AI Drafter 
TaxTMI 
TaxTMI 
2014 (9) TMI 1271
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....tioner filed the petition under Section 9 of the Act being OMP No. 557/2014 seeking to inter alia stay the invocation of the Bank Guarantees furnished by the petitioner to the respondent No. 1 in terms of the Contract dated 22nd February, 2010 entered into between the parties. State Bank of India and State bank of Hyderabad are arrayed as respondents No. 2 and 3 respectively, in this petition. By order dated 16th May, 2014 it was directed that: (i) subject to the bank guarantees being kept alive; (ii) their encashment shall remain stayed in terms of prayer (a), (b) and (c) of the petition, till further orders. 3. It is submitted by the petitioner that the invocation of the Bank Guarantees is wrong, illegal and against the terms of the Contract and is fraudulent. 4. It is the case of the respondent No. 1 that the Bank Guarantees have already been invoked and encashed and hence, the Petition has become infructuous as the relief sought for by the petitioner i.e. a stay on the invocation and encashment on the Bank Guarantees cannot be granted at this stage for the following reasons: (i) In terms of the Contract, the respondent No. 1 issued letters da....
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....ection for the same. 9. Accordingly, there shall be a direction to the respondents 2 and 3 banks to remit the entire amount covered by the Demand Drafts in question to the Registrar General of High Court of Delhi forthwith, whereupon the same shall be kept in Fixed Deposit in the name of the Registrar General in the UCO Bank, High Court of Delhi branch. The amount covered by the Fixed Deposit as well as the interest accrued thereon shall be subject to the fresh order that may be passed by the learned Single Judge in OMP No. 557/2014. 10. The learned Single Judge is requested to dispose of OMP No. 557/2014 after hearing both the parties expeditiously, preferably before the closure of the Court for Summer Vacation. " 6. The matter was heard by this Court. The case of the petitioner as per the statement made in the petition is that under the contracts, it was the foremost obligation of respondent No. 1 to provide/assist the petitioner in obtaining Right of Way (ROW) so as to enable the petitioner to carry out its obligations under the contracts, however respondent No. 1 failed to do so and as a result of the same the contractual completion date of 16th October, 20....
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....f the petitioner in completing the project. Owing to same, respondent No. 1 issued a letter dated 9th May, 2014 (although the same was sent by courier only on the evening of 14th May, 2014) stating that petitioner has failed to meet the timelines as agreed for and also failed in completing the project despite several time extensions granted. There was no significant progress towards completion of the work. 9. It is argued by the respondent No. 1 that the petitioner filed the petition one day after the demand drafts dated 15th May, 2014 were deposited in the Bank of Baroda, Hyderabad. It has been stated that respondent No. 1 had filed a Caveat Petition in this Court as early in February, 2014, however still no copy of the petition was served upon respondent No. 1. It was only in the morning of 16th May, 2014 when the petition was filed in the Court that the respondent No. 1 was informed about the petition as he was not in town and could not appear in the Court due to such a short notice, however, by order dated 16th May, 2014 notices in the matter were issued and encashment of bank guarantees was stayed. Therefore being aggrieved by the said order, respondent No. 1 filed an appea....
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....y, 2014 i.e. 16 days from the date of time extension and as such the respondent No. 1's ulterior motives being the sudden invocation of the Bank Guarantees and the consequential termination is apparent. The said acts establish the sudden and complete volte face of the respondent No. 1 and the malafide motive behind the invocation of the Bank Guarantees and the sudden termination of the Contracts. 12. During the pendency of present petition, the petitioner has also filed the application being I.A. No. 10888/2014 under Order 6 Rule 17 CPC for amendment of petition. The matter is being decided after having considered even the amendment sought by the petitioner. 13. The matter came up for hearing before this Court when Mr. Rajiv Nayar, learned Senior counsel and Mr.Kartik Nayar, Adv. appeared on behalf of the petitioners and Dr. A.M. Singhvi, Mr. A.S.Chandiok and Mr. Sandeep Sethi, learned Senior counsel appeared on behalf of the respondents who have made their respective submissions on behalf of the parties. 14. The submissions advanced by Mr. Rajiv Nayar, learned Senior counsel for the petitioner can be summarised in the following manner: a) Firstly, learned Sen....
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....vance payment. It has been argued that firstly none of the aforementioned conditions in the instant case gets attracted and even they are, still the due process provided in the bank guarantee prior to invocation of the said bank guarantee is not followed and as such the said invocation of the bank guarantees is vitiated. c) It has been argued by the learned senior counsel for the petitioner that it is not the respondents' case that the petitioner has failed to commence its obligations and the same is also not factually correct as the respondent's own case is that the petitioner has completed more than 50 % of the works. It has been argued that even if it assumed that there exists any such case of the respondents that the petitioner has failed to fulfil the obligations contained in the contract, the said failure ought to have been pointed out to the petitioner and in the instant case the respondent issued the cure notice dated 15th May, 2014 post the invocation of the bank guarantees. The said invocation of the bank guarantees is vitiated by the prior notice which ought to have been given by the respondent No. 1 to the petitioner and this also reflects the ....
