IN THE HIGH COURT OF JUDICATURE AT PATNA CWJC NO.16359 OF 2008 M/S SHANTI STEELS, A PROPRIETARY CONCERN HAVING ITS PLACE OF BUSINESS AT GHITKAIYA ROAD, P.S. BRAHAMPURA, BAIRIYA, DISTRICT MUZAFFARPUR THROUGH ITS PROPRIETOR, AMAR KUMAR AGRAWAL SON OF SHRI SAJJAN KUMAR AGRAWAL, RESIDENT OF 202,HARI OM APARTMENT, EXHIBITION ROAD, P.S. GANDHI MAIDAN, DISTRICT PATNA WITH CWJC- 16378 OF 2008 M/S SHANTI STEELS A PROPRIETARY CONCERN HAVING ITS PLACE OF BUSINESS AT GHITKAIYA ROAD, P.S. BRAHAMPURA, BAIRIYA, DISTRICT MUZAFFARPUR THROUGH ITS PROPRIETOR, AMAR KUMAR AGRAWAL SON OF SHRI SAJJAN KUMAR AGRAWAL, RESIDENT OF 202,HARI OM APARTMENT, EXHIBITION ROAD, P.S. GANDHI MAIDAN, DISTRICT PATNA WITH CWJC- 16551OF 2008 M/S TANU INTERNATIONAL, A PROPRIETARY CONCERN HAVING ITS PLACE OF BUSINESS AT EXHIBITION ROAD, HARI OM APARTMENT, 202 , „B‟ BLOCK, PATNA -1(INDIA), THROUGH ITS PROPRIETOR AMIT KUMAR DHANDHANIA SON OF SAJJAN KUMAR DHANDHANIA, RESIDENT OF 202, HARI OM APARTMENT, EXHIBITION ROAD, P.S. GANDHI MAIDAN, DISTRICT PATNA WITH CWJC- 19081OF 2008 M/S SHANTI STEELS A PROPRIETARY CONCERN HAVING ITS PLACE OF BUSINESS AT GHITKAIYA ROAD, P.S. BRAHAMPURA, BAIRIYA, DISTRICT MUZAFFARPUR THROUGH ITS PROPRIETOR, AMAR KUMAR AGRAWAL SON OF SHRI SAJJAN KUMAR AGRAWAL, RESIDENT OF 202,HARI OM APARTMENT, EXHIBITION ROAD, P.S. GANDHI MAIDAN, DISTRICT PATNA WITH C.W.J.C.NO.4432 OF 2009 M/S SINGHAL STEELS, A PARTNERSHIP FIRM HAVING ITS OFFICE AT CHAKNUR ROAD, DHARMPUR, DISTRICT SAMASTIPUR THROUGH ITS AUTHORIZED REPRESENTATIVE, SOHAIL AHMED, SON OF MD.YUSUF, RESIDENT OF CHAKNUR ROAD, DHARAMPUR, PO.& P.S. SAMASTIPUR, DISTRICT SAMASTIPUR. WITH CWJC No. 593 of 2009 M/s SINGH STEELS, A PROPRIETARY CONCERN HAVING ITS PLACE OF BUSINESS AT BHAKURA, LOHAR PHARNA, ARA, P.S. ARA, BAIRIYA, DISTRICT ARRAH(BIHAR) THROUGH ITS AUTHORISED REPRESENTATIVE, AMAR KUMAR AGRAWAL SON OF SHRI SAJJAN KUMAR AGRAWAL, RESIDENT OF 202, 2 HARI OM APARTMENT, EXHIBITION ROAD, PS. GANDHI MAIDAN, DISTRICT PATNA …PETITIONERS Versus THE EAST CENTRAL RAILWAY THROUGH ITS GENERAL MANAGER, HAJIPUR & ORS ….RESPONDENTS ____ For the Petitioners : M/s S.D.Sanjay, Gautam Kejriwal, Sushila Agrawal, (in CWJC 16359,16378, Akash Chaturvedi 16551,19081 OF 2008 & 4432 OF 2009 For the State : M/s Mahesh Prasad, Sidharth Prasad For the Railways : Mr. Chittaranjan Sinha, Sr.Advocate (in CWJC 16359,16378, Mr.Siddharth Prasad, Advocate 19081 of 2008 and 4432 of 2009 For the Railways : Mr. N.K.Agrawal, Sr. Advocate (in CWJC 16551/08) Mr.Sunil Kumar Ravi, Advocate O R D E R 3 25 -8-2009 As the issues raised in these five writ petitions namely C.W.J.C.Nos.16359 of 2008, 16378 of 2008, 16551 of 2008, 19081 of 2008, 4432 of 2009 and 593 of 2009 are common, they are taken up for disposal together. In these writ petitions, the petitioners pray refund of the entire amount deposited by them in bid with interest at market rate, as Railways failed to deliver the auctioned materials in time. The petitioners are proprietary concerns engaged in sale and purchase of Railways scraps and other materials. Railways from time to time have been holding auction of its scraps and other waste materials, which are held at different places. The sale and purchase is governed by auction notice as well as Standard Conditions of Auction Sales. The auction notice and Standard Conditions of Auction sales have been 3 annexed as annexures both by petitioners as well as by the Railways. It is not in dispute that the petitioners were declared highest bidder in auction sales held by the Railways. As required under the auction notice and Standard Conditions of Auction Sales, the petitioners deposited the earnest money by fall of hammer on the same day. Further more pursuant to issuance of authorization letters the petitioners deposited balance amount within stipulated 20 to 50 days. The case of the petitioners is that the Railways failed to make the delivery of auctioned materials in time as per the terms and conditions. In some cases the deliveries were not affected even in the extended period sought by the Railways itself. The non-delivery of the materials in time has caused immense loss, as global recession had set in. The petitioners state that they are business people and they tend to lose, if their money remains blocked over a time, rendering them helpless to rotate their business. The Railway in its counter affidavit has taken the plea that delivery of materials in question could not be affected on account of water logging, rainy season and