Court allows encashment of bank guarantees worth Rs. 72.50 Crores to secure revenue interests. Prima facie case required.

UNION OF INDIA Versus DABHOL POWER COMPANY

UNION OF INDIA Versus DABHOL POWER COMPANY - 2006 (199) E.L.T. 782 (Bom.) Issues Involved:
1. Waiver of pre-deposit requirement under Section 129E of the Customs Act, 1962.
2. Encashment of bank guarantees provided by the respondent.
3. Consideration of prima facie case on merits for granting interim relief.
4. Distinction between bank guarantees for commercial transactions and statutory requisitions.

Detailed Analysis:

1. Waiver of Pre-Deposit Requirement:
The petitioner challenged the order passed by CEGAT on 28th December 2001, which allowed the respondent to appeal without pre-depositing the duty of over Rs. 275 Crores and penalty of Rs. 45 Crores. The CEGAT concluded that insisting on pre-deposit would result in grave financial hardship for the respondent. Therefore, it waived the pre-deposit requirement on the conditions that the respondent would not clear the goods until the appeal's disposal and would keep the bank guarantees alive during the appeal's pendency.

2. Encashment of Bank Guarantees:
The petitioner argued that the bank guarantees worth Rs. 72.50 Crores should be encashed as the respondent failed to make the pre-deposit. The respondent obtained an ex parte order from the Bombay High Court restraining the Customs from encashing the bank guarantees. The petitioner contended that the order of CEGAT did not specifically prevent encashment, and the guarantees should be encashed to secure the revenue.

3. Consideration of Prima Facie Case on Merits:
The petitioner asserted that merely establishing financial hardship was insufficient for waiving the pre-deposit requirement. It was necessary to show a prima facie case on merits. The petitioner relied on judgments from the Delhi High Court, which emphasized that an appellant must demonstrate prima facie substance in their claim before claiming undue hardship. Conversely, the respondent cited judgments from various High Courts, including Delhi, Allahabad, Orissa, and the Supreme Court, which supported that financial hardship alone could justify the waiver of pre-deposit.

4. Distinction Between Bank Guarantees for Commercial Transactions and Statutory Requisitions:
The petitioner argued that there should be no distinction between bank guarantees for commercial transactions and those for statutory requisitions. The petitioner referenced the Supreme Court's judgment in Oil and Natural Gas Corporation Ltd. v. State Bank of India, which stated that no distinction could be made between different types of bank guarantees. The respondent countered that the principles for commercial transactions should not apply to statutory demands and guarantees given for specific requirements of authorities. The respondent argued that encashing the bank guarantees would cause irreparable loss.

Interim Relief and Final Hearing:
The court agreed with the petitioner that the bank guarantees should be encashed to protect the revenue's interest while also securing the respondent's interest. The court permitted the encashment of the bank guarantees with the condition that if the matter is decided in favor of the respondent, the amount would be returned with interest. The court clarified that the Tribunal should proceed to hear the appeal without being influenced by the observations made in this order. The court stayed the order for a period of 3 weeks to allow the respondent to move the Apex Court.

Conclusion:
The court ruled that both the necessity of showing a prima facie case on merits and the distinction between commercial and statutory bank guarantees required consideration. The court permitted the encashment of the bank guarantees as an interim measure, ensuring that the respondent's interests were protected. The writ petition was admitted for final hearing on 1st July 2002, and an authenticated copy of the order was made available to the parties.