Delhi High Court
Voltas Ltd vs Ncc Ltd & Anr on 10 December, 2014
Author: Deepa Sharma
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. 1117/2014
% Judgment Reserved on: 02.12.2014
Judgement pronounced on: 10.12.2014
VOLTAS LTD ..... Petitioner
Through: Mr.P.K.Sharma and Mr.Sanjay
Grover, Advocates
versus
NCC LTD & ANR ..... Respondents
Through: Ms.Priya Kumar, Advocate
CORAM:
HON'BLE MS. JUSTICE DEEPA SHARMA
JUDGMENT
1. The present petition has been filed under Section 9 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as "the Act") for the
relief that respondent No.1 be restrained from invoking three bank
guarantees bearing Nos.999513BG0002397, 0999513BG0002398 and
0999513BG0002399 all dated 24.09.2013 of the following nature:-
S.No. Date Description Amount
i) 24.09.2013 Mobilization Bank Guarantee 1,30,56,750.00
ii) 24.09.2013 Performance Bank Guarantee 1,09,50,000.00
iii) 24.09.2013 Retention Bank Guarantee 99,50,000.00
Total Rs. 3,39,56,750.00
2. The admitted facts of the case are that respondent No. 1 was formerly
known as Nagarjuna Construction Company Ltd. and was a part of an un-
incorporated joint-venture (JV), namely M/s CRSSG-NCC(JV). The JV was
awarded the work under a tender floated by National Building Construction
Company Ltd. (NBCC Ltd.) on behalf of Employee State Insurance
Corporation (ESIC) for the construction of ESIC Medical College-cum-
Hospital at Mandi Himachal Pradesh. The Joint Venture ceased to exist and
its rights and liabilities have been taken over by respondent No.1. Work for
supply, erection and commissioning of air-conditioning equipment in the
five buildings of ESIC was awarded to the petitioner for a fixed contract
having value of Rs.2,19,00,000/-. The completion period of the work was 14
months. At that time, the petitioner had furnished three bank guarantees of a
sum of Rs. 4,28,00,000/-. During the course of execution of the work, some
dispute arose between the petitioner and respondent No.1 and respondent
No.1 encashed the bank guarantees of total sum of Rs.4,28,00,000/- on
07.06.2013. The petitioner filed OMP No. 672 of 2013 under Section 9 of
the Act seeking stay of the operation of termination letter dated 01.07.2013
by which the contract was terminated by respondent No.1. The petitioner
also moved a petition under Section 11 of the Act being Arbitration Petition
No. 284/2013, whereby a sole Arbitrator was appointed to resolve that
dispute vide order dated 30.08.2013. Subsequent thereon, the parties
entered into a negotiation. The petitioner sought an adjournment on
11.09.2013 from Arbitrator and subsequently, the petitioner and respondent
No.1 entered into a settlement and pursuant to that settlement, a
Memorandum of Understanding (MoU) dated 18.09.2013 was drawn.
Pursuant to the terms of this MoU, respondent No. 1 refunded the sum of
Rs.4,28,00,000/-, which the respondent was having pursuant to the
encashment of three bank guarantees of the petitioner and in turn the
petitioner furnished fresh bank guarantees for Rs.3,39,56,750/-. Respondent
No.1 also agreed to compensate the petitioner by way of escalation charges
which was quantified at Rs.1,25,00,000/- and agreed to pay in four equal
instalments in the following manner:-
S. No. Date Amount (Rs.)
1. 18.12.2013 31,25,000/-
2. 18.03.2014 31,25,000/-
3. 18.06.2014 31,25,000/-
4. 18.09.2014 31,25,000/-
_______________________
Total Rs. 1,25,00,000/-
_______________________
3. The petitioner resumed the work in view of this MoU. Under the
terms of the MoU, bills for future work were to be paid within 45 days. The
petitioner raised the following bills, details of which are shown as under:-
RA Bill No. Bill Date Due Amount (Rs.)
