Delhi High Court
Bjcl-Brite (Jv) vs National Highways Authority Of ... on 15 February, 2010
Author: S.Ravindra Bhat
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision : 15.02.2010
+ CS (OS) 43/2009
I.A. No.331/2009
BJCL-BRITE (JV) ..... Plaintiff
Through: Mr. Ashish Bhagat, Mr. Abdhesh Chaudhary and
Ms. Manisha Suri, Advocates
versus
NATIONAL HIGHWAYS AUTHORITY
OF INDIA & ANR ..... Defendants
Through: Mr. Ranjit Sharma and Mr. Ashim Bhatt, Advocates.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
1. Whether the Reporters of local papers Yes.
may be allowed to see the judgment?
2. To be referred to Reporter or not? Yes.
3. Whether the judgment should be Yes.
reported in the Digest?
MR. JUSTICE S.RAVINDRA BHAT
%
1. The plaintiff in the suit seeks a decree of declaration that the first defendant (hereafter
called the "NHAI") cannot invoke a bank guarantee dated 13.10.2007 - which has been kept
alive and is hereafter referred to as "the guarantee", for the sum of Rs.3 crores. Permanent
injunction is sought against the NHAI from invoking the bank guarantee and a mandatory
injunction is sought against the NHAI to release or return the bank guarantee issued by the
second defendant, (hereafter called "the bank").
CS(OS) 43/2009 Page 1
2. The facts necessary for deciding the case are that the plaintiff successfully bid for
construction work tendered by the NHAI. The plaintiff and the NHAI entered into a contract on
25.11.2005; in terms of the contract, the work commenced on 29.12.2005 and had to be
completed within 18 months, i.e. 28.06.2007. The plaintiff contends that right from inception, the
National Highways Authority of India, (hereafter referred to as "NHAI") was guilty of a series of
omissions, which hindered the smooth progress of the work. These included delay in handing-
over the site. The plaintiff alleges that despite the obligation to hand-over the site within 18
months, the NHAI dithered and despite reminders and meetings, no action was forthcoming and
that instead a series of letters were issued by the NHAI, on 27.05.2006, 30.03.2007 and
11.06.2007, leveling baseless allegations.
3. The plaintiff next submits that other important obstructions and hindrances were not
attended to by the NHAI, which included existence of electric poles, that were removed as late as
October-November 2008, non-adherence to the traffic diversion plan agreed upon to ease and
facilitate smooth work, delayed submission of drawings and hindrance on account of unfulfilled
statutory obligations such as clearance from the Pollution Control Board, Irrigation Department,
that were not forthcoming from the NHAI. It is submitted that these omissions went into the root
of the performance of the contract itself and amounted to fundamental breaches of the agreement
which altered, if not altogether, relieved the time schedule. The plaintiff argues that in terms of
the contract (Clause-60.6, pertaining to advance payments), the NHAI was asked to release
Mobilization Advance to the tune of Rs.7.5 crores, in September 2007, although it (the plaintiff)
was entitled to an amount equivalent to 10% of the contract value. The contract value was Rs. 93
crores. The NHAI, however, unjustifiably, truncated the amount and directed the plaintiff to
furnish bank guarantee for Rs. 3 crores, which was apparently secured from the bank on
13.10.2007. The plaintiff contends that despite furnishing the guarantee, the NHAI released the
amount after a lapse of more than five-and-half months, on 10.03.2008, which also displays
delaying tactics on part of the latter. It is claimed that the tenure of the bank guarantee was
initially upto 12.04.2008, but was later extended to 11.01.2009. The plaintiff refers to extension
of time for performance of the contract and states that the NHAI's engineers, despite request,
extended it only upto 25.11.2008. It is contended that the NHAI's engineers, by letter dated
09.02.2008 informed that the period of extension upto 31.12.2008 was recommended provided
liquidated damages were paid with effect from 24.07.2008.
CS(OS) 43/2009 Page 2
4. The plaintiff claims that the entire amount of Mobilization Advance given by the NHAI
was adjusted in various bills issued between April and November 2008, and specifically
mentions five Interim Payment Certificate Nos. 24 to 28 that made the deductions to a total
amount of Rs. 3 crores. It is claimed that the NHAI, however, did not release the bank guarantee.
The plaintiff wishes to know the status of the Mobilization Advance on 03.12.2008, which the
consultant of the NHAI (hereafter referred to as "RITES"), admitted as having been adjusted.
