Research › Search › Judgment

Himachal Pradesh High Court · body

2000 DIGILAW 134 (HP)

SUDESH ENTERPRISES v. STATE OF H. P.

2000-06-06

K.C.SOOD, KAMLESH SHARMA

body2000
JUDGMENT Kuldip Chand Sood, J.—The petitioner, by this writ petition, pray for quashing of the orders Annexures P 12/A to PW 12/K and such similar orders whereby lifting .of the material from the petitioner by the Government functionaries has been stayed indefinitely. Directions are also sought to the respondents to release the payment of the material which has already been supplied by the petitioner to the respondent No, 2 and for lifting of the remaining material in respect of the orders which were placed by the respondent No. 2 with the petitioner. 2. The undisputed facts of the case are: Petitioner is a manufacturer of Bitumen Emulsion, (commonly known as Cold Tarcoal). The unit of the petitioner is located at Solan in the State of Himachal Pradesh and is registered with the Directorate of Industries. This unit is also registered with the National Small Industries Corporation Ltd., w.e.f. May 31, 1999. The Government of Himachal Pradesh (Rl) through Controller of Stores, H.P. (R3) invited various Units to enter into rate-contract for the supply of Bitumen Emulsion in an open tender competition. The petitioner firm was awarded the rate contract for the supply of Bitumen Emulsion (Cationic type) for roads, vide order dated October 24, 1998 (Ann. P3), after completion of the formalities. The contract was to remain valid till v September 30, 1999. The period of contract was further extended for another three months vide orders dated October 21, 1991 (Ann. P3/1). The quality of Bitumen Emulsion produced by the firm was tested by the Regional Testing Centre, Ministry of Industries, Okhla, New Delhi (Ann. P4) and was found to be in accordance with the standard laid down. 3. The petitioner firm, in terms of the rate contract, supplied Bitumen Emulsion to the various consignee(s) of the respondent Nos. 1 and 2 pursuant to the bulk orders placed with the firm by the respondent No. 2. The petitioner firm applied for the grant of BIS licence to the Bureau of Indian Standard. The petitioner firm was granted ISI licence on July 6, 1999 in respect of Bitumen Emulsion produced by it after it had been tested by the Central Road Research Institute and found to conform to the Bureau of Indian Standard (BIS). 4. Respondent No. 2 issued various supply orders for the supply of 950 metric tonnes of bitumen emulsion under the rate-contract. 4. Respondent No. 2 issued various supply orders for the supply of 950 metric tonnes of bitumen emulsion under the rate-contract. The supply was to be made to the various consignees of the respondent Nos. 1 and 2 at different destinations. Out of the total quantity of 950 metric tonnes, under various supply orders, 370 metric tonnes of bitumen emulsion was supplied by the petitioner firm and accepted by the respondents No. 1 and 2. 5. Condition No. 7 of the Terms and Conditions of the rate-contract stipulated that 90% payment shall be released on production of Railway receipt or goods receipt and the balance 10% to be paid within 30 days of the receipt of bitumen emulsion by the consignee at the destination. In terms of clauses 2 and 3 of the rate-contract, supply of the material is to be made by the petitioner firm within 30 days of the supply order subject to the condition that the material is inspected by an authorised person of the consignee(s). 6. The case of the petitioner firm is: (a) The payment in respect of the Bitumen Emulsion supplied by the firm and accepted by the various consignees has not been made to the petitioner firm for no reason at all; (b) The petitioner firm was willing and able to supply the remaining material subject matter of the various supply orders of respondent No. 2 but the material could not be despatched for want of inspection of the material by the authorised person, the petitioner though was ready and willing to get the material inspected by the authorised officers of the consignee(s). The petitioner addressed various communications to the respondents for the lifting of the material order of which was placed by the petitioner, such communication(s) evoked no response from the respondents; (c) On December 23, 1999, the petitioner firm was informed by a telegram of the Executive Engineer, Toni Devi Division of the Himachal Pradesh Public Works Department that the material should only be despatched after it has been inspected by an Inspecting Officer though there was no necessity of inspecting the product of the petitioner firm as the Bitumen Emulsion manufactured by its unit is ISI certified product; (d) Ultimately, all the orders placed by the respondent No. 2 for the supply were stayed as per Annexures P12/AtoP12/ K; (e) The orders of respondent No. 2 are arbitrary, unfair, unreasonable, against the principles of natural justice and illegal. It is the further contention of the petitioner firm that the orders have been passed ignoring the fact that shelf life of the material is only one year; (f) The impugned orders have been passed because of some inquiry against one of the Chief Engineers of the Public Works Department and, resultantly, the petitioner firm is being unnecessarily harasased. 