Bombay High Court
M/S.Abg Ports Limited vs M/S.Psa International Pte ... on 21 November, 2012
Bench: D.D. Sinha, V.K. Tahilramani
krs AppealL727.12
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO.727 OF 2012
In
NOTICE OF MOTION (L) NO.2890 OF 2012
In
SUIT (L) NO.2544 OF 2012
M/s.ABG Ports Limited, a company incorporated )
under the provisions of the Companies Act, 1956, )
having its registered office at 5th floor, Bhupati
ig )
Chambers, 13, Mathew Road, Mumbai--400 004. ) : Appellant
V/s.
1. M/s.PSA International Pte Limited, a company )
incorporated under the laws of Singapore, )
th
having its office at 38 floor, PSA Building, )
460, Alexandra Road, Singapore 119 963. )
2. M/s.PSA Mumbai Investments Pte Limied, a )
company incorporated under the provisions of )
the Companies Act, 1956, having its office at )
38th floor, PSA Building, 460 Alexandra Road, )
Singapore 119 963. )
3. Bank of Baroda, a body corporate constituted )
under the Banking Companies (Acquisition )
and Transfer of Undertakings) Act, 1970, )
having its Head Office at Mandavi, Baroda )
and a branch office at 3, Walchand Hirachand )
Marg, 1st Floor,Ballard Pier,Mumbai--400 001.)
4. The Board of Trustees of the Jawaharlal Nehru )
Port Trust, a body corporate constituted under )
the provisions of the Major Port Trusts Act,1963)
and having its office at the Port Planning and )
1/40
::: Downloaded on - 09/06/2013 19:24:43 :::
krs AppealL727.12
Development Department, Administrative )
Building, Sheva, Navi Mumbai--400 707, )
and an office at Raheja Centre, No.1107, )
214, Nariman Point, Mumbai--400 021. ) : Respondents
....
Mr.T.N.Subramaniam, Senior Advocate, with Mr.Simil Purohit,
Mr.Indranil Deshmukh and Ms Ankita Godbole i/b. Amarchand
Mangaldas & S.A.Shroff & Co., for the appellant.
Mr.D.J.Khambata, Senior Advocate, with Mr.Nikhil Sakhardande,
Mr.Adhip Iyer and Ms Suruchi Rungta i/b. AZB Partners for respondent
nos.1 & 2.
Mr.N. Shah with Ms Saloni Shah i/b. Fox Mandal Partner for resp.no.3.
Mr.Himanshu Kode with Ms Amrita Joshi i/b. The Law Point for
respondent no.4.
....
CORAM : D.D. SINHA AND
SMT.V.K.TAHILRAMANI, JJ.
Date of Reserving )
the Judgement. ) : 18.10.2012.
Date of Pronouncing ) : 21.11.2012.
the Judgement. )
JUDGEMENT (Per D.D.Sinha,J.)
The appellant has filed the suit, inter alia, seeking a declaration
that the Joint Bid Agreement (JBA), the Counter Guarantee, and its
invocation by the respondent no.1 vide its letter dated 21.9.2012 is illegal,
wrongful and vitiated by fraud and is, therefore, null and void, non-est
krs AppealL727.12
and of no effect whatsoever. The appellant has taken out a Notice of
Motion for an order that pending the hearing and final disposal of the suit,
direct and restrain by way of a temporary injunction the respondent no.3
from acting by themselves or through their servants, agents,
representatives and/or all other persons claiming by, through or under
them paying to the respondent no.1 or to anyone else any amount
purportedly under the Counter Guarantee. Similar temporary injunction
is sought against the respondent no.1 from receiving from the respondent
no.3 any amount purportedly under the Counter Guarantee. The appellant
has also claimed a temporary injunction restraining the respondent nos.1
& 3 from invoking and/or encashing the Counter Guarantee. The learned
single Judge vide judgement dated 5.10.2012 dismissed the Notice of
Motion. Being aggrieved by the said judgement of the learned single
Judge, the appellant has filed the present appeal challenging the impugned
judgement.
2. The learned counsel for the appellant has submitted that the brief
facts of the case are as follows:-
(a) The appellant is a company incorporated in India. The respondent
no.1 is a company incorporated in Singapore, wholly owned and
krs AppealL727.12
controlled by Tamsek Holdings, an investment company of the
Government of Singapore. The respondent no.2 is a subsidiary of the
respondent no.1.
(b) The present appeal impugns the judgement dated 5.10.2012
whereby the learned single Judge has dismissed the Notice of Motion
filed by the appellant seeking an injunction against the encashment of the
Bank Guarantee.
( c)
It is the stand of the appellant that in view of the law declared by
the Apex Court in a catena of decisions with respect to Bank Guarantee
and the approach of Courts in granting injunctions restraining the
invocation of Bank Guarantee, it is evident that the Court can and ought
to grant an injunction for invocation of Bank Guarantee if a prima facie
case of (i) fraud; (ii) irretrievable injustice; (iii) invocation of a Bank
Guarantee not being in terms thereof; and (iv) special equities is made
out. It is submitted that once the appellant prima facie satisfies the Court
regarding the existence of any of the conditions enunciated above, the
appellant is entitled to interim relief.
