Calcutta High Court (Appellete Side)
International Industrial Gases Ltd vs Union Of India & Ors on 29 September, 2011
Author: Pinaki Chandra Ghose
Bench: Pinaki Chandra Ghose, Asim Kuamr Ray
1
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELALTE JURISDICTION
APPELLATE SIDE
M.A.T. No. 598 of 2010
International Industrial Gases Ltd.
Vs.
Union of India & Ors.
BEFORE:
The Hon'ble Mr. Justice PINAKI CHANDRA GHOSE
A N D
The Hon'ble Mr. Justice ASIM KUAMR RAY
For Appellant : Mr. Soumen Dasgupta, Senior Advocate.
Mrs. Lopamudra Sur, Adv.
Mr. Kalyanmay Modak, Adv.
Mr. Biswarup Dasgupta, Adv.
For Respondent : Mr. Amitava Ghosh, Adv.
Mr. Souraya Sadhan Bose, Adv.
Mr. Soumitra Dutta, Adv.
Heard on : 14.07.2010, 02.12.2010 & 19.05.2011 Judgment on : 29.09.2011
PINAKI CHANDRA GHOSE, J.: This appeal is directed against an order and/or judgment dated 17th March, 2010 delivered by the Hon'ble Single Judge on a writ petition being W.P. No. 14731 (W) of 2007 whereby His Lordship was pleased to dismiss the writ petition.
The facts of the case briefly are as follows:-
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The appellant being an exporter and having Import Export Code No. 0288024877 carries on business of manufacturing of different industrial gases, DA plants and Industrial Generators and is an exporter of such industrial items to different countries. In course of its business the appellant received some orders for exporting one Acetylene Plant/ Generator to Bahrain. The appellant obtained a letter of credit being No. 06110089 dated 26th October, 2006 for an amount of US $ 91117.60. On the basis of such letter of credit the Bank Guarantee No. 1BC/FBG/03/07 dated 2nd February, 2007 for an amount of US$ 22779.40 was issued by the respondent No. 4, Allahabad Bank. In terms of the export agreement the shipment of the said plant had to be ready by 30th April, 2007. Due to financial crisis appellant approached the respondent No. 4 with a request to arrange and export packing credit assistance of Rs.15,00,000/- only. The appellant came to learn from his Banker, respondent No. 4 that the name of the petitioner alongwith some other companies allegedly associates to the appellant are appearing in the Specific Approval List of the Expert Credit Guarantee Corporation of India (hereinafter referred to as 'the ECGC') Therefore, the appellant caused enquiry in the matter and learnt that the appellant was identified, described and/or alleged as the sister concern of one company functioning under the name and style of the Silchar Industrial Gases Ltd. The appellant denied such association with the said company and it appears from the fact that there is some Export Packing Credit Loan was granted 3 to the said Silchar Industrial Gases Ltd. by the respondent No. 3, UCO Bank, in the year 1990 and outstanding amount of the said loan was not paid by the said Silchar Industrial Gases Ltd. resulting addition of the name of the appellant as the sister concern of the said defaulter company. Subsequently the said Silchar Industrial Gases Ltd. arrived at a settlement with the said UCO Bank and cleared all the outstanding dues and UCO bank returned all the original documents of the said company and issued a letter dated 28th August, 2002 acknowledging the payment of all the dues of the said bank have been cleared by the said company.
In these circumstances, the appellant requested the UCO Bank to take steps in the matter so that the name of the appellant may be deleted from the 'Specific Approval List' (hereinafter referred to as 'SAL') of ECGC. The said fact was also informed by the UCO Bank to the ECGC by a letter dated 24th April, 2007 and requested the respondent No. 2 to delete the name of the Silchar Industrial Gases Ltd. and further to delete the name of the appellant company from the SAL. In spite thereof the appellant received letter from the ECGC stating the clear stand of the ECGC not to remove or delete the name of the appellant from the SAL unless the respondent No. 3, UCO Bank paid their dues.
