Delhi High Court
Hfcl Bezeq Telecom Ltd. vs Union Of India on 19 September, 1997
Author: K. Ramamoorthy
Bench: K. Ramamoorthy
JUDGMENT K. Ramamoorty, J.
1. The plaintiff HFCL Bezeq Telecom Limited (HBTL), who had submitted tender pursuant to the invitation of tender given by the first defendant, has instituted this suit for a declaration and injunction. The other defendant 2 to 8 are Bank, who had given Bank guarantees on behalf of the plaintiff. Therefore, the only contesting defendant is the first defendant. The learned Senior Counsel for the plaintiff and the learned Addl. Solicitor General for the first defendant submitted that the suit itself could be disposed of on the materials available on record and they submitted written arguments in the suit. The following issues were framed for trial on the 5th of November, 1996:
"1. Whether the suit is liable to be dismissed for want of notice under Section 80, CPC?
2. Whether invocation of the earnest money Bank guarantee is illegal?
3. Whether the drafts of the license and interconnect Agreements finalised on 1.7.1996 and 9.9.1996 contained substantial deviations from the Tender Documents? If so, to what effect?
4. Relief.
2. Before I consider the issues, it is better to notice the facts culminating in the filing of the suit.
3. On 16.1.1995 notice inviting tender was issued by the first defendant. The due date fixed was 30.3.1995 by 11 a.m. Opening date was 30.3.1995 at 12 noon. On 31.3.1995 time was extended by the first defendant upto 23.6.1995. On 15.11.1995 the first defendant wrote to the plaintiff (Ex. P.1) that the plaintiff had been ranked as the highest bidder (H-1) in the 8 Service Areas, which are as under:
S.No. Service Category Rank
1. Andhra Pradesh A H1
2. Delhi A H1
3. Gujarat A H1
4. Haryana B H1
5. Kerala B H1
6. Punjab B H1
7. U.P.West B H1
8. West Bengal B H1 The letter further states that the Government had desired to restrict the award of license for a maximum of three Service Areas in A & B categories and requested the plaintiff to indicate its choice of three Service Areas in A & B categories. On 21.11.1995 (P.2) the plaintiff exercised its option and informed the categories to the first defendant. The plaintiff made it clear that the contractual covenants should remain the same. The plaintiff expressed his choice for Delhi, Haryana and U.P. (West). By letter dated 21.12.1995 (P.3) the first defendant requested the plaintiff to extend the Bank guarantees upto 31.3.1996 for nine Service Areas. The plaintiff gave the details of the Bank guarantees given by the plaintiff. On 29.12.1995 (P.5) the plaintiff wrote to the first defendant stating that Bank guarantees had been extended upto 31.3.1996. In paragraph 1 of the letter it is stated:
"Extension of the validity of the Bank Guarantees beyond 31st December, 1995 would imply the extension of the bids validity beyond 180 day period as initially provided in the tender itself."
In paragraph 5 it is stated:
"In terms of the aforesaid clarification and in view of what is stated hereinabove, we give our concurrence for extension of the Bid validity only in respect of four circles viz. Delhi, Haryana, U.P. West and Orissa upto 31.3.1996. Accordingly, we enclose herewith the extended Bank guarantees for the above four circles upto 31.3.1996."
On 4.3.1996 (P.6) with reference to Delhi Service Area the first defendant sent, which according to first defendant is the Letter of Intent. In paragraph 2 of the letter, it is stated:
"The award of licence shall be governed by the terms and conditions stipulated/contained in the tender documents read with clarifications and amendments/corrigenda issued for the above referred DOT tender enquiry. The detailed terms and conditions shall be enumerated in the Licence Agreement and Interconnect Agreement to be signed subsequently. A copy of these documents would be made available within a short span of time."
4. The plaintiff was asked to give unequivocal and unconditional acceptance of this Letter of Intent duly signed by the authorised signatory so as to reach the first defendant latest by 2.4.1996. In paragraph 4 the first defendant would state:
"In case the Letter of Acceptance, along with required documents as mentioned in para 3 above, is not received by the stipulated date, this Letter of Intent shall be treated as withdrawn and the next eligible bidder will be considered for awarding the licence for the aforesaid Service Area."
5. Ex. P.7 is the Letter of Intent for Haryana Service Area. Ex.P.8 is Letter of Intent for U.P. (West) Service Area. Ex. P.9 is Letter of Intent for Orissa Service Area. It may be noticed that the Licence Agreement and Interconnect Agreement were not sent alongwith this letter and it is stated that they will be made available within a short span of time.
6. On 27.3.1996 (P.10) (Orissa Service Area), the plaintiff wrote to the first defendant stating that the Licence Agreement and the Interconnect Agreements had not been received. The Interconnect Agreement and Licence Agreements and they were to be executed together. Bringing to the notice of the first defendant the tender conditions and clarifications, the plaintiff stated:
"III. As you are aware as per clarification No.12.2, the licence agreement shall be supplied with LOI. Further as per Clause 5.15 of tender documents Interconnect Agreement is to be signed alongwith Licence Agreement."
About the acceptance, the plaintiff expressed its reservation in paragraph 4:
"You will appreciate that any acceptance given now cannot be unconditional because detailed terms and conditions as contained in the Licence Agreement and Inter-connect Agreement will be made known only when these are available and are mutually agreed particularly since these agreements are not statutory contracts. If a bidder Company finds the terms of the Licence Agreement and Inter-connect Agreement require modifications and discussions, it would have the right to do so."
In paragraph IX the plaintiff stated:
"IX. In view of above, we await receipt of draft Licence Agreement and Interconnect Agreement and then subject to above, further action would be taken in accordance with the terms and conditions contained in the tender document and clarifications, for which necessary extensions may please be given."
The plaintiff had not given its acceptance and had made it clear that the Letter of Intent was not in accordance with the terms and conditions of the tender and the clarifications issued by the first defendant.
7. Exs. P.11, P.12 and P.13 dated 27.3.1996 relate to U.P. (West) Service Area, Delhi Service Area and Haryana Service Area respectively are similar to Ex. P.10.
8. On 29.3.1996 (P.14) the first defendant wrote to the State Bank of India, Solan (H.P.) to extend the guarantees upto 30.6.1996. On 10.4.1996 (P.15) the plaintiff wrote to the first defendant extending the Bank guarantees for the four Circles i.e. Delhi, Haryana, U.P. (West) and Orissa. The plaintiff requested the first defendant to return the Bank guarantees with reference to other States. On 11.4.1996 (P.16) (Orissa Service Area) the first defendant issued an amendment to U.P. (West) Service Area. Exs. P.18 is in respect of Delhi and P.19 for Haryana.
9. On 2.5.1996 (P.20) (U.P. (West) Service Area) the plaintiff wrote to the first defendant making the position very clear in the following terms:
"With reference to your letter dated April 11, 1996 on the above subject. As already requested that we have not yet received draft f approved Licence Agreement and Interconnected Agreement and accordingly, it is requested that suitable extension may please be granted till we receive the documents as stated above i.e. 4 weeks after receipt of the above documents."
Ex. P.21 is the letter for Orissa Service Area, P.22 is the letter for Haryana Service Area and Ex. P.23 is the letter for Delhi Service Area.
10. On 5.6.1996 (P.24) the first defendant wrote to the plaintiff in the following terms:
"Sub: Extension of Bid validity and Bank Guarantee(s) submitted against DOT NIT No.314-7/94-PHC for Provision of Telephone Service.
Please refer to your Bids and Bank guarantee(s) submitted against above mentioned NIT for Delhi, Haryana, U.P. (West) and Orissa Service Areas. You are requested to extend the Bid validity and Bank guarantee(s) for another three months. The extension of Bid validity and Bank guarantee(s) should reach the under signed on or before 17.6.96 with intimation to Director (BSII) of DOT (H/Q)."
11. On 17.6.1996 (P.25) the plaintiff wrote to the first defendant:
"Re: Letter No. 25-2/96-MMT dated 5.6.1996.
We are in receipt of your letter dated 15th June,1996 received by us on 7th June, 1996 requesting us for an extension of the Bid validity and the Bank guarantees for another three months.
In this connection we are contacting for the above the Joint Venture Partners including Shinawatra International Public Co. Ltd. and Bezeq - an Israel Government Telecom Company. This is likely to take sometime. We would request you to give us further time of one week to respond to your letter under reference."
