APHC010327152025 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI WRIT APPEAL NO: 771 of 2025 Bench Sr.No:-___ [3483] Sai Sree Veterinary (Generic) Medicals ... Appellant Vs. The State of Andhra Pradesh and others ...Respondents ********** Advocate for Appellant : Mr. K. Chidambaram, Sr. Counsel, appearing vice Mr. Kiran Tirumalasetti Advocate for Respondents : G.P. for Animal Husbandry CORAM : THE CHIEF JUSTICE DHIRAJ SINGH THAKUR SRI JUSTICE RAVI CHEEMALAPATI RESERVED ON : PRONOUNCED ON : 08.07.2025 26.09.2025 Per DHIRAJ SINGH THAKUR, CJ: The present Writ Appeal, under Clause 15 of the Letters Patent, has been preferred against the judgment and order, dated 17.06.2025, passed in W.P.No.13880 of 2025. By virtue of the judgment and order impugned, the writ petition filed by the appellant had been dismissed. However, with a view to understand the background in the light of which the present controversy has arisen, it is necessary to give a few material facts. 2. With a view to provide quality generic medicines at affordable prices for animal treatment, the Andhra Pradesh Animal Husbandry Department (in short, „the APAHD‟) proposed to set up 52 centres known as 2 HCJ & RCJ W.A.No.771 of 2025 „Pashu Aushadhi Kendrams‟. The APAHD, therefore, appointed District Animal Husbandry Officer to implement the scheme in N.T.R. District to set up the first Aushadhi Kendram in Vijayawada. Bids were accordingly invited for selection of beneficiary of operation and maintenance of these kendrams and after short listing the same, an agreement namely tripartite Veterinary Franchise Agreement, dated 23.12.2022, was executed between „Swasthya Lifescience Private Limited‟ referred to as „Franchisor‟ as Party of the First Part, the District Animal Husbandry Officer, NTR District, (in short, „DAHO‟) as Party of the Second Part and Sai Sree Veterinary (Generic) Medicals referred to as „Franchisee‟ as Party of the Other Part. 3. According to the agreement – the Franchisor was to provide veterinary generic medicines to the franchisee store of the Franchisor within the designated location in the APAHD Hospital; the Franchisor was to grant in favour of Franchisee an exclusive license in regard to the products developed by the Franchisor to operate the kendrams at the locations (Franchised Business) for purposes of selling products to qualified individuals and business entities in the location as per the terms and conditions contained in the agreement; the Franchisor was also required to comply with the obligations as contained in Clause 7 of the agreement which inter alia envisaged providing to the Franchisee an appropriate billing software to record transactions. 3 HCJ & RCJ W.A.No.771 of 2025 Clause 8 of the agreement envisaged the obligations of the Franchisee as also the DAHO. Sub-clauses of Clause 8 further envisaged that the Franchisee would compulsorily use the software provided by the Franchisor as also not undertake any other Franchisee or Distributorship without the consent of the Franchisor. Clause 12 of the agreement generally deals with termination of the contract and since it is relevant it is being reproduced hereunder: “12. TERMINATION 12.1 Immediate Termination without opportunity to cure – Franchisor may terminate this Agreement and all rights granted herein without prior notice to Franchisee on occurrence of any of the following events. a. If Franchisee shall become insolvent or make a general assignment for the benefit of creditors; or if a petition in bankruptcy is filed by Franchisee or such a petition is filed against Franchisee and not opposed by Franchisee; or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, is appointed by any court of competent jurisdiction, or if any suit to foreclose any lien or mortgage against the Franchisee's property is instituted, and not dismissed or contested by litigation within thirty (30) days, or if Franchisee is dissolved, or if execution is levied against all or substantially all of Franchisee's business or property, or if the real or personal property of Franchisee shall be sold after levy thereupon by any officer acting on behalf of any court; b. If for any reason whatsoever the Franchised Outlet ceases to exist or is sold/transferred by the Franchisee to a third party or in the event of the franchisee being a lessee/licensee of the franchised Outlet the lease/license Agreement with the Owner being terminated then this Agreement shall stand terminated forthwith. 4 HCJ & RCJ W.A.No.771 of 2025 12.2. Termination by Franchisor After Opportunity to Cure - Franchisee shall be deemed to be in default and Franchisor may, at its option, terminate this Agreement and all rights granted hereunder, without further notice to Franchisee, effective immediately upon receipt of notice by Franchisee, upon any breach of any of Franchisee's obligations hereunder, including, but not limited to, any of the following events. a. The franchisee breaches any of the terms and conditions or clauses mentioned in this Agreement. b. The Franchisee indulges, associates himself in any kind of illegal, fraudulent activities which includes but is not limited to Misrepresentation of any information, suppression or concealing any information. c. Commission or Omission of any act which is either illegal or unethical in nature. d. Misuses the Trademark of the Franchisor. e. Commits or suffers any Insolvency event. f. Defame directly or indirectly by any mode follows which electronic, social media, false statements. g. The Franchisee purchases medicines from any Third Party. 