In the High Court of Judicature at Madras

8/3/2019 In the High Court of Judicature at Madras

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED : 30-9-2011

CORAM

THE HONOURABLE MR. JUSTICE N. PAUL VASANTHAKUMAR

W.P.Nos.19447, 19448, 19449, 19450, 19451, 19452, 19453, 19454, 19467, 19468, 19469, 19470,

19471, 18651, 18652, 18653, 18654, 18655, 18656, 18657, 18658, 18659, 18660, 18663, 18664, 18665,

18666, 18667, 18668, 18669, 18670, 18671, 18672, 18673, 18819, 18820, 18821, 18822, 18823, 18824,

18825, 19085, 19086, 19823, 19824, 19825, 19826, 19827, 19828, 19829, 19830, 19831, 19832, 19833,

19834, 19835, 19836, 19837, 19838, 19839, 19840, 19841, 19842, 19879, 19880, 19881, 19882, 19883,

19884, 19885, 19886, 19887, 19888, 19889, 19890, 19891, 19892, 19893, 19985, 19986, 19987, 19988,

19989, 20076, 20087, 20088, 20161, 20162, 20163, 20164, 20165, 20166, 20167, 20168, 20169, 20260,

20261, 20262, 20263, 20264, 20265, 20280, 20291, 20500, 20501, 20502, 20503, 20504, 20505, 20506,

20507, 20508, 20509, 20510, 20789, 20790, 20895, 20896, 20897, 20898, 20899, 21460, 21461, 21462

of 2011

(124 Cases)

and Connected Miscellaneous Petitions

W.P.No.19447 of 2011

M/s. Sangeeth Textiles Ltd.,

rep.by its Authorized Signatory,

E.O.Sathiesh Kumar,

551 Ganesapuram (Post),

S.S.Kulam 641 107,


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Annur,

Coimbatore. ... Petitioner

Vs.

1. M/s.The Cotton Corporation of India Limited,

(A Government of India Undertaking,

Ministry of Textiles)

P.B.No.7103, No.1057, Trichy Road,

Ramanathapuram,

Coimbatore 641 045.

2. The Cotton Corporation of India Ltd.,


Ministry of Textiles),

Kapas Bhavan,

Plot No:3A, Sector 10, Cbd Belapur,

Navi Mumbai 400 614



Ministry of Textiles),

Chandar Mouli Building,

Plot No.27, Samrat Nagar,

Veer Savarkar Chowk,

Shahnoorwadi Road,


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Aurangabad 431 005.

4. The Government of India,

Ministry of Textiles,

re.by its Secretary,

Udyog Bhavan,

New Delhi 110 011. ... Respondents

Prayer: Writ Petition filed under Article 226 of the Constitution of India praying for the issuance of a

Writ of Declaration, declaring the contract Sale Contract No:112 dated 6.1.2011 entered between the

petitioner and third respondent as null and void besides directing the respondent to refund the Earnest

Money Deposit of the petitioner lying with the first and third respondent.

For Petitioner in : Mr.R.L.Ramani, Sr.Counsel

all writ petitions for Mr.P.J.Rishikesh,

Mr.B.Raveendran,

Mr.N.Umapathi,

Mr.R.Bharath Kumar, &

M/s.Aiyar and Dolia

For Respondents 1 to 3/ : Mr.M.S.Krishnan, Sr.Counsel,

Cotton Corp. of India Ltd. for

M/s.Sarvabhauman Associate

For 4th Respondent/ : Mr.V.Parivallal,

Ministry of Textiles, Senior Central Govt. Counsel

Government of India


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COMMON ORDER

The prayer in all these writ petitions is to declare the Contract No.112 dated 6.1.2011 (in

W.P.No.19447/2011) and similar contracts, entered into between the petitioner and the third

respondent M/s.Cotton Corporation of India Limited, as null and void and direct the respondents to

refund the EMD of the petitioners lying with the respondents 1 to 3.

