2014 (9) TMI 1271 - HC - Indian Laws

Court grants relief in bank guarantee dispute, restraining encashment of 2 guarantees and upholding 6 others.

ABIR INFRASTRUCTURE PVT LTD Versus TEESTAVALLEY POWER TRANSMISSION LIMITED & ORS

The court partially granted the petition by restraining the encashment of two conditional bank guarantees and directed the return of the equivalent amount ... Seeking to restrain respondent No. 1 from invoking, and respondents No. 2 and 3 from allowing any purported encashment of the bank guarantees submitted by the petitioner to respondent No. 1 pursuant to the contracts entered into between petitioner and respondent No. 1. HELD THAT:- There are 8 bank guarantees which have been invoked by the respondent on 14th May, 2014 and the said bank guarantees contain different terms and conditions in the guarantee documents which are worded distinctly. The said aspect needs consideration in view of the well settled principle of law that the bank guarantee is a contract independent from the underlying contract and in order to test as to whether the invocation of the bank guarantee is as per the contract, the stipulations contained in the document of bank guarantee are germane as against the terms of the underlying contract/ main contract which may or may not be relevant depending upon the incorporation of the terms of the main contract in the guarantee documents. From the reading of the terms of the Bank guarantees Nos. 0910310BG0000163 and 0910310BG0000165, it can be seen that the bank has guaranteed to repayment to said amount to the employer without cavil in the event the contractor fails to commence or fulfil the obligations under the terms of the contract and in the event of such failure refuses to repay all or part of the said advance payment to the employer. It is thus apparent that the liability of the bank would commence when the bank is informed about the demand on the ground of the failure to commence or fulfilment of the obligations under the terms of the contract and the refusal to pay the said sum or part of the advanced sum. The repayment of the advance sum and/ or adjustment by way of the repayment and/or information as to refusal to repay by the contractor the said advance sum or part thereof are crucial facts which affect the liability of the bank as per the terms of the bank guarantee Nos.0910310BG0000163 and 0910310BG0000165. Accordingly, the said facts of the refusal to repay by the contractor or repayment of the advanced sum either in part or in full and adjustment of the advanced sum by way of the payment are pre- requisite conditions on the basis of which, the bank can honour the guaranteed sum after getting itself satisfied in terms of the bank guarantee. The bank guarantees Nos.0910310BG0000163 and 0910310BG0000165 are conditional in nature and the invocation of the said bank guarantees by way of the letter dated 14th May, 2014 without fulfilment the mechanism provided in the guarantee documents by informing the petitioner about the repayment of the advanced sum and seeking the refusal or acceptance to repay is clearly contrary to the express terms of the guarantee documents. The said invocation is therefore prima facie contrary to the terms of the bank guarantee Nos.0910310BG0000163 and 0910310BG0000165 and as such liable to be interfered with by this Court. The question relating to providing of the right to way or forest clearances by the respondent is a disputed question and cannot aid the petitioner at this stage by seeking to prevent the invocation of the bank guarantees at this stage and more so when the petitioner is not remediless and can always lodge its claim in arbitral proceedings if it has any in relation to breaches as alleged by the petitioner and the tenability of the same shall be examined by the Arbitral Tribunal. It can be safely said that there is no such case of the special equities which is made out by the petitioner which leaves the petitioner as remediless to recover the said sum nor the said special equities as alleged by the petitioner are such which unequivocally establish the facts the complete non entitlement of the respondent to invoke the bank guarantees by the respondent. The respondent No. 1 has its own version of the nature of breaches done by the petitioner and the evaluation of the same cannot be done by this court on merits while deciding the application seeking interim measures at this stage. The said questions are disputed ones which are required to be examined and adjudicated by the arbitral tribunal to be appointed in the matter. So far as bank guarantees Nos.0910310BG0000163 and 0910310BG0000165 are concerned, it hereby directed that the amount equivalent to what has been stated in the invocation letters dated 14th May, 2014 pertaining to the said bank guarantees i.e. Rs.9,60,63,392 is returned to the bank i.e. respondent No. 2 along with the interest accrued on the said amount and same be put in the original position. The petitioner shall keep the said bank guarantees alive by renewing them, if need arises. It is hereby clarified that the above direction does not preclude the parties to deal with the said bank guarantees as per mechanism provided in the guarantee documents. The petition is accordingly disposed of. Issues Involved:1. Invocation and encashment of bank guarantees.2. Alleged fraud and breach of contract by the respondent.3. Conditional vs. unconditional nature of bank guarantees.4. Special equities and irretrievable injustice.5. Compliance with contractual terms and conditions.Detailed Analysis:1. Invocation and Encashment of Bank Guarantees:The petitioner sought to restrain the respondent from invoking and encashing the bank guarantees under Section 9 of the Arbitration and Conciliation Act, 1996. The respondent argued that the bank guarantees had already been invoked and encashed, making the petition infructuous. The court noted that the respondent had issued letters to the bank invoking the unconditional bank guarantees and had received demand drafts for the total amount, which were deposited in its account. The court held that the invocation was in accordance with the terms of the bank guarantees for six of the eight guarantees, making the petition partially infructuous.2. Alleged Fraud and Breach of Contract by the Respondent:The petitioner alleged that the invocation of the bank guarantees was fraudulent and against the terms of the contract. The court examined the allegations of fraud and found that the petitioner had not provided specific pleadings or material particulars to establish fraud. The court held that the allegations of fraud were related to the merits of the case and could be raised in arbitration proceedings but did not warrant interference with the invocation of the bank guarantees.3. Conditional vs. Unconditional Nature of Bank Guarantees:The court analyzed the terms of the bank guarantees to determine whether they were conditional or unconditional. For six of the bank guarantees, the court found that the terms were unconditional, as they required payment upon receipt of a written demand without the need for further proof or grounds. However, for two bank guarantees, the court found that the terms were conditional, requiring the contractor's failure to fulfill obligations and refusal to repay the advance payment. The court held that the invocation of these two guarantees was contrary to their terms and required compliance with the stipulated conditions.4. Special Equities and Irretrievable Injustice:The petitioner argued that special equities and irretrievable injustice warranted interim relief against the invocation of the bank guarantees. The court held that special equities must be of a gross nature, leaving the party remediless. The court found that the petitioner had not established special equities or irretrievable injustice, as the petitioner could seek remedies in arbitration proceedings. The court noted that disputed questions regarding breaches of the contract did not constitute special equities.5. Compliance with Contractual Terms and Conditions:The court examined whether the invocation of the bank guarantees complied with the contractual terms and conditions. For six bank guarantees, the court found that the invocation was in accordance with the terms. However, for two bank guarantees, the court found that the invocation did not comply with the conditions stipulated in the guarantee documents. The court directed that the amount equivalent to these two guarantees be returned to the bank, and the petitioner was required to keep the guarantees alive by renewing them if necessary.Conclusion:The court partially granted the petition by restraining the encashment of two conditional bank guarantees and directed the return of the equivalent amount to the bank. The court upheld the invocation of six unconditional bank guarantees and directed the release of the corresponding amount to the respondent. The court disposed of the petition and the pending application for amendment of the petition.