Conduct Of Public Bodies Has To Be Fair & Not Arbitrary; Do Not Force Citizens To Approach Courts: SC


It is a no-brainer that the Apex Court in a latest, landmark and laudable judgment titled Chief Executive Officer And Vice Chairman Gujarat Maritime Board vs Asiatic Steel Industries Ltd And Ors. in Civil Appeal No. 3807 of 2020 (Arising out of SLP (C) NO(S). 28244 of 2015) delivered on November 24, 2020 has fairly, frankly and forthrightly observed that the conduct of a public body charged to uphold the rule of law, has to be fair and not arbitrary. The Apex Court observed so while dismissing Gujarat Maritime Board’s appeal against the High Court judgment which allowed the writ petition filed by “Asiatic Steel” Court seeking refund of contract consideration of Rs 3,61,20,000/- paid by them to the Board. We thus see that the Apex Court upheld the Apex Court judgment.

To start with, Justice S Ravindra Bhat who authored this noteworthy judgment for himself and Justice Indira Banerjee sets the ball rolling by first and foremost observing in para 1 that, “Leave granted. With consent, the appeal was heard. This appeal is directed against a judgment of the High Court of Gujarat dated 24.07.2015. The respondent (hereafter “Asiatic Steel”) had filed a writ petition before the High Court seeking refund of contract consideration of ₹3,61,20,000/- paid by them to the appellant (hereafter “the Board”). The High Court allowed the writ petition, in view of its earlier interim order, and directed the Board to pay interest for the period from 08.11.1994 to 19.05.1998. The brief facts that arise for consideration are as follows.”

While stating some key facts, para 2 then states that, “The Board issued a tender notice on 02.08.1994 for allotment of plots at Sosiya (near Bhavnagar, Gujarat) for ship-breaking of ‘very large crude carriers/ultra large crude carriers’ (VLCC/ULCC). Asiatic Steel made the highest bid, which was accepted and confirmed by the Board on 08.11.1994, for ₹ 3, 61, 20,000/- (hereafter the ‘Principal’). Asiatic Steel was allotted Plot V-10. The bid payment was made on 22.03.1995 in foreign currency, to the tune of $1,153,000, while the earnest money deposit of ₹5,00,000/- was paid on 08.11.1994.”

While continuing in the same vein, it is then narrated in para 3 that, “On 23.02.1995, Asiatic Steel and other allottees approached the Board citing difficulties in commencing commercial operations, on account of the connectivity to the plots and the existence of rocks inhibiting beaching of ships on the plot for the purpose of ship-breaking. Through a letter dated 19.05.1998, Asiatic steel intimated the Board that it wished to abandon the contract and demanded that the payment be refunded (an amount of $1,153,000), with interest at 10% per annum from the date of remittance. The Board, through a notice dated 19.05.1998, stated that an amount of ₹3, 61, 20,000/- would be refunded, but without interest. The Board also clarified that the refund would be directed to the original allottee of the plot (i.e. the second respondent, i.e. M/s Ganpatrai Jaigopal- hereafter referred to as “Ganpatrai”). Asiatic Steel then filed a writ petition before the High Court, seeking (i) refund of USD $ 1,153,000 with interest of 12% per annum compounded quarterly, to the third respondent, M/s Industeel Investment Holdings (hereafter “Industeel”, which had made the payment originally on behalf of Asiatic Steel); and (ii) refund of earnest money of ₹5,00,000/- with interest of 12% per annum, compounded quarterly to Asiatic Steel.”

To say the least, it is then noted in para 4 that, “Through an interim order dated 26.02.2002, the High Court held that prima facie, Asiatic Steel was entitled to a refund with interest at 10% per annum. Accordingly, the Board was directed to deposit the admitted amount, i.e., the Principal, with interest at 10% p.a. with the court’s Registry on or before 15.04.2002. The interest was to be calculated from 19.05.1998 up to 15.04.2002. The amount was permitted to be withdrawn by Respondent No. 3, with the consent of the other respondents. The Board made this deposit, as directed by the court.”

In hindsight, it is then pointed out in para 5 that, “On 17.09.2014, the High Court determined that the following issues survived to be determined:

(a) Whether interest on payment should be calculated from 24.03.1995 to 15.04.2002, or from 19.05.1998;

(b) Whether the earnest money of ₹5,00,000 should be refunded;

(c) Whether interest should be calculated at 10% p.a. or 12% p.a.

To put things in perspective, the Bench then explains in para 6 that, “The Board resolved, through a resolution dated 17.12.2014, to refund the earnest money deposit with interest of 10% calculated from 19.05.1998. On account of this development, the High Court examined the issue of quantification of interest, and held that so far as the amount that had already been refunded with interest at 10% was concerned, no grievance could be raised by Asiatic Steel, as it had initially claimed an interest of 10%, in the letter to the Board dated 19.05.1998. In the case of the refund already made of the Principal and the earnest money deposit, it was held that Asiatic Steel was not justified in claiming more than 10% interest. Neither party raised any grievance against the High Court’s interim order dated 26.02.2002 fixing the interest at 10%. The only question then left to be decided was with respect to the date from which interest on the Principal was to be calculated, and what the rate of interest was to be.”

As a corollary, it is then stated in para 7 plainly that, “The High Court held that the Board never claimed that it suffered any damage or loss due to Asiatic Steel’s termination of the contract. The reasoning of the impugned judgment was that hence, the Board was under a liability to compensate or pay reasonable interest for the period during which the money was retained by it. The High Court took into consideration that Indusind was a Singaporean company, and that the rate of interest was lower in developed countries. Accordingly, the rate of interest was altered to 6% p.a., for the period during which the money was enjoyed by the Board. The Board was directed to (i) refund the earnest money of ₹5,00,000/- with interest at 10% p.a., in accordance with the resolution of 17.12.2014; and (ii) pay interest of 6% on the Principal from 08.11.1994 to 19.05.1998. This interest amount works out to ₹76,47,544/-. The Board is, hence, aggrieved by the impugned judgment.”

