GSPL INDIA TRANSCO LIMITED vs. PETROLEUM & NATURAL GAS REGULATROY BOARD & ANR

$~46
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 2004/2016 & C.M.No.8649/2016
GSPL INDIA TRANSCO LIMITED ..... Petitioner
Through Mr.Parag Tripathi, Sr.Advocate with
Mr.Piyush Joshi, Ms.Sumiti Yadav
and Ms.Uttara Babbar, Advocates.
versus

PETROLEUM & NATURAL GAS REGULATROY BOARD &
ANR ..... Respondents
Through Mr.Prashant Bezboruah with
Mr.Rakesh Dewan, Advocates for R-
1.

th
Date of Decision: 09 March, 2016
CORAM:
HON'BLE MR. JUSTICE MANMOHAN

J U D G M E N T
MANMOHAN, J: (Oral)

1. Present writ petition has been filed seeking stay of encashment
th
of the bank guarantee dated 15 May, 2014 by the respondent no.1
2. Mr. Parag Tripathi, learned senior counsel for petitioner submits
that the encashment letter is in violation of Regulation 16 of the
Petroleum and Natural Gas Regulatory Board (PNGRB) as no prior
notice was issued to the petitioner. Since Regulation 16 of PNGRB
has been relied upon by learned senior counsel for the petitioner, the
relevant portion of the same is reproduced hereinbelow:-
“ 16. Consequences of default and termination of
authorization procedure.
W.P.(C) 2004/2016 Page 1 of 15



(1) An authorized entity shall abide by all the terms and
conditions specified in these regulations and any failure in
doing so, except for the default of the service obligation under
sub-regulation (1) of regulation 14 and force majeure, shall
be dealt with as per the following procedure, namely:-
(a) the Board shall issue a notice to the defaulting entity
allowing it a reasonable time to fulfil its obligations
under the regulations;
(b) no further action shall be taken in case remedial action
is taken by the entity within the specified period to the
satisfaction of the Board;
(c) In case of failure to take remedial action, the Board
may encash the performance bond of the entity on the
following basis, namely:-.............”
(emphasis supplied)

3. Mr. Tripathi further contends that the delay in construction of
the project was for reasons beyond the control of the petitioner and
constitutes ‘force majeure’. In support of his submission, he relies
upon the following judgments of this Court:-
(a) M/s Basic Tele Services Ltd. Vs. Unoin of India & Anr.,
th
I.A. No. 11070/96 in Suit No. 2686/96 decided on 5
October, 1999
33. I am also tempted here to cite a few lines from a
judgment delivered by the Supreme Court as reported in
Delhi Science Forum & Others Vs. Union of India & Anr. Jt.
1996 (2) S.C. 295 the Hon‟ble Supreme Court laid down the
guidelines as to under what circumstances administrative
decision of the Government or of the statutory authority of the
Government can be challenged. It was observed “......... Many
administrative decisions including decisions relating to
awarding of contracts are vested in a statutory authority or a
body constituted under an administrative order. Any decision
taken by such authority or a body can be questioned primarily
on the grounds: (i) decision has been taken in bad faith; (ii)
decision is based on irrational or irrelevant considerations;
(iii) decision has been taken without following the prescribed
W.P.(C) 2004/2016 Page 2 of 15



procedure which is imperative in nature. While exercising
the power of judicial review even in respect of contracts
entered on behalf of the Government or authority which can
be held to be State within meaning of Article 12 of the
constitution courts have to address while examining of
grievance of any petitioner as to whether the decision has
been vitiated on one ground or the other. It is well settled
that the onus to demonstrate that such decision has been
vitiated because of adopting a procedure not sanctioned by
law, or because of bad faith or taking into consideration
factors which are irrelevant, is on the persons who questions
the validity thereof.......”
xxx xxx xxx
37. In the above circumstances I am of the view that the
plaintiff have shown a prima facie case in their favour. In
case the injunction is not issued in that eventuality the bank
guarantee which was furnished by the plaintiff by way of
earnest money in favour of defendant No.1 would be
encashed, the plaintiff would suffer irreparable loss and
injury in a much as they would be deprived of their hard
earned money without any justification and for no fault of
their own. On the other hand, in case an injunction is granted
it would be simply tantamount to delay in encashing the bank
guarantee if the defendant ultimately succeed. In any case the
plaintiff the institution of the present suit have raised a
substantial question which needs investigation and during the
course of investigation it would be desirable to direct the
parties to maintain the status quo.”

