Adwel Advertising (P) Ltd. vs N.D.M.C. And Anr.
2003 Latest Caselaw 208 Del

JUDGMENT

Vikramajit Sen, J.

1. By this Order, I shall dispose of Plaintiff's application under Order XXXIX Rule 1 & 2 and Defendant No. 1's application for vacation of the ex-parte ad interim injunction granted under Order XXXIX Rule 4 of the Code of Civil Procedure. On 14.1.2002, the impugned Bank Guarantee issued by Punjab & Sind Bank (Defendant No. 2) was interdicted from being invoked. The Suit is for the grant of a declaration and permanent injunction that this Bank Guarantee had been obtained by Defendant No. 1 by misrepresentation and, therefore, ought not to be invoked. A prayer for rendition of accounts has also been made, which I find to be quite extraordinary and novel and, prima facie, made in order to avoid the payment of ad valorem Court Fees. If the contention of the Plaintiff is accepted in to, the result on their own showing would be that some recoveries are to be effected by them. If this prayer is not made, the consequences could be fatal.

2. Some of the salient features of the Bank Guarantee reads thus:

" In consideration of the New Delhi Municipal Council (hereinafter called the " Licensor ") and at the request of Adwel Advertising (P) Ltd., 2C, 30 Ferozshah Road, New Delhi 110 001(hereinafter called the " Licensee ") and for the grant of license for displaying advertisement kiosks on electric poles in the NDMC area, the Licensee is requested to furnish Bank Guarantee equivalent to the estimated amount of four months license fee from any nationalized Bank as security for the due and faithful compliance of terms and conditions of the said license.

We, Punjab & Sind Bank, G Block, Connaught Circus, New Delhi, at the request of licensee do hereby undertake to indemnify the licenser to the entire amount of Rs. 3,33,04,000/- (Rupees three Crore thirty three lakhs four thousand only) against any loss or damages caused or suffered by the said licensor by reason of or due to non payment, short or delayed payment of the said license fee (the decision of NDMC as to non payment, short or delayed payment of the license fee as it falls due under license agreement by or on the part of licensee shall be final), conducive and binding on us. "

3. The contention of Dr. A.M. Singhvi, learned Senior counsel for the Plaintiff, centres around the assertion that the advertisement inviting tenders mentions the figure of 10,000 poles and that this figure is also repeated in the ' Memorandum of Information ' for licensing of electricity poles. The Tender Notice carried in the Indian Express on 2.2.1999, invites sealed tenders for " licensing of spaces on electric poles for display of advertisements on a standard size board measuring 30"x 40" on important major roads within the jurisdiction of New Delhi Municipal Council. Number of electric poles earmarked for the purpose is approx. 10,000. However, with the prior approval of the Competent authority, extra/less poles can be allotted to the licensee on proportionate increase/decrease of license fee. The allotment will be for a period of three years from the date of allotment." The Memorandum mentioned above, states in paragraph 5(iv) that the " allotment shall be made purely on ' as is where is basis' and no representation on any account whatsoever shall be entertained in this regard." Clause 9 stipulates that " No. of each electricity poles being licensed for the time being (extra/poles can be allotted to the licensee, on proportionate increase/decrease of license fee) appr. 10,000 (list of major important roads attached)". As emphasised by Mr. Valimiki Mehta, learned counsel for the Defendant, that tenderers such as the Plaintiff had been advised in their own interests to visit and see the electric poles for themselves and that no representation on any account whatsoever shall be entertained in this regard. The acceptance of the Plaintiff's tender took place on 26.2.1999 in terms of the N.D.M.C.'s letter of that date. Subject has been mentioned as- "Allotment of Electricity poles for display of kiosk in NDMC area numbering approx. 10,000 (Poles)". One of the conditions was the furnishing of the Bank Guarantee, the salient terms of which have already been extracted above. One month after the execution of the Bank Guarantee a license Deed was executed by the N.D.M.C. in favor of the Plaintiff. The following recitals of the license Deed dated 15.4.1999 are of significance and are, therefore, re-produced:-

" WHEREAS the licensee M/s Andwel Private Ltd. is desirous of being allowed the privilege of allotment of electricity poles for display of kiosk in NDMC area for a period of 3 years w.e.f. 10.3.99 and has approached to the licensor for the grant of requisite license subject to payment of license Fee at the rate of Rs. 83,26,000/- (Eighty three lakhs twenty six thousand) per month for the first w.e.f. 10.3.99 to 9..3.2000, @ Rs. 1,02,11,000/- (Rupees one crore two lakh eleven thousand) per month for the Second Year w.e.f. 10.3.2000 to 9.3.2001 and @ Rs. 1,29,21,000/- (Rupees one crore twenty nine lakhs twenty one thousand) per month w.e.f. 10.3.2001 to 9.3.2002 for the three year for carrying on the trade of display of advertisements on the electricity poles.

