Limitation Act, 1963 – s. 14 – J&K Limitation Act – Art.182 –A suit was decreed in favour of plaintiff. Application for execution was filed before the Tehsildar (settlement), Hiranagar on 18.12.2000. The application was rejected on 29.01.2005. The Tehsildar observed that plaintiff had not applied before the Court with appropriate jurisdiction. Whether the period (18.12.2000 to 29.01.2005) diligently pursuing execution petition before the Tehsildar, would be excluded for the purposes of computing the period of limitation or not.

* Author

[2024] 4 S.C.R. 37 : 2024 INSC 259

Purni Devi & Anr.

v.

Babu Ram & Anr.

(Civil Appeal No. 4633 of 2024)

02 April 2024

[Sanjay Karol* and Aravind Kumar, JJ.]

Issue for Consideration

A suit was decreed in favour of plaintiff. Application for execution was

filed before the Tehsildar (settlement), Hiranagar on 18.12.2000. The

application was rejected on 29.01.2005. The Tehsildar observed that

plaintiff had not applied before the Court with appropriate jurisdiction.

Whether the period (18.12.2000 to 29.01.2005) diligently pursuing

execution petition before the Tehsildar, would be excluded for the

purposes of computing the period of limitation or not.

Headnotes

Limitation Act, 1963 – s. 14 – J&K Limitation Act – Art.182 –

The High Court dismissed the execution application preferred

by the plaintiff being barred by limitation – Sustainability:

Held: In the present case, it is not in dispute that:- (i) Both the

proceedings are civil in nature and have been prosecuted by

the Plaintiff or the predecessor in interest; (ii) The failure of the

execution proceedings was due to a defect of jurisdiction; (iii)

Both the proceedings pertain to execution of the decree dated

10.12.1986, which attains finality on 09.11.2000; (iv) Both the

proceedings are in a court – No substantial averment has come

on record to substantiate the claim that the predecessor in

interest of the Plaintiff approached the Tehsildar with any mala

fide intention, in the absence of good faith or with the knowledge

that it was not the Court having competent jurisdiction to execute

the decree – On a perusal of the record, it is apparent that the

Plaintiff has pursued the matter bonafidely and diligently and in

good faith before what it believed to be the appropriate forum

and, therefore, such time period is bound to be excluded when

computing limitation before the Court having competent jurisdiction

– All conditions stipulated for invocation of s.14 of the Limitation

Act are fulfilled – Therefore, the period from 18.12.2000, when 

38 [2024] 4 S.C.R.

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the execution application was filed to 29.01.2005, when the prior

proceeding was dismissed, has to be excluded while computing

period of limitation – The impugned order of the High Court

dated 09.04.2018 and Munsiff Court, Hiranagar dated 28.11.2007

(dismissing application of plaintiff as being barred by limitation) are

set aside – The execution application of the Plaintiff is restored

to the file of the Munsiff Court, Hiranagar for fresh consideration.

[Paras 32, 37, 38, 39, 40]

Case Law Cited

Consolidated Engg. Enterprises v. Principle Secy,

Irrigation Department [2008] 5 SCR 1108 : (2008) 7

SCC 169; M.P. Steel Corporation v. CCE [2015] 7 SCR

291 : (2015) 7 SCC 58 – relied on.

Prem Lata Agarwal v. Lakshman Prasad Gupta

and others [1971] 1 SCR 364 : (1970) 3 SCC 440;

Sesh Nath Singh v. Baidyabati Sheoraphuli Coop.

Bank Ltd. [2021] 3 SCR 806 : (2021) 7 SCC 313;

Laxmi Srinivasa R and P Boiled Rice Mill v. State

of Andhra Pradesh and Anr. 2022 SCC Online SC

1790 – referred to.

J&K Bank Limited etc. v. Amar Poultry Farm AIR 2007

J&K 56 – referred to.

List of Acts

Limitation Act, 1963; J&K Limitation Act; Code of Civil Procedure,

1908.

List of Keywords

Application for execution; Appropriate jurisdiction; Limitation;

Computing the period of limitation; Pursued the matter bonafidely

and diligently; Exclusion of time of proceeding bona fide in court

without jurisdiction.

Case Arising From

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4633 of 2024

From the Judgment and Order dated 09.04.2018 of the High

Court of Jammu & Kashmir and Ladakh at Jammu in CREV No.

33 of 2008

[2024] 4 S.C.R. 39

Purni Devi & Anr. v. Babu Ram & Anr.

Appearances for Parties

Nitin Sangra, Riju Ghosh, Mrs. Pragya Baghel, Advs. for the

Appellants.

Sunil Fernandes, Sr. Adv., Ms. Nupur Kumar, Ms. Diksha Dadu,

Advs. for the Respondents.

Judgment / Order of the Supreme Court

Judgment

Sanjay Karol, J.

Leave Granted.

2. The present appeal arises from the final judgment and order in Civil

Revision No.33/2008 dated 09.04.2018 of the High Court of Jammu

and Kashmir at Jammu, whereby the judgment and order of Munsiff,

Hiranagar, in File No. 70/Execution dated 28.11.2007 came to be

affirmed, wherein the execution application preferred by the Plaintiff

herein was dismissed, being barred by limitation.

Factual History

3. The genesis of the case at hand dates back to 01.06.1984, wherein

the predecessors in interest of the Appellant (hereinafter “Plaintiff”)

filed a suit for possession against the Respondents (hereinafter

“Defendants”) herein. On 10.12.1986, this suit was decreed by learned

Munsiff, First Class Hiranagar, in favour of the Plaintiff, and the

Defendants were directed to deliver vacant and peaceful possession

of the property to the Plaintiff. This decree was challenged by the

Respondents before the learned District Judge, Kathua, in First

Appeal, which came to be dismissed on 09.02.1990. Thereafter, the

Respondents preferred a Second Appeal before the High Court of

Jammu and Kashmir which came to be dismissed vide Order dated

09.11.2000. No further appeal was preferred. Therefore, the decree

of the learned Munsiff Court attained finality on 09.11.2000.

4. The present lis arises from the application for execution filed by the

predecessor in interest of the Plaintiff, before the learned Tehsildar

(Settlement), Hiranagar on 18.12.2000. This application came to be

rejected on 29.01.2005, whereby the learned Tehsildar observed

that the Plaintiff had not applied before the Court with appropriate

jurisdiction. 

40 [2024] 4 S.C.R.

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5. The Plaintiff thereafter, on 03.10.2005 preferred a fresh application

for execution before the Court of Munsiff, Hiranagar. This

application resulted in the order dated 28.11.2007, whereby, the

learned Munsiff Court dismissed the application as being barred

by limitation, which has come to be confirmed vide the impugned

order.

Reasoning of the Courts below

Munsiff Court, Order dated 28.11.2007

6. The question framed for determination was whether the execution

petition was filed within time and whether the period of limitation for

filing the execution petition is 3 years or 12 years.

7. The Court after a careful perusal of Article 182 of the J&K Limitation

Act (which provides for 3 years) and Section 48 of the Civil

Procedure Code (which provides for 12 years, hereinafter “CPC”),

observed that, Article 182 deals with period of Limitation for filing

an execution application for the first-time seeking enforcement of a

decree. Meanwhile, Section 48 of the CPC deals with subsequent

applications and fixes an outer limit when execution remains

unsatisfied.

8. The application was held to be required to be filed within 3 years,

as required by Article 182 of the J&K Limitation Act, which would run

from when the second appeal came to be dismissed. Accordingly,

the Munsiff Court, Hiranagar, held the application to be time-barred

and therefore, dismissed.

9. There was no argument or discussion about the exclusion of time

period under Section 14 of the Limitation Act at this stage.

10. The Plaintiff preferred Civil Revision No.33/2008 against the aforesaid

order which came to be dismissed vide the Impugned Order, dated

09.04.2018.

Impugned Order

11. The Impugned Order also framed the question as to whether for

execution of a decree, the application has to be filed within 12

years as prescribed by Section 48 of the CPC or within 3 years as

prescribed by Article 182 of J&K Limitation Act.

[2024] 4 S.C.R. 41

Purni Devi & Anr. v. Babu Ram & Anr.

12. Reliance was placed on a judgment rendered by the High Court

in J&K Bank Limited etc. v. Amar Poultry Farm1

 wherein it was

observed that limitation for the first execution application shall be

governed by Article 182 of the J&K Limitation Act. Further reliance

was placed on the judgment of this Court in Prem Lata Agarwal v.

Lakshman Prasad Gupta and others2 (2-Judge Bench) wherein

Section 48 of the CPC came to be considered. This Court observed

that Section 48 provides for a maximum time limit provided for

execution, but it does not prescribe the period within which each

application for execution was to be made.

13. The argument of the Plaintiff that time spent in pursuing the

proceedings before the Tehsildar is required to be excluded, has

been recorded and rejected by the High Court.

14. It was finally held vide the Impugned Order that the dismissal of

the execution petition is well reasoned and, therefore, cannot be

interfered with. However, while disposing off the revision, the Court

observed that the State Code of Civil Procedure is required to be

brought to 12 years.

Submissions on behalf of the Appellant/Plaintiff

15. Learned counsel for the Plaintiff has submitted that the reasoning

of the learned High Court that the Plaintiff had chosen a wrong

forum and is not entitled to exclusion of time runs, contrary to the

law laid down by this Court that the provisions of Section 14 of the

Limitation Act, 1963 are meant for grant of relief, where a person

has committed some mistake and such provisions should be applied

in a broad manner. Furthermore, the provision of Section 14 of the

Limitation Act is para materia to the provisions of Section 14 of the

Limitation Act, as applicable to the then State of Jammu and Kashmir.

16. The Plaintiff has sought to place reliance on the judgment of this Court

in Consolidated Engg. Enterprises v. Principle Secy, Irrigation

Department3

 (3-Judge Bench) and M.P. Steel Corporation v. CCE4

1 AIR 2007 J&K 56

2 [1971] 1 SCR 364 : (1970) 3 SCC 440

3 [2008] 5 SCR 1108 : (2008) 7 SCC 169

4 [2015] 7 SCR 291 : (2015) 7 SCC 58

42 [2024] 4 S.C.R.

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(2-Judge Bench) wherein it was expounded that the provisions of

Section14 of the Limitation Act are to advance the cause of justice

and must be interpreted to do so rather than abort proceedings.

17. It has been further submitted that in light of the facts of the present

case, the Plaintiff is entitled to exclusion of time consumed in pursuing

their remedy before the learned Tehsildar, in view of Section 14(2) of

the Limitation Act. The filing of the application by the predecessor of

the Plaintiff before the Tehsildar for implementation of the judgment

and decree dated 09.10.1986 was under a genuine bona fide belief

and in good faith that the Tehsildar possess the jurisdiction to execute

decrees passed by a Civil Court.

18. In lieu of this conspectus, it has been submitted that previous recourse

to a mistaken remedy or selection of a wrong forum by the Plaintiff

cannot be said to be bereft of bona fides, due diligence or lacking

in good faith.

19. Further, it is not disputed that in view of Section 105 and 112 of the

Land Revenue Act, the Court of learned Tehsildar, Settlement, has

all the trappings of a Court and thus would fall within the scope and

ambit of the expression “Court” for the purpose of Section14 of the

Limitation Act.

