Union Of India & Anr vs Mr.D.A. Pingle, Director, ...
2017 Latest Caselaw 2724 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI
+     CONT.CAS (C) 353/2015 & CM APPL. 44754/2015

      UNION OF INDIA & ANR                                     ..... Petitioners
                    Through            Mr. Ruchir Mishra, Advocate

                          Versus

      MR.D.A. PINGLE, DIRECTOR,
      SAINATH ENTERPRISES PVT. LTD.                  ..... Respondent
                     Through  Ms.Neela Gokhale, Advocate.

%                                            Date of Decision : 29th May, 2017

      CORAM:
      HON'BLE MR. JUSTICE MANMOHAN

                          JUDGMENT

MANMOHAN, J (Oral):

1. The present contempt petition has been filed alleging wilful disobedience of the order dated 26th November, 2010 passed by this Court in Cont.Cas(C) No.946/2009 and FAO (OS) No.436/2009.

2. The facts relevant to the present contempt petition, are that pursuant to the acceptance of the respondent's bid, the following four contracts were awarded to the respondent:-

(i) CA No.DGMA/Phase-I/Pune (Camp Area)/ ARMY/06 of 2005-06 Construction of dwelling units including allied external service at camp area, Pune

(ii) CA No.DGMAP/Phase II/KIRKEE (BEG&DUNJRIK) Pune (Army) 08 of 2005-06

(iii) CA No.DGMAP/Phase I/Pune (LNR)/04 of 2006-07

(iv) CA No.DGMAP/Phase-I/KIRKEE (AUNDH)/05) OF 2006-07

3. According to the petitioners, respondent failed to discharge its contractual obligation under aforesaid contracts and, therefore, the aforesaid four contracts were terminated and they were awarded to other contractors at the risk and cost of the respondent.

4. Being aggrieved with the termination, respondent approached this Court by filing a writ petition No.8062/2009, in which order dated 06 th April, 2009 was passed whereby the respondent was permitted to withdraw the writ petition with liberty to file an application under Section 9 of the Arbitration and Conciliation Act, 1996.

5. Respondent's OMP No.186/2009 filed under Section 9 of the Arbitration and Conciliation Act, 1996 was dismissed except prayer "C" vide detailed judgment dated 17th September, 2009. It is pertinent to mention that by virtue of allowing prayer "C", respondent was entitled to take inventory of the material and resources at the sites.

6. The aforesaid judgment dated 17th September, 2009 was challenged by the respondent by filing Appeal being FAO(OS) No.436/2009 before the Division Bench.

7. Subsequently, the respondent also filed a contempt case being Cont.Case (C) No.946/2009.

8. The aforesaid Cont.Cas(C) No.946/2009 and FAO(OS) No.436/2009 were heard together and disposed of vide order dated 26th November, 2010, whereby the respondent was directed to keep the bank guarantees alive till the arbitral award was pronounced.

9. Admittedly the respondent did not extend the bank guarantees beyond 30th June, 2014.

10. Learned counsel for petitioners stated that the respondent is in contempt of the order dated 26th November, 2010 as the bank guarantees furnished by him

expired on 30th June, 2014, which in terms of the order dated 26 th November, 2010 was required to be renewed and kept alive till the passing of the arbitral award.

11. According to him, the act of non-renewal of the bank guarantees in question amounted to deliberate and wilful disobedience of the order dated 26 th November, 2010 passed by a Division Bench of this Court. He contended that the bank guarantees provided by the respondent in respect of the aforesaid contracts were the only securities lying with the petitioners, and therefore, it is imperative that respondent be directed to extend the bank guarantees, otherwise the petitioners would have no security to enforce the arbitral award that has been subsequently passed in their favour.

