Calcutta High Court
Jute Corporation Of India Ltd. vs Nellimaria Jute Mills Co. Ltd. And Anr. on 14 May, 1992
Equivalent citations: (1993)1CALLT79(HC)
Author: Altamas Kabir
Bench: Altamas Kabir
JUDGMENT Paritosh Kumar Mukherjee, J.
1. This is an appeal filed by the Jute Corporation of India Limited (for brevity called JCI) against the judgment and order dated September 25, 1989 of a learned Single Judge of this Court. The writ petition was filed by Nellimarla Jute Mills Company Limited (for brevity called Nellimarla) and one of its shareholders. The writ petition was allowed by the learned Single Judge by judgment and order dated September 25, 1989, against which the present appeal has been filed by JCI.
2. By the said judgment, the writ petition was allowed and the letters dated May 3, 1988 and May 10, 1988 were set aside. The Bank Guarantees furnished pursuant to the interim order granted in this matter were directed to be returned to the writ petitioner No. 1, within two weeks from the said date.
3. Special Officer, appointed by this Court was directed to make over the amounts lying with him with accrued interest thereon to the writ petitioner within two weeks from the said date after retaining a sum of Rs. 2,500/- as his remuneration. Thereupon the Special Officer was directed to be discharged. The undertakings given by the Writ Petitioners were also directed to be stand discharged. Filing of the accounts by the Special Officer was directed to be dispensed with.
4. The relevant facts relating to the matter are briefly stated below. Nellimarla has got a Jute Mill situated in the State of Andhra Pradesh where about 7000 workers are empolyed. JCI is a Government Company. Almost the entire share capital of JCI is held by the President of India. Some of the main objects for which JCI was formed are the following :-
(a) To generally implement such special arrangement for imports or internal trade or distribution of jute and Mestas as the Central Government may specify from time to time in public interest.
(b) To organise and undertake, purchase, sell and transport of jute and mestas (imported into or grown in India) including such allied duties as may be entrusted to JCI for such purpose by the Central Govt. from time to time in India or anywhere else in the world.
(c) To support, protect, maintain, increase and promote export of jute goods by such methods as may be necessary or expedient including market studies, sending out trade missions, opening foreign offices, conducting propaganda and publicity in foreign countries.
5. On 4th April 1988 Nellimarla addressed a letter to JCI stating that it was interested to buy the quantities of raw jute mentioned therein. JCI was requested to quote its prices, payment terms and other conditions. JCI submitted its offer by its letter dated 5th April 1988. In the said letter JCI offered for sale of a quantity of 33,300 quintals of raw-jute to Nellimarla. It was farther stated that the payment terms would be "through confirmed or irrevocable Letter of Credit payable at sight or through Bank draft". The delivery period was mentioned to be "60 days from the date of making payment arrangement". The delivery of goods was to be made from the godowns of JCI situated in and around Calcutta. It was further stated that if the said terms and conditions were acceptable to Nellimarla it should send its acceptance within 3 days.
6. On 8th April 1988 Nellimarla wrote a letter to JCI accepting the said offer for sale of raw jute as per the terms and conditions mentioned in the said letter dated 5th April 1988 of JCI. Upon such acceptance, the contract for sale of 33,300 quintals of raw jute by JCI to Nellimarla came into existence. Till this stage no time limit was fixed for making payment arrangement and the only stipulation was that delivery would be made by JCI within 60 days from the date of making payment arrangement. Along with its letter dated 11th April 1988 JCI forwarded to Nellimarla its formal contract dated 11th April 1988 for sale of the said quantity of 33,300 quintals of raw jute and as per this contract the letter of credit was required to contain a clause allowing part shipment of the goods. The contract further required the Letter of Credit to be opened and furnished by 26th April 1988. It was further stated that in the event of delay or failure on the part of the buyer in making payment arrangement and/or in the event of the buyer's failure to perform any of the terms of contract, JCI shall have the right to exercise any of the various options mentioned therein. Nellimarla returned the duplicate copy of the contract after signing it in confirmation of acceptance of the contract. This Contract contained the following clauses :-
"Payment Terms : Through confirmed and irrevocable Letter of Credit and/or Bank Draft/Pay Order, preferably through a nationailsed Bank covering the full value of the entire quantity of jute covered by this Contract and other incidental costs to be opened by the buyer and furnished to us by 26th April, 1988 at the latest."
7. By its letter dated 19th April 1988 Nellimarla requested JCI to amend the contracted quantity of some of the grades of raw jute mentioned in the contract. In this letter Nellimarla said :-
"As we have to open the L/C on the basis of actual gradewise with their value, so please confirm us the amendment requested above to enable us to open the L/C in time, we hope you will consider our above request and oblige."
8. By another letter dated 19th April 1988 Nellimarla informed JCI that due to some technical problems with its Bankers it was unable to open the L/C by 26th April 1988 and that as an alternate arrangement Messrs. Kabra & Co. and Messrs. Ghanshyam Jute Traders of 2, India Exchange Place, Calcutta had agreed to open a third party letter of credit on behalf of Nellimarla against the Contract and as such requested JCI to grant permission for opening third party letter of credit. Nellimarla reminded JCI about the request of permission for opening third party letter of credit by its letter dated 25th April 1988. JCI replied to this letter by its letter of 26th April 1988 in which it said :-
"We have clearly explained to your representative on 21.4.88 in clear terms that the Third Party Letter of Credit will be accepted by us and on the other hand your representative told us that the Third Party Letter of Credit will be executed by you and the same will be submitted to us by 25.4.88. After such discussion, we are really astonished to see your such letter under reference and as such it is not clear to us whether you will establish Third Party Letter of Credit against the above contract."
9. On 30th April 1988 Nellimarla caused to be established through Oriental Bank of Commerce, Strand Road Branch, Irrevocable Revolving Letter of Credit No. 1/88 in favour of JCI to the extent of Rs. 25,00,000/- to revolve upto Rs. 115 lakhs at sight drawn in 100% of Invoice covering 33,300 quintals of raw jute. This letter of credit is dated 30th April 1988/ 2nd May 1988.
10. On 2nd May 1988 Nellimarla received a letter from JCI dated 29th April, 1988 allowing extension of time upto 30th April 1988 for making payment arrangement and saying that in case of failure to do so the contract would stand cancelled. The Oriental Bank of Commerce by a letter dated 3rd May 1988 addressed to JCI confirmed the opening of the Letter of Credit on 30th April, 1988.
11. On the next day, viz. 4th May 1988 important events had taken place:-
(a) Nellimarla under cover of its letter dated 4th May 1988 forwards the original Letter of Credit to JCI and the same is received by JCI on that day.
(b) Nellimarla receives the letter dated 3rd May 1988 written by JCI saying :-
"Further to our letter of even number dated 29th April 1988 we would like to inform you that since you have failed to make payment arrangement in respect of the abovementioned contract, our Contract No. JCI530/87-88/4 dated 11th April 1988 for sale of 33,300 quintals of the Raw Jute/Mestas stands cancelled".
12. Nellimarla by its letter dated 5th May 1988 pointed out to JCI that L/C had been opened in time and had been forwarded to JCI on 4th May 1988 and requested JCI to withdraw, the letter dated 3rd May 1988. JCI replied to this on 10th May 1988 saying :
"Letter of Credit No. 1/88 on Oriental Bank of Commerce opened in our favour in respect of the above Sale Contract was received by us on 4.5.88.
We have already pointed out, vide our letter of even number dated 3rd May 1988 that the subject contract No. JCI/530/87-88/4 dated 11th April, 1988 for sale of 33,300 quintals of Raw Jute/Mestas stood cancelled since you failed to make payment arrangement in respect of this contract within due date. We are therefore, returning the subject L/C No. 1/88 which we are unable to accept."
13. After service of letter dated 11th May 1988 through its Advocates demanding justice, Nellimarla moved the writ petition on 20th May 1988, challenging inter alia, the validity of the decisions of JCI in its letters dated 3rd May 1988 and 10th May 1988 and on the said writ petition Ajit Kumar Sengupta J. on 20th May 1988 passed the following orders-
"Let the Affidavit-in-Opposition be filed by 30.5.88, Affidavit-in-Reply by 2.6.88 and the matter stands adjourned till 3.6.88.
