TMI Blog2023 (5) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... qually efficacious remedy is available to a litigant, he should be required to pursue that remedy and not invoke the writ jurisdiction of the High Court. Equally, the existence of an alternative remedy does not affect the jurisdiction of the court to issue a writ, but ordinarily, that would be a good ground in refusing to exercise the discretion under Article 226 of the Constitution of India. This court cannot countenance the argument that, whereas, otherwise, a dispute owing to its private law origins ought to have been agitated before a civil court, merely because the entity so breaching the contract is a State or its functionary, the case is to be considered under Article 226 of the Constitution of India. Arbitrariness, under Article 14 of the Constitution of India needs to be pleaded in exclusion to claims of pure breach of contract. In the present petition, the petitioner has not been able to persuade this court that the breach so alleged on the part of respondents is of such a nature that it may be considered arbitrary and deserves to be entertained under the writ jurisdiction of this court alone. This court is of the considered opinion, that the present petition, invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent no.1, wherein certain bank guarantees furnished by the petitioner have been invoked; and (2) a direction to the respondents to return the bank guarantees furnished by the petitioner. 2. The facts material to the present dispute are that in the year 2011, Uttar Pradesh Power Transmission Corporation Limited declared one Isolux Corsan Concesiones S.A. (hereinafter 'Isolux') as the successful bidder for a project that, inter alia, was for providing transmission services to various long-term transmission customers in the State of Uttar Pradesh (hereinafter 'said project'). Isolux, along with another company, formed respondent no.3 (a joint venture company) for the purposes of executing the said Project. The respondent no.3 in turn engaged the respondent no.2 for executing the said project. 3. On 10.02.2012, in order to define the terms of the work, three agreements were entered into between the respondent Nos. 2 and 3, viz., Civil Works Agreement, Supply Agreement and Services Agreement (hereinafter 'Definitive Agreements'). The Definitive Agreements provided that the respondent no.3 was entitled to withhold as retentions part of the payments from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements; and since the basis of the invocation of the BGs is failure of respondent no.3 to honour its obligations under the term loan agreement, the same is bad in law, as being contrary to the terms of the BGs itself. 9. Thirdly, the petitioner's agreement and acknowledgement of the assignment of BGs in favour of the respondent no.1, was done while honouring the terms of the BGs, and no derogation was made therefrom. The assignment, it is argued, was therefore, specifically for the purpose of retention monies provided for in the Definitive Agreements. The learned senior counsel in support of her arguments took this court through various communications that took place between the petitioner and the respondent Nos. 1 and 3, specifically letters dated 30.12.2014, 31.03.2015, 30.07.2015, 12.08.2015 and 30.10.2015, issued by the petitioner, in which the issuance for assignment was acknowledged and reference was made to Clauses 10 and 11 of the BGs. 10. Fourthly, an egregious fraud has taken place where all the respondents in connivance with each other have taken advantage of the petitioner, i.e., IDBI Bank Ltd., and tricked the bank into giving BGs whilst from the very beginn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also argued that considering the entire conspectus of facts, the respondent no.1 has acted in an arbitrary and unfair manner, therefore, Article 14 of the Constitution of India is violated. Moreover, since the present petition is being pending for quite some time, this court must decide this matter on merits instead of considering the same on the issue of maintainability. 15. In support of the arguments, the learned senior counsel relies upon the following decisions: Century Spinning Manufacturing Co. Pvt. Ltd. v. Ulhasnagar Municipal Council Anr. (1970) 1 SCC 582, Gujarat State Financial Corporation v. M/s. Lotus Hotels Pvt. Ltd. (1983) 3 SCC 379, Union of India Ors. v. M/s. Graphic Industries Co. Ors. (1994) 5 SCC 398, LIC of India Anr. v. Consumer Education Research Center Ors. (1995) 5 SCC 482, Ganga Retreat Towers Ltd. Anr. v. State of Rajasthan Ors. (2003) 12 SCC 91, ABL International Ltd. Anr. v. Export Credit Guarantee Corporation of India Ltd. Ors. (2004) 3 SCC 553, Surya Constructions v. State of Uttar Pradesh Ors. 2019 SCC Online SC 447, Unitech Ltd. Ors. v. Telangana State Industrial Infrastructure Corporation (TSIIC) Ors. 2021 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the learned counsel for the respondent no. 3, that there is no involvement of public law in this matter. The learned counsel states that while engaging in the act so impugned by the petitioner, the respondent no.1 was not discharging a public duty or public function. It is their case that invoking a bank guarantee, assigning it, or entering into any such agreement, is not a part of discharging a public duty or function. To that end, if the entirety of the matter is governed by a contract and falls under contract law, the matter cannot be decided by a writ court. Specific reliance is placed on a decision of the Hon'ble Supreme Court in the matter of Joshi Technologies International INC v. Union of India and Ors. (2015) 7 SCC 728, Paras. 65-69 20. Fifthly, while placing reliance on the terms of the BGs, specifically Clause 3, on which the petitioner also relied, it is contended that the invocation of guarantee has taken place within the four corners of the law. It is submitted by the learned counsel, that the only pre-requisite that needed to be complied with for the invocation of the guarantee was the raising of a demand, which has been done by respondent no.1. Sixthly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf. b. Per contra, the respondent no.3 while placing reliance on the terms of the BGs, specifically Clause 3 on which the petitioner also relied, contends that the invocation of guarantee has taken place within the four corners of the law. It is submitted by the learned counsel, that the only pre-requisite that needed to be complied with for the invocation of the guarantee was the raising of a demand, which has been done by respondent no. 1. 