Gujarat High Court
L And T Infrastructure Development ... vs Gujarat Maritime Board & on 17 February, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, Z.K.Saiyed
C/SCA/4870/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 4870 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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L AND T INFRASTRUCTURE DEVELOPMENT PROJECTS
LTD....Petitioner(s)
Versus
GUJARAT MARITIME BOARD & 1....Respondent(s)
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Appearance:
MR MIHIR THAKORE, SR ADVOCATE WITH MR SANDEEP SINGHI WITH
MR PARTH CONTRACTOR WITH MR SIDDHARTH JOSHI FOR SINGHI &
CO, ADVOCATE for the Petitioner(s) No. 1
MR RAKESH PATEL, AGP for the Respondent(s) No. 2
MR PR NANAVATI, ADVOCATE for the Respondent(s) No. 1
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C/SCA/4870/2015 JUDGMENT
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
Date : 17-,18/02/2016
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petition is filed by L & T Infrastructure Development Projects Ltd. (hereinafter to be referred to as "the petitioner company") praying for setting aside a communication dated 10.3.2015 under which the respondent Gujarat Maritime Board ("GMB" for short) has cancelled the letter of intent issued to the petitioner for development of Kachhigarh port and to forfeit bank guarantee of Rs. 5 crores submitted by the petitioner company. Main grievance of the petitioner is with respect to the action of GMB to forfeit the bank guarantee amount of Rs. 5 crores.
2. Brief facts are as under. The respondent GMB was interested in developing a port through private participation at Sutrapada, District Junagadh. GMB therefore, invited bids from interested parties in May 2007. Selected bidder would submit a Detailed Project Report ("DPR" for short) and an Environment Impact Assessment Report and was expected to complete the construction of the minimum capacity of the port envisaged under the tender documents within a period of three years from the date of getting environment clearance. The tender conditions provided interalia that the selected bidder would submit DPR within 18 months from the date Page 2 of 28 HC-NIC Page 2 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT of issuance of letter of intent. DPR would include besides others, master plan of the port and proposed phasing of development, land acquisition requirement for the port and for the road, rail linkages, the source and method of financing, financial structure of the company etc. The selected bidder would complete the construction of minimum capacity specified in phase1 within a period of three years from the date of getting environment clearance.
3. The petitioner applied and was selected by GMB to execute such work. A letter of intent was therefore, issued by GMB in favour of the petitioner company on 6.2.2008. As per this letter of intent, GMB agreed to grant to the petitioner company right to develop Sutrapada port for commercial use based on BuildOwnOperateTransfer (BOOT) basis. The petitioner would create Sutrapada port as all weather direct berthing port by developing port infrastructure in 2 phases. The petitioner would submit the project report within 12 months from the issue of letter of intent and would obtain all environment clearances and Coastal Regulation Zone clearances and effective financial closure within 18 months from the issue of letter of intent. The petitioner would provide performance bank guarantee for the submission of DPR within 12 months and obtain clearances and financial closure within 18 months, failing which, GMB would cancel the letter of intent and forfeit the bank guarantee. Relevant conditions of letter of intent read as under :
"1.7 The lead Promoter shall submit a detailed project report within 12 months of issue of this letter of Intent (LOI) and present it to Gujarat Maritime board for their Page 3 of 28 HC-NIC Page 3 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT approval.
1.8 The Lead Promoter shall obtain all environment clearances and coastal regulation zone(CRZ) clearances and effective financial closure and all such other clearances and permissions within 18 months of issue of this Letter of Intent.
1.9 A Performance Guarantee/Bank Guarantee of Rs.5 crore (Rupees Five crores only) shall be submitted to Gujarat Maritime Board within 4 weeks of issue of this Letter of intent in the Performa annexed herewith (Annexure1). This performance/bank guarantee is against the submission of Detailed Project Report within 12 months and obtaining environment clearance, coastal regulation zone clearance and effecting financial closure within 18 months as mentioned in para 1.7 and 1.8 above, failing which Gujarat Maritime Board/ Government shall cancel this letter of intent and bank guarantee will be forfeited."
4. It is undisputed that due to various reasons not attributable to the petitioner company, the project for setting up of port at Sutrapada port did not materialise. The principal causes for failure of the project to take off were land acquisition and other local issues as can be seen from the letter dated 22.12.2009 written by the Executive Engineer of GMB to the petitioner company which reads as under :
"GMB has issued the Letter of Intent (L01) on dated February 6, 2008 for the development of Port at Sutrapada. Your company has taken up various activities for onward submission to GMB. However the project has been suffered due to local problems and land issues. Therefore, the company has submitted proposal for extension of Lol vide Page 4 of 28 HC-NIC Page 4 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT letter dated July 13, 2009. The matter is brought to the notice of New VC&CEO, GMB and desired to have meeting with you.
