1. The petitioner being aggrieved of the forfeiture and encashment of the bid bond money amounting to Rs.1,38,95,000 by respondent No.2 on the ground that the petitioner in breach of the contract for the supply of Indian sugar failed to submit the performance bond within the stipulated time, has filed this Constitution petition before this Court seeking declaration that the respondents were not competent to forfeit/encash the bid bond money with direction for the refund of the amount in question with financial charges/profit at the rate of 2 % per annum as provided in the contract.
2. The Trading Corporation of Pakistan (Pvt.) Limited. Respondent No.2, herein invited tenders for import of one lac metric ton sugar through public notice, dated 5-5-1996 for import of white refined sugar/white crystal sugar. The tenders submitted by the petitioner and others for the supply of one lac metric ton sugar of American/Europe/Brazil Origin at the rate of US $460 per metric ton were opened on 11-5-1996, which could not be approved and revised tender having offered, the same was opened on 18th of May, 1996. The offer of the petitioner with deposit of 2 % bid bond being comparatively lowest was accepted and consequently an amount of Rs.1,38,95,000 as earnest money for the supply of 50,000 metric ton white granulated cane sugar of Indian Origin and the remaining 50,000 metric ton of South Central America origin at the rate of US $383 was deposited.
2. The shipment was to be made within thirty days from the receipt of the letter of credit. The offer of the petitioner for supply of 50,000 metric ton sugar each of Indian Origin and South Central American at the rate of US $383 having considered attractive and lowest was forwarded to Kitchen Committee on the subject in the Planning and Development Division, Ministry of Commerce, Islamabad. The petitioner, however, with his offer, dated 18-5-1996 provided a bid bond on behalf of Messrs Euro Equity (UK) Ltd., as his principal, and later through a letter, dated 19-5-1996 changed the name of its Principal to Bags Handles Ges M.B.H. Vienna. The letter of indent at the rate of US $383 per metric ton of sugar was issued in favour of the petitioner on 20-5-1996 with a copy to his Principal Messrs Bags Handles Ges M.B.H. Vienna as per following schedule:--
(a) 20,000 M. Tons Latest by 30-6-1996.
(b) 20,000 M. Tons Latest by 31-7-1996.
(c) 10,000 M. Tons Latest by 31-8-1996 Upon issuance of letter of intent, the petitioner as per terms of the tender/contract had to provide a performance bond equal to 5 % of the total amount of the contract in favour of respondent No.2 within seven days i.e. By 27-5-1996 for the purpose of an opening letter of credit by respondent No.2. In the meanwhile, it transpired to the petitioner that the export of sugar from India was not possible as the same was exclusively being exported by a Corporation known as Indian Sugar and General Industry Export Corporation Limited (hereinafter referred to as ISGIEC). This fact was confirmed through a letter, dated 24-4-1996 written by Commercial Counsel of Pakistan in India to the Secretary to the Government of Pakistan Ministry of Commerce, Islamabad in consequence of his negotiations with the Ministry of Commerce, Government of India. The Consular-General of Pakistan, on instructions confirmed that the abovenamed Corporation was exclusively authorized to export sugar from India and the Pakistan High Commission in India, informed that the Indian Government was willing to export sugar to Pakistan on very reasonable rate despite the ban on the business between the two countries with the consideration to improve the official and trade relations. It was brought to the notice of the respondents that under Sugar Export Promotion Act, 1958, the Government of India authorized ISGIEIC as the only agency for export of sugar from India.
3. The petitioner through written letters repeatedly requested the respondents that due to the legal position in India, the sugar of India origin could not possibly be imported and that the petitioner should be allowed for the import of the sugar from Brazil or South Africa as per terms of the tender.
