Madras High Court
Unknown vs State Of West Bengal And Others Reported ... on 21 September, 2012
Author: K.Chandru
Bench: K.Chandru
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21.09.2012 CORAM THE HON'BLE MR. JUSTICE K.CHANDRU Application Nos.3704 and 3705 of 2012 and Original Application Nos.238 and 239 of 2012 IN C.S.No.207 of 2012 ORDER
O.A.Nos.238 and 239 of 2012 were filed by the applicant / plaintiff for the grant of an interim injunction, restraining the defendant, i.e., Bharat Sanchar Nigam Ltd., (for short BSNL), from terminating the Purchase Order, dated 28.06.2010 or deducting, levying late delivery charges or taking any action or proceeding as indicated in the letter dated 22.02.2012 as well as for an interim injunction restraining the respondent from invoking the Performance Bank Guarantee dated 20.6.2011 underwritten by the Axis Bank as well as an additional bank guarantee, dated 22.10.2011 with the same bank and a further additional bank guarantee dated 25.10.2011 underwritten by the Bank of India.
2.When both applications came up on 29.03.2012, this court, on recording a prima facie case was made out in favour of the applicant, and that if the purchase order was terminated, it is likely to prejudice his right and also on recording that the balance of convenience was in favour of the applicant, had granted an ex parte order of injunction. Aggrieved by the grant of an ex parte order of injunction, the respondent / defendant filed two applications, i.e., A.Nos.3704 and 3705 of 2012 for vacating the interim injunction granted on 29.03.2012. These two applications were supported by a common counter affidavit sworn to by the Assistant General Manager (Administration and Legal), BSNL, dated 5.8.2012. The applicant had filed a rejoinder affidavit, dated 03.09.2012 and an additional rejoinder, dated 06.09.2012.
3.Heard the arguments of Mr.J.Sivanandaraj, learned counsel for the applicant / plaintiff and Mr.A.L.Somayaji, learned Senior Counsel leading Mr.M.Govindaraj, learned Standing Counsel for the BSNL.
4.The applicant had filed the suit for the grant of permanent injunction restraining the respondent / defendant BSNL from terminating the purchase order, dated 28.06.2010. It is seen from the records that a tender notice was issued by the respondent BSNL for the supply, installation, commissioning and maintenance support of Wave-2 certified WiMAX (IEEE.802.16e-2005) equipment in BSNL across various circles on Turnkey basis. Pursuant to the notice inviting tender, the applicant had participated in the tender. They were awarded the contract. An advance purchase order for the supply, installation, commissioning and maintenance and O & M support of WiMAX equipment in BSNL network on turnkey basis for Project-2 was given. The total value of the order was said to be Rs.434,34,21,603/-. The time to supply and installation was set out in the said order. The purchase order related to the installation of 2707 Base Station (BTS) to provide connectivity to around 14271 CSCs in the States of Punjab, Haryana, Rajasthan, Madhya Pradesh, Chattisghar, Gujarat and Maharashtra. Subsequently, the applicant had executed the bank guarantee for a sum of Rs.21,23,01,730/- on 29.12.2009, again for a sum of Rs.19,26,63,217 on 20.06.2011 and with additional bank guarantee of Rs.1,98,00,000/- on 22.10.2011 and a further guarantee of Rs.1,82,00,000/- on 25.10.2011. However, on 22.02.2012, the respondent BSNL had issued a show cause notice stating that they have not made any progress in the installation and commissioning of 950 BTS despite commitment given by them. The work had started in only one circle. They had not given any plan for the supply of remaining BTS. Therefore, they were asked to explain as to why an action should not be taken against them as per the provisions of the purchase order.
5.The applicant had sent a reply, dated 01.03.2012 to the said show cause notice. It was their stand that they will complete the project very soon and had requested the BSNL that there was a long over due payment to be released at an earliest. In case there was a snag in their payment, they can hold the prorated value of the snag and release the balance payment immediately. A clear plan for six months from the issuance of the import license may be given so that their OEM can mobilize the resources for manufacturing and supply of equipment to the circles. The STP may be asked to provide all clarifications which were pending with them for a very long period. All circles are to be instructed to help them in getting the RF planning plots Site survey reports and layout plans verified and accepted so that they can go ahead with the I&C of the sites. They had also stated that they have cleared the validation testing of Phase-1 and the equipment make or model supplied in Phase-2 are the same so that their validation payment of 15% can be released immediately. The AT schedules will be finalized and AT resources to be made available, so that they can go ahead with ATs accordingly in circles already deployed.
