top of page

As a public body charged to uphold rule of law, its conduct had to be fair and not arbitrary: SC

Chief Executive Officer and Vice Chairman Gujarat Maritime Board v. Asiatic Steel Industries Ltd And Ors., Civil Appeal No. 3807 Of 2020 (Arising Out Of SLP (C) No(S). 28244 Of 2015) - 24th November, 2020.

The Hon'ble Supreme Court Justices Indira Banerjee And S. Ravindra Bhat in an appeal against a judgment of the High Court of Gujarat directing the Board to pay interest for the period from 08.11.1994 to 19.05.1998 held that the impugned judgment has erred and directed to pay interest on Rs.3,61,20,000/- from 22.03.1995 to 19.05.1998.

The Board issued a tender notice on 02.08.1994 for allotment of plots at Gujarat for ship-breaking of very large crude carriers/ultra large crude carriers. Asiatic Steel made the highest bid, which was accepted and confirmed by the Board for Rs.3,61,20,000/- and the bid payment was made in foreign currency, to the tune of $1,153,000. 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 with interest at 10% per annum from the date of remittance. The Board stated that an amount of Rs.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. Asiatic Steel then filed a writ petition before the High Court, seeking refund of USD 1,153,000 with interest of 12% per annum compounded quarterly, to the third respondent, which had made the payment originally on behalf of Asiatic Steel and refund the earnest money of Rs.5,00,000/- with interest of 12% per annum, compounded quarterly to Asiatic Steel. the High Court held that prima facie, Asiatic Steel was entitled to a refund with interest at 10% per annum and 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 The amount was permitted to be withdrawn by Respondent No. 3, with the consent of the other respondents.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.

The Board resolved in 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. 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 refund the earnest money of Rs.5,00,000/- with interest at 10% p.a., and pay interest of 6% on the Principal from 08.11.1994 to 19.05.1998. This interest amount works out to Rs.76,47,544/-. The Board, hence, aggrieved by the impugned judgment filed an appeal.

It was contended on behalf of the Board that to determine whether the Board had to pay compensation for any benefit received under the contract, it was imperative that breach of such contract should have been proved. It was submitted that Sections 64 and 65 of the Indian Contract Act, 1872 do not apply when there is no allegation as to the contract being void. In any case, the Board had already refunded the entire amount to Asiatic Steel. Section 73 and 75 of the Contract Act were inapplicable, as breach was not proven or found, and neither did the high court make a finding of rightful rescission of contract by Asiatic Steel. Asiatic Steel accepted and provided an undertaking of their satisfaction of the site, in the contract entered into between the parties. They then went on to abandon the contract on grounds of the site being rocky/ unsuitable for their commercial activities.

Counsel for Asiatic Steel submitted that the Board took about 4 years to take action on its promise to create surrounding infrastructure and clear the rocks as well as the rocky island near plot, which made it unviable for Asiatic Steel to commence business. The request for removal of the rocks and the rocky formation near plot was repeated. The other successful bidders for nearby plots also raised similar issues, and approached the courts for relief. Asiatic Steel did not join those bidders, and sought to deal with the matter amicably. Counsel submitted that since the Board did not actually carry out the promised work, Asiatic Steel could not commence commercial production; they were left with no option but to abandon the project and seek a refund. It was submitted that Asiatic Steel incurred heavy losses on account of interest costs from the date of remittance, as well as losses on account of depreciation of the rupee over a period of three years.

The learned counsel submitted that on account of the Board's failure to remove the rocks, Asiatic Steel could not take possession of the plot, and therefore, that interest is due from the date of deposit till the date of payment. It was argued that the very fact that the Board agreed to refund the premium and the earnest money shows their acceptance that they have been unable to provide the promised plots. It was further submitted that all the other allottees had been paid interest on the amounts deposited by them. It was urged that the Board enjoyed the Principal amount from 08.11.1994 to 19.05.1998, and it was not a case where the possession of the plot was handed over and the contract was concluded. Asiatic Steel was deprived of a substantial amount that could not be utilized elsewhere during that period. It was submitted that interest was essentially compensation for denial of the right to utilize the money due.

In response to Asiatic Steel's contentions that identically situated bidders being paid interest at 10-12% were unsustainable, it was contended on behalf of the Board, in a response, that interest was not payable under the terms of the contract with the present respondents. Further, Asiatic Steel had allowed the plot to remain unused for almost half of the license/concession period before rescinding the contract. It had verified the site before casting a bid; it took a conscious decision to make the bid and pay the upset premium. It was urged that the present case is a contractual dispute where, without breach being proved against the Board, interest was ordered as a 'compensatory measure', that too under writ jurisdiction.

The issue raised before this court based on the contentions is as follows:

Whether interest was payable from 24.03.1995 or from 19.05.1998, or whether it was payable from the latter date, till the date of deposit in court, i.e., 15.04.2002?

The court held that the claim in this case is essentially a monetary one, and would ordinarily be premised upon breach of contract. Asiatic Steel, therefore, correctly approached the civil court by filing a suit but apparently was advised to resort to proceedings under Article 226 of the Constitution of India. The court held that 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.

"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."(Para 37)

The court observed 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 Rs.3,61,20,000/-shall operate with effect from 22.03.1995 to 19.05.1998.

Hence, the appeal stands dismissed.

M. Maheswari



bottom of page