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2003 DIGILAW 843 (KAR)

BINFO ELECTRONICS v. BHARAT SANCHAR NIGAM LTD.

2003-10-13

body2003
( 1 ) SUBJECT matter of this writ petitioner is the correctness or otherwise of enforcement of a performance guarantee dated 18. 12. 1998 for a sum of Rs. 10,98,400/- furnished at the instance of the petitioner company by the second respondent at the instance of the petitioner company by the second respondent State Bank of India and in favour of the Director (MMT), Department of Telecommunications , Sanchar Bhavan, 20, Ashoka Road, New Delhi 110 001 now known as Bharat Sanchar Nigam Limited (BSNL for short), a company fully owned by the Government of India. ( 2 ) IN fact, developments leading to the present petition and the tender inviting offers from aspiring persons for supply of what is known as 10 Channel Digital UHF System were as per a publication by the Government of India, Ministry of Communication. Telecom Commission, Department of Telecommunications, MMT Section, 20, Ashoka Road, Snachar Bhavan, New Delhi, which was first issued in Tender No. MM/rn/121997/000127 issued on 26. 3. 1998. At that time, the first respondent BSNL had not been constituted, whereby the Government of India handed over some of its functions in favour of this BSNL and the tenders called for as per this tender issued on 26. 3. 1998 (copy at Annexure-A) were being continued and pursued by the first respondent BSNL and that is how they figure as the first respondent in this writ petition. ( 3 ) PETITIONER was one of the tenders offering its quotation indicating the price for the equipment to be supplied. The tender conditions interalia indicated that the equipment was required to be got tested for its quality and performance by a duly approved agency of the first respondent and that such testing also was required to be completed within a period of four months. All these conditions are mentioned in the tender documents. It may not be necessary for the purpose of this writ petition to go into great details of these conditions, inasmuch as having regard to the developments, it is not in dispute that the petitioner had not been required or called upon to supply the equipment by placing a purchase order on the petitioner and in fact, on the other hand, it is now on record that as per a policy decision taken at the level of the government and as indicated in a communication dated 5. 5. 5. 1999 originating from the Assistant Director General (MT) (Copy at Annexure-P), the system will not be procured any more as a mater of policy. But this was contained in a specific communication dated 12. 5. 1999 from one Mr. M. F. Ansari, Director (GP) of Dept. of Telecommunications, Sanchar Bhawan, New Delhi, addressed to Sri. G. S. Raju, Deputy Director General (SR), Telecommunications Engineering Centre, South Region, Vishwas Bhavan, Bangalore-560 051, in the context of the Field Trial of the equipment offered by the petitioner and whereby it was advised to abandon such field testing of the equipment offered by the petitioner. This particular communication is of significance as it will have bearing on the decision of the first respondent in enforcing the performance guarantee that had been furnished at the instance of the petitioner for due performance of the equipment that should have been supplied by the petitioner if a purchase order should have been placed on the petitioner. ( 4 ) GOVERNMENT of India, Telecommunication Commission, New Delhi, involved the performance guarantee as per a communication dated 23. 8. 1999 indicating that the petitioner had failed to fulfill the contractual obligation after the unconditional/unequivocal acceptance of the terms etc. , and after issuing the advance purchase order (copy at Annexure-L) and it reads as under:- kindly refer to captioned APO and the letter cited above. It is intimated the vide Clause 6 of the APO, you were required to Obtain type approval for the subject item Ie, By 31. 03. 99. Performance Bank guarantee Submitted against the captioned APO is Hereby encashed and subject APO is Cancelled at your risk and responsibility, as You have failed, to fulfill the contractual Obligation after your unconditional/ Unequivocal acceptance of the terms Conditions of the Subject APO. No further Communication shall be entertained by this office. ( 5 ) IN fact, at this stage petitioner had approached this Court by filing W. P. No. 42895/99. The writ petition which had been contested, had been disposed of by an order dated 8th March, 2001 with a direction to the respondent Organization to examine the representation of the petitioner not to cancel the advance purchase order and to consider the possibilities of placing a purchase order on the petitioner. The relevant portion reads as under:-I have heard Mr. The relevant portion reads as under:-I have heard Mr. Kiran Kumar appearing for the petitioner as also Miss Sarojini Muthanna, appearing for the exhibits Produced that no purchase order has been Placed on the petitioner. Prima facie there is No concluded contact which is said to have Been awarded to invoke clause 15. 2 referred To above. However, a detailed examination is called for in the case at the hands of the first respondent. Is there a purchase order placed with the petitioner with respect to the commodity referred to in Annexure-A? Is there a delivery schedule issued to the petitioner, which he has to adhere to? Is there a breach thereof by him? Or is there other condition in the tender, enabling the respondent to enforce the Bank Guarantee in the event the prototype is not approve? All these can be examined by the first respondent with respect to Annexure-K representation. I direct the first respondent to examine Annexure-K and take a decision thereon within a period of two months from the date of receipt of the order. It is made clear that until a decision is taken herein the Bank Guarantee shall not be enforced by the fist respondent. The petitioner shall execute a fresh Bank Guarantee if the period of Guarantee expires now in operation which shall be in operation till a decision is taken by the first respondent in terms of his order. I make it clear that a right to resort to arbitration to the parties could be invoked after a decision is taken by the first respondent if need be. W. P. is disposed of. Thereafter the petitioner was furnished with a communication dated 4. 