# STATE OF KARNATAKA AND ANR v. ALL INDIA MANUFACTURERS ORGANIZATION AND ORS

- **Citation:** [2006] Supp. 1 S.C.R. 86
- **Court:** Supreme Court of India
- **Decided:** 2006-04-20
- **Case number:** Civil Appeal Nos. 3492-3494 of 2005
- **Bench:** Ruma Pal, B.N. Srikrishna, Dalveerbhandari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-karnataka-and-anr-v-all-india-manufacturers-organization-and-ors-21492
- **Pages:** 39

## Headnote

Constitution of India-Article 300A-Code of Civil Procedure, 1908Seclion 11-Karanataka Industrial Areas Development Act, 1966---Sections
C 2(7-a) and 28(/)-Memorandum of Understanding entered into by State
wi1h a Private Consortium for an Infrastructure Corridor Project-Nodal
Company set up by the Consortium to implement the Project-Framework
Agreement entered into under which !he Stale has to make available agreed
acres of land lo the nodal company for the Project-State made requisite
amendments in State laws for acquiring private land-Public /meres!
D litigation Petition filed before High Court contending that the Agreement
was viliated by rnala tides and opposed 10 public policyr--High Court dismissed
the Writ Petirion--Notifications issued by the State for acquisition of land--
landowners filed Writ Petitions before High Court challenging the
notifications contending rhat excess land are acquired than required for the
E Project--Single Judge partly allowed the Writ Petitions but the judgment was
ser aside in Writ Appeals---Allegations came to be made against the nodal
company for committing fraud by diverting the acquired land to its real
estate business--State stalled the land acquisition proceedings and set up
an Enquiry Commirtee to look into the allegations-Public Interest litigations
peritions filed before High Court on the ground !hat !he Agreement was
F viliated by fraud and/or misrepresentation and that excess land are acquired
for the Project-High Court dismissed the Writ Petitions on the ground of res
judicata and on facts--Correcrness of-Held, Writ petitions were barred by
res judicata---On jilcls, the plea of lhe Stare offraud and misrepresentation
cvmmiued by the nodal company was lacking any bona tides-Land was
G bemg acquired for a public purpose and hence there is no contravention of
Article 300A and the Act.
State conceived Bangalore-Mysore Infrastructure Corridor Project with
twin objectives-firstly, to provide for an express highway linking Bangalore
with Mysore and secondly for developing infrastructure along the corridor
H
86
•
i '
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STATE OF KARNA I AKA v. ALL!NDIA MANUFACTURERS ORGN
87
and in and around Bangalore city. The State entered into a Memorandum of A
Understanding (MOU) with a Private Consortium of three members to take
up the project on a Build-Own-Operate-Transfer (BOOT) basis. The State
agreed to extend full support for the development of the Project provided
commercial viability, competitiveness and feasibility of the project was
established to the satisfaction of the State. A High Level Committee was formed B
by the State to implement the Project. The Consortium presented a Project
Report to the Committee, which submitted its report to the State. The State
accepted the Committee report and the Project Report of the Consortium and
issued a Government Order.
The members of the Consortium entered into a 'Consent and C
Acknowledge Agreement' (CAA) and assigned their respective rights with
regard to the Project to a nodal company, which was formed to implement the
Project. The nodal company and the State entered into a Framework
Agreement (FW A) under which the State has to make available approximately
20, 193 acres of land to the Project. The State made amendments in the
Karnataka Industrial Areas Development Act, 1966 and the Board under the D
Act entered into an agreement with the nodal company for acquisition of
private land.
A Writ Petition was filed before High Court as a Public Interest
Litigation against the State and the nodal company for quashing the FWA on
the ground that it was vitiated by malafides and was opposed to public policy. E
The High Court, after considering all the materials on record, dismissed the
Writ Petition. The High Court held that the required land was necessary not
only for the construction of an expressway but also for other connected
developmental activities [H. T. Somashelwr Reddy v. Government of Karnatalw
and Anr., (1999) I KLD 500 (DB)).
p
The State iss

## Text

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A
B
STATE OF KARNATAKA AND ANR.
v.
ALL INDIA MANUFACTURERS ORGANIZATION AND ORS.
APRIL 20, 2006
[RUMA PAL, B.N. SRIKRISHNA AND DALVEERBHANDARI,JJ.]
Constitution of India-Article 300A-Code of Civil Procedure, 1908Seclion 11-Karanataka Industrial Areas Development Act, 1966---Sections
C 2(7-a) and 28(/)-Memorandum of Understanding entered into by State
wi1h a Private Consortium for an Infrastructure Corridor Project-Nodal
Company set up by the Consortium to implement the Project-Framework
Agreement entered into under which !he Stale has to make available agreed
acres of land lo the nodal company for the Project-State made requisite
amendments in State laws for acquiring private land-Public /meres!