unavailability of officials of different sections like Vigilance etc. who are necessarily required to be present at the time of delivery in order to check pilferage and ensure transparency. The maintainability of the writ petitions have also been challenged in view of existence of the arbitration clause for settling and resolving disputes. Learned counsels for the Railway submit that there are various disputed question of facts in this case. The disputed question of facts 4 pointed out by the counsel for the Railways are as follows: i) Whether actually Railways was in a position to give the delivery in view of the natural calamities? ii) Whether the Railways could give delivery to only one of the auction purchaser at a time? iii) Whether ¾ agencies like RPF, Vigilance, Engineering Department, Purchase and Store Department etc. are required to give delivery jointly? iv) Whether petitioner was required to seek extension for delivery period, more so the Railways are ready to waive the ground rent? v) Whether the writ petitions have really any substance in them or it is merely a forced litigation by a businessman to make good of the loss starting at his face due to fall in the International Steel prices? vi) Whether the Railways could have given the delivery of the stolen goods, had the petitioner performed his obligation under the contract? In short the Railways contend that the petitioners cannot agitate refund of money much less with interest in the writ petitions in face of disputed questions of facts. Further, the writ petition is not maintainable as auction clause provides for settlement of dispute by way of arbitration. They have also drawn the court‟s attention to clause 7.1 of Standard Conditions of Auction Sale, which state as follows: “7.1 – No interest shall be liable to be paid by the 5 Railways with any amount lying at the credit of the purchaser with the Railway administration.” In support of their contentions, learned counsel for the Railways have relied upon decisions rendered in the case of M/s Titagarh Paper Mills Ltd Vs Orissa State Electricity Board & another, 1975(2) SCC 436; State of U.P. & Ors Vs Bridge Roof Company (India) Limited, (1996)6 SCC 22; ABL International Limited & anr. Vs Export Credit Guarantee Corporation of India Limited and ors, (2004) 3 SCC 553; Pimpri Chinchwad Municipal Corporation Vs Gyatri Construction Company, (2008) 8 SCC 172 and Jute Company Limited & Ors Vs Jute Corporation of India Limited & another, reported in (2007) 14 SCC 680. The petitioners in their reply state that the writ petition is fully maintainable as material facts for refund of money are not in dispute. This court in writ jurisdiction can direct refund of money with interest. Learned counsel for the petitioners submit that the Apex Court has held, that in appropriate cases, even if there is an alternative remedy the jurisdiction of the writ court is not completely ousted. In support of his contention, learned counsel refers to the decisions (i) in the case of State of U.P. Vs Md.Noor, A.I.R. 1958 SC 86; (ii) Syed Yakoob Vs K.S. Radha Krishan, AI.R. 1964 SC 477;(iii) State of H.P. Vs Gujrat Ambuja Cement,2005(6) SCC 499;(iv) Indian Oil Corporation Vs State of Bihar, 2006(3) P.L.J.R. 146 and (v) Whirlpool Corporation, (1998) 8 SCC 1; (vi) State of Tripura Vs Manoranjan Chakraborty, 122 STC 594(SC); (vii) ABL International Vs Export Credit Guarantee, 2004(3) SCC 553 and Harbans Lal Sahnia and anr Vs Indian Oil Corporation & Ors, 6 reported in (2003) 2 SCC 107. Having heard counsel for the parties, the following issues are arises for consideration before this court. i) Whether the writ petition is maintainable in view of the arbitration clause, and as such whether this writ court can issue mandamus directing the Railways to refund the money deposited by the petitioner with interest? ii) Whether clause 7.1 of the Standard Conditions of Auction Sale making Railways non-liable to pay interest in any circumstances is legally sustainable in the eyes of law? Before I take up the issues involved in this case, it would be relevant to note in brief the terms of auction notice as well as the Standard Conditions of Auction Sale. Clause 10 of auction notice states that the Standard conditions of auction of North Eastern Railway would be applicable to auctions bid. Clause 15 of the auction sale notice requires that on being declared successful the earnest money is to be deposited immediately with fall of hammer. Clause 16 provides