Dismissed

Maharashtra State Power Generating Company Ltd. Mumbai v. Western Coalfields Ltd. and Others

Bombay HC10 Aug 2012WP/2322/2012

Case brief

AI extract

What is this about?

Petitioner, a state power company, filed a writ petition challenging the termination of its Letter of Authority and forfeiture of bank guarantees by coal suppliers owing to lack of environmental clearances. The court found disputed facts regarding compliance and force majeure, holding that the writ jurisdiction is not appropriate for such contractual disputes.

What did the court decide?

Writ petition dismissed with no order as to costs; intervention to prevent encashment of bank guarantee declined.

Maharashtra State Power Generating Company… — Contract and Commercial Disputes | Bombay HC (2012)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH, NAGPUR.

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WRIT PETITION No. 2322 OF 2012.

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Maharashtra State Power Generating Company Limited, Prakashgadh, Plot no.G-9, Bandra (East) Mumbai – 400 041. Also at : Vidyut Bhavan, Katol Road, Nagpur – 440013. .... PETITIONER.

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VERSUS

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Western Coalfields Limited, through General Manager, Coal Estate, Civil Lines, Nagpur – 440001. Maharashtra.

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Coal India Limited, 10, Netaji Subhash Road, Kolkata, West Bengal 700001, India.

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Union of India, through Ministry of Coal, Shastri Bhavan, New Delhi 110 001. .... RESPONDENTS .

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Mr. Shashank Manohar with Shri Shyam Dewani, Advocates for Petitioner. Mr. S.C. Mehadia, Advocate for Respondent no.1.

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CORAM : S.C. DHARMADHIKARI AND M.T. JOSHI, JJ.

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DATED : AUGUST 10, 2012.

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ORDER. (Per S.C. Dharmadhikari, J)

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By this Writ Petition under Article 226 of the Constitution of India, the petitioner claims a declaration that the letter dated 11^th / 12^th April 2012 issued by the respondent no.1 is absolutely illegal and that no action can be taken, based on the letter or otherwise and that the petitioners are entitled to seek writ, order or direction, directing the respondent no.1 to extend the period of Letter of Authority (LAO) till such time as is required and necessary to overcome the existence of Force majeure / event.

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Third prayer of the petitioner's is to direct the respondent no.1 to execute Fuel Supply Agreement (FSA) in relation to Parli 8 TPS as all the milestones in relation thereto have been completed. Finally it is prayed that no coercive action be taken in pursuance of the impugned letter.

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It is the case of the petitioner that it is generating company

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owned and controlled by the Government of Maharashtra. It has installed capacity of 6800 MWs and is engaged in generation of electricity in 7 Thermal generating stations, all located within the State of Maharashtra. The petitioner through its thermal generating stations supplies the base load required to meet the demand in Maharashtra State.

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The first respondent is a Company owned and controlled by the respondent no.2 and engaged in the business of Mining, Transportation and supply of Coal to different users based on the policy evolved by the Central Government. The Central Government/ Union of India is impleaded as respondent no.3.

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It is stated that the first respondent has about 80 collieries in the State of Maharashtra and Madhya Pradesh. It supplies coal on the basis of the advise received from the Central Government in the form of allocation made by the Standing Linkage Committee. It executes a letters of assurance (LOA) which is subsequently converted into a binding Fuel Supply Agreement (FSA). This process is undertaken in view of the New Coal Distribution Policy, 2007 of the Central Government.

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What the petitioners are referring to is, that the Standing

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Linkage Committee (SLC) constituted on 02.08.2007 by the respondent no.3, which granted the petitioner with a tapered linkage for the exiting power stations at Bhusawal, Parli, Paras, Koradi and Chandrapur. The total quantum of coal allocated to the petitioners by the Committee at the meeting held on 02.08.2007 was upto 2 million metric tonnes of coal, which was to be supplied from the cost plus mines of the respondent no.1. In order to enable the issuance of LOA, the petitioner in terms of the procedure established, submitted a Bank guarantee dated 12.08.2009 for Rs. 34,06,54,000/-. Since the quantity of the coal, according to the petitioner was much below than what was requested by petitioner in the SLC on 29.01.2010 to the Central Government to allocate the coal only to two power plants namely – Parli 8 Thermal Power Station and Bhusawal 6 Thermal Power Station. The minutes of this meeting are relied upon and it is then contended that the representative of the first respondent informed the Committee that it would like to have breakup of 2 million tonnes per annum, approved by the Committee. The Committee's observations are relied upon and it is then urged that on 13.03.2010 the respondent no.1 directed the petitioner to submit enhanced commitment guarantee of

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Rs.36,90,02,000/- against the above mentioned guarantee of Rs. 34,06,54,000/-. The petitioner then submitted the enhanced bank guarantee by letter dated 13.04.2012.

