Bombay High Court
Larsen And Toubro Limited vs Allahabad Bank And 2 Ors on 20 June, 2016
Bench: Anoop V. Mohta
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (LODGING) NO. 106 OF 2016
IN
NOTICE OF MOTION (LODGING) NO. 120 OF 2016
IN
SUIT (LODGING) NO. 28 OF 2016
WITH
NOTICE OF MOTION (LODGING) NO. 732 OF 2016
IN
APPEAL (LODGING) NO. 106 OF 2016
IN
NOTICE OF MOTION (LODGING) NO. 120 OF 2016
IN
SUIT (LODGING) NO. 28 OF 2016
Larsen and 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. ....Appellant/
Applicant.
Vs.
1 Allahabad Bank,
37, Mumbai Samachar Marg,
Fort Branch, Mumbai 400 023.
1/21
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2 GVK Projects & Technical Services Ltd.
Paigah House, 156-159, Sardar Patel
Road, Secunderabad 500 005.
3 GVK Ratle Hydro Electrict Project Pvt. Ltd.
Paigah House, 156-159, Sardar Patel
Road, Secunderabad 500 005. ....Respondents.
Mr. Iqbal Chagla, Senior Counsel, Mr. Atul Rajyadhaksha, Senior
Counsel, Mr. Dinyar Madon, Senior Counsel, Mr. Firoz Bharucha, Mr.
Jehan Mehta a/w Mr. Sachin Chandarana, Mr. Akhil Tiwari and Mr.
Pranav Khatavkar i/by M/s. Manilal Kher Ambalal & Co. for the
Appellant/Applicant.
Mr. V.N. Ajitkumar for Respondent No.1.
Mr. Janak Dwarkadas, Senior Counsel, Mr. Chirag Kamdarm Mr. Farid
Karachiwala with Ms. Shoma Maitra i/by M/s. Wadia Ghandy & Co.
for Respondent Nos. 2 and 3.
CORAM : ANOOP V. MOHTA &
A.A. SAYED, JJ.
RESERVED ON : 6 MAY 2016
PRONOUNCED ON : 20 JUNE 2016
JUDGMENT (PER ANOOP V. MOHTA, J.):-
The present Appeal is filed by the Appellant-Original
Plaintiff challenging an ad-interim order of the learned Single Judge,
in the matter of invocation of performance bank guarantee and
against the direction to deposit the proceeds in the account of third
party and not of the beneficiary.
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2 On 9 March 2016, in view of urgency expressed and as the
regular Bench could not take this matter, it was heard substantially
and kept on 23 March 2016. The parties have no objection for
hearing of this Appeal finally at admission stage itself. It was heard
from time to time, accordingly.
3 The Appellant/Plaintiff-(Sub-contractor), Larsen & Toubro
Limited (for short, "L & T"), a company engaged in business of
construction of large infrastructural projects, has filed this Appeal and
challenged Judgment and order dated 29 February 2016 passed by the
learned Single Judge, pending the Notice of Motion in the Suit. The
Appellant's Application for an ad-interim relief restraining Respondent
No.1 (for short, "the Bank"), Respondent No.2-GVK Projects &
Technical Services Limited-(Contractor) (for short, "GVK Projects") and
Respondent No.3-GVK Ratle Hydro Electric Project Private Limited-
(for short, "GVK Ratle") ("the owner") from acting in furtherance of
the purported invocation of Performance Bank Guarantee (for short,
"PBG") dated 11 July 2013 issued by the Bank in favour of GVK
Projects for Rs.98,35,00,000/-, is rejected.
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4 The learned Single Judge, pending the Notice of Motion,
granted protective relief on 14 January 2016. It has been extended
from time to time. The Appellant preferred the Appeal on 3 March
2016, along with Notice of Motion for stay of the Judgment. The
Appellate Bench has also extended the said protection, pending the
final disposal of the Appeal.
5 The learned Senior Counsel for Respondent Nos. 2 and 3
opposed the Appeal and so also the prayers made in Notice of Motion
for stay/interim reliefs. Respondent-Bank, however, though has not
filed a separate Appeal, supported the submission of the Appellant, so
far as the directions of releasing PBG amount in favour of GVK Ratle,
as PBG terms and conditions provides for release of amount in favour
of GVK Projects. The learned counsel for the parties submitted their
written submissions also in support of their respective contentions.
