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Case Number

W.P (C) Nos. 4652 and 4709 of 2005

Advocates

Narendra Sharma
P.I.Jose

Judges

Vikramajit Sen, J.

Acts

Sections 59 to 61 of the Contract Act
Section 59 of the Indian Contract Act

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Smart Summary

Judicial Opinion Summary — Vikramajit Sen, J.

Factual and Procedural Background

The petitioners filed writ petitions seeking issuance of a writ of mandamus or other writ, order or direction directing the respondents to adjust all payments received by them by way of encashed Bank Guarantees submitted by the petitioners on a "First in first out" (FIFO) basis. The amounts in dispute were Rs. 6,20,00,000/- in CW 4652/2005 and Rs. 50,09,50,000/- in CW 4709/2005.

The parties had entered into Interconnect Agreements in July 2002, under which the petitioners provided several Bank Guarantees in favour of the respondents. By the end of 2003 the petitioners encountered financial difficulties. To address this, a Shareholders Agreement was entered into on 26.8.2004 which, according to the petitioners, superseded prior agreements. The petitioners contend that new investors were assured that total liability would not exceed Rs. 300 crores and that if it did, Mr. Siddharth Ray (a promoter) would bear the excess liability; the petitioners allege Mr. Ray reneged on those assurances and financial commitments. The respondents then initiated recovery steps and invoked several Bank Guarantees.

Procedurally, these matters were presented as writ petitions invoking the extraordinary jurisdiction of the High Court under Article 226 of the Constitution, seeking relief in the form of directions relating to adjustment of encashed Bank Guarantee receipts on a FIFO basis.

Legal Issues Presented

Whether the subject-matter of the petition — adjustment of amounts received on encashed Bank Guarantees — is a contractual dispute such that the High Court ought not to exercise writ jurisdiction under Article 226 of the Constitution, notwithstanding that the respondents (BSNL and MTNL) may fall within the term "Authority" under Article 12.
Whether the existence of an Arbitration Clause between the parties requires that the petitioners pursue relief through arbitral proceedings rather than by writ petitions in the High Court.

Arguments of the Parties

Petitioners' Arguments

The petitioners asked for directions to have respondents adjust payments received from encashed Bank Guarantees on a FIFO basis.
They contended that the Shareholders Agreement dated 26.8.2004 superseded prior agreements and that assurances given by Mr. Siddharth Ray limited ultimate liability (to Rs. 300 crores) or made him personally liable beyond that figure; they alleged Mr. Ray had failed to honour those assurances.
Learned counsel for the petitioners relied on decisions such as The Central Warehousing Corporation, Berhampur v. Govinda Choudhury and Sons and M.C. Chegganmull Sowcar v. Desur Manicka Mudaliar to support their position on contractual principles (including construction of Sections 59 to 61 of the Indian Contract Act) relevant to their claim.

