Delhi High Court
Crsc Research And Design ... vs Dedicated Freight Corridor ... on 30 September, 2020
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on:10th August, 2020
Pronounced on: 30th September, 2020
+ O.M.P. (I) (COMM.) 184/2020 & I.A. 5642/2020, I.A.
5643/2020
CRSC RESEARCH AND DESIGN INSTITUTE
GROUP CO. LTD. ..... Petitioner
Through: Mr. Rajiv Nayar, Sr. Adv. with
Mr. Krishna Vijay Singh, Mr.
Manish Dembla, Mr. Ankur
Khandelwal, Mr. Nachiketa
Goyal, Mr. Kartik Nayar, Mr.
Saurabh Seth, Advs.
versus
DEDICATED FREIGHT CORRIDOR
CORPORATION OF INDIA LIMITED
& ORS. ..... Respondents
Through: Mr. Tushar Mehta, Solicitor
General, assisted by Ms.
Garima Prashad, Advocate-on-
Record, Mr. Abhishek Kumar
Tripathi, Ms. Ankita Pandey
and Mr. Imtiyaz, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
JUDGEMENT
%
1. This petition, under Section 9 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act"),
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seeks an order of restraint against invocation/encashment of Bank
Guarantees, furnished by the petitioner to Respondent No. 1.
2. Detailed submissions were advanced by Mr. Rajiv Nayar,
learned Senior Counsel for the petitioner and Mr. Tushar Mehta,
learned Solicitor General for Respondent No. 1 and, at joint request of
learned Senior Counsel (as recorded on 10th August, 2020, when
orders were reserved), this judgement finally disposes of the present
proceedings.
Facts
3. Vide Letter of Acceptance dated 23rd June, 2016, Respondent
No. 1 informed the petitioner that its bid, for "Design, Supply,
Construction, Testing and Commissioning of Signalling,
Telecommunication and Associated Works of Double Track Railway
Lines Under Construction On A Design Build Lump Sum Basis for
Mughalsarai-New Bhaupur Section of Eastern Dedicated Freight
Corridor-Contract Package-203" (hereinafter referred to as "the
Project"), for construction of Double Line Electrified Section,
covering 388.14 km, between Mughal Sarai and New Bhaupur and
29.15 km between Junction Stations and IR Stations, had been
accepted, at the contract price of ₹ 471 crores.
4. This Letter of Acceptance crystallised into a formal Contract,
dated 3rd October, 2016. The petitioner was required, vide the
Contract, to complete the Project Work during the period 4th August,
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2016 to 30th April, 2019. The Contract fixed four Milestones, being
dates by which specified sections of the Work was required to be
completed by the petitioner. The specifics of the said Milestones may
be depicted thus:
(i) Milestone 1 was fixed as 360 days from the
Commencement Date, i.e. 29th July, 2017. Prior thereto, the
petitioner was required to have commenced the activities of
Permanent Works, which entitled him to payment of at least
10% of the Accepted Contract Amount.
(ii) Milestone 2 was fixed as 600 days from the
Commencement Date, i.e. 27th March, 2018. Prior thereto, the
petitioner was required to have completed
(a) 75% of laying of outdoor signalling and telecom
cable, and their termination and testing, and
(b) supply of S & T equipment and its progress of
installation,
which entitled the petitioner to payment of at least 40% of the
accepted contract amount.
(iii) Milestone 3 was fixed as 800 days from the
Commencement Date, i.e. 12th October, 2018. Prior thereto, the
petitioner was required to have completed
(a) 90% of laying of outdoor signalling and telecom
cable, and their termination and testing, and
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(b) supply of S & T equipment and its progress of
installation,
which entitled the petitioner to payment of at least 65% of the
Accepted Contract Amount.
(iv) Milestone 4 was fixed as 1000 days from the
Commencement Date, i.e. 30th April, 2019. Prior thereto, the
petitioner was required to have completed all works, as per the
Contract, and to have issued a Taking Over Certificate in
accordance with Clause 10 of the Conditions of Contract.
5. The Contract appointed SYSTRA MVA Consulting (India) Pvt
Ltd., Allahabad, as the Project Management Consultant (PMC) for the
Contract. Communications with the petitioner were, generally,
addressed by the PMC, on behalf of Respondent No. 1.
6. Four Advance Bank Guarantees, for a total value of
approximately ₹ 38.06 crores, and one Performance Bank Guarantee,
for ₹ 23.55 crores, were furnished by the petitioner, in accordance
with the requirements of the Contract. The Advance Bank Guarantees
are valid up to 1st May, 2021, and the Performance Bank Guarantee is
valid till 24th June, 2021.
7. Various requests, for extension of time to perform the Contract,
were made by the petitioner, and acceded to, by Respondent No. 1.
Vide letter dated 19th May, 2020, however, Respondent No. 1 rejected
the request, dated 7th May, 2020, of the petitioner, for further
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extension of time. A tabular depiction of this position has been
provided, in the petition, thus:
Date of letter Date, to which Extension Date of grant of
seeking extension of granted extension
extension of time was sought
time
17th August, Milestone 1:20th Not granted Rejected vide
2017 September, 2017 letter dated 10th
October, 2017
8th May, 2018 Milestone 2:16th Milestone 2: Till 18th August,
th
February, 2019 17 August, 2018
Milestone 3:17th
July, 2019 No extension
granted for
th
Milestone 4: 18 Milestones 3 and
April, 2020 4
23 March, 2019 Milestone 2: 9 Milestone 2: Till 20th May, 2019
rd th
September, 2019 4th August, 2019 (communicated
vide letter dated
Milestone 3: 23 Milestone 3: Till 22nd June, 2019)
rd
January, 2020 20th October,
Milestone 4: 28th Milestone 4: Till
August, 2020 7th May, 2020
10th December, Milestone 2: 21st Milestone 2: Till 22nd April, 2020
2019 August, 2020 6th July, 2020 (communicated
vide letter dated
Milestone 3: 16 Milestone 3: Till 23rd April, 2020)
th
February, 2021 4th October,
Milestone 4: 31st
August, 2021 Milestone 4: Till
18th February,
7th May, 2020 40 days Not granted Rejected vide
extension sought letter dated 19th
for all May, 2020
Milestones
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8. The letter, dated 22nd April, 2020, from Respondent No. 1 to the
petitioner, granting extension of time, as sought by the petitioner, was
granted "without levying any penalty on either of parties as
recommended by PMC". The letter noted the fact that Milestone-1
had been achieved, by the petitioner, within the stipulated period,
without extension. As noted hereinabove, the letter granted extension
of time, for achieving Milestones 2, 3 and 4, till 6th July, 2020, 4th
October, 2020 and 18th February, 2021, respectively.
9. In February-March, 2020, India was hit by the COVID-2019
pandemic, which ravaged the world. Consequent thereupon, Office
Memorandum (OM), dated 13th May, 2020, was issued by the
Department of Expenditure, Ministry of Finance, regarding
invocability of force majeure, during the currency of the pandemic.
Paras 4 and 5 of the OM read thus:
"4. It is recognised that in view of the restrictions placed
on the movement of goods, services and manpower on
account of the lockdown situation prevailing overseas and in
the country in terms of the guidelines issued by the MHA
under the DM Act 2005 and the respective State and UT
Governments, it may not be possible for the parties to the
contract to fulfil contractual obligations. In respect of Public-
private Partnership (PPP) concession contracts, a period of
the contract may have become unremunerative. Therefore,
after fulfilling due procedure and wherever applicable, parties
to the contract may invoke FMC for all construction/works
contracts, goods and services contracts and PPP contracts
with Government Agencies and in such event, date for
completion of contractual obligations which had to be
completed on or after 20th February 2020 shall stand extended
for a period of not less than three months and not more than
six months without imposition of any cost of penalty on the
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contract/concessionaire. Concession period in PPP contracts
ending on or after 20th February 2020 shall be extended by not
less than three and not more than six months. The period of
extension (between three and six months) may be decided
based on the specific circumstances of the case and the period
for which performance was affected by the force majeure
events.
5. It is clarified that invocation of FMC would be held
valid only in a situation where the parties to the contract were
not in default of the contractual obligations as on 19th
February, 2020. It is further clarified that invocation of FMC
does not absolve all non-performances of a party to the
contract, but only in respect of such non-performance as is
attributable to a lockdown situation of restrictions imposed
under any Act or executive order of the Government/s on
account of COVID-19 global pandemic. It may be noted that,
subject to the above stated, all contractual obligations shall
revive on completion of the period."
10. According to the petitioner, the extensions of time, granted, to
the petitioner by Respondent No. 1, for achieving Milestones 2, 3 and
4, would stand extended, ipso facto, by operation of the aforesaid OM,
dated 13th May, 2020, issued by the Department of Expenditure, by at
least three months. As such, the date for completion of Milestone 2,
according to the petitioner, would stand extended at least till 6th
October, 2020.
11. On 31st March, 2020, the petitioner wrote to Respondent No. 1,
through the PMC, invoking Clause 19.2 of the Contract, which
provided for force majeure, in the light of the 21 days' lockdown,
imposed by the Central Government, consequent on the COVID-2019
pandemic, which was to last from 25th March, 2020 till 14th April,
2020. In view thereof, the petitioner stated that the petitioner had
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been temporarily incapacitated from performing its obligations under
the Contract. The petitioner, therefore, sought extension of time, for
completing the contract, under Clause 8.4 thereof, which reads thus:
"8.4 Extension of Time for Completion
The Contractor shall be entitled subject to Sub- Clause
20.1 [Contractor's Claims] to an extension of the Time
for Completion if and to the extent that completion for
the purposes of Sub-Clause 10.1 [Taking over of the
Works and Sections] is or will be delayed by any of
the following causes:
(a) A Variation (unless an adjustment to the Time
for Completion has been agreed under Sub- Clause
13.3 [Variation Procedure]),
(b) a cause of delay giving an entitlement to
extension of time under Sub-Clause of these
Conditions,
(c) exceptionally adverse climatic conditions,
(d) unforeseeable shortages in the availability of
Goods caused due to changes in laws in accordance
with the provisions of Sub- Clause 13.7, or
(e) any delay, impediment or prevention caused by
or attributable to the Employer, the Employers
Personnel, or the Employers other contractors on the
Site,
(f) A cause of delay in handing over possession of
Site in accordance with the provisions of Sub- Clause
2.1.
If the Contractor considers himself to be entitled to an
extension of the Time for Completion, the Contractor
shall give notice to the Engineer in accordance with
Sub- Clause 20.1 [Contractors Claims]. When
determining each extension of time under Sub- Clause
20.1, the Engineer shall review previous
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determinations and may increase, but shall not
decrease, the total extension of time."
12. "Force Majeure" was covered by Clause 19 of the Contract.
Sub-clauses 19.1, 19.2, 19.4 and 19.7, thereunder, may be reproduced
thus:
"19 Force Majeure
19.1 Definition of Force Majeure
In this Clause, "Force Majeure" means an exceptional
event or circumstance:
(a) which is beyond a Party's control,
(b) Which such Party could not reasonably have
provided against before entering into a Contract,
(c) which, having arisen, such Party could not
reasonably have avoided or overcome, and
(d) which is not substantially attributable to the
other Party.
