Delhi High Court
M/S Jaihind Projects Ltd vs Gail (India) Ltd. on 28 March, 2019
$~28
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 28.03.2019
+ O.M.P.(I) (COMM.) 88/2019
M/S JAIHIND PROJECTS LTD. ..... Petitioner
Through: Mr. Y.K. Kapur with Mr. Bhushan
Kapur, Advocates along with Mr.
Chetan Tolani, Attorney Holder.
versus
GAIL (INDIA) LTD. ..... Respondent
Through: Ms. Madhumita Bhattacharya,
Advocate.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J. (ORAL)
1. Briefly, via this petition injunction is sought vis-a-vis two bank
guarantees which are referred to in prayer Clause (i) and (ii) of this petition.
For the sake of convenience, the same are extracted hereunder:-
"i) Contract Performance Bank Guarantee No.BGH/2018
dated 15.06.2016 [Sic:2018] for a sum of Rs.3.00 Crores
(Rupees Three Crores only) issued by Central Bank of
India, Lal Darwaja Branch Post Box 100, Lal Darwaja,
Ahmadabad-380001.
ii) Contract Performance Bank Guarantee
No.01389BGK1800001 dated 15.06.2018 for a sum
of Rs.79,23,469/- (Rupees Seventy Nine lakhs Twenty
Three Thousand Four Hundred Sixty Nine only) issued
by Central Bank of India, Lal Darwaja Branch Post Box
100, Lal Darwaja, Ahmadabad-380001."
2. It is necessary to examine the facts qua the reliefs sought for by the
petitioner.
3. It appears that a Letter of Acceptance dated 11.12.2017 (in short
OMP(I)(COMM) No.88 of 2019 Pg. 1 of 10
"LOA") was issued in favour of petitioner for construction and laying of
Steel Gas pipeline along with associated facilities (12"x75.3 km) for
paradeep spur line of JHBDPL, PH-II.
4. Consequent to the LOA, Contract Agreement dated 18.01.2018 was
entered into between the parties. Concededly, in terms of Clause 24.1 of
General Conditions of the Contract (in short „GCC‟) the petitioner was to
furnish a security to the tune of 10% of the accepted value of the tender.
The petitioner, evidently, furnished, as required, a Performance Bank
Guarantee („PBG‟) as stipulated in terms of Clause 24.1 of the GCC.
4.1 It is the petitioner‟s case that since it was in some financial difficulty
it got a third party i.e., one, Mr. Ramesh Sharma of Nirvana Metlink (P)
Ltd., a financial broker, to furnish the PBG.
4.2 It is not disputed by the petitioner that the PBG furnished by Mr.
Ramesh Sharma on behalf of the petitioner was fake. The petitioner avers
that upon being made aware of this fact it immediately furnished another set
of PBGs i.e. the subject PBGs in lieu of that which had been furnished on its
behalf by Mr. Ramesh Sharma.
5 The petitioner, however, was issued a show-cause notice on
04.09.2018. The petitioner was given an opportunity to file its reply. Upon a
reply dated 24.09.2018 being filed, the show-cause notice was adjudicated
upon by the respondent and an order in that behalf was passed on
27.02.2019. In accordance with the leeway granted by the respondent, the
petitioner has preferred an appeal before the concerned authority which is
pending adjudication.
6. The immediate cause of concern for the petitioner is the two letters of
invocation issued by the respondent with regard to the subject PBGs. These
OMP(I)(COMM) No.88 of 2019 Pg. 2 of 10
are letters dated 17.03.2019 and 22.03.2019. Both these letters have been
addressed by the respondent to the concerned bank i.e. Central Bank of
India, Ahmedabad.
7. As is evident, the respondent seeks to encash the subject PBGs.
8. Mr. Kapur, who, appears for the petitioner, says that the invocation is
flawed in view of the following: -
i) The respondent having accepted fresh PBGs in lieu of the
earlier PBGs provided by Mr. Ramesh Sharma, it could not have
encashed/ invoked the same.
ii) The subject PBGs can only be encashed if there is default
followed by a loss or injury.
iii) That, in any case, the invocation of the second PBG is
not in terms of the provision made therein.
(iii)(a) To be noted, this is the PBG which is worth Rs.79,23,470/.
