TaxTMI 
TaxTMI 
2014 (9) TMI 1252
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....he 1st respondent not to en-cash the bank guarantees invoked by it issued by the 2nd respondent and also restraining the 2nd respondent from honouring/disbursing the guarantee amount under both bank guarantees shown in the schedule furnished by the bank to the 1st respondent. In O.P. No.178 of 2014 filed under Section 9 of the very same provision, petitioner sought the relief to restrain the 1st respondent from presenting the D.D. No.169498, dated 31-12-2014 for Rs. 10,00,00,000/- issued by the State Bank of India, Commercial Branch, Secunderabad - 2nd respondent payable at State Bank of India, Main Branch, Mumbai and D.D. No.169498, dated 31-01-2014, for a sum of Rs. 16,72,50,000/- issued by the 2nd respondent payable at the State Bank of India, Main Branch, Mumbai for encashment of the same and also to restrain the 2nd and 3rd respondents or any of their branches from honouring the said two D.Ds. and paying the amounts on presentation of the same by the 1st respondent for encashment and also to pass an injunction restraining the 2nd respondent from enforcing the securities deposited by the petitioner with them. 3. During the pendency of both the petitions before the Court belo....
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....dia, Overseas Branch, Mumbai, which in turn issued a bank guarantee to the petitioner for the said sum. The petitioner presented the said bank guarantee to the 2nd respondent with a request to issue a back-to-back guarantee in favour of the 1st respondent and executed a power of attorney in favour of the 2nd respondent empowering it to encash the bank guarantee lodged with them by the petitioner in the event of back-to-back guarantee issued by them is encashed. It is also stated that the banks had a cushioning period of one month where the bank guarantee of the 2nd respondent would expire first, and the other bank guarantees would follow. Along with that performance bank guarantee, the 2nd respondent issued another bank guarantee for Rs. 10,00,00,000/- on stand alone basis in favour of the 1st respondent to secure the advance payment made to the petitioner by the 1st respondent under the contract. iv) It is stated owing to the inability of the 1st respondent to provide the land under Trichy by-pass (17 Kms.), the scope of the contract value was reduced by about Rs. 120 Crores, and had the said stretch also been made available to the petitioner, there would have no out-stan....
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....land supposed to be provided for construction of the highway was not provided, thus, making it impossible for the completion of the project. viii) The petitioner states that the extension of the bank guarantee by the State Bank of India, Overseas Branch, Mumbai was delayed by a few days, as the request for the extension went up to the extent of Managing Director which fact was informed by the petitioner to the 1st respondent with reasons, but the 1st respondent replied that the delay can be done away with if a letter on the official letter head of the 2nd respondent addressing the reasons for the delay was sent to it. Pursuant to the same, the petitioner requested the appropriate officer of the 2nd respondent seeking a letter to that effect. But, while the things stood thus, to its surprise, a letter of encashment of bank guarantee, dated 30-01-2014, was received from the 2nd respondent wherein the 1st respondent asked the 2nd respondent to honour the bank guarantee and disburse the amount. ix) Thus, the petitioner sets out the 'fraud' in paragraph Nos.13 and 14, alleging that dispute has arisen when the 1st respondent fraudulently invoked the bank guarantees in s....
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....io veri Suggestio fa ls i, as the petitioner deliberately did not bring several facts that are relevant to the present case to the notice of the Court. According to the 1st respondent, there was no section-wise division of the project envisaged in the construction of contract and the contract was awarded on item rate basis for the construction of the entire Project Highway. It is according to the 1st respondent, the concession agreement is an independent contract between NHAI and the Concessionaire (TK Toll Road Pvt. Ltd.) and the date of commencement of work under the concession agreement was 15-01-2008 and the work for the project commenced on 12-01- 2008 based on the terms of the letter of intent issued to the petitioner by it and the construction work was formally executed subsequently on 14-03-2008 which incorporated the actual commencement date as 12-01-2008. iii) The 1st respondent also states that Clause 4.1 of the construction contract records the commencement date as 12- 01-2008 and it is also evident from the Scheduled Project Completion Date referred as 11-04-2010 in clause 25.1 of the contract and, therefore, the statement of the petitioner that there was dela....
