The prayer in the writ petition runs as follows :


"For the reasons stated in the accompanying affidavit, the petitioner herein prays that this Hon'ble Court may be pleased to call for the records pertaining to the order of the 1st respondent contained in its letter Ms. No. 1230 dated 28-8-1980 by issue of writ of certiorarified mandamus or any other appropriate writ, direction or order of like nature and quash the order of the 1st respondent contained in its letter Ms. No. 1230 dated 28-8-1980 and direct the 1st respondent to full its obligations and commitments under the deed of guarantee dated 21-6-1968 executed by the 1st respondent in favour of the petitioner on behalf of Sarada Mills and pass such further or other orders as this Hon'ble court may deem fit and proper in the circumstances of the case." *


There is no dispute that the deed of guarantee dated 21-6-1968, referred to in the prayer in the writ petition was executed by the first respondent, represented by the second respondent. It covered a loan of rupees Fifteen Lakhs with interest at 11 per cent per annum, granted to Sri Sarada Mills Ltd., Podanur, hereinafter referred to as the Mills by the petitioner. The petitioners also had the loan secured by way of an equitable mortgage from the mills. The mills was initially taken over under the Sick Textile Undertakings (Taking over of Management) Act, 1972 (Act 72 of 1972). Subsequently, pursuant to the provisions of the Sick Textile Undertakings (Nationalisation) Act, 1974 (Act 57 of 1974), hereinafter referred to as the Act the mills have come to vest in the Central Government and subsequently transferred to and vested in the National Textile Corporation. Since the concerned instalments due at the relevant point of time under the loan were not paid by the mills, the petitioner invoked the deed of guarantee, executed by the first respondent and filed a suit for recovery of the amounts due then under the loan in O.S. No. 255 of 1976 on the file of the Sub-Court Coimbatore, against the first respondent. On 24-3-1977, the petitioner wrote to the second respondent as follows :


"A term loan of Rs. 15.00 lakhs had been sanctioned by us to the above mills against the security of its fixed and other unencumbered assets and also on the guarantee dated 21-6-1968 (copy enclosed for ready reference) issued by Government of Tamil Nadu. The said loan was repayable in 5 equal annual instalments together with interest accrued and the first instalment was due after the expiry of a year from availing the entire loan. Although the mills started to avail this loan at our Coimbatore branch on 26-6-1968 the entire limits was fully availed on 26-2-1970.


The management of the captioned mills has been taken over by the Tamil Nadu National Textile Corporation on 20-11-1972 and later nationalised on 21-9-1974.


As the mills has defaulted to pay all the five annual instalments with interest which fell due from 26-2-1971 to 26-2-1975 in spite of our repeated demands, we now invoke the guarantee issued by Government of Tamil Nadu and request payment of the entire loan amount which comes to Rs. 33,29,991-01 plus interest from 1-1-1976. If the payment is made early, there will be no necessity for us to prefer our claim before Assistant Commissioner of Payment at Coimbatore.


A suit was filed by us at Coimbatore for 3 instalments with interest in order mainly to save the limitation period as per guarantee clause No. 6(ii). We have also issued lawyer's notice on 8-2-1977 to the Collector of Coimbatore demanding payment of remaining two instalments with accrued interest.


We therefore request you to take up the matter with the Government of Tamil Nadu and arrange to settle the issue early. We are willing to withdraw our suit if our claim is settled early" *


On 25-5-1977, the second respondent wrote a letter to the petitioner as follows :-


"The Government have since informed me that the Bank of Madurai may be advised not to file a suit having regard to the Government guarantee already given to the Bank. I, therefore, request you kindly not to file any suit against the Government having regard to the Government guarantee already given to the Bank.


Kindly acknowledge receipt of this letter."


The petitioner replied on 26-5-1977 in the following terms :-


" We invite your kind attention to your letter 17593/73B3 dated 25-5-1977 asking us not to file the suit against the Government having regard to the Government guarantee already given to the Bank.


It is presumed that the Government acknowledge the liabilities under the guarantee and the question of limitation for filing the suit does not arise. Please let us have your confirmation before 30th instant to avoid filing a suit. Please treat this as urgent." *


The second respondent replied to the petitioner on 30-5-1977 as follows :-


"The presumption contained in your letter cited is confirmed."


