ANDHRA PRADESH POLLUTION CONTROL versus CCL PRODUCTS (INDIA) LIMITED
[2019] 10 S.C.R. 855, Supreme Court of India, 2019
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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ANDHRA PRADESH POLLUTION CONTROL BOARD
v.
CCL PRODUCTS (INDIA) LIMITED
(Civil Appeal No. 7005 of 2017)
JULY 22, 2019
[DR. DHANANJAYA Y CHANDRACHUD AND
INDIRA BANERJEE, JJ.]
Water (Prevention and Control of Pollution) Act, 1974 –
Environment (Protection) rules, 1986 – Respondent was
manufacturing and selling instant coffee – Appellant received
complaints against the appellant in regard to the environmental
pollution – A Task Force Committee was constituted by the appellant,
which after hearing the respondent issued some directions – In
addition, the appellant directed respondent to furnish bank
guarantee of Rs.25 lakhs to secure the compliance with conditions
specified in the directions – Respondent furnished the required bank
guarantee – Thereafter, Board officials of the appellant inspected
the industry and observed certain violations – Pursuant thereto,
the bank guaranties were invoked and amount of Rs.25 lakhs
covered by the bank guarantees was paid over to the appellant –
Aggrieved, respondent moved to the Tribunal – Tribunal held that
Principles of natural justice were not followed and invocation was
unwarranted and directed appellant to refund the amount to the
respondent – On appeal, held: It was not for the bank to determine
as to whether the invocation of the bank guarantee was justified so
long as the invocation was in terms of the bank guarantee – A
demand once made would oblige the bank to pay under the terms
of the bank guarantee – In the
instant case, the bank correctly
understood its legal obligations and paid over the amount to the
appellant – Thus, having regard to the terms of the bank guarantees,
the principle of law formulated by Tribunal cannot be accepted –
Besides, it is evident from materials on record that a show cause
notice was issued by the appellant to the respondent and respondent
had also submitted a response – Thus, Tribunal erred in interfering
with the invocation of the bank guarantees, as appellant had clearly
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adverted to the fact that the status of compliance was reviewed in
the Task Force Committee meeting and the officials had observed
certain violations – The invocation of the bank guarantees was
therefore in terms of the conditions stipulated in the bank
guarantees.
The respondent commenced its operations in 1995 for the
manufacture and sale of instant coffee. Complaints were received
by the appellant and by the District Collector in regard to the
environmental pollution caused by the appellant. A Task Force
Committee was constituted by the appellant which, after hearing
the respondent, issued directions to it on 12 August 2011. In
addition, the appellant directed the respondent to furnish three
bank guarantees: two in the amount of Rs 10 lakh each and the
third in the amount of Rs 5 lakh to secure compliance with the
conditions. On 6 September 2011, three bank guarantees
executed by the Bank were furnished to the appellant. The Board
officials inspected the industry and observed certain violations.
Pursuant thereto, the bank guarantees were invoked on 12
September 2012 and the amount of Rs 25 lakh covered by three
bank guarantees was paid over to the appellant. The Tribunal
held that the invocation was unwarranted and the amount which
has been received by the appellant should be refunded to the
respondent. Hence, the present appeals.
Allowing the appeal, the Court
HELD : 1. The settled legal position which has
emerged
from the precedents of this Court is that absent a case of fraud,
irretrievable injustice and special equities, the Court should not
interfere with the invocation or encashment of a bank guarantee
so long as the invocation was in terms of the bank guarantee.