Strong reliance is placed upon letter dated 04.12.2008, written by RITES Ltd, which is in the
following terms:
"RITES Ltd.
(A Government of India Enterprise)
RITES PROJECT OFFICE
Tele: 011-27781115 Khasra No.1/17,
Batra Oil Co. Show Room Building
(1st Floor), G.T. Karnal Road,
Singhu Border, Delhi-110 040.
No.RITES/TL-NHAI/NS-18(DL)/Bal/4126 Dated 04 December 2008
To
Shri Sanjay Tripathi
Project Director
NHAI, PIU, Sonepat,
Shree Shakti Bhavan, Km-31, NH-1
Near Chopra Filling Station
Kundli, Sonepat (Haryana)
Sub: Construction of Balance work of 8-laning from Km 16,500 to Km. 29,300 of
NH-1 in the State of Delhi (Contract Package NS-18(DL)-Bal.)
Refund BG No.7056307BG0087 dated 13.10.2008
For Rs.3.0 Crores
Ref:- Your letter No.NHAI/PIU-SNP/NS-18/DL/(Bal)/845 dated 03.12.2008
Sir,
Vide your letter No. NHAI/PIU-SNP/NS-18/DL-Bal./2008/1684 dated
05.03.08, this office was informed that the Contractor had been released a
discretionary advance of Rs.3.0 crore by NHAI on 04.03.2008, at SBI PLR + 2%
rate of interest.
CS(OS) 43/2009 Page 3
2. The principal amount of the above advance has been recovered in monthly
installments of Rs.50 Lacs from IPCs No.24 (April 08) to 28 (October 08).
However, the recovery of Interest amount of Rs.20,52,766/- (Details at Appendix
"A" attached) is yet to be recovered in IPC No.29 (November 08).
3. In view of Para 2 above, the Contractor's request for release of the
subject BG cannot be recommended at this stage.
Thanking you,
Yours faithfully
Sd/-
Maj. Gen. (Retd). CL Verma
Team Leader
Encl: As above.
C.C. to:
M/S BJCL-BRITE (JV), Opposite MCD Jindpur School, District. Delhi, Delhi-110
036."
5. It is submitted that RITES, in their creation of Interim Payment Certificate No. 28,
relating to the bill of October 2008, adjusted the entire amount of interest and as such, the
Mobilization advance stood adjusted and there was no cause for the NHAI continuing to retain
the bank guarantee. It is alleged that in this background of 22.12.2008, the NHAI issued a Show
Cause Notice that since the plaintiff was not interested in executing the work, it would not
release the bank guarantee. The plaintiff states that the reply to the Show Cause Notice was
issued on 02.01.2009, detailing that there was no breach of the contract and that on the contrary,
the defendant, NHAI was responsible for various delays. It is alleged that a huge amount is due
and payable by the NHAI to the plaintiff and that the latter's attempt in retaining the bank
guarantee and seeking to encash it is unjustified and arbitrary. The NHAI, it is alleged, holds
such bank guarantee in trust; once the Mobilization Advance stood adjusted by payment, there
was no occasion for continuing to hold on to the bank guarantee, which constitutes a threat to the
plaintiff. The relevant averments in the suit, forming the basis for the reliance sought are as
follows:
"XXXXXX XXXXXX XXXXXX
42. That the plaintiff submits that in the face of the above detailed flagrant
disregard and breaches of the contractual provisions and obligations on the part
of the Employer (defendant-NHAI), any attempt on the part of the said defendant
to encash/invoke the aforesaid Bank Guarantees would be fraud, wholly illegal
and void ab initio. At the same, under the threat of invocation of Bank
CS(OS) 43/2009 Page 4
Guarantees, the said defendant is illegally and unauthorized pressurizing the
plaintiff to withdraw all its claims against defendant-NHAI, for the losses
occasioned to the plaintiff due to the various hindrances constituting fundamental
breach of contract agreement on the part of the defendant.