Further case of the appellant that without giving a chance of being heard to the appellant the name has been included in the said SAL and the same has been done illegally, arbitrarily and it is nothing but a colourful exercise of power. 4
Hence, the appellant filed the writ petition before this Court. The ECGC, respondent No. 2 duly filed affidavit in the writ proceeding and submitted that the said Government Company was established for the purpose of promoting export trade and engage in providing credit insurance cover to (a) exporters over their credit risk on overseas buyers and (b) to Banks over their credit risk on export financing to Indian borrowers. The present case relates to those instances where Banks which grant credit facilities to their exporter customers seek insurance cover from the respondent in respect of the risk undertaken by them in granting such facilities to their customers. Therefore, the insurance cover provided by this respondent is to the Banks and financial institutions and not to exporters under any contract of insurance concluded between the individual Bank and the insurer and not with the exporters. So the beneficiary of the cover is individual Bank and not the exporter.
It is submitted on behalf of ECGC that from the sanctioned letter of the respondent No. 3 dated 10th January, 1990, the name of the Managing Director of the said Silchar Industrial Gases Ltd is Mr. D.K. Garg, who happens to be the father of Mr. Nikhilesh Garg, the deponent who affirmed the affidavit on behalf of the writ petitioner. A report of such default was submitted by the respondent No. 3, UCO Bank to the respondent No. 2 on 29th October, 1992. The UCO Bank, respondent No.3, also lodged its claim with the respondent No.2 on 3rd March, 1992. From the said claim it would appear that the appellant is an associate 5 and/or connected unit of the respondent No. 6, Silchar Industrial Gases Ltd. The said two companies i.e., the appellant and the respondent No.6 have common managerial personnel and are controlled by the same group of persons. From the facts it appears that the said Silchar Industrial Gases Ltd. is an associate concern of the appellant.
The further case of the respondent ECGC is that they issued two types of guarantees covering (a) whole turnover packing credit guarantee (b) whole turnover post shipment guarantee. He further submitted that these are the bilateral contracts of insurance between the above respondent and the Bank whereby the respondent insures the Bank, subject to the terms and conditions of the said contract, against their risk of loss in granting advances/loans to the exporters for exports. The subject matter of such insurance is the risk of loss owing to the possible default by or insolvency of the exporter. The exporter is not a party to this bilateral contract and, therefore, has no locus standi to raise any dispute or grievance with regard to the terms and conditions of the contract between the ECGC and the Bank. It is also not mandatory at all for the Banks to have such insurance cover for their advances. The banks avail of such facilities on their own volition to protect their interests.
It is further the case of the respondent ECGC that they maintain the SAL which contains the names of such exporters who are required to be looked into in more details in any credit risk on them is accepted by the ECGC. It is a list of 6 exporters who are potential borrowers and in respect of whom the respondent should be afforded an opportunity to have a Credit Risk Assessment. The criteria for placing an exporter in the SAL is the existence of such circumstances as would warrant specific consideration of the risk involved while underwriting the advances granted to such exporters. The Bank is required to seek prior approval of the respondent for granting credit to such exporters, whose names have been included in the SAL, only if the Banks require cover of this respondent for such credit. Therefore, inclusion of the name of a company in SAL never entails denial of any Bank credit. It does not prevent the Banks from advancing any amount they wish to advance to those exporters included in the SAL at their own risk. But as a credit risk insurer ECGC has the unassailable right to assess the credit risk that are offered to it for cover and to decline such risks that are patently uninsurable or found to be bad risk and to accept such risks subject to conditions as may be deemed appropriate. As such no insurer could be asked to or expected to underwrite any risk unless and until an opportunity is afforded to their insurer to evaluate risk. The only purpose of including the names of all such persons in SAL was to indicate to the banks the names of customers about whom extreme care and caution will be taken by ECGC in granting insurance.
