Page No. 1/52

THE GAUHATI HIGH COURT

(THE HIGH COURT OF ASSAM, NAGALAND, MIZORAM & ARUNACHAL PRADESH)

WRIT PETITION (C) NO. 6446/2023

Jayanta Khaund, Class 1 [A] Contractor,

Guwahati Diagnostic Centre Building, 2

nd

Floor, G.S. Road, Bhangagarh, Guwahati –

781008.

………………Petitioner

- VERSUS-

1. The Assam Power Distribution Company

Limited [APDCL] [A Successor Company of

Assam State Electricity Board, represented

by its Chairman, 1

st

Floor, Bijulee Bhawan,

Paltanbazar, Guwahati – 781001.

2. The Managing Director, Assam Power

Distribution Company Limited [APDCL],

Bijulee Bhawan, Paltanbazar, Guwahati –

781001.

3. The Chief General Manager [PP&D], Assam

Power Distribution Company Limited

[APDCL], Bijulee Bhawan, Guwahati – 1.

GAHC010267942023

Page No. 1/52

THE GAUHATI HIGH COURT

(THE HIGH COURT OF ASSAM, NAGALAND, MIZORAM & ARUNACHAL PRADESH)

WRIT PETITION (C) NO. 6446/2023

Jayanta Khaund, Class 1 [A] Contractor,

Guwahati Diagnostic Centre Building, 2

nd

Floor, G.S. Road, Bhangagarh, Guwahati –

781008.

………………Petitioner

- VERSUS-

1. The Assam Power Distribution Company

Limited [APDCL] [A Successor Company of

Assam State Electricity Board, represented

by its Chairman, 1

st

Floor, Bijulee Bhawan,

Paltanbazar, Guwahati – 781001.

2. The Managing Director, Assam Power

Distribution Company Limited [APDCL],

Bijulee Bhawan, Paltanbazar, Guwahati –

781001.

3. The Chief General Manager [PP&D], Assam

Power Distribution Company Limited

[APDCL], Bijulee Bhawan, Guwahati – 1.

GAHC010267942023

Page No. 2/52

4. The Chief General Manager [NRE], Assam

Power Distribution Company Limited

[APDCL], Bijulee Bhawan, Guwahati – 1.

5. The Senior Manager, Federal Bank Limited,

Paltan Bazar Branch, Ramanand Tower, G.S.

Road, Guwahati – 08.

……………….Respondents

Advocates :

Petitioner : Mr. K.N. Choudhury, Senior Advocate

Mr. J. Patowary, Advocate

Respondent nos. 1 – 4 : Mr. I. Chowdhury, Senior Advocate

Mr. K.P. Pathak, Standing Counsel,

APDCL

Respondent no. 5 : Mr. M. Sharma, Advocate

Date of Hearing : 19.01.2024, 22.01.2024 & 23.01.2024

Date of Judgment & Order : 24.01.2024

BEFORE

HON’BLE MR. JUSTICE MANISH CHOUDHURY

JUDGMENT & ORDER [CAV]

The petitioner has instituted the present writ petition under Article 226 of the

Constitution of India seeking the following reliefs/directions :-

[a] Certiorari shall not be issued to set aside and quash the impugned letter

bearing No. APDCL/CGM[PP&D]/NRE-146/2019-20/787 dated 01.11.2023

issued by the CGM [NRE], APDCL [Annexure-10] whereby the bank

guarantees of the petitioner is sought to be liquidated and

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[b] Certiorari shall not be issued to set aside and quash the impugned letter dated

04.11.2023 vide which it has been decided to encash the petitioner’s bank

guarantees despite extension of time granted and

[c] Mandamus shall not be issued directing the respondent authorities comply

with the extension of time granted vide letter No. APDCL/CGM[PP&D]/NRE-

146/2019-20/789 dated 02.11.2023 [Annexure-12] and,

[d] Mandamus directing the respondent authorities to refrain from invoking the

Bank guarantees of the petitioner during the pendency of the present petition

and, upon causes being shown be further pleased to make the Rule absolute

and/or pass such other order[s] as Your Lordships may deem fit and proper to

grant adequate relief to the petitioner

-AND-

Pending disposal of the Rule be further pleased to pass appropriate interim

order[s] so as to give adequate interim relief to the petitioner by staying the

operation of letter dated 01.11.2023 and 04.11.2023 and by further directing the

authorities to maintain status quo in the matter and/or pass any other orders as

Your Lordships may deem fit and proper.

2. When the writ petition was moved on 08.11.2023, the Court while issuing notice,

had provided, as an ad-interim measure, that if the Bank Guarantees furnished by

the petitioner had already expired on the dates indicated in a letter dated

29.01.2021 and the validity of the same had not been extended, then in that

event, the same shall not be encashed without the leave of the Court. Seeking

vacation/modification of the said Order dated 08.11.2023, the respondent Assam

Power Distribution Company Limited [‘the APDCL’, for short] authorities have

preferred an interlocutory application, which has been registered and numbered

as I.A.[C] no. 3499/2023. In the course of the proceedings, the respondent

APDCL authorities have preferred another interlocutory application seeking a

direction to the petitioner and the respondent no. 5 in the writ petition, W.P.[C]

no. 6446/2023, that is, Federal Bank Ltd. to extend the validity of the three Bank

Guarantees or to provide adequate alternative security and the said interlocutory

application has been registered and numbered as I.A.[C] no. 163/2024.

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3. The parties have exchanged a number of pleadings and the learned counsel for

the parties have submitted that the exchange of pleadings between the parties is

complete.

4. In order to understand the nature of challenges made and to appreciate the

issues raised and involved in the writ petition, a narration of facts in sequence,

shorn of unnecessary details, appears necessary at this stage.

4.1. The office of the Chief General Manager [PP&D], APDCL, Guwahati [the

respondent no. 3] published a Request for Proposal [RFP] on 18.06.2020 to invite

interested Bidders to participate in an online bidding process for procurement of

power from Grid Connected Solar Photovoltaic [PV] Power Projects through Tariff

Based Competitive Bidding Process for total 25 MWAC capacity for a number of

Regions including Region-2 [hereinafter referred to as ‘the Region-2 Project’, for

easy reference], in the State of Assam on ‘Build-Own-Operate’ basis. It was

informed that the bidder would be selected through an Open Competitive Bidding

process in accordance with the procedure set out in the Request for Selection

[RFS] and it would be the responsibility of the Successful Bidder[s] to supply

power to the Procurer as per the terms and conditions of the RFS Document. One

of such Regions is Region-2, covering the districts of Goalpara, Bongaigaon,

Barpeta, Nalbari, Kamrup – Metro & Kamrup – Rural. The petitioner herein was a

Bidder for Region-2.

4.2. As per the Bid Information Sheet contained in the RFS Document, the time-lines

were set out as follows :- [i] 23.06.2020 : Date of issue of the RFS Document &

the Draft Power Purchase Agreement; [ii] 13.07.2020 : Last date of receipt of Pre-

Bid queries from the Bidders; [iii] 17.07.2020 : Pre-Bid Meeting; [iv] 19.08.2020 :

Due date for online submission of ‘Techno-Commercial Bid’ and ‘Price Bid’ as per

the RFS; [v] 20.08.2020 : Due date for hard copy submission of ‘Techno-

Commercial Bid’ as per the RFS; and [vi] 22.08.2020 : Due date for ‘Techno-

Commercial Bid’ opening [except ‘Price Bid’]. The date of Price Bid opening was to

be intimated to the qualified bidders later on.

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4.3. As per the RFP, the Bidding Document comprised of two volumes, that is,

Volume-I : Request for Selection [RFS] and Volume-II : Power Purchase

Agreement [PPA]. As per the Bidding Document, a Bidder was to submit Bid

Security [EMD] for an amount of Rs. 6,72,000/- per MWAC and the validity of the

Bid Security was to be of 180 days from the original Due date for online

submission of ‘Techno-Commercial Bid’ and ‘Price Bid’ as per the RFS. It was

further indicated that a Successful Bidder would be required to submit

Performance Security/Contract Performance guarantee for an amount of Rs.

16,80,000/- per MWAC.

4.4. As per the Brief Scope mentioned therein, the Power Producer Companies/Solar

Developers shall be responsible for development of Grid Connected Ground

Mounted Solar Photovoltaic [PV] Projects to be implemented in the Regions

including Region-2 [Goalpara, Bongaigaon, Barpeta, Nalbari, Kamrup – Metro &

Kamrup – Rural], in the State of Assam on ‘Build-Own-Operate’ basis only for the

procurement of Solar Power by the APDCL for a period of 25 years and the Ceiling

Tariff was mentioned at Rs. 4.00 per unit. The bidding process was a single stage

two envelops bidding process, followed by the E-Reverse Auction Process,

adopted by the APDCL for the award of the Projects to the Successful Bidder[s],

as per the terms set out in the RFS Document. After selection of the Successful

Bidder[s], Power Purchase Agreement[s] was/were to be signed between the

Procurer, that is, the APDCL and the Successful Bidder[s]. The responsibility of

the Successful Bidder[s] is to supply power to the Procurer as per the terms and

conditions of the RFS Document and the Procurer would pay to the Seller the

Quoted Fixed Tariff which has been arrived from single fixed tariff quoted by the

Successful Bidder in the Price Bid followed by E-Reverse Auction, as per the terms

and conditions of the Power Purchase Agreement [PPA].

4.5. The Solar Power Developer, as per the RFS Document and the Draft Power

Purchase Agreement [PPA], would be responsible for design, financing,

‘acquisition’ or ‘leasing’ of land, detailed engineering, procurement, construction,

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erection, testing, synchronizing, commissioning, operating and maintaining the

Project[s] in accordance with the provisions of the Power Purchase Agreement

[PPA] to be entered into between the Solar Power Developer/Successful Bidder

and the APDCL, which is to be further vetted and concurred by the Assam

Electricity Regulatory Commission [AERC].

5. In response to the RFS, the petitioner herein submitted his bid in respect of the

Region-2 Project. On emergence of the petitioner as the Successful Bidder in

respect of the Region-2 Project, a Letter of Award [LoA] bearing no.

APDCL/CGM[PP&D]/NRE-146/2019-20/532 was issued on 04.01.2021 in favour of

the petitioner informing him that Tariff quoted at Rs. 3.99 only per unit for

development of 25 MWAC Grid Connected Solar Photovoltaic [PV] Project in

Region-2 [Goalpara, Bongaigaon, Barpeta, Nalbari, Kamrup – Metro & Kamrup –

Rural], as specified in the RFS had been accepted. It was further informed that

the acceptance of the petitioner’s offer would be subject to the following terms

and conditions :-

[a] In terms of RFS, Power Purchase Agreement [PPA] is to be signed within

thirty [30] days from the date of issuance of this LOA. Copy of the PPA is

enclosed herewith as Annexure-I.

[b] In terms of RFS & PPA, Performance Bank Guarantee [PBG] for Rs.

16,80,000.00 [Indian Rupees Sixteen Lakh Eighty Thousand only] per MW

aggregating to Rs. 4,20,00,000.00 [Rupees Four Crore twenty lakhs] only is

to be submitted prior to signing of PPA. The Performance Security shall be

furnished in the form of three [3] Bank Guarantees as mentioned below in

favour of “Chief General Manager [Comm. & EE]”, APDCL payable at

Guwahati as per the format provided in Schedule 3 of PPA and having

validity up to twenty two [22] months from the Date of Signing of PPA.

[i] PBG for an amount of Rs. 84,00,000.00 [Rupees Eighty Four Lakhs]

having validity up to twenty two [22] months from the Date of Signing

of PPA

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[ii] PBG for an amount of Rs. 1,68,00,000.00 [Rupees One Crore Sixty

Eight Lakhs] having validity up to twenty two [22] months from the

Date of Signing of PPA

[iii] PBG for an amount of Rs. 1,68,00,000.00 [Rupess One Crore Sixty

Eight Lakhs] having validity up to twenty two [22] months from the

Date of Signing of PPA.