12. On 20.6.1996 (P.26) (Delhi Service Area) the first defendant issued the second amendment to the Letter of Intent (according to the first defendant) dated 4.3.1996 extending the time for receipt of acceptance upto 31.7.1996. The Memorandum reads as under:
"The following amendment, is hereby, authorised in para 3 of the above said Letter of Intent:
"The stipulated date in para 3, stands extended upto 31st July, 1996 for receipt of unequivocal and unconditional acceptance of this Letter of Intent, duly signed by the Authorised Signatory, alongwith the documents stipulated at 3(i) to 3(vi) in the said para to enable signing of the formal Licence Agreement and Inter-connect Agreement accordingly".
The other terms and conditions of the above referred Letter of Intent shall remain unchanged."
13. Ex. P.27 is the similar letter relating to Haryana Service Area. Ex. P.28 is similar letter for Orissa and Ex. P.29 is similar letter for U.P. (West).
14. On 21.6.1996 the plaintiff had written to the Oriental Bank of Commerce, New Delhi, State Bank of India, Solan, IDBI, Mumbai directing the bankers not to pay any amount to the first defendant as the plaintiff had not extended the validity of the bids beyond 31.3.1996 and the bids had lapsed on 31.3.1996.
15. On 21.6.1996 (P.30) the first defendant wrote to IDBI, Mumbai invoking the Bank Guarantee for 21.2 crores. On 21.6.1996 (P.31) first defendant had written to SBI, Solan enforcing the Bank guarantees for 7.50 crores.
16. On 23.6.1996 the plaintiff Board had passed a resolution by circulation for the purpose of instituting the suit. On 24.6.1996 (P.32) a notice under Section 80, C.P.C. was issued to the first defendant stating that the first defendant had committed breach of the terms and conditions of the tender and the clarifications and, therefore, the first defendant had no right to invoke the Bank guarantees.
17. On 24.6.1996 the plaintiff presented the plaint in this Court. Ex. P.33 is the tender document. Ex. P.34 is the compilation showing the clarifications issued by the first defendant. Ex. P.35 is the document showing the number of villages without telephones. Ex. P.36 is one sheet which deals with tariff relating to STD calls. Ex. P.37 is letter dated 1.7.1996 (Delhi Service Area) in and by which it is stated by the first defendant that copies of the Licence Agreement and Interconnect Agreement are sent and the plaintiff should give its unequivocal and unconditional acceptance alongwith the licence fee latest by 31.7.1996. Exs. P.38, P.39 and P.40 are similar letters dated 1.7.1996 in respect of Haryana, U.P. (West) and Orissa Service Areas. On 9.7.1996 (P.41) the plaintiff wrote to the first defendant stating that the Suit No. 1481/96 had been instituted in this Court and brought to the notice of the first defendant the clarifications at page 42 of the Clarifications (P.34) wherein it is stated that "the Interconnect Agreement will be open to review by mutual agreement between the DOT and the licensee." On 17.7.1996 (P.42) with respect of Haryana Service Area the first defendant wrote to the plaintiff stating that the Letter of Intent had already been sent and, therefore, the plaintiff must intimate the time and date of signing the Licence Agreement and Interconnect Agreement and the plaintiff should pay the licence fee and submit necessary documents for singing the documents. Exs. P.43, P.44 and P.45 are similar letters dated 17.7.1996 in respect of Orissa, Delhi and U.P. (West) Service Areas. On 23.7.1946 (P.46) the first defendant wrote to the plaintiff stating that the filing of the suit by the plaintiff would not absolve the plaintiff of the responsibility of fulfillling the obligations under the terms and conditions of the tender. The first defendant directed the plaintiff to comply with the directions contained in the letters dated 1.7.1996 (Exs. P.37 to P.40). On 25.7.1996 (P.47) the plaintiff wrote to the first defendant stating that the signing of the agreements cannot be done as the matter is subjudice. The plaintiff also referred to the ad-interim order passed by this Court. The second page of Ex. P.47 is marked as Ex. P.48. On the 2nd of August, 1996 (P.49) with regard to U.P. (West) Service Areas the first defendant wrote to the plaintiff stating:
"The last date of conveying the acceptance for the bidders was 31.7.1996. Since various requests have been received from other bidders for extending the date, therefore, it has been decided to extend the last date upto 12th September, 1996. All bidders have been informed accordingly.
Now, we are hereby conveying you the factum of the extension of the last date of acceptance of L.O.I. from 31st July, 1996 to 12th September, 1996 as other bidders have also been granted extension of such time.
Accordingly, you are required to convey your unequivocal and unconditional acceptance of the letter of intent alongwith licence fee demand draft and other requisite documents listed in paras 3(i) to 3(vi) of the aforesaid letter of intent to ensure signing of the licence agreement and the interconnect agreement within the aforesaid date.
You are informed accordingly."
18. According to the first defendant the time was extended upto 12.9.1996.
19. Exs. P.50, P.51 and P.52 relate to the Orissa, Haryana and Delhi Service Areas respectively
20. On 22.8.1996 (P.53) the first defendant wrote to the plaintiff (U.P. (West) Service Area) that the other letters of intent holders had to forward their points for clarifications/modifications in the Interconnect and Licence Agreements and such points had been discussed with the Letter of Intent holders. Exs. P.54, P.55 and P.56 are similar letters in respect of Orissa, Haryana and Delhi respectively.
21. On 2.9.1996 (P.57) (Orissa Service Area) the plaintiff wrote to the first defendant the issue of validity and existence of the bid is subjudice and, therefore, 'we obviously cannot be compelled to take a stance on the negotiations till the question of validity of the bid is determined.' Exs. P.58, P.59 and P.60 are similar letters in respect of Haryana, Delhi and U.P. (West) Service Areas respectively.
22. On the 9th of September, 1996 (P.61) (Orissa Service Area) the first defendant wrote to the plaintiff enclosing the final Licence Agreement and the Interconnect Agreement stated:
"As the last date for signing of these agreements and for completing associated formalities is fixed as 12th September, 1996, it will be appreciated if you may intimate the convenient time and date so that necessary arrangements in this regard can be made in advance."
Exs. P.62, P.63 and P.64 are similar letters for Delhi, Haryana and U.P. (West) Service Areas.
23. On 18.9.1996 (P.65) (U.P. (West) Service Area) the first defendant wrote to the plaintiff stating:
"In continuation of above said references, I am directed to inform you that the last date for conveying the acceptance of Letter of Intent, signing of Agreements and completion of associated formalities by the Letter of Intent holders was earlier fixed as 12th September, 1996. However, in view of the various requests received from other Letter of Intent holders for extending the said date, it has been decided to extend the last date upto 18th October,1996. All the Letter of Intent holders have been informed accordingly."
2. Now, we are, hereby, conveying you the factum of the extension of the last date of acceptance of Letter of Intent from 12th September, 1996 to 18th October, 1996 as other Letter of Intent holders have also been granted extension of such time.
3. Accordingly, you are requested to convey your unequivocal and unconditional acceptance of the Letter of Intent alongwith licence fee Demand Draft and other requisite documents listed in paras 3(i) and 3(vi) of the aforesaid Letter of Intent to ensure signing of the Licence Agreement and the Interconnect Agreement within the aforesaid extended date."
Exs. P.66, P.67 and P.68 are similar letters for Haryana, Orissa and Delhi Service Areas respectively.
24. Ex. P.69 is the Licence Agreement sent by the first defendant. Ex. P.70 is Interconnect Agreement. Ex. P.71 again Licence Agreement and P.72 is again Interconnect Agreement.
25. The plaintiff prayed for the following reliefs:
"(a) declare that the invocation dated 21st June, 1996 issued by the defendant No. 1 to defendant Nos. 5 and 6 respectively are invalid, contrary to the terms of the guarantee, and are non-est and not binding upon defendants 5 and 6.
(b) declare that defendant No. 1 is not entitled to invoke any of the guarantees issued by defendants 2 to 8 for the reasons set out in the plaint.
(c) grant a permanent injunction restraining defendants No. 2 to 8 from making payments on any of the guarantees referred to in paragraph 3(6) of the plaint.
(d) grant a permanent injunction restraining defendant No. 1 from invoking any of the guarantees referred to in paragraph 3(6) of the plaint, and if already invoked from receiving any payment on the said guarantees from defendant Nos. 2 to 8.
(e) declare that the letter dated 4th March, 1996 does not constitute a valid acceptance of the bids of the plaintiff for the reasons set out in the plaint.
(f) declare that the guarantees mentioned in paragraph 3(6) of the plaint are invalid and not binding upon plaintiff beyond the bid validity period or unless the bid is extended by the bidder, for reasons set out in the plaint.
(g) declare that the bid validity of the tender and the bids of the plaintiff expired on 31st March, 1996 and could be Revalidated only at the request of defendant No. 1. If consented to by the plaintiff.
