Supreme Court of India
JOSHI TECHNOLOGIES INTERNATIONAL INC.versusUNION OF INDIA & ORS.
- Citation
- 2015 INSC 416
- Decided
- 14 May 2015
- Disposal
- Dismissed
- Bench
- A K SIKRI
Holding
The PSCs do not contain a provision for Section 42 deductions, so the appellant is not entitled to such deductions and a mandamus cannot be issued to amend the contracts.
Summary
Joshi Technologies International Inc. entered into two Production Sharing Contracts (PSCs) with the Union of India in 1995 for oil fields, but the contracts omitted any clause providing for deductions under Section 42 of the Income Tax Act, 1961. The Income Tax Authorities initially allowed such deductions based on an alleged understanding, later disallowed them, prompting the appellant to seek a writ of mandamus to amend the PSCs and incorporate the benefit. The Supreme Court examined whether the Model Production Sharing Contract (MPSC) could be read into the PSCs, whether there was an intention to grant Section 42 benefits, and whether a mandamus could be issued in a pure contractual dispute. It held that the PSCs alone govern the parties' rights, the MPSC cannot be incorporated, no contractual intention existed to provide the deductions, and the omission cannot be treated as an accidental oversight. Consequently, the appellant is not entitled to Section 42 deductions and the court cannot issue mandamus to amend the contracts. The appeal was dismissed.
Issues considered
- Whether the appellant is entitled to the special deductions under Section 42 of the Income Tax Act based on the PSCs.
- Whether the Model Production Sharing Contract (MPSC) can be read as part of and incorporated into the PSCs.
- Whether there was an intention between the parties to grant Section 42 deductions.
- Whether the non‑inclusion of the Section 42 provision in the PSCs can be treated as an accidental omission.
- Whether a writ of mandamus can be issued to direct amendment of the PSCs to incorporate Section 42.
Legislation cited
- Income Tax Act, 1961s. 142(1), s. 143(2), s. 156, s. 32, s. 42, s. 44(88)
Subjects
Income TaxSection 42Production Sharing ContractModel Production Sharing ContractMandamusWrit jurisdictionContract interpretationPublic law vs private lawEstoppelTax deductions
Judgment
[2015) 6 S.C.R. 1042
A JOSHI TECHNOLOGIES INTERNATIONAL INC.
v.
UNION OF INDIA & ORS.
(Civil Appeal No. 6929 of 2012)
B
MAY 14, 2015
[A. K. SIKRI AND R. F. NARIMAN, JJ]
Income Tax Act, 1961:
c s.42 - Deduction - If Production Sharing Contract
(PSC) between the government and the assessee does not
contain any stipulation providing for allowance uls.42 then
assessee is not entitled to benefit under the said section -
By virtue of this section, it is the PSC which governs the
0
field, as without it, such deductions are not permissible under
the Act - When benefit of deduction u/s.42 was wrongly
granted in initial years of commencement of commercial
production in the oil fields, it would not amount to a wrong
E act on part of income tax authorities and would not enure to
the benefit of assessee in subsequent assessment years.
s.42 - Whether Model Production Sharing Contract
(MPSC) can be read as part of and incorporated in the PSCs
F - Held: It is not permissible for assessee to take aid of MPSC
or the clauses contained therein while construing the terms
of PSCs.
s.42 - Whether there was any intention between the
contracting parties, namely, the MoPNG and the appellant
G for giving benefit of deductions u/s. 42 of the Act - Held: In
the instant case, PSC between the parties categorically
provided that the contract shall not be amended, modified
varied or supplemented in any respect except by an
H instrument in writing signed by all parties, which shall state
1042
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1043
UNION OF INDIA & ORS.
the date upon which the amendment or modification shall A
become effective - MoPNG had requested MoF to give its
nod for amending the contract by incorporating provision of
s.42 which was allegedly left out inadvertently - However,
no authorisation came from MoF - Therefore, question of
any intention to give benefit of deduction uls.42 between B
the parties would not arise.
s.42 - Non-inclusion of provision in the contract -
Held: Cannot be treated. as accidental and intentional
omission - A contracting party cannot claim to be oblivious C
of the provisions of the law or the contents of the contract at
the time of signing.
s.42- Non-inclusion of provision of s. 42 in the contract
- Whether mandamus can be issued by the Court to the o
parties to amend the contract and incorporate provisions to
this effect - On the facts of the present case, it is not a fit
case where the High Court should have exercised
discretionary jurisdiction u/Article 226 of the Constitution -
First, the matter is in the realm of pure contract - It is, not a E
case where any statutory contract is awarded- The contract
in question was signed after the approval of Cabinet was
obtained- In the said contract, there was no clause pertaining
to s.42 of the Act - The appellant is presumed to have
knowledge of the legal provision, namely, in the absence of F
such a clause, special allowances uls.42 would be
impermissible - Still it signed the contract without such a
clause, with open eyes - No doubt, the appellant claimed
these deductions in its income tax returns which were allowed
by the Income Tax Authorities - Further, no doubt, on this G
premise, it shared the profits with the Government as well -
However, this conduct of the appellant or even the
respondents, was outside the scope of the contract and that
by itself may not give any right to the appellant to claim a H
1044 SUPREME COURT REPORTS [2015) 6 S.C.R.
A relief in the nature of Mandamus to direct the Government
to incorporate such a clause in the contract, in the face of
the specific provisions in the contract to the contrary as noted
above, particularly, Article 32 thereof - It was purely a
contractual matter with no element of public law involved
B thereunder.
Constitution of India, 1950:
Art.226- Writ jurisdiction - Contractual obligation -
c Contracts entered into by State/Public Authority with private
parties - Legal position in different situations relating to such
contracts - Enumerated.
Art.226 - Invocation of - Held: In pure contractual
matters extraordinary remedy of writ under Article 226 or
0
Article 32 of the Constitution cannot be invoked - However.
in a limited sphere such remedies are available only when
the non-Government contracting party is able to demonstrate
that its a public law remedy which such party seeks to invoke,
E in contradistinction to the private law remedy simplicitor under
the contract- If the rights are purely of private character, no
mandamus can be issued - Thus, even if the respondent is
a 'State', other condition which has to be satisfied for issuance
of a writ of mandamus is the public duty - In a matter of
F private character or purely contractual field, no such public
duty element is involved and, thus, mandamus will not lie -
Income Tax Act, 1961.
Dismissing the appeal, the Court
G HELD: 1. Section 42 deals with special provisions
of deductions in the case of business for prospecting,
etc. for mineral oil. Section 42(1)(b) provides for
deductions of expenditure incurred in respect of drilling
H or exploration activities or services or in respect of
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1045
UNION OF INDIA & ORS.
physical assets used in that connection, except for those A
assets on which allowance for depreciation is admissible
under Section-32. Section 42(1 )(c) speaks of allowances
pertaining to the depletion of mineral oil in the mining
· area. In order to be eligible to the deductions, certain
conditions are to be satisfied by the assessees which B
are: (a) it grants such special allowances to those
assessees who carry on business in association with
the Central Government or with any person authorized
by it; (b) business should relate to prospecting for, C
extracting or producing mineral oils, petroleum or
natural gas; (c) there has to be an agreement in writing
between the Central Government and the assessees in
this behalf; (d) it is also a requirement that such an
agreement has been laid on the Table of each House of
0
Parliament; (e) the allowances which are claimed are to
be necessarily specified in the agreement entered into
between the two contracting parties; and (f) allowances
are to be computed and made in the manner specified
in the agreement. From the nature of allowances E
specified in Section 42, it is clear that such allowances
are otherwise inadmissible on general principles, for e.g.
allowances relating to diminution or exhaustion of
wasting capital assets or allowances in respect of
expenditure which would be regarded as on capital F
account on the ground that it brings an asset of enduring
benefit into existence or constitutes initial expenditure
incurred in setting up the profit earning machinery in
motion. It is for this reason this Section itself clarifies
that the provisions of this Act would be deemed to have G
been modified to the extent necessary to give effect to
the terms of the agreement, as otherwise, the other
provisions of the Act specifically deny such deductions.
A fortiorari, the PSC entered into between the parties
H
1046 SUPREME COURT REPORTS (2015] 6 S.C.R.
A becomes an independent accounting regime and its
provisions prevail over generally accepted principles of
accounting that are used for ascertaining taxable
income. Thus, by virtue of this Section, it is the PSC
which governs the field as without it, such deductions
B are not permissible under the Act. If PSC also does not
contain any stipulation providing for such allowances,
the Assessing Officer would be unable to give the benefit
of these deductions to the assessee. In the present case,
it is an admitted fact that conditions mentioned in
c Section 42 are not fulfilled. In the two PSCs, no provision
is made for making admissible the aforesaid allowances
to the assessee. It is obvious that the Assessing Officer
could not have granted these allowances/deductions to
the assessee in the absence of such stipulations, a
0
mandatory requirement, in the PSCs. The appellant is
conscious of this position. It is for this reason the attempt
of the appellant was to read the provisions of MPSC into
the agreement. [Paras 37, 38, 40, 41] [1076-F-H; 1077-A-
E H; 1078-A-C, F-H]
Commissioner of Income Tax, Dehradun &Anr. v. Enron
Oil and Gas India Limited (2008) 15 SCC 33: 2008
(12) SCR 1168- relied on.
F Godhar Electricity Co. Ltd. and Anr. v. State of Gujarat
(1975) 1SCC199: 1975 (2) SCR42; K.N. Guruswamy
v. State of Mysore 1955 (1) SCR 305; GSFC v. Lotus
Hotels Ltd. (1983) 3 SCC 379; Kumari Shrilekha
Vidyarthi v. State of U.P 1991 (1) SCC 212; ABL
G International Ltd. v. Export Credit Guarantee Corpn.
(2004) 3 SCC 553:1990 (1) Suppl. SCR 625- referred
to.
2. The intention in the clauses of PSCs dated 20-
H 02-1995 signed between the Government and the
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. . 1047
UNION OF INDIA & ORS.
appellant is more than apparent, namely, not to look into A
any other document or correspondence which took
place between the parties prior to the signing of this
agreement. Not only this, even the so-called
"understanding" between the parties is to be ignored
as well. It is, therefore, impermissible for the appellant B
to take the aid of MPSC or the clauses contained therein
while construing the terms of PSCs. Therefore, it was
not even open to the Income Tax Authorities to go beyond
the stipulations contained in the PSCs while making the
assessment and had to exclusively remain within the C
provisions of the Agreement. On that touchstone, the
Assessing Officer had no option but to deny the benefit
of deductions/allowances claimed by the appellant in
its income tax returns filed for the Assessment Year 2005-
0
06. [Para 44] [1081-E-H; 1082-A]
3. Article 32.2 of the PSC categorically provides
that this Contract shall not be amended, modified, varied
or supplemented in any respect except by an instrument
in writing signed by all the parties, which shall state the E
date upon which the amendment or modification shall
become effective. The question of any intention to the
contrary between the parties does not arise. It is because
of the reason thatArticle 32 of the Agreement specifically F
supersedes any understanding between the parties prior
to the effective date of this contract. The matter is,
however, compounded by certain acts of respondent no.
1 and made complex to some extent by the Income Tax
Authorities in giving benefit of these allowances/ G
deductions under Section 42 of the Act to the appellant
under these very PSCs in respect of earlier assessment
years. Further, this very state of affairs continued for
few years insofar as giving such a benefit by the Income
Tax Authorities is concerned it may not pose a serious H
1048 SUPREME COURT REPORTS [2015] 6 S.C.R.
A problem. On proper construction of the provisions of
Section 42 of the Act and application of these provisions
to the instant case, the appellant was not entitled to any
such deductions under the PSCs. Thus, when in law no
such deduction was permissible as per the PSCs in the
B present form, even if such deduction was given wrongly
in the earlier years that would not amount to a wrong
act on the part of the Income Tax Authorities and,
therefore, would not enure to the benefit of the appellant
in the Assessment Year in question as well. The
C appellant cannot say that merely because this benefit is
extended in the previous years; albeit wrongly, this
wrong act should continue to perpetuate. There is no
estoppel against law. The three letters were written by
the MoPNG in response to the appellant's
0
communications seeking its clarification. Undoubtedly,
in these three letters the MoPNG has accepted that
intention between the parties was to give the benefit of
allowances under Section 42 to the appellant. So much
E so, the MoPNG even requested the MoF to give its nod
for amending the contract by incorporating such a
provision which was allegedly left out inadvertently.
