?. r^ 1 IN THE HIGH COURTOFCHHAmSGARIiAT_BILASPUR WRIT PETITION 10 N0. ^~^3-B OF 2011 PETITIONER RESPONDENTS ^ :y/.<^": .^ ^y..^ Nova Iron & Steel Limited, ^ A Company incorporated Under Companies Act, 1956 through its.Senior General Manager (Comm),Shri B. B. Shrivastava,S/o Shri O.B.L. Shrivastava, having its Office and Plant at P.0. Dagori, Tehsil Belha, Disft, Bilaspur (Chhattisgarh) VERSUS 1. Coal India Limited (A Government of India Undertaking) 10, Netaji Subhas Road, Kolkata 700001 through its Chairman Cum- Managing Director. ^,2. South Eastern Coalfields Ltd. A Mini Ratna Category Co., (A subsidiaiy of Coal India Ltd.) having its registered Office at Seepat Road, Bilaspur (Chhattisgarh) Through its ChiefGeneral Manager (SSsM), Bilaspur 3. The Manager (Finance), South Eastem Coatfields Etd. 13, R. N. Mukherjee Road, Kolkata-700001 (W.Bengal) 4. - Bank of India, Kolkata Main Branch, 23A, Netaji Subhas Road, Kolkata 700 001 through its Manager. Chief Manager, Bank of ' India, Bilaspur . Branch, Dayalband, Bilaspur (CG) ^ v WRFI* PETITION UNDER ARTICLE 226/227_Qf^THE CONSTITUTION OF INDIA FOR ISSUANCEOF WRIT IN NATURE OF CERTIORARI, MANDAMUS, PROHIBITIQN AND OTHER SUITABLE WRIT OR WRITS, DIRECTION OR DIRECTIONS, ORDER^OR ORDERS: The petitioner Company, above-named, most respectfully submits as under: >. .-.-i" HIGH COURT OF CHHATTISGARH, BILASPUR Division Bench: Hon'ble Shri Sunil Kuniar Sinha SB. Hon'ble Shri Radhe Shyani Sharina, J J Writ Petition (C) No. 2728 of2011 Nova Iron 8s Steel Limited Vs. Coal India Liniited 85 Others JUDGMENT For consideration Sd/- Sunil Kumar Sinha Judge HON'BLE SHRI JUSTICE RADHE SHYAM SHARMA ^ c^aw^^ Sd/- RADHE SHYAM SHABMA Judge Post for Judgment : /3/ 10/2011 Sd/- Sunil Kumar Sinha Judge • -ntT^^SKtlir-iT'^T---':" ly -w HIGH COURT OF CHHATTISGARH, BILASPUR Division Bench: Hon'ble Shri Sunil Kumar Sinha Ss Hon'ble Shri Radhe Shyam. Sharma, J J PETITIONER Writ Petition No. 2728 of 2011 Nova Iron 8s Steel Limited, A Company incorporated Under Companies Act, 1956 through its Senior General Manager (Comm.), SHri B.B. Shrivastava, S/o Shri O.B.L. Shrivastava, having its OfBce and Plant at P.0. Dagori, Tehsil Belha, Distt. Bilaspur (Chhattisgarh) Versus RESPONDENTS 1 Coal India Limited (A Government of India Undertaking) 10, Netaji Subhas Road, Kolkata 700001 through its Chairman Cum-Managing Director 2 South Eastern Coalfields Ltd. A Mini Ratana Category Co., (A subsidiary of Coal India Ltd.) having its registered Office at Seepat Road, • Bilaspur (Chhattisgarh) Through its Chief General Manager (S 85 M), Bilaspur 3 The Manager (Finance), South Eastern Coalfields Ltd. 13, R.N. Mukherjee Road, Kolkata- 700001 (W.Bengal) 4 Bank of India, Kolkata Main Branch, 23A, Netaji Subhas Road, Kolkata 700001 through its Manager 5 Chief Manager, Bank of India, Bilaspur Branch, Dayalband, Bilaspur (CG) (Writ Petition under Article 226/227 ofthe Constitution oflndia) Writ Petition CC) No. 2728 of2QU Appearance: Mr. Ravindra Shrivastava, Senior Advocate with Mr. Ashish Shrivastava, Nakul Mohta 85 Mr. Rahul Shrivastava, Advocates for the petitioner. Dr. N.K. Shukla, Senior Advocate with Mr. R.K. Gupta, Advocate for respondents 1 to 3. Mr. Anand Shukla, Advocate for respondents 4 8s 5. JUDGMENT (13.10.2011) Following judgment of the Court was delivered by Sunil Kuniar Sinha, J. (1) The petitioner is a registered con'ipany, having its Sponge Iron Manufacturing Plant at Nova Nagar, Dagori, District Bilaspur (Chhattisgarh). The petitioner-company entered into a coal supply agreement with South Eastern Coalflelds Limited (SECL) on 28.4.2008 with regard to supply of coal for its Sponge Iron Manufacturing Plant. The period of agreement was 5 years from fhe effective date i.e. 28.4.2008. On behalf of the petitioner as per Clauses of the Agreement, 3 bank guarantees total amounting to Rs.1,37,70,000/- were issued by the concerned Branch of respondents 4 85 5 to the SECL. The Annual Contract Quantity (ACQ) of coal agreed to be supplied