6 On 20 July 2012, GVK Ratle, awarded a contract to the
GVK Projects, for execution of Civil and Hydro Mechanical Works of
850 MW Ratle Hydro Electric Project on the Chenab River, Drabshala
Village, District Kishtwar, Jammu and Kashmir (for short, "the
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project"). GVK Projects awarded the sub-contract to the Appellant, on
5 July 2013, for certain work.
7 At the instance and request of the Appellant, the Bank has
sanctioned PBG facility on 10 October 2011 on the terms and
conditions as agreed between the parties. The Appellant has also
executed a counter Guarantee/Indemnity in favour of the Bank along
with the necessary documents. By letter dated 9 July 2013, the
Appellant/Borrower requested to issue PBG of Rs.98.35 Crores in
favour of GVK Projects. It was issued accordingly. GVK Projects, is the
beneficiary of PBG. GVK Ratle being the owner of the project is also
signatory to the terms and conditions of PBG.
8 As per the Appellant, based upon the subsequent events
and as reflected in the correspondence/communications, the project
work was required to be stopped. Though requested, but for want of
further communications and non-cooperation of others and inspite of
the repeated representations even by the owner, the Appellant could
not resume its work. There were allegations and counter allegations
with regard to "no progress" of the project work. The Appellant's case
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was that the work was suspended from 11 July 2014 due to a hostile
and insecure atmosphere and frequent local disturbance at the Project
area. The Owner-contractor, however, denied the same. Those
communications are read and referred by the learned Senior Counsel
in support of their respective contentions.
9 The learned Senior Counsel appearing for the Appellant
has read and referred to the following Judgments-
i) United Commercial Bank Vs. Bank of India & Ors.1
ii) Hindustan Construction Co. Ltd. Vs. State of Bihar &
Ors.2
iii) Crest Communications Ltd. Vs. State Bank of India &
Anr.3
10 The learned Senior Counsel appearing for Respondent Nos.
2 and 3, has read and referred to the following Judgments-
a) Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy
Engineering Works (O) Ltd. & Anr. 4
b) BSES Ltd. (Now Reliance Energy Ltd.) Vs. Fenner India
Ltd. & Anr.5
1 (1981) 2 SCC 766
2 (1999) 8 SCC 436
3 2000 (3) Mh.L.J.163
4 (1997) 6 SCC 450
5 (2006) 2 SCC 728
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c) M/s. Satyanarayana & Co. Vs. M/s. West Quay
Multiport (Private Limited) & Anr.6
d) M/s. S. Satyanarayana & Co. Vs. M/s. West Quay
Multiport (Private Limited) & Anr.7
e) U.P. State Sugar Corporation Vs. Sumac International
Ltd.8
f) Mahatma Gandhi Sahakara Sakkare Karkhane Vs.
National Heavy Engg. Coop. Ltd. & Anr.9
g) Amir Chand Vs. Krishna Chandra Bhowmik10
h)
Crest Communications Ltd. (Supra)
i) Narayandas Shreeram Somani Vs. Sangli Bank Ltd.11
j) State of Maharashtra & Anr. Vs. National Construction
Company, Bombay & Anr.12
11 It is settled that the judicial interference in the matter of
enforcement of bank guarantee is quite limited. However, it is subject
to the exception of fraud of an egregious nature and where
irretrievable injury and irretrievable injustice would occur and where
the bank guarantee was not invoked strictly in terms and tenor of the
6 Appeal (L) No. 395 of 2015, dated 9 June 2015 (Bom. HC)
7 ARBP (L) No. 647 of 2015, dated 21 April 2015 (Bom. HC)
8 (1997) 1 SCC 568
9 (2007) 6 SCC 470
10 1936 SCC OnLine Cal 48=AIR 1936 Cal 315
11 (1965) 3 SCR 777=AIR 1966 SC 170=(1965) 35 Comp Cas 596
12 (1996) 1 SCC 735
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bank guarantee. It is settled, being an independent commercial
contract, that the terms of the bank guarantee are required to be
complied with in the strictest possible manner. It is required to be
interpreted strictly. All the parties are bound by its terms and
conditions.
