TaxTMI 
TaxTMI 
2021 (11) TMI 1216
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....cts 3. On 26th April, 2004, the respondent, Central Warehousing Corporation (CWC) issued a Request for Proposal (RFP), inviting tenders for providing Strategic Alliance Management and Operations and Commercial Services at six Inland Container Deports (ICDs)/Container Freight Stations (CFSs). Clause 4.6.5 of the RFP required the operator, to whom the tender was awarded, to submit a minimum yearly return and to commit for a minimum guarantee of business in terms of traffic (referred to, alternatively, as "Minimum Guaranteed Throughput"/"MGT"). In respect of ICD, Loni, the MGT was 18000 TEUs per annum. One TEU represented one (120 foot) container. 4. The appellant was the sole bidder. The financial bid of the appellant was opened on 5th July, 2004. There were various exhibits to the financial bid. Exhibit 10, titled "Format for Commercial Bid", read thus: "FORMAT FOR COMMERCIAL BID NAME OF THE CFS/ICD: LONI A Fixed Fee (lumpsum) per annum B(I) Variable fee per TEU for loaded container entering or leaving the facility B(II) Variable fee per TEU being transported between gateway ports and Inland CFSs/ICDs C. The fixed ....
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.... CWC to the appellant. It also required the appellant to furnish an irrevocable bank guarantee from a nationalised bank, in favour of the CWC, for the MGT, of Rs. 2,72,90,000/-. 6. The LoI was followed by the execution, between the appellant and the CWC, of a formal Agreement dated 16th February, 2005. Clauses 2.0 to 13.0 set out the obligations of the appellant. Clause 14.0 required customs expenditure, as demanded by customs authorities, to be paid by CWC and reimbursed by the appellant. Clause 15.0 permitted CWC to make business proposals to the appellant, who, subject to the commercial viability thereof, was required to agree to the proposals. Clause 16.0 required the appellant to reimburse, to CWC, the gross salary, perquisites, TA/DA and miscellaneous expenses for the officials of the CWC deputed/posted at ICD, Loni, within 15 days of claim by the CWC. Clause 2.0 of the agreement read thus: "2.0 World's Window confirms that they are willingly undertaking the Management Contract at ICD, Loni on "As is where is" basis after the exact date of commencement of work as defined in para 18 below of this agreement after CWC has constructed the ICD, Loni as per the LOI date....
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....ated at B(i) has already been paid. (iv) The Fixed fee and the variable fees even for the minimum guaranteed throughput as mentioned above shall be subject to a yearly escalation of 5% P.A. on compoundable basis effective from the date of commencement of the operations except on the containers transported through rail between ICD, Loni and Gateway ports." Clause 17.2 required the appellant to execute, in favour of CWC, an irrevocable bank guarantee, and read thus: "World's Window shall execute in favour of CWC an irrevocable with recourse Bank Guarantee issued by a Nationalized Bank/Scheduled Bank equal to the yearly minimum amount payable (Fixed Fee plus Variable Fee on minimum guaranteed throughput) to CWC. The Bank guarantee would be drawn in favour of Regional Manager, Central Warehousing Corporation, Regional Office, Delhi. The Bank Guarantee shall be produced/renewed/extended by World's Window on yearly basis equivalent to yearly minimum committed amount till the continuation of the management contract and shall be invariable be renewed one month in advance before its expiry every year. The bank guarantee for the fifteenth year would however, carry a vali....
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....appellant till October, 2009. The last of these communications, dated 6th July, 2011, also put the appellant to notice that default, on its part, in paying escalation on the variable fee would be treated as a breach of the Agreement, and would invite the consequences envisaged in that regard. These demands were reiterated by the respondent, in communication dated 29th August, 2011 addressed to the appellant, which, further, threatened encashment of the bank guarantees furnished by the appellant, if the appellant continued to remain in default of payment of escalation on the variable fee payable by it. 11. In order to attempt a resolution of the imbroglio thus created, a meeting was convened by the office of the Ministry of Consumer Affairs (MoCA) on 19th February, 2013, which was attended by representatives of the appellant and CWC. The decisions taken in the said meeting were enumerated in a Recorded Note of Discussions, which was forwarded by CWC to the Joint Secretary, MoCA on 22nd February, 2013, with a copy marked to the appellant. Serial no. 2 of the decisions taken in the meeting dated 19th February, 2013, as per the recorded Note of Discussions, envisaged payment, by ....