by the SECL and undertaken to be purchased by the petitioner was 1,35,000 tonnes from the SECL Mines in Korba Coalfields and/or from international sources and for part of year, the ACQ was to be prorated 'accordingly. Clause 4.5. of the Agreement deals with the compensation for short delivery/lifting. Clause 4.5.1 provides that if for a Year, the Level of Delivery by the Seller, or the Level of Writ Petition (0 No. 2728 of201 Lifting by the Purchaser falls below 100% with respect to that Year, the defaulting Party shall be liable to pay compensation to the other Party for such shortfall in Level of Delivery or Level of Lifting, as the case may be, in terms of the specification of the said Clause. Clause 4.5.2 provides that compen&ation for short supply/lifting shall be payable by the defaulting Party to the other Party within a period of 90 days from. the date of receipt of claim. In the event of non-payment within the due date, the defaulting Party shall be liable to pay interest as mentioned in the Clause 13. Clause 16 of the Agreement provides for termination of contract/agreement. Clause 16.1.4 provides that in the event that the Level of Deliveiy (LD) falls below thirty percent (30%) or the Level of Lifting (LL) falls below thirty percent (30%), the Purchaser or the Seller as the case may be, shall have the right to terminate the Agreement, within sixty (60) days of the end of the relevant Year after providing the other Party with prior written notice of not less than thirty (30) days. Clause 16.1.8 further provides that in the event that any Party commits a breach of term or condition of the Agreement ("Defaulting Party") not otherwise specified under the clause 16.1, the other Party ("Non-Defaulting Party"), shall have the right to terminate the Agreement after providing the Defaulting Party thirty (30) days prior notice and the breach has not been cured or rectified to the satisfaction of the Non- Defaulting Party within the said period of thirty (30) days. Further Clause 3.7 provides that in the event of termination of the Agreement by the Seller in accordance with Clause 16.1.4 to /' Writ Petition (0 No. 2728 of2011 16.1.8, the Seller shall be entitled to forfeit the Security Deposit of the Purchaser in addition to any other hght vested with the Seller upon such termination. (2| On account of the petitioner's having booked less than 30% ofACQ under subject agreement for the year 2010-2011, the coal supply agreement was terminated in terms of CIause 16.1.4 and the bank guarantees were invoked as per Clause 3.7 and impugned communication dated 7/8-4-2011 was served upon the petitioner. The relevant portions of the impugned communication (Annexure-P/1) are quoted as under:- "South Eastern Coalfields Limited 'MINIRATNA' CATEGORY-I COMPANY (A subsidiary of Coal India Limited) Seepat Road, P.0. SECL, Bilaspur-495006 (Chhattisgarh) SECL/BSP/S86M/COMM/168/NI&SL/91 Date: 07.04.20 II/ 08/04/11 Speed Post Office; PIant: Dear Sir, Nova Iron SE Steel Ltd., Nova Nagar, Dagori (PO), Distt. Bilaspur (CG)-495224 Nova Iron & Steel Ltd., Nova Nagar, Dagori (PO), Distt. Bilaspur (CG)-495224 Sub.: Termination ofCoal Supply Agreement Coal Supply Agreement dated 28.04.2008 (*) was signed between SECL and Nova Iron 6s Steel Ltd. for Sponge Iron Plant at Nova Nagar, Dagori (PO), Distt. Bilaspur (CG)-495224 having ACQ of 1,35,000 tonnes. As per records, it has been found that the Purchaser has booked less fhan 30% of ACQ under the said Coal Supply Agreement for the year 2010-11. In view of the above, it is bereby mformed that termination .of aforesaid Agreement and forfeiture of Security Deposit is being done in tenns of Clause 16.1.4 and Clause 3.7 ofthe Agreement. (*) FSA sl. no. 163 as per SECL list. Yours faitbfully, Sd/- Chief General Manager (SSsM) / Writ Petition CC) No. 2728 of2011 Copy for information SE necessary action to: 1. GM (QC), SECL, Bilaspur 2. CGM/GM, All Areas, SECL 3. GM (SSsM), SECL, Bilaspur 4. Sr. Manager (S8sM)/(RS), SECL, Bilaspur - With reference to his Note Sheet No. SECL/BSP/S&M/Offer/2124 dated 01.04.2011 5. Sr. Manager (SSsMj/fOprn.), SECL, Bilaspur 6. ASMs, All Areas, SECL 7. Sr. Manager (S66M)/(I/c), SECL, Kolkata 8. Sr. Manager (Finance)/I/c), SECL, Kolkata 9. Sr. Manager (Finance), SSsM Deptt., SECL Bilaspur Copy for kind inforraation to: 1. DT(0), SECL Copy to: 1. SECLWebsite" (3) The SECL, in pursuance of the said action wrote a letter to the bank on 9.5.2011 (Annexue-P/2) for encashment of the bank guarantees amounting to Rs.1,37,70,000/-, and thus, the bank guarantees were invoked. (4) The aforesaid action of the SECL and the two communications referred to above, Annexure-P/ 1 8s P/2, have been challenged in this writ petition. (5) Mr. Ravindra Shrivastava, learned Sr. Counsel appearing on behalf of the petitioner, has argued that the termination of the Agreement is arbitrary and illegal; 30 days notice as required under Clause 16.1.8 was not served on the petitioner and no opportunity of hearing was given to the petitioner before termination of the contract in terms of the above Clause, therefore, there was a failure ofprinciples ofnaturaljustice. '(6) On the other hand, Dr. N.K. Shukla, learned Sr. Counsel appearing on behalf of respondents 1 to 3, opposed these arguments and justified the action taken by SECL. He vehemently Writ Petition (C) No. 2728 of2011 argued that in terms of Clause 15 of the Agreement there is a mechanism for settlement of dispute and in light of the above alternate efficacious remedy, this writ petition would not be maintainable. He cited the decision of this Court in M/s. Lanco A.nw.rkantak_Ppwer Prwate Ltd. -Vs- South Ecistem Cpalfields Ltd. &0rs.. ATR 2009 Chhattisgarh 14 (DB). He further argued that the communication dated 7/8-4-2011 (Annexure-P/1), in fact, is a notice for termination of the contract, after which, the bank guarantees were encash after about 1 month i.e. 9th May, 2011 .Therefore, there is no question of failure of principles of natural justice. (7) We have heard learned counsel for the parties at length and have also perused the records of the writ petition. (8) So far as argument relating to maintainability of the writ petition, in view of the provisions of Clause 15 of the Agreement i.e. mechanism for settiement of dispute, is concerned, we would like to mention a few decisions of the Supreme Court in this regard. (9) In Harbanslat Sahnia and Another -Vs- Indian Oil Corpn. Ltd. and Others, (2003) 2 SCC 107, the Supreme Court held that "The rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compiilsion. In an appropriate case, in spite of availability of the alternative. remedy, the High Court may still exercise its writ /y Writ Petition (C) No. 2728 of2011 jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the fundamental rights; fii) where there is failure of principles of natural justice; or (iii) where fhe orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged." (10) In Union of India and Others -Vs- Tantia Construction Private Lifnited, (20111 5 SCC 697, fhe Supreme Court, relying on the case of Harbanslal Sahnia (supra); Modem Steel Industries - Vs- State of U.P.. 12001] 10 SCC 491: Whirlpool Corpn. -Vs- Registrar of Trade Marks, f1998) 8 SCC 1: NSSO -Vs- Champa Properties Ltd., 12009) 14 SCC 451 & Hindustan PetroleumCorpn. Ltd. -Vs- Super Highwaw Services, (2010) 3 SCC 321, held that "It is now well established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities. Injustice, whenever and wherever it takes place, has to the struck down as an anathema to the rule of law and the provisions of the Constitution. It was held in this case that "Notwithstanding the provisions relating to the arbitration clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the writ petition filed on behalf of fhe respondent Company." ^ Writ Petition CC~) No. 2728 of201 1. (11) If the principles laid down in the above cases are applied in case on hand, it would be clear that present is a case in which