20. Lastly, in view of the facts submitted above, it would be a travesty

of justice, if, on mere technicalities, the Plaintiff is deprived from

reaping the fruits of the decree.

Submissions on behalf of the Respondent

21. Learned counsel for the Respondents has vehemently opposed the

stand taken by the Plaintiff. It has been submitted that the Plaintiff is

taking this plea for the first time before this Court and did not raise

the plea of Section 14 of the Limitation Act before the Courts below.

22. It was a deliberate act of wilful disobedience at the Plaintiff’s end

and the plea of Section 14 of the Limitation Act ought to have been

raised at the very first instance.

23. It is further submitted that the Plaintiff herein has not approached

the Court with clean hands. They have concealed the fact that they

did not enter appearance in the Second Appeal and thereafter, had

filed an application for setting aside the ex-parte order, which was

allowed, and only thereafter, the second appeal was dismissed vide 

[2024] 4 S.C.R. 43

Purni Devi & Anr. v. Babu Ram & Anr.

the impugned order. This Court in M.P. Steel (Supra) has reiterated

that ‘due diligence’ and ‘good faith’ means that the party who invokes

Section 14 is not guilty of negligence, lapse or inaction.

Issue before this Court

24. In view of the submissions raised, the issue which arises for

consideration of this Court is as to whether the period (18.12.2000

to 29.01.2005) diligently pursuing execution petition before the

Tehsildar, would be excluded for the purposes of computing the

period of limitation or not.

Analysis & Consideration

25. The relevant portion of Section 14 of the Limitation Act is extracted

as under, for ready reference:

“Section 14. Exclusion of time of proceeding bona fide in

court without jurisdiction. …

…

(2) In computing the period of limitation for any

application, the time during which the applicant has

been prosecuting with due diligence another civil

proceeding, whether in a court of first instance or

of appeal or revision, against the same party for the

same relief shall be excluded, where such proceeding

is prosecuted in good faith in a court which, from

defect of jurisdiction or other cause of a like nature,

is unable to entertain it.”

….

26. The Plaintiffs have submitted that the provision of Section14 of

the Limitation Act, finds place in the Limitation Act applicable

to the then State of J&K, which has not been contested by the

Respondents.

27. On a perusal of Section 14(2) of the Limitation Act, which is also

applicable to the State of Jammu and Kashmir, it is evident that it

carves out an exception excluding the period of limitation when the

proceedings are being pursued with due diligence and good faith

in a Court “which from defect of jurisdiction or other cause of a like

nature, is unable to entertain it”. 

44 [2024] 4 S.C.R.

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28. The first objection raised by Defendants is that the plea of exclusion

of limitation has not been raised before the Courts below and cannot

be raised at the first instance before this Court.

29. We do not find merit in this submission, the learned High Court in

paragraph 9 has categorically recorded the submission of the Plaintiff

pertaining to the exclusion of time spent in pursuing the proceedings

before the learned Tehsildar. Therefore, it cannot be said that the

plea of exclusion has been raised for the first time, before this Court.

30. The principles pertaining to applicability of Section 14, were

extensively discussed and summarised by this Court in Consolidated

Engg. Enterprises (Supra), wherein while holding the exclusion of

time period under Section 14 of the Limitation Act to a petition under

Section 34 of the Arbitration Act it was observed:-

“21. Section 14 of the Limitation Act deals with exclusion of

time of proceeding bona fide in a court without jurisdiction.

On analysis of the said section, it becomes evident that

the following conditions must be satisfied before Section

14 can be pressed into service:

(1) Both the prior and subsequent proceedings are civil

proceedings prosecuted by the same party;

(2) The prior proceeding had been prosecuted with due

diligence and in good faith;

(3) The failure of the prior proceeding was due to defect

of jurisdiction or other cause of like nature;

(4) The earlier proceeding and the latter proceeding must

relate to the same matter in issue; and

(5) Both the proceedings are in a court.”

31. This Court in Consolidated Engg. Enterprises (Supra) further

expounded that the provisions of this Section, must be interpreted

and applied in a manner that furthers the cause of justice, rather

than aborts the proceedings at hand and the time taken diligently

pursuing a remedy, in a wrong Court, should be excluded.

32. In the present case, it is not in dispute that:-

(i) Both the proceedings are civil in nature and have been

prosecuted by the Plaintiff or the predecessor in interest.

[2024] 4 S.C.R. 45

Purni Devi & Anr. v. Babu Ram & Anr.

(ii) The failure of the execution proceedings was due to a defect

of jurisdiction.

(iii) Both the proceedings pertain to execution of the decree dated

10.12.1986, which attains finality on 09.11.2000.

(iv) Both the proceedings are in a court.

33. The only objection pointed out by the Respondent to the ingredients

for invocation of Section 14, is that the Plaintiff have not approached

this Court with clean hands and did not approach the Court of the

Tehsildar diligently and in good faith.

34. The judgment of this Court in M.P. Steel (Supra) discussed the

phrases, “due diligence” and “in good faith” for the purposes of

invocation of Section 14 of the Limitation Act. While considering

the application of Section 14 to the Customs Act, it was observed:

“10. We might also point out that Conditions 1 to 4

mentioned in the Consolidated Engg. case [(2008) 7

SCC 169] have, in fact, been met by the Plaintiff. It is

clear that both the prior and subsequent proceedings are

civil proceedings prosecuted by the same party. The prior

proceeding had been prosecuted with due diligence and in

good faith, as has been explained in Consolidated Engg.

[(2008) 7 SCC 169] itself. These phrases only mean

that the party who invokes Section 14 should not be

guilty of negligence, lapse or inaction. Further, there

should be no pretended mistake intentionally made

with a view to delaying the proceedings or harassing

the opposite party.

xxx xxx xxx

49. ……. the expression “the time during which the

plaintiff has been prosecuting with due diligence

another civil proceeding” needs to be construed in

a manner which advances the object sought to be

achieved, thereby advancing the cause of justice.”

(emphasis supplied)

35. The judgments in Consolidated Engg. Enterprises (Supra) and

M.P. Steel (Supra) have been followed consistently by this Court.

For instance in Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. 

46 [2024] 4 S.C.R.

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Bank Ltd.5

 (2-Judge Bench), while holding Section 14 to be applicable

to applications under Section 7 of the Insolvency and Bankruptcy

Code, 2016 and the SARFAESI Act, it was observed:-

“75. Section 14 of the Limitation Act is to be read as a

whole. A conjoint and careful reading of sub-sections (1),

(2) and (3) of Section 14 makes it clear that an applicant

who has prosecuted another civil proceeding with due

diligence, before a forum which is unable to entertain the

same on account of defect of jurisdiction or any other

cause of like nature, is entitled to exclusion of the time

during which the applicant had been prosecuting such

proceeding, in computing the period of limitation. The

substantive provisions of sub-sections (1), (2) and (3) of

Section 14 do not say that Section 14 can only be invoked

on termination of the earlier proceedings, prosecuted in

good faith.”

36. More recently, in Laxmi Srinivasa R and P Boiled Rice Mill v. State

of Andhra Pradesh and Anr.6

 (2-Judge Bench), this Court followed

the dictum in Consolidated Engg. Enterprises (Supra) and M.P.

Steel (Supra) to exclude the time period undertaken by the Plaintiff

therein in pursuing remedy under Writ Jurisdiction, in the absence

of challenge to the bona fides of the Plaintiff, in view of Section 14.

37. No substantial averment has come on record to substantiate the

claim that the predecessor in interest of the Plaintiff approached the

Tehsildar with any mala fide intention, in the absence of good faith

or with the knowledge that it was not the Court having competent

jurisdiction to execute the decree. The object to advance the cause

of justice, as well must be kept in mind.

38. We do not find the reasoning given by the learned High Court in

paragraph 9 while rejecting the plea for exclusion of time to be

sustainable. On a perusal of the record, it is apparent that the Plaintiff

has pursued the matter bonafidely and diligently and in good faith

before what it believed to be the appropriate forum and, therefore, such

time period is bound to be excluded when computing limitation before

5 [2021] 3 SCR 806 : (2021) 7 SCC 313

6 2022 SCC Online SC 1790

[2024] 4 S.C.R. 47

Purni Devi & Anr. v. Babu Ram & Anr.

the Court having competent jurisdiction. All conditions stipulated for

invocation of Section 14 of the Limitation Act are fulfilled.

39. Therefore, in view of the above discussion the period from 18.12.2000,

when the execution application was filed to 29.01.2005, when the

prior proceeding was dismissed, has to be excluded while computing

period of limitation, which results in the execution application filed

by the Plaintiff, being within the limitation period prescribed under

Article 182 of the Limitation Act as well, which is 3 years.

40. Consequently, the appeal is allowed. The impugned order of the

High Court dated 09.04.2018 and Munsiff Court, Hiranagar dated

28.11.2007 are set aside. The execution application of the Plaintiff

is restored to the file of the Munsiff Court, Hiranagar for fresh

consideration, in consonance with the view on limitation which has

been decided above.

41. Pending applications, if any, are disposed of. No order as to costs.

Headnotes prepared by: Ankit Gyan Result of the case:

Appeal allowed.

Negotiable Instruments Act, 1881 – s.138 – Appellant borrowed Rs.2,00,000/- from the complainant – On receipt of demand, appellant issued a cheque for the said amount – It was dishonoured due to insufficient funds and ‘payments stopped by drawer’ – The complainant issued a notice of demand – No action on the part of the appellant was taken – Pursuant thereto, a criminal proceeding was initiated against appellant – Equally, though, the appellant had filed a civil suit with prayers to declare the said cheque as a security; direction for return of cheque and prohibitory injunction restraining any steps to encash the said cheque – The suit was decreed in favour of appellant – However, the Court seized of the s.138 N.I. Act complaint, convicted the appellant herein to undergo simple imprisonment for one year as well as pay compensation of Rs.2 lakhs in default whereof, he was to undergo further simple imprisonment for six months – First Appellate upheld the conviction – The High Court, in revision, observed no perversity in the concurrent findings of the Trial Court and First Appellate Court – Propriety:

* Author

[2024] 4 S.C.R. 29 : 2024 INSC 260

Prem Raj

v.

Poonamma Menon & Anr.

(Criminal Appeal No. 1858 of 2024)

02 April 2024

[Sanjay Karol* and Aravind Kumar, JJ.]

Issue for Consideration

Whether, a criminal proceeding can be initiated and the accused

therein held guilty with natural consequences thereof to follow, in

connection with a transaction, in respect of which a decree by a

competent Court of civil jurisdiction, already stands passed.

Headnotes

Negotiable Instruments Act, 1881 – s.138 – Appellant borrowed

Rs.2,00,000/- from the complainant – On receipt of demand,

appellant issued a cheque for the said amount – It was

dishonoured due to insufficient funds and ‘payments stopped

by drawer’ – The complainant issued a notice of demand –

No action on the part of the appellant was taken – Pursuant

thereto, a criminal proceeding was initiated against appellant

– Equally, though, the appellant had filed a civil suit with

prayers to declare the said cheque as a security; direction for

return of cheque and prohibitory injunction restraining any

steps to encash the said cheque – The suit was decreed in

favour of appellant – However, the Court seized of the s.138

N.I. Act complaint, convicted the appellant herein to undergo

simple imprisonment for one year as well as pay compensation

of Rs.2 lakhs in default whereof, he was to undergo further

simple imprisonment for six months – First Appellate upheld

the conviction – The High Court, in revision, observed no

perversity in the concurrent findings of the Trial Court and

First Appellate Court – Propriety:

Held: The position as per K.G. Premshanker vs. Inspector of

Police & Anr is that sentence and damages would be excluded

from the conflict of decisions in civil and criminal jurisdictions

of the Courts – Therefore, in the present case, considering that

the Court in criminal jurisdiction has imposed both sentence

and damages, the ratio of the above-referred decision dictates 

30 [2024] 4 S.C.R.

