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Judgment
L. Narasimha Reddy, J.—The subject-matter of these two writ petitions is similar, if not, identical. Hence, they are disposed of through a common judgment. R.L. Puram Village in Chimakurthy Mandal of Prakasam District is known for the deposits of World Class Galaxy Black Granite. Hectic activity of mining takes place in that area and there is huge competition for that rare mineral. The A.P. Mineral Development Corporation Limited (for short ''the Corporation''), the 2nd respondent in both the writ petitions, has been allotted substantial extent of land containing deposits of the mineral in R.L. Puram. The Government of Andhra Pradesh issued G.O.Ms. No. 173, dated 13.06.2005, enabling the 2nd respondent to take up its activities upon the lands allotted to it as joint ventures, with intending and competent private agencies. Through the same G.O., invitation was extended for Global Expression of Interest, in joint venture with the 2nd respondent.
M/s. Midwest Granite Private Limited and A.P. Black Galaxy Granites Private Limited, along with certain others, expressed their interest and in the process, both of them came to be selected, as agencies for joint venture with the Corporation for two separate blocks. The new agencies in the name and style of the petitioners came into existence as joint ventures, under separate and detailed agreements dated 04.06.2007. The agreements provide for various details for the working of the joint ventures. They also define certain important expressions that have a bearing on the working of the mines.
The Corporation went on issuing demand notices for the payment of amount in terms of agreement to the petitioners and payments were being made. It appears that the auditors of the Corporation raised objections and made suggestions as to the working of joint ventures. Based on the same, the Corporation issued notices dated 25.07.2011, requiring the petitioners to pay Rs. 9,21,83,963/- and Rs. 4,94,96,345/-, respectively.
Two expressions defined in the agreement are the ''minimum assured production'' and ''minimum assured amount''. Depending on their size, blocks of granite are divided into four categories, in the context of levy of seignorage fee. The agreement defines the minimum assured production, as 500 cubic metres, per hectare, per annum. The expression ''minimum assured amount'' was defined, as to mean, the amount payable at 1 1/2 times the seignorage fee, payable to the State Government on the minimum of 500 Cu.M of black galaxy granite per hectare per annum, taking the average rate of the four categories. The Corporation wanted that the average of block within each category and of all the four categories be taken (calling it as weighted average) and that concession, if any, given in the seignorage be not taken into account while working at 1 1/2 times of it.
On receipt of the letters, the petitioners submitted their representations stating that the demand made by the 2nd respondent does not accord with the clauses of the contract and it virtually redefined them. The explanation offered by the petitioners was not accepted and the 2nd respondent struck to its stand. The writ petitions are filed challenging the letters dated 25.07.2011. It is pleaded that the agreements contain detailed clauses and important expressions are defined; and it was not at all open to the 2nd respondent to deviate from them. They submit that the amounts were being demanded from time to time, by the Corporation, as per its own understanding of the terms of the agreements and that it was not open to it to revise the demand, simply because its auditor has raised objections or made certain suggestions.
The Corporation filed a detailed counter-affidavit. It has raised objection as to the very maintainability of the writ petition, mainly on the ground that the agreements contain clauses, providing for arbitration. It is stated that the petitioners placed misinterpretation on the relevant clauses of contract, be it as regards the average of the size of the blocks or the deduction of the waiver of the seignorage fee to certain extent by the Government, and did not pay the relevant amounts.
Sri T. Sridhar, learned counsel for the petitioners, submits that in the impugned proceedings, it was not even mentioned that the petitioners have violated the terms of agreement or that the payments were not made as per the demand from time to time, and that the only basis for those letters was the advice tendered by the auditors of the Corporation. He contends that even if the Corporation is of the view that the existing terms are not to its advantage, it has to initiate steps for amendment thereof, in accordance with law and that unilateral demand, made on the basis of a twisted interpretation of the clauses, cannot be sustained. As regards the objection raised by the Corporation about the maintainability of the writ petition, he contends that the issue that arises for consideration in these writ petitions cannot constitute the subject-matter of the arbitration and it is only a writ petition, which is an appropriate remedy. He has placed reliance upon certain precedents.