43. That the plaintiff submits that the threatened invocation of Bank
Guarantees is a fraud being played by the defendant-NHAI. The plaintiff would
suffer irretrievable loss and injury in case the said defendant is permitted to
invoke the Bank Guarantees, in question, since the plaintiff has already
paid/adjusted the said amount to the defendant-NHAI, which had been
acknowledged by them. The instant invocation is merely a vengeance on the
defendant, so that the plaintiff may suffer damage to its goodwill and reputation
due to utmost malafide and dishonest intentions of the defendant-NHAI. The
special equities are also in favor of the plaintiff and against the defendant-NHAI
in as much the said defendant, by taking advantage of its own defaults, breaches
and wrongs, is practicing a fraud upon the plaintiff as well as upon the Bank
(defendant No.2 herein) issuing the Bank Guarantees, in question. The threatened
invocation of Bank Guarantees amounts to gross misrepresentation and
suppression of material facts, which clearly amount to fraud being perpetrated by
the defendant-NHAI, giving rise to special equities in favour of the plaintiff.
XXXXXX XXXXXX XXXXXX"
6. This Court, after considering the materials on record, granted an ex-parte ad-interim
order on 12.01.2009, restraining invocation and encashment of the bank guarantee. The interim
order was continued on 17.03.2009. The NHAI entered appearance and filed its written
statement, contesting the suit. It alleges that the suit is not maintainable in view of Clauses 67.1,
67.2, 67.3 and 67.4 of the contract between the parties since the dispute is founded on allegations
arising under the contract and are, therefore, arbitrable. The NHAI further states that the contract
stood terminated by notice dated 13.01.2009, pursuant to exercise of discretion under Clause
63.1. It is urged that the bank guarantee being unconditional, no cause for judicial interference
can be made-out.
7. The NHAI contends that in OMP 17/2009, the plaintiff sought restraint of four other bank
guarantees in relation to the same contract. It is further stated that the said proceeding was
dismissed on 15.01.2009 and the Court held that the bank guarantee could not be interfered with.
8. The NHAI contends that even on the merits, the plaintiff does not have any arguable
case. It is alleged that the agreement provided that the work had to be completed by 28.06.2007.
Despite extension of time, the plaintiff was able to complete only 47.16% of the contract. It
CS(OS) 43/2009 Page 5
refers to letters written by the NHAI and the Supervision Consultant, warning of slow progress.
Specific reliance is placed on notices dated 24.11.2006, 30.03.2007 and 31.03.2008. It is stated
that even if the plaintiff's contention about the existence of hindrances at the NHAI's behest
were to be facially accepted, there were stretches where such hindrances did not exist. The NHAI
points to the stretch between Km. 16.5 and 29.3 (RHS). It is further stated that the plaintiff's
request for extension of time was granted for the period 24.07.2008 to 31.12.2008, subject to
levy of liquidated damages.
9. The NHAI points to Clause 63.3 in support of the submission that certain retention
amount under the Contract can justifiably be withheld, after termination of the contract. The said
stipulation reads as follows:
"XXXXXX XXXXXX XXXXXX
SUB-CLAUSE 63.3 PAYMENT AFTER TERMINATION
"If the Employer terminates the Contractor's employment under this
Clause, he shall not be liable to pay to the Contractor any further amount
(including damages) in respect of the Contract until the expiration of the Defects
Liability Period and there after until the costs of execution, completion and
remedying of any defects, damages for delay in completion (if any) and all other
expenses incurred by the Employer have been ascertained and the amount thereof
certified by the Engineer. The Contractor shall then be entitled to receive only
such sum (if any) as the Engineer may certify would have been payable to him
upon due completion by him after deducting the said amount. If such amount
exceeds the sum which would have been payable to the Contractor on due
completion by him, then the Contractor shall, upon demand, pay to the Employer
the amount of such excess and it shall be deemed a debt due by the Contractor to
the Employer and shall be recoverable accordingly."
XXXXXX XXXXXX XXXXXX"
10. It is contended that the NHAI is yet to realize the balance of Rs. 6 crores, as dues, under
the contract, which can be adjusted from the security deposited or through sales proceeds and
equipment, plant and machinery seized from the plaintiff without prejudice to its rights.
11. In addition to the averments, it is argued that the bank guarantee being unconditional, the
plaintiff has not shown any cause beyond merely invoking a ritualistic pleading fraud, justifying
why declaratory or injunctive relief can be granted. It is argued that the value of the work left
unfinished is to the extent of Rs. 49 crores. The total extent of retention amount that can be
justifiably kept by the NHAI is in excess of Rs. 18 crores. It is also stated that the NHAI has
CS(OS) 43/2009 Page 6
been forced to award the unfinished part of the contract to a third party, the value of which is Rs.
85 crores.
