LLM Notes: The liability of public utilities in contract under Indian law

 The liability of public utilities in contract under Indian law is primarily governed by the Indian Contract Act, 1872, alongside specialized consumer protection laws. Public utilities operate under a contractual relationship with consumers that is often characterized by standard form contracts where the terms are fixed unilaterally by the utility, with little bargaining power for consumers.

Contractual Liability of Public Utilities

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LLM Notes: Public Utilities and Consumer Protection: Rights under Contract and Tort Law

 Introduction

Public utilities form the backbone of modern society, providing essential services such as electricity, water, gas, telecommunications, and transportation that are indispensable for daily life. The intersection of public utility services with consumer protection law creates a complex legal framework that operates at the convergence of contract law, tort law, and constitutional principles. This framework ensures that consumers have adequate protection and redressal mechanisms when dealing with public utility corporations, which often operate as natural monopolies with significant market power.

The legal framework governing public utilities and consumer protection in India has evolved significantly since independence, moving from a purely state-controlled model to one that incorporates regulatory oversight, consumer rights, and liability principles. This evolution reflects the need to balance the public interest in essential service delivery with the protection of individual consumer rights under both contract and tort law.

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Whether one party can withhold performance bank guarantee if it has acknowledged due performance of contract?

  In view of the above, the Arbitral Tribunal had rightly directed

refund of the amount recovered by BSNL from invocation of the

Performance Bank Guarantee in question. There is no principle in law whereby BSNL could be permitted to retain the Performance Security after it had acknowledged due performance of the Contract. {Para 19}

IN THE HIGH COURT OF DELHI AT NEW DELHI

 Judgment delivered on: 28.03.2022

 O.M.P. (COMM) 431/2019 & I.A. 14326/2019

BHARAT SANCHAR NIGAM LIMITED  Vs TERACOM LIMITED 

CORAM

HON’BLE MR JUSTICE VIBHU BAKHRU

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Does the corporation postpone payment to the contractor, saying that it will pay him after receiving money from the government?

  The learned Judge in North Delhi Municipal Corporation Vs.

Vipin Gupta (supra) was dealing with a batch of appeals passed in similar suits wherein the appellant-corporations were relying on clause 7 and clause 9 to delay payment to contractors who had executed the work as per their respective work orders. The relevant portion of the judgment dated 22nd March, 2018 in RFA 160/2017 is reproduced hereinbelow:-

“Conclusions and Findings

“56. The General Conditions of Contract i.e., clauses 7 and

9 which are admittedly part of the work orders issued by

both the NrDMC and the EDMC are being tested in these

batch of cases. A contract which stipulates that the

consideration would be paid in an unforeseen time in the

future based on certain factors which are indeterminable,

would in effect be a contract without consideration. Even if

the contract is held to be a valid contract, then the concept of

`reasonableness' has to be read into the same. Section 46 of

the Contract Act and the explanation thereto is clear that

“what is a reasonable time is a question of fact in each

case.” A Corporation which gets works executed cannot

therefore include terms in the contract which are per se

unconscionable and unreasonable as –

a) There is no fixed time period as to when the

funds would be available;

b) There is also no fixed mechanism to determine

as to when and in what manner the head of

account is to be determined and as to how the

Contractor would acquire knowledge of these two

facts;

c) There is also no certainty as to how many

persons are in the queue prior to the Contractor

and for what amounts;

d) There is enormous ambiguity in the receipt

under the particular heads of accounts.

57. These clauses in effect say that the Contractor is left with

no remedy if the Corporation does not pay for the work that

has been executed. Such a Clause would be illegal and

contrary to law. Such clauses, even in commercial contracts,

would be contrary to Section 25 read with Section 46 of the

Contract Act.

58. The clauses do not specify an outer time limit for

payment. The expression reasonable time has to be `a time'.

The concept of time itself is ensconced with specificity and

precision. Clause 9 is the opposite of being precise. It is as

vague and ambiguous as it could be because it depends on

factors which are totally extraneous to the contract, namely

 Allotment of funds to the Corporation by

the Government;

 Allotment of funds in a particular head;

 Allotment of funds for payments who are

in queue prior to the contractor;

59. Thus, these factors, which are beyond the control of the

Contractor and which would govern the payment of

consideration, make the said clauses of the contract

completely unreasonable. The clauses have to thus, be read

or interpreted in a manner so as to instill reasonableness in

them. {Para 9}

The learned Single Judge of this Court in North Delhi Municipal Corporation Vs. Vipin Gupta (supra) took note of this fact and observed as under:-