Force Majeure may include, but is not limited to,
exceptional events or circumstances of the kind the
listed below, so long as conditions (a) to (d) are
satisfied:
(i) war, hostilities (whether war be declared or
not), invasion, act of foreign enemies,
(ii) rebellion, terrorism, revolution, insurrection,
military or usurped power, or civil war,
(iii) riot, commotion, disorder, strike or lockout by
persons other than the Contractor's Personnel and
other employees of the Contract and Sub- contractors,
(iv) munitions of war, explosive Materials, ionising
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radiation or contamination by radioactivity, except as
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may be attributable to the Contractor's use of such
munitions, explosives, radiation or radioactivity, and
(v) natural catastrophes such as earthquake,
hurricane, Typhoon or volcanic activity.
19.2 Notice of Force Majeure
If a party is or will be prevented from performing any
of its obligations under the Contract by Force Majeure,
then it shall give notice to the other Party of the events
or circumstances constituting the Force Majeure and
shall specify the obligations, the performance of which
is or will be prevented. The notice shall be given
within 14 days after the Party became aware, or should
have become aware, of the relevant event or
circumstance constituting Force Majeure.
The Party shall, having given notice, be excused
performance of such obligations for so long as such
Force Majeure prevents it from performing them.
Notwithstanding any other provision of this Clause,
Force Majeure shall not apply to obligations of either
Party to make payments to the other Party under the
Contract.
*****
19.4 Consequences of Force Majeure
If the Contractor is prevented from performing any of
his obligations under the Contract by force majeure of
which notice has been given under Sub- Clause 19.2
[Notice of Force majeure], and suffers delay and/or
incurs Cost by reason of such force majeure, the
Contractor shall be entitled subject to Sub- Clause 20.1
[Contractors Claims] to:
(a) an extension of time for any such delay, if
completion is or will be delayed, under Sub- Clause
8.4 [Extension of Time for Completion], and
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(b) if the event or circumstance is of the kind
described in sub- para (i) to (iv) of Sub- Clause 19.1
[Definition of Force majeure] and, in the case of sub-
paras (ii) to (iv), occurs in the Country, payment of
any such Cost.
After receiving this notice, the Engineer shall proceed
in accordance with Sub- Clause 3.5 [Determinations]
to agree or determine these matters.
*****
19.7 Release from Performance under the Law
Notwithstanding any other provision of this Clause, if
any event or circumstance outside the control of the
Parties (including, but not limited to, force majeure)
arises which makes it impossible or unlawful for either
or both Parties to fulfil its or their contractual
obligations of which, under the law governing the
Contract, entitles the Parties to be released from
further performance of the Contract, then upon notice
by either Party to the other Party of such event or
circumstance:
(a) the Parties shall be discharged from further
performance, without prejudice to the rights of either
Party in respect of any previous breach of the Contract,
and
(b) the sum payable by the Employer to the
Contractor shall be the same as would have been
payable under Sub- Clause 19.6 [Optional
Termination, Payment and Release] if the Contract had
been terminated under Sub- Clause 19.6."
13. The request, of the petitioner, for extension of time on the
ground of force majeure, was rejected, by Respondent No. 1 (through
the PMC), vide letter dated 19th May, 2020. Paras 1 and 2 thereof,
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which dealt with the petitioner's claim for extension of time, read as
under:
"1. CRSCD as mentioned in para 1.2.3 of their letter that
"India has declared a state of emergency to fight the
pandemic by Closing borders" is not correct.
2. CRSCD has also mentioned in para 1.3.4; Delay Event
1 that "Force Majeure events has been preventing the
Contractor from performing its obligations under the contract,
including design, procurement is not correct", hence, not
acceptable. CRSCD has regularly submitted soft copy of the
design to PMC and PMC has also provided its review
comments. A progress review meeting through VC was held
on 11.04.2020, and the MOM of the meeting has details of
designs submitted/reviewed between 25th March to 20th April
2020."
14. On 3rd July, 2020, Respondent No. 1 issued a 14 days' notice of
termination, under Clause 15.2 of the General Conditions of Contract
(GCC). The communication referred to eleven earlier
communications, between the petitioner and Respondent No. 1
(through the PMC), dated 19th December, 2016, 24th June, 2017, 22nd
February, 2018, 27th March, 2018, 7th June, 2018, 20th November,
2018, 1st August, 2019, 1st October, 2019, 18th November, 2019, 30th
January, 2020 and 11th March, 2020. Thereafter, the communication
proceeded to state thus:
"Whereas a contract or agreement between DFCCIL
(Employer) and M/s Beijing National Railway Research &
Design Institute of Signal & Communication Group Co Ltd
(Contractor) for the work captioned in subject line is in force
with extended time of completion being 18.02.2021. The
contract is being administered by M/s. SYSTRA Mott
Macdonald (JD) as PMC.
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Whereas the contract has been issued 10 nos. notices vide a
reference (iii) to (xii) under sub- clause 15.1 of GCC/PCC by
Engineer. Even after issuing 10 nos. notices under sub-
clause 15.1 of GCC/PCC by the Engineer no significant
improvement has been noticed.
The Engineer having convinced of the Contractor's failures
and defaults under the contract, Engineer vide a reference
(xiii) recommended DFCCIL to take necessary action as per
the provision in the contract to invoke notice to Contractor as
per Clause 15.2 (Termination by Employer) of GCC/PCC for
non compliance of clause 15.1 of GCC/PCC by Contractor
for notice issued to him to improve the progress of work and
requested Employer for taking needful action in the matter.
And whereas the above and other correspondences of the
Engineer including the replies submitted by the Contractor as
of date, materials available on record, having been duly
considered by the Employer and in the light of the same, the
Employer hereby issue 14 Days Notice as per the terms and
conditions of GCC/PCC Clause 15.2 (a) of the Contract
Agreement.
The Notice of 14 days for Termination of Employer is being
issued as required under sub- clause 15.2(a) of GCC (FIDIC
Yellow Book 1999-Edition) without prejudice to the
Employer's any right under the contract or otherwise."
Clauses 15.1 and 15.2 of the GCC read thus:
"15 Termination by Employer
15.1 Notice to Correct
If the Contractor fails to carry out any obligation under
the Contract, the Engineer may by notice require the
Contractor to make good the failure and to remedy it
within a specified reasonable time.
15.2 Termination by Employer
The Employer shall be entitled to terminate the
Contract if the Contractor:
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(a) fails to comply with Sub-Clause 4.2
[Performance Security] or with a notice on this Sub-
Clause 15.1 [Notice to Correct],
(b) abandons the Works or otherwise plainly
demonstrates the intention not to continue performance
of its obligations under the Contract,
(c) without reasonable excuse fails:
(i) to proceed with the Works in accordance
with Clause 8 [Commencement, Delays and
Suspension], or
(ii) to comply with a notice issued under
Sub-Clause 7.5 [Rejection] or Sub-Clause 7.6
[Remedial Work], within 28 days after
receiving it,
(d) subcontracts the whole of the Works or assigns
the Contract without the required agreement,
(e) becomes bankrupt or insolvent, goes into
liquidation, has a receiving or administration order
made against him, compounds with his creditors, or
carries on business under the receiver, trustee or
manager for the benefits of his creditors, or of any act
is done or event occurs which (under applicable Laws)
has a similar effect to any of these acts or events, or
(f) gives or offers to give (directly or indirectly) to
any person any bright, gift, gratuity, commission or
other thing of value, as an inducement or reward:
(i) for doing or forbearing to do any action
in relation to the Contract, or
(ii) for showing or forbearing to show favour
of disfavoured to any person in relation to the
Contract,
or if any of the Contractor's Personnel, agents Sub-
contractors gives or offers to give (directly or
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indirectly) to any person any such inducement or
reward as is described in this sub- para (f). However,
lawful inducements and rewards to Contractors
Personnel shall not entitle termination.
In any of these events or circumstances, the Employer
may, upon giving 14 days' notice to the Contractor,
terminate the Contract and expel the Contract from the
Site. However, in the case of sub-paragraph (e) or (f),
the Employer may by notice to terminate the Contract
immediately.
The Employer's election to terminate the Contract
shall not prejudice to any other rights of the Employer,
under the Contract or otherwise.
The Contractor shall then leave the Site and deliver
any required Goods, all Contractor's Documents, and
other design documents made by or for him, to the
Engineer. However, the Contractor shall use his best
efforts to comply immediately with any reasonable
instructions included in the notice (i) for the
assignment of any subcontract, and (ii) for the
protection of life or property or for the safety of the
Works.
After termination, the Employer may complete the
Works and/or arrange for any other entities to do so.
The Employer and these entities may then use any
Goods, Contractor's Documents and other design
documents made by or on behalf of the Contractor.
The Employer shall then give notice that the
Contractor's Equipment and Temporary Works will be
released to the Contract are at or near the Site."
15. Apprehending that, consequent to the issuance of notice for
termination of the Contract, Respondent No. 1 would invoke and
encash the Bank Guarantees provided by it, the petitioner has
approached this Court, by means of the present petition under Section
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9 of the 1996 Act, as the Contract admittedly contained an arbitration
clause.
16. Detailed submissions have been advanced by Mr. Rajiv Nayar,
learned Senior Counsel for the petitioner and Mr. Tushar Mehta,
learned Solicitor General appearing for Respondent No. 1. Copious
written submissions have also been filed by learned Counsel, during
as well as after the conclusion of the proceedings and reserving of
judgement.
Rival submissions
17. Mr. Rajiv Nayar, learned Senior Counsel for the petitioner
contends thus:
(i) Having extended the time for completion of the work,
vide letter dated 23rd April, 2020 supra, till 18th February, 2021,
Respondent No. 1 could not have terminated the contract on the
allegation of delay/slow progress on 3rd July, 2020. Mr. Nayar
draws my attention, in this context, to the fact that the letter
dated 3rd July, 2020 does not notice the extension of time
granted, by Respondent No. 1, vide letter dated 22nd April, 2020
supra, till 6th July, 2020 for Milestone 2, 4th October, 2020 for
Milestone 3 and 18th February, 2021 for Milestone 4. In this
context, Mr. Nayar places reliance on Clause 8.2 and 8.4 of the
Contract, which dealt with the "Time for Completion", and
Extension thereof, in conjunction with Clause 1.1.3.3, which
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defined in the said expression. Clause 8.2 set out the timelines
under the various Milestones. Clause 1.1.3.3 reads thus:
"1.1.3.3 "Time for Completion" means the time
for completing the Works ora Section (as the
case may be) under Sub-Clause 8.2 [Time for
Completion], as stated in the Appendix to
Tender (with any extension under Sub-Clause
8.4 [Extension of Time for Completion]),
calculated from the Commencement Date."
(ii) The grant of extension, periodically, as sought by the
petitioner, without levying of delay damages, amounted to an
acknowledgement and admission of the fact that no delay was
attributable to the petitioner. Clause 8.7 of the Contract
rendered the contractor liable to pay delay damages to
Respondent No. 1, in the event of failure, by the contractor, to
achieve any milestone on the scheduled date, except where the
failure had occurred owing to force majeure or for reasons
solely attributable to the employer. The Clause did not confer
the Engineer with any discretion in that regard, or with the
power to waive delay damages, if the contractor was at fault.