Learned Advocate General appeared for the Corporation. He submits that the Corporation did nothing more than requiring the petitioners to adhere to the clauses of contract. He contends that the fact that the Corporation made demand of certain amount, not being aware of true purport of clauses of the contract, does not relieve the petitioners, of their obligation, to pay the amounts strictly as per the agreement. He submits that the expression "average" used in the front clause would connote the average of a particular category and not the average of all the four categories of blocks of granite put together. In other words, learned Advocate General submits that if there are different sizes of granite in a particular category, the quantity of that category must be arrived at by taking average, but not by taking the average of the blocks, which fall into different categories. Another submission made by him is that the amount representing 1 1/2 times of seignorage fee must be calculated according the rates, but not with reference to the waiver or exemption, if any. He too relied upon certain decisions.
The petitioners, which are joint ventures, came into existence on a global invitation made by the State Government and on the basis of an agreement arrived at between the concerned agencies and the Corporation. Every detail of the manner in which the joint ventures must function is incorporated in the respective agreements entered on 04.07.2007. Clause (1) of the agreement contains definitions. Two definitions, which assume importance in these writ petitions, are of the expressions "minimum assured production" and "minimum assured amount":
"Minimum Assured Production" means minimum production of 500 cubic meters (CBM) of Black Galaxy Granite per hectare per annum. The minimum assured production for block - IV under this agreement for 19.43 hectares is 9715 CBM per annum.
"Minimum Assured Amount" shall mean and refer to the amount payable in advance to APMDC by the JVC calculated @ 1 and 1/2 times of the prevailing existing seignorage fee payable to the State Government for minimum 500 Cubic meters of Black Galaxy granite per hectare per annum only taking the average rate of levy by GoAP per CBM in respect of different categories of blocks of granite.
The word ''block'' in the first definition refers to the area covered by the agreement, being 19.43 hectares, whereas the word ''blocks'' occurring in the second definition refers to the size of the granite rocks, that are excavated in the quarry.
Clause 9 thereof provides for the manner in which the consideration is to be paid by the petitioners, to the Corporation. It reads:
Consideration Amount
(1) the JVC shall pay to the APMDC the consideration amount at one and half times of the prevailing existing seignorage fee payable to the State Government per each cubic meter of blocks dispatched as per the measurements adopted by the State Government or 10% of the annual turnover, whichever is higher.
(ii) In the event of lesser production in any year than the minimum assured production, the JVC shall pay to APMDC a minimum assured consideration to be computed based on minimum assured production of 500 CBM per hectare per annum at 1.5 times of the Seignorage fee payable to Government by taking average Seignorage fee for different categories of blocks stipulated by GoAP from time to time or 10% of the annual turnover which is higher. The period for payment of minimum consideration amount commences after expiry of 6 months gestation period from the date of sub lease agreement.
(Sub-clauses (iii) and (iv) are not relevant. Hence, omitted.)
A combined reading of the definitions, and clause 9 extracted above, gives an indication on two aspects viz., a) the quantity on which the consideration is to be paid and b) the rate at which the amount is to be calculated. The petitioners are free to produce any quantity of granite in the leased area, with their effort. The consideration is to be paid on the actual quantity of granite excavated from the quarry. If it is less than 500 Cu.M., per hectare, per annum, the consideration is payable on that quantity, namely 500 Cu.M. Irrespective of the quantity of granite extracted, the Corporation has the option to demand consideration on 10% of the annual turn over, if the one to be levied on the quality is less. There is no controversy on this aspect. So far as the rate is concerned, it is specified to be at 1 1/2 times of the seignorage fee payable to the Government.
The activity of mining by the JVC started in the right earnest. The Corporation has been making demands from time to time, taking into account the production of the granite and the rate of seignorage fee, into account and that the petitioners have been remitting the same.
The impugned letter came to be issued on the basis of certain observations made by the auditors of the Corporation. The letter reads:
As you are aware the APMDC has appointed M/s. NG Rao & Associates as auditors to look into implementation of joint venture agreement entered between us. And they submitted their observations and recommendations vide reports dated 27.01.2011 and 02.07.2011.
The AG audit party which has conducted statutory audit pointed out that non-adoption of weighted average method for arriving minimum consideration has resulted in loss of revenue to the Corporation.
Since commencement of the Production it has been found that most of the production falling in the category of either Super Gang saw size or Mini Gang saw and it has become a practice to pay the consideration amounts (when ever less than minimum consideration) calculated based on the simple average rate of all four category size blocks instead of rates of respective categories based on actual dispatch sizes of raw material. By adopting the simple average rates the JV company was found dispatching the larger size blocks at a much lower rate for that specific category. This is resulting in loss of revenue to the Corporation. Therefore, the auditors have recommended APMDC "to calculate and collect the minimum consideration amount based on weighted average rather than Simple average."
