2022 (4) TMI 1578 - HC - Indian Laws

Seeking a direction on the North Eastern Railway to withdraw a letter of termination dated 31st March 2021 issued by the Senior Divisional Commercial Manager - HELD THAT - Clause 23.2 of the Agreement in terminating the contract requires the Railways to give one month s notice of termination to the Leaseholder except in cases of breach of agreement. The Railways have not sent any intimation or notice to the petitioner alleging breach of the terms. The clarification sent by the Railways on 3rd December 2020 contains guidelines for dealing with cases relating to non-commencement of leased contract of parcel space and indicates Scenario-3 where a Leaseholder has not commenced contract corresponding Passenger Special Train service. The Railways have not alleged any breach of the contractual terms even in this letter but appears to have invoked Scenario-3 in terminating the contract by the letter dated 31st March 2021 - It is an admitted fact that the termination was made without giving any notice to the petitioner as required under clause 23.2 of the Agreement. It should also be noted that clause 23.2 does not contain any provision for blacklisting the Leaseholder in case of violation of the terms or under any other condition. It is also significant that the termination letter was issued by the Railways only after and as a counterblast to the petitioner s letter of 6th February 2021 by which the petitioner served 60 days notice under clause 23.1 of the Agreement to terminate the contract and sought refund of the security deposit - The facts in the present case reflect a wholly arbitrary action taken on behalf of the Railways which also includes breach of the petitioner s right to a hearing before such action was taken against the petitioner. The impugned letter of termination falls foul of the contractual terms between the parties. The letter of termination is also in violation of the petitioner s right to a fair hearing before the Agreement was terminated and the petitioner s security deposit forfeited. The action of debarring the petitioner from future tenders is highhanded arbitrary and against the contractual terms executed between the parties. As recognised by the Supreme Court in ERUSIAN EQUIPMENT CHEMICALS LTD. VERSUS STATE OF WEST BENGAL ANR. 1974 (11) TMI 89 - SUPREME COURT blacklisting has the effect of preventing a person from the privilege and advantage of entering into a lawful relationship with the Government for purposes of gains. The Supreme Court was also of the view that fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist. This Court finds the impugned letter of termination dated 31st March 2021 liable to be revoked and set aside - Application allowed.

Summary

Issues:
1. Jurisdiction of the High Court to entertain the writ petition.
2. Validity of the termination of the Lease Agreement by the Railways.
3. Right of the petitioner to approach the Writ Court despite the existence of an arbitration clause.
4. Compliance with contractual terms in the termination process.
5. Fairness and legality of blacklisting the petitioner from future tenders.

Jurisdiction of the High Court:
The High Court established its jurisdiction based on the cause of action arising within its territorial limits. Citing relevant legal precedents, the Court emphasized that the petitioner's legal rights were infringed within its jurisdiction, justifying the issuance of directions, orders, or writs. The Court highlighted the importance of establishing a prima facie infringement of legal rights within its territorial jurisdiction to maintain a writ petition.

Validity of Lease Agreement Termination:
The petitioner invoked clause 23.1 of the Lease Agreement to terminate the contract, supported by a Railway Board Circular. However, the Railways terminated the agreement under clause 23.2 without alleging any breach of terms or providing notice. The termination lacked compliance with contractual provisions, especially regarding the absence of a notice period and blacklisting provisions. The Court found the Railways' termination arbitrary and in violation of the petitioner's right to a fair hearing.

Right to Approach Writ Court vs. Arbitration Clause:
Despite the existence of an arbitration clause in the Lease Agreement, the Court allowed the petitioner to approach the Writ Court due to alleged breaches of fundamental rights, lack of natural justice, and the arbitrary nature of the Railways' actions. Legal precedents were cited to support the petitioner's right to seek a public law remedy despite the presence of an arbitration clause, especially in cases involving fundamental rights violations.

Compliance with Contractual Terms:
The Railways terminated the agreement without following contractual procedures, such as providing a notice period as required by clause 23.2. The termination was triggered by the petitioner's prior notice under clause 23.1, indicating a lack of compliance with contractual obligations. The Court noted the specific train mentioned in the agreement and highlighted the arbitrary nature of the Railways' actions, including the absence of a fair hearing for the petitioner.

Fairness of Blacklisting and Future Tender Participation:
The Court deemed the Railways' actions, including blacklisting the petitioner from future tenders, as highhanded and arbitrary. Citing legal precedents, the Court emphasized the importance of fair play, the right to a hearing, and the avoidance of penal consequences without due process. The Court found the blacklisting and punitive measures against the petitioner to be in violation of contractual terms and fairness principles.

In conclusion, the High Court allowed the writ petition, revoked the termination letter, and restrained the Railways from further enforcing the termination. The judgment highlighted the importance of procedural fairness, compliance with contractual terms, and the protection of fundamental rights in contractual disputes.