6.It is at this juncture, they came forward to file the suit. The plaint was presented before the Court on 28.03.2012 and the interim injunction was obtained on 29.03.2012. Opposing the grant of the injunction, the respondent BSNL had stated that the project undertaken by the BSNL was of national importance and that the public interest is the sole aim of the project. The project was meant for rural areas. It would enable the last mile connectivity to rural villages to run various e-governance applications. It is important that the project should be undertaken with all its earnest. Whereas the applicant had failed to perform their part of the contract and failed in their duty in commitment. The applicant was solely responsible for the supply, installation and commissioning of Wimax equipment. But as on 30.06.2012, the applicant's progress in supply and installation of BTS was only 50 BTS, whereas L2, L3 and L4 vendors had supplied the ordered quantity and they were nearing completion without any major complaints. They have also received their payments. The details were set out as below :
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sl. Vendor M/s. PO BTS- BTS- % of % of No. BTS- Installed Integrated installation integration Qty completed completed ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1 ICOMM 1357 1299 1151 0.96 0.85 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 2 ZTE 1718 1638 1588 0.95 0.92 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 3 VMCL 949 843 521 0.89 0.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 4 Gemini 2707 99 50 0.04 0.02
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(applicant) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
7.It was admitted that an advance purchase order was also given on 16.12.2009. But the applicant had raised many queries and sought several clarifications. They had furnished conditional acceptance letter to the APO. After getting all clarifications given by the Southern Telecom Project, the applicant had submitted its unconditional acceptance only on 09.02.2010. The applicant had delayed the project at the threshold itself for reasons best known to them. The Purchase order dated 28.6.2010 was issued subsequent to the performance bank guarantee furnished by the applicant on 20.6.2010. The purchase order was released two years ago. As per the procedure, the applicant was to submit the self certification which is mandatory as per the norms of the Government. The BSNL can apply for security clearance only on receipt of the mandatory self certificate from M/s.GCL. The self certification was submitted by the applicant only on 12.05.2010 which was forwarded on 25.5.2010 and was approved on 14.06.2010. The performance bank guarantee was furnished on 20.6.2010 and the purchase order was given on 28.6.2010. Therefore, there was no delay in issuing the purchase order. Under the terms of the contract, in Clause 23(a) of Section II, the purchaser reserves his right to increase or decrease upto 50% of the quantity of goods as per the requirement received from the respective circles before the issuance of the purchase order. Accordingly, the value of the purchase order was changed. Clause 20 of the agreement provides for resolution of any dispute by an Arbitration regarding differences arising out of the agreement. Though the applicant claimed that they have reputation and high experience in the telecommunication field, while the other bidders had supplied all materials in time and installed and enabled the connectivity, the applicant alone failed to complete the supply. The details of supply made by the applicant is set out below :
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Gemini Rural WIMAX Ph-II
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Status
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Circle Ordered Supply Installation Integration Incomplete supply kept idle in stores (supplied integrated)
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PB 24 24 24 22 2
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HR 73 73 26 24 49
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RJ 784 60 0 0 60
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GUJ 110 110 0 0 110
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MH 569 267* 0 0 0
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MP 799 233 31 3 230
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CHG 348 188 18 1 187
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Total 2707 955(688)* 99 50 638
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* MH 267 BTS, were diverted to MP by BSNL CO on 29.12.11. But these 267 BTS has not been received either in MP or in MH * All the BTS supplied (except integrated) are in incomplete nature i.e., without Indoor Units (IDU) etc.
8.The contentions of the applicant that they had invested huge sums of money for identification of the sub-contractor and for issuance of sub contracts for production and equipment and investment in increasing manpower were all irrelevant. Even before commencement of the contract, the applicant should have had the potential to supply the materials for which the contract was issued and must have had the capacity to fulfill the commitments and the responsibility that had undertaken. Though it was admitted that under clause 13.11, 40% of the payment should be made against the supply of all equipments / materials, but it was also stated that it should be in satisfactory condition at site against the purchase order site wise. The satisfactory condition of the equipment is the criteria. When that condition was not fulfilled, there was only a partial supply or incomplete supply or defective supply will not qualify the satisfactory condition. Therefore, the complaint made by the applicant that that part of the obligation of the BSNL was not fulfilled cannot be accepted. It was admitted that after the purchase order was issued, a meeting was held with the applicant on 28.7.2010, wherein a copy of the purchase order was handed over to all circles. The applicant was asked to start the site survey and complete it by 15.10.2010. While the BSNL had acted promptly and in time, the applicant had failed to start the survey even after the receipt of the purchase order. The applicant had failed to perform and had delivered only 21 Base stations (BTS) against the total ordered quantity of 2707 BTS even during the extended period. They had miserably failed due to its own short comings and were unnecessarily blaming the BSNL. The delay in supplying the materials was due to delay in import license was factually incorrect. The exact dates were given by the BSNL to ensure that there was no delay on their part. The BSNL had compensated the delay in obtaining import licence by offering extension of time upto 13.01.2011 to M/s.GCL. But even after the extension and after a lapse of 18 months, M/s.GCL had managed to complete only 2% of the work as per the contract.
9.Coordination meetings were held at the Corporate Office of the BSNL on different dates, i.e., on 28.7.2010, 12.11.2010, 30.11.2010 and 04.01.2011. In all these meetings, the applicant was directed to supply BTS as per the Centre details issued by the BSNL. The applicant could not complete the delivery. The customer premises equipment (CPE) can be utilized only after installation of BTS and roll out of the network. But without the network availability, there was no use of supply of CPE. Since the applicant could not complete the BTS, they could not roll out of the network. The applicant had also failed to supply the brand for which the contract was awarded. But the BSNL had accepted the change of the model and that the intervening period of eight weeks was taken into account. Further, no penalty was levied. When the applicant had accepted to supply the materials, they cannot go back and state that those materials have become out dated and were not available in the market. If different materials were supplied, the uniformity and compatibility of the equipment cannot be achieved. Even assuming that there was higher version of non WiMax equipment were available, it had nothing to do with the supply of BTS and roll out of network, which was the primary job given to the applicant. The payment of customs duty was not that of the BSNL. It was the applicant who has to pay the duty and clear the goods. The BSNL was under no obligation to bear the customs duty. The advance payment made by the BSNL shall be recoverable as per the tender condition. The claim for making payment was not justified. Unless equipments were supplied, installed and found operative, there was no justification to claim any payment.