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On 10.05.2010 the respondent no.1 issued a letter of assurance for supply of coal to Parli 8 TPS (250 Mws) and Bhusawal 6 TPS (250 MWs) projects. The letter of assurance for supply of coal was subject to certain terms and conditions and one of which is, fulfillment of obligations under which time bound achievements and milestone is stipulated and the LOA had to remain valid for a period of 24 months from the date of issue, unless extended.

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What is then contended that in terms of the LOA, copy of which is Annexure-D to the paper book, the milestones for Parli 8 have been completed and against Bhusawal 6 TPS, 8 milestones out of 9 have been completed. Only incomplete milestone is in relation to obtaining environmental clearance, which is pending at an advanced stage. It is not pending due to any delay or default of the petitioner, but due to the administrative reasons. As far as Parli is concerned, the petitioner has completed all the milestones and therefore, it is in a position to execute the FSA in view of the new Coal Distribution Policy and in terms of the

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allocation approved by the SLC. The letters dated 16.06.2010 and 02.07.2010 have been referred to, and what is pointed out in relation to Bhusawal 6 TPS in paragraph no.16 is as under :

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“ 16. As regards Bhusawal 6 TPS, the petitioner states that all milestones contemplated under the Letter of Assurance have been achieved, except for obtaining environmental clearance. It is submitted that the petitioner has completed all possible legal, regulatory, and administrative processes that are required for grant of environmental clearances and is now awaiting the same from the Ministry o0f Environment and Forest, Government of India. In this context, it may be necessary to clarify that even the public hearing has been held after issuance of Terms of Reference (TOR) and that once the minutes of the public hearing are finalized by the appropriate authority i.e. District Collector, and forwarded to the Ministry of Environment and Forest, Government of India, necessary clearances will be issued. The petitioner craves leave to separately file details of public hearing at the time of arguments, if necessary.”

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It is stated that if this factual background is taken into account and which is to the knowledge of the first respondent, then, it

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could not have issued the impugned letter stating that since the petitioner has failed to comply with the requirement of submitting additional guarantee of Rs. 11,07,00,600/- and to submit the final environmental clearance within the validity period of LOA, which was to expire on 09.05.2012, there will be cancellation and forfeiture of the commitment guarantee at the end of the validity period. It is stated that on this communication being received, a letter was addressed on 25.04.2012, which is annexed as Annexure-G and Annexure-H and thereafter it is urged that there is a review meeting of the Standing Linkage Committee (Long Term Policy) on 14.02.2012 and that as per item no.4 of the agenda, in some cases, the Ministry of Coal has instructed the respondent no.2 not to cancel the LOA or forfeit the Bank Guarantee and also not to take action till decision is taken by the SLC (LT) for regulating such LOAs. This decision of the review meeting is communicated to the petitioner vide letter dated 27.04.2012.

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It is in these circumstances, the petitioner prays that there is no inability or delay on their part to fulfill any activity/milestone and in any event it is due to occurrence of a force majeure event. The petitioner therefore, relies upon letter dated 05.05.2012 to urge that it is a Government of Maharashtra undertaking discharging a public

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function and if the LOA is cancelled there will be very serious impact on working of the petitioner and the generation of power in the State of Maharashtra is likely to be affected. The LOA is in respect of supply of coal, which is a regulated commodity and a nationalized product of respondent nos. 1 and 2. In these circumstances, the Court should consider the petitioner's view of the matter and not allow the respondent nos. 1 and 2 to take coercive measures or else there will be serious breaches and the action would defeat the public interest.

