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2011 DIGILAW 489 (ORI)

ORISSA INDUSTRIES LTD. v. ROURKELA STEEL PLANT

2011-09-14

B.N.MAHAPATRA, V.GOPALA GOWDA

body2011
JUDGMENT : B.N. Mahapatra, J. - In both the writ petitions, the Petitioner is one and the same. In O.J.C. No. 7558 of 2001, the Petitioner has made a prayer for quashing Annexure-9 by which the D.G.M. (F and A), Rourkela Steel Plant, Rourkela sent a fax message to the E.D. (F and A), B.S.P., Bhilai, G.M. (F and A), B.S.L., Bokaro and the G.M. (F and A), D.S.P., Durgapur requesting them to recover Rs. 33.46 lakhs from the pending bills of the Petitioner Company if any and pass on the credit to the Rourkela Steel Plant, Rourkela (for short 'RSP'). Further prayer of the Petitioner is to direct the opposite party-RSP to pay Rs. 17.61 lakhs along with interest at the rate of 20% since 25.09.1989 amounting Rs. 1,51,80,307/- . In W.P.(C) No. 20857 of 2010 the prayer of the Petitioner is for a direction to opposite party No. 2-General Manager (F&A), Durgapur Steel Plant, AT/PO: Durgapur to release the withheld amount due to the Petitioner Company within a specified period. Since the issue involved in both the writ petitions are interrelated, they are disposed of by this common judgment. 2. The facts of the Petitioner's case in a nut shell are that the Petitioner is a Company incorporated under the Indian Companies Act, 1956. The Petitioner has a refractory unit at Lathikata where refractory bricks of high Magnesium quality are manufactured. The refractory bricks of such nature are generally used in blast furnaces in different factories all over the world. Since its bricks can withstand high temperature under high pressure such bricks are of high demand in industrial sector. During the course of its business, the Petitioner-Company had supplied such bricks to RSP as per their orders. RSP at no point of time raised objection to the quality and specification of the bricks supplied by the Petitioner Company to RSP. All of a sudden, the Petitioner Company received a letter on 09.02.1989 issued by RSP wherein it was indicated that the L.D. Converter No. 5 had collapsed after 89 blows and the said converter was built up by the Magnesium bricks supplied by the Petitioner Company. All of a sudden, the Petitioner Company received a letter on 09.02.1989 issued by RSP wherein it was indicated that the L.D. Converter No. 5 had collapsed after 89 blows and the said converter was built up by the Magnesium bricks supplied by the Petitioner Company. On such allegation, the officials of the Petitioner Company as well as RSP hold a meeting and agreed to go for a chemical analysis of the supplied bricks to ascertain the quality and accordingly on 25.02.1989 the minutes were recorded fixing the modalities for conducting such chemical analysis. Pursuant to such meeting, a joint verification was conducted to ascertain the quality of the bricks supplied and accordingly on 02.03.1989 the Scientist of RSP conducted the chemical analysis of the bricks supplied in their Research Laboratory and certified that the bricks supplied by the Petitioner Company were as per the specifications and quality. They further pointed out that the collapse of the Converter might have been for other reasons. The said chemical analysis report is annexed as Annexure-5 to the writ petition. However on 25.09.1989 RSP intimated the Petitioner Company that 50% of the landed cost of the bricks used in L.D. Converter No. 5 was to be withheld and an independent enquiry committee was to look into the matter and on the basis of its report the question of withholding of 50% amount would be decided. Accordingly, Rs. 17.61 lakhs was withheld by RSP from the bills of the Petitioner-Company. 3. Mr. R. Sahu, Learned Counsel appearing for the Petitioner-Company submits that though an independent enquiry was conducted, till date the result of the said enquiry has not been made known to the Petitioner Company. By withholding Rs. 17.61 lakhs due to the Petitioner, the Petitioner has been made to sustain huge loss and the books of account of the Petitioner's banker shows an outstanding loan of Rs. 1,51,00,307/- at the rate of 20% interest on Rs. 17.61 lakhs since the date of withholding, i.e., 20.09.1989. Despite several representations made by the Petitioner Company to RSP, the opposite party Company maintained stony silence over the matter. The Petitioner Company reliably learnt that the enquiry committee found no fault with the bricks supplied by the Petitioner Company. 1,51,00,307/- at the rate of 20% interest on Rs. 17.61 lakhs since the date of withholding, i.e., 20.09.1989. Despite several representations made by the Petitioner Company to RSP, the opposite party Company maintained stony silence over the matter. The Petitioner Company reliably learnt that the enquiry committee found no fault with the bricks supplied by the Petitioner Company. Vide letter dated 16.05.1994 the E.D. (works of the opposite party Company) advised the Petitioner Company to make direct correspondence with the General Manager (Materials) for getting their dues. The opposite party RSP reused the said bricks supplied by the Petitioner Company in other Converters and got normal life out of the same bricks. 