12 The law with regard to the binding effect of terms of PBG
is quite settled as is observed in paragraph Nos. 32, 39 and 49, in the
Judgment in United Commercial Bank (Supra). The strict compliances
of the terms of PBG is therefore, mandatory. The same view is further
reiterated in Hindustan Construction Co. Ltd. (supra) in paragraph
No.9, which reads thus:-
"9. What is important, therefore, is that the bank
guarantee should be in unequivocal terms, unconditional
and recite that the amount would be paid without demur
or objection and irrespective of any dispute that might
have cropped up or might have been pending between the
beneficiary under the bank guarantee or the person on
whose behalf the guarantee was furnished. The terms of
the bank guarantee are, therefore, extremely material.
Since the bank guarantee represents an independent
contract between the bank and the beneficiary, both the
parties would be bound by the terms thereof. The
invocation, therefore, will have to be in accordance with
the terms of the bank guarantee, or else, the invocation
itself would be bad."
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13 The Respondent Bank, in reply dated 18 January 2016, in
support of the Appellant also averred as under:-
7. I say that as per the terms and conditions of said
Performance Bank Guarantee, Allahabad Bank has
irrevocably and unconditionally undertaken to pay the
guaranteed amount on invocation of said Guarantee to
the beneficiary (Contractor)-GVK Projects & Technical
Services Limited. Eventhough, the said letter of
invocation has been issued by the Contractor/beneficiary
within validity period of the said Bank Guarantee, but
the payment was required to be made to Owner-GVK
Ratle Hydro Electric Project Private Limited instead of
contractor/beneficiary under the Bank Guarantee, which
prima-facie appears to be not as per the terms of
Guarantee. Meanwhile, this Hon'ble Court was pleased
to order and direct Allahabad Bank not to make any
payment to Defendant No.2 and/or 3 as per letter of
invocation dated 13/1/2016, therefore it has been put
on hold. I further say that Bank is ready and willing to
discharge its liability under the said Bank Guarantee as
per the order of this Hon'ble High Court by clarifying the
aforesaid aspects in order to avoid further complicity in
the matter."
(Emphasis supplied)
14 The submission is made that the invocation of bank
guarantee was not in terms of PBG and specifically when; (a) the
payment was required to be made not to the beneficiary-the
Contractor but, to the Owner-GVK Ratle; (b) there was no claim or
demand made earlier, except the bank guarantee communications to
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the Bank through the invocation letter; (c) no claim or demand made
to the Appellant and/or any specific notice was given, except
purported letter in question; (d) The Bank is, therefore, under
obligation to honour the bank guarantee in accordance with the terms
only. In the present case, the Bank supports the case of the Appellant.
15 It is also submitted that, PBG was for the due performance
of the respective obligations under the contract. GVK Projects and
GVK Ratle, have abandoned the project, based upon the letters,
therefore, there was no question of one-sided performance of the
contract by the Appellant, as there was no failure of performance,
such invocation without proper demand and claim are stated to be a
case of fraud. It is submitted that, this is an exceptional case, where
the judicial intervention is permissible.
16 The learned Senior Counsel appearing for Respondent
Nos. 2 and 3, however, countered the above submissions and
supported the reasons given by the learned Single Judge. The counter
submission of the learned Senior Counsel was that the invocation was
proper and the same was as per the terms and conditions of PBG. The
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term "payment to the contractor", needs to be read and referred as on
demand, the payment to the person directed. In the present case, the
proceeds was requested to be deposited in the account of GVK Ratle-
owner. There was intentional suspension of work and/or
abandonment of contract by the Appellant. The Appellant was
responsible for the disturbance at site by not engaging the local
persons for the project. The correspondence/communications, itself
show that the demand was raised from time to time. PBG, being an
independent contract and there is no irretrievable injustice and
considering the scope of Appeal against such ad-interim order, the
Appeal is required to be dismissed. Objection was raised regarding
jurisdiction also.