WHEREAS in consideration of licensees Tender application dtd. 17.2.99 the Licensor has decided vide Chairperson order dated 24.2.99 to all the Licensee to display of advertisement on electricity poles in NDMC area for a period of 3 years w.e.f. 10.3.99 on Licnece Fee @ Rs. 83,26,000/- per month for the first year w.e.f. 10.3.99 to 9.3.2000, @ Rs. 1,02,11,000/- per month for the Second Year with effect from 10.3.2000 to 9.3.2001 and @ Rs. 1,29,21,000/- per month w.e.f. 10.3.2001 to 9.3.2002 for carrying on the trade of display of advertisement on electricity poles at a monthly fee as mentioned above."

4. Thereafter, the Plaintiff addressed a letter to the N.D.M.C. dated 24/1/2000, in which, after making a reference to Clause 25 of the Terms & Conditions of the allotment, it had informed the latter of their desire to surrender the allotment made to them. The Plaintiff also expressed its intention to observe Clause 25, including payment of license Fee for the notice period and that on the expiry of three months, and thereafter its liability of further payment would cease. Thus, the agreement continued for over one year. There are a number of other letters which the Plaintiff claims to have addressed to the N.D.M.C., receipt of which is denied. On or about 3.5.2000, the N.D.M.C. responded to the Plaintiff's letter dated 24/1/2000, received by it on 4/2/2000, claiming that a sum of Rs. 35,78,771/- was due as arrears of license Fee. In respect of the substantial shortfall in the number of poles available in the N.D.M.C. area for display of advertisement the N.D.M.C. addressed a letter to the Plaintiff in October, 2000 offering to charge license Fee for 6762 electricity poles with effect from 2.3.2000; and stating that the arrears of license Fee with interest worked out to Rs. 2,06,05,647/- . Thereupon, the Plaintiff had sought for a meeting to discuss the matter. The N.D.M.C. 's request to clear the outstanding was not adhered to. After further parleys between the parties, the Plaintiff's request for a review was turned down by the N.D.M.C., which re-affirmed the Report of its Vigilance Committee to the effect that there were 8227 poles in existence. On or about 17.10.2002, the Defendant had sent a reply to the Plaintiff's letter dated 21/3/2002, mentioning therein the physical verification of electricity poles on the 112 roads which were mentioned in the tender documents which were carried out by a team of senior officers under the supervision of the Director (Vigilance) and it was found that the final figure of electricity poles was 8227 as against 6762 earlier intimated to the Plaintiff. In this letter, it was also conveyed that " the Chairman, NDMC may agree to give you reduction in license fee by taking the figure of 8227 as a number of electric poles w.e.f. the date of the commencement of the contract i.e. 10.03.99, provided you pay the balance license fee calculated on the aforesaid principles which remains payable by you and is to the tune to Rs. 1,02,83,099/- within 10 days of the receipt of this letter ......" . The prevailing dispute between the parties is only whether the figure of 6762 claimed by the Plaintiff, or 8227 claimed by the NDMC, should be taken into account for calculating the arrears of license fee with effect from the commencement of the contract. According to the Plaintiff, if the former is taken into consideration it would have made an over-payment, thereby necessitating a recovery from the N.D.M.C., and thus making it wholly inequitable for the Bank Guarantee to be invoked.

