Appellate Tribunal For Electricity
M/S. Shapoorji Pallonji ... vs Central Transmission Utility Of India ... on 18 March, 2024
Author: Ramesh Ranganathan
Bench: Ramesh Ranganathan
COURT-1
IN THE APPELLATE TRIBUNAL FOR ELECTRICITY
(Appellate Jurisdiction)
IA No. 154 OF 2024 IN APL No. 33 OF 2024 &
IA No. 153 OF 2024
Dated: 18th March, 2024
Present: Hon`ble Mr. Justice Ramesh Ranganathan, Chairperson
Hon`ble Ms. Seema Gupta, Technical Member (Electricity)
In the matter of:
M/s. Shapoorji Pallonji Infrastructure Capital
Company Private Limited
Through Manager (Commercial)
SP Centre, 41/44 Minoo Desai Marg, Colaba,
Mumbai - 400005
Versus
1. Central Transmission Utility of India Limited
Through its Chairman
Plot No. 2, Sector - 29
Gurugram, Haryana - 122 001 ... Respondent No.1
2. Central Electricity Regulatory Commission
Through its Secretary
3rd & 4th Floor, Chanderlok Building
36, Janpath, New Delhi - 110 001 ... Respondent No.2
Counsel on record for the Appellant(s) : Vishrov Mukerjee
Janmali Gopal Rao Manikala
Yashaswi Kant
Girik Bhalla
Pratyush Singh
Raghav Malhotra
Damodar Solanki
Priyanka Vyas
Anamika Rana
Juhi Senguttuvan
Shreya Sundraraman
Ashabari Basu Thakur
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 1 of 44
Counsel on record for the Respondent(s) : Suparna Srivastava for Res. 1
ORDER
PER HON'BLE MR. JUSTICE RAMESH RANGANATHAN, CHAIRPERSON I.INTRODUCTION:
This appeal is preferred against the Order passed by the Central Electricity Regulatory Commission (the "CERC" for short) in Petition No. 701/MP/2020 dated 11.01.2024. The Petition filed before the CERC, by the appellant herein, sought return of the Connectivity Bank Guarantee of Rs. 5 Crores, and the LTA-BC of Rs. 25 Lakhs, given by the appellant to the Central Transmission Utility of India Ltd. (CTUIL), consequent on surrender of Stage-II Connectivity. In the impugned Order, passed in Petition No. 701/MP/2020 dated 11.01.2024, the CERC held that Connectivity Bank Guarantee was liable to be encashed as per Clause 11.2 of Pre-revised Procedure, since Stage-II Connectivity had been revoked because of non-completion of the dedicated transmission line.
IA No. 154 of 2024 in Appeal No. 33 of 2024 is filed by the Appellant seeking (a) interim stay of operation of the impugned order dated 11.01.2024 passed by the CERC in Petition No. 701/MP/2020; (b) to restrain CTUIL from initiating any coercive steps including, but not limited to, invocation of Connectivity Bank Guarantee dated 02.11.2018 for Rs.5 Crores issued by Indusind Bank and LTA BG dated 24.05.2019 for Rs.25 Lakhs issued by the Union Bank of India.
The question which necessitates examination is whether this Tribunal, by way of an interim order and pending adjudication of the main appeal, should restrain the respondent CTUIL from invoking the Connectivity Bank Guarantee dated 02.11.2018 for Rs.5 Crores issued by IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 2 of 44 Indusind Bank and LTA BG dated 24.05.2019 for Rs.25 Lakhs issued by the Union Bank of India. Before examining this question, it is useful to note the contents of the impugned Order.
II.CONTENTS OF THE IMPUGNED ORDER PASSED BY THE CERC DATED 11.01.2024:
In the Impugned Order dated 11.01.2024, the CERC observed that, as per the details available, the appellant was granted Stage-II connectivity on 08.10.2018, and it was revoked by the CTUIL on 2.2.2021; the Pre-revised Procedure was applicable w.e.f. 15.5.2018 to 19.2.2021; thus, Stage-II Connectivity granted to the appellant was revoked during the currency of the Pre-revised Procedure; as per clause 5.1(1) of the Revised Procedure, if any action is initiated for revocation of Stage- II Connectivity or encashment prior to the issue of the Revised Procedure, it had to be completed under the Pre-revised Procedure; evidently, the Stage-II Connectivity, in the case of the appellant was revoked on 02.02.2021, before the notification of the Revised Procedure; and therefore, in the instant case, the Pre-revised Procedure was applicable.
The CERC then observed that, as per clause 11.2 of the Pre-revised Procedure, the Stage-II connectivity grantee was required to complete the dedicated transmission line(s) and pooling sub-station(s) within 24 months from the date of intimation of bay allocation, failing which the Conn-BG of the grantee would be encashed, and the Stage-II connectivity would be revoked; in the instant case, Stage-II connectivity had already been revoked, ostensibly because of non-completion of the dedicated transmission line and the pooling sub-station by the appellant; and, accordingly, the connectivity BG, amounting to ₹5 crores was liable to be encashed, and should be adjusted in the POC pool as per clause 11.2 of the Pre-revised Procedure.
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 3 of 44As regards the BG submitted under the LTA, the CERC noted that it had considered this issue in Petition No. 111/MP/2014 wherein, after taking into consideration the LTA grantee's contention that the project had become impossible to implement and therefore the contract had been frustrated, the CERC had referred to the APTEL's judgement and had held, vide order dated 24.8.2015, that encashment of the BG by the CTUIL was valid. The CERC extracted the relevant portion of its earlier order dated 24.8.2015 which is as follows:
"20...... Therefore, the provision of bank guarantee has been made to ensure seriousness among the LTA applicants. In this connection, observations of the Appellate Tribunal for Electricity in Appeal No. 197 of 2014 (Jayaswal Neco Urja Limited Vs Power Grid Corporation of India Ltd. & Another) are relevant which are extracted as under:
"32. ...........The purpose behind the requirement of furnishing Bank Guarantee and the provisions for its encashment if the LTAA is not signed is to ensure commitment of the project developer to use the transmission line for which LTA has been sought. It gives assurance to Respondent No.1 that the transmission line would not be stranded after it is built. If the LTA applicants are allowed to withdraw the LTA applications without any deterrent like encashment of Bank Guarantee, then the purpose behind the scheme of grant of LTOA will be frustrated. We, therefore, find encashment of the Appellant's Bank Guarantee to be perfectly legal."
21. The petitioner has vehemently argued that since execution of the project has become impossibility, the contract has been frustrated. This argument cannot be accepted as the CTU has in no way contributed to the impossibility of performance of contract. This issue has also been dealt with by Appellate Tribunal in Appeal No. 197 of 2014 as under:
"IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 4 of 44
In view of the above finding of the Appellate Tribunal, it can be said that since CTU by its acts of commission or omission has not contributed to the abandonment of the project by the petitioner, CTU cannot be held responsible for it and no direction can be issued prohibiting CTU to encash the bank guarantee".
The CERC further observed that the issue of encashment of Bank Guarantee, in cases where the generator/ project developer failed to construct/ complete/ commission was also discussed in the 26th JCC meeting on 25th March 2019, the relevant minutes of which were as follows:
"4. It was also emphasized that Joint Coordination Committee meetings were institutionalized by the Central Electricity Regulatory Commission to enable better coordination of generation and transmission projects in terms of the applicable CERC Regulation, Detailed Procedure and BPTAs/ LTAAs. It was also mentioned that the BPTAs/ LTAAs executed with the generation project developers/ companies monitored hereinunder provides that if any of the developers fail to construct/ complete/ commission the generating station/ dedicated transmission line or makes an exit or abandons its project, then POWERGRID shall have the right to collect the transmission charges and / or damages as the case may be in accordance with the CERC Regulations, Orders etc. Further, as per the BPTAs/ LTAA s, the construction phase bank guarantee submitted by the project developers /LTA customers is also encashable in case of adverse progress/ abandonment of individual generations projects(s)/unit(s) assessed during the Joint Coordination Committee meeting. It was also informed that in light of a number or recent CERC orders, wherein the Hon'ble Commission has emphasized upon strict implementation of the various Regulations, Procedures and statutory Agreement, CTU shall assess the progress of various generation projects and take appropriate actions in terms of the applicable provisions/ clauses of the Regulations/ Procedure/ Agreement."IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 5 of 44
The CERC concluded holding that, as per the proceedings of the JCC, if any of the developers failed to construct/ complete/ commission or abandon the generating station/ dedicated transmission line, then the CTUIL shall have the right to collect the transmission charges, and encash the construction phase Bank Guarantee submitted by the project developers/ LTA customers; on the basis of its findings in Petition No. 111/MP/2014, and the decision of the JCC in its meeting on 25.3.2019, they were of the view that the appellant could not be allowed the relief sought, and no directions could be issued in regard to returning the Bank Guarantee in respect of the LTA granted to the appellant; and, as regards the Bank Guarantee towards the Consultancy Agreement, no action was required since, as per the appellant's own admission, the same had already been returned to it by CTUIL. Petition No. 701/MP/2020 was, accordingly, disposed of.