The respondents are directed to supply having regard to condition of jute mills at least 10,000 quintals of diverse grade raw jute including mesta in terms of the contract No. JCI/530/87-88/4 dated 11.4.1988. The petitioner undertakes to this court to pay the difference if any, between the rate as on 11.4.88 and the date on which the delivery will be effected. Let the delivery be made within three days from the date of communication of this order.
Let the goods be delivered to the petitioner from the godowns at Andhra Pradesh. If stock is not sufficient or if there be no stock, then from Orissa and if it cannot supplied from Andhra Pradesh and Orissa, then from any other place."
Against the said order dated 20th May 1988 of the learned Single Judge, JCI filed an appeal before the Division Bench of this Court and also filed a stay application therein.
14. On the said appeal and stay application a Division Bench of this Court presided over by M. N. Roy J. passed, inter alia, the following orders on 24th May 1988-
"After hearing the learned Advocates for both the parties in this application for stay, we direct that the order as made by the learned Trial Judge on 20th May, 1988 will continue with the directions that the respondent No. 1 shall deposit in respect of the difference in price as on 20th May, 1988 a sum of Rs. 2,00,000/- with Mr. Malay Chakraborty, a learned Advocate of this Court by day after tomorrow who is hereby appointed "Special Officer" to keep the said amount in a short term deposit with a Nationalised Bank. The Respondent No. 1 is also directed to furnish a Bank Guarantee within one week from date to the extent of Rs. 1,00,000/- in favour of the Jute Corporation of India Ltd. on a Nationalised Bank with disclosure to the appellant and also the learned Advocate appearing for the appellant forthwith."
15. Another order was passed by the said Division Bench of this Court in this said matter on 15th September 1988 which is set out hereunder-
"After hearing the learned Counsel appearing for the parties and considering the facts and circumstances of the case, in particular the irrevocable Letter of Credit No. 1/88 and revolving to the extent of Rs. 25 lakhs and which is to revolve upto 115 lakhs at sight, drawn for 100% of invoice covering 33,300 quintals of raw jute, we are of the view that excepting the directions given hereunder, there does not exist any grounds for altering, modifying and reviewing the earlier order passed by this Court on May 24, 1988. By reason of the efflux of time as effectively placed by learned Counsel appearing for the respondents, certain directions are meritted to be passed. The said order is set out hereinbelow :-
"The respondent No. 1 is directed to secure the compliance of the order passed by this Court on May 24, 1988. The payment as directed in our order dated May 24, 1988 is hereby required to be made through the Bank Draft, within a period of 10 days from the date. The appellant without any default and/or deviation whatsoever shall commence, continue and conclude the delivery schedules of raw jutes or mesta, within a period of 10 days from the date of their receipt of the Bank Draft, from the Calcutta Godown. The appellant shall see that the raw jutes or mesta are delivered within the aforesaid period be recorded and no further extension of time will be accorded to the Respondent No. 1 nor the appellant would be permitted to depart and deviate from the delivery schedule as indicated in this order. These directions are passed on the admissions of the learned Counsel appearing for the parties.
We once again make it clear that the original price as per the contract, shall be paid in terms of the order passed by us on May 24, 1988. Since the Respondent No. 1 duly acted in terms of our directions passed on May 24, 1988 no further amount on account of the differential sum is required to be paid. It is also directed that the renewal of the Bank Guarantee shall be done before delivery schedule commences and the same shall be kept alive or renewed till the disposal of the writ application.
The Respondent concerned is further directed to effect the renewal of Bank Guarantee for Rs. 1,00,000/- strictly in accordance with law. Failure of the Respondent No. 1 to renew the Bank Guarantee, would entitle the appellant, to take such steps as are permissible under law."
16. Thereafter, contempt proceedings were initiated by Nellimarla by filing a Contempt Application and alleging non-compliance of the orders passed by this Court on the part of JCI and its Officers. On the said Contempt Application, the Division Bench of this Court passed the following order on 12th May, 1989 -
"Matter is adjourned till Monday next the 15th day of May 1989 at 3.45 p.m. In the meantime Mr. Pal's clients are directed to file ah Affidavit giving an undertaking that the jute which will be supplied to them will 'be used by them. They are further required to give an undertaking to file report as to the manner in which the jute so supplied will be used. The Jute Corporation Authorities will have liberty to inspect and get the use of the jute verified. This Court was informed that a sum of Rs. 2 lakhs is lying with the Special Officer and another sum of Rs. 1 lac is secured by way of Bank Guarantee. This Court direct that in addition to these amounts the writ petitioners will have to give an undertaking that in case the proceeding in the Court fail and the other side succeed, they will have further to reimburse to the tune of Rs. 7 lakhs to the Jute Corporation."
17. Another order was passed by the Division Bench in the said contempt proceedings on 15th May 1989 which is set out hereinbelow :-
"On 12th May 1989, after hearing the learned Advocate, we had directed an undertaking to be filed on or by today by the petitioners that in case the jute as asked for is supplied to them, they will use the jute at their Jute Mill and will file a report showing the manner in which the said quantity of jute, as supplied, has been used. Apart from the above, it was also directed that on such report being filed, the Jute Corporation of India Ltd., or their authorities will be at liberty to inspect and verify the manner of use of the raw jute including Mesta. We further directed that in addition to the security of Rs. 2 lacs in cash and Rs. 1 lac in Bank Guarantee which is available, the Petitioner Company must also give an undertaking that in case they fail and their adversaries succeed, they will further reimburse the Jute Corporation of India Ltd, to the extent of Rs. 7 lacs.
Sri Gopal Prasad Choudhary, the Secretary of M/s. Nellimarla Jute Mills Co. Ltd. has filed an undertaking through his affidavit dated 15th May, 1989 to the above effect and in terms of our earlier order.
The pay order drawn in favour of M/s. Jute Corporation of India Ltd. for the concerned amount was shown to us by Mr. S. Pal and we direct the said Pay Order to be deposited by Mr. Pal's client in the Receiving Section of the Jute Corporation of India Ltd. by 11 A.M. tomorrow."
18. JCI filed a Special Leave Petition before the Hon'ble Supreme Court against the order dated May 15, 1989 passed by the Division Bench of this Court as mentioned above. The Supreme Court on May 18, 1989 directed for issuing notice and granted stay of operation of the said order dated May 15, 1989 pending the notice. The said order dated May 15, 1989 was modified by the Supreme Court on July 3, 1989 as under :-
"After hearing counsel on both the sides, I modify the stay order granted by this Court on May 18, 1989' on the following terms :
(i) The respondent shall give pay order as per contract rate for the quantity directed to be supplied as per the order of the High Court within three days from today.
(ii) The respondent shall also cause to furnish bank guarantee for the difference in price between the market price as on today and the contract price, within seven days from today.
(iii) The Jute Corporation shall supply the quantity as directed by the High Court immediately on the receipt of the bank guarantee.
(iv) The other conditions in the order of the High Court shall remain undisturbed. It is also directed that the respondent shall not sell the jute in question in the open market and it should be used only in his Mill.
The Civil Misc. Petition is disposed of accordingly."
19. The said Special Leave Petition was finally disposed of by the Supreme Court by its order dated July 18, 1989 which was as under -
"We are of the opinion that the writ petition pending in the High Court should be disposed of as early as possible. We are informed that the matter was heard in part by a learned Single Judge of the High Court. We are further informed that the said learned Single Judge is not regularly available for disposal of the matter, as he is sitting in a Division Bench. If that is so, the matter may be mentioned to the learned Judge, if he cannot give any time the learned Judge might consider releasing the matter from his list and the matter may be mentioned before the learned Chief Justice of the High Court, so that the matter placed before any other Judge as; he may think fit and proper and direct, and should be heard by the learned Judge within a period of eight weeks from this date.
The order passed by this Court will continue until the disposal of the writ petition by the High Court. In the meantime, further or other order passed herein will abide by the result of the writ petition.
