Delhi High Court
Energo Engineering Projects Ltd vs Trf Ltd on 23 December, 2016
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 23.12.2016
+ FAO(OS) (COMM) 112/2016 & CM No.42025/2016 (for
additional documents)
ENERGO ENGINEERING PROJECTS LTD ..... Appellant
Through: Mr.Rajiv Nayar, Sr. Adv. with
Mr.Dhruv Dewan, Ms.Reena
Choudhary & Mr.Saurabh Seth,
Advs.
versus
TRF LTD ..... Respondent
Through: Mr.Amit Sibal, Sr. Adv. with
Mr.Sumeet Gadodia, Mr. Gautam
Singh and Mr.Kaushik Poddar,
Advs.
+ FAO(OS) (COMM) 113/2016 & CM No.42028/2016(for
additional documents)
ENERGO ENGINEERING PROJECTS LTD ..... Appellant
Through: Mr.Rajiv Nayar, Sr. Adv. with
Mr.Dhruv Dewan, Ms.Reena
Choudhary & Mr.Saurabh Seth,
Advs.
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 1
versus
TRF LTD ..... Respondent
Through: Mr.Amit Sibal, Sr. Adv. with
Mr.Sumeet Gadodia, Mr. Gautam
Singh, Mr.Kaushik Poddar, Advs.
+ FAO(OS) (COMM) 114/2016 & CM No.42031/2016(for
additional documents)
ENERGO ENGINEERING PROJECTS LTD ..... Appellant
Through: Mr.Rajiv Nayar, Sr. Adv. with
Mr.Dhruv Dewan, Ms.Reena
Choudhary & Mr.Saurabh Seth,
Advs.
versus
TRF LTD ..... Respondent
Through: Mr.Amit Sibal, Sr. Adv. with
Mr.Sumeet Gadodia, Mr. Gautam
Singh and Mr.Kaushik Poddar,
Advs.
+ FAO(OS) (COMM) 115/2016 & CM No.42035/2016(for
additional documents)
ENERGO ENGINEERING PROJECTS LTD ..... Appellant
Through: Mr.Rajiv Nayar, Sr. Adv. with
Mr.Dhruv Dewan, Ms.Reena
Choudhary & Mr.Saurabh Seth,
Advs.
versus
TRF LTD ..... Respondent
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 2
Through: Mr.Amit Sibal, Sr. Adv. with
Mr.Sumeet Gadodia, Gautam
Singh and Mr.Kaushik Poddar,
Advs.
+ FAO(OS) (COMM) 116/2016 & CM No.42074/2016(for
additional documents)
ENERGO ENGINEERING PROJECTS LTD ..... Appellant
Through: Mr.Rajiv Nayar, Sr. Adv. with
Mr.Dhruv Dewan, Ms.Reena
Choudhary & Mr.Saurabh Seth,
Advs.
versus
TRF LTD ..... Respondent
Through: Mr.Amit Sibal, Sr. Adv. with
Mr.Sumeet Gadodia, Mr. Gautam
Singh and Mr.Kaushik Poddar,
Advs.
CORAM:
HON'BLE MS. JUSTICE INDIRA BANERJEE
HON'BLE MR. JUSTICE ANIL KUMAR CHAWLA
JUDGMENT
INDIRA BANERJEE, J (ORAL)
1. These appeals are against a common judgment and order dated 16th
September, 2016, passed by the learned Single Bench, in
applications filed by the respondent under Section 9 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as
the 1996 Act), for interim relief.
2. By the impugned judgment and order, the learned Single Judge
directed that the applications under Section 9 of the 1996 Act filed
by the Respondent, be treated as applications under Section 17 of
the 1996 Act and heard by the Arbitral Tribunal as and when the
Arbitral Tribunal commenced its first hearing.
3. The appellant is an existing Company within the meaning of the
Companies Act 1956, having its principal place of business at Plot
No.2496, Phase IV, Udyog Vihar, Gurgaon, in Haryana, outside
the jurisdiction of this Court, and its registered office at Flat
No.709, Erose Appartment, 56, Nehru Place, New Delhi-110019
within the jurisdiction of this Court.
4. The appellant is engaged in the business of providing engineering
procurement, construction and operation and maintenance
services.
5. The respondent TRF Limited, is a Company registered under the
Companies Act 1956, having its registered office at 11, Station
Road, Burma Mines, Jamshedpur-831007 in District East
Singhbhum, Jharkhand, outside the jurisdiction of this Court. The
respondent is engaged in the business inter alia of manufacture
erection and commissioning of bulk material handling equipment.
6. The appellant entered into a contract with NTPC Limited,
hereinafter referred to as NTPC for supply of certain functional
and operational articles which could be integrated into the power
plant.
