Calcutta High Court
Bharat Heavy Electricals Ltd. ... vs West Bengal State Electricity ... on 30 March, 2023
1
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
ORIGINAL SIDE
COMMERCIAL DIVISION
Present:
THE HON'BLE JUSTICE HARISH TANDON
&
THE HON'BLE JUSTICE PRASENJIT BISWAS
APO 13 of 2022
with
AP 242 of 2021
Bharat Heavy Electricals Ltd. Electronics Division
Vs.
West Bengal State Electricity Distribution Company Ltd. & Anr.
and
APO 14 of 2022
with
AP 244 of 2021
Bharat Heavy Electricals Ltd. Electronics Division
Vs.
West Bengal State Electricity Distribution Company Ltd. & Anr.
and
APO 16 of 2022
with
AP 243 of 2021
Bharat Heavy Electricals Ltd. Electronics Division
Vs.
West Bengal State Electricity Distribution Company Ltd. & Anr.
Appearance:
For the Appellants : Mr. Jishnu Saha, Sr. Adv.
Mr. Tauseef. A. Khan, Adv.
Mr. Ishan Saha, Adv.
Mr. Arindam Paul, Adv.
APO 13, 14 & 16 of 2022
2
Ms. Parna Mukherjee, Adv.
For the Respondent : Mr. Partha Sarathi Bhattacharjee, Adv..
(W.B.S.E.D.C) Mr. Sujit Sankar Koley, Adv.
Judgment On : 30.03.2023
Harish Tandon, J.:
The instant appeal arises from a judgment and order dated 20th
January, 2022 passed by the Single Bench in AP 242 of 2021 in relation to
an application under Section 9 of the Arbitration and Conciliation Act, 1996.
By the impugned order the aforesaid proceeding is dismissed upon refusal
to pass any interim order or order of restraint against the respondent herein
to invoke the performance bank guarantee submitted by the appellant in
relation to a contract.
Shorn of unnecessary details, the salient facts emerged from the
pleading of the respective parties are adumbrated hereinafter. By a virtue of
a notice inviting tender issued by the Respondent no. 1 for work of design,
engineering, manufacturing, supply, installation, testing and commissioning
including the warrantee, obligation and maintenance of 10 MW Solar PV
Power Project at Mejia, the appellant was declared successful bidder and a
letter of intent dated 30th July, 2016 was issued in its favour. Pursuant to
the said letter of intent, the Letter of Award dated 6th September, 2016 was
issued containing an exhaustive terms and conditions relating to
commissioning, setting up and operationalise the said 10 MW Solar PV
Power Project. One of the terms and conditions incorporated in the said
APO 13, 14 & 16 of 2022
Letter of Award (LOA) obligated the appellant to furnish a performance
guarantee through bank for due performance of the contract and the
obligations imposed upon the appellant. Pursuant to such obligation, the
bank guarantee to the tune of Rs. 5,60,62,267/- being the 10 per cent of the
value of the contract was furnished by the appellant.
The genesis of the litigation ensued when the said bank guarantee
was invoked by the Respondent no. 1 on 24.5.2021. The application under
Section 9 of the Arbitration and Conciliation Act, 1996 was filed by the
appellant seeking an order of restraint upon the Respondent no. 1 herein
from invoking the said bank guarantee as well as the Respondent no. 2 to
honour the said bank guarantee.
The contention of the petitioner is evidently based upon the nature of
the bank guarantee discerned from the language employed therein and the
conduct of the parties in relation to the commissioning of the said project.
According to the appellant, the intention of the parties can be gathered from
the expressions and/or the languages used in the said bank guarantee
being suggestive of the fact that it is conditional and depends upon the
happening of the events and cannot be regarded as an unconditional or
irrevocable. The Trial Court held that the bank guarantee is unconditional
and irrevocable and does not depend upon any conditions or the events and
therefore, the moment the invocation is made, it is obligatory on the part of
the bank to honour the promise or the commitment under the said bank
guarantee.
APO 13, 14 & 16 of 2022
The only point involved in the instant appeal and in fact, has been
argued by the respective Counsels is based upon the aforesaid aspect
namely whether the bank guarantee is conditional and irrevocable on the
happening of the events mentioned therein or can be regarded as
unconditional and irrevocable as held by the Single Bench.