The Special Leave petition is disposed of accordingly."
20. After the said order dated July 18, 1989, contempt proceedings were initiated before the Supreme Court by JCI whereupon on September 19, 1989 the Supreme Court passed the following orders -
"This matter is adjourned to September 26, 1989. Counter affidavit will be filed by September 22, 1989. Rejoinder affidavit will be filed by September 23, 1989. In the meantime, we find that under the order of this Court by learned Vacation Judge dated July 3, 1989 it was stipulated that the respondent will not sell the jute in question in the open market and should be used only in the Mills. There is no dispute that the Mill is under Lockout at the present moment. In that view of the matter, there is no scope for using in the Mill until next date of hearing of this matter. Until further directions, delivery of further jute need not be made."
21. In the said contempt proceedings, another order was passed by the Supreme Court on October 19, 1989 as under -
"After hearing both the parties and considering the facts and circumstances of the case, we make the following order :-
(1) Learned Counsel for both the parties agree that Mr. Ranjit Kumar Mitra, an Advocate of Calcutta High Court, be appointed "as Commissioner", to inspect and to ascertain the quantities and grade of Jute/Mesta, which was delivered by the Jute Corporation of India, the petition in the instant contempt application, to the respondent. According to the averments made in paragraph 4 of the Counter Affidavit filed by one G. P. Choudhary, the Company Secretary of the Respondent Company, the raw jute as delivered to the respondent Company by the petitioner are started in the godown spaces hired by it at Agarpara, Cossipore, Cossimbazar, Islampur and Kishanganj. If any part of the Jute/Mesta delivered by the petitioner has been stored in any other godown besides the godowns mentioned in para 4 of the said affidavit, the counsel for the respondent shall ask his client to deliver the same to the Commissioner. The Commissioner will inspect the said Jute/Mesta stored in the said godowns.
(2) We think that it would be convenient for the Commissioner to take one expert in this matter with him at the time of holding inspection and ascertainment of the actual quantity and grade of Jute/Mesta in the said godowns.
(3) The Commissioner will serve notice both on the petitioner as well as on the respondent, fixing the date of such inspection and both the petitioner as well as the respondent will be entitled to depute their representatives on the date of inspection of Jute/Mesta stored in the godowns.
(4) The parties are directed to pay a sum of Rs. 10,000/- which will be contributed by both the parties in equal halfs. The Commissioner shall decide about the remuneration to be paid to the expert and intimate the same to the learned Advocates for both the parties, who will pay the same in proportion of half and half.
(5) The Commissioner will hold the inspection and complete the same as early as possible, preferably within a period of four weeks and will submit the report immediately after his work is complete, to this Court.
The matter shall come up for hearing two weeks after the receipt of the report of the Commissioner. The expenses, as directed above, will be subject to further orders of this Court. We make it clear that the proceedings pending before this High Court shall continue. Let a copy of this order be sent to the said Commissioner immediately."
22. In the meantime, the writ petition was already heard and was finally disposed of by Ajit Kumar Sengupta, J. by the judgment and order dated September 25, 1989 as mentioned above. Thereafter, the said contempt proceedings were also disposed of by the Supreme Court on April 16, 1990. In the said order, the Supreme Court expressed the hope that the appeal pending before the High Court will be heard and disposed of as expeditiously as possible. The parties were given liberty to make applications for interim relief before the High Court, if so advised.
23. In the appeal filed by JCI against the Judgment and order dated September 25, 1989, it also made Stay Application whereupon a Division Bench of this; Court on October 17, 1989 passed the following orders :-
"Leave is granted to the appellant to file supplementary affidavit. Affidavit-in-opposition to be filed by November 15, 1989, dealing with both the petition and the supplementary affidavit. Affidavit-in-reply be filed by 30th November, 1989.
There will be an ad interim stay of the order under appeal in the meantime on condition that the appellant will keep the sum of Rs. 10,25,250/- in a Fixed Deposit with a nationalised bank for a period of 91 days renewable on maturity and deposit such fixed deposit receipt with the Registrar, Original Side, of this Court by 2nd November, 1989.
The matter will appear on 1.12.1989 before the appropriate bench."
24. Another order was passed in the said application by the Division Bench on June 20, 1990, as under-
"Interim relief staying the order under appeal on the condition that the sum of Rs. 10,25,250/- placed in fixed deposit for a period of 91 days pursuant to the order passed by the Vacation Bench on October 17, 1989 will be renewed for a further period of six months and in case the appeal is not heard on the expiry of such period, the said fixed deposit shall be renewed for a further period of six months and so on and so forth.
The application is disposed of in terms of the foregoing order."
25. Therefore, now the position before us, as it stands presently during the final hearing of this appeal, is as under :-
(a) Out of the contracted quantity of 33,300 qtls. of raw jute, JCI has delivered to Nellimarla a total quantity of 6,960.35 qtls.
(b) Nellimarla has paid to JCI the agreed price as per the contract for a quantity of 10,000 qtls. The excess amount paid by Nellimarla comes to Rs. 10,25,250/- which has been kept by JCI in a Fixed Deposit Account, in terms of the orders passed by a Division Bench of this Court.
(c) In terms of the order passed by the Supreme Court on 3.7.90. Nellimarla has also furnished a bank guarantee for a sum of Rs. 21,50,207.60 in favour of JCI.
(d) Another sum of Rs. 2,00,000/- was deposited by Nellimarla with the Special Officer in terms of the order dated 24/5/88 of a Division Bench of this Court and the said amount was also kept by the Special Officer in a Fixed Deposit Account and is still lying there.
The matter was heard for a number of days and thereafter directions were given for filing written notes of submission by both the sides.
26. Mr. Bhaskar Gupta, Senior Advocate appeared on behalf of JCI and Mr. S. Pal, Advocate appeared on behalf of Nellimarla.
The main submissions of JCI are the following-
(a) The disputes raised in the writ petition filed by Nellimarla were in the domain of a concluded contract and it was not open to it to invite the Writ Court to adjudicate upon such disputes. In the Writ Petition, Nellimarla was seeking specific performance of a contract which is not permissible.
(b) The Contract between the parties contained an arbitration clause and thus it was not open to Nellimarla to approach the Writ Court to interfere with the disputes arising out of or in connection with the said contract.
(c) JCI never gave permission to open a revolving letter of credit and the last date for making payment was extended till 30.4.88. Nellimarla failed to make payment arrangement within the stipulated time and JCI was justified in cancelling the contract.
(d) Time for making payment arrangement was the essence of the contract which became voidable at the option of JCI as soon as Nellimarla failed to make payment arrangement within the stipulated time.
27. On the other hand the main submission of Nellimarla are the following :-
(a) There was no failure on the part of Nellrmarla in making payment arrangement. The initial date for this purpose, that is, 26/4/88 was extended by JCI on 29/4/88 till 30/4/88. JCI's letter dated 29/4/88 was received by Nellimarla on 2/5/88 and before this date the letter of credit had already been opened on 30/4/88.
(b) Nellimarla was continuously requesting JCI to give permission for opening third party Letter of Credit. The letter dated 26/4/88 granting this permission was received by Nellimarla on 28/4/88 and immediately thereafter Nellimarla took necessary steps for opening the third party Letter of Credit which was opened on 30/4/88. Till the date of opening the said Letter of Credit there was no intimation from JCI about any new extended last date for making payment arrangement. In so far as the earlier stipulated date of April 26, 1988 is concerned, when the permission itself was granted on April 26, 1988 for opening the third party Letter of Credit, obviously there could be no question of the said date, that is, April 26, 1988 still remaining the stipulated date.
(c) When, in principle, a decision had already been taken to extend the last date for opening the Letter of Credit and when the Letter of Credit could not be opened earlier due to inaction on the part of JCI, in granting permission to open third party Letter of Credit, it was simply absurd to pass orders on April 29, 1988 extending the date for opening Letter of Credit till April 30, 1988. It is simply not possible to open and forward the Letter of Credit, within a period of 'one day'. Knowing these facts fully well JCI sought to fix the last date as April 30, 1988 and furthermore even this fact about the last date being April 30, 1988 came to the notice of Nellimarla on May 2, 1988, that is, after expiry of April 30, 1988.