[Para 19] [866-E-F]
2. In the present case, the bank undertook to the appellant
that it would pay the guaranteed amount on demand, subject to
the overall amount stipulated in each of the three bank
guarantees.  It was not for the bank to determine as to whether
the invocation of the bank guarantees was justified so long as the
invocation was in terms of the bank guarantee.  A demand once
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made would oblige the bank to pay under the terms of the bank
guarantee.  The Bank correctly understood its legal obligations
and paid over the amount to the appellant.  In this view of the
matter and having regard to the terms of the bank guarantees,
this Court is of the view that the principle of law which has been
formulated by the Tribunal cannot be accepted as reflecting the
correct legal position. [Para 20] [866-F-H]
3. That apart, this Court is unable to accept the finding of
the Tribunal that the respondent was kept in the dark on the
invocation.   It is evident that following the invocation of the bank
guarantees, the respondent itself addressed a communication on
20 September 2012 to the Member Secretary of the appellant.
The communication contains a specific reference to the invocation
of the bank guarantees. That apart, it is evident from the material
on the record that the appellant had issued a notice to show cause
to the respondent to which the respondent also submitted a
response. The purpose and object of the bank guarantees was to
enable the appellant to secure compliance with environmental
standards prescribed in accordance with law. The appellant has
invoked the bank guarantees issued by the respondent because
of the failure of the respondent to discharge the obligations
imposed upon it by the Task Force Committee on 26 August 2011.
[Para 21] [867-A-C]
4. For the above reasons, this Court is of the view that the
Tribunal has erred in
interfering with the invocation of the bank
guarantees and in directing the appellant to refund the amount of
Rs 25 lakhs covered by the three guarantees. While invoking
the bank guarantees, the appellant has clearly adverted to the
fact that the status of compliance was reviewed in the Task Force
Committee Meeting; and that the officials of the appellant had
inspected the industry and had observed certain violations.
The invocation of the bank guarantees was therefore in terms of
the conditions stipulated in the bank guarantees. [Para 22]
[867-D-G]
Ansal Engineering Projects Ltd. v Tehri Hydro
Development Corporation Ltd (1996) 5 SCC 450 :
[1996] 4  Suppl. SCR 226 ; State Bank of India v Mula
ANDHRA PRADESH POLLUTION CONTROL BOARD v.
CCL PRODUCTS (I) LTD.
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Sahakari Sakhar Karkhana Ltd. (2006) 6 SCC 293 :
[2006] 3 Suppl. SCR 320 ; Hindustan Construction Co.
Ltd. v. State of Bihar (1999) 8 SCC 436 : [1999] 3 Suppl.
SCR 554 – relied on.
Case Law Reference
[1996] 4 Suppl. SCR  226
relied on
Para 18
[2006] 3 Suppl. SCR 320
relied on
Para 18
[1999] 3 Suppl. SCR 554
relied on
Para 18
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7005
of 2017.
From the Judgment and Order dated 16.08.2016 of the National
Green Tribunal, Southern Zone, Chennai in Appeal No. 63 of 2013 (SZ).
T. V. S. Raghavendra Sreyas, Mrs. Gayatri Gulati Sreyas and
Ms. Sneh Dhillon, Advs. for the Appellant.
Sajan Poovayya, Sr. Adv., G. Ramakrishna Prasad, Suyodhan
Byrapaneni, Ms. Pilza Moonis, Ms. Priyanka M. P. and Pratibhanu Singh
Kharola, Advs. for the Respondent.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
1. Admit.
2. This appeal arises from a judgment of the National Green
Tribunal1 at its Southern Zone Bench at Chennai dated 16 August 2016.
The Tribunal allowed the appeal of the respondent in part and held that
the invocation of the bank guarantees furnished to the appellant at the
behest of the respondent was unwarranted and that the amount should
be refunded to the respondent.
3. Since reliefs  in terms of the other prayers were declined by
the Tribunal, the issue which falls for consideration is whether the Tribunal
was justified in interfering with the invocation of
three bank guarantees
issued to the appellant and in directing the appellant to refund the amounts
covered by them to the respondent.
1 “Tribunal”
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4. The respondent commenced its operations in 1995 for the
manufacture and sale of instant coffee. It was granted consent under
the Water (Prevention and Control of Pollution) Act 1974.  On 6 August
2008, the Union Government amended the Environment (Protection)
Rules, 1986 to specify discharge standards for the coffee industry.
