Punjab-Haryana High Court
L.T. Overseas Limited vs Food Corporation Of India And Anr. on 3 April, 2006
Equivalent citations: IV(2006)BC418, (2006)143PLR449
Author: Hemant Gupta
Bench: Hemant Gupta
JUDGMENT Hemant Gupta, J.
1. The challenge in the present revision petition is to the order passed by the learned trial Court on 16.7.2005 and the order in appeal dated 23.7.2005 passed by the learned first Appellate Court affirming the order passed by the learned trial Court on an application filed by the petitioner under Order 39 Rules 1 and 2 of the Code of Civil Procedure, 1908 (hereinafter to be referred as "the Code") restraining the respondents from encashing the bank guarantee to the extent of Rs. 2,41,57,500/-.
2. The petitioner is a recognized export house. The petitioner entered into an agreement with M/s Grain Board of Iraq for the supply of 35000 M.T. of wheat on 15.11.2000. The said contract could not be executed till its revalidation by the World Food Programme on March 10, 2004. The petitioner discussed the matter with different Ministries and approached the Food Corporation of India (hereinafter to be referred as "the Corporation") for the purposes of export of said wheat under the aforesaid contract. The petitioner was allocated the entire quantity for the purpose of export of wheat to the foreign buyer in May, 2004. In order to secure fulfillment of export obligation in respect of the aforesaid allocation, the petitioner issued a bank guarantee for a sum of Rs. 4,76,56,250/-. The petitioner was to produce necessary export documents including H Form within the stipulated period in support of export of wheat. The Corporation issued various release orders and in July and August, a total quantity of 34,910 M.T. of wheat was lifted by the petitioner against cash payment. The first consignment of 18375 MT of wheat was exported by the petitioner to M/s Grain Board of Iraq but the balance quantity of 18400 M.T. of wheat was rejected by the surveyors of the foreign buyers at Kandla port on the ground that there were spots of fungus (Karnal bunt) on some grains of wheat.
3. it is the case of the petitioner that the matter was discussed with the officers of the Corporation and the petitioner was permitted to find out an alternative buyer and wheat was sold at much lesser price to a buyer at Singapore. It is, thus, contended that since the entire wheat allocated to the petitioner has been exported out of the country, therefore, the bank guarantee cannot be encashed to the extent of the wheat exported to Singapore. It is the case of the petitioner that letter dated 30.6.2005 for encashment of the bank guarantee to the extent of Rs. 2,41,57,500/- is liable to be set aside as not a single condition for invocation of the bank guarantee has been complied with by the Corporation. It is alleged that a well calculated fraud has been played by the Corporation.
4. The defendant-respondent Corporation in the written statement took up a stand that the wheat allotted was specifically to be exported to Iraq as humanitarian assistance and was not to be diverted to any other country by the plaintiff-petitioner. Since the stock of wheat was lifted against the said allotment, the plaintiff was duty bound to export the same to Iraq only and submit the export documents to the Corporation on completion of export allotment. It is, thus, pleaded that the bank guarantee dated 26.6.2004 is to be encashed to the reduced value of Rs. 2,41,57,500/- as the petitioner has wrongly and clandestinely diverted a considerable quantity of food grains to other country than Iraq and, thus, violated the terms of allotment. The Corporation denied that any officer of the Corporation asked the petitioner to find out any alternative buyer for export to any other country other than Iraq.
5. Both the Courts have held that the petitioner has failed to get clearance of export of wheat to Singapore from the Ministry of Consumer Affairs, Food and Public Distribution and, therefore, the Corporation is entitled to encash the bank guarantee vide letter dated 30.06.2005.
6. Learned Counsel for the petitioner has vehemently argued that invocation of bank guarantee by the Corporation is not only a result of fraud but also there exists special equity in favour of the petitioner which entitle the petitioner to seek restrain order against the Corporation from encashing bank guarantee. It is argued that the bank guarantee dated 26.6.2004 does not restrict the petitioner to export wheat to Iraq only. Once, the petitioner has exported wheat out of the country, it is immaterial that export was not to Iraq but to any other country. It is further argued that the Corporation on 29.06.2005 has, in fact, recommended the regularization of export to an alternative buyer instead of Iraq and acceptance of its export documents, therefore, it would be wholly inequitable if Corporation is now permitted to encash the bank guarantee which will amount to additional losses to the petitioner. It is also argued that the invocation of the bank guarantee is not by the respondent Corporation itself but on the directions of the Government of India and, therefore, in terms of doctrine of dictation, the action of the Corporation to invoke the bank guarantee is wholly unjustified. The bank guarantee can be invoked only if the Corporation finds that the petitioner has failed to perform its part of contractual obligation and not at the instance of third party. The petitioner has relied upon Anirudhsinhji Karansinhji Jadeja v. State of Gujarat and Election Commission of India and Anr. v. Dr. Manmohan Singh and Ors. (2001)1 Supreme Court Cases 591, in support of said argument. Still further relying upon BSES Limited (now Reliance Energy Ltd. v. Fenner India Limited and Anr. Judgments Today 2006(2) S.C. 192, the petitioner has argued that there exits special equity in favour of the petitioner inasmuch as invocation of bank guarantee will result into loss of money as well as loss of reputation in view of the directions of the Government of India that the petitioner should be blacklisted as well. The petitioner stated that it is ready to pay interest at commercial rate on the amount of bank guarantee if it fails in the suit for injunction.