(d) Thus, according to Respondent/Writ petitioner on the one hand JCI kept pending Nellimarla's request for permission to open third party Letter of Credit for a considerable time and thereby prevented it from opening the Letter of Credit till last date, and on the other hand, after granting the said permission, extended the last date in such a manner that it would be simply impossible to comply with the same.
(e) According to the writ petitioner there was nothing wrong about opening the revolving irrevocable Letter of Credit.
Firstly, this was not a ground taken by JCI for cancelling the contract. The contract was cancelled by JCI on May 3, 1988 whereas the said Letter of Credit was filed with JCI on May 4, 1988. Thus, obviously, the contract could not be cancelled due to the irrevocable Letter of Credit furnished by Nellimarla being on revolving basis. Even, otherwise the said Letter of Credit was an irrevocable one, revolving up to Rs. 1.15 croresi sight drawn for 100% of the invoice price covering the ordered quantity 33,300 qtls. of raw jute. The said Letter of Credit had a coverage upto the sum of Rs. 115 lacs on revolving basis. As per the terms of the irrevocable Letter of Credit, on drawing bills to the extent of Rs. 25 lakhs, the said Letter of Credit was to automatically revolve for another sum of Rs. 25 lacs and in this way it was to revolve upto Rs. 115 lakhs.
Furthermore, as per the terms of the contract the Letter of Credit was to contain, a clause permitting part shipment by JCI.
In such circumstances, in any event, there was nothing wrong in opening the said irrevocable revolving Letter of Credit.
(f) Time was not an essence of the contract in the facts and circumstances of the instance case. In any event, payment arrangement was made by Nellimarla by opening the said Letter of Credit on 30/4/88 even before receiving the extension letter on 2/5/88.
(g) JCI performs important functions of public or governmental nature and the government exercises full control on its management and policies. JCI has completely ignored all principles of fairness, reasonableness and fairplay and was guided by extraneous and irrelevant considerations. In the circumstances, the writ petition was maintainable.
28. Both the sides have filed their respective notes of submissions in which a number of decisions have been relied by them.
29. We propose to take up the first the issue, as regards the maintainability of the writ petition. Various decisions have been cited on the said issue by both the sides. Most of the said decisions have been referred to in details in the judgment of the learned Single Judge.
30. In a recent decision, in the case of Anodi Mukta SMV SSJMS Trust v. R. Rudani , the Supreme Court held inter alia as under:-
"There, however, the prerogative writ of mandamus is confined only to public authorities to compel performance of public duty. The "Public Authority" for them means every body which is created by statute -and whose powers duties are defined by Status.
31. In the said case, it was further observed by the Supreme Court, as follows :-
"The Appellant-trust was managing the affiliated College to which public money is paid as government aid. Public money paid as government aids plays a major role in the control, maintenance and working of educational institutions. The aided institutions like government institutions discharge public function by way of imparting education to students. They are subject to the rules and regulations of the affiliated University. Their activities are closely supervised by the University authorities. Employment in such institutions, therefore, is not devoid of any public character. So are the service conditions of the academic staff. The service conditions of the academic staff are, therefore, not purely of a private character. It has super added protection by University decisions creating a legal right duty relationship between the staff and the management. When there is existence of this relationship, mandamus cannot be refused to the aggrieved party. In absence of any plea for specific performance of contractual service or declaration for continuance in service, the writ petition was maintainable."
32. In another recent decision, in the case of Lamba Industries v. Union of India , the Supreme Court held as under :-
"This appeal by certificate from the Punjab and Haryana High Court apparently raises three questions of law stated to be of substantial and general importance. The first one is whether the State Trading Corporation is an authority within the meaning of Article 12 of the Constitution and as such amenable to writ jurisdiction under Article 226 of the Constitution. This question does not arise any more in view of the settled position of the expended meaning given to the word 'authority'. The second question whether relief can be obtained by a party in writ jurisdiction, even if it arises out of breach of contract of obligations, also does survive for obvious reasons that the jurisdiction of the High Court is wide and it knows where to grant relief and deny where."
33. In another decision, in the case of Manindra Nath Upadhyaya v. State of Uttar Pradesh :-
"The Writ petition was filed by the petitioner praying for a mandamus commanding the authorities to accept his highest bid and to award the contract to him. The High Court referred to the manner in which the authorities dealt with the petitioner and came to the conclusion that the authorities had not dealt with the petitioner in a proper manner and that the preferment of another person's bid in place of the petitioners bid was also not justified. The High Court accordingly issued a writ in the nature of Mandamus commanding the authorities to accept the bid of the petitioner and to award the contract to him. The Supreme Court up-held the order of the High Court except to the extent of modifying it with directions to the authorities to determine whether highest bid was adequate and whether other conditions were complied with."
34. In the case of Dwarka Das Marfatia & Sons v. Bombay Port Trust, , in dealing with contractual obligation vis-a-vis judicial review, Supreme Court observed as follows :-
"We are unable to accept the submissions. Being a public body even in respect of its dealing with its tenant it must act" in public interest and an infraction of that duty is amenable to examination either in civil suit or in writ jurisdiction.
Our attention was drawn to the observations of this Court in Radhakrishna Agarwal v. State of Bihar. Reliance was also placed on the observations of this Court in Life Insurance Corporation of India v. Escorts Ltd. In support of the contention that the public corporations dealing with tenants is a contractual dealing and it is not a matter for public law domain and is not subject to judicial review. However, it is not the correct position. The Escorts decision reiterated that every action of the State or as instrumentality of the State, must be informed by reason. Indubitably, the respondent is an organ of the State under Article 12 of the Constitution. In appropriate cases, as was observed in the last mentioned decision, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 of Article 32 of the Constitution. But it has to be remembered that Article 14 cannot be construed as a character for judicial review of State action, to call upon the State of account for its actions in its manifold activities by stating reasons for such actions."
Where there is arbitrariness in State action, Article 14 springs in and judicial review strikes such an actions down. Every action of the executive authority must be subject to rule of law and must be informed by reason. So whatever-be the activity of the public authority, it should meet the test of Article 14. The observations in paras 101 and 102 of the Escorts case read properly do not detract from the aforesaid principles.
If a governmental policy or action even in contractual matters fails to satisfy the test of reasonableness, it would be unconstitutional."
35. The Supreme Court in Central Inland Water Transport Corporation Limited v. Broja Nath, , inter alia, held as follows :-
"If there is an instrumentality or agency of the State which was assumed the garb of a Government Company, it does not follow that it thereby ceases to be an instrumentality of the State. It was held that for the purposes of Article 12 one must necessarily see through the corporate veil to ascertain whether behind the veil is the face of an instrumentality or agency of the State. It was held that if the government company in question is carrying out a governmental activity or governmental functions, or if the activities of the company are of importance to public interest, it would be covered by the expression "State" within the meaning of Article 12 of the Constitution of India".
36. In the case of R. D. Shetty v. International Airports Authority of India , the Supreme Court held :-
".... Many individuals and many more businesses enjoy largesse in the form of Government contracts. These contracts often resemble subsidies. It is virtually impossible to lose money on them and many enterprises are set up primarily to do business with Government. Government own and controls hundreds of acres of public land valuable for mining and other purposes. These resources are available for utilisation by private corporations and individuals by Corporation can be charged with breach of contract for which the remedy is by way of damage or any other remedy available to the respondent for breach of contract, but in any case, a writ of mandamus cannot be issued compelling the Corporation to perform its part of the contract. There is no merit in either of the contentions."
"It was next contended that the dispute between the parties is in the realm of contract and even if there was a concluded contract between the parties about grant and acceptance of loan, the failure of the Corporation to carry out its part, of the obligation may amount to breach of contract for which a remedy lies elsewhere but a writ of mandamus cannot be issued compelling the Corporation to specifically perform the contract, it is too late in the day to contend that the instrumentality of the State which would be 'other authority' under Article 12 of the Constitution can commit breach of a solemn undertaking on which other side has acted and then contend that the party suffering by the breach of contract may sue for damages but cannot compel specific performance of the contract ....".