2. The brief facts necessary for disposal of these writ petitions are as follows:

(a) The petitioners are doing the business of ginning of cotton and spinning of yarn from

cotton, both for export to foreign countries and for the domestic market. Petitioners Company

approached the third respondent Corporation for procurement of cotton, which is the basic raw

material for spinning industry.

(b) Contracts of sale was entered into between the third respondent and each of the

petitioner on 6.1.2011 (in W.P.No.19447/2011) and on various dates. The terms of the contract

stipulates that the agreed quantity of purchase by the petitioners Company shall be 7500 bales of

cotton, for which the price was fixed at Rs.43,800/- per candy. The payment condition entailed a

minimum deposit of Rs.800/- per bale. The petitioners Company have paid a total deposit of Rs.800/-

per bale, which ultimately works out to a total sum of Rs.60 lakhs.

(c) According to the petitioner in W.P.No.19447 of 2011, out of 7,500 bales, they had taken

delivery of 7000 cotton bales and therefore a balance money of Rs.4,00,000/- is still with the third

respondent Corporation.

(d) It is contended that the entire contract is now frustrated because of frequent power

cuts that lasted for long hours, closure of Units in Tiruppur, and sudden ban on export of cotton yarn to

foreign countries by the Central Government. Due to the said three reasons working hours in the

factory has been drastically reduced to one shift instead of normal three shifts and four months

production is held up and are lying idle. No payment is received from buyers for the past few months.

The credit worthiness of the business is under threat. Since normal shift pattern was stopped, there is

less production, leaving the bales already lifted from the respondent as surplus.

(e) It is the further contention of the petitioners that therefore it is impossible to take the

balance bales and use it commercially. The petitioners are not responsible for the present situation and

therefore the contracts entered into between the petitioner and the respondents have become

frustrated and thus the entire contract entered into between the petitioners and the respondents have

become null and void due to mutuality.

(f) The contract terms are one-sided, particularly Clause 13 Force Majeure Clause only

helps the third respondent in adverse situation and does not mutually available. The petitioners were


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(iii) Petitioners are trying to interpret the contract in the writ petitions which is impermissible,

particularly when the petitioners are having a remedy to go for arbitration under the Contract signed by

the petitioners.

(iv) It is also stated in the counter affidavit that the petitioner mills are managed and

administered by the professionals consisting of persons having immense knowledge in the business ofyarn manufacturing and marketing. They are carrying on the business with the respondents Corporation

for years together and they are fully aware of the intricacies of the business. They having signed the

contract with open eyes after reading the terms and conditions, it is unconscionable to raise these kinds

of contentions in the writ petitions. Petitioners are trying to wriggle out of the contract contending that

now it is not commercially viable.

(v) The alleged ground viz., frequent power cut, closure of Units in Tiruppur and ban on

exports were very much prevailed when the petitioners entered into the contract. There is no change in

circumstance and there is no total ban on exports and only a quantitative restriction to yarn exports was

imposed. The petitioners were taking the cotton till the end of May, 2011 even though the price of

cotton fell below the contract price. The restriction to the export of cotton was also lifted with effect

from 1.4.2011, which fact has been suppressed by the petitioners in the affidavit filed in support of

these writ petitions.

(vi) In fact, the petitioners purchased cotton bales at a lower rate from the Corporation,

though the price had increased. Still the respondents did not increase the price but supplied cotton

bales as per the agreed terms. Clause 13 of the agreement is not one-sided as alleged.

(vii) The Doctrine of Frustration will not apply in a commercial contract, where the parties are

anticipating future change on price structure. Petitioners have taken delivery of cotton bales till the

end of May, 2011, without any demur as the price was on the higher side. Only after the fall in pricefrom June, 2011, petitioners are lodging their protest.

