Holding

The Court held that the corporation, having had its agency terminated, lacked authority to compel performance of the contract and the State’s direction did not impose a legal duty to issue permits, leading to dismissal of the appeals and an order for refund.

Summary

The Karnataka State Forest Industries Corporation (KSFIC) was appointed as the State's agent to sell confiscated granite blocks. After a legislative committee uncovered a scam, the State terminated KSFIC's agency and directed it to refund the amounts paid by the purchasers, Indian Rocks and other companies. KSFIC claimed financial inability to refund and attempted to compel the purchasers to complete their part of the contract, including obtaining transit permits, which were never issued. The Supreme Court held that once the agency was terminated, KSFIC had no authority to enforce the contract, and the State’s letter did not create a binding legal duty to issue permits. Consequently, the corporation was required to honour its refund obligation and the appeals were dismissed.

Issues considered

The effect of termination of the corporation's agency on its authority to enforce the sale contract.
Whether the State's letter dated 16 January 1996 created a legally enforceable duty to issue transit permits.
Whether a writ of mandamus can be issued to enforce contractual terms when the State's action is arbitrary or discriminatory.
Whether the High Court could entertain a writ under Article 226 to enforce the contract qua contract.
The corporation's liability to refund the amounts paid by the purchasers.

Legislation cited

Constitution of Indias. Article 12, s. Article 14, s. Article 162, s. Article 226
Karnataka Forest Act, 1963s. Section 62

Subjects

contract of saleagency terminationstate agencywrit jurisdictionmandamusrefundtransit permitsarbitrary state actionArticle 162Article 226Karnataka Minor Mineral Concession Rules

Judgment

[2008] 15 S.C.R. 96

A MIS. KARNATAKA STATE FOREST INDUSTRIES
CORPORATION
V.
MIS. !NDIAN ROCKS
(Civil Appeal No. 6274 of 2008 etc.)
B OCTOBER 24, 2008
:--
[S.B.- SINHA AND CYRIAC JOSEPH, JJ.]

Contract - Contract of sale of granite blocks - Between
c the Corporation as an agent of State and Companies - State
was required to give permit for transportation of the blocks -
Agency of the Corporation terminated in view of a scam in
respect of the granite blocks and Corporation was asked to
refund the amount to the Companies - Corporation showing
D its inability to refund - Corporation insisting on the companies {
to perform the remaining part of the Contract - Contracting
Companies asking for issuance of the permits - Permits not
issued by the Corporation - Dispute between the contracting
parties - Litigation resulting in direction to Corporation to
E refund the amount - Counsel for Corporation also conceding
before High Court showing its readyness to refund - On
appeal, held: Corporation had no authority to ask the
Companies to perform their part of contract as the agency
under which the~ Corporation entered into the contract had ~

been terminated - Also because it failed to issue the permits ·
F
to the Companies - Corporation as well as State were guilty
of suppressing before the Court its position when its authority
was questioned - The Counsel for the Corporation having
conceded to refund, was bound to give effect to the same -
Constitution of India, 1950 - Article 162 - Karnataka Minor
G
Mineral Concession Rules, 1994 - r. 42. ;.._

Constitution of India, 1950 - Article 226 - Writ
Jurisdiction - scope of - In respect of contract - Held:
Ordinarily superior courts not required to enforce the terms
H 96
KARNATAKA STATE FOREST INDUSTRIES 97
CORPORATION v. INDIAN ROCKS
""
of a contract qua contract- Writ to be issued only where exists A
a legal right and a corresponding duty on the pa1t of the State
- But if the action of the State is unfair, arbitrary or
discriminatory, such writ is maintainable.

State appointed the appellant-Corporation as its B
agent for issuing tender for sale of confiscated granite
blocks. Pursuant to tender, contract was entered into with
the respondent-Companies. Part of contract was
performed. In the meantime agency of the Corporation
was terminated by the State, vide its letter dated 16.1.1996
·C
pursuant to a report of a Committee appointed for looking
into the scam in respect of the granite blocks. State asked
the Corporation to refund the amount to the Companies.
But the Corporation showed its inability to refund the
amount. Dispute arose between the Companies and the
Corporation. The Counsel for the Corporation in one writ D
petition conceded before High Court that it was ready to
refund the amount. However in subsequent writ petition
it denied. The litigation resulted in direction to the
Corporation to refund the amount to the Companies.
Hence the present appeals. E

Dismissing the appeals, he Court
,. HELD: 1.1. The confiscated granite blocks belonged
to the State. They did not belong to the appellant-
Corporation. Appellant was merely appointed as an agent
F
of the State. It is only in that c~pacity, the tender was
issued by it. Although in terms of the said tender, the
concerned respondents and others were bound to
deposit the price of the granite blocks as also the
amount of tax payable thereunder ; one of the essential G
..J,
conditions therefor, was issuance of permits to transport
the same. [Para 29] [116-C-D]

Bharat Sanchar Nigam Ltd. and Anr. v. BPL Mobile
Cellular Ltd. and Ors., (2008) 8 SCALE 106 and Mis. New H
98 SUPREME COURT REPORTS [2008] 15 S.C.R.