Article 32 of the contract supersedes any understanding
between the parties. Thus, even if it is presumed that
F there was an understanding between the parties before
entering into an agreement to the effect that benefit of
Section 42 deduction shall be extended to the appellant,
that understanding vanished into thin air with the
execution of the two PSCs. Now, for all intent and
G purpose, it is only the PSCs signed between the parties,
which can be looked into. [Paras 45, 46, 47, 49] [1082-
8-H; 1083-A-E; 1084-E-G]
4. The contract in question is governed by the
H provisions of Article 299 of the Constitution. These are
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1049
UNION OF INDIA & ORS.
formal contracts made in the exercise of the Executive A
power of the Union (or of a State, as the case may be)
and are made on behalf of the President (or by the
Governor, as the case may be). Further, these contracts
are to be made by such persons and in such a manner
as the President or the Governor may direct or authorize. B
Thus, when a particular contract is entered into, its
novation has to be on fulfillment of all procedural
requirements. Fact remains that even when MoPNG
requested MoF for giving consent to amend the contract,
no such authorisation came from MoF. Whether, in such C
a case, can the Court issue a Mandamus? The
contention of the respondent is that PSCs are in the
nature of a contract agreed to between the two
independent contracting parties. It is also mentioned that
0
before the signing of the PSCs, the approval of Cabinet
is obtained which reflects that the PSC as submitted to
the Cabinet has the approval of one of the contracting
parties, namely, Government of India in this case. When
it is signed by the other party it means that it has the E
approval of both the parties. Therefore, a contracting
party cannot claim to be oblivious of the provisions of
the law or the contents of the contract at the time of
signing and, therefore, later on cannot seek
retrospective amendment as a matter of right when no F
such right is conferred under the contract. Even the
doctrine of fairness and reasonableness applies only in
the exercise of statutory or administrative actions of the
State and not in the exercise of contractual obligation
and issues arising out of contractual matters are to be G
decided on the basis of law of contract and not on the
basis of the administrative law. No doubt, under certain
situations, even in respect of contract with the State relief
can be granted under Article 226. In pure contractual
matters extraordinary remedy of writ under Article 226 H
1050 SUPREME COURT REPORTS [2015] 6 S.C.R.
A or Article 32 of the Constitution cannot be invoked.
However, in a limited sphere such remedies are available
only when the non-Government contracting party is able
to demonstrate that it's a public law remedy which such
party seeks to invoke, in contradistinction to the private
B law remedy simplicitor under the contract. If the rights
are purely of private character, no mandamus can be
issued. Thus; even if the respondent is a 'State', other
condition which has to be satisfied for issuance of a
writ of mandamus is the public duty. In a matter of private
C character or purely contractual field, no such public duty
element is involved and, thus, mandamus will not lie.
[Paras 55 to 58] (1086-G-H; 1087-A-H; 1088-B-E]
Andi Mukta Sadguru Shree Muktajee Vandas Swami
D Suvarna Jayanti Mahotsav Smarak Trust & Ors. v. R.
Rudani & Ors. (1989) 2 SCC 691: 1989 (2) SCR 697 -
relied on.
5. No doubt, there is no absolute bar to the
E maintainability of the writ petition even in contractual
matters or where there are disputed questions of fact or
even when monetary claim is raised. At the same time,
discretion lies with the High Court which under certain
circumstances, can refuse to exercise. It also follows
F that under the following circumstances, 'normally', the
Court would not exercise such a discretion: (a) the Court
may not examine the issue unless the action has some
public law cha~acter attached to it. (b) Whenever a
particular mode of settlement of dispute is provided in
G the contract, the High Court would refuse to exercise its
discretion under Article 226 of the Constitution and
relegate the party to the said mode of settlement,
particularly when settlement of disputes Is to be resorted
H to through the means of arbitration. (c) If there are very
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1051
UNION OF INDIA & ORS.
serious disputed questions of fact which are of complex A
nature and require oral evidence for their determination.
(d) Money claims per se particularly arising out of
contractual obligations are normally not to be
entertained except in exceptional circumstances. [Para
68] [1102-G-H; 1103-A-E] B
6. On the facts of the present case, it is not a fit
case where the High Court should have exercised
discretionary jurisdiction under Article 226 of the
Constitution. First, the matter is in the realm of pure C
contract. It is not a case where any statutory contract is
awarded. The contract in question was signed after the
approval of Cabinet was obtained. In the said contract,
there was no clause pertaining to Section 42 of the Act.
The appellant is presumed to have knowledge of the legal D
provision, namely, in the absence of such a clause,
special allowances under Section 42 would be
impermissible, Still it signed the contract without such
a clause, with open eyes. No doubt, the appellant claimed
these deductions in its income tax returns and it was E
even allowed these deductions by the Income Tax
Authorities. Further, no doubt, on this premise, it shared
the profits with the Government as well. However, this
conduct of the appellant or even the respondents, was F
outside the scope of the contract and that by itself may
not give any right to the appellant to claim a relief in the
nature of Mandamus to direct the Government to
incorporate such a clause in the contract, in the face of
the specific provisions in the contract to the contrary, G
particularly, Article 32 thereof. It was purely a contractual
matter with no element of public law involved thereunder.
[Paras 70, 71] [1106-E-H; 1107-A-C]
Pradeep Kumar Sharma v. U.P. Finance Corporation
H
(2012) 100 SCC 424; CIT v. Enron Expat Service Inc.
1052 SUPREME COURT REPORTS [2015] 6 S.C.R.
A (2010) 327 ITR 626; Bareilly Development Authority v.
Ajai Pal Singh and Ors. (1989) 1 SCR 743; Ramana
Dayaram Sheffy v. Airport Authority of India (1979) llLLJ
217 SC; Divisional Forest officer v. Bishwanath Tea
Co. Ltd. (1981) 3 SCR 662; Kumari Shrilekha Vidyarthi
B etc. etc. v. State of U.P. and Ors. AIR 1991 SC 537:
1990 (1) Suppl. SCR 625; State of Gujarat v. M.P. Shah
Charitable Trust (1994) 3 SCC 552; L/C of India v.
Escorts Ltd. (1986) 1 SCC 264: 1985 (3) Suppl. SCR
909 - referred to
c
Case Law Reference
1975 (2) SCR 42 referred to. Para 27
1955 (1) SCR 305 referred to. Para 30
D (1983) 3 SCC 379 referred to. Para 30
1991 (1) SCC 212 referred to. Para 30
1990 (1) Suppl. SCR625 referred to. Para 30
(2012) 100 SCC 424 referred to. Para 34
2008 (12) SCR1168 relied on Para 37
E (2010) 327 ITR 626 referred to. Para 39
1989 (2) SCR697 relied on Para 58
(1989) 1 SCR 743 referred to. Para 59
(1979) llLLJ 217 SC referred to. Para 59
(1981) 3 SCR 662 referred to. Para 61
F 1990 (1) Suppl. SCR 625 referred to. Para 62
(1994) 3 SCC 552 referred to. Para 64
1985 (3) Suppl. SCR 909 referred to. Para 65
CIVILAPPELLATE JURISDICTION: Civil Appeal No.
6929 of 2012.
G
From the Judgment and-€)rder dated 28.05.2012 in
Writ Petition No. 5716 of 2008 of the High Court of Delhi.
S. Ganesh, Bharat Sangal, Vinay Navare, Vernika
H Tamar, Daggar Malhotra, I. Abenla Aier for the Appellant.
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1053
UNION OF INDIA & ORS.
Arijit Prasad, Rashmi Malhotra, Anil Katiyar for the A
Respondents.
The Judgment of the Court was delivered by
A.K. SIKRI, J. 1. Leave granted.
B
2. Present appeal impugnes the judgment and order
dated 28.05.2012 passed by the High Court of Delhi, thereby
dismissing the writ petition which was filed by the appellant.
It so happened that the appellant had entered into two
contracts dated 20. 02.1995 with the Union of India, through C
Ministry of Petroleum and Natural Gas (MoPNG) in the year
1992 relating to exploration of certain oil fields which the
Union of India had selected in Gujarat and other States.
These contracts were on production sharing basis for Dholka
0
and Wavel Oil Fields respectively. It started the production
after entering into the contract and filed its income tax return
on the income generated from the aforesaid production. In
the returns, the appellant claimed benefit of Section 42 of
the Income TaxAct, 1961 (hereinafter referred to as the 'Act'). E
Section 42 is a special provision for deductions in the case
of business for prospecting, etc. for mineral oil. It provides
for certain additional allowances as are specified in the
agreement, details thereof would be taken note of hereinafter.
We may, however, point out here itself that such allowances, F
as stipulated in the Section, are to be specifically mentioned
in the agreement as well, which is entered into with the
Central Government and it is also necessary that such an
agreement has been laid on the Table of each House of
Parliament. G
3. The Income Tax Authorities extended the benefit
of granting deductions under the aforesaid provisions from
the year 2001-02 (assessment years onwards) when the
H
1054 SUPREME COURT REPORTS (2015] 6 S.C.R.
A appellant commenced commercial production in the
aforesaid two oil fi'elds. However, while making assessment
for the Assessment Year 2005-06, the Assessing Officer
observed that there were no such provisions made in the
Agreements which were signed between the Central
B Government and the appellant and in the absence of such
stipulation in the agreement, the appellant was not entitled
to the benefit of deductions under Section 42 of the Act.
Realising that the Agreements did not contain such a
provision, the appellant wrote to the MoPNG stating that
C though there was such an arrangement agreed to as per the
understanding between the two parties, non-inclusion thereof
was an inadvertent omission in the Contracts that were
signed. The MoPNG wrote to Ministry of Finance (MoF)
accepting the aforesaid omissions and requested the MoF
0
to give clarification in this behalf. As no clarification came
from the MoF, the Assessing Officer disallowed the claim for
deduction under Section 42(1 )(b) and 42(1 )(c) of the Act. At
this stage, the appellant preferred writ petition under Article
E 226 of the Constitution of India in the High Court of Delhi
with the following prayers.
"Therefore it is most respectfully prayed that this
Hon'ble Court may be pleased to issue:-
F (1) A writ, direction or order declaring that the petitioner
is entitled, in respect of the two Production Sharing
Contracts dated 20.02.1995 executed with the
petitioner for the Dholka and Wave! Oil Fields in Gujarat,
to the benefit of the said deductions (set forth in Article
G 16 of the MPSC and reproduced in Annexure P1) under
Section 42 of the Income-Tax Act, 1961, from the date
of these Production Sharing Contracts, as has been
stated and declared by the respondent no. 1 (i.e., the
Ministry of Petroleum and Natural Gas) in several of
H
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1055
. UNION OF INDIA & ORS. [A. K. SIKRI; J.]
its communications; and that the petitioner is entitled A
to the said Deductions on the same footing as all other
contractors who have executed PSCs with the Union
of India;
(ii) A writ, order or direction in the nature of certiorari B
quashing the impugned order dated 31.12.2007 issued
by Respondent No. 1; the notice dated 28.03.2008 for
re-opening of the petitioner's income-tax assessments
for the Assessment Years 2001-2002; 2002-2003 and
2003-2004 and the notice dated 01.05.2008 for re- C
opening the assessment for the Assessment Year 2004-
05; and
(iii) Such other writ order or direction as this Hon'ble
Court may deem just and proper in the circumstances D
of the case and in the interest of justice, be passed in
favour of the petitioner."
3. This writ petition which has been dismissed by the
High Court vide impugned judgment dated 28.05.2012 E
holding that the appellant is not entitled to any deductions
under Section 42 of the Act in the absence of stipulations to
this effect in the Contracts signed between the parties. This
decision is the subject matter of challenge before us in the
present appeal. F
4. Now, the facts in detail:
The Union of India ("UOI"), through the MoPNG,
issued a Notice Inviting Tenders in August 1992 ("1992 NIT"),
along with a Model Production Sharing Contract ("MPSC"), G
for "Development of Oil and Gas Fields" from various
companies in relation to some selected oil fields in Gujarat
and other States. Article 16 of the above-mentioned MPSC
contained a specific provision, which provided certain H
1056 SUPREME COURT REPORTS [2015] 6 S.C.R.
A financial benefits and deductions in relation to taxes etc.
that would be allowed to contractors/developers, as per the
requirements of Section 42 of the Act.
5. The MoF by its Office Memorandum dated
B 18.06.1992, raised an issue that Section 293-A of the Act
would not apply to contracts of the nature mentioned above,
and that benefits under the special provisions of Section 42
of the Act would not be available to foreign companies, such
as the appellant, which enter into such contracts with the
C Central Government. The MoPNG by its Office
Memorandum, dated 22.06.1992 ("OM") referred the issue
to the Ministry of Law, Justice and Company Affairs
specifically seeking its opinion on applicability of Section 42
and Section 293-AoftheAct to the 1992 NIT and the MPSC.
D
6. The Ministry of Law gave its opinion dated
21. 07. 1992 to the effect that benefit of both Section 293A
and Section 42 should be extended to foreign companies in
order to make their participation in these oil fields viable.
E
7. The appellant (along with its erstwhile joint venture
partner Larsen and Toubro Ltd., whose stake was also
subsequently acquired by the appellant) submitted its bid
dated 29.03.1993 in response to the 1992 NIT.
