Delhi High Court

Vil Limited vs National Highways Authority Of ... on 28 May, 2015

Author: V. Kameswar Rao

*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                     Judgment decided on May 28, 2015
+                         OMP (I) 267/2015
VIL LIMITED                                           ..... Petitioner
                          Through:     Mr.K.V.Singh, Adv. with
                                       Mr.Nachiketa Goyal,
                                       Mr.Rishabh Arora, Advs.

                          versus

NATIONAL HIGHWAYS AUTHORITY OF INDIA
                                     ..... Respondent
                Through: Ms.Ayushi Kiran, Adv. with
                         Mr.Mukesh Kumar, Adv.

CORAM:
HON'BLE MR. JUSTICE V.KAMESWAR RAO
V.KAMESWAR RAO, J. (Oral)

1. This petition has been filed under Section 9 of the Arbitration and

Conciliation Act, 1996 (Act, in short) inter alia seeking the following

reliefs:

"(i) Restrain the Respondent from recovering or adjusting any or all of the part of the aggregate amounts advanced to the Petitioner as three (3) separate installments, viz. (i) 1st advance installment amounting to Rs. 5.58 crores; (ii) 2 nd advance installment amounting to Rs. 8.37 crores and (iii) 3rd advance installment amounting to Rs. 13.95 crores aggregating approximately Rs. 27.9 crores;

(ii) Restrain the Respondent from taking any other coercive action against the Petitioner, including imposing any penalty or liquidated damages or recovering any other amount(s) whatsoever from the Petitioner for any alleged action or inaction, including slow progress or non-performance on the

part of the Petitioner"

2. It is the case of the petitioner that the respondent invited proposal

by its request for annual pre-qualification dated September 11, 2012 for

short-listing of bidders for two lanning with paved shoulders of

Sitarganj-Bareilly Section of NH-74 from 254.820 KM to 329.280 KM

in the states of Uttarakhand and Uttar Pradesh on Engineering,

Procurement, Construction mode. Thereafter, the respondent invited

bids from the short-listed bidders for undertaking the project. The

respondent accepted the bid of the petitioner for Rs. 279 Crores only. An

EPC Agreement dated October 25, 2013 with a construction period

starting from the appointed date and ending on 730th day was entered

into between the parties.

3. According to Mr.K.V.Singh, the learned counsel for the petitioner,

as per Article 4.1.3 (a) of the agreement, upon the petitioner furnishing

the performance security, the respondent was obliged to provide at least

90% of the total length of the project highway free from any

encroachment and encumbrance to the petitioner within 15 days of the

date of the agreement. According to him, clause 8.2.3 of the agreement,

which is a non-obstante clause, clearly stipulates that under no

circumstance, the cumulative length of the project site which the

respondent could not deliver to the petitioner within 15 days of the date

of the agreement shall exceed 10% of the total length of the project. It is

his submission that in response to the queries of the petitioner in the pre-

bid meeting dated June 20, 2013, the respondent stated that the total

available land with the respondent was 211.72 Hectares i.e. 92.6%. A

performance guarantee for a total sum of Rs.20,92,50,000/- was also

furnished by the petitioner. He states that in terms of clause 19.2.1 of the

agreement, the respondent had made an interest fee advance payment

equal in amount to 10% of the contract price for mobilization expenses

and for acquisition of equipment. The advance payment was made in

three instalments of 2%, 3% and 5% of the contract price respectively

i.e. Rs.5.58 Crores, Rs.8.37 Crores and Rs.13.95 Crores aggregating

approximately Rs.27.9 Crores. He would also state that against the

advance payment made by the respondent in terms of clause 19.2.2, the

petitioner has given an irrevocable and unconditional guarantee from a

Bank for an amount equivalent to 110% of such instalment paid by the

respondent. According to him, the petitioners in all furnished four

irrevocable and unconditional bank guarantees in favour of the

respondent.