(h) grant a permanent mandatory injunction and direction ordering defendant No. 1 to negotiate in good faith, the terms and conditions of the license and conditions of the license and interconnect agreement within a period of 3 months for reasonable commercially viable operations of the plaintiff's basic telephone services in accordance with the terms of the tender upon the plaintiff furnishing Bank guarantees equivalent in value to the guarantees set out in paragraph 3(6) of the plaint or upon the plaintiff extending such Bank guarantees for a period of three months, subject to the rights of the plaintiffs and the outcome of the present suit and the rights and contentions of the parties.
26. The learned Addl. Solicitor General appearing for the first defendant contended that the matter was very simple in that the plaintiff, who had submitted the tender and who had extended the validity of the bid period upto 31.3.1996 when the first defendant had issued the Letter of Intent on 4.3.1996, the plaintiff had withdrawn from the bid and in accordance with the terms of the Bank guarantees the first defendant has invoked the Bank guarantees and, therefore, the plaintiff is not entitled to any relief. The learned Addl. Solicitor General laid stress on clause I of the Proforma of the Bank guarantee for earnest money which reads 'if the bidder withdraws its bid during the period of bid validity specified by authority' the first defendant could enforce the Bank guarantees. Therefore, the plaintiff is not entitled to the relief and the other questions whether the Letter of Intent was in accordance with the tender document would not arise for consideration. The learned Addl. Solicitor General submitted that in the light of the admission by the plaintiff itself in its letter dated 29.12.1995 (P.5) it was not open to the plaintiff to contend that the bid validity was extended upto only 31.3.1996 when the period of Bank Guarantees had been extended upto 30.6.1996. S.No.1481/96. According to the learned Addl. Solicitor General the first defendant had acted in accordance with the terms and conditions of the tender document.
27. I have to mention this aspect at the outset because that will give an idea about the central point about which parties had joined issues. The first defendant perhaps thought that the variations between the tender document and the Licence Agreement and the Interconnect Agreement are not of any moment and the plaintiff had not taken any exception to the Letter of Intent issued on 4.3.1996. The learned Addl. Solicitor General submitted that the contentions relating to variation cannot be put forth for the simple reason that the reliefs prayed for in the suit are not founded on these grounds.
28. I shall now notice the relevant averments in the pleadings. In the plaint, it is stated that the first defendant divided the Circles for the performance of the tender into three categories, namely Categories A, B and C. The time was fixed for submitting tenders by 30.3.1995. The last date for submitting the bids was extended to 23.6.1995. The bidder was to enclose original Bank Guarantees valid for 6 months extendible for a further period of six months for each Service Area in a prescribed format. The earnest money prescribed for each category is in the following terms:
Category of Earnest Money per
Service Area Service Area bid
A Rs. 50 crores
B Rs. 25 crores
C Rs. 5 crores
The Letter of Intent would be released by the first defendant and four weeks time would be given for acceptance. Clause 17 Part II of General Conditions provided that the offer contained in the bid shall remain valid for a period of 180 days from the date of bid opening. On 27.3.1995 the first defendant issued clarifications/replies to the various queries raised by the prospective bidders as provided in clause 4 of Section II of the tender document. The plaintiff was the highest bidder selected by the first defendant for Delhi, Haryana, U.P. (West) and Orissa Service Areas. There was a case pending in the Supreme Court relating to the power of the first defendant in respect of the transactions. The decision of the Supreme Court is reported in Delhi Science Forum & Others Vs. Union of India & Another, . The judgment was rendered on 19.2.1996. The plaintiff by letter dated 29.12.1995 extended the bid validity in respect of the four Circles, though the same had not been specifically asked for by the first defendant. This was required because the bids were valid for a period upto 180 days from the date of opening of the tender unless expressly extended by the bidder. The bids were opened on 23.6.1995 and, therefore, they were valid only upto 22.12.1995. As per clarifications issued to clause 4.4 of the Financial Bid, bids could be extended beyond 180 days only with the concurrence of the bidder. On 4.3.1996 the first defendant purported to have issued the Letter of Intent sometime after the decision of the Supreme Court. The Letters of Intent were not accompanied by a draft Licence Agreements and the draft Interconnect Agreements as agreed to by the first defendant. By letter dated 27.3.1996 the plaintiff specifically brought to the notice of the first defendant that the purported Letter of Intent dated 4.3.1996 was in complete/not valid as it was not accompanied with draft Licence Agreement and Interconnect Agreement and no unconditional acceptance could be given by the plaintiff till the drafts of these Agreements were given to the plaintiff. On 29.3.1996 first defendant requested the plaintiff to extend the earnest money Bank guarantees upto 30.6.1996 and the plaintiff by letter dated 10.4.1996 extended the Bank guarantees with respect to four Circles upto 30.6.1996. It is asserted by the plaintiff that "no request was made by the first defendant for extension of bid validity, hence validity of bid remained till 31.3.1996." The plaintiff refers to the correspondence, which I had already adverted to, between the parties. The plaintiff had stated that the bid validity was only upto 31.3.1996. There was no valid Letter of Intent issued by the first defendant and the first defendant itself at page 42 of the Clarifications had stated that the Interconnect Agreement will be open to review by mutual agreement. According to the plaintiff, the first defendant ought to have appreciated:
"(i) the tender document provided for the specific manner in which the bid was to be accepted by defendant No.1;
(ii) the draft License Agreement was to be forwarded alongwith the LOI;
(iii) the Licensee was to be granted four weeks time to accept the LOI and furnish alongwith the acceptance the performance and financial Bank guarantees and also sign the License Agreement;
(iv) the Interconnect Agreement has to be signed simultaneously with License Agreement (Clause 5.15 of the tender document) after negotiating the same with defendant No. 1 within four weeks;
(v) the draft Interconnect Agreement would by implication have to be given together with Draft License Agreement alongwith LOI.
The non-furnishing of Draft License Agreement and Interconnect Agreement alongwith the LOI is a fundamental breach and vitiates the purported Letter of Intent dated 4.3.1996."
According to the plaintiff, it had not committed any breach warranting invocation of EMD Bank guarantees by the first defendant. The plaintiff has not withdrawn its bid during the period of bid validity, namely 31.3.1996. The plaintiff had not failed or refused to execute the contract. Interconnect Agreement was subject to review by mutual agreement and that was the reason why the Licence Agreement and Interconnect Agreement were to be sent alongwith LOI so that if there are substantial variations the parties could again discuss and come to terms or if it is not agreeable the obligations of the parties could be put an end to. The plaintiff emphasised the following facts:
"There is also no failure or refusal to furnish the Performance guarantee and/or Financial Guarantee by the plaintiff occasioning an invocation and/or encashment of the Bank guarantees. The defendant No. 1 vide its memorandum dated June 20, 1996 extended the time upto 31st July, 1996 for furnishing of unequivocal and unconditional acceptance of the Letter of Intent alongwith the relevant documents. The Performance Bank Guarantees and the Financial Bank Guarantees are to be furnished only alongwith the Letter of Acceptance. This (occupied with the fact that the drafts of the license and the interconnect agreement have not been furnished) being so, the time for accepting the purported Letter of Intent and furnishing the performance and financial Bank guarantee is still available. There can be no invocation of the EMD guarantees on this count. The acts of omission and commission of Defendant No. 1 have rendered impossible the performance of its obligations by the plaintiff with respect to furnishng unconditional acceptance and financial and performance guarantees within the bid validity period. This is further highlighted by the fact that inter alia the format of the performance bank guarantee given as Annexure-VIII of the clarifications clearly contemplated that the said guarantee shall be given by the Bidder after or simultaneous with the execution of the License Agreement since it refers in its opening part to the number and date of the license which has been granted by the President of India through Telecom Authority and states that the said bank guarantee is being given to irrevocably and unconditionally guarantee to the authority that the licensee shall render all necessary and efficient services under the said license. The performance guarantee could therefore, be contemplated to be executed by the Bidder only after or at best simultaneous with the execution of the License Agreement and it is therefore, obvious that there could be no question of the Bidder executing the performance guarantee unless and until License Agreement was executed and this could not be done unless and until the draft License Agreement was furnished by defendant No. 1 along with LOI."
29. The second defendant Oriental Bank of Commerce filed the written statement on 16.8.1996 stating that it would abide by the direction issued by this Court.
30. The first defendant filed its written statement on 24.9.1996. It is stated that the suit is liable to be dismissed as notice under Section 80, CPC was not issued. After giving the background, the first defendant had admitted why the License Agreement and the Interconnect Agreement could not be sent alongwith the Letter of Intent. It is stated:
"As per the Tender Document and as per the Clarifications issued the draft Licence Agreement was to be given to the bidders alongwith the LOI and the Licence Agreement and the Interconnect Agreement wee to be signed by the bidder alongwith the acceptance of the LOI. These two documents, however, could not be given to the bidders alongwith the LOI because the documents were to be vetted by the Ministry of Law and had not yet been received from there at the time of the issue of the LOI."