On 25-7-1987, the petitioner addressed a letter to the second respondent in the following terms :


"We enclose a copy of letter dated 11-6-1977 received from our advocate Shri N. Balasubramanian with regard to the suit filed against Government of Tamil Nadu. As we would like to advise our advocate suitably in the matter, we request you to consider our claim favourably and arrange for payment of Rs. 33,46,508.70 (with further interest from 1-4-1977 at 11% p.a. as stated in our C.O.


Adv. Sc. 800/77 dated 24-5-1977). Your early action will be much appreciated by us." *


There was reply by the second respondent on 30-8-1977, and the body of the reply runs as follows :


"With reference to your letter first cited, I wish to state that my reply in my earlier letter second cited, will cover the entire liabilities arising out of the Government guarantee. On the strength of it, you may withdraw the suit as settled out of Court, if so advised.


2. I wish to add that the bank should not make any claim towards suit charges." *


There was another letter dated 16-6-1978 by the second respondent to the petitioner and this is what was stated therein.


"I wish to state that the question of meeting 50% of the stamp duty in the event of bank moving the court for dismissal of the suit as 'settled out of Court' is being examined by the Government and decision will be taken soon. I am, however, informed by the Government that it will not be feasible for them to issue orders before 24-6-1978, the date of next hearing. I have been advised to request you to get the hearing adjourned to a future date. I believe that the decision of the Government will be made available to me before the end of next month at the latest. I would therefore, request you to arrange to obtain another adjournment for 5 weeks when the suit comes up for hearing on 24-6-1978. The inconvenience caused is regretted." *


The first respondent passed G.O. Ms. No. 850, Industries Department, dated 14-8-1978, the body of which is in the following terms :


"In G.O. Ms. No. 741 Industries dated 24-2-1968 the Government have given guarantee in favour of the Bank of Madurai Limited for the repayment of a loan of Rs. 15 lakhs advanced by the Bank to Sri Saradha Mills Limited, under guarantee scheme recommended by the Lokanathan Committee. The mill should have repaid the above loan together with interest in 5 equal annual instalments. But the mills had committed default in the payment.


2. Sri Saradha Mills has been nationalised with effect from 1-4-1974. The Bank of Madurai has already filed a suit against the Government to recover three defaulted instalments for the years 1971, 1972 and 1973 which were over due. In respect of the instalment for the year 1974 also, the bank wanted to file a suit. The Government advised the bank not to file a suit for the amounts due from them having regard to the guarantee already given. The bank was informed further that the Government would bear the entire liabilities arising out of the guarantee and was requested to withdraw the pending case filed by it for recovery of the instalments payable on 1971, 1972 and 1973 as settled out of Court. The Bank was also informed that they should not make any claims towards suit charges. The Bank however, insisted that 50% of the Court fees (i.e. Rs. 49,527/-) should be borne by the Government and that if it moves the Court for settlement of the suit out of Court, it would be able to get the balance 50% of the Court costs by way of refund.


3. The Director of Handlooms and Textiles has recommended that the proposal of the Bank of Madurai might be accepted in principle so as to enable the Bank to withdraw the suit.


4. The Government have examined the above proposal and they agree to bear 50% of the cost of the suit i.e. Rs. 49,527/- (Rupees forty nine thousand five hundred and twenty seven only) the total cost of the court-fees paid being Rs. 99,054.50 filed by the Bank of Madurai so as to settle the suit for the recovery of the said dues from M/s. Sri. Saradha Mills (Subsequently nationalised) out of the Court.


This order issues with the concurrence of the Finance Department vide its U.O. No. 69994/IF/78-a, dated 1-7-1978." *


This was followed by G.O. Ms. No. 1699. Industries Department, dated 27-12-1978 in the following terms :


"The Government in 1968, sanctioned guarantee in favour of the Bank of Madurai for the repayment of a loan of Rs. 15 lakhs advanced by the Bank to Sri Saradha Mills, Coimbatore, under the guarantee scheme recommended by the Lokanathan Committee. As the mills defaulted in the repayment as per schedules, the bank filed a suit against the guarantor viz. the Government for recovery of the dues. The Bank had to spend Rs. 99054-50 by way of stamp fee in connection with this suit. However, later the Bank agreed to withdraw the suit provided the Government agreed to pay 50% of the costs of stamp fee viz. Rs. 49,527/-. This proposal of the Bank was accepted and orders were accordingly issued in G.O. Ms. No. 850, Industries, dated 14-8-1978.


