TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 1271
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....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 dated 14th May, 2014 to the bank/Respondent No. 2 invoking the uncondition....
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....he 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, 2011 has been consistently and continuously delayed and even till date performance under the contracts is not complete. By lett....
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....s 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 appeal on 19th May, 2014 against the said order. Vide its order dated 21st May, 2014, the Division Bench directed the matter for reconsidera....
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....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 Senior counsel for the petitioner has argued that all the bank guarantees which are subject matter of the encashment are conditional in nature and the encashment/disbursement of the bank guarantee amount is contrary to the terms of the bank guarantee ....
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....rantees 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 conduct of the respondent No. 1 that the actions of the respondent No. 1 are actuated by malafide and fraud without putting the petitioner to notice on the alleged breaches committed by the petitioner prior to the invocation of the bank guarantees. d) Learned Senior counsel for the petitioner has argued that the re....
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....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 Clause36.2.2 was received by the petitioner only on 15th May, 2014. Therefore, it is submitted that the petitioner could not have been declared to be in default prior to the at least the expiry of the cure notice. Learned Senior counsel for the petitioner have argued that though the bank guarantees stated by them are conditional in nature but ....
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....he 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 wrongs. As such, the special equities are in favour of the petitioner. Learned Senior counsel has also narrated certain facts which as per the learned Senior counsel are special equities in favour of petitioner. The same are as follows : * The respondent No. 1 is only entitled to the liquidated damages under the contract and the bank guarantees can only be invoked ....
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....f 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 guarantee unconditional unless all the stipulations/conditions of the bank guarantee are satisfied. While observing a similar terms of a bank guarantee the Supreme Court held as under; "13. The Bank, in the above Guarantee, no doubt, has used the expression "agree unconditionally and irrevocably" to guarantee payment to the Executive Engineer on his first demand without any right of objection, but these expressions are immediately qualifi....
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.... 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 Pvt. Ltd. v. Steel Authority of India & Anr., passed in GA No. 2267/2009 and CS No. 237/2009 decided on 30th March, 2012, the Calcutta High Court while dealing with a bank guarantee which required the beneficiary to demand the amounts prior to invocation of the bank guarantee held that as the invocation letter did not comply with such condition of the bank guarantee, the invocation was not in terms of the bank guarantee. The relevant extract reads as under : "15. From a rea....
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....k 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 guarantees have not been invoked as per terms mentioned in the bank guarantees, it is not necessary for me to consider the other issues raised by the plaintiff and also the question as to whether there was any fraud in the instant case and/or any case of irretrievable injury has been made out by the defendant No. 1 or not. " iv) In the case of P.D. Alkarma Pvt. Ltd. v. Canara Bank, 1998 (45) DRJ 423, this Court while observing that the though the bank guarantees stipulated to be unconditional, yet contained a condition which stipulat....
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....e 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 as per stipulations therein. 15. Though the fact of defendant being under a heavy debt is disputed but issue of public notice by the bank is not denied in the written statement. During the course of hearing, a copy of the letter dated 9 August 1997, written by defendant no. 2 to the bank asking it to remit the amount under the bank guarantee in question was placed on record and it was submitted that the invocation of bank guarantee is not in accordance with its terms, as it neither stated that the plaintiff has not utilised the mobilization advance nor indicated the amoun....
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....ount 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) In the case of Ansal Properties & Industries v. Union of India, 1994 (29) DRJ 66, this Court while observing the need for stating the pre-conditions for invocation of the bank guarantee in the invocation letter held as under :- "11. It is thus clear that the invocation of the bank guarantee must be according to the terms of the bank guarantee. In the present case, both the bank guarantees clearly stipulate that amount of the bank guarantee shall be paid without any demur, merely on demand from the Government through the Financial Advisor and Chief Accounts Officer, Northern Railway, Kashmere Gate, D....
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.... 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 recovered. Hence it is apparent that the respondent could only invoke that much guarantee which had not been adjusted or recovered so far from the running account bills. (18) In view of these submissions made at the bar, the question for consideration is whether having already recovered/adjusted a substantial amount of the advance from the running bills of the petitioner, could the authority invoke the guarantee to the fullest extent? The guarantee in law is in fact given by the parties for an object and purpose namely, that the beneficiary may recover the amount easily from the guarantor without undergoing the botherat....
