Parampujya Solar Energy Private Limited vs.union of India and Others - Court Judgment

$~29 IN THE HIGH COURT OF DELHI AT NEW DELHI * + O.M.P.(I) (COMM.) 105/2018 & IA Nos.3185-3187/2018 PARAMPUJYA SOLAR ENERGY PRIVATE LIMITED ........ Petitioner

Through: Mr Abhishek Malhotra, Mr Aditya Singh and Ms Shilpa Gamnani, Advocates. UNION OF INDIA AND OTHERS versus ........ RESPONDENTS

Through: Mr Dev P. Bhardwaj, CGSC with Mr Surinder Kumar, Advocate for R-1. Mr Bharat Sangal, Ms Isha Gupta and Ms Babita Kushwah, Advocates for R-2. CORAM: HON'BLE MR. JUSTICE VIBHU BAKHRU % ORDER

0803.2018 VIBHU BAKHRU, J1 The petitioner (Parampujya Solar Energy Private Limited – hereafter „PSEPL‟) has filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereafter „the Act‟), inter alia, praying as under:-

"“a. Grant injunction restraining the Respondent No.2, its servants, agents, representatives and any other person acting for and on behalf of Respondent No.2 from invoking or claiming or demanding any amounts whatsoever under the Bank Guarantees bearing Nos. 007GM07161890017 of INR120,00,000/- (Rupees One Crore and Twenty Lakhs only) drawn on Yes Bank O.M.P. (COMM) 105/2018 Page 1 of 10 Limited being valid upto April 30, 2018; and 007GM07161890018 of INR480,00,000/- (Rupees Four Crores Eighty Lakhs only) also drawn on Yes Bank Limited and being valid upto April 30, 2018; b. c. Grant injunction restraining the Respondent No.3, its servants, agents, representatives and any other person acting for and on behalf of Respondent No.3 in making payment towards such invocation/encashment of the said Bank Guarantees by the Respondent No.2; Press ad-interim pendency of the present petition” relief against invocation during The controversy involved in the present petition arises on 2. account of SECI (Solar Energy Corporation of India Limited – hereafter „SECI‟) invoking the bank guarantees (two in number) furnished by PSEPL in terms of the Power Purchase Agreement dated 19.07.2016 (hereafter „the Agreement‟).

3. On 24.02.2016, a Request for Selection (RfS) document was floated by SECI for selection of Solar Power Developers (SPD) for development of 50 MW of grid connected Solar Photo Voltaic Power Projects on “Build Own Operate” Basis. Pursuant to the said invitation, PSEPL‟s holding company (Adani Green Energy Limited) submitted its bid. The said bid was accepted and on 16.06.2016 it was awarded the project for setting up 20 MW Solar Developing Facility at Kilaj Village, Tuljapur Tehsil, District Osmanabad, Maharashtra. Thereafter, Adani Green Energy Limited incorporated PSEPL as a Special Purpose Vehicle (SPV) for execution of the said contract. On 19.07.2016, PSEPL and SECI entered into the Agreement, in terms of O.M.P. (COMM) 105/2018 Page 2 of 10 which PSEPL had agreed to commission the power generating facility by 16.08.2017.

4. PSEPL also furnished two bank guarantees (which are subject matter of the present petition) for securing the performance of the Agreement. The details of the said bank guarantees are as under:-

"S. No.Bank Guarantee No.Issue Date Amount (Rs.) Expiry Date 1. 007GM07161890017 07.07.2016 1,20,00,000/- 30.04.2018 2. 007GM07161890018 07.07.2016 4,80,00,000/- 30.04.2018 5. It is PSEPL‟s case that the project was on schedule and it would have commissioned the power generation facility within the time prescribed. PSEPL also issued the necessary notice indicating its readiness to commission the plant. However, two days prior to the last date for commissioning the project, PSEPL received a notice dated 14.08.2017 sent by the Tehsildar communicating the decision of the Sub-Divisional Officer (SDO), Osmanabad requiring PSEPL‟s to stop the work. It is the petitioner‟s case that the said order had been passed as there was certain agitation by the villagers.

