Lloyd Insulation (India) Ltd. vs National Thermal Power ...
2006 Latest Caselaw 600 Del

JUDGMENT

Badar Durrez Ahmed, J.

1. This petition has been filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act') seeking a direction restraining the respondent No.1 (National Thermal Power Corporation) [hereinafter referred to as 'NTPC'] from invoking / encashing the bank guarantees detailed in paragraph 6 of the petition as also restraining the respondent No.2 (Punjab & Sind Bank, Nehru Place, New Delhi) from making any payment in any manner in respect of the said bank guarantees.

2. The learned senior counsel appearing for the respondent No.1 (NTPC) is present and this application has been argued fully. The question that needs to be determined in this application is whether the invocation which has already been made by NTPC by virtue of two sets of letters dated 06.02.2006 (which are at pages 121 to 124 of the paper book) and the letter dated 22.03.2006 (a copy of which is at page 126 of the paper book) are valid invocations.

3. The learned senior counsel appearing for the petitioner submitted with reference to the invocation letters dated 06.02.2006 that the same are conditional invocations as the subject of the letters would also indicate. The subject of these four letters invoking the said four bank guarantees in question reads as under:

Subject: Conditional claim under Bank Guarantee No._________ dated 27.12.2005 for Rs.___________ valid up to 31.03.2006.

4. The blanks in the aforesaid extract have been intentionally left inasmuch they refer to different bank guarantees which are for different amounts. However, the bank guarantees were all issued on the same date and are all valid till 31.03.2006. The material portion of the letter dated 06.02.2006 reads as under:

The captioned Bank Guarantee is going to Expire on 31/03/2006. We do hereby request you to lodge our claim / demand in terms of bank guarantee for with without any further notice in case you do not receive any instructions from LLOYD INSULATIONS (INDIA) LIMITED, SUPERCERA DEPARTMENT, KALKAJI INDUSTRIAL AREA, NEW DELHI for extending the validity of the aforesaid captioned Bank Guarantee and you do wish to extend the same on such instruction for any reason whatsoever. In such sent you are again requested to demit the guaranteed amount in terms of the guarantee in its letter and spirit by means of bank draft in favor of National Thermal Power Corp. Ltd. payable at Ghaziabad.

In the event of non-receipt of the extended Bank Guarantee on non-judicial stamp paper of Appropriate value before the Expiry of this validity of Bank Guarantee or Non-Receipt of Guaranteed amount, National Thermal Power Corp. Ltd. shall be constrained to take appropriate legal action in the matter in terms of the Guarantee.

From a reading of the aforesaid extracted portion, it becomes abundantly clear, although the learned Counsel for the respondent No.1 argued to the contrary, that the claim lodged by the respondent No.1 under the said bank guarantees was a conditional claim. It was conditional upon either of the two things happening, one, in case no instructions are received from the petitioner for extending the validity of the bank guarantees and, two, in case the bank, i.e., the respondent No.2, did not wish to extend the bank guarantees for any reason whatsoever. It is only in such event that the bank was requested to remit the guaranteed amounts in terms of the bank guarantees by means of bank draft in favor of NTPC payable at Ghaziabad. The same sentiment was reiterated in the next paragraph. Here, it was mentioned that in the event of non-receipt of the extended bank guarantees on non-judicial stamp paper of appropriate value before expiry of validity of bank guarantee or non-receipt of guaranteed amount, NTPC would be constrained to take appropriate legal action in the matter in terms of the bank guarantee. Reading the aforesaid extract, the intention of the respondent No.1 is absolutely clear. The intention is that the bank guarantees were to be extended. In case, they were not extended either at the instance of the petitioner or at the instance of the bank, then the bank was required to remit the amounts on or before the date of expiry of the validity period of the bank guarantees. As noted above, the bank guarantees were valid up to 31.03.2006. Thus, reading the letters of 06.02.2006, the bank was not required to pay the amounts in case the bank guarantees were extended. In this context, Mr Chandhiok, the learned senior counsel, who appears for the petitioner, stated that the bank guarantees have, in point of fact, been extended as indicated by the letter dated 24.03.2006, a copy of which is Annexure-'K' (page 127 of the paper book). The respondent No.1 was informed of the extension of the validity periods of the bank guarantees and the four bank guarantees as extended by the respondent No.2 were also enclosed with the letter. There is an endorsement on Annexure-'K' that the same had been received by the respondent No.1.

