Gas Authority Of India Ltd. vs The Official Liquidator, Through ...
2004 Latest Caselaw 52 Bom

JUDGMENT

V.M. Kanade, J.

1. Since in all the above three Appeals from Order parties are same and question of law involved is also the same, they can be conveniently disposed of by this common judgment.

2. Brief facts which are relevant for the purpose of deciding the above three Appeals from Order are as under:-

3. The appellant is the original defendant and the respondent No. 1 is the original plaintiff. The appellant is a Company registered under the Companies Act and they wanted to set up a UPPC Complex at Patna in State of UP and in connection with the completion of the said work, respondent No. 1 was awarded the contract dated 26/4/1995 for design, engineering, supply, fabrication, erection, testing, commissioning and performance testing of DM Water Plant and Condensate Polishing Unites (CPU). As per the said contract, it was agreed that the work should be completed within 16 months in the first phase and 16 months in the second phase. In connection with the said contract, respondent No. 1 had asked the Bank of Maharashtra to issue three Bank Guarantees in favour of the appellant; the first one being No. 1/95-96 dated 3rd May 1995 in the sum of Rs. 17,25,000/-, the second one being No. 2/95-96 dated 9th June, 1995 in the sum of Rs. 69,00,000/- and third one being No. 6/96-97 dated 24th June, 1996 in the sum of Rs. 50,00,000/- in order to secure the payment of refundable advance payment made to respondent No. 1. All these Bank Guarantees were to continue to remain in force until all sums due to appellant on account of advance are either adjusted or recovered in full or until the appellant discharged the Guarantee. The work was commenced by respondent No. 1. However, the work could not be completed according to the schedule and, therefore, initially on 30/1/1997, respondent No. 1 expressed serious cash flow problems and informed the appellant that their Bankers were not willing to give additional Bank Guarantees. By 31st October 1997, according to the appellant, an excess payment of more than Rs. 2,25,62,847/- had been made to the respondent No. 1. Therefore, a letter was written to respondent No. 1 dated 31st October, 1997 in which it was mentioned that the said amount was payable to the appellant. A further request was made to respondent No. 1 to extend the Bank Guarantee which was expired on 14/11/1997. The Bank Guarantee was further extended upto 31st March, 1998. Since the respondent No. 1 had failed to complete the contract and to refund the amount which was due and payable to the appellant, by letter dated 16/1/1998, the appellant invoked the Bank Guarantees given by respondent No. 2 - Bank. Respondent No. 1 immediately filed suits before the Civil Judge, Senior Division, Pune being Special Civil Suit Nos. 134 of the 1998, 135 of 1998 and 136 of 1998 seeking an order from the Civil Court restraining the appellant from invoking the said Bank Guarantees. The case of the appellant is that though a caveat was filed, an ex parte ad-interim injunction was granted by the Trial Court vide its order dated 22/1/1998. An application was also made by the appellant under Section 9A of the Civil Procedure Code on the ground that the Court at Pune had no jurisdiction to entertain the suit and the same be decided as a preliminary issue. An application was also filed under Section 8 of the Arbitration and Conciliation Act, 1996 for the stay of the suit and for reference to Arbitration in view of the Arbitration Clause contained in contract between the appellant and the respondent No. 1. The Trial Court after hearing the parties by impugned Judgment and Order dated 19/3/1998 granted injunction restraining the encashment of Bank Guarantee. Being aggrieved by the said Judgment and Order, the appellant - Company preferred these Appeals from Order. The Appeal from Order Nos. 43 of 1999 and 44 of 1999 were admitted on 3/2/1999. However, the Appeal from Order No. 97 of 1999 was admitted on 11/2/1999.

4. During the pendency of the present Appeals, an order was passed by this Court dated 1/8/2001 in Company Petition No. 1145 of 2000 in which this Court had directed that the respondent No. 1 Company be wound up and the provisional liquidator was appointed.