A Bihar Biri Leaves Co. and Ors. v. State of Bihar and Ors.,
[1981] 1 sec 537, distinguished.
1.2. The letter dated 16th January, 1996 is to be
treated as a communication from a Principal to an Agent.
As an agent of the State Government, the appellant,
B which, itself is a 'State' within the meaning of Article 12.
of the Constitution of India, was bound to act thereupon.
It is true that it had responded to the aforesaid
communication of the State dated 16th January, 1996
stating its own reasons therefor. But there is nothing to
C show that the State Government acted upon the request
of the corporation to issue permits for transportation of
granite blocks or withdrawn its direction contained in its
letter dated 16th January, 1996. [Para 36) [118-F-G; 119-
H; 120-A]
D 1.3. The plea of the Corporation of owing its inability
to refund was not a legal plea but a plea for show of
compassion expressing its inability to refund the amount
because of financial constraints. Its response to the State
was not based on legal premise but it was based on its
E own difficulty. If the agency had been terminated and had
not been restored, the appellant had no authority to ask
the respondents to perform their part of contract. (Para
37) (120-8]
F 1.4. There is nothing on the record to show that the
State and particularly the Joint Committee of the
Legislative Assembly of the State directed grant of transit
permits for transportation of granite blocks. If such
permits had been granted, it might have been obligatory
on its part while issuing the notice upon the concerned
G respondents to direct lifting of the remaining blocks of
granites enclosing therewith copies of the said permits,
but in absence thereof, it is idle to contefld, on the one
hand that the respondents were bound to perform their
part of the contract and on the other that although they
H have asked for supply of permits, as per rules, they did
KARNATAKA STATE FOREST INDUSTRIES 99
.... CORPORATION v. INDIAN ROCKS

not obtain the same. [Para 38] [120-D-E] A
2. Appellant is also guilty of suppressio veri and
suggestio falsi. Its action in the entire matter appears to
be wholly unfair. It was in a dominant position in terms
of the provisions of the contract but then in a case of this
nature when its authority to continue to deal with the B

- granite blocks came to be questioned, it was obligatory
on its part to clear its position in this behalf. State also
did not take a positive stand. As a principal, the State was
also obligated to disclose the entire facts before the High
Court. [Para 39] [120-F-G] c
3.1. Although ordinarily a superior court in exercise
of its writ jurisdiction would not enforce the terms of a
contract qua contract, it is trite that when an action of the
State is arbitrary or discriminatory and, thus, violative of
D
Article 14 of the Constitution of India, a writ petition would
be maintainable. [Para 40] [120-H; 121-A]
ABL International Ltd. v. Export Credit Guarantee Corpn.
of India Ltd.,· [2004] 3 sec 553, relied on.
3.2. A writ of mandamus can be issued only when E
there exists a legal right in the Writ Petition and a
corresponding legal duty on the part of the State, but then
if any action on the part of the State is wholly unfair or
arbitrary, the superior courts are not powerless. [Para 41]
[121-8-C] F

G.J. Fernandez v. State of Mysore and Ors., [1967] 3
SCR 636, relied on.

4. A specific concession was made by the counsel
for appellants in the earlier round of litigation. It may be G
,;.
that no specific direction was issued by the High Court
therein, but the stand taken by it was clear and
unequivocal. If such a stand was taken in the earlier
round of litigation there is no reason as to why the
concession made by it should not be given effect to. If a H
100 SUPREME COURT REPORTS [2008] 15 S.C.R.

A right has accrued to the respondents for maintaining a
writ so as to compel the State to give effect to an earlier
order passed by the Court, the same should not be
denied to the respondent. (Paras 42 and 44] (121-F, H;
122-A, BJ
B
Case Law Reference :
(2008) 8 SCALE 106 Distinguished Para 32
[19811 1 sec 537 Distinguished Para 33
c [20041 3 sec 553 relied on Para 40 ·
(1967] .3 SCR 636 relied on Para 41
r20011 7 sec 689 relied on Para 44

D CIVIL APPELLATE JURISDICTION : Civil Appeal No..
6274 of 2008.
From the final Judgment and Order dated 26.3.2004 of the
High Court of Karnataka at Bangalore in W.A. No. 3407 of 2001.

E WITH
C.A. No. 6275 of 2008.
Shyam Divan, R.S. Suri and Asha Gopalan Nair for the
Appellant.
F · P. Vishwanatha Shetty, E.C. Vidya Sagar, Vikas
Rojipoura, Sangeeta Singh, Sharan Thakur, Shashi Kiran
Shetty, Pradeep Kumar Bakshi, Amit Kumar Chawla, Vikrant
Yadav, A. Rohan Singh and Sanjay R. Hegde for the
Respondent.
G
The Judgment of the Court was delivered by

S.B. SINHA, J. 1. Leave granted.

2. These two appeals involving similar questions of law and
H fact were taken up for hearing together and are being disposed
KARNATAKA STATE FOREST INDUSTRIES 101
CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]
~,

of by this common judgment. We may, however notice the fact A
of the matters involving in both the appeals separately.

Civil Appeal arising out of SLP (c) No. 24242 of 2005

3. Appellant is a Government of Karnataka Undertaking
engaged in sale of granite of seized and confiscated granite 8
blocks to persons who intend to purchase in the Tender-cum-
Allotment sale on °as is where is basis". The relevant terms of
the said tender were:

"6. The tender/bidder should make arrangements to c
obtain transit permit at his own cost from Forest
Department/KSFIC.

9. The successful Tenderer/Bidder should pay 1/10th

-
amount of the sale value plus taxes as follows:-
D
}
(a) Un-polished Granite Blocks 10% S.T.

(b) Sur-charge on S.T. 15%

(c) Forest Development Tax 5%
E
(d) Income Tax 15%

(e) Surcharge on I.Tax 5%
,.. On the same day, the balance amount will be
payable as follows: F

(a) 50% within 15 days of the intimation of confirmation
of tender.

(b) the remaining amount shall be paid by the end of G
,, the June, 1995 or before 'the stones are lifted
whichever is earlier. The period of the contract shall
be upto April, 30th 1995.

