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TMI Blog1995 (2) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... pping industries and grant loan to such persons intending to get a ship built wherefor even subsidy is paid. It is stated that a contract for building the aforesaid fishing trawler, the cost whereof was one crore five lacs was entertained into between the petitioners and respondent No. 5 on or about 23-3-1987. The Government's subsidy was to be to the tune of 1/3rd of the said amount, namely, ₹ 33,40,128/- and the buyers own contribution was only to the extent of ₹ 3,61,577/-. The respondent No. 2 Shipping Credit Investment Co. Ltd. granted a loan to the respondent No. 5 for a sum of ₹ 68,69,000/-. On or about 26th March, 1987, a tripartite agreement in writing was executed by and between the petitioner No. 1, respondent No. 2 and respondent No. 5. On the same day an agreement was entered into by the petitioner No. 1 and the respondent No. 2 for grant of subsidy to the extent of ₹ 33,40,128/-. 4. Pursuant to the said tripartite agreement dated 26th March, 1987, payment of loan for construction of the fishing trawler was to be made to the petitioners as per Clause 14 thereof. The petitioner received payments to the extent of ₹ 10,57,160/ - and 31,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The bank guarantees were invoked by the respondent No. 2 in terms of two letters dated 7-9-1992. 8. The petitioners filed a writ application on or about 22-9-1992 praying for the reliefs as referred to hereinbefore. 9. An affidavit-in-opposition has been fifed only by the respondent No. 2 wherein, inter alia, it has been contended that this writ application is not maintainable. 10. It may, however, be mentioned that the petitioners invoked the arbitration agreement contained in the aforementioned tripartite agreement dated 26-3-1987 and filed an application under Section 20 of the Arbitration Act on or about 7th December, 1993. The said application was allowed by A.N. Roy, J. by an order dated 5th August, 1994. The respondent No. 2, however, admittedly has filed an application for recalling the said order. 11. Mr. Anindya Mitra, learned Senior Counsel appearing on behalf of the petitioners raised a number of contentions in support of the writ application. The learned Counsel firstly submitted that the bank guarantees could be enforced by the respondent No. 2 only in the event of the petitioners' failure to comply with the terms and conditions thereof but as from the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Act which applied only to the Part-III of the said Act, Submission of Mr. Mitra appears to be that as S. 8 of the said Act contemplates a notice by the Central Government upon Ship Owner only and then the notice by the respondent No. 2 to the Bank asking it to pay the amount covered by the two bank guarantees aforementioned must be held to be illegal, as the respondent No. 2 had been acting in exercise of its delegated power and under Section 16 of the said Act. 17. The learned Counsel, submitted, in this view of the matter a writ petition may be held to be maintainable and in support of the aforementioned contentions he has placed reliance on a decision of a learned single Judge of this Court in Peerless Guide Ltd. v. Union of India, reported in 1993 (2) Cal High Court Notes 362. 18. The learned Counsel submitted that Article 14 of the Constitution of India applies even on the field of contract and this keeping in view of the fact that action of the respondent No. 2 is arbitrary, it must be struck down. 19. Mr. S. Paul, the learned Counsel appearing on behalf of the respondent No. 2, on the other hand, submitted that the petitioner in this writ application seeks to enfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 27. From a perusal of the tripartite agreement the following fact emerges - a) The Company applied to the Committee for grant of loan of ₹ 68,69,899/-. b) The terms and conditions of the loan were conveyed to the Company by the Committee in terms of letter dated 6th January, 1986 which was accepted by the Company by its letter dated 25th January, 1986. c) The Company represented to the Committee that as and when the Committee directly disburses to the builders so much of the amount as can be disbursed by the Committee to the Company on account of the loan, pursuant to the loan agreement; the builders would undertake and agree to furnish security to the full satisfaction of the Committee of the amount so paid. d) To protect the interest of the Committee, the Company would assign its rights and benefits under the Contract to the Committee and not its liabilities thereunder. e) The Company has deposited first instalment of loan to the Committee which would be released by it to the builders along with the amount of loan in the manner and the stages indicated thereafter. f) Builders have agreed to build and construct ship trawler subject to the conditions contained there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o agitate the question in a civil suit filed for that purpose. But an order for payment of money may sometime be made in a petition under Article 226 of the Constitution against the State or against an officer of the Stale to enforce a statutory obligation.' 33. The above decision was quoted with approval in a subsequent Constitution Bench decision, in the case of Suganmal v. State of Madhya Pradesh, , and the Court took the view that a petition praying merely for the issue of a writ of mandamus for refund of tax or any money due from the State cannot be normally maintained. It was held (at p. 1742 of AIR): 'Normally petitions solely praying for the refund of money against the State by a writ of mandamus are not to be entertained. The aggrieved party has the right of going to the Civil Court for claiming the amount and it is open to the State to raise all possible defences to the claim, defences which cannot, in most cases, be appropriately raised and considered in the exercise of the writ jurisdiction.' 