Bombay High Court
Larsen And Toubro Limited vs Allahabad Bank And 2 Ors on 29 February, 2016
Bench: S.J. Kathawalla
KPPNair 1 nmsl-120 of 2016
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION (L) NO. 120 OF 2016
IN
SUIT (L) NO. 28 OF 2016
Larsen & Toubro Limited )
a Public Limited Company incorporated under the Indian )
Companies Act, 1913 and deemed to be registered under the )
Companies Act, 1956 and having its registered office at )
L & T House, Ballard Pier, Mumbai-400 001 and )
Construction Div. at Mount Poonamallee Road, )
Manapakkam, P.B. No. 979, Chennai-600 089
ig )...Plaintiff
vs.
1. Allahabad Bank, 37, Mumbai Samachar Marg, )
Fort Branch, Mumbai-400 023 )
2. GVK Projects & Technical Services Ltd. )
Paigah House, 156-159, Sardar Patel Road, )
Secunderabad-500 005 )
3. GVK Ratle Hydro Electric Project Pvt. Ltd. )
Paigah House, 156-159, Sardar Patel Road, )
Secunderabad-500 005 )..Defendants
Mr. D.D. Madon, Senior Advocate, along with Mr. Firoz Bharucha, Mr. Sachin
Chandarana, Mr. Akhil Tiwari and Mr. Pranav Khatavkar, instructed by M/s.
Manilal Kher Ambalal & Co., for the Plaintiff.
Mr. V.N. Ajikumar for Defendant No.1
Mr. S.U. Kamdar, Senior Advocate, along with S. Maitra, instructed by M/s.
Wadia Ghandy & Co., for Defendant Nos. 2 and 3.
CORAM: S. J. KATHAWALLA, J .
Judgment reserved on: 27th January, 2016
Judgment pronounced on : 29th February, 2016
::: Uploaded on - 29/02/2016 ::: Downloaded on - 29/02/2016 23:07:16 :::
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JUDGMENT
1. At the behest of the Plaintiff - Larsen & Toubro Limited ( L & T),
Defendant No. 1 -- Allahabad Bank has issued a Performance Bank Guarantee
('PBG') No. 00182131PG000017 on 11th July, 2013 for Rs. 98,35,00,000/- in
favour of Defendant No.2 -- GVK Projects and Technical Services Limited
("GVK Projects") which Guarantee is annexed and marked as Exhibit-A to the
Plaint. GVK Projects by its letter dated 13th January, 2016 addressed to the
Allahabad Bank invoked the said Guarantee dated 11th July, 2013. Pursuant
thereto, the above Suit is filed by L & T for a declaration that the invocation of
the said PBG by GVK Projects is per se illegal, unjustified, contrary to the
contract, mala fide, fraudulent and therefore vitiated and not binding on L & T as
also on Allahabad Bank, and that GVK Projects and Defendant No. 3 - GVK
Ratle Hydro Electric Projects Pvt. Ltd. ("GVK Ratle") are not entitled to
receive any amounts thereunder from Allahabad Bank. L & T has also prayed
for a permanent order and injunction restraining Allahabad Bank from making
any payment under PBG and restraining GVK Projects and GVK Ratle from
accepting any payment under the said PBG.
2. L & T has also taken out the above Notice of motion seeking a temporary
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injunction (i) against Allahabad Bank from making any payments to GVK
Projects or to GVK Ratle under the said PBG and (ii) against GVK Projects and
GVK Ratle from receiving any amounts under the said Guarantee.
3. An application for urgent ad-interim reliefs was made before this Court on
13th January, 2016, by L & T seeking to restrain Allahabad Bank from acting
upon the invocation of the PBG which relief was granted upto 14 th January, 2016.
The same was extended from time to time and it was decided that after the
parties file their respective affidavits i.e. affidavits-in-reply and the affidavit-in-
rejoinder, if any, the Notice of Motion shall be heard finally.
4. However, GVK Projects and GVK Ratle has, in paragraphs 2 and 3 of its
Affidavit-in-Reply, inter alia, submitted that in view of Clause 38 of the General
Conditions of Contract (GCC) and further in view of Clause 1.6 of the Overall
Agreement and Clause 5 of the GCC, this Court has no jurisdiction to entertain
and try the above Suit. In view thereof, the following issue is raised as a
preliminary issue in the Suit under Section 9A of the Code of Civil Procedure
1908.
"Whether this Court has jurisdiction to entertain and try the above suit?"
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5. In view of the above, though the parties have filed their Affidavits upto the
stage of Rejoinder, and a very detailed hearing is given to all the parties herein,
it is decided, by consent of the parties, that the present hearing be treated as an
ad-interim hearing, and the present order, an ad-interim order.
6. Briefly set out hereunder, are the facts leading to the filing of the above
Suit by L & T:
6.1 GVK Development Projects Pvt. Ltd. was awarded the Letter of Intent
on 31st May, 2010 ("the LOI") by J & K State Power Development Corporation
Limited ("JKSPDCL") in respect of off-take of power from the 690 MW Hydro
Electric Power Station located on the Chenab River, Drabshala Village, Kishtwar
District of J & K on BOOT BASIS for a contract capacity of 424.03 MW
generated from the installed capacity of 690 MW with the design energy of
2658.85 MW, pursuant to a tariff based International Competitive Bid Project
("the Project") .
6.2 GVK Development Projects Pvt. Ltd. incorporated GVK Ratle as a
Special Purpose Vehicle for implementation of the Project and a Power
Purchase Agreement dated 30th June, 2010 ("the PPA") was executed between
GVK Ratle and Power Development Department, Government of J & K ("the
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Procurer").
6.3 GVK Ratle ("the owner") awarded contract to GVK Projects (the
"contractor") for execution of civil and hydro mechanical works pertaining to
the Project.
6.4 In furtherance thereof, GVK Projects awarded a sub-contract to L & T. L
& T and GVK Projects therefore entered into a contract dated 5 th July, 2013,
recording the terms of the subject contract.
6.5 Pursuant to the execution of the contract, Allahabad Bank (at the behest
of L & T) on 11th July, 2013, issued the PBG in favour of GVK Projects for Rs.
98,35,00,000/- (Exhibit-A to the Plaint).
6.6 According to L & T, since the awarding of the sub-contract by GVK
Projects, L & T carried out all the work as required under the sub-contract until
the work was suspended by GVK Projects on 11 th July, 2014 under Clause 21 of
the General Conditions of the Contract (Pages 191-192 of the Affidavit-in-reply
of Defendant Nos. 2 and 3).
6.7 According to L & T, GVK Projects did not issue a formal order of
suspension of works and also failed to give instructions to L & T to resume the
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work. GVK Projects also failed to comply with the repeated requests made by L
& T to release the amounts payable/due to L & T. In fact, in or about early
November, 2015, L & T learnt that GVK Projects had withdrawn from the
Project under intimation to the Government of J & K. L & T further learnt that
GVK Projects did not intend to continue the Project and the sub-contract
awarded thereunder to L & T. L & T therefore recorded these facts by its letter
dated 3rd November, 2015 to GVK Projects, inter alia, calling upon them to
discharge and return the PBG. The request was reiterated by letters dated 19 th
November, 2015 and 5th January, 2016, addressed to GVK Projects.
6.8 According to L & T, to the utter shock and surprise of L & T, GVK
Projects vide its letter dated 13 th January, 2016 (without any prior
communication) invoked the PBG dated 11 th July, 2013, without assigning any
reason and in absolute contravention of the terms of the PBG, calling upon
Allahabad Bank to make payment to GVK Ratle who is not the beneficiary under
the PBG of the sum of Rs. 98,35,00,000/- in terms of the PBG.
6.9 L & T therefore filed the present Suit, inter alia, contending that despite
having opted out of the main contract awarded by the Govt. of J & K and without
intimating L & T, GVK Projects has wrongfully and illegally invoked the PBG
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and called upon Allahabad Bank to make payment to GVK Ratle. The invocation
is therefore contrary to the terms of the PBG.
6.10 L & T has also alleged in the Plaint that the act of GVK Projects in
invoking the PBG is fraudulent since on the one hand the project made no
progress due to reasons beyond the control of L & T, that is GVK Projects
having abandoned the same, and on the other hand L & T has taken all possible
steps for performing its part of the contract till such time it was permissible. The
suspension issued for a long period of 90 days and more and further 28 days was
not due to any act of the Plaintiff. GVK Projects without intimation to L & T,
has opted out of the Project and still continues to withhold the PBG dated 11 th
July, 2013, and has invoked the same without having responded to several
communications addressed by the Plaintiff.
7. The Learned Senior Advocate appearing for L & T has first submitted
that the purported invocation of the PBG vide notice dated 13 th January, 2016 by
GVK Projects in favour of GVK Ratle is contrary to the terms of the PBG.
The PBG is issued by Allahabad Bank in favour of GVK Projects (the contractor)
and not in favour of GVK Ratle (the owner). He submitted that the
interpretation sought to be given on behalf of GVK Projects and GVK Ratle to
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Clause 3 of the PBG is incorrect. Though the said Clause, inter alia, provides
that the invocation can be at the behest of the contractor (GVK Projects),
owner (GVK Ratle ) and the Lenders, the same does not in any manner envisage
payment under the PBG by Allahabad Bank to any party other than GVK
Projects. Since there is no assignment of the rights under the PBG by GVK
Projects, if the interpretation of Clause 3 as suggested by GVK Projects and GVK
Ratle is accepted, the same would render the assignment clause provided under
the PBG meaningless.
