Indure Private Limited vs Heidelberg Cement Limited And ...
2017 Latest Caselaw 2572 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                                    Decided on: 23.05.2017

+     CS(COMM) 1124/2016

      INDURE PRIVATE LIMITED                                     ..... Plaintiff

                         Through: Mr. Sandeep Sethi, Sr. Advocate and
                         Mr Prashant Mehta and Mr Gaurav Malik, Advs.

                         versus

      HEIDELBERG CEMENT LIMITED AND ANR.                      ..... Defendants

                         Through: Mr. Soli J. Sorabjee, Sr. Advocate
                         with Mr Krishnendu Datta, Mr Ajay Goyal, Mr
                         Bikash Mohanty, Mr Amit K. Singh and Mr
                         Shantanu, Advs.
      CORAM:
      HON'BLE MS. JUSTICE DEEPA SHARMA

                         JUDGMENT

IA Nos. 16649/2013 (O. 39 R. 1 and 2 CPC)

1. This order shall dispose of the IA No. 16649/2013 (O. 39 R. 1 and 2

CPC) of the plaintiff. The defendants filed the reply and sought vacation of

the interim stay dated 19.102013.

2. In this application, the plaintiff has prayed for the stay of invocation

of the bank guarantee.

CS (COMM) 1124/2016 Page 1

3. The admitted facts of the case are that the plaintiff and the defendant

had executed a Letter of Intent (LoI) dated 25.01.2013. Subsequently, an

agreement dated 20.02.2013 was entered into between the parties which

contained the conditions of the contract. As per Article 1 of the said

conditions of the work, the effective date of the contract was 25.01.2013,

i.e., the day the LoI was executed between the parties. The plaintiff was

required to furnish to the defendant within three months of the effective date

of the contract, i.e., 25.01.2013, a detailed shipping schedule showing the

breakdown of equipment into various shipment units, etc. Under Article 6 of

these terms and conditions of the contract, the parties agreed that in the

event of any delay in supply of the Engineering and Equipment or violation

of any other terms and conditions of the contract and where the delay is

solely attributable to the seller, the liquidated damages may be imposed as

per Article 14 and be recoverable from the payments due to the seller.

Parties also agreed to the terms "the Buyer by written notice to the Seller

terminate this whole or any part of the Contract after (12) weeks of delay,

due to factors/reasons attributable to the Seller". The period of performance

of the contract was 18 months from the effective date of the contract, i.e.,

25.01.2013 for the provisional acceptance. The parties also agreed under

CS (COMM) 1124/2016 Page 2 Article 17 that either party may terminate this contract by written notice to

other party. However, before termination, the other party shall be given a

period of 21 days for fulfillment of the conditions of the contract and if the

party fails to complete the obligation within 21 days given vide its notice the

contract may be terminated by termination notice. Parties had also agreed

that where there is a termination on account of sellers breach, delay in

delivery of insolvency, than the buyer can claim and receive compensation

for any direct loss or damages caused by the events referred to in Article 6,

17(b) or Article 17(c) against release and return of the advance payment

bond and for performance bond.

4. The plaintiff has filed the present suit for declaration and permanent

injunction with the prayer to restrained defendant Nos.1 and 2 or their

servants, employees, officials or agent from invoking the bank guarantee

bearing No.0046OPG13035001. Its case is that the defendant No. 1 on

01.08.2012 floated a tender for establishing Waste Heat Recovery Power

Generation Project (WHRPP) at Narsingarh, Madhya Pradesh and selected

M/s Dalian EAST New Energy Development Co. Ltd. (hereinafter referred

to as „Dalian‟) as a prospective contender and asked him to submit tender.

Dalian informed the defendant No.1 vide an e-mail dated 14.08.2012 about

CS (COMM) 1124/2016 Page 3 the plaintiff and that they both had agreed to work together in the said

project. The plaintiff and Dalian had entered into a Memorandum of

Understanding (MoU) dated 17.08.2012 for all business proposals in India

and UAE. The case of the plaintiff is that it bid for the entire project of the

defendant No.1 at the instance of Dalian and sub-contract the technology

part to Dalian on back to back basis and wrote an e-mail dated 21.08.2012 to

this effect to defendant No.1-company. Defendant No.1 was also duly

informed vide an e-mail dated 20.12 2012 that Dalian would be sub-supplier

of BTG although the plaintiff would lead the project. The plaintiff states that

all the meetings with defendant No.1 were also attended by Dalian and also

participated in discussions relating to pricing etc. It was only when Dalian

agreed to be the technology partner of the plaintiff for the project that a

Letter of Intent (LoI) dated 25.01.2013 was issued by defendant No.1 in

favour of the plaintiff. A formal contract for Design Engineering and supply

of plant and machinery for a value of Rs.75,30,00,000/- was executed

between the plaintiff and the defendant No.1 on 20.02.2013. It is submitted

that pursuant to LoI the plaintiff issued a conditional bank guarantee through

defendant No.2 bearing No.004GOPG13035001 for Rs.15,06,00,000/- in

CS (COMM) 1124/2016 Page 4 favour of defendant No.1 against receipt of advance of same amount under

the contract.