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that the Court in criminal jurisdiction would be bound by the civil

Court having declared the cheque, the subject matter of dispute,

to be only for the purposes of security – In that view of the

matter, the criminal proceedings resulting from the cheque being

returned unrealised due to the closure of the account would be

unsustainable in law and, therefore, are to be quashed and set

aside. [Paras 11 and 12]

Case Law Cited

Iqbal Singh Marwah v. Meenakshi Marwah [2005] 2

SCR 708 : (2005) 4 SCC 370 – followed.

K.G. Premshanker v. Inspector of Police & Anr. [2002]

Supp. 2 SCR 350 : (2002) 8 SCC 87 – relied on.

Karam Chand Ganga Prasad & Anr. v. Union of India &

Ors. (1970) 3 SCC 694; M.S. Sheriff v. State of Madras

[1954] 1 SCR 1144 : AIR 1954 SC 397; Vishnu Dutt

Sharma v. Daya Sapra (Smt.) [2009] 7 SCR 977 : (2009)

13 SCC 729; Satish Chander Ahuja v. Sneha Ahuja

[2020] 12 SCR 189 : (2021) 1 SCC 414 – referred to.

List of Acts

Negotiable Instruments Act, 1881.

List of Keywords

Dishonour of cheque; Criminal Proceedings; Civil suit; Conflict of

decisions in civil and criminal jurisdictions.

Case Arising From

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 1858

of 2024

From the Judgment and Order dated 23.01.2018 of the High Court

of Kerala at Ernakulam in CRLRP No. 1111 of 2011

Appearances for Parties

K. Parameshwar, Ms. Arti Gupta, Ms. Kanti, Chinmay Kalgaonkar,

Ms. Raji Gururaj, Advs. for the Appellant.

Pranjal Kishore, Atul Shankar Vinod, Dilip Pillai, Ajay Jain, Ms. Madiya

Mushtaq Nadroo, M. P. Vinod, Alim Anvar, Nishe Rajen Shonker,

Mrs. Anu K Joy, Advs. for the Respondents.

[2024] 4 S.C.R. 31

Prem Raj v. Poonamma Menon & Anr.

Judgment / Order of the Supreme Court

Judgment

Sanjay Karol, J.

Leave granted.

2. Appellant herein challenges judgment and order dated 23rd January,

2018 passed in Crl.R.P. No.1111 of 20111

, whereby the High Court of

Kerala allowed, only in part, his Revision Petition against the judgment

and order of the learned Additional Sessions Judge, Thrissur,2

 dated

11th January, 2011, in Criminal Appeal No.673 of 2007, which, in turn,

upheld his conviction, as handed down by the learned Judicial First

Class Magistrate3

 vide order dated 14th August, 2007 in CC No.51 of

2003, under Section 138 of the Negotiable Instruments Act, 1881.4

3. The sole issue that we are required to consider is, whether, a criminal

proceeding can be initiated and the accused therein held guilty

with natural consequences thereof to follow, in connection with a

transaction, in respect of which a decree by a competent Court of

civil jurisdiction, already stands passed.

4. The facts necessary to put into perspective the issue in the present

appeal are:-

4.1 The Appellant borrowed Rs.2,00,000/- from the Complainant,

K.P.B Menon “Sreyes,” with the promise that he would repay

it on demand.

4.2 On receipt of such demand, he issued a cheque dated 30th

June, 2002 for the said amount from the South Indian Bank,

encashment thereof was to be through Canara Bank, Irinjalakuda

Branch, to which the cheque was sent through the post with a

covering letter dated 24th September, 2002.

4.3 It was dishonoured due to insufficient funds and ‘payments

stopped by drawer’. The Complainant came to know of such

dishonour and issued a notice of demand dated 22nd December,

1 ‘Impugned Judgment’

2 ‘Lower Appellate Court’

3 ‘Trial Court’

4 ‘N.I. Act’

32 [2024] 4 S.C.R.

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2002. Accounting for no action on the part of the appellant, the

complaint, the subject matter of the instant proceedings, came

to be filed.

5. Equally, though, the appellant (accused) had filed Original Suit

No.1338 of 2002. The five parties impleaded as defendants were,

(i) K.P. Bhaskara Menon; (ii) K.P. Vipinendra Kumar5

; (iii) Praveen

Menon; (iv) The Manager South Indian Bank Limited Kathikudam,

Via Koratty, Trichur; and (v) N.T. Raghunandanan. The prayers

made therein were to, (a) declare cheque No.386543 of the South

Indian Bank Limited, Kathikudam, as a security cheque; (b) issue

mandatory injunction directing the 1st defendant to return the said

cheque; and (c) issue a permanent prohibitory injunction restraining

defendants 1 to 4 named hereinabove from taking any steps to

encash the said cheque.

5.1 The Additional District Munsif, Irinjalakuda, decreed the Suit on

11th April, 2003 in favour of the plaintiff (accused). The Suit in

respect of defendant No.4, namely the Manager, South Indian

Bank, was dismissed and the Suit was wholly decreed against

the remaining defendants.

5.2 Defendant No.1 filed an appeal before the Additional Subordinate

Judge, Irinjalakuda in C.M.A.No.6/2006. In its judgment dated

30th January, 2007, the Court observed that “The lower court

correctly analysed the facts and arrived at the right conclusion.

I find no reason to interfere the order of the lower court. Hence

I dismissed this appeal.”

6. Therefore, it appears from the record that the very same cheque

was in issue before the Civil Court and also the Court seized of the

Section 138 N.I. Act complaint.

The conclusions drawn by the Courts below, subject matter of the

instant lis, are as under:

6.1 The Trial Court convicted the appellant herein to undergo simple

imprisonment for one year as well as pay compensation of

Rs.2 lakhs in default whereof, he was to undergo further simple

imprisonment for six months. The determination of the issues,

i.e., whether the decree passed by the Munsif Court would be

5 2nd defendant

[2024] 4 S.C.R. 33

Prem Raj v. Poonamma Menon & Anr.

binding on it, is of note. It was observed that a Court exercising

jurisdiction on the criminal side is not subordinate to the Civil

Court. Further, it was held “That order was an ex-parte order

as far as criminal complaint is concerned the order of injunction

issued cannot be granted and the hands of the criminal court

cannot be fettered by the civil court”.

6.2 The First Appellate Court framed primarily one point for

consideration – whether the cheque was issued against a legally

enforceable debt, thereby attracting the offence under Section

138 of the N.I. Act. This point was held against the appellant

and therefore, the conviction handed down by the Court below,

accordingly confirmed.

7. The High Court, in revision, observed that no perversity could be

indicated in the concurrent findings of the Trial Court and First

Appellate Court. The same was dismissed.

8. We find the manner in which this matter has travelled up to this Court

to be quite concerning. We fail to understand as to how a civil as

well as criminal course could be adopted by the parties involved,

in respect of the very same issue and transaction, in these peculiar

facts and circumstances.

9. In advancing his submissions, Mr. K. Parameshwar, learned counsel

appearing for the appellant, placed reliance on certain authorities of

this Court. In M/s. Karam Chand Ganga Prasad & Anr. vs. Union

of India & Ors.

6

, this Court observed that:

“…….It is a well-established principle of law that the

decisions of the civil courts are binding on the criminal

courts. The converse is not true.”

In K.G. Premshanker vs. Inspector of Police & Anr7

., a Bench

of three learned Judges observed that, following the M.S. Sheriff

vs. State of Madras8

, no straight-jacket formula could be laid down

and conflicting decisions of civil and criminal Courts would not be

a relevant consideration except for the limited purpose of sentence

or damages.

6 (1970) 3 SCC 694

7 [2002] Supp. 2 SCR 350 : (2002) 8 SCC 87

8 [1954] 1 SCR 1144 : AIR 1954 SC 397

34 [2024] 4 S.C.R.

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10. We notice that this Court in Vishnu Dutt Sharma vs. Daya Sapra

(Smt.)9

, had observed as under:

“26. It is, however, significant to notice a decision of

this Court in Karam Chand Ganga Prasad v. Union of

India (1970) 3 SCC 694, wherein it was categorically

held that the decisions of the civil court will be binding

on the criminal courts but the converse is not true, was

overruled therein…”

This Court in Satish Chander Ahuja vs. Sneha Ahuja10 considered

a numerous precedents, including Premshanker (supra) and Vishnu

Dutt Sharma (supra), to opine that there is no embargo for a civil

court to consider the evidence led in the criminal proceedings.

The issue has been laid to rest by a Constitution Bench of this Court

in Iqbal Singh Marwah vs. Meenakshi Marwah11 :

“32. Coming to the last contention that an effort should

be made to avoid conflict of findings between the civil

and criminal courts, it is necessary to point out that the

standard of proof required in the two proceedings are

entirely different. Civil cases are decided on the basis of

preponderance of evidence, while in a criminal case, the

entire burden lies on the prosecution, and proof beyond

reasonable doubt has to be given. There is neither any

statutory provision nor any legal principle that the findings

recorded in one proceeding may be treated as final or

binding in the other, as both the cases have to be decided

on the basis of the evidence adduced therein. While

examining a similar contention in an appeal against an

order directing filing of a complaint under Section 476

of the old Code, the following observations made by a

Constitution Bench in M.S. Sheriff v. State of Madras

[1954 SCR 1144 : AIR 1954 SC 397: 1954 Cri LJ 1019]

give a complete answer to the problem posed: (AIR p.

399, paras 15-16)

9 [2009] 7 SCR 977 : (2009) 13 SCC 729

10 [2020] 12 SCR 189 : (2021) 1 SCC 414

11 [2005] 2 SCR 708 : (2005) 4 SCC 370

[2024] 4 S.C.R. 35

Prem Raj v. Poonamma Menon & Anr.

“15. As between the civil and the criminal proceedings,

we are of the opinion that the criminal matters should

be given precedence. There is some difference of

opinion in the High Courts of India on this point. No

hard-and-fast rule can be laid down but we do not

consider that the possibility of conflicting decisions in

the civil and criminal courts is a relevant consideration.

The law envisages such an eventuality when it

expressly refrains from making the decision of one

court binding on the other, or even relevant, except

for certain limited purposes, such as sentence or

damages. The only relevant consideration here is

the likelihood of embarrassment.

16. Another factor which weighs with us is that a civil

suit often drags on for years and it is undesirable

that a criminal prosecution should wait till everybody

concerned has forgotten all about the crime. The

public interests demand that criminal justice should

be swift and sure; that the guilty should be punished

while the events are still fresh in the public mind and

that the innocent should be absolved as early as

is consistent with a fair and impartial trial. Another

reason is that it is undesirable to let things slide till

memories have grown too dim to trust.