8. It is next submitted on behalf of L & T that GVK Projects and GVK
Ratle have fraudulently invoked the PBG despite having no intention to go-ahead
with the civil and hydro mechanical works of 850 MW Ratle Hydro Electric
Project, which is evident from the following correspondence/ documents/
newspaper reports:
(i) Letter dated 11th July, 2014 from L & T to GVK Projects and the
letter of GVK Ratle also dated 11th July, 2014 enclosing the said letter of L & T
to the Dy. Commissioner - Kishtwar, with regard to suspension of work (Exh.
pgs. 28-29 -- Plaint).
(ii) Letter dated 23rd December, 2014, from GVK Ratle to J & K State
and Power Development Department, wherein it is stated that work was
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suspended due to civil disturbances at site since 11th July 2014 (Exh. I pg. 357-
rejoinder).
(iii) Report dated 26th January, 2015, published in the local newspapers at
J & K about the Project and the various instances whereby locals attacked the
Office and personnel of GVK Projects. ( Exh.A pg. 4 --Affidavit of L & T ).
(iv) Letter from L & T dated 21st March, 2015 recording that L & T is
awaiting response with regard to the pre-requisite for start of work which
included a conducive atmosphere and a proper law and order situation.
(v) Letters dated 18th May, 2015, 15th June, 2015 and 12th July, 2015
addressed by GVK Projects to L & T, requesting L & T to restart the work,
which letters, according to L & T, were never received by it until 27th July,
2015.
(vi) Report dated 9th September, 2015 published in the newspaper at J &
K, that the Chairman of GVK Projects has informed the Dy. Chief Minister of J
& K that they are no longer interested in the Project.
(vii) Newspaper report dated 28th September, 2015 stating that GVK
Projects have stopped work because of an insecure atmosphere.
(viii) Letter dated 3rd November, 2015 from L & T to GVK Projects, placing
on record its understanding that GVK has withdrawn from the Project.
(ix) Letters from L & T dated 19th November, 2015 and 5th January, 2016
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requesting GVK Projects to release the PBG.
(x) Letter from GVK Projects dated 13th January, 2016 to Allahabad Bank
invoking the PBG and directing the Bank to deposit the amount in the account
of GVK Ratle.
(xi) The letter dated 3rd January 2016 posted by GVK Projects on
14th January 2016 with regard to starting of the work was received by L & T on
18th January, 2016. GVK Projects had wrongly alleged that L & T
ig had
suppressed the said letter in the Plaint.
9. It is submitted on behalf of L & T that from the above documents/
correspondence/reports the following emerges.
(i) Since the awarding of the contract by GVK to L & T, L & T has upto
10th July, 2014 smoothly carried out the work assigned to it under the contract.
(ii) The work in question at the site was suspended only on 11th July,
2014, which is evident from the letters annexed at Exhibit 'B' , Pages 28 and 29 to
the Plaint (Item 8 (i) above) and Exhibit 'C' Page 346 of the Rejoinder of L & T,
and the same was also understood in the same manner by GVK Projects and
GVK Ratle.
(iii) The presence of the labour and staff of L & T at the site (despite
suspension of work since 11th July, 2014) is recorded in letters of L & T dated
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22nd December, 2014 (Exh. H to the Rejoinder) and 29th December, 2014 (Exh.
K to the Rejoinder), which are not denied.
(iv) L & T expressed its willingness and ability to proceed with the work
subject to GVK Projects giving instructions on the resumption of the works after
clearing all the on-going issues arising in respect of the law and order situation as
set out in the letter dated 3rd November 2014 (Exh. E page 368 of the Rejoinder)
and long outstanding dues which also included legitimate payments to L & T
which were unpaid by GVK Projects.
(v) There is no response to the letter dated 3rd November, 2015 of L &
T (Exh.E page 36 of the Plaint) and the letter dated 3rd January, 2016
(despatched by GVK Projects only on 14th January, 2016 after invocation of the
Bank Guarantee for encashment), is only with an intention to place on record the
purported response to the letter of 3rd November, 2014 of L & T.
10. It is next submitted on behalf of L & T that the abandonment of the
Project by GVK Projects and GVK Ratle is evident from its conduct set out
hereunder:
(i) On 11th July, 2014, the work was suspended at the instructions of
GVK Projects and GVK Ratle.
(ii) For a period of 90 days and thereafter for further 28 days, GVK
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Projects and GVK Ratle did not issue the formal suspension order in writing and
neither confirmed that the law and order situation was resolved.
(iii) On 23rd December, 2014, GVK Projects and GVK Ratle intimated to
the Government of Jammu & Kashmir that the work has stopped and it was
impossible to proceed with the Project till all issues were resolved (pages 369 and
370 of the Rejoinder). Stoppage of work was not attributed to L & T and/or the
other contractors of the Project, and only issues directly within the purview and
control of the Defendants were captured therein.
(iv) In January 2015, the media reported the intention of GVK Projects not
to proceed with the Project and the actual problem being the financial difficulties
faced by it.
(v) In September, 2015, the press reported the abandonment of the
Project by GVK Projects and GVK Ratle.
(vi) In the Annual Report of 2014-2015, GVK Ratle has reported stoppage
of work at the site (not restricted to L & T solely but to the Defendants and all
contractors).
(vii) On 3rd November, 2015 (Exh. E pg. 36 of the Plaint), L & T
addressed a letter to GVK Projects placing on record that it has learnt that the
GVK Projects and GVK Ratle have abandoned the Project and called upon GVK
Projects to return the PBG. L & T also recorded that it had remained deployed
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and available at site despite the absence of the formal order of suspension, which
fact proves that L & T was willing to perform its contractual obligations. There
is no denial to this letter.
(viii) In November, 2015, and January, 2016 (Pgs. 39 and 40 of the Plaint),
L & T requested for return of the PBG but received no response from GVK
Projects.
(ix) In none of the letters addressed by GVK Projects and GVK Ratle to L
& T since 27th December 2014, have GVK Projects and GVK Ratle (the
contractor and owner respectively under the Project) confirmed in writing that
the issue with regard to the law and order situation at the project site was
resolved and all contractors including L & T have been asked to commence the
work at the project site.
(x) On 13th January, 2016, the PBG is invoked by GVK Projects in favour
of GVK Ratle.
(xi) Demand made by L & T for the outstanding dues was in addition to
and as a result of the non-resolution of the law and order issue at the project site.
11. It is further submitted on behalf of L & T, that L & T has not
committed any breaches under the contract. It is submitted that if GVK Projects
and GVK Ratle are allowed to invoke the PBG, irretrievable injustice will be
caused to L & T since admittedly GVK Ratle is the Special Purpose Vehicle of
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GVK Projects and if any payments are made under the PBG by Allahabad Bank
to GVK Ratle, the question of recovery of the said amount by L & T from GVK
Ratle will be impossible and shall render L & T remediless, immaterial of any
recourse provided through the Dispute Resolution Mechanicam under the
contract.
12. It is pointed out on behalf of L & T that GVK Projects and GVK Ratle
in their Affidavits-in-Reply dated 18 th January, 2016, averred that GVK Projects
by its letter dated 3rd January, 2016, called upon L & T to immediately
recommence work failing which they would initiate action as per the conditions
of the contract, and that this letter has been suppressed by L & T. It is submitted
that the said averment is false and incorrect to the knowledge of GVK Projects,
since the said letter dated 3rd January, 2016 was despatched only on 14 th January,
2016 i.e. after the purported notice of invocation on 13 th January, 2016. It is also
submitted that the letters dated 8 th April, 2015, 18th May, 2015 and 15th June,
2015, relied upon by GVK Projects and GVK Ratle were never received by L & T
and the same were subsequently delivered to L & T only on 27 th July, 2015. It is
also submitted that there is no suppression by L & T with regard to the
correspondence and the contract as alleged by GVK Projects and GVK Ratle. It
is also submitted that from the correspondence which ensued between the
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parties, it is evident that the parties always understood the letter dated 11 th July,
2014, addressed by GVK Ratle to the Deputy Commissioner ( Exhibit-B page 28
of the Plaint) to be correspondence by GVK Projects and GVK Ratle, and not
only by GVK Ratle as is now sought to be pleaded by GVK Projects and GVK
Ratle in their Affidavit in Reply.
13. In support of its contention that the encashment of the PBG is
fraudulent and same is required to be stopped, the Learned Senior Advocate
appearing for L & T has relied on the decisions of the Supreme Court in the case
of State of Haryana and others vs. Continental Construction Ltd. 1 and BSES
Ltd.(Now Reliance Energy Ltd.) vs. Fenner India Ltd. and another 2 .
14. It is therefore submitted on behalf of L & T that the ad-interim relief
as prayed for be granted in favour of L & T.
