M.S Sms-Vishwa(Jv) vs Icici Bank Ltd & Others
2012 Latest Caselaw 6556 Del

       *       IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                           Judgment reserved on: 07.11.2012
                                            Judgment pronounced on: 09.11.2012

+      IA 19947/2012 in CS(OS) 3190/2012
       M.S SMS-VISHWA(JV)                                    ..... Plaintiff

                                Through :   Mr. Rajiv Nayyar, Sr. Adv. with
                                            Mr.S.D.Singh, Mr. Amarpreet Singh, Mr.
                                            Rahul and Ms. Kamla, Advs.
                       versus

       ICICI BANK LTD & OTHERS                                 ..... Defendants

                                Through :   None.

       CORAM:
        HON'BLE MR. JUSTICE V.K. JAIN
V.K. JAIN, J.

1. Defendant No.4 Thane Municipal Corporation awarded the work of

providing laying and commissioning of gravity sewers alongwith construction of

manholes for sewerage network and design, construction, supply, erection, testing

etc. of sewerage pumping stations to the plaintiff company and an agreement dated

27.2.2009 in this regard was executed between them. In terms of Clause 10 of the

notice inviting tender, the plaintiff furnished Bank Guarantee to the tune of 2% of

the contract value and 3% of the security deposit was to be deducted from the R.A.

Bills. The security deposit was to be refunded on successful completion of the

defect liability period.

Defendant No.4 agreed to make payment towards mobilization advance to

the plaintiff subject to its furnishing Bank Guarantee to the extent of the amount of

the advance. Seven Bank Guarantees for this purpose were accordingly submitted

by defendant No.4 to the plaintiff. It is alleged that a sum of Rs.3,17,73,997/-

having already been deducted the outstanding mobilization advance which comes

to Rs.5,18,65,003/-. The plaintiff was also required to perform Bank Guarantee to

the extent of 5% of the contract value but, these guarantees are not the subject-

matter of this suit. The value of the contract, according to the plaintiff was agreed

at Rs.188.29 crores. It is alleged in the plaint that no land was available with

defendant No.4 for execution of work to the extent of Rs.114.71 crores.

It is alleged in Para 6 of the plaint that the agreement dated 27.2.2009 was

signed by defendant No.4 at Thane and then sent to the plaintiff by Post and it was

signed by the plaintiff at New Delhi on 27.2.2009. Those eight Bank

Guarantees(one towards security deposit and seven to secure the mobilization

advance) have since been invoked by defendant No.4. The case of the plaintiff is

that since the contract has not been terminated, but has rather been extended till

March, 2013, and the physical possession of the whole of the land was not given to

them, there is no breach of the contract on its part and there has been no ground for

invocation of the Bank Guarantees in question. The plaintiff is also alleging fraud

on the ground that whole of the land was not available with defendant No.4 when

the work was awarded to it. The plaintiff has accordingly sought injunction

restraining defendants No.1 to 3, which are the banks which issued the Bank

Guarantees in question, from depositing the amount of the Bank Guarantees

pursuant to the communication dated 31.10.2012 sent to them by defendant No.4.

The plaintiff is also seeking injunction restraining defendant No.4 from encashing

the aforesaid Bank Guarantees.

2. In one Bank Guarantee, the guarantor bank has, inter alia, undertaken as

under:-

"WE ........

1) Guarantee to the TMC Thane. a) Due performance and observance by the Contractor of the terms, covenants and conditions on the part of the Contractor contained in the said Agreement and b)

due and punctual payment by the Contractor to the TMC Thane of all sums of money, losses, damages, cost charges, penalties and expenses payable to the TMC Thane by the Contractor under or in respect to the said agreement.

2) Undertake to pay the TMC Thane on demand and without demand and not withstanding any dispute or disputes raised by the Contractor(s) in any suit or proceeding filed in any Court of tribunal relating thereto the said sum of Rs................ or such less sum as may be demanded by the TMC Thane from us our liability hereunder being absolute and unequivocal and agree that."