5.1. On receipt of the Letter of Award [LoA] dated 04.01.2021, the petitioner

submitted 3 [three] nos. of Bank Guarantees to the respondent no. 3 vide his

Letter bearing reference no. JK/NLP/APDCL/SOLAR PROJECT/Region-2/L-05 dated

29.01.2021 by describing the details of the three Bank Guarantees as follows :

Sl. BG No. Date of issue Value of BG Valid Upto Issued by

1 IBG113029 25.01.2021 84,00,000.00 24.01.2023 Federal Bank

Ltd. Jorhat

Branch

2 IBG113031 25.01.2021 1,68,00,000.00 24.01.2023

3 IBG113102 27.01.2021 1,68,00,000.00 26.01.2023

5.2. The respondent no. 5, that is, Federal Bank, Jorhat Branch by its 3 [three] nos. of

letters - Dated 25.01.2021, Dated 25.01.2021 & Dated 27.01.2021 – gave

covering to the afore-mentioned three Bank Guarantees with the advise that the

APDCL, in its own interest, could verify the genuineness of the Bank Guarantees

by contacting Jorhat Branch of the Federal Bank. If IFSC of the APDCL’s Bank

would be provided to the Federal Bank, Jorhat Branch, a confirmation message

regarding the issuance of the Bank Guarantees would be sent to the APDCL’s

Bank through SFMS.

5.3. On 15.02.2021, the petitioner vide his Letter bearing Reference no.

JK/NLP/APDCL/SOLAR PROJECT/Region-2/L-06 of even date forwarded the sets of

Power Purchase Agreements [PPAs], after subscribing his signatures.

5.4. On 28.12.2022, the APDCL through the respondent no. 4, that is, the Chief

General Manager [NRE], APDCL, Guwahati issued a Show Cause Notice bearing

no. APDCL/CGM/PP&D/NRE-146/2019-20/777 asking the petitioner to show cause

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as to [i] why the contract shall not be terminated; [ii] why the petitioner should

not be declared as a non-performer; [iii] why the petitioner should not be

debarred for 3 [three] years from participating in any future bid of the APDCL;

and [iv] why Security Deposit submitted against the Region-2 Project should not

be encashed/invoked. Further reference of the Show Cause Notice would be made

at a later stage of this Order.

5.5. On receipt of the Show Cause Notice, the petitioner submitted a Reply to the said

Show Cause Notice vide Reference no. JK/NLP/APDCL/SOLAR PROJECT/Region-

2/L-18 dated 05.01.2023 giving explanation from his side as to why the actions

contemplated by the Show Cause Notice should not be taken.

6. It was thereafter the impugned Letter bearing no. APDCL/CGM[PP&D]/NRE-

146/2019-20/787 dated 01.11.2023 [Annexure-10] came to be issued by the

respondent no. 4. By addressing the Letter to the Senior Manager, Federal Bank

Ltd. [the respondent no. 5], the respondent APDCL authorities informed that they

had invoked the afore-mentioned three Bank Guarantees [IBG113029 dated

25.01.2021, IBG113031 dated 25.01.2021 and IBG113102 dated 27.01.2021] as

the petitioner had failed to fulfill the terms and conditions of the contract and

requested the respondent no. 5 Bank to encash the same and to transfer the

proceeds therefrom in the bank account of the APDCL maintained at New

Guwahati Branch of the State Bank of India. The original copies of the said three

Bank Guarantees were also forwarded with the impugned Letter dated

01.11.2023. A copy of the said impugned Letter dated 01.11.2023 was also

forwarded to the petitioner for his information.

6.1. On receipt of the copy of the impugned Letter dated 01.11.2023 addressed to

him, the petitioner wrote a Letter bearing Reference no. JK/NLP/APDCL/SOLAR

PROJECT/Region-2/L-19 on 02.11.2023 to the respondent no. 4 with the request

to review the decision regarding invocation of the Bank Guarantees and not to

revoke the Bank Guarantees for at least 1 [one] month from 02.11.2023.

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6.2. On receipt of the said Letter bearing no. JK/NLP/APDCL/SOLAR PROJECT/Region-

2/L-19 dated 02.11.2023 from the petitioner, the respondent no. 4 wrote to the

respondent no. 5 a Letter bearing no. APDCL/CGM[PP&D]/NRE-146/2019-20/789

on 02.11.2023, referred to in Prayer no. C in the writ petition. By referring to the

said Letter bearing no. JK/NLP/APDCL/SOLAR PROJECT/Region-2/L-19 dated

02.11.2023 of the petitioner wherein the petitioner made the request not to

invoke the Bank Guarantees for at least 1 [one] month, the respondent no. 4

requested the respondent no. 5 to keep the three Bank Guarantees amounting to

Rs. 4,20,00,000/- on hold for a period of 1 [one] month and until further order.

6.3. On 02.11.2023, the petitioner addressed a Letter bearing Reference no.

JK/NLP/APDCL/SOLAR PROJECT/Region-2/L-20 to the Managing Director, APDCL

[the respondent no. 2] with the request to foreclose the contract as areas of land

for the proposed 25MWAC Solar Project in Region-2 could not be arranged. It was

further requested to review the decision of the APDCL to invoke the three Bank

Guarantees.

6.4. It was in the afore-said backdrop, the APDCL through the respondent no. 4

addressed its Letter bearing Reference no. APDCL/CGM[PP&D]/NRE-146/2019-

20/790 to the respondent no. 5 on 06.11.2023. By the said Letter dated

06.11.2023, the respondent no. 4 by referring to his earlier Letter bearing

Reference no. APDCL/CGM[PP&D]/NRE-146/2019-20/789 dated 02.11.2023

whereby the respondent no. 5 was requested to keep the three Bank Guarantees

[IBG113029 dated 25.01.2021, IBG113031 dated 25.01.2021 and IBG113102

dated 27.01.2021] on hold, had informed the respondent no. 5 that his said Letter

bearing Reference no. APDCL/CGM[PP&D]/NRE-146/2019-20/789 dated

02.11.2023 should be treated as cancelled and withdrawn. The respondent no. 5

was thereby requested to proceed as per the earlier instruction given in the Letter

bearing Reference no. APDCL/CGM[PP&D]/NRE-146/2019-20/789 dated

02.11.2023. Meaning thereby, the respondent no. 4 by his Letter dated

06.11.2023 had sought invocation of the three Bank Guarantees with the further

instruction to transfer the proceeds to the concerned bank account of the

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respondent APDCL. Though in the writ petition the petitioner has made reference

to and challenged a Letter dated 04.11.2023 stating that by the said Letter, the

respondent APDCL authorities had invoked the Bank Guarantees but no copy of

such Letter dated 04.11.2023, impugned as per the prayers made in the writ

petition, has been brought on the records of the case. By an additional affidavit

filed later, the petitioner has brought the Letter bearing no.

APDCL/CGM[PP&D]/NRE-146/2019-20/790 dated 06.11.2023 on record.

7. Assailing mainly the action on the part of the respondent APDCL authorities to

encash the afore-mentioned three Bank Guarantees [IBG113029 dated

25.01.2021, IBG113031 dated 25.01.2021 and IBG113102 dated 27.01.2021], the

petitioner has instituted the present writ petition by seeking to invoke the extra-

ordinary, discretionary and equitable jurisdiction under Article 226 of the

Constitution of India of this Court for the reliefs/directions, mentioned above.

8. I have heard Mr. K.N. Choudhury, learned Senior Counsel assisted by Mr. J.

Patowary, learned counsel for the petitioner; Mr. I. Chowdhury, learned Senior

Counsel assisted by MR. K.P. Pathak, learned Standing Counsel, APDCL for the

respondent nos. 1 – 4; and Mr. M. Sharma, learned counsel for the respondent

no. 5 Bank.

9. Mr. K.N. Choudhury, learned Senior Counsel appearing for the petitioner has

submitted that despite the petitioner’s earnest endeavour to find around 500

Bighas of land for the Region-2 Project, the same could not be arranged in due

time because of the restrictions in holding such large chunks of land by any

individual/entity under the extant land laws. He has alleged arbitrariness on the

part of the respondent APDCL authorities in seeking to invoke and encash the

Bank Guarantees despite earlier agreeing to provide 1 [one] month time on

02.11.2023 in terms of the petitioner’s request made on 02.11.2023. It is his

submission that Clause 5.7.1 of the Power Purchase Agreement [PPA] has

provided for extension of time on certain grounds in the event the Solar Power

Developer is prevented from achieving the progress within the stipulated time

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period. In the case in hand, the petitioner is affected by force majeure and as

such, the agencies of the State ought to have come in aid of the petitioner in

arrangement of required areas of land for the Project. He has, thus, contended

that in such backdrop, the decision on the part of the respondent APDCL

authorities to invoke and encash the Bank Guarantees by the impugned Letters –

dated 01.11.2023 & dated 06.11.2023 – is clearly arbitrary and unjust. If in that

manner the Bank Guarantees are invoked and encashed, the petitioner will suffer

severe loss and the same would cause immense prejudice to the business of the

petitioner. It has further been contended that in a Bank Guarantee, the validity

period and the claim period have to be one and the same ordinarily, unless any

agreement to the contrary. But in the three Bank Guarantees under reference, the

respondent no. 5 Bank had unilaterally incorporated a condition therein, thereby,

extending the claim period by 1 [one] year, beyond the validity period of the Bank

Guarantees. The Bank Guarantees, as per Clause 4.4 of the Power Purchase

Agreement [PPA], were required to be in the format provided in Schedule 3. As

the incorporation of a claim period beyond the validity period in the Bank

Guarantees was at the behest of the respondent no. 5 Bank, behind the back of

the petitioner and without insistence from the respondent APDCL, the respondent

APDCL cannot be permitted to take advantage from such extended claim period.

In addition, a reference has been made to the provisions of Section 28 r/w

Exception 3 thereof of the Indian Contract Act, 1872 [‘the Contract Act’, for short]

to contend and to raise an issue of impermissibility regarding incorporation of

such clause in the Bank Guarantees. As regards the law laid down in respect of

Bank Guarantees, reference has been made to a decision of the Hon’ble Supreme

Court of India, U.P. State Sugar Corporation vs. Sumac International Limited,

reported in [1997] 1 SCC 568.

10. Au contraire, Mr. I. Chowdhury, learned Senior Counsel appearing for the

respondent APDCL authorities has submitted that from the Bank Guarantees, it is

evidently clear that the Bank Guarantees are irrevocable and unconditional ones.

In view of Bank Guarantees of such nature, the ground taken by the petitioner as

regards non-availability of required areas of land to establish the Project in

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Region-2 is immaterial. He has contended that since a Bank Guarantee is an

independent contract between the Guarantor Bank and the Beneficiary, that is,

the respondent no. 5 Bank and the APDCL respectively in the case in hand, any

such dispute, even if raised, by the petitioner at whose instance the respondent

no. 5 Bank has provided the Bank Guarantees is of no consequence. It is not the

case of the petitioner that there is either any fraud of an egregious nature or any

irretrievable injustice would occur. In the absence of any such pleas, a writ

petition to restrain invocation and encashment of such Bank Guarantees is not to

be entertained. He has further contended that the Bank Guarantees have

provided for a claim period different from the validity period. It is his submission

that on a reading of the clause which incorporated an extended claim period in

the Bank Guarantees, it is discernible that the same cannot be, by any stretch,

relatable to the provisions of Section 28 and Exception 3 thereof of the Contract

Act. It is his further contention that Exception 3 of Section 28 is in connection

with legal proceedings and not with regard to any claim period. It has been

submitted that it has been a consistent practice of the Banks to incorporate a

claim period in a Bank Guarantee, beyond the validity period of the Bank

Guarantee and there being no illegality, the petitioner who himself had submitted

those Bank Guarantees to the APDCL authorities on 29.01.2021, is precluded from

raising any issue with regard to such Clause regarding extended claim period, that

too, belatedly by feigning ignorance. Mr. Pathak, learned Standing Counsel,

APDCL has placed two decisions – Himadri Chemicals Industries Limited vs. Coal Tar

Refining Company, reported in [2007] 8 SCC 110 and Vinitec Electronics Private

Limited vs. HCL Infosystems Limited, reported in [2008] 1 SCC 544, to buttress the

submissions.