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....aving 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 breaches committed by the petitioner under the contract, the respondent No. 1 is invoking the bank guarantee issued by the respondent. Clause 7.1 mandates that the respondent No. 1 is entitled to call upon the performance bank guarantee in terms of Clause 7.5 (a) to (c). There is no cogent evidence produced by the respondent No. 1 in this regard strictly as per Clause 7.5. 39. From the entire gamut of the matter and settled law on the aspect, these cases are not a case of keeping the bank guarantee alive but these cases are of wrong invocation by the respondent. Therefore, this Court at this stage is not inclined to dismiss the petitions and vacate the interim orde....
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....ton 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 special equity would necessarily be not a case of irretrievable injustice or injury. There may be cases which are not similar to that of U.P. State Sugar Corporation (supra). As is obvious, the Supreme Court itself granted injunction in number of other cases which were not having identical circumstances to that case. The law can hardly be guided by stagnated principles. The law must be interpreted and its application would depend on changed circumstances and affairs prevailing in the field of the relevant law. Case of special equities would constitute a class in itself and in all circumstances they may not be the cases of irretrievable injustice/injury The applicability of law has to depend upon the facts of each case an....
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....arantee, 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 therefore special equities existed for injuncting the invocation of the Bank Guarantees. The relevant Para is reproduced hereunder : "25. Once the parties have opted for providing of an internal determinative forum or adjudicative mechanism, then it is obligatory and is expected from each one of them that they shall not only abide by such terms but would honour the decision of such Forum in its spirit and substance. The parties should essentially abide by these terms and should not disrespect or hinder or cause to hinder the result of such determination. The conduct of a party in this regard would be a relevant factor to be considered by the court, while deciding such interim applications. The expression 'extraordinary special equities&#....
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.... 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 dishonest act which would justify a restraint order. 26. In our considered opinion, a performance guarantee which was to be invoked in terms of the contract of guarantee but the same is being sought to be invoked not in terms of the agreement but for something which is alien to the agreement would be unconscionable and would lack in bona fides. The sum and substance of the argument of the learned counsel for the respondent was that the call was made in bad faith. We agree with the submission. Hence, we uphold the impugned order to the extent it relates to passing of the injunction order in favor of contractor and against the department against encashment of bank guarantees in question. " 16. In view of the aforementioned submissions advanced by the learned senio....
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....ges 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. f) 0910310BG0000841 20-Aug- 11 19-Feb-15 2,90,00,000 2,90,00,000 Sub Total (B) 6,55,00,000 6,55,00,000 TYPE-3 g) 0910310BG0000163 12-Mar-10 31-Dec- 14 15,85,05,417 8,83,85,339 Advance Payment BG ....do hereby irrevocably guarantee repayment of the said amounts upon the first demand of the Employer without cavil or argument in the event that the Contractor fails to commence or fulfill its obligations under the terms of the said 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. h) 0910310BG0000165 12-Mar-10 31-Dec- 14 2,80,69,966 76,78,053 Sub Total (C) 18,65,75,383 9,60,63,392  ....
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....ocation 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 bank guarantees. Dr. Singhvi has read over the terms of the bank guarantees and construed them to mean that the said bank guarantees are unconditional in nature. Essentially, Dr. Singhvi divided the bank guarantees into three types by way of wordings of the bank guarantees which reads as under: "Type 1: "do hereby irrevocably guarantee payment to you... 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. " [BGs at Page 78, 81 and 87 of the Petition] [NOTE: The Petitioner has admitted these BGs to be unconditional] Type 2: ".do hereby undertake and agree to indemnify and keep indemnified the Beneficiary from ti....
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....f unconditional bank guarantees. The intention of the parties was always that the bank guarantees be unconditional. * It is contended that the invocation of the bank guarantee is not dependent upon any dispute between the parties. Thus, merely the fact that the petitioner disputes the position that there are breaches on their part nowhere come in the way of the respondent No. 1 from invocation of the bank guarantee once it is the belief of the respondent No. 1 that the bank guarantee is required to be invoked. * It is well settled principle of law that the bank is in no position to decide the breach on the invocation of an unconditional bank guarantee. Thus, if the bank guarantees are not conditional in nature as per the understanding of the parties in clause 9.2.2 of the contract, the breach for the purposes of invocation is the discretion/decision of the respondent No. 1 which would suffice for the banks as the banks cannot decide the said question. * The order dated 16th May, 2014 also records that the bank guarantees are unconditional in nature. In view of the said reasons, Dr. Singhvi argued that this Court should proceed to infer all the bank guarantees are unconditio....
