C.K.K.Catering Services vs Indian Railway Catering And ...
2021 Latest Caselaw 1925 Ker

          IN THE HIGH COURT OF KERALA AT ERNAKULAM

                            PRESENT

              THE HONOURABLE MR.JUSTICE N.NAGARESH

  TUESDAY, THE 19TH DAY OF JANUARY 2021/29TH POUSHA, 1942

                   WP(C).No.35294 OF 2019(J)


PETITIONER:

              C.K.K.CATERING SERVICES,
              PB NO.1776, SOUTH RAILWAY STATION ROAD,
              ERNAKULAM-682016,
              REPRESENTED BY ITS MANAGING PARTNER,
              C.K.K.MOIDOO.

              BY ADVS.
              SRI.HARIS BEERAN
              SMT.O.A.NURIYA

RESPONDENTS:

     1        INDIAN RAILWAY CATERING AND TOURISM
              CORPORATION LIMITED,
              HAVING ITS REGIONAL OFFICE AT 40/8194,
              SALIH ARCADE, 1ST FLOOR, CONVENT RD,
              ERNAKULAM-682035
              REPRESENTED BY ITS REGIONAL MANAGER.

ADDL. 2       DIVISIONAL RAILWAY MANAGER,
              SOUTHERN RAILWAY, DIVISIONAL OFFICE,
              COMMERCIAL BRANCH, THIRUVANANTHAPURAM-14.

ADDL. 3       MANAGER, CATHOLIC SYRIAN BANK LTD.,
              CHITTOOR ROAD, VALANJAMBALAM BRANCH,
              KOCHI-682016.
              (ADDL.R2 AND ADDL.R3 ARE IMPLEADED AS PER ORDER
              DATED 16-09-2020 IN IA 3/2020 IN WPC
              35294/2019)

              R1 BY SMT.ASHA CHERIAN, SC, IRCTC
              R2 BY ADV. SRI.A.DINESH RAO
              R3 BY ADV. SRI.K.ANAND, SC

     THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD
ON 19-01-2021, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
 WP(C) No.35294/2019
                                :2 :




