Delhi High Court
Sharma Kalypso Pvt. Ltd vs Engineers India Limited And Anr on 19 September, 2016
$~49
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 373/2016
SHARMA KALYPSO PVT. LTD ..... Petitioner
Through: Mr Sandeep Sharma, Mr Vatsal
Kumar and Ms Devyani Sharma,
Advocates.
Versus
ENGINEERS INDIA LIMITED AND ANR. ..... Respondents
Through: Mr Sandeep Sethi, Senior Advocate
with Ms Rashmeet Kaur and Ms
Arpana Majumdar, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 19.09.2016
VIBHU BAKHRU, J
IA No.11582/2016
1. The application is allowed, subject to all just exceptions.
2. The same stands disposed of.
O.M.P.(I) (COMM.) 373/2016
3. The petitioner (hereafter „SKPL‟)has filed the present petition, inter
alia, praying as under:-
"(i) Restrain the respondents from invoking, encashing and
receiving the amount under the Bank Guarantees bearing
no 2013/44 dated 08.08.2013;
(ii) Further direct Branch Manager of Respondent No.2
Bank not to remit any amount to the respondent no.l
under the abovementioned Bank guarantees or to issue
any pay order/demand draft/RTGS and if any such pay
order/demand draft(s) have been issued then the same
should not be encashed by the respondent;"
4. Briefly stated, the controversy involved in the present case arises in
the following context:-
4.1 The respondent no. 1 (hereafter 'EIL') invited tenders for execution of
the interior works for Convention Centre of its new office complex at
Gurgaon, Haryana. SKPL was successful in the bidding process and EIL
issued a Fax of Acceptance (FAO) dated 05.07.2013 accepting SKPL's bid
and the parties entered into a contract on the same date for execution of the
works. In terms of the contract between the parties, the works were to be
completed by 04.01.2014. It is not in dispute that the works were delayed
and finally the convention centre was handed over to EIL on 15.07.2015. In
terms of the contract, the defect liability period was for a period of 12
months, that is, from 15.07.2015 to 14.07.2016.
4.2 Admittedly, the Certificate for Completion of works has not been
issued and SKPL's final bill has not been processed.
4.3 SKPL had furnished a performance bank guarantee being BG no.
2013/44 dated issued 08.08.2013 in the sum of `84,97,432/- (hereafter „the
BG‟) issued by Respondent no. 2 to EIL, which has been invoked by EIL.
And, this has led SKPL to file the present petition.
5. Mr Sharma, learned counsel appearing for SKPL contends that EIL
had invoked the BG only because SKPL had issued a letter invoking the
arbitration clause and seeking appointment of an Arbitrator. He submits that
it is SKPL's case that despite accepting the works on 15.07.2015, EIL has
not processed the final bill and has inordinately delayed the payments due to
SKPL under the contract in question. He earnestly contends that in the given
facts where the convention centre had been handed over and was being used
by EIL, a case of special equities is established in favour of SKPL and it is
entitled to an order restraining invocation of and payment against the BG.
He relied upon the decision of Supreme Court in Hindustan Steel Works
Construction Ld. v. Tarapore and Co. and Another: (1996) 5 SCC 34 and
the decision of this Court in Hindustan Construction Co. Ltd. and Anr. v.
Satluj Jal Vidyut Nigam Ltd.: 2006 (1) Arb.LR 16 (Del) in support of his
contention.
6. Mr Sethi, learned senior counsel who appears for EIL on advance
notice, stoutly countered the arguments made by Mr Sharma. He, first of all,
pointed out that SKPL had not annexed the relevant documents along with
the petition; although SKPL had included the letters sent by SKPL to EIL, it
had not annexed the letters sent by EIL. He contended that EIL had sent
several communications to SKPL during the defect liability period calling
upon SKPL to rectify the defects but the defects were not rectified/removed.
He further submitted that, admittedly, the project had been delayed and in
terms of the contract, EIL was entitled to 10% price reduction. According to
him, since the contract value was `849 lacs, EIL would be entitled to
recover `84.9 lacs on account of delay in completion of the works. He
submitted that in addition, SKPL had failed to pay its sub-contractors and
EIL had assured the sub-contractors that the payments would be made, in
order to ensure that the work did not suffer. EIL's claim on this count is `20
lacs. In addition, EIL is also claiming a sum of `27 lacs on account of
defects in the works, which were not rectified during the defect liability
period.
7. I have heard the learned counsel for the parties at length.
8. At the outset, it must be stated that the statement of truth filed along
with the petition is admittedly a false affidavit. Although, it has been
affirmed that "all documents in my power, possession, control or custody,
pertaining to the facts and circumstances of the proceedings initiated by me
have been disclosed and copies thereof annexed with the plaint, and that I
do not have any other documents in my power, possession, control or
custody"; it is apparent that communications sent by EIL (presumably
pointing out the defects) has not been annexed with the petition.
