Time Broadband Services Pvt Ltd vs Bharat Sanchar Nigam Ltd
2009 Latest Caselaw 2976 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  OMP 329/2009

%                             Date of decision: 3rd August 2009

TIME BROADBAND SERVICES PVT LTD                        ...Petitioner
                        Through: Mr. Rakesh Munjal, Sr Advocate with
                                 Mr Sujit Gupta and Ms Aprajita
                                 Mukherjee, Advocates

                               Versus

BHARAT SANCHAR NIGAM LTD                            .... Respondent
                        Through: Mr. Dinesh Agnani, Advocate


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may           No
      be allowed to see the judgment?

2.    To be referred to the reporter or not?          No

3.    Whether the judgment should be reported         No
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1. The petition under Section 9 of the Arbitration Act 1996 for

restraining the respondent from encashing the bank guarantees in

the total sum of Rs5.50 crores furnished by the State Bank of

Travancore at the instance of the petitioner and pursuant to the

agreement dated 24th July, 2008 between the parties, is for

consideration. The agreement dated 24th July, 2008 between the

parties was inter alia for the petitioner providing services like

IP/broadcast TV channels, Video on Demand, interactive gaming etc

through its content delivery network to BSNL's customers on non-

exclusive, revenue sharing and franchise basis.

2. The bank guarantees, 20 in number are identical in language.

The consideration therefor as stated therein is, by way of security for

rolling out the services as per the agreed service rollout schedule.

The bank, under the guarantees, has guaranteed to the respondent

that the petitioner shall render all the necessary and efficient

services which may be required to be rendered by it in connection

with rolling out of the services in terms of the agreement and/or for

the performance of the agreement and further guaranteed that the

services to be provided by the petitioner shall be actually performed

in terms of the agreement. The bank has undertaken to pay to the

respondent the amount of the guarantee against any loss or damage

caused to/or suffered or would be caused to / or suffered by the

respondent by reason of any breach or non-observance or non-

performance by the petitioner of any of the terms of the said

agreement including failure to rollout the services as per the

schedule to the agreement. The bank in each of the guarantees has

absolutely, irrevocably and unconditionally guaranteed as primary

obligor and not merely as a surety against the payment of the

amount of each guarantee to the respondent, to secure due and

faithful observance and performance by the petitioner of all its

obligations. The bank has undertaken to pay the amount of the

guarantee without any demur, merely on a demand from the

respondent stating that the amount claimed is due by way of loss or

damage caused or would be caused to or suffered by the respondent

by reason of breach or non-observance or non-performance by the

petitioner of the terms and conditions of the agreement. It is also a

term of the guarantee that the decision of the respondent as to

whether the petitioner has failed to or neglected to perform its part

of the agreement shall be final and binding on the bank.

3. The law with respect to the interference by the courts in bank

guarantees is now well settled and need not be restated. Reference

may, however, be made to M/s Vinitec Electronics Private Ltd Vs

HCL Infosystems Ltd (2008) 1 SCC 544, Chola Turbo Machinery

International Pvt Ltd Vs Development Credit Bank 149 (2008)

DLT 313 and Jasmine & Company Vs State of Nagaland 157

(2009) DLT 509 relied upon by the counsel for the respondent.

4. There are only two exceptions to the general rule of the courts

not interfering with the operation/engagement of the bank

guarantee. The first is a clear fraud of the beneficiary from which it

seeks to benefit and of which the bank has notice. A fraud must be

of an egregious nature as to vitiate the underlying transaction. The

second is of any special equities in favour of granting injunction.

Else the beneficiary must be permitted to realise the bank guarantee

in its terms, irrespective of any pending disputes upon the

construction or performance of the contract. The fraud has to be

such which would sully the foundation of the guarantee. Injustice

has to be such which would make it impossible for the guarantor or

the person at whose instance the guarantee has been issued to be

compensated later or result in irretrievable harm.

5. A perusal of the petition in the present case shows a total lack

of pleadings justifying either of the two aforesaid established

grounds on a plea whereof only injunction against encashment of

bank guarantee can be claimed. The petition is drafted, treating the

dispute to be an ordinary commercial dispute and treating the

principles applicable to injunctions in case of bank guarantees to be

the same as applicable to injunctions in ordinary matters.

6. It is the case of the petitioner that inspite of the petitioner

being ready and willing to perform its part of the agreement, the

respondent failed to perform its reciprocal obligations leading the

petitioner to on 28th May, 2009 terminate the agreement with the

respondent. The petitioner has sought stay of encashment of bank

guarantee on the allegation that since, according to the petitioner,

the admitted non-commissioning of the services which the petitioner

was to provide under the agreement is attributable to the

respondent, the respondent is not entitled to encash the bank

guarantee.

7. However, such disputes, if any, between the parties are not to

be the basis for this court to interfere in a bank guarantee. In the

absence of any pleas of fraud of an egregious nature or of

irretrievable injury, this court on the mere allegation of the

respondent being in breach is not to even return the finding of prima

facie view on the same.

8. The petition is thus to be summarily rejected on this ground

itself. Mention must however be made that it was the case of the

respondent that the respondent, owing to breach by the petitioner

has not been able to rollout the services which the petitioner as the

franchisee of the respondent was to rollout. It was stated that the

respondent was desirous of immediate provision of the said services.

The respondent has, during the hearing, also offered that the

respondent was willing to give further time to the petitioner to

perform its obligations. The proceedings were adjourned to enable

the senior counsel for the petitioner to take instructions. However,

today it was informed that the petitioner is not able to take up the

said offer of the respondent.

9. The petitioner has alongwith its IA.No.9634/2009 filed a copy

of the letter dated 28th July, 2009 of the respondent to the bank

invoking the bank guarantee. In the said letter it is stated that the

petitioner has failed to fulfill its obligations contained in the

agreement and hence decision had been taken to encash the bank

guarantees and the bank has been requested to remit the amount

thereof to the petitioner. The said invocation is found to be in terms

of the bank guarantee.

10. Before parting with this file, mention must also be made of an

affidavit dated 18th June, 2009 of the petitioner accompanying the

additional documents. Though the same uses the word "fraudulently"

which even is missing in the main petition, but the same is used in

connection with the encashment of the bank guarantee. There is no

averment of fraud vitiating the transaction, as is required for seeking

an injunction against encashment of the bank guarantee.

11. Resultantly the petition is dismissed with costs of Rs 35,000/-

to the counsel for the respondent.

RAJIV SAHAI ENDLAW (JUDGE) August 3, 2009 M