Bombay High Court
Board Of Control For Cricket In ... vs Punjab National Bank on 20 December, 2012
Bench: S. J. Kathawalla
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KPP 1 SJ Nos. 11 to 13 of 2012
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUMMONS FOR JUDGMENT NO. 11 OF 2012
IN
SUMMARY SUIT NO. 3131 OF 2011
Board of Control for Cricket in India ... Plaintiff
vs.
Punjab National Bank ....Defendant
WITH
SUMMONS FOR JUDGMENT NO. 12 OF 2012
ig IN
SUMMARY SUIT NO. 3132 OF 2011
Board of Control for Cricket in India ... Plaintiff
vs.
Indian Bank ....Defendant
WITH
SUMMONS FOR JUDGMENT NO. 13 OF 2012
IN
SUMMARY SUIT NO. 3133 OF 2011
Board of Control for Cricket in India ... Plaintiff
vs.
Union Bank of India ....Defendant
Mr. T.N. Subramanian, Senior Advocate, along with Ms. Akhila Kaushik, Mr. Indranil
Deshmukh, Mr. Rahul Mascarnhas and Mr. Adarsh Saxena, instructed by M/s.
Amarchand & Mangaldas & Suresh A. Shroff & Co., for the Plaintiff.
Mr. Ravi Kadam, Senior Advocate, along with Mr. Nishit Dhruve, Mr. Prakash Shinde
& Ms. Prachi Mhatre, instructed by M/s. MDP & Partners, for the Defendant in
Summary Suit No. 3131 of 2011.
Mr. V. Dhond, Senior Advocate, along with Mr. Nishit Dhruve, Mr. Prakash Shinde &
Ms. Prachi Mhatre, instructed by M/s. MDP & Partners, for the Defendant in
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KPP 2 SJ Nos. 11 to 13 of 2012
Summary Suit No. 3132 of 2011.
Mr. Shailesh Mendan along with Mr. Nishit Dhruve, Mr. Prakash Shinde & Ms. Prachi
Mhatre, instructed by M/s. MDP & Partners, for the Defendant in Summary Suit No.
3133 of 2011.
CORAM : S. J. KATHAWALLA, J.
Judgment reserved on : 27
November, 2012
th
Judgment pronounced on: 20 December, 2012
th
JUDGMENT:
1. The Plaintiff has filed the above three Summary Suits for recovery of sums of
(i) Rs. 597,98,37,329/-, (ii) Rs. 406,47,26,027/- and (iii) Rs. 597,98,37,329/- with
interest thereon at the rate of 10 per cent per annum from the date of filing of the
suits until payment and/or realisation. In the above three Summary Suits, the
Plaintiff has taken out the above three Summonses for Judgment praying that
judgment be entered for the Plaintiff in the above suits against the Defendants for
the sums set out hereinabove along with interest.
2. All the above three Summonses for Judgment are taken up for hearing and
disposed of by this common judgment.
3. The facts in the matter are briefly set out hereunder:
4. By a Media Rights License Agreement dated 15 th October 2009 (the said
Agreement), entered into between the Plaintiff-The Board of Control for Cricket in
India ("BCCI") and one Nimbus Communications Limited ("Nimbus"), BCCI granted
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KPP 3 SJ Nos. 11 to 13 of 2012
Nimbus license of certain rights in respect of cricket matches played in India, as set
out in the MRLA. The said Agreement was amended from time to time. However,
the amendment which is relevant for the purpose of the present proceedings is the
Addendum dated 21st October 2009. The said Agreement read with the said
Addendum dated 21st October 2009 shall hereinafter be referred to as "the MRLA".
5. In order to secure the obligations of Nimbus under the MRLA, each of the
Defendants issued 9 unconditional and irrevocable Bank Guarantees, out of which
two Bank Guarantees (in relation to each of the Defendants) were released and duly
discharged with the consent of the BCCI and thus stood terminated on such release.
As such, two of the nine Bank Guarantees issued by each of the Defendants have
been returned by BCCI to the respective Defendants in terms of the MRLA and have
therefore been terminated. The present Summary Suits are in respect of the money
payable to BCCI under the other Bank Guarantees, aggregating to approximately Rs.
1602 crores.
6. Some of the clauses of the MRLA referred to by the parties in the course of
their arguments are reproduced hereunder:
"7. RIGHTS FEE AND FINANCIAL GUARANTEE
7.1 In consideration of Licensor's grant of the license of the Media
Rights, Licensee shall pay to the Licensor in accordance with this
clause 7 the Rights Fee as follows (the parties agree that the Rights
Fee shall be as per the table below to each of the BCCI Events in
accordance with the following table:
For each ODI, Test and 20/20 International Match.
2010-2014 Rupees 31.25 Crores (thirty one crores and twenty
five lakhs) for each match ( per match Value)
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KPP 4 SJ Nos. 11 to 13 of 2012
Licensee specifically acknowledges that Licensor is in negotiation
with the ICC and the Cricket Boards of various countries to finalise
the Future Tours Programme ("FTP") for all bilateral cricket tours
by the Indian National Team from April 2010 onwards and changes
are likely to take place in the above schedule of Matches. To the
extent any series or Match/Matches is/are either increased or
reduced in any year during the Rights Period, the Rights Fee payable
will be pro rata increased for the extra series or Match/Matches, as
the case may be, or decreased to the extent of the series or
Match/Matches reduced, as the case may be, based on the Per Match
Value stated above for all the series or Matches as included in the
schedule below or New series scheduled by Licensor. It being
understood and agreed by licensee that if Licensor decides to
schedule a Tri series the amount paid per match will remain as per
the Per match Value defined above.
The current schedule for Matches is as listed below:
.... ...... ..... .... ....
Payment Schedule
7.2 The Rights Fee shall be paid by Licensee to Licensor in the
instalments and by the due dates for payment of each instalment set
out in the Payment Schedule (annexed hereto). Interest shall be
payable by Licensee to Licensor on any late payments of any amount
including any instalment of the Rights Fee at a rate of twelve per
cent (12%) per annum. Any delay of payment will constitute a
Material Breach by the Licensee.
