'Ignored principle of public-private partnership': SC sets aside Madras HC order on Formula 4 Racing in Chennai

New Delhi: The Supreme Court has set aside the Madras High Court's direction to the Tamil Nadu government to take up the responsibility of conducting sports events like Formula 4 Racing in Chennai, saying it ignored the principle of public-private partnership adopted by governments across the globe as a matter of good governance.

A bench of Justices P S Narasimha and Manoj Misra held the scope of judicial review is limited in matters concerning contractual relationship of the State or its instrumentality with private participation.

"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.

In its judgment on February 20, 2025, the bench said over a period of time, the state policy shifted towards public-private partnerships or private finance initiatives.

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, and bridges by using their own resources, for which they would secure their consideration through tolls and usage charges, the bench said.

The court also said there are 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, the bench said.

Acting on a plea filed by Racing Promotions Private Limited against the HC's order of February 19, 2024, the court said, the High Court committed an error in issuing the directions, on a batch of PILs filed in 2023, for reimbursement of Rs 42 crore spent by the state exchequer for conduct of the Formula 4 championship, a motorsport series of races.

The High Court had said in future, the State was expected to take upon itself the responsibility of conducting such events in furtherance of its policy to encourage the racing sport and seek the support of private bodies having experience and expertise in the field, which would ensure fairness and also dispel any doubt as to mala fides in the distribution of the State largesse.

The state government claimed the direction was unviable and its implementation 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.

The event was being organised in Chennai in terms of a Memorandum of Understanding of August 16, 2023 between Racing Promotions Private Limited (RPPL) and the Sports Development Authority of Tamil Nadu, for a term of three years.