It is stated that the plaintiff itself had asked for extension of time after receiving the Letter of Intent and the first defendant gave extension. In paragraph vi, it is stated by the first defendant:
"While extending Earnest Money Bank Guarantee, the plaintiff/bidder by their letter of 29.12.1995 themselves stated that the extension of the Earnest Money Bank Guarantee implies the extension of the bid validity also. The department accepted this statement of the plaintiff/bidder not only for the extension of the bid at the relevant time but also as a correct statement for the future."
31. It is stated that since the draft agreements (Licence Agreement and Interconnect Agreement) had not been received by the Department of Law Ministry even upto 31.3.1996 the first defendant requested for further extension of the earnest money Bank guarantees. Some of the earnest money Bank Guarantees were extended upto 30.6.1996, it is further stated that since the validity earnest money Bank guarantees was expiring on 22/30.6.1996, all the bidders were again requested to extend the earnest money Bank Guarantees further and submit the same to the department before 17.6.1996. The first defendant would explain the scope of the Bank Guarantees in the following terms:
"The Earnest Money Bank Guarantee is the only instrument with the department to compel the bidders to comply with the tender conditions and fulfilll their obligations. In the event of their failure to do so, the department can encash the Earnest Money Bank Guarantees. This is the only instrument which prevents the non-serious bidders, in any tender, to refrain from bidding and prevent bidders from backing out of their bids when it becomes inconvenient to them to accept the offer."
The first defendant would state about the letter dated 17.6.1996 by the plaintiff:
"This plaintiff/bidder instead of extending Earnest Money Bank Guarantees, as requested by the department, had on 17th June, 1996 applied that the time may be extended for one week to comply with this direction of the department on the plea that they wanted to consult their joint venture partners. It was evident that the plaintiffs wanted to put the department in a position where it would not have any security deposit after the expiry of the bank guarantees at the same time leaving the plaintiff with the option to execute the contract or not as it suited them."
32. It is admitted by the first defendant that the Draft Interconnect and Licence Agreements were received after legal vetting and they were given on 1.7.1996 to all successful bidders including the plaintiff. It is further stated that the other successful bidders for other Circles made a request to the Government to extend the time period for signing of the two Agreements and the Government had agreed to extend the time by six weeks upto 12.9.1996 and the plaintiff was also given time upto 12.9.199. It is stated:
"By the second extension, the plaintiff extended the validity of the Bank guarantees upto 22/30.6.96 which act has automatically, as a consequence, extended the bid validity period as stated by the plaintiff in letter dated 29.12.95 because the validity period as stated by the plaintiff in letter dated 29.12.95 because the validity period for bank guarantees as well as bids have been expressly stated to be coterminus on the very first occasion when the answering defendant made a request to the plaintiff for extension of the validity period of the Bank Guarantees."
It is asserted at page 12 of the written statement:
"Though the Department had stated by way of clarification that the two drafts of Licence Agreement and the Interconnect Agreement would be made available to selected bidders, the selected bidder had no right not to execute the contract after he was selected as per his bid."
It is admitted by the first defendant in para 3.14 at page 16 that the Draft Licence Agreement and Interconnect Agreement has now been delivered to the plaintiff on 1.7.1996 and thereafter the plaintiff can have no grounds for not executing the contract. It is asserted at page 20 that non supply of the drafts (Licence Agreement and Interconnect Agreement) cannot be a breach. Such agreement basically reflect the terms and conditions of the tender document, unless otherwise specifically agreed between the parties. The first defendant obviously had not compared the tender document and the terms and conditions mentioned in the Licence Agreement and the Interconnect Agreement. The other allegations in the written statement need not be repeated because they relate to the bid validity and extension of the hank guarantees. What is stated by the first defendant at page 28 is of some interest and must be noticed:
"Non-supply of the two draft agreements alongwith the LOI in no way mean any breach of any tender condition or in no way vitiates the acceptance of the bids of the plaintiff by issue of the Letter of Intent. If the tender conditions and the clarifications provide for the issue of the two draft agreements, the tender conditions and clarifications also clearly provide that the interconnect agreement shall be in line with the licence agreement and the contents of the Interconnect agreement are broadly covered in the tender conditions themselves. It is also stated in the clarifications (P.45) that the Interconnect Agreement can be made available only after the issue of the LOI. The para relating to review has been quoted out of context. It is nowhere mentioned in the tender document and the clarifications issued that the interconnect agreement and the licence agreement will be negotiated and will be reviewed by the DOT and the licensee and only when the two agreements can be finalised. The review and mutual agreement is only with regard to the long term interconnection (access) fee as stated in the clarification at Page 42. There has been no breach of any tender conditions by defendant No.1 and these contentions of this para are denied."
33. On 3.10.1996 the plaintiff filed the replication to the written statement filed by the first defendant. The plaintiff had filed Annexures A & B alongwith the replication. Annexure A shows the variations in Licence Agreement and the tender conditions. Annexure B shows the variations between tender conditions and Interconnect Agreement given on 17.9.1996.
34. Mr. Mukul Rohtagi, learned Senior Counsel for the plaintiff submitted that the bid validity period expired on 31.3.1996, the first defendant did not issue Letter of Intent alongwith the draft Licence Agreement and Inter-connect Agreement and consequently, there can be no mutual discussion about the variations and owing to substantial change in the conditions mentioned in the Licence Agreement and Interconnect Agreement, the plaintiff could not give its consent. The first defendant while issuing the Licence Agreement and the Interconnect Agreement during the pendency of the suit did not even invite the plaintiff to come for negotiations and the plaintiff was not aware of what transpired between the other successful bidders and the first defendant and the first defendant did not issue a valid Letter of Intent within the bid validity period. There was no obligation on the part of the plaintiff to give consent to execute Licence Agreement and, therefore, in view of the conduct of the first defendant in committing breach of its fundamental obligation, the rights and obligations of the parties had come to an end and there was no enforceable contract between the parties and the Letter of Intent, alleged to have been issued by the first defendant on 4.3.1996, was not Letter of Intent as per the conditions of the tender and, therefore, it has no legal effect. The learned Senior Counsel for the plaintiff brought to my notice the variations between the tender conditions and the Licence Agreement on the one hand and the tender conditions and Interconnect Agreement on the other hand. The learned Senior Counsel submitted that the plaintiff had submitted the tender and sought clarifications and extended the bid validity upto 31.3.1996 on the basis of the tender conditions and the clarifications issued by the first defendant and the plaintiff thought those conditions could be complied by it as it was agreeable to it and consequently was prepared to go ahead. The plaintiff, according to the learned Senior Counsel, never imagined that by issuing the draft Licence Agreement and Interconnect Agreement by substantially varying the position would put the plaintiff to great prejudice and loss. Therefore, the plaintiff could not agree to the terms and conditions unilaterally varied by the first defendant.
35. The learned Addl. Solicitor General, as I had pointed out above at the outset, focussed his argument on the point that as per the tender conditions the first defendant had issued the Letter of Intent on 4.3.1996 and the plaintiff was obliged to express its concurrence and the plaintiff was not prejudiced by the non supply of the Licence Agreement and the Interconnect Agreement and, as a matter of fact, the plaintiff had asked for extension and now the plaintiff wanted to resile out of the contract by contending that the first defendant did not act as per the terms of the tender conditions and the plaintiff was not justified in withdrawing from the bid.
36. Ex. P.33 is the tender document and Ex.P.34 is the document containing clarifications to the queries. Ex. P.33 consists of two parts. In first part there are five sections. Section I is notice inviting tender. Section II is General Condition. Section II Commercial Conditions. Section IV Technical Conditions. Section V Financial Conditions. Part 2 deals with the Terms of Financial Bid. In Section II Clause 4, the first defendant had agreed for issue of clarifications. Clause 4 reads as under:
"Prospective bidder, if so desires, may send any of their queries on the Clauses of this tender in writing to Director (MMT), DOt, Sanchar Bhawan, 20, Ashoka Road, New Delhi 110 001 so as to reach latest by 13:00 hrs. of 15.2.1995. Consolidated replies to the relevant queries so received will be circulated to all the prospective bidders. These replies will form a part of the Tender Document."
