Shriram Refrigeration Industries Ltd. and Another vs State Bank of India and Another

Uday Sinha and Prabha Shanker Mishra, JJ.—These are (our writ applications for quashing certain circulars and orders issued by General Manager, Agricultural Banking Division of State Bank of India. The petitioners have prayed for quashing the circulars issued by the Bank as also for a writ a mandamus directing the Bank to finance the products of the petitioners like those of other manufacturers. The petitioners are manufacturers of Diesel Motor Pumps.

Petitioner No. 1 in C.W.J.C. Nos. 4689 of 1982 and 43 of 1983 are manufacturers of diesel pumps under the brand name of Usha Diesel Engine/Pump sets and Baharat Shakti Diesel Engines/Pumping sets respectively. Petitioner No. 2 in both the applications are sole selling Agents of the manufacturers The petitioner in C.W.J.C. No 78 of 1983 is partnership firm manufacturing "Kaushal" Diesel Engine and Pumping Sets. Their Distributor for Bihar is Messrs Saluja Agency, Patna. Petitioner No. 1 in C.W.J.C. No. 67 of 1983 is a partnership firm manufacturing" Bharat Diesel Engine Pump sets" and petitioner No. 2 is one of its partners. Petitioner No. 1 in C.W.J.C. No. 4689 of 1982 is the only incorporated Company in these applications. The others are partnership firms. The points falling for consideration in these writ applications being common, they have been heard together and will be disposed of by this common judgment.

The facts emanating in C.W.J.C. No. 4689 of 1982 are that petitioner No. 1, manufactures Diesel Engine Pumps. M/s. Shriram Refrigeration Industries Ltd., petitioner No. 1 appointed M/s. Usha International Ltd. another incorporated Company at New Delhi as its selling Agent for the diesel pump sets The selling Agent has its branches in various cities of India. At Patna it has its Divisional Office by the name of M/s. Nalanda Sales Corporation. The selling Agent, petitioner No. 2 appointed authorised dealers of its own in the State of Bihar. The dealers sold the motor pumps. The averment is that petitioner No. 1 used to sell diesel engine to petitioner No. 2 on ''principal to principal basis''. The Nalanda Sales Corporation appointed M/s. Usha Diesel Centre at Gori Jamalpur in the district of Monghyr as its authorised dealer for sale of Usha Diesel Engines. Their dealership agreement came into effect from 20-8-1979 to 31-3-1982. The dealers in turn also used to make all purchases as independent principal on outright sale basis. In the course of selling diesel engine pumps the dealer came in contact with Mahesbkhunt Branch of State Bank of India. The manner of contract was as follows. The Slate Government in collaboration with the Banks in Bihar introduced a Scheme whereby the Banks were to finance sale of diesel motor pumps to farmers. Under the Scheme the Bank was to finance 75% of the price of the motor pumps as loan and the farmers only 25%, After a process of application for loans and scrutiny thereof was gone through, the Banks would agree to advance loans to farmers. The Bank, however, did not pay any money in cash to the farmers but only authorised dealers of Engine sets, of the choice of the farmers, to deliver and install the engine sets at the places required by the framers. The dealer was to be paid by the Bank. The loan was to be repaid by farmers in easy installments to the Bank. This policy and method was called "Agricultural Term Loan". The introduction of this Scheme being beneficial and convenient to the farmers 95% of the purchase of diesel pump sets in the State is now funneled through the Banks by the process of Agricultural Term Loan. For obvious reasons the State Bank appears to be the favorite of the framers and it was financing more than 50% of such loans in the State.

The Scheme was undoubtedly laudable and went a long way in ushering the green revolution, but some crooks made a mess of it at Maheshkhunt. The officers of the State Bank of India, the dealers and the farmers formed a conspiracy by which payments for purchase and supply of diesel engine sets were made without their having been installed. The volume of such take payments and receipts which went down the drain from the Maheskhunt branch of the Bank swelled to about a thousand crores of rupees. The Bank came to know it sometime in month of August, 1981. In November 1981 the General Manager (Planning) of the State Bank of India, Agricultural Banking Division, Patna issued confidential circular to all branches in the State (annexure 1 in C.W.J.C. No 4689 of 1982). In this circular it was stated that a loss of more than one thousand crores had been suffered by the Bank due to the active involvement of the Bank officials and dealers of pump sets. According to the circular the sale of four diesel pumps, viz, Bharat, Bharat Shakti, Bajaj and Utilita should not be financed by the Bank until further instructions. Another circular-(Circular No. 3) was issued on 8-1-1982. This fruit circular (annexure-3 in C.W.J.C. 4689 of 1982) was in two parts. The first part stated that the State Bank of India had decide d not to finance diesel pump sets of the makes mentioned therein. They were (with which we are concerned) Kaushal manufactured by Kaushal Industries, Agra, Usha manufactured by Shriram Refrigeration Industries Ltd., Hyderabad besides eight others. In paragraph 3 of the circular it was stated that "no pump set agricultural machinery and other imputes should be financed", in case these were sold by the dealers noted against their names. We are concerned for the present with Usha Diesel Centre, Kundan Machinery Stores, Laxmi Machinery Stores, Kiran Machinery Stores and Rakesh Machinery Stores besides eight others. All the dealers were selling pumps through State Bank of India, Maheshkhunt Branch. The averment of the petitioners in each case is that although the dealers were authorised dealers of the producers or the sole selling Agents, the supply of diesel pumps to the dealers or sub-dealers was on outright sale basis. In the case of Shriram Refrigeration and Motors and Diesel Private Ltd. the stand of the manufacturers is that they had appointed sole selling Agents and the producers used to sell their products to the selling Agents, the manufacturers having no contact with the dealers.

The two circulars issued by the General Manager, State Bank of India in November, 1981 and January, 1982 placed a blanket bar in respect of financial diesel pump sets manufactured by the petitioners. That was the intended effect which had its full effect. Hence the petitioners moved this Court by the present applications.

