Case BriefsHigh Courts

Orissa High Court: A Division Bench of Mohammad Rafiq, CJ and K.R. Mohapatra, J. set aside the impugned order being ultra vires the statutory provisions.

The petitioner is a licensee of Sikula IMFL Shop originally issued under the Bihar and Odisha Excise Act and the Rules made thereunder and later in the year 2017 under Odisha Excise Act 2008. The petitioner has been paying monthly consideration amount along with other statutory dues for issuance of license. While the excise licenses are renewed automatically, the Government made changes in rates and guidelines as applicable. When the petitioner submitted documents along with Solvency certificate for renewal of license as required under Rule 51 read with Rule 150 of the Odisha Excise Rule 2017, the Competent Authority refused to receive the same and required the petitioner to submit the documents along with Bank Guarantee and not the Solvency certificate vide order dated 02-01-2020 directing to phase out the practice of issuing of Solvency certificates and insist on producing IT Returns or Bank Guarantee, etc. for issuance of license by the State Government through its Revenue and Disaster Management Department. Hence the Excise Department of the Government of Orissa accordingly vide impugned letter dated 30-03-2020 directed the authorities to substitute Solvency certificate by Bank Guarantee. Hence, the instant petition has challenged the said letter.

Counsel for the petitioners submitted that the Government of Orissa by the aforesaid letter dated 30-03-2020 cannot supersede or override the statutory provisions contained in Rule 51 and Rule 150 of the Rules of 2017.

Counsel for the respondents Shri Ashok Parija submitted that the Government has taken a uniform decision in respect of all the departments wherever lease/license are issued. It was further submitted that the Government is in the process of incorporating the appropriate amendments in the Rules of 2017 to provide for Bank Guarantee in place of Solvency certificate.

After hearing the submission of both sides the Court held that that the statutory prescription enumerated in the statutory Rules namely; Rule 51 and Rule 150 of the Rules of 2017 and Rule 3 and Rule 4 of the Certificate Rules, cannot be overridden by mere executive order issued by the Revenue & Disaster Management Department dated 02-01-2020.

In view of the above, the impugned letter is quashed and petition disposed off.[Gopinath Sahu v. State of Orissa, 2020 SCC OnLine Ori 565, decided on 03-08-2020]


*Arunima Bose, Editorial Assistant has put this story together

Case BriefsHigh Courts

Kerala High Court: Anu Sivaram, J. allowed the Writ Petition by directing the respondent to only decide the amount of liability after having afforded the petitioner the chance to put forth his side

In the present case, the Petitioner who is the former Director of T.K. Manufacturing Enterprises Private Limited had entered into a contract for manufacture and supply of electricity poles to the respondent Board. The contract was awarded in the year 2000 and terminated in 2002, alleging delay in executing the work. The Company had while entering into the contract, given security by way of Bank Guarantee which, according to the petitioner, was encashed by the respondent Board towards liquidated damages.

The petitioner was served with a revenue recovery notice by the respondent. The petitioner raised objection against the recovery proceedings and approached the Court.

The Court had directed the respondent Board to consider the representation submitted by the petitioner on merits. Having afforded an opportunity of hearing to the petitioner, he submitted evidence to prove his contentions.

The Court reprimanded the respondent and held that the Chairman was bound to deal with those contentions and take a reasoned decision. Moreover, nothing was brought on record to indicate that a proper process of quantification of liability with notice to the petitioner was undertaken prior to the initiation of the revenue recovery proceedings.

It is settled law that one party to an agreement cannot unilaterally quantify the liability and proceed for recovery.

The Writ Petition was allowed on the grounds that the liability of the petitioner cannot and should not be quantified without giving him a chance to appear and give his side. [Sundeep Abraham v. Kerala State Electricity Board, 2020 SCC OnLine Ker 3048, decided on 04-08-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for Electricity (APTEL): A Coram of Justice Manjula Chellur (Chairperson) and S.D. Dubey, (Technical Member) allowed an appeal filed against an impugned order passed by the Central Electricity Regulatory Commission.

The counsel for the appellant Anand K. Ganesan, Swapna Seshadri,  Ashwin Ramanathan and Utkarsh Singh had submitted that in 2011 the transmission system in issue was not required for the Applicant/Appellant in view of the Appellant being unable to obtain the Consent for Establishment (CFE) from the Pollution Control Board. This non-issuance of the CFE was beyond the control of the Applicant/Appellant and therefore a force majeure under the Bulk Power Transmission Agreement was entered into between the parties and further a petition had been filed before the Central Commission seeking directions on the declaration of force majeure and also return on the bank guarantee retained by Powergrid. The Central commission had disposed of the petition holding that the Applicant/Appellant had acted bona fide aggrieved by which the Applicant/Appellant had preferred an appeal which was pending before this tribunal and they further submitted that the delay was not deliberate but on bona fide reasons. 

