National Highways Authority ... vs You One-Maharia (Jv) And Ors.
2005 Latest Caselaw 568 Del

JUDGMENT

Pradeep Nandrajog, J.

1. On offer made by the first respondent being accepted, petitioner awarded the work of four laning from Km. 464 to Km. 474 of Nagpur-Hyderabad Section and Km. 9.4 to Km. 22.3 of Hyderabad-Bangalore Section to the respondent.

2. First respondent is a joint venture of the second and the third respondent.

3. A written agreement dated 31.5.2001 was entered into between the petitioner and the first respondent. Documents referred to in para 4 of the agreement were deemed to form part of the agreement. Conditions of the contract as per NIT formed part of the agreement.

4. As per conditions of the contract, petitioner was to pay in advance, certain stipulated amounts to the first respondent to enable it to mobilize the site. This advance was referred to in the contract as mobilization advance. Mobilization advance was to be utilized by the first respondent for purchasing and bringing to the site, equipment, plant, tools and tackles.

5. To secure repayment of the amount received towards mobilization, first respondent was to furnish bank guarantees in favor of the petitioner. It is not in dispute between the parties that the petitioner paid a sum of Rs.11.23 crores to the first respondent towards mobilization. As per the contract, first respondent submitted seven bank guarantees, one guarantee was dated 23.5.2001, two guarantees were dated 6.2.2002 and four guarantees were dated 11.7.2001. Six guarantees were in sum of Rs.1,87,21,989/- each and the seventh guarantee was in the sum of Rs.3,74,43,978/-. All the bank guarantees were issued by the Bank of India, Mayapuri Branch, New Delhi.

6. First respondent proceeded to carry out the assigned job. From time to time, running bills were submitted and on certification, payments were released after recovering the proportionate sum from each running bill towards adjustment of advance mobilization. As and when the mobilization advance got recovered, from time to time bank guarantees were being returned. Admitted position between the parties is that four out of the seven bank guarantees, three guarantees in sum of Rs.1,87,21,989/- and one guarantee in sum of Rs.3,74,43,978/- remained outstanding and the other three, each in sum of Rs.1,87,21,989/- were returned by the petitioner to the first respondent.

7. Petitioner learnt that the bank guarantees which were submitted were forged documents. An FIR was lodged. It has not been disputed by the respondents in the present proceedings that indeed, bank guarantees were not issued by Bank of India, Mayapuri Branch.

8. As per the statement recorded by this court on 3.2.2005 of Sh.Vinod Goel, a Director of the third respondent, it had obtained the bank guarantees through one Alam Kishan, a financial consultant. Be that as it may, having found that it had been cheated, petitioner proceeded to secure itself by filing the instant petition praying that the respondents be restrained from removing or disposing of any of its plants, equipment and machinery brought at site. Directions were prayed to be issued to the police authorities to provide security to the machinery.

9. As per the petition, apart from the mobilization advance, petitioner had paid a further sum of Rs.2.52 crores to the first respondent towards secured advance for material. It is, thus, stated in the petition that apart from the undeducted mobilization advance, further sum is recoverable towards advance for purchase of material.

10. As per reply filed by the first respondent, it has admitted that it has received Rs.11.23 crores towards mobilization advance. However, it is averred that petitioner has recovered Rs.6.09 crores from out of the running bills. It is further stated that a sum of Rs.2.16 crores has been retained by the petitioner towards retention money and in this manner, petitioner has recovered Rs.8.25 crores, leaving a sum of Rs.2.98 crores as recoverable.

11. In respect of secured advance towards material, respondents admit having received Rs.3.91 crores (A sum more that what has been stated in the petition). It is stated that towards this secured advance, a sum of Rs.2.32 crores stands recovered from the running bills leaving a sum of Rs.1.58 crores as recoverable.

12. It is stated in the reply that apart from the machinery, material worth Rs.2.07 crores is lying at the site. It is stated that for the work done after last bill was paid, a sum of Rs.1.25 crores would be payable to the respondents. In this manner, respondents state that it is the respondents which have to receive a sum of Rs.1.23 crores from the petitioner. It is stated that the value of the machinery belonging to the respondent No. 1 at site is Rs.4.58 crores.

13. Machinery belonging to the respondents valued at Rs.4.58 crores is as indicated in Annexure R-1/C to the reply filed to the OMP. The details of the machinery is as under:-

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 Sr.No.                 Description
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   1.                   Hot Mix Plant.
   2.                   Vibratory Roller.
   3.                   Paver Finisher.
   4.                   Wet Mix Plant.
   5.                   Grader.
   6.                   Vibratory Roller.
   7.                   Lab Instruments.
   8.                   Survey Instrument.
   9.                   Weigh Bridge.
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14. Applicant of IAs No. 973/2005 and 950/2005 is one M/s.Hycon Infrastructure Limited (formerly known as M/s. A.M.R. Projects Limited). It is stated by the applicant that it had leased out certain equipment to the first respondent, details of which have been set out in para 4 of IA No. 950/2005. It is stated by the applicant that it had leased the equipment to the first respondent on a monthly rental for a contracted period commencing from April, 2004 to December, 2004. Prayer made is to release the equipment to the applicant for the reason, this court, by and under an ex-parte ad-interim order dated 1.10.2004 restrained the respondents from removing any equipment or machinery from the site.

