Pt Sumber Mitra Jaya Vs. National Highways Authority of India and ors. - Court Judgment

Excerpt:
contract - interim injunction - article 14 of constitution of india and sections 14, 14 (1) and 16 of specific relief act - suit for permanent injunction against award relating not to bid guarantee but to cancellation of contract and anticipated blacklisting of plaintiff - fraud alleged - no circumstances shown which leads that bid guarantee invoked because of fraud not attributable to any of defendants - on perusal no prima facie case exists for grant of any temporary injunction restraining defendants from taking any action including cancelling of contract - grant of injunction relief inadvertently lead to contravention of sections 14 and 14 (1) - plaintiff failed to make out of case justifying passing of an injunction against cancellation of contract or blacklisting. - - sethi, and with substance, that the defendants would not like to deal with a party which has committed a fraud. it was only when it was discovered that the performance guarantee furnished as a sequel to the contract being awarded to the plaintiff was avowedly fraudulent that the subsequent action of its invocation as well as of the cancellation of the contract has been taken. it was also contended that the failure of the arbitrator to consider and decide the appellant-corporation's counter-claim when the whole suit was referred for decision constitute legal misconduct. restoration of distributorship was granted in view of the peculiar facts of the case on the basis of which it was treated to be an exceptional case for the reasons given. ' this finding read along with the reasons given in the award clearly accepts that the distributorship could be terminated in accordance with the terms of the agreement dated april 1, 1976, which contains the aforesaid clauses 27 and 28. having said so in the award itself, it is obvious that the arbitrator held the distributorship to be revocable in accordance with clauses 27 and 28 of the agreement. sub-section (1) of section 14 of the specific relief act specifies the contracts which cannot be specifically enforced, one of which is `a contract which is in its nature determinable'.in the present case, it is not necessary to refer to the other clauses of sub-section (1) of section 14, which also may be attracted in the present case since clause (c) clearly applies on the finding read with reasons given in the award itself that the contract by its nature is determinable. the factors which persuaded me to decline interdicting the encashment of the bid guarantee also propel me to hold that the plaintiff has failed to make out of case justifying the passing of an injunction against cancellation of the contract or blacklisting.vikramajit sen, j.1. this suit pray for a declaration which is essentially that the cancellation of the contract in respect of the development of adequate road connectivity to mangalore port-contract package-kr (new mangalore) should be declared nullified with the consequence that the contract would continue to be in force. a permanent injunction has also been prayed for. 2. the dispute, however, as a history in that cs(os) no.800/2004 had previously been filed by the plaintiff praying for an ad interim injunction restraining the defendants from encashing the bid guarantee furnished by the plaintiff. i had granted an ex parte ad interim injunction on the grounds inter alias that the period of furnishing the performance guarantee had not expired and that an extension for this very purpose had been granted by the national highways authority of india (nhai). subsequently, after hearing the learned counsel for the defendants, and being apprised, inter alia, of the uncontroverter fact that the performance bank guarantee furnished by the plaintiff had been discovered to be a fabricated document, this ex parte ad interim injunction had been recalled on august 6, 2004.3. the detailed order passed by me in cs(os) no.800/2004 on 6th august, 2004 may be treated as part of this order in order to avoid prolixity. in particular, however, the following paragraphs have, in my view, been justifiably relied upon by learned counsel for the defendant, and are reproduced:-'the admitted position is that the performance bank guarantee has not been furnished by the plaintiff. although this is strongly contested by the defendants, i shall assume for the present that the plaintiff was duped by defendant no.4 into forwarding a fictitious, forged and fabricated bank guarantee. defendant no.1 or defendant no.5, however, certainly have no role to play in the fraud; nor have they acted in any unfair manner. which of the commercial entities should, thereforee, be made to suffer the financial consequences of such circumstances, is the issue which i have to grapple with. in commercial transactions equitable considerations cannot outweigh or cast any shadow on the plain terms of the contract. clause 16.6 states that the bid guarantee shall