5. Complaints were received by the appellant and by the District
Collector, Guntur in regard to the environmental pollution caused by the
appellant. A notice to show cause was issued by the appellant to the
respondent on 2 August 2011. A Task Force Committee was constituted
by the appellant which, after hearing the respondent, issued directions to
it on 12 August 2011. Based on the recommendations of the Task Force
Committee, the following directions were issued to the respondent on 26
August 2011:
“Part A
Improvement of existing system
a. The industry shall submit the efficiency of the ETP for the
treatment of effluents to the board standards.
b. The Industry shall revamp the existing APC installed to the
boilers to meet the board specified standards.
Part B
a. Fixation of flow meters at various points to ensure continuous
operation of existing systems
b. The industry shall install separate energy meters for all the
pollution control equipments installed and submit the records to
the RO, Guntur every month.
Part C
a. The industry shall store the treated effluents in lined lagoons
only, for storing the effluents during rainy
season.
b. The industry shall use the treated effluents in industry’s own
land.
c. The industry shall provide separate storm water drains so that
the colored effluents do not mix with the rain water.
ANDHRA PRADESH POLLUTION CONTROL BOARD v.
CCL PRODUCTS (I) LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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d. The industry shall empty the stored effluents in unlined lagoons
and lagoons shall be dismantled.
e. The industry shall not discharge any effluents outside the
premises under any circumstances.
f. The industry shall submit an action plan for removal of colour
within 30 days.”
6. In addition, the appellant directed the respondent to furnish
three bank guarantees: two in the amount of Rs 10,00,000 each and the
third in the amount of Rs 5,00,000 to secure compliance with the
conditions specified in Part A, Part B and Part C above in regard to the
functioning of the respondent.
7. On 6 September 2011, three bank guarantees executed by the
State Bank of India were furnished to the appellant.  The bank guarantee
in the amount of Rs 5,00,000 was in order to secure compliance with the
conditions stipulated in the consent for the establishment and operation
of the respondent in terms of the applicable environmental standards.
The bank guarantee covered Part C of the directions that were issued
on 26 August 2011 which were embedded in the guarantee. The
guarantee contained the following stipulation:
“In accordance to the norms laid down by the Board as committed
by M/S CCL PRODUCTS (INDIA) LIMITED.
In pursuance of the above, we M/S. CCL PRODUCTS (INDIA)
LIMITED, Guarantee the observance and performance by the
company of the various terms and obligations as provided in the
commitment made above and undertake to pay to the
Board subject
to a maximum sum not exceeding Rs 5,00,000/- (Rupees five lakhs
only) on demand and in the event of company failing to comply
with the above conditions/Directions.”
The respondent further undertook that:
“Notwithstanding anything contain herein:
a) Our liability under this Bank Guarantee shall not exceed Rs.
5,00,000/-
b) This Bank Guarantee shall be valid upto 06.09.2013.
c) We are liable to pay the guaranteed amount any part thereof
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under this Bank Guarantee only and only if you serve upon us a
written claim or demand on or before 06.09.2013"
8. The second bank guarantee covered Part B of the stipulation
which the Task Force Committee had required the respondent to fulfill
on 26 August 2011.  The bank guarantee contained the following
stipulations:
“In pursuance to the above, we M/S. CCL PRODUCTS (INDIA)
LIMITED, Guarantee the observance and performance by the
company of the various terms and obligations as provided in the
commitment made above and undertake to pay to the Board subject
to a maximum sum not exceeding Rs. 10,00,000/- (Rupees Ten
lakhs only) on demand and in the event of company failing to
comply with the above conditions / Directions.
Out liability under the Guarantee is restricted to Rs. 10,00,000/-
(Rupees Ten lakhs only).   Our Guarantee shall remain in force
until 06.09.2013, unless a suit or action to enforce a claim under
this guarantee is filed in writing against us before the date of
expiry, all our rights under this guarantee shall be forfeited and
we shall be relieved and discharged from all liabilities whatsoever
there under.”