12.3. Termination by DAHO NTR - DAHO NTR shall be in lock in period for 3 years if any issue arise during the terms of the agreement then the issue shall be solve mutually between the parties and the franchisor shall be obligated to respond reasonably to the queries /clarifications (In case of non- adherence of agreement / MOU and performance related issues as per agreement) and rectify the same within 30 days of such notice period ("CURE PERIOD") without which the contract shall be terminated by DAHO NTR. After lock in period the DAHO, NTR by providing sufficient technical ground shall have the right to terminate the agreement at the sole discretion of DAHO NTR with 30 days' notice period.” Clause 19 of the Agreement envisages resolution of disputes through the mechanism of arbitration by a sole arbitrator in terms of the provisions of 5 HCJ & RCJ W.A.No.771 of 2025 the Arbitration and Conciliation Act, 1996, with the Seat of arbitration in Thane at Maharashtra. 4. After the execution of the aforementioned provisions of the tripartite agreement, another agreement, dated 11.01.2023, came to be executed between the Joint Director, NTR Veterinary Super Specialty Hospital, Vijayawada and the petitioner/appellant herein. This agreement pertained to allotment of space for opening the outlet for making available quality generic medicines. It also contained a clause which recognises the power of the Director of Animal Husbandry, A.P., Vijayawada, to cancel the agreement at any time without assigning any reason. 5. In the backdrop of the aforementioned agreed terms, a notice of non-compliance, dated 16.01.2025, came to be served upon the appellant by the Joint Director (AH), Vijayawada, in which it is alleged that the outlet of the Franchisee has been selling non-generic medicines which is in direct contravention of the agreement (Violation of Clause 12.2 (a) of the agreement). It also alleged that the Franchisee had unauthorisedly purchased generic medicines from third party suppliers without the consent of the Party of the First Part i.e. Swasthya Life Science Pvt. Ltd., and thirdly, that it had failed to use the billing software provided by the Franchisor. The notice of non-compliance required the appellant to rectify the stated violations within a period of 30 days failing which a further action would be taken in terms of Clause 12.3 of the agreement. 6 HCJ & RCJ W.A.No.771 of 2025 6. The case of the petitioner before the learned single Judge was that it had submitted an explanation to the Joint Director of Animal Husbandry vide communications, dated 17.01.2025 and 18.01.2025, pursuant to which a communication, dated 14.02.2025, was addressed by the Joint Director (AH), Vijayawada, asking the appellant to send the proof of the fact that it had been placing orders with the Party of the First Part before 17.01.2025. This was responded to by the appellant vide the communication, dated 15.02.2025. 7. The case of the petitioner before the learned single Judge as also before us in the present writ appeal is that the said explanation was never properly considered and instead the impugned order, dated 16.04.2025, was passed invoking the provisions of the Clause 12.3 of the agreement and therefore terminated the contract in question. 8. By virtue of the judgment and order impugned, the writ petition filed by the appellant challenging the order of termination was dismissed and hence the present writ appeal. 9. Learned counsel for the appellant would submit that the learned single Judge dismissed the writ petition holding that the petitioner had committed the breach of franchise agreement and acted contrary to public interest which conduct could not be accepted and therefore proceeded to dismiss the writ petition. 10. Learned counsel for the appellant would submit that the judgment and order impugned is unsustainable inasmuch as it was only the Franchisor 7 HCJ & RCJ W.A.No.771 of 2025 which was authorised to terminate the agreement in terms of Clause 12.1 and 12.2 if the Franchisee was in default or if there was a breach of terms of the agreement. In addition to this, it was urged that the District Animal Husbandry Officer could also terminate the agreement in terms of Clause 12.3, if there was a breach on the part of the Franchisor. It was stated that in case there was any non-adherence of the terms and conditions of the agreement, the same had to be got rectified by giving a 30 days‟ notice, which was called, “the Cure Period”. 11. In the present case, it was urged that there was no notice served on the Franchisor at all and therefore, the notice served on the Franchisee was without any authority and contrary to the terms and conditions of the agreement. 12. Learned counsel for the respondents, on the other hand, would urge that the termination of the agreement was justified inasmuch as the Franchisee had blatantly committed the breach of the express terms and conditions of the agreement, which was more elaborately dealt with in the notice, dated 16.04.2025. 13. We have heard learned counsel for the parties. 14. At the very outset, we deem it appropriate to state that the terms and conditions incorporated in the tripartite agreement more particularly those dealing with the termination of the agreement are not very happily worded. 8 HCJ & RCJ W.A.No.771 of 2025 15. Be that as it may, on a reading of Clauses 12.1 & 12.2 of the agreement, it appears that it is the Franchisor who has been given the authority to terminate the agreement, insofar as its relationship with the Franchisee is concerned, on the occurrence of any of the events, which are enumerated in sub-clauses (a) and (b) of Clause 12.1 and sub-clauses (a) to (g) of Clause 12.2. 