10.The failure of the applicant in non-supply or partial supply or incomplete supply of the equipment had created chaos in the organization. When the other bidders had fulfilled their commitments in time, the applicant is yet to complete the same. Instead of fulfilling the obligation on time, the applicant had requested extension of time and that even after extension of time, they could not supply the materials. The additional bank guarantee which was sought for was a part of the terms of the contract. The applicant had agreed the same. For 40% claim made against the physical delivery in respect of the BTS supply to Punjab and Haryana, the physical delivery was processed and the amounts were released. The payment against the supply of the complete equipment had already been made and there was no lapse. There was no justification to grant any interim order when the applicant had breached the terms of the contract. Even in respect of the another project undertaken by the applicant, i.e., Wimax Project, Phast-I, though the applicant was the successful bidder, they had failed to complete the project even after three years. They had done only 50% of the work in three years and that the WiMax Project-1 is still incomplete. The BSNL is answerable to the concerned controlling Ministry.
11.The supply made by the applicant and the other bidders were set out as follows :
================================================================================= Name of the Vendor PO date Ordered Quantity Supplied quantity ================================================================================= Gemini(L1)
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(Applicant) 28.06.10 2707 955 (incomplete) ================================================================================= ZTE 28.09.10 1718 1718 ================================================================================= ICOMM 8/7/2010 1357 1357 ================================================================================= VMCL 31.03.11 949 949 =================================================================================
12.The BSNL is a public sector undertaking. They are accountable for the delay in implementing the prestigious project of the Government of India. The action taken against the applicant is as per the terms of the contract. The issuance of the show cause notice followed by the notice of termination is the procedural requirement. The applicant's at the stage of the show cause notice obtaining the interim order is clearly the misuse of the process of law. The contract period was over long back. Further in the reply to the show cause notice, the applicant had only sought for time which is a clear breach of the terms of the contract. In case of failure or breach of contract or delay, there is power vested with the BSNL to invoke the bank guarantee. Therefore, it was stated that the interim order is causing grave prejudice and that the applicant has not made out any prima facie case for the grant of the interim injunction and also the balance of convenience is not for continuing the interim order.
13.In the rejoinder filed by the applicant, it was contended that the scope of the purchase order was for the supply of nearly 20 different products and installation and commissioning. The respondent BSNL ought to have released 40% of the equipment cost supplied as per clause 13.1 of the purchase order. While the applicant had supplied the equipment worth Rs.178.96 crores including the BTS, the respondent had failed to release 40% of the equipment cost, but had released only 5.7%. The applicant had supplied for 53% of the project value. The details furnished by the respondent showing the installation percentage and the integration percentage was not relevant as the respondent had breached the terms of the contract. The original purchase order was drastically reduced. Accusing of the applicant for the delay was not justified. Seeking for clarification before the acceptance of the purchase order is the right of the applicant. Decreasing the purchase is not traceable under Clause 25(a) of Section II of the contract. While the other vendors were paid money for the delivered quantities, it is the applicant who was denied such payment. It was only because of acute cash flow crunch, which was created by the respondent, the applicant could not proceed with the project. Any purchase order becomes a form of a bridge between the purchaser and the supplier to complete the project under the legal terms and conditions mentioned in the purchase order. Several review meetings were held and despite directions to make payment, they were not forthcoming. The stand of the respondent was contradictory in respect of the survey said to have been conducted. While the applicant had sent the bill for Rs.178 Crores, Rs.10 crores alone was paid to the applicant even after 18 months which was approximately only 3% of the total invoiced amount.
14.It was further stated that the respondent had not adhered to the conditions under clause 13.1.1. The respondent had failed to pay the customs duty. The applicant had employed more than 1500 across the length and breadth of the Country. They have been maintaining 2400 BTS for various other tire I telecom companies. There was total communication breakdown between various circles of the BSNL. The respondent's letter produced will clearly show that the breach was on their part . Since the respondent was not going by the purchase order conditions, there was no illegality in granting the interim order. Several payments were due to the applicant for more than one year. Therefore, they cannot accuse the applicant for not fulfilling the contract. The financial pressure was exerted by the BSNL on the applicant for unknown reasons. If the contract is suddenly terminated, 1500 families will be out of employment. Nowhere the applicant had expressed any intention not to continue the project, but only continuously requested the respondent for making payment which were long overdue. The applicant is facing competition from the international companies, whereas they are the only Indian manufacture. Even now the applicant is willing to fulfill their part of the contract.
