After Project Commissioning, APTEL Orders CTUIL to Return GMR Kamalanga’s ₹40-Crore Construction Guarantees; LTA Letter of Credit Cannot Hold Them Up

In brief

The question

1. Whether return of the Clause 6.0 construction BGs could be made conditional on the appellant opening an LC/BG under Clause 2.0 of the BPTA.

The court held

The appeal was partly allowed.

It also directed

The direction making return of the Clause 6.0 construction BGs conditional on PGCIL’s satisfaction regarding the Clause 2.0 LC/BG was set aside.

CTUIL was directed to return the construction BGs forthwith and no later than two weeks from the judgment.

The claim for reimbursement of ₹5,74,25,547.50 in BG-extension costs was rejected.

01Facts

The appellant entered into a Bulk Power Transmission Agreement (BPTA) with the transmission utility for long-term access (LTA) to evacuate power from its generating station.

pp. 5–7

Under Clause 6.0 of the BPTA, it furnished construction bank guarantees (BGs) securing completion of the generating station and dedicated transmission system; Clause 2.0 separately required an LC/BG to secure payment of transmission charges.

pp. 5–7, 13–19

After the generating units and dedicated transmission line were commissioned, the appellant sought return of the construction BGs.

pp. 3–4, 8

The Central Electricity Regulatory Commission (CERC) held that the BGs could not be withheld for failure to open an LC, but made their return subject to PGCIL’s satisfaction with the LC.

pp. 3–4, 8

The appellant appealed that condition and also sought reimbursement of costs incurred in extending the BGs.

pp. 7–8, 23–24

02Issues

i.1. Whether return of the Clause 6.0 construction BGs could be made conditional on the appellant opening an LC/BG under Clause 2.0 of the BPTA.

pp. 11, 20–22

ii.2. Whether the appellant was entitled to reimbursement of the costs incurred in extending the construction BGs.

pp. 23–24

03Law Applied

Clauses 2.0 and 6.0 of the BPTA provide distinct security mechanisms for different purposes: Clause 6.0 secures construction-related obligations and permits encashment in specified circumstances involving failure to construct, exit or abandonment, while Clause 2.0 secures payment of transmission charges.

pp. 13–19

The BG must be applied in accordance with the terms and purpose for which it was furnished; it cannot be used for an unrelated obligation.

pp. 19–22

The Tribunal also referred to Section 126 of the Indian Contract Act, 1872, describing a contract of guarantee as an undertaking to discharge a third party’s liability in the event of default.

p. 22

Provisions in the judgment · 1 · Linked ones open on LawLens

Indian Contract Act, 1872 Section 126

04Reasoning

The Tribunal found that the generating station and dedicated transmission system had been commissioned, fulfilling the obligations secured by the Clause 6.0 BGs.

pp. 19–22

The BPTA did not make those BGs interchangeable with, or conditional upon, the LC/BG required under Clause 2.0; nor did relinquishment of part of the LTA amount to abandonment of the project within Clause 6.0.

pp. 19–22

Accordingly, the Commission’s condition linking release of the construction BGs to satisfaction regarding the LC was inconsistent with the BPTA.

pp. 19–22

However, the appellant had continued extending the BGs without seeking interim relief until 2025, so the Tribunal considered reimbursement of the extension costs unjustified.

pp. 23–24