4. The petitioner also offered supply of sugar from Brazil through letters. Date on 30-5-1996 and 1-6- 1996. But the respondents through letter, dated 6-6-1996 declined the offer, made by the petitioner Consequently, the respondent taking the stand that the e`" petitioner having failed to furnish the required performance bond committed breach of contract, forfeited the bid bond money and encashed Bank guarantee. It is stated that before the rejection of the offer of the petitioner for supply of Brazil original sugar and forfeiture/encashment of the bid bond money, respondent No.2 in consequence of the negotiations made by the Commercial Consular with the Secretary. Ministry of Commerce. Government of India for export of sugar by ISGIEIC to Pakistan entered into a contract of supply of sugar with the Indian Company through Commercial Consular of Pakistan on the direction of Ministry of Commerce, Government of Pakistan for supply of 50.000 metric tons of Indian sugar at the average price of US $390, which wasp much higher to that of the price offered by the petitioner. The telex message was sent by said company to respondent No.2 inquiring about the arrangement of the purchase of 50,000 metric tons sugar by the petitioner through its Principal Messrs Euto Equity (UK) Ltd., with indication that the said company would only, supply the additional quantity of 50000 metric ton sugar. The execution of the agreement by respondent No.2 with ISGIEIC for the sugar at the rate of US $397 per metric ton is admitted. The contract of the petitioner being still in existence, the petitioner contacted the Chairman Pakistan Trading Corporation at Islamabad with offer of the supply: of sugar from Brazil and issuance of letter of intent to their Principal, namely, Messrs East West Trading and Forwarding Company Gmbh, which was rejected through letter, dated 30-6-1996. The petitioner continuously has been pursuing the matter with Federal Government and requesting the respondents for performance of the contract in terms thereof, but the Ministry of Commerce, Government of Pakistan finally through letter, dated 23-7-1996 issued by a Section Officer, informed the petitioner that upon review of the matter on his representation, dated 29-5-1997, the request of the refund, of bid bond money in the light of comments of P.C.P., could not be acceded to. The petitioner, therefore, invoking the Constitutional jurisdiction of this Court through this petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 has challenged the forfeiture and encashment of the bid bond money by respondent No. 2 and the refusal of the refund of the same by the Federal Government through resection of his representation:
3. The respondents in the written statement to the writ petition raised the following preliminary objections to the maintainability of the writ petition:--
(a) That the transaction having entered at Karachi, Rawalpindi Bench of the Lahore High Court, Lahore has no jurisdiction to entertain this petition and adjudicate the matter.
5. (b)That the dispute relating to the contractual obligation involves a pure question of fact and, therefore, cannot be entertained by this Court in its Constitutional jurisdiction under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (c)That the petitioner defaulted in performing his part of the contract and consequently the. Action taken by the respondents in terms of the contract was not challengeable.
6. (d)That the agreement between the parties contained Arbitration Clause (clause 12 of the Contract) and according to this clause all disputes arising out of the contract were to be referred to the Council of the Refined Sugar Association, London.
7. (e)That respondent No.2 being a private trading corporation is not amenable to the writ jurisdiction of the High Court under the Constitution of Islamic Republic of Pakistan, 1973.
8. The facts narrated herein before are not denied except that the petitioner was guilty of the breach of contract and that a letter of intent was issued on 4-7-1996 to Messrs East and West Trading Forwarding Company for supply of sugar latest by 31-8-1996 and the performance bond under the said letter of intent was to be submitted within seven days from the receipt of the same, but the petitioner did not respond and failed to submit the same within the specified time. The forfeiture/encashment of bid bond money of the petitioner was justified for the recovery of loss sustained by respondent No.2 due to the breach of contract by the petitioner.
4. The factum of the issuance of tender and execution of the contract between the parties for the supply and purchase of sugar by them at the fixed rate within the stipulated time and the correspondence on the subject is not denied. The fact that the letter of intent was issued and the failure of the petitioner to provide the performance bond on the ground that Indian sugar could not be imported due to the export monopoly of ISGIEIC in India, and the official correspondence of the Commercial Consul with the concerned Ministry in India is also not deniable. The fact that respondent No.2 entered into agreement for the supply of sugar with ISGIEIC through the officials of respondent No.1 (Commercial Consul) before the expiry of stipulated period being not denied, the contents of the letter annexed with this petition are also not disputed by the respondents in their written statement. The respective stands taken by the parties being based on the correspondence need not to be proved through any other evidence and the matter only confining to the interpretation of the tender/contract on the basis of documents in support thereof, the controversy between the parties can be resolved without factual inquiry. Stand of the petitioner is that despite having made offer for the supply of India sugar he was still not under obligation to supply the Indian sugar by virtue of clause 11 (force majeure) of the tender/contract. The admitted position was that there being official ban on the trade between the two countries and the import of Indian sugar under the control of Government of India through the Export of Sugar Promotion Act, 1958, the import of the same by the petitioner, a private person, was not possible. Further, respondent No.2 being aware of the legal position instead of giving correct information to the petitioner issued letter of intent for supply of Indian sugar, whereas the petitioner being not in a position to submit the performance bond requested the said respondent for supply of sugar of another origin as provided under the contract.
5. On the contrary, the case of respondent No.2 is that irrespective of situation in India, the petitioner having entered into a contract for supply of the Indian sugar was bound to submit the performance bond with seven days as per terms of the contract and in case of breach had no excuse to escape from the penalty of forfeiture/encashment of the bid bond money. The question, therefore, for determination would be that which party and in what manner was the guilty of the breach of contract and what was its effect.
