Reliance Power Bank Guarantee Forfeited

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The Lucknow bench of Allahabad High Court has dismissed the claim of Reliance Power Limited seeking to refund Rs. 73.86 Crores amount of Bank guarantee furnished by it while it bagged prestigious bid for 2456 MW supply of power to UP Power Corporation Ltd. (UPPCL) from its proposed thermal power plant Chitrangi in MP in the year 2011.

The UPPCL had cancelled unconditionally accepted Letter of Intent (LOI) of Reliance and invoked the bid bond of 73.86 crores on 26 and 27 February, 2018. The Reliance Power Ltd. had challenged the orders of UPPCL on the grounds that coal linkage for the Reliance plant was later cancelled by Central Govt and LOI stands frustrated on account of coal unavailability.

The Reliance despite being ‘L-2’ had quoted levelised tariff of Rs. 3.702/unit was declared successful, and a Letter of Intent for procurement of 2456 MW power from 3960 MW Chitrangi Thermal Power Project was issued on 06/05/2011. The petitioner unconditionally accepted the letter of intent on 13/05/2011.

In compliance of the judgement of apex court dated 24.092014 the government of India vide notification dated 07/05/2015 cancelled its earlier notification dated 17/02/2010 which permitted use of surplus coal from Moher-Amlohri Extension and Chhatrasal Coal blocks to Sasan Ultra Mega Power Project for Chitrangi Power Project.

Counsel for petitioner contends that on account of the aforesaid judgment, the petitioner was unable to use surplus coal, from Moher, Moher-Amlohri Extension and Chhatrasal Coal Blocks for Chitrangi Power Project. It has also been pointed out that due to the consequence of the aforesaid judgement of the Apex Court, petitioner was unable to fulfill the conditions of the tender and the Letter of Intent issued by UPPCL stands frustrated. In the background of the aforesaid development, the petitioner vide letters dated 19/06/2017 and 06/02/2018 informed the UP government and UPPCL that in context of the bid dated 09/10/2010 and Letter of Intent dated 06/05/2011 that the respondents need to return the bond furnished by him.

The bench comprising Justices Devendra Kumar Arora and Alok Mathur examined the issues on merit and dismissed the pleas taken by Reliance Power. Scrutinising the entire bid process and the various conditions contained in the bank guarantee, Letter of Intent and the various provisions of the RFP document the court held, “it is clear that the purpose of the bank guarantee was to ensure that the successful bidder enters into the Power Purchase Agreement and submits Contract Performance Guarantee within 30 days. The consequences of failure have also been provided for in the Letter of Intent dated 6/05/2011 and it has been provided that failure to furnish Contract Performance Guarantee and execute the RFP documents would lead to invocation of the bid bond.

The court disallowed the pleadings of doctrine of frustration to the facts of the case and held, “we find that the RFP document provides for alternative choices of fuel, any of which could have been used by the petitioner. We have already observed earlier that the petitioner had an option to utilise imported coal and the choice of the fuel was not limited only to coal from certain blocks which had become unavailable due to the intervention of the judgment passed by the Apex Court.”