Orissa High Court
Case Details
Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 IN THE HIGH COURT OF ORISSA AT CUTTACK W.P.(C) No.23356 of 2024 (In the matter of an application under Articles 226 and 227 of the Constitution of India, 1950). The Urban Agency and Anr. …. Petitioner(s) -versus- The Director, Chrometan Exports Pvt. Ltd. and Anr. …. Opposite Party (s) Advocates appeared in the case through Hybrid Mode: For Petitioner(s) For Opposite Party (s) : : Mr. Niranjan Behera, Adv. Mr. Pravat Ku. Muduli, Adv. for O.P.1 Mr. Bibhuti Bhusan Swain, Adv. for O.P.2 CORAM: DR. JUSTICE S.K. PANIGRAHI DATE OF HEARING:-21.04.2025 DATE OF JUDGMENT:-16.05.2025 Dr. S.K. Panigrahi, J. 1. In this Writ Petition, the Petitioners seek a direction from this Court to restrain the Opposite Party Bank from acting upon a demand for encashment of a bank guarantee, asserting that the guarantee had expired and that its invocation is legally untenable and contractually invalid. Page 1 of 10 Signature Not Verified
Legal Reasoning
Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 I. FACTUAL MATRIX OF THE CASE: 2. The brief facts of the case are as follows: (i) The petitioner entered into a Memorandum of Understanding (MoU) with Opposite Party No.1 on 01.04.2018 to act as a consignment agent for the sale and distribution of products in the State of Odisha. The MoU was renewed annually, with the relevant period under dispute spanning from 01.04.2019 to 31.03.2020. (ii) In compliance with the terms of the MoU, a Bank Guarantee of ₹5,00,000 was issued by Opposite Party No.2 (UCO Bank) on 09.05.2019, bearing No. 15841GFIN000118, in favour of Opposite Party No.1 to secure performance under the agreement. (iii) The petitioners allege that during the contract period, Opposite Party No.1 failed to issue purchase orders and did not supply products as agreed, resulting in commercial losses. Consequently, the petitioners raised a claim of ₹1,61,733 along with compensation for damaged stock. In response, Opposite Party No.1 demanded ₹4,43,286 from the petitioners and threatened to invoke the Bank Guarantee. (iv) Faced with the threat of encashment, the petitioners filed Consumer Complaint No. 152/2019 before the District Consumer Disputes Redressal Commission, Cuttack. On 13.11.2019, the Commission passed an interim order restraining the encashment of the Bank Guarantee, which remained in force until 07.01.2020. (v) During the period of the interim stay, the validity of the Bank Guarantee expired. The consumer case was subsequently dismissed on 04.04.2023 on the ground of lack of jurisdiction. Page 2 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 (vi) Despite the subsequent expiry, Opposite Party No.1 had already attempted to invoke the Bank Guarantee on 05.11.2019, during its validity period. Opposite Party No.2 (Bank) responded on 13.11.2019, requesting the original Bank Guarantee and renewal letters. (vii) On 18.11.2019, Opposite Party No.1 submitted the requisite documents. However, encashment did not proceed due to the interim stay granted by the Consumer Commission. (viii) After the dismissal of the consumer case, Opposite Party No.1 reinitiated the request for encashment of the Bank Guarantee on 30.08.2024. Acting on this, Opposite Party No.2 (Bank) issued a demand notice to the petitioners on 05.09.2024, asking them to deposit ₹4,42,286 within 7 days. (ix) Meanwhile, Petitioner No.2 reportedly suffered from neurological ailments, and medical records have been placed on record. Subsequently, on 10.04.2023, a legal notice was issued to Opposite Party No.2, asserting that the contract had expired and, therefore, encashment of the Bank Guarantee was not legally tenable. However, no response was received from the Bank. II. SUBMISSIONS ON BEHALF OF THE PETITIONERS: 3. (i) Learned counsel for the Petitioners earnestly made the following submissions in support of his contentions: The bank guarantee was valid only until 31.03.2020, co-terminus with the consignment agreement. Since the agreement ended and was not renewed thereafter, OP No.1 has no legal claim to enforce the bank guarantee. Page 3 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 (ii) The petitioners argue that the interim order of the District Consumer Commission operated effectively during the disputed period. The dismissal of the complaint on jurisdictional grounds does not validate the encashment of an expired bank guarantee. (iii) The petitioners contend that OP No.1 did not raise any claims during the validity period of the agreement or guarantee and is now acting in bad faith. (iv) The Bank’s letter demanding deposit of ₹4,42,286 is termed arbitrary and without authority. Since the bank guarantee was neither extended beyond 31.03.2020 nor is the agreement in force, such demand is unjustified. (v) The petitioners argue that once the contractual framework ended, the invocation of the bank guarantee becomes void ab