11. Mr. Sharma, learned counsel appearing for the respondent no. 5 Bank has

submitted that there is no legal bar to have one validity period and a different

claim period beyond such validity period, in a Bank Guarantee. He has submitted

that in a Bank Guarantee, it is necessary to provide a claim period, slightly longer

than the validity period of the guarantee. A longer claim period is necessitated for

the reason that if the Principal Debtor commits a default on the last day of the

Page No. 13/52

validity period, then the beneficiary can at the earliest invoke the same only on

the next day. Referring to a circular being Circular no. 10349/CRD/IRMDC34/20-

21 dated 17.06.2020, issued by the Credit Risk Division of the Federal Bank, he

has submitted that thereby, a policy decision has been taken by the respondent

no. 5 Bank to include one year claim period in all guarantees issued by the Bank.

He has submitted that such extended claim period has consistently been

incorporated in Bank Guarantees in view of circulars issued by Indian Banks

Association [IBA]. As per practice prevalent in the banking sector, the claim

period in a Bank Guarantee is a grace period awarded beyond the validity period

of the Bank Guarantee to make a demand on the Guarantor Bank for a default,

which occurred during the validity period of the Bank Guarantee. He has

submitted that though it has been contended that the direction contained in the

circulars issued by the IBA to have a claim period in the Bank Guarantee beyond

the validity period is relatable to Exception 3 of Section 28 of the Contract Act but

in the case in hand, it is the clause in issue in the three Bank Guarantees over

which the parties have crossed swords, is to be read for the purpose of deciding

the issue. He has referred to a decision of the Hon’ble Delhi High Court rendered,

on 28.07.2021, in a writ petition, Writ Petition no. 7677/2019 [Larsen and Toubro

Limited vs. Punjab National Bank and another], wherein the Exception 3 to

Section 28 of the Contract Act came up for consideration. He has also referred to

a decision of the Hon’ble Supreme Court of India in Union of India and another vs.

Indusind Bank Limited and another, reported in [2016] 9 SCC 720.

12. Mr. Choudhury, learned Senior Counsel appearing for the petitioner in his reply

submissions, has submitted that there was no instructions from the petitioner’s

side to incorporate any clause of non-obstante nature for any claim period other

than the agreed validity period, in the Bank Guarantees, which is beyond the

validity period of the Bank Guarantees. He has also contended that the petitioner

was neither a party to the Bank Guarantees nor privy to the said clause at the

time of issuance of the same. It has, thus, been sought to articulate that insertion

of such clause amounts to committing fraud upon the petitioner and the same

Page No. 14/52

would cause irretrievable loss and injury to the petitioner not only to the extent of

the amount involved in the Bank Guarantees but much beyond.

13. I have given due consideration to the rival submissions advanced by the learned

counsel for the parties.

13.1. I have also gone through the materials brought on record by the parties through

their pleadings which are in the forms of [i] the Writ Petition; [ii] an Additional

Affidavit filed, on 07.11.2023, on behalf of the petitioner; [iii] an Affidavit filed, on

21.11.2023, on behalf of the petitioner; [iv] the Affidavit-in-Opposition filed, on

29.11.2023, on behalf of the respondent nos. 1 – 4; [v] an Additional Affidavit

filed, on 10.01.2024, filed on behalf of the respondent nos. 1 – 4; [vi] a synopsis

of written submissions on behalf of the respondent Bank along with a circular

being Circular no. 10349/CRD/IRMDC34/20-21 dated 17.06.2020, issued by the

Credit Risk Division of the Federal Bank; [vii] the Interlocutory Application, I.A.[C]

no. 3499/2023 filed, on 29.11.2023, by the respondent APDCL as applicant

seeking vacation/modification of the Order dated 08.11.2023; [viii] the Affidavit-

in-Opposition filed, on 13.12.2023, on behalf of the petitioner as the opposite

party in I.A.[C] no. 3499/2023; and [ix] the Interlocutory Application, I.A.[C] no.

163/2024 filed, on 18.01.2024, by the respondent APDCL as applicant.

14. As have been mentioned herein above, as per the Bidding Document including the

RFS Document, the Successful Bidder/Solar Power Developer has inter alia been

made responsible for ‘acquisition’ or ‘leasing’ of land, procurement, construction,

erection, testing, synchronizing, commissioning, operating and maintaining the

Region-2 Project on ‘Build-Own-Operate’ basis. As per Clause 1.5 : ‘Site

Identification and Land Acquisition’ of the RFS Document, the Project land shall

have to be arranged by the Successful Bidder/Solar Power Developer. At the time

of submission of Bid, a bidder was required to provide evidence that the required

Land for project development @ 2 Ha/MWAC was under clear possession of the

bidder whereon the bidder would install the required capacity. For ready

Page No. 15/52

reference, Clause 1.5 : ‘Site Identification and Land Acquisition’ of the RFS is

quoted herein below :-

1.5. Site Identification and Land Acquisition

The Project Land shall be arranged by the SPD in the region as mentioned in

clause 1.1.1. At the time of submission of bid, the bidder would provide

evidence that the required Land for project development @ 2 ha/MW is

under clear possession of the bidder which the bidder wishes to install the

required capacity.

In this regard the Bidder shall be required to furnish the following

documentary evidence :-

1.5.1. Identification of 100% [hundred per cent] land at the time of bid

submission. Within 12 months of the effective date of the PPA,

submission of documents/Lease Agreement to establish

possession/right to use 100% [hundred per cent] of the required land

in the name of the SPD or its Affiliate. In case the land is in the name of

Affiliate, the land should be transferred in the name of SPD prior to

Scheduled Commissioning Date [SCD].

RFS for Procurement of 25 MW [AC] Solar Power from projects to be

developed in Region – 3 through Competitive Bidding Process

[Followed by E-Reverse Action]

In case of identification of 100% land at the time of submission of Bid,

following documentary evidence has to be submitted by the bidder :

[i] General Declarations and Undertaking [Appendix – X]

[ii] Memorandum of Undertaking [Appendix – XI]

1.5.2. Wherever leasing of private land is involved, the lease should allow

transfer of land to the lenders or Procurer, in case of default of the

SPD.

Page No. 16/52

1.5.3. Requisite documents from the concerned and competent

revenue/registration authority for the acquisition/ownership/vesting

of land in the name of SPD and in case private land converted for

industrial use.

In case of non-availability of land with the bidder at the time of submission

of Bid, an undertaking has to be submitted that the documentary evidence

will be produced by the bidder of the availability of the land within 12

[twelve] months of signing of PPA. The undertaking can be provided in the

Appendix – IX.

Note :

a. Change in the location of land for setting up the project from one place

to other location is not permitted after 12 months from the signing of

PPA or at financial closure, whichever is earlier.

b. The land for setting up the project should be free from all

encumbrances.

c. The land should neither have been proposed for other purposes & nor

should have been mortgaged.

14.1. Clause 1.3 : ‘Commissioning, Part Commissioning and Delay in Commissioning of

the Project’ of the RFS has mentioned about the period within which the

concerned Project like the Region-2 Project is to be commissioned. For the

purpose of easy reference, the contents of Clause 1.3 are also extracted herein

below :-

1.3. Commissioning, Part Commissioning and Delay in Commissioning

of the Projects

1.3.1. Commissioning

The Successful Bidders shall be required to sign PPAs with APDCL which shall

form the part of the Project Agreements.

Page No. 17/52

The Projects shall be Commissioned within a maximum period of 18

[eighteen] Months [“Scheduled Commissioning Period”] from Date of

Execution of PPA [as defined out in PPA], which is termed as the ‘Scheduled

COD’.

Delay in Project Commissioning, beyond the date of Scheduled COD shall

involve imposition of Delay Liquidated Damages on the Solar Power

Developer, as detailed out in PPA. The Solar Power Developer shall be

permitted to achieve the Project COD, even prior to the Scheduled COD; in

such cases, APDCL shall purchase the generated energy at PPA Tariff only.

1.3.2. Part Commissioning

A Solar Power Developer can be allowed to achieve Part Commissioning of a

Project awarded to it by commissioning a threshold capacity of 15 MW and

can achieve further Part Commissioning in minimum steps of 5 MW till full

Commissioning of the Project is achieved, subject to the acceptance by

APDCL. However, the Scheduled COD shall not get altered due to Part

Commissioning of the Project. Irrespective of dates of Part Commissioning,

the PPA shall remain in force for the PPA Term only. The Solar Power

Developer shall be permitted to achieve the Part Commissioning for the

Project only prior to the Scheduled COD.

In cases of Part Commissioning, till Project COD, the purchase of such solar

energy generation shall be settled by APDCL, as per the provisions mentioned

in the PPA.

1.3.3. Early Commissioning

The SPD shall be permitted for full commissioning as well as part

commissioning of the Project even prior to the SCD. In case of early part –

commissioning, till SCD, APDCL may purchase generation RFS for

Procurement of 25 MW [AC] Solar Power from projects to be developed in

Page No. 18/52

Region – 3 through Competitive Bidding Process [Followed by E – Reverse

Auction] till SCD, at 75% [seventy – five percent] of the PPA tariff. However,

in case the entire capacity is commissioned prior to SCD, APDCL may

purchase generation at PPA tariff.

1.3.4. Delay in Commissioning

As per draft PPA,

Failure to achieve the Project COD on or before the Scheduled COD by the

Bidder shall attract encashment and invocation of Performance Security

followed by imposition of Delay Liquidated Damages, as mentioned below :-

Delay up to one [1] Month from SCOD Twenty percent [20%] of the Performance

Security

Delay of more than one [1] Month and

up to two [2] Months from SCOD

Forty percent [40%] of the Performance

Security

Delay of more than two [2] Months and

up to three [3] Months from SCOD

Forty percent [40%] of the Performance

Security

In case the achievement of Project COD is delayed beyond three [3] Months

from the date of Scheduled COD; the tariff discovered after reverse auction

shall be reduced at the rate of INR 0.15/kWh [0.5 Paisa per unit] per day of

delay for the delay in such remaining capacity which is not commissioned

subject to a maximum period of 30 days. The maximum time period allowed

for commissioning of the full Project Capacity with encashment of

Performance Bank Guarantee and reduction in the fixed tariff shall be limited

to 22 months from the Date of execution of PPA [as defined in the Draft PPA];

in case of further delay in achieving the Project COD beyond twenty-two [22]

Months period from Execution Date [as defined in the Draft PPA] would

amount to termination of PPA. The normative CUF of 19% [nineteen per cent]

or committed CUF, whichever is lower shall be taken for the purpose of

calculation of generation loss as well as reduced tariff.

Page No. 19/52

15. In the writ petition, the petitioner has averred that as per the land laws of Assam,

an individual cannot possess 500 Bighas of land and since the petitioner did not

possess 500 Bighas of land at the time of submission of his bid, he had to submit

an undertaking to make available the areas of land required for the Region-2

Project. The petitioner has stated that the petitioner made a request to the Assam

Industrial Development Corporation [AIDC] Limited to allot 500 Bighas of land to

him for the Project. But the AIDC Limited vide its Letter dated 02.11.2021

informed the petitioner to the effect that it did not have any such land for

allotment in the districts of Goalpara, Bongaigaon, Barpeta, Nalbari, Kamrup –

Metro and Kamrup – Rural. The petitioner was also informed by the AIDC Limited

that the petitioner could apply for allotment of land at other locations of the AIDC

Limited in Assam. The petitioner has further stated that vide his Letter dated

03.11.2021, the petitioner had informed the respondent no. 4 to the effect that

though he had identified private patta lands but the land owners refused to sell

those lands. By informing about the inability of the AIDC Limited to allot required

areas of land for the Region-2 Project in the districts mentioned above, the

petitioner through his Letter dated 03.11.2021 requested the respondent APDCL

authorities either to arrange for the areas of land required for the Region-2

Project or to change the Region of the petitioner, that is, Region-2 so as to enable

him to search for land for the Project at other locations. The petitioner has further

averred that despite his sincere endeavour to find 500 Bighas of land for

establishing the Project in Region-2, no positive result yielded. When the

petitioner was served with the Show Cause Notice dated 28.12.2022, the

petitioner once again brought the matter of non-availability of land in Region-2 in

his Reply dated 05.01.2023. It was in such obtaining fact situation, the impugned

Letter bearing no. APDCL/CGM[PP&D]/NRE-146/2019-20/787 dated 01.11.2023

was issued by the respondent no. 4 mentioning default on the part of the

petitioner. The petitioner has challenged the decision taken by the respondent

APDCL authorities to invoke the three Bank Guarantees in such manner as

arbitrary and unjust. The petitioner has contended that when the extant Laws of

the State do not allow an individual/entity to possess an area of 500 Bighas of

land, it becomes the responsibility of the State agencies to come in aid of the

Page No. 20/52

petitioner to provide such large areas like 500 Bighas of land to enable the

petitioner to fulfill the prescription contained in Clause 1.5 of the RFS Document.

