) 7 SCC
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 425
[T.S. THAKUR, J.]
529, where this Court with approval quoted the following A
observations of Sir Willam Wade (Administrative Law, 9th Edn.
pp.468-471)
"...... it is not possible to lay down rigid rules as to when
the principles of natural justice are to apply, nor as to 8
their scope and extent ... There must also have been
some real prejudice to the complainant; there is no such
thing as a merely technical infringement of natural
justice. The requirements of natural justice must depend
on the facts and circumstances of the case, the nature
of the inquiry, the rules under which the tribunal is acting, C
the subject-matter to be dealt with and so forth."
15. Coming to the case at hand we find that the termination
of the contract between the parties was preceded by a show-
cause notice issued to the appellant and a hearing provided D
· to it by the competent authority. The show-cause notice issued
to the appellant on 24th November, 2006 enclosed with it all
relevant documents including the complaints received against
the appellant from various quarters and a copy of the report
submitted by the agency engaged for verifying the allegations E
against the appellant. The appellant had unsuccessfully
challenged the show-cause notice in Writ Petition No.6338 of
2006, before the High Court. The High Court had while refusing
to interfere in the matter directed the appellant to submit a reply
to the notice. The appellant had accordingly appeared before F
the authority on 12th January, 2007, submitted its written
statement and was heard in s1,1pport of its case that it had not
committed any default. In the reply or at the hearing, the
appellant had not alleged any mala fide, bias or prejudice
against the officers dealing with the matter or the agency G
employed by them for collecting and verifying facts. Principles
of natural justice thus stood substantially complied with. The
contention that the appellant should have been given an
opportunity to cross-examine the persons whose statements
had been recorded by the agency in the course of its inquiry
H
426 SUPREME COURT REPORTS [2013) 4 S.C.R.
A and verification was rightly rejected by the High Court keeping
in view the nature of the inquiry which was primarily in the realm
of contract, aimed at finding out whether the appellant had
committed any violation of the contractual stipulations between
the parties. Issue of a show-cause notice and disclosure of
s · material on the basis of which action was proposed to be taken
against the appellant was in compliance with the requirement
of fairness to the appellant who was likely to be affected by the
proposed termination. Absence of any allegation of mala fides
against those taking action as also the failure of the appellant
c to disclose any prejudice, all indicated that the procedure was
fair and in substantial, if not strict, compliance with the
requirements of Audi Alteram Partem. The first limb of the
challenge mounted by the appellant, therefore, fails and is
hereby rejected.
D 16. Coming then to the question whether the respondent-
Authority had material enough to justify termination of the
contract. The High Court has referred in detail to the report
submitted by the agency deployed for collection of evidence
and verification of the allegations and come to the conclusion
E that the respondent was perfectly justified in adopting the
method and the procedure adopted by it in the instant case for
collection of information and evidence regarding the alleged
malpractices being committed by the appellant. The Single
Judge of the High Court has while dealing with this aspect
F observed:
"There is no allegations of ma/a fide, personal prejudice
or bias against any of the members of agency which
conducted the discreet inquiry. In the facts and
circumstances of the case I am of the considered view
G
that the method adopted by the National Highway
Authority to detect the illegalities being committed by the
petitioner is a fair and reasonable method and it has not
caused any prejudice or bias to the petitioner. There is
no material available on record on the basis of which the
H
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 427
[TS. THAKUR, J.]
report submitted by the agency as contained in Annexure A
Rf7 can be discarded by this Court, this report cannot be
rejected\ merely on the ground that it is collected behind
the back of the petitioner. The nature of irregularity
committed by the petitioner can be detected only if a
discreet enquiry in the manner as done by the s
respondents have acted in a manner which is violative
of the principle of natural justice. The report submitted
was placed before the petitioner he was given opportunity
of submitting his defence and explanation both in writing
and personally. Records indicated that petitioner was · c
unable to produce any cogent material to show that this
report is unsustainable and cannot be relied upon."
17. In the appeal preferred against the above order, the
appellant had made a grievance only in regard to two aspects
covered by question nos. (Ill) and M , formulated by the Single D
Judge in the following words:
(Ill) Whether the action for termination of the contract is
done by the competent authority and whether
cancellation of the contract is based on proof of breach E
committed by the petitioner?
(V) Whether the provision of Section 74 of the Contract
Act applies in the present case and forfeiture of the
performance security and revocation of bank guarantee
is arbitrary and unfair warranting interference by this
F·
Court?"