F 8. The appellant was allotted the Dholka abnd Wave I
Oil Fields in Gujarat near Ahmedabad, by the MoPNG. Two
production sharing contracts, each dated 20.02.1995, were
executed by the appellant with the MoPNG for Dholka and
G Wavel Oil Fields, respectively (the "Two PSCs"). According
to the appellant, since no amendments to Article 16 of MPSC
had been suggested nor contemplated by the Union of India,
it was (and is) the belief and legitimate expectation of the
appellant that all the benefits, financial or otherwise, offered
H in Article 16 of the MPSC to the pro~pective bidders were
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1057
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
duly included in the above two PSCs. A
9. From 2001 the appellant commenced commercial
production from the Dholka and Wave! Oil Fields (delayed
on account of the UOl's delay in handling over the fields)
and availed the benefits of Section 42 Deductions provided B
in Article 16 of the MPSC, which were duly allowed by the
concerned Income Tax Officer at Ahmedabad. The UOl's
share of petroleum profit was also determined in accordance
with the assumption that, and on the consideration that the
appellant was entitled to the benefit of the Section 42 C
deductions and the UOI consequently also enjoyed a larger
quantum as petroleum profits that it otherwise would have.
The accounts and calculations of the appellant claiming the
Section 42 deductions and passing on the benefit to the UOI
in the form of an increased quantum of petroleum profit in D
terms of the two PSCs , were duly audited and approved by
the MoPNG's government auditors.
10. While the things proceeded in the aforesaid
manner, it so happened in the case of some other Production E
Sharing Contracts, which did not specifically contain the fiscal
benefits and the deduction envisaged by Article 16 of the
MPSC, the Income Tax Authorities questioned the basis on
which such assesses had claimed deduction/ allowances
under Section 42. This move of the Income Tax Authorities F
prompted the MoPNG to write OM dated 17.06.2005 to the
MoF, Department of Revenue to clarify to the relevant
Income-Tax Authorities that the provisions of Section 42 of
the Income-Tax Act would be applicable to all PSCs, including
those thirteen (13) PSCs executed by the Union of India, G
which did not expressly contain these provisions, for the
purpose of computing profits and gains, after allowing the
Section 42 deductions. The appellant's two PSCs are among
these thirteen (13) PSCs referred to by the MoPNG in this H
1058 SUPREME COURT REPORTS [2015] 6 S.C.R.
A Office Memorandum. The OM noted that it would not be
equitable and fair if Section 42 deductions were denied in
respect of these 13 PSCs.
11. Since the entire dispute pertains to deductions
B under Section 42 of the Act, at this stage we reproduce the
said provisions hereunder:
"42. Special provision for deductions in the case of
business for prospecting, etc., for mineral oil.-[(1 )] For
c the purpose of computing the profits or gains of any
business consisting of the prospecting for or extraction
or production of mineral oils in relation to which the
Central Government has entered into an agreement
with any person for the association or participation 90[of
D the Central Government or any person authorised by it
in such business] (which agreement has been laid on
the Table of each House of Parliament), there shall be
made in lieu of, or in addition to, the allowances
admissible under this Act, such allowances as are
E specified in the agreement in relation-
(a) to expenditure by way of infructuous or abortive
exploration expenses in respect of any area
surrendered prior to the beginning of commercial
F production by the assessee;
(b) after the beginning of commercial production, to
expenditure incurred by the assessee, whether before
or after such commercial production, in respect of
G drilling or exploration activities or services or in respect
of physical assets used in that connection, except
assets on which allowance for depreciation is
admissible under Section 32:
[Provided that in relation to any agreement entered into
H
after the 31st day of March, 1981, this clause shall have
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1059
UNION OF INDIA & ORS. (A. K. SIKRI, J.]
effect subject to the modification that the words and A
figures "except assets on which allowance for
depreciation is admissible under Section 32" had been
omitted; and]
(c) to the depletion of mineral oil in the mining area in B
respect of the assessment year relevant to the previous
year in which commercial production is begun and for
such succeeding year or years as may be specified in
the agreement;
c
and such allowances shall be computed and made in
the manner specified in the agreement, the other
provisions of this Act being deemed for this purpose to
have been modified to the extent necessary to
give effect to the terms of the agreement: D
((2) Where the business of the assessee consisting of
the prospecting for or extraction or production of
petroleum and natural gas is transferred wholly or partly
or any interest in such business is transferred in E
accordance with the agreement referred to in sub-
section (1 ), subject to the provisions of the said
agreement and where the proceeds of the transfer (so
far as they consist of capital sums)-
F
(a) are less than the expenditure incurred remaining
unallowed, a deduction equal to such expenditure
remaining unallowed, as reduced by the proceeds of
transfer, shall be allowed in respect of the previous
year in which such business or interest, as the case G
may be, is transferred;
.(b) exceed the amount of the expenditure incurred
remaining unallowed, so much of the excess as does
not exceed the difference between the expenditure
H
1060 SUPREME COURT REPORTS [2015) 6 S.C.R.
A incurred in connection with the business or to obtain
interest therein and the amount of such expenditure
remaining unallowed, shall be chargeable to income-
tax as profits and gains of the business in the previous
year in which the business or interest therein, whether
B wholly or partly, had been transferred:
Provided that in a case where the provisions of this
clause do not apply, the deduction to be allowed for
expenditure incurred remaining unallowed shall be
C arrived at by subtracting the proceeds of transfer (so
far as they consist of capital sums) from the expenditure
remaining unallowed.
Explanation.-Where the business or interest in such
o business is transferred in a previous year in which such
business carried on by the assessee is no longer in
existence, the provisions of this clause shall apply as if
the business is in existence in that previous year;
E (c) are not less than the amount of the expenditure
incurred remaining unallowed, no deduction for such
expenditure shall be allowed in respect of the previous
year in which the business or interest in such business
is transferred or in respect of any subsequent year or
F years:
[Provided that where in a scheme of amalgamation or
demerger, the amalgamating or the demerged company
sells or otherwise transfers the business to the
G amalgamated or the resulting company (being an Indian
company), the provisions of this sub-section-
(1) shall not apply in the case of the amalgamating or
the demerged company; and
H
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1061
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
(i1) shall, as far as may be, apply to the amalgamated A
or the resulting company as they would have applied
to the amalgamating or the demerged company if the
latter had not transferred the business or interest in
the business.]
B
[Explanation.-For the purposes of this section,
"mineral oil" includes petroleum and natural gas.]"
12. Meanwhile, the Income-Tax Officer, Ward 1(3)
(hereinafter referred to as the "ITO Wd I (3)) issued a notice c
dated 09.06.2006 under Section 143 (2) of the Income Tax
Act to the appellant for the Assessment Year 2005-2006 and
asked the appellant to justify its claim for the Section 42
deductions. The ITO Wd 1(3) also issued another notice to
the appellant under Section 142(1) of the Income-Tax Act, o
seeking various details and data relevant to the said
Assessment Year. The case was later transferred to the
Assistant Director of Income-Tax (International Taxation),
Ahmedabad ("ADIT"). The ADIT also raised the question of
applicability of the Section 42 deductions to the two PSCs E
executed by the appellant for the reason that such a clause
was not specifically included in these two PSCs.
13. A Joint Secretary of the MoPNG vide his
communication dated 11.04.2007 wrote to the MoF F
specifically admitting that in 11 PSCs, a reference to Saction
42 deductions had been omitted by oversight. It was also
stated that contracts signed in respect of other fields at the
same time contained the provision for Section 42 deductions.
It was specifically stated that "Petroleum operations are a G
high risk business and it may not be equitable and fair if
companies are not allowed to claim allowances for their
expenditure. {3esides it would be difficult to justify different
standards for different PSCs signed under one regime."
(emphasis supplied). A clarification was also sought from H
1062 ~UPREME COURT REPORTS [2015] 6 S.C.R.
A the MoF to the revenue authorities that the Section 42
deductions should be uniformly granted irrespective of
whether the PSCs contained the relevant clause or not. It is
pertinent to note that in this letter, the appellant was listed
by the MoPNG as having the provision for Section 42
B deductions in its two PSCs, which though factually incorrect,
again underscores the bona fide belief of the UOI through
the MoPNG that the appellant had been granted the Section
42 deductions in respect of its two PSCs.
C 14. However, MoF did not issue any such clarification.
In the absence of such a clarification from the Ministry of
Finance, the ADIT disallowed appellant's claim for deduction
under Section 42(1 )(b) and Sc:::t::::;-, 42(1 )(c) of the Income
Tax Act, made in the appellant's Income-Tax Return for the
D Assessment Year 2005-2006, on the ground that a specific
reference to the Section 42 deduction has not been made3
expressly in the two PSCs (hereinafter the "ADIT's Order").
As a result, the ADIT issued a demand notice under Section
156 of the Income Tax Act to the appellant, demanding
E payment of Rs. 1,24,45,509.00 (rupees one crore twenty
four lakhs forty five thousand five hundred and nine only) by
way of additional tax, interest and penalty. The appellant
preferred an appeal against the ADIT's order before the
F relevant Commissioner of Income Tax (Appeals) in
Ahmedabad and deposited the sum of Rs.40,00,000/-
(rupees forty lakhs only), as required by ADIT, while himself
staying the demand raised by Assessment Order. This
appeal has been dismissed by the Commissioner of Income
G Tax (Appeals) and a further appeal is now pending before
the Income Tax Appellate Tribunal.
15. In the meanwhile, on 24.12.2007, the appellant
required the Union of India, through the MoPNG and the
H MoF, to issue an <'piJropriate clarification/amendme111 with
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1063
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
respect to the two PSCs executed with the appellant, taking A
a stance that it was always the intention of the Union of
India, at all stages, to give the benefits of Section 42
Deductions of the Income TaxAct, read with Article 16 of the
MPSC, to all the entities who had entered into PSCs with it,
including the appellant with the plea that the non-inclusion B
of this provision in the two PSCs signed with the appellant
was a clerical error/oversight. This was followed by reminder
dated 19.3.2008 again requesting the Union of India, through
the MoPNG and the MoF, to issue an appropriate clarification/
amendment with respect o the two PSCs executed with the C
appellant.
16. No such clarification came forward. On the other
hand, the ADIT issued notice dated 28.3.2008 to the
appellant under Section 148 of the Income Tax Act for D
reopening the appellant's Income Tax Returns for the
Assessment Years 2001-2002, 2002-2003, 2003-2004 and
2004-2005. At this juncture, the Secretary, MoPNG, wrote
communication dated 28.04.2008 to the MoF pointing about
the said accidental omissions again in the contract. The E
MoF was, accordingly, requested to extend the benefits of
Section 42 Deductions to the 13 PSCs (including the
appellant's two PSCs) in line with all other signed PSCs.
17. As, in the meantime, the ADIT was going ahead F
with the proceedings pursuant to the notice under Section
148 of the Act deciding to reopen the assessment of the
appellant in respect of assessment years 2001-02 to 2004-
·05, the appellant sent one more representation dated
23.06.2008 on the same lines on which it had been making G
•the similar representations earlier. No positive response was,
!however, received. Exasperated, the appellant approached
lthe High Court by way of writ petition under Article 226 of
lthe Constitution. Counter affidavits to the writ petition was H
1064 SUPREME COURT REPORTS [2015) 6 S.C.R.
A filed by the respondent - Authorities taking preliminary
objection pertaining to territorial jurisdiction of the High Court
of Delhi and also raising the ground of alternate remedies
available in the law in the form of appeal before the ITAT
1 vhich had already been preferred by the appellant. Rejoinder
B thereto was filed by the appellant. Thereafter, another counter
affidavit on merits was filed by the respondent no. 1. In this
counter affidavit, stand was taken by the respondents that
MPSC would not apply to appellant's two PSCs. The
appellant filed rejoinder to this counter affidavit controverting
C the stand which was taken by the respondent. Thereafter,
the respondent filed another supplementary affidavit stating
that MoF had not concurred with the proposal to extend the
benefit of deductions und.,r $;;ctiu1, 42 of the Act vide MoF
O.M. dated 11.11.2009. Short affidavits were also filed by
0
MoF as well as ADIT taking the position that the appellant
was not entitled to benefit of Section 42 of the Act. Rejoinder
to these short affidavits was filed by the appellant. Rejoinder
was also filed to the supplementary affidavit which has been
E filed by respondent no. 1. The appellant also filed additional
affidavit dated 28.02.2012 giving details of other small sized
discovered oil fields PSCs, who were awarded contracts
under 1992 NIT, submitting that they were identical to the
c; ppellant and in their case clause was inserted giving benefit
F under Section 42 of the Act. It was pleaded that since they
were identically situated as the appellant herein, denying
such a benefit to the appellant amounted to hostile
discrimination. By another affidavit filed by the appellant, it
also tried to demonstrate that respondent no. 1 had accepted
G the calculation of petroleum profits on the assumption that
the deduction under Section 42 was available to the
appellant; otherwise the appellant would have enjoyed
increased profits . It was, thus, sought to be demonstrated
that even while profit sharing, shares were calculated keeping
H
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1065
UNION OF INDIA & ORS. [A. K. SIKRI, J.)
in view the deductions under Section 42 of the Act thereby A
giving better and increased profit sharing to the Government
as well.