11th RA Bill 28.11.2013 3,480,389.00
12th RA Bill 26.12.2013 5,087,207.00
13th RA Bill 25.01.2014 2,072,761.00
14th RA Bill 24.02.2014 854,463.00
15th RA Bill 25.03.2014 2,781,502.92
16th RA Bill 14.04.2014 3,110,789.00
17th RA Bill 28.05.2014 1,041,173.00
18th RA Bill 26.06.2014 1,249,202.00
Total Rs. 1,96,77,486.92
4. The respondent No.1 against those bills paid a sum of
Rs.1,24,84,211/-. The petitioner has submitted that respondent No. 1 is in
financial difficulties and has been unable to pay its debts and has also not
made the payment of RA bills to the petitioner and in terms of the MoU has
not paid single instalment of escalation amount of Rs. 1.25 crores and is
presently in default to the extent of Rs.1,96,93,275/-. It is submitted that in
its correspondence dated 06.02.2014, 11.02.2014 and 08.03.2014, the
respondent No.1 had admitted his liability. The credit Rating Agency
CRISIL has also downgraded the debt of respondent No.1 to category 'D'
from the earlier category "BB+". It is further contended that respondent
No.1 had in its meeting dated 02.08.2014 had decided to release the balance
payment, including two escalation. It is further submitted that the work of
ESIC Hospital has been stopped because the respondent No.1 has not made
any payment to its contractors and this fact was also reported on 23.08.2014
in the newspaper Amar Ujala. It is further submitted that on account of
inability of respondent No.1 to pay debts, the petitioner has issued a winding
up notice dated 13.09.2014 to respondent No.1 at its registered office at
Hyderabad. The petitioner had received a letter dated 13.09.2014 from
respondent No.1, wherein various false allegations have been made by
respondent No.1 and they had also threatened the petitioner that they were
going to encash the bank guarantees and would get the balance work
executed at petitioner's risk and cost. This letter was received by the
petitioner on 13.09.2014 by e-mail at 3.00 PM. It is submitted that this
threat to encash the bank guarantees amounts to a clear and egregious fraud
by respondent No.1. It is further pleaded that in terms of MoU, it was agreed
between the parties that respondent No. 1 shall pay escalation charges
amounting to Rs. 1.25 crores to petitioner upon the submission of bank
guarantee. Thus, for the release of the escalation charges amounting to Rs.
1.25 crores, the petitioner had submitted bank guarantees to the extent of
Rs.3.39 crores. The respondent is in the breach of MoU has failed to release
the escalation amount and has caused losses to the petitioner who has kept
the bank guarantee alive till date. It is submitted that bank guarantees were
provided as part of consideration for the release of the escalation charges.
Since the respondent No.1 had failed to release the escalation amount, they
are playing fraud upon the petitioner. On these facts, it is prayed that
respondent No.1 be restrained from invoking the bank guarantee.
5. The petition is contested by the respondent. It is pleaded by
respondent No.1 that the petitioner has not pleaded any facts in respect of
fraud. It is submitted that the fraud is required to be pleaded and established,
especially when it is the ground of seeking restraint order for encashing the
bank guarantee. It is submitted that on the other hand, the petitioner has
played a fraud on this Court. It is submitted that contention of the petitioner
that bank guarantees were given for the release of escalation amount and
that the bank guarantee was three times to the escalation amount is contrary
to the fact since the bank guarantees were given for performance, towards
mobilization advance and towards retention money as per agreed terms and
this fact the petitioner has himself stated in his petition as well. It is
submitted that bank guarantee is an independent contract and the Court can
only restrain its encashment either on the ground of egregious fraud or
irretrievable injustice. It is submitted that irretrievable injustice means a
situation where the financial condition of the beneficiary under the bank
guarantee or for any other circumstance, it would be impossible for the
petitioner to recover this amount if it found entitled for that amount at a later
stage. It is submitted that there is nothing on record to show that the
petitioner would not be able to recover the bank guarantee amount from
respondent. It is submitted that this Court has also no jurisdiction to
entertain the dispute between the parties arising out of the contract. It is
submitted that admittedly a work order of Rs. 21,80,00,000/- was awarded to
the petitioner, but the petitioner was only able to complete the work of Rs.
8.84 crores when the contract was terminated by the respondent No.1 and
vide this MoU a total value of the work of Rs.21,90,00,000/- was awarded to
the petitioner to be finished in 14 months, which was extendable to two
more months. It was towards the fulfilment of this contract that the fresh
bank guarantees were furnished. The petitioner had also submitted a
progress schedule dated 17.09.2013 along with the MoU. This schedule had
shown the expected completion date as 20.09.2014 and the petitioner has not
intentionally placed this document on the Court file along with his petition.
It is submitted that it was only on account of the assurance and
representation on the part of the petitioner, that he would be able to
complete the work by 20.09.2014, that the respondent No. 1 had agreed to
enter into an MoU and returned the earlier encashed bank guarantees of Rs.
