PETITIONER:
NATIONAL TEXTILES CORPORATION (SOUTH MAHARASHTRA) LIMITED
Vs.
RESPONDENT:
TAMIL NADU CO-OPERATIVE, MARKETING FEDERATION LTD. & ANR.
DATE OF JUDGMENT: 27/07/1998
BENCH:
S.C. AGARWAL, S.P. BHARUCHA
ACT
HEADNOTE
JUDGMENT
JUDGMENT BHARUCHA, J.
The judgment and order of a Division Bench of the High Court at Bombay is the subject matter of this appeal.
The appeal arises in the following circumstances, shortly put. On 4th February, 1991, the appellant entered into an agreement with the first respondent. Thereunder the appellant was to procure ’kapas’; the kapas would be processed at the first respondent’s ginning factory and it would be sold to the appellant. The agreement required the appellant to give an irrevocable bank guarantee of the value of Rs.50 lakhs in favour of the first respondent to cover the price of the kapas. Similar agreements were entered into from time to time for subsequent periods, the last being on 25th April, 1995. The first bank guarantee was procured by the appellant from the second respondent. It was dated 11th April, 1991, and it was extended from time to time until 1st October, 1995.
With effect from 18th October, 1983, the management of the textile undertakings specified therein was vested in the Central Government by virtue of the Textile Undertakings (Taking Over of Management) Act, 1983. The Textile Undertakings (Nationalisation) Ordinance, 1995 was promulgated on 27th June, 1995. It was replaced by the Textile Undertakings (Nationalisation) Act, 1995 (hereinafter referred to as the ’Act’). The aforesaid textile undertakings were, thereby, vested in the appellant with effect from 1st April, 1994.
The appellant wrote to the second respondent on 26th September, 1995, and alleged for the first time that the agreements had been entered into on behalf of the Finlay Mills and Gold Mohur Mills which had been nationalised on 27th June, 1995. The letter stated that only the sum of Rs. 2,27,900/- was due by the appellant on account of the said agreements because that amount pertaining to deliveries subsequent to 1st April, 1994. The balance amount pertaining to deliveries prior to 1st April, 1994, could not, it was alleged, be enforced against the appellant and the second respondent was, therefore, called upon not to make payment under the bank guarantee. The amount of Rs.2,27,900/- was paid on 28th April, 1995, to the first respondent.
The first respondent invoked the bank guarantee for the balance amount. Thereupon the appellant filed a suit in the High Court praying for a declaration that the bank guarantee stood discharged and/or was void and of no legal effect; for a mandatory/permanent injunction restraining the first respondent from receiving any money under or in respect of or pursuant to the bank guarantee and restraining the second respondent from making any payment to the first defendant under the bank guarantee; and for interim and ad-interim reliefs in these terms. A notice of motion was taken out for these interim reliefs. The prayer for ad-interim relief thereon was rejected on 7th October, 1995. The appellant took out a chamber summons for amendment of the plaint and, pending the disposal of the chamber summons, prayed that the second defendant be restrained from debiting the account of the appellant or from recovering from the appellant in any manner any amount paid by the second respondent to the first respondent under the bank guarantee. This prayer for adinterim relief was rejected on 10th October, 1995. Appeals were filed by the appellants against the two orders aforementioned refusing ad-interim relief. The appeals were dismissed by the Division Bench on 11th October, 1995 and 17th October, 1995. aggrieved thereby, the appellants are in appeal by special leave. When issuing notice on the special leave petition, this Court stayed encashment of the bank guarantee but there is no mention of any interim relief in the order granting leave.
Learned counsel could not tell us what had happened to the notice of motion at the stage of its hearing.
Great reliance was placed by learned counsel for the appellant upon the provisions of the said Act to which we shall refer. His only submission was that, by reason of these statutory provisions, the appellant was not liable to the first respondent for any dues under the said agreements in respect of deliveries prior to 1st April, 1994, and that, therefore, the second respondent could not honour the bank guarantee in respect of amounts due to the first respondent under the said agreements for transactions before 1st April, 1994.