37. In the case of Kasturilal Lakshmi Reddy v. State of Jamrnu and Kashmir and Anr., , in paragraph 10 of the said judgment, the Supreme Court observed, as follows :-
"It was pointed out by this Court in Ramana Dayaram Shetty v. International Airport Authority of India that with the growth of the welfare state, new forms of property in the shape of government largess are developing, since the government is increasingly assuming the role of regulator, and dispenser of social services and provider of a large number of benefits including jobs, contracts, licences, quotas, minerals rights etc. There is increasing expansion of magnitude and range of governmental functions, as we move closer to the welfare State and the result is that more and more of our wealth consists of these new forms of property. Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in the nature of privileges. The law has however not been slow to recognise the importance of this new kind of wealth and the need to protect individual interest in it and with that end in view, it has developed new forms of protection. Some interests in government largess, formerly regarded as privileges have been recognised as rights, while others have been given legal protection not only by forging procedural safeguards but also by confining, structuring and checking government discretion in the matter of grant of such largess. The discretion of the government has been failed to be not unlimited in that the government cannot give largess in its arbitrary discretion or at its sweet will or on such terms as it chooses in its absolute discretion. There are two limitations imposed by law which structure and control the discretion of the government in this behalf. The first is in regard to the terms on which largess may be granted and the other, in regard to the persons who may be recipients of such largess".
38. In Paragraph 15 of the said judgment it has been further observed by the Supreme Court as follows :-
"The second limitation on the discretion of the government in grant of largess is in regard to the persons to whom such largess may be granted. It is now well settled as a result of the decision of this Court in Ramana D. Shetty v. International Airport Authority of India, that the government is not free like an ordinary individual, in selecting the recipients for its largess and it cannot choose to deal with any person it pleases in its absolute and unfettered discretion. The law is now well established that the government need not deal with any one, but if it does so, it must do so fairly without discrimination and without unfair procedure. Where the government is dealing with the public whether by way of giving jobs or entering into contracts or granting other forms of largess, the government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with some standard or norm which is not arbitrary, irretional or irrelevant. The governmental action must not be arbitrary or capricious, but must be based on some principle which meets the test of reason and relevance. This rule was enunciated by the court as a rule of administrative law and it was also validated by the Court as an emanation flowing directly from the doctrine of equality embodied in Article 14. The Court referred to the activist magnitude of Article 14 as evolved in E. P. Royappa v. State of Tamil Nadu and Maneka Gandhi case and observed that it must follow as a necessary corollary from the principle of equality enshrined in Article 14 that though the State is entitled to refuse to enter into relaitonship with anyone, yet if it does so, it cannot arbitrarily choose any person it likes for entering into such relationship and discriminate between persons similarly circumstanced, but it must act in conformity with some standard or principle which meets the test of reasonableness and non-discrimination and any departure from such standard or principle would be invalid unless it can be supported or justified on some rational and non-discriminatory ground."
"This decision has reaffirmed the principles of reasonableness and non- arbitrariness in governmental action which lies at the core of our entire constitutional scheme and structure."
39. In our view, because of the aforesaid observations of the Supreme Court every action taken by the government must be 'in public interest' and the government cannot act arbitrarily and without reasons and if it does, its action would be liable to be invalidated. If the government awards a contract or lease out or otherwise deals with its property or grants any other largesse, it would be liable to be tested for its validity on the touch-stone of reasonableness and public interest and if it fails to satisfy either test, it would be unconstitutional and invalid.
40. Now what is the test of reasonableness which has to be applied in order to determine the validity of governmental action. It is undoubtedly true, as pointed out by Patanjali Sastri, J. in State of Madras v. V. G. Row, reported in 1952 SCR 597 that in forming his own conception of what is reasonable, in all the circumstances of a given case, it is inevitable that the social philosophy and the scale of values of the judge participating in the decision, would play an important part, but even so, the test of reasonableness is not a wholly subjective test and its contours are fairly indicated by the Constitutions. The concept of reasonableness in fact pervades the entire constitutional scheme. The interaction of Articles 14, 19 and 21 analysed by this Court in Maneka Gandhi v. Union of India, clearly demonstrates that the requirement of reasonableness runs like a golden thread through the entire fabric of Fundamental Rights, and, as several decisions of this Court show, this concept of reasonableness finds its positive manifestation and expression in the lofty ideal of social and economic justice which inspires and animates the directive principles. It has been laid down by this Court in E. P. Royappa v. State of Tamil Nadu and Maneka Gandhi case that Article 14 strikes at arbitrariness in State action and since the principles of reasonableness and rationality, which is legally as well as philosophically an essential element of equality or non-arbitrariness, is projected by this Article, it must characterise every governmental action, whether it be under the authority of law or in exercise of executive power without making of law. So also the concept of reasonableness runs through the totality of Article 19 and requires that restrictions on the freedoms of the citizen, in order to be permissible, must at the best be reasonable. Similarly Article 21 in the full plenitude of its activist magnitude as discovered by Maneka Gandhi case, insists that no one shall be deprived of his life or personal liberty except in accordance with procedure established by law and such procedure must be reasonable, fair and just. The directive principles concretise and give shape to the concept of reasonableness envisaged in Articles 14, 19 and 21 and other Articles enumerating the fundamental rights. By defining the national aims and the constitutional goals, they setforth the standards or norms of reasonableness which must guide the animate governmental action. Any action taken by the government with a view to giving effect to any one or more of the directive principles would ordinarily, subject to any constitutional or legal inhibitions or other overriding considerations, qualify for being regarded as reasonable, while an action which is inconsistent with or runs counter to a directive principle would prima facie incur the reproach of being unreasonable.
41. So also the concept of public interest must as far as possible receive its orientation from the directive principles. What according to the founding fathers constitutes the plainest requirement of public interest is setout in the Directive Principles and they embody per excellence the constitutional concept of public interest. If, therefore, any governmental action is calculated to implement or give effect to a directive principle, it would ordinarily, subject to any other overriding considerations, be informed with public interest.
42. Where any governmental action fails to satisfy the test of reasonableness and public interest discussed above and is found to be wanting in the quality of reasonableness or lacking in the element of public interest, it would be liable to be struck down as invalid. It must follow as a necessary corollary form this proposition that the government cannot act in a manner which would benefit a private party at the cost of the State, such an action would be both unreasonable and contrary to public interest. The government, therefore, cannot, for example, give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest to do so. Such considerations may be that some directive principle is sought to be advanced or implemented or that the contract or the property is given not with a view to earning revenue but for the purpose of carrying out a welfare scheme for the benefit of a particular group or section of people deserving it or that the person who has offered a higher consideration is not otherwise fit to be given the contract or the property. We have referred to these consideration only illustratively, for there may be an infinite variety of considerations which may have to be taken into account by the government in formulating its policies and it is on a total evaluation of various considerations which have weighed with the government in taking a particular action, that the court would have to decide whether the action of the government is reasonable and in public interest. But one basic principle which must guide the court in arriving at its determination on this question is that there is always a presumption that the governmental action is reasonable and in public interest and it is for the party challenging its validity to show that it is wanting in reasonableness or is not informed with public interest. This burden is a heavy one and it has to be discharged to the satisfaction of the court by proper and adequate material. The court cannot lightly assume that the action taken by the government is unreasonable or without public interest because, as we said above, there are a large number of policy considerations which must necessarily weigh with the government in taking action and therefore the court would not strike down governmental action as invalid on this ground, unless it is clearly satisfied that the action is unreasonable or not in public interest. But where it is so satisfied, it would be the plainest duty of the court under the Constitution to invalidate the governmental action. This is one of the most important functions of the court and also one of the most essential for preservation of the rule of law. It is imperative in a democracy governed by the rule of law that governmental action must be kept within the limits of the law and if there is any transgression, the court must be ready to condemn it. It is a matter of historical experience that there is a tendency in every government to assume more and more powers and since it is not an uncommon phenomenon in some countries that the legislative check is getting diluted, it is left to the court as the only other reviewing authority under the Constitution to be increasingly vigilant to ensure observance with the rule of law and in this task, the court must not flinch or falter. It may be pointed out that this ground or invalidity, namely, that the governmental action is unreasonable or lacking in the quality of public interest, is different from that of malafides though it may, in a given case, furnish evidence of malafides.