11. In case of breach of any of the conditions
mentioned above, the Managing Director, KSFIC H
1Q2 SUPREME COURT REPORTS [2008) 15 S.C.R.
,>-

A Ltd., is at liberty to cancel the Tender/Bid amount
and make materials at the risk and· cost of the
original Tenderer/Bidder and the EMO/Security
Deposit furnished by the Tenderer/Bidder be
forfeited. If the K.S.F.l.C. incurs: any extra
B expenditure in this regard the same will be
recoverable from the original Tenderer/Bidder. ..,__

18. The successful Tenderer/Bidder shall make their
own arrangements for inspection of seized and
confiscated Granite blocks at their own cost located
c . at different places in the Ranges as the offer for
sale is on. AS IS WHERE IS BASIS. Rejection due
to colour, cracks etc. will not be entertained once
the offer is submitted.
,.
D 19. Sale of granite blocks is agreed upon in good faith {

and K.S.F.l.C. Ltd. shall not be liable for any
damages or otherwise for failure to carryout the
- obligation which may be occasioned by Act of God,
War, Civil Disturbance disorders, strike etc., or
E regulation of Government authorities or agencies or
similar circumstances beyond its control.

20. Breach of any of the conditions specified supra, by
the purchaser will entail forfeiture to K.S.F.l.C. of all
deposits paid by him. Further, the Granite Blocks
F _ already paid for and lying in the field will also be
. liable to be attached towards the balance due. The
Granite Blocks purchased, whether paid or not will
also be resold at the risk and cost of the original
Tenderer/Bidder who will be liable to make good to
G Government any loss arising out of such resale but
:..
shall not be entitled to profits.

34. No material shall be removed from the contract
area unless it is covered by transit pass in
H accordance with the rules under Section 50 of the
KARNATAKA STATE FOREST INDUSTRIES 103
CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]
-- Karnataka Forest Act, 1963. If any problems arise A
while lifting the blocks from site, necessary
assistance will be provided if need be under special
circumstances."

4. Respondent participated in the tender process. It was
B
successful in purchase of:

(i) one lot containing 25 blocks (Mulegundi Area),

(ii) one lot containing 37 blocks (Mulegundi Area) and

(iii) one lot containing 43 blocks (Nehrudoddi Area).
c
5. The total sale value of the granite sold to the respondent
herein was Rs. 21,24,574.85. Out of the aforementioned sum,
admittedly, the respondent on or about 11.07.1995 had
deposited a sum of Rs. 11,84,447.90. The balance amount due D
to the appellant from the respondent was Rs. 9,40,126.55. In
terms of the said tender, the respondent was required to pay
not only 10% of the value of the goods but also taxes and other
statutory dues paid by the appellant herein. Appellant has paid
an amount of Rs.6,85,642/- being the royalty amount, Forest E
Development Tax, Karnataka Sales Tax and Surcharge on
Karnataka Sales Tax etc .
..
t- 6. Respondent allegedly refused to pay the amount to
which it was said to be otherwise liable in terms of Clause 8
F
of the terms and conditions of the tender.

7. There appears to be a dispute as regards the amount
(
payable by the respondent on the aforementioned account
insofar as whereas according to the appellant the amount of
G
,.. granite including tax and other statutory liabilities in respect of
10 blocks of granite which had been received by the
respondent and transported by it is Rs. 3,25, 193.90; according
to the respondent, the total amount of goods received was Rs.
2,39,969.35. Appellant contended that the contract was not
concluded within the stipulated period of time as the entire H
104 SUPREME COURT .REPORTS [2008] 15 S.C.R.

A payment was not made by June, 1995 or before lifting of the
stones whichever is earlier, as envisaged under Clause 9(b)
of the terms and conditions of the tender.

8. Concededly the Government of Karnataka was
B approached. A question was also raised in the Legislative
Assembly. The Principal Secretary, Forest, Ecology and
. Environment Department, Government of Karanataka issued a
letter on or about 16.01.1996, which reads as under:

"Sub: Permission to Karnataka State Forest Industries
C Corporation Ltd., for the sale of Confiscated Granite Blo~k
through Tender.

With reference to the above subject, a copy of the
Letter dated 14.12.1995 received from the Chairman &
D Managing Director, KSFIC Ltd., is here with enclosed. The
KSFIC Ltd., has sold the Granite Blocks which were
seized by the Forest Department, through public auction
during the month of March 1995. Since the Granite scandal
is under enquiry of Legislative Committee, it was decided
not to confirm the said sale proceedings. In the meanwhile
E
the Chairman & Managing Director of the Corporation
reported to the Government that the purchasers are
pressurizing for issue of transit permit to lift the Granite
Blocks or refund their amount. They also requested the
Government to bring these facts to the notice of the
F Legislative Committee.

Since the Joint Legislative Committee has objected
for issue of transit permit by the Forest Department and
also KSFIC Ltd., to granite blocks as there was no
G provision for the same in the KMMC Rules, 1994, the
Government has suggested to the KSFIC Ltd., to take •
action with regard to transfer the Granite blocks to the
Department of Mines and Geology and for refund of
amount to the bidders (copy enclosed). But, directed to
H keep the Granite blocks in safe custody till the decision of
106 SUPREME COURT REPORTS {2008) 15 S.C.R.