"Schedule-1
Payment Schedule
3. The Licensee shall pay the Rights Fee for each during the Rights
Period in accordance with the payment schedule below:
1.1 The Rights Fee payable shall be determined on the basis of the
per match value as set out in Clause 7.1 to each BCCI Event
as set out in Schedule-3 hereto during each year of the Rights
Period.
(a) In respect of the Rights Fee period 1 st April 2010 to 31st
March 2014,
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KPP 5 SJ Nos. 11 to 13 of 2012
50 per cent of the Fee shall be payable not later than
30 days before the commencement of the each of the
Series and the balance 50 per cent shall be payable
within 60 days after the Scheduled date of the last
match of the series.
The Licensor shall notify Licensee of the scheduled
commencement date and the scheduled last match of each of
the respective series at least 60 days in advance."
Withholding and deductions
7.3 .... ...... ...... ....
.... ..... ...... ....
Bank Guarantee
7.4 For the purpose of securing Licensee's obligation to pay the
Rights Fee in accordance with the foregoing provisions of this Clause
7, Licensee shall deliver to Licensor an irrevocable and
unconditional Bank Guarantee in accordance with the provisions of
this Agreement.
7.5 Licensee shall deliver to Licensor, a Bank Guarantee to
guarantee the entire Rights Fee within seven (7) days of execution of
this Agreement, which Bank Guarantee shall be valid and subsisting
for the entire Rights Period. It is agreed by Licensee that it will
provide a Bank Guarantee for 2000 crores( two thousand crores)
within 7 days of signature of this agreement. The Bank Guarantee
shall only be invoked if there is a failure by Licensee to make
payment of the Rights Fee as per Clause 7.2 and after licensor issues
a notice as per the procedure set out in Clause 10.3 and any amount
already paid by Licensee which is still covered by the Bank
Guarantee will be refunded to the Licensee.
7.6 (a) ... .... .... ....
(b) Mitigation Clause: Licensee acknowledges and agrees that in
the event of Licensor terminating the Agreement in accordance with
the provisions contained in the agreement, BCCI shall be entitled to
offer the Media Rights for retender to third parties. In respect of
Bank Guarantee in BCCI's possession at the time of such retender,
BCCI shall encash the Bank Guarantee and shall appropriate the
amounts due in pursuance to this contract. BCCI acknowledges that
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KPP 6 SJ Nos. 11 to 13 of 2012
the fees agreed pursuant to a re-tender will mitigate any loss
occasioned by Licensee's default and agrees to refund the Licensee the
balance amounts after deducting the amounts owed by the Licensee.
However, in case, even after retender and encashing the Bank
Guarantee, the amount of liability of the Licensee is not satisfied,
then the "Licensee shall pay the outstanding dues/amount under
this contract to the Licensor within a period of one month".
TERMINATION
10.1 (a) Either party may at any time (without prejudice to any
other rights it may then have against the other party) by giving
written notice to the other party (the "Defaulting Party") terminate
this Agreement if the Defaulting Party commits a "material breach"
(as defined below) or material breaches of this Agreement, such
material breach or material breaches to have been committed
fraudulently, maliciously, recklessly, negligently or wilfully and such
material breach is not remedied within 21 days of receipt of such
written notice requiring it to do so (it being agreed that if such
written notice is not received within 60 days of such breach, then,
notwithstanding Clause 18 of the Agreement, the right to serve such
written notice shall immediately expire in respect of the relevant
material breach), provided that the parties must follow the
procedure set out below prior to such termination taking effect if
the Defaulting Party disputes the entitlement of the other party to
terminate, including without limitation a dispute as to whether
there has been a material breach or whether such material breach
was fraudulent, malicious, reckless, negligent or wilful, or if there is
any dispute as to what steps should be taken to remedy such
material breach".
.... ...... ...... ....
EFFECT OF TERMINATION OR EXPIRY
11.1 Upon expiration or termination of this Agreement for
any reason whatsoever:
(a) All rights, licenses and benefits (including, without limitation
the Media Rights) shall forthwith revert to Licensor;
(b) Licensee shall immediately cease to exercise or exploit the
Media Rights and Licensor shall immediately thereafter be entitled
to grant all or any of the Media Rights to any other person, and
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KPP 7 SJ Nos. 11 to 13 of 2012
shall not thereafter use or exploit its previous connection with
Licensor or any of the Matches, whether directly or indirectly;
(c ) Licensee shall not at any time thereafter:
(i) Disclose or use any confidential information relating to
Licensor acquired by Licensee during or as a result of this
Agreement;
(ii) Make any use of the Licensor Marks or any trade marks, trade
names, and/or logos which are similar to any of the foregoing;
(iii) Purport to be associated with Licensor.
(d) Licensor and Licensee shall promptly return to the other all
property of the other within its possession, save that each will be
permitted to retain such property as it demonstrates (to the other
party's reasonable satisfaction) to be required by law to be
maintained for records;
(e) Lincesee shall execute any documents required by Licensor to
effect the termination and/or assignment of any rights in connection
with the Media Rights;
(f) Such termination shall be without prejudice to any other
rights or remedies to which a party may be entitled under this
Agreement or at Law as a result of or in relation to any breach or
other event which gives rise to such termination, and shall not affect
any other accrued rights or liabilities of either party as at the date
of termination; and
(g) Within fourteen (14) days after the expiry of the Rights Period
or after any earlier termination of this Agreement, Licensee shall
upon and in accordance with the reasonable written instructions of
Licensor either (at the Licensor's election) : (a) deliver to (delivery
costs being for the account of Licensee where such instructions follow
a termination of this Agreement pursuant to Clause 10.2, but
otherwise being for the account of Licensor) or make available for
collection by Licensor; or (b) procure destruction of, all or any
recordings of Footage made pursuant to this Agreement and such
other tapes and videos delivered to Licensee by or on behalf of such
Licensor pursuant to this Agreement. Any such delivery shall be to
the address notified to Licensee by Licensor in writing or otherwise
in accordance with the written instructions of Licensor.
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KPP 8 SJ Nos. 11 to 13 of 2012
11.2 It is acknowledged and agreed that the terms of Clauses 3.5,
5.7, 8.17, 8.18, 9.3, 9.4, 11.1, 14, 15, 17, 18, 21, 22, 24, 25 and
28 shall survive termination of this Agreement."