D litigation Petition filed before High Court contending that the Agreement
was viliated by rnala tides and opposed 10 public policyr--High Court dismissed
the Writ Petirion--Notifications issued by the State for acquisition of land--
landowners filed Writ Petitions before High Court challenging the
notifications contending rhat excess land are acquired than required for the
E Project--Single Judge partly allowed the Writ Petitions but the judgment was
ser aside in Writ Appeals---Allegations came to be made against the nodal
company for committing fraud by diverting the acquired land to its real
estate business--State stalled the land acquisition proceedings and set up
an Enquiry Commirtee to look into the allegations-Public Interest litigations
peritions filed before High Court on the ground !hat !he Agreement was
F viliated by fraud and/or misrepresentation and that excess land are acquired
for the Project-High Court dismissed the Writ Petitions on the ground of res
judicata and on facts--Correcrness of-Held, Writ petitions were barred by
res judicata---On jilcls, the plea of lhe Stare offraud and misrepresentation
cvmmiued by the nodal company was lacking any bona tides-Land was
G bemg acquired for a public purpose and hence there is no contravention of
Article 300A and the Act.
State conceived Bangalore-Mysore Infrastructure Corridor Project with
twin objectives-firstly, to provide for an express highway linking Bangalore
with Mysore and secondly for developing infrastructure along the corridor
H
86
•
i '
)1
STATE OF KARNA I AKA v. ALL!NDIA MANUFACTURERS ORGN
87
and in and around Bangalore city. The State entered into a Memorandum of A
Understanding (MOU) with a Private Consortium of three members to take
up the project on a Build-Own-Operate-Transfer (BOOT) basis. The State
agreed to extend full support for the development of the Project provided
commercial viability, competitiveness and feasibility of the project was
established to the satisfaction of the State. A High Level Committee was formed B
by the State to implement the Project. The Consortium presented a Project
Report to the Committee, which submitted its report to the State. The State
accepted the Committee report and the Project Report of the Consortium and
issued a Government Order.
The members of the Consortium entered into a 'Consent and C
Acknowledge Agreement' (CAA) and assigned their respective rights with
regard to the Project to a nodal company, which was formed to implement the
Project. The nodal company and the State entered into a Framework
Agreement (FW A) under which the State has to make available approximately
20, 193 acres of land to the Project. The State made amendments in the
Karnataka Industrial Areas Development Act, 1966 and the Board under the D
Act entered into an agreement with the nodal company for acquisition of
private land.
A Writ Petition was filed before High Court as a Public Interest
Litigation against the State and the nodal company for quashing the FWA on
the ground that it was vitiated by malafides and was opposed to public policy. E
The High Court, after considering all the materials on record, dismissed the
Writ Petition. The High Court held that the required land was necessary not
only for the construction of an expressway but also for other connected
developmental activities [H. T. Somashelwr Reddy v. Government of Karnatalw
and Anr., (1999) I KLD 500 (DB)).
p
The State issued Notifications for acquisition of land required for the
Project. Many landowners filed Writ Petitions against the State and the nodal
company before the High Court challenging the notifications on the ground
that excess land were being acquired than required for the Project. Single
Judge of the High Court partially allowed the petitions by holding that the G
acquisition of 60% of the land for the formation of roads and infrastructure
development was valid and that the remaining 40% of the land meant for
development of townships and convention centres were invalid. The
landworkers, the State, the Board and the nodal company filed Writ Appeals.
When the writ appeals came up for hearing before the High Court, the State H
88
SUPREME COURT REPORTS (2006] SUPP. I S.C.R.
A and the Board withdrew their writ appeals, reversed their stance before the
High Court and contended that excess lands were being acquired than required
for the Project. The High Court allowed the Writ appeal of the nodal company
and dismissed the writ appeals by the landlord.
Serious allegations were made against the nodal company for diverting
B the land acquired for its real estate business. The State stalled the land
acquisition activity and set up an Expert Committee to look into the allegations.
Writ Petitions by way of Public Interest Litigations were filed before High
Court for restraining the State from continuing with the Project on the
ground that the FW A was vitiated by fraud and/or misrepresentation. Certain
C Writ Petitions were also filed seeking a mandamus against the State to
implement the Project. The High Court, by a common judgment, dismissed
the Writ Petitions of the petitioners opposing the Project on the ground of
res judicata and directed the State and all its instrumentalities to execute the
Project and implement the FWA in letter and spirit.
D
In appeal to this Court, the State contended that the dispute between the
E
State and the nodal company is not barred by the principle of res judicata,
constructive res judicata or estoppel arising from the judgment in Somashekar
Reddy; that the principle of res judicata cannot be inflexibly applied to Public
Interest Litigations especially when a re-examination of decided issues might
be in public interest; that fraud and misrepresentation had vitiated the entire
transaction and hence there would no res judicata since the fraud was
discovered subsequent to the judgment in Somashekar Reddy; that the report
of the Expert Committee, which reviewed the Project, clearly demonstrated
that there was excess land, which in terms showed that the FWA was not a
bona fide agreement and therefore was against public interest; and that the
F directions by the High Court to execute the Project and implement the FW A
was wholly beyond the writ jurisdiction as it would amount to granting a decree
for specific performance in writ jurisdiction. The State Industrial Development
Board coptended that Article 300A of the Constitution of India and the
Karnataka Industrial Development Act, 1966 would be violated ifthe excess
G
land is acquired than required for the Project.