In these circumstances, the name of the appellant was included in the SAL. In these circumstances, the Hon'ble Single Judge held as follows:- 7
"I conceive that the principle of natural justice has three components. Firstly, it is a principle, secondly, it is natural and thirdly, it is justice. So far as the concept of 'principle' is concerned, it is formulation of a public policy for the benefit of all according to social norms and prevailing rules without tilting balance of convenience and inconvenience unnecessarily. No principle can be based on the concept of sadism. So far as the second element is concerned it is 'natural' which emanates spontaneously in the mind of a rational being to be just, equitable and elastic and not static so that through ages and different cases it can mould itself and become susceptible and adaptable to the given situation under changing circumstances of changing society. This is elastic in the sense that it should imbibe within its fold all cases of identical nature as well as follow the binding rules of precedent which may transcend from precedent to precedent through judicial pronouncement. The third and the most vital component is 'justice' which should be based on wisdom, precedent, legislative intent and social norms. While interpreting the concept of principle of natural justice there should be a prefect concatenation amongst all these three elements or components so as to grant any relief not at the cost of unrecognized sacrifice of the interest of any other individual or groups of persons in course of same commercial transactions amongst interested parties as is done with the insurer in the instant case.
In the instant case the transaction in question relates to three units i.e., the insurer, the funding bank and the borrower who are all involved in same commercial transaction and as such all of them have equal right to protect their own commercial interest. If two of such units unite together to affect the interest of the other party that other party has equal right to protect its interest and to see that the loss sustained by it does not occur in future in absence of any fiduciary relation or contractual obligation as the case may be."8
Accordingly His Lordship held that no notice was required to served by the respondent ECGC to the borrowers or its sister concern for the purpose of preparation of SAL, inclusion of name is not black listing. The borrower is at liberty to approach the bank for loan and the bank is equally competent to grant such loan to the borrower. But if the bank in its turn intends to secure any insurance cover and then only they would give opportunity to the insurer ECGC to consider the viability of such borrower. In making such communication and without any notice to the borrower who is a terminal beneficiary of the transaction involving the insurer and the bank and by such act the insurer does not violate any principle of natural justice. In the instant case the Court held that no right of the writ petitioner has been infringed and his ways and means to secure bank loan has also not been directly prohibited by ECGC and the Court held that there is no violation of principle of natural justice.
The Hon'ble Single Judge took up the question of maintainability of the writ petitioner under Article 226 of the Constitution of India since the same has been pressed before the Court and the Hon'ble Single Judge came to the conclusion that the bank avoided to settle the claim of the insurer against the aforesaid defaulting companies which have amicably settled their claim with the bank secretly without consent of the insurer and as a consequence thereof ECGC sustained a loss of Rs.9,96,667/-. Therefore, pending settlement of the claims of the insurer, the bank cannot insist the insurer to remove the name of the defaulting company from their SAL.
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The Hon'ble Single Judge also on the materials placed before the Court came to the conclusion that there is relationship between the appellant and respondent No.6 which is a sister concern of the appellant and held that the respondent No.2, ECGC, has rightly included the names of the respondent No.6 along with the appellant/writ petitioner in their SAL.
The Court also examined the Clauses 11.1 and 11.2 which is reproduced hereunder:-
"11.1 What is SAL? Specific Approval List (SAL) (maintained by the Corporation and Circulated among all banks) contains names and addresses of the exporters to whom packing credit advance granted by a bank can be covered under WTPCG only if the Corporation has given its approval in writing. The list provided to banks is an important source of information for identifying exporters who have defaulted. The list is mainly aimed at advising banks to exercise caution while dealing with such exporters. 11.2 Need for placing an export in SAL.
Generally speaking the necessity for placing an exporter in SAL may arise in cases where:
(i) Exporter has defaulted to a bank: This default to a bank may be reflection of the financial difficulties of the exporter or some serious problems in his business.10
(ii) A claim has been filed under a guarantee on account of the exporters by any bank: The intention of the Corporation is to avoid undertaking further liberty on account of the exporter.
(iii) The exporter is purported to be involved in a fraud: When it comes to the knowledge of the Corporation that an exporter is involved in fraud, he ceases to be a desirable customer and all banks have to be cautioned in regard to the potential danger in dealing with such an exporter.
(iv) The exporter is in financial difficulties: If an exporter is in serious financial difficulties, a close monitoring of his account is called for While placing the name of an exporter under SAL, Corporation may also consider including the names of sister concerns as the financial difficulties of the exporter might adversely affect their financial position as well. Names of proprietor/partners and guarantors/directors are also included in SAL with a view to prevent them from obtaining finance in the names of some other concerns floated be them."