3. The learned counsel for the appellant has submitted that the Bank
Guarantee dated 13.10.2010 issued by the respondent no.3 in the sum of
krs AppealL727.12
Rs.17,42,00,000/- being the Bank Guarantee No.29101GPER018310
(Counter Guarantee) in favour of the respondent no.1 is not the kind of
guarantee which is usually given in the course of ordinary commercial
transactions. The appellant has entered into a Joint Bid Agreement dated
21.8.2009 with the respondent no.2. The respondent no.2 on behalf of the
consortium submitted a Bid Bond (issued by Standard Chartered Bank) in
the sum of Rs.67,00,00,000/- to the respondent no.4. The respondent no.1
issued an indemnity to Standard Chartered Bank for the Bid Bond
submitted by the Respondent no.2. The appellant in turn submitted the
Counter Guarantee to the respondent no.1. Thus, the transaction was not
a regular commercial transaction and the Counter Guarantee is not a kind
of Bank Guarantee usually issued in the course of commercial
transactions. Therefore, the constraints and limitations normally
associated with restraining payment under regular Bank Guarantee are not
attracted in the present case.
3. The learned counsel for the petitioner further submitted that the
suit guarantee is a conditional one and the same can be invoked only in
terms of the guarantee. Clause 4 of the suit guarantee reads as under:-
krs AppealL727.12
"4. In consideration of PSA International Pte
Ltd. Counter indemnifying Standard Chartered
Bank for issue of the Bid Bond of
Rs.67,00,00,000/- (Rupees Sixty Seven Crore
Only) on behalf of the consortium of PSA
Mumbai Investments Pte Ltd and ABG Ports Pvt.
Ltd. ("Consortium"), we Bank of Baroda
("Guarantor"), hereby irrevocably and
unconditionally undertake to pay to PSA
International Pte Ltd. "(Beneficiary"), on its first
demand, an amount up to Rs.17,42,00,000/-
(Rupees Seventeen Crores and Forty Two Lakhs
Only), as payment obligation to the Beneficiary
pursuant to the Bid Bond, without any demur,
reservation, recourse, contest or protest, without
notice or reference to ABG Ports Pvt. Ltd.,
irrespective of whether the Beneficiary's demand
is disputed by ABG Ports Pvt. Ltd. or any other
person or not, within 3 business days of a written
request from the Beneficiary for payment within
krs AppealL727.12
the Effective Period (as defined hereinafter),
supported by the following documents:
(emphasis supplied)
It is submitted that from the above, it is clear that the purpose of the
Counter Guarantee was to indemnity the respondent no.1. The words "as
payment obligation to the Beneficiary pursuant to the Bid Bond" which
find place in paragraph 4 of the Counter Guarantee are of great
significance and cannot be ignored.
4. It is submitted that the obligation of the respondent no.3 to pay to
the respondent no.1., viz., the beneficiary under the Counter Guarantee is
conditional on the respondent no.1's entitlement to receive payment. This
means that unless there is an obligation to make payment on the part of
the appellant to the respondent no.1, the Counter Guarantee cannot be
invoked and the respondent no.3 is not obliged to make payment. It is
submitted that in other words, unless the obligation fastens, the Counter
Guarantee cannot be invoked and no liability fastens on the appellant.
The Bid Bond was submitted by the respondent no.2 to the respondent
no.4 (JNPT) for and on behalf of the consortium. The appellant was
under no obligation qua the respondent no.1 under the Bid Bond. The
krs AppealL727.12
learned single Judge completely overlooked the above factual position.
The Counter Guarantee was issued to the respondent no.1 as the
respondent no.1 was indemnifying the claim of the Bid Bond issuing
Bank, viz., Standard Chartered Bank. It would, therefore, follow that the
respondent no.1 would be entitled to make a claim under the Counter
Guarantee only if it establishes that the loss caused under the indemnity is
attributable to the action/inaction of the appellant. The Counter
Guarantee is, therefore, more in the nature of a Guarantee indemnifying
the respondent no.1 for the loss caused to the respondent no.1, if any, due
to the conduct of the appellant. The Bid Bond was submitted to JNPT.
