Bank of Madura Ltd. vs State of Tamil Nadu and Another

The prayer in the writ petition runs follows:

For the reasons stated in the accompanying affidavit, the petitioner herein prays that this Hon''ble Court may be pleased to call for the records

pertaining to the order of the lst respondent contaiped in its letter Ms. No. 1230 dated 28-8-1980 by issue of writ of certiorarified mandamus or

any other appropriate writ, direction or order of like nature and quash the order of the 1st respondent contained in its letter Ms. No. 1230 dated

28-8-1980 and direct the 1st respondent to full its obligations and commitments under the deed of guarantee dated 21-6-1968 executed by the

1st respondent in favour of the petitioner on behalf of Sarada Mills and pass such further or other orders as this Hon''ble courtmay deem fit and

proper in the circurnstances of the case.

There is no dispute that the deed of guarantee dated 21-6-1968, referred to in the prayer in the writ petition was executed by the first respondent,

represented by the second respondent.''It covered a loan of rupeesFifteen Lakhs with interest at 11 per cent per annum, granted to Sri Sarada.

Mills Ltd., Podanur, hereinafter referred to as the Mills by the petitioner. The petitioners also ho the loan , by way of an equitable mortgage from

the mills. The mills was initially taken over under the Sick Textitle Undertakings (Takingover of Management) Act, 1972(,Act 72 of 1972).

Subsequently, pursuant to the provisions of the Sick Textile Undertakings (Nationalisation) Act, 1974 (Act 57 of 1974), hereinafter referred to as

the Act the mills have come to vest in the Central Government and subsequently transferred to and vested in the National TexUle Corporation.

Since the concerned ins''t''alments due at the relevant point of time under the loan were not paid by the mills, the petitioner invoked the deed of

guarantee, executed by the first respondent and filed a suit for recovery of the amounts due then under the loan in O.S. No. 255 of 1976 on the f

He of the Sub-Court,Coimbatore, against the first respondent.. On 24-3-1977, the petitioner wrote to the second respondent as follows :

A term loan of Rs. 1 5.00 lakhs had been sanctioned by us to the above mills against the security of its fixed and other unencumbered assets and

also on the guarantee dated 21-6-1968 (copy enclosed for ready reference) issued by Government of Tamil Nadu. The said loan was repayable in

5 equal annual instalments together with interest accrued and the first instalment was due after the expiry of a year from availing the entire loan.

Although the mills started to avail this loan at our Coimbatore branch on 26-6-1968 the entire limits was fully availed on 26-2-1970.

The management of the captioned mills has been taken over by the Tamil Nadu National Textile Corporation, on 20-11-1972 and later

nationalised on 21-9-1974.

As the mills has defaulted to pay all the five annual instalments with interest which fell due from 26-2-1971 to 26-2-1975 in spite of our repeated

demands, we now invoke the guarantee. issued by Government of Tamil Nadu and request payment of the entire loan amount which comes to Rs.

33,29,99 1-01 plus interest from 1- 1-1976. If the payment is made early, there will be no necessity for us to prefer our claim before Ass1stant

Commissioner of Payment at Coimbatore.

A suit was filed by us at Coimbatore for imalments with interest in order mainly to save the limitation period as per guarantee clause No. 6(ii). We

have also issued lawyer''s notice on 8-2-1977 to the Collector of Coimbatore demanding payment of remaining two instalments with accrued

interest.

We therefore request you to take up the matter with the Government of Tamil Nadu and arrange to settle the issue early. We are willing, to

withdraw our suit if our claim is, settled early"".

On 25-5-1977, the second respondent wrote a, letter to the petitioner as follows : -

The Government have since informed me, that the Bank of Madurai may be advised not to file a suit having regard to the Government guarantee

already given to the Bank. 1, therefore, request you kindly not to file any suit against the Government having regard to the Government guarantee

already given to the Bank.

Kindly acknowledge receipt of this letter.

The petitioner replied on 26-5-1977 in the following terms:

We invite your kind attention to your ''letter 17593/73B3 dated 25-5-1977 asking us. not to file the suit against the Government having regard to

the Government guarantee already given to the Bank.

It is presumed that the Government acknowledge the liabilities under the guarantee and the question of limitation for filing the suit does not arise.

Please let us, have your -confirmation before 30th instant. to avoid filing a suit. Please treat this asurgent.

The second respondent replied to the petitioner on 30-5-1977 as follows: -

The presumption contained in your letter cited is confirmed.