The land owners, in their appeals, contended that no notice was served
on them by the Stat;! under section 28(1) of the Act; that the notice of
acquisition was vague which prejudiced them from making any effective
objection to the land acquisition; and that the acquisition of the lands far away
l l from the actual alignment of the road and periphery would not amount to a
STA TE OF KARNA TAKA v. ALLINDIA MANUFACTURERS ORGN.
89
Cj
public purpose and would be covered by the provisions of the Act..
A
Dismissing the appeals, the Court
HELD: 1.1. The flip-flop on the part of the State occurred only l)eca.use
of.politicians, that the malafides, if any, appears to be on the par( oftheState
Government. From the facts on record, the plea was lacking any bona fides °B
and that there was neither fraud nor misrepresentation on t~e part of the
nodal company or any member of the Consortium. The plea of fraud and
misrepresentation was clearly an afterthought and it was conveniently raised
b.y the State Government through the writ petitioners, who were rightly
described by the High Court as the State Government's 'mouth piece'. The c
contention of the State and the Writ Petitioners that the FWA was vitiated as
a result of fraud and/or misrepresentation was to get over the bar of res
judicata arising from the judgment in Somashekar Reddy.
!102-F; 103-D, F, H; 104-AI
1.2. When some interested parties raised the i.ssue in public interest D
that the FW A was a fraud and was nothing but a charade for a lucrative real
estate business on the part of the nodal company, the State defended the Project
against all the allegations. The State woke up after seven long years and even
more strangely after a change in the State's political leadership to the fact
that there was fraud/misrepresentation by the nodal company or anyone else.
E
The constitution and functioning of the Expert Committee, which was formed
to go into the allegations of excess land acquired for the implementation of
the Project, illustrates the ma/a jides with which the State Government has
approached the Project. The utter irresponsibility with which the theory of
fraud/misrepresentation was put forward is thoroughly exposed by the High
Court. (104-C, F, G; 105-BI
F
H. T. Somashekar Reddy v. Government of Karnataka and Anr., (1999) 1
KLD 500 (DB) affirmed.
2.1. In a Public Interest Litigation, the petitioner is not agitating his
individual rights but represents the public at large. As long as the litigation G
is bona fide, a judgment in a previous Public Interest Litigation would be a
judgment in rem. It binds the public at large and bars any member of the public
from coming forward before the Court and raising any connected issue or an
issue which had been raised/should have been raised on an earlier occasion
.::_•
by way of a Public Interest Litigation. The petitioner in Somashekar Reddy H
90
SUPREME COURT REPORTS [2006] SllPP. 1 S.C.R.
A case was acting bona fide, Thus, in principle, the Somashekar Reddy case,
as a Public Interest Litigation, could bar the present litigation. (106-C, DI
2.2. The prayers in the present writ petitions and in Somashekar Reddy 's
petition are substantially the same. The cause of action in both the writ
petitions is the FWA which includes the provisions for acquiring vast acres
B of land for the Project. In both the writ petitions, the averments was that excess
land than required for the implementation of the Project was being acquired
by the State Government at the behest of the nodal company and that the Project
was nothing but a camouflage to carry out a real estate business by the nodal
company. The issue of excess land was specifically raised in the Writ Petition
C by Somashekar Reddy and was also forcefully denied by the State. In fact, in
the decision in Somashekar Reddy case the High Court accorded its
imprimatur to the land requirements under the FWA. In these circumstances,
Explanation Ill to Section 11 CPC squarely applies. It is clear that the issue
of excess land under the FWA was directly and substantially in issue in
Somashekar Reddy case and hence, the findings recorded therein, having
D reached finality, cannot be reopened in this case. ( 108-F, G; 110-E, F, GI
2.3. Explanation IV to Section 11 CPC squarely applies since in
Somashekar Reddy case, all possible challenges to the validity of the FW A
I.ad been exhausted, including the issue of excess land. Merely by the claim
E of the writ petitioners in the present writ petitions that excess land was not
identified at the stage of the litigation in Somashekar Reddy case and that
the Project should be reviewed, the issue does not cease to be res judicata or
covered by principle analogous thereto. If the issues that had been raised/
ought to have been raised in Somashekar Reddy case are re-examined, it would
simply be an abuse of the process of the court. Hence, the cause of action, the
F issues raised, the prayers made, the relief sought in Somashekar Reddy case
and the findings in it and the claims and arguments in the present petitions
were substantially the same. Therefore, the judgment in Somashekar Reddy
case operate as res judicata for the questions raised in the present petitions.
G
H
(111-C, D, E(
Forward Construction Co. and Ors. v. Prabhat Manda/ and Ors., (1986(
I SCC 100; State of UP. v. Nawab Hussain, (1977( 2 SCC 806 and Direct
Recruit, Class fl Engineering Officers' Association v. State of Maharashtra,
(1990( 2 sec 715, referred to.
Kalipada Dev. Dwijapada Das, AIR (1930) PC 22, referred to.
••
STATE OF KARNA TAKA v. ALLINDIA MANUFACTURERS ORGN.