                        JUDGMENT

~~~~~~~~~

Dated this the 19th day of January, 2021

The petitioner, a registered partnership firm engaged in

the business of catering services, is before this Court seeking

to call for the records leading to the invocation of the bank

guarantee of the petitioner and to quash the same and

command the respondents to return the amount provided as

bank guarantee to the petitioner forthwith.

2. The Southern Railway floated a tender in the year

2014 for provision of Vegetarian Refreshment Room (VRR) at

Ernakulam Junction Railway Station. The petitioner was the

successful bidder. A Master Agreement was entered into

between the Southern Railway and the petitioner on

15.06.2016. The petitioner was to conduct the VRR from

05.05.2016 to 04.05.2021. An extent of 2250 sq. ft. area was WP(C) No.35294/2019

provided to the petitioner, for a licence fee of ₹1,31,40,000/-

per annum. The licence fee was payable in advance for each

year.

3. By way of a Tripartite Agreement, the Southern

Railway assigned all its rights and liabilities as Licensor under

the Master Agreement to the 1 st respondent-Indian Railway

Catering and Tourism Corporation Limited, on 14.08.2017.

On 10.08.2017, the 1st respondent issued Ext.P1 letter

alleging that the petitioner is occupying an additional area of

58.30 m² for running the VRR. The petitioner was directed to

remit a sum of ₹4,29,371/- as proportionate licence fee for the

additional area. The demand was disputed by the petitioner.

However, the 1st respondent reiterated the demand on

11.10.2017. In this letter, the demand was enhanced to

₹48,57,874/-. The petitioner would contend that the petitioner

paid the licence fee in full and was entitled to run the VRR till

04.05.2019. On 06.12.2018, the petitioner informed the

Southern Railway that after the expiry of the present licence

year, the petitioner would like to stop services at the VRR. WP(C) No.35294/2019

The Southern Railway did not give any reply to the petitioner.

On the other hand, the 1 st respondent as per Ext.P2 letter

dated 15.12.2018 informed the petitioner that the licence fee

payable has been increased by 3.26% with effect from

26.09.2018 and hence the petitioner is liable to pay

₹3,16,052/- as additional licence fee for the period up to

04.05.2019.

4. To the predicament of the petitioner, the 1 st

respondent issued Ext.P3 letter dated 04.02.2019 stating that

the competent authority has decided to close the VRR by

05.02.2019 and directing the petitioner to handover vacant

possession of the site to the 1st respondent. The officials of

the 1st respondent illegally and forcibly sealed and took over

the VRR on 05.02.2019. By Ext.P4 letter, the 1 st respondent

required the petitioner to clear the dues.

5. The petitioner challenged the action in forcibly

closing the VRR, filing W.P.(C) No.3769/2019. On 07.02.2019,

this Court passed an interim order directing the 1 st respondent

to permit the petitioner to operate the VRR. On 28.03.2019, WP(C) No.35294/2019

this Court disposed of the writ petition holding that the dispute

is arbitrable and relegating the parties to the appropriate

Forum. This Court, as per Ext.P5 judgment, directed that

coercive action against the petitioner should stand suspended

for a period of 10 days.

6. The petitioner thereupon filed a petition under

Section 9 of the Arbitration and Conciliation Act, 1996, before

the District Court, Thiruvananthapuram. As per Ext.P6 order,

the District Court, Thiruvananthapuram restrained the 1 st

respondent from obstructing the consumers from entering and

using the VRR till 04.05.2019. In spite of the order of the

District Court pending invocation of Arbitration Clause, the 1 st

respondent invoked the bank guarantee of around ₹65 lakhs

for recovery of disputed amounts. It is aggrieved by the said

illegal invocation of the bank guarantee that the petitioner is

before this Court.

7. The learned counsel for the petitioner contended

that pending arbitration proceedings, the 2 nd respondent

cannot unilaterally invoke bank guarantee. The dispute WP(C) No.35294/2019

should be first adjudicated in arbitral proceedings. A bank

guarantee is a separate contract. The additional 3 rd

respondent-bank is not a party to the original contract.

Similarly, the petitioner is not a party to the bank guarantee.

Therefore, bank guarantee cannot be invoked pending arbitral

proceedings.

8. The learned counsel for the petitioner would further

submit that the bank guarantee can be invoked if the petitioner

fails to perform the agreement. However, in Ext.P8 invocation

letter, the Southern Railway has stated that since the

petitioner has exited the contract on 05.02.2019, the entire

