Maa Nandi Keshri Rice Mill & Anr vs The Union Of India & Ors
2021 Latest Caselaw 3098 Cal

                                                                WPA 1998 OF 2020



IN THE HIGH COURT AT CALCUTTA
                   CONSTITUTIONAL WRIT JURISDICTION
                            APPELLATE SIDE

  Present:

  THE HON'BLE JUSTICE ARINDAM MUKHERJEE.

                           W.P.A. 1998 OF 2020
                      MAA NANDI KESHRI RICE MILL & ANR.
                                       VS.
                         THE UNION OF INDIA & ORS.
For the petitioners               :     Mr. Pratip Kumar Chatterjee,
                                        Mr. Soumya Majumder.
                                                             .... Advocate
For the Respondents no. 2, 3, 4   :     Mrs. Lipika Ghosh,

&5                                      Mr. Ashis Kumar Mukherjee,
                                        Mr. Saurabh Prasad.
                                                           .... Advocates
Heard on                          :     03.03.2021, 09.03.2021 and 18.03.2021

Judgement on                      :     06th May, 2021.


Arindam Mukherjee, J.:

1. The petitioner no. 1 is a Rice Mill. On or about 22th July, 2005, the

petitioner no. 1 made an application for sanction of a Term Loan

amounting to Rs.108 Lakhs and a Working Capital Loan amounting

to Rs.40 lakhs to the United Bank of India, a nationalized bank at its

Sainthia Branch (hereinafter referred to as the said bank). The said

two facilities were given to the petitioner no. 1 on 5th September,

2005. To avail the credit facilities, the petitioner created an equitable

mortgage of a land with building at Ward no. 1, P.O. Sainthia,

Khatian no. 432, Dag no. 45, J.L. No. 95 measuring about 10

decimals standing in the name of petitioner no. 2. The value of

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which was Rs.20 lakhs on or about 5th September, 2005. The

petitioners also created an equitable mortgage of a land with two-

storied building also at Ward no. 1, P.O. Sainthia, P.S. Suri, having

an area of about 9 decimals standing in the name of one Gayatri

Saha, the value of which as on 5th September, 2005 was

approximately Rs. 30 lakhs. The properties so mortgaged are

hereinafter for the sake of convenience jointly referred to as

"mortgaged properties".

2. Submission of the Petitioners:-

a) The petitioners say that the Term Loan of Rs. 108 lakhs has been

duly repaid by the petitioners to the satisfaction of the Bank. The

Bank has also issued a certificate declaring closure of the Term

Loan Account on 16th August, 2013 upon full payment having been

made. The petitioner no. 2 on behalf of the petitioners requested

the said Bank to release the two mortgaged properties on the

ground that the Term Loan has already been repaid. The Bank has

refused to release the mortgaged properties as will appear from a

letter dated 15th September, 2014 on the ground that the Cash

Credit account has not been closed and unless the outstanding

amount against the same is repaid, the mortgaged properties

cannot be released. Challenging the rejection of the petitioners'

prayer to release the mortgaged properties, the petitioners have

filed the instant writ petition inviting this Court to pass mandatory

orders directing release of the mortgaged properties.

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b) The petitioners say that the Term Loan has been repaid. The

Working Capital Loan of Rs.40 Lakhs also referred to as Cash

Credit limit is secured by the petitioner no. 2 as the personal

guarantee given by the proprietor of petitioner no. 1 and one

Gayatri Saha. That apart and in any event, the Cash Credit Loan

is also otherwise secured by the stock, work in progress and raw

materials of the Rice Mill. In such circumstances, the petitioners

say that the said bank could neither refuse to release the

mortgaged properties nor can contend that the mortgaged

properties will be released only upon repayment of the entire

outstanding against the Cash Credit limit. The petitioners also

say that by refusing to release the mortgaged properties, the bank

has infringed the rights guaranteed under Article 300 A of the

Constitution of India. In such circumstances, the petitioners say

that mandatory order should be passed for release of the

mortgaged properties, failing which the petitioners will suffer

irreparable loss and injury.

