Delhi High Court on Bank Guarantees during Covid
Delhi High Court on Bank Guarantees during Covid
Litigation News

Delhi HC dismisses petition to refrain Centre from invoking bank guarantee, rejects concerns of COVID-19 by Power Co

Aditi Singh

Rejecting concerns of COVID-19 lockdown, the Delhi High Court today dismissed a petition by a thermal and green power firm seeking a direction to refrain the Central Government from invoking the bank guarantee in connection with a mining project in Maharashtra. (Indrajit Power Pvt Ltd vs UOI)

The order was passed by a Single Judge Bench of Justice Suresh Kumar Kait.

The Petitioner, Indrajit Power Pvt Ltd, had moved the High court seeking to quash an email dated April 4, informing it about the Central Government’s decision to appropriate the Bank Guarantee in its favour in connection with the mining project in Maharashtra.

The Petitioner sought a direction to refrain Central Government (Respondent) from appropriating the bank guarantee and also prayed for extension of time to complete the pending project after renewal of the bank guarantee.

The bank guarantee was deposited by the Petitioner with the Respondent on April 13, 2015 for an amount of over Rs 30 crores pursuant to a mining auction.

The guarantee was being invoked by the Respondent on account of the Petitioner failing to comply with parameters laid down in the Coal Mine Development and Production Agreement, before the mining operation begins.

The Petitioner submitted that it ran a captive power plant for a company which has been closed down because of lockdown.

In these circumstances, it was contended that the Petitioner had no immediate source of revenue and if the amount from the bank guarantees was appropriated, it would ultimately be from its working capital account.

As a result, it would lead to non-payment of salaries of the employees and the Petitioner shall be pushed into default and effectively towards being declared as NPA.

Arguing that the invocation of the bank guarantee was unfair and inequitable, the Petitioner contended that the Respondent did not consider the submissions made by it in its reply to show cause notice.

Further, the Petitioner submitted that the invocation of bank guarantee was also barred in view of the prevailing situation of COVID-19 pandemic and the stipulation of Force Majeure shall apply.

Reliance was also placed on recent orders extending relief to businesses during the present times.

The Central Government, on the other hand, informed the Court that the decision to invoke bank guarantee was taken after due compliance of natural justice and provisions of Coal Mine Development and Production Agreement.

It was submitted that the Petitioner had not completed milestones since April-June 2018 and two show-cause notices had also been issued to it.

An extension of 12 months to meet the parameters had also been granted to the Petitioner, the Respondent said.

Central Government argued that the bank guarantee was unconditional and irrevocable and there could be no fetters upon encashment of the same unless in exceptional cases of irretrievable injustice or fraud.

Since both the elements were absent in the present case, the petition ought to be dismissed, it was urged.

After considering the submissions made by the parties, the Court opined that the other orders passed during the lockdown and relied upon by the Petitioner, were not applicable to the present case for the reason that the lockdown came into force with effect from March 24 and in spite of an extension of 12 months, the Petitioner could not fulfil its obligation and continued to default.

Observing that the Petitioner was not in the position to commence the mine operation in near future, the Court stated that the Central Government had rightly been rejected the petitioner's request for extenstion of deadline and then decided to impose a penalty.

The Court further relied on a series of caselaws and stated that merely because the invocation would cause financial distress, it could not be a ground of stay, however, the exception of irrevocable injury could be invoked.

It, nonetheless, proceeded to dismiss the petition on the ground that one extension for 12 months had already been granted to the Petitioner and the decision to invoke the bank guarantee was neither illegal nor perverse or discriminatory.

The Petitioner was represented by Senior Advocate Sandeep Sethi with Advocate Purti Marwaha.

Central Govenment was represented by ASG Maninder Acharya with Standing Counsel Jasmeet Singh.

Read the Order:

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