7. In terms of the MRLA, on 7th October 2011, Nimbus was required to pay a
sum of Rs. 137,87,50,000/- being the first instalment of the Rights Fees payable in
relation to the 2011 West Indies Series. Nimbus made part payment of Rs.
50,00,00,000 ( Rupees Fifty crores) on 15 th November 2011. The Plaintiff through
its Advocate's letter dated 16th November 2011 called upon Nimbus to make
payment of Rs. 87,87,50,000/- (Rupees Eighty seven crores eighty seven lakhs fifty
thousand) within a period of five days. Nimbus made part payment of Rs.
24,08,75,000/- and failed to pay the balance of Rs. 63,78, 75,000/-. The Plaintiff
through its Advocate's letter dated 12th December 2011 terminated the MRLA and
invoked the Bank Guarantees on 13th December 2011.
8. On 14th December 2011, Nimbus filed Arbitration Petition (L) No. 1425 of
2011 under Section 9 of the Arbitration and Conciliation Act, 1996, inter alia
seeking an interim injunction restraining the Plaintiff from receiving any amounts
under the said Bank Guarantees and restraining the Defendants from paying any
amounts under the said Bank Guarantees.
9. On the same day, the Plaintiff received a letter dated 14 th December 2011
from the Defendants categorically refusing to make payment under the said Bank
Guarantees. On 15th December 2011, when the Petition filed by Nimbus was taken
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KPP 9 SJ Nos. 11 to 13 of 2012
up for hearing, the Plaintiff filed an Affidavit-in-reply inter alia disputing the facts
stated therein, as well as the entitlement of Nimbus to seek ad-interim reliefs as
prayed for in the Petition filed by Nimbus. The Senior Advocate appearing for the
Defendants made a statement that the Defendants do not intend to make payment
pursuant to the Plaintiff's invocation of the said Bank Guarantees and that the
Defendants contend that they are not liable to make payment under the said Bank
Guarantees. The said statement came to be recorded in the order dated 15 th
December 2011 passed by this Court in the Petition filed by Nimbus. On 16 th
December 2011, the Plaintiff filed an Arbitration Petition (L) No. 1439 of 2011 inter
alia against the Defendant for the reliefs prayed for therein after obtaining leave
from this Court under Order II Rule 2 of the Code of Civil Procedure, 1908.
Thereafter correspondence was exchanged between the Plaintiff and the Defendants
wherein the Plaintiff insisted that the Defendants were bound and liable to pay the
amounts guaranteed under the aforestated Bank Guarantees to the Plaintiff. The
Defendants repeated and reiterated their stand that the Plaintiff is not entitled to
receive any amounts under the Bank Guarantees. The Plaintiff therefore filed the
above Summary Suits and have taken out the above three Summonses for Judgment
therein.
10. Mr. Subramanian, the learned Senior Advocate appearing for the Plaintiff, has
submitted that the Bank Guarantees which are the subject matter of the above three
suits are unconditional, irrevocable and independent contracts between the Plaintiff
and the Defendants and consequently the Defendants obligation to pay thereunder is
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KPP 10 SJ Nos. 11 to 13 of 2012
not dependent in any manner on the dispute and/or quantum of claim and/or the
details of default under the underlying contract viz. the MRLA. It is submitted that
the said Bank Guarantees are payable on demand upon a claim being made by the
Plaintiff in terms of the said Bank Guarantees. The claim made by the Plaintiff vide
its letters of invocation dated 13 th December 2011 read with its Advocate's letter
dated 13th December 2011 is strictly in accordance with the terms of the Bank
Guarantees and the same does not suffer from any infirmity or illegality whatsoever.
It is submitted that after receipt of the said valid claim by the Defendants, the
obligation of the Defendants to pay under the said Bank Guarantees became
absolute and the Defendants are required to make payment of the full amount due
thereunder. It is submitted that all contentions raised by the Defendants in their
letter dated 14th December 2011 are baseless, untenable, mala fide and without any
merit whatsoever and on a true and proper construction of the said Bank
Guarantees, the same clearly and unequivocally continue to be operative even after
termination of the MRLA. It is submitted that the present suit deals with the
liquidated demand due under the seven Bank Guarantees ( Exhibits B-1 to B-7 to
Summary Suit No. 3131 of 2011) which are unconditional, and irrevocable Bank
Guarantees. The Defendants' obligations under the said Bank Guarantees are
sacrosanct and the Defendants cannot be allowed to renege on its unconditional
obligations thereunder. It is therefore submitted that the above three Summonses
for Judgment be made absolute and the Summary Suits be decreed as prayed.
11. The first main defence raised by the Defendants is that in view of clause 5 of
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KPP 11 SJ Nos. 11 to 13 of 2012
the Bank Guarantee, the Plaintiff cannot invoke the Bank Guarantee after having
terminated the MRLA. It is submitted that the Plaintiff vide its letter dated 12 th
December 2011 terminated the MRLA with Nimbus. The Plaintiff invoked the Bank
Guarantees on 13th December 2011 vide its letter to the Defendants. Thus the MRLA
between the Plaintiff and Nimbus had come to an end prior to invocation of the
Bank Guarantees.
12. The Learned Senior Advocates appearing for the Defendants have taken the
Court through clause 5 of the Bank Guarantee Agreement which reads as follows:
"5. The guarantee herein contained shall not be determined or
affected by the liquidation or winding up or dissolution or
change(s) in constitution of Nimbus, but shall for all purposes be
binding and operative until payment of all money due to BCCI in
respect of the said contract are paid or till its expiry or
termination, whichever is earlier."
The Learned Senior Advocates appearing for the Defendants have thereafter
submitted that on both a literal reading and informed construction of the language
of clause 5 of the Bank Guarantee, it is evident that clause 5 itself clearly spells out
that: (i) the Bank Guarantee was not terminable, "the guarantee herein contained
shall not be determined.....", (ii) the Bank Guarantee was not to be "affected by the
liquidation or winding up or dissolution or change(s) in the constitution of Nimbus".