(b) HFCL Bezeq Telecom Ltd. Vs. Union of India,
MANU/DE/0206/1998
44. ........Therefore, the first defendant cannot take advantage
of its own wrong and try to invoke the Bank guarantee. The
Supreme Court in U.O.I. & Others Vs. Hindustan
Development Corporation & Others, MANU/SC/0218/1994:
AIR1994SC980, Sterling Computers Limited Vs. M/s M&N
Publications Limited & Others, MANU/SC/0439/1993:
AIR1996SC51 and Delhi Science Forum & Others Vs. Union
of India & Another, MANU/SC/0360/1996; [1996]2SCR767
had pointed out that the Public Authorities are expected to act
W.P.(C) 2004/2016 Page 3 of 15



fairly, reasonably and in accordance with the principles of
fair play and justice. In the case of Delhi Science Forum
(supra) the Supreme Court had laid down that the principle is
where it is shown that an authority exercising discretion has
taken a decision which is devoid of my plausible justification
any authority having reasonable person could not have taken
the said decision. This is in consonance with the principles
laid down by the House of Lord in C.C.S.U. Vs. Minister for
the Civil Services, 1984 (3) A.E.R. 935. Nearly 387 years
ago, the House of Commons in England had addressed to the
king of England about the supremacy of the rule of law. Our
Founding Fathers had given us the same polity for the people
of India to be ruled by the rule of law. The House of
th
Commons on the 7 of July, 1910 expressed its view:

“Amongst many other points of happiness and freedom which
your Majesty‟s subjects of this kingdom have enjoyed under
your royal progenitors....there is none which they have
accounted more dear and precious than this, to be guided
and governed by certain rule of law....Out of this root bath
grown the indubitable right of the people of this Kingdom not
to be made subject to any punishment that shall extend to
their lives, lands, bodies or goods, other than such as are
ordained by the common laws of this land or the Statutes
made by their common consent in parliament.”

Therefore, I am of the view that the first defendant is bound
to act in accordance with the terms of the tender document.


4. On the other hand, learned counsel for respondent no.1 has
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handed over a copy of the letter dated 4 March, 2016 issued by the
PNGRB to the petitioner, wherein it is specifically recorded that the
procedure prescribed under Regulation 16 has been followed and that
‘force majeure’ is not attracted to the facts of the present case. Since
the letter is relevant and deals with the contentions put forward by
W.P.(C) 2004/2016 Page 4 of 15



Mr. Tripathi, the same is reproduced hereinbelow:-
“ Subject: Encashment of Performance Bank Guarantee for
Mehsana-Bhatinda Natural Gas Pipeline in accordance with
provisions of Regulation 16(1)(c)(i) of PNGRB (Authorizing
Entities to Lay, Build, Operate or Expand Natural Gas Pipelines)
Regulations, 2008.