7. The respondents in their return(s), dispute the maintainability of the writ petition on the ground that in view of the arbitration clause in the agreement, the petitioner is bound to avail the remedy under the Arbitration and Conciliation Act for settlement of the Dispute by an Arbitrator. 8. On merits, the stand of respondents is that there were Press Reports to the effect that the material supplied by the petitioner is sub-standard and the Chief Engineer mis-used his powers in purchasing the material in excess of the actual demand. A decision was taken by the Government to have a preliminary inquiry-conducted through the Divisional Commissioner, Mandi. The second respondent was asked to cancel unexecuted purchase orders passed by the then Chief Engineer Shri S.K. Sikand and review the same. It is admitted that the supply orders were stayed. It is the further case of respondents No. 1 and 2 that a sample of the material supplied by the petitioner was taken for the purpose of analysis/report and report is still awaited and for this reason, the payments of the material already supplied have been withheld. 9. It is admitted that the supply orders were stayed. It is the further case of respondents No. 1 and 2 that a sample of the material supplied by the petitioner was taken for the purpose of analysis/report and report is still awaited and for this reason, the payments of the material already supplied have been withheld. 9. In the rejoinder filed on behalf of the petitioner, the allegations in the return of the respondents No. 1 and 2 are controverted. It is denied that the petitioner has a remedy under the Arbitration and Conciliation Act. It is pleaded that the respondents have tried to mislead this Court. The agreement for the rate contract was executed between the petitioner and respondent No. 3 and so far respondent No. 3 is concerned, the petitioner has no dispute with it and, therefore, the question of arbitration does not arise. It is pleaded that there is no adverse report so far the Bitumen Emulsion supplied by the petitioner is concerned. The petitioner pleads that in accordance with the instructions issued by the Bureau of Indian Standard, the sample is required to be taken within a period of 24 hours and thereafter analysed within a period of seven days as prescribed under claus-7(c) of the Indian Standards Bitumen Emulsion for roads (Cationic Type specifications issued by the Bureau of Indian Standard. 10. Be it noticed that the respondents No. 1 and 2 chose to file a supplementary affidavit. This affidavit is dated April 28, 2000. The affidavit clarifies: (a) That under the various supply orders placed by the respondent No. 2 with the petitioner, the petitioner was to supply total 950 metric tonnes of Bitumen Emulsion; (b) That out of 950 metric tonnes, only 307 metric tonne of bitumen emulsion was supplied by the petitioner to various consignees till the supply orders were stayed on December 24, 1999; (c) That out of 307 metric tonnes of bitumen emulsion supplied by the petitioner, payment in respect of 200 metric tonnes was released to the petitioner before December 24, 1999 and only payment in respect of 107 metric tonnes remains to be paid to the petitioner. This payment, as per respondent, is pending for the reasons that the matter was under review with High Powered Store Purchsase Committee; (d) That as the petitioner failed to supply the remaining 643 metric tonnes of bitumen emulsion, therefore, the respondent No. 2 is under no obligation to receive the same; (e) That so far the release of payment of rupees 11, 18, 364/ for 107 metric tonnes of bitumen emulsion already received by respondent No. 2, is concerned, the matter has urgently been taken up with the concerned Authorities. It is stated that sample taken from the bitumen emulsion supplied by the petitioner has been sent to the Chief Tenchnical Service Manager, Bharat Petroleum Bombay and nothing has been heard from the concerned quarter so far; (f) That so far the remaining unsupplied 643 metric tonnes of bitumen emulsion for which orders were placed and stayed, is concerned, the matter was reviewed by a Committee and it has been decided that bitumen emulsion supplied till December 24, 1999 would only be accepted and the supply orders regarding the remaining 643 metric tonnes of bitumen emulsion stand cancelled. The petitioner was informed of the decision on April 22, 2000. 