3. Submission of the Respondents : -

a) On behalf of the Bank, it is submitted that the sanction granted on

5th September, 2005 was a composite one. The petitioners had

mortgaged the properties both for the Term Loan and the Cash

Credit facility. The mortgage, being a composite one cannot be

released unless the outstanding amount in the Cash Credit

Account is fully repaid even if the Term Loan has been fully repaid.

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The said bank has also raised an issue as to the maintainability of

the writ petition in view of the nature of the contract pursuant to

which the equitable mortgage was credited. The respondent bank

says that no relief in the facts and circumstances of the case can

be granted by this Court in exercise of its jurisdiction under Article

226 of the Constitution of India as the petitioners are seeking

enforcement of the terms of a Contract simplicitor entered by the

bank while carrying out commercial activities.

4. Petitioners' Reply:-

i) In reply, the petitioners say that the value of the mortgaged properties

in 2005 was respectively Rs.20 lakhs and 30 lakhs. Even in 2005,

the value of the mortgaged properties were more than the working

capital loan or the Cash Credit limit facility of Rs.40 lakhs availed by

the petitioner. The bank under normal circumstances would not have

granted credit facilities to petitioner no. 1 unless the securities given

by the petitioners were either above 148 lakhs being the total loan

availed or at par with such amount. Now that Rs.108 lakhs have

been paid, the mortgaged properties should be released. The market

value of the mortgaged properties as on 22nd October, 2008 even

according to the bank as per its own valuation is Rs.5,83,05,000.00.

The realizable value is Rs.5,24,75,000.00 while the forced sale value

is Rs.4,66,44,000.00 which is much in excess of the outstanding in

the Cash Credit account. The petitioners in this regard has also

referred to a valuation report obtained by the respondent bank from

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its valuer on 27th October, 2018 (which appears at page 31 of the writ

petition)

ii) The petitioners have tried to defend the writ petition by contending

that the respondent bank in view of the pervasive control of such

bank with the Reserve Bank of India (in short 'RBI') and the Ministry

of Finance is an authority under Article 12 of the Constitution of

India and as such is a 'State'. The said bank entered into the

contract while discharging public duty and as such cannot be

allowed to act arbitrarily with an ulterior motive and mala fide intent.

The writ petition is therefor, maintainable. The petitioners have relied

upon a judgement reported in (2004) 3 SCC 553 (ABL

INTERNATIONAL LTD. AND ANOTHER VERSUS EXPORT CREDIT

GUARANTEE CORPORATION OF INDIA LTD AND OTHERS) on the

issue of maintainability of the writ petition and scope of judicial

review with regard to Government contract.

5. After hearing the parties and considering the materials on record, I

have decided to consider the maintainability point raised by the bank

without calling for affidavits as the same does not require any factual

clarification for which affidavits are required. The parties have agreed

to such proposal and as such the hearing of the writ petition

restricted only to the maintainability point was allowed and

concluded.

6. Findings with reasons : -

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a) In the instant case, the question raised by the bank is not whether

the respondent bank is an authority under Article 12 of the

Constitution of India and a writ lies against it but, whether this

Court will exercise its jurisdiction under Article 226 of the

Constitution of India to entertain the writ petition by passing

orders therein considering the nature of contract between the

parties and the character of dispute raised for adjudication.

b) The Hon'ble Supreme Court of India in the judgement reported in

(1977) 3 SCC 457 (M/s RADHAKRISHNA AGARWAL AND

OTHERS VERSUS STATE OF BIHAR AND OTHERS) has while

discussing different types of cases relating to contracts with the

State and the exercise of jurisdiction under Article 226 of the

Constitution of India divided such cases into three categories as

will appear from paragraph 12 thereof - " The Patna High Court

had, very rightly, divided the types of cases in which breaches of

alleged obligation by the State or its agents can be set up into

three types. These were stated as follows:

(i) Where a petitioner makes a grievance of breach of

promise on the part of the State in cases where on assurance

or promise made by the State he has acted to his prejudice

and predicament, but the agreement is short of a contract

within the meaning of Article 299 of the Constitution ;

(ii) Where the contract entered into between the person

aggrieved and the State is in exercise of a statutory power

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under certain Act or Rules framed thereunder and the

petitioner alleges a breaches on the part of the State ; and

(iii) Where the contract entered into between the State and the

person aggrieved is non-statutory and purely contractual and

the rights and liabilities of the parties are governed by the

terms of the contract, and the petitioner complains about

breach of such contract by the State.

c) Thereafter the Hon'ble Supreme Court approved the view taken by

the Patna High Court :-

"13. It is rightly held that the cases such as Union of India v.