~
A balance amount, stating:
\

"You are requested to remit the balance amount of the total
· purchase value of the Granite Blocks purchased by you in
the auction sale conducted by the KSFIC Ltd. during the
Month of March - 1995."
8
11. However, the said request was not acceded to.
Appellant allegedly issued various other letters to the same ""'
effect on 29.01.1997, 25.04.1997 and 30.06.1997. Ultimately
by its letter dated 5.06.1999, the appellant informed the
c respondent to immediately remit the amount and lift the granite
blocks by 30. 06.1999 failing which, it was threatened, the
amount deposited shall be forfeited, stating:

"We therefore request you to kindly make immediate
D arrangements for remitting balance amount and lift the
granite blocks purchased by you in Tender-cum-Auction- \.

Sale .held during the month of March-1995 within 30th
June 1999 without any further delay. If we do not hear
anything from your side within the time stipulated, action
will be initiated to forfeit all deposit amount paid by you
E
as per clause (11), (16) and (20) of the Tender Conditions,
which may please be noted."

12. Respondent filed a writ petition, which was marked as
Writ Petition No. 27456 of 1999. It is not in dispute that those -\
F permits were not granted in favour of the respondents.
Respondents in their writ petition while contending that the
agency of the appellant was terminated, stated :-

"8. It is humbly submitted that the petitioner.has paid sum
G . of Rs.11,84,447.90 towards the cost of granite blocks. The
petitioner after paying the huge amount of Rs.11,84,447.90
·~
requested the Respondent to obtain the mineral dispatch
permit from the Department of Mines and Geology for
transporting the granite blocks. After receipt of the money
the Respondent did not pursue the matter in obtaining the
H
KARNATAKA STATE FOREST INDUSTRIES 107
CORPORATION v. INDIAN ROCKS [S.8. SINHA, J.]
·~
.... mineral dispatch permits from the department of transport
the granite blocks. The effort of the petitioner to convince
A

· the Respondent to obtain the mineral dispatch permit did
not yield and result and the Respondent failed to obtain
the mineral dispatch permits in terms of Rule 42 of the
Rules. B
9. It is humbly submitted that the Respondent Corporation
appointed the Jadhav, Range Forest Officer to issue the
permits. The said Range Forest Officer has issued permits
which are termed as fake permits. Several persons appear
to have transported the granite blocks on those fake c
permits. Under those circumstances the Karnataka
Legislative Assembly constituted Committee of legislators
to go into the question of fake permits issued by the said
Jadhav. It may also be relevant to mention that the criminal
case was filed against various persons and the matter was D
.J

"' handed over to the COD of Police for investigation. It is
also relevant to mention that both the houses of the
legislature was rocked by the fake permits scandal.

10. It is humbly submitted that the Legislative Committee E
which was appointed for the purpose of looking into the
fake permits has took (sic) a decision that the entrustment

-
of selling of the seized and confiscated granite blocks in
favour of the Respondent Corporation should be dispensed
... forthwith thereby terminating the agency given to the
F
Respondent. The Government on the instructions of the
Legislators Committee cancelled the agency that was
given to the Respondent and instructed the forest
~.
corporation to return the granite blocks to the department
of Mines and Geology (sic) is the owner of those Granite
blocks. Only for the purpose of selling those granite blocks G
~ ,. it was entrusted to the Respondent Corporation. The
Corporation ceased to have its power or jurisdiction to
continue to sell the granite blocks with effect from
16.01.1996. The true copy of the Government Notification
H
108 SUPREME COURT REPORTS {2008] 15 $.C.R.
..,,,r-
·~
A dated 16.01.1996 is produced herewith as ANNEXURE-
C."

In the aforementioned premise, it was inter alia prayed:-

(b) ISSUE an order, direction or writ in the nature of
B Mandamus, directing the Respondents to fmplement the
Government Order Annexure-C dated 16.01.1996. .....

(c) ISSUE an order, direction or in the nature of
mandamus, directing the Respondents to refund sum of
Rs.9,44,478.55 together with interest calculated at 18% in
... ··. c.
terms of the Government order dated 16.01.1996
Annexure-C."

13. Appellant filed its counter-affidavit in the said writ
petition.
D \.

14: .ltalso
.
filed an additional
.
affidavit, stating:

"1 o. It is relevant to submit here that the petitioner should
have completed the entire tender cum auction transaction
by the end of 15th July 1995 by making payment of taking
E
deiivery of the entire granite blocks purchased as per
Respondent letter dated 26.06.1995 at ANNEXURE R14.
However, the petitioner delayed the same. In fact, the
...
petitioner should have completed all these transactions
before the issue of Government letter dated 16.01.1996
""
.;.

F ..
at Annexure-C. The Respondent cannot be blamed for
::"
->.:; t failure and delay of the petitioner in not completing the

transaction before the Government letter dated ..,
16.01.1996. In fact, the petitioner in letter dated
19.04.1997 expressed willingn~ss to take the granite as
G per ANNEXURE-R15. Then Respondent sent a letter
dated 28.4.1997 as per ANNEXURE-R16 to the Deputy
Conseryator of Forest. lnspite of remind~r dated
30.06.1997 as per ANNEXURE-R17 the petitioner has
. not complied with the directions in payment of the balance
H amount This Respondent is entitled to forfeit the entire
KARNATAKA STATE FOREST INDUSTRIES 109
~" ,. ....
CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]

amount as per clause ....illegible ..... the tender for failure A
of the petitioner in not p_aying amount and taking delivery
of the goods within the stipulated time. Therefore, the
petitioner.cannot blame this Respondent.

11. lnspite of all this, and without prejudice to the various B
contentions, the Respondent humbly submits that, if the
petitioner pays the balance amount of Rs.9,40,426.55 and
penalty immediately as per conditions of sale, this
Respondent is ready and willing to-<Complete the sale
transactions by obtaining necessary permits from the
concerned authorities as is being done in the case of other
c
bidders who have paid full value after 16.1.1996
Annexure-C .

