Case: CHIEF EXECUTIVE OFFICER AND VICE CHAIRMAN GUJARAT MARITIME BOARD Vs. ASIATIC STEEL INDUSTRIES LTD AND ORS

The brief facts that arise for consideration are as follows.2. The Board issued a tender notice on 02.08.1994 for allotment of plots at Sosiya (near Bhavnagar, Gujarat) for ship-breaking of very large crude carriers/ultra large crude carriers (VLCC/ULCC). Asiatic Steel made the highest bid, which was accepted and confirmed by the Board on 08.11.1994, for Rs. 3, 61, 20,000/- (hereafter the Principal). Asiatic Steel was allotted Plot V-10. The bid payment was made on 22.03.1995 in foreign currency, to the tune of $1,153,000, while the earnest money deposit of Rs. 5,00,000/- was paid on 08.11.1994.3. On 23.02.1995, Asiatic Steel and other allottees approached the Board citing difficulties in commencing commercial operations, on account of the connectivity to the plots and the existence of rocks inhibiting beaching of ships on the plot for the purpose of ship-breaking. Through a letter dated 19.05.1998, Asiatic steel intimated the Board that it wished to abandon the contract and demanded that the payment be refunded (an amount of $1,153,000), with interest at 10% per annum from the date of remittance. The Board, through a notice dated 19.05.1998, stated that an amount of Rs. 3, 61, 20,000/- would be refunded, but without interest. The Board also clarified that the refund would be directed to the original allottee of the plot (i.e. the second respondent, i.e. M/s Ganpatrai Jaigopal- hereafter referred to as Ganpatrai). Asiatic Steel then filed a writ petition before the High Court, seeking (i) refund of USD $ 1,153,000 with interest of 12% per annum compounded quarterly, to the third respondent, M/s Industeel Investment Holdings (hereafter Industeel, which had made the payment originally on behalf of Asiatic Steel); and (ii) refund of earnest money of Rs. 5,00,000/- with interest of 12% per annum, compounded quarterly to Asiatic Steel.4. Through an interim order dated 26.02.2002, the High Court held that prima facie, Asiatic Steel was entitled to a refund with interest at 10% per annum. Accordingly, the Board was directed to deposit the admitted amount, i.e., the Principal, with interest at 10% p.a. with the courts Registry on or before 15.04.2002. The interest was to be calculated from 19.05.1998 up to 15.04.2002. The amount was permitted to be withdrawn by Respondent No. 3, with the consent of the other respondents. The Board made this deposit, as directed by the court.5. On 17.09.2014, the High Court determined that the following issues survived to be determined:(a) Whether interest on payment should be calculated from 24.03.1995 to 15.04.2002, or from 19.05.1998;(b) Whether the earnest money of Rs. 5,00,000 should be refunded;(c) Whether interest should be calculated at 10% p.a. or 12% p.a.6. The Board resolved, through a resolution dated 17.12.2014, to refund the earnest money deposit with interest of 10% calculated from 19.05.1998. On account of this development, the High Court examined the issue of quantification of interest, and held that so far as the amount that had already been refunded with interest at 10% was concerned, no grievance could be raised by Asiatic Steel, as it had initially claimed an interest of 10%, in the letter to the Board dated 19.05.1998. In the case of the refund already made of the Principal and the earnest money deposit, it was held that Asiatic Steel was not justified in claiming more than 10% interest. Neither party raised any grievance against the High Courts interim order dated 26.02.2002 fixing the interest at 10%. The only question then left to be decided was with respect to the date from which interest on the Principal was to be calculated, and what the rate of interest was to be.7. The High Court held that the Board never claimed that it suffered any damage or loss due to Asiatic Steels termination of the contract. The reasoning of the impugned judgment was that hence, the Board was under a liability to compensate or pay reasonable interest for the period during which the money was retained by it. The High Court took into consideration that Indusind was a Singaporean company, and that the rate of interest was lower in developed countries. Accordingly, the rate of interest was altered to 6% p.a., for the period during which the money was enjoyed by the Board. The Board was directed to (i) refund the earnest money of Rs. 5,00,000/- with interest at 10% p.a., in accordance with the resolution of 17.12.2014; and (ii) pay interest of 6% on the Principal from 08.11.1994 to 19.05.1998. This interest amount works out to Rs. 76,47,544/-. The Board is, hence, aggrieved by the impugned judgment.

