IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 01..04..2008 C O R A M The Honourable Mr. A.P. Shah, Chief Justice and The Honourable Mrs. Justice Prabha Sridevan Writ Appeal Nos.1488, 1502 and 1562 of 2007 1. Neyveli Lignite Corporation Limited (A Govt. of India Enterprise), Disposal Wing, Marketing Branch, Card Complex, Office of the Deputy General Manager, Chemical Units, Neyveli-607 807. 2. Neyveli Lignite Corporation Limited, Having its Registered Office at 'Neyveli House', rep. by its Deputy General Manager, Chemical Units, 135, Periyar E.V.R. High Road, .. Appellants in Kilpauk, Chennai-10. W.A.1488 of 2007 The State Trading Corporation of India Limited, Having its Registered Office at No.1, .. Appellant in Tolstoy Marg, New Delhi-1. W.A.1502 of 2007 M/s. Metro Machinery Traders, No.42, II Floor, Nishant Kunj, Pitampura, Delhi-110 088, .. Appellant in Rep. by its partner Ram Kishan. W.A.1562 of 2007 versus 1. M/s. Metro Machinery Traders, No.42, II Floor, Nishant Kunj, Pitampura, Delhi-110 088, Rep. by its partner Ram Kishan. 2. Union of India, Rep. by its Secretary, Ministry of Coal and Mines, Central Secretariat, New Delhi. https://hcservices.ecourts.gov.in/hcservices/ 3. State Trading Corporation of India Limited, Having its Registered Office at No.1, Toistory Marketing, New Delhi-3. 4. Metal Scrap Trading Corporation (A Govt. of India Enterprise), 'Ranka Chambers', 31, First Floor, Cunningham Road, Bangalore-560 052. 5. The Director, Directorate of Revenue Intelligence, No.25, Gopalakrishna Iyer Road, .. Respondents in T. Nagar, Chennai-17. W.A.1488 of 2007 1. M/s. Metro Machinery Traders, No.42, II Floor, Nishant Kunj, Pitampura, Delhi-110 088, Rep. by its partner Ram Kishan. 2. Neyveli Lignite Corporation Limited (A Govt. of India Enterprise), Disposal Wing, Marketing Branch, Card Complex, Office of the Deputy General Manager, Chemical Units, Neyveli-607 807. 3. Neyveli Lignite Corporation Limited, Having its Registered Office at 'Neyveli House', rep. by its Deputy General Manager, Chemical Units, 135, Periyar E.V.R. High Road, .. Respondents in Kilpauk, Chennai-10. 4. M/s. Metal Scrap Trading Corporation, (A Government of India Enterprises) Ranka Chambers, 31, 1st Floor, Cunningham Road, Bangalore. 5. The Director, Directorate of Revenue Intelligence, No.25, Gopalakrishna Iyer Road, T.Nagar, Chennai - 17. 6. Union of India, rep. by its Secretary, Ministry of Coal and Mines, Central Secretariat, New Delhi. ... Respondents in W.A.1502 of 2007 https://hcservices.ecourts.gov.in/hcservices/ 1. Union of India, Rep. by its Secretary, Ministry of Coal and Mines, Central Secretariat, New Delhi. 2. Neyveli Lignite Corporation Limited (A Govt. of India Enterprise), Disposal Wing, Marketing Branch, Card Complex, Office of the Deputy General Manager, Chemical Units, Neyveli-607 807. 3. Neyveli Lignite Corporation Limited, Having its Registered Office at 'Neyveli House', rep. by its Deputy General Manager, Chemical Units, 135, Periyar E.V.R. High Road, Kilpauk, Chennai-10. 4. State Trading Corporation of India Limited, Having its Registered Office at No.1, Toistory Marketing, New Delhi-3. 5. Metal Scrap Trading Corporation (A Govt. of India Enterprise), 'Ranka Chambers', 31, First Floor, Cunningham Road, Bangalore-560 052. 6 The Director, Directorate of Revenue Intelligence, No.25, Gopalakrishna Iyer Road, .. Respondents in T. Nagar, Chennai-17. W.A.1562 of 2007 Prayer : Appeals filed under Clause 15 of the Letters Patent against the order of a learned single Judge of this Court dated 26.10.2007 passed in W.P. No.43497 of 2006 presented under Article 226 of the Constitution of India to issue a Writ of Certiorarified Mandamus calling for the records relating to the sale order/Acceptance Letter No.MSTC/S/NLC/EA-14/2005- 06/101/008, dated 01.04.2005 issued by the fifth respondent and quash the same and direct the second and third respondents to return the amount of Rs.163,49,96,511/- (Rupees One Hundred and Sixty Three Crores forty Nine lakhs Ninety Six Thousand and Five Hundred and Eleven only) after deducting the amounts already received, with interest at the rate of 18% from 30.04.2005 to the petitioner. https://hcservices.ecourts.gov.in/hcservices/ W.A. No.1488 of 2007 For Appellants and RR2 & 3 in WA.1502/07 and 1562/07 : Mr. N.A.K. Sarma For Respondent-1, R1 in : Mr. G.L. Rawal, Senior Counsel WA.1502/07 and Appellant and Mr. K.S. Vasan for in WA.1562/07 M/s. Murthy & Vasan. For Respondent-2 and R1 in WA.1562/07 and R6 in WA.1502/07 : Mr. V.T. Gopalan, Senior Counsel for Mr. P. Wilson, Asst. Solicitor General. For Respondent-3 and R4 in WA.1562/07 : Mr. D. Roy Choudhuri, Senior Counsel for Mr. S. Umapathy For Respondent-4 and R4 : Mr. A.L. Somayaji, Senior Counsel in WA.1502/07, for Mr. F.B. Benjamin George R5 in WA.1562/07 For Respondent-5 and R5 in WA.1502/07 R6 in WA.1562/07 : Mr. P. Wilson, Asst. Solicitor