9. 2001 (copy at Annexure-P) indicating that his representation cannot be considered favourably and as indicated in the enclosed decision taken by the Department answering the questions posed for determination by the Court. It was for the first time indicated in this communication and through the so-called parawise comments which perhaps constitute the reply to the representation of the petitioner (copy at Annexure-P2) that it was not possible to consider the request of the petitioner for issuing a purchase order in its favour in as much as per a policy decision of the Sanchar Bhawan, the UHF systems were not to be procured any more. Clause (vi) of this reply to the representation reads as under:-For allotment to field trial route the Director (GP), Dept, of Telecom. , Sanchar Bhawan. New Delhi, informed vide this letter dated 12. 5. 99 to abandon the field trial in view of policy decision of the Sanchar Bhawan, not to procure the system any more. Note to Director D/uhf system any more (copy enclosed Annx. F ). The first respondent in fact, by the communication dated 4. 9. 2001, was indicating the decision that it had taken on 11. 6. 2001 in obedience to the directions contained in the order dated 8. 3. 2001 passed by this Court in W. P. 4289/99. In fact, the first respondent had immediately, after taking such a decision on 11. 6. 2001, also addressed a communication to the bank dated 14. 6. 2001 (copy of Annexure-M1) calling upon the bank to encash the Bank guarantee. It is only that the decision to reject petitioners request was communicated much later as per communication dated 4. 9. 2001 (copy at Annexure-P) ( 6 ) IT is thereafter the present writ petition has been filed challenging the decision of the first respondent to invoke the bank guarantee and the prayer for quashing the said decision dated 11. 6. 2001 with a further prayer to direct the second respondent Bank to discharge the bank guarantee and to pay the proceeds to the petitioner and for awarding compensation for arbitrary cancellation of the Advance Purchase Order by the respondent and for costs and other consequential reliefs in this writ petition. ( 7 ) SIR. Kiran Kumar, learned Counsel appearing for petitioner submitted that petitioner will be content with the relief in respect of enforcement of the Bank Guarantee and in respect of other reliefs, he requests that the petitioner may be permitted to pursue them independently and such other reliefs are not pressed in this writ petition. ( 7 ) SIR. Kiran Kumar, learned Counsel appearing for petitioner submitted that petitioner will be content with the relief in respect of enforcement of the Bank Guarantee and in respect of other reliefs, he requests that the petitioner may be permitted to pursue them independently and such other reliefs are not pressed in this writ petition. ( 8 ) IT is the contention of the petitioner that the invocation of the bank guarantee is most arbitrary, irrational and not justified that the bank guarantee, which was a performance guarantee for the due performance of the equipment that the petitioner was required to supply if a purchase order should have been placed on the petitioner, is sought to be invoked even when no purchase order had ever been placed on the petitioner and in fact while the very project has been abandoned as a policy matter, that the bank guarantee is sought to be enforced for purposes and reasons other than the one for which it had been furnished and the respondent being State within the meaning of Article 12 of the Constitution of India, cannot resort to such arbitrary and irrational action and that the petitioner is entitled for reliefs even in the exercise of the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India. ( 9 ) STATEMENT of objections has been filed on behalf of the first respondent. It is interalia asserted that the very petition is not tenable, that the petitioner cannot seek for any of the reliefs sought for in this writ petition; that it is open to the petitioner to work out his remedies in accordance with the terms of the tender conditions and the contract etc. It is interalia asserted that the very petition is not tenable, that the petitioner cannot seek for any of the reliefs sought for in this writ petition; that it is open to the petitioner to work out his remedies in accordance with the terms of the tender conditions and the contract etc. , that the petitioner has not made out any case for granting relief by this Court; that the petitioner in fact has committed a breach even in terms of the advance purchase order; that the petitioner had not got tested the equipment to be supplied by it within the stipulated period of four months and as such had committed a violation; that the failure on the part of the petitioner to get its equipment tested with the stipulated period also amounts to failure on the part of the petitioner to supply the equipment itself and that the respondent is perfectly justified in invoking the bank guarantee on the very terms of the advance purchase order; that in the matter of enforcement of the bank guarantee, this Court will not interfere particularly the bank guarantee being in the nature of an unconditional undertaking by the bank to make payment to the first respondent if it is so called upon and has prayed fro dismissal of the writ petition. ( 10 ) SRI. Kiran Kumar, learned Counsel appearing for the petitioner has taken me through the relevant provisions of the tender documents, particularly the definition clause as to what is a contract, what is a purchase order, what is an advance purchase order. He has also taken me through the provisions relating to the furnishing of performance guarantee as stipulated in Clause 4 of Section III of General (Commercial) Conditions of Contract, which read as under:-1. Application: the General Conditions shall apply in contracts made by the Purchaser for the procurement of Goods. 