4,28,00,000/- furnished at the time of earlier work order. As a good gesture,
the respondent No.1 also agreed to pay the escalation price, but it was for
the future work as the petitioner had agreed to finish the work on the same
price on which the contract in the year 2010 was entered into between them.
This escalation was to be paid in four instalments as per schedule keeping in
mind the schedule of the progress submitted by the petitioner. It is submitted
that as per industry practice, there could be no payment, including that of
escalation, if the contractor fails to execute the work as agreed between the
parties or abandons it. The petitioner miserably failed to adhere to the
schedule submitted by him and this fact is clear from the various RA bills
which show that between 28.11.2013 to 26.06.2014, he had completed the
work of Rs.1,96,77,486.92/- while he had to finish within a year a work
worth of Rs.21,90,00,000/-, which itself shows the tardy progress of work
on the part of the petitioner. It is submitted that petitioner had tried to
mislead the Court. It is further submitted that respondent No.1 is a public
company having a turnover of about Rs.6270.83 crores as an individual and
Rs. 7568.69 crores as a group and is engaged in construction businesses of
various types, including housing, hospitals, stadiums, water works, etc. and
also in the process of executing several projects running into hundreds of
crores. Therefore, the petitioner is not entitled for the relief on account of
irretrievable injustice. It is submitted that rating revised by CRISIL is in no
way affect the financial status of respondent No.1 and the respondent No.1
is a solvent company. On these facts, it is submitted that the petition is not
only liable to be dismissed, but the petitioner is also liable to perjury as he
tried to mislead the Court and obtained an order on false facts.
6. Rejoinder has been filed by the petitioner, wherein he has again
attributed the fraud on the part of respondent No.1, on account of
respondent's refusal to pay escalation charges and the balance amount of RA
bills, and argued that it was the consideration for providing the bank
guarantee. It is further submitted that several cheques of respondent No.1
given to the petitioner were dishonoured, on account of respondent No.1
having no sufficient funds. It is further submitted that the petitioner had
made it clear that it was not willing to carry out the work unless it was
provided escalation charges because the respondent No.1 had received an
escalation of approximately 30 crores from ESIC/NBCC. It is further
submitted that after the termination of the work order dated 01.07.2013, the
respondent No.1 made several attempts to get the work completed through
other agencies like Suvidhar Engineers India Pvt. Ltd., but they refused to
take the work knowing that the respondent had defaulted on its obligations
with the petitioner. Thereafter, the respondent again approached the
petitioner for completion of the work and agreed to the petitioner's main
demand, i.e, to provide escalation on the work already carried out by the
petitioner. It was on these grounds that the MoU was executed. It is further
prayed that respondent be restrained from invoking the bank guarantee.
7. The contention of the petitioner on 17.09.2014, before this Court was
that in terms of MoU, the respondent had to pay a sum of Rs.1,96,77,486/-
to petitioner, but instead of paying the said sum, the respondents had
proceeded to invoke the bank guarantee and thereby playing fraud upon the
petitioner. On that day, the counsel for respondent was also present and
while the respondent was given time to file its short-affidavit, an order of
status quo in respect of the bank guarantees was passed. That order is still
operative till date.
8. Parties have also furnished their written synopsis. In the written
synopsis, the submissions made by the petitioner is that the fraud has been
played upon the petitioner since the respondents by making
misrepresentation and fraudulent representation, induced the petitioner to
execute the MoU dated 18.09.2013 and secured three bank guarantees with
the sole purpose to encash the same with the sole objective of financial
enrichment. It is submitted that from the very beginning, the respondent had
no intention of honouring its obligations while the petitioner had fulfilled his
two commitments under the MoU, i.e., providing fresh bank guarantee and
resuming the work. It is submitted that respondent was well aware at the
time of signing the MoU that its financial condition was precarious and they
by inducing the petitioner to enter into an MoU had played fraud upon him.
It is further submitted that the reading of the bank guarantees clearly shows
that the bank guarantees are interlinked with MoU dated 18.09.2013 and
were not executed independently. It is argued that since the fraud has been
played which is egregious in nature, the respondent be restrained from
invoking the bank guarantee. (Reliance is placed on Meghmala and Others
vs. G. Narasimha Reddy and Ors. (2010) 8 SCC 383 and Hindustan
Construction Co.Ltd. vs. State of Bihar and Ors. (1999) 8 SCC 436.