12. The above discussion shows that the plaintiff essentially says that the NHAI cannot
invoke the bank guarantee, since the advance payments made to it (the plaintiff) have been
adjusted from the running bills paid, in that regard. It cites various reasons, to suggest that
NHAI's anticipated demand under the bank guarantee would be without basis. It alleges that if
such demand is made, the same would be "fraud" and cause it (the plaintiff) irretrievable
injustice. The reasons so cited are that the NHAI itself was responsible for the tardy or slow
progress, of the work awarded, since various hindrances had been created in the smooth and
timely implementation of the project, including not ensuring removal of certain obstructions,
delay in taking measures such as diversion of traffic, obtaining statutory approval, and so on. It
says that having been guilty of these lapses, and also not having released the full amount of
advance, the NHAI cannot under any circumstances invoke the bank guarantee.
13. The defendant's plea, on the other hand, is that the bank guarantee is unconditional, and
completely autonomous of the contractual obligations of the parties. It is submitted that there is
sufficient material on record to say that the plaintiff did not perform the contract a substantial
part of which was left unfinished, even after extension of time for performance was given on
condition that it (the plaintiff) was to pay liquidated damages for the delay. It is also contended
that the Court should not adopt a narrow insular view in regard to the purpose for insistence of
issuance of the guarantee, which had to be seen in the overall context of the obligations of
parties. It was not as if the plaintiff's obligations ceased, the moment the advance amounts were
deducted from running bills; its responsibility to ensure smooth discharge (by performance) of
the contract till the parties completed all the steps agreed to by them. The defendant points to the
obligation to retain 20% of the contract amount, during the defect liability period. It is
emphasized that the plaintiff's failure to perform the contract, led to issuance of a show cause
notice, and the eventual termination of the contract. The defendant argues that the suit is not
maintainable, and that in any event the plaintiff cannot get any injunctive relief, as the features of
this case do not show any rare or exceptional fact, which can impel the Court to interdict the
independence of the bank guarantee in question.
14. It has now been settled since long that courts would normally never interfere with
injunctions, in respect of banker's obligations under letters of credit and bank guarantees, by
CS(OS) 43/2009 Page 7
looking into underlying contracts between two parties. The reasoning behind this is that such
credits constitute independent and solemn bargain between the banks and the beneficiaries to
such credits, which are the bedrock of commerce and international trade. In Bolivinter Oil SA v.
Chase Manhattan Bank, (1984) 1 All ER 351, it was held that:
"The wholly exceptional case where an injunction may be granted is where it is proved
that the bank knows that any demand for payment already made or which may thereafter
be made will clearly be fraudulent. But the evidence must be clear both as to the fact of
fraud and as to the bank's knowledge. It would certainly not normally be sufficient that
this rests on the uncorroborated statement of the customer, for irreparable damage can
be done to a bank's Credit in the relatively brief time which must elapse between the
granting of such an injunction and an application by the bank to have it charged..."
In U.P. State Sugar Corporation v. Sumac International Ltd., AIR 1997 SC 1644, the Supreme
Court, after reviewing the previous judgments, and the settled position in law for about two
decades, reiterated that injunction can be granted only in rare and exceptional circumstances, in
the following terms:
"The courts have carved out only two exceptions. A fraud in connection with such a bank
guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is
such a fraud of which the beneficiary seeks to take advantage, he can be restrained from
doing so. The second exception relates to cases where allowing the encashment of an
unconditional bank guarantee would result in irretrievable harm or injustice to one of the
parties concerned.
xxxxxxxx xxxx xxxx
On the question of irretrievable injury which is the second exception to the rule against
granting of injunctions when unconditional bank guarantees are sought to be realised the
court said in the above case that the irretrievable injury must be of the kind which was
the subject matter of the decision in the Itek Corpn. Case.
xxxxxxxx xxxx xxxx
Before us, however, in the course of argument, the learned advocate for the respondent
urged for the first time in this case there would be irretrievable injustice to the
respondent if the bank guarantees are allowed to be realised because the appellant is a
sick industrial company in respect of which a reference is pending before the board for
industrial and financial reconstruction under the Sick Industrial Companies (Special
Provisions) Act, 1985. The respondent contends that even if it succeeds before the
arbitrator it will not be able to realise his claim from the appellant. The mere fact that a
reference under the Sick Industrial Companies (Special Provisions) Act, 1985 is pending
CS(OS) 43/2009 Page 8
before the Board, is, in our view, not sufficient to bring the case in the ambit of the "
irretrievable injustice " exception.... There can, therefore, be no presumption that the
company will, in no circumstance, be able to discharge its obligations..."