Therefore, I am directed by Vice Chairman & Chief Executive Officer, GMB to request you to make it convenient to attend this office for a meeting on suitable date & time to discuss the progress and issues related to development of Sutrapada Port at the earliest Early reply in the above matter is requested."
5. In the meantime, at the request of the petitioner company, GMB extended the time provided under the letter of intent. It appears that the task of developing the port at Sutrapada port became quite impossible. On its own the petitioner company therefore, suggested an alternative site at Kachhigarh in the near vicinity where such port in lieu of port at Sutrapada can be developed on same basis. GMB agreed and on 15.7.2010 wrote to the petitioner granting such approval for developing the port at Kachhigarh as under :
"This has reference to your letter ref. No. LTCD/DPBU/GMB/O22 dated 7th May 2010 requesting Gujarat Maritime Board to accord extension of L0l and also proposed alternative location of Kacchigarh to develop Greenfield port.
In this context, your request was submitted to Government of Gujarat (GOG) for necessary decision and we are pleased to convey that the Government of Gujarat through Ports & Transport Department vide letter dated 14th July 2010 has accorded approval as under:
(a) To shift the location of site from Sutrapada to Kachhigadh, Tal. Dwarka. Dist. Jamnagar for development of Greenfield port.Page 5 of 28
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(b) To extend the validity of LOI issued to M/s. L&T Ltd. for further 2(two) years i.e. from August 2009 to August 2011. You may note that all other terms and conditions of the Letter of intent (L01) dated 6th February 2010 issued by GMB will remain same.
You are kindly requested to expedite all the tasks/activities required to be performed within the Validity of L01 and submit a monthly progress report to GMB.
You are also requested to amend the name of port from Sutrapada to Kachhigarh in the Performance BG No.20103801BGB0198 dated 10th May 2010 issued by IDBI Bank Ltd of Rupees five crores.
This letter is issued with the concurrence of VC&CEO, GMB on concerned file."
6. Case of the petitioner is that at this alternative site at Kachhigarh, the petitioner made a detailed survey of feasibility for setting up a port. The petitioner company for such purpose appointed one BMT Consultants India to carry out the exercise. The said agency submitted its report in December 2011. The executive summary of the report records that the Gulf of Kachchh has coral reefs and mangroves which are protected by environmental legislations. The document suggests that there are corals at Kachhigarh and that it was possible that environment clearance would be provided only after thorough scrutiny of these aspects. Relevant portion of the executive summary reads as under :
"Documents suggest the presence, of corals at Kachchigarh. Discussions with scientists from NIO also suggest that previous surveys have found corals at Kachchigarh, While BMTCI's site visit found a number of Page 6 of 28 HC-NIC Page 6 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT dead broken corals on the beach. However, it needs to be recognized that the coral maps are large scale maps and are mostly based on satellite image interpretation. Primary surveys need to be conducted to establish their presence/absence. Based on the outcome of the preliminary survey, the detailed mapping by a reputed agency is recommended. A port master plan/ cargo that protects these features in the short and long term can be considered given that existing ports/terminals at Vadinar and Sikka are also located near coral areas. It is also possible that environmental clearance will be provided only after thorough scrutiny of these aspects. No detailed archaeological studies have been conducted at Kachchigar although there is evidence that preliminary reconnaissance type onshore surveys did not prompt further investigation. However, given the proximity of Dwarka and Bet Dwarka, and numerous marine archaeological discoveries along the Saurashtra coast, it is recommended that the diving team also seek for evidence of archaeological importance.
All other environmental aspects such as forests, resettlement/rehabilitation, air/noise/water/biological/soil quality seem to be acceptable and thus can be maintained with proper environmental management.
Both corals and archaeology can be sensitive issues that can generate resistance to the development of Kachchigarh port. it is therefore recommended that surveys for corals and marine archaeological artefacts be initiated early in the project development cycle. Strong evidence needs to be provided through reputed agencies on their absence, for the project to proceed without a lengthy environmental clearance process."