that if the value of the bid exceeds Rs.5 lacs, the balance money is to be deposited in two installments within 20 days. In case the successful bidder is not able to deposit the balance amount within 20 days, then after seeking necessary permission, the former can deposit the same within 50 days on payment of interest @ 12.25%. Clause 16(Kha) further provides that if the amount is not deposited within 50 days, the earnest money will stand forfeited. Clause 5.2 of the Standard Conditions of auction is very material 7 and as it will have a direct bearing on the decision of the case, the same is quoted herein below: “In case the purchaser failed to remove the whole or part of the lot within the free time allowed the Controller of Stores reserves the right to cancel the sale of the lot or the balance lying unremoved and to re-sale the said material at the risk and cost of the purchaser. The purchaser shall, however, be entitled to refund of the price by him of the said material after deducting the ground rent up to the date of re-sale thereof and other expenses including auctioneer‟s and the loss if any to which Railway may have been put on account of re-sale”. The condition relating to interest provided in Clause 7.1 of the Standard Conditions of Auction is quoted herein below: “No interest shall be liable to be paid by the Railways on any amount lying at the credit of the purchaser with the Railway administration”. Now I take up the issue no.1. Whether writ could be issued for refund of money with or without interest, if the agreement entered into between the parties has an arbitration clause? Clause 8 of the Standard conditions of auction refers to settlement of dispute. Clause 8.0 is quoted herein below: “In the event of any question/dispute of difference arising under these conditions or any in connection with the contract (except as to any matter or decision of which is specifically provided for any those conditions) the same shall be referred to the sole arbitrator appointed by the 8 General Manager of the N.E. Railway Administration. It will be no objection that the arbitrator is government servant and that in the course of his duties as a government servant he has expressed views on all or on any of the matters in dispute or difference. In the event of such an arbitrator to whom the matter is originally referred, being transferred or vacating his office by resignation, otherwise or becoming unable to act for any reason, the General Manager as aforesaid at the time of such transfer, vacation of office or inability to act shall appoint another person to act as arbitrator in accordance with terms of this agreement. Such person shall be entitled to proceed from the stage at which it was left by his predecessor. The award of arbitrator shall be final and binding on the parties to this Agreement”. It is no more resintegra that in appropriate cases the writ court under Article 226 and 227 of the Constitution of India can interfere in the contractual matter, if action of State and its instrumentality is violative of equality clause enshrined in Article 14. A writ court would also interfere in contractual matter in public interest to check favouratism and arbitrariness, and if actions of respondents are accentuated with bias and malice. The aforesaid propositions find expressions in decisions rendered in the case of ABL International & another Vs Expert Credit Guarantee, 2004(3) SCC 553; Noble Resources Limited Vs State of Orissa and anr, reported in 2007 SC 119; Food Corporation of India Vs SEIL Limited and another reported in (2008) 3 SCC 440, and Karnataka State Forest Industries Corporation & anr Vs Indian Rocks and another, reported in (2009) 1 SCC 150. The interference of writ courts in contractual matters have expanded over the 9 years on account of expansion of welfare and social service functions of State. The issue whether writ petition would be maintainable if the agreement between the parties provides for settlement of dispute by way of arbitration has fallen time and again for consideration of Apex Court in various cases. I will first take up the cases referred to by learned counsel for the Railways in support of their claim that instant writ petitions are not maintainable, as the parties have an alternative forum for settlement of their dispute by way of arbitration in view of the settlement clause itself. The Apex Court in the case of M/s Titagarh Paper Mills (Supra) was considering whether the levy imposed by the