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....llegations and by no stretch of imagination, the said allegations of putting the responsibility of the breaches on the respondent No. 1 can enable this Court to infer any fraud out of the same which could also be within the knowledge of the bank vitiating the transaction/ contract of the bank guarantee. In the absence of the same, the contentions of the petitioner as per Dr. Singhvi are required to be rejected and the petitioner has failed to prove any circumstance of the fraud of the egregious nature as per the law. * Likewise Dr. Singhvi argued that the irretrievable injustice in the cases involving seeking restraint on Bank Guarantees is the one which cannot be mere burdensome loss caused to the petitioner but the one wherein the aggrieved party is rendered remediless. In support of the said proposition, the judgment in the case U.P. State Sugar Corporation vs. Sumac International Ltd., AIR 1997 SC 1644 was relied upon. It has been argued that such is not the case in the present case as the arbitration proceeding are yet to commence and the petitioner if at all has any claims, the same can be made and adjudicated by the arbitral tribunal. * Dr. Singhvi also argued that the s....
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....oked 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. Furthermore, to find out an answer to the question, whether the nature of bank guarantees is unconditional or the terms of the bank guarantees prescribe some prerequisites in order to attract the liability, the terms and the wordings of the bank guarantee are relevant. 22. Let me therefore see the terms of the bank guarantees in order to find out the answers to the aforementioned questions. a. There is a performance guarantee No. 0910310BG0000160 dated 12th March, 2010 for Rs.5,49,74,199-/ which has been ex....
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....ut being entitled to inquire whether or not this payment is lawfully demanded. This Letter of Guarantee shall remain in full force and shall be valid from the date of issue until ninety (90) days beyond the Defect Liability Period of the Facilities i.e. upto and inclusive of 22.01.2013 and shall be extended from time to time for such period (not exceeding one year), as may be desired by the Contractor on whose behalf this Letter of Guarantee has been given. Except for the documents herein specified, no other documents or other action shall be required, notwithstanding any applicable law or regulation. Our liability under this Letter of Guarantee shall become null and void immediately upon its expiry, whether it is returned or not, and no claim may be made hereunder after such expiry or after the aggregate of the sums paid by us to you shall equal the sums guaranteed hereunder, whichever is the earlier. All notices to be given under shall 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 ....
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....esta III HEP at North Sikkim. 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 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 resp....
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....guarantee is bearing No. 0910310BG0000162 dated 12th March, 2010 for sum of Rs.10,83,99,960/- which has been extended 21st January, 2015. The clauses contained in the bank guarantee are also worded on the same lines as contained in the bank guarantee Nos.0910310BG0000160 and 0910310BG0000161. The said clauses being identical in nature are not reproduced again. d. The fourth bank guarantee is bearing No. 0910310BG0000164 dated 12th March, 2010 for the sum of Rs.3,67,24,953 which is also renewed up till 21st January, 2015. The clauses contained in the document of the bank guarantee are also on the same lines which are mentioned in bank guarantees Nos.0910310BG0000160, 0910310BG0000161 and 0910310BG0000162 and therefore not reproduced again. Upon reading of the afore noted clauses contained in the documents of 4 bank guarantees along with the respective amounts, it can be said that the wordings of the clause clearly provide that the bank has undertaken to make the payment upon receipt of the first written demand by the beneficiary/respondent No. 1 herein declaring the contractor to be in default under the contract. The said payment is required to be made without any cavil or argum....
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....ew 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. " Upon reading of the contents of the letter dated 14th May, 2014 issued to bank - respondent No. 2 along side the wordings of the guarantee, it cannot be said that the respondent No. 1 has wrongfully mentioned anything in the said letter or misrepresented the bank or withheld anything of any sort to which the bank has any knowledge in relation to the invocation of these three bank guarantees. The letters issued by the respondent No. 1 are in accordance with the wordings of the guarantee and the petitioner has not raised the dispute to the wordings of the letters of invocation in order to allege any fraud on the part of the respondent No. 1. Petitioner however, has contended that there existed fraud on the ground th....