This has reference to the letter
no.Infra/PL/BID/MBPL/01/2011 dated 07.07.2011 by Petroleum
and Natural Gas Regulatory Board (PNGRB) conveying grant of
authorization under Regulation 5 of PNGRB (Authorizing Entities
to Lay, Build, Operate or Expand Natural Gas Pipelines)
Regulations, 2008 (hereinafter referred as NGPL Authorization
Regulations) for laying, building, operating or expanding of
Mehsana-Bhatinda Natural Gas Pipeline (MBPL) in favour of M/s
Gujarat State Petronet Limited. Subsequently, the Letter of
Authorization (LOA) was amended in favour of M/s GSPL India
Gasnet Limited (GIGL) by PNGRB on 31.05.2012.
2. The scheduled completion period of 36 months for the
aforesaid pipeline project has expired on 06.07.2014.
Hearing for MBPL project
3. PNGRB reviewed and evaluated performance for MBPL on
10.07.2014 and it was observed that even though scheduled time
period of 36 months has already passed the actual expenditure is
approximately one (01) percent of the project cost. It was
clarified that it would not be possible to construe procedural
delays such as appointment of CA, Clearances, Statutory
permissions etc. as „Force Majeure‟.
4. Entity was advised on 13.08.2014 to submit revised
implementation schedule. It responded vide its letter dated
th
GIGL/COMM/2014 dated 11 November, 2014 indicating
tentative commissioning of the MBPL project by May 2017.
5. In view of the fact that no physical progress has been made,
notice dated 08.10.2015 was issued to the entity i.e. GIGL to
appear before the PNGRB for hearing on 05.11.2015 under the
provision of Regulation 16 of NGPL Authorization Regulations to
explain why action should not be taken under the said provision.
6. The entity vide letter dated 04.11.2015 made various
submissions with regard to MBPL. The entity reiterated various
constraints faced by it and further stated that the pipeline should
be developed within 24 months of receipt of all statutory
clearances, i.e., December, 2017.
W.P.(C) 2004/2016 Page 5 of 15

(a) . The documents/communications furnished by the entity
have been analyzed and it has been observed that the entity
has hired consultants which carry out various activities and
does follow-ups with various statutory bodies on behalf of the
entity. Though the entity has received approximately 94.04%
of approvals/ permissions for MBPL project, the entity didn‟t
start with pipeline laying activities.
(b) . As per the Quarterly Progress Reports (QPR)
furnished by the entity, the status of commencement of
operations still remains at tendering and award stage, since
October 2013 till date which is more than two years and
physical progress is zero, which is also evident from the
entity‟s communication to PNGRB dated 30.01.2016.
(c) As per the QPR for quarter April-June 2014 submitted vide its
letter dated 18.07.2014 the technical bids GIGL had published
NIT and sale of tender document from 26.12.2013 for those
pipelines sections of MBPL project wherever most of the
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statutory clearances had been received and EPC bids were
received for the same.
(d) As per the entity‟s recent communication dated 19.01.2016,
the technical bids are under evaluation since 20.06.2014
indicating zero progress on technical evaluation in more than
19 months.

Force Majeure
9. As per Clause no.32 of Application cum Bid Document for the
said pipelines, Force Majeure is defined as
“32.1 Force Majeure shall mean and be limited to the
following:
a) War/hostilities
b) Major Riots or Civil Commotion.
c) Earthquake, flood, tempest, lightening or other natural
physical disasters.
d) Restrictions imposed by Central Government or other
statutory bodies which prevents or delays the execution of
obligations under the Regulations.
32.2 The authorized entity shall within one week of
occurrence of above causes notify PNGRB about the occurrence
of the force majeure event and provide PNGRB all details of
arising and ceasing of the impediment. The time and performance
of the respective obligations suspended by the force majeure shall
stand extended by the period(s) for which such conditions of force
majeure last. PNGRB‟s decision, whether such force majeure
conditions did actually exist shall be final and binding.”

10. Upon examination, it was found that the constraints/reasons
quoted by the entity for the delay in the execution of the projects
cannot be construed as Force Majeure.

