TaxTMI 
TaxTMI 
2015 (2) TMI 487
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....M/s CRSSG-NCC(JV). The JV was awarded the work under a tender floated by National Building Construction Company Ltd. (NBCC Ltd.) on behalf of Employee State Insurance Corporation (ESIC) for the construction of ESIC Medical College-cum- Hospital at Mandi Himachal Pradesh. The Joint Venture ceased to exist and its rights and liabilities have been taken over by respondent No.1. Work for supply, erection and commissioning of air-conditioning equipment in the five buildings of ESIC was awarded to the petitioner for a fixed contract having value of Rs. 2,19,00,000/-. The completion period of the work was 14 months. At that time, the petitioner had furnished three bank guarantees of a sum of Rs. 4,28,00,000/-. During the course of execution of the work, some dispute arose between the petitioner and respondent No.1 and respondent No.1 encashed the bank guarantees of total sum of Rs. 4,28,00,000/- on 07.06.2013. The petitioner filed OMP No. 672 of 2013 under Section 9 of the Act seeking stay of the operation of termination letter dated 01.07.2013 by which the contract was terminated by respondent No.1. The petitioner also moved a petition under Section 11 of the Act being Arbitration Petiti....
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....ded the debt of respondent No.1 to category 'D' from the earlier category "BB+". It is further contended that respondent No.1 had in its meeting dated 02.08.2014 had decided to release the balance payment, including two escalation. It is further submitted that the work of ESIC Hospital has been stopped because the respondent No.1 has not made any payment to its contractors and this fact was also reported on 23.08.2014 in the newspaper Amar Ujala. It is further submitted that on account of inability of respondent No.1 to pay debts, the petitioner has issued a winding up notice dated 13.09.2014 to respondent No.1 at its registered office at Hyderabad. The petitioner had received a letter dated 13.09.2014 from respondent No.1, wherein various false allegations have been made by respondent No.1 and they had also threatened the petitioner that they were going to encash the bank guarantees and would get the balance work executed at petitioner's risk and cost. This letter was received by the petitioner on 13.09.2014 by e-mail at 3.00 PM. It is submitted that this threat to encash the bank guarantees amounts to a clear and egregious fraud by respondent No.1. It is further plead....
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.... out of the contract. It is submitted that admittedly a work order of Rs. 21,80,00,000/- was awarded to the petitioner, but the petitioner was only able to complete the work of Rs. 8.84 crores when the contract was terminated by the respondent No.1 and vide this MoU a total value of the work of Rs. 21,90,00,000/- was awarded to the petitioner to be finished in 14 months, which was extendable to two more months. It was towards the fulfilment of this contract that the fresh bank guarantees were furnished. The petitioner had also submitted a progress schedule dated 17.09.2013 along with the MoU. This schedule had shown the expected completion date as 20.09.2014 and the petitioner has not intentionally placed this document on the Court file along with his petition. It is submitted that it was only on account of the assurance and representation on the part of the petitioner, that he would be able to complete the work by 20.09.2014, that the respondent No. 1 had agreed to enter into an MoU and returned the earlier encashed bank guarantees of Rs. 4,28,00,000/- furnished at the time of earlier work order. As a good gesture, the respondent No.1 also agreed to pay the escalation price, but i....
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....ceived an escalation of approximately 30 crores from ESIC/NBCC. It is further submitted that after the termination of the work order dated 01.07.2013, the respondent No.1 made several attempts to get the work completed through other agencies like Suvidhar Engineers India Pvt. Ltd., but they refused to take the work knowing that the respondent had defaulted on its obligations with the petitioner. Thereafter, the respondent again approached the petitioner for completion of the work and agreed to the petitioner's main demand, i.e, to provide escalation on the work already carried out by the petitioner. It was on these grounds that the MoU was executed. It is further prayed that respondent be restrained from invoking the bank guarantee. 7. The contention of the petitioner on 17.09.2014, before this Court was that in terms of MoU, the respondent had to pay a sum of Rs. 1,96,77,486/- to petitioner, but instead of paying the said sum, the respondents had proceeded to invoke the bank guarantee and thereby playing fraud upon the petitioner. On that day, the counsel for respondent was also present and while the respondent was given time to file its short-affidavit, an order of status ....
