Birla At & T Communications ... vs Union Of India And Others
1999 Latest Caselaw 199 Del

ORDER

DR. M.K. Sharma, J.

1. This is a petition filed by the petitioner under section 9 of the Arbitration and Conciliation Act, 1996 seeking for an injunction against the respondents restraining the respondents from encashing the two post-dated cheques dated 12.1.1999 and 12.1.1998 and further restraining the respondents from encashing the two bank guarantees dated 9.12.1995. The petitioner has also sought for an ad interim injunction pending disposal of the petition.

2. The respondents entered appearance and therefore, on the aforesaid prayer of the petitioner for grant of an ad interim injunction pending disposal of the petition in the terms aforesaid, I heard Mr. Shanti Bhushan and Mr. Gopal Subramaniam, learned counsel appearing for the petitioner as also Mr. Trivedi, Additional Solicitor General appearing for the respondent.

3. The petitioner was given licenses for providing Cellular Mobile Telephone Services. Particulars relating to the licenses granted to the petitioner are given below in tabular form:

       S.N. NAME OF THE    EFFECTIVE      START OF THE   DEMAND OF THE
          COMPANY        DATE OF        COMMERCIAL     LICENCE FEE
                         LICENSE        SERVICE AND    FOR THE
                                        NUMBER OF      PERIOD.
                                        SUBSCRIBERS
     1.   M/s. Birla     12.12.95       Gujarat on     12.3.98 to
          AT & T                        Maharashtra    11.3.99
          Comm.                         on 21.1.97
                                        Total subscri-
                                        bers in the
                                        two States =
                                        82611 (44051
                                        in Maharashtra
                                        and 38560 in
                                        Gujarat)
 

4. The aforesaid licenses are valid for 10 years and are also extendable. Condition No.15 envisages termination of the license for default. Condition No.19 is the arbitration clause which lays down that in the event of any question, dispute or differences arising under the license or in connection thereof the same shall be referred to the sole arbitration of the Director General (Telecommunications) or in case his designation is changed or his office is abolished then in such case to the sole arbitration of the officer for the time being entrusted. Condition No.19 provides the schedule for payment of the license fee and that the said license fee for the first year was required to be paid in lumpsum prior to signing of the agreement and for subsequent years the license fee for each year is required to be paid in quarterly instalments in advance by way of post-dated cheques. In terms of the aforesaid license agreement the petitioner was also required to furnish financial bank guarantees as also performance bank guarantees. As it would appear from the aforesaid informations in the tabular form the petitioner has about 83000 total subscribers in the two States and have been collecting tariff from the said subscribers. Although the petitioner was required to pay quarterly instalments in advance by way of post-dated cheques the petitioner has failed to pay the said license fee in time and there is an arrear standing in its name towards payment of license fee for the period from 12.3.1998 to 11.3.1999. The petitioner was informed by the respondent by several letters to pay the arrears and at the request of the petitioner time for payment of the said arrears was extended from time to time and finally by letter dated 25.1.1999 the petitioner was informed that on a review of position of outstanding license fee payable to the Government it was found that upto the end of January, 1999 the license fee of an amount of Rs.1,50,70,000,00/- is due from the petitioner on which interest is also payable. By the said letter the petitioner was called upon to clear the dues immediately and in case the petitioner is unable to clear the entire amount in lumpsum immediately the petitioner was informed that he could pay atleast 20% or more of the total amount of license fee together with interest prior to 15.2.1999 failing which action in terms of the license agreement will be taken against him. By the aforesaid letter the petitioner was also informed that the financial bank guarantee furnished by the petitioner expired on 31.1.1999 which was therefore, invoked, but the bank is asked to hold-over transmission of the amount until further instructions from the respondent.

5. Being aggrieved by the aforesaid letter the petitioner has preferred this petition with a prayer for ad interim injunction. Mr. Shanti Bhushan appearing for the petitioner submitted that the respondent has committed a number of breaches in respect of the license agreement resulting in heavy loss to the petitioner. He also submitted that although respondent No.2 was obliged to provide numerous clearances/permissions from different authorities the same is neither granted nor obtained by respondent No.2. Accordingly, he submitted that gross breaches of the contractual obligations have been committed by respondent No.2 of the contractual agreed terms and obligations and that there is also failure on the part of respondent No.2 to provide resources and also delaying in providing such resources, consequent to which disputes have arisen between the parties and thus according to the petitioner, the post-dated cheques issued by the petitioner could not be encashed nor the bank guarantees furnished by the petitioner could be invoked and/or encashed.