7. Based on such preliminary investigation by BMT Page 7 of 28 HC-NIC Page 7 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT Consultants India, the petitioner desired to obtain further guidance from the experts on the issue of presence of corals and to tackle such an issue, if the port were to be constructed. The petitioner therefore, engaged Gujarat Ecology Society who submitted its report in June 2012 in which it was concluded as under :
"The area covered by Coral in the subtidal region in Bay 1 is 50.53 ha approx. and the Bay 2 is 25.23 ha approx. The coral diversity was high in offshore of bay 1 (8 genus) as compared to Bay2 (4 genus).
Among the coral species Goniopora and Cyphastrea dominated in Bay 1 while Favia dominated the Bayl. Due to the northerly currents during the study period there was presence of suspended particles in the Bay 1 region and this accounted for the dominance of Goniopora, which is a sturdy speciies that can grow in turbid waters."
8. The report suggests mitigation strategies in Chapter8 in which suggestion is made for construction of a long jetty on pillars having a platform about 2 km inside the offshore. It is opined that advantage of such a structure would be that same would be less dredging in the coral reef areas. It was however, recognised that the major limitation of such structure would be that it would not serve the purpose of wave breakers, which is essential for smooth functioning of port operations. Effective port management was one another means suggested for limiting damage to corals which would include prevention of exotic species, minimizing effluent discharge, diversion of runoff water and effluent, etc. The report also suggests coral Page 8 of 28 HC-NIC Page 8 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT transplantation as one of the alternative steps though it candidly admits that these methods have only occasionally been successfully applied and should not be seen as a substitute for other means of mitigation. They are only supplemental to the best practice of prevention and mitigation.
9. After receipt of such report, the petitioner corresponded with GMB and ultimately conveyed that setting up the port at Kachhigarh would simply not be possible for want of environment clearances. There is long correspondence between the two sides. It is not necessary to refer to such lengthy correspondence. We may however, refer to a letter dated 9.3.2015 from the petitioner to respondent GMB in which it was pointed out that due to stiff resistance from the local villagers, the District administration could not acquire the required land for the port at Sutrapada. The project therefore, had to be shelved. In the meantime, the petitioner company had incurred expenditure of Rs. 4.71 crores. Thereafter, due to continued interest in developing the port in the State of Gujarat at the request of GMB, the petitioner company started identifying alternative location. The petitioner therefore, voluntarily suggested the site at Kachhigarh and engaged BMT consultants to carry out an environmental scoping study to identify potential hurdles for this location. Since the study referred to presence of corals which could be a sensitive issue, the petitioner hired Gujarat Ecology Society. The result of the study by such society indicated presence of high percentage of live corals on a growing reef and, therefore, the company would not be able to proceed further with developing the port. The Page 9 of 28 HC-NIC Page 9 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT company would therefore, have no option, except to surrender the location even after incurring cost of Rs.2.71 crores towards expenses. It was further conveyed as under :
"We once again reiterate that we are forced to surrender the location at Kachchigarh as requested in various letters to GMB and request you to return the Performance Guarantee no. 0056M07113300001 dated 26.11.2011 which was replaced by an earlier BG submitted pursuant to the earlier LOl no. GMB/N/PVT/588(10)/644/9881 dated 6.2.08 for development of Sutrapada Port. The total expenditure incurred by us amounts to Rs 7.45 crores for carrying out necessary study for development of the Port at both locations.
GMB has appreciated the efforts put in by us in exploring the development of Port at Kachchigarh and kept requesting us to extend/renew the Performance Bank Guarantee No 005GM07113300001 dated 26.11.2011 for Rs 5 crores which under the bonafide belief we kept on honouring till it's current expiry on 31.3.2015. While we are awaiting the return of the Performance Guarantee no. 005GM07113300001 dated 26.11.11 we regret to learn from GMB that the Government has recommended acceptance for return of LOl subject to forfeiture of Bank Guarantee which is highly unjust, unfair, unacceptable and against natural justice. We once again would like to submit that we have taken all the initiatives to develop a Port in the State of Gujarat but owing to GMB's inability to make available land at Sutrapada and existence of corals at Kachchigarh, we are forced to shelve the development of Port in the state of Gujarat.
In the light of above and in the circumstances explained, we earnestly reiterate our earlier request to return our Performance Guarantee no. 0056M07113300001 dated Page 10 of 28 HC-NIC Page 10 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT 26.11.2011 and oblige."