Respondents' Arguments

The respondents contended that the dispute is contractual in nature and therefore not an appropriate subject for exercise of writ jurisdiction under Article 226.
They also relied on the existence of an Arbitration Clause between the parties and submitted that the petitioners should seek their relief through arbitration rather than in writ proceedings.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Steel Authority of India Limited v. Punjab and Sind Bank, 2004 VII AD (DELHI) 245	Consideration of whether to interdict encashment of Bank Guarantees and use of writ jurisdiction in such disputes.	The court referred to this earlier decision where it declined to exercise Article 226 in similar circumstances; it treated that reasoning as relevant to the present petitions.
State Of U.P v. Mohammad Nooh, AIR 1958 SC 86	Authority on limits of writ jurisdiction (referenced among authorities considered).	Considered as part of the line of authorities indicating restraints on exercising writ jurisdiction in contractual disputes.
Whirlpool Corporation v. Registrar of Trade Marks, (1998) 8 SCC 1	General principle(s) concerning writ jurisdiction (referenced).	Taken into account while assessing the appropriateness of exercising Article 226 in contractual matters.
ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., (2004) 3 SCC 553	Authority touching on limits of extraordinary writ jurisdiction (referenced).	Relied upon in the court's consideration of whether to exercise Article 226 in the present contractual dispute.
Haryana Urban Development Authority v. Anupama Patnaik, (2000) 10 SCC 649	Observation that entertaining a writ petition for a simple claim for money is inappropriate where there are disputed questions of fact and no statutory provision.	The court cited this decision for the proposition that simple money claims with disputed facts are not suitable for writ relief; it regarded that observation as supporting dismissal.
National Highways Authority of India v. Ganga Enterprises, (2003) 7 SCC 410	Settled law that disputes relating to contracts should not be entertained under Article 226.	Applied as an authority establishing that contractual disputes are ordinarily not amenable to writ jurisdiction.
Bareilly Development Authority v. Ajai Pal Singh, (1989) 2 SCC 116 : AIR 1989 SC 1076	Inappropriateness of exercising writ jurisdiction where the State enters into non-statutory contracts; rights should be governed by contract terms.	Relied on to support the view that contractual rights inter se should be resolved under contract law rather than constitutional writ petitions.
Lekhiraj v. Dy. Custodian, AIR 1966 SC 334	Expressed similar view on limits of writ jurisdiction in contractual contexts (referenced among supporting authorities).	Listed with other cases as reflecting the same principle that contractual disputes are not ordinarily for Article 226 relief.
Premji Bhai Parmer v. Delhi Development Authority, (1980) 2 SCC 129 : AIR 1980 SC 738	Authority reinforcing limits on writ jurisdiction in contractual matters (referenced).	Included among cases supporting the court's approach to decline writ jurisdiction in contractual disputes.
Radha Krishna Agarwal v. State of Bihar, (1977) 3 SCC 457 : AIR 1977 SC 1496	Authority cited for the proposition limiting writ jurisdiction in contractual disputes (referenced).	Referenced as part of the consistent line of authorities against entertaining contractual disputes under Article 226.
Divisional Forest Officer v. Bishwanath Tea Co. Ltd., (1981) 3 SCC 238 : AIR 1981 SC 1368	Another authority in the same line concerning limits of writ jurisdiction in contractual situations.	Relied upon to show precedent where writ jurisdiction was considered inappropriate for contractual disputes.
The Central Warehousing Corporation, Berhampur v. Govinda Choudhury and Sons, AIR 1989 Orissa 90	Construction of Sections 59 to 61 of the Indian Contract Act and the proposition that such an exercise should not be conducted in writ proceedings.	The court noted that this authority militates against the petitioners because it indicates that construing Sections 59–61 is not appropriate in writ proceedings.
M.C Chegganmull Sowcar v. Desur Manicka Mudaliar, AIR 1926 Madras 792	Decision dealing with questions arising in ordinary civil proceedings (a suit for recovery on promissory note).	The court held this precedent would not assist the petitioners because the relevant questions arose in ordinary civil proceedings rather than writ proceedings.
DSCO Cooperative Industrial Society Ltd. v. Delhi State Coop. Bank Ltd., 61 (1996) DLT 316	Application of estoppel and Section 59 of the Indian Contract Act where facts were not contested; court passed directions similar to those now sought.	The court distinguished this case on the basis that facts were uncontested there; it noted that where factual disputes are absent, limited directions have been made in writ proceedings, but that the present case involves contested factual questions.

Court's Reasoning and Analysis

The court's analysis proceeded along the following lines, based only on the material in the opinion:

The court recognized the petitioners' demand for FIFO adjustment of payments received on encashed Bank Guarantees and set out the factual matrix: Interconnect Agreements (July 2002), financial difficulty by end-2003, and the Shareholders Agreement of 26.8.2004 with alleged assurances by a promoter (Mr. Siddharth Ray).
Two preliminary objections were identified: (a) that the dispute is contractual and thus not ordinarily cognizable under Article 226 even if the respondents are "Authorities" under Article 12; and (b) that an Arbitration Clause exists, directing parties to arbitral adjudication.
The court surveyed an established line of authorities (including State of U.P. v. Mohammad Nooh; Whirlpool; ABL International; Haryana Urban Development Authority v. Anupama Patnaik; National Highways Authority v. Ganga Enterprises; Bareilly Development Authority v. Ajai Pal Singh; and others) that counsel against entertaining contractual disputes under extraordinary writ jurisdiction. The court relied on those authorities to frame the principle that disputes relating to contracts ought not to be entertained under Article 226 in ordinary circumstances.
The court considered the petitioners' reliance on The Central Warehousing Corporation decision and decisions involving construction of Sections 59–61 of the Indian Contract Act, and noted that those authorities indicate such statutory-construction exercises are not appropriate in writ proceedings; accordingly, those authorities undermined the petitioners' case.
The court acknowledged that there are decisions (for example the DSCO Cooperative case) in which a High Court had assumed jurisdiction and applied contractual principles (estoppel, Section 59) to grant relief similar to that sought here; however, the court emphasized a critical distinction: in those cases facts were not contested or convoluted, enabling the court to pass limited and clear orders without probing complex factual records.
In the present matters, the court found that resolving the petitioners' claim on FIFO basis would require detailed factual inquiry — examining books of accounts, dates of liabilities, and other contested matters — an inquiry inappropriate for writ proceedings. The court held that such questions should be left to a civil suit or arbitral proceedings, where factual disputes can be properly tried and evidence tested.
On this basis, the court concluded that the present case did not justify the exercise of the extraordinary jurisdiction vested in the High Court under Article 226.

Holding and Implications

DISMISSED

Direct effect: The writ petitions seeking directions to adjust encashments of Bank Guarantees on a "First in first out" basis were dismissed. The court declined to exercise extraordinary writ jurisdiction under Article 226 in these circumstances.

The opinion does not discuss broader implications beyond the direct effect on these parties; the court confined its decision to the present factual matrix and the established line of authority that contractual disputes with contested facts are generally not to be resolved by writ petitions. No broader new precedent or expansive doctrine was articulated in this judgment beyond the application of those existing principles.

Writ Petition dismissed.

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Data Access India Ltd. v. Mahanagar Telephone Nigam Ltd. & Ors.

Vikramajit Sen, J.—The prayer in these writ petitions is for the issuance of a writ of mandamus or any other writ, order or direction directing the respondents to adjust all the payments received by them by way of encashed Bank Guarantees submitted by the petitioners on a ‘First in first out’ basis. In CW 4652/2005 the amount in question is Rs. 6,20,00,000/- and in CW 4709/2005 is Rs. 50,09,50,000/-.

2. The facts pertaining to these transactions, briefly stated, are that the parties had entered into Interconnect Agreements in July 2002, in terms of which sundry Bank Guarantees favouring the respondent were made available by the petitioner. Towards the end of 2003 the petitioner encountered financial difficulties. To overcome this, fresh infusion of capital was sought to be located and procured. A Shareholders Agreement was entered into on 26.8.2004 which, according to the contention of the petitioners, superseded all previous Agreements. The new investors were assured that the total liability would not exceed Rs. 300 crores, and if it exceeded that figure the liability would be borne by Mr. Siddharth Ray, the promoter of the petitioner Company. The petitioner states that Mr. Ray has reneged and defaulted on his assurances and liability and has failed to fulfil his financial obligations and commitments. The respondents had thereupon initiated steps for recovery of the dues from the petitioners. Several Bank Guarantees have already been invoked.

3. Two questions have been raised as grounds for challenging the maintainability of these writ petitions. It has been contended that even though the respondents BSNL as well as MTNL would fall within the term ‘Authority’ as envisaged by Article 12 of the Constitution the subject matter falls within the realm of contract and, therefore, this Court ought not to exercise writ jurisdiction in such matters. Secondly. It is not in dispute that an Arbitration Clause exists between the parties and accordingly the respondents contend that the petitioner should seek its relief through that route of adjudication.