Electricity Board could have been supported under clause 13 of the agreement. In the aforesaid background, the Hon‟ble Apex Court held that where the contract between the parties has an arbitration clause, then such question whether levy is justified under the agreement or not should be referred to arbitration and the High Court should refrain from entertaining writ petition under Articles 226 and 227 of the Constitution of India for adjudication of the same. In the case of State of U.P. & Ors Vs Bridge & Roof Company(India) Limited, reported in (1996) 6 SCC 22, the primary issue involved was whether the government was justified in deducting a particular sum which according to the respondent company is payable to it under the contract. The Apex Court in the aforesaid backdrop of facts held that when the contract itself provides for mode of settlement of 10 dispute, party should follow and adopt that remedy and should not invoke the extra-ordinary jurisdiction of the High Court under Article 226 of the Constitution. The Hon‟ble Apex Court further held that existent of an effective alternative remedy is a good ground for the court to decline to exercise its extra-ordinary jurisdiction under Article 226 of the Constitution of India. Learned counsels for the Railways have emphatically referred to the case of ABL International Limited & another Vs Export Credit Guarantee Corporation of India Limited & Ors, reported in 2004(3) SCC 556 particularly paragraph 14, which is quoted herein below: “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”. In the aforesaid case too, the Apex Court held that where there is dispute and alternative dispute resolution by way of arbitration has been provided, the recourse to any other remedy including filing of writ is unwarranted and impermissible. The next decision in the line referred to by counsel for the Railways is of the case of Pimpri Chinchwad Municipal Corporation Vs Gyatri Construction Company, (2008) 8 SCC 172. In the aforesaid case the Apex Court held that merely because a statutory authority entered 11 into a contract the same cannot become a statutory contract. The Hon‟ble Apex approvingly quoted paragraph 11 of judgment in the case of Kerala SEB V. Kurien E.Kalathil, reported in (2000) 6 SCC 293 wherein in paragraph 11 it has been held as follows: 11. “…..The fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied. The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act. Every act of a statutory body need not necessarily involve an exercise of statutory power. Statutory bodies, like private parties, have power to contract or deal with property. Such activities may not raise any issue of public law. In the present case, it has not been shown how the contract is statutory. The contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil court or in arbitration if provided for in the contract. Whether any amount is due and if so, how much and refusal of the appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ petition. The contractor should have relegated to other remedies”. One of the ratios of the aforesaid decisions is that where the dispute relates to interpretation of terms and conditions of the contract in private law, writ petition under Article 226 should not be entertained. The counsel for the Railways also referred to case of Jute Company Limited & Ors Vs Jute Corporation of India Limited & another, reported in (2007) 14 SCC 680, wherein the Apex Court held 12 that power of judicial review vested in the superior court is of undoubtedly wide amplitude, but when there exists an arbitration agreement, the writ court ordinarily would not exercise its discretionary jurisdiction to enter into a dispute. Thus the logical inference is that the existence of a dispute would be a pre-condition for referring the matter to arbitration. The interference of courts in contractual matter has widened over the years. The attainment of socio economic justice being a conscious goal of a welfare society and State policy, there is vast increase in frequency with which an ordinary citizen come into relationship of direct encounter with State Power holders. This has necessitated courts to interfere in its writ jurisdiction to secure equitable justice to its citizens even in contractual matters. This aspect is personified when a person trade or do business pursuant to the right flowing from 19(1)(g) of the Constitution of India, as well as common law right. This necessitated restricting