be forfeited if the successful bidder (that is, the plaintiff herein) fails to furnish the required performance security. it had been contended by mr. sethi, and with substance, that the defendants would not like to deal with a party which has committed a fraud. the court would also not thrust a commercial relationship on an unwilling party, and especially so when one of them has manifested such commercial immaturity and negligence as has allegedly rendered it a victim of a fraud. defendant no.1 had reverted to defendant no.3, state bank of mysore, for confirmation of the execution of the bank guarantee as per prevalent practice. considering that a large sum of money had been paid by the plaintiff for arranging the performance guarantee for the sum of rs.21 crores, a similar enquiry must be expected of any business concern such as the plaintiff. if the plaintiff has been remiss in taking steps which would be expected of any prudent businessman, it must suffer the consequences of its negligence. looking at the wordings in clause 16.5 there is no room or scope for this court to infuse and thrust equitable considerations on the parties and re-write the contract.'4. this order declining an injunction against the encashment of the bid guarantee, however, was stayed by the hon'ble division bench. it was in that period that the plaintiff had filed the present suit seeking a declaration and permanent injunction relating not to the bid guarantee but to the cancellation of the contract and the anticipated blacklisting of the plaintiff. on the first date of hearing i.e. on 16.8.2004, i had directed the maintenance of status quo. this was for the simple reason that if the order declining an injunction from the encashment of the bank guarantee ceased to be in operation because of the orders of the hon'ble division bench a prima facie case had been disclosed by the plaintiff and the defendants had obviously committed an error at the very threshold of the dispute. on 18.8.2004 the interim order was extended by the division bench which thereforee required me to continue the interim arrangement. the plaintiffs willingness to furnish a fresh performance guarantee in the sum of rs.21 crores had been recorded. the situation has now changed altogether in that the hon'ble supreme court has stayed the orders of the hon'ble division bench thereby restoring the operation of the order dated august 6, 2004. thereforee there is no impediment in the path of the defendants in these proceedings.5. reverting to the present case it has been contended by mr.maheshwari, learned senior counsel for the plaintiff that the contract had been awarded by the new mangalore port road co. ltd. (nmpr for short) and not by the national highways authority of india (nhai for short). reliance has been placed on the letter dated 6th july, 2004 authored by nhai calling upon the plaintiff to furnish the performance bank guarantee in favor of the nmpr and not by the nhai. a letter dated 1.9.2004 addressed to the plaintiff by nmpr has been handed over in court today, which states that 'with reference to the letter ref: - 1 nhai letter no.11011/6/2000-cf dated 29.7.2004 towards cancellation of letter of acceptance, on behalf of the 'new mangalore port road co. ltd.', the contents of these letters hereby reaffirmed and again communicated to you.' i am unable to view this communication as a new approach or stand.6. no circumstances had been shown to me which would lead me to change the view that the bid guarantee had been invoked because of a fraud not attributable to any of the defendants. it is the admitted case that the bid guarantee has today been invoked and a sum of rs.1.73 crores is in the coffers of the defendants. this action has not been stayed by the hon'ble supreme court which only leads to the assumption that prima facie the contract had been correctly cancelled. the above quoted letter does not change the situation inasmuch as the nmpr has relied and acted upon the communications and actions taken by nhai, as heretofore.7. learned counsel for the plaintiff has relied on the decision of the apex court in the gujarat state financial corporation v. lotus hotels pvt. ltd., : air1983sc848 which enunciates that the principle of promissory estoppel would certainly estop the defendant from backing out of its obligation arising from a solemn promise made by it to the respondent. the case before me is not one which is in the genre of 'backing out'. defendants had in fact enlarged the time for the furnishing of the performance bank guarantee. it was only when it was discovered that the performance guarantee furnished as a sequel to the contract being awarded to the plaintiff was avowedly fraudulent that the subsequent action of its invocation as well as of the cancellation of the contract has been taken. this does not constitute a 'backing out'. mr. nayyar, learned senior counsel for the defendant has contended that even though the defendants are statutory/entities the dealings