Delhi High Court

Teyma India Private Limited vs Jitf Water Infrastructure ... on 4 January, 2017

$~28
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
+      FAO(OS) (COMM) 2/2017
                                         Date of Decision: 04th January 2017
       TEYMA INDIA PRIVATE LIMITED                          ..... Appellant
                            Through    Mr. Rakesh Sinha and Mr. Pawan Kr.
                                       Bansal, Advocates.

                            versus

       JITF WATER INFRASTRUCTURE PRIVATE LIMITED & ANR
                                             ..... Respondents
                            Through    Mr. Manoj K. Singh and Ms. Nilam
                                       Bandyopadhyay,      Advocates   for
                                       respondent no. 1.
                                       Ms. Jagriti Ahuja and Mr. Gowtham,
                                       Advocates for respondent no. 2.

       CORAM:
       HON'BLE MS. JUSTICE INDIRA BANERJEE
       HON'BLE MR. JUSTICE ANIL KUMAR CHAWLA


                            JUDGEMENT

INDIRA BANERJEE, J. (ORAL)

Caveat Pet. No. 4/2017

Since the caveator has put in appearance through counsel, the caveat

stands discharged.

CM No. 117/2017 Exemption allowed, subject to all just exceptions.

The application stands disposed of.

CM No. 115/2017 (delay) This is an application seeking condonation of delay of 7 days in filing

the appeal. For the reasons stated in the application, the delay of about 7

days in filing the appeal is condoned.

The application stands disposed of.

FAO(OS) (COMM) 2/2017 and CM Nos. 116/2017 (stay) and 118/2017 (for permission to file additional documents)

1. This appeal filed under Section 37(1) of the Arbitration and

Conciliation Act, 1996, is against a judgment and order dated 09.11.2016

passed by the learned Single Bench dismissing the application of the

appellant for interim relief.

2. By the judgment and order impugned, the learned Single Bench

rejected the prayer of the appellant for orders restraining the respondent

from encashing a bank guarantee furnished by the appellant in favour of the

respondent-JITF Water Infrastructure Private Limited.

3. On or about 10.12.2014, Uttrakhand Urban Sector Development

Agency ("UUSDA") entered into a contract with the respondent no.1, M/s

JITF Water Infrastructure Private Limited, for engineering, procurement,

construction, supplying, laying, testing and commissioning of water supply

distribution system for 19 geographic zones in Dehradun.

4. The contract, hereinafter referred to as the main contract, provided for

sub-contract of the contractual work. On or about 28.06.2015, the

respondent no.1 entered into a contract dated 28.06.2015 with the appellant

whereby the respondent no.1 sub-contracted the contract job to the appellant

on back to back basis.

5. In terms of the agreement between the respondent and the appellant,

the appellant was required to furnish a bank guarantee which the appellant

duly furnished for an amount of Rs.3,76,25,000/-. The bank guarantee is

referred to as the first bank guarantee. The appellant issued a second bank

guarantee for an amount of Rs.6,09,88,271.30 which is referred to as the

second bank guarantee, as required in terms of the sub-contract.

6. It appears that several disputes arose between the respondent no.1 and

the appellant with regard to the execution of the sub-contract, with which we

are not concerned at this stage.

7. It is well settled that the bank guarantee constitutes an independent

contract between the bank which issues the bank guarantee and the

beneficiary of the bank guarantee. A bank guarantee, and more particularly

an unconditional bank guarantee, is in no way concerned with the

underlying disputes between the party at whose instance the bank guarantee

has been furnished and the beneficiary of the bank guarantee.

8. It is well settled that an order restraining the invocation of a bank

guarantee can only be passed in rare cases of fraud in relation to the bank

guarantee, in cases of irretrievable injustice, or where special equity exists in

favour of the person at whose instance the bank guarantee has been

furnished. Fraud must be in connection with the invocation of the bank

guarantee.

9. If the invocation of a bank guarantee is not in terms of the bank

guarantee, invocation may be restrained. However, this is not a case where it

can be said that invocation is not in accordance with terms of the bank

guarantee. In fact, it is not even the case of the appellant, that the invocation

is not in accordance with the bank guarantee. Particulars of alleged fraud

allegedly committed by the respondent no. 1 have been pleaded in paragraph

7.1 of the petition filed before the learned Single Bench under Section 9 (1)

of the Arbitration and Conciliation Act, 1996. The pleadings in paragraph

7.1 do not disclose any act of fraud in the matter of invocation of the bank

guarantee.

10. It has strenuously been argued on behalf of the appellant that the

respondent no. 1 acted wrongfully in invoking the bank guarantees when the

Uttrakhand Urban Sector Development Agency had not invoked the bank

guarantees furnished by the respondent to Uttrakhand Urban Sector

Development Agency. Unfortunately, however, it was not a condition of the

bank guarantees that invocation thereof would be subject to invocation by

Uttrakhand Urban Sector Development Agency of the bank guarantees

furnished to them.

11. Principles of irretrievable injustice and special equity can be invoked

only in case of apparent illegality coupled with a situation where the party

furnishing a bank guarantee would never be able to recover the proceeds of

the bank guarantee. At least, there are no pleadings to the effect that in the

event the bank guarantee is invoked and if ultimately, the invocation is held

to be wrongful, the appellant would never be able to recover the proceeds

from the respondent.

12. The learned Single Bench has rightly held:

"The law relating to interdiction of bank guarantees is now well settled; the same cannot be interdicted unless the party seeking interdiction is able to establish a prima facie case of egregious fraud and irretrievable injustice. (See: Svenska Handelsbanken v. M/s. Indian Charge Chrome and Others: (1994) 1 SCC 502 and U.P. Cooperative Federation Limited v. Singh Consultants and Engineers Pvt. Ltd.: 1988 (1) SCC

174)."

13. It may also be pertinent to refer to the following observation of the

learned Single Bench.

"The reliance placed by the petitioner on the letter dated 30.06.2016 sent by respondent no. 1 to the principal employer is also not determinative of the dispute between the parties. It is relevant to note that the said response clearly stated that it was "without prejudice". Further, the said response was issued by the respondent no. 1 to dissuade the principal employer from taking action that the principal employer proposed to take against respondent no. 1. While respondent no. 1 was defending the issue regarding delays and poor work with the principal employer, it also informed the petitioner as to the said controversy, which directly related to the subject contract between respondent no. 1 and the petitioner.