The effect of this clause is that the tender conditions alongwith the clarifications would form part of the Tender Document. Therefore, the clarifications issued by the first defendant would be relevant for the purpose of considering the questions. Clause 11 contains provisions forgiving Earnest Money by way of Bank Guarantees. Clause 11 reads as under:
"The bidder shall enclose the original Bank Guarantee valid for six months (and extendible for a further period of six months) for each Service Area separately in a prescribed format issued by any scheduled bank towards Earnest Money as per the following:
Category of Earnest Money per
Service Area Service Area bid
A Rs. 50 crores
B Rs. 25 crores
C Rs. 5 crores
The Bank Guarantee submitted towards earnest money for a service area shall be forfeited and encashed by Telecom Authority in case the bidder does not abide by his bid for the service area. No relaxation of any kind on Bank Guarantee towards Earnest Money will be given to any bidder. Bank Guarantee towards Earnest Money so deposited will be returned and released to the bidders whose bids stand rejected. After issue of licence, the bank guarantee for the earnest money will be returned to the selected bidders."
With reference to this clause the clarification issued by the first defendant is in the following terms:
Clause 11. CLARIFICATIONS
1. Form for Bank guarantee may Proforma for Bank guarantee is be given. Is it acceptable given at Annexure III. The gua-
to provide required guarantees rantee must be from a schedule an
through International Bank Bank or any other Bank or
with branch in India? financial institution in India
which has been authorised by
the Reserve Bank of India
(through a general or
individual order) to furnish
such a guarantee.
2. What are the conditions that Wording of Clause 11 is clear
could result in forfeiture on this subject. Also refer
of Earnest Money? to the proforma for Bank
Guarantee. Also refer to
clarification below.
3. What is the specific meaning Failure to execute the licence
of 'not abide by his bid agreement after the bid has
for the Service Area,? been accepted by the Telecom
Can an awardee decline Authority. He will not forefeit
an award without forfeiting his earnest Money if he refuses
Earnest Money? to accept a counter-bid offered
by the Telecom Authority
Please see the proforma for Bank
Guarantee at Annexure III"
The first defendant had answered query No. 3 stating that the first defendant may give counter bid and it would be open to the bidder to refuse or accept the same and in that event there will be no forfeiture of Earnest Money. Again, in this context it is relevant to notice Clause 1 of the Proforma of Bank Guarantee for Earnest Money:
"1. If the Bidder withdraws its bid during the period of bid validity specified by Authority"
Therefore, the first defendant could invoke the Bank guarantee after the counter bid is considered by the bidder. Clause 12 of the tender document speaks of award of tender. The relevant portion of clause 12 is as follows:
"After selection a Letter of Intent shall be released to the selected bidder and four weeks time shall be given for acceptance. Letter of Acceptance by the bidder must be submitted along with performance Bank guarantee as well as financial Bank guarantee as specified in Clause 5.0 Section V and Clause 26, Section III of Part I respectively. No delay shall be permitted and in the event bidder's acceptance alongwith Bank guarantee is not received by stipulated date the next eligible bidder shall be considered.
After acceptance of the LOI bidder shall enter into a licence agreement with the Department of Telecom. As a pre-condition to the entering into an agreement the bidder shall pay to Telecom Authority appropriate licence fee as specified in Clause 3 of Section V."
To this clause also clarifications were sought. The queries 1 and 2 and the answers would be relevant and they are as follows:
Clause 12. Clarifications
1. Will the selected bidders have Yes, if there is a substantial the right to decline to accept change.
the license under the terms specified by the Govt. if they have changed from the original tender without forfeiting the Earnest Money?
2. It would be appropriate if a Draft licence agreement will be draft license copy with all given to the selected bidders terms and conditions are pro- alongwith the Letter of Intent.
vided to the bidders at this stage or atleast prior to the issue of LOI."
It could be seen that alongwith the Letter of Intent the first defendant had agreed to give draft Licence Agreement. The reason is the Licence Agreement will contain the details of the terms and conditions for actual performance of the project. In Section III Commercial Conditions, Clause 13.6 the rates for STD calls and the billing basis are mentioned. In the clarifications sought the first defendant clarified by saying that the Interconnect Agreement could be finalised by mutual agreement. Question No. 6 and the answer would be relevant:
6. Please clarify whether the The interconnect agreement Licensee and DOT may agree to a will be open to review by long term interconnection mutual agreement between (access) fee, which would be the DOT and the Licensee.
a fixed rate regardless of call type, should the two parties agree?
Clause 13.12 is about the sharing of Leasing Revenue which could be mentioned in the Interconnect Agreement. Clause 13.12 and the clarifications issued by the first defendant read as under:
13.12. If in certain circumstances, building up of a leased line partly over DOT's network and partly over LICENSEE's network becomes unavoidable, the sharing of leasing revenue will be as per terms to be spelt out in the interconnect agreement.
Clause 13.12 Clarifications
1. Is the interconnect agreement The contents of the interconnect
an instrument negotiated bilate- agreement have been broadly
rally between the Licensee and covered in the tender condi
DOT? If not will the details tions. However, the inter
of Licensee's agreement be made connect agreement will go
available to the intending into greater details. The
bidders? interconnect agreement can
however be made available
only after the letter of
intent has been issued.
37. The bidders wanted to have the details about the sharing of leasing revenue at the time of their bid being considered. The first defendant clarified it by saying that the Interconnect Agreement will be given after the Letter of Intent has been issued. The first defendant had agreed to give the Licence Agreement along with the Letter of Intent and here also the first defendant had agreed to give the Interconnect Agreement. What the first defendant meant was that the Interconnect Agreement also would be made available to the bidders because when the Letter of Intent is issued the details given in the draft Licence Agreement and the draft Interconnect Agreement could be considered by the bidders. The intention is that if there is a substantial change in the Licence Agreement the bidders had the right to decline to accept the Licence which had been clarified in Clause 12, which has already been extracted. Therefore, as on 27.5.1995 when the clarifications were issued by the first defendant the provisions of the tender document clearly spelt out the intention of the parties. Two important things emerge out of the provisions of the tender document, one is that the first defendant should issue Letter of Intent along with Licence Agreement and Interconnect Agreement. The Letter of Intent in his complete form must be issued during the currency of the bid validity period.
38. In the written statement the first defendant had clearly admitted that along with the Letter of Intent issued on 4.3.1996 the Licence Agreement and the Interconnect Agreement could not be sent because they were under consideration by the Ministry of Law.
39. The first defendant would state that the draft Licence Agreement and the Interconnect Agreement were given to the plaintiff on 1.7.1996.
40. The learned Addl. Solicitor General formulated the following points for consideration:
1. The suit is not maintainable with reference to reliefs (a), (f), (g) and (h) for want of notice under Section 80, C.P.C.
2. The suit is not maintainable for the same reason with reference to relief No. (c).
3. The suit is not maintainable with reference to prayer (d) for want of notice under Section 80, C.P.C. if the expiry of the bid was on 31.3.1996 is expected to be correct. It is further submitted on this point that prayer (d) could be considered if it is based on the fact that the invocation of the Bank guarantee is on 21.6.1996. For this the want of notice would not apply.
4. The extension of Bank guarantee implied extension of the bid validity period.
5. The bid validity period stood extended impliedly till 30.6.1996 in view of the extension of the Bank guarantee upto 30.6.1996.
6. In any event, on the facts the bid validity stood extended upto 31.7.1996.
7. The plaintiff is guilty of having committed anticipatory breach.
8. Some terms in the contract have to be implied if there is doubt about the real intention of the parties.
9. The terms and conditions in the draft Licence Agreement and the Interconnect Agreement relied on by the plaintiff were subsequent to the institution of the suit and they cannot be subject matter of the suit and the reliefs prayed for in the suit are not founded on those grounds.
10. The invocation of the Bank guarantees by the first defendant was in accordance with the terms of the Bank guarantees.
11. The meaning of the Earnest Money have been explained by the Supreme Court and the plaintiff having provided the Bank guarantee towards Earnest Money and when the plaintiff had committed breach the first defendant is entitled to invoke the Bank guarantee.
12. While construing the terms of the Bank guarantee a precise meaning of the words 'abide' and 'withdraw' should be kept in mind.
13. The Supreme Court had laid down that Court cannot grant injunction against the invocation of Bank guarantees.
14. The suit is liable to be dismissed in the light of the provisions of Section 38(2) and Section 41 of the Specific Relief Act.
41. Regarding the submission by the learned Addl. Solicitor General that the suit is not maintainable because no notice under Section 80, CPC had been issued, the application filed by the plaintiff I.A. 5599/96 seeking leave under Section 80(2) CPC has to be considered. Section 80, CPC reads as under:
"80. (1) [Save as otherwise provided in Sub-section (2), no suit shall be instituted] against the Government (including the Government of the State of Jammu and Kashmir) or against a public officer in respect of any act purporting to be done by such public officer in his official capacity, until the expiration of two months next after notice in writing has been delivered to, or left at the office of -
(a) in the case of a suit against the Central Government, except where it relates to a Railway, a Secretary to that Government;
(b) in the case of a suit against the Central Government where it relates to a Railway, the General Manager of that Railway;
(bb) in the case of a suit against the Government of the State of Jammu and Kashmir, the Chief Secretary to that Government or any other officer authorised by that Government in this behalf;
(c) in the case of a suit against any other State Government, a Secretary to that Government or the Collector of the District; and, in the case of a public of ficer, delivered to him or left at his office, stating the cause of action, the name, description and place of residence of the plaintiff and the relief which he claims; and the plaint shall contain a statement that such notice has been so delivered or left.