While granting three extensions of time, for completion of
Milestones 2, 3 and 4, Respondent No. 1 did not impose any
delay damages, and did not reserve any right to levy delay
damages. Rather, extension of time was granted, specifically,
"without levying any penalties". This amounted to an
acknowledgement, by Respondent No. 1, that the delay was
either due to force majeure, or owing to reasons attributable to
Respondent No. 1. The submission, of Respondent No. 1, that
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it had levied delay damages of ₹ 1.84 crores, for delay in
achieving Milestone 1, did not remedy the situation. Milestone
1 had been achieved in 2017. Extensions of time, granted for
achieving Milestones 2, 3 and 4, thereafter, were not
conditioned by any levy of delay damages. The levy of delay
damages in respect of Milestone 1 which, itself, was unlawful,
did not remedy the situation. Clause 8.7 of the Contract read
thus:
"8.7 Delay Damages
The Contractor shall complete the Works in
accordance with the Time for Completion of
Works set forth in Sub- Clause 8.2 [Time for
Completion]. In the event that the Contractor
fails to achieve any Milestone on the date set
forth for such Milestone in the Time for
Completion, unless such failure has occurred
due to Force Majeure or for reasons solely
attributable to the Employer, the Contractor
shall pay Delay Damages to the Employer in a
sum calculated at the rate stated in the
Appendix to Tender until such Milestone is
achieved; provided that if the construction
period for any or all Milestones is extended in
accordance with the provisions of this Contract,
the date set forth in the Sub-Clause 8.2 [Time
for Completion] shall be deemed to be modified
accordingly and the provisions of this Sub-
Clause shall apply as if Appendix to Tender has
been amended accordingly; provided further
that in the event Whole of the Works are
completed within the Time for Completion as
stated in the Sub-Clause 8.2 [Time for
Completion] of the Particular Conditions, the
Delay Damages paid under this Sub-Clause
shall be refunded by the Employer to the
Contract, but without any interest thereon.
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It is agreed that recovery of Damages under this
Sub-Clause shall be without prejudice to the
rights of the Employer under this Contract
including the right of Termination thereof.
The parties hereby accept the delays cause loss
to the public and national economy for whose
benefit the Works is meant, and that the loss is
not susceptible to precise measurement. The
Parties hereby agree that the rate of delay
damages agreed in this Clause 8.7 is a
reasonable predetermined amount, and that the
delay damages are not by way of penalty.
Further, the total amount of Delay Damages
under Sub-Clause 8.7 shall not exceed the
maximum amount of delay damages (if any)
stated in the Appendix to Tender."
(iii) Similarly, though Clause 15.1 of the Contract permitted
the Engineer to issue "Notices to Correct", to the petitioner, and
though such notices were, in fact, issued, the communications,
whereby extension of time was granted to the petitioner, by
Respondent No. 1, made no reference to such earlier
communications alleging default or slow progress. Clause 15.1
may be reproduced, for the sake of reference, thus:
"15.1 Notice to Correct
If the Contractor fails to carry out any
obligation under the Contract, the Engineer may
buy notice required the Contractor to make
good the failure and to remedy it within a
specified reasonable time."
(iv) The respondent had failed to show any change of
circumstances, between 22nd April, 2020, when the last
extension of time had been granted by Respondent No. 1 (as
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noted above), and 3rd July, 2020, when the contract was
terminated, as would entitle Respondent No. 1 to terminate the
contract.
(v) The termination was also invalid as there was a force
majeure situation, with effect from 24th March, 2020, which
entitled the petitioner, as of right, to extension of time of at
least three months, under Clause 19 of the contract as well as in
terms of the OM dated 13th May, 2020 issued by the
Department of Expenditure, especially as the petitioner had
duly tendered a force majeure notice in terms of the contract.
Applying the OM dated 13th May, 2020, to the extension of
time already granted by Respondent No. 1, the date for
completion of Milestone 2 could, at the earliest, be 6th October,
2020. Respondent No. 1 could not, therefore, lawfully
terminate the contract before the said date. Mr. Nayar points
out that the impugned termination notice, dated 3 rd July, 2020,
failed to take note of the Circulars, dated 11th May, 2020 and
13th May, 2020, issued by the Government.
(vi) Besides, even if it were to be assumed that the petitioner
could not achieve Milestone 1 within the extended time, it was
always possible that the petitioner would accelerate the work
and complete the contract before the revised date, i.e. 18 th
February, 2021. It was for this reason that Clause 8.7 of the
Contract provided that, if the entire work was completed within
the original or extended time, delay damages, even if imposed
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for non-completion of any interim Milestone within the time
granted, would be refunded.
(vii) The contention of Respondent No. 1 that the Engineer
had recommended termination of the Contract on 11th March,
2020, was disputable. No copy, of the said recommendation of
the Engineer, was marked to the petitioner, as required by
Clause 3.5 of the GCC. Communications, from Respondent
No. 1, after 11th March, 2020, made no reference to the said
recommendation of the Engineer. Besides, the contract did not
empower the Engineer to recommend termination thereof, or to
arrive at any determination in that regard. In any event,
Respondent No. 1 granted further extension of time, on 22nd
April, 2020, nearly a month and a half after the purported letter
of the Engineer which, accordingly, would stand superseded.
The reliance, by Respondent No. 1, on the said letter dated 11th
March, 2020, of the Engineer, as a ground to justify the
termination of the Contract was, therefore, misplaced.
(viii) The dispute, regarding the validity of the termination of
the contract, stood referred by Respondent No. 1 to the Dispute
Adjudication Board (DAB) and, unless such dispute was
decided in favour of Respondent No. 1, it could not be
permitted to invoke the Bank Guarantees. In this context, Mr.
Nayar refers to Clause 20.2 of the Contract, which requires
disputes to be "adjudicated by a DAB in accordance with Sub-
Clause 20.4". The DAB was required to be appointed, by the
parties, jointly, within twenty-eight days of tendering of notice,
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by one party to the other, of its intention to refer the dispute to
the DAB in accordance with Sub-Clause 20.4. Sub-Clause
20.4, to the extent it is relevant, reads thus:
"20.4 Obtaining Dispute Adjudication Board's
Decision
If a dispute (of any kind whatsoever) arises
between the Parties in connection with, or
arising out of, the Contract or the seclusion of
the Works, including any dispute as to any
certificate, determination, instruction, opinion
or valuation of the Engineer, then after a DAB
has been appointed pursuant to Sub- Clause
20.2 and 20.3, either Party may refer the dispute
in writing to the DAB for its decision, with a
copy to the other Party. Such reference shall
state that it is given under this Sub- Clause.
*****
Within 84 days after receiving such reference or
the advance payment referred to in Clause 6 of
Appendix - General Conditions of Dispute
Adjudication Agreement, whichever date is
later, or within such other period as may be
proposed by the DAB and approved by both
Parties, the DAB shall give its decision, which
shall be reasoned and shall state that it is given
under this Sub- Clause. ... The decision shall be
binding on both Parties, who shall promptly
give effect to it unless and until it shall be
revised in an amicable settlement or an arbitral
award as described below. ...
If either Party is dissatisfied with the DAB's
decision, then either Party may, within 28 days
after receiving the decision, give notice to the
other Party of its dissatisfaction. If the DAB
fails to give its decision within the period of 84
days (or as otherwise approved) after receiving
such reference of such payment, then either
Party may, within 28 days after this period has
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expired, give notice to the other Party of its
dissatisfaction.
In either event, this notice of dissatisfaction
shall state that it is given under this Sub-
Clause, and shall set out the matter in dispute
and the reason(s) for the dissatisfaction. Except
as stated in Sub-Clause 20.7 and Sub-Clause
20.8, neither Party shall be entitled to
commence arbitration of a dispute unless the
notice of dissatisfaction has been given in
accordance with this Sub-Clause."
(ix) The termination of the contract, by Respondent No. 1,
was based on alleged non-compliance, by the petitioner, with
"Notices to Correct", issued by the PMC under Clause 15.1,
which charged the petitioner with having been slow in the
progress of the work. The reliance, on the said Notices to
Correct, was misguided, as the Engineer himself had,
subsequently, determined and recommended extension of time,
in Terms of Clause 8.4 read with Clause 3.5 of the Contract.
These extensions of time were also approved by Respondent
No. 1, the last such approval having been accorded vide letter
dated 22nd April, 2020.
(x) The termination of the contract, by Respondent No. 1
was illegal. If Respondent No. 1 did not desire to continue with
the contract, it should have resorted to Clause 15.5, which read
thus:
"15.5 Employer's Entitlement to Termination
The Employer shall be entitled to terminate the
Contract, at any time for the Employer's
convenience, by giving notice of such
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termination to the Contractor. The termination
shall take effect 28 days after the date of the
dates on which the Contractor receives this
notice or the Employer returns the Performance
Security. The Employer shall not terminate the
Contract under this Sub-Clause in order to
execute the Works himself or to arrange for the
Works to be executed by another contractor.
After the termination, the Contractor shall
proceed in accordance with Sub- Clause 16.3
[Cessation of Work and Removal of Contractors
Equipment] and shall be paid in accordance
with Sub-Clause 19.6 [Optional termination,
Payment and Release]."
(xi) Respondent No. 1 was seeking to justify the invocation
of the Bank Guarantees by reference to Clauses 15.3 and 15.4
of the GCC. These clauses read as under:
"15.3 Valuation at Date of Termination
As soon as practicable after a notice of
termination under Sub-Clause 15.2
[Termination by Employer] has taken effect, the
Engineer shall proceed in accordance with Sub-
Clause 3.5 [Determinations] to agree or
determine the value of the Works, Goods and
Contractor's Documents, and any other sums
due to the Contractor for work completed up to
any defined stage of payment in accordance
with the Contract. Extent of damages to the
Employer due to termination under sub-Clause
15.2 has been fixed as (1) Forfeiture of
Performance Security (2) Forfeiture of
Retention money (3) five per cent (5%) of the
cost of the balance work at the date of
termination. The Parties hereby agree that the
rate of these damages agreed in this is a
reasonable pre-determined amount, and that
these damages are not by way of penalty."
15.4 Payment after Termination
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After a notice of termination under Sub-Clause
15.2 [Termination by Employer] has taken
effect, the Employer may:
(a) proceed in accordance with Sub-Clause
2.5 [Employer's Claims],
(b) withhold further payments to the
Contractor until the actions in accordance with
the following sub-paragraphs (c) and (d) are
completed;
(c) encash and forfeit the whole of the
amounts of Performance Security and Retention
Money and take possession of Plant and
Materials delivered to Site, for which payment
has been made by the Employer;
(d) encash and appropriate the bank
guarantee for the Advance Payment to recover
the outstanding amount, if any, of the Advance
Payment; and
(e) pay to the Contractor any sums due
under Sub-Clause 15.3 [Valuation at
Termination], after the full amounts of the
Performance Security and Retention Money and
five per cent (5%) of the cost of the balance
work (as per clause 15.3) and any other amount
due from the Contractor have been received by
the Employer. Any outstanding amounts against
the Contractor shall immediately become due
and payable by the Contractor to the
Employer."
Clauses 15.3 and 15.4 presupposed the existence of a valid
termination of the contract, under Clause 15.2. The termination
of the contract itself being invalid, the invocation of the Bank
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Guarantees of the petitioner could not be justified under
Clauses 15.3 and 15.4.