18. The matter was ultimately heard by the High Court
which has dismissed the writ petition by passing detailed B
judgment on 28.05.2012. Before we come to the arguments
of the appellant challenging the correctness of this judgment,
it may be appropriate to take note of reasons which have
been given by the High Court in support of the view it has
taken. C
IMPUGNED JUDGMENT
19. The High Court took note of the basic and primary
contention of the appellant which was that there was a clear
0
understanding between the MoPNG and the appellant that
in the contract to be signed between the parties benefits
under Section 42 of the Act would be admissible. The NIT
issued by the Government was based on this basic
understanding but due to inadvertent oversight and error on E
the part of the MoPNG the contract, which was ultimately
signed, omitted to include such a clause. Therefore, on
account of mistake of the Ministry, which even it admitted in
its communications when the dispute regarding admissibility
of deduction under Section 42 of the Act arose, the appellant F
should not be allowed to suffer. More so, when it was not
responsible for the said error.
20. It may be pertinent to point out that the High Court
did not accept the preliminary objections raised by the G
respondent and after repelling the same, it adverted to the
subject matter of the writ petitions. On the merits of the
issue involved, the High Court formulated two questions .
These are:
H
1066 SUPREME COURT REPORTS [2015] 6 S.C.R.
A "(1) Whether benefit under Section 42 of the Act was
envisaged in the 1992 NIT and in the PSCs, but due to
oversight or mistake, the same was not included and
mentioned in the written contract, and if so, the effect
thereof?
B
(2) If the question is decided in favour of the appellant,
the second aspect is whether a direction can be issued
for grant of benefit under Section 42 of the Act to the
appellant, with a further direction that the contract
C should be laid before the Parliament after incorporating
the said clause?"
21. Dealing with the first question, High Court rejected
the plea of the appellant that 1992 NIT included and referred
o to the MPSC as incorrect. It is pointed out that the 1992 NIT
did not refer to the MPSC and did not stipulate that MPSC
shall form part of the tender documents. It is further stated
by the High Court that in 1992 NII, there was no reference to
MPSC or that the terms and conditions of the MPSC shall
E be included in, or be a part of, the PSCs. It is also observed
that there is no document or clause in the bid given by the
appellant under the 1992 NIT to the effect that the MPSC or
clause 16.2 of the same would be applicable and should be
a part of the PSCs. In the tender submitted by the appellant
F there was no specific stipulation to include any clause with
regard to the benefit under Section 42 of the Act. The High
Court has further observed that written contracts were signed
between the appellant and MoPNG in the name of President
on 20.,02.1995. Clause 15 of these contracts which pertain
G to "Taxes, Royalties, Rentals, Customs duties etc." though
mentions about the applicability offiscal, there is no reference
to Section 42 of the Act in this Clause.
22. The High Court further pointed out that there was
H no letter or correspondence written by the appellant from
JOSHI TECHNOLOGIES INTERNATIONAL ING •: 1067
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
1995 onwards stating that non-inclusion of Section 42 benefit A
was due to oversight. Insofar as three letters written by the
MoPNG, namely, letters dated 17-06-2005, 11-04-2007 and
28-04-2008 are concerned wherein this Ministry admitted
that there was an unintentional lapse and omission in not
incorporating the provision of admissible deduction under B
Section 42 of the Act, the High Court has brushed aside
these communications as inter-ministerial correspondence.
These letters were apparently written on the request of the
appellant or NIKO Resources Limited. It is further mentioned
that these are not contemporaneous letters written at the C
time when PSCs were signed.
23. The High Court has also commented that though
in these letters it is mentioned that Section 42 deductions
were omitted by "oversight" in fact there was no such D
oversight in as much as the MoPNG itself in its counter
affidavit has specifically stated that no such benefit was
envisaged, considered or granted at the time when the PSCs
were negotiated and awarded.Averments made in this behalf
in the counter affidavit filed by the MoPNG are extensively E
quoted. To verify this position, the High Court also examined
and went through the original files relating to preparation
and finalisation of tender documents and made following
remarks in this behalf.
F
"In order to verify and examine the correct factual
position, we had asked the respondent Ministry of
Petroleum and oversight in as much as the MoPNG
itself in its counter affidavit has specifically stated that
no such benefit was envisaged, considered or granted G
at the time Natural Gas to produce the original files
relating to preparation and finalization of tender
documents. They were produced before us on 21•1
February, 2012. We examined the original records and
H
1068 SUPREME COURT REPORTS [2015) 6 S.C.R.
A found that under the terms and conditions, as well as
in the notes, no benefit under Section 42 of the Act
was envisaged or was required to be granted. We also
recorded the statement of the learned Additional
Solicitor General that the three letters mentioned above
B were factually incorrect and, therefore, no legal right
on the basis of the letters accrues/arises. Thus, no
statement or promise, that advantage under Section
42 would be available to the successful bidder, was
promised or made."
c
24. Insofar as plea of discrimination between 13 PSCs
(which included the appellant), who are not given the benefit
of Section 42 of the Act vis-a-vis other PSCs where such a
benefit has been extended, the High Court has accepted
D the explanation put forth by the respondents to the effect
that these 13 PSCs formed a different class in as much as
their contract was in respect of small oil fields which had
already been discovered and, therefore, the risk factor was
less. On the other hand, other PSCs were in respect of
E undiscovered oil fields and for this reason benefit under
Section 42 had been granted to them.
25. On the aforesaid reasoning, the High Court
concluded that appellant was fully aware of Clause 16.2 of
F MPSC which specifically makes reference to benefit under
Section 42 of the Act, but did not advert to and refer to the
same in their tender bid and did not ask for this benefit.
Therefore, it was not possible to accept the contention of
the appellant that benefit under Section 42 of the Act was
G inadvertently missed out, or due to an act of oversight, not
included in the contract. On this finding, the High Court chose
not to examine the second issue. Post by it in para 9 of the
impugned judgment and noted by us above.
H 26. We would also like to mention that in the
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1069
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
penultimate para, the High Court has expressed its A
displeasure and anguish over the averments made by
respondent no. 1 in the additional affidavit dated 23-03-2012
where respondent no. 1 even denied the fact that petroleum
profits were not shared between the Government and the
appellant after making the calculations with reference to B
benefit under Section 42 of the Act. In letter dated 11.11.2009
written by the MoF, Department of Revenue this fact is
specifically admitted and, therefore, respondent no. 1 should
have been careful in making such averments in the said
additional affidavit which were contrary to the record, even if C
it was uncomfortable to respondent no. 1.
27. Mr. Ganesh, learned senior counsel appearing
for the appellant submitted that the High Court had failed to
appreciate and cognise the basic issue which had arisen in D
the instant case about the admissibility of the benefit of
Section 42 of the Act in respect of two production sharing
contracts (PSCs) between the appellant and the
Government. He submitted that the claim for the benefit of
the aforesaid provision was predicated on the following E
grounds:
(a) The Ministry of Petroleum & Natural Gas (MoPNG)
had invited bids for the said oilfields on the basis of a
Model Production Sharing Contract (MPSC) which F
specifically and unequivocally provided that the benefit
of Section 42 would be granted.
(b) The appellant's bids for the said two oilfields were
clearly and indisputably submitted on the footing that G
the MPSC would govern the contract between the
parties. In fact, in its bid, the appellant only referred to
those clauses of the MPSC which the appellant wanted
to be slightly modified, to which the Government had
no objection. Thus, the appellant's bids were on the H
1070 SUPREME COURT REPORTS (2015] 6 S.C.R.
A basis of the MPSC which provided the benefit of Section
42.
(c) Respondent no. 1 itself admitted that the contract
was entered into, keeping in view the stipulations/terms
B contained in the MPSC and, therefore, MPSC had to
be read into the contract. It was also arg11ed that these
facts were specifically confirmed by respondent no. 1
itself in its three letters dated 17-06-2005, 11-04-2007
and 28-04-2008.
c
(d) It was, thus, argued that as held in the case of
Godhra Electricity Co. Ltd. And Another v. State of
Gujarat', it is the mutual understanding of the parties
to a contract which determines the construction that
D the court will place on it and this principle squarely
applied in the present case.
'
(e) The accounts of the venture were drawn up on the
footing that the deductions under Sect5ion 42 were
E available and that, accordingly, the Income Tax liability
would stand reduced. On this footing, a significantly
higher amount was computed as the profit share
payable to the Government of India under the PSC,
which was received by the Government year after year.
F
(f) The reference made by MoPNG to the Ministry of
Law in June/ July 1992 and the written opinion given
by the Ministry of Law also by themselves clearly
established that the intention of the Government f~om
G the very beginning was to grant the benefit of Section
42.
(g) The l.T. Department itself granted the deductions
under Section 42 for several years right upto
Assessment Year 2004-05 and then suddenly and
H 1
(1975) 1 sec 199
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1071
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
unaccountably changed its mind and turned a A
somersault.
(h) The benefit of Section 42 was, in fact, granted to
several other small-sized discovered oilfields. The
appellant had filed an additional affidavit dated B
28.02.2012 giving particulars of at least 11 other small-
sized discovered oilfields to which benefit of Section
42 was given. Even though the contents of the affidavit
remained untraversed, the same has been completely
disregarded by the High Court." C
28. Relying on the aforesaid material on which Mr.
Ganesh laid great emphasis, his plea was that the High Court
did not consider the aforesaid aspects in its right perspective
and arrived at a wrong finding that the appellant did not ask o
for the benefit of Section 42 of the Act.
29. He further submitted that strong reliance was
placed by the High Court on the contents of a file which was
produced by respondent no. 1 relating to the preparation of E
tender documents. However, this file was not shown to the
appellant or its counsel and the appellant was, thus, denied
any opportunity of dealing with the same. He pointed out
that the appellant had specifically filed an application dated
28-02-2012 praying that the Court should not consider the F
contents of the said file or alternatively the copies of the
documents in the file be supplied to the counsel of the
appellant. On this application, the Court had made
observation on 12. 03-2012 to the effect that it was not going
to place any reliance on the contents of the file and with G
these observations the application was dismissed. However,
in. the impugned judgment, the High Court has rested its
conclusion on the basis of some contents in the file. He
further submitted that the Court should not have disregarded
the letters of the respondent no. 1 on the ground that they H
1072 SUPREME COURT REPORTS (2015] 6 S.C.R.
A were not contemporaneous letters. His submission was that
right upto the year 2005, the benefit of Section 42 was
extended to the appellant and, therefore, there was no
occasion for the appellant to approach respondent no. 1 to
ask for such a clarification. He further submitted that reliance
B placed by the High Court on certain paras of the counter
affidavit of respondent no. 1 was totally erroneous as such a
stand taken in the counter affidavit was contrary to the letters
which were addressed by the respondent no. 1 itself to the
MoF but according to him, the manner in which the plea of
C discrimination was dealt with by the High Court was also
erroneous ignoring the specific plea taken by the appellant
in its additional affidavit dated 28-02-2012 giving particulars
of a number of small-sized oil fields to which Section 42
benefit was given and the Government had not controverted
0
those averments. He submitted that apart from the plea, 13
oil fields (which included the appellant) all other oil fields,
whether large, medium or small sized, and whether
discovered or exploratory, were given the benefit of Section
E 42 of the Act. Therefore, the respondents had acted in a
grossly arbitrary and discriminatory manner.
30. Last submission of Mr. Ganesh was that the issue
regarding Mandamus to be issued to the respondents for
F amending the contract and including the clause for granting
the benefit of Section 42 of the Act was not even gone into,
though, it was specifically argued. He further submitted that
when the other contracting parties, namely, MoPNG
specifically admitted that this provision was left our
G inadvertently, the Court should have given a direction for
amendment of the Contract. In order to support his
submission that such a direction can be issued by the High
Court in exercise of its powers under Article 226 of the
Constitution, he referred to the following judgments:
H
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1073
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
(i) K. N. Guruswamy Vs. State of Mysore 2 A
(ii) GSFC Vs. Lotus Hotels Ltd. 3
(iii) Kumari Shrilekha Vidyarthi Vs. State of U.P. 4
(iv) ABL International Ltd. Vs. Export Credit Guarantee
Corpn.s B
31. Mr. Arijit Prasad, Advocate, who appeared for all
the respondents countered the aforesaid submissions
emphatically and passionately. He argued that insofar as
income tax department is concerned it could extend the C
benefit of deductions admissible under Section 42 of the
Act only when the assessee, namely, the appellant in the
instant case, fulfilled the conditions for such deductions
stipulated in that Section. For this purpose, the income tax
authorities were supposed to look into the PSCs only and D
as far as the contracts between the Government and the
appellant are concerned, admittedly there was no such
stipulation therein. Nor these contracts were placed before
both the House of Parliament. Therefore, the order of the
Assessing Authorities in tune with legal provisions. He further E
submitted that in any case the appeal of the appellant was
pending before the ITAT and it was for the ITAT to go into
the submissions made by the appellants on the admissibility
of deduction under Section 42 of the Act.