(2) A suit to obtain an urgent or immediate relief against the Government (including the Government of the State of Jammu and Kashmir) or any public of ficer in respect of any act purporting to be done by such public officer in his official capacity, may be instituted, with the leave of the Court, without serving any notice as required by Sub-section (1); but the Court shall not grant relief in the suit, whether interim or otherwise, except after giving to the Government or public officer, as the case may be, a reasonable opportunity of showing cause in respect of the relief prayed for in the suit: provided that the Court shall, if it is satisfied, after hearing the parties, that no urgent or immediate relief need be granted in the suit, return the plaint for presentation to it after complying with the requirements of Sub-section (1).
(3) No suit instituted against the Government or against a public officer in respect of any act purporting to be done by such public officer in his official capacity shall be dismissed merely by reason of any error or defect in the notice referred to in Sub-section (1), if in such notice -
(a) the name, description and the residence of the plaintiff had been so given as to enable the appropriate authority or the public officer to identify the person serving the notice and such notice had been delivered or left at the of fice of the appropriate authority specified in Sub-section (1), and
(b) the cause of action and the relief claimed by the plaintiff had been substantially indicated."
In the application, the plaintiff has prayed for the following relief:
"(a) this Hon'ble Court be pleased to grant leave under Section 80(2) to the plaintiff to sue the defendant No. 1 and claim permanent and temporary injunctions against the defendant No. 1 prior to the expiry of 2 months notice period under Section 80(1) of the CPC on terms as to this Hon'ble Court may deem fit and proper;
(b) for costs;
(c) for such further and other reliefs as the nature and circumstances of the case may require."
42. The argument by the learned Addl. Solicitor General was that the plaintiff itself has confined the petition under Section 80(2), CPC only to particular relief and, therefore, the other reliefs prayed for in the plaint cannot be considered by this Court in the absence of any notice under Section 80, CPC. The argument is highly technical and I shall consider only the relief of injunction prayed for by the plaintiff. No doubt, it is well settled that while considering the relief of injunction the Court can consider other points necessary for deciding the issue relating to injunction. With reference to the application under Section 80(2), CPC the other argument by the learned Addl. Solicitor General was that the plaintiff should have approached the Court, if it felt that the matter was urgent, in March itself and having waited till 24.6.1996 the plaintiff cannot invoke Section 80(2), CPC. So far as this point is concerned, after the letter dated 4.3.1996 the plaintiff had been requesting the first defendant to send the Draft Licence Agreement and the Interconnect Agreement. The first defendant have been of its own accord extending the time unilaterally and as I had noticed above it was only on 1.7.1996, according to the first defendant, the Draft Licence Agreement and Draft Interconnect Agreement were offered to the plaintiff. The period between 4.3.1996 and 24.6.1996 have been a period of lull as it were and neither parties had committed to any bargain. Therefore, that gray area, as it were, cannot be taken advantage of by the first defendant to say that the plaintiff had extended the bid validity period and, therefore, as the plaintiff withdrew from its bid the first defendant was entitled to invoke the Bank guarantee on 21.6.1996 and the plaintiff cannot seek to dispense with notice under Section 80, CPC. The first defendant cannot rely upon its own unilateral extension without giving the Draft Licence Agreement and the Interconnect Agreement and try to push the plaintiff to a particular position. Therefore, when the first defendant invoked the Bank guarantee on 21.6.1996 the plaintiff necessarily had to swing into action. Therefore, it is entitled to institute the suit with the application under Section 80(2), CPC. I am of the view that the plaintiff is entitled to the relief prayed for in the application. Accordingly, I.A.5599/96 is ordered. Therefore, the question of maintainability of the suit with reference to prayer for injunction has to be considered on its merits. Regarding the maintainability of suit on other reliefs, it is not necessary to adjudicate on the point because the plaintiff would be satisfied as the prayer of injunction is the main relief.
43. I shall now take up the 4th point of the learned Addl. Solicitor General. According to the learned Addl. Solicitor General plaintiff had admitted that extension of Bank guarantee implied extension of the bid validity period. The tender document would show that the bidder has to give Bank guarantee and extend the validity of the bid. As per the tender document, there is no automatic extension of bank guarantee. I proceed in this case that the plaintiff had admitted that the validity of the bid period stood extended upto 30.6.1996. Therefore, the argument by learned Addl. Solicitor General that in the letter dated 29.12.1995 (P.5) the plaintiff itself had admitted that extension of Bank guarantee implied extension of bid validity period, is not the correct position on a proper construction of the tender document. As pointed out by the learned Addl. Solicitor General it is common ground that the bid validity period stood extended to 30.6.1996.
44. The question is whether the first defendant issued the Letter of Intent, as agreed, during the currency of the bid validity period. In the tender document and in particular, in the clarifications issued by the first defendant, the first defendant had agreed that draft Licence Agreement will be issued along with the Letter of Intent. Admittedly, that was not done. I have extracted the relevant portion in the written statement that till 1.7.1996 the first defendant could not get the Draft Licence Agreement and Draft Interconnect Agreement from the Ministry of Law. Therefore, the first defendant did not act upto the terms of the tender document in providing the Licence Agreement alongwith Letter of Intent. That is not a mere formality. Because as per the clarifications issued by the first defendant it was still open to the bidder to consider the terms of the Licence Agreement and the Interconnect Agreement and resile out of the bargain if they are contrary to the terms of the tender document. The question whether the terms of Draft Licence Agreement and the terms of the Interconnect Agreement were at variance with the tender document need not be considered in this case but the position is that the bidder was to be given an opportunity to consider the terms of the Draft Licence Agreement and the Draft Interconnect Agreement before he gave the concurrence to the Letter of Intent and that is why in the Letter of Intent itself four weeks' time is given to the plaintiff to give its consent. Therefore, the argument of the learned Addl. Solicitor General that non supply of Draft Licence Agreement to the plaintiff did not affect the plaintiff is not a correct approach. The first defendant had committed a very serious breach of the terms of the tender document. Consequently, the alleged Letter of Intent dated 4.3.1996 (P.6) is not at all in accordance with the terms of the tender document and, therefore, the first defendant cannot take advantage of its own wrong and try to invoke the Bank guarantee. The Supreme Court in U.O.I. & Others Vs. Hindustan Development Corporation & Others, , Sterling Computers Limited Vs. M/s. M& N Publications Limited & Others, JT 1993 (1) S.C.187 and Delhi Science Forum & Others Vs. Union of India & Another, had pointed out that the Public Authorities are expected to act fairly, reasonably and in accordance with the principles of fair play and justice. In the case of Delhi Science Forum (supra) the Supreme Court had laid down that the principle is where it is shown that an authority exercising discretion has taken a decision which is devoid of my plausible justification any authority having reasonable persons could not have taken the said decision. This is in consonance with the principles laid down by the House of Lord in C.C.S.U. Vs. Minister for the Civil Services, 1984(3) A.E.R. 935 (H.L.). Nearly 387 years ago, the House of Commons in England had addressed to the King of England about the supremacy of the rule of law. Our Founding Fathers had given us the same polity for the people of India to be ruled by the rule of law. The House of Commons on the 7th of July, 1910 expressed its view:
"Amongst many other points of happiness and freedom which your Majesty 's subjects of this Kingdom have enjoyed under your royal progenitors...there is none which they have accounted more dear and precious than this, to be guided and governed by certain rule of law...Out of this root bath grown the indubitable right of the people of this Kingdom not to be made subject to any punishment that shall extend to their lives, lands, bodies or goods, other than such as are ordained by the common laws of this land or the Statutes made by their common consent in Parliament."
Therefore, I am of the view that the first defendant is bound to act in accordance with the terms of the tender document.
45. The next point No. 6 was that the bid validity stood extended upto 31.7.1996. This point need not detain me any longer because that is not even the case in the written statement and the first defendant cannot rely upon the letter dated 10.4.1996 (P.15) in and by which it is stated by the first defendant that the plaintiff extended the Bank guarantee. The first defendant is trying to connect the Bank guarantee period and the bid validity period to mop up its own default annotating as per the terms of the tender document.
