Appellate Tribunal For Electricity
H-Energy Private Limited vs Petroleum And Natural Gas Regulatory ... on 10 May, 2023
IN THE APPELLATE TRIBUNAL FOR ELECTRICITY
(Appellate Jurisdiction)
APPEAL NO. 311 OF 2022 & IA NO. 1050 OF 2022
Dated: 10th May, 2023
Present : Hon`ble Mr. Justice Ramesh Ranganathan, Chairperson
Hon`ble Dr. Ashotosh Karnataka, Technical Member (P&NG)
In the matter of:
H-ENERGY PRIVATE LIMITED
REGISTERED OFFICE:
12TH FLOOR, KNOWLEDGE PARK,
HIRANANDANI PARK POWAI,
MUMBAI - 400076
THROUGH ITS AUTHORIZED SIGNATORY
MR. MANISH ANAND ... Appellant(s)
PETROLEUM AND NATURAL GAS
REGULATORY BOARD
THROUGH ITS SECRETARY,
1ST FLOOR, WORLD TRADE CENTRE,
BABAR LANE, CONNAUGHT PLACE,
NEW DELHI 110001
... Respondent(s)
Counsel on record for the Appellant(s) : Mr. Sajjan Poovayya, Sr. Adv.
Ms. Astha Sharma
Mr. Aryaman Singh
Mr. Abhishek Kakkar
Counsel on record for the Respondent(s) : Mr. Raghavendra Shankar
Ms. Pinki Mehra
Ms. Drishti Rajain
Ms. Pallavi Mishra
_______________________________________________________________________________________
Judgment in Appeal No. 311 of 2022 Page 1 of 109
JUDGEMENT
Per Hon`ble Mr. Justice Ramesh Ranganathan, Chairperson
1. This Appeal, filed under Section 33 of the Petroleum and Natural Gas Regulatory Board Act, 2006 ("the Act" for short), challenges the Orders dated 07.06.2022 and 04.07.2022 issued by the Respondent Board holding that the Appellant had failed to meet its obligations, under the PNGRB (Authorizing Entities to Lay, Build, Operate or Expand Natural Gas Pipelines) Regulations, 2008 ("2008 Regulations" for short), in constructing the Jaigarh-Mangalore Natural Gas Pipeline despite grant of reasonable time to meet its commitments and obligations under Regulation 16(1)(a) of the 2008 Regulations; and encashment of the performance bank guarantee amounting to Rs. 20 crores, submitted earlier by the Appellant to the Respondent-Board, by its letters dated 14.06.2022 and 17.06.2022 respectively of which, admittedly, Rs.15 crore was initially encashed by the Respondent-Board on 17.06.2022; and was subsequently sought to be justified by way of the Order dated 04.07.2022.
2. The reliefs sought in this Appeal are (1) to set aside and quash the Orders dated 07.06.2022 and 04.07.2022 passed by the Respondent Board in the matter of H-Energy Private Ltd. for Jaigarh-Mangalore Natural Gas Pipeline - Ref: PNGRB/Monitoring/2/NGPL-JMPL/(1)/2016; (2) direct the Respondent Board to return the encashed amount of Rs. 20,00,00,000/- from PBG No. 09020008116; and (3) pass such further or other order(s) as this Hon'ble Tribunal may deem fit in the facts and circumstances of the case.
I. CASE OF THE APPELLANT:
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3. It is the Appellant's case that encashment of the Performance Bank Guarantee was without due regard to the facts of the case and the submissions made by them before the Respondent Board, without following the process prescribed under the PNGRB Act, and without considering the prayers made by them; the impugned orders had been passed contrary to the earlier stand of the Respondent Board, and without considering their genuine difficulty in not being able to lay down the Jaigarh-Mangalore Natural Gas Pipeline ("JMPL") for reasons and factors not attributable to them; the very same factors had been considered earlier by the Respondent Board to allow extension of time for the project; the impugned orders did not take into account that it was on the directive of the Respondent Board, in the meetings held between the parties on 09.08.2021 and 04.03.2022, that the Appellant had submitted a formal request to surrender the JMPL authorization; however, the Respondent Board held against the Appellant and encashed 25% of the PBG under the impugned order dated 14.06.2022; subsequently it had encashed the balance Rs.15 crores towards PBG without imposing any penalty by way of its order dated 17.06.2022 wherein it sought to justify 100% encashment of PBG on account of the alleged default of the Appellant, though laying the JMPL would lead to infructuous investment and no longer serve public interest.
4. Facts, as stated by the Appellant, are that they are a private limited company, established in the year 2009, engaged in energy infrastructure in India and other Asian countries, and are involved in carrying on business activities in the oil and gas sector, including laying of pipelines. The Respondent Board issued Public Notice dated 03.11.2015 inviting bids from eligible entities for development of a natural gas pipeline network i.e., the Jaigarh Mangalore Natural Gas Pipeline/ JMPL. Tender _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 3 of 109 documents were also issued along with the geographical maps of the pipeline, showing the path for laying the proposed pipeline. The Appellant submitted its expression of interest for JMPL on 13.05.2015, and engaged the services of MECON to undertake a detailed feasibility study on JMPL. Based on the said feasibility study, the Appellant prepared a feasibility report in March 2016, highlighting the route description of the proposed JMPL commencing from the proposed LNG Terminal at Jaigarh, running along MSH-4, then joining SH-164 near JSW residential township, then running parallel to SH-164 up to Nivali Phata village in Ratnagiri District, and from there running parallel to NH-66 (previously NH-17) within the NH-66 ROW till it reached the terminal point ie for a length of 637.28 kms, a major portion of the proposed JMPL was to run parallel to the ROW of NH-66. After submitting its bid on 16.03.2016, the appellant submitted their performance bond on 20.06.2016.
5. The Respondent Board issued the 'Grant of Authorization for Jaigarh-Mangalore Natural Gas Pipeline' to the Appellant on 28.06.2016, in terms of which they were allowed a maximum of thirty six months from the date of issue of the authorization letter for commissioning of JMPL; and were informed that furnishing of a performance bond for Rs. 20 crores was to guarantee timely commissioning of the project as per the prescribed targets submitted in the bid and for meeting the performance undertaking during the operating phase of the project. In the meeting held on 04.08.2016, the Appellant informed the Respondent Board that the finalized length of the mainline was 637 kms with a capacity of 17 MMSCMD with an approximate capex of Rs. 2399 crores, an implementation plan had been prepared, and the critical path had been identified.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 4 of 109
6. The Appellant claims to have entered into an MOU with Mangalore Chemicals & Fertilizers Ltd on 29.08.2016 for supply and transportation of 1 MMSCMD of RLNG, upto a period of 10 years and with Fairwood Peninsula Energy Corporation on 10.10.2016 for supply and transportation of 3.6 MMSCMD of RLNG upto a period of 15 years, respectively, from Jaigarh LNG Terminal and transportation through JMPL to prospective customers at Mangalore, commencing from 01.07.2019; the NH Policy, notified on 22.11.2016, provided for the use of NH ROW for laying of utility services, including pipelines; the use of ROW of NH 66 for JMPL became necessary on account of the peculiar and challenging terrain of the pipeline running through three different States with high hill terrain of the western hilly range / Western Ghats on the east side and the sea / coastal area on the west side of the proposed corridor; since NH 66 was to undergo widening into a four lane, the ROW could have easily accommodated the JMPL throughout the length of the pipeline upto the terminal point; and they started coordinating with the National Highways Authority of India ("NHAI") for providing necessary details of ROW for the entire length of the pipeline, the alignment details, etc.
7. The Appellant submits that, in the progress review meeting held on 12.04.2018, they highlighted the reasons for the delay in obtaining statutory permissions, especially from NHAI due to the expansion of the national highway in the States of Goa and Maharashtra, and conveyed their difficulty in laying the pipeline without the ROU from NHAI. The Respondent Board is said to have directed them to submit the detailed status of RoU acquisition by the end of April, 2018, the detailed activity chart, details of pending permissions, etc, which they complied on 29.05.2018. The Appellant requested the Respondent Board, by letter dated 17.05.2019, for extension of the completion date for JMPL, and _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 5 of 109 informed that they were putting in their best efforts to complete the Project; however, due to certain issues beyond their control, the completion was getting delayed; most of the pipeline route had to be laid parallel to the existing national highway, since there were ghat mountains on one shoulder of the NH and the sea on the other; and hence there was "no alternative route" to lay the pipeline. The Appellant sought deferment of the completion and commissioning date of JMPL till the end of May 2023.
8. In the meeting held on 08.05.2019, the Respondent Board asked the Appellant to provide the commitment targeted in the next 3-6 months. By their letter dated 06.06.2019, the Appellant provided a schedule of the activities that it would undertake in the next six months, and requested the Board to extend the timelines for completion of JMPL up to the end of May 2023. By email dated 11.07.2019, the Board asked the Appellant to submit the commitment for the next one year, which the Appellant provided on 15.07.2019. Date wise timelines for these commitments were sought by email dated 16.07.2019, which the Appellant claims to have provided on 18.07.2019. Reference is also made to the Board's letter dated 11.09.2019, their response thereto on 15.10.2019, to the covid lockdown from March, 2020, and the gradual partial removal of lockdown which took place in several States, to submit that the situation adversely and significantly affected the works at JMPL, the acquisition of ROU by the national highway where the Appellant had to use the RoU for its JMPL, as also the costs which it had considered at the time of bidding for JMPL.
9. By email dated 23.04.2020, the Appellant provided the commissioning schedule for JMPL to the Respondent Board, sought extension due to the pandemic, and claimed to have suspended all activities for JMPL from March, 2020, till the situation returned to normalcy. On 11.05.2020, the Respondent Board conveyed its approval _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 6 of 109 for extension of the completion schedule for JMPL upto 31.03.2021, subject to some activities being completed by 30.09.2020.
10. In their letter dated 04.09.2020, the Appellant claimed that the delay caused was due to the force majeure condition of Covid-19. By its letter dated 06.11.2020, the Respondent Board granted further extension of time, under Regulation 16(1)(a), from 30.09.2020 to 31.03.2021 subject to an undertaking of acceptance by the Appellant within 10 days regarding completion of certain milestones by 31.03.2021. By their letter dated 24.11.2020, the Appellant informed the Respondent Board that, due to the restrictions imposed on account of Covid-19, the project activities, such as mobilization of human resources for office and project site activities had become difficult, and that the completion dates for certain milestones be revised. By its letter dated 04.12.2020, the Board extended the timelines for completion of certain activities till 31.03.2021. On the Respondent Board seeking information on the status of the activities by its letter dated 18.05.2021, the Appellant, in its letter dated 20.06.2021, highlighted its plight on account of the second wave of covid-19 pandemic, and sought extension of timelines, section wise, for a further period from December, 2022 till May, 2025.
11. In the progress review meeting held on 06.08.2021, the Appellant claimed that the lack of physical progress was for various reasons not attributable to it and, due to such time delays, there had been a cost escalation in the project of Rs. 6000 crores vis-à-vis the original estimated cost of Rs. 2389 crores. The Appellant proposed different options for completion of the project such as provision of Viability Gap Funding (VGF) in creating this infrastructure with PNGRB providing an extension of 60 months for implementation of the project or laying pipeline in the part section of JMPL starting from Mangalore to Goa connecting it with GAIL's _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 7 of 109 Kochi-Mangalore Natural Gas Pipeline or surrendering authorization of the entire JMPL and discontinuing execution work. The Respondent Board advised the Appellant to submit their specific formal request within 10 days. In its letter 14.12.2021, the appellant highlighted various concerns, and requested the Respondent Board to consider the three options given by it during the meeting held on 06.08.2021.
12. In the meeting held on 20.01.2022, under the Chairmanship of the Secretary, Ministry of Petroleum and Natural Gas, the Appellant stated that the JMPL is no longer viable due to the alternate gas pipeline available in the region, and they had suggested various options earlier. It was decided that the Appellant would make a submission to the Respondent Board regarding its stand with respect to JMPL, and the Board would decide the matter based on the prevailing regulations. In the meeting held on 24.02.2022, the Respondent Board informed the Appellant that option I of VGF could not be considered as it did not come under its purview; regarding option II of unified tariff, the Appellant was informed that implementation of the pipeline was to be done in accordance with the terms and conditions of the Authorization, and any conditionality to the same was not acceptable. With respect to option III of surrendering of JMPL, the Respondent Board directed the Appellant to submit its formal request for surrendering, and informed that the same would be examined as per the regulatory framework.
13. A hearing was scheduled for 19.05.2022 by the Respondent Board, under Regulation 16 of the Authorization Regulations, for non- achievement of milestones as specified in the 'Grant of Authorization' for JMPL. On 17.05.2022, the Appellant submitted a written representation to the Respondent Board to be considered during the hearing, highlighting the reasons due to which it was unable to comply with the timelines, and _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 8 of 109 was constrained to surrender the project. The Appellant requested the Board to allow them to extend the PBG for a period lesser than 3 years. In the hearing held on 19.05.2022, the Appellant justified the delay in JMPL as having been caused on account of NHAI formalities, the delay due to the Covid-19 pandemic, and thereafter the Russia- Ukraine war. They claimed that this had significantly altered the substratum of the project and the assumptions based on which they had bid for and undertaken the JMPL project, besides increase in costing, from Rs. 2389 crores to Rs. 7865 crores, for reasons not attributable to it. The Appellant also claimed that the industry demand and the CGD customers demand both were now met by the GAIL's Kochi-Mangalore pipeline, and GAIL's Dabhol Bangalore pipeline, respectively, and hence these demands would now not be available; due to unavoidable delay in finalization of the route for JMPL, and completion of GAIL pipelines, a majority of the demand centres, that had been considered for JMPL, were now being met by the GAIL pipelines; to such extent, JMPL would be unviable and would not have the required demand; and, in this changed scenario, construction and laying down of JMPL would no longer serve the objectives of the PNGRB Act and the Authorizing Regulations.
14. Thereafter, the Respondent-Board passed Order dated 07.06.2022 holding that the Appellant had failed to meet the requirements of the Authorization Regulations, and the terms and conditions of the Grant of Authorization; after completion of 5 years, the Appellant could not take the plea of surrendering the Authorization ; as a first default, in accordance with the terms and conditions of Authorization and the provisions under Regulation 16(1)(c)(i) of the Authorization Regulations, 25% of PBG amounting to Rs. 5 crores would be encashed from the PBG submitted by _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 9 of 109 the Appellant. The Appellant was directed to refurbish the encashed PBG amount within 1 week of the Order.
15. According to the Appellant, since the Respondent Board had passed an ambiguous order and gave no clarity on various aspects, including the term for which the PBG had to be refurbished, they could not immediately do the needful; thereafter, a major part of the finance team of the Appellant's company were infected with Covid-19; since the PBG was expiring, the Respondent Board, by way of letter dated 14.06.2022, again directed the Appellant to refurbish the encashed PBG amount to the tune of Rs. 5 crores; by letter dated 15.06.2022, the Respondent Board directed the Appellant to refurbish the encashed PBG for Rs. 5 crores on an immediate basis; and, while encashing the entire PBG to the tune of Rs. 20 crores, the Respondent Board informed them, by letter dated 17.06.2022, that the encashment of additional Rs. 15 crores was precautionary as the Appellant had not refurbished Rs. 5 crores that was encashed, and that such encashment was not towards any penalty.
16. While seeking clarification on the terms on which the refurbished PBG had to be issued, the Appellant informed the Respondent Board, by letter dated 17.06.2022, that, having regard to the fact that they had already surrendered the JMPL, there was no justification for refurbishment of the bank guarantee for Rs. 20 crores. They sought refund of Rs.15 crores that had been encashed, even though no penalty was imposed for such amount.
17. According to the Appellant, the Respondent Board subsequently issued order dated 04.07.2022, in order to justify the encashment of Rs. 15 Crores, and proceeded to terminate the authorization of JMPL on the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 10 of 109 alleged ground that the Appellant had not refurbished the encashed bank guarantee of Rs. 5 Crores.
18. The Appellant claims that the subsequent order dated 04.07.2022 was merely an afterthought, as no request or prayer for review of the order dated 07.06.2022 was made by the Appellant either in its letter dated 17.06.2022 nor during the hearing held on 30.06.2022; and the finding of the Board that they had failed to perform their obligation under the authorization, with regard to refurbishment of encashed bank guarantee of Rs. 5 Crores was unfair and uncalled for, as the Appellant, by its letter of 17.06.2022, had in fact sought clarification on the encashment of Rs. 15 Crores, over and above the earlier encashed amount of Rs. 5 Crores, and the justification for refurbishment of entire Rs. 20 Crores in view of the surrender of the pipeline.
19. Both the aforesaid Orders are subjected to challenge in this Appeal on the grounds that it has been passed without due regard to the process of law, the PNGRB Act, and the Authorization Regulations; the Impugned Order did not consider (1) the delay caused by NHAI in not providing the necessary details of RoW, and in providing alignment details relating to NH-66 in a piecemeal manner, due to which the timelines of Appellant's JMPL got considerably delayed; (2) the delay and difficulties caused by the Covid-19 pandemic; (3) the increased costing due to the Russia- Ukraine war; and (4) submission with respect to the GAIL pipelines due to which the major demand centres of the JMPL were now being catered to, making JMPL unfeasible; the mere fact that the Appellant was earlier seeking extension of time, and subsequently sought surrender of authorization at the advice and directive of the Respondent Board, does not alter the nature of the impeding factors or their impact of delaying the project; these factors could not have been discounted/ignored by the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 11 of 109 Respondent Board for the purpose of considering the request of the Appellant for surrendering of the authorization of JMPL; in view of the various impeding factors affecting the JMPL project some of which were in the nature of force majeure conditions, it was unfair and improper of the Respondent Board to seek encashment of Rs.5 crores; the Respondent Board erred in imposing penalty as first default under Regulation 16(1)(c)(i) of the Authorization Regulations, when it was amply clear that the Appellant could not comply with the timelines and the terms and conditions for no fault on its part; and cancellation of authorization should have been done without imposition of any penalty as none of the factors impeding the project were attributable to the Appellant.
20. The Appellant further contends that the Respondent Board failed to take into account the following reasons that had made JMPL unviable, unfeasible and impractical ie (a) the major demand centres of JMPL as assessed in the DFR undertaken by the Appellant are now being met by GAIL pipelines - GAIL's Kochi-Mangalore pipeline and GAIL's Dabhol- Bangalore pipeline, thereby considerably reducing the demand on the route of JMPL; (b) substantial increase in the capex of JMPL from Rs. 2389 crores to Rs. 7865 crores due to the delay caused by NHAI, the covid-19 pandemic and the Russia- Ukraine war; (c) NH-66 is not yet completely constructed, and is likely to get completed by end of 2024; thus, the JMPL is not likely to be completed until after end of 2024, which would only further increase the capex costs, etc; laying down of JMPL would now lead to infructuous investment; under Section 20(5) of the PNGRB Act, and Regulation 4 of PNGRB (Guiding principles for Declaring or Authorizing Natural Gas Pipeline as Common Carrier or Contract Carrier) Regulations, 2009, the Respondent Board is duty bound to avoid infructuous investments, and to ensure optimum utilization of _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 12 of 109 infrastructure; the Respondent Board, as a statutory authority, must take into account circumstances that would impede its proper functioning; as the regulator, the Board should take into consideration the financial and operational rationale for a natural gas pipeline; a statutory authority should take into consideration relevant facts and circumstances for exercise of its discretion and decision making power; the Board has proceeded on the erroneous premise that an authorization already granted cannot be surrendered or withdrawn, without looking at the issue as to whether JMPL had become impracticable to construct and operate; the Board failed to consider that the formal request for surrendering of JMPL was made by the Appellant upon its directions (Ref: MOM dated 24.02.2022); however, upon receipt of the formal request, the Board had proceeded to pass the impugned orders; where the very substratum of a contract has been altered or where the performance of any act has become impracticable or impossible, it would render a contract frustrated; the Respondent failed to exercise its powers under Section 23 of the PNGRB Act which, in appropriate cases, permits surrender of authorization for justified reasons; as a regulatory body, the Board has the power to prescribe and enforce all such proper and reasonable rules and regulations as are deemed necessary to conduct the business in a proper and orderly manner; the Board, while passing the Impugned Orders, failed to exercise its powers as a regulator or to appreciate that the Appellant tried its very best to comply with all the directions of the Respondent Board and to meet the timelines as per the Grant of Authorization, but could not do so because of external factors not attributable to it; having passed the order dated 07.06.2022, for encashment of Rs. 5 Crores, the Board is not entitled in law to pass a further order to justify its illegal action of encashment of Rs. 15 Crores; the subsequent order dated 04.07.2022, to the extent it seeks to justify encashment of Rs. 15 Crores for alleged _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 13 of 109 default on the part of the Appellant to refurbish the encashed PBG of Rs. 5 Crores, is an afterthought; the Board has wrongly proceeded under Regulation 16(1)(c)(i) of the Authorization Regulations and treated the issue as a matter of first default to encash PBG of Rs.5 crores, having failed to consider that there was no default on the part of the Appellant; Regulation 16(1)(c)(i) does not apply in the facts of the present case; the Board has wrongly applied Regulation 16(1)(c)(i) instead of resorting to a decision u/s 23 of the Act; and it further erred in encashing the remaining amount of Rs. 15,00,00,000/- on 17.06.2022, which amounts to unjust and arbitrary conduct on its part.