This, however, is not a hard-and-fast rule. Special

considerations obtaining in any particular case might

make some other course more expedient and just. For

example, the civil case or the other criminal proceeding

may be so near its end as to make it inexpedient to stay

it in order to give precedence to a prosecution ordered

under Section 476. But in this case we are of the view that

the civil suits should be stayed till the criminal proceedings

have finished.”

(Emphasis Supplied)

11. The position as per Premshanker (supra) is that sentence and

damages would be excluded from the conflict of decisions in civil

and criminal jurisdictions of the Courts. Therefore, in the present

case, considering that the Court in criminal jurisdiction has imposed 

36 [2024] 4 S.C.R.

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both sentence and damages, the ratio of the above-referred decision

dictates that the Court in criminal jurisdiction would be bound by the

civil Court having declared the cheque, the subject matter of dispute,

to be only for the purposes of security.

12. In that view of the matter, the criminal proceedings resulting from the

cheque being returned unrealised due to the closure of the account

would be unsustainable in law and, therefore, are to be quashed

and set aside. Resultantly, the damages as imposed by the Courts

below must be returned to the appellant herein forthwith.

13. The appeal is allowed in the aforesaid terms. Hence, the judgment

and order passed by Additional Sessions Judge, Thrissur, in Criminal

Appeal 673 of 2007, which upheld the conviction, as handed down

by the learned Judicial First Class Magistrate in CC No. 51 of 2003,

which came to affirmed by the High Court of Kerela in Crl.R.P.No.1111

of 2011 is quashed and set aside. Pending application(s), if any,

shall stand disposed of.

Headnotes prepared by: Ankit Gyan Result of the case:

Appeal allowed.

Constitution of India – Article 293 – Borrowing by States – Union of India inter alia imposed Net Borrowing Ceiling on the 14 [2024] 4 S.C.R. Digital Supreme Court Reports State of Kerala, to restrict its maximum possible borrowing – Suit filed by State of Kerala on the premise that by undertaking the impugned actions, Union of India imposed ceiling on all its borrowings, and exceeded its power u/Article 293 – It also sought interim injunction, inter alia, to mandate Union of India to restore the position that existed before it imposed ceiling on all its borrowings; and to enable it to borrow INR 26,226 crores on an immediate basis:

* Author

[2024] 4 S.C.R. 13 : 2024 INSC 253

State of Kerala

v.

Union of India

(Original Suit No. 1 of 2024)

01 April 2024

[Surya Kant* and K.V. Viswanathan, JJ.]

Issue for Consideration

What is the true import and interpretation of the expression “if and in

so far as the dispute involves any question (whether of law or fact)

on which the existence or extent of a legal right depends” contained

in Article 131 of the Constitution; Does Article 293 of the Constitution

vest a State with an enforceable right to raise borrowing from the

Union government and/or other sources and if yes, to what extent

such right can be regulated by the Union government; Can the

borrowing by State-Owned Enterprises and liabilities arising out of

the Public Account be included under the purview of Article 293(3);

What is the scope and extent of Judicial Review exercisable by this

Court with respect to a fiscal policy purportedly in conflict with the

object and spirit of Article 293; Is fiscal decentralization an aspect of

Indian Federalism and if yes, do the impugned actions taken by the

Defendant-Union of India purportedly to maintain the fiscal health of

the country violate such Principles of Federalism; Are the impugned

actions violative of Article 14 of the Constitution on the ground of

‘manifest arbitrariness’ or on the basis of differential treatment meted

out to the Plaintiff-State vis-à-vis other States; What has been the

past practice regarding regulation of the Plaintiff’s borrowing by the

Defendant; If such practice has been restrictive of Plaintiff’s borrowings,

can it estop the Plaintiff from bringing the present suit; Conversely, if

such practice has not been restrictive, can it serve as the basis for

the Plaintiff’s legitimate expectations against the Defendant; Are the

restrictions imposed by the impugned actions in conflict with the role

assigned to the Reserve Bank of India as the public debt manager

of the Plaintiff; Is it mandatory to have prior consultation with States

for giving effect to the recommendations of Finance Commission.

Headnotes

Constitution of India – Article 293 – Borrowing by States –

Union of India inter alia imposed Net Borrowing Ceiling on the 

14 [2024] 4 S.C.R.

Digital Supreme Court Reports

State of Kerala, to restrict its maximum possible borrowing –

Suit filed by State of Kerala on the premise that by undertaking

the impugned actions, Union of India imposed ceiling on all

its borrowings, and exceeded its power u/Article 293 – It also

sought interim injunction, inter alia, to mandate Union of India

to restore the position that existed before it imposed ceiling

on all its borrowings; and to enable it to borrow INR 26,226

crores on an immediate basis:

Held: Since Article 293 has so far not been the subject of any

authoritative interpretation by this Court, the questions arising in

the present suit squarely fall within the ambit of Article 145(3) of

the Constitution – Questions referred to Constitution Bench of five

judges – Matter be placed before Hon’ble the Chief Justice of India

for constitution of an appropriate Bench – Further, the Plaintiff-State

also sought mandatory injunction and hence, was required to meet

a higher standard for the triple-test of interim relief – Prima facie, the

argument of the Union is accepted that where there is over-utilization

of the borrowing limit in the previous year, to the extent of overborrowing, deductions are permissible in the succeeding year, even

beyond the award period of the 14th Finance Commission– Plaintiff

failed to establish a prima facie case regarding its contention on

under-utilization of borrowing – The mischief that is likely to ensue

in the event of granting the interim relief, will be far greater than

rejecting the same – Balance of convenience clearly lies in favour

of the Union of India – Plaintiff sought to equate ‘financial hardship’

with ‘irreparable injury’ – Prima facie ‘monetary damage’ is not an

irreparable loss, as the Court can always balance the equities in its

final outcome by ensuring that pending claims are adjusted along

with resultant additional liability on the opposite party – If the State

has essentially created financial hardship because of its own financial

mismanagement, such hardship cannot be held to be an irreparable

injury that would necessitate an interim relief against Union – Since

the Plaintiff-State failed to establish the three prongs of proving

prima facie case, balance of convenience and irreparable injury, it

is not entitled to the interim injunction. [Paras 8, 10, 27, 28, 32, 33]

Injunctions – Mandatory injunctions vis-à-vis prohibitory

injunctions – Triple-Test – Prima facie case; Balance of

convenience; Irreparable injury – Standard of scrutiny in

applying these parameters for ‘prohibitory’ and ‘mandatory’

injunctions:

[2024] 4 S.C.R. 15

State of Kerala v. Union of India

Held: Prohibitory injunctions vary from mandatory injunctions in

terms of the nature of relief sought – While the former seeks to

restrain the defendant from doing something, the latter compels

the defendant to take a positive step – Prohibitory injunctions are

forward-looking as they seek to restrict a future course of action –

Conversely, mandatory injunctions are backward-looking because

they require the defendant to take an active step and undo the past

action– Courts are, therefore, relatively more cautious in granting

mandatory injunction as compared to prohibitory injunction and

thus, require the plaintiff to establish a stronger case – In the

present case, the Plaintiff sought mandatory injunction and not a

prohibitory one – Instead of arguing that the Defendant-Union of

India should refrain from imposing a Net Borrowing Ceiling during

the next F.Y., the Plaintiff applied for a backward-looking injunction,

i.e., for an injunction to undo the imposition of the Net Borrowing

Ceiling that covered various liabilities and to restore the position

that existed before such ceiling – Hence, was required to meet a

higher standard for the triple-test of interim relief. [Paras 13-15]

Words and Phrases – “if and in so far as the dispute involves

any question (whether of law or fact) on which the existence

or extent of a legal right depends” in Article 131 of the

Constitution of India.

List of Acts

Constitution of India; Fiscal Responsibility and Budget Management

Act, 2003; Kerala Fiscal Responsibility Act, 2003.

List of Keywords

Borrowing by States; Ceiling on borrowings; Mandatory injunctions;

Prohibitory injunctions; Triple-test of interim relief; Prima facie

case; Balance of convenience; Irreparable injury; Fiscal policy;

Federalism; Finance Commission.

Case Arising From

ORIGINAL JURISDICTION : Original Suit No. 1 of 2024

Original Suit has been instituted under Article 131 of the Constitution

of India

With

I.A. No. 6149 of 2024

16 [2024] 4 S.C.R.

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Appearances for Parties

K. Gopalakrishna Kurup, A.G., Kapil Sibal, Sr. Adv., C. K. Sasi, V.

Manu, Ms. Meena K Poulose, Ms. Anusha Nagarajan, Ms. Aparajita

Jamwal, Ms. Manisha Singh, Rishabh Parikh, Ms. Sumedha Sarkar,

Ms. Rupali Samuel, Advs. for the Plaintiff.

R Venkatramani, Attorney General for India, N Venkatraman, A.S.G.,

Raj Bahadur Yadav, Sonali Jain, Chitvan Singhal, Raman Yadav,

Kartikay Aggarwal, Abhishek Kumar Pandey, Ms. Ameyvikrama

Thanvi, Mukesh Kumar Singh, Advs. for the Defendant.

Judgment / Order of the Supreme Court

Order

Surya Kant, J.

1. State of Kerala has instituted this Original Suit under Article 131 of

the Constitution of India against the Union of India, challenging, inter

alia, the following (collectively, the “Impugned Actions”):

(a) Amendment Act No. 13 of 2018 (dated 28.03.2018):

By this Amendment Act, the Parliament has amended Section 4 of

the Fiscal Responsibility and Budget Management Act, 2003, whereby

the Central Government is obligated to ensure that the aggregate

debt of the Central Government and the State Governments does

not exceed sixty percent of the gross domestic product by the end

of Financial Year (F.Y.) 2024-25;

(b) Letter No. 40(1)/PF-S/2023-24 (dated 27.03.2023):

Through this letter, the Defendant has imposed a ‘Net Borrowing

Ceiling’ on the Plaintiff - State, to restrict the maximum possible

borrowing that Plaintiff could make under law. This ceiling was

quantified as three percent of the projected Gross State Domestic

Product (GSDP) for the F.Y. 2023-24, which came to INR 32,442

crores. This Net Borrowing Ceiling covered all sources of

borrowings, including open market borrowings, loans from Financial

Institutions, and the liabilities arising out of the Public Account of

the Plaintiff. Additionally, to prevent the States from by-passing

the Net Borrowing Ceiling by using State-Owned Enterprises,

the ceiling has also been applied to certain borrowings by such

enterprises; and

[2024] 4 S.C.R. 17

State of Kerala v. Union of India

(c) Letter No. 40(12)/PF-S/2023-24/OMB-52 (dated 11.08.2023):

In this letter, the Defendant has accorded its consent to the Plaintiff

to raise open market borrowing of INR 1,330 crores. It has also noted

that the total open market borrowing allowed to the Plaintiff for the

F.Y. 2023-24 was INR 21,852 crores.

2. The instant suit has been filed on the premise that by undertaking the

Impugned Actions, the Defendant - Union of India has exceeded its

power under Article 293 of the Constitution of India, which provides:

“293. Borrowing by States.—

(1) Subject to the provisions of this article, the executive

power of a State extends to borrowing within the

territory of India upon the security of the Consolidated

Fund of the State within such limits, if any, as may

from time to time be fixed by the Legislature of such

State by law and to the giving of guarantees within

such limits, if any, as may be so fixed.

