Calcutta High Court
Assambrook Exports Ltd. And Anr. vs Export Credit Guarantee Corpn. Of India ... on 15 May, 1997
Equivalent citations: AIR1998CAL1, AIR 1998 CALCUTTA 1, (1998) 1 CAL WN 65
Author: Satyabrata Sinha
Bench: Satyabrata Sinha
ORDER Satyabrata Sinha, J.
1. The petitioners have filed this writ application claiming, interalia, the following reliefs :--
"(a) A writ and/or in the nature of certiorari do issue calling upon the respondent Nos. 1 and 2 and each of them, their men, agents, subordinates and servants to forthwith certify and transmit to this Hon'ble Court the records of this case culminating to issue of the impugned letters dated 14-12-1994 and 26-5-1995, being Annexures V and X to this petition so that upon consideration thereof the same may be quashed and conscionable j usticc may be done;
(b) A writ and/or in the nature of Mandamus do issue directing the respondent Nos. 1 and 2 and each of them, their men, agents servants, subordinates to :
(i) act in accordance with law;
(ii) withdraw, recall, rescind and/orcancel the impugned letters of rejection of the claim of your petitioner No. 1, being, Annexures V and X to this petition, forthwith;
(iii) desist from giving any effect or further effect of from acting in terms of or in furtherence of the said impugned letters of rejection dated 14-12-1994 and 26-5-1995, being Annexures V and X hereto, in any manner whatsoever;
(iv) to make payment of the dues of the petitioners under the Contract of Insurance/Policy cover issued by the respondent No. 1 to the petitioner No. 1 in respect of export of tea to Kazakhstan."
2. The basic fact of the matter is not much in dispute.
3. On or about 26th August, 1993 Rassik Woodworth Ltd. (hereinafter referred to as RWL) entered into a contract with M/s. RVO Kazpishepromsyrio, a State owned corporation of Kazakhstan (hereinafter referred to as Kazak Corporation) for supply of 3,000 Metric Tons of tea. Such export was to be made by barter within 120 days of the date of delivery, failing which the payment thereof was to be made in U.S. $. The payment for such export is said to be covered by sovereign guarantee furnished by Government of Kazakhstan.
On 2nd Sept. 1993 RWL informed the first respondent (hereinafter referred to as ECGC) thereabout, in reply whereto the ECGC in terms of its letter dated 8th Sept. 1993 wanted certain information and confirmed that subject to obtaining its satisfactory information and insurance covered would be provided for such shipment. Such request on the part of the ECGC was allegedly clarified by RWL in terms of its letters dated 15/17-9-1993 as contained in Annexure 'E' to the writ application. The ECGC thereafter agreed in principle to cover the shipment to be made by RWL; and sought for further clarifications which was also provided for.
4. The first petitioner thereafter made apetition for comprehensive Risks Policy with ECGC on 23rd Sept. 1993. A contract was entered into between the RWL and ABEL as regards assignment of a part of the contract. On 30th Sept. 1993 ECGC issued a comprehensive Risk Policy with effect from 23rd Sept. 1993 to 30th Sept. 1995 in favour of the first petitioner.
5. It is alleged that the Reserve Bank of India after registering such contract as per statutory requirement intimated the concerned bank in terms of its letter dated 30th Sept. 1993. On 1st Oct. 1993 the first petitioner made an application in the prescribed form with firstjespondent for granting specific approval in relation to the tea to be exported by it in terms of the contract of assignment entered into by and between it and RWL, pursuant whereto a letter of sanction was issued by the first respondent to RWL in respect of the entire export of 3,000 Metric Tons tea to Kazakhstan on certain terms and conditions.
6. On 12th Oct. 1993 the first respondent accepted the application of the first petitioner and issued its sanction letter in relation, to the export tea to kazakhstan. Thereafter the shipping documents were negotiated with Vysya Bank by the first petitioner and credit facilities to the tune of Rs. 692.54 lacs was obtained by the first petitioner, inter alia, pleading 5,00,000 shares by way of a eolateral security. It is not disputed that the first petitioner submitted 8.70 lacs of kgs. of tea to Kazakhstan in between 8th and 30th Oct. 1993. It is stated that as the barter arrangement with the said Kazakhstan Company did not materialise, R.W.L. intimated the same to the Reserve Bank of India which in turn cancelled such arrangement for which permission was given initially by RBI in terms of its letter dated 30th Sept. 1993.