15.In the additional rejoinder, it was further stated that the purchase order though covered 2707 sites, it was claimed that they had supplied materials to 955 cites upto date and that the respondent will have to make payment to an extent of Rs.44.17 Crores.
16.In the light of these facts, the counsel for the applicant contended that the respondent being the State within the meaning of Article 12 of the Constitution, cannot act arbitrarily even in the matter of the contract. Hence he placed reliance upon a judgment of the Supreme Court in Mahabir Auto Stores v. Indian Oil Corpn., reported in (1990) 3 SCC 752. But, however, in the very same judgment, in paragraphs 17 and 20, it was observed as follows :
"17.We are of the opinion that in all such cases whether public law or private law rights are involved, depends upon the facts and circumstances of the case. The dichotomy between rights and remedies cannot be obliterated by any strait-jacket formula. It has to be examined in each particular case. ......
20.Having regard to the nature of the transaction, we are of the opinion that it would be appropriate to state that in cases where the instrumentality of the state enters the contractual field, it should be governed by the incidence of the contract. It is true that it may not be necessary to give reasons but, in our opinion, in the field of this nature fairness must be there to the parties concerned, and having regard to the large number or the long period and the nature of the dealings between the parties, the appellant should have been taken into confidence. Equality and fairness at least demands this much from an instrumentality of the State dealing with a right of the State not to treat the contract as subsisting. We must, however, evolve such process which will work."
It is pursuant to such ruling, a show cause notice was issued to the applicant before the termination of the purchase order.
17.He further referred to a judgment of the Supreme Court in LIC of India v. Consumer Education & Research Centre reported in (1995) 5 SCC 482 for contending that even in the matter of contractual relations, the State must act fair, just and equitable. A reference was made to the following passage found in paragraph 25 to 27, which reads as follows :
'25.In Mahabir Auto Stores v. India Oil Corpn.15 it was held that the State when acting in its executive power, enters into contractual relations with the individual, Article 14 would be applicable to the exercise of the power. The action of the State or its instrumentality can be checked under Article 14. Their action must be subject to rule of law. If the governmental action even in the matter of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. Rule of reason and rule against arbitrariness and discrimination, rules of fair play, natural justice are part of the rule of law applicable in situation or action by State/instrumentality in dealing with citizens. Even though the rights of the citizens, therefore, are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play and natural justice, equality and non-discrimination. It is well settled that there can be malice in law. It was also further held that whatever be the act of the public authority in such monopoly or semi-monopoly, it must be subject to rule of law and must be supported by reasons and it should meet the test of Article 14.
26. This Court has rejected the contention of an instrumentality or the State that its action is in the private law field and would be immuned from satisfying the tests laid under Article 14. The dichotomy between public law and private law rights and remedies, though may not be obliterated by any strait-jacket formula, it would depend upon the factual matrix. The adjudication of the dispute arising out of a contract would, therefore, depend upon facts and circumstances in a given case. The distinction between public law remedy and private law field cannot be demarcated with precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The distinction between public law and private law remedy has now become too thin and practicably obliterated.
27.In the sphere of contractual relations the State, its instrumentality, public authorities or those whose acts bear insignia of public element, action to public duty or obligation are enjoined to act in a manner i.e. fair, just and equitable, after taking objectively all the relevant options into consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or appear arbitrary in its decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and guided by the public interest."
18.He further referred to a judgment of the Supreme Court in Dalpat Kumar v. Prahlad Singh reported in (1992) 1 SCC 719 for contending that for the grant of an injunction, not only the prima facie case, but also the comparative hardship or mischief or inconvenience will have to take into account and further on weighing the competing possibilities of likelihood of injury, if the court considers that the subject matter should be maintained in status quo, an injunction can be granted. A reference was made to paragraphs 4 and 5 of the said judgment which reads as follows :
"4.......Injunction is a judicial process by which a party is required to do or to refrain from doing any particular act. It is in the nature of preventive relief to a litigant to prevent future possible injury. In other words, the court, on exercise of the power of granting ad interim injunction, is to preserve the subject matter of the suit in the status quo for the time being. It is settled law that the grant of injunction is a discretionary relief. The exercise thereof is subject to the court satisfying that (1) there is a serious disputed question to be tried in the suit and that an act, on the facts before the court, there is probability of his being entitled to the relief asked for by the plaintiff/defendant; (2) the court's interference is necessary to protect the party from the species of injury. In other words, irreparable injury or damage would ensue before the legal right would be established at trial; and (3) that the comparative hardship or mischief or inconvenience which is likely to occur from withholding the injunction will be greater than that would be likely to arise from granting it.
5...... The Court further has to satisfy that non-interference by the Court would result in irreparable injury to the party seeking relief and that there is no other remedy available to the party except one to grant injunction and he needs protection from the consequences of apprehended injury or dispossession. Irreparable injury, however, does not mean that there must be no physical possibility of repairing the injury, but means only that the injury must be a material one, namely one that cannot be adequately compensated by way of damages. The third condition also is that the balance of convenience must be in favour of granting injunction. The Court while granting or refusing to grant injunction should exercise sound judicial discretion to find the amount of substantial mischief or injury which is likely to be caused to the parties, if the injunction is refused and compare it with that which is likely to be caused to the other side if the injunction is granted. If on weighing competing possibilities or probabilities of likelihood of injury and if the Court considers that pending the suit, the subject matter should be maintained in status quo, an injunction would be issued. Thus the Court has to exercise its sound judicial discretion in granting or refusing the relief of ad interim injunction pending the suit."