(2) The Government of India may, subject to such

conditions as may be laid down by or under any

law made by Parliament, make loans to any State

or, so long as any limits fixed under article 292 are

not exceeded, give guarantees in respect of loans

raised by any State, and any sums required for the

purpose of making such loans shall be charged on

the Consolidated Fund of India.

(3) A State may not without the consent of the Government

of India raise any loan if there is still outstanding any

part of a loan which has been made to the State

by the Government of India or by its predecessor

Government, or in respect of which a guarantee

has been given by the Government of India or by

its predecessor Government.

(4) A consent under clause (3) may be granted subject

to such conditions, if any, as the Government of India

may think fit to impose.”

3. Besides the afore-mentioned final relief in the suit, the Plaintiff -State

also seeks interim injunction, inter alia, to mandate Union of India:

(a) to restore the position that existed before the Defendant imposed 

18 [2024] 4 S.C.R.

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ceiling on all the borrowings of the Plaintiff; and (b) to enable the

Plaintiff to borrow INR 26,226 crores on an immediate basis.

4. We have heard Mr. Kapil Sibal, Ld. Senior Advocate, for the Plaintiff

- State, and Mr. R. Venkataramani, Ld. Attorney General for India

and Mr. N. Venkataraman, Ld. Additional Solicitor General of India,

on behalf of the Defendant – Union of India at a considerable length,

and have perused the Plaint and other documents on record on the

issue of maintainability of suit as well as the interim relief sought by

the Plaintiff - State.

5. In support of its prayer for the interim injunction, the Plaintiff - State has

mainly urged that: (i) under Article 293 of the Constitution, the Union

of India does not have the power to regulate all the borrowings of a

State and conditions can be imposed only on the loans sought from the

Central Government; (ii) the liabilities arising out of the Public Account

and State-Owned Enterprises cannot be included in the borrowings

of the Plaintiff; (iii) the Plaintiff – State is in dire need of INR 26,226

crores to pay dues arising out of various budgetary obligations including

dearness allowance, pension scheme, subsidies, etc.; (iv) there has

been under-utilization of permissible borrowing space from previous

years, which the Plaintiff should be allowed to use now; (v) the overborrowing from the years before F.Y. 2023-24 cannot be adjusted from

the Net Borrowing Ceiling of this F.Y. and must instead be repaid at

the date of maturity of such borrowing; and (vi) the debt is sustainable

because it satisfies the Domar model, such that the GSDP of the

Plaintiff – State is rising faster than the effective interest rate.

6. Per contra, the Defendant – Union of India controverted the Plaintiff’s

interim claim and has argued that: (i) since management of public

finance is a national issue, the Union of India has the power to

regulate all the borrowings of the Plaintiff - State to maintain the fiscal

health of the country; (ii) the liabilities arising out of Public Account

and State-Owned enterprises can be included in the borrowings

of the Plaintiff since they may be used to by-pass the borrowing

ceiling; (iii) the pending dues have arisen on account of the fiscal

mismanagement by the State of Kerala and are not a consequence

of regulation of borrowing by the Union of India; (iv) the Plaintiff’s

contention regarding under-utilized borrowing space from the previous

years is based on erroneous facts; (v) the over-borrowing done in

a F.Y. has to be adjusted against the borrowing amount of the next 

[2024] 4 S.C.R. 19

State of Kerala v. Union of India

F.Ys.; and (vi) the fiscal health of the country will be jeopardized if

the Plaintiff – State is allowed to undertake more debt.

7. On a critical analysis of the contentions of both the sides, it seems

to us that the instant suit raises more than one substantial questions

regarding interpretation of the Constitution, including:

(a) What is the true import and interpretation of the following

expression contained in Article 131 of the Constitution: “if

and in so far as the dispute involves any question (whether

of law or fact) on which the existence or extent of a legal

right depends”?

(b) Does Article 293 of the Constitution vest a State with an

enforceable right to raise borrowing from the Union government

and/or other sources? If yes, to what extent such right can be

regulated by the Union government?

(c) Can the borrowing by State-Owned Enterprises and liabilities

arising out of the Public Account be included under the purview

of Article 293(3) of the Constitution?

(d) What is the scope and extent of Judicial Review exercisable by

this Court with respect to a fiscal policy, which is purportedly in

conflict with the object and spirit of Article 293 of the Constitution?

8. Since Article 293 of the Constitution has not been so far the subject

to any authoritative interpretation by this Court, in our considered

opinion, the aforesaid questions squarely fall within the ambit of

Article 145(3) of the Constitution. We, therefore, deem it appropriate

to refer these questions for pronouncement by a Bench comprising

five judges.

9. In addition, and as a necessary corollary to these questions, it appears

that on merits also, various questions of significant importance

impacting the Federal Structure of Governance as embedded in our

Constitution, like, the following, arise for consideration:

(a) Is fiscal decentralization an aspect of Indian Federalism? If yes,

do the Impugned Actions taken by the Defendant purportedly to

maintain the fiscal health of the country violate such Principles

of Federalism?

(b) Are the Impugned Actions violative of Article 14 of the

Constitution on the ground of ‘manifest arbitrariness’ or on the 

20 [2024] 4 S.C.R.

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basis of differential treatment meted out to the Plaintiff vis-à-vis

other States?

(c) What has been the past practice regarding regulation of the

Plaintiff’s borrowing by the Defendant? If such practice has

been restrictive of Plaintiff’s borrowings, can it estop the Plaintiff

from bringing the present suit? Conversely, if such practice has

not been restrictive, can it serve as the basis for the Plaintiff’s

legitimate expectations against the Defendant - Union of India?

(d) Are the restrictions imposed by the Impugned Actions in conflict

with the role assigned to the Reserve Bank of India as the

public debt manager of the Plaintiff?

(e) Is it mandatory to have prior consultation with States for giving

effect to the recommendations of Finance Commission?

10. The Registry is accordingly directed to place this matter before Hon’ble

the Chief Justice of India for the constitution of an appropriate Bench

to answer the aforementioned questions and/or such other issues

as may be identified by the Five-Judge Bench.

11. We may now advert to the issue as to whether, pending the decision

on the questions formulated above, the Plaintiff – State can be

granted the ad-interim injunction as briefly noticed in paragraph 3

of this Order?

12. The globally acknowledged golden principles, collectively known as

the Triple-Test, are followed by the Courts across the jurisdictions as

the pre-requisites before a party can be mandatorily injuncted to do or

to refrain from doing a particular thing. These three cardinal factors,

that are deeply embedded in the Indian jurisprudence as well, are:

(a) A ‘Prima facie case’, which necessitates that as per the material

placed on record, the plaintiff is likely to succeed in the final

determination of the case;

(b) ‘Balance of convenience’, such that the prejudice likely to be

caused to the plaintiff due to rejection of the interim relief will

be higher than the inconvenience that the defendant may face

if the relief is so granted; and

(c) ‘Irreparable injury’, which means that if the relief is not granted,

the plaintiff will face an irreversible injury that cannot be

compensated in monetary terms.

[2024] 4 S.C.R. 21

State of Kerala v. Union of India

13. At this juncture, it is necessary to distinguish the standard of scrutiny in

applying these parameters for ‘prohibitory’ and ‘mandatory’ injunctions.

Prohibitory injunctions vary from mandatory injunctions in terms of the

nature of relief that is sought. While the former seeks to restrain the

defendant from doing something, the latter compels the defendant to

take a positive step.1

 For instance, hypothetically, in the context of a

construction dispute, if a plaintiff seeks to prevent the defendant from

demolishing a structure, it would be deemed a prohibitory injunction.

Whereas, if a plaintiff wants to compel the defendant to demolish a

structure, then this would amount to mandatory injunction.

14. In that sense, prohibitory injunctions are forward-looking, such that

they seek to restrict a future course of action. Conversely, mandatory

injunctions are backward-looking, because they require the defendant

to take an active step and undo the past action.2

 Since mandatory

injunctions require the defendant to take a positive action instead of

merely being restrained from performing an act, they carry a graver

risk of prejudice for the defendant if the final outcome subsequently

turns out to be in its favour. For instance, in the example above,

preventing the demolition of a structure for the time being cannot be

perceived to be on the same pedestal as mandating the demolition

of a construction. While the former may still be undone, i.e., the

defendant may still be compelled to demolish the structure should the

plaintiff succeeds in his final claim, undoing the latter, i.e., rebuilding

the construction, would cause graver injustice. The Courts are,

therefore, relatively more cautious in granting mandatory injunction

as compared to prohibitory injunction and thus, require the plaintiff

to establish a stronger case.3

15. Reverting to the facts of the case in hand, the Plaintiff – State has

sought mandatory injunction and not a prohibitory one. Instead of

arguing that the Defendant – Union of India should refrain from imposing

a Net Borrowing Ceiling during the next F.Y., the Plaintiff has applied

for a backward-looking injunction, i.e., for an injunction to undo the

imposition of the Net Borrowing Ceiling that covered various liabilities

and to restore the position that existed before such ceiling. Hence,

1 State of Haryana v. State of Punjab, (2004) 12 SCC 673, para 37-38.

2 Shepherd Homes Ltd. v. Sandham, [1970] 3 WLR 348.

3 Id., Dorab Cawasji Warden v. Coomi Sorab Warden, (1990) 2 SCC 117, para 16.

22 [2024] 4 S.C.R.

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the Plaintiff is required to meet a higher standard for the triple-test of

interim relief as mentioned in paragraph 12 above of this order.

16. Coming to the first factor, i.e., the prima facie case, the Plaintiff

– State has raised various substantive questions of constitutional

interpretation. Generally speaking, the phrase ‘prima facie case’ is

not a term of art and it simply signifies that at first sight the plaintiff

has a strong case. According to Webster’s International Dictionary,

‘prima facie case’ means a case established by ‘prima facie evidence’,

which in turn means the evidence that is sufficient in law to raise a

presumption of fact unless rebutted.

17. The Plaintiff – State has argued that based on the States Finance

Accounts audited by the Comptroller and Auditor General of India

and the achievements of the fiscal deficit targets, the Plaintiff – State

has under-utilized permissible borrowing space in the last three F.Ys.

(2020-21, 2021-22 and 2022-23) to the extent of INR 24,434 crores.

The Plaintiff – State contends that even going by the stand of the

Union, the under-utilized space of the Plaintiff for the said period

borrowings is INR 10,722 crores, which it should be allowed to borrow.

18. Mr. Kapil Sibal, learned Senior Counsel for the Plaintiff – State,

submitted that under the recommendations of the 15th Finance

Commission, the State is entitled to borrow up to the maximum

permissible fiscal deficit for the year. He relied on paragraphs 12.64

and 12.65 of the Report of the 15th Finance Commission, which read

as under:

“12.64 If a State is not able to fully utilise its sanctioned

borrowing limit, as specified above, in any particular

year during the first four years of our award period

(2021-22 to 2024 -25), it will have the option of availing

this unutilised borrowing amount (calculated in rupees)

in any of the subsequent years within our award period.

12.65 Based on these assumptions, we have worked

out the debt path for States, as presented in Table 12.4.

Since all estimated revenue deficits are met by equivalent

provision of revenue deficit grant, the revenue surpluses

run by the States are reflected by the negative numbers

on revenue deficit presented in the table. The State debt

in aggregate tapers off gradually after 2022-23. This is 

[2024] 4 S.C.R. 23

State of Kerala v. Union of India

similar to the pattern in the debt path of the Union shown

in Table 12.2. The State-specific indicative debt paths are

given in Annex 12.1.