4. It is argued that in the meantime, the Petitioner Company has become sick and its financial condition deteriorated beyond repair. Since the future of the shareholders of Company was at stake and also the future of almost 1400 employees working under the Petitioner-Company were in distress condition the Petitioner Company approached the Board for Industrial and Financial Reconstruction (for short, BIFR') vide reference No. 327 of 1999 and the Petitioner Company was declared to be sick industry by BIFR by its order dated 13.12.2000. The Industrial Development Bank of India has been appointed by the BIFR as the operating agency to find out a suitable rehabilitation package. While the Petitioner was declared to be a sick industrial Company and the BIFR is in seisin over the matter for its revival and rehabilitation, the opposite party RSP sent the fax message dated 19.04.2001 under Annexure-9 to stop payment of Rs. 33.46 lakhs to the Petitioner and not to release the same to it. 5. It is submitted that the Petitioner Company had regular business with the opposite part-RSP. In respect of some recent supplies made by the Petitioner Company, the RSP has levied penalty against the Petitioner Company. After adjustment of the said penalty, outstanding comes to Rs. 33.46 lakhs. 6. Mr. Sahoo submitted that under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (for short, 'SIC Act') once a Company is registered before the BIFR as a sick industrial Company no action legal or administrative can be taken/initiated against the said Company. Action of RSP tantamounts to offend the objective of the said Act, 1985. Penalty of Rs. Mr. Sahoo submitted that under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (for short, 'SIC Act') once a Company is registered before the BIFR as a sick industrial Company no action legal or administrative can be taken/initiated against the said Company. Action of RSP tantamounts to offend the objective of the said Act, 1985. Penalty of Rs. 33.46 lakhs relates to the period prior to 13.12.2000 when the Petitioner Company was duly declared to be sick by the BIFR. Under the provisions of law when an enquiry u/s 16 of the SIC Act, is pending or any Scheme u/s 17 of the said Act is under preparation or consideration, no proceeding for execution, distress of the like against any of the properties of the industrial Company shall lie without leave of the BIFR. Although the decision of the BIFR has been duly communicated to the opposite party RSP still then the opposite party has passed the impugned direction under Annexure-9 with oblique motive. Any amount arising out of the special contract between the Petitioner Company and RSP cannot be recovered from the bills payable by the stranger Companies since they are not parties to the contract between the Petitioner Company and RSP. In absence of any privity of contract the RSP cannot direct the said three companies as named in Annexure-9 to recover the penal amount from the bills payable to the Petitioner's Company. Petitioner Company has been made to suffer a lot due to highhandedness and recalcitrant attitude of RSP in withholding the amount of Rs. 17.61 lakhs since 1989 without any rhyme or reason. 7. Mr. S.K. Padhi, learned Senior Advocate appearing for the RSP submits that the claim of the Petitioner to get refund of Rs. 17.61 lakhs from opposite party RSP is not sustainable in law. After several round of discussion, sample test in laboratory, exchange of letter correspondence between the parties during the year 1989 the dispute was settled finally with a decision that the Petitioner would be only liable for withholding of 50% of the landed cost of material supplied by them as converter collapsed due to manufacturing defect. The Petitioner since long, i.e., 1994-95 had stopped in pursuing its claim. Agitating of the claim at this highly belated stage is legally not sustainable. The Petitioner since long, i.e., 1994-95 had stopped in pursuing its claim. Agitating of the claim at this highly belated stage is legally not sustainable. The writ petition filed reiterating the self same claim again after 12 years is thoroughly misconceived, devoid of merit and liable to be dismissed at the threshold both on the ground that it is a contractual dispute and also it is barred by limitation. No such refund of Rs. 17.61 lakhs as claimed by the Petitioner with regard to supplies made 12 years back is due and payable in terms of the contract. Petitioner's alleged refund of Rs. 17.61 lakhs involves disputed question of fact relating to contractual claim and counter claim between the parties and for settlement of such dispute, there exists arbitration clause in the contract. The present writ petition has been filed without taking recourse to the remedies available under the contract and without invoking the provision of arbitration as agreed upon between the parties. Therefore, it is devoid of merit, not tenable in law and amounts to abuse of the process of this Court. Earlier in OJC No. 3040 of 1996, while disposing of a writ application filed against the opposite party concerning contractual dispute having similar provision for arbitration, this Court by its judgment dated 20.11.1998 directed the Petitioner to seek for arbitration as provided under the contract. Under the SIC Act, dispute concerning realisation of dues by the creditor is to be dealt with as per provision of the said Act. Section 22 of the SIC Act will not apply to recovery/adjustment of contractual dues. Referring to Clause-10 of SAIL P/I which forms a part of the contract and its definition Chapter, it is submitted that recovery of any some due from the supplier under the contract is to be adjusted first from the security deposit and in case the available amount becomes insufficient then the balance or the total sum recoverable shall be deducted from any other dues accrued to the supplier in respect of other contracts with the purchaser, i.e., SAIL. Under the provisions of the contract if the brick fails to withstand the required number of heats