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IS THE PARTY TO THE CONTRACT ENTITLED TO QUESTION THE CONSIDERATION AFTER SIGNING IT?

Report by Harishri

In the case of The Chief Engineer, Water Resources Department & Ors. Versus Rattan India Power Limited through its Director & Ors., the appeal was filed by the State of Maharashtra against the judgement of the Division Bench of the High Court of Judicature at Bombay, whereby the High Court has reduced the ‘irrigation restoration charges’ that the Respondent has contracted to pay.

Facts:

The State of Maharashtra came up with a circular prescribing that when water is diverted for non-irrigation purposes, then the entity using such water shall pay 50,000 per hectare irrigation restoration charges. It also prescribed that no water shall be diverted unless an agreement is entered into between the concerned industry and the government.

Sophie Power Company Ltd. Intended to set up a thermal power plant. A communication was sent by the respondent to the Maharashtra Industrial Development Corporation to confirm the availability of 240 million litres of water per day to facilitate smooth running. Pursuant to the application made by SPCL granted approval for the usage of water. This was subject to SPCL paying capital contributions and irrigation restoration charges. The Vidarbha Irrigation Development Corporation granted final approval for the usage of water. SPCL was directed to pay Rs.100000 per hectare. The respondent sent a letter to the government against the levy of higher charges. Later, the charge was increased to Rs.100000 per hectare by the government. Ultimately, the Appellant and Respondent entered into a water supply agreement to pay Rs. 100000 as in 5 instalments. Six months after signing the agreement, he initiated a writ petition before the High Court of Judicature of Bombay at Nagpur to direct him to pay irrigation restoration charges at Rs.50000 per hectare. It was held that it would be appropriate for the rate prevailing as of the date of the grant of in-principal approval.

Appellant’s Contention:

The appellant contended that the order is against the agreement dated 22.05.2012 entered into between the appellant and the respondent. It is submitted that after accepting Rs.100000 as irrigation restoration charges, the respondent is not entitled to challenge it. The essence of his contention was that a contract is sacrosanct and must be respected.

Respondent’s Contention:

The respondent contended that the irrigation restoration charge is directly linked to the date of approval and the relevant date since the circular dated 21.02.2004 was applicable. The appellant could have only levied Rs.50,000 per hectare. Also, similarly placed companies were given the relief that the Respondent was seeking. It was also contended that the undertaking given by the respondent after signing the agreement was not unconditional. It was subject to numerous representations by the respondent for the reduction of the irrigation restoration charge. The Government Circular will apply prospectively and will not apply to ongoing contracts.

Decision:

The bench was not satisfied with the approach adopted by the High Court when the respondent himself wilfully and deliberately entered into an agreement knowing the legal and business consequences. The High Court has committed an error in entertaining a fresh writ petition, which effectively claimed the same reliefs as the previous one. It also has committed a mistake in supplanting its view over that of the contract. The bench also directed that the balance amount due payable towards the irrigation restoration charge shall be paid by the respondent on or before 30.06.2023. Further, interest @ 12% p.a. shall be payable from the date the instalment fell due till the date of the impugned order. The bench allowed the civil appeal and set aside the impugned final judgement.

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