With this in mind, the concluding words of clause 5 namely "binding and operative
until payment of all money due to BCCI in respect of the said contract are paid or till
its expiry or termination whichever is earlier", admit of one and only one meaning
that the Bank Guarantees were to be binding and operative, inter alia till the
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KPP 12 SJ Nos. 11 to 13 of 2012
termination of the MRLA. It is submitted that in other words, the termination of the
MRLA was a recognized and stipulated mode for discharge of the Bank Guarantees
and/or release from the obligations thereunder. It is further submitted by the
learned Senior Advocates appearing for the Defendants that the words "expiry or
termination" are immediately preceded by the word "its". The expression "its"
makes it absolutely clear that what is being referred/alluded to is what is referred to
earlier (before the word "its"), namely the "said contract". On a plain grammatical
construction/reading therefore, the expiry or termination specified is that of the
MRLA. Clause 5, read in its entirety prescribes the three contingencies when it
would cease to be binding or operative. The said clause cannot be construed to
mean that the Bank Guarantees would remain in force till the expiry or termination
of the Bank Guarantees, particularly since the Bank Guarantees are irrevocable in
nature. Moreover, the said clause itself states that "the Guarantee herein contained
shall not be determined". Thus the same clause negated termination of the Bank
Guarantee. It would therefore be absurd to suggest that the opening words and
closing words of Clause 5 were at cross-purposes, in contradiction and were self
destructive of each other. Consequently the word "its" appearing in the said clause
refers to only the contract between Nimbus and the Plaintiff viz. The MRLA and not
the Bank Guarantee.
13. The learned Advocates appearing for the Defendants have further submitted
that it is pertinent to note that clause 11 of the MRLA i.e. effect of termination or
expiry, also uses identical terms/words as in Clause 5 of the Bank Guarantees. Thus,
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KPP 13 SJ Nos. 11 to 13 of 2012
it is clear that the terms "till its expiry or termination" refers to the MRLA only and
not the Bank Guarantees. This is more particularly because the Bank Guarantees
were being issued pursuant to the MRLA (Clause 7.4) and even the format thereof
was prescribed in Schedule 2. Hence the same words in the same document namely
Schedule 2 and clause 11 had to be given the same meaning. It is submitted that
what puts the matter beyond any doubt is clause 11.2 of the MRLA, which specifies
the provisions of the Agreement which survive termination. Significantly, clause 7 is
absent therein which is yet another pointer to the fact that the termination of the
MRLA would also invalidate the Bank Guarantees.
14. The learned Senior Advocates appearing for the Defendants also submitted
that the construction/interpretation put forth by the Defendants is consistent with
basic rules of grammar for constructing the true purport of the pronominal "its"
appearing in clause 5 of the Bank Guarantees, the referent shall be construed as
'contract' and not the 'guarantee' as it is an established rule of grammar that a
"pronominal" refers to the nearest 'antecedent' noun. In clause 5, the nearest
antecedent noun is "contract" and hence the pronoun "its" in clause 5 shall be
construed to refer to the noun "contract". It is therefore submitted on behalf of the
Defendants that upon termination of the MRLA, the Bank Guarantees also came to
an end and the Defendants liability therein stood discharged. Thus the Bank
Guarantees cannot be invoked and no amount thereunder can be recovered from the
Defendants.
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KPP 14 SJ Nos. 11 to 13 of 2012
15. The learned Senior Advocates appearing for the Defendants have therefore
submitted that the issue as to whether the Plaintiff in view of Clause 5 of the Bank
Guarantees is entitled to invoke the Bank Guarantees after termination of the MRLA
is a triable issue and the Defendants would be establishing their case by leading
evidence at the trial of the Suit.
16. The learned Senior Advocate appearing for the Plaintiff submitted that clause
5 of each of the Bank Guarantees has to be read in the context of the four events
set out therein and the scope of the said clause cannot be extended to situations not
contemplated by the said clause. It is submitted that the words "for all purposes" in
clause (5) merely indicates that each of the Bank Guarantees shall continue to be
binding and operative for all the purposes for which the Guarantees were issued and
does not indicate that the four events set out therein are illustrative, as contended by
the Defendants. This clause cannot in any event dilute clause (3) read with clause
(7) which is a non-obstante clause. The learned Senior Advocate appearing for the
Plaintiff has further submitted that even in respect of the four eventualities specified
in clause 5, the word "or" provides for three conditions in case of any of those four
events occurring for the guarantee to be operative viz. (i) until payment of all
moneys due, or (ii) till expiry of the guarantee; or (iii) till termination of the
guarantee, whichever is earlier. The word "its" after the word "or" in clause 5 is
relatable/referable only to the Bank Guarantees and not to the contract as sought
to be contended by the Defendant Banks. Any other interpretation would render
the earlier portion of clause 5 which provides for the Guarantee being alive until
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KPP 15 SJ Nos. 11 to 13 of 2012
payment is made, otiose and nugatory, as is apparent from the words "whichever is
earlier" at the end of that clause. What emerges therefore is that the Guarantees
shall be alive until all payments have been made or until the termination or expiry
of the same.
17. It is further submitted on behalf of the Plaintiff that if the interpretation
sought to be given by the Banks is to be accepted that the word "its" relates to the
contract, it would lead to absurdity, inasmuch as it would be possible for even a
defaulting party to wrongfully and illegally terminate the contract and deprive the
beneficiary of the guarantee of the security of payment given by a Nationalised
Bank, on the basis of which the contracts are entered into in commercial terms.
Relying on the decision of the Madras High Court in the case of Kishan Gopal Jhaver
vs. Ramnarayan Bhattad and others1, it is submitted that a document must be given
full commercial meaning based on the purpose for which the guarantee is given.
Also a clause in any contract ought not to be read in isolation but must be read as a
whole to give meaning and effect to the same, keeping the purport and intent in
mind. Again, relying on the decision of the Hon'ble Supreme Court in The Union of
India vs. D.V. Revri & Co. and others 2 and in Citibank N.A. vs. TLC Marketing PLC &
Anr.3, it is submitted that it is a settled canon of interpretation that a Court ought to
adopt an interpretation which gives effect to the purport and intent of the document,
and interpretation which gives full and complete effect to the commercial efficacy of
1AIR 1986 Madras 26
2AIR 1976 SC 2257
3 AIR 2008 SC 118
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KPP 16 SJ Nos. 11 to 13 of 2012
the document and not render any portion of that document otiose or void ought to
be accepted. It is submitted that this Court in the case of Arun Subrao Prabhu vs.