4. A similar question had arisen before me in Steel Authority of India Limited v. Punjab and Sind Bank, 2004 VII AD (DELHI) 245. The prayer in that writ petition was for interdicting the encashment of Bank Guarantees. I had taken into consideration the observations made in State Of U.P v. Mohammad Nooh ., AIR 1958 SC 86, Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, (1998) 8 SCC 1 and ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., (2004) 3 SCC 553. I had declined to exercise the extraordinary powers vested in this Court under Article 226 of the Constitution, and repeating the reasoning would unduly lengthen this judgment: It would be advantageous, however, to refer to the opinion in Haryana Urban Development Authority v. Anupama Patnaik, (2000) 10 SCC 649 in which the Apex Court had found it rather strange that a simple claim for money was made in a writ petition and was entertained by the High Court and allowed. There are several disputed questions of fact. Each party is alleging that the other party is guilty of violation of the terms of the allotment. The matter is not covered by any statutory provisions. The writ petition itself was misconceived and ought not to have been entertained’. In National Highways Authority of India v. Ganga Enterprises, (2003) 7 SCC 410 it has been held that it is settled law that disputes relating to contracts ought not to be entertained under Article 226 of the Constitution. In Bareilly Development Authority v. Ajai Pal Singh, (1989) 2 SCC 116 : AIR 1989 SC 1076 the Court had found it inappropriate to exercise writ jurisdiction where the State enters into non-statutory contracts; rights of the parties inter se should then be governed by the terms of contract and not by constitutional provisions. The same view was expressed in Lekhiraj v. Dy. Custodian, AIR 1966 SC 334; Premji Bhai Parmer v. Delhi Development Authority, (1980) 2 SCC 129 : AIR 1980 SC 738; Radha Krishna Agarwal v. State of Bihar, (1977) 3 SCC 457 : AIR 1977 SC 1496 and The Divisional Forest Officer v. Bishwanath Tea Co. Ltd, (1981) 3 SCC 238 : AIR 1981 SC 1368.

5. The fact that learned Counsel for the petitioners has relied on the discussions contained in The Central Warehousing Corporation, Berhampur v. Govinda Choudhury and Sons, AIR 1989 Orissa 90 brings the preliminary objection to the fore. Sections 59 to 61 of the Contract Act had to be construed. It was opined that such an exercise ought not to be conducted in writ proceedings. This decision militates against the arguments of the petitioners. For the same reason the ratio in M.C Chegganmull Sowcar v. Desur Manicka Mudaliar, AIR 1926 Madras 792 would not come to the assistance of the petitioners since those questions had come up for debate in ordinary civil proceedings viz. a suit for recovery of money due on promissory note. In DSCO Cooperative Industrial Society Ltd. v. Delhi State Coop. Bank Ltd., 61 (1996) DLT 316 the facts in issue were not contested. The learned Single Judge applied the principles of estoppel as well as Section 59 of the Indian Contract Act while passing directions similar to those prayed for in these writ petitions. I have in some cases assumed jurisdiction under Article 226 of the Constitution even in respect of contractual dealings of the State or Authority. However no convoluted and contested questions of fact had arisen in those cases with the result that appropriate orders could easily have been passed, as had been done by my learned Brother Vijender Jain in DSCO Cooperative case. In writ proceedings it would be wholly inappropriate to consider the implementation of the legal principles of ‘First in first out’ basis. This would involve looking into the Books of Accounts, the date on which the liability occurred, etc. which are matters that should be left for determination either in a civil suit or in arbitral proceedings.

6. This is not a case which justifies or warrants the exercise of extraordinary jurisdiction under Article 226 of the Constitution.

7. Dismissed.

Writ Petition dismissed.

Data Access India Ltd. v. Mahanagar Telephone Nigam Ltd. & Ors.

Judicial Opinion Summary — Vikramajit Sen, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' Arguments

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Data Access India Ltd. v. Mahanagar Telephone Nigam Ltd. & Ors.

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