34. Later, a Bench of four Judges of the Supreme Court of India, in the case of D. R. Mills v. Commissioner, Civil Supplies,, , quoted the above two decisions with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the adjudicating machinery of the arbitration clause." 36. In Steel Authority of India Ltd. v. Steel Cracker, reported in 1994(2) CLJ 174, a Division Bench of this Court held that although the Writ Court can interfere in contractual matters, the Court will not scrutinise in details the facts of disputed nature and will not enter into question of interpretation of contracts involving close scrutiny. 37. In (M/s.) Industrial Fuel Company Private Ltd. v. (M/s.) Heavy Engineering Corporation Ltd., reported in 1993 (2) BLJR 1308, it has been held:-- "13. In Binod Kumar Srivastava v. The State of Bihar, reported in 1992 (2) PLJR 229, a Division Bench of which one of us (N. Roy, J.) was a member of this Court relying upon various decisions held that writ of mandamus cannot be issued in favour of the Contractor for payment of his so-called outstanding bills." This aspect of the matter has again been considered by a Bench of which one of us (S. B. Sinha, J.) was a member in Amarendra Kumar v. State of Bihar, . This aspect of the matter has also been considered by a Division Bench of this Court in M/s. Usha Brecco Ltd. v. State of Bihar, reported in 1993 (1) PLJR 183 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial scrutiny were held to be free from bias, discrimination and under the exigencies of the situation then existing to be just and proper. On the basis of those judgments it cannot be urged that this Court has left to the option of the authorities concerned whether to invite tenders or not according to their own discretion and to award contracts ignoring the procedure which are basic in nature, taking into account factors which are not only irrelevant but detrimental to the public interest." 21. Recently, the Supreme Court in Food Corporation of India Ltd. v. Jagannath Dutta, held thus: "We are of the view that the High Court was not justified in quashing the impugned notice especially when the terms and conditions of the contract permitted the termination of the agreement by either of the parties. The High Court should not have gone into the question of contractual obligation in its writ jurisdiction under Art. 226 of the Constitution." 38. In State of Gujarat v. Meghji Pethraj Shah Charitable Trust, , the Apex Court held: "It is not also an executive or administrative act to attract the duty to act fairly. It was -- as has been repeatedly urged by Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1308 in the following terms:-- "23. So far as the submission of Mr. Cododia on the doctrine of legitimate expection is concerned, the same has no application in relation to a dispute arising out of a% contract qua-contract. The said doctrine is applicable in the cases of "State action.-" 41. However, the Supreme Court recently in Union of India v. Hindustan Development Corporation, has clearly held that no enforceable right is created in terms of the doctrine of legitimate expectation, but the same only checks arbitrariness on the part of the State." 42. This aspect of the matter has recently been considered by the Supreme Court upon reviewing its earlier decisions including Kamdhenu Cattle's case (supra) in Madras City Wine Merchants' Association v. State of T.N. , wherein it has been held:-- "From the above it is clear that legitimate expectation may arise- (a) if there is an express promise given by a public authority; or (b) because of the existence of a regular practice which the claimant can reasonably expect to continue; (c) Such an expectation must be reasonable. However, if there is a change in policy or in public interest the posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty which is a State within the meaning of Art. 12 of the Constitution of India in the matter of contract cannot be said to be in pursuit of its administrative action particularly when the I contract was concluded. 45. Right to enforce Bank guarantee arises out of a contract qua-contract. 46. Ther is no public law element involved in it. 47. Thus a writ will not issue in the matter of enforcement of bank guarantee unless there exists a public law element.. 48. Even otherwise, normally a Court will not issue an injunction restraining enforcement of a bank-guarantee. 49. It is to be noted in Svenska (supra) , the Supreme Court held clearly that except in the case of fraud, no injunction can be issued restraining principal from enforcing a bank guarantee in the following terms: "The High Court was also in error in considering the question of balance of convenience. In law relating to bank guarantees, a party seeking injunction from encashing of bank guarantee by the suppliers has to show prima facie case of established fraud and an irretrievable injury. Irretrievable injury is of the nature as noticed in the case of Itek Corpn. Here is no such problem. Once the plaintiff is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the Courts. Otherwise trust in international commerce could be irreparably damaged." 