Any change made in the provisions of a contract without the consent of the all parties involved is called unilateral alteration of contract.

Fertilisers and Chemicals Travancore Ltd. Vs. Kerala State Electricity Board and Anr. [AIR 1988 SC 1989]:

Facts: Electricity tariff was enhanced under Section 49(1) of Electricity (Supply) Act, 1948. The High Court dismissed Appellant’s Petition challenging enhancement of electricity tariff. Hence, the issue was whether, enhancement of tariff was impermissible.

Agreements were entered into between parties for supply of additional-electricity. The fixation of special tariffs could be unilateral act on part of Board. However, additional agreement was for independent purpose and action of Board in entering into agreement did not constitute any such act in relation to original agreement. The agreement could not be intended to give statutory protection for tariff by means of special agreement by exercise of statutory power of Board under Section 49(3) of Act. The Board denied that there was any hostile discrimination with Appellant. Therefore, no similarly situated consumer had been left out of tariff revision. The Board owing to subsistence of agreements protected under Section 49(3) was under legal inhibition from making a unilateral enhancement had been left-out. Thus, charge of discrimination against Respondent/Board could not be established.  The appeal was dismissed.

Ratio Decidendi: “Action of Governmental authorities must be presumed to be reasonable and in public interest.”

Prathyusha Associates Vs. Rashtriya Ispat Nigam Limited, Visakhapatnam Steel Plant and Anr. [2006 (1) ALT 691]:

Facts: There was an Amendment in the contract. The District Judge concluded that letter dated 30-6-1994 amounted to new contract as per which for purpose of calculating escalation charges 1994 base rate had to be taken into consideration. Hence, the issue was whether letter dated 30-6-1994 amounted to fresh agreement or in continuation to original contract. It was held that letters addressed by employer were meant for extension of original contract and could not be treated as amended contract. There was no mention with regard to base rate relating to escalation charges in said letter. The minor changes suggested under extending original contract were not capable of changing very basic nature of original contract. However, the District Judge without expressing clear opinion on them arrived at conclusion that letter dated 30-6-1994 was a different and distinct contract. Hence, even if, said letter dated 30-6-1994 was to be treated as new contract, but not in continuation to original contract same amounted to contract which was not valid since not in conformity with Clause 6 of agreement. Such amendments amounted to unilateral alteration of conditions of contract. The appeal was partly allowed.

Ratio Decidendi: “Court can set aside arbitral award if illegality is capable of going to root of matter and contra to public policy.”

Conclusion:

The Supreme Court in Fertilisers & Chemicals Travancore Ltd. v. K.S.E. Board held that any unilateral change in the contract is not permissible. However, it also held that, in cases involving a Government body, the action of Governmental authorities must be presumed to be reasonable and in public interest.

The Andhra High Court held in Prathyusha Associates Vs. Rashtriya Ispat Nigam Limited that amendments amounting to unilateral alteration of conditions of contract were not permissible.

Hence, unilateral alteration to the terms of a contract de hors the agreement is legally unsustainable and void ab initio.