4. It is his case that the respondent had not provided 90% of the right

of way to the total project site within 15 days of the submission of the

performance guarantee. He would state, the respondent has only been

able to provide 37% of the total right of way, thus, the respondent has

played egregious fraud upon the petitioner by falsely stating, at the time

of pre-bid queries that the total available land with the respondent was

92.6 % and thereby inducing the petitioner to bid for the project and

enter into an agreement with the respondent. According to him, the

period of 730 days would commence only after 90% of the right to way

was provided to the petitioner. He has drawn my attention to the

definition of "appointed date" to mean that date, which is later of the 15th

day of the date of the agreement, the date of which the contractor has

delivered the performance security in accordance with the provisions of

Article 7 and the date on which the authority has provided the right of

way on no less than 90% of the total length of project highway. He

would rely upon the two judgments in support of his submissions

reported as (1997) 1 SCC 568, U.P. State Sugar Corporation Vs. Sumac

International Ltd. and 177 (2011) Delhi Law Times 248 (DB) Simplex

Infrastructure Ltd. Vs. National Highways Authority of India to

contend that the fraud has been played by the respondent by representing

it in the pre-bid meeting, thereby inducing the petitioner to enter into a

contract and further, to contend that the respondent is required to

maintain the sanctity of the contract and the respondent should maintain

the status quo by not taking an action to the prejudice of the petitioner

till such time the disputes are decided by an appropriate forum.

5. On the other hand, Ms.Ayushi Kiran, learned counsel, who

appears on advance notice on behalf of the respondent, would submit

that there is a concealment of relevant facts by the petitioner which

would disentitle the petitioner to any relief in this petition. According to

her, the respondent has handed over the complete land to the petitioner.

In this regard, she has placed before me a communication dated January

24, 2014 to contend that on as on January 24, 2014, except 1.27 length

Kilo Meter, for the rest of the site, right of way was provided to the

petitioner. She would also state, for the balance stretch of 1.27 Kilo

Meter, the right of way was provided on July 15, 2014 in terms of the

letter of the same date, which also was placed before me. In fact, it is

her submission that the petitioner, vide its own letter dated January 31,

2014 has accepted the appointed date for the above project as January

24, 2014. She would also draw my attention to the provision in the

agreement i.e. clause 19.2.6, which stipulates that advance payment shall

be repaid by the contractor to the authority not later than 365 days from

the respective date of advance payment. Because of failure on the part of

the petitioner to execute the work, so as to recover the amount of

advance payment from the bills, necessity has arisen for invocation of

the bank guarantees furnished by the petitioner against the advance

payment. She would state, out of four bank guarantees, three bank

guarantees have been invoked and honoured by the bank. Insofar as the

fourth bank guarantee for an amount of Rs. 15.345 Crores, that has not

been invoked/encashed till date.