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....e other Bank Guarantees, it is submitted that the relevant condition in the Performance Bank Guarantees Nos. 0910311BG0000160,0910311BG0000161, 0910311BG0000162, 0910311BG0000164 is the requirement of "declaring the Contractor to be in default under the Contract ". It is submitted that there is no provision in the Bank Guarantee which defines "default " and as the Contract is incorporated under the Bank Guarantee, the petitioner therefore could only be declared to be in "default " in accordance with Clause 36.2.2 of the GCC. Though the said clause 36.2.2 required a Notice to be sent to the petitioner to cure any purported defects, the same was never done by the respondent No. 1 and as such the respondent No. 1 cannot contend that that the invocation of the Bank Guarantee was done because the petitioner was in breach etc. as till date even Liquidated Damages had not been levied and time extensions had continuously been granted throughout the Contract (time extension had in fact been granted till October, 2014). It is submitted that no such notice was received by the petitioner prior to the invocation of the bank guarantees i.e. on 14th May, 2014 and the purported cure notice under C....
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....the invocation of the bank guarantees is not fraudulent, still the special equities are in favour of the petitioner which is compelling reason for this Court to prevent the invocation of the bank guarantees by way interim orders from this Court. Learned Senior counsel for the petitioner argued that it is respondent No. 1 who had given the extension of times under the contract without imposition of the liquidated damages and the total time period for extensions was almost of 3 years and as such the said period was 1.5 times the original period of the contract. It is argued that there are several emails and correspondences furnished by the petitioner which go on to demonstrate that the failures were on the part of the respondent No. 1 to fulfil its obligations under the contract. It is the admitted position between the parties that the forest clearance has not been obtained for the whole project till date. Thus, the reasons for the delay in the progress of the work were not attributable to the petitioner but to the respondent No. 1. The respondent in such a case cannot be allowed to encash the bank guarantees which will be allowing the respondent No. 1 to take advantage of its own wr....
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....spondent No. 1 was only keen to offload a part of the works. There were no other intervening circumstances between the said period warranting the termination of the entire contract. * The notice to cure was not in terms of the clause 36.2.2 of the contract and the said notice was merely issued as formality though the said notice was required to make the petitioner aware of any breaches prior to the invocation of the bank guarantees but since it was issued after the encashment of the bank guarantees, the same was clearly fraudulent. As per the learned Senior counsel appearing for the petitioner, these are broadly the reasons which create special equities in their favour and warrants interim orders against the encashment of the bank guarantees. 15. The following are the decisions referred by the learned counsel for the petitioner in support of his submissions including his argument on special equities. The relevant parts referred are reproduced:- i) The Supreme Court in the case of Hindustan Construction v. State of Bihar, (1999) 8 SCC 436 held that merely stating the words "unconditional " and "irrevocable " in the bank guarantee does not make the guara....
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....separate, distinct and independent contract. This contract is between the Bank and the defendants. It is independent of the main contract between the HCCL and the defendants. Since the Bank Guarantee was furnished to the Chief Engineer and there is no definition of "Chief Engineer" in the Bank Guarantee nor is it provided therein that "Chief Engineer" would also include Executive Engineer, the Bank Guarantee could be invoked by none except the Chief Engineer. The invocation was thus wholly wrong and the Bank was under no obligation to pay the amount covered by the "Performance Guarantee" to the Executive Engineer. 22. We have scrutinised the facts pleaded by the parties in respect of both the Bank Guarantees as also the document filed before us and we are, prima facie, of the opinion that the lapse was on the part of the defendants who were not possessed of sufficient funds for completion of the work. The allegation of the defendants that HCCL itself had abandoned the work does not, prima facie, appear to be correct and it is for this reason that we are of the positive view that the "special equities" are wholly in favour of HCCL." ii) In Unit Construction Company....
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....ee there is also no averment that the amount claimed is due by way of loss or damage caused to or would be cause or suffered by the defendant No. 1. Even it has not been stated that there is any breach of the contract by the plaintiff. Now under such circumstances there cannot be any other conclusion but to hold that the invocation of the bank guarantee by defendant No. 1 in the present case is not in accordance with the requirements of the bank guarantee. In U.P. State Sugar Corporation (Supra) it has been held that the bank giving such a guarantee is bound to honour as per its terms irrespective of any disputes raised by its customer. In my considered opinion the aforesaid observation of the Supreme Court would also mean that in case the bank guarantee is not invoked in accordance with the terms or the requirements of the bank guarantee no invocation and/or encashment of the same is permissible under the law. Accordingly, I hold that since the bank guarantees in question have not been invoked in accordance with the terms of the bank guarantees, Therefore, the bank guarantees cannot be permitted to be encashed. (11) Since in the present case I have held that the bank guar....