III.RIVAL SUBMISSIONS ON THE SCOPE OF INTERFERENCE BY COURTS/TRIBUNALS WITH INVOCATION OF BANK GUARANTEES:
Sri B.P. Patil, Learned Senior Counsel appearing on behalf of the appellant, would submit that the Pre-Revised and Revised Procedure are statutory instruments; the Bank Guarantee, given under a statutory instrument, is distinct from a Bank Guarantee submitted under a contract; and none of the judgments, of the Supreme Court and this Tribunal, have dealt with statutory Bank Guarantees.
On the other hand, Mrs. Suparna Srivastava, Learned Counsel appearing on behalf of the Respondent-CTUIL, would submit that clauses 9.3.3 and 11.2 of the Pre-Revised Procedure which provide for treatment/encashment of Conn-BG, has statutory force and so does the Format-RCON-BG which is prescribed thereunder; and the IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 6 of 44 consequences provided therein must necessarily ensue on the happening of the prescribed events. Reliance is placed by the Learned Counsel on India Thermal Power Ltd. Vs. State of M.P & Ors. [(2000) 3 SCC 379, and Mary Vs. State of Kerala & Ors: (2014) 14 SCC 272), in this regard.
IV.IS THE SUBJECT BANK GUARANTEE UNCONDITIONAL?
Whether it is provided in terms of a Contract or in terms of a statutorily prescribed procedure, what is of relevance are the terms of the said bank guarantee. Since the bank guarantee represents an independent contract between the bank and the beneficiary, both the parties would be bound by its terms. The invocation, therefore, should be in accordance with the terms of the bank guarantee. (Hindustan Construction Company Limited v. State of Bihar, (1999) 8 SCC 436; SBI v. Mula Sahakari Sakhar Karkhana Ltd., (2006) 6 SCC 293; Standard Chartered Bank v. Heavy Engg. Corpn. Ltd., (2020) 13 SCC 574). On a careful analysis of the terms and conditions of the guarantee, it must be found whether or not the guarantee is unconditional. (Vinitec Electronics (P) Ltd. v. HCL Infosystems Ltd., (2008) 1 SCC 544; Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. Ltd., (2007) 6 SCC 470; Adani Agri Fresh v. Mehboob Sharif, (2016) 14 SCC 517). Bank guarantees, which are payable by the guarantor on demand, are considered unconditional bank guarantees. (Vinitec Electronics (P) Ltd. v. HCL Infosystems Ltd., (2008) 1 SCC 544; Adani Agri Fresh v. Mehboob Sharif, (2016) 14 SCC 517; U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568).
In considering whether or not the bank guarantee, in the present case, is unconditional, it is necessary to note its contents. In the present case, the Bank Guarantee furnished by the Appellant on 02.11.2018 is in terms of the Proforma Bank Guarantee for Performance, in FORMAT-
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 7 of 44RCON-BG, under the Detailed Procedure prescribed by the CERC dated 15.05.2018. The Revised Detailed Procedure issued by the CERC dated 20.02.2021 also provides, in FORMAT-RCON-BG, the Proforma Of Stage-II Connectivity Bank Guarantee. As both Sri B.P. Patil, Learned Senior Counsel for the Appellant, and Mrs. Suparna Srivastava, Learned counsel for CTUIL, are in agreement that the Bank Guarantee furnished by the Appellant on 02.11.2018 is in terms of the proforma prescribed in the detailed procedure made by the CERC which are statutory in character, without expressing any opinion in this regard, we shall proceed on the basis that they have statutory force.
It is necessary for us, therefore, to note the contents of (1) the Proforma Bank Guarantee for Performance, in FORMAT-RCON-BG, under the Detailed Procedure prescribed by the CERC dated 15.05.2018, (2) the Bank Guarantee furnished by the Appellant on 02.11.2018 in terms of the Proforma Bank Guarantee for Performance in FORMAT-RCON-BG, and (3) The Proforma Of Stage-II Connectivity Bank Guarantee, in FORMAT-RCON-BG, under the Revised Detailed Procedure issued by the CERC dated 20.02.2021.
A. DETAILED PROCEDURE DATED 15.05.2018 The Central Electricity Regulatory Commission (the "CERC" for short), by its order in Petition No. 145/MP/2017 dated 29.9.2017, had directed the Central Transmission Utility ("CTU" for short) to prepare a Detailed Procedure for grant of Connectivity to projects based on renewable energy sources to inter-State Transmission System (ISTS). The CTU, vide its letter No. C/CTU/CERC dated 31.1.2018, submitted the draft "Detailed Procedure for grant of Connectivity to project based on renewable energy sources to inter-State Transmission System" along with a statement containing the comments of the stakeholders. By its order IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 8 of 44 dated 15.05.2018, the CERC approved the Detailed Procedure made under Regulation 27 of the Central Electricity Regulatory Commission (Grant of Connectivity, Long-term Access and Medium-term Open Access in inter-State Transmission and related matters) Regulations, 2009 for grant of Connectivity to projects based on renewable energy sources to inter-State Transmission System (ISTS).
Clause 10.9 of the detailed procedure required the Stage-ll Connectivity Grantee to sign the Transmission Agreement for Connectivity, and submit the Connectivity Bank Guarantee (Conn-BG) (as prescribed in the Annexure) to the CTU within 30 days of issue of intimation. The said clause further stipulated that no extension of time shall be granted and, in case of failure to sign the Agreement and / or to furnish the requisite bank guarantee, Stage-ll Connectivity shall be cancelled under intimation to the grantee.
Clause 10.10 of the detailed procedure provided that Conn-BG (ie the Bank Guarantee) shall be issued by a scheduled bank in favour of "Power Grid Corporation of India Ltd", as per the format given at FORMAT-RCON-BG, for the amount indicated below (as applicable):
Connectivity Quantum sought Conn-BG Upto80 MW (only in case of Rs. 1,00,00,000 (Rs. One Crore) connectivity in NER) Upto 300 MW Rs. 5,00,00,000/- (Rs. five Crore) For every incremental 300 MW Rs. 5,00,00,000/- (Rs. five Crore) Clause 11.2 of the detailed procedure required the Stage-ll Connectivity grantees to complete the dedicated transmission line(s) and IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 9 of 44 pooling sub-station(s) within 24 months from the date of intimation of bay allocation at existing or new / under-construction ISTS sub-station; if the grantee failed to complete the dedicated transmission line within the stipulated period, the Conn-BG (ie the Bank Guarantee) of the grantee shall be encashed and Stage-ll connectivity shall be revoked; and the payment received in terms of these provisions shall be adjusted in the POC pool. The format of the Bank Guarantee prescribed under the said detailed procedure reads as under:-
B. FORMAT-RCON-BG: PROFORMA OF BANK GUARANTEE FOR PERFORMANCE:
(To be stamped in accordance with Stamp Act) Ref. ........
To Power Grid Corporation of India Ltd. B
-9, Qutub Institutional Area, Katwaria Sarai, New Delhi 110 016.
Dear Sirs, In consideration of the Power Grid Corporation of India Ltd, (hereinafter referred to as the "POWERGRID" which expression shall unless repugnant to the context or meaning thereof include its successors, administrators and assigns) having signed an agreement No .........dated.............. with CUSTOMER (Name of customer.............. with its Registered/Head office at .............(hereinafter referred to as the "CUSTOMER " which expression shall unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 10 of 44 WHEREAS it has been agreed by the customer in the said Agreement that in case of failure /delay to construct the generating station or making an exit or abandonment of its project by CUSTOMER, POWERGRID shall have the right to collect the estimated transmission charges of stranded transmission capacity for dedicated line at the rate mentioned in the Detailed Procedure as approved by the Commission, to compensate such damages.
AND WHEREAS as per the aforesaid agreement customer is required to furnish a Bank Guarantee for a sum of Rs ........... (Rupees ........) as a security for fulfilling its commitments to POWERGRID as stipulated in the said Agreement.