5. The  law  as it has been enunciated by  the  Apex Court,  in  U.P.    State  Sugar  Corporation  v. Sumac International Limited ,  is to be found in these words of the Court: 
   

            "12  The  law relating to invocation  of  such  bank  guarantees  is by  now  well   settled.    When   in   the  course   of commercial  dealings  an   unconditional  bank guarantee is given or accepted, the beneficiary  is entitled to realize such   a   bank  guarantee  in  terms   thereof  irrespective  of  any pending  disputes.  The  bank  giving  such a  guarantee  is bound  to  honour  it as per  its  terms  irrespective  of  any dispute raised  by   its  customer.   The   very  purpose  of   giving  such  a   bank  guarantee  would  otherwise  be  defeated.    The   courts   should,  therefore, be slow in  granting   an    injunction   to    restrain    the   realization  of  such a bank  guarantee.  The  courts  have  carved out  only  two  exceptions.   A fraud in connection with  such  a bank guarantee would vitiate the  very   foundation   of   such   a   bank   guarantee.   Hence  if there is  such  a   fraud  of which the beneficiary seeks to    take  advantage,  he can  be  restrained    from  doing  so.  The  second  exception  relates  to  cases  where  allowing  the encashment  of  an   unconditional  bank   guarantee  would result in irretrievable  harm  or injustice to one of the parties   concerned.   Since in most cases payment     of  money  under such a  bank  guarantee  would  adversely affect the bank and its  customer at whose instance the guarantee  is   given,   the   harm  or   injustice contemplated  under this head must be of such  an  exceptional and  irretrievable   nature  as  would override the terms  of   the  guarantee and the adverse effect of   such   an  injunction    on   commercial  dealings   in  the   country.   The  two   grounds  are not necessarily  connected,  though both may coexist in some cases. 
 

 .......
 

                    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, 566 Fed Supp  1210.  In  that case an exporter in USA 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  favor 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 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 the purchaser   if  decreed by the Amercian 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  (supra)   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. 
 

                 15.   Our  attention  was invited  to  a    number  of  decisions on this  issue  --   among  them, to Larsen & Toubro Ltd.  v.  Maharashtra  SEB,    and  Hindustan  Steel   Workers  Construction  Ltd.  v.  G.S.  Atwal & Co.  (Engineers)   (P)  Ltd.,   as  also  to  National  Thermal Power Corpn.  Ltd.  v.    Flowmore  (P)  Ltd., .    The  latest  decision is in the case  of  State   of  Maharashtra   v.    National  Construction Co.,  where   this Court has summed up the position by stating: 
            "The    rule      is    well   established that a bank issuing   a  guarantee  is not  concerned  with  the  underlying  contract between  the  parties   to  the  contract.  The duty of the bank  under  a performance  guarantee  is  created  by   the  document   itself.  Once the documents are  in  order  the bank giving  the  guarantee  must honour the same  and  make   payment  ordinarily   unless  there is an  allegation  of  fraud  or  the  like.   The  courts   will   not   interfere directly   or   indirectly   to  withhold  payment,    otherwise trust in commerce internal and                       international     would     be   irreparably  damaged.  But that  does  not mean that the parties      to   the   underlying  contract  cannot settle the disputes with    respect   to   allegations   of   breach    by     resorting   to   litigation  or  arbitration  as  stipulated  in   the  contract.   The remedy arising ex contractu   is  not barred and the cause of  action   for   the    same   is   independent  of enforcement  of  the guarantee."  
 

The   other  recent   decision  is   in  Hindustan Steelworks  Construction Ltd.   v.  Tarapore & Co., .  
 

16.  Clearly, therefore, the existence of    any  dispute  between  the parties  to   the contract  is  not  a  ground  for  issuing  an  injunction to restrain the enforcement of bank  guarantees.    There  must  be   a  fraud   in  connection with the bank guarantee". 
 

6.    In  U.P.   State Sugar Corporation case  (supra),   the  arguments raised to support the continuance of  the    injunction  were that the beneficiary had terminated the  contract  on  the incorrect ground that time was of  the   essence  of the contract, and that the chances of making any  recovery  if  it succeeded in the  Arbitration  was   illusory since the fortunes of the rival company now lay  in  the  hands  of BIFR.  These arguments did  not  find  favor  with  the Courts which was constituted  of  M.M.    Punchi  and  Sujata  Manohar JJ.   These  passages  were relied  upon by a Bench of the Supreme Court  comprising  K.S.   Paripoornan,  K.  Venkataswami and B.N.   Kirpal,   JJ.   in  the case Dwarikesh Sugar Industries  Ltd.   v.     Prem  Heavy Engineering Works (P) Ltd.  & Anr.,  .  It is clear that the Apex Court has spoken   in  one voice and with unanimity, on this aspect of  the  law. 
 

