M/S Rpp Infra Projects Ltd vs M/S Ntpc Tamil Nadu Energy & Anr.
2014 Latest Caselaw 6858 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI
+                   O.M.P. 924/2014 & I.A.No.16356/2014
                              Judgment reserved on: 11.11.2014
                              Judgment pronounced on: 16.12.2014
      M/S RPP INFRA PROJECTS LTD                       ..... Petitioner
                         Through:    Mr.Dayan Krishnan, Senior
                                     Advocate with Mr.Govind
                                     Manoharan, Advocate.
                    versus
      M/S NTPC TAMIL NADU ENERGY & ANR. ..... Respondents
                    Through: Mr.Bharat Sangal with
                             Ms.Anusuya Choudhury,
                             Advocate for respondent No.1.
                             Ms.Padma Priya, Advocate for
                             respondent No.2/Indian Overseas
                             Bank.
      CORAM:
      HON'BLE MS. JUSTICE DEEPA SHARMA

      JUDGMENT

1. The present petition has been filed by the petitioner with

the prayer that the respondent no.1 be restrained from invoking

and encashing the bank guarantee and respondent no.2 from

making payment to respondent no.1 in respect of bank

guarantees.

2. The admitted facts of the case are that the petitioner was

awarded the township work in the vicinity of power plant on a

turnkey basis with residential and non-residential buildings and

other services vide LPA No.NTECL/C&M/Township (CS-0260-

364-9)/LOA/09-10/201 dated 30.01.2010 by respondent no.1.

Thereafter the agreement/contract was drawn on 25.03.2010.

The work was for a value of Rs.137.847 Crores. The completion

period was 24 months. However, since the work could not be

completed within 24 months, the period was extended by

respondent no.1 from time to time but the work could not be

completed even after expiry of 53 months. The petitioner could

complete the work worth of 35 % of the awarded contract value

by April, 2014.

3. At the time when the contract was drawn, the petitioner

had furnished security in the form of bank guarantees, the details

of the bank guarantees are reproduced as under:

      S.No.    Date               Nature   of Bank            Amount
                                  B.G.        Guarantee No.
      1.       10.02.2010 (Bank B.G.      for 1015/1LG/5/10   3,06,33,000/-
               guarantees as on security      -11
               date extended upto deposit
               27.10.2014)
      2.       22.10.2013 (Bank Security      5/2013          4,41,63,765/-
               guarantees as on Deposit
               date extended upto
               19.10.2014
      3.       27.02.2013 (Bank Additional    9/2013          1,25,00,000/-
               guarantees as on security
               date extended upto deposit
               25.08.2014



       4.     02.04.2014 (Bank Additional     ILG 42/14      3,00,00,000/-
             guarantees as on Security
             date extended upto Deposit
             03.10.2014

4. After April, 2014, the petitioner wrote a letter dated

02.06.2014 for further extension of time for completing the work.

The respondent no.1 rejected the request of the petitioner for

extension. The case of the petitioner is that the respondent

threatened to encash the bank guarantee. Thereafter vide letter

dated 28.08.2014 the respondent o.1 terminated the agreement.

Before that the petitioner had moved this court seeking restrain

on encashment of the above mentioned bank guarantees and the

matter was listed before this court on 08.08.2014. The respondent

was represented in court on that date through counsel on caveat

and informed the court that they were not likely to invoke the

bank guarantees until the next date of hearing. Meanwhile the

respondent had moved an application being I.A.No.16356/2014

and the petitioner also filed the reply of the said application.

During the pendency of the present petition also vide its letter

dated 05.09.2014, the petitioner invoked the arbitration clause

and raised a summary of claims worth of Rs.15,87,33,026.90/-

(Rupees fifteen crores eighty seven lacs thirty three thousand and

twenty six and ninety paise). In reply to the said invocation the

respondent no.1 vide its letter dated 01.10.2014 appointed

Mr.Rakesh G.Samuel, GM (Vallur Project), Project-in-Charge of

the Vallur Thermal Power Project, as the Arbitrator to decide

disputes between the parties.

