Surya Nagri Telelinks Pvt. Ltd. vs Mahanagar Telephone Nigam Ltd. ...
2004 Latest Caselaw 1386 Del

JUDGMENT

Mukul Mudgal, J.

1. This petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act') against invocation of bank guarantee by respondent No. 1 MTNL, principally on account of the fact that the letter dated 5th April, 2004 stipulating terms of extension of delivery period was posted on 29th April, 2004 and accordingly, valuable time of one month was taken away. The relevant clause of the bank guarantees in question reads as under:-

BANK GUARANTEE No.25/2003-04 dt. 06.01.2004

In consideration of the CMD, MAHANAGAR TELEPHONE NIGAM LTD. (hereinafter called 'MTNL') having agreed to exempt Surya Nagri Telelinks Pvt. Ltd., Regd. Office 18-B, Lake Road, Kolkatta - 700 029 [hereinafter called the the said Contractor(s)] from the demand, under the terms and conditions of an agreement/ Advance Purchase Order No. MTNL/20-80(66)/ 2003-2004/2003-MM/PIJF/Vol.II/Sury Nagri dated 24.12.2003 made between MAHANAGAR TELEPHONE NIGAM LTD. and SURYA NAGRI TELELINKS PVT. LTD., 18-B, Lake Road, Kolkata-700 029 for the supply of 750 Km. of 10/05 A (hereinafter called the said Agreement), of security depsoit for the due fulfilllment by the said Contractor(s) of the terms and conditions contained in the said Agreement, on production of the Bank Guarantee for Rs.11,66,640.00 we, Indian Bank, 5-B, Russell St. Kolkatta-700 071 having our Registered Office at 31, Rajaji Salai, Chennai-600 001 (hereinafter refer to as the the Bank) at the request of Surya Nagri Telelinks Pvt. Ltd. [contractor(s)] do hereby undertake to pay to the MTNL an amount not exceeding Rs.11,66,40.00 against any loss or damage caused to or suffered or would be caused to or suffered by the MTNL by reason of any breach by the said Contractor (s) of any of the terms or conditions contained in the said Agreement.

2. We, Indian Bank do hereby undertake to pay the amounts due and payable under this guarantee without any demure, merely on a demand from the MTNL by reason of breach by the said Contractor(s) of any of the terms and conditions contained in the said Agreement or by reason of the Contractor(s) failure to perform the said Agreement. Any such demand made on the Bank shall be conclusive a regards the amount due and payable by the Bank under this guarantee where the decision of the MTNL in these courts shall be final and binding on the Bank. However, our liability under this guarantee shall be restricted to an amount not exceeding Rs.11,66,640.00."

2. The letter of invocation dated 17th August, 2004 reads as follows:-

MAHANAGAR TELEPHONE NIGAM LIMITED

(A GOVERNMENT OF INDIA ENTERPRISE)

SPEED POST

MTNL/BG/2004-05/1310

Dated: 17.08.04

To,

The Manager

Indian Bank

5-B Russell Street,

Kolkata 700 071

Sub: Invocation of Bank Guarantees No. BG No. 25/03-04 dated 06.01.04 for Rs.11,66,640/- advance purchase order No. MTNL/20-80(66)/2003-2004/2003-MM/PIJF/Vol.II/Surya Nagri dated 24.12.2003

We hereby invoke the captioned Bank Guarantee furnished in our favor on behalf of M/s Surya Nagri Telelinks Pvt. Ltd., Kolkata, for Rs.11,66,640/- on account of loss suffered by MTNL by reason of breach of M/s Surya Nagri Telelinks Pvt.Ltd. of terms and conditions contained in the captioned agreement and call upon you to remit the amount within three days from the date of receipt of this letter. The amount may be remitted by transfer to our Account No. 60017 maintained with your New Delhi Main Branch, P-Block, Connaught Circus, New Delhi. Please note that if the amount is not remitted within 3 days, from the date of issue of this letter, we shall be constrained to take such action as we deem fit at your risk and responsibility.

Thanking you,

Yours faithfully,

(K.C. KHANNA)

Sr. Accounts Officer (BKG)

3. The learned counsel for the petitioner has contended that whole delivery schedule was disturbed by the lethargy of quality assurance department of the respondent by not making inspection in time and it is reflected in their letter dated 24th May, 2004, which shows that there was a technical problem with the QA/TEC and thus there was refusal to inspect the cables for more than three months by QA in order to sort out its internal confusion. The late posting of letter dated 4th May, 2004 was also pointed out. This letter of 17th March, 2004 sought time extension of 3 clear months from the date of issue of extension letter and specified 5 conditions therefore. It is not in dispute that even according to the petitioner's own letter dated 14th May, 2004, supply could not be completed though the petitioner contended that it was on default of the respondent. In determining the invocation of the bank guarantee, it is for the Court to only see whether the condition prescribed in the invocation clause are satisfied and the court cannot enter into the collateral area in justification of the invocation whether based on contractual violations or otherwise. The invocation by referring to losses suffered by MNTL by reasons of breach of terms and conditions in the agreement by of the petitioner, clearly shows that the conditions prescribed in the bank guarantee for invocation was duly satisfied by the letter of invocation. Even if there is some grievance of the petitioner of respondent's violation of terms and conditions and its obligation, those can only be subject matter of independent proceedings by the petitioner and not be the subject matter of the objection against invocation of the bank guarantee. Mr. Nayyar has relied upon judgment of Supreme Court on Hindustan Construction Co. Ltd. vs. State of Bihar and Others, and in particular relied upon paragraph 13 which reads as under:-

13. This condition clearly refers to the original contract between the HCCL and the defendants and postulates that if the obligations, expressed in the contract, are not fulfillled the right to claim recovery of the whole or part of the Advance Mobilization Loan, then the Bank would pay the amount due under the Guarantee to the Executive Engineer. By referring specifically to said Clause 9, the Bank has qualified its liability to pay the amount covered by the Guarantee relating to Advance Mobilizatian Loan to the Executive Engineer only if the obligations under the contract were not fulfillled by HCCL or the HCCL has misappropriated any portion of the Advance Mobilization Loan. It is in these circumstances that the aforesaid clause would operate and the whole of the amount covered by the Mobilisation Advance would become payable on demand. The Bank Guarantee thus could be invoked only in the circumstances referred to in Clause 9 whenever the amount would become payable only if the obligations are not fulfillled or there is misappropriation. That being so, the Bank Guarantee could not be said to be unconditional or unequivocal in terms so that the defendants could be said to have had an unfettered right to invoke that Guarantee and demand immediate payment thereof from the Bank. This aspect of the matter was wholly ignored by the High Court and it unnecessarily interfered with the order of injunction, granted by the Single Judge, by which the defendants were restrained from invoking the Bank Guarantee.

4. The above para of the judgment itself states that the Bank Guarantee could be invoked in the circumstances referred to in clause 9. In that case the clause 9 in the aforesaid judgment approximates to clause 2 of the bank guarantee in the present case and I am satisfied that the condition inherent for the invocation for the bank guarantee were satisfied by the letter of invocation dated 17th August, 2004 and am unable therefore to continue the interim injunction granted in favor of the petitioner on 24th August, 2004 Accordingly, the interim injunction stands vacated w.e.f. 16th December, 2004

5. The petition stands dismissed accordingly.