16. The matters regarding ‘acquisition’ or ‘leasing’ of land for the projects in various

Regions including Region-2, have been delineated in the Bidding Document

comprising of Volume-I : Request for Selection [RFS] and Volume-II : Power

Purchase Agreement [PPA]. From Clause 1.5 of the RFS Document, it is clear that

the responsibility to arrange for the areas of land required to construct and

commission the Region-2 Project, that is, 25 MWAC Grid Connected Solar

Photovoltaic Project on ‘Build-Own-Operate’ basis was entirely of the Successful

Bidder/Solar Power Developer. As per the definition provided in the RFS, ‘COD’,

with respect to the Project/unit shall mean the date on which the project/unit is

commissioned [certified by RLDC/SLDC/DISCOM] and available for commercial

operation and such date as specified in a written notice given at least 10 days in

advance by the power producer to APDCL. As per Clause 1.3.4 : ‘Delay in

Commissioning’, failure to achieve the Project COD on or before the scheduled

COD by the bidder shall attract encashment and invocation of Performance

Security followed by imposition of Delay Liquidated Damages. It was stipulated in

Clause 7.1.4. of the RFP Document to the effect that if a bidder was declared as

the Successful Bidder, then the Bid Security of such Successful Bidder was to be

returned upon signing the Power Purchase Agreement [PPA] with the APDCL and

submission of the Performance Security or Performance Guarantee or equivalent

in the form of Bank Guarantees, in accordance with the timelines and provisions

mentioned in the Project Power Purchase Agreement [PPA].

17. In the Show Cause Notice issued on 28.12.2022, it was reiterated that the Letter

of Award [LoA] was issued for the Region-2 Project, that is, 25 MWAC Grid

Connected Solar Photovoltaic Project on 04.01.2021. It was further brought to the

notice of the petitioner that by its Order dated 09.11.2021, the Assam Electricity

Regulatory Commission [AERC] had provisionally approved the Tariff @ Rs. 3.99

per unit for the Region-2 Project for a period of 5 [five] years subject to the

conditions that [i] the possession of land by the Successful Bidder/Solar Power

Page No. 21/52

Developer should be completed within 3 [three] months from the date of the

Order; and [ii] the APDCL shall monitor fortnightly and documentary evidence of

possession of land shall be submitted to the AERC within the period allowed, else

the approval shall stand cancelled. The Show Cause Notice had further mentioned

that despite repeated reminders and despite elapse of more than 23 [twenty

three] months from the date of acceptance of the Letter of Award [LoA] the

petitioner was not able to submit any documentary evidence in respect of the

petitioner’s possession of land for the Region-2 Project. The petitioner was

informed that such situation had given rise a situation for the APDCL to take

necessary action against the petitioner by way of termination of the contract by

declaring him as a non-performer and also by invoking the Bank Guarantees

amounting to Rs. 4,20,00,000/- furnished towards Performance Security. The

petitioner was thereby, asked to show cause by 31.12.2022 as to [i] why the

contract shall not be terminated; [ii] why the petitioner should not be declared as

non-performer; [iii] why the petitioner should not be debarred for 3 [three] years

from participating in any future bid of the APDCL; and [iv] why Security Deposit

submitted against the Region-2 Project should not be encashed/invoked. The

petitioner in his Reply to the Show Cause Notice submitted on 05.01.2023,

mentioned about non availability of land and also about escalation of costs, in the

meantime.

18. The matters regarding Performance Security, Appropriation of Performance

Security and Release of Performance Security are also specifically set forth in

Clause 4.4[a] : ‘Performance Security’, Clause 4.4[b] : ‘Appropriation of

Performance Security’ and Clause 4.4[c] : ‘Release of Performance Security’ in the

following manner :-

4.4. Performance Security

[a] For due and punctual performance of its obligations under this

Agreement, relating to the Project, the Solar Power Developer has

delivered to APDCL, simultaneously with the execution of this

Agreement, an irrevocable and unconditional bank guarantees from a

scheduled bank acceptable to APDCL for an amount of INR

Page No. 22/52

42000000.00 [Rupees Four Crore and Twenty Lakh only]

[“Performance Security”], calculated as INR 16,80,000/- [Indian Rupees

Sixteen Lakh Eighty Thousand only] per MW basis. The Performance

Security is furnished to APDCL in the form of three [3] Bank Guarantees

in favor of “Chief General Manager [Comm. & EE]” of APDCL as per the

format provided in Schedule 3 and having validity up to twenty two [22]

months from the Date of Signing of PPA. The details of the bank

guarantees furnished towards the Performance Security are given below

:

[i] Bank Guarantee No. IBG113029 dated 25.01.2021 for an amount of

INR 84,00,000.00 [Rupees Eighty Four Lakh] [This amount shall

be equivalent to 20% of total Performance Security]

[ii] Bank Guarantee No. IBG113031 dated 25.01.2021 for an amount of

INR 1,68,00,000.00 [Rupees One Crore Sixty Eight Lakh only] This

amount shall be equivalent to 40% of total Performance Security]

[iii] Bank Guarantee No. IBG113102 dated 27.01.2021 for an amount of

INR 1,68,00,000.00 [Rupees One Crore Sixty Eight Lakh only]

[This amount shall be equivalent to 40% of total Performance

Security]

[b] Appropriation of Performance Security

Upon occurrence of a Solar Power Developer Default or failure to meet

the Conditions Precedent by the Solar Power Developer, APDCL shall,

without prejudice to its other rights and remedies hereunder or in law,

shall be entitled to encash and appropriate the relevant amounts from

the Performance Security as Damages for such Solar Power Developer

Default or Conditions Precedent. Upon such encashment and

appropriation from the Performance Security, the Solar Power

Developer shall, within 30 [thirty] days thereof, replenish, in case of

partial appropriation, to its original level the Performance Security, and

in case of appropriation of the entire Performance Security provide a

fresh Performance Security, as the case may be, and the Solar Power

Developer shall, within the time so granted, replenish or furnish fresh

Performance Security as aforesaid failing which APDCL shall be entitled

Page No. 23/52

to terminate this Agreement in accordance with Article 16. Any penalty

paid so, shall be returned to the SPD without any interest on

achievement of successful commissioning within the SCD.

[c] Release of Performance Security

Subject to other provisions of this Agreement, APDCL shall release the

Performance Security, if any after eighteen [18] from the Scheduled

Commissioning Date.

The release of the Performance Security shall be without prejudice to

other rights of APDCL under this Agreement.

19. From the above Clauses in the Power Purchase Agreement [PPA], also found

similarly mentioned in the RFS document and the Draft Power Purchase

Agreement [PPA], it is clear that the Bank Guarantees are to be submitted in the

format provided in Schedule 3 and such Bank Guarantees should have validity

upto 22 [twenty-two] months from the date of signing of the Power Purchase

Agreement [PPA]. Discretion has been vested to the APDCL to encash and

appropriate the relevant amounts from such Performance Security as Damages

upon occurrence of Default on the part of the Successful Bidder/Solar Power

Developer or in the event of failure to meet the Conditions Precedents by the

Successful Bidder/Solar Power Developer, without prejudice to the APDCL’s other

rights and remedies under or in law.

20. The law regarding Bank Guarantee/Letter of Credit are well settled by a series of

judgments of the Hon’ble Supreme Court of India and of this Court. In order to

appreciate the law regarding the nature of Bank Guarantees, their invocation and

in what situations the Court can pass an order of injunction/stay restraining

encashment of a Bank Guarantee/Letter of Credit, the following decisions of the

Hon’ble Supreme Court of India can be referred to.

20.1. In U.P. State Sugar Corporation vs. Sumac International Limited, reported in [1997] 1

SCC 568, it has been observed as under :-

Page No. 24/52

12. The law relating to invocation of such bank guarantees is by now well settled.

When in the course of commercial dealings an unconditional bank guarantee

is given or accepted, the beneficiary is entitled to realize such a bank

guarantee in terms thereof irrespective of any pending disputes. The bank

giving such a guarantee is bound to honour it as per its terms irrespective of

any dispute raised by its customer. The very purpose of giving such a bank

guarantee would otherwise be defeated. The courts should, therefore, be slow

in granting an injunction to restrain the realization of such a bank guarantee.

The courts have carved out only two exceptions. A fraud in connection with

such a bank guarantee would vitiate the very foundation of such a bank

guarantee. Hence if there is such a fraud of which the beneficiary seeks to

take advantage, he can be restrained from doing so. The second exception

relates to cases where allowing the encashment of an unconditional bank

guarantee would result in irretrievable harm or injustice to one of the parties

concerned. Since in most cases payment of money under such a bank

guarantee would adversely affect the bank and its customer at whose

instance the guarantee is given, the harm or injustice contemplated under

this head must be of such an exceptional and irretrievable nature as would

override the terms of the guarantee and the adverse effect of such an

injunction on commercial dealings in the country. The two grounds are not

necessarily connected, though both may co-exist in some cases. In the case of

U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers [P]

Ltd., [1988] 1 SCC 174, which was the case of a works contract where the

performance guarantee given under the contract was sought to be invoked,

this Court, after referring extensively to English and Indian cases on the

subject, said that the guarantee must be honoured in accordance with its

terms. The bank which gives the guarantee is not concerned in the least with

the relations between the supplier and the customer; nor with the question

whether the supplier has performed his contractual obligation or not, nor

with the question whether the supplier is in default or not. The bank must

pay according to the tenor of its guarantee on demand without proof or

condition. There are only two exceptions to this rule. The first exception is a

case when there is a clear fraud of which the bank has notice. The fraud must

Page No. 25/52

be of an agregious nature such as to vitiate the entire underlying transaction.

Explaining the kind of fraud that may absolve a bank from honouring its

guarantee, this Court in the above case quoted with approval the

observations of Sir John Donaldson, M.R. in Bolivinter Oil SA vs. Chase

Manhattan Bank NA, [1984] 1 AIIER 351 :

“The wholly exceptional case where an injunction may be granted is

where it is proved that the bank knows that any demand for payment

already made or which may thereafter be made will clearly be

fraudulent. But the evidence must be clear both as to the fact of fraud

and as to the bank’s knowledge. It would certainly not normally be

sufficient that this rests on the uncorroborated statement of the

customer, for irreparable damage can be done to a bank’s credit in the

relatively brief time which must elapse between the granting of such an

injunction and an application by the bank to have it charged".

This Court set aside an injunction granted by the High Court to restrain the

realisation of the bank guarantee.

13. The same question came up for consideration before this Court in Svenska

Handelsbanken vs. M/s. Indian Charge Chrome & Others, [1994] 1 SCC

502. This Court once again reiterated that a confirmed bank

guarantee/irrevocable letter of credit cannot be interfered with unless there

is established fraud or irretrievable injustice involved in the case.

Irretrievable injury has to be of the nature noticed in the case of Itek

Corporation vs. The First National Bank of Boston etc., 566 Fed Supp 1210.

On the question of fraud this Court confirmed the observations made in the

case of U.P. Cooperative Federation Ltd. [supra] and stated that the fraud

must be that of the beneficiary, and not the fraud of anyone else.

20.2. In Himadri Chemicals Industries Limited vs. Coal Tar Refining Company, reported in

[2007] 8 SCC 110, it has been observed as under :-

Page No. 26/52

10. The law relating to grant or refusal to grant injunction in the matter of

invocation of a bank guarantee or a letter of credit is now well settled by a

plethora of decisions not only of this Court but also of the different High

Courts in India. In U.P. State Sugar Corporation vs. Sumac International

Ltd., [1997] 1 SCC 568, this court considered its various earlier decisions. In

this decision, the principle that has been laid down clearly on the

enforcement of a Bank guarantee or a letter of credit is that in respect of a

bank guarantee or a letter of credit which is sought to be encashed by a

beneficiary, the bank giving such a guarantee is bound to honour it as per its

terms irrespective of any dispute raised by its customer. Accordingly this

Court held that the courts should be slow in granting an order of injunction

to restrain the realization of such a bank guarantee. It has also been held by

this Court in that decision that the existence of any dispute between the

parties to the contract is not a ground to restrain the enforcement of bank

guarantees or letters of credit. However this Court made two exceptions for

grant of an order of injunction to restrain the enforcement of a bank

guarantee or a letter of credit : [i] Fraud committed in the notice of the bank

which would vitiate the very foundation of guarantee; and [ii] injustice of the

kind which would make it impossible for the guarantor to reimburse himself.