5. The plaintiff has challenged the invocation of the bank guarantee on

the grounds that defendant No.1 has played fraud on him in connivance with

M/s Dalian and that the bank guarantee is a conditional bank guarantee. The

plaintiff‟s case is that defendant‟s officials had demanded a commission of

1% of the contract value through M/s Dalian and M/s Dalian had also

written an e-mail dated 15.04.2013 to this effect to the plaintiff while later

on M/s Dalian withdraws the said e-mail on 16.04.2013. The plaintiff

decided not to fulfil the illegal demands of the officials of defendant No.1

and did not pay the commission. The connivance between defendant No.2

and Dalian is apparent from the fact that thereafter Dalian refused to fulfil its

part of the contract and walked out of the contract as a result, the plaintiff

could not supply the plant and machinery within the stipulated period in

terms of the contract dated 20.02.2013. The plaintiff then approached M/s

Simona Energy Conservation Ltd., China (hereinafter referred to as „M/s

Simona‟) for their technical partner and approached defendant No.1 but

defendant No.1 continued to place obstacles and after much persuasion, only

on 07.06.2013 the defendant No.1 agreed to accept M/s Simona as plaintiffs‟

CS (COMM) 1124/2016 Page 5 technological partner and also agreed to extend time by two months. It is

submitted that defendant No.1 and Dalian were working hand in hand which

is clear from the fact that while Dalian was the technological partner, the

defendant No.1 had agreed to relaxation on technical and performance

parameters and refused such concessions when M/s Simona had became the

technological partner of the plaintiff. The case of the plaintiff is that it was

always ready and willing to perform its part of the contract and the act of the

defendant issuing the show cause notice dated 23.09.2013 threatening to

terminate the contract on the allegation of delay is mala fide and bad and the

subsequent termination of the contract is also bad in law. It is submitted that

since fraud was being played upon the plaintiff, the defendant No.1 cannot

invoke the bank guarantee. Reliance is placed on Hindustan Steel Co. Ltd.

V. State of Bihar and Ors (1999) 8 SCC 436

6. It is further submitted that the said bank guarantee is a conditional

bank guarantee since the terms and conditions of the bank guarantee clearly

stipulates that the amount was payable only "in the event of non fulfilment

of terms and conditions of the agreement" which makes it a conditional bank

guarantee. The reliance is placed on Hindustan Construction Co. Ltd. V.

State of Bihar and Ors (1999) 8 SCC 436.

CS (COMM) 1124/2016 Page 6

7. It is submitted that since the contract was obtained by fraud and so the

contract is void/voidable, the bank guarantee issued by plaintiff in terms of

the contract is also void. It is further submitted that advance of

Rs.15,00,000/- released to the plaintiff by defendant No.1 has been utilized,

a sum of Rs. 8.1 crore has been paid as advance to M/s Simona only on the

specific instructions of defendant No.1. The invocation is also premature

since the bank guarantee was valid till 25.07.2014. The timeline agreed

between the parties for obtaining Performance Acceptance Certificate (PAC)

on completing of the work was in September, 2014, as per the Minutes of

Meeting dated 07.06.2013 and, therefore, the invocation is premature and is

not in terms of the bank guarantee. Reliance is placed on Ansal Properties

and Industries Ltd. V. U.O.I &Ors. OMP No. 180 of 1993 decided on

22.03.1994 and Puri International (P) Limited v. National Building

Construction Co. Ltd &Anr. 66 (1997) Delhi Law Times 698. It is

submitted that the plaintiff has a prima facie case and shall suffer irreparable

loss and injury if the defendant be not restrained from invoking the bank

guarantee and that the balance of convenience also lies in favour of the

plaintiff.

CS (COMM) 1124/2016 Page 7

8. The case of the defendant No.1 is that it had invited proposals for its

project and received proposals from six suppliers. Four suppliers suggested

that they should have an Indian Partner. M/s Dalian had chosen the Indian

Partner and since M/s Dalian was found to be the most competent company

as it had the required technology know how and the price submitted by the

plaintiff was the lowest price, the contract was executed with the plaintiff. It

is not disputed that defendant No.1 was informed that M/s Dalian would be

providing engineering and supplying major equipments such as boiler,

turbine for the said plant and would rely on the plaintiff for providing

engineering and supply of remaining part of turn-key aspect of the project.

Keeping in mind these aspects the plaintiff was contacted.

9. In view of the turn-key aspect, three contracts were entered into

between the plaintiff and defendant No.1. These three contracts formed a

Master Agreement dated 18.03.2013 under which there was a contact for

supply dated 20.02.2013 and on fulfillment of supply contract was the

contract for construction, erection and commissioning etc. (service contract)

dated 19.03.2013. It is submitted that the plaintiffs had failed to fulfil its

contractual obligations under the supply agreement dated 20.02.2013. There

was no occasion for the other contracts. All the three contracts were fixed

CS (COMM) 1124/2016 Page 8 price contracts and were in INR. That soon after the signing of the contract,

the defendant No.1 learnt from various e-mails exchanged between plaintiff

and M/s Dalian and copied to him that M/s Dalian was not in a position to

fulfil its commitment within the time limit. Subsequently, in the meeting

dated 07.06.2013 with plaintiff, it was decided that instead of M/s Dalian,

the technological partner of the plaintiff would be M/s Simona Energy

Conservation. However, this arrangement was subject to approval of the

designated Steering Committee of defendant No.1. Thereafter, the defendant

No.1 drew an amendment No.1 dated 26.06.2013 and sent it to the plaintiff

for its acceptance and signature so that an amendment could be brought to

the original contract. The plaintiff, however, did not accept this proposed

amendment No.1 and send a counter proposal vide its letter dated

06.07.2013. Since this counter proposal was never accepted by defendant

No.1, the original contract was therefore never amended and the minutes of

the meeting dated 07.06.2013 does not amend the original contract. The

plaintiff has been continuously requesting the defendant through series of

communications between June-July, 2013 for increasing the consideration of

the contract citing depreciation of rupees against US dollar as the reason. It

is further contended that at no stage the plaintiff had ever complained of any

CS (COMM) 1124/2016 Page 9 corruption or fraud on the part of defendant No.1 or its employees. It is also