What’s more, the Bench then elucidates in para 24 that, “Asiatic Steel was the highest bidder in an auction for five shipbreaking plots, held on 08.11.1994. The Board received payment of the earnest money deposit of ₹5,00,000/- on this day. Plot V-10 was allotted to Respondent No. 1 (Asiatic Steel Industries Ltd.). M/s Ganpatrai were the Indian shareholders of Asiatic Steel, while M/s Industeel was a foreign shareholder based in Singapore. The upset premium was remitted by Industeel in US currency (dollars $), on 22.03.1995.”

Interestingly enough, the Bench then makes it clear in para 27 that, “Such being the position, it was nobody’s case that Asiatic Steel was unaware about the site conditions. This is particularly important because it was willing to commit a substantial amount in foreign exchange for the plot which it bid for and was eventually granted. Likewise, the requisite undertaking too was furnished on its behalf. It is in this background of circumstances, that the claim for interest for the period in question requires examination.”

As it turned out, it is then envisaged in para 33 that, “Two important aspects need to be noticed at this stage: first, on the one hand, that Asiatic Steel was aware of the condition of the plot, at an early stage, when it bid for it. In this regard, its conduct is to be judged in the light of the Board’s inaction in regard to the unfitness of the allotted site, as in the case of the other concerns. Two, Asiatic Steel was no better and no worse than the other plot lessees, who demanded refund of their amounts. The difference between them, and Asiatic Steel was that the latter chose to demand refund on 19.05.1998. Asiatic Steel’s final letter discloses its awareness that the other concerns approached the court earlier, but that it waited as it wished to have the issue resolved amicably, rather than moving the court for relief.”

Bluntly put, the Bench then minces no words to state in para 34 that, “In the opinion of this court, that fact that Asiatic Steel and other concerns bid for the plots knowing the state they were in, cannot be disputed. However, the conduct of all the successful bidders consistently suggests that they expected that the plots would be given in usable condition, within reasonable time. Clearly, the Board could not and most certainly did not rectify the conditions by removing the beachfront rocks. The Board is not forthcoming about the reasons for its inaction. It urged two defences in its reply to the writ petition: one, that the dispute was in the realm of contract and two, that even though like in other cases, the Board was prepared to consider a refund, Asiatic Steel was a joint venture company. These, in the opinion of this court are wholly insubstantial reasons.”

No doubt, the Bench then is intrigued to note in para 35 that, “It is clear from the Board’s conduct that it never responded to the letters written by Asiatic Steel; at least, no reply has been placed on record. Even Asiatic Steel’s request for permission to carry-out the necessary clearance work at the cost of the board, was not responded to – either positively or negatively. Further, whenever any bidder approached the court complaining that the plot allotted was unusable, the Board decided, mostly contemporaneously, to refund the amount, even with interest. In the case of Asiatic Steel, however, when the demand was made for refund on 19.05.1998, the Board did not act, forcing the company to approach the court, firstly through a civil suit which was later withdrawn, and then in a writ petition.”

Not stopping here, the Bench then puts forth in para 36 that, “In the opinion of this court, the Board’s complete silence in responding to Asiatic Steel’s demand for refund, coupled with the absence of any material placed on record by it suggesting that the complaints had no substance leaves it vulnerable to the charge of complete arbitrariness. The Board’s conduct or indifference in regard to the refund sought (in respect of which there was no meaningful argument on its part before the High Court) can be only on the premise that it wished the parties to approach the court, till a decision could be taken to refund the amounts received by it.”

More damningly and more crucially, it is then observed in para 37 that, “In this court’s considered view, the Board’s action is entirely unacceptable. As a public body charged to uphold the rule of law, its conduct had to be fair and not arbitrary. If it had any meaningful justification for withholding the amount received from Asiatic Steel, such justification has not been highlighted ever. On the other hand, its conduct reveals that it wished that the parties should approach the court, before it took a decision. This behavior of deliberate inaction to force a citizen or a commercial concern to approach the court, rather than take a decision, justified on the anvil of reason (in the present case, a decision to refund) means that the Board acted in a discriminatory manner.”

Needless to say, it is very rightly observed in para 40 that, “In this case, conduct of the Board betrays a callous and indifferent attitude, which in effect is that if Asiatic Steel wished for its money to be returned, it had to approach the court. This was despite its knowledge that at least three other identically placed entities had asked for return of money and, upon approaching the court, were refunded the amounts given by them promptly. In view of these facts, nothing prevented the Board from deciding to refund the amount, without forcing Asiatic Steel to approach the court.”

Truth be told, it cannot be ignored that it is then very crucially revealed in para 41  that, “This court notes that the High Court directed payment of interest for the entire period (i.e. starting from 08.11.1994 and ending on 19.05.1998). However, it is evident that Asiatic Steel had not paid the entire amount on 08.11.1994; in fact the sum of $1,153,000 /- i.e. the principal consideration, excluding the earnest money deposit, was deposited on 24.03.1995. Therefore, the impugned judgment erred in directing payment of interest on the entire amount from 08.11.1994; instead, the direction to pay interest on ₹3,61,20,000/- shall operate with effect from 22.03.1995 to 19.05.1998.”

No wonder, it is then finally observed in para 42 that, “The appeal is dismissed, subject to the modification indicated above, to the impugned judgment of the High Court.”

In conclusion, the bottom-line of this key judgment is that conduct of public bodies has to be fair. It should not be arbitrary. Also, citizens should not be forced to approach the courts. Very rightly so!

Sanjeev Sirohi

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