Supreme Court Upholds Public-Private Partnership in Formula 4 Racing: Racing Promotions Private Limited vs. Dr. Harish & Ors. (20 February 2025)

Introduction

Date of the Judgment: 20 February 2025

Judges: Pamidighantam Sri Narasimha, J., Manoj Misra, J.

Can a High Court interfere with the specific terms of a Memorandum of Understanding (MoU) once it acknowledges that holding a sports event is a policy matter? The Supreme Court of India addressed this question in a recent case involving Formula 4 racing in Chennai. The court examined the extent to which judicial review can extend to contractual relationships between the state and private entities, especially concerning the allocation of expenditures and obligations.

The Supreme Court allowed the appeals, setting aside the directions of the High Court that sought to alter the financial obligations agreed upon in the MoU between Racing Promotions Private Limited (RPPL) and the Sports Development Authority of Tamil Nadu (SDAT). The bench, comprising Justices Pamidighantam Sri Narasimha and Manoj Misra, held that once the High Court recognized the event as a policy decision, it should not have intervened in the contractual terms.

Case Background

Racing Promotions Private Ltd (RPPL) was responsible for sponsoring and conducting the Formula 4 championship, a motorsport series of races. On 16 August 2023, RPPL entered into a Memorandum of Understanding (MoU) with the Sports Development Authority of Tamil Nadu (SDAT) for three years to organize the event. As per the MoU, RPPL was to spend Rs. 202 crores, while SDAT was to spend Rs. 42 crores towards license and operations fee, roads, and miscellaneous expenditures, including road beautification and painting.

In November 2023, the Government of Tamil Nadu announced the conduct of the Formula 4 race in Chennai from 8 December 2023 to 10 December 2023. Following this announcement, several Public Interest Litigations (PILs) were filed in the Madras High Court, raising concerns about public inconvenience, safety measures, noise pollution, environmental damage, and the use of public funds for a private entity’s benefit.

Timeline:

Legal Framework

The case revolves around the interpretation and application of contractual obligations within the framework of public-private partnerships. Key aspects include:

• ✓Memorandum of Understanding (MoU): The agreement between RPPL and SDAT outlines the obligations and responsibilities of each party, including financial commitments.
• ✓Role of Sports Development Authority of Tamil Nadu (SDAT): As the nodal government authority, SDAT is responsible for promoting sports and developing sports infrastructure in Tamil Nadu.
• ✓Public-Private Partnership (PPP): The collaboration between a government entity (SDAT) and a private company (RPPL) to achieve a common goal, leveraging the resources and expertise of both sectors.

Arguments

The primary contentions revolved around the financial obligations outlined in the MoU and the extent of state involvement in a privately-run event.

• Appellant’s (RPPL) Argument:
  • ✓ RPPL contended that the High Court’s directions altered the terms of the MoU, which was a result of mutual agreement and deliberation.
  • ✓ They argued that the directions to reimburse Rs. 42 crores, deposit Rs. 15 crores in advance, and bear the entire expenditure were unwarranted and changed the fundamental nature of the agreement.
  • ✓ RPPL did not object to the precautionary measures for public safety and health but challenged the financial impositions.
• Respondent’s (Dr. Harish & Ors.) Argument:
  • ✓ The respondents, who filed the PILs, raised concerns about the lack of transparency in using public funds for a private event.
  • ✓ They argued that the state government’s role should not extend beyond facilitation, and the revenue and profits should not accrue solely to the appellant.
  • ✓ Concerns were raised regarding public inconvenience, safety measures, noise pollution, and environmental damage due to the event.

Issues Framed by the Supreme Court

1. Whether the High Court could interfere with the specific terms of the MoU once it acknowledged that holding the sports event is a matter of policy.
2. Whether the directions issued by the High Court, altering the financial obligations of the parties, were justified.

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Authorities

The Supreme Court considered several precedents to determine the extent of judicial review in matters concerning contractual relationships between the state and private entities.

• ✓Master Marine Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd., (2005) 6 SCC 138, paras 11-12: This case addresses the scope of judicial review in contractual matters involving the State.
• ✓Arun Kumar Agrawal v. Union of India, (2013) 7 SCC 1, para 41: This case further clarifies the limitations of judicial intervention in economic policy decisions.
• ✓Silppi Constructions Contractors v. Union of India, (2020) 16 SCC 489, paras 19-20: This case discusses the boundaries within which courts can assess contractual terms involving public entities.
• ✓Orissa State Financial Corporation v. Narsingh Ch. Nayak, (2003) 10 SCC 261, para 6: This case emphasizes that courts should not interfere with the terms of a contract unless there is a clear violation of law or public policy.
• ✓Orix Auto Finance (India) Ltd v. Jagmander Singh, (2006) 2 SCC 598, para 9: This case reiterates the principle that contractual terms should generally be upheld unless there are compelling reasons for intervention.
• ✓General Assurance Society Ltd v. Chandumull Jain, AIR 1966 SC 1644, para 11: This case states courts cannot rewrite contractual terms between the parties.
• ✓Rajasthan State Industrial Development and Investment Corporation v. Diamond & Gem Development Corporation Ltd, (2013) 5 SCC 470, para 23: This case emphasizes that courts should respect the contractual autonomy of parties.
• ✓Shree Ambica Medical Stores v. Surat People’s Coop Bank Ltd, (2020) 13 SCC 564, para 20: This case reinforces the principle that courts should not interfere with freely negotiated contractual terms.
• ✓Venkataraman Krishnamurthy v. Lodha Crown Buildmart Pvt Ltd, (2024) 4 SCC 230, paras 21-22: This case reiterates the importance of upholding contractual agreements unless there is a clear reason to intervene.

Judgment

The Supreme Court partly allowed the appeals, setting aside the directions of the High Court in paragraphs 22(iv), (v), (vi), and (vii) of the judgment and order in Writ Petition Nos. 33687, 33741, 33911 and 33914 of 2023 by order dated 19.02.2024.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of non-interference in contractual matters, especially when the State acts through an instrumentality like SDAT, and there is no evidence of malfeasance or misuse of public funds. The Court also considered the broader policy implications of encouraging public-private partnerships for promoting sports and economic development.

The court’s reasoning can be summarized as follows:

Issue: Whether the High Court could interfere with the terms of the MoU.

Logical Reasoning:

Policy Decision (Sports Event) ↓ No Malfeasance/Misuse of Funds ↓ Limited Scope of Judicial Review ↓ Non-Interference in Contractual Terms → High Court’s Directions Set Aside

Key Takeaways

• ✓ Courts should be cautious in interfering with contractual terms agreed upon between the State and private parties, especially in matters of policy.
• ✓ Public-private partnerships are an accepted mode of governance, and their terms should be respected unless there is evidence of illegality or misuse of public funds.
• ✓ The scope of judicial review in economic policy matters is limited.

Development of Law

The ratio decidendi of the case is that once a High Court acknowledges that holding a sports event is a policy matter, it cannot interfere with the specific terms of the Memorandum of Understanding (MoU) entered into between the authority and the appellant, especially regarding the apportionment of expenditure. This decision reinforces the principle of respecting contractual agreements in public-private partnerships and limits judicial intervention in economic policy matters.

Conclusion

The Supreme Court’s judgment upholds the sanctity of contracts in public-private partnerships, emphasizing that courts should not interfere with the terms of such agreements unless there is evidence of malfeasance or a clear violation of law. The decision reinforces the importance of respecting the autonomy of contracting parties and the limited scope of judicial review in economic policy matters.