ORDER

1. The prayer in this writ petition is for a direction to the State of Uttar Pradesh, Respondent No.1, to honour its guarantee in respect of the 14.9% redeemable bonds issued by U.P. Co-operative Spinning Mills Federation Ltd. (Respondent No. 2) and pay the Petitioner a sum of Rs. 20,32,491/- towards the principal amount of the bonds together with interest as well as overdue interest till payment.

2. The background facts are that Respondent No. 2 wished to raise a sum of Rs. 55 crores to meet the working capital requirements of its member mills. It, therefore, came out with a bonds issue through private placement. The face value of each bond was Rs. 5,000 and tenure 5 years. The bonds were to carry interest @ 14.9% per annum payable annually on 26th December of each year. The bonds were to be redeemed in three instalments at par at the end of 4th, 4½ and 5th year @ 33%, 33% and 34% respectively. It is stated that RR Financial Consultants Limited and Dara Shaw Badar Financial Services Pvt. Ltd., having their office at Delhi besides other places, were appointed as the arrangers to the issue.

3. In the brochure giving the details of the issue, the commitment of the Respondent No.1, Government of Uttar Pradesh, in the form of an unconditional and irrevocable guarantee as well as the fact that loans worth Rs. 43 crores of the UP Government were converted in equities in Respondent No. 2 were prominently highlighted. The security for the bonds was stated to be the said unconditional and irrevocable guarantee of the Government of Uttar Pradesh for payment of interest and redemption of the principal amounts. It is stated that consistent with the assurance given, a letter dated 2nd June 1998 was addressed by the Special Secretary, Government of UP to the Managing Director of Respondent No. 2 conveying the decision of the former to guarantee the payment in respect of the said bonds.

4. Acting on the representations made by the Respondents, the trustees of the Petitioner thought it prudent to make an investment of Rs. 5.5 lakhs by purchasing bonds of Respondent No. 2 of an equivalent amount. The Petitioner states that they proceeded on the assumption that the investment was secure on account of the irrevocable guarantee provided by Respondent No. 1.

5. On the Petitioners application dated 17th June 1998 for 90 bonds and 30th June 1998 for 20 bonds, Respondent No. 2 allotted to the Petitioner bonds of the total value of Rs. 5.5 lakhs. Copies of the debenture bonds have been enclosed which clearly indicate that the allotment was of 14.9% (taxable) secured redeemable UPCSMFL debenture bonds “fully guaranteed by the Government of Uttar Pradesh on private placement basis”.

6. The Petitioner states to have received interest in the sum of Rs. 63,758/- for a period of twelve months. However, despite numerous reminders between August 2001 August 2008, no further payments were forthcoming.

7. On 2nd September 2008, the Financial Controller of Respondent No. 2 informed the Petitioner that under the one time settlement programme of 2005 (`OTS), it has sent proposals to Respondent No. 1 and requested it to release a sum of Rs. 9.5 crores in that regard.

8. The Petitioner received a communication dated 9th October 2001 and 6th February 2002 from Respondent No. 2 wherein Respondent No. 2 informed the Petitioner that due to financial crunch they are unable to make the payment of interest and re-payment of principal sum and have approached Respondent No. 1 for releasing the amount under guarantee. Respondent No. 2, vide letter dated 28th September 2002, informed Petitioner that a Receiver is being appointed by the Bombay High Court in an appeal filed by Respondent No. 2 arising out of the suit filed by Maharashtra State Road Transport Corporation, Mumbai, a debenture bond-holder in Suit No. 2792 of 2000 for recovery of Rs. 5.89 crore.

9. By a letter dated 10th January 2005, Respondent No. 2 authorise

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