15. Earlier, in General Electric Technical Services Company Inc. v. Punj sons (P) Ltd. and
Anr., [1991] 4 SCC 230, it was held that:
"20. In our considered opinion if the bank guarantee furnished is an unconditional and
irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the
amounts under the guarantee. The person in whose favour the guarantee is furnished by
the bank cannot be prevented by way of an injunction in enforcing the guarantee on the
pretext that the condition for enforcing the bank guarantee in terms of the agreement
entered between the parties has not been fulfilled. Such a course is impermissible. The
seller cannot raise the dispute of whatsoever nature and prevent the purchaser from
enforcing the bank guarantee by way of injunction except on the ground of fraud and
irretrievable injury.."
In U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., [1988] 1 SCR
1124, the Supreme Court had emphasized that apart from fraud, if there was to be irretrievable
injustice, injunction could be granted:
"...commitments of banks must be honoured free from interference by the courts.
Otherwise, trust in commerce internal and international would be irreparably damaged.
It is only in exception case that is to say in case of fraud or in case or irretrievable
injustice be done, the could should interfere.."
In State of Maharashtra v. National Construction Co., [1996] 1 SCR 293, the Supreme Court
clarified the position on this aspect in the following words:
"The rule is well settled that a bank issuing a guarantee is not concerned with the
underlying contract between the parties to the contract. The duty of the bank under a
performance guarantee is created by the document itself. Once the documents are in
order the bank giving the guarantee must honour the same and make payment ordinarily
unless there is an allegation of fraud or the like. The courts will not interfere directly or
indirectly to withhold payment, otherwise trust in commerce internal and international
would be irreparably damaged. But that does not mean that the parties to the underlying
contract cannot settle the disputes with respect to allegations of breach by resorting to
litigation or arbitration as stipulated in the contract. The remedy arising ex contractu is
not barred and the cause of action for the same is independent of enforcement of the
guarantee.."
Recently, Himadri Chemicals Ltd. v Coal Tar Refining Co., 2007 (8) SCC 110, re-stated the law
as follows:
CS(OS) 43/2009 Page 9
"...we find that the following principles should be noted in the matter of injunction to
restrain the encashment of a Bank Guarantee or a Letter of Credit:
(i) While dealing with an application for injunction in the course of commercial dealings,
and when an unconditional Bank Guarantee or Letter of Credit is given or accepted, the
Beneficiary is entitled to realize such a Bank Guarantee or a Letter of Credit in terms
thereof irrespective of any pending disputes relating to the terms of the contract.
(ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of
any dispute raised by its customer.
(iii) The Courts should be slow in granting an order of injunction to restrain the
realization of a Bank Guarantee or a Letter of Credit.
(iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate
contract and is absolute in nature, the existence of any dispute between the parties to the
contract is not a ground for issuing an order of injunction to restrain enforcement of
Bank Guarantees or Letters of Credit.
(v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank
Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the
situation.
(vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit
would result in irretrievable harm or injustice to one of the parties concerned...."
16. In this case, the bank guarantee is an unconditional one. The plaintiff's contention is that
having regard to the circumstances in which it was issued, i.e. to secure part of mobilization
advance, the Court should be alive to the fact that such amounts had been recovered from the
pending bills, by the NHAI; therefore, insisting on continuance of the bank guarantee for the rest
of the period of contract, is mala fide, and amounts to a fraud. If invoked the action would cause
irretrievable injustice or harm, to the plaintiff.
CS(OS) 43/2009 Page 10
17. The previous discussion pertaining to the position in law shows that insistence of
contractual obligations, independent of the bank guarantee, cannot ipso facto be a ground for
interdicting the bank's undertaking to pay. The seller cannot raise the dispute of whatsoever
nature and prevent the purchaser from enforcing the bank guarantee, through injunction except
on the ground of fraud and irretrievable injury. Such fraud has to be "egregious", or flagrant or
conspicuously bad or offensive. In other words, the fraud or injustice should be transparent, in
regard to the invocation of the guarantee itself. In turn, this implies that the issuing bank, which
is called upon to honour its commitment, will not decide upon the relative rights of the
contracting parties, in relation to their contract.