15. The Learned Advocate appearing for Allahabad Bank has submitted
that GVK Projects by its invocation letter dated 13th January, 2016 ought not to
have directed/requested the Bank to deposit the amount payable by the Bank
under the PBG to GVK Ratle. It is submitted that it should not so happen that in
future GVK Projects makes a claim for the same amount on the Bank stating
(2002) 10 SCC 508
(2006) 2 SCC 728
KPPNair 16 nmsl-120 of 2016
that they have not received the amount under the PBG as agreed. It is submitted
that the Bank only needs protection qua such a repeat claim, otherwise the Bank
has no objection in making payment as directed by GVK Projects by its letter of
invocation dated 13th January, 2016.
16. The Learned Senior Advocate appearing for GVK Projects and GVK
Ratle has submitted that the submission advanced on behalf of L & T that the
invocation of PBG is not in terms of the PBG is incorrect. It is submitted that
the Bank Guarantee is an unconditional, irrevocable Bank Guarantee. The
same is invoked by GVK Projects by its letter dated 13 th January, 2016. GVK
Projects itself has invoked and sought encashment of the Bank Guarantee.
Once the invocation is by GVK Projects, the fact that the amount is to be
deposited in an account identified by GVK Projects would not render the
invocation bad in law. It is submitted that even otherwise clause (iii) of the Bank
Guarantee provides that notwithstanding anything contained therein, the
contractor, or the owner, or either of its lenders, can serve upon the Bank a
written claim or demand. The owner is GVK Ratle and in fact GVK Ratle itself
was also competent under the Bank Guarantee to invoke the same. Therefore,
the contention that the invocation is incorrect and/or bad in law is not tenable
and ought to be rejected.
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17. It is next contended on behalf of GVK Projects and GVK Ratle that L
& T has committed gross suppression of material facts since several letters of
the years 2014 and 2015 though received by L & T have not been annexed or
relied upon in the Plaint. The letters which have not been annexed by L & T
categorically show that the stoppage of work was not attributable to GVK
Projects and GVK Ratle and that GVK Projects and GVK Ratle have on several
occasions called upon L & T to resume work. The entire basis of the L & T's
Suit falls if the correspondence is looked at in its entirety. L & T has misled the
Court both in terms of the statements made on oath in the Plaint as well as when
the matter was mentioned for ad-interim relief and is guilty of suppresio veri and
suggestio falsi, for which no indulgence whatsoever ought to be given by this
Court. The documents suppressed by L & T are as follows:
(i) Letter dated 30th August, 2014, addressed by the Office of the Assistant
Labour Commissioner to L & T and GVK Projects.
(ii) Letter dated 27th December, 2014, addressed by the District
Commissioner, Kishtwar, to L & T.
(iii) Letters dated 27th December, 2014, 29th December, 2014, 30th
December, 2014, 5th January, 2015, 24th January, 2015, 18th March,
2015, 8th April, 2015, 18th May, 2015, 15th June, 2015 and 12th July,
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2015, addressed by GVK Projects to L & T.
(iv) Letters dated 29th December, 2014, 29th December, 2014, 31st
December, 2014, 5th January, 2015, 5th January, 2015 and 10th January,
2015, addressed by L & T to GVK Projects.
18. It is further submitted that the allegation made by L & T that the letter
dated 3rd January, 2016, is a back dated letter as the same has been couriered only
on 14th January, 2016, i.e. after filing of the present Suit is incorrect. It is
submitted that there is no requirement under the contract for any prior
intimation/communication before invoking the Bank Guarantee. In any event
the said letter was prepared and signed on 3 rd January, 2016. However, due to an
inadvertent error by the Despatch Department of GVK Projects, the same was
not couriered till 14th January, 2016. GVK Projects itself realised the same when
the contention was raised by L & T in its Rejoinder and was not aware that there
was a delay in couriering the letter when the reply was filed by GVK Projects,
which was also done on a very urgent basis.
19. As regards the allegations made by L & T pertaining to suspension of
work, it is submitted on behalf of GVK Projects and GVK Ratle as follows:
19.1 As per clause 21 of the Letter of Intent including Owner's
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Requirement, L & T was required to give maximum employment to the Project
Affected People and locals adjoining the project area and other local people of
Jammu and Kashmir. L & T failed to do so and as such there was unrest and
some disturbance at site.
19.2 GVK Ratle therefore by its letter dated 11 th July, 2014 informed the
Deputy Commissioner of Kishtwar District, regarding the incident and
requested him to take all required measures to restore the law and order
situation and to establish a conducive atmosphere, to enable the parties to carry
on the Project. L & T is wrongly treating this as an order of suspension, under
the provisions of the contract.
19.3 Clause 21 of the General Conditions of Contract requires GVK
Projects to issue a written order suspending the progress of works or any part
thereof for such time and in such manner as GVK Projects may consider
necessary. It is pertinent to note that the letter dated 11 th July, 2014, relied upon
by L & T has not been issued by GVK Projects, and is also not addressed to or
marked to L & T. Therefore, the same cannot in any manner be construed as a
written order of suspension within the meaning of Clause 21 of the contract.
19.4 The fact that L & T was well aware that the letter dated 11 th July,
2014, is not a suspension order as envisaged under Clause 21 is clear by L & T's
own letter dated 9th August, 2014 (at page 346), wherein L & T has stated that it
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is awaiting the issuance of suspension order as per Clause 21 of the contract.
Subsequently, L & T has taken a stand that it is treating the letter of 11 th July,
2014, as a deemed suspension.
19.5 In fact, in a letter dated 30th August, 2014, addressed by the Office of
the Assistant Labour Commissioner to L & T and GVK Projects, the
Commissioner has recorded that in a Meeting dated 21 st August, 2014, L & T
had been asked to recommence work. The said letter further records that L & T
and GVK Projects were assured full co-operation from the district administration
in maintaining law and order, so that work can be started in a conducive manner.
19.6 L & T in its Rejoinder states, that the stand of GVK Projects that
the 11th July, 2014 letter is not a suspension order, is an afterthought. This
contention is belied by the documents filed by GVK Projects and GVK Ratle, all
of which were suppressed by L & T. GVK Projects by its letter dated 29 th
December, 2014 (at page 270), has denied L & T 's claim that there has been
any suspension of work. GVK Projects has further stated that the stoppage of
work is attributable to industrial relation issues all of which were the
responsibility of L & T. Furthermore, the letter dated 24 th January, 2015 (at page
292), categorically states that GVK Projects has never given any oral or written
order for suspension of work.
19.7 It is apparent from the documents placed on record by L & T itself
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that the failure to restart the work was not on account of disturbance, or lack of
conducive atmosphere. In the letter dated 15 th September, 2014 (at page 350),
L & T was ready to commence work upon payment of Rs. 12.62 crores.
19.8 In its letter dated 22nd December, 2014, L & T has admitted that it is
under a huge financial crunch and unless urgent financial support is received
from GVK Projects, it will be impossible for L & T to continue at site and
perform its obligations under the contract. Similarly vide a letter dated 21 st
March, 2015 (at page 380), L & T once again stated that unless it received (its)
dues of Rs. 150 crores, L & T would not be in a position to resume work.
19.9 GVK Projects by its letter dated 30th December, 2014 (Page 279)
addressed to L & T had placed on record that Notice to Proceed (Stage I) was
issued on 17th November, 2012 and Notice to Proceed (Stage II) was issued on 1 st
October, 2013. Mobilization advance of approximately Rs. 100 crores was
already paid. Despite issuing Notices to Proceed, along with release of
mobilisation advances, L & T had abnormally delayed mobilisation of resources
at site.
19.10 It is therefore clear that the failure to resume work was on account of
a financial crunch and not due to any local disturbances or absence of conducive
atmosphere. Since L & T had received a mobilisation advance of Rs. 100 crores,
L & T cannot claim that there is any financial crunch.
KPPNair 22 nmsl-120 of 2016
20. As regards the allegation qua abandonment of contract by GVK
Projects and GVK Ratle, the following submissions are made on behalf of GVK
Projects and GVK Ratle:
20.1 The contract has not been abandoned either by GVK Projects or
GVK Ratle.
20.2 L & T has in its Affidavit dated 15 th January, 2016, relied upon certain
newspaper articles to show that GVK Ratle had abandoned the main contract and
therefore L & T cannot be called upon to perform its obligations under the
contract. Newspaper articles have no evidentiary value and could not have been
relied upon.
20.3 L & T in its Rejoinder has relied on a letter dated 23 rd December,
2014 (page 357) addressed by GVK Ratle to the Government to show that GVK
Ratle had abandoned the Project in 2014 itself. Perusal of the letter shows that
GVK Ratle has only placed on record various problems faced by GVK Ratle. The
said letter does not in any way indicate that GVK Ratle is abandoning the Project.
20.4 Inspite of calling upon L & T to re-start the work on site, L & T
wilfully neglected and refused to do so. GVK Projects was facing tremendous
pressure from GVK Ratle, as well as financial institutions and Government of
Jammu and Kashmir to re-start the work. Since L & T had consistently failed
and in fact refused to perform its obligations under the contract, GVK Ratle was
KPPNair 23 nmsl-120 of 2016
constrained to consider early termination of the PPA executed between GVK
Ratle and the Power Development Department, Govt. of Jammu & Kashmir.
Accordingly, letters dated 26th August, 2015, 1st December, 2015, 22nd
December, 2015 were addressed by GVK Ratle to Power Development
Department.