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....k agrees that the liability of the said Bank to pay the Employer the amount so demanded shall be absolute and unconditional notwithstanding any dispute or disputes raised by the Contractor and notwithstanding any legal proceedings pending in any court or tribunal relating thereto. However, our liability under this guarantee shall be restricted to an amount not exceeding Rs.20.00 Lacs (Rupees Twenty Lacs only). We, the Canara Bank further agree that the Employer shall be the sole judge of and as to whether the said contractor has not utilised the said advance or any part thereof for the purpose of the contract and the extent of loss or damage, caused to or suffered by the Employer on account of the said advance not being recovered in full and decision of the Employer that the said Contractor has not utilised the said advance or any part thereof for the purpose of the said contract as to the amount or amounts of loss or damage caused to or suffered by the Employer shall be final and binding on us". 11. It would appear that the bank guarantee is an absolute one and irrespective of the existence of any disputes between the parties, it is invokable by the beneficiary a....
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....uccessfully brought out special circumstances which are sufficient to make the present case an exceptional one justifying interference by restraining defendant no. 2 from enforcing the bank guarantee in question. As a matter of fact having gained knowledge that the plaintiff has procured substantial material, even invocation of the bank guarantee after oral termination of the contract appears to be fraudulent. Bearing in mind all these factors, I find that special equities are in favor of the plaintiff and if the defendant is allowed to encash the bank guarantee in question, it would amount to irretrievable injustice to the plaintiff. I am, Therefore, satisfied that it is a fit case where defendant no. 1 needs being interdicted from encashing the bank guarantee in question. 25. For the view I have taken, it is unnecessary to go into the pleas of fraud and improper invocation of the bank guarantee raised by the plaintiff, although the invocation of bank guarantee by defendant No. 2's letter dated 9 August 1997, asking the bank- defendant No. 1 to remit the amount under the bank guarantee, prima facie, does not appear to be in terms of the bank guarantee. " v) I....
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.... not justified on the part of the respondent Authority to invoke the bank guarantee to the full extent of Rs.l7,98,244.00 . Hence, the invocation is not as per the term of the bank guarantee. The bank guarantee stipulates that the advance had to be recovered/adjusted from the bills of the contractor proportionately as the work proceeds. It was only when the authority failed to recover or adjust fully the advance then the authority could invoke the bank guarantee to the extent of the amount of the guarantee. This find support from the language of the bank guarantee where it is specifically mentioned that the claim made by the authority on the bank will be for the loss or damage caused to or suffered by reason of the authority not having been able to recover in full. Beside this view can be supported from the fact that original bank guarantee was for a sum of Rs.28,77,191.00 which was furnished on 10th July, 1990. To it own addendum, was issued on 28.8.1991 extending the bank guarantee up to 31st January, 1992 but amount of guarantee was reduced to the extent of Rs. 17,98,244.00. This was because by them from the running account bills an amount of Rs. 11 lacs approximately had been r....
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....ed. 34. The contention of the learned counsel for respondent No. 1 is refuted by the learned counsel for the petitioner who states that the alleged letter is not disclosing the specific breaches and the defects to cure under Clause 7.5 of the Contract and no advantage can be derived by respondent No. 1 in order to invoke the bank guarantee. 35. After having gone through the said letter, I am of the view that the submission of the petitioner, to some extent, is correct. In case, the said letter is read carefully, it is stated in the said letter that respondent No. 1 inspected over 1,30,000 rail clips of which around 2600 are detected as having failed and they need to be replaced. In the said letter, respondent No. 1 has asked the petitioner to send at least 5000 more rail clips and make available experts for inspection. The said letter is not a notice strictly under Clause 7.5 of the Contract rather the petitioner was requested to supply certain clips etc. (iii) Admittedly, no such notice was received by the petitioner at the time of invoking of bank guarantee. However, it appears that in the letter of invocation, it was mentioned that due to several breac....
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....he case of Continental Construction Ltd. v. Satluj Vidyut Nigam Ltd. 2006 (1) Arb LR 321, this Court while dealing with the meaning and purpose of the term "extra-ordinary special equities " for the purpose of invocation of bank guarantees held as under : Extraordinary Special Equities--- "15. The learned counsel appearing for the respondents contended that a case of 'irretrievable injustice or injury' would be a case as described by the Supreme Court in the case of U.P. State Sugar Corporation v. Sumac International Ltd. (1997) 1 SCC where the Supreme Court discussed the expression irretrievable injustice and injury while discussing the case of Itek Corporation v. First National Bank of Boston 566 Fed Supp 1210, and the present case itself would be a case of special equities or a case which can be placed on identical footings. According to the respondent in no other case, the Court could grant an injunction. This obviously would not be a correct approach of law. If the Supreme Court in its various judgments has referred to this case under distinct heads, they cannot be treated in law to be synonymous or interchangeable with each other. The expression spec....
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....ee being an independent contract it will be obligatory on the part of the bank to pay on demand to the beneficiary. It was stated as a principle of law that the terms of the bank guarantee are extremely material and should be invoked strictly in terms of such guarantee, free of fraud or irretrievable injury being caused to the guarantor/Contractor. Making reference to the terms of the bank guarantee, the Supreme Court held while relying upon the terms of the main contract held that a case of special equities was found to be in favor of the Contractor and an injunction order was passed restraining encashment of bank/performance guarantee. In that case, specific reference was made to the terms of the main contract as well as bank guarantee, as the terms of the bank guarantees referred to the obligations under the Contract for its due performance. " x) This Court in Hindustan Construction Co. Ltd. v. Satluj Jal Vidyut Nigam Ltd. (2006) 1 Arb LR 16 has held that if the parties in the contract have agreed to an internal adjudication procedure, the parties ought to respect it in letter and spirit and invocation of bank guarantees against such procedure was not tenable and theref....