II. CASE OF THE RESPONDENT:
21. The case of the Respondent, on the other hand, is that the Board was constituted under the Petroleum and Natural Gas Regulatory Board Act, 2006 ("The Act" for short) which was notified in the Gazette dated 31.03.2006. The Act empowers the Board to protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products and natural gas and to promote competitive markets and for matters connected therewith or incidental thereto. Further, the Board is also mandated to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as to ensure uninterrupted and adequate supply of petroleum, petroleum products and natural gas in all parts of the country.
22. The Respondent states that the Appellant had submitted an expression of interest to the Board on 13.05.2015, for laying the Jaigarh-
Mangalore Natural Gas Pipeline ("JMPL"). under Regulation 5 of the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 14 of 109 Petroleum and Natural Gas Regulatory Board (Authorising Entities to Lay, Build, Operate or Expand Petroleum and Petroleum Products Pipelines) Regulations, 2010 (the "2010 Regulations"). Vide letter dated 20.06.2016, the Appellant submitted a Performance Bond and Performance Bank Guarantee dated 17.06.2016 in connection with its bid for JMPL.
23. Section 16 and 17 of Act stipulate that an entity "which is laying, building, operating, or expanding, or which proposes to lay, build, operate or expand, a pipeline as a common carrier or a contract carrier" must obtain prior authorisation from the Board. The Board, vide letter dated 28.06.2016, granted authorisation to the Appellant for laying, building, operating, or expanding the JMPL with a capacity of 17.0 MMSCMD. The Appellant accepted the Authorisation on 28.06.2016. In terms of Paragraph 2 of the Authorisation Letter dated 28.06.2016, the Appellant was required to complete the laying, building or expansion activities of JMPL and commission the said pipeline within a maximum period of 36 months from the date of authorisation, i.e., by 27.06.2019. The Authorisation stipulated that, any failure in compliance with the target, shall have consequences as specified under Regulation 16 of the 2008 Regulations.
24. In the exercise of its powers under Regulation 13 of the 2008 Regulations, and in order to monitor the progress of activities in connection with the laying of the pipeline, the Board called the Appellant on 04.08.2016 to discuss the approach to be adopted by them to complete the project within the prescribed time. In the said meeting, the Board called upon the Appellant to specify a target date for each of the clearances to be obtained by it in connection with the project, and specify _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 15 of 109 a start and finish date for each of the activities specified in the Authorisation Letter.
25. A Progress Review Meeting was held on 12.04.2018 with the Appellant to review the actual status/progress of the JMPL project. In the said meeting, the Appellant admitted that they had not started laying the pipeline (i.e., NIL physical progress had been made) and had not obtained any statutory clearances for the project. On a query from the Board, the Appellant stated that it would not be able to complete the project by the stipulated date of June 2019, and the expected completion date was October 2019. The Board observed that the Appellant was not even adhering to its own submitted schedule for the project, and directed them to submit a detailed status of RoU acquisition, a detailed activity chart mentioning the activities required for completing the project as per the completion schedule for a finish date of October 2019, and details of pending permissions.
26. Thereafter, the Board conducted consistent quarterly reviews in accordance with the mandate of Regulation 13 of the Authorisation Regulations. However, no progress in the project was discernible. The Board directed the Appellant again to submit details regarding the status of the JMPL. The Appellant's letter dated 30.04.2019 containing Quarterly Progress Report displayed Nil progress on all fronts despite the discontentment expressed by the Board in the earlier meeting.
27. The Appellant was called for a hearing, under Regulation 16 of the Authorisation Regulations, on 08.05.2019 and was told that it had neither started pipeline laying, nor had they placed any orders for construction works or associated equipment. The Appellant proposed an altered schedule for completion of the work in four sections, with the final section _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 16 of 109 being completed by May 2023. The Board expressed its dissatisfaction on the lack of progress and seriousness on the part of the Appellant in implementation of the project, and informed that it may have to initiate penal action in case no progress was demonstrated. It also noted that the Appellant had not even sought extension of time for completion of the project, which was due to expire in June 2019, again demonstrating lack of seriousness on their part. The Appellant was directed to submit timelines for physical activities to be achieved in the next six months, which would be monitored to determine whether progress had been achieved, based on which the request for further extension would be evaluated. The Board cautioned the Appellant that, in the event of failure on their part in achieving the targets, penal action would be initiated under Regulation 16.
28. In terms of the decisions taken at the meeting held on 08.05.2019, the Appellant vide letter dated 06.06.2019 submitted its commitment for completion of specific activities in the next six months, and reiterated the schedule proposed by it during the meeting, which contemplated completion of the 4th and final section of the project by May 2023. The Appellant once again sought extension of time for completion.
29. The Board, vide communication dated 11.07.2019, advised the Appellant to submit commitment for the next one year (till July 2020) including the length of the pipeline to be laid and quantity of the pipelines to be delivered at the project site. The Appellant vide letter dated 15.07.2019 committed to complete the various enumerated activities. The Board vide email dated 16.07.2019 noted that the activities specified in the Appellant's letter of 15.07.2019 required further elaboration, including target dates for completion of each activity and clear specification of the length of pipeline that would be laid in the next one year (i.e., up to July _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 17 of 109 2020). The Appellant, vide letter dated 18.07.2019, provided further details of its commitment which included completion of 47 km pipeline from Jaigarh to Hathkhamba by December 31, 2020 which is the common section of JMPL and tie-in connectivity from Jaigarh to Dhabol.
30. The Board, vide letter dated 11.09.2019, asked the appellant to submit the status of the activities as decided in the meeting held on 08.05.2019, which the Appellant vide its letter dated 06.06.2019 had committed to complete within the specified timelines. The Board noted that, as per these communication, certain activities were to be completed by August-September 2019, in regard to which updates were sought. The Board directed the Appellant to submit an aggressive commitment in the light of the insufficient dedication shown towards the project.
31. By their letter dated 15.10.2019, the Appellant submitted the status of the activities, and reiterated its request for extension of time for completion till May 2023. The Appellant admitted that it was unable to adhere to its own submitted timeline. The Schedule attached to the letter accepted that, effectively, NIL progress had been made by the Appellant on the commitments made by it. By letter dated 14.02.2020, the Appellant expressed its apprehension in completing the project within 36 months on several grounds, and sought extension stating that they "remain committed to move forward with the project."
32. The Board, vide emails dated 21.04.2020 and 23.04.2020, directed the Appellant to provide the projected date of commissioning (section wise) for the pipeline in a specified format. The Appellant, vide email dated 23.04.2020, provided the requisite details and extended the target date to May 2025 for the fourth and final section of the pipeline. The Appellant _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 18 of 109 also stated that it had suspended work on the project since March 2020 in view of the COVID-19 pandemic.
33. The Board, by letter dated 11.05.2020, acceded to the repeated requests made by the Appellant, and granted them conditional extension, in terms of Regulation 16(1)(a) of the Authorisation Regulations till 31.03.2021, subject to certain activities, specified by the Board in the said communication, being completed by 30.09.2020. The Appellant was informed that if they failed to complete the activities, the Board may have to initiate penal actions in terms of the extant Regulations.
34. The Appellant, vide letter dated 02.04.2020, informed the Board that all work on the JMPL project had been suspended due to the outbreak of the Covid-19 pandemic, and requested that the outbreak of the pandemic should be treated as a Force Majeure event. The Board, vide letter dated 10.07.2020, asked the Appellant to submit the duration of Force Majeure due to COVID-19 along with supporting evidence. By a further letter dated 04.09.2020, the Appellant declared that the Force Majeure event had occurred w.e.f. 20.03.2020 and was still ongoing, in light of which delays in the schedule submitted vide email dated 23.04.2020 would result.
35. A hearing was called by the Board on 05.10.2020, under Regulation 16 of the NGPL Authorisation Regulations, wherein it was observed that the progress of the JMPL project, even prior to the pandemic i.e., between 2016 to 2019, had been unsatisfactory and practically Nil; further, the Appellant had not performed a single activity, listed in the Board's letter dated 11.05.2020, as of 30.10.2020, despite every attempt by the Board to extend co-operation and numerous extensions having been granted; and the Appellant had been repeatedly shifting timelines for all project parameters and making excuses for not completing JMPL project in the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 19 of 109 stipulated time, which reflected the Appellant's lack of seriousness towards completion of the project.
36. The Board had already informed the Appellant that it may have to initiate penal action under the provisions of the extant Regulations, as it had failed to take remedial action by 30.09.2020. However, having regard to the situation arising out of the COVID-19 outbreak and in consideration of the Appellant's requests, the Board, vide letter dated 06.11.2020, extended the time period under Regulation 16(1)(a) from 30.09.2020 to 31.03.2021 so as to enable the Appellant to take remedial action and complete certain activities specified in the letter by 31.03.2021. The Appellant was required to submit an undertaking to this effect. It was also made clear by the Board that, in the event the Appellant failed to complete these activities by 31.03.2021, the Board may initiate penal action in accordance with the applicable law, for which the Board's letter was to be treated as a notice under Regulation 16(1)(a); and request for extension beyond 31.03.2021 would be considered subject to satisfactory completion of remedial action by 31.03.2021.
37. Pursuant thereto, the Appellant, vide letter dated 01.12.2020, provided the undertaking sought by the Board to deliver 90 km of line pipes at site and lay 30 km pipeline from Jaigarh to Hathkhamba and from Mangalore to Udipi by 31.03.2021. Accordingly, the Board, vide letter dated 04.12.2020, extended the time-period for completion of the activities, while reiterating that the said communication was also to be treated as a notice under Regulation 16(1)(a) for initiation of penal action in the event the specified activities were not completed by 31.03.2021.
38. By letter dated 18.05.2021, the Board sought the status of the activities that were to be completed by the Appellant by 31.03.2021. The _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 20 of 109 Board reiterated that, in case the Appellant failed to complete the stated activities by 31.03.2021, it shall be liable to penal action under the Act. The Appellant, vide letter dated 20.06.2021, submitted that they could not undertake any of the activities stated in the letter dated 04.12.2020 on account of the COVID-19 pandemic, and requested for a further extension till May 2025 to complete the fourth and final section of the Project. Subsequently, in a Progress Review Meeting held on 06.08.2021, the Board enquired about the status of the project. The Appellant again informed that the physical progress of the project was Nil. The Board expressed its deep concern and dissatisfaction on the progress of the Appellant and stated that adequate opportunities had been provided, yet the Appellant had failed to show commitment towards completion of the Project. Further, the Board remarked that the current status of the project was the same as when the first extension was granted on 11.05.2020. In response, the Appellant stated that, due to time delay and Covid-19 conditions, there had been cost escalation of the project to the tune of ₹6000 Crore vis-à-vis original estimated cost of ₹2389 Crores. In lieu of achieving its original targets for completing the project, the Appellant proposed three options to the Board for completion of the project which consisted of the following: (a) Option 1: Provision of Viability Gap Funding (VGF) in creating this infrastructure and PNGRB providing an extension of 60 months for implementation of the project; (b) Option 2: In case the PNGRB approves and subject to implementation of unified tariff and commitment by CGD customers, HEPL would: (i) Lay pipeline in the part section of JMPL starting from Mangalore to Goa. As there is no major gas requirement between Jaigarh and Goa. Gas has been supplied in Goa through Dabhol-Bangalore Natural Gas Pipeline, (ii) Connect Mangalore Goa section with GAIL's Kochi-Mangalore Natural Gas Pipeline; (c) _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 21 of 109 Option 3: Surrendering authorisation of the entire JMPL and discontinuing execution work.
39. The Board, after due consideration and deliberation, informed the Appellant of its stand on the proposals as follows: (i) The Project being a bid out pipeline, Option 1 could not be exercised under the provisions of PNGRB Act and extant Regulations. (ii) Option 2 was a conditional option and thus not acceptable to the Board, as the Authorisation letter already contained all the terms and conditions which were assessed and accepted by the Appellant at the time of Authorisation. (iii) Further, with respect to Option 3, the Board informed the Appellant that the request of surrender of Authorisation will be processed in accordance with the provisions of the Act and the extant Regulations, upon receipt of a formal request from the entity. Pursuant to this, the Board directed the Appellant to submit its formal request for consideration of the board within 10 days (i.e. by 19.08.2021).
40. The Appellant thereafter submitted the progress status of the project vide letter dated 14.12.2021. It reiterated that no progress had been made due to the problems as expressed in the meeting held on 06.08.2021, and requested the Board to re-consider the alternate options despite the Board's clear stand on these proposals as expressed in the previous meeting. Subsequently, in a review meeting of various bid-out pipelines held on 20.01.2022, the Board re-emphasised its observation that there had been no physical progress made by the Appellant. It further stated that the alternate proposals made by the Appellant, in the meeting held on 06.08.2021, were under consideration of the Board, as requested by the Appellant. It directed the Appellant to make submissions before the Board regarding its stand on the project based on which the latter was to decide the matter as per the prevailing Regulations.
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41. In the next progress review meeting held on 24.02.2022, the Board enquired as to the status of the project, and the Appellant's stand on proceeding with the same. The Appellant reiterated its proposals as submitted in the meeting held on 06.08.2021. In view thereof, the Board referred to its clear directions issued in the above meeting, and observed that the Appellant had failed to submit its formal request for surrender of the Authorisation by 19.08.2021, despite several reminders. The Board stated that the Appellant had, repeatedly, submitted the same options disregarding the clear directions of the Board in the matter. Further, it expressed its deep disappointment with the Appellant's approach towards execution of the project despite co-operation from the Board over several months, and informed that, given that the Expression of Interest for the Project was submitted by the Appellant based on its own assumptions and assessments so conducted, the reasons cited by it regarding non- completion of the JMPL pipeline were not justified. The Board, while re- assessing the proposals already deliberated upon in the meeting held on 06.08.2021, again informed the Appellant that Option 1 regarding VGF was outside the purview of PNGRB, while option 2 could not be accepted given its conditional nature. The Appellant thereafter expressed its intent to surrender the Authorisation. In this regard, the Board directed the Appellant to submit its formal request by 31.03.2022 subject to examination as per the regulatory framework. Thereafter, on 09.04.2022, the Appellant wrote to the Respondent Board again requesting them to extend the support and allow the VGF option to the Appellant.
42. After referring to its letters dated 28.06.2016, 06.11.2020, 09.08.2021, 04.03.2022, and the Appellant's letters dated 14.12.2021 and 09.04.2022, the Board issued a show-cause notice to the Appellant on 19.04.2022, under Regulation 16 of the Authorisation Regulations, _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 23 of 109 directing them to show cause as to why action should not be initiated against them under Sections 23 and 28 of the Act, for its failure to comply with the terms and conditions of the Authorisation and contravention of clear and repeated directions given by the Board.
43. The Appellant submitted a representation before the Board on 17.05.2022 for surrendering the authorisation of JMPL citing frustration, impracticality, and reasons beyond its control. The hearing on the aforementioned show cause notice was conducted by the Board on 19.05.2022, and was attended by authorized representatives and counsel for the Appellant.
44. Through a speaking order passed on 07.06.2022, the Board observed that the Appellant's failure to complete the JMPL Pipeline by 31.03.2021 constituted a breach of the terms of the Authorisation. It therefore directed encashment of 25% of the Performance Bank Guarantee ("PBG") of ₹20 Crore submitted by the Appellant (amounting to ₹5 Crore) in accordance with Regulation 16(c)(i) of the Authorisation Regulations, to be refurbished within 1 week of the order. The Board's decision to encash a percentage of the performance bank guarantee, submitted by the Appellant, was premised on a plain reading of the Act and the extant Regulations. With respect to the Force Majeure conditions, the Board negated the Appellant's contention stating that it had failed to complete the project, on its own account, well before the outbreak of Covid-19. The Board observed that an entity will very rarely obtain all regulatory and statutory approvals at the same time, and the fact that some approvals were pending did not prohibit the Appellant from pursuing other activities related to the Project; based on the Appellant's given commitment to complete the Project, the Board had co-operated by granting extension and remedial time-period until 31.03.2021; despite _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 24 of 109 ample number of opportunities granted by the Board, vide its letters dated 11.05.2020 (up to 30.09.2020) and 04.12.2020 (up to 31.03.2021), the Appellant had neither achieved the timelines, nor made any satisfactory progress in respect of the activities as listed in its letters.
45. Regarding the Appellant's plea to surrender its Authorisation, the Board stated that such a provision was absent in the Act and the extant Regulations. Additionally, on grounds of public interest, it was unjustified that the Appellant, after a lapse of 5 years, should request for surrender of Authorisation when it had failed to justify the delay at its end to complete the JMPL Project prior to the Covid-19 pandemic. Accordingly the Board, vide letter dated 08.06.2022, provided the copy of its Order dated 07.06.2022, and advised the Appellant to refurbish the encashed PBG amount within 01 week. The Appellant was informed that failure to do so shall attract further action under the provisions of the extant regulations. The Board, vide letter dated 14.06.2022, again directed the Appellant to make good the encashed PBG amount of ₹5 Crore failing which action under Regulation 16(1)(c) would be initiated, including by way of encashment of the remaining PBG, and termination of Authorisation for the pipeline without any further notice.
46. Since the PBG of JMPL, amounting to ₹20 Crore, was expiring on 17.06.2022, the Board, vide emails dated 01.04.2022, 18.04.2022, 17.05.2022, 27.05.2022 and 07.06.2022, advised the Appellant to revalidate the PBG at least one (1) month before the due date, for a minimum period of three (3) years. However, the Appellant failed to revalidate the same within the prescribed time-period. The Board, vide letter dated 14.06.2022, once again advised the Appellant to renew/revalidate the PBG amounting to ₹20 Crore in terms of the provisions of Regulation 8 of the Authorisation Regulations.
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47. In response, the Appellant, vide letter dated 14.06.2022, submitted that it required further time to refurbish the encashed amount as the Finance Head and team members were afflicted with COVID-19, and hence were not attending office. The Appellant neither refurbished the encashed PBG under Regulation 16, nor renewed/revalidated PBG as per Regulation 8, despite several reminders. The Appellant did not respond to the earlier letters sent by the Board, but however sought further time without acknowledging the fact that the PBG would expire on 17.06.2022.
48. The Board, vide letter dated 17.06.2022, informed the Appellant that, as per the requirement of Regulation 16(1)(c) of the NGPL Authorisation Regulations, the entity shall make good the encashed performance bond within a week of encashment. Further, as per the provision of the Regulation 8, the PBG had to be renewed by the entity for the next block of three to five years, at least one month before the due date, up to the economic life of the project. Since the requisite PBG had not been furnished by the Appellant despite numerous reminders, the remaining PBG was encashed by the Board on 16.06.2022 as the same was expiring on 17.06.2022. It was informed by the Board, vide letter dated 17.06.2022, that the encashment of the PBG was a precautionary measure adopted by the Board, as the Appellant had not renewed the PBG in line with the aforesaid Regulations. Further, it was stated that the said encashment was not a result of imposition of any kind of penalty by the Board upon the Appellant. Therefore, the encashed amount worth ₹15 Crores would be retuned/transferred to the Appellant, once it furnished a fresh PBG amounting to ₹20 Crores including the encashed PBG amounting to ₹5 Crores.
49. The Appellant, vide communication dated 17.06.2022, sought a review of the order dated 07.06.2022 passed by the Board. By the said _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 26 of 109 letter, the Appellant reiterated its earlier assertion that it had surrendered its Authorisation and stated that it was therefore "unable to reconcile the purpose for refurnishing a PBG of 20 crores". It requested the Board to therefore release the amount of Rs. 15 crore that had been encashed by the Board. Having regard to the reliefs sought by the Appellant in the above communication, the Board issued a notice dated 23.06.2022 to the Appellant directing it to be present for hearing of the matter on 30.06.2022 in connection with the non-replenishment of the PBG and cancellation of the authorization granted to it. During the hearing, the Appellant only repeated its submission that it wished to surrender the authorisation as stated in its communication of 17.06.2022, and did not wish to make any further submissions. Despite a specific opportunity being given to address the issues of replenishment of the PBG and cancellation of authorization, the Appellant chose to not address these issues and limited itself to reiterating that it wished to surrender the authorization.