9. On the other hand, it is argued on behalf of the respondent that the
bank guarantees were unconditional and irrevocable. The respondent No.2,
i.e., Bank, as per the terms of the bank guarantee, has undertaken to pay the
amount on demand of the beneficiary, i.e, respondent No.1, without
enquiring into the terms of the agreement or any other circumstance and
notwithstanding any dispute raised by M/s Voltas Limited. The liability of
the bank is absolute and unequivocal under the guarantees. It is further
argued that the law of injunction against the encashment of the bank
guarantee empowers the Court to stay the encashment only on the grounds
when a fraud of egregious nature has been played upon the petitioner or
when the petitioner is going to suffer irretrievable injustice. Reliance is
placed on Consortium of Deepak Cable India Limited vs. Teestavalley
Power Transmission Limited, FAO (OS) 397 and 398/2014.
10. The respondent has also placed reliance in the case of NTPC Limited
vs. Flowmore Private Limited, 1995(4) SCC 515, Hindustan Steel Works
Construction Ltd. Vs. Tarapore & Company, 1996(5) SCC 34, U.P. State
Sugar Corporation vs. Sumac International Ltd. 1997(1) SCC 568,
Mahatma Gandhi Sahakari Sakhar Karkhana Vs. National Heavy
Engineering Coop. Ltd. and Anr. (2007) 6 SCC 470 and Dwarikesh Sugar
Industries Ltd. vs. Prem Heavy Engineering Works Pvt. Ltd. (1997) 6 SCC
450.
11. It is argued that the respondent No.1 is a solvent company having
huge turnover and so the petitioner is not going to suffer any irretrievable
loss. It is further argued that even in the cases of Sick Companies, the
Supreme Court has declined to restrain encashment of the bank guarantee.
(Reliance is placed on U.P. State Sugar Corporation (supra)). It is further
submitted that the petitioner has not been able to show that a fraud has been
played upon him. It is further submitted that whether the escalation price
was payable in relation to the previous work or the work done under MoU is
a matter which qualifies the contractual dispute and does not constitute fraud
which can vitiate the transition of issuance of bank guarantee. Similarly,
whether any amount is payable by the respondent No.1 is again the subject
matter, to be adjudicated upon in the proceedings and is not the scope of
present proceedings. It is submitted that the petition is liable to be dismissed.
12. I have heard the arguments of learned counsel for the parties at length.
I have also gone through the synopsis submitted by the parties and the case
laws supplied by them.
13. The present dispute relates to the encashment of three bank guarantees
of total value of Rs. 3,39,56,750/- which the petitioner had submitted to the
respondent No.1 on execution of MoU dated 17.09.2013 between them. The
respondents' case is that these are unconditional bank guarantees.
14. The petitioner has not pleaded anywhere, either in his petition or in
his rejoinder that these bank guarantees were unconditional bank guarantees.
However, during the course of arguments and also in his written
submissions, it is argued by the petitioner that the bank guarantees were not
unconditional, but were related to the MoU, hence these are conditional
bank guarantees and cannot be encashed unless the terms and conditions of
the MoU are fulfilled. It is argued that one of the terms and conditions of the
MoU was that the respondent No.1 was to clear the RA bills and also make
the payment of the escalation amount, as per the schedule. It is submitted
that part of the money towards RA bills is still due and that no payment has
been made towards escalation charges, therefore, the respondent cannot
encash the bank guarantee. For this purpose, it is essential to understand the
nature of the bank guarantee.
15. The nature and purpose of bank guarantee has been discussed by
Supreme Court in the case of Hindustan Construction vs. State of Bihar
(1999) 8 SCC 436, relied upon by the petitioner. The relevant paragraphs 8
and 9 of the said judgment are reproduced as under:-
"8. Now, a bank guarantee is the common mode of
securing payment of money in commercial dealings as
the beneficiary, under the Guarantee, is entitled to
realise the whole of the amount under that Guarantee in
terms thereof irrespective of any pending dispute
between the person on whose behalf the Guarantee was
given and the beneficiary. 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 excusable in terms
thereof on the lapse of the contractor either in the
performance 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. This was the
principle laid down by this Court in various decisions.