security amount is to be forfeited and transferred to Railways

and therefore the bank guarantee is invoked. The learned

counsel for the petitioner urged that bank guarantee cannot be

invoked claiming disputed amounts. The 1 st respondent

acknowledges that the petitioner has disputed the amount. In

the circumstances, invocation of bank guarantee is illegal and

unsustainable.

WP(C) No.35294/2019

9. The learned counsel for the petitioner relied on the

judgment of the Hon'ble High Court of Patna in Hindustan

Steel Works Construction v. State of Bihar [2008 SCC

OnLine Pat 1291] to contend that a writ petition against

invoking bank guarantee is maintainable against an

instrumentality of State, in appropriate case. In the said

judgment, the Hon'ble High Court of Patna held that the bank

guarantee is conditional and contingent upon stated terms and

then becomes unconditional. It only means that if stated

terms/conditions are satisfied and disclosed so to bank, then

the bank will be bound to unconditionally honour its promise to

pay but not otherwise.

10. Relying on the judgment of Union of India and

others v. Tantia Construction Private Limited [(2011) 5

SCC 697], the learned counsel for the petitioner argued that

the pendency of the arbitration proceedings does not act as a

bar against this Court examining the issue of revocation of

guarantee in proceedings on its merits. Placing reliance on

the judgment of the Apex Court in Gangotri Enterprises WP(C) No.35294/2019

Limited v. Union of India and others [(2016) 11 SCC 720],

the learned counsel for the petitioner argued that when the 1 st

respondent itself stated that the amount is disputed by the

petitioner, then the 1st respondent should have invoked bank

guarantee only after a proper adjudication by a judicial

authority.

11. The learned counsel for the petitioner pointed out

that in the judgment in Oswal Agro Mills Ltd. and another v.

Assistant Collector of Central Excise, Division Ludhiana

and others [(1995) Supp (3) SCC 65], the Hon'ble Apex Court

has held that when revenue had no powers to use their

executive powers to get such a bank guarantee encashed, the

court can direct refund of money. In the judgment in

Hindustan Steel Works Construction v. State of Bihar

(supra), the Hon'ble High Court of Patna has directed bank to

refund the bank guarantee to the petitioner therein, finding

that the invocation of bank guarantee was illegal. The learned

counsel for the petitioner strenuously contended that in the

petitioner's case also, this Court has to give appropriate WP(C) No.35294/2019

directions.

12. The 1st respondent resisted the prayers of the

petitioner, filing counter affidavit. The 1 st respondent stated

that under the Master Licence Agreement executed on

15.06.2016, the petitioner was allotted 2250 sq. ft. area.

Soon, the petitioner encroached upon nearby area. The

petitioner was orally required to vacate the encroached area.

The petitioner took a stand that the petitioner require

additional area for the conduct of their business. The

petitioner was required to pay additional licence fee for the

encroached area. As the petitioner did not pay fee on

request, the 2nd respondent issued Ext.R2(a) written demand

on 20.06.2016. Ext.R2(a) was also not responded to by the

petitioner. Using additional area without remitting requisite

licence fee, is a material breach of contract, as per Clause

No.15.1(e) of the Agreement. In such a case, Railway acted

in accordance with Clause No.16.1(a).

13. In the Tripartite Agreement, it was made clear that

the 1st respondent will have the right over the payments WP(C) No.35294/2019

pertaining to the petitioner's unit, which become due

thereafter. The Tripartite Agreement also required in Clause

No.8.8 that petitioner should produce a 'No Dues Certificate'

from the Railways to run the unit under IRCTC after

14.08.2017. The petitioner did not produce 'No Dues

Certificate'. By letters dated 31.08.2017 and 30.09.2017, the

petitioner required IRCTC for additional space. Even in these

letters, the petitioner did not raise any dispute with regard to

the demand for additional licence fee.

14. The petitioner was given the option either to vacate

the extra space or to pay proportionate additional fee. The

additional area encroached by the petitioner was 627.30 sq. ft.

and the proportionate additional licence fee would be

`3,63,479/-. In WP(C) No.3769/2019, as per Ext.P5 judgment

dated 28.03.2019, this Court directed the petitioner to move

under Arbitration and Conciliation Act, 1996. To enable the

petitioner to do so, coercive action by the 1 st respondent was

suspended for a period of 10 days. In OP(Arb) No.129/2019

filed by the petitioner, the Additional District Court only WP(C) No.35294/2019