50. Pursuant to the first order dated 07.06.2022, the Board, after due deliberation, passed a second order on 04.07.2022 in view of the continued defiance of the Board's direction in terms of Regulations 8 and 16(1)(c) for the Appellant to refurbish the bank guarantee. The said Order further stated that Appellant's letter dated 17.06.2022 reflected its attempt to escape the provisions of the Act and extant Regulations. The Board also reiterated the facts, and expressed its deep discontentment regarding the Appellant's failure to make any progress in 5 years on the Project in spite of continuous oversight and repeated reminders by the Board.
51. Keeping the above context and facts in view, the Board passed an order on 04.07.2022, exercising its powers under the Act and Regulation 16(1)(c), and terminated the Authorisation of the Appellant for laying, building, operating or expanding the Jaigarh - Mangalore Natural Gas _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 27 of 109 Pipeline, and forfeiting the remaining PBG amount of Rs. 15 crore in accordance with the provisions of the Act and the extant Regulations, in view of the default by the Appellant.
III. ORDER OF THE PNGRB DATED 07.06.2022
52. In the impugned Order dated 07.06.2022, the Board, after examining the revised schedule of the project, observed that time extension for JMPL sought by the Appellant, on account of COVID-19 coupled with other issues, was not justified as no major project activity had been achieved as on date; a hearing was called on 05.10.2020 under Regulation 16 of the Authorization Regulations wherein the Board had observed that the progress of the JMPL project, even before COVID-19, was still unsatisfactory; the entity had not performed from 2016-2019 i.e. prior to the COVID-19 pandemic; not even a single activity, mentioned in the letter dated 11.05.2020, had been completed as on 30.09.2020 by the appellant; in the last meetings, the appellant had made several commitments for completion of the JMPL project but, as on date, none of them had been fulfilled; the Appellant had been shifting timelines for all project parameters, and making out grounds for not completing the JMPL project in the stipulated time, which reflected their lack of seriousness in completion of the project; however, the appellant again requested the Board to extend the completion schedule of JMPL till May 2025; the Board informed the appellant that it may have to initiate penal action under the provisions of the extant Regulations, as they had failed to take remedial action by 30.09.2020; however, due to outbreak of COVID-19, the Board provided another opportunity to the Appellant and, vide letter dated 06.11.2020, agreed to extend the time period to take remedial action, under Regulation 16(1)(a) of the Authorization Regulations, subject to an undertaking of acceptance by the appellant, within 10 days, regarding _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 28 of 109 completion of the following activities, by 31.03.2021: (i) Award of EPCM for SV-1 to Hathkhamba (36 Km) and Mangalore - Udupi (53 Km) sections; (ii) Award of pipeline laying contract for SV-1 to Hathkhamba and Mangalore - Udupi sections; (iii) Delivery of 90 Km of line pipes at the site; (iv) Laying of 30 Km pipeline out of total 47 Km pipeline from Jaigarh to Hathkhamba; and (v) laying of 30 Km pipeline out of total 53 Km pipeline from Mangalore to Udupi.
53. The impugned order further records that the Board, in order to review progress of the JMPL project and to expedite early completion of project, called for a meeting on 06.08.2021; during the meeting, the appellant submitted that the project execution got hampered due to COVID-19 conditions for the last two years; prior to COVID-19, their principal concern was the route of JMPL, which was along NH in all three states i.e., Maharashtra, Goa and Karnataka; due to time delay, there had been cost escalation of the project to the tune of ₹ 6000 Crore vis-à-vis the estimated cost of ₹ 2389 Crores; in view thereof, the Appellant had proposed three options for completion of the project to the Board ie (a) Option 1: provision of Viability Gap Funding in creating this infrastructure and PNGRB providing an extension of 60 months for implementation of the project; (b) Option 2: in case the PNGRB approves, and subject to implementation of unified tariff and commitment by CGD customers, the Appellant would: (i) lay pipeline in the part section of JMPL starting from Mangalore to Goa. As there is no major gas requirement between Jaigarh and Goa, gas has been supplied in Goa through the Dabhol-Bangalore Natural Gas Pipeline,
(ii) connect Mangalore Goa section with GAIL's Kochi-Mangalore Natural Gas Pipeline; and (c) Option 3: surrendering authorization of the entire JMPL and discontinuing execution of the work.
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54. The impugned Order further records that the Board informed the appellant that VGF was not an option which can be exercisable in terms of the provisions of the PNGRB Act and the extant Regulations; option 2 was a conditional option and thus not acceptable to the Board, as the authorization letter already contained all the terms and conditions which were accepted by the entity at the time of Authorisation; with respect to the option 3, the Board informed the entity that the request of surrender of Authorisation will be processed in accordance with the provisions of the Act and the extant regulations upon receipt of a formal request from the entity; subsequently, a meeting for JMPL was held on 24.02.2022 in order to review the progress of the project; in the said meeting, the Appellant conveyed that they intend to surrender the authorization of JMPL; thereafter the appellant, vide letter dated 17.05.2022, submitted that they were surrendering the authorization of JMPL on account of frustration, and impracticality of JMPL as the said authorization would no longer serve and meet the objectives of the PNGRB Act; they requested that no penalty under Regulation 16 of the NGPL Authorization Regulations be imposed upon them, as it was for reasons beyond their control ie external and uncontrollable factors; and, in case the Board was of the view that the JMPL was necessary and could not be suspended, it may consider the VGF option.
55. It is stated in the impugned Order that there is no provision for surrender of the Authorisation under the PNGRB Act, 2006 and the extant Regulations; the Authorisation can either be suspended or cancelled in terms of Section 23 of the Act; after 5 years of authorisation, by when the project should have been completed, the entity had requested for surrender of Authorisation when it failed to justify the delay at its end to complete the JMPL project prior to the COVID-19 outbreak; and thus, the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 30 of 109 request of the entity for surrender of Authorisation was not in consonance with the provisions of the Act and the extant Regulations.
56. The impugned Order then records that hearing of the Appellant, in terms of the show cause notice dated 19.04.2022 issued to the entity under Regulation 16 of the Authorization Regulations read with Section 23 and 28 of the PNGRB Act, was held on 19.05.2022 for failure to comply with the terms and conditions of the Authorisation, and contravention of the directions of the Board; after having heard the Learned Counsel, who appeared for the Appellant, and having perused their submissions, the Board had opined that the issue that arose for consideration was whether the entity had failed to comply with the terms and conditions of authorization in regard to the physical targets for the JMPL project, and fulfil its obligations within the reasonable time granted under Regulation 16 of the Authorisation Regulations; Section 23 was a special provision under the Act relating to suspension or cancellation of the Authorization; the said provision was directly relatable to the monitoring and regulatory functions of the Board under the Act; the proceedings under Section 23 read with Regulation 16 of the Authorisation Regulations were the outcome of default of the terms and conditions of the Authorization or non- completion of the assigned work program by the authorized entity; Section 23 empowered the Board to either suspend the authorization for such period as it may think fit or cancel the authorization, after giving an opportunity to the concerned entity of being heard; Regulation 16 lays down the procedure of cancellation of the Authorization; the Board, for the purpose of monitoring the activities of the authorized entity, scrutinises various documents like Quarterly Progress Reports (QPR's) etc, and holds Progress Review Meetings, Annual Meetings etc. to assess the progress of the entity; and in case of non-completion of works or non-
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 31 of 109 compliance of the terms and conditions of the Authorization by the entity, the Board is empowered to initiate proceedings under Regulation 16 of the Authorisation Regulations.
57. The impugned Order then records the contention of the Appellant that they had conducted and completed all requisite preliminary activities at their end including DFR, reconnaissance survey, demand assessment, detailed route survey, appointment of Competent Authority etc; difficulty had arisen due to the impediment caused by NHAI in not providing the necessary details of RoW for the entire length of the pipeline; the alignment details, relating to NH 66, were provided in a piecemeal manner; thus it became impossible for them to complete the process of preparing planimetry drawings and levelling surveys for the entire route; despite repeated and consistent follow up with NHAI, they had been facing a lot of issues and hindrance such as delay in the expansion and construction of NH 66, details in provision of RoW data, non-finalization of RoU due to non-availability of NH expansion details, delay in receiving statutory clearances from the concerned authorities, etc; the appellant had also informed that the entire progress of the work was disrupted due to COVID-19, and the frequent lockdown and disruption had affected the work completely for a period of approximately 20 months from March 2020 till January 2022; the aforesaid delays were and are being caused due to reasons not attributable to them; some part of the delay would constitute force majeure events; non-provision of alignment details for NH 66 by NHAI despite follow up, had resulted in restriction of works by them; the undue delay in finalizing the route, that had resulted due to non-action on the part of NHAI, and subsequently due to COVID-19, had altered the very substratum of the project, and the assumptions based on which the entity had undertaken the project; and the overall cost of the 635 km pipeline _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 32 of 109 project had gone up from Rs 2389 crores to Rs 7865 crores on account of the COVID-19 pandemic followed by the Ukraine war and their impact on inflation.
58. The impugned Order proceeds to record that the Board, while examining the progress of the JMPL project, had observed that, as on March 2022, the progress was Nil; as per the terms and conditions of the authorization letter of JMPL, the Appellant was required to complete the activities of laying, building or expansion of activities of the Natural Gas Pipeline project and commission JMPL by 27.06.2019; the entity had failed to achieve the milestones as specified in the authorization letter of JMPL; as per the commitment made by the entity, vide letter dated 18.07.2019, the Board had granted an extension to the appellant, for completion of the project, until 31.03.2021 subject to completion of a few activities by 30.09.2020; the remedial time period granted till 30.09.2020 was extended till 31.03.2021; the entity had not achieved the timelines for any of these activities; despite expiry of more than 05 years from the date of grant of authorization, there had not been any satisfactory progress in the JMPL project; on the contrary, the entity had requested extension of 05 years which in itself was 2 years more than the maximum time period of 36 months normally allowed by the PNGRB for execution of any pipeline from the date of authorization, wherein it is the entity which has submitted the expression of interest for the said pipeline, and had participated in the bidding process for JMPL, considering its own assumptions and assessments and is still not able to perform its obligations.
59. The Board then observed that the progress of the JMPL project was at a standstill since March 2020; the reasons stated by the appellant, for the delay in implementing the project, were inherent project risks, and _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 33 of 109 may not be considered as Force Majeure conditions; to complete the activities mentioned in the appellant's letter dated 18.07.2020, and the PNGRB's letter dated 11.05.2020, by 30.09.2020, the appellant was required to complete part activities by 21.03.2020 (i.e. the date of start of the COVID-19 pandemic); however, the appellant had failed to complete the same; thus, the appellant had defaulted in completing the project well before the outbreak of COVID-19 pandemic; and citing Force Majeure event was not acceptable to the Board in the present case.
60. The respondent thereafter held that the conduct of the appellant had to be seen in the context of public interest; the scheme of the Act and the Regulations showed that focus of PNGRB should be on building a robust pipeline network in the country to best serve the public interest, and ensure the maximum possible development of the overall gas market; the Regulations have an inbuilt mechanism for monitoring the activities of the entity, safeguard public interest and ensure that the pipeline is laid within the prescribed timelines as stipulated in the Authorisation Letter; the Board and the entity are equally bound to follow the elaborate and exhaustive legislative framework under the Act and the Regulations; ample opportunities and reasonable time was granted to the appellant, in terms of Regulation 16 of the NGPL Authorisation Regulations, vide letters dated 11.05.2020 (up to 30.09.2020) and 04.12.2020 (up to 31.03.2021), to complete the project; the appellant not only failed to meet its obligations but also contravened the directions of the Board; instead of fulfilling its obligations, the appellant requested for permission to surrender the Authorisation on the specious plea of frustration of contract, and impossibility to perform the obligations; and having found no substance in the submissions of the appellant, the Board was left with no other option but to proceed in terms of Regulation 16 of the Authorisation regulations.
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61. The Board concluded that, despite completion of nearly 5 years from the date of authorization, the appellant had failed to meet the requirements of the Authorization Regulations and terms & conditions of the authorization letter; after completion of 5 years of the Authorisation, the appellant could not surrender the Authorisation, after having, time and again, sought time extension to complete the project; the appellant was bound to abide by Regulation 16 for the consequences of their defaults; there had been several defaults on the part of the entity to fulfil the targets; in terms of public interest, successful and timely completion of the project was of paramount importance; and they were of the considered view that the appellant had failed to meet its obligations as prescribed under the Authorisation Regulations, despite having been granted reasonable time to meet its commitments and obligations under Regulation 16 (1)(a) of the Authorisation Regulations.
62. The impugned order was passed considering this the first default in accordance with the terms and conditions of Authorisation and the provisions under Regulation 16 (1)(c)(i) of the Authorisations Regulations, and 25% of the performance bank guarantee, amounting to Rs. 5 Crores (Rs. Five Crores only), was encashed from the PBG submitted by the appellant, and they were directed to refurbish the encashed PBG amount within 1 week of the order, making it clear that failure to do so would attract the provisions of the extant regulations.
IV. ORDER OF THE PNGRB DATED 04.07.2022:
63. In its Order dated 04.07.2022, the Board observed that it had, in its detailed order dated 07.06.2022, clarified that there was no provision for surrender of authorisation under the PNGRB Act and the extant Regulations; however, the appellant had again, vide letter 17.06.2022, _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 35 of 109 sought review of the said order, and had requested it to consider the surrender of Authorisation. They had also conveyed their inability to reconcile the purpose for refurnishing a PBG of 20 crores. A notice of hearing was issued by the Board on 23.06.2022 to the Appellant for non- replenishment of the PBG for Jaigarh -Mangalore Natural Gas Pipeline, and a hearing was held on 30.06.2022.
64. During the hearing, the Appellant had argued that they had sought surrender of authorisation before the Board, and had no further submissions to make in addition to the submissions made in respect thereof vide their letter dated 17.06.2022; the Board had informed them that, though a detailed order dated 07.06.2022 had already been passed, it was decided to give one more chance to the Appellant asking them why their authorisation should not be cancelled and PBG invoked due to non- performance as well as non-replenishment of the PBG including the part encashed PBG; however, the Appellant had restricted themselves to their previous submissions.
65. The Board then observed that the Appellant had failed to comply with the provisions of the Authorisation Regulations, including conditions of authorisation of JMPL; Regulation 16(1)(c) of the Authorisation Regulations, required the Appellant to make good the encashed performance bank guarantee, within 1 week of the encashment, failing which the remaining amount of the PBG shall also be encashed and authorisation of the entity terminated; as ample opportunities and time had been granted to the Appellant, for making good the encashed PBG amount of Rs. 5 crore, coupled with the fact that progress of the subject pipeline was 'Nil' as on date, even after 5 years from the date of the authorisation, the Board was of the view that the Appellant had failed to perform its obligations under the terms and conditions of the authorisation _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 36 of 109 with respect to refurbishment of the encashed PBG amount of Rs. 5 crore for JMPL, and to refurbish/renew the fresh PBG amounting to ₹20,00,00,000/-, including the encashed PBG amounting to ₹5,00,00,000/ in terms of Regulation 8 and 16 of the Authorisation Regulations and, vide letter dated 17.06.2022, expressed no intention to refurbish the PBG. Therefore, the Board was of the opinion that action under Regulation 16 was to be taken against the Appellant for violation of the provisions of Regulation 16 of the Authorisation Regulations. In view of these findings, the Board, in the exercise of the powers conferred under the PNGRB Act and Regulation 16(1)(c), and in view of the default by the Appellant, terminated the Authorisation of the Appellant for laying, building, operating or expanding the Jaigarh - Mangalore Natural Gas Pipeline, and forfeited the remaining PBG amount of Rs. 15 crore in accordance with the provisions of the PNGRB Act and the extant Regulations.
V. RIVAL CONTENTIONS:
66. Elaborate submissions were put forth on behalf of the Appellant by Sri Sajjan Poovayya, Learned Senior Counsel for the Appellant, and Sri Raghavendra Shankar, Learned Counsel appearing on behalf of the Respondent Board. It is convenient to examine the rival contentions, urged on behalf of parties on both sides, under different heads VI. WAS THE INABILITY OF THE APPELLANT TO LAY JMPL BECAUSE OF FORCE MAJEURE EVENTS:
67. Sri Sajjan Poovayya, Learned Senior Counsel appearing on behalf of the Appellant, would submit that Regulation 16(1) of the 2008 Regulations does not apply in cases where the delay was caused by force majeure events, and would refer to certain events which, according to him, constitute force majeure events.
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68. It is contended, on behalf of the Respondent Board, that, while Regulation 16 provides that no remedial action or consequences shall be borne by an entity in case of "Force Majeure" events, the Appellant must discharge its burden to establish that Force Majeure events did actually exist; paragraph 32.2 of the public notice of the bid stipulated that "PNGRB's decision, whether such force majeure conditions did actually exist shall be final and binding."; the finding that (i) force majeure events existed and (ii) contributed to a breach on part of an authorised entity of the terms and conditions stipulated in its authorisation and the Authorisation Regulations, is a finding arrived at by the Board in the exercise of the discretion delegated to it under the statute; such discretion has been exercised in the present case in a fair, just and reasonable manner; the Board's finding is based on a comprehensive review of the Authorisation Regulations, the documents produced by the Appellant, and the Appellant's admitted and substantial delay in commissioning the pipeline; the Board has provided ample opportunities to achieve the stipulated physical targets, but the appellant failed to do so; and after completion of 5 years of authorisation, the progress of the pipeline was nil as in March 2022.
A. EVENTS WHICH THE APPELLANT CLAIMS FALL WITHIN THE FORCE MAJEURE CLAUSE:
69. Mr. Sajjan Poovayya, Learned Senior Counsel for the Appellant, would submit that the inability of the Appellant to execute the project was for no fault on their part, and was because (1) NHAI had failed to furnish details of the road alignment, despite repeated representations of the Appellant resulting in the Appellant being disabled from laying the pipeline adjacent to the highway; onset of the covid-19 pandemic, and subsequently the Russia Ukraine war; (3) the multi-fold increase in the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 38 of 109 cost of the project which made the project unviable; and (4) the GAIL Pipeline which has come up in the area in the meanwhile has rendered the JMPL unnecessary and an infructuous investment.
70. It is submitted, on behalf of the Respondent, that, if the Board was to allow an entity to surrender the authorisation after substantial lapse of time, resources and without reasonable cause, it would result in injustice being caused to the consumers at large, as well as other participants in the bidding process which had culminated in the grant of the JMPL pipeline project to the Appellant; the issues faced by the Appellant are self-induced mainly due to its lack of seriousness towards the project, as was periodically observed by the Board in the progress review meetings held on 06.08.2021, 20.01.2022 and 24.02.2022; a contracting party cannot be relieved of its obligations to perform the contract, if the frustration of the contract is self-generated or the disability is self-induced; the Appellant kept seeking extensions by giving commitments to the Board to complete the project; however, once the Board expressed its serious disapproval, and conveyed the possibility of taking penal action under Regulation 16, the Appellant sought to "surrender" its Authorisation; the Appellant cannot be permitted to first take the benefit of extension, and then reject it when it is no longer convenient; the principle of approbate and reprobate would disable a person from being allowed to take the benefit of an instrument while questioning the same; for a period of 5 years, the Appellant sought extensions, and now aims to reject the same under the request for "surrender" which is outside the scope of the PNGRB Act; even during the periodic reviews, the Board consistently remarked and disapproved the progress achieved by the Appellant with respect to the JMPL Project as recorded in the Minutes of the meeting held on 06.08.2021, 20.01.2022 and 24.02.2022; the latitude extended by _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 39 of 109 the Board to the Appellant, with a view to advance the larger public interest served by the project, does not constitute a waiver by the Board of its power to penalize the Appellant for contravention of the contractual terms and applicable laws; since the Board is under a duty to act in public interest, while abiding by the PNGRB Act, the Impugned Orders declining further extensions, which were passed after according a full and fair hearing to the Appellant, cannot be said to be against principles of natural justice or unfair or arbitrary in any respect; in granting extension of time, the Board has neither condoned past defaults, nor the failure of the Appellant to comply with its obligations under the Authorisation Regulations; and the Appellant is attempting to take the benefit of its own breach of the contract and the applicable laws.
B. FORCE MAJEURE: ITS SCOPE :
71. "Force majeure" is governed by the Contract Act, 1872. Insofar as it is relatable to an express or implied clause in a contract, it is governed by Chapter III dealing with contingent contracts, and more particularly, Section 32 thereof. Insofar as a force majeure event occurs dehors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract Act. (Energy Watchdog v. CERC, (2017) 14 SCC 8034).
