Delhi High Court
Patel Energy Limited vs Union Of India & Anr on 30 November, 2012
Author: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 30th November, 2012
+ LPA No.718/2012
PATEL ENERGY LIMITED ..... Appellant
Through: Mr. Neeraj Kishan Kaul, Sr. Adv.
with Mr. P.S. Narasimha, Sr. Adv.
with Mr. K. Parameshwar, Mr. Kapil
Rustagi, Mr. Karan Luthra, Ms.
Naomi Chandra, Mr. Rohan Jaitley,
Advs.
Versus
UNION OF INDIA & ANR ..... Respondents
Through: Mr. Rajeeve Mehra, ASG with Mr.
Sumeet Pushkarna, Adv. for UOI.
Grp. Capt. Karan Singh Bhati, Adv.
with Ms. Jyoti Upadhyay, Adv. for
R-2.
CORAM :-
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
RAJIV SAHAI ENDLAW, J
1. This intra-court appeal impugns the order dated 19th October, 2012 of
the learned Single Judge (in W.P.(C) No.5666/2012 preferred by the
appellant) of dismissal of CM No.11610/2012 filed by the appellant for
interim relief. The appellant seeks interim relief of -
A. Stay of operation of -
LPA No.718/2012 Page 1 of 12
(i). Letter dated 30th July, 2012.
(ii). Letter dated 10th September, 2012.
B. Stay of encashment of Bank Guarantees dated -
(i). 28th May, 2010.
(ii). 27th May, 2011.
(iii). 21st September, 2011.
Considering the nature of the relief claimed, the appeal was finally
heard on 31st October, 2012 when it first came up for consideration, with the
consent of the learned ASG appearing on behalf of the respondent no.1 and
the counsel for the respondent no.2 South Eastern Coal Fields Limited, who
appeared on advance notice and the judgment reserved. The learned Single
Judge had earlier, vide order dated 19th September, 2012, granted ad interim
relief. Though on dismissal of application of interim relief, the ad interim
relief earlier granted stood vacated but the learned Single Judge, to enable
the appellant to avail its remedy of appeal, had suspended the impugned
order till 30th October, 2012. Accordingly, while reserving judgment, the
said order of suspension was continued till the disposal of the appeal.
2. The three bank guarantees of Axis Bank Ltd. (not a party to the
proceedings) in favour of Coal India Limited (also not a party to the
LPA No.718/2012 Page 2 of 12
proceedings) and South Eastern Coal Fields Ltd., stay of encashment
whereof is sought, are identical in language and the portion thereof relevant
for the present purposes, may be reproduced as under:-
"In consideration of Coal India Limited/ South Eastern
Coal Fields Ltd ......... (hereinafter referred to Assurer)
having agreed to issue Letter of Assurance for supplying
coal (hereinafter referred to as „LoA‟) to M/s Patel Energy
Limited.........(hereinafter referred to as the
„Assured‟)......... and the Assured being required to furnish
the Commitment Guarantee as per the terms of the
LoA.........We, Axis Bank Ltd.(hereinafter called the
Guarantor.........)do hereby irrevocably and unconditionally
guarantee and undertake to pay.........all amounts......... to
the extent of Rs.______________ at any time upto
______________subject to the following terms and
conditions:-
1. The Guarantor shall pay to the Assurer on demand
and without any demur, reservation, contest, recourse
or protest and/or without any reference to the Assured
as to whether the occasion or ground has arisen for
such demand, the decision of the Assurer shall be final.
.
.
.
.
.
6. The Guarantee shall cover all claims and demand of
Assurer to the extent of the amount guaranteed"
3. "Demur" is defined in the Shorter Oxford English Dictionary, 6th
Edition as delay, waiting, procrastination or objecting or a state of
indecision. Black's Law Dictionary 6 th Edition defines the same as "to take
an exception to the sufficiency in point of law of a pleading or state of facts
alleged". Thus when the Bank agreed/undertook that it shall pay the amount
of the bank guarantee upon demand, without any demur, it agreed to pay the
money without delay, procrastination, lingering and without taking any
objection as to the existence or happening of the conditions on happening of
which the money was payable.