10. The respondents however, did not agree to such terms and under impugned communication dated 10.3.2015 conveyed to the petitioner company that the Government has accorded its approval to cancel the letter of intent issued to the petitioner company for development of Kachhigarh port and forfeit the bank guarantee of Rs. 5 crores submitted by the company. GMB simultaneously wrote to the petitioner's banker Yash Bank Ltd. on 10.3.2015 and invoked the bank guarantee, upon which the petitioner filed this petition.
11. The respondents have appeared and filed two replies. In the first reply dated 6.4.2015, it is contended that on account of belated decision on part of the petitioner to back out from the project, it cannot oppose encashment of bank guarantee. In terms of clauses 1.7, 1.8 and 1.9 of letter of intent, GMB is entitled to encash the bank guarantee. In the second affidavit dated 5.8.2015, GMB has placed reliance on the study report submitted by Gujarat Ecology Society in June 2012 in order to point out that even as per this report, the construction of the port is feasible and, therefore, the decision on part of the petitioner to withdraw from such commitment is based on extraneous reasons.
12. Learned counsel Shri Mihir Thakore for the petitioner submitted that the initial proposal of developing the port at Sutrapada did not materialise on account of availability of waterfront land. These were issues directly attributable to the respondents and not to the petitioner. The petitioner Page 11 of 28 HC-NIC Page 11 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT therefore, suggested an alternative nearby site at Kachhigarh. However, at that stage no detailed environmental impact assessment was obviously made. Once the GMB agreed to shift the proposed port site, the petitioner undertook such detailed study. On early indication of presence of coral reefs in the report of BMT Consultants, the petitioner engaged Gujarat Ecology Society for more detailed and specific findings and recommendations. Such report conclusively established substantial presence of live corals and coral reefs. Though the report also suggests mitigation techniques, the feasibility of the port has to be seen from the angle of possibility of obtaining environment clearances. Counsel drew our attention to the provisions contained in the notification of Government of India dated 6.1.2011 declaring Coastal Regulation zones to argue that under such circumstances, the environment clearances would simply not be available.
12.1) Counsel relied on the following decisions :
1) The Naihati Jute Mills Ltd. v. Khyaliram Jagannath reported in AIR 1968 Supreme Court 522 in which it was observed as under :
"5. Section 56 of the Contract Act inter alia provides that a contract to 'do an act which, after the contract is made becomes impossible, or by reason of some event which the promiser could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. It also provides that where one person has promised to do something which he knew, or, with reasonable diligence might have known, and which the promisee did not know to be Page 12 of 28 HC-NIC Page 12 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT impossible or unlawful, such a promiser must make compensation to such promisee for any loss which such promisee sustains through the non performance. As envisaged by section 56, impossibility of performance would be inferred by the courts from the nature of the contract and the surrounding circumstances in which it was made that the parties must have made their bargain upon the basis that a Particular thing or state of things would continue to exist and because of the altered circumstances the bargain should no longer be held binding. The courts would also infer that the foundation of the contract had disappeared either by the destruction of the subject matter or by reason of such long interruption or delay that the performance would really in effect be that of a different contract for which the parties had not agreed. Impossibility of performance may also arise where without any default of either party the contractual obligation had become incapable of being performed because the circumstances in which performance was called for was radically different from that undertaken by the contract. But the common law rule of contract is that a man is bound to perform the obligation which he has undertaken and cannot claim to be excused by the mere fact that performance has subsequently become impossible. Courts in England have however evolved from time to time various theories to soften the harshness of the aforesaid rule and for that purpose have tried to formulate the true basis of the doctrine of discharge of contract when its performance is made impossible by intervening causes over which the parties to it had no control. One of such theories is what has been called the theory of implied term as illustrated in F.A. Tomplin Steamship Co. Ltd. v. AngloMexican Petroleum Products Co. Ltd. [1916] 2 A.C. 397. where Lord Lorebum stated:
"A court can and ought to examine the contract and the circumstances in which it was made, not of course to vary, but only to explain it, in order to see whether or not from Page 13 of 28 HC-NIC Page 13 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT the nature of it the parties must have made their bargain on the footing that a particular thing or a state of things would continue to exist. And if they must have done so, then a term to that effect would be implied; though it be not expressed in the contract".
He further observed:
"It is in my opinion the true principle, for no court has an absolving power, but it can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was a foundation on which the parties contracted............... Were the altered conditions such that, had they thought of them, they would have taken their chance of them, or such that as sensible men they would have said, "if that happens, of course, it is all over between us."