The petitioners have prayed for quashing two circulars and issuance of a writ of mandamus directing the State Bank of India to treat the products manufactured by the petitioners on the same terms as any other diesel pump sets and to extend Agricultural Term Loan to farmers intending to buy diesel pump sets manufactured by the petitioners as it does in respect of or the diesel pumps.

The stand of the petitioners is that the conspiracy, according to the Bank itself was between its employees and the dealers. There was, therefore, no reason for singling out for step motherly treatment of the goods themselves. The producers did never come in contract with the State Bank or its officers or the dealers and no defect or infirmity had been detected in the goods produced by the petitioners. Therefore, no reasons why the Bank should refuse to finance or subsidies purchase of pump sets manufactured by the petitioners. Counsels for all the petitioners have stated in can-did terms that the Bank would be perfectly justified in not financing the sale of their pump sets through the dealers who had been involved in the nefarious conspiracy. The petitioners in each case undertook not to sell their pump sets through the dealers mentioned in the circular of 8-1-1982. But if the products of these petitioners were sold by other dealers the Bank would have no justification to refuse to finance the brand of pumps produced by the petitioners.

Learned Counsel for the petitioners were candid in stating that they had no statutory right to claim that the Bank must finance sale of goods produced by them. Their stand, however, was that the State Bank as an instrumentality of State had setup an agricultural loan machinery and was thus in a way distributing largesse. The State Bank had no authority to discriminate against the petitioners or to visit them with an evil eye.

The main argument on behalf of the respondents was advanced by learned Additional Solicitor General, Government of India, His Stand was that the State Bank of India had no intention of discriminating against the petitioners or visiting them with any evil eye, but steps have been taken by the Bank in public interest to save or recover depositor''s money which had been swindled in save criminal conspiracy in which the dealers of particular brand of diesel pumps were involved. Learned Additional Solicitor General secondly submitted that the two circulars of the Bank placing a ban on financing of pumps manufactured by the petitioners was only a temporary or transitional administrative measure to secure the funds of the Bank. The third submission on behalf of the respondents was that issuance of circulars was not arbitrary, as Article 284 of the Constitution created no legal obligation upon the Bank to finance the products of the petitioners.

One of the submissions which may be disposed of here and now was that the State Bank of India, created under a Statute, was not an authority within the meaning of Article 12 of the Constitution, and therefore, it was not amenable to the writ jurisdiction of this Court. He contended that the decisions of the Supreme Court until now were not the last word in determining whether an institution was an authority within the meaning of Article 12 or not. In my view, that question is no more Res Integra--at least so far as this Court is concerned after the decision of the Supreme Court in Som Prakash Rakhi v. Union of India and Anr. popularly known as Bharat Petroleum Corporation case, not to speak of the cases of Sukhdeo Singh, International Airport Authority etc. At paragraph 38 Krishna Iyer, J. observed that it is not the relationship of principal and agent which is relevant and material but whether the corporation is an instrumentality of the Government in the sense that a part of the governing power of the State is located in the Corporation and though the Corporation is acting on its own behalf and not on behalf of the Government, its action is really in the nature of State action. I have no intention of entering into a dissertation on the subject Nor did learned Additional Solicitor General address us at length, but he only desired that the question should be left open, as the question is again awaiting decision before the Supreme Court in another application. By the test laid by Krishna Iyer, J. in the case of Som Prakash Rakhi (Supra), there can be no doubt that the functioning of State Bank of India is really in the nature of State action It must, therefore, be accepted that the State Bank of India is State within the meaning of Article 12 of the Constitution.

The entire submission of counsel for the petitioners was founded upon the case of Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, and Kasturi Lal Lakshmi Reddy, Represented by its Partner Shri Kasturi Lal, Jammu and Others Vs. State of Jammu and Kashmir and Another, As I have stated earlier, the grievance of the petitioners is not that they had a right to sale of pumps through funds provided by State Bank to the farmers. Their grievance is that they were differentially treated and denied equality of opportunity with other manufacturers in selling their wares. According to the petitioners, almost the entire sale of diesel pumps in this State is now tunneled through Banks. As a fact this position is not denied on behalf of the respondents. It was stated that there were other Banks also financing sale of motor pumps and, therefore, the sale of these pumps, contraband if they can be described, could be financed by other Banks. We do not know that Banks exist at Maheskhunt or Gogari Jamalpur. But 1 accept the oral statement on behalf of the respondents at the Bar that other Banks also can finance it. The difficulty, however, is that more than 50% of such financing is done by State Bank of India. Farmers intending to buy pumps through the State Bank of India would, therefore, buy pumps of other brands and not the pumps manufactured by the petitioners. The petitioners would, therefore, be adversely affected by loss of business for no fault of theirs. It cannot be doubted that the circulars of the State Bank would certainly affect the petitioners adversely. In order to appreciate it, it would be essential to follow the process of financing of purchase of diesel pumps by farmers.