11. We have heard Mr. Tarlok Chauhan, learned Counsel for the petitioner and learned Advocate General. Jurisdiction to hear the petition under Article 226 of the Constitution. 12. So far the jurisdiction of this Court to entertain this petition under Article 226 of the Constitution is concerned, it is now well settled that Government decisions regarding award of contracts are open to judicial review and if the decision making process suffers by arbitrariness, unfairness, illegality or irrationality, then the Court can, in its jurisdiction under Article 226 of the Constitution, strike down such a decision. Arbitrary and unreasonable decisions of the Government authorities by acting in pursuant to a contract are amenable to writ jurisdiction (See Gujarat State Financial Corporation v. M/s. Lotus Hotels Pvt. Ltd,, (1983) 3 SCC 379; Common Cause, a Registered Society v. Union of India and others, (1999) 6 SCC 667) and Tata Cellular v. Union of India, (1994) 6 SCC 651. The Apex Court in Common Cause registered Societies case (supra) observed: "......Initially the Supreme Court was of the opinion that while the decision making process for award of a contract v/o ;ld be amenable to judicial review under Articles 226 or 32 of the Constitution, a breach of a contractual obligation arising out of a contract already executed would not be enforceable under such jurisdiction and the remedy in such cases would lie by way of a civil suit for damages (See Radhakrishna Agarwalv. State of Bihar, (1977) 3 SCC 457). But the Court changed its opinion in subsequent decisions and held that even arbitrary and unreasonable decisions of the Government authorities while acting in pursuance of a contract would also be amenable to writ jurisdiction." (Emphasis supplied) 13. Learned Advocate General submits that the petitioner firm cannot invoke the discretionary jurisdiction of this court under Article 226 of the Constitution as impugned action of the respondents No. 1 and 2 falls within the realm if contractual obligations and the petitioner should pursue its remedy under the normal contractual laws and may invoke the arbitration clause in the contract. Learned Advocate General refers to State of U.P. and others v. Bridge & Roop Company (India) Ltd., (1996) 6 SCC 22, and contends that in disputes relating to terms of contract, proper course would be a reference to arbitration or institution of suit and not a writ petition. In that case, the question involved was whether any amount was due under the contract and if so, how much and further whether retention or refusal to pay any amount by the Government is justified or not. It is in this context, it was observed that these are the matters which cannot be agitated and adjudicated upon in a writ petition. The ratio of this case is of no assistance to the respondents. 14. Learned Advocate General also refers to Union of India and others v. M/s. Graphic Industries Company and others, A.I.R. 1995 SC-409. It is in this context, it was observed that these are the matters which cannot be agitated and adjudicated upon in a writ petition. The ratio of this case is of no assistance to the respondents. 14. Learned Advocate General also refers to Union of India and others v. M/s. Graphic Industries Company and others, A.I.R. 1995 SC-409. In that case it was found that no case of unfairness was made out and it is in this context Their Lordships observed that the remedy, under Article 226 of the Constitution, being discretionary, it would be open to the High Court to take a view, on the fact situation before it, whether the invocation of the powers under Article 226 would not be proper exercise of the discretion leaving the aggrieved person to seek remedy in other Court. 15. The extra-ordinary remedy under Article 226 of the Constitution is indeed discretionary. The Court, unless finds unfairness, arbitrariness or unreasonableness in the impugned orders of the State, shall hesitate to interfere in its discretionary jurisdiction. Thus this authority too is of no help to the respondents. 16. The field of public law indeed is ever expanding. There is no scope of dispute that writ jurisdiction in the field of public law covers even contractual matters. The Apex Court, as noticed in Common Cause Registered Societies case supra, went to the extent of saying that terms of contract cannot be altered under the garb of a duty to act fairly. Reference may also be made to Excise Commissioner v. Issac Peter, (1994) 3 SCC 104. Duty to act fairly in respect of Contracts was one of the important question which fell for the consideration of the Apex Court in Mahabir Auto Service and others v. Indian Oil Corporation, 1990 (3) SCC 752. In that case, the respondent Indian Oil Corporation was carrying on monopoly business in lubricants etc. Appellant, a partnership firm, were appointed Lube distributor by the respondent Indian Oil