18. While dealing with question No.Ill above, the Division
Bench held:
G
"In respect of issue No. Ill, the learned Writ Court while
relying upon various facts brought on record gave a
categorical finding in paragraph 21 that the modus
operandi adopted by the petitioner of charging higher rate
from road was a clear breach of contract and under clause
H
428 SUPREME COURT REPORTS [2013] 4 S.C.R.
A 1 B(a) of the Contract Agreement, the same was
determined, and also entitled the national Highway
Authority of India to impose and realize the penalty for
such breach as stipulated therein. In our considered
opinion the Writ Court did not faulter in recording the
B aforesaid finding."
19. There is, in our opinion, no error of law, nor is there
any perversity in the appreciation of the material available
before the respondents.~Tiie reports submitted by the agency
employed by the resp_ondent- Authority was damning for the
C appellant and clearly showed that the appellant was indulging
in malpractices like chi;irging excess fee from the owners/
drivers of the vehicles using the stretch of road covered by the
contract. Nothing in particular has been pointed out to us to
persuade us to take a contrary view. If the report submitted by
D the agency against whom the appellant has no allegation of
malice or other extraneous considerations to make are
accepted, we see no reason why the same could not furnish a
safe basis for the respondent to take action especially when
the appellant was abusing its position as a contractor, putting
E the public at large to unnecessary harassment and exaction of
money not legally recoverable from them. The material collected
could and was rightly made a basis for the termination of
contract by the competent authority.
F 20. The upshot of the findings recorded by the High Court
which we have affirmed in the foregoing paragraphs is that the
appellant was not entitled to claim any relief in exercise of its
extra ordinary writ jurisdiction of the High Court. The High Court
could have relegated the appellant to seek redress in an
G appropri?te civil action before a competent civil Court, whether
for damages or recovery of the amount forfeited by the
respondent. The High Court has not done so. It has given partial
relief to the appellant to the extent of holding that the invocation
of the bank guarantee was not justified in the light of the
forfeiture of performance security and the amount of penalty. In
H
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 429
[TS. THAKUR, J.]
any event we see no room for interfering with the order passed A
by the High Court in exercise of our jurisdiction under Article
136 of the Constitution of India which too is both extraordinary
and discretionary in nature. We may in this connection refer to
the following passage from Halsbury's Laws of England Fourth
Edition Vol.-16 pages 874-876, which sums up the legal B
position in England as to the right of a party who has not come
to the Court with perfect propriety of conduct and with clean
hands, to claim an equitable relief.
1305. He who comes into equity must come with clean C
hands. A court of equity refuses relief to a plaintiff whose
conduct in regard to the subject matter of the litigation
has been improper. This was formerly expressed by the
maxim "he who has committed iniquity shall not have
equity", and relief was refused where a transaction was
based on the plaintiff's fraud or misrepresentation, or D
where the plaintiff sought to enforce a security improperly
obtained, or where he claimed a remedy for a breach of
trust which he had himself procured and whereby he had
obtained money. Later it was said that the plaintiff in
equity must come with perfect propriety of conduct, or with E
clean hands. In application of the principle a person will
not be allowed to assert his title to property which he has
dealt with so as to defeat his creditors or evade tax, for
he may not maintain an action by setting up his own
fraudulent design. F
The maxim does not, however, mean that equity strikes
at depravity in a general way; the cleanliness required is
to be judged in relation to the relief sought, and the
conduct complained of must have an immediate and G
necessary relation to the equity sued for; it must be
depravity in a legal as well as in a moral sense. Thus,
fraud on the part of a minor deprives him of his right to
equitable relief notwithstanding his disability. Where the
transaction is itself unlawful it is not necessary to have
H
430 SUPREME COURT REPORTS [2013) 4 S.C.R.
A recourse to this principle. In equity, just as at law, no suit
lies in general in respect of an illegal transaction, but this
is on the ground of its illegality, not by reason of the
plaintiff's demerits. "
B 21. Judged in the light of the above, the appellant had
breached the contractual stipulations, harassed innocent
citizens to cough up more than what they were in law required
to pay and thus undeservedly enriched itself before ii turned to
the Court to claim relief in the extraordinary writ jurisdiction of
C the High Court on equitable considerations. Such an attempt
could and ought to have been frustrated by the High Court, as
indeed has been done, no matter only partially.
22. That brings us to the only other ground of challenge
relating to invocation of the Bank Guarantee by the National
D Highway Authority of India which according to the appellant was
arbitrary and unfair in the facts and circumstances of the case.