Table 12.4: Indicative Deficit and Debt Path for State

Governments

(% of GSDP)

2020-21 2021-22 2022-23 2023-24 2024-25 2025-26

Revenue

deficit*

-0.1 -0.5 -0.8 -1.2 -1.7 -2.5

Fiscal

deficit

4.5 4.0 3.5 3.0 3.0 3.0

Total

liabilities

33.1 32.6 33.3 33.1 32.8 32.5

*negative values indicate surplus and positive values

indicate deficit

Note: While arriving at the total liabilities of States for the

year 2021-22, an aggregate fiscal deficit of 3.5 per cent

of GSDP is taken because some States may not avail of

the full unconditional net borrowing space of 4 per cent.”

19. According to the learned Senior Counsel, since the fiscal deficit for

2023-24 is 3% of GSDP, they should be allowed the full borrowing

without any restrictions.

20. Mr. N. Venkataraman, learned ASG, controverted the submission of

the Plaintiff – State. According to learned ASG, while the figures as

projected by the State are themselves in dispute, the State is not

entitled to borrow the amounts as claimed since the over-borrowing

by the State of Kerala from F.Ys. 2016-17 to 2019-20 is INR 14,479

crores. According to him, if these over-borrowings are factored in the

borrowing space, it will be found that the State has not under-utilized

but over-utilized its borrowing capacity by INR 2,941.82 crores till

F.Y. 2022-23. The learned ASG, relying on paragraph 14.64 of the

Report of the 14th Finance Commission, contended that if the State

is not able to fully utilize its sanctioned borrowings limit of 3% of

GSDP in any particular year during the first four years of the award

period (2015-16 to 2018-19), the State will have the option of availing 

24 [2024] 4 S.C.R.

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this un-utilized borrowing amount (calculated in Rupees) only in the

following year within the award period. However, there is a difference

between under-utilization of the borrowing limit and over-utilization

of the borrowing limit. Learned ASG maintained that over-utilization

is dealt with in Annexure 14.2 of Chapter-XIV in the Report of the

14th Finance Commission, which clearly prescribes as under:

“Case II. Over-utilizing the borrowing amount:

If a State, in a given year, borrows over and above the

sanctioned borrowing limit by x amount, then in the

succeeding year, the same x amount of the previous

year will be deducted from the States borrowing limit of

that year.”

21. According to learned ASG, the Plaintiff – State is wrong in contending

that such deduction in the succeeding year can only be made within

the award period of the 14th Finance Commission. He explained that

over-borrowings of the previous year were adjusted for the F.Ys.

2021-22, 2022-23 and 2023-24 (as on date) to the tune of INR

9,197.15 crores, INR 13,067.78 crores and INR 4,354.72 crores

respectively. According to learned ASG, the State was fully conscious

of the correct position in law and had rightly acquiesced in the

adjustments of the over-borrowings. Having acquiesced, it does not

lie in the mouth of the Plaintiff – State to contend that once the period

for the 15th Finance Commission has set in from F.Ys. 2021-22 to

2025-26, the over-borrowings of the previous years have absolutely

no relevance. Learned ASG vehemently argued that the Plaintiff is

wrong in contending that a reading of the report of the 14th and 15th

Finance Commission indicates that for both under-utilization and

over-utilization, all adjustments have to be made within the period

covered by the Report of the Commission.

22. Prima facie, we are inclined to accept the argument of the Union that

where there is over-utilization of the borrowing limit in the previous

year, to the extent of over-borrowing, deductions are permissible

in the succeeding year, even beyond the award period of the 14th

Finance Commission. This is, however, a matter which will have to

be finally decided in the suit.

23. At this stage, based on the contentions of the Plaintiff – State with

which we are not prima facie convinced, permitting any borrowing—

[2024] 4 S.C.R. 25

State of Kerala v. Union of India

whether INR 24,434 crores as claimed in the written note or INR

10,722 crores as alternatively claimed—would not be tenable.

24. In fact, it has been admitted by the Plaintiff – State that there has

been over-borrowing/over-utilization of the borrowing limit between

the F.Ys. 2017-18 and 2019-20. It is not denied that if, as contended

by the Union, such over-borrowings are adjustable in the succeeding

years, then the State has already exhausted its borrowing limits for

the F.Y. 2023-24.

25. We find, prima facie, that there is a difference in the mechanism

which operates when there is under-utilization of borrowing and when

there is over-utilization of borrowing. The Plaintiff – State has not

been able to demonstrate at this stage that even after adjusting the

over-borrowings of the previous year, there is fiscal space to borrow.

26. Our attention has also been invited to the Kerala Fiscal Responsibility

Act, 2003. The Act is enacted to provide for the responsibility of the

government to ensure prudence in fiscal management and fiscal

stability by progressive elimination of revenue deficit and sustainable

debt management consistent with fiscal stability, greater transparency

in fiscal operations of the government and conduct of fiscal policy

in a medium term fiscal framework and for matters connected there

with and incidental thereto. The Preamble of the Act also states

that it was felt expedient to provide for the responsibility of the

government to ensure prudence in fiscal management and fiscal

stability by progressive elimination of revenue deficit and sustainable

debt management consistent with fiscal stability.

27. In view of above, we find prima facie merit in the submission of the

Union of India that after inclusion of off budget borrowing for F.Y.

2022-23 and adjustments for over-borrowing of past years, the State

has no unutilized fiscal space and that the State has over-utilized its

fiscal space. Hence, we are unable to accept the argument of the

Plaintiff at the interim stage that there is fiscal space of unutilized

borrowing of either INR 10,722 crores as was orally prayed during

the hearing or INR 24,434 Crores which was the borrowing claimed

in the negotiations with the Union.

28. Therefore, the Plaintiff – State has failed to establish a prima facie

case regarding its contention on under-utilization of borrowing.

Further, with respect to its other contentions, while the Plaintiff 

26 [2024] 4 S.C.R.

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has sought to construe Article 293 restrictively to limit the Central

government’s power only to the loans granted by it, the Defendant

has contended that if Article 293 is read in such a manner, it would

render this provision redundant as the Central Government has an

inherent power as a lender to impose conditions on such loans even

in the absence of any express constitutional provision. Similarly, the

Defendant has contested the Plaintiff’s narrow reading of the term

‘borrowing’ and has argued that off-budget borrowings could also

be included in the same if they are used to by-pass the conditions

imposed under Article 293 of the Constitution.

29. Since this Article has not been the subject of an authoritative

pronouncement of this Court so far, we cannot readily accept the

Plaintiff’s contention over the Defendant’s interpretation by taking it

on face value. In this regard, we have referred the matter to a larger

bench of five judges, as mentioned in paragraph 10 of this order.

30. Hence, on consideration of the limited material available on record

so far, the Plaintiff – State has not established a prima facie case

to the extent required in the instant suit.

31. With respect to the second prong for claiming the interim relief,

the Plaintiff – State has argued that if the interim injunction is not

granted, it is likely to face extreme financial hardship on account of

its pending dues. As against this, the Defendant – Union of India

has highlighted the grave consequences regarding the fiscal health

of the country if the Plaintiff is allowed the interim relief. The Union

of India has argued that additional borrowing by the State will have

spill-over effects and may raise the prices of borrowing in the market,

possibly crowding out the borrowing by private investors. This may

then have an adverse impact on the production of goods and services

in the market, possibly affecting the economic well-being of every

citizen. Since the Central government borrows money from outside

the country and lends money to the State governments, borrowings of

the States are intricately linked to the creditworthiness of the country

in the international market. Hence, the Union of India argued that

in case such borrowings by State Governments are not regulated,

it may negatively impact the macro-economic growth and stability

of the entire nation.

32. On a comparative evaluation of the submissions, it seems to us that

the mischief that is likely to ensue in the event of granting the interim 

[2024] 4 S.C.R. 27

State of Kerala v. Union of India

relief, will be far greater than rejecting the same. If we grant the

interim injunction and the suit is eventually dismissed, turning back

the adverse effects on the entire nation at such a large scale would

be nearly impossible. Au contraire, if the interim relief is declined at

this stage and the Plaintiff - State succeeds subsequently in the final

outcome of the suit, it can still pay the pending dues, may be with

some added burden, which can be suitably passed on the judgment

- debtor. The balance of convenience, thus, clearly lies in favour of

the Defendant – Union of India.

33. Finally, as regards to the third pre-condition, we find that the Plaintiff

– State has sought to equate ‘financial hardship’ with ‘irreparable

injury’. It appears prima facie that ‘monetary damage’ is not an

irreparable loss, as the Court can always balance the equities in its

final outcome by ensuring that pending claims are adjusted along

with resultant additional liability on the opposite party.

34. We may hasten to remind ourselves at this stage that according to

the Defendant-Union of India, the Plaintiff – State is apparently a

highly debt stressed State that has mismanaged its finances. This

statement, however, is strongly refuted by the State. According to the

Union, the Plaintiff has the highest ratio of Pension to Total Revenue

Expenditure among all States and requires urgent measures to

reduce its expenditure. Instead of doing so, the Plaintiff is borrowing

more funds to meet its day-to-day expenses such as salaries and

pensions. Accordingly, the Defendant has contended that the financial

hardship is not attributable to the regulation of Plaintiff’s borrowing

and is actually a consequence of its own actions. Furthermore,

the Defendant maintains that restriction on the borrowing is a step

towards the betterment of fiscal health of the State because if such

borrowings are not restricted, the Plaintiff’s position will become

more precarious, leading to a vicious cycle of deteriorating financial

health and increased borrowing to repair the same.

35. If the State has essentially created financial hardship because of its

own financial mismanagement, such hardship cannot be held to be

an irreparable injury that would necessitate an interim relief against

Union. There is an arguable point that if we were to issue interim

mandatory injunction in such like cases, it might set a bad precedent

in law that would enable the States to flout fiscal policies and still

successfully claim additional borrowings.

28 [2024] 4 S.C.R.

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36. In any case, we cannot be oblivious of the fact that in light of

the Plaintiff’s contention regarding pending financial dues, the

Defendant has already made an offer to allow additional borrowing.

In a meeting dated 15.02.2024, the Defendant first offered consent

for INR 13,608 crores, out of which INR 11,731 crore was subject

to the pre-requisite of withdrawal of the suit, a condition that we

disapproved of. Subsequently, in a meeting dated 08.03.2024, the

Union offered a consent for INR 5,000 crores. Further, vide circulars

dated 08.03.2024 and 19.03.2024, the Union has accorded consent

for INR 8,742 crores and INR 4,866 crores respectively, which comes

to a sum total of INR 13,608 crores. Even if we assume that the

financial hardship of the Plaintiff is partly a result of the Defendant’s

Regulations, during the course of hearing this interim application,

the concern has been assuaged by the Defendant – Union of India

to some extent so as to bail out the Plaintiff – State from the current

crisis. The Plaintiff thus has secured substantial relief during the

pendency of this interim application.

37. To sum up, we are of the view that since the Plaintiff – State has

failed to establish the three prongs of proving prima facie case,

balance of convenience and irreparable injury, State of Kerala is not

entitled to the interim injunction, as prayed for.

38. In light of the above observations, I.A. No. 6149 of 2024 is disposed off.

39. It is clarified that the observations made hereinabove are for the

limited purpose of deciding the prayer for ad-interim injunction and

shall have no bearing on the final outcome of the Original Suit.