25. Similar submissions have also been made on other issues. Since this court is not inclined to go into the merits of this case, therefore, they are not being dealt with at this stage. 26. Each of the issues so mentioned above, fall exclusively in the domain of private law and are fundamentally contractual in nature. There is no element of public law that this court finds involved in the present petition. The mere fact that the parties engaging in the contract are State or its instrumentalities, does not in itself make the issue relevant to public law. There is no determination of the rights relating to public law, nor is there a consideration relating to the public at large that needs to be factored in while deciding the dispute so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, can refuse to exercise. It also follows that under the following circumstances, 'normally', the Court would not exercise such a discretion: (a) the Court may not examine the issue unless the action has some public law character attached to it. (b) Whenever a particular mode of settlement of dispute is provided in the contract, the High Court would refuse to exercise its discretion Under Article 226 of the Constitution and relegate the party to the said made of settlement, particularly when settlement of disputes is to be resorted to through the means of arbitration. (c) If there are very serious disputed questions of fact which are of complex nature and require oral evidence for their determination. XXXXXXXX 69. Further legal position which emerges from various judgments of this Court dealing with different situations/aspects relating to the contracts entered into by the State/public Authority with private parties, can be summarized as under: XXXXXXX (iii) Even in cases where question is of choice or consideration of competing clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w element in the contract with State is getting blurred. However, it has not been totally obliterated and where the matter falls purely in private field of contract. This Court has maintained the position that writ petition is not maintainable... XXXXX (xi) The scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. [Emphasis supplied] 29. In State of Bihar Ors. v. Jain Plastics and Chemicals Ltd. (supra), the Hon'ble Supreme Court was to adjudicate upon the issue-whether the High Court ought not to have exercised its jurisdiction under Article 226 of the Constitution of India for granting relief in case of alleged breach of contract. The Apex Court held that a writ petition under Article 226 of the Constitution of India is not the proper proceeding for adjudicating such disputes. Under the law, it was open to the respondent therein, to approach the court of competent jurisdiction for appropriate relief for breach of contract. It is settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the usual principles of the Contract Act. Every act of a statutory body need not necessarily involve an exercise of statutory power. Statutory bodies, like private parties, have power to contract or deal with property. Such activities may not raise any issue of public law. In the present case, it has not been shown how the contract is statutory. The contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil Court or in arbitration if provided for in the contract. Whether any amount is due and if so, how much and refusal of the appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ petition. The contractor should have been relegated to other remedies. [Emphasis supplied] 31. Similarly, in Union of India v. Puna Hinda (2021) 10 SCC 960, the Hon'ble Supreme Court while relying upon Kerala State Electricity Board (supra) and Joshi Technologies (supra) allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been violated, it must be considered, that arbitrariness needs to be adjudged from the lens of the Constitution and with elements of public law. Every act of breach of contract by a subsidiary, undertaking, instrumentality or functionary of the State, cannot be assailed before a writ court. What the criteria of arbitrariness require in order to bring a case within the parameters of Article 226 of the Constitution of India is, either a conduct that is especially reckless, attributable to the special powers/privileges accorded to the State and its functionaries, the abuse of which is alleged, but for it to be a 'State', such arbitrariness and high-handedness should not have been exercised; or that, it is a case of discriminatory practices being conducted on the part of the State. 35. This court cannot countenance the argument that, whereas, otherwise, a dispute owing to its private law origins ought to have been agitated before a civil court, merely because the entity so breaching the contract is a State or its functionary, the case is to be considered under Article 226 of the Constitution of India. Arbitrariness, under Article 14 of the Constitution of India needs to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, to pay or repay, a specified sum in the event of any default in performance by the principal debtor of some other contract with a third party, the creditor. Sometimes the bank's liability arises on mere demand by the creditor, notwithstanding that it may appear on the evidence that the principal debtor is not in any way in default, or even that the creditor himself is in default under the principal contract. Such guarantees are sometimes called first demand guarantees or demand bonds . It has been held that performance guarantees of this nature are analogous to a bank's letter of credit, and that the bank's liability is of a primary nature which is unaffected by allegations that the creditor is in breach of the main contract between him and the principal debtor. The question whether a particular instrument (such as a refund guarantee ) takes the form of an independent performance bond (or stand-by letter of credit) or a true see to it guarantee is one of construction of the instrument in its factual and contractual context having regard to its commercial purpose. While there may be a number of indications in an instrument which argue in favour of it being a tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of its Long Term Lenders/Bankers. In case of such an assignment such third party shall be the beneficiary to the benefits arising under this Guarantee. 