M/S. Bbp Studio Virtual Bharat PVT. LTD. vs. State Of Karnataka

Facts

M/s BBP Studio Virtual Bharat Pvt. Ltd. (Petitioner) was awarded a work order by Marketing Communication and Advertising Ltd. (Respondent No. 3), a subsidiary of Mysore Sales International Limited, on 11.08.2022, to create a 3D film showcasing Karnataka for the 'Invest Karnataka 2022 - Global Investors Meet'. The work order stipulated a budget of ` 3,89,40,000/- including taxes. The petitioner claims to have invested significant amounts and completed the work. However, on 25.10.2022, Respondent No. 3 withdrew the contract via email without providing any reason. The petitioner's subsequent communication on 27.10.2022 seeking clarification or payment went unanswered. The petitioner filed a writ petition seeking to quash the withdrawal communication and for other reliefs. Interim orders were granted, but the film was never displayed, and the matter proceeded to final hearing.

Held

The Court held that a writ petition against a State or its instrumentality arising out of a contractual obligation is maintainable, especially if the State's action is arbitrary and unreasonable, violating Article 14 of the Constitution. The Court cited the Apex Court's judgments in ABL International Ltd. and UNITECH, which established that writ petitions involving consequential monetary claims are maintainable, and the presence of an arbitration clause does not automatically oust the jurisdiction under Article 226. The Court found the cancellation of the work order by Respondent No. 3 to be arbitrary, as it occurred just before the final delivery of the product and was allegedly influenced by political interference, as indicated by a communication from a Minister. The Court reasoned that when the State's action is vitiated by non-observation of constitutional tenets of Article 14 and arbitrariness is evident, the State cannot claim parity with a private individual in the field of contract. Therefore, the aggrieved person can approach the constitutional court. The impugned communication dated 25.10.2022 was quashed, and a mandamus was issued to the 1st respondent/State to release the balance payments due to the petitioner as per their invoice dated 27.10.2022. The petitioner was also granted liberty to seek arbitration for any other unresolved disputes.

Key Issues

1. Whether the writ petition filed under Article 226 of the Constitution of India is maintainable against the State and its instrumentalities arising out of a contractual obligation, particularly when the State's action is alleged to be arbitrary and unreasonable, violating Article 14 of the Constitution? 2. Whether the cancellation of the work order by Respondent No. 3, an instrumentality of the State, without assigning any reason, constitutes arbitrary and unreasonable action violating the constitutional mandate of Article 14? Petitioner's Arguments: Sri Aditya Sondhi, learned senior counsel for the petitioner, argued that the State, as a contracting party, cannot act arbitrarily after entering into a contract and then cancel it without any justification. He contended that the petitioner had invested substantial amounts in creating the 3D film and was left in a lurch without payment or display of the work. He relied on the principle that the State's actions must be fair and reasonable, even in contractual matters. Respondents' Arguments: Learned counsel representing Respondent No. 3 and the learned Additional Government Advocate for Respondents 1 and 2 did not record any specific arguments in the provided text regarding the maintainability of the writ petition or the justification for the cancellation of the contract.