7. After execution of the aforesaid contract and in pursuance thereof,
the appellant issued a purchase order No.EEPL/PO1351006 dated
6.5.2014 to the respondent for designing, engineering,
manufacturing, supplying, transporting to site, unloading, storing,
erecting, testing, commissioning wagon tipplers and side arm
chargers.
8. In terms of the aforesaid purchase order, the respondent furnished
to the appellant an advance Bank Guarantee No.1403831
BGA00007 dated 30.5.2014 for a sum of Rs. 4,62,92,400/- and a
performance Bank Guarantee No.140383 IBGP00026 dated
30.5.2014 for a sum of Rs.5,01,09,200/-. The appeal being
FAO(OS) (COMM) 112/2016 relates to the said bank guarantees.
9. The aforesaid bank guarantees were issued by IDBI Bank Limited,
Jamshedpur. The advance Bank Guarantee inter alia provided as
follows:-
"...We, the BANK hereby undertake to pay without any
demur to ENERGO ENGINEERING PROJECTS LTD
on the first receipt of demand a sum not exceeding
Rs.4,62,92,400/- (Rupees four crores sixty two lacs
ninety two thousand four hundred only) against non-
fulfillment of obligation under the aforesaid agreement.
We, the BANK further agree that ENERGO
ENGINEERING PROJECTS LTD shall be the sole judge
whether the SUPPLIER have committed any breach or
breaches of any of the terms and conditions of the said
agreement and the extent of loss, damage, cost, charges
and expenses suffered/incurred or would be suffered or
incurred by ENERGO ENGINEERING PROJECTS LTD
on account thereof.
Any demand so made on the BANK shall be conclusive
as regards the amount due and payable by the BANK
under the Guarantee. The BANK waives in favour of
ENERGO ENGINEERING PROJECTS LTD all the
rights, defense and pleas to which, we the BANK as
guarantors and/or the SUPPLIER may be entitled to.
To give effect to this guarantee ENERGO
ENGINEERING PROJECTS LTD may act as though we
the BANK, were the principal debtors..."
(emphasis supplied)
10. The Performance Bank Guarantee had identical terms and
conditions as the Advance Performance Guarantee. Both the
Advance Bank Guarantee and the Performance Bank Guarantees
were unconditional bank guarantees invocable by the beneficiary
on demand.
11. Other similar purchase orders were issued by the appellant to the
respondent, pursuant to which Advance Bank Guarantees and/or
Performance Bank Guarantees which relate to the other appeals
were furnished by the respondent to the appellant.
12. According to the appellant, the respondent defaulted in its
contractual obligations to supply the contracted goods within the
stipulated time. The appellant contends that even though the
respondent was in breach of its own contractual obligations, for
which the bank guarantees were liable to be invoked, the
respondent filed petitions under Section 9 of the 1996 Act, before
the learned Single Judge, seeking ad interim relief of an order of
injunction, restraining the respondents from encashing the Bank
Guarantees, on the purported ground that encashment of the Bank
Guarantees would amount to fraud, as the appellant had, on the one
hand, not been paying the dues of the petitioner, but on the other
hand, threatening to unjustly enrich themselves by encashing the
Bank Guarantees.
13. The respondent may have a good case on the merits of its claims
against the appellant in arbitration. However, a bank guarantee
constitutes an independent contract between the bank which issues
the bank guarantee and the beneficiary of the bank guarantee. In
the matter of invocation of a bank guarantee the merits of the
underlying disputes between the party at whose instance the bank
guarantee was furnished and the beneficiary of the bank guarantee
are of no relevance. It is only in exceptional cases of fraud,
irretrievable injustice and/or special equity, that an injunction
restraining the invocation of a bank guarantee might be granted.
14. It is also well settled that if the bank cannot be restrained from
honoring a bank guarantee, the beneficiary of the bank guarantee
cannot be restrained from invoking the bank guarantee, for one
cannot do indirectly, what one is not free to do indirectly.
Reference may be made to the judgment of the Supreme Court in
U.P. Cooperative Federation Ltd. Vs. Sengh Consultants and
Engineers Pvt. Ltd. reported in (1988) 1 SCC 174.
15. Notices were issued, after which the appellant entered appearance
through its counsel, and affidavits were directed to be filed. The
learned Single Judge recorded the statement of the appellant's
counsel that the appellant would, without prejudice to its rights and
contentions, withhold invocation of the Bank Guarantee till the
next date of hearing.
16. After exchange of affidavits, the matter came up for hearing before
the learned Single Judge on 4th January, 2016. The learned Single
Judge directed the competent officers of the respective parties to
have a meeting to make an endeavour to resolve their differences.
The Single Bench recorded that the undertaking of the respondent
not to invoke the Bank Guarantee, would continue till the next date
of hearing.
17. It appears that the appellant and the respondent could not settle
their differences. Accordingly, further affidavits were filed, as
directed by the learned Single Bench, by the order dated January 4,
2016.
