(1.) This is a writ petition under Articles 226 and 227 of the Constitution of India for quashing the order dated 13-7-2002 of the respondent No. 3 M. P. Electricity Board by which the security deposit of Rs. 52.24 crores made by the petitioner Company has been forfeited and for a direction to the Board to refund this amount to the petitioner.

(2.) It is not in dispute that with the laudable objective of increasing the power supply and to tide over the difficult power situation a decision was taken by the Government to invite private parties for generation of electricity. The petitioner company was amongst others to submit its offer to set up a Thermal Power Plant at Bina in Madhya Pradesh. There was an agreement dated 12-2-1996 (Annexure P-l) between the petitioner and respondent M. P. Electricity Board (hereinafter to be referred to as the Board). This is known as "Power Purchase Agreement (PPA). Clause 8(e) of this Agreement was: "MPEB shall at all times following the First Unit Commercial Operation Date, maintain an Escrow Account with MPEB's Bank in such form and substance as is mutually agreed by the parties and on terms no less favourable than those applicable to any other independent power generating Company and into which MPEB shall, for each month, place funds therein and from which overdue payments under this Agreement may be made to the Company in the event of MPEB failing to maintain, replenish, renew, restore or replace one of more Letters of Credit in the amounts provided for above. Such Escrow Account shall be, (i) established and maintained by MPEB in accordance with Escrow Agreement, (ii) in form and substance acceptable to the parties". In this Agreement there was no provision for any "Security Deposit" to be made by the petitioner-Company.

(3.) In the letter dated 24-7-1998 (Annexure P-2) the respondent Board came forward with a proposal for "prioritisation of IPPs for Escrow Protection". It is stated in this letter that it has the "limitation of 2561 MW Escrowable capacity and therefore it is felt necessary to priorities the projects for providing Escrow protection mainly based on least tariff criteria". The petitioner company was required to pay a security/deposit equal to an amount of 2% of the project cost of Rs. 2612.044 Crores. It was stipulated in this letter that this amount shall be kept as a fixed deposit initially for a period of six months towards achieving 'financial closure'. This security deposit is being taken as a commitment from IPPs to achieve financial closure "within two months of providing a bankable Escrow Agreement form to be executed by the IPPs. failing which the security deposit will be forfeited. On achieving financial closure within above mentioned period, the security deposit will be released to the IPPs along with interest accrued."

(4.) The petitioner company by its letter dated 14-8-1998 (Annexure P-3) offered a reduced tariff and made a security deposit of Rs. 52.24 Crores with the Board. It was stated therein that the Escrow Agreement should be signed within a week and there should be allocation of Escrow centres to the satisfaction of the lenders. It was also stated: "the time period of two months will commence from the date when the Escrow Agreement to the satisfaction of the lenders is signed including the allocation of Escrow circles". The Board accepted the security deposit and the reduced tariff offer and by its letter dated 4-9-1998 (Annexure P-4) informed the petitioner: "the Board is pleased to grant Escrow protection to you for setting up of 2 x 289 MW Bina Thermal Power Project in Madhya Pradesh subject to the condition that Financial closure has to be achieved by you within two months from the date of providing a 'Bankable Draft Escrow Agreement' ."

(5.) There was further correspondence between the parties. On 23-9-1998 the Board sent to the petitioner a draft of the Escrow Agreement vetted by IDBI (AnnexureP-6). Schedule I of the draft Agreement was left blank. There was no list of Escrow circles known as "Specified Regional Accounts Offices" and it did not send the Security and Hypothecation Agreement. The petitioner by its letter dated 24-9-1998 pointed it out to the Board and further stated that there should be ceding of charge by the State Bank of India on the circles which were to be allotted to the petitioner. This Bank holds first charge on these circles being the Working Capital Banker of the Board. The Board in reply dated 26-9-1998 sent a list of six Escrow circles to the petitioner. The petitioner asked for more details and a letter from SBI agreeing to cede charge In favour of lenders. By letter dated 26-10-1998 the Board provided the draft Security and Hypothecation agreement. There was further correspondence: letter dated 22-12-1998 of the Board by which the petitioner was intimated that the SBI has been requested for ceding of charge on receivables of allocated RAOs.The matter did not progress because of the litigation pending in the High Court and then in the Supreme Court at the instance of some other party against the Board and the Supreme Court decided that case on 16-2-2000. The petitioned letter dated 21-2-2000 requested the Board to proceed with the signing of Escrow Agreement. Respondent No. 1 State of Madhya Pradesh also wrote to the Board on 9-3-2000 to carry out all necessary actions for "signing of Escrow Agreement".

