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HC allows Customs to encash bank guarantees to clear DPC dues

In yet another setback to Enron's Dabhol Power Company, the Bombay high court has allowed Pune Customs to encash bank guarantee provided by State Bank of India in respect of dues payable by DPC for importing key components of its LNG plant.

The verdict was delivered by Justices Hemant Gokhale and V C Dagga on an appeal filed by Commissioner of Customs challenging the December 10 order of Customs Excise Gold Appellate Tribunal, which had directed to keep the bank guarantee of Rs 725 million alive without encashing it.

The order was, however, stayed for three weeks by the high court to enable DPC file an appeal.

Attorney General Soli Sorabjee, on behalf of customs, argued that the bank guarantee was contractual obligation and it had to be encashed without demur on demand.

DPC had to pay Rs 2.46 billion duty and a penalty of Rs 450 million in terms of an adjudication order passed by S D Mujumdar, Commissioner of Customs, Pune. As against this, DPC had provided a bank guarantee to the tune of Rs 725 million.

Pune Customs wanted to invoke the bank guarantee after DPC failed to pay up its dues. However, the bank took three days time. Meanwhile, DPC got an ex-parte order of injunction from the vacation judge of Bombay high court.

The customs then moved a division bench of high court in appeal to vacate the injunction order. However, DPC took the plea before the division bench that it had already filed an appeal before the tribunal.

Pleading financial hardship, DPC urged for full waiver of pre-deposit of duty and penalty. The tribunal granted its plea without going into merits of the case.

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