It was also observed that the JV company found paying the consideration amount based on terms of GOMS. No. 105, Inds & Comm dept., GOAP dated 15.05.2009 i.e., calculating the consideration amount based on the waiver rate of Seignorage fee, which is a concession given to the industry by the government in view of recession in the market. This is contrary to terms and conditions of the agreement as neither the Government nor the Corporation has issued any orders to that effect, making the terms of GOMS. No. 105 binding upon APMDC.
In view of the above, the auditors have observed that "Waiver of Seignorage fee given by the GOAP is only applicable for Seignorage fee payable to the Department of Mines and Geology but not for consideration amount payable to APMDC".
Based on the observations and recommendations of auditors the matter been placed before 355th meeting of Board of Directors of APMDC and the board has resolved to collect all dues payable on account of observations of the auditors calculating payment of minimum consideration based on weighted average instead of simple average and consideration without giving any allowance for waiver on Seignorage fee.
Further, it has also been observed that you have failed to pay certain regular consideration and ID fee amounts to the Corporation in violation of the terms and conditions of the JV agreement.
Thus, the total dues payable by you to the corporation were worked out to be Rs. 4,94,96,345.00. The details of which re furnished in the enclosures attached herewith. You are therefore requested to go through the dues statements and contact Sri K. Jagannadha Rao, OSD (M2) of this office for any clarifications and discrepancies noticed and get them reconciled on or before 04.08.2011 and pay the dues on or before 20.08.2011 failing which action will be initiated in accordance with relevant Clauses of the Joint Venture Agreement.
The change of view point by the Corporation was on two aspects. The first is that it wanted to introduce the concept of weighted average. In the context of levy of seignorage fee, the blocks of granite are divided into four categories, depending upon size. Further, within each category, there is variation, once again, depending upon size. Hither to, the seignorage fee payable per each cubic meter of granite was being arrived at by taking the average of the seignorage fee, payable on all the four categories. The audit objection was that the average, if at all, should be of the seignorage fee, payable on the block in the particular category.
In the definition of "minimum assured amount", the parties have used the expression "the average of rate of levy by Government of A.P., per cubic metre, in respect of different categories of blocks of granite". The understanding of this phrase, by both the parties has been, that irrespective of the seignorage fee that is paid on the individual blocks, depending on the categorisation, the seignorage fee paid on the respective blocks spread over the entire year is to be totally divided by 4, and that figure would be chosen as the multiplier for arriving at the rate.
To illustrate, let it be taken that the petitioners extracted, in an year,
The seignorage fee on the entire quantity of 3,800 blocks of granite was calculated at Rs. 2,600/4, i.e., Rs. 650/-. Through the impugned proceedings, the Corporation insisted that the average must be taken, of different sizes, in each category, and not of all the four categories, put together. In other words, if category ''A'' covers the blocks of 8 to 12 cubic metres, the average of the seignorage fee payable on the blocks falling into that category, Irrespective of the actual amount paid on such blocks during the period, must be taken, and similar approach must be had to blocks of other categories.
The second area of controversy is about the interpretation of the expression "seignorage fee payable to Government" used in clause 9 of the agreement. The Government issues orders from time to time, prescribing the seignorage fee, for different categories and sizes of granite blocks. Lessees ventilated their grievance on account of the slump in the international granite market. The Government gave concession to the extent of certain percentage, upon the seignorage fee, to the lessees. The petitioners availed the concession to the extent of about 40%. The consideration to the Corporation was paid by the petitioners at 1.5% times upon the seignorage fee actually paid by them i.e., after deducting the amount representing concession. The Corporation insists that the amount must be calculated on the prescribed fee of seignorage fee, without effecting any deductions of the amount, representing the concession.
So far as the first aspect is concerned, it needs to be noted that both the parties have incorporated the terms, in their agreement, and it is hardly needs any mention that they are bound by the terms. The expression "average rate of levy by Government of A.P. per cubic metre in respect of different extent of blocks of granite" does not leave any doubt, as to its meaning. The parties were aware of the fact that the granite blocks are divided into four categories, and the rate of seignorage fee differs from category to category and blocks in the same category, depending upon size. All the same, they agreed that it is the average of the seignorage fee, in respect of the blocks that would constitute the basis for arriving at the consideration. No change of law, has taken place in the meanwhile. The definition of "minimum consideration" incorporated in the agreement does not permit of any other interpretation.