The same theory in a slightly different form was expressed by Lord Watson in Dahl v. Nelson, Donkin & Co.(1881) 6 AC 38 in the following words:
"The meaning of the contract must be taken to be, not what the parties did intend (for they had neither thought nor intention regarding it), but that which the parties, as fair and sensible men, would presumably have agreed upon if, having such possibility view, they had made. express provision as to their several rights and liabilities in the event of its occurrence."
In the first case the term is a genuine term, implied though not expressed; in the second it is a fiction, something added to the contract by the law. Anson principles of the English Law of contract, 22nd ED 464. It appears that, the theory of implied term was not found to be quite satisfactory as it contained elements of contradiction. For, if the parties foresaw the circumstances which existed at the date of performance they would provide for them in the Page 14 of 28 HC-NIC Page 14 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT contract; if they did not, that meant that they deliberately took the risk and therefore 'no question of an implied term could really arise. In Russkoe V. John Strik & Sons Ltd. (1922) 10 L.I.L.R. 214 (quoted at p.466 in Anson's Law of Contract, 22nd Ed.) Lord Atkin propounded the theory of disappearance of the foundation of contract stating that he could see no reason why if certain circumstances, which the court would find, must have been contemplated by the parties as being of the essence of the contract and the continuance of which must have been deemed to be essential to the performance of the contract, the court cannot say that when these circumstances cease to exist, the contract ceases to operate. The third theory is, that the court would exercise power to qualify the absolutely binding nature of the contract in order to do what is just and reasonable in the new situation. Denning L. J. in British Movietones Ltd. v. London and District ,Cinemas Ltd.19511K.B. 190 expounded this theory as follows: "Even if the contract is absolute in its term, nevertheless, if it is not absolute in intent, it will not be held absolute in effect. The day is done when we can excuse an unforeseen injustice by saying to the sufferer. "It is your own folly. You ought not to have passed that form of words. You ought to have put in a clause to protect yourself." We no longer credit a party with the foresight of a prophet or his lawyers with the draftsmanship of a Chalmers."
This theory would mean that the Court has inherent jurisdiction to go behind the express words of 'the contract and attribute to the Court the absolving power, a power consistently held not to be inherent in it. The House of Lords in the appeal from that decision [reported in 1952 A.C. 166] discarded the theory. In more recent times the theory of a change in the obligation has come to be more and more generally accepted. Lord Radcliffe, the author of this theory, in Davis Contractors v. Fareham U.D.C.1956 AC 696 formulated it in the following words: Page 15 of 28 HC-NIC Page 15 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT "Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would Tender it a thing radically different from that which was undertaken by the contract."
It is not hardship or inconvenience or material loss which brings about the principle of frustration into play. There must be a change in the significance of obligation that the thing undertaken would, if performed, be a different thing from that which was contracted for."
2) In case of M/s. Bottel Glass Pvt. Ltd. v. Union of India and others reported in ILR(1984) II Delhi 809, in which it was observed as under :
"31 There can be little doubt about the proposition that when the bank issues a bank guarantee it accepts an obligation to make payment to the promisee in terms of the bank guarantee. It is also true that the Courts would not interfere with the enforcement of the bank guarantee if the demand is made in terms thereof. The challenge in the present case is to the action of the Government requiring the bank to pay the amount of rupees two lacs. In our Opinion, when the Government obtains a bank guarantee when it is entering into commercial transaction with another party, then the principles laid down in the aforesaid decisions of the Supreme Court can be invoked and the Court would be hesitant in staying the operation of the bank guarantee. In the case like the present, however, the bank guarantee was demanded by the respondents not as a part of a commercial transaction but in exercise of its statutory or executive power as a Government. If bank guarantee has been furnished by a party on its being required to do so by the Government, exercising its statutory or executive power, then the Court Page 16 of 28 HC-NIC Page 16 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT can examine the action of the Government when it seeks to invoke the bank guarantee, A Government is required to act fairly and judiciously. Any action of the Government which is regarded as arbitrary is perso violative of Article 14 of the Constitution. If it can be shown, therefore, that the decision of the Government to invoke the bank guarantee is arbitrary or mala fide then the decision can be challenged."
13. On the other hand, learned counsel Shri Nanavati for the GMB highlighted that even in its report Gujarat Ecology Society has not opined that port cannot be constructed at Kachhigarh. After taking suitable measures as suggested in such report, the port could still have been constructed. The petitioner failed to fulfill the conditions no. 1.7 to 1.9 of the letter of intent. Even in the tender documents, it was clearly provided that the bidder would be aware of all aspects concerning the construction of the port. Counsel submitted that without applying for environment clearances, the petitioner cannot contend that the project has frustrated for want of such clearances. He further submitted that the action of GMB to encash the bank guarantee is in terms of contract entered into between the parties and as per the settled law, the Court would not interfere unless fraud is demonstrated.