18. The contract between the parties specified a time limit for performance of the plaintiff's
obligations. The time for performance was extended. The defendant relies upon the circumstance that
while extending time, the condition of recovering liquidated damages was imposed. NHAI also says that
it terminated the contract, and has subsequently entrusted the balance work to another party, at enormous
cost. It also alleges that a sum of Rs. 6 lakh is payable by the plaintiff, and that under the contract, a
retention amount of Rs. 18 crores is to be kept with it.
19. The fact that the plaintiff would be put to hardship if the relief sought is refused, is by
itself not something that constitutes "irretrievable injury". The plaintiff has not been able to show
that the bank guarantee in question would have to be discharged on the adjustment of amounts
paid to it, by NHAI on its running bills. The guarantee, as mentioned earlier, is unconditional.
The dispute about interpretation of the contractual terms, or that some omissions and defaults are
alleged against NHAI is not of a magnitude as to be characterized as "fraud". The term "fraud" is
defined in Section 17 of the Contract Act, as follows:
"17 "FRAUD" DEFINED.
"Fraud" means and includes any of the following acts committed by a party to a contract,
or with his connivance, or by his agent, with intent to deceive another party thereto or his
agent, or to induce him to enter into the contract :-
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be
true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
CS(OS) 43/2009 Page 11
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Explanation. - Mere silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case are such that, regard
being had to them, it is the duty of the person keeping silence to speak, or unless his
silence is, in itself, equivalent to speech.
Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B
about the horse's unsoundness. This is not fraud in A.
(b) B is A's daughter and has just come of age. Here, the relation between the parties
would make it A's duty to tell B if the horse is unsound.
(c) B says to A - "if you do not deny it, I shall assume that the horse is sound". A says
nothing. Here, A's silence is equivalent to speech.
(d) A and B, being traders, enter upon a contract. A has private information of a change
in prices which would affect B's willingness to proceed with the contract. A is not bound
to inform B."
There is nothing in the above definition which can be applied to the facts, which are alleged in
the suit. The plaintiff does not explain how the invocation of the guarantee, or rather, its
continuation, amounts to a fraud. As to irretrievable injustice, the decision in General Electric
Technical Services Company Inc. (supra) clarifies that even if the financial hardship is such that
a company or enterprise is sick, or likely to face bankruptcy, such a condition is not satisfied.
Here, the possibility of the NHAI invoking the guarantee, and the resultant liability arising to the
plaintiff is not sufficient, to fit the description. The irretrievable injustice should be of a
magnitude as to transcend the irreparable injury requirement, inherent in every temporary
injunction order. Being a contract for performance of work, the aggrieved party can seek
damages. For these reasons, the Court is satisfied that the injunction sought cannot be granted.
20. The above discussion would have been dispositive of the temporary injunction
application. However, this Court is mindful of the circumstance that the plaintiff seeks a decree
for declaring that the defendant NHAI cannot invoke the bank guarantee; that is the first relief
CS(OS) 43/2009 Page 12
sought in the suit; the injunctive relief is a consequential one. The entire suit talks of the relative
rights and obligations of the parties vis-à-vis each other, in performance of the contract.
21. Section 34 of the Specific Relief Act, 1963, which enables courts to grant declarations,
reads as follows:
"34 DISCRETION OF COURT AS TO DECLARATION OF STATUS OR RIGHT.
Any person entitled to any legal character, or to any right as to any property, may
institute a suit against any person denying, or interested to deny, his title to such
character or right, and the court may in its discretion make therein a declaration that he
is so entitled and the plaintiff need not in such suit ask for any further relief :
PROVIDED that no court shall make any such declaration where the plaintiff being able
to seek further relief than a mere declaration of title, omits to do so.
Explanation : A trustee of property is a "person interested to deny" a title adverse to the
title of some-one who is not in existence and for whom, if in existence, he would be a
trustee."
In Ramakrishna Pattar v. Narayana Pattar, AIR 1915 Mad 584, a declaration was sought that a
contract subsisted; it related to some tax. Accepting that such declaration of contractual rights
could not be claimed under the then Section 42 of the Specific Relief Act, as such declarations
could not be held to relate to any person's legal character, it was held:
"We think that the contention must be upheld, to this extent, namely, that Section 42 of the
Specific Relief Act does not contemplate a suit like the present. We take it that a man's
"legal character" is the same thing as a man's status. "A man's status or 'legal character'
is constituted by the attributes which the law attaches to him in his individual and
personal capacity, the distinctive mark or dress, as it were, with which the law clothes
him apart from the attributes which may be said to belong to normal humanity in
general.."