(6.) The Board by its letter dated 8-4-2000 wrote to the petitioner: "it has been decided that Escrow Agreement for your project will be executed only after achieving financial closure by you and within the available Escrowable capacity of MPEB". The same position was taken by the Board in the letter dated 9-5-2000 (Annexure P-35). It was also stated in this letter that allocation of Escrow circles would be done after ceding of charge by SBI.

(7.) By letter dated 30-12-2000 (Annexure P-47) the Board provisionally allotted four revenue circles to the petitioner. These were Sagar, Guna. Gwalior and Morena. These were for 38 Crores. The Board subsequently informed the petitioner that revenue from these four circles would go up in course of time. ICICI Bank wrote to the petitioner Company on 15-1-2001 that Escrow circles of the above magnitude would fall short of the requirement of its project, even with aggressive growth estimate. The Board wrote letter dated 1-2-2001 to the ICICI Bank that the revenue of Rs. 38 Crores flowing through the four circles is bound to grow to Rs. 57 Crores in six months and to Rs. 114 Crores within four years at the time of COD of the project. The petitioner again requested the Board by letter dated 11-6-2001 to allot additional circles of Rs. 47 Crores to match its Escrow requirement. By letter dated 12-9-2001 (Annexure P-56) the Board informed the petitioner that Government of M. P. has indicated that due to non-availability of Escrowable capacity of the Board the alternative available is Reform Based Financing.

(8.) The petitioner by letter dated 11-9-2001 requested the Board to refund its security deposit as "Bankable Escrow Agreement" was not provided to it. The petitioner sent a legal notice dated 29-10-2001 (Annexure P-59) to the Board. In reply, the Board stated that "Bankable Draft Escrow Agreement" was sent to the petitioner on 23-9-1998 and therefore, the Board has fulfilledits obligation. It was further stated in the reply that the petitioner has failed to achieve financial closure within the stipulated time and therefore his security deposit is liable to be forfeited. It was also mentioned in this reply that the Board was not obliged to execute any Escrow Agreement prior to financial closure. It was also stated: "the financial position has deteriorated and in turn Escrpwable capacity of the Board has further reduced". It was suggested that the petitioner in the absence of sufficient escrow should go for Reform Based Financing as an alternative to the escrow. The Board further said: "Escrow will be provided at the time of Commercial Operation Date".

(9.) The petitioner filed this petition before this Court stating therein that the Board has not provided "Bankable Escrow Agreement" as per its policy in letter dated 24-7-1998 and therefore it has no right to retain the amount of security deposit of Rs. 52.24 Crores. During the pendency of this petition this Court by order dated 9-4-2002 in the present petition directed the parties to make an endeavour to come to an understanding with respect to the stage of escrow agreement". There could be no mutual settlement between the parties. The Board by the impugned order dated 13-7-2002 has forfeited the amount of security deposit during the pendency of this petition. The operation of that order has been stayed by order dated 8-8-2002 of this Court.

(10.) The case of the respondent No. 3 Board is that the writ petition is not maintainable as the matter is purely contractual and it involves disputed questions of fact. It is also stated that there is an arbitration agreement between the parties and for that reason also the writ petition is not maintainable. According to the agreement (Annexure P-l) the Board is required to maintain an Escrow Account with its Bank "following the first unit commercial operation date" and therefore, it has no obligation to execute "Escrow Agreement prior to financial closure". It is explained that 'financial closure' means the signing of the loan agreement and the fulfilment of all conditions precedent to the initial availability of funds thereunder. It is said that financial closure is therefore nothing but a certification that necessary funds for setting up the project have been tied up. It is further stated that even though there was no legal or contractual obligation on the part of the Board it agreed to issue letters of comfort even before financial closure to the petitioner to ensure that the power plant is set up. The purpose of opening and maintaining an escrow account is to secure payment for the electricity to be supplied by the petitioner to the Board. It is reiterated that the Board has already given "Bankable Draft Escrow Agreement" to the petitioner on 23-9-1998 and there is no breach of contract on the part of the Board. The Board's case is that the petitioner has not obtained financial closure for three years and therefore its security deposit has been forfeited.

(11.) The learned counsel for both the sides have been heard at length. The points for determination are: (a) whether the Board has provided a Bankable Escrow Agreement Form to the petitioner in terms of its letters dated 24-7-1998 and 4-9-1998; (b) whether the petitioner has committed default in not achieving the financial closure; (c) whether the Board is Justified in forfeiting the security deposit and (d) whether this writ petition is not maintainable in view of the matter being contractual and there is alleged arbitration agreement.