F
32. In respect of the three letters which were written
by the respondent no. 1, his submission was that no reliance
could have been placed on those letters and the matter had
to be examined on the basis of record. The High Court had,
for this purpose, examined the original files on the basis of G
which it was clearly found that the averments made in the
three letters ware not born out of records.
2
1955 (1) SCR 305
'(1983) 3 sec 379 H
'(1991) 1 sec 212
• (2004) 3 sec 553
1074 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 33. He also made detailed submissions to support
the findings of the High Court that there was no inadvertent
omission in failing to make any stipulation with regard to
extending the benefits of Section 42 of the Act and on the
contrary insofar as the appellant and 12 other similar parties
B are concerned, there was a deliberate decision not to extend
such a benefit. He also argued that in any case plea of
discrimination could not be taken in the matters of contract
in private law field.
C 34. Reacting to the relief of mandamus sought by the
appellant seeking directions against Respondent No. 1 to
amend the contract, his plea was that such a prayer, in the
realm of contractual relationship between the parties, was
inadmissible. He pleaded that PSCs are in the nature of
D contract agreed to be between two independent contracting
parties and each of the PSCs are distinct from the other
and is not a copy of MPSC. He also pointed out that ~efore
signing the PSC, the approval of the Cabinet is obtained,
which reflects that the PSCs as submitted to the Cabinet,
E has the approval of one of the contracting party, i.e.
Government of India. Therefore, the appellant could not claim
to be oblivious of the provisions of law or the contents of the
contract at the time of signing and was precluded from
F seeking retrospective amendment as a matter of right when
no such right is conferred under the contract. In support of
his submission that the doctrine of fairness and
reasonableness applies only in the exercise of statutory or
administrative actions of a State and not in the exercise of a
G contractual obligation and that the issues arising out of
contractual matters will have to be decided on the basis of
the law of contract and not on the basis of the administrative
law, he referred to and relied upon the judgments in Pradeep
Kumar Sharma v. U.P. Finance Corporation6 and A.B.L.
H International Limited (supra).
' (2012) 1oo sec 424
JOSHI TECHNOLOGIES INTERNATIONAL INC. v, 1075
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
35. From the reading of the writ petition filed in the A
High Court, the impugned judgment rendered by the High
Court thereupon, and also having regard to the arguments
advanced before us which have already been taken note of,
it is apparent that the fulcrum of the issue, which has to be
focused and to be answered, pertains to the benefit of the B
deductions permissible under Section 42 of the Act. In fact,
as is clear from the prayers made by the appellant in the writ
petition, the very first direction which the appellant sought
was to declare that the ,appellant is entitled to such deductions
in terms of the two PSCs dated 20-02-1995. Incidental issues, C
while deciding the aforesaid primary issue, which arises relate
to the construction of the terms of the said PSCs and also
the nature of the contracts which the parties intended to.
Another issue relates to the jurisdiction of the High Court
0
under Article 226 of the Constitution to pass Mandamus for
amending the PSCs. All these issues are formulated in the
precise form hereunder:
(i) Whether in terms of the provisions contained in two
Production Sharing Contracts (PSCs) dated 20-02- E
1995 executed between the appellant and the Central
Government, appellant is entitled to the special
allowances stipulated under Section 42 of the Act?
(ii) Whether Model Production Sharing Contract (MPSC) F
. can be read as part of and incorporated in the PSCs?
(iii) Whether there was any intention between the
contracting parties, namely, the MoPNG and the
appellant for giving benefit of deductions under Section G
42 of the Act?
(iv) If so, whether non-inclusion of such a provision in the
contract can be treated as accidental and unintentional
omission. H
1076 SUPREME COURT REPORTS (2015] 6 S.C.R.
A {v) If the answer to question no. (iv) is in the affirmative,
whether mandamus can be issued by the Court to the
parties to amend the contract and incorporate
provisions to this effect?
B 36. We would now proceed to answer these
questions seriatum.
37. Answer to question No. (i)- First and foremost
aspect which has to be kept in mind while answering this
c issue is that the Income Tax Authorities while making
assessment of income of any assessee have to apply the
provisions of the Income Tax Act and make assessment
accordingly. Translating this as general proposition
contextually, what we intend to convey is that the Assessing
D Officer is supposed to focus on Section 42 of the Act on the
basis of which he is to decide as to whether deductions
mentioned in the said provision are admissible to the
assessee who is claiming those deductions. In other words,
the Assessing Officer is supposed to find out as to whether
E the assessee fulfills the eligibility conditions in the said
provision to be entitled to such deductions. We have already
reproduced the language of Section 42, which deals with
special provisions of deductions in the case of business for
prospecting, etc. for mineral oil. Since, the appellant herein,
F in its income tax returns for the assessment year in question,
i.e., Assessment Year 2005-06, had claimed the deductions
mentioned in Section 42(1){b) and (c) of the Act, we should
take note of the nature of these deductions. Section 42(1 ){b)
provides for deductions of expenditure incurred in respect
G of drilling or exploration activities or services or in respect of
physical assets used in that connection, except for those
assets on which allowance for depreciation is admissible
under Section. 32. Section 42(1){c) speaks of allowances
H pertaining to the depletion of mineral oil in the mining area.
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1077
UNION OF INDIA & ORS. [A. K. SIKRI, J.)
In order to be eligible to the deductions, certain conditions A
are stipulated in this very section which have to be satisfied
by the assessees. As is clear from the reading of this Section,
these conditions are as under:
(a) it grants such special allowances to those assessees B
who carry on business in association with the Central
Government or with any person authorized by it;
(b) business should relate to prospecting for, extracting
or producing mineral oils, petroleum or natural gas; c
(c) there has to be an agreement in writing between the
Central Government and the assessees in this behalf;
(d) it is also a requirement that such an agreement has
been laid on the Table of each House of Parliament; D
(e) the allowances which are claimed are to be necessarily
specified in the agreement entered into between the
two contracting parties; and
E
(f) allowances are to be computed and made in the
manner specified in the agreement.
38. From the nature of allowances specified in this
provision, it is clear that such allowances are otherwise F
inadmissible on general principles, for e.g. allowances
relating to diminution or exhaustion of wasting capital assets
or allowances in respect of expenditure which would be
regarded as on capital account on the ground that it brings
an asset of enduring benefit into existence or constitutes G
initial expenditure incurred in setting up the profit earning
machinery in motion. It is for this reason this Section itself
clarifies that the provisions of this Act would be deemed to
have been modified to the extent necessary to give effect to
the terms of the agreement, as otherwise, the other H
1078 SUPREME COURT REPORTS [2015) 6 S.C.R.
A provisions of the Act specifically deny such deductions. A
fortiorari, the PSC entered into between the parties becomes
an independent accounting regime and its provisions prevail
over generally accepted principles of accounting that are
used for ascertaining taxable income (See - Commissioner
B of Income Tax, Dehradun & Anr. v. Enron Oil and Gas
India Limited 7 ). Thus, by virtue of this Section, it is the
PSC which governs the field as without it, such deductions
are not permissible under the Act. IF PSC also does not
contain any stipulation providing for such allowances, the
C Assessing Officer would be unable to give the benefit of these
deductions to the assesee.
39. We would also like to point out, at this juncture
itself, that this Court held in CIT v. Enron Expat Service
D Inc. 8 that the mere fact that the assessee had offered to pay
tax under Section 44 (BB) of the Act in some of the earlier
years will not operate as an estoppel to claim the benefit of
Double Taxation Avoidance Agreement (DTAA), where the
assessee operates under the same PSC which was before
E the Court. While holding so, the Court had followed its earlier
judgment in the case of Enron Oil and Gas India Limited
(Supra).
40. In the present case, it is an admitted fact that
F conditions mentioned in Section 42 of the Act are not fulfilled.
In the two PSCs, no provision is made for making admissible
the aforesaid allowances to the assessee. It is obvious that
the Assessing Officer could not have granted these
allowances/deductions to the assessee in the absence of
G such stipulations, a mandatory requirement, in the PSCs.
41. The appellant is conscious of this position. It is
for this reason the attempt of the appellant was to read the
provisions of MPSC into the agreement. That bring us to
H 7 (2008) 15 sec 33
8
(2010) 327 ITR 626
;· ·:JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 10.79
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
the second issue. A
42. Answer to question no. (ii) - Endeavour of Mr.
Ganesh, on this aspect, was to show that the bids were
invited on the basis of terms stated in the MPSC which
specifically mentioned about deductions under Section 42 s
of the Act. He also endeavored to demonstrate that thee
appellant had submitted its bid keeping in view such a
categorical stipulation in the MPSC. He also pointed out that
on MPSC, opinion of Law Ministry was solicited vide Memo
dated 22-06-1992 and that the Ministry of Law gave its C
opinion dated 21-07-1997 opining that benefit of both
Sections 293(A) and Section 42 of the Act should be
extended to the foreign companies in order to make their
participation in these oil fields viable. As per the appellant, it
was also made abundantly clear by the Ministry of Law that D
it was in relation to "foreign companies to be engaged in
exploration, development and production of oil ion small sized
oil and gas fields under the proposed Production Sharing
Contract", thus, drawing no distinction between fields to be
explored and those already discovered and also making E
specific reference to the MPSC. Taking sustenance from the
aforesaid material, a passionate plea was made by Mr.
Ganesh to read the provisions of Section 42 contained in
MPSC, as opined by the Ministry of Law, into the PSCs which F
were ultimately signed between the parties.
43. In order to appreciate this argument, we shall have
to traverse through the PSCs dated 20-02-1995 which were
ultimately signed between the Government and the appellant.
We would like to mention here that when this argument was G
being advanced by the learned senior counsel for the
appellant the Court asked him to produce the copy of PS Cs,
which were otherwise not brought on the record as the Court
wanted to find out as to whether there was any such intention H
1080 SUPREME COURT REPORTS [2015] 6 S.C.R.
A expressed in· the agreement, namely, to incorporate the
provisions of MPSC or the correspondence exchanged
between the parties earlier to the signing of this agreement.
On our asking, the appellant has placed on record the copy
of these PSCs. On going through the same, we find that
B intention expressed is just to the contrary. It is rather made
crystal clear in the agreement that this agreement is the sole
repository of the terms on which it is signed and nothing
else would be looked into for this purpose. It is so reflected
in the following clauses in the agreement:
c
"(5) The Government has agreed to enter into this
Contract with the Companies with respect to the area
referred to in Appendices A & B of this Contract on the
terms and conditions herein set forth."
D
Article 1 - In this Contract, unless the context requires
otherwise, the following terms shall have the meaning
ascribed to the then hereunder:
E xxx xxx xxx
Article 1. 18 "Contract" means this agreement and the
Appendices mentioned herein and attached hereto and
made an integral part hereof and any amendments
made thereto pursuant to the terms hereof.
F
Article 32 - ENTIRE AGREEMENT, AMENDMENTS,
WAIVER AND MISCELLANEOUS
32.1 This Contract supersedes and replaces any
G previous agreement of understanding between the
Parties, whether oral or written, on the subject matter
hereof, prior to the Effecfa·e Date of this Contract.
32.2 This Contract shall not be amended, modified,
H varied or supplemented in any respect except by an
.::i.::iosHI TECHNOLOGIES INTERNATIONAL INC. v. 1081
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
instrument in writing signed by all the Parties, which A
shall state the date upon which the amendment or
modification shall become effective.
32.3 No waiver by any Party of any one or more
obligations or defaults by any other Party in the B
performance of this Contract shall operate or be
construed as a waiver of any other obligations or
defaults whether of a like or of a different character.
32.4 The provisions of this Contract shall inure to the c
benefit of and be binding upon the Parties and their
permitted assigns and successors in interest.
32.5 In the event of any conflict between any provisions
in the main body of this Contract and any provision in
D
the Appendices, the provision in the main body ~hall
prevail.