9. Ms. Madhumita Bhattacharya, who appears on advance notice on
behalf of the respondent, in the first instance, took a preliminary objection
that these proceedings cannot continue in view of the fact that corporate
insolvency proceedings have been triggered before the NCLT, Ahmedabad
Bench.
9.1 Ms. Madhumita Bhattacharya also submits that this Court ought not to
injunct invocation of the subject PBGs as there has been default on the part
of the petitioner.
9.2 Further, learned counsel submits that the petitioner has unnecessarily
linked the aspect concerning the submission of the fake PBG, which was
subject matter of show-cause notice dated 04.09.2018, with the request of
invocation triggered qua the subject PBGs.
OMP(I)(COMM) No.88 of 2019 Pg. 3 of 10
10. I have heard learned counsel for the parties and perused the record.
11. According to me, what is vital in so far as the concerned bank is
concerned are the terms of the bank guarantees. It is not disputed that the
terms of the subject PBGs are identical save and except the amounts for
which they are worth and their number.
11.1 There are two parts of the subject PBGs which, to my mind, are
relevant at this juncture. The first part concerns the first recital in the subject
PBGs while the other part relates to the relevant clauses contained in it i.e.
Clauses 1 to 3. For the sake of convenience, the same are extracted
hereafter: -
" M/s. JAIHIND PROJECTS LIMITED having registered office
at 3rd Floor, Venus Atlantis Corporate Park, Nr. Prahladnagar
AUDA Garden, Anandnagar Raod, Satellite, Ahmedabad-
380015, Gujarat, INDIA (herein after called the
"contractor/supplier" which expression shall wherever the
context so require include its successors and assignees) have
been placed/awarded the job/work of LAYING &
CONSTRUCTION OF STEEL GAS PIPELINE ALONG WITH
ASSOCIATED FACILITIES FOR BHUBANESHWAR,
CUTTACK & PARADEEP SPURLINES OF JAGDISHPUR-
HALDIA-BOKARO DHAMRA PIPELINE PROJECT
(JHBDPL) PH-II (SECTION-I) vide PO/LOA/FOA No.
GAIL/NOIDA/C&P/PROJ/JHBDPL/LAYING/SPURLINES/16-
077/60 dated 26.10.2017 for GAIL (India) Limited having
registered office at 16, Bhikaji Cama Place, R.K. Puram, New
Delhi (herein after called the "GAIL" which expression shall
wherever the context so require include its successors and
assignees).
The Contract conditions provide that the
SUPPLIER/CONTRACTOR shall pay a sum of Rs.79,23,470/-
(Rupees Seventy Nine Lakhs Twenty Three Thousand Four
Hundred Seventy Only) as full Contract Performance
Guarantee in the form therein mentioned. The form of payment
OMP(I)(COMM) No.88 of 2019 Pg. 4 of 10
of Contract Performance Guarantee includes guarantee
executed by Nationalized Bank/Scheduled Commercial Bank,
undertaking full responsibility to indemnify GAIL (INDIA)
LIMITED, in case of default.
The said M/s JAI HIND PROJECTS LIMITED has approached
us and at their request and in consideration of the premises we
Central Bank of India at H.L. Commerce College Area Branch,
Ahmedabad-380009, Gujarat, India having our Head Office at
ChanderMukhi Building, Nariman Point, Mumbai-400021 India
have agreed to give such guarantee as hereinafter mentioned.
1. We Central Bank of India hereby undertake to give the
irrevocable & unconditional guarantee to you that if default
shall be made by M/s. JAIHIND PROJECTS LIMITED in
performing any of the terms and conditions of the tender/ order
contract or in payment of any money payable to GAIL (INDIA)
LIMITED we shall on first demand pay without demur, contest,
protest and/ or without any recourse to the contractor to GAIL
in such manner as GAIL may direct the said amount of
Rs.79,23,470/- (Rupees Seventy Nine Lakhs Twenty Three
Thousand Four Hundred Seventy Only) only or such portion
thereof not exceeding the said sum as you may require from
time to time.
2. You will have the full liberty without reference to us and
without affecting this guarantee, postpone for any time or from
time to time the exercise of any of the powers and rights
conferred on you under the order/ contract with the said M/s.
JAIHIND PROJECT LIMITED and to enforce or to forbear
from endorsing any powers or rights or by reason of time being
given to the said M/s. JAIHIND PROJECTS LIMITED and such
postponement forbearance would not have the effect of
releasing the bank from its obligation under this debt.