9. 6.Learned counsel for the petitioner has raised the following contentions:-- (i)That there was no lawful excuse for the respondents not to accept the supply of sugar other than Indian origin in terms of tender (contract).
10. (ii)That respondent No.2 having prior knowledge about the position of Indian sugar intentionally withheld the correct state of affairs from the petitioner and being guilty of concealment of material fact lost the right of forfeiture or encashment of bid bond money.
11. (i.e)That as per terms and conditions of the tender, the petitioner could also supply sugar of South American Origin, therefore, his agreement for supply of 50,000 metric ton of Indian sugar under letter of intent, for lack of knowledge about the legal position in India did not estop him from supplying of sugar of any other origin as per option given in tender or upon failure of supply of Indian sugar would liable, to the penalty of forfeiture/encashment of bid bond money.
12. (iv)That the agreement of respondent with Indian Firm; namely, ISGIEIC for supply of the sugar and the letter of Commercial Consul of Pakistan in India would evidently prove the mala fide of the respondents and the fact that the Indian sugar could not be imported by any person without the intervention of official agencies of respondents, being proved, the penal clause of the contract was not invoceable.
13. (v)That respondent No.2 being guilty of breach of the terms and conditions of the tender could not claim encashment of bid bond money for the alleged non-submission of the performance bond by the petitioner.
(vi) That in case of any breach on the part of the petitioner, the respondent could claim liquidated damages as provided under section 74 of the Contract Act, 1874 through a civil suit.
(vii) That a suit titled 'Trading Corporation of Pakistan Limited v. Pakistan Agro Forestry Corporation and another' was filed by the respondents for the recovery of Rs.2,89,26,782 the amount of bid bond money, as damages in the civil Court at Karachi, which would show that unilateral action of forfeiture of bid bond money was not proper and legal.
(viii) That respondent No.2 deviating from the terms and conditions of the tender restrained the petitioner from supply of the sugar and thereby deprived him of the legitimate right of business at the cost of heavy financial loss.
7. Conversely, learned counsel for respondent No.2 repeating the objections raised in the written statement justified the action of forfeiture/encashment of the bid bond money of the petitioner.
14. The main stress of the learned counsel for the respondent No.2 was that the dispute relating to the contractual obligation, the petitioner should have invoked the arbitration clause of the contract or in the alternative avail the remedy of a civil suit for refund of the amount of bid bond under forfeiture. However, the learned counsel banking upon the Arbitration clause of the contract sought dismissal of writ petition.
15. 8.Learned Standing Counsel for the Federal Government added that the claim of the petitioner relating to the contractual obligation is not adjudicatable through this Constitution petition. He supporting the action of respondent No.2, a non-statutory body under the control of Ministry of Commerce, contended that upon failure of the petitioner to perform his part of the contract, i.e. Non--submission of performance bond under the agreement, the result would necessarily be the encashment of Bank guarantee.
16. 9.This is correct that respondent No.2, the Trading Corporation of Pakistan, a private organization, is not amenable to the writ jurisdiction of this Court as such, but the Trading Corporation while dealing with the affairs of the import and export of different commodities under the control of Ministry of Commerce, Government of Pakistan; has acquired the status of an agency of the Federal Government. Respondent No.2 has admitted in the written statement that the offer for supply by the petitioner was sent to the Commission of Planning and Development of the. Ministry of Commerce, Islamabad and the matter relating to the refund of bid bond money was also referred to the said A Commission in the Ministry of Commerce for consideration by the concerned quarters. The representation of the petitioner was ultimately rejected by the Ministry of Commerce through letter, dated 23-7-1996. Thus, the petitioner having cause of action against the Federal Government could bring the Constitution petition either at Karachi or at Rawalpindi Bench of the Lahore High Court. The objection of maintainability of the writ petition on the ground that respondent No.2 is a private person and that his office is located at Karachi is not entertainable as respondent No. l controlling the affairs of respondent No.2 is at Islamabad.
10. For the benefit of resolving the controversy, the examination of different provisions of general as well as specific terms of conditions of tender/contract, dated 5-5-1996 is essential. Clauses (2), (3),
(8) and (9) of the General Terms of Conditions of Tender and clauses (4), (5), )10), (11) and (12) of the Specific Terms and conditions of Tender are reproduced as under:-- "2. Origin of sugar Omnibus at Seller's option except those countries with which Pakistan's trade is prohibited.
17. 3.Basis of Offers/price (i)The offers are to be made by the Suppliers on 'shipped weight and shipped quality' basis.
18. (ii)No under load or afloat cargo will be acceptable.