Rizvi Builders and others4 has inter alia followed the decision of the Hon'ble
Supreme Court in the case of Ramkishorelal and another vs. Kamalnarayan5 and held
that a commercial document has to be interpreted in a manner that no provision of
the document is rendered nugatory.
18. The learned Senior Advocate appearing for the Plaintiff has further submitted
that the aforesaid construction is further re-emphasised by the non-obstante clause
contained in clause (7) of the Guarantee which provides that notwithstanding
anything contained in the foregoing clauses [which will include clause (5) ] the
Guarantee will remain in force upto and including 31 st May 2014 and the only time
the Guarantee will stand automatically forfeited or the Bank could be relieved and
discharged would be if a demand or claim is not served in writing before 31 st May,
2014. It is submitted that the non-obstante clause in clause (7) would be rendered
nugatory if the interpretation of the Banks is accepted. The learned Senior Advocate
appearing for the Plaintiff has also drawn my attention to clause 7.6 (b) of the MRLA
wherein Nimbus has agreed that in the event of BCCI terminating the MRLA in
accordance with the provisions contained therein, BCCI shall be entitled to offer the
Media Rights for retender to third parties and at the time of such retender BCCI shall
encash the Bank Guarantees and shall appropriate the amounts due, in pursuance of
the MRLA. It is submitted that this clause itself is clear and assists the Plaintiff in
4 2009 (6) Bom. C.R. 745
5AIR 1963 SC 890
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KPP 17 SJ Nos. 11 to 13 of 2012
the interpretation being given by it to the terms of clause 5 of the Bank Guarantees
and militates against the construction sought to be placed by the Defendants on
clause 5. It is therefore submitted on behalf of the Plaintiff that the interpretation
given by the Defendants to clause 5 of the Bank Guarantees is incorrect and the
Defendants are bound to pay the amounts due under the Bank Guarantee to the
Plaintiff, pursuant to the letter of invocation issued to the Defendants by the
Plaintiff. Relying on the decision of the Hon'ble Supreme Court in the case of Sir
Chunilal V. Mehta and sons Ltd. vs. Century Spinning and Manufacturing Co. Ltd. 6, it is
submitted that it is well settled that interpretation of a document which forms the
foundation of the rights of parties is a question of law. Given that, the only issue
raised in the present case is one relating to interpretation or clause (5) of the Bank
Guarantees, the same cannot be said to be a triable issue warranting grant of leave
to defend.
19. I have considered the above submissions advanced on behalf of the parties
qua the interpretation of clause 5 of the Bank Guarantee document. Clauses 2 to 7 of
the Bank Guarantee are relevant and reproduced hereunder.
"2. Nimbus has approached us for issuing the said guarantee and
at their request and on receipt of sufficient consideration by us,
PUNJAB NATIONAL BANK (constituted and established under the
Banking Companies (Acquisition & Transfer of Undertakings Act
1970) having its Head Office at 7, Bhikaji, Cama Place, New Delhi-
110 066 and one of its branch office at Maker Tower "E", Ground
Floor, Cuffe Parade, Mumbai-400 005, Phone No. 2218 0752 Fax
22180 403/8451 (hereinafter referred to as "the said Bank" which
expression shall unless repugnant to the subject or context mean and
include its successors in office, executors, administrators, permitted
6 AIR 1962 SC 1314
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KPP 18 SJ Nos. 11 to 13 of 2012
assigns and the like) have agreed to give such guarantee as
hereinafter mentioned.
3. We hereby undertake and agree with BCCI that if any default
is committed by Nimbus, in performing any of the terms and
conditions of the said contract including non payment of any money
payable to BCCI, we shall on first claim in writing from BCCI
without any demur, any reservation, contest, recourse or project an
d/or without any reference to pay to BCCI a sum not exceeding Rs.
93,75,00,000/- (Rupees Ninety Three Crores Seventy Five Lakhs
Only), either in full or in part, in such manner as BCCI may direct
from time to time. Any such claim made by BCCI on us shall be
final, conclusive and binding notwithstanding any difference or any
dispute between BCCI and Nimbus or any other legal proceedings,
pending before any Court, Tribunal, arbitrator or any other
authority.
4. BCCI shall have the full liberty, without reference to us and
without affecting this guarantee, to postpone for any time or from
time to time the exercise of any of the powers and/or any rights
conferred on BCCI under the said contract, which under the Law
relating to the Sureties would but for this provision have the effect
of releasing us.
5. The guarantee herein contained shall not be determined or
affected by the liquidation or winding up or dissolution or change(s)
in constitution of Nimbus, but shall for all purposes be binding and
operative until payment of all money due to BCCI in respect of the
said contract are paid or till its expiry or termination, whichever is
earlier.
6. This guarantee shall be irrevocable and shall be effective from
01st April 2010 and will remain valid upto 31st March 2014 with a
claim period of two month upto 31st May 2014.
7. Notwithstanding anything contained hereinabove:
(a) Our liability under this Bank Guarantee shall not exceed and
is restricted to Rs. 93,75,00,000/- (Rupees Ninety Three
Crores Seventy Five Lakhs only);
(b) This Guarantee shall remain in force up to and including
31st May 2014 (including claim period of Two month);
(c ) Unless the demand/claim under this guarantee is served
upon us in writing before 31st May 2014 all the rights of
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KPP 19 SJ Nos. 11 to 13 of 2012
BCCI under this guarantee shall stand automatically
forfeited and we shall be relieved and discharged from all
liabilities mentioned hereinabove."