(12.) Points (a), (b) and (c): It is true that in the agreement dated 12- 2-1996 (Annexure P1) it is stated that the Escrow Account with the Board's Bank was to be maintained "following the first unit commercial operation date". But at the time of original agreement the petitioner was not required to make any security deposit. It is by letter dated 24-7-1998 (Annexure P-2) that the petitioner was asked to make the security deposit towards achieving financial closure. The financial closure was to be achieved within two months of providing "Bankable Escrow Agreement Form". Thus, there was novation or alternation in the original agreement in this respect. The plea of the Board is that in terms of this letter it was required to provide only "Bankable Escrow Agreement Form" and it has done so on 23-9-1998 by sending a form vetted by the IDBI. The crucial question Is whether this form was really in letter and spirit as per earlier commitments in letters dated 24-7-1998 and 4-9-1998. The petitioner while making the security deposit sent its letter dated 14-8-1998 (Annexure P-3) in which a request was made for the Escrow Agreement and the allocation of escrow centres to the satisfaction of the lenders. It was clearly mentioned that completion of the activities in a timely manner was the basis for commencement of two months period. The Board accepted the security deposit. It was therefore necessary for the Board to take effective steps to enter into Escrow Agreement with the petitioner, so that on the basis of this agreement the petitioner could obtain financial closure from its bank or financial institution. What was of importance was not the 'form' but the "substance". The form as a piece of paper was of little value. It was necessary for the Board to show that it has the capacity and the financial strength to enter into the Escrow Agreement. As discussed above the Escrow circles were not mentioned in this draft agreement. This form shows that it was to be executed by the Escrow Agent. It is admitted that the Escrow Agent was the State Bank of India. That was the Bank of the Board. Therefore, it was necessary for the Board to get this draft agreement vetted by the State Bank of India and not by the IDBI. The Board did not send security and hypothecated agreement with the draft of the agreement. The petitioner pointed out that it was necessary for the State Bank of India to agree for ceding its charge on the circles which were to be allotted to the petitioner. It is an admitted fact that State Bank of India was holding the first charge on these circles being working capital banker of the Board. Subsequently the Board provided the names of the revenue circles and wrote letter dated 22-12-1998 to the petitioner that the State Bank of India has been requested for ceding of charge on receivable of allocated circles. No such ceding was done by the State Bank of India. The State Government also wrote to the Board on 9-3-2000 to carry out all necessary actions for signing of Escrow Agreement but the Board instead of proceeding in that direction wrote to the petitioner that the Escrow Agreement would be executed only after achieving the financial closure by the petitioner. This was really a reversal of the earlier stand of the Board. Having committed to provide "Bankable Escrow Agreement Form" the Board could not take a U turn and depart from it. In all fairness the Board should have proceeded further to provide the Bankable Escrow Agreement form before the financial closure.

(13.) There was correspondence between the petitioner and the Board and several letters were exchanged but the Board never came forward with a concrete and definite step to enter into Escrow Agreement with the petitioner. It was necessary for the Board to take from the State Bank of India the necessary certificate of release of its charge on the revenue circles which were to be allotted to the petitioner to enable it to obtain financial closure. The financial closure could not be obtained because the draft of Escrow Agreement was not "Bankable". The use of the word "Bankable" in the letters dated 24-7-1998 and 4-9-1998 of the Board was very crucial. This furnishes a clue that the agreement was to be of the type which could be accepted by a bank or financial institution to arrange funds for the project which was to be commissioned by the petitioner company. It has been argued on behalf of the Board that it was never meant that the agreement should be to the satisfaction of the petitioner's lenders but the agreement should have been such which could form the basis for any bank to agree to arrange funds on its objective appraisal. The form alone was incapable of providing such a basis.

(14.) The Board did not pursue the matter relating to the question whether the Escrow Agreement form provided by it was bankable or not and came out with an altogether untenable plea that Escrow Agreement was to be made after the commencement of the generation of the electricity by the petitioner. It is clear from the whole conspectus that the quid pro quo for the security deposit of the substantial amount of Rs. 52.24 crores was the commitment of the Board to provide Bankable Escrow Agreement before the petitioner achieves financial closure. The Board cannot take shelter under the word 'draft' or 'form'. The 'draft' or the 'form' was of no use to anyone unless the Escrow Agreement was bankable. It is also crystal clear that the agreed escrow agreement was not provided because of the escrowable incapacity of the Board. It is for this reason that it made volte-face in spite of the State Government's letter dated 9-3-2000 by which it was directed to carry out all necessary actions for signing of Escrow Agreement.

