1995 (2) TMI 459 - HC - Indian Laws

Summary

Issues Involved:
1. Invocation of bank guarantees.
2. Maintainability of the writ application.
3. Alleged breach of contract by the parties.
4. Authority of the respondent to invoke bank guarantees.
5. Applicability of the doctrine of legitimate expectation.
6. Jurisdiction of the writ court in contractual matters.
7. Arbitration clause and its impact on the writ petition.

Issue-wise Detailed Analysis:

1. Invocation of Bank Guarantees:
The petitioners contended that the bank guarantees could only be enforced by the respondent No. 2 in case of the petitioners' failure to comply with the terms and conditions, which was not the case here. They argued that the breach was committed by respondent No. 5, making the invocation of the bank guarantees illegal. The court noted that the bank guarantees were performance guarantees, and since there was no failure on the part of the petitioners, the demand by respondent No. 2 was illegal. However, the court emphasized that the right to enforce bank guarantees arises out of a contract and does not involve any public law element, making a writ petition inappropriate for this matter.

2. Maintainability of the Writ Application:
The respondent No. 2 argued that the writ application was not maintainable as it sought to enforce a commercial contract without raising any constitutional issue. The court supported this view, citing that writ jurisdiction under Article 226 of the Constitution is not typically invoked for enforcing contractual obligations unless there is a public law element involved.

3. Alleged Breach of Contract by the Parties:
The petitioners claimed that respondent No. 5 breached the contract by backing out, which led to the frustration of the contract. The court acknowledged the disputes between the parties but highlighted that such contractual disputes should be resolved through arbitration or civil suits rather than writ petitions.

4. Authority of the Respondent to Invoke Bank Guarantees:
The petitioners challenged the authority of respondent No. 2 to invoke the bank guarantees, arguing that the power to enforce such guarantees lies only with the Central Government as per the Shipping Development Fund Committee (Abolition) Act, 1986. However, the court found that the Central Government had delegated its powers to respondent No. 2 through various notifications, making the invocation of the bank guarantees by respondent No. 2 valid.

5. Applicability of the Doctrine of Legitimate Expectation:
The petitioners invoked the doctrine of legitimate expectation, arguing that the Central Government had indicated possibilities of settling their claims. The court dismissed this argument, stating that the doctrine of legitimate expectation does not apply in contractual disputes and does not create enforceable rights, but only checks arbitrariness on the part of the State.

6. Jurisdiction of the Writ Court in Contractual Matters:
The court reiterated that it does not exercise its jurisdiction under Article 226 of the Constitution for contractual matters unless there is a public law element. The court cited various precedents to support this view, emphasizing that contractual disputes should be resolved through arbitration or civil suits.

7. Arbitration Clause and Its Impact on the Writ Petition:
The court noted that the petitioners had already invoked the arbitration clause contained in the tripartite agreement and filed an application under Section 20 of the Arbitration Act, which was allowed. The court held that when an arbitration clause exists, a writ petition is generally not maintainable, and the parties should resolve their disputes through arbitration.

Conclusion:
The writ application was dismissed, with the court emphasizing that contractual disputes should be resolved through arbitration or civil suits rather than writ petitions. The court found that the invocation of the bank guarantees by respondent No. 2 was valid and that the doctrine of legitimate expectation did not apply in this case. The court also highlighted the limited jurisdiction of writ courts in contractual matters and the importance of adhering to arbitration clauses.