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Shri Manohar, learned Counsel appearing on behalf of the petitioner submits that it is clear case which falls under the clause “”Force-Majeure”. Clause 1.4 and 3.5 are pressed into service by him to urge that the extension till 10.08.2012 was as a matter of right. Our attention is invited to Clause 4 and it is submitted that there is absolutely no dispute as regards the factual aspects. As far as Parli is concerned, all milestones have been completed. As far as Bhusawal is concerned, the milestones could not be achieved for the reasons beyond the control of the petitioner. The petitioner had applied for environment clearance and what page no.320 of the paper book would indicate is that the Ministry of Environment and Forest has informed

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the petitioner that the environmental clearance of 1 x660 MW

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Bhusawal Coal Based Thermal Power Project was taken up before the Expert Appraisal Committee (Thermal Power) in its 57^th Meeting on 2^nd

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3^rd July, 2012 and the Expert Appraisal Committee (Thermal Power) has recommended the environment clearance, subject to few specific conditions. The minutes of the meeting have also been confirmed by the Committee and it will be available in the Ministry's website. Shri Manohar, learned counsel submits that this is all that the petitioners were expected and could have done and it was not as if the clearances are in their hands. Our attention is also invited to various clauses and also equally to page no.91 of the paper book which is a copy of letter dated 05.05.2012 by Mahagenco. Shri Manohar, learned counsel therefore, submits that due date is 10.08.2012 and if the LOA is terminated, then there will be serious loss and great prejudice in as much as the bank guarantees would be forfeited and if thereafter, the environmental clearances are obtained and the FSA is not executed, the power station would not be able to generate electricity of required capacity for public consumption and use in Maharashtra. The LAO therefore, could not have been terminated by the respondent nos. 1 and

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2 and they ought to have awaited the final response from the Environment Ministry, as all attempts and steps have been taken by the petitioner.

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On the other hand, Shri Mehadia, learned counsel appearing

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on behalf of respondent nos. 1 and 2, states that this is not a case for interference in writ jurisdiction, as several disputed questions of facts would arise for determination and consideration. He invited our attention to the agreement and it is submitted that the clause - force majeure cannot be relied upon in the facts and circumstances. Shri Mehadia, learned Counsel submits that the argument now canvassed before this Court and the statements made in the affidavit in rejoinder are contrary to the communication received from the Environment Ministry, copy of which is at page no.320 of the paper book. The petitioner was informed that abnormal delay has taken place and because of it's disinterest in taking appropriate steps in respect of Bhusawal 6 Unit project, the Mahagenco was not able to finalize the configuration of the power plant which was initially decided as 250 MW and thereafter thought of 300 MW and ultimately decided for 660 MW in the Board Meeting held on 20.11.2010. The petitioner applied for revising the nomenclature of various power stations of Mahegenco which included Bhusawal 6 Unit. The Ministry of Coal vide its letter dated 17.08.2011 revised the configuration as requested by the petitioner by their letter dated 07.07.2011. The petitioner thus lost

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more than a year from the date of issue of LOA to finalize the configuration of Bhusawal 6 Unit. From the letter dated 25.04.2012, of the Ministry of Environment and Forest, it is clear that clearance proposed at 1 x 600 MW was applied on 16.04.2010. It was in the 3^rd meeting of the Expert Appraisal Committee during 9^th and 10^th August, 2010 the Committee prescribed specific terms of reference for undertaking detailed EIA study and preparation of EMP project. The Maharashtra Pollution Control Board vide its letter dt. 19.03.2011, which was received in the office of the Sub Regional Officer, Maharashtra Pollution Control Board on 22.03.2011, there was request for conducting public hearing for the proposed 1 x 600 MW and grant of consent to establish the same. The petitioner was not at all diligent

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in taking immediate and proper steps for securing environment clearance and lost valuable time on its own. It is the advise from MPC Board, dated 18.04.2011 that a public hearing will not be possible, unless information is provided and which information and details were provided after more than a month, namely by 25.05.2011. Thereafter there has been correspondence and petitioner allowed the time to go by to make compliance with the requisition of the MPC Board. The application for public hearing remained pending only on the ground of delay on the part of the petitioner. The documents were forwarded as

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late as in September, 2011. The public hearing could not be held on 17.11.2011 due to objection raised by the Panchayat Samiti, Bhusawal, Jalgaon, Bilhada, Sakri, Varngaon etc. Thereafter, public hearing was scheduled on 28.02.2012 for which no documents have been submitted to establish whether the same was held or postponed, and therefore, what we find is, according to Shri Mehadia, learned counsel, that paragraph no.16 of the petition has been clearly dealt with and there is no document to support the averments made in paragraph no.16.

