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PETITIONER: NATIONAL TEXTILES CORPORATION (SOUTH MAHARASHTRA) LIMITED

       Vs.

RESPONDENT: TAMIL NADU CO-OPERATIVE, MARKETING FEDERATION LTD. & ANR.

DATE OF JUDGMENT:       27/07/1998

BENCH: S.C. AGARWAL, S.P. BHARUCHA

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T BHARUCHA, J.      The judgment  and order of a Division Bench of the High Court at Bombay is the subject matter of this appeal.      The  appeal  arises  in  the  following  circumstances, shortly put.  On 4th  February, 1991,  the appellant entered into an  agreement with the first respondent. Thereunder the appellant  was  to  procure  ’kapas’;  the  kapas  would  be processed at  the first  respondent’s ginning factory and it would be  sold to  the appellant. The agreement required the appellant to give an irrevocable bank guarantee of the value of Rs.50  lakhs in  favour of  the first respondent to cover the price of the kapas. Similar agreements were entered into from time  to time for subsequent periods, the last being on 25th April,  1995. The  first bank guarantee was procured by the appellant  from the second respondent. It was dated 11th April, 1991, and it was extended from time to time until 1st October, 1995.      With effect  from 18th October, 1983, the management of the textile undertakings specified therein was vested in the Central Government  by virtue  of the  Textile  Undertakings (Taking  Over   of  Management)   Act,  1983.   The  Textile Undertakings   (Nationalisation)    Ordinance,   1995    was promulgated on  27th June,  1995. It  was  replaced  by  the Textile    Undertakings    (Nationalisation)    Act,    1995 (hereinafter  referred  to  as  the  ’Act’).  The  aforesaid textile undertakings  were, thereby, vested in the appellant with effect from 1st April, 1994.      The appellant  wrote to  the second  respondent on 26th September, 1995,  and alleged  for the  first time  that the agreements had  been entered  into on  behalf of  the Finlay Mills and  Gold Mohur  Mills which  had been nationalised on 27th June,  1995. The letter stated that only the sum of Rs. 2,27,900/- was  due by  the appellant on account of the said agreements because  that  amount  pertaining  to  deliveries subsequent to 1st April, 1994. The balance amount pertaining to deliveries  prior to  1st April,  1994, could not, it was alleged, be  enforced against  the appellant  and the second respondent was,  therefore, called  upon not to make payment under the  bank guarantee.  The amount  of Rs.2,27,900/- was

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paid on 28th April, 1995, to the first respondent.      The first respondent invoked the bank guarantee for the balance amount.  Thereupon the appellant filed a suit in the High Court praying for a declaration that the bank guarantee stood discharged and/or was void and of no legal effect; for a  mandatory/permanent   injunction  restraining  the  first respondent from  receiving any  money under or in respect of or pursuant to the bank guarantee and restraining the second respondent from  making any  payment to  the first defendant under the  bank guarantee;  and for  interim and  ad-interim reliefs in these terms. A notice of motion was taken out for these interim  reliefs. The  prayer  for  ad-interim  relief thereon was  rejected on  7th October,  1995. The  appellant took out  a chamber summons for amendment of the plaint and, pending the disposal of the chamber summons, prayed that the second defendant  be restrained from debiting the account of the appellant  or from  recovering from the appellant in any manner any amount paid by the second respondent to the first respondent under  the bank  guarantee. This  prayer for  ad- interim relief  was rejected  on 10th October, 1995. Appeals were  filed   by  the  appellants  against  the  two  orders aforementioned refusing  ad-interim relief. The appeals were dismissed by  the Division  Bench on  11th October, 1995 and 17th October, 1995. aggrieved thereby, the appellants are in appeal by  special leave. When issuing notice on the special leave petition,  this Court  stayed encashment  of the  bank guarantee but  there is  no mention of any interim relief in the order granting leave.      Learned counsel  could not tell us what had happened to the notice of motion at the stage of its hearing.      Great reliance  was placed  by learned  counsel for the appellant upon  the provisions  of the  said Act to which we shall refer.  His only  submission was  that, by  reason  of these statutory  provisions, the appellant was not liable to the first  respondent for any dues under the said agreements in respect of deliveries prior to 1st April, 1994, and that, therefore, the  second respondent  could not honour the bank guarantee in  respect of amounts due to the first respondent under the said agreements for transactions before 1st April, 1994.      Section 2(1)(a),  (m), Section  3 and  Section 5 of the Act, upon  which emphasis  was placed by learned counsel for the appellants, read thus:      "2(1).      <a) "appointed  day" means  the 1st      day of April, 1994;      (m) "textile  undertaking" or  "the      textile   undertaking"   means   an      undertaking specified in column (2)      of   the    First   Schedule,   the      management of which was, before the      appointed day,  taken over  by  the      Central   Government    under   the      Textile Undertaking (Taking Over of      Management) Act,  1983, or  as  the      case may  be, under the Laxmirattan      and  Atherton   West  Cotton  Mills      (Taking Over  of  Management)  Act,      1976.      3.(1) On  the  appointed  day,  the      right, title  and interest  of  the      owner  in  relation  every  textile      undertaking shall stand transferred      to, and  shall vest  absolutely in,      the Central Government.