12. Ms. Sonia Mathur, learned senior counsel for the respondent/contemnor contended that there was no wilful disobedience on the part of the respondent/contemnor as he had made bona fide efforts to keep the bank guarantees alive. She stated that the respondent/contemnor had tried to keep the bank guarantees alive by complying with all the conditions of the Bank including giving symbolic possession of the properties, but the said efforts were unsuccessful, due to the unreasonable conduct of the Bank. In support of her contention, she relied upon the letter dated 26 th June, 2014 written by the respondent/contemnor to its Banker i.e. the Bank of Maharashtra as well as the Banker's response dated 30th June, 2014. Since considerable emphasis was laid on the said documents, the same are reproduced hereinbelow:-

A) Respondent's letter dated 26th June, 2014 "Please refer to our previous communications and personal meetings at your office on the above subject. During the course of discussions it was suggested that renewal of bank guarantees is possible provided we hand over the vacant possession of the securities mortgage to you plus 50% of the amount of the amount

of outstanding bank guarantees or alternatively we should provide 100% margin.

In this contest, we wish to clarify our position as under:

1. We may be able to hand over physical possession of Pune east street security to you provided always that you will not take any further action whatsoever regarding security. So physically handed over to you till such time the guarantees renewed by you are live in force.

2. With regard to security at stadium complex, Nashik we may mention that symbolic possession of the said property is already with you. Further office of our associate company Pingle Properties Pvt. Ltd. is functioning from this premises and as such it is not possible to give physical possession of this security because total functioning of our associated company will come to stand still thereby very badly and negatively affecting business dealings and earnings of our associated company.

3. Regarding residential security the physical possession of the same is not possible for it is the only residential premises for me and my family to deal with. We may mentioned here that symbolic possession of this security is already with the Bank.

4. As regards providing you 100% or even 50% margin for revival of the said bank guarantees sir you are well aware of the critical financial status of our firms for last few years. You are also well aware that all our funds are blocked in the DGMAP Projects and litigation arbitrators are in progress before arbitrator as well as the Delhi High Court. We have been continuously updating you on the latest progress in high court and arbitration proceedings. You are further well aware that our source of funds is through the award which is going to be passed in very near future and as such cash margins for renewal of the said bank guarantees is not possible as of now. We, however, are ready and willing to pay bank guarantees commission of 6 months for renewal of the bank guarantees.

Sir, you are well aware that outcome of the arbitration proceeding more particularly the passing of the award is totally dependent on renewal on the bank guarantees on our part and non invocation of the said renewed bank guarantees on the part of DGMAP as directed by honorable Delhi High Court.

Thus, even if Bank Guarantees are renewed they are not going to invoke by DGMAP ensuring that there is no additional funded burden on Bank and thus, renewal of Bank Guarantees is in mutual interest and benefit.

We are sure and confident that you will kindly consider the above facts and renew the Bank Guarantees for the period up to 31st December 2014. On our part we are always ready and willing to comply with the commitments made in this letter."

      B)      Banker's Response dated 30th June, 2014

        "     Re: Extension of BGs of Rs.7.16 Crore in favour of DG
              MAP, New Delhi.

With reference to your request letter dated 08.05.2014 on the captioned subject we have to inform you that a note was placed and Zonal Head allowed the Extension of the above mentioned BGs for six months subject to fulfilment of following conditions:

1. You require to pay Bank Guarantee Commission @ 2% for six months i.e. Rs.7,16,000/- Plus Service Tax of Rs.88,498/- total amount Rs.8,04,498/- immediately.

2. You are instructed to submit an undertaking that you will pay entire overdue BG commission for the earlier years till the last extension along with the interest amount for the delayed payment of the BG Comm.

3. As you have agreed to give possession of Pune Property, you are instructed to submit a letter to this effect in consultation with our Asset Recovery Branch, Fort.

4. As you have agreed to deposit (As per MCZO instruction) in the account from the next month, you are instructed to submit a letter to this effect.

Please note that without fulfilling above mentioned terms and conditions, we are unable to proceed further in the matter."

13. Consequently, according to her, there was no wilful disobedience of the judgment and order dated 26th November, 2010 and for the unreasonable conduct of the Bank, the respondent cannot be blamed.

