:1: IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.282 WRIT PETITION NO.282 WRIT PETITION NO.282 OF 2009 OF 2009 OF 2009 1. HDFC Bank Ltd. having its registered office at HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai 400 013. And having their correspondence address HDFC Bank Ltd., Remedial Management Unit, Mezzanine Floor, Trade World, Kamala Mills, Senapati Bapat Marg, Lower Parel, Mumbai- 400 013. 2. Amin Dayani residing at B-304, Aakansha Co-op. Housing Society Ltd. Andheri (West), Mumbai 400 061 ...Petitioners. v. 1. Union of India. Aayakar Bhavan, Annexe, M.K.Road, Mumbai- 400 020. 2. Commissioner of Customs (Export) EPCG Unit, Air Cargo Complex, Sahar, Andheri, Mumbai 3. Director General of Foreign Trade, EPCG I Section, Ministry of Commerce & Industry, Udyog Bhavan, New Delhi- 110 011. 4. Assistant Commissioner of Customs, Customs House, Ballard Estate, Mumbai. 5. Central Board of Excise and Customs having its office at 4th floor, Rajendra Bhavan, 210, Deen Dayal Upadhyay Marg, New Delhi- 110 002. 6. Reserve Bank of India having its office at Central Office, Mumbai 400 001 ...Respondents. Mr.R.A.Dada, Sr.Counsel with Mr.Daruwala i/by M/s.Kanga & Co., advs. for the Petitioners. Mr.M.I.Sethna with Mr.Rajinder Kumar, advs. for the Respondents. CORAM: F.I.REBELLO AND CORAM: F.I.REBELLO AND CORAM: F.I.REBELLO AND :2: J.H.BHATIA,JJ. J.H.BHATIA,JJ. J.H.BHATIA,JJ. DATE: 27th April, 2009. DATE: 27th April, 2009. DATE: 27th April, 2009. JUDGMENT: JUDGMENT: JUDGMENT: 1. Rule. Heard forthwith. 2. Petitioner in this petition impugns the following circular: CIRCULAR NO.02/2008 CIRCULAR NO.02/2008 CIRCULAR NO.02/2008 . An incident has come to the notice of the undersigned, wherein department had encashed a bank guarantee on account of nonfulfillment of conditions stipulated in the EPCG Notification. However, M/s.HDFC Bank Ltd. the banker who issued the Bank Guarantees, filed Writ Petition in the Hon’ble High Court which was dismissed by the Court. Subsequently they have filed SLP (CIVIL) in the Hon’ble Supreme Court raising objection to the authority of the Customs Department to encash the said bank guarantees given by them. This reveals that M/s. HDFC Bank Ltd. isnot honouring Bank Guarantees given by them to the Department on behalf of their clients. The said action on the part of HDFC Bank defeats the very purpose of the Bank Guarantee being taken by the Department. . The issue is under further examination. Meanwhile Bank Guarantees issued by M/s.HDFC Bank Ltd. on behalf of any importers/exporters/persons may not be accepted at Air Cargo Complex, Mumbai until further orders. All the officers and staff concerned are advised to take note of this for compliance. Sd/- (P.M.SALEEM) (P.M.SALEEM) (P.M.SALEEM) COMMISSIONER OF CUSTOMS (EXPORT) COMMISSIONER OF CUSTOMS (EXPORT) COMMISSIONER OF CUSTOMS (EXPORT) A.C.C.,MUMBAI. A.C.C.,MUMBAI. A.C.C.,MUMBAI. 3. It is the case of the petitioner that sometime in :3: or about 1996, petitioner no.1, on behalf of one of its customer, Core Health Care Ltd. furnished two bank guarantees in favour of the Commissioner of Customs. The Customs Authorities invoked the said bank guarantees. The first petitioner immediately complied with the said invocation by the Customs authorities and handed over the entire amounts under both the aforesaid bank guarantees amounting to Rs.987.24 lakhs to the Customs Authorities. Licence period of Core Health Care Ltd. had not expired when it applied to the Commissioner of Customs (Export) for extension of time for fulfilling of its export obligations. D.G.F.T., respondent no.3 herein extended the time by 12 years with retrospective effect and on Core Health Care Ltd. fulfilling the entire export obligations. Thus, the DGFT extended time and issued the export obligations discharge certificate (E.O.D.C.), certifying that the entire export obligations of which the said bank guarantees were issued, had been fulfilled in its entirety. 4. However, even before the export obligations were fulfilled, D.G.F.T. had expressed in writing and granted permission to Core Health Care Ltd. to issue fresh bank guarantee after seeking the return of money from the Customs authorities. Core Health Care Ltd. wrote to the Customs authorities to return the entire amounts under the said two bank guarantees to the 1st :4: petitioner by accepting fresh bank guarantee issued by the first petitioner seeking the return of money from the Customs authorities. Request of Core Health Care Ltd. as well as by the first petitioner for return of the money by accepting fresh bank guarantees were never replied to by the respondents. In these circumstances, petitioners filed writ petition before this Court vide Writ Petition No.2451 of 07. The said writ petition was dismissed by the order dated 22nd February, 2008. Against that order petitioners have filed S.L.P. Supreme Court has directed notice to be issued to the respondents. Notice has been issued. It is the case of the petitioners that they became aware of Circular No.2 of 2008 dated 22nd November, 2008 on 22.12.2008 from one of the customers of the first petitioner. Petitioner by letter dated 31.12.2001 protested before the 2nd respondent with regard to the issue of said circular and requested the 2nd respondent to forthwith withdraw the same. As the same hasnot been withdrawn, the present petition. 