14. Having heard learned counsel for the parties and having perused the materials on record, few important aspects immediately emerge :
1) The petitioner was initially granted letter of intent for development of port on BOOT basis at Sutrapada.Page 17 of 28
HC-NIC Page 17 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT However, on account of encroachment and failure of the authorities to acquire the land required for such purpose, the project did not materialise. This has been admitted by GMB in various letters written to the petitioner as well as in the affidavits filed before us. Had the matter stopped at that level, surely, the petitioner would have been allowed to walk out of the contract without any forfeiture.
2) The petitioner however, continued to show interest in developing the port in the same region. GMB also encouraged the petitioner to locate and suggest an alternative site. The petitioner company after preliminary investigations suggested Kachhigarh, a site nearby the proposed port at Sutrapada to develop on the same terms and conditions. GMB accepted such suggestion and modified the letter of intent suitably.
18.2.2016
3) On the basis of such amended letter of intent, the petitioner undertook further exercise of carrying out detailed study of the region. For such purpose, the petitioner initially appointed BMT Consultants India in whose report submitted in December 2011, there were preliminary indications of presence of corals and coral reefs. The agency therefore, recommended that survey of corals and marine archaeological artifacts be initiated early Page 18 of 28 HC-NIC Page 18 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT in the project development cycle. It was further conveyed that strong evidence needs to be provided through reputed agencies on their absence for the project to proceed without a lengthy environment clearance process. On the basis of such preliminary indications and recommendations by BMT Consultants India, the petitioner appointed yet another agency namely, Gujarat Ecology Society to advise it on the issue of presence of corals and other related environmental issues. The report submitted by Gujarat Ecology Society in June 2012 confirmed presence of corals and coral reefs of considerable concentration. The conclusion of the report on this aspect was that the coral diversity was high in offshore of bay.
Among the coral species, Goniopora and Cyphastrea dominated in Bay 1 while Favia dominated the other area.
The study report suggested mitigation strategies which would principally include major modifications in the port design. The recommendation was to construct a jetty on pillars, 2 km inside the bay. Supplemental recommendations were in the nature of port management to prevent any damage to the corals. This would include minimizing effluent discharge, diversion of runoff water and effluent, etc. The study also suggested coral transplantation as one of the methods of mitigation, however, cautioned that this has not succeeded in all cases and should be seen only as supplemental to the main Page 19 of 28 HC-NIC Page 19 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT practice of prevention and mitigation.
15. Two things emerge from this report. Firstly, that the expert study confirmed presence of corals and coral reefs in the region. Second that major modifications would be needed if the project was to be implemented without serious damage to such corals. Even though such study report suggested measures for mitigation, we are not sure of the expertise of the agency to make such recommendations which in addition to requiring in depth high scientific and technical knowledge of the marine life in particular, corals, would also require high degree of knowledge in the engineering concerning setting up of a port. Quite apart from this, the issue before us is not one of how difficult it would be to set up the port without seriously damaging the corals. The question is, whether the rules and regulations would permit it at all ? In that sense, irrespective of the later part of the recommendations of the Gujarat Ecology Society pointing out mitigation practices for setting up the port, the crucial question would be, would environment clearances be available at all? If answer to such question is in the negative, surely, the petitioner cannot be attributed any inaction or unwillingness on its part to carry on with the project. If that be so, the respondent would not be entitled to forfeit the security deposit for the failure on part of the petitioner to do so. In other words, if the contract is impossible of being performed, the forfeiture of security deposit for not performing such contractual obligations would not be permissible. In this context we may refer to Coastal Zone Regulations.