M/s Anglo-Afgan Agencies and Century Spinning &

Manufacturing Co. Ltd. v. Ulhasnagar Municipal Council and

Robertson v. Minister of Pensions, belong to the first category

where it could be held that public bodies or the State are as

much bound as private individuals are to carry out

obligations incurred by them because parties seeking to bind

the authorities have altered their position to their

disadvantage or have acted to their detriment on the strength

of the representations made by these authorities. The High

Court thought that in such cases the obligation could

sometimes be appropriately enforced on a Writ Petition even

though the obligation was equitable only. We do not propose

to express an opinion here on the question whether such an

obligation could be enforced in proceedings under Article 226

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of the Constitution now. It is enough to observe that the cases

before us do not belong to this category.

14. The Patna High Court also distinguished cases which

belong to the second category, such as K.N. Guruswamy v.

The State of Mysore ; D.F.O. South Kheri v. Ram Sanehi Singh

and M/s Shri Krishna Gyanoday sugar Ltd. v. The State of

Bihar, where the breach complained of was of a statutory

obligation. It correctly pointed out that the cases before us do

not belong to this class either.

15. It then, very rightly, held that the cases now before us

should be placed in the third category where questions of

pure alleged breaches of contract are involved. It held, upon

the strength of Umakant Saran v. The State of Bihar and

Lekhraj Satramdas v. Deputy Custodian-cum-Managing Officer

and B.K. Sinha v. State of Bihar, that no writ or order can

issue under Article 226 of the Constitution in such cases "to

compel the authorities to remedy a breach of contract pure

and simple"."

d) In another judgement of the Hon'ble Supreme Court which

according to me has a significant bearing in the matter is reported

in (2003) 10 SCC 733 (Fedaral Bank Ltd. vs. Sagar Thomas

and Others), wherein the Hon'ble Supreme Court has held (SCC

page 758 para 32 )

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"32. Merely because Reserve Bank of India lays the banking policy

in the interest of the banking system or in the interest of monetary

stability or sound economic growth having due regard to the

interests of the depositors etc. as provided under Section 5(c)(a) of

the Banking Regulation Act does not mean that the private

companies carrying on the business or commercial activity of

banking, discharge any public function or public duty. These are

all regulatory measures applicable to those carrying on commercial

activity in banking and these companies are to act according to

these provisions failing which certain consequences follow as

indicated in the Act itself. As to the provision regarding acquisition

of a banking company by the Government, it may be pointed out

that any private property can be acquired by the Government in

public interest. It is now a judicially accepted norm that private

interest has to give way to the public interest. If a private property

is acquired in public interest it does not mean that the party

whose property is acquired is performing or discharging any

function or duty of public character though it would be so for the

acquiring authority."

e) Although, the bank in the instant case being United Bank of

India, a "corresponding new bank", constituted under the Banking

Companies (Acquisition and Transfer of Undertakings) Act, 1970

and the provisions of the said Act lays down a pervasive control of

the Central Government and the Reserve Bank of India (in short

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RBI) in its functioning, I am inclined to borrow the language of the

