SACHDEVA And SONS-s vs STATE TRADING CORPORATION OF INDIA

THIS is an application under Section 36B(a)/36B(d) read with Section 2(o)(ii) of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as the Act) moved by M/s. Sachdeva & Sons, 17 Cantonment, Amritsar, Punjab (hereinafter referred to as the applicant) against M/s. State Trading Corporation of India, Jawahar Vyapar Bhawan, Tolstoy Marg, New Delhi. The brief facts of the case are that the applicant is a registered partnership firm and is an exporter; that since 1980 basically exporting rice and other Indian merchandized to various countries directly as well as through the respondent against consideration; that the respondent in the middle of June 1995 asked for quotation for supply/ export of Indian non-Basmati rice of 12,000 M.T. plus-minus 10%; that the applicant vide letter dated 15.6.1995 sent a quotation and other terms and conditions for the same; that later on parties entered into an agreement dated 20th June, 1995 in this regard; that the final rates were settled with the respondent @ 236 US dollars per M.T. and the applicant had to raise the bill of 240 US dollars in the name of foreign buyer thereby leaving the balance of 4 US dollars per M.T. as service charges for the respondent; that as per the agreement the applicant had to deliver the goods to the ship-owner/agent of vessel at Bombay Port and ''Notice of Readiness'' (NOR) had to be tendered by the master of vessel/agent of vessel to the respondent; that NOR was to be accepted by the respondent only if accompanied by valid ''hatch cleanliness certificate'' from the surveyor appointed by foreign buyer; that the applicant was also required to give the Performance Bank Guarantee (PBG) to the tune of 2% of contract value of 12,000 M.T. with 10% more in the favour of the respondent which was given to the tune of 63/096 US dollars convertible into Indian Rs. 20,03,000/- @ 1 US dollar is equal to Rs. 31.61 paise; that the said PBG was valid initially upto 30.10.1995; that the respondent gave the instructions to the applicant that they have accepted NOR with effect from 15.14 hours of 10th August, 1995 when hatch cleanliness certificate was faxed and, therefore, lay time to commence from 15.14 hours of 11th August, 1995; that the respondent directed the applicant to start loading the goods immediately and to finish the loading as per the agreed term; that the applicant immediately started the loading of the goods from 9.00 hours of 12th August, 1995 and finished the same at 10.30 hours of 24th August, 1995; that the applicant in the process saved lay time 8 days 13 hours 30 minutes and earned US $ 21406.25; that the respondent Bank, State Bank of India, New Delhi despatched the original letter of credit alongwith relevant documents to the applicant''s bank, Punjab National Bank/Green Avenue, Amritsar on 25.8.1995 and instructed the applicant''s Bank to transmit at the rate of 4 US dollars per M.T.; that the applicant tendered all the documents required by its banker, who in turn negotiated the documents and gave credit to the account of the applicant @ 236 US dollars per M.T. and sent 4 US dollars per M.T. to the respondent''s bankers as instructed; that although the transaction was completed and there was no complaint about quality and quantity of the goods sent by the applicant, yet the respondent asked the applicant to extend the date of PBG beyond 30th October, 1995 which was extended upto 30th May, 1996 by the applicant in good faith; that the respondent through letter dated 22nd November, 1995 in continuation of their earlier letter informed regarding GAFTA Arbitration proceedings being undertaken by the foreign buyer in pursuance of respondent having refuted their claim for load port demurrage of US $ 61,753.48 and also preferring a claim on the foreign buyer claiming despatched earned on the shipment to the extent of US $ 21,406.25; that the respondent also informed that since the subject contract has been performed by the respondent on back-to-back arrangement basis, the ultimate responsibility rests with the applicant and reiterated that all expenses in contesting this case including but not restricted to legal expenses alone shall be to the account of applicant; that the respondent vide fax dated 2.5.1996 communicated to its London Branch that "We are able to comment this extreme step buyer''s have chosen to resort when the matter was in arbitration. At best they could have asked us to further extend the validity of our PBG which expired on 30.4.1996. We call this action of Cargill most uncalled for particularly when their claim is just not tenable. Please show them papers to our arbitrator Mr. A.G. Scott for urge needful action as be suggested by them. Needless for us to emphasise gravity of the matter."; that the applicant vide letter dated 7th May, 1996 to the respondent has written that "you are also requested to take up this matter with the Office of Gafta, London also with the request that M/s. Cargill Intl. should be restrained to enforce their claim under Performance Bank Guarantee. In case, there is no satisfactory response from M/s. Cargill Intl. Geneva, STC may get injunction relief from the Court in Delhi restraining the Bank to not make payment to the Buyer''s Bank, till the pendency of arbitration proceeding before Gafta, London. We hereby undertake that we will bear the Court-fee and Advocate-fee etc. which STC may incure in the subject case."