We............ (Name & Address of the Bank) having its Head Office at.......... (hereinafter referred to as the „Bank", which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) do hereby guarantee and undertake to pay the POWERGRID on demand any and all monies payable by the CUSTOMER to the extent of....................... as aforesaid at any time upto ............** ...........(days/month/year) without any demur, reservation, context, recourse or protest and/or without any reference to the CUSTOMER.
Any such demand made by the POWERGRID on the Bank shall be conclusive and binding not withstanding any difference between the POWERGRID and the CUSTOMER or any dispute pending before any Court, Tribunal, Arbitrator or any other authority. The Bank undertakes not to revoke this guarantee during its currency without previous consent of the POWERGRID and further agrees that the guarantee herein contained IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 11 of 44 shall continue to be enforceable till the POWERGRID discharges this guarantee.
The POWERGRID shall have the fullest liberty without affecting in any way the liability of the Bank under this guarantee, from time to time to extend the time for performance of the obligations under the said agreement by the CUSTOMER. The POWERGRID shall have the fullest liberty, without affecting this guarantee, to postpone from time to time the exercise of any powers vested in them or of any right which they might have against the CUSTOMER, and to exercise the same at any time in any manner, and either to enforce or to forbear to enforce any covenants, contained or implied, in the Agreement between the POWERGRID and the CUSTOMER or any other course or remedy or security available to the POWERGRID. The Bank shall not be released of its obligations under these presents by any exercise by the POWERGRID of its liberty with reference to the matters aforesaid or any of them or by reason of any other act of omission or commission on the part of the POWERGRID or any other indulgences shown by the POWERGRID or by any other matter or thing whatsoever which under law would, but for this provision have the effect of relieving the Bank.
The Bank also agrees that the POWERGRID at its option shall be entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance without proceeding against the CUSTOMER and not withstanding any security or other guarantee the POWERGRID may have in relation to the CUSTOMERS liabilities.
Notwithstanding anything contained hereinabove our liability under this guarantee is restricted to......... and it shall remain in force upto and including ............from time to time for such period (not exceeding........
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 12 of 44year), as may be desired by M/S ............... on whose behalf this guarantee has been given.
C.CONTENTS OF THE BANK GUARANTEE FURNISHED BY THE APPELLANT:
BANK GUARANTEE NO: OGT0005180025626 Date: 02.11.2018 TO Power Grid Corporation of India Ltd.
B-9, Qutub Institutional Area, Katwaria Sarai, New Delhi -110 016.
In consideration of the Power Grid Corporation of India Ltd, (hereinafter referred to as the "POWERGRID" which expression shall unless repugnant to the context or meaning thereof include its successors, administrators and assigns) having signed an agreement No C/Comm/TA/Con.St-11/250MW/SPICCPL/1200001607 dated 31st October 2018 with Shapoorii Pallonji Infrastructure Capital Company Private Limited with Its Registered office at 70, Nagindas Master Road, Fort, Mumbai 400023 (hereinafter referred to as the "CUSTOMER " which expression shall unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) WHEREAS it has been agreed by the customer in the said Agreement that in case of failure/delay to construct the generating station or making an exit or abandonment of its project by CUSTOMER, POWERGRID shall have the right to collect the estimated transmission charges of stranded transmission capacity for dedicated line at the rate mentioned in the Detailed Procedure as approved by the Commission, to compensate such damages.
AND WHEREAS as per the aforesaid agreement customer is required to furnish a Bank Guarantee for a sum of Rs 5,00,00,000 IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 13 of 44 (Rupees Five Crores only) as a security for fulfilling its commitments to POWERGRID as stipulated in the said Agreement.
We Induslnd Bank Limited, a banking company incorporated and registered under Companies Act 1956 and having license to carry on banking business under the Banking Regulation Act, 1949 having its registered office at 2401,General Thimmayya Road, Cantonment, Pune- 411001 and its Corporate Office at 8th Floor, tower-1, One India bulls Centre, 841, 5.B.Marg, Elphistone Road, Mumbai - 400013 and its one of branch office at Dr. Gopal Das Bhawan28, Barakhamba Road, New Delhi
- 110001 (hereinafter referred to as the „Bank", which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) do hereby guarantee and undertake to pay the POWERGRID on demand any and all monies payable by the CUSTOMER to the extent of Rs 5,00,00,000 (Rupees Five Crores only) as aforesaid at any time up to 30.06.2021 without any demur, reservation, context, recourse or protest and/or without any reference to the CUSTOMER.
Any such demand made by the POWERGRID on the Bank shall be conclusive and binding not withstanding any difference between the POWERGRID and the CUSTOMER or any dispute pending before any Court, Tribunal, Arbitrator or any other authority. The Bank undertakes not to revoke this guarantee during its currency without previous consent of the POWERGRID and further agrees that the guarantee herein contained shall continue to be enforceable till the POWERGRID discharges this guarantee.
The POWERGRID shall have the fullest liberty without affecting in any way the liability of the Bank under this guarantee, from time to time to extend the time for performance of the obligations under the said IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 14 of 44 agreement by the CUSTOMER. The POWERGRID shall have the fullest liberty, without affecting this guarantee, to postpone from time to time the exercise of any powers vested in them or of any right which they might have against the CUSTOMER, and to exercise the same at any time in any manner, and either to enforce or to forbear to enforce any covenants, contained or implied, in the Agreement between the POWERGRID and the CUSTOMER or any other course or remedy or security available to the POWERGRID. The Bank shall not be released of its obligations under these presents. by any exercise by the POWERGRID of its liberty with reference to the matters aforesaid or any of them or by reason of any other act of omission or commission on the part of the POWERGRID or any other indulgences shown by the POWERGRID or by any other matter or thing whatsoever which under law would, but for this provision have the effect of relieving the Bank.
The Bank also agrees that the POWERGRID at its option shall be entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance without proceeding against the CUSTOMER and not withstanding any security or other guarantee the POWERGRID may have in relation to the CUSTOMER"s liabilities.
Notwithstanding anything contained hereinabove our liability under this guarantee is restricted to Rupees Five Crores and it shall remain in force up to and including 30.06.2021 and shall be extended from time to time for such period 30.06.2021, as may be desired by M/s Shapoorji Pallonji Infrastructure Capital Company Private Limited an Whose behalf this guarantee has been given.
Dated this 02nd day of November 2018 at New Delhi D.REVISED DETAILED PROCEDURE DATED 20.02.2021 IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 15 of 44 In its subsequent order dated 20.02.2021, the CERC observed that the Detailed Procedure for "Grant of Connectivity to projects based on renewable sources to inter-State transmission system" (hereinafter referred as "Pre-revised Procedure") came into force with effect from 15.5.2018; in view of the 7th amendment to the Central Electricity Regulatory Commission (Grant of Connectivity, Long-term Access and Medium-term Open Access in inter-state Transmission and related matters) Regulations, 2009 notified on 28.01.2019, based upon feedback from the Central Transmission Utility and subsequent developments in the power sector, a draft amendment to the Pre-revised Procedure was notified on 24.07.2020 inviting comments/ suggestions/ objections from the stakeholders and interested persons by 16.8.2020 on the provisions proposed to be amended; twenty seven (27) stakeholders had submitted their comments/ suggestions/ objections on various provisions of the draft amendment to the Pre-revised Procedure; the comments/ suggestions/ objections received from the stakeholders had been considered; and they were hereby approving the Revised Procedure for "Grant of Connectivity to projects based on renewable energy sources to inter-State transmission system" and the same was enclosed as Annexure to this Order. The Revised Procedure was to come into force, and the Pre-
revised Procedure was to cease to have effect (save as otherwise provided in the Revised Procedure) from the date of this Order ie Order dated 20.02.2021.
Clause 5 of the revised procedure are the provisions with regards to Connectivity and Bank Guarantee. Clause 5.1 stipulates that, after coming into force of this Procedure, for an entity which has been granted Stage-ll Connectivity under the Pre-revised Procedure, (1) any action already initiated for revocation of Stage-ll Connectivity or encashment of Bank Guarantee prior to the issue of this Procedure shall be completed under IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 16 of 44 the Pre revised Procedure; (2) any action including revocation of Stage-ll Connectivity or encashment of Bank Guarantee initiated after the issue of this Procedure shall be in accordance with this Procedure; (3) Conn-BG submitted under the Pre-revised Procedure shall be treated as Conn BG1 for Rs. 50 lakh and Conn-BG2 for the balance amount. The format of the Bank Guarantee under the Revised Procedure reads as under:-
E.FORMAT-RCON-BG: PROFORMA OF STAGE-II CONNECTIVITY BANK GUARANTEE:
(To be stamped in accordance with Stamp Act) Ref .............