2. The Director of Handlooms and Textiles has now reported that the suit has since been dismissed by the Court as settled out of Court and the necessary provision for meeting this expenditure has also been made in the Revised Estimate 1978-79. He has therefore requested sanction for the above expenditure.


3. The Government accept the request of the Director of Handlooms and Textiles. Sanction is accorded for the payment of Rs. 49,527/- (Rupees forty nine thousand five hundred and twenty seven only) being 50% of the costs of the stamp fee in the suit filed by the Bank of Madurai for recovery of their dues.


4. The expenditure sanctioned above shall be debited to" *


268 Miscellaneous General Services. Other expenditure-I. Non-Plan-BB Guarantee liabilities D.P. Code 268A AEBB 0007

"Necessary additional funds required will be provided at the time of final modified approbation 1978-79.


5. This order issued with the concurrence of the Finance Department vide its U.O. No. 13076/IF-78.7 dated 15-12-1978." *


On 23-2-1979, the second respondent wrote to the petitioner as follows :


"I write to inform you that 50% of the suit cost (Rs. 47,527/-) under reference will be paid within a week.


2. Regarding settlement of the guarantee liability, the matter is under consideration" *


On 2-4-1979, the second respondent forwarded a cheque for Rs. 49,527/- and the letter in this regard runs as follows :


"With reference to your letter cited, I send herewith a Pay and Account Officer's cheque for Rs. 49,527/- (Rupees forty nine thousand, five hundred and twenty seven only) drawn on State Bank of India in favour of me and duly endorsed by me in your favour.


2. I request you to acknowledge the receipt of the cheque and send a stamped receipt at an early date." *


The second respondent on 30-6-1979 wrote to the petitioner in the following term :


"I invite a kind reference to your letter cited in the above mentioned subject, I am fully posted with the developments in respect of the guarantee given to Bank of Madurai Ltd. in favour of Sri Sarada Mills Ltd. I find that in spite of the guarantee being in force, it may be difficult for the Government to consider the bank's claims, now, since in respect of pre-take over liabilities of the mills, the liability of the guarantor will normally arise in the case of non-payment by the payment commission of the claims of the creditor. Independent of this, the State Government has also been requested to move the Central Government for assuming the pre-post take over guarantee liabilities of the State Government as the guarantees have been given for the revival smooth working of the mills.


In any case, I wish to inform you that we are seized of the matter." *


Ultimately, the first respondent on 28-8-1980 wrote to the petitioner saying that their liability under the deed of guarantee does not subsist on account of the changed circumstances and the body of the letter is as follows :


"I am directed to invite attention to your letter cited and to state that the Government have carefully examined your request for settling the claim of the Bank of Madurai Limited of a sum of Rs. 41.58 lakhs payable as on 30-6-79 together with interest for the subsequent period in pursuance of the guarantee given by the Government to the loan of Rs. 15 lakhs advanced by the Banks to Sri Sarada Mills Limited, Coimbatore. The Government have been advised that their guarantee liability does not subsist now on account of the changed circumstances. I am therefore to state that the Government regret their inability to comply with your said demand." *


This letter is being impugned in this writ petition.