For a third party, a different way of calculating may appear to be more reasonable and it may even demonstrate that on account of adopting the formula of average of the four categories, one party would stand to benefit, and the other, to loss. However, in the field of contract, the views of third parties hardly matter. The parties to the contract are presumed to be aware of the consequences and the outcome of the terms of their agreement, and have adopted the same, consciously.
The following passages from a treatise on Law of Contract-Cheshire & Fifoot''s Law of Contract by M.P. Furmston, are relevant in this context:
...If the contract is wholly in writing, the discovery of what was written normally presents no difficulty, and its interpretation is a matter exclusively within the jurisdiction of the judge (See Bowen LJ In Bentsen v. Taylor, Sons & Co (No. 2) (1893) 2 QB 274). But on this hypothesis the courts have long insisted that the parties are to be confined within the four corners of the document in which they have chosen to enshrine their agreement. Neither of them may adduce evidence to show that his intention has been misstated in the document.
It is firmly established as a rule of law that parol evidence cannot be admitted to add to, vary or contradict a deed or other written instrument. Accordingly it has been held that... parol evidence will not be admitted to prove that some particular term, which had been verbally agreed upon, had been omitted (by design or otherwise) from a written instrument constituting a valid and operative contract between the parties (Jacobs v. Batavia and General Plantations Trust ([1924] 1 Ch 287).
...This rule, which is often called the ''parol evidence'' rule (though the evidence excluded by it is not merely oral), is a general rule applicable to all written instruments and not merely to contracts, but it can, within its proper limitations, be regarded as an expression of the objective theory of contract, that is, that the court is usually concerned not with the parties'' actual intentions but with their manifested intention. In a complex commercial situation, it will often happen that the documents to which the parties eventually put their hands will not fully realise the hopes and aspirations of either party but that should not make the contract any less binding. So evidence of the parties'' negotiations before the contract is excluded and similarly evidence of the parties'' post-contractual behaviour is not admissible to show their intention, though it might be to show a variation of the contract or to found an estoppel.
Instances are not lacking, where the understanding of one of the parties at the time of entering into contract, turns out to be to its detriment, over the period. In such case, the party has to initiate necessary steps to get the terms of contract varied, either with the consent, of the other party, if it is forthcoming, or by taking steps in accordance with law. Unilateral alteration of the conditions or taking of any steps, which run contrary to the letter and spirit of the terms of contract, is totally impermissible. Therefore, the action of the Corporation, proposing to introduce a different formula of taking average of the seignorage fee payable on the granite blocks extracted by the petitioners cannot be sustained.
The second aspect, however, stands on a different footing. The petitioners and the Corporation have treated the seignorage fee prescribed by the Government, as an important factor for them to determine the consideration, to be paid to the Corporation. Irrespective of the price, which a granite block may fetch, or the expenditure involved in extracting and marketing the same, the Corporation is to be paid an amount equivalent to one-and-half times of the seignorage fee. It has already been mentioned that no matter, the quantity of granite in each category was extracted, the average of the fee paid on all the blocks is to be taken into account. The petitioners do not dispute this arrangement. The controversy is about deduction of the exemption or concession given to the petitioners.
Under the lease, executed in favour of the petitioners, or the agreement, it is the responsibility of the petitioners to pay the seignorage fee. The Corporation did not figure in that matter. The Government issued an order, extending the benefit of concession, to the extent of certain percentage in the seignorage fee, to the lessees in general, taking into account the slump in the international market. Naturally, the petitioners availed that benefit. Even while the stipulated rate remained in tact, reduced amount was being paid, as a result of concession. While determining the amount payable to the Corporation, the seignorage fee was taken, after effecting the deduction. For example, if the seignorage fee, according to the formula contained in the agreement, is Rs. 1,000/- per Cu.M., and concession to the extent of 30% was given, the petitioners offered and paid the consideration @ Rs. 1,035/- per Cu.M., i.e. Rs. 700 + 350. The Corporation also proceeded on this assumption, till it issued the impugned proceedings. However, it now insists that the consideration must be paid @ Rs. 1,500/- per Cu.M., i.e. Rs. 1,000+500.