91
Henderson v. Henderson, (1843-60) All ER Rep. 378 and Greenhalgh v . A
...
Mallard, (1947) 2 ALL 255, referred to.
P. Ramanatha Aiyer, Advanced Law Lexicon Vol. 3rd Edn. 200; and
Mui/a, Code of Civil Procedure Vol. I 15th Edn. 1995, referred to.
3. The land was not being acquired for a purpose other than a public B
purpose. There is no contravention of Article 300A of the Constitution of India.
The State and its instrumentalities including the Board were enjoined by the
terms and conditions of the FWA, to make best efforts to acquire the land
required for the Project. Considering the facts as a whole, since the Project
had been implemented and the nodal company had invested a large amount of
money and work had been carried out for more than seven years, the State c
Government could not be permitted to change its stand and to contend that
the land allotted for the Project was in excess of what was required.
[114-A-DJ
4. The High Court merely directed that the Project and the FW A, as
conceived originally and upheld by the High Court in Somashekar Reddy D
should be implemented in letter and spirit. In other words, the High Court
said that there is no scope for raising frivolous and ma/a fide objections for
ulterior purposes. This, the High Court was fully entitled to do. When the
State's acts of omission or commission are tainted with extreme arbitrariness
and with ma/afldes, it is certainly subject to interference by the Constitutional E
Courts in this country. No exception could be taken to relief granted in the
judgment of the High Court. All that the High Court has done is to reaffirm
and require the State Government and its instrumentalities, as "State" under
the Constitution, to act without arbitrariness and ma/a fides, especially in
the matter of land acquisition. In future also, while the State Government and
its instrumentalities are entitled to exercise their contractual rights under F
the FWA, they must do so fairly, reasonably and without malafldes; in the
event that they do not do so, the Court will be entitled to interfere with the
same. [115-8-D; 116-E; 117-C, D[
Gujarat State Financial Corporation v. Mis. Lotus Hotels Pvt. Ltd.,
[1983) 3 SCC 379; Kumari Shrilekha Vidhurthi and Ors. v. State of U.P. and G
Ors., [1991) t SCC 212; Mis Dwarkadas Marfatia and Sons v. Board of
Trustees of the Port of Bombay, AIR (1989) SC 1642 and Biman Krishna Bose
v. United India Insurance Co. Ltd., and Anr., [2001[ 6 SCC 477, referred to.
5. The Project is a mega project which is in the larger public interest
:_
of the State of Karnataka and merely because there was a change in the H
-
92
SUPREME COURT REPORTS 12006] SUPP. I S.C.R.
A Government, there was no necessity for reviewing all decisions taken by the
C'll.
previous Government, which is what appears to have happened. Such an action
cannot be taken every time there is a change ofGovernment. [118-Cf
State of U.P. and Anr. v. Johri Mal. 120041 4 SCC 714 and State of
Haryana v. State of Punjab and Anr., 120021 2 SCC 507, relied on.
B
6.1. The argument that no notice was served on the landowners under
Section Z8(1) of the Act is factually incorrect. The notification states that
the lands were being acquired for the purpose of"industrial development"
i.e. establishing and developing industrial areas by the State Board. The
purpose indicated in the notifications is sufficiently precise and is not affected
c by the vice of vagueness as alleged. No prejudice is caused to them as a result
of the wordings of the notification of acquisition. On facts, there is no
substances in the contention of the appellants that the notification was vague
and hence the State did not comply with the principle of natural justice.
(120-C, H; 121-A-EI
D
Ajlatoon v. Lt. Uovernur of Delhi. 119751 4 SCC 285, referred to.
6.2. The various changes brought about to the Act also reflect the
intention of the State to provide for land acquisition for the Project. The
expressions "Industrial area" and "Industrial Infrastructural facilities" as
defined under the Act definitely include within their ambit, establishment of
E facilities that contribute to the development of industries. Further, Section
2(7-a) was added to be Act to define "Industrial Infrastructural facilities" in
a manner broad enough to take into its sweep the land acquisition for the
Project. The Project was an integrated project intended for public purpose
and irrespective of where the land was situated so long as it arose from the
F
terms of the FWA, there was no question of characterising it as unconnected
with a public purpose. The acquisition of the entire land for the Project was
carried out in consonance with the provisions of the Act for a public project
of great importance for the development of the State. A Project of this
magnitude and urgency cannot be held up by individuals raising frivolous and
untenable objections thereto. The powers under the Act represent the powers
G of eminent domain vested in the State, which may need to be exerci~ed even to
the detriment of individuals' property rights so long as it achieves a larger
public purpose.1122-C, D, E; 123-C, D, E(
-
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3492-3494 of
2005.
H
•
From Final Judgment/Order dated 3.5.2005 of the High Court of Kamataka
STATE; OF KARNATAKA i:. ALL INDIA MANUFACTURERS ORGN. [SRIKRISHNA, J ] 93
~ in W.P. Nos. 45334, 45386, 48981/2004.
