Kishanganga hydro-electric project: SC dismisses HCC plea against NHPC invoking bank guarantee

The Supreme Court has dismissed Hindustan Construction Company’s (HCC’s) appeal seeking to restrain public sector undertaking National Hydro-Electric Power Corporation (NHPC) from invoking/encashing its bank guarantees (BGs) worth Rs 214.36 crore. The BGs were furnished as part of its contractual obligation during setting up of the Rs 1925.84-crore Kishanganga hydro-electric power project in Jammu and Kashmir.

While rejecting HCC’s appeal, a Bench led by Justice R Nariman said, “the contract speaks of final completion” and the company is yet to finish the project.

The Delhi High Court while rejecting HCC’s plea had noted that the balance works still remained incomplete, despite the fact that the Defect Liability Period will expire only in June 2021. The HC had also held that NHPC was justified in invoking the BGs as it might have to get work completed by some other agency as the project was yet to be completed. HCC had bagged NHPC’s contract to set up the 330-MW hydro-electric power plant in March 2009 and the project was to be completed in 84 months.

After the project has started commercially, the invocation of the BG for the balance work, valuing even less than 1% of the entire project cost, is clearly a matter of unjust enrichment for NHPC and thus the HC ought to have restrained NHPC from invoking the same, HCC stated in its appeal.

Alleging that the invocation of Rs 214 crore is “perverse and arbitrary and excessive,” the firm added that the pending work was only of Rs 56 crore, thus retaining Rs 214.36 crore worth of BG was “to use it as an instrument of oppression knowing fully well that NHPC shall have to pay monies under the arbitration once the award is passed.”

HCC senior counsel Mukul Rohtagi argued that NHPC had given “clearly fallacious” reason for invocation of the BGs to be non-performance of the contract as the project stood completed and was inaugurated by the PM in May 2018. While NHPC had issued a completion certificate, some delays in execution of the project were solely due to NHPC, HCC said, adding that even the Arbitral Tribunal had recognised this reason for the delay and had asked the PSU to pay Rs 163.55 crore with 9% interest per annum to the construction firm in October last year.

The construction company further said the arbitration awards to the tune of Rs 1,860 crore in respect of different projects had been awarded in its favour and against the NHPC. However, HCC is yet to enjoy the fruits of the decree, the petition stated.

“The HC had erred in ignoring that once extension of time was granted without any imposition of liquidated damages, it is indicative of the fact that there is no fault of the contractor and time had been extended without any penalty,” the appeal contended, adding that the HC’s view that the BGs were “unconditional and irrevocable” were baseless.