7.                S.C.   Aggarwal  and  G.T.    Nanavati,  JJ,  who  decided  the disputes raised in the Hindustan Steelworks  Case   (supra),  after   considering  several   previous   decisions  of the Apex Court including U.P.  Cooperative  Federation  Ltd.  V.  Singh Consultants & Engineers  (P)  Ltd.   (1988)  SCC  174,   General  Electric   Technical     Services Co.  Inc.  V.  Punj Sons (P) Ltd.  ,  Larsen & Tubro Ltd.  Vs.  MSEB,    and  Hindustan  Steel  Works  Construction  Ltd.   Vs.   G.S.    Atwal & Co.    held as follows: 
                      "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 has not been pleaded and the relief for injunction was sought  by  the  contractor/Respondent 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".  
 

8. The law pertaining to the Court's power to grant an injunction against the invocation of over-payment pursuant to Bank Guarantee may briefly be stated to be possible only where the Plaintiff succeeds in showing that the Bank Guarantee was furnished as a result of the fraud of egregious nature perpetrated by the Defendant and that if the injunction were to be declined, an irretrievable injustice would be caused to the Plaintiff. Mr. Mehta, learned Senior Counsel for the Defendant, states that the exact number of poles was not indicated and that the Plaintiff had sufficient time to carry out its own inspections and investigations, as it was, in fact, advised by the N.D.M.C.

9. Counsel for the parties have relied on Ningawwa vs. Byrappa Shiddappa Hireknrabar & Ors. , , Assistant Excise Commissioner & Ors. vs. Issac Peter & Ors. , , New Bihar Biri Leaves Co. & Ors. vs. State of Bihar & Ors. , , Svenska Handelsbanken vs. M/s. Indian Charge Chrome & Ors. , 1994(1) SCC 502, Rigoss Exports International (P) Ltd. vs. Tartan Informark Ltd. & Ors. , , Khardah Company Ltd. vs. Raymon & Co.(India) Private Ltd., Tharumal & Anr. vs. Madrassa Talimul Islam, JT 1994(4) 137. In my view, a detailed discussion of the ratio set down in the judgments is not necessary and would only result in these orders becoming prolix.

10. Reliance is also placed by Mr. Mehta on Sections 17 & 18 of the Indian Contract Act, 1872 in substantiating his contention that the N.D.M.C. cannot be accused of any fraud or misrepresentation. Prima facie, this contention is well founded, since the N.D.M.C. had pointedly indicated that the figure of 10,000 was only an approximation. Mr. Mehta has further contended that assuming that a fraud had taken place, the Plaintiff ought to have repudiated the contract forthwith, keeping in perspective the fact that the Plaintiff had raised the controversy of the number of poles, and the delay for the parties to arrive at a consensus. On this controversy, the subsequent termination of the contract, at the instance of the Plaintiff, appears, prima facie, to manifest the exercise of the option to render the contract voidable. It is not explained why the option was exercised after such delay. It is altogether possible that the Petitioner had allowed the contract to run till it was reasonably certain that it would not be as lucratively profitable as the Petitioner had anticipated. What is significant is that I am unable to find the existence of any fraud or misrepresentation on the part of the N.D.M.C., such as would pursuade me to exercise the extremely extraordinary powers for interdicting the encashment of the Bank Guarantee. The ex-parte ad interim injunction, that was granted on the first date of the hearing, had taken into consideration the intention to suddenly invoke the Bank Guarantee after almost 24 months of the surrender of the license. However, during this period, the N.D.M.C. had actually taken into consideration the Plaintiff's Objections, and there would be no justification, therefore, for holding against it on this count. However, for the claim of arrears to the tune of Rs. 1,02,83,099/- in October, 2002, it would be proper to permit the N.D.M.C. to invoke the Bank Guarantee for a sum of Rs. 1,02,83,099/-. It is ordered accordingly. These Orders shall be without prejudice to the rights and contentions of either of the parties.

11. The applications stand disposed of in the above terms.

12. Copy of this Judgment be given dusty to the learned counsel for the parties.