The policy of granting Agricultural Term Loan was evolved by Banks in collaboration with the State Government. The whole scheme is that the State Government has prepared a list of 30 diesel pump sets which is known as approved list. In terms of the scheme, the Banks are to advance loan to farmers only in regard to approved pumps. A farmer willing to buy a pump set for agricultural purposes has to fill in and submit a duly filled form. The farmer is required to state in that application the choice of the pump which he intends to acquire and the name of the authorised dealer thereof. The Bank after receiving the forms has to send them to Block Officer for obtaining ownership and possession certificate of landed property and no dues certificate. If the Block Authorities sponsor the application, the Bank Authorities submit pre-sanction report recommending sanction of the applicant''s proposal if it is taken to be feasible and economically viable If the proposal is found to be in order in every respect, sanction is accorded. Thereafter, the Bank opens an account for the farmer and debits it by the price of the pump. The Bank thereafter issues a supply order in favour of the dealer. On receiving that order the dealer has to supply the diesel pump to the farmer borrower in presence of bank''s authorised staff. After the delivery has been made the dealer or the sub-dealer will submit the bill for the delivery of the motor pump to the Bank. Thereafter, the Bank pays 75% of the cost of the pump set to the dealer and the balance is paid after receipt of subsidy from Agency now known as ''D.R.D.A.'' It will thus be seen that the sale of diesel pump sets is in a way controlled by the Banks. If the Bank refuses to subsidies sale of pumps of a particular brand, they cannot be sold at all. That being the position, the sale of the pumps manufactured by the petitioners in this State is dependent in a large measure upon the policy of the Bank. If the Bank refuses to finance the sale must come to a stop. It will be no answer to state that there are other banks financing such operations. State action must conform to standards of fair play and treating every body alike. It is true that an individual is not entitled to favors, but it is certainly entitled to state that he should not be hit below the belt by some action of the State which has no nexus with any policy of the State.

The right of an individual springs not only from statutes conferring rights, but it also springs from schemes formulated by Government. With the widening functions of State action, the State can no more be permitted to state that no citizen has any claim upon favors. If the State is distributing favors, it can do so only treating every citizen equally. In the case of Ramana Dayaram Shetty (Supra) Bhagwati, J., stated in unmistakable terms that "it is a well settled rule of administrative law that an executive authority must be rigorously held to the standards by which it professes its actions to be judged and it must scrupulously observe those standards on pain of invalidation of an act in violation of them". His Lordship observed that this rule, though supportable as emanating from Article 14, does not rest merely on it and that it has an independent existence apart from Article 14. In the words of Bhagwati, J "every action of the executive Government must be informed with reason and should be free from arbitrariness", With the changing pattern of Governmental action, the obligation of the State has undergone radical change. Licenses are required before indulging in many kinds of business or work. Social security benefits are now being conferred by State. Individuals and businesses enjoy a largesse in the form of Government contracts. These contracts often resemble subsidies. They have now ceased. to be gratuity furnished by the Government. The State cannot withhold grant or revoke them at its pleasure The Government is not like a private giver. The distributions of largesse were formerly regarded as privileges. They have now been recognized as rights. They have now been given legal protection. The view taken in Ramana Dayaram Shetty''s case (Supra) was reiterated. They have not been departed from by the Supreme Court until now. Those two cases, therefore, lay down the law of the land. Any other view contrary to them must be held to have been overruled.

From what has been stated above, it is obvious that the action of the State Bank of India in regard to its financing policy in the matter of sale of diesel pumps is bound to effect the sale of pumps manufactured by the petitioners. Can it then be denied that the petitioners are not visited by any evil consequences? The answer must be in the negative. The respondents have no authority to act in such a manner that it might affect the commercial standing of manufacturers of particular brands of pumps. It is obvious, therefore, that the State Bank of India by its two circulars did not act in a bona file manner. The feeble attempt of learned Additional Solicitor General to show that the petitioners were not likely to suffer on account of the policy of the State Bank of India because there are other financing agencies are available, does not hold much water. With respect, I am unable to accept it.

In course of submissions, Mr. S.P. Gupta for the petitioners in C.W.J.C. No. 67 of 1983 submitted that the motor pumps of the petitioners had been black listed without complying with the rules of natural justice Reliance was placed upon the case of Erusian Equipment and Chemicals Ltd. Vs. State of West Bengal and Another, and Joseph Vilangandan Vs. The Executive Engineer, (Pwd), Ernakulam and Others, . That gave an opportunity to learned Additional Solicitor General to contend that the circulars of the State Bank of India were not black listing orders and, therefore, those cases have no application to the present cases. To that extent learned Additional Solicitor General was right. This is not a case of black listing of the petitioners or their goods. The point is that a policy decision of the Bank and its implementation has adversely affected the business of the petitioners. The only question relevant to the present applications is whether this case falls within the ambit of Ramana Dayaram Shetty''s case (Supra).

To counter the effect of the case of Ramana Dayaram Shetty''s (Supra), Learned Additional Solicitor General submitted that the State Bank of India was entitled to take ex parte decision in order to protect public interest, namely, safety of the depositors'' money. He submitted that an order, temporary in nature, had been passed. There can be no exception to that procedure as contended by learned Additional Solicitor General. The Bank is certainly entitled to take such measures as may be expedient for protecting the depositors'' money. Its action, however, in this behalf must be guided by considerations of relevancy. In order to justify its action the Bank will have to show that the action taken or the policy adopted would in any way affect the safety or security of the Bank. In addition to it, the Bank would have to show that it was a temporary measure.

The knowledge of the goings on in regard to financing of diesel pumps came to the knowledge of the Bank in August, 1981. The policy decision was not taken immediately thereafter, but it was taken after months. The first circular was issued on 1-11-1981 and the second on 8-1-1982. After issuing these circulars, if the Bank had come by any material showing the actual complicity of the petitioners in the crime perpetrated by the dealers of the pumps, the Bank should have been in position to take final decision within a month or two. The whole of 1982 having passed can it be said at this moment that the order was transitory or temporary in nature awaiting inquiry/investigation? It is difficult to accept the submission urged on behalf of the respondents that the order being temporary only to find out facts, this Court should not interfere in the policy decision of the Bank. More than a year and a half have passed since the mischievous act of the dealers or officers of the Bank came to light. This is a sufficiently long period to counter any suggestion that the Bank had adopted a temporary measure. The Bank instituted criminal case against its officers and dealers on 27-2-1982. Almost at the same time, the Bank instituted money suit against the dealers and officers of the Bank. Thereafter, the Bank has been sitting tight. If the Bank has nothing more to probe, there is no reason why the Bank should be persisting in the policy that it has adopted of not financing diesel pumps manufactured by the petitioners. It is, therefore, difficult to uphold the contention that the order is temporary in nature to safeguard public interest.

