TaxTMI 
TaxTMI 
2020 (4) TMI 917
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....ein), in favour of Respondent No. 1, under instructions of the petitioner. 3. The facts, in brief. 4. Consequent to the floating, by Respondent No. 1, of an international tender, for development of three blocks (Mangala, Bhagyam and Aishwarya, together denoted by the acronym "MBA"), and the acceptance of the offer of the petitioner, submitted by way of response thereto, a contract, dated 25th April, 2018, was executed, between the petitioner and Respondent No. 1 for integrated development of the aforesaid three fields. In terms of the said contract, various Performance, Liquidated Damages and Advance bank guarantees were furnished by the petitioner, of which, as already referred to hereinabove, the present petition concerns eight bank guarantees. 5. There are allegations, and counter-allegations, made by the petitioner, and the respondent, against each other, which are, prima facie, arbitrable in accordance with the provision for arbitration, contained in the aforesaid contract, dated 25th April, 2018. Asserting that it intends to invoke the remedy of arbitration, so available to it, the petitioner has moved the present application, before this Court, in terms of Section 9 of th....
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.... in law, the only ground on which invocation of a bank guarantee can be stayed, is the existence of egregious fraud, for which purpose Dr. Singhvi relies on U. P. Co-operative Federation Ltd v. Singh Consultants and Engineers (P.) Ltd. [1988] 1 SCC 174 and Svenska Handelsbanken v. Indian Charge Chrome [1994] 1 SCC 502. Dr. Singhvi submits that the petitioner has levelled a bald and baseless allegation of fraud, against Respondent No. 1, which is entirely insufficient to justify the prayer for restraining the invocation of the bank guarantees in question. Dr. Singhvi has also placed reliance on the decision in Itek Corporation v. First National Bank of Boston [1983] 566 F. Supp 1210, which has been approved by the Supreme Court in a number of decisions. 8. Dr. Singhvi further emphasised the fact that the contract envisaged work, to be carried out, by the petitioner, in three wells, to be completed on the 16th January, 2019, 16th March, 2019 and 16th June, 2019 respectively. The delay, thereafter, he submits, has been unconscionable, and has never been condoned by his client, either expressly or impliedly. Dr. Singhvi disputes the submission, of Mr. Sethi, that the communication, da....
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....nce, justifying such stay, namely the existence of special equities. Where refusal to grant stay would result in injustice to the petitioner, Mr. Sethi submits that the existence of special equities stood established. Mr. Sethi places reliance on Mahatma Gandhi Sahakara Sakkare Karkhane v. National Heavy Engineering Co-op. Ltd. [2007] 6 SCC 470 and U. P. State Sugar Corporation v. Sumac International Ltd. [1997] 14 SCL 165 (SC) 10. Mr. Sethi further submits that, in the light of the second paragraph of the letter, dated 31st March, 2020 supra, addressed by Respondent No. 1 to the petitioner, it did not lie, in the mouth of Respondent No. 1, to dispute the submission, of the petitioner, that it could have completed the work relating to the contract by 31st March, 2020. (At this juncture, Dr. Singhvi interjected, to reiterate his submission that, vide its earlier communications dated 9th February, 2019 and 16th January, 2020 - which find no place in the petition filed by the petitioner - Respondent No. 1 has rejected the request, of the petitioner, for being granted further time to complete the contract.) Mr. Sethi further submitted that it was not on 24th March, 2020, but on 18th M....
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....sbanken (supra): "Because I find that Itek has demonstrated that it has no adequate remedy at law, and because I find that the allegations of irreparable harm are not speculative, but genuine and immediate, I am satisfied that Itek will suffer irreparable harm if the requested relief is not granted." 12-13. Dealing with the aspect of irretrievable injury in the backdrop of its earlier decision in Svenska Handelsbanken (supra) , the Supreme Court, in U.P. State Sugar Corporation (supra) , held thus: 'The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with ....
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....d as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged." This Court set aside an injunction granted by the High Court to restrain the realisation of the bank guarantee. "14. On the question of irretrievable injury which is the second exception to the rule against granting of injunctions when unconditional bank guarantees are sought to be realised the court said in the above case that the irretrievable injury must be of the kind which was the subject matter of the decision in the Itek Corpn. case [566 Fed Supp 1210]. In that case an exporter in USA entered into an agreement with the Imperial Government of Iran and sought an order terminating its liability on stand by letter of credit issued by an American Bank in favour of an Iranian Bank as part of the contract. The relief was sought on account of the situation created after the Iranian revolution when the American Government cancelled the expor....