18. It is pleaded that the applications were, thereafter, heard together,
approximately 30 times over a period of about 9 months, and the
parties filed detailed written submissions. After extensive hearing,
the applications were reserved for judgment on 05/09/ 2016.
According to the petitioner, after every hearing, the statement of
the appellant's counsel, made at the 1st hearing, not to invoke the
bank guarantees till the next date of hearing was directed to
continue.
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 10
19. In the meanwhile, the respondent invoked the arbitration clause in
the Purchase Order and sought reference of the disputes that had
arisen between the parties, to arbitration.
20. An Arbitral Tribunal was constituted. By an order dated
05/02/2016, the Arbitral Tribunal directed the parties to appear
before it on 24/02/2016 for the 1st meeting. However, on the same
day, that is, 05/02/2016, the respondent filed an application being
Arbitration Petition No. 87/2016 under Section 11 (5) read with 11
(6) of the 1996 Act before the Learned Single Judge, questioning
the authority of a nominee of the General Manager of the appellant
to arbitrate, after amendment of the 1996 Act by the Arbitration
and Conciliation Amendment Act 2015, hereinafter referred to as
the 2015 Amendment Act, with effect from 23rd October 2015 and
incorporation of Section 12(5).
21. The respondent prayed for appointment of a retired judge of the
Supreme Court as arbitrator, after declaring that the nominee of the
Managing Director of the appellant was no longer eligible for
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 11
appointment as arbitrator, in view of Section 12 (5) of the 1996
Act as incorporated by the 2015 Amendment Act.
22. By a judgment and order dated 19/04/2016, the Learned Single
Judge dismissed Arbitration Petition No. 87/2016 filed by the
respondent, under Sections 11 (5) and (6) of the 1996 Act. On or
about 11/05/2016, the respondent filed a Special Leave Petition in
the Supreme Court being SLP No (Civil) 14331 of 2016.
23. By an order dated 30/09/2016, the Supreme Court directed that the
Special Leave Petition be listed for final disposal in the 2nd week of
November 2016, and stayed further proceedings before the Arbitral
Tribunal. In the meanwhile, on 16 September 2016, the Learned
Single Bench passed the judgment and order under appeal.
24. The Learned Single Bench observed and held:-
"18. Admittedly, the Arbitral Tribunal has already
been constituted. In case, the Court goes into the
details of the matters, the case of one of the parties
would be prejudiced. The present nine petitions
which are filed by the petitioner after 23rd October,
2015, i.e. under the amended Act, Section 9(3) of the
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 12
Act has been amended which is mandatory in nature.
19. Section 9(3) of the Act reads as under:
"9. Interim measures etc. by Court:-
(3) Once the arbitral tribunal has been
constituted, the Court shall not entertain an
application under sub-section (1), unless the
Court finds that circumstances exist which may
not render the remedy provided under section
17 efficacious."
20. Thus, I am of the view that as soon as the
Special Leave Petition filed by the petitioner is
disposed of, the prayer made in the nine petitions can
be considered by the Arbitral Tribunal. There is no
impediment or a situation where the remedy provided
under Section 17 of the Act is not efficacious. Thus, let
these petitions be treated as applications under
Section 17 of the Act which may be decided by the
Arbitral Tribunal at an early date once the Arbitral
Tribunal shall commence the first hearing. Till the
said petitions are decided, the interim directions
which are issued by way of statement not to take any
steps for invocation shall continue, subject to the
condition that the petitioner shall keep the bank
guarantee alive till the decision of application under
Section 17 of the Act. The Arbitral Tribunal at the
time of deciding the said application would pass the
appropriate orders in this regard. All pleadings of
these petitions shall be filed by the petitioner once the
Arbitral Tribunal will commence the proceedings.
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 13
21. The above mentioned petitions are accordingly
disposed of."
25. Upon amendment of Section 9 of the 1996 Act, by the 2015
Amendment Act, Section 9 of the 1996 Act, as it stood prior to its
amendment by the 2015 Amendment Act, has been renumbered.
Section 9(1) and Sub sections (2) and (3) have been incorporated.
Section 9 of the 1996 Act as amended by the 2015 Amendment
Act is set out herein below for convenience:-
"9(1) A party may before or during arbitral
proceedings or at any time after the making of the
arbitral award but before it is enforced in accordance
with section 36 apply to a Court-
(i) for the appointment of a guarding for a minor or a
person of unsound mind for the purpose of arbitral
proceedings; or
(ii) for an interim measure of protection in respect of
any of the following matters namely :-
(a) the preservation interim custody or sale of any
goods which are the subject-matter of the
arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention preservation or inspection of any
property or thing which is the subject-matter of the
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 14
dispute in arbitration or as to which any question
may arise therein and authorising for any of the
aforesaid purposes any person to enter upon any
land or building in the possession of any party or
authorising any samples to be taken or any
observation to be made or experiment to be tried
which may be necessary or expedient for the
purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may
appear to the court to be just and convenient and the
court shall have the same power for making orders as
it has for the purpose of and in relation to any
proceedings before it.