Reasoning:
24. Asiatic Steel was the highest bidder in an auction for five shipbreaking plots, held on 08.11.1994. The Board received payment of the earnest money deposit of Rs. 5,00,000/- on this day. Plot V-10 was allotted to Respondent No. 1 (Asiatic Steel Industries Ltd.). M/s Ganpatrai were the Indian shareholders of Asiatic Steel, while M/s Industeel was a foreign shareholder based in Singapore. The upset premium was remitted by Industeel in US currency (dollars $), on 22.03.1995.25. The minutes of the meeting dated 23.02.1995 record that the shipbreakers (including Asiatic Steel herein), informed the Board that certain rocks were required to be removed along plots V-6 to V-10, which hinder the beaching of ships. The Board agreed to prepare an estimate and invite tenders for the removal of these rocks.27. Such being the position, it was nobodys case that Asiatic Steel was unaware about the site conditions. This is particularly important because it was willing to commit a substantial amount in foreign exchange for the plot which it bid for and was eventually granted. Likewise, the requisite undertaking too was furnished on its behalf. It is in this background of circumstances, that the claim for interest for the period in question requires examination.28. The record relied upon by Asiatic Steel is in the form of three office orders issued by the Board. The first office order is dated 06.05.1996. This order relates to Nyankaran Investment and Leasing Pvt. Ltd. This company had successfully bid for Plot Number V-7 and paid Rs. 2.74 crores. This company had deposited the entire amount on 23.03.1995. Upon being dissatisfied with the plot, the company filed CA 8287/1995, in proceedings under Article 226 of the Constitution of India, before the Gujarat High Court. Having regard to the observations made by the High Court, the board sanctioned refund of the entire amount along with 12% interest, by its order dated 06.05.1996. The amount paid by the Board as interest was Rs. 22.80 lakhs. The second instance relates to Svaminarayan Shipbreaking (P) Ltd, Surat, which had bid for a plot (V-8) and paid Rs. 50 lakhs in two equal instalments. This company filed proceedings before the Gujarat High Court, (i.e. CA 3122/1995). The Board, therefore decided to refund the principal along with interest at 12% per annum for two different periods, based on the deposit of the two payments of Rs. 25 lakhs. The total interest sanctioned on 08.08.1996 (and later paid) was Rs.3.55 lakhs. The last instance is of Maaz Marine (P) Ltd, Surat, which had bid for a plot (V-9) and paid the instalments. This company filed proceedings before the Gujarat High Court, (i.e. CA 3211/1995). The Board, therefore decided to refund the principal along with interest @ 9% per annum for the period, based on the deposit of the payment of Rs. 25 lakhs. The total interest sanctioned on 08.08.1996 (and later paid) was Rs. 2.12 lakhs. This amount was sanctioned by office order dated 27.03.2000, even though the Board had decided to refund earlier (on 21.03.1996, due to the court proceedings and orders); however, the amount was sanctioned later, awaiting the decision of the civil court, in an inter se dispute between the directors of Mazz Marine, (i.e. in Suit No. 1200/1997). Upon the decision in that case, the amount was released, including the interest at 9% p.a. for one year.29. The correspondence on the record reveals that the last payment towards the plot was tendered by Asiatic Steel under cover of a letter dated 22.03.1995 for an amount of US$ 1,153,000/-. The other letters placed on record are the one dated 23.04.1995, to the Board indicating that the full payment for the consideration of Rs. 3,61,20,000/- had been made towards a plot. Other than this, in the writ petition, Asiatic Steel argued that it made efforts several times to ask the board to clear the beachfront rocks to make the plot functional. It was also argued that three other entities which had bid for and secured different plots were dissatisfied by the Boards inaction and had approached the High Court. As a result, the High Court passed orders which led to refund of the amounts deposited by those concerns, with some interest. On the record, the minutes of a discussion presided over by the Chief Minister of the state regarding outstanding amounts of premium payable by plot holders in the shipbreaking yard, dated 29.04.1998, would show that the state authorities were pressing for payment of overdue premium instalments.31. The contemporaneous situation, and the correspondence between Asiatic Steel and the Board after the entire amount was deposited, reveals that other concerns approached the court seeking refund of their principal amounts, with interest, which forced the Board to take a decision and comply. The final decision by Asiatic Steel demanding