(viii) The issue involves interpretation of contract entered into between the petitioner and the

respondents, which can be effectively dealt with only before the Arbitrator and in this case, arbitration

clause is already there. Therefore Arbitrator can very well interpret the contract.

(ix) It is stated in the counter affidavit that the petitioners are purchasing cotton at a lower

rate from the open market and continuing their production and they are now opting out on account of

the commercial calculations. The respondents Corporation is procuring cotton from the farmers either

at the minimum support price or at the market rate for the purpose of ensuring remunerative price to

farmers. If the petitioners do not take delivery of cotton as agreed, ultimately the farmers would be

affected and the respondent Corporation may not be in a position to protect the interest of the farmers

in the coming season. The forfeiture of EMD is only as per the terms and conditions in the contract.

Therefore the writ petitions filed for declaration are not maintainable on the ground of availability of

alternate remedy of moving before the Arbitrator.


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4. Mr.R.L.Ramani, learned Senior Counsel appearing for petitioners in most of the writ

petitions reiterated the contentions raised in the affidavits filed in support of the writ petitions and

submitted that the contracts entered into between the respective petitioners and Cotton Corporation of

India are unworkable due to three reasons viz., frequent power cut, closure of several Units in Tiruppur,

and ban on exports, which were never accepted by the petitioners while signing the contract and the

petitioners approached the respondents for taking effective steps for not lifting the cotton bales and

give them fresh lease of life and the same having not been considered. The facts in these cases are not

very much in dispute and hence this Court can entertain the writ petitions, even though there is an

alternate remedy of moving for arbitration. The learned Senior Counsel relied on the judgment of the

Supreme Court reported in (2011) 5 SCC 697 (Union of India v. Tantia Construction (P) Ltd.) in support of

his contentions, particularly stating that presence of arbitration clause is not a bar to invoke writ

jurisdiction when injustice is caused and rule of law is violated. The learned Senior Counsel also relied

on the decision of the Supreme Court reported in (2010) 11 SCC 186 (Central Bank of India v. Devi Ispat

Ltd.) in support of his contentions. The learned Senior Counsel further submitted that the petitioners

having been forced to sign the contract on dotted lines, cannot be sent out of this Court, particularly

when their rights guaranteed under Article 19(1)(g) of the Constitution of India to carry on the business

is affected. The learned Senior Counsel also submitted that mere existence of alternate remedy of going

for arbitration will not disentitle the petitioners to file these writ petitions.

5. Heard Mr.R.Barath Kumar, learned counsel also for some of the writ petitioners.

6. Mr.M.S.Krishnan, learned Senior Counsel appearing for the respondents 1 and 2

submitted that the CCI was formed by the Government of India to help the farmers to get good price for

their cotton. It is procuring the cotton from the farmers and also paying advance to the farmers. During

October, 2010 to February, 2011 the contract entered into by the petitioners with CCI is for one year.

Till June, 2011 the price of cotton was higher than the amount fixed in the contract and only in July,2011 local price has fallen. The power cut alleged by the petitioners are in existence for the past two

years. The closure of units in Tiruppur are only dying units and not textile mills. There was no ban on

exports of cotton yarn as alleged in the affidavit and there was only restricted export, which also was

completely lifted by notification dated 31.3.2011. Now the export of cotton yarn is free subject to

regulation of export contracts with DGFC (Director General of Foreign Trade). The learned Senior

Counsel relied on the Circular No.07 dated 22.12.2010 issued by the Government of India, Ministry of

Commerce and Industry and contended that the said circular only restricted and not totally banned the

export of cotton yarn. The learned counsel also submitted that as on date the price has gone up than

the amount agreed between the parties. The petitioners are attempting to re-write the contract at its

fag end period and more than 50% of the agreed bales were already lifted by the petitioners. Thealleged frustration of contract will not arise as contended by the petitioners. The learned Senior

Counsel also relied on the judgments of the Supreme Court reported in (1996) 6 SCC 22 (State of