JNPT in turn invoked the Bid Bond as the respondent no.2 failed to
execute the concession agreement for the said project within the
stipulated time. Admittedly, the appellant is not responsible in any
manner whatsoever for the invocation of the Bid Bond by JNPT, and
consequently, the respondent no.1 is not entitled to make any claim under
the Counter Guarantee. The learned counsel for the appellant has further
contended that despite the aforesaid facts having been pointed out to the
learned single Judge, the learned single Judge erroneously held that as the
appellant was a member of the consortium, it was liable for proportionate
loss under the JBA for non-fulfilment of obligations by the respondent
krs AppealL727.12
no.2. The finding of the learned single Judge is patently erroneous and
proceeds on an erroneous premise that the Counter Guarantee was given
to the respondent no.2 towards the Bid Bond. The learned single Judge
failed to appreciate that the liability of the appellant, as aforesaid, if any,
was towards the respondent no.2 and not the respondent no.1. The parties
had carefully worded the terms of the Bank Guarantee to include the term
"payment obligation" in the guarantee. The impugned judgement
completely ignores the specific term used by the parties. In order to
enable the respondent no.1 to invoke the Counter Guarantee, it was
imperative that the respondent no.1 ought to have suffered a loss on
account of the conduct of the appellant. It is, therefore, contended that
under the JBA, all obligations were to be performed by the respondent
no.2 which in turn is a subsidiary of the respondent no.1. The respondent
no.2 having failed to comply with the same, cannot ask and seek
contribution to indemnify any loss of the respondent no.1 arising out of its
own inaction.
5. It is contended that if the encashment of the Counter Guarantee
is not injuncted, the same would tantamount to a party profiteering from
its own wrongs/inaction. It is submitted that there is no declaration in the
krs AppealL727.12
respondent no.1's letter dated 21.9.2012 that the payment obligation has
fastened on the appellant pursuant to the Bid Bond which was mandated
by the terms of the Counter Guarantee. The impugned order loses sight of
the fact that there has to be a loss caused to the respondent no.1 which
must be the result of direct actions/inactions on the part of the appellant.
The invocation of the counter guarantee thus not being in terms of the
guarantee is bad in law, non est and an injunction to restrain the
encashment thereof ought to have been granted by the learned single
Judge.
6. The learned counsel for the petitioner has submitted that the action
of the respondent nos.1 & 2 (collectively "PSA") of leading the appellant
to believe that it was interested in participating in and implementing the
development of the 4th Container Terminal project at Jawaharlal Nehru
Port, on Design, Build, Finance, Operate and Transfer (DBFOT) basis
(the "said Project"), despite being very well aware that it had no such
intention to implement the said project, is clearly an act of fraud as
defined under section 17 of the Contract Act. Such an act of egregious
fraud vitiates the JBA and all contractual agreements entered into between
the parties and steps taken pursuant thereto, including the Counter
krs AppealL727.12
Guarantee. It is contended that the fraudulent conduct of the PSA is
further substantiated from a perusal of exh.`K' wherein the Board Member
of JNPT has opined that PSA never intended to commence setting up of
terminal at JNPT.
7. The learned counsel for the petitioner has submitted that the PSA
never intended the project to take off so that all container traffic can be
diverted from the Middle East to Singapore port which is run and
controlled by the Holding Company of PSA/it's associates/affiliates. This
is evident from the unprecedented, unrealistic and commercially unviable
bid (which, at its time of making was the highest revenue share quoted for
all similar projects in the country) submitted by PSA for the said project.
The said intent is also clearly plausible in view of the fact that the parent
company of the respondent no.1 being Tamsek holding is an investment
arm of the Government of Singapore. Thus, the appellant had clearly
made out a strong prima facie case of the egregious fraud perpetuated by
PSA. It is contended that despite these facts, the learned single Judge has
erroneously held as under:-
"In my view, in the present case, the Plaintiff
krs AppealL727.12
has failed to make out any case of fraud. On a
reading of the averments made in paragraph 8
of the Suit it is clear that the said averments by
no stretch of imagination can be said to have
made out a case of fraud. The allegations of
fraud made by the Plaintiff are merely bald
assertions and do not establish a case of fraud
much less a fraud of a egregious nature.
.............."
8. The counsel for the appellant has further contended that the learned
single Judge has also negatived the appellant's contentions on fraud on the
ground that the appellant had till date not rescinded the JBA, which
according to the learned single Judge "speaks volumes about the
seriousness of the allegation of fraud made by them against Defendant
Nos.1 and 2." The conclusion of the learned single Judge is clearly
erroneous. The appellant specifically pleaded discharge of the contract
which fact has been completely ignored by the learned single Judge.
9. It is further submitted that the learned single Judge completely
krs AppealL727.12
overlooked the fact that the respondent no.2 has allowed the invocation of
the Bid Bond by JNPT without any protest. The learned Judge has held
that there are serious disputes between the respondent no.2 and JNPT,
however, the learned Judge overlooked that:-
(a) The respondent no.2 has till date not protested against/challenged
the invocation and/or encashment of the Bid Bond by JNPT;
(b) The respondent no.2 had also not initiated any proceedings to
prevent the invocation and/or encashment of the Bid Bond by
JNPT;
( c) The respondent no.2 has not initiated any proceedings against JNPT
for the recovery of the Bid Bond amount of Rs.67 crores.
(d) No steps were taken by the respondent no.2 to ensure that the Letter
of Award for the said project is not terminated/withdrawn, despite it
being the respondent no.2's case that it was not in default.
