Taniya Civil Projects (P) Ltd. vs State Bank Of Bikaner And Jaipur ...
2006 Latest Caselaw 803 Del

JUDGMENT

Sanjay Kishan Kaul, J.

1. The petition has been filed under Section 9 of the Arbitration and Conciliation Act, 1996 seeking stay of the encashment of two bank guarantees by respondent No. 1-bank for the benefit of respondents No. 2 and 3.

2. The bank guarantees were given for due performance of the obligations of the petitioner in respect of a contract to be performed at Tajikistan. The contract contains arbitration Clause No. 70.

3. Learned Counsel for the respondents No. 2 and 3 has pointed that out of the two bank guarantees one of the bank guarantees No. 71/2004 dated 12.07.2004 for an amount of USD 96,000 already stands encashed and the amount credited to the account of the respondents No. 2 and 3. Thus relief to that extent has become infructuous. The other guarantee is bearing No. 72/2005 dated 20.06.2005 for USD 1,00,000.

4. Learned Counsel for the petitioner contends that on the one hand respondents asked the petitioner to extend the bank guarantee as per the letter dated 17.04.2006 while on the other hand the bank guarantee was soon thereafter invoked by the letter dated 20.04.2006 while the petitioner was in the process of taking steps for extension of the bank guarantee. Learned Counsel thus contends that this itself amounts to fraud.

5. A reading of the letter dated 20.04.206 shows that respondents No. 2 and 3 have alleged that the petitioner has breached the terms and conditions of the agreement and has consequently invoked the bank guarantee bond. I am unable the accept the plea of the learned Counsel for the petitioner that if respondents No. 2 and 3 seek extension of the bank guarantee and soon thereafter invoke the bank guarantee, that itself would amount to a fraud A perusal of the relevant clause of the bank guarantee, shows that the bank guarantee is unconditional in its nature. the relevant clause is as under:

We, State Bank of Bikaner and Jaipur, do at the request of the said contractor hereby undertake to pay the amount due and payable under this guarantee without any demur, merely on a demand from the government, starting that the amount claimed is due by way of loss or damage caused to or suffered or would be caused to or suffered by the Government by reason of any breach by the said contractor of any of the terms and conditions in the said Agreement or by reason of the said Contractor's failure to perform the said Agreement. Any such demand made on the bank shall be conclusive as regards the amount due and payable by the liability of the Bank under this Guarantee and we, State Bank of Bikaner and Jaipur do hereby undertake to pay the government the amount demand notwithstanding any dispute or disputes raised by the said Contractor on any ground whatsoever and notwithstanding any proceedings pending in any court or tribunal relating to the said Agreement on this Guarantee. The liability of the Bank under this guarantee being absolute and unconditional. However our liability of the Bank under this guarantee shall be restricted to any amount not exceeding USD 1,00,000 (US one lac only ) and demand is made on us in writing on or before 19.06.2006.

6. In meeting the requisite ingredients of the bank guarantee all that the beneficiary had to do was to state that the amount claimed is due by way of loss or damage caused or suffered or would be caused or suffered by the Government by reason of any breach by the said contractor of any of the terms and conditions of the said agreement. A provision has further been made that such demand made on the bank shall be conclusive as regards the amounts due and payable by the bank under the guarantee. It is not in dispute that such a letter has been issued on 20.04.1996.

7. The second contention of the learned Counsel for the petitioner is that though the contract itself provided that in Clause 11 that the time period for performance is the essence of the contract, on the application of the petitioner time was extended in terms of the letter dated 24.11.2005 with nil financial affect on the petitioner. It is thus contended that the respondent No. 2 and 3 were themselves conscious of the fact that the petitioner was not at fault and had thus extended the time period for performance.

8. There is no doubt that there has been extension granted for performance of the contract. However, it appears from the letter dated 14.02.2005 of the petitioner (annexure P7) that the same was in response to a communication dated 01.12.2005 of respondents 2 and 3. It may be noted that the petitioner has filed its own communications in response to certain communication of respondents No. 2 and 3 but has failed to file the communication of respondents No. 2 and 3. Learned Counsel sought to canvass that the time period was extremely short and since these communications had to be obtained from Tajikistan, the same could not be filed. Learned counsel for the respondents No. 2 and 3 points out that the aforesaid plea is false as all the communications had been addressed in this behalf to the office of the petitioner at Gurgaon. A reference may also be made to a letter dated 29.12.2005 of the respondent (annexure P8) which has referred to the earlier communications of the respondent dated 01.12.2005, 09.12.2005 and 16.12.2005. In terms of the said letter, the contract has been terminated on account of the default of the petitioner. The relevant portion of the said letter is as under:

1. Reference:

a) This office letter No. 80001/912/E8 dated 01 Dec 05.

b) PMT letter Nos IND-PMT (TAJ)/99198/1 Wks dated 25 Nov 05, 01 Dec 05 and 09 Dec 05.

c) This office letter No. 80001/942/E8 dated 16 Dec 05.

2. In spite of notices issued to you under the above mentioned, references in connection with the works to be executed under the above mentioned contract, you have failed to proceed with the work with due diligence and continue to be in that state and have even stopped working on sire since past well over one month.

3. Therefore, I, Accepting Officer of the contract, one behalf of the Government, acting under the powers vested in me in terms of Condition 54 of the General Conditions of contracts and without prejudice to any other right or remedy which shall have accrued or shall accrue hereinafter to the Government under the terms of the above said contract, hereby cancel your contract on account of your default and the said contract shall stand cancelled with effect from 01 January, 2006.

9. A perusal of the aforesaid shows that the petitioner was called upon by the three letters in question referred to in this letter to proceed with the work with due diligence but apparently failed to do so as per the allegation of the respondents No. 2 and 3. It is in view thereof that the contract has been terminated.

10. It is in view of the aforesaid that I am unable to accept the plea of the learned Counsel for the petitioner that once initial time period was stipulated but the time was extended, the contract could not be terminated without stipulating further time period for completion of the contract as held by the apex court in M/s Hind and contractors v. State of Maharashtra . In the present case, a reference has been made of three communications calling upon the petitioner to do the needful. The petitioner has chosen not to file the concerned letters and has filed documents of its own convenience without filing the relevant communications.

11. In view of aforesaid, I do not find any merit in both the contentions advanced on behalf of learned Counsel for the petitioner.

12. The scope of scrutiny by this Court is only of the bank guarantee and ultimately merits of the controversy between the parties has to be determined before the arbitral forum. In case the petitioner is able to establish its claim before the arbitral tribunal, the petitioner will naturally be successful in any claim in this behalf. However, insofar as the scope of scrutiny of the bank guarantee by this Court is concerned no case is made out for grant of interim relief.

13. Dismissed.