11. Based on the above analysis, following was observed:

(a). It has been more than 55 months since authorization
and the pipeline laying activity have not yet started even
though the scheduled completion period of 36 months has
already expired on 06.07.2014.
(b) The entity has published NIT and sale of Tender
th
document from 26 December 2013 for those pipeline sections
of MBPL Project wherever most of the statutory clearances
obtained and EPC bids received for the same. The technical
W.P.(C) 2004/2016 Page 7 of 15



th
bids are under evaluation since 20 June 2014, indicating
zero progress on technical evaluation in more than nineteen
months even for the stretches of MBPL which already had
most of the stutory clearances.
(c) Many of the applications have been made in end 2012
or 2013 even though authorization was issued in July 2011
indicating delay of more than a year in application itself.
(d) The entity was not in a position to decide upon firm
time-frame of execution even in September 2014 i.e. after
more than three years of authorization. Later, the entity
indicated completion by May 2017 with all statutory approval
by May 2015. Again recently the entity has shifted the goal
post with target of project completion by December 2017 i.e.
24 months from the date of receipt of all approvals.
(e) As per latest quarterly report available, net
expenditure done against MBPL and BJSPL projects together
is approximately Rs.190 Crores against estimated cost of
approximately Rs.8384 Crores.

12. The Statutory permissions may not be in place all in one go.
One or the other clearance might remain pending but it does not
stop the entity from pursuing other activities related to the project.
The situation on ground does not provide sufficient optimism for
projections shown by the entity.

13. The Board has provided ample opportunities to the entity of
being heard and reasonable time to fulfil its obligations, i.e.,
approximately 20 months over and above the 36 months time
prescribed in the extant Regulations. Also no substantive action is
being taken by the entity within the specified period to the
satisfaction of the Board. Therefore in accordance with the terms
and conditions of authorization and provisions under regulation
16(1)(c)(i) of NGPL Authorization Regulations, PNGRB has come
to the conclusion that breach of authorization has occurred with
respect to non-completion of the pipeline project within scheduled
completion period of 36 months for MBPL and BJSPL.

14. Hence, considering this as first default, as per the provisions
of extant regulations, 25% of the Performance Bank Guarantees
(PBGs) amounting to Rs.5,00,00,000/- (Rs. Five Crores Only) are
being enchased from the PBG No.PBGI00710400184 date
15.05.2015 with Ratnakar Bank Limited submitted by you.
W.P.(C) 2004/2016 Page 8 of 15




15. The Board has further decided to give time extension up to
December 2017 for MBPL projects as sought by GIGL.
Accordingly, it is advised to submit revised implementation
schedule with milestones, which shall be closely monitored and
deviation, if any, shall construe to be second default liable for
action as per the provisions of extant Regulations.

16. You are hereby directed to make good the encashed PBG
within two weeks of receipt of this letter, failure to do so shall
attract the provisions of Regulation 16(1)(d) of NGPL
Authorization Regulations. Kindly acknowledge the receipt of the
letter.”
(emphasis supplied)

5. Having heard the learned counsel for the parties and having
perused the bank guarantee, this Court finds that the same is
irrevocable and unconditional. The relevant terms of the bank
guarantee is reproduced hereinbelow:-
“ 2. We, the Bank, here by undertake to pay PNGRB an amount
not exceeding Rs.20,00,00,000/- (Rupees Twenty Crores only)
against any breach with respect to timely commissioning of the
proposed NG Pipeline as per prescribed targets and also
meeting service obligations by the authorized entity during the
operating phase of the project, including failure to extend the
validity of this guarantee or to give a fresh guarantee in lieu of
the existing one. The PBG is valid for a period of three years
initially, which shall be extended upto the economic life of the
project in a block of minimum three years at the request of
bidder or PNGRB.

3. We, the Bank hereby, in pursuance of the terms of the said
Authorization, absolutely irrevocably and unconditionally
guarantee as primary obligor and not merely as surety the
payment of an amount of Rs.20,00,00,000/- (Rupees Twenty
Crores only) to PNGRB to secure due and faithful performance
by the Authorized Entity of all his/their obligations under the
said Authorization.
W.P.(C) 2004/2016 Page 9 of 15




4. We, the Bank, hereby agree that the decision of PNGRB as to
whether the Authorized Entity has failed to or neglected to
perform or discharge his duties and obligations under the said
authorization and/or whether the service is free from
deficiencies and defects and is in accordance with or not of the
terms & conditions of the said Authorization and as to the
amount payable to PNGRB by the Bank here under shall be final
and binding on the Bank.