46. The next point is that the plaintiff has committed anticipatory breach. I am not able to appreciate the stand of the first defendant that the plaintiff is guilty of anticipatory breach. The learned Addl. Solicitor General relied upon Section 39 of the Contract Act, 1872. The Section reads as under:
"39. Effect of refusal of party to perform promise wholly, - When a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promise may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance."
It is well settled principle that a person who had acted in violation of the terms of the contract cannot be heard to say that the other party should act fairly. The first defendant having failed to send the Draft Licence Agreement alongwith the Letter of Intent cannot be heard to say that the plaintiff had committed anticipatory breach. The learned Addl. Solicitor General relied upon the passage in Pullock & Mulla Vol. I page 524. The statement of law by the Author is in the following terms:
"Anticipatory Breach - It was settled in Scotland in 1848 and has been the law in Scotland and England that:
If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the contract, the other party, the innocent party, has an option. He may accept that repudiation and sue for damages for breach of contract whether or not the time for performance has come, or he may if he chooses disregard or refuse to accept it and then the contract remains in full effect quoted with approval in Motilal Srinivasa Sarda Vs. Neha co-op. Spg. Mills Limited. Anticipatory breach was not devised as a whip to be used for the chastisement of deliberate law breakers, but from which the shiftless, the dilatory or the unfortunate are to be spared. Anticipatory breach means simply that a party is in breach from the moment his actual beach becomes inevitable. WynnPerry, J. has said that there is neither any good reason for a distinction nor does there exist any distinction which is required to constitute an anticipatory breach". It is not confined to any particular class of breach, deliberate or blameworthy or otherwise, it covers all breaches that are bound to happen. Hocheser Vs. De La Tour established that a renunciation when acted upon became final. Thus if a man proclaimed by words or conduct as inability to perform the other party could safely act upon it without having to prove that when the time came for performance the inability was still effective."
The innocent party wishing to treat himself as discharged where there is anticipatory breach of a contract must make his decision known to the party in default, otherwise the contract continues for "An unaccepted repudiation is a thing writ in water. The three set of circumstances giving rise to discharge of a contract are (1) renunciation of a party of his liabilities under it, (2) impossibility of performance created by his own act; and (3) total or partial failure of performance.
In the case of the first two, the renunciation may occur or impossibility be created either before or at the time of performance. In the case of the third it can occur only at the time or during the time of performance of the contract. The third of these is the ordinary case of breach and the first two state the two modes of anticipatory breach."
He relied upon a passage at page 527 in Vol.I Pullock & Mulla. The learned Author has given explanation as to what is repudiation. The passage is in the following terms:
"'A repudiation' said Lord Atkin in Spettabile consortia Veneziano Vs. Northumberland Shipbuilding Co. has been defined in different terms - by Lord Selborne as an absolute refusal to perform a contract; by Lord Esher as a total refusal to perform it; by Bowen, L.J., as a declaration of an intention not to carry out a contract when the time arrives, and by Lord Haldane and an intention to treat the obligation as altogether at an end. They all come to the same thing and they all amount at any rate to this; that it must be shown that the party to the contract made quite plain his own intention not to perform the contract."
The learned Solicitor General relied upon the passage from Allsoll's Lavv of Contract 28th Edition page 470 to explain what is anticipatory breach. The learned Author has stated:
"The right of a party to treat himself as discharged from further performance may arise in any one of three ways: the other party to the contract, (1) may renounce his liabilities under it, (2) may by his own act make it impossible that he should fulfilll them, (3) fail to perform what he has promised. In each of these three cases he has repudiated his contractual obligations. In the first case, he has repudiated them by a refusal to perform; in the second he has repudiated them by inability to perform; in the third he has repudiated them by a total or substantial failure to perform, and not the less so because his failure may not have been willful or deliberate.
Of these forms of breach. the first two may take place not only in the course of performance but also while the contract is wholly executory, i.e., before either party is entitled to demand a performance by the other of his promise. In such a case the breach is usually termed as an 'anticipatory breach'. The last can only take place at or during the time for performance of the contract."
The learned Solicitor General relied upon the judgment of the Supreme Court in State of Kerala Vs. C.C. Refineries, wherein the Supreme Court has dealt with what is anticipatory breach. The learned Addl. Solicitor General submitted that the above decision of the Supreme Court had been followed by the High Court of Andhra Pradesh in Motilal Srinivasa Sarda Vs. Neha Corporation Spg. Mill, .
47. The principle of anticipatory breach cannot be invoked by the first defendant who is guilty of breach and in the instant case I have to construe the terms of the tender document and when the first defendant could not act in accordance with the terms of document it is not open to the first defendant to say that the plaintiff had committed breach of the contract.
48. The next point put forth by the learned Addl. Solicitor General was that some terms have to be implied in the contract. The learned Addl. Solicitor General did not argue as to what are the terms which have to be implied and who was in doubt about the real intention of the parties. The learned Addl. Solicitor General refers to Section 9 of the Contract Act, 1872. That section reads as under:
"9. Promises, express and implied. - In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied."
The learned Addl. Solicitor General submitted that if there was any doubt in respect of some terms used in the contract, in order to give business efficacy no other meaning could be ascribed to the words. As I had noted above, the learned Addl. Solicitor General did not elaborate and was rest content with projecting an argument. In my view, there was no scope for invoking the doctrine because the terms of the tender document are clear and the first defendant at any rate being the author of the tender document cannot pretend that it had some doubts and, therefore, some terms have to be implied. In the written statement, no such plea has been taken. The learned Addl. Solicitor General relied upon the passage from Pullock & Mulla which is in the following terms:
"Under the law, apart from the terms imported by mercantile usage, the Court may imply terms, which are necessary in order to repair an intrinsic failure of the expression in the contract, in other words, which will implement the presumed intention and give 'business efficacy' to the contract. This principle was laid down in the Moorcock and also by the Privy Council. The Courts in England have limited the doctrine of 'the Moorcock'. The current tendency is perhaps is summarised in the words of Jenkinsa, L.J. I do not think that the Court will read a term into a contract unless, considering the matter from the point of view of business efficacy, it is clear beyond a peradventure that both parties intended a given term to operate, although they did not include it in so many words."
The learned Addl. Solicitor General sought to derive support from a passage at page 125 of the Anson's Law of Contract. The statement in Anson's Law of Contract is in the following terms:
"Sometimes the parties to a contract may, either through forget- fulness or through bad drafting, fail to incorporate into the contract terms which, had they adverted to the situation, they would certainly have inserted to complete the contract. In such cases the Courts may, in order to give 'business efficacy' to the transaction imply such terms as are necessary to effect that reason"
The leading case is that of the 'Moorcock', where Bowen, L.J. said:
"Now an implied warranty, or, as it is called a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side, and I believe that if one were to take all the cases and there are many, of implied warranties and covenants in law, it will be found that in all of them the law is raising an implication from that presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all such events it should have."
The learned Addl. Solicitor General submitted that the Bombay High Court had laid down the same principle in Dev Prasad Khandelwal Vs. Union of India, .
49. The next point by the learned Addl. Solicitor General was that the terms and conditions in the Draft Licence Agreement and the Interconnect Agreement were subsequent to the institution of the suit and, therefore, they cannot be pressed into service by the plaintiff. The learned Senior Counsel for the plaintiff referred to these Licence Agreement and the Interconnect Agreement just to show how the first defendant had stipulated terms which are not found in the tender document and which require negotiations between the parties and the learned Senior Counsel for the plaintiff submitted that the terms of the Draft Licence Agreement and the Interconnect Agreement would show that the first defendant had proposed new terms and, therefore, the plaintiff is entitled to consider before giving its concurrence to the Letter of Intent as per the terms of the tender document and, therefore, the stage has not come for the first defendant to assume that the plaintiff had withdrawn from the bid, assuming the Letter of Intent had been issued by the first defendant within the validity of the bid period.
50. I do not want to go into the question whether there is any variation between the Draft Licence Agreement, Interconnect Agreement and the tender document and that is not necessary for the purpose of this case.
51. The next point urged by the learned Addl. Solicitor General was that the invocation of the Bank guarantee was in accordance with the terms of the Bank guarantee. Alongwith this the other two points, the meaning of 'earnest money' that while construing the terms of bank guarantee the meaning of the words 'abide' and 'withdraw' should also be kept in mind. On facts, it is clear that the first defendant did not issue the Letter of Intent within the bid validity period and, therefore, the first defendant was not within its right in invoking the bank guarantee. The fact that the bank guarantee was given towards earnest money is not disputed by the plaintiff. The question of forfeiture by the first defendant of the earnest money would arise only if the plaintiff is guilty of acting contrary to the tender document. When the first defendant had not issued the Letter of Intent within the bid validity period it is clear that the plaintiff had not withdrawn the bid without any justifiable reason within the bid validity period entitling the first defendant to invoke the bank guarantee. I have no hesitation in rejecting the submission of the learned Addl. Solicitor General.