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....ructure Private Limited (in Joint Venture with M/s. Deepak Cables (India) Limited having its Registered Office at No. 7, N.S. Iyenger Street, Sheshadripuram, Bangalore-560020) having its Registered Office at SF-2, Bhikaji Cama Bhawan, Bhikaji Cama Place, New Delhi- 110066 (hereinafter called "the Contractor ") which expression shall unless repugnant to the context or meaning thereof, include its administrators, successors, executors and assigns) Contracts bearing Nos.(1) TPTL/Tower-A1/01 dated 22.02.2010 (2) TPTL/Tower- A2/01 dated 22.02.2010 for the work of Supply for execution of Tower Packages for Teesta-III HEP " Panighata section of Teesta III " Kishangunj Transmission Line associated with 1200 MW Teesta III HEP, North Sikkim (hereinafter referred as "Contract ") the Beneficiary has, in terms of said contracts, agreed to release the balance payment on submission of Bank Guarantee and therefore, the Contractor has agreed to provide a Bank Guarantee for Rs.3,65,00,000/- (Rupees Three Crores Sixty Five Lac only) for performance of the Contracts. We the State Bank of India (hereinafter referred as "the said Bank ") and having our registered office at the State Bank Bhavan, Centr....
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....mnity, from time to time to vary any of the terms and conditions of the said Contracts or to extend time of performance by the said contractor or to postpone for any time and from time to time any of the powers exercisable by it against the said contractor and either to enforce or forbear from enforcing any of the terms and conditions governing the said contracts or securities available to Beneficiary and the said bank shall not be released from its liability under these presents by any exercise by the Beneficiary of the liberty with reference to the matters aforesaid or by reason of time being given to the said contractor or any other forbearance, act or omission on the part of the Beneficiary or any indulgence by the Beneficiary to the said contractor or any other matter or thing whatsoever which under the law relating to sureties would but for this provision have effect of so releasing the Bank its such liability. It shall not be necessary for the Beneficiary to proceed against the contractor before proceeding against the bank and the guarantee herein contained shall be enforceable against the bank, notwithstanding any security which the Beneficiary may have obtained or obtain....
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.... 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 through RTGS immediately to the following account. Bank Account No. : 2158020000073 IFSC Code : BARB9INDELX 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 ....
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....information about the same. Such not being the case, the petitioner's allegation that there is fraud by merely raising a dispute when the bank guarantees are plainly unconditional in nature and there is no infirmity at the time of invocation of bank guarantees, the said ground has no relevance with the contract of the bank guarantee which is an independent contract between the bank and the beneficiary and is governed by the terms contained in guarantee document and the bank is to honour the guarantee irrespective of the dispute between the parties unless the terms of the main contract are incorporated in the terms of the guarantee. In the instant case, the respondent No. 1 is the sole judge to ascertain the breach and inform the bank and the decision of the respondent No. 1 is binding. Thus, the disputed question cannot be raised before the bank and this Court cannot substitute its own reasoning or dispute with the reasoning of the bank when the contract itself does not permit raising of any dispute by the bank. The wordings of the two bank guarantees are closer to the ones involved in the judgments passed by the Apex Court in Mahatma Gandhi Sakkare Karkhane (supra) U.P. State ....
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....lishing the same. g. There is a bank guarantee No. 0910310BG0000163 for the sum of Rs.26,17,42,403 which is renewed up till 31st December, 2014. The terms and conditions of the said bank guarantee reads as under: "Bank Guarantee Form For Advance Payment Contract No. TPTL/TOWER-A-1/01 & TPTL/TOWER-A-1/02 Specification No. TPTL/Tower-A1 Ex-works supply 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. and 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. We refer to the Contract ( "the contract ") signed on 22.2.2010 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-1100 29 and M/s. Deepak Cables (India) Limited having its Registered Office at No. 7, N.S.Iyenger Street, Sheshadripuram, Bangalore " 560020 ( "the contract ") concerning E....