43. The second limitation on the discretion of the government in grant of largesse is in regard to the persons to whom such largesse may be granted. It is now well settled as a result of the decision of this Court in Ramana D. Shetty v. International Airport Authority of India, (supra) that the government is not free like an ordinary individual, in selecting the receipients for its largess and it cannot choose to deal with any person it pleases, in its absolute and unfettered discretion. The law is now well established that the government need not deal with any one, but if it does so, it must do so fairly without discrimination and without unfair procedure. Whether the government is dealing with the public whether by way of giving jobs or entering into contracts or granting other forms of largesse, the government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with some standard or norm which is not arbitrary, irrational or irrelevant. The governmental action must not be arbitrary or capricious, but must be based on some principle which meets the test of reason and relevance. This rule was enunciated by the Court as a rule of administrative law and it was also validated by the court as a rule of administrative law and it was also validated by the court as an emanation flowing directly from the doctrine of equality embodied in Article 14. The court referred to the activist magnitude of Article 14 as evolved in E. P. Royappa v. State of Tamil Nadu (supra) and Maneka Gandhi case (supra) and observed that it must follow as a necessary corollary from the principle of equality enshrined in Article 14 that though the State is entitled to refuse to enter into relationship with any one, yet if it does so, it cannot arbitrarily choose any person it likes for entering into such relationship and discriminate between persons similarly circumstanced, but it must act in conformity with some standard or principle which meets that test of reasonableness and non-discrimination and any departure from such standard or principle would be invalid unless it can be supported or justified on some rational and non-discriminatory ground.
44. This decision has reaffirmed the principle of reasonableness and non-arbitrariness in governmental action which lies at the core of our entire constitutional scheme and structure. It is in the light of these two limitations on the discretion of the government in the matter of grant of largess that we must proceed to examine the grounds of attack urged on behalf of the petitioners.
45. In Express Newspapers Pvt. Ltd. v. Union of India the Supreme Court was called upon to consider the Constitutional validity of a notice of re-entry upon forfeiture of lease issued on behalf of the Government in an application under Article 32 of the Constitution. One of the principal contentions, raised on behalf of the Government in that: case was that the application under Article 32 was not maintainable. The Supreme Court recorded submissions made on behalf of the Government in this context as follows :-
"... .Once a contract is entered into or a grant is made the rights and obligations of the parties are not governed by Part III of the Constitution, but by the terms of the document embodying the contract for the grant and any complaint about the breach of the same cannot be even a matter for the application for the grant of a writ, direction or order under Article 226 of the Constitution much less under Article 32,"
46. Dealing with this contention, Mr. Justice A. P. Sen delivering the principal judgment said :-
"I regret my inability to accept the contention to the contrary advanced by learned Counsel appearing for respondent No. 1 indicated above that the petitioners are seeking to enforce a contractual rights and therefore the questions raised cannot be decided on a petition under Article 32 of the Constitution. It is urged that the content of the fundamental rights guaranteed in Part III of the Constitution demarcate the area within which the jurisdiction of the Court under Article 32 can operate and that it is not permissible for the court to enlarge upon its jurisdiction by a process of judicial interpretation. Placing reliance on certain observations of Ayyengar, J. in All India Bank Employees' Association v. National Industrial Tribunal and of Chandrachud and Bhagwati, JJ. in Maneka Gandhi v. Union of India it is urged that the content of Article 19(1)(a) of the Constitution would not include the right which is guaranteed by other clauses of Article 19. According to the learned counsel, it must therefore logically follow that what facilitated the exercise of a fundamental right did not for that reason become a part of the fundamental right itself. He read out different passages from the judgments of Bhagwati, J. in E.P. Royappa v. State of Tamil Nadu, , Maneka Gandhi v. Union of India (supra) and Ramana Dayaram Shetty v. International Airport Authority of India Ltd. and endeavoured to show to use his own language, that "in spite of some literal flourish in the language here and there, they did not and could not depart from the ambit of Article 14 which deals with the principle of equality embodied in. the Article." He was particularly critical of the dictum of Bhagwati, J in International Airport Authority's case that "arbitrariness was the antitheses of Article 14" and commented that this would mean that all Governmental Actions which are not supportable by law were per se violative of Article 14. I am, afraid, it is rather late in the day to question the correctness or the landmark decision in Maneka Gandhi's case and the innovative construction placed by Bhagwati J. on Article 14 in the three cases of Royappa, Maneka Gandhi and International Airport Authority (supra) which have evolved new dimensions in juridicial processes."
.... .... ....
"Even in case involving purely contractual issues the settled law is that where statutory provisions of public law are involved, writs will issue : Md. Hanif v. State of Assam, ."
47. In Gujarat State Financial Corporation v. Lotus Hotel Pvt. Ltd. , the Supreme Court held as under :-
Viewing the matter from a slightly different angle altogether, it would appear that the appellant is acting in a very unreasonable manner. It is not in dispute that the appellant is an instrumentality of the Government and would be 'other authority' under Article 12 of the Constitution. If it be so, as held by this Court in R. D. Shetty v. International Airports Authority of India , the rule inhibiting arbitrary action by the Government would equally apply where such corporation dealing with the public whether by way of giving jobs or entering into contracts or otherwise and it cannot act arbitrarily and its action must be in conformity with some principle which meets the test of reason and relevance.
Now if appellant entered into a solemn contract in discharge and performance of its statutory duty and the respondent acted upon it, the statutory corporation cannot be allowed to act arbitrarily so as to cause harm and injury, flowing from its unreasonable conduct, to the respondent. In such a situation, the Court is not powerless from holding the appellant to its promise and it can be enforced by a writ of mandamus directing it to perform its statutory duty. A petition under Article 226 of the Constitution would certainly lie to direct performance of a statutory duty by 'other authority' as envisaged by Article 12.
The High Court accordingly was fully justified in issuing a writ of Mandamus to disburse the loan and therefore the appeal fails.
48. In the State of Karnataka v. Rameshwar Rice Mills (AIR 1987 SC 1359)-
The Supreme Court dealt with four appeals which raised common questions of law. Two of these appeals arose from proceedings initiated by way of civil suits whereas the remaining two arose out of writ petition filed under Article 226 of the Constitution of the Karnataka High Court. The common question which arose was as to whether the Government had right to assess the damages in terms of a clause in the contract empowering it to do so upon the breach of the contract committed by the private party. The Supreme Court dismissed the appeals preferred by the State of Karnataka holding inter alia as under :-
"The other two appeals relate to two contractors who had entered into agreements with the State of Mysore for constructing certain buildings. As the contractors failed to complete the works their contracts. were terminated and in terms of the agreements entered into by them the damages payable by them for breach of contract were assessed and the damages were sought to be recovered as arrears of land revenue. Both the contractors filed writ petitions under Article 226 of the Constitution and challenged the validity of the assessment of the damages and the recovery proceedings. Following the ruling of the Full Bench referred to above the High Court allowed both the writ petitions and quashed the proceedings for recovery of damages. Against the judgment of the High Court the State has preferred the other two appeals."
49. The Supreme Court did not say that the writ petitions were not maintainable because they related to disputes arising in the contractual field.
50. In D.F.O. South Kheri v. Ram Sanehi , the facts are as follows :-
The writ petitioner purchased the right to cut timber for a particular period from forest lots at an auction held by the Forest Officer. The Forest Officer cancelled a particular tally. The result of the cancellations was that the timber which had already been removed by the writ petitioner with the sanction of the Forest Authorities under the cancelled tally was to be treated as if it was removed in a subsequent period. This involved the writ petitioner in considerable loss. The Allahabad High Court allowed the writ petition. Before the Supreme Court the Forest Authorities contended that since the dispute arose out of the terms of a contract the remedy of the writ petitioner was to institute an action in the Civil Court and that the writ petition was not maintainable. Repelling this contention the Supreme Court said :-
"We are unable to hold that merely because the source of the right which the respondent claims was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of public authority he must resort to a suit and not to a petition by way of a writ. In view of the judgment of this Court in K. N. Gumswamy's case there can be no doubt that the petition was maintainable, even if the right to relief arose out of an alleged breach of contract, where the action challenged was of a public authority invested with satutory power."