4. Bank Guarantees are instruments of trade and commerce. The courts
have adopted the policy of restraining themselves from interfering therewith
for the reason of the same interfering in the trade and commerce. It has been
held that where the parties have agreed that the payment under the bank
guarantee issued at the instance of one in favour of the other shall be made
unconditionally, without any demur and simply on demand being made and
the parties have acted on the said premise, the courts ought not to come in
the way. The only ground for interference by the court in encashment of
bank guarantee is, a fraud of egregious nature so as to vitiate the underlying
transaction and the very issuance of bank guarantee. The said fraud is not to
be in the encashment of the bank guarantee, but has to be in obtaining the
bank guarantee. Reference in this regard can be made to Himadri
Chemicals Industries Ltd. Vs. Coal Tar Refining Company AIR 2007 SC
2798 and UP Co-operative Federation Limited Vs. Singh Consultants &
Engineers (P) Limited, 1988 (1) SCC 174 and UP State Sugar Corporation
Vs. Sumac International Ltd (1997) 1 SCC 568.
5. Merely because disputes have arisen between the contracting parties
and the beneficiary is alleged to be fraudulently encashing the bank
guarantee, does not become a ground for the court to restrain encashment
thereof. Some judgments have also carved out the ground of special equities
in favour of granting injunction, when a case, of it being not possible for the
party at whose instance the bank guarantee is given, to upon ultimately
succeeding in the disputes, recover the amount received by the other party
under the bank guarantee or where harm to the party at whose instance the
bank guarantee is furnished, from encashment thereof, will be exceptional
and of irretrievable nature.
6. A reading of the order of the learned Single Judge impugned before us
does not show either of the only two grounds aforesaid on which the courts
can interfere in the encashment of the bank guarantee, to have been urged,
save to the effect that the invocation was inequitable as huge amount of
money, time and effort had been spent by the appellant in attempting to set
up a power plant for feeding which the Letter of Assurance (LoA) was
obtained; rather the grounds of defaults/breach by the respondents of the
LoA and which grounds as per the law noticed above are irrelevant for the
purposes of interfering with the bank guarantee, were urged and in which
also no merit was found by the learned Single Judge. The learned Single
Judge has further noticed that though lip service was paid to the grounds of
fraud and special equities but without any basis whatsoever.
7. We have scanned the memorandum of appeal and do not find therein
also, any basis, for the only grounds on which interference is permissible, to
have been laid. The senior counsel for the appellant in his submissions also
has not urged any fraud of egregious nature having been played by the
respondents in obtaining the Bank Guarantee or of any special equities. The
only argument of special equities is of the appellant having at a huge cost
acquired land for setting up the power plaint, for requirement of coal for
which LoA was issued. However, the said land remains with the appellant
and the appellant, if ultimately succeeds, can again apply for and obtain a
fresh LoA.
8. Need is not felt to discuss herein the arguments raised of
breach/defaults by respondents of the LoA in as much as the same have no
relevance as aforesaid. Though the senior counsel for the appellant
emphasized that the guarantees supra, are Commitment Guarantees and not
Performance Bank Guarantee but in our view the same would not make any
difference. The respondent no.2 had issued the LoA, in pursuance to which
the appellant had arranged the bank guarantees aforesaid, assuring supply of
coal for consumption in the power plant proposed to be set-up by the
appellant. However since the respondent no.2, on issuance of such LoA was
required to reserve certain coal fields/coal for supply to the appellant, the
appellant as a pre-condition to the said LoA had agreed to arrange for
Commitment Bank Guarantees aforesaid, of the amount equivalent to 10%
of the base price as on the date of application for issuance of LoA of the
quantity of coal, supply whereof was assured by the respondent no.2 to the
appellant and which guarantees the respondent no.2 was entitled to encash in
the event of the appellant failing to fulfill the activities/milestone mentioned
in the said LoA within a period of 24 months. It would thus be seen that the
argument of the appellant, of the Commitment Bank Guarantee being
different from a Performance Bank Guarantee or the same having any
impact on encashment thereof, has no merit.
9. Another argument of the senior counsel for the appellant which may
be noticed is of the respondents having not allowed a change of location to
the appellant and which has been allowed to the others. Needless to state that
the same has been controverted by the learned ASG. We are afraid the same
is a dispute between the appellant and the respondents and not relevant in so
far as the question of encashment of bank guarantee is concerned.
