Contracts Loaded With Terms Being Unfair & Unreasonable That They Baffle Court Are Opposed To Public Policy & Must Be Adjudged Void: SC

The Supreme Court observed that the Contracts loaded with terms which are so unfair and unreasonable, that they truly baffle the Court, are opposed to public policy and must be adjudged void.

The Court observed thus in a Civil Appeal preferred by NOIDA Toll Bridge Company Ltd. (NTBCL), challenging the Judgment of the Allahabad High Court in which the issue was related to the collection and levying of toll.

The two-Judge Bench comprising Justice Surya Kant and Justice Ujjal Bhuyan held, “Contracts loaded with terms which are so unfair and unreasonable, that they truly baffle this Court, are undoubtedly opposed to public policy and must be adjudged void. The Court is always cautious when determining if a particular contract or action is opposed to public policy, but in doing so, it cannot shirk from its duty and approve helplessly the interpretation of a Statute or a document or of an action which is certain to subvert the societal goals and endanger the public good.”

The Bench added that the Court may invoke the Doctrine of Severability and sever the incurable parts of the contract from the whole and it can do so only when the rest of the contract can breathe and survive without the aid of its void covenants.

“The Court must ask itself whether the parties would have agreed to the valid terms of the agreement if they knew that the invalid terms would be removed. Given the extent of manipulation in the instant case, we must intervene and hold that Article 14 of the Concession Agreement, read with the formula in Annexure F, is opposed to public policy and must be cut apart from the Concession Agreement”, it remarked.

Senior Advocate Abhishek Manu Singhvi appeared for the Appellant while Senior Advocates Parthiv Goswami and Gopal Jain appeared for the Respondents.

Factual Background -

The Appellant i.e., NTBCL had executed a Concession Agreement with the New Okhla Industrial Development Authority (NOIDA) and the Infrastructure Leasing and Financial Services Limited (IL&FS). The said Agreement conferred upon NTBCL the rights necessary for the implementation of the Delhi NOIDA Bridge Project or the Delhi-NOIDA Direct Flyway (DND Flyway/Project) and, in connection thereto, the collection and levying of toll. During the 1980s, the Uttar Pradesh State sought to construct a bridge connecting South Delhi and NOIDA, to improve connectivity between the two regions. However, the State recognised that significant financial expenditure would be involved in this ambitious endeavour, which it could not undertake independently.

Hence, NOIDA and the Delhi Administration entered into a Memorandum of Understanding (MoU) with IL&FS in 1992, intending to construct the DND Flyway. Pursuantly, a Committee comprising representatives of the Government of India, the Government of NCT of Delhi, the State of UP, and IL&FS was constituted to take important decisions relating to the Project and its implementation (Steering Committee). The Project was thereafter initiated and completed with the DND Flyway being opened for public use in 2001. Nearly 15 years after the execution of the Concession Agreement, the Respondent i.e., Federation of NOIDA Residents Welfare Association approached the High Court purportedly in public interest seeking a direction to discontinue toll charged to the users of the DND Flyway. It was contended that NTBCL had already recovered the project costs, thereby eliminating the need to continue imposing user fees. The High Court ruled in favour of the Respondent and hence, the NTBCL was before the Apex Court.

The Supreme Court after hearing the contentions of the senior counsel, noted, “It is well-established that while public interest litigation serves as an effective tool for addressing the grievances of the public, it must be carefully scrutinised to prevent misuse or abuse by those with ulterior motives. Courts must look beyond the surface to assess whether the litigation has been genuinely initiated in the interest of the public or as a result of mischief. The essence of PIL lies in its aim to remedy genuine public wrongs or injuries rather than being driven by personal vendetta or malice.”

The Court elucidated that, writ proceedings under Articles 32 or 226 are not guided by the provisions of the Limitation Act, 1963, but instead, by the Doctrine of Delay and Laches and such Doctrine cannot be applied stricto senso to Writ Petitions invoking public interest jurisdiction, unless the Court is satisfied that the party has not approached it with clean hands.

“It is now well established that while delay is a material factor, there is no fixed period of limitation for invoking jurisdiction under Article 226 and that each case should be considered on its own facts and circumstances, thus allowing for a more liberal approach when applying this doctrine. It is indeed beyond any doubt that the doctrine is not a rigid rule but is rather a practice that is founded on the exercise of sound judicial discretion”, it added.