The Hon'ble Single Judge after considering the said Clauses came to the conclusion that the name of the appellant being sister concern has rightly been included in their SAL by the respondent No.2 and held that in doing so they have not exceeded their jurisdiction in exercise of such discretionary power and the Writ Court has nothing to interfere with such policy decision. 11
Being aggrieved and dissatisfied with the said order this appeal has been filed.
Mr. Dasgupta learned Senior Advocate appearing on behalf of the appellant submitted that the name of the appellant cannot be included in this SAL. Such inclusion of the name of the appellant is bad in law since no hearing was given to the appellant. Therefore, it is also in violation of principle of natural justice. It is admitted that Mr D.K. Garg, the Managing Director of the said Silchar Industrial Gases Ltd., is the father of N.K. Garg who is the Director of the appellant. But according to him that cannot create or prove any nexus between the said two companies.
Mr. Dasgupta relied upon the decisions of ABL International Ltd. & Anr. Vs. ECGC and Ors. reported in 2004 (3) SCC 553; State of U.P. Vs. Vijay Kumar reported in 1995 SUPPLE 1 SCC 552; Raghunath Thakur Vs. State of Bihar reported in 1989 (1) SCC 229; M/s Erusian Equipment & Chemicals Ltd Vs. State of West Bengal & Ors reported in 1975 (1) SCC 70 and submitted that ECGC is an instrumentality of the state, therefore, comes within the purview of Article 12. The said body has to act fairly and reasonably. If no opportunity was granted of being heard it should be anal and should be set aside a black listing. He also submitted that without giving any opportunity of being heard to the appellant was also set aside by the Supreme Court. 12
He further submitted that a suit to be filed within three months from the date of cause of action arises. The claim of the ECGC is barred under laws of limitation. Therefore, the ECGC at this stage cannot include the name of the appellant in the SAL. He further drew our attention to Clause 6(1) which provides that the name included in the 'SAL' should continue for three years. In the instant case, the name was included in the year 1998 and ought to have been deleted in the year 2000 in terms of such Clause.
His further contention is that even if the appellant company is a sister concern of Silchar Industrial Gases Ltd, there is no fault on the appellant company for which his name can be included in the 'SAL' maintained by ECGC.
He further contended that the loan was admittedly repaid by the Silchar Industrial Gases Ltd to the UCO Bank. The business of Silchar Industrial Gases Ltd and the appellant company is totally different. In this circumstances, he further submitted that the act and conduct of the ECGC is in violation of norms of principles of natural justice and arbitrary.
On the contrary, the Advocate appearing on behalf of the respondent drew our attention to the circular issued by the General Manager, ECGC and he drew our attention to Clauses 6.1 and 6.2, which is reproduced hereunder:- 13
"6.1 Banks may be aware that the Corporation maintains a Specific Approval List containing the names and addresses of exporters and the connected persons who had come to the adverse notice of the Corporation through reports of defaults or claims under the credit insurance covers to banks. In respect of such exporters the banks are expected to take the prior approval of the Corporation of insuring any export credit. As per the current guidelines, if the respect of a claim paid account, the bank had concluded OTS and the Corporation had approved the same, a part or full amount of the claim paid amount is to be sacrificed by the Corporation, the exporter shall continue in SAL for a period of three years. The current guidelines also provide that on merits of the case, fresh covers can be committed at a reduced level of 50% under specific covers. The procedure for delisting such exporters and assuming fresh exposure in such cases has since been reviewed as of late, the banks have been resorting to reduction in NPA levels by agreeing for OTS involving substantial sacrifices even in principal dues. Besides, a review of the situation has also become necessary because as an underwriter, the Corporation shall not be taking any further exposure if a part of the dues on account of the same exporter has to be sacrificed. It may also be mentioned that once the banks agree for OTS in respect of an account, no fresh exposure will be assumed by them for the same exporter or the Group. However, there could be other banks who would be interested in financing the exporter subject to suitable safeguards including the availability of the Corporation's credit insurance covers. 6.2 It has now been decided that no fresh exposure can be taken in respect of any exporter or group and they will not be delisted from the SAL if the Corporation has sacrificed the claim paid amount either in part or full unless the entire claim paid amount is received by the corporation. However, where the sacrifice is on account of the legal charges incurred by the bank which could not be recovered from the exporter, the exporter can be delisted. If the same is recovered from the exporter, the full claim paid amount shall become refundable to the Corporation before delisting the export from SAL." 14
He submitted that in Clause 6.2 which has been specifically stated that no fresh exposure can be taken in respect of any exporter or group and they will not be delisted from the SAL if the Corporation has sacrificed the claim paid amount either in part or full unless the entire claim paid amount is received by the corporation. Therefore, he submitted that the said Clause 6.2 clears the doubt from the mind that when SAL issued the guideline in respect of the account settled through compromise, such guideline has to be followed by the bank and the exporter. Therefore, it is submitted that by the said circular dated 6th August, 2007 the ECGC has made it clear that the name of the exporter cannot be de-listed from the SAL.