On 25-7-1987, the petitioner addressed a letter'' to the second respondent in the following terms :

We enclose a copy of letter dated 11-6-1977 received from our advocate Shri N. Balasubramanian with regard to the suit filed against

Government of Tamil Nadu. As we would like to advise our advocate suitably in the matter, we request you to consider our claim favourably and

arrange for payment of Rs. 33,46,508,70 (with further interest, 1-4-1977 at 11% p.a. as stated in our. C.O Adv. Sc. 800/77 dated 24-5-

1977).Your early action will be much appreciated by us."" There was reply by the second respondent on 30-8-1977, and the body of the reply

runs as follows:

With reference to your letter first cited, I wish to state that my reply in my earlier letter second cited, will cover the entire liabilities arising out of

the Government guarantee. On the strength of it, you may withdraw the suit as settled out of Court, if so advised.

I wish to add that the bank should not make any claim towards suit charges.

There was another letter dated 16-6-1978 by the second respondent to'' the petitioner and this is what was stated therein.

I wish to state that the question of meeting 50% of the stain duty in the event of bank moving the court for dismissal of the suit as ''settled out of

Court'' is being examined by the Government and decision will be taken soon. I am, however, informed by the Government that it will not be

feasible for them to issue orders before 24-6-1978, the date of next hearing. I have been advised to request you to get the hearing adjourned to a

future datb. I believe that the decision of the Government will be invade available to me before the end of next month at the latest. I would

therefore, request you to arrange to obtain another adjournment for 5 weeks when the suit comes Up for hearing on 24-6-1978. The

inconvenience caused is regretted.

The first respondent passed G.O. Ms. No. 850, Industries Department, dated 14-8-1978, the ''body of which is in the following terms:

In G.O,, Ms. No. 741 Industries dated 242-1968 the Government have given guarantee in favour of the Bank of Madurai Limited for the

repayment of a loan of Rs. 15 lakhs advanced by the Bank to Sri Saradha Mills Limited, under guarantee scheme recommended by the

Lokanathan Committee. The mill should have repaid the above loan together with interest in 5 equal annual instalments. But the mills had

committed default in the payment.

SriSaradha Mills has been nationalised with effect from 1-4-1974. The Bank of Madurai has already""filed a suit against the Government to

recover three defaulted instalments; for the years 1971, 1972 arkd 1973 which were over due. In respect of the instalment for the year 1974 also,

the bank wanted to file a suit. The Government advised the bank not to f ile a suit for the amounts due from them having regard to the guarantee

already given. The bank was informed further that the Government would bear the entire liabilities arising out of the guarantee and was requested

to withdraw the pending case filed, by it for recovery of the instalments payable on 1971, 1972 and 1973 as settled out of Court. The Bank was

also informed that they should not make any claims towards suit charges. The Bank however, ins1sted that 50% of the Court fees (i.e. Rs.

49,527/-) should be borne by the Government and that if it moves the Court for settlement of the suit out of Court, it would be able to get the

balance 50% of the Court costs by way of refund.

The Director of Handlooms and Textiles has recommended that the proposal of the Bank of Madurai might be accepted in principle so as to

enable the Bank to withdraw the suit.

The government have examined the above proposal and they agree to bear 50% of the cost of the suit i.e. Rs, 49,527/- (Rupees forty nine

thousand five hundred and twenty seven only) the total cost of the court-fees paid being Rs. 99,054.50 filed by the Bank of Madurai so as to settle

the suit for the recovery of the said dues from M/s. Sri. Saradha Mills (Subsequently nationalised) out of the Court.

This order issues with the concurrence of the Finance Department vide its U.0. No. 69994/IF/78-a, dated 1-7-1978.

This was followed by G.O. Ms.No. 1699. Industries Department, dated 27-12-1978 in the following terms:

The Government in 1968, sanctioned guarantee in favour of the Bank of Madurai for the repayment of a loan of Rs. 15 lakhs advanced by the

Bank to Sri Saradha Mills, Coimbatore, under the guarantee scheme recommended by the Lokanathan Committee. As the mills defaulted in the

repayment as per schedules, the bank filed a suit against the guarantor viz. the Government for recovery of the dues. The Bank had to spend Rz.

99054-50 by of satrap fee in connection with this suit. However, later the Bank agreed to withdraw the suit provided the Government agreed to

pay 50% of the costs of stamp fee viz. Rs. 49,527/-. This proposal of the Bank was accepted and orders were accordingly issued in G.O. Ms.