General of India J U D G M E N T ( Delivered by Prabha Sridevan, J. ) The writ petition was filed by the first respondent in W.A. No.1562 of 2007 for quashing the Sale Order/Acceptance Letter No.MSTC/S/NLC/EA- 14/2005-06/101/008 dated 1.4.2005 issued by the fifth respondent, quash the same and direct the second and third respondents to return the amount of Rs.163,49,96,511/- after deducting the amounts already received, with interest at the rate of 18% from 30.4.2005 to the petitioner. The writ petition was dismissed on the ground that facts are disputed and they must be established before a court of law by adducing sufficient proof and that the writ court cannot grant the relief sought for. But, while dismissing the writ petition, the learned single Judge gave findings that the contract between the parties was void ab initio, that the appellant in W.A. No.1488 of 2007 (respondent in the writ petition) had committed fraud and answered these questions in favour of the writ petitioner. Aggrieved by that, W.A. No.1488 of 2007 has been filed on the ground that even if the appellant were to go before a forum where a decision on fact could be obtained, these findings would operate against them. W.A. No.1502 of 2007 has been https://hcservices.ecourts.gov.in/hcservices/ filed for restitution of the money invested by the appellant in the said appeal. W.A. No.1562 of 2007 has been filed by the writ petitioner against rejection of monetary relief as prayed for. 2. The facts of the case are briefly stated hereunder : The appellant in W.A. No.1488 of 2007, Neyveli Lignite Corporation Limited, 'NLC' for short, intended to set up and install a fertilizer plant some time in the 1960s and for installation of the fertilizer plant, some input machineries were imported. Some time in the 1990s, the plant had to be revamped and therefore, NLC imported certain machineries and equipments for utilisation of the same in revamping. But thereafter, the pricing policy of the Government of India made the fertilizer plant totally unviable. NLC decided to close down the fertilizer unit with effect from 28.1.2002. A decision was taken to dispose of the entire plant and machinery on an 'as is where is basis' by a process of e-auction to be conducted by the Metal Scrap Trading Corporation (MSTC). According to NLC, no restriction or condition had to be fulfilled before this could be disposed of. However, NLC informed the Commissioner of Central Excise and Customs by their letter dated 24.5.2004, of its proposal to dispose of the fertilizer plant. On 7.6.2004, the Superintendent of Central Excise, Virudhachalam sought certain clarifications and also visited the fertilizer plant. On 30.6.2006, NLC replied to the Central Excise authorities that the machineries were imported for revamping the fertilizer plant after payment of Customs/Excise duty as applicable and furnished all the necessary details. On 2.7.2004, the Superintendent, Central Excise asked for details of machineries imported with partial/full exemption of Customs Duty and Bills of Entry for the same. On 10.7.2004, NLC gave full details of the equipment imported by the fertilizer plant along with copies of Bills of Entries and the copies of the relevant Customs Duty Exemption Notifications of the Government of India. 3. About seven months thereafter, on 25.2.2005, NLC conducted through MSTC, the e-auction for the disposal of the disbanded fertilizer plant. Metro Machinery Traders (MMT), the writ petitioner (appellant in W.A. No.1562 of 2007) offered Rs.132 Crores and was the highest bidder. It furnished demand drafts for a sum of Rs.13.2 Crores in favour of NLC as a security deposit. MSTC, as the selling agent of NLC, issued the Sale Order/Acceptance Letter in favour of MMT on 1.4.2005, which is sought to be quashed in the writ petition. On 29.4.2005, MMT entered into a Memorandum of Understanding with the appellant in W.A. No.1502 of 2007, i.e., the State Trading Corporation of India ('STC' for short). The sale consideration as per the MoU was Rs.149,79,96,511/-. On the same day, a sale agreement and a pledge deed were also executed. On 30.4.2005, MMT deposited the above sum of Rs.149 Crores towards full payment to NLC. On 11.5.2005, MMT obtained factory licence and on 18.5.2005, NLC issued the delivery order. The delivery period was 370 days, i.e. from 19.5.2005 to 23.5.2006. NLC also informed the https://hcservices.ecourts.gov.in/hcservices/ Superintendent of Central Excise about the e-auction and the fact that MMT had purchased the plant and machinery. This was on 30.6.2005. On 23.4.2006, MMT requested NLC to extend the time for finishing the work stating that almost 75% of the dismantling work had been completed. On 25.4.2006, MMT sent a legal notice to STC calling upon them to refund the cheque for the sum of Rs.150 Crores which was given as a security by MMT. On 1.5.2006, MMT issued a