M/S V.K. Sood Engineers & ... vs Punjab National Bank & Ors
2011 Latest Caselaw 3932 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  Date of Decision: 12.08.2011

%                          O.M.P. 735/2010


      M/S V.K. SOOD ENGINEERS & CONTRACTORS
      DDS JV                                    ..... Petitioner
                     Through:  Mr. Vishnu Mehra and Ms. Sakshi
                               Gupta, Advocates

                  versus

      PUNJAB NATIONAL BANK & ORS                ..... Respondent
                     Through:  Mr. M.U. Khan, Adv. for R-1 Bank
                               Mr. Arun Khosla and Mr. Shreeanka
                               Kakkar, Advocates


      CORAM:
      HON'BLE MR. JUSTICE VIPIN SANGHI


      1. Whether the Reporters of local papers may
         be allowed to see the judgment?           :     No

      2. To be referred to Reporter or not?        :     No

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



VIPIN SANGHI, J. (Oral)

1. This petition has been preferred under Section 9 of the

Arbitration and Conciliation Act to seek a restraint against the

encashment of various bank guarantees furnished at the instance of

the petitioner by Punjab National Bank - respondent no.1 in favour of

respondent no.2, Ircon International Ltd.

2. When the matter was taken up by this Court on 10.12.2010, a

detailed ex-parte order came to be passed recording the reasons for

granting ad-interim measures. The said order reads as follows:

" Issue notice to the respondents, returnable on 28.03.2011.

My attention is drawn to Clause 9 of the GCC which reads as follows:-

"9.0 PERFORMANCE BANK GUARANTEE

Within 28 days from the date of issue of Acceptance Letter by IRCON but before signing of the agreement, the contractor shall submit a Performance Bank Guarantee to IRCON for 3% value of the contract sum issued by Nationalized/Scheduled Bank on a format issued/approved by IRCON. The Performance Bank Guarantee shall be kept valid for the entire contract period which shall be the duration of the execution of the contract works. Thus the validity period of Performance Bank Guarantee shall be until issue of completion certificate by the Engineer-in-charge. The contractor shall revalidate, if needed, the Performance Bank Guarantee to cover the period until issue of completion certificate."

Learned counsel for the petitioner has referred to the completion certificate issued by respondent No.2 dated 26.10.2009, according to which, the date of actual completion of work in respect of the three projects namely, Zone Br.17A, Zone Br.17B and Zone Br.17A (Additional) is stated to be 31.03.2009, 28.02.2007 and 31.3.2009 respectively. It is also stated in the certificate that the extension of time has been granted on administrative grounds, and not on the contractor's account. The certificate also records that the work stands completed satisfactorily. It is, therefore, argued that in terms of Clause 9 of the GCC, the petitioner, after completion of the works on the aforesaid dates was not obliged to keep the performance bank guarantees alive. The petitioner seeks restraint against invocation of the following bank guarantees:-

     S.         B.G.No    Zone/     Purpose       Date of      Amount          Extended
     No                                           issue        (`)             upto
                          Package
     1          ILG-203   BR-17A    Performance   18.08.2003   5,00,000/-      13.08.2008
     2          ILG-303   BR-17B    Performance   16.08.2003   5,00,000/-      13.08.2008
     3          ILG-503   BR-17A    Performance   27.12.2003   39,83,363/-     25.12.2008
     4          ILG-904   BR-17A    Security      02.06.2004   61,38,938/-     25.12.2008





      5    ILG-1005   BR-17A    Security       09.11.2005   65,00,000/-     07.11.2008
     6    ILG-505    BR-17A    Mobilization   18.05.2005   64,96,517/-     17.11.2008
     7    ILG-605    BR-17A    Mobilization   18.05.2005   64,96,517/-     17.11.2008
     8    ILG-705    BR-17A    Mobilization   18.05.2005   64,96,517/-     17.11.2008
     9    ILG-805    BR-17A    Mobilization   18.05.2005   64,96,517/-     17.11.2008
     10   ILG-807    BR-17B    Performance    20.08.2007   78,87,173/-     19.08.2008
     11   ILG-807    BR-17B    Performance    21.08.2007   30,10,967/-     20.11.2008
     12   ILG-1507   BR-17B    Performance    24.12.2007   45,18,277/-     23.09.2008