2. Standards: the Goods supplied under this contract shall conform to the standards prescribed in the Technical Specifications. 3. Patent Rights: the Supplier shall indemnify the Purchaser against all third-party claims of infringement of patent, trademark or industrial design rights arising from use of the goods or any part thereof in Indian Telecom Network. 4. Performance Security: 4. 2. Standards: the Goods supplied under this contract shall conform to the standards prescribed in the Technical Specifications. 3. Patent Rights: the Supplier shall indemnify the Purchaser against all third-party claims of infringement of patent, trademark or industrial design rights arising from use of the goods or any part thereof in Indian Telecom Network. 4. Performance Security: 4. 1 The supplier shall furnish performance security to the purchaser for an amount of 5% of 4 crores of Contract value and 2% for every extra one crore of contract value limited to maximum of crore within 20 days after the Suppliers receipt of the Advance Purchase Order. 4. 2 The proceeds of the performance security shall be payable to the Purchaser as compensation for any loss resulting from the Suppliers failure to complete its obligations under the Contract. 4. 3 The Performance Security Bond shall be in the form of a bank guarantee issued by a Scheduled Bank and in the form provided in the Bid Document, section IX. 4. 4 The performance security bond will be discharged by the Purchaser after completion of the Suppliers performance obligations, including any Warranty obligations, under the contract. It is the submission of the Counsel that the performance guarantee is a guarantee furnished for the proper performance of equipment supplied under the contract and that it becomes a contract only after the purchase order is placed as per the definition in the tender documents; that there is a conscious distinction between a purchase order and an advance purchase order; that the bank guarantee is not in any way linked to the advance purchase order and even assuming that there is a breach, though not admitted, in any of the conditions of the advance purchase order, that will not give right to the first respondent to invoke or enforce the bank guarantee furnished for the due performance of the equipment to be supplied by a bidder on placing of the purchase order. Learned Counsel has also relied upon the decisions of the Supreme Court reported in AIR 1986 S. C. 872 (EXPRESS NEWS PAPERS PVT. LTD. and OTHERS VS. Learned Counsel has also relied upon the decisions of the Supreme Court reported in AIR 1986 S. C. 872 (EXPRESS NEWS PAPERS PVT. LTD. and OTHERS VS. UNION OF INDIA and OTHERS) and AIR 1994 SC 3710 in support of his submission that the first respondent being State is expected to act in a fair and non-arbitrary manner; that a bank guarantee issued for a particular purpose cannot be invoked for all other collateral purposes also, particularly the first respondent which is a State within the meaning of Article 12 of the Constitution of India, cannot, by the mere fortuitous circumstances of having a bank guarantee furnished at the instance of the petitioner in its position, is not to enforce the same for any and every reason to the detriment of the petitioner. ( 11 ) SRI. Hariprasad, learned Addl. Central Government Standing Counsel appearing on behalf of the first respondent, on the other hand, has very vehemently submitted that the very writ petition is not tenable; that in the matter of enforcement of a bank guarantee, Courts will not interfere for restraining the bank from guarantee having regard to the very nature of the instrument and that the bank guarantee being an unconditional assurance on the part of the bank to the person in whose favour it has been furnished to honour the same and in matter of this nature, on relief can be granted to the petitioner in a petition under Article 226 of the Constitution of India; that the petitioner, even assuming has any grievance, has to work out its remedy by resorting to the arbitration clause that has been provided under the contract or by any other mode other than the remedy under Article 226 of the Constitution of India. ( 12 ) LEARNED Counsel has also made submission justifying the action on the part of the first respondent by pointing that the purchase order in fact includes an advance purchase order; that even in respect of any of the violation of the terms of the terms of the contract in respect of the Advance Purchase Order also, the first respondent is entitled to invoke and enforce the performance guarantee and that such action cannot be questioned in a writ petition. Learned Counsel submitted that the petitioner had not got tested its equipment within the stipulated period of four months and as such had violated the terms of the Advance Purchase Order and that justifies not only the cancellation of the Advance Purchase Order and subsequent purchase order to be placed on the petitioner, but also invoking the bank guarantee. Learned Counsel for first respondent in this regard has placed reliance on para 14 of the decision of the Supreme Court reported in the case of STATE OF MAHARASTRA VS. NATIONAL CONSTRUCTION COMPANY LTD. ( AIR 1996 SC 2367 ). ( 13 ) ARGUMENTS have been heard at great length and spread over several weeks. In fact this Court had occasion to pass three interim orders even during the course of the arguments on 8. 8. 2003, 28. 8. 2003. They reads as under:- order dt. 8. 8. 