It is further submitted that the petitioners reasonably believed that it would be able to realise adequate amount of revenue so as to enable them to pay the license fee besides meeting other costs and earn some reasonable return on their investment but contrary to the representation as of present the respondent has separately awarded licenses to approximately 81 internal service providers in the country and the said licenses have been awarded without any tender and without charging any license fee for the initial period. It is submitted that in view of grant of such licenses the business of the petitioners would be adversely affected and therefore, there would be no possibility of the petitioners realising adequate amounts of revenue even to meet the cost and to pay the license fee rather than earning any return on the investment. On behalf of the petitioners it was also submitted that taking note of the aforesaid subsequent development and realising that the petitioners have to be protected the Government has been contemplating of bringing in a new Telecom Policy and in that regard positive steps have been taken by the respondent and a group has been constituted by the Government of India on 20.11.1998 to propose and, to give recommendations on the new Telecom Policy. Draft discussion paper for the aforesaid new Telecom Policy has also been circulated, a copy of which the petitioners have placed on record. Counsel has specifically drawn my attention to the contents in the said draft discussion papers under the heading 'Internet Service Providers Policy and Project viability" to bring home his submission that the respondent is also conscious of the fact that the mobile telephone service is not viable any more.

6. Mr. Trivedi appearing for the respondents however, submitted that the plea of the petitioner that it had suffered a loss because of the commission and omission on the part of the respondents is baseless as would be apparent on the face of the record of the case. According to him the letters placed on record indicate that the said petitioner never stated nor at any point of time whispered about any loss or alleged violation of the contract till 17.11.1998. He further submitted that the petitioner, even at that point of time, sought for extension of time for payment of license fee which was in arrears from March 1998 to March 1999. He categorically stated that the purpose and object for issuance of the aforesaid letter dated 25.1.1999 was not to terminate or cancel the license of the petitioner for the present and according to him the aforesaid letter was issued to the petitioner bringing to its notice the fact of non-payment of the license fee for almost one year although license fee is payable quarterly in advance, and therefore, calling upon it to pay the arrears either in full or by making payment of 20% for the present and for the balance amount to submit enhanced bank guarantees failing which the bank guarantees furnished by the petitioners would be encashed. He further submitted that the bank guarantees furnished by the petitioner are independent agreements which have nothing to do nor dependant on the disputes in respect of main underlying contract. He further submitted that a group on Telecommunications was constituted only on 20.11.1998 and the task entrusted to the said group is to propose for a new Telecom Policy and also to give their recommendations relating to issues of the existing license of basic and cellular service and suggest appropriate remedial measures within the framework of new Telecom Policy. It is stated that the said group has circulated the draft discussion paper sometime in the month of January 1999.

7. In the light of the aforesaid submissions let me now proceed to decide as to whether an ad interim injunction as sought for by the petitioner could be issued in favour of the petitioner and against the respondents No.1 & 2. The license agreement to which reference has been made in the discussion above indicates that the license fee for Cellular Mobile service is to be paid by the licensee every quarter in advance. It is an admitted position that license fee is due and payable by the petitioner for the period from 12.3.1998 to 11.3.1999. The petitioner for the first time on 17.11.1998 approached the respondent for deferment of the payment of the license fee on the ground of suffering of loss by the petitioner. The petitioner has been granted a license to provide Cellular Mobile Service. It is categorically stated in the paragraph 3 of the petition that disputes have arisen between the petitioner and respondents No.1 & 2 due to gross breaches of contractual agreed terms of the license agreement by respondents 1 & 2, resulting in loss to the petitioner and that the present petition is filed by the petitioner challenging the unilateral unfair and illegal act of respondents No.1 & 2 in attempting to collect license fee despite such gross breaches of the contractual terms of the license agreement. Therefore, according to the petitioner disputes have arisen between the petitioner and respondents No.1 & 2 which relate to the main agreement between the petitioner and the said respondents in respect of which there is an arbitration clause and are to be resolved through the process of arbitration by referring the said disputes to the named arbitrators in terms of the arbitration clause. Even assuming that the plea of the petitioner that he has suffered loss is correct such loss and/or damage could be recovered and petitioner could be reimbursed even if dues and arrears standing against him are paid by the petitioner.

