The Madurai Bench of the Madras High Court has held that garment exporters had “bound themselves to satisfy conditions of export quota” given to them by the authorities which included ‘forfeiture' of EMD (earnest money deposit) if export obligation fell short.

Dismissing writ petitions by Arasan Textile Mills (P) Ltd and Tuticorin Spinning Mills Ltd, Tuticorin, challenging orders dated June 14, 2005 and July 12, 2005 of the Second Appellate Committee, Ministry of Textiles, Government of India, New Delhi, rejecting the appeal of petitioners pleading that they could not fulfil the export obligation of garment because of the buyer refusing to honour contract and open L/C (letter of credit) due to fall in yarn prices and poor market conditions, Mr Justice K. Chandru said that this court “did not find any illegality” in the impugned orders confirming decision taken by the Textile Commissioner to forfeit the EMD.

Hence, the judge ruled, the respondents (the Textile Commissioner, Appellate Committee and the Ministry of Textiles) were at liberty to invoke the bank guarantee.

The petitioner contended that export obligation could not be fulfilled because of refusal by the buyer to honour contract due to fall in yarn prices and poor market conditions. The 2{+n}{+d} Appellate Committee (R-1) rejected the petitioner's plea.

An objection was raised on maintainability of writ petition in interfering with the imposition of the forfeiture clause on bank guarantee executed by the petitioner who entered into an agreement and obtained export quota. The export entitlement system (‘Quota Policies') related to garments and policy for 2000-04 imposed conditions. The concession was extended by the Government of India on the basis of application of exporters and also on furnishing earnest money deposit. Under the policy, in case of shortfall by not carrying export obligations, EMD was liable to be forfeited.

The judge cited the judgment of the Supreme Court in Dwarikesh Sugar Industries Ltd vs Prem Heavy Engg Works (P) Ltd reported in AIR 1997 SC 2477 holding that no court should give relief in matters involving invocation of bank guarantee by Government authorities. The apex court also warned the other courts from acting contrary to the settled legal position.

This court did not find any illegality in orders of R-1 confirming the decision of the Textile Commissioner to forfeit the EMD. Hence, the petitions were dismissed.

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