Dismissed

M/S Emc Limited v. Union of India through Ministry of Railways through Its Secretary and 3 Others

Allahabad HC16 Apr 2018WRIC/7763/2018

Case brief

AI extract

What is this about?

The Court dismissed a writ petition against the termination of a work contract by the Railway. Relying on precedent, it held that disputes regarding breach of non-statutory contracts must be resolved through common law or arbitration as per the agreement, not under Article 226.

What did the court decide?

None granted; petitioner relegated to alternative remedy of arbitration or common law proceedings.

M/S Emc Limited Vs Union of India through… — Contract and Commercial Disputes | Allahabad HC (2018)

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Court No. - 34

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Case :- WRIT - C No. - 7763 of 2018 Petitioner :- M/S EMC Limited

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Respondent :- Union Of India Through Ministry Of Railways Through Its Secretary And 3 Others

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Counsel for Petitioner :- Rohan Gupta,Kali Azad Counsel for Respondent :- Rajnish Kumar Rai

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Hon'ble Sudhir Agarwal,J.

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Hon'ble Ifaqat Ali Khan,J.

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Heard Sri Navin Sinha, learned Senior Advocate assisted by Sri Rohan Gupta, learned counsel for petitioner and Sri Rajnish Kumar Rai, Advocate for respondents.

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Admittedly work contract of petitioner executed with respondentRailway has been cancelled by impugned order dated 01.02.2018 on the ground that adequate progress of work has not been shown and there is a breach of contract.

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Learned counsel appearing for respondents raised a preliminary objection about maintainability of writ petition relying upon a Division Bench of judgment of this Court rendered by a Bench in which one of us (Hon'ble Sudhir Agarwal, J.) was a Member, i.e., M/s ECI-SPIC-SMOMCML (JV) Vs. Central Organization For Railway Electrification and another (Writ Petition No. 56472 of 2017) , decided on 28.11.2017 and contended that if contention of petitioner is that contract has wrongly been terminated, since it is a non-statutory contract, therefore, remedy lies to claim damages in common law and writ petition under Article 226 of the Constitution is not maintainable.

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We have gone through the above judgment and it would be useful to reproduce the entire judgment as under:

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“1. Heard Sri Anurag Khanna, learned Senior Advocate assisted by Sri Rohan Gupta, Advocate for petitioner and perused the record. 2. This writ petition by M/s ECI-SPIC-SMO-MCML(JV), a Joint Venture Company formed for the purpose of Design, Supply, Erection, Testing and Commissioning of 25 KV, AC, 50 Hz, Single Phase, Electrification Works, having its registered office at Hyderabad, has been filed under Article 226 of Constitution of India being aggrieved by termination of work contract vide letter dated 01.11.2017 issued by Chief Project Director, Railway Electrification, New Jalpaiguri.

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3. Facts in brief giving rise to present writ petition are as under.

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4. Central Organization for Railway Electrification is set up by Ministry of Railways and functions through its General Manager. It floated a tender for electrification on 25 KV AC Single phase 50 Hz electrification of Katihar (Incl)-Barsoi (Via Director Kumedpur)Raninagar Jalpaiguri (Incl) (267 RKM/607 TKM) Section (Gr 150) of Katihar Division, of N.F. Railway, under RE Project New Jailpaiguri on turnkey basis. Petitioner in response to aforesaid tender notice published in April, 2009 submitted its offer dated 18.06.2009. Petitioner's tender offer was finally accepted and letter of acceptance dated 04.08.2010 was issued by General Manager, Central Organization for Railway Electrification, Allahabad awarding contract for a total value of Rs. 1,65,67,98,570/-. Period of completion of contract was 24 months from the date of issue of letter of acceptance and it also says that contract will be operated by Chief Project Manager, Railway Electrification, New Jalpaiguri. An agreement was also executed between parties on 20.09.2010, copy whereof is filed as Annexure-3 to writ petition. Petitioner also submitted a Performance Bank Guarantee of 5% of contract value to Chief Project Manager, Railway Electrification, New Jalpaiguri which was issued by Bank of India by Guarantee Bond against