permitted the petitioner to continue to operate the unit till

04.05.2019. Left with no other remedy, the security deposit

was encashed by Railways on 03.09.2019 in exercise of

Clause No.16 of the Master Agreement. In view of the above,

the grounds urged by the petitioner are unsustainable.

15. The learned Standing Counsel for the 2 nd

respondent contended that since the petitioner has invoked

the alternate remedy of arbitration pending adjudication by the

Arbitrator, a writ petition is not maintainable. The judgment in

Hindustan Paper Corporation v. Keneilhouse Angami

[(1990) 1 Cal LT 20] relied on by the petitioner will not apply

since in the said case there was no arbitration proceedings

pending. In the judgment of the Apex Court in Tantia

Construction Private Limited (supra) also, there was no

arbitration proceedings pending. Therefore, the petitioner

cannot seek relief based on those judgments.

16. The 2nd respondent has invoked bank guarantee

due to violation of Articles 15.1 and 16.1 of Ext.R2(b)

agreement. Non-payment of licence fee for occupation of WP(C) No.35294/2019

additional space contrary to the terms of the Agreement, is a

material breach of agreement and the Railway is entitled to

invoke bank guarantee for additional licence fee for the area

occupied by the petitioner additionally. The bank guarantee

unequivocally states that the amount would be paid without

demur or objection, irrespective of any dispute that might crop

up or might have been pending.

17. The learned Standing Counsel for the 2 nd

respondent relied on the judgment of the Hon'ble Apex Court

in U.P. State Sugar Corporation v. M/s. Sumac

International Ltd. [AIR 1997 SC 1644], Himadri Chemicals

Industries Ltd. v. Coal Tar Refining Company [(2007) 8

SCC 110] and BSES Ltd. v. Fenner India Ltd. [AIR 2006 SC

1148] to content that if the bank were to go into the questions

relating to dispute between the parties, the very purpose of

giving the bank guarantee would be defeated. The only two

exceptions carved out to the well-known principles of non-

intervention are: (a) fraud and (b) irretrievable injury. As long

as there is no allegation of fraud or irretrievable injury, this WP(C) No.35294/2019

Court would not be justified in interfering with the matter,

contended the learned Standing Counsel.

18. The learned Standing Counsel further argued that

the petitioner as well as the 2 nd respondent are bound by

Ext.P5 judgment. The petitioner has invoked arbitration

proceedings in compliance of Ext.P5 judgment. When the

question as to occupation of additional space and liability for

payment of additional licence fee is pending consideration

before the Arbitrator, the Award of Arbitrator will bind the

parties. The petitioner is not entitled to get refund of the bank

guarantee at this stage.

19. I have heard the learned counsel for the petitioner,

the learned Standing Counsel appearing for the 1 st respondent

and the learned Standing Counsel appearing for additional

respondents 2 and 3.

20. The 2nd respondent has invoked bank guarantee on

the allegation of violation of Articles 15.1 and 16.1 of Ext.R2(b)

agreement between the Railway and the petitioner. As per

Clause 15.1.(e), failure of the licensee to pay licence fee along WP(C) No.35294/2019

with interest to the Railway on or before due dates, would be

deemed to be material breach on the part of the licensee. In

such event, as per Clause 16.1, the Railway have the right of

forfeiture of the security deposit furnished by the licensee.

21. The contention of the petitioner is that since the

amount allegedly payable by the petitioner is disputed, the 2 nd

respondent cannot invoke bank guarantee without

adjudication of dispute. This Court finds that there is no

documentary material to show that when the respondents

issued notices to the petitioner demanding additional licence

fee for the extra space occupied by the petitioner, the

petitioner did dispute the fact of occupation of additional

space. Since the dispute is pending in arbitral proceedings, it

would be for the Arbitrator to finally decide whether there was

unauthorised occupation of additional space by the petitioner

and whether there was breach of agreement by the petitioner.

The question to be decided in this writ petition is whether the

respondents can invoke bank guarantee pending arbitral

proceedings.

WP(C) No.35294/2019

22. In the judgment in Hindustan Steel Works

Construction (supra) of the Hon'ble High Court of Patna

relied on by the petitioner, the Hon'ble High Court held that in

an appropriate case, a writ petition against State or

instrumentality of the State arising out of a contractual

obligation is maintainable. The said case was also relating to