The High Court has taken the view that apart from a penalty of
Rs.2,41,097/-, National Highway Authority had already
recovered a sum of Rs.2,20,00, 125/- out of the bank drafts
E furnished by the appellant towards performance security. The
total amount, thus, received by the authority was more than the
amount payable to ii under the contract if the same had been
performed diligently till the end of the contract period. Invocation
of the bank guarantee for recovery of any further amount was
F in that view held to be unjustified by the High Court.
23. There is no appeal by the Authority against that part
of the judgment, although ii was argued on behalf of the
Authority that in terms of clause 1B(b) of the contract, the
Authority had the right to estimate the excess of collection by
G the appellant-contractor and recover the same from it. Clause
18 may be extracted in extenso at this stage:
"18. Penalty for charging excess fee :
(a) Jn case, it is observed and/or established to the
H
A.S. MOTORS PVT. LTD. v. UNION OF INDIA 431
[T.S. THAKUR, J.]
satisfaction of the Authority that the Contractor has A
charged fee in excess of the prescribed rate, the
Authority may terminate the contract forthwith and!
or may impose a penalty of Rs. One lakh or an
amount equivalent of one day's fee receivable by
the Authority, which ever is higher and may provide B
the Contractor another opportunity of continuing
the Fee Collection. However, in no case, the
authority shall afford more than one opportunity to
the Contractor.
(b) The Authority also, reserves the right to estimate C
the excess collection of fee made by the
Contractor and recover the same, which will be
over and above the penalty imposed and to be
recovered from the Contractor.
D
(c) The termination under this clause shall make the
Contractor liable for unconditional forfeiture of the
Performance Security."
24. It is evident from a simple reading of the above that
the Authority was competent to terminate the contract if the E
appellant was found charging in excess of the prescribed rate
of fee. Apart from termination of the contract any violation in
the nature of excess fees being charged could result in
imposition of a penalty in terms of clause 18(a) (supra). What
is significant is that in terms of clause 18 (b) besides F
termination of the contract and levy of penalty the Authority was
also entitled to estimate the excess collection made by the
appellant and recover the same from it. There is nothing on
record before us whether any such estimation was made by the
Authority and if so the basis on which that was done. The failure G
of the Authority to estimate accurately could jeopardise its claim
for recovery by a simple inv,ocation of the bank guarantee. It
may have been a different matter if the Authority had estimated
the excess amount accurately and sought to recover the same
by invocation of the bank guarantee but without a proper H
432 SUPREME COURT REPORTS [2013] 4 S.C.R.
A estimation of the excess received by the appellant, it was not
open to the respondent to invoke the bank guarantee and
recover the entire amount of Rs.2,20,00, 125/- covered by the
same. The High Court was, in that view, correct in holding that
invocation of bank guarantee was not justified having regard
B to the fact that the Authority had already recovered the penalty
levied by it and also forfeited the performance security amount
of Rs.2,20,00, 125/- in the form of bank drafts furnished by the
appellant.
25. Insofar as the recovery of the performance security of
C Rs.2,20,00, 125/- from out of the bank drafts furnished by the
appellant is concerned, we have no difficulty in holding that such
a forfeiture was available to the respondent-Authority under the
terms of the contract and the provisions of Section 74 of the
Contract Act did not forbid the same. The scope of Section 74
o has been the subject matter of several pronouncements of this
Court including the Constitution Bench decisions in Fateh
Chand v. Balkishan Das AIR 1963 SC 1405, Union of India
v. Ramam Iron Foundry (1974) 2 SCC 231 and SAIL v. Gupta
Brother Steel Tubes (2009) 10 SCC 63. The common thread
E that runs through all these pronouncements is that an aggrieved
party is entitled to receive compensation from the party who has
broken the contract whether or not actual damage or loss is
proved to have been caused by the breach and that the Court
has, subject to the outer limit of the penalty stipulated,
F jurisdiction to award such compensation as it deems
reasonable having regard to the circumstances of the case.
This would essentially be a mixed question of law and fact that
a Writ Court could not possibly decide. The appellant could and
indeed ought to have sought its remedies in a proper civil
action if it questioned the reasonableness of the amount
G recoverable by the appellant in terms of the contractual
stipulations.
26. In the result this appeal fails and is dismissed but in
the facts and circumstances, without any order as to costs.
H B.B.B. Appeal dismissed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "contract termination"Sign in to search