initio. (vi) Petitioner No.2’s medical incapacity during key proceedings is raised to demonstrate the lack of fair opportunity and procedural prejudice and the actions of OPs are alleged to violate principles of natural justice and contractual equity. III. SUBMISSIONS ON BEHALF OF THE OPPOSITE PARTIES: (i) The Writ Petition is not maintainable as it is filed against a private company director under Article 226, whereas the matter involves contractual obligations governed by private law. The MoU includes an arbitration clause (Clause 21), clearly stipulating that all disputes are to be resolved by arbitration seated in Kolkata, making the writ an abuse of judicial process. The Opp. Party No. 1 is neither a proper nor a necessary party in the context of a writ proceeding. Page 4 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 (ii) Both the original and renewed MoUs contain binding arbitration clauses, referring all disputes to arbitration in Kolkata under the Indian Arbitration Act. The petitioner, having agreed to this mode of dispute resolution, cannot now seek recourse through a writ petition. (iii) The petitioner failed to renew or extend the bank guarantee, which expired during the interim stay order. Despite this, the guarantee was validly invoked during its currency (on 05.11.2019) by OP No. 1. The petitioner is now estopped from arguing that the bank guarantee cannot be encashed, especially after non-renewal, which itself creates a contractual dispute. (iv) The dispute over the guarantee is purely contractual, governed by the terms of the MoU and not by any statutory or public function that would justify invoking writ jurisdiction. Extension or non-extension of the bank guarantee is a contractual dispute falling squarely within the scope of arbitration. (v) The writ is filed maliciously and without bona fides, particularly as the petitioner had failed to pursue the contractual remedy and allowed the arbitration and guarantee clauses to lapse. Hence, it is prayed to set aside the bank’s demand for encashment is without merit since the original invocation of the bank guarantee was valid and made within time. IV. COURT’S REASONING AND ANALYSIS: 4.
Legal Reasoning
Heard Learned Counsel for parties and perused the documents placed before this Court. Page 5 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 5. The present writ petition necessitates judicial examination of a dispute intrinsically rooted in a private consignment agreement and an accompanying bank guarantee, both of which unequivocally arise from a commercial relationship between private parties. This Court is acutely conscious of the well-settled principle that in the ordinary course, disputes stemming from alleged breaches of contract, invocation of bank guarantees, or other commercial exigencies do not ordinarily warrant the invocation of writ jurisdiction under Article 226 of the Constitution of India. Particularly so, when the underlying arrangement is governed by mutually agreed contractual terms, including a binding arbitration clause that provides a specified mechanism for resolution. 6. The present dispute arises out of a private commercial arrangement governed by a Memorandum of Understanding (MoU) entered into between two parties, both private entities, wherein the petitioner was appointed as a consignment agent. The contractual terms, including the issuance and invocation of the bank guarantee, are clearly embedded within the framework of private law. It is well settled that in cases involving private disputes devoid of any public law element, especially when the relationship is purely contractual and governed by agreed- upon arbitration clauses, the extraordinary writ jurisdiction under Article 226 of the Constitution is to be exercised with utmost restraint, if at all. Page 6 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 7. There exists a wealth of judicial precedents on this issue. Notably, the Supreme Court in Tata Motors Limited v. The Brihan Mumbai Electric Supply and Transport1 held as follows: “This Court being the guardian of fundamental rights is duty-bound to is arbitrariness, interfere when there irrationality, mala ides and bias. However, this Court has cautioned time and again that courts should exercise a lot of restraint while exercising their powers of judicial review in contractual or commercial matters. This Court is normally loathe to interfere in contractual matters unless a clear-cut case of arbitrariness or mala ides or bias or irrationality is made out. One must remember that today many public sector undertakings compete with the private industry. The contracts entered into between private parties are not subject to scrutiny under writ jurisdiction.” 