72. In M/S HALLIBURTON OFFSHORE SERVICES INC. VS. Vedanta Limited & Anr: 2020 SCC Online Del 2068, the Delhi High Court summarized the law relating to Force Majeure, as laid down by the Supreme Court in Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80, as (a) Force Majeure would operate as part of a contract as a contingency under Section 32 of the Indian Contract Act 1872 (`ICA'); (b) independent of the contract, sometimes the doctrine of frustration can be invoked by a party as per Section 56, ICA; (c) the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 40 of 109 impossibility of performance under Section 56, ICA would include impracticability or uselessness keeping in mind the object of the contract;
(d) if an untoward event or change of circumstance totally upsets the very foundation, on which the parties had entered into the agreement, it can be said that the promisor finds it impossible to do the act which he had promised to do; (e) express terms of a contract cannot be ignored on a vague plea of force majeure; (f) risks associated with a contract would have to be borne by the parties; (g) performance is not discharged simply if it becomes onerous between the parties; (h) alteration of circumstances does not lead to frustration of a contract; (i) Courts cannot generally absolve performance of a contract either because it has become onerous or due to an unforeseen turn of events. Doctrine of frustration has to be applied narrowly; (j) a mere rise in cost or expense does not lead to frustration; (k) if there is an alternative mode of performance, the Force Majeure clause will not apply; (l) the terms of the contract, its matrix or context, the knowledge, expectation, assumptions and the nature of the supervening events have to be considered; (m) if the Contract inherently has risks associated with it, the doctrine of frustration is not to be lightly invoked; and (n) unless there is a break in identity, between the contract as envisioned originally and its performance in the altered circumstances, doctrine of frustration would not apply.
C. REGULATION 16 OF 2008 REGULATIONS INAPPLICABLE IN THE CASE OF FORCE MAJEURE:
73. Regulation 16 of the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008 (the "2008 Regulations" for short) provides for the consequences of default, and termination of the authorization procedure. Sub-Regulation (1) thereof _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 41 of 109 required the authorized entity to abide by all the terms and conditions specified in the said regulations, and stipulated that any failure in doing so, except for force majeure, shall be dealt with as per the following procedure, namely: (a) the Board shall issue a notice to the defaulting entity allowing it a reasonable time to fulfil its obligations under the regulations; (b) no further action shall be taken in case remedial action is taken by the entity within the specified period to the satisfaction of the Board; (c) in case of failure to abide by the terms and conditions specified in these regulations, performance bond shall be encashed as under:(i) 25% of the amount of the performance bond for the first default; and (ii) 50% of the amount of the performance bond for the second default. The proviso thereunder required the entity to make good the encashed performance bond in each of the cases at sub-clause (i) and (ii) within a week of encashment, failing which the remaining amount of the performance bond shall also been encashed and authorization of the entity terminated. Regulation 16(1) (c)(iii) enabled the Board to encash 100% of the amount of performance bond for the third default and simultaneous termination of authorization of the entity. Regulation 16(1)(d) stipulated that the procedure for implementing the termination of an authorization shall be as provided in Schedule G. Regulation 16(1)( e) stipulated that, without prejudice to as provided in clauses(a) to (d), the Board may also levy civil penalty as per Section 28 of the Act in addition to taking action as prescribed for offences and punishment under Chapter IX of the Act.
74. The procedure prescribed in Regulation 16(1), for dealing with the failure of the authorized entity to abide by the terms and conditions specified in the 2008 Regulations, is to be applied except in cases of force majeure. It is only if failure of the Appellant to execute the project is for _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 42 of 109 reasons of force majeure, can the Board be faulted for encashing the Performance Bank Guarantee, initially for 25% thereof and thereafter for the entire amount, in terms of Regulation 16(1).
D. FORCE MAJEURE UNDER THE 2008 REGULATIONS AND CLAUSE 32.1 OF THE BID DOCUMENTS:
75. Regulation 2(1)(ga) of the 2008 Regulations defines "Force Majeure" to mean and to be limited to (i) war / hostilities; (ii) major riots or civil commotion; (iii) earthquake, flood, tempest, lightening or other natural physical disasters; and (iv) restrictions imposed by Central Government or State Governments, that have arisen after last date of submission of bid, which prevents or delays the execution of obligations under these Regulations.
76. Clause 32.1 of the Bid document, as referred by the Appellant In its letter addressed to the Board on 17.05.2022, defines Force Majeure to mean and be limited to the following:(a) War / hostilities, (b) Major Riots or Civil Commotion, (c)Earthquake, flood, tempest, lightening or other natural physical disasters, and (d) Restrictions imposed by Central Government or other statutory bodies which prevents or delays the execution of obligations under the Regulations.
E. IS THE DELAY, IN THE PRESENT CASE, ATTRIBUTABLE TO FORCE MAJEURE EVENTS?
77. As noted hereinabove, the Authorisation Letter dated 28.06.2016, while stipulating that the JMPL pipeline should be commissioned within 36 months from the date of authorisation (i.e., by 27.06.2019), also conveyed to the Appellant that the consequences, of failure to comply with the target, would be as specified under Regulation 16 of the 2008 Regulations.
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78. In the meeting held on 04.08.2016, the Appellant was called upon to specify a target date for each of the clearances to be obtained by it in connection with the project, and specify a start and finish date for each of the activities specified in the Authorisation Letter. In the meeting held on 12.04.2018, the Appellant admitted that they had not started laying the pipeline (i.e., NIL physical progress had been made), they had not obtained any statutory clearances for the project, they would not be able to complete the project by the stipulated date in June 2019, and the expected completion date was October 2019. The Board, therefore, directed them to submit a detailed status of RoU acquisition, a detailed activity chart of the activities required for completing the project by October 2019, and details of pending permissions.
79. Thereafter consistent and regular quarterly reviews, in terms of Regulation 13 of the Authorisation Regulations, were conducted by the Board. However, no progress in the project was discernible. It is useful, in this context, to note what Regulation 13 provides. Regulation 13 relates to post-authorization monitoring of activities (pre-commissioning). Regulation 13 (1) stipulates that an authorized entity shall provide, on a monthly and quarterly basis, a progress report detailing the clearances obtained, targets achieved, expenditure incurred, works-in- progress and other relevant information in the forms at Schedule E. Regulation 13(4) requires the Board to monitor the progress of the entity in achieving various targets with respect to the natural gas pipeline project, and, in case of any deviations or shortfall, advise remedial action to the entity.
80. The Appellant's letter dated 30.04.2019 contained quarterly progress reports which disclosed nil progress on all fronts. The Appellant was called for a hearing, under Regulation 16 of the Authorisation _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 44 of 109 Regulations, on 08.05.2019, and was told that it had neither started pipeline laying, nor had they placed any orders for construction works or associated equipment. The Appellant proposed an altered schedule for completion of the work in four sections, with the final section being completed by May 2023. The Appellant was directed to submit timelines for physical activities to be achieved in the next six months, which would be monitored to determine whether progress had been achieved, based on which the request for further extension would be evaluated. The Board cautioned the Appellant that, in the event of failure on their part in achieving the targets, penal action would be initiated under Regulation
16.
81. In terms of the decisions taken at the meeting held on 08.05.2019, the Appellant, vide letter dated 06.06.2019, submitted its commitment for completion of specific activities in the next six months, and reiterated the schedule proposed by it during the meeting, which contemplated completion of the 4th and final section of the project by May 2023. The Appellant once again sought extension of time for completion.
82. The Board, vide letter dated 11.07.2019, sought the Appellant's commitment for the next one year (till July 2020), including the length of the pipeline to be laid and the quantity of the pipelines to be delivered at the project site. The Appellant, vide letter dated 15.07.2019, committed that it would complete various enumerated activities. The Board, vide email dated 16.07.2019, noted that the activities specified in the Appellant's letter of 15.07.2019 required further elaboration, including target dates for completion of each activity and clear specification of the length of pipeline that would be laid in the next one year (i.e., up to July 2020). The Appellant, vide letter dated 18.07.2019, provided details of its commitment which included completion of 47 km pipeline from Jaigarh to _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 45 of 109 Hathkhamba by December 31, 2020 which is the common section of JMPL and tie-in connectivity from Jaigarh to Dhabol.
83. The Board, vide letter dated 11.09.2019, asked the appellant to submit the status of the activities as decided in the meeting held on 08.05.2019, which the Appellant, vide its letter dated 06.06.2019, had committed to complete within the specified timelines. The Board sought updates of the activities to be completed by August-September 2019. By their letter dated 15.10.2019, the Appellant submitted the status of the activities, admitting that it had not been able to adhere to the submitted timeline. The Schedule attached to the letter accepted that, effectively, NIL progress had been made by the Appellant on the commitments made by it. By letter dated 14.02.2020, the Appellant expressed its inability to complete the project within 36 months on several grounds, and sought extension stating that they "remain committed to move forward with the project."
84. The Board, vide emails dated 21.04.2020 and 23.04.2020, directed the Appellant to provide the projected date of commissioning (section wise) for the pipeline in a specified format. The Appellant, vide email dated 23.04.2020, provided the requisite details and extended the target date to May 2025 for the fourth and final section of the pipeline. The Appellant also stated that it had suspended work on the project since March 2020 in view of the COVID-19 pandemic.
85. The Board, by letter dated 11.05.2020, granted the Appellant conditional extension, in terms of Regulation 16(1)(a) of the Authorisation Regulations, till 31.03.2021, subject to certain activities, specified by the Board, being completed by 30.09.2020. The Appellant was informed that, _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 46 of 109 if they failed to complete the activities, the Board may have to initiate penal action in terms of the extant Regulations.
86. The Board, vide letter dated 10.07.2020, asked the Appellant to submit the duration of Force Majeure due to COVID-19 along with supporting evidence. By a further letter dated 04.09.2020, the Appellant declared that the Force Majeure event had occurred w.e.f. 20.03.2020 and was still ongoing, in light of which delays in the schedule, submitted vide email dated 23.04.2020, would result.
87. In the hearing held, under Regulation 16 of the Authorisation Regulations, on 05.10.2020 the Board observed that the progress of the JMPL project, even prior to the pandemic i.e., between 2016 to 2019, had been unsatisfactory and practically Nil; the Appellant had not performed a single activity, listed in the Board's letter dated 11.05.2020, as of 30.10.2020 despite numerous extensions having been granted; and they had been repeatedly shifting timelines for completion of all project parameters.
88. Having regard to the situation arising out of the COVID-19 outbreak, the Board, vide letter dated 06.11.2020, extended the time period under Regulation 16(1)(a) from 30.09.2020 to 31.03.2021 to enable the Appellant to take remedial action and complete certain activities, as specified in the letter, by 31.03.2021. The Appellant was required to submit an undertaking to this effect. It was also made clear by the Board that, in the event, the Appellant failed to complete these activities by 31.03.2021, the Board may initiate penal action for which the Board's letter was to be treated as a notice under Regulation 16(1)(a), and any request for extension beyond 31.03.2021 would be considered subject to satisfactory completion of remedial action by 31.03.2021.
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89. Pursuant thereto, the Appellant, vide letter dated 01.12.2020, provided the undertaking sought by the Board to deliver 90 km of line pipes at site, and lay the 30 km pipeline from Jaigarh to Hathkhamba and from Mangalore to Udipi by 31.03.2021.The Board, vide letter dated 04.12.2020, extended the time-period for completion of the activities, while reiterating that the said communication was also to be treated as a notice under Regulation 16(1)(a) for initiation of penal action in the event the specified activities were not completed by 31.03.2021.
90. By letter dated 18.05.2021, the Board sought the status of the activities that were to be completed by the Appellant by 31.03.2021. The Appellant, vide letter dated 20.06.2021, submitted that they could not undertake any of the activities stated in the letter dated 04.12.2020 on account of the COVID-19 pandemic, and requested for a further extension till May 2025 to complete the fourth and final section of the Project. In the progress review meeting held on 06.08.2021, the Appellant, while informing that the physical progress of the project was Nil, stated that due to time delay and Covid-19 conditions, there had been cost escalation of the project. They proposed three options, the last of which was surrendering authorisation of the entire JMPL and discontinuing execution of the work.
91. In the progress review meeting held on 06.08.2021, the Appellant, informed that the physical progress of the project was Nil. In the next progress review meeting held on 24.02.2022, the Board enquired as to the status of the project, to which the Appellant reiterated its proposals as submitted in the meeting held on 06.08.2021.
92. It is only thereafter that the Board, after referring to its letters dated 28.06.2016, 06.11.2020, 09.08.2021, 04.03.2022 and the Appellant's _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 48 of 109 letters dated 14.12.2021 and 09.04.2022, issued notice dated 19.04.2022, under Regulation 16 of the Authorisation Regulations, directing them to show cause why action should not be initiated against them under Sections 23 and 28 of the Act, for their failure to comply with the terms and conditions of the Authorisation and contravention of the directions of the Board.
93. The Appellant submitted a representation before the Board on 17.05.2022 for surrendering the authorisation of JMPL citing frustration, impracticality, and reasons beyond its control. The hearing, on the show cause notice, was conducted by the Board on 19.05.2022, and a speaking order was passed on 07.06.2022 negating the Appellant's contention with respect to the Force Majeure conditions, and holding that it had failed to complete the project on its own account well before the outbreak of Covid-
19. The Appellant's plea to surrender its authorisation was rejected by the Board on the ground that such a provision was absent in the Act and the extant Regulations, and it was unjustified in public interest that the Appellant, after a lapse of 5 years, should request for surrender of Authorisation when it had failed to complete the JMPL Project prior to the Covid-19 pandemic.
94. A direction was issued for encashment of 25% of the Performance Bank Guarantee ("PBG") of ₹20 Crore submitted by the Appellant (amounting to ₹5 Crore) in accordance with Regulation 16(1)(c)(i) of the Authorisation Regulations, to be refurbished within 1 week of the order. The Appellant was informed, vide letters dated 08.06.2022 and 14.06.2022, that, failure to refurbish the encashed PBG amount within 01 week, would attract action under Regulation 16(1)(c), including encashment of the remaining PBG, and termination of the Authorisation without further notice.
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95. Except seeking further time, vide letter dated 14.06.2022, to refurbish the encashed amount, the Appellant failed to acknowledge the fact that the PBG would expire on 17.06.2022, and neither refurbished the encashed PBG nor renewed/revalidated the PBG as per Regulation 8. The remaining PBG was encashed by the Board on 16.06.2022 as the same was expiring on 17.06.2022, and the appellant was informed, vide letter dated 17.06.2022, that encashment of the PBG was a precautionary measure adopted by the Board, and was not a result of imposition of any kind of penalty.
96. The Appellant's claim of Force Majeure does not, admittedly, fall within Clause (i) & (ii). The first limb of Clause (iii) relates to earthquake, flood, tempest and lightning which are also not attracted in the present case. All the four ie earthquake, flood, tempest and lightning are the natural physical disasters referred to in the second limb of clause (iii). Use of the word "other" in the second limb can only mean other natural physical disasters like earthquake, flood, tempest and lightning. While Covid 19 was, undoubtedly, a large scale pandemic, it is debatable whether it would constitute a natural physical disaster akin to earthquake, flood, tempest and lightning. The Appellant's claim of force majeure, on account of the Covid-19 situation, would fall within Clause (iv) which relates to restrictions imposed, by the Central Government or the State Governments, after the last date of submission of the bid. The lockdown imposed by the Central Government, from March, 2020 till the end of May, 2020, can be said to be restrictions imposed by the Central Government after the last date of submission of the bid, which prevented or delayed the execution of obligations under these Regulations. The fact, however, remains that the lockdown was imposed only from March, 2020 to May, 2020, long after the three year period, originally granted to the Appellant, _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 50 of 109 had expired on 27th June, 2019.
F. EVEN FOR FORCE MAJEURE EVENTS, THE
APPELLANT IS ONLY ENTITLED FOR EXTENSION OF
TIME:
97. Clause 32.2 of the bid documents, which has also been referred by the Appellant in its letter addressed to the Board on 17.05.2022, requires the authorized entity, within one week of its occurrence, to notify the PNGRB about the occurrence of the force majeure event, and provide PNGRB all details arising and ceasing of the impediment. The time and performance of the respective obligations suspended by the force majeure shall stand extended by the period(s) for which such conditions of force majeure last. PNGRB's decision, whether such force majeure conditions did actually exist shall be final and binding.
98. Even without a request on the ground of Covid-19, the Board had, by letter dated 11.05.2020, granted the Appellant conditional extension, in terms of Regulation 16(1)(a) of the Authorisation Regulations, till 31.03.2021, subject to certain activities, specified by the Board, being completed by 30.09.2020. Thereafter, having regard to the situation arising out of the COVID-19 outbreak, the Board had, vide letter dated 06.11.2020, extended the time period, under Regulation 16(1)(a), from 30.09.2020 to 31.03.2021 to enable the Appellant to take remedial action and complete certain activities. Since the Appellant was granted extension, the requirement of Clause 32.2 has also been satisfied.
99. The correspondence and the minutes of meetings, which form part of the record, itself show that the Appellant, on its own admission, had failed to achieve any progress in implementing the project, despite its repeated assurances to do so. In the meeting held on 12.04.2018, the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 51 of 109 Appellant admitted that they had not started laying the pipeline (i.e., NIL physical progress had been made), they had not obtained any statutory clearances for the project, they would not be able to complete the project by the stipulated date in June 2019, and the expected completion date was October 2019.The Appellant's letter dated 30.04.2019 contained quarterly progress reports which disclosed nil progress on all fronts. Again, in their letter dated 15.10.2019, the Appellant admitted that it had not been able to adhere to the submitted timeline. The Schedule attached to the letter accepted that, effectively, NIL progress had been made by the Appellant on the commitments made by it.
100. Even after the hearing held on 05.10.2020, wherein the Board had observed that the progress of the JMPL project, even prior to the pandemic i.e., between 2016 to 2019, had been unsatisfactory and practically Nil, and the Appellant had not performed a single activity, listed in the Board's letter dated 11.05.2020, as of 30.10.2020 despite numerous extensions having been granted, the Appellant informed, in the progress review meeting held on 06.08.2021, that the physical progress of the project was Nil.
101. That apart, the Appellant, vide letter dated 18.07.2019, had made a commitment for completion of 47 km pipeline from Jaigarh to Hathkhamba by December 31, 2020. Thereafter, vide letter dated 01.12.2020, the Appellant again undertook to deliver 90 km of line pipes at site, and lay the 30 km pipeline from Jaigarh to Hathkhamba and from Mangalore to Udipi by 31.03.2021. The fact, however, remains that for a period of nearly six years, ie from 28.06.2016 till June 2022, the appellant does not seem to have even procured, much less laid, even a single kilometre of pipeline.
102. Having achieved almost nil progress in procuring and laying the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 52 of 109 pipelines till the authorisation was terminated in June, 2022, despite repeated assurances on their part to implement the project, the Appellant is now seeking to take advantage of the subsequent event of the Covid- 19 Pandemic, only to recover the Rs.20 crores which the Board had received on encashment of the Performance Bank Guarantees. The Appellant's claim of force majeure, in terms of Regulation 2(1)(ga) and Clause 32.1 of the bid documents, necessitates rejection.
103. Let us now examine whether any of the events, relied on behalf of the appellant, would amount to frustration of contract under Section 56 of the Indian Contract Act.
G. DOCTRINE OF FRUSTRATION: SECTION 56 OF THE CONTRACT ACT:
104. Section 56 of the Indian Contract Act states that an agreement to do an act impossible in itself is void. A contract to do an act which, after the contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, becomes void when the act becomes impossible or unlawful. (Boothalinga Agencies v. V.T.C. Poriaswanmi Nadar, (1969) 1 SCR 65). 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 impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise. (Boothalinga Agencies v. V.T.C. Poriaswanmi Nadar, (1969) 1 SCR 65).
105. The doctrine of frustration of contract is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 53 of 109 of Section 56 of the Indian Contract Act. Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties. (Boothalinga Agencies v. V.T.C. Poriaswanmi Nadar, (1969) 1 SCR 65). There cannot be any breach of contract if the doctrine of frustration is attracted. The discharge of a contract by frustration is not the result of an act or volition of a party to it nor the carrying out of a condition, express or implied, in a contract, but the presence of already existent or supervening of certain set of circumstances, which excused the performance of the contract and discharges the same. It amounts to an automatic dissolution of the contract not dependent upon the attitude of the parties to the contract. (G.A. Galia Kotwala and Co. Ltd. v. K.R.L. Narasimhan and Brother by Managing Partner, K.R.L. Narasimhan" (AIR 1954 Mad 119)).
106. The doctrine of frustration is applied not on the ground that the parties themselves agreed to an implied term which operated to release them from the performance of the contract. The relief is given by the court on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement. When such an event or change of circumstance occurs, which is so fundamental as to be regarded by law as striking at the root of the contract as a whole, it is the court which can pronounce the contract to be frustrated and at an end. The court undoubtedly has to examine the contract and the circumstances under which it was made. The belief, knowledge and intention of the parties are evidence, but evidence only on which the court has to form its own conclusion whether the changed circumstances destroyed altogether the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 54 of 109 basis of the adventure and its underlying object. (Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310).