19.The learned counsel also referred to a judgment of the Supreme Court in Gujarat Bottling Co. Ltd. v. Coca Cola Co., reported in (1995) 5 SCC 545 regarding the circumstances under which an interim injunction can be granted and referred to the following passages found in paragraphs 43 and 47, which reads as follows :
"43.The grant of an interlocutory injunction during the pendency of legal proceedings is a matter requiring the exercise of discretion of the court. While exercising the discretion the court applies the following tests (i) whether the plaintiff has a prima facie case; (ii) whether the balance of convenience is in favour of the plaintiff; and (iii) whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed. The decision whether or not to grant an interlocutory injunction has to be taken at a time when the existence of the legal right assailed by the plaintiff and its alleged violation are both contested and uncertain and remain uncertain till they are established at the trial on evidence. Relief by way of interlocutory injunction is granted to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial. The need for such protection has, however, to be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated. The court must weigh one need against another and determine where the balance of convenience lies. [See: Wander Ltd. v. Antox India (P) Ltd.15, (SCC at pp. 731-32.] In order to protect the defendant while granting an interlocutory injunction in his favour the court can require the plaintiff to furnish an undertaking so that the defendant can be adequately compensated if the uncertainty were resolved in his favour at the trial.
47.In this context, it would be relevant to mention that in the instant case GBC had approached the High Court for the injunction order, granted earlier, to be vacated. Under Order 39 of the Code of Civil Procedure, jurisdiction of the Court to interfere with an order of interlocutory or temporary injunction is purely equitable and, therefore, the Court, on being approached, will, apart from other considerations, also look to the conduct of the party invoking the jurisdiction of the Court, and may refuse to interfere unless his conduct was free from blame. Since the relief is wholly equitable in nature, the party invoking the jurisdiction of the Court has to show that he himself was not at fault and that he himself was not responsible for bringing about the state of things complained of and that he was not unfair or inequitable in his dealings with the party against whom he was seeking relief. His conduct should be fair and honest. These considerations will arise not only in respect of the person who seeks an order of injunction under Order 39 Rule 1 or Rule 2 of the Code of Civil Procedure, but also in respect of the party approaching the Court for vacating the ad interim or temporary injunction order already granted in the pending suit or proceedings."
20.Further reference was made to a judgment of the Supreme Court in Hindustan Construction Co. Ltd. v. State of Bihar reported in (1999) 8 SCC 436, wherein it was held that the bank guarantee can be invoked only under the circumstances mentioned in the contract. In paragraph 14, it was observed as follows :
"14.This condition clearly refers to the original contract between HCCL and the defendants and postulates that if the obligations, expressed in the contract, are not fulfilled by HCCL giving to the defendants the right to claim recovery of the whole or part of the advance mobilisation loan, then the Bank would pay the amount due under the guarantee to the Executive Engineer. By referring specifically to clause 9, the Bank has qualified its liability to pay the amount covered by the guarantee relating to advance mobilisation loan to the Executive Engineer only if the obligations under the contract were not fulfilled by HCCL or HCCL has misappropriated any portion of the advance mobilisation loan. It is in these circumstances that the aforesaid clause would operate and the whole of the amount covered by the mobilisation advance would become payable on demand. The bank guarantee thus could be invoked only in the circumstances referred to in clause 9 whereunder the amount would become payable only if the obligations are not fulfilled or there is misappropriation. That being so, the bank guarantee could not be said to be unconditional or unequivocal in terms so that the defendants could be said to have had an unfettered right to invoke that guarantee and demand immediate payment thereof from the Bank. This aspect of the matter was wholly ignored by the High Court and it unnecessarily interfered with the order of injunction, granted by the Single Judge, by which the defendants were restrained from invoking the bank guarantee."
21.The learned counsel further placed reliance upon a judgment of the Supreme Court in Deoraj v. State of Maharashtra reported in (2004) 4 SCC 697 for contending that where the injury complained of is immediate and pressing and would cause extreme hardship and that withholding the interim relief for some time would result in dismissal of the main petition, an interim injunction can be granted. In paragraphs 11 and 12, the Supreme Court had observed as follows :
"11.The courts and tribunals seized of the proceedings within their jurisdiction take a reasonable time in disposing of the same. This is on account of fair-procedure requirement which involves delay intervening between the previous and the next procedural steps leading towards preparation of case for hearing. Then, the courts are also overburdened and their hands are full. As the conclusion of hearing on merits is likely to take some time, the parties press for interim relief being granted in the interregnum. An order of interim relief may or may not be a reasoned one but the factors of prima facie case, irreparable injury and balance of convenience do work at the back of the mind of the one who passes an order of interim nature. Ordinarily, the court is inclined to maintain status quo as obtaining on the date of the commencement of the proceedings. However, there are a few cases which call for the court's leaning not in favour of maintaining the status quo and still lesser in percentage are the cases when an order tantamounting to a mandamus is required to be issued even at an interim stage. There are matters of significance and of moment posing themselves as moment of truth. Such cases do cause dilemma and put the wits of any judge to test.