In Tian Sahu v. Mulchand Sahu, AIR 1922 Pat 432 the plaintiff had sought declaration that he
was entitled to contribution from the defendant if and when occasion arose; the Court held that
such a suit was not maintainable. An identical view was taken in Sripat Rao v. Shankar Rao, AIR
1930 Bom 331. Following these two later cases it was held, by the Lahore High Court, in Nathu
Ram v. Mula, AIR 1937 Lah 25 that:
CS(OS) 43/2009 Page 13
"A suit for a declaration that the defendant would be liable to contribute to the plaintiff
all moneys which the plaintiff as the defendant's surety would be liable to pay does not
come under Section 42 as it affects only the pecuniary relationship between the parties to
the contract."
This view was again followed in Firm Gopal Das Parmanand v. Mul Raj, AIR 1937 Lah 389
where a declaration that certain sum deposited by the plaintiff with the defendant (as margin
money) was accountable by the defendant -to the plaintiff- was refused. The Court held that such
a declaration could not be granted under Section 42 of the Specific Relief Act as it affected only
the pecuniary relationship between the parties to the contract. In Madanlal v. State of Madhya
Bharat, (S) AIR 1955 Madh B 111 a declaration had been sought that under a contract the
plaintiff was not responsible for payment of any amount due on account of the sale and
distribution of food-grains; the Court held that as the declaration did not relate to any legal
character or right to property it could not be claimed under Section 42 of the Specific Relief Act.
These views were affirmed and applied by the Allahabad High Court, in Mahabir Jute Mills v.
Firm Kedar Nath Ram Bharose, AIR 1960 All 254, and also by the Bombay High Court, in
Shanta Shamsher Jung Bahadur v. Kamani Brothers Private Ltd., AIR 1959 Bom 201.
22. In the present case, the plaintiff wishes the Court to interpret a contractual term; it does
not pertain to the legal right or legal status of either party to the suit. The document imposes
mutual duties and obligations. The plaintiff does not say that the contract spells out the legal
status of parties. It is also not that the contract is sought to be declared as void, in totality, so that
the plaintiff's right to some property is at stake. It is that the plaintiff wishes that such declaration
is necessary to stall the performance of an independent obligation assumed by the bank, in
respect of the bank guarantee. The contract itself envisions that any dispute is to be submitted to
arbitration. Indeed in relation to invocation of other bank guarantees, the plaintiff had sought
interim relief, by filing an application for injunction under Section 9 of the Arbitration and
Conciliation Act, 1996, which was rejected. Section 41 of the Specific Relief Act bars a court
from granting injunctions of certain contracts. Section 14, in its material part, defines what such
contracts are:
"14 CONTRACTS NOT SPECIFICALLY ENFORCEABLE.
(1) The following contracts cannot be specifically enforced, namely, -
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(a) a contract for the non-performance of which compensation in money is an adequate
relief;
(b) a contract which runs into such minute or numerous details or which is so dependent
on the personal qualifications or volition of the parties, or otherwise from its nature is
such, that the court cannot enforce specific performance of its material terms;
(c) a contract which is in its nature determinable;
(d) a contract the performance of which involves the performance of continuous duty
which the court cannot supervise...."
Here, the contract is determinable; the nature of obligations runs into minute details and depends
on volition of parties; also, if the claim were to be granted, the Court would have to continuously
supervise duties of the parties. Such contract cannot be specifically enforced. If such is the
correct position, the Court cannot also achieve that end, by indirectly isolating a term in the
contract, pertaining to the guarantee, and "declare" that the NHAI cannot invoke it as granting
such a declaration would result in the achieving indirectly what cannot be done directly.
23. In view of the above discussion, this Court concludes that the declaratory relief sought
cannot be granted in law. The consequential injunction is also directed against the NHAI, and
that relief is dependent upon the grant of the main declaratory decree. It is well known that what
cannot be done directly, cannot be performed indirectly, which is precisely what would happen
if the "declaration" about the plaintiff's right of the kind sought is granted- in effect, the
defendant would be prevented from invoking its rights under an independent contract with the
issuing bank. Therefore, the Court is of opinion that the suit is not maintainable.
24. In view of the above discussion, the Court, invokes its power under Order VII, Rule 11
(d), Code of Civil Procedure, and rejects the suit. Consequently, all pending applications are
dismissed. In the circumstances, the parties shall bear their respective costs.
S. RAVINDRA BHAT
(JUDGE)
February 15, 2010
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