32.6 The headings of this Contract are for convenience
of reference only and shall not be taken into account in
interpreting the terms of this Contract." E
44. Intention behind the aforesaid clauses is more
than apparent, namely, not to look into any other document
or correspondence which took place between the parties
prior to the signing of this agreement. Not only this, even the F
so-called "understanding" between the parties is to be ignored
as well. It is, therefore, impermissible for the appellant to
take the aid of MPSC or the clauses contained therein while
construing the terms of PSCs. Therefore, it was not even
open to the Income Tax Authorities to go beyond the G
stipulations contained in the PSCs while making the
assessment and had to exclusively remain within the
provisions of the Agreement. On that touchstone, the
Assessing Officer had no option but to deny the benefit of
deductions/allowances claimed by the appellant in its income H
1082 SUPREME COURT REPORTS (2015] 6 S.C.R.
A tax returns filed for the Assessment Year 2005-06. This bring
us to the next question.
45. Answer to question no. (iii) - We have already
noted that Article 32.2 categorically provides that this Contract
B shall not be amended, modified, varied or supplemented in
any respect except by an in'strument in writing signed by all
the parties, which shall state the date upon which the
amendment or modification shall become effective. In
continuation to what has been observed by us while
C answering point no. (ii) above, it becomes apparent that the
question of any intention to the contrary between the parties
does not arise. It is because of the reason that Article 32 of
the Agreement specifically supersedes any understanding
between the parties prior to the effective date of this contract.
D
46. The matter is, however, compounded by certain
acts of respondent no. 1 and made complex to some extent
by the Income Tax Authorities in giving benefit of these
allowances/deductions under Section 42 of the Act to the
E appellant under these very PSCs in respect of earlier
assessment years. Further, this very state of affairs continued
for few years insofar as giving such a benefit by the Income
Tax Authorities is concerned it may not pose a serious
problem. We have already held above that on proper
F construction of the provisions of Section 42 of the Act and
application of these provisions to the instant case, the
appellant was not entitled to any such deductions under the
PSCs. Thus, when in law no such deduction was permissible
as per the PSCs in the present form, even if such deduction
G was given wrongly in the earlier years that would not amount
to a wrong act on the part of the Income Tax Authorities and,
therefore, would not enure to the benefit of the appellant in
the Assessment Year in question as well. The appellant
H cannot say that merely because this benefit is extended in
1JOSHI TECHNULOGIES INTERNATIONAL INC. v. 10~?r
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
the previous years; albeit wrongly, this wrong act should A
continue to perpetuate. There is no estoppel against law.
We have taken note of the judgment of this Court in Enron
Expat Service Inc. (Supra) where the assessee had offered
to pay tax under Section 44(88) of the Act in the earlier
years wrongly and the Court held that it would not operate 8
as an estoppel to claim the benefit of DTAA for the
Assessment Year in question when it was found that the
assessee was otherwise entitled to it. Same principle applies,
though it is a converse situation where assessee has not
offered to pay tax wrongly [which was the situation in Enron C
Expat Service Inc. (Supra)] and instead the tax authorities
have extended the benefit wrongly to the assessee.
47. With this, we come to more crucial aspect, namely,
the three letters written by the MoPNG in response to the D
appellant's communications seeking its clarification.
Undoubtedly, in these three letters the MoPNG has accepted
that intention between the parties was to give the benefit of
allowances under Section 42 of the Act to the appellant
herein. So much so, the MoPNG even requested the MoF to E
give its nod for amending the contract by incorporating such
a provision which was allegedly left out inadvertently.
48. Our first remark is that the approach of the High
Court in dealing with this aspect may not be entirely correct. F
In the first instance, it has embarked upon the issue as to ·
whether such an omission was by way of "oversight" or it
was unintentional. While undertaking this enquiry, it has side
tracked the language of the three letters and instead gone
by the stand taken in the counter affidavit filed by respondent G
no. 1 where, in para 4 of the counter affidavit, respondent
no. 1 pleaded to the contrary. Clearly, the said stand taken
in the counter affidavit filed in the High Court was contrary
to the contents of the three letters dated 17 .06.2005, H
1084 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 11.04.2007 and 28.04.2008. Significantly, respondent no. 1
neither disowned those letters nor tried to explain away those
letters. No plea was raised to the effect that the person who
wrote those letters was not authorized to do so or he had
taken the said stand in the letters which was contrary to the
B records. No doubt, the High Court has observed that it had
looked into original record in order to verify and examine the
correct factual position. However, as demonstrated by Mr.
Ganesh, on an application made by the appellant in the High
Court for giving the copies of such records, the High Court
C had observed that those records would not be seen nut
ultimately relied upon these records. We do not know whether
the High Court is correct in its conclusion as to whether the
contents of the three letters are contrary to records and the
averments made in para 4 of the counter affidavit are in
0
conformity with the records, in as much as these records
have not been produced for our perusal. However, on going
through the terms of the PSCs it becomes apparent that
such an exercise is not even required.
E 49. It is stated at the cost of repetition that Article 32
of the contract supersedes any understanding between the
parties. Thus, even if it is presumed that there was an
understanding between the parties before entering into an
F agreement to the effect that benefit of Section 42 deduction
shall be extended to the appellant, that understanding
vanished into thin air with the execution of the two PSCs.
Now, for all intent and purpose, it is only the PSCs signed
between the parties, which can be looked into. We answer
G this question accordingly.
50. Undoubtedly, the appellant is also conscious of
such a limitation and is aware of the fact that unless there is
a clear stipulation in the PSCs for grant of benefit of special
H allowances under Section 42 of the Act, it would be difficult,
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1085
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
nay impossible, for the appellant to sail through. It is for this A
reason Mr. Ganesh, learned senior counsel for the appellant
made a fervent plea that respondents be directed to carry
out the amendment in the contract to include stipulation with
regard to Section 42 as well. That bring us to the next
question about the permissibility of such a prayer. B
51. Answer to question no. (iv) & (v) - These issues
have three facets, namely:
(i) Whether there is a prayer to this effect in the writ c
petition?
(ii) If it was intended to give such a benefit before entering
into the agreement, whether this intention gives any
right to the appellant to seek an amendment?
D
(iii) Whether the Court has the power to issue Mandamus
or direction to the Government?
52. We have reproduced the prayers made in the writ
petition. Obviously, no prayer for issuance of Writ of E
Mandamus or direction of this nature is specifically made.
Prayer clause shows that there are two prayers made in the
writ petition. First relates to directing the Authorities to grant
benefit under Section 42 of the Act in terms of PSCs dated
22.02.1995, i.e. it is confined within the scope of the said F
contracts. Though, the appellant wants that while construing
these contracts MPSCs and other several communications
between the parties should be looked into and given effect
to. We have already held that all such communications would
be extraneous and it is only the terms of PSCs dated G
20.02.1995 which can be looked into. Second prayer aims
at seeking quashing of orders dated 31.12.2007 and notices
dated 28.03.2008 and 01.05.2008 vide which income tax
assessments for Assessment Years 2001-02, 2002-03, 2003- H
1086 SUPREME COURT REPORTS [2015) 6 S.C.R.
A 04; AND 2004-05 respectively are sought to be re-opened.
53. Mr. Ganesh, however, submitted that such a
prayer should be culled out from prayer no. (iii) which is
residual in nature. Ordinarily, it would be difficult to read into
B this prayer clause a relief of substantive nature of issuing
the writ of mandamus. However, we find that there are
specific averments to this effect in the body of the writ petition
as well as in the grounds. More pertinently this relief was
specifically pressed and argued in the High Court which was
C even entertained by the High Court without any objections
from the respondent to the contrary. Therefore, we are
inclined to examine the plea on merits, though reluctantly.
54. Let us presume that there was such an intention.
o In fact, it is so stated in the three letters dated 17-06-2005,
11-04-2007 and 28-04-2008 which are written by MoPNG
and not disowned by it. Still such an intention would not make
any difference and for this purpose we again revert back to
Article 32 which has already been reproduced above. Not
E only prior understanding between the parties stood
superseded as mentioned in Article 32.1, Article 32.2 which
is crucial to answer this question, bars any amendment,
modification etc. to the said contract except by an instrument
in writing signed by all the parties. Thus, unless respondents
F agree to amend, modjfy or varied/supplemented the terms
of the contract, no right accrues to the appellant in this behalf.
55. We have to keep in mind that the contract in
question is governed by the provisions of Article 299 of the
G Constitution. These are formal contracts made in the exercise
of the Executive power of the Union (or of a State, as the
case may be) and are made on behalf of the President (or
by the Governor, as the case may be). Further, these
contracts are to be made by such persons and in such a
H manner as the President or the Governor may direct or
l JOSHI TECHNOLOGIES INTERNATIONAL INC. v. t087
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
authorize. Thus, when a particular contract is entered into, A
its novation has to be on fulfillment of all procedural
requirements. No doubt, there is an exception to this principle,
viz. even in the absence of a contract according to the
requirements of Article 299 of the Constitution, doctrine of
promissory estoppal can still be invoked against the B
Government. However, no such case is pleaded by the
appellant. To dilate upon the aforesaid proposition further,
we take along third facet of this issue as, to some extent,
they are over-lapping. Fact remains that even when MoPNG
requested MoF for giving consent to amend the contract, no C
such authorisation came from MoF. Whether, in such a case,
can the Court issue a Mandamus?
56. As noted above, the contention of the
respondent is that PSCs are in the nature of a contract agreed D
to between the two independent contracting parties. It is also
mentioned that before the signing of the PSCs, the approval
of Cabinet is obtained which reflects that the PSC as
submitted to the Cabinet has the approval of one of the
contracting parties, namely, Government of India in this case. E
When it is signed by the other party it means that it has the
approval of both the parties. Therefore, a contracting party
cannot claim to be oblivious of the provisions of the law or
the contents of the contract at the time of signing and, F
therefore, later on cannot seek retrospective amendment
as a matter of right when no such right is conferred under
the contract. Even the doctrine of fairness and
reasonableness applies only in the exercise of statutory or
administrative actions of the State and not in the exercise of G
contractual obligation and issues arising out of contractual
matters are to be decided on the basis of law of contract
and not on the basis of the administrative law. No doubt,
under certain situations, even in respect of contract with the
State relief can be granted under Article 226. We would, H
1088 SUPREME COURT REPORTS (2015] 6 S.C.R.
A thus, be dealing with this aspect in some detail.
57. Law in this aspect has developed through catena
of judgments of this Court and from the reading of these
judgments it would follow that in pure contractual matters
B extraordinary remedy of writ under Article 226 or Article 32
of the Constitution cannot be invoked. However, in a limited
sphere such remedies are available only when the non-
Government contracting party is able to demonstrate that its
a public law remedy which such party seeks to invoke, in
C contradistinction to the private law remed.Y simplicitor under
the contract. Some of the case law to bring home this cardinal
principle is taken note of hereinafter.
58. Significantly, in Andi Mukta Sadguru Shree
o Muktajee Vandas Swami Suvarna Jayanti Mahotsav
Smarak Trust & Ors. v. R. Rudani & Ors. 9 as well, this
Court made it clear that if the rights are purely of private
character, no mandamus can be issued. Thus, even if the
respondent is a 'State', other condition which has to be
E satisfied for issuance of a writ of mandamus is the public
duty. In a matter of private character or purely contractual
field, no such public duty element is involved and, thus,
mandamus will not lie.
F 59. First case which needs to be referred is Barei/ly
Development Authority v. Ajai Pal Singh and others10 •
That was the case where Appellate Authority had undertaken
construction of dwelling units for people belonging to different
income groups and the cost at which such flats were to be
G allotted to the allottees. However, it was mentioned that the
cost stated was only estimated cost and subject to increase
or decrease according to rise or fall in the price at the time
of completion of property. The authority increased the cost
and monthly installment rates which it demanded from the
H e (1989) 2 sec e91
10 [1989) 1 SCR 743
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1089
UNION OF INDIA & ORS. [A. K. SIKRI, J.] ·mi
allottees were almost doubled and cost and rates of A
installments initially stated in the brochure. Respondents/
allottees filed writ petition challenging the same and in this
context question of maintainability of the writ petition arose.
High Court, relying upon the judgment of the Supreme Court
in the case of Ramana Dayaram Shetty Vs. Airport B
Authority of /ndia 11 allowed the writ petition by observing
as under:-
"It has not been disputed that the contesting opposite
party is included within the term 'other authority' C
mentioned under Article 12 of the constitution.
Therefore, the contesting opposite parties cannot iJe
permitted to act arbitrarily with the principle which meets
the test of reason and relevance. Where an authority
appears acting unreasonably, this court is not powerless D
and a writ of mandamus can be issued for performing
its duty free from arbitrariness or unreasonableness."
60. In appeal filed by the Authority, this Court, on facts,
noted that the respondents had applied for registration only E
by acceptance of terms and conditions contained in the
brochure. Moreover, subsequently letter was written by the
Authority about the enhancement of the cost of the houses/
flats as well as increase in monthly installments. Rate of
yearly interest requesting allottees to give their written F
acceptance and the respondents except respondent No.4
had sent their written acceptance and it was on the basis of
the written acceptance that name of first respondent was
included in the draw and he was successful in getting
allotment of a particular house. The court observed that G
respondents were under no obligation to seek allotment of
house/ flats even if they had registered themselves.