7. The Deputy Minsiter, Ministry of Foreign Economic Relations of Kazakhstan intimated RWL about the economic difficulties prevailing in their country as also committing to make payments by the end of March, 1994. As the payment from the foreign buyer was not coming, the first petitioner applied for extenstion of time for a period of 3 months from the due date, and in terms of its letter dated 22nd March, 1994 wherein it was clearly indicated that the foreign buyer has already remitted certain sum in US $. In reply to the said letter of the first petitioner the first respondent intimated that the extension of due date is under process and requested the first petitioner to remit the premium immediately. The Kazak Company by a letter dated 11 th April, 1994 informed its difficulties about the economic condition and the introduction of very steep devaluation of their currency which prevented them from making payment of their entire dues. On 11 th April, 1994 RWL invoked the guarantee given by the Ministry of Foreign Economic .Relations of Kazakhstan. On 25th July, 1994 the first petitioner lodged its claim with ECGC as per terms and conditions stipulated in the Comprehensive Risks Policy as well as in the , letter of sanction granted by ECGC, in response whereto, certain clarifications were sought for. By its letter dated 8th Sept. 1994 the first petitioner supplied all the relevant facts and also placed subsequent developments before the first respondent. However, on 14th Dec. 1994 the first respondent rejected the claim of the first petitioner on the ground that it chose not to import goods offered by the Kazak Company withoutconsulting it. Several representations were made thereafter by the petitioner not only to the first respondent but also to the Ministry of External Affairs. The matter was also taken up by the External Affairs Ministry with the Government of Kazakstan.
8. By a letter dated 10th May, 1995, the Deputy Secretary, Ministry of Commerce; intimated the first petitioner about the views of ECGC to the effect that the trade loss is not covered by the insurance policy. The first respondent thereafter again made several representations. By a letter dated 26th May, 1995 the first respondent rejected the claim of the petitioners as contained in Annexure X to the writ application. Yet again another set of representations started. In the mean time the respondent Bank initiated a proceedings before the company Law Board under Section 111A of the Companies Act which is still pending. This writ application was filed on 20th Feb. 1996.
9. Mr. Gautam Mitra, the learned Counsel appearing on behalf of the petilioners, inter alia, submitted that keeping in view the fact that the first respondent was bound to hone-units promise to pay the insured amout i.e. 75% of the insured value in terms of the aforementioned agreement and it having failed to do so, the petitioners are. entitled to the reliefs sought for in this application, It is submitted that the petitioners have: paid a sum of Rs. 16 lacs by way of premium. According to the learned Counsel, it does not lie in the mouth of the first respondent to contend that the loss suffered by the petitioners is a trade loss inasmuch as admittedly the barter system did not work. The learned Counsel further submitted that keeping in view the modifications in the contract to which all concerned parties including the Reserve Bank of India agreed that in the event of failure of barter system, the Government of Kazakhstan shall pay the amount in US clearly goes to show the reasons assigned by the first respondent are non-existent.
10. Mr. Banerjee,.the learned Counsel appearing on behalf of the first respondent, on the other hand, submitted that a payment of the price of tea was to be made by barter system, the list of articles wherefor was a part of contract. According to Mr. Banerjee, if the petitioners decided not to accept the same for their own business reasons, the first respondent cannot be blamed therefor. It has been submitted that the petitioners have invoked their right unilateraily without referring the matter to the first respondent. The learned Counsel pointed out that an undertaking to cover the risk of Kazak Government was always a risky affair. It was further pointed out that no steps had yet been taken against the Government of Kazakhstan which never had refuted the claim. It was submitted that before the policy of insurance can be enforced as against the first respondent the petitioner was required to establish the default on the part of the foreign buyer and as they have failed to do so, the first respondent is not responsible therefor. It is submitted that the terms had been altered behind the back of the respondent No. 1. According to the learned Counsel, the question as to how the parties had understood the policy would appear from the contemporious document dated 14-1-1991 which the petitioners only replied after a long time i.e. on 24-4-1995. It is admitted, according to Mr. Banerjee, that the Kazak Company as well as the Government of Kazakhstan could not pay owing to inflation. It was further submitted that the claim of the petitioner being a pure money claim, this writ application is not maintainable and in support of is aforementioned contention the learned Counsel has relied upon Life Insurance Corporation of India v. Escorts Ltd. and Anupam Ghosh v. Union of India reported in 1991 (2) Cal HN 451.
11. The question which arises forconsideration in this application, therefore, is as to whether in the facts and circumstances of this case the petitioners are entitled to maintian the writ application.
12. It is not disputed that the certificate of recognition issued by the Director of General Foreign Trade as contained in Annexure 'A' to the writ application, contains the following clause :
"The payment for delivered goods shall be made by Barter Exchange of goods within 120 days from the date of delivery being effected by the Seller, Plus interest for the period of non payment 18% per year. The above terms will be covered by a guarantee for payment by the Ministry of Foreign Economic Relations of Kazakhstan.
For Barter Exchange of goods Buyer presently has available for offer goods as per supplement N2 to the present contract."