(15.) During the course of hearing of this petition, the judgment dated 26-9-2001 of this Court has been cited. That was a case between Daewoo v. M.P.E.B. Writ Petition No. 6111/2000. An identical question arose in that case where Daewoo claimed refund of the security deposit. In para 65 the Bench has held: 'The term 'bankable' has its own significance. After the Apex Court judgment the Board has not provided any Escrowable Agreement form and, per contra has asked the petitioners to achieve financial closure. In my humble view, the Board has reversed the sequence and, therefore, under these facts and circumstances the Board could not have forfeited the security deposit."

(16.) From the above discussion it is clear that the Board itself has given a go-by to its commitment in letters dated 24-7-1598 and 4-9-1998 and did not provide Bankable Escrow Agreement to the petitioner company so that on its basis it could obtain the financial closure. The default was on the part of the Board and therefore it could not forfeit the amount of security deposit.

(17.) Point (d) The writ petition is maintainable against the forfeiture of security deposit and for a direction for its refund to the petitioner. It is not the case of enforcement of purely contractual obligation. The Board is an instrumentality of the State and it has to act in a just, fair and reasonable manner. The petitioner company made the security deposit with the Board on the faith of its representation that it would provide a Bankable Escrow Agreement. The Board did not do so. The question whether in such a situation the writ petition is maintainable has been considered at length by my learned brother Dipak Misra J. in Daewoo's case referred above. All the precedents cited by both the sides have been considered. His lordship has observed: "I am of the considered opinion the present case is not one where the matter relates to certain contractual obligations in stritco sensu involving enormous factual disputes but, on the contrary, requires this Court to adjudicate whether action taken by the Board is justified in law or reflects an exercise of arbitrary and unbridled power which law does not countenance. In view of this controversy, I am not persuaded to accept the submission of Mr. Tankha that the writ petition should not be entertained being not maintainable, and accordingly the same is repelled". It has also been held that there is no arbitration agreement for resolution of this dispute. I respectfully agree with the reasoning and the law propounded by him.

(18.) During the course of the hearing of this petition this Court tried to ascertain from both the sides whether there is still a possibility of the project for generation of electricity coming up in the State for the welfare of its people. It has been found that the power project agreement was entered into with the petitioner with the object of augmenting the power supply. Therefore, a constructive approach even at this stage should be made. It has been found from the various letters that the State Government is also serious in the project being established for production of power so that its acute shortage is overcome. That appears to be the reason that after termination of the litigation at the instance of another party the State Government wrote to the Board on 9-3-2000 to take appropriate steps for signing of the Escrow Agreement. The Board has the full backing of the State Government in the setting up of the project by the petitioner company and therefore, there appears to be no reason why effective steps should not

be taken by the Board to enable the petitioner company to set up its project for which it is said to have already invested crores of rupee. There should be no breaking point. This Court earlier recommended mutual settlement between the parties but it did not bear fruits. This Court has a right and also the duty to mould the relief. Therefore, it has become necessary to give a direction to the Board to see that the Escrow Agreement as envisaged in its letters dated 24-7-1998 and 4-9-1998 is signed to enable the petitioner company to obtain financial closure and then make efforts to set up its project as early as possible. During the course of hearing of this petition, learned counsel appearing on behalf of the petitioner company has expressed that the petitioner company is still vitally interested in setting up the Thermal Power Project in this State. (19.) In the result this petition is allowed. The order of the respondent M. P. Electricity Board (or the M. P. State Electricity Board) dated 13-7-2002 forfeiting the security deposit of Rs. 52.24 crores of the petitioner is quashed. The Board is directed to provide a "Bankable Escrow Agreement" to the petitioner-company in its true spirit as envisaged in its letters dated 24-7-1998 and 4-9-1998. This will be done within two months of the date of this order. The Board will get this agreement approved by the State Bank of India. The Board will make all possible efforts with the assistance of the State Government to obtain the clearance of the State Bank of India for this project. On furnishing of the "Bankable Escrow Agreement" by the Board with the clearance of the State Bank of India within two months of the date of this order to the petitioner company, the petitioner-company will obtain the financial closure from its banker or financial institution within the next two months. It is further directed that if for any reason this arrangement does not materialise the respondents Nos. 2 and 3 will refund the amount of security deposit of Rs. 52.24 crores to the petitioner-company with accrued interest. The respondents Nos. 4 and 5 have been impleaded but no relief has been claimed against them and they have no liability in the present case and therefore they are discharged. Order accordingly.