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C/SCA/4870/2015 JUDGMENT
16. In exercise of powers under subsection(1) and sub section(2) of section 3 of the Environment (Protection) Act, 1986, the Central Government has issued notification dated 6.1.2011 prescribing Coastal Regulation Zone. Preamble to such notification itself provides that the Central Government with a view to ensure livelihood security to the fisher communities and other local communities, living in the coastal areas, to conserve and protect coastal stretches, its unique environment and its marine area and to promote development through sustainable manner based on scientific principles has issued such notification. Relevant portion of Regulation 3 of the notification reads as under :
"3. Prohibited activities within CRZ, The following are declared as prohibited activities within the CRZ,
(i) Setting up of new industries and expansion of existing industries except,
(a) those directly related to waterfront or directly needing foreshore facilities;
Explanation: The expression "foreshore facilities" means those activities permissible under this notification and they require waterfront for their operations such as ports and harbours, jetties, quays, wharves, erosion control measures, breakwaters, pipelines, lighthouses, navigational safety facilities, coastal police stations and the like.;
(iv) Land reclamation, bunding or disturbing the natural course of seawater except those,
(a) required for setting up, construction or modernisation Page 21 of 28 HC-NIC Page 21 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT or expansion of foreshore facilities like ports, harbours, jetties, wharves, quays, slipways, bridges, sealink, road on stilts, and such as meant for defence and security purpose and for other facilities that are essential for activities permissible under the notification;
(viii) Port and harbour projects in high eroding stretches of the coast, except those projects classified as strategic and defence related in terms of EIA notification, 2006 identified by MoEF based on scientific studies and in consultation with the State Government or the Union territory Administration.
(xi) Construction activities in CRZI except those specified in para 8 of this notification."
17. It can thus be seen that under the said Regulation 3, various activities are completely prohibited within the CRZ. Though under exception to clause no.(i), those activities directly related to waterfront and requiring foreshore facilities, are excluded from prohibition of setting up of new industries and expansion of existing industries, an independent restriction has been imposed in clause(viii) which provides that port and harbour projects in high eroding stretches of the coast, except those classified as strategic and defence related would be prohibited. Clause
(xi) provides that construction activities in CRZI, except those specified in para 8 of this notification, would also be prohibited.
18. Regulation 7 pertains to classification of the CRZ for the purpose of conserving and protecting the coastal areas and marine water. Clause(1) thereof classifies CRZ1 and reads as under :
Page 22 of 28HC-NIC Page 22 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT "(i) CRZI,-
A. The areas that are ecologically sensitive and the geomorphological features which play a role in the maintaining the integrity of the coast,
(a) Mangroves, in case mangrove area is more than 1000 sq mts, a buffer of 50meters along the mangroves shall be provided;
(b) Corals and coral reefs and associated biodiversity;
(c) Sand Dunes;
(d) Mudflats which are biologically active;
(e) National parks, marine parks, sanctuaries, reserve forests, wildlife habitats and other protected areas under
the provisions of Wild Life (Protection) Act, 1972 (53 of 1972), the Forest (Conservation) Act, 1980 (69 of 1980) or Environment (Protection) Act, 1986 (29 of 1986); including Biosphere Reserves;
(f) Salt Marshes;
(g) Turtle nesting grounds;
(h) Horse shoe crabs habitats;
(i) Sea grass beds;
(j) Nesting grounds of birds;
(k) Areas or structures of archaeological importance and heritage sites.
B. The area between Low Tide Line and High Tide Line;"
Page 23 of 28HC-NIC Page 23 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT
19. Regulation 8 pertains to norms for regulation of activities permissible under the notification. Relevant portion thereof reads as under :
"I. CRZI,
(i) no new construction shall be permitted in CRZI except,
(a) projects relating to Department of Atomic Energy;
(b) pipelines, conveying systems including transmission lines;
(c) facilities that are essential for activities permissible under CRZI;
(d) installation of weather radar for monitoring of cyclones movement and prediction by Indian Meteorological Department;
(e) construction of trans harbour sea link and without affecting the tidal flow of water, between LTL and HTL.
(f) development of green field airport already approved at only Navi Mumbai;
Areas between LTL and HTL which are not ecologically sensitive, necessary safety measures will be incorporated while permitting the following, namely:....."
20. It can thus be seen that in any case falling within CRZ1 which the present case admittedly falls, in terms of clause (xi) to Regulation 3 of notification, construction activities would be prohibited except those specified in Regulation 8. Regulation 8 as noted, lays down norms for Page 24 of 28 HC-NIC Page 24 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT regulation of activities permissible under the notification. With respect to CRZ1, it is provided that no new construction shall be permitted in CRZ1 except, the projects mentioned therein. Regulation 7 classifies different CRZs. CRZ1 is specified in two parts. PartB includes the area between low tide line and high tide line whereas partA refers to the areas that are ecologically sensitive and the geomorphological features, which play a role in maintaining the integrity of the coast that are enumerated in clauses (a) to (k) which include in clause(b) corals and coral reefs and associated biodiversity. In view of presence of corals and coral reefs in the region, therefore, the region would be classified as CRZ1. In terms of Regulation 8 therefore, within such area no new construction could be permitted, except for the six categories of projects relating to department of atomic energy, pipelines, conveying systems etc. Admittedly, the present project does not fall in any of these categories (a) to
(f) contained therein.