(xii) Sub-Clause 15.4(a) itself required Respondent No. 1 to
proceed in accordance with Clause 2.5. Clause 2.5 requires the
employer, i.e. Respondent No. 1 to raise a claim if the employer
considered himself entitled to any payment under any Clause,
in connection with the Contract. The Engineer was, thereafter,
required to proceed in accordance with Clause 3.5, to determine
the amount, if any, to which the employer was entitled to be
paid by the contractor. As such, Respondent No. 1 was not
entitled to any amount, till there was an a priori determination,
by the Engineer, of such entitlement, under Clause 3.5. Any
such determination was also subject to revision by the DAB
and, thereafter, by the Arbitral Tribunal. In the present case,
they had been no determination of liability, by the Engineer,
under Clause 3.5. Respondent No. 1 could not, therefore,
proceed to encash the Bank Guarantees, by resorting to Clauses
15.3 and 15.4. This itself made out a case for injunctive relief,
in favour of the petitioner, till the matter was decided in arbitral
proceedings. This issue, contends Mr. Nayar, stands settled by
the judgement of a coordinate bench of this Court in Larsen &
Toubro Ltd v. Experion Developers Pvt Ltd & Ors1. Clauses
2.5, 3.5 and 4.2 of the Contract read as under:
"2.5 Employer's Claims
1 2019 SCC OnLine Del 9097
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If the Employer considers himself to be entitled
to any payment under any Clause of these
Conditions or otherwise in connection with the
Contract, and/or to any extension of the Defects
Notification Period, the Employer or the
Engineer shall give notice and particulars to the
Contractor. However, notice is not required for
payments due under Sub-Clause 4.19
[Electricity, Water and Gas], under Sub-Clause
4.20 [Employers Equipment and Free-Issue
Material], or for other services requested by the
Contractor.
The notice shall be given as soon as practicable
after the Employer became aware of the event
or circumstances giving rise to the claim. A
notice relating to any extension of the Defects
Notification Period shall be given before the
expiry of such period.
The particulars shall specify the Clause or other
basis of the claim, and shall include
substantiation of the amount and/or extension to
which the Employer considers himself to be
entitled in connection with the Contract. The
Engineer shall then proceed in accordance with
Sub-Clause 3.5 [Determinations] to agree or
determine (i) the amount (if any) which the
Employer is entitled to be paid by the
Contractor, and/or (ii) the extension (if any) of
the Defects Notification Period in accordance
with Sub-Clause 11.3 [Extension of Defects
Notification Period].
This amount may be included as a deduction in
the Contract Price and Payment Certificates.
The Employer shall only be entitled to set off
against or make any deduction from an amount
certified in a Payment Certificate, or to
otherwise claim against the Contractor, in
accordance with this Sub-Clause."
"3.5 Determinations
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Whenever these Conditions provide that the
Engineer shall proceed in accordance with this
Sub-Clause 3.5 to agree or determine any
matter, the Engineer shall consult with each
Party in an endeavour to reach agreement. If
agreement is not achieved, the Engineer shall
make a fair determination in accordance with
the Contract, taking due regard of all relevant
circumstances.
The Engineer shall give notice to both Parties of
each agreement of determination, with
supporting particulars. Each Party shall give
effect to each agreement or determination
unless and until revised under Clause 20
[Claims, Disputes and Arbitration]."
"4.2 Performance Security
The Contractor shall obtain (at his cost) a
Performance Security for proper performance,
in the amount and currencies stated in the
Appendix to Tender. If an amount is not stated
in the Appendix to Tender, this Sub-Clause
shall not apply.
The Contractor shall deliver the Performance
Security to the Employer within 28 days after
receiving the Letter of Acceptance, and shall
send a copy to the Engineer. The Performance
Security shall be issued by an entity and from
within a country (or other jurisdiction) approved
by the Employer, and shall be in the form
annexed to the Particular Conditions or in
another form approved by the Employer.
The Contractor shall ensure that the
Performance Security is valid and enforceable
until the Contractor has executed and completed
the Works and remedied any defects. If the
terms of the Performance Security specify its
expiry date, and the Contractor has not become
entitled to receive the Performance Certificate
by the date 28 days prior to the expiry date, the
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Contractor shall extend the validity of the
Performance Security until the Works have
been completed and any defects have been
remedied.
The Employer shall not make a claim under the
Performance Security, except for amounts to
which the Employer is entitled under the
Contract in the event of:
(a) failure by the Contractor to extend the
validity of the Performance Security as
described in the preceding paragraph, in which
event the Employer may claim the full amount
of the Performance Security,
(b) failure by the Contractor to pay the
Employer an amount due, as either agreed by
the Contractor or determined under Sub-Clause
2.5 [Employer's Claims] or Clause 20 [Claims,
Disputes and Arbitration], within 42 days after
this agreement or determination,
(c) failure by the Contractor to remedy a
default within 42 days after receiving the
Employer's notice requiring the default to be
remedied, or
(d) circumstances which entitle the
Employer to termination under Sub-Clause
15.2[Termination by Employer], irrespective of
whether notice of termination has been given.
The Employer shall indemnify and hold the
Contractor harmless against and from all
damages, losses and expenses (including legal
fees and expenses) resulting from a claim under
the Performance Security to the extent to which
the Employer was not entitled to make the
claim.
The Employer shall return the Performance
Security to the Contractor within 21 days after
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receiving a copy of the Performance
Certificate."
(xiii) Besides, the use of the word "entitle", in Clause 4.2(d),
indicates that there has to be a priori determination of the
existence of circumstances which entitles Respondent No. 1 to
terminate the agreement. Such determination of entitlement
could only be by adjudication. The same expression,
significantly, found place in Clause 2.5 of the Contract.
"Entitlement" could be determined only by following the
regimen prescribed by Clauses 2.5 to 3.5. There had been no
quantification of any amount, as being payable to Respondent
No. 1, prior to the termination of the contract.
(xiv) The judgement in IVRCL Ltd v. Rail Vikash Nigam
Ltd2, on which Respondent No. 1 relies, did not take into
account the decisions in Simon Carves Ltd v. Ensus UK Ltd3
and Doosan Babcock Ltd v. Comercializadora de Equiposy
Materiales Mabe Limitada4, which were relied upon, by the
same Hon'ble Judge, in Larsen & Toubro1. As such, Larsen &
Toubro1, being at a later in point of time, was entitled to
precedence over IVRCL2.
(xv) The amount to which the petitioner was entitled, from
Respondent No. 1, was far in excess of the cumulative value of
the Bank Guarantees submitted by the petitioner. Relying on
22017 SCC OnLine Del 12561
3(2011) EWHC 657 (TCC)
4(2013) EWHC 3201 (TCC)
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the judgement, rendered by this Bench in Halliburton Offshore
Services Inc. v. Vedanta Ltd5, the petitioner contends that
special equities and irretrievable injustice justify the grant of
injunction, under Section 9 of the 1996 Act. I may note, here,
that Halliburton Offshore Services Inc.5 was an ad interim
order, rendered by me, which has lost its value as a precedent,
as the petition, in which the said order was rendered, was
subsequently disposed of, vide a detailed judgement of a
coordinate Bench.
(xvi) In these circumstances, allowing Respondent No. 1 to
invoke, or encash, the Bank Guarantees submitted by the
petitioner, would amount to an egregious fraud.
18. To buttress his submissions, Mr. Nayar placed reliance on the
judgement of the Supreme Court in Gangotri Enterprises Ltd v.
U.O.I.6, the order, dated 26th July, 2007, of the Division Bench of this
Court in FAO (OS) 77/2006 (Satluj Jal Vidyut Vikas Nigam Ltd v.
Hindustan Construction Co Ltd), the judgement of the Division
Bench of this Court in Satluj Jal Vidyut Nigam Ltd v. Jai Prakash
Hyundai Consortium7 read with the order, dated 3rd April, 2006, of
the Supreme Court in SLP (C) 5456/2006 (Satluj Jal Vidyut Nigam
Ltd v. Jai Prakash Hyundai Consortium), the judgement of a learned
Single Judge of this Court in Continental Construction Ltd v. Satluj
Jal Vidyut Nigam Ltd8 and the opinions of the Queen's Bench of the
52020 SCC OnLine Del 542
6(2016) 11 SCC 720
7ILR (2006) 1 Delhi 415
8(2006) 1 Arb LR 321 (Delhi)
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High Court of the UK in Simon Carves Ltd3 and Doosan Babcock
Ltd4.
19. Mr. Nayar has also submitted that any apprehension, expressed
by Respondent No. 1, of difficulty, in recovery, at a later stage, were
Respondent No. 1 to succeed in arbitration, is unfounded, as the
petitioner is willing to keep its Bank Guarantees alive, pending the
decision on the disputes between the petitioner and Respondent No. 1.
On the other hand, encashment of the Bank Guarantees, at this stage,
is bound to result in irreparable loss and prejudice to the petitioner,
who would be handicapped in bidding for other projects.
20. In response, the learned Solicitor General contended thus:
(i) The petitioner was not justified in approaching this
Court, even when the dispute was pending before the DAB.
This, in fact, amounted to circumventing Clauses 20.2 to 20.5
of the contract .
(ii) Only three extensions, as sought by the petitioner, had
been granted by Respondent No. 1, viz.
(a) on 21st July, 2018, extension of time was granted,
for achieving Milestone 2, till 17th August, 2018, and no
extension of time was granted for achieving Milestone 3
or Milestone 4,
(b) on 20th May, 2019, extension of time was granted,
for achieving Milestone 2, till 4th August, 2019, for
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Milestone 3 till 20th October, 2019, and for Milestone 4
till 7th May, 2020, and
(c) on 22nd April, 2020, extension of time was granted,
for achieving Milestone 2, till 6th July, 2020, for
Milestone 3 till 4th October, 2020 and for Milestone 4 till
18th February, 2021.
As the petitioner had failed to achieve Milestone 2 by 6 th July,
2020, despite the three extensions, to achieve the said
Milestone, having been granted, the contract was terminated.
(iii) The petitioner was issued as many as ten Notices to
Correct, under Clause 15.1 of the Contract. Details of these
notices were enlisted in the notice for termination, issued on 3 rd
July, 2020. It was only when, despite the ten Notices, no
perceptible improvement was displayed by the petitioner, that it
was decided to terminate the contract. Sub-Clause 15.2(a) of
the Contract entitled Respondent No. 1 to do so. Even in its
reply dated 13th July, 2020, to the termination notice dated 3rd
July, 2020, the petitioner had been unable to provide any
schedule for completion or any plan for improving the progress
of the work.
(iv) Clause 15.2 further stipulated that the election, of
Respondent No. 1 to terminate the Contract would not prejudice
any of its other rights, under the Contract or otherwise.
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(v) Clause 15.3 of the Contract, as amended, specifically
stipulated the extent of damages to which Respondent No. 1
would be entitled consequent on termination under Clause 15.2
"as (1) Forfeiture of Performance Security, (2) Forfeiture of
Retention money and (3) five per cent (5%) of the cost of the
balance work at the date of termination". The Clause further
stipulated that it was agreed, between the parties, that this
represented a reasonable pre-determined amount, and was not
by way of penalty.
