Government Cannot Retrospectively Alter Contract Terms: HC Quashes Arbitrary Water Allocation Orders
COURT/TRIBUNAL/FORUM: High Court of Orissa, Cuttack
CASE NAME: M/s Indian Metals and Ferro Alloys Limited & Another V. State of Odisha & Others
CASE NO.: W.P.(C) NO. 26402 OF 2021
DATE OF JUDGEMENT: 09.10.2025
CORAM: Justice Dixit Krishna Shripad
APPEARED FOR: M/s Indian Metals and Ferro Alloys Limited & Another
Factual Background
The petitioner company, engaged in manufacturing High Carbon Ferro Chrome and generating captive power, entered into a water supply agreement with the State of Odisha on 6 August 2014 for 10.332 cusecs from the Mahanadi River at ₹4.50 per 1000 litres for three years. Following coal block deallocation, the company sought a reduction of allocation to 4.332 cusecs in 2015 and repeatedly reminded the authorities, also seeking a refund of excess payments. Despite recommendations by the Director of Water Resources to approve the reduction, the Government remained unresponsive and renewed the agreement on 4 August 2017 for the original quantity. After litigation, the Government finally approved a reduction to 5.98 cusecs and executed a Supplementary Agreement on 25 June 2018 but later refused a refund of excess charges. Subsequent audits reclassified the water source as an “Irrigation Source,” revising rates upwards and leading to further agreements in 2020 and 2021. In July 2021, the authorities demanded ₹5.07 crore as arrears with interest for 2014-2020, prompting the present writ petition before the High Court.
Contention of the Petitioner
The petitioners contended that the order dated 15 March 2019 rejecting their request for a reduction of water quantity and refund, along with the demand notices issued in July and August 2021, were arbitrary, unjust, and violative of natural justice, as no opportunity of hearing was given. They argued that the authorities acted unilaterally on the Audit Report and High-Level Committee findings without involving the company. The company’s request for reduced allocation arose due to the Supreme Court’s coal block deallocation judgment, a circumstance beyond its control, which the Government failed to consider.
It was further submitted that the impugned notices contradict the terms of the 2014 Agreement and breach the contractual principle of pacta sunt servanda. The petitioners accused the authorities of taking inconsistent stands, ignoring internal expert recommendations, and issuing a non-speaking order that reflected non-application of mind.
Contention of the Respondents
The respondents argued that the writ petition suffered from undue delay and laches, and therefore, should be dismissed, as courts do not aid those who are inactive in asserting their rights. They further contended that the dispute arose from a contractual relationship, which provided for arbitration, making the writ petition not maintainable, especially since it involved disputed questions of fact. It was submitted that the Government was empowered under the 2014 Agreement to unilaterally modify conditions, including reclassifying the water source from Government Source to Irrigation Source based on the Audit Report and High-Level Committee recommendations, and hence the impugned orders were valid. The respondents also maintained that by executing subsequent agreements, the company had waived its earlier claims and was estopped from challenging the same. Lastly, they asserted that principles of natural justice were inapplicable to such contractual matters and, even if a hearing had been granted, the outcome would have remained unchanged.
Court’s Findings
The Court observed that the 2014 water supply agreement was not a purely private contract but had a statutory character, governed by the Odisha Irrigation Act, 1959 and 1961 Rules. The agreement involved public law elements, including licensing, regulation, and enforcement mechanisms for industrial use of water from government sources. Relying on the Apex Court decision in LIC of India v. Escorts Limited [1986] 59 Comp Cases 548, the Court held that such agreements, though contractual in form, can have statutory implications justifying writ jurisdiction. Therefore, the writ petition challenging the government’s refusal to reduce water allocation was maintainable and could not be summarily dismissed.
The Court addressed the contention that the petitioners should be relegated to arbitration under Clause 15 of the 2014 Agreement, which stated that disputes arising from the agreement would be referred to the Government, whose decision would be final. The Court rejected this argument, noting that since the Government itself issued the impugned order, referring the matter to arbitration with the same authority would be “appeal from Caesar to Caesar’s wife”, making it a mockery of justice. The Court also emphasized that while arbitration is an alternate remedy, the doctrine of alternate remedy is not absolute and does not block access to constitutional writ jurisdiction, especially when public law and statutory rights are involved.
The Court further referred to Davis v. Mills 194 US 451 (1904), to highlight that constitutional and practical rights should prevail over rigid procedural doctrines, noting that writ jurisdiction could adjudicate disputed facts if sufficient evidentiary material exists. The Court concluded that the dispute over water allocation could be fairly resolved in writ jurisdiction based on the available records, and denying relief on the ground of the arbitration clause would be unjust and unreasonable.
The Court addressed the objection raised by the OPs that the petition should be dismissed due to delay and laches, as the impugned order was dated 15.03.2019, but the writ petition was filed only on 31.08.2021. The Court observed that no fixed limitation period exists for invoking writ jurisdiction, and the mere passage of time does not automatically bar relief. It noted that the petitioners had repeatedly reminded the OPs and filed earlier writs (WP(C) Nos. 5831/2017 and 23618/2017) seeking a reduction of water allocation. The Government itself delayed action on the petitioners’ representations for nearly two years, thereby negating the argument of delay against the petitioners. The Court further noted that the respondents violated natural justice by rejecting the petitioners’ request for a reduction of water allocation without giving them any hearing or access to the Audit Report and High Level Committee recommendations.
The Court held that the Government had no authority to unilaterally or retrospectively alter essential terms of the 2014 Agreement, particularly the classification of the water source from “Government Source” to “Irrigation Works.” Relying on Chitty on Contracts, the Court underscored the principle of estoppel and sanctity of recitals, noting that parties are bound by the agreed terms. The retrospective alteration of the water source and tariff was held unlawful and unconscionable, as it violated the foundational contract principle of pacta sunt servanda.
The Court also emphasized that under Section 20A(7) of the Odisha Irrigation Act and Rule 23A(2)(g) of the 1961 Rules, the Government had the statutory power to grant concessions or exemptions in license fees, especially in cases of industrial hardship. Instead of exercising this discretion fairly, the authorities acted arbitrarily and unreasonably, rendering their decisions unsustainable.
Judgement
The Court quashed the impugned order dated 15 March 2019 and the subsequent demand notices issued in 2021. It directed the Government to allow the Company’s reduction of water allocation to 6 cusecs w.e.f. 03.08.2015 and to refund any excess charges with interest, after providing the Company and other stakeholders an opportunity to hear. The Court held that the State’s actions in reclassifying the water source, refusing the refund, and raising retrospective demands were illegal, arbitrary, and violative of natural justice. It further ruled that the Government can not retrospectively alter the contractual terms or penalize the Company for circumstances beyond its control. Accordingly, the writ petition was allowed, and the petitioner company was held entitled to appropriate relief in accordance with the law.
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