In the facts and circumstances of the case he submitted that the decision cited on behalf of the appellant cannot be a help. On the contrary, the Hon'ble Single Judge correctly assessed the facts and came to the conclusion that there is no arbitrary action or there is any unreasonableness in including the name of the appellant in the 'SAL'. The maintenance of 'SAL' by ECGC is nothing but to protect its interest.
He further contended that it would be evident from the letter addressed by the authority and the facts stated in the affidavit-in-opposition before the Court that these facts would show that the circular which has been issued by the ECGC does not deprive the respondent in carrying on their business or it can be 15 construed as black listing them. Therefore, if there is not black listing, according to him, then there is no question of giving any opportunity of hearing and, therefore, the case tried to be made out by the appellant is of no effect. He further relied upon an unreported decision of the Hon'ble Kerala High Court in the case of Sima Kesu Traders Vs. Manager Export Trade Corporation Ltd & Ors. dated 29th September, 1989 in writ appeal No. 767 of 1989 and he submitted that the Court held that the purpose of including the names of the persons in the 'caution list' is to include the names of the persons about whom extreme care and caution has to be taken for a variety of reasons and that inclusion in the list is for the purpose of the corporation itself in the exercise of its discretion which is necessary to protect its own rights and therefore, he submitted that the prayer for striking out the name of the appellant from the said list also decided the scope of the writ jurisdiction of this Court as it is neither an enforcement of any statutory right nor any fundamental right.
He further submitted that the said list is only meant for the guidance of the corporation and nobody can complain about the conduct of the corporation in deciding before hand that how they should act in this matter either granting care and caution. Therefore, according to him, every authority has a right to frame a policy and guideline to conduct themselves. He further submitted that it is nothing but an instrument of ECGC to the other banks.
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Therefore, there no is question of violation of any principle of natural justice by communicating the said guideline to the banks by ECGC. He further drew our attention to another unreported decision of the Madras High Court in writ appeal Nos. 717 and 718 of 1999 (M/s ECGC of India Vs. A. Jaya Kumar State Bank of India & Ors.) where the Hon'ble Division Bench of Madras High Court has observed that the percussions and arrangements made by ECGC cannot be termed as arbitrary action. Inclusion of the names of the appellant in the SAL does not amount to blacklisting and it is neither arbitrary nor illegal and there is no violation of principles of natural justice. It has also held that the Court should leave the discretion in favour of the financial institutions to determine whether a unit is viable or otherwise and Court should be extremely slow in forcing the financial institutions to advance public funds to private party on an assumption that the unit would be viable.
Therefore, he submitted that on the basis of the said decision it is nothing but a safeguard measure which has been taken by the ECGC, cannot be question by the appellant and hence he submitted that the appeal should be dismissed.
