M/S. Kse Electricals Pvt. Ltd vs The Project Director
2021 Latest Caselaw 1467 Cal/2

                     IN THE HIGH COURT AT CALCUTTA
                      Ordinary Original Civil Jurisdiction
                               ORIGINAL SIDE
                            (Commercial Division)

Present:-
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA


                           I.A No. G.A No. 1 of 2021
                                      in
                              A.P. 229 OF 2021

                     M/S. KSE ELECTRICALS PVT. LTD.
                                      vs
   THE PROJECT DIRECTOR, BANGLADESH RURAL ELECTRIFICATION
                              BOARD AND ANR.

For the Petitioner            :     Mr. Sabyasachi Chowdhury, Sr. Adv.
                                    Mr. Rajarshi Dutta, Adv.
                                    Mr. V. V. V. Sastry, Adv.
                                    Mr. Tridib Bose, Adv.
                                    Mr. Debjyoti Saha, Adv.


For the Respondent no. 2      :     Ms. Suchismita Chatterjee, Adv.
                                    Mr. Malay Kumar Seal, Adv.


Reserved for Judgment on      :     08.10.2021.


Delivered on                   :    23.11.2021
                                        2


Moushumi Bhattacharya, J.

1. The applicant, Yes Bank, seeks vacating of an order of injunction

restraining Yes Bank from honouring a counter-guarantee to a performance

guarantee issued in favour of the petitioner/ supplier KSE Electricals. The

injunction was passed in the present Arbitration Petition filed under Section 9

of The Arbitration and Conciliation Act, 1996, by KSE Electricals, for a

restraint on the respondent no.1 purchaser, the Project Director, Bangladesh

Rural Electrification Board, from realising a sum of USD 331,500 under the

Counter Guarantee issued by Yes Bank through its correspondent bank being

Eastern Bank, Dhaka. Yes Bank is the second respondent in the Arbitration

Petition.

2. The order of injunction dated 7th May, 2021, was passed ex parte on

KSE's application, restraining the respondent no.1 from invoking the bank

guarantee dated 1st April 2019 in terms of a letter of invocation received by

KSE on 6th May 2021. The order was communicated to Yes Bank and to

Eastern Bank. The order of 7th May, 2021 was modified by an order of 15th

June, 2021 at the instance of Yes Bank recording the fact of the counter

guarantee.

3. The present application of Yes Bank is pursuant to a communication of

Eastern Bank, Dhaka to the effect that payment of USD 331,500 was made by

Eastern Bank to the Bangladesh Rural Electrification Board (respondent no.1)

on 29th June, 2021 in response to the said respondent invoking the bank

guarantee. Yes Bank feels that it is therefore obligated to honour its counter

guarantee and replenish Eastern Bank to the extent of the said amount. The

present application has been filed for clearing the impediment of the orders of

injunction and enabling Yes Bank to pay USD 331,500 to Eastern Bank.

A brief outline of the facts :

4. KSE (petitioner in the section 9 application) entered into a contract with

Bangladesh Rural Electrification Board (respondent no1) for supply of line

hardware for a project undertaken by the respondent no1. KSE submitted a

performance guarantee in terms of the contract issued by Eastern Bank

covering 10% of the contract value. Yes Bank gave a counter guarantee to

Eastern Bank for and on behalf of KSE to secure Eastern Bank, Dhaka. KSE

filed the application under section 9 of the 1996 Act upon receipt of a letter

dated 7th April, 2021 from the respondent no.1 calling upon the petitioner KSE

to deposit USD 10,385 and BDT 20,06,754 with a threat of invocation of the

performance guarantee. The petitioner paid the aforesaid amount to the

respondent no.1. The case of KSE was that the respondent no.1 wrongfully

withheld 10% of the contract value as retention amount and refused to release

the performance guarantee. The urgency shown is also on account of a notice

from Eastern Bank informing KSE of a request made by the respondent no.1 to

Eastern Bank to encash the bank guarantee.