17 The Bank's counsel, however, without touching to the
aspects of breach of terms of main contract, has supported the
Appellant by submitting that the invocation was not in terms and
conditions of PBG, as the payment/proceeds was directed to be made
to the "owner"-GVK Ratle, instead of the Contractor beneficiary GVK
projects. It is also submitted that PBG is not negotiable
document/instrument. The terms and conditions of PBG are required
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to be followed strictly. The bank is under obligation to discharge its
liability under those terms only, specifically when, there is no case of
any assignment of the PBG. The Bank's counsel restricted the
argument saying that the bank is liable to make the payment as per
the terms, only to the contractor, beneficiary-GVK Projects.
18 So far as the aspect of jurisdiction is concerned, as the Suit
is pending so also the Notice of Motion and as the Appeal is against
rejection of ad-interim order, therefore, in view of Section 9A of the
Code of Civil Procedure (for short, "CPC"), and as parties have
proceeded by consent on the issue of ad-interim relief and as this
Appeal is arising out of the same, we are leaving the issue of
jurisdiction open for the Court to decide at the appropriate stage.
Therefore, by consent, we are proceeding to deal with the Appeal on
the restricted issue of protective reliefs.
19 Various contentions and counter contentions are raised by
the learned Senior Counsel appearing for the parties with regard to
the nature and the merits and the breaches of main contract including
the reasons behind the invocation of PBG. Whether there was
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demand/claim raised before invocation? Whether PBG, in the facts
and circumstances, was invoked in breach of the main contract?
Whether there was default and/or non-cooperation from the owner
and/or the contractor? Whether there was any case of alleged fraud
or irretrievable injury? Whether the Appellant suspended the
work/project without reasons and/or abandoned the project?
Whether the case of conflict of various kinds, including the stated
disturbances and the problem with the Government itself? Whether
there was exchange of correspondence between the owner-contractor
with the Government to proceed and/or not to proceed with the
project? Whether no communication was addressed to the Appellant
to stop the work inspite of above background? These disputed
questions and the facts required to be decided finally and/or
concluded at appropriate stage, apart from the issue of maintainability
of the Suit. For the purpose of deciding the Appeal against such ad-
interim order, at this stage, the reasoning given by the learned Single
Judge dealing with the factual aspects, covering the submissions and
the issues so raised arising out of the contract terms and the
conclusion so drawn in para 50, in our view, needs no interference.
However, it will be subject to final decision of the Notice of Motion
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and/or the Suit. Para 50 of the impugned Judgment is reproduced as
under:-
"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 Ratle themselves having abandoned the project."
20 We are required to consider the legal submission so made
and raised with regard to the invocation of PBG in the present case,
whereby, the directions are issued to deposit the proceeds in the
account of third person/"GVK Ratle", instead of "GVK projects". That
is to be considered on the basis of the plain reading of the terms and
conditions of PBG.
21 The main clause of PBG, is as under:-
"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, 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
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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."
(Emphasis supplied)
22 The relevant portion of invocation letter dated 13 January
2016 addressed to the Chief Manager, Allahabad Bank, by GVK
Projects (the contractor), invoking PBG, reads thus:-
" ....................
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.
......."
23 The observations made by the learned Single Judge with
regard to PBG and the law, revolving around the same in paragraph
Nos. 51 to 53 also need no interference. What is missing, in our view,
in the present case is the plain reading and interpretation of the
clauses of PBG terms. This being the question of interpretation of the
clause/clauses, as no evidence is necessary, and as noted, no specific
finding is given on the said clause/clauses, we are inclined to decide
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the issue so raised by the learned Senior Counsel appearing for the
Appellant and also supported by the learned counsel appearing for the
Bank that direction to arrange to transfer the proceeds through RTGS
to the Account of GVK Ratle, is not as per the terms and conditions of
PBG, so reproduced above.
24 There is no issue that once PBG is invoked, subject to the
objection even if any, and/or subject to findings given by the Court,
based upon the terms and conditions and in view of settled position of
law, unless the case falls within the exceptional circumstances, the
Bank is under legal obligation to encash PBG and transfer the
proceeds to the Account as per PBG. The Bank undertaking, even if
any, to make the payment, therefore, as contended by the learned
Counsel appearing for the Appellant and the Bank, that the
amount/proceeds needs to be transfer only in the name of the
beneficiary-GVK Projects, without any deduction, set off and/or
counter claim and/or any demur, reservation and/or contest, any
dispute pending and even agitated, should not be the reason not to
honour PBG, once it is invoked, but it is subject to the binding terms
of the PBG.