2003:the only question that arises for consideration in this petition is as to whether the respondents were justified in enforcing a performance guarantee that had been issued by the petitioner when the respondent never even placed a purchase order for supply of the equipments; that there was no concluded contract between the parties for supply of such equipment and on the contrary, as a matter of policy respondents decided to scrap the very project and not to place any purchase orders on any bidders in favour of whom advance purchase orders had been issued. The stand on behalf of the respondents is that the very issue of advance purchase order and pursuant to which the performance guarantee is provided is sufficient to read that there was a contract between the parties and that failure on the part of the petitioner to make available the equipment for inspection within the stipulated period of four months from the date of issue of advance purchase order will entail them to not only repudiate the contract but also to enforce the performance guarantee which was fro a sum of Rs. 10,95,000/ -. In this regard Sri. 10,95,000/ -. In this regard Sri. Hariprasad, learned Centralgovernment Standing Counsel for the respondents has brought to the notice of the Court some of the terms of the tender documents which read thus:-PERPORMANCE SECURITY: 1 The supplier shall furnish performance security to the purchaser for an amount of 5% of 4 crores of Contract value and 2% for every extra one crore of contract value limited to maximum of crore within 20 days after the Suppliers receipt of the Advance Purchase Order. 2 The proceeds of the performance security shall be payable to the Purchaser as compensation for any loss resulting from the Suppliers failure to complete its obligations under the Contract. 3 The Performance Security Bond shall be in the from of Back guarantee issued by a Scheduled Bank and in the from provided in the Bid Document, Section IX. 4 The performance security Bond will be discharged by the Purchaser after completion of the Suppliers performance obligations, including any Warranty obligations, under the Contract. DELAYS IN THE SUPPLIERS PERFORMANCE: 1 Delivery of the Goods and performance of services shall be made by the Supplier in accordance with the time schedule specified by the purchaser in its Purchase Order. In case the supply is not completed in the stipulated delivery period, as indicated in the Purchase Order, Purchaser reserves the right either to short close/cancel this purchase order and/or recover liquidated damage charges. The cancellation/short closing of the order shall be at the risk and responsibility of the supplier and purchaser reserves the right to purchase balance unsupplied item at the risk and cost of the defaulting vendors. 2 Delay by the Supplier in the performance of its delivery obligations shall render the Supplier liable to any or all of the following sanctions, forfeiture of its performance security, imposition of liquidated damages and/or termination of the contract for default. 3 If at any time during performance of the Contract, the Supplier or subcontractor (s) encounters conditions impeding timely delivery of the goods and performance of service, the Supplier shall promptly notify the Purchaser in writing of the fact of the delay, its likely duration and its cause (s ). As soon as practicable after receipt of the Suppliers notice, the Purchaser shall evaluate the situation and may at its discretion extend the period for performance of the contract after mutual discussion with the supplier. As soon as practicable after receipt of the Suppliers notice, the Purchaser shall evaluate the situation and may at its discretion extend the period for performance of the contract after mutual discussion with the supplier. TERMINATION FOR DEFAULT: 1 The Purchaser may, without prejudice to any other remedy for breach of contract, by written notice of default, sent to the Supplier, terminate this Contract in whole or in part. a) If the Supplier fails to deliver any or all of the goods within the time period (s) specified in the Contract, or any extension thereof granted by the Purchaser pursuant to Clause 15; b) If the Supplier fails to perform any other obligation (s) under the Contract; and c) If the Supplier, in either of the above circumstances, (s) does not remedy his failure within a period of 30 days (or such longer period as the Purchaser may authorize in writing) after receipt of the default notice from the Purchaser. 2 In the event the Purchaser terminates the contract in whole or in part, pursuant to para 18. 1, the Purchaser may proceed, upon such terms and in such manner as it deems appropriate, goods similar to those undelivered and the Supplier shall be liable to the Purchaser for any excess cost for such similar goods. However, the Supplier shall continue performance of the contract to the extent not terminated. SPECIAL CONDITIONS OF CONTRACT: Successful bidders shall have to obtain type approval for the tendered item within 4 months of issue of Advance Purchase Orders. Purchase Orders will be placed on only those successful bidders who have obtained type approval, learned Counsel has also relied upon the decision of the Supreme Court reported in (2003) 4 SCC 690 (DAEWOO MOTORS INDIA LTD. VS. UNION OF INDIA and ORS. ). 3. Statement of Objections filed on behalf of the respondents does not indicate as to how the respondents are justified in enforcing performance guarantee when no purchase order had ever been placed on the petitioner; that there was no order to supply the equipment in respect of which, for non-performance, bank guarantee could be enforced. The terms and conditions of the clauses referred to above also do not indicate how or on what basis the respondents could have enforced the performance guarantee. The terms and conditions of the clauses referred to above also do not indicate how or on what basis the respondents could have enforced the performance guarantee. The terms relied upon by the respondents are in the context of concluded contract which is brought about as per clause 28 of the contract when a purchase order is placed on the bidder. It is not in dispute that this stage never reached in the present case. The decision relied upon by the learned Counsel for the respondents is not applicable to the situation of the present case. The respondents being State, are expected to act in a fair and just manner, but in the instant case, leave alone acting in a fair and just manner, they themselves have unilaterally taken a decision to enforce a performance guarantee even without any of the provisions of the tender documents supporting the same and at the stage at which it was done. The action on the part of the respondents is most whimsical, arbitrary and unfair to say the least. 