5. Accordingly, after the appointment of the Official Liquidator, an application was made for adding the Official Liquidator as party to the present Appeals and the Official Liquidator was accordingly added as a party-respondent. The learned counsel appearing on behalf of the appellant has submitted that the Trial Court has clearly erred in law in issuing an order of injunction restraining respondent No. 2 i.e. original Defendant No. 2 - Bank of Maharashtra from making payment in pursuance of the letter dated 16/1/1998 for an amount of Rs. 17,25,000/-, 69,00,000/- and Rs. 50,00,000/-. The learned Counsel appearing on behalf of the appellant has submitted that the Trial Court has clearly erred in holding that the plaintiff - respondent No. 1 herein had made out a case of special equity in their favour. She submitted that the Apex Court in catena of cases has held that an injunction restraining the Bank from making payment under valid Bank Guarantee cannot be issued unless it is proved that the fraud has been played upon the Bank while executing the documents in respect of the Bank Guarantee. It was submitted that, in the present case, the appellant had waited for long time and had, in fact, given an advance amount of Rs. 50,00,000/- in order to ensure that the work which was entrusted to the plaintiff - respondent No. 1 is carried out within time. She further submitted that in spite of having given additional time to the respondent No. 1, the work was not completed and, as a result, the appellant had to get the work completed through other contractors after spending money from their own pocket. It was submitted that neither a fraud had been alleged nor proved by the Plaintiff. It was submitted that mere making of an averment that the fraud had been committed was not sufficient and that the particulars had to be given regarding the manner in which the fraud was committed. It was submitted that the Trial Court had patently erred in granting injunction in the face of said law settled by the numerous Judgment of Apex Court and this Court. She further submitted that the Order of winding up which was passed by this Court in Company Petition No. 1145 of 2000 would not come in the way of the appellant for the purpose of receiving the payment under the Bank Guarantees which were given by respondent No. 2 - Bank of Maharashtra. In support of the said submission, she relied upon the Judgment of the Apex Court in the case of Maharashtra State Electricity Board, Bombay v. The Official Liquidator, High Court, Ernakulam and Anr., as also the Judgment of the Apex Court in the case of Industrial Finance Corporation of India Ltd. v. Cannanore Spinning and Weaving Mills Ltd. and Ors. She has also relied upon the Judgment of the Calcutta High Court on the same point in the case of United Bank of India v. Modern Stores (India) Ltd. and Ors. reported in [1990] 69 Company Cases 697 in which the Calcutta High Court also has come to the same conclusion and had relied upon the Judgment of the Apex Court . The learned Counsel appearing on behalf of the appellant has further relied upon the Judgment of the Apex Court in the case of National Highways Authority of India v. Ganga Enterprises and Anr., in which the nature and scope of interference with the enforcement of the contract of Bank Guarantee has been considered identical and the Apex Court has come to the conclusion that the Guarantee was rightly invoked. There was no question of directing refund as has been done by the High Court in the said case. She also relied upon the Judgment of the Apex Court in the case of Federal Bank Ltd. v. V.M. Jog Engineering Ltd. and Ors. reported in (2001) 1 Supreme Court Cases 663 herein the Apex Court has laid down that in respect of letter of credit no injunction should be granted and that the universal commercial practice adopted in 1983 was applicable, although it was not incorporated in the contract. She also relied upon the Judgment of the Apex Court in the case of Kalpana Kothari (Smt) v. Sudha Yadav (Smt) and Ors. and submitted that the provisions of Section 8 of the Arbitration and Conciliation Act, 1996 were all-comprehensive and once the provision is made for arbitration clause in the agreement, no stay is required to be obtained under 1996 Act and lastly she relied upon the Judgment of the Apex Court in the case of0 Union of India v. Popular Construction Co. .

6. The learned Counsel appearing on behalf of respondent No. 2 has relied upon the Judgment of the Apex Court in the case of the Official Liquidator v. Dharti Dhan (P) Ltd. and has submitted that once the Provisional Liquidator is appointed, application has to be made to the High Court for the purpose of granting stay to the proceedings in the Trial Court as also in the High Court during the pendency of the liquidation proceedings. The learned Counsel for respondent No. 2 submitted that so far as the respondent No. 2 - Bank is concerned, it was also a secured creditor vis-a-vis respondent No. 1 - original plaintiff and the Bank was entitled to protect its interest as a secured creditor. It was submitted that so far as the appellant is concerned, it was an unsecured creditor and as such the amounts which were due and payable to the appellant should be put in a hotchpotch and the Official Liquidator be asked to decide the amount which was payable to all the creditors. The learned counsel for respondent No. 2 further submitted that respondent No. 2 has preferred a Civil Application being Civil Application No. 1624 of 2003 in which respondent no. 2 has prayed that the present proceedings which are taken out by the appellant be stayed under Section 442 of the Companies Act and that the appellant may be directed to obtain stay of the company proceedings in the matter herein and that the Bank Guarantee be directed to be deposited with the Official Liquidator, High Court, Bombay for equal distribution amongst all the creditors including secured as well as unsecured creditors as per preference of distribution.

7. The leaned Counsel appearing on behalf of respondent No. 1 opposed the submissions made by the leaned counsel appearing on behalf of respondent No. 2 and submitted that these proceedings cannot be stayed inasmuch as the word which is used in Section 446 and 442 is "Company Court" and/or "winding up authority' and, therefore, there was no question of making an application in this Court by filing Civil Application for stay of the said proceedings.