WITH
· CA Nos: 349712005, 3S42c3844/2005, 3848-388412005, 3889-412712005, 41284366/2005, 4575.:4576/2005, 5399~5401/2005, 5402/2005, 5746~5747/2005; 5759/
2005, 5797,5799/2005, 6098/2005, 6099/2005, 7024-7025/2005, 7626-7028/2005,
1029-703512oos; 7036-7038/2005, 7039-704012005, 5092"509312005, 759112oos, B
759212005, 73/2006, 74-76/2006; 61/2006, 2141/2006.
B. Parthasarthy, AG, A. Sharan, ASG (NP), Anil B. Divan, Bhaskar
Gupta, M. Rama Jois, Mahabir Singh,.K.K. Venugopal, S.S. Naganand; L.
Nageshwar Rao (NP), Dushyant Dave, Rakesh Dwivedi, Mtikul Rohtagi, Ashok
H. Desai, Narasimhan Murthy, Jaideep Gupta, M. L. Verma, Anil K. Mishra, C
A. Rohan Singh, San jay R. Hegde, Vivek Reddy, Balaji Srinivasan, S.R. Sharma, -
V. Sudeer, MBRS Raju; S. Srinivasan, Nikhil Jain, Ms. Madhusmita Bora,
. C.S.H. Saeed, Ms. Kiran Suri, Ankur Talwar, Shankar Divate, Mayur R. Shah,
Rajesh Mahale, Raghavendra S. Srivastava, Naresh Kaushik, Ms. Shilpa
Chohan;D.K. Sharma, Ms. Lalita Kaushik, K.K. Venujgopal, Srinivasagowda, D
Gaurav Kajriwal, Ms. Vandana Jalan, P. Ramashesh, S.N. Bhat, D.P. Chaturvedi,
NPS Panwar, KT Anantharaman Harris Beeran, Nikhil Goel, Tarak Damani,
Vasudevan Raghavan; Gaurav, Vijay Kumar, KT Anantharaman, R. Vasudevan,
N. Suresh, Ms. Richa Kapoor, Rahul Narain, Ms. Meenakshi Arora, Vikas
Sharma, Ms. Anil Katiyar, P. Parmeswaran, V.K. Verma, Prashant Kumar, Ms.
Triveni Potekar, Kuldip Singh, B.P.S. Patil, V.N. Raghupathy, B.S. Prasad, E
Rutwik Panda, Ms. Bimola Devi, CS Ashi"i, Ms. Sapna Malik, GV Chandrashekar,
Ms. Anjana Chandhrashekhar, SK. Kulkarni, M. Gireesh Kumar, Radha Shyam
Jena, Ms. Anjali K. Verma, Niraj Gupta, Ms. Meera Mathur, Lalit Kumar,
Kh Nobin Singh and Senthil Jagadeesam for the appearing parties.
The Judgment of the Court was delivered by
SRIKRISHNA, J. Leave granted in Special Leave Petition (C} Nos.
1562-63/06.
F
Since this matter consists of two sets of distinct but related appeals, G
for the sake of convenience, they may be considered under the two heads
of: (i) the Main Matters and (ii) the Land Acquisition Matters .
. The Main Matters
(Civil Appeal Nos. 3492~3494/2005, 3497/2005, 3842-3844/2005)
H
94
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
A The BackKround
These appeals are directed against a common judgment of the High
Court of Karnataka (dated 3.5.2005) by which three Public Interest Litigations
being Writ Petition Nos. 45334i04 (All India Mamifacturers OrKw1isation v.
State of Karnataka and Ors.,), 45386/04 (J.C. Madhuswamy and Ors. v. State
B of Karnataka and Ors.,) and 48981 /04 (Dakshinamurthy and Anr. v. State of
Karnataka and Ors .. ) were disposed of resulting in dismissal of Mr. J.C.
Madhuswamy's writ petition and a direction to the State of Karnataka to
continue to implement a certain project known as the "Bangalore-Mysore
Infrastructure Corridor Project" (hereinafter "the Project").
c
A brief statement regarding the Project: Bangalore is the capital of the
State of Kamataka and a rapidly developing city, which is projected to be the
IT boom town in the country. As a result of the pressures of urbanisation and
industrialisation, the infrastructure in and around Bangalore was found to be
inadequate. The traffic situation in Bangalore and on the roads leading into
D and out of the city was found to be chaotic and hardly conducive to the
important role that the city is expected to play in the near future. The
Government of Karnataka, realising the importance of rapidly developing the
city of Bangalore, and also for developing its transport and communication
systems, conceived of the Project. The Project had twin objectives: firstly, to
E provide for an express highway linking Bangalore with Mysore, the former
capital of the erstwhile State of Mysore, which is now coming up as an
industrial town, and for developing infrastructure along the corridor and in
and around Bangalore city. The Project is a massive undertaking, which
requires design, construction, maintenance and operation of an Express
Highway between Bangalore and Mysore. Equally, the Project is to also
F develop infrastructure around the periphery of Bangalore and all along the
Bangalore-Mysore Express Highway, which is about hundred years old and
has become incapable of handling the heavy volume of vehicular traffic.
On 28. 9.1988, the State of Kamataka invited tenders for implementation
of such an Express Highway. There was no satisfactory response to the
G tenders called for. There was only one tenderer and the tenderer insisted on
certain conditions which were not acceptable to the Government of Kamataka.