11. Except under these circumstances, the courts should not readily issue

injunction to restrain the realization of a bank guarantee or a letter of credit.

So far as the first exception is concerned, i.e. of fraud, one has to satisfy the

court that the fraud in connection with the bank guarantee or letter of credit

would vitiate the very foundation of such a bank guarantee or letter of credit.

So far as the second exception is concerned, this court has held in that

decision that it relates to cases where allowing encashment of an

unconditional bank guarantee would result in irretrievable harm or injustice

to one of the parties concerned. While dealing with the case of fraud, this

court in the case of U.P. Coop. Federation Ltd. vs. Singh Consultants and

Engineers [P] Ltd., [1988] 1 SCC 174, held as follows : [SCC p. 197, para 53]

The fraud must be of an egregious nature such as to vitiate the entire

underlying transaction.

Page No. 27/52

[Emphasis supplied]

While coming to a conclusion as to what constitutes fraud, this court in the

above case quoted [at SCC p. 197, para 54] with approval the observations of

Sir John Donaldson, M.R. in Bolivinter Oil SA vs. Chase Manhattan Bank,

[1984] 1 All ER 351 [CA], at p. 352g-h, which is as follows :

The wholly exceptional case where an injunction may be granted is

where it is proved that the bank knows that any demand for payment

already made or which may thereafter be made will clearly be

fraudulent. But the evidence must be clear both as to the fact of fraud

and as to the bank’s knowledge. It would certainly not normally be

sufficient that this rests on the uncorroborated statement of the

customer, for irreparable damage can be done to a bank’s Credit in the

relatively brief time which must elapse between the granting of such an

injunction and an application by the bank to have it discharged.

[Emphasis supplied]

12. In Svenska Handelsbanken vs. Indian Charge Chrome, [1994] 1 SCC 502, it

has also been held that a confirmed bank guarantee/irrevocable letter of

credit cannot be interfered with unless there is established fraud or

irretrievable injustice involved in the case. In fact, on the question of fraud,

this decision approved the observations made by this court in the case of

U.P. Coop. Federation Ltd vs. Singh Consultants and Engineers [P] Ltd.,

[1988] 1 SCC 174.

* * * * * * * * *

14. From the discussions made hereinabove relating to the principles for grant

or refusal to grant of injunction to restrain enforcement of a Bank Guarantee

or a Letter of Credit, we find that the following principles should be noted in

the matter of injunction to restrain the encashment of a Bank Guarantee or a

Letter of Credit :-

Page No. 28/52

[i] While dealing with an application for injunction in the course of

commercial dealings, and when an unconditional bank guarantee or

letter of credit is given or accepted, the beneficiary is entitled to realize

such a bank guarantee or a letter of credit in terms thereof irrespective of

any pending disputes relating to the terms of the contract.

[ii] The bank giving such guarantee is bound to honour it as per its terms

irrespective of any dispute raised by its customer.

[iii] The Courts should be slow in granting an order of injunction to restrain

the realization of a bank guarantee or a letter of credit.

[iv] Since a bank guarantee or a letter of credit is an independent and a

separate contract and is absolute in nature, the existence of any dispute

between the parties to the contract is not a ground for issuing an order of

injunction to restrain enforcement of bank guarantees or letters of

credit.

[v] Fraud of an egregious nature which would vitiate the very foundation of

such a bank guarantee or letter of credit and the beneficiary seeks to take

advantage of the situation.

[vi] Allowing encashment of an unconditional bank guarantee or a letter of

credit would result in irretrievable harm or injustice to one of the parties

concerned.

20.3. The following observations are made in Vinitec Electronics Private Limited vs. HCL

Infosystems Limited, reported in [2008] 1 SCC 544 :

2. The dispute between the parties relates to invocation of the bank guarantee

furnished by the appellant to the respondent.

* * * * * * * * *

12. It is equally well settled in law that bank guarantee is an independent contract

between bank and the beneficiary thereof. The bank is always obliged to

honour its guarantee as long as it is an unconditional and irrevocable one. The

dispute between the beneficiary and the party at whose instance the bank has

given the guarantee is immaterial and of no consequence. In BSES Limited

Page No. 29/52

[Now Reliance Energy Ltd.] vs. Fenner India Limited and another, [2006] 2

SCC 728, this court held :

“10. There are, however, two exceptions to this Rule. The first is when there is a

clear fraud of which the Bank has notice and a fraud of the beneficiary

from which it seeks to benefit. The fraud must be of an egregious nature as

to vitiate the entire underlying transaction. The second exception to the

general rule of non-intervention is when there are special equities in

favour of injunction, such as when irretrievable injury or irretrievable

injustice would occur if such an injunction were not granted. The general

rule and its exceptions has been reiterated in so many judgments of this

court, that in U.P. State Sugar Corporation. vs. Sumac International

Ltd., [1997] 1 SCC 568 [hereinafter U.P. State Sugar Corporation], this

Court, correctly declared that the law was ‘settled’.

* * * * * * * * *

14. In Mahatama Gandhi Sahakra Sakkare Karkhane vs. National Heavy Engg.

Coop. Ltd and another, [2007] 6 SCC 417, this Court observed [SCC p. 471 b-d]

:-

“If the bank guarantee furnished is an unconditional and irrevocable

one, it is not open to the bank to raise any objection whatsoever to pay

the amounts under the guarantee. The person in whose favour the

guarantee is furnished by the bank cannot be prevented by way of an

injunction from enforcing the guarantee on the pretext that the

condition for enforcing the bank guarantee in terms of the agreement

entered between the parties has not been fulfilled. Such a course is

impermissible. The seller cannot raise the dispute of whatsoever nature

and prevent the purchaser from enforcing the bank guarantee by way of

injunction except on the ground of fraud and irretrievable injury.

What is relevant are the terms incorporated in the guarantee executed by

the bank. On careful analysis of the terms and conditions of the

guarantee in the present case, it is found that the guarantee is an

unconditional one. The respondent, therefore, cannot be allowed to raise

Page No. 30/52

any dispute and prevent the appellant from encashing the bank

guarantee. The mere fact that the bank guarantee refers to the principal

agreement without referring to any specific clause in the preamble of the

deed of guarantee does not make the guarantee furnished by the bank to

be a conditional one.”

[Emphasis Supplied]

21. It has been set forth in Clause 4.4 : ‘Performance Security’ of the Draft Power

Purchase Agreement [PPA] that the Successful Bidder had to furnish the

Performance Security in the form of three Bank Guarantees in favour of the

APDCL as per the format provided in Schedule 3 thereof. Since the format

provided in Schedule 3 is also of import in the lis, the format in Schedule 3 is

extracted hereinbelow in its entirety :-

SCHEDULE 3

PERFORMANCE SECURITY

[PROFORMA OF BANK GUARANTEE]

THIS DEED OF GUARANTEE executed on this the ________________ day

of _________________ at ______________ by _________________

[Name of the Bank] having its Head / Registered office at ______________

hereinafter referred to as “the Guarantor” which expression shall unless it be

repugnant to the subject or context thereof include successors and assigns;

In favour of ________, a Company Incorporated under the Indian Companies

Act, 1956 having its registered office at __________ [hereinafter referred to as

“APDCL”, which expression shall, unless it be repugnant to the context or

meaning thereof, include its administrators, successors, and assigns];

WHEREAS

A. By the Power Purchase Agreement [the "Agreement"] being entered into

between APDCL and __________, a company incorporated under the

provisions of the Companies At, 1956/, having its registered office/permanent

Page No. 31/52

address at _______________ [hereinafter referred as “Solar Power

Developer”], has been granted the right to development of _____________

MW Solar PV Power Plant an hereinafter referred to as the Project.

B. In terms of Article 4.4 of the Agreement, the Solar Power Developer is

required to furnish to APDCL, an unconditional and irrevocable bank

guarantee for an amount of INR ___________/- [Rupees ________ Only]

as security for due and punctual performance/discharge of its obligations

under the Agreement.

At the request of the Solar Power Developer, the Guarantor has agreed to provide

guarantee, being these presents guaranteeing the due and punctual

performance/discharge by the Company of its obligations under the Agreement

relating to the Project.

NOW THEREFORE THIS DEED WITNESSETH AS FOLLOWS:

Capitalized terms used herein but not defined shall have the meaning assigned to

them respectively in the Agreement.

1. The Guarantor hereby irrevocably guarantees the due and punctual

performance by M/s. ____________ of all its obligations relating to the

Project under the Agreement.

2. The Guarantor as primary obligator shall, without demur, pay to APDCL

sums not exceeding in aggregate INR _______/- [Rupees ________ Only),

within one working day of receipt of a written demand thereof from APDCL

stating that the Solar Power Developer has failed to meet its performance

obligations under the Agreement. The Guarantor shall not go into the veracity

of any breach or failure on the part of the Solar Power Developer or validity of

demand so made by APDCL and shall pay the amount specified in the

demand notwithstanding any direction to the contrary given or any dispute

whatsoever raised by the Solar Power Developer or any other Person. The

Guarantor's obligations hereunder shall subsist until all such demands are

duly met and discharged in accordance with the provisions hereof. In order to

Page No. 32/52

give effect to this Guarantee, APDCL shall be entitled to treat the Guarantor

as the principal debtor. The obligations of the Guarantor shall not be affected

by any variations in the terms and conditions of the Agreement or other

documents or by the extension of time for performance granted to the

Company or postponement/non exercise/ delayed exercise of any of its rights

by APDCL or any Indulgence shown by APDCL to the Solar Power Developer

and the Guarantor shall not be relieved from its obligations under this

Guarantee on account of any such variation, extension, postponement, non-

exercise, delayed exercise of any of its rights by APDCL or any indulgence

shown by APDCL provided nothing contained herein shall enlarge the

Guarantor's obligation hereunder.

3. This Guarantee shall be irrevocable and shall remain in full force and effect

for a period of twenty-two [22] months from the date of signing of PPA unless

discharged /released earlier by APDCL on accordance with the provisions of

the Agreement. The Guarantor's liability in aggregate is limited to a sum of

INR ______/- (Rupees ________ Only).

4. This Guarantee shall not be affected by any change in the constitution or

winding up of the Solar Power Developer/the Guarantor or any absorption,

merger or amalgamation of the Solar Power Developer/the Guarantor with

any other Person.

The Guarantor has power to issue this guarantee and discharge the obligations

contemplated herein, and the undersigned Is duly authorized to execute this

Guarantee pursuant to the power granted under____________.

IN WITNESS WHEREOF THE GUARANTOR HAS SET ITS HANDS

HEREUNTO ON THE DAY, MONTH AND YEAR FIRST HEREINABOVE

WRITTEN

SIGNED AND DELIVERED

by __________ Bank

Page No. 33/52

by the hand of Shri _________ its _____ and

Authorised official.

22. As is stated above, it was on 29.01.2021 the petitioner submitted the three nos.

of Bank Guarantees for amounts, indicated in paragraph 5.1 above, to the

respondent APDCL in the format provided in Schedule 3. As the contestation of

the parties is with regard to the said three Bank Guarantees, which are similarly

worded, save and except a difference in the validity period, it is also apposite to

extract the contents of one of such Bank Guarantees hereinbelow :-

SCHEDULE 3

PERFORMANCE SECURITY

[PROFORMA OF BANK GUARANTEE]

THIS DEED OF GUARANTEE executed on this the 25

th

day of January, 2021 at

Jorhat by The Federal Bank Ltd., M.G. Road, Jorhat-785001 of India having its

Head / Registered office at Aluva, Kerala. Hereinafter referred to as “the

Guarantor” which expression shall unless it be repugnant to the subject or

context thereof include successors and assigns;

In favour of Assam Power Distribution Company Limited a Company

Incorporated under the Indian Companies Act, 1956 having its registered office

at _____ [hereinafter referred to as “APDCL”, which expression shall, unless it

be repugnant to the context or meaning thereof, include its administrators,

successors, and assigns];

WHEREAS

A. By the Power Purchase Agreement [the "Agreement"] being entered into

between APDCL and Jayanta Khaund a company incorporated under the

provisions of the Companies At, 1956/, having its registered office/permanent

address at K.B. Road, North Lakhimpur, Assam [hereinafter referred as

Page No. 34/52

“Solar Power Developer”, has been granted the right to development of MW

Solar PV Power Plant an hereinafter referred to as the Project.

