JUDGMENT
S. Mohan, O.C.J.
1. This case illustrates how the Government could also some times try to get over its legal obligations and go to the extent of even denying such obligations and thereby would like to outwit parties.
2. This State of Tamil Nadu represented by its Joint Secretary, Department of Industries, Fort St. George, Madras, the first appellant herein, executed a deed of guarantee on 21.6.1968. It covered a loan of Rs. 15 lakhs with interest at 11 percent per annum granted to Sri Sarada Mills Ltd., Podanur (hereinafter referred to as ‘the Mills’). The respondent, namely the Bank of Madurai, had the loan secured by way of an equitable mortgage from the said Mills.
3. Initially the Mills was taken over under the Sick Textiles Undertakings (Taking Over of Management) Act,1972(Act 72 of 1972). Later on, in accordance with the provisions of Sick Textiles Undertakings (Notification) Act 1974 Central Act 57 of 1974), the Mills came to vest in the Central Government. Thereafter, it was transferred to and came to be vested in the National Textile Corporation. Since the loans advanced in favour of the Mills by the respondent/Bank of Madurai had not been repaid at the relevant point of time, the Bank of Madurai/the respondent invoked the deed of guarantee dated 21.6.1968 executed by the first appellant. A suit in O.S. No. 255 of 1976 on the file of the Sub Court, Coimbatore, was filed against the first appellant. On 24.3.1977, the respondent wrote to the second appellant as follows:
A term loan of Rs. 15.00 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 had been taken over by the Tamil Nadu National Textile Corporation on 20.11.1972 and later nationalised on 21.9.1974.
As the mills had defaulted to pay all the five annual instalments with interest which fell due from 26.2.1971 to 26.2.1975 inspite of our repeated demands, we now in voke the guarantee issued by Government of Tamil Nadu and request payment of the entire loan amount which comes to Rs. 33,29,991.01 plus interest from 1.1.1976. If the payment is made early, there will be no necessity for us to prefer our claim before Assistant Commissioner of Payment at Coimbatore.A suit was filed by us at Coimbatore for 3 instalments 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 is our claim is settled early.
4. On 25.5.1977, the second appellant wrote a letter to the respondent 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. I, therefore, request you kindly not to file any suit against the Government having regard to the Government guarantee already given to the Bank.
5. The reply by the Bank of Madurai on 26.5.1977 is under the following terms:
We invite your kind attention to your letter 17593/77 B3 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 as urgent.
6. The second appellant replied to the respondent herein on 30th May, 1977, as follows:
The presumption contained in your letter cited is confirmed.
7. Thereafter, ort 25.7.1977, the respondent wrote a letter to the second appellant 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 from 1.4.1977 at 11% p.a.as stated in our C. No. Adv. SC. 800/77 dated 24.5.1977.) Your early action will be much appreciated by us.
8. There was a reply by the secondiappellant and the relevant portion of the reply is as under:
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.
2. I wish to add that the Bank should not make any claim towards suit charges
9. Yet another letter dated 16.6.1978 was addressed by the Second appellant to the respondent to the following effect:
I wish to state that the question of meeting 50% of the stamp duty in the event of the 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 date. I believe that the decision of the Government will be made 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.
10. It is under these circumstances, G.O.Ms. No. 850, Industries Department, dated 14.8.1978 was passed and the relevant portion is extracted below:
In G.O.Ms. No. 741, Industries dated 24.2.1968 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 instalments. But the mills had committed default in the payment.
2. Sri Saradha 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 and 1973 which were over due. In respect of the instalment for the year 1974 also, the bank wanted to file a suit for the amounts due from them having regard to the guarantee already given. The bank was in formed 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 insisted 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.
3. 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.
4. 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.
5. This order issues with the concurrence of the Finance Department vide its U.O. No. 69994 IF/78, dated 1.7.1978.
11. Close on the heels, another G.O.Ms. No. 1699 Industries Dept., dated 27.12.1978 was issued in the following terms:
The Government in 1968 sanctioned guarantee in favour of the Bank of Madura 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 de- faulted 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 Rs. 99,054.50 by way of stamp fee in connection with this suit. However, later the Bank agreed to withdraw the suit, provided the Government agree to pay 50% of the cost 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.
2. The Director of Handlooms and Textiles had now reported that the suit has since been dismissed by. the Court as settled out of Court and the necessary provision to meeting this expenditure has also been made in the Revised Estimate 1978-79. He has therefore requested sanction for the above expenditure.
3. 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 cost of the stamp fee in the suit filed the Bank of ‘Madurai for recovery of their does,
4. The expenditure sanctioned above shall be debited to “268 Miscellaneous General Services. Other expenditure-1.Non Plan -. BB Guarantee liabilities D.P.Code 268A AEBB 0007”. Necessary additional funds required will be provided at the time of final modified appropriation 1978-79.
5. This order issues with the concurrence of the Finance Department vide its U.O. No. 137076/IF 78-7, dated 15.12.1978.
12. On 23.2.1979, the second appellant wrote to the respondent to this effect:
I write to inform you that 50% of the suit cost Rs. 47,527 under reference will be paid within a week.