The Tribunal while allowing the appeal condoned the delay of 148 days and found that the reasoning assigned in the application explaining the delay in filing the Appeal was satisfactory. [PEL Power Ltd. v. CERC, 2019 SCC OnLine APTEL 115, decided on 19-12-2019]

Case BriefsHigh Courts

Kerala High Court: Raja Vijayaraghavan V, J. allowed a civil writ petition filed by a company and directed release of its vehicles and goods that had been detained by the tax officer due to the expiry of its e-way bills.

Petitioner herein was a logistics company which was involved in the transportation of Maruti cars. Petitioner’s vehicle was obstructed, and on inspection, it was found that the validity of the e-way bills had expired. Hence, both – the vehicle and the goods – were detained. This had led to the filing of this writ petition seeking a certiorari quashing of notice issued under Section 129 of Goods and Services Tax Act, 2017 whereby his goods were seized; and sought a writ of mandamus directing the 1st respondent to release the goods by accepting a penalty of Rs 500.

The Court relied on the earlier judgment of a Division Bench  in Renji Lal Damodaran v. State Tax Officer (Order dated 06-08-2018 in WA No. 1640 of 2018) in which it was directed to release the goods of the appellant furnishing bank guarantee for tax and penalty found due and a bond for the value of goods in the form as prescribed under Rule 140(1) of the Central Goods and Services Tax Rules, 2017. So, applying the ratio of that judgment, the Court directed the respondent authorities to release the petitioner’s goods and vehicle on the execution of a bank guarantee for tax and penalty found due, and a bond for the value of goods in the form as prescribed under Rule 140(1) of the CGST Rules.

This petition was disposed of in the above terms.[OSL Logistics Private Ltd. v. Assistant State Tax Officer, 2019 SCC OnLine Ker 1554, decided on 14-05-2019]

Case BriefsHigh Courts

Delhi High Court: Vibhu Bhakru, J. allowed a writ petition filed against the action of Andhra Bank in debiting a sum of Rs 68.93 lakhs in the petitioner’s current account as commission charges for the unexpired period of a bank guarantee that was surrendered by the petitioner.

The petitioner, represented by Tarun Johri and Ankit Saini, claimed that the Bank had not informed them at the time of issuance of the bank guarantee that any such charges would be payable, and therefore, levy of such charges was illegal and contrary to guidelines issued by the Reserve Bank of India. The Bank, represented by P.B.A. Srinivasan, claimed that it was entitled to levy such charges.

The foremost question to be considered by the High Court was whether the Bank was obliged to disclose the charges to the petitioner at the time of according to the request of providing the guarantee. Referring to the relevant circulars issued by the RBI, and it’s earlier decision in DLF Ltd. v. Punjab National Bank, 2011 SCC OnLine Del 2465, noted that the RBI clearly stated that levy of charges, which were not initially disclosed to the borrower, would constitute an unfair practice. The Court reiterated the principal to be:

“a person, who is visited with any charges for a facility, should be aware of the same at the time of availing the facility and not at the time of discharging the same. This is a principle of fair play and fair practice, which the banks are obliged to follow. It would make little difference whether the facilities extended by the banks are fund based or non-fund based.” In such view of the matter, the charges levied by the Bank were held to be unsustainable and the Bank was directed to refund the same with an interest at the rate of 6 per cent per annum. [Athena Energy Ventures (P) Ltd. v. Andhra Bank, 2019 SCC OnLine Del 8854, decided on 30-05-2019]

Case BriefsHigh Courts

Kerala High Court: The Bench of Dama Seshadri Naidu, J. granted a stay on encashment of bank guarantee by tax authorities until the statutory appeal preferred in that regard was considered by the competent court.

Petitioner herein was transporting certain goods from Tamil Nadu to Perinthalmanna. When the authorities checked the documents carried along with the goods, they found the same to be defective. Suspecting tax evasion, authorities detained the goods and demanded a penalty, as well as tax. Aggrieved, the petitioner filed a petition for the release of goods and for the expeditious completion of adjudication. In terms of the judgment delivered in the said petition, the petitioner furnished a bank guarantee for the entire amount demanded and had the goods released.

Later, the primary authority completed the adjudication and issued an order under imposing a penalty under Section 129(3) of the State Goods & Services Tax Act, 2017 and also appropriating the bank guarantee. The petitioner filed an appeal under Section 107 of the Act against the said order. However, by way of caution, he preferred the instant appeal as he apprehends that the authorities, in the meanwhile, may encash the bank guarantee.

In view of the fact that a statutory appeal had already been filed, the Court directed the respondent authority to keep the bank guarantee untouched till the appeal is considered. [Vinod P.A. v. Assistant State Tax Officer, 2019 SCC OnLine Ker 39, dated 03-01-2019]

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of Ravindra Bhat and A.K. Chawla, JJ., dismissed a First Appeal against an order declining grant of interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.

The contract between the parties was the result of bidding in a public tendering process. The consideration of the contract was over Rs. 69 crores, with the period of execution being of 15 months along with an option to apply for extension. The appellant was aggrieved by the termination of contract after several defects and deficiencies during performance were pointed out. The grievance of the appellant was threefold viz. against invocation of performance guarantee, mobilization of advance bank guarantee and alleged unlawful termination of contract.