15. Sh.Sandeep Sethi, learned senior counsel appearing for the petitioner urged that as per conditions of the contract, equipment was defined as all machinery brought by the contractor to site. Placing reliance upon clause 61.1 of the Conditions of the Contract, counsel urged that all material at the site, plant, equipment etc. are deemed to be the property of the employer, if the contract was terminated because of contractor's default. Counsel urged that since the bank guarantees have been admittedly found to be forged documents, petitioner would be entitled to a complete restraint in respect of all equipment brought at site. Counsel urged that how the respondents and the applicant, inter-se, settled the matter was their concern and not the concern of the petitioner.

16. Per contra, Sh.R.P. Bhatt, learned senior counsel appearing for the respondents urged that the contract was terminated in December whereas the present petition was filed in September, 2004. Counsel urged that when the petition was filed, contract was not terminated and, therefore, petitioner cannot rely upon clause 61.1 of the Contract. Alternate submission made by Sh.R.P.Bhatt, learned counsel for the respondent was that clause 61.1 had to be read in harmony with clause 51.1 to 51.3. Submission made was that only that machinery, plant and equipment which was purchased from out of the advance payment received was secured under clause 61.1 and not all equipment brought to site.

17. Sh.R.P. Bhatt, learned senior counsel appearing for the respondents urged that the petitioner was not entitled to any relief for the reason that it was the respondent which had to recover amount from the petitioner and that there was no default by the respondents. Merely because the financial consultant cheated the respondents and the respondents in good faith gave the bank guarantees to the petitioner would not mean that the respondents were in breach of contract, more so, when the respondents offered to replace the bank guarantees issued by a scheduled bank, an offer which was declined.

18. Merits of the dispute between the parties has to be decided by the arbitrators and therefore, lest prejudice is caused to either party, I refrain from dealing with the contentions raised on merits, save and except to the bare minimum extent necessary for the purposes of the present decision.

19. Before proceeding with the contentions raised and dealing with the same, I may record that in the rejoinder filed by the petitioner to the reply filed by the respondents, reference has been made to further advances secured and part recovery effected towards shifting of electrical lines and dismantling of structures. As per the rejoinder, towards these advances, sum of Rs.69.47 lacs is outstanding.

20. Clause 51 of the contract deals with advance payment towards mobilization, its repayment and guarantee to be issued at the time of advance payments. The clause reads as under:-

51. Advance Payment

51.1 The Employer shall make advance payment to the Contractor of the amounts stated in the Contract Data by the date stated in the Contract Data, against provision by the Contractor of an Unconditional Bank Guarantee in a form and by a bank acceptable to the Employer in amounts and currencies equal to the advance payment. The guarantee shall remain effective until the advance payment has been repaid, but the amount of the guarantee shall be progressively reduced by the amounts repaid by the Contractor. Interest will not be charged on the advance payment.

51.2 The Contractor is to use the advance payment only to pay for Equipment, Plant and Mobilization expenses required specifically for execution of the Works. The Contractor shall demonstrate that advance payment has been used in this way by supplying copies of invoices or other documents to the Engineer.

51.3 The advance payment shall be repaid by deducting proportionate amounts from payments otherwise due to the Contractor, following the schedule of completed percentages of the Works on a payment basis. No account shall be taken of the advance payment or its repayment in assessing valuations of work done, Variations, price adjustments, Compensation Events, or Liquidated Damages.

21. Clause 51.4 deals with secured advance in respect of materials. Clause reads as under.

51.4 Secured Advance:

The Engineer shall make advance payment in respect of materials intended for but not yet incorporated in the Works in accordance with conditions stipulated in the Contract Data.

22. Clause 61 of the Contract which was relied upon by counsel for the petitioner reads as under:-

61. Property

61.1 All materials on the Site, Plant, Equipment, Temporary Works and Works are deemed to be the property of the Employer, if the Contract is terminated because of a Contractor's default.

23. It was not disputed by learned counsel for the petitioner that in respect of material advance, payment was made when material was brought to site and bills submitted showing that the respondent had paid for the material to the supplier. Further, this material had to be consumed at site and could not be removed. Learned counsel for the respondent submitted that only 75% of the bill amount was released as advance payment towards material.

24. Position qua advance received by the respondents towards material would be that the petitioner would have security for the uncovered advance received by the respondents in the shape of the unconsumed material available at site. I would, therefore, ignore the figures representing advance payment received by the respondent in respect of material. Further, offending bank guarantees were issued in discharge of contractual obligations under clause 51.1 of the contract.

25. Learned counsel for the respondents had argued that Rs.2.16 crores towards retention money was available with the petitioner. Counsel urged that taking into consideration said sum and balance sum payable for work done after the last bill was paid, respondent No. 1 is entitled to a net Rs.1.58 crores and therefore petitioner was not entitled to any relief whatsoever.