4. Learned Counsel for the respondents, requests that the matter may be called after two weeks to ensure the presence of a responsible officer on behalf of the respondents. It is for such purpose the case is adjourned to be called after two weeks. It is the responsibility of the learned Standing Counsel appearing for the respondents to ensure the presence of the concerned officer before this Court on 28. 8. 2003. Let a copy of this order be furnished to the Central Government Standing Counsel. Order 28. 8. 2003: petitioner has approached this Court being aggrieved by the action on the part of the respondent in invoking a bank guarantee that had been furnished at the instance of the petitioner and in favour of the 1st respondent by the 2nd respondent Bank which is characterized as performance guarantee. It appears that the 1st respondent had invited tenders for supply of 10 channel digital UHF system. Petitioner was one amongst the bidders and had offered its rates. The 1st respondent on evaluating the offers had placed advance purchase orders for the supply of this equipment on the petitioner amongst many others as per communication A. P. O. No. MT/apo/57/98-99 dated 30. 11. 1998. One of the condition is condition 5 which reads as under:5. Petitioner was one amongst the bidders and had offered its rates. The 1st respondent on evaluating the offers had placed advance purchase orders for the supply of this equipment on the petitioner amongst many others as per communication A. P. O. No. MT/apo/57/98-99 dated 30. 11. 1998. One of the condition is condition 5 which reads as under:5. Delivery Schedule: the supplier shall have to obtain type approval for the tendered item within 4 (four) moths from the date of issue of Advance purchase orders. Purchase Order will be place on only those successful bidders who obtained type approval. The delivery of the goods shall commence immediately on placement of purchase order and shall be completed within 2 to 6 months thereafter. The exact delivery period shall be intimated to the supplied at the time of placement of the purchase order. For the advance purchase order to become purchase order the supplier was required to offer the equipment for testing and purchase orders were to be placed only on such bidders who were successful in obtaining the type approval. It is only subsequent to the approval that purchase order was to be placed on the bidders and the who were to supply the equipment within the specified time. In the instance case there is dispute between the petitioner and the 1st respondent on one aspect i. e. while petitioner has submitted that even though the equipment was placed for testing it was not tested by the 1st respondent, the stand of the 1st respondent is that the petitioner never offered the equipment for testing. Be that as it may. The advance purchase order did not fructify into the purchase order nor was any purchase order in fact had placed on the petitioner by the 1st respondent. It was a condition precedent for issue of a purchase order that the bidders should furnish a performance guarantee which is at 5% of the total values of the equipment, that the bidders were required to supply, if a purchase order was to be placed on the bidder and in the case of the petitioner the amount was Rs. 10,98,400/ -. Petitioner in fact had furnished such a bank guarantee also, as per bank guarantee dated 18. 12. 1998 issued by M/s State Bank of India the 2nd respondent. The bank guarantee had been furnished even before the issue of purchase order. 10,98,400/ -. Petitioner in fact had furnished such a bank guarantee also, as per bank guarantee dated 18. 12. 1998 issued by M/s State Bank of India the 2nd respondent. The bank guarantee had been furnished even before the issue of purchase order. The grievance of the petitioner in this writ petition is even without any purchase order having been placed and even when there was no occasion for invoking the bank guarantee which was for the due purchase of the equipment that was required to be supplied by the petitioner pursuant to a purchase order being place on it, the 1st respondent has unjustly invoked the bank guarantee and tried to enforce the same and it is at this stage petitioner has approached this Court. Contention urged on behalf of the petitioner is that there was no occasion at all for the 1st respondent to invoke the bank guarantee as the situation never arose as the purchase order was never issued to the petitioner. Petition is resisted by the 1st respondent by filing statement of objections. It is inter alia pointed out that the petition is not maintainable, that the agreement provides for an arbitration clause it is for the parties to go before the arbitrator if there is any dispute arising in the context of agreement between the parties and that the 1st respondent is also entitled to and justified in invoking the bank guarantee inasmuch as the petitioner did not offer the equipment for testing which is a breach of requirement of the advance purchase order dated 30. 11. 