(vi) Clause 15.4 entitled the employer, i.e. Respondent No. 1,
consequent to the notice of termination, under Clause 15.2
taking effect, to encash and forfeit the entire Performance
Security and Retention Money, encash and appropriate the
Advance Bank Guarantees, and required Respondent No. 1 to
pay, to the Contractor, any sums due under Clause 15.3 only
after the full amount of Performance Security, Retention
Money, 5% of the cost of balance work and any other amount
due from the Contractor, had been received by Respondent No.
(vii) A bare reading of the Office Memorandum, dated 13th
May, 2020, issued by the Department of Expenditure, Ministry
of Finance, made it clear that the amnesty, provided therein, did
not extend to contractors who were in default before 19th
February, 2020.
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(viii) The assertion, of the petitioner, that extension of time
had, in all cases, been granted without levying liquidated
damages, was not correct. Liquidated damages of ₹ 1.84 crores
were levied, while granting extension of time in respect of
Milestone 1.
(ix) In any event, non-levying of liquidated damages, while
granting extension of time, did not estop Respondent No. 1
from terminating the contract, if otherwise permissible. Nor did
it prohibit Respondent No. 1 from invoking, or encashing, the
Bank Guarantees furnished by the petitioner. Respondent No. 1
had never abandoned its claim to liquidated or delay damages.
Reliance was placed, for this purpose, on IVRCL2.
(x) While granting extension, in respect of Milestones 2, 3
and 4, the letter dated 29th January, 2020 clearly stated that no
abortive cost claim on account of such extension would be
payable, as the delays, in achieving the milestones, were owing
to reasons attributable to the petitioner.
(xi) Sub-Clause 4.2(d) of the Contract entitled Respondent
No. 1 to terminate the contract even without complying with the
procedure stipulated in Clause 15. In view of the consistent
failure, on the part of the petitioner, to improve, despite the
several notices issued by Respondent No. 1 in that regard, the
termination of the contract was justified.
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(xii) The petitioner has not placed, on record, any
quantification, for its alleged claim of ₹ 53.74 crore.
Respondent No. 1 did not acknowledge any of the claims of the
petitioner, and, as already noted hereinabove, had specifically
written, to the petitioner, that no abortive cost claim on account
of extension would be payable, as the delay in achieving the
milestones was attributable to the petitioner.
(xiii) The reliance, by the petitioner, on the force majeure
clause in the Contract, was also misdirected, as termination of
the contract had been effected owing to failure, on the part of
the petitioner, to improve its performance, despite several
Notices to Correct having been issued, to the petitioner, by
Respondent No. 1 under Clause 15.1 of the GCC. This
consistent default entitled Respondent No. 1 to terminate the
contract, in accordance with Clause 15.2. Force majeure, even
if it existed, did not divest Respondent No. 1 of the said right,
or invalidate its exercise.
(xiv) In fact, it was only after continuously defaulting, despite
several notices having been issued to the petitioner, that, on 31 st
March, 2020, the petitioner sought, for the first time, to
capitalise on the COVID-2019 pandemic, and the situation that
has resulted therefrom.
(xv) Invocation of bank guarantees could be restrained only in
the case of egregious fraud, or irreparable injustice, of the kind
which would make it impossible for the guarantor to reimburse
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himself, or the existence of special equities. No egregious fraud
has been alleged by the petitioner. Nor could it be stated that
irreparable injustice will ensue, were the bank guarantees
encashed, as Respondent No. 1 was a reputed Public Sector
Undertaking. Bank guarantees were separate contracts, and
were not dispute-centric. The right to invoke Bank Guarantees
was independent of the dispute between the parties. Banks are
bound to honour bank guarantees, irrespective of the disputes
between the parties. The decisions in Itek Corpn v. First
National Bank of Boston9 and U.P. State Sugar Corporation v.
Sumac International Ltd.10, on which the petitioner placed
reliance, did not advance its case. In fact, the said reliance was
self-defeating, as Itek Corpn9 involved a situation of
impossibility, to enforce a decree, passed by American Courts,
in Iran. In the present case, the petitioner was engaged in
litigation in India, and could not allege, therefore, that it could
not execute the award, were it to result in favour of the
petitioner, in India. Rather, Respondent No. 1 would find itself
unable to execute any award, passed in its favour, in a foreign
country. Itek Corpn9, therefore, advanced the case of
Respondent No. 1, rather than that of the petitioner. On the
principle that courts should be slow in staying the invocation of
bank guarantees, the learned Solicitor General placed reliance
on Himadri Chemicals Industries Ltd v. Coal Tar Refining
Co11, Vinitec Electronics Pvt Ltd v, HCL Infosystems Ltd12,
9 566 Fed Supp 1210 (1983)
10 (1997) 1 SCC 568
11 (2007) 8 SCC 110
12 (2008) 1 SCC 544
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N.H.A.I. v . Ganga Enterprises13 and State of Maharashtra v.
National Construction Co.14.
(xvi) Without challenging the legality of the termination of the
contract, by Respondent No. 1, the petitioner had sought a
restraint against the invocation of the Bank Guarantees
furnished by it. This prayer was, therefore, directly contrary to
Clause 15.2(a) of the Contract, as well as to the express
stipulation, in Clause 15.2, that the election, by Respondent
No. 1, to terminate the contract would not prejudice any of its
other rights, under the contract or otherwise. Following the
termination of the contract, invocation and encashment of the
Bank Guarantee was triggered by Clause 15.3, and Clause 15.4,
additionally, entitling Respondent No. 1 to invoke the Bank
Guarantees.
(xvii) Apropos the judgement in Larsen & Toubro1, the learned
Solicitor General sought to distinguish the decision, by pointing
out that, in the said case, there was a specific finding that
defects in the work had been alleged by Respondent No. 1 (in
that case) only on 28th June, 2019, after invocation of the Bank
Guarantees. In these circumstances, the learned Single Judge
held that "at least prima facie, stage of invoking Sub-Clause
4.2(d) of the Agreement has also not arisen as on the date of the
invocation of the Bank Guarantees." In the present case, points
out the learned Solicitor General, as many as ten Notices to
13 (2003) 7 SCC 410
14 (1996) 1 SCC 735
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Correct had been issued, before the contract was terminated and
the Bank Guarantees were invoked. Attention was once again
invited, in this context, to the decision in IVRCL2.
Analysis
Scope of Section 9 of the 1996 Act
21. This Court has, in its recent decision in Avantha Holdings Ltd.
v. Vistra ITCL India Ltd.15, examined, in detail, the scope of Section
9 of the 1996 Act. From the judgements of the Supreme Court in
Ramniklal N. Bhutta v. State of Maharashtra16, Raunaq
International Ltd v. I.V.R. Construction Ltd17, Adhunik Steels Ltd v.
Orissa Manganese & Minerals (P) Ltd18, Arvind Constructions Ltd
v. Kalinga Mining Corporation19, Firm Ashok Traders v. Gurumukh
Das Saluja20, the judgement of this Court in Olex Focas Pvt. Ltd v.
Skoda Export Co. Ltd21 and of the High Court of Madras in V. Sekar
v. Akash Housing22 - to all of which decisions detailed allusion is to
be found in the said judgement - the following principles emerge:
(i) Interim measures, per definition, are granted to ensure
that the proceedings were not frustrated.
15MANU/DE/1548/2020
16(1997) 1 SCC 134
17(1999) 1 SCC 492
18(2007) 7 SCC 125
19(2007) 6 SCC 798
20(2004) 3 SCC 155
21AIR 2000 Del 161
22AIR 2011 Mad 110 : (2011) 3 Arb LR 327 (Madras)
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(ii) While exercising power under Section 9, the Court is
required to be mindful of the fact that concurrent power is
vested in the Arbitral Tribunal, by Section 17. The reliefs which
can be granted under Section 17, by the Arbitral Tribunal, are
identical to those which can be granted by the Court under
Section 9. While, therefore, exercising jurisdiction under
Section 9, the Court, even at the pre-arbitration stage, should
not usurp the jurisdiction which, otherwise, would vest in the
arbitral tribunal, even if it is yet to be constituted. Hence,
litigants would be in a position to misuse Section 9 as providing
an opportunity to forum shop.
(iii) Subject to the above, the principles governing the grant
of interim relief, under Section 9, are the same as those which
govern the exercise of such power under Order XXXIX of the
Code of Civil Procedure, 1908 (CPC), i.e., the existence of a
prima facie case in favour of the applicant, the balance of
convenience being in favour of the grant of such interim relief,
and the likelihood of irreparable prejudice, or loss, resulting,
were interim relief not to be granted. Additionally, public
interest is also a factor to be borne in mind.
(iv) Even the conjoint existence of these factors, however,
would not, ipso facto, make out a case for the grant of interim
protection under Section 9. Additionally, the Court has to
satisfy itself that the reliefs, sought in the Section 9 petition,
cannot await a Section 17 proceeding, before a duly constituted
arbitral tribunal. Emergent necessity of ordering interim
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protection is, therefore, also a factor to be borne in mind, while
exercising jurisdiction under Section 9.
(v) As a result, the criteria, which are required to be satisfied,
before interim protection can be granted under Section 9 are
(a) the existence of an arbitration clause, and manifest
intent, of the Section 9 petitioner, to invoke the said
clause, and initiate arbitral proceedings,
(b) the existence of a prima facie case, balance of
convenience and irreparable loss, justifying such grant of
interim relief to the applicant, and
(c) the existence of emergent necessity, so that, if
interim protection is not granted by the Court, even
before arbitral proceedings are initiated and the chance to
approach the arbitral Tribunal under Section 17 manifests
itself, there is a possibility of the arbitral proceedings
being frustrated or rendered futile.
Power to stay invocation of a Bank Guarantee
22. On the issue of the power of the court to stay invocation of
bank guarantees, the learned Solicitor General has placed reliance on
Himadri Chemicals11, Vinitec Electronics12, N.H.A.I. v. Ganga
Enterprises13 and National Construction Co14. Additionally, the
learned Solicitor General has submitted that Itek Corpn9, in fact,
advanced the case of the respondent, rather than that of the petitioner.
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23. Himadri Chemicals11 is an important judgement, in this canon.
Para 14 of the report, in the said case, enumerates the following six
principles, governing the grant of injunction against the invocation of
unconditional bank guarantees:
"(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 realize such a Bank Guarantee or
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 realization of a Bank Guarantee or
Letter of Credit.
(iv) Since a Bank Guarantee or 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 Guarantee or Letter 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 Letter of Credit would result in irretrievable
harm or injustice to one of the parties concerned."
24. The learned Solicitor General also placed reliance on Vinitec
Electronics12 which, in turn, took note of the earlier decisions in U.P.
State Sugar Corporation10, B.S.E.S. Ltd v. Fenner India Ltd23,
23(2006) 2 SCC 728
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Himadri Chemicals11 and Mahatma Gandhi Sahakara Sakkare
Karkhane v. National Heavy Engineering Coop. Ltd24, and
proceeded to hold thus (in paras 11, 12 and 14 of the report):
"11. The law relating to invocation of bank guarantees is by
now well settled by a catena of decisions of this Court. The
bank guarantees which provided that they are payable by the
guarantor on demand is considered to be an unconditional
bank guarantee. When in the course of commercial dealings,
unconditional guarantees have been given or accepted the
beneficiary is entitled to realise such a bank guarantee in
terms thereof irrespective of any pending disputes. In U.P.