Thus, the bid of the tenderer was not accepted. A survey was conducted by
the Asian Development Bank and its report pointed out that the projected
population of Bangalore city would be about 8.2 million by the year 2011 and,
H therefore, there was an urgent ne.ed for improvement of the Bangalore-Mysore
STATE OF KARNATAKA v. ALL INDIA MANUFACTURERS ORGN. [SRIKRISHNA, J.] 95
....
Corridor. It was also suggested that the State Government bear 20% of the A
project cost, along with the cost of land acquisition, if such a project was to
be implemented. The State Government did not have sufficient means and had
to look for other alternative ways for implementing this project. The State
Government then decided to take up the project on a Build-Own-OperateTransfer (hereinafter "BOOT") basis with any consortium. The consortium B
was to carry out the development of the project from its own resources and
recoup its investment by collection of tolls along the Express Highway.
On 20.2.1995, a Memorandum of Understanding (hereinafter "MOU")
was entered into between the State Government and the Consortium of Vanasse
Hangen Brustlin Inc. USA (hereinafter "VHB"), Kalyani Group of Companies c
(hereinafter "Kalyani") and SAB Engineering and Construction Inc. USA
(hereinafter "SAB"). The Governor of the State of Massachusetts, U.S.A., Mr.
William Weld, and Mr. H.D. Deve Gowda, the then Chief Minister of the State
of Karnataka were present and appended their signatures thereto. It was
agreed that the State Government would extend support for the development
of the Bangalore-Mysore Expressway, provided commercial viability, D
competitiveness and feasibility of the project was established to the satisfaction
of the State Government. The Consortium submitted a Project Report for
review by the State Government.
....
On 5.6.1995, a "High Level Committee" (hereinafter "the HLC") was
E
formed under the Chairmanship of the Minister for Public Works. The HLC
consisted of the Principal Secretary, Commerce and Industries Department;
Principal Secretary, Housing and Urban Development; Secretary, Public Works
Department; Chief Engineer C and B (South Zone, Bangalore). The Chairman
and Managing Director, Karnataka State Industrial Investment Development
Corporation, were official members and the Chairman, Technical Advisory F
Committee (lrrigation)/one K.C. Reddy/was a non-official member. The HLC
met from time to time and reviewed the progress made in the implementation
of the Project. On 26.8.1995, the Consortium presented the details of the
Project to the HLC. After detailed consideration of the Project, on 12.10.1995
the HLC submitted its report to the Government. The Project was considered
G
in detail by the State Cabinet Sub-Committee, which recommended that the
matter be placed before the Cabinet for consideration. The report of the HLC
and the Project Report made by the Consortium was accepted by the Cabinet,
subject to the mod_ification that instead of seven townships as proposed in
...
the Project Report, only five townships were to be developed .
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SUPREME COURT REPORTS (2006] SUPP. I S.C.R.
A Government Order (No. PWD 32 CSR 95, Bangalore, dated 20.11.1995)
ensued, which in terms pointed out that the implementation of the Project was
to be done by a private consortium. The Preamble to the Government Order
recited that the Project work was to be completed by the Consortium with
their own resources and that the Consortium would keep the Project going
B for thirty years, so as to get a return of the expenditure, profit, etc. through
collection of tolls. It is important to note that the land acquisition expenditure
was also to be borne by the Consortium. To make the Project economically
viable, the Consortium had proposed development of seven townships, which
as already stated, was reduced to five by the Cabinet. It is also important to
note that the Government Order specifically permitted the development of five
C townships along with the construction of the Express Highway. As already
stated, the Consortium was to recoup its expenditure and obtain profits
through-tolls the first system of its kind in Karnataka. Consequently, it was
felt that the modification of the existing laws might become necessary. The
necessary legal changes were to be examined by the concerned administrative
D departments, who would take " .... necessary action and also extend co-operation
for implementation of the Project."'
The three members of the Consortium-- VHB, Kalyani and SAB--entered
into a "Consent and Acknowledgement Agreement" (hereinafter "the CAA")
dated 9.9.1996, specially assigning their respective rights under the Government
E Order (dated 20.11.1995) and the MOU with regard to the Project, in favour
ofNandi Infrastructure Corridor Enterprises Ltd. (hereinafter "Nandi"). Nandi
had been registered on 16.1.1996 as a company under the Companies Act,
I 956, to serve as a corporate vehicle for the development and implementation
of the Project. On 21.12.1996, the CAA was forwarded to the State Government
for necessary action. The State Government was advised by its Law Department
F (through Opinion No. 182 OPN 11/97 dated 3/4.3.1997) that since the Government
was finalising a separate agreement with Nandi, there was no need to
specifically consent to the CAA. Consequently, the State Government took
no further action except noting it.
In February 1997, Nandi submitted a draft of the Framework Agreement
G (hereinafter "the FW A") to be executed between it and the State Government.