10. The learned counsel for the appellant has submitted that the
appellant in paragraph 3 as well as in paragraph 12 of the plaint has
categorically stated that the respondent no.2 is a shell company and has no
assets either in India or in Singapore and the said factual position is not
controverted. The obligation of the appellant was joint and several with
krs AppealL727.12
the respondent no.2 qua JNPT. The impugned order erroneously records
and refuses an injunction on the erroneous ground that the appellant was a
"joint promisor" and had jointly promised performance of its obligation
being a member of the consortium. It is contended that the impugned
judgement fails to consider that the joint promise, if any, was by the
appellant with the respondent no.2 qua JNPT. There was no joint promise
between the appellant and the respondent no.1. JNPT having invoked the
Bid Bond, the right to claim moneys from the appellant, if any, would
devolve only on the respondent no.2. In the absence of any joint promise
with the respondent no.1, the respondent no.1 could not invoke the
Counter Guarantee.
11. It is contended that if the Counter Guarantee is allowed to be
invoked/encashed, the eventual decree, if any, which would be passed in
favour of the appellant, in proceedings the appellant would initiate for
recovery of the amounts paid pursuant to the Counter Guarantee, would
be a mere paper decree against the respondent no.2 which is only a shell
company, with no assets either in India or in Singapore. The learned
single Judge has proceeded to reject the appellant's contentions on the
ground that the respondent no.1 is backed by the Government of
krs AppealL727.12
Singapore. It is contended that in view of the joint obligation under the
JBA, being between the appellant and the respondent no.2, the financial
soundness of the respondent no.1 cannot be a ground to deny injunctive
reliefs to the appellant.
12. The learned counsel for the appellant has specifically pleaded
that the facts and circumstances of the case clearly give rise to special
equities being invoked by the appellant to protect the rights of the
appellant. The sole ground taken by JNPT for invoking the Bid Bond is
the failure on the part of the respondent no.2 to sign the concession
agreement for the said project. This has clearly been on account of PSA
and the appellant has had no role to play in this. The default, if any, is
therefore of PSA alone. If the default and the consequent invocation of
the Bid Bond is solely due to PSA's failure to execute the concession
agreement, the respondent no.1 is not entitled to pass that burden or any
part thereof upon the appellant and claim benefit under the Counter
Guarantee. Allowing the respondent no.1 to do so would tantamount to
rewarding the respondent no.1 for its own inaction and fraudulent
conduct. The fraud is of the beneficiary (as it controls the respondent
no.2 absolutely) who cannot be allowed to take any benefit therefrom.
krs AppealL727.12
However, the learned single Judge failed to consider the same. The
impugned judgement, therefore, fails to render findings on the issues
specifically raised by the appellant. It is, therefore, respectfully submitted
by the appellant that this is a fit case for this Court to restrain the
invocation/encashment of the counter guarantee.
13. Mr.Khambata, the learned counsel for the respondent nos.1 & 2,
on the other hand, supported the impugned judgement passed by the
learned single Judge. It is contended that the law in regard to special
equities/irretrievable injury for injuncting the encashment of a Bank
Guarantee has been laid down by the Apex Court in Dwarikesh Sugar
Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. & Anr.
(1997) 6 SCC 450 in the following terms:-
"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
krs AppealL727.12
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."
It is contended that in the present case, the beneficiary of the Bank
Guarantee is the respondent no.1/defendant no.1. Hence, on an
application of the test laid down by the Apex Court in the case of
Dwarikesh Sugar Industries Ltd. (supra), it is necessary for the appellant
to plead and establish that recovery of the amount from the respondent
no.1 (beneficiary) is impossible. It is submitted that the test in the case of
Dwarikesh Sugar Industries Ltd. has not been satisfied as is evident from
the pleading of the appellant/plaintiff in the plaint which reads thus:-
"2. Defendant no.1 is a limited liability company
incorporated under the laws of Singapore and has its
office at the address stated in the cause title above.
Defendant No.1 is ultimately owned by the
Government of Singapore and is engaged in the
business of construction, development, maintenance
krs AppealL727.12
and operation of various container terminals at
various ports in around twenty nine countries.
Defendant no.1 is one of the largest container
terminal operators in the world."
It is contended that a reading of the above pleading in the plaint shows
that the respondent no.1 is one of the largest container terminal operators
in the world and, therefore, irretrievable injury/special equities for
injuncting the encashment of Bank Guarantee has not been established as
required in law by the appellant.
14. The learned counsel has further contended that the plaintiff has
pleaded special equities in paragraph 12 of the plaint which reads thus:-
"12. The Plaintiff states and submits that
irretrievable injustice will be caused to it in case
appropriate orders are not passed restraining
encashment of the Counter Guarantee. It is
submitted that Defendant No.2 is a shell
company and has no assets in either India or
krs AppealL727.12
Singapore and thereby any order that the
Plaintiff may obtain against Defendant No.1
will be a mere paper decree."
It is submitted that this pleading is irrelevant as the respondent no.2 is not
the beneficiary under the Bank Guarantee and as such, pleading in regard
to the respondent no.2 being a shell company for establishing irretrievable
injury is immaterial and ought to be discarded on the test laid down by the
Apex Court in the case of Dwarikesh Sugar Industries Ltd. (supra). It is,
therefore, contended that no irretrievable injury has been established and,
as such, the said recognised exception to the rule that a Bank Guarantee
ought not to be injuncted has not been satisfied in the present case.
