Delhi High Court
Simplex Projects Limited vs Indian Oil Corporation & Anr. on 2 May, 2018
$~45
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 200/2018 & IA No.5987-88/2018 &
CAV 410/2018
SIMPLEX PROJECTS LIMITED ..... Petitioner
Through: Mr S. D. Singh, Mr Rahul Kr.
Singh and Ms Surabhi Shukla,
Advocates.
versus
INDIAN OIL CORPORATION & ANR. ..... Respondents
Through: Mr Abhinav Vasisht, Sr.
Advocate with Mr Amit
Meharia, Ms Tannishtha Singh
and Ms Priya Chauhan,
Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 02.05.2018
VIBHU BAKHRU, J
1. The petitioner has filed the present petition under Section 9 of the
Arbitration and Conciliation Act, 1996 (hereafter „the Act‟), inter
alia, praying as under:-
"(a) stay the operation of the impugned letter
No.BGR/P.1/BS-VI/ SPL/BG Encashment/22 dated
26.4.2018 whereby the respondent no.1 had
invoked the Bank Guarantee
No.00291GPER010017 dated 12.04.2017 for a sum
of Rs.6,97,63,744.63 valid upto 05.01.2020;
(b) issue the directions to the respondent no.1 herein
not to insist for the encashment of the bank
guarantees by staying the operation of the
impugned letter No.BGR/P.1/BS-VI/SPL/BG
Encashment/22 dated 26.4.2018;
(c) restrain the respondent no.2 from encashing the
Bank Guarantee No.00291GPER010017 dated
12.04.2017 for a sum of Rs.6,97,63,744.63 valid
upto 05.01.2020."
2. The learned counsel appearing for the petitioner contended that the
aforesaid bank guarantee was furnished to secure the mobilization
advance that was to be provided to the petitioner. He states that in terms
of the contract the petitioner was entitled to avail the mobilisation advance
to the extent of 10% of the entire contract value, which was to be
disbursed in two tranches. While respondent no.1 (Indian Oil Corporation
Limited) has disbursed the first tranche, it failed to disburse the second
tranche. Thus, respondent no.1 has only provided a sum of `3,11,73,006/-
as mobilization advance but has failed to provide the balance amount. He
further states that the principal grievance of the petitioner is that even
though respondent no.1 has not disbursed the full mobilization advance -
against which the bank guarantee of a sum of `6,34,21,613.34/- was
furnished - yet respondent no.1 is seeking to invoke the bank guarantee in
question for the entire amount. He submits that respondent no.1 is a state
instrumentality and this act of the respondent would entitle the petitioner
to seek interdiction of the invocation of bank guarantee on the ground of
special equities.
3. Next, he submits that the bank guarantee in question has not been
invoked by the person in whose favour it was issued. He submits that the
bank guarantee was issued in favour of the Indian Oil Corporation
Limited (IOCL), New Delhi but has been invoked by officers at Branch
Office of IOCL at Bongaigaon Refinery. He also referred to the decision
of this Court in Hindustan Construction Co. Ltd. & Anr. v. M/s Satluj
Jai Vidyut Nigam Ltd.: 2006 (1) ArbLR 16 (Del) in support of his
contention and drew the attention to paragraph 35 of the said decision,
whereby a Coordinate bench of this Court had observed as under:-
"24. ........ The cumulative effect of the above
analysis of the case is that the respondents have
not invoked the bank guarantees in terms of the
clause, the action of the respondent in insisting
upon encashment of bank guarantees is bound to
cause irretrievable injustice and injury to the
applicants, who otherwise have a case of special
equities in their favour."
4. Mr Vasisht, learned Senior Counsel appearing for IOCL countered
the aforesaid submissions. He has handed over photocopy of the Special
Conditions of Contract (SCC) which forms integral part of the contract
entered into between the parties, and drew the attention of this Court to
paragraph 7.2.7 of the SCC which entitles the petitioner to provide a
Composite Bank Guarantee to cover mobilization advance as well as the
security deposit. He submitted that the contention that the bank guarantee
in question was furnished only against mobilization advance is incorrect.
5. I have heard the learned counsel for the parties.
6. The law relating to the bank guarantee is now well settled. The
Supreme Court, in the case of Svenska Handelsbanken v. M/s. Indian
Charge Chrome and Others: (1994) 1 SCC 502, had expressly provided
that the invocation of the bank guarantees can be interdicted only in
exceptional circumstances where the parties are able to establish a case of
egregious fraud, special equities and irretrievable injury. This decision
was subsequently followed by the Supreme Court in Larsen & Toubro
Limited v. Maharashtra State Electricity Board and Others: (1995) 6
SCC 68, wherein the Supreme Court 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 and
ors. [1981 (2) SCC 766], U.P. Cooperative
Federation Ltd. v. Singh Consultants &
Engineers (P) Ltd. [1988 (1) SCC 174], General
Electric Technical Services Company Inc. v.