5. The case of the petitioner is that the said invocation of the

bank guarantees is bad in law and contrary to the provisions of

the contract. It is submitted that bank guarantees were deposited

towards security deposit in terms of clause 9.1 of the GCC. It is

submitted that these bank guarantees are not performance bank

guarantees and therefore cannot be invoked. It is further

submitted that under clause 9.4 of GCC, respondent no.1 is

empowered to deduct all compensation or other sums of money

payable by the contractor from security deposit and this clearly

indicates that without determining the amount payable by the

petitioner, the respondent no.1 cannot invoke the bank

guarantees. It is also submitted that in view of clause 9.7 of GCC

read with Condition 33 of the GCC, respondent no.1 had to give

7 days' notice for curing the defects and thereafter adjust the

outstanding amount, if any, from the security deposits if the

defects were not cured within the stipulated period. It is

submitted that there is nothing on record to show that there was

any defect which was required to be cured by the petitioner,

hence, the respondent is not entitled to invoke the bank

guarantees. It is further submitted that under clause 9 of GCC,

the respondent no.1 is only required to deduct from the security

deposit on a proportionate basis and therefore, the respondent

no.1 cannot invoke entire security deposit. It is further submitted

that the petitioner herein was facing hardships. The site was

situated in a low lying area and in a coastal region and during the

monsoons there was water logging and because of this nature of

the site and the climatic conditions of the region delay was

caused in construction. This issue was brought to the notice of

the respondent vide several letters dated 12.03.2010, 18.03.2010,

19.03.2010, 12.05.2010, 17.05.2010, 09.01.2012, 11.01.2012,

29.03.2012, 25.02.2013, 17.05.2014, 04.03.2014, 08.04.2014,

19.04.2014 and 02.06.2014. The delay had also occurred on

account of respondent no.1 failing to clear bills raised by the

petitioner. This fact was also brought to the notice of the

respondent. It is submitted that approval for work programs,

drawing etc. and clearance and instructions could not be obtained

in time during the first two years of the contract and this had

affected the petitioner's work progress to a great extent. It is

submitted that the drawings provided were completely wrong and

there were frequent changes. The said facts have been brought to

the notice of the first respondent vide letters dated 12.03.2010,

18.03.2010, 19.03.2010, 12.05.2010, 17.05.2010, 09.01.2012,

11.01.2012, 29.03.2012, 25.02.2013, 17.05.2014, 04.03.2014,

08.04.2014, 19.04.2014 and 02.06.2014. It is also submitted that

the surrounding locality near the site was an industrial area,

which extensively engages labour force. Due to this, the

petitioner had to face several frequent disturbances like

politically motivated problems, problems created by people living

around the site which had an impact on the progress of the work.

Despite bringing these facts within the knowledge of respondent

no.1 vide letter dated 20.08.2010 the respondent no.1 did not

come forward to help the petitioner. It is submitted that delay

had occurred due to the reasons beyond the control of the

petitioner and the petitioner could complete only 35 % of the

work. It is submitted that in view of this, it is clear that balance

of convenience lies in favour of the petitioner and petitioner shall

suffer irreparable injury and the financial loss. It is submitted

that special equities also lies in favour of the petitioner. Reliance

has been placed on the findings in case of U.P.Co-operative

Federation Ltd. vs. Singh Consultants reported in (1988) 1 SCC

174 and U.P. State Sugar Corporation vs. Sumac International

Ltd. reported in (1997) 1 SCC 568.

6. It is submitted that findings in U.P. State Sugar

Corporation'case (supra) are not relevant because the questions

involved in the said matter was in relation to the encashment of

bank guarantees that were given as performance guarantees and

not towards security deposits. On these facts, it is submitted

that petitioner be given relief.