15. A learned Single Judge of the High Court by its order
,..; dated 19.02.2001 allowed the writ petition directing the D
appellant - Corporation to refund a sum of Rs. 3, 75,905.35 with
interest from ·the date of issuance of the letter, stating :

"8. In view of terms of Auction notice, if the balance amount
of the sale considerations is not paid, the sale could not
E
have been confirmed and a forfeiture would have resulted.
The forfeiture would have been unconditional but for the
intervention of Annexure C, where the owner of goods sold,
.r called upon the agent to refund the excess amount. The
agent has to abide by the instructions of the Principal. He
F
has to deal with the estate of his principal as he .
commands.

9. A perusal of Annexure H shows that the Respondent
has collected whatever tax is due under the sale and prima
facie there is no scope for fresh demand. Besides, the G
petitioner cannot also dispute its liability to pay the
stipulated tax, it being a condition of sale. In these
circumstances, there is a no justification in the demand
· made by the Respondent in Annexure H. In such
circumstances, Annexure H is quashed. There will be H
110 SUPREME COURT REPORTS [2008] 15 S.C.R.

.....~
A direction to the Respondent to refund the amount, a sum
of Rs.3, 75,905 .35 with the interest from the date .of
r
Annexure C. The right of the Respondent to claim any
damage sustained from its principal is left open. W.P. is
disposed of."
8
16. A writ appeal preferred thereagainst by the appellant
has been dismissed by reas'on of the impugned judgment. :~

Civil Appeal arising out of SLP (C) No. 23148 of 2005.

c 17. Respondent No.3, on 6th March, 1995, participated in
the tender-cum-auction sale and was a successful bidder in
respect of 3 lots of granitA containing 75 granite blocks. It again
participated in the tender auction on 14th March, 1995 and was
declared successful in respect of 41 granite blocks. The total
D sale value of the granites purchased by respondent No.3,
according to the appellant, was Rs.21,91,234.60 ps. Out of
,," ,._

said amount, it deposited a sum of Rs.11,47,149. 77. The sale
price included various taxes/royalty.

18. Appellant released 31 granite blocks of the value of
E Rs.5,92,556.57 ps. Vide its letter dated 28th June, 1995
appellant requested the respondent No.3 to lift the remaining
granite blocks after remitting 100% of the total purchase value
plus taxes on or before 15th July, 1995 failing which the amount
already deposited was threateneq to be forfeit~d.
F
19. Respondent No.3 filed a writ petition before the
Karnataka High Court being Writ Petition No.25613 of 1996
praying inter alia for issuance of direction to issue permits for
lifting the granite blocks. Appellant did not object to the release
G of the granite blocks towards which payments had already been
made. While issuing Rule on 19th September, 1996 the High
Court gave an interim direction which reads as under:-

"There shall be an interim direction to Respondents 4 and
5 to issue Mineral Despatch Permits to Petitioner for
H transporting the granite block purchased by the Petitioner .
/

KARNATAKA STATE FOREST INDUSTRIES 111
CORPORATION v. INDIAN ROCKS (S.S. SINHA, J.]

from first Respondent and released by the first A
Respondent, without requiring payment of any royalty
charges."

20. Vide its letter dated 3rd October, 1996 and 29th
November, 1996, the appellant requested the respondent No.3
8
to remit the balance amount and lift the granite blocks
purchased by it. However, no transit permit was issued.

21. Third respondent was not prepared to pay the balance
of amount to get the granite blocks released and once again
requested the appellant to refund the balance amount deposited C
by it. .

22. Another writ petition being W.P. (C) No. 7611 of 1997
was filed by respondent No.3 to refund the payment made by
it amounting to Rs.5,54,593/- with interest and further not to 0
insist for making payment of balance bid amount.

23. However, the High Court by its judgment dated 21st
October, 1997 directed :-

"13. For the reasons stated, the relief sought for by the E
petitioner company in this writ petition cannot be granted
by this Court. The only relief that can be granted to the
petitioner-company is to direct the respondent Corporation
to consider the request that may be made by the petitioner
- Company for refund of a sum of Rs.1,51,594.06 ps., if F
terms and conditions of tender-cum-auction sale
notification permits for such refund within two months from
the date of request that may be made by the petitioner
company and secondly, if the petitioner company deposits
the balance of sale consideration for purchase of granite G
blocks, the respondent-corporation is directed to lift the
balance or rough granite blocks which it had purchased in
the auction sale without insisting on the payment of interest
on the balance of amounts or for production of proof of
payment of royalty under KMMC Rules, 1994."
H
112 SUPREME COURT REPORTS [2008] 15 S.C.R.

A . The High Court also opined :-.

"Pursuant to such confirmation ·Of sale, Petitioner-.
Company has already lifted granite blocks worth·
Rs.4,40,562.50 ps. and the taxes paid in full on the entire
sale value has already been deposited with the State and
B
Central Government. Therefore submits, the only amount
that is remaining with the third respondent- Corporation
is a sum of Rs.1,51,554.05 ps. The learned counsel further
submits that the third Respondent-Corporation is
prepared to refund the aforesaid amount, if the Petitioner-
c Company so desires. "

24. Pursuant to or in furtherance thereof a representation
for refund of Rs.1,51,594.05 ps. was made. However, the
appellant by its letter dated 15th November, 1999 rejected the
D said request. Aggrieved, the third respondent filed a writ petition
before the High Court which was numbered as W.P. 45825 of
1999 praying inter alia for the following reliefs :-

·"(i) issue a writ of certiorari or any other writ order or
direction quashing the letter/order bearing No.
E
TEC-ll/Sale/GNR/94-95/99-2000 dated
15.11.1999 passed by the 3rd Respondent
(Annexure-T).

