Marathon Electric Motors (India) ... vs North Eastern Electric Power ...
2011 Latest Caselaw 1351 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  OMP NO.8/2011

                                       Date of Decision : 08.03.2011

Marathon Electric Motors (India) Ltd.         ......Plaintiff
                         Through: Mr. T. K. Ganju, Sr. Adv
                                     with Ms. Kumkum Sen,
                                     Adv.

                                 Versus

North Eastern Electric Power Corporation Ltd. ...... Defendant
                          Through: Mr. V. K. Jindal, Sr. Adv.
                                    with Mr. Saurabh Prakash,
                                    Adv.


CORAM :
HON'BLE MR. JUSTICE V.K. SHALI

1.    Whether Reporters of local papers may be
      allowed to see the judgment?                     NO
2.    To be referred to the Reporter or not ?          NO
3.    Whether the judgment should be reported
      in the Digest ?                                  NO

V.K. SHALI, J.

1. This order shall dispose of OMP No. 8/2011, a petition under

Section 9 of the Arbitration and Conciliation Act, 1996.

Though in the petition, the prayer is to pass an order to the

effect that the Bank Guarantee No. ILG0903 dated

27.03.2003 issued by Punjab National Bank, Chennai and

later on substituted by Bank Guarantee No. BG No.

2007012IBGP0052 issued by IDBI Bank, Kolkata stands

released but during the course of arguments, it was urged

that the necessity of filing this application has arisen on

account of the order dated 11.11.2010 passed by Shri S.N.

Phukan, learned Arbitrator, wherein he has refused to release

the balance 50% amount of the aforesaid Bank Guarantee as

the same was withheld in pursuance to the order dated

05.02.2003 passed by Hon'ble Mr. Justice J.D. Kapoor in

OMP No.241/2001.

2. In order to appreciate the controversy, a brief background of

the case which is not disputed by either of the parties, is

necessary.

(a) The present petitioner (which was previously known as

Alstom Limited) had entered into a contract with the

respondent for providing consultancy and commissioning of

certain electrical projects in the North East. In pursuance to

the terms and conditions of the NIT, the present petitioner

had furnished a performance guarantee for a sum of Rs. 61

lacs or so to the respondent. The agreement was entered into

sometime in 2003 and the bank guarantee was also furnished

in the same year, which was later on substituted by another

bank guarantee. The case of the petitioner is that it had

successfully executed the project but there were certain

disputes which had arisen between the parties with regard to

the payment, which were referred to the Arbitrator for

adjudication. The respondent also has purported to have

raised certain disputes regarding the over payment having

been drawn allegedly by floating of wrong bills. It is the case

of the respondent that as a matter of fact, a case was

registered by the CBI against the present petitioner for having

floated wrong and fictitious bills and taken illegal payments

by raising such bills.

(b) The respondent in the year 2003 itself tried to invoke the

performance bank guarantee on account of the fact that the

petitioner was not able to perform the work according to their

satisfaction. This necessitated the filing of a petition being

OMP No. 241/2001 by the Alstom Limited, predecessor-in-

interest of the present petitioner under Section 9 of the

Arbitration and Conciliation Act. The said petition was

disposed of by this Court vide order dated 05.02.2003

wherein it was observed that although there are allegations

made by the CBI against the present petitioner for having

drawn excess and wrongful payments but at the same time,

there is no dispute about the fact that the petitioner is

purported to have performed and executed successfully the

project, for which it was engaged, to the satisfaction of the

respondent. In the light of these two competing interests, one

with regard to the successful execution of the entire project

and the other with regard to an allegation made against the

petitioner of having overdrawn the payment wrongfully, the

learned single Judge directed that 50% of the performance

bank guarantee be released to the petitioner whereas the

balance 50% be withheld and may be made subject to the

outcome of the proceedings which the respondent may initiate

for recovery of the overdrawn payment towards the alleged

extra work.

3. It is this balance 50% of the withheld performance bank

guarantee which is sought to be released by the present

petitioner.

4. The respondent has filed the reply and contested the claim of

the petitioner for the release of this 50% of the balance value

of the performance bank guarantee on the ground that the

counter claim of the respondent to the tune of `90 lacs or so

is still pending adjudication and is on a fairly advanced stage

before Shri S.N.Phukan, the learned sole arbitrator.

Therefore, so long as the said counter claim of the respondent

is not finally adjudicated, the balance 50% of the amount may

not be released to the petitioner.

5. I have heard Mr. T.K. Ganju, learned senior counsel for the

petitioner as well as Mr. V.K. Jindal, learned senior counsel

for the respondent and have also perused the record.

6. There is no dispute about the fact that the law regarding

performance guarantee is well-settled in the sense that once

the performance guarantee is furnished by a contracting

party and the opposite side is fully satisfied regarding the

performance of the contract, having been successfully

executed, the guarantee deserves to be released. It was

contended by Mr. Ganju, learned senior counsel, that since

there is no dispute that the withheld 50% amount pertains to

performance guarantee and the work has been executed,

there is no justification for withholding the balance 50% of

the amount. It has been stated that both the period of

warranty and latent guarantee or otherwise also according to

the terms and conditions of the contract, were valid for a

maximum period of six years, which period came to an end in

2009. The learned senior counsel had drawn the attention of

the Court to the relevant clause of the agreement in this

regard. In addition to this, it was also contended that the

CBI has also filed a Closure Report which has been accepted

by the competent Court and, therefore, there is no

justification for withholding the said amount of performance

guarantee any more.