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....any bank guarantee to which, Rs. 3.00 Crores towards ad hoc amount paid stands due and on the date of filing counter, the petitioner was due to repay ad hoc advance of Rs. 2.00 Cores and additional advance of Rs. 10.00 Crores. Thus, the outstanding amount under various advances yet to be paid by the petitioner, stands at Rs. 28.19 Crores (Mobilization Advance - Rs. 8.09 Crore; Material Advance - Rs. 8.1 Crore; Ad hoc Advance - Rs. 2.00 Crore; and Additional Advance - Rs. 10.00 Crore). vii) The letters repeatedly addressed by the 1st respondent to the petitioner would reflect the tardy progress of the work that the petitioner was obligated under the contract to mitigate for completion and the petitioner deliberately did not file the said letters, despite fully aware of the fact that the delays in execution of work were only on its part. viii) the 1st respondent specifically averred that since the petitioner could not execute the work at its own capacity, it (1st respondent) had to get some of the works executed by other contractors and payment was made to them directly by it on behalf of the petitioner, that too, since the petitioner has given its consent for payme....
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....The Construction Contractor (i.e. Petitioner) is to work in optimizing the use of site handed over to them", and as per Clause 7.1.5 (ee) that "the Construction Contractor shall assist the EPC Contractor/NHAI/Govt. agency in performing functions under contract of National Highways (Land Traffic) Act,2002 to the extent directed by NHAI/Govt agency under Concessionaire Agreement". The 1st respondent, therefore, states that the petitioner was not prevented from carrying on work and completing the construction in the land handed over to it and the non-completion was on account of its own inefficiency and lethargy. xiii) Concerning the statement of the petitioner that it is entitled for Rs. 175 Crores towards compensation, 1st respondent states that it is without any basis and fanciful which requires to be substantiated with adequate evidence. xiv) The details as regards the amount paid by the 1st respondent to the petitioner expressing that with a view to support the petitioner in early completion of the works such advances were paid which were already referred to in the above. xv) The 1st respondent states that since the petitioner started demobilizing its r....
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....he petitioner is notified of the defect. According to the petitioner, the COD was achieved and the 1st respondent started collecting toll tax after entering into a supplementary agreement with NHAI, and that itself is sufficient enough to show that the project was complete, and the 1st respondent is falsely claiming that the project is not complete and, therefore, claims that the said circumstance is sufficient enough to show the fraudulent intent of the 1st respondent which is an egregious nature. ii) It is contended that earlier, the petitioner mentioned in its affidavit that the claims may amount to Rs. 175.00 Crores, but on computation of cost and time over runs on the basis of well-established trade practices applicable to the business of Engineers and Contractors Claims and Compensations, the figure went up to Rs. 421.80 Crores and the petitioner has undertaken to keep the bank guarantee in force and valid till such time the arbitral award is passed by the Arbitrator and the petitioner should have no objection whatsoever for accepting the proposal and proposition put forth by the petitioner. iii) The petitioner also states that the 1st respondent has made a ....
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.... that as per Clause 8.1 of the Agreement, it is entitled to get the select project work or whole of the work done by any Sub Contractors, and as per clause 39.11, the petitioner is also entitled to advise/request the 1st respondent to make direct payments to the suppliers/sub-contractors upon petitioner's certification and, therefore, there is no illegality or unauthorized action on the part of the petitioner on this count and the 1st respondent attempted to deliberately mislead the Court that they have made such payments in view of petitioner's failure to make those payments. vii) According to the petitioner, the 1st respondent has admitted that the land in the project road chainage, that too, only 87% of the total chainage is given over a period of 60-66 months, as against the original contract tenor of 27 months, that too, in 168 installments which by itself would establish that delivery of land was not only delayed, but has taken place in such small bits and pieces, which is technically non-viable to ensure optimum and economic use of heavy plant and equipment. But, despite heavy odds including financial constraints, the petitioner continued and completed the work. ....