(ii) issue a writ of mandamus or any other writ order
F or direction directing the 3rd Respondent to refund
a sum of Rs.1,51,594.05 with interest@ 18% per
annum from the date of deposit till the date of
refund.

G (iii) issue a writ of mandamus or any other writ order
of direction directing the respondents 1 and 2 to
refund a sum of Rs.95,088.60 deposited by the 3rd
Respondent on account of Forest Development
Taxes on the unreleased granite blocks.

H (iv) issue a writ of mandamus or any other writ order
KARNATAKA STATE FOREST INDUSTRIES 113
CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]
.... ~

or direction directing the Respondent No.5 to A
. refund the amount of Rs.1,36,689.90 deposited by
the 3rd Respondent on account of Sales Tax and
Surcharge on the unreleased granite blocks.

(v) issue a writ of mandamus or any other writ order
B
or direction directing the Respondent No. 6 to
..- refund the sum of Rs.1,78,290.60 deposited by the
3rd Respondent on account of Income Tax on the
unreleased granite blocks. '
25. As regards further performance of the contract as well c
as release of the amount, the appellant in its counter-affidavit
before the High Court stated:-

"8. IN REPLY TO PARA NO. 5: It is pertinent to note that
the prayer of the petitioner in the earlier writ petition bearing D
iJ No. 25613/96 there is no whisper of the claim of refund.
Further there is no prayer for refund of the granite blocks.
When the Petitioner has sought for a direction for the issue
of dispatch permits it is not now open to the Petitioner to
make the claim for refund. Further, the submission made
E
on behalf of this Respondent that it has no objection to
release the blocks corresponding to the payment made
cannot be interpreted to mean that the granite blocks worth
Rs.5,54,593.22 should be released. It is pertinent to note
...--
that even before the filing of the earlier Writ Petition, the
Petitioner had lifted 29 granite blocks.
F

It is submitted that the application produced at
Annexure-G is not brought to the notice of this respondent.
It appears to have been rejected as the Petitioner did not
pay the balance consiqeration towards 85 granite blocks G
_,,,,. and consequently as this respondent also could not pay
the same to the fourth respondent."

"11. IN REPLY TO PARA-8: Out of Rs.11,47, 149.32 paid
by the petitioner a sum of Rs.5,62,063.25 is towards the
H
114 SUPREME COURT REPORTS [2008] 15 S.C.R.
~

A applicable taxes. What remains is Rs.5,85,086.07 which
is to be adjusted towards the value of the granite blocks.
Out of this the Petitioner has already lifted 176.225 Cmt.
of granite blocks in Yadamarahalli-111 worth Rs.4,40,562.50
ps. The remaining amount is Rs.1,51,594.05. In the
B absence of any indication by the petitioner, this amount
cannot be adjusted to any of the remaining lots. As the ..,.
p_etitioner has not indicated to which lot this amount has '?'

to be adjusted, the question of releasing the granite blocks
corresponding to the payment does not arise at all. It is
c incorrect to say that the petitioner has deposited the
necessary amount without any lapses. The wat~h and
warde and maintenance of the granite blocks purchased
by the petitioner in the auction is the responsibility of the
petitioner. As the terms and conditions of tender
D
notification do not provide for the refund of the amount,
petitioner's request could not be conceded to. Against the
\~
.
order, dated 19.8.1999 passed by the learned Single
Judge in W.P. No. 7611/97, the petitioner filed W.A. No.
8250/99. The petitioner withdrew this Appeal."

E 26. A learned Single Judge of the High Court by his order
dated 26th September, 2002 allowed the writ petition. While
quashing the letter dated 15th November, 1999 directed to
refund the moneys stated at Prayer Nos. 2, 3,4 and 5 of the
petition. --:'

F
Aggrieved, the appellant filed a writ appeal which was
dismissed by the impugned order.

27. Mr. Shyam Diwan, learned senior counsel appearing
on behalf of the appellant urged :-
G
(i) The purported order dated 16th January, 1996 "f--
contained in the letter from the Principal Secretary
to Government, Forest Ecology & Environment
Department and addressed to the Secretary,
H Karnataka Legislative Assembly, a copy whereof
KARNATAKA STATE FOREST INDUSTRIES 115
,4.·
CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]

was sent to the Chairman & Managing Director of A
the appellant-Corporation, does not contain any
direction which can be said to be binding on the
appellant and in that view of the matter, the
impugned judgment cannot be sustained.
B
(ii) For the purpose of issuance of a Writ of or in the
nature of mandamus it was obligatory on the part
of U1e writ petitioner to show the existence of a legal
right in itself and a corresponding legal duty in the
respondent and in view of the fact that no such legal
right having been found to be existing in favour of
c
respondent, the impugned judgment is liable tc be
set aside.

(iii) The High Court could not have exercised its
>-! jurisdiction under Article 226 to enforce a contract D
qua contract, particularly when the same involved
disputed questions of fact.

(iv) Respondents, being bound by the terms and
conditions of tender, could not have been given any
E
relief in derogation thereof.

28. Mr. Vikas Rojipura, learned counsel appearing in Civil
Appeal arising out of SLP (C) No. 24242 of 2005 and Mr. P.
~-
Vishwanatha Shetty, learned senior counsel appearing in Civil
Appeal arising out of SLP (C) No.23148 of 2005 on the other F
hand,:-

(i) No disputed question of fact being involved in the
Writ Petitions, the High Court could exercise its
discretionary jurisdiction even in a matter governed G
~
by contract qua contract.