legal notice to STC and called upon them to remove the dismantled plant and machinery and continue to remove whatever stands dismantled from time to time and go ahead with the sale. 4. On 19.5.2006, STC filed a petition under the Arbitration and Conciliation Act before the Delhi High Court. An ex parte interim order was passed by the Delhi High Court restraining NLC from paying any amount to MMT and appointed an Advocate Commissioner. On 7.6.2006, the Director of Revenue Intelligence (DRI), Trichy informed NLC to arrange for an on-the-spot verification. The Advocate Commissioner appointed by the Delhi High Court visited the fertilizer plant on between 7.6.2006 and 15.6.2006 and prepared an inventory. The officials of DRI visited NLC, perused the files and recorded some statements. On 19.6.2006, the DRI informed NLC that "the goods/spares imported under concessional rate of Customs Duty and used in the revamping of the said fertilizer plant should not be disposed of or removed till the investigation by the Directorate is complete". NLC filed a detailed counter before the Delhi High Court. On 7.8.2006, the Delhi High Court passed an order appointing STC as the Receiver and directing NLC to facilitate the sale. Pursuant to this order, on 22.8.2006, MMT requested NLC to permit them to dispatch the materials to their buyers with immediate effect. On 23.8.2006, NLC intimated the order of the Delhi High Court to the DRI and on 24.8.2006, the DRI instructed NLC to strictly adhere to their letter dated 20.6.2006, by which they were asked not to remove or dispose of the goods imported under concessional rate of Customs Duty and used in the revamping of the fertilizer plant until investigation by the DRI is complete. On 25.8.2006, NLC permitted MMT to take delivery of the materials under the control of the Court Receiver. On 26.8.2006, MMT through STC removed 38 truckloads of dismantled materials from 26.8.2006 to 2.9.2006. On 29.8.2006, NLC asked MMT to remove without any delay, all the materials, except the imported materials. On 1.9.2006, MMT sent a legal notice to NLC demanding refund of the EMD. On 2.9.2006, NLC reiterated its request to MMT to remove the indigenous machineries and loose items, except the imported materials, without any delay. On 13.9.2006, NLC granted MMT, extension of delivery period by 75 days. On 14.9.2006, the DRI seized the imported materials alone out of the materials not yet removed by MMT and prepared a mahazar. 5. On 18.9.2006, NLC filed an application before the Delhi High Court to implead the DRI and the Commissioner (Customs) as parties. On 20.9.2006, the Delhi High Court rejected the application filed by NLC. On 26.9.2006, NLC requested the DRI to permit the removal of the imported materials also, against bond. On 27.9.2006, the DRI issued https://hcservices.ecourts.gov.in/hcservices/ summons under Section 108 of the Customs Act, 1962 to the Managing Partner of MMT. On 30.9.2006, MMT sent a legal notice to NLC demanding refund of EMD etc. On 19.10.2006, the Delhi High Court passed an order restraining MMT from transferring, alienating or encumbering the properties of respondents 1 to 8 s per Annexure 'C' to that application. On 4.11.2006, NLC replied to MMT's notice dated 1.9.2006. On 6.11.2006, MMT filed the present writ petition for quashing the sale notice and for the monetary relief as stated earlier. 6. Before the learned single Judge, NLC contended that the writ petition was not maintainable since there were disputed questions of fact and that there was an arbitral clause in the agreement entered into between the parties and the same has to be invoked. The learned single Judge accepted the case that there were two independent transactions, one between MMT and NLC, which culminated in the auction sale and the other between MMT and STC, which was subjudice. The learned Judge, however, with regard to the transaction between MMT and NLC, held that NLC had knowledge about the importation of the goods subject to the Notification and that it could be sold only after the dutis are cleared and otherwise, the stringent provision under the law would follow. The learned Judge held that the machinery had been imported and there was a ban for sale of the property without the clearance from the Department and therefore, the sale was forbidden by law and that it is a contract void ab initio. According to the learned Judge, the factual position with regard to the payment of concession and duties and the use of the imported materials for its own purpose were matters within the special knowledge of NLC and the bidders were not put on notice of this position and therefore, the officials, who (should have got the clear knowledge of the transactions) and had a duty to bring it to the notice of the auction purchasers, had not done so and that no one would have ventured to purchase the properties when it was under