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Mobilization issued on 25.02.2011 which was operative till 24.02.2013. It is not in dispute that aforesaid bank guarantee has been extended by Bank vide letter dated 20.11.2017 till 28.02.2018. Work could not be completed by petitioner within the period of 24 months for which petitioner alleges non-cooperation by respondents and its authorities resulting in extension of period of completion of work from time to time. Some of these obstructions have been illustrated by petitioner in para 13 of writ petition. For delay in completion of work, respondents vide letters dated 11.09.2015 and 09.10.2015, imposed liquidated damages of Rs. 8,77,98,352/- recoverable from running bills of petitioner. Extension was allowed from time to time and General Manager vide letter dated 17.10.2017 extended period, which lapsed on 30.06.2017, upto 31.12.2017 in accordance with Note 1 and/ or Notes 2 under Para 1,2,45 of contract. Conditions for extension as referred in aforesaid letter dated 17.10.2017 read as under:

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“The stipulated date for completion of the work in Group-150 under the above contract was upto 03.08.2012 vide this office LOA letter at ref (i), which was last extended upto 30.06.2017 vide this office letter at ref (ii). In consideration of the Contractor's Letters at ref (iii) above, the General Manager or his successor on behalf of the President of India, is pleased to grant extension of the time for completion of works in accordance with Note 1 and/ or Notes 2 under Para 1.2.45 of the Contract as mentioned below:

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From 01.07.2017 to 31.12.2017

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It may be noted that unless repugnant to the context all the terms and conditions of the Contract will remain unaltered during the extended period from 01.07.2017 to 31.12.2017 also, and further, no increased/ additional rates and claims or recoveries which have not been already envisaged in terms

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of the conditions of the Contract will be leviable either by you or by the Purchaser in respect of this extended period. Penalty shall be imposed as under-

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1. Part-A (OHE) - With token penalty of Rs. 600/- per day for delays beyond 30.06.2017 and upto 31.12.2017, without PV in terms of para 1.2.45 of TP & GCC clause 17.B.

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2. Part-B (TSS) - With token penalty of Rs. 1000/- per day for delays beyond 30.06.2017 and upto 31.12.2017, without PV in terms of para 1.2.45 of TP & GCC clause 17.B.

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3. Part-C (SCADA) - Without penalty, PVC is not available for SCADA.

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4. Part-D (Electrical) - With token penalty of Rs. 1000/per day for delays beyond 30.06.2017 and upto 31.12.2017, without PV in terms of para 1.2.45 of TP & GCC clause 17-B.

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5. Part-E (Signal & Telecom) - With token penalty of Rs. 1000/- per day for delays beyond 30.06.2017 and upto 31.12.2017, without PV in terms of para 1.2.45 of TP & GCC clause 17-B.

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Price verification shall not be payable during the above extended period.”

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5. A letter was issued by Chief Project Director on 18.10.2017 pointing out several aspects which were not completed despite assurance, hence a seven days notice was given to make good the progress else action would be taken as per Clause 62 of Standard General Conditions of Contract. Petitioner submitted reply dated 20.10.2017 requesting to take back notice and assured that it shall complete contract within extended period of contract. However, vide order dated 27.10.2017 Chief Project Director gave notice of 48

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hours to make good progress of work, failing which contract may be terminated. It does not appear that petitioner gave any reply or acted upon as per direction of Chief Project Director whereupon impugned order dated 01.11.2017 has been issued by Chief Project Director terminating contract. It is said that petitioner is making all efforts to complete contract but at the fag end contract has wrongly been terminated.

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6. Basically petitioner is aggrieved by act of respondents in terminating a work contract. According to petitioner, contract has wrongly been terminated and it is in breach of terms of agreement for the reason that delay in execution of work is attributable to respondents and when period was already extended upto 31.12.2017 it was not open to Chief Project Director to terminate contract.

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7. At the outset, learned counsel for respondents have taken a preliminary objection that grievance of petitioner is for enforcement of a right flowing from contract for which remedy lies in common law, besides the fact that under agreement there is an arbitration clause also, therefore, writ petition under Article 226 of the Constitution is not maintainable and petitioner should be relegated to avail alternative remedy of arbitration as per agreement for alleged wrong termination of contract.

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8. Sri Anurag Khanna, learned Senior Advocate for petitioner, submitted that for breach of contract when respondent is an instrumentality of 'State' and a State within the meaning of Article 12 of the Constitution, writ petition is maintainable and mere factum of availability of alternative remedy way of arbitration is not a bar for maintainability of writ petition. In support of above submission he placed reliance on Union of India and others Vs. Tantia Construction Pvt. Ltd., 2011(5) SCC 697.

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9. Learned counsel for respondents, on the contrary, submitted

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that decision in Union of India and others Vs. Tantia Construction (supra) is not applicable in the case in hand and here petitioner having failed to adhere to the terms of agreement hence contract has been cancelled and if petitioner has any grievance remedy lies in common law by invoking arbitration clause in agreement.