5. At the hearing of this petition on behalf of the petitioner, learned counsel have raised the amongst others the following grounds: a) the said Circular dated 22.11.2008 and the said action is an illegal attempt by the 2nd respondent to coerce the petitioners from withdrawing its said Special Leave Petition :5: pending before the Hon’ble Supreme Court of India. It is highly improper for an officer of the rank of the 2nd respondent to behave in the manner that he has by issuing a Circular, such as the present one, with regard to the very subject matter of the case pending before the Hon’ble Supreme Court of India. b) The observation of the 2nd Respondent in its said Circular dated 22.11.2008 that by filing the proceedings before this Hon’ble Court and pursuing the Special Leave Petition in the Hon’ble Supreme Court of India, the 1st petitioner is not honouring the Bank Guarantees given by its to the department on behalf of its clients and that by pursuing the said remedies the 1st petitioner is defeating the very purpose of the Bank Guarantees, is uncalled for and can never be arrived at, particularly in view of the fact that has also been admitted in the said Circular that the Department encashed the Bank Guarantees i.e. the same were invoked by the Customs Authorities and the payment in that regard was made by the 1st petitioner. Once it is admitted that the 1st petitioner has actually honoured the said Bank Guarantees, it cannot be observed by the 2nd Respondent that the 1st petitioner is not honouring the Bank Guarantees given on behalf of its customers or that the 1st petitioner is avoiding the performance of the Bank Guarantees. It is pertinent also to note that the Bank has only after honouring the Bank Guarantees and making over the entire payment of Rs.987.24 lakhs to the Customs Department, taken recourse to legal remedies available to it under the law. The said Circular dated 22nd November, 2008 is therefore, not only illegal but is also an attempt to coerce the petitioners to prevent it from pursuing its legal remedies under the law. The said Circular seeks to punish the petitioners for pursuing their remedies available in law. The Petitioners say and submit that there is no cause and/or reason for the Commissioner to have observed as he has in the said Circular dated 22.11.2008 , particularly in view of the fact that till date the 1st petitioner has never wrongly refused to honour any Bank Guarantee issued by it in favour of any authority on behalf of its customers. f) The said Circular dated 22.11.2008 is also contrary to and violative of Article 14 of the Constitution of India inasmuch as other Banks similarly placed are being allowed to furnish the Bank Guarantees on behalf of their customers and :6: which are being accepted by the Customs Authorities whereas due to the issue of the said Circular dated 22.11.2008 all the Customs Authorities are refusing to accept the Bank Guarantees furnished by the 1st petitioner in favour of the Customs Department on behalf of its customers. g) The conclusion arrived at in the said Circular dated 22.11.2008 is such that no reasonable man would arrive at in the facts and circumstances of the case, the petitioners say and submit that merely by pursuing its legal remedy only after honouring the Bank Guarantees issued by it, the 1st petitioner cannot be said to have not honoured the Bank Guarantees given by it to the Department on behalf of its client nor can it be said that the 1st petitioner has defeated the very purpose of the Bank Guarantees only for this reason. Such a generalisation due to only one such instance that too an instance, where such a conclusion is arrived at by it is unjustified and uncalled for, is perverse. h) The said Circular dated 22.11.2008 has been issued ex-parte, without even putting the 1st petitioner to any kind of notice or hearing the 1st petitioner with regard to black listing it by not accepting any Bank Guarantee issued by it in favour of Customs Department on behalf of its customers. The Petitioners say and submit that by the said Circular the 2nd Respondent has affected the rights of the Petitioners to carry on its business and to issue the Bank Guarantees on behalf of its customers. The said rights of the Petitioners has been taken away by the said Circular without putting the Petitioners to notice and/or without hearing the Petitioners in the matter before issuing of any such Circular. j) The said Circular dated 22.11.2008 not only effects the rights of the petitioners to carry on the business and issue Bank Guarantees in the normal course of its business for its customers but it also affects all its customers, who are part of the general