107. The word "impossible" in Section 56 has not been used in the sense of physical or literal impossibility. The doctrine of frustration or impossibility, which are interchangeable expressions, are supervening impossibility or illegality. The Court can grant relief only upon a subsequent impossibility when it finds that the whole purpose or the basis of contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time of the agreement. Besides, such an event must be so fundamental as to go to the root of the contract as a whole. (Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44).
108. 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 on 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. (Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821).
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109. The Court can grant relief on the ground of subsequent impossibility when it finds that the whole purpose or the basis of the contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was not contemplated by the parties on the date of the contract. When such an event or change of circumstances, which is so fundamental as to be regarded by law as striking at the root of the contract as a whole, occurs, it is the court which can pronounce the contract to be frustrated and at an end. (Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821).
110. Where the contract makes provision (that is, full and complete provision) for a given contingency, it is not for the court to import into the contract some other provision, for the same contingency, called by a different name. In such a case, the doctrine of discharge by frustration would not be available. The reason is that, where there is an express term, the court cannot find on construction of the contract an implied term inconsistent with such express term. (Bank Lime Ltd. v. Capel (A) Co. Ltd. [(1919) AC 435; Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821)
111. In a case, where a defence of frustration is raised, what the Court has to consider is not whether one party or the other has done anything from which his responsibility for any breach of contract could be ascertained, but to see whether the circumstances pleaded did exist which could reasonably be considered as sufficient to hold that the parties are absolved from their obligations under the contract. (G.A. Galia Kotwala and Co. Ltd. v. K.R.L. Narasimhan and Brother by Managing Partner, K.R.L. Narasimhan" (AIR 1954 Mad 119)).
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112. As noted hereinabove, the rule 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 (Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821). A contract is not frustrated merely because the circumstances in which it was made are altered nor can a party be absolved from the performance of his part of the contract merely because its performance has become onerous on account of an unforeseen turn of events. (Alopi Parshad & Sons v. Union of India, (1960) 2 SCR 793; Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821)
113. The Court can grant relief only it finds that the basis of contract has been frustrated by the occurrence of an unexpected event which was not only beyond what the parties had contemplated at the time of the agreement, but was also so fundamental as to go to the root of the contract as a whole. (Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44). Application of the doctrine of frustration must always be confined within narrow limits. (Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH: (1961) 2 All ER 179 (HL); Energy Watchdog v. CERC, (2017) 14 SCC 80).
114. Let us apply these tests to determine whether the appellant's claim of frustration of contract is justified. On 17.05.2022, the Appellant submitted a written representation to the Respondent Board to be considered during the hearing scheduled to be held on 19.05.2022.
H. LETTER OF THE APPELLANT DATED 17.05.2022:
115. In its letter dated 17.05.2022, addressed to the Board, the Appellant stated that the DFR of JMPL had identified ROU along the left side of the ROW of NH 66; the Ministry of Road Transport and Highways ("MORTH") _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 57 of 109 had issued Policy Guidelines dated 22.11.2016, which provided for the use of NH ROW for laying of utility services, including pipelines; despite its repeated and consistent follow up with NHAl, they had been facing a lot of issues and hindrances, with respect to the delay in the expansion and construction of the NH 66, non-finalization of RoU access due to non-availability of NH expansion details etc; while the situation stood thus, the entire progress of work was disrupted due to Covid-19 and the frequent lockdown and disruption that affected the work completely for a period of approximately 20 months from March, 2020 till January, 2022; the aforesaid delays were and are being caused due to reasons not attributable to them; some part of the delay would constitute force majeure events in as much as the non-provision of alignment details for NH 66 by NHAI despite follow up, would result in restriction of works by them; the undue delay in finalization of the route that had resulted due to non-action on the part of NHAI, and subsequently due to Covid -- 19, had altered the very substratum of the project, and the assumptions based on which they had undertaken the project; while it was part of their risk to bear any increase in the cost of the pipeline, however, the same would be not be relevant where the project is delayed by external factors not attributable to them; in the present case, the cost of the entire project had increased significantly on account of delay; as of present, GAIL has already laid down the Kochi- Mangalore Pipeline and Natural Gas is being supplied to MRPL bases industries like MRPL, OMPL & MCFL from PLL Kochi LNG terminal under long term RLNG supply contract; similarly, ZIL-Goa is also connected to GAIL Dabhol-Bangalore NG pipeline thus demand from ZIL Goa is also non-Existent; and, consequently, demand considered from these industries is non-existent as of now for them.
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116. While requesting that the grant of authorization may be permitted to be surrendered on account of frustration and impracticality of JMPL, as the same would no longer serve and meet the objectives of the PNGRB Act, the appellant requested that no penalty under Regulation 16 of the Authorizing Regulations be imposed upon them as it was for reasons beyond their control, external and uncontrollable factors; in case PNGRB decided to impose penalty upon them, the same would be arbitrary and unconstitutional; the power under Regulation 16 of the Authorizing Regulations, and Section 28 of the PNGRB Act, be not invoked; since the Bank Guarantee(s) amounting to Rupees Twenty Crores was expiring on 17.06.2022, they be allowed to extend the said bank guarantee for a lesser period instead of for a period 3 years; and this period would allow PNGRB to take appropriate decision required for the ease of transition during the period of surrendering, keeping the bank guarantee alive.
117. The reasons which the Appellant had given, in its letter dated 17.05.2022, for its inability to comply with the timelines are (1) delay having been caused on account of NHAI formalities; (2) delay due to the Covid-19 pandemic, and thereafter the Russia- Ukraine war; (3) increase in cost from Rs. 2389 crores to Rs. 7865 crores.
I. HAS THE DELAY OF NHAI TO GRANT APPROVAL RESULTED IN FRUSTRATION OF THE CONTRACT:
118. It is submitted, on behalf of the Respondent Board, that clause l(a) of Schedule J of the Authorisation Regulations, which details the service obligations of an authorized entity, stipulates that "the entity shall obtain all statutory permits, clearances and approvals from the concerned approving authorities and shall at times ensure the validity of said permits, clearances and approvals"; the eventualities cited by the Appellant, as constituting force majeure events, are in fact obligations that the Appellant _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 59 of 109 failed to discharge, leading to a situation of alleged reduction in the commercial benefit of the project to the Appellant; aside from the fact that any reduction in profitability is a situation entirely of the Appellant's own making, non-receipt, in a timely manner of statutory approvals, does not in law constitute a situation of Force Majeure; delay in obtaining statutory clearances are inherent project risks to be borne by the Appellant; the mere fact that some approvals were pending did not disable the entity from pursuing other activities related to the project; and, having failed to act in a prudent manner, the Appellant now seeks to take advantage of its own lackadaisical approach in complying with the terms of the authorisation.
119. The Appellant had submitted its bid based on its study, and not on any specific assurance from the Board to ensure either timely approval for laying the pipeline adjacent to the Highway or that the NHAI would expand the Highway within a specified time frame. The Board had also no role to play in the inter-se discussions and deliberations, if any, between the NHAI and the Appellant. The Appellant's assumption, that they would be granted approval by NHAI to lay the pipeline adjacent to the National Highway for the entire length of the project, is a risk which it must have, or ought to have, factored in while submitting its bid.
120. In Naihati Jute Mills Ltd. v. Khyaliram Jagannath [Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821 : AIR 1968 SC 522] , the Supreme Court opined that a contract is not frustrated merely because the circumstances in which it was made are altered; and Courts have no general power to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events.
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121. The Appellant's contention, that the delay in laying the pipeline was on account of NHAI, is not a ground to absolve them of their obligations in terms of the authorisation granted by the Board in their favour, and cannot be said to be an occurance so fundamental as to go to the root of the contract as a whole. Consequently this claim of the Appellant neither attracts Section 56 of the Contract Act nor can the authorisation said to have been frustrated on this score.
J. HAS A RISE IN THE OVER-ALL COST OF THE PROJECT RESULTED IN FRUSTRATION UNDER SECTION 56:
122. In the hearing held by the Board on 19.05.2022, the Appellant justified the delay in JMPL contending that the assumptions based on which they had bid for and undertaken the JMPL project had been fundamentally altered, and the cost of the project had increased from Rs. 2389 crores to Rs. 7865 crores for reasons not attributable to it.
123. In Alopi Parshad & Sons Ltd. v. Union of India: AIR 1960 SC 588, the Supreme Court held that parties to an executable contract are often faced, in the course of carrying it out, with a turn of events which they did not anticipate, for example, a wholly abnormal rise or fall in prices which is an unexpected obstacle to execution; this does not in itself get rid of the bargain they have made; and the performance of a contract is never discharged merely because it may become onerous to one of the parties.
124. Thereafter, in Energy Watchdog v. CERC, (2017) 14 SCC 80, the Supreme Court held that the doctrine of frustration cannot apply to cases where the fundamental basis of the Agreement remains unaltered; an unexpected rise in price will not absolve a party from performing their part _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 61 of 109 of the contract for the very good reason that, when they submitted their bids, this was a risk they knowingly took.
125. It is only when the terms of the contract, in the light of the circumstances which existed when it was made, shows that the parties never agreed to be bound in a fundamentally different situation which had unexpectedly emerged, that the contract ceases to bind. Increase in prices, or for that matter the cost of the project, for reasons substantially of the Appellant's own making and delay in execution, would not attract the doctrine of frustration.
K. HAS COVID 19 RESULTED IN FRUSTRATION OF THE
CONTRACT:
126. In the hearing held by the Board on 19.05.2022, the Appellant justified the delay in JMPL as having been caused due to the Covid-19 pandemic, and thereafter the Russia- Ukraine war, and claimed that this had significantly altered the substratum of the project.
127. On the question whether COVID-19 prevented the Contractor from bringing the work to completion and conclusion, the Delhi High Court, in M/S HALLIBURTON OFFSHORE SERVICES INC. VS. Vedanta Limited & Anr: 2020 SCC Online Del 2068,, held that, as per the applicable clause, the performance by the Contractor would be excused if it is "prevented or hindered or delayed by any natural event including a pandemic or plague"; the question was whether the Contractor, in this case, was prevented, hindered or delayed by COVID-19 in the punctual performance of its obligations; admittedly, the Force Majeure clause was invoked by the Contractor only on 18th March, 2020 and not before that; thus, the Contractor did not itself feel that COVID-19 had, previously, hindered the performance of its contract; the question as to whether _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 62 of 109 COVID-19 would justify non-performance or breach of a contract had to be examined on the facts and circumstances of each case; every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition; the Court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various compliances that were required to be made and only then assess as to whether, genuinely, a party was prevented or is able to justify its non-performance due to the epidemic/pandemic; a Force Majeure clause is to be interpreted narrowly and not broadly; parties ought to be compelled to adhere to contractual terms and conditions and excusing non-performance would be only in exceptional situations; it is not in the domain of Courts to absolve parties from performing their part of the contract; it is also not the duty of Courts to provide a shelter for justifying non-performance; and there has to be a 'real reason' and a 'real justification' which the Court would consider in order to invoke a Force Majeure clause.
128. The Delhi High Court further held that the past non-performance of the Contractor cannot be condoned due to the COVID-19 lockdown in March 2020 in India; the Contractor was in breach since September 2019; opportunities were given to the Contractor to cure the same repeatedly; despite the same, the Contractor could not complete the Project; and the outbreak of a pandemic cannot be used as an excuse for non- performance of a contract for which the deadlines were much before the outbreak itself.
129. The Authorisation Letter dated 28.06.2016 stipulated that the JMPL pipeline should be commissioned within 36 months from the date of authorisation i.e., by 27.06.2019. Nearly three years after expiry of the _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 63 of 109 stipulated 36 months, the Appellant submitted a representation to the Board on 17.05.2022 seeking its permission to surrender the authorisation of JMPL citing frustration, impracticality, and reasons beyond its control.
130. It is relevant to note that, even after the first phase of the covid-19 pandemic, the Appellant, vide letter dated 01.12.2020, gave an undertaking to deliver 90 km of line pipes at site, and lay the 30 km pipeline from Jaigarh to Hathkhamba and from Mangalore to Udipi by 31.03.2021. It is not in dispute that not even one single kilometre of pipeline was delivered at the site, much less was the pipeline of even this extent laid. This was among the last few of the numerous violations of the Appellant in adhering to the stipulated time schedule, despite several and repeated reminders by the Board.
131. The Appellant has sought to take advantage of every possible event to somehow justify their failure to even commence laying the pipeline for the project, including the Russia -Ukraine war which had commenced on 24th February, 2022, less than 3 months before the Appellant had submitted a representation on 17.05.2022 seeking the Board's permission to surrender its authorisation.
132. Viewed from any angle, the Appellant's claim of force majeure events, and frustration of contract does not merit acceptance, as it is merely an attempt on their part to wriggle out of their obligations in terms of the letter of authorisation dated 28.06.2016, and the 2008 Regulations. Their contentions under this head, therefore, necessitate, rejection.
VII. WAS THE APPELLANT'S REPRESENTATION DATED 17.05.2022 NOT CONSIDERED?
133. Sri Sajjan Poovayya, Learned Senior Counsel, would contend that the Board did not consider the Appellant's representation dated _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 64 of 109 17.05.2022 which records that the Appellant had requested NHAI to provide details of the road alignment which is a pre-requisite for the Appellant to lay the pipeline, as it is a force majeure event.
134. The Board has considered the Appellant's claim that failure of NHAI to provide details of the road alignment, which is a pre-requisite for the Appellant to lay the pipeline, was a force majeure event, and as a result Regulation 16(1) has no application. Even otherwise, an appeal to this Tribunal, against the order of the Board, is available both on questions of fact and law, and such an appeal is a continuation of the original proceedings.
135. The expression "appeal" has not been defined in CPC. Black's Law Dictionary (7th Edn.) defines an appeal as "a proceeding undertaken to have a decision reconsidered by bringing it to a higher authority". It is a judicial examination of the decision by a higher court of the decision of a subordinate court to rectify any possible error in the order under appeal. (Malluru Mallappa v. Kuruvathappa, (2020) 4 SCC 313). A first appeal is a full re-hearing of the original proceedings, and the appellate forum possesses all powers, jurisdiction and authority as the forum of first instance, the jurisdiction and range of subjects being co-extensive. (Southern Power Distribution Company of AP LImited vs Andhra Pradesh Electricity Regulatory Commission: 2022 SCCOnline APTEL 110).
136. An appeal is a continuation of the proceedings of the original court. Ordinarily, the appellate jurisdiction involves a rehearing on law as well as on fact and is invoked by an aggrieved person (Santosh Hazari v. Purushottam Tiwari: (2001) 3 SCC 179; Madhukar v. Sangram: (2001) 4 SCC 756; B.M. Narayana _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 65 of 109 Gowda v. Shanthamma :(2011) 15 SCC 476; H.K.N. Swami v. Irshad Basith: (2005) 10 SCC 243; Sri Raja Lakshmi Dyeing Works v. Rangaswamy Chettiar: (1980) 4 SCC 259; Shankar Ramchandra Abhyankar v. Krishnaji Dattatreya Bapat, (1969) 2 SCC
74), unless the statute conferring a right of appeal limits the rehearing in some way. (Hari Shankar v. Rao Girdhari Lal Chowdhury: AIR 1963 SC 698). It is a valuable right of the parties and, unless restricted by law, the whole case is therein open for rehearing both on questions of fact and law. (Girijanandini Devi v. Bijendra Narain Choudhary: AIR 1967 SC 1124; Santosh Hazari v. Purushottam Tiwari; (2001) 3 SCC 179)
137. The parties have a right to be heard both on questions of law and on facts, (Santosh Hazari v. Purushottam Tiwari: (2001) 3 SCC 179; Madhukar v. Sangram: (2001) 4 SCC 756; B.M. Narayana Gowda v. Shanthamma, (2011) 15 SCC 476; Sri Raja Lakshmi Dyeing Works v. Rangaswamy Chettiar, (1980) 4 SCC 259), and the appellate court has jurisdiction to reverse or affirm the findings of the trial court. (H.V. Sreenivasa Murthy v. B.V. Nagesha, 2008 SCC OnLine Kar 837; Vinod Kumar v. Gangadhar: (2015) 1 SCC 391;B.V. Nagesh v. H.V. Sreenivasa Murthy, (2010) 13 SCC 530).
138. As this Tribunal has elaborately considered this issue in appellate proceedings under the earlier head, and has rejected the Appellant's claim in this regard, this grievance of the Appellant no longer survives for consideration.
VIII. IS REGULATION 16 MERELY A PROCEDURE FOR IMPOSING CIVIL PENALTY UNDER SECTION 28 OF THE ACT?
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139. Mr. Sajjan Poovayya, Learned Senior Counsel appearing on behalf of the Appellant, would submit that the 2008 Regulations must be read in the light of the provisions of the Petroleum and Natural Gas Regulatory Boards Act, 2006 (for short the "2006 Act"), more particularly Section 23 of the said Act read with Section 28 of Chapter 9 thereof; the Regulations should be read harmoniously with the provisions of the parent Statute, and cannot be so construed as to provide for an eventuality not contemplated by the Act; the procedural provisions of the Regulation cannot override the substantive provisions of the 2006 Act; both the 2006 Act and the 2008 Regulations provide for the consequences of the failure to abide by the terms and conditions of the authorisation; Section 28 provides for civil penalty, for contravention of the directions given by the Board; what is provided in the Regulations is for a procedure to impose civil penalty under Section 28; it is only after the Appellant is specifically informed of how the authorisation, granted in their favour, had been violated by them, and a specific order is passed by the Board determining the Appellant's liability in terms of Section 28, would the Board then be entitled to proceed and impose penalty on the Appellant; in the absence of a specific finding in this regard by the Board, the Appellant cannot be penalised in terms of Section 28 of the Act; since this exercise has not been undertaken by the Board, the impugned order necessitates being set aside; and the action taken by the Board, (holding that the Appellant had committed the first default), must be held to be illegal.
140. While acknowledging that the bank guarantee was invoked by the Board on 16.06.2022, as the said bank guarantee was due to expire on 17.06.2022, Sri Sajjan Poovayya, Learned Senior Counsel for the Appellant, would rely on Jay Madhok Energy (P) Ltd. Led Consortium, and Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627.
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141. On the other hand Shri Raghavendra Shankar, Learned Counsel for the Board, would submit that conditions can be prescribed by way of Regulations for non-compliance of the authorisation; the prescription in Regulation 16 is in terms of the power conferred under Section 19 read with Section 61 of the Act, to provide for the consequences of non- compliance; and this prescription in Regulation 16 is distinct from the civil penalty provided in Section 28.
A. VALIDITY OF THE 2008 REGULATIONS CANNOT
BE EXAMINED IN AN APPEAL UNDER SECTION
33(1) OF THE 2006 ACT:
142. Section 61 of The Petroleum and Natural Gas Regulatory Board Act, 2006 ("the 2006 Act") relates to the power of the Board to make regulations, and sub-section (1) thereof stipulates that the Board may, by notification, make regulations consistent with the 2006 Act, and the rules made thereunder, to carry out the provisions of the 2006 Act. Section 61 (2) stipulates that, in particular and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the matters specified in Clauses (a) to (za) thereunder. Section 2 (zb) of the 2006 Act defines "notification" to mean a notification published in the Official Gazette and the expression "notified", with its cognate meanings and grammatical variations, to be construed accordingly. The Regulations made by the Board, under Section 61 of the 2006 Act, are in the nature of Subordinate/Delegated Legislation, they have the force of law, and are statutory in character.
143. Section 30 (1) of the 2006 Act stipulates that, subject to the provisions of the 2006 Act, the Appellate Tribunal, established under Section 110 of the Electricity Act, 2003, shall be the Appellate Tribunal for the purposes of the 2006 Act, and shall exercise the jurisdiction, powers _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 68 of 109 and authority conferred on it by or under the 2006 Act. The proviso thereto stipulates that the Technical Member of the Appellate Tribunal, for the purposes of the 2006 Act, shall be called the Technical Member (Petroleum and Natural Gas), and shall have the qualifications specified in sub-section (2). Section 33 relates to the appeals to the Appellate Tribunal, and sub-section (1) thereof stipulates that any person, aggrieved by an order or decision made by the Board under the 2006 Act, may prefer an appeal to the Appellate Tribunal.
144. The right of appeal to the Appellate Tribunal, under Section 33 (1) of the 2006 Act, is similar to those provided under Section 111 of the Electricity Act, 2003, and the power of the Board to make Regulations under Section 61 is similar to the power of the Central Electricity Regulatory Commission to make Regulations under Section 178 of the Electricity Act. Applying the law laid down by the Supreme Court, in PTC India Limited vs. CERC (2010 4 SCC 603), it must be held that, while adjudicating an appeal filed before it under Section 33(1) of the 2006 also, this Tribunal should only construe the Regulations made by the Board harmoniously with the provisions of the 2006 Act, and not examine the vires of such Regulations.