20.5 In fact, the Govt. of Jammu & Kashmir by its letter dated 18 th
December, 2015, received on 29th December, 2015, recorded that the work has
not resumed in spite of repeated requests. The Government rejected the request
for early termination and called upon GVK Ratle to ensure that the work on the
Project is resumed without any further loss of time and that an earnest effort be
made to make up lost time. Therefore, neither GVK Projects nor GVK Ratle
has abandoned the Project as alleged by L & T.
20.6 A perusal of the Annual Report (Page 391) relied upon by L & T
shows that the same only records that L & T had stopped work-at-site. There is
no mention whatsoever regarding the main contract being abandoned. On the
contrary, it records that the Company is in discussion with the project lender to
re-start the work.
21. The Learned Senior Advocate appearing for GVK Projects and GVK
Ratle has also submitted that L & T has failed to establish fraud. He has
KPPNair 24 nmsl-120 of 2016
submitted that it is settled law that fraud is required to be absolute and egregious,
vitiating the very foundation of the Bank Guarantee. Bald assertions of fraud
cannot establish a case of fraud, and much less fraud of an egregious nature. L &
T has failed to show that the main contract has been abandoned either by GVK
Projects or GVK Ratle. L & T by its own showing has acknowledged that it can
restart the work, but has made an illegal demand for payment of Rs. 150 crores.
Therefore the allegation of fraud on the part of GVK Projects and GVK Ratle is
not sustainable.
22. It is further submitted on behalf of GVK Projects and GVK Ratle that
in response to the issue of jurisdiction, L & T has taken a plea that the Bank
Guarantee is an independent contract and therefore the provisions of the main
contract would not apply. The contention that the Bank Guarantee is an
independent contract, would then also mean that any underlying disputes under
the contract would not affect invocation of the Bank Guarantee. It is settled law,
that where encashment of the Bank Guarantee is permissible as per the terms of
the Guarantee, then the same must be honoured without any reference to the
underlying contract or the disputes/claims thereunder. The Bank giving such a
guarantee is bound to honour it as per its terms irrespective of any disputes
raised by the parties. L & T has taken up two inconsistent pleas, firstly that the
KPPNair 25 nmsl-120 of 2016
Bank Guarantee is an independent contract, and secondly that the main contract
has been abandoned. The two pleas are mutually inconsistent and cannot be
maintained.
23. It is further submitted on behalf of GVK Projects and GVK Ratle that
the contention of L & T that if the Bank Guarantee is allowed to be invoked, the
same may cause irretrievable injustice to L & T is also untenable and baseless. It
is submitted that GVK Projects is handling several large infrastructure projects
in the country. GVK Projects is a part of the GVK Group and is handling all
infrastructure projects of the GVK. The net revenue of GVK Projects for the
last year was Rs. 700 crores.
24. In support of its submission that L & T has failed to establish fraud
and/or that any irretrievable injustice will be caused to L & T, GVK Projects and
GVK Ratle have relied on the following decisions:
(i) Judgment of the Honb'ble Supreme Court in the case of M/s. Adani
Fresh Ltd. vs. Mahaboob Sharif & Ors. (Civil Appeal No. 14015 of 2015 arising
out of SLP (C ) No. 9506 of 2014);
(ii) Judgment of the Single Judge of this Court dated 4th February, 2014
in the case of ITD Cementation India Ltd. vs. Reliance Infrastrucrture Ltd.
(Notice of Motion (L) No. 160 of 2014 in Suit (L) No. 57 of 2014).
KPPNair 26 nmsl-120 of 2016
(iii) Judgment of the Division Bench of this Court dated 13th February,
2014 in the case of ITD Cementation India Ltd. vs. Reliance Infrastructure Ltd. [
Appeal (L) No. 64 of 2014].
25. I have perused the Plaint, the Affidavits filed by the parties, their
Written Submissions and the case law relied upon by them.
26. Before dealing with the contentions of the parties, at the outset, I
would like to state that both the parties have made allegations of suppression and
false representation against each other. However, I am of the view that in
matters like the one at hand, involving huge projects where hundreds of letters
are exchanged between the parties and the parties are required to move the
Court and complete their pleadings almost overnight, some facts are likely to be
left out or overlooked and some lapses may also occur which are unintentional,
and it would be too harsh to term such mistakes or lapses on the part of the
parties as suppression of facts from the Court, or an attempt to mislead the
Court or defraud the Court. The parties should thus not be allowed to make
capital out of such mistakes/errors or lapses, as long as both the parties have
placed the relevant facts and documents before the Court by the time the Court
commences the hearing and gives its decision. I have therefore not taken
cognizance of the allegations made by the parties against each other qua
KPPNair 27 nmsl-120 of 2016
suppression of facts or making certain statements which are found to be
incorrect.
27. The first and primary contention raised on behalf of L & T is that the
PBG is issued by the Allahabad Bank in favour of GVK Projects ("the
contractor") and not in favour of GVK Ratle ("the owner"). Therefore the
invocation of the PBG by GVK Projects vide its letter/notice dated 13th January,
2016 "in favour of Defendant No. 3 (the owner not the beneficiary under the
Performance Bank Guarantee)" is contrary to the terms and conditions of the
PBG.
28. The PBG is annexed and marked Exhibit-A to the Plaint. In the said
Guarantee, M/s. GVK Ratle is referred to as "the owner", M/s.GVK Projects as
"the contractor" and the contract dated 15th November, 2012 between L & T
and GVK Projects is referred to as "the sub-contract". Three of the relevant
recitals of the PBG are reproduced hereunder:
"WHEREAS subsequently, the Contractor has sub-contracted the
scope of works to Larsen & "Toubro Limited, a Company within
the meaning of Section 3 of the Companies Act, 1956, having its
Registered Office at L & T House, Narottam-Morarji Marg, Ballard
Estate, Mumbai-400 001 and its Construction Division
KPPNair 28 nmsl-120 of 2016
headquarters at Mount-Poonamallee Road, Manapakkam, P.O. Box
979, Chennai-600 089 (hereinafter referred to as the 'Sub-
Contractor' which expression shall unless repugnant to the context
or meaning thereof, include its successors-in-interest,
administrators, executors and permitted assigns) vide Acceptance
letter bearing No. GVKPTSL/RHEP/L&T/2012/004 dated
15.11.2012 ("Sub-Contract").
WHEREAS the Sub-Contractor has, under the Sub-Contract,
agreed to provide to the Contractor an irrevocable and
unconditional bank guarantee for amounts equal to five per cent
(5%) of the contract price under the Sub-Contract, being an amount
not exceeding Rs.98,35,00,000/- (Rupees Ninety Eight Crores
Thirty Five Lakhs), for the due performance of the above Sub-
Contract in form and substance acceptable to the Contractor ("Bank
Guarantee").
WHEREAS in view of the above, we, Allahabad Bank (the "Bank")
have agreed to issue the present Bank Guarantee on behalf of the
Sub-Contrtactor in favour of the Contractor pursuant to the terms
of the Sub-Contract."
The first clause of the Bank Guarantee is relevant for the purpose of considering
the aforestated objection of L & T and reads thus:
" NOW THEREFORE we, the Bank, do hereby irrevocably and
unconditionally guarantee and undertake to pay the Contractor
without any deductions, set off or counter claim whatsoever,
KPPNair 29 nmsl-120 of 2016
immediately on demand any or, all monies claimed by the
Contractor to the extent of and upto Rs. 98,35,00,000/- (Rupees
Ninety Eight Crores Thirty Five Lakhs) as aforesaid at any time
upto 31st December, 2019 without any demur, reservation,
contest, recourse or protest and/or without any reference to the
Sub-Contractor including without disputing whether any sums
are payable under the terms of the Sub-Contract or not. Any
such demand made by the Contractor on the Bank shall be
conclusive and binding notwithstanding any differences between
and among the Parties or any dispute pending before any court,
tribunal, arbitrator or any other authority, and be a conclusive
proof of the amount due and payable under this Bank
Guarantee."
29. The letter dated 13th January, 2016 addressed to the Chief Manager,
Allahabad Bank, Mumbai Samachar Marg, Fort Branch, by GVK Projects (the
contractor) invoking the PBG reads thus:
" Dear Sir,
Sub: Encashment of PBG - reg.
M/s. Larsen & Toubro Limited has provided us the PBG No.
00182131PG000017, Dt. 11-07-2015 for an amount of Rs.
98,35,00,000/- (Rupees Ninety Eight Crores Thirty Five Lakhs
only) issued by Allahabad Bank, Fort Branch, Mumbai as security
towards Performance Guarantee to complete the construction
works as per the contract awarded to them.
KPPNair 30 nmsl-120 of 2016
We would like to invoke and encash the above PBG and is
herewith enclosing the Original Bank Guarantee with a request to
arrange to transfer the proceeds through RGTS to the account as
per the bank details given below.
Name of the Company :GVK Ratle Hydro Electric Project
Private Limited.
Name of the Account : GRHEPPL Non EPC Payment A/c
Name of the Bank &Branch: ICICI Bank Limited,
ig Khairtabad Branch.
Address of the Bank : 6-2-1012, 1st floor, TGV Mansion,
Opposite Institute of Engineers,
Khairtabad, Hyderabad.