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10. We find that it is admitted that initial period of completion of contract was 03.08.2012. It is also evident from record that it was extended from time to time and lastly upto 30.06.2017. Thereafter subject to certain conditions contained in para 1.2.45 of contract, extension was granted upto 31.12.2017 vide letter dated 17.10.2017. Chief Project Director did not defy or ignore said extension but only with respect to progress of work, so that it may be completed by time in terms of agreement, sent a letter dated 18.10.2017 informing that petitioner itself failed to show adequate progress for completion of work as per target committed and agreed. It pointed out certain such lapses on the part of petitioner and required petitioner to make good progress, by giving seven days notice as per Clause 62 of Standard General Conditions of Contract. The contents of letter dated 18.10.2017 reads as under:

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“1. In spite of repeated instructions to you by this office and subordinate offices through various letters as well as several meeting minutes dawn jointly as enclosed in Annexure-I; you have failed to show adequate progress for completing the work, as per the target committed and agreed by you.

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2. Your attention is invited to CRS inspection of your section held on 29.07.2017 and 30.07.2017 wherein large number of major deficiencies were observed as given in CRS Letter No. R-12046/ 1/17-18/ RE/ KIR-MLFC/ 548-549 Dt. 04.08.2017 addressed to GM/ NFR given in Annexure-II. As a

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result of above deficiencies, sanction was regretted by CRS after inspection. Even till date SSP at PQD and KDPR are not ready for commissioning in KIR-KDPR section which is preventing submission of compliance of CRS observations.

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3. You assured for the completion of work in KIR-MFA and MFA-KDPR section by 31.07.2017 but the progress of work in the above mentioned section is far off from the completion of work in the section. In MFA-RQJ section, you have done a few foundations for OHE mast at KNE yard and a few foundations for fencing uprights in GEOR/TSS within last six months. Similarly, no work for RE modification of S&T installations, SCADA commissioning and AT/CLS panel work at various stations have been done in the said period. Such, unsatisfactory progress of work is not at all acceptable.

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4. As you have failed to abide by the instructions issued to show adequate progress of work, you are hereby given 07 days' notice in accordance with Clause 62 of Standard General Conditions of Contract to make good the progress, failing which further action as provided in clause 62 of the Standard General Conditions of Contract viz., to terminate your Contract and complete the balance work without your participation will be taken.”

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11. Petitioner replied vide letter dated 20.10.2017 and admitting failure in completion of certain target and work, gave its own explanation for the said purpose. This is evident from Annexure-13 to writ petition. It also gave tentative date of completion of work which shows that it was upto March, 2018 though agreement of contract was extended only upto 31.12.2017. Relevant extract of reply dated 20.10.2017 reads as under:

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“We are also stating below the tentative dates for completion of various activities in OHE, TSS, Gen. Electrical S&T.

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OHE

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The tentative dates of completion for the physical works in the following stations are as follows:-

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_S. No. _	Name of Section	Tentative date of Completion
1	KIR Yard	Completed
2	KIR-KDPR	Completed
3	_KIR-MFA, KDPR-MFA _	Nov' 17
4	MFA-KNE	Dec' 17
5	KNE-NJP	March' 18
6	NJP-RQJ	March' 18

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The above projected targets can be achieved by deployment of 150 members of OHE staff. As on today 100 members of OHE staff are available at site. We will mobilize the balance manpower immediately.

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The overall status of the pending OHE works in the entire project is given as Annexure-5a, b, c for a glance.”

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12. Thus it is evident from own admission of petitioner that it was not in a position to complete work even upto extended date, i.e., 31.12.2017 and himself proposed a plan which extended upto March, 2018.

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13. It is in this backdrop Chief Project Director, with approval of General Manager, has issued impugned order of cancellation of termination. Therefore, it is a pure and simple case of termination of agreement/ contract due to breach of terms of agreement on the part of petitioner. Petitioner claimed that he has valid explanation for such breach but all that explanation etc. are to be appreciated not in writ jurisdiction under Article 226 of the Constitution but either in adjudicatory forum agreed between parties, i.e., arbitration or in common law proceedings which petitioner can initiate by filing suit for alleged wrongful breach of contract. We find that this writ petition under Article 226 of Constitution is

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nothing but an attempt on the part of petitioner to seek enforcement of work contract between parties which has been cancelled by one of the party in terms of agreement and petitioner wants its adjudication in extraordinary writ jurisdiction under Article 226 of the Constitution.