the active clutches of law and that concealment is evident and having come to the above conclusions, answered the question regarding whether the contract was void ab initio and whether there was fraud in favour of MMT. But, as regards the remedy that MMT claimed, the learned Judge, while referring to Clause 59 of the agreement, which is the arbitration clause, held that when the contract is prohibited by law, even if there was an independent arbitration clause, no one can derive benefit from the void contract. Therefore, according to the learned Judge, the parties cannot invoke the arbitration clause. As far as quantification of the monetary relief is concerned, the learned Judge had considered the facts relating to the dismantling and removal of the goods and held that a perusal of these details would clearly reveal all the facts "except the value of the materials removed". Therefore, the learned Judge held that in a case like this, "Where the petitioner wants to have the entire amount to be refunded, unless and until facts regarding the value of the machineries removed are not certain, the Court cannot grant the relief sought for". Therefore, the learned Judge held that the Court is unable to grant the relief and it could be decided "only by a court of civil https://hcservices.ecourts.gov.in/hcservices/ law" and not by a writ court. The impugned order was passed by the learned single Judge on 26.10.2007. It is against these findings that NLC has filed W.A. No.1488 of 2007; STC has filed W.A. No.1502 of 2007 against the refusal to order restitution and MMT has filed W.A. No.1562 of 2007 against the refusal to grant refund. 7. Heard Mr. N.A.K. Sarma, learned counsel appearing for NLC, Mr. G.L. Rawal, Mr. D. Roy Choudhuri and Mr. A.L. Somayaji, learned senior counsel appearing for the respondents as well as Mr. V.T. Gopalan, learned senior counsel and Mr. P. Wilson, learned Assistant Solicitor General appearing for the Union of India. 8. Learned counsel appearing for NLC filed in Court, brief Notes on the factual aspects of the case. Learned senior counsel appearing for MMT filed written submissions. Learned senior counsel appearing for STC also filed written submissions. 9. Learned counsel appearing for NLC would submit that the impugned order suffers from severe infirmities : (a) When the learned single Judge had come to the conclusion, and rightly so, that there were disputed questions of fact, he ought not to have given any findings regarding factual issues. (b) The finding that the goods were prohibited goods and therefore, the contract was void ab initio is ex facie wrong since the goods at the worst are only dutiable goods. As per the Government Notification, NLC could import the goods subject to certain conditions and according to NLC, those conditions were complied with. The DRI has presently initiated proceedings where this issue would be adjudicated upon and even if the DRI and the Customs Authorities do not accept the case of the appellant, the only consequence would be that the appellant would be called upon to pay the duty because the goods are not prohibited goods and therefore, the contract is not void ab initio. (c) The learned single Judge had erroneously come to the conclusion that there was fraud. To establish fraud, the person alleging it will have to prove that there was active concealment of a material fact and for that, evidence is required; in any event, NLC had laid all the cards on the table. NLC had informed the DRI of the fact that it intended to sell the plant and machinery and that the goods were procured only after paying the duty as applicable, and whatever clarifications were sought for by the Department had been given by NLC and it was several months thereafter that the e-auction was held and during that period, there was no intimation from the DRI, which could in any way have inhibited NLC from proceeding with the e-auction. In these circumstances, there was nothing to be concealed and nothing was in fact concealed. https://hcservices.ecourts.gov.in/hcservices/ (d) Learned counsel submitted that as far as NLC is concerned, the sale had been effected. As per the contract, no re-selling was permitted within the premises of NLC. According to the learned counsel, contrary to the terms of the contract betweenMMT and NLC, MMT had entered into an agreement with STC, by which a sum of Rs.150 Crores had been advanced by STC to MMT, part of which sum was apparently utilised by MMT for making the deposit to NLC. Learned counsel also submitted that it is surprising that STC advanced the money on the basis of no security, apart from the letters from the Valuers. (e) Even assuming the argument that the contract is void ab initio, the contract between the parties contained an arbitration clause and this question as to whether the contract was void is an arbitrable issue and therefore, MMT must go before