Section 2(1)(a), (m), Section 3 and Section 5 of the Act, upon which emphasis was placed by learned counsel for the appellants, read thus:
"2(1).
<a) "appointed day" means the 1st
day of April, 1994;
(m) "textile undertaking" or "the
textile undertaking" means an
undertaking specified in column (2)
of the First Schedule, the
management of which was, before the
appointed day, taken over by the
Central Government under the
Textile Undertaking (Taking Over of
Management) Act, 1983, or as the
case may be, under the Laxmirattan
and Atherton West Cotton Mills
(Taking Over of Management) Act,
1976.
3.(1) On the appointed day, the
right, title and interest of the
owner in relation every textile
undertaking shall stand transferred
to, and shall vest absolutely in,
the Central Government.
(2) Every textile undertaking which
stands vested in the Central
Government by virtue of sub-section
(1) shall, immediately after it has
so vested, stand transferred to,
and vested in, the National Textile
Corporation.
5.(1) Every liability, other than
the liability specified in sub-
section (2), of the owner of a
textile undertaking, in the
relation to the textile
undertakings in respect of any
period prior to the appointed day,
shall be the liability of such
owner and shall be enforceable
against him and not against the
Central Government or the National
Textile Corporation.
(2) any liability arising in
respect of-
(a) loans advanced by the Central
Government, or a State Government,
or both, to a textile undertaking
(together with interest due
thereon) after the management of
such undertaking had been taken
over by the central Government
under section 3 of the Textile
Undertakings (Taking Over of
Management) Act, 1983 or as the
case may be under section 3 of the
Laxmirattan and Atherton west
Cotton Mills (Taking Over of
Management), 1976;
(b) amounts advanced to a textile
undertaking after the management of
such undertaking had been taken
over by the central Government
under section 3 of the Textile
Undertakings (Taking Over of
Management) Act, 1983, or as the
case may be under section 3 of the
Laxmirattan and Atherton West
Cotton Mills (Taking Over of
Management) Act, 1976, by the
National Textile Corporation or by
a State Textile corporation, or by
both, together with interest due
thereon;
(c) wages, salaries and other dues
of employees of the textile
undertaking, in respect of any
period after the management of such
undertaking and been taken over by
the Central Government,
shall, on and from the appointed
day, be the liability of the
central Government and shall be
discharged, for and on behalf of
that Government, by the National
Textile Corporation as and when
repayment of such loans or amounts
becomes due or as and when such
wages, salaries or other dues
become due and payable.
(3) For the removal of doubts, it
is hereby declared that,-
(a) save as otherwise expressly
provided in this section or in any
other section of this Act, no
liability, other than the liability
specified in sub-section (2), in
relation to a textile undertaking,
in respect of any period prior to
the appointed day, shall be
enforceable against the Central
Government or the National Textile
Corporation;
(b) no award, decree or order of
any court, tribunal or other
authority in relation to any
textile undertaking, passed after
the appointed day, in respect of
any matter, claim or dispute in
relation to any matter not referred
to in sub-section (2), which arose
before that day shall be
enforceable against the Central
Government or the National textile
Corporation;
(c) no liability of any textile
undertaking or any owner thereof in
relation to any textile undertaking
before the appointed day, for the
contravention of any provision of
law for the time being in force,
shall be enforceable against the
Central Government or the National
Textile Corporation.
we turn to the said agreements and the bank guarantee. The said agreements are between the appellant and the first respondent. Clauses (1),(3),(4),(6),(7) and (12) of the said agreements read thus:
(1) This tie-up arrangement will be
to the extent of procurement of
Suvin cotton according to the
requirement of National Textile
Corporation Ltd., South
Maharashtra, Bombay for the period
from December 1990 to August 1991.
In this tie-up scheme the
procurement of Suvin cotton kapas
will be done in the purchase
centres in the State of Tamil Nadu
as specified by the National
Textile Corporation (South
Maharashtra) Limited, Bombay.
(3) The kapas, thus procured will
be processed at Salem under the
supervision of the representatives
of both Tamil Nadu Co-operative
Marketing Federation Limited and
National Textile Corporation (South
Maharashtra) Limited, Bombay.