U.P.v.Bridge & Roof Company (I) Ltd.); (2007) 14 SCC 680 : (2007) 4 ALR 74 (SC) (Empire Jute Company

Limited v. Jute Corporation of India Limited); (2005) 8 SCC 242 (Sanjana M.Wig v. Hindustan Petroleum

Corporation Ltd.); (2010) 11 SCC 186 (Central Bank of India v. Devi Ispat Ltd.); and AIR 1962 Madras 122

(Mahalingaswami Devasthanam v. Sambanda Mudaliar) in support of his contentions and submitted


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that the writ petitions are not maintainable, particularly when factual disputes are raised in these writ

petitions.

7. I have considered the rival submissions made by the learned Senior Counsel appearing

for the petitioners as well as learned Senior Counsels appearing for the respective respondents.

8. The point arises for consideration in these writ petitions is as to whether the writ

petitions filed seeking declaration to declare the contract entered into between the petitioners and first

respondent are maintainable and whether the EMD can be directed to be refunded ?

9. In W.P.No.19447 of 2011 the contract was entered into between the petitioner and first

respondent on 6.7.2011. Similar contracts were entered into between the petitioners in other writ

petitions and respondent Corporation for different periods. Clause 12 of the terms of the contracts

reads as follows:

"In case of any dispute or difference arising out of or in relation to the contract, except any dispute

regarding the quality of cotton which is specifically excluded under clause 2 of the Contract, will be

referred to an Arbitrator (other than an employee of the seller) to be appointed by the Director

(Marketing) or the Director (Finance) of the Seller and the decision of the Arbitrator shall be final and

binding upon the parties hereto. The Arbitration will be governed by the provisions of the Arbitration

and Conciliation Act, 1996 or any statutory amendments or re enactment thereof."

The agreed price per candy was fixed at Rs.43,800/- and the petitioners agreed to buy 7500 bales of

indigenous cotton on the terms and conditions set out. Each of the petitioners have signed in the

contract. Therefore the petitioners are well aware of the fact that if any dispute arises for any reason if

the contract could not be completed as agreed upon, the parties can move for arbitration.

10. Petitioners' contention is that due to the frequent power cut, closure of Units at

Tiruppur and ban of export, the prices got reduced in the open market and therefore they cannot lift the

balance cotton bales at present, at the rate of Rs.43,800/- per candy as agreed. The respondents in the

counter affidavit as well as the learned Senior Counsel for the respondents during the course of the

arguments submitted that the cotton was sold for higher price till May, 2011 and only in July, 2011 a

small price reduction was noticed and now the price got stabilised; that as on today it is Rs.43,000/-,

which may further increase; that the petitioners have lifted the cotton and benefitted out of the lowerrate paid to the Corporation; and that fluctuation of price is a common phenomena, which is aware of to

every businessman including the petitioners and that is why a standard price was fixed. In such

circumstances, the learned Senior Counsel for the respondent Corporation is justified in raising

preliminary issue of maintainability of the writ petitions at the admission stage.

11. As per the contract between the petitioners and the respondent Corporation, for

resolving disputes arbitration is provided (other than any dispute regarding quality of cotton, which is


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specifically excluded under Clause 2). An Arbitrator other than an employee of the Seller is to be

appointed by the Director (Marketing) or the Director (Finance) of the Seller. Such Arbitration will be

governed by the provisions of the Arbitration and Conciliation Act, 1996 or any statutory amendments

or reenactment thereof. Petitioners having agreed by signing the said contract, are bound to raise any

dispute for arbitration and the Arbitrator can very well go into all aspects, particularly in the facts

pleaded by the petitioners viz., frequent power cut, closure of Units in Tiruppur, ban of exports or any

other reason, which may be raised for consideration and an appropriate decision can be arrived at.