7. The claim is contested by the respondent on the ground

that even before furnishing the bid the bidder were advised to

inspect the site and it was expected that the petitioner would have

given the bid only after inspection of the site. Clause 6 of the

contract also bound down the contractor to inspect the site and its

surroundings and satisfy himself before submitting his tender.

Under Clause 19 of the agreement the duty was of the contractor

to remove water accumulated at the site during the progress of

the work at his own risk.

8. Clause 41 empowers the respondent no.1 to cancel the

contract by written notice in case the contractor fails to complete

the work within stipulated period. It is argued that existence of

any pending dispute between the parties cannot be a ground for

preventing the invocation of the bank guarantee. Reliance has

been placed on Vinitec Electronics Private Ltd. v. HCL

Infosystems Ltd. reported in (2008) 1 SCC 544 and U.P.State

Sugar Corporation's case (supra). It is further argued that the

invocation of the bank guarantee can be challenged only on the

ground of fraud and irreparable injury and the nature of

irreparable injury has been defined by the Supreme Court in

U.P.State Sugar Corporation's case (supra) and Itek

Corporation vs. First National Bank of Boston reported in 566

F.Sup.1210. It is submitted that the petitioner has failed to show

that it has suffered irreparable loss and injury and therefore is not

entitled for the relief. It is submitted that the security has been

furnished by the petitioner in the form of unconditional bank

guarantee and the bank guarantee is an independent contract

between the bank and the beneficiary and its invocation cannot be

stopped. It is further submitted that it was the petitioner who has

failed to honour the contract despite the fact that the respondent

had given extension of time for completion of work on several

occasions in pursuance to Clause 32 of GCC. It is submitted that

therefore the petitioner is liable for liquidated damages.

9. I have heard arguments and have perused the relevant

record. There is no dispute to the fact that under Clause 9.1 of

GCC the petitioner was required to furnish security deposit. This

clause also gives liberty to the petitioner to deposit the security

either in cash or in the form of government securities or fixed

deposit receipts or bank guarantees furnished by any of the

nationalised banks. The petitioner had chosen to furnish the said

security deposit in the form of bank guarantees. From the

language of the bank guarantee it is apparent that all the bank

guarantees are unconditional bank guarantees. The bank has

clearly stated "to unconditionally pay the amount claimed by the

Corporation on demand and without demur to the extent

aforesaid".

10. Paragraph 2 of the said bank guarantee also reads as under:

2. We, Indian Overseas Bank, Surampatti Branch, further agree that the Corporation shall be the sole judge of and as to whether the said Contractor has committed any breach or breaches of any of the terms and conditions of the said Contract and the extent of loss, damage, costs, charges and expenses caused to or suffered by or that may be caused to or suffered by the Corporation on account thereof and the decision of the Corporation that the said Contractor has committed such breach or breaches and as to the amount or amounts of loss, damage, costs charges and expenses caused to or suffered by or that may be caused to or suffered by the Corporation from time to time shall be final and binding on us."

11. 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."

12. As discussed above, the bank guarantees in dispute, clearly

in unequivocal terms and unconditionally recite that the amount

would be paid without demure or objection. The bank guarantee

thus is an independent contract between the bank and the

beneficiary and can be challenged only on the ground of fraud

and irreparable injury.

13. In the present case, the petitioner has challenged the

invocation of the bank guarantee only on the ground of

irreparable injury. The plea of irreparable injury is based on the

contentions that the petitioner since having financial problems

would suffer irreparable loss, if the respondent be allowed to

encash the band guarantees. Whether this constitutes irreparable

injury of the nature which is sufficient to restrain the respondent

from invoking the bank guarantees is the matter which requires

consideration. Now what is an irreparable loss and injury on the

basis of which court can restrain the respondents, has been

discussed and the principle laid down by the supreme court in the

U.P.State Sugar Corporation's case (supra). The petitioner has

also relied on this case. The Supreme court has held as under:

"on the question of irretrievable injury which is the second exception to the rule against granting of injunctions when an unconditional bank guarantees are sought to be realised the irretrievable injury must be of

the kind which was the subject matter of the decision in the Itek Corporation Case.