In my view what is sought to be agreed by the parties in the first part of clause 5 of
the Bank Guarantee viz. "The Guarantee herein contained shall not be determined or
affected by the liquidation or winding up or dissolution or change(s) in constitution of
Nimbus...." is that the Guarantee shall not be terminable or affected in the event of
liquidation or winding up or dissolution or change in constitution of Nimbus. The
second part of the said clause 5 viz. "but shall for all purposes be binding and
operative until payment of all money due to BCCI in respect of the said contract are
paid or till its expiry or termination, whichever is earlier" provides for the period
during which the Guarantee shall remain binding and operative. This part of the
clause provides that a Guarantee shall be binding and operative until any of the
following three events take place:
(i) payment of all monies to BCCI in respect of the said contract are paid;
(ii) "its" expiry; and
(iii) (its) termination.
The crucial debated question is, what is meant by "its". Does it stand for the noun
'contract' occurring in the clause or the noun 'Guarantee' also appearing in the
clause. Applying the simple grammatical rule, breaking up the sentence into its
parts and according natural meaning to each part produces in my view, the
following result:
The sentence, namely "(the Guarantee) shall for all purposes........ whichever
is earlier" is nothing but a compound sentence with three 'principal' or 'main'
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KPP 20 SJ Nos. 11 to 13 of 2012
clauses joined by the conjunction 'or' the subject of each of the three clauses being
'the Guarantee'. The three clauses are:
(i) (The Guarantee) shall for all purposes be binding and operative until
payment of all money due to BCCI in respect of the said contract are paid;
(ii) (The Guarantee) shall for all purposes be binding and operative till its
expiry;
(iii) (The Guarantee) shall for all purposes be binding and operative till (its)
termination.
It is but obvious that the word "its" in the above analysis, can only stand for the
"Guarantee". Apart from the rule of plain meaning, there are also other
considerations applying to commercial documents, which favour the above meaning
of the word 'its'.
20. If the words "its expiry or termination" have to be read as referring to 'the
MRLA', it would result in an anomalous situation as submitted by the Plaintiff since
the Bank Guarantee cannot be invoked, the moment the party at whose instance
the Bank Guarantee is furnished (in this case Nimbus) terminates the MRLA. A
dishonest person/entity would therefore terminate the underlying contract and
defeat the purpose of the Bank Guarantee. Such an interpretation is also defeated
by clauses 6 and 7 of the Bank Guarantee which categorically states that the Bank
Guarantee is valid upto 31st May 2014. The MRLA admittedly expires on 31 st March
2014. In view thereof, if the interpretation given by the Defendants is to be
accepted, there would be no sense in keeping the Bank Guarantee valid/alive after
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KPP 21 SJ Nos. 11 to 13 of 2012
expiration of the MRLA. Again, as pointed out by the learned Senior Advocate
appearing for the Plaintiff, clause 7.6 (b) of the MRLA assists in the interpretation
of clause 5 of the Bank Guarantees. The said clause provides that in the event of
termination of the MRLA by the Plaintiff, the Plaintiff shall be entitled to offer the
Media Rights for retender to third parties and in respect of Bank Guarantees in
BCCI's possession at the time of such retender, BCCI shall encash the Bank
Guarantee and shall appropriate the amounts due in pursuance of the MRLA. This
clause therefore is in no uncertain terms a pointer to the fact that the Bank
Guarantees can be invoked by BCCI even after the termination of the MRLA. Clause
7.6 (b) of the MRLA therefore is a clear aid in construction of clause 5 and militates
against the construction sought to be placed by the Defendants on clause 5.
21. In the aforesaid premises, the interpretation sought to be given by the
Defendants to clause 5 of the Bank Guarantee document and the reasoning
advanced in support thereto cannot be accepted. The defence raised by the
Defendants therefore cannot be termed 'substantial'.
22. The Defendants have, without prejudice to their aforesaid contention, next
contended that the Plaintiff was not entitled to invoke the Bank Guarantees in
question, the bulk of which were admittedly towards the fees of the future matches
after termination of the MRLA. The cumulative aggregate of all the Bank
Guarantees vis-a-vis all three Banks (Defendants in the three Suits) is Rs. 1601
crores approximately. The claim of the Plaintiff even on their own showing, mentions
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KPP 22 SJ Nos. 11 to 13 of 2012
a demand for Rs. 63,78,75,000/-. It is submitted that the Plaintiff has not made out
a case for recovery of the sums guaranteed under the said Bank Guarantees. There
is no basis and/or particulars provided by the Plaintiff for the invocation of the Bank
Guarantees to the extent of the sums set out therein. It is submitted that therefore
invocation can be termed as fraudulent and/or a case involving special equities. It
is submitted that the factors which need to be particularly considered in this behalf
are: (i) The Bank Guarantees were for protecting the Plaintiff from any loss caused
by the default of Nimbus; (ii) In the present case, the default of Nimbus resulted in
the Plaintiff receiving (on a re-tender) an additional sum of Rs. 232.47 crores; (iii)
In any event, the Plaintiff suffered no loss; and (iv) It would therefore in such
circumstances be fraudulent and/or wholly inequitable and/or equally unfair and
against the ends of justice for this Court to entertain a request for a claim for Rs.
1601 crores. The Defendants have also relied on the decisions of the Hon'ble
Supreme Court in the cases of Mechelec Engineers & Manufacturers vs. Basic
Equipment Corporation7, Raj Duggal vs. Ramesh K. Bansal8, Uma Shankar vs. M.D.
Overseas Ltd.9 and UBS AG vs. State Bank of Patiala 10, and has relied on the principles
governing the grant of relief in a Summons for Judgment as set out by the Hon'ble
Supreme Court in Mechelec Engineers & Manufacturers (supra). As can be seen from
paragraph 8 of the said decision dated 1 st November 1976, the said principles have
in fact been laid down in the case of Smt. Kiranmoyee Dassi and another vs. Dr. J.
7(1976) 4 SCC 687,
8(1991) Supp. (1) SCC 191;
9(2007) 4 SCC 133
10(2006) 5 SCC 416
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KPP 23 SJ Nos. 11 to 13 of 2012
Chatterjee11, i.e. much prior to the amendments to the said Order XXXVII including
the amendments introduced by the Code of Civil Procedure (Amendment) Act, 1976
(104 of 1976) Sec. 84 (iv) (1-2-1977). Relying on the said decisions and the
principles laid down in the case of Smt. Kiranmoyee (supra), it is submitted on behalf
of the Defendants that the Defendants have a very good case on merit. Moreover,
the Defendants have raised several triable issues and the defence of the Defendants
is not by any stretch of imagination a sham and/or practically moonshine.