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....g the salaries of CWC's staff posted in the ICD with effect from 1st March, 2020 till 30th September, 2020. Clause 23 of the Agreement, which provided for force majeure, reads thus: "Either Party shall be excused from performance and neither Party shall be construed to be in default in respect of any obligations hereunder, for so long as an event of Force Majeure shall be the operative cause of such failure to perform the obligations. For the purpose of this clause, Force Majeure shall mean any event or circumstance not within the reasonable control, directly or indirectly, of the Party affected." 18. CWC, vide letters dated 6th May, 2020 and 7th May, 2020, rejected the appellant's requests for exemption from the requirement of payment of fixed fee/variable fee with effect from 1st February, 2020 and from payment of salary on its personnel deputed at the ICD. Further, the communications asserted that any such default in payment, on the part of the appellant, would be viewed as a material breach of the Agreement, inviting coercive action by CWC, including termination of the Agreement and encashment of the bank guarantees furnished by the appellant. 19. First Section 1....
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....f the contract. The office memorandums it is seen have been issued by the Ministry in view of the lockdown restrictions placed on the movement of goods, services and man power. But the Ministry in its guidelines dated 24.03.2020 clearly indicated that though all the transport services - air, rail would remain suspended, transportation for essential goods would stand exempted. The Ministry by way of an addendum to the guidelines dated 24.03.2020 incorporated further exemptions which read as follows: "All transport services - air, rail, roadways - will remain suspended Exceptions: a. Transportation for essential goods only. b. Fire, law and order and emergency services. Ministry by its subsequent guidelines dated 15.04.2020 also provided as follows: "to mitigate hardship to the public, select additional activities will be allowed which will come into effective from 20th April 2020... The movement, loading/unloading of goods/cargo (inter & intra state) is allowed as under: i. All goods traffic will be allowed to ply. ii. Operations of Railway: Transportation of goods and parcel trains ii....
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....r an overlapping of 6 days, that is from 25.03.2020 to 31.03.2020 the rest is the liability for the year which was not covered by any of the memorandums / guidelines issued by the Ministry. CWC is right in its contention that the Bank Guarantees constitute an independent contract between the Bank and CWC notwithstanding any dispute raised by the applicant on strength of clause 23 of the contract, which is well settled by a catena of decisions. Reference has already been made to the judgement of the Supreme Court in Himadri Chemicals case (supra). Facts also reveal that the applicant had not even approached CWC complaining that the activities/operations at ICD, Loni were ever disrupted before April 2020 due to the imposition of lockdown. In my view, since Bank Guarantees are unconditional Bank Guarantees, the Bank is bound to honour the same since CWC has not done any fraudulent act or caused any irretrievable injustice to the applicant. On the other hand as already stated the Applicant had/has carried out the operations/activities at ICD, Loni as usual during the lockdown period since those activities stood excepted from lockdown, in the larger interest of the nation. ....
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....f the appellant, to honour its commitment. It was asserted that the commitment of the appellant, under the agreement, was only to pay fixed fee and variable fee. These amounts having been duly paid by the appellant, it was submitted that no default, in honoring its commitment under the agreement, could be laid at the door of the appellant; resultantly, the invocation of the bank guarantees, furnished by the appellant, by CWC on 17th June, 2020, was illegal. 24.2 The appellant urged, as its first ground of challenge, that CWC had erroneously assessed the appellant's liability towards payment of variable fee on the basis of 72,580 TEUs per year, as against the actual MGT of 72,000 TEUs by taking the MGT as 6000 TEUs per month, contrary to the Agreement. The Agreement, it was submitted, required MGT to be computed on an annual basis. In computing the MGT on a monthly basis, it was alleged that CWC had infracted the contractual terms. 24.3 The second ground, on which the appellant sought to call into question the legitimacy of the invocation, by CWC, of the bank guarantees furnished by the appellant, was predicated on Clause 17.0 (iv) of the Agreement, which excepted, from the re....