The Court said that the High Court rightly observed that the plea of delay lacks substance, as the commuters, including the Respondent, were justified in trusting that NOIDA would protect their interests.

“Given that NTBCL’s actions represented a continuing cause of action, we concur with the High Court in rejecting the hyper technical objection of delay and laches. … The continued levy of toll and the Concession Agreement were directly impacting the rights and interests of commuters. NTBCL’s attempts to classify the Concession Agreement as a purely private contractual matter, sequestered from such scrutiny, thus holds no ground. The Project, having been developed for public benefit, cannot escape judicial oversight, particularly when the allegations pertain to the public’s rights and interests, which are being infringed upon by the levying of user fees”, it further remarked.

The Court observed that the Government procedures or policies pioneered in public interest must genuinely serve the public and not merely enrich private entities.

“The selection of NTBCL without following proper procedure and without giving any opportunity to bid, to other competitors, was nothing but an opaque device resorted to, in contravention of Article 14 of the Constitution of India. … A plain reading of Section 6A makes it unequivocally clear that the ‘Authority’ is empowered to delegate the power to collect taxes or fees levied by it. However, under no circumstances does Section 6A authorize the delegation of the power to levy taxes or fees. Similarly, Section 19(2)(e) of the 1976 Act enables NOIDA to frame Regulations governing the levy of taxes or fees. This provision, however, cannot be interpreted as empowering NOIDA to delegate the power of levying taxes or fees through an agreement under Section 6A of the Act”, it also held.

The Court emphasised that the power to delegate must be expressly discernible in the Principal Act itself and in the absence of such provisions, no circular method can be countenanced to extract such power.

“It seems that NTBCL and NOIDA have indulged in trickery and placed the cart before the horse, in attempting to authorise actions post facto, thereby obscuring the full extent of misuse of power”, it also remarked.

Moreover, the Court reiterated that, no person or entity can be allowed to make an undue and unjust profit from public property, at the cost of the public at large.

“Had Respondent No. 1 not been vigilant of their rights, the public funds would have continued to be misappropriated for private profiteering. Furthermore, the role played by IL&FS in this entire scheme is highly questionable. We say nothing except that the facts speak for themselves. Res ipsa loquiter”, it said.

The Court, therefore, came to the following conclusions –

i. The High Court rightly entertained the writ petition filed by Respondent No. 1, who had the requisite locus standi. The said writ petition filed in public interest was maintainable.

ii. There were no delay or laches in approaching the High Court.

iii. The contract awarded to NTBCL through the Concession Agreement by State authorities and NOIDA was unfair, unjust and inconsistent with Constitutional norms.

iv. NOIDA exceeded its authority by delegating the power to levy fees or impose tolls to NTBCL, rendering such delegation invalid.

v. Article 14 of the Concession Agreement, read with the formula in Annexure F, contravenes public policy and is, therefore, liable to be severed from the Agreement.

vi. NTBCL has recovered the project costs and substantial profits, eliminating any justification for the continued imposition or collection of user fees or tolls.

vii. The issue pertaining to outdoor licensing fees between NOIDA and NTBCL does not fall within the purview of the present challenge.

Accordingly, the Apex Court dismissed the Civil Appeal.

Cause Title- NOIDA Toll Bridge Company Ltd. v. Federation of NOIDA Residents Welfare Association and Others (Neutral Citation: 2024 INSC 1027)

Appearance:

Appellant: Senior Advocate Abhishek Manu Singhvi, Advocates Raunak Dhillon, Madhavi Khanna, Nihaad Dewan, Jeezan Pakhliwal, and Amit Bhandari.

Respondents: Senior Advocates Parthiv K. Goswami, Gopal Jain Ravindra Kumar, V.K. Singh, AORs Diksha Rai, Binay Kumar Das, Raj Bahadur Yadav, Adarsh Upadhyay, Pradeep Misra, Raunak Dhillon, Advocates Atiga Singh, Apurva Sachdev, Piyush Vyas, Priyanka Das, Neha Das, Shivam Saxena, Hitesh Kumar Sharma, Amit Kumar Chawla, Akhileshwar Jha, Mahi Pal Singh, Manisha Chawla, Merusagar Samantrey, Sanjay Kumar Tyagi, Sharath Nambiar, Raghav Sharma, Shradha Deshmukh, Amit Singh, Aman Pathak, Pallavi Kumari, Shashank Pachauri, and Rakesh Chatterjee.

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