By virtue of Clause 13 of LOA, the appellant is mandated to furnish of
performance bank guarantee of an amount not less than 10 per cent of the
total value of the contract, initially for a period of one year which can be
extended to a total period of 5 years from the date of the first commissioning
of the plant. The extract of the said bank guarantee is quoted as under:
"In consideration of West Bengal State Electricity Distribution
Company Ltd., (herein after referred to as the "Owner" which
expression shall unless repugnant to the context or meaning
thereof include its successors, administrators and assigns)
having awarded to Bharat Heavy Electricals Limited with
registered/Head Office at BHEL House, Siri Fort, New Delhi -
110049 (Hereinafter referred to as "Contractor" which
expression shall unless repugnant to the context or meaning
thereof include its successors, administrators, executors and
assigns), a Contract issued by Letter of Intent Memo No.
SPGD/Mejia/55/04 dated 30.7.2016 for Design & Engineering,
Manufacture / Procurement, supply of Equipment and materials,
testing at manufacturer's works, inspection, necessary
clearance, packing and forwarding, unloading at site,
APO 13, 14 & 16 of 2022
associated civil works, services, permits, installation and
incidentals, erection, testing & commissioning with warranting
obligation and 5 (Five) years Comprehensive Operation and
Maintenance of 10 MW Solar PV Power plant at Mejia, Bankura,
West Bengal (scope of work) and the same having been
acknowledged by the Contractor, resulting in a Tender ID No.
2016_WBSED_66277_1 dated 27.1.2016 Contractor having
agreed o provide a Contract Performance Guarantee for the
faithful performance of the entire Contract equivalent to Rs.
5,60,62,267/- (INR Five Crores Sixty Lacs Sixty Two Thousand
Two Hundred Sixty Seven only) being (10%) (Ten percent) of the
said value of the Contract to the owner.
We, Punjab National Bank, Gate no. 1, BHEL Campus,
Deepanjali Nagar, Mysore Road, Bangalore 560026 having its
Head Office at no. 7, Bhikagi Cama Place, New Delhi 110607
(hereinafter referred to as the "Bank", which expression shall,
unless repugnant to the context or meaning thereof, include its
successors, administrators, executors and assigns) do hereby
guarantee and undertake to pay the Owner, on demand any or
all monies payable by the Contractor to the extent of Rs.
5,60,62,267/- (INR Five Crores Sixty Lacs Sixty Two Thousand
Two Hundred Sixty Seven only) as aforesaid at any time up to
30/10/2017 without any demur, reservation, contest, recourse or
protest and/or without any reference to this Contractor.
APO 13, 14 & 16 of 2022
Any such demand made by the Owner on the bank shall be
conclusive and binding notwithstanding any difference between
the Owner and the Contractor or any dispute pending before any
Court, Tribunal, Arbitrator or any other authority. The Bank
undertakes not to revoke this guarantee during its currency
without previous consent of the Owner and further agrees that
the guarantee herein contained shall continue to be enforceable
till the Owner discharges this guarantee."
The entire gamut of dissent is founded upon the second paragraph of
the said bank guarantee as quoted above. It is contended by the appellant
that the invocation of the bank guarantee can only be made when any or all
money are payable by the appellant to the Respondent no. 1. It is thus
contended that the moment the conditions for invocation is controlled by
any condition, it cannot be regarded as unconditional and irrevocable. It is
thus contended that the Respondent no. 1 after issuing the completion
certificate on commissioning of the said plant in terms of the said LOA on
29.12.2017, the invocation is bad, invalid and does not satisfy the
conditions enshrined therein. It is arduously submitted by the appellant
that the letter dated 5.4.2021 terminating the contract would evince that the
loss or the damages has not been suffered as on that date and, therefore,
based upon assumption that the Respondent no. 1 may suffer, loss or
damages does not satisfy the condition of the performance bank guarantee
which is invokable only on the conditions when any or all monies are
payable by the appellant to the extent of the said performance bank
guarantee. In other words, it is contended that unless the loss or the
APO 13, 14 & 16 of 2022
damages is ascertained and quantified, it does not become payable by the
appellant and, therefore, it cannot be construed that the said performance
bank guarantee is unconditional and/or irrevocable.
To buttress the aforesaid submission, the reliance is placed upon a
judgment of the Supreme Court rendered in case of Hindustan
Construction Co. Ltd. vs. State of Bihar & Ors., reported in (1999) 8
SCC 436 which is relied in a subsequent decision rendered by the Delhi
High Court in case of Basic Tele Services Ltd. vs. Union of India & Anr.,
reported in (2009) SCC Online Delhi 1657 and by this Court in AP 230 of
2021 (M/s. KSE Electricals Pvt. Ltd. vs. The Project Director,
Bangladesh Rural Electrification Board & Anr. passed on 23.11.2021).