Date .......
To Power Grid Corporation of India Ltd.
Bank Guarantee No-9, Qutab Institutional Area, Katwaria Sarai, New Delhi 110016.
Dear Sirs, In consideration of the Power Grid Corporation of India Ltd, (hereinafter referred to as the "POWERGRID" which expression shall unless repugnant to the context or meaning thereof include its successors, administrators and assigns) having signed an agreement No ........... dated ..............with CUSTOMER (Name of Customer with its Registered/Head office at (hereinafter referred to as the "CUSTOMER " which expression shall unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 17 of 44 WHEREAS it has been agreed by the customer that the said Bank Guarantee shall be returned or encashed in terms of Revised Procedure for "Grant Of Connectivity to Projects Based On Renewable Sources to Inter-State Transmission System" and Transmission Agreement signed under the said Detailed Procedure AND WHEREAS as per the aforesaid agreement customer is required to furnish a Bank Guarantee for a sum of Rs ....... (Rupees .........) as a security for fulfilling its commitments to POWERGRID as stipulated in the said Agreement.
We .................... (Name & Address of the Bank) Having its head office at .............. (hereinafter referred to as the „Bank" which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) do hereby guarantee and undertake to pay the POWERGRID on demand any and all monies payable by the CUSTOMER to the extent of .......... as aforesaid at any time upto................ **(days/month/year) without any demur, reservation, context, recourse or protest and/or without any reference to the CUSTOMER.
Any such demand made by the POWERGRID on the Bank shall be conclusive and binding not withstanding any difference between the POWERGRID and the CUSTOMER or any dispute pending before any Court, Tribunal, Arbitrator or any other authority. The Bank undertakes not to revoke this guarantee during its currency without previous consent of the POWERGRID and further agrees that the guarantee herein contained shall continue to be enforceable till the POWERGRID discharges this guarantee.IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 18 of 44
The POWERGRID shall have the fullest liberty without affecting in any way the liability of the Bank under this guarantee, from time to time to extend the time for performance of the obligations under the said agreement by the CUSTOMER. The POWERGRID shall have the fullest liberty, without affecting this guarantee, to postpone from time to time the exercise of any powers vested in them or of any right which they might have against the CUSTOMER, and to exercise the same at any time in any manner, and either to enforce or to forbear to enforce any covenants, contained or implied, in the Agreement between the POWERGRID and the CUSTOMER or any other course or remedy or security available to the POWERGRID. The Bank shall not be released of its obligations under these presents by any exercise by the POWERGRID of its liberty with reference to the matters aforesaid or any of them or by reason of any other act of omission or commission on the part of the POWERGRID or any other indulgences shown by the POWERGRID or by any othermatter or thingwhatsoever which under law would, but for this provision have the effect of relieving the Bank.
The Bank also agrees that the POWERGRID at its option shall be entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance without proceeding against the CUSTOMER and not withstanding any security or other guarantee the POWERGRID may have in relation to the CUSTOMERS liabilities.
Notwithstanding anything contained hereinabove our liability under this guarantee is restricted to ............. and it shall remain in force upto and including................. shall be extended from time to time for such period (not exceeding.......... year), as may be desired by M/s............. on whose behalf this guarantee has been given.IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 19 of 44
F. BOTH THE PROFORMA BANK GUARANTEES UNDER THE DETAILED/REVISED DETAILED PROCEDURE, AND THE BANK GUARANTEE FURNISHED BY THE APPELLANT ON 02.11.2018 ARE UNCONDITIONAL:
Enclosed along with the appeal, is a copy of the Bank Guarantee furnished by the Appellant on 02.11.2018, in terms of the Proforma of Bank Guarantee for Performance in FORMAT-RCON-BG under the Detailed Procedure prescribed by the CERC in its proceedings dated 15.05.2018. (The contents of the said BG has been referred to earlier in this order).
As is evident, from its contents, the Bank Guarantee furnished by the Appellant on 02.11.2018 stipulates that Induslnd Bank Limited guaranteed and undertook to pay POWERGRID on demand any and all monies payable by the customer (ie the Appellant) to the extent of Rs 5,00,00,000 (Rupees Five Crores only) at any time up to 30.06.2021, without any demur, reservation, context, recourse or protest and/or without any reference to the appellant; any such demand made by POWERGRID on the Bank shall be conclusive and binding not withstanding any difference between POWERGRID and the appellant or any dispute pending before any Court, Tribunal, Arbitrator or any other authority; the Bank undertook not to revoke this guarantee during its currency without the previous consent of POWERGRID; it further agreed that the guarantee shall continue to be enforceable till POWERGRID discharges it; POWERGRID had the fullest liberty without affecting in any way the liability of the Bank under this guarantee, from time to time, to extend the time for performance of the obligations under the said agreement by the appellant; POWERGRID had the fullest liberty, without affecting this guarantee, to postpone, from time to time, the exercise of IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 20 of 44 any powers vested in them or of any right which they might have against the appellant, and to exercise the same at any time in any manner, and either to enforce or to forbear to enforce any covenants, contained or implied, in the Agreement between POWERGRID and the appellant or any other course or remedy or security available to POWERGRID; the Bank shall not be released of its obligations by any exercise by POWERGRID of its liberty or by reason of any other act of omission or commission on the part of POWERGRID or any other indulgence shown by POWERGRID which, at its option, was entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance without proceeding against the appellant, and not withstanding any security or other guarantee that POWERGRID may have in relation to the appellant's liabilities.
The above-referred Bank Guarantee furnished on behalf of the Appellant on 02.11.2018, which is in terms of the Proforma Bank Guarantee for performance, in FORMAT-RCON-BG as prescribed in the Detailed Procedure dated 15.05.2018, required payment in terms thereof to be made by IndusInd Bank on demand by POWERGRID, without demur, reservation or protest, without any reference to the appellant, notwithstanding any dispute pending before any Court, Tribunal, Arbitrator or any other authority. IndusInd Bank also agreed that POWERGRID at its option would be entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance, without proceeding against the appellant, and notwithstanding any security or other guarantee that POWERGRID may have in relation to the appellant's liabilities.
The said bank guarantee also refers to "POWERGRID" having signed agreement No. C/Comm/TA/Con. St 11/250MW/SPICCPL /1200001607 dated 31st October 2018 with the appellant- Shapoorji IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 21 of 44 Pallonji Infrastructure Capital Company Private Limited, wherein the latter had agreed that, in case of failure /delay to construct the generating station or making an exit or abandonment of its project by them, POWERGRID shall have the right to collect the estimated transmission charges of stranded transmission capacity for dedicated line at the rate mentioned in the Detailed Procedure, as approved by the Commission, to compensate such damages, and the appellant was required to furnish a Bank Guarantee for Rs 5,00,00,000 (Rupees Five Crores only) as security for fulfilling its commitments to POWERGRID as stipulated in the said Agreement.
Be it contractual (as the BG dated 02.11.2018 refers to the agreement executed between the Appellant and Respondent on 31.10.2018) or statutory (as the said BG was issued in terms of the format prescribed in the detailed procedure dated 15.05.2018), it is evident that the Bank Guarantee, furnished by the Bank in favour of the Respondent (albeit at the appellant's behest), is unconditional.
The Proforma of Stage-Ii Connectivity Bank Guarantee in FORMAT- RCON-BG, as annexed to the Revised Detailed Procedure dated 20.02.2021, records that the Bank guaranteed and undertook to pay POWERGRID on demand any and all monies payable by the appellant to the extent of the specified sum up to the specified date, without demur, reservation, context, recourse or protest and/or without reference to the appellant; such demand by POWERGRID on the Bank shall be conclusive and binding not withstanding any difference between POWERGRID and the appellant or any dispute pending before any Court, Tribunal, Arbitrator or any other authority; the Bank undertook not to revoke this guarantee during its currency without the previous consent of POWERGRID, and the guarantee shall continue to be enforceable till POWERGRID discharges IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 22 of 44 it; POWERGRID shall have the fullest liberty, without affecting in any way the liability of the Bank under this guarantee, to extend the time for performance of the obligations under the said agreement by the appellant, to postpone exercise of the powers vested in them or of any right which they might have against the appellant, to exercise the same at any time in any manner, and either to enforce or to forbear to enforce any covenants, contained or implied, in the Agreement between the POWERGRID and the appellant; the Bank shall not be released of its obligations under these presents by the exercise by POWERGRID of its liberty with reference to the matters aforesaid; and POWERGRID, at its option, shall be entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance, without proceeding against the appellant, and not withstanding any security or other guarantee that POWERGRID may have in relation to the appellant's liabilities.
