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Union Of India And Others v. M/S Graphic Industries Co. And Others
Factual and Procedural Background
The respondents, suppliers of various stores to the Eastern Railways, alleged that nearly half a crore of rupees remained unpaid for the goods they had delivered. After correspondence between a local Member of Parliament, the Minister for Railways, and the Minister’s Additional Private Secretary, the respondents filed a writ petition under Article 226 of the Constitution before the Calcutta High Court seeking a mandamus for payment.
A learned Single Judge held that the cited correspondence could not be treated as a decision of the President of India under Article 377 (sic) and relegated the suppliers to their contractual remedies, including arbitration. On appeal, a Division Bench relied heavily on a subsequent letter dated 8/9-5-1991 from the Additional Private Secretary—stating that the Minister of Railways had “instructed” payment—and directed the General Manager, Eastern Railways, to pay the amounts after verification within two months. The Union of India and railway officials appealed to the Supreme Court.
Legal Issues Presented
- Whether the letter dated 8/9-5-1991 from the Additional Private Secretary, purportedly conveying the Minister’s instructions, created an enforceable legal right or legitimate expectation in favour of the suppliers.
- Whether the High Court could, in the exercise of its writ jurisdiction under Article 226, direct payment on a purely contractual claim that was governed by an arbitration clause.
- Whether the Railways’ refusal to pay constituted unfair or arbitrary state action attracting judicial review under Article 14.
Arguments of the Parties
Appellants’ Arguments (Union of India and Railway Officials)
- The letter of 8/9-5-1991 was not issued in conformity with Article 377 of the Constitution and therefore created neither a legal right nor a legitimate expectation.
- The dispute arose purely out of contract; consequently, the remedy lay in arbitration or a civil suit, not in a writ of mandamus under Article 226.
- The Division Bench’s reliance on the letter and its consequent finding of unfairness constituted an error of law.
Respondents’ Arguments (Suppliers)
- Independently of the impugned letter, public authorities are obliged to act fairly; withholding payment for goods accepted years earlier was arbitrary and violated Article 14.
- Precedent establishes that the State must not defeat legitimate contractual claims by adopting a purely technical stance.
- Although other suppliers of identical goods had been paid, the respondents were singled out, amounting to discrimination (an issue not addressed in the impugned judgment).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hindustan Sugar Mills v. State of Rajasthan (1980) 1 SCC 599, AIR 1981 SC 1681 | The State must honour its contractual obligations and act fairly, without driving citizens to litigation. | Relied upon by the Calcutta High Court Division Bench to justify directing payment; the Supreme Court noted the citation but found the facts did not support a finding of unfairness. |
| Kumari Shrilekha Vidyarthi v. State of U.P. (1991) 1 SCC 212 | Article 14 requires the State to act fairly, justly, and reasonably even in contractual matters. | Cited by respondents to argue that writ jurisdiction can be invoked in contractual disputes; the Supreme Court acknowledged the citation but deemed it unnecessary to decide the point after finding no unfairness. |
| Mahabir Auto Stores v. Indian Oil Corp. (1990) 3 SCC 752 | State action in contractual matters is subject to judicial review on the touchstone of Article 14. | Mentioned only as part of the line of authority referenced in Kumari Shrilekha Vidyarthi; not independently applied. |
| Dwarkadas Marfatia v. Board of Trustees of the Port of Bombay (1989) 3 SCC 293 | State and public authorities must act reasonably even in commercial or contractual dealings. | Referenced within the discussion of Kumari Shrilekha Vidyarthi; not substantively applied in the outcome. |
Court's Reasoning and Analysis
The Supreme Court observed that the Division Bench’s finding of unfairness rested entirely on the letter from the Additional Private Secretary. That correspondence, however, did not constitute an authorised decision under Article 377 (sic) and could not bind the Railways. In the absence of any counter-affidavit or factual verification, the High Court had no material basis—other than the impugned letter—to conclude that the Railways’ conduct was unfair or arbitrary.
Because the core premise of unfairness failed, the Supreme Court found it unnecessary to address the broader constitutional argument that writ jurisdiction is always available in contractual disputes. The Court emphasised that Article 226 is discretionary, and a High Court may decline intervention where adequate contractual remedies, including arbitration, exist.