contended that the plaintiff had been continuously, instead of sticking to the

terms of the contract, persuading the defendant No.1 to increase the

consideration amount. It is contended that it was in these circumstances that

the defendant No.1 invoked the termination clause of the contracts and

issued its "pre-termination/default removal" notice dated 23.09.2013, putting

the plaintiff on notice that in terms of a contract he had a period of 21 days

to fulfil its part of the contract. The plaintiff did not take notice of the said

notice of defendant No.1 and rather on the last date gave its reply dated

14.10.2013 when for the first time it raised the issue of corruption on part of

some employees of defendant No.1 on the basis of false, fabricated and

possibly forged e-mails. The e-mails dated 15.04.2013 issued by M/s Dalian

to plaintiff informing the plaintiff of the alleged corruption of the employees

of defendant No.1, was never forwarded to defendant No.1, while the

defendant had been forwarding all the other e-mails exchanged between him

and M/s Dalian. It is submitted that the plaintiff has not alleged any fraud

being played upon him by the defendant No.1 at any stage before service of

pre termination/default removal notice. It is submitted that there is only a

bald allegation of fraud not supported by any material of any nature. It is

CS (COMM) 1124/2016 Page 10 submitted that the M/s. Dalian never acted as a commission agent of the

defendant No.1. It is further contended that no fraud was ever played upon

the plaintiff. It is further argued that a bald allegation of fraud is not

sufficient to stay the invocation of the bank guarantee when it is apparent

that the plea has been taken in order to defeat the rights of the defendant.

Reliance has been placed upon para 28 of Dwarikesh Sugar Ltd. V. Prem

Heavy Engg Works (P) Ltd. 1997 (6) SCC 450.

10. It is further contended that the invocation of bank guarantee was not

premature and it was done in terms of the contract. It is further submitted

that plaintiff has not come with clean hands, while it had invoked the bank

guarantee that M/s Simona had furnished to him for securing the advance

paid by the plaintiff to M/s Simona but he is resisting the invocation of bank

guarantee furnished by him to defendant No.1 against the advance of about

15 crores. It is submitted that plaintiff has no prima facie case and the

balance of convenience does not lie in his favour and it is defendant No.1

who is suffering irreparable loss and injury.

11. The learned counsel for the defendant has argued that the bank

guarantee is an unconditional bank guarantee and has placed reliance on

Hindustan Construction Co. Ltd. (supra), Mahatma Gandhi Sahakra v.

CS (COMM) 1124/2016 Page 11 National Heavy Engg. Coop. Ltd & Anr. (2007) 6 SCC 470 (para 25) and

U.P. State Sugar Corporation v. Sumac International Ltd. (1997) 1 SCC

568 (para 12).

12. It is also argued that where the matter relates to the staying of the

invoking of the bank guarantee, the injunction can only be granted in cases

where egregious fraud has been played or where irretrievable injury to one

of the parties is likely to be caused. Reliance is placed upon Dwarikesh

Sugar Industries Ltd. V. Prem Heavy Engg Works (P) Ltd. 1997 (6) SCC

450 (para 21), Hindustan Steel Workers Construction Ltd. V. G.S. Atwal

& Co. (Engineers) Pvt. Ltd. (1995) 6 SCC 76 (para 5 ), M/S UTC Fire &

Security India Ltd. V. Bhartiya Rail Biljee Co. Ltd &Anr. 2015 SCC

OnLine Del 6833 (para 9) and Gujrat maritime board v. L & T

Infrastructure Developments Projects Ltd. &Anr.(2016) 10 SCC 46 (para

12). It is submitted that the plaintiff is not entitled to any injunction and the

injunction granted should be vacated.

13. I have heard the arguments and given thoughtful consideration to the

rival contentions.

14. The first and foremost argument of the petitioner is that the bank

guarantee is not an unconditional bank guarantee, but is a conditional one. It

CS (COMM) 1124/2016 Page 12 is argued that in the case of Hindustan Construction Co. Ltd. (supra), the

bank guarantee under consideration was identical to the impugned bank

guarantee and the Apex Court has while interpreting it held that such bank

guarantee which puts the condition that it can be invoked "in the event of"

are conditional bank guarantees and has relied on the observations in paras

13 and 14 of the said judgment. The said paragraphs are reproduced as

under:-

"13. The Bank, in the above Guarantee, no doubt, has used the expression "agree unconditionally and irrevocably" to guarantee payment to the Executive Engineer on his first demand without any right of objection, but these expressions are immediately qualified by following :-

"......in the event that the obligations expressed in the said clause of the abovementioned contract have not been fulfilled by the contractor giving the right of claim to the employer for recovery of the whole or part of the Advance Mobilisation Loan from the contractor under the contract."

14. This condition clearly refers to the original contract between the HCCL and the defendants and postulates that if the obligations, expressed in the contract, are not fulfilled by HCCL giving to the defendants the right to claim recovery of the whole or part of the "Advance Mobilisation Loan", then the Bank would pay the amount due under the Guarantee to the Executive Engineer. By referring specifically to Clause 9, the Bank has qualified its liability to pay the amount covered by the Guarantee relating to "Advance Mobilisation Loan" to the Executive Engineer only if the obligations under the contract were not fulfilled by HCCL or the HCCL has misappropriated any portion of the "Advance Mobilisation Loan". It is in these circumstances that the aforesaid clause would operate and the whole of the

CS (COMM) 1124/2016 Page 13 amount covered by the "Mobilisation Advance" would become payable on demand. The Bank Guarantee thus could be invoked only in the circumstances referred to in Clause 9 whereunder the amount would become payable only if the obligations are not fulfilled or there is misappropriation. That being so, the Bank Guarantee could not be said to be unconditional or unequivocal in terms so that the defendants could be said to have had an unfettered right to invoke that Guarantee and demand immediate payment thereof from the Bank. This aspect of the matter was wholly ignored by the High Court and it unnecessarily interfered with the order of injunction, granted by the Single Judge, by which the defendants were restrained from invoking the Bank Guarantee."