Current Account No. : 000805014700
IFSC/RTGS Code : ICIC0000008
MICR : 500229002
Kindly acknowledge the receipt of the above original Bank
Guarantee. "
30. As set out in clause 1 of the Bank Guarantee reproduced hereinabove,
Allahabad Bank has irrevocably and unconditionally guaranteed and undertaken
"to pay the Contractor without any deduction, set off or counter claim
whatsoever immediately on demand any or, all monies claimed by the
Contractor.... ...without any demur, reservation, contest, recourse or protest
KPPNair 31 nmsl-120 of 2016
and/or without any reference to the Sub-Contractor including without disputing
whether any sums are payable under the terms of the sub-contract or not. Any
such demand made by the Contractor on the Bank shall be conclusive and
binding notwithstanding any differences between and among the Parties or any
dispute pending before any court, tribunal, arbitrator or any other authority, and
be a conclusive proof of the amount due and payable under this Bank
Guarantee".
It is therefore unequivocally established that the Bank Guarantee issued by the
Bank at the instance of L & T to GVK Projects (contractor) is unconditional and
irrevocable. From the letter of invocation dated 13th January, 2016, it is clear
that the contractor/GVK Projects has invoked the said Bank Guarantee and
sought its encashment. The contractor/GVK Projects has in the said letter only
instructed the Bank to deposit the amount encashed under the Guarantee by the
contractor/GVK Projects in an account identified by GVK Projects i.e. the
account in the name of GVK Ratle. This surely does not mean that the Bank
Guarantee is invoked by GVK Project "in favour of" GVK Ratle as alleged by L
& T in para 20 of its Plaint and paragraph 1 page 3 of the Written Submissions
and would also not mean that the amount encashed under the Bank Guarantee by
the contractor is not paid to the contractor but is paid by the Bank to GVK Ratle.
In view thereof, the submission advanced on behalf of L & T as well as the
KPPNair 32 nmsl-120 of 2016
Allahabad Bank that the invocation of Bank Guarantee is not in accordance with
and in terms of the PBG is baseless and untenable and therefore rejected. I would
also clarify that I am of the view that the contention of GVK Project and GVK
Ratle that even otherwise under clause (iii) of the PBG, GVK Ratle (owner) also
has a right to invoke the Bank Guarantee and L & T disputing the
interpretation sought to be given by GVK Project and GVK Ratle to clause (iii)
of the PBG, need not be gone into, since admittedly the PBG is invoked by GVK
Projects and not by GVK Ratle.
31. The next main contention of L & T as set out hereinabove, is that the
invocation of the Bank Guarantee is fraudulent since GVK Projects and GVK
Ratle had no intention to go ahead with the project. The work in question at
site, was suspended on 11th July, 2014 under clause 21 of the General Terms and
Conditions of the Contract. However, no formal order of suspension of works
was issued to L & T. Though L & T expressed its willingness and ability to
proceed with the work subject to GVK Projects giving instructions to resume the
work after clearing all the outgoing issues arising in respect of the law and order
situation as set out in L & T's letter dated 3rd November,2014 (page 368 of the
Rejoinder), and the long outstanding dues which also included legitimate
payments to L & T which were unpaid by GVK Projects, GVK Projects and
KPPNair 33 nmsl-120 of 2016
GVK Ratle kept the work under suspension and abandoned the same thereafter,
which is clear from the letters dated 23rd December, 2014, the press statements,
the Annual Report of 2014-2015 of GVK Projects. GVK Projects and GVK Ratle
also sought termination of the contract by writing letters dated 26th August,
2015, 1st December, 2015, 22nd December, 2015 (pages 299, 304 and 307) to the
Power Development Department, Govt. of J & K. Despite suspension of the
work by GVK Projects and GVK Ratle and abandonment of the project by them,
they have proceeded to fraudulently encash the Bank Guarantee which they are
not entitled to do, in law.
32. As stated hereinabove, it is submitted on behalf of GVK Projects and
GVK Ratle that the unrest by locals was caused because L & T failed to comply
with the requirement of giving employment to the local youth in the project. It is
submitted that there was no suspension of works within the meaning of Clause 21
of the General Terms and Conditions of Contract. Despite requests by GVK
Projects, L & T refused to resume work on the ground that its claims were not
satisfied by GVK Projects and L & T was facing financial crunch/crisis. The
Bank Guarantee which is unconditional and irrevocable clearly postulates that
upon invocation of the Bank Guarantee by the Contractor, the Bank is bound to
make payment inter alia without disputing whether any sums are payable to L
KPPNair 34 nmsl-120 of 2016
&T under the terms of the sub-contract or not. There is no abandonment of the
contract by GVK Projects/GVK Ratle. Thus the submission that GVK Projects
have proceeded fraudulently to encash the PBG is false, baseless and untenable.
33. Clauses 21 to 21.3 of the General Terms and Conditions of the
Contract between GVK Projects (contractor) and L & T (sub-contractor)
pertain to suspension of work by the contractor--GVK Projects, and the same are
reproduced hereunder:
" 21.0 SUSPENSION OF WORK
21.1 The Sub-Contractor shall, on the written order of the
Contractor suspend the progress of the Works or any part
thereof for such time or times and in such manner as the
Contractor may consider necessary and shall during such
suspension properly protect and secure the Works so far as is
necessary in the opinion of the Contractor. The extra cost,
including that occasioned by the subsequent resumption of
Work, incurred by the Sub-Contractor in giving effect to the
Contractor's instructions under this Article 21.1 shall be borne
and paid by the Contractor unless such suspension is :
a. otherwise provider for in the Contract, or
b. necessary by reason of any default on the part of the Sub-
Contractor to comply with terms and conditions of the
Contract, or
KPPNair 35 nmsl-120 of 2016
c. necessary by reason of abnormal climatic condition or the
consequent thereof on the Site, which could be envisaged or
prevailed within a period of ten years from the date of Letter of
Intent or
d. necessary for the proper execution of the Works, or for the
safety of the Works or any part thereof in so far as such
necessity does not arise from any act or default by the
Contractor's Representative or the Contractor, or
e. if the Sub-Contractor violates any law applicable to the
carrying out of the Works.
Provided that the Sub-Contractor shall not be entitled to
recover any such extra costs unless he gives wirtten notice of
his intention to claikm to the Contractor within twenty eight
days of the Contractor's order. The Contractor shall determine
such extra payment which shall in his opinion be fair and
reasonable. The Contractor shall also consider a reasonable
extention of time to be granted for the completion of the Works
on account of such period of suspension. However, the Sub-
Contractor shall not be entitled to any extension of time under
this Article on account of any suspension where such
suspension is covered by sub Article (a), (b), (c), (d) and (e)
above, for the reasons specifically attributable to the Sub-
Contractor.
Notwithstanding the above, extension of time pursuant to
Article 24 hereof will be granted for events failling under
paragraphs (c) and (d) above, provided such events constiute
KPPNair 36 nmsl-120 of 2016
Force Majeure as per Article-36 hereof.
21.2 If the progress of the Works or any part thereof is
suspended pursuant to Article 21.1 above and if permission to
resume work is not given by the Contractor within 90 days from
the date of suspension, then, unless the suspension is due to
events in paragraphs (a), (b), (c ), (d) or (e) of Article 21.1
above, the Sub-Contractor may serve notice in writing on the
Contractor requiring permission within 28 days from receipt
thereof to proceed with the Works or that part thereof in regard
to which progress is suspended and, if such npermission is not
granted within that time, the Sub-Contractor may by a further
notice in writing to the Contractor elect or treat the suspension
where it affects only part of the Works as an omission of such
part of the Work or, where the suspension affects the whole of
the Works, as an abandonment of the Contract by the
Contractor. The overall suspension period shall be limited to
184 days, subject to a maximum of two occurrences in the
entire duration of the contract.
21.3 In the event of election by the Sub-Contractor pursuant to
Article 21.2 above to treat a suspension by the Contractor as an
omission of part of the Works or as an abandonment of the
Contract, the provisions of Article 40.3 and 40.4 shall be
applicable for payment."
34. The question now before the Court is whether GVK Projects has on
KPPNair 37 nmsl-120 of 2016
11th July, 2014 suspended the works within the meaning of Clause 21 of the
contract, and further whether L & T was throughout willing to resume the works
but did not receive instructions from GVK Projects to do so.
35. From the above clauses in the contract pertaining to suspension of
work, amongst others, the following becomes clear:
35.1 L & T could suspend work under Clause 21.1 of the General
Conditions of Contract only upon receipt of a written order from the contractor
(GVK Projects).
35.2 In the event of suspension of works as per the above prescribed
procedure, the extra cost including that occasioned by the subsequent
resumption of work incurred by the sub-contractor in giving effect to the
contractor's instructions under Article 21.1, is to be borne by the contractor,
unless the suspension is due to clauses (a) to (e) set out in clause 21.1 of the
General Conditions of Contract.
35.3 The sub-contractor shall not be entitled to recover any such extra
costs unless he gives written notice of his intention to claim to the contractor
within 28 days of the contractor's order of suspension
35.4 If the progress of the work or any part thereof is suspended pursuant
to Article 21.1 of the General Terms of Contract and if permission to resume
KPPNair 38 nmsl-120 of 2016
the work is not given by the contractor within 90 days from the date of
suspension, then unless the suspension is due to events in clauses (a) to (e) of
Article 21.1 , the sub-contractor may serve notice in writing on the contractor
requiring permission within 28 days from receipt thereof to proceed with the
works or part thereof in regard to which progress is suspended.