40. The main case be placed before Hon’ble the Chief Justice of India

for constitution of an appropriate Bench.

Headnotes prepared by: Divya Pandey Result of the case:

Matter referred to Larger Bench.

Tender – Notice inviting tender – Issuance of letter of intent in favour of the successful bidder by the tenderee – Challenge to, by the unsuccessful bidder – Cancellation of initial tender process by the tenderee and withdrawal of the letter of intent issued in favour of the successful bidder on account of pending litigations in the High Court – Thereafter, issuance of fresh NIT by tenderee – Challenge to – High Court disposed of the writ petition by merely accepting the statement of the tenderee that it had no objection to go ahead with the initial tendering process and the statement of the initial successful bidder that it was ready to execute the project on the same terms and conditions as initially agreed, though the said tender was already withdrawn by the tenderee in view of the irregularities and illegalities committed by it, as recorded by an independent committee appointed by the High Court in earlier writ petitions – Correctness:

* Author

[2024] 4 S.C.R. 1 : 2024 INSC 257

Level 9 Biz Pvt. Ltd.

v.

Himachal Pradesh Housing and Urban

Development Authority & Another

(Civil Appeal No. 4626 of 2024)

02 April 2024

[Bela M. Trivedi* and Pankaj Mithal, JJ.]

Issue for Consideration

Matter pertains to the correctness of the order passed by

the High Court disposing the writ petition by accepting the

statements of the respondent no. 1-tenderee and respondent

no. 2-successful bidder, permitting the respondent no.1 to

withdraw the cancellation of initial tendering process order and

permitting the respondent no. 2 to execute the project on the

same terms and conditions as in the initial tender, though the

said tender was already withdrawn by the respondent no.1 in

view of the report of the independent Committee confirming

gross irregularities and illegalities committed by the officers of

the respondent no.1.

Headnotes

Tender – Notice inviting tender – Issuance of letter of intent in

favour of the successful bidder by the tenderee – Challenge

to, by the unsuccessful bidder – Cancellation of initial tender

process by the tenderee and withdrawal of the letter of intent

issued in favour of the successful bidder on account of

pending litigations in the High Court – Thereafter, issuance of

fresh NIT by tenderee – Challenge to – High Court disposed

of the writ petition by merely accepting the statement of the

tenderee that it had no objection to go ahead with the initial

tendering process and the statement of the initial successful

bidder that it was ready to execute the project on the same

terms and conditions as initially agreed, though the said

tender was already withdrawn by the tenderee in view of the

irregularities and illegalities committed by it, as recorded by

an independent committee appointed by the High Court in

earlier writ petitions – Correctness:

2 [2024] 4 S.C.R.

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Held: No right whatsoever created in favour of the respondent no.

2-successful bidder, and the respondent no. 1 HIMUDA-tenderee

cancelled the tender and issued fresh NIT, as such the respondent

no. 1 could not have agreed to allow the respondent no. 2, who

was found to be not technically qualified, to go ahead with the

execution of the project in question and that too without giving

the other two parties any opportunity to negotiate – Respondent

no. 1 in collusion with the respondent no. 2, took the High Court

for a ride and misused the process of law for covering up the

irregularities and illegalities committed in the tender process by the

officers of the respondent no. 1 – High Court also could not notice

the ill-intention of the respondent nos. 1 and 2 and disposed of

the petition, permitting them to go ahead with the original tender

– Thus, the impugned order having been passed without proper

application of mind and without assigning any cogent reason for

brushing aside the findings recorded by the Independent Committee

and the observations made by the Single Bench, is quashed

and set aside – Also, the respondent no.1, though ‘State’ within

the meaning of Art. 12, acted malafide and in collusion with the

respondent no.2, and took the High Court for a ride, heavy cost

of Rs. 5,00,000/- imposed on the respondent no. 1 – Constitution

of India – Art. 12. [Paras 11-14]

Tender – Notice inviting tender – Letter of Intent – Nature of:

Held: Letter of Intent is merely an expression of intention to enter

into a contract – It does not create any right in favour of the

party to whom it is issued – There is no binding legal relationship

between the party issuing the LOI and the party to whom such

LOI is issued – Detailed agreement/contract is required to be

drawn up between the parties after the LOI is received by the

other party. [Para10]

List of Acts

Constitution of India.

List of Keywords

Cancellation of initial tendering process; Tender; Irregularities

and illegalities; Notice inviting tender; Letter of intent; Burden on

the public exchequer; Misuse process of law; Cost; Fresh tender

process; Agreement/contract.

[2024] 4 S.C.R. 3

Level 9 Biz Pvt. Ltd. v. Himachal Pradesh Housing and Urban

Development Authority & Another

Case Arising From

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4626 of 2024

From the Judgment and Order dated 18.10.2022 of the High Court of

Himachal Pradesh at Shimla in CWP No. 1481 of 2021

Appearances for Parties

P.S. Patwalia, Sr. Adv., Ritesh Khatri, Ms. Deveshi Chand, Advs. for

the Appellant.

Anoop G. Chaudhari, Navin Pahwa, Sr. Advs., Shankar Divate, J. P.

Mishra, D. K. Thakur, Rajeev Kumar Gupta, Tavleen Singh, Joginder

Mann, Ms. Vallabhi Shukla, Divyansh Thakur, Bimlesh Kumar Singh,

Kanwal Chaudhary, Neeraj Agarwal, Santosh Kumar Yadav, Ms.

Niharika, Nishant Anand, Advs. for the Respondents.

Judgment / Order of the Supreme Court

Judgment

Bela M. Trivedi, J.

1. Leave granted.

2. The Appellant – Level 9 BIZ Pvt. Ltd., who was not a party to the

proceedings, being Civil Writ Petition No. 1481 of 2021, filed by

the Respondent No.2 – M/s. Vasu Constructions in the High Court

of Himachal Pradesh at Shimla, has challenged the impugned

order dated 18.10.2022 passed by the High Court in the said

proceedings. The High Court passed the impugned order disposing

of the said CWP by merely accepting the statement made on behalf

of the Respondent No.1 – Himachal Pradesh Housing and Urban

Development Authority (HIMUDA) that it wanted to withdraw the

cancellation of initial tendering process order dated 05.02.2021,

and the statement made on behalf of the Respondent No. 2 that it

was ready to execute the project on the same terms and conditions

and the rates as per the initial tender dated 15.11.2018, though

the said tender was already withdrawn by the Respondent no. 1

HIMUDA in view of the irregularities and illegalities committed by it,

as recorded by an independent committee appointed by the High

Court in earlier writ petitions filed by the present appellant and one

Dalip S. Rathore.

4 [2024] 4 S.C.R.

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3. The broad facts giving rise to the present appeal may be stated

as under: -

DATES EVENTS

15/16.11.2018 Notice Inviting Tender (NIT) was issued by

HIMUDA (R-1) for the construction of proposed

commercial complex of Vikas Nagar, Shimla, at

estimated cost of Rs.45,05,62,074/-

15.12.2018 Technical Bids were opened and on the same

day Financial Bids were also opened. (Appellant

& R-2 were the only found to be qualified – But

the Appellant was L2)

17.12.2018 LOI was issued by the R-1 in favour of R-2.

24.12.2018 One Unsuccessful bidder Dalip S Rathore

filed Writ Petition being CWP 3021 of 2018

challenging the technical specifications &

ineligibility of Respondent No.2, also seeking

cancellation of the Tender. The High Court

issued notice.

02.01.2019 R-1 HIMUDA withdrew the LOI dated 17.12.2018

of R-2 M/S Vasu Constructions stating that the

case is pending in the High Court and the work

will be awarded only as per the decision of the

High Court.

05.01.2019 R-1 HIMUDA constituted a committee, which

reviewed the tender process and concluded that

there were many lapses which warranted actions

against the erring officials.

07.01.2019 Another Committee constituted by R-1

submitted a report that Shri Dalip Singh was

not qualified and M/s. Vasu Constructions was

qualified.

23.02.2019 Appellant – Level 9 BIZ Pvt. Ltd. filed a writ

petition CWP 363 of 2019, praying for rejection

of Technical Bid and Financial Bid of the R-2 M/s.

Vasu Constructions

[2024] 4 S.C.R. 5

Level 9 Biz Pvt. Ltd. v. Himachal Pradesh Housing and Urban

Development Authority & Another

25.11.2020 High Court passed a detailed order on 25.11.2020

in CWP No. 3021/2018 and 363/2019.

In Para 29 High Court observed-

“[..] this Court is prima facie of the

view that some of the officers manning

high positions in HIMUDA have not

acted responsibly and in the interest

of organization, rather have attempted,

directly or indirectly, to give undue

benefit to some of the contractors.

Having seen the record, this Court is

compelled to draw a conclusion that the

officers responsible for evaluation of the

tender in question, did not scrutinize the

documents submitted by the tenderers

along with their bids properly and, with

a view to ensure ouster of some eligible

contractors and awarding the same to

their favourites, have made an attempt

to justify their action by giving totally

implausible reasoning.”

In para 31, High Court observed-

“But, for the reasons, best known

to the authority, it still proceeded to

award the tender in favour of M/s. Vasu

Construction Company.”

The High Court therefore to instill confidence in

the general public and to ensure transparency in

the system, constituted an independent committee

to enquire into the tender process in question, and

directed the committee to submit its report in a

sealed cover to the Court.

02.01.2021 Committee constituted by High Court filed its report.

08.01.2021 High Court disposed of both Petitions being Nos.

3021/2018 and 363/19 and directed registry

to initiate separate proceedings against erring

officials, observing as under: -

6 [2024] 4 S.C.R.

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14. Since the committee, after having

perused the records, has arrived at

a definite conclusion that on account

of shortcomings/irregularities, tender

in question requires to be cancelled,

nothing much is left for this court to

adjudicate in these matters. Leaving

everything aside, learned counsel for the

petitioners in both the petitions, being

satisfied with the findings of enquiry

committee as well as suggestions made

therein, are not willing to prosecute

the cases further and have prayed to

dispose of the same as having been

rendered infructuous.

15. In view of aforesaid, both the

petitions are disposed of as infructuous

alongwith all pending applications.

Interim directions, if any, stand vacated.

However, liberty is reserved to the

parties to file fresh petition(s), if any, if

they still remain aggrieved.

16. However, this court, having taken

note of the fact that the enquiry committee

despite having found officers lacking in

discharge of their duties, has failed

to fix responsibility and recommend

action, criminal or departmental, deems

it necessary to direct the Registry

of this Court to register separate

proceedings, enabling this Court to pass

appropriate orders so as to ensure strict

compliance of recommendations given

in the report of enquiry committee and

pass appropriate orders with regard

to initiation of criminal/ departmental

proceedings against the erring officials.

[2024] 4 S.C.R. 7

Level 9 Biz Pvt. Ltd. v. Himachal Pradesh Housing and Urban

Development Authority & Another

Registry is directed to register separate

proceedings and list the same on

17.3.2021. The order dated 25.9.2020,

this judgment and the enquiry report

submitted by the committee constituted

by this Court, shall form part of the fresh

proceedings.

05.02.2021 Respondent No.1 cancelled the Tender in view

of the Order dated 08.01.2021 passed by the

High Court.

