Calcutta High Court
M/S. Kse Electricals Private ... vs The Project Director on 7 May, 2021
ORDER SHEET
OD-1
AP No. 229 of 2021
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL DIVISION
M/S. KSE ELECTRICALS PRIVATE LIMITED
VERSUS
THE PROJECT DIRECTOR, BANGLADESH
RURAL ELECTRIFICATION BOARD & ANR.
BEFORE:
The Hon'ble JUSTICE ARINDAM MUKHERJEE
Date: 7th May 2021.
(Vacation Bench)
(Via Video Conference)
Appearance:
Mr. Sabyasachi Choudhary, Adv.
Mr. Rajarshi Dutta, Adv.
Mr. Rahul Poddar, Adv.
Mr. Sarbajit Mukherjee, Adv.
Mr. V.V.V. Sastry, Adv.
For the petitioner.
The Court :- The petitioner says that pursuant to a global tender
floated by the respondent no.1, the petitioner became successful and was
awarded the contract being package No.BREB/UREDS-G-01 for line
hardware and insulator (hereinafter referred to as the said contract). The
said contract is governed by the General Conditions of Contract (GCC) and
Special Conditions of Contract (SCC) contained in the tender documents.
The said contract pertains to supply of materials. The total contract price is
USD 3,286,944 plus Bangladesh Taka (in short BDT) of 1,982,640 with a
permissible increase of 20% quantity. The GCC in clause 16.1 provides for
the mode of payment under the said contract. The payment is divided in
three phases -
i) Advance payment of 10% of the contract price;
ii) On shipment 80% of the contract price;
iii) On acceptance 10% of the contract price.
Clauses 18.1 and 18.3 of the GCC provide for a performance security.
The performance security shall be 10% of the contract price which shall
remain valid for 20 (twenty) months from the date of signing the contract
covering warranty period. The date of signing of the contract according to
the petitioner is 13th April, 2015. The performance security in the instant
case was given by YES Bank in terms of clause 18.3 of the GCC. The
performance security for USD 3,31,500 was initially given on 8th April, 2015.
This is an irrevocable letter of guarantee. The performance security
subsequently has been extended from time to time and is still valid.
The petitioner says to have supplied the entire material under the
said contract on or about 24th October, 2017 and have also received 90% of
the payment in terms of clause 16.1 of the GCC. The petitioner says that
10% of the contract value has been retained by the respondent No.1 as there
is no final acceptance owing to certain alleged discrepancies raised by
respondent no. 1. The respondent No.1, according to the petitioner, by a
letter dated 5th July, 2020 claimed a sum of USD107,900.65 on account of
short materials, a sum of BDT 20,06,754 on account of packing deviation
and BDT 22,81,557.08 on account of CD-VAT. In the said letter the
respondent No.1 had also clarified that any applicable Liquidity Damages
(LD) will be deducted from 10% retention money. By a further letter dated
7th April, 2021, the petitioner says that the respondent No.1 has reduced the
amount on account of short materials and CD-VAT. The amount claimed for
short material in the letter dated 7th April, 2021 is USD10,385 while those
on account of packing deviation and CD-VAT are respectively BDT
20,06,754 and BDT 4,06,762. According to the petitioner, the aggregate
value claimed on the said three heads converted into USD comes to
Rs.38,785. The petitioner has paid this amount to the respondent no. 1 and
has relied upon a print out of a swift message advice to that effect. The
petitioner says that there is no amount which the respondent no. 1 is
entitled to realize from the petitioner in terms of the letter dated 7th April,
2021. The imposition of liquidated damages according to the petitioner has
not yet been made and in any event if the same is made the 10% of the
contract value retained by the respondent no. 1 will be sufficient enough to
cover up the same as liquidated damages in terms of clause 27 of the GCC
will at the maximum be 10% of the contract. In this fact scenario the
petitioner says that assuming without admitting that the petitioner has not
fulfilled its contractual obligation. The respondent no. 1 is completely secure
even in respect of liquidated damages, there being no other outstanding
amount owed by the petitioner to the respondent no. 1. The petitioner says
that in such circumstances the bank guarantee for performance security of
USD3,31,500 cannot be invoked as sought to be done by the respondent no.
1. The petitioner refers to the print out of the message received by YES
Bank, the respondent no. 2 on 6th May, 2021 appearing at page 259 of the
petition. The petitioner refers to the grounds enumerated in the said letter
for the invocation. Three grounds appear to have been given. They are "as
the payment of 10% retention of the contract is not settled", "in addition a
large portion of materials have been found as damaged and shortage" and
"packing deviation has occurred against the above mentioned contract". The
petitioner says that the claim of 10% retention money cannot and does not
arise as the same which has been retained by the respondent no. 1 is
payable to the petitioner and not the other way round. So far as shortage
and packing deviation are concerned, the claims under such heads as
quantified by the respondent no. 1 in its letter dated 7th April, 2021 has
already been paid. There is as such no valid ground available to the
respondent no. 1 to invoke the performance security. The respondent no. 1
is, therefore, attempting to unjustly enrich itself by seeking to invoke the
bank guarantee given for performance security. The bank guarantee if
allowed to be invoked will cause irretrievable injustice to the petitioner. The
petitioner has also coined the act of attempted invocation by the respondent
no. 1 to be a fraudulent act. The petitioner, therefore, seeks an order of
injunction against attempted invocation of the bank guarantee given for
performance security by the respondent no. 1. The petitioner relies upon a
judgment reported in 1999 (8) SCC 436 para 16.
