TaxTMI 
TaxTMI 
2003 (12) TMI 584
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....e day when the original agreement was executed. By the amended agreement, it was specifically provided that if the contract of barter of goods cannot be finalised for any reason then the Kazak Corporation was to pay to the exporter for the goods received by it in US Dollars within 120 days from the date of the delivery. Such payment was to be remitted by the Kazak Corporation to the bank account of the exporter at Delhi. This amended agreement also provided for a guarantee being given by the Ministry of Foreign Economic Relations of Kazakhstan for prompt payment of such consideration. The addendum specifically stated that the same was to form an integral part of the contract earlier entered between the parties on the same day viz. 26.8.1993. After the said contract was entered into by the 4th respondent with the Kazak Corporation, by an agreement of parties, the 4th respondent assigned a part of the said export contract to the first appellant herein on same terms. On a direction issued by the Reserve Bank of India to cover the risk arising out of the export of tea made by the appellants as per the said assigned contract, the appellants approached the Export Credit Guarantee Corpor....
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....the appellants and the first respondent, the latter reiterated its right to repudiate the claim of the appellants by its second letter dated 26.5.1995 contending that the refusal of the barter offer by the appellants without first consulting it, amounts to a change in the mode of recovery of dues, hence, the loss suffered by such change in the mode of recovery took away the liability of the first respondent to pay for such loss. Having failed to persuade the first respondent to adhere to the contract of insurance between it and the appellant, the appellant filed a writ petition before a learned Single Judge of the Calcutta High Court, inter alia, praying for quashing of the letters of repudiation issued by the first respondent. It also consequentially prayed for a direction to the first respondent to make payment of the dues to it under the contract of insurance. The learned Single Judge after hearing the parties came to the conclusion that though the dispute between the parties arose out of a contract, the first respondent being a State for the purpose of Article 12, was bound by the terms of the contract, therefore, for such non-performance, a writ was maintainable and after con....
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....the observations of the High Court in the course of its judgment that the appellants had violated the terms of the export contract or the insurance contract, is ex facie erroneous. He submitted that this is because of the fact that the Appellate Bench did not properly appreciate the relevant clauses of the said contracts. He also contended that proviso (d) to Clause (xi) of the insurance contract had no bearing whatsoever on the facts of this case. Learned counsel then pointed out that the basis of the repudiation as could be seen from the two letters of the first respondent was that prior permission of the said respondent was not taken before making a change in the terms of the export contract. According to the learned counsel, this foundation of repudiation of the claim is based on a presumption that there was any such requirement either in law or in the contracts to have a prior consultation with the first respondent while making a claim to receive cash consideration from the exporter. It was argued that apart from the fact that there was no change in the terms of the contract as indicated in the letters of repudiation, the assumption of the first respondent that it had to be co....
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....ct and not a standard form contract. She also supported the finding of the Appellate Bench of the High Court that the facts involved in the case are all disputed facts requiring evidence to be led, therefore, the appropriate remedy could only be a suit. Hence, the impugned judgment did not call for any interference. As could be seen from the arguments addressed in this appeal and as also from the divergent views of the two courts below one of the questions that falls for our consideration is whether a writ petition under Article 226 of the Constitution of India is maintainable to enforce a contractual obligation of the State or its instrumentality, by an aggrieved party. In our opinion this question is no more res integra and is settled by a large number of judicial pronouncements of this Court. In K.N. Guruswamy Vs. The State of Mysore and others. [ 1955 (1) SCR 305] this Court held: "The next question is whether the appellant can complain of this by way of a writ. In our opinion, he could have done so in an ordinary case. The appellant is interested in these contracts and has a right under the laws of the State to receive the same treatment and be given the same chance as anybo....