35.5 If such permission is not granted by the contractor within 28 days from
the receipt of the notice, the sub-contractor may by a further notice in writing to
the contractor elect or treat the suspension, where it affects only part of the
works, as an omission of such part of the work, or where the suspension affects
the whole of the works, as an abandonment of the contract by the contractor.
36. From the letter dated 11th June, 2014, annexed by L & T (Exhibit-B
to the Rejoinder) addressed to the Additional Deputy Commissioner, Kishtwar ,
it appears that on 28th January, 2014, the Managing Director of JKSPDC had
issued a circular inter alia to the EPC Contractors recommending giving of
employment to the local youth in the project. It further appears that according to
the Additional Deputy Commissioner, Kishtwar, L & T was not complying
with the said requirement, and had by its letter dated 5th June, 2014, recorded
that there was resentment amongst the youth, and thereby consequently a law
and order problem arose. L & T by the said letter dated 11th June, 2014,
KPPNair 39 nmsl-120 of 2016
recorded that L & T has complied with the circular. The issue raised by the
Deputy Commissioner, Kishtwar as regards resentment and consequent law and
order problem, was dismissed by L & T as rumours spread by certain groups
having vested interest.
37. However, it appears that exactly one month thereafter i.e. on 11th
July, 2014, a group of locals ig allegedly from Kishtwar forcibly entered the
Office of L & T and forced all their officers and senior management out of the
Office. The said group of locals also went to the project site and forcibly closed
all the works driving out all the staff members and workers. The Project
Manager of L & T therefore by his letter dated 11th July, 2014, addressed to the
Project Director of GVK Projects, recorded the said incident and requested GVK
Projects to arrange for necessary security measures and ensure a conducive
atmosphere to enable resumption of works. On the same day, GVK Ratle
forwarded the said letter to the Deputy Commissioner, Kishtwar District, J & K,
and inter alia recorded that the work was bound to remain suspended till the
law and order situation was brought under control, and consequently the
confidence of the people working in the project was restored. GVK Ratle
therefore requested the Deputy Commissioner to take all steps required to
restore the law and order and to establish a conducive atmosphere where an
KPPNair 40 nmsl-120 of 2016
undisturbed and safe work environment is established in the best interest of the
State of J & K as well as the Govt. of India.
38. According to L & T, the said suspension was under Clause 21 of the
General Terms of Contract. GVK Projects has correctly contended that the same
cannot be treated as suspension within the meaning of Clause 21. In case of
suspension under Clause 21, the sub-contractor (L & T) would be required to
suspend the progress of the works upon receipt of a written order of the
contractor (GVK Projects). The letter dated 11th July, 2014 was not written by
GVK Projects to L & T calling upon L &T to suspend the progress of the works.
Since L & T had written a letter to GVK Projects complaining about the unruly
behaviour of some locals at their Office and at site, GVK Ratle, which is not a
party to any contract with L & T wrote a letter to the District Commissioner,
Kishtwar, forwarding a copy of the letter written by L &T and inter alia recorded
therein that the project work is bound to remain suspended till a conducive
atmosphere is restored. Since no order of suspension was passed under Clause 21
of the General Conditions of Contract, the said letter was admittedly neither
addressed to L &T, nor was a copy marked to L & T. L & T being conscious
of the fact that no written order was sent by GVK Projects to L & T requiring L
& T to suspend the progress of the works, in its subsequent letters addressed to
KPPNair 41 nmsl-120 of 2016
GVK Projects kept on referring to the letter dated 11th July, 2014 as the letter
written by GVK Projects to the Deputy Commissioner, Kishtwar. L & T has
submitted that GVK Projects has not responded to these letters of L & T and
has therefore not denied/clarified that the said letter was not written by it, but
was written by GVK Ratle. In my view, a perusal of the letter dated 11th July,
2014 addressed to the Deputy Commissioner, Kishtwar, itself shows that the
same is written by GVK Ratle. The letter therefore speaks for itself and GVK
Projects was not required to dispute that the said letter was not written by GVK
Projects but was written by GVK Ratle. Again, L & T being aware of the fact
that the letter dated 11th July, 2014, written by GVK Ratle to the Deputy
Commissioner, Kishtwar, cannot be treated/construed as an order of suspension
under Clause 21 of the General Terms and Conditions of the Contract, L & T by
its letter dated 22nd December, 2014 addressed to GVK Projects termed the
reference to the suspension of works in the letter dated 11th July, 2014 as
'deemed suspension', despite being well aware that there is no concept of
deemed suspension found in the General Terms of Contract.
39. On 21st August, 2014, a meeting was held at the office of the Deputy
Commissioner, Kishtwar. Thereafter the Assistant Labour Commissioner,
Kishtwar by his letter dated 30th August, 2014, addressed to GVK Projects and
KPPNair 42 nmsl-120 of 2016
L & T recorded that the management of GVK Projects and L & T are assured
full cooperation from the District Administration in maintenance of law and
order at Drabshalla, so that the work can be started in a conducive atmosphere.
It was further recorded that to avoid any law and order problem at the work
place the District Magistrate has also invoked Section 144 Cr. P.C. so that the
miscreants cannot disturb the peace and tranquility by way of blocking road,
raising slogans mobilizing unlawful assemblies endangering life and property at
Drabshalla. The Assistant Labour Commissioner directed the management of
GVK Projects and L & T to resume the work at Drabshalla as the District
administration is extending all its support and cooperation in maintaining law and
order and in providing peaceful atmosphere for resumption of early work. L &
T, despite being aware that there was no order of suspension issued by GVK
Projects to it under Article 21.1, did not commence work, but instead wrote a
letter dated 15th September, 2015 to GVK Projects seeking instructions to
resume the work pursuant to Clause 21 of the General Terms of Contract. L & T
also added that GVK Projects should confirm compliance of the various requests
made by L & T in their letter dated 9th July, 2014, which letter is not produced
before the Court. By the said letter L & T also called upon GVK Projects to
compensate them with immediate effect, the costs already incurred on account of
suspension till 31st August, 2014, amounting to Rs. 12.62 crores..
KPPNair 43 nmsl-120 of 2016
40. On 7th October, 2014, L & T again claimed compensation of Rs.
19.26 crores from GVK Projects on account of suspension of work till 30th
September, 2014. It is now clear that L & T did not want to resume the work
until GVK Projects admitted that the letter dated 11th July, 2014, written by
GVK Ratle to the Deputy Commissioner, Kishtwar was a letter of suspension
by GVK Projects under sub-clause 21.1 of the contract to enable L & T to justify
its claims raised on GVK Projects.
41. By its letter dated 22nd December, 2014, L & T categorically wrote to
GVK Projects as follows:
"Please be advised that we are under huge financial crunch due to
this and unless we receive urgent financial support from you, it
will be impossible for us to continue at site and
perform our various obligations under the provisions of
the contract agreement. Also it may kindly be noted that
further funding of the project is only based on the support of our
treasury department which in turn completely depends on the
urgent favourable response from you in this regard"
By this time, L & T made it absolutely clear that it shall not resume the work
unless GVK Projects pays the amounts allegedly due to L & T .
KPPNair 44 nmsl-120 of 2016
42. The Deputy Commissioner, Kishtwar, by his letter dated 27th
December, 2014, again addressed a letter, this time only to L & T which reads
thus:
"It has been brought to our notice that the above Project works
were stopped by your organizxation since 11th July 2013. In spite
of repeated reminders to restart the work so far no Project
Component works are commenced. We have made all
arrangements to ensure safe working environment from our side.
The Govt. has already sanctioned adequate security personnel for
the project. We have provided security check posts on the
highway of the Project boundaries. The Distt. Administration has
been and shall be extending full cooperationf or smooth running
of the project.
As such you are directed to restart the project work
immediately without further loss of time."
A copy of the said letter was also forwarded by the Deputy Commissioner,
Kishtwar, to the Project Director, GVK Ratle.
43. GVK Projects by its letter dated 27th December, 2014, requested L & T
to commence the work immediately. Therefore, by 27th December, 2014,
even the contractor GVK Projects called upon L & T to commence the works.
In response, L & T by its letter 29th December, 2014 addressed to GVK
KPPNair 45 nmsl-120 of 2016
Projects, whilst acknowledging the receipt of the letter from GVK Projects dated
27th December, 2014 instructing them to immediately resume the project works
recorded as under:
"We have now taken note of this instruction received and
consider this as "an instruction to resume the works" under the
provisions of clause No. 22, GCC of Contract Agreement. At this
moment, we assume that your office has judicially and critically
evaluated the security related assurance received from DC --
Kishtwar in accordance with its letter dated 27/12/ 2014 and we
believe that you have found the same to be adequately addressing
the concerns raised by the Project Director of GVKPTSL to DC -
Kishtwar vide his letter as cited in ref. No. 3 above that led to the
"Suspension of Project Works".
We presume that while evaluating the assurance given by local
District Authorities, the concerns raised by us on various
occasions have also been taken into consideration and hence
forthwith they would be provided with a safe working atmosphere
to carry out the activities in accordance with the provisions of
contract agreement.