13. The aforementioned clause was modified by reason of an addendum which is to the following effect:
"In case the payment terms as per Clause 6 of the Contract No. 1.B/9-14/93 dated 26-8-1993 are not possible that is to say if the Contract for Barter supply of goods cannot be finalised for any reason/or if delivery of shipment under such a Contract is not made wihin the stipulated period, then the Buyer shall pay to the Seller for delivered goods in US Dollars within 120 days from the date of delivery being effected by the Seller. This payment is to be made through remittance by the Buyer of the Contracted amount of delivered tea, plus interest @ 16% per year to the Bank Account of the Seller at Canara Bank Janpath New Delhi, India.
The above payment will be guaranteed by the Ministry of Foreign Economic Relations of Kazakhstan.
This addendum forms an integral part of the Contract No. I 4/3M/93 dated 26-6-1993."
14. It is not disputed that the respondent No. I in terms of its letter dated 12-10-1993 approved the transaction entered into by and between the Indian parties and the Kazak Company on the following terms:--
" 1. The payment for delivered goods shall be made by Barter Exchange of goods within 120 days from the date of delivery.
2. Out liability will arise only after default has been established on the guaranteeof the Ministry.
3. Percentage fo cover will be 75% of the loss;
4. Waiting period for filing of claim will be 4 months from the due date of payment.
5. You have the right to expert in your own name as per the contract and the bills of Exchange shall be raised in your name and also you have a right to recourse against buyer in the event of any default.
6. A premium rate applicable will be at the rate of 151 paise per Rs. 100/- of the gross invoice value."
15. There is no dispute in view of the statements made in paragraph 34 of the writ application that the agreement specified 12 separate items which could have been offered by the Kazak Company but allegedly they made an offer of two of the items only. The petitioners have contended that the same being not firm offer the purported offer was not acceptable to the petitioners, and at the relevant time the price at which such goods were being offered were much higher than the prevailing market rate in India and, thus, it was not possible for accept the same.
16. In this situation, the question now arises as to whether the petitioners had an absolute right to decide whether to accept an offer or not.
17. It is not in dispute that after the aforementioned addendum to the contract was entered, the Government of Kazakhstan also agreed to grant an irrevocable guarantee in the following terms :--
"The Ministry of Foreign Economic Relations of Kazakhstan hereby irrevocably guarantee that in the event RVO 'Kezpishepromsyrio', for any reason whatsoever, is unable to meet its obligation for payment to you under the Contract No. 1-B/9-14/93 dated 26-8-1993 then we will make the payment to you in US Dollars through remittance, of the Contracted amount of delivered tea, to your Bank Account in India within the stipulated period of payment in the above contract."
18. It was in this situation, the risk was insured by the first respondent in terms of this policy dated 30th Sept. 1993 as contained in Annexure 'J' to the writ application which includes :--
"Failure of the buyer to pay to the Insured, within four months after the due date of payment the gross invoice value of the goods delivered to and accepted by the buyer."
19. It is not disputed that the petitioners have exported tea and the Barter system did not work, It is also not in dispute that the Government of Kazak accepted the said position and agreed to pay US Dollars. The Reserve Bank of India also stated by a letter to the Canara Bank to the following effect :--
"Please refer to your letter No. 543. CR HS. 2735.93 dated 27th Sept. 1993. No advise that we are agreeable to your handling documents relating to export of tea of the value of US Dollars 7,640,000/- by M/s. Rassik Woodworth Ltd., New Delhi (RWL) and import of items listed in supplement No. 2 to the contract No. I-B/9-14/93 dated 26-8-1993 from M/s. Kazpishepromsyrio, Kazakhstan of the equivalant value under barter trade, provided/subject to the following conditions :--
(i) ECGC agrees to provide cover for the export.
(ii) Government of Kazakhstan provides irrevocable guarantee for payment of- goods exported from India, within 120 days in the event M/s. 'Kazpischepromsyrio' fail to export goods to India under barter deal, indicating the number and date of the contract.
(iii) Exports by M/s. RWL to M/s. Kazpishepromsyrio, Kazakhstan should be treated as advance payments by the former to the latter for imports from the latter.
(iv) An account should be opened in the name of M/s. Kazpischopromsyrio for this purpose and be closed immediately after the value of imports and exports under the barter deal is squared up.
(v) The documents relating to imports/exports under the barter, will be routed through only Canara Bank, Janpath, New Delhi.
(vi) The designated branch should report the entire amount representing proceeds of exports as advance payments to the captioned Kazakh Organisation for imports and cost of imports as and when take place may be reported as sale of foreign exchange in 'R' return giving a cross reference and quoting a reference to the RBI approval letter. The relative form A1 should be forwarded along with the 'R' return. The GR form should bear a legend 'Export under barter deal approved by R.B.I, vide letter No. EC COX COMN 318/131 dated 30-9-1993 as advance to the M/s. Kazpischopromsyrio, Kazakhstan for payment of import of goods from Kakzakhstan within 120 days or cash payment by the importer/ Ministry of Foreign Economic Relations of Government of Kazakhstan under its irrevocable guarantee."