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....ounter Claimant/ Applicant including but not limited to as threatened by Claimant's Letter dt. 23.06.2020 and; g) Pass any other order and/or direction in favour of the Counter Claimant/Applicant and against the Claimant as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the present case and in the interest of Justice." 25. CWC filed a reply to the above application of the appellant, and also contested the application by way of oral arguments before the learned arbitrator. 26. Rival submissions urged before the learned arbitrator in second S. 17 application of appellant: 26.1 Appellant's contentions: 26.1.1 Before the learned arbitrator, the appellant questioned the justification of the realization, by CWC, by invocation and encashment of the bank guarantees, of an amount in excess of the demand of Rs.2.05 crores. Computing its liability to CWC on the basis of an MGT of 72,000 TEUs per annum and by assessing variable fee without escalation, the appellant contended that there was no justification for CWC encashing the bank guarantees. The appellant submitted that, under Clause 4.6.7 of the RFP read with 17.2 of the Agreement, ....
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....paper clippings, charts filed in its Section 17 application and 23 additional documents, of which 14 were filed on 8th July, 2020 and 9 were filed on 19th July, 2020. 26.2 CWC's contentions: 26.2.1 Preliminary objections, regarding the maintainability of the application, were raised by CWC, on the ground of constructive res judicata and the earlier order dated 17th June, 2020, which, in CWC's submission, upheld the right of CWC to encash the bank guarantees furnished by the appellant. The bank guarantees being irrevocable and unconditional in nature, CWC contended that no direction, to return the amounts to the bank, could be passed. It was submitted that the bank guarantees were encashed as fixed fee, for the months of April and March, 2020 and variable fee (with escalation), for the periods of March and April, 2020, were outstanding from the appellant. A total amount of Rs. 1,54,49,778/-, towards outstanding fixed fee and variable fee at escalated rate was, it was submitted, due from the appellant, even after all the bank guarantees had been encashed. Clause 17 (ii) of the agreement was pressed into service, to contend that the appellant, in violation of the said Clause, wa....
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....nexed to the financial bid, (ii) this proposal had been admitted by CWC and LoI had been issued on 15th October, 2004, (iii) Clause 3.0 of the LoI, too, envisaged yearly escalation at the rate of 5% on the fixed fee and variable fee, (iv) despite Clause 17 (iv) and the exception, therein, on the requirement of payment of escalation on variable fee on containers transported through rail between ICD, Loni and the gateway ports, the appellant had been paying the variable fee with escalation at the rate of 5% per annum from the inception of the contract till October, 2009, (v) thereafter, on the appellant's disputing its rights to continue to pay escalation on the variable fee, the matter had been taken up by the Committee set up by the Ministry of Consumer Affairs, Government of India, during which, too, the appellant had agreed to pay escalation on variable fee at the rate of 5% per annum on compoundable basis, (vi) this was followed by a letter dated 22nd May, 2013 from the appellant to CWC, agreeing to release payment towards the variable fee on escalated amount for the period until 30th April, 2013 and (vii) payment on variable....
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....l bank guarantee, Gangotri Enterprises Ltd. v. Union of India [(2016) 11 SCC 720] involved invocation of a bank guarantee under a wrong contract, which was unsecured by bank guarantees, and Hindustan Steel Works Construction Ltd. v. Tarapur & Co. [(1996) 5 SCC 34], was a case of invocation of bank guarantee on fraudulent demand. In the present case, held the learned arbitrator, the respondent had sought to justify invocation of the bank guarantees consequent on the appellant abruptly discontinuing payment of Variable Fee with escalation, w.e.f. March, 2020. Against all the facts noted prior thereto by the learned arbitrator, it was observed that the appellant's reliance was entirely on Clause 17.2(iv) of the Agreement, for which purpose the appellant had filed a counterclaim, seeking refund of the amounts paid by the appellant towards escalated Variable Fee. The merits of the counter claim could not be decided at the Section 17 stage. Similarly, apropos the dispute regarding the manner in which MGT was to be computed, CWC sought to justify the manner in which it was computing MGT on the basis of Clause 17.0(ii), of the Agreement. The respondent pointed out that Clause 17.0(ii), req....