Holding and Implications
Appeal Allowed — Division Bench judgment set aside; Single Judge’s order restored.
The respondents were ordered to pay costs of Rs 10,000 within six weeks, and the connected interlocutory application was dismissed as infructuous.
Implications: The decision reaffirms that (i) ministerial correspondence not issued in accordance with constitutional requirements cannot, by itself, impose financial liability on the State, and (ii) High Courts should exercise caution before issuing mandamus in matters governed by contractual mechanisms such as arbitration. No new legal principle was created, but the Court underscored the limits of public-law remedies in contract disputes involving the government.
B.L Hansaria, J.— This appeal is by Union of India and some officers of the Central Government attached to the Ministry of Railways and they have felt aggrieved at the judgment and order passed by a Division Bench of the Calcutta High Court on an appeal preferred by the respondents against the judgment of a learned Single Judge which was rendered in a writ petition filed by the respondents under Article 226 of the Constitution.
2. The respondents invoked the extraordinary jurisdiction of the High Court on payments not having been made to them of the different items of stores supplied to the Eastern Railways. The respondents had made a grievance about the non-payment even to the Union Minister of Railways and certain correspondence which took place between the local M.P and the Railway Minister and between the Additional Private Secretary to the Minister of Railways and Controller of Stores were sought to be relied on in seeking a mandamus for payment of a sum of about rupees half a crore.
3. The learned Single Judge took the view that the correspondence in question could not be treated as decision of the President of India as visualised by Article 377 (sic) of the Constitution. Being of this view, the writ petitioners were left with the liberty of moving appropriate forum for redressal of their grievances including going in for arbitration as per the contract, leaving all the questions open to be decided in an appropriate forum.
4. By the time the appeal came to be heard by the Division Bench, a development had taken place and the same was issuance of another letter by the aforesaid Additional Private Secretary on 8/9-5-1991 addressed to General Manager, Eastern Railways, Calcutta, which stated, inter alia, that Minister of Railways had instructed to do as contained in the letter. The Bench took the view that the instructions contained in the aforesaid letter were binding on the General Manager, he being a subordinate authority. The non-carrying out of the instructions by the General Manager was taken to be flouting of the order of the Minister who being the head of the Ministry of Railways was said to be answerable to the House of the People. The Bench also took the view that what was said in the letter was just and proper in the facts and circumstances of the case and was in consonance with views expressed by this Court in Hindustan Sugar Mills v. State of Rajasthan (1980) 1 SCC 599, AIR 1981 SC 1681, wherein it was held by this Court that the Central Government should honour its legal obligation arising even out of contract and not drive a citizen to file suit. It was reiterated in that judgment that in a democratic society governed by the rule of law, it is the duty of the State to do what is fair and just to the citizen and the State should not seek to defeat the legitimate claim of the citizens by adopting a legalistic attitude but should do what fairness and justice demand.
5. The Bench then observed that it was the duty of the General Manager to act fairly, properly and reasonably and the goods having been accepted several years back the Railways had no authority to sit over the matters by folding their hands. Such an attitude was regarded as contrary rule of law by which a democratic society is governed. The Bench ultimately passed the following operative order:
“The respondents are directed to make payment of the amount stated in the schedule of bills enclosed to the said letter after verification that the bills were complete in all respect subject to the condition that if any goods had been rejected which has already been made from (sic over) to the petitioner though the reason for rejection had not been communicated, the same should be communicated forthwith. Such steps shall be taken within a period of two months from today.”
6. Learned Additional Solicitor General Shri Ahmad appearing for the appellants has advanced two submissions in the main. He first contends that the letter of 8/9-5-1991 being not in terms of Article 377 of the Constitution had not conferred any legal right or even legitimate expectation in favour of the respondents to advance any legal claim on its basis. The second submission is that the matter being purely in the realm of contract the public law remedy of seeking mandamus by approaching under Article 226 was not available dehors the terms of the agreement which included an arbitration clause. Relying on these two submissions the contention of the Additional Solicitor General is that the judgment of the Division Bench is vitiated by error of law.