Notwithstanding anything contain herein:
a) Our liability under this Bank Guarantee shall not exceed
Rs. 10,00,000/-
b) This Bank Guarantee shall be valid upto 06.09.2013.
c) We are liable to pay the guaranteed amount any part thereof
under this Bank Guarantee only and only if you serve upon us a
written claim or demand on or before
06.09.2013.”
9. The third bank guarantee in the amount of Rs 10,00,000 covered
Part A of the stipulations which the Task Force Committee had required
the respondent to fulfill on 26 August 2011.
The bank guarantee contained the following stipulation:
“In pursuance to the above, we M/S CCL PRODUCTS (INDIA)
LIMITED, Guarantee the observance and performance by the
company of the various terms and obligations as provided in the
ANDHRA PRADESH POLLUTION CONTROL BOARD v.
CCL PRODUCTS (I) LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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commitment made above and undertake to pay to the Board subject
to a maximum sum not exceeding Rs. 10,00,000/- (Rupees Ten
lakhs only) on demand and in the event of company failing to
comply with the above conditions / Directions.
Our liability under the Guarantee is restricted to Rs. 10,00,000/-
(Rupees Ten lakhs only).  Our Guarantee shall remain in force
until 06.09.2013, unless a suit or action to enforce a claim under
this guarantee is filed in writing against us before the date of
expiry, all our rights under this guarantee shall be forfeited and
we shall be relieved and discharged from all liabilities whatsoever
there under.
Notwithstanding anything contain herein :
a)
Our liability under this Bank Guarantee shall not exceed Rs.
10,00,000/-
b)
This Bank Guarantee shall be valid upto 06.09.2013
c)
We are liable to pay the guaranteed amount any part thereof
under this Bank Guarantee only and only if you serve upon us a
written claim or demand on or before 06.09.2013.”
10. On 12 September 2012, the appellant recorded in a
communication to its Environmental Engineer in the regional office at
Guntur that:
“The status of compliance of was reviewed in the Task Force
Committee Meeting held on 07.03.2012 and directions were issued
to the industry ….for compliance.
The Board officials inspected the industry on 21.07.2012 and
23.08.2012 and observed certain violations. In view of the non-
compliance of the industry with
the directions issued by the Board,
it is decided to invoke the bank guarantee of Rs. 25 Lakhs in
favour of the Board.
The EE, RO, Guntur is directed to address the Bank to invoke
Bank Guarantee of Rs. 25.0 lakhs in favour of the Board and
obtain the amount by way of Demand Draft drawn in favour of
the Member Secretary, A.P. Pollution Control Board, Hyderabad
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immediately.  The original bank guarantee is to be returned to the
Bank after obtaining the demand draft.”
In pursuance of the above communication, the bank guarantees
were invoked on 12 September 2012 and the amount of Rs 25,00,000
covered by three bank guarantees was paid over to the appellant by the
State Bank of India.
11. Aggrieved by the actions of the appellant invoking the bank
guarantees, the respondent moved the Tribunal.
12. The Tribunal by its judgment dated 16 August 2016 held that
the principles of natural justice were required to be followed prior to
invoking the bank guarantees. Finding fault with the appellant for failing
to do so, the Tribunal held that the invocation was unwarranted and the
amount which has been received by the appellant should be refunded to
the respondent.
13. In the view of the Tribunal, the purpose of the bank guarantees
was not “commercial, contractual or industrial” since the guarantees
were issued to secure compliance with the directions of the appellant
regarding environmental norms that must be complied with by the
respondent. Hence, it came to the conclusion that before invoking the
bank guarantees, it was incumbent upon the appellant to serve a notice
and to furnish a hearing to the respondent.