(4) The cotton seeds so obtained in
processing will be disposed by
National Textile Corporation (South
Maharashtra) Limited then and there
at their risk, and Tamil Nadu
Cooperative Marketing Federation
Limited will extend its assistance
in the disposal of the seed stocks.
Tamil Nadu Cooperative Marketing
Federation Limited is not
responsible for any
processing/invisible loss if any in
the business transaction.
(6) The National Textile
Corporation (South Maharashtra)
Limited, Bombay will give an
"Irrevocable Bank Guarantee" to the
value of Rs.50 lakhs (Rupees fifty
lakhs only) in favour of Special
Officer, Tamil Nadu Co-operative
Marketing Federation Limited, for
the coverage of indented Suvin
Cotton and the proposed Bank
Guarantee will be for a period of
120 days from the date of execution
of the Agreement.
(7) National Textile Corporation
(South Maharashtra) Limited, Bombay
will make cent percent payment of
lint cost by means of Demand Draft
drawn in favour of Regional
Officer, Salem payable at Salem
within 30 days from the date of
delivery of cotton lint Bales to
the National Textile Corporation
(South Maharashtra) Ltd.,
representative at Salem along with
the service charges at the rate of
1%. If the said payment is not made
within 30 days from the date of
supply of stocks, Tamil Nadu co-
operative Marketing Federation
Limited, is at liberty to invoke
the "bank guarantee" given by the
National Textile Corporation (South
Maharashtra) Limited, Bombay for
realisation of the cotton sale
proceeds inclusive of service
charges and other amount due to the
Tamil Nadu Co-operative Marketing
Federation Ltd., Madras.
12. This tie-up arrangement will be
to the extent of procurement of
suvin cotton kapas to the
requirement of the unit mills under
control of National Textile
Corporation (South Maharashtra)
Limited, Bombay, for the period
from December 1990 to August 1991.
Under the bank guarantee the second respondent unequivocally and unconditionally agreed to pay on demand in writing from the first respondent any amount upto and not exceeding Rs. 50 lakhs or the value of the cotton lifted by the appellant from the first respondent and not paid by the appellant to the first respondent, whichever was less, "in consideration of Tamil Nadu Co-operative Marketing Federation Ltd., having entered into a tie-up arrangement with National Textile Corporation (South Maharashtra) Ltd. for procurement of cotton kapas (suvin) as and when required by the Corporation during the period from December, 1990 to August, 1991 on the terms and conditions set out in the agreement dated 4th February, 1991 between Tamil Nadu Cooperative Marketing Federation Ltd. and National Textile Corporation (South Maharashtra) Ltd. for the due performance of the same." It was only in 26th September, 1995, that the appellant claimed in a letter written to the second respondent that the said agreements had been entered into and on behalf of the Finlay and Gold Mohur Mills.
The said agreements make no mention of the Finlay or the Gold Mohur Mills. They record that the tie-up thereunder was for the appellant’s requirement and that the cotton seeds obtained in the course of processing would be disposed of by the appellant. The appellant agreed thereunder to furnish an irrevocable bank guarantee in the sum of Rs.50 lakhs to the first respondent in respect of the price of the kapas purchased under the said agreements, the bank guarantee to be invoked if payment of the price was not made by the appellant within 30 days of supply. The appellant agreed to pay for the kapas by demand draft within 30 days of delivery to itself. Pursuant to its obligation aforementioned, the appellant furnished the irrevocable bank guarantee, issued by the second respondent, to the first respondent whereunder the second respondent unequivocally and unconditionally agreed to pay the first respondent on demand the price of the kapas not paid by the appellant. There is, therefore, no support to be found in these basic documents for the only argument on behalf of the appellant that the dues claimed by the first respondent are "in relation to the textile undertakings" of the Finlay and Gold Mohur Mills and, therefore, not liable to be discharged by the appellant by reason of the provisions of Section 5 of the Act. In fact, clause 12 of the said agreements states that the kapas was for all the mills of the appellant.
We are, therefore, of the view that the High Court was right in concluding that the appellant was not entitled to any ad-interim relief.
The appeals are dismissed with costs.