7. In the present case, there is no dispute about the fact, as has

been observed by the learned single Judge in its order dated

05.02.2003 that so far as the question of the performance of

the project by the petitioner is concerned, that has actually

been completed to the satisfaction of the respondent and

consequently in normal circumstances, the bank guarantee

which was in the nature of the performance guarantee

furnished by the petitioner ought to have been discharged or

released. But with the performance guarantee having been

invoked, the petitioner was constrained to approach the Court

(by filing OMP No.241/2001) for a restraint order whereupon

the Court also took into consideration the fact that there were

serious allegations against the present petitioner itself for

having raised false, frivolous and wrongful bills and

consequently over drawn the payment. On account of the

said allegations against the petitioner, the CBI registered an

FIR. It was on account of these serious allegations levelled

against the petitioner by the CBI that the learned single

Judge, while balancing the equities, directed release of only

50% of the performance guarantee amount whereas the

balance 50% was made subject to the decision in the counter

claim which may be filed by the respondent against the

present petitioner.

8. It is the case of the petitioner that so far as the CBI case

against the present petitioner is concerned, a Closure Report

had already been filed by the CBI, which has been accepted

by the competent court. The learned senior counsel has in

this regard placed on record a copy of the Closure Report and

drawn the attention of the Court to the relevant averments

made in the Closure Report. This fact has also not been

disputed by the learned senior counsel for the respondent. If

that be so, the main ground on the basis of which the balance

50% of the performance guarantee amount was withheld,

goes.

9. It has also been contended by the learned senior counsel for

the petitioner that according to the terms and conditions of

the contract, the equipment which was installed by the

present petitioner was to have warranty and the latent

guarantee ranging from a period of 15 months to maximum of

6 years, and even this period of six years has elapsed and

there has been no defect pointed out in the equipment

provided by the petitioner to the respondent, therefore, that

could also not be a ground for withholding the balance 50% of

the amount of performance guarantee.

10. This argument could not be successfully countered by the

learned senior counsel for the respondent.

11. I fully agree with the contention of the learned senior counsel

for the petitioner that according to the terms and conditions,

it is neither in dispute that the work has been successfully

executed in 2003 nor that the period of six years, which is the

maximum period provided for the warranty and latent

guarantee with regard to the equipment provided by the

petitioner, has also come to an end. Therefore, it could not be

a valid justification for depriving the petitioner of his

legitimate claim by withholding the balance 50% of the

amount of performance guarantee. The CBI case has also

been closed, so that could also not be a ground for

withholding the amount from the petitioner.

12. Now, the only ground on which the balance 50% of the

performance guarantee amount has been withheld is the

counter claim, which is under adjudication before the learned

sole arbitrator. The petitioner had admittedly filed an

application for release of that balance 50% amount with the

learned sole arbitrator who refused to pass any order on the

ground that this was a condition which was imposed by the

Court and, therefore, the petitioner must approach the Court

for modification of the said order. It is because of this reason

that the restraint was issued. The present petition is as a

sequel to the direction given by the learned arbitrator. Since

the learned single Judge vide order dated 05.02.2003 has

specifically directed that the balance 50% shall be released to

the petitioner subject to the decision in the proceedings

initiated by the respondent, therefore, in order to balance the

equities, I am of the view that no useful purpose would be

served by keeping the balance 50% amount of the

performance guarantee if the interest of the respondent to the

extent of this balance 50% is fully secured. This can be done

by directing the petitioner to either furnish an undertaking or

to give a bank guarantee with regard to this balance 50% till

the time the matter is not finally adjudicated by the learned

arbitrator.

13. I am of the considered opinion that the amount which has

been withheld by the Court is essentially forming a part of the

performance guarantee and not as a security to the counter

claim. The petitioner admittedly has successfully performed

the contract to the satisfaction of the respondent and,

therefore, there is absolutely and prima facie no valid

justification for depriving the petitioner of the said balance

50%. I feel that the application of the petitioner for the

release of the balance amount of 50% of the performance

bank guarantee deserves to be allowed on petitioner's

furnishing an undertaking to the satisfaction of the learned

Registrar (Original) of this Court stating that in the event of

the learned arbitrator deciding against the petitioner and

granting any claim of the respondent which is of any amount

up to the 50% of the bank guarantee, the said amount shall

either be deposited by the petitioner with the Registrar

General or alternatively he shall furnish necessary bank

guarantee in this regard. Needless to say that this will be

subject to such legitimate challenge which the petitioner may

like to lay to such an award, which if at all is ultimately

passed against them. Once these conditions are met, I am of

the view that the interest of the respondent will also be

sufficiently protected and accordingly, I direct the petitioner

to furnish the said undertaking to the satisfaction of the

learned Registrar within a period of two weeks from today.

On that undertaking having been furnished and accepted, the

aforesaid 50% of the balance amount of the performance

bank guarantee along with interest accrued thereupon, shall

be released to the petitioner.

14. With these observations, the application of the petitioner

stands disposed of.

V.K. SHALI, J.

MARCH      08, 2011
MA