14. Assailing the judgment of the Tribunal, it has been urged by
Mr T V S Raghavendra Sreyas, learned counsel appearing on behalf of
the appellant that first, the Tribunal erred in applying the principles of
natural
justice as a condition to invoke the guarantees.  This, it has been
submitted, is contrary to the settled legal position.  Second, it has been
urged that the finding by the Tribunal that there was a breach on the part
of the appellant to furnish a reasonable opportunity to the respondent is
belied by the documentary material which shows that notices were issued
by the appellant to the respondent and that the respondent was in fact
heard by the Task Force Committee.  Reliance was placed on the notice
to show cause that was issued by the appellant on 9 January 2012 and
the response filed by the respondent on 16 January 2012. Third, it was
urged that even after the invocation of the bank guarantees, the respondent
addressed a letter dated 20 September 2012 to the appellant expressing
ANDHRA PRADESH POLLUTION CONTROL BOARD v.
CCL PRODUCTS (I) LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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its grievance against the invocation.  Hence, it was submitted that the
respondent cannot feign ignorance about the fact that the bank guarantees
have been invoked. Finally, it was submitted that the appellant was
constrained to issue a further direction to the respondent for furnishing
an additional bank guarantee of Rs 77.50 lakhs on 12 September 2012,
the date on which the bank guarantee was invoked.  Insofar as this part
of the direction is concerned, it was urged that the challenge was not
pressed before the Tribunal.  On these counts, it was urged that the
Tribunal was in error in interfering with the invocation of the bank
guarantees.
15. On the other hand, Mr Sajan Poovayya, learned Senior Counsel
appearing on behalf of the respondent submitted that first, the tenor of
the bank guarantees indicate that they were not unconditional. It was
urged that the bank guarantees were furnished to secure compliance
with the specific obligations which were imposed upon the respondent in
Parts A, B and C of the Task Force Committee’s recommendation dated
26 August 2011. In the present case, it was urged that the demand which
was made to the State Bank of India was not in terms of the conditions
specified in the bank guarantees. Second, it was urged that the respondent
has complied with the recommendations of the Task Force Committee
and even at this stage, it would be appropriate if the Tribunal is called
upon to verify
compliance. Third, it was urged that the letter of invocation
has emerged before this Court for the first time and had not been produced
before the Tribunal.  On these grounds, it was urged that the judgment
of the Tribunal interfering with the invocation of the bank guarantees
does not warrant interference.
16. At the outset, we must deal with the fundamental basis of the
decision of the Tribunal in setting aside the invocation of the bank
guarantee. The Tribunal held that the purpose of the bank guarantee
was not commercial or industrial but was to secure compliance by the
appellant with environmental norms that had been prescribed.  Hence,
in the view of the Tribunal, the appellant should have furnished a hearing
to the respondent before the bank guarantees were invoked.
17. We are unable to subscribe to the legal position which has
been formulated by the Tribunal.  A bank guarantee constitutes an
independent contract between the issuing bank and the beneficiary to
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whom the guarantee is issued. Such a contract is independent of the
underlying contract between the beneficiary and the third party at whose
behest the bank guarantee is issued.
18. The principle which we have adopted accords with a consistent
line of precedent of this Court. In Ansal Engineering Projects Ltd. v
Tehri Hydro Development Corporation Ltd,2 a three judge Bench
of this Court held thus:
“4. It is settled law that bank guarantee is an independent and
distinct contract between the bank and the beneficiary and is not
qualified by the underlying transaction and the validity of the
primary contract between the person at whose instance the bank
guarantee was given and the beneficiary. Unless fraud or special
equity exists, is pleaded and prima facie established by strong
evidence as a triable issue, the beneficiary cannot be restrained
from encashing the bank guarantee even if dispute between the
beneficiary and the person at whose instance the bank guarantee
was given by the bank, had arisen in performance of the contract
or execution of the works undertaken in furtherance thereof. The
bank unconditionally and irrevocably promised to pay, on demand,
the amount of liability undertaken in the guarantee without any
demur or dispute in terms of the bank guarantee…
5. …The court exercising its power cannot interfere with
enforcement of bank guarantee/letters of credit except only in
cases where fraud or special equity is prima facie made out in the
case
as triable issue by strong evidence so as to prevent
irretrievable injustice to the parties.”
