Supreme Court overturns High Court order on work contract: Municipal Council Gondia vs. Divi Works & Suppliers (28 February 2022)

Introduction

Date of the Judgment: 28 February 2022

Citation: (2022) INSC 173

Judges: M. R. Shah, J. and B.V. Nagarathna, J.

Can a High Court order a government body to fulfill a contract through a writ petition? The Supreme Court of India addressed this question in a recent case involving a dispute over a work order for school furniture. The case revolves around whether the High Court overstepped its jurisdiction by directing a municipal council to accept goods and make payments based on a work order that was cancelled due to the COVID-19 pandemic. This judgment clarifies the limits of writ jurisdiction in contractual matters. The bench consisted of Justices M. R. Shah and B.V. Nagarathna.

Case Background

The Municipal Council of Gondia (the appellant) sought to purchase furniture for its schools. On 12 December 2018, a resolution was passed to buy desks, benches, almirahs, and tables. An e-tender was issued on 19 September 2019, in which Divi Works & Suppliers (the original writ petitioner) participated and was declared the successful bidder. An agreement was executed, and a work order was issued on 7 February 2020. However, due to the COVID-19 pandemic and subsequent lockdown, the Government of Maharashtra issued a Government Resolution (G.R.) on 4 May 2020, advising against non-priority expenditures. Consequently, on 18 May 2020, the President of the Municipal Council instructed the Chief Officer to halt purchases. The Chief Officer then informed the original writ petitioner that the work order was suspended until further notice. On 7 July 2020, the Municipal Council cancelled the work order, citing the pandemic and the lack of urgency for the furniture.

Timeline

Course of Proceedings

Divi Works & Suppliers filed a writ petition (W.P. No. 1984 of 2020) before the High Court of Judicature at Bombay, Nagpur Bench, challenging the cancellation of the work order. The High Court allowed the writ petition, setting aside the Municipal Council’s decision and directing them to accept the goods and make payments as per the work order. The Municipal Council then appealed to the Supreme Court.

Legal Framework

The judgment primarily revolves around the interpretation of Article 226 of the Constitution of India, which grants High Courts the power to issue writs. The Supreme Court examined whether this power extends to enforcing contractual obligations, particularly when disputed questions of fact are involved. The Court also considered the implications of the Government Resolution (G.R.) dated 4 May 2020, issued by the Government of Maharashtra, which advised against non-priority expenditures due to the COVID-19 pandemic.

Arguments

Appellant (Municipal Council)’s Arguments:

• The Municipal Council argued that the High Court erred in issuing a writ of mandamus for specific performance of a contract.
• They contended that the work order was cancelled due to the COVID-19 pandemic and the subsequent financial constraints, as per the Government Resolution dated 4 May 2020.
• The Council submitted that the original writ petitioner had not taken any steps to supply the goods, and the Education Officer’s report confirmed this.
• The Council argued that the goods were not manufactured as per the specifications and requirements of the Council.
• They highlighted that there were disputed questions of fact, which should not be decided in a writ petition.

Respondent (Divi Works & Suppliers)’s Arguments:

• The original writ petitioners argued that they had already manufactured the goods as per the work order and that they were customized.
• They stated that the goods were dismantled for proper storage and maintenance, including polishing.
• They requested time to reassemble the goods for supply.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, but the core issue addressed was:

1. Whether the High Court was justified in issuing a writ of mandamus directing the Municipal Council to continue with the work order and accept the goods, effectively granting specific performance of a contract in a writ petition under Article 226 of the Constitution of India.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not cite any specific cases or books in this judgment. The primary basis of the decision was the interpretation of Article 226 of the Constitution of India and the facts of the case.

Judgment

The Supreme Court allowed the appeal, setting aside the High Court’s judgment. The Court held that the High Court should not have issued a writ of mandamus for specific performance of a contract, especially when there were disputed questions of fact regarding the manufacturing of goods. The Court noted that the High Court was made to believe that the goods were already manufactured, but it was later found that they were not readily available. The Court also emphasized that the Municipal Council had valid reasons for suspending/cancelling the work order due to the COVID-19 pandemic and financial constraints.

The Court observed that the High Court should have relegated the original writ petitioners to file a civil suit for appropriate relief of losses/damages, if any, sustained.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Disputed Questions of Fact: The Court emphasized that there were disputed questions of fact regarding whether the goods were manufactured as per the specifications and whether they were readily available. These factual disputes could not be resolved in a writ petition.
• Limits of Writ Jurisdiction: The Court reiterated that a writ of mandamus cannot be issued to enforce a contractual obligation, especially when specific performance is sought.
• Justification for Cancellation: The Court acknowledged that the Municipal Council had valid reasons for cancelling the work order due to the COVID-19 pandemic, financial constraints, and the Government Resolution dated 4 May 2020.
• Lack of Evidence: The Court noted that there was no evidence on record to prove that the original writ petitioner had actually manufactured the goods as per the specifications and the requirements of the Council.

The Supreme Court emphasized that the High Court should not have granted specific performance of a contract in a writ petition, especially when there were disputed questions of fact. The Court also noted that the Municipal Council had valid reasons for suspending/cancelling the work order due to the COVID-19 pandemic and financial constraints.

The Court quoted:

“Even otherwise, no writ of mandamus could have been issued virtually granting the writ for specific performance of the contract/work order in a writ petition under Article 226 of the Constitution of India.”

“The original writ petitioners ought to have been relegated to file a civil suit for appropriate relief of losses/damages, if any, sustained.”

“The High Court has erred in quashing and setting aside the communication dated 07.02.2020 in exercise of powers under Article 226 of the Constitution of India.”

Key Takeaways

• High Courts should not issue writs of mandamus for specific performance of contracts, especially when there are disputed questions of fact.
• Writ petitions under Article 226 of the Constitution are not the appropriate forum for resolving complex contractual disputes involving factual disagreements.
• Government bodies can cancel work orders due to valid reasons such as financial constraints and government directives.
• Parties seeking specific performance of a contract should approach a civil court rather than filing a writ petition.

Directions

The Supreme Court directed that the original writ petitioners are at liberty to initiate appropriate proceedings before the civil court for the damages/losses, if any suffered by them.

Development of Law

The judgment reinforces the principle that writ jurisdiction under Article 226 of the Constitution is not meant for enforcing contractual obligations, especially when disputed questions of fact are involved. The ratio decidendi of the case is that a High Court cannot issue a writ of mandamus for specific performance of a contract in a writ petition under Article 226 of the Constitution of India. This clarifies the boundaries of writ jurisdiction and provides guidance on the appropriate forum for contractual disputes.

Conclusion

The Supreme Court’s decision in Municipal Council Gondia vs. Divi Works & Suppliers clarifies the limitations of writ jurisdiction in contractual matters. The Court held that the High Court erred in directing the Municipal Council to fulfill a work order through a writ petition. The judgment emphasizes that specific performance of contracts should be sought through civil suits, especially when there are disputed questions of fact. This ruling reinforces the principle that writ jurisdiction is not a substitute for civil remedies in contractual disputes.