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....ing upon encashment of bank guarantees is bound to cause irretrievable injustice and injury to the applicants, who otherwise have a case of special equities in their favor. 26. For the reasons afore-stated, this petition under Section 9 of the Arbitration and Conciliation Act, 1996 is allowed. The respondents are hereby restrained from invoking or encashing the Bank Guaranteessubject to the condition that the applicants would keep the above mentioned bank guarantees alive and would not discharge the same without specific leave of the Court, or the Arbitral Tribunal, as the case may be. However, in the facts and circumstances of the case, parties are left to bear their own costs. " ...a demand under the performance guarantee can only be made when "the seller has failed or refused to fulfill his obligations under the contract". The seller's demand or refusal is a condition precedent to the buyer making a demand. An assertion to that effect is implied in a demand made by the buyer. In circumstances where it can be said that the buyer has no honest belief that the seller has failed or refused to perform its obligation, a demand by the buyer in my view is a dishone....
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.... 25-Nov-11 31-Dec- 14 3,65,00,000 3,65,00,000 BG for release of Balance Payment i.e Retention Money .... do hereby undertake and agree to indemnify and keep indemnified the Beneficiary from time to time, to the extent of Rs......... against any loss or damage costs, charges and expenses caused to or suffered by or that may be caused to or suffered by the Beneficiary by reason of any breach or breaches by the Contractor of any the terms and conditions contained in the said Contracts to unconditionally pay the amount claimed by the Beneficiary on demand and without demur to the extent aforesaid. We the State Bank of India, further agree that the Beneficiary shall be the sole judge of and as to whether the said Contractor has committed any breach or breaches of any of the terms and conditions of the said Contracts and the extent of loss, damage, costs, charges and expenses caused to or suffered by or that may be caused to or suffered by the Beneficiary on account thereof and the decision of the Beneficiary that the said Contractor has committed such breach or breaches and as to the amount or amounts of loss, damage, costs charges and expenses caused to or su....
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....lready been cancelled/returned by issuance of the demand drafts, the invocation of the bank guarantees has already been effected and the interim directions passed on 15th May, 2014 have already been infructuous. Dr. Singhvi in order to substantiate the submission relied upon the judgment passed in the case of Thesiss Minecs India Pvt. Ltd. vs. NTPC Limited and Anr. (Single Bench) decided on 1st July, 2014 in OMP No. 630/2014 wherein it has been held that the when the proceeds arising out of the bank guarantee have been debited from the account out of which the payment is to be made, the same is said to be encashed. Dr. Singhvi thus submitted that since the bank guarantees are already encashed in the eyes of law, no further interim directions are called for and the interim order passed on 15th May, 2014 is required to be vacated. b) Secondly, Dr. Singhvi argued that the terms of bank guarantee are unconditional in nature and this Court should not interfere with the invocation of the bank guarantee in view of the extremely limited scope of the interference as per the well settled law by Supreme Court and this Court in the cases involving invocation of unconditional ....
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....id Contract, and in the event of such failure, refuses to repay all or part (as the case may be) of the said advance payment to the Employer. " Dr. Singhvi argued that the type 1 and type 2 bank guarantees are clearly unconditional in nature and hence the invocation of them cannot be restrained in any manner. As regards, type 3 Bank Guarantee, it has been argued that the same is also unconditional in nature as the wordings "in the event that the contractor fails " ought to be appreciated in their context and the same is decision/understanding of the respondent No. 1 who is to invoke the guarantee and not the banker. The reasons provided by Dr. Singhvi for the type 3 bank guarantee to be also unconditional are as under: * It has been argued that the type 3 bank guarantee is also unconditional in as much as while construing the terms of the said bank guarantee, clause 9.2.2 of the contract is required to be kept into mind which clearly provides that the petitioner would furnish the advance payment in the form of unconditional bank guarantees. The intention of the parties was always that the bank guarantees be unconditional. * It is contended that the invoca....
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....nvocation of the Bank Guarantees. * Dr. Singhvi, argued that the fraud contemplated by the judgments of the courts which can vitiate the transaction in the cases involving bank guarantees enabling the court to pass interim injunction against the invocation of the guarantees, is the fraud of egregious nature. Such fraud must be pleaded and established on record. It has been argued by Dr. Singhvi, that since the unconditional bank guarantee is a contract distinct from the underlying contract, the fraud must be such which should be directed towards the Bank in fulfilment of the terms contained in the Bank Guarantee or something which the bank has knowledge at the time when the invocation of the bank guarantee is sought for. In the instant case, there exists no fraud at all much less egregious fraud as per Dr. Singhvi which could be said to be within the knowledge of the Bank vitiating the entire transaction. It has been argued by Dr. Singhvi that the petitioner is alleging the breaches in order to categorise them as fraud which is impermissible in law as the bank has no concern with such allegations and by no stretch of imagination, the said allegations of putting the respons....