15. The learned counsel for the respondent nos.1 & 2 further
contended that the appellant's reliance on a newspaper article dated
12.9.2012 to make out a case of fraud is entirely misplaced. The said
newspaper article has not even been pleaded in support of the case of
fraud in paragraph 8 of the plaint which is the only basis on which fraud
has been alleged in the plaint. It is further submitted that the respondent
no.1 took all necessary steps in regard to withdrawal of the appellant from
krs AppealL727.12
the consortium which steps were taken pursuant to the appellant's own
request in this regard, as evident from the appellant's letter dated
31.3.2012. Based on this request, the respondent no.2 by its letter dated
2.4.2012 wrote to the respondent no.4 seeking its consent for the
appellant's withdrawal from the consortium. The said request was
rejected by the respondent no.4 for which the respondent nos.1 & 2
cannot in any manner be held responsible. Thus, it cannot be contended
that there is a fraud practised upon the appellant.
16. The learned counsel for the respondent nos.1 & 2 has submitted
that insofar as the allegation of fraud in the context of non-signing of the
Concession Agreement is concerned, it is submitted that a show cause
notice in that regard had been issued and a detailed reply has been
submitted by the respondent no.2 explaining the reasons for not signing
the Concession Agreement. It has been clearly stated that the respondent
no.2 had been ready and willing to execute the Concession Agreement,
but the same could not be executed only because of stamp duty issues and
because of which it was mutually agreed to postpone the signing of
agreement. It is submitted that it could never have been the intention of
the respondent no.1 to defraud the plaintiff of Rs.17.42 crores covered by
krs AppealL727.12
the Counter Guarantee and in the process suffer a loss of Rs.50 crores (in
view of the encashment of Bid Bond of Rs.67 crores) and also further lose
the valuable right to enter into a Concession Agreement which was for a
period of 30 years. It is, therefore, submitted by the counsel for the
respondent nos.1 & 2 that the contention of the appellant regarding
fraudulent intention on the part of the respondent no.1, in the facts and
circumstances of the present case, is absurd.
17. It is further contended that the appellant who has alleged fraud
has not terminated the Joint Bid Agreement (JBA). It is important to note
that the appellant has not avoided the transaction nor has it avoided the
same in the plaint. The appellant, therefore, is estopped from raising the
plea of fraud.
18. The learned counsel for the respondent nos.1 & 2 has contended
that the Supreme Court in the case of Svenska Handelsbanken v.
M/s.Indian Charge Chrome & Ors. (1994) 1 SCC 502) has held in
paragraph 71 thus:-
"71. Shetty, J. speaking for the Bench noticed the
krs AppealL727.12
earlier observations of Mukharji, J. in the case of
U.P. Cooperative Federation Ltd. and stated that the
nature of the fraud that the courts talk about is fraud
of an "egregious nature as to vitiate the entire
underlying transaction". It is fraud of the
beneficiary, not the fraud of somebody else."
19.
The learned counsel for the respondent nos.1 & 2 has placed
reliance on the observations made by the Apex Court in paragraph 28 of
the judgement in the case of Dwarikesh Sugar Industries Ltd. (supra). It
is, therefore, contended that for a Court to restrain encashment of a Bank
Guarantee, the fraud has to be absolute and egregious, vitiating the very
foundation of the Bank Guarantee. The averments on fraud are to be
found in paragraphs 8 to 10 of the plaint. On a reading of the same, it is
clear that the averments by no stretch of imagination can be said to have
made out a case of such fraud apart from the fact that the allegations are
incredible and does not establish that the respondent nos.1 & 2 practised
any fraud whatsoever.
20. The learned counsel for the respondent nos.1 & 2 further
krs AppealL727.12
contended that the appellant and the respondent no.2 are part of the
consortium. A consortium is in the nature of a partnership and consortium
members must, in law, bear the liabilities of the consortium to the extent
of their share in the consortium. It is further submitted that section 43 of
the Indian Contract Act provides as under:-
"43. Any one of joint promisors may be
compelled to perform.--When two or more
persons make a joint promise, the promisee
may, in the absence of express agreement to the
contrary, compel any one or more of such joint
promisors to perform the whole of the promise.
Each promisor may compel contribution -
Each of two or more joint promisors may
compel every other joint promisor to contribute
equally with himself to the performance of the
promise, unless a contrary intention appears
from the contract.
Sharing of loss by default in contribution.-
If any one of two or more joint promisors
krs AppealL727.12
makes default in such contribution, the
remaining joint promisors must bear the loss
arising from such default in equal shares.
Explanation.-- Nothing in this section shall
prevent a surety from recovering, from his
principal, payments made by the surety on
behalf of the principal, or entitle the principal
to recover anything from the surety on account
of payment made by the principal."