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    (2) Every textile undertaking which      stands  vested   in   the   Central      Government by virtue of sub-section      (1) shall, immediately after it has      so vested,  stand  transferred  to,      and vested in, the National Textile      Corporation.      5.(1) Every  liability, other  than      the  liability  specified  in  sub-      section (2),  of  the  owner  of  a      textile   undertaking,    in    the      relation     to     the     textile      undertakings  in   respect  of  any      period prior  to the appointed day,      shall  be  the  liability  of  such      owner  and   shall  be  enforceable      against him  and  not  against  the      Central Government  or the National      Textile Corporation.      (2)  any   liability   arising   in      respect of-      (a) loans  advanced by  the Central      Government, or  a State Government,      or both,  to a  textile undertaking      (together   with    interest    due      thereon) after  the  management  of      such  undertaking  had  been  taken      over  by   the  central  Government      under  section  3  of  the  Textile      Undertakings   (Taking    Over   of      Management) Act,  1983  or  as  the      case may  be under section 3 of the      Laxmirattan   and   Atherton   west      Cotton  Mills   (Taking   Over   of      Management), 1976;      (b) amounts  advanced to  a textile      undertaking after the management of      such  undertaking  had  been  taken      over  by   the  central  Government      under  section  3  of  the  Textile      Undertakings   (Taking    Over   of      Management) Act,  1983, or  as  the      case may  be under section 3 of the      Laxmirattan   and   Atherton   West      Cotton  Mills   (Taking   Over   of      Management)  Act,   1976,  by   the      National Textile  Corporation or by      a State  Textile corporation, or by      both, together  with  interest  due      thereon;      (c) wages,  salaries and other dues      of   employees   of   the   textile      undertaking,  in   respect  of  any      period after the management of such      undertaking and  been taken over by      the Central Government,      shall, on  and from  the  appointed      day,  be   the  liability   of  the      central  Government  and  shall  be      discharged, for  and on  behalf  of      that Government,  by  the  National      Textile  Corporation  as  and  when      repayment of  such loans or amounts      becomes due  or as  and  when  such      wages,  salaries   or  other   dues

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    become due and payable.      (3) For  the removal  of doubts, it      is hereby declared that,-      (a)  save  as  otherwise  expressly      provided in  this section or in any      other  section   of  this  Act,  no      liability, other than the liability      specified in  sub-section  (2),  in      relation to  a textile undertaking,      in respect  of any  period prior to      the   appointed   day,   shall   be      enforceable  against   the  Central      Government or  the National Textile      Corporation;      (b) no  award, decree  or order  of      any  court,   tribunal   or   other      authority  in   relation   to   any      textile undertaking,  passed  after      the appointed  day, in  respect  of      any matter,  claim  or  dispute  in      relation to any matter not referred      to in  sub-section (2), which arose      before   that    day    shall    be      enforceable  against   the  Central      Government or  the National textile      Corporation;      (c) no  liability  of  any  textile      undertaking or any owner thereof in      relation to any textile undertaking      before the  appointed day,  for the      contravention of  any provision  of      law for  the time  being in  force,      shall be  enforceable  against  the      Central Government  or the National      Textile Corporation.      we turn  to the said agreements and the bank guarantee. The said  agreements are between the appellant and the first respondent. Clauses (1),(3),(4),(6),(7) and (12) of the said agreements read thus:      (1) This tie-up arrangement will be      to the  extent  of  procurement  of      Suvin  cotton   according  to   the      requirement  of   National  Textile      Corporation       Ltd.,       South      Maharashtra, Bombay  for the period      from December  1990 to August 1991.      In   this    tie-up   scheme    the      procurement of  Suvin cotton  kapas      will  be   done  in   the  purchase      centres in  the State of Tamil Nadu      as  specified   by   the   National      Textile     Corporation      (South      Maharashtra) Limited, Bombay.      (3) The  kapas, thus  procured will      be processed  at  Salem  under  the      supervision of  the representatives      of  both  Tamil  Nadu  Co-operative      Marketing  Federation  Limited  and      National Textile Corporation (South      Maharashtra) Limited, Bombay.      (4) The cotton seeds so obtained in      processing  will   be  disposed  by      National Textile Corporation (South      Maharashtra) Limited then and there      at  their   risk,  and  Tamil  Nadu