145. It is settled law that rules and regulations made under a statute must be treated, for all purposes of construction or obligations, exactly as if they were in that Act, and are to the same effect as if they were contained in the Act. (State of U.P. v. Babu Ram Upadhyaya: AIR 1961 SC 751; Peerless General Finance and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343). Consequently the 2008 Regulations, made by the PNGRB in the exercise of the powers conferred on it under Section 61 of the 2006 Act, must be treated, for all purposes of construction or obligations, exactly as if they were in the 2006 Act, and to be of the same effect as if _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 69 of 109 they were contained in the said Act. The 2008 Regulations are statutory in character, constitute law, and are binding on all the regulated entities including the appellant herein (as well as the PNGRB and even this Tribunal).
146. As Regulations are incorporated and become part of the Act, they are governed by the same principles as the statute itself. The statutory presumption that the legislature inserted every part thereof for a purpose, and that legislative intention should be given effect to, would be applicable to Regulations also. (Peerless General Finance and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343). Applying the test of "general application", a Regulation would stand on a higher pedestal vis-à-vis an order (decision) of the Board, in the sense that an order passed by the Board should be in conformity with the Regulation. (PTC India Ltd. v. Central Electricity Regulatory Commission: (2010) 4 SCC 603).
147. In the hierarchy of regulatory powers and functions under the 2006 Act, Section 61, which deals with the making of regulations by the Board, under the authority of subordinate legislation, is wider than Section 11 of the 2006 Act which enumerates the regulatory functions of the PNGRB. While discharging its regulatory functions under Section 11, and in exercising its adjudicatory powers under Section 12, the Board is bound by the Regulations made by it under Section 61 of the said Act.
148. If a dispute arises in adjudication, on the interpretation of a regulation made under Section 61 of the 2006 Act, an appeal would certainly lie before the Appellate Tribunal under Section 33(1) of the said Act. However, no appeal to the Appellate Tribunal will lie on the validity of a regulation made under Section 61, as such a regulation is made under the authority of delegated legislation, and consequently its validity can be _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 70 of 109 tested only in judicial review proceedings before the Courts and not by way of an appeal before the Appellate Tribunal constituted under Section 30(1) of the said Act and hearing appeals under Section 33(1) thereof. (PTC India Ltd. v. Central Electricity Regulatory Commission, (2010) 4 SCC 603).
149. Bearing these principles in mind, let us examine whether or not Regulation 16 of the 2008 Regulations is merely a procedure for imposing penalty under Section 28 of the PNGRB Act. In considering this issue, it is useful to take note of certain statutory provisions under the PNGRB Act, and in the 2008 Regulations.
B. RELEVANT PROVISIONS OF THE PNGRB ACT,
2006:
150. Section 19 of the PNGRB Act, 2006 relates to grant of authorisation and, under sub-section (1) thereof, when, either on the basis of an application for authorisation for laying, building, operating or expanding a common carrier or contract carrier or for laying, building, operating or expanding a city or local natural gas distribution network is received or on suo motu basis, the Board forms an opinion that it is necessary or expedient to lay, build, operate or expand a common carrier or contract carrier between two specified points, or to lay, build, operate or expand a city or local natural gas distribution network in a specified geographic area, the Board may give wide publicity of its intention to do so and may invite applications from interested parties to lay, build, operate or expand such pipelines or city or local natural gas distribution network. Section 19(2) enables the Board to select an entity in an objective and transparent manner as specified by the Regulations for such activities.
151. Section 23 relates to suspension or cancellation of authorization and _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 71 of 109 thereunder the Board, on an application of an affected party or on its own motion, is satisfied that the entity in favour of which authorisation has been granted under Section 19 has failed to comply with any conditions of authorisation, it may, after giving an opportunity to such entity of being heard, either suspend the authorisation for such period as the Board may think fit or cancel the authorization. Under the proviso thereto, where the Board is of the opinion that an authorised entity persistently acts in a manner prejudicial to the interests of consumers, it may take action for the suspension of the authorisation immediately, subject to the opportunity of hearing being given subsequently, after which action so taken may be confirmed or revoked.
152. Section 28 relates to civil penalty for contravention of directions given by the Board and, thereunder, in case any complaint is filed before the Board by any person or if the Board is satisfied that any person has contravened a direction issued by the Board under this Act to provide access to, or to adhere to the transportation rate in respect of a common carrier, or to display maximum retail price at retail outlets, or violates the terms and conditions subject to which registration or authorisation has been granted under section 15 or section 19 or the retail service obligations or marketing service obligations, or does not furnish information, document, return of report required by the Board, it may, after giving such person an opportunity of being heard in the matter, by order in writing, direct that, without prejudice to any other penalty to which he may be liable under this Act, such person shall pay, by way of civil penalty, an amount which shall not exceed one crore rupees for each contravention and, in case of a continuing failure, with additional penalty which may extend to ten lakh rupees for every day during which the failure continues after contravention of the first such direction. The Proviso to _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 72 of 109 Section 28 stipulates that, in the case of a complaint on restrictive trade practice, the amount of civil penalty may extend to five times the unfair gains made by the entity or ten crore rupees, whichever is higher.
153. Section 61 relates to the power of Board to make regulations and, under sub-section (1) thereof, the Board may, by notification, make regulations consistent with the 2006 Act and the rules made thereunder to carry out the provisions of the said Act. Section 61(2) stipulates that, in particular and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the matters referred to in clauses (a) to (za) thereunder.
C. RELEVANT PROVISIONS OF THE 2008
REGULATIONS:
154. A copy of 2008 Regulations was handed over to us by Mr. Sajjan Pooviya, learned Senior counsel for the Appellant, and since the 2008 regulations have been subjected to several amendments from time to time, we have confined our examination of the rival contentions urged in this appeal only to the 2008 Regulations as relied upon on behalf of the Appellant.
155. Regulation 5 prescribed the criteria for selection of an entity for expression of interest route. Regulation 5(1) provides that, in case the expression of interest fulfils the criteria and the requirements stated at Schedule A, the Board shall issue an open advertisement in at least one national and one vernacular daily newspaper (including webhosting) publishing receipt of an expression of interest, and commencement of public consultation for a period of thirty days.
156. Regulation 5(4) stipulates that the Board shall, based on the views received, within a period of forty-five days after the last day of the public _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 73 of 109 consultation period decide-(a) to reject the expression of interest on grounds of non-availability of natural gas; (b) not to allow the proposed natural gas pipeline if it is convinced that, instead of laying, building or expanding the proposed natural gas pipeline, the projected potential demand could be better met in a cost- effective manner by expansion of an existing pipeline; or (c) to go ahead with the proposal with or without modification. In the present case the Board has granted an authorisation to the Appellant in terms of Regulation (5) (4) (c) of the 2008 Regulations.
157. Regulation 9 relates to Grant of authorization, and Regulation 9 (1) provides that the authorization shall be granted to the selected entity in the format at Schedule D within a period of thirty days of the last date of submitting the bid. Regulation 10 relates to capacity booking, natural gas tie-up and financial closure, and sub regulation (1) provides that the authorized entity shall achieve agreement for transport of natural gas with any entity equal to at least fifty percent of the natural gas pipeline volume bid as specified in clause (d) to sub-regulation (1) of Regulation 7 for each of the first five years following the commissioning of the natural gas pipeline. Regulation 10(3) provides that the entity shall submit Heads of Agreement or Memorandum of Understanding or both specified under sub-regulation (1) to the Board within a period of one hundred and eighty days of the date of issue of the authorization.
158. Regulation 16 of the 2008 Authorization Regulations provided for the consequences of default and termination of authorization procedure. Regulation 16(1) prescribes the procedure by which an authorized entity, which has failed to abide by the terms and conditions specified in the 2008 Regulations, shall be dealt with. Regulation 16(1)(a) requires the Board to issue a notice to the defaulting entity, allowing it a reasonable time to fulfil its obligations under the regulations. Regulation 16(1)(b) _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 74 of 109 stipulates that no further action shall be taken in case remedial action is taken by the entity within the specified period to the satisfaction of the Board. Regulation 16(1)(c) enables the Board, in case of the entity's failure to take remedial action and to abide by the other terms and conditions specified in these regulations, to encash the performance bond as under: (i) 25% of the amount of the performance bond for the first default; and (ii) 50% of the amount of the performance bond for the second default: The Proviso requires the entity to make good the encashed performance bond in each of the cases at sub-clause (i) and (ii) within a week of encashment, failing which the remaining amount of the performance bond shall also been cashed and authorization of the entity terminated; (iii) 100% of the amount of performance bond for the third default and simultaneous termination of authorization of the entity; (d) the procedure for implementing the termination of an authorization shall be as provided in Schedule G. Regulation 16(1)(e ) of the 2008 Regulations reads thus:-
"Without prejudice to as provided in clauses(a) to (d), the Board may also levy civil penalty as per section 28 of the Act in addition to taking action as prescribed for offences and punishment under Chapter IX of the Act."
159. The power conferred on the Board to encash the Bank Guarantee, either wholly or in part, is under sub-clauses (i) to (iii) of Regulation 16(1)(c). In terms of Regulation 16(1)(e), as afore-extracted, the Board may also levy civil penalty under Section 28 of the Act and take action in terms of Chapter IX of the Act, without prejudice to what is provided in clauses(a) to (d) of Regulation 16(1). As the expressions "without prejudice" and "may also", as used in Regulation 16(1)(e ), are significant, it is necessary to understand what these expressions mean.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 75 of 109 D. "WITHOUT PREJUDICE": ITS MEANING:
160. The term "without prejudice" has been defined in Black's Law Dictionary as :"Where an offer or admission is made 'without prejudice', . or a motion is denied or a bill in equity dismissed 'without prejudice', it is meant as a declaration that no rights or privileges of the party concerned are to be considered as thereby waived or lost, except in so far as may be expressly conceded or decided." (Supdt. (Tech I) Central Excise v. Pratap Rai, (1978) 3 SCC 113)
161. In Wharton's Law Lexicon the author, while interpreting the term "without prejudice", observed that "the words import an understanding that if the negotiation fails, nothing that has passed shall be taken advantage of thereafter; so, if a defendant offers, 'without prejudice', to pay half the claim, the plaintiff must not rely on the offer as an admission of his having a right to some payment. The rule is that nothing written or said 'without prejudice' can be considered at the trial without the consent of both parties--not even by a Judge in determining whether or not there is good cause for depriving a successful litigant of costs.The word is also frequently used without the foregoing implications in statutes and inter partes to exclude or save transactions, acts and rights from the consequences of a stated proposition, and so as to mean 'not affecting', 'saving' or excepting". (Supdt. (Tech I) Central Excise v. Pratap Rai, (1978) 3 SCC 113).
162. In Supdt. (Tech I) Central Excise v. Pratap Rai, (1978) 3 SCC 113, the Supreme Court held that the implication of the term "without prejudice" means (1) that the cause or the matter has not been decided on merits, (2) that fresh proceedings according to law were not barred.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 76 of 109
163. The question of law which arose for consideration, in A.P. State Financial Corpn. v. Gar Re-Rolling Mills, (1994) 2 SCC 647, was whether the Financial Corporation was entitled to take recourse to the remedy available to it under Section 29 of the State Financial Corporations Act, even after having obtained an order or a decree after invoking the provisions of Section 31 of the Act but without executing that decree/order.
164. In answering this question, the Supreme Court held that it was open to the Corporation to act under Section 29 of the Act to realise the dues from the defaulting concern; Section 31 of the Act was enacted also to take care of a situation where any industrial concern, in breach of any agreement, makes default in repayment of the loan or advance or any instalment thereof or the Corporation requires immediate repayment which the defaulting industrial concern fails to make; the Corporation may in any such event, without prejudice to its rights and remedies under Section 29 of the Act, apply to the District Judge within the local limits of whose jurisdiction, the industrial concern carries on the whole or a substantial part of its business for sale of the property etc; and Section 31, in terms, provided that action under the said provision may be taken "without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882".
165. The Supreme Court held that the expression "without prejudice to the provisions of Section 29 of this Act", in Section 31 of the Act, clearly demonstrated that the Legislature did not intend to confine the Corporation to take recourse to only a particular remedy against the defaulting industrial concern for recovery of the amount due to it; it left the choice to the Corporation to act in the first instance under Section 31 of the Act, and save its rights and remedies under Section 29 of the Act to _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 77 of 109 be availed at a later stage, with the sole object of enabling the Corporation to recover its dues; it was not obligatory on the part of the Financial Corporation to invoke the special provisions of Section 31 of the Act; it could even, without taking recourse to the provisions of the said section, invoke the procedure prescribed under Section 29 of the Act for realisation of its dues; by the use of the expression "without prejudice to the provisions of Section 29 of the Act" in Section 31, the Legislature clearly intended to preserve the rights of the Corporation under Section 29 of the Act, by expressly stating, in Section 31 of the Act, that its recourse to action under that section is without prejudice to the provisions of Section 29 of the Act; to hold that, since the Corporation has initially taken action under Section 31 of the Act and obtained an order/decree from the court, the Corporation is prohibited from invoking the provisions of Section 29 of the Act, notwithstanding the fact that the defaulting concern has not honoured the court's order or decree made under Section 31 of the Act, would render the expression "without prejudice to ..." occurring in Section 31 otiose; and Courts do not favour such a course.
E. "MAY ALSO": ITS MEANING:
166. Order 39 Rules 1 and 2 of the Code deal with powers of the court to grant temporary injunction. Rule 2-A (1) reads thus:
"2-A. Consequence of disobedience or breach of injunction.--
(1) In the case of disobedience of any injunction granted or other order made under Rule 1 or Rule 2 or breach of any of the terms on which the injunction was granted or the order made, the court granting the injunction or making the order, or any court to which the suit or proceeding is transferred, may order the property of the person guilty of such disobedience or breach to be attached, and may also order such person to be detained _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 78 of 109 in the civil prison for a term not exceeding three months, unless in the meantime the court directs his release."
167. On the interpretation to be placed on the said provision, the Supreme Court, in Samee Khan v. Bindu Khan, (1998) 7 SCC 59, held that, even under Order 39 Rule 2-A, attachment was a mode to compel the opposite party to obey the order of injunction; but detaining the disobedient party in civil prison was a mode of punishment for his being guilty of such disobedience; the word "also" has different attributes and its meaning is not to be confined to "furthermore". In legalistic use, the word "also" can be employed to denote other meanings as well; in Black's Law Dictionary, the word "also" has the following variety of meanings:
"Also.--Besides; as well; in addition; likewise; in like manner; similarly; too; withal. Some other thing; including; further; furthermore; in the same manner; moreover; nearly the same as the word 'and' or 'likewise'."; the principle of noscitur a sociis can profitably be used to construct the words "and may also" in the sub-rule; and hence the words "and may also" in Rule 2-A cannot be interpreted in the context as denoting a step which is permissible only as additional to attachment of property of the opposite party.
168. The Supreme Court further held that, if those words are interpreted like that, it may lead to an anomalous situation. If the person who defies the injunction order has no property at all, the court becomes totally powerless to deal with such a disobedient party; he would be immune from all consequences even for any open defiance of a court order; no interpretation shall be allowed to bring about such a sterile or anomalous situation; the pragmatic interpretation, therefore, must be this: it is open to the court to attach the property of the disobeying party and at the same time the court can order him to be detained in civil prison also if the court _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 79 of 109 deems it necessary; similarly the court, which orders the person to be detained in civil prison, can also attach the property of that person; both steps can be resorted to or one of them alone need be chosen; and it is left to the court to decide on consideration of the fact situation in each case.
F. JUDGEMENT, IN "Jay Madhok Energy (P) Ltd. Led
Consortium", RELIED ON BEHALF OF THE
APPELLANT:
169. In Jay Madhok Energy (P) Ltd. Led Consortium v. Petroleum & Natural Gas Regulatory Board, 2022 SCC OnLine APTEL 83, this Tribunal held that the regulatory power to grant authorization under Section 19 was complemented by the power vested in the Board to suspend or cancel such authorization, in terms of Section 23; from the scheme of the law, and the regulations framed there under, particularly the Authorization Regulations, it was clear that the authorization in favour of an entity for, amongst others, laying, building, operating, etc. of CGD network, comes with certain conditions not only for being in full compliance with the eligibility requirements, illustratively, for the authorized entity to become a company - but also to show the requisite or desired performance, meeting the timelines or if in default suffer the risk, inter alia, of imposition of civil penalty under Section 28 or even suspension or cancellation of authorization under Section 23; and the detailed procedure for visiting an entity with such consequences, as envisaged in the provisions, inter alia, contained in Sections 23 and 28 of the PNGRB Act, was provided by Regulation 16 forming part of the Authorization Regulations.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 80 of 109
170. This Tribunal thereafter held that the authority given by Regulation 16(1)(c) to "encash the performance bond of the entity", to the extent specified, is a consequence not different from but same as the one conferred on the Board by Section 28, being "civil penalty"; from this perspective, the act of encashment of the performance bond, in exercise of jurisdiction under Regulation 16(1)(c) by the Board, will necessarily have to be preceded by imposition of civil penalty under Section 28; the Board will first have to impose the penalty, and then is permitted to recover it by encashing the performance bond; encashment of the performance bond is only the mode of execution of the order imposing the civil penalty, and not imposition of a penalty by itself; and the procedure prescribed by Regulation 16 is for exercising the power to impose civil sanctions, particularly of the kind envisaged in Sections 23 and 28 of the PNGRB Act.
171. This Tribunal further held that Sections 23 and 28 of the PNGRB Act, being penal in nature, should be construed and applied strictly; cancellation of authorization or imposition of civil penalty are acts of serious nature, import and consequence; punishment cannot be meted out unless the guilt has been properly proved; the Board must, therefore, arrive at a definitive conclusion as to the guilt (on account of contravention or default) before it can proceed to impose the penalty which is to be recovered by encashment of the performance bank guarantee; in this context, clauses (a) & (b) of Regulation 16(1) are of significance; a case may come up before the Board wherein defaults or contraventions are palpable but the Board is not permitted, only on that basis, to proceed to impose penalty or cancel the authorization; it must assess and give "reasonable time" to the defaulting entity to "fulfill its obligation", and even after lapse of such "reasonable time" it must examine the conduct to _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 81 of 109 ascertain if "remedial action" has or has not been taken; and it is only thereafter that the Board is permitted to avail of its power under Section 23 or 28 to suspend/cancel the authorization or impose civil penalty, and not otherwise;
172. This Tribunal also held that the bank guarantees, furnished in the context of the authorization granted by the Board under its regulatory framework, are to ensure due performance of the obligations under the authorization; they aresubject to inquiry with regard to failure to abide by the terms and conditions specified in the Authorization Regulations; as observed in GSPL India Gasnet (supra), encashment of bank guarantee is execution of the penalty that is imposed; therefore, the Board is obliged by Regulation 16 to first consider as to whether a case of imposition of penalty is made out and, if so, assess and specify the penalty and, thereafter, proceed to recover it from the performance bank guarantee already secured; and a finding that the authorized entity is guilty of default, cannot be returned unless the Board makes an assessment as to the reasonable period within which corrective steps may be taken by the entity, and grants such period for remedial action.
G. IS THE ORDER OF THIS TRIBUNAL, IN "Jay Madhok Energy (P) Ltd. Led Consortium", BINDING?
173. For more than one reason, as shall be detailed hereinafter, reliance placed on behalf of the Appellant on the judgement of this Tribunal, in Jay Madhok Energy (P) Ltd. Led Consortium, is wholly misplaced. In the case of Jay Madhok Energy (P) Ltd. Led Consortium, the PNGRB had cancelled the authorization of Ludhiana and Kutch (East) GAs, among others, on grounds that the documents submitted by them were doctored and the Authorization Regulations had been violated. The PNGRB had further directed immediate encashment of the entire Performance Bank _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 82 of 109 Guarantee. Penalty was levied, under Regulation 16 of the Authorization Regulations, on the Jalandhar GA besides immediate encashment of the Performance Bank Guarantee and transfer of its authorization subject to compliance with certain Regulations. It is in this context that this Tribunal held that penal action could have been taken only after following the procedure prescribed in the Act and the Regulations.
174. Unlike in Jay Madhok Energy (P) Ltd. Led Consortium, encashment of the Performance Bank Guarantee and termination of authorization in the present case, was because of repeated defaults on the part of the Appellant in adhering to the specified timelines and failure to achieve the targets stipulated for laying the JMPL. The PNGRB is empowered to take action against the authorised entity in accordance with either Regulation 16 or Section 28 or Chapter IX of the Act, independently or simultaneously as the case may be, in the light of the defaults, contraventions or offences committed by the authorised entity, after following the procedure prescribed either under the relevant provisions of the Act or the applicable Regulations.