In other Bank Guarantees, the bank has, inter alia, undertaken as under:-

"As instructed by the Contractor agree unconditionally and irrevocably to guarantee as primary obligator and not as surety merely, the payment to Thane Municipal Corporation, Thane on his first demand without whatsoever right of objection on our part and without his first claim to the Contractor in the amount not exceeding .......

In the event that the obligation expressed in the Clauses of the above mentioned Contract have not been fulfilled by the Contractor giving the right of the claims to the Thane Municipal Corporation, Thane for recovery of the whole or part

of the advance mobilization loan from the Contractor under the Contract."

3. In Hindustan Steelworks Construction Ltd. vs. Tarapore and Co. (1996)

5 SCC 34, Supreme Court held that in case of an unconditional Bank Guarantee,

the nature of obligation of the bank is absolute and not dependent upon any dispute

or proceeding between the party at whose instance the Bank Guarantee is given

and the beneficiary, there being only two exceptions - fraud and special equities.

In that case Special equities were claimed on the basis as to who had committed

breach of the contract. Determination of disputes was held not to be a factor, which

would be sufficient to make the case as exceptional case justifying interference by

the court restraining invocation of the Bank Guarantee.

In Ansal Engineering Project Ltd. vs. Tehri Hydro Development

Corporation Ltd. and Anr. (1996) 5 SCC 450, Supreme Court inter alia held as

under:-

"4. It is settled law that Bank Guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the Bank Guarantee was given and the beneficiary. Unless fraud or special equity exists, is

pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the Bank Guarantee even if dispute between the beneficiary and the person at whose instance the Bank Guarantee was given by the Bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof.

x x x

5. .......The court exercising its power cannot interfere with enforcement of Bank Guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties. The trading operation would not be jettisoned and faith of the people in the efficacy of banking transactions would not be eroded or brought to disbelief."

In U.P. State Sugar Corporation Vs. Sumac International Ltd. (1997) 1

SCC 568, the Supreme Court held as under:-

"The law relating to invocation of such Bank Guarantees is by now well settled. When in the course of commercial dealings an unconditional Bank Guarantee is given or accepted, the beneficiary is entitled to realize such a Bank Guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its

customer. The very purpose of giving such a Bank Guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a Bank Guarantee. 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 the 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. Since in most cases payment of money under such a Bank Guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country."

4. The legal proposition with respect to irretrievable injury was summarized by

this Court in the case of Dwarikesh Sugar Industries Ltd. vs. Prem Heavy

Engineering Works (P) Ltd. and Anr., (1997) 6 SCC 450, as under:-

"The second exception to the rule of granting injunction, i.e., the resulting of irretrievable injury, has to be such a circumstance which would make it impossible for the guarantor to reimburse himself, if he ultimately succeeds. This will have to be decisively established and it must be proved to the satisfaction of the court that there would be no

possibility whatsoever of the recovery of the amount from the beneficiary, by way of restitution."

In Hindustan Construction Co. Ltd. and Anr. Vs. Satluj Jal Vidyut

Nigam Ltd., AIR 2006 Delhi 169, this Court held that the exceptional case pleaded

against encashment of Bank Guarantee needs to fall within any of the following

limited categories:

i) If there is a fraud in connection with the Bank Guarantee which would vitiate the very foundation of such guarantee and the beneficiary seeks to take advantage of such fraud.

ii) The applicant, in the facts and circumstance of the case, clearly establishes a case of irretrievable injustice or irreparable damage.

iii) The applicant is able to establish exceptional or special equities of the kind which would prick the judicial conscience of the court.

iv) When the Bank Guarantee is not invoked strictly in its terms and by the person empowered to invoke under the terms of the guarantee. In other words, the letter of invocation is in apparent violation to the specific terms of the Bank Guarantee."