5. However, it has now been stated by the learned Counsel appearing for the respondent No.1 that these extended bank guarantees have been returned to the bank and the bank has already made out a demand draft under the earlier four bank guarantees for an amount of Rs. 15,15,663/- which represents the total amount of the said four bank guarantees. He further states that the demand draft which is payable at Ghaziabad and is dated 28.03.2006 has been handed over to the respondent No.1. However, he has no instructions to state positively as to whether the draft has been encashed or not. Mr Chandhiok, on the other hand, submitted that he has instructions from the petitioner's bankers, i.e., respondent No.2 that the demand draft had not been handed over to the respondent till 12 noon today.

6. Be that as it may, the factual position that obtains as of now appears to be that the bank draft has been prepared, but the same has not been encashed. In this background, the letter dated 22.03.2006 needs to be examined. The first two paragraphs of this letter are material and the same are reproduced hereinbelow:

Please refer to your above Bank Guarantees No.024/2004 & 025/2004 Dt. 29/01/2004 for Rs. 25018.00 & Rs. 217909.00 & 100/2005 and 101/2005 Dt. 31/03/2005 for Rs. 1133670.00 & Rs. 139066.0 issued by your Bank in favor of National Thermal Power Corporation Ltd., NTPC Bhawan, Scope Complex-7 Institutional Area, Lodhi Road, New Delhi 110003 for and on behalf of M/s Lloyd Insulation (I) Ltd. (hereinafter called the Contractor) toward Contract No.08/cont/AL-173/2002/TH/EMD/SCE/780 & 08/CONT/AL-174/2002 /TH/EMD/SCE/N both dated 09/07/2002 awarded by NTPC to the contractor as a guarantee against supply contract & erection contract whereas in terms of the subject Bank Guarantees claims have been lodged and demand has been made by us vide our letter No. 08/F&A/SB/290,291, 270, 271 all dated 06/02/2006, sent by Registered Post within the validity period of all the Bank Guarantee i.e. Dt. 31/03/2006. However, in spite of our demand dated 06/02/2006 in respect of all the Bank Guarantees, the amount has not been remitted to us.

Now, in terms of the aforesaid all Bank Guarantee's we again call upon you and demand that the amount Rs. 25018/- and Rs. 217909/- & Rs. 1133670/- and Rs. 139066/- be immediately paid to us by means of Demand Draft in favor of National Thermal Power Corporation Ltd. payable at Ghaziabad.

Reading the said letter, the learned Counsel for the respondent No.1 submitted that this was an invocation independent of the invocation letters of 06.02.2006 and, therefore, it was not a conditional invocation. I am unable to agree with this contention of the learned Counsel for the respondent No.1 because the aforesaid extract makes it very clear that the letter of 22.03.2006 was with reference to and in the context of letter of 02.06.2006. Even the expression, we again call upon you is indicative of the fact that it was essentially a reiteration of the earlier claim / invocation of 06.02.2006. This being the case, the same interpretation that is placed upon the letters of 06.02.2006 would also apply to this letter of 22.03.2006. The condition not having been satisfied, i.e., the bank guarantees having been extended and the period of validity of the earlier bank guarantees not having expired, this invocation would not be a valid invocation requiring the bank to pay. As such, the petitioner would be entitled to seek an injunction from encashment of the bank guarantees. Now, when it appears that the demand draft has been handed over to the respondent No.1 pursuant to an invalid invocation, it is apparent that the petitioner would be entitled to an order of injunction restraining the respondent from depositing the said demand draft and receiving any payment under the said demand draft.

7. Accordingly, it is directed that the respondent No.1 shall not present the said demand draft for payment to any of its bankers and the same be returned to the respondent No.2 for cancellation and the respondent No.2 is also restrained from making a payment in respect of the said demand draft in case it has not already done so. In view of the fact that the conditions prescribed in the letters of 06.02.2006 and 22.03.2006 for invoking the bank guarantees have not been fulfillled, the extended bank guarantees which are mentioned in the letter of 24.03.2006 shall be validated and returned by the respondent No.2 to the respondent No.1 immediately upon the respondent No.1 handing over the said demand draft to the respondent No.2 for cancellation as aforesaid. This will be done, of course, in case the demand draft has not already been encashed at the time of passing of this order.

8. It is made clear that only the question of a bad invocation and payment has been dealt with in this order. Once the extended bank guarantees are returned to the respondent No.1, it will always be open to them to invoke the bank guarantees in terms of the guarantees.

This petition stands disposed of.

dusty to both the parties.