15. It is argued by defendant No.1 that the bank guarantee is an

independent contract and where the bank guarantee is issued in unequivocal

terms and unconditionally and recite that the payment would be made

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,

no injunction should be issued against its invocation. Learned counsel for

the respondent for this purpose has also relied on Hindustan Construction

Co. Ltd. (supra) para 9. It is argued that simply because the impugned bank

guarantee uses the expression "in the event" does not make it conditional

bank guarantee and it remains an unconditional bank guarantee. It is further

submitted that the impugned bank guarantee is different than the one which

CS (COMM) 1124/2016 Page 14 was under consideration before the Supreme Court in Hindustan

Construction Co. Ltd. (supra).

16. It is argued that in the said case, the Court had relied on the language

used in the bank guarantee. It is submitted that the Court had relied on the

terms and conditions given in the bank guarantee to the effect that "in

accordance with the provisions of the conditions of contract, Clause 9

(Advance Mobilisation Loan) of the abovementioned contract.....a bank

guarantee to guarantee their proper and faithful performance under the said

clause of the contract in an amount of Rs. 10,00,000 (Rupees Ten lakhs

only)....... in the event that the obligations expressed in the said clause of

the abovementioned contract have not been fulfilled by the contractor giving

the right of claim to the employer for recovery of the whole or part of the

Advance Mobilisation Loan from the contractor under the contract...

(emphasis provided)

It is argued that Court took note of the fact that the bank guarantee was not

unconditional because it postulated that its invocation could be done only if

the obligations under the contract were not fulfilled by HCCL or the HCCL

has misappropriated any portion of the Advance Mobilization Loan since the

bank guarantee has clearly stipulated that it was subject to clause 9 of the

CS (COMM) 1124/2016 Page 15 contract which required that the amount had become payable only if the

obligations were not fulfilled or there is misappropriation.

17. It is argued that it was the insertion of clause 9 of the contract in the

bank guarantee which made the bank guarantee conditional in the case

Hindustan Construction Co. Ltd. (supra) and not the use of expression in

the event and, therefore the reliance of the plaintiff on this case is misplaced.

18. It is argued that in the present case the bank guarantee is not subject to

any clause of the contract and is an independent contract. The defendant is

within its right to invoke the bank guarantee on non-fulfillment of any of the

terms and conditions in the said contract and when the plaintiff failed to

perform his part of the agreement, the bank without demur and without

requiring the defendant No.1 to invoke any legal remedies that may be

available to it, was bound to honour it. It is submitted that the bank had

agreed to release the amount on simple demand from the defendant No.1-

company only on a statement by the defendant No.1 company that the

amount claimed is due by way of loss or damage caused or would be caused

to or suffered by the Company by the reason of non-fulfillment of any of

terms or conditions. The defendant No.1 in his letter of invocation has

clearly stated that on account of non-completion of the work as per agreed

CS (COMM) 1124/2016 Page 16 time schedule by the plaintiffs, huge loss had been suffered to by defendant

No.1 and therefore, the bank was under obligation to release the said amount

under the bank guarantee.

19. It is a settled proposition of law that when a bank guarantee is

unequivocal or unconditional, the banks are under obligation to honour it

and on its invocation release the amount and the rights of the beneficiary

under the bank guarantee cannot be fettered by the Courts by issuing an

order of injunction. What makes a bank guarantee conditional or

unconditional depends upon the language used in the bank guarantee and the

intentions of the parties at the time the bank guarantee was issued.

20. In Hindustan Construction Co. Ltd. (supra), the Court has held 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 encashable in terms thereof on the lapse of the contractor either in the performance of the work

CS (COMM) 1124/2016 Page 17 or in paying back to the "Government Advance", the Guarantee is invoked and the amount is recovered from the Bank."

The Court has further held as under in para 9:-

"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."

21. It, therefore, is clear that the invocation of a bank guarantee depends

on its terms and conditions.

22. In Puri International (P) Limited (supra) relied upon by the plaintiff,

the Court has propounded the proposition of law relying on its earlier

judgment in the case M/s Bhasin Associates vs. U.P. Jal Nigam & Others

in IA 8627/1991 in Suit No. 2217/1991, decided on 30.09.1992 held that it is

well accepted that such documents have to be enforced as per their terms

and that the language of the instrument has always enjoyed a position of

primacy and that in other words the enforcement of an instrument has to be

as per its tenor and terms.

CS (COMM) 1124/2016 Page 18

23. In the present case, the impugned bank guarantee was issued on

04.02.2013 by the bank. The bank guarantee is reproduced as under:-

"THIS deed of guarantee executed on this 4th day of February, 2013 by Canara Bank, Prime Corporate Branch-1, 1, DDA Building, 1st Floor, Nehru Place, New Delhi-110 019 (hereinafter called "THE GUARANTOR") which expression shall also include its successors and assigns) in favour of M/s Heidelberg Cement India Limited, 9th Floor, Infinity Tower "C", DLF Cyber City, Gurgaon, Haryana-122 002 (hereinafter called "THE COMPANY") which expression shall also include its successors and assigns).

Whereas Messrs the Indure Pvt. Ltd, Indure House, Greater Kailash-II, New Delhi-110048 hereinafter referred as "SUPPLIER/CONTRACTOR", which expression shall also include their successors, has entered into an agreement with the company for supply or doing Design, Engineering, Manufacturing, Supply, Construction, Erection-Commissioning, Reliability and Performance run test (civil, mechanical, electrical and C&I) including transportation utpo site (DAP/FOR-Site) of "Waste Heat Recovery Power Generation" plant with SEVEN nos. boilers, common Turbine-Generator and other balance of plant equipment (in accordance with "Tender Scope and subsequent Minutes of meetings") at Narsingarh, Dist Damoh (M.P.) as per Letter of Intent No.HCIL/WHRPG/2013/LOI EPC/001 dated 25-01-2013 on the terms and conditions contained in the said agreement.