invocation of bank guarantee. The Hon'ble Patna High Court

held that a bank guarantee is conditioned and contingent upon

stated terms and then becomes unconditional. The Hon'ble

Patna High Court interfered with the matter on a finding that

the conditions for invocation of the bank guarantee therein

was confined to contingencies occurring during the period

prior to agreement. Invocation of bank guarantee after the

execution of agreement was found to be vitiated by the court.

The facts of the said case are distinguishable.

23. In Tantia Constructions Private Limited (supra),

the issue was of termination of contract. The Hon'ble High

Court of Patna found that the termination was illegal and

unwarranted and consequently directed the Railways to WP(C) No.35294/2019

expeditiously clear the payments of the respondent-Company.

The Hon'ble Apex Court in its judgment held that

notwithstanding the provisions relating to the arbitration clause

contained in the agreement, the High Court was fully within its

competence to entertain and dispose of the writ petition. But,

it may be noted that in the said case, no arbitration

proceedings were initiated or pending when the case was

decided.

24. In the judgment in Gangotri Enterprises Limited

(supra), the Hon'ble Apex Court found that invocation of bank

guarantee was not proper and granted injunction to the

appellant under Section 9 of the Arbitration and Conciliation

Act. That was a case where the appellant entered into two

distinct agreements with the respondent and had executed a

bank guarantee in respect of the second work. The

respondents invoked the bank guarantee for violation of

conditions in respect of the first work. The appellant sought

injunction. The Hon'ble Apex Court found that since the

agreement in respect of which the bank guarantee was WP(C) No.35294/2019

furnished was satisfactorily completed, the respondents

should not have invoked the bank guarantee for violation of

agreement conditions in respect of the first agreement while

arbitration proceedings were pending. The judgment of the

Hon'ble Apex Court is distinguishable on facts and would not

be of any help to the petitioner herein.

25. In the judgment in Hindustan Paper Corporation

Limited (supra), the Hon'ble Calcutta High Court held that the

rights and liabilities in respect of bank guarantee has to be

decided not by the terms of the original contract. The bank

guarantee is a contract separate from original contract

pursuant to which the bank guarantee is furnished. The

learned counsel for the petitioner argued that the illegal

invocation of bank guarantee by the 2nd respondent cannot be

adjudicated in an arbitral proceedings which is undertaken

under the Master License Agreement. Therefore, this Court

can entertain the writ petition and grant relief to the petitioner.

26. The 2nd respondent has invoked the bank guarantee

on the ground that terms of the Master Agreement have been WP(C) No.35294/2019

violated by the petitioner. The said issue is pending

consideration before the Arbitrator. The bank guarantee in

unequivocal terms provides that the amount under the bank

guarantee would be paid without demur or objection and

irrespective of any dispute that might crop up or might have

been pending. In view of the said specific recital in the bank

guarantee, this Court do not find any illegality or irregularity in

invoking the bank guarantee by the 1st respondent.

27. The Hon'ble Apex Court has held in U.P. State

Sugar Corporation (supra) that if the bank were to go into the

questions relating to dispute between the parties, the very

purpose of giving the bank guarantee would be defeated. The

exceptions carved out to the well-known principles of

non-intervention are fraud and irretrievable injury. The

petitioner has no case that the 1 st respondent or Railway has

played fraud in obtaining the bank guarantee. For intervention

under the head irretrievable injury, the injury or injustice

contemplated must be of such an exceptional and irretrievable

nature which will override the terms of the guarantee. The WP(C) No.35294/2019

Hon'ble Apex Court held that for availing injunction on the

ground of irretrievable injury, the party seeking injunction

would have to show that exceptional circumstances exist

which make it impossible for the guarantor to reimburse

himself if he ultimately succeeds. The Hon'ble Apex Court

specifically held that existence of any dispute between the

parties to the contract, is not a ground for issuing an injunction

against invocation of bank guarantee.

Considering the facts and circumstances of the

case and the law laid down by the Apex Court, this Court is of

the view that the contentions urged in this writ petition are not