54. Recently again the Supreme Court in The State Trading Corporation of India v. Jarisas Clothing Corporation, , clearly held that in a case of unequivocal and unconditional contract of bank guarantee by supplier or his failure for shipment of goods; no injunction should be granted against the corporation from invoking the bank guarantee except in a clear case of fraud. 55. The decision of the Delhi High Court relied upon by Mr. Mitra in , and 1990 (2) Comp LJ 265, are cases when fraud had been pleaded and prima facie case was found to be existing in favour of the petitioner thereof. Such is not the position here. 56. In Union of India v. M/s. Bimal Consultants (P) Ltd. reported in 1995 (1) Cal L Times 66, a Division Bench of this Court stated the law - "Under the agreement it is clear that the rate of pay phones had been grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Fund Committee (Abolition) Act, 1986 (hereinafter referred to as 1986 Act) the respondents could not have been delegated with the power to enforce the Bank Guarantee which was furnished by the petitioner in favour of the Central Government. 61. The said Act was enacted for abolition of the Shipping Development Funds Committee and vesting of assets and liabilities of the Government in the Central Government. In terms of S. 3 the Shipping Development Funds Committee constituted under S. 15 of the Merchant Shipping Act, 1958 stands abolished, the consequence whereof have been provided in S. 4 thereof, whereby, inter alia, all the rights and privileges of the Committee were to become the rights and privileges of the Central Government and all properties, movable and immovable, shall vest in the Central Government. 62. Section 2(d) of the said Act defines "designated person" meaning the person appointed as such under S. 16 of the Act. Section 2(g) defines "Shipowner" meaning a person of the description mentioned in S. 21 of the Act or who had obtained loans or financial assistance in any other form from the Committee. The word "shipping concern" has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Official Gazette, and subject to such conditions, restrictions and limitations as may be specified therein or otherwise, delegate all or any of its powers and functions under this Act to a designated person." The Central Government again by a Notification bearing No. S.O. 882(E) dated 22nd September, 1988 in continuation of the Notification bearing No. S.0.305(E) dated 3rd April, 1987 appointed the respondent No. 2 and delegated to it the powers and functions exercisable by it in terms of Ss. 4 and 5 of the said Act, a copy whereof is contained in Annexure "C" thereto. 65. Yet, again the Central Government in terms of its letter dated 5th October, 1988 while enclosing a copy of the aforementioned notification dated 22nd September, 1988 intimated to the said respondent that it was required to discharge the functions enumerated therein including - "(2) to hold custody of Bank Guarantee furnished or to be furnished by ship builders and shipping concern and to keep watch and to ensure that these are kept renewed in accordance with the requirements of Securities for the loans advanced under contract entered into by the Shipping Development Fund Committees p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orementioned bank guarantees were furnished in favour of the Central Government. Chapter III of the said Act provides for special powers of the Central Government to realise the amount from the shipowner to whom the Committee had granted a financial assistance, which in terms of explanation appended to S. 8 shall include any loan, advance or monetary assistance including any guarantee or counter-guarantee given to the shipowner by the Committee at any time before the appointed day. Evidently, therefore, bank guarantees having been furnished in favour of the Central Government, S. 8 has no application to the instant case. This finding, is fortified from the fact that in terms of S. 15 of the said Act, the Central Government had authorised to realise any loan, which has been recalled by a notice upon a shipowner in terms of S. 8 of the Act as an arrear of the land revenue. 68. Thus, in relation to the bank guarantees furnished by the petitioner in favour of the Central Government provisions of the said Act have no application at all. 69. If the provisions of the said Act had no application, it was open to the Central Government to invoke the bank guarantees dehors the provisions th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en given by the Central Government that the petitioner should withdraw the said application. The petitioner also in terms of his letter dated 13-5-93 addressed to the respondents contended - "In any case, we have time and again reiterated our commitment to you and the Ministry of Finance, Govt. of India about our firm intention of completing the partly built vessel. We are only waiting for our clearance and necessary documentation to be completed by you in this regard as settled in your office on 12-13th November, 1992". In another letter dated 26-2-93 addressed to the respondent No. 2 the petitioner again stated that any attempt on the part of the respondent No. 2 to enforce the bank guarantees will amount to an act of contempt. Even in that letter the petitioner did not deny or dispute the authority of the respondent No. 2 to enforce the bank guarantee. In the brochure of the respondent No. 2, which is contained in Annexure 'I' to the writ application, it has been stated - "Agents to Government: As a consequence of the abolition of SDFC, the Government of India has taken over the assets and liabilities as well as past commitments of SDFC. The Government ..... X X X X Extracts X X X X X X X X Extracts X X X X
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