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....10. The respondent has also placed reliance in the case of NTPC Limited vs. Flowmore Private Limited, 1995(4) SCC 515, Hindustan Steel Works Construction Ltd. Vs. Tarapore & Company, 1996(5) SCC 34, U.P. State Sugar Corporation vs. Sumac International Ltd. 1997(1) SCC 568, Mahatma Gandhi Sahakari Sakhar Karkhana Vs. National Heavy Engineering Coop. Ltd. and Anr. (2007) 6 SCC 470 and Dwarikesh Sugar Industries Ltd. vs. Prem Heavy Engineering Works Pvt. Ltd. (1997) 6 SCC 450. 11. It is argued that the respondent No.1 is a solvent company having huge turnover and so the petitioner is not going to suffer any irretrievable loss. It is further argued that even in the cases of Sick Companies, the Supreme Court has declined to restrain encashment of the bank guarantee. (Reliance is placed on U.P. State Sugar Corporation (supra)). It is further submitted that the petitioner has not been able to show that a fraud has been played upon him. It is further submitted that whether the escalation price was payable in relation to the previous work or the work done under MoU is a matter which qualifies the contractual dispute and does not constitute fraud which can vitiate the transition of issuan....
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....awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, Bank Guarantees are usually required to be furnished in favour of the Government to secure payments made to the contractor as "advance" from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such Guarantees are excusable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back to the "Government Advance", the Guarantee is invoked and the amount is recovered from the Bank. It is for this reason that the Courts are reluctant in granting an injunction against the invocation of Bank Guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the Guarantor. This was the principle laid down by this Court in various decisions. In U.P. Cooperative Federation Ltd. v. Singh Consultants & Engineers Pvt. Ltd.: [1988]1SCR1124, the law laid down in Bolivinter Oil SA v. Chase Manhattan Bank [1984] 1 All E.R. 351 was approved and it was held that an unconditional Bank Guarantee could be in....
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....ion and other towards advance purpose/execution of work. In order to understand the nature of bank guarantee-one of them is reproduced as under:- "M/s CRSSG-NCC(JV) 9TH Floor, JMD Regent Square, DLF Qutub Enclave, Phase-II Mehrauli-Gurgaon Road Haryana RE:-Irrevocable and Unconditional Bank Guarantee No.999513BG0002397 At the request of and for the account of M/s. Voltas Limited, A-43, Mohan Coop. Industrial Estate, Mathura Road, New Delhi a company incorporated under the Companies Act, 1956 and having its Registered Office at Voltas House 'A', Baba Saheb Ambedkar Road, Chinchpokli, Mumbai-400033 ("Obligee"), we, State Bank of India, CAG Branch, Ballard Estate, Mumbai-400 001 (Bank) having its Registered Office/Head Office at Nariman Point, Mumbai, a Corporation organized and existing under the laws of India, hereby issue our irrevocable and unconditional Bank Guarantee No. 999513BG0002397 (Guarantee) in favour of CRSSG-NCC (JV), having its Registered Office 9th Floor, JMD Regent Square, DLF Qutub Enclave, Phase-II, Mehrauli-Gurgaon Road, Gurgaon-100022, Haryana, together with its successors and ass....