then to take care of the consequential loss to the opposite party, the Petitioner Company becomes liable to compensate the damages by way of penalty and similarly, if the bricks sustained more than the required number of heats, there was provision for reward by way of payment of bonus. The Magnesia-Carbon bricks supplied by the Petitioner were not fully integrated and prepared and there was manufacturing defects as a result of which the bricks collapsed and could not withstand even 90 heats when guarantee was provided under the contract for 350 heats with one repair. Under the contract there is provision for bonus from 400 heats onwards and penalty from 350 heats downwards. The Petitioner Company was immediately intimated about the said measurable failure of their performance and consequential loss to the opposite party and they were called upon to cause 100% replacement of the bricks. The Petitioner Company did not cause replacement of bricks on the ground that the reason of collapse was not attributable to them. Subsequently, in respect of three orders placed with the Petitioner during the period 1999 for supply of Magnesia-Carbon bricks to RSP, a total amount to the tune of Rs. 1,22,95, 182/- was found recoverable from the Petitioner in terms of the performance guarantee clause. The dues of the Petitioner available under the contracts in question was Rs. 89,49,162/- which was insufficient for adjustment and therefore for recovery of the balance amount as per Clause-13 of SAIL P/I intimation as at Annexure-9 was sent to other Steel Plants of SAIL. The contention of the Petitioner that bricks were of specified quality and collapse was due to other reason is false and baseless and not tenable under the contract. Annexure-5 does not indicate any such certification that the bricks supplied by the Petitioner Company were as per specification and that the collapse of the Converter might have been for other reasons. Despite that the Petitioner Company has been referred to BIFR under the provisions of the SIC Act and the matter is subjudice before the BIFR, there is no bar for recovery of contractual dues from the Petitioner. There exists no dispute with regard to recovery of Rs. 33.46 lakhs on account of supply made by the Petitioner in the year 1999. There exists no dispute with regard to recovery of Rs. 33.46 lakhs on account of supply made by the Petitioner in the year 1999. Recovery advice as per Annexure-9 is in terms of contractual provisions. Concluding his argument, Mr. Padhi submits for dismissal of the above writ petitions. 8. On the rival contentions of the parties, the following questions fall for consideration by this Court: (i) Whether disputed questions of fact are involved in the present case, for which the writ petition is not maintainable? (ii) Whether opposite party-RSP is justified to issue FAX Message to its other unit situated at Bhilai, Bokaro, Durgapur for release of Rs. 33.46 lakhs claimed to be receivable from the Petitioner? (iii) Whether any direction can be issued to opposite party-RSP to pay Rs. 17.61 lakhs along with interest ' 20% since 25.09.1989 amounting to Rs. 1,51,80,307/- as claimed by the Petitioner? 9. All the aforesaid three questions being interlinked are dealt with together. In the instant case, claim and counter claim have been made by the parties with regard to their dues receivable from each other. While the Petitioner claims that Rs. 1,51,80,307/- is due to it from opposite party-RSP, the RSP's claims that is Rs. 33.46 lakhs is due to it from the Petitioner. Both the parties are denying the claim of the other. 10. According to the Petitioner, during the course of its business with RSP, the Petitioner Company supplied bricks of high Magnesium quality to the opposite party-RSP as per their orders dated 15.10.1988. The entire order was for 164.167 M.T. Mag Carbon bricks at the rate of Rs. 18,000/- per M.T. On 09.02.1989, the Petitioner received a letter from opposite party-RSP wherein it was indicated that the L.D. Converter No. 5 had collapsed after 89 blows and the said converter was built up by the Magnesium bricks alleged to have been supplied by the Petitioner. As agreed upon by the parties, a joint verification was conducted to ascertain the quality of the supplied bricks. The Scientists of the RSP conducted the chemical analysis of the supplied bricks in their Research Laboratory and certified that the bricks supplied by the Petitioner company were as per the specification and quality standard of the order given by RSP and accordingly they opined that the collapse of the converter might have been for any other reasons. The Scientists of the RSP conducted the chemical analysis of the supplied bricks in their Research Laboratory and certified that the bricks supplied by the Petitioner company were as per the specification and quality standard of the order given by RSP and accordingly they opined that the collapse of the converter might have been for any other reasons. In spite of that the RSP withheld 50% of the Petitioner's dues and intimated the Petitioner that an Independent Inquiry Committee was to look into the matter and thereafter a decision will be taken. Although independent inquiry was conducted, the result of the said inquiry was not known to the Petitioner Company. Petitioner learnt that the Inquiry Committee did not find any fault at all with the bricks supplied by it. Thus, RSP has illegally withheld Rs. 17.61 lakhs which is 50% of the dues as on 25.09.1989. 