AND WHEREAS THE company at the request of the supplier/contract has agreed to release an advance Rs.15,06,00,000/- (Rupees Fifteen Crore Six Lac Only) to the Supplier/Contractor.

AND WHEREAS before the said advance payment is made, the Supplier/Contract is required to furnish a Bank Guarantee for the amount required by the company. According the Guarantor

CS (COMM) 1124/2016 Page 19 at the request of the Supplier/Contractor has agreed to guarantee the same and the company has agreed to accept the guarantee of the Guarantor.

NOW THEREFORE THIS DEED WITNESSTH AND THE PARTIES HERETO AGREE TO AS FOLLOWS:

1. In consideration of the company agreeing to make the Supplier/Contractor the advance payment of Rs. 15,06,00,000/- (Rupees Fifteen Crore Six Lac Only) the Guarantor hereby, does undertake to pay to the company immediately on demand such amount or amounts as the Guarantor may be called to pay not exceeding the agreed sum of Rs.15,06,00,000/- (Rupees Fifteen Crore Six Lac Only) without any recourse to the supplier/Contractor.

2. In the event of the non-fulfillment of the terms and conditions of the agreement/order including failure to effect delivery of the material within the period stipulated in the order/including failure to provide supply & services, the Guarantor shall on simple demand from the company stating that the amount claimed is due by way of loss or damage caused to or would be caused to or suffered by the Company by the reason of any non-fulfillment by the said Supplier/Contractor/ of any of the terms or conditions contained in the said agreement/order or by reason of the Contractor/Supplier failing to perform the said agreement/order, pay to the company the sum under clause 1 above, without demur and without requiring the company to invoke any legal remedy that may be available to them. The decision of the company regarding the non-fulfillment of any of the terms or conditions of the agreement/order shall be final and binding on all the parties mentioned in the deed of Guarantee. Any such demand made on the Guarantor shall be conclusive as regards the amount due and payable by the Guarantor under this guarantee.

3. The Guarantor also undertakes to pay to the company any money so demanded notwithstanding any dispute or disputes

CS (COMM) 1124/2016 Page 20 raised by the Contractor/Supplier in any suit or proceeding pending before any court or tribunal relating thereto. Our liability under the present being absolute and unequivocal. The payment so made by us under this bond shall be valid discharge of our liability for payment thereunder and the contractor/supplier have to claim against us for making such payment.

4. The Guarantor further agrees that the guarantee herein contained shall remain in full force and effect during the period that would be taken for the performance of the said agreement/order and that it shall continue to be enforceable till all the dues of the company under or by virtue of the said agreement/contractor have been fully paid and its claims satisfied or discharged or till company certifies that the terms and conditions of the said agreement/order have been fully and properly carried out by the said contractor/supplier and accordingly discharged the guarantee. Unless a demand or claim under this guarantee is made on Guarantor in writing on or before the 25.07.2014, the Guarantor shall be discharged from all liability under this guarantee thereafter.

5. We, the guarantor further agrees with the company that the company shall have the fullest liberty without our consent and without effecting in any manner our obligations hereunder to vary any of the terms and conditions of the said agreement or to extend time and conditions of the said agreement or to extend time of performance by the said contractor/supplier from time to time or to postpone for any time or from time to time any of the powers exercisable by the company against the agreement/order and to forbear or enforce any of the terms and conditions relating to the said agreement and we shall not be relieved from our liability by reason of any such variation, or extension being granted to the said contractor/supplier or for any forbearance, act or omission on the part of the company or any indulgence by the company to the said contractor/supplier or by any such matter of thing whatever which under the law relating to sureties would be for the provision have effect of so relieving us.

CS (COMM) 1124/2016 Page 21

6. The value of the advance payment Guarantee will automatically reduced by 20% of the value of supply/services progressively effect/rendered from time to time.

7. The Guarantor herein contained shall not be affected by any change in the constitution of the Guarantor of the contractor/supplier.

8. The Guarantor lastly undertakes not to revoke this guarantee during its currency except with the previous consent of the company in writing.

9. Notwithstanding anything contained herein:

a) our liability under the Bank guarantee shall not exceed Rs.15,06,00,000/-

b) this Bank Guarantee shall be valid up to 25-07-2014 and

c) we are liable to pay the guaranteed amount or any part thereof under this Bank Guarantee only and only if you serve upon us a written claim or demand on or before 25-07-2014.

IN WITNESS THEREOF, The Canara Bank had executed this deed in the presence of

For Canra Bank Signature Name of the Bank Manager Along with specimen signature No. (seal) Address"