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14. It is true that remedy under Article 226 of the Constitution cannot be said to be absolutely barred if there is alternative remedy available but time and again it has been said that rights flowing from simple contract must be left to be determined in common law proceedings or forum agreed by parties for settling their dispute, i.e., arbitration and it should not be entertained in writ jurisdiction. This Court under Article 226 of the Constitution will not admit evidence to examine, which party was at fault or whether explanation given by party which has failed to adhere to the terms of agreement, are justified for such violation etc.

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15. It is not doubted that agreement/ contract in question is not a statutory contract.

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16. In Bareilly Development Authority vs. Ajai Pal Singh, AIR 1989 SC 1076 Court held that if a person is aggrieved in respect of non statutory and purely contractual rights flowing from a contract, remedy under Article 226 of the Constitution is not available. Court said that no writ or order can be issued under Article 226 so as to compel the authorities to remedy a breach of contract, pure and simple.

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17. In Kerala State Electricity Board and another Vs. Kurian E. Kalathil and others, 2000(6) SCC 293 Court said that if a term of contract is violated, ordinarily remedy is not the writ petition under Article 226. Disputes arising out of terms of such contract or alleged breaches have to be settled by ordinary principles of law of contract. Court said that such case is a matter for adjudication by a Civil Court or in arbitration if provided for in the

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contract.

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18. Referring to Bareilly Development Authority vs. Ajai Pal Singh (supra), and State of U.P. and others vs. Bridge & Roof Co. (India) Ltd., AIR 1996 SC 3515, Court in The Rajasthan State Industrial Development and Investment Corporation and Anr. vs. Diamond and Gem Development Corporation Ltd. and Anr., 2013(5) SCC 470 observed as under:

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“There can be no dispute to the settled legal proposition that matters/disputes relating to contract cannot be agitated nor terms of the contract can be enforced through writ jurisdiction under Article 226 of the Constitution. Thus, writ court cannot be a forum to seek any relief based on terms and conditions incorporated in the agreement by the parties.”

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19. In Rajasthan State Industrial Development and Investment Corporation (supra), Court further said:

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“It is evident from the above, that generally the court should not exercise its writ jurisdiction to enforce the contractual obligation. The primary purpose of a writ of mandamus, is to protect and establish rights and to impose a corresponding imperative duty existing in law. It is designed to promote justice (ex debito justiceiae). The grant or refusal of the writ is at the discretion of the court. The writ cannot be granted unless it is established that there is an existing legal right of the applicant, or an existing duty of the Respondent. Thus, the writ does not lie to create or to establish a legal right, but to enforce one that is already established . While dealing with a writ petition, the court must exercise discretion, taking into consideration a wide variety of circumstances, inter-alia, the facts of the case, the exigency that warrants such exercise of discretion, the consequences of grant or refusal of the writ, and the nature

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and extent of injury that is likely to ensue by such grant or refusal. ”

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20. In State of U.P. and others vs. Bridge & Roof Co. (supra) Court said:

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“Firstly, the contract between the parties is a contract in the realm of private law. It is not a statutory contract . It is governed by the provisions of the Contract Act or, may be, also by certain provisions of the Sale of Goods Act. Any dispute relating to interpretation of the terms and conditions of such a Contract cannot be agitated, and could not have been agitated, in a writ petition . That is a matter either for arbitration as provided by the contract or for Civil Court, as the case may be. ”

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21. In Zonal Manager, Central Bank of India vs. Devi Ispat Ltd. and Ors., 2010(11) SCC 186 Court said:

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“It is settled law that the disputes relating to interpretation of terms and conditions of a contract could not be examined/challenged or agitated in a petition filed under Article 226 of the Constitution. It is a matter for adjudication by a civil court or in arbitration, if provided for in the contract or before the DRT or under the Securitization Act. ”

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22. The judgment in Union of India and others Vs. Tantia Construction (supra) has no application in the present case for the reason that it is a case decided on its own facts. There was an agreement between Railway and Tantia Construction Pvt. Ltd. (hereinafter referred to as the “Contractor”). Railway insisted upon Contractor to execute certain additional work worth Rs. 36.11 crores under existing agreement for which Contractor did not agree. Railway then issued a notice requiring Contractor to execute enlarged/ extended quantity of work contract which was challenged in writ petition stating that Contractor is ready and abide to work