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....rgued by the petitioner relates clause 36.2.2 which relates to termination. The said notice has nothing to do with the invocation of the bank guarantee. In such a case, as per Dr. Singhvi, the requirement of the notice cannot be imported prior to the invocation of the bank guarantee and the contention of the petitioner in this respect is non meritorious. 19. In view of the aforementioned submissions advanced by Dr. Singhvi, it has been prayed that this Court should proceed to dismiss OMP No. 557/2014 by vacating the interim order passed on 16th May, 2014. 20. I have gone through the petition filed by the petitioner, reply on behalf of the respondent and the documents filed by the respective parties. I have also given my careful consideration to the oral submissions advanced by the learned counsel for the parties at the Bar and the written submissions filed by the parties. I shall now proceed to discuss the various aspects which fall for consideration before this Court for the purpose of deciding the present petition. 21. First and foremost, it is noteworthy to mention that there are 8 bank guarantees which have been invoked by the respondent on 14th May, 2014 and the said ....
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....rial Finance Branch, Raj Bhavan Road, Somajiguda, Hyderabad " 500082, a Bank (which expression shall include its successors, administrators, executors and assigns) having its Registered/Head Office at State Bank Bhavan, Central Office, 8th Floor, Madame Cama Marg, Mumbai-400021, Maharashtra, do hereby irrevocably guarantee payment to you up to Rs.5,49,74,199/- i.e., ten percent (10%) of the Contract Price until ninety (90) days beyond the Defect Liability Period i.e., upto and inclusive of 22.01.2013. We undertake to make payment under this Letter of Guarantee upon receipt by us of your first written demand signed by your duly authorized officer declaring the Contractor to be in default under the Contract and without cavil or argument any sum or sums within the above named limits, without your need to prove or show grounds or reasons for your demand and without the right of the Contractor to dispute or question such demand. Our liability under this Letter of Guarantee shall be to pay to you whichever is the lesser of the sum so requested or the amount then guaranteed hereunder in respect of any demand duly made hereunder prior to expiry of the Letter of Guarantee,....
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....tee bearing no. 0910310BG0000161 dated 12th March, 2010 for sum of Rs.11,74,10,849/- which has also been extended up till 21st January, 2015. The clauses of the guarantee document read on similar lines as contained in bank guarantee No. 0910310BG0000160. The clauses read as under: "Performance Security Form Contract No. TPTL/TOWER-A-1/02. Service contract for Tower Package " A1 for 400 KV D/C (Quad) Teesta III HEP " Panighata section of Teesta " III - Kishanganj Transmission Line associated with 1200 MW Teesta III HEP at North Sikkim. Specification No. : TPTL/TOWER-A1 We refer to the Contract ( "the Contract ") signed on 22.02.2010 between you and Joint Venture of M/s Abir Infrastructure Private Limited, having its Registered Office at Ground Floor, C-Block, Plot No. 14, Factory Road, Adj. to Safdarjung Hospital, Ring Road, New Delhi-110029 and M/s Deepak Cables (India) Limited having its Registered office at No. 7, N.S.Iyenger Street, Sheshadripuram, Bangalore-560020 ( "the Contractor ") concerning Ex-works Supply of all equipments and materials including mandatory spares for the complete execution of Tower Package " A1 for 400 KV D/C (Quad) ....
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....l be given by registered posts to the addressee at the address herein set out. We hereby agree that any part of the contract may be amended, renewed, extended, modified, compromised, released or discharged by mutual agreement between you and the Contractor, and this security may be exchanged or surrendered without in any way impairing or affecting our liabilities hereunder without notices to us and without the necessity for any additional endorsement, consent or guarantee by us, provided, however, that the sum guaranteed shall not be increased. No action, event or condition which by any applicable law should operate to discharge us from liability hereunder shall have any effect and we hereby waive any right we may have to apply such law so that in all respects our liability hereunder shall be irrevocable and, except as stated herein, unconditional in all respects. Notwithstanding anything contained herein : i) Our liability under this Guarantee shall not exceed Rs.5,49,74,199 (Rupees Five Crore Forty Nine Lac Seventy Four Thousand One Hundred Ninety Nine Only). ii) This Bank Guarantee shall be valid upot 22.01.2013. iii) We are ....
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....We refer to the guarantee No. 0910311BG0000841 dated August 20, 2011 as amended through a 1st Amendment dated August 18, 2012 and further amended through a 2nd amendment dated August 19, 2013 and 3rd amendment dated February 13, 2014 as issued by the State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 valid upto February 19, 2015. We hereby intimate you that the Contractor named in the said guarantee has breached and failed to fulfil its obligations under the Contract (as named in the said guarantee) and that such breaches by the Contractor may result in losses, damages, costs, charges or expenses being caused to or suffered by us, Teestavalley Power Transmission Limited. Accordingly, we hereby make a claim for an amount of INR 2,90,00,00.00 (Rupees Two Crores Ninety Lakhs) only pursuant to the said guarantee No. 0910311BG0000841 as the value of the losses, damages, costs, charges and expenses caused to or suffered by us on account of the breach by the contractor of its obligations under the contract and call upon you State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 to forthwith pay the ....