14. In Itek Corporation v. First National Bank of Boston 566

F.Supp. 1210, the Masachusetts District Court of the United

States has held as follows:

"at the risk of stating the obvious, I take judicial note of the fact that conditions in Iran has changed radically since that time. What was contractually 'customary' and 'necessary' in 1977 does not, in the face of dramatically changed circumstances, exert binding force on the parties and this court more than six years later. I reiterate my earlier finding that 'the present domestic situation there has rendered access to Iranian courts futile. Therefore I do not find that Itek should be required to pursue its remedies in the Iranian Courts before having resort to this forum.

Because I find that Itek has demonstrated that it has no adequate remedy at law, and because I find that the allegations of irreparable harm are not speculative, but genuine and immediate, I am satisfied that Itek will suffer irreparable harm if the requested relief is not granted."

15. From the principles laid down in the abovesaid case, it is

apparent that the petitioner can be said to have suffered

irreparable injury if he has been able to show that he shall suffer

irreparable harm.

16. In the present case, the petitioner has failed to bring on

record which can show that the petitioner shall suffer an

irreparable harm. The petitioner has failed to show that in case

he succeeds before the arbitrator, he will not be able to recover

the refund of his security amount. It is not his case that the

respondent is not financially sound or would not be in a position

to refund the decretal amount.

17. Let us now examine this case from a different angle. There

is no dispute to the fact that these bank guarantees have been

furnished by the petitioner towards the security deposit. He had

the liberty pursuant to clause 9.1 of GCC to deposit the security

either in cash or in the form of bank guarantee or in the form of

other securities. The petitioner has chosen to deposit the security

in the form of bank guarantees. Suppose the petitioner would

have deposited the security amount in cash, what would have

been the situation? The cash security deposit would have

remained with respondent no.1 and the petitioner would have

been entitled to its refund in terms of the GCC. Clause 9.6 of the

GCC deals with the refund of security deposit. It reads as under:

9.6. Refund of Security Deposit:- One half of the Security deposit refundable to the Contractor

worked out on the basis of the value of work completed shall be re-funded to the Contractor on the Engineer-in-Charge certifying in writing that the work has been completed as per condition 31 hereof etc."

18. This clause clearly contemplates that the security deposit is

refundable only on completion of the work and after the

engineer-in-charge certifies in writing that the work has been

completed as per the condition 31. Admittedly, in the present

case the petitioner has only completed work of 35% worth of

contract amount and thus in view of clause 9.6 of GCC the

petitioner is not entitled for the refund of security deposit and the

security deposit is to remain with respondent no.1. For this

reason also the petitioner is not entitled for the relief.

19. Mere pendency of a reference before the arbitrator is also

not a ground to issue restrain order to the bank guarantee.

20. 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."

21. Therefore, the pendency of the arbitration proceedings also

is not a ground to restrain the respondent no.1 from invoking the

bank guarantees. Also in the case of Vinitec Electronics Private

Ltd. vs. HCL Infosystems Ltd. reported in (2008) 1 SCC 544 the

Supreme Court has clearly held that the process of the arbitral

proceedings is not a ground to restrain the invocation of the bank

guarantees especially when there is no allegation that it would be

difficult to realise the amount from the respondent. The court has

held as under:

"There is no dispute that arbitral proceedings are pending. The appellant can always get the relief provided he would make his case before the Arbitral Tribunal. There is no allegation that it would be difficult to realise the amounts from the respondent in case the appellant succeeds before the arbitral tribunal."

22. For the foregoing reasons, I found no ground to hold that

the petitioner is entitled to any relief. The petition is hereby

dismissed. The stay granted by this court stands vacated.

DEEPA SHARMA, J DECEMBER 16, 2014 rb