42. Further, the letters dated 30.12.2014, 31.03.2015, 30.07.2015, 12.08.2015 and 30.10.2015 issued by the petitioner acknowledging and agreeing to the assignments read as under: ... As stipulated in the clause 11 of the aforesaid Bank Guarantee the beneficiary therein wishes to assign the benefits under the Bank Guarantee in favor of its Long Term Lenders i.e. Power Finance Corporation Limited, Urjanidhi, 1, Barakhamba Lane, Connaught Place, New Delhi 'the Assignee' We hereby acknowledge the said assignment from South East U.P. Power Transmission Company Limited in your favour. ... 43. Prima facie, it can be seen that the petitioner was aware about the possibility of the BGs being assigned to the long term lender i.e., respondent no. 1. 44. It is further argued that since the said project has been completed, as per the terms of the Definitive Agreements and the BGs, they must be discharged and, in the alternative, since the competition date has passed, the liabilities must be reduced by fifty per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances, comes to the conclusion that the same ought not to be entertained and the parties may be relegated to more appropriate civil remedies. 47. This is not to say that if a subsequent act has led to the alternate remedy being foreclosed, the court must not give due weightage to the same, but rather that the dominant lens of analysis must be from the perspective of the original filing. 48. Insofar as the argument of the petitioner that irretrievable harm and injustice would be caused since respondent no.2 is undergoing liquidation and the petitioner would not be able to recover any amount, is concerned, this court finds it to have no basis. It is true that it causes inconvenience and may even be considered unjust in the moral sense, but in law, financial inconvenience cannot be considered as irretrievable harm or injustice. 49. In Century Spinning Manufacturing Co. Pvt. Ltd. v. Ulhasnagar Municipal Council Anr. (supra), a three-judge Bench of the Hon'ble Supreme Court ruled upon the nature of discretion exercisable under Article 226 of the Constitution of India. Through paragraph Nos. 8 and 9, the Apex Court ruled as under: 8. The High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te law. Paragraph Nos. 12 and 13 of the decision are reproduced as under: 12. Viewing the matter from a slightly different angle altogether it would appear that the appellant is acting in a very un-reasonable manner. It is not in dispute that the appellant is an instrumentality of the Government and would be other authority' under Article 12 of the Constitution. If it be so, as held by this Court in R.D. Shetty v. The International Airports Authority of India Ors. the rule inhibiting arbitrary action by the Government would equally apply where such corporation dealing with the public whether by way of giving jobs or entering into contracts or otherwise and it cannot act arbitrarily and its action must be in conformity with some principle which meets the test of reason and relevance. 13. Now if appellant entered into a solemn contract in discharge and performance of its statutory duty and the respondent acted upon it, the statutory corporation cannot be allowed to act arbitrarily so as to cause harm and injury, flowing from its un-reasonable conduct, to the respondent. In such a situation, the Court is not powerless from holding the appellant to its promise and it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it must also be considered that both the above mentioned cases were appeals from decisions of a single judge where the concerned writ petitions were entertained. The decisions of the Hon'ble Supreme Court are then ratifying the discretion exercised by the respective single judges on the grounds so considered by the Apex Court. Broadly speaking, the said decisions give reasons as to why the exercise of discretion is correct. They, however, are not concerned with the issue-whether the non-exercise of discretion would have been incorrect. It is to be remembered, that the relief under Article 226 of the Constitution of India, is primarily discretionary, and in the absence of the two decisions ruling upon the non-exercise of discretion being against the law, the said decisions do not persuade this court to entertain the present petition. 55. The case relied upon by the petitioner in Union of India Ors. v. M/s. Graphic Industries Co. Ors. (supra) is partly found to be inapplicable, and partly against the petitioner itself. At the core of the dispute, in the said case, the issue involved was unfairness caused by the railways as a result of withholding the payment of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the same is not applicable in the present petition. Similarly, NN Global Mercantile Pvt. Ltd. v. M/S. Indo Unique Flame Ltd. Others (2021) 4 SCC 379, is a ruling concerned with the issue-whether a writ petition under Articles 226 and 227 of the Constitution of India would be maintainable to challenge an order rejecting an application for reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The same is, therefore, distinguishable as the issue under consideration is different. The cases of BMW Industries Limited v. UCO Bank Ors. (supra), Uttam Chand Rawat v. State of U.P. Ors. (supra), Chennai Metro Rail Limited v. Transtonnelstroy-Afcons (JV) (supra) are decisions by the High Courts of Calcutta, Allahabad, and Madras respectively, this court not being bound by the same, the cases are not discussed. The decision by the Hon'ble Supreme Court in the case of Consumer Education Research Center (supra), is found to be inapplicable, as therein, the unique nature of life insurance policies formed the basis of the dispute. It was held by the Apex Court that policies of such a nature inherently have a public law aspect to them. The present m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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