5. WE, THE BANK, DO HEREBY DECLARE AND AGREE
THAT:
a) the Guarantee here in contained shall remain in full force
and effect for economic life of the NG Pipeline project as
specified in PNGRB regulations.
b) the PNGRB shall have the fullest liberty without our consent
and without affecting in any manner our obligations here under
to vary any of the terms and conditions of the said Authorization
or to extend time of performance of any obligations by the said
Authorization from time to time or to postpone for any time or
from time to time any of the powers exercisable by the PNGRB
against the said Authorized Entity and to forbear or to enforce
any of the terms and conditions relating to the said
Authorization and we shall not be relieved from our liability by
reason of any variation or extension being granted to the said
Authorized Entity or forbearance act or omission on the part of
PNGRB or any indulgence by the Board to the said Authorized
Entity or to give such matter or thing whatsoever which under
the law relating to sureties would but for this provision, have
effect of so relieving us.
c) any claim which we have against the Authorized Entity shall
be subject and subordinate to the prior payment and
performance in full of all the obligations of us hereunder and we
will not without prior written consent of PNGRB exercise any
legal right or remedy of any kind in respect of any such payment
or performance so long as the obligations of us hereunder
remains owing and outstanding.
d) This guarantee shall be irrevocable and the obligations of us
herein shall not be conditional of any prior notice by us or by
W.P.(C) 2004/2016 Page 10 of 15



the Authorized Entity.

6. We the Bank undertake not to revoke this Guarantee during
its currency except with the previous consent of PNGRB in
writing.”

6. From the aforesaid terms, it is apparent that the decision of the
respondent No. 1 as to whether the petitioner had failed or neglected
to perform or discharge its duties or obligations is final and binding on
the respondent No. 2-bank.
7. It is further settled law that it is only in exceptional cases that is
to say in case of fraud or in case of irretrievable injustice that the
encashment of the bank guarantee should be stayed.
8. It has also been held in a catena of cases that the underlying
contract is independent from the bank guarantee issued by the bank.
Consequently, at the behest of a contractor, the Court cannot examine
the terms of the underlying contract entered into between the
contractor and beneficiary to determine as to whether the delay was
occasioned by a party other than the one which had furnished the bank
guarantee.
9. This Court is of the view that the decision of respondent No. 1-
PNGRB that the ‘force majeure’ is not attracted and the procedure
prescribed under Regulation 16 has been followed is final and binding
on the respondent No. 2-bank and the same cannot be agitated before
this Court for seeking stay of encashment of the bank guarantee.
10. Also the two judgments cited by the learned senior counsel for
the petitioner are clearly inapplicable to the facts of the present case,
as in the present instance, the bank guarantee is unconditional,
W.P.(C) 2004/2016 Page 11 of 15



irrevocable and the decision of the respondent No. 1-PNGRB is final
and binding on the respondent No. 2-bank.
11. The Supreme Court in U.P.Cooperative Federation Ltd. Vs.
Singh Consultants and Engineers (P) Ltd. (1998) 1 SCC 174 has
held as under:-
“19..............The plaintiffs appealed to the Court of Appeal in
England. It was held by a Bench consisting of Lord Denning,
M.R., Browne and Geoffrey Lane, L.J. that a performance
guarantee was similar to a confirmed letter of credit. Where,
therefore, a bank had given a performance guarantee it was
required to honour the guarantee according to its terms and
was not concerned whether either party to the contract which
underlay the guarantee was in default. The only exception to
that rule was where fraud by one of the parties to the
underlying contract had been established and the bank had
notice of the fraud. Accordingly, as the defendants' guarantee
provided for payment on demand without proof or conditions,
and was in the nature of a promissory note payable on
demand, and the plaintiffs had not established fraud on the
part of the buyers, the defendants were required to honour
their guarantee on the demand made by the Libyan bank. It
followed that the judge had been right to discharge the
injunction and that the appeal would be dismissed.