CS (COMM) 1124/2016 Page 22 The bank guarantee, therefore, binds the bank to release the money on

receiving the letter of the beneficiary ".....in the event of the non-fulfillment

of the terms and conditions of the agreement/order including failure to effect

delivery of the material within the period stipulated in the order/including

failure to provide supply & services....." and on receiving letter from the

company stating ".... that the amount claimed is due by way of loss or

damage caused to or would be caused to or suffered by the Company by the

reason of any non-fulfillment by the said Supplier..." . It further stipulates

that where such a demand is raised the guarantor shall "...pay to the

company the sum under clause 1 above, without demur and without

requiring the company to invoke any legal remedy that may be available to

them...." The terms and conditions of this bank guarantee further states that

"....the decision of the company regarding the non-fulfillment of any of the

terms or conditions of the agreement/order shall be final and binding on all

the parties mentioned in the deed of Guarantee...." There is no dispute in

the present case that an advance of sum of Rs.15,06,00,000/- was released

by defendant No.1 to the plaintiff in terms of the contract for which the

alleged bank guarantee has been issued by the bank. Under the terms and

conditions of this bank guarantee, the bank had undertaken to release the

CS (COMM) 1124/2016 Page 23 said money without any demur and irrespective of any other legal remedies

available to the beneficiary. This language of the bank guarantee clearly

stipulates that if the beneficiary states that there was violation of the terms

and conditions of the agreement, the guarantor cannot question it and refuse

to release the money. Not only this the bank guarantee further states "....Any

such demand made on the Guarantor shall be conclusive as regards the

amount due and payable by the Guarantor under this guarantee...." This

further fortifies that the intention of the parties while issuing the bank

guarantee was that the beneficiary's decision regarding non-fulfillment of

the terms and conditions of the contract and the amount due shall be final.

In the light of these clear averments in the bank guarantee, the argument of

the learned counsel for the plaintiff that because the expression used in the

bank guarantee is " in the event of" the bank guarantee is a conditional bank

guarantee has no force. Any word and sentence in a document cannot be

understood in isolation. The entire documents have to be read and

understood as a whole to discern the intention of the parties. The expression

"in the event of" cannot be used in isolation. Expression " in the event of"

qualifies non-fulfillment of terms of contract and Bank Guarantee stipulates

that in this regard to decision of defendant No.1 would be final. Not only

CS (COMM) 1124/2016 Page 24 that, it also states that when the beneficiary informs the bank that it has

suffered loss and damages and raises demand on guarantor such demand

shall be conclusive as regards the amount due and payable by the guarantor.

The plain language of Bank Guarantee makes it unconditional. This

expression "in the event of" unlike in Hindustan Construction Co. Ltd.

(supra) does not make the invocation of bank guarantee conditional. It is

noteworthy that in the case Hindustan Construction Co. Ltd. (supra), the

Court, while reaching to the conclusion that the bank guarantee in that case

was conditional, had not relied on the expression "in the event" in isolation,

but has held that this expression qualifies the obligations expressed in clause

9 (Advanced Mobilization Loan) of the contract between the parties.

Relying on clause 9 of the contract, the Court has held that the bank

guarantee could be invoked only in the circumstances referred to in clause 9

whereunder the amount would become payable only if the obligations are

not fulfilled or there is misappropriation and further held that for this

reasons, the bank guarantee could not be said to be unconditional or

unequivocal in terms so that the defendants could be said to have had an

unfettered right to invoke that bank guarantee and demand immediate

payment thereof from the bank.

CS (COMM) 1124/2016 Page 25

24. In the present case, however, the bank guarantee is independent of

any such condition. It can be invoked on non-fulfillment of the terms and

conditions of the contract and on simple demand from the beneficiary

informing the bank that the amount has been claimed due to loss and

damages caused to it on account of non-fulfillment of the terms of the

agreement. When the bank is so informed the amount becomes payable by

the bank irrespective of any other remedy available to the beneficiary. From

the facts of the case, it is apparent that the plaintiff had failed to make the

supplies as per supply agreement dated 20.02.2013. There is a clear

violation of the said agreement. In the Letter of Invocation, the defendant

No.1 has duly informed the bank that they had suffered loss and damages on

account of non-fulfillment of the supply agreement by the plaintiff. A bank

guarantee can be invoked only where there is non-fulfillment or non-

compliance of certain terms and conditions of agreement and mention of the

expression "in the event" of violation of the terms and conditions of the

agreement does not ipso facto makes a bank guarantee conditional. The bank

guarantee which was interpreted by the Supreme Court in Hindustan

Construction Co. Ltd. (supra) is entirely different than the one which is

invoked in this case. It is also a settled proposition of law that the ratio of a

CS (COMM) 1124/2016 Page 26 judgment is applicable on the fact of a case. Since the language of bank

guarantee in this case, as discussed above, is totally different than the one

interpreted by the Apex Court in Construction Co. Ltd. (supra), the findings

are distinguishable. I hold that the bank guarantee invoked is an

unconditional bank guarantee.

25. Where the bank guarantee is unconditional, the banks are bound to

honor the invocation of such unconditional bank guarantee. The Supreme

Court has clearly propounded this principle in the case Dwarikesh Sugar

Industries Ltd. The relevant para 21 is produced as under:-

"21. Numerous decisions of this Court rendered over a span of nearly two decades have laid down and reiterated the principles which the Courts must apply while considering the question whether to grant an injunction which has the effect of restraining the encashment of a bank guarantee. We do not think it necessary to burden this judgment by referring to all of them. Some of the more recent pronouncements on this point where the earlier decisions have been considered and reiterated are Svenska Handelsbanken v. Mis. Indian Charge Chrome and Ors. : AIR 1994 SC 626 ; Larsen & Toubro Ltd. v. Maharashtra State Electricity Board and Ors. AIR 1996 SC 334 ; Hindustan Steel Works Construction Ltd. v. G.S. Atwal & Co (Engineers) Pvt. Ltd., AIR 1996 SC 131 and U.P. State Sugar Corporation v. Sumac International Ltd. : AIR 1997 SC 1644 . The general principle which has been laid down by this Court has been summarised in the case of U.P. Sugar Corporation's case as follows (SCC p.547, para 12):

"The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank

CS (COMM) 1124/2016 Page 27 guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour, it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take the advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country."