THE case of the applicant is that the respondent instead of taking any effective steps under the process of law in India as well as abroad intends to invoke the PBG furnished by the applicant to the respondent by realising the amount thereunder for no fault of the applicant, which is nothing but adoption of unfair method or unfair or deceptive practice by the respondent and in the process the respondent has also manipulated the condition of delivery of services in such manner as to impose on the applicant unjustified cost. On these facts the applicant has prayed for the institution of Notice of Enquiry against the respondent and passing appropriate orders under the Act. The applicant has also moved the Commission under Section 12A of the Act for an exparte ad-interim injunction during the pendency of the enquiry restraining the respondent from invoking the PBG valid upto 30.5.1996 furnished by the applicant to the respondent and showing its willingness to extend the validity period of PBG during the pendency of enquiry or till such time as this Commission may direct. In alternatively it was prayed that in case the respondent has already invoked PBG, the State Bank of India Branch Office/Town Hall, Amritsar not to invoke or make payment of PBG till the next date of hearing, that is, 24th May, 1997. On that date the counsel for the respondent seeks further time to file their replies and the adinterim injunction granted was directed to continue till the next date of hearing and PBG was directed to be extended for further six months. The respondent filed their replies, to which the rejoinder was also filed. The matter was argued at length. The parties were given liberty to file their written synopsis which were filed by them. It is seen from the record that the PBG was directed to be extended from time-to-time and is now valid upto 30.5.1997 and the interim order is continuing.

The respondent in their reply has taken the preliminary objections that the applicant has failed to set out any case of unfair trade practice and/or restrictive trade practice in the application and the agreement in question contains the arbitration clause between the parties pursuant to which all disputes be referred to Arbitration of the Indian Council of Arbitration. The respondent has further objected that invocation of PBG under no law and by no stretch of imagination ever be an unfair trade practice? or restrictive trade practice and the contract fully recognised that it was a back-to-hack contract. The applicant was responsible for the discharge of all the obligations of respondent under the export agreement including the shipment of goods in terms thereof as foreign buyer has invoked and encashed respondent''s Bank Guarantee for failure to perform under the export agreement, that failure to perform is in effect that of applicant and under law and in terms of agreement and PBG, the respondent is entitled to invoke and encash PBG. If applicant is aggrieved after the encashment the only remedy available to it under the law is to seek recourse to a Civil Court or arbitration under the terms of the agreement. The respondent has also taken the objection that the respondent has provided no service to the applicant and that the contract was on a principal to principal basis. Further objection of the respondent is that the State Bank of India, Town Hall, Amritsar is not a party before this Commission and neither any relief can be sought against the said Bank nor can any order made against it. The respondent has also stated that the Hon''ble Supreme Court has on a numerous occasion held that a Bank Guarantee must be honoured and should not be interfered with except in exceptional circumstances of the party complaining setting out a case of fraud at the time of entering into contractor irretrievable injustice. On merits the respondent has not denied the facts as stated in the application of the applicant. However, the respondent has stated that the foreign buyer had raised a claim on respondent of US $ 61/753 on account of demurrages owing to alleged delay in shipment and thereafter on 29.4.1996 invoked the PBG furnished by the respondent to the foreign buyer claiming non-payment of the said amount. Further the respondent has stated that it clearly informed the applicant of the arbitration proceeding pending with the GAFTA London. The respondent further stated that the respondent diligently represent to foreign buyer on many occasions including in its fax dated 6.5.1996 regarding not to invoke respondent''s Bank Guarantee specially as the matter was in arbitration under the GAFTA. However, respondent''s Bank has already encashed the said Bank Guarantee and in the circumstances respondent validly and as per law and the terms of the contract and of applicant''s PBG, invoked applicants PBG on 8.5.1996. The respondent has also filed the reply to the injunction application and also moved an application under Section 12-A(2) for vacation of the injunction order.