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....eneficiary, forthwith on receipt of the Beneficiary's demand. Partial drawings are permitted, and this Guarantee shall, except to the extent reduced thereby, survive any partial drawings. The Stated Amount shall be reduced by the amount of any partial drawing by invocation under this Bank Guarantee at the request of Beneficiary. This Guarantee is valid through and including its expiry date of 30.09.2014 (in words Thirtieth day of September Two Thousand Fourteen). Upon request by the Obligee, on or prior to the current Expiraty Date, the Guarantee shall be extended, in which case we will provide Beneficiary with an amendment hereto. Any notice to Beneficiary in connection with this Guarantee shall be in writing and shall be delivered by hand with receipt acknowledged, or by Registered mail, postage prepaid, to Beneficiary. Any amendment reducing the amount of this Guarantee or otherwise limiting or impairing Beneficiary's rights hereunder shall not be effective, unless consented to in writing by the Beneficiary. This Guarantee will not be discharged due to the change in the constitution of the Bank or the Obligee or the Beneficiary. This Guarantee shall be gov....
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....however, the bank guarantees are unconditional bank guarantees and not conditional ones. Moreover, the case law discussed by Supreme Court in Hindustan Construction Co.Ltd. (supra) is squarely applicable on the facts of this case, as already discussed. 19. This Court in a recent judgment Consortium of Deepak Cable India Limited (supra), has held as under:- "145..............Disputes pertaining to the main contract cannot be considered by a court when a claim under a bank guarantee is made and the court would be precluded from embarking on an enquiry pertaining to the prima facie nature of the respective claim of the litigating parties relatable to the main dispute. The dispute between the parties to the underlying contract has to be decided at the civil forum i.e. a civil suit if there exists no arbitration clause in the contract or before the arbitral tribunal if there exists an arbitration clause in the contract. Pendency of arbitration proceedings is no consideration while deciding on the issue of grant of an interim injunction. That certain amounts have been recovered under running bills and ha....
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....e. (Vide Dr. Vimla Vs. Delhi Administration AIR 1963 SC 1572; Indian Bank Vs. Satyam Fibres (India) Pvt. Ltd. (1996) 5 SCC 550; State of Andhra Pradesh Vs. T. Suryachandra Rao AIR 2005 SC 3110; K.D. Sharma Vs. Steel Authority of India Ltd. & Ors. (2008) 12 SCC 481; and Regional Manager, Central Bank of India Vs. Madhulika Guruprasad Dahir & Ors. (2008) 13 SCC 170)." So, the question which is required to be determined by this Court is whether any fraud has been played upon the petitioner for obtaining the bank guarantees in dispute. 21. Fraud can be ascertained on the basis of facts. The person who comes before the Court with the allegation that a fraud has been played upon him has to establish those facts on record, which constitute the fraud. In its pleading, the petitioner has only pleaded in para 21 that threat to encash the bank guarantee amounts to a clear egregious fraud by respondent No.1. No other fact has been pleaded by the petitioner which constitute fraud. 22. In rejoinder also, the petitioner has not pleaded any facts which constitute fraud, except that the egregious fraud is made out from documents and pleadings. In written synopsis and during arguments, it h....
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....by any misrepresentation or fraudulent misrepresentation. The pleadings on the other hand show that the petitioner had voluntarily entered into MoU. Moreover, the very nature of the MoU (terms and conditions enunciated therein) clearly shows that two things were done simultaneously. Execution of three bank guarantees of Rs. 1,30,56,750.00, Rs. 1,09,50,000.00, and Rs. 99,50,000.00 by petitioner and refund of cash of sum of Rs. 4.28 crores by respondent No.1. The record of this fact in the MoU clearly shows that respondent No.1 bartered a cash amount of Rs. 4.28 crores against threes three bank bank guarantees worth of Rs. 3.39 crores executed by petitioner. The Court is unable to make out as to in what manner the respondent No.1 had got enriched by inducing the petitioner into the present MoU. The dispute between the parties to the effect whether the escalation charges were for the work done under this MoU or were for the work already done under the earlier work order, is not a subject matter of the present petition and the parties are free to raise this dispute before appropriate forum. The meaning of the word fraud in Oxford English Dictionary is 'the use of false representati....