2017 (9) TMI 1878 - HC - Indian Laws

Delhi High Court: Jurisdictional Limits in Bank Guarantee Dispute

Bharat Heavy Electricals Limited Versus Electricity Generation Incorporation And Ors.

The Delhi High Court determined that it lacked territorial jurisdiction to entertain a suit involving the validity of the invocation of a Performance Bank ... Invocation of Performance Bank Guarantee - decree of permanent injunction restraining Defendant from making payment - fraudulent invocation of Bank Guarantee - HELD THAT:- It is settled that if the cause of action has taken place in India and the Indian law applies, the parties cannot choose to vest territorial jurisdiction to try the suit in a Court which does not have the jurisdiction though they may agree to vest exclusive jurisdiction in one of such Court having jurisdiction, however, where one party is not subject to the law of India, the parties may vest jurisdiction outside the country in a neutral forum as has been done in the present case. The cause of action in the present case does not arise by virtue of the omnibus agreement between BHEL and BoB as there is no prayer in respect of the omnibus agreement to be enforced or violation thereof alleged but of the Counter Guarantee and the Performance Bank Guarantee which both vest jurisdiction in Courts outside India. As per the pleadings in the plaint, the plea taken by BHEL is not of expense or procedure or the law of England being different or that conditions are such that BHEL cannot proceed against the parties at London but is paucity of time which is not one of the grounds recognized. Even if this Court accepts that paucity of time is one of the grounds, time can be granted to BHEL to approach the Court of competent jurisdiction. Even though learned counsel for AKBank harps on the admissions made by BHEL in the plaint that the Commercial Court at London has the exclusive jurisdiction to try the suit and the present suit was filed only because of paucity of time for BHEL to approach the Court of competent jurisdiction, dehors the admission of BHEL this Court finds that it has no territorial jurisdiction to entertain the present suit, for it is well settled that contract of Bank Guarantee is an independent contract and merely because the same was issued at the place within the territorial jurisdiction of this Court and that the word 'only' is missing from the Counter Bank Guarantee clause, the same would not vest this Court with the territorial jurisdiction to entertain the plaint. The plaint is directed to be returned to be filed in the Court of competent jurisdiction however, since there is an ad-interim order in favour of BHEL since 10th March, 2017 and it would take some time for BHEL to approach the Court of competent jurisdiction the interim order dated 10th March, 2017 is extended for a further period of 45 days so that BHEL can approach the Court of competent jurisdiction - Application dismissed. Issues Involved:1. Jurisdiction of the Court.2. Validity of the invocation of the Performance Bank Guarantee and Counter Guarantee.3. Allegations of fraud and unjust termination of the contract.Issue-wise Detailed Analysis:1. Jurisdiction of the Court:The primary contention revolves around whether the Delhi High Court has the territorial jurisdiction to entertain the suit. The defendants argued that the Counter Guarantee is governed by English law and the place of jurisdiction is the Commercial Court at London. The plaintiff admitted this in the plaint but argued that part of the cause of action arose in Delhi since the Counter Bank Guarantee was issued there. The Court referred to precedents, including 'South East Asia Shipping Co. Ltd. vs. Nav Bharat Enterprises Pvt. Ltd.' and 'Hellenic Electricity Distribution Network Operator vs. Bharat Heavy Electricals Limited,' to emphasize that the mere issuance of a Bank Guarantee in Delhi does not confer jurisdiction if the primary contract specifies another jurisdiction. The Court concluded that it lacks territorial jurisdiction, directing the plaint to be filed in the appropriate court.2. Validity of the Invocation of the Performance Bank Guarantee and Counter Guarantee:The plaintiff, BHEL, sought a declaration that the invocation of the Performance Bank Guarantee by EGI was fraudulent and void. BHEL argued that the contract termination by EGI was unjust and did not comply with the contractual terms, specifically citing the lack of proper notice and the delay caused by EGI itself. The Court noted that the Performance Bank Guarantee and the Counter Guarantee are independent contracts and must be honored as per their terms unless there is clear evidence of fraud or terms violation. The Court did not delve deeply into the validity of the invocation, as it determined that it lacked jurisdiction to adjudicate the matter.3. Allegations of Fraud and Unjust Termination of the Contract:BHEL claimed that the termination of the contract by EGI was fraudulent, as it did not receive the alleged notices and the delay was on EGI's part. The Court acknowledged these allegations but reiterated that such issues should be decided by the court with proper jurisdiction. The Court cited precedents like 'Hindustan Steel Works Construction Ltd. vs. Tarapore & Co.' and 'U.P. State Sugar Corporation vs. Sumac International Ltd.' to emphasize that courts should not interfere with the enforcement of bank guarantees unless there is clear evidence of fraud or irretrievable harm.Conclusion:The Court directed the plaint to be returned to be filed in the Court of competent jurisdiction, extending the interim order for 45 days to allow BHEL to approach the appropriate court. The applications by defendants AKBank and BoB challenging the jurisdiction were disposed of, and the application by BHEL seeking to amend the plaint was dismissed. The case underscores the principle that the jurisdictional clause in contracts, especially international ones, must be respected, and the independence of bank guarantees from the underlying contract disputes.