7. Shri Ganguli who advanced arguments on behalf of the respondents has not attempted, and rightly, to support the judgment of the Division Bench by placing reliance on what is contained in the letter in question. The learned counsel's submission has been that independently of this letter the judgment is perfectly legal as the appellants had the duty to act fairly which obligation has to be discharged even in matters pertaining to contractual rights. He has contended that perusal of the impugned judgment would show that according to the Bench the appellants had not acted properly and fairly in denying payments to the respondents because the goods had been accepted several years back and the Railways had no authority to sit over the matter by folding their hands.
8. A submission has also been advanced in this context that on the face of payments made to other suppliers of identical articles of stores the denial of payment to the respondents was an act of discrimination. We do not propose to deal with this submission because in the impugned judgment there is no mention about this facet of respondents' case about which, according to Shri Ganguli, averments had been made in the writ petition.
9. We, therefore, propose to confine our attention to the ground of unfairness mentioned in the impugned judgment and see whether in the facts and circumstances of the case it could justifiably be said that the appellants had acted unfairly in withholding the payments of the respondents. A perusal of the judgment shows that the Bench came to the conclusion of unfairness, not on the basis of any independent examination of the matter by it (indeed in the absence of a counter by the appellants no such factual assessment was possible by the Bench), instead, what has been said about unfair act of the Railways is based on what has been mentioned in the aforesaid letter of the Additional Private Secretary. This would be clear from the fact that in the letter reference has been made about rejection of materials also as to which it has been stated that the defects which led to the rejection of the materials be communicated to the firm; and it is this which the Bench too in its aforesaid operative order directed. It is thus clear to us that the view taken by the Bench relating to unfairness is solely based on what found place in the aforesaid letter.
10. We are not satisfied from what has been stated in the impugned judgment that the Railways had acted unfairly in withholding the payment of the respondents. In view of this we need not dilate on the submission of Shri Ganguli that even in contractual matters public authorities have to act fairly; and if they fail to do so approach under Article 226 would always be permissible because that would amount to violation of Article 14 of the Constitution. In support of this submission, Shri Ganguli has mainly relied upon a two-Judge Bench decision of this Court in Kumari Shrilekha Vidyarthi v. State of U.P (1991) 1 SCC 212, of which this aspect of the matter has been dealt with by stating that the requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act even in contractual matters (see paragraph 24). What has been stated in paragraph 28 is that it would be difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of the judicial review to test its validity on the anvil of Article 14. The Bench thereafter referred to various earlier decisions of this Court on this point including Mahabir Auto Stores v. Indian Oil Corpn. (1990) 3 SCC 752 and Dwarkadas Marfatia v. Board of Trustees of the Port of Bombay (1989) 3 SCC 293.
11. Having come to the conclusion that the materials which the Division Bench noted do not make out a case of unfairness, it is not necessary to examine the question as to whether in the field covered by contractual rights and obligations it would always be permissible to invoke the extraordinary jurisdiction of the High Court under Article 226 of the Constitution. It would be enough to say that this remedy being discretionary, it would be open to the High Court to take a view on the fact situation before it that invocation of power under Article 226 would not be proper exercise of discretion, leaving the aggrieved person to seek remedy in some other forum, or to take recourse to arbitration if that be visualised by the agreement between the parties.
12. In the aforesaid view of the matter we agree with Shri Ahmad that the judgment of the Division Bench is vitiated by error of law. We, therefore, set aside the same and restore the judgment passed by the learned Single Judge.
13. The appeal stands allowed with costs assessed at Rs 10,000 to be paid by the respondents within a period of six weeks from today.
(Before A.M Ahmadi and B.L Hansaria, JJ.)
M/S GRAPHIC INDUSTRIES CO. AND OTHERS . . Appellants;
Versus
UNION OF INDIA AND OTHERS . . Respondents.
I.A No. 3 of 1993 in C.A No. 4524 of 1992, decided on July 28, 1994
Order
In view of the judgment delivered today in CA No. 4524 of 1992, this application does not survive and is dismissed.
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