(2) Where, before the commencement of the arbitral
proceedings, a Court passes an order for any interim
measure of protection under sub-section (1), the
arbitral proceedings shall be commenced within a
period of ninety days from the date of such order or
within such further time as the Court may determine.
(3) Once the arbitral tribunal has been constituted, the
Court shall not entertain an application under sub-
section (1), unless the Court finds that circumstances
exist which may not render the remedy provided
under section 17 efficacious."
26. Even after enforcement of the 2015 Amendment Act, an
application for interim relief may be filed in Court under Section 9
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 15
of the 1996 Act, before the commencement of arbitration
proceedings, during arbitration proceedings or at any time after an
award is made, but before such award is enforced in accordance
with Section 36 of the 1996 Act.
27. A harmonious reading of Section 9 (1) with Section 9 (3) of the
1996 Act, as amended by the 2015 Amendment Act, makes it
amply clear that, even after the amendment of the 1996 Act by
incorporation of Section 9 (3), the Court is not denuded of power
to grant interim relief, once an Arbitral Tribunal is constituted.
28. When there is an application for interim relief under Section 9, the
Court is required to examine if the applicant has an efficacious
remedy under Section 17 of getting immediate interim relief from
the Arbitral Tribunal. Once the court finds that circumstances
exist, which may not render the remedy provided under Section 17
of the 1996 Act efficacious, the Court has the discretion to
entertain an application for interim relief. Even if an Arbitral
Tribunal is non functional for a brief period of time, an application
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 16
for urgent interim relief has to be entertained by the Court under
Section 9 of the 1996 Act.
29. It is a well settled proposition that if the facts and circumstances of
a case warrant exercise of discretion to act in a particular manner,
discretion should be so exercised. An application for interim relief
under Section 9 of the 1996 Act, must be entertained and examined
on merits, once the Court finds that circumstances exist, which
may not render the remedy provided under Section 17 of the said
Act efficacious.
30. In our view, the Learned Single Bench patently erred in holding
"there is no impediment or situation where the remedy under
Section 17 of the Act is not efficacious". The Learned Single
Bench failed to appreciate that the pendency of a Special Leave
Petition in which the constitution of the Arbitral Tribunal was
under challenge, was in itself, a circumstance which rendered the
remedy of the parties under Section 17 uncertain and not
efficacious.
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 17
31. In fact, the Learned Single Bench itself observed that the prayer in
the nine applications could be considered by the Arbitral Tribunal
as soon as the Special Leave Petition filed by the Respondent was
disposed of. This observation itself shows that the Court had
doubts about the efficacy of the remedy under Section 17, as long
as the Special Leave Petition was pending.
32. Moreover, the Single Bench itself directed that the petitions filed
under Section 9 of the 1996 Act be treated as applications under
Section 17 of the 1996 Act, which might be decided by the Arbitral
Tribunal at an early date, once the Arbitral Tribunal commenced
the first hearing.
33. In our view, the Learned Single Bench erred in law in holding that
the 9 applications filed before the single bench could be disposed
of by the arbitral tribunal after the Special Leave Petition was
disposed of by the Hon'ble Supreme Court. The Learned Single
Judge had in effect, by continuing an undertaking given at the first
hearing, injuncted the appellant from invoking the bank
guarantees, without even considering whether the appellant could
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 18
in law be restrained from invoking the bank guarantees, and then
left the appellant without the remedy of getting the interim order of
injunction vacated on urgent basis. A party, seeking the vacating
of an ad interim order on urgent basis cannot be left without
remedy.
34. An application for interim relief should ordinarily be decided by
the Arbitral Tribunal, once an arbitral tribunal is constituted.
However, if circumstances exist which may not render the remedy
under Section 17 of the 1996 act efficacious, the Court has to
consider the prayer for interim relief on merits, and pass such
order, as the Court may deem appropriate.
35. The Learned Single Bench has not at all considered whether any
interim protection was at all necessary in this case. The bank
guarantee was apparently unconditional. In effect, the appellants
have been restrained from invoking an unconditional guarantee.
The application cannot be heard out until the special leave petition
is disposed of.
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 19
36. The appeals are allowed. The judgment and order under appeal is
set aside. The Single Bench shall hear and dispose of the 9
applications filed by the respondent in accordance with law,
preferably within 4 weeks.
INDIRA BANERJEE, J
ANIL KUMAR CHAWLA, J
DECEMBER 23, 2016
n
FAO(OS)(Comm).112, 113, 114, 115 & 116/2016 20