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....ed especially when the Applicant has paid the escalation of 5% p.a. on Variable Fee by way of cheque from the very inception of the contract till February 2020. The Applicant it may be noted had agreed to pay the same in a meeting convened by the Ministry, Govt. of India on 19.03.2013 which is reflected in the Applicant's letter dated 22.05.2013. 65. The Bank Guarantee can therefore be invoked as per the terms of the Bank Guarantee not only when there is a failure to pay the Fixed Fee with escalation and Variable Fee, but also if there is a breach of agreement leading to the termination of the contract. CWC in several letters, already referred to in the earlier part of the order, informed that Applicant that non furnishing of the Bank Guarantee for the yearly escalated Variable Fee @5% p.a. would amount to breach of the contract which is also an added reason for encashing the Bank Guarantee as per its terms. Of course the question as to who has committed the breach can be decided only at the final stage of the Arbitration proceedings. 66. In view of the above findings no direction can be given to return the Bank Guarantee to the Bank for their revival especially w....
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....ther it was also stated that the Government consciously exempted by guideline dated 24.03.2020 various activities, operations carried on in various ICDs/ CFSs etc. since they have to function in the larger public interest. CWC stated ICDs/CFSs on the strength of their operational efficiency and caused advantages and through marketing of their services and networking with other partners/CTOs attracted large volume of business. Further it was also pointed out Applicants business at ICD, Loni if at all had gone down due to lockdown it was due its own inefficiency and bitter relationship with CTOs/importers / exporters etc. CWC also stated the Applicant even failed to procure one rake in terms of the agreement resultantly it had to hire / lease wagons from various CTOs and from 2015 onwards number of CTOs were reduced due to its bitter relationship with them which has nothing to do with the lockdown situation. CWC also referred to Table No.4 in Para 42 of its reply and stated that at ICD, Bawal which is run by the Applicant the volume of business have not gone down. Further it was also pointed out all the ICDs and CFSs were / are getting adequate volume of EXIM business from foreign co....
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....h took place during the meeting dated 19th February, 2013, and any tentative assurances that may have been extended during the said meeting, he submitted, could not constitute a binding agreement, enforceable at law. In this context, he emphasizes that the learned arbitrator committed a fundamental error in rejecting the appellant's submission that it was not liable to pay escalation on Variable Fee, predicated on Clause 17.0(iv), of the Agreement, on the basis of the discussions which took place on 19th February, 2013. He submits that it was nobody's case, before the learned arbitrator, that any enforceable agreement had resulted consequent on the meeting dated 19th February, 2013. In effect, therefore, the learned arbitrator has, according to Mr. Sibal, held in favour of CWC on the basis of a case which CWC itself never pleaded. 28.1.2 Mr. Sibal also emphasized that, having noted the fact that the bank guarantees furnished by the appellant did not cover Variable Fee at the escalated rate, the learned arbitrator signally erred in refusing to interfere with the encashment, by CWC, of the bank guarantees towards the said enhanced Variable Fee. He submits that, once Clause 17.0(iv....
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....it. He submits that his client is willing to pay Fixed Fee with escalation and Variable Fee without escalation on actuals and resort to the arbitral process for recovering any excess due to it. 28.2 Mr. Ganguly's submission, on behalf of CWC 28.2.1 Responding to the submission of Mr. Sibal, Mr. Ganguly submits that the interpretation, placed by Mr. Sibal, on Clause 17.0 (iv), is unsustainable. He exhorted the Court to read Clauses (ii) and (iv) of Clause 17.0 in conjunction. Referring to Clause 17.0 (ii), Mr. Ganguly, pointed out that the said Clause divided movement of containers into two categories, viz., B (i) and B (ii). Category B (i), pertained to loaded containers entering or leaving the ICD whereas B(ii) pertained to containers being transported between Gateway Ports and ICD, Loni. The exception in Clause 17.0(iv), submits Mr. Ganguly, pertains to category B (ii) and not to Category B-(i). The application for rectification, moved before the learned arbitrator was in respect of category B (ii), whereas the claim of CWC, against the appellant is under category B (i). As such, Mr. Ganguly submits that the reliance, by Mr. Sibal, on the rejection, by the learned arbitrato....
