Charan Medical Devices vs Biotronik Medical Devices India ...
2009 Latest Caselaw 1390 Del

               * IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                                           Date of Reserve: 6.4.2009
                                                                        Date of Order: 15th April, 2009

OMP No. 700/2008
%                                                                                            15.4.2009

        Charan Medical Devices                        ... Petitioner
                       Through: Mr. K.N.Balgopal, Sr. Advocate with
                       Mr. Neeraj Chaudhary, Mr. Atul Shankar Mathur
                 & Ms. Shruti Verma, Advocates

                   Versus


        Biotronik Medical Devices India
        Pvt. Ltd. & Anr.                               ... Respondents
                         Through: Mr. Jayant Bhushan, Sr. Advocate with
                         Mr. Somesh Chandra Jha &
                         Mr. Ritesh Ratnam, Advocates


JUSTICE SHIV NARAYAN DHINGRA

1. Whether reporters of local papers may be allowed to see the judgment?

2. To be referred to the reporter or not?

3. Whether judgment should be reported in Digest?

JUDGMENT

By this petition under Section 9 of the Arbitration & Conciliation Act,

1996, the petitioner has made a prayer that this Court should issue interim injunction

restraining respondent no.2 viz. Union Bank of India from encashing the Bank

Guarantee bearing no. 37060IGL0013108 dated 22.8.2008 for Rs. 1,00,00,000/-

(Rupees one crore only) and restrain respondent no.1 from receiving any money

under the aforesaid Bank Guarantee. The other prayer made is that this Court

should stay the operation of notice dated 22.12.2008 issued by respondent no.1

terminating the Distributorship Agreement between the parties.

2. Brief facts relevant for the purpose of deciding this petition are that the

petitioner entered into a Distributorship Agreement with respondent no.1 in respect

of various medical devices to various hospitals, nursing homes etc in the entire

southern part of India. As a condition for being appointed as distributor, the

petitioner had given aforesaid performance bank guarantee of Rs.1 crore.

Respondent No.1 terminated the Distributorship Agreement vide a notice dated

22.12.2008 stating therein that petitioner had failed to maintain the financial

obligations as required in clause 15(2) of the Distributorship Agreement and had

failed to make payments within 90 days of delivery of the products which empowered

the respondent no.1 to terminate the agreement. It was also stated that the nine of

the cheques issued by petitioner for clearing the dues got dishonoured, the conduct

of the petitioner was thus blameworthy. The third ground stated was that the

petitioner had failed to meet the target of minimum purchase amount as stipulated in

Exhibit-8 & 9 of the Distributorship Agreement. The respondent no.1 also claimed

that the petitioner's Managing Director Mr. Atma Charan Reddy had been giving

threats to the employees of the respondent no.1 and went to the extent of saying

that he would use his position as ex-MP to close down the office of respondent no.1

in India, if it did not succumb to his demands.

3. The respondent no.1 after serving this notice of termination of

agreement, invoked the bank guarantee and the bank in fact had prepared and

issued draft of the amount of bank guarantee. This Court vide order dated

29.12.2008 passed an interim order that in case the bank guarantee had been

encashed, the respondent no. 1 shall hold the amount in 'no lien account'. The

respondent no.1 was thus, holding the amount in 'no lien account'.

4. The learned Counsel for the petitioner argued that the invocation of

bank guarantee was unjustified. The grounds taken by the respondent no.1 for

cancellation of Distributorship Agreement were not made out. Though the cheques

were dishonoured, the amount as against these cheques were subsequently paid to

the respondent no.1 It is denied that financial discipline was breached or petitioner

had failed to meet the targets of minimum purchase.

5. While considering an application under Section 9 of the Arbitration &

Conciliation Act this Court cannot make a detailed enquiry into the circumstances

under which the contract was cancelled and cannot give a finding whether the

termination of the contract was lawful or unlawful. Since there is an arbitration

agreement, this aspect has to be dealt with by the Arbitrator. This Court also cannot

give directions to respondent no.1 for restoration of the contract. If the respondent

no.1 has terminated the contract in an unlawful manner, respondent no. 1 shall be

liable for the consequences as may be determined by the Arbitrator. The Court

cannot restore the position prior to termination of contract under Section 9 of the

Arbitration & Conciliation Act, 1996. The jurisdiction of the Court under Section 9 is

limited to the provisions mentioned therein and the order can be passed only to

preserve the subject matter of the dispute and not to revert the process of the

dispute. The petitioner has admitted that the amount of Rs.70 lac was still due

towards the respondent no.1 respondent no.1 has also claimed damages and

interests. The amount claimed by respondent no.1 from the petitioner was much

more than Rs.1 crore, i.e. the bank guarantee amount. Prima facie, bank guarantee

has been invoked as per the contract and the Court cannot issue an injunction

against invocation of bank guarantee unless the case of petitioner falls in the

category where a fraud has been played upon the petitioner in obtaining bank

guarantee or an irretrievable injustice was going to be caused to the petitioner.

6. It is not the case of the petitioner that a fraud was played upon the

petitioner in obtaining bank guarantee. The case of the petitioner as pleaded and

argued is that the irretrievable injustice would be caused to the petitioner. I consider

that it is not a case of irretrievable injustice. In U.P. Cooperative Federation Limited

v. Singh Consultants and Engineers (P) Ltd. (1988) 1 SCC 174, Supreme Court

observed that an allegedly maltreated party can sue the appellant for damages

where there is apprehension for damages or injustice to be caused. In absence of

special equity arisen for particular situation which may entitle the party on whose

behalf guarantee is given to an injunction, the bank must pay to the party in whose

favour the guarantee is given, on demand. Supreme Court categorically observed

that it is only in exceptional cases that the Court should issue injunctions against

invocation of bank guarantees.

7. The petitioner herein has miserably failed to show that it was a case of

irretrievable injustice. The petitioner can always claim damages from the

respondent in case the petitioner has suffered loss. It is a case where petitioner

admittedly had to pay sum of Rs.70 lac to the respondent no.1 although the

petitioner's case is that the petitioner was having goods of respondent no.1 worth

around Rs.55 lac which the respondent should take back and out of the balance

amount of Rs.15 lac, the petitioner received credit notes from the respondent for part

of the amount and the amount payable was only few lacs. I consider that this Court

cannot enter into this controversy as what was the amount payable by the petitioner

to the respondent in order to determine whether the bank guarantee has been rightly

invoked or not.

8. In view of my above discussion, I find no merits in the petition. The

petition is hereby dismissed.

April 15, 2009                                         SHIV NARAYAN DHINGRA, J.
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