14. Ms. Mathur also contended that the stand of the petitioners before the Arbitrator was that the respondent/contemnor was not incharge of the company and hence he could not be permitted to participate in the arbitration proceedings. She pointed out that in a winding up proceeding initiated by another creditor, the Bombay High Court vide order dated 22nd July, 2011 had passed an order of winding up. The orders dated 22nd July, 2011 and 08th July, 2013 passed by learned Single Judge as well as the Division Bench of the Bombay High Court and the consent terms taken on record by the Division Bench are reproduced hereinbelow:-

A. Order dated 22nd July, 2011 of learned Single Judge "By the above company petition, the petitioner has prayed for winding up of respondent M/s. Sainath Enterprises Pvt. Ltd. (the company). The above petition was admitted vide detailed order dated 17th October, 2008. As recorded in the said order, the said company had not replied to the statutory notice nor come forward at the stage of admission to oppose the petition. After admission of the petition, the same has been advertised as can be seen from the affidavit of publication dated 18th November, 2008. Even after the admission of the petition, the respondent company has not filed any affidavit in reply nor has the company come forward to defend the petition. The affidavit of service of notice under Rule 28 of the Company (Court) Rules, 1959 dated 20 th October 2010 is taken on record. In the circumstances, I am convinced that the company is unable to pay its debts and

deserves to be wound up. In view thereof, the company petition is allowed in terms of prayer clause (a) & (b)." B. Order dated 08th July, 2013 passed by Division Bench "Counsel appearing on behalf of the Appellant and counsel appearing on behalf of the Respondents have tendered Consent Terms which have been taken on record and marked as „X‟. The order of winding up was stayed by a Division bench on 19 March 2013. In view of this position, there can be no objection to the Consent Terms being taken on the record and an order being passed in terms thereof. The Appeal is accordingly disposed of in terms of the Consent Terms.

There shall be no order as to costs"

C. Consent Terms taken on record by Division Bench "(1) The Appellant herein admit and confirm that an amount of Rs.1,22,03,659/- (Rupees One Crore Twenty Two Lakhs Three Thousand Six Hundred Fifty Nine Only) along with interest @ 12% p.a. from 14.11.2007 is due and payable by the Appellant to the Respondents.

(2) The Appellant herein further agree and undertake to pay the said amount to the Respondent No.2 as under:-

(a) Rs.32,00,000/- (Rupees Thirty Two Lakhs Only) paid on 20.04.2013 (as per order dated 19.04.2013).

(b) Rs.30,00,000/- (Rupees Thirty Lakhs Only) will be paid on 15.09.2013.

(c) Rs.60,00,000/- (Rupees Sixty Lakhs Only) along with the interest @ 12% p.a. on the principal amount of Rs.1,22,03,659/- (Rupees One Crore Twenty Two Lakhs Three Thousand Six Hundred Fifty Nine Only) with effect from 14.11.2007 till 31.12.2012 will be paid on or before 31.12.2013.

(3) Upon payment of the aforesaid amount, the Appeal stands allowed and the order dated 22.07.2011 passed in the Company petition No.752 of 2008 shall stand set aside. The Official Liquidator, High Court, Bombay stand discharged. However, the cost and charge and expenses, if any, incurred by the Official Liquidator, High Court, Bombay shall be paid

by the appellant within 7 days from the receipt of the Notice from the office of the Official Liquidator, High Court, Bombay.

(4) In the event, the Appellant commits any default of payment as aforesaid, the Appeal stands dismissed with no order as to costs and the Official Liquidator shall proceed with the order dated 22.07.2011.

(4A) One Complaint filed U/s 138 of N.I. Act by Respondent will be kept in abeyance till 15.09.2015 till the Appellant pay Rs.30.00 Lacs.

(5) The Appellant through its director Mr. Digambar A. Pingale undertake that the Appellant shall not withdraw the sum of Rs.2 crores from the award passed in the Arbitral Tribunal till the aforesaid payments are paid to the Respondents. (5A) Upon the entire payment as per clause 2(c) paid by Appellant on or before 31.12.2013 the Respondent will withdraw the complaint.

(6) The appeal stand disposed of.

(7) No order as to the costs.

Dated this 8th day of July, 2013."

15. She further stated that the petitioners had delayed the arbitration proceedings. In support of her contention, she relied upon petitioner's application filed before the Arbitrator seeking stay of pronouncement of the Award.

16. She lastly stated that despite an alternative efficacious remedy being available to the petitioners, they were seeking to enforce civil obligation through contempt proceedings.