Learned Additional Solicitor General submitted that the Bank has entrusted the matter to the Central Bureau of Investigation and they are waiting its result. I regret, there is no force in this submission. The handing over of the criminal case to C.B.I. did not preclude the Bank authorities from finding out whether the Bank had suffered loss only because of the dealers or did the manufacturers also have any active band in it, Thus until now all that the Bank is able to say in its counter-affidavit is that the pumps were manufactured by the petitioners. In paragraph 2B of the counter-affidavit it has been stated as follows:

What the respondents have done is merely to suspend dealing with the products which are under cloud pending investigation.

This attitude ignores the crux of the matter that the dealers, and not the goods, nor the manufacturers are under any cloud. Neither in the counter-affidavit nor in the course of argument was anything said by the respondents against the diesel pumps or their manufacturers except that "the involvements of the manufacturers could not be ruled out". The petitioners have not defended the action of the dealers. In fact, they have given a candid assurance and undertaking that the petitioners shall not sell their pumps through the dealers of Gogri Jamalpur who were party to the nefarious deals mentioned in annexure-3 in C.W.J.C. No, 4689 of 1982.

In paragraph 9 of the counter-affidavit it has been stated that the Bank had material to show that the manufacturers similarly placed admitted about the fraud and agreed to pay back/paid back the entire sum financed for purchase of their products at the instance of some dishonest dealers in conspiracy with some dishonest officials of the Bank. The fact that some manufacturers admitted that their dealers had played fast and loose with the Bank is entirely different from stating that and those manufacturers had admitted that they were a party to the fraud committed by their dealers. Further, if some manufacturers admitted that they had been party to a fraud, can it lead to the conclusion that the manufacturers of banned diesel pumps all over India were party to fraud committed by their dealers at Maheshkhunt Branch specially when the Bank itself did not say so in the criminal cases or in the money suit nor in any of the impugned annexure. I regret not.

As I have said earlier, every action of the State or public authority must conform to reason and orderliness. This implies that there must be a rationale for its action. There must be nexus between the action taken and the object to be achieved. If these are not satisfied, if there is no rationale for the action of the public authority, it would be nothing but an arbitrary act. Arbitrariness is a vice which the law of our land does not countenance. If there is no rationale behind any act, it must be struck down. In the instant case, the Bank has failed to produce any material showing the involvement of the manufacturers in the nefarious deals. The dealer cannot be equated per se with the manufacturers or the sole selling agent.

Learned Additional Solicitor General relying upon Section 238 of the Contract Act contended that a principal would be liable for the action of its agent. It is difficult to accept the bald proposition enunciated by learned Additional Solicitor General. There are limitations to that rule and Section 238 itself provides the limitations. Section 238 lays down that misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect in agreement made by such agents as if such misrepresentations or frauds had been made, OF committed by the principals. The section makes provision in regard to effect on agreement if the dealers were agents of the manufacturers for it will be a moot question whether the dealers were agents of the manufacturers where an Agent made misrepresentations or committed frauds. If the goods manufactured by the petitioners had been defective or useless or junk, the principal may be held to be liable for the act of the agent. In those circumstances, the agents may be acting in the course of business for their principals, Misrepresentations made or frauds committed by the agents which do not fall within their authority would not affect the principals. In the instant case, the maximum that can be said is that the dealers represented to the Bank that their pumps had been installed or supplied to farmers, but in fact they had not been so done. Supplying to farmers was no part of any arrangement between the manufacturers and the dealers. The act of supplying was the independent act of the agents. In that view of the matter, Section 238 of the Contract Act can be of no assistance to the respondents.

The stand of the manufacturer petitioners is that they were selling pumps to dealers on the basis of outright sale. In the case of Shriram Refrigeration industrial Ltd, there was no contact between the manufacturer and the dealer at Gogri Jamalpur. The averment is that petitioner No, 1 the manufacturer was selling it on outright sale basis to Usha Industries Ltd., who were the sole selling agents. The latter in turn had its office by the name of Nalanda Sales Corporation at Patna and that Corporation appointed Usha Diesel Centre, Gogri, Jamalpur as its dealer. The agreement between Nalanda Sales Corporation and Usha Diesel Centre is Annexure-1 to this application. In a loose dictionary sense Usha Diesel Centre may be described as agent of Nalanda Sales Corporation, but not in strict and legal sense as defined under the Contract Act. Clause 4 of the agreement gives some idea whether Usha Diesel Centre was dealing with the State Bank of India as agent to Nalanda Corporation or not. Clause 4 of the agreement reads as follows:

(a) You will make all purchases of agreement products as an independent principal on an outright sale basis.

(b) Payment for all purchases shall be made by you in cash. The Company may at its own option negotiate the documents through a scheduled bank of its choice. All charges by way of bank commission, interest, demurrage, etc. will be borne by you.

(c) Our selling prices to you will be intimated by us from time to time. The prices at which you will sell the agreement products will be determined by you, however, consumer prices (except for hire purchase sale) will not exceed such maximum as may be prescribed by us, you will be free to sell at lower prices. Any sales tax other than taxes payable on such sales may be charged additionally by you.

(d) All selling prices are on packed F.O.R. for destination station. Our responsibility for any shortage/loss/damage of the goods shall cease after the goods have been handed over to the carriers.

(e) In the event of any reduction in prices by us, we shall allow corresponding rebate on unsold stocks held by you on the date of price reduction subject to;

--Supplies made by the Company within 60 days preceding the date of such price reduction.

--Your regular submission of a monthly sale stock statement.

--Verification of stocks by Company''s authorised officials.

(f) Selling prices are subject to change without notice and prices prevailing at the time of dispatch shall be charged.