26. The banks are under obligation to honor the bank guarantee and

release the money immediately. In the commercial world, the bank

guarantee is a mode of securing the payment of the money and the Courts

are expected to exercise restraint, while dealing with the injunction seeking

stay of the invocation of the bank guarantee against which the money had

been released. The only exception to if are where the bank guarantee is

CS (COMM) 1124/2016 Page 28 obtained by fraud or the invocation is going to cause irretrievable harm or

injury.

27. As held by the Supreme Court, the injunctions can be issued only

when there is an established fraud. In this case one of the grounds of

challenge to the invocation of the bank guarantee is fraud played upon the

plaintiff by defendant No.1 in connivance with M/s Dalian. The contention

raised is that the delay in performance of the supply contract had occurred

only because M/s Dalian in connivance with the plaintiff had demanded

commission on behalf of defendant No.1 and its employees and because

plaintiff did not succumb to this demand, M/s Dalian, who was the technical

partner of the plaintiff, did not perform his part of obligation and did not

supply the goods to the plaintiff as per the contract between them. It is

contended that it was because of this reason that the plaintiff could not

supply the goods to the defendant No.1. In order to substantiate the claim of

fraud, the plaintiff has relied on e-mail dated 15.04.2013 received from M/s

Dalian demanding commission. It is further argued by the learned counsel

that the fact that while the defendants were ready to give certain concessions

when M/s Dalian was the technical partner, but refused to give those

concessions when M/s Simona became their technical partner further

CS (COMM) 1124/2016 Page 29 establishes that the fraud being played upon the plaintiff by defendant No.1

in connivance with M/s Dalian. It is further argued that the fact that the

defendant did not act promptly on the request of the plaintiff of change of

technical partner further shows that the defendants were conniving with M/s

Dalian and played fraud on them. It is submitted that the plaintiff was

persuaded by M/s Dalian to enter into this contract although M/s Dalian

never had the intention to fulfill the contract which it had executed with the

plaintiff. The learned counsel for the defendant has controverted these

arguments and has submitted that the allegations of fraud are bald allegation

and have been raised to avoid the liability. It is submitted that at no stage,

the defendant was informed of the fact that its employees were demanding

commission although, throughout, the plaintiff had been communicating

with defendant No.1 through various e-mails. The alleged e-mails of M/s

Dalian was also not forwarded to the plaintiff. It is further submitted that as

per the knowledge of the defendant, M/s Dalian had subsequently withdrawn

that e-mail. It is further argued that M/s Dalian was technical partner of the

plaintiff and since they were partners, it was a communication between them

and it does not bind the defendant in any way, especially when the plaintiff

never complained that the employees of the defendants were demanding any

CS (COMM) 1124/2016 Page 30 commission or that M/s Dalian was demanding commission on behalf of

defendant No.1. It is further submitted that this issue was never raised by

plaintiff in any of the several meetings. It is further submitted that the

allegation that the defendant had not responded to the request of the plaintiff

to the change of their technical partner from M/s Dalian to M/s Simona

promptly is false because the defendant had immediately responded. It is

submitted that it was the plaintiff who lost lot of time in an effort to get the

agreement changed from fixed price contract on the ground that there was a

depreciation of rupee as compared to US dollars and in its effort to persuade

the plaintiff to raise the consideration amount of the contract instead of

performing the terms of the contract. It is submitted that the allegation of

fraud is a bald allegation and has no substance in it.

28. The element of fraud sufficient to persuade the Courts to grant an

injunction should be of egregarious nature. The Apex Court in a recent

judgment of Gujrat Maritime Board v. L & T Infrastructure Developments

Projects Ltd. &Anr.(2016) 10 SCC 46 has relied on its findings in the case

Himadri Chemicals Industries Limited v. Coal Tar Refining Co. (2007) 8

SCC 110. The Court in para 12 has held as under:-

"12. An injunction against the invocation of an absolute and an unconditional bank guarantee cannot be granted except in

CS (COMM) 1124/2016 Page 31 situations of egregious fraud or irretrievable injury to one of the parties concerned. This position also is no more res integra. In Himadri Chemicals Industries Limited v. Coal Tar Refining Co. (2007) 8 SCC 110, at paragraph -14:-

From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a bank guarantee or a letter of credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit:

(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

(ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.

(iii) The courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit.

(iv) Since a bank guarantee or a letter of credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit.

(v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation.

(vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in

CS (COMM) 1124/2016 Page 32 irretrievable harm or injustice to one of the parties concerned."

29. The proposition of law is now well settled that unless the fraud is of

egregarious nature, the invocation of the bank guarantee cannot be stayed. A

fraud can be said to be of egregarious nature only when the plaintiff is able

to show that the conduct of defendant No.1 was so outrageous that it shocks

the conscience of the Court. In the present case, as is clear from the above,

there was no fraud alleged by the plaintiff at the time of execution of the

contract or execution of the bank guarantee. The contention of the plaintiff is

that the subsequent events or circumstances that is the demand of

commission by M/s Dalian, who had introduced the plaintiff to defendant

No.1, on behalf of the employees of defendant No.1, clearly shows that the

defendant No.1 had acted in a fraudulent manner from the very beginning in

connivance with M/s Dalian. The plaintiff has also relied on Hindustan

Steel Works (supra) in support of his contention that fraud need not be at the

time of execution of the contract or of bank guarantee, but can be inferred

from the subsequent events or circumstances. There is no dispute to the fact

that if subsequent event or circumstances indicate that there was an element

of fraud, in appropriate cases the Court can exercise its discretionary

jurisdiction and stay the invocation of the bank guarantee. However, such a

CS (COMM) 1124/2016 Page 33 fraud should be of egregarious nature. The bald plea taken at a very late

stage is not sufficient to exercise the exception in favour of the plaintiffs.