The same principle was followed in State Bank of India v Mula
Sahakari Sakhar Karkhana Ltd3 where a two judge Bench of this
Court held thus:
“33. It is beyond any cavil that a bank guarantee must be
construed on its own terms. It is considered to be a separate
transaction.
34. If a construction, as was suggested by Mr Naphade, is to be
accepted, it would also be open to a banker to put forward a case
2 (1996) 5 SCC 450
3 (2006) 6 SCC 293
ANDHRA PRADESH POLLUTION CONTROL BOARD v.
CCL PRODUCTS (I) LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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that absolute and unequivocal bank guarantee should be read as a
conditional one having regard to circumstances attending thereto.
It is, to our mind, impermissible in law.”
A bank guarantee constitutes an independent contract. In
Hindustan Construction Co. Ltd. v. State of Bihar4, a two judge
Bench of this Court formulated the condition upon which the invocation
of the bank guarantee depends in the following terms:
“9. What is important, therefore, is that the bank guarantee should
be in unequivocal terms, unconditional and recite that the amount
would be paid without demur or objection and irrespective of any
dispute that might have cropped up or might have been pending
between the beneficiary under the bank guarantee or the person
on whose behalf the guarantee was furnished. The terms of the
bank guarantee are, therefore, extremely material. Since
the bank guarantee represents an independent contract between
the bank and the beneficiary, both the parties would be bound by
the terms thereof. The invocation, therefore, will have to be
in accordance with the terms of the bank guarantee, or else,
the invocation itself would be bad.”
(Emphasis supplied)
19. The settled legal position which has emerged from the
precedents of this Court is that absent a case of fraud, irretrievable
injustice and special equities, the Court should not interfere with the
invocation or encashment of a bank guarantee so long as the
invocation
was in terms of the bank guarantee.
20. In the present case, the bank undertook to the appellant that it
would pay the guaranteed amount on demand, subject to the overall
amount stipulated in each of the three bank guarantees.  It was not for
the bank to determine as to whether the invocation of the bank guarantees
was justified so long as the invocation was in terms of the bank guarantee.
A demand once made would oblige the bank to pay under the terms of
the bank guarantee.  The State Bank of India correctly understood its
legal obligations and paid over the amount to the appellant.  In this view
of the matter and having regard to the terms of the bank guarantees, we
are of the view that the principle of law which has been formulated by
4 (1999) 8 SCC 436
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the Tribunal cannot be accepted as reflecting the correct legal position.
21. That apart, we are unable to accept the finding of the Tribunal
that the respondent was kept in the dark on the invocation.   It is evident
that following the invocation of the bank guarantees, the respondent
itself addressed a communication on 20 September 2012 to the Member
Secretary of the appellant. The communication contains a specific
reference to the invocation of the bank guarantees. That apart, it is
evident from the material on the record that the appellant had issued a
notice to show cause to the respondent to which the respondent also
submitted a response. The purpose and object of the bank guarantees
was to enable the appellant to secure compliance with environmental
standards prescribed in accordance with law. The appellant has invoked
the bank guarantees issued by the respondent because of the failure of
the respondent to discharge the obligations imposed upon it by the Task
Force Committee on 26 August 2011.
22. For the above reasons, we are of the view that the Tribunal
has erred in interfering with the invocation of the bank guarantees and in
directing the appellant to refund the amount of Rs 25 lakhs covered by
the three guarantees. While invoking the bank guarantees, the appellant
has clearly adverted to the fact that the status of compliance was
reviewed in the Task Force Committee Meeting; and that the officials of
the appellant had inspected the industry
and had observed certain
violations.  The invocation of the bank guarantees was therefore in terms
of the conditions stipulated in the bank guarantees.
23. The invocation of the bank guarantees was the subject matter
of the present appeal. We allow the appeal and set aside the impugned
judgment and order of the Tribunal.  There shall be no order as to costs.
24. Pending application(s), if any, shall stand disposed of.
Ankit Gyan
Appeal allowed.
ANDHRA PRADESH POLLUTION CONTROL BOARD v.
CCL PRODUCTS (I) LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]