11. On the contrary, opposite party-RSP takes a stand that the claim of the Petitioner for refund of Rs. 17.61 lakhs from opposite party-RSP is not sustainable in law. After several rounds of discussion, sample test in laboratory, exchange of correspondences between the parties during the year 1989, it was settled finally with a decision that the Petitioner would be only liable for withholding of 50% of the landed cost of material supplied by the Petitioner as the converter was collapsed due to manufacturing defect. Since the Petitioner had stopped in pursuing its claim from the year 1994-95 and now after 12 years, it cannot raise its claim as the claim is barred by limitation. It being a contractual dispute, it cannot be decided in the present writ petition by exercising the jurisdiction under Articles 226 and 227 of the Constitution of India. These are disputed questions of facts. Since there is an arbitration clause under the contract, without taking recourse to such remedy available under the contract, the writ petition is not maintainable. In an earlier writ petition, i.e., O.J.C. No. 3040 of 1996, filed against the opposite party concerning contractual dispute having similar provision for arbitration, this Court by judgment dated 20.11.1998 disposed of the writ petition with a direction to the Petitioner to seek for arbitration as provided in the contract. In an earlier writ petition, i.e., O.J.C. No. 3040 of 1996, filed against the opposite party concerning contractual dispute having similar provision for arbitration, this Court by judgment dated 20.11.1998 disposed of the writ petition with a direction to the Petitioner to seek for arbitration as provided in the contract. It is further argued that in respect of three orders placed on the Petitioner during the period 1999 for supply of Magnesia-Carbon bricks to Rourkela Steel Plant, a total amount to the tune of Rs. 1,22,95,182/- was found recoverable from the Petitioner in terms of the performance guarantee clause and the dues of the Petitioner available under the contracts in question was Rs. 89,49,162/- which was insufficient for adjustment and therefore for recovery of the balance amount, as per Clause-13 of SAIL P/1, intimation under Annexure-9 was sent to the other Steel Plants of SAIL. Referring to various clauses of the contract entered into between the parties, Mr. Padhi, justified the action of opposite party in issuing Annexure-9. 12. From the above claim and counter claim of parties, it is amply clear that the present case involves disputed questions arising out of contractual obligation. Rights of the parties inter se are governed by the terms of contract and not by Constitutional provisions. 13. Law is well settled that a party cannot be permitted to dispute the contractual obligations by invoking extra-ordinary jurisdiction. The Hon'ble Supreme Court in Bareilly Development Authority and Another Vs. Ajay Pal Singh and Others, taking note of its earlier judgments held that where a contract entered into between the State and the person agreed is non-statutory and purely contractual rights are governed only by the terms of the contract, writ petition under Article 226 of the Constitution of India is not maintainable. In State of Bihar and Others Vs. Jain Plastics and Chemicals Ltd., the Hon'ble Supreme Court held that in case of a Government contract writ may not be an appropriate remedy. Where disputed questions or rival claims arising out of breach of contract are required to be investigated and determined, writ cannot be entertained. In National Highway Authority of India Vs. Jain Plastics and Chemicals Ltd., the Hon'ble Supreme Court held that in case of a Government contract writ may not be an appropriate remedy. Where disputed questions or rival claims arising out of breach of contract are required to be investigated and determined, writ cannot be entertained. In National Highway Authority of India Vs. Ganga Enterprises and Another the Supreme Court cautioned the High Courts that while examining the contractual matters in a writ jurisdiction, the Court is duty bound first to examine the issue of maintainability for the reason that contractual matters cannot be entertained in a routine manner. In view of the above factual background and provision of law, this writ petition is not maintainable. 14. The contention of the Petitioner Company is that it had raised its grievance before the BIFR which was referred to BIFR vide Reference No. 327/99 and the Petitioner company was declared to be a sick industry by BIFR vide order dated 13.12.2000. Placing reliance on Sub-section (3) of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, Petitioner contends that from the language of Section 22, operation of contracts, assurance of the property, agreements, settlements, awards, standing orders or other instruments in force shall remain suspended to which the sick industry of the company is a party. Though such a stand is taken by the Petitioner, there is no material to show that any declaration as required u/s 22(3) of the SIC Act was made and the same was extended from time to time as provided under proviso to Section 22(3) of the said Act. However, since we have held that disputed questions arising out of contractual obligations are involved in the present writ petition and therefore the same is not maintainable, the above question is of only academic interest. 15. In view of the above, we make it clear that we have not examined merits of the case of either of the parties with regard to their respective monetary claim against each other and action taken for recovery of the same. It is open to them to approach the appropriate authority for redressal of their grievance. 16. With the aforesaid observation, both the writ petition are disposed of. No order as to costs.