Punj Sons (P) Ltd. and anr. [1991 (4) SCC 230]
and the decision of the Court of Appeal in
England in Elian and Rabbath v. Matsas and
Matsas [1966 (2) Lloyd's Report 495] and a few
American decisions, this Court in Svenska
Handelsbanken v. M/s. Indian Charge Chrome
And Others [1994 (1) SCC 502], 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."
7. In the present case, the bank guarantee furnished by the petitioner is
a Composite Bank Guarantee - as is apparent from the recitals of the bank
guarantee - wherein it is expressly stated that "And Whereas the
corporation has agreed to accept a single undertaking from Bank to cover
both the said advance and the Security Deposit".
8. It is also relevant to state that in terms of Clause 2.1.1.0 of the
General Conditions of Contract (GCC) - which forms an integral part of
the contract between the parties) - the petitioner was obliged to provide
10% of the total contract value for due performance of its obligations.
Clause 2.1.1.0 reads as under:-
"2.1.1.0 The CONTRACTOR shall furnish
Security Deposit in the amount equivalent
to 10% (ten percent) of the total contract
value. Such Security Deposit is to be held
by the OWNER as security for the due
performance of the CONTRACTOR‟s
obligation under the contract."
9. It is also relevant to refer to clause 7.2.7 of the SCC, which reads as
under:-
"7.2.7 COMPOSITE BANK GUARANTEE
Bidder has option to submit the Composite Bank
Guarantee to cover Mobilization Advance and
Security Deposit as per format for Composite
Bank Guarantee enclosed in Annexure-A-XI to
SCC.
The CONTRACTOR shall at the request of the
OWNER suitably extend the validity of the
Bank Guarantee (s) for such period or periods as
may be required failing which, without prejudice
to any other right or remedy available to the
OWNER, the OWNER shall be entitled to en-
cash the Bank Guarantee(s). No payments,
under the contract will be released, if the validity
of the BG expired within the next 30 days from
the date of payment."
10. A conjoint reading of Clauses 2.1.1.0 and 7.2.7 and the recitals of
the bank guarantee in question, clearly indicate that the bank guarantee in
question was furnished not only to secure respondent no.1 for the
mobilization advance provided to the petitioner but also as the security for
due performance of the petitioner‟s obligation. It was agreed between the
parties that the amount of mobilization recovered from the running bills
would be adjusted towards retention of security deposit. The security
deposit would continue to be maintained for a period of three months
beyond the defect liability period. This is clear from sub clause (a) and (d)
of Clause 2.1.2.0 of the GCC, which reads as under:-
"2.1.2.0 In case Mobilisation Advance is paid to
the CONTRACTOR under the provisions
of Clause 6.4.6.0 hereof, it shall be
permissible for the CONTRACTOR to
furnish a Composite Bank Guarantee to
cover both Mobilisation Advance as well
as Retention Monies forming part of the
Security Deposit, which shall be subject to
the following conditions:
a) The Composite Bank Guarantee will
be for a value equivalent to the
advance or 10% (ten percent) of
the Total Contract Value,
whichever is greater, and shall be
kept valid upto 3 (three) months
beyond the expiry of the Defect
Liability Period;
XXXX XXXX XXXX
(d) Initially, the composite Bank
Guarantee will be entirely
reckoned towards Mobilisation
Advance and progressively, the
portions of Composite Bank
Guarantee, vacated by the
recoveries effected towards
Mobilisation Advance, shall be
reckoned towards Security
Deposit, such that after the
Mobilisation advance stands fully
recovered with interest accrued
thereon, the entire composite Bank
Guarantee shall be reckoned to
cover the Security Deposit for the
Work. The initial Security Deposit
furnished by the Contractor under
(b) above shall be
refunded/returned after recovery of
Mobilisation Advance is effected
from the R.A. Bills upto an
aggregate amount equivalent to the
Initial Security Deposit."
11. In the present case, there are serious disputes as to whether the
petitioner has performed its obligation under the contract. This Court is
not called upon to examine and finally adjudicate the said disputes.
However, since it is apparent that there are disputes between the parties
regarding the performance of the contract, the invocation of the bank
guarantee cannot be interdicted. This is particularly so as it is
unconditional bank guarantee. The Supreme Court has repeatedly held
that the invocation of bank guarantees cannot be interdicted pending
adjudication of the contractual disputes between the parties (See:
Hindustan Construction Co. Ltd. v State of Bihar & Ors.: (1999) 8 SCC
436).
12. The reliance placed by the learned counsel for the petitioner on the
decision of the Coordinate Bench of this Court in Hindustan
Construction Co. Ltd. & Anr. v. M/s Satluj Jai Vidyut Nigam Ltd
(supra) is misplaced. There is no material to indicate that the interdiction
of the invocation of bank guarantee in question is not in terms thereof.
13. In view of the above, the present petition is dismissed. The pending
applications are disposed of. The caveat stands discharged. The parties are
left to bear their own costs.
VIBHU BAKHRU, J
MAY 02, 2018
MK