It is evident that the Proforma Bank Guarantee, prescribed under the Revised Detailed Procedure dated 20.02.2021, is also unconditional. It matters little, therefore, that the said Proforma Bank Guarantee records that it has been furnished in consideration of POWERGRID having signed an agreement with the appellant, the latter had agreed that the said Bank Guarantee shall be returned or encashed in terms of the Revised Procedure, and the Transmission Agreement signed under the said Detailed Procedure; and, as per the said agreement, the appellant was required to furnish a Bank Guarantee for the stipulated sum as security for fulfilling its commitments to POWERGRID as stipulated in the said Agreement.
It is evident, from the contents of the afore-
said Bank Guarantee also, that it is unconditional. In any event, it is not IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 23 of 44 even contended before us, by Mr. B.P. Patil, Learned Senior Counsel appearing on behalf of the Appellant, that it is not.
V. THE BANK GUARANTEE FURNISHED BY THE BANK IN FAVOUR OF THE RESPONDENT IS AN INDEPENDENT AND DISTINCT CONTRACT:
A bank guarantee is an independent and distinct contract, between the bank and the beneficiary, and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Even if the Bank Guarantee is held to have been issued in terms of a statutorily prescribed procedure, the fact remains that it is unconditional and requires the Bank to make payment of the sum stipulated in the said Bank Guarantee on demand by the Respondent, without demur, reservation or protest.
Subject to limited exceptions, the beneficiary cannot be restrained from encashing the bank guarantee even if the dispute, between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in the performance of the contract. (Ansal Engg. Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., (1996) 5 SCC 450; Standard Chartered Bank v. Heavy Engineering Corporation Limited, (2020) 13 SCC 574). Both the bank and the beneficiary are bound by, and its invocation should only be in accordance with, the terms of the bank guarantee. (Standard Chartered Bank v. Heavy Engg. Corpn. Ltd., (2020) 13 SCC 574; Hindustan Construction Co. Ltd. v. State of Bihar, (1999) 8 SCC 436).
The dispute, between the beneficiary and the party at whose instance the bank has given the guarantee, is immaterial and is of no IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 24 of 44 consequence. Ordinarily, the Court should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee. (Standard Chartered Bank v. Heavy Engg. Corpn. Ltd., (2020) 13 SCC 574). Since a bank guarantee is an independent and separate contract, and is absolute in nature, existence of any dispute between the parties to the underlying transaction is not a ground for issuing an order of injunction to restrain enforcement of the bank guarantee. (Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110; Adani Agri Fresh v. Mehboob Sharif, (2016) 14 SCC 517).
The bank guarantee is a separate contract, and is not qualified by the contract, or the statutory procedure prescribed, for performance of obligations. (Gujarat Maritime Board v. L&T Infrastructure Development Projects Ltd., (2016) 10 SCC 46). Whether the action of the beneficiary is legal and proper, and whether on the basis of such a decision, the bank guarantee could have been invoked, are not matters of inquiry. Between the Bank and the beneficiary, the moment there is a written demand for invoking the bank guarantee, the Bank is bound to honour the payment under the guarantee. (Gujarat Maritime Board v. L&T Infrastructure Development Projects Ltd., (2016) 10 SCC 46).
If the bank guarantee furnished is unconditional and irrevocable, it is not open to the bank to raise any objection for payment of the amounts under the guarantee. The person, in whose favour the guarantee is furnished by the bank, cannot be prevented by way of an injunction from enforcing the guarantee on the pretext that the condition for enforcing the bank guarantee, in terms of the agreement entered into between the parties, or the statutory procedure, has not been fulfilled. The appellant IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 25 of 44 cannot, merely because a dispute exists in terms of the underlying contract or statutory procedure, prevent the respondent-beneficiary from enforcing the bank guarantee by way of injunction save in exceptional circumstances. (Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. Ltd., (2007) 6 SCC 470; Adani Agri Fresh v. Mehboob Sharif, (2016) 14 SCC 517; U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568; Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., (1996) 5 SCC 450).
The duty of the bank under the guarantee is created by the document itself. Once the document is in order, the bank giving the guarantee must, ordinarily, honour the same and make payment. (U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568; State of Maharashtra v. National Construction Co. [(1996) 1 SCC
735). Encashment of the amount specified in the bank guarantee does not depend upon the result of the decision in the dispute between the parties, in case of a breach. (Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., (1996) 5 SCC 450).
What arises for consideration, in this Interlocutory application, is only whether, pending disposal of the main appeal, this Tribunal would be justified in granting stay of invocation of Bank Guarantee furnished in favour of the Respondent by the Bank at the Appellant's behest.
VI. INTERFERENCE WITH ENFORCEMENT OF BANK GUARANTEES PERMISSIBLE ONLY IN CASE OF FRAUD OR SPECIAL EQUITIES:
Interference by Courts/Tribunals, with the enforcement of a bank guarantee, is only in cases where fraud or special equities are prima facie made out as a triable issue by strong evidence so as to prevent IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 26 of 44 irretrievable injustice to the parties. (Ansal Engg. Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., (1996) 5 SCC 450; Standard Chartered Bank v. Heavy Engineering Corporation Limited, (2020) 13 SCC 574). Otherwise, the very purpose of a bank guarantee would be negated, and the fabric of trading operations will be in jeopardy. (Adani Agri Fresh v. Mehboob Sharif, AIR (2016) 14 SCC 517; U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174). As it is not even contended that the Bank Guarantee furnished by the Bank, in favour of the Respondent, is vitiated by fraud, let us examine whether payment of the amounts, stipulated in the Bank Guarantees, would cause the appellant irretrievable injury of such a character as would fall within the ambit of special equities.
Special equities, in favour of injunction restraining invocation of an unconditional bank guarantee, would arise only when "irretrievable injury"
or "irretrievable injustice" would occur if such an injunction were not granted (Vinitec Electronics (P) Ltd. v. HCL Infosystems Ltd., (2008) 1 SCC 544; Adani Agri Fresh v. Mehboob Sharif, (2016) 14 SCC 517; U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568; Himadri Chemicals Industries Limited v. Coal Tar Refining Company (2007) 8 SCC 110). Cases, under this category, arise where allowing encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties. Since, in most cases, payment of money under such a bank guarantee would adversely affect the bank, and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. (Vinitec Electronics (P) Ltd. v. HCL Infosystems Ltd., (2008) 1 SCC 544; Adani Agri Fresh v. Mehboob IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 27 of 44 Sharif, (2016) 14 SCC 517; U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568).
To attract the ground of irretrievable injury, it must be decisively established and proved, to the satisfaction of the Court, that there would be no possibility whatsoever of recovery of the amount by the beneficiary. The irretrievable injury must be of the kind which was the subject-matter of the decision in Itek Corporation v. First National Bank of Boston, (566 Fed Supp 1210). In that case an exporter in the U.S.A. entered into an agreement with the Imperial Government of Iran and sought an order terminating its liability on stand-by letters of credit issued by an American bank in favour of an Iranian Bank as part of the contract. The relief was sought on account of the situation created after the Iranian revolution when the American Government cancelled the export licences in relation to Iran, and the Iranian Government had forcibly taken 52 American citizens as hostages. The U.S. Government had blocked all Iranian assets under the jurisdiction of the United States, and had cancelled the export contract. The Court upheld the contention of the exporter that any claim for damages, against the purchaser if decreed by the American Courts, would not be executable in Iran under these circumstances and realization of the bank guarantee/Letters of credit would cause irreparable harm to the plaintiff.
To avail of this exception, therefore, exceptional circumstances which make it impossible for the guarantor to reimburse himself if they ultimately succeed, will have to be decisively established. Clearly, a mere apprehension that the other party will not be able to pay, is not enough. In Itek Corporation. v. First National Bank of Boston, (566 Fed Supp 1210), there was certainty on this issue. (Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineerings Works (P) Ltd.; U.P. State Sugar IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 28 of 44 Corpn. v. Sumac International Ltd., (1997) 1 SCC 568; ITD Cementation India Ltd. v. Reliance Infrastructure Limited 2014 SCC OnLine Bom 198). Proof of loss or damage being suffered by the Appellant is not necessary for invocation and encashment of a Bank Guarantee. (Shahpoorji Pallonji Energy (Gujarat) Private Limited v. Gujarat Electricity Regulatory Commission, (decision in I.A. No. 384 of 2017 in Appeal No. 161 of 2017 dated 29.05.2017).