Contentions of the applicant - Yes Bank - who seeks vacating of the order of

injunction :

5. According to Ms. Suchishmita Ghosh, learned counsel appearing for Yes

Bank, the counter guarantee issued by the applicant is irrevocable in nature

and is a separate contract and that the injunction should be vacated since

Eastern Bank has already made payment to the respondent no.1 upon

invocation of the bank guarantee. It is further submitted that the bank

guarantee is governed by the ICC Uniform Rules for Demand Guarantees

(URDG-758), 2010 which provides that the governing law shall be the law of

the location of the guarantor's branch or office that issued the guarantee,

which is Bangladesh in the present case. Moreover, the contract between KSE

and the respondent no.1 shows that the parties had chosen the substantive,

arbitration and procedural laws to be that of Bangladesh.

Contentions of the petitioner - KSE - in whose favour the order of injunction

was passed :

6. Mr Sabyasachi Chowdhury, learned Senior Counsel and Mr. Rajarshi

Dutta, learned counsel for KSE submit that the proceeding is an international

commercial arbitration under the 1996 Act and that this Court has the

jurisdiction to entertain the Section 9 application of KSE since no forum

selection clause has been provided in the contract. According to counsel, the

governing law of the bank guarantee or the counter guarantee would have no

manner of application as the present dispute arises out of the main contract.

7. The arguments advanced on behalf of the parties are on the two-fold

premise of whether this Court has jurisdiction to entertain the matter and if

yes, whether the petitioner has established a case for sustaining the order of

injunction on Yes Bank from making payment to its correspondent bank in

Dhaka, Bangladesh. The issues are being dealt with in the sequence as stated

above.

Jurisdiction of this Court to entertain the petition filed by KSE under section 9

of the 1996 Act :

8. The objection to this court entertaining the present application on the

lack of territorial jurisdiction may be answered on the basis of the clauses

contained in the General Conditions of Contract (GCC) which governs the

contract entered into between the petitioner and the respondent No. 1 on 13th

April, 2015. Under Clause 9.1 of the GCC- "Governing Law" -contract shall be

governed by and interpreted in accordance with the laws of the Purchaser's

Country, unless otherwise specified in the Special Conditions of Contract

(SCC). Clause 10.2- "Settlement of Disputes" -provides for arbitration where the

parties have failed to resolve their disputes by mutual consultation and

provides that the arbitration proceedings shall be conducted in accordance

with the rules and procedure specified in the SCC. The SCC provides that the

rules of procedure for arbitration proceedings pursuant to Clause 10.2 of the

GCC shall be settled by arbitration in accordance with the UNCITRAL

Arbitration Rules, 2010. Clause 9.1 of the GCC which provides that the

contract shall be governed by the laws of the Purchaser's Country, which is

Bangladesh in this case, would not stand in the way of this court assuming

jurisdiction of the matter since the governing law of the contract only decides

the substantive provisions of law which would govern the arbitration between

the parties. This would be evident from the decision in Bharat Aluminium Co. vs

Kaiser Aluminium Technical Services Inc.: (2012) 9 SCC 552 where the Supreme

Court made a distinction between the place/seat of the arbitration and the

location of the subject matter of the suit.

9. The question with regard to territorial jurisdiction may also be answered

with reference to Section 2(1) (e)(ii) of The Arbitration and Conciliation Act,

1996, which defines "Court" to mean in the case of International Commercial

Arbitration, the High Court in exercise of its Ordinary Original Civil

Jurisdiction, having jurisdiction to decide the questions affirming the subject-

matter of the arbitration if the same had been the subject-matter of a suit.

Second, it is also undisputed that the transaction is an International

Commercial Arbitration as defined under Section 2(f) of the Act since the

dispute arises out of a commercial contractual relationship involving a

corporation incorporated in Bangladesh. Third, the fact that this court would

have jurisdiction to receive, try and entertain the dispute had it been filed by

way of a suit would be evident from the averments in the petition. The

pleadings in the petition indicate that sufficient cause of action has arisen

within the jurisdiction of this court including the commencement of the

transaction entered into between the parties, the working out of the

commercial relations between the parties, the dispute and differences between

them as evident from the correspondence exchanged and the culmination

thereof in the form of the letters of demand issued by the respondent no.1 to

the petitioner and the letter of invocation dated 5th May, 2021 to the

respondent no.2 and to the petitioner. Although speculative, had the petitioner

instituted a suit for the same relief against the respondents, there would have

been sufficient ground to grant leave to the petitioner under Clause 12 of the

Letters Patent, 1865 to proceed with the same.