Even this agreement came to an end on 31-3-1982 and yet the State Bank is continuing with the ban on subsidizing Usha Diesel Pumps. I am unable to hold that Usha Diesel Centre was agent of Shriram Refrigeration Industries Ltd. the manufacturer or of Usha International Ltd., the sole selling agent trading at Patna under the name and style of Nalanda Sales Corporation. Usha Diesel Centre, the dealer at Gogri Jamalpur not being the agent, the question of refusal to subsidise Usha Engine/Pump sets on the score of Usha Diesel Centre having misbehaved is not understandable. The position is the same in respect of the other manufacturer petitioners. To put it in legal Jargon, there is no nexus between the object of the Bank to safeguard its funds and the refusal to subsidise the sale of Diesel Pumps. The Bank has instituted money suit against dealers, but not against the manufacturing Companies or firms. That also gives an indication that in the view of the Bank itself, the manufacturers were not responsible for what the dealers did. Nor have the manufacturers been made accused in the criminal case. The reliance placed upon Section 238 of the Contract Act to support the Bank''s action is rather ill-founded and must be rejected.

Learned Additional Solicitor General submitted with some amount of vehemence that the manufacturers had an objection in the matter of appointment of dealers. It was submitted that they should have been circumspect and exercised due diligence in appointing dealers and, therefore, the manufacturers also must suffer along with the dealers. I regret, I am unable to accept this submission. Once the goods have been sold to a dealer, there is no obligation upon the manufacturer to see what the dealer or a sub-dealer does with the goods. Even if some sort of obligations were to be spelt out, the estimate of the manufacturers or of the sole selling agent may turn away. Expectations are not always fulfilled. If a sub-dealer turns out to be a cheat the principal may refuse to deal with him in future, but it cannot certainly be visited with evil consequences for failure to properly estimate the character of the sub-dealer. Further, what is sauce for the goose is sauce for the gander. By that process of reasoning the State Bank of India also did not exercise due diligence in appointing its officials at Maheshkhunt Branch of the Bank. Can it be said with any amount of credibility that the Bank should be closed down for that reason? Certainly not. if the Bank could fail in its estimate of its officials, so could the manufacturers. In any case, the sole selling agents have committed slip in the matter of appointment of dealer or sub-dealer, but not the manufacturers.

It was also submitted on behalf of the respondents that the meteoric rise in sale of the pumps should have caught the attention of the manufacturers and they should have enquired how this had come about. Thus submission ignores the basic premise that pumps had not been supplied to the dealers. For ought one knows the purchase of pumps by dealers from manufacturers may not have gone up and yet payments may have been made on paper showing the pumps had been supplied. Nothing has been placed before us to show that the sale of pumps from manufacturers .in relation to Maheshkhunt branch had increased. This submission also thus has little value and must be rejected.

Learned Additional Solicitor General submitted that no civil right of the petitioners having been contravened, there was no case for issuance of the writs prayed for. He submitted that "civil rights are rights appertaining to a person in virtue of his citizenship in a State of community. Rights capable of being enforced or redressed in a civil action." Reliance was placed on Mohinder Singh Gill and Another Vs. The Chief Election Commissioner, New Delhi and Others, . On the point in issue in that case their Lordships decided that the denial of rights to elect or re-elect was invasion upon the civil right. This case did not lay down that existence of a civil right is essential for issuance of writ. That proposition must be deemed to have been squarely rejected by the Supreme Court in the cases of Kamana Dayaram Shetty and M/s Kasturi Lai Iakshmi Reddy (Supra). The reliance placed upon the case of Mohinder Singh Gill (Supra), therefore, has no application in the present case.

Learned Counsel for the respondents also submitted that State Bank o f Indian not being a State, the right under Article 298 of the Constitution is not available to the petitioners and that there is no statutory obligation on the State Bank. I have already held earlier that State Bank of India is an authority within the meaning of Article 12 of the Constitution. Further, Article 298 of the Constitution does not create any obligation. It is only an enabling provision extending the ambit of the power of the Union or State to carry on trade or business. This does not militate against the right of the petitioners to carry on trade without being hampered by arbitrary State action. The State (which is equivalent to State Bank of India in the instant case) has the right to trade as observed in Erusian Equipment and Chemicals Ltd. Vs. State of West Bengal and Another, but it has the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude person by discrimination.

Giving the applications my most serious consideration, I am of the view that:

(a) the dealers were not agents of manufacturers.

(b) There was no nexus between the object of protecting Bank''s money and the act of refusal to advance ''Agricultural Term Loan'' in respect of pumps manufactured by the petitioners. The impugned orders were not passed in public interest.

(c) The policy decision of the Bank and its implementation, is not temporary in nature.

(d) The action of the State Bank of India in the State of Bihar has had civil consequence over the business of the petitioners.

The State Bank being "State" of laws and not of men, it cannot act arbitrarily.

It was also contended on behalf of the petitioners that the Impugned circulars were mala fide as a fact. It was contended that they were made with the view to coerce the manufacturers to pay to the Bank the sums embezzled by the Bank officers in conspiracy with the dealers. Our attention was drawn to the fact that Basant Industries Munhai, Agra manufacturers of Atul Shakti diesel pumps and manufacturers or Harvest pumps paid to the Bank the sums advanced through the dealer, Bihar Commercial Corporation. Our attention was drawn to a letter written by Basant Industries in this behalf and annexure-8 by which the State Bank issued circular No. 61 of 1982 directing its branches in Patna Circle to finance purchase of Atul Shakti pumps on usual terms and conditions. Counsel for the petitioners contended that the two impugned circulars were issued on and after November, 1981 with a view to coercing the manufacturers to repay the money advanced as Agricultural Term Loan. It was submitted that the fact that there was no allegation against the manufacturer petitioners; the fact that manufacturers of Atual Shakti pumps paid sums paid by the Bank in the course of financing the purchase of Atul Shakti pumps and the fact that the Bank subsequently issued orders for subsidising the sale of Atul Shakti pumps showed conclusively that the only intention of the Bank in issuing the impugned circulars was to browbeat the manufacturers into paying the sums which had gone down the drain because of the criminal conspiracy between the employees of the Bank and the dealers. This, it was submitted, was intended to shield the officers of the Bank and its reputation The submission is impressive. The mind is apt to accept it as proof of the mala fide action of the Bank. The submission is attractive, but it is difficult to hold conclusively that that was the only intention of the Bank authorities. There could be other reasons also. The dictum Ad hoc Proctor Ergo Proctor is not universally applicable. The former is not necessarily the cause of the latter when one fact follows another. The impugned circulars were issued in November, 1981 and January, 1982. The ban on Atul Shakti pump was lifted in November 1982. There may have been various reasons for lifting the ban while accepting that the circumstances do provide scope for the submission that the action of the State Bank was intended to coerce the manufacturers into paying the sums defalcated and thus mala fide action, yet, is difficult to hold conclusively that that was the only intention. Be that as it may, there is no escape from the position that action of the State Bank in issuing instructions to all its branches stopping financing of purchase of pumps manufactured by the petitioners was arbitrary, without any rationale and for non est reasons. The applications must therefore, succeed.