My attention is also drawn to three awards made by the learned Arbitral Tribunal in respect of each of the aforesaid contracts. The respondent IRCON International Ltd. had preferred counter claims before the Arbitral Tribunal. The counter claims preferred in relation to Contract No. Zone Br.17B have been adjusted in the final award. In respect of the awards arising out of contract No.17A and 17A (Addl.), none of the counter claim of the respondent was allowed. My attention is also drawn to order dated 4.8.2010 passed in OMP No.425/2010, OMP No.426/2010 and OMP No.427/2010 (these objections were preferred by the petitioner). However, no objections were preferred to the three awards. On the contrary, on 04.08.2010, the respondent had made a statement that the respondent had accepted the awards and that they would be making payment of the awarded amounts within 15 days.

In view of the aforesaid position, in my view, to permit invocation of the aforesaid bank guarantees at this stage would be wholly improper and may amount to a fraud upon the petitioner and the issuing Bank. Accordingly, the invocation of the aforesaid bank guarantees shall remain stayed till the next date.

DASTI."

3. The respondents have filed their reply, and the matter has

been heard at considerable length.

4. The respondent nos.2 and 3 have vehemently argued that the

petitioner is guilty of gross suppression and mis-statement of relevant

facts. It is stated that during the execution of the works under the

three contracts in question, the petitioner faced acute shortage of

funds and repeatedly sought financial help of the said respondents. At

the instance of the petitioner, respondent no.1 Punjab National Bank

issued three communications, two dated 23.02.2007 in relation to bank

guarantee no.5/05 dated 18.05.2005 and bank guarantee no.6/05

dated 18.05.2005 stating that, at the request of the petitioner, an

amount of Rs.64,96,517/- (in respect of each of the aforesaid two

guarantees) is covered for the recovery of steel purchase from SAIL.

Another letter was issued by the bank in relation to bank guarantee

no.7/05 dated 18.05.2005 stating that the bank covers security deposit

upto the amount of Rs.64,96,517/- for fabrication as per contract dated

10.05.2005 and LOI dated 05.12.2003.

5. The petitioner once again approached respondent no.2 to seek

further assistance to complete the balance supply of steel of Qty. 2500

MTS. To provide comfort to the said respondents, and secure the

advances made by them to SAIL for purchase of steel, the petitioner

issued a communication dated 07.08.2007, inter alia, stating as

follows:

"5. As also discussed in the meeting at Corporate Office with higher IRCON management on 6.8.2007 we will extend and cover BGs total amount of advance taken in the form of steel advance which is presently Rs.3.27 crores plus interest accrued.

6. We will also extend the performance bond for BR-17A & BR-17A (Addl.) in operation as per conditions of the contract.

If the above help is given to us we undertake to complete the entire work of fabricating girders by 31.10.2007 and supply within November, 2007.

We shall keep the BGs alive/extended for the equivalent amount of steel advance given to us for recovery if any. At the close of contract, adjustment of advances shall be made from the payments due to us including the payable payments of extra/NS items. Balance, if any, shall be adjusted against the BGs after giving us a notice period of 15 days to arrange the funds and clear the advances." (emphasis supplied)

6. On 29.09.2007, the petitioner issued another communication

to respondent no.2 stating that they had completed the work relating

to contract BR 17-B, i.e. fabrication and supply of steel Girders for

various Bridges under on Qazigund-Baramulla section of Kashmir Rail

(J&K), and also received the final payment. It was stated that the bank

guarantee No.ILG 303 for Rs.5,00,000/-, bank guarantee No.ILG 804 for

Rs.45,18,277/- and bank guarantee No.ILG 807 for Rs.30,10,967/-,

which stands released, are offered for recovery of steel advance given

to the petitioner against contract No.BR 17A and BR 17A (Additional).