In U.P. Cooperative Federation Ltd. v. Singh
Consultants & Engineers Pvt. Ltd.: [1988]1SCR1124,
the law laid down in Bolivinter Oil SA v. Chase
Manhattan Bank [1984] 1 All E.R. 351 was approved
and it was held that an unconditional Bank Guarantee
could be invoked in terms thereof by the person in
whose favour the Bank Guarantee was given and the
Courts would not grant any injunction restraining the
invocation except in the case of fraud or irretrievable
injury. In Svenska Handelsbanken v. Indian Charge
Chrome: AIR1994SC626; Larsen & Toubro Ltd.
v. Maharashtra State Electricity Board:
AIR1996SC334; Hindustan Steel Works Construction
Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd.:
AIR1996SC131; National Thermal Power Corporation
Ltd. v. Flowmeore (P) Ltd.: AIR1996SC445 ; State of
Maharashtra v. National Construction Co.:
[1996]1SCR293; Hindustan Steel Works Construction
Ltd. v.Tarapore & Co :AIR1996SC2268 as also in U.P.
State Sugar Corporation v. Sumac International Ltd.:
AIR1997SC1644 , the same principle has been laid
down and reiterated.
9. What is important, therefore, is that the Bank
Guarantee should be in unequivocal terms,
unconditional and recite that the amount would be paid
without demur or objection and irrespective of any
dispute that might have cropped up or might have been
pending between the beneficiary under the Bank
Guarantee or the person on whose behalf the Guarantee
was furnished. The terms of the Bank Guarantee are,
therefore, extremely material. Since the Bank
Guarantee represents an independent contract between
the Bank and the beneficiary, both the parties would be
bound by the terms thereof. The invocation, therefore,
will have to be in accordance with the terms of the
Bank Guarantee; or else, the invocation itself would be
bad."
16. In the light of this settled law, we need to examine the bank guarantee
furnished by the petitioner. The bank guarantee is an independent contract
between the beneficiary and the bank. So, if it is unconditional, then this
contract between the beneficiary and the bank has to be honoured. The
Court cannot restrain the two contracting parties to honour their agreement,
unless except on the two grounds, i.e., an egregious nature of fraud has been
played upon the petitioner, which had issued this bank guarantee, or that he
shall suffer an irretrievable loss. The bank guarantees in dispute had been
issued towards mobilization, advance purpose/execution of the works
awarded. The language used in all the three bank guarantees is the same,
except that one qualifies as bank guarantee towards mobilization and other
towards advance purpose/execution of work. In order to understand the
nature of bank guarantee-one of them is reproduced as under:-
"M/s CRSSG-NCC(JV)
9TH Floor, JMD Regent Square,
DLF Qutub Enclave, Phase-II
Mehrauli-Gurgaon Road
Haryana
RE:-Irrevocable and Unconditional Bank
Guarantee No.999513BG0002397
At the request of and for the account of M/s. Voltas
Limited, A-43, Mohan Coop. Industrial Estate,
Mathura Road, New Delhi a company incorporated
under the Companies Act, 1956 and having its
Registered Office at Voltas House 'A', Baba Saheb
Ambedkar Road, Chinchpokli, Mumbai-400033
("Obligee"), we, State Bank of India, CAG Branch,
Ballard Estate, Mumbai-400 001 (Bank) having its
Registered Office/Head Office at Nariman Point,
Mumbai, a Corporation organized and existing under
the laws of India, hereby issue our irrevocable and
unconditional Bank Guarantee No. 999513BG0002397
(Guarantee) in favour of CRSSG-NCC (JV), having
its Registered Office 9th Floor, JMD Regent Square,
DLF Qutub Enclave, Phase-II, Mehrauli-Gurgaon
Road, Gurgaon-100022, Haryana, together with its
successors and assigns ("Beneficiary"). We
understand that M/s Voltas Limited (oblige) was
awarded the work of HVAC Works at ESIC Mandi by
CRSSG-NCC (JV) (Beneficiary), vide Sub-Contract
Agreement No. CRSSG-
NCC(JV)/NBCC/ESIC/WO/008/10-11 dated
12.05.2010. (such Sub-Contract Agreement, as
amended and supplemented from time to time, "the
sub-Contract Agreement") valued at Rs. 21,90,00,000/-
(Rupees Twenty one Crore Ninety Lac only). We
further understanding that M/s Voltas Limited
(Obligee) is providing the Guarantee seeking release of
Mobilization Advance in connection with the Sub-
Contract Agreement dated 12.05.2010 ("the Sub-
Contract Agreement") entered into between the
Beneficiary and the oblige.