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....a 14 of the report: "(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract. (ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit. (iv) Since a bank guarantee or a letter of credit is an independent and a separate contract and is absolute in nature, 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 or letter of credit. (v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional bank guarantee or a letter o....
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....fraud - though the petitioner does attempt to do so, by a side wind as it were, in the petition - as a ground to seek injunction. All that is required to be seen is, therefore, whether "special equities" can be said to exist, as would justify grant of the relief sought by the petitioner. 19. Mr. Sethi was categorical in limiting his prayer to an injunction continuing up to the expiry of one week from the listing of the lockdown, presently in place, consequent to the unfortunate n-COVID-2019 pandemic, which has ravaged the country and, indeed, the world. Dr. Singhvi does not dispute, on facts, the inability - and, indeed, impermissibility - of workmen being able to travel or, indeed, of any personnel being able to move from one place to another, during the period of lockdown. Mr. Sethi submitted, categorically, that, as the stage of work, being performed by the petitioner, was of drilling of the wells, movement of labour and personnel, therefor, was necessary, and it was impossible for the work to continue while the lockdown was in place. He also submitted that, had the lockdown not intervened, his client would have been able to complete the work assigned to it by 31st March, 2020.....
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....of nationwide lockdown, in which we find ourselves today, has never, earlier, been imposed on the country. The imposition of the lockdown was by way of a sudden and emergent measure, of which no advance knowledge could be credited to the petitioner - or, indeed, to anyone else. As a consequence, submits Mr. Sethi, the petitioner's activities had to suddenly discontinue on 22nd March, 2020, and have not been able to resume ever since. 23. The lockdown, as imposed by the Central and State Government, is presently in place till 3rd May, 2020. Restrictions, on free movement of personnel and normal continuance of activities, had come into place even before 22nd March, 2020. In its communication, dated 18th March, 2020, the petitioner has sought to submit thus: "The significant, accelerated spread of the disease across the region and the rest of the world approx. 150 Countries including India and its significant impact on day-to-day life and ordinary course of business has received extensive coverage by the press, and worldwide national and international organisation. The outbreak is now qualified as global pandemic. ... Indian Government authorities have already stipulated rest....
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.... response, dated 31st March, 2020, of Respondent No. 1, to the aforesaid communications by the petitioner, initially candidly acknowledges the impact of the n-COVID-2019 pandemic, and the restrictions which are coming to place as a consequence thereof, in the following words: 'Company understands the current situation and impacts of COVID-19 globally and acknowledges the impact to operations as described in the letter G300HAL-PMGG-L-00135 from HOSI on 25 March, 2020. While the Company understands that there are difficulties and mobilization of resources in a safe manner, we have already clarified to you vide our email dated 25 March, 2020 (from Adwait Kulkarni, CCO - Capex Organisation) that the production of petroleum, which is an "Essential Commodity", and hence exempted under various orders relating to the restrictions relating to COVID-19, that had been issued in the central, state and district levels. The various orders specifically permit continuity however we do not see effort from your side to progress your contractual obligations despite all support provided by Company.' Mr. Sethi has sought to contend, with respect to the alleged "exemption", to which the afor....
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....ration as a result of the n-COVID-2019 pandemic, the petitioner would be entitled to an injunction, against the respondent, from invocation of the eight bank guarantees forming subject matter of the present petition. For the present, I am convinced, prima facie, that, in view of the submission, of the petitioner, that it was actually working on the project till the imposition of lockdown on 22nd March, 2020, or at least shortly prior thereto, and in view of the sudden and emergent imposition of lockdown, the interests of justice would justify an ad interim injunction, restraining invocation or encashment of the aforesaid eight bank guarantees, till the expiry of exactly one week from 3rd May, 2020, till which date the lockdown stands presently extended. As to whether this interim injunction merits continuance, thereafter, or not, would be examined on the next date of hearing, consequent to pleadings being completed and all requisite material, including all relevant Governmental instructions, being placed on record. The injunction presently being granted, it is reiterated, is purely ad interim in nature, and is being granted only in view of the completely unpredictable nature of the....