Read Time: 11 minutes

Synopsis

The Supreme Court has observed that the scope of judicial review is limited in matters concerning contractual relationships of the State or its instrumentality with private participation, particularly as regards the scope and ambit of work and finances.

A bench of Justices P.S. Narasimha and Manoj Misra set aside the Madras High Court’s February 19, 2024, directions, which included direction to Racing Promotions Private Limited (RPPL) to reimburse Rs 42 crores paid by the State Government from the public exchequer, to them for hosting the Formula 4 championship, a motorsport series, and asking that the state itself organize the event in the future.

The event was being organized in Chennai following a Memorandum of Understanding of August 16, 2023, between RPPL and the Sports Development Authority of Tamil Nadu, for a term of three years.

Acting on a batch of PILs, the high court had said the expenditure for the event will have to be completely borne out only by the RPPL.

"In future, the State is expected to take upon itself the responsibility of conducting of such event in furtherance of its policy to encourage the racing sport and seek the support of private bodies having experience and expertise in the field. This will ensure fairness and also dispel any doubt as to mala fides in distribution of the State largesse," the high court had said.

Aggrieved with the directions, the State authority submitted before the top court that it had successfully conducted national and international events from 2022, deriving great benefits and securing a large number of medals for the State in the various sports/games that were held from time to time.

It also maintained that the MoU was not unilateral and that the said decision was taken after much deliberation, including constitution of a high level committee to coordinate the organisation of the event.

Regarding the directions of the high court, it contended that conducting the event by itself in the future will be unviable. It also submitted that the implementation of the direction would cause “great loss to the city and its sportsperson and also affect the long-term goal of promoting and situating Chennai as a global sports centre”.

After hearing the counsel, the Supreme Court found that the high court committed an error in issuing the directions, which could not be sustained in law.

Court said that the Sports Development Authority is an instrumentality of the State and acts as a nodal Governmental Authority for promoting sports and the welfare of sports persons. "It is nobody’s case that the State through SDAT is distributing largesse or that public funds are being frittered away or that there is any defalcation of funds," the bench said.

The bench said the case at hand involved the conduct of the sports event through the collaborative effort of the instrumentalities of the State of Tamil Nadu, being the SDAT, and the appellant, a private enterprise.

"Once the High Court was satisfied that the decision to hold the sports event is a matter of policy, it could not have proceeded to interfere with the specific terms of the MoU entered into between the authority and the appellant herein. Issues such as the mutual obligations, including the apportionment of expenditure that the contracting parties must bear, are beyond the scrutiny of the High Court in a public interest litigation," the bench said.

The court held the direction calling upon the State itself to take up the responsibility of conducting such sports events ignored the principle of public-private partnership adopted by governments across the globe as a matter of good governance, which takes into account the limited resources of the State coupled with issues of efficiency and expertise.

The court pointed out that to ensure equitable distribution of goods and services and to be assured that they subserve the common good, the State has the authority to formulate a suitable policy. Initially, such policy is focussed on the government identifying resources and expanding them to subserve common good, court emphasised.

"At one stage, to increase their capacity, governments had even nationalised private resources to subserve the public interest. However, experience has shown that the resources generated by the government were inadequate and also that the management of these resources was inefficient and ineffective," the court said.

However, the bench pointed out that over a period, the policy shifted towards public-private partnerships or private finance initiatives. The shift is based on the experience that delivery of goods and services as part of public service can be provided more effectively by means of contracting with private enterprise than by direct provision by the Government, court highlighted.

"This micro-economics, as perceived in public finance, involves private participation and it can now be seen in three strategic investments. First, where the private sector provides capital to build infrastructure, and the State leases them out. Second, where private sector participation is involved in building infrastructure such as airports, metro rail transport, bridges by using their own resources, for which they would secure their consideration through tolls and usage charges," the bench said.

Court also said there are also instances where assets are built partly through private contributions and partly through government funding. The rationale for this micro-economic strategy is the limited resources of the State and the understanding about their functioning as lacking flexibility, or effective expertise, it said.

Case Title: Racing Promotions Private Limited Vs Dr Harish & Ors