We, State Bank of India (Bank) hereby irrevocably and
unconditionally undertake on behalf of the Obligee to
pay immediately to Beneficiary, on first demand, any
sum or sums not exceeding Rs.1,30,56,750/- (Rupees
One Crore Thirty Lac Fifty Six Thousand Seven
Hundred Fifty only) (The "Stated Amount") if
Beneficiary notifies us that the Obligee has failed to
perform any of its obligations under "the Sub-Contract
Agreement", referred to above.
We, State Bank of India (Bank), agree that we shall
have no duty or right to inquire as to the basis upon
which Beneficiary has determined to present to us
this Guarantee. We shall be entitled to rely and shall
rely solely upon this Guarantee and shall be under no
duty to, nor shall we under any circumstances
whatsoever, inquire into the terms of the Sub-
Contract Agreement or any other circumstances,
matters or documents.
We undertake to pay to the said Beneficiary any money
so demanded notwithstanding any dispute or disputes
raised by the said Obligee in any suit or proceedings
pending before any Court or Tribunal relating thereto.
Our liability under this Guarantee is absolute and
unequivocal.
We, State Bank of India (Bank), hereby waive any
right we may have to first require Beneficiary to pursue
Beneficiary's legal remedies against the Obligee and
waive any presentment, demand, protest or notice of
any kind. We hereby agree that the Agreement may be
modified, amended and supplemented without our
consent in any manner and agree that no such
modification, amendment or supplement shall release,
affect or impair our liability under this Guarantee.
We, State Bank of India, shall pay any stated amount
demanded by the Beneficiary, forthwith on receipt of
the Beneficiary's demand.
Partial drawings are permitted, and this Guarantee
shall, except to the extent reduced thereby, survive any
partial drawings. The Stated Amount shall be reduced
by the amount of any partial drawing by invocation
under this Bank Guarantee at the request of
Beneficiary.
This Guarantee is valid through and including its
expiry date of 30.09.2014 (in words Thirtieth day of
September Two Thousand Fourteen). Upon request by
the Obligee, on or prior to the current Expiraty Date,
the Guarantee shall be extended, in which case we will
provide Beneficiary with an amendment hereto.
Any notice to Beneficiary in connection with this
Guarantee shall be in writing and shall be delivered by
hand with receipt acknowledged, or by Registered
mail, postage prepaid, to Beneficiary. Any amendment
reducing the amount of this Guarantee or otherwise
limiting or impairing Beneficiary's rights hereunder
shall not be effective, unless consented to in writing by
the Beneficiary.
This Guarantee will not be discharged due to the
change in the constitution of the Bank or the Obligee or
the Beneficiary.
This Guarantee shall be governed by and construed in
accordance with the laws of India.
Notwithstanding anything contained hereinabove:
a) Our liability under the Bank Guarantee shall not
exceed Rs. 1,30,56,750/- (Rupees one Crore Thirty Lac
Fifty Six Thousand Seven Hundred Fifty only)
b) This Bank Guarantee shall be valid up to 30.09.2014;
and
c) We are liable to pay the guaranteed amount or any part
thereof under this Bank Guarantee only and only if you
serve upon us a written claim or demand on or before
31.12.2014. Unless a claim in writing is presented to
us or a suit to enforce any claim under this guarantee is
filed with us with in a period of three months after the
expiry of the bank guarantee i.e. with in 31.2.2014 all
your rights under the said guarantee shall be forfeited
and we shall be released and discharged from all
liabilities thereunder."
(emphasis supplied)
17. The language and the title of these bank guarantees emphatically
show that it is an unconditional irrevocable bank guarantee and not the
conditional one, as argued by learned counsel for the petitioner. The
contention that this bank guarantee is in relation to MoU does not make the
bank guarantee as conditional one because all the bank guarantees are given
by the contractors, pursuant to the some agreement and thus all the bank
guarantees are pursuant to some agreement. That does not make a bank
guarantee a conditional one, unless it is shown in the bank guarantee that the
banks are to honour the bank guarantee on fulfilment of some condition on
the part of any party. Under this bank guarantee, the bank was under
obligation to encash the bank guarantee in favour of the beneficiary on
demand. Thus, the bank guarantees are unconditional bank guarantees and
the argument of the petitioner to the contrary has no force.
18. The petitioner has relied on the findings in the case of Hindustan
Construction Co.Ltd. (supra). However, the facts in that case are entirely
different. It is apparent from the judgment that after interpreting the bank
guarantees and the terms of the contract, the Court had reached to the
conclusion that the bank guarantees were not unconditional bank guarantees.
