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TMI Blog2003 (12) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Kazakhstan (referred to as the Kazak Corporation) for supply of 3,000 Metric Tons of tea. The said agreement was entered into on or about 26th August, 1993. As per the original agreement, the payment for such tea exported was to be made by the Kazak Corporation by barter of goods mentioned in the Schedule to the said agreement, within 120 days of the date of delivery by the exporter. The agreement also provided that such payment to be made by the Kazak Corporation is to be guaranteed by the Government of Kazakhstan. Clause 6 of the agreement which provided for the mode of payment by barter of goods by the Kazak Corporation came to be amended by an addendum on the very same 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 For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as per its letter dated 14.12.1994, however, repudiated the claim of the appellants stating that the appellants had changed the terms of the contract of payment without first consulting it, therefore, it had no obligation to compensate the appellants for the loss suffered by it. This alleged change of terms of the contract, according to the first respondent, was due to the fact that the appellants had rejected the barter offer made by the Kazak Corporation and had opted for cash payment in US dollars which, according to the first respondent was not the mode of payment contemplated in the contract between the exporter and the Kazak Corporation. On further correspondence between 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further submitted that in the present case, the terms of the contract between the exporter and the Kazak Corporation on one hand and the contract of insurance between the appellants and the first respondent on the other being crystal clear, there was no question of any difficulty in interpretation of the said terms of the contracts and all necessary facts required for the interpretation of the said clauses of the insurance and export contracts being admitted, the Appellate Bench of the High Court was in error in coming to the conclusion that the writ petition involved such disputed questions of facts which the High Court could not decide in the writ petition. He also contended that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rness and reasonableness applies only in the exercise of statutory or administrative actions of a State and not in the exercise of a contractual obligation and issues arising out of contractual matters will have to be decided on the basis of the law of contract and not on the basis of the administrative law. It was her argument that at the most in matters involving statutory contracts where action of the State involves a public duty, a writ may lie but in the instant case, the contract was neither a statutory contract nor the duty of the first respondent under the contract had any public law element involved in it. According to the learned counsel, this contract was a negotiated contract 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 statutory power." (Emphasis supplied) In the case of Gujarat State Financial Corporation Vs M/s. Lotus Hotels Pvt. Ltd. [1983 (3) SCC 379] this Court following an earlier judgment in R.D. Shetty Vs. International Airport Authority of India [1979 (3) SCC 489] held: "The instrumentality of the State which would be 'other authority' under Article 12 cannot commit breach of a solemn undertaking to the prejudice of the other party which acted on that undertaking or promise and put itself in a disadvantageous position. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (India) Ltd. [ 1996 (6) SCC 22] wherein this Court held: "Further, the contract in question contains a clause providing inter alia for settlement of disputes by reference to arbitration. The arbitrators can decide both questions of fact as well as questions of law. When the contract itself provides for a mode of settlement of disputes arising from the contract, there is no reason why the parties should not follow and adopt that remedy and invoke the extraordinary jurisdiction of the High Court under Article 226. The existence of an effective alternative remedy - in this case, provided in the contract itself - is a good ground for the court to decline to exercise its extraordinary jurisdiction under 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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of this Court in the case of Smt. Gunwant Kaur Ors. vs. Municipal Committee, Bhatinda and Ors. [1969 (3) SCC 769] where dealing with such a situation of disputed questions of fact in a writ petition this Court held : "The High Court observed that they will not determine disputed question of fact in a writ petition. But what facts were in dispute and what were admitted could only be determined after an affidavit in reply was filed by the State. The High Court, however, proceeded to dismiss the petition in limine. The High Court is not deprived of its jurisdiction to entertain a petition under Article 226 merely because in considering the petitioner's right to relief questions of fact may fall to be 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 petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. Therefore, it is clear from the above enunciation of law that merely because one of the parties to the litigation raises a dispute in regard to the facts of the case, the court entertaining such petition under Article 226 of the Constitution is not always bound to relegate the parties to a suit. In the above case of Smt.Gunwant Kaur (supra), this Court even went to the extent of holding that in a writ petition, if facts required, even oral evidence can be taken. This clearly shows that in an appropriate case, the writ court has the jurisdiction to entertain a writ petition involving disputed questions of fact and there is no absolute bar for entertaining a writ petition even if the same arises out of a contractual obligation and or involves some disputed questions of fact. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cterize 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, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters." It is clear from the above observations of this Court, once State or an instrumentality of State is a party to the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts have made distinction between those cases where a claimant approached a High Court seeking relief of obtaining refund only and those where refund was sought as a consequential relief after striking down of the order of assessment, etc. In these cases also the claims made for refund in the writ petitions were consequent upon declaration of law made by this Court. Hence, the High Court committed no error in entertaining the writ petitions. In support of the submission that a writ petition seeking mandamus for mere refund of money was not maintainable, the decision in Suganmal Vs. State of M.P. was cited. In AIR para 6 of the said judgment, it is stated that - "We are of the opinion that though the High Courts have power 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule. (c) A writ petition involving a consequential relief of monetary claim is also maintainable. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract between the exporter and the Kazak Corporation. The relevant clause in regard to payment for the tea exported is found in the principal contract at Clause 6 which reads thus : "The payment of delivered goods shall be made by barter exchange of goods within 120 days from the date of delivery being affected by the Seller. Plus interest for the period of non-payment 15% per year. The above terms will be covered by a guarantee for payment by the Ministry of Foreign Economic Relations of Kazakhstan. For Barter exchange of goods Buyer presently has available for offer goods as per supplement N2 to the present contract." This clause came to be amended on the very day when the contract was signed by the exporter and the Kazak Corporation by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between enterprises and budgetary deficit prevented the Kazak Party from timely repaying of the credit." It is clear that the first respondent insured the risk of non- payment arising out of the above said contract between the exporter and the Kazak Corporation which included the amended Clause (6). It is also clear that the first respondent while issuing the policy of insurance did know that payment of consideration by Kazak Corporation could be by two modes (a) by barter (b) by cash and non payment of consideration by either mode was to be covered by the said contract of insurance. It is also an admitted fact that the Kazak Corporation did offer only some goods and not all items included in the schedule to the appellants initially as a barter 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 $, but thereafter it defaulted in the payment of the balance amount. It is also an admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since most of the facts involved in the case were admitted and the dispute resolved only around the interpretation of the agreement of insurance between the parties, the learned Judge felt that the matter could be disposed of in a writ petition without driving the parties to a suit. Having perused the relevant clauses the learned Single Judge held : "There cannot be any doubt that barter system of payment was adhered to but the addendum clause in the contract clearly stipulates a situation that in the event same cannot be agreed upon, there could be a default if Kazakhstan Government failed to pay in terms of its guarantee to the first respondent in US$. Default clause appears to be unequivocal". Thereafter the learned Single Judge having perused the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay for them due to his claim that he is justified in withholding payment of the contract price or the gross invoice value of the said goods for the reason mentioned therein. This clause pertains to the defence that may be put forth by the buyer (in this case the Kazak Corporation) as to its refusal to pay the consideration on the grounds enumerated in the said sub-clause. This is not a clause which indemnifies the insurance company from its liability to cover risk when the importer fails to pay for the consideration for the goods received by it on grounds of its financial inability. Therefore the reliance placed by the High Court on this sub-clause to the proviso in the insurance contract, as stated above, is misplaced. The learned counsel appearing for 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the respondent before us as well as in the two letters of repudiation issued by the first respondent are unsustainable. In our opinion, the first respondent insured the export risk of the appellants in regard to the non payment of the consideration for the tea exported whether it arose from the non fulfillment of the barter clause or for the non fulfillment of the cash payment clause. The argument advanced on behalf of the respondent that the appellants refused to accept the barter by goods offered by the first respondent which amounted to a default under the contract on the part of the appellants has no legs to stand in view of the clear language of the amended Clause 6 of the agreement which as noted above states that the obligation of the buyer, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility at the threshold to the making of a contract in exercise of the executive power being beyond dispute, the State cannot thereafter cast off its personality and exercise unbridled power unfettered by the requirements of Article 14 in the sphere of contractual matters and claim to be governed therein only by private law principles applicable to private individuals whose rights flow only from the terms of the contract without anything more. The personality of the State, requiring regulation of its conduct in all spheres by requirement of Article 14, does not undergo such a radical change after the making of a contract merely because some contractual rights accrue to the other party in addition. It is not as if the requirement of Article 14 and contractual obligations 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 exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution. Thus if we apply the above principle of applicability of Article 14 to the facts of this case, then we notice that the first respondent being an instrumentality of State and a monopoly body had to be approached by the appellants by compulsion to cover its export risk. The policy of insurance covering the risk of the appellants was issued by the first respondent after seeking all required information and after receiving huge sums of money as premium exceeding Rs.16 lacs. On facts we have found that the terms of the policy does not give room to any ambiguity as to the risk covered by the first respondent. We are also of the considered opinion that the liability of the first respondent under the policy arose when the default of the exporter occurred and 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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