The expression used in Clause 9(2) of the agreement is "1.5 times of seignorage fee payable to the Government". The rest of it deals with the taking of average of seignorage fee payable for different categories of blocks. The adjective "payable" means, "the amount which is required, or should, be paid". More often, what is payable under an arrangement and what is paid in fact, may be one and the same. However, there may be occasions where those two expressions connote different amounts.
The word "payable" is mostly employed to indicate the amount, which, the provision of law, or order of Government, or a term of contract stipulates. When it comes to the question of payment, certain factors such as, concession or rebate being given or adjustment being made, would become relevant. For instance, if the amount payable by an income tax assessee, for a particular assessment year, is Rs. 15,000/-, and if he became entitled to be refunded a sum of Rs. 5,000/- for the preceding assessment years, his obligation would be to pay only Rs. 10,000/- Therefore, while what is payable is Rs. 15,000/- what, in fact, is paid, would be, Rs. 10,000/-. Similarly, if the price for an article is mentioned as Rs. 1,000/- and if a rebate of 20% is given thereon, the amount payable would be Rs. 1,000/-, but what is paid would be Rs. 800/-. The illustrations can be multiplied.
It may be possible to argue that what is stipulated under the law may be treated as the amount, which is assessed and what is payable is the amount, which is required to be paid, after making the deductions, if any. This interpretation may be permissible, in case the dispute is as to the payment of tax or fee itself. Where, however, the amount payable under law is referred to in the context of determination of the liability of the parties, hardly there exists any scope for making deduction of the concessions or rebates, unless the parties have specifically agreed for such a course of action.
The petitioners and the Corporation were clear in their understanding that the consideration is to be calculated at 1.5 times over the seignorage fee payable. Either they did not contemplate that the Government would extend the benefit of concession, or that they did not want the concession, if granted, to have its impact on the calculation of the consideration. There may also a be situation where the petitioners had paid excess amount of seignorage fee, under mistake, in the previous years, and they may claim the adjustment thereof against the seignorage fee payable for subsequent years. That should not have any impact upon the calculation of amount payable as consideration to the Corporation. Therefore, the insistence by the Corporation, that the petitioners shall pay the consideration at 1.5 times on the seignorage fee, without making deduction of exemption or concession is legally valid. However, since the Corporation was also of the same understanding, as was the petitioners, it shall not be entitled to claim any arrears for any period anterior to the date of the impugned order.
An objection is raised by the respondents, as to the maintainability of the writ petitions. It may be true that there exist clauses for contract, and providing for arbitration. However, if one takes into account the subject-matter of the dispute, it is clear that what is involved is a pure question of interpretation of provisions. It is purely outside the scope of the arbitration. Further the Hon''ble Supreme Court in Harbanslal Sahnia and Another Vs. Indian Oil Corpn. Ltd. and Others, National Sample Survey Organisation and Another Vs. Champa Properties Ltd. and Another, and Union of India (UOI) and Others Vs. Tantia Construction Pvt. Ltd., held that mere existence of clauses of that nature would not bar a writ petition under Article 226 of the Constitution of India.
In ABL International Ltd. and Another Vs. Export Credit Guarantee Corporation of India Ltd. and Others, it was held by the Supreme Court that in a given case, the writ petition can be entertained, even if disputed questions of fact are involved and much would depend upon the subject-matter of the writ petition. In the instant case, the Corporation, which is an instrumentality of the State, issued proceedings fastening liability upon the petitioners. If it is to be assumed that the parties have to work out the remedies in accordance with the clauses contained in the agreement, a serious question would arise as to whether it was competent for the Corporation to pass the impugned order without taking recourse to that very remedy. Therefore, the objection raised on behalf of the respondents cannot be sustained.
Hence, the writ petitions are partly allowed,
a) setting aside that portion of the order through which, the Corporation insisted on average of the seignorage fee to be taken on category-wise, since it is contrary to the clauses of the contract and cannot be enforced;
b) upholding the other part of the order through which, the Corporation required the petitioners to pay the consideration at 1.5 times on the seignorage fee payable on the blocks, and without making any deduction on account of rebate or concession granted by the Government on seignorage fee; and
c) the Corporation, however, shall not be entitled to recover the arrears anterior to the date of the impugned order, but shall be entitled to recover the amount from the date of the order.
There shall be no order as to costs. The miscellaneous petitions filed in the writ petitions shall also stand disposed of.