We are planning to initiate action to remobilise the workforce
which was retrenched due to prolonged suspension and to start
preparations to make ready the idle plant and machinery and
other necessary site infrastructure for restart of works within a
period of approximately sixty (60) days.
KPPNair 46 nmsl-120 of 2016
However, as requested vide our letter dated 22/12/2014, we
require an urgent financial support from your end in order to
comply with the instruction received from the DC-Kishtwar,
which otherwise would be impossible for us to restart the Works.
As brought to your kind notice on various occasions, we have
remained unpaid since April 2014 which includes our dues
against RA Bills till Nov 2014, release of retention money against
BG, and additional cost incurred due to idling of resources since
July 2014. We request you to kindly release an amount of
Rs.Thirty Crores as an interim relief immediately within next 7
days to start the re-mobilisation works. Balance money against
above dues may be settled within a reasonable period of next 60
days.
We are preparing a revised construction schedule for the Project
Works to send the same to you within next 30 days for your
review and approval."
From the contents of the above letter it is clear that L & T did not seek any
further confirmation from GVK Projects with regard to providing it, and its
employees, a safe and conducive working atmosphere. L & T also agreed to
restart the work within a period of 60 days. However, L & T again referred to
its letter dated 22nd December, 2014 and clarified that it would be impossible
for L & T to restart the works unless they got immediate financial support.
KPPNair 47 nmsl-120 of 2016
44. It appears that after the above letter dated 29th December, 2014 was
forwarded by L & T to GVK Projects, a letter also dated 29th December, 2014
was forwarded to L & T by GVK Projects inter alia recording that the works
under the contract dated 5th July, 2013, was stopped by L & T since 11th July,
2014 and upon careful examination of the facts set out therein, the work
stoppage could not be attributed to GVK Projects and the claim of L & T
towards idling charges was therefore rejected. GVK Projects by the said letter
once again called upon L & T to commence work immediately.
45. L & T now realised that GVK Project has rejected its claims, and if L
& T refuses to resume the work on that ground GVK Projects will be justified in
invoking the Bank Guarantee, and it was therefore essential to continue with
and keep the excuse of 'safe working atmosphere' at the forefront, and that the
demand for payments be projected as being of secondary importance. Therefore
how L & T changed its stance is clear from the following:
As stated in para 42 above, L &T by its first letter of 29th December, 2014
addressed to GVK Projects recorded that, "..we assume that your office has
judicially and critically evaluated the security related assurance received from
DC -- Kishtwar in accordance with its letter dated 27/12/ 2014 and we believe
that you have found the same to be adequately addressing the concerns raised by
KPPNair 48 nmsl-120 of 2016
the Project Director of GVKPTSL to DC - Kishtwar vide his letter as cited in
ref. No. 3 above that led to the "Suspension of Project Works. We presume that
while evaluating the assurance given by local District Authorities, the concerns
raised by us on various occasions have also been taken into consideration and
hence forthwith they would be provided with a safe working atmosphere to carry
out the activities in accordance with the provisions of contract agreement ." L
& T did not seek any further confirmation from GVK Projects as
regards providing L &T with a safe working atmosphere. Instead, L
& T agreed to restart the work within a period of 60 days. The only point on
which L & T laid stress in the said letter is that it would be impossible for L & T
to restart the work unless they get immediate financial support. However, L &
T upon being informed by GVK Projects that their claim has been rejected,
immediately took a stand contrary to its earlier stand by its second letter dated
29th December, 2014 addressed to GVK Projects and recorded that they would
like to seek reconfirmation from GVK Projects as to whether it would be
prudent for L & T to assume that GVK Projects has judicially and critically
evaluated the security related assurance received from Deputy Commissioner,
Kishtwar, by its letter dated 27th December, 2014 and have found the same to
be adequately addressing the concerns raised by it vide letter dated 11th July,
2014. L & T also sought reconfirmation from GVK Projects on the following:
KPPNair 49 nmsl-120 of 2016
"i. Shifting of habitation from blast affected zone to secure places;
ii. Cordoning Off Project Area and providing of security to
project by Central Paramilitary forces;
iii. Freedom to mobilise engineering and management straff for
project based on meritocracy and not based on geographical
considerations.
iv. Freedom to mobilise skilled workmen based on requirement
and skills and not based on geographical considerations."
L & T thereafter recorded that it would be impossible for them to restart the
works unless payment towards idling of resources etc. are paid to them.
46. On the same lines correspondence between the parties continued
throughout 2015. Both the parties raised claims against each other and both
denied and disputed the claims of each other. L & T again by its letter dated
21st March, 2015 inter alia recorded that, " unless we receive our complete dues
aggregating to more than Rs. 150 crores in settlement of the same we will not be
in a position to resume the works. Therefore our stand remains the same as
stated before." L & T also introduced a new allegation against GVK Projects
and GVK Ratle namely that they have abandoned the project and therefore they
should return the Bank Guarantee duly cancelled.
KPPNair 50 nmsl-120 of 2016
47. It is therefore absolutely clear that the issue of suspension and an
insecure working atmosphere was merely used as a ruse by L & T for not
starting the work. The real dispute pertained to the claims made by L & T
towards idling charges etc. which GVK Projects had rejected, and the claims
made by GVK Projects against L & T which were disputed by L & T. Even if for
the sake of argument it is accepted that the suspension was under Clause 21 of
the Terms and Conditions of the Contract, L & T has not elected to treat the
suspension as an abandonment of the contract by GVK Projects under Clause
21.2 of the contract. That being so the moment GVK Projects pursuant to the
request made/direction given by the Deputy Commissioner, Kishtwar, called
upon L & T to resume work, L & T ought to have resumed work. However,
L & T by its letter dated 22nd December, 2014, clearly wrote to GVK Projects,
even before GVK Projects by its letter dated 27th December, 2014 called upon
L & T to resume work, that it will be impossible for L & T to resume work
unless GVK Projects pays the alleged dues of L & T. The Bank Guarantee
clearly provides that the Bank shall make payment to the contractor upon
invocation of the same irrespective of " whether any sums are payable
under the terms of the sub-contract or not". From the correspondence
it is clear that L & T has refused to restart the work only since its financial
KPPNair 51 nmsl-120 of 2016
claims were not met and to cover up this fact has made a grievance that it is
GVK Projects which had suspended the works and had not given instructions to
L & T to restart the work and that GVK Projects and GVK Ratle themselves
have abandoned the work and fraudulently invoked the Bank Guarantee issued
by Allahabad Bank to GVK Projects at the behest of L & T. The allegation of L &
T therefore of fraudulent invocation of the Bank Guarantee by GVK Projects
cannot be accepted and is rejected.
48. It is also contended on behalf of L & T that GVK Projects and GVK Ratle
themselves abandoned the project and thereafter have fraudulently issued a
letter of invocation of the Bank Guarantee to Allahabad Bank seeking to invoke
the Bank Guarantee issued at the instance of L & T. GVK Projects and GVK
Ratle have in their Affidavits denied that they had abandoned the project.
However, in support of its above contention L & T submitted that on 23rd
December, 2014, GVK Projects and GVK Ratle intimated to the Government of
Jammu & Kashmir that the work has stopped and it is impossible to proceed with
the project till all the issues were resolved. It is submitted that stoppage of work
was not attributed to L & T and/or other contractors of the project and only
issues directly within the purview and control of the Defendants were captured
therein. It is submitted that the media reports of January, 2015, and September,
KPPNair 52 nmsl-120 of 2016
2015 also reported the intention of GVK Projects not to proceed with the
project in view of its financial difficulties. The September, 2015 Report spoke
about the abandonment of the project by GVK Projects and GVK Ratle. It is
submitted that even in the Annual Report of 2014-2015, GVK Ratle has
reported stoppage of work at the site (which is not restricted to L & T solely but
to the Defendants and all contractors). It is submitted that GVK Ratle has by
its letters addressed to the Power Development Department, Govt. of J & K also
sought to terminate the contract at an earlier date.
49. I have gone through the letter dated 23rd December, 2014. The said letter
is written to the Government of Jammu and Kashmir only by GVK Ratle and not
by GVK Projects also, as alleged by L & T. The said letter needs to be read in
the context in which it is written. By the said letter, GVK Ratle is seeking
substantial concessions and sanctions from the State of Jammu and Kashmir. It is
therefore obvious that GVK Ratle has in its letter attempted to portray that the
problems faced by GVK Ratle are beyond their control and immediate measures
need to be taken by the JKSPDCL. Therefore considering the purpose of writing
the said letter, GVK Ratle can hardly be expected to write anything against its
own contractors or sub-contractors which would harm their own case. Even as
far as the Annual Report is concerned, what is reported therein is that work has
KPPNair 53 nmsl-120 of 2016
stopped and GVK Projects or GVK Ratle are not expected to set out therein
their problems with their contractors/sub-contractors, since the same would be
used against them at the time of them making any claims against the procurer
-Power Development Department, Government of J & K. According to GVK
Projects and GVK Ratle, GVK Ratle was constrained to write letters to the
Power Development Department, Govt. of J & K, to consider early termination
of the Power Project Agreement executed between GVK Ratle and the Power
Development Corporation, Govt. of J & K, since L & T had consistently failed
and refused to perform its obligations under the contract. However, the Govt. of
J & K by its letter dated 18th Deccember, 2015, received on 29th December,
20915, recorded that the work has not resumed inspite of repeated requests, and
rejected the request for early termination, and called upon GVK Ratle to ensure
that work on the project is resumed without any further loss of time and that an
earnest effort be made to make up lost time.