23.
The learned Senior Advocate appearing for the Plaintiff has in response
submitted that the Defendants are trying to contend that the Bank Guarantees are
in the nature of indemnities and therefore require the Plaintiff to show proof of loss
in order for the Defendants to make payments thereunder. It is submitted that such
a contention on the part of the Defendants is fallacious and not borne out by the
very terms of the said Bank Guarantees as also by the contemporaneous
correspondence addressed by the Advocates for the Defendants, and is an after
thought and a dishonest defence. It is submitted that in view of the law laid down
by this Court in the case of Khetarpal Amarnath vs. Madhukar Pictures 12, the
proposition is erroneous in law.
24. It is further submitted on behalf of the Plaintiff that the Bank Guarantees
which are the subject matter of the suits are unconditional and irrevocable Bank
Guarantees. Relying on the decision of the Hon'ble Supreme Court in the case of Oil
11 49 EWN 246
12 AIR 1956 Bombay 106
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KPP 24 SJ Nos. 11 to 13 of 2012
and Natural Gas Corporation Ltd. vs. SBI, Overseas Branch, Bombay 13, while dealing
with a summary suit under a Bank Guarantee in which unconditional leave was
granted by the trial Court, the learned Senior Advocate appearing for the Plaintiff
has pointed out that the Hon'ble Supreme Court while setting aside the order of the
High Court and dismissing the application for leave to defend filed by the Bank has
held that the principle stated in decisions relating to injunction could be extended to
understand the nature of defence raised by the Bank. It is further held that in the
absence of a plea of fraud, the guarantee has to be given effect to. It was also held
that if any excess amount had been paid, the same would be recovered in that case
in Arbitration. The learned Senior Advocate appearing for the BCCI has submitted
that the test whilst considering an application for leave to defend, is whether in the
facts and circumstances of the case, an order of injunction restraining the
encashment of the Bank Guarantee could be passed. If, on the basis of the law laid
down by the Hon'ble Supreme Court, an order of injunction cannot be passed - then
the leave to defend application also ought to be dismissed and a decree in a
summary suit ought to follow. It is submitted that in the facts and circumstances of
the present case, it is doubtless that an order of injunction restraining the
encashment of the said Bank Guarantees can never be passed and as such the leave
to defend application of the Bank ought to be rejected. It is submitted that no case
of fraud is made out by the Defendants and mere use of the words 'fraud' or
'fraudulent' would lend no support to the allegation made by the Defendants that the
conduct of the Plaintiff is fraudulent. It is further submitted that the Hon'ble
13 (2000) 6 SCC 385
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KPP 25 SJ Nos. 11 to 13 of 2012
Supreme Court has in its judgment in the case of Dwarikesh Sugar Industries Ltd. vs.
Prem Heavy Engineering Works (P) Ltd. and another 14 expressly set out the principles
relating to the Bank Guarantee and has expressly negatived the finding of the trial
Court that there would be unjust enrichment. Relying on the decision of the Hon'ble
Supreme Court in the case of Svenska Handelsbanken vs. Indian Charge Chrome and
others15, it is submitted that the defence of irretrievable injustice will also not assist
the Defendants, as no case of irretrievable injustice as required under the law is
made out by the Defendants. The learned Senior Advocate appearing for the Plaintiff
has therefore submitted that none of the defences sought to be raised by the
Defendants are plausible and/or have the slightest possibility of being established.
No triable issues have been raised by the Defendants. It is submitted on behalf of
the Plaintiffs that while the amounts due from Nimbus to BCCI under the MRLA are
irrelevant for the purposes of the present suit (as, on the terms of the Guarantees,
the Defendants are required to make payment of the full amount without any
reference to the MRLA or to Nimbus), the amounts due from Nimbus to BCCI
(specified only in view of the argument advanced by the Defendants that only an
amount of Rs. 63,78,75,000/- is due and payable by Nimbus to BCCI under the
MRLA) as per the statement of claim of BCCI in the arbitration proceedings against
Nimbus on 20th August, 2012 aggregate to Rs. 328,40,55,630.14. Out of this
amount, Rs. 305,06,87,500/- is the principal amount, and the balance is the interest
accrued upto 20th August 2012. It is submitted on behalf of the Plaintiff that as per
the terms of the MRLA, the Plaintiff was entitled to encash the guarantees at any
14 (1997) 6 SCC 450
15 (1994) 1 SCC 502
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KPP 26 SJ Nos. 11 to 13 of 2012
point of time, whether before or after the termination, for the full amount of the
Guarantees notwithstanding the amounts due from Nimbus to BCCI at that time.
BCCI was entitled to retain the full amount of the Guarantees till the rights for the
remaining period of the MRLA (in respect of matches which have not been telecast
by Nimbus) are re-tendered by BCCI. Upon such re-tender, BCCI was entitled to
deduct the following sums from the full amount of the Guarantees and return the
balance to Nimbus, viz:
(i) Amounts due from Nimbus to BCCI under the MRLA for matches already
telecast by Nimbus; and
(ii) Loss (if any) occasioned to BCCI upon re-tender of the rights for the
remaining period of the MRLA (in the event the new rights fee was less than the
rights fee that would have been paid by Nimbus if the MRLA had not been
terminated).
25. It is submitted that in the light of the above, the Defendants were bound to
make payment of the full amount of the Guarantees to BCCI immediately upon their
invocation on 13th December 2011. BCCI was entitled to retain the full amount of
the Guarantees upto 4th April 2012 (date of re-tender). Thereafter, BCCI was entitled
to deduct the amounts due from Nimbus to BCCI (under paragraph 21 (a) - there
being no loss under paragraph (b) above in the present case). Consequently, the loss
caused by the Defendants wrongful refusal to honour their solemn obligations under
the Guarantees may be classified under the following heads:
(i) Interest on the full amount of the Guarantees between 13 th December, 2011
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KPP 27 SJ Nos. 11 to 13 of 2012
(date of invocation) and 4th April, 2012 (date of re-tender);
(ii) Aggregate of the principal amount of Rs. 305,06,87,500/- (Rupees Three
Hundred Five Crores Six Lakhs Eighty Seven Thousand and Five Hundred only) due
from Nimbus to BCCI along with the accrued interest thereon till 4 th April 2012
(Deductible amount) ; and
(iii) Interest on the deductible amount from 5 th April 2012, till date of payment or
realisation.