7. Controverting the said stand of the petitioner, learned Counsel for the Corporation has pointed out that export was permitted to the petitioner by the Ministry of Consumer Affairs, Food and Public Distribution vide letter dated 7.5.2004 for supply of 36,750 M.T. of wheat to Iraq on humanitarian ground at effective export price on the date of lifting. Such communication from the Government of India was communicated to the petitioner on 20.5.2004. In pursuance of the said communication, allotment letter was issued starting from 28.5.2004 for export of wheat to Iraq as humanitarian assistance. The entire quantity lifted from the Corporation was not exported to Iraq, therefore, the petitioner has violated the terms of export and, thus, bank guarantee has been rightly invoked. The allegation that the petitioner was permitted by the officers of the Corporation to export wheat to another country was specifically denied. Still further, it is argued that communication dated 29.6.2005 will not confer any right in favour of the petitioner as it is interdepartmental communication. In fact, on 29.6.2005 itself, the Ministry of Consumer Affairs, Food and Public Distribution has written to the Corporation for invocation of bank guarantee. The said letter was written after the matter was discussed with the representatives of the petitioner as well. It is submitted that the bank guarantee has | been invoked in terms of the bank guarantee which is independent contract. In terms of the said contract, any demand on the bank is conclusive as regards the amount due and payable by the bank under the said guarantee.
8. Before proceeding further, it will be relevant to consider the terms of the bank guarantee as well as the terms of letter invoking bank guarantee. It read as under:
Guarantee Bond
1. xx xx xx xx
2. We, Oriental Bank of Commerce, Nehru Place, New Delhi, do hereby undertake to pay the amount under this guarantee at any time without any demur, reservation, recourse, contest or protest and/or without any reference to the terms and conditions of sale merely on a demand from the SRM, FCI, Punjab Region, and without recourse to the buyer on receipt of a claim from the SRM-FCI, Punjab Region, stating that the buyer has failed to produce any necessary proper export documents including H Form within the stipulated period in support of their having exported the wheat purchased by the buyer from SRM-FCI Punjab Region, under the respective sales transaction. Any such demand on the bank shall be conclusive as regards the amount due and payable by the bank under this guarantee....
3 to 9 xx xx xx xx xx xx Letter dated 30.06.2005 from Food Corporation of India, Regional Office, Punjab, Chandigarh.
Kindly refer to this office letter No. D/1(1)/Export/LT Overseas/2004/546 dated 8.6.2005 dated 20.6.2005 and 22.6.2005 on the claim of encashment of the above bank guarantee and submission of payment of Rs. 2,41,57,500.00 (Rupees Two Crores Forty One Lac Fifty Thousand Five Hundred only) through demand draft in favour of Sr. Regional Manager, FCI, Punjab Region, explaining detailed circumstances of non-commitment of export obligation by M/s L.T. Overseas Ltd., New Delhi against the wheat stocks lifted from Punjab Region.
In this connection it is informed that M/s L.T. Overseas Ltd., New Delhi have failed to submit the export documents with the FCI, against the quantity of wheat lifted by them. Hqrs vide their fax dated 23.6.20065 (photo copies enclosed) has given week's time up to 30.6.2005 by which time their representation in the ministry of CAF &PD may be decided. Now FCI Hqrs vide fax dated 30.6.2005 (copy enclosed) has conveyed decision of the Ministry of CAF & PD that the guarantee bond executed in favour of Food Corporation of India may be encashed and the firm may be blacklisted from conducting future business with FCI and information of this action may also be sent to the Ministry of External Affairs. Therefore, as already requested their aforesaid bank guarantee is liable to be encashed in favour of FCI without further delay.
You are again requested to kindly remit the payment through the bearer Shri Hazara Singh, Asstt. Manager (Sales) of this Office without further loss or correspondence on this issue.