51. JCI contends that the contract with Nellimarla was a non-statutory contract and the dispute was purely contractual and Nellimarla has only complained about breach of the terms of the contract and that no writ petition is maintainable in such a case. For this proposition, JCI has relied on a decision of this court in Marine Engineers and Ors. v. Siddeswar Haider and Ors. (1991(1) CLJ 467) and the following decisions :-
(i) - Radha krishna Agarwal and Ors. v. State of Bihar, (ii) Premji Bhai Paimar and Ors. v. Delhi Development Authority and Ors. (iii) The Divisional Forest Officer v. Bishwanath Tea Co. Ltd, (iv) State of U. P. and Ors. v. Maharaja Dharmander Prasad Singh ; (v) AIR 1989 SC 1016-Bareilly Development Authority and Anr. v. Ajay Pal Singh and Ors. (vi) . v. Escorts Ltd. (vii) Indian OB Corporation Ltd- v. Amritsar Gas Service and Ors. (viii) G. B. Mahajan v. Jalgaon Municipal Council.
52. In Marine Engineer's case (supra), a Division Bench of htis Court inter alia held that when the ground for cancellation of the agreement is not referable to any of the terms of the agreement and the action impugned is arbitrary, unreasonable and violative of Article 14 of the Constitution, then writ application under Article 226 of the Constitution is maintainable. It was further held that under Article 226 the High Court can direct the authority concerned to follow the rule of fairplay and to act in a reasonable manner.
53. In paragraph 31, it was further held as under :-
The State and its instrumentalities do not have the absolute right like a private individual to enter into contract with any one and to cancel the same. While cancelling a contract they have not only to follow a procedure which should be consistent with Article 14 of the Constitution i.e. after observing the rules of fair play and the principles of natural justice but the grounds for such cancellation should also be reasonable and not arbitrary. Any executive decision has to be tested on the touchstone of Article 14 of the Constitution not only so far as its procedural part is concerned but also in respect of its substantive part. Even in a case where the procedural part has been followed still the Court can examine whether the ultimate decision is consistent with the requirement of Article 14 of the Constitution. While doing so, it should not be overlooked that in exercise of the power of judicial review, the High Court should not substitute its own judgment for the decision taken by the executive authority. Such decision should be interfered with only if this Court is satisfied that the action taken or order passed even from the administraitve point of view is arbitrary or unreasonable.
54. Thus, if in our view if the cancellation by JCI was arbitrary or unreasonable and against the rule of fairplay or if JCI's action, even from administrative point of view was arbitrary or unreasonable, the Writ Court can interfere as held in Marine Engineer's case.
55. In the case of Radhakrishna Agarwal (supra) the facts required taking of detailed evidence involving examination .and cross-examination of witnesses. It was found that the questions raised where of such a nature that they could not be satisfactorily decided without taking detailed evidence which is only possible in ordinary civil suit. In Premji Bhai Permar's case, it was contended by the petitioners that the authority had collected surcharge as component of price which it was not authorised or entitled to collect. It was held that there was no merit in such contention and such a relief of refund cannot be the subject matter of a petition under Article 32. In this case, no question arose of violation of Article 14. In the case of State of U.P. v. Dharmendra Prasad Singh the question related to forfeiture and cancellation of lease in respect of Nazrul land which required detailed investigation into the facts. In Bishwanath Tea Co. Ltd.'s case (supra) the Supreme Court went into the merits of the case but found that several issues or facts arose which could not be decided in the writ jurisdiction. The Escorts case (supra) has already been considered at length by the Supreme Court in case of Dwarkadas Marafatia. In Bareilly Development Authority's case (supra) the brochure of development authority indicated estimated costs and other terms of allotment of dwelling houses. The brochure also mentioned the fact that the actual cost may increase or decrease. It was held that increase in the cost of houses by development authority cannot be labelled as arbitrary or discriminatory. In Indian Oil Corporation's case, a suit was filed before the sub-Judge, First Class, Amritsar based on breach of contract and remedies flowing therefrom and it is on this basis that the Arbitrator gave his award. It was held by the Supreme Court that in such a situation no further question of public law based on Article 14 of the Constitution arose. In the case of G. B. Mahajan, it was held that challenge to the execution of a project merely on the ground of its unconventional nature is untenable and that the government has policy options to adopt any method or technic for management of the project provided the same is within the constitutional and legal limits. It was held that the materials placed before the Court failed far short of what the law required to justify the interference.
56. On the basis of the authorities mentioned above and particularly on the basis of the recent decisions of the Supreme Court as mentioned above, it is not possible for us to accept the absolute proposition that no writ petition can be entertained when the action challenged pertains to the domain of a concluded contract. If the arbitrariness on the part of the authority concerned is writ large and the matter may be decided on the basis of the documents on record and in our view it is open to the aggrieved party to challenge such arbitrary and illegal action by filing appropriate writ petition under Article 226 of the Constitution. Further in our view, each case would have to be decided on its facts and circumstances and there cannot be said to be an absolute bar as regards the maintainability of the writ petition.
57. JCI is admittedly a Government Company and was set up with the objects of performing various functions in connection with the Jute Industry as stated above. There is also no dispute that almost the entire share capital of JCI is held by the President of India and its functions include implementation of such special arrangements for imports or internal trade or distribution of jute as the Central Government may specify from time to time in public interest. The function of JCI also include organising and undertaking the purchase, sale and transport of jute (imported into or grown in India) including such allied duties as may be entrusted to it for such purpose by the Central Government. By reason of its special position, JCI cannot be said to be an ordinary trader. Its obligations to supply raw jute to the jute mills necessarily flow from its duty to ensure distribution of raw jute or its duty to make available raw jute to the manufacturers of jute goods in a reasonable manner. Its activities are to be carried on keeping in view the public interest and it is entrusted with the aforesaid duties and functions which are of public or governmental nature. If the actions of JCI are arbitrary and unreasonable and if such arbitrariness and unreasonableness is writ large on the face of it, it would be appropriate for the writ court to intervene in the matter and grant appropriate relief to the aggrieved party.
58. At this stage the issue as regards alternative remedy may also be discussed. Firstly, as has been repeatedly held by the Supreme Court, existence of alternative remedy does not by itself bar the jurisdiction of the Writ Court. It is only a matter of discretion and in appropriate cases writ courts may interfere even if there is an alternative remedy. Apart from this, as would be clear from the facts stated above, in the instant case, after the filing of the writ petition, there has, been a whole series of proceedings between the parties. Various applications, affidavits, appeals, special leave petition, contempt application etc. were filed by the parties from time to time and various orders were passed by this Court as well as by the Supreme Court.
59. It appears that even in the Special Leave petition filed before the Supreme Court, JCI had contended that the writ petition was not maintainable due to the dispute being of a contractual nature and due to the existence of alternative remedy.
60. In spite of this, the Supreme Court did not held that the writ petition filed by Nellimarla was not maintainable and on the other hand directions were given for expeditious disposal of the matter pending before this Court. The matter has already been heard and finally disposed of by the learned Single Judge.
Further, in our view, there are no disputed questions, of fact which require any evidence to be taken. In the aforesaid circumstances, the plea of alternative remedy advanced by JCI cannot be accepted by us at this stage.
61. Now, coming to the merits of the case, the contract was cancelled by JCI only on the ground that there was a failure on the part of Nellimarla in making payment arrangement. This is clear from the letter dated May 3, 1988 addressed by JCI to Nellimarla. Thus the only question to be examined is that whether there was any failure on the part of Nellimarla, in making payment arrangement.