12.Situations emerge where the granting of an interim relief would tantamount to granting the final relief itself. And then there may be converse cases where withholding of an interim relief would tantamount to dismissal of the main petition itself; for, by the time the main matter comes up for hearing there would be nothing left to be allowed as relief to the petitioner though all the findings may be in his favour. In such cases the availability of a very strong prima facie case of a standard much higher than just prima facie case, the considerations of balance of convenience and irreparable injury forcefully tilting the balance of the case totally in favour of the applicant may persuade the court to grant an interim relief though it amounts to granting the final relief itself. Of course, such would be rare and exceptional cases. The court would grant such an interim relief only if satisfied that withholding of it would prick the conscience of the court and do violence to the sense of justice, resulting in injustice being perpetuated throughout the hearing, and at the end the court would not be able to vindicate the cause of justice. Obviously such would be rare cases accompanied by compelling circumstances, where the injury complained of is immediate and pressing and would cause extreme hardship. The conduct of the parties shall also have to be seen and the court may put the parties on such terms as may be prudent."
22.He further placed reliance upon a judgment of the Supreme Court in Best Sellers Retail (India) (P) Ltd. v. Aditya Birla Nuvo Ltd., reported in (2012) 6 SCC 792 regarding the relief claimed though may be a Specific Relief, at the time of interim injunction the provisions of Order 39 Rules 1 and 2 read with Section 151 CPC will apply. For this purpose, he referred to the following passages found in paragraphs 25 and 26 which reads as follows :
25.It is not necessary for us to deal with the contentions of the learned counsel for the parties based on the provisions of Sections 14, 41 and 42 of the Specific Relief Act, 1963 because Section 37 of the said Act makes it clear that temporary injunctions are to be regulated by CPC and not by the provisions of the Specific Relief Act, 1963. In fact, the application for temporary injunction of Respondent 1 before the trial court is under the provisions of Order 39 Rules 1 and 2 read with Section 151 CPC.
26.It has been held by this Court in Kishoresinh Ratansinh Jadeja v. Maruti Corpn.2 that it is well established that while passing an interim order of injunction under Order 39 Rules 1 and 2 CPC, the Court is required to consider:
(i) whether there is a prima facie case in favour of the plaintiff;
(ii) whether the balance of convenience is in favour of passing the order of injunction; and
(iii) whether the plaintiff will suffer irreparable injury if an order of injunction would not be passed as prayed for.
Hence, we only have to consider whether these well-settled principles relating to grant of temporary injunction have been kept in mind by the trial court and the High Court."
23.He further placed reliance upon a judgment of the Delhi High Court in Atlas Interactive (India) Pvt. Ltd. Gs. Bharat Sanchar Nigam Limited and another reported in 2005 (4) R.A.J. 585 (Del) for contending that in the realm of a private contract while the freedom is available, but in respect of the performance of the contractual obligation, it is not available to the State. Reliance was placed upon the following passage found in paragraph 13, which reads as follows :
"13....In the realm of private contracts, the freedom, which is available to a private party, in respect of the performance of contractual obligations, is not available to the State or its instrumentalities in the same measure because every action of the State has to be just, fair and devoid of arbitrariness. The State or its instrumentalities cannot conduct themselves like ordinary businessmen playing games with others for monetary gains. State cannot behave like a man in the street and indulge in armtwisting tactics. Its conduct and actions have to be exemplary and decisions have to be free from arbitrariness, bias and unreasonableness. The reputation of the country and its credibility in business world are far more important than certain economic gain which appear to be unfair and unjust."
He also stated that the provisions of Section 14 of the Specific Relief Act need not stand in the way of granting an injunction.
24.A further reference was made to a judgment of the Calcutta High Court in Green Hut Private Limited and another Vs. State of West Bengal and others reported in AIR 1997 Cal 214 for contending that termination should be fair and reasonable and their conduct cannot be allowed to eat into very vitals of the investors. The rule of reason and rule against arbitrariness and discrimination and rules of fair play and natural justice are the cementing bones which build the layer of the super structure of rule of law applicable in situations of actions by the State instrumentality in dealing with citizens.