sufficient to interfere with the action of the 2 nd respondent in

invoking the bank guarantee. The writ petition therefore fails

and it is consequently dismissed.

Sd/-

N. NAGARESH, JUDGE

aks/13.01.2021 WP(C) No.35294/2019

APPENDIX PETITIONER'S EXHIBITS:

EXHIBIT P1            A TRUE COPY OF THE LETTER DATED
                      10.08.2017 ISSUED BY THE RESPONDENT

EXHIBIT P2            A TRUE COPY OF THE LETTER DATED
                      15.12.2018 ISSUED BY THE RESPONDENT

EXHIBIT P3            A TRUE COPY OF THE ORDER DATED
                      04.02.2019 ISSUED BY THE RESPONDENT

EXHIBIT P4            A TRUE COPY OF      THE LETTER DATED
                      06.02.2019 ISSUED   BY THE RESPONDENT
                      (WITH TYPED COPY)

EXHIBIT P5            A TRUE COPY OF THE JUDGMENT DATED
                      28.03.2019 PASSED IN WRIT PETITION
                      (CIVIL) NO.3769/2019

EXHIBIT P6            A TRUE COPY OF THE ORDER DATED
                      12.04.2019   IN  IA   NO.1040/2019   IN
                      OP(ARB)NO.129/2019   OF   THE   HON'BEL
                      ADDITIONAL       DISTRICT        JUDGE,
                      THIRUVANANTHAPURAM

EXHIBIT P7            TRUE COPY OF     THE   AGREEMENT   DATED
                      26/05/2015.

EXHIBIT P8            TRUE COPY OF LETTER OF 2ND RESPONDENT
                      RAILWAY DATED 19/08/2019.

EXHIBIT P9            TRUE COPY OF LETTER OF PETITIONER TO
                      3RD RESPONDENT BANK DATED 06/08/2020.

EXHIBIT P10           TRUE COPY OF ARGUMENT NOTE FILED BY
                      PETITIONER.

EXHIBIT P11           TRUE COPY OF JUDGMENT IN HINDUSTAN
                      STEEL WORKS CONSTRUCTION V. STATE OF
                      BIHAR 2008 SCC ONLINE PAT 1291.

EXHIBIT P12           TRUE COPY OF JUDGMENT IN UNION OF
                      INDIA AND ORS V. TANTIA CONSTRUCTIONS
                      PVT LIMITED 2011 5 (SCC) 697.
 WP(C) No.35294/2019




EXHIBIT P13           TRUE COPY OF JUDGMENT IN DR.GANGOTRI
                      ENTERPRISES LIMITED V. UNION OF INDIA
                      AND ORS (2016) 11 SCC 720.

EXHIBIT P14           TRUE COPY OF JUDGMENT IN HINDUSTAN
                      PAPER     CORPORATION    LIMITED    V.
                      KENEILHOUSE ANGAMI 1989 SCC ONLINE CAL


EXHIBIT P15           TRUE COPY OF JUDGMENT IN OSWAL AGRO
                      MILS LIMITED AND ANR V. ASSISTANT
                      COLLECTOR OF CENTRAL EXCISE, LUDHIANA
                      AND ORS.1995 SUPP (3) SCC 65.

RESPONDENTS' EXHIBITS:

EXHIBIT R1(A)         TRUE COPY OF RELEVANT PORTION OF THE
                      MASTER    LICENSE    AGREEMENT   DATED
                      15/6/2016    BETWEEN    PETITION   AND
                      RAILWAY.

EXHIBIT R1(B)         TRUE COPY OF TRIPARTITE AGREEMENT
                      DATED 14/8/2017 BETWEEN PETITIONER,
                      RAILWAY AND IRCTC

EXHIBIT R1(C)         TRUE COPY OF CHECK LIST PREPARED AT
                      THE   TIME    OF    HANDING    OVER  OF
                      VRR/ERNAKULAM    BETWEEN   RAILWAY  AND
                      IRCTC

EXHIBIT R1(D)         TRUE COPY OF LETTER DATED 31/8/2017 OF
                      THE   PETITIONER  TO   THE  RESPONDENT
                      RM/IRCTC/ERS

EXHIBIT R1(E)         TRUE COPY OF LETTER DATED 11/10/2017
                      OF SR.DIVISIONAL COMMERCIAL MANAGER,
                      SOUTHERN RAILWAY, ERNAKULAM TO THE
                      PETITIONER

EXHIBIT R1(F)         TRUE COPY OF LETTER DATED 4/4/2018 OF
                      THE RESPONDENT TO THE PETITIONER

EXHIBIT R1(G)         TRUE COPY OF LETTER DATED 17/11/2018
                      OF THE RESPONDENT TO THE PETITIONER
 WP(C) No.35294/2019



EXHIBIT R1(H)         TRUE COPY OF LETTER DATED 6/12/2018 OF
                      THE PETITIONER TO THE RESPONDENT

EXHIBIT R2(A)         TRUE COPY THE WRITTEN DEMAND DATED
                      20.6.2016 ISSUED BY THE 2ND RESPONDENT

EXHIBIT R2(B)         TRUE COPY OF THE RELEVANT PORTITION OF
                      THE AGREEMENT DATED 15.6.2016

EXHIBIT R2(C)         TRUE COPY OF THE TRIPARTITE AGREEMENT
                      DATED     14.08.2017    BETWEEN   THE
                      PETITIONER RAILWAY AND IRCTC

EXHIBIT R2(D)         TRUE COPY OF THE EXTRACT         OF THE
                      RELEVANT   PORTION   OF    THE    MASTER
                      AGREEMENT DATED 15.06.2016

EXHIBIT R2(E)         TRUE COPY OF THE EXTRACT         OF THE
                      RELEVANT   PORTION   OF    THE    MASTER
                      AGREEMENT DATED 15.06.2016

EXHIBIT R2(F)         TRUE   COPY   OF   THE   NOTICE   DATED
                      29/10/2019 ISSUED BY THE PETITIONER



SR