In support of the contention that mere apprehension to suffer loss or a
pecuniary damages cannot invite the invocation of the performance bank
guarantee unless determined and/or ascertained by the Court as held by
the Supreme Court in case of Kailash Nath Associates vs. Delhi
Development Authority & Anr., reported in (2015) 4 SCC 136 and
Gangotri Enterprises Ltd. vs. Union of India & Ors., reported in (2016)
11 SCC 720. It is thus contended that the Single Bench has not considered
the ratio laid down in the above noted judgments wherein it is held that
unless the loss or the damages is ascertained and/or determined by the
competent authority, the invocation to perform bank guarantee cannot be
made on mere assumption of said loss or the damage to be suffered in
future.
APO 13, 14 & 16 of 2022
On the other hand, it is contended by the Respondent no. 1 that there
is a fallacy in the submission of the appellant with regard to the issuance of
the certificate which cannot be perceived as the completion or the
commissioning of the project. It is further contended that the said certificate
has to be read in its entirety and it is clearly evident therefrom that it is
subject to the completion of the pending work in tune with LOA. It is
vehemently submitted that despite several opportunities given to the
appellant to redress and/or remedy the lapses so that the project can be
made functional, there was a complete reluctance on their part and,
therefore, if the performance has not been done strictly in terms of the
various clauses of the LOA, there is no infirmity and/or illegality in invoking
the performance bank guarantee which, in fact, has been done. It is further
submitted that the nature of the bank guarantee can be ascertained from
the expressions used therein which by no stretch of imagination would lead
to a conclusion that it is conditional and dependent upon the happening of
the events. The moment the bank guarantee is issued by the Respondent no.
2 which is an independent and distinct contract, the liabilities of the
Respondent no. 2 is absolute and unequivocal and relied upon a judgment
of the Supreme Court rendered in case of Ansal Engineering Projects Ltd.
vs. Tehri Hydro Development Corporation Ltd. & Anr., reported in
(1996) 5 SCC 450. It is ardently submitted by the Respondent no. 1 that
the Court should be slow in passing a restrained order on invocation of the
bank guarantee except on a clear case of fraud within the knowledge of the
bank or irretrievable injustice or on special equity as held by the Supreme
Court in U.P. State Sugar Corporation vs. Sumac International Ltd.,
APO 13, 14 & 16 of 2022
reported in (1997) 1 SCC 568. It is thus submitted that neither the case of
fraud is made out in the petition nor the other exceptions are evident from
the pleading and, therefore, no interference is called for to the impugned
order.
It is no longer res integra that the bank guarantee is separate,
independent and distinct contract between the banker and the person in
whose favour the bank guarantee is issued. The bank guarantee is not
dependent upon the underlying contract which imposed a condition for
furnishing the same. Though it is referable and/or relatable to the contract
where the bank is not a party thereto yet, it is regarded as an independent
and a distinct contract. Often the bank guarantees are required by a
contracting parties either to secure the debt or the liability to pay the
amount due in a commercial transaction, be it international or national. In
relation to a Government contract involving a huge expenditures, the bank
guarantee is secured for due performance of the obligations under the
underlying contract and in common parlance the same is known as
performance guarantee. The bank guarantee is varied term and its
nomenclature changes with the performance yet, it is an obligation of the
bank to honour its commitment in favour of the beneficiary, the moment the
invocation is made. The expressions used in the bank guarantee either by
putting a condition or not is a vital aspect in order to ascertain the nature of
such guarantee and if the invocation is somewhat hindered upon certain
conditions, unless such conditions are evident and imminent from the
conduct of the parties as reflected while invoking the same, does not obligate
the bank to honour such commitment. The position would have been
APO 13, 14 & 16 of 2022
different when the bank guarantee is unconditional or irrevocable not
hedged with any condition; in such cases, the moment the invocation is
made it is obligatory on the part of the bank to disburse the amount in
favour of the beneficiary.
Often the questions are raised in a judicial proceeding on the nature
of the bank guarantee and the mode of invocation by the beneficiary. The
law is somewhat settled in this regard as the Court respecting the wisdom of
the parties in a commercial transaction shall be slow and rigid in passing a
restrain order on invocation thereof. However, the law has progressed in this
regard in judicial parlance and evolved the exceptions for its interference.