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....lities under the contract. This Guarantee may be extended from time to time, as may be desired by the Contractor on whose behalf this Guarantee has been issued. Any claims to be made under this Guarantee must be received by the Bank during its period of validity, i.e. upto of ninety (90) days beyond the date of Completion of the Facilities by the Employer i.e., upto and inclusive of 22.01.2012. Notwithstanding anything contained herein: i) Our liability under this Guarantee shall not exceed Rs.26,17,42,403/- (Rupees Twenty Six Crore Seventeen Lac Forty Two Thousand Four Hundred Three Only). ii) This Bank Guarantee shall be valid upot 22.01.2012. iii) We are liable to pay the guaranteed amount or any part thereof under this Bank Guarantee only and only if Employer serve upon Bank a written claim or demand on or before 22.01.2012. " The respondent No. 1 has written the letter dated 14th May, 2014 to State Bank of India, Hyderabad " respondent No. 2 and the contents of the same are reproduced here under: May 14, 2014 "To : State Bank of India, Industrial Finance Branch, 6-3-1109/1 Raj Bhawan Road, Somajiguda Hyderabad-500082 Sub : Guarantee No. 0910311BG000....
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....eads as under: May 14, 2014 "To : State Bank of India, Industrial Finance Branch, 6-3-1109/1 Raj Bhawan Road, Somajiguda Hyderabad-500082 Sub : Guarantee No. 0910311BG0000165 issued on behalf of applicant Abir Infrastructure Private Limited Dear Sir, We refer to the guarantee No. 0910311BG0000165 dated March 12, 2010 as amended through a 1st Amendment dated January 21, 2012 and further amended through a 2nd amendment dated December 29, 2012 and further amended through a 3rd amendment dated December 24, 2013 as issued by the State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 valid upto December 31, 2014. 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), we hereby make a claim for an amount equal to the outstanding balance of the advance payment i.e. INR 76,78,053 (Rupees Seventy Six Lakh Seventy Eight Thousand Fifty Three) only pursuant to the said Guarantee No. 0910311BG0000165 and call upon you State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 to forth....
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....the petitioner is that so far as the letters of invocation of bank guarantees Nos.0910310BG0000163 and 0910310BG0000165 are concerned, the said letters dated 14th May, 2014 though claims the alleged outstanding balance of the advance payments Rs.15,85,05,417/- and Rs.2,80,69,966/- respectively, but the respondent No. 1 nowhere informed the respondent No. 2 as to when did the respondent No. 1 refused to repay the said sum and when did actually the respondent No. 1 called upon the petitioner to repay the advanced sum. In the absence of the same, as per the petitioner, the letter of invocation is contrary to the conditions contained in the bank guarantee and the bank could not have encashed the two bank guarantees Nos.0910310BG0000163 and 0910310BG0000165. On the other hand, the response of the respondent No. 1 to this objection is that the terms of the contract has to be read alongside the terms of the bank guarantee and clause 9.2.2 of the contract clearly makes the bank guarantees unconditional in nature. Furthermore, the respondent No. 1 has contended that the wordings "fails to fulfil its obligation under the terms of the said contract " has to be understood in the context and th....
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.... sum or the part thereof and has been given chance to repay the same and the guarantee of the bank shall commence once the petitioner/contractor refuses to repay. The invocation letters dated 14th May, 2014 do not contain the said ingredients nor the respondent's counsel in their arguments oral as well in the writing suggest the said position. On the contrary, the respondent continued to argue that the said bank guarantees are unconditional in nature and the wordings are to be understood in context. The said submissions are rejected as meritless in view of my reasons stated in the present paragraph b) The clauses of these two bank guarantees Nos. 0910310BG0000163 and 0910310BG0000165 are distinctly worded from the other ones in as much as in the cases of unconditional bank guarantees where the bank has no role to play in the transactions, the stipulations like "beneficiary is the sole judge to determine the breach " or "bank has no role to further enquire about the payment to be made " or "without going into the enquiry " or related terms are normally mentioned in the guarantee documents. In the two bank guarantees, such stipulations like that the beneficiary is the sole judg....