26.
The learned Senior Advocate appearing for the Plaintiff has relied on the
decision of the Hon'ble Division Bench of this Court in Appeal (Lodging) No. 90 of
2012 in Arbitration (Lodging) No. 43 of 2012 and others, decided on 27 th February,
2012, wherein the Division bench has accepted the prima facie view of the learned
Single Judge that the Plaintiff-BCCI has made out more than a strong prima facie
case that an amount of Rs. 305 crores is due and payable to it by Nimbus
Communications Ltd., and directed Nimbus to furnish solvent security in the form of
a Bank Guarantee of a Nationalised Bank in the amount of Rs. 305 crores to the
satisfaction of the Prothonotary and Senior Master within a period of two weeks
from the date of the said order. On a query raised by this Court as to what is the
amount due and payable by Nimbus Communications Ltd. to BCCI as of date, the
learned Senior Advocate appearing for the Plaintiff, without prejudice to the
contention of BCCI that BCCI is entitled to invoke the entire amount guaranteed by
the Defendants under the Bank Guarantees, which are the subject matter of the
above Summary Suits has tendered a statement showing that the amounts due
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KPP 28 SJ Nos. 11 to 13 of 2012
from Nimbus to BCCI under the MRLA is Rs. 398,12,17,770/- as on 18 th December,
2012. A copy of the statement was also handed over to the Advocates for the
Defendants who submitted that they do not admit that Nimbus has to pay an
amount of Rs. 398,12,17,770/- .
27. From the facts narrated above, the contention of the Defendants that only an
amount of Rs. 63,78,75,000/- is due and payable by Nimbus to BCCI under the
MRLA and since the Plaintiff had called upon Nimbus through their Advocates
letter dated 16th November 2011 to pay an amount of Rs. 63,78,75,000/-, the
Plaintiff cannot invoke the Bank Guarantees to the extent of Rs. 1601 crores, cannot
be accepted. Clauses 2, 3 and 4 of the Bank Guarantees establish beyond any doubt
that all the Bank Guarantees are irrevocable and unconditional and upon a claim
made by the Plaintiff as required under clause 9 of the Guarantees, the Defendants
are bound to pay the amounts guaranteed under the said Bank Guarantees without
demur and without reference to Nimbus. Clause 7.6 (b) of the MRLA itself provides
that the Plaintiff can encash the said Bank Guarantees in its entirety and refund any
excess amount due to Nimbus after taking into consideration the loss caused to the
Plaintiff upon retender of the rights for the remaining period of the MRLA. It is
settled law that encashment of an unconditional and irrevocable Bank Guarantee
ought not to be injuncted by the Courts unless the case falls within the recognised
exceptions laid down by the Hon'ble Supreme Court in a catena of decisions in
which case an injunction restraining the encashment of a Bank Guarantee can be
granted. An unconditional and irrevocable Bank Guarantee is an independent
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KPP 29 SJ Nos. 11 to 13 of 2012
contract and whether encashment of the same ought to be permitted or not has to
be considered without any reference to the underlying or main contract or to the
disputes/claims thereunder. It is trite law that the Court can restrain encashment of
Bank Guarantee in cases of established fraud in issuance of the Bank Guarantee. The
fraud has to be absolute and egregious vitiating the very foundation of the Bank
Guarantee. In my view, in the present case, the Plaintiff has failed to make out any
case of fraud. In the case of Dwarikesh Sugar Industries Ltd. vs. Prem Heavy
Engineering Works (P) Ltd. and another (supra), th Hon'ble Supreme Court held in
para 22 as under:
" 22. The second exception to the rule of granting injunction, i.e.
the resulting of irretrievable injury, has to be such a circumstance
which would make it impossible for the guarantor to reimburse
himself, if he ultimately succeeds. This will have to be decisively
established and it must be proved to the satisfaction of the Court
that there would be no possibility whatsoever of the recovery of the
amount from the beneficiary, by way of restitution."
No such circumstance exists in the present case.
28. I have thus come to the conclusion that (i) the interpretation sought to be
given by the Defendants to clause 5 of the Bank Guarantees cannot be accepted;(ii)
that as regards the claim of the Plaintiff that they are entitled to invoke/encash the
entire amount guaranteed by the Defendants under the Bank Guarantees, the
Defendants do not have a clear and/or immediate defence; and (iii) with respect to
the Plaintiff's without prejudice claim/submission with regard to recovery of Rs.
398,12,17,770/-, the defence of the Defendants that they also do not admit the said
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KPP 30 SJ Nos. 11 to 13 of 2012
claim, cannot be termed 'substantial' and is practically moonshine. I am however
inclined to give an opportunity to the Defendants to enable them to try and prove
their defence. In such circumstances, it may be necessary to protect the Plaintiff by
imposing condition on the Defendants. In my view, the following order would meet
the ends of justice.
(i) The Defendants - Punjab National Bank, Indian Bank and Union Bank of India
are granted conditional leave to defend the suit on depositing in Court 37.5 per cent,
37.5 per cent and 25 per cent amount of their respective Bank Guarantees i.e.
aggregating to Rs. 400 crores with the Prothonotary and Senior Master of this Court
on or before 15th February, 2012, which amount the Prothonotary and Senior Master
shall invest in fixed deposits with the same Banks i.e. the Defendants, initially for a
period of one year and thereafter renew the same from year to year until further
orders.
(ii) The suits be transferred to the list of commercial causes.
(iii) The Defendants shall file their written statement on or before 28 th February,
2013.
(iv) The hearing of the Suits is expedited.
(v) Place the Suits for framing of issues on 2nd March, 2013.
(S. J. KATHAWALLA, J.)