8. The petitioners have furnished bank guarantees in terms of the license agreement giving a security for due fulfillment of their obligations to pay the license fee within the stipulated time. Inspite of successive letters to the petitioner bringing to its notice that it is a defaulter in respect of payment of the license fee and extending time for payment of the same the arrears have not been cleared and accordingly the aforesaid letter dated 25.1.1999 is issued. The contention of the counsel for the petitioner that a new telecom policy is on the anvil and therefore, no license fee is payable as demanded, so long said Telecom Policy is not published, is without any merit. In my considered opinion the arrears standing against the petitioner cannot be refused to be paid only because the petitioner has raised certain disputes arising out of/or relateable to the main license agreement and also because the petitioner reasonably believed that a new Telecom Policy is on the anvil. Similar stand was also taken in a case decided by this court which was negatived. Reference is made to the decision of DSS Mobiles Communications Vs. Union of India, (Suit No.1952/1998 decided by me on 16.12.1998). In the appeal filed against the said judgment and registered as FAO(OS) No.336/1998 the Division Bench of this court held that the new Telecom Policy has no relevance nor the fact that the petitioner allegedly suffered any loss to a case of invocation of Bank Guarantee. The Special Leave Petition filed against the said Judgment was also dismissed by the Supreme Court.

9. In my considered opinion, the ratio and the principles in the aforesaid decision given by me is fully applicable to the facts and circumstances of the present case particularly since both the cases relate to Cellular Mobile Phone Service. In my considered opinion, an order if passed by me as sought for by the petitioner herein seeking ad interim restraint order would virtually amount to restraining the respondent from encashing cheques and the bank guarantees furnished by them.

10. The law relating to encashment and/or enforcement of the bank guarantee is well settled by a long catena of decisions pronounced by Supreme Court and this court. The principles have been authoritatively laid down which the court is to apply when a request is made for grant of an injunction restraining encashment of a bank guarantee. In a very recent decision of the Supreme Court in Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd. and another; reported in 1997(2) Arbitration Law Reporter page 350 the Supreme Court has summarised the said principle in paragraph 22. While summarizing the said principle the Supreme Court also held that in order to make out a case of fraud the petitioner has to establish that the said fraud is an established fraud. In respect of the second exception to the Rule of granting injunction in case of a bank guarantee it was stated that resulting irretrievable injury has to be such a circumstance which would make it impossible for the guarantor to reimburse himself if he ultimately succeeds and the same shall have to be decisively established and it must be proved to the satisfaction of the court that there would be no possibility whatsoever of the recovery of the amount from the beneficiary by way of restitution. In the present petition although it has been alleged that the proposed action of the respondent is fraudulent however, the same appears to be bald statement without sufficient pleadings in support of the plea. In my considered opinion, pleadings regarding alleged breach of promises and/or of the contract and the alleged discrimination cannot in any manner make out a case of fraud much less an established fraud. In U.P. State Sugar Corporation Vs. Sumac International Limited; it was pronounced that the fraud must be of an egregious nature such as to vitiate the entire underlying transaction. The Supreme Court quoted with approval the earlier decision of the Supreme Court in U.P. Cooperative Federation Ltd. Vs. Singh Consultants, (1998) 1 SCC 174 which stated that 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 obligations or not, nor with the question whether the supplier is in default or not. In Singh Consultants (Supra), the Supreme Court while explaining the kind of fraud that might absolve a bank from honouring its guarantee quoted the following passage from the judgment of Bolivinter Oil SA Vs. Chase Manhatan Bank, (1984) 1 All E.R. 351:-

"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 for the bank to have it charged."

11. In my considered opinion establishing fraud on the part of the respondent specific pleadings will have to be there to indicate that in fact fraud had been committed by the respondent which is by nature an established fraud. No such pleading apparently is on record. Whatever pleadings are on record in respect of fraud, in my considered opinion, the same do not make out any case of fraud, in any manner. In any event allegation of breach of promises, representations and terms of license cannot make out any case of fraud. Therefore, in my considered opinion the petitioner has not been able to make out any case of fraud. It is not a case where the petitioner at any point of time prior to filing of the present petition, has alleged fraud on the part of the respondent. In my considered opinion no case of fraud is made out not to speak of established fraud which is necessary to be made out for issue of an injunction restraining encashment and/or enforcement of bank guarantee.

