Delhi High Court
M/S Umaxe Projects Private ... vs Air Force Naval Housing Board ... on 17 July, 2019
$~22
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 199/2019
M/S UMAXE PROJECTS PRIVATE LIMITED THROUGH: ITS
DIRECTOR ..... Petitioner
Through: Mr. Viplav Sharma, Advocate.
versus
AIR FORCE NAVAL HOUSING BOARD THROUGH: THE DIRECTOR
GENERAL & ANR. ..... Respondents
Through: Mr. Nishant Kumar, Advocate with
Sh. S.K. Gaur, Wing Cdr.
Mr. V.K. Gupta, Advocate for
Respondent No.2.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
ORDER
% 17.07.2019
SANJEEV NARULA, J.:
I.A. 8565/2019 (Exemption)
1. Exemption allowed, subject to all just exceptions.
O.M.P.(I) (COMM.) 199/2019
Brief factual background
2. Petitioner is a construction company. Respondent No. 1 (Air Force Naval
Housing Board, hereinafter "AFNHB") is a society registered under the
Societies Registration Act, 1860.
3. In 2017, the Respondent No. 1 issued a Notice Inviting Tender (NIT)
dated 17th October 2017 for balance of construction of all civil work,
external development work, internal and external sanitary plumbing work,
water distribution system drainage work, landscaping including irrigation
lifts and internal electrical works at its residential complex at Meerut
(hereinafter, "the Meerut project"). The Petitioner submitted its bid and was
selected. Thereafter, pursuant to Letter of Acceptance ("LoA") dated 30th
November 2017, the Petitioner and Respondent No 1 entered into a formal
agreement dated 17th January 2018 ("the Meerut Agreement"). Clause 18 of
this agreement contains the arbitration clause. As a condition for submitting
the tender, execution of work under the Contract and for other collateral
purposes, the Petitioner furnished following Bank Guarantees:
S.No. Bank Guarantee No. Amount Validity
1. 1480042317 50,00,000 13 September 2019
2. 1480053218 57,50,160 19 June 2019
3. 1480015618 38,33,440 25 June 2019
4. 1480001319 1,00,00,000 25 July 2019
5. 14800030718 38,33,440 9 August 2019
6. 14800023518 57,50,160 11 August 2019
4. It is the case of the Petitioner that Respondent No. 1 was informed
through various letters about the various difficulties it was facing in timely
completion of the project and requested for extension of time and the
Respondent No. 1 vide its letter dated 6th June 2019 required the Petitioner
to have the developing units in Towers 1, 6, 7 & 8 (comprising of 305 OUs)
ready in all respects by 30th June 2019. It is also claimed that the Petitioner
submitted two RA Bills dated 9th May 2019 and 12th June 2019 for Rs. 53.41
lacs for material advance and for Rs. 3,66,65,475.94/- respectively, the
aggregate of which is more than the aggregate of above bank guarantees.
Respondent No.1 claims that Petitioner has not completed the work as per
the terms of the contract and has thus invoked the above noted Bank
Guarantees vide invocation letter dated 13th June 2019. Petitioner aggrieved
with the invocation, filed the present petition inter alia seeking orders
restraining the invocation and encashment of the bank Guarantees.
5. The present petition was first listed on 17th June 2019 before the Vacation
Judge. On 24th June 2019, the Court directed Respondent No. 1 to file a
reply to the petition within a period of two weeks. However, till date, no
reply has been filed and the Court is now proceeding to hear the matter on
the merits.
