M/S Jialall Kishorilall Pvt. Ltd. vs Municipal Corporation Of Delhi
2009 Latest Caselaw 3621 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                   Date of Reserve: August 19, 2009
                                                  Date of Order: September 08, 2009
+OMP 220/2009
%                                                                                08.09.2009
    M/s Jialall Kishorilall Pvt. Ltd.                                     ...Petitioner
    Through: Mr. D. Moitra, Advocate

         Versus

         Municipal Corporation of Delhi                                  ...Respondent
         Through: Ms. Mini Pushkarna, Advocate

         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

1. This petition under Section 9 of Arbitration & Conciliation Act, 1996

("the Act", for short) has been preferred by the petitioner with a prayer that

this Court should restrain respondent MCD from invoking mobilization bank

guarantee notice of which has been given by respondent vide letter dated

30th March 2009. The petitioner also made a prayer that this Court should

direct respondent to discharge the bank guarantee for a sum of

Rs.46,30,000/- issued by the petitioner against mobilization advance.

2. The respondent in this case has contended that there was no

arbitration agreement between the parties. Clause No.25 on which the

petitioner /contractor was relying upon had been deleted from the contract.

However, this contention is refuted by the petitioner. In OMP 330 of 2009

between the same parties, I have considered the plea of the petitioner and

left this question open for the arbitrator to decide, since in my view, the

OMP No.220 of 2009 M/s Jialall Kishorilall Pvt. Ltd. vs. MCD Page 1 Of 4 question whether there was an arbitration clause between the parties or not

in this case can be decided only after recording evidence of the parties and,

cross examination of witnesses and cannot be decided merely on the basis of

affidavits.

3. On facts, the contention of the petitioner is that the petitioner had

issued a bank guarantee against mobilization advance of Rs.1, 46,30,000/-.

The mobilization advance was recovered from the petitioner from running

bills together with interest. Since the purpose of bank guarantee stood

fulfilled, the respondent had no right to invoke the bank guarantee, more so

when the entire amount with interest has been recovered.

4. On the other hand, it is submitted by counsel for respondent that the

contract was awarded to the petitioner on a lumpsum basis for an amount of

Rs.4,63,00,000/-. Till the four running account bills the contractor had

executed only 22.33% of the total work. The monetary value of this work

comes to Rs.1,17,27,790/-. While making running account bills, entries with

respect to all payments made previously by MCD are reflected. Thus, in the

four running account bills, the amount already paid towards mobilization

amount advance was also reflected. No recovery was made from the

contractor. This was done solely for the purpose of showing payment already

made to the contractor. Thus, the receipt of Rs.1,17,27,790/- (value of work

executed) was added to Rs.46,30,000 (mobilization advance) which amount

came to Rs.1,63,57,790/-. The recoveries deducted from the bills were on

account of security deposit, TDS, Surcharge on income tax, education tax,

work tax and labour cess. The petitioner was liable to pay interest on

mobilization amount and the interest of Rs.8,33,400/- was deducted being

OMP No.220 of 2009 M/s Jialall Kishorilall Pvt. Ltd. vs. MCD Page 2 Of 4 interest on mobilization amount up to four running bills, mobilization amount

was not recovered. The mobilization advance was not recovered since the

total amount payable to the petitioner as per the work done amounted to only

Rs.1,17,27,790/- whereas the total payment so far made was Rs.1,63,57,790/,

which included the mobilization amount. Only interest had been recovered

from the petitioner. The plea of the petitioner that mobilization amount had

already been recovered, was therefore, a false plea. It is submitted that since

the contract has been terminated, and the MCD had to recover huge

mobilization amount of Rs.46,30,000/-, MCD was within its rights to invoke

the bank guarantee.

5. It is settled law that the bank guarantee is a separate and independent

contract between the bank and the beneficiary and the bank is bound by the

contract between itself and the beneficiary. This contract cannot be put at

stay at the instance of the customer of the bank unless and until it is shown

to the Court that the bank guarantee was got issued by playing a fraud upon

the petitioner or that the encashment of the bank guarantee shall amount to

irretrievable injustice. Courts time and again have observed that they need

not interfere into the commercial transactions/ documents entered into by the

bank with beneficiary unless the bank guarantee itself provides that there has

to be a reference to the customer at whose instance the bank guarantee was

provided, before invocation. The plea taken by the petitioner that the entire

amount has been recovered by respondent is not convincing.

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

OMP No.220 of 2009 M/s Jialall Kishorilall Pvt. Ltd. vs. MCD Page 3 Of 4 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. In United Commercial Bank v Bank of India and Ors. AIR 1981 SC 1426,

the Supreme Court held, "Courts ought not to grant injunctions restraining

the performance of the contractual obligations flowing out of a Letter of

Credit or a Bank Guarantee between one bank and another. The Supreme

Court further observed, "The banker owes a duty to the buyer to ensure that

the documents tendered by the sellers under a credit are complied with those

for which the credit calls and which are embodied in terms of paying of

negotiating bank and the bank issuing or confirming a letter of credit is not

concerned with the underlying contract between buyer and the seller".

8. In view of my foregoing discussion, I find that this petition is not

maintainable and is hereby dismissed.

September 08, 2009                                      SHIV NARAYAN DHINGRA J.
rd



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