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....on. The appellant Corporation, created under the State Financial Corporation Act, falls within the expression of 'other authority' in Article 12 and if it backs out from such a promise, it cannot be said that the only remedy for the aggrieved party would be suing for damages for breach and that it could not compel the Corporation for specific performance of the contract under Article 226. "The learned counsel appearing for the first respondent however, submitted that this Court has taken a different view in the case of Life Insurance Corporation of India Vs. Escorts Ltd. & Ors. [ 1986 (1) SCC 264] wherein this Court held: "If the action of the State is related to contractual obligations or obligations arising out of the tort, the court may not ordinarily examine it unless the action has some public law character attached to it. Broadly speaking, the court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field. It is impossible to draw the line with precision and we do not want to attem....
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....der Article 226." This judgment again, in our opinion, does not help the first respondent in the argument advanced on its behalf that in contractual matters remedy under Article 226 of the Constitution does not lie. It is seen from the above extract that in that case because of an arbitration clause in the contract, the court refused to invoke the remedy under Article 226 of the Constitution. We have specifically inquired from the parties to the present appeal before us and we have been told that there is no such arbitration clause in the contract in question. It is well known that if the parties to a dispute had agreed to settle their dispute by arbitration and if there is an agreement in that regard, the courts will not permit recourse to any other remedy without invoking the remedy by way of arbitration unless of course both the parties to the dispute agree on another mode of dispute resolution. Since that is not the case in the instant appeal, the observations of this Court in the said case of Bridge & Roof Co. (supra) is of no assistance to the first respondent in its contention that in contractual matters, writ petition is not maintainable. The learned counsel then contendi....
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.... determined. In apetition under Article 226 the High Court has jurisdiction to try issues both of fact and law. Exercise of the jurisdiction is, it is true, discretionary, but the discretion must be exercised on sound judicial principles. When the petition raises questions of fact of a complex nature, which may for their determination require oral evidence to be taken, and on that account the High Court is of the view that the dispute may not appropriately be tried in a writ petition, the High Court may decline to try a petition. Rejection of a petition in limine will normally be justified, where the High Court is of the view that the petition is frivolous or because of the nature of the claim made dispute sought to be agitated, or that the petition against the party against whom relief is claimed is not maintainable or that the dispute raised thereby is such that it would be inappropriate to try it in the writ jurisdiction, or for analogous reasons. From the averments made in the petition filed by the appellants it is clear that in proof of a large number of allegations the appellants relied upon documentary evidence and the only matter in respect of which conflict of facts may p....
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....contractual obligation and or involves some disputed questions of fact. The learned counsel for the respondent then placed reliance on a judgment of this Court in the case of VST Industries Ltd. vs. VST Industries Workers' Union & Anr. [2001 (1) SCC 298]. In the said case, this Court held : "In Anadi Mukta case this Court examined the various aspects and the distinction between an authority and a person and after analysis of the decisions referred in that regard came to the conclusion that it is only in the circumstances when the authority or the person performs a public function or discharges a public duty that Article 226 of the Constitution can be invoked. In the present case, the appellant is engaged in the manufacture and sale of cigarettes. Manufacture and sale of cigarettes will not involve any public function." Placing reliance on the observations of this Court in the said case, learned counsel contended unless the action challenged in the writ petition pertains to the discharge of a public function or public duty by an authority, the courts will not entertain a writ petition which does not involve the performance of said public function or public duty. Learned counsel a....
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....ppellants the first respondent as an instrumentality of the State has acted in contravention of the above said requirement of Article 14 then we have no hesitation that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent. In this context, we may note that though the first respondent is a company registered under the Companies Act, it is wholly owned by the Government of India. The total subscribed share capital of this company is 2,50,000 shares out of which 2,49,998 shares are held by the President of India while one each share is held by the Joint Secretary, Ministry of Commerce and Industry and Officer on Special Duty, Ministry of Commerce and Industry respectively. The objects enumerated in the Memorandum of Association of the first respondent at Para 10 states : "To undertake such functions as may be entrusted to it by Government from time to time, including grant of credits and guarantees in foreign currency for the purpose of facilitating the import of raw materials and semi-finished goods for manufacture or processing goods for export." Para 11 of the said object reads thus : "To act as agent of the Government, or with th....