B. In terms of Article 4.4 of the Agreement, the Solar Power Developer is

required to furnish to APDCL, an unconditional and irrevocable bank

guarantee for an amount of INR 84,00,000/- [Rupees Eighty Four Lakhs

Only] as security for due and punctual performance/discharge of its

obligations under the Agreement.

At the request of the Solar Power Developer, the Guarantor has agreed to provide

guarantee, being these presents guaranteeing the due and punctual

performance/discharge by the Company of its obligations under the Agreement

relating to the Project.

NOW THEREFORE THIS DEED WITNESSETH AS FOLLOWS:

Capitalized terms used herein but not defined shall have the meaning assigned to

them respectively in the Agreement.

1. The Guarantor hereby irrevocably guarantees the due and punctual

performance by Jayanta Khound of all its obligations relating to the Project

under the Agreement.

2. The Guarantor as primary obligator shall, without demur, pay to APDCL

sums not exceeding in aggregate INR 84,00,000/- [Rupees Eighty Four

Lakhs Only), within one working day of receipt of a written demand thereof

from APDCL stating that the Solar Power Developer has failed to meet its

performance obligations under the Agreement. The Guarantor shall not go

into the veracity of any breach or failure on the part of the Solar Power

Developer or validity of demand so made by APDCL and shall pay the amount

specified in the demand notwithstanding any direction to the contrary given

or any dispute whatsoever raised by the Solar Power Developer or any other

Person. The Guarantor's obligations hereunder shall subsist until all such

demands are duly met and discharged in accordance with the provisions

hereof. In order to give effect to this Guarantee, APDCL shall be entitled to

Page No. 35/52

treat the Guarantor as the principal debtor. The obligations of the Guarantor

shall not be affected by any variations in the terms and conditions of the

Agreement or other documents or by the extension of time for performance

granted to the Company or postponement/non exercise/delayed exercise of

any of its rights by APDCL or any Indulgence shown by APDCL to the Solar

Power Developer and the Guarantor shall not be relieved from its obligations

under this Guarantee on account of any such variation, extension,

postponement, non-exercise, delayed exercise of any of its rights by APDCL

or any indulgence shown by APDCL provided nothing contained herein shall

enlarge the Guarantor's obligation hereunder.

3. This Guarantee shall be irrevocable and shall remain in full force and effect

for a period of twenty two [22] months from the date of signing of PPA unless

discharged/released earlier by APDCL on accordance with the provisions of

the Agreement. The Guarantor's liability in aggregate is limited to a sum of

INR 84,00,000/- (Rupees Eighty Four Lakhs Only).

4. This Guarantee shall not be affected by any change in the constitution or

winding up of the Solar Power Developer/the Guarantor or any absorption,

merger or amalgamation of the Solar Power Developer/the Guarantor with

any other Person.

The Guarantor has power to issue this guarantee and discharge the obligations

contemplated herein, and the undersigned is duly authorized to execute this

Guarantee pursuant to the power granted under APDCL.

Notwithstanding anything to the contrary contained herein –

[i] Our Liability under this Guarantee shall not exceed Rs. 84,00,000/-

[Rupees Eighty Four Lakhs Only].

[ii] This Bank Guarantee shall be valid upto 24.01.2023.

[iii] We are liable to pay the guarantee amount only and only if we receive

from you at our address stated below, a written claim or demand no

later than 1 Year from the said expiry, failing which all your rights

under this guarantee shall extinguish and we shall stand completely

discharged.

Page No. 36/52

[Emphasis supplied in bold]

Address for service of Claim/Demand :

The Federal Bank Limited

Operations Department Trade Finance Division,

Fed Serv, 4

th

Floor, Thapasya Building, Infopark,

Kakkanad, Ernakulam, Kerala, India – 682042

IN WITNESS WHEREOF THE GUARANTOR HAS SET ITS HANDS

HEREUNTO ON THE DAY, MONTH AND YEAR FIRST HEREINABOVE

WRITTEN

SIGNED AND DELIVERED

By ____________ Bank

By the hand of Shri _________ its ______ and

Sd/- Illegible

Authorised Official.

Signature and Seal.

23. At this stage, it is apposite to find out about the nature of the three Bank

Guarantees submitted by the petitioner. Each of the Bank Guarantees mention

that in terms of Article 4.4 of the Agreement [that is, the Power Purchase

Agreement (PPA)], the Solar Power Developer is required to furnish to the APDCL,

an unconditional and irrevocable Bank Guarantees for a definite amount as

security for due and punctual performance/discharge of its obligations under the

Agreement. The Bank Guarantees also mention that the respondent Bank has

agreed to provide the Bank Guarantees at the request of the Solar Power

Developer, that is, the petitioner. Thus, the respondent Bank has irrevocably

guaranteed due and punctual performance by the petitioner of all its obligations

relating to the Project under the Agreement. The respondent Bank as the primary

obligator has stated that it shall, without demur, pay to the APDCL the amounts

not exceeding in aggregate mentioned in each of the three Bank Guarantees,

Page No. 37/52

within one working day of receipt of a written demand thereof from the APDCL

stating that the Solar Power Developer, that is, the petitioner has failed to meet

its performance obligations under the Agreement. The Bank Guarantees further

mention that the respondent Bank as the Guarantor shall not go into the veracity

of any breach or failure on the part of the Solar Power Developer, that is, the

petitioner or validity of demand so made by the APDCL and shall pay the amount

specified in the demand, notwithstanding any direction to the contrary given or

any dispute whatsoever raised by the Solar Power Developer, that is, the

petitioner or any other person. The Bank Guarantees also mention that the Bank’s

obligations as Guarantor under the Bank Guarantees shall subsist until all such

demands are duly made and discharged in accordance with the provisions of the

Bank Guarantees and in order to give effect to the Bank Guarantees, the APDCL

shall be entitled to treat the Guarantor Bank as the Principal Debtor. The Bank

Guarantees stipulate that they shall remain in full force and effect for the period

of 22 [twenty-two] months from the date of signing of the Power Purchase

Agreement [PPA]. The Bank Guarantees though mention about Clause 4.4 of the

Power Purchase Agreement [PPA] the same does not go to change the nature of

the Bank Guarantees from unconditional and irrevocable Bank Guarantees to

conditional ones as mere mention of Clause 4.4 of the Power Purchase Agreement

[PPA] in the Preamble of the Bank Guarantees does not control the operative

parts of the Bank Guarantees. It is clear from the Bank Guarantees that the

APDCL is the best judge to decide as to whether the Solar Power Developer, that

is, the petitioner has failed to meet its performance obligations or not. In the

event of receipt of a written demand from the APDCL mentioning that the APDCL

wants to invoke and encash the Bank Guarantees due to failure on the part of the

Solar Power Developer, that is, the petitioner to meet its performance obligations,

the Guarantor Bank is not required to go into the veracity of such demand made

by the APDCL. Meaning thereby, it is not open for the Guarantor Bank to enquire

as to whether there is due performance of or there is failure to perform the

obligations under the Principal Agreement, that is, the Power Purchase Agreement

[PPA] on the part of the petitioner. As per the Bank Guarantees, the Guarantor

Bank on receipt of a written demand for encashment of the Bank Guarantees from

Page No. 38/52

the APDCL, shall have to pay the amounts specified in the demand without any

demur. It has been clearly stipulated in the Bank Guarantees that any dispute

between the APDCL and the Solar Power Developer, that is, the petitioner at

whose instance the Guarantor Bank has given the Bank Guarantees, is immaterial

and is of no consequence. Having gone through the terms and conditions of the

three Bank Guarantees, by keeping the principles enunciated in the decisions cited

above, this Court is of the unhesitant view that the three Bank Guarantees are

unconditional and irrevocable in nature. The petitioner has stated that the

petitioner had signed the Power Purchase Agreement [PPA] on 15.02.2021.

24. On perusal of the three Bank Guarantees, all similarly worded and one of which

has been extracted hereinabove, it is also noticed that the Bank Guarantees have

two different time-periods/dates. One is the validity period [Expiry Date]

indicating the date till which the particular Bank Guarantee would remain valid

and the other is the claim period which indicates a period beyond the validity

period of the Bank Guarantee to make a written claim or demand to the Bank

against a default. For example, the Bank Guarantee bearing no. IBG113029 dated

25.01.2021 for a guarantee amount of Rs. 84,00,000/- has mentioned that the

Bank Guarantee shall be valid upto 24.01.2023 and the Bank shall be liable to pay

the guarantee amount only and only if the Bank receives from the beneficiary [the

APDCL], a written claim or demand no later than 1 [one] year from the expiry

date, meaning thereby, the claim period would be upto 24.01.2024. If such

validity period of the Bank Guarantee upto 24.01.2023 and the claim period upto

24.01.2024 are found to be sustainable then the claim or demand made by the

APDCL to the respondent no. 5 Bank on 01.11.2023 by the impugned Letter

bearing no. APDCL/CGM[PP&D]/NRE-146/2019-20/787 dated 01.11.2023 and/or

on 06.11.2023 by the impugned Letter bearing no. APDCL/CGM[PP&D]/NRE-

146/2019-20/790 dated 06.11.2023 would, in turn, have to be regarded as a

written claim or demand made within time.

25. The learned counsel for all the parties are in general agreement that a Standard

Bank Guarantee would usually contain the three terms :- [a] Expiry Period/Validity

Page No. 39/52

Period; [b] Claim Period; and [c] Enforcement Period. They are also in consensus

ad item to the expositions provided to the said three terms in Larsen and Toubro

Limited [supra] in the following manner :-

[a] Expiry Period/Validity Period : A bank guarantee would prescribe a specific

date by which a bank guarantee would expire. This is a time determined by

the Principal Debtor and the Creditor. The right to invoke the bank guarantee

is only for a default of the Principal Debtor which occurs during the validity

period of the bank guarantee.

[b] Claim Period : This is a time period contractually agreed between the Creditor

and the Principal Debtor which provides a grace period beyond the validity

period to make a demand on the bank for a default which has occurred

during the validity period. A claim period may or may not exist in the bank

guarantee. The guarantor again has no role to play.

[c] Enforcement Period : The enforcement period is a time period within which

the Creditor can enforce his accrued rights pursuant to a demand made by

him within the validity period or the claim period before a competent court of

law.

26. Section 126 of the Indian Contract Act, 1872 has provided for the definitions of

‘Contract of Guarantee’, ‘Surety’, ‘Principal Debtor’ and ‘Creditor’. As per Section

126, a ‘Contract of Guarantee’ is a contract to perform the promise, or discharge

the liability, of a third person in case of his default. The person who gives the

guarantee is called the ‘Surety’; the person in respect of whose default the

guarantee is given is called ‘Surety’; the person in respect of whose default the

guarantee is given is called the ‘Principal Debtor’, and the person to whom the

guarantee is given is called the ‘Creditor’. A guarantee may be either oral or

written.

27. As submissions have been advanced in reference to Section 28 of the Indian

Contract Act, 1872, it appears necessary to find out the provisions contained in

Page No. 40/52

the original Section 28 and in the subsequent amendments. Originally, Section 28

read as under :-

28. Agreements in restraint of legal proceeding, void. –

Every agreement, by which any party thereto is restricted absolutely from

enforcing his rights under or in respect of any contract, by the usual legal

proceedings in the ordinary tribunals, or which limits the time within which

he may thus enforce his rights, is void to that extent.

After an amendment given into effect from 08.01.1997, Section 28 was in the

following form :-

28. Agreements in restraint of legal proceeding, void. - Every agreement

[a] by which any party thereto is restricted absolutely from enforcing his rights

under or in respect of any contract, by the usual legal proceedings in the

ordinary tribunals, or which limits the time within which he may thus

enforce his rights, or

[b] which extinguishes the rights of any party thereto, or discharges any party

thereto, from any liability, under or in respect of any contract on the expiry

of a specified period so as to restrict any party from enforcing his rights,

is void to that extent.