7. On 30.10.2007, the petitioner issued yet another

communication to respondent no.2 inviting the respondents attention

towards condition no.4 sub para (vi) of allotment letter dated

10.05.2005, wherein it was provided that adjustment of bank

guarantee from earlier works may be considered towards enhanced

scope of work. As order for additional girders on emergent basis had

been placed on the petitioner vide letter dated 22.10.2007, the

petitioners submitted the bank guarantees lying with the respondent in

relation to the virtually completed work under BR 17A, for adjustments

against material advances of BR 17A (Additional) to cover the advance

payment for purchase of materials for additional girders from SAIL on

emergent basis.

8. Mr. Khosla submits that none of the aforesaid documents were

produced by the petitioner before this Court at the time of filing of the

petition. It is also submitted that on 18.07.2008, the respondent

IRCON had demanded an amount of Rs.4,57,41,310/- as the amount

outstanding against steel advances for package 17A and 17A

(Additional). The petitioner was called upon to deposit the amount by

26.07.2008. Alongwith this communication, the respondent annexed

the breakup of the amount claimed by it in the said communication.

9. The petitioner sent it is reply to this communication on

01.08.2008 stating that they need time for making arrangement of

funds. They further stated that they are regularly paying interest on

all advances and "our Bank Guarantees are valid and we will extend

these guarantees further". The petitioner sought three months

extension for payment of advances and also requested the respondent

"not to insist on encashment of BGs at this stage which will make our

account NPA with the Bank and cause major upset to us in our future

business with our clients, including Railways and IRCON".

10. The respondent issued another communication on 03.03.2009

raising a demand of Rs.6,21,88,361.44/-. With this communication as

well, the summary of recovery of dues from the petitioner was

enclosed which also gave computation of the steel advances paid to

the petitioner. As per the said statement, Rs.3,05,19,835/- was the

balance recoverable on account of steel recovery, and Rs.51,11,530/-

was recoverable on account of balance of Rivets advance. These

documents were also not placed before the Court by the petitioner.

11. Mr. Mehra, learned counsel for the petitioner submits that

there was no concealment made by the petitioner inasmuch, as, in

para 21 and 22 of the petition, the petitioner had made the following

averments:

"21. That as per terms and conditions of the Contract, the Petitioner had to purchase Steel from Steel Authority of India in respect of Zone BR-17A and Zone BR-17A (Additional). However, due to financial difficulties created by the Respondent No. 2, the Petitioner by their letter dated 07.08.2007, requested for financial help from the Respondent No. 2 for purchase of the steel from Steel Authority of India. The request of the Petitioner was accepted by the Respondent No. 2. The steel purchased was paid for by the Respondent No. 2 which was treated as Steel Advance by the Respondent No. 2 and it was agreed that the payment made had to be adjusted against the final bill of the Petitioner in respect of Zone BR-17A and Zone BR-17A (Additional). It may be clarified that there was no such clause either in the tender documents or in the Allotment/Acceptance Letter or even in the Contract Agreement.

22. That it may stated here that though after the completion of work in respect of Zone BR-17B, the Guarantees stood released. However, at the request of the Respondent No. 2, the Petitioner by their letter dated 29.09.2007 offered only the 3 Bank Guarantees, namely ILG-303, ILG-807 and ILG-804 submitted for the said Zone BR-17B. The remaining 9 Bank Guarantees were, however, not offered."

12. Mr. Mehra submits that the advance granted for procurement

of steel is not covered by the contracts in question. The said

arrangement was a separate arrangement. He submits that the letters

of invocation of the said bank guarantees issued by the respondent did

not even make a reference to the alleged recovery sought to be made

on account of advances for steel. The letters of invocation alleged that

the petitioner has failed to fulfill its contractual obligations. He submits

that this statement of the respondent IRCON, in the various letters of

invocation, is patently false in the face of the completion certificate

issued by the respondent on 26.10.2009 in relation to all the three

packages. He, therefore, submits that there is no concealment of any

material or fact by the petitioner from this Court while filing this

petition.