Hon'ble Supreme Court of India in Sagar Thomas (supra) though

the same in respect of a private company carrying on banking

business. The control of the Central Government and RBI over

United Bank of India (now having been merged with Punjab

National Bank) may bring it within the ambit of Article 12 of the

Constitution of India but a contract entered into by such bank

with its constituent while carrying on business or commercial

activity of banking as in the instant case is a pure and simple

contract without any statutory flavour. The RBI guidelines in the

instant case operates in the interest of banking system or in the

interest of monetary stability or sound economic growth having

due regard to the interest of the depositors and does not

incorporate any statutory flavour to the contract in hand. This

brings such a contract like that in hand to the third category of

cases specified in Radhakrishna Agarwal (supra). The breach

alleged in such case like that in hand are that of contractual

provisions pure and simple and no writ lies or order can be issued

under Article 226 of the Constitution of India to compel the

authorities to remedy such breach of contract. In the instant case,

the writ petitioner is seeking release of the properties mortgaged to

secure the loan on the ground of repayment of a substantial

portion thereof. The prayer for release on being made to the bank

has been rejected in 2016 which is under challenge in the writ

petition filed in 2020 after about four years relying on a valuation

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report of 2018. The breach complained of according to me falls in

the third category of case as spelt out in Radhakrishna Agarwal

(supra) and no writ lies or order can be made under Article 226 of

the Constitution compelling the respondent bank to remedy the

breach of contract pure and simple.

f) In a subsequent judgement of the Hon'ble Supreme Court reported

in (2006) 10 SCC 236 (Noble Resources Ltd vs. State of Orissa &

Anr.) Radhkrishna Agarwal (supra) and ABL International (supra)

(cited by the petitioner) were considered. In Noble Resources Ltd.

(supra) the Hon'ble Supreme Court after considering various

authorities has brought a distinction between non-statutory

contract and a statutory contract. A further distinction is also

made between performance of statutory duty or dealing of a public

matter by a State and its commercial activities. The Hon'ble

Supreme Court then went on to hold that contractual matters are,

thus, ordinarily beyond the realm of judicial review. The

application of judicial review in such cases, are, however, very

limited. Judicial review according to the said judgement is

permissible when mala fide or ulterior motive is attributed. The

Court has to bear in mind while considering the scope of judicial

review so far it relates to the exercise of contractual powers by

Government bodies that the principle of judicial review is to

prevent arbitrariness or favouritism. The Court has to see whether

interference is needed for larger public interest or that power has

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been exercised for any collateral proposition. The Supreme Court

has also held in Noble Resources (Supra) that existence of disputed

question of fact or availability of an alternative remedy by itself

would not decline the High Court in exercising its jurisdiction

under Article 226 of the Constitution of India.

g) In another judgement reported in (2015) 9 SCC 433 State of

Kerala and others vs. M.K. Jose, the Hon'ble Supreme Court has

considered several authorities including ABL International Ltd.

(Supra) and Noble Resources Ltd. (Supra) to find out in which

type of case judicial review relating to contracts entered by the

Government are called for.

h) In M.K. Jose (Supra) while approving the views taken in ABL

International (supra), wherein legal principles as to maintainability

of writ petition was considered, the Hon'ble Supreme Court quoted

with approval the following See SCC Page 443 paragraph 17:

17. In ABL Internatinal Ltd. v. Export Credit Guarantee Corpn. Of

India Ltd., a two-Judge Bench after referring to various

judgments as well as the pronouncement in Gunwant Kaur and

Century Spg. and Mfg. Co. Ltd. v. Ulhasnagar Municipal Council,

has held thus: (ABL International case, SCC pp. 568-69 & 572,

paras 19 & 27)

" 19. Therefor, it is clear from the above enunciation of law that

merely because one of the parties to the litigation raises a

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dispute in regard to the facts of the case, the court entertaining

such petition under Article 226 of the Constitution is not always

bound to relegate the parties to a suit. In the above case of

Gunwant Kaur this Court even went to the extent of holding that

in a writ petition, if the facts require, even oral evidence can be

taken. This clearly shows that in an appropriate case, the writ

court has the jurisdiction to entertain a writ petition involving

disputed questions of fact and there is no absolute bar for

entertaining a writ petition even if the same arises out of a

contractual obligation and/or involves some disputed questions

of fact.

27. From the above discussion of ours, the following legal

principles emerge as to the maintainability of a writ petition:

(a) In an appropriate case, a writ petition as against a

State or an instrumentality of a State arising out of a

contractual obligation is maintainable.