Exception 1.— Saving of contract to refer to arbitration dispute that may arise.

This section shall not render illegal a contract, by which two or more persons agree

that any dispute which may arise between them in respect of any subject or class of

subjects shall be referred to arbitration, and that only the amount awarded in such

arbitration shall be recoverable in respect of the dispute so referred.

Exception 2.— Saving of contract to refer questions that have already arisen.

Nor shall this section render illegal any contract in writing, by which two or more

persons agree to refer to arbitration any question between them which has already

arisen, or affect any provision of any law in force for the time being as to references

to arbitration.

Page No. 41/52

28. The Law Commission in its Report submitted in the year, 1984 recommended

changes in Section 28 and the same led to an amendment in Section 28 with

insertion of Exception 3 therein in the year, 2012. The Statement of Objects and

Reasons of the Amendment Acts read as under :-

The Statement of Objects and Reasons

1. The Law Commission of India has recommended in its 97

th

Report that Section

28 of the Indian Contract Act, 1872 may be amended so that the anomalous

situation created by the existing section may be rectified. It has been held by the

courts that the said Section 28 shall invalidate only a clause in any agreement

which restricts any party thereto from enforcing his rights absolutely or which

limits the time within which he may enforce his rights absolutely or which limits

the time within which he may enforce his rights. The courts have, however, held

that this section shall not come into operation when the contractual term spells

out an extinction of the right of a party to sue or spells out the discharge of a

party from all liability in respect of the claim. What is thus hit by Section 28 is an

agreement relinquishing the remedy only i.e. where the time-limit specified in

the agreement is assumed to exist between remedy and right and this distinction

is the basis of the present position under which a clause barring a remedy is void,

but a clause extinguishing the rights is valid. This approach may be sound in

theory but, in practice, it causes serious hardship and might even be abused.

2. It is felt that Section 28 of the India Contract Act, 1872 should be amended as it

harms the interests of the consumer dealing with big corporations and causes

serious hardship to those who are economically disadvantaged.

3. The Bill seeks to achieve the above objects.

28.1. Subsequent to insertion of Exception 3 in Section 28 by the Banking Laws

[Amendment] Act, 2012, Section 28 in the present form reads as under :-

28. Agreements in restraint of legal proceedings, void.— Every agreement,—

[a] by which any party thereto is restricted absolutely from enforcing his rights

under or in respect of any contract, by the usual legal proceedings in the

Page No. 42/52

ordinary tribunals, or which limits the time within which he may thus enforce

his rights; or

[b] which extinguishes the rights of any party thereto, or discharges any party

thereto, from any liability, under or in respect of any contract on the expiry of a

specified period so as to restrict any party from enforcing his rights,

is void to the extent.

Exception 1.— Saving of contract to refer to arbitration dispute that may arise.

This section shall not render illegal a contract, by which two or more persons agree

that any dispute which may arise between them in respect of any subject or class of

subjects shall be referred to arbitration, and that only the amount awarded in such

arbitration shall be recoverable in respect of the dispute so referred.

Exception 2.— Saving of contract to refer questions that have already arisen.

Nor shall this section render illegal any contract in writing, by which two or more

persons agree to refer to arbitration any question between them which has already

arisen, or affect any provision of any law in force for the time being as to references

to arbitration.

Exception 3.— Saving of a guarantee agreement of a bank or a financial

institution. This section shall not render illegal a contract in writing by which any

bank or financial institution stipulate a term in a guarantee or any agreement

making a provision for guarantee for extinguishment of the rights or discharge of

any party thereto from any liability under or in respect of such guarantee or

agreement on the expiry of a specified period which is not less than one year from

the date of occurring or non-occurring of a specified event for extinguishment or

discharge of such party from the said liability.

29. On reading of the heading of Section 28, ‘Agreements in restraint of legal

proceedings, void’ and the substantive parts of Section 28 contained in Clause [a]

and Clause [b] thereof with Exception 3 together, it is discernible that since the

heading and the substantive parts of the provisions contained in Section 28 state

that agreements which inter alia contain a clause indicating a time limit thereby

restricting a party to enforce his rights under such contract within the time limit, is

void to that extent, Exception 3 is, thus, to be read in the same context in respect

of a Bank Guarantee which is also a contract in writing. Exception 3 has provided

Page No. 43/52

that substantive provision of Section 28 shall not render illegal a contract in

writing by which a bank stipulates a term in a guarantee or any agreement

making a provision for guarantee for extinguishment of the rights or by which any

party thereto is discharged from any liability under or in respect of such guarantee

or agreement on the expiry of a specified period, which is not less than 1 [one]

year from the date of occurring or non-occurring of a specified event for

extinguishment or discharge of such party from the said liability.

30. In Larsen and Toubro Limited [supra], the writ petitioner was M/s Larsen and

Toubro Limited. Stating that it was one of the largest construction companies in

India, the writ petition was instituted arraigning the Guarantor Bank, Punjab

National Bank as party-respondent no. 1, M/s Indian Banks Association as party-

respondent no. 2 and the Reserve Bank of India [RBI] as party-respondent no. 3.

It was contended that the petitioner had a number of contracts with Government

bodies and Public Sector Undertakings and to participate in the bidding processes/

to execute contract-works awarded to it, it required to submit bid securities/

performance securities in the form of Bank Guarantees. On the basis of circulars

issued by the respondent no. 2 which is an association of banks, the respondent

no. 1 Bank by its communications, impugned therein, insisted that the Bank

Guarantees should have a claim period of twelve months and any claim period

lesser than twelve months, would effectively increase the claim period in respect

of the Bank Guarantees to three years under the Limitation Act, 1963. The

respondent no. 3, the RBI in its counter affidavit filed therein had taken a stand

that Bank Guarantees were structured according to the terms of the agreements

and the terms were decided mutually between the parties, that is, the Surety, the

Principal Debtor and the Creditor. It was further clarified that the RBI had not

prescribed any terms to be incorporated in the Bank Guarantees and the terms of

the Bank Guarantees to be issued by the Guarantor Banks were decided in terms

of the respective policy of the concerned banks and on the basis of the

contractual arrangements between the parties. In so far as the advises contained

in the circulars of the party-respondent no. 2 therein, that is, the Indian Banks

Association [IBA] were concerned, it was found out that the IBA had advised that

Page No. 44/52

if the banks would issue Bank Guarantees with a claim period of less than one

year then such Bank Guarantees would not have the benefit of Exception 3 to

Section 28 and would stand exposed to the period of limitation under the

Limitation Act, 1963. The IBA had, thus, advised the banks to issue every Bank

Guarantee with a minimum claim period of one year beyond the validity period of

the Bank Guarantee. It is pertinent to mention that the limitation period

prescribed under the Limitation Act, 1963 is thirty years where the claimant is the

Government and the period is three years in respect of others. The learned Single

Judge of the Hon’ble Delhi High Court after considering the history of the

amendments carried out in Section 28 of the Contract Act, 1872, has held that

Exception 3 to Section 28 of the Contract Act, 1872 is with regard to the rights of

a Creditor to enforce his rights under a Bank Guarantee after happening of a

specified event and Exception 3 does not deal with the claim period within which

the Creditor is entitled to lodge his claim with the bank/guarantor. It has been

held that the respondent Bank and the IBA erred in interpreting the scope of

Exception 3 to Section 28. It has been further held that there is no mandatory

requirement that the claim period for a Bank Guarantee has to be for minimum

twelve months.

31. The issues involved in Indusind Bank Limited [supra], were with regard to Bank

Guarantees which were required to be kept valid upto six months with a provision

for claims for an additional three months. The Bank Guarantees involved therein

had clauses as follows :- [i] ‘… Unless a demand or claim under this guarantee is

made against us within three months from the above date [i.e. on or before

30.04.1997], all your rights under the said guarantee will be forfeited and we shall

be relieved and discharged from all liabilities hereunder’; and [ii] ‘… Provided

however, unless a demand or claim under this guarantee is made on us in writing

within 3 months from the date of expiry of this guarantee in respect of export of

XXXXX, we shall be discharged from all liability under this guarantee thereafter’.

In that context, the Hon’ble Supreme Court has held that neither of the clauses

has purportedly limited the time within which rights are to be enforced. It has

been observed that none of the aforesaid clauses purports to curtail the period of

limitation within which a suit can be brought to enforce the Bank Guarantees.

Page No. 45/52

32. Assertion of right under a contract in the form of a claim or demand is different

from enforcing it in a Court of law by way of any legal proceedings. On a plain

reading of the recitals in the three Bank Guarantees involved herein, as extracted

in bold letters in paragraph 22 above, as regards the validity period/expiry date

and the claim period, it does not go to indicate that it has dealt with any matter

relating to enforcement of right to claim by way of Legal proceedings in a court of

law. It has only dealt with assertion of claim of the guaranteed amount within a

year beyond the validity period of the Bank Guarantees. To be more precise, it

emerges, on a plain reading, that though Bank Guarantees bearing no.

IBG113029 dated 25.01.2021 would be valid only upto 24.01.2023, the

beneficiary/Creditor [the APDCL] would have the advantage of a claim period of 1

[one] year beyond the validity period upto 24.01.2023, that is, upto 24.01.2024 to

make a claim or demand, in writing, to the Guarantor Bank to invoke and encash

the said Bank Guarantee. Similarly, the Bank Guarantee bearing no. IBG113031

dated 25.01.2021 for a guarantee amount of Rs. 1,68,00,000/- has its expiry date

as 24.01.2023 and a claim period of 1 [one] year beyond 24.01.2023. The third

Bank Guarantee bearing no. IBG113102 dated 27.01.2021 for a guarantee

amount of Rs. 1,68,00,000/- has its expiry date as 26.01.2023 and a claim period

of 1 [one] year beyond 26.01.2023. The manner of making such claim for the

amounts under the Bank Guarantees is governed by the agreements itself i.e. the

three Bank Guarantees which have stipulated that a claim or demand in writing is

to be received by the respondent no. 5 Bank from the beneficiary, APDCL within 1

[one] year from the respective expiry date. It is not disputed by the respondent

no. 5 Bank that it did not receive the impugned Letter dated 01.11.2023 and the

impugned Letter dated 06.11.2023 from the APDCL containing the claim to invoke

the Bank Guarantees and the request to transfer the amounts thereof to the bank

account of the APDCL after encashment. Considered from that angle, it is found

that the claim for invocation and encashment of the three Bank Guarantees was

made within the respective claim period, though it was beyond the validity period

of the Bank Guarantees.

Page No. 46/52

33. Prior to the policy decision taken by the respondent Federal Bank, as contained in

Circular no. 10349/CRD/IRMDC34/20-21 dated 17.06.2020, claim period of one

year was not mandatorily insisted by the Federal Bank while issuing guarantees.

As per the Circular dated 17.06.2020 [supra], the Federal Bank had taken a policy

decision to include one year claim period in all guarantees issued by the Bank.

Consequent to such inclusion of one year claim period, norms pertaining to

release of securities and collection of Bank Guarantee [BG] Commission were also

set forth as follows :- [i] Bank shall not release the cash margin and securities

charged to the BG until Bank is discharged from the liability i.e. till the expiry of

claim period; and [ii] BG Commission shall be collected for the additional period of

one year i.e. till the expiry of the claim period.