21. It can thus be safely concluded that by virtue of regulations noted above, the project clearance from the environment point of view would simply not be available. In other words, even if the petitioner were to apply for environment clearances to the Government of India, CRZ regulations would simply not permit any such development activities. It is in this background that we need to appreciate the terms of the letter of intent.
22. As noted, in clause (1.7), the petitioner had to submit a Detailed Project Report within 12 months of issue of letter of intent. Under clause(1.8), the petitioner would Page 25 of 28 HC-NIC Page 25 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT obtain all environment clearances and Coastal Regulation Zone clearances and effective financial closure which would be done within 18 months from the date of issue of letter of intent. As per clause (1.9), the petitioner would furnish a performance bank guarantee of Rs. 5 crores against the submission of Detailed Project Report within 12 months and obtaining environment clearance, coastal regulation zone clearance and effecting financial closure within 18 months. As already noted earlier, the question of forfeiture of this security deposit would arise if the petitioner failed to perform any of the above tasks. If obtaining environment clearances is simply an impossibility, the petitioner cannot be stated to have failed in obtaining the same.
23. The contention that the petitioner did not even apply for such clearances, need not detain us. In view of the findings of the expert agency employed by the petitioner, when the presence of coral and coral reefs is established, it would be futile to insist that the petitioner must first undertake detail exercise of applying for clearances and only after told by the Government of India that it is not possible to grant such clearances, can claim frustration of the contract.
24. Learned counsel for the GMB however, would place much reliance on the tender conditions in which the tenderer agreed that the bidder had made a complete and careful examination to determine the difficulties in matters incidental to the performance of its obligations under the Concession Agreement and to specify the nature and extent of all difficulties and hazards. Counsel would therefore, Page 26 of 28 HC-NIC Page 26 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT contend that any difficulty or even impossibility in obtaining environment clearances cannot be a defence of the petitioner to avoid forfeiture of the security deposit. We are unable to read such condition in such a rigid manner. If the contract had frustrated on account of impossibility, we have serious doubt whether GMB could forfeit security deposit citing the reason that whatever be the reason, the petitioner failed to perform its obligations and, therefore, must be visited with the penalty of forfeiture. However, there is an additional reason why we must reject such a contention. We may recall, the initial project was for construction of port at Sutrapada. On account of the respondents not being able to make the land available for such project, the same had to be shelved. Only as an alternative, the petitioner suggested Kachhigarh as a site where the port could be developed. Surely, the petitioner was not expected to carry out complete environmental assessment before coming up with such an alternative suggestion nor GMB understood the offer of the petitioner as to one which will irrespective of environment concerns, be accepted. When there was a fundamental shift in the initial project envisaged in the letter of intent, the contention that whatever be the difficulties in executing the contract, forfeiture must follow, need to be viewed in the background of such material changes.
25. The contention that having given unconditional bank guarantee, the petitioner cannot avoid encashment thereof, can also not be accepted. The parameters for avoiding the payment of a bank guarantee by the bank giving such guarantee cannot be applied in the present case. The Page 27 of 28 HC-NIC Page 27 of 28 Created On Sun Feb 28 02:45:23 IST 2016 C/SCA/4870/2015 JUDGMENT question in the present case is not so much as to allowing the authorities to encash the bank guarantee as much as the authority of the GMB to retain such amount even if it was so allowed to be encashed. If the decision of GMB to cancel the contract and to award the penalty of forfeiture of Rs. 5 crores on the petitioner itself is found to be erroneous and therefore, set aside, the question of allowing GMB to encash the bank guarantee would simply not arise.
26. In the result, petition is allowed. Impugned communication dated 10.3.2015 is set aside. The respondents shall not encash the bank guarantee in question.
27. At this stage, learned advocate for the GMB requested that the petitioner be asked to continue the validity of bank guarantee for an appropriate period to enable the GMB to approach the Supreme Court. Request is granted. The petitioners shall ensure that the bank guarantee shall remain valid atleast till 31.03.2016.
(AKIL KURESHI, J.) (Z.K.SAIYED, J.) raghu Page 28 of 28 HC-NIC Page 28 of 28 Created On Sun Feb 28 02:45:23 IST 2016