19. (i.e) (a) Prices should be quoted per metric ton 1000 kilos each, as follows:--
(i) Goods of RCD origin.In U.S. Dollars (ii)Goodsof membersIn currency of participating countries under ACU Arrangements.
20. (i.e)Other countriesInanyconvertible currency.
21. (b)The tenderer should quote prices any or both of the following basis (according to their ability to offer):-- (i)FOB stowed indicating port of shipment.
22. (ii)C&F Karachi (Free out) indicating the element of freight.
23. (i.e)C&F Karachi (liner terms) indicating the element of freight.
24. 8.Bid Bond Offers shall be accompanied by earnest money equivalent to 2 % of the tendered goods, in the form of Bank Pay Order or Bank Guarantee from a First Class Schedule Bank in Pakistan to be furnished in the prescribed forum (Annexure I) in favour of Trading Corporation of Pakistan Limited.
25. The earnest money will be refunded to the unsuccessful tenderers. Earnest money of successful tenderers will be returned on their furnishing Performance Bond acceptable to T.C.P. Tenders not accompanied by the desired Earnest Money shall not be considered valid.
26. 9.Forfeiture of bid bond The buyers will have right to forfeit the bid bond if the sellers fail to fulfil the terms of the tender, or commit any breach of the contract, without prejudice to buyers right to claim damages and to take any other action.
27. Specific terms and conditions of tender 4.Performance bond The Sellers shall provide a performance bond in the prescribed form, in the form of a Bank guarantee from the first class scheduled bank in Pakistan, for 5 % of the total value of the value of the contracted goods including plus tolerance for due and satisfactory performance of the contract in all respects within five calendar days from the date of acceptance of offer or within such other periods as may be prescribed by the Buyers at their sole discretion. Satisfactory performance of contract includes shipment of goods strictly according to the requirements of contract and shipment within the stipulated period.
28. 5.Forfeiture of performance bond (I)The buyers will have the right to forfeit the Performance bond.
29. (a)If the suppliers (i)Fail to deliver the goods within the specified period.
30. (ii)Commit any breach of contract or fail to fulfil any terms or conditions of the contract.
31. (b)For any other reasons specified in the contract by the Buyers.
32. (ii)Payment under such performance bond by the Bank concerned shall not discharge the Sellers for any balance liability if any, that may stillremain after payment under such performance bond and the Sellers shall pay such balance to the Buyers on demand.
(III) The Performance Bond on successful/satisfactory execution of the contract will be released to the Sellers. No claim shall lie against the Buyers in respect of interest on performance bond regardless of the time of release of such security.
33. 10,Cancellation of contract If the Sellers fail to ship the goods within the specified shipment period for reason other than Force Majeure and subject to the provisions of clauses late shipment penalty the Buyers shall be entitled at their option to cancel the contract and recover the damages besides forfeiture of performance Bond. The buyer shall not be liable for any risks and costs whatsoever in consequences of such cancellation of the contract.
34. 11.Force Majeure Should any of the force majeure circumstances, namely, Act of Allah, natural calamity, fire, Government restriction, strikes or lockouts by workmen, war military operations of any nature and blockades preventing the Sellers/Buyers from wholly or partially carrying out his contractual obligations, the period stipulated for the performance of the contract shall be extended for as long as these circumstances prevail.
35. Provided that in the event of these circumstances continuing for more than three months, either party shall have the right to refuse to fulfil its contractual obligations without title to indemnification of any losses it may thereby sustain. The party unable to carry out its contractual obligations shall immediately advise the other party of the commencement and the termination of the circumstances preventing the performance of the contract.
36. A certificate issued by the respective chamber of Commerce of the Sellers or the Buyers Country shall be acceptable proof of the existence and duration of such circumstances.
12. Arbitration "The contract will be subject to the Arbitration Rules of the Refined Sugar Association of London as fully as if the same had been expressly inserted herein whether or not either or both the parties to it are members of the Association. All disputes arising out of this contract shall be referred to the Council of the Refined Sugar Association of London for settlement in accordance with the Rules relative to Arbitration. In case of any variance or conflict between the said rules and the terms and conditions of this contract, the provisions of this contract shall prevail. "
37. 11.The perusal of the above-referred clauses of the contract shows that it was opened for the seller to import the sugar from any country except with which Pakistan's trade is prohibited. Thus, the import of the Indian sugar due to ban on business between Pakistan and India could not be validly a part of the contract. Therefore, clause (9) thereof relating to the forfeiture of bid bond was not to be invoked unless it was to be proved that despite such ban, the import of sugar was exempted and the petitioner was guilty .Of breach of terms of the contract/tender. Clause (10) of the Contract deals with the cancellation of the contract in case the goods are not shipped within the stipulated period and clause (11) thereof pertains to force majeure showing the circumstances under which the period for the performance of the contract could be extended. The above-- referred two clauses are co-related to clause (9) of the contract and consequently in case of any dispute between the parties, the same was to be referred for the arbitration as provided under clause (12) of the Contract, which is to the effect that the tender/contract will be subject to the Arbitration Rules of the Refined Sugar Association of London and all dispute arising out of the contract shall be referred to the said Council.