The catena of judgment cited before us have carved out exceptions for
interference and passing a restrained order on invocation of the bank
guarantees namely when a clear case of fraud of which the bank has a
notice is of egregious nature to vitiate the underlying contract or a case of
irretrievable injury that would be caused in the event the invocation is made
or in case of a special equity. All these exceptions are required to be pleaded
and found from the record and must be of such nature which invites the
exercise of jurisdiction in this regard.
The reference can be made to the Two-Judge Bench decision rendered
in case of U.P. State Sugar Corporation Ltd. (Supra) wherein the Apex
Court held:-
"12. * * * * * * * * * * * * * * * * * *
The bank must pay according to the tenor of its guarantee on
demand without proof or condition. There are only two
APO 13, 14 & 16 of 2022
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 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 above case
quoted with approval the observations of Sir John Donaldson,
M.R. in Bolivinter Oil SA vs. Chase Manhattan Bank (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.
13. The same question came up for consideration before this
Court in Svenska Handelsbanken vs. Indian Charge Chrome.
This Court once again reiterated that a confirmed bank
APO 13, 14 & 16 of 2022
guarantee/irrevocable letter of credit cannot be interfered with
unless there is established fraud or irretrievable injustice
involved in the case. Irretrievable injury has to be of the nature
noticed in the case of Itek Corpn. Vs. First National Bank of
Boston. On the question of fraud this Court confirmed the
observations made in the case of U.P. Coop. Federation Ltd. and
stated that the fraud must be that of the beneficiary and not the
fraud of anyone else.
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
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 Corpn. case. In the case an exporter in USA entered into an
agreement with the Imperial Government of Iran and sought an
order terminating its liability on strand by letters of credit
issued by an American Bank in favour of an Iranian Bank as
part of the contract. The relief sought on account of the
situation created after the Iranian revolution when the
American Government cancelled export licenses in relation to
Iran and the Iranian Government had forcibly taken 52
American citizens as hostages. The US 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
APO 13, 14 & 16 of 2022
the purchaser if decreed by the American Courts would not be
executable in Iran under these circumstances and realisation 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 he
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 Itek case 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 guarantors i.e. the
bank and its customer would be found entitled to receive the
amount paid under the guarantee."
There is no quarrel to the proposition that the Court should not
ordinarily pass the restrained order on invocation of bank guarantee unless
the exceptions indicated above are satisfied and a prima facie case is made
out in the pleading. Normally the Court should not interfere with the
enforcement of the bank guarantee except in case of an exception as
indicated above as such interference shall have impact on the faith of the
people in the banking transaction. The faith and reposing confidence on the
efficacy of the banking transaction in the commercial world cannot be
permitted to be lost nor to inculcate the sense of disbelief into such system.
In the backdrop of the above the question which requires an answer in
the instant appeal is whether the performance bank guarantee is conditional
APO 13, 14 & 16 of 2022
or unconditional. We had extracted the relevant excerpts from the bank
guarantee which would evince that the same was given for faithful
performance of the entire contract and the Respondent no. 1 guarantees and
undertakes to pay the amount mentioned therein to the beneficiary termed
as 'Owner' therein on demand any or all monies payable by the appellant to
such extent without any demur, reservations, contest, recourse or protest
and/or without any reference to the appellant. The third paragraph of the
performance bank guarantee conveys that any demand made by the
Respondent no. 1 shall be conclusive and binding notwithstanding any
differences between the respondents herein for any dispute pending before
any Court, Tribunal, arbitrator or any other authority. The argument is
advanced on the expressions "any or all monies payable by the contractor"
to mean that such money becomes payable only upon ascertainment or the
determination of the sum and should not be construed to include
unascertained sum. It is contended that unless the sum is quantified the
invocation is bad.
Apart from the aforesaid three exceptions, the fourth exception which
we find from the reports relied upon by the parties, is that the invocation
can only be made strictly in terms of the bank guarantee and in favour of
the person being the beneficiary thereof. The aforesaid exception though
interlinked with the conditional bank guarantee yet, it can be reasonably
inferred that even in case of an unconditional bank guarantee, the
commitment has to be honoured to a person in whose favour such
guarantee is given. The reliance can be placed upon the judgment of the
Apex Court in Hindustan Construction Company Ltd. (Supra) where the
APO 13, 14 & 16 of 2022
bank guarantee was furnished to the Chief Engineer but the invocation was
made by the Executive Engineer and the question that fell for consideration
as to whether such invocation is justified on the face of it and whether it is
obligatory on the part of the Bank to disburse the amount so guaranteed on
the ipse dixit of the invocation thereof. On the backdrop of the aforesaid
contention, the Apex Court held:
"21. As pointed out above, bank guarantee constitutes a
separate, distinct and independent contract. This contract is
between the Bank and the defendants. It is independent of the
main contract between HCCL and the defendants. Since the bank
guarantee was furnished to the Chief Engineer and there is no
definition of "Chief Engineer" in the bank guarantee nor is it
provided therein that "Chief Engineer" would also include
Executive Engineer, the bank guarantee could be invoked by
none except the Chief Engineer. The invocation was thus wholly
wrong and the Bank was under no obligation to pay the amount
covered by the "performance guarantee" to the Executive
Engineer."