12. On the question of irretrievable injury which is the second exception of the rule against grant of injunction when unconditional bank guarantees are sought to be realised, it is held by the Supreme Court in the case of U.P.Cooperative Federation Limited (supra.) that the fraud must be that of the beneficiary and not the fraud of any one else. In U.P. State Sugar Corporation (supra.) the Supreme Court said that the irretrievable injury must be of the kind which was the subject matter of decision in ITEK Corporation Case. The Supreme Court in the said case discussed the nature of the case in ITEK Corporation and observed thus:

"On the question of irretrievable injury which is the second exception to the rule against grant 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 Corporation Case. In that case an exporter in US 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 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 the purchaser if decreed by the American Courts would not be executable in Iran under these circumstances and realisation of the bank guarantee/letter 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."

13. In Hindustan Steel Works Construction Ltd. Vs. Tarapore & Co. & another; reported in 1996 (5) SCALE 186, it was held by the Supreme Court that a bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the primary contract between the person at whose instance the bank guarantee is given and the beneficiary. It was also held in the said case that in the case of an unconditional bank guarantee the nature of obligation of the bank is absolute and not dependent upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the beneficiary.

14. That there are disputes between the parties or for that matter allegations of breach of the contract and/or a plea that no amount is due and payable by the petitioner to the respondent are all matters relating to the main agreement and have no relation and relevance so far the agreement of bank guarantees are concerned. That there are serious disputes between the parties which might even go to the root of the contract and that there are breaches committed by the beneficiary are not matters which could come within the ambit of the special equities resulting into irretrievable injury. In this connection reference may be made to the observation made by the Supreme Court in paragraph 23 in the decision of the Hindustan Steel Works Construction Ltd. (Supra).:

"We are, therefore, of the opinion that the correct position of law is that commitment of banks must be honoured free from interference by the courts and it is only in exceptional cases, that is to say, in case of fraud or in a case where irretrievable injustice would be done if bank guarantee is allowed to be encashed, the court should interfere. In this case fraud had not been pleaded and the relief for injunction was sought by the contractor/respondent No.1 on the ground that special equities or the special circumstances of the case required it. The special circumstances and/or special equities which have been pleaded in this case are that there is a serious dispute on the question as to who has committed breach of the contract, that the contractor has a counter claim against the appellant, that the disputes between the parties have been referred to the arbitrators and that no amount can be said to be due and payable by the contractor to the appellant till the arbitrators declare their award. In our opinion, these factors are not sufficient to make this case an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees. The High Court was, therefore, not right in restraining the appellant from enforcing the bank guarantees."

15. It is true that the petitioners have alleged that a number of breaches in the license agreement have been committed by the Government. It is also pleaded that the respondents have failed to discharge its obligations under the license agreement. In my considered opinion the said disputes could be effectively resolved through the process of arbitration to which resort is being taken by the petitioner. But the said disputes even assuming going to the root of the contract and serious in nature do not and cannot be brought into within the concept of special equities and cannot in my considered opinion amount to a case of irretrievable injury of exceptional nature. Even if the claims of the petitioner are found to be valid and justified, the petitioner would be entitled to damages for loss suffered, if any or may be entitled to revised license fee, the same surely is retrievable or could be reimbursed and thus, the present case does not and cannot fall within the ambit of the second exception. Similar factors have been held to be not sufficient to make out an exceptional case justifying interference in the case of Hindustan Steel Works Construction Ltd. (Supra) when it laid down thus:

"The special circumstances and/or special equities which have been pleaded in this case are that there is a serious dispute on the question as to who has committed breach of the contract, that the contractor has a counter claim against the appellant, that the disputes between the parties have been referred to the arbitrators and that no amount can be said to be due and payable by the contractor to the appellant till the arbitrators declare their award. In our opinion, these factors are not sufficient to make this case an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees. The High Court was, therefore, not right in restraining the appellant from enforcing the bank guarantees."

The said disputes connected with the main underlying contract cannot have any relevance to the liability of the bank under the guarantee given by it. The bank guarantees in issue in the present cases are all unconditional bank guarantees and the bank was under an obligation to pay on demand. The respondent under the impugned letter dated 25.1.1999 has informed the petitioner that it is required to pay the arrears in the manner prescribed therein, failing which resort shall be taken to get the bank guarantees encashed.

16. Considering the entire facts and circumstances as stated above and the settled position of law in this regard, I am satisfied that the petitioner has failed to make out any prima facie case for grant of injunction against the respondents restraining the respondents from realising the arrears and dues towards licence fee by encashing the two cheques and/or the Bank Guarantees furnished by the petitioner. Thus the request for ad interim injunction in this case stands rejected pending disposal of the petition. It is however, made clear that opinions and views expressed herein are my tentative and prima facie views and shall not be interpreted as my final opinions on the merits of the disputes.