Notwithstanding, the voluntarily registered themselves as
11 (1979) llLLJ 217 S(; H
1090 SUPREME COURT REPORTS [2015) 6 S.C.R.
A applicants only after fully understanding the terms and
conditions of the brochure including relating to variance in
prices. On the basis of these facts, this Court observed that
the aforesaid observations of the High Court relying upon
Ramana Dayaram Shetty case were not correct. Thus
B observed the Court, speaking through Ratnavel Pandian.
J.:
"The finding in our view, is not correct in the light of the
facts and circumstances of this case because in
c Ramana Daya Shetty case, there was no concluded
contract as in this case. Even conceding that the BOA
has the trappings of a state or would be comprehended
in 'other authority' for the purpose of Article 12 of the
constitution, while determining price of the houses/flats
D constructed by it and the rate of monthly installments
to be paid, the Authority or its agent after entering into
the field of ordinary contract acts purely in its executive
capacity. Thereafter the relations are no longer
governed by the constitutional provisions but by the
E iegally valid contract which determines the rights and
obligations of the parties inter se. In this sphere they
can only claim rights conferred upon them by the
contract in the absence of any statutory obligations on
the part of the authority (i.e. BOA in this case) in the
F
said contractual field.
22. There is a line of decisions where the contract
entered into between the state and the persons
aggrieved is non-statutory and purely contractual and
G the rights are governed only by the terms of the contract,
no writ or order can be issued under Article 226 of the
Constitution of India so as to compel the authorities to
remedy a breach of contract pure and simple
Radhakrishna Agarwal Vs. State of Bihar (Supra), Premi
H
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1091
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
Bhai Parmar Vs. Delhi Development Authority and DFO A
Vs. Biswanath Tea Company Ltd."
61. Next case of relevance is the Divisional Forest
officer Vs. Bishwanath Tea Co. Ltd. 12 In that case
respondents took on lease certain land from the Government. B
Initially, period of lease was 15 years. The lease was to be
extended for cultivation and raising tea garden and was
subject to condition set out in the Lease Agreement and
generally to Assam Land & Revenue Regulation and Rules
made thereunder. Respondent Company approached C
appellant seeking permission to cut 7000 cub.ft. of timber.
Appellant took the stand that as the timber was required for
a particular use which was not within the Grant, full royalty
will be payable on timber so cut and removed. Respondent
company paid the amount of royalty under protest and filed D
writ petition under Article 226 of the Constitution in the High
Court alleging that upon a true construction of the relevant
clauses of the Grant as also proviso to Rule 37 of the
Settlement Rules, it was entitled to cut and remove timber
without payment of royalty and, therefore, the recovery of E
royalty being unsupported by law, the appellant was liable
to refund the same. A preliminary objection was taken by
the appellant to the maintainability of the writ petition on the
ground that claim of the respondent flows from terms of lease F
and such contractual rights and obligations can only he
enforced in a civil court. This preliminary objection was
overruled by the High Court which proceeded to hear the
matter and allowed writ petition of the respondent company.
In appeal by the appellant to this Court, the decision of the G
High Court was reversed holding that writ as not
maintainable. Following observations may usefully be
quoted:-
12 [1981] 3 SCR 662
H
1092 SUPREME COURT REPORTS [2015) 6 S.C.R.
A "8. It is undoubtedly true that High Court can entertain
in its ex1raordinary jurisdiction a petition to issue any of
the prerogative writs for any other purpose. But such
writ can be issued where there is executive action
unsupported by law or even in respect of corporation
B there is a denial of equality before law or equal
protection of law. The Corporation can also file a writ
petition for enforcement of a right under a statute. As
pointed out earlier, the respondent company was
merely trying to enforce a contractual obligation. To
c clear the ground let it be stated that obligation to pay
royalty for timber cut and felled and removed is
prescribed by the relevant regulations, the validity of
regulations is not challenged. Therefore, the demand
for royalty is supported by law. What the respondent
D
claims is an exception that in view of a certain term in
the indenture of lease, to writ, Clause 2, the appellant
is not entitled to demand and collect royalty from the
respondent. This is nothing but enforcement of a term
E of a contract of lease. Hence, the question whether
such contractual obligation can be enforced by the High
Court in its writ jurisdiction.
9. Ordinarily, where a breach of contract is complained
of, a party complaining of such breach may sue for
F
specific performance of the contract, if contract is
capable of being specifically performed, or the party
may sue for damages. Such a suit would ordinarily be
cognizable by the Civil Court. The High Court in its
G extraordinary jurisdiction would entertain a petition
either for specific performance of contract or for
recovering damages. A right to relief flowing from a
contract has to be claimed in a Civil Court where a suit
for specific performance of contract or for damages
H could be filed .... ".
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1093
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
62. The question came up for consideration again in A
the case of Kumari Shrilekha Vidyarthi etc. etc. v. State .
of U.P. and others 13 . In that case, State of U.P. had issued
Government order dated 6.2.1990 whereby appointments
of all Government Counsels (Civil, Criminal, Revenue) in all
the Districts of the State of U.P. were terminated w.e.f. B
28.2.1990, irrespective of the fact whether the term of the
incumbents had expired or was subsisting. Validity of this
GD. was challenged by many of these Government Counsels
whose appointments were terminated and one of the issues
to be determined by the court was as to whether writ petition C
was maintainable challenging this G.D., as according to the
Respondent State the appointment of these Government
Counsel was purely contractual and writ petition to enforce
the contract was not maintainable. After noticing this D
argument of the respondents, the Supreme Court formulated
the question to be decided in the said case, in the following
words:
"The learned Additional Advocate General did not
dispute that if Art. 14 of the Constitution of India is E
attracted to this case all State actions, the impugned
circular would be liable to be quashed if it suffers from
the vice of arbitrariness. However, his argument is that
there is no such vice. In the ultimate analysis, it is the
F
challenge of arbitrariness which the circular must
challenge of arbitrariness withstand in order to survive.
This really is the main point evolved for decision by us
in the present case".
63. The Court then examined the nature of G
appointment of the Government counsel in the Districts with
reference to the various legal provisions including legal
Remembrance Manual and Section 24 Code of Criminal
13
AIR 1991 SC 537 H
1094 SUPREME COURT REPORTS [2015] 6 S.C.R.
A procedure as well as decision of Supreme Court in which
character of engagement of a Government counsel was
considered. After analyzing these provisions and case law,
the Supreme Court concluded in the following manner,
describing the nature of appointment of District Government
B counsel:
"17. We are, therefore, unable to accept the argument
of the Ld. Addi. Advocate General that the appointment
of District Government Counsel by the State
c Government is only a professional engagement like
that between a private client and his lawyer, or that it is
purely contractual with no public element attaching to
it, which may be terminated at er:;· time at the sweet
will of the Government excluding judicial review. We
D have already indicated the presence of public element
attached to the 'office' or post of District Government
Counsel of every category covered by the impugned
circular. This is sufficient to attract Article 14 of the
Constitution and bring the question of validity of the
E impugned circular within the scope of judicial review.
18. The scope of judicial review permissible in the
present case, does not require any elaborate
consideration since even the minimum permitted scope
F of judicial review on the ground of arbitrariness or
unreasonableness or irrationality, once Art. 14 is
attracted, is sufficient to invalidate the impugned circular
as indicated later. We need not, Therefore, deal at
length with the scope of judicial review permissible in
G such cases since several nuances of that ticklish
question do not arise for consideration in the present
case.
19. Even otherwise and sans the element so obvious
H in these appointment and its concomitants viewed as
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1095
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
purely contractual matters after the appointment is A
made, also attract Art. 14 and exclude arbitrariness
permitting judicial review of the impugned state action.
This aspect is dealt with hereafter.
20. Even apart from the premises that 'office' or post B
of D.G.Cs. has a public element which alone is sufficient
to attract the power of judicial review for testing validity
of the impugned circular on the anvil of Art. 14, we are
also clearly of the view that this power is available even
without that element on the premise that after initial c
appointment, the matter is purely contractual.
Applicability of Art. 14 to all executive actions of the
State being settled and for the same reason its
applicability at the threshold to the making of a contract
in exercise of the executive power being beyond D
dispute, can it be said that the State can thereafter
cast off its personality and exercise unbridled power
unfettered by the requirements of Art. 14 in the sphere
of contractual matters and claim to be governed therein
only by private law, principles applicable to private E
individuals whose rights f:Jw only from the terms of
the contract without anything more ? We have no
hesitation in saying that the personality of the State,
requiring regulation of its conduct in all spheres by
requirements of Art. 14 does not undergo such a radical
F •
change after the making of a contract merely, because
some contractual rights accrue to the other party in
addition. It is not as if the requirements of Art. 14 and
contractual obligations are alien concepts, which cannot G
co- exist.
21. The preamble of the Constitution of India resolves
to secure to all its citizens Justice, social economic and
political: and Equality of status and opportunity. Every
H
State action must be aimed at achieving this goal. Part
1096 SUPREME COURT REPORTS (2015] 6 S.C.R.
A IV of the Constitution contains 'Directive principles of
State Policy' which are fundamental in the governance
of the country and are aimed at securing social and
economic freedoms by appropriate State action which
is complementary to individual fundamental rights
B guaranteed in part Ill for protection against excesses
of State action, to realise the vision in the preamble.
This being the philosophy of the constitution, can it be
said that it contemplates exclusion of Art. 14 non
arbitrariness which is basic to rule of law from State
c actions is contractual field when all actions of the State
are meant fore public good and expected to be fair
and just? we have no doubt that the Constitution does
not envisage or permit unfairness or unreasonableness
in State actions in any sphere of its activity contrary to
D
the professed ideals in the preamble. In our opinion, it
would be alien to the Constitutional scheme to accept
the argument of exclusion of Art. 14 in contractual
matters. The scope and permissible grounds of judicial
E review in such matters and the relief which may be
available are different matters but that does not justify
the view of its total exclusion. This is more so when the
modern trend is also to examine the unreasonableness
of a term in such contractual where the bargaining
F power is unequal so that these are not negotiated
contracts but standard from contracts between unequal.
22. There is an obvious difference in the contracts
between private parties and contracts to which the State
G is a party. Private parties are concerned only with their
personal interest whereas the State while exercising
its powers and discharging its functions, acts
indubitably, as is expected of it for public good and in
public interest. The impact of every State action is also
H on public interest. This factor alone is sufficient to import
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1097
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
at least the minimum requirements of public law A
obligations and impress with this character the contracts
made by the State or its instrumentality. It is a different
mater that the scope of judicial review in respect of
disputes scope of judicialreview in respect of disputes
falling within the domain of contractual obligations may B
be more limited and in doubtful cases the parties may
be relegated to adjudication of their rights by resort to
remedies provided for adjudication of purely contractual
disputes. However, to the extent, challenge is made
on the ground of violation of Art. 14 by alleging that the c
impugned act is arbitrary, unfair or unreasonable, the
fact that the dispute also falls within the domain of
contractual obligations would not relieve the State of
its obligation to comply with the basic requirements of
D
Art. 14. To this extent, the obligation is of a public
character invariably in every case irrespective of there
being any other right or obligation in addition thereto.
An additional contractual obligation cannot divest the
claimant of the guarantee under Art. 14 of non- E
arbitrariness at the hands of the State in any of its
actions.
xx xx xx
34. In our opinion, the wide sweep ofArt. 14 F
undoubtedly takes within its fold the impugned circular
issued by the State of U.P. in exercise of its executive
power, irrespective of the precise nature of appointment
of the Government counsel in the districts and the other
rights, contractual or statutory, which the appointees G
may have. It is for this reason that we base our decision
on the ground that independent of any statutory right,
available to the appointments, and assuming for the
purpose of this case that the rights flow only from the
H
contract of appointment, the impugned circular, issued
1098 SUPREME COURT REPORTS (2015] 6 S.C.R.
A in exercise of the executive power of the State, must
satisfy Art. 14 of the Constitution and if it is shown to
be arbitrary, it must be struck down. However, we have
referred to certain provisions relating to initial
appointment, termination or renewal of tenure to
B indicate that the action is controlled at least by settled
guidelines, followed by the State of U.P. for a long time.
This too is relevant for deciding the question of
arbitrariness alleged in the present case"
C 64. Similarly, in State of Gujarat v. M.P. Shah
Charitable Trust14 , this Court reiterated the principles that.
if the matter is governed by a contract, the writ petition is not
maintainable since it is a public law remedy and is not
available in private law field, for example, where the matter
D is governed by a non-statutory contract.