6. Concededly, the said order was vacated on 22.12.2017. In the meanwhile, PSEPL sent a communication dated 16.08.2017 to SECI claiming that a force majeure event had occurred in terms of Article 11.3.1 of the Agreement and, therefore, the project had been delayed. It is not disputed that PSEPL completed the project and commissioned the plant on 26.02.2018. O.M.P. (COMM) 105/2018 Page 3 of 10 7. SECI had invoked the bank guarantees on account of delay in commissioning of the said project.

8. The present petition was moved on 06.03.2018 and this Court had passed an order directing the parties to maintain status quo. At the request of the learned counsel for SECI, the matter was adjourned for today. Submissions 9. Mr Bharat Sangal, the learned counsel appearing for SECI states that the bank guarantees in question were invoked prior to the order dated 06.03.2018 and the demand drafts issued by the concerned bank (respondent no.3) were received and deposited by SECI in its bank account prior to the status quo order being passed.

10. Despite the aforesaid statement being made, Mr. Malhotra, the learned counsel appearing for PSEPL insisted that the matter be heard on merits. He stated that he had instructions that the above statement made by Mr. Sangal was incorrect. It is on the insistence of Mr. Malhotra that the matter has been heard on merits.

11. Mr Malhotra submitted that in terms of the Agreement, the bank guarantees could be invoked only if PSEPL had failed to commission the plant within the extended time. He submitted that although there is no formal letter extending the time for commissioning the facility, SECI had accepted the commissioning of the plant; and, therefore, it is deemed that an extension has been granted by SECI. He referred to Clause 3.3.3 of the Agreement, which expressly provides that “If the SPD fails to commence supply of power from the Scheduled O.M.P. (COMM) 105/2018 Page 4 of 10 Commissioning Date or any further extension thereof subject to conditions mentioned in Article 4.5, SECI shall encash the Performance Bank Guarantees without prejudice to its other rights”. He submitted that since SECI had accepted the delayed commissioning of the facilities, it was precluded from encashing the bank guarantees in question.

12. Next, he earnestly contended that commissioning of the facility constituted a force majeure event. This has not been accepted by SECI.

13. The learned counsel also relied on the decision of the Calcutta High Court in Rahee GPT (JV) and Ors. V. The Union of India & Ors.: MANU WB0882(2017) in support of his contention that the facts in the present case presented a case of special equities and, therefore, the bank guarantees ought to be injuncted. Reasoning and Conclusions 14. At the outset, it is relevant to note that the prayers made by PSEPL are limited to seeking injunction against SECI from invoking or making any demands under the bank guarantees in question.

15. In view of the statement made by Mr Sangal that the bank guarantees have been invoked and encashed, it is apparent that the said prayers are infructuous and do not survive.

16. Notwithstanding the above, this Court is of the view that no interference with the invocation of the bank guarantees was warranted in this case. The law relating to the bank guarantee is now well O.M.P. (COMM) 105/2018 Page 5 of 10 settled. In Svenska Handelsbanken v. M/s. Indian Charge Chrome and Others: (1994) 1 SCC502 the Supreme Court had held as under:-

"case of confirmed “...in bank guarantees/irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud... …irretrievable injustice which was made the basis for grant of injunction really was on the ground that the guarantee was not encashable on its terms… ...there should be prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Mere irretrievable injustice without prima facie case of established fraud is of no consequence in restraining the encashment of bank guarantee.” 17. The aforesaid view was reiterated by the Supreme Court in Larsen & Toubro Limited v. Maharashtra State Electricity Board and Others: (1995) 6 SCC68 18. In view of the above settled position, a bank guarantee can be invoked only in exceptional cases where a case of egregious fraud is established.

19. In the present petition, PSEPL had pleaded that that the invocation of the bank guarantees in question is fraudulent; however, it is apparent from the above that the disputes are contractual disputes O.M.P. (COMM) 105/2018 Page 6 of 10 and this is not a case of an established fraud that vitiates the underlying transaction.