The GR duplicate may be certified by the bank as under. 'Advance payment for imports adjusted against payments for exports under barter deal approved in terms of RBI letter No. EC COX COMN 318/131 dated 30-9-1993.'
(vii) The Indian firm should submit to our New Delhi Regional Office a statement showing the value of exports and imports and other details such as date(s) of export/import, commodity, bill of lading, bill of entry, etc. under the barter deal immediately after the transactions are over.
(viii) All imports and exports from India should be at international prices and all transactions falling under the barter deal should be in conformity with the relevant Trade Control and Exchange Control Regulations."
In fact, the respondent No. I by a letter dated 8th Sept. 1993 wrote :--
"Our liability will arise ony if the default is established on the guarantee of the Ministry (meaning thereby the Government of Kazakhstan)."
20. By the impugned letter dated 14th Dec. 1.994 as contained in Annexure 'V to the writ application, the first respondent rejected the petitioners' claim only on the ground that they had rejected the Barter system without consulting the Corporation not to import the goods offered by the buyer may be for trade reasons. The first respondent described the same as a trade loss which was not covered by the policy of insurance.
As noticed hereinbefore, that on 26th May, 1995 the first respondent rejected the claim. It was stated :--
"1. The payment for delivered goods shall be Made by Barter Exchange of goods within 120 days from the date of delivery. 2. Our liability will arise only after deafult has been established on the guarantee of the Ministry.
With reference to these stipulations, it may be necessary to bring to your kind notice that the Barter Exchange of goods in terms of contract entered into between the exporter and the importer was available to you. In other words, the specified ommodities were available for import from Kazakhstan to India in terms of the contract. You have, however, decided not to import those goods in exchange of your exprts of tea without bringing the insurer into the picture. In terms of the insurance contract between you and ECGC it is mandatory on your part to involve the Corporation while making changes in the mode of recovery of the dues from the buyer and implementing a decision in that area. Since this has not been done, it will amount to a breach of Insurance Agreement and the Corporation shall have no liability for the losses.
21. We also once repeat that the guarantee of Ministry of Foreign Economic Relations, Govt.
of Kazakhstan was in addition to barter trade arrangement. Hence your not obtaining ECGC's prior permission for not implementing the barter trade releases us from our liability under the policy."
22. These two stands on the part of the respondent appear to be contradictory to and inconsistent with each other as it has, in terms of its letter dated 12-10-1993 approved the transaction that their liability would arise only if this irrevocable guarantee of the Ministry of Kazak Govt. failed to materialise. There cannot be any doubt that a Barter system of payment was adhered to but the addendum clause in the contract clearly stipulates a situation that in the event the same cannot be agreed upon, there could be a default if the Kazak Government failed to pay in terms of its guarantee to the first petitioner in US Dollars. The default clause appears to be unequivocal. The admission of the Kazak Company is evident from the letter dated 11th April, 1994 addressed by the Kazakhstan as contained in Annexure 'P' to the writ application wherein it was stated :--
"We are extremely sorry for the delay in making payment to you for the 7867.571 tons of tea supplied by you to us under Contract No. I-R/9-14/93 dated 26-8-1993.
The delay was caused due to the very difficult economic conditions currently prevailing in Kazakhstan and the introduction and very steep devaluation of our currency.
Moreover, the change in our banking system and money controls led to our huge funds getting blocked in National Bank.
Currently we are making all efforts to get a tenge credit and to make payment to you. We are in the process of obtaining all clearances from our Government.
We already have the assurance from the First Deputy Prime Minister's office and we hope that very soon the credits will be released. We are also expecting money from sale of some factories by 'Tagam' and our earnings from the business.
These too will be used for making payments to you. In the meantime we have been making payments to you from realisation of tea and so far have paid US Dollars 1 ,155,795.00.
Balance amount due US Dollars 6,491,090.00.
We assure you to effect the payment at the very earliest."
23. The admission on the part of the Kazakhstan Government is also evident from Annexure 'Q' to the writ application in terms of a letter addressed to RWL wherein it was stated :--
"The Ministry of Foreign Economic Relations of the Republic of Kazakhstan is pleased to inform that it is taking all the possible measures to perform its obligations under the Contract concluded between 'Rassik Woodworth Limited' and the State Joint-Stock Company 'Kazpishepromsyrio' for the delivery of tea to Kazakstan. But some difficulties related to introduction .! the national currency, execution of primary internal payments between enterprises and budgetary deficit prevented the Kazak Party from timely repaying of the credit.