25.A reference was also made to a judgment of the Delhi High Court in Synthetic Foams Ltd. Vs. Simplex Concrete Piles (India) Pvt. Ltd. reported in AIR 1988 Delhi 207 for contending that the bank guarantee is not invocable if there is no default on the part of the plaintiff. In paragraphs 12 and 13, it was observed as follows :
"12.Thus the consistent view of the courts in the case of invocation of bank guarantees and enforcement thereof by the beneficiaries is that the court would usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of letter of credit or a bank guarantee and it would be only in exceptional cases and that too when there are allegations of fraud that an interim injunction would be issued restraining the bank from making the payment under the bank guarantee. Cases involving allegations of misrepresentation or suppression of material facts or violation of the terms of the guarantee cannot be treated differently and as such where there are allegations of misrepresentation or suppression of material facts or violation of the terms of guarantee, the courts would not hesitate in granting an interim injunction. In this context, misrepresentation or suppression of material facts or violation of the terms of the guarantee can be treated as species of the same genus as fraud. What is necessary is that there exists special equity in favour of the plaintiff to grant of injunction. No doubt an obligation of a bank under the bank guarantee is absolute, but such an absolute obligation arises only if the conditions of the bond are satisfied and if the demand made on the bank is in strict accord with its terms and there is no element of fraud, misrepresentation or suppression of material facts involved but where there are allegations of fraud, misrepresentation or suppression of facts made by the party against the beneficiary and there is prima facie evidence to suggest that there is some truth in these allegations then there would possibly be no absolute bar operating against the courts from granting an interim injunction restraining the bank from making the payment on the basis of the bank guarantee. Similar would be the position where the demand made by the beneficiary is in violation of the conditions f the bond or is not in strict accord with its term keeping in view the nature of obligation of the bank the terms of the bank guarantee would have to be strictly construed in such cases.
13.Coming to the facts of the case in hand, defendant No.1 has invoked the bank guarantee in the instant case by suppression of material facts which even borders on fraud in so far as it has not disclosed that the contract had been cancelled by defendants without any fault or mistake of the plaintiff and rather on different grounds. A perusal of Annexure III letter dated 30th July, 1986 from defendant No1 to the plaintiff shows that it is due to technical reasons and also due to increase in price that the contract has been cancelled which means that it is not for any default of the plaintiff. Defendant No.1 has further with held the fact that a sum of Rs.1,32,668.50 is still payable from the defendants which has been withheld for insufficient reason by defendants 2 and 3 from plaintiff which by itself shows that the guarantee is being invoked for insufficient reasons. It has also not been brought out that some amount of advance has already been recovered by defendants 1,2 and 3 from the bills of the plaintiff. It has also not been disclosed that the plaintiff has all along been ready and willing to perform his part of the contract. The plaintiff would have in fact completed the contracted job but due to intervening devastating fire which took place at the site of the contract. Furthermore the invocation of the bank guarantee would be available only if any default is made by the plaintiff in performance of the contract and it is difficult to accept that any default has in fact been made by the plaintiff keeping in view that the plaintiff was prevented by the defendants 1,2 and 3 from performing his part of the contract. All these facts go to show have given rise to special equity in favour of the plaintiff."
26.A reference was made to a judgment of the Delhi High Court in Pioneer Publicity Corporation Vs. Delhi Transport Corporation and another reported in 2003 (2) RAJ 132 for contending that the State must act in a fair and reasonable manner, failing which the provisions under Order 39 Rule 2 can be pressed into service.
27.Lastly, he placed reliance upon a judgment of the Orissa High Court in Orissa State Commercial Transport Corporation Ltd., representing by its Secretary Sri C.B.S. Ramachandra Rao Vs. Sri Satyanarayana Singh and another reported in 40 (1974) CLT 336 to contend as to what is the meaning by the term "irreparable injury". A reference was made to the following passage found in paragraph 11, which reads as follows :
"11."Irreparable injury" means such injury which cannot be adequately remedied by damages. The remedy by damages would be inadequate if the compensation ultimately payable to the Plaintiff in case of success in the suit would not place him in the position in which he was before injunction was refused."
28.In the light of the above, the learned counsel for the applicant prayed for making the interim order absolute.
29.Mr.A.L.Somayaji, learned Senior Counsel appearing for the respondent BSNL referred to the stand of the BSNL in the counter affidavit and also the minutes of the meeting recorded by the review committee and stated that the contract is a comprehensive one. The applicant cannot after breach of the terms of the contract seek for an injunction. The respondent BSNL had granted time extension and even thereafter, the obligation of the applicant has not been fulfilled. The allegation made against the other bidders cannot be accepted. They had fulfilled their obligations and amounts were released. Even in the reply to the show cause notice, the applicant had not contended that he had completed the contract, but on the other hand, sought for further time, which was a long overdue.
30.On the question of the invocation of the bank guarantee, he placed reliance upon a judgment of the Supreme Court in BSES Ltd. (Now Reliance Energy Ltd.) v. Fenner India Ltd., reported in (2006) 2 SCC 728, wherein the Supreme Court had set out the circumstances under which the bank guarantee can be made enforceable and in paragraphs 28 and 28, the Supreme Court had observed as follows :
"28.As we have stated repeatedly, the first respondent can succeed only if the case can be brought under the two accepted exceptions to the general rule against intervention. Evidently, there is no egregious fraud so as to fall within the first exception. Hence, only one more point remains: whether encashment of the guarantees will create special equities (in particular, irretrievable injury) in favour of the first respondent? We are not satisfied on facts that such is the present situation.
29.There is no dispute that arbitral proceedings are pending. In fact, we were shown that one of the disputes referred to arbitration is whether the bank guarantees are null and void. Further, one of the substantive prayers in the arbitration made on behalf of the first respondent, is to make an award declaring the four bank guarantees unenforceable, illegal, void and liable to be discharged. Further, there is also a prayer for permanent injunction to restrain the appellant from encashing the bank guarantees. Therefore, since this prayer is already pending before the Arbitral Tribunal, we see no situation of irretrievable injustice if, at the present moment, the appellant is allowed to encash the bank guarantees. For justice can always be rendered to the first respondent, if it succeeds before the arbitrators. Nor do we see any special equity in favour of the first respondent, when there is in fact a dispute that performance was prima facie not satisfactory, which enabled the appellant to encash all or any of the four bank guarantees."