62. There is no dispute between the parties that by its letter dated April 29, 1988 JCI had allowed extension for opening the Letter of Credit upto April 30, 1988. This letter dated April 29, 1988 was admittedly received by Nellimarla on May 2, 1988. Even before receiving this latter Nellimarla had already got opened the said Letter of Credit on April 30, 1988. In such a situation, it is difficult to understand as to how any failure on the part of Nellimarla in making payment arrangement can be alleged by JCI. Apart from this, there are other relevant aspects of the matter which make it clear that there was no failure on the part of Nellimarla in making payment arrangement and on the other hand it is JCI who cancelled the contract in a most arbitrary manner.
63. Firstly, when a decision was taken to grant extension of time for opening the Letter of Credit and such decision was communicated for the first time by letter dated April 29, 1988, it was totally arbitrary to extend the time only by one day, that is, till April 30, 1988 by which time even the said extension letter dated April 29, 1988 was not delivered to Nellimarla.
64. Further, it is a well known fact that it is not possible to open and forward the Letter of Credit in a period of one day. For opening the Letters of Credit a series of procedural formalities have to be complied with. Knowing these facts fully well, JCI fixed the last date as 30/4/88 by its letter dated 29/4/88 which was received by Nellimarla on 2.5.88. Right from the beginning, Nellimarla was requesting JCI to grant permission for opening third party Letter of Credit.
In its letter dated 19/4/88, Nellimarla stated as under-
We would like to inform you that due to some technical problems with our Bankers we are unable to open L/C by 26.4.88. As an alternate arrangement made at our request, Messrs. Karba & Co., M/s. Shree Venktesh (Jute & Gunny Sales) and M/s. Ghanshyam Jute Traders of 2, India Exchange Place, Calcutta-1 have agreed to open a third party Letter of Credit on our behalf, against the abovementioned contract.
Therefore, we would like to request you to grant us permission for opening the third party L/C.
65. Another letter in this connection was written by Nellimarla on 25/4/88 stating which is set out hereunder-
With reference to the above please refer our letter dated 19.4.88 and various visit of our representative to your office asking your permission for opening the Third Party L/C, but sorry to inform you that we have not heard anything till date. As you are aware that last date of submission of opening the third party L/C, it will take 10 days for the application and submission of L/C. Therefore, you are again requested to grant us permission to open the third party L/C and also extend the last date of submission of L/C till 5th May '88.
Please confirm the same to enable us to submit the L/C at the earliest.
66. It is only on Nellimarla's writing another letter on 25/4/88 that JCI by its letter dated 26/4/88 for the first time granted the said permission in writing. In this letter reference was also made to an earlier discussion on 21/4/88 but the fact remains that the earlier letter dated 19.4.88 remained unreplied and the written permission was granted for the first time by this letter dated 26/4/88. This letter dated 26/4/88 was received by Nellimarla on 28/4/88. Thus on the one hand JCI kept pending Nellimarla's request for permission to open third party Letter of Credit for a considerable time and thereby prevented it from opening the Letter of Credit till last date and on the other hand, after granting the permission, extended the last date in such a manner that it was simply impossible to comply with the same. Such a course of action was clearly arbitrary, unreasonable and unjust.
67. It has been contended by JCI that time was of essence to the contract and for this purpose it has relied on a number of decisions and books. In this connection, firstly, as held above, there was no failure on the part of Nellimarla in making payment arrangement within the stipulated time. Furthermore, the originally agreed date of 26/4/88 was extended by JCI itself by its letter dated 29/4/88 which was received by Nellimarla on 2.5.88. When the extension had already been granted by JCI, the originally agreed date of 26/4/88 could not continue to remain the stipulated date. The new date that is 30/4/88 was brought to the notice of Nellimarla on 2/5/88 by which time the Letter of Credit was already opened. In this connection, reference may also be made to Section 11 of the Sale of Goods Act, 1930 which provides as under-
"Stipulations as to time-Unless a different intention appears from the terms of the contract, stipulations' as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract."
68. Thus, in any event the presumption would be that the stipulation as to time of payment was not of essence to the contract. There is nothing in the insatnt case which shows any different intention of the parties. Both the parties proceeded on the basis that the time was not of essence to the contract. This is clear from the correspondence referred above. In its letter dated 25/4/88-Nellimarla requested JCI to grant extension upto 5/5/88 for opening the Letter of Credit. JCI never took the stand that the time could not be extended at all. On the other hand, JCI in fact extended the time on 29/4/88 till 30/4/88 and this letter dated 29.4.88 was received by Nellimarla on 2/5/88. In such a situation the time was not an essence of the contract nor it continued to remain of essence.
69. JCI has further contended that the difficulty with a revolving Letter of Credit is that it is valid only for the amount initially put in by the person at whose instance the letter of credit has been opened. After the said sum is exhausted, the bank calls upon the said person to make further deposit and only after such further deposits are made, payment is made of further sums. It may be stated that JCI did not cancel the contract due to the Letter of Credit being a revolving one. In fact, the contract was cancelled, by JCI by its letter dated 3/5/88 whereas the said revolving Letter of Credit was filed in its office on 4/5/88.
70. Thus in our opinion the contract was not at all cancelled due to any such reasons. Even otherwise, the contract specifically required that under the Letter of Credit part shipment by JCI should be permitted. In such a situation there was nothing wrong in the Letter of Credit being on revolving basis. The contract required the Letter of Credit to be an irrevocable one and the Letter of Credit furnished by Nellimarla was admittedly an irrevocable one. This irrevocable Letter of Credit had a coverage upto Rs. 115 lakhs on revolving basis and as per its terms, on drawing of bills to the extent of Rs. 25 lakhs, it was to automatically revolve for another sum of Rs. 25,00,000/- and in this way it was to revolve upto Rs. 115 lakhs.
71. In such circumstances, it is difficult to see as to what was wrong in opening an irrevocable revolving Letter of Credit or how JCI could be prejudiced in any way or as to how it disturbed the working out of the contract in any way.
72. In any event, this was not even the ground taken for cancellation of the contract. On the other hand, as correctly held by the Learned Single Judge, this was simply an afterthought on the part of JCI and lends support to the charge of arbitrariness on its part.
For the reasons aforesaid this appeal fails and is dismissed with costs which we assess at 15 Gms.
73. In the facts and circumstances of the Case as stated above, it has also become necessary for us to pass some consequential orders and accordingly the following directions are passed by us-
(a) Nellimarla has paid to JCI agreed price as per the contract for 10,000 Qtls. of raw jute pursuant to the order dated July 3, 1989. As against this, the quantity supplied was only 6960. 35 Qtls. of the price of Rs. 24,86,956/-. The remaining amount of Rs. 10,25,250/- referable to the remaining quantity of 3039.65 Qtls. was kept deposited by JCI in a Fixed Deposit Account pursuant to the order dated October 17, 1989. JCI is directed to supply to Nellimarla within three weeks from date such quantity of raw jute as may be supplied against the said sum of Rs. 10,25,250/- together with interest thereon on the basis of the agreed contracted prices ;
(b) For the remaining quantity covered by the contract, Nellimarla will furnish, a fresh Third Party Irrevocable Letter of Credit within a period of 6 weeks from this date and JCI is directed to supply such remaining quantity within a period of two weeks thereafter ;
(c) The Bank guarantee furnished by Nellimarla pursuant to the interim order dated July 3, 1989 stands cancelled and discharged and Nellimarla will be at liberty to take back from the bank the amounts, if any deposited by it against the said Bank Guarantee ;
(d) The amounts deposited by Nellimarla with the Special Officer pursuant to order dated May 24, 1988 together with interest will be refunded by the Special Officer to Nellimarla or its Advocate, after deducting his remuneration fixed at 150 GMs, within a period of one week from date. On such payment being made, the Special Officer will stand discharged.
Prayer for stay made on behalf of the appellant is considered and refused, in the facts and circumstances of the case.
74. All parties and the Special Officer are to act on a signed copy of the minutes of the operative part of the Judgment and order immediately. Parties will further be entitled to have xerox copy of the entire judgment on the usual undertaking.
A. Kabir, J.
75. I agree.