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....od ground towards raising an arbitrable claim which if found tenable may result in some success but the same may not hold good for seeking prevention of the invocation of bank guarantee in view of the unconditional nature of the bank guarantee and especially when the law is well settled on the subject that the bank is not concerned with the disputes between the parties in cases of the unconditional bank guarantees and is bound to honour the bank guarantees irrespective of such dispute. I shall deal with the other grounds raised by the petitioner separately after discussing the clauses of other bank guarantees and the contents of invocation letters. e. There is a bank guarantee bearing No. 0910311BG0001115 dated 25th November, 2011 and valid upto 31st December, 2014. The relevant terms of the said bank guarantee reads as under : "To M/s. Teestavalley Power Transmission Ltd. (A JV Company of Teesta Urja Ltd. & Powergrid) 143-144, Udyog Vihar, Phase IV, Guragaon-122015 (Haryana). Bank Guarantee for release of Balance Payment Bank Guarantee No. : 0910311090001115 Amount : Rs.3,65,00,000 Date of Is....
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....k of India, further agree that the Beneficiary shall be the sole judge of and as to whether the said contractor has committed any breach of any of the terms and conditions of the said contracts and the extent of loss, damage, costs, charges and expenses caused to or suffered by or that may be caused to or suffered by the Beneficiary on account thereof and the decision of the Beneficiary that the said contractor has committed such breach or breaches and as to the amount or amounts of loss, damage, costs charges and expenses caused to or suffered by or that may be caused to or suffered by the Beneficiary from time to time shall be final and binding on us. We, the said Bank, further agree that the Guarantee herein contained shall remain in full force and effect during the period that would be taken for the performance of the said contracts and till all the dues of the Beneficiary under the said contracts or by virtue of any of the terms and conditions governing the said contracts have been fully paid and its claims satisfied or discharged and till the Beneficiary certifies that the terms and conditions of the said contracts have been fully and properly carried out by the said....
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....Our liability under this guarantee shall not exceed Rs.3,65,00,000/- (Rupees Three Crores Sixty Five Lac only). 2) This Guarantee shall be valid upto 24.11.2012. 3) We shall be liable to pay any amount under this Bank Guarantee or part thereof only if we receive (if you serve upon us) a written claim or demand under this Guarantee on or before 24.11.2012 at State Bank of India, Industrial Finance Branch, Raj Bhavan Road, Hyderabad-500082. In presence of Witness : For and on behalf of ___(the bank) 1. Signature : 2. Name & Designation Authorization No. : Date & Place : Seal of Bank :" f. Likewise, the bank guarantee containing similar terms in the guarantee document is bearing No. 0910311BG0000841 dated 20th August, 2011 for the sum of Rs.2,90,00,000-/. The clauses of the guarantee are the same as contained in bank guarantee No. 0910311BG0001115 as stated above and thus are not reproduced again. The respondent No. 1 while invoking the said bank guarantees issued the letter dated 14th May, 2014 the contents of one of which reads as under: May 14, 2014 "To : St....
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....y evident that the wordings of the said clauses clearly allow the bank to honour the sum under the bank guarantee upon being notified that the petitioner is in breach of the obligations under the contract. The respondent No. 1 being the beneficiary under the contract of the guarantee is the sole judge to ascertain the breaches and there is no obligation upon the beneficiary/respondent herein to proceed against the petitioner prior to seeking the invocation of the two bank guarantees which are discussed under this head. The liability of the bank is again without cavil or dispute or any authority to question the respondent No. 1. Under these circumstances, the two bank guarantees are clearly unconditional in terms. The letter dated 14th May, 2014 issued by the respondent No. 1 clearly state that the petitioner is in breach of the obligations under the contract and the invocation is sought on account of the damages, costs, charges and expenses arising out the said breach. The petitioner has not disputed again the contents of the said letters by stating that the said letters are contrary to the terms of the bank guarantees. The petitioner also has not stated that the respondent No. 1 w....
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.... raised by the petitioner is not meritorious and liable to be rejected. I shall examine the plea of special equities separately in the latter part of this judgment. It is settled law that Bank Guarantee is an independent and a separate contract which is absolute in nature, and hence the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees. [Hindustan Construction Company v. State of Bihar, (1999) 8 SCC 436]. As per settled law for the last many decades only 3 exceptions have been carved out to the general rule that the invocation of unconditional bank guarantees should not be interfered with. The exception of fraud to invocation as alleged by the petitioner is also not applicable in the present case owing to the following reasons: * It is well settled that the fraud perpetrated must be of egregious nature which shakes the conscience of the Court. This Court has held that the fraud must be an established fraud and not mere allegations. [Bhandari Builders and Engineer Pvt. Ltd. v. Vijaya Bank, (2010) 168 DLT 47]. The fraud pleaded must be of an egregious na....