The matter is under steady supervision of the Ministry and we are taking all the necessary measures to settle the problem and make a payment by the end of this March.
24. Thereafter more than 20 letters had been exchanged to by and between the parties. It is also relevant to note that the first respondent in terms of the letter dated 24th March, 1994 in reply to the first petitioner's letter dated 22nd March, 1994 did not deny or dispute the reasons set out jn the first petitioner's letter dated 22nd March, 1994 as contained in Annexure 'DD' to the writ application. In fact, in terms of its letter dated 24th March, 1994 it requested the first petitioner to remit the premium mentioned therein, namely, 6,33,322 at the rate of 92 paise per 100 rupees. It may be noticed that the first petitioner along with its aforementioned letter dated 22nd March, 1994 annexed the letter 18-3-1994 from the Ministry of Foreign Economic Relations of the Republic of Kazakhstan which highlighted the reasons for delay.
25. The letter of the Kazak Government was self-explanatory and there was no reference to the adhereence to Barter system but still then the first respondent did not ask the petitioner to adhere to the Barter system.
26. There is nothing on record to show that the first petitioner under the contract of insurance was liable to consult the first respondent as regards its right to reject the payment by Barter for any reason whatsoever. It is, thus, evident that it having accepted the premium pursuant to its letter dated 24th March, 1994 cannot turn round and contend that the loss suffered by the petitioner is by way of trade loss. It is not the case of the first respondent that it was not aware of the addendum to the contract which took place on 28-6-1983. The terminologies used therein are very material i.e. "that is to say if the contract for barter supply of goods cannot be finalised for any reason" It is appropriate to notice that neither the foreign buyer nor the Kazak Government state that there had been any default on the part of the first respondent in adhering to the terms of contract. The guarantee of payment made by the Kazak Government, the approval of the transaction by the Reserve Bank of India and the risk covered by the first respondent were part of the same transaction. In a matter of international trade the first respondent cannot refuse to pay the just dues of an exporter without any just reason. The respondent No. 1 is a State within the meaning of Article 12 of the Constitution of India.
27. The action on the part of State is not only required to be fair but also reasonable particularly in a case of the matter relating to exports. On the one hand, the Central Government by reason of its policy to which the Reserve Bank of India and the first respondent are parties encouraged exports. In this case even a foreign Government had guaranteed payment to the first petitioner. It may be true as has been justified by Mr. Baherjee that normally such risks are not covered by the first respondent. But keeping in view the fact that even the guarantee of sovereign Government may not be sufficient, the first petitioner paid a huge amount to the first respondent by way of insurance premium so as to ensure that the first respondent would pay in the event of failure on the part of the foreign buyer and the Kazak Government to pay its dues.
28. The risk covered by the first respondent as regards the transaction in question was by way of counter guarantee. The respondent No. 1 was aware of the entire situation. It is not a case where a fraud has been practised.
29. Even RWL in terms of its letter dated 2-9-1993 addressed to the Chairman of the first respondent categorically stated the payment against delivery was to be made as first alternative by barter supply of goods required by India from Kazakhstan, the list whereof was annexed therewith. It was further stated that in the event of non finalisation of the barter supply contract or non-delivery of such goods for any reason whatsoever the payment was to be made in US Dollars by direct remittance to their account in India within 120 days and it is also admitted that Kazak Government had issued an irrevocable guarantee as regard thereto. When the first respondent accepted the offer, it was aware of the contract and a final contract was entered into in terms of a letter as contained in Anncxure 'J' to the writ application whereby and whereunder, as indicated hereinbefore, one of the risks insured was failure of foreign buyer to pay to the insured within four months after the due date of payment has been fifed not by way of pure money claim but on the ground of rejection on the part of the respondent No. 1 to the demand made by the first petitioner as regards the solemn promise made by it. A case of this nature would not fall within the general cases arising out of a pure contract qua contract.
30. In Life Insurance Corporation of India v. Escorts Ltd. , the apex Court was concerned with transfer of shares. The apex Court held that the share is a movable property. The apex Court discussed the right of the share holders and it was held in the fact of the case that the same involves a disputed question of fact stating "the question will involve a probe into individual purchases and the adduction of evidence. That would be beyond the scope of the writ petition in the High Court." It also refused to lift the corporate veil. Having said so, the Court observed (at p. 1424) :--
"While we do not for a moment doubt that every action of the State or an instrumentality of the State must be informed by reason and that in appropriate cases actions uniformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution we do not construe Article 14 as a charter for judicial review of State actions and to call upon the State to account for its actions in its manifold activities by stating reasons for such actions.
For example, if the action of the Stale is political or sovereign in character, the Court will keep away from it. The Court will not debate academic matters or concern itself with the intricacies of trade and commerce. If the action of the State is related to contractual obligation or obligations arising out of the Court, the Court may not ordinarily examine it unless the action has some public law character attached to it."
