Supreme Court applies 'Principle of Estoppel'- Signing Agreement & Issuing an Undertaking estops party from Challenging the Amount of Consideration mentioned in Contract

Supreme Court applies 'Principle of Estoppel'- Signing Agreement & Issuing an Undertaking estops party from Challenging the Amount of Consideration mentioned in Contract

The Supreme Court by its two judges bench comprising of Justices S Ravindra Bhat and PS Narasimha in the matter of The Chief Engineer, Water Resources Department and others vs. Rattan India Power Ltd held that signing a contract and issuing an undertaking in accordance with the contract would estop the parties from challenging the amount of consideration as specified within the terms of the contract.

The matter before the Apex Court concerned the levy of 'irrigation restoration charge' by the appellants- Chief Engineer, Water Resources Department as per Government Resolution dated 1 March, 2009. The Respondent and other similarly placed companies use water for industrial purposes, which was otherwise reserved for irrigation of agricultural land. The usage of water for industrial purposes was seen as loss of water for irrigation, and in order to compensate for the same, the said charge was levied and collected by the appellant. These charges were levied after taking into account the total number of hectares which will be deprived of irrigation due to the diversion of water for industrial use.

The respondent company had set up a thermal power plant for which they had sought 240 million liters of water per day to facilitate the smooth running of the thermal power plant. Pursuant to the application made by respondent company, a high-powered committee constituted by the State of Maharashtra in its meeting held on 21 February, 2008, granted in-principle approval for the usage of water by respondent company. This in-principle approval was subject to respondent company paying capital contribution and irrigation restoration charges. The high-powered committee named the appellant herein as the implementing agency.

Ultimately, on 22 May, 2012, the appellant and respondent entered into a water supply agreement. Notably, this agreement stated that respondent shall pay a sum of Rs. 1,00,000 as irrigation restoration charge. This agreement indicated consensus ad idem on the amount to be paid towards irrigation restoration. It was reported that on the same day, respondent had also issued an undertaking to deposit the irrigation restoration charge at the rate of Rs.1,00,000 per hectare in 5 equal instalments.

The Civil appeal filed by the appellant before the Top Court challenged the judgment passed by the Division Bench of the High Court of Judicature at Bombay at Nagpur, whereby the High Court had lowered the 'irrigation restoration charges' which the respondent had contracted to pay, from Rs. 1,00,000 per hectare to Rs. 50,000 per hectare. It is significant to note here that this judgment had the effect of reducing the total liability of the Respondent towards irrigation charges from Rs. 232.18 crore to Rs. 116.09 crore.

The Top Court after analysing found that the respondent was not justified in challenging the levy of Rs.1,00,000 when it itself had agreed to the same. In fact, on the same day, Respondent No.1 had also issued an undertaking that it would pay the stipulated sum within a specific period. The Top Court noted that right from the very beginning i.e., in the sanction order, the demand notice and in all its letters, the appellant had stipulated a sum of Rs.1,00,000 per hectare as irrigation restoration charges. All these communications were subsumed in the agreement dated 22 May, 2012. Therefore, the Apex Court was of the view that signing the agreement and issuing an undertaking would estop respondents from challenging the levy of Rs.1,00,000 as irrigation restoration charges.

The Court was not satisfied with the approach adopted by the High Court when respondent had willfully and deliberately entered into an agreement knowing fully well the legal and business consequences. The High Court committed a mistake in not only entertaining the writ petition, but also in supplanting its view over that of the contract, added the Top Court while allowing the appeal.