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....er to pass any appropriate order in the exercise of the powers conferred under Article 226 of the Constitution, such a petition solely praying for the issue of a writ of mandamus directing the State to refund the money is not ordinarily maintainable for the simple reason that a claim for such a refund can always be made in a suit against the authority which had illegally collected the money as a tax". Again in AIR para 9, the Court held: "We, therefore, hold that normally petitions solely praying for the refund of money against the State by a writ of mandamus are not to be entertained. The aggrieved party has the right of going to the civil court for claiming the amount and it is open to the State to raise all possible defences to the claim, defences which cannot, in most cases, be appropriately raised and considered in the exercise of writ jurisdiction." The judgment cannot be read as laying down the law that no writ petition at all can be entertained where claim is made for only refund of money consequent upon declaration of law that levy and collection of tax/cess as unconstitutional or without the authority of law. It is one thing to say that the High Court has no power unde....
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....e exercise of this power [See: Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors. [1998 (8) SCC 1]. And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the court thinks it necessary to exercise the said jurisdiction. It is in the above understanding of law, we will now consider the facts of the present case to find out whether the appellants are entitled to relief or not as prayed for in the writ petition filed by them. While considering this issue, it has to be noted at the outset itself that the first respondent is an instrumentality of State for the purpose of Article 12 of the Constitution is not disputed and rightly too. It is also not disputed that the first respondent is a monopoly Corporation in its field. The fact that the appellant to the extent covered by the contract of insurance had agreed to insure the risk of non payment of its consideration for the tea ....
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.... an addendum, i.e., on 26.8.1993 itself. The addendum which formed an integral part of the original contract reads thus : "In case the payment terms as per clause 6 of the Contract No.1-B/9-14/93 dated 26.8.1993 are not possible that is to say if this contract for barter supply of goods cannot be finalised for any reason or if delivery shipment under such a contract is not made within the stipulated period, then the buyer shall pay the seller for delivered goods in US Dollars within 120 days from the date of delivery being effected by the seller. This payment to be made through remittance by the buyer of the contractual amount of delivered tea, plus interest 15% per year to the Bank Account of the seller at Canara Bank, Janpath, New Delhi, India. The above payment will be guaranteed by the Ministry of Foreign Economic Relations of Kazakhstan." If we read the original Clause 6 and the addendum together, it is crystal clear that for some reason or the other the parties agreed to amend original Clause 6 by the addendum which amendment brought about a significant change in the mode of payment of consideration. In the original Clause 6, it is seen that the Kazak Corporation agreed to ....
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....payment, but on evaluation made by the appellants, they were not acceptable to the appellants. Therefore, payment of consideration by barter of goods could not be finalised as contemplated in amended clause (6) of the export contract and in lieu of the same, the Kazak Corporation agreed to pay in US $ and in fact did make part payment of the same in US $, but thereafter it defaulted in the payment of the balance amount. It is also an admitted fact that the Kazakhstan Government which guaranteed the payment of consideration for the exported goods while admitting its liability also defaulted for its own reasons, consequently the appellants could not get the full consideration for the tea exported by them. It is on the above fact-situation, the appellants made a demand on the first respondent to compensate for the loss suffered by them as per their claim dated 8.9.1994. This claim of the appellants came to be repudiated by the first respondent as per its letter dated 14.12.1994. The basis of the repudiation of the claim as could be seen from the said letter is as follows : "The buyer also did offer goods in barter exchange. You, however, chose without consulting the Corporation not t....