12. (a) The Supreme Court in the decision reported in (2010) 11 SCC 186 (Central Bank

of India v. Devi Ispat Ltd.) held that mandamus can be issued by the High Court under Article 226 of the

Constitution, if a legal right exist and corresponding legal duty is liable to be performed by the State or

its instrumentality. In paragraph 28 the Supreme Court held thus,

"28. It is clear that (a) in the contract if there is a clause for arbitration, normally, a writ court

should not invoke its jurisdiction; (b) the existence of effective alternative remedy provided in the

contract itself is a good ground to decline to exercise its extraordinary jurisdiction under Article 226; and

(c) if the instrumentality of the State acts contrary to the public good, public interest, unfairly, unjustly,

unreasonably discriminatory and violative of Article 14 of the Constitution of India in its contractual or

statutory obligation, writ petition would be maintainable. However, a legal right must exist and

corresponding legal duty on the part of the State and if any action on the part of the State is wholly

unfair or arbitrary, writ courts can exercise their power. In the light of the legal position, writ petition is

maintainable even in contractual matters, in the circumstances mentioned in the earlier paragraphs."

In the said decision the issue arose was for the return of title deeds deposited in the bank after the

settlement of accounts furnished by the bank in full. Therefore the facts were not in dispute.

(b) In (2007) 14 SCC 680 : (2007) 4 ALR 74 (SC) (Empire Jute Company Limited v. JuteCorporation of India Limited) in paragraph 18 it is held thus,

"18. The power of judicial review vested in the superior courts undoubtedly has wide amplitude

but the same should not be exercised when there exists an arbitration clause. The Division Bench of the

High Court took recourse to the arbitration agreement in regard to one part of the dispute but

proceeded to determine the other part itself. It could have refused to exercise its jurisdiction leaving the

parties to avail their own remedies under the agreement but if it was of the opinion that the dispute

between the parties being covered by the arbitration clause should be referred to arbitration, it should

not have proceeded to determine a part of the dispute itself."

(c) In the decision reported in (2011) 2 SCC 782 (Kanaiyalal Lalchand Sachdev v. State of

Maharashtra) the Apex Court held that if disputed questions of facts arise in a given case and alternative

remedy is provided, remedy under Article 226 of the Constitution of India cannot be permitted.

(d) In AIR 1954 SC 44 : 1954 SCR 310 (Satyabrata Ghose v. Mugneeram Bangur and Co.), the

doctrine of frustration was considered. In para 20 it is held thus,


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"20. It is well settled and not disputed before us that if and when there is frustration the

dissolution of the contract occurs automatically. It does not depend, as does recission of a contract on

the ground of repudiation or breach, or on the choice or election of either party. It depends on the

effect of what has actually happened on the possibility of performing the contract. What happens

generally in such cases and has happened here is that one party claims that the contract has been

frustrated while the other party denies it. The issue has got to be decided by the court ex post facto, on

the actual circumstances of the case

(e) In AIR 1960 SC 588 : (1960) 2 SCR 793 ((M/s.Alopi Parshad and Sons Ltd v. Union of

India) in paragraph 21 doctrine of frustration was considered, which reads thus,

"21. Section 56 of the Indian Contract Act provides that:

A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some

event which the promisor could not prevent, unlawful, becomes void when the act becomes impossibleor unlawful.

Performance of the contract had not become impossible or unlawful; the contract was in fact,

performed by the Agents, and they have received remuneration expressly stipulated to be paid therein.

The Indian Contract Act does not enable a party to a contract to ignore the express covenants thereof,

and to claim payment of consideration for performance of the contract at rates different from the

stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in

the course of carrying it out, with a turn of events which they did not at all anticipate a wholly abnormal

rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like.

