Madras High Court Sets Aside SHRC Order In Contract Dispute, Cites Dispute Resolution and Arbitration Mechanism

The Madras High Court has recently set aside a recommendation of the Tamil Nadu State Human Rights Commission directing payment of ₹1 lakh compensation in a dispute arising out of a funding agreement between the Tamil Nadu State AIDS Control Society (TANSACS) and an NGO, holding that the matter was governed by a contractual dispute-resolution clause providing for grievance redressal and arbitration.

The order was passed by a Division Bench of Justice Dr. G. Jayachandran and Justice Shamim Ahmed in a writ petition filed by TANSACS challenging the Commission's order dated 4 May 2021.

TANSACS, functioning under the State Health and Family Welfare Department, had engaged the Rural Integrated Development Organization (RIDO), headed by Dr. Lucas Babu, for the implementation of HIV/AIDS awareness, prevention, and counselling programmes.

An agreement was executed in 2007 and later extended on April 1, 2018. Under the agreement, grant-in-aid funds were to be released subject to compliance with the contractual terms.

According to TANSACS, instances of misuse of funds were noticed, following which further disbursement was stopped. The NGO alleged that funds due between 2015 and 2018 were withheld, resulting in financial difficulty in meeting salary, rent and other operational expenses. The NGO approached the Tamil Nadu State Human Rights Commission.

Before the Commission, TANSACS questioned the maintainability of the complaint. It pointed out that the agreement between the parties contained a dispute-resolution clause. Under Clause 15, disputes had to be taken first to the Grievance Redressal Cell and, if unresolved, referred to arbitration.

By an order dated 4 May 2021, the Commission recommended that the State pay Rs 1 lakh as compensation to the complainant, Dr. Lucas Babu. The recommendation was made on the ground that delayed payment had caused mental agony and violated his right to life and dignity. The Commission also directed that the exact amount payable, if any, be decided through arbitration within three months.

TANSACS challenged the recommendation before the High Court by filing a writ petition under Article 226. It sought to have the Commission's order set aside.

On examining the agreement, the High Court noted that the NGO had been engaged strictly as a service provider under defined contractual terms. The contract also allowed the authorities to stop release of funds in cases of misuse. The Bench referred in particular to Clauses 15.2 and 15.3, which required disputes to be placed before the Grievance Redressal Cell and, thereafter, resolved through arbitration.

The Court observed that the controversy arose from the enforcement of contractual obligations. Since the parties themselves had agreed to a specific dispute-resolution mechanism, that procedure could not be bypassed. It recorded:

“We find that the State Human Rights Commission ought not to have entertained the complaint in view of the terms of the agreement as the facts purely centers around the enforcement of the contractual obligations between the parties. Despite the clear terms of the agreement, the State Human Rights Commission exceeded its powers by conducting enquiry and had issued recommendations extracted above, which is totally beyond the jurisdiction of State Human Rights Commission. Hence, the said recommendations are liable to be quashed.”

Holding that the Commission had acted beyond its jurisdiction, the Court set aside the order dated 4 May 2021 and allowed the writ petition.

For petitioner (Tamil Nadu State AIDS Control Society): Advocate Ms. C.N.G. Niraimathi.