Corporation. The Company supplied the firm large quantity of lubricants from 1965 to 1983 where after the supplies were suddenly discontinued without giving any intimation, notice or hearing to it. This action, the appellant contended amounted to blacklisting and was arbitrary and against the principles of natural justice, fair play and unreasonable violating Article 14 besides being hit by the doctrine of promissory estoppel. This action, the appellant contended amounted to blacklisting and was arbitrary and against the principles of natural justice, fair play and unreasonable violating Article 14 besides being hit by the doctrine of promissory estoppel. The appellant filed petition before the High Court seeking a writ of mandamus against the respondent for directing the respondent to desist from denying or discontinuing supply. It was contended on behalf of the respondent that writ petition was not maintainable as the respondent Company was not State within the meaning of Article 12 and there was no assurance, promise, contract or prescribed schedule to supply any quantity of lubricants to the appellant or to anybody else and the firm was seeking supply merely on an irregular course of conduct and an ad hoc arrangement which the Company could not perpetuate in view of the prevailing guidelines and/or instructions received from the Ministry of Energy in the Department of petroleum, preventing the Company from appointing new dealers and distributors and formalising any agreement constituting dealership. It was pleaded that even if there was any written agreement, the Companys contractual relationship with its distributors is capable of termination forthwith and, therefore, the matter is subject only to the normal contractual laws and decision in the realm of contract could not be the subject matter of proceedings under Article 226. In the field of private law, it was argued, there is no scope of applying the doctrine of arbitrariness of mala fides as the validity of the action of the parties had to be tested on the basis of a right and not power. The High Court dismissed the writ petition. The Supreme Court in this context observed in para-12 of the judgment : "12. It is well settled that every action of the State of an instrumentality of the State, in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court......." (Emphasis supplied) 17. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court......." (Emphasis supplied) 17. In Tata Cellulars case supra, in para 71 of the judgment Their Lordships observed : "Judicial quest in administrative matters has been to find the right balance between the administrative discretion to decide matters whether contractual or political in nature or issues of social policy, thus they are not essentially justiciable and the need to remedy any unfairness. Such an unfairness is set right by judicial review." 18. In para 77 of the judgment, Their Lordships observed: "The duty of the court is to confine itself to the question of legality. Its concern should be : 1. Whether a decision-making authority exceeded its powers? 2. Committed an error of law, 3. Committed a breach of the rules of natural justice, 4. Reached a decision which no reasonable tribunal would have reached or, 5. Abused its powers. Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfilment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under : (i) Illegality : This means the decision-maker must understand correctly the law that requlates his decision-making power and must give effect to it, (ii) Irrationality, namely, Wednesbury unreasonableness, (iii) Procedural impropriety. The above are only the broad grounds but it does not rule out addition of further grounds in course of time. As a matter of fact, in R. v. Secretary of State for the Home Department, ex Brind, Lord Diplock refers specifically to one development, namely, the possible recognition of the principle of proportionality. In all these cases the test to be adopted is that the court should, "consider whether something has gone wrong of a nature and degree which requires its intervention." (Emphasis supplied). 19. In all these cases the test to be adopted is that the court should, "consider whether something has gone wrong of a nature and degree which requires its intervention." (Emphasis supplied). 