(b) Merely because some disputed questions of fact arise

for consideration, same cannot be a ground to refuse to

entertain a writ petition in all cases as a matter of rule.

(c) A writ petition involving a consequential relief of

monetary claim is also maintainable."

While laying down the principle, the Court sounded a word of

caution as under: (ABL International case, SCC p. 572, para 28)

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"28. However, while entertaining an objection as to the

maintainability of a writ petition under Article 226 of the

Constitution of India, the court should bear in mind the fact

that the power to issue prerogative writs under Article 226 of

the Constitution is plenary in nature and is not limited by any

other provisions of the Constitution. The High Court having

regard to the facts of the case, has a discretion to entertain or

not to entertain a writ petition. The Court has imposed upon

itself certain restrictions in the exercise of this power. (See

Whirlpool Corpn. v. Registrar of Trade Marks.) And this plenary

right of the High Court to issue a prerogative writ will not

normally be exercised by the Court to the exclusion of other

available remedies unless such action of the State or its

instrumentality is arbitrary and unreasonable so as to violate

the constitutional mandate of Article 14 or for other valid and

legitimate reasons, for which the Court thinks it necessary to

exercise the said jurisdiction."

i) The Hon'ble Supreme Court in M.K. Jose (Supra) has further held

See SCC Page 444 paragraph 18:

"18. It is appropriate to state here that in the said case, the

Court granted the relief as the facts were absolutely clear from

the documentary evidence brought which pertain to

interpretation of certain clauses of contract of insurance. In that

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context, the Court opined: (ABL International Ltd. case, SCC p.

578, para 51)

"51. ... The terms of the insurance contract which were

agreed between the parties were after the terms of the contract

between the exporter and the importer were executed which

included the addendum, therefore, without hesitation we must

proceed on the basis that the first respondent issued the

insurance policy knowing very well that there was more than

one mode of payment of consideration and it had insured failure

of all the modes of payment of consideration. From the

correspondence as well as from the terms of the policy, it is

noticed that existence of only two conditions has been made as

a condition precedent for making the first respondent

Corporation liable to pay for the insured risk, that is: (i) there

should be a default on the part of the Kazak Corporation to pay

for the goods received; and (ii) there should be a failure on the

part of the Kazakhstan Government to fulfil their guarantee."

And it eventually held: (SCC pp. 578-79, para 51)

"51. ... We have come to the conclusion that the

amended Clause 6 of the agreement between the exporter and

the importer on the face of it does not give room for a second or

another construction than the one already accepted by us. We

have also noted that reliance placed on sub-clause (d) of the

proviso to the insurance contract by the Appellate Bench is also

misplaced which is clear from the language of the said clause

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itself. Therefore, in our opinion, it does not require any external

aid, much less any oral evidence to interpret the above clause.

Merely because the first respondent wants to dispute this fact,

in our opinion, it does not become a disputed fact. If such

objection as to disputed questions or interpretations is raised in

a writ petition, in our opinion, the courts can very well go into

the same and decide that objection if facts permit the same as in

this case."

j) The Hon'ble Supreme Court in M.K. Jose (Supra) quoted with

approval the following findings in Noble Resources Ltd. (supra) See

SCC page 445 paragraph 19.

19. In this regard, a reference to Noble Resources Ltd. vs.

State of Orissa would be seemly. The two-Judge Bench

referred to ABL International Dwarkadas Marfatia & Sons

v. Port of Bombay, Mahabir Auto Stores v. Indian Oil Corpn.

and Jamshed Hormusji Wadia v. Port of Mumbai and

opined thus: (Noble Resources case, SCC p. 246 para 29)

"29. Although the scope of judicial review or the

development of law in this field has been noticed

hereinbefore particularly in the light of the decision of this

Court in ABL International Ltd. each case, however, must

be decided on its own facts. Public interest as noticed

hereinbefore, may be one of the factors to exercise the

power of judicial review. In a case where a public law

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element is involved, judicial review may be permissible.