For the reasons, stated above, the applications are allowed with costs, Circular Nos. A.G.R. No. 64 of 1981 dated 1-11-1981 and A.G.R. No. 2 of 1982 dated 8-1-1982 (Annexures-2 and 3 in C.W.J.C. No. 4689 of 1982) are hereby quashed. Let a writ of certiorari issue accordingly. Let a writ of mandamus also issue commanding the State Bank of India and its branches to forbear from withdrawing financing facility through Agricultural Term Loan to the sale of Diesel Engine Pump sets of the petitioners. The State Bank, however, will be free not to finance the selling of such pumps through dealers, mentioned in paragraph 3 of Circular No 2 of 1982 dated 8-1-1982 or anybody associated with those firms. Hearing free Rs. 150/- in each of the applications payable by the respondents to the petitioners.

Prabha Shanker Mishra, J.

I have the privilege of going through the judgment of Uday Sinha, J., which he proposes to deliver and I concur with the conclusion that all the four writ applications should succeed. In the candid discussions of the various arguments advanced before us, Uday Sinha, J. has practically covered every aspect of the matter and there is hardly any scope to improve upon the same. Since the learned Counsel for the petitioners as also learned Additional Solicitor General of India took us Into the questions of freedom of trade, the character and effect of the prescription imposed by the respondent-bank and the public interest involved in it. I feel persuaded, however, to record, in brief, my own reasons in support of the conclusion that the Circular Nos. AGR No 64 of 1981 dated 1-11-1981 and AGR No. 2 of 1982 dated 8-1-1982 (Annexure 2 and 3 in C.W.J.C. No. 689 of 1982) should be quashed.

The State Government in collaboration with the banks In Bihar introduced a scheme under which 75% of the price of the Motor Pumps was/is to be paid by the financing bank as loan to the farmers on purchase of Diesel Pump sets and other agricultural equipments. This was/is called "Agricultural Term loan." Pursuant to the scheme a list of about 30 Diesel Pump sets had/has been prepared which was/is known as "the approved list." The financing bank, while advancing loan to a farmer, was/is required to do so only on the purchase of one of the approved pumps. There is no dispute that Usha Diesel Engine/Pump sets, Bharat Shakti Diesel Engine/Pumping sets, Kaushal Diesel Engine and Pumping sets and Bharat Diesel Engine Pump sets were/are included in the approved list. Taking advantage of the said laudable scheme of the State Government in collaboration with the banks, the manufacturers, their selling agents and authorised dealers reaped a good harvest of business. The bank advanced loans to farmers but did not pay any money to them. Payment was made only to the authorised dealers of the approved pumping sets to deliver and install the pumping sets at the places desired by the farmers. The loans, however, were to be repaid by the farmers in easy installments to the bank. The officers of the State Bank of India, Maheshkhunt Branch, the authorised dealers of the Usha Diesel Engine Pumping sets, Bharat Shakti Diesel Engine Pumping sets, Kaushal Diesel Engine and Pumping sets and Bharat Diesel Engine Pump sets, however, started fake payments and receipts and crores of rupees were appropriated and/or drained out from the Maheshkhunt Branch of the Bank, The scandal came to light only in August, 1981, In November, 1981, the General Manager (Planning) of the State Bank of India, Agricultural Banking Division, Patna, issued a confidential Circular to all Branches in the State stating that a loss of more than one thousand crores had been suffered by the Bank due to the active involvement of the Banks Officials and Dealers of Pump sets. The Branches were advised not to finance the dealers of 4 Diesel Pumps i.e., Bharat, Shakti, Bajaj and Utilits until further instructions. Yet another Circular was issued on 8-1-1982 stating that the state Bank of India had decided not to finance Diesel Pump sets of the makes mentioned therein, namely, Kaushal, manufactured by M/s Kaushal Industries. Agra, Usha, manufactured by M/s Shree Ram Refrigeration Industries Ltd., Hyderabad and some others, and also saying that no pump set, agricultural machinery and other inputs should be financed in case these were sold by the dealers noted against their names. The two Circulars issued by the General Manager, State Bank of India, in November, 1981 and January, 1982, however, placed a blanket ban in respect of financing of Diesel Pump sets manufactured and/or distributed by the petitioners.

Mr. Shanti Bhushan, learned Counsel appearing for the petitioners in C.W.J.C. No. 4689 of 1982 and Mr. R.P. Gupta, learned Counsel appearing for the petitioners in C.W.J.C. No. 67 of 1983 have advanced the main arguments followed by M/s. Sorejendu Mukherjee and Anil Kumar, learned Counsels appearing for the petitioners in C.W.J.C. No. 43 of 1983'' and C.W.J.C. No. 78 of 1983. Uday Sinha, J. has adverted to their contentions in some details. 1 propose, however, to dilate and disclose my predications on the two main contentions advanced by them.