xxx xxx xxx

28. I am, however, of the opinion that these observations must
be strictly considered in the light of the principle enunciated. It
is not the decision that there should be a prima facie case. In
order to restrain the operation either of irrevocable letter of
credit or of confirmed letter of credit or of bank guarantee,
there should be serious dispute and there should be good
prima facie case of fraud and special equities in the form of
preventing irretrievable injustice between the parties.
Otherwise the very purpose of bank guarantees would be
negatived and the fabric of trading operation will get
jeopardised.
W.P.(C) 2004/2016 Page 12 of 15




xxx xxx xxx

34. On the basis of these principles I reiterate that
commitments of banks must be honoured free from
interference by the courts. Otherwise, trust in commerce
internal and international would be irreparably damaged. It is
only in exceptional cases that is to say in case of fraud or in
case of irretrievable injustice be done, the court should
interfere.

xxx xxx xxx

44. The modern documentary credit had its origin from letters
of credit. We may, therefore, begin the discussion with the
traditional letter of credit. Paul R. Verkuil in an article
explains the salient features of a letter of credit in these terms:
“The letter of credit is a contract. The issuing party
— usually a bank — promises to pay the
„beneficiary‟ — traditionally a seller of goods — on
demand if the beneficiary presents whatever
documents may be required by the letter. They are
normally the only two parties involved in the
contract. The bank which issues a letter of credit
acts as a principal, not as agent for its customer,
and engages its own credit. The letter of credit thus
evidences — irrevocable obligation to honour the
draft presented by the beneficiary upon compliance
with the terms of the credit.”

45. ..........The bank must pay if the documents are in
order and the terms of credit are satisfied. The bank, however,
was not allowed to determine whether the seller had actually
shipped the goods or whether the goods conformed to the
requirements of the contract. Any dispute between the buyer
and the seller must be settled between themselves. The courts,
however, carved out an exception to this rule of absolute
independence. The courts held that if there has been “fraud in
the transaction” the bank could dishonour beneficiary's
W.P.(C) 2004/2016 Page 13 of 15



demand for payment. The courts have generally permitted
dishonour only on the fraud of the beneficiary, not the fraud of
somebody else.
xxx xxx xxx
49. This was also the view taken by this Court in United
Commercial Bank case. There A.P. Sen. J. speaking for the
Court, said (pages 323 and 324): (SCC pp. 783-84, paras 40-
42)
“. . .the rule is well established that a bank issuing or
confirming a letter of credit is not concerned with the
underlying contract between the buyer and seller.
Duties of a bank under a letter of credit are created by
the document itself, but in any case it has the power
and is subject to the limitations which are given or
imposed by it, in the absence of the appropriate
provisions in the letter of credit......
xxx xxx xxx
53. Whether it is a traditional letter of credit or a new device
like performance bond or performance guarantee, the
obligation of banks appears to be the same. If the documentary
credits are irrevocable and independent, the banks must pay
when demand is made. Since the bank pledges its own credit
involving its reputation, it has no defence except in the case of
fraud. The bank's obligations of course should not be extended
to protect the unscrupulous seller, that is, the seller who is
responsible for the fraud. But, the banker must be sure of his
ground before declining to pay. The nature of the fraud that
the courts talk about is fraud of an “egregious nature as to
vitiate the entire underlying transaction”. It is fraud of the
beneficiary, not the fraud of somebody else. If the bank detects
with a minimal investigation the fraudulent action of the seller,
the payment could be refused. The bank cannot be compelled
to honour the credit in such cases. But it may be very difficult
for the bank to take a decision on the alleged fraudulent
action. In such cases, it would be proper for the bank to ask
the buyer to approach the court for an injunction.
(emphasis supplied)


W.P.(C) 2004/2016 Page 14 of 15



12. Consequently, this Court is of the view that no ground for stay
of encashment of the bank guarantee is made out. Accordingly the
present writ petition along with the application are dismissed.
13. It is however clarified that the findings given by this Court are
only in the context of encashment of the bank guarantee.
Order dasti .

MANMOHAN, J
MARCH 09, 2016
KA

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