In the present case, however, the bank guarantees are unconditional bank
guarantees and not conditional ones. Moreover, the case law discussed by
Supreme Court in Hindustan Construction Co.Ltd. (supra) is squarely
applicable on the facts of this case, as already discussed.
19. This Court in a recent judgment Consortium of Deepak Cable India
Limited (supra), has held as under:-
"145..............Disputes pertaining to the main
contract cannot be considered by a court when a
claim under a bank guarantee is made and the
court would be precluded from embarking on an
enquiry pertaining to the prima facie nature of the
respective claim of the litigating parties relatable
to the main dispute. The dispute between the
parties to the underlying contract has to be decided
at the civil forum i.e. a civil suit if there exists no
arbitration clause in the contract or before the
arbitral tribunal if there exists an arbitration clause
in the contract. Pendency of arbitration
proceedings is no consideration while deciding on
the issue of grant of an interim injunction. That
certain amounts have been recovered under
running bills and have to be adjusted for is of no
concern in matters relating to invocation of bank
guarantee. That there are serious disputes on
questions as to who committed the breach of the
contract are no circumstances justifying granting
an injunction pertaining to a bank guarantee. Plea
of lack of good faith and/or enforcing the
guarantee with an oblique purpose or that the bank
guarantee is being invoked as a bargaining chip, a
deterrent or in an abusive manner are all irrelevant
and hence have to be ignored. There are only two
well recognized exceptions to the rule against
permitting payment under a bank guarantee. The
same are:-
A. A fraud of egregious nature;
B. Encashment of the bank guarantee would result
in irretrievable harm or injustice of an irreversible
kind to one of the parties."
Supreme Court has clearly held that the Court cannot issue an
injunction against the invocation of the bank guarantees, except in case of
fraud or in case of irretrievable injury. The petitioner, therefore, has to
establish before this Court in order to succeed that a fraud has been played
upon him while obtaining the bank guarantee or that he shall suffer an
irretrievable loss.
20. The petitioner has also relied on paras 28, 29 and 33 in the case of
Meghmala and Others (supra), wherein the expression 'fraud' has been
defined and the Courts are advised to take the element of fraud seriously and
the Court has held that any act which is tainted by fraud should not be
condoned and sustained. The Court has also relied while defining the fraud
on the findings in Lazarus Estate Ltd. Vs. Besalay (1956) 1 QB 702: (1956)
2 WLR 502, Andhra Pradesh State Financial Corporation Vs. M/s. GAR
Re-Rolling Mills & Anr. AIR 1994 SC 2151 and State of Maharashtra &
Ors. Vs. Prabhu (1994) 2 SCC 481.
In para 33, the Court has observed as under:-
"Fraud is an intrinsic, collateral act, and fraud of an
egregious nature would vitiate the most solemn
proceedings of courts of justice. Fraud is an act of
deliberate deception with a design to secure
something, which is otherwise not due. The expression
"fraud" involves two elements, deceit and injury to the
person deceived. It is a cheating intended to get an
advantage. (Vide Dr. Vimla Vs. Delhi Administration
AIR 1963 SC 1572; Indian Bank Vs. Satyam Fibres
(India) Pvt. Ltd. (1996) 5 SCC 550; State of Andhra
Pradesh Vs. T. Suryachandra Rao AIR 2005 SC 3110;
K.D. Sharma Vs. Steel Authority of India Ltd. & Ors.
(2008) 12 SCC 481; and Regional Manager, Central
Bank of India Vs. Madhulika Guruprasad Dahir &
Ors. (2008) 13 SCC 170)."
So, the question which is required to be determined by this Court is
whether any fraud has been played upon the petitioner for obtaining the
bank guarantees in dispute.
21. Fraud can be ascertained on the basis of facts. The person who comes
before the Court with the allegation that a fraud has been played upon him
has to establish those facts on record, which constitute the fraud. In its
pleading, the petitioner has only pleaded in para 21 that threat to encash the
bank guarantee amounts to a clear egregious fraud by respondent No.1. No
other fact has been pleaded by the petitioner which constitute fraud.