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....n paying the monthly Variable Fee with escalation on actual number of containers since the inception of the contract until February 2020 @Rs.727.32 not @405 per TEU with yearly adjustment of "MGT or actual number of containers whichever is higher"." 28.2.3 No occasion arises, therefore, to interfere with the impugned order, in Mr. Ganguly's submission. Analysis 29. The scope of interference, in appeal, against orders passed by arbitrators on applications under Section 17 of the 1996 Act is limited. This court has already opined in Dinesh Gupta v. Anand Gupta [MANU/DE/1727/2020], Augmont Gold Pvt Ltd v. One97 Communication Ltd [2021 SCC OnLine Del 4484] and Sanjay Arora v Rajan Chadha [MANU/DE/2643/2021] that the restraints which apply on the court while examining a challenge to a final award under Section 34 equally apply to a challenge to an interlocutory order under Section 37(ii)(b). In either case, the court has to be alive to the fact that, by its very nature, the 1996 Act frowns upon interference, by courts, with the arbitral process or decisions taken by the arbitrator. This restraint, if anything, operates more strictly at an interlocutory stage than at the final s....
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....excepting it from its obligations under the Agreement on the principle of force majeure. This Court cannot revisit this decision, in exercise of its Section 37(2)(b) jurisdiction. 33. Apropos the prayer for a restraint against invocation of the bank guarantees, the view expressed by the learned arbitrator, in his order dated 17th June 2020, is clearly unexceptionable. There are authorities galore, for the proposition that the invocation of unconditional bank guarantees cannot be restrained save and except where there exists egregious fraud, special equities or irretrievable injustice. A Division Bench of this Court, has in its recent decision in CRSC Research and Design Institute Group Co Ltd v. Dedicated Freight Corridor Corporation of India Ltd [2020 SCC OnLine Del 1526], exhaustively examined this aspect and reiterated the law in this regard. Following CRSC Research and Design [2020 SCC OnLine Del 1526], I have also, in my recent decision in Kuber Enterprises v Doosan Power Systems India Pvt. Ltd. [Decision dated 12th November, 2021 in OMP(I)(COMM)364/2021], reiterated this position. I may, with humility, reproduce the following passages from Kuber Enterprises [Decision dated....
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....arge Chrome [(1994) 1 SCC 502], a bench of three Hon'ble Judges of the Supreme Court has held that mere irretrievable injustice, in the absence of established fraud, does not make out a case for injuncting invocation of an unconditional bank guarantee. Having said that, a bench of two Hon'ble Judges, in Hindustan Steelworks Construction Co. Ltd v. Tarapore & Co.[ (1996) 5 SCC 34] held, after noticing and interpreting Svenska Handlesbaken4, that, in Svenska Handlesbaken4, the Court was "not called upon to decide whether apart from the case of fraud there can be any other exceptional case wherein the Court can interfere in the matter of encashment of a bank guarantee". As such, it was held, "not much importance" could be attached "to the use of the word 'and' in the observation that 'it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case". Vinitec Electronics Private Limited v. HCL Infosystems Limited [MANU/SC/8095/2007] and BSES Ltd.^3 hold that special equities, if pleaded as ground for stay of invocation of bank guarantee, should be in the nature of irretrievable injustice. 17.2 While, therefore, there appears to be some fluidi....