State Sugar Corpn. v. Sumac International Ltd., (1997) 1
SCC 568 this Court observed that: (SCC p. 574, para 12)
"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
guarantee is given or accepted, the beneficiary is
entitled to realise 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 realisation 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 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
24(2007) 6 SCC 470
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guarantee and the adverse effect of such an injunction
on commercial dealings in the country. The two
grounds are not necessarily connected, though both
may coexist in some cases."
12. It is equally well settled in law that bank guarantee is
an independent contract between bank and the beneficiary
thereof. The bank is always obliged to honour its guarantee as
long as it is an unconditional and irrevocable one. The dispute
between the beneficiary and the party at whose instance the
bank has given the guarantee is immaterial and of no
consequence. In BSES Ltd. v. Fenner India Ltd. [(2006) 2
SCC 728] this Court held: (SCC pp. 733-34, para 10)
"10. There are, however, two exceptions to this rule.
The first is when there is a clear fraud of which the
bank has notice and a fraud of the beneficiary from
which it seeks to benefit. The fraud must be of an
egregious nature as to vitiate the entire underlying
transaction. The second exception to the general rule
of non-intervention is when there are 'special equities'
in favour of injunction, such as when 'irretrievable
injury' or 'irretrievable injustice' would occur if such
an injunction were not granted. The general rule and
its exceptions has been reiterated in so many
judgments of this Court, that in U.P. State Sugar
Corpn. v. Sumac International Ltd., (1997) 1 SCC
568 this Court, correctly declared that the law was
'settled'."
*****
14. In Mahatma Gandhi Sahakra Sakkare
Karkhane v. National Heavy Engg. Coop. Ltd., (2007) 6
SCC 470 this Court observed: (SCC p. 471b-d)
"If the bank guarantee furnished is an unconditional
and irrevocable one, it is not open to the bank to raise
any objection whatsoever to pay the amounts under the
guarantee. The person in whose favour the guarantee is
furnished by the bank cannot be prevented by way of
an injunction from enforcing the guarantee on the
pretext that the condition for enforcing the bank
guarantee in terms of the agreement entered into
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between the parties has not been fulfilled. Such a
course is impermissible. The seller cannot raise the
dispute of whatsoever nature and prevent the purchaser
from enforcing the bank guarantee by way of
injunction except on the ground of fraud and
irretrievable injury.
What is relevant are the terms incorporated in the guarantee
executed by the bank. On careful analysis of the terms and
conditions of the guarantee in the present case, it is found that
the guarantee is an unconditional one. The respondent,
therefore, cannot be allowed to raise any dispute and prevent
the appellant from encashing the bank guarantee. The mere
fact that the bank guarantee refers to the principal agreement
without referring to any specific clause in the preamble of the
deed of guarantee does not make the guarantee furnished by
the bank to be a conditional one."
(Paras 22 and 28)"
(Underscoring supplied; italics in original)
25. The following principles clearly emerge from the decision in
Vinitec Electronics12:
(i) Bank guarantees, which are payable on demand by the
guarantor, are unconditional bank guarantees.
(ii) Unconditional bank guarantees entitled the guarantor to
realisation thereof, irrespective of any pending disputes. In
fact, disputes between the guarantor, and the parties, at whose
instance the bank has given the guarantee, are immaterial and of
no consequence. Enforcement of the guarantee cannot be
injuncted on the pretext that the condition for enforcing the
bank guarantee, in terms of the agreement between the parties,
has not been fulfilled. What is relevant are the terms
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incorporated in the guarantee (and not those in the agreement
between the parties). The mere fact that the bank guarantee
refers to the principal agreement, without referring to any
specific clause, does not make the bank guarantee conditional.
(iii) Courts should, therefore, be slow in injuncting realisation
of unconditional bank guarantees.
(iv) The only exceptions, to this general rule, are where there
exist/exists
(a) fraud of an egregious nature, or
(b) irretrievable injustice resulting to the parties, at
whose instance the bank gave the guarantee, were the
injunction not granted, or
(c) special equities, of which the possibility of
irretrievable injustice is itself one.
(v) "Irretrievable injustice", for this purpose, has to be of
such an exceptional nature as would override the terms of the
guarantee and the adverse effect of the grant of such injunction
on commercial dealings in the country.
26. The Court, in Vinitec Electronics12 proceeded, thereafter, to
examine whether the bank guarantee, forming the subject matter of
the controversy before it, was conditional or unconditional, and the
discussion, in the judgement, on this aspect, is instructive. Paras 17,
18 and 19 of the report deserve, in this context, to be reproduced in
extenso:
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"17. The relevant clause in the bank guarantee dated 10-8-
2001 furnished by the appellant is to the following effect:
"Whereas M/s Vinitec Electronics Pvt. Ltd., H-33, Bali
Nagar, New Delhi (hereinafter called 'the supplier')
supplied their Vinitec online UPS systems of various
capacities pursuant to their agreement dated 10th May,
2000 and PO No. 4500011730 dated 30-5-2000
(hereinafter called 'the Company') for the final
purchaser President of India through the Director,
National Crime Records Bureau, Ministry of Home
Affairs, Government of India, New Delhi (hereinafter
called 'the purchaser').
Whereas in terms of Clause 15 of the agreement for
receiving the entire balance payments of Rs 49,99,335
from the company, the supplier has agreed to provide a
performance bank guarantee equivalent to Rs
16,81,238.50 as 10% of the value of the contract to be
kept valid till the warranty period during which time
the supplier is required to perform their warranty
obligations to the purchaser; and
Whereas pursuant to the application made by the
supplier, we, Oriental Bank of Commerce, Kirti Nagar,
New Delhi (hereinafter called 'the Bank') have
accordingly agreed to give the supplier a bank
guarantee for the aforesaid purpose.
Therefore, we, the Bank, hereby affirm that we are
guarantors and responsible on behalf of the supplier up
to a total of Rs 16,81,238.50 (Rupees sixteen lakhs
eighty-one thousand two hundred thirty-eight and
paise fifty only) and we undertake to pay any sum or
sums within the limit of Rs 16,81,238.50 (Rupees
sixteen lakhs eighty-one thousand two hundred thirty-
eight and paise fifty only) as aforesaid upon receipt of
written demand from the purchaser and Company
within the validity of this bank guarantee establishing
the supplier to be in default for the performance of
their warranty obligations under the contract.
We, the Bank, affirm that our liability under this
guarantee is limited to the total amount of Rs
16,81,238.50 (Rupees sixteen lakhs eighty-one
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thousand two hundred thirty-eight and paise fifty only)
and it shall remain in full force up to and including
31st August, 2003 and shall be extended from time to
time for such further period(s) as desired by the
purchaser, Company and supplier on whose behalf this
guarantee has been given."
18. Thereafter by a letter dated 20-8-2001, the bank
guarantee was amended and Para 4 of the bank guarantee
dated 10-8-2001 was substituted and the same reads as under:
"Therefore, we, the Bank, hereby affirm that we are
guarantors and responsible on behalf of the supplier up
to a total of Rs 16,81,238.50 (Rupees sixteen lakhs
eighty-one thousand two hundred thirty-eight and
paise fifty only) and we undertake to pay any sum or
sums within the limit of Rs 16,81,238.50 (Rupees
sixteen lakhs eighty-one thousand two hundred thirty-
eight and paise fifty only) as aforesaid upon receipt of
written demand from the Company within the validity
of this bank guarantee."
19. In the unamended bank guarantee the Bank affirmed
that they are guarantors and responsible on behalf of the
supplier up to a total of Rs 16,81,238.50 (Rupees sixteen
lakhs eighty-one thousand two hundred thirty-eight and paise
fifty only) and had undertaken to pay any sum or sums within
that limit upon receipt of written demand from the purchaser
within the validity of bank guarantee provided it is
established that the supplier be in default for the performance
of their warranty obligations under the contract. This makes
it abundantly clear that what was furnished was a conditional
bank guarantee and the bankers were liable to pay the
amounts only upon establishing the fact that the supplier was
in default for the performance of their warranty obligations
under the contract. But by the subsequent letter dated 20-8-
2001, the relevant clause in bank guarantee was amended
whereunder the Bank stood as guarantor and responsible on
behalf of the supplier up to a total of Rs 16,81,238.50
(Rupees sixteen lakhs eighty-one thousand two hundred
thirty-eight and paise fifty only) and had undertaken to pay
any sum or sums within that limit "upon receipt of written
demand from the Company within the validity of this bank
guarantee". This amended clause makes it abundantly clear
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that the Bank had undertaken to pay amounts up to a total of
Rs 16,81,238.50. The condition that the amounts shall be paid
only upon establishing the supplier to be in default for the
performance of their warranty obligation under the contract
has been specifically deleted. In our considered opinion, the
bank guarantee as amended replacing Para 4 of the original
bank guarantee makes the bank guarantee furnished as
unconditional one. The bankers are bound to honour and pay
the amounts at once upon receipt of written demand from the
respondent."
(Emphasis supplied)
27. These paras illustrate, lucidly, the distinction between a
conditional bank guarantee and an unconditional bank guarantee. The
judgement in Vinitec Electronics12 makes it abundantly clear that the
first aspect, to be taken into consideration, is the bank guarantee itself,
and the terms thereof. If the bank guarantee is conditional, then, if the
conditions have not been fulfilled, injunction, against encashment and
invocation, may unquestionably follow. If, however, the bank
guarantee is unconditional, then injunction can be granted only if
egregious fraud, irretrievable injustice, or special equities, exist, and
not otherwise.
28. The issue was revisited, by the Supreme Court, in its more
recent decision in Standard Chartered Bank v. Heavy Engineering
Corporation Ltd25. The terms of the bank guarantees, in that case,
contemplated their invocation "against any loss or damage caused to
or suffered by the Corporation by reason or any breach or failure by
the said supplier, in due performance of the aforesaid contract". The
specifics of the controversy between the parties need not detain us.
25 2019 SCC OnLine SC 1638
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Suffice it to state that the Supreme Court held the bank guarantees to
be "unconditional" and "specific in nature". Thereafter, the Supreme
Court, relying on its earlier decisions Ansal Engineering Projects Ltd
v. Tehri Hydro Development Corporation Ltd26, Hindustan
Construction Co. Ltd v. State of Bihar27, State Bank of India v.
Mula Sahakari Sakhar Karkhana Ltd28, Himadri Chemicals11 and
Gujarat Maritime Board v. Larsen & Toubro Infrastructure
Development Projects Ltd29, reiterated the principles already set out
hereinabove, and emphasised, additionally, that fraud or special
equities had, to support the prayer for stay of invocation of bank
guarantees, to be "pleaded and prima facie established by strong
evidence as a triable issue".
29. The above legal position stands reiterated in Yograj Infras. Ltd.
V. Ssangyong Eng. & Construction Co. Ltd30 and Adani Agri Fresh
Ltd v. Mahaboob Sharif31.