10. The senior counsel for the appellant has also contended that the
learned Single Judge has wrongly conceived the writ petition to be aimed at
seeking stay of encashment of bank guarantee when the principal challenge
therein is to the letters dated 30th July, 2012 and 10th September, 2012, stay
of operation whereof has also been sought. The said argument is also found
to be without any weight. The contract of bank guarantee, in Vinitec
Electronics Private Ltd Vs HCL Infosystems Ltd (2008) 1 SCC 544 has
been reiterated to be an independent one between the bank and the
beneficiary, de hors the contract between the beneficiary and the person at
whose instance the bank has given the guarantee. Moreover, validity of the
letters dated 30th July, 2012 and 10th September,2012 is to be gone into in
the writ petition which has been amended and in which pleadings are yet to
be completed and what the appellant today is seeking is in fact stay of
encashment of bank guarantees, though behind the veil of stay of operation
of the letters dated 30th July, 2012 and 10th September, 2012.
11. We therefore do not find any error in the reasoning of the learned
Single Judge in declining the stay of encashment of the bank guarantees
which admittedly stand invoked.
12. As far as the interim relief sought of stay of operation of the letters
dated 30th July, 2012 and 10th September, 2012 is concerned, Ministry of
Coal of the Government of India had vide letter dated 30th July, 2012 to the
appellant intimated that the LoA was for 24 months which had expired on
11th July, 2012 and rejected the request of the appellant for change of
location of the proposed power plant and for extension of the validity of the
LoA. It was stated that the request of the appellant for change of location
could not be entertained as the appellant had failed to achieve the milestones
to be fulfilled within the period of validity of LoA. The plea of the appellant
of force majeure was also rejected. It was further observed that there was no
provision for grant of extension of validity of LoA. The letter dated 10 th
September, 2012 is of cancellation/withdrawal, as per the Clause 3.4.1 of the
LoA, followed by encashment of Commitment Guarantee.
13. The learned Single Judge in the impugned judgment has held that the
relief sought of restraining the respondents from cancelling the LoA was
misconceived in as much as the LoA has expired by efflux of time. It was
further held that the question whether the request of the appellant for change
of location was rightly rejected or not could be decided only at the final
stage but the appellant had not made out a prima facie case for stay of
operation of the letter dated 30th July, 2012 inter alia for the reason that
though the appellant had obtained approval for change of location of its
power plant from the State Government way back on 16 th February, 2009 but
did not inform the Standing Linkage Committee (Long Term) for Power
constituted under the Ministry of Coal, under authorization from whom the
LoA was issued, of the same till 21st August, 2010. It was further held that
the appellant had not achieved the milestone of bringing about finance.
14. Of course, the senior counsel for the appellant has argued that
financial closure could not have been effected without the change of location
having been sanctioned and `in principle' approval of the financers had been
obtained. However we are of the opinion that the interim stay of the
operation of the said letter dated 30th July, 2012 cannot be granted also for
the reason that the same would amount to the respondent no.2 continuing to
assure the supply of coal to the appellant. Such assurance would necessarily
have to be to the prejudice of supply of coal to some other, who may have
immediate need therefor. The grant of interim relief to the appellant thus
affects not only the respondent no.2 but may affect other applicants for coal
who are not before this Court and may ultimately affect the public at large
who will be deprived of benefit of the other development projects dependent
on coal - all for the reason of coal being reserved for the appellant whose
rights are still to be adjudicated. The courts have now, besides the three
elements of prima facie case, irreparable injury and balance of convenience,
also added the element of public interest in the matter of grant of interim
relief and interim relief can be denied if the grant thereof would be against
the public interest. It is found to be so in the present case.
15. The Supreme Court in Ramniklal N. Bhutta Vs. State of
Maharashtra (1997) 1 SCC 134 held that time has come where the Court
should keep the larger public interest in mind while exercising their power
of granting stay/injunction. The power under Article 226 is discretionary. It
will be exercised only in furtherance of interest of justice and not merely on
the making out of a legal point. The Courts have to weigh the public interest
vis-à-vis the private interest while exercising the power under Article 226.
Reference may also be made to Baitarani Gramiya Bank Vs. Pallab Kumar
(2004) 9 SCC 100 reiterating that when public interest competes with private
interest, the private interest will have to give way to public interest.
16. As far as the letter dated 10th September, 2012 is concerned, the same
is addressed to the bank, invoking the bank guarantee and stay of
encashment whereof has already been declined.
17. There is thus no merit in this appeal; the same is dismissed with costs
of Rs.25,000/- payable by the appellant to each of the two respondents.
Dasti.
RAJIV SAHAI ENDLAW, J
CHIEF JUSTICE
NOVEMBER 30th ,2012
PP...