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....ands encashed could be revived by returning the money to the bank. That apart, such a relief could, by its very nature, not have been sought at an interim stage, as it would amount to a final adjudication of the right of the appellant, vis-a-vis CWC, qua the amounts payable under the Agreement. Once the bank guarantee stood encashed, the only remedy that could be sought against the respondent, under Section 17, would be under Clause (1)(ii)(b) thereof, which would be for a direction to the respondent to secure the amount released by invocation of the bank guarantees. No such prayer was made by the appellant before the learned arbitrator. This, probably, was because the appellant was well aware of the fact that a direction for security, under section 17(1)(ii)(b), would, then, have to suffer the rigour of Order XXXVIII, Rule 5, of the Code of Civil Procedure, 1908, (CPC), as held by the Supreme Court in State Bank of India v Ericsson India Pvt. Ltd. [(2018) 16 SCC 617] and by this Court in, inter alia, Goel Associates v Jivan Binma Rashtriya Avas Samati Ltd. [2004 SCC OnLine Del 874], CV Rao v. Strategic Port Investments KPC Ltd.[(2015) 218 DLT 200 (DB)], Ajay Singh v. Kal Airways P....
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....y to CWC was only to pay Variable Fee, and not Variable Fee at the escalated rate in view of Clause 17.0(iv) of the Agreement, (ii) CWC had wrongly computed MGT at 72,580 TEUs rather than 72,000 TEUs annually as MGT was required to be reckoned on a monthly basis and not on yearly basis and (iii) the bank guarantees did not secure Variable Fee at the escalated rate. Additionally, Mr. Sibal sought to contend, before me, that the learned arbitrator had misdirected himself in relying on judicial authorities which apply to stay of invocation of bank guarantees, which had no application once the bank guarantees had already been invoked and encashed. 42. I have already set out, in detail, hereinabove, the reasoning of the learned arbitrator on the aforesaid aspects. Any repetition thereof would make this judgment needlessly prolix. On the aspect of Clause 17.0(iv), the learned arbitrator has noticed that, despite the said Clause, the appellant continued to pay Variable Fee at the escalated rate till October, 2009. He has noticed the fact that, when the appellant discontinued payment of Variable Fee at the escalated rate, the matter had been taken up in a meeting convened in the office ....
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....ising jurisdiction under Section 9, were to adjudicate whether there is any legal merit in the said grounds or not, this Court would be adjudicating the disputes, which the parties have agreed to be adjudicated by arbitration and in fact there would be nothing left for the Arbitral Tribunal to decide, as far as the claim of BEPL for the termination payment directed to be made is concerned. In fact, after reading the impugned judgment, we have also wondered what remains for the Arbitral Tribunal to decide, as far as the claim of BEPL for termination payment on a demurer, believing the breach to be on the part of BEPL, is concerned. It is a hard reality that once there is judicial order on the merits of the dispute and which judicial order is not granting any interim measure but granting the final relief claimed in the arbitration proceeding, the Arbitral Tribunal would hesitate from deciding contrary to the findings returned by the Court on interpretation of terms of the Concession Agreement and of admission, and to which Court, an application under Section 34 of the Act would lie against the award of the Arbitral Tribunal." It may be noted that, having so observed, the Division ....
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....ion at a later stage, no case for directing any return of the amounts, recovered by encashment of the bank guarantees to the bank, at an interlocutory stage, could be said to exist. 48. The only surviving issue was that of force majeure. Para 27.8 hereinabove reproduces the findings of the learned arbitrator on the aspect of force majeure. The learned arbitrator has noted the fact that additional material had been placed by the appellant, before the learned arbitrator, to substantiate its case of force majeure. The learned arbitrator has, in the impugned order, further noted that the said material had been taken into account, and that having done so, he did not find any case to revisit his earlier conclusion that no case of force majeure could be said to exist. Mr Sibal's objection is that the learned arbitrator has not provided detailed reasons, with respect to the additional material filed by his client in the arbitral proceedings. The following passage, from the judgment of the Supreme Court in Sangyong Engineering & Construction Company Ltd. v. NHAI [(2019) 15 SCC 131] neatly encapsulates the legal position regarding the scope of interference by a court with the arbitral awa....