Bombay High Court Union Of India (Uoi) Through Textile ... vs Bhagwati Cottons Ltd., G.P.B. Fibres ... on 22 February, 2008 JUDGMENT A.M. Khanwilkar, J. 1. This Suit, filed on 8th April 1999, against the Defendants, is for recovery of sum of Rs. 3,46,07,726/(Rupees Three Crores Fortysix Lakhs Seven Thousand Seven Hundred & Twentysix) with further interest on the principal sum of Rs. 2,10,25,350/(Rupees Two Crores Ten Lakhs Twentyfive Thousand Three Hundred Fifty) at the rate of 24% per annum from the date of filing of the Suit until payment/realisation thereof. The Suit is already decreed exparte against the Defendant No. 1. It now proceeds against Defendant No. 2 only. 2. The Plaintiffs assert that the Office of the Textile Commissioner in the Ministry of Textiles of India used to release quota of raw cotton and cotton wastes for exports from time to time as per the then prevailing exim policy. As per the quota released, the Textile Commissioner issues Memorandum in the beginning of each cotton year specifying the terms and conditions for export of raw cotton and cotton wastes. That the Defendant No. 1 and GPB Fibres Limited were carrying on export business from the same premises. Later on, said GPB Fibres Ltd. amalgamated with Defendant No. 1 Company as per the order of the Company Judge dated 12th September 1997 in Company Petition No. 382 of 1997 and connected proceedings. As per the said Scheme, all the debts and liabilities of GPB Fibres Ltd. have been taken over by the Defendant No. 1 Company. It is stated that the present Suit has been filed against the Defendant No. 1 not only in respect of the liabilities of Defendant No. 1 but also the liability of said GPB Fibres Ltd. 3. According to the Plaintiffs for the cotton season 19951996, the Government of India had released cotton export quota of 0.10 lakhs bales (each of 170 kg.) extra long staple cotton in favour of private traders and State Cooperative Marketing Federation. Accordingly, the terms and conditions for export of raw cotton for the cotton season 199596 was prescribed in MemorandumI dated 6th November 1995 issued by the Textile Commissioner, Mumbai. A Press Note and a Memorandum was issued on 9th January 1996 by the Textile Commissioner, Mumbai, inviting applications for allotment of the said quota as per the terms and conditions specified in MemorandumI dated 6th November 1995. 4. The Defendant No. 1 as well as said GPB Fibres Ltd. submitted separate Applications in the prescribed form on 31st January 1996 together with original contract entered into by and between the Defendant No. 1 and the foreign purchaser dated 23rd January 1996 and 25th January 1996 respectively, together with Legal Undertaking and a Bank Guarantee. By the said Legal Undertaking and the Bank Guarantee, the Defendant No. 1 and GPB Fibres Ltd. agreed and undertook to fulfil the export obligation and realise foreign exchange and in case of failure, unconditionally and irrevocably agreed to pay to the Central Government a sum of Rs. 1,03,79,600/(Rupees One Crore Three Lakhs Seventynine Thousand Six Hundred) and Rs. 1,06,45,750/(Rupees One Crore Six Lakhs Fortyfive Thousand Seven Hundred Fifty) respectively. Irrevocable Bank Guarantee was executed by Defendant No. 2 Bank in favour of the President of India. As per Clause (4) of the said Bank Guarantee, the Defendant No. 2 agreed that the Guarantee shall remain in force for a period of six months after the last date of shipment as permitted by the Textile Commissioner, either by way of General Notice or specifically, till all the obligations of the exporter under or by virtue of the said Registration Certificate have been fully discharged to the satisfaction of the Government or the appropriate Authority for the time being authorised to perform the duties in that behalf, who in turn, certifies that the terms and conditions of the Registration Certificate have been fully and properly carried out by the exporter and accordingly discharged this guarantee. 5. The Plaintiffs assert that the Textile Commissioner, Government of India on 6th February 1996 permitted the Defendant No. 1 and said GPB Fibres Ltd. to export 416.5 metric tons (2450 Bales of 170 Kg each) of extra long staple cotton. As per the said orders, the last date of shipment was to be 31st July 1996 and the Defendant No. 1 and said GPB Fibres Limited were expected to earn foreign exchange worth US $ 29,23,830.00 (Rs.10,37,95,965/) and US $ 29,98,800.00 (Rs.10,64,57,400/). It was further provided that if the Defendant No. 1 and said GPB Fibres Ltd. failed to fulfil their obligation and realise the foreign exchange within the stipulated period, in that case, the amount recoverable from the Defendant No. 1 by way of Bank Guarantee will be to the extent of Rs. 1,03,79,600/ and Rs. 1,06,45,750/ respectively. 6. It is the Plaintiffs case that the Defendant No. 1 an