38. 12.In the light of the different provisions of the contract as referred above, the respondents could go for any of the following options:--- (i)to accept offer of the petitioner for supply of sugar other than Indian origin as provided under the contract (ii)After arrangement for the import of Indian sugar through official source, the cancellation of the contract with refund of bid bond.
39. (i.e)The reference of the dispute to the Council of Refined Sugar Association of London through invocation of Arbitration Clause of the contract.
40. This is an admitted fact that the respondents after forfeiture/encashment of the said bond provided by the petitioner issued letter of intent to East West Forwarding Trading Company for supply of sugar from Brazil. It is also evident from the official correspondence made by the Commercial Consul with respondent No. l that the import of Indian Sugar was being exported exclusively by ISGIEIC and that no other person could export the same. This is also an admitted fact that there were no trade relations between the two countries and the export of sugar in India was subject to the Export of Sugar Promotion Act, 1958. Thus, the alleged breach of the contractual obligation would definitely fall within the definition of dispute in terms of clause (12) of the contract, but C respondent No.2, Pakistan Trading Corporation, instead of invoking the arbitration clause of the contract, unilaterally trade decision of the forfeiture/encashment of the bid bond. The said respondent becoming judge in his own cause himself decided the matter through forfeiture of bid bond, whereas respondent No. l being the controlling authority without attending the different clauses of the contract together with the Arbitration Clause rejected the representation of the petitioner. Learned counsel for respondent No.2 having acknowledged the dispute referable for arbitration under the contract emphasized that the petitioner should invoke the arbitration clause of the contract. According to the contract, in case of breach, the bid bond money and the performance bond could be forfeited and the contract could be cancelled, but the question would be whether in such cases, the penal action could be taken by respondent No.2 without first invoking the Arbitration Clause of the contract. The plain answer is in the negative as is case of existence of arbitration clause in the contract the party raising dispute is always under legal obligation to refer the matter for arbitration to fix the responsibility of the opposite party. In the present case, respondent No.2 himself raising the dispute forfeited the bid bond money and encashed the Bank guarantee and the respondent No. l as controlling authority instead of referring the matter to the arbitration under the contract confirmed the unilateral action of respondent No.2.
13. The position emerged is that upon failure of respondent No.2 to observe the contract in letter and spirit, respondent No. l in the capacity of the controlling authority while acting fairly should have referred the dispute between the petitioner and respondent No.2 for arbitration as provided under the contract instead of affirming the decision of forfeiture of bid bond money.
14. This is noticeable that respondent No.2 in a similar circumstance filed a suit against Pakistan Agro Forestry Corporation (Pvt.) for the recovery of Rs.28,926,782 in the High Court of Sindh at Karachi- through Civil Suit No. 1114 of 1998. In a nutshell the respondents either would refer the matter to Arbitration as provided under the contract or to file a suit for damages, but, in no case, the bid bond submitted by the petitioner could be forfeited through unilateral decision. Reading the different clauses of the contract together with force majeure and arbitration clauses would show that respondents under the given situation without involving the arbitration clause and referring the matter to the Council of Refined Sugar Association at London for settlement of the dispute in accordance with the rules relevant to the Arbitration, could-not proceed for encashment of the bid bond money.
15. In the light of the above discussion, the encashment/forfeiture of bid bond money of the petitioner by respondent No.2 and the rejection of his representation for the refund of said money by respondent No. l through letter, dated 23-7-1997 is declared illegal and to be of no effect and consequence. Hence, the matter is sent back to respondent No. l for decision of the representation of the petitioner afresh in accordance with the clause (12) of the Contract for referring the matter to the Arbitration after hearing the parties or decision of the dispute between them through any other mode with their consent acceptable to them as the case may be within one month and respondent No.2 will deposit Rs.1,38,95,000 the amount of Bank Guarantee provided by the petitioner in the National Bank of Pakistan within the said period. The amount in question shall be paid to the party, which will be found entitled thereto at the finalization of the matter through the Arbitration as provided in the contract or in any other manner acceptable to the parties and if the needful is not done by the respondents within the abovesaid period, the amount of bid bond will stand refunded to the petitioner with interest. This writ petition is allowed accordingly with no order as to costs.