there is complete failure of principles of natural justice and by that the decision taken by the SECL becomes wholly unjustified. The contents of Annexure-P/1 would show that the agreement was terminated in terms of Clause 16.1.4 and bank guarantees were invoked under Clause 3.7. For better appreciation, though at the cost of repetition, we would like to reproduce fhe two Clauses of the Agreement i.e. Clause 16.1.4 and 16.1.8 which have been pressed into motion by SECL. The above Clauses read as under:- "16.1.4 In the event that the Level of Deliveiy (LD) falls below thirty percent (30%) or the Level of Lifting (LL) falls below thirty percent (30%), the Purchaser or the Seller as the case may be, shall have the right to terminate the Agreement, within sixty (60) days of the end of the relevant Year after providing the other Party with prior written notice of not less than thirty (30) days. 16.1.8 In the event that any Party com.mits a breach of term or condition of the Agreement ("Defaulting Party") not otherwise specified under the clause 16.1, the other Party ("Non-Defaulting Party"), shall have the right to term.inate the Agreement after providing the Defaulting Party thirty (30) days prior notice and the breach has not been cured or rectified to the satisfaction of the Non- Defaulting Party within the said period of thirty (30) days." (12) A perusal of the above Clauses would show that the seller and purchaser both have been given rights to terminate the agreement, but, the termination cannot take place unless a 30 days written notice is served upon the concerned party. Even for a termination on any other ground which are not specified in Clause 16.1 a 30 days notice has been made mandatory. The language of Writ Petition (0 No. 2728 of2011 'J^ the above two Clauses of the Agreement clearly communicate that the veiy purpose of serving the notice is to caution the defaulting party to cure the breach or rectify the same to the satisfaction of the non-defaulting party wifhin 30 days. This shows that the parties have never agreed to an automatic termination of the Agreement at the instances mentioned in Clause 16.1 or at any other instance of breach of conditions of the Agreement, but, they have been given a valuable right to rectify the default within the specified period and to make good fhe same. That is why the words like "shall have the right to terminate the Agreemenf ha.ve been used in Clause 16.1.4. The provisions of the above Clauses are also to be understood in light of the other provisions of compensation for short lifting/short delivery which are provided under Clause 4.1.5 of the Agreement. All above provisions of the Agreement clearly indicate that a written notice before termination was necessary and a direct decisions of termination without giving notice to the other side would be voilative of principles of natural justice, which we find in the present case. (13) The case of M/s Lanco Amarkantak (supra) relied by Dr. Shukla is distinguishable on facts. In the said case a prior information dated 27/28-2-2007 was issued by the SECL to the petitioner indicating that on account of certain defaults the Agreeraent has become liable for termination. Thereafter the petitioner filed reply and justified the steps taken by it. After the reply, the. petitioner also asked about exact amount of bank 10 Writ Petition (C) No. 2728 of2011 \w guarantee to be submitted towards the commitment advance. The SECL vide its letter dated 7.3.2007 directed the petitioner to furnish the bank guarantee of Rs.15,30,000,00/- towards the commitment advance, which the petitioner fulfilled on 8.3.2007 and then when the petitioner prayed for com.mencement of the supply of coal, the respondents terminated the Agreement and forfeited the bank guarantees. In the said matter, this Court considering many judgments of the Supreme Court, including Harbanslal Sahnia (supra), held on facts that it was not a case in which there was any prayer for enforcement of any