refund was later, in May, 1998. In the meanwhile, the other concerns, which had bid successfully for three plots had approached the court (in 1995) and the Board had decided to refund the amounts with one years interest. Asiatic Steel, therefore, for reasons best known to it, approached the court for refund (which it was undoubtedly entitled) to and interest, first by filing a suit in 2001.32. In this courts opinion, the claim for interest by Asiatic Steel – and the response of the Board, on that issue, is to be judged in the light of both parties conduct and what was expected of the Board as a state instrumentality. The claim in this case is essentially a monetary one, and would ordinarily be premised upon breach of contract. Asiatic Steel, therefore, correctly approached the civil court by filing a suit (Suit No. 2961/2001) . Later, apparently it was advised to resort to proceedings under Article 226 of the Constitution of India. When its writ petition was considered, the suit was permitted to be withdrawn; the High Court directed the Board to deposit the entire principal amount, with interest at 10% per annum. (By its order dated 26.02.2002) By the final impugned judgment, that order was confirmed. In an earlier order, the court had in fact crystallized the precise issue, to be whether interest was payable from 24.03.1995 or from 19.05.1998, or whether it was payable from the latter date, till the date of deposit in court, i.e., 15.04.2002.33. Two important aspects need to be noticed at this stage: first, on the one hand, that Asiatic Steel was aware of the condition of the plot, at an early stage, when it bid for it. In this regard, its conduct is to be judged in the light of the Boards inaction in regard to the unfitness of the allotted site, as in the case of the other concerns. Two, Asiatic Steel was no better and no worse than the other plot lessees, who demanded refund of their amounts. The difference between them, and Asiatic Steel was that the latter chose to demand refund on 19.05.1998. Asiatic Steels final letter discloses its awareness that the other concerns approached the court earlier, but that it waited as it wished to have the issue resolved amicably, rather than moving the court for relief.34. In the opinion of this court, that fact that Asiatic Steel and other concerns bid for the plots knowing the state they were in, cannot be disputed. However, the conduct of all the successful bidders consistently suggests that they expected that the plots would be given in usable condition, within reasonable time. Clearly, the Board could not and most certainly did not rectify the conditions by removing the beachfront rocks. The Board is not forthcoming about the reasons for its inaction. It urged two defences in its reply to the writ petition: one, that the dispute was in the realm of contract and two, that even though like in other cases, the Board was prepared to consider a refund, Asiatic Steel was a joint venture company. These, in the opinion of this court are wholly insubstantial reasons.35. It is clear from the Boards conduct that it never responded to the letters written by Asiatic Steel; at least, no reply has been placed on record. Even Asiatic Steels request for permission to carry-out the necessary clearance work at the cost of the board, was not responded to - either positively or negatively. Further, whenever any bidder approached the court complaining that the plot allotted was unusable, the Board decided, mostly contemporaneously, to refund the amount, even with interest. In the case of Asiatic Steel, however, when the demand was made for refund on 19.05.1998, the Board did not act, forcing the company to approach the court, firstly through a civil suit which was later withdrawn, and then in a writ petition.36. In the opinion of this court, the Boards complete silence in responding to Asiatic Steels demand for refund, coupled with the absence of any material placed on record by it suggesting that the complaints had no substance leaves it vulnerable to the charge of complete arbitrariness. The Boards conduct or indifference in regard to the refund sought (in respect of which there was no meaningful argument on its part before the High Court) can be only on the premise that it wished the parties to approach the court, till a decision could be taken to refund the amounts received by it.37. In this courts considered view, the Boards action is entirely unacceptable. As a public body charged to uphold the rule of law, its conduct had to be fair and not arbitrary. If it had any meaningful justification for withholding the amount received from Asiatic Steel, such justification has not been highlighted ever. On the other hand, its conduct reveals that it wished that the parties should approach the court, before it took a decision. This behavior of