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It is submitted thereafter, that as both the activities namely for finalizing the configuration of the Bhusawal Unit and to comply with the requirement of holding of public hearing by MPCB, the petitioner was not at all prompt and diligent and delayed the matters. In paragraph no.7 of the affidavit filed, the respondent nos. 1 and 2 have pointed out that after issuance of the LOA, the petitioners were repeatedly reminded for achievements of milestones within the validity period of LOA as well as to submit the additional commitment guarantee, however, the milestones were not achieved. Reliance is placed upon Annexure-R1 which is correspondence from June, 2010 to February, 2012. Thus the impugned letter was more than a reminder,

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reminding the petitioner to achieve the milestones and submit the additional commitment guarantee, and also the consequences of not complying with the same. It is clear that the LOA was issued on 10.05.2010 and the milestones were to be achieved within a period of two years, however, the petitioner failed to achieve the same. Clause 2.1 is mandatory and binding. Force majeure is in the nature of an exception and force majeure shall not include any inability or failure to obtain financing for the plant or failure to comply with the existing rules and regulations with respect to statutory clearances, applicable to the plant or any such event resulting from the negligence, omission or default of the assured.

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Attempt of Shri Mehadia, learned counsel was to demonstrate as to how this clause would not come to operation and would not assist the petitioner on account of the negligence or omission or default on their part. Thus the project which was envisaged in 2007 and for which process was started in 2010, nothing has been done till the issuing of the impugned letter and for all these reasons it is submitted that the petition should not be entertained and rather be dismissed.

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The petitioner has filed an application praying for stay of the letter dated 03.07.2012 which was received on 09.07.2012, in which there is a date stipulated for termination of LOA, which is within a period of 7 days from the receipt of the said letter.

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Shri Manohar, learned counsel appearing for the petitioner would urge that in terms of this letter the Western Coalfields Limited has informed that the milestones have not been achieved, but on its

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own it has resorted to this action much after the receipt of the impugned letter. In such circumstances, this court should permit the petitioner to get the matter finalized from the Ministry of Environment and Forest in terms of what has been stated in paragraph no.8 of the Civil Application and the rejoinder – affidavit.

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There is a reference made to the letter dated 06.08.2012 in the rejoinder on behalf of the petitioner to the additional reply filed by the respondent nos. 1 and 2, and it is submitted that this is a compliance with the requirement contemplated by the LOA and now this is a force majeure event. The clearance has been put before the Expert Committee within the extended period of three months. On account of force majeure event, the Court should not take into account

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the period of 24 months, which expired on 09.05.2012 and in any event the period which has been spent till the receipt of the letter dated 06.08.2012 would clearly be covered by the force majeure clause.

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With the assistance of the learned counsel appearing for the parties we have perused the petition and its annexures. We have also perused the affidavits placed on record, including the latest communication dated 06.08.2012.

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Clause 1.4 on which heavy reliance is placed by the learned

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Counsel appearing for the petitioner reads as under :

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“ 1.4. Force-Majeure affecting the Assurer.

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In the event that development of the coal block identified by the Assurer for the purpose of meeting the normative requirement stated in Clause 1.1 is delayed or terminated for reasons including deallocation of such block by the Government and inordinate delays faced in acquiring land or receiving environmental/forest clearances; Or that imports of coal required for the purpose of meeting the portion of normative requirement stated in Clause 1.1 is reasonably withheld owing to such factors as global shortage or a Force-Majeure event affecting the

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source[s] of imported coal or logistical bottlenecks facts in transportation and unloading, which are not within the control of and not caused by the negligence or fault of the Assurer, the Assurer shall be free to amend or repeal this LOA without incurring any liability whatsoever, including the liability for payment of damages to the Assured.”

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A bare reading of this clause reveals that in the event of development of coal block identified by the Assurer for the purpose of meeting the normative requirement stated in Clause 1.1 is delayed or terminated for reasons including de-allocation of such block by the Government and inordinate delay faced in acquiring land or receiving environmental/forest clearances or for the reasons assigned in the same including logistic bottlenecks in transportation and unloading, which are not within the control of and not caused by the negligence or fault of the assurer, there will repeal of this LOA without incurring any liability whatsoever, including the liability for payment of damages to the assured.

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This Clause 1.4 as is appearing in the letter dated 10.05.2010 which is a communication addressed by the first respondent to the petitioner, the clause is equally reproduced at page no.49 of the

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paper book.