10. Section 2(4) of the Act is an interesting follow-up to Section 2(1)(e)(ii) in

the matter of a court assuming jurisdiction in entertaining matters under Part-

I of the Act. Under Section 2(4), Part-I of the 1996 Act shall apply to every

arbitration under any other enactment for the time being in force unless the

provisions of Part-I are inconsistent with the other enactment or the rules

framed thereunder. This provision therefore lends weight to the submissions

made on behalf of the petitioner with regard to eclipsing the Arbitration Rules

mentioned in the SCC and also in the matter of territorial jurisdiction.

11. Section 2(2) of the Act provides that subject to an agreement to the

contrary, the provisions of Sections 9, 27, 37(3)(1)(b) shall also apply to

International Commercial Arbitrations despite the place of arbitration being

outside India and an arbitral award made or to be made in such place is

enforceable and recognised under Part-II of the Act. In the present case, the

Contract between the parties does not provide for a seat or a place outside

India. Hence Part-I of the Act would be applicable in the given facts. Since the

Contract or the GCC does not exclude the applicability of Part-I or Section 9 of

the Act, this court would have jurisdiction to try and decide the present

application filed under Section 9 of the Act. The wide and unfettered powers of

a court under Section 9 has been reiterated in countless decisions of the

Supreme Court and the High Courts. Section 2(2) as amended by the

amendment of 2016, closes the loops for a party to object to interim measures

under Section 9 unless the parties have specifically and unequivocally agreed

to exclude the operation of Part-I of the Act.

12. The order dated 7th May 2021 passed by a learned Single Judge of this

Court on the petition filed by KSE took into consideration all the material facts

including the jurisdictional issue which is now urged on behalf of Yes Bank.

Whether the petitioner has established a case for sustaining the order of

injunction on Yes Bank from making payment to the correspondent Bank in

Dhaka, Bangladesh? :

13. The ground pleaded in the application of Yes Bank for vacating the

injunction is that the bank guarantee issued by Eastern Bank, Dhaka, has

been invoked by respondent no.1 and honoured by Eastern Bank. The other

case run by Yes Bank is that the counter guarantee is binding in view of the

undertaking given by Yes Bank and irrevocable in nature and that the bank

guarantee is a separate contract governed by the ICC URDG-758.

14. The order reflects the admitted factual position, namely, that the

petitioner KSE had supplied the entire material under the contract on 24th

October 2017 and had even received 90% of the payment in terms of the

General Conditions of Contract (GCC) and that 10% of the contract value has

been retained by the respondent no.1. KSE had also subsequently made

payment of USD 38,785 for alleged short supply and packing deviation. There

is no further sum which the respondent no.1 is entitled to realise from KSE. On

the basis of the aforesaid, the learned Judge was of the view that the

respondent no.1 had not made any claim for damages in the intervening 3

years and is also fully secured having retained 10% of the contract value and

should therefore be restrained from invoking the bank guarantee.

15. The applicant Yes Bank has not brought any new or subsequent facts to

the dispute which would persuade this Court to vacate the order of injunction.

Even on 15th June 2021, when the order was modified at the instance of Yes

Bank, the only change was the recording of the counter-guarantee with the

relevant number. No prejudice was shown or pleaded before the Court by the

applicant on that date. Yes Bank also did not file any affidavit in opposition to

the Arbitration Petition of KSE to oppose the case on merits. The only ground

urged now is the lack of jurisdiction of the Court which has been dealt with in

the preceding paragraphs.

16. The fact that the counter guarantee is in the nature of a binding

commitment which calls for replenishing the correspondent bank i.e, Eastern

Bank of the sum paid by the said Bank to the respondent no.1 must first turn

on whether the invocation was rightly done and was in terms of the bank

guarantee. The order of injunction dated 7th May 2021 on the respondent no.1

and Yes Bank from invoking the bank guarantee and from disbursing any

amount under the bank guarantee, respectively, was communicated to the

relevant parties including the Eastern Bank, Dhaka on 10th May 2021. The

injunction, as modified by the order of 15th June 2021, was also

communicated to Eastern Bank on 24th June 2021. Despite being made aware

of the orders, Eastern Bank made payment of USD 331,500 to the respondent

no.1 on 29th June 2021. Having subverted the orders passed by the Court,

Eastern Bank must bear the fallout of its action and cannot now use the same

as a pretext for fighting a proxy war across the border through Yes Bank. The

repeated disregard of the orders passed by the Court assumes significance in

light of the respondent no.1 failing to make an appearance in the ongoing

proceedings. The respondent no.1 has remained unrepresented in the Section 9

application in spite of having suffered the order of injunction and has also

deliberately flouted the said order by proceeding to invoke the bank guarantee.