Yet, this does not in itself affect the bargain they have made. If, on the other hand, a consideration ofthe terms of the contract, in the light of the circumstances existing when it was made, shows that they

never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged,

the contract ceases to bind at that point not because the court in its discretion thinks it just and

reasonable to qualify the terms of the contract, but because on its true construction it does not apply in

that situation. When it is said that in such circumstances the court reaches a conclusion which is just and

reasonable' (Lord Wright in Constantine case or one which justice demands' (Lord Sumner in Hirji Mulji

v. Cheong Yue Steamship Co. Ltd.), this result is arrived at by putting a just construction upon the

contract in accordance with an implication ... from the presumed common intention of the parties'

speech of Lord Simon in British Movietonews Ld. v. London and District Cinemas Ld."

(f) In (1976) 2 SCC 167 (Bisra Lime Stone Co. v. Orissa State Electricity Board) the Supreme

court in paragraph 24 held that when there is arbitration, the parties should go for arbitration.

(g) In (1996) 6 SCC 22 (State of U.P. v. Bridge & Roof Company (India) Ltd.) in para 21 also

the same view was taken, which reads thus,


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"21. ........... The contract in question contains a clause providing inter alia for settlement of

disputes by reference to arbitration (clause 67 of the contract). The arbitrators can decide both

questions of fact as well as questions of law. When the contract itself provides for a mode of settlement

of disputes arising from the contract, there is no reason why the parties should not follow and adopt

that remedy and invoke the extraordinary jurisdiction of the High Court under Article 226. The existence

of an effective alternative remedy in this case, provided in the contract itself is a good ground for the

court to decline to exercise its extraordinary jurisdiction under Article 226. The said article was not

meant to supplant the existing remedies at law but only to supplement them in certain well-recognised

situations. As pointed out above, the prayer for issuance of a writ of mandamus was wholly

misconceived in this case since the respondent was not seeking to enforce any statutory right of theirs

nor was it seeking to enforce any statutory obligation cast upon the appellants. Indeed, the very resort

to Article 226 whether for issuance of mandamus or any other writ, order or direction was

misconceived for the reasons mentioned supra."

13. From the above referred decisions it is evident that even though there is no absolute

bar to entertain writ petition if there is an arbitration clause, if the facts are in dispute, the High Court

shall not entertain writ petition.

14. In these cases, petitioners are contending that the price of cotton bales is lesser than

the agreed amount payable by the petitioners to the respondent and the ban order imposed was lifted

by the Government of India and when the petitioners entered into contract, then also there was

frequent power cut. It is also contended by the learned Senior Counsel for the respondent Corporation

that till May, 2011, cotton price was higher than the agreed amount payable by the petitioners and the

petitioners have earned profit and now also the cotton price has increased and therefore there is

fluctuation of price, which cannot be a reason to contend frustration of contract. All the above factual

aspects can be raised only before the Arbitrator in an arbitration proceeding, which is also provided

under Clause 12 of the terms and conditions of the contract entered into between the respective

petitioner and respondent Corporation.

15. In view of the above findings, I am of the firm view that these writ petitions are not

maintainable and the petitioners have to go for arbitration in terms of clause 12 of the contract, if they

have any grievance. Since the writ petitions are dismissed only on the ground of maintainability, the

observations made herein or the contentions raised as stated in this order shall not be construed as

giving any finding in favour of either party.

The writ petitions are dismissed with liberty to move for arbitration. No costs. Connected

miscellaneous petitions are also dismissed.


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vr

To



Ministry of Textiles)

P.B.No.7103, No.1057, Trichy Road,

Ramanathapuram, Coimbatore 641 045.

2. The Cotton Corporation of India Ltd.,


Ministry of Textiles), Kapas Bhavan,

Plot No:3A, Sector 10, Cbd Belapur,

Navi Mumbai 400 614



Ministry of Textiles), Chandar Mouli Building,


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Plot No.27, Samrat Nagar, Veer Savarkar Chowk,

Shahnoorwadi Road, Aurangabad 431 005.

4. The Secretary, Ministry of Textiles,

Government of India, Udyog Bhavan,

New Delhi 110 011

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In the High Court of Judicature at Madras