03.03.2021 Respondent No.2 filed a new Writ Petition against

Respondent No.1, i.e., CWP 1481 of 2021

challenging order dated 05.02.2021.

Respondent no. 2 also filed separate two LPAs

being LPA No. 6/2021 and 12/2021 against the

common order dated 08.01.2021 passed in CWP

No. 3021/2018 and CWP No. 363/2019 by the

Single Bench.

17.11.2021 R-1 HIMUDA issued fresh NIT for the same work.

01.12.2021 The Division Bench of High Court passed an

interim order in LPA No. 6/2021, 12/2021 and CWP

No. 1481/2021 staying the NIT dated 17.11.2021

till further orders.

18.10.2022 The Division Bench disposed of the Writ Petition

No. 1481/2021 upon statement of the Executive

Engineer of Respondent No.1 observing as under:

7. Learned counsel for the respondent on

instructions of Mr. Rajesh Thakur, Executive

Engineer, HIMUDA, Division, Shimla-9, has

submitted that the competent authority wants

to withdraw the cancellation of initial tendering

process order dated 5th February, 2021, bearing

No. 5806-11, as the public is deprived from the

facilities, which would have been available to them

after completion of the project. The project cost is

going to be enhanced due to delay in execution

of the project, which will cause additional burden

8 [2024] 4 S.C.R.

Digital Supreme Court Reports

on the public exchequer. The various Government

departments/PSUs are facing acute shortage of

office accommodation, therefore, in larger public

interest, the authority has no objection to go ahead

with initial tendering process, in case the petitioner

is ready to execute the work at the same rate and

terms and conditions as were agreed at the time

of finalization of the initial NIT dated 15.11.2018

(Annexure P-2). The time period for execution

of work will start from date of fresh award letter

which will be issued in favour of the petitioner

within 15 days.

8.Learned Senior counsel for the petitioner, on

instructions from the petitioner, has submitted

that offer made by the respondent is acceptable

to the petitioner and petitioner is ready to execute

the project on the same terms and conditions

and rates as per initial tender dated 15.11.2018

(Annexure P-2).

Nov. 2022 Contract Agreement was signed between

Respondent 1 & 2. Work started.

12.12.2022 The Appellant filed the SLP challenging the

impugned order dated 18.10.2022 and the Court

while issuing notice, granted stay of operation of

the impugned order dated 18.10.2022.

4. The question that has been posed before us in the instant appeal

is, whether the High Court could have disposed of the CWP filed

by the respondent no. 2 by simply accepting the statements

made on behalf of the learned advocates for the respondent no.

1 and respondent no. 2, virtually permitting the respondent no.1

HIMUDA to withdraw the cancellation of initial tendering process

order dated 05.02.2021 and permitting the respondent no. 2 M/s

Vasu Constructions to execute the project on the same terms

and conditions and at the rates as per the initial tender dated

15.11.2018, though the said tender was already withdrawn by

the Respondent No.1 HIMUDA in view of the report made by the

independent Committee constituted by the High Court confirming

gross irregularities and illegalities committed by the officers of 

[2024] 4 S.C.R. 9

Level 9 Biz Pvt. Ltd. v. Himachal Pradesh Housing and Urban

Development Authority & Another

HIMUDA and in view of the order dated 08.01.2021 passed by

the Single Bench?

5. As could be seen from the chronology of events, the appellant and

the respondent No. 2 were declared qualified in the Technical Bids

opened on 15.12.2018 and on the same day, the financial bid of the

said two parties were also opened. The respondent no.2 being L-1,

the Letter of Intent dated 17.12.2018 was issued by the Respondent

No.1 in favour of the respondent no.2. Subsequently, an unsuccessful

bidder M/s Dalip Singh Rathore filed a writ petition being No.

3021/2018 in the High Court, alleging irregularities and illegalities in

the tender process and challenging the eligibility of the respondent

no. 2, also seeking cancellation of the Tender. The appellant also

filed CWP No. 363/2019 praying for the rejection of the Technical

and Financial Bids of the respondent no.2. The respondent no.1

HIMUDA in the meantime appointed a committee on 01.01.2019 to

review the tender process. The respondent no.1 also vide the letter

dated 02.01.2019 withdrew the Letter of Intent issued in favour of

the respondent no.2. Subsequently, the High Court also appointed

an Independent Committee to look into the alleged illegalities and

irregularities vide the order dated 25.11.2020, in order to instill

confidence in the general public and to ensure transparency in the

system.

6. As transpiring from the order dated 08.01.2021, the said Independent

Committee submitted the report, arriving at a definite conclusion that

the officers responsible for evaluation of the tender had not acted

responsibly and fairly, as a consequence of which both M/s Vasu

Constructions Company (respondent no.2 herein) and M/s Level 9

Biz Pvt. Ltd. (the appellant herein) were wrongly declared eligible in

the Technical Bid. The Committee had concluded that since both the

bidders were not technically qualified as per the terms and conditions

of the NIT, the tender needed to be cancelled. The recommendations

made by the said Committee, except the recommendation for deletion

of condition with regard to NPA, were stated to have been accepted

by the Enquiry Committee of the respondent no. 1 HIMUDA. The High

Court recorded the statements of the concerned counsels for the

parties and disposed of the petitions being CWP Nos. 3021/2018 and

363/2019 vide Order dated 08.01.2021 observing that the petitions

had been rendered infructuous, however reserved a liberty for the

parties to file fresh petition(s), if any, if they still remained aggrieved.

10 [2024] 4 S.C.R.

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7. Subsequently, the respondent no.1 HIMUDA cancelled the tender

on 05.02.2021 in view of the said order dated 08.01.2021 passed

by the High Court. The said action of the respondent no.1 came to

be challenged by the Respondent No.2 M/s Vasu Constructions by

filing a petition being CWP No. 1481/2021. The respondent no. 2

also filed two LPAs being 6/2021 and 12/2021 being aggrieved by

the common Order dated 08.01.2021 passed by the Single Bench.

The Division Bench of the High Court disposed of the CWP No.

1481/2021 vide the impugned order dated 18.10.2022 accepting the

statements made by the learned counsels for the respondent nos.

1 and 2 as stated hereinabove.

8. We are at loss to understand as to how the said petition filed by

the respondent no.2 could have been disposed of by the Division

Bench by merely recording and accepting the statements of the

learned counsels for the respondent nos. 1 and 2, when the tender

in respect of NIT dated 15.11.2018 was cancelled by the respondent

no.1 HIMUDA on account of the gross irregularities and illegalities in

the tender process found by the Independent Committee constituted

by the High Court and on account of the order passed by the High

Court on 08.01.2021? We are also at loss to understand as to how

the Executive Engineer of HIMUDA, could have made the statements

before the Division Bench that the competent authority of the

respondent no.1 wanted to withdraw the cancellation of the initial

tendering process order dated 05.02.2021 and that the respondent

no. 1 had no objection to go ahead with the initial tendering process,

in case the respondent no.2 was ready to execute the work on

the same terms and conditions as were agreed at the time of

finalization of NIT dated 15.11.2018, when the respondent no. 1

itself had decided to cancel and in fact cancelled the initial tendering

process vide its order dated 05.02.2021 accepting the findings of

the committee constituted by the High Court to the effect that there

were irregularities and illegalities committed by the officers of the

HIMUDA in processing the tender and that the respondent no. 2 was

not technically qualified?

9. When the common order dated 08.01.2021 was passed in the Writ

Petition No. 3021 of 2018 filed by the petitioner Dalip Singh and Writ

Petition No.363 of 2019 filed by the present appellant, recording the

said findings of the committee appointed by it, pursuant to which

order, the respondent no.1 had cancelled the tender on 05.02.2021, 

[2024] 4 S.C.R. 11

Level 9 Biz Pvt. Ltd. v. Himachal Pradesh Housing and Urban

Development Authority & Another

and had issued a fresh NIT on 17.11.2021, it was incumbent on the

part of the respondent no. 2 to implead the said two petitioners as

the party respondents in the new petition filed by it i.e. 1481/2021,

and it was also incumbent on the part of the High Court to give

opportunity of hearing to the said petitioners before passing the

impugned order disposing of the said petition merely recording the

statements of the learned counsels for the respondent nos. 1 and

2, and permitting the respondent nos. 1 and 2 to go ahead with

execution of the work as per the initial tender which was already

cancelled by the respondent no.1.

10. Though it is true that initially an LOI was issued by the respondent

no. 1 in favour of the respondent no. 2 on 17.12.2018, but the same

was withdrawn by the respondent no. 1 as per the letter dated

02.01.2019 on account of pending litigations in the High Court. In

any case, it hardly needs to be reiterated that the Letter of Intent is

merely an expression of intention to enter into a contract. It does not

create any right in favour of the party to whom it is issued. There

is no binding legal relationship between the party issuing the LOI

and the party to whom such LOI is issued. A detailed agreement/

contract is required to be drawn up between the parties after the LOI

is received by the other party more particularly in case of contract

of such a mega scale.

11. Since, there was no right whatsoever created in favour of the

respondent no. 2, and since the respondent no. 1 HIMUDA had

already accepted the recommendations of the Committee appointed

by the High Court and the order dated 08.01.2021 passed by the

High Court, and had cancelled the tender and issued fresh NIT on

17.11.2021, the respondent no. 1 could not have agreed to allow the

respondent no. 2, who was found to be not technically qualified, to

go ahead with the execution of the project in question and that too

without giving the other two parties any opportunity to negotiate. If the

respondent no. 1 was so keen to provide the facilities to the public

without causing any additional burden on the public exchequer, all

the three parties who had participated in the original tender should

have been given the opportunity to negotiate with it.

12. Having regard to the entire chain of events, and the conduct of

the respondent nos. 1 and 2, we have no hesitation in holding that

the respondent no. 1 in collusion with the respondent no. 2, had 

12 [2024] 4 S.C.R.

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taken the High Court for a ride and misused the process of law for

covering up the irregularities and illegalities committed in the tender

process by the officers of the respondent no. 1, and for anyhow

awarding the contract to the respondent no. 2 under the guise of

the court’s order. It is a matter of surprise for us that the High Court

also could not notice the ill-intention of the respondent nos. 1 and 2

and disposed of the petition, permitting them to go ahead with the

original tender, ignoring the reports of the independent committee

and the observations made by the Single Bench in the Order dated

08.01.2021 with regard to the irregularities and illegalities committed

by the officers of the respondent no. 1 HIMUDA.

13. The impugned order having been passed without proper application of

mind and without assigning any cogent reason for brushing aside the

findings recorded by the Independent Committee and the observations

made by the Single Bench in the order dated 08.01.2021, the same

deserves to be quashed and set aside. Since, we have found that

the respondent no.1 HIMUDA, though ‘State’ within the meaning

of Article 12 of the Constitution of India, had acted malafide and in

collusion with the respondent no.2, and had taken the High Court for

a ride, the present appeal deserves to be allowed with heavy cost.

14. In that view of the matter, the impugned order passed by the High

Court is set aside. The appeal is allowed with cost of Rs. 5,00,000/-

to be deposited by the respondent no. 1 HIMUDA with the Supreme

Court Advocates-on-Record Association, within two weeks from today.

However, it is clarified that the respondent no.1 shall be at liberty

to initiate a fresh tender process in accordance with law and after

following the due process of law.

Headnotes prepared by: Nidhi Jain Result of the case:

Appeal allowed.