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....pment supplied under Supply Contract for providing all services in respect of equipment supplied under Supply Contract for the complete execution of the Tower Package " A1 for 400 KV D/C (Quad) Teesta III HEP " Panighata section of Teesta III - Kishanganj Transmission Line associated with 1200 MW Teesta III HEP at North Sikkim. Whereas, in accordance with the terms of the said Contract, the Employer has agreed to pay or cause to be paid to the Contractor an Advance Payment in the amount of Rs.26,17,42,403/- (Rupees Twenty Six Crores Seventeen Lakhs Forty Two Thousand Four Hundred and Three only). By this letter we, the undersigned, State Bank of India, Industrial Finance Branch, Raj Bhavan Road, Somajiguda, Hyderabad " 500082, a Bank (which expression shall include its successors, administrators, executors and assigns) having its Registered/Head Office at State Bank Bhavan, Central Office, 8th Floor, Madame Cama Marg, Mumbai-400021, Maharashtra, do hereby irrevocably guarantee repayment of the said amounts upon the first demand of the Employer without cavil or argument in the even that the Contractor fails to commence or fulfil its obligations under the terms of t....
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....rther amended through a 2nd amendment dated August 19, 2013 and 3rd amendment dated February 13, 2014 as issued by the State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 valid upto February 19, 2015. We hereby intimate you that the Contractor named in the said guarantee has breached and failed to fulfil its obligations under the Contract (as named in the said guarantee) and that such breaches by the Contractor may result in losses, damages, costs, charges or expenses being caused to or suffered by us, Teestavalley Power Transmission Limited. Accordingly, we hereby make a claim for an amount of INR 2,90,00,00.00 (Rupees Two Crores Ninety Lakhs) only pursuant to the said guarantee No. 0910311BG0000841 as the value of the losses, damages, costs, charges and expenses caused to or suffered by us on account of the breach by the contractor of its obligations under the contract and call upon you State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 to forthwith pay the claimed amount to us, Teestavalley Power Transmission Limited, New Delhi by way of demand draft immediately. Alternatively, remit th....
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....ower Transmission Limited, New Delhi by way of demand draft immediately. Alternatively, remit through RTGS immediately to the following account. Bank Account No. : 2158020000073 IFSC Code : BARB0INDELX Bank Name : Bank of Baroda Branch Address : CFS New Delhi The copies of the said bank guarantee along with extension letters is enclosed and upon receipt of the claimed amount the original bank guarantee shall be duly returned to the Bank. For Teestavalley Power Transmission Limited (T.K. Wali) (V. Vasu) Authorized Signatories Encl : 1. Copy of BG alongwith extension letters. 2. Letter from Bank of Baroda, New Delhi for Attesting signature of the Authorized Signatories. 3. State of outstanding Advance. " 23. 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 advan....
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....understood in the context and the said failure has to be the understanding or belief of the respondent No. 1, to which no question can be raised by the bank. Thus, the terms of the bank guarantees cannot be said to be conditional in nature. 25. I have considered the submissions advanced by the learned counsel for the parties on the terms of the bank guarantees Nos. 0910310BG0000163 and 0910310BG0000165 being conditional or unconditional in nature and I would say the terms of the two bank guarantees are distinctly worded and the plain reading of the same do not indicate at least on prima facie basis that the said two bank guarantees are unconditional in nature, though in the contract, they are mentioned as unconditional and similar was the position when the ex parte order was passed on 16th May, 2014. The reasons for my prima facie view on the two bank guarantee Nos. 0910310BG0000163 and 0910310BG0000165 are as under: a) It is well settled principle of law that only the terms of the bank guarantee are required to be read in order to discern whether the bank guarantees are conditional or unconditional in nature. In Mahatma Gandhi Sakkare Karkhane v. National Heavy Enginee....
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....tions like that the beneficiary is the sole judge or "without going into further enquiry as to payment or correctness of the payment " or related one are clearly not present. Thus, the judgments rendered in the cases of UP Coop Federation Limited v. Singh Consultants and Engineers (P) Ltd. (supra) and Mahatma Gandhi (supra) and Himadri Chemicals Ltd v. Coal Tar Refining Company (supra) and line of the authorities passed on the basis that in unconditional guarantee documents where beneficiary is the sole judge and the party cannot raise the dispute are not applicable to the factual position in hand in view of the differences in the wordings of the Bank guarantees. Therefore, the submission of the Dr. Singhvi, learned Senior counsel for the respondent that it is understanding and belief of the respondent which is to be taken in to consideration while seeking the repayment of the advanced sum from the bank at the time of encashing the bank guarantee is required to be rejected. This is due to the reason that the wordings of the guarantee documents do not permit the beneficiary to be the sole judge of the recovery of the advanced sum. On the other hand, the wordings of the clauses of th....