Both in Ansal Engg. Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., (1996) 5 SCC 450 and in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., (1997) 6 SCC 450, the three-Judge Bench of the Supreme Court held that it is settled law that a bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction or the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary; unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if the dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof; since, in most cases, payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country; and, absent a case of fraud, irretrievable injustice and special equities, the Court should not interfere with the invocation or encashment IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 29 of 44 of a bank guarantee so long as the invocation was in terms of the bank guarantee.
In BSES Ltd. v. Fenner India Ltd., (2006) 2 SCC 728, the Supreme Court held that the general rule of non-interference against invocation of a bank guarantee, and its exceptions, has been reiterated in several of its judgments including U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568; State of Maharashtra v. National Construction Co., (1996) 1 SCC 735; United Commercial Bank v. Bank of India, (1981) 2 SCC 766; and Centax (India) Ltd. v. Vinmar Impex Inc., (1986) 4 SCC 136; and that, in U.P. State Sugar Corpn. v. Sumac International Ltd. [(1997) 1 SCC 568, the Supreme Court had correctly declared that the law was "settled".
To summarise, it is settled law, as declared in a series of judgments of the Supreme Court, that a bank guarantee is an independent and distinct contract between the bank and the beneficiary; it is not qualified by the underlying transaction or the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary; and, save fraud or special equities, the beneficiary cannot be restrained from encashing the bank guarantee even if the dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in terms of the underlying contract. It would hardly matter, therefore, whether the unconditional Bank Guarantee is furnished in terms of the contract between the parties or in terms of the statutory procedure prescribed by the CERC.
VII.JUDGEMENTS OF THIS TRIBUNAL ON WHETHER INVOCATION OF BANK GUARANTEES CAN BE RESTRAINED:
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 30 of 44A similar question, as is raised before us in the present I.A, was also raised earlier before this Tribunal in Shapoorji Pallonji Energy (Gujarat) Private Limited v. Gujarat Electricity Regulatory Commission, 2017 SCC OnLine APTEL 35 (the Appellant therein and the Appellant herein even appear to be part of the same group of companies).
After referring to Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd. : (1996) 5 SCC 450; Hindustan Steel Workers Construction Ltd. v. G.S. Atwal Co. (Engineers) (P) Ltd. : (2009) 5 SCC 313; Hindustan Steelworks Construction Ltd. v. Tarapore & Co. : (2009) 5 SCC 313; U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. : (2009) 5 SCC 313; Mahatma Gandhi Sahakara Sakkare Karkhane v. National Heavy Engineering Cooperative Limited : (2007) 6 SCC 470; Vinitec Electronic Private Limited v. HCL Infosystem Ltd. : (2008) 1 SCC 544; U.P. State Sugar Corpn. v. Sumac International Ltd. : (2015) 4 SCC 136; BSES Ltd. v. Fenner India Ltd. : (2009) 5 SCC 313; Adani Agri Fresh v. Mehboob Shariff : (2016) 14 SCC 517 : AIR 2016 SC 92; and Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company : (2007) 8 SCC 110, this Tribunal, in its order in Shapoorji Pallonji Energy (Gujarat) Private Limited, summarised the principles laid down by the Supreme Court as follows:
"......The Bank Guarantee is an independent contract between the bank and the beneficiary thereof. The bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable Bank Guarantee. The dispute between the beneficiary and party, at whose instance the bank has given the guarantee is immaterial and is of no consequence. The liability of the bank is absolute and unequivocal. The bank has to only verify whether the amount claimed is within the terms of the Bank Guarantee or Letter of Credit. Any payment by the bank would obviously be subject to the final decision of the court or IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 31 of 44 the tribunal. At the stage of invocation of Bank Guarantee, there is no need for final adjudication and decision on the amount due and payable by the person giving the Bank Guarantee. The Courts should not interfere with invocation and encashment of Bank Guarantee unless there is fraud of egregious nature of which the beneficiary seeks to take advantage and which vitiates the entire underlying transaction or a case where irretrievable injustice is likely to be caused to either of the parties. That is to say, there must be special equities in favour of injunction such as when irretrievable injury or irretrievable injustice would occur if injunction were not granted. Since in most cases payment of money under a Bank Guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. There is no question of making out any prima facie case much less strong evidence or special equity for interference by way of injunction by the court in preventing encashment of Bank Guarantee. The bank must honour Bank Guarantees free from interference by the courts, otherwise trust in commerce, internal and international would be damaged irreparably. There has to be glaring circumstances of deception or fraud warranting interference. Final adjudication is not a pre-condition to invoke the Bank Guarantee and that is not a ground to issue injunction restraining the beneficiary from enforcing the Bank Guarantee. The mere fact that the Bank Guarantee refers to the principal agreement without referring to any specific clause in the preamble of the deed of guarantee does not make the guarantee furnished by the bank to be a conditional one.. ........."
(emphasis supplied) The Order of this Tribunal, in Shahpoorji Pallonji Energy (Gujarat) Private Limited v. Gujarat Electricity Regulatory Commission, (Order in I.A. No. 384 of 2017 in Appeal No. 161 of 2017 dated 29.05.2017), was followed in the subsequent orders of this Tribunal in (1) Juniper Green Energy Private Limited vs Maharashtra Electricity Regulatory Commission and Others: 2023 SCC OnLine APTEL 6 (Order in IA No. IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 32 of 44 1294/2022 & IA No. 719/2022 In Appeal No. 206/2022 & IA-135/2023 dated 30-01-2023); (2) North Karanpura Transmission Company Limited vs CERC: 2023 SCC OnLine APTEL 7 (Order in APPEAL No. 188 of 2022, IA No. 599 of 2022, IA No. 2216 of 2022 and IA No. 2217 of 2022 dated 23.02.2023); and (3) Inox Green Energy Services Ltd. Through its authorised Representative Inox Towers vs CERC: 2023 SCC OnLine APTEL 8 (Order in Appeal No. 292 of 2022 and IA No. 1010 of 2022 dated 24.02.2023).
While Appeal No.276 of 2022, in which the order was passed by this Tribunal in Juniper Green Energy Private Limited on 30.01.2023, was later dismissed as withdrawn by the Order of this Tribunal dated 13.02.2023, the appeal, preferred against the order of this Tribunal in North Karanpura Transmission Company Limited, was dismissed by the Supreme Court by its order in Civil Appeal Diary No. 8290 of 2023 dated 03.03.2023, and the appeal preferred against the order of this Tribunal, in Inox Green Energy Services Ltd, was dismissed by the Supreme Court by its order in Civii Appeal Nos. 1942-1943 of 2023 dated 04.05.2023.
VIII. THE PRESENT CASE DOES NOT FALL WITHIN EITHER OF THE TWO EXCEPTIONS:
As the exception of "special equities" in favour of grant of injunction must be such as to make it impossible for the Appellant to reimburse themselves if they were to ultimately succeed in the main appeal, the mere apprehension (no such apprehension has even been expressed) that the Respondent will not be able to pay, is not enough. The possibility of payment of the amounts, under the bank guarantee, adversely affecting either the bank, or the Appellant at whose instance the guarantee was IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 33 of 44 given, does not also justify a restraint order being passed against its invocation.
The appellant has neither been able to show that the harm or injustice caused to them, on invocation of the bank guarantee, is of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country, nor have they decisively established and proved, to the satisfaction of this Tribunal, that there would be no possibility whatsoever of recovery of the amount, by them from the Respondent, even if they were to succeed in the main appeal later.