(See Binny Ltd. v. V. Sadasivan and G.B. Mahajan v.

Jalgaon Municipal Council.)"

Thereafter, the Court in Noble Resources case, proceeded

to analyse the facts and came to hold that certain serious

disputed questions of facts have arisen for determination

and such disputes ordinarily could not have been

entertained by the High Court in exercise of its power of

judicial review and ultimately the appeal was dismissed."

k) Applying the ratio as laid down in the several Supreme Court

judgements, referred to hereinabove, to the case in hand, I find that

the sanction letter dated 5th September, 2005 issued by the

respondent bank and accepted by the petitioners amounts to a non-

statutory contract. It also falls within the third category of cases

referred to in M/s Radhakrishna Agarwal (supra). The mortgage

being a consolidated one along with valuation relied upon gives rise

to disputed questions of fact and is not dependent on the

interpretation of the clauses of contract alone. Any documentary

evidence that may be brought through affidavits will also not improve

the situation to enable the writ court to decide the issues raised. The

judgement in ABL International (supra) therefor lays no assistance to

the petitioner in the facts of the instant case. In that view of the

matter, following the ratio laid down in M/s Radhakrishna Agarwal

(supra) no writ of order can be issued under Article 226 of the

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Constitution of India in such cases to compel "the authority to

remedy a breach of contract pure and simple" is an accepted

proposition. The writ petition, therefor, is not maintainable.

l) The contract between the respondent-bank and the petitioner clearly

and unambiguously reveals that the petitioner after voluntarily

accepting the conditions imposed by the respondent-bank have

entered into the realm of concluded contract, pure and simple. The

petitioner can only claim the right conferred upon it by the said

contract and bound by the terms of the contract unless some statute

steps in and confers some special statutory obligations on the part of

the bank in the contractual field. The contract between the petitioner

and the respondent-bank so far as the issue of release of mortgage

upon repayment of a portion of the aggregate loan does not include

any statutory terms and/or conditions. The petitioner's remedy, if

any lies for redemption of mortgage and not by filing writ petition

seeking release of mortgage properties under the contract.

m) I have also considered the subject 'contract' from another angle. In

the light of the ratio laid down in ABL International (Supra) assuming

without admitting that the valuation of the mortgaged properties

done by the Bank in 2018 relied upon by the petitioner to be a

disputed question of fact and that a Civil proceeding is the alternative

remedy available to the petitioner to redress his grievances does not

create an impediment in exercising the writ jurisdiction, then also my

answer will be the same as the contract in question is non-statutory

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in nature wherein remedy for a breach of contract pure and simple

has been sought for. There is no public interest element involved in

the matter, no case to attract the provisions of Article 14 of the

Constitution of India has also been made out. There is no mala fide

or ulterior motive attributed to the bank which can compel

interference under judicial review. The rejection to release the

mortgaged properties does not involve any favouritism for which

interference is required to prevent arbitrariness in the instant case.

The bank has only said that unless the entire loan is repaid, the

mortgage cannot be released. This does not mean that the bank has

acted mala fide or with an ulterior motive. It has only conveyed its

view on an appreciation of the contract between itself and the

petitioner. Merely because the respondent bank acts in compliance

with the Reserve Bank of India (RBI Guidelines) as held in Sagar

Thomas (supra), the respondent petitioner though may be a

nationalized bank, cannot be said to have failed in discharging any

public function or public duty while carrying on business or

commercial activity of Bank. Even if, a writ petition is maintainable

against the respondent bank then also the facts of the instant case

does not permit interference in the matter by this Court in exercise of

its jurisdiction under Article 226.

7. Conclusion.

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The writ petition therefor, fails and the same is dismissed on the

ground of maintainability as discussed above, however, without any

order as to costs.

The petitioners will, however, be free to avail any other remedy that may

be available to them in law on the selfsame cause as I have not gone

into the merits of the matter save as required for adjudicating the

maintainability point.

Urgent photostat certified copy of this judgment and order, if applied

for, be supplied to the parties on priority basis after compliance with all

necessary formalities.

(Arindam Mukherjee, J.)