16. Insofar as the power of the District Animal Husbandry Officer to terminate the contract is concerned, the same is contained in Clause 12.3 which envisages that it is the Franchisor who is obliged to respond to the queries and clarifications in case of non-adherence of the agreement and other performance related issues as per the agreement and further it is the Franchisor who is obliged to rectify the same within 30 days of the notice („Cure Period‟). It is only after the Franchisor fails to rectify the defects that the DAHO could proceed to terminate the agreement at its discretion after giving a notice of 30 days in that regard. 17. While the Franchisee may have committed the breach of the terms and conditions of the agreement in not selling from the premises in question the generic medicines, which were to be supplied by the Party of the First Part, yet the power to terminate the authority of the Franchisee or for that matter the agreement lay only with the Franchisor in the event there was any breach committed by the Franchisee. The DAHO could exercise the power if 9 HCJ & RCJ W.A.No.771 of 2025 there was a breach within the lock in period only if the Franchisor fails to rectify the issues within the 30 days prescribed „Cure Period‟. 18. In this case, admittedly, no notice was ever served on the Franchisor and therefore there was no occasion for the official respondents to invoke Clause 12.3 and terminate the agreement in question insofar as the appellant is concerned. 19. The scope and ambit of the powers exercisable by Courts in contract works under Article 226 of the Constitution of India has been discussed elaborately by a Division Bench of this court of which one of us (Thakur, J) was a member in M/s. Braithwaite & Co. Ltd. Vs. Union of India1 wherein, in paragraph 25, it was observed as under: “25. In a recent judgment, the Apex Court in M.P. Power Management Company Limited, Jabalpur v. Sky Power Southeast Solar India Private Limited and Others [(2023) 2 SCC 703] on a conspectus of the law as it developed starting from the case of Radhakrishna Agarwal Vs. State of Bihar [(1977) 3 SCC 457] held that the principle of law laid down in Radhakrishna Agarwal (supra) would not hold good in view of the law laid down in ABL International Limited v. Export Credit Guarantee Corporation of India Limited [(2004) 3 SCC 553] and further held that even if a contract was non- statutory in character, it would not entitle the State to ward off scrutiny of its action or inaction under the contract if it was established that such action or inaction, per se, was arbitrary and further held that Article 14 enabled the writ Court to deal with arbitrary action even after contract was entered into by the State. The Supreme Court in the aforementioned judgment while holding that existence of an arbitration provision would be viewed as a near bar to 1 W.A.No.168 of 2024, decided on 29.08.2024 10 HCJ & RCJ W.A.No.771 of 2025 the entertainment of a writ petition and existence of an alternate remedy was to be borne in mind in declining relief in a writ petition in a contractual matter, yet there was no prohibition in the writ Court in deciding even disputed questions of fact particularly when the dispute pertained only to demystifying of documents. It was further held: “82.12. It was further held: “82.12. In a case the State is a party to the contract and a breach of a contract is alleged against the State, a civil action in the appropriate forum is, undoubtedly, maintainable. But this is not the end of the matter. Having regard to the position of the State and its duty to act fairly and to eschew arbitrariness in all its actions, resort to the constitutional remedy on the cause of action, that the action is arbitrary, is permissible (see in this regard Shrilekha Vidyarthi v. State of U.P. [Shrilekha Vidyarthi v. State of U.P., (1991) 1 SCC 212 : 1991 SCC (L&S) 742] ). However, it must be made clear that every case involving breach of contract by the State, cannot be dressed up and disguised as a case of arbitrary State action. While the concept of an arbitrary action or inaction cannot be cribbed or confined to any immutable mantra, and must be laid bare, with reference to the facts of each case, it cannot be a mere allegation of breach of contract that would suffice. What must be involved in the case must be action/inaction, which must be palpably unreasonable or absolutely irrational and bereft of any principle. An action, which is completely mala fide, can hardly be described as a fair action and may, depending on the facts, amount to arbitrary action. The question must be posed and answered by the Court and all we intend to lay down is that there is a discretion available to the Court to grant relief in appropriate cases.” ” 20. Testing the facts of the present case on the touchstone of the law stated hereinabove, notwithstanding the existence of an arbitration clause in the tripartite agreement and notwithstanding the fact that the contract was a 11 HCJ & RCJ W.A.No.771 of 2025 concluded contract between the parties, we are of the opinion that the power exercised by the official respondents to cancel the contract in question was quite contrary to the scheme of the agreement entered into between the parties. The decision to cancel the contract by virtue of the order impugned, dated 16.04.2025, therefore, in our opinion, is unsustainable. 21. Be that as it may, the present Writ Appeal is, accordingly, allowed. Judgment and order, dated 17.06.2025, as also the impugned order, dated 16.04.2025, are set aside. No costs. Consequently, connected miscellaneous applications, if any, shall stand closed. DHIRAJ SINGH THAKUR, CJ RAVI CHEEMALAPATI, J kbs 12 HCJ & RCJ W.A.No.771 of 2025 ____ HON’BLE MR. JUSTICE DHIRAJ SINGH THAKUR, CHIEF JUSTICE & HON’BLE MR. JUSTICE RAVI CHEEMALAPATI W.A.No.771 of 2025 Dt:26.09.2025 kbs