the arbitrator for resolution of its disputes. (f) In addition, learned counsel submitted that several truckloads had been removed and the learned single Judge had accepted all those documents as though they were proved documents, whereas only in some of the gate passes, the endorsement of STC is there and that too, only as Court Receiver, and some of the others do not bear the endorsement and therefore, there is a serious dispute with regard to the value of the quantity of goods removed. (g) Learned counsel submitted that it is difficult to believe that the writ petitioner, which is a business firm, should now complain that a commercial transaction should be quashed as void, invoking writ jurisdiction and also seeking refund, when all these matters must only be proved by evidence. 10. Learned counsel relied on the following decisions : Har Shankar vs. Dy. Excise & Taxation Commissioner, (1975) 1 S.C.C. 737; State of Orissa vs. Narain Prasad, (1996) 5 S.C.C. 740; Kerala State Electricity Board vs. Kurien E. Kalathil, J.T. 2000 (8) S.C. 167; State of Bihar vs. Jain Plastics and Chemicals Limited, J.T. 2001 (9) S.C. 582; Lexicon Finance Limited vs. Union of India, 2002 (3) Arb. LR 60 (Karnataka) (DB); NIIT Limited vs. Ashish Deb, 2004 (2) L.W. 244; Kvaerner Cementation India Ltd. vs. Bajranglal Agarwal, 2001 (6) Supreme 265; and Shree Ram Mills Ltd. vs. Utility Premises (P) Ltd., (2007) 4 S.C.C. 599 11. Learned senior counsel appearing for MMT submitted that inspite of a recommendation by the Disinvestment Commission that the fertilizer plant was not financially viable and had to be disposed of, the import https://hcservices.ecourts.gov.in/hcservices/ was made in the year 1999. It was submitted that there were post- importation conditions and Condition No.50 of Notification No.20 of 1999 imposes a statutory ban on NLC from parting with or selling the goods without prior permission of the Commissioner of Customs and the goods were sold on an 'as is where is basis', but this impediment, viz. there was a post-importation condition preventing any sale was deliberately suppressed and therefore, this was a fraud which vitiated the contract and rendered it void. It was submitted that it is not correct to state that without any investment on its own, MMT had used public money belonging to STC for this purpose. On the other hand, MMT had already invested Rs.38.70 Crores, out of which Rs.13.70 Crores were deposited with NLC and this investment was made almost three years ago. It was submitted that the condition that the entire dismantling work had to be carried out within 370 days is an unworkable condition since the activities could not be carried out without complying with the requirements of law. It was submitted that it was not correct to state that 75% of the dismantled goods have been removed; actually 75% of the dismantling work alone has been carried out. Learned counsel submitted that the issue relating to two bank cheques of Rs.75 Crores given to STC is not relevant to this controversy. The issue between MMT and STC is an arbitrable one and it is before the Arbitral Tribunal headed by the former Chief Justice of India and therefore, that will be decided in accordance with law. It was explained by the learned senior counsel as to how the scrap was removed and sold, and all the delivery cum gate passes which have been issued would show the quantity of subject goods which have been removed from the premises and from this, the value can be ascertained and this cannot be a disputed question of fact. Learned senior counsel submitted that the very fact that the Customs Authorities had issued summons under Section 108 of the Customs Act to the Managing Partner of MMT would show that the authorities are dealing with the goods as smuggled goods. According to the learned senior counsel, NLC has committed illegality and is now trying to cover up the same. It was submitted that it was not necessary for MMT to approach any other forum in view of the unassailable findings rendered by the learned single Judge on the crucial issues, viz. the fact that the contract is void and that there was fraud on the part of NLC. Once these findings have been arrived at, there is no difficulty at quantifying the monetory value of the claim of MMT. Therefore, the learned senior counsel submitted that the appeal preferred by MMT should be allowed and monetary relief should also be granted. 12. Learned senior counsel relied on A.I.R. 1974 S.C. 2105 [Babubhai Muljibhai Patel vs. Nandlal Khodidas Barot], A.I.R. 1970 S.C. 802 [Gunwant Kaur vs. Bhatinda Municipality] and A.I.R. 1986 S.C. 825 [Chaitanya Kumar vs. State of Karnataka] to support his case that even in exercising its jurisdiction under Article 226, it is possible for the Court to grant the relief, especially when arbitrariness and perversion are writ large. Learned senior counsel also relied on