No. 850, Industries, dated 14-8-1978.-

The Director of Handlooms and Textiles .has now reported that the suit has since been dismissed by the Court assettled out of Court and the

necessary provision for meeting this expenditure has also been made in the Revised Estimate 1978-79. He has therefore requested sanction for the

above expenditure.

The Government accept the request of the Director of Handlooms and Textiles. Sanction is accorded for the payment of Rs. 49,527/ (Rupees

forty nine thousand five hundred and twenty seven only) being 50% of the costs of the stamp fee in the suit filed by the Bank of Madurai for

recovery of their dues.

The expenditure sanctioned above shall be debited to ""268 Miscellaneous General Services.. Other expenditure-I. Non-Plan-BB Guarantee

liabilities-D. P. Code 268A AEBB 0007"" Necessary additional funds required will be provided at the time of final modified approbation 1978-79.

This order issued with the concurrence of the Finance Department vide its U.0. No. 13076/IF-7.8.7 dated 15-12-1978.

On 13-2-1979, the second respondent wrote to the petitioner as follows

I write to inform you that 50% of the suit cost (Rs. 47,527/-) under reference will be paid within a week.

Regarding settlement of the guarantee liability, the matter is under consideration"".

On 24, 1979, the second respondent forwarded .a cheque for Rs. 49,527/- and the letter in this regard runs as follows :

With reference to your letter cited, I send herewith a Pay and Account Officer''s cheque for Rs. 49,527/- (Rupees forty nine thousand, five

hundred and twenty seven only) drawn on State Bank of India in favour of me and duly endorsed by me in your favour.

1 request you to acknowledge the receipt of the cheque and send a stamped receipt at an early date.

The second respondent on 30-6-1979 wrote to the petitioner in the following term :

I invite a kind reference to your letter cited in the above mentioned subject, I am fully posted with the developments in respect of the guarantee

given to Bank of Madurai Ltd. in favour of Sri Sarada Mills Ltd. I find that in spite of the guarantee being in force, it may be difficult for the

Government to consider the bank''s claims, now, since in respect of peak over liabilities of the mills, the liability of the guarantor will normally arise

in the case of non-payment by the payment commission of the claims of the creditor. Independent of this, the State Government has also been

requested to move the Central Government for assuming the pre-post take over guarantee liabilities of the State Government. as the guarantees

have been given for the revival smooth working of the mills.

In any case.. I wish to inform you that we are seized of the matter.

Ultimately, the first respondent on 28-8-1980 wrote to the petitioner saying that their liability under the deed of guarantee does not subs1st on

account of the changed circumstances and the body of the letter is as follows:

I am directed to invite attention to your letter cited and to state that theGovernment have carefully examined your request for settling the claim of

the Bank of Madurai Limited of a sum of Rs. 41.58 lakhs payable as on 30-6-79 together with interest for the subsequent period in pursuance of

the guarantee given by the Government to the loan of Rs. 15 lakhs advanced by the Banks to Sri Sarada Mills Limited, Coimbatore. The

Government have been advised that their guarantee liability does not subs1st now on account of the changed circumstances. I am therefore to state

that the Government regret their inability to comply with your said demand.

This letter is being impugned in this writ petition.

On the basis of the above materials, Mr. B.R. Dolia, learned counsel for the petitioner;. would submit that the principle of promissory estoppel

comesointo play with full vigour and, the first respondent is estopped from denying its liability and on the other hand it is duty bound to honour its

obligations and commitment''s under the deed of guarantee dated 21-6-1968. Time and again, the respondents have been declaring the tenability

of the liability of the first respondent under the ''deed of guarantee, and assured the! petitioner that it will be honoured and'' discharged. There was

no resiling fr6m the, :said obligations at any-point of time earlier to, the impugned letter. These assurances were ''expressed and given, even after

the coining: into force of the Act. The petitioner notified I the second respondent about thifiting of the, suit with regard to instalments over-due and

also notified the intention about the proposed follo up action with regard to subseqtlent instalments The I second-respondent iconveyed to the

petitioner the request of the'' first respondent not to file any'' fresh stuit, having regard to the guarantee given by the first respondent. The petitioner

wanted to know as to whether the first respondent acknowledges itsliabilities underthe deed of, guarantee and the proposed suit need not be ''filed,

even though limitation there for might arise. The answer given by the secona, respondent was in the affirmative. The honouring of its obligations

under the deed ''of L guarantee was promised, declared-and''~ assured in unambiguous terms, and the~ petitioner was persuaded to withdraw-