The combination of facts raises a reasonable and legitimate presumption of the

respondent no.1 and the correspondent Bank, both located in Bangladesh,

acting with a deliberate intent to frustrate the orders passed by the Court.

17. The payment made by Eastern Bank to the respondent no.1 is therefore

to be seen against the conduct of the respondents, jointly and severally; as acts

in tandem to circumvent the orders of Court and reduce them to naught.

Case Law :

18. The decisions cited on behalf of the respondent no. 2, Yes Bank proceed

on the basis that an unconditional bank guarantee results in an absolute

obligation on the part of a bank to pay and is not dependent upon any dispute

between the parties at whose instance the bank guarantee is given and the

beneficiary to whom the payment is to be made. This is the uniform view taken

by all courts subject to the exceptions which would call for interference by a

court. Hindustan Steelworks Construction Ltd. vs Tarapore & Co.: (1996) 5 SCC

34; U.P. State Sugar Corporation vs. Sumac International Ltd.: (1997) 1 SCC 568;

Dwarikesh Sugar Industries Ltd. vs. Prem Heavy Engineering Works (P) Ltd.:

(1997) 6 SCC 450; Rahee GPT (JV) vs The Union of India (2017) SCC Online CAL

17244; all these decisions mention that there are exceptions to this rule

namely, fraud which would vitiate the very foundation of a bank guarantee;

irretrievable injustice and special equities. Since it has already been found that

the petitioner in this case has satisfied at least two of the conditions for which

the invocation should be restrained, none of the cases help the second

respondent in respect of the particular facts of the present case.

19. The second group of decisions relate to the jurisdiction aspect. Hardy Oil

& Gas Ltd. vs Hindustan Oil Exploration Company Ltd.: 2005 SCC Online Guj

250; Reliance Industries Ltd. vs Union of India: (2014) 7 SCC 603; Enercon

(India) Limited vs Enercon GMBH: (2014) 5 SCC 1; Mankastu Impex Private Ltd.

vs Airvisual Limited: (2020) 5 SCC 399; Commercial Division Bowlopedia

Restaurants India Ltd. vs Devyani International Ltd.: 2021 SCC Online Cal 103,

each of the decisions relied on provide for a seat, place or venue where the

arbitration shall be conducted which form the substantive basis of the

decision. Hardy Oil designated London as the place of Arbitration, in Reliance

Industries and Enercon the venue was London, the place of arbitration in

Mankastu Impex was Hong Kong and in Bowlopedia Restaurants the seat of

arbitration was New Delhi. In Bowlopedia Restaurants, the court recognized the

importance of the parties choosing the seat of arbitration particularly in an

International Commercial Arbitration which would have a bearing on the law

applicable to the arbitration proceedings. Since the Arbitration Agreement in

the present case does not indicate a place or a seat, the decisions cited cannot

be of any assistance to the respondent No. 2.

20. Since reliance has been placed on the ICC Uniform Rules for Demand

Guarantees (URDG-758), it would be worthwhile to mention the second part of

Article 35 which provides for jurisdiction in relation to the disputes between

the counter-guarantor and the guarantor relating to the counter-guarantee to

be settled exclusively by the competent court of the country of the location of

the counter-guarantors' branch or office that issued the counter-guarantee. In

the present case, since the counter-guarantee was issued by the applicant Yes

Bank from its office within the jurisdiction of this court, the issue of territorial

jurisdiction is answered in favour of the petitioner KSE.

21. In view of the reasons as stated above, G.A. 1 of 2021 being the

application of Yes Bank, is dismissed. The orders dated 7th May 2021 and 15th

June 2021 are accordingly confirmed and A.P. 229 of 2021 is allowed and

disposed of on that basis

Urgent Photostat certified copy of this Judgment, if applied for, be

supplied to the parties upon compliance of all requisite formalities.

(MOUSHUMI BHATTACHARYA, J.)