17. In rejoinder, learned counsel for the petitioners stated that considering the fact that respondent had not extended the bank guarantees in terms of order dated 26th November, 2010 and fearing that they would be without any enforceable security in the event an arbitral award was passed in its favour, the

petitioners moved an application before Sole Arbitrator, inter-alia, praying for staying the pronouncement of the arbitral award till the bank guarantees were extended by the respondent.

18. Having heard learned counsel for parties, this Court is of the view that the argument that respondent was not incharge of M/s. Sainath Enterprises Pvt. Ltd. as the said company has been ordered to be wound up, is contrary to facts.

19. On 07th July, 2014, learned counsel for respondent had argued before a Coordinate Bench of this Court in Arbitration Petition No.217/2013 that in view of the Division Bench order staying the order appointing the Provisional Liquidator, respondent was competent to represent M/s. Sainath Enterprises Pvt. Ltd. The relevant portion of the order dated 07 th July, 2014 passed in Arbitration Petition No.217/2013 is reproduced hereinbelow:-

"Learned counsel for the petitioner submits that, in fact, the order of the Company Court appointing the official liquidator as a provisional liquidator in respect of the petitioner company had been stayed by the Division Bench, whereafter consent terms were filed under which the petitioner had agreed to make payment of the settled amount of the creditors, at whose behest the official liquidator had been appointed. She submits that the said order has also been placed before the official liquidator. In spite of the same, he is proceeding on the basis that there is an official liquidator in place in respect of the petitioner company."

20. Moreover, as late as 26th December, 2014, respondent had filed an application before the Arbitral Tribunal undertaking to do all compliances necessary for extension of all bank guarantees upto 31st December, 2014 and 31st March, 2015 respectively. The letter dated 26th December, 2014 is reproduced hereinbelow:-

"Re: Extension of eight BGs of Rs.7.16 Crore in favour of DG MAP, New Delhi till 31/12/2014 and further dates.

[I] In relation to the aforementioned Bank Guarantee, I say that the Bank of Maharashtra on 30th June 2014 informed me/us to comply certain formalities for the extension of Bank Guarantees; i.e. (i) to pay Commission of Rs.7,16,000/- + Service Tax of Rs.88,498/-, total amount Rs.8,04,498/- with other formal.

[II] A payment of R s.7,16,000/- of commission was paid in the month of July 2014 (2/7/2014) Other formality/ies of payment of service tax and compliance is assured to make the Bank of Maharashtra.

I undertake to do all compliance necessary for extension of all eight bank guarantees upto 31/12/2014 & 31/3/2015 respectively before next date of hearing.

Sd/- 26-12-2014 (MR. D. PINGLE) FOR SAINATH ENTERPRISES PVT. LTD."

(emphasis supplied)

21. In any event, in view of the fact that in an appeal being FAO(OS) 436/2009 filed by M/s. Sainath Enterprises Pvt. Ltd. through the respondent, the encashment of the bank guarantees had been stayed on the condition that they were kept alive till the award was pronounced, this Court is of the opinion that the respondent owed a duty to intimate to the petitioner, during the validity of the bank guarantees, that it would not be possible to extend the same so that the petitioner could ask for their encashment during their validity.

22. If this duty is not read into the order dated 26th November, 2010, it would be giving an unfair advantage to the respondent and set a trend whereby a company would obtain stay of encashment of bank guarantees on solemn undertaking to keep the bank guarantees alive and after flittering away all its assets allow the company to be liquidated. If this trend is not curbed, a creditor

like the petitioner, who had bank guarantees in its favour, would be reduced to an unsecured creditor - last in the line of payment.

23. In fact, in the present case, not only did the respondent keep the bank guarantees alive post the order of the learned Single Judge dated 22 nd July, 2011 appointing the Provisional Liquidator, but as late as 26th December, 2014 undertook to keep the bank guarantees alive.

24. Consequently, respondent is estopped from contending that in view of the order of the learned Single Judge dated 22nd July, 2011 or on account of non- payment of second installment on 13th September, 2013 in accordance with the consent terms filed before the Division Bench, respondent is no longer incharge of M/s Sainath Enterprises Pvt. Ltd.