21. The learned counsel for the respondent nos.1 & 2 further
contended that there is no contract to the contrary in the JBA. Indeed, the
JBA reaffirms the liability by providing as follows:-
"5. Joint and Several Liability
The Parties do hereby undertake to be jointly
and severally responsible for all Obligations
and liabilities relating to the Project and in
accordance with the terms of the RFQ, RFP and
the Concession Agreement, till such time as the
Financial Close for the Project is achieved
krs AppealL727.12
under and in accordance with the Concession
Agreement."
It is submitted that the appellant has itself admitted its joint and several
liability under Clause 5 of the JBA for any/all obligations and liabilities
relating to the project. This is evident from the appellant's letter to the
respondent no.1 dated 31.3.2012.
22. The counsel for the respondent nos.1 & 2 further submitted that
under the Request for Proposal issued by the respondent no.4 (RFP), a
Bid Bond of Rs.67 crores was required to be furnished by the consortium
of which the appellant is a 26% member/partner. The sum of Rs.17.42
crores (Counter Guarantee) thus represents the appellant's share (26%) of
the total amount of Rs.67 crores covered by the Bid Bond. It is submitted
that the respondent nos.1 & 2 could have submitted their share of 74% of
the Bid Bond amount the appellant would have required to submit its
share of the Bid Bond directly to the respondent no.4 and the effect would
have been that the respondent no.4 would have invoked two Bank
Guarantees aggregating to Rs.67 crores. However, the respondent no.4
wanted a single Bank Guarantee and, therefore, the Counter Guarantee
krs AppealL727.12
was obtained.
23. It is contended that the Counter Guarantee is unconditional and
irrevocable guarantee and contains an unequivocal promise to pay a sum
of Rs.17.42 crores without any demur or protest and the same could be
encashed. The Counter Guarantee is an independent contract and whether
an injunction ought to be granted or not has to be considered without any
reference to the underlying contract. Even the ground of unjust
enrichment has been rejected by the Apex Court in the case of Dwarikesh
Sugar Industries Ltd. (supra) by observing thus in paragraph 29 of the
judgement:-
"29. .................... We also do not find any
justification for the High Court in invoking the
alleged principle of unjust enrichment to the
facts of the present case and then deny the
appellant the right to encash the bank guarantee.
If the High Court had taken the trouble to see
the law on the point it would have been clear
that in encashment of bank guarantee the
krs AppealL727.12
applicability of the principle of undue
enrichment has no application."
It is submitted that the appellant's argument that the Counter Guarantee is
a conditional one is erroneous: (i) the expression `payment obligation' is
merely descriptive of what the Counter Guarantee has been furnished for.
Once the Bid Bond for a sum of Rs.67 crores is encashed, the respondent
no.1 is entitled to be reimbursed to the extent of Rs.17.42 crores which is
the appellant's share of the amount covered by the Bid Bond encashed by
the respondent no.4. The Counter Guarantee provides that the
encashment of the Bid Bond is to be established by providing a copy of
the respondent no.4's invocation letter to the respondent no.3 Bank. In the
present case, this has been done.
24. The appellant's contention that the respondent no.1 would be
entitled to make a claim under the Counter Guarantee only in case it
establishes that the appellant is obligated to make payment to the
respondent no.1 due to the loss it has suffered under the counter
indemnity, is erroneous in law. The present case is one of an
unconditional Bank Guarantee and not an indemnity. Therefore, it is clear
krs AppealL727.12
that the respondent no.1 is entitled to call upon the respondent no.3 to pay
under the Counter Guarantee dated 13.10.2010 once there is a letter of
invocation of the Bid Bond by the respondent no.4. That letter of
invocation by the respondent no.4, therefore, establishes the right to
invoke the Counter Guarantee. The counsel for the respondent nos.1 & 2
further submitted that even otherwise, the Counter Guarantee was given
as consideration of the respondent no.1 indemnifying Standard Chartered
Bank for issuing the Bid Bond in favour of the respondent no.4 and was
not an indemnity given by the appellant to the respondent no.1. Thus, the
reliance placed by the appellant on section 124 of the Indian Contract Act,
1872 is entirely misplaced as the said section does not apply. It is,
therefore, contended that the order of the learned single Judge is a well-
reasoned order and does not warrant any interference. The appeal,
therefore, deserves to be dismissed with costs.
25. We have given anxious thought to the various contentions
canvassed by the respective learned counsel for the appellant as well as
the respondents, considered the decisions cited as well as the impugned
judgment passed by the learned single Judge. We feel it appropriate to
express the well-settled legal position relating to encashment of Bank
krs AppealL727.12
Guarantee in view of the decision of the Apex Court. A Bank Guarantee
is one which is payable by the guarantor on demand if the Bank
Guarantee is the unconditional Bank Guarantee. Similarly, in the course
of commercial dealings, unconditional guarantees have been given or
accepted, the beneficiary is entitled to realise such a Bank Guarantee in
terms thereof irrespective of any pending disputes. The Bank giving such
a guarantee is bound to honour it as per its terms irrespective of any
dispute raised by a customer. The law on this subject settled by the
decision of the Apex Court clearly demonstrates that the Court should be
slow in granting an injunction to restrain the realisation of such a Bank
Guarantee and there are two exceptions to the general rule. A fraud in
connection with such a Bank Guarantee would vitiate the very foundation
of such a Bank Guarantee and, therefore, such beneficiary can be
injuncted from encashing the Bank Guarantee. The second exception
relates to cases where allowing the encashment of an unconditional Bank
Guarantee would result in irretrievable harm or injustice to one of the
parties concerned. Since in most cases payment of money under such a
Bank Guarantee would adversely affect the bank and its customer at
whose instance the guarantee is given, the harm or injustice contemplated
under this head must be of such an exceptional and irretrievable nature as
krs AppealL727.12
would over-ride the terms of the guarantee.