IX.TESTS FOR GRANT OF INTERIM RELIEF DO NOT APPLY IN THE CASE OF INVOCATION OF AN UNCONDITIONAL BANK GUARANTEE:
As the two exceptions, for refusal to grant an order of injunction to restrain the enforcement of a bank guarantee, are (i) fraud committed in the notice of the bank which would vitiate the very foundation of the guarantee; and (ii) injustice of the kind which would make it impossible for the guarantor to reimburse himself (Himadri Chemicals Industries Limited v. Coal Tar Refining Company (2007) 8 SCC 110), the question of examining whether a prima facie case is made out, and in whose favour the balance of convenience lies, does not arise as the Court cannot interfere with the unconditional commitment made by the bank in its guarantees. (Adani Agri Fresh v. Mehboob Sharif, (2016) 14 SCC 517; U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174).IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 34 of 44
X.NONE OF THE AFORE-SAID JUDGEMENTS OF THE SUPREME COURT WERE NOTICED BY THIS TRIBUNAL IN THE JUDGEMENTS RELIED ON BEHALF OF THE APPELLANT:
None of the judgments, in the long list of cases where Courts/Tribunals were called upon to exercise restraint against interference with invocation of bank guarantees (ie in (1) U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174; (2) United Commercial Bank v. Bank of India, (1981) 2 SCC 766; (3) Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineerings Works (P) Ltd., (1997) 6 SCC 450; (4) SBI v. Mula Sahakari Sakhar Karkhana Ltd., (2006) 6 SCC 293; (5) State of Maharashtra v. National Construction Company, Bombay (1996) 1 SCC 735; (6) Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd. (1996) 5 SCC 450; (7) BSES Ltd. v. Fenner India Ltd., (2006) 2 SCC 728; (8) Gujarat Maritime Board v. L&T Infrastructure Development Projects Ltd. (2016) 10 SCC 46; (9) Vinitec Electronics Private Ltd. v. HCL Infosystems Ltd., (2008) 1 SCC 544; (10) Adani Agri Fresh v. Mehboob Sharif, (2016) 14 SCC 517; (11) Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110; (12) A.P. Pollution Control Board v. CCL Products (India) Ltd., (2019) 20 SCC 669; (13)Standard Chartered Bank v. Heavy Engg. Corpn. Ltd., (2020) 13 SCC 574, and (14) U.P. State Sugar Corpn. v. Sumac International Ltd) were even brought to the notice of this Tribunal in 'Vaayu Renewable Energy (Kaveri) Put. Ltd. v. CERC & Anr (Appeal Nos. 26-
28 of 2020 dated 20.01.2022), and Shapoorji Pallonji Infrastructure Capital Co. Pvt. Ltd. v. PGCIL & Anr (Appeal No. 53 of 2022 dated 12.04.2022).
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 35 of 44It is settled law that no order of a subordinate Court or Tribunal can be construed to run counter to the judgements of the Supreme Court. (Mohd. Aslam v. Union of India, (1997) 5 SCC 475). The law declared by the Supreme Court binds Courts in India (Rajeswar Prasad Misra v. State Rof W.B., AIR 1965 SC 1887). It is the duty of Courts (as also statutory tribunals), whatever be its view, to act in accordance with Article 141 of the Constitution of India and to apply the law laid down by the Supreme Court. Judicial discipline to abide by the declaration of law, by the Supreme Court, cannot be forsaken by any Court or Tribunal oblivious of Article 141 of the Constitution of India. (Chandra Prakash v. State of UP, (2002) 4 SCC 234; State of Punjab v. Bhag Singh, (2004) 1 SCC 547 : 2004 AILD 204 (SC); and State of Orissa v. Dhaniram Luhar, (2004) 5 SCC 568 : 2004 AILD 277 (SC)).
838).
Reliance placed on behalf of the Appellant, on the earlier judgements of this Tribunal in Vaayu Renewable Energy (Kaveri) Put. Ltd. v. CERC & Anr (Appeal Nos. 26-28 of 2020 dated 20.01.2022), and Shapoorji Pallonji Infrastructure Capital Co. Pvt. Ltd. v. PGCIL & Anr (Appeal No. 53 of 2022 dated 12.04.2022), is therefore of no avail.
XI.EXAMINATION OF THE MERITS OF THE IMPUGNED ORDER, PASSED BY THE CERC, MUST AWAIT FINAL HEARING OF THE MAIN APPEAL:
The merits of the dispute between the parties, in the appeal preferred against the impugned order passed by the CERC, does not constitute a third exception to the general rule against interference with the invocation of the bank guarantee. As the twin exceptions, to the rule, have neither been pleaded nor proved, we will not be justified in granting the appellant the relief of stay of its invocation.IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 36 of 44
The contentions, on the merits of the impugned order, must await a hearing of the main appeal, as they neither constitute fraud nor special equities. Though it has not even been contended before us that fraud or special equities would require this Tribunal to grant an order of stay of invocation of the bank guarantee, we are nonetheless noting the contentions urged on merits, only to ensure that the Appellant has no grievance on this score. As fairness requires us to do so, we also record, albeit in brief, the submissions urged on behalf of the Respondents on merits.
A.APPELLANT'S SUBMISSIONS:
Sri B.P. Patil, Learned Senior Counsel appearing on behalf of the Appellant, would submit that Conn-BG constitutes a statutory Bank Guarantee, since the Pre-Revised Procedure (statutory instrument) provides for submission (Clause 10.9), format, quantum (Clause 10.10), and the circumstances in which the Conn-BG has to be encashed/returned (Clause 10.11) or encashed (Clause 11.2); the Conn- BG can only be encashed as per the conditions stipulated in the Pre- revised Procedure, and encashment in violation of the Pre-Revised Procedure is contrary to law; the CERC erroneously held that Conn-BG is liable to be encashed as per clause 11.2 of the Pre-revised Procedure since Stage-II connectivity had been revoked because of non-completion of DTL; this Tribunal, in 'Vaayu Renewable Energy (Kaveri) Put. Ltd. v. CERC & Anr (Appeal Nos. 26-28 of 2020 dated 20.01.2022), set aside similar findings of the CERC in its Order dated 13.01.2020; and this Tribunal, in its Judgment dated 28.08.2023 in NTPC Ltd. v. CERC & Ors.: 2023 SCC OnLine APTEL 27, has held that a co-ordinate bench cannot ignore or hold as per incurium the law laid down by another co-ordinate IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 37 of 44 bench; instead, the only recourse is to either follow the earlier decision or refer the matter to a larger bench for examination.
Learned Senior Counsel would further submit that CTUIL is not entitled to encash the Conn-BG since: -(a) the appellant's Stage-II Connectivity was not revoked under Clause 11.2 of the Pre-revised Procedure, rather the revocation on 02.02.2021 was premised on the appellant's surrender on 07.10.2020, and (b) the surrender (07.10.2020) as well as revocation (02.02.2021) of Conn-BG was prior to expiry of 24 months (i.e., 14.02.2021) from the date of intimation of bay allocation (15.02.2019).
According to the Learned Senior Counsel, Clause 5.1(2) of the Revised Procedure provides that, in cases where any action towards (i) revocation of Stage-II Connectivity or (ii) encashment of Conn-BG is initiated after issuance of the Revised Procedure on 20.02.2021, the Revised Procedure will be applicable; this has also been upheld by this Tribunal in Shapoorji Pallonji Infrastructure Capital Co. Pvt. Ltd. v. PGCIL & Anr (Appeal No. 53 of 2022 dated 12.04.2022); while the connectivity was revoked, when the Pre-Revised Procedure was in force, no action was initiated by CTUIL towards encashment of Conn-BG before issuance of the Revised Procedure; if any action for encashment is taken today, it should necessarily be as per the Revised Procedure; as per Clause 5.1(4) of the Revised Procedure, since the bay was to be constructed by the appellant itself, only Conn-BG1 of Rs. 50 lakhs can be forfeited and balance Conn-BG2 of Rs. 4.50 Crores ought to be returned; CTUIL, vide letter dated 28.12.2021, has itself offered the appellant to revise the Conn-BG from Rs. 5 Crores to Rs. 50 lakhs, and had agreed, by their conduct, that the Revised Procedure would apply; CTUIL cannot renege on its admitted stance; Bay No. 210 at Tuticorin II Sub-station was IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 38 of 44 subsequently allotted to JSW Future Energy Ltd. on 14.07.2021, even before the LTA was effective from 31.07.2021; no loss of transmission charges had been caused to CTUIL; and the LTA was granted on existing margins, without any requirement for system strengthening.