After hearing the learned counsel for the parties and after considering the submissions made on their behalf and the decisions cited before us, the question arose in the matter is that the action taken on behalf of the respondent whether can be termed as blacklisting the appellant. It appears from the fact that ECGC did not remove the name of the appellant from the specific approval list since the 17 UCO Bank did not pay the dues of the appellant to the ECGC. It is not in dispute that the appellant is the sister concern of Silchar Industrial Gases Ltd. It further appears from the fact that the appellant tried to deny such association and admittedly the loan was not paid by the Silchar Industrial Gases Ltd. It further appears that the criteria for placing an exporter in the SAL is the existence of such circumstances as would warrant specific consideration of the risk involved while underwriting the advances granted to such exporters. The Bank is required to seek prior approval of the respondent for granting credit to such exporters, whose names have been included in the SAL, only if the banks require cover of this respondent for such credit. Therefore, inclusion of the name of a company in SAL is not a denial of any Bank credit. It does not prevent the Bankers from advancing any amount to those exporters whose name is included in the SAL at their own risk.
We have noticed the decision of ABL International Ltd. & Anr. Vs. ECGC and Ors.(Supra) the Supreme Court held that in an appropriate case, the Writ Court has jurisdiction to entertain a writ petition involving disputed questions of fact and there is no absolute bar for entertaining a writ petition even if the same arises out of a contractual obligation and/or involves some disputed questions of fact. After noticing the same and applying facts, in the instant case, in our opinion, the Trial Court considered the case on the facts pleaded in the writ petition and thereafter came to the conclusion. Therefore, it appears to us that the Hon'ble Single Judge decided the question after perusing the facts of the case 18 and dismissing the writ petition on merit. In our opinion, the said decision cannot be a help to the appellant.
In the case of State of U.P. Vs. Vijay Kumar (Supra) where the Supreme Court held that the principles of natural justice has to be applied and the Court must come to the conclusion on the basis of the facts pleaded before it. In the said decision, the Supreme Court held that the principles of natural justice should be read in such a provision where the employee would suffer from imposing penalty of censure. But in the instant case, there is no question of censure of the writ petitioner has been made by the ECGC. On the contrary, it appears to us that ECGC prepared a safeguard and guideline for the purpose of performing their duties so that public money is not siphoned out at the instance of a party. In the facts and circumstances of this case the said decision cannot be a help.
In the case of Raghunath Thakur Vs. State of Bihar (Supra) the Supreme Court held that in Government contracts blacklisting of contractor cannot be done without affording an opportunity of hearing to the affected party. But in the instant case, it appears that the steps taken by the ECGC cannot be said to be blacklisting the appellant/writ petitioner. The policy has been framed by the ECGC only to protect the public exchequer and safeguarding the same. Therefore, in our opinion, the said decision also cannot be a help to the appellant/writ petitioner.
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The maintenance of SAL was only to indicate the names of the customers to whom export credit and action taken by the Bank and further as a credit risk insurer has the unassailable right to assess the credit risk that are offered to it for cover and to decline such risks that are patently uninsurable or found to be bad risk and to accept such risks subject to conditions as may be deemed appropriate. Therefore, it is not acceptable that any insurer can be asked to underwrite any risk unless and until an opportunity is afforded to their insurer to evaluate risk. Therefore, it is a policy of the ECGC so that public money cannot be squandered and accordingly, it appears to us that the Hon'ble Single Judge has correctly assess the facts of the case and came to the conclusion that there is a relationship between the appellant and the respondent No.6 which is the sister concern of the appellant and held that the respondent No. 2 ECGC has a right to include the names of the respondent No. 6 along with the appellant in their SAL.
It appears to us that the under Clauses 6.1 and 6.2 of the circular issued by the General Manager, ECGC, the ECGC has a right to include the name of the appellant. It further appears to us that inclusion of name of the appellant in SAL is only a policy which has been formulated by the ECGC so that ECGC protect themselves in the matter and, therefore, it cannot be construed as blacklisting the petitioner/appellant in any manner whatsoever. It is nothing but a caution list and only for the purpose of taking action by the ECGC. Therefore, we cannot accept the contention of Mr. Dasgupta. We also cannot agree to him that there is 20 any violation of principles of natural justice. It is only a safeguard measure which has been created by the ECGC.
Accordingly, we find that the order of the Hon'ble Single Judge does not suffer from any illegality or irregularity. We do not find any merit in this appeal. In view of that this appeal must fail and is hereby dismissed.
Photostat certified copy of this judgment, if applied for, be supplied to the parties.
(PINAKI CHANDRA GHOSE, J.) I agree.
(ASIM KUMAR RAY, J.)