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.... to accede to the submission advanced by Dr. Singhvi, learned Senior counsel for the respondent. d) The submission of Dr. Singhvi, learned Senior counsel for the respondent that the order dated 16th May, 2014 records that the bank guarantees are unconditional in nature and thus this court should be persuaded to take the said position is also not correct in as much as the said view was taken by the court at ex-parte ad interim stage. The Court after hearing the parties and examining the documents filed by them and the import of them can also form an opinion different from the one taken at ex-parte ad interim stage. Therefore, the said submission of the respondent counsel is also rejected. In view of my aforementioned reasons, prima facie, I find that 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....
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....d under clause 38 of GCC which has not been exercised prior to the invocation of the bank guarantees and as such the respondent is also in breach of the terms of the contract and cannot allowed to take benefit out of the said breach. * No liquidated damages were ever deducted by the respondent against the extension of time granted earlier which clearly shows that the respondent was acknowledging the defaults and the respondent without examining the tenability of its claim as to the liquidated damages cannot be allowed to benefit out of the wrongs by way invocation of the bank guarantees * The petitioner will suffer irretrievable injury because of the purported invocation, since the financial health of the company will be severely affected and there is a possibility that the company may have to be wound up. * The respondent itself acknowledged the claims of the contractor as late as on 12th May, 2014 which was 2 days prior to invocation of the Bank Guarantees. * The involvement of Tata Projects Limited was done without information to the petitioner and even the work was being awarded to Tata Project Limited. No notice to cure the breaches or defec....
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....completion of the agreement up till October, 2014. It has been argued that suddenly the respondent limited the extension of time up till March, 2014. I have seen these letters and the request for extension of time and other emails relied upon by the petitioner, the entire thrust of the argument is that there are special equities in the favour of the petitioner as the respondent is under breach of obligation in providing the right of way and other forest clearances, besides the other grounds which I shall be narrated separately. I find that prima facie perusal of the letters and communications exchanged between the parties reveal that the petitioner plea it is the respondent who is completely at fault for the petitioner's delay in discharging the works under the contract by not providing the right of the way and forest clearances is also a disputed question under the agreement. The letter dated 3rd April, 2014 issued by the respondent to the petitioner also raises a dispute the said position of the petitioner by the respondent. It has been spelt out by the respondent in the said letter to the petitioner that seeking and obtaining forest clearance and preparation and arranging th....
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....ch ex facie establish without going into further disputed questions that the respondent is not entitled to encash the bank guarantees which are unconditional in nature and the petitioner is remediless so far as the recovery of the sums are concerned and it is impossible for the petitioner to recover such sums in future. On the contrary, the petitioner can always prefer the claims on such assertions and seek adjustment of the said sum in the arbitral proceedings. 31. The same view has been taken by the Supreme Court in the case of BSES Ltd (Now Reliance Energy Ltd.) vs. Fenner India Ltd, (supra) wherein the Supreme Court observed at para 28 and 29 that no such special equities existed on facts as the petitioner in the said case can always has remedy in case it succeeds in the arbitral proceedings and no such case of special equities and irretrievable injustice is made. In the words of the Supreme Court, it was observed thus: "28. As we have stated repeatedly, the First Respondent can succeed only if the case can be brought under the two accepted exceptions to the general rule against intervention. Evidently, there is no "egregious fraud" so as to fall within the first ex....
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....the reason that the said judgment is distinguishable on facts which can be seen as follows: a) In the case of Continental (supra), the respondent were intending to frustrate the internal adjudicative mechanism where the said decision was agreed to be final between the parties under the agreement. The liability under the said mechanism was already determined and the respondent was intending to frustrate the same by taking recourse to the encashment of the bank guarantee. No such final and binding the adjudicatory mechanism exists in the facts of the present case nor the said adjudication has taken place determining the liability and further no attempts to frustrate or over reach the process has been done by the respondent No. 1 in the present case. In the instant case, the clause 38 merely provides for mutual consultative process but that does not preclude the parties to raise the dispute or to arbitrate the matter. Thus, the factual position in the case of Continental (supra) cannot be compared to the facts of the present case. b) In the case of the Continental (supra) the claims were awarded by the internal adjudicatory mechanism in favour of the petitioner which....
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.....P. State Sugar Corporation v. Sumac International Ltd. (supra)]. Thus, the irretrievable injustice cannot be mere burdensome loss caused to the Petitioner. An injunction can be granted only when the injury is of the kind in Itek Corpn. Case (566 Fed. Suppl. 1210) where the aggrieved party is left remediless [U.P. State Sugar Corporation v. Sumac International Ltd. (supra)]. The irretrievable injustice should be of serious nature that the party is not able to reimburse itself and is not able to reclaim its loss [U.P. Coop. Federation Limited v. Singh Consultants and Engineers (P) Limited, (supra); Dwarikesh Sugar Industries v. Prem Heavy Engineering Works (P) Ltd., (1997) 6 SCC 450]. 35. In reply to the argument of the petitioner about special equities, it is the argument of the respondent No. 1 is that the special equities claimed have to meet the similar high threshold of irretrievable injustice. The special equities need to be of a gross nature that leave the party remediless. [U.P. State Sugar Corporation v. Sumac International Ltd. (supra)]. A dispute as regards the breach of the contract or that the Petitioner (Contractor) has a serious counter- claim which are refer....