A shorter route to recover money

OUT OF COURT

The Supreme Court has facilitated a speedier course for resolution of disputes where government undertakings are parties to a contract.

Normally, the aggrieved party has to take the tedious and expensive route to the civil court. But in a refreshing decision in ABL International Ltd vs Export Credit Guarantee Corporation of India Ltd, the Supreme Court recently ruled that the private company can move a writ petition in the high court directly.

When the facts are not complicated and a plain reading of the contract would be enough to adjudicate upon the issues, it would now be possible to take the short-cut to the high courts instead of filing a civil suit.

In this case, the Indian company contracted to export tea to a state-owned corporation of Kazakhstan. The payment was to be made by barter of goods. The payment was guaranteed by the Kazakhstan government.

The Reserve Bank of India (RBI) asked the Indian company to insure the risk of payment by the Export Credit Guarantee Corporation and it was so done. Later, the barter agreement was replaced with payment in dollars. The foreign party defaulted in payment and the Kazakh government also did not help. When the Indian company asked the credit corporation to honour the guarantee, it repudiated the claim alleging violation of the insurance contract.

Instead of choosing the traditional method of filing a civil suit, the company moved the Calcutta High Court. The single judge ruled that the corporation was "state" within the meaning of Article 12 of the Constitution and, therefore, the writ petition was maintainable. He also asked the government monopoly company to honour its insurance commitment.

However, when the corporation appealed against this decision before the same high court, the division bench held that a writ petition would not lie and the company should go to a civil court. Therefore, it appealed to the Supreme Court and won the point.

The Supreme Court made three points. First, it declared that in an appropriate case, a writ petition as against the state or an instrumentality of a state arising out of a contractual obligation is maintainable.

Second, merely because some disputed questions of facts arise for consideration, it could not be a ground to refuse to entertain a writ petition in all cases as a matter of rule. Third, a writ petition involving a consequential relief of monetary claim is also maintainable.

Merely because one of the parties to the contract raises disputed questions of fact, the court should not shy away from hearing the writ petition raising such issues. In fact, the Supreme Court has held as long ago as in 1969 in Gunwant Kaur vs Municipal Committee that if necessary, even oral evidence can be taken in a writ petition.

However, the Supreme Court urged the high courts to exercise its discretion to entertain writ petitions raising contractual matters sparingly. The state or its instrumentality must have acted arbitrarily and unreasonably or there must be valid and legitimate reasons to interfere in such disputes between corporations.

Another caveat is that if there is an arbitration clause in the agreement, the court must refuse to invoke its prerogative writ. If there is an alternative remedy provided in the contract, the court should stay away from the dispute. This situation has been discussed in detail in State of UP vs Bridge & Roof Company in 1996.

The monopoly government corporation (in which the President of India holds 2,49,998 shares and one each by two officials of the ministry of commerce) argued that money claims cannot be heard by the high court in a writ petition. However, the Supreme Court cited cases in which it had done so.

Therefore, that objection was also rejected. Thus, private companies are now armed with this decision to move the high courts when there is a clear breach of contract. Government financial institutions should be alert to the possibility of such action when it is negligent or recalcitrant in honouring their commitments to private firms.