and structuring power of executive government to prevent discriminatory and arbitrary exercise of power. The above principles find clear elucidation in the case of ABL International (Supra). In the aforesaid case, the Apex Court held that if the instrumentality of the State acts contrary to the public good and public interest; or acts unfairly, unjustly and unreasonably in its contractual or statutory obligation, it really acts contrary to the constitutional guarantee found under Article 14 of the Constitution of India. The court can interfere in such contractual matters, if the action of 13 the State is discriminatory, arbitrary and unreasonable. The Apex Court further held in paragraphs 26 and 27 of aforesaid judgment that a consequential relief to monetary claim is also maintainable in writ application. It would be relevant to quote paragraphs 26 and 27 of the aforesaid judgment: “26. Therefore, this objection must also fail because in a given case it is open to the writ court to give such monetary relief also. 27. From the above discussion of ours, the following legal principles emerge as to the maintainability of a writ petition: (a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable. (b) Merely because some disputed questions of fact 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.” In the case of Noble Resources Vs State of Orissa and others (Supra), the Apex Court held that if action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India, a writ would be maintainable even in contractual field. It further held that while exercising contractual power also the government bodies may be subjected to judicial review in order to prevent arbitrariness or favouratism on its part. The Hon‟ble Supreme Court further held that a court can scrutinize an award of contract made either by government or its agencies. It can also interfere in contract matter in public interest or where the action of the government or its instrumentality is accentuated with malafide or ulterior motives. In 14 paragraph 31, the Apex Court held that merely because there exist a disputed question of fact or an alternative remedy, the same by itself could not be sufficient for High Court to decline its jurisdiction. It would be relevant to quote paragraph 31 of the aforesaid judgment. “31. We, however, having regard to ABL International Ltd.(supra), do not accept Dr. Dhawan‟s contention that only because there exists a disputed question of fact or an alternative remedy is available, the same by itself would be sufficient for the High Court to decline its jurisdiction”. Further more in the case of Union of India Vs Hindustan Development Corporation, reported in 1994 SC 988; Food Corporation of India Limited Vs SEIL India Limited and another, reported in (2008) 3 SCC 440, and Karnataka State Forest Industries Corporation and another Vs Indian Rocks and others, reported in (2009) 1 SCC 150, the Apex Court held that court can interfere where the action of the State is arbitrary and discriminatory and also where it involves public law elements. The Hon‟ble Apex Court in the case of HarbansLal Sahnia and anr Vs Indian Oil Corporation Ltd. & Ors, reported in (2003) 2 SCC 107 observed that merely because the arbitration clause exists in the agreement, the court would not be obliged to refer the same for arbitration in appropriate cases. It would be relevant to quote paragraph 7 which runs as follows: “7. So far as the view taken by the High Court that the remedy by way of recourse to arbitration clause was available to the appellants and therefore the writ petition filed by the appellants was liable to be dismissed is concerned. Suffice it to observe that the rule of exclusion of writ jurisdiction by availability of 15 an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged.(See Whirlpool Corpn. V. Registrar of Trade Marks). The present case attracts applicability of the first two contingencies. Moreover, as noted, the petitioners dealership, which is their bread and butter, came to be terminated for an irrelevant and non-existent cause. In such circumstances, we feel that the appellants should have been allowed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings.” The view expressed by the Hon‟ble Apex Court in the case of Harbans Lal Sahnia (supra) was also referred to in three Judges decision rendered in the case of State of U.P. Vs Gujrat Ambhuja Cement Limited, (2005) 6 SCC 499. However, counsel for the Railways submits that the decision