5. Relying upon the decision of the Hon'ble Supreme Court in Hindustan

Construction Co. Ltd. vs. State of Bihar and Others [(1999) 8 SCC 436, which

was followed by this Court in Vindhya Telelinks Limited v Mahanagar

Telephone Nigam Ltd. & Anr. [2002(2) RAJ 606 (Del.)], it was contended by the

learned counsel for the plaintiff that since there was no breach of the contract on

the part of the plaintiff, there was no occasion for the defendant no.4 to invoke the

Bank Guarantee. He also submitted that the Bank Guarantees furnished in this case

contained a clause identical to the corresponding clause in the Bank Guarantee

which the Supreme Court came to examine in the case of Hindustan Construction

(supra). The Bank Guarantee in that case, inter alia, contained the following

Clause:

"...in the event that the obligations expressed in the said clause of the above-mentioned contract have not been fulfilled by the contractor giving the right of claim to the employer for recovery of the whole or part of the advance mobilization loan from the contractor under the contract."

The following view was taken by the Supreme Court in that case:

"8.......In contracts awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, Bank Guarantees are usually required to be furnished in favour of the Government to secure payments made to the contractor as "advance" from time to time during the course of the contract as also to secure performance of the

work entrusted under the contract. Such guarantees are encashable in terms thereof on the lapse of the contractor either in the performanace of the work or in paying back to the Government "advance", the guarantee is invoked and the amount is recovered from the bank. It is for this reason that the courts are reluctant in granting an injunction against the invocation of Bank Guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the guarantor....."

The Supreme Court, referring to the above extracted Claues in the Bank

Guarantees, observed as under:

"14.This condition clearly refers to the original contract between HCCL and the defendants and postulates that if the obligations, expressed in the contract, are not fulfilled by HCCL giving to the defendants the right to claim recovery of the whole or part of the "advance mobilization loan", then the Bank would pay the amount due under the guarantee to the Executive Engineer. By referring specifically to clause 9, the Bank has qualified its liability to pay the amount covered by the guarantee relating to "advance mobilization loan" to the Executive Engineer only if the obligations under the contract were not fulfilled by HCCL or HCCL has misappropriated any portion of the "advance mobilization loan". It is in these

circumstances that the aforesaid clause would operate and the whole of the amount covered by the "mobilization advance" would become payable on demand. The Bank Guarantee thus could be invoked only in the circumstances referred to in clause 9 whereunder the amount would become payable only if the obligations are not fulfilled or there is misappropriation. That being so, the Bank Guarantee could not be said to be unconditional or unequivocal in terms so that the defendants could be said to have had an unfettered right to invoke that guarantee and demand immediate payment thereof from the Bank..."

xxx

22. We have scrutinized the facts pleaded by the parties in respect of both the Bank Guarantees as also the documents filed before us and we are , prima facie, of the opinion that the lapse was on the part of the defendants who were not possessed of sufficient funds for completion of the work. The allegation of the defendants that HCCL itself had abandoned the work does not, prima facie, appear to be correct and it is for this reason that we are of the positive view that the "special equities" are wholly in favour of HCCL."

6. However, I need not go into the question as to whether there was any breach

of the contract, on the part of the plaintiff or not, since prima facie I am of the view

that this Court has no territorial jurisdiction to try the present suit. The case of the

plaintiff, as set out in the plaint and also canvassed during arguments was that the

agreement dated 27.2.2009 was signed on behalf of the defendant no.4 at Mumbai

and then sent to the plaintiff at Delhi, where it was signed by its Authorized

Signatory. Since defendant no.4 is a public body, in case it were to sign the

agreement at Mumbai and then send it to Delhi for signatures on behalf of the

plaintiff company, the agreement would have been sent to the plaintiff company

along with a forwarding letter. Since there was no reference to any such

forwarding letter in the plaint, I asked the learned counsel for the plaintiff as to

what was the mode of sending the agreement from Mumbai to Delhi. The learned

counsel for the plaintiff stated that the agreement, after being sent on behalf of

defendant no.4, was sent to Delhi through a special messenger without any

forwarding letter. However, there is no averment to this effect in the plaint and on

being asked, the learned counsel for the plaintiff could not give either the name or

designation of the officer/official who allegedly brought the agreement from

Mumbai to Delhi. In the ordinary course of conduct of their business, public bodies

such as defendant no.4 do not act in the manner stated by the plaintiff and the

agreement is signed by all the parties at the same place. Ordinarily, the contractor

executes such agreement in the office of the concerned public body where it is also

signed on behalf of the said public body. In fact, the stamp of Typing and

Computer Centre, where this agreement appear to have been typed, is of Thane and

bears the date 27.2.2009. The agreement purports to have executed on 27.2.2009

and the authorized signatory of the plaintiff has also signed it on the same date. It

is difficult to accept that the agreement was typed at Thane, signed by the Chief