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....he various correspondence between the parties and noticing the fact that the Kazakhstan Government also admitted its failure to comply with its guarantee came to the conclusion that there was nothing on record to show that the appellants under the contract of insurance was liable to consult the first respondent as regards its right to reject the payment by barter for any reason whatsoever. On such interpretation of the clauses of the contracts, the learned Judge felt that it was an appropriate case in which a writ should be issued as prayed for by the petitioner and accordingly allowed the petition. In appeal, the Appellate Bench took somewhat a restricted view of the power of the High Court to entertain a writ petition under Article 226 of the Constitution of India and came to the conclusion that the petition involved disputed questions of fact, hence, there being an alternate remedy by way of a suit allowed the appeal setting aside the judgment as also the relief granted by the trial court. In the course of its judgment the appellate bench also placed reliance on sub-clause (d) of the proviso to clause (xi) found in the contract of insurance which reads thus: "PROVISOS PROVIDE....
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.... the appellants in this appeal contended that the one and the only stand taken by the appellants in their two letters of repudiation is that the appellants have changed the mode of receipt of consideration without consulting the first respondent which ground according to the learned counsel is not one of the conditions of the insurance contract. He further submitted that an imposition of a condition of that nature requiring a prior consultation would be beyond the terms of the insurance contract, therefore, impermissible. While learned counsel appearing for the first respondent Corporation contended that the ground of repudiation is not so much the lack of prior consultation but, according to learned counsel, is that the first respondent was not liable to pay for the loss suffered by the exporter by agreeing to accept the consideration in cash because that mode of consideration was not covered by the risk insured by the respondent. According to the learned counsel, one and the only mode of payment of consideration covered by the said respondent is by barter of goods. Therefore, even though in the letters of repudiation the prior consultation before change in the mode of considerati....
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....namely, Kazak Corporation to pay for the goods received by it in US $ arises when payment by barter fails for "any reason whatever". The use of the words "any reason whatever" in the said amended clause includes the reasons of refusal by the appellants to accept the goods offered in barter. On the face of the said language of amended clause, there could be no room for two opinions at all in regard to the liability of the first respondent to pay for the loss suffered by the appellants even in cases where payment by barter fails at the instance of the appellant. The learned counsel for the respondent contended for a correct interpretation of this amended clause and the other clauses of the contracts i.e. the contract of export and the contract of insurance between the parties there is need for oral evidence being led without which a proper interpretation of this clause is not possible, therefore, it is fit case in which the appellants should be directed to approach the Civil Court to establish its claim. We find no force in this argument. We have come to the conclusion that the amended Clause 6 of the agreement between the exporter and the importer on the face of it does not give roo....
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....igations are alien concepts, which cannot co-exist. The Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. Therefore, total exclusion of Article 14 - non- arbitrariness which is basic to rule of law - from State actions in contractual field is not justified. This is more so when the modern trend is also to examine the unreasonableness of a term in such contracts where the bargaining power is unequal so that these are not negotiated contracts but standard form contracts between unequals. x x x Unlike the private parties the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it, for public good and in public interest. The impact of every State action is also on public interest. It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and not the nature of function, contractual or otherwise, which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of Article 14 being the duty to act fairly, jus....
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....d thereafter when Kazakhstan Government failed to fulfil its guarantee. There is no allegation that the contracts in question were obtained either by fraud or by misrepresentation. In such factual situation, we are of the opinion, the facts of this case do not and should not inhibit the High Court or this Court from granting the relief sought for by the petitioner. Apart from the above reasons given by us to interfere with the judgment of the Appellate Bench of the High Court, we have one other good reason - why we should not drive the appellants to a suit. The claim of the appellants was rejected by the respondent in the year 1994. The respondent challenged the basis of rejection by way of a writ petition in the year 1996. The objection as to the maintainability of the petition was rejected by the High Court by its judgment dated 15.5.1997. We are now in the end of year 2003. We at this distance of time and stage of litigation, do not think it proper to relegate the parties to a suit. To direct the appellants to approach a civil court at this stage would be doing injustice to the appellants. In this view of ours, we are supported by a number of decisions of this court like in Sha....