175. Even otherwise, no reliance can be placed on the Order passed in Jay Madhok Energy (P) Ltd. Led Consortium, in as much as the scope and purport of Regulation 16(1)(e) of the 2008 Regulations, especially that part which provides that "without prejudice to as provided in clauses(a) to (d), the Board may also levy civil penalty as per section 28 of the Act...", was not brought to the notice of this Tribunal.
176. The expression "without prejudice to the provisions of Section 29 of this Act", used in Section 31 of the State Financial Corporation Act, was held by the Supreme Court, in APSFC. v. Gar Re-Rolling Mills, to mean that the Legislature did not intend to confine the Corporation to take _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 83 of 109 recourse to only a particular remedy; it left the choice to the Corporation which could, without taking recourse to the provisions of Section 31, invoke the procedure prescribed under Section 29 of the Act; and the Legislature clearly intended to preserve the rights of the Corporation under Section 29 of the Act, by expressly stating in Section 31 of the Act, that its recourse to action under Section 31 was without prejudice to the provisions of Section 29 of the Act.
177. Consequently, the action which the Board is entitled to take under Section 28 and Chapter IX of the Act must be understood to be in addition to, and not in derogation of, its power to encash the Bank Guarantee under Regulation 16(1)(c) of the 2008 Regulations. On a harmonious reading of both the PNGRB Act and the 2008 Regulations, we find it difficult to agree with the submission of Sri Sajjan Poovayya, Learned Senior Counsel, that Regulation 16 merely prescribes the procedure for imposing a civil penalty under Section 28, and is not an independent source of power enabling the Board to encash the Bank Guarantees for violation of the terms and conditions of the authorization. This view of ours is also fortified from the expression "may also" used in Regulation 16(1)(e).
178. The use of the words "without prejudice", in Section 28 also, shows that the civil penalty which may be imposed thereunder is in addition to (and not in lieu of) any other penalty which such person may be liable under the Act. It is no doubt true that Section 28 applies where a person has contravened a direction issued by the Board under the Act, or has violated the terms and conditions subject to which authorisation has been granted under Section 19, and Regulation 16(1), of the 2008 Authorization Regulations, prescribes the procedure by which an authorized entity, which has failed to abide by the terms and conditions specified in the 2008 Regulations, shall be dealt with. The fact, however, remains that _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 84 of 109 both Section 28 of the Act and Regulation 16(1) of the 2008 Regulations provide for different consequences.
179. Regulation 8 of the 2008 Regulations relates to Performance Bond. Regulation 8 (1) stipulates that, acceptance of the grant of authorization given by the Central Government, referred to in proviso to sub-section (1) of Section 17, and grant of authorization by the Board under Section 19 of the Act, shall be issued to the entity after it furnishes a performance bond of an amount equal to 1% of the estimated project cost for the project under execution or 1% of the project capitalized cost for the completed projects rounded off to the nearest lakh rupees or Rs. 20 crores, whichever is less, and it shall be applicable to all pipelines authorized under regulation 4, 17, 18 or 19.
180. Regulation 8 (2) provides that the performance bond has been prescribed for guaranteeing the timely commissioning of the proposed natural gas pipeline as per the targets laid down in sub-regulation (3) and also for meeting the service obligations by the entity during the operating phase of the project as the case may be. The performance bond shall be encashed by the Board for all pipelines in the similar manner as prescribed under Regulation 14(1) under the bidding process. The entity shall be allowed a maximum period of thirty-six months from the date of grant of authorization for commissioning of the natural gas pipeline project, as the case may be. However, if the Board is of the opinion that the reasons for delay are beyond the control of the entity implementing the project, the Board may take an appropriate view in a fair and transparent manner, and may also allow certain extension period which it may deem fit for the commissioning of the project.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 85 of 109
181. The grant of authorisation in favour of the Appellant, for JMPL in Schedule-D enclosed along with the letter of the Board dated 28.06.2016, was subject, among other terms and conditions, to furnishing of a performance bond for Rs.200 million (Rupees Twenty Crores) as a guarantee for timely commissioning of the project as per the prescribed targets submitted in the bid, and for meeting the performance undertakings during the operating phase of the project (Para 8); and that the entity shall comply with the Petroleum and Natural Gas Regulatory Board (Authorising Entities to Lay, Build, Operate or Expand Natural Gas Pipelines) Regulations, 2008 (Para 11(a)).
182. In terms of the authorisation letter dated 28.06.2016, the Pipeline had to be laid within thirty six months from 28.06.2016 ie by 27.08.2019, and failure on the part of the entity in complying with the targets prescribed in the time schedule was to lead to consequences as specified in Regulation 16 of the 2008 Regulations (Para 2). It is on the entity's failure to take remedial action, and to abide by the other terms and conditions specified in the regulations, that the Board is entitled to encash the performance bond. Encashment of the Bond under Regulation 16 is, unlike Section 28, not as a measure of penalty, but as a consequence of the entity's failure to abide by the terms and conditions of the Regulations including the specified timelines in the authorisation letter.
183. Further, Section 28 itself prescribes a penalty which is for a sum not exceeding one crore rupees for each contravention and, in case of a continuing failure, with additional penalty which may extend to ten lakh rupees for every day during which the failure continues after contravention of the first such direction. Reference in Regulation 16(1)(e), to the power of the Board to also levy a civil penalty as per Section 28 of the Act, does _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 86 of 109 not make the said Regulation itself a penal provision or a procedural provision to be followed in imposing civil penalty under Section 28 of the Act. Both Section 28 and Regulation 16(1)(e) use the words "without prejudice", and provide for distinct and different consequences. Use of these words in Regulation 16(1)(e) make it clear that the said Regulation is without prejudice to Section 28, and can be resorted whether or not Section 28 has also been invoked.
184. The words "may also", used in Order 39 Rule 2-A(1) CPC, were construed by the Supreme Court, in Samee Khan, to mean that both the prescribed steps could be resorted to or one of them alone could be chosen. Applying the law declared by the Supreme Court, in Samee Khan, to the present case would mean that the Board can take action both under Regulation 16(1) of the 2008 Regulations and under Section 28 of the Act, or either one of them. It is evident, therefore, that Regulation 16(1) is not merely a procedure for imposing penalty under Section 28 of the Act, but is independent thereof. None of these aspects were brought to the notice of this Tribunal, in Jay Madhok Energy (P) Ltd. Led Consortium.
H. WHEN DOES A PRECEDENT CEASE TO HAVE
BINDING EFFECT?
185. As noted earlier in this Order, the scope and purport of Regulation 16(1)(e) of the 2008 Regulations, especially that part which provides that "without prejudice to as provided in clauses(a) to (d), the Board may also levy civil penalty as per section 28 of the Act..." was not brought to the notice of this Tribunal in Jay Madhok Energy (P) Ltd. Led Consortium. It is settled law that a conclusion, without reference to the relevant provision of law, is weaker than even casual observations.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 87 of 109 (STATE OF U.P. AND ANOTHER VS SYNTHETICS AND CHEMICALS LTD. AND ANOTHER, 1991 4 SCC 139). The 'quotable in law' is avoided and ignored if it is rendered, 'in ignoratium of a statute or other binding authority'. (Young v. Bristol Aeroplane Ltd:1944 I KB 718; Nirmal Jeet Kaur v. State of M.P., 2004 (2) ALD (Crl.) 651 (SC) : (2004) 7 SCC 558,STATE OF U.P. AND ANOTHER VS SYNTHETICS AND CHEMICALS LTD. AND ANOTHER, 1991 4 SCC 139).
186. It is also well settled that a decision is available as a precedent only if it decides a question of law (STATE OF PUNJAB AND OTHERS VS SURINDER KUMAR AND OTHERS, 1992 1 SCC 489), and cannot be relied upon in support of a proposition that it did not decide.(MITTAL ENGINEERING WORKS(P) LTD VERSUS COLLECTOR OF CENTRAL EXCISE, MEERUT, 1997 1 SCC 203). A decision, which is neither founded on reasons nor it proceeds on a consideration of an issue, cannot be deemed to be a law declared to have a binding effect. That which escapes in the judgment without any occasion is not the ratio decidendi. Any declaration or conclusion arrived at, preceded without any reason, cannot be deemed to be the declaration of law or authority of a general nature binding as a precedent. (Jaisri Sahu v. Rajdewan Dubey, AIR 1962 SC 83 ; Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101 ; B. Shama Rao v. Union Territory of Pondicherry, AIR 1967 SC 1480; State of Uttar Pradesh v. Synthetics and Chemicals Ltd. (1991) 4 SCC 139 ).
187. A decision which is not express and is not founded on reasons nor it proceeds on consideration of an issue cannot be deemed to be a declaration of law or authority of a general nature binding as a precedent. (STATE OF U.P. AND ANOTHER VS SYNTHETICS AND CHEMICALS LTD. AND ANOTHER, 1991 4 SCC 139). Where by obvious inadvertence _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 88 of 109 or oversight a judgment fails to notice an obligatory provision running counter to the reasoning and result reached, it may not have the sway of a binding precedent. (Mamleshwar v. Kanahaiya Lal, (1975) 2 SCC 232; Morelle v. Wakeling, (1955) 1 All E.R. 708).( Somprakash v. State of Uttarakhand, 2019 SCC OnLineUtt 648). As the scope and ambit of Regulation 16(1)(e) of the 2008 Regulations, was not brought to the notice of this Tribunal, reliance placed on behalf of the appellant, on Jay Madhok Energy (P) Ltd. Led Consortium, is misplaced.
188. Further the scope and purport of the words "without prejudice" used both in Section 28 of the Act and in Regulation 16(1)(e ) of the 2008 Regulations, and the words "may also" in Regulation 16(1)(e ), were also not brought to the notice of this Tribunal in Jay Madhok Energy (P) Ltd. Led Consortium. The construction placed by the Supreme Court, in Supdt. (Tech I) Central Excise v. Pratap Rai, (1978) 3 SCC 113, and A.P. State Financial Corpn. v. Gar Re-Rolling Mills, (1994) 2 SCC 647, on the words "without prejudice", and on the words "may also" in Samee Khan v. Bindu Khan, (1998) 7 SCC 59, binds us, for it is well settled that, in view of Article 141 of the Constitution, all courts and Tribunals in India are bound to follow the decisions of the Supreme Court. In the hierarchical system of courts which exists, it is necessary for each lower tier to accept loyally the decisions of the higher tier. The judicial system only works if someone is allowed to have the last word and if that last word, once spoken, is loyally accepted. (Cassell & Co. v Broome: (1972) 1 ALL ER 801 (HL); SMT. KAUSHALYA DEVI BOGRA (SMT) AND ORS. VERSUS THE LAND ACQUISITION OFFICER, 1984 2 SCC 324).
189. When the Supreme Court decides a principle it would be the duty of the High Court or a subordinate Court (or for that matter a statutory tribunal) to follow the decision of the Supreme Court. (Narinder Singh v.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 89 of 109 Surjit Singh, (1984) 2 SCC 402); Kausalya Devi Bogra v. Land Acquisition Officer, (1984) 2 SCC 324;Municipal Corporation of Guntur, Guntur v. B. Syamala Kumari, 2006 SCC OnLine AP 838; Somprakash v. State of Uttarakhand, 2019 SCC OnLine Utt 648; Director of Settlements, A.P. v. M.R. Apparao, (2002) 4 SCC 638). When a position in law is well settled as a result of judicial pronouncements of the Supreme Court, it would amount to judicial impropriety for the subordinate courts, including the High Courts, to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. (DWARIKESH SUGAR INDUSTRIES LTD VERSUS PREM HEAVY ENGINEEING WORK, 1997 6 SCC 450). Judicial discipline to abide by the declaration of law, of the Supreme Court, cannot be forsaken by any Court 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).
190. In the light of the aforesaid observations, reliance placed on behalf of the Appellant, on Jay Madhok Energy (P) Ltd. Led Consortium, is of no avail.
I. OTHER JUDGEMENT RELIED ON BEHALF OF THE
APPELLANT:
191. The scope of Section 9(1) and 25(1)(a) of the Orissa Sales Tax Act, 1947 arose for consideration in Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627 (which has also been relied upon by Sri Sajan Poovayya, Learned Senior Counsel). Section 9 of the Orissa Sales Tax Act, 1947 related to the registration of dealers. Section 9(1) stipulated that _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 90 of 109 no dealer shall, while being liable under Section 4 to pay tax under this Act, carry on business as a dealer unless he has been registered under this Act, and possesses a registration certificate. Section 25 related to offences and penalties. Section 25(1)(a) provided that, whoever carries on business as a dealer in contravention of sub-section (1) of Section 9, shall be punishable with imprisonment of either description which may extend to six months or with fine not exceeding one thousand rupees or with both, and when the offence is a continuing one, with a daily fine not exceeding fifty rupees during the period of the continuance of the offence.
192. The appellant, before the Supreme Court, in Hindustan Steel Ltd, was a Government of India undertaking, and was registered as a dealer under the Orissa Sales Tax Act,1947, from the last quarter ending March 1959. Between 1954 and 1959, the Company was erecting factory buildings for the steel plant, residential buildings for its employees, and ancillary works such as roads, water supply, drainage. Some constructions were done departmentally and the rest through contractors. The Company supplied to the contractors, for use in construction, bricks, coal, cement, steel etc. for consideration, and adjusted the value of the goods supplied at the rates specified in the tender. In assessment proceedings, the Sales Tax Officer held that the Company was a dealer in building material, and had sold the material to contractors and was, on that account, liable to pay tax at the appropriate rates under the Orissa Sales Tax Act. The Sales Tax Officer directed the Company to pay tax due for ten quarters ending December 31, 1958 and penalty in addition to the tax for failure to register itself as a dealer.
193. While holding that, if the Company agreed to charge a fixed percentage above the cost price, for storage, insurance and rental charges, it may be reasonably inferred that the Company did not carry on _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 91 of 109 business of supplying materials as a part of business activity with a view to making profit, and neither the Tribunal nor the High Court had referred to an important piece of evidence, the Supreme Court opined that Section 9(1) read with Section 25(1)(a) of the Act, enabled imposition of penalty for failure to register as a dealer; the liability to pay penalty did not arise merely upon proof of default in registering as a dealer; an order imposing penalty, for failure to carry out a statutory obligation, is the result of a quasi-criminal proceeding; penalty will not, ordinarily, be imposed unless the party either acted deliberately in defiance of the law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation; penalty will not also be imposed merely because it is lawful to do so; whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially, and on a consideration of all relevant circumstances; even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute; those in charge of the affairs of the Company, in failing to register the Company as a dealer, had acted in the honest and genuine belief that the Company was not a dealer; and granting that they erred, no case for imposing penalty was made out.
194. The law declared by the Supreme Court, in Hindustan Steel Ltd, is that penalty would not be imposed when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the Statute. The said judgement has no application to the facts of the present case, firstly because encashment of the performance bank _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 92 of 109 guarantee was not as a measure of penalty, but was for the Appellant's failure to adhere to the timelines stipulated in the letter of authorisation, and secondly, as violation of the Regulations by the Appellant was neither a mere technical error nor was such a violation because of the Appellant's bonafide belief that they were not required to comply with the said Regulations. Reliance placed on behalf of the Appellant, on Hindustan Steel Ltd, is wholly misplaced.
IX. REASONS FOR ENCASHING THE BANK GUARANTEE:
195. Sri Sajjan Poovayya, Learned Senior Counsel, would then contend that encashment of the entire bank guarantee of Rs.20 Crores is illegal, and contrary to Regulation 16 of the 2008 Regulations itself.
196. It is contended, on behalf of the Respondent, that the Order dated 04.07.2022 was passed on the failure of the Appellant to renew the PBG within the stipulated time; as the bank guarantee was expiring on 17.06.2022, the only course available to the Board was to encash the entire bank guarantee; the Board had applied its mind afresh to the matter, and had passed a reasoned speaking order; the Appellant's assertion that the Board violated Regulation 16(1)(a) and (b) of the Authorisation Regulations are contradicted by the record of the case; as per Section 13(1)(h) of the PNGRB Act, the Board is vested with the power to review its own decision; even de hors the communication dated17.06.2022 issued by the Appellant, it was open to the Board to review its own order and issue the Impugned Order dated 07.06.2022; during the hearing held on 30.06.2022, the Appellant failed to show why its Authorisation should not be cancelled, and the PBG invoked due to non-performance and defiance of the directions of the Board; the impugned order dated 04.07.2022 details the rationale for the decision to encash the remaining _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 93 of 109 amount of the PBG; and encashment of the bank guarantee has been done within the purview of the PNGRB Act, 2006, and the Regulations made thereunder.
197. The Appellant was granted Authorization for the Jaigarh-Mangalore Natural Gas Pipeline vide letter of the PNGRB dated 28.06.2016 which was enclosed along with the grant of Authorization in Schedule-D of the 2008 Regulations. Schedule (D), enclosed along with the letter dated 28.06.2016, required the entity (Appellant) to complete the activities of laying, building or expansion of the natural gas pipeline, and commission the natural gas pipeline project as per the enclosed time schedule and targets. The Appellant was allowed a maximum period of 36 months from the date of issue of the authorization letter for commissioning of the natural gas pipeline project, and was informed that any failure on their part in complying with the prescribed target in the time schedule shall lead to consequences as specified under Regulation 16 of the 2008 Regulations. The thirty-six month period expired on 27.06.2019, nearly three years before the Performance Bank Guarantee was encashed in its entirety on 16.06.2022, a day before 17.06.2022 when the said Performance Bank Guarantee was due to lapse and cease to remain in force.
198. Clause (8) of the said letter dated 28.06.2016 stipulated that a performance bond of Rs. 20 crores should be furnished for guaranteeing timely commissioning of the project as per the prescribed target submitted in the bid, and for meeting the performance undertaking during the operating phase of the project. The Appellant was further informed, by Clause (9) of Schedule (D), that they were required to comply, among others, with the authorisation and the 2008 Regulations, as also with the terms and conditions which may be notified by the Board, in public interest, from time to time.
199. Under the explanation to Regulation 8(1) of the 2008 Regulations, _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 94 of 109 the performance bond shall be initially valid for a period of three to five years and shall be renewed by the entity for the next block of three to five years, at least one month before the due date, up to the economic life of the project which, in terms of Regulation 2(1) (e) (i) of the 2008 Regulations, is f o r a period of twenty- f i v e years commencing from the date of grant of authorization to the entity by the Board.
200. In terms of the Bank Guarantee, furnished in favour of the Secretary, PNGRB on 17.06.2019, the Oriental Bank of Commerce undertook to pay the Board an amount not exceeding Rs.20,00,00,000/- (Rupees Twenty Crores) against any breach with respect to the timely commissioning of the proposed NG Pipeline as per the prescribed targets, and also meeting service obligations by the authorized entity during the operating phase of the project, including failure to extend the validity of this guarantee or to give a fresh guarantee in lieu of the existing one; the Performance Bank Guarantee is valid for a period of three years initially, which shall be extended up to the economic life of the project in a block of minimum three years at the request of the bidder or the PNGRB; and this guarantee is valid until the 17th day of June 2019.
201. The validity of the Bank Guarantee, furnished by the Appellant for a sum of Rs.20 crores, was due to expire on 17.06.2022. While 25% thereof, for Rs.5.00 crores, was encashed by the Board pursuant to its order dated 07.06.2022, the remaining Rs.15.00 crores would have been incapable of being encashed after expiry of the validity of the Bank guarantee on 17.06.2022. In terms of the 2008 Regulations, the Appellant was required to make good the encashed amount of Rs.5.00 crores, and extend the Bank Guarantee (which was due to lapse on 17.06.2020) for a further period of three years, for a total sum of 20 crores. The Appellant not only failed to make good the encashed sum of Rs.5.00 crores, they also failed to extend the bank guarantee. Having regard to the fact that, despite repeated reminders, the Appellant had failed to extend _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 95 of 109 the PBG, the Board had perforce, in terms of the 2008 Regulations, to encash the PBG on 16.06.2022 (a day before the PBG was due to lapse), and terminate the authorisation.