26. Sh.A.K. Bajpai, learned counsel for the applicant urged that its machinery should be released for the reason said machinery was not purchased from the mobilization advance paid by the petitioner to the first respondent.

27. A perusal of clause 51.1 of the contract shows that the first respondent was to secure the advance payment received from the petitioner by submitting unconditional bank guarantees. The bank guarantees were to remain effective till the advance payment was repaid; guarantee to be progressively reduced by the amounts repaid by the first respondent. Clause 51.2 enjoins upon the first respondent to use the advance payment to purchase equipment, plant and mobilization expenses required for execution of the works. Further, first respondent has to demonstrate that advance payment has been used by supplying copies of invoices or other documents to the engineer of the petitioner.

28. Clause 61.1 has to be read in harmony with clause 51.1 and clause 51.2. Only such plant and equipment can be deemed to be the property of the employer which are covered by clause 51.1 and 51.2.

29. Any other construction would mean that equipment on hire would vest in the petitioner without liability to pay lease-rental to the third party concerned. Further, plant and equipment which has been purchased from out of the advance paid by the petitioner requires to be secured to the petitioner till it recovers the advance. Thus, the charge cannot extend to any other material or equipment.

30. At best, petitioner would be entitled to injunction only in respect of the plant and equipment which was purchased by the respondents from the advance received by the respondents from the petitioner and for which invoices or other documents were submitted to the petitioner in terms of clause 51.2 of the contract.

31. The respondents have admittedly submitted forged bank guarantees. Who has committed the forgery is not relevant for the determination of the issue in the present petition. Had the guarantees been genuine, petitioner could have enforced the guarantees on the terms thereof.

32. Petitioners state that the sum of Rs.2.16 lacs. deducted towards retention money was to be paid to the respondent No. 1 if work was successfully completed and had lasted the guaranteed period. Petitioner states that the retention money has been adjusted towards profile correction and shortages in core thickness of bituminous layers at the civil works.

33. Petitioner has to be adequately secured till the arbitrators decide upon the issues raised in the dispute between the parties. Petitioner would, therefore, be entitled to injunction restraining the respondents from removing the equipment it had purchased from out of the mobilization advance received by it from the petitioner.

34. Sh.Sandeep Sethi, learned counsel for the petitioner relying upon 1996 (4) SCC 622 DDA v. Skipper Construction Co.(P) Ltd. urged that since respondent No. 1 had admittedly submitted forged bank guarantees, this court could mold relief. Molded relief prayed by learned counsel for the petitioner was a direction against the respondent No. 1 to deposit in this court the sum covered by the four unexpired bank guarantees found to be forged.

35. Decision relied upon, hardly applies to the facts of the present case. The Hon'ble Supreme Court was dealing with a case where the Directors of Skipper Construction Company had prima-facie played a public fraud. To secure the defrauded parties, their Lordships of the Supreme Court pierced the veil of corporate entity, went into the issue of fudiciary relationship and exercising power under Article 142 of the Constitution of India to do complete justice to the parties issued certain directions.

36. Mobilization advance received under Clause 51.1 is in sum of Rs.11.23 crores. Out of this Rs.6.09 crores has been recovered. Thus, Rs.5.14 crores remains outstanding. As per the respondents, total purchase value of the machinery from out of the amount received under clause 51.1 is Rs.4.58 crores.

37. Value of the machinery would have depreciated. Bank guarantees have been found to be forged. Petitioner has been held by this court as not entitled to any interim relief against the equipments of the applicant of IAs No. 973/2005 and 950/2005. Petitioner has been held to be entitled to an injunctive relief only in respect of such machinery which has been purchased by respondent No. 1 from out of the mobilization advance. Petitioner remains unsecured in the sum of Rs.56 lacs. assuming that the value of the machinery continues to be the same, a fact which this court can safely presume as not in the realm of likelihoood.

38. As of today, conduct of the respondents is suspect. It has yet to establish that it was an innocent party when it submitted the offending bank guarantees.

39. Prayer (d) in the petition is to pass such other order or orders as this court feels just and necessary in the circumstances of the case.

40. IAs No. 973/2005 and 950/2005 and OMP No. 342/2004 are accordingly disposed of modifying the ex-parte ad interim order dated 1.10.2004 by restricting its operation to such of the plant and equipment which has been brought to site by the first respondent by purchasing the same from out of the mobilization advance received and continuing the said interim order as modified, till the arbitral tribunal decides on the merits of the controversy. Ordered accordingly.

41. Further, mandatory directions are issued to the first respondent to furnish a bank guarantee in sum of Rupees 2 crores (Two crores) in favor of the petitioner and as per the format of the guarantees which have been found to be forged. Said bank guarantee to be kept alive till decision on the disputes between the parties by the arbitral tribunal.

42. Petitioner would be entitled to cost against the first respondent in sum of Rs. 25,000/-.