34. It needs iteration at this juncture, even at the cost of repetition, that the

respondent APDCL authorities by the Bidding Document comprising of the RFS

Document and the Draft Power Purchase Agreement [PPA], had sought for the

Bank Guarantees in terms of Schedule 3, extracted hereinabove, from the

Successful Bidder/Solar Power Developer, that is, the petitioner. It was set forth

that such Bank Guarantees in the format provided in Schedule 3 should be

unconditional and irrevocable for due performance of the obligations required on

the part of the petitioner in terms of the Power Purchase Agreement [PPA]. After

having emerged as the Successful Bidder for the Region-2 Project the petitioner

was to obtain the Performance Security in the form of unconditional and

irrevocable Bank Guarantees strictly in terms of Clause 4.4 of the Power Purchase

Agreement [PPA] for amounts indicated therein. The respondent no. 5 Bank had

issued the three Bank Guarantees with their covering letters, addressed to the

APDCL. As per the three covering letters of the respondent no. 5 Bank – dated

25.01.2021, dated 25.01.2021 & dated 27.01.2021 – it was informed to the

APDCL that the Bank was enclosing the Bank Guarantees in favour of the APDCL

on behalf of the petitioner. Requesting for acknowledgment of receipt of the three

Bank Guarantees, the APDCL authorities were advised to verify the genuineness

of the Bank Guarantees. From the Letter bearing Ref. no. : JK/NLP/APDCL/SOLAR

PROJECT/Region-2/L-05 dated 29.01.2021 of the petitioner, addressed to the

Page No. 47/52

respondent no. 3, it is evident that the petitioner with the said Letter had

submitted the original copies of the three Bank Guarantees and the respondent

no. 3 had acknowledged the receipt thereof under seal and signature on

30.01.2021. It is, thus, not open for the petitioner to say that he was not aware

of the contents of the three Bank Guarantees or was not aware that the Bank

Guarantees were not strictly in terms of the format provided in Schedule 3. It is

also not open for the petitioner to take a plea, after instituting the writ petition, to

contend that the petitioner was not aware of the condition incorporated in the

three Bank Guarantees as regards the claim period of one year, beyond the

validity period of the Bank Guarantees. The petitioner has himself annexed the

copies of the Bank Guarantees as annexures in the writ petition and the said fact

belies any contention raised on behalf of the petitioner that the petitioner was not

aware of the condition incorporated in the Bank Guarantees regarding the claim

period during the period from 25.01.2021/27.01.2021 [the dates of issuance of

the three Bank Guarantees] and/or from 29.01.2021 [the date on which the

petitioner submitted the original copies of the three Bank Guarantees] till

06.11.2023 [the date of institution of the writ petition annexing copies of the

three Bank Guarantees and the copies of the covering letters of the respondent

no. 5 Bank as Annexure – 4-Colly].

35. Assuming, arguendo, firstly, that the beneficiary/creditor of the Bank Guarantees,

that is, the APDCL required the Bank Guarantees only in the format provided in

Schedule – 3 and it had not sought incorporation of any clause regarding claim

period of one year beyond the validity period of the Bank Guarantees; secondly,

that the Principal Debtor/the petitioner had no role in incorporation of the clause

regarding such claim period in the Bank Guarantees; and thirdly, that the

respondent no. 5 Bank, that is, the Guarantor Bank had incorporated the claim

period unilaterally in the Bank Guarantees in terms of its policy decision contained

in Circular no. 10349/CRD/IRMDC34/2020-21 dated 17.06.2020; the issue which

has fallen for consideration is whether in the fact situation obtaining in the case,

more particularly, in view of the conduct of the petitioner right from the date of

issuance of the three Bank Guarantees i.e. 25.01.2021/27.01.2021 to the date of

Page No. 48/52

issuance of the impugned Letter bearing no. APDCL/CGM[PP&D]/NRE-146/2019-

20/787 dated 01.11.2023 and/or the impugned Letter bearing no.

APDCL/CGM[PP&D]/NRE-146/2019-20/790 dated 06.11.2023 whereby the APDCL

had sought to invoke the Bank Guarantees, the petitioner as the Principal Debtor

can be granted the reliefs/directions sought for in this writ petition. It is pertinent

to note that even after the impugned Letter bearing no. APDCL/CGM[PP&D]/NRE-

146/2019-20/787 dated 01.11.2023 did not raise any issue/protest as regards the

claim period of 1 [one] year in the Bank Guarantees beyond the respective validity

period of the Bank Guarantees. In such background, this Court has to examine as

to whether such conduct of the petitioner would act to his detriment in getting the

reliefs he has sought for. Such aspect is required to be examined on the basis of

the doctrine of acquiescence. The said aspect is to be considered by taking note

of the proposition that if one party to an agreement adds any additional term in

the agreement without the consent of the other party to the agreement then such

unilateral addition is not ordinarily binding on the other party.

36. As per the Oxford Dictionary of English, 3

rd

Edition, ‘acquiesce’ means ‘to accept

something reluctantly but without protest’ and ‘acquiescence’ means ‘the reluctant

acceptance of something without protest’. In the Black’s Law Dictionary, 9

th

Edition, the meaning ascribed to ‘acquiesce’ is ‘to accept tacitly or passively; to

give implied consent to [an act]’ and to ‘acquiescence’ is ‘a person’s tacit or

passive acceptance; implied consent to an act’.

36.1. It has been observed in the decision of the Hon’ble Supreme Court of India titled

U.P. Jal Nigam and another vs. Jaswant Singh and another, reported in [2006] 11 SCC

464, acquiescence does not mean standing by while the violation of a right is in

progress, but assent after the violation has been completed and the person has

become aware of it. It is unjust to give such a person a remedy where, by his

conduct, he has done that which might fairly be regarded as equivalent to a

waiver of it; or where by his conduct and neglect, though not waiving the remedy,

he has put the other party in a position in which it would not be reasonable to

place him if the remedy were afterwards to be asserted.

Page No. 49/52

36.2. The doctrine of acquiescence has come to be considered by the Hon’ble Supreme

Court of India in Union of India and others vs. N. Murugesan and others, reported in

[2022] 2 SCC 25. It has been held that acquiescence would mean a tacit or passive

acceptance. It is implied and reluctant consent to an act. In other words, such an

action would qualify a passive assent. Thus, when acquiescence takes place, it

presupposes knowledge against a particular act. From the knowledge comes

passive acceptance, therefore instead of taking any action against any alleged

refusal to perform the original contract, despite adequate knowledge of its terms,

and instead being allowed to continue by consciously ignoring it and thereafter

proceeding further, acquiescence does takes place. As a consequence, it

reintroduces a new implied agreement between the parties. Once such a situation

arises, it is not open to the party that acquiesced itself to insist upon the

compliance of the original terms. Hence, what is essential, is the conduct of the

parties.

36.3. In Chairman, State Bank of India and another vs. M.J. James, reported in [2022] 2 SCC

301, the Hon’ble Supreme Court has observed that doctrine of acquiescence is an

equitable doctrine which applies when a party having a right stands by and sees

another dealing in a manner inconsistent with that right, while the act is in

progress and after violation is completed, which conduct reflects his assent or

accord. He cannot afterwards complain. In literal sense, the term acquiescence

means silent assent, tacit consent, concurrence, or acceptance, which denotes

conduct that is evidence of an intention of a party to abandon an equitable right

and also to denote conduct from which another party will be justified in inferring

such an intention. Acquiescence can be either direct with full knowledge and

express approbation, or indirect where a person having the right to set aside the

action stands by and sees another dealing in a manner inconsistent with that right

and in spite of the infringement takes no action mirroring acceptance.

37. When the fact situation obtaining in the case is examined qua the doctrine of

acquiescence, it is noticeable that the petitioner as per the terms and conditions

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of the RFP/RFS Document, Draft Power Purchase Agreement and Clause 4.4

thereof the Letter of Award [LoA] dated 04.01.2021, was required to submit

Performance Security in the form of Bank Guarantees, as provided in Schedule 3.

The three Bank Guarantees in question were issued by the respondent no. 5 Bank

at the instance and request of the petitioner in favour of the APDCL as the

beneficiary/creditor on the dates - 25.01.2021, 25.01.2021 & 27.01.2021. The

respondent no. 5 Bank had handed over the Bank Guarantees to the petitioner

with their covering letters on those dates. In the said Bank Guarantees, the clause

regarding claim period which was not in Schedule 3, stood incorporated,

purportedly unilaterally by the respondent no. 5 Bank on the basis of the policy

decision contained in the Circular dated 17.06.2020. The petitioner had every

opportunity to know about incorporation of the clause regarding extended claim

period in the three Bank Guarantees, beyond the respective validity period, but

without making any protest or raising any issue in respect of such incorporation of

the clause regarding extended claim period beyond the required validity period of

22 months the petitioner proceeded to hand over the original copies of the three

Bank Guarantees to the APDCL by his Letter bearing reference no.

JK/NLP/APDCL/SOLAR PROJECT/Region-2/L-05 dated 29.01.2021 to the

respondent no. 3. The matter rested in the said position until 01.11.2023 when

the APDCL by the impugned Letter bearing no. APDCL/CGM[PP&D]/NRE-

146/2019-20/787 of even date, addressed to the respondent no. 5 Bank, sought

invocation of the Bank Guarantees. The incorporation of the clause regarding

claim period of 1 [one] year beyond the validity periods of the Bank Guarantees

was not at the behest of the respondent APDCL but having received the Bank

Guarantees with such claim periods the APDCL appeared to have accepted the

same. During the entire period from 25.01.2021/27.01.2021/29.01.2021 to

01.11.2023/02.11.2023/06.11.2023, the petitioner despite having adequate

knowledge about incorporation of the clause regarding the claim period in the

Bank Guarantees, had remained silent. From the fact that the petitioner has

annexed the copies of the Bank Guarantees along with the covering letters of the

bank in the writ petition it clearly emerges that the petitioner had the knowledge

about the claim periods all along for a period of more than 30 months and in such

Page No. 51/52

situation, it is not possible to draw any other inference. When despite having

adequate knowledge of the clause regarding the claim periods in the Bank

Guarantees and when instead of making any protest or raising any issue as

regards such incorporation, the petitioner has been found to have allowed the

matter to continue which demonstrates a situation of passive acceptance and

assent. As a result of inaction on the part of the petitioner during the entire afore-

mentioned period the other parties involved with the Bank Guarantees appeared

to have proceeded accordingly. As the petitioner did not insist for the Bank

Guarantees as was originally conceived in the format provided in Schedule 3 for

such prolonged period and continued without making any protest or raising any

issue with regard to the claim period, this Court finds that the clause incorporated

in the Bank Guarantees regarding the claim period was with implied consent of

the petitioner with the operation of the doctrine of acquiescence. The doctrine of

acquiescence is clearly applicable in the case in hand as the petitioner having a

right stood by, without making any protest or raising any issue regarding the

claim period, and allowed the other parties dealing with the Bank Guarantees in a

manner which was purportedly inconsistent with the Bank Guarantees originally

conceived of, it is not open for the petitioner at this stage to make any complaint.

In the present case, it is found that it is the Bank Guarantees with clauses

incorporating the claim period of one year, beyond the validity period in the

respective Bank Guarantee, which have replaced the format provided in Schedule

3 originally contemplated and conceived of and as a result, it is to be held that the

parties involved herein are bound by such claim period.

38. As the petitioner has not raised the issues of fraud or irretrievable loss or

injustice, this Court finds it unnecessary to advert to on those issues. In any view

of the matter, there are no pleadings in the writ petition as regards commission of

fraud of egregious nature or irretrievable loss or injustice. It is trite to say that a

decision is an authority for what it decides and not what can logically be deduced

therefrom and even a slight distinction in fact or an additional or different fact

may make a lot of difference in the decision making process. An act of protest

anterior to invocation of a bank guarantee is different from an act of protest made

Order downloaded on 24-12-2024 05:27:52 PMPage No. 52/52

subsequent to invocation of a bank guarantee. Thus, the fact situation obtaining

in the case of Larsen and Toubro Limited [supra] are not found similar to the case

in hand.

39. In view of the discussion made, the findings arrived at as above and the reasons

assigned therein, this Court is of the considered view that the petitioner has not

made out a case on merits for the reliefs/directions sought for in the writ petition

within the extraordinary, discretionary and equitable jurisdiction under Article 226

of the Constitution of India. Consequently, the writ petition fails. As it merits

dismissal, it is accordingly ordered. The interim order passed earlier stands

recalled. It is, therefore, held that the Letter bearing no. APDCL/CGM[PP&D]/NRE-

146/2019-20/787 dated 01.11.2023 and the Letter bearing no.

APDCL/CGM[PP&D]/NRE-146/2019-20/790 dated 06.11.2023, addressed to the

respondent no. 5 Bank, invoking the three Bank Guarantees [IBG113029 dated

25.01.2021, IBG113031 dated 25.01.2021 and IBG113102 dated 27.01.2021] are

found to be valid as they are within the claim periods mentioned in those three

Bank Guarantees. As such, the respondent no. 5 Bank has to proceed in terms of

the said Bank Guarantees for honouring them. There shall, however, be no order

as to cost.

JUDGE

Comparing Assistant