public, for being able to furnish the Bank Guarantees by the 1st Petitioner. By issue of the said Circular not only the 1st Petitioner but also the general public has been put in grave hardship and inconvenience and loss. Accordingly, the issue of the said Circular dated 22.11.2008 is not in public interest. :7: 6. Petitioners have, therefore, prayed for quashing of Circular dated 22.11.2008 by way of writ of certiorari or in the alternative, writ of mandamus directing the first respondent to withdraw the Circular and publish the same to all concerned and directing the respondents not to take any action pursuant to and/or in implementing the said Circular dated 22.11.2008 and to direct the 5th Respondent to issue necessary instructions and orders to all concerned to the effect that the bank guarantees issued by the 1st petitioner must be accepted and further, the fifth respondent to take action as is required in law against the 2nd respondent for issuing the Circular dated 22.11.2008. 7. Reply has been filed on behalf of the respondent nos.1,2,4 and 5. It is set out in paragraphs 5,6 as under: "5(vi) Inspite of the above observation of the Bombay High Court in Writ Petition No.2451/07, the Petitioner filed S.L.P.No.15875/08 in the Hon’ble Supreme Court, wherein Respondent have been made party which is unwarranted. The Petitioner have created unnecessary dragged the litigation by filing SLP in the matter." Reference is made to the guide-lines issued by the Reserve Bank of India. In paragraph 8, it is set out that "Since the Writ Petition had been dismissed on merits, there was no scope for filing SLP in the matter :8: when it is contrary to RBI Guidelines." Thereafter, in paragraph 11, it is set out as under: "(g) I say and submit that The Respondent has allowed the Bank Guarantees issued by the petitioner but the conduct of the petitioner has caused hardship to Respondent No.2. The non-commitment and irresponsible action by the petitioner has compelled the Respondent No.2 to initiate steps to protect and safeguard the interest of the Government. By seeking the refund of the Bank Guarantee amount, and filing Writ Petition in the Hon’ble High Court and further appeal in the Hon’ble Supreme Court challenging the authority of the Customs to encash the Bank Guarantee, the actions of the petitioner tantamounts to dishonouring the Bank Guarantee. The very purpose of executing Bank Guarantee is defeated by the said actions of the petitioner. (h) & (i) I say and submit that the petitioner is making payments and seeking refunds and filing writs against these payments with Respondent No.2 where the importer should agitate. The petitioner is fitting into the shoes of the importer and unnecessarily fighting the case even when the importer/aggrieved parties are silent about the issues. The petitioner is not only causing undue hardship to the Respondent but at the same time the petitioner is wasting their own money and time and hampering their own image and holding Respondent No.2 responsible for his deeds which is highly unwarranted and uncalled for. 8. Additional affidavit has been filed on 26th March, 2009 wherein a reference is made to the petitioner refusing to honour the Bank Guarantee for a sum of Rs.75,000/-. In the further affidavit dated 23rd April, 2009, it is set out, that the present dispute is the purported right claimed by the petitioner-Bank in respect of certain instructions issued by the Bank :9: vis-a-vis the petitioner-bank to its own departments or Cargo Department. Air Cargo department with which the present issues are concerned, has dealing with the petitioner no.1 in respect of bank guarantees only to the extent of about 1%. 99% of the bank guarantees are executed by other commercial banks for several years including renewal guarantees. While dealing with a commercial bank, the Department is fully justified in instructing its officers not to have dealing with a bank which claims a totally different procedure and thereby creates problems for the Air Cargo Department vis-a-vis the Bank. There is nothing wrong in that. The air cargo department is entitled to protect the revenue interest. In its effort to protect such interest, if it insists on bank guarantees of a particular type which makes its task easy for ensuring the revenue protection there is nothing wrong." We may also refer to the following averments from paragraph 12 of the affidavit. "12. I will now refer to the first affidavit filed on behalf of the Department. In para 6, there is a reference to the harassment done by the said Bank in another case. The said case was dismissed by this Hon’ble Court and the petitioner preferred an SLP. Unintentionally the deponent has used certain words. The petitioner has gone to the extent of alleging that by using such expression the deponent and the Department has shown total disrespect for the Hon’ble Supreme Court. I respectfully submit that it is too much for such a reputed bank to rely upon such interpretation and blame the deponent that the intention which obviously did not exist. The deponent intended that if a Bank is inclined to litigate in these matters to such an extent then :10: it is advisable that commercial Bank transactions are not contemplated with such Bank. However, in order to avoid all controversies and/or the discussion being diverted to unnecessary area, I pray that the Hon’ble Court may permit the Department to delete the words "which is unwarranted" in 4th line of the said para 6 on page 88 which is unwarranted. The next two lines starting with the word "petitioner" and ending with the words "in the matter" may also be kindly permitted to be deleted. This clarifies the bonafides of the intention of the Department." 