(ii) The action of the State in all situations including
contractual matters must be fair and keeping in
view the fact that the appellant had taken a wholly
H
116 SUPREME· COURT REP.ORTS [2008) 15 S.C.R.

A unfair stand, this court should not interfere with the
impugned judgment.

(iii) In any event, as in the appeal arising out of SLP (c)
No. 23148 of 2005 the appellant itself agreed to
refund a sum of Rs.1,51,554.05 it cannot be
B
permitted to go back on its promise and refuse to
enforce the same particularly.when the other .·· ~·
.; . respondents 'against whoni. directions had been
· issuec( fr1cluding .the state of Karnataka and
·. ·., c income tax authorities have accepted theji.Jdgment. ; .

29. Indisputably the confiscated granite blocks belonged
to the State of Karnataka. They did not belong to the appellant-
Corporation. Appellant was merely appointed as an agent of
the State. It is only in that capacity the tender was issued by it.
D w_e may notice that although in terms of the said tender, the
concerned respondents and others were bound to deposit the
price of the granite blocks as also the amount of tax payable
· · thereunder.; one of the essential conditions ·therefor,· as quoted
above, was issuance of permits to transport the same. ·
E
30. Indisputably a part of the contract was completed. It is
furthermore not in dispute that some granite blocks were
transported by using forged transit permits. A huge scam was
unearthed. Questions were raised in the Assembly. A
Committee was appointed. It is pursuant to the report of the
F Committee that was appointed by the Karnataka Legislative
Assembly that the policy of the State changed. It terminated the
agency of the appellant. It was only while doing so, the
directions contained in the said letter dated 16th January, 1996
were issued.
G
31. We agree with the contention of Mr. Divan that such a
direction which does not have any statutory force is not binding
upon the appellant but herein strictly we are not concerned with
such an issue.
H
KARNATAKA STATE FOREST INDUSTRIES 117
CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]
.....
32. Mr. Diwan relied on Bharat Sanchar Nigam Ltd. And A
Anr. v. BPL Mobile Cellular Ltd. and Ors., (2008) 8 SCALE
106 wherein it has inter alia been held:-

"They might have been published by some publisher but
indisputably they are not statutory in nature. They have not B
been framed under any statute. The Indian Telegraph Act
or the Rules framed thereunder do not provide for issuance
· of such circulars. The circular letters collected at one place
are loosely called rules. They, as noticed hereinbefore, are
meant for office use only. The directions contained in the
said circular letters are relevant for the officers who are
c
authorized not only to grant licences but also enter into
contracts and prepare bills. The circular letters having no
statutory force undoubtedly would not govern the contract.
If some authorities have violated the terms of the said
circulars, they might have committed misconduct, but when D
~
a contract is entered into, the parties shall be bound
thereby."
It was furthermore observed :-
E
"25. In view of the aforementioned law laid down by this
Court, there cannot be any doubt whatsoever that the
circular letters cannot ipso facto be given effect to unless
4 they become part of the contract. We will assume that some
~
of the respondents knew thereabout. We will assume that
F
in one of the meetings, they referred to the said circulars.
But, that would not mean that they are bound thereby. Apart
from the fact that a finding of fact has been arrived at by
the TDSAT that the said circular letters were not within the
knowledge of the respondents herein, even assuming that
they were so, they would not prevail over the public G
documents which are the brochures, commercial
information and the tariffs."

- 33. To the same effect are the observations made by this
Court in Mis. New Bihar Biri Leaves Co. and Ors. v. State of H
118 SUPREME COURT REPORTS [2008] 15 S.C.R.
"'f

A Bihar and Ors., (1981) 1 SCC 537, stating :-

"46. At the time of inviting Tenders in the prescribed Form
or inviting purchasers to bid at the publication, all tenderers
or bidders are treated equally in the sense that they can
offer their rates or bids subject to the statutory conditions
B
including the impugned provisions. While accepting the
highest Tender of rates per standard bag or the highest +
bid, it is not possible to classify the purchasers whose
offers/bids have been accepted into 'honest' purchasers
and 'dishonest' purchasers. Everybody whose offer or bid
c is accepted, is assumed to be honest."

34. We are, however, concerned herein with a different
situation. Transport of granite blocks was subject to issuance
of transit permits. Such transit permits are granted in terms of
D the provisions of Rule 42 of the Karnataka Minor Mineral '•,
Concession Rules, 1994.

35. The question that arises for consideration is as to
whether the State in exercise of its power under Article 162 of
the Constitution of India could issue a binding direction so as
E
to confer a legal right on a third party having regard to
cancellation of contract of agency by the State in favour of the
appellant ? .
...
-;>
~,

36. The letter dated 16th January, 1996 is to be treated
F as a communication from a Principal to an Agent. As an agent
of the Government of Karnataka, the appellant, which, itself is
a 'State' within the meaning of Article 12 of the Constitution of
India, was bound to act thereupon. It is true that it had ~

responded to the aforesaid communication of the State dated
G 16th January, 1996 stating its own reasons therefor. In its letter
dated 29th January, 1966 addressed to the Secretary, Forest
Ecology and Environment, it was stated :-

"The KSFIC Ltd. is facing financial crunch and incurring
heavy loss since 2-3 years due to decline of day to day
H
KARNATAKA STATE FOREST INDUSTRIES 119
.... CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]

activities. It is very painful to say that even there is no fund A
for payment of the employees salary for the month of
January 1996. The Units of the KSFIC Ltd. at Mysore,
Shimoga and Dandeli are also facing same problems and
even they have not paid the salary of their employees since
last 2-3 months due to non availability of funds. The subject B
was also discussed in the recently-held Board meeting of
+ KSFJC on 19.12.1995 and the financial position was made
known to the Board Members. The decision to take up
granite trade by KSFIC was taken only after thorough
discussion in the Board for nearly half a dozen times. The c
seized granite blocks were auctioned by the Corporation
with the full knowledge of Government of Karnataka to the
Hon'ble Minister of Forests and the Forest Development.
In fact Forest Department gave the full support for this
activity. Moreover the Mines and Minerals Department can D
;.!
dispose in the public auction only those minerals which are
seized under sub-section (4) of 21 of the Act and sub-
rule (6) of 43 and minor Minerals left at the quarry after
expiry of termination of lease or licences. In this instant
case granite blocks are seized under provision of Section
E
62 of Karnataka Forest Act and this can be disposed off
only under Chapter 12 of Karnataka Forest Rules, 1963.