2. Regarding settlement of the guarantee liability the matter is under consideration.
13. On 2.4.1979, the second appellant forwarded a cheque for Rs. 49,527Further on 30th June, 1970 the second appellant wrote to the respondent as under:
I invite a kind reference to your letter cited on the above mentioned subject. I am fully posted with the developments in respect of the guarantee given to Bank of Madura Limited. 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 the pre-take-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.
14. After all these, for reasons best known the first appellant on 28.8.1980 wrote to the Bank of Madurai/the respondent herein saying that the liability under the deed of guarantee does not subsist in view of the changed circumstances. To quote the exact words “The Government have been advised that their guarantee liability does not subsist now on account of the changed circumstances. I am therefore to state that the Government regret their Inability to comply with your said demand.” Impugning this letter, W.P, No. 7l6 of 1981 came to be filed and the prayer therein was for a certiorarified mandamus to quash the repudiation letter dated 28.8.1980 and direct the first appellant herein to fulfil the obligations and commitments under the deed of guarantee dated 21.6.1968.
15. Before the learned single Judge, Nainar Sundarani,J. the main controversy was, whether the principle of promissory estoppel would apply. The learned Judge found having regard to the narration set out in detail, this was a case in which throughout the Government of Tamil Nadu was making the respondent/Bank of Madurai to believe that the rights were secured. Suddenly it cannot resile from those obligations. Therefore, such repudiation would be hit by the principle of promissory estoppel. In this view, he directed the mandamus to issue and the first appellant herein was directed to discharge the obligations and commitments under the deed of guarantee within a period of four months from the date of receipt of the copy of the order in the writ petition. Aggrieved by this direction, the State of Tamil Nadu as well as the Director of Handlooms, Madras, have preferred this writ appeal.
16. The learned Special Government Pleader (Mr.Sridevan) would vehemently contend that the learned Judge is in error in issuing the mandamus because the liability to the Bank would cease once Saradha Mills have been declared to be a sick undertaking and ultimately the ownership came to vest in the Central Government and from Central Government to the National Textile Corporation.. When, therefore having regard to the change of circumstances the liability to the Bank itself is a matter which is yet to be adjudicated, the question of enforcing the Bank guarantee would not arise.
17. The respondent herein has converted Article 226, of the Constitution, as though it is an executing court and in any event there is no scope for application of promissory estoppel.
18. Mr. Dolia, the learned Counsel for the respondent, states that throughout the stand of the appellants was that the rights of the Bank, namely his client, would remain secured, by reason of the Bank guarantee offered by the first appellant. Whereby reason of such guarantee, the Bank was induced to withdraw the suit and lulled into a belief thai there would not be any necessity to establish the claim, surely the principle of promissory estoppel would apply and the learned Judge is right in his view. If looked at from this perspective,the other argument of learned Special Government Pleader that the changed circumstances would enable the Government to repudiate or that the writ court has been converted into an executing court would not arise.
19. We have given our careful consideration to the above arguments. We are of the view that absolutely no exception whatever could be taken to the order of the learned single Judge.
20. From the detailed narration set out above, it isl clear that in spite of repeated entreaties by the respondent Bank to confirm the presumption whether the guarantee would ensure, in no unmistakable terms the Government wrote on 30th May, 1977 that the presumption contained in their letter is confirmed. It should be noted that this is in reply to the letter of the respondent herein dated 25.5.1977 asking whether the Government acknowledge the liability under the guarantee and the question of limitation of filing the suit would not arise. Where therefore the Government acknowledged the liability and acting in pursuance of the same G.O.Ms. No. 850 Industries Department dated 27.12.1978 came to be passed, we are at a loss to understand asto how the Government could later on eat its own himble pie and take a stand altogether different and prevent a volte face. To say the least, there is neither fair play nor justice in such a stand. Added to this, it was by this repeated assurance from the end of the Government the respondent-Bank was obliged to withdraw the suit which otherwise could have gone on merrily. Now therefore to say that there are changed circumstances seems to be an argument born out of desperation. Under these circumstances, therefore, the principle of promissory estoppel would squarely apply, because the Bank acting on the representations of the Government have changed its position and suffered to its detriment. If this is not a case to which the principle of promissory estoppel does not apply we know not of any other case. Therefore we conclude that the learned Judge is correct in appreciation of the legal principle and its application to the facts of the case. Looked at from this angle, we cannot accept the argument of the learned Special Government Pleader that there are changed circumstances and the claim as against Saradha Mills itself requires to be established by the Bank and therefore the writ court could not be converted into an executing court. These contentions are unavailable having regard to the facts and circumstances of the case. Thus, we are of the view that what the Government of Tamil Nadu wants to do is to wriggle out of their solemn obligation or solemn assurance and find a way out to defeat the just claims of the respondent-Bank. They cannot be permitted to do either from the legal point of view or from the moral point of view. Thus we conclude that there are no merits in the writ appeal It stands dismissed with costs. Counsel’s fee Rs. 1000.
21. We direct that appellants should fulfil their obligations arising out of the Bank Guarantee dated 21.6.1968 on or before 31st October, 1989.