fundamental right or there was failure of principles of natural justice or the order or proceedings were wholly without jurisdiction or the vires of an fact was under challenge, and this Court declined to entertain the writ petition. The above judgment was written by one of us {S.K. Sinha, J) which was delivered with the approval of Honlile the Chief Justice. We are of the view that fhe above judgment is distinguishable on facts and the view taken in the said judgment cannot help the respondents in the present case. The present in a case in which there is complete failure of principles of natural justice and the writ petition, therefore, would be maintainable. (14) Dr. Shukla, tried to canvas before us that Annexure-P/1 was in fact a notice under the above Clauses of the Agreement. He tried to justify his arguments by pressing the fact that after issuance of the impugned communication dated 7/8-4-2011, /' 11 Wnt Petition (C) No. 2728 of 2011 which according fo him was a notice as per terms of the Agreement, the bank guarantees were invoked after a month by memo dated 9th May, 2011 (Annexure-P/2), and thus, there was sufficient compliance ofthe principles ofnaturaljustice. (15) We are unable to accept the said argument of Dr. Shukla. We have already quoted the contents of Annexure-P/1. The first two paragraphs of Annexure-P/1 are formal. In third paragraph, it is clearly mentioned that Annexure-P/ 1 was sent to the petitioner informing termination of the agreement and simultaneously regarding taking steps for forfeiture of the security deposit. This can not be held to be a 30 days notice befpre termination of the Agreement. In fact, this is an information of the Agreement already tenninated. Encashment of the bank guarantee is an essential consequence of "termination" and not that of "a notice of termination". It is altogether a different actiion and it cannot be mfaced with the essential requirement of service of 30 days prior notice as per the Agreement. If Annexure P/1 is a notice, as is required, where is the order of termination ? No such subsequent order of termination has been filed by fhe SECL. Even during the course of arguments no such order was shown. (16) In Hindustan Petroleum. Corporatlon Limited and Others -Vs- Super Hifihwaii Services and Another, 12010) 3 SCC 321, the Supreme Court held that "The cancellation of dealership agreement of a party is a serious business and cannot be taken lightly. In order to justify the action taken to terminate such an 12 Writ Petition CC) No. 2728 of20_ll T^ agreenient, the authority concerned has to act fairly and in complete adherence to the rules/guidelines framed for the said purpose. The non-service of notice to the aggrieved person before the termination of his dealership agreeraent also offends the well- established principle that no person should be condemned unheard. It was the duty of the petitioner to ensure that Respondent 1 was given a hearing or at least serious attempts were made to senre him with notice of the proceedings before terminating his agreement." In case on hand, the coal supply agreement has been terrainated without service of notice to the petitioner which is in violation of principle of natural justice. Therefore, the decisions of termination and the two communications (Annexure-P/ SB P/2) deserve to be quashed. (17) Accordingly, the writ petition is allowed and the decision of termination of the Agreement as also the two communications dated 7/8-4-2011 (Annexure-P/1) and 9.5.2011 (Annexure-P/2) are quashed. The consequence of quashing the above decision/communications shall be followed. It is left open to the SECL to take appropriate steps against the petitioner on account of alleged default committed by the petitioner in lifting of the coal after due compliance of fhe provisions of various Clauses of the Agreement including the Clauses referred to above. (18) There shall be no order as to cost. iatti Sd/- Sunil Kumar Sinha Judge Sd/- RADHE SHYAM SHABMA Judge