1he suit already.filed, paying to it half of the, Court fees there for, and the petitioner was further persuaded I not to file any fresh suit for the remalift

amounts. On behalf of the petitioner, it is gated that even on the date;

when tritpitition . was filed, the ordinary civil remedy siood barved. Whatever that be, the first espondent is bound by its promises given and

declared from time to time that it will honour its obligations under the deed guarantee and it is not open to the first Kespondent to resile from the

same to the, prejudice and chagrin of the petitioner. The factual back-drop of the present case, brings into play the principle of promissory

estoppel with full force. That principle was recapitulated by the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar

Pradesh and Others, as follows -

The true principle of promissory estoppel, therefore, seems to be that where one party has by his words or conduct made to the other a clear and

unequivocal promise, which is intended to create legal relations or affect a legal relationship, to Arise in the future, knowing or intending that it

would beacted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be

binding on: the party making it and he. would not be entitled to go back upon it, if it would be, iriequitable to allow him to do so having regard to

the dealings which have taken place between the parties, and this would be so-;'' irrespective of whether there is any pre existing relationship

between the, parties or, not.

Thus I have to hold that the principle of promissory estoppel would firmly estop the first respondent from resiling from its; obligations under the

deed of guarantee.

Even otherwise,it has been always'', countenanced that the State should honour '' Its legal obligations arishig out of contract; and not drive the

citizen concerned to file for recovery of the 4mountaind that inalt democratic societies governed by the rule of law, it 1sthe duty of the State to do,

what is fair and just to the citizen and the State should not seek to defeat the legitimate'' claim of the citizen by adopting a legal1stic attitude but

should do what fairness andjustice demand.

Then the question is as to whether the assurances given and promises made by the first respondent were under a ''misapprehension of any legal

right or benefit! conferred on it under the Act, so that it could:

be pleaded that there cannot be an estopped: against Statute. The only ground projected in the impugned letter of the first respondent: to get over

the liability under the deed of guarantee is ""changed circumstances."" In the counter-affidavit, filed on behalf of the respondent, what is pointed out is

that there is the remedy available to a secured creditor, like the petitioner to go before the Claims Commissioner, under the Act. In the instant ca I

se, it is admited that even that process was: resorted to by the petitioner and it proved, futile and the petitioner could not realise its claims. B '' van

otherwise the remedy of going before the Claims Commission cannot be~ held to be a bar for recovery of the dues by other process available to

the"" low."" With regard to the present IWAky: of ftprincipal debtor, namely the nolls, whmt~ Sick ubdertaking has been transferred sad loot vested

in the manno noted of the Act have not same. Consequently, it follows that t1te'' Illability of the guarantor, the first respondmt, about not

extkguished None of theprOV351008 1 of the. Act contemplates that the liability-of aguarantor like the first respondent stand idischarged or

extinguished on the Sick~ ''Undertaking standing trammferred and vested, under its provisions. When the liability of the principal-4obtor the owner

of the Sick, Undertaking has not been exting""ed, the liability of the guarantor being co-extewive. witlithatof theprincipalrdebtor, conseqirly, will

remain alive. There is no escape xrom,~quch liability under the cover of any provikion ;of the AcL Such a view has also betn expressed by the

High Court of Andhra. Pradesh in State of Andh. Pra. v. Central'' ''Bank of India, (1982) 1 AWR (NRC) 10. Sathiadev and Singaravelu, JJ. in

Bank of Madura Limited v. Bank of Baroda, Madurai~ AS. No. 200 of 1980, judgment dated 26-3-1986 have reiterated and followed the same

ratio. Hence, the law as such did not absolve the first respondent from its obligations under the deed of guarantee and it could not be, stated that

without understanding and under, a misapprehension of its legal rights, there! were declaratiDns of promises and assurances. It will be not only

unfair but also impracticable and futile even to conceive of the idea of relegating the petitioner to ordinary civil process at this juncture. Under

these, circumstances, the writ petition is allowed, and the first respondent is directed to discharge its obligations and commitments, under the deed

of guarantee referred to in the prayer of the writ petiticn wilW.h tagriod of four months from the date of i~q* of a I copy of this order. No costs.

Petition allowed.