19. Their Lordships in Tata Cellulars case relied upon the following observations in Food Corporation of India v. Kamdhenu Cattle Feed Industries, (1993) 1 SCC 71, observed: “In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non arbitrariness is a significant fact There is no unfettered discretion in public law. A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is fairplay in action." (Emphasis supplied) 20. The Apex Court in Erusion Equipment and Chemicals Ltd. v. State of West Bengal, (1975) 1 SCC 70, observed in para-17 : “.....When the Government is trading with public, uthe democratic form of Government demands equility and absence of arbitrariness and discrimination in such transactions7"......The activities of the Government have a public element and, therefore, need not enter into any contract with anyone, there should be fairness and equility, but if it does so, it must do so fairly without discrimination and without unfair procedure." (Emphasis supplied) 21. In the present case we find that : (i) The orders for the supply of bitumen emulsion were stayed by the respondent No. 2 merely on the basis of Press Reports against Chief Engineer for the supply of the material with petitioners firm; (ii) No irregularity or breach of condition was found by respondent No. 2 in the supply of bitumen emulsion by the petitioner firm; before supply orders were stayed; (iii) The perusal of record shows the amount due to the petitioner in respect of the supplies already made was withheld for no apparent or recorded reasons; (iv) The supply orders were cancelled by the respondent No. 2 arbitrarily, without affording any opportunity to the petitioner firm of being heard which action of the respondent violates the principles of audi alter am. partem, i.e. no man should be condemned unheard. 22. After careful perusal of the record and the supplementary affidavit filed on behalf of respondent Nos. I and 3, we find that the impugned orders are unreasonable, arbitrary and unfair. partem, i.e. no man should be condemned unheard. 22. After careful perusal of the record and the supplementary affidavit filed on behalf of respondent Nos. I and 3, we find that the impugned orders are unreasonable, arbitrary and unfair. Learned Advocate General has not been able to justify the impugned orders on the test of fairness and reasonableness. 23. Annexure R-l to the reply filed on behalf of respondents No. 1 and 2 shows that the orders for the supply of Bitumen Emulsion were placed by respondent No. 2 on November 11, 1999, November 12, 1999, November 28, 1999 and December 1, 1999. All these orders were stayed by respondent No. 2 on December 24, 1999. As per condition No. 3 of terms and conditions of the rate contract (Annexure P-2) the delivery of the material was to be made by the firm within thirty days from the date of receipt of the supply order and in turn, consignee was required to get the material inspected by his authorised representative. The case of the petitioner firm is that despite the oral and written requests, Bitumen Emulsion subject of supply which was ready for delivery, was not inspected by the authorised officer of the consignee, the petitioner ultimately wrote letter(s) to the various consignees (Exts. P-10/A to P-10/D) requesting the consignees to depute representative(s) for the inspection of the Bitumen Emulsion against various supply orders. On December 23, 1999, the petitioner firm was informed by one of the consignee that the material against supply order should only be despatched after, it has been inspected by its officer. It is to be noticed that on December 24, 1999, all the supply orders were stayed without assigning any reason. The identical letters to this effect (Annexures P-12/A to P-12/K) reads: "The execution of the above supply orders is hereby stayed till further orders." It is admitted by respondents No. 1 and 2, in their short affidavit, that the supply orders were stayed in view of the Press Reports to the effect that material supplied by the petitioner firm is of substandard quality and the Chief Engineer placed the orders in excess of the demand. 24. It is not the case of the respondents No. 1 and 2 that supply orders were stayed because the material was either found sub-standard or not conforming to the prescribed standard. 24. It is not the case of the respondents No. 1 and 2 that supply orders were stayed because the material was either found sub-standard or not conforming to the prescribed standard. The fact remains that neither the firm was communicated nor any opportunity of being heard was given to them before staying these supply orders or subsequent cancellation of the supply orders in respect of which material has not been supplied in view of the stay orders. 