THE respondent has raised the point that the applicant is not a consumer and respondent did not provide any service so as to make the MRTP Act applicable. THE proceeding under the Act can be instituted by the Commission inter alia upon its own knowledge or information under Section 36B(d) and the applicant himself inter alia stated the title of the application under Section 36B(d) and also prayed for taking action under Section 36B(d). THE provisions of the Act are not only for the benefit of the consumer, the same are also for the benefit of the traders as it is clear from the provisions of various sections read together more particularly Section 12B of the Act. THE Commission on a number of occasions have instituted the enquiry by treating any complaint as an information under Section 36B(d)/10(a)(iv) of the Act. Thus the contention of the respondent that applicant is not a consumer has no force for not initiating the proceeding under the Act. The further contention of the respondent that it did not provide any service has equally no force as the respondent has obtained the export order and the goods were exported under the instructions of the respondent and in the transaction the respondent has charged as service charges 4 US dollars per M.T. The respondent has not denied the receipt of that payment. Therefore we are of the prima facie view that the respondent has provided the service to the applicant in the transaction against the consideration. The respondent has contended that at no time during the negotiation of the agreement, during its performance and thereafter, did applicant protest against any term thereof or of any obligation cast on applicant including specifically that relating to the furnishing of PBG and the invocation of PBG was in terms thereof and in terms of the contract. The Commission has the power to enquire into any agreement or contract if any of the clause of said agreement or contract attracts the provisions of the MRTP Act and it is not necessary that any party makes a complaint in this regard and if it comes to the knowledge of the Commission, then Commission is competent to initiate the proceeding under the provision of the Act against that party. In the instant case the action of the respondent in invoking the PBG as per the term of the clause which prima facie appears to be harsh and loaded in favour of the respondent, may attract the provision of the Act and thereby warrant the institution of the enquiry under the provision of the Act.

THE contention of the respondent that the agreement contains the arbitration clause and therefore the dispute between the parties be referred to arbitration of Indian Council of Arbitration has to be dismissed in view of the decision of the Hon''ble Supreme Court in the matter of Fair Engineering Pvt. Ltd. v. N.K. Modi, reported at (1996) 4 CTJ 749 (SC) (CP) and also as per the decision of this Commission in the matter of Yogendra Knitting Mills v. Du Pond Sportswear Ltd., reported at (1995) 3 CTJ 194 MRTPC wherein the following observations were made: ''THE M.R.T.P. Commission has unqualified power to enquire into any restrictive trade practice defined in the statute. No Arbitrator has the power to adjudicate on matters relating to restrictive or unfair trade practices. THErefore/ the pendency of any proceeding before the Arbitrator cannot fetter the Commission in dealing with and disposing of the complaint filed before it. THE complaint or application is maintainable and the preliminary objections raised by the respondent company against it are overruled. A Notice of enquiry be issued and the case be listed for regular hearing after the issue of Notice of Enquiry."

The respondent has also contended that the Hon''ble Supreme Court in State Trading Corporation of India v. Jainsons Clothing Corp., reported at (1994) 6 SCC 597 elaborated on the law relating to encashment of Bank Guarantee. We are fully agreeable with the contention of the applicant that the facts of the said case are alto gether different from the present one as in that case there was a default in performance of contract of supply of rice by the Jainsons Clothing Corpn. Ltd. whereas in the present case the applicant has done everything under the contract on its part. It was also pointed out by the applicant that Hon''ble Supreme Court in para 9 of the said judgment observed that the Court should normally insist upon enforcement of the Bank Guarantee and the Court should not interfere with the enforcement of the contract of guarantee unless there is a specific plea of fraud or special equity in favour of the applicant. It is the case of the applicant that the unfair/restrictive trade practices are separate from the civil/ contract law and are nothing but the extension of equity and the definition of equity has been quoted from the legal glossary and also from the Laws of Lexicon, which are as under: 1. Legal Glossary 1992 edition published by Government of India "Body of legal rules and remedies developed by the Court of chancery parallel to but separate from the common law; that which is fair and right; the recourse to general principles of justice to correct and supplement the ordinary law." 2. Definition of equity given in Law of Laxicon The Encyclopaedic Law dictionary written by P. Ramanatha Aiyer is as under "Equity is defined to be a correction/ or qualification of the law/ generally made in that part wherein it faileth or is too severe. In other words "the correction of that wherein the law, by reason of its universality is deficient.........." 3. As per Legal Glossary the meaning of unfair "Unfair - not fair, marked by injustice, partiality or deception; not equitable in business dealings."

We are prima facie satisfied with the contention of the applicant in this regard. In view of the above discussion we are of the prima facie view that a Notice of Enquiry shall be issued against the respondent by treating the application of the applicant as an information under Section 36B(d) read with Section 36A and 2(o)(ii) of the MRTP Act returnable on 12.8.1997. Since prima facie the equity is in favour of the applicant/ we further direct that the adinterim injunction granted by the Commission on 10th May, 1996 shall continue till the disposal of this enquiry and the applicant is directed to keep alive the Performance Bank Guarantee during such time by extending the period of Performance Bank Guarantee annually after 30th May, 1997 and inform the Commission accordingly from time-to-time. Notice of enquiry issued.