Case: Gujarat Maritime Board Vs. L&amp;T Infrastructure Development Projects Ltd.

3. The appellant invited bids for development of Sutrapada Port. In the process, a Letter of Intent (hereinafter referred to aswas issued to the first respondent on 06.02.2008. The relevant conditions of LoI are extracted below:1.7 The Lead Promoter shall submit a detailed project report within 12 months of issue of this Letter of Intent (LOI) and present it to Gujarat Maritime Board for their approval.1.8 The Lead Promoter shall obtain all environment clearances and coastal regulation zone (CRZ) clearances and effective financial closure and all such other clearances and permissions within 18 months or issue of this Letter of Intent1.9 A Performance Guarantee/Bank Guarantee of Rs 5 Crores (Rupees Five crores only) shall be submitted to Gujarat Maritime Board within 4 weeks of issue of this Letter of Intent in the Performa annexed herewith. (Annexure1). This performance/bank guarantee is against the submission of Detailed Project Report within 12 months and obtaining environment clearance, coastal regulation zone clearance and effecting financial closure within 18 months as mentioned in para 1.7 and 1.8 above, failing which Gujarat Maritime Board/Government shall cancel this Letter of Intent and bank guarantee shall be forfeited.On 07.05.2010, the first respondent requested for change of location from Sutrapada to Kachchigarh and the bank guarantee was extended. At the instance of the first respondent, the Yes Bank Limited furnished a bank guarantee to the appellant on 26.11.2011 for an amount of Rs.5 crores.The relevant conditions read asWe, YES BANK Ltd. do hereby guarantee and undertake to pay to GMB an amount not exceeding Rs 5,00,00,000/- (Rupees Five Crores only) as against breach by the Lead Promoter for the development of Kachchigarh Port. The decision of GMB as to any breach having been committed and loss/damages caused or suffered shall be absolute and binding on us.(b) We, YES BANK Ltd, do hereby undertake to without any reference to the Lead Promoter or any other person and irrespective of the fact whether any dispute is pending between GMB and the Lead Promoter or any court of Tribunal or arbitrator relating thereto, pay the amount due and payable under this guarantee without any demur, merely on demand from GMB stating that the said Leadfailure to perform the covenants of the same. Any such written demand made by GMB on the Bank shall be conclusive, absolute and unequivocal as regards the amount due and payable by the Bank under this guarantee. However,liability under this guarantee shall be restricted to an amount not exceeding Rs 5,00,00,000/- (Rupees Five Crores only).It appears, the first respondent could not proceed with the work even at Kachchigarh, and on such intimation, the appellant by letter dated 10.03.2015, cancelled the LoI issued to the first respondent. The communication dated 10.03.2015 cancelling the LoI to the extent relevant, reads asis with reference to your above mentioned letter informing GMB about your inability to develop a port at Kachchigarh due to presence of corals not seeking any further extension of the LOI.In this regard, it is hereby informed that your admission on failure in taking up the Project is in breach of the conditions set out in the Letter of Intent dated 6.2.2008. At your request, the proposal for cancellation of Letter of Intent issued to M/s. L&T Ltd. for development of Kachchigarh port was laid before the Board and was further submitted to GOG for its decision in the matter. After much deliberations, the Government of Gujarat has vide its letter dated February 23, 2015 accorded its approval to (a) cancel the Letter of Intent to M/s L&T Ltd. for development of Kachchigarh port and (b) forfeit the Bank Guarantee worth Rs.5 crores submitted by the Company.In view of the above direction of the Government, the Letter of Intent dated 06.02.2008 issued to you for development of Kachchigarh port (earlier Sutrapada port) is hereby cancelled. Further, the issuing Bank of the Bank Guarantee has been informed aboutclaim on the Bank6. On the same day, the appellant also invoked the bank guarantee furnished by the Yes Bank Limited at the instance of the first respondent. The communication reads asis with reference to the above mentioned Performance Bank Guarantee issued by your bank on behalf of M/s L&T Infrastructure Development Projects) towards securing the fulfilment of conditions set out in the Letter of Intentdated 15.07.2010 and having its validity till March 31, 2015 worth Rs.5,00,00,000/- (Rupees Five crore only) submitted to Gujarat Maritime Board (GMB).Whereas, in view of breach of the conditions set out in the LOI by the Company, the Gujarat Maritime Board/Government intends to exercise its right in accordance with Clause 1.9 and has decided to cancel the Letter of Intent and forfeit the above Bank Guarantee.I, undersigned hereby put my claim to forfeit the Bank Guarantee no. 005GM07113300001 dated November 26, 2011 worth Rs. Five crores issued by your bank and to reimburse the amount of the Bank Guarantee in the account of Gujarat Maritime Board, Gandhinagar.It is requested to issue Demand Draft in the name of Vice Chairman & Chief Executive Officer, Gujarat Maritime Board payable at Gandhinagar at the earliest.The first respondent filed a writ petition before the