NGT dismissed appeal for forfeiture of a part of Bank Guarantee

The National Green Tribunal on 27th May 2013 on the Appeal petition No. 05/2013 of the Haryana State Pollution Control Board in Haryana State Pollution Control Board (HSPCB) v. M/S Haryana Organics upheld the order passed by Appellate authority under Water Act, 1974 that held that forfeiture of a part of Bank Guarantee by HSPCB was void and illegal. The tribunal said the forfeiture of Bank guarantee was arbitrary and without legal basis. HSPCB had forfeited Rs. 12.25 lakhs out of 50 lakhs Bank guarantee on account of contaminated samples collected from the respondent distillery outlets that exceeded the permissible limits of contamination. The Bank guarantee had been originally deposited by the respondents on the directions of HSPCB for ensuring the compliance to the direction of the installation of RO/Nano filtration system on the distillery within the time bound program. This direction was issued upon the advice of a high powered committee that had been constituted by the Apex Court for securing zero industrial effluent discharge.

The question therefore in the National Green tribunal Case was whether HSPCB could have legally forfeited 25 per cent of the Bank Guarantee amount. The respondents had installed the filtration system on its distillery and had renewed the bank guarantee on the direction of HSPCB for checking the zero effluent industrial discharge.

The tribunal observed that purpose to seek the Bank guarantee of 50 lakhs was to ensure installation of the RO system within the time frame as per the program and when the compliance was made by the respondent then the purpose of the Bank Guarantee could be said to be accomplished and therefore the continuation of bank guarantee after due compliance of the RO system was not required.

The tribunal also observed that direction of deposit of bank guarantee by way of security for ensuring compliance was not by way of a mutual agreement between the parties and therefore the amount of bank guarantee cannot be forfeited in the absence of any clause relating to forfeiture of amount. The tribunal held bank guarantee or any part of it cannot be forfeited unilaterally in the absence of any specific term incorporated under any mutual agreement. The tribunal said there was no mutual agreement entered between the parties with respect to the bank guarantee.

The tribunal also said the bank guarantee was deposited upon the recommendation of Committee and therefore advice from the committee should have taken in regard to any action taken against the guarantee. The tribunal also observed that no direction was issued by HSPCB to the respondents in relation to the assurance of compliance to the exercise of power as available under section 30 of the Water Act. The State pollution control board is empowered under section 30 of the water act to carry out certain work and recover expenses for such work from the concerned person who was required to execute the said work. This work generally pertains to measures controlling environment pollution.

The Tribunal also observed even it is assumed that the appellants had the power to give direction to forfeit a part of money from bank guarantee then also such forfeiture of a part of amount from bank guarantee was illegal and improper in view of the fact that HSPCB did not complied with the due process of law as provided in rule 34 of the Water Rules. Rule 34 provides that State Pollution control board before issuing any direction under section 33 A of water act is required to serve the concerned person with a copy of proposed direction and an opportunity of being heard. The tribunal also took note of the fact that the respondents had installed the filtration system and thereby duly compiled with the directions and had switched from the use of molasses to grains as raw materials for production of rectified sprit thereby contributing to controlling of level of pollution.

Therefore, in this case National Green Tribunal held that forfeiture of a part of bank guarantee was uncalled for and dismissed the appeal petition of HSPCB.

Law Senate Comment:

State pollution control board can issue any direction under the Water Act but the said direction should have nexus with the performance of any of its functions under the Water Act. This direction should be issued only after following due process of law and it is only then legal and enforceable. In the above noted case, the forfeiture of a part of bank guarantee was uncalled for and improper in view of absence of any direction or mutual agreement providing the same. It is a settled position of law that money cannot be forfeited in the absence of any such clause provided in the agreement and it is also settled position of law that no direction can be issued without following due process of law.