between the parties is wholly contractual in nature and no public act is expected of them. he has relied upon, with justification, the following observations in indian oil corporation ltd. v. amritsar gar service and ors. 1991 (1) scc 553:9. the argument advanced by shri harish salve on behalf of the appellant-corporation to the validity of the award are these. the first contention is that the validity of the award has to be tested on the principles of private law and the law of contracts and not on the touchstone of constitutional limitations to which the indian oil corporation ltd., as an instrumentality of the state may be subject since the suit was based on breach of contract alone and the arbitrator also proceeded only on that basis to giant the reliefs. it is urged that for this reason the further questions of public law do not arise on the facts of the present case. the next contention is that the relief of restoration of the contract granted by the arbitrator is contrary to law being against the express prohibition in sections 14 and 16 of the specific relief act. it is urged that the contract being admittedly revocable at the instance of either party in accordance with clause 28 of the agreement, the only relief which can be granted on the finding of breach of contract by the appellant-corporation is damages for the notice period of 30 days and no more. it was then urged that the reasons given in the award for granting the relief of restoration of the distributorship are untenable, being contrary to law. shri salve contended that the propositions of law indicated in the award and applied for granting the reliefs disclose an error of law apparent on the face of the award. it whs also urged that the onus of proving valid termination of the contract was wrongly placed by the arbitrator on the appellant-corporation instead of requiring the plaintiff-respondent 3 to prove that the termination was invalid. it was also contended that the failure of the arbitrator to consider and decide the appellant-corporation's counter-claim when the whole suit was referred for decision constitute legal misconduct.10. in reply, shri sehgal on behalf of respondent 1 contended that there is a presumption of validity of award and the objections not taken specifically must be ignored. this argument of shri sehgal relates to the grievance of the appellant relating to placing the onus on the appellant-corporation of proving validity of the termination. this contention of shri sehgal must be upheld since no such specific ground is taken in the objections of the appellant. moreover, there being a clear finding by the arbitrator of breach of contract by invalid termination, the question of onus is really of no significance. the other arguments of shri sehgal are that the termination of distributorship casts stigma on the partners of the firm; counter-claim of the appellant-corporation was rightly not considered since it was not made before the order of the reference; the reference made being of all disputes in the suit, the nature of relief to be granted was also within the arbitrator's jurisdiction; and interest also must be awarded to the respondent.11. we may at the outset mention that it is not necessary in the present case to go into the constitutional limitations of article 14 of the constitution to which the appellant-corporation as an instrumentality of the state would be subject particularly in view of the recent decisions of this court in dwarkadas marfatia and sons v. board of trustees of the port of bombay, : [1989]2scr751 mahabir auto stores v. indian oil corporation (199) 3 scc 752, jt (1990) sc 363 and shrilekha vidyarthi v. state of u.p., : air1991sc537 . this is on account of the fact that the suit was based only on breach of contract and remedies flowing there from and it is on this basis alone that the arbitrator has given his award. shri salve is, thereforee, right in contending that the further questions of public law based on article 14 of the constitution do not arise for decision in the present case and the matter must be decided strictly in the realm of private law rights governed by the general law relating to contracts with reference to the provisions of the specific relief act providing for non-enforceability of certain types of contracts. it is, thereforee, in this background that, we proceed to consider and decide the contentions raised before us.12. the arbitrator recorded finding on issue no.1 that termination of distributorship by the appellant-corporation was not validly made under clause 27. thereafter, he proceeded to record the finding on issue no.2 relating to grant of relief and held that the plaintiff-respondent 1 was entitled to compensation flowing from the breach of contract till the breach was remedied by restoration of distributorship. restoration of distributorship was granted in view of the peculiar facts of the case on the basis of which it was treated to be an exceptional case for the reasons