In that case, the Supreme Court found fault with the judgment of this court in restraining the aggrieved party from enforcing the bank guarantee and vacated the interim order.
31.The circumstances under which an injunction under Order 39 Rule 1 can be granted came to be considered by the Supreme Court vide judgment in A.Shanmugam v. Ariya Kshatriya Rajakula Vamsathu Madalaya Nandhavana Paripalanai Sangam reported in (2012) 6 SCC 430 and in paragraph 33, it was observed as follows :
"33.In Maria Margarida Sequeria Fernandes3, this Court examined the importance of grant or refusal of an injunction in paras 83 to 86 which read as under: (SCC pp. 393-94) 83. Grant or refusal of an injunction in a civil suit is the most important stage in the civil trial. Due care, caution, diligence and attention must be bestowed by the judicial officers and Judges while granting or refusing injunction. In most cases, the fate of the case is decided by grant or refusal of an injunction. Experience has shown that once an injunction is granted, getting it vacated would become a nightmare for the defendant.
84. In order to grant or refuse injunction, the judicial officer or the Judge must carefully examine the entire pleadings and documents with utmost care and seriousness. The safe and better course is to give a short notice on the injunction application and pass an appropriate order after hearing both the sides. In case of grave urgency, if it becomes imperative to grant an ex parte ad interim injunction, it should be granted for a specified period, such as, for two weeks. In those cases, the plaintiff will have no inherent interest in delaying disposal of injunction application after obtaining an ex parte ad interim injunction.
85. The court, in order to avoid abuse of the process of law may also record in the injunction order that if the suit is eventually dismissed, the plaintiff undertakes to pay restitution, actual or realistic costs. While passing the order, the court must take into consideration the pragmatic realities and pass proper order for mesne profits. The court must make serious endeavour to ensure that even-handed justice is given to both the parties.
86.Ordinarily, three main principles govern the grant or refusal of injunction:
(a) prima facie case;
(b) balance of convenience; and
(c) irreparable injury, which guide the court in this regard.
In the broad category of prima facie case, it is imperative for the court to carefully analyse the pleadings and the documents on record and only on that basis the court must be governed by the prima facie case. In grant and refusal of injunction, pleadings and documents play a vital role.
32.Even in respect of the instrumentality to the State within the meaning of Article 12 of the Constitution and when it acts in a contractual sphere and the scope of the judicial review came to be considered by the Supreme Court in State of Bihar v. Jain Plastics and Chemicals Ltd., reported in (2002) 1 SCC 216. Though the said judgment arose under Article 226, the principles laid down therein will equally apply to the suit launched against such instrumentality. The following passage found in paragraph 7 may be usefully extracted below :
"7.In our view, it is apparent that the order passed by the High Court is, on the face of it, illegal and erroneous. It is true that many matters could be decided after referring to the contentions raised in the affidavits and counter-affidavits, but that would hardly be a ground for exercise of extraordinary jurisdiction under Article 226 of the Constitution in case of alleged breach of contract. Whether the alleged non-supply of road permits by the appellants would justify breach of contract by the respondent would depend upon facts and evidence and is not required to be decided or dealt with in a writ petition. Such seriously disputed questions or rival claims of the parties with regard to breach of contract are to be investigated and determined on the basis of evidence which may be led by the parties in a properly instituted civil suit rather than by a court exercising prerogative of issuing writs." (Emphasis added)
33.In the light of the above, it has to be seen whether the applicant / plaintiff has made out any case for the grant of an injunction restraining the respondent from invoking the bank guarantee provided by the applicant. It was already stated that there was a breach committed by the applicant in executing the contract. Their contention that 40% payment should be made and that the cash crunch had resulted in delay in the supply also cannot be accepted. The payment of 40% is based upon the satisfactory supply of items. Therefore, the question of the applicant contending that there was breach by the respondent which enabled them to continue the contract also cannot be accepted. In fact, in their letter to the show cause notice, they themselves sought for six months more time. Therefore, seeking for an injunction not to stop the purchase order would amount to re-writing the terms of the agreement between the parties. In such circumstances, it cannot be said that there is a prima facie case. Further, balance of convenience for the grant of the interim order also does not arise. Only after finding prima facie case and the balance of convenience, the factor of relative hardship can be gone into. Hence this court do not think that the applicant / plaintiff has made out any case for continuing the injunction granted in their favour in O.A.No.238 of 2012.
34.Further, in the light of the judgment of the Supreme Court in BSES Ltd. (now Reliance Energy Ltd.) (cited supra), the injunction sought by the applicant / plaintiff in O.A.No.239 of 2012 also cannot be granted. In view of the above, O.A.Nos.238 and 239 of 2012 will stand dismissed. A.Nos.3704 and 3705 of 2012 will stand allowed. However, the parties shall bear their own costs.
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