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.... or in a suit, dismissed both the petitions. 9. It is the said common order, which is impugned in the instant appeals contending that the Court below did not appreciate the material on record on proper lines and instead of tendering finding that the bank guarantees are not unconditional and conditioned by the terms contained in them and that the 1st respondent could have invoked the bank guarantees only under the terms and conditions set out in clauses of the bank guarantees held otherwise. It is also stated that despite the factual aspect establishing that the bank guarantees were invoked by the 1st respondent in a fraudulent manner even after completion of the project and after entering into a supplementary agreement with NHAI for collecting toll taxes, still, rejected the request. It is, still, further contended that the appellant would suffer irretrievable loss as it has already completed the project and the notification would also have adverse effect on the future projects of the appellant apart from incurring huge monetary losses, still, the Court below, did not appreciate the said vital aspect of the case. It is, further more, contended that the Court below overlooked the....
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....ause 8.1 of the agreement, appellant is entitled to get the select project work or whole of the work done by any sub-contractor and as per Clause 39.11, appellant is also entitled to advise/request the 1st respondent to make direct payments to the suppliers/sub-contractors upon appellant's certification, and, therefore, there was no illegality or unauthorised action on the part of the appellant in giving consent, but the 1st respondent taking undue advantage of the same, attempted to deliberately mislead the Court stating that they have made such payments in view of the appellant's failure to make those payments. It is also contended that on account of the lapse on the part of the 1st respondent in not making available the chainages and only 87% of total chainage was given over a period of 60 to 66 months and the fact that still, the balance was remaining on the date of filing of the petition, is sufficient enough to hold that 'special equities' favour the appellant for grant of injunctions. 12. Learned counsel for the 1st respondent, while refuting the contentions of the learned counsel for the appellant, reiterated the submissions made in the counter affidavit filed by the 1st....
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....xecuted. The learned counsel also relied on this decision for further proposition that a confirmed bank guarantee/irrevocable letter of credit cannot be interfered with unless there is established 'fraud' and 'irretrievable injustice' involved in the case, and the 'irretrievable injury' has to be of the nature noticed in Itek Corporation v. The First National Bank of Boston etc. 566 Fed Supp. 1210 15. The learned counsel also relied on the decision in U.P. Coop. Federation's Case (Supra 2), wherein while dealing with the case of 'fraud', it was held by the Hon'ble Supreme Court that the 'fraud' must be egregious nature, such as to vitiate the entire underlying transaction, further holding that while coming to a conclusion as to what constitutes 'fraud', quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank and Ors (1984) 1 A11E.R.351, in paragraph No.56, by extracting the observations, thus: "The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence mu....
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....e duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech." The Hon'ble Supreme Court while referring to the definition 'contract of guarantee' defined under Section 126 of the Contract Act in the same case held that when a contract of guarantee was sought to be invoked, it was primarily for the bank to plead a case of 'fraud' and not for a promisor to set up a case of breach of contract, which observations are contained in paragraphs '18' and '19' thus: "18. "Contract of guarantee" is defined under Section 126 of the Indian Contract Act in the following terms: "126. 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor' - A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor' and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written." 19. Bank G....
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....rantee or letter of credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned." 20. The learned counsel also relied on the decision in Mahatma Gandhi Sahakra Sakkare Karkhane's Case (Supra 5) for the proposition that if the bank guarantee furnished is an unconditional and irrevocable one, it was not bound to the bank to raise any objection whatsoever to pay the amounts under the guarantee, in the context of answering the question whether the bank guarantee is a conditional one or not. 21. In Vinitec Electronics's Case (Supra 6), the Hon'ble Supreme Court while reiterating the principles summarized in the decision in Himadri Chemicals Industries Ltd. (Supra 1), further held that the encashment of bank guarantee would cause any 'irretrievable injury' or 'irretrievable injustice' and special equities, if any, must be pleaded specifically to injunct the beneficiary from invoking the bank guarantee. 22. In Nangia Constructions's Case (Supra 7), the Hon'ble Supreme Court while dealing with invocation....
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....The Construction Contractor shall serve on the Concessionaire and the Concessionaire's/EPC Contractor's Representative, at least two (2) months notice of the date upon which the Construction Contractor anticipates that Project shall be completed. However, the Project shall be completed in 27 (Twenty Seven) months from Notice to Proceed i.e. on or before 11th April 2010 or such extended Time for Completion as may be granted under this Agreement." 27. Schedule H dealing with Site Handing Over and Project Schedule Completion work, reads thus: "SCHEDULE H SITE HANDING OVER AND PROJECT COMPLETION SCHEDULE The Site handing over to the Construction Contractor shall be immediately upon the Concessionaire/EPC Contractor receiving the same from NHAI. The Project Completion Date shall be 27 months from the date of Notice to Proceed or as may be extended under the provisions of this Agreement." 28. Concerning performance bank guarantee, Clause - 1.5.4 reads thus: 1.5.4: The construction Contractor shall, within 15 days from the date of notice to proceed, furnish to the EPC Contractor as its own cost the Performance Bank Guarantee to the extent of 5% of th....