Hence, we request you to kindly prevail upon the Joint
Legislative Committee an·d Mines and Geology
Department to issue necessary permits for the remaining F
Blocks to KSFIC Ltd. as per the rules in force. There is
no alternative left for the KSFIC Ltd. to make arrangement
for issue of transit permits through Mines and Geology
Department to the purchasers for lifting the remaining .
blocks purchased by them in Tender cum auction sale as G
the KSFIC Ltd. Is totally unable to refund the deposit
amount to the purchasers in the circumstances explained _
above."

But there is nothing to show that the Government of ..
H
120 SUPREME COURT REPORTS [2008) 15 S.C.R.
._,.
A Kamataka acted thereupon or withdrawn its direction contained
in its letter dated 16th January, 1996.

37. The plea which was raised, therefore, was not a legal
plea but a plea for show of compassion expressing its inability
B to refund the amount because of financial constraints. Its
response to the State was not based on legal premise but it
was based on its own difficulty. If the agency had been
terminated.~nd had not been restored, we would not know
under what authority the appellant had been asking respondents
to perform their part ofcontract. .
c
38. In any view of the matter there is nothing on the records
to show that the State of Kamataka and particularly the Joint
Committee of the Kamataka Legislative Assembly directed
grant of transit permits for transportation of granite blocks. If
D such permits had been granted, it might have been obligatory ~
on its part while issuing the notice upon the concerned
respondents to direct lifting of the remaining blocks of granites
enclosing therewith copies of the said permits, but in absence
thereof, it is idle to contend, on the one hand that the
E respondents were bound to perform their part of the contract
and on the other that although they have asked for supply of
permits, as per rules, they did not obtain the same.

39. Appellant. is also. guilty of suppressio veri and
suggestio fa/si. Its action in the entire matter appears to be
.,.
F wholly unfair. It was in a dominant position in terms of the
provisions of the contract but then in a case of this nature when
its authority to continue to deal with the granite blocks came to
be questioned, it was obligatory on its part to clear its position
in this behalf. We have no words to express our displeasure
G also in regard to the conduct of the State. It did not take a
positive stand. As a principal, the State of Karnataka was also
obligated to disclose the entire facts before the High Court.

40. Although ordinarily a superior court in exercise of its
H writ jurisdiction would not enforce the terms of a contract qua
KARNATAKA STATE FOREST INDUSTRIES 121
CORPORATION v. INDIAN ROCKS [S.B. SINHA, J.]
~-

contract, it is trite that when an action of the State is arbitrary A
or.discriminatory and, thus, vioiative of Article· 14 of the·
Constitution of India, a writ petition 'would be maintainable. (See
ABL International Ltd. v. Export Credit Guarantee Corpn. of
India Ltd., [2004] 3 sec 553.
B
41. There cannot be any doubt whatsoever that a writ of
mandamus can be issued only when there exists a legal right
in the Writ Petition and a corresponding legal duty on the part
of the State, but then if any action on the part of the State is
wholly unfair or arbitrary, the superior courts are not powerless.
Reliance placed by Mr. Divan on G.J. Fernandez v. State of
c
Mysore and Ors, [1967] 3 SCR 636 is not apposite. In th::>t
case itself it was held :-

"Thus under Art. 162 the State Government can take
executive action in all matters in which the legislature of D
}I
the State can pass laws. But Art. 162 itself does not confer
any rule making power on the State Government in the •
behalf."

G.J. Fernandez (supra) was considered in ABL
E
International Ltd. (supra)

42. Furthermore the concession made by the counsel for
appellants in the earlier round of litigation also cannot be lost
sight of. A specific concession was made. It may be that no .
specific direction was issued by the High Court therein, but the F
stand taken by it was clear and unequivocal.

43. Mr. Shyam Divan, when questioned, had very fairly
submitted that the conduct of the counsel who had appeared
on behalf of the appellant in the earlier round of litigation is not G
in question and it cannot be said that he acted beyond his
authority.

44. If such a stand had taken in the earlier round of litigation
we fail to see any reason as to why the concession made by it
should not be given effect to. If a right has accrued to the H·
122 SUPREME COURT REPORTS [2008] 15 S.C.R.

A respondents for maintaining a writ so as to compel the State
to give effect to an earlier order passed by the Court as has
been held by this Court in the case of Commissioner,
Kamataka Housing Board v. C. Muddaiah, [2007] 7 SCC 689,
the same should not be denied to respondent 1""--~~rein.
8
45. Keeping in view the facts and circumstances of the
case in its entirety and having regard to the legal propositions
as noticed hereinbefore, we are of the opinion that these ·are
not the cases in which this Court should exercise its
C discretionary jurisdiction under Article 136 of the Constitution
of India. The appeals are dismissed with costs. Counsel's fee
assessed at Rs.50,000/- in each case.

K.K.T Appeals dismissed.