It has been submitted on behalf of the petitioners that the impugned Circulars placing a blanket ban in respect of financing of Diesel Pump sets manufactured and/or distributed by them is arbitrary inasmuch as for the acts of the dealers, officers of the bank and the farmers resulting in the scandal of misappropriation of crores of rupees of the bank, inputs themselves should not have been subjected to the ban. There is no material to connect the manufacturers with the embezzlement or fake financing. Involvement of the dealers of these products in Maheshkunt area in the misappropriation of Bank money, according to the learned Counsels, was an irrelevant and extraneous matter. They have further submitted that they do not object to a ban upon any business through the dealers involved in swindling the bank money, but a blanket ban in respect of financing of their products has resulted in discrimination and prohibition on their freedom of trade.

Learned Additional Solicitor General has in answer to the said contention, maintained that the impugned Circulars are interim administrative measures until a final decision in the matter is taken by the Bank. Only such Diesel Pumps have been subjected to the temporary ban whose authorised dealers have been found involved in the scandal and the Bank''s action in issuing impugned Circulars is an action taken in the public interest. He has frankly conceded that until now no materials have been found to connect the manufacturers, but, according to him, the respective dealers were/are their agents and as the principal, manufacturers are also responsible for the acts of their agents.

Developing the above said argument, learned Counsels for the petitioners have submitted that the petitioners have been visited with obvious civil consequences inasmuch as they have been denied the freedom of trade. Even if, it is accepted that there can be reasonable restrictions put upon their business a prohibition of this nature and that also without any basis whatsoever will not be permissible. The respondent-Bank, according to them, by subjecting their products to the ban has in a way black-listed their Diesel Pumping sets and caused discrimination in the matter of grant of agricultural term loans on their products.

It is now a well recognised principle that influence of irrelevant or extraneous matters upon exercise of discretion even in making administrative orders shall render the same non est. The principle of law stated in Sedler v. Sheffield Corporation (1924) 1 Ch. 483 in Queen on the Prosecution of Richard Westbrook v. The Vestry of St. Pancras 1890 24Q.BD. 371 that if people who have to exercise a public duty by exercising their discretion take into account matters which the Courts consider not to be proper for the guidance of their discretion, then in the eye of law they have not exercised their discretion, has been quoted with approval by the Supreme Court in the case of Smt. S.R. Venkataraman Vs. Union of India (UOI) and Another, The Supreme Court has stated the law in these words, "We are in agreement with the view. It is equally true that there will be an error of fact when a public body is prompted by a mistaken belief in the existence of a non-existing fact or circumstance This is so clearly unreasonable that what is done under such a mistaken belief might almost be said to have been done in bad faith; and in actual experience, and as things go, these may well be said to run into one another". An administrative order purportedly made in the public interest to a purpose wholly unwarranted by it was held to be invalid by the Supreme Court and it also said, ''"an administrative order which is based on reasons of fact which do not exist must, therefore, be held to be infected with an abuse of power". The act of the respondent-Bank in issuing the impugned circular has been attacked by the petitioners primarily on this principle. Learned Additional Solicitor General appearing for the respondent-Bank made an endeavor to show that consideration as to the conduct of the agents of the manufacturers are not altogether irrelevant or extraneous. Uday Sinha, J. had found for good reasons that the dealers were not agents of the manufacturers and that there was no public interest involved in the imposition of the ban in respect of financing of the Diesel pumps themselves. Once it is borne in the mind that the dealers obtained the Diesel Pump from the manufacturers or their distributors or agents by way of outright sale, their (the dealers) involvement in the embezzlement of the Bank money shall undoubtedly be no ground to connect the products and the manufacturers with the misappropriation of the Bank money and such a consideration shall be irrelevant and/or extraneous for imposition of any constraint or restriction upon financing by the Bank, the purchase of the Diesel Pumps of the petitioners. It cannot be said that there is no civil consequence involved in the imposition of the ban by the respondent-Bank. Prejudice to the petitioners is writ large. They have been deprived of equality of opportunity in the matter of sale of their products. Such products which are subjected to the ban have to suffer the slur of being branded as the materials involved in the scandalous deals. The farmers desiring to purchase these products shall not receive any loans advanced by the Banks in the State of Bihar and naturally, therefore, they will have to choose another Diesel Pump which is not included in the ban if they want to avail the loans.

Mr. Shanti Bhushan, Mr. Gupta as also the other counsels of the petitioners have also argued that since the Bank has chosen to impose the ban which has caused prejudice to them, it has to support its action by good and valid reasons. According to them imposing a ban of this nature upon financing the brands of Pumps produced by the petitioners amounts to black listing. The Bank, therefore, was obliged to give to the petitioners notice to be heard before the ban was imposed. The mainstay of their arguments as to the violation of this well recognised principle of natural justice is the Erusian Equipment and Chemicals Ltd. Vs. State of West Bengal and Another, . It has been held in that case that black listing has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the person making the order must have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is out on the black-list.

The learned Additional Solicitor General endeavored to distinguish M/s. Erusian Equipment and Chemicals Ltd. case on the ground that the State action in exercise of its executive power under Article 298 of the Constitution of India cannot be equated with the action of the respondent-Bank which has no such function to exercise. According to him, it was in the context of exercise of the executive power of the State under Article 298 of the Constitution of India that the Supreme Court held that the exercise of such powers and functions in trade by the State is subject to Part II of the Constitution and equality of opportunity should apply to matters of public contracts No doubt, the attempt to distinguish M/s. Erusian Equipment and Chemicals Ltd. case is ingenious. But to hold that to ensure equality of opportunity will not be a responsibility of the respondent-Bank only for the reason that the State Bank is not one which had to exercise its executive power under Article 298 of the Constitution of India will amount to restricting the ambit and reach of Article 14 of the Constitution of India, The State Bank is an authority created by a statute and a State under Article 12 of the Constitution of India. Its obligation to obey the mandates in Part-III of the Constitution of India are not different from the obligations of the Executive Government of the State or the Union. Every State action must conform to the omnipresent rule of equality. Discrimination of any kind which shall cause a civil consequence and prejudice to a person shall be liable to be quashed as violative of Article 14 of the Constitution of India Mrs. Maneka Gandhi Vs. Union of India (UOI) and Another, .