31. This case involves a public law character inasmuch as the transaction is not only between two private bodies but involved two Governments and two statutory organisations, namely, Reserve Bank of India and the first respondent whose actions are governed and control led by the statutes. The guarantee in question is an international guarantee.
32. The first petitioner paid a huge premium to the exten of 16 lacs of rupees only to ensure that it gets a counter guarantee from a State the guarantee having been furnished by the Government of Kazakhastan. There is no dispute that the Ministry of the Central Government the embassies and other public functionaries also intervened in the matter. It is, therefore not a case where it can be said that the transaction involves a private law character. The transaction has a direct bearing with the export policy of the Central Government. The mode and manner of payment relating to such international transaction also involve statutory functionaries. It is. therefore, one of those cases where judicial review is permissible.
33. In the Regional Manager v. Pawan Kumar Dubey , the Supreme Court while considering the case of reservation observed (Para 7) :
"It is the rule deducible from the application of law to the facts and circumstances of a case which continues its ratio decidendi and not some conclusion based upon facts which may appear to be simitar. One additional or different fact can make a world of difference between conclusions in two cases even when the same principles are applied in each case to similar facts."
34. In Krishena Kumar v. Union of India , it was held :--
"The doctrine, of precedent, that i is being bound by a previous decision, is limited to the decision itself and as to what is necessarily involved in it. It does not mean that this Court is bound by the various reasons given in support of it, especially when they contain "propositions wider than the case itself required". This was what Lord Selborne said in Cal endonian Railway Co. v. Walker's Trustees (1882 (7) AC 259) and Lords Halsbury in Quinn v. Leathern (1901 AC 495. Sir Frederick Pollock has also said : "Judicial authority belongs not to the exact words used in this or that judgment, nor even to all the reasons given, but only to the principle accepted and applied as necessary grounds of the decision".
In other words, the enunciation of the reason or principle upon which a question before a Court has been decided is alone binding as a precedent. The ratio decidendi is the underlying principle namely, the general reasons orthe general grounds upon which the decision is based on the test or abstract from the specific peculiarities of the particular case which gives rise to the decision. The ratio decidendi has to be ascertained by an analysis of the facts of the case and the process of reasoning involving the major premises consisting of a pre-existing rule of law, either statutory or judge-made, and a minor premises consisting of the material facts of the case under immediate consideration. If it is not clear, it is not the duty of the Court to spell it out with difficulty in order to be bound by it. In the words of Halsbury (4th Edn. Vol. 26, para 573).
"The concrete decision alone is binding between the parties to it but it is the abstract ratio decidendi as ascertained on aconsideration of the judgment in relation to the subject matter of the decision, which alone has the force of law and which when it is clear it is not part of a tribunal's duty to spell out with difficulty a ratio decidendi in order to bound by it, and it is always dangerous to take one or two observations out of a long judgment and treat them as if they gave the ratio decidendi of the case. If more reasons than one are given by a tribunal for its judgment, all are taken as forming the ratio decidendi".
35. In R. v. Tower Hamlets London Borough Council, ex Chetnik Development Ltd., (1988) AC 858, at was stated :--
"The Court is entitled to investigate the action of the local authority with a view to seeing whether or not they have taken into account matters which they ought not to have taken into account, or conversely, have refused to take into account or neglected to take into account matter which they ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that, although the local authority had kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it. In such a case, again, I think the Court can interfere."
36. In Tata Cellular v. Union of India , S. Mohan, J. observed (Para 101) :--
"A modern comprehensive statement about judicial review by Lord Denning is very apposite; it is perhaps worthwhile noting that stresses the supervisory nature of the jurisdiction :
Parliament often entrusts the decision of a matter to a specified person or body, without providing for any appeal. It may be a judicial decision, or a quasi-judicial decision, or an administrative decision. Sometimes Parliament says its decision is to be final. At other times it says nothing about it. In all these cases the Courts will not themselves take the place of the body of whom Parliament has entrusted the decision. The Courts will not themselves embark on a rehearing of the matter : Healey v. Minister of Health, (1955) QB 221. But nevertheless, the Courts will, if called upon, act in a supervisory capacity. They well see that the decision making body acts fairly : See in Re H. K. (an Infant), (1967) 2 QB 417. The Courts will ensure that the body acts in accordance with the law. If a question arises on the interpretation of words, the Courts will decide it by declaring what is the correct interpretation : See Punton v. Minister of Pensions and National Insurance, (1963) WLR 186. And if the decision making body has gone wrong in its interpretation they can set its order aside : see Ashbridge Investments Ltd. v. Minister of Housing and Local Government, (1965) 1 WLR 1320. (I know of some expressions to the contrary but they are not correct). If the decision-making body is influenced by considerations which ought not inflence it; or fails to take into account which it ought to take into account, the Court will interfere : see, Padf led v. Minister of Agriculture, Fisheries and Food, 1968 AC 997. If the decision-making body comes to its decision on no evidence or comes to an unreasonable finding -- so unreasonable that a reasonable person would not have come to it -- then again the Courts will interfere; see Associated Provincial Picture Houses Ltd. v. WednesburyCorpn.,(1948) 1 LB 223, If the decision-making body goes outside its powers or misconstrues the extent of its powers, then too, the Courts can interfere : see Anisminic Ltd. v. Foreign comensation Commission, (1969) 2 AC 147. And, of course, if the body acts in bad faith or for an ulterior object, which is not authorised by law, its decision will be set aside : see Sydney Municipal Council v. Campbell, 1925 AC 338. In exercising these powers, the Courts will take into account any reasons which the body may give for its decisions. If gives no reasons -- in a case when it may reasonably be expected to do so, the Courts may infer that it has no good reason for reaching its conclusion, and act accordingly : see Padfield's case (1968) AC 997, 1007 & 1061)."