6. The present petition under Section 9 of the Arbitration and Conciliation
Act (hereinafter referred to as „Act‟), seeks interim reliefs as under:-
"a. allow the present application and as an interim measure, pass
urgent suitable injunctive orders against the effect and operation
of impugned letter dated 13.6.2019 of Respondent No.1 and
thereby, restrain the said Respondent No.1, its employees, agents
and all persons acting for and on its behalf from
invoking/encashing subject bank guarantees (Annexure 5 Colly)
as detailed in paragraph 2(ix) above and thereby, preserve the
same under the authority of this Hon'ble Court pending final
outcome of the arbitration proceedings which the Petitioner
hereby, undertakes to commence by issuing the Notice of the
Arbitration;
b. detain, preserve and secure the amounts aggregating subject
bank guarantees (Annexure 5 Colly) as detailed in paragraph
2(ix), if encashed/paid by Respondent No. 2 to Respondent No. 1
under the impugned unlawful invocation letter dated 13.6.2019
wrongly and unlawfully encashing the subject Bank Guarantees,
under the authority of this Hon'ble Court;
c. pass mandatory injunction directing the Respondent No.1 to
forthwith process and release of payments to Petitioner against
its' RA Bill No. 13 dt 9.5.2019 for material advance and regular
RA Bill No 13 dt 12.6.2019 as stated in paragraph 2(xiii) above
which as per CI. 18.4.1 of the subject Arbitration Agreement, the
Petitioner is entitled to receive for completing the 'finishing
work' and handing over subject work as per Respondent 1's letter
dt 6.6.2019 which now being wilfully-wrongly frustrated by
Respondent No.1 vide its' impugned letter dated 13.6.2019"
7. As noted in the order dated 24th June 2019, Respondent No. 1 has
encashed the six bank guarantees which are subject matter of the present
petition. The prayer (a) sought in the petition, reproduced above, has thus
become infructuous and this fact is not disputed by the Petitioner. Learned
counsel for the Petitioner however submits that notwithstanding the
encashment of the bank guarantees the present petition is maintainable as the
additional reliefs i.e. Prayers (b) and (c) enumerated above still survive.
8. Learned counsel for the Petitioner has thus addressed arguments confining
the scope of the present petition in respect of prayers (b) and (c), reserving
his rights to challenge the invocation of the bank guarantees before the
Arbitral Tribunal. Learned counsel nevertheless submits that since the
invocation of the bank guarantees is unlawful, Petitioner has a right to
secure amounts of the bank guarantees in question. He submits that this can
be achieved by ordering Respondent No.1 to deposit the amount of the bank
guarantees in the court and further a condition be imposed that the
appropriation of the amount so deposited would be subject to the outcome
of the arbitration proceedings. He further submits that under Section 9 of
the Act, the Court is within its power to pass such an order and at this stage,
the court should be concerned with ensuring that the claim amount is
secured and is preserved.
9. He also submitted that one of the bank guarantees, for an amount of Rs.
50 lacs was issued as a security towards earnest money and one other bank
guarantee for Rs. 1 crore was issued towards the advances given by the
Respondent against which there was no full disbursement. The remaining
bank guarantees were issued towards performance of the contract.
Respondent No. 1 had vide letter dated 6th June 2019, permitted the
Petitioner to complete the construction of the first and the second phase of
the project by 30th June 2019. However, before the expiry of the extended
period, the Respondent No. 1 has unlawfully and prematurely invoked the
bank guarantees. Regarding prayer (c), learned counsel relied upon Clause
18.4 of the Meerut Agreement and submitted that the Petitioner has to
recover the amounts outstanding against the invoices raised by it, and
Respondents should be called upon to make the payment in respect thereof.
10. Learned counsel for Respondent No.1 on the other hand, on instructions
from Wing Commander Sh. S.K. Gaur, Wing Cdr. who is present in the
Court today refuted all the contentions raised by the Petitioner and argued
that the Contract has been terminated vide notice dated 22nd June 2019. A
copy of the termination notice was handed over in the Court along with the
letter dated 15th July 2019, whereby Respondent No. 1 has appointed an
Arbitrator in terms of Clause 18.2 of the Contract dated 30th November
2017. The copies of the said letters have also been provided to the learned
counsel for the Petitioner and are taken on record.
11. Learned counsel for the Respondent argued that the Petitioner failed to
fulfill its contractual obligations in terms of the Contract, and resultantly
Respondent No. 1 was constrained to terminate the Contract. He submitted
that the Contract was executed on 30th November 2017 stipulating that the
work had to be completed within a period of 12 months. However, as on
date only 50% of the work has been completed by the Petitioner. He further
submitted that Petitioner is misleading the Court by contending that the
letter dated 6th June 2019 was as an extension of the contract. He contended
that the said letter was issued on the specific request of the Petitioner and
cannot be construed as extension. Nonetheless, Petitioner has failed to
complete the construction even by 30th June 2019. When the Project
Director noted that there was no visible progress in the construction despite
the extension, the Contract was terminated. He also submitted that the
Respondent No. 1 has to recover an amount of Rs. 14 crores from the
petitioner which includes dues towards the mobilization and material
advances. He further argued that an amount of Rs. 1.53 crores released to
the Petitioner for onward payment to the vendor has not been utilized for the
said purpose and as a result, the vendors who had supplied the material to
the Petitioner are unpaid.