In Gangotri Enterprises Ltd. (Supra) the performance bank
guarantee was submitted for construction of RCC box type minor bridges in
connection with laying down of Agra-Etawah new BG rail line and
construction of New Station Building (G+2) circulating area, various service
buildings, construction of platform shelters with RCC column and beam,
underground and overhead water storage tanks, water supply pipeline
APO 13, 14 & 16 of 2022
network etc. Because of the agitation of the farmers and non-supply of the
specification or drawing of the various small bridges, there was a delay in
completing the work and the time was also extended. Ultimately, the
completion certificate for the Anand Vihar works with the defect liability
period was issued by the respondents therein. After the expiry of the period
of a defect liability, the appellant therein seek to release the performance
bank guarantee. But subsequently the said contract was cancelled and it
was indicated that the respondent therein suffered a loss of an amount
indicated therein and thereafter, the respondent invoked the bank
guarantee. Immediately, an arbitral proceeding was initiated and an
application under Section 9 of the Act was moved for injunction on
encashment of bank guarantee. A plea was taken that the said performance
bank guarantee was in relation to another contract and not the subject
contract which has been cancelled. It was further argued that the moment
the completion certificate is issued, it is not open to the respondent therein
to encash the bank guarantee. In course of the hearing a point arose
whether the bank guarantee can be invoked without ascertaining the
liabilities of the parties on account of damage more particularly, when there
is no sum "due" or "payable" either by the appellant to the respondents
and/or vice versa. In the backdrop of the above, it is held:
"40. On perusal of the record of the case, we find that firstly,
arbitration proceedings in relation to the contract dated 22-8-
2005 are still pending. Secondly, the sum claimed by the
respondents from the appellant does not relate to the contract
for which the bank guarantee had been furnished but it relates
APO 13, 14 & 16 of 2022
to another dated 22-8-2005 for which no bank guarantee had
been furnished. Thirdly, the sum claimed by the respondents
from the appellant is in the nature of damages, which is not yet
adjudicated upon in arbitration proceedings. Fourthly, the sum
claimed is neither a sum due in praesenti nor a sum payable. In
other words, the sum claimed by the respondents is neither an
admitted sum and nor a sum which stood adjudicated by any
court of law in any question being in the nature of a
performance guarantee furnished for execution work of contract
dated 14-7-2006 (Anand Vihar Works) and the work having been
completed to the satisfaction of the respondents, they had no
right to encash the bank guarantee."
The aforesaid judgment does not appear to have any assistance to the
appellant as in the said case the work was completed to the satisfaction of
the respondents therein and in fact the completion certificate was issued in
this regard. Apart from the same, the bank guarantee was not relatable to a
contract which was cancelled but was furnished in relation to another
contract. In such perspective it was held that unless the loss or damages are
adjudicated upon or determined, it can be said to be a sum due nor sum
payable.
The distinction can be seen in the instant case where the performance
bank guarantee was furnished in relation to the contract which stood
cancelled and the word "Payable" has to be understood in such perspective.
The word "Payable" as defined in Black's Law Dictionary to mean " a thing
APO 13, 14 & 16 of 2022
capable of being paid, suitable to be paid; admitting or demanding payment;
justly due; legally enforceable. A sum of money is said to be payable when a
person is under obligation to pay it."
What can be seen from the above that the aforesaid expression
"Payable" signifies an obligation to pay at future time and, therefore, when it
is used in conjunction with quantification, it would mean that the debt is
payable at once which is opposed to the word "Owing". It is therefore a word
of indefinite impart and a meaning can be gathered from the context in
which it is used. The word "payable" is a descriptive word which would
mean that it has to be paid or as due and, therefore, to be paid. Thus, it has
to be understood in the context in which it is used and may sometimes be
relatable to an obligation under the contract to pay (see J.K. Synthetics
Ltd. vs. Commercial Taxes Officer (1994) 4 SCC 276).