25. The admitted position of the respondents in, supplementary affidavit on behalf of respondents No. 1 and 2, is that out of total supply orders of 950 metric tonnes, 307 metric tonnes of Bitumen Emulsion of the value of Rupees 32,08,764/- has in fact been received by the respondent No. 2 and out of this quantity, payment of only 200 metric tonnes of Bitumen Emulsion has been made to the petitioner firm. This payment was made before the stay of the supply orders. It is the own case of the respondents that only Rupees 11,18,364/- remain due to the petitioner. This payment is withheld because report of analysis of the sample which was taken by the committee has so far not been received. This is so disclosed by the respondent No. 2 in his supplementary affidavit dated 28.4.2000. This means that the sample which was admittedly sent for analysis to Chief Technical Service Manager Bharat Petroleum, Bombay on January 17, 1999 has not been analysed till April 28, 2000. It is not disputed that according to the procedure prescribed by Bureau of Indian Standards, Annexure P-15, the sample of Bitumen Emulsion has to be drawn within 24 hours after its delivery and tested within seven days from the date of drawing, unless otherwise specified. Standard 7 of the standards may be reproduced for convenience: 7. Sampling. 7.1. It is not disputed that according to the procedure prescribed by Bureau of Indian Standards, Annexure P-15, the sample of Bitumen Emulsion has to be drawn within 24 hours after its delivery and tested within seven days from the date of drawing, unless otherwise specified. Standard 7 of the standards may be reproduced for convenience: 7. Sampling. 7.1. For the purpose of testing, the size of the sample and the sampling procedure from drums, barrels or bulk supply shall be as described in IS 1201:1978 subject to the following: (a) From Drums or Barrels-The content of drum or barrel from which the sample is to be taken shall be thoroughly mixed by rolling the container to and from for a period of 2 to 3 minutes, successively in opposite direction, allowing atleast five revolutions of the container in each direction and then up-ending the container through two revolutions first in one direction and then in the opposite direction. (b) From Bulk-where practicable, bulk delivery of bitumen emulsion shall be agitated by forced circulation or air agitation, before sampling, (c) The sample of bitument emulsion shall be drawn within 24 hours after delivery and tested within 7 days from the date of drawing, unless otherwise specified. 7.1.1. Preparation of samples: Before carrying out any of the tests, the sample shall be fixed by gentle shaking to ensure uniformity. (Emphasis supplied) 26. In the present case, the sample was sent for analysis on January 17, 2000 and till April 28, 2000, it had not been analysed though the sample has to be analysed within seven days from the date of its drawing. The sample for all reasons may have become unfit for analysis after such a long period. Therefore, withholding the payment for the material already supplied is unreasonable, unfair and arbitrary. 27. So far the question of revocation of the various supply orders is concerned, it is not disputed that these orders were revoked without affording to the petitioner firm opportunity of being heard. Learned Advocate General submits, half heartedly, that the orders in respect of Bitumen Emulsion which had not been supplied by the firm was cancelled as the supply was not made within thrity days of the supply orders. Learned Advocate General submits, half heartedly, that the orders in respect of Bitumen Emulsion which had not been supplied by the firm was cancelled as the supply was not made within thrity days of the supply orders. It may be noticed that the orders of cancellation were passed during the pendency of this writ petition and communicated to the petitioner firm vide letter Annexure R5/A to R5/H dated April 24, 2000. The orders of the respondents are unreasonable unfair and arbitrary. In Mahabir Auto Stores v. Indian Oil Corporation, 1990 (3) SCC 752 supra. Their Lordships, as noticed earlier, observed that though it may not be necessary to give reason but in the field of this nature, fairness must meet the test of Article 14. Rule of reason and rules against arbitrariness and discrimination, rules of fair play and natural justice are part of rule of law applicable in a situation like the present. 28. In Gujarat State Financial Corporation v. M/s. Lotus Hotels Put Ltd., (1983) 3 SCC-379, the appellant Corporation sanctioned loan to the respondent Lotus Hotels Pvt. Ltd., company for setting up a hotel on the term that the rate of interest would be 12 1/2% per annum if refinance is available from Industrial Development Bank of India at the rate of 9% per annum otherwise it will be at the rate of 13% per annum. The respondent accepted the terms and conditions on which the appellant Corporation agreed to advance the loan. Acting on terms of loan, the respondent created an equitable mortgage in favour of the appellant Corporation for securing the loan and also incurred other expenditure and suffered liabilities to implement and execute the Project. However, on the basis of the inquiry, the Industrial Development Bank of India refused to refinance the loan and ultimately the Corporation also refused to disburse the loan to the respondent, A writ petition was filed under Article 226 by the respondent which was allowed. The High Court issued a writ of mandamus directing