9. It is also apparent from the submissions made that there are serious
disputes between the parties as regards the execution of works performed by
SKPL. Admittedly, the execution of the works had been delayed. The letter
dated 30.05.2016, which is relied upon by SKPL, indicates that it is SKPL's
stand that the delay in completion of the works was on account of the
following:-
"a). Non Handing over of complete site at one go - the site
was handed over in piece meal basis.
b). Non completion of Services works at the time of award
of work to us.
c). Issue of GFC drawings in piece meal basis.
d). Delay in release of payments
e). Delay in approval of samples.
f). Delay in giving decisions & details.
g). No payments for extra/additional items of work
executed."
10. Needless to state that the same is disputed by EIL. It is also relevant
to note that by a letter dated 18.08.2016, EIL had acceded to the request of
SKPL for appointment of an Arbitrator and had also reiterated that SKPL
had breached the terms of the FOA dated 05.07.2013 inasmuch as SKPL had
failed to complete the works within the time limit as prescribed, thus,
causing loss to EIL.
11. The law relating to restraining invocation/encashment of bank
guarantees is now well settled. It is only in exceptional cases that invocation
of a bank guarantee can be interdicted.
12. In Larsen & Toubro Limited v Maharashtra State Electricity Board
and Others: (1995) 6 SCC 68, the Supreme Court referred to the earlier
decision in Svenska Handelsbanken v. M/s. Indian Charge Chrome and
Others: (1994) 1 SCC 502 and held as under:-
"5. Before we adjudicate the rival pleas urged before us by
counsel for the parties, it will be useful to bear in mind the
salient principles to be borne in mind by the court in the matter
of grant of injunction against the enforcement of a bank
guarantee / irrevocable letter of credit. After survey of the
earlier decisions of this Court in United Commercial Bank v
Bank of India, U.P. Coop. Federation Ltd. v Singh Consultants
& Engineers (P) Ltd., General Electric Technical Services Co.
Inc v Punj Sons (P) Ltd. and the decision of the Court of
Appeal in England in Elian and Rabbath v Matsas and Matsas
and a few American decisions, this Court in Svenska
Handelsbanken v. Indian Charge Chrome AIR 1994 SC 626,
laid down the law thus:
"...in case of confirmed bank
guarantees/irrevocable letters of credit, it cannot be
interfered with unless there is fraud and
irretrievable injustice involved in the case and
fraud has to be an established fraud...
...irretrievable injustice which was made the basis
for grant of injunction really was on the ground that
the guarantee was not encashable on its terms...
...there should be prima facie case of fraud and
special equities in the form of preventing
irretrievable injustice between the parties. Mere
irretrievable injustice without prima facie case of
established fraud is of no consequence in
restraining the encashment of bank guarantee.""
13. There have been cases where the Courts have interfered when
presented with exceptional circumstances; but, it is clear that invocation of
bank guarantees cannot be interdicted merely because a party articulates
contractual disputes and alleges the invocation of a bank guarantee to be
wrongful. Merely alleging fraud is also of no avail; a party must plead full
particulars of fraud alleged and establish a prima facie case of fraud
affecting the underlying transaction. A party seeking an injunction
restraining invocation of a bank guarantee must show exceptional
circumstances and hardship, in addition to a strong case on merits.
14. In the facts of the present case, it is not disputed that the works were
not completed in time. The dispute as to whether EIL is responsible for the
same or whether SKPL is in breach of the terms of the contract, is a matter
for the Arbitrator to decide. The purpose of providing a bank guarantee
would be wholly defeated if the Courts are to interfere and interdict the bank
guarantees merely because disputes have arisen between the parties or it is
inconvenient for the party furnishing the bank guarantee to suffer its
encashment by the beneficiary.
15. The decision of this Court referred to by Mr Sharma in Satluj Jal
Vidyut Nigam Ltd. (supra) also does not assist the SKPL in any manner. On
the contrary, in that case, it was pointed out that the Courts have extended
the scope of injuncting bank guarantees in various cases of irretrievable
injury, fraud, extraordinary special equities. However, this Court had also
highlighted that payment against bank guarantees should be interdicted only
in exceptional cases. As stated earlier, the mere question as to which party is
responsible for breach of the contract does not present any exceptional
circumstance.
16. In so far as furnishing of the false affidavit is concerned, Mr Sharma
submits that a lenient view be taken against the deponent. He further
assures that no affidavit will be filed in such casual manner in future.
17. In view of the above, a lenient view is taken in this instance and no
proceedings for imposing punitive measures are being initiated.
18. Accordingly, the present petition is dismissed.
VIBHU BAKHRU, J
SEPTEMBER 19, 2016
RK