Engineer of defendant no.4 at Thane, sent to Delhi through a special messenger

and then signed by the authorized signatory of the plaintiff at Delhi and all this

happened in day i.e. on 27.2.2009. It would be difficult for me to accept that all

these tasks were accomplished on the same date i.e. 27.2.2009. Therefore, prima

facie, I am unable to accept the contention that the agreement dated 27.2.2009 was

executed by the defendant no.4 at Thane and by the plaintiff at Delhi. It appears to

me that the agreement was executed at Thane and was signed there on behalf of

both the parties on 27.2.2009.

7. When this matter was heard on 2.11.2012, I specifically asked the learned

counsel for the plaintiff as to how Delhi Court had territorial jurisdiction to try the

present suit. The reply given by the learned counsel for the plaintiff was that since

the Bank Guarantees were issued by the banks at Delhi, this Court has territorial

jurisdiction to try this suit. He also submitted that there is a decision of the

Supreme Court where this proposition was laid down by the Apex Court. However,

the learned counsel for the plaintiff was unable to bring any such decision to my

notice. In fact, the view taken by the Supreme Court in this regard appears to be

contrary to the preposition advanced by the learned counsel. In South East Asia

Shipping Co. Ltd.v Navbharat Enterprises Pvt. Ltd. & Ors. (1996) 3 SCC 443. the

contract was executed at Bombay. In furtherance of the contract executed at

Bombay, the respondent had executed the Bank Guarantee at Delhi and transmitted

it to Bombay for performance of the contract. The question, therefore, was whether

any part of cause of action had arisen in Delhi. Relying upon the decision in A.B.C.

Laminart (P) Ltd. v A.P. Agencies [1989(2) SCC 163], it was contended by the

learned counsel for the respondent that since part of the cause of action had arisen

in Delhi, this Court on the Original Side had the jurisdiction to entertain the suit.

Rejecting the contention, the Supreme Court held as under:

"3. It is settled law that cause of action consists of bundle of facts which give cause to enforce the legal injury for redress in a court of law. The cause of action means, therefore, every fact, which if transversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the Court. In other words, it is a bundle of facts, which taken with the law applicable to them, gives the plaintiff a right to claim relief against the defendant. It must include some act done by the

defendant since in the absence of such an act no cause of action would possibly accrue or would arise. In view of the admitted position that contract was executed in Bombay, i.e., within the jurisdiction of the High Court of Bombay, performance of the contract was also to be done within the jurisdiction of the Bombay High Court; merely because Bank Guarantee was executed at Delhi and transmitted for performance to Bombay, it does not constitute a cause of action to give rise to the respondent to lay the suit on the original side of the Delhi High Court. The contention that the Division Bench was right in its finding and that since the Bank Guarantee was executed and liability was enforced from the bank at Delhi, the Court got jurisdiction, cannot be sustained.

4. We, therefore, hold that the learned single Judge was right in his conclusion that no part of the cause of action had arisen within the jurisdiction on the original side of the High Court of Delhi and direct to return the plaint for presentation to the proper court.

8. In the case before this Court, if the contract was executed at Thane, as

appears to be the case, this Court would have no jurisdiction to entertain the

present suit, since undisputedly the Bank Guarantees were submitted at Thane and

the contract was to be executed within the jurisdiction of defendant no.4 at Thane.

9. Since prima facie, it appears to me that this Court had no territorial

jurisdiction to try the present suit, grant of ad interim ex parte injunction by this

Court against encashment of the Bank Guarantees would not be justified. The

request for grant of ex parte ad interim injunction is, therefore, declined.

V.K.JAIN, J NOVEMBER 09, 2012/ks/rd