1998. A cursory glance at the condition mentioned in the bid documents, Annexure A, indicated that the petitioner had never become the purchaser within the meaning of the word under clause (a) of the definition not the purchase order within the meaning of Clause (f) of the definition has either been placed by the petitioner. The performance security is mentioned in Clause 4 of Section III consisting of General (Commercial) Conditions of the Contract. A reference to this clause leaves one with no doubt that the purchase has to furnish performance security by way of a bank guarantee in terms of the contract for supply of the equipment and not otherwise. In the present case such contract did not come into existence. A reference to this clause leaves one with no doubt that the purchase has to furnish performance security by way of a bank guarantee in terms of the contract for supply of the equipment and not otherwise. In the present case such contract did not come into existence. However what is urged on behalf of the 1st respondent is that there was a breach of condition of the advance purchase order itself and that the 1st respondent had incurred considerable revenue loss because of this reason and are entitled to invoke bank guarantee. Invoking and enforcing of bank guarantee is not on determination of any amount due by the party for his liability but is an amount available for adjustment against any amount due from the party who has furnished the guarantee. A reading of Clause 4 Performance Security in Section III of the bid documents does not enable the first respondent to invoke or enforce the bank guarantee in the present situation until and unless the respondent is in a position to justify the amount realized by invoking the bank guarantee, can in law be retained as an amount to meet any liability should be in terms of the contract. There is no purpose in invoking the bank guarantee if there is no justification. On a cursory examination of the terms and conditions of the contract and as pointed out by the learned Counsel for the petitioner there is no enabling provision which enables the 1st respondent to retain any amount of the proceeds from the bank guarantee realized by it except under Clause 4 relating to performance security. Unless the 1st respondent is able to sustain the invoking of bank other liability of the petitioner which the petitioner has incurred in terms of the contract, the very invoking of the bank guarantee will be without any reason or justification. The 1st respondent being State within the meaning of Article 12 of the Constitution, is excepted to act in a fair and not arbitrary manner and not either in a vindictive, whimsical or spiteful manner. Learned Counsel for the 1st respondent Sri Y. Hariprasad seeks two weeks time to clarify on this aspect. Call after two weeks. A copy of this order may be furnished to the learned Counsel for the 1st respondent. Order dated 24. 9. Learned Counsel for the 1st respondent Sri Y. Hariprasad seeks two weeks time to clarify on this aspect. Call after two weeks. A copy of this order may be furnished to the learned Counsel for the 1st respondent. Order dated 24. 9. 2003: an additional statement of objections is filed on behalf of the respondents. The additional statement does not make out any case that the purchase order had either been issued in favour of the petitioner or that the bank guarantee that had been issued was not only for the performance of the equipment to be supplied but also for any violations in respect of advance purchase of the equipment. Learned Counsel for the petitioner submits that when non-placing of the purchase order on the petitioner was in pursuance of a policy decision taken up at the higher level, the question of respondents invoking the bank guarantee furnished for due performance of equipment to be supplied under the purchase order does not arise. Learned Counsel submits that such a situation never arose. Call immediately after vacation for further arguments. ( 14 ) AN additional statement of objections dated 23. 9. 2003 has also been filed on behalf of the first respondent. The first respondent has re-affirmed its stand that it is entitled to invoke the performance guarantee as the performance guarantee had been issued not merely for the due performance of the equipment to be supplied against the purchase order, but also for observing the terms and conditions of the Advance Purchase Order itself and that there was default on the part of the petitioner in getting the equipment tested within the stipulated period and as a consequence the purchase order could not be placed on the petitioner; that the first respondent had incurred losses as it had to abandon the very project and in the circumstances, for the expenses which the first respondent had incurred, the first respondent is entitled to recover the same from the bank guarantee that had been furnished at the instance of the petitioner as a performance guarantee for the equipment to be supplied by it and as such, had again prayed for dismissal of the writ petition. ( 15 ) IT is no doubt true that this Court, in the exercise of jurisdiction under Article 226 of the Constitution of India, normally does not examine the question of correctness of enforcement of a bank guarantee, the determination of which will be necessary for granting the relief. Also when other efficacious remedies are available to the petitioner, relief under Article 226 of the Constitution of India in the exercise of writ jurisdiction in not normally available. The writ jurisdiction also is not permitted to work out contractual rights of parties unlike either statutory rights or constitutional rights. Though it is sought to be contended on the part of the first respondent that the relief sought for by the petitioner is in the context of determination of the rights and obligation of the parties in the light of the contractual terms, what is essentially complained of is gross arbitrary and irrational action on the part of the first respondent in invoking the bank guarantee. What is submitted is that the first respondent has absolutely no right even under the terms of the contract for enforcing the performance guarantee inasmuch as the contract itself has not come into existence; that the equipment for due performance of which the bank guarantee has been furnished has never been supplied; not a purchase order placed by the first respondent for supply of equipment which is neither supplied not its performance is in issue and in such circumstances, the first respondent is totally unjustified in invoking the bank guarantee to the detriment of the petitioner. ( 16 ) IT is the submission of Sri. Kiran Kumar, learned Counsel for the petitioner that the petitioner had, at great effort and cost, developed the equipment to the specification and requirements of the first