On Wednesday, the Supreme Court's division bench clarified the scope of judicial review of state action arising from a non-statutory contract. The court also stated that the mere fact that relief is sought under a non-statutory contract does not entitle the State to avoid scrutiny of its action or inaction under the contract if the complaining party can establish that the action/inaction is, per se, arbitrary.

The bench of Justices KM Joseph and Hrishikesh Roy made this observation while dismissing an appeal filed against a Madhya Pradesh High Court judgement that quashed the order issued by the MP Power Management Company Limited (a wholly owned subsidiary of the Government of Madhya Pradesh) terminating the Power Purchase Agreement (PPA) entered into with Sky Power Southeast Solar India Private Limited.

While upholding the High Court judgment, the Apex Court bench, referring to various earlier judgments, summarized the principles regarding the scope of judicial review in contractual matters:

1. There is no doubt that writ jurisdiction is a public law remedy. A matter that is entirely within the private realm of affairs of a public body may not be dealt with under the Court's writ jurisdiction.
2. The mere fact that relief is sought under a non-statutory contract does not entitle the respondent-State to avoid scrutiny of its action or inaction under the contract if the complaining party can establish that the action/inaction is, per se, arbitrary.
3. After the contract is signed, a variety of circumstances may arise that allow a party to the contract with the State to seek relief by filing a Writ Petition.

4.      The existence of an alternate remedy is unquestionably a factor to consider when declining relief in a Writ Petition in a contractual matter. Again, whether the Writ Petitioner must be told off the bat depends on the nature of the claim and relief sought by the petitioner, the questions that must be decided, and, most importantly, whether there are disputed questions of fact that must be resolved as an indispensable prelude to the grant of the relief sought.

5. The existence of a provision for arbitration, which is a forum intended to speed up the resolution of disputes, is viewed as a near bar to the hearing of a Writ Petition (See in this regard, the view of this Court even in ABL (supra) explaining how it distinguished the decision of this Court in State of U.P. and others v. Bridge & Roof Co., by its observations in paragraph-14 in ABL).
6. A guiding light that may illuminate the Court's path would be the dimension of public interest served by the Court intervening in the matter rather than relegating it to the alternate Forum.
7. Another relevant criterion is that if the Court has entertained the matter, while it is not unheard of for the Court to relegate the party at a later stage, it would ordinarily be a germane consideration, which may persuade the Court to complete what it had begun, provided it is otherwise a sound exercise of jurisdiction to decide the matter on merits in the Writ Petition itself.
8. The scope of Article 14 allows a Writ Court to deal with arbitrary State action even after the State has entered into a contract. A wide range of circumstances can give rise to grounds for invoking Article 14. In cases where the Writ remedy provides an effective and fair means of preventing miscarriage of justice arising from palpably unreasonable State action, the Court's approach in dealing with the same would undoubtedly be guided by the overwhelming need to obviate arbitrary State action.

Case details

MP Power Management Company Limited vs Sky Power Southeast Solar India Private Limited

SLP(C) 4609-4610 OF 2021 

Link: https://main.sci.gov.in/supremecourt/2021/6652/6652_2021_4_1501_39865_Judgement_16-Nov-2022.pdf