Arbitrary Termination Of MoU With Company By Govt Violates Fundamental Right To Trade: Punjab & Haryana High Court

The Punjab and Haryana High Court has held that the arbitrary termination of a Memorandum of Understanding (MoU) by the government for a project that had vested title over land amounts to a violation of the petitioner's fundamental rights under Article 19(1)(g) of the Constitution.

Justice Sureshwar Thakur and Justice Vikas Suri said, "since therebys, there was complete vestment of right, title and interest over the subject ands vis-a-vis the petitioner...whereupon, when therebys the petitioner became endowed with the fundamental right to practice business and profession."

"Therefore, the said conferred fundamental right was not snatchable without any reasonable ground appertaining to any valid non grantings of the asked for permissions/extensions," it added.

The Court further said that if the said right is snatched arbitrarily and capriciously, rather therebys, "the Wednesbury principle and the principle of proportionality would become undermined." 

The petitioner had challenged the Punjab Urban Planning and Development Authority (PUDA)'s order ending a Memorandum Of Understanding and reclaiming project land, citing the petitioner's failure to complete the project within the agreed 10-year period.

Facts In Brief

The petitioner company, M/s Shriram Industrial Enterprises Limited (SIEL), signed a Memorandum of Understanding (MoU) with the Punjab government in 1993 to develop an Industrial Estate  in Rajpura, along with a Chemical Manufacturing Facility and a Captive Thermal Power Plant.

The MoU outlined detailed responsibilities for both parties: the government was to provide land, infrastructure support, clearances, and incentives; SIEL was to finance, develop, and complete the project within 10 years of acquiring unencumbered land.

The government retained the right to resume the land if progress was not satisfactory. Pursuant to the MoU, land acquisition proceedings under the Land Acquisition Act, 1894, were initiated in April 1994.

Some landowners challenged the land acquisition in court in 1995, leading to a stay. Subsequently, parts of the land were denotified, and the company received permission and completed land transfers in 2000 and 2007. The case was closed in 2011 after the landowners' concerns were resolved.

Landowners sought enhanced compensation for acquired land, which was granted by the Supreme Court in 2017, and the petitioner company paid the full amount. The company also obtained various approvals, including change of land use, layout plan approval, and environmental clearance.

In 2021, the petitioner filed a civil suit to restrain interference by certain individuals, resulting in a status quo order later modified to protect the company's possession.

However, in 2024, PUDA issued a notice for failure to complete the project within the MoU's 10-year limit. Despite the company's reply, PUDA terminated the MoU and resumed the land in January 2025. The company had now challenged that order in the present writ petition.

The petitioner argued that the Punjab Government and PUDA failed to fulfill their obligations under the MoU, which required them to assist the petitioner in obtaining necessary clearances for the industrial project.

Due to delays in securing approvals, the petitioner claims that the ten-year period for completing the project should start from when the approvals were finally granted (2017-2020), not from 2011.

The petitioner also contended that the PUDA's neglect in issuing necessary notices and facilitating the project has prevented them from proceeding, making the government's decision to resume the land premature and unjustified. 

After hearing the submissions, the Court noted that the petitioner was the beneficiary of the land acquisition process under the relevant provisions of the 1894 Act. This acquisition led to an agreement (MoU), followed by the execution of deeds of conveyance, which transferred the land's right, title, and interest to the petitioner.

 As a result, the petitioner obtained the fundamental right to engage in business on the acquired land, said the bench. The court emphasised that the petitioner's right to practice its business cannot be arbitrarily revoked without reasonable justification, it added.

The Court referred to "Wednesbury unreasonableness principle", which holds that a decision that defies logic or moral standards is invalid, and the proportionality test, which ensures that actions by authorities are balanced and reasonable. under the relevant provisions of the 1894 Act.

"Moreover, therebys the constitutional right of property as envisaged in Article 300 A, thus would become fully endowed to the petitioner, whereas, the said endowed constitutional right to property rather becoming untenably snatched through the passing of the impugned resumption order," the bench observed.

Hence, the Court quashed the PUDA's order ending a Memorandum Of Understanding through which it had reclaimed project land.

Title: M/S SIEL INDUSTRIAL ESTATE LTD. VS. STATE OF PUNJAB AND OTHERS

Click here to read/download the order