As the facts of this case shows, M/s Dalian and the plaintiff became partners

and executed an MoU dated 17.08.2012 for all business proposals in India

and in other countries and it therefore is clear that plaintiff and M/s Dalian

were partners and it‟s the plaintiff alone who executed the contract with

defendant No.1. Although plaintiff alleges that M/s Dalian had been

continuously demanding commission from him for payment to defendant

No.1, but from the various communications between plaintiff and defendant

No.1. It is amply clear that at no stage the plaintiff informed Defendant

No.1 that its employees had been demanding commission through M/s

Dalian. It was only when the defendant No.1 had issued a default notice

giving plaintiff 21 days time to fulfill the terms of the supply contract and

conveying the intention of defendant No.1 to terminate the contract on

failure by plaintiff to honour supply contract, the plaintiff for the first time

informed defendant No.1 that its employees were demanding commission in

its reply dated 14.10.2013 to the default notice and raised the issue of fraud.

Besides this bald allegation of the plaintiff and an e-mail issued to the

plaintiff by his partner M/s Dalian (which was not forwarded immediately to

CS (COMM) 1124/2016 Page 34 defendant No.1), there is nothing on record to show the existence of any

fraud. The plaintiff therefore failed to prima facie establish the existence of

fraud what to say, an egregarious fraud.

30. The next argument of the plaintiff is that the termination of the

contract is premature. It is submitted that the effective date of the contract

was 25.01.2013 and as per Article 5, the Provisional Acceptance Certificate

(PAC) was 18 months from the date of the contract and contract therefore

was to expire on 24.07.2014 and in terms of Article 6 read with Article 17 of

the contract, the defendant No.1 could terminate the whole or any part of the

contract after 12 weeks from PAC date. It is further argued that on

07.06.2013, defendant No.1 accepted M/s Simona as new technological

partner and agreed to extend PAC by two months, i.e., 25.09.2014 and,

therefore, could not have terminated the contract before 24.12.2014 while

the defendant terminated the contract on 18.10.2013. It is argued on behalf

of defendant No.1 that the bank guarantee is independent of the terms and

conditions of the contract and has nothing to do with the PAC. It is also

argued that there was no contract to extend the PAC time line by two

months and plaintiff has not placed on record any such contract. It is

submitted that bank guarantee could be invoked on violation of the terms

CS (COMM) 1124/2016 Page 35 and conditions of the contract of supply and since admittedly the plaintiff

did not supply the goods in terms of the agreement, the defendant was

within its right to invoke the bank guarantee. I have perused the bank

guarantee. The bank guarantee clearly stipulates "....in the event of the non-

fulfillment of the terms and conditions of the agreement/order including

failure to effect delivery of the material within the period stipulated in the

order/including failure to provide supply & services..." . It therefore is clear

that defendant No.1 is within its right to invoke the bank guarantee on

failure of the plaintiff to supply the goods in terms of Supply Agreement and

it cannot be said that the invocation is premature.

31. The another argument of the plaintiff was that the Letter of Invocation

was not in terms of the bank guarantee because in the LoI the loss and

damages suffered by the defendant No.1 are not mentioned. On analysing

the terms of bank guarantee, the invocation is bad in law. Reliance is placed

on Puri International (P) Limited (supra) and Ansal Properties and

Industries Ltd. (supra). The Court in both these cases had laid down the

proposition of law that the invocation of bank guarantee has to be in

accordance with the terms and tenor of the instrument.

CS (COMM) 1124/2016 Page 36

32. It is apparent that the bank guarantee requires the beneficiary to state

"....that the amount claimed is due by way of loss or damage caused to or

would be caused to or suffered by the Company by the reason of any non-

fulfillment by the said Supplier/Contractor/ of any of the terms or conditions

contained in the said agreement/order or by reason of the

Contractor/Supplier failing to perform the said agreement/order.."

(emphasis supplied)

The defendant No.1 had issued a letter of invocation to the bank dated

18.10.2013 wherein in para 2 the defendant No.1 has stated as under:-

"2. It may be noted that fulfillment of the contractual obligations agreed in the above-said LOI & three agreements is critical for Heiderlberg Cement India Ltd. (HCIL) and non-completion of the work as per agreed time schedule has resulted in huge loss to..."

(emphasis supplied)

33. This shows that the defendant No.1 has averred in the letter of

invocation that huge loss has resulted to them. Although they have not used

the word damage, but it is of no consequence because the expression used in

the bank guarantee is by way of "loss or damages". The expression used in

Bank Guarantee is not "loss and damages". The bank guarantee gives the

option to the beneficiary to invoke it either on account of loss suffered or

CS (COMM) 1124/2016 Page 37 damages accrued. It, therefore, is clear that the invocation letter has been

issued in terms of the Bank Guarantee.

34. The plaintiff has failed to convince the Court that it has a prima facie

case in his favour or that the balance of convenience lies in his favour. The

plaintiff has also failed to show that if the invocation of the bank guarantee

is not stayed, it shall suffer irreparable loss and injury or it would cause

irretrievable harm or injury to him. Admittedly, he had failed to honour the

terms and conditions of supply agreement. He had invoked the bank

guarantee issued in his favour by M/s Simona his partner against the

advance released to him by plaintiff. The plaintiff has failed to prima facie

establish any reason for exercising discretion of grant of ad interim

injunction in his favour.

35. The application under Order 39 Rule 1 and 2 is dismissed and the

interim stay dated 19.10.2013 is vacated.

                                                         DEEPA SHARMA
                                                            (JUDGE)

MAY 23, 2017
BG




CS (COMM) 1124/2016                                          Page 38
 CS(COMM) 1124/2016

      List before Roster Bench on 24.05.2017.



                                                DEEPA SHARMA
                                                   (JUDGE)

MAY 23, 2017
BG




CS (COMM) 1124/2016                               Page 39