respondent pursuant to the placing its offer and receiving the Advance Purchase Order; that the petitioner had taken all measures to have the same certified in accordance with the requirements stipulated in the tender conditions, that the petitioner had in fact paid the necessary test fee of Rs. 65,000/- in this regard and for certifying the equipment after field trial of the equipment and in fact the authorised agency of the first respondent has also certified the quality of the equipment and it was at that stage that the respondent failed to place a purchase order, particularly as a policy decision was taken at the higher level to abandon the project itself, which was not within the knowledge of the petitioner and the petitioner in fact had approached this Court earlier with the grievance that inspite of the petitioner complying with all the requirements and having made a representation for accepting its equipment, the respondent is not issuing a purchase order and in such circumstances, this Court had issued the directions to the respondent to consider the representation and then to take a decision. ( 17 ) IT is rather unfortunate that the respondent did not place true facts before this Court when this Court was seized of W. P. No. 42895/99 filed by the petitioner in the earlier round. In fact the first respondent had not placed the correct and necessary material before this Court at that time, which had occasioned for the order dated 8. 3. 2001 passed by t6his Court whereby this Court had issued a futile writ. Even as on the date when this Court passed the order, i. e. on 8. 3. 2001, it was well within the knowledge of the first respondent that there was absolutely no possibility of either considering the representation of the petitioner for placing a purchase order on it for issuing any purchase order in favour of petitioner or any one else in view of the policy decision of the Government to abandon the project itself, which decision was taken way back on 12. 5. 1999 itself. In fact, at that stage, as is evident from the letters dated 26. 3. 1999 and 16. 4. 1999 originating from the Telecommunication Engineering Centre, who is the authorised Testing Agency, had requested for making available approved rules for carrying out of the trial of the equipment offered by the petitioner and it is only because of the policy decision to abandon the project, no further developments took place in this regard. 3. 1999 and 16. 4. 1999 originating from the Telecommunication Engineering Centre, who is the authorised Testing Agency, had requested for making available approved rules for carrying out of the trial of the equipment offered by the petitioner and it is only because of the policy decision to abandon the project, no further developments took place in this regard. It is also to be noted that the equipments were available for testing by the authorised agency even before the expiry of four months stipulated in the Advance Purchase Order. Unfortunately, the policy decision not to go ahead with the project was never placed before this Court though was within the knowledge of the authorities, and that is the reason why this Court had issued a direction to the respondent to consider the representation of the petitioner for awarding the purchase order and also directed to keep alive the bank guarantee during such period. ( 18 ) THE respondents have also made of the direction issued by this Court by its order dated 11. 6. 2001 and as communicated to the petitioner by its communication dated 4. 9. 2001. It was well within the knowledge of the first respondent that there is absolutely no possibility of placing a purchase order on the petitioner either at the time when this Court issued the direction or at any subsequent point of time when they made a farce of considering the representation of the petitioner. It is subsequent to this so called decision of 11. 6. 2001 taken by the respondent pursuant to the direction issued by this Court as per the order dated 8. 3. 2001, the second respondent bank was called upon to make payment of the bank guarantee amount as per communication dated 14. 6. 2001. The entire action on the part of the first respondent is a mere sham action to give an impression that it is complying with Court directions. This whole development is only due to the lapse on the part of the respondent in not placing the correct and factual position before this Court when this Court was seized of W. P. No. 42895/99 and passed an order on 8. 3. 2001. In fact, the decision to abandon the project and not to place the purchase order had been taken more than twenty months prior to the order passed by this Court. 3. 2001. In fact, the decision to abandon the project and not to place the purchase order had been taken more than twenty months prior to the order passed by this Court. ( 19 ) ACTION on the part of the first respondent is required to be examined in this background, particularly for invoking the bank guarantee. Though it is sought to be disputed on behalf of the first respondent by its learned Counsel that the Bank guarantee is not only for the due performance of the equipment that was required to be supplied pursuant to a purchase order, but also for the due performance of the condition under the Advance Purchase Order, a reading of the terms of the contract and the definitions of these terms discussed above indicate that the performance guarantee is only for the due performance of the equipment to be supplied and not for any other purpose. The performance guarantee is furnished pursuant to the tender conditions and though it had been furnished even before issue of a purchase order, it was because it was a condition precedent for placing a purchase order and as indicated by the first respondent in its letters and communicated. A mere fortuitous circumstance that the first respondent had in its possession a bank guarantee furnished in its favour even before issue of a purchase order, in itself will not enable the first respondent which is a State within the meaning of Article 12 of the Constitution of India, to