This draft FWA was considered by the Core Committee, which had been set
up to negotiate the terms with Nandi. It was also referred to the Cabinet Subcommittee, which suggested certain modifications to the FWA. After due
incorporation of such modifications, the Government of Karnataka approved
H the FWA on I 7.3.1997 and the same was signed between Nandi and the State
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ST ATE OFKARNATAKA v. ALL INDIA MANUFACTURERS ORGN. [SR!KR!SHNA, J.] 97
Government on 3.4.1997. ·
Under Clause 4.1.1 of the .FW A, . the State Gover.nment set. up an
"Empowered.Committee" headed by the Chief Secretary of the State to oversee
A
the Project and its ·implementation keeping in mind the importance of timely
completion. The Empowered ·Committee included technical experts and held .
about ten meetings from time to time, the last one being on 24.7.2004. The B
main task ()f the E~powered Committee was to remove ad.ministrative
bottlenecks and to ensure the smooth .exec~tion of the Project. The Empowered
Committee was the State's a'gent of coordination and carried out the State
Government's obligations under the FW A.
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One of the key obligations of the State Government under the· FWA was
to make available approximately 20, 193 acres of land. As set out in Schedule
I to the FWA, 6,956 acr'es wa~ Gove~nrrient fand and the remaining 13,237
acres ~as. private land, which .w11s to be acquired by the State Gove~nment.
There was also an. undertaking by the State Government. under the. l'.W A to
c
carry out appropriate amendments to its laws, rules and regulations so that D ·
the massive Project could be implemented fully and within a tiine·bound
schedule. Accordingly, the provisions of the Kamataka Industrial Areas
Development Act, 1966 ("the KIAD. Act") were amended ·by Aci No. I I of
1997 'so that the land required fo~ th~ Project could be acqui~ed expeditiously.
The Karnataka Industrial Areas Development Board ("KIAD Board") set up . E .
under the KIAD Ad, entered into an agreement with Nandi on 14.10.199'8 for
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acquisition of private land. Notifications were issued from time to time for'
acquiring lands for the Project. ·
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The Lltigatio~ in Sdmashekar. Reddy
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p.
While all these frenetic activities were going on for the successful and
timely implementation of the .Project, the FW A was challenged in a Public
Interest Writ Petition No. 29221/97 in November 1997 (reported as HT. ··
Somashekar Reddy v. Government of Karnataka and Anr. 1) by one H.T.
Somashekar Reddy, a retired Chief Engineer. The State Government and Nandi
were the two respondents thereto. The FWA was challenged on all con~eivable G
grounds and the writ petition was vigorously opposed by the State Government .
and also by Nandi. Both the Siate Government and Nandi contended that the'·
FWA was valid and that it had been entered into in larger public interest. It __
~
I. (1999) I KLD 500 (DB).
98
SUPREME COURT REPORTS [2006) SUPP. I S.C.R.
A was also successfully pleaded on the part of the State Government that it had
agreed to provide the "minimum extent of land'" for the Project, which was
20, 193 acres of land and that no excess land was being acquired.
B
c
·D
The Division Bench of the Karnataka High Court hearing the said writ
petition formulated for its consideration, the following questions:'
"(a) Whether the Government has acted arbitrarily in entering into the
agreement with Respondent No. 2?
(b) Whether agreement is illegal as being opposed to public policy?
( c) Whether the agreement contravenes any Constitutional provisions
or other existing enactments?
( d) Whether the agreement is vitiated by ma/a fides?
( e) Whether the rights of any individual or groups of individuals is
being illegally affected by the execution of the agreement?
(t) Scope and extent of judicial review in matters of State Policy."
For the purpose of the present litigation, it is important to note that one
of the main grounds of challenge to the FWA in Somashekar Reddy (supra)
was that land was being acquired far in excess of what was required for the
E Project. In fact, it was specifically stated in the Writ Petition that Article 7 of
the FWA (that provides for construction of townships) was the ·'most
damaging provision detrimental to the owners of land". Further, it was stated
in the Writ Petition that the land requirement in Schedule I of the FW A was
"highly exaggerated" and would illegally create "huge profits" for Nandi. It
F was prayed that the FW A be quashed and further, since the FW A was
purportedly the result of "offences of breach of trust", for institution of a
Central Bureau of Investigation (hereinafter "CBI") enquiry into the whole
project.
Each of the questions was answered in favour of the respondents i.e.
G State of Kamataka and Nandi. It was held that the FWA was not arbitrarily
entered into by the Siate Government; that it was not opposed to public
policy; that it was not unconstitutional or illegal; that it was not vitiated by
ma/a fides; that no rights of any individual or individuals had been illegally
2.
Ibid. at p. 529 (paragraph 52), per Ashok Bhan, J.
H 3.
!hid. at p. 518 (paragraph 30), per Ashok Bhan, J.
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STATEOFKARNATAKA v. ALLINDIAMANUFACTURERS ORGN. [SRIKRISHNA,J.] 99
affected by the execution of the agreement. Finally, the court found that it A
...
could not exercise its power of judicial review to interfere with the FWA
which.was in reality a policy choice of the Government.
Further, as' we shall discuss subsequently, the argument of excess land
being acquired, was not acceded to by the High Court which found that the
l3
Project envisaged, in addition to the construction of an expressway between
Bangalore and Mysore, other connected developmental activities, such as:
"(i) Development of area between Bangalore-Mysore.