6. Having heard the learned counsel for the parties, suffice to state,

the submissions made by Mr.K.V.Singh, learned counsel for the

petitioner, was on the merit of the dispute between the parties. It may be

necessary to state here, even though, the prayer has been couched in

such a way from where, it appears that the petitioner is seeking only a

restraint order against the respondent from adjusting the money, in

effect, the petitioner is seeking a restraint order against the respondent

from invoking the bank guarantee(s). The position of law insofar as

invocation of bank guarantees are concerned is well settled in terms of

one of the judgments so relied upon by the learned counsel for the

petitioner. In para 12 of U.P.State Sugar Corporation (supra), the

Supreme Court has held that the Courts should be slow in granting

injunction to restrain the realization of a bank guarantee. The Court had

also observed, the two exceptions carved out to include a fraud in

connection with such a bank guarantee would vitiate the very foundation

of such a bank guarantee and cases, where, allowing the encashment of

an unconditional bank guarantee would result in irretrievable harm or

injustice to one of the party concerned. The only plea advanced by the

learned counsel for the petitioner that the respondent has played fraud in

representing that 92.6% of the site was available which induced the

petitioner to enter into an agreement. Suffice to state that such a plea is

not related to fraud having been played by the respondent in connection

with bank guarantee(s) with which we are concerned in this petition. No

submission has been made by the learned counsel for the petitioner

insofar as the other exception carved out by the Supreme Court. Apart

from the judgment in U.P.State Sugar Corporation (supra), there are

other judgments of the Supreme Court wherein the law laid down in

U.P. State Sugar Corporation (supra) has been upheld and ratified. I

note for benefit the judgment in Federal Bank Ltd. Vs. V.M.Jog

Engineering Ltd. and Ors., (2001) 1 SCC 663 wherein, the Supreme

Court observed that the Court ought not to grant injunction, to restrain

invocation of bank guarantees or letters of credit. The Supreme Court

carved out two exceptions to this rule, viz. fraud and irretrievable

damage. It further observed that the contract of bank guarantee or letter

of credit is independent of the main contract between the seller and the

buyer. In case of an irrevocable bank guarantee or letter of credit, the

buyer cannot obtain injunction against the final payment on the ground

that there was a breach of the contract by the seller. The bank is to

honour the demand for encashment if the seller, prima facie, complies

with the terms of the bank guarantee or the letter of credit namely, if the

seller produces the documents enumerated in the bank guarantee or the

letter of credit. If the bank is satisfied on the basis of the documents that

they are in conformity with the list of documents mentioned in the bank

guarantee or the letter of credit and there is no discrepancy, it is bound to

honour the demand of the seller for encashment. It is not permissible for

the bank to refuse the demand on the ground that the buyer is claiming

that there is a breach of contract. The obligation of the bank under the

documents has nothing to do with any dispute as to breach of contract

between the seller and the buyer. The Supreme Court also observed that

in order to obtain injunction against the issuing bank that it is necessary

to prove that the bank had knowledge of fraud. The Supreme Court

relied on the observations of Kerr, J. in R.D. Harbottle (mercantile)

Ltd. Vs. National Westminster Bank Ltd. (1978) QB 146:(1977) 2 All

England Reporter 862 to state that irrevocable Letters of Credit are

"lifeblood of international commerce" and also observed as under:

"Except possibly in clear cases of fraud of which the banks have notice, the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration........Otherwise, trust in international commerce could be irreparably damaged."

Denning M,R, .stated In Edward and Owen Engineering Ltd. v. Barclays Sank International Lid. (1978) Q.B. 159 that 'the only exception is where there is a clear fraud of which the bank had notice": Browne, LJ. said in the same case : "but it is certainly not enough to alleged fraud, it must be established" and in such circumstances, I should say, very clearly established", in Bolvinter Oil S.A.v. Chase Manhattan Bank, (1984) 1 All E.R, 351 at P. 352, it was said 'where it is proved that the Bank knows that any demand for payment already made or which may thereafter be made, will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not be sufficient that this rests Upon the uncorroborated statement of the customer,, for irreparable damage can be done to a bank's credit in the relatively brief time "before the injunction is vacated". Thus, not only must 'fraud' be clearly proved but so far as the Bank is concerned, it must prove that it had knowledge of the fraud. In United Trading Corp. S.A. v. Allied Ards Bank, (1985) 2 Lloyds Rep, 554, it was stated that there must be proof of knowledge of fraud on the part of the Bank at any time before payment".

7. Insofar as the other judgment relied upon by the learned counsel

for the petitioner in Simplex Infrastructure Ltd. (supra), is concerned,

the same is not applicable in the facts of this case. In the said case, the

relief sought for by the petitioner was seeking a restrain order from

implementing and/or enforcing or otherwise giving effect to letters and

deducting any amounts from payment due to the petitioner or recovering

any payment in pursuance of letters until eventual resolution of disputes

between the petitioner and the respondent. As stated above, even

though, the petitioner has couched the prayer in such a manner to give an

impression that it is also seeking a similar prayer, but, in effect, the

prayer is to seek a restraint order against the respondent from invoking

the bank guarantee(s), which in view of this Court cannot be granted.