3. Your right to recover the said sum of Rs.79,23,470/-
(Rupees Seventy Nine Lakhs Twenty Three Thousand Four
Hundred Seventy Only) from us in manner aforesaid is absolute
& unequivocal and will not be affected or suspended by reason
OMP(I)(COMM) No.88 of 2019 Pg. 5 of 10
of the fact that any dispute or disputes have been raised by the
said M/s. JAIHIND PROJECTS LIMITED and/ or that any
dispute or disputes are pending before any officer, tribunal or
court or arbitrator or any other authority/ forum and any
demand made by you in the bank shall be conclusive and
binding. The bank shall not be released of its obligations under
these presents by any exercise by you of its liberty with
reference to matter aforesaid or any of their or by reason or
any other act of omission or commission on your part or any
other indulgence shown by you or by any other matter or
changed what so ever which under law would, but for this
provision, have the effect of releasing the bank."
(emphasis is mine)
10.2. As indicated above, except for the value and the number, the other
aspects of the two subject PBGs are identical. A perusal of the recital would
show that the concerned bank has undertaken to indemnify the respondent
for the amount indicated in the subject PBG in case of default. Clause 1 of
the bank guarantee indicates as much. Therefore, once the respondent were
to state in its letter of invocation that there was a default by the petitioner
and, therefore, a demand is made to pay up the monies under the subject
PBG, the concerned bank would have to without demur, contest, protest,
etcetera pay up the amount as reflected therein.
11 This being the scope of the subject PBGs, one only needs to look at
the invocation letters.
11.1 Insofar as the PBG worth Rs.3 crores is concerned, the letter of
invocation and/or encashment dated 17.03.2019 reads as follow: -
"Dear Sir,
This is with reference to the aforesaid Bank Guarantee issued
by your bank on behalf of M/s. Jaihind Projects Ltd. towards
PBG against our PO/LOA/FOA No.GAIL/ NOIDA/ C&P/
OMP(I)(COMM) No.88 of 2019 Pg. 6 of 10
PROJ/ JHBDPL/ LAYING/ SPURLINES/ 16-077/60 dated
26.10.2017 for INR 30,000,000/- which is expiring on
31.03.2020.
Since the vendor has failed to full fill the purchase/ work order
obligations as per the provisions of the order and bank
guarantee we invoke the above mentioned bank guarantee and
request you to send the proceeds of the bank guarantee by
Electronic Transfer/ Demand Draft/ Swift (TT Transfer) in
favour of GAIL (India) Limited payable at SBI A/c
No.0032849362991. MICR - 110002562, IFSC-SBIN0017313,
Branch - CAG-II, New Delhi immediately, as guaranteed by
you in terms of the said bank guarantee."
(emphasis is mine)
11.2 As regards the other PBG, which is, worth Rs.79,23,470/-, the
invocation and/or encashment letter dated 22.03.2019 which is placed on
record reads as follows: -
"Dear Sir
Please refer our earlier letter Ref: GAIL/F&A/ 1050001515/
106024 dated 17.03.2019 and our telephonic discussion on
20.03.2019 regarding invocation of BG
No.01389BGK18000001 dated 15.06.2018 amounting to INR
7,923,470/- (Copy attached for your reference).
Please find enclosed here with the original Bank Guarantee
No.01389BGK18000001 dated 15.06.2018 amounting to INR
7,923,470/- issued by your bank on request of M/s. Jaihind
Projects Ltd. and send the proceeds of the bank guarantee by
Electronic Transfer/ Demand Draft/ Swift (TT Transfer) in
favour of GAIL (India) Limited payable at SBI A/c
No.0032849362991, MICR - 110002562, IFSC-SBIN0017313,
Branch - CAG-II, New Delhi immediately, as guaranteed by
you in terms of the said bank guarantee.
Kindly acknowledge the receipt of above Bank Guarantee in
OMP(I)(COMM) No.88 of 2019 Pg. 7 of 10
original."
("emphasis is mine")
11.3 As is evident, in the letter of invocation dated 17.03.2019, the
respondent has stated that the vendor i.e. petitioner, "has failed to full fill the
purchase/ work order obligations as per the provisions of the order and the
bank guarantee".