The petitioner says that the said contract contains an arbitration
agreement in clause 10.2 of the GCC. The arbitration proceedings have to be
conducted in accordance with UNCITRAL Arbitration Rules 2010 and the
governing law is that of the purchaser's country being laws of Bangladesh.
The petitioner says that this is an international commercial arbitration as
defined in Section 2(e) of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as the said Act). The petitioner also says that since
the seat of arbitration is not specified this Court being the High Court as
enumerated in Section 2(e) of the said Act is a competent Court to receive,
entertain and try an application under Section 9 of the said Act filed by the
petitioner seeking injunction against the invocation of the bank guarantee.
The petitioner also intends to move this instant application ex parte in view
of the urgency and that the respondents and in particular the respondent
no. 1 on being served are likely to take such steps to render the application
infructuous.
Considering that the matter pertains to invocation of bank guarantee
where immediate and urgent reliefs are warranted, I allow the petition to be
moved ex parte. I am also prima facie satisfied that this Court has the
jurisdiction to receive, entertain and try the instant application.
Although the retention money from which the liquidated damages
subject to maximum of 10% as may be imposed under the contract can be
fully adjusted on the petitioner's failure to perform stands in a completely
different footing from the performance security against which the bank
guarantee has been given but depending on the fact scenario of the instant
case and in particular that the goods were supplied by October, 2017 when
invocation is sought to be made in May, 2021 that too after the petitioner
has paid a sum of USD38,785 against the demand made by the respondent
no. 1 by its letter dated 7th April, 2021 and the liquidated damages even if
imposed is fully secured, I am inclined to injunct the respondent no. 1 from
invoking the bank guarantee at this stage. Even after considering the limited
scope for granting injunction against invocation of an irrevocable bank
guarantee my views remain the same. The bank guarantee even though in
the instant case is an irrevocable one and can be invoked even without
assigning any reason and the invocation thereof is also not dependent upon
the performance of the main contract to which issue I am live, yet am
inclined to pass the order of injunction because refusal thereof will cause
the petitioner irretrievable injustice. Finding that on one hand the petitioner
on invocation will be out of pocket by a huge sum which the petitioner may
be entitled to realise in a long drawn arbitration proceeding and on the other
the respondent no.1 is otherwise secured does not permit my conscience to
allow the invocation even after keeping in mind the limited scope of granting
injunction. There is also no assertion for damages even after three years
from the side of the respondent no.1 which may persuade me to refuse the
injunction. The respondent no. 1 at the present at the highest can realise
liquidated damages in case of failure on the part of the petitioner which is
quantified under the contract. Such quantified amount is otherwise secured.
The respondent no. 1 at the present has no other claim as damages apart
from liquidated damages having not yet been asserted and its claim under
the letter dated 7th April, 2021 has already been paid. After such payment
when the petitioner seeks for release of the bank guarantee and demands
payment of the retained amount, the invocation is sought to be made that
too after more than three years from the supplies being effected. The series
of events give rise to a prima facie doubt as to the conduct of the respondent
no. 1. The invocation of the bank guarantee, according to my prima facie
view based on the facts of the instant case unless a contrary view is
established on disclosure of further facts, if allowed will be permitting the
respondent no. 1 to unjustly enrich itself at this stage. Even if, I take into
consideration the object for which a performance security is given in an
international commercial contract my view to grant injunction remains
unchanged. The judgment reported in 1999 (8) SCC 436 also support this
view of mine. The petitioner has been able to make out a strong prima facie
case, the balance of convenience and inconvenience is also in favour of the
petitioner and refusal of injunction will cause irreparable prejudice to the
petitioner at this stage.
In the facts and circumstances as aforesaid the respondent no. 1 is
injuncted from invoking the bank guarantee bearing no.
999CGO1190910182 dated 1st April, 2019 and renewed on 12th February,
2021 until 25th May, 2021. There respondent no. 2 is restrained from
making any payment and/or disbursement under the said bank guarantee
bearing no. 999CGO1190910182 dated 1st April, 2019 and renewed on 12th
February, 2021 in terms of the letter of invocation said to have received by
them on 6th May, 2021 or otherwise also until 25th May, 2021. Considering
the respondent no. 1 to be in Bangladesh the petitioner shall immediately
but not beyond 7 days serve a copy of this application along with this order
upon the respondents. The petitioner shall also take immediate steps to
proceed for arbitration.
The application is made returnable on 24th May, 2021 before the
appropriate bench. The respondents shall be free to apply for vacating the
order and/or seek variation thereof on the returnable date or even prior
thereto however upon notice to the petitioner.
(ARINDAM MUKHERJEE, J.)
snn/S.Bag