50. Therefore, in my view, L & T has not produced any material to show in
support of its case that GVK Projects and GVK Ratle have or had abandoned the
project. L & T cannot be allowed to only rely on newspaper articles which have
no evidentiary value. L & T has therefore failed to establish that GVK Project
seeks to fraudulently invoke the Bank Guarantee despite GVK Project and GVK
KPPNair 54 nmsl-120 of 2016
Ratle themselves having abandoned the project.
51. It is settled law that the Bank Guarantee is an independent contract and a
challenge to the invocation/encashment of an irrevocable and unconditional
Bank Guarantee has to be considered without any reference to the underlying or
main contract or to the disputes/claims thereunder. However, the two
exceptions which have been carved out by several decisions of the Hon'ble
Supreme Court under which the invocation/encashment of such Bank
Guarantee/s could be restrained, are fraud and irretrievable injury. L & T has
alleged that the invocation of the Bank Guarantees by Allahabad Bank is
fraudulent. It is trite law that a Court can restrain encashment of a 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. The Hon'ble Supreme Court has in its decision in U.P. State Sugar
Corporation vs. Sumac International Ltd. 3 held as follows:
"12. ....... When in the course of commercial dealings an
unconditional bank guarantee is given or accepted, the
beneficiary is entitled to realize such a bank guarantee in terms
thereof irrespective of any pending disputes. The bank giving
such a guarantee is bound to honour it as per its terms
(1997) 1 SCC 568
KPPNair 55 nmsl-120 of 2016
irrespective of any dispute raised by its customer. The very
purpose of giving such a bank guarantee would otherwise be
defeated. The courts should, therefore, be slow in granting an
injunction to restrain the realization of such a bank guarantee.
The courts have carved out only two exceptions. A fraud in
connection with such a bank guarantee would vitiate the very
foundation of such a bank guarantee. Hence if there is such a
fraud of which the beneficiary seeks to take advantage, he can be
restrained from doing so. .... ...... ..... ...... In the case of U.P.
Cooperative Federation Ltd. v. Singh Consultants and Engineers (P)
Ltd.(1988 [1] SCC 174), which was the case of works contract
where the performance guarantee given under the contract was
sought to be invoked, this Court, after referring extensively to
English and Indian cases on the subject, said that the guarantee
must be honoured in accordance with its terms. The bank which
gives the guarantee is not concerned in the least with the
relations between the supplier and the customer; nor with the
question whether the supplier has performed his contractual
obligation or not, nor with the question whether the supplier is
in default or not. The bank must pay according to the tenor of
its guarantee on demand without proof or condition. There are
only two exceptions to this rule. The first exception is a case
when there is a clear fraud of which the bank has notice. The
fraud must be of an egregious nature such as to vitiate the entire
underlying transaction. Explaining the kind of fraud that may
absolve a bank from honouring its guarantee, this Court in the
KPPNair 56 nmsl-120 of 2016
above case quoted with approval the observations of Sir John
Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank
NA (1984 [1] AER 351 (All ER at p. 352) : (at SCC p.197)
"The wholly exceptional case where an injunction may be
granted is where it is proved that the bank knows that any
demand for payment already made or which may thereafter be
made will clearly be fraudulent. But the evidence must be clear
both as to the fact of fraud and as to the bank's knowledge. It
would certainly not normally be sufficient that this rests on the
uncorroborated statement of the customer, for irreparable
damage can be done to a bank's credit in the relatively brief time
which must elapse between the granting of such an injunction
and an application by the bank to have it charged".
This Court set aside an injunction granted by the High Court to
restrain the realisation of the bank guarantee."
52. As already held hereinabove, L & T has not made out any case of fraud
much less a case of an absolute and egregious fraud to the knowledge of the Bank
which would affect the very foundation of the Bank Guarantee, as is required in
law. The subject PBG is unconditional and irrevocable. The disputes between L
& T and GVK Projects under the underlying or main contract does not entitle L
& T to seek orders restraining GVK Projects from invoking the PBG. It is also
pertinent to note that L & T who have also alleged fraud on the part of GVK
Projects in invoking the Bank Guarantee despite having failed to pay the alleged
KPPNair 57 nmsl-120 of 2016
dues/claims of L & T, have lost sight of the fact that the Bank Guarantee
furnished at the instance of L & T by Allahabad Bank to GVK Projects
categorically provides that, " ... the Bank do hereby irrevocably unconditionally
guarantee and undertake to pay to the contractor.... all moneys claimed by the
contractor to the extent of and upto Rs. 98,35,00,000/-..... without disputing
whether any sums are payable under the terms of the sub-contract or not" . In
view thereof, it cannot be held that the invocation of the Bank Guarantee by
Allahabad Bank is fraudulent as alleged by L & T. The case law relied upon by L
& T is also of no assistance to them.
53. As regards the second exception viz. irretrievable injury, it has been
repeatedly held by the Hon'ble Apex Court that to avail of the said ground it
must be decisively established and proved to the satisfaction of the court that
there would be no possibility whatsoever of the recovery of the amount by the
beneficiary. In this Context, paragraph 14 of the decision of the Hon'ble
Supreme Court in U.P. State Sugar Corporation (supra) is relevant and
reproduced hereunder:
"14. On the question of irretrievable injury which is the second
exception to the rule against granting of injunctions when
unconditional bank guarantees are sought to be realised the
KPPNair 58 nmsl-120 of 2016
court said in the above case that the irretrievable injury must be
of the kind which was the subject-matter of the decision in the
Itek Corporation case (supra). In that case an exporter in the
U.S.A. entered into an agreement with the Imperial
Government of Iran and sought an order terminating its
liability on stand by letters of credit issued by an American
bank in favour of an Iranian Bank as part of the contract. The
relief was sought on account of the situation created after the
Iranian revolution when the American Government cancelled
the export licences in relation to Iran and the Iranian
Government had forcibly taken 52 American citizens as
hostages. The U.S. Government had blocked all Iranian assets
under the jurisdiction of United States and had cancelled the
export contract. The Court upheld the contention of the
exporter that any claim for damages against the purchaser if
decreed by the American Courts would not be executable in
Iran under these circumstances and realization of the bank
guarantee/Letters of credit would cause irreparable harm to
the plaintiff. This contention was upheld. To avail of this
exception, therefore, exceptional circumstances which make it
impossible for the guarantor to reimburse himself if the
ultimately succeeds, will have to be decisively established.
Clearly, a mere apprehension that the other party will not be
able to pay, is not enough. In the Itek case (supra) there was a
certainty on this issue. Secondly, there was good reason, in that
case for the Court to be prima facie satisfied that the
KPPNair 59 nmsl-120 of 2016
guarantors i.e. the bank and its customer would be found
entitled to receive the amount paid under the guarantee.
The above view is also reiterated by the Hon'ble Apex Court in paragraph 22 of
its decision in the case of Dwarikesh Sugar Industries Ltd. vs. Prem Heavy
Engineerings Works (P) Ltd. 4 .
54.
The only allegation made in paragraph 26 of the Plaint by the Plaintiff is
that if the Allahabad Bank acts pursuant to the purported invocation of the PBG
and remits the amount either to GVK Projects or GVK Ratle, it will cause grave
irreparable harm, loss and prejudice to L & T. Such a pleading does not satisfy
the requirement of establishing irretrievable injury as required in law. Being
conscious of the fact that no case of any irretrievable injury being caused to L &
T, is made out in the Plaint, L & T has in its Written Submissions tried to fill up
the lacunae, and submitted that GVK Ratle is the Special Purpose Vehicle of
GVK Projects and if any payments are made to GVK Ratle, the recovery of the
said amount by L & T from the said SPV will be impossible. Though again the
said submission is devoid of any particulars, as held hereinabove, the invocation
of the Bank Guarantee is by GVK Projects and not GVK Ratle. As submitted by
the Learned Senior Advocate appearing for GVK Projects and GVK Ratle, GVK
(1997) 6 SCC 450
KPPNair 60 nmsl-120 of 2016
Ratle is handling several large infrastructure projects in the country. GVK
Projects is a part of the GVK Group and the net revenue of GVK Projects in the
last year was Rs. 700 crores. Therefore, L & T has failed to fulfil the
requirement of establishing irretrievable injury as laid down in the various
decisions of the Hon'ble Supreme Court, including the case discussed
hereinabove. As held by the Hon'ble Courts, to avail of these exceptions,
exceptional circumstances which make it impossible for the party to reimburse
itself if it ultimately succeeds, has to be decisively established. In view thereof,
the threshold of irretrievable injustice as required in law is not met by the
Plaintiff in the facts and circumstances of the case.
55. In the light of the above circumstances, in my view, L &T has not made
out any case to restrain GVK Projects and GVK Ratle from invoking the said
PBG. The Application of the Plaintiff seeking ad-interim relief is therefore,
rejected. Place the Suit for directions on 21st March, 2016 subject to
numbering.
56. At the request of the Learned Advocate appearing for the Plaintiff, the
order dated 14th January, 2016, shall continue to be in force upto 9th
March,2016.
(S.J. KATHAWALLA, J.)