65. At this stage, we would like to discuss ·at length
the judgment of this Court in ABL International Ltd. (supra),
on which strong reliance is placed upon by the counsel for
E both the parties. In that case, various earlier judgments right
from the year 1954 were taken note of. One such judgment
which the Department in support of their case had referred
to was the decision of Apex Court in case LIC of India v.
Escorts Ltd. 15 wherein the Court had held that ordinarily in
F matter relating to contractual obligations, the Court would
not examine it unless the action has some public law
character attached to it. The following passage from the said
judgment was relied upon by the respondents:
G "If the action of the State is related to contractual
obligations or obligations ?rising out of the tort, the court
may riot ordinarily examine it unless the ·action has
some public law character attached to it. Broadly
speaking, the court will examine actions of State if they
H "(194) 3 sec 552
"(1986) 1 sec 264
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1099
UNION OF INDIA & ORS. [A. K. SIKRI, J.)
pertain to the public law domain and refrain from A
examining them if they pertain to the private law field.
The difficulty will lie in demarcating the frontier between
the public law domain and the private law field. It is
impossible to draw the line with precision and we do
not want to attempt it. The question must be decided B
in each case with reference to the particular action,
the activity in which the State or the instrumentality of
the State is engaged when performing the action, the
public law or private law character of the action and a
host of other relevant circumstances. When the State c
or an instrumentality of the State ventures into t~e
corporate world and purchases the shares of a
company, it assumes to itself the ordinary role of a
shareholder, and dons the robes of a shareholder, with
D
all the rights available to such a shareholder. There is
no reason why the State as a shareholder should be
expected to state its reasons when if seeks to change
· the management, by a resolution of the company, like
any other shareholder." E
This Court dealt with this judgment in the following
manner:
"We do not think Court in the above case has, in any
manner, departed from the view expressed in the earlier F
judgments in the case cited hereinabove. This Court in
the case of Life Insurance Corporation of India (Supra)
proceeded on the facts of that case and held that a
relief by way of a writ petition may not ordinarily be an
appropriate remedy. This judgment does not lay down G
that as a rule in matters of contract the court's
jurisdiction under Article 226 of the Constitution is
ousted. On the contrary, the use of the words "court
may not ordinarily examine it unless the action has
H
1100 SUPREME COURT REPORTS (2015) 6 S'.C.R.
A some public law character attached to it" itself indicates
that in a given case, on the existence of the required
factual matrix a remedy under Article 226 of the
Constitution will be available."
B 66. Insofar as the argument of the respondents in the
said case that writ petition on contractual matter was not
maintainable unless it is shown that the authority performs a
public function or discharges a public duty, is concerned, it
was answered in the following manner:
c
"22. We do not think the above judgment in VST
Industries Ltd. (supra) supports the argument of the
learned counsel on the question of maintainability of
the present writ petition. It is to be noted that VST
D Industries Ltd. against whom the writ petition was filed
was not a State or an instrumentality of a State as
contemplated under Article 12 of the Constitution,
hence, in the normal course, no writ could have been
issued against the said industry. But it was the
E contention of the writ petitioner in that case that the
said industry was obligated under the concerned statute
to perform certain public functions, failure to do so would
give rise to a complaint under Article 226 against a
private body. While considering such argument, this
F Court held that when an authority has to perform a
public function or a public duty if there is a failure a writ
petition under Article 226 of the Constitution is
maintainable. In the instant case, as to the fact that the
respondent is an instrumentality of a State, there is no
G dispute but the question is: was first respondent
discharging a public duty or a public function while
repudiating the claim of the appellants arising out of a
contract ? Answer to this question, in our opinion, is
found in the judgment of this Court in the case of Kumari.
H
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1101
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
Shri Lekha Vidyarthi & Ors. vs. State of U.P.& Ors. A
[1991] (1) SCC 212] wherein this Court held:
•
"The impact of every State action is also on public
interest. It is really the nature of its personality as
State which is significant and must characterize all B
its actions, in whatever field, and· not the nature of
function, contractual or otherwise which is decisive
of the nature of scrutiny permitted for examining the
validity of its act. The requirement of Article 14 being
the duty to act fairly, justly and reasonably, there is C
nothing which militates against the concept of
requiring the State always to so act, even in
contractual matters."
23. It is clear from the above observations of this Court, o
once State or an instrumentality of State is a party to
the contract, it has an obligation in law to act fairly,
justly and reasonably which is the requirement of Article
14 of the Constitution of India. Therefore, if by the
impugned repudiation of the claim of the appellants E
the first respondent as an instrumentality of the State
has acted in contravention of the above said
requirement of Article 14 then we have no hesitation
that a writ court can issue suitable directions to set
right the arbitrary actions of the first respondent." F
67. The Court thereafter summarized the legal position
in the following manner:
"27. From the above discussion of ours, following legal G
principles emerge as to the maintainability of a writ
petition:-
(a) In an appropriate case, a writ petition as against a
State or an instrumentality of a State arising out of a
H
1102 SUPREME COURT REPORTS [2015) 6 S.C.R.
A contractual obligation is maintainable.
(b) Merely because some disputed questions of facts
arise for consideration, same cannot be a ground to
refuse to entertain a writ petition in all cases as a matter
B of rule.
(c) A writ petition involving a consequential relief of
monetary claim is also maintainable.
28. However, while entertaining an objection as to the
c maintainability of a writ petition under Article 226 of the
Constitution of India, the court should bear in mind the
fact that the power to issue prerogative writs under
Article 226 of the Constitution is plenary in nature and
is not limited by any other provisions of the Constitution.
D
The High Court having regard to the facts of the case,
has a discretion to entertain or not to entertain a writ"
petition. The Court has imposed upon itself certain
restrictions in the exercise of this power [See: Whirlpool
E Corporation vs. Registrar of Trade Marks, Mumbai &
Ors. [1998 (8) SCC 1). And this plenary right of the
High Court to issue a prerogative writ will not normally
be exercised by the Court to the exclusion of other
available remedies unless such action of the State or
F its instrumentality is arbitrary and unreasonable so as
to violate the constitutional mandate of Article 14 or for
other valid and legitimate reasons, for which the court
thinks it necessary to exercise the said jurisdiction."
G 68. The position thus summarized in the aforesaid
principles has to be understood in the context of discussion
that preceded which we have pointed out above. As per this,
no doubt, there is no absolute bar to the maintainability of
the writ petition even in contractual matters or where there
H are disputed questions of fact or even when monetary claim
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1103
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
is raised. At the same time, discretion lies with the High Court A
which under certain circumstances, can refuse to exercise.
It also follows that under the following circumstances,
'normally', the Court would not exercise such a discretion:
(a) the Court may not examine the issue unless the B
action has some public law character attached to it.
(b) Whenever a particular mode of settlement of dispute
is provided in the contract, the High Court would refuse
to exercise its discretion under Article 226 of the c
Constitution and relegate the party to the said made of
•
settlement, particularly when settlement of disputes is
to be resorted to through the means of arbitration.
(c) If there are very serious disputed questions of fact .....
u
which are of complex nature and require oral evidence
for their determination.
(d) Money claims per se particularly arising out of
contractual obligations are normaliy not to be
entertained except in exceptional circumstances. E
69. Further tegal position which emerges from various
judgments of this Court dealing with different situations!
aspects relating to the contracts entered into by the State!
public Authority with private parties, can be summarized as F
under:
(i) At the stage of entering into a contract, the State
acts purely in its executive capacity and is bound by
the obligations of fairness. G
(ii) State in its executive capacity, even in the
contractual field, is under obligation to act fairly and
cannot practice some discriminations.
H
(iii) Even in cases where question is of choice or
1104 SUPREME COURT REPORTS [2015] 6 S.C.R.
A consideration of competing claims before entering into
the field of contract, facts have to be investigated and
found before the question of a violation of Article 14
could arise. If those facts are disputed and require
assessment of evidence the correctness of which can
B only be tested satisfactorily by taking detailed evidence,
Involving examination and cross- examination of
witnesses, the case could not be conveniently or
satisfactorily decided in proceedings under Article 226
of the Constitution. In such cases court can direct the
c aggrieved party to resort to alternate remedy of civil
suit etc.
(iv) Writ jurisdiction of High Court under Article 226 was
not intended to facilitate avoidance of obligation
D voluntarily incurred.
(v) Writ petition was not maintainable to avoid
contractual obligation. Occurrence of commercial
difficulty, inconvenience or hardship in performance of
E the conditions agreed to in the contract can provide no
justification in not complying with the terms of contract
which the parties llad accepted with open eyes. It
cannot ever be that a licensee can work out the license
if he finds it profitable to do so: and he can challenge
F the conditions under which he agreed to take the
license, if he finds it commercially inexpedient to
conduct his business.
(vi) Ordinarily, where a breach of contract is complained
G of, the party complaining of such breach may sue for
specific performance of the contract, if contract is
capable of being specifically performed. Otherwise,
the party may sue for damages.
H (vii) Writ can be issued where there is executive action
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1105
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
unsupported by law or even in respect of a corporation A
there is denial of equality before law or equal protection
of law or if can be shown that action of the public
authorities was without giving any hearing and violation
of principles of natural justice after holding that action
could not have been taken without observing principles B
of natural justice.
(viii) If the contract between private party and the State/
instrumentality and/or agency of State is under the
realm of a private law and there is no element of public c
law, the normal course for the aggrieved party, is to
invoke the remedies provided under ordinary civil law
rather than approaching the High Court under Article
226 of the Constitutional of India and invoking its
extraordinary jurisdiction. D
(ix) _The distinction between public law and private law
element in the contract with State is getting blurred.
However, it has not been totally obliterated and where
the matter falls purely in private field of contract. This E
Court has maintained the position that writ petition is
not maintainable. Dichotomy between public law and
private law, rights and remedies would depend on the
factual matrix of each case and the distinction between
public law remedies and private law, field cannot be F
demarcated with precision. In fact, each case has to
be examined, on its facts whether the contractual
relations between the parties bear insignia of public
element. Once on the facts of a particular case it is
found that nature of the activity or controversy involves G
public law element, then the matter can be examined
by the High Court in writ petitions under Article 226 of
the Constitution of India to see whether action of the
State and/or instrumentality or agency of the State is
H
1106 SUPREME COURT REPORTS [2015) 6 S.C.R.
A fair, just and equitable or that relevant factors are taken
into consideration and irrelevant factors have not gone
into the decision making process or that the decision
is not arbitrary.
B (x) Mere reasonable or legitimate expectation of a
citizen, in such a situation, may not by itself be a distinct
enforceable right, but failure to consider and give due
weight to it may render the decision arbitrary, and this
is how the requirements of due consideration of a
C legitimate expectation forms part of the principle of non-
arbitrariness.
(xi) The scope of judicial review in respect of disputes
falling within the domain of contractual obligations may
o be more limited and in doubtful cases the parties may
be relegated to adjudication of their rights by resort to
remedies provided for adjudication of purely contractual
disputes.
E 70. Keeping in mind the aforesaid principles and after
considering the arguments of respective parties, we are of
the view that on the facts of the present case, it is not a fit
case where the High Court should have exercised
discretionary jurisdiction under Article 226 of the Constitution.
F First, the matter is in the realm of pure contract. It is not a
case where any statutory contract is awarded.
71. As pointed out earlier as well, the contract in
question was signed after the approval of Cabinet was
G obtained. In the said contract, there was no clause pertaining
to Section 42 of the Act. The appellant is presumed to have
knowledge of the legal provision, namely, in the absence of
such a clause, special allowances under Section 42 would
impermissible. Still it signed the contract without such a
H clause, with open eyes. No doubt, the appellant claimed
JOSHI TECHNOLOGIES INTERNATIONAL INC. v. 1107
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
these deductions in its income tax returns and it was even A
allowed these deductions by the Income Tax Authorities.
Further, no doubt, on this premise, it shared the profits with
the Government as well. However, this conduc;t of the
appellant or even the respondents, was outside the scope
of the contract and that by itself may not give any right to the B
appellant to claim a relief in the nature of Mandamus to direct
the Government to incorporate such a clause in the contract,
in the face of the specific provisions in the contract to the
contrary as noted above, particularly, Article 32 thereof. It
was purely a contractual matter with no element of public C
law involved thereunder.
72. Having considered the matter in the aforesaid
prospective, we come to the irresistible conclusion that the
appellant is not entitled to the relief claimed. Though it may D
be somewhat harsh on the appellant when it availed the
benefit of Section 42 for few years and acted on the
understanding that such a benefit would be given to it, but
we have no option but to hold that PSCs did not provide for
this benefit to be given to the appellant and the contract can E
be amended only if both the parties agree to do so, and not
otherwise. Therefore, we are constrained to dismiss the
appeal for the reasons given above.
There shall, however, be no orders as to costs. F
Devika Gujral Appeal dismissed.
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