Analysis and Findings
12. The Court has given its thoughtful consideration to the contentions
raised by the parties.
13. The relief sought in the present petition having been confined only in
respect to prayers (b) and (c) as noted above, has to be analyzed in light of
the fact that presently Respondent No. 1 has encashed the bank guarantees
and the amounts thereunder have been received. Respondent No.1
maintains that the encashment was imperative as a result of breaches on the
part of the Petitioner to perform its obligations under the Contract. The
question whether Respondent No. 1‟s action is sustainable or not, is a matter
that would require evidence and trial and would be appropriately dealt with
in the arbitration proceedings. Thus for now, the question before the Court
is as to whether the amount in the bank guarantees should be ordered to be
deposited in the Court. The answer to this question is in the negative. In the
present scenario, keeping in view the nature of the proceedings, the court
cannot conclusively determine whether the encashment of the bank
guarantees was unlawful or contrary to the contractual rights. Giving
directions to the Respondent to deposit the amount in Court would entail
that the Court should form an opinion that the encashment was unlawful.
This opinion even on prima facie basis, would require the court to embark
upon deciding the contractual rights of the parties relating to due
performance of the contract. The law relating to invocation of bank
guarantees is well settled and consistently the approach of the court has been
of minimalistic interference, unless of course, the well known exceptions
viz. egregious fraud and irretrievable injury or loss are established.
Undoubtedly since the bank guarantees have been encashed, the Court is not
faced with a situation to decide the question of granting a stay of invocation.
Therefore, although law relating to invocation of bank guarantees may not
have direct application, but the well-known principles relating thereto would
still have to be borne in mind. To order the deposit of the amount under
bank guarantee, by way of restitution, the Court would be required to
necessarily evaluate or at least reflect on the question- whether the
invocation was unlawful? Petitioner has not been able to show any fraud in
relation to invocation or in establishing the Bank Guarantees. Arguments of
the Petitioner have centered around the rationality behind the said action. In
my opinion, the aspect of justification for invocation is linked to contractual
stipulations which irrefutably lead to determination of disputed questions
which is beyond the ambit of section 9 of the Act. In the present situation, I
would not consider it appropriate to delve into the question of legality and
validation of the action of the Respondent and in my opinion the same
should be left for determination by the Arbitral Tribunal. Direction for
deposit of the amount cannot be sought as an interim measure. The prayer
for release of the outstanding invoices also cannot be decided in the present
petition. On the one hand, Respondent No. 1 is laying a claim that it has to
recover an amount of Rs. 14 crores from the Petitioner and on the other
hand, Petitioner contends that its invoices are unpaid. Petitioner expects that
the Court should secure the amount of its outstanding invoices only on the
basis of the fact that invoices have been raised. Whether such invoices are
correct or not and whether the amount claimed thereunder is indeed
outstanding actually due or not cannot be determined in the present petition.
Parties have to be afforded an opportunity to prove their claims. These
contentions will also have to be raised before the Arbitral Tribunal.
14. The contention of the Petitioner that while exercising the jurisdiction
under Section 9, the Court is not bound to follow the principles of CPC, is
not a correct position. The Supreme Court as well as this Court in several
judgments has consistently held that while exercising the jurisdiction under
Section 9 of the Act, the Court will be guided by the well known principles
relating to grant of injunctions and interim reliefs. Reference here may be
made to Adhunik Steels Ltd v. Orissa Manganese and Minerals (P) Ltd.
(2007) 7 SCC 125, Modi Rubber ltd v. Guardian International Corp. 2007
SCC OnLine Del 502, Nimbus Communication Ltd. v. Board of Control
for Cricket in India, 2012 SCC OnLine Bom 287. The test of prima facie
case, balance of convenience, irreparable loss has to be borne in mind before
the Court can make an order in the nature of granting interim orders.
15. In the present case, the first ingredient of prima facie case is not satisfied
for the Court to grant prayer (b) or (c). The Court is not inclined to grant any
relief as sought for in the present petition. Accordingly, the same is
dismissed. No order as to costs.
16. Needless to state that the opinion expressed by this Court in the present
order would not be binding on the Arbitral Tribunal. The Arbitral Tribunal
as and when constituted shall decide the claims and counter-claims of the
parties independently and uninfluenced by the observations made
hereinabove.
SANJEEV NARULA, J
JULY 17, 2019
ss