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....inst the Mobilisation Advance from the invoices raised during the progress of the work. The recovery of Mobilisation Advance shall start after 20% of financial progress or 8 months from the commencement date, whichever is earlier. The monthly recovery shall be made @ 10% of the net payable amount in each running bill so as to ensure the complete recovery of advance by the time that 80% of financial progress is achieved. All such BGs shall be as per the format already provided and shall be issued from a bank with prior approval of the EPC Contractor. In addition to above advance the EPC Contractor shall pay another advance with respect to materials brought by the construction Contractor to the site for incorporation in the Permanent Works, the Constructions Contractor shall (i) receive a credit in the month in which these materials are brought to the Site and (ii) be charged a debit in the month in which they are incorporation in to the Permanent Works, both such credit and debit to be determined by the EPC Contractor's representative in accordance with the provisions of article 39.2.2. 30. Concerning obligation cast on the appellant that the appellant ....
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....such subcontracts or supply contracts, or that from any of its obligations under this Agreement." 33. For the submission that the appellant is advised / requested the 1st respondent to make direct payment to the supplier / sub-contractors upon its (appellant's) certification, the appellant relied on Clause 39.1.1, which reads thus: "39.1 Application for Payment 39.1.1 On the Seventh (7th) of every month from the date of issue of the Notice to Proceed, the Construction Contractor may submit the interim Payment Application to the EPC Contractor's Representative ("Request for Payment") requesting payment of the sum, which it considers to be due ("Monthly Sum") in respect of the work done during the preceding month ("Monthly Period") which shall include: (a) The amounts which the Construction Contractor claims to be payable in respect of the Works Executed in the relevant Monthly Period; (b) The cumulative amount of the Monthly Sums certified till the preceding month; (c) Any amount, which the Construction Contractor considers himself to be otherwise entitled to; (d) The cumulative amount of any other amounts previously certified....
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....ich are thus: "13. The dispute arose when the 1st respondent fraudulently invoked the Bank Guarantees inspite of being aware of the fact that there was a lapse on its part and the fact that the petitioner had already extended the Additional Bank Guarantee for Rs. 10,00,00,000 and was actively working on the process for the extension of the Performance Bank Guarantee for Rs. 16,72,50,000. 15. The 1st respondent herein has utterly failed to procure the land required for the purpose of laying roads and has never experienced any kind of trouble from the petitioner. In fact, even on this day, the complete land which is required for completion of the project has not been procured by the 1st respondent and even the land which was procured was given to the petitioner in 160 installments, which itself shows the deliberate negligence of the 1st respondent in cooperating with the petitioner in completion of the project. In view of the this default and breach, the Petitioner had suffered huge losses which have been quantified at Rs. 175 crores and the Petitioner has also raised these disputes with the respondent no.1, by way of letters dated 20.8.2010 and 17.10.212. The respo....
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.... 40. The vital aspect that touches the conduct of the appellant is, according consent to the 1st respondent to make payments directly to the third party-contractor by getting the work carried out which was left over by the appellant by even demobilising its resources from the site. It is not as though, a mere consent by the appellant was given for getting the balance work executed through other sub-contractor, which the appellant was supposed to execute, but even the payments were made by the 1st respondent, through the appellant. This circumstance attains greater significance since it affects vitally not only the fraud alleged by the appellant, but even it disfavours the appellant in proving the 'irretrievable injury' or 'irretrievable injustice' and further disfavours the appellant from seeking equitable relief of injunction based on 'special equities'. The attempt made by the appellant to take shelter under Clause - 8.1 relating to sub-contracting the works, gets completely condemned when the purport of the said sub-clause is examined. The obligations cast on sub-contractor/supplier, who is the appellant herein have been specifically mentioned in that sub-clause, which envisa....