8. I have heard the leaned Counsel appearing on behalf of the appellant and the respondents at length. I have perused the copy of the Plaint as also the impugned order passed by the Trial Court. So far as the issue regarding passing of order of injunction in a case where Bank Guarantee has been invoked by the party is concerned, the Apex Court in catena of cases has laid down that unless the party who seeks an order of injunction makes a specific averment regarding fraud being practiced upon the said party and the Bank in respect of the documents which are relied upon by the parties, the order of injunction should not be passed. In the present case, I am of the view that the plaintiff has not made out the prima facie case that the fraud has been practiced by the appellant herein. On the contrary, from the perusal of the Bank Guarantees it is apparent that the appellant - Company had tried to rescue respondent No. 1 from its financial crises and had from time to time made payments for the purpose of ensuring that the work which was entrusted to respondent No. 1 was completed within time. In order to secure the advance payments made to the respondent No. 1 which were substantial, the Bank Guarantees had been obtained by the appellant herein. In fact, there is correspondence on record to the effect that respondent No. 1 had asked for further credit from the appellant herein. However, since the work was not being completed within time, appellant could not give any further credit and, therefore, had asked respondent No. 1 to extend the Bank Guarantee from, 14th November, 1997 to 31st March, 1998. Thus it is evident that the appellant had restrained itself from invoking the Bank Guarantee though the work in question was not completed according to the schedule and obviously defaults were committed by respondent No. 1. In the light of all this, I am of the view that the case which is tried to be made out by the plaintiff that the fraud having been committed cannot be accepted. The observations of the Trial Court, in my view, to say the least, cannot be justified in any manner.

9. Thus, in my view, the Trial Court has clearly erred in issuing an order of injunction restraining the Bank from making payment which was due and payable under the Bank Guarantees.

10. The second question which falls for consideration of this Court is where after winding up order is passed by the Court and a Provincial Liquidator is appointed, whether the Bank Guarantee can be invoked and payment can be made by the Bank?

11. The Apex Court in the case which has been subsequently followed by the Apex court in its subsequent Judgment and as also followed by the Calcutta High Court in the case reported in [1990] 69 Company Cases 697, has held that so far as the Bank Guarantee is concerned, there is no reason as to why the said payment of Bank Guarantee should be stayed as it was a matter specifically between the Bank and the party in whose favour the Bank Guarantee has been issued and as such there was no reason why the said payment should not be made as agreed under the said Bank Guarantee.

12. In my view, the ratio laid down in the said Judgments is clearly applicable to the facts of the present case.

13. I am of the view that so far as the Judgment which is relied upon by respondent No. 2 i.e. is concerned, the same would not be applicable to the facts of the present case inasmuch as in the said case, in para 6, it has been held that the object of Section 442 is that the claims in suits and proceedings which are pending elsewhere which have a bearing on the company's liabilities, may be stayed only until the winding up order is made. The Apex Court in the said case has held that after winding up order is passed, Section 446 becomes operational. In my view, therefore, in the present case also since the winding up order has already been passed by this Court, Section 442 can be made applicable and the said judgment would not be of any assistance to the respondent No. 2.

14. Lastly, the Civil Application which is filed by respondent No. 2 is concerned, I am of the view that no order can be passed on the said Civil Application. Respondent No. 2 may be a secured creditor vis-a-vis respondent No. 1. However, the said claim has nothing to do with the Bank Guarantees which have been given to appellant herein. It is an independent contract which is not dependent upon either liquidation proceedings or on any other contingency. In fact, from the perusal of the Bank Guarantees it is clear that the Bank had specifically agreed to honour the Bank Guarantees irrespective of the fact as to whether the liquidation proceedings were initiated against the said Company or not. The relevant clause is reproduced hereinbelow.

"The guarantee herein contained shall not be determined or affected by the liquidation or winding up, dissolution or change of constitution or insolvency of the contractor but shall in all respect and for all purpose be binding and operative until payment of all money due to the OWNER in respect of such liability or liabilities."

In view of this specific clause, it is not open for the Bank to turn around and claim that it would not honour the Bank Guarantees. The Bank's claims vis-a-vis respondent No. 1 are clearly independent of the right of the appellant to claim the said amounts as guaranteed by the Bank.

15. Under these circumstances, the following Order is passed:-

ORDER

The Order of the Trial Court in all the above three Appeal from Orders is quashed and set aside. Respondent No. 2 - Bank is directed honour the said commitment made under the Bank Guarantees within four weeks.

Accordingly all the above three Appeals are allowed. Since the above three Appeals are allowed and disposed of as such, Civil Application, if any, also automatically disposed of as the same does not survive.

C.C. expedited.

Parties to act on the ordinary copy of this order duly authenticated by the Sheristedar of this Court.