20. It is also well settled that the invocation and encashment of the bank guarantee cannot be interdicted pending resolution of the contractual disputes between the parties. In Hindustan Construction Co. Ltd. v. State of Bihar & Ors: (1999) 8 SCC436 the Supreme Court observed as under:-

"“8. Now, a Bank Guarantee is the common mode, of securing payment of money in commercial dealings as the beneficiary, under the Guarantee, is entitled to realise the whole of the amount under that Guarantee in terms thereof irrespective of any pending dispute between the person on whose behalf the Guarantee was given and the beneficiary. In contracts awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, Bank Guarantees are usually required to be furnished in favour of the Government to secure payments made to the contractor as "Advance" from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such Guarantees are encashable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back to the Government “Advance”, the Guarantee is invoked and the amount is recovered from the Bank.” 21. In U.P State Sugar Corporation v Sumac International Limited: AIR1997SC1644 the Supreme Court had held that: O.M.P. (COMM) 105/2018 Page 7 of 10 is given or accepted, “12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute its customer. The very purpose of giving such a bank guarantee would otherwise be defeated.” raised by 22. In the present case, the disputes essentially revolve around whether the extension in the scheduled commissioning date ought to be granted on the ground of what is claimed to be a force majeure event. The expression „force majeure‟ has been defined under Section 11.3.1 of the Agreement, which reads as under:-

"“11.3.1. A „Force Majeure‟ means any event or circumstances or combination of those stated below that wholly or partly prevents or unavoidably delay an Affected Party in the performance of this Agreement, but only if and to the extent that such events or circumstances are not within the reasonable control, directly or indirectly, of the Affected Party and could not have been avoided if the Affected Party had taken reasonable care Of complied with Prudent Utility Practices: its obligations under a) Act of God, including, but not limited to lightning, drought, fire and explosion (to the extent originating from a source external to the site), earthquake, volcanic eruption, landslide, flood, cyclone, typhoon or tornado if and only if it is declared/notified by the O.M.P. (COMM) 105/2018 Page 8 of 10 state/central authority/agency (as competent applicable); b) any act of war (whether declared Or undeclared), invasion, armed conflict or act of foreign enemy, blockade, embargo, revolution, riot) insurrection, terrorist or military action if and only if it is declared/notified by the competent state/central authority/agency (as applicable); or c) radioactive contamination or ionising radiation originating from a source in India or resulting from another Force Majeure Event mentioned above excluding circumstances where the source or cause of contamination or radiation is brought or has been brought into or near the Power Project by tile Affected Party or those employed or engaged by the Affected Party. d) An event of Force Majeure identified under SECI- Buying Utility PSA, thereby delivery of power from SPD to Buying Utility.” 23. On a plain reading of the aforesaid Clause, this Court cannot readily accept that the delay caused was on account of a force majeure event as contemplated under the Agreement. SECI has also not accepted the delay in commissioning of the project on account of the force majeure event. It is also noted that the order calling upon PSEPL to stop the work was issued two days prior to the scheduled commissioning date. The said order was, concededly, withdrawn on 22.12.2012; yet, it has taken PSEPL more than two months to commission the plant. In the circumstances, it is extremely doubtful whether PSEPL would have been in a position to commission the plant on the Scheduled Commissioning Date, that is, on or before O.M.P. (COMM) 105/2018 Page 9 of 10 16.08.2017. Mr Sangal, the learned counsel appearing for SECI also contended that the order dated 14.08.2017 was procured by PSEPL.

24. Before concluding, it would also be relevant to mention that the bank guarantees in question are unconditional bank guarantees. The language of the bank guarantees make it explicitly clear that SECI would not be required to adduce any proof other than its written demand to invoke the bank guarantees. The relevant extract of the said bank guarantees reads as under:-

"“The Guarantor Bank hereby expressly agrees that it shall not require any proof in addition to the written demand by SECI, made in any format raised at the above mentioned address of the Guarantor Bank, in order to make the said payment to SECI.” In view of the above, it is clear that the invocation of the bank 25. guarantees could not have been interdicted on account of the disputes relating to the Agreement. Considering PSEPL has insisted on pressing its present petition despite the statement that the bank guarantees had already been invoked and the bank drafts have also been collected by SECI. This Court is also of the view that that the present petition ought to be dismissed with costs. The petition is, accordingly, dismissed with costs quantified at `50,000/-. The pending applications also stand disposed. VIBHU BAKHRU, J MARCH08 2018/MK O.M.P. (COMM) 105/2018 Page 10 of 10