8. Applying the above principles to the facts at hand, it becomes abundantly clear that the present writ petition is an attempt to draw the Court into what is essentially a private contractual dispute, long after the expiry of the agreement and the bank guarantee. The invocation of the guarantee by Opposite Party No.1 was made within the currency of the instrument, and any dispute regarding the timing, documentation, or the intervening stay order pertains to performance and enforcement under the terms of the MoU, issues inherently contractual in nature. 9. This Court cannot be a haven for contractual parties seeking to nullify valid obligations by forum shopping or by invoking public law jurisdiction under the guise of alleged unfairness. The petitioner was fully aware of the arbitration mechanism available under Clause 21 of 1 Civil Appeal No. 3897 of 2023. Page 7 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 the MoU and, if aggrieved, ought to have invoked that forum. Instead, the route of a consumer complaint was chosen, which failed on jurisdictional grounds, and now, the extraordinary jurisdiction under Article 226 is being sought to frustrate commercial enforcement. This sequence reflects a deliberate attempt to avoid contractual consequences through procedural maneuvering, a practice that must be firmly discouraged. 10. The Petitioners’ grievance, be it against the Bank’s demand or the Opposite Party’s invocation, is contractual in nature and must be ventilated before the appropriate arbitral tribunal. The Court finds no trace of arbitrariness, illegality, or constitutional infraction that would warrant judicial review. 11. This Court must express its strong disapproval of the conduct adopted by the petitioner’s counsel in persistently invoking public law jurisdiction in matters where private remedies are not just available but explicitly agreed upon. The attempt to drag what is unmistakably a commercial dispute, governed by a mutually negotiated contract with a binding arbitration clause, into the fold of Article 226 jurisdiction reflects either a profound misapprehension of legal boundaries or a deliberate tactical maneuver to circumvent contractual liabilities. 12. The invocation of writ jurisdiction in the present instance, following an unsuccessful detour through the Consumer Forum, a body manifestly unsuited to resolve complex commercial disputes, reflects a form of procedural adventurism that borders on impropriety. The Court cannot but note, with some concern, that such a course of action undermines Page 8 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 the orderly administration of justice and the sanctity of contractual obligations. 13. It is not merely a matter of misdirected forum selection. It is the conscious bypassing of a binding and mutually agreed dispute resolution clause, a mechanism neither vague nor obscure but expressly set out in unequivocal terms within the Memorandum of Understanding. In such circumstances, it was incumbent upon the learned counsel to exercise heightened professional diligence and legal prudence. The obligations of counsel do not end with advocacy. They begin with guidance. To steer a party toward a remedy that lies outside the contours of well established legal boundaries, particularly in the face of a binding arbitration agreement, is not a mere misstep. It is a course that risks compromising the very integrity of contractual jurisprudence. 14. The extraordinary jurisdiction of this Court is not designed to provide refuge from the consequences of commercial bargains freely entered into. It is not a sanctuary for litigants attempting to sidestep their own agreements. Courts must, and will, remain vigilant in ensuring that public law remedies are not diluted into instruments of strategic evasion. 15. It is hoped that in future, parties receive advice commensurate with the seriousness of the legal implications involved. Courts are not meant to become alternate forums for contractual enforcement simply because the agreed-upon forum may be perceived as less expedient or advantageous. To allow such practices to flourish would be to Page 9 of 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 17-May-2025 19:06:42 undermine the contractual autonomy of parties and the purpose of alternate dispute resolution mechanisms embedded within commercial law. 16. In view of the above, the Writ Petition is dismissed in limine. The Petitioner is granted liberty to pursue appropriate remedies before the competent arbitral tribunal, should they be so advised. However, this Court deems it necessary to observe that invocation of writ jurisdiction in matters squarely governed by private contracts and arbitration clauses, without any trace of public law element, amounts to a misuse of judicial forum. In future, such attempts to circumvent settled legal processes may attract imposition of costs as a deterrent against the indiscriminate use of constitutional remedies in purely commercial disputes. 17. Interim order, if any, passed earlier stands vacated. (Dr.S.K. Panigrahi) Judge Orissa High Court, Cuttack, Dated the 16th May, 2025/ Page 10 of 10