Learned Additional Solicitor General has, however, submitted that the respondent-Bank''s order is only interim in nature and even if it is acknowledged that natural justice is a pervasive facet if no opportunity is given at the time of making the order final then only a complaint as to the violation of the rule of audi alterarr partem can be made. He has relied upon the pronouncement of the Supreme Court in Mohinder Singh Gill and Another Vs. The Chief Election Commissioner, New Delhi and Others, and drawn our attention to the discussion on the cardinal principle of hearing as a condition for decision making and administrative immediacy making such an exercise impossible. According to him the law laid down in Wiseman v. Borneman 1969 (3) All. E.R. 275 and Ors. cases that before reaching a final decision, if circumstances warrant, a prima facie decision cannot be said to be inherently unjust in the absence of a hearing to the affected party has been approved by the Supreme Court.

Gill''s case has recognised the rules of natural justice as rooted in all legal systems and manifested in the twin principles of nemo judex in causa sua and audi alteram partem.

Gill''s case has held, "after all, administrative power in a democratic set-up is not allergic to fairness in action and discretionary executive justice cannot degenerate into unilateral injustice. Nor is there ground to be frightened of delay, inconvenience and expense, if natural justice gains access. For fairness itself is a flexible, pragmatic and relative concept, not a rigid, ritualistic or sophisticated abstraction. It is not a bull in a china shop, nor a bee in one''s bonnet. Its essence is good conscience in a given situation; nothing more, but nothing less. The ''exception'' to the rules of natural justice are a misnomer or rather are but a shorthand form of expressing the idea that in those exclusionary cases nothing unfair can be inferred by not affording an opportunity to present or meet a case. Text-book excerpts and ratios from rulings can be heaped, but they all converge to the same point that audi alteram partem is the justice of the law, without, of course, making law lifeless, absurd, stultifying, self-defeating or plainly contrary to the commonsense of the situation". Wiseman''s case, according to the Supreme Court is an authority for the principle that there must be a balance between the need for expedition and the need to give full opportunity. The Supreme Court has said. "We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. Even go, natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances. To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. Even in Wiseman where all that was sought to be done was to see if there was a prima facie case to proceed with a tax case where, inevitably, a fuller hearing would be extended at a later stage of the proceedings, Lord Reid, Lord Morris of Borthy-Gest and Lord Wilberforce suggested "that there might be exceptional cases where to decide upon it exparte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness" Lord Denning, M.H. in Howard v. Borneman (1974) 3 W.L.R. 660 summarised the observations of the Law Lords in this form. No doctrinaire approach is desirable but the Court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that Counsel should be allowed to appear nor it is compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the concerned parties summoned at an hour''s notice, or in a crisis, even a telephone call, may suffice. If all that is not possible as in the casa of a fleeing person whose pass-port has to be impounded lest he should evade the course of justice or a dangerous nuisance needs immediate abatement, the action may be taken followed immediately by a hearing for the purpose of sustaining or setting aside the action to the extent feasible. It is quite on the cards that the Election Commission if pressed by circumstances, may give a short hearing. In any view, it is not easy to appreciate whether before further steps got under way he could not have afforded an opportunity of hearing the parties, and revoke the earlier directions We do not wish to disclose our mind on what, in the critical circumstances, should have been done for a fair play or fair hearing. This is a matter pre eminently for the Election Tribunal to judge, having before him the vivified totality of all the factors. All that we need emphasize is that the content of natural justice is a dependent variable, not an easy casualty". I could have hesitated in interfering with the ban if the respondent-Bank would have shown any thing tenable to suggest that imposition of a temporary ban had become imminent and the bank could not wait to give a hearing before imposing the ban. The petitioners have suffered for about a year and a half, ft is not known as to when the transitory or temporary arrangement shall end. I would have possibly accepted the respondent-Bank''s case that it would give a hearing, before making the order final, to the petitioners and other affected persons and so there should be no interference by this Court, if I would have found any thing with the bank to confront the petitioners. The only material with the respondent bank to bring in the names of the Diesel Pumps is the alleged conspiratorial and criminal involvement of the dealers of these Diesel Pumps in the embezzlement of the Bank money. The petitioners have categorically and fairly accepted that they will not claim any business with the Bank through the recalcitrant dealers. The learned Additional Solicitor General has not disputed before us that even a prima facie order made exparte can be quashed if it is made on the basis of no facts or irrelevant facts. The impugned Circulars are non-est for this reason alone.

Since I am in respectful agreement with the findings of Uday Sinha, J. I do not propose to separately deal with the other contentions of the parties. In my opinion, the arbitrariness of the two Circulars is too eloquent to need any further persuasion or any other infirmity to hold, that the impugned Circulars are wholly without jurisdiction. I agree with the conclusion of Uday Sinha, J. that the writ of certiorari should issue quashing the Circulars Nos. A.G.R. No 64 of 1981 dated 1-11-81 and A.G.R. No. 2 of 1982 dated 8-1-1982 as contained in Annexure 2 and 3 in C.W.J.C. No. 4689 of 1982. I also agree that a writ of mandamus should issue commanding the State Bank of India and its Branches to further their withdrawing financing facility through agricultural term loans to the Diesel Engine Pump sets of the petitioners, I also agree with the observations that the State Bank will be free not to finance the selling of such Pumps through dealers mentioned in paragraph 3 of Circular No. 2 of 1982 dated 8-1-82 or any body associated with those dealers.