26. On the back-drop of the above referred well-settled position in
law on the subject, it will be appropriate to consider whether the
appellant was able to establish a prima facie case in respect of these two
exceptions along with other circumstances for injuncting the respondent
no.1 from encashing the Counter Guarantee and whether the finding
recorded by the learned single Judge in this regard are consistent with the
law declared by the Apex Court on the subject.
27. Insofar as the contentions canvassed by the learned counsel for
the appellant, in order to demonstrate that fraud has been practised by the
respondent nos.1 & 2 is concerned, we have already recorded the
contentions canvassed by the learned counsel for the appellant as well as
the respondent nos.1 & 2 in this regard as mentioned hereinabove and it
is, therefore, not necessary for us to reiterate the same. We have perused
paragraphs 8 to 10 of the suit filed by the appellant. The learned single
Judge, after taking into consideration all these aspects in paragraph 27 of
the impugned judgement has observed thus:-
krs AppealL727.12
"27. It is trite law that a 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. On a reading of the averments made in
paragraph 8 of the Suit it is clear that the said
averments by no stretch of imagination can be said
to have made out a case of fraud. The allegations
of fraud made by the Plaintiff are merely bald
assertions and do not establish a case of fraud
much less a fraud of a egregious nature. In view
thereof, the decisions cited by the Learned Senior
Counsel for the Plaintiff in the cases of U.P.
Cooperative Federation Ltd. vs. Singh Consultants
and Engineers (P) Ltd. (supra) and Yog Systems
India Ltd. Vs. SU-KAM Power Systems Ltd.
(supra) are of no assistance to the Plaintiff. As
krs AppealL727.12
held hereinafter, the said Counter Guarantee is an
unconditional and irrevocable Guarantee. 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 recognized 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 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 also pertinent to
note that though the Plaintiff has alleged fraud on
the part of Defendant Nos. 1 and 2, the Plaintiff
has till date not rescinded the JBA which speaks
volumes about the seriousness of the allegation of
fraud made by them against Defendant Nos. 1 and
krs AppealL727.12
2. The allegation therefore made by the Plaintiff
that the invocation of the Bank Guarantee is
vitiated by fraud cannot be accepted and the said
contention is rejected."
28. In paragraph 8 of the plaint, the appellant in sub-paragraphs (f)
and (h) made allegation of fraud being practised by the respondent nos.1
& 2 which read thus:-
"(f) The Plaintiff has acted on the false and
fraudulent representation made by PSA and
altered its position to its detriment."
"(h) Further, PSA continued to act fraudulently
and deceitfully even after Defendant No.4
had terminated the contract and invoked the
Bid Bond, when PSA assured the Plaintiff
that they are pursuing the matter with
Defendant No.4 and the situation will be
salvaged."
Sub-paragraphs (a) to (e), (g), (i) and (j) of paragraph 8 are bald
krs AppealL727.12
assertions which do not establish absolute and egregious fraud practised
by the respondent nos.1 & 2 to vitiate the foundation of Bank Guarantee
at this stage. On the other hand, they pertain to the implementation of the
project if selected and obligations under the RFQ and RFP documents as
well as Joint Bid Agreement, responsibility of lead member of the
consortium requiring it to sign concessional agreement with the
respondent no.4, etc. We agree with the observations made by the learned
single Judge that unconditional and irretrievable Bank Guarantee is an
independent contract and whether encashment of the same ought to be
permitted or not has to be considered without reference to the underlying
or main contract or to the disputes/claim thereunder. Even a perusal of
the allegations made in paragraphs 9 and 10 are also not specific to
establish absolute fraud as required in law and, therefore, mere
allegation/bald assertions of fraud made by the appellant, in our view,
does not prima facie establish that fraud has been practised by the
respondent nos.1 & 2 to vitiate the very foundation of Bank Guarantee in
order to injunct the respondent no.1 from invoking the Counter
Guarantee.
29. As regards the contention canvassed by the learned counsel for
krs AppealL727.12
the appellant that irretrievable injustice would be caused if the Counter
Guarantees permitted to be encashed by the respondent no.1 is concerned,
the law is well-settled on this subject and when applied to the facts of the
present case, it must show that if the respondent no.1 is permitted to
encash the Counter Guarantee, it would be impossible for the guarantor to
reimburse himself if he ultimately succeeds. In the instant case, it is not
disputed that the consortium is in the nature of partnership and the
consortium member in law bears liabilities of consortium to the extent of
their share in consortium. Clause 5 of the Joint Bid Agreement (JBA)
affirms that the nature of liability is joint and several and there is no
contract to the contrary in the JBA. In the plaint, it is stated by the
appellant that the respondent no.1 is owned by the Government of
Singapore and is one of the largest container terminal operators in the
world. The learned single Judge in paragraph 30 of the judgement
considered these facts and decision of the Apex Court in the case of U.P.