22. In rejoinder also, the petitioner has not pleaded any facts which
constitute fraud, except that the egregious fraud is made out from documents
and pleadings. In written synopsis and during arguments, it has been
submitted that the fraud on the part of respondent No.1 is clear from the fact
that the respondent did not pay the escalation charges under MoU and also
failed to pay the balance amount of RA bills and that the encashment of
bank guarantee was a consideration towards such payment. From the bare
reading of the MoU, it is apparent that payment of escalation charges was
not the condition precedent of submitting the bank guarantee. Encashment of
the bank guarantee was also not made conditional to the clearance of RA
bills. It is thus clear that the submission of bank guarantee was
unconditional. During the course of arguments, however, it is argued by the
learned counsel for the petitioner in a desperate attempt to succeed that the
petitioner was induced into the MoU by misrepresentation and fraudulent
representations by respondent with the sole intention to obtain the three bank
guarantees with sole purpose to encash them in order to save themselves
from financial crisis and to get enriched. These facts they were cheated into
the MoU are not pleaded by the petitioner, rather in the petition, contrary
facts have been pleaded.
23. The relevant Para 9 and 10 of petition are reproduced herein:-
"9. subsequent to the developments, the parties entered into negotiations in
order to settle the differences between them. The petitioner thereupon wrote
to the learned Arbitrator on 11.09.2013 requesting him to defer the matter,
since the parties were negotiating settlement. Thereafter the petitioner and
respondent No.1 executed a Memorandum of Understanding (MoU) dated
18.09.2013, at New Delhi.
10. Petitioner states that in terms of the aforesaid MoU, the respondent No.1
agreed to refund the sum of Rs. 4.28 crores which had been illegally
encashed by the respondent No.1. The petitioner in turn agreed to furnish
fresh guarantees for Rs.3,39,56,750/-. The respondent No.1 also accepted
the claim of the petitioner that the delay in the execution of the project and
the consequential time and cost overruns entitled the petitioner to be
compensated by Escalation. The amount of escalation was quantified at
Rs.1,25,00,000/-"
24. It, therefore, is clear that no contention is there on the part of the
petitioner in his petition that he was induced into the MoU by any
misrepresentation or fraudulent misrepresentation. The pleadings on the
other hand show that the petitioner had voluntarily entered into MoU.
Moreover, the very nature of the MoU (terms and conditions enunciated
therein) clearly shows that two things were done simultaneously. Execution
of three bank guarantees of Rs.1,30,56,750.00, Rs.1,09,50,000.00, and Rs
99,50,000.00 by petitioner and refund of cash of sum of Rs.4.28 crores by
respondent No.1. The record of this fact in the MoU clearly shows that
respondent No.1 bartered a cash amount of Rs.4.28 crores against threes
three bank bank guarantees worth of Rs.3.39 crores executed by petitioner.
The Court is unable to make out as to in what manner the respondent No.1
had got enriched by inducing the petitioner into the present MoU. The
dispute between the parties to the effect whether the escalation charges were
for the work done under this MoU or were for the work already done under
the earlier work order, is not a subject matter of the present petition and the
parties are free to raise this dispute before appropriate forum. The meaning
of the word fraud in Oxford English Dictionary is 'the use of false
representation to gain unjust advantage'. In the present case by entering into
an MoU, the petitioner has failed to show that respondent No.1 had put
himself in a position of undue advantage. As shown earlier, not only they
had paid a cash of Rs.4,28,00,000/- to the petitioner, but also agreed to pay a
sum of Rs.1,25,00,000/- towards escalation charges to the petitioner. The
petitioner, therefore, has failed to satisfy this Court that he has been induced
by respondent No.1 into this MoU and has put him in a position of undue
disadvantage, while putting respondent in a position of undue advantage.
Both parties have voluntarily as part of a settlement entered into MoU and
pursuant to that while the respondent refunded the cash amount of
Rs.4,28,00,000/-, the petitioner executed the present unconditional bank
guarantee. The petitioner, therefore, has failed miserably to show that any
egregious fraud had been played upon him for execution of the present bank
guarantees. There is no dispute to the fact that the respondent is a company
worth of Rs.6270.83 crores as an individual and worth of Rs.7568.69 crores
as a group and is not a sick company, as stated by respondent No.1 on
affidavit.
25. In the case U.P. State Sugar Corporation (supra), the Supreme Court
has clearly held that pendency of reference of the contractor company before
BIFR under Sick Industrial Companies (Special Provisions) Act would not
be sufficient to constitute irretrievable injustice.
26. It, therefore, cannot be said that the petitioner shall suffer an
irretrievable injury if the stay is not granted to it.
27. For the foregoing reasons, I hold that the petitioner is not entitled to
any relief. The stay granted by this Court stand vacated and the petition
stands dismissed.
DEEPA SHARMA
(JUDGE)
DECEMBER 10, 2014
BG