make use of such bank guarantee for any other purpose it deems fit. The first respondent is not like any other litigant and being State within the meaning of Article 12 of the Constitution of India, is not only expected to act in a fair non-arbitrary manner, but also not to resort to either cheap methods or arm-twisting tactics. The conduct on the part of the first respondent to enforce the Bank guarantee meant for due performance of equipment to be supplied under the purchase order for the so-called breach of the conditions of the advance purchase order, is nothing but a misuse of its power and taking advantage of the situation when it had the bank guarantee furnished at the instance of the petitioner in favour of the first respondent for a specific purpose. ( 20 ) IN the additional statement of objections filed on behalf of the first respondent, certain particulars are provide to indicate that the estimated loss for the first respondent for the period of six months during 1999-2000 is to the order of Rs. 2,16,11,520/- and the amount of the bank guarantee is a mere Rs. 10,98,400/ -. It is not necessary fir this Court to go into the details or correctness of these calculations. Suffice it to say, petitioner, who was one amongst the many bidders who had been selected for supply of such equipment and on whom only an advance purchase order had been placed, no purchase order in fact had ever been placed on the petitioner. Assuming that the first respondent has any claim over persons like petitioner on the premise as is sought to be made out in the statement of objections and the additional statement of objections, it is a matter which can be worked out as between the petitioner and the respondent and that cannot be made a premise for invoking a bank guarantee which had been furnished for the specific purpose of due performance of an equipment to be supplied pursuant to a purchase order being on persons like the petitioner. Viewed from any angle, the action on the part of the first respondent in invoking the bank guarantee is not only clearly contrary to the very terms between the parties, but is also most arbitrary, unreasonable and unjust. ( 21 ) THIS Court, while exercising the power of judicial review of administrative action, whenever notices an administrative action on the part of a State being either arbitrary or unfair, definitely can issue a writ to either prevent such action or set right such action. Learned Counsel for petitioner has suffered huge losses as the purchase order was never on it, but to compound its misery, the first respondent has, arbitrarily and without any justification, tried to enforce the bank guarantee for a sum of Rs. 10lakhs etc. on the petitioner, which can only further cripple an enterprising industrialist like the petitioner. ( 22 ) THERE is no doubt that invocation of the bank guarantee is definitely to the detriment of the petitioner in terms of financial implications and can definitely cause considerable damage to the petitioner. 10lakhs etc. on the petitioner, which can only further cripple an enterprising industrialist like the petitioner. ( 22 ) THERE is no doubt that invocation of the bank guarantee is definitely to the detriment of the petitioner in terms of financial implications and can definitely cause considerable damage to the petitioner. It is also to be noticed that without dispute, no amount has ever been paid to the petitioner under the contract and that petitioner was not the beneficiary in any way in the transaction. ( 23 ) IT is to be noticed that furnishing of a bank guarantee is only as a safely device for being looked upon by a party who is put to jeopardy by the non-performance of a contracting party and the invocation of the bank guarantee is not an end in itself. The amount under the Bank guarantee is to be adjusted towards the liability of the defaulting party to the contract. Though this Court had directed the respondents to take corrective action as indicated in the three earlier interim orders, it appears no action has been taken to set right the earlier action of invoking the Bank guarantee against the petitioner in particular nor the petitioner put on notice quantifying any such losses attributable to the petitioner. It is only in the additional statement of objections certain figures are indicated to claim huge losses as being suffered by the respondent etc. Even assuming that to be so, it is not a justification for invoking the specific bank guarantee furnished by the petitioner and for the due performance of the equipments to be supplied under to purchase order. The Court has no choice but to hold that the action on the part of the first respondent in invoking the bank guarantee is most arbitrary, unreasonable and contrary to the terms of the contract itself and not an action that can be approved of by this committed by an authority which is State within the meaning of Article 12 of the Constitution of India. ( 24 ) IN the circumstances, this writ petition is allowed, but only to the limited extent of directing the first respondent BSNL to rescind its action in invoking the bank guarantee and further direct the first respondent to instruct the second respondent Bank to discharge and return the bank guarantee to the petitioner. ( 24 ) IN the circumstances, this writ petition is allowed, but only to the limited extent of directing the first respondent BSNL to rescind its action in invoking the bank guarantee and further direct the first respondent to instruct the second respondent Bank to discharge and return the bank guarantee to the petitioner. In respect of any other relief that the petitioner seeks, it is open to the petitioner to pursue the same in any other manner in accordance with law. Liberty reserved for the same. ( 25 ) THE first respondent having given cause to the petitioner to approach this Court by its unreasonable and arbitrary action, it is necessary that the petitioner be compensated by awarding costs. Costs quantified at a sum of Rs. 5,000/- to be paid by the first respondent in favour of the petitioner. --- *** --- .