2. On the basis of the above materials, Mr. B.R. Dolia, learned counsel for the petitioner would submit that the principle of promissory estoppel comes into play with full vigour and the first respondent is estopped from denying its liability and on the other hand it is duty-bound to honour its obligations and commitments under the deed of guarantee dated 21-6-1968. Time and again, the respondents have been declaring the tenability of the liability of the first respondent under the deed of guarantee, and assured the petitioner that it will be honoured and discharged. There was no resiling from the said obligations at any point of time earlier to the impugned letter. These assurances were expressed and given, even after the coming into force of the Act. The petitioner notified the second respondent about the filing of the suit with regard to instalments over-due and also notified the intention about the proposed follow-up action with regard to subsequent instalments. The second-respondent conveyed to the petitioner the request of the first respondent not to file any fresh suit, having regard to the guarantee given by the first respondent. The petitioner wanted to know as to whether the first respondent acknowledges its liabilities under the deed of guarantee and the proposed suit need not be filed, even though limitation therefor might arise. The answer given by the second respondent was in the affirmative. The honouring of its obligations under the deed of guarantee was promised, declared and assured in unambiguous terms, and the petitioner was persuaded to withdraw the suit already filed, paying to it half of the Court fees therefor, and the petitioner was further persuaded not to file any fresh suit for the remaining amounts. On behalf of the petitioner, it is stated that even on the date when the writ petition was filed, the ordinary civil remedy stood barred. Whatever that be, the first respondent is bound by its promises given and declared from time to time that it will honour its obligations under the deed of guarantee and it is not open to the first respondent to resile from the same to the prejudice and chagrin of the petitioner. The factual back-drop of the present case, brings into play the principle of promissory estoppel with full force. That principle was recapitulated by the Supreme Court in Motilal Padampat Sugar Mills Co. (P) Ltd. v. State of U.P., 1979 (44) STC 42, 1979 AIR(SC) 621, 1979 (118) ITR 326, 1979 (2) SCC 409, 1979 (2) SCR 641, 1979 UPTC 954, 1979 All(LJ) 368, 1979 SCC(Tax) 144 at p. 631 as follows :


"The true principle of promissory estoppel, therefore, seems to be that where one party has by his words or conduct made to the other a clear and unequivocal promise, which is intended to create legal relations or affect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective of whether there is any pre-existing relationship between the parties or not." *


Thus I have to hold that the principle of promissory estoppel would firmly estop the first respondent from resiling from its obligations under the deed of guarantee.


3. Even otherwise, it has been always countenanced that the State should honour its legal obligations arising out of contract and not drive the citizen concerned to file a suit for recovery of the amount and that in all democratic societies governed by the rule of law, it is the duty of the State to do what is fair and just to the citizen and the State should not seek to defeat the legitimate claim of the citizen by adopting a legalistic attitude but should do what fairness and justice demand.


4. Then the question is as to whether the assurances given and promises made by the first respondent were under a misapprehension of any legal right or benefit conferred on it under the Act, so that it could be pleaded that there cannot be an estoppel against Statute. The only ground projected in the impugned letter of the first respondent to get over the liability under the deed of guarantee is "changed circumstances." In the counter-affidavit, filed on behalf of the respondent, what is pointed out is that there is the remedy available to a secured creditor like the petitioner to go before the Claims Commissioner, under the Act. In the instant case, it is admitted that even that process was resorted to by the petitioner and it proved futile and the petitioner could no

t realise its claims. Even otherwise the remedy of going before the Claims Commission cannot be held to be a bar for recovery of the dues by of her process available to the creditor in law. With regard to the present liability of the principal debtor, namely the mills, whose Sick undertaking has been transferred and got vested in the manner noted above, the provisions of the Act have not extinguished the same. Consequently, it follows that the liability of the guarantor, the first respondent is also not extinguished. None of the provisions of the Act contemplates that the liability of a guarantor like the first respondent will stand discharged or extinguished on the Sick Undertaking standing transferred and vested under its provisions. When the liability of the principal-debtor the owner of the Sick Undertaking has not been extinguished, the liability of the guarantor being co-extensive with that of the principal-debtor, consequently will remain alive. There is no escape from such liability under the cover of any provision of the Act. Such a view has also been expressed by the High Court of Andhra Pradesh in State of Andh. Pra. v. Central Bank of India, (1982) 1 Andh WR (NRC) 10. Sathiadev and Singaravelu, JJ. in Bank of Madura Limited v. Bank of Baroda, Madurai, A.S. No. 200 of 1980, judgement dated 26-3-1986 have reiterated and followed the same ratio. Hence, the law as such did not absolve, the first respondent from its obligations under the deed of guarantee and it could not be stated that without understanding and under a misapprehension of its legal rights, there were declarations of promises and assurances. It will be not only unfair but also impracticable and futile even to conceive of the idea of relegating the petitioner to ordinary civil process at this juncture. Under these circumstances, the writ petition is allowed and the first respondent is directed to discharge its obligations and commitments under the deed of guarantee referred to in the prayer of the writ petition within a period of four months from the date of receipt of a copy of this order. No costs. Petition allowed.