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....he bank guarantees plainly condition the liability of the bank by fulfilment of certain pre-requisites like the failure of the petitioner to perform the obligation and in that event his refusal to repay. The said mechanism is required to be followed by the respondent at the time of the invocation and non following of the same cannot be justified by substituting the terms of underlying agreement in the guarantee document. If the submission of the respondent is that the petitioner was mandated to furnish an unconditional bank guarantee and now is arguing that the bank guarantee is conditional, that by itself does not absolve the Court from examining the terms of the bank guarantees in order see through the true import of the terms of the bank guarantees. Therefore, whatever is the effect of the clause 9.2.2, if the terms of the bank guarantee are clear and plain, the court cannot go contrary to the terms of the bank guarantee document to hold otherwise. The aspect of the breach of the said terms if any has to be looked into at the time of preferring claim or cross claim in the arbitral proceedings. Therefore, this court is unable to accede to the submission advanced by Dr. Singhvi, l....
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....act. 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. The respondent in such a case cannot be allowed to encash the bank guarantees which will be allowing the respondent to take advantage of its own wrongs. As such, the special equities are in favour of the petitioners. Learned senior counsel have also narrated certain following facts which as per the learned Senior counsel are special equities in favour of petitioner. * The respondent is only entitled to the liquidated damages under the contract and the bank guarantees can only be invoked in terms of clause 36.2.6 of the GCC and even the said amount would come under Rs.10 crores while the bank guarantees sought to be invoked were to tune of Rs.47.90 crores which will be unjustly enriching the respondent. * There is a dispute resolution mechanism by way of mutual consultation by referring the matter to the project manager which has been prescribed under clause 38 of GCC which has not been exercised prior to the invocation of the....
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....the principle of the special equities or irretrievable injustice are applicable and not in the cases where there are allegations as to who is at breach or countering the breach as the bank has nothing to do with the dispute between the parties for the breach of the contract at the time of invocation of the unconditional bank guarantees. 28. I have considered submissions advanced by the learned counsel for parties on the aspect of the special equities. The petitioner has raised the plea of special equity by urging that the delay in the execution of the works has been on account of the fault of the respondent No. 1 by not providing the right of the way and other forest clearances etc, thus, the respondent cannot be allowed to take advantage of its own wrongs. In order to support the said plea, the petitioner has relied upon certain correspondences exchanged between the petitioner and respondent including letters dated 11th November, 2011, 30th November, 2012, 10th June, 2013, 4th July, 2013 wherein the respondent continued to the extend the period of the completion of the agreement up till October, 2014. It has been argued that suddenly the respondent limited the extension of time u....
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....r of the petitioner. 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. 30. Likewise, the other grounds narrated by the petitioner including non following of the settlement procedure as per clause 38 of the agreement, non imposition of the liquidated damages, non issuance of the notice to cure prior to 15th May, 2014 and violation of clause 36.2.2 are all the grounds which can be urged by the petitioner at the time of the preferring claims before the arbitral tribunal as the same are in the nature of the allegation of the breaches done by the respondent. These assertions nowhere clearly point out any case of special equity which ex facie establish without going into further disputed questions that the respondent is not entitled to encash the bank guarantees ....
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....ion of law to the facts of the present case, 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. 33. The reliance of the petitioner of the judgment passed in the case of Continental Construction Ltd v. Satluj Jal Vidyut Nigam Ltd. 2006 (1) Arb LR 321 in order to support the plea of the special equities is completely misplaced. This is due to 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 i....
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....ea was upheld by the court under the head of irretrievable injustice. No such circumstances exists which discharge the bank guarantee from the encashment. Thus, on this ground also, no special equities can assumed in favour of the petitioner in the instant case. In view of the above, the case of the Continental (supra) was factually different from the instant case and the reliance of the petitioner on the said case may not aid the case of the petitioner. Thus, this court is not persuaded by any plea of special equities or irretrievable injustice in the manner raised by the petitioner. 34. With regard to the argument of the petitioner about the exception of irretrievable injustice, the argument of Dr. Singhvi is that the irretrievable injustice is not just the adverse effect due to payment of money but must be of an exceptional and irretrievable nature. The injury should override the terms of the guarantee and the adverse effect shall have an impact on the commercial dealings as a whole in the country. [U.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 ....