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25 The plain reading of the Bank's terms and conditions,
therefore, have created legal obligations upon the Bank to transfer the
proceeds, but only in the account of the beneficiary-GVK Projects and
not in the account of GVK Ratle, as instructed and/or mentioned in
communication dated 30 July 2016. All are bound by such terms and
conditions of the commercial document like PBG. The learned Senior
Counsel appearing for Respondent No.s 2 and 3, based upon the
Judgments so cited and as read and referred, is only able to justify the
position of law with regard to the general PBG conditions.
26 The submission is also made that this case does not fall
within any of the exceptional circumstances. However, in the
Judgments so cited and/or read and referred by the Respondents
and/or even noted by the learned Single Judge, it nowhere decided
the issue raised and/or concluded in the facts like the present case,
where in breach of terms of PBG, it is directed to transfer the proceeds
in the account of third person. The contractor or the owner, therefore,
cannot ask for and/or insist upon the Bank to transfer the proceeds in
the account of owner GVK Ratle. PBG conditions, as noted above,
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have been signed and/or well within the knowledge of GVK Ratle,
also. All the parties are bound by the conditions whereby, they have
recognized the beneficiaries of PBG, in case of invocation of
irrevocable unconditional PBG whereby, the bank undertakes to make
the payment.
27 Therefore, in view of above distinguishing features in the
present case, the Judgments cited by the learned Senior Counsel
appearing for Respondent Nos. 2 and 3 are of no assistance, except
with regard to the basic principle of law of PBG and effect of its legal
invocation, apart from the obligation of the Bank to transfer the
proceeds as per the terms and conditions. The Judgments so cited,
itself, support the case that all the parties are bound by the terms and
conditions of PBG unless, exception of terms and conditions and/or
specific agreements are pointed out whereby, the party agreed to
release the amount in the account of third person. In the present case,
there is no such case and/or covenant pointed out. There is no such
assignment ordered. The submission, revolving around the provisions
of the Indian Contract Act and the supporting documents, in our view,
is also of no assistance.
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28 The Court, therefore, in the case in hand cannot direct the
Bank, at this stage, to make the payment as per the letter of
invocation, merely because Respondent Nos. 2 and 3 have made their
submissions referring to other documents and the cited Judgments on
general propositions of law relating to PBG. When the Court needs to
interpret the commercial documents like PBG and the plain reading
shows the agreed clear terms and conditions, then there is no question
of interpretation and/or any direction which has the effect of
modifying the terms and conditions by the Court, in the Court
proceedings like this. The Court cannot, for the first time, interpret
the clauses and/or modify the terms and conditions merely because of
the general law of PBG, as settled. On the contrary, these Judgments
itself make the position clear with regard to the commercial
documents like PBG that the terms and conditions of the documents
are required to be strictly followed and complied with by all. After
reading the clauses of PBG and the invocation letter so referred above,
we are of the view that a case is made out by the Appellant to
continue the ad-interim relief dated 14 January 2016, already granted
by the learned Single Judge.
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29 Resultantly, the Appeal is allowed in the following terms:-
a) The impugned order dated 29 February 2016 is set
aside.
b) The ad-interim order dated 14 January 2016, passed
by the learned Single Judge in Notice of Motion (L)
No. 120 of 2016 to continue till the disposal of the
Notice of Motion.
c) Hearing of the Notice of Motion (L) No. 120 of 2016
is expedited.
d) In view of the disposal of the Appeal itself, nothing
survives in the Notice of Motion (L) No. 732 of 2016
and the same is accordingly disposed of.
(A.A. SAYED, J.) (ANOOP V. MOHTA, J.)
30 After pronouncement of the Judgment, Mr. Farid
Karachiwala, learned counsel appearing for Respondent No. 2 and 3
states on instructions that Respondent No. 2 is desirous of
withdrawing the letter of invocation and invoking the PBG afresh and
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that it may be accordingly recorded in this order. At this stage, we do
not deem it necessary to record the statement and we express no
opinion on this aspect. Respondent No. 2 is free to take appropriate
steps as may be adviced.
(A.A. SAYED, J.) (ANOOP V. MOHTA, J.)