B.FIRST RESPONDENT'S SUBMISSIONS:
Mrs. Suparna Srivastava, Learned Counsel for the first respondent, would submit that the grant of connectivity to RE projects, such as that of the Appellant, is governed under (i) Pre-Revised Procedure which was in force from 15.5.2018 to 19.2.2021; and (ii) the Revised Procedure for Grant of Connectivity to projects based on renewable sources to inter- State transmission system', 2021; the Revised Procedure has replaced the Pre-Revised Procedure and has come into effect on 20.2.2021; under the Pre-Revised Procedure, a Stage-II connectivity grantee is required to achieve the prescribed milestones within the stipulated timelines and, in the event of failure, the Stage-II connectivity is liable to be revoked; the Procedure also requires (in clause 10.9) for signing of a Transmission Agreement for Connectivity by the grantee, and furnishing of a Conn-BG to Respondent No.1 as per FORMAT-RCON-BG (clause 10.10); and, under the said Format, the agreement recorded is as under:
"WHEREAS it has been agreed by the customer in the said Agreement that in case of failure /delay to construct the generating station or making an exit or abandonment of its project by CUSTOMER, POWERGRID shall have the right to collect the estimated transmission charges of stranded transmission capacity for dedicated line at the rate mentioned in the Detailed Procedure as approved by the Commission, to compensate such damages."IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 39 of 44
Learned Counsel would submit that the Conn-BG, furnished in the prescribed Format. is liable to be encashed if the grantee fails to complete the DTI. within the stipulated period of 24 months (together with revocation of connectivity); and the encashed amount is to be adjusted in the PoC pool; however, there is no provision in the Pre-Revised Procedure for encashment of Conn-BG where the connectivity is revoked by a grantee prior to the 24month trigger period; as such, Respondent No.1 takes such action, in this regard, as is directed by the CERC (as also by this Tribunal) from time to time); the Pre-Revised Procedure has been framed under Regulation 27 of the Connectivity Regulations, 2009 which has statutory force as laid down in DB Power Ltd. Vs. CERC (Order in Appeal No. 50/2015 dated 30.3.2015); if action has already been initiated prior to issuance of the Revised Procedure either for (i) revocation of Stage-II connectivity or (ii) its encashment, then, as per clause 5.1(1), it has to be completed under the Pre-Revised Procedure; clause 5.1(2) pre-supposes existence of connectivity in favour of the grantee and therefore, in cases where the connectivity has already been revoked before issuance of the Revised Procedure, clause 5.1(1) would apply i.e. the consequent encashment of the Conn-BG is also to be governed under the Pre- Revised Procedure; the same, as stated above, is silent on the treatment of Conn-BG for connectivity revoked prior to the 24 months period; and, as such, the directions of the CERC, passed in exercise of its regulatory powers, would apply.
Learned Counsel would submit that in the present case (i) the Appellant was granted Stage-I connectivity by Respondent No.1, vide letter dated 24.8.2018, and Stage-Il connectivity vide letter dated 8.10.2018 under the Pre-Revised Procedure; (ii) on 31.10.2018, the parties entered into the Transmission Agreement where the provision for furnishing of Conn-BG was recorded in clause 1.0(1); (iii) on 02.11.2018, IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 40 of 44 the Appellant submitted a Conn-BG amounting to Rs.5 Crores in the format prescribed under the Pre-Revised Procedure, which was a statutory contract liable to be enforced as such; (iv) on 15.2.2019. bay at the ISTS pooling station was allocated to the Appellant and, as such, the DIL was to be constructed by the Appellant before 16.2.2021; (v) vide letter dated 7.10.2020, the Appellant requested Respondent No. 1 for cancellation of its Stage-II connectivity, and return of Conn-BG due to termination of its power purchase arrangements; (vi) vide letter dated 02.02.2021, the Stage-II connectivity of the Appellant was revoked by Respondent No.1 w.e.f. 08.10.2020 i.e. before expiry of 24 months; (vii) the bay allocated to the Appellant was re-allocated to another entity (being JSW Future Energy) on 14.07.2021 i.e. after stranding of the bay space for more than 9 months from the date of revocation of connectivity; and
(viii) vide letter dated 28.12.2021, Respondent No.1 gave an option to the Appellant for reduction of Conn-BG amount from Rs.5 Crores to Rs.0.50 Crores in terms of the Revised Procedure; the said letter dated 28.12.2021 was a general letter issued by Respondent No.1 to all such grantees whose Conn-BGs were still subsisting; however, the said letter was of no consequence as the connectivity of the Appellant had already been revoked w.e.f. 08.10.2020 which had not been disputed by the Appellant; in the above factual background, and taking into account the provisions of the Procedures notified by it, the CERC has rightly held that the Revised Procedure does not apply to the case of the Appellant, and the Conn-BG furnished by it is liable to be treated under the provisions of the Pre-Revised Procedure; the CERC has, therefore, rightly directed Respondent No.1 to encash the Conn-BG; further, there is no provision in the Pre-Revised Procedure (or under the Transmission Agreement) for return of Conn-BG; and, as such, the reliefs sought by the Appellant cannot be granted to it by this Tribunal.IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 41 of 44
Learned Counsel would also submit that the Appellant has relied upon two earlier Orders of this Tribunal in support of its case; the same, however, are inapplicable for the following reasons: (i) in the Order dated 20.1.2022 passed in Appeal Nos.26-28/2020 (Vaayu Order) where this Tribunal had directed Respondent No.1 to return the Conn-BG in similar circumstances of connectivity being surrendered before expiry of 24 months from the date of intimation of bay allocation, it has been clearly recorded that "no legal or contractual provision" was placed before this Tribunal to support the non-return of Conn-BG; further, this Tribunal did not also go into the provisions of the Conn-BG or the Transmission Agreement provided with respect to encashment of the same; and (ii) in the Order dated 12.4.2022 passed in Appeal No.53/2022 (Shapoorji Order), this Tribunal has held that, since Respondent No.1 had not suffered any loss on account of surrender/revocation of connectivity, there was no basis for Respondent No.1 to encash the Conn-BG, and the same was directed to be returned to the Appellant; in the present case, the bay allocated to the Appellant was re-allocated to another entity after a gap of more than 9 months, and the bay space was vacant during such time; and, therefore, no relief as prayed for by the Appellant is liable to be granted, let alone at the interim stage.
We have refrained from expressing our views on the rival submissions on merits, as they are irrelevant and extraneous to the question whether or not the Respondent can be restrained from invoking the bank guarantee pending disposal of the main appeal. It is also unnecessary for us, in deciding this Interlocutory Application, to examine which of the rival contentions, on the merits of the Order under Appeal passed by the CERC, necessitate acceptance, since the validity or otherwise of the impugned order would be subjected to detailed examination when the main appeal is finally heard, and not at the IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 42 of 44 interlocutory stage while considering whether or not the appellant is entitled for the relief sought by them in this I.A. In BSES Ltd. (Now Reliance Energy Ltd.) v. Fenner India Ltd., (2006) 2 SCC 728, the Supreme Court held that, as per the terms of the Bank Guarantee itself, the beneficiary was the best judge to decide as to when and for what reason the Bank Guarantee should be encashed; and it was no function of the Bank or of the Court to enquire as to whether due performance had actually happened when, under the terms of the Guarantee, the Bank was obliged to make payment when the Guarantee was called in, irrespective of any contractual dispute between the parties. After noticing that arbitral proceedings were pending, the Supreme Court observed that there was no case of irretrievable injustice, if the Appellant therein was allowed to encash the Bank Guarantee because justice could always be rendered to the first Respondent therein, if it succeeded before the Arbitrators.
In Shapoorji Pallonji Energy (Gujarat) Private Limited v. Gujarat Electricity Regulatory Commission, 2017 SCC OnLine APTEL 35, this Tribunal concluded holding that equities could be adjusted, and relief could be given to the Appellants if they succeeded in the pending Appeals; but encashment of Bank Guarantees could not be stayed on that ground.
Needless to state that encashment of the Bank guarantee, if the Respondents so choose to do so, will undoubtedly be subject to the result of the main appeal and, while equities can be adjusted and the relief, of refund of the amount along with interest, can also be considered if the Appellant were to succeed in the main Appeal, encashment of the Bank Guarantee cannot be stayed on the mere possibility of their success in the main Appeal.
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 43 of 44As the direction issued by the CERC, in the impugned Order, that the connectivity BG amounting to ₹5 crores, be encashed and adjusted in the POC pool, would unnecessarily burden the pool of Designated ISTS customers with the liability to pay interest, in case the appellant were to succeed in the main appeal later, we direct the Respondent instead, in case they choose to encash the Bank Guarantees, to keep the proceeds in an interest bearing fixed deposit to be renewed annually till the main appeal is finally heard and decided.
XII.CONCLUSION:
Subject to the afore-said observations, regarding the proceeds of the encashed bank guarantees being kept in interest bearing fixed deposits, the I.A, seeking grant of interim relief, fails and is, accordingly, dismissed making it clear that encashment of the Bank Guarantees shall be subject to the result of the main appeal.
Pronounced in the open court on this 18th day of March, 2024.
(Seema Gupta) (Justice Ramesh Ranganathan)
Technical Member Chairperson
mk/ts
IA No. 154 OF 2024 IN APL No. 33 OF 2024 Page 44 of 44