9. A perusal of the terms of the bank guarantee shows that the bank has undertaken ; to pay the amount under guarantee at any time without any demur, reservation or protest on demand from the Senior Regional Manager, Food Corporation of India, Punjab Region, and without recourse to the buyer on receipt of a claim from the Senior Regional Manager, Food Corporation of India, Punjab Region. The Bank has been communicated that "the buyer has failed to produce any necessary proper export documents including H Form within the stipulated period in support of their having exported the wheat purchased by the buyer from Senior Regional Manager-Food Corporation of India, Punjab Region, under the respective sale transactions.
10. The respective sale transactions in the said bank guarantee are referable to the sale transactions of export of wheat to Iraq as humanitarian assistance. The letter invoking the bank guarantee makes a reference of failure on the part of its non-commitment of its export obligation against the wheat stocks lifted from the Punjab Region and that the petitioner has failed to submit the documents with the Corporation against the quantity of wheat lifted by the petitioner. Still further, any demand on the bank is conclusive as regards the amount due and payable. The bank has undertaken to make payment without recourse to the petitioner on receipt of the communication from the Corporation that the petitioner has failed to produce proper export documents. Thus, once the Senior Regional Manager of the Corporation has communicated that the petitioner has failed to produce the necessary documents, the said communication is sufficient for invocation of the bank guarantee. Such invocation is not required to be supported by any other document. The communication on the part of the Corporation is in terms of the bank guarantee.
11. A perusal of the letter dated 30.06.2005 further shows that the petitioner was given a week's time up to 30.06.2005 by the headquarters of the Corporation so that the representations submitted by the petitioner in the Ministry of Consumer Affairs, Food and Public Distribution are decided. The communication from the Ministry of Consumer Affairs, Food and Public Distribution was received on 29.06.2005 after having discussion with the petitioner and thereafter a letter has been written to the bank to invoke the bank guarantee. A perusal of the letter further shows that the claim of the encashment of bank guarantee was made earlier on 8.6.2005, 20.6.2005 and 22.6.2005, The matter was deferred for a week only to await the decision on the representation submitted by the petitioner in the Ministry of Consumer Affairs, Food and Public Distribution. Thus, indulgence granted by the petitioner to await the decision of the Ministry of Consumer Affairs, Food and Public Distribution cannot be treated as a direction to the Corporation to encash the bank guarantee. It is the petitioner who has sought intervention of the Ministry and, thus, any communication of the Ministry on such representation cannot be treated as a direction to the Corporation.
12. Still further, I am of the opinion that the principle laid down in Anirudhsinhji Karansinhji Jadeja's case (supra) and Election Commission of India's case (supra), cannot be extended to the present case as the said cases were a direction to the statutory authority to exercise the discretion in a particular manner. However, in the present case, the Corporation has not exercised any statutory jurisdiction while deciding to invoke the bank guarantee. More so, the decision to invoke the bank guarantee was already communicated but it was on a representation moved by the petitioner to the Ministry which made the Corporation to wait for one week. Therefore, the judgments referred by the petitioner are of no assistance to the petitioner.
13. The principles laid down in M/s BSES Ltd.'s case (supra), are again not helpful to the petitioner. It has been found that the bank guarantee must be honoured in accordance with its terms as the bank is not concerned with the relations between the supplier and the customer. The bank must pay according to the tenor of its guarantee, on demand, without proof or condition. However, it has been found that there are two exceptions to this rule. Firstly, when there is a clear fraud of which bank has notice and a fraud of the beneficiary from which it seeks to benefit. The fraud must be of a egregious nature as to vitiate the entire underlying transaction. Secondly, when there are special equities in favour of injunction, such as when "irretrievable injury" or "irretrievable injustice" would occur if such an injunction was not granted. The court found that there are no special equities nor irretrievable injustice if bank guarantee is encashed. Hon'ble Supreme Court set aside the order of Madras High Court granting injunction against encashment of the bank guarantee. In the present case, the petitioner is not able to show any fraud or special equities in terms of the principles reiterated in BSES's case (supra) case recently.
14. Before concluding, another argument which was raised by the petitioner needs to be noticed. The argument was since the goods have been rejected by the surveyors of the buyer for export to Iraq, the contract stands frustrated and, therefore, the petitioner is entitled to export to another country so as to maintain the spirit of the agreement to export wheat out of the country and with a view to mitigate its losses. The said argument cannot be gone into at this stage at the time of invocation of bank guarantee. The said argument is in realm of the contract of the petitioner with the Corporation. Suffice it to state that rejection of the wheat by the surveyor is not attributed to the Corporation and, therefore, prima facie, the argument that the contract of export of wheat entered into between the Corporation and the petitioner stands frustrated, prima facie, seems to be unjustified.
15. In view of the above, I do not find any error of jurisdiction in the order passed by the Courts below while declining ad interim injunction prayed for by the petitioner.
Dismissed.