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contract already executed and it cannot be forced to agree for additional work in respect of extended portion on same terms and conditions. Contractor in writ petition did not challenge terms and conditions of existing agreement but was aggrieved by action of railway whereby it was compelling Contractor to execute extended quantify of work contract/ additional work contract for which Contractor was not ready. Single Judge of Calcutta High Court quashed letter issued by railway for additional/ extended work contract and said judgment was upheld by Division Bench as well as Apex Court. Court observed that Contractor expressed its unwillingness to take extended work and agreed to complete balance work of initial contract and for extended work he cannot be compelled. It is these facts and circumstances Court did find that writ petition was maintainable. The aforesaid judgment, therefore, has no application for the reason that here dispute relates to agreement which petitioner has not been able to complete within the period agreed upon between parties. It is also true and admitted by petitioner that in presenti, extended period is only upto 31.12.2017 but as per reply submitted by petitioner dated 20.10.2017, there are certain work which petitioner claims that same can be completed by March, 2018 though period of completion of agreement is only upto 31.12.2017. Whether delay in execution of work is attributable to petitioner or respondents involves investigation into seriously disputed facts for which remedy is available to petitioner in arbitration clause in agreement existence whereof is not disputed by learned counsel for petitioner.

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23. Sri Anurag Khanna then argued that order of cancellation of agreement has been issued by Chief Project Director though the agreement was executed by General Manager, therefore, Chief Project Director was not competent to cancel agreement.

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24. We find that impugned order of cancellation of contract

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issued by Chief Project Director clearly mentions that it has been issued with approval of General Manager. In entire writ petition this fact is not disputed that mention of approval of General Manager in impugned order is incorrect and there is no such approval. Therefore, in our view, it cannot be said that order of cancellation of contract has been issued by an incompetent authority.

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25. It is then contended that without giving any opportunity of hearing, order of cancellation of contract has been issued. 26. This submission also lacks substance. Firstly, there was already a notice issued to petitioner by Chief Project Director on 18.10.2017 which was replied by petitioner on 20.10.2017 and thereafter impugned letter dated 01.11.2017 has been issued. Therefore, it cannot be said that no notice was given to petitioner. 27. Even otherwise, application of principle of natural justice when a contract in private law is terminated has been held inapplicable since it is not a quasi judicial act and, therefore, it has been held that observance of principle of natural justice is not required.

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28. In State of Gujarat and Ors. vs. Meghji Pethraj Shah Charitable Trust and Ors., 1994(3) SCC 552, it has been held:

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“We are unable to see any substance in the argument that the termination of arrangement without observing the principle of natural justice (audi alteram partem) is void. The termination is not a quasi-judicial act by any stretch of imagination; hence it was not necessary to observe the principles of natural justice . It is not also an executive or administrative act to attract the duty to act fairly. It was - as has been repeatedly urged by Sri Ramaswamy - a matter governed by a contract/agreement between the parties. If the matter is governed by a contract, the writ petition is not maintainable since it is a public law remedy and is not

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available in private law field , e.g., where the matter is governed by a non-statutory contract.” (emphasis added) 29. Following aforesaid decision in Pimpri Chinchwad Municipal Corporation and Ors. vs. Gayatri Construction Company and Anr., 2008(8) SCC 172 Court has held that in the matter of non-statutory contract High Court should not have entertained writ petition under Article 226 of the Constitution.

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30. In view of above, we are clearly of the view that it is not a fit case where this Court must exercise its public law remedy available in Constitution which is extraordinary discriminatory remedy under Article 226 and instead petitioner must be relegated to avail its alternative remedy by invoking arbitration clause in the agreement or avail common law remedy in Civil Court.

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31. Dismissed accordingly on the ground of alternative remedy.”

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When questioned, learned Senior Advocate appearing for petitioner could not substantiate any argument to distinguish the aforesaid judgment and also could not persuade us to take a different view in the matter.

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For the reasons stated in aforesaid judgment dated 28.11.2017 in M/s ECI-SPIC-SMO-MCML (JV) Vs. Central Organization For Railway Electrification and another (supra) we dismiss this writ petition on the ground of alternative remedy so that petitioner may avail remedy in common law.

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Order Date :- 16.04.2018 AK

M/S Emc Limited v. Union of India through Ministry of Railways through Its Secretary and 3 Others

Case brief

What is this about?

What did the court decide?

M/S Emc Limited v. Union of India through Ministry of Railways through Its Secretary and 3 Others

Case brief

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What the court decided

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