The judgment of the Delhi High Court in Basic Tele Services Ltd.
(Supra) is distinct on facts that in the said case the invocation of bank
guarantee was made at a point of time when the process of negotiation was
going on and there was no document forthcoming where the denial to a
claim was ever made and, therefore, it was found to be premature. In
Kailash Nath Associates (Supra) the disputes pertains to the forfeiture of
the earnest money on an alleged breach of a contract and on the ground
that for such breach, a loss has been suffered. The aforesaid case is not in
relation to a bank guarantee or its invocation. A point arose when the
contract disclosed any amount for breach of contract by way of damages
then it must be restricted to the said amount and would become payable
APO 13, 14 & 16 of 2022
unless such damage or the loss is actually suffered. It would be profitable to
quote the relevant portions from the said judgment which runs thus:
"43.1 Where a sum is named in a contract as a liquidated
amount payable by way of damages, the party complaining of a
breach can receive as reasonable compensation such liquidated
amount only if it is a genuine pre-estimate of damages fixed by
both parties and found to be such by the court. In other cases,
where a sum is named in a contract as a liquidated amount
payable by way of damages, only reasonable compensation can
be awarded not exceeding the amount so stated. Similarly, in
cases where the amount fixed is in the nature of penalty, only
reasonable compensation can be awarded not exceeding the
penalty so stated. In both cases, the liquidated amount or
penalty is the upper limit beyond which the court cannot grant
reasonable compensation.
44. The Division Bench has gone wrong in principle. As has been
pointed out above, there has been no breach of contract by the
appellant. Further, we cannot accept the view of the Division
Bench that the fact that DDA made a profit from re-auction is
irrelevant, as that would fly in the face of the most basic
principle on the award of damages - namely, that compensation
can only be given for damage or loss suffered. If damage or loss
is not suffered, the law does not provide for a windfall."
APO 13, 14 & 16 of 2022
The Single Bench in case of M/s. KSE Electricals Pvt. Ltd. (Supra)
applied the exception of irretrievable injury and special equity as the
petitioner therein received 90 per cent of the contract price and the
invocation letter does not contain any allegation of breach of performance,
obligations and therefore, the invocation would bring an irreversible
situation.
There is no quarrel to somewhat settled proposition of law in relation
to a restrained order on invocation of a bank guarantee that normally the
Court should be reluctant to pass an order of injunction against invocation
of bank guarantee except on the three exceptions as indicated in the
aforementioned report. We do not find any element of particulars of fraud in
the instant case having made out by the appellant. The case is founded
upon the interpretation of the languages and the expressions used in the
bank guarantee. An interpretation is sought to be given which renders
invocation impermissible. The language used in the bank guarantee, as
quoted above, has been interpreted by the Single Bench as unconditional
and unequivocal and not brindled with any conditions for which the
invocation is founded upon. Furthermore, all those conditions as
performance guarantee was given to secure the due performance under the
contract and to remedy the loss or damages which a party would suffer to
the extent for which the performance bank guarantee is given. In common
commercial parlance, it is construed as cash kept as a security for due
performance and becomes immediately payable on a breach of a loss
suffered or likely to suffer. Had it been a case of a liquidated damages and
the invocation is dependent upon the same, the position would have been
APO 13, 14 & 16 of 2022
different. But the moment the invocation is unconditional, it does not
require ascertainment and/or determination of the loss or the damages. The
letter of invocation issued by the respondent contained the letter of
termination as a part of it wherein it has been spelt out that there has been
a breach of several clauses of the contract inviting cancellation of a contract
and the bank guarantee being unconditional and/or irrevocable, it is an
obligation cast upon the bank to honour such commitment. The expression
"any or all monies payable" cannot be construed as conditions because of
the subsequent words or expressions used in the bank guarantee that it is
payable without any demur, protest or any proceeding pending between the
parties. It is thus an unconditional, unequivocal and irrevocable bank
guarantee not dependent upon any conditions and, therefore, we do not find
infirmity and/or illegality in the impugned order.
The appeal is thus dismissed.
No order as to costs.
Urgent Photostat certified copies of this judgment, if applied for, be
made available to the parties subject to compliance with requisite
formalities.
I agree. (Harish Tandon, J.)
(Prasenjit Biswas, J.)
APO 13, 14 & 16 of 2022