High Court challenging the cancellation of the LoI and the invocation of the bank guarantee. The following are the two mainble Court be pleased to issue an appropriate writ, order or direction and be pleased to quash and set aside the decision dated 23.02.2015 of the respondent no. 2 and the consequential decision of the respondent no.1 communicated vide letter of 10.03.2015, to approve the request of the petitioner to cancel the LoI issued to the petitioner, with the condition of forfeiting the Bank Guarantee worth Rs 5 crores, and further command the respondent no. 1 to cancel the LoI dated 06.02.2008 and return the Bank Guarantee to the petitioner;(b) That thisCourt may be pleased to issue appropriate writ, order or direction directing the respondent no. 1 not to encash the Bank Guarantee No. 005GM07113300001 dated 26.11.2011(extended from time to time) and command the respondent no. 1 to withdraw the letter dated 10.03.2015 addressed to Yes Bank invoking the aforesaid Bank Guarantee.By the impugned judgment, the writ petition was allowed. Paragraphs-24, 25 and 26 of the impugned judgment which deal with the contentions are extractedLearned counsel for the GMB however, would place much reliance on the tender conditions in which the tenderer agreed that the bidder had made a complete and careful examination to determine the difficulties in matters incidental to the performance of its obligations under the Concession Agreement and to specify the nature and extent of all difficulties and hazards. Counsel would therefore, contend that any difficulty or even impossibility in obtaining environmental clearances cannot be a defence of the petitioner to avoid forfeiture of the security deposit. We are unable to read such condition in such a rigid manner. If the contract had frustrated on account of impossibility, we have serious doubt whether GMB could forfeit security deposit citing the reason that whatever be the reason, the petitioner failed to perform its obligations and, therefore, must be visited with the penalty of forfeiture. However, there is an additional reason why we must reject such a contention. We may recall, the initial project was for construction of port at Sutrapada. On account of the respondents not being able to make the land available for such project, the same had to be shelved. Only as an alternative, the petitioner suggested Kachchigarh as a site where the port could be developed. Surely, the petitioner was not expected to carry out complete environmental assessment before coming up with such an alternative suggestion nor GMB understood the offer of the petitioner as to one which will irrespective of environment concerns, be accepted. When there was a fundamental shift in the initial project envisaged in the letter of intent, the contention that whatever be the difficulties in executing the contract, forfeiture must follow, need to be viewed in the background of such material changes.25. The contention that having given unconditional bank guarantee, the petitioner cannot avoid encashment thereof, can also not be accepted. The parameters for avoiding the payment of a bank guarantee by the bank giving such guarantee cannot be applied in the present case. The question in the present case is not so much as to allowing the authorities to encash the bank guarantee as much as the authority of the GMB to retain such amount even if it was so allowed to be encashed. If the decision of GMB to cancel the contract and to award the penalty of forfeiture of Rs 5 crores on the petitioner itself is found to be erroneous and therefore, set aside, the question of allowing GMB to encash the bank guarantee would simply not arise.26. In the result, petition is allowed. Impugned communication dated 10.3.2015 is set aside. The respondents shall not encash the bank guarantee in

Reasoning:
13. Guarantee given by the bank to the appellant contains only the condition that in case of breach by the lead promoter, viz., the first respondent of the conditions of LoI, the appellant is free to invoke the bank guarantee and the bank should honour it …any demur, merely on a demand from GMB (appellant) stating that the said lead promoter failed to perform theIt has also been undertaken by the bank that such written demand from the appellant on the bank shall be …absolute and unequivocal as regards the amount due and payable by the bank under thisBetween the appellant and the first respondent, in the event of failure to perform the obligations under the LoI dated 06.02.2008, the appellant was entitled to cancel the LoI and invoke the bank guarantee. On being satisfied that the first respondent has failed to perform its obligations as covenanted, the appellant cancelled the LoI and resultantly invoked the bank guarantee. Whether the cancellation is legal and proper, and whether on such cancellation, the bank guarantee could have been invoked on the extreme situation of the first respondent justifying its inability to perform its obligations under the LoI, etc., are not within the purview of an inquiry under Article 226 of the Constitution of India. Between the bank and the appellant, the moment there is a written demand for invoking the bank guarantee pursuant to breach of the covenants between the appellant and the first respondent, as satisfied by the appellant, the bank is bound to honour the payment under the guarantee.