deliberate inaction to force a citizen or a commercial concern to approach the court, rather than take a decision, justified on the anvil of reason (in the present case, a decision to refund) means that the Board acted in a discriminatory manner.39. In State of A.P. v. Pioneer Builders (2006) 12 SCC 119  this Court referred to the 27th Report of the Law Commission on the Code of Civil Procedure, and held as follows:14. From a bare reading of sub-section (1) of Section 80, it is plain that subject to what is provided in sub-section (2) thereof, no suit can be filed against the Government or a public officer unless requisite notice under the said provision has been served on such Government or public officer, as the case may be. It is well settled that before the amendment of Section 80 the provisions of unamended Section 80 admitted of no implications and exceptions whatsoever and are express, explicit and mandatory. The section imposes a statutory and unqualified obligation upon the court and in the absence of compliance with Section 80, the suit is not maintainable. (See Bhagchand Dagadusa v. Secy. of State for India in Council [Bhagchand Dagadusa v. Secy. of State for India in Council, 1927 SCC OnLine PC 48 : (1926-27) 54 IA 338 : AIR 1927 PC 176 ] ; Sawai Singhai Nirmal Chand v. Union of India [Sawai Singhai Nirmal Chand v. Union of India, (1966) 1 SCR 986 : AIR 1966 SC 1068 ] and Bihari Chowdhary v. State of Bihar [Bihari Chowdhary v. State of Bihar, (1984) 2 SCC 627 ] .) The service of notice under Section 80 is, thus, a condition precedent for the institution of a suit against the Government or a public officer. The legislative intent of the Section is to give the Government sufficient notice of the suit, which is proposed to be filed against it so that it may reconsider the decision and decide for itself whether the claim made could be accepted or not. As observed in Bihari Chowdhary [Bihari Chowdhary v. State of Bihar, (1984) 2 SCC 627 ], the object of the Section is the advancement of justice and the securing of public good by avoidance of unnecessary litigation.15. It seems that the provision did not achieve the desired results inasmuch as it is a matter of common experience that hardly any matter is settled by the Government or the public officer concerned by making use of the opportunity afforded by the said provisions. In most of the cases, notice given under Section 80 remains unanswered. In its 14th Report (reiterated in the 27th and 54th Reports), the Law Commission, while noting that the provisions of this section had worked a great hardship in a large number of cases where immediate relief by way of injunction against the Government or a public officer was necessary in the interests of justice, had recommended omission of the Section. However, the Joint Committee of Parliament, to which the Amendment Bill, 1974 was referred, did not agree with the Law Commission and recommended retention of Section 80 with necessary modifications/relaxations.16. Thus, in conformity therewith, by the Code of Civil Procedure (Amendment) Act, 1976 the existing Section 80 was renumbered as Section 80(1) and sub-sections (2) and (3) were inserted with effect from 1-2-1977. Sub-section (2) carved out an exception to the mandatory rule that no suit can be filed against the Government or a public officer unless two months notice has been served on such Government or public officer. The provision mitigates the rigours of sub-section (1) and empowers the court to allow a person to institute a suit without serving any notice under subsection (1) in case it finds that the suit is for the purpose of obtaining an urgent and immediate relief against the Government or a public officer. But, the court cannot grant relief under the sub-section unless a reasonable opportunity is given to the Government or public officer to show cause in respect of the relief prayed for. The proviso to the said sub-section enjoins that in case the court is of the opinion that no urgent and immediate relief should be granted, it shall return the plaint for presentation to it after complying with the requirements of sub-section (1). Sub-section (3), though not relevant for the present case, seeks to bring in the rule of substantial compliance and tends to relax the rigour of sub-section (1).40. In this case, conduct of the Board betrays a callous and indifferent attitude, which in effect is that if Asiatic Steel wished for its money to be returned, it had to approach the court. This was despite its knowledge that at least three other identically placed entities had asked for return of money and, upon approaching the court, were refunded the amounts given by them promptly. In view of these facts, nothing prevented the Board from deciding to refund the amount, without forcing Asiatic Steel to approach the court.