Courts must not take Contractual terms beyond their face value

Asmita Kuvalekar | Government Law College, Mumbai | 02^nd April 2020. 

CARETEL INFOTECH LTD V HINDUSTAN PETROLEUM CORPORATION LTD AND ORS (CIVIL APPEAL NO 3588 OF 2019 ARISING OUT OF SLP (C) NO 46 OF 2019) 

FACTS OF THE CASE: 

It is the case of Hindustan Petroleum Respondent 1 that, Caretel Infotech failed to disclose any previous blacklisting as per the terms of the tender contract issued by the former. On the other hand, the appellant argues that at the time of disclosure, only a show cause notice had been sent to them by Respondent No 3 in another matter and thus at that point of time, they were not in fact blacklisted. Therefore a breakdown of contractual obligations with Respondent 1 cannot be imposed upon them retrospectively. 

The Supreme Court in this case goes beyond the facts in question and raises concern about the growing trend of writ petitions challenging contractual language between parties. It effectively rules that Courts must at all times refrain from projecting a new sense onto an existing contract. The words, phrases, sentences in a contract must be taken at face value so as to afford and enable free and fair business. 

ISSUE: 

1. Can terms of a contract be read into the contract by Courts?

JUDGEMENT: 

Deciding in the appellant’s favour, the Apex Court deftly set aside the impugned Delhi High Court decision which had dismissed Caretel’s stand. The grounds for dismissal were held to be violation of contract and false undertaking by Caretel. This conclusion presumed that a mere show cause notice issued by Respondent no 3 against the appellant was enough to blacklist him and thereby legally compel him to declare as much to Respondent no 1. 

However, the Supreme Court in this decision clarified that the language of the show cause notice permits the appellant to explain why he should not be blacklisted by Respondent no 3. It logically follows that at the receipt of the notice and the simultaneous application made by the appellant to Respondent no 1, the appellant was not in fact blacklisted. Thus, it simply cannot be held that the appellant made a false undertaking. With respect to the fact that subsequent to these events, the appellant was blacklisted by the Ministry of Agriculture and Farmers Welfare, the Supreme Court explained that since this blacklisting was operative from the date of the order and not retrospectively, the contractual relation already created with Respondent no 1 was in no way affected. Thus, Respondent no 1 could not retract from the tender given to the appellant. The High Court erred in directing the Respondent to do so in clear opposition of the rights of the Appellant. 

But the Court deemed it important to delve further into the modern, recurring issue of writ petitions praying for interpretation of contracts different than the one their own words offer. It acknowledged that the trend of inviting Court adjudication in contractual matters by way of Writ Petitions is fairly recent and the judicial system initially encouraged the same so as to bring some accountability into the picture. With public sectors increasingly engaging with private commercial players, this change was welcome. However, the Court lamented the unnecessarily wide ambit this system has achieved overtime. Almost every tender is now challenged in the Court. Such interruptive measures are counterproductive to the public sector and its commercial efficacy. Therefore, the best solution is minimal interference. 

To that effect, the Apex Court referred to its judgement in Afcons Infrastructure Limited v Nagpur Metro Rail Corporation Limited and Anr¹ where it was categorically declared that Courts must not interfere with basic decision making (acceptance or rejection) in tenders/bids. According to this decision, interference is acceptable only when the rules or decision making are arbitrary and completely unreasonable in nature. The reasoning behind this view is that the ones who make a contract are in the best position to understand the particular circumstances in which the terms were laid down and why. For all means and purposes, the Courts remain a third party to the contract. Even if the Court finds a party’s interpretation unacceptable, that alone is not sufficient justification to read into the contract and overrule the parties’ personal understanding of the contract. Thus, “…Constitutional Courts are expected to exercise restraint in interfering with the administrative decision and ought not to substitute their view for that of the administrative authority. Mere disagreement with the decision making process would not suffice.”

In the present case, Respondent No 3 pleaded his own understanding of a tender contract between the Appellant and Respondent No 1 and such empty complaints should not be entertained. Frivolous complaints interpreting a contract to which they themselves are not party must not be accepted by Courts so as to respect and uphold the sanctity of the subsisting contract and its contents. 

Simply put, Courts cannot make contracts for and on behalf of the parties and cannot fish for implied meanings in a contract. In fact, given the modern way of extensive research and legal expertise used for drafting high stakes contracts, it becomes all the more pertinent for Courts to take a step back and allow the contractual terms themselves to lead the dispute resolution. However desirable a modification may be, Courts cannot and should not make it unless such inaction undermines justice itself.

1. (2016) 16 SCC 818