11.4 To my mind, having stated so, the respondent has correctly triggered
the provisions of the said PBG in the terms stated thereunder. What is
unequivocally stated in the letter dated 17.03.2019 is that there is a default
on the part of the petitioner and, therefore, a demand has been made.
11.5 Mr. Kapur‟s argument that the respondent was required to show that
there was a loss is not what is provided in Clause 1 of the subject PBG. The
fact that in the recital there is a word to indemnify does not, in my view,
require the respondent, to indicate that in the invocation letter it has suffered
the loss. The PBG is governed by the terms contained therein and not the
recital. Recital cannot override the terms of the PBG.
11.6 The bank which is required to honour the subject PBGs is not required
to examine the underlying disputes between the parties including as to
whether or not any loss has been suffered on account of alleged default by
the petitioner.
11.7 The other argument of Mr. Kapur that the respondent having accepted
fresh PBGs in lieu of the fake PBG submitted by Mr. Ramesh Sharma
cannot for the very same reason invoke and/or encash the subject PBGs, in
my view, is an argument which is completely untenable. Mr. Kapur is
trying to, figuratively speaking, raise a ghost and then attempt to slay it. The
OMP(I)(COMM) No.88 of 2019 Pg. 8 of 10
position taken by the petitioner in its letters of invocation does not suggest
that the reason for taking such a step is submission of fake PBGs.
11.8 Thus, no injunction can be granted to the petitioner vis-a-vis subject
PBG worth Rs. 3 crores. The prayer made in that behalf is rejected.
12. Insofar as the second PBG is concerned, which is worth
Rs.79,23,470/-, the same result will follow not because of the contents of
letter dated 22.03.2019 but because of an earlier letter dated 17.03.2019
issued by the respondent, which is referred to in the letter dated 22.03.2019
but was, it appears, kept back by the petitioner by design or otherwise. This
got revealed to me while I was dictating the order.
12.1 As noticed above, the invocation letter dated 22.03.2019 adverts to an
earlier letter dated 17.03.2019. I was shown a copy of the letter dated
17.03.2019 in respect of PBG worth Rs.79,23,470/-. This letter is identical
to the earlier letter of even date to which I have made a reference above and
is found enclosed at page 43 of the documents file.
12.2 For the sake of good order and record, I have accepted the letter
which has been placed across the bar by Ms. Bhattcharya. I have put to Mr.
Kapur as to why this letter was not placed on record. Mr. Chetan Tolani,
who is the attorney of the petitioner in the matter and is present in Court,
says that this letter was not furnished by the concerned bank to the
petitioner.
12.3 Prima facie, I find it difficult to accept the stand taken by Mr. Tolani.
Therefore, for the moment, it would be suffice if I were to extract the
contents of the letter dated 17.03.2019 which has been placed by Ms.
Madhumita Bhattacharya on behalf of the respondent.
OMP(I)(COMM) No.88 of 2019 Pg. 9 of 10
"Dear Sir,
This is with reference to the aforesaid Bank Guarantee issued
by your bank on behalf of M/s Jaihind Projects Ltd. towards
PBG against our PO/LOA/FOA No.: GAIL/NOIDA/C&P/PROJ
/LAYING/ SPURLINES/16-077/60 dated 26.10.2017 for INR
7,923,470/- which is expiring on 31.03.2020.
Since the vendor has failed to full fill the purchase/work order
obligations as per the provisions of the order and bank
guarantee, we invoke the above mentioned bank guarantee and
request you to send the proceeds of the bank guarantee by
Electronic Transfer/Demand Draft/Swift (TT Transfer) in
favour of GAIL (India) Limited payable at SBI A/c
No.0032849362991. MICR-110002562, IFSC-SBIN0017313,
Branch-CAG-II, New Delhi immediately, as guaranteed by you
in terms of the said bank guarantee."
12.4 As would be evident the extract of both letters which are dated
17.03.2019 that invocation is made by the respondent based on the alleged
default of the petitioner. Therefore, the same result will have to follow in
respect of the second PBG as well. It is so held.
13. Thus, I find no merit in the petition. The same is, accordingly,
dismissed.
RAJIV SHAKDHER, J
MARCH 28, 2019/hs
OMP(I)(COMM) No.88 of 2019 Pg. 10 of 10