given. the reasons given stale that the distributorship agreement was for an indefinite period till terminated in accordance with the terms of the agreement and, thereforee, the plaintiff-respondent 1 was entitled to continuance of the distributorship till it was terminated in accordance with the agreed terms. the award further says as under:'this award will, however, not fetter the right of the defendant corporation to terminate the distributorship of the plaintiff in accordance with the terms of the agreement dated april 1, 1976, if and when an occasion arises.'this finding read along with the reasons given in the award clearly accepts that the distributorship could be terminated in accordance with the terms of the agreement dated april 1, 1976, which contains the aforesaid clauses 27 and 28. having said so in the award itself, it is obvious that the arbitrator held the distributorship to be revocable in accordance with clauses 27 and 28 of the agreement. it is in this sense that the award describes the distributorship agreement as one for an indefinite period, that is, till terminated in accordance with clauses 27 and 28. the finding in the award being that the distributorship agreement was revocable and the same being admittedly for rendering personal service, the relevant provisions of the specific relief act were automatically attracted. sub-section (1) of section 14 of the specific relief act specifies the contracts which cannot be specifically enforced, one of which is `a contract which is in its nature determinable'. in the present case, it is not necessary to refer to the other clauses of sub-section (1) of section 14, which also may be attracted in the present case since clause (c) clearly applies on the finding read with reasons given in the award itself that the contract by its nature is determinable. this being so granting the relief of restoration of the distributorship even on the finding that the breach was committed by the appellant-corporation is contrary to the mandate in section 14(1) of the specific relief act and there is an error of law apparent on the face of the award which is stated to be made according to `the law governing such cases'. the grant of this relief in the award cannot, thereforee, be sustained.'8. at this stage, the court must consider whether a prima facie case has been presented before it. so far as this is concerned, the jural annals of the dispute cannot be ignored. it has been dealt with in detail by order dated august 6, 2004, which stand restored by the orders of the hon'ble supreme court dated 25th august, 2004. the effect is that the defendants had disclosed prima facie that they were justified in invoking the bid guarantee which must also infer that the hon'ble supreme court had prima facie granted its imprimatur to the invocation of the bid guarantee. this would logically lead to the conclusion that the defendants would also be within the legitimate exercise of their rights to cancel the agreement. the fact that large sums of money are allegedly owing to the plaintiff by the defendant is neither an allegation in the plaint nor is it to be taken into contemplation where a suit for recovery is not before the court. even where a suit for recovery has been filed the plaintiff must make out a case under order xxxviii of the cpc for any kind of relief to be granted at the threshold stage. assuming also that the contract has been incorrectly terminated either for the reason that it has been cancelled by the nhai or that the signatory of the letter dated 29.7.2004 had acted without the authority of the board of directors of nhai, the question still remains whether injunctory relief should be granted to the plaintiff. i am of the considered view that a prima facie case does not exist for the grant of any temporary injunction restraining the defendants from taking any action including the cancelling of the contract. in the realm of contract every party should be allowed freedom of action since an illegal or unjustified act shall bring upon the transgressing party the prospect of payment of damages. the factors which persuaded me to decline interdicting the encashment of the bid guarantee also propel me to hold that the plaintiff has failed to make out of case justifying the passing of an injunction against cancellation of the contract or blacklisting. the question of whether it would be proper for the plaintiff to be blacklisted has not been taken yet, but there is no scope for injuncting them from doing so far the same reasons that prevail for declining the prayer for an injunction. there is also substance in the contention that if any injunctory relief is granted, it would have the effect of specifically performing a contract contrary to the contemplation of sections 14 and 41 of the specific relief act.9. in these circumstances the application bearing no.5254/2004 is dismissed. interim orders are recalled.cs (os) no.889/200410. renotify before joint registrar on 11.10.2004.