“33. It is slightly unfathomable as to how the Corporation can

postpone the payment to the Contractor, indefinitely. The

issuance of the tender and the work order in favour of the

Contractor has to be on the pre-condition that funds are

available with the Corporation. To ask the Contractor to wait

endlessly for his payment is wholly arbitrary. The

Corporation which hands over the works contract to the

Contractor cannot say “Do the work now, I will pay when I

have the money”. Even if such a clause has been signed and

accepted by the Contractor, it does not make the clause valid

inasmuch as it would render a fundamental condition of

contract being hit by provisions of the Indian Contract Act,

1872 (hereinafter, „Contract Act‟). Every contract, to be

valid, has to have consideration and the indefinite

postponement of consideration would be wholly

unconscionable.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

 RFA (COMM) 6/2021 & CM APPLs. 10185-10188/2021

NORTH DELHI MUNICIPAL CORPORATION  Vs M/S. BARAHI CONSTRUCTION 

 Date of Decision: 15th March, 2021

CORAM:

HON'BLE MR. JUSTICE MANMOHAN

HON'BLE MS. JUSTICE ASHA MENON

Author: MANMOHAN, J (Oral):

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Supreme court: Acceptance Of A Conditional Offer With A Further Condition Does Not Result In A Concluded Contract

 The Trial Court relied on Section 4 of the Contract Act, but

completely overlooked Section 7. Section 7 of the Indian Contract

Act, 1872 is set out hereinbelow for convenience:-

“7. Acceptance must be absolute.—In order to convert a

proposal into a promise the acceptance must— —In order to

convert a proposal into a promise the acceptance must—"

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless

the proposal prescribes the manner in which it is to be accepted.

If the proposal prescribes a manner in which it is to be accepted,

and the acceptance is not made in such manner, the proposer

may, within a reasonable time after the acceptance is

communicated to him, insist that his proposal shall be accepted

in the prescribed manner, and not otherwise; but, if he fails to do

so, he accepts the acceptance.”

56. It is a cardinal principle of the law of contract that the offer

and acceptance of an offer must be absolute. It can give no room for doubt. The offer and acceptance must be based or founded on three components, that is, certainty, commitment and communication. However, when the acceptor puts in a new condition while accepting the contract already signed by the proposer, the contract is not complete until the proposer accepts that condition, as held by this Court in Haridwar Singh v. Bagun Sumbrui and Ors. AIR 1972 SC 1242 An acceptance with a variation is no acceptance. It is, in effect and substance, simply a counter proposal which must be accepted fully by the original proposer, before a contract is made.

57. In Union of India v. Bhim Sen Walaiti Ram(1969) 3 SCC 146, a three-Judge Bench of this Court held that acceptance of an offer may be either absolute or conditional. If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place.

59. The High Court also overlooked Section 7 of the Contract Act.

Both the Trial Court and the High Court over-looked the main point

that, in the response to the tender floated by the Respondent-Port

Trust, the Appellant had submitted its offer conditionally subject to

inspection being held at the Depot of the Appellant. This condition

was not accepted by the Respondent-Port Trust unconditionally. The

Respondent-Port Trust agreed to inspection at the Depot of the

Appellant, but imposed a further condition that the goods would be

finally inspected at the showroom of the Respondent-Port Trust. This

Condition was not accepted by the Appellant. It could not, therefore,

be said that there was a concluded contract. There being no

concluded contract, there could be no question of any breach on the

part of the Appellant or of damages or any risk purchase at the cost

of the Appellant. The earnest deposit of the Appellant is liable to be

refunded.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7469 OF 2008

M/s. Padia Timber Company(P) Ltd. Vs The Board of Trustees of Visakhapatnam Port Trust 

Dated: JANUARY 05, 2021

Author: Indira Banerjee, J.

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What is basic concept of novation sub silentio?

Under Clause 5 of the agreement, cannot be construed either as novation of the original contract Under Section 62 of the Indian Contract Act (hereinafter referred to as 'the Act'), or acquiescence to any new arrangement by substitution of a new contract. It was an act done under compulsion, and not voluntarily. A novation of contract, can take place only by mutual consent in a tripartite arrangement. In absence of any fresh tripartite agreement executed between the parties, it is futile to contend novation. 
The plea of the Respondents for novation of the contract referring to Section 8 and 62 of the Act, sub silentio finds support from the observations in McDermott International Inc. (supra) as follows:

151. Clause 5 of the contract categorically states that MII was to procure the material which was to be reimbursed by BSCL. The extra amount incurred by MII for procuring materials having extra thickness, therefore, was not payable. To the aforementioned extent, there has been a novation of contract. MII had never asserted, despite forwarding of the contention of ONGC, that it would not comply therewith. It, thus, accepted in sub silentio.

21. The novation of a contract could take place sub silentio was also noticed in BSNL v. BPL Mobile Cellular Ltd. MANU/SC/7717/2008 : (2008) 13 SCC 597 as follows:

45..... They might have also been held bound if they accepted the new rates or the periods either expressly or sub silentio.....

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 1168 of 2007

Decided On: 19.06.2017

 Kanchan Udyog Limited Vs.  United Spirits Limited

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