The Court directed that the issue of wrongful termination was a matter to be decided on merits during the arbitral proceedings and proceeded to decide upon the issues of invocation.

On that issue, the Court held that the performance guarantee mandates the bank to honour without demur any demand by the principal, who is the real beneficiary of any sums, claimed by it as due under the contract. In other words, the bank cannot adjudicate as to whether the claim by the beneficiary was in fact determined by it in accordance with the underlying contract between it and a third party. It was further held, that guarantee is an independent contract and has only a referential connection to the contract between the two parties, who agree upon the execution of performance of a particular contract for which the bank guarantee is issued. In the circumstances, mere invocation of a guarantee does not provide valid grounds for interdicting the invocation of guarantee. [M/s Classic KSM Bashir JV v. Rites Ltd., 2018 SCC OnLine Del 9056, decided on 14-05-2018]

Case BriefsSupreme Court

Supreme Court: Dealing with an interesting question as to the retrospective applicability of the 1997 Amendment to Section 28 of the Contract Act, 1872, the Bench of C. Nagappan and R.F. Nariman, JJ, answered in the negative and said that Section 28 of the Contract Act, being substantive law, operates prospectively as retrospectivity is not clearly made out by its language as the Amendment does not purport to be either declaratory or clarificatory.

In the present case, the bank guarantees dated 31.1.1996 which restricted the period within which they could be invoked were in question and it was contended by the Union of India that such Bank Guarantees would not be affected by an amendment made one year later i.e. on 8.1.1997 and the relevant date and the relevant law applicable would be as on 31.1.1996, which would be the unamended Section 28. Accepting the aforementioned contention, the Court said that the unamended Section 28 would be the law applicable as on 31.1.1996, which is the date of the agreement of bank guarantee.

The Court considered the Statements of Object and Reasons of the Amendment as stated in the 97th Law Commission Report where it was stated that the Amendment seeks to bring about a substantive change in the law by stating, for the first time, that even where an agreement extinguishes the rights or discharges the liability of any party to an agreement, so as to restrict such party from enforcing his rights on the expiry of a specified period, such agreement would become void to that extent. The Amendment therefore seeks to set aside the distinction made in the case law up to date between agreements which limit the time within which remedies can be availed and agreements which do away with the right altogether in so limiting the time. The Court, hence, noticed that these are obviously substantive changes in the law which are remedial in nature and cannot have retrospective effect. [Union of India v. Indusind Bank Ltd.2016 SCC OnLine SC 944, decided on 15.09.2016]

Case BriefsHigh Courts

Delhi High Court: While deciding a crucial matter relating to work contracts and  bank guarantee the Division Bench comprising of Sanjeev Sachdeva and B.D. Ahmed JJ., observed that invocation of a bank guarantee cannot be restrained unless fraud, irretrievable injury/injustice or special equities is proved. In the present case, the petitioner had issued a letter of intent to the respondent no. 1 for construction of a power project. The respondent no. 1 in response gave a bank guarantee. The petitioner had invoked the bank guarantee alleging the respondent no. 1 failed to act according to terms of the contract. The Single Judge had restrained encashment of this bank guarantee under Section 9 of the Arbitration and Conciliation Act, 1996 as per a plea filed by the respondent no. 1. The order of restraint was challenged in front the High Court in view of the settled legal principles governing bank guarantees.

The Court observed ‘The petition under section 9 was filed after the Bank Guarantee was invoked and as such, the contract of guarantee had come into operation. The Respondent no. 1 in the petition under Section 9 of the Act has not even raised a plea of fraud leave alone aver facts to establish the plea of fraud. There is not even the plea of “irretrievable injury” or “irretrievable injustice”. The respondent no. 1 has not even pleaded “special equities”. The respondent no. 1 apart from raising disputes on merits has merely stated that “the petitioner would be highly prejudiced if the Bank Guarantee is invoked and the properties are alienated as the petitioner has a prima facie case and is likely to succeed in the Arbitration” and “that the petitioner would in fact, suffer irreparable loss, in case the reliefs prayed for are not granted”. Since none of the three mandatory pleas, fraud, irretrievable injury/injustice or special equities has been pleaded, the respondent no. 1 is not entitled to any order of restraint from invocation of bank guarantee. The unconditional bank guarantee has been provided in the course of commercial dealings. The appellant is entitled to realize the bank guarantee in terms thereof irrespective of any pending dispute. The respondent no. 2/bank is bound to honour the bank guarantee as per its terms irrespective of any dispute raised by its customer/the respondent no. 1. Otherwise, the very purpose of giving such a bank guarantee would be defeated. The existence of any dispute between the appellant and respondent no. 1 with regard to the underlying contract cannot be a ground for issuing an injunction to restrain the enforcement of the bank guarantee.’ [Zillion Infra Projects (P) Ltd. v. Fab-Tech Works & Constructions Pvt. Ltd.,   2015 SCC OnLine Del 13163decided on 2-11-2015]