(ii) Divergence of traffic from Mysore-Chennai;. Chennai-Bombay.
~iii) Construction of elected road from Sirsi Circle upto 9.4 Kms. c
(iv) C-0nstruction of 2 truck terminals.
(v) Development 9f five identified local areas into townships with all
·infrastructure for habitation and economic activities.
D
{vi) Utilisation of sewage water being put to no productive use by
BWSSB.
'(vii) Development of tourism to augment the State's revenues."'
Thus, through an exhaustive consideration of all the background material E
and documents presented to it, the High Court dismissed the writ petition by
holding against.the petitioner on all the contentions urged. The judgment in
Somashekar Reddy (supra) was challenged before this Court (in SLP (Civil) ....
CC 1423/99), but was dismissed in limine on 26.3.1999. The judgment in
Somas~ekar ~edd)J (supra) t.hus reached finality.
F
The Present Litigation
Although .the writ petition in Somashekar Reddy (supra) was dismissed
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by t.he High .Court by its judgment dateμ 21.9.1998, .it is of relevance to
notice that between November 1997, when this writ petition was filed, and
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when Jh!! petition was dismissed, the work of implementing the Project was
going on in view of the stand of the State Government and Nandi. Accordingly,
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a nw;nber of notifications were issued for acquisition of the land required
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unfier the F.WA .. Many landowners challenged the acquisition of thefr lands
,.,.
4. Ibid. at p. 517 (paragraph 29), per Ash~k Bhan J.
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100
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
A before the High Court. Although the issue of the landowners will be dealt
with in the second part of our judgment, it will be useful to note that the
Government supported the stand of Nandi before the Single Judge, who
partially allowed the land owners' petitions. It was during the writ appeal
stage that the Government reversed its stance and opposed Nandi.
B
Even while the said writ appeals filed in the land acquisition matters
were pending before the High Court, a second round of writ petitions
challenging the Project itself was filed before the High Court. Despite the
High Court's go-ahead for the Project in 1997, and after seven years of
implementation, suddenly in the year 2004, these petitions were filed against
C it in so-called "public interest" by two Members of the Legislative Assembly
(hereinafter "MLAs") and a "social worker" (i.e. Mr. J.C. Madhuswamy and
others). This petition prayed for a CBI enquiry and to restrain the State
Government from continuing with the Project or acquiring any further land
thereunder. Perhaps inspired by Mr. J.C. Madhuswamy and others, and also
in the so-called "public interest", All India Manufacturer's Organisation, as
D well as two ex-Mayors of Mysore (Mr. Dakshinamurthy and another), moved
the High Court for a direction to the State Government to implement the
Project according to the FW A.
The High Court in the impugned judgment (vide Paragraph 18) raised
E the following two quesrions for consideration in the three writ petitions:
"(I) Whether the FWA entered into between the Government of
Karnataka and Nandi was a result of any fraud or misrepresentation
as alleged by J.C. Madhuswamy and others and the State Government?
(2) Wherher any excess land than what is required for the Project had
F
been acquired by the State Government and whether it is open to it
to raise such a plea?"
The Division Bench disposed of all the writ petitions by a common
judgment by which it dismissed Writ Petition No. 45386/04 filed by Mr. lC.
Madhuswamy and others with costs. Writ Petition Nos. 45334/04 and 4898 !/
G 04 were allowed by the Division Bench directing the State of Karnataka and
all its instrumentalities, including the KIAD Board, to execute the Project as
conceived originally and to implement the FWA in "letter and spirit". The
High Court also directed the prosecution of K.K. Misra, Chief Secretary of
the Government of Karnataka and M. Shivalingaswamy, Under Secretary,
H Department of Industries and Commerce, as envisaged by Section 340 of the
f
• ~
STATE OF KARNATAKA v. ALLINDIA MANUFACTURERSORGN. [SRIKRISHNA,J.] J Q J
Code of Criminal Procedure, 1973, for certain offences which came to its A
notice as a result of the affidavits filed by them. K.K. Misra and M.
Shivalingaswamy have filed separate appeals with regard to the direction of
their prosecution with which we are not concerned at present.
The Contentions of the Appellants
The main arguments in the present Civil Appeal Nos. 3492-3494 of B
2005 were addressed on behalf of the State of Karnataka by Mr. Anil B.
Divan, learned Senior Counsel, whose main contentions are as under:
I.
That the dispute between the State of Karnataka and Nandi is not
barred by the principle of res judicata, constructive res judicata c
or estoppel arising from the judgment and proceedings in
Somashekar Reddy (supra).
2.
That the principle of res judicata cannot be inflexibly applied to
Public Interest Litigations, especially when a re-examination of
decided issues might be in public interest.
D
3.
To the bar of res judicata, it would be a successful answer that
fraud and misrepresentation had vitiated the entire transaction.
Hence, there would be no question of res judicata since the
fraud was discovered subsequent to the judgment in Somashekar
Reddy (supra).
E
4.
That the High Court erred in brushing aside the report of the
Expert Committee headed by K.C.