13. Having heard learned counsels for the parties, I am of the view

that the petitioner has indeed sought to misled this Court into passing

the ex-parte order of injunction, by not placing before this Court the

complete scenario and the correspondence exchanged between the

parties in relation to advances for steel and the petitioners own

representation that the said advances would be secured by the bank

guarantees furnished at the instance of the petitioner by the

respondent bank in relation to the three contracts.

14. From the correspondence placed on record by the respondent,

it is evident that the petitioner was in urgent need of funds. Since the

petitioner could not procure the steel required to execute the works

under the contracts, the petitioner requested the respondent to pay for

the same. Firstly, at the instance of the petitioner, the Punjab National

Bank issued express communications on 23.02.2007 and 05.03.2007 in

relation to bank guarantee nos.5/05 and 6/05 and 7/05 all dated

18.05.2005 extending the scope of these bank guarantees to cover the

recovery of steel purchased for the petitioner from SAIL, and to cover

for security deposit for fabrication as per contract dated 10.05.2005

and LOA dated 05.12.2003. Secondly, to provide comfort to the

respondent, on 07.08.2007, the petitioner even assured that the bank

guarantees furnished by the petitioner under the contracts, which by

then had been released on account of completion of some of the

works, would be kept alive to secure the amounts advanced by the

respondent for the purchase of steel.

15. When the respondent raised its demand vide letter dated

18.07.2008, on 01.08.2008 the petitioner pleaded the respondent not

to encash the bank guarantees as the said bank guarantees were

being extended, and the interest was being paid on all advances.

16. The averments made in the petition, as extracted above,

conceal more than what they disclose. Without the relevant documents

being placed on record, the purport of the said averments could

possibly not have been fully appreciated. Moreover, the averment that

only three bank guarantees bearing nos. ILG 303, 807 and 804 were

offered (without stating what they were offered for), and that the

remaining nine bank guarantees were not offered is also not a

completely accurate statement, inasmuch, as, the petitioner in its

communications dated 07.08.2007, 30.10.2007 and 01.08.2008 clearly

represented to the respondent that all its bank guarantees given under

the contracts in question were valid and extended to cover the

respondents dues for advances for steel.

17. It is not in dispute that the aspect of advances for steel was

not the subject matter of any of the arbitration proceedings, and the

said dues are not covered by three arbitration awards passed in favour

of the petitioner. The said amounts stand admitted by the petitioner in

its communication dated 07.08.2007, and the computation furnished

by the respondent IRCON has not been denied in the subsequent

communication dated 01.08.2008.

18. The petitioner has filed this petition to invoke the discretionary

jurisdiction of this Court. The petitioner was expected to come with

clean hands, and to make a full and complete disclosure of facts and

circumstances which may have a bearing on the decision of the Court.

By merely stating that only three bank guarantees had been offered

(presumably to cover advances on steel), and by stating that the

invocation of the bank guarantee has been made on the basis that the

works under the contract are not complete (which is stated to be

factually not true), the petitioner has concealed from this Court the

aforesaid relevant and material facts and circumstances. Had a

complete disclosure been made and full picture presented before the

Court at the time when the petition was taken up for ex-parte hearing,

this Court certainly would not have granted the injunction as it did,

considering the fact that there are admittedly very large liability owed

by the petitioner to the respondent, and the petitioner had repeatedly

represented to the respondent that the said liabilities are covered by

the various bank guarantees offered under the three contracts.

19. I am, therefore, not inclined to continue the interim order any

further. I vacate the same and dismiss this petition.

20. Considering the conduct of the petitioner, I subject the

petitioner to costs quantified at Rs.3 lacs. Costs be paid within two

weeks.

VIPIN SANGHI, J AUGUST 12, 2011 sr