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    Cooperative  Marketing   Federation      Limited will  extend its assistance      in the disposal of the seed stocks.      Tamil  Nadu  Cooperative  Marketing      Federation    Limited     is    not      responsible         for         any      processing/invisible loss if any in      the business transaction.      (6)    The     National     Textile      Corporation   (South   Maharashtra)      Limited,  Bombay   will   give   an      "Irrevocable Bank Guarantee" to the      value of  Rs.50 lakhs (Rupees fifty      lakhs only)  in favour  of  Special      Officer,  Tamil  Nadu  Co-operative      Marketing Federation  Limited,  for      the  coverage   of  indented  Suvin      Cotton  and   the   proposed   Bank      Guarantee will  be for  a period of      120 days from the date of execution      of the Agreement.      (7)  National  Textile  Corporation      (South Maharashtra) Limited, Bombay      will make  cent percent  payment of      lint cost  by means of Demand Draft      drawn   in   favour   of   Regional      Officer,  Salem  payable  at  Salem      within 30  days from  the  date  of      delivery of  cotton lint  Bales  to      the  National  Textile  Corporation      (South      Maharashtra)      Ltd.,      representative at  Salem along with      the service  charges at the rate of      1%. If the said payment is not made      within 30  days from  the  date  of      supply of  stocks, Tamil  Nadu  co-      operative   Marketing    Federation      Limited, is  at liberty  to  invoke      the "bank  guarantee" given  by the      National Textile Corporation (South      Maharashtra)  Limited,  Bombay  for      realisation  of   the  cotton  sale      proceeds   inclusive   of   service      charges and other amount due to the      Tamil Nadu  Co-operative  Marketing      Federation Ltd., Madras.      12. This tie-up arrangement will be      to the  extent  of  procurement  of      suvin   cotton    kapas   to    the      requirement of the unit mills under      control   of    National    Textile      Corporation   (South   Maharashtra)      Limited,  Bombay,  for  the  period      from December 1990 to August 1991.      Under  the   bank  guarantee   the  second   respondent unequivocally and unconditionally agreed to pay on demand in writing from  the first  respondent any  amount upto and not exceeding Rs.  50 lakhs or the value of the cotton lifted by the appellant  from the first respondent and not paid by the appellant to  the first  respondent, whichever was less, "in consideration   of   Tamil   Nadu   Co-operative   Marketing Federation Ltd.,  having entered  into a  tie-up arrangement with National  Textile Corporation  (South Maharashtra) Ltd. for procurement of cotton kapas (suvin) as and when required by the  Corporation during the period from December, 1990 to

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August, 1991  on the  terms and  conditions set  out in  the agreement dated  4th February,  1991 between  Tamil Nadu Co- operative Marketing  Federation Ltd.  and  National  Textile Corporation (South Maharashtra) Ltd. for the due performance of the  same." It was only in 26th September, 1995, that the appellant  claimed   in  a  letter  written  to  the  second respondent that  the said  agreements had  been entered into and on behalf of the Finlay and Gold Mohur Mills.      The said  agreements make  no mention  of the Finlay or the Gold Mohur Mills. They record that the tie-up thereunder was for  the appellant’s  requirement and  that  the  cotton seeds obtained in the course of processing would be disposed of by  the appellant.  The appellant  agreed  thereunder  to furnish an  irrevocable bank  guarantee in  the sum of Rs.50 lakhs to the first respondent in respect of the price of the kapas  purchased   under  the   said  agreements,  the  bank guarantee to be invoked if payment of the price was not made by the  appellant within  30 days  of supply.  The appellant agreed to  pay for  the kapas by demand draft within 30 days of  delivery   to  itself.   Pursuant  to   its   obligation aforementioned, the appellant furnished the irrevocable bank guarantee, issued  by the  second respondent,  to the  first respondent whereunder  the second  respondent  unequivocally and unconditionally  agreed to  pay the  first respondent on demand the  price of  the kapas  not paid  by the appellant. There is,  therefore, no  support to be found in these basic documents for  the only  argument on behalf of the appellant that the  dues claimed  by  the  first  respondent  are  "in relation to the textile undertakings" of the Finlay and Gold Mohur Mills  and, therefore,  not liable to be discharged by the appellant  by reason  of the  provisions of Section 5 of the Act.  In fact,  clause 12  of the said agreements states that the kapas was for all the mills of the appellant.      We are,  therefore, of the view that the High Court was right in  concluding that  the appellant was not entitled to any ad-interim relief.      The appeals are dismissed with costs.