9. Considering the above contentions, we will now deal with the submissions as urged. At the outset, it may be submitted that the Circular issued by the 2nd respondent does not deal with particular type of bank guarantee, which the respondent no.3 insists upon. In the matter of receiving bank guarantee in a particular format, it is open to the respondents to accept bank guarantees from the petitioner no.1 or any other commercial bank of a type it insists. That would be a policy decision and this Court ordinarily would not interfere with that policy decision. The Circular as read does not address itself to this issue of a particular type of Bank Guarantee. 10. The Circular has the effect only on the petitioner no.1 and its customers. As per the Circular, respondent no.2 has directed its officers and departments not to accept Bank Guarantees issued by the petitioner no.1 at Air Cargo Complex until further orders. Respondents No.2 while dealing with the public :11: in the instant case Commercial Banks have the duty to act fairly. Their acts should not result in denying to the petitioner no.1 an equal opportunity of furnishing bank guarantee like any other commercial bank which would visit the petitioner no.1 with civil consequences. Circular of the nature issued in its administrative power barring the petitioner no.1 from supplying bank guarantees to exporters, who have the business with Air Cargo Complex would be arbitrary. According to the respondent no.3 itself, the petitioner no.1 has been issuing bank guarantees to the extent of 1% of the bank guarantees furnished at Air Cargo Complex. When the respondent no.2 directed that the bank guarantees of the petitioner no.1/bank should not be accepted, it has the effect of visiting the petitioner no.1 with civil consequences. In these circumstances, before passing an order having visited the petitioner no.1 with civil consequences, the respondents ought to have given to the petitioner an opportunity of being heard. That opportunity was not given even after the petitioner no.1 protested and sought for revocation. In these circumstances, in our opinion, Circular on this count alone is liable to be set aside. 11. Respondents in answer to the various challenges raised by the petitioner by their affidavits sought to contend that the Circular was issued not because the petitioner moved the Hon’ble Supreme :12: Court but it was in the view of the petitioner no.1 dishonouring the bank guarantee. In the circular atleast, the said aspect is not reflected. In the petition and in the original reply filed also, this aspect is not reflected. If the respondent no.3 has taken an administrative decision, that decision must reflect what is set out in the Circular. It would not be open to the respondent no.3 to give additional reasons in support of the said Circular. The said circular must stand or fall on its own. No such records have been produced. In our opinion, no reasonable person instructed in law could have taken a decision as by the respondent no.2 merely because petitioner no.1 was pursuing its legal remedies. Action of the respondent no.2 would, therefore, be arbitrary and consequently, on that count also the Circular is liable to be strucked off. 12. For the aforesaid reasons, it is not necessary to deal with other challenges. In our opinion, petition will have to be allowed. In the light of that, rule is made absolute in terms of prayer clause (a) as also prayer clause (b)(3) which reads as under: "b)(iii). directing the 5th respondent to issue necessary instructions and orders to all concerned to the effect that Bank Guarantees issued by the 1st Petitioner must be accepted and further the 5th Respondent to take action as is required in law against the 2nd Respondent for :13: issuing the Circular dated 22.11.2008." We make it clear that merely because we have struck down the Circular would not prevent the respondent no.3 from otherwise if entitled to take any other steps which in law, they may be entitled. It is further made clear that it is open to the respondent no.3 to take a policy decision in the matter of issuing circulars of accepting bank guarantees but this would not infract Article 14 of the Constitution of India. (J.H.Bhatia, J.) (F.I.Rebello, J.) (J.H.Bhatia, J.) (F.I.Rebello, J.) (J.H.Bhatia, J.) (F.I.Rebello, J.)