State Sugar Corporation v. Sumac International Ltd. (1997) 1 SCC 568)
and, in our view, has rightly held that the appellant has not made out a
case of irretrievable injustice as required in law. Similarly, the learned
single Judge has also justified in holding that the appellant has failed to
decisively establish and prove to the satisfaction of the Court that there
krs AppealL727.12
would be no possibility of recovery of the amount from the beneficiary by
way of restitution in view of the law laid down by the Apex Court in the
case of Dwarikesh Sugar Industries Ltd.
30. In the instant case, whether the Bank Guarantee is a conditional
one or not, it is necessary to consider paragraphs 4, 5 and 6 of the
Guarantee (which are already reproduced in the impugned judgement). A
perusal of these clauses of the guarantee would show that the Counter
Guarantee is an unconditional irrevocable guarantee and contains
equivocal promise to pay a sum of Rs.17.42 crores without any demur or
protest. Once the Bid Bond for the sum of Rs.67 crores is encashed, the
respondent no.1 is entitled to be reimbursed to the extent of Rs.17.42
crores which is the appellant's share of the amount covered by the Bid
Bond which in the present case has been encashed by the respondent
no.4. It is in these circumstances of the case that the finding recorded by
the learned single Judge in paragraph 29 of the impugned judgement, in
our view, is just and proper and sustainable in law since Counter
Guarantee is unconditional and irrevocable, the relevant portion of which
reads thus:-
krs AppealL727.12
"29. As set out hereinabove, it is clear that
Defendant No.2 initially furnished a Bid Bond of
Rs. 67 crores through the Standard Chartered Bank
to Defendant No.4 on behalf of the Consortium
which included the Plaintiff's contribution. Since
the Plaintiff was required to make its contribution
to the extent of 26 per cent of the said Bid Bond
i.e. to the extent of 17.42 crores and since the
Defendant No.1 counter indemnified the said Bid
Bond of Rs. 67 crores, the Plaintiff furnished a
Counter Guarantee dated 13th October 2010 issued
by Defendant No.3 in favour of Defendant No.1
for a sum of Rs. 17.42 crores. The terms of the
Counter Guarantee make it clear that the Counter
Guarantee is for issue of Bid Bond of Rs. 67 crores
by PSA on behalf of the Consortium. The payment
under the Counter Guarantee is described as the
payment obligation of the Plaintiff to the
beneficiary pursuant to the Bid Bond. The
payment under the Counter Guarantee is without
krs AppealL727.12
demur, reservation, recourse, contest or protest.
The only condition for such payment is that the
demand or the payment must be supported by the
documents listed in Clause 4 and must be in
accordance with Clauses 5 and 6. Admittedly the
demand complies with this requirement. Upon
such demand being made, the Defendant No.3
Bank, within 3 days upon receipt of a written
request from Defendant No.1, is bound to pay an
amount upto Rs. 17.42 crores as payment
obligation to Defendant No.1 pursuant to the Bid
Bond, without any demur, reservation, recourse,
contest or protest, without notice or reference to
the Plaintiff, irrespective of whether the Defendant
No.1's demand is disputed or not by the Plaintiff
or any other person. Mr. Khambata is therefore
correct in his submission that the expression
"payment obligation" is merely descriptive of what
the Counter Guarantee has been furnished for, and
it cannot be contended that the same is a
krs AppealL727.12
conditional guarantee. He is further correct in his
contention that once the Bid Bond for a sum of
Rs.67 crores is encashed, Defendant No. 1 is
entitled to be reimbursed to the extent of Rs. 17.42
crores, which is the Plaintiff's share of the amount
covered by the Bid Bond and which has been
encashed by Defendant No.4."
31. The contention canvassed by the learned counsel for the appellant
that the respondent no.1 would be entitled to make a claim under the
Counter Guarantee only if it establishes that the loss caused under the
indemnity is attributable to the action/inaction of the appellant is difficult
for us to agree, in the facts and circumstances of the present case. As we
have already observed hereinabove, the Counter Guarantee is
unconditional irrevocable guarantee, its legal complexion does not change
merely because it is given in the context of an obligation to indemnify.
32. Similarly, the contention canvassed by the learned counsel for the
appellant in respect of special equities, in the circumstance of the present
case, cannot be accepted, for the reasons stated hereinabove.
krs AppealL727.12
33. In our view, no case is made out for showing indulgence in the
present appeal which suffers from lack of merits and is, therefore,
dismissed with costs.
(D. D. SINHA, J.)
ig (SMT.V.K.TAHILRAMANI,J.)
Suundaresan