the appellant to disburse the promised loan to the Company forthwith. Feeling dis-satisfied with the writ of the High Court, the appellant filed an appeal before the Hon’ble Supreme Court. Their Lordships in para 9 of the judgment observed: 9. The High Court issued a writ of mandamus directing the appellant to disburse the promised loan to the Company forthwith. Feeling dis-satisfied with the writ of the High Court, the appellant filed an appeal before the Hon’ble Supreme Court. Their Lordships in para 9 of the judgment observed: 9. It was next contended that the dispute between the parties is in the realm of contract and even if there was a concluded contract between the parties about grant and acceptance of loan, the failure of the Corporation to carry out its part of the obligation may amount to breach of contract for which a remedy lies elsewhere but a writ of mandamus cannot be issued compelling the Corporation to specifically perform the contract. It is too late in the day to contend that the instrumentality of the State which would be other authority under Article 12 of the Constitution can commit breach of a solemn undertaking on which other side has acted and then contend that the party suffering by the breach of contract may sue for damages but cannot compel specific performance of the contract. It was not disputed and in fairness to Mr. Bhatt, it must be said that he did not dispute that the Corporation which is set up under Section 3 of the State Financial Corporation Act, 1955 is an instrumentality of the State and would be other authority under Article 12 of the Constitution. By its letter of offer dated July 24, 1978 and the subsequent agreement dated February 1, 1979 the appellant entered into a solemn agreement in performance of its statutory duty to advance the loan of Rs. 30 lakhs to the respondent. Acting on solemn undertaking, the respondent proceeded to undertake and execute the project of setting up a 4-star hotel at Baroda. The agreement to advance the loan was entered in to in performance of the statutory duty cast on the Corporation by the statute under which it was created and set up. On its solemn promise evidenced by the aforementioned two documents, the respondent incurred expenses, suffered liabilities to set up a hotel. Presumably, if the loan was not forthcoming, the respondent may not have undertaken such a huge project. Acting on the promise of the appellant evidenced by documents, the respondent proceeded to suffer further liabilities to implement and execute the project. Presumably, if the loan was not forthcoming, the respondent may not have undertaken such a huge project. Acting on the promise of the appellant evidenced by documents, the respondent proceeded to suffer further liabilities to implement and execute the project. In the back drop of this incontrovertible fact situation, the principle of promissory estoppel would come into play. In Motilal Padampat Sugar Mills Co, (P) Ltd. v. State of U.P., (1979) 2 SCR 641, this Court observed as under: (SCC para 8, p. 425: SCC (Tax) p. 169). The true principle of promissory estopped, therefore, seems to be that where one party has by his words of conduct made to the other a clear and unequivocal promise which is intended to create legal relations or affect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective of whether there is any pre-existing relationship between the parties or not." 29. In the present case, the petitioner firm has suffered liabilities by having accepted the supply orders from the respondent No. 2 arid, therefore, the said supply order could not be cancelled arbitrarily "^without affording an opportunity to the petitioner firm of being heard. Thus the action of the respondents No. 1 and 2 being unfair, .unreasonable and arbitrary is violative of Article 14 of the Constitution of India. 30. No other point is urged before us. 31. In result, the petition is allowed. Orders Annexures P12/ A to P12/K and subsequent orders Annexures R5/A to R5/H are quashed. A writ of mandamus is issued to respondent Nos. 30. No other point is urged before us. 31. In result, the petition is allowed. Orders Annexures P12/ A to P12/K and subsequent orders Annexures R5/A to R5/H are quashed. A writ of mandamus is issued to respondent Nos. 1 and 2 to : (a) Release the payment of 107 metric tonnes of Bitumen Emulsion supply of which has already been made to and accepted by the respondents No. 1 and 2; (b) The respondents No. 1 and 2 shall reconsider the case of the petitioner regarding cancellation of the supply orders in respect of unsupplied 643 metric tonnes of bitumen emulsion after giving appropriate hearing to the petitioner firm and pass appropriate orders thereafter within two months from today. 32. The respondent Nos. 1 and 2 shall pay the cost of the petition quantified at Rs. 2,000/-. Petition allowed.