30. Thus far, the position in law appears to be crystal clear.
31. Some scope for debate, however, arises, on the concept of
"special equities". The decisions of the Supreme Court - perhaps,
advisedly - do not delineate, in precise contours, the ambit of the
expression. Significantly, Fenner India Ltd23 regards "irretrievable
injustice" as a specie of the "special equities" genus, whereas
Standard Chartered Bank25 treat "special equities" and "irretrievable
26(1996) 5 SCC 450
27(1999) 8 SCC 436
28(2006) 6 SCC 293
29(2016) 10 SCC 46
302012 (2) SCALE 58: JT 2012 (2) SC 17
31(2016) 14 SCC 517
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injustice" as distinct circumstances, either of which would justify
injuncting the invocation of a bank guarantee."Irretrievable injustice",
to reiterate, has to be of such a magnitude as would override the twin
considerations of the express terms of the guarantee and the adverse
effect, from the grant of injunction, on commercial dealings in the
country. "Special equities", too, must, therefore, be so "special" so as
to prevail over these two considerations, otherwise paramount while
examining a prayer for injunction against invocation of a bank
guarantee. While, therefore, examining whether "special equities"
exist, so as to justify the grant of a prayer for injuncting invocation of
a bank guarantee, the Court has to tread warily, and cannot confer, on
the expression "special equities", so elastic a construction, as would
snap the rule.
Applying the law to the facts
32. With the above principles to guide us, we may now turn to the
facts.
33. The law, as expounded by the Supreme Court in the judgements
referred to hereinabove, require the Court, in the first instance, to
examine the Bank Guarantees, to ascertain whether they are
conditional or unconditional.
34. As noted hereinabove, there were four Advance Bank
Guarantees, and one Performance Bank Guarantee. The four Advance
Bank Guarantees were issued by the Standard Chartered Bank Trade
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Services New Delhi, on 24th May, 2015, whereas the Performance
Bank Guarantee was issued by the Industrial and Commercial Bank of
China Ltd., Mumbai Branch, on 3rd August, 2016.
35. The four Advance Bank Guarantees were titled "Advance
Payment Security - Demand Guarantee", and the relevant covenants
thereof read as under:
"ADVANCE PAYMENT GUARANTEE
DEMAND GUARANTEE
Beneficiary: Dedicated Freight Corridor Corporation of India
Ltd/Dedicated Freight Corridor Corporation of India Ltd, 5th
Floor, Pragati Maidan, Metro Station Building Complex, New
Delhi, 110001, India
Dated: 27.05.2019
Advance Payment Guarantee No.: 316020698264
Guarantor: Standard Chartered Bank Trade Services - New
Delhi 2nd Floor DLF Building No, 7A, DLF Cyber City,
Sector-23/24/25A Gurgaon - 122 002
We have been informed that Beijing National Railway
Research and Design Institute of Signal and Communication
Group Co., Ltd Building No.12, Block 1 of Advanced
Business Park No. 188, Nansihuanxilu, Fengtai District,
Beijing, China (hereinafter called 'the applicant') has entered
into Contract No. HQ/S and T/EC/D-B/Mughalsarai - New
Bhaupur Dated 03/10/2016 which the beneficiary, for the
execution of signalling and communication works of design,
supply, construction, testing and commissioning of signaling,
telecommunication and associated works of double track
railways lines under construction on a design build lump sum
basis for Mughalsarai-New Bhaupur Section of Eastern
Dedicated Freight Corridor (hereinafter called 'the Contract').
Furthermore, we understand that, according to the conditions
of the Contract, an advance payment in the sum, INR
145,149,012.00 (say Indian Rupees One Hundred and Forty-
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Five Million, One Hundred and Forty-Nine Thousand, and
Twelve only) is to be made against an Advance Payment
Guarantee.
At the request of the applicant, we as guarantor, hereby
irrevocably undertake to pay the beneficiary any sum or sums
not exceeding in total an amount of INR 145,149,012.00 (say
Indian Rupees One Hundred and Forty-Five Million, One
Hundred and Forty-Nine Thousand, and Twelve only) upon
receipt by us of the beneficiary's complying demand
supported by the beneficiary's statement, whether in the
demand itself or in a separate signed document accompanying
or identifying the demand, stating either that the applicant:
(A) has used the advance payment for purposes
other than the costs of mobilization in respect of the
works, or
(B) has failed to repay the advance payment in
accordance with the contract conditions, specifying the
amount which the applicant has failed to repay."
(Emphasis supplied)
36. These Advance Bank Guarantees were, subsequently, amended
on 16th July, 2019; the amendment, however, does not impact the
present proceedings, as it dealt, essentially, with the manner of
crediting the advance payment into the account of Respondent No 1.
37. As against this, the relevant covenants of the Performance Bank
Guarantee, dated 3rd August, 2016, issued by the Industrial and
Commercial Bank of China Ltd, Mumbai Branch, read as under:
"PERFORMANCE SECURITY
(DEMAND GUARANTEE)
Beneficiary: Dedicated Freight Corridor Corporation of India
Ltd. 5th Floor Pragati Maidan Metro Station Building
Complex, New Delhi, 110001, India.
Date: 3rdAug 2016
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Performance Guarantee No.: LG28501B600124
Guarantor: Industrial and Commercial Bank of China Ltd,
Mumbai Branch. 8th Floor, A Wing, One BKC, Plot No. C-
66, G Block of the Bandra Kurla Complex, Bandra East,
Mumbai
We have been informed that Beijing National Railway
Research and Design Institute of Signal and Communication
Group Co. Ltd, Building No. 12, Block 1 of Advance
Business Park, No. 188 Nansihuan Xilu Fengtai District,
Beijing, China (hereinafter called 'The Applicant') will enter
into Contract according to letter of acceptance No. HQ/S &
T/EC/CP-203/BID EVAL./64/PART V dated 23.06.2016
which the beneficiary, for the execution of Contract No. CP
203 - Design, Supply, Construction, Testing and
Commissioning of Signalling, Telecommunication and
Associated Works of Double Track Railway Lines under
Construction on Design Build lump sum basis for
Mughalsarai-New Bhaupur Section of Eastern Dedicated
Freight Corridor (hereinafter called 'The Contract').
Furthermore, we understand that, according to the conditions
of the Contract, a Performance Guarantee is required.
At the request of the Applicant, we as Guarantor, hereby
irrevocably undertake to pay the Beneficiary any sum or sums
not exceeding in total an amount of INR 235,500,000.00 (say
Indian Rupees Two Hundred and Thirty Five Million Five
Hundred Thousand Only), such sum being payable in the
types and proportions of currencies in which the contract
price is payable, upon receipt by us of the beneficiary's
complying demand supported by the beneficiary's statement,
whether in the demand itself or in a separate signed document
accompanying or identifying the demand, stating that the
Applicant is in breach of its obligation(s) under the Contract,
without the Beneficiary needing to prove or to show grounds
for your demand or the sum specified therein."
(Emphasis supplied)
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38. Clearly, the Advance Bank Guarantees and the Performance
Bank Guarantee, are both conditional. The condition, which is
required to be fulfilled, before the Bank would honour the Bank
Guarantees is, however, merely the furnishing of a statement by the
beneficiary, i.e. by Respondent No. 1. Nothing more is required. In
the case of the Advance Bank Guarantees, the statement, to be
presented by Respondent No. 1, is required to state that the petitioner
has used the Advance Payment for purposes other than the costs of
mobilization in respect of the works, or has failed to repay the
Advance Payment in accordance with the contract conditions,
specifying the amount which the petitioner has failed to repay. The
Performance Bank Guarantee, on the other hand, requires Respondent
No. 1 to furnish a statement, stating that the petitioner is in breach of
its obligations under the contract. The Performance Bank Guarantee
makes the matter even more explicit, by stipulating that Respondent
No. 1 is not required to prove or show grounds, justifying the said
statement. Though such a caveat is not to be found in the covenants of
the Advance Bank Guarantees, the mere fact that they only required
the furnishing of a statement, by Respondent No. 1, and nothing more,
incorporates, by implication, such a covenant. In other words, be it
the Advance Bank Guarantees or the Performance Bank Guarantee, if
Respondent No. 1 furnishes a statement, to the effect as stipulated in
the Bank Guarantee(s), the Bank is bound to honour the Bank
Guarantee, and Respondent No. 1 is entitled to invoke and encash it.
There is no material to indicate that Respondent No. 1 has furnished,
to the concerned Bank(s), statements, as required by the Bank
Guarantees, towards invocation thereof.
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39. Having noted this, the Court deems it necessary to clarify that,
even if there was material to indicate that such statements had been
furnished, it would not be open to the petitioner to come to the Court,
seeking a restraint on the invocation of the bank guarantees, on the
ground that the statements were not correct. In other words, in the
case of the Performance Bank Guarantee, for example, if Respondent
No. 1 were to furnish a statement, to the Bank - in that case, the
Industrial and Commercial Bank of China Ltd. - that the petitioner is
in breach of its obligations under the contract, the Bank would, ipso
facto, be obligated to honour the Bank Guarantee, and Respondent
No. 1 would be entitled to invoke it. It would not be open to the
petitioner to come to the Court, questioning the correctness of the
statement furnished by Respondent No. 1 to the Bank, by contending
that it had not, in fact, breached its obligations under the contract, for
the simple reason that the dispute between the petitioner and
Respondent No. 1 is entirely foreign to the bank guarantee, and to the
obligations of the Bank under the bank guarantee, which requires only
furnishing of a statement by Respondent No. 1, and nothing more.
The bank guarantee constitutes an independent contract between the
Bank and Respondent No. 1, which has to abide by the covenants of
that contract.
40. Equally, in the case of the Advance Bank Guarantees, if
Respondent No. 1, as the beneficiary thereunder, furnishes a signed
document, accompanying the demand for invocation, to the effect that
the petitioner has used the advance payment for purposes other than
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mobilization, or has failed to repay the advance payment in
accordance with the contract conditions, in whole or in part, the Bank
would, ipso facto, be bound to honour the request for invocation of the
Bank Guarantee. It would not be open to the Bank to go behind the
signed statement tendered by Respondent No 1, or to carry out any
enquiry or investigation to verify the correctness thereof. Any such
attempt by the Bank would be in gross violation of the terms of the
Bank Guarantee and, as the Supreme Court has cautioned in the afore-
quoted decisions, would throw, into disarray, the very credibility of
the commitment of the Bank, towards its customers. The faith of the
investing public, in the entire banking system of the country would
also, in the bargain, be irrevocably compromised.
41. The jurisdiction of the Court to interfere, in such cases, is,
however, not irrevocably foreclosed. In cases of egregious fraud,
irretrievable injustice, or special equities, the Court can still step in
and injunct the invocation of the bank guarantee(s).
42. Courts cannot afford to be over-aware of the use, in the above
principle, of the qualifying adjectives "egregious", "irretrievable" and
"special". It is only fraud which is egregious in nature, injustice
which is irretrievable and equities which are special, the existence of
which would justify the stay of invocation of an unconditional bank
guarantee. In each case, the circumstance must be pleaded and
proved, by cogent evidence.
43. Apparently aware of the above legal position, the petitioner has,
specifically, averred, in the petition, the existence of egregious fraud,
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irretrievable injustice and special equities, in so many words. The
question, however, is not whether the petitioner has pleaded the
existence of the circumstances, but whether they do, in fact, exist.