What we find is whether, the benefit of this clause is available to the petitioner or not, is itself, a factual dispute. The petitioner states that it has done all that is possible and within its control to obtain the environment clearances. It is the case of the petitioner that the milestones in-relation to Parli 8 have been achieved and in so far as that is concerned, there is no question of LOA being terminated or the commitment guarantee being invoked. It is further stated that the LOA is a composite arrangement for both, and therefore, the respondent nos. 1 and 2 have urged that the documents cannot be seen in isolation and compliance in relation to Parli or achievements in relation to Parli 8 will not be of any assistance in regard to Bhusawal 6 TPS i.e. building up all milestones, which is not permissible. Both are to be achieved in terms of the clauses of the agreement and that is how the contract/agreement have been understood by the parties. We are of the opinion that even this matter clearly raises a factual dispute. The writ petition is filed invoking the writ jurisdiction and according to the petitioner on undisputed facts.

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It is stated that it is undisputed that the milestones at Parli 8

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have been achieved and secondly this case comes within the clause Force Majure and all that is possible and within the control of the petitioner has been done by them and that is evident by letter dated 06.08.2012 and prior correspondence with the Ministry of Environment and Forests, Government of India.

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What we find is that even on this the parties are not ad-idem . Firstly it is contended on behalf of respondent nos. 1 and 2 that this is a composite contract and therefore, the milestones in-relation to both were to be achieved, failing which the commitment guarantee could have been revoked and forfeited. The termination also could have been effected and rather has been effected on this ground. Secondly, no assistance can be derived of the force majeure, as that by itself contemplates events which are beyond the control or might of the parties. This is a clear case of default, complete inaction and negligence of the petitioner in obtaining the environment clearance expeditiously. They delayed the matter and for the delay they alone are responsible and that is how reliance is placed on the communication with MPCB, copies of the correspondence have been annexed to the affidavits placed on record. In such circumstances, whether any benefit can be derived from the events which are styled as “Force-Majure” and

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which benefit would be available in the facts and circumstances of this case, because there is a delay or negligence on the part of the petitioner, is, itself a disputed and contested claim. The writ jurisdiction is, therefore, not a remedy as these claims and counter claims are required to be proved and established. This is not a case that from the documents alone the Court can deduce and conclude even, as contended by Shri Manohar, learned counsel for the petitioner that the clearances from the Environment Ministry have been obtained and that is clear from the letter dated 06.08.2012. All attempts therefore were made and they were genuine and bonafide and for reasons beyond the control of the petitioner, the matter was delayed in the Environment Ministry. Reliance that is placed on letter dated 06.08.2012 in this behalf, itself is a disputed matter because Shri Mehadia, contended that what this letter communicated is not clearance, but a reference of the proposal of the petitioner to the Expert Appraisal Committee within the Ministry of Environment and Forest. It is that Committee which will make recommendations and which recommendations will be placed for consideration and sanction of the appropriate and competent Authority in the Ministry. Further the recommendation itself is conditional. In these circumstances, in our view entertaining a writ petition would straightway amount to interference in contractual disputes and which is

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not the scope and ambit of the of writ jurisdiction. It is extremely limited and on the basis of the affidavits it will not be possible to decide the matter.

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As a result of above discussion, we are of the opinion that this Writ Petition cannot be entertained, as the petitioners have an alternate and efficacious remedy available to them in law. Writ Petition cannot be entertained because of disputed questions of facts some of which are enumerated hereinabove. The Writ Petition is, therefore, dismissed. However, in the circumstances of the case, there will be no order as to costs.

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At this stage Shri Dewani, learned counsel appearing for the petitioner submits that this Court had passed an order on 09.05.2012 that the first respondent shall not encash the bank guarantee without previous notice to the petitioner. Thereafter a termination letter has been served, but that termination has not come into effect and the bank guarantee has not been encashed and this arrangement was continued till the petition was argued and is disposed of today.

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Beyond the order dated 09.05.2012 we feel that what has

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orally transpired before this Court and a statement is made by Shri Mehadia, learned counsel that no coercive steps will be taken for enforcing the termination notice. However, once we find that the petition is not the remedy of the petitioner, we do not see how we can compel the respondent nos. 1 and 2 to continue the oral statement or arrangements. The Bank guarantee was not to be encashed without previous notice. That notice has been duly served. In such circumstances, we decline to grant any request as made by Shri Dewani, learned counsel for petitioner.

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JUDGE JUDGE

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Rgd.

Maharashtra State Power Generating Company Ltd. Mumbai v. Western Coalfields Ltd. and Others

Case brief

What is this about?

What did the court decide?

Maharashtra State Power Generating Company Ltd. Mumbai v. Western Coalfields Ltd. and Others

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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