202. As noted hereinabove, failure of the Appellant to complete and commission the pipeline within the stipulated time, resulted in the Board passing an order on 07.06.2022, encashing 25% of the PBG amounting to ₹5 Crores in terms of Regulation 16(1)(c ) of the 2008 Regulations. The Board, simultaneously, advised the Appellant to refurbish the encashed PBG amount failing which it would attract further action as per the extant Regulations, including encashment of the remaining PBG and termination of the Authorisation for the pipeline, without any further notice. As the balance PBG of JMPL, amounting to ₹15 Crores (ie Rs.20 Crores minus Rs.5 Crores) was expiring on 17.06.2022, the Board, vide emails dated 01.04.2022, 18.04.2022, 17.05.2022, 27.05.2022, 07.06.2022 and 14.06.2022, had advised the Appellant to revalidate the PBG for a minimum period of 03 years as per the extant Regulations. The Appellant has chosen not to refer to the Board's letters dated 01.04.2022, 18.04.2022, 17.05.2022, in the present appeal, whereby they were repeatedly directed to renew/refurbish its bank guarantee as per Regulation 8 and 16. The Appellant neither refurbished the encashed PBG in terms of Regulation 16(1)(c) nor renewed/revalidated the PBG in terms of Regulation 8 of the 2008 Regulations. The Appellant's contention, under this head, therefore necessitates rejection.
X. INFRUCTUOUS INVESTMENT:
203. Mr. Sajan Poovayya, Learned Senior Counsel for the Appellant, would submit that, since a pipeline had been erected adjacent thereto, the pipeline (which the Appellant was required to lay) had become unviable;
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 96 of 109 the newly laid pipeline would cater to the needs of those to whom gas was sought to be supplied through the pipeline which the Appellant was called upon to lay; the need to continue the project had ceased to exist; public interest requires this project not be undertaken as it would result in needless and wasteful expenditure, and amount to an infructuous investment; the Appellant had therefore sought to be relieved of their obligations under the authorisation, and to be permitted to withdraw from the project by surrendering their authorisation; and, instead of letting them do so, the Board had illegally encashed the bank guarantee.
204. Reliance is placed by Shri Raghavendra Shankar, Learned Counsel for the Board, on the reply filed by the Board to submit that a need still exists for the pipeline to be laid, and public interest so requires it to be laid.
205. On the Appellant's claim that, subsequent events of the GAIL pipeline being laid, has rendered the JPML infructuous, the Respondent has stated in its reply that, as an experienced contractor, the Appellant was aware or should have been aware of the construction of the common carrier pipelines (as it was in the public domain); these pipelines must (or at any rate, should) have been part of the assessment of the techno- commercial feasibility of the pipeline for which the Appellant was bidding ie in its DFR as well as MECON's detailed study; reference to these pipelines is a misconceived attempt by the Appellant to justify its inexplicable and conspicuous failure to make any progress on the pipeline; this is apparent from the fact that construction of these pipelines found no mention in the Implementation Plan and Critical Path as informed by the Appellant in the meeting conducted on 04.08.2016; on the contrary, the Appellant purported to comply with the determined Critical Path; the Appellant's obligations under the Contract and the applicable laws are _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 97 of 109 independent of any other pipeline project under construction or contemplation; the Board, in the exercise of its powers under Section 11 of the Act, had authorised construction of the JMPL with a view to develop a gas network along the South - Western coastal region of the country; as per the DFR, JMPL was envisaged with a plan to evacuate gas from the LNG terminal at Jaigarh which was also being set up by the Appellant; additionally, GAIL's DBPL was authorised under Regulation 17 by the Central Government, and the authorisation was accepted by the Board in 2011; the GAIL pipeline connects Dabhol in Maharashtra - (Hubli, Karnataka) - (Tumkuru, Karnataka) - Bengaluru (Karnataka), and runs through the areas well within the hinterland;a total of seven Geographical Areas ("GA") were authorised by the Board along with JMPL, which were dependent, for the supply of gas, on this pipeline; JMPL continues to be crucial for completion of the National Gas Grid, and for development of the South-Western coastal region of the country; since JMPL has not been constructed by the Appellant, consumers in this region continue to be deprived of natural gas connectivity; presently, CGD entities in these regions are arranging gas from nearby pipelines through tap off (thereby incurring additional cost), so as to ensure that their investments and infrastructure are not rendered infructuous; in view of the failure of the Appellant to construct the JMPL, four GAs out of seven have been forced to make alternate and more expensive arrangements for gas from other pipelines; Ratnagiri, North and South Goa GAs are taking gas from DBPL; the GA of Dakshin Kannada has taken a tap off from the Mangalore Section of KKBMPL; three GAs, namely Sindhudurg, Uttar Kannada - Haveri - Shivamoga and Udupi, still do not have any gas source from the trunk pipeline; these GAs are in the process of laying STPL to tap-off gas from either DBPL or KKBMPL; till date, the customers of these three gas lines do not have access to natural gas in this region; had the JMPL _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 98 of 109 project been completed as per schedule, the above-mentioned GAs would have had access to natural gas; considerations of public interest continue to strongly weigh in favour of construction of the JMPL; and construction of the JMPL would benefit consumers of this region by providing cheaper access to "green" fuel, and thereby increase industrialization in the GAs it was intended to serve.
206. The Respondent would further submit that the obligation to assess, the present and prospective consumer demands, was that of the Appellant; information regarding the GAIL pipeline was already in the public domain when the Appellant had bid for the JMPL project; the Appellant, while seeking the bid authorisation and extensions, was or should have been aware of the fact of the on-going construction of other pipelines along the proposed route; this position was made explicit in paragraph 17.2.3 of the Public Notice of Bid, in terms of which:"It is the bidder's responsibility to obtain all information related to the present gas supply position and existing and future customers, if any falling along the route of the proposed natural gas pipeline."; the JMPL project is not an infructuous investment; failure of the Appellant to complete the JMPL project on time promotes unintended exclusivity of the other pipelines operating in the concerned areas, adversely impacting fair competition and the interests of consumers; the Board, while serving public interest, is mandated to focus on expanding the sources of availability of natural gas pipeline and their distribution; the contention that the JMPL project has become unviable, and is a mere duplication of the GAIL, ONGC and HEGPL projects, is without factual basis; the Appellant had, in its DFR, estimated the total demand for natural gas, along the proposed JMPL pipeline route, to increase from 10.19 MMSCMD in FY20 to 20.41 MMSCMD by FY45, along with the potential for the west coast _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 99 of 109 states of Maharashtra, Goa and Karnataka to switch over from liquid fuels and LPG to natural gas; they cannot now be heard to contend that it may not have as profitable a consumer base as it had anticipated; lesser profit margin was a commercial risk that the Appellant was aware of when it submitted its bid; and the situation, of the subsequent development of the other pipeline, cannot be said to be unexpected or beyond contemplation of the Appellant.
207. The Respondent would further contend that Section 56 does not extend to discharge for performance failure due to self-induced frustration, i.e., impossibility to perform because of the fault of any party. The Appellant could not make any discernible progress in the present case on account of its own errors of commission and omission. The Board in several meetings dated 08.05.2019, 06.08.2021, 29.05.2018 etc, had expressed its dissatisfaction with the status of the Project and the lack of seriousness in the Appellant's approach, and had suggested remedial measures to be given effect to in a time-bound manner. None of these measures were given effect to by the Appellant. On the other hand, the Appellant had repeatedly failed to comply with its own commitments made before the Board in connection with progress in the construction of the JMPL. Section 56 is not available to a recalcitrant party to enable it to belatedly avoid its contractual obligations.
208. In the Rejoinder, filed on behalf of the appellant, it is stated that the tie-in connectivity from Jaigarh to Dabhol was meant to supply gas via the Jaigarh-Dabhol pipeline to the Dabhol-Uran pipeline of GAIL towards the northern part of India; out of the seven GAs, four are now being fed by the GAIL pipelines; even otherwise, only with CGD demands, and without any anchor demand, the 635 km pipeline becomes unviable; since the construction of the GAIL pipeline has already served the demands from _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 100 of 109 regions such as Dabhol, Maharashtra-(Hubli, Karnataka)-(Tumkuru Karnataka)-Bengaluru(Karnataka), non-development and non- construction of JMPL would not deprive any region from connectivity; non- construction/ delay in laying of the JMPL has nothing to do with the four GAs making alternate arrangements for gas; of the seven CGD networks available at the time of initial demand assessment, in the present scenario four are already connected through GAIL's Dabhol-Bangalore pipeline; the residual CGDs/GAs of Udupi, Sindhudurg & North Kannada remain the only opportunity for JMPL, out which Sindhudurg is currently fed with L-CNG; laying down of JMPL would now lead to infructuous investment; in view of Section 20(5) of the PNGRB Act, and Regulation 4 of PNGRB (Guiding principles for Declaring or Authorizing Natural Gas Pipeline as Common Carrier or Contract Carrier) Regulations, 2009, the Board is duty bound and obliged to avoid infructuous investments, and to ensure optimum utilization of infrastructure.
209. Section 20 of the Petroleum and Natural Gas Regulatory Board (PNGRB) Act, 2006 relates to declaring, laying, building, etc., of a common carrier or a contract carrier and city or local natural gas distribution network. Section 20 (1) provides that, if the Board is of the opinion that it is necessary or expedient to declare an existing pipeline for transportation of petroleum, petroleum products and natural gas or an existing city or local natural gas distribution network, as a common carrier or contract carrier or to regulate or allow access to such pipeline or network, it may give wide publicity of its intention to do so and invite objections and suggestions within a specified time from all persons and entities likely to be affected by such decision. Section 20 (5) stipulates that, for the purposes of this Section (i.e. Section 20), the Board shall be guided by the objective, among others, of avoiding infructuous investment.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 101 of 109
210. Section 20 prescribes the procedure for the Board to declare an existing pipeline as a common carrier or a contract carrier. Section 20 (5) commences with the words "For the purposes of this Section", and is therefore confined to Section 20 alone, and not beyond. Use of these words "for the purposes of this Section" in Section 20(5) would only mean that the Board shall be guided by the objective of avoiding infructuous investment while declaring an existing pipeline as a common carrier or a contract carrier.
211. In the present case, the obligation which the Appellant seeks to avoid is with respect to the laying of a pipeline, on the plea that laying the pipeline would amount to an infructuous investment. The ambit of Section 20(5) is confined only to an existing pipeline, and not to a pipeline which has not been laid. Section 20 relates to a situation post the pipeline having been laid, and not to a situation prior thereto, such as the present, where the authorisation given to the Appellant was for laying, building or extending the natural gas pipeline along the route of Jaigarh-Panjim-Karwar-Udupi- Mangalore Pipeline, and in terms of which the Appellant was required to complete the laying, building or expanding activities of the Natural Gas Pipeline, and commissioning the natural gas pipeline project, within three years ie by 27.06.2019.
212. Having failed to adhere to the time schedule, and not having complied with the conditions of the authorisation, the Appellant cannot be permitted to avoid its obligations, both in terms of the 2008 Regulation and the terms and conditions of authorisation, on the specious plea that construction of the pipeline, at this stage, would amount to an infructuous investment. As Section 20 (5) has no application, the Appellant's complaint of an infructuous investment, if a pipeline were to be laid, must be rejected on this score.
_______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 102 of 109
213. As is evident from the reply filed by the Board, GAIL's DBPL was authorised under Regulation 17 by the Central Government, and the authorisation was accepted by the Board in the year 2011 around five years prior to the authorisation granted to the appellant on 28.06.2016. The Appellant must have been aware of the GAIL pipeline when it made an assessment of the techno-commercial feasibility of the pipeline for which they were bidding ie in its DFR as well as MECON's detailed study. Further, as contended by the Board in its reply, construction of the GAIL pipeline finds no mention in the Implementation Plan and Critical Path which the Appellant had placed in the meeting conducted on 04.08.2016, and they had purported to comply with the determined Critical Path. As the GAIL pipeline was under implementation from 2011, nothing prevented the Appellant to abstain from bidding, in case they were of the view that the JMPL was unnecessary.
214. The plea now taken of the JMPL having become an infructuos investment, in view of the GAIL pipeline, is evidently an afterthought, and has been resorted to only to enable the Appellant to wriggle out of its obligations under the authorisation grant and the 2008 Regulations, and to somehow bring their case within the ambit of Section 56 of the Indian Contract Act. It is well settled that a contract is not frustrated merely because the circumstances in which it was made are altered. The Courts have no general power to absolve a party from the performance of his part of the contract merely because its performance has become onerous on account of an unforeseen turn of events. (Alopi Parshad & Sons v. Union of India, (1960) 2 SCR 793; (Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821)
215. The provisions of Section 56 of the Indian Contract Act will not apply to a case of "self-induced frustration". In other words, the doctrine of _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 103 of 109 frustration of contract cannot apply where the event, which is alleged to have frustrated the contract, arises from the act or election of a party (Boothalinga Agencies v. V.T.C. Poriaswanmi Nadar" (AIR 1969 SC
110)), for it is settled law that a man cannot be permitted to take undue and unfair advantage of his own wrong to gain a favourable interpretation of law. It is a sound principle that he, who prevents a thing from being done, shall not avail himself of the non-performance he has occasioned. To put it differently, "a wrongdoer ought not to be permitted to make a profit out of his own wrong". (Kusheshwar Prasad Singh v. State of Bihar, (2007) 11 SCC 447).
216. The principle of frustration assumes that the frustration arises without blame or fault on either side. Reliance cannot be placed on a self- induced frustration. Indeed, such conduct might give the other party the option to treat the contract as repudiated. (Bank Line, Ld. v. Arthur Capel & Co; MARITIME NATIONAL FISH, LIMITED APPELLANTS; AND OCEAN TRAWLERS, LIMITED RESPONDENTS., [1935] A.C.
524). The essence of "frustration" is that it should not be due to the act or election of the party. Frustration is a matter caused by something for which neither party was responsible. One of the conditions of frustration is that it should be "without any default of either party". A party cannot rely on their own default to excuse them from liability under the contract. (Hirji Mulji v. Cheong Yue Steamship Co; Dahl v. Nelson, Donkin & Co; MARITIME NATIONAL FISH, LIMITED APPELLANTS; AND OCEAN TRAWLERS, LIMITED RESPONDENTS., [1935] A.C. 524)
217. Where an obligation is cast on a party and he commits a breach of such obligation, he cannot be permitted to take advantage of such situation. This is based on the Latin maxim commodum ex injuria sua nemo habere debet (no party can take undue advantage of his own _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 104 of 109 wrong). (Mrutunjay Pani v. Narmada Bala Sasmal :AIR 1961 SC 1353; Kusheshwar Prasad Singh v. State of Bihar, (2007) 11 SCC 447). This maxim of law, recognised, established and based on elementary principles, is fully recognised in courts of law and of equity, and, indeed, admits of illustration from every branch of legal procedure. (Broom's Legal Maxims (10th Edn.), p. 191; Union of India v. Major General Madan Lal Yadav [(1996) 4 SCC 127; Kusheshwar Prasad Singh v. State of Bihar, (2007) 11 SCC 447).The maxim nullus commodum capere potest de injuria sua propria has a clear mandate of law that a person who, by manipulation of a process, frustrates the legal rights of others, should not be permitted to take advantage of his wrong or manipulations. (Eureka Forbes Ltd. v. Allahabad Bank, (2010) 6 SCC
193).
218. As this plea of infructuous investment is, evidently, an afterthought and appears to have been taken only to justify the Appellant's inability to comply with its obligations, both under the grant of authorisation and the 2008 Regulations, the contentions, urged on behalf of the Appellant under this head, necessitate rejection.
XI. OTHER CONTENTIONS:
219. It is contended, on behalf of the Appellant, that the impugned orders did not take into account that it was on the directive of the Respondent Board, in the meetings held between the parties on 09.08.2021 and 04.03.2022, that the Appellant had submitted a formal request to surrender the JMPL authorization.
220. It is relevant to note that, in the progress review meeting held on 06.08.2021, the Appellant proposed different options, including surrendering the authorization of the entire JMPL, and discontinuing _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 105 of 109 execution of the work. It is in response to this proposal that the Respondent Board had advised them to submit their specific formal request within 10 days. Thereafter, in the meeting held on 20.01.2022 under the Chairmanship of the Secretary, Ministry of Petroleum and Natural Gas, the Appellant again stated that the JMPL was no longer viable due to the alternate gas pipeline available in the region, and they had suggested various options earlier (one among which was the surrender of authorization). In the meeting held on 24.02.2022, the Respondent Board, with respect to option III of surrendering of JMPL, informed the Appellant that, on their submitting a formal request for surrender, the same would be examined as per the regulatory framework.
221. In its Order dated 07.06.2022, the Board held that the Appellant had failed to meet the requirements of the Authorization Regulations, and the terms and conditions of the Grant of Authorization; and, after completion of 5 years, the Appellant could not take the plea of surrendering the Authorization.
222. It is evident, therefore, that it was on the proposal of the Appellant to surrender their authorization, that they were called upon to submit their formal request and, while calling upon them to do so, the Board had made it clear that their request would be examined as per the Regulations. It is not as if the Appellant was assured that their request for surrender of authorization would either be favorably considered or accepted. On the contrary, it is clear from the Order dated 07.06.2022 that the Appellant's claim was rejected holding that they could not, after 5 years, take such a plea. Further it is contended before us, on behalf of the Board, that the extant Regulations do not provide for surrender of authorization. There is no provision either in the 2006 Act or in the 2008 Regulations, or even in the grant of authorization, permitting surrender of authorization. Learned _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 106 of 109 Senior Counsel, appearing on behalf of the Appellant, has also not drawn our attention to any such provision. Therefore, this contention of the Appellant necessitates rejection.
223. The other contention, urged on behalf of the Appellant, is that the subsequent order dated 04.07.2022 was merely an afterthought, as no request or prayer for review of the order dated 07.06.2022 was made by the Appellant either in its letter dated 17.06.2022 nor during the hearing held on 30.06.2022.
224. Under Section 13(1)(h) of the 2006 Act, the Board has been conferred the same powers as are vested in the Civil Court under the Code of Civil Procedure for reviewing its decision. There is, however, no specific provision which confers suo-motu power of review on the Board. Such a power is available to be exercised only if it is statutorily conferred, and not otherwise. It is wholly unnecessary for us to dwell on the aspect whether or not the order dated 04.07.2022, terminating the authorization of the appellant, could have been reviewed suo-motu, for the Appellant had itself sought surrender of the authorization. The Appellant claims that the project has become unviable, both on account of multifold increase in the cost of the project and since GAIL pipelines have been laid nearby. It is not as if the Appellant intended to execute the JMPL project, if the authorization had been extended and not terminated.
225. The Appellant's grievance is only regards encashment of the Performance Bank Guarantee for Rs. 20 Crores. The Board, vide letter dated 17.06.2022, informed the Appellant that encashment of the PBG was a precautionary measure, as the Appellant had not renewed the PBG in line with the Regulations; encashment was not a result of imposition of any kind of penalty; and the encashed amount, worth ₹15 Crores, would _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 107 of 109 be retuned/transferred to the Appellant, once it furnished a fresh PBG amounting to ₹20 Crores, including the encashed PBG amounting to ₹5 Crores. The Appellant replied, by letter dated 17.06.2022, that, having regard to the fact that they had already surrendered the JMPL, there was no justification for refurbishment of the bank guarantee for Rs. 20 crores. They sought refund of Rs.15 crores that had been encashed.
226. As noted hereinabove, the letter of authorization as well as the 2008 Regulations required the Appellant to keep the Performance Bank Guarantee alive during the life of the project, and to renew it periodically for a three year duration. It is only because the Appellant chose not to extend the Performance Bank Guarantee, the validity of which was due to expire on 17.06.2022, that the Board had, perforce, to encash the said Performance Bank Guarantee on 16.06.2022, just one day prior to its expiry on 17.06.2022. Despite encashing the said Bank Guarantee, the Board informed the Appellant that such encashment was not a measure of penalty but was a precautionary measure, and the said amount would be returned to the Appellant in case they furnished the Performance Bank Guarantee for Rs. 20 Crores. It is not even the Appellant's case that they were willing to provide a fresh Performance Bank Guarantee. On the contrary, they had made it clear that they were not inclined to continue with the subject project, and had sought refund of Rs.15 crores that had been encashed.
227. The Appellant's grievance is, evidently, not with respect to termination of the authorization, since it is they who sought permission to surrender it. Having failed to extend the validity of the Bank Guarantee, which they were obliged to do in terms of the authorization and the extant Regulations, the Appellant cannot be heard to complain of encashment of _______________________________________________________________________________________ Judgment in Appeal No. 311 of 2022 Page 108 of 109 the Performance Bank Guarantee. The Appellant's contention in this regard does not also merit acceptance, and necessitates rejection.
XII. CONCLUSION:
228. Viewed from any angle, we are satisfied that the Orders passed by the PNGRB, now under appeal before us, do not necessitate interference, and the challenge thereto, by the Appellant herein, necessitates rejection. The Appeal fails, and is accordingly dismissed. Consequently, pending IAs, if any, shall stand disposed of.
Pronounced in the open court on this the 10th May of 2023.
(Dr. Ashutosh Karnatak) (Justice Ramesh Ranganathan)
Technical Member (P&NG) Chairperson
REPORTABLE / NON-REPORTABLE
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