37. The learned Judge further observed (Para 102) :-
"We may usefully refer to Administrative Law Rethinking Judicial Control of Bureaucracy by Christopher F. Edley, JR (1990 Edn). At page 96 it is stated thus :
A great deal of administrative law boils down to the scope of review problem; defining what degree of defence a Court will accord an agency's findings, conclusions, and choices,including choice of procedures. It is misleading to speak of a 'doctrine', of 'the law', of scope of review. It is instead just a big problem, that is addressed piecemeal by a large collection of doctrines. Kenneth Gulp Davis has offered a condensed summary of the subject; 'Courts usually substitute (their own) judgment on the kind of questions of law that are within their special competence, but on other question they limit themselves to deciding reasonablenmess; they do not clarify the meaning of reasonableness but retain full discretion in each case to stretch it in either direction."
38. This is one of the cases where Courts can substitute their own judgement on the ground of question involved therein, namely, liability of the first respondent in covering the risk in an international transaction.
39. This aspect of the matter has been considered by the Supreme Court in L.I.C. of India v. Consumer Education and Research Centre .
40. In Air India Statutory Corporation v. United Labour Union , the Apex Court held (Para 61):
"In Shreelekha Vidyarthi v. State of U.P., contractual obligations were enforced when public law element was involved. Same Judicial approach is adopted in other jurisdiction, namely, the House of Lords in Gillick v. West Norfolk and Wisbech Area Health Authority, (1986) AC 112, wherein the House of Lords held that though the claim of the plaintiff was negatived but on the anvil of power of judicial review, it was held that the public law content of the claim was so great as to make her case an exception to the general rule. Similarly in Dr. Roy v. Kensinstone nd Chelsea Family Practitioners Committee (1992) 1 AC 624, the House of Lords reiterated that though a matter of private law is enforceable by ordinary actions, a Court also is free from the constraints of judicial review and that public law remedy is available when the remuneration of Dr. Roy was sought to be curtailed."
41. The Supreme Court followed L.I.C.'s case (supra). It also held :--
"The legal right of an individual may be founded upon a contract or a statute or an instrument having the force of law. For a public law remedy enforceable under Article 226 of the Constitution, the actions of the authority need to fall in the realm of public law -- bt it a legislative act of the State, an executive act of the State or an instrumentality or a person or authority imbued with public law element. The question requires to be determined in each case. However, it may not be possible to generalise the nature of the action which would come either under public law remedy or private iaw field nor is it desirable to give exhaustive list of such actions."
42. An international guarantee in the way it has been furnished should be honoured by a State. The reasons assigned by the first respondent in its impugned order as contained in Annexure 'P' and 'X' are not only improper but also beyond the terms of the cover. It will bear repetition to State that they are also contradictory to and inconsistent with each other while passing the said orders the first respondent failed to take into consideration the relevant facts and took into consideration an irrelevant factor. It insisted upon a condition that the first petitioner was bound to inform it that the Bailer system has failed which did not exist. Unless the Courts intervene in such matter the public confidence in a statutory corporation like the first respondent shall shake.
43. In Halsbury's Laws of England, 4th Edition, Re-issue volume 25 para 777 page 433, the purpose and nature of such policies of insurance have been discussed. The said paragraph reads as under :--
"Export Credit Guarantee Insurance. An exporter of goods to aforeign country ispeculiarfy vulnerable as regards receiving payment for his goods, and from time to time new decices have to be created in order to facilitate and stimulate international trade. One such device takes the form of an insurance against the loss an exporter incurs when.