25. This Court is also of the opinion that the petitioner's application seeking stay of pronouncement of the award was neither vitiated by malice nor intended to delay the proceedings. This Court is in agreement with the contention of learned counsel for the petitioner that as the respondent had not extended the bank guarantee in terms of the order dated 26th November, 2010, the petitioner feared that it would be without an enforceable security in the event an arbitral award is passed in its favour and it was in these circumstances that the application for stay of pronouncement of the award had been filed.

26. This Court is of the view that petitioner does not have an alternative effective remedy to recover its money by filing a claim before the Official Liquidator as today it has been reduced to an unsecured creditor - last in the line of repayment.

27. The respondent's argument that bank guarantees in question could not be extended due to unreasonable conduct of its banker i.e. Bank of Maharashtra, is untenable in law inasmuch as it was the respondent's obligation to keep the bank guarantees alive. If the Bank of Maharashtra which had issued the bank

guarantees was not willing to keep them alive, it was for the petitioner to furnish guarantees of another bank. After all, the issuance of the bank guarantees by a bank is a contract and Bank of Maharashtra is not legally obliged to enter into any contract with the petitioner.

28. A Coordinate Bench of this Court in ATV Projects India Limited Vs. Bharat Heavy Electricals Ltd. & Ors., 209 SCC Online Del 97 has rejected a similar defence. The relevant portion of the said judgment is reproduced hereinbelow:-

"32. In my view the arguments qua the bank of not renewing the bank guarantee do not justify and are not an explanation for the breach of undertaking and of the conditions imposed by this Court for staying the encashment of the bank guarantees. The bank guarantees were admittedly invoked within the period of their validity and amount thereof payable by the bank. It is, however, the petitioner who interfered in the same by invoking the jurisdiction of this Court. This Court pending consideration of the matter stayed payment under the bank guarantees on the condition that the petitioner keeps the bank guarantees alive. On application of the respondent the petitioner through Counsel gave undertaking as aforesaid to keep the bank guarantee alive from year to year till the disposal of the suit/OMP by this Court.

33. It was for the petitioner thereafter to do everything that was required to be done for keeping the bank guarantees alive. If the bank which had issued the bank guarantees was hot willing to keep them alive, it was for the petitioner to do whatever the bank required the petitioner to do for renewing the bank guarantees. The issuance of the bank guarantee by the bank is a contract. The bank is not obliged to enter into such contract with the petitioner. If the bank owing to the conduct of the petitioner was not willing to renew the bank guarantee, the petitioner ought to have immediately brought the said fact to the knowledge of the Court and sought permission to furnish guarantees of another bank. However, the petitioner did nothing of this sort. It was only after this Court made inquiries and the respondent brought the same to the notice of this Court that it transpired that the bank guarantees had lapsed. The Counsel for the petitioner admits that the letters to the bank for renewal were written only after the respondent

brought it to the notice of this Court that the petitioner had not complied with its undertaking. It is argued that the bank guarantees were being renewed in a routine manner and the petitioner remained under the impression that the same would be automatically renewed. The said arguments deserve no discussion for rejection. The petitioner having given an undertaking to the Court could not lie in such a slumber; admittedly when the bank guarantees were being renewed from year-to-year. There is nothing to indicate so. This Court can take judicial notice of the fact that the bank guarantees cannot get renewed automatically. The petitioner has to pay the requisite commission to the bank and to comply with the other formalities. The record of this Court shows that the petitioner was referred to the BIFR in the year 1998/1999. When the petitioner was before the BIFR and the other amounts were due to the bank from the petitioner were in jeopardy, the petitioner could not possibly be under the impression that the guarantees would be renewed automatically and in a routine manner."

29. Consequently, this Court holds the respondent guilty of wilful disobedience of the order dated 26th December, 2010 passed by this Court in Cont.Cas(C) 946/2009 and FAO(OS) 436/2009.

30. The sentencing of respondent is deferred till the next date of hearing as counsel for respondent assures and undertakes to this Court that respondent shall make honest efforts to amicably resolve the matter with the petitioners on or before the next date of hearing.

31. List on 01st September, 2017.

MANMOHAN, J MAY 29, 2017 KA