44. "Fraud", in all its complexities and contours, has been subjected
to judicial analysis, ad nauseam, by courts in this country, as well as
across the world, to the extent that every skein of the fabric may be
said to have been unraveled. An exhaustive analysis of the various
judicial pronouncements on the issue may result in this judgement
never coming to an end, and reference, to some authoritative
pronouncements would, therefore, suffice. In Commissioner of
Customs (Preventive) v. Aafloat Textiles India Pvt Ltd32 , one finds
the following searching analysis:
"9. "Fraud" means an intention to deceive; whether it is
from any expectation of advantage to the party himself or
from the ill will towards the other is immaterial. The
expression "fraud" involves two elements, deceit and injury
to the person deceived. Injury is something other than
economic loss, that is, deprivation of property, whether
movable or immovable or of money and it will include and
any harm whatever caused to any person in body, mind,
reputation or such others. In short, it is a non-economic or
non-pecuniary loss. A benefit or advantage to the deceiver,
will almost always call loss or detriment to the deceived.
Even in those rare cases where there is a benefit or advantage
to the deceiver, but no corresponding loss to the deceived, the
second condition is satisfied. See Dr. Vimla v. Delhi
Administration, 1963 Supp. 2 SCR 585 and Indian Bank v.
Satyam Fibers (India) Pvt. Ltd., AIR 1996 SC 2592.
10. A "fraud" is an act of deliberate deception with the
design of securing something by taking unfair advantage of
another. It is a deception in order to gain by another's loss. It
32 (2009) 11 SCC 18
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is a cheating intended to get an advantage. See S.P.
Changalvaraya Naidu v. Jagannath, AIR 1994 SC 853.
11. "Fraud" as is well known vitiates every solemn act.
Fraud and justice never dwell together. Fraud is a conduct
either by letter or words, which includes the other person or
authority to take a definite determinative stand as a response
to the conduct of the former either by words or letter. It is
also well settled that misrepresentation itself amounts to
fraud. Indeed, innocent misrepresentation may also give
reason to claim relief against fraud. A fraudulent
misrepresentation is called deceit and consists in leading a
man into damage by willfully or recklessly causing him to
believe and act on falsehood. It is a fraud in law if a party
makes representations, which he knows to be false, and injury
ensues therefrom although the motive from which the
representations proceeded may not have been bad. An act of
fraud on court is always viewed seriously. A collusion or
conspiracy with a view to deprive the rights of the others in
relation to a property would render the transaction void ab
initio. Fraud and deception are synonymous. Although in a
given case a deception may not amount to fraud, fraud is
anathema to all equitable principles and any affair tainted
with fraud cannot be perpetuated or saved by the application
of any equitable doctrine including res judicata. See Ram
Chandra Singh v. Savitri Devi and Ors., (2003) 8 SCC 319 .
12. "Fraud" and collusion vitiate even the most solemn
proceedings in any civilized system of jurisprudence. It is a
concept descriptive of human conduct. Michael Levi likens a
fraudster to Milton's sorcerer, Comus, who exulted in his
ability to, 'wing me into the easy hearted man and trap him
into snares'. It has been defined as an act of trickery or
deceit. In Webster's Third New International Dictionary
"fraud" in equity has been defined as an act or omission to
act or concealment by which one person obtains an
advantage against conscience over another or which equity
or public policy forbids as being prejudicial to another. In
Black's Legal Dictionary, "fraud" is defined as an intentional
perversion of truth for the purpose of inducing another in
reliance upon it to part with some valuable thing belonging to
him or surrender a legal right; a false representation of a
matter of fact whether by words or by conduct, by false or
misleading allegations, or by concealment of that which
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should have been disclosed, which deceives and is intended to
deceive another so that he shall act upon it to his legal injury.
In Concise Oxford Dictionary, it has been defined as criminal
deception, use of false representation to gain unjust
advantage; dishonest artifice or trick. According to
Halsbury's Laws of England, a representation is deemed to
have been false, and therefore a misrepresentation, if it was at
the material date false in substance and in fact. Section 17 of
the Indian Contract Act, 1872 defines "fraud" as act
committed by a party to a contract with intent to deceive
another. From dictionary meaning or even otherwise fraud
arises out of deliberate active role of representator about a
fact, which he knows to be untrue yet he succeeds in
misleading the representee by making him believe it to be
true. The representation to become fraudulent must be of fact
with knowledge that it was false. In a leading English case i.e.
Derry and Ors. v. Peek (1886-90) All ER 1 what constitutes
"fraud" was described thus: (All ER p. 22 B-C) "fraud" is
proved when it is shown that a false representation has been
made (i) knowingly, or (ii) without belief in its truth, or (iii)
recklessly, careless whether it be true or false". But "fraud"
in public law is not the same as "fraud" in private law. Nor
can the ingredients, which establish "fraud" in commercial
transaction, be of assistance in determining fraud in
Administrative Law. It has been aptly observed by Lord
Bridge in Khawaja v. Secretary. of State for Home Deptt.
(1983) 1 All ER 765, that it is dangerous to introduce maxims
of common law as to effect of fraud while determining fraud
in relation of statutory law. "Fraud" in relation to statute
must be a colourable transaction to evade the provisions of a
statute. "If a statute has been passed for some one particular
purpose, a court of law will not countenance any attempt
which may be made to extend the operation of the Act to
something else which is quite foreign to its object and beyond
its scope. Present day concept of fraud on statute has veered
round abuse of power or mala fide exercise of power. It may
arise due to overstepping the limits of power or defeating the
provision of statute by adopting subterfuge or the power may
be exercised for extraneous or irrelevant considerations. The
colour of fraud in public law or administration law, as it is
developing, is assuming different shades. It arises from a
deception committed by disclosure of incorrect facts
knowingly and deliberately to invoke exercise of power and
procure an order from an authority or tribunal. It must result
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in exercise of jurisdiction which otherwise would not have
been exercised. The misrepresentation must be in relation to
the conditions provided in a section on existence or non-
existence of which the power can be exercised. But non-
disclosure of a fact not required by a statute to be disclosed
may not amount to fraud. Even in commercial transactions
non-disclosure of every fact does not vitiate the agreement.
"In a contract every person must look for himself and ensures
that he acquires the information necessary to avoid bad
bargain. In public law the duty is not to deceive." See Shrisht
Dhawan (Smt.) v. Shaw Brothers, AIR 1992 SC 1555.
*****
14. This aspect of the matter has been considered by this
Court in Roshan Deen v. Preeti Lal, (2002) I LLJ 465 SC;
Ram Preeti Yadav v. U.P. Board of High School and
Intermediate Education, AIR 2003 SC 4268; Ram Chandra
Singh's case (supra) and Ashok Leyland Ltd. v. State of T.N.
and Anr., (2004)3SCC1 .
15. Suppression of a material document would also
amount to a fraud on the court. see Gowrishankar v. Joshi
Amba Shankar Family Trust, (1996) 2 SCR 949 and S.P.
Chengalvaraya Naidu's case (supra).
16. "Fraud" is a conduct either by letter or words, which
induces the other person or authority to take a definite
determinative stand as a response to the conduct of the former
either by words or letter. Although negligence is not fraud but
it can be evidence on fraud; as observed in Ram Preeti
Yadav's case (supra)."
(Emphasis supplied)
45. "Fraud" was defined, in Ram Preeti Yadav v. U.P. Board of
High School and Intermediate Education33 as "conduct either by
letter or words, which induces the other person or authority to take a
definite determinative stand as a response to the conduct of the former
33 (2003) 8 SCC 311
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either by words or letter". In U.O.I. v. Chaturbhai M. Patel & Co34,
the Supreme Court held, relying on the judgement of Lord Atkin in
A.L.N. Narayanan Chettyar v. Official Assignee, High Court,
Rangoon35, that "fraud like any other charge of a criminal offence
whether made in civil or criminal proceedings, must be established
beyond reasonable doubt." The aspect was clarified by holding,
further, that "however suspicious may be the circumstances, however
strange the coincidences, and however grave the doubt, suspicion
alone can never take the place of proof." This position was reiterated
in Kale v. Deputy Director of Consolidation36, which held that
"allegations of fraud or undue influence must first clearly be pleaded
and then proved by clear and cogent evidence". "Mere pleadings",
held the Supreme Court in Svenska Handelsbanken v. Indian
Charge Chrome37, "do not make a strong case of prima facie fraud",
which had to be shown by "material and evidence". More recently, the
Supreme Court, in M. Sankaranarayanan v. Deputy Commissioner,
Bangalore38 echoed the sentiment, by holding that "fraud must be
pleaded and proved; it cannot be presumed".
46. I have already set out, hereinabove, the various grounds urged
by the petitioner, in support of its prayer for the stay of invocation of
the bank guarantees furnished by it, and a mere glance thereat would
reveal that no case, of fraud, much less egregious fraud, on the part of
Respondent No. 1, can be said to have been made out. No attempt, on
the part of Respondent No. 1, to deceive the petitioner, can be said to
34 (1976) 1 SCC 747
35 AIR 1941 PC 93
36 (1976) 3 SCC 119
37 (1994) 1 SCC 502
38 (2017) 13 SCC 661
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exist, on the facts as pleaded and the material adduced by the
petitioner. The submissions of Mr. Nayar, as also in the written
submissions filed by the petitioner before this Court, are essentially
that the termination of the contract, by Respondent No. 1 was
premature, the time for completion thereof, as extended by
Respondent No.1 having not yet expired; that, by extending the time
without charging delay damages, Respondent No.1 had acknowledged
that there was no default on the part of the petitioner; that there was
no change of circumstances between 22nd April, 2020 and 3rd July,
2020; that a force majeure situation existed; that, when the dispute
was pending before the DAB, Respondent No. 1 could not have
terminated the contract; that, even if Respondent No. 1 wanted,
prematurely, to discontinue the relationship with the petitioner, the
proper Clause to be invoked was Clause 15.5; Clauses 15.3 and 15.4
could not be invoked, as there was no valid termination of the contract
under Clause 15.2; Respondent No. 1 had not proceeded in
accordance with Clause 2.5 of the contract, and there had been no a
prior determination of the entitlement, of Respondent No. 1, to any
amount from the petitioner, as required by Sub-Clause 4.2(d). The
submissions, in my view, cannot be said to make out any case of
"fraud", much less egregious fraud, on the part of Respondent No.1.
47. On the second aspect, of the likelihood of irretrievable injustice
occurring to the petitioner, were stay of invocation of the bank
guarantee not granted, the petitioner seeks to liken the situation to that
which was obtained in Itek Corpn9, to plead that "even if the
petitioner succeeds in the arbitration proceedings, it may not be able
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to recover the award amount from Respondent No 1". The
contention, in my view, is wholly without merit. Itek Corpn9
involved a situation in which an exporter, in USA, entered into an
agreement with the Government of Iran. Certain letters of credit,
issued by an American Bank, in favour of an Iranian Bank, constituted
part of the contract. The USA exporter sought an order terminating its
liability, consequent on the said letters of credit. This, in turn, was
sought as, consequent on hostilities between the US and the Iraqi
government, all Iranian assets, within the jurisdiction of the US, were
blocked by the US government, which also cancelled the export
contract. In these circumstances the Court upheld the contention of
the US exporter that any claim for damages, against the Iranian
purchaser, even if decreed by the Courts in the US, would not be
executable in Iran. In these circumstances, as realisation of the letters
of credit would result in irreparable harm to the American plaintiff,
relief as sought, was granted. There is no parallel, whatsoever,
between that case and this. Here, if the plaintiff is to succeed in
arbitration, there is no reason why it would not be able to enforce the
award against Respondent No. 1 