(1) the buyer fails to pay for goods he has received, or (2) without any breach of condition or warranty on the part of the exporter, the buyer decline to accept goods, or (3) Without the buyer being in default Governmental difficulties arise in connection with the transfer of currency representing the purchase price. The Export Credit Guarantee Department of the Department of Trade issues to exporters policies covering them them upto specified percenages against non-commercial risk. These policies are contracts of indemnity and if payment has been made under a policy by the Department of Trade in respect of a loss due to restrictions on the export of currency, and the currency is ultimately released and the purchase price paid, the Department of Trade, by subrogation is entitled to claim the purchase price to the extent of its payment even against the liquidation of the exporters, where the exporters are in liquidation."
44. There cannot be any doubt that the insurer's right to take action is long established.
45. In John Birds Modern Insurance Law it is stated :--
The insurer's right to bring proceedings in the name of the insured is long established, being referred to as a commonplace occurrence as long ago as 1782 in Mason v. Sainsbury. It is important to remember, however, that the actio'n remains the insured's and that the defendant, if he is adjudged liable, gets a good discharge only if he pays the insured. If the insured should rfuse to allow his name to be used, the insurer can, as an alternative to compelling it, bring proceedings against the wrongdoer and join the insured as second defendant."
'In Colinvaux's Law of Insurance, it is stated :--
"The law relating to contracts of insurance is part of the general law of contract. Contracts of insurance are, however, a species of that special class of contract, contracts of utmost good faith. Special rules therefore apply in insurance law relating to non-disclosure and misrepresentation which differ from the rules applicable to contracts generally. Moreover, a 'warranty' in insurance law is a very different concept to that of the ordinary contractual warranty. Otherwise there is no principle in insurance law which is at variance with the ordinary principles of the law of contract."
46. A contract of insurance is primarily a contract of indemnity but it may be framed otherwise, in terms whereof the insurer has certain obligation.
47. In Lucas Ltd. v. Export Credits Guarantee Depatment reported in 1974 (2) All ER 889, Lord Morris held :--
"Where a loss is a loss of a sum of money the words 'loss' and 'amount of loss' are really interchangeable terms. In the present and in similar cases the term 'loss' is used to denote the sum of money which aa exporter of goods does not reeive at the time when he should have received it."
48. In D. Wren International Ltd. v. Engineers India Ltd. , this Court held that the question as to whether a particular contract involves a public law element would depend on the fact of each case.
49. It is now well known that a contract of insurance must receive liberal construction at the hands of the Courts. Unless a contract of insurance is vitiated by reason of any fraudulent act on the part of the insured, the insurer is supposed to pay the amount but for any legitimate objections as regard thereto. The first respondent although is a 'State' had acted unreasonably in the matter and the first petitioner has received an unfair treatment at its hands.
50. This writ application does not involve a pure money claim but it also involves a question as to how the petitioner altered his position by reason of the promise made by the respondent No. 1 to indemnify it, in case any loss suffered by it by reason of such contract with the Kazak concerned and, thus the first respondent is bound ,to give effect to its promise so made by the contract of insurance.
51. In this case the Court is not concerned only with the interpretation of an agreement. This Court in this connection is concerned with the action of the first respondent. In the facts and circumstances of this case the action on the part of the first respondent to deny the just and lawful dues to the first petitioner on the non-existent grounds of alleged failure on the part of the first respondent to adhere to the Barter system and/or it was not responsible for the trade loss suffered by the first respondent must be held to be wholly arbitrary and violative of Article 14 of the Constitution of India. The action of the first respondent in refusing the legitimate dues whereby, the first respondent has sought to terminate the contract of insurance is dehors' the contract and the same is ex facie illegal and also smacks of arbitrariness and thus, violative of Article 14 of the Constitution of India.
52. In the case, the First Respondent clearly failed toconiply with its commitment as contained in Clause (ii) of the contract of insurance as contained in Annexure 'J' to the writ petition.
53. However, before parting with this case it may be noted thatno argument has been advanced as against the respondent-bank and, thus, the writ petition made be dismissed as against the respondent-bank.
54. In the result this application is allowed as last the respondent No. I who is directed to honour its commitment. Let a writ of Mandamus issue directing the first respondent not to give effect or further effect to the impugned orders as contained in Annexurcs 'P' and 'X' to the writ application. The first respondent is further directed to settle the claim in terms of the policy dated 30-9-1993 as contained in Annexure to the writ application at an early date and not later than four weeks from the date of communication of this order with interest @ 12% per annum. Keeping in view the fact that by reason of refusal to pay, the first petitioner has suffered immense loss as in the mean time, the respondent-bank has approached the company Law Board in terms of Section 111(2) of the Companies Act, the first respondent shall pay and bear the cost of this writ application. Counsels' fee assessed at 500 CMS.