52. The point No.7 was raised by the learned Addl. Solicitor General was that the bid validity period stood extended to 31.7.1996. As I had noticed above, there is no plea in the written statement. On facts and circumstances that cannot at all be the position. The learned Addl. Solicitor General submitted that Bank guarantee was invoked on 24.6.1996 in respect of the balance of 73.2 crores and the bid validity period was extended upto 12.9.1996 as per Exs. P.47 and P.61. Therefore, the stand of the first defendant is that it can extend the bid validity period until the first defendant gets ready with the draft Licence Agreement and Interconnect Agreement. That was never the intention of the parties as could be culled out from the tender document.
53. The next point urged by the learned Addl. Solicitor General was that the Supreme Court had laid down that the Courts cannot grant injunction against invocation of Bank guarantees. The Supreme Court had considered this point in a catena of decisions. I shall notice a few of them. In Centax (India) Ltd. Vs. Vinmar Impex Inc. and Others, the Supreme Court considered the principle laid down in United Commercial Bank Vs. Bank of India, . The facts of the case dealt with by the Supreme Court in 1986 could be stated briefly in the following terms.
The respondent before the Supreme Court M/s. Vinmar Impex Inc. agreed to sell 100 MT of High Density Polythene Powder. The appellant opened an irrevocable Letter of Credit and that was issued by Allahabad Bank on behalf of the appellant. The appellant having taken delivery of the goods sent by the respondent complained that there were some defects. The Supreme Court noticed the findings given by the Division Bench of the High Court in the following terms:
"The learned Judges, in the course of their reasoned judgment, referred in detail to the relevant documents as also to various authorities, including the decision of this Court in United Commercial Bank case and held that the obligation of the Allahabad Bank under the letters of indemnity counter signed by the appellant was absolute and upon a demand being made by the shipping company i.e. the beneficiary, the Bank was liable to honour the same regardless of any controversy between the parties i.e. the appellant who is the buyer, and respondent 1 the sellers, as to whether the contract of sale had been performed."
The Supreme Court confirmed the finding given by the High Court. The Supreme Court proceeded to observe:
"This case is really an extension of the principles laid down by the Court in United Commercial Bank case. The main point in controversy in that case was whether the Court should in a transaction between a Banker and Banker grant an injunction at the instance of the beneficiary of an irrevocable letter of credit, restraining the issuing Bank from recalling the amount paid under reserve from the negotiating bank, acting on behalf of the beneficiary against a document of guarantee/indemnity at the instance of the beneficiary. In, dealing with the nature of a Banker's obligation under an irrevocable letter of credit, the Court observed (SCC p. 784, para 42):
In view of the Banker's obligation under an irrevocable letter of credit to pay, his buyer-customer cannot instruct him not to pay. In Hamzeh Malas Vs. British Imex Industries Ltd., ( (1958) 2 QB 127), the plaintiffs, the buyers, applied for an injunction restraining the sellers, the defendants, from drawing under the credit established by the buyer's Bankers. This was refused, Jenkins, L.J. stating at page 129 that:
....the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay.....
and that 'this was not a case in which the Court ought to exercise its discretion and grant the injunction'.
The Court held that the same considerations should apply to a Bank guarantee, and added: (p.784, para 43) A letter of credit sometimes resembles and is analogous, to a contract of guarantee. In Ellan Vs. Matsas, (196) 2 LI LR 495, Lord Denning, M.R. while refusing to grant an injunction stated ...a Bank guarantee is very much like a letter of credit. The Courts will do their utmost to enforce it according to its terms. They will not, in the ordinary course of things, interfere by way of injunction to prevent its due implementation.
It was observed that commitments of Banks must be allowed to be honoured free from interference by the Courts. Otherwise, trust in international commerce would be irreparably damaged. The Court referred to, with approval, the following observations of Kerr, J. in R.D. Harbottle (Mercantile) Ltd. Vs. National Westminister Bank Ltd., (1977) 2 WLR 75.
It is only in exceptional cases that the Courts will interfere with the machinery of irrevocable obligations assumed by Banks. They are the life-blood of international commerce.
And added:
Except possibly in clear cases of fraud of which the banks have notice, the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts."
Therefore, the Supreme Court having noticed the terms of the Bank guarantee and the conduct of the parties had confirmed the judgment of the High Court. In General Electric Technical Services Company INC. Vs. Punjsons (P) Ltd. and Another, the Supreme Court on the facts of that case held that the Bank had to pay as per the undertaking and the Bank cannot be interdicted by the Court at the instance of a party in the absence of fraud or special equities in the form of preventing irretrievable injustice between the parties. The Supreme Court is concerned with a prima facie case in the interlocutory application filed by the plaintiff. In U.P. Cooperative Federation Ltd. Vs. Singh Consultants and Engineers (P) Ltd., held that an irrevocable commitment in the form of a confirmed bank guarantee or irrevocable Letter of Credit cannot be interfered with in order to restrain the operation either irrevocable Letter of Credit or confirmed Letter of Credit or of Bank guarantee there should be serious disputes and there should be good, prima facie, case of fraud and special equities in the form of preventing irretrievable injustice between the parties, the Supreme Court considered the terms of the Bank guarantees. The same principle has been followed by the Supreme Court in State of U.P. and Another Vs. Praveen Kumar Sharma and Others, , National Thermal Power Corporation Ltd. Vs. Flowmore Pvt. Ltd. and Another, (1955) 4 SCC 515, State of Maharashtra and Another Vs. National Construction Company, Bombay and Another, , Ansal Engineering Projects Ltd. Vs. Tehri Hydro Development Corporation Ltd. and Another, and Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd. & Another, 1997 (5) Supreme 291. The dictum laid down by the Supreme Court cannot be disputed by anybody and it has to be followed. However, while following the principle, the Court has to consider the facts of each case and the conduct of the parties. In the light of the facts set out above, the first defendant having failed to act in terms of the tender document is not entitled to invoke the Bank guarantees. The plaintiff has no other remedy in this case. The stand by the first defendant is that the plaintiff could file a suit for damages. That cannot be an effective remedy.
54. The next point by the learned Addl. Solicitor General was that the suit is liable to be dismissed in the light of the provisions of Sections 38(2) and 41 of the Specific Relief Act, 1963. Section 38 of the Specific Relief Act reads as under:
"38. Perpetual injunctions when granted. - (1) Subject to the other provisions contained in or referred to by this Chapter a perpetual injunction may be granted to the plaintiff to prevent the breach of an obligation existing in his favour, whether expressly or by implication.
(2) When any such obligation arises from contract, the Court shall be guided by the rules and provisions contained in Chapter II.
(3) When the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of, property the Court may grant a perpetual injunction in the following cases, namely:
(a) where the defendant is trustee of the property for the plaintiff;
(b) where there exists no standard for ascertaining the actual damage caused, or likely to be caused, by the invasion;
(c) where the invasion is such that compensation in money would not afford adequate relief;
(d) where the injunction is necessary to prevent a multiplicity of judicial proceedings."
I fail to see how the plaintiff can be non suited under this provision. Section 41 of the Specific Relief Act, 1963 deals with the situation of rights of parties pending a suit. In the instant case, the parties had agreed that the suit could be heard and the parties had invited the Court to consider the terms of the tender document. Therefore, Section 41 of the Specific Relief Act, 1963 is wholly inapplicable to the facts of this case. Therefore, the argument on behalf of the first defendant on the basis of Section 38(2) and Section 41 of the Specific Relief Act, 1963 falls to the ground.
55. In the light of the position of law, the plaintiff is entitled to the grant of Injunction.
56. On issue No.1 I find that the plaintiff is entitled to the grant of injunction and the plaintiff cannot be non suited on the ground of want of notice under Section 80, CPC as I.A.5599/96 is ordered by this Court.
57. On issue No. 2 I find that the first defendant was not within its rights in invoking the Bank guarantees and, therefore, the plaintiff is entitled to the relief of injunction. This issue is answered in favour of the plaintiff and against the first defendant.
58. Issue No. 3 about the terms of the Draft Licence Agreement and the Interconnect Agreement given on 1.7.1996 and 9.9.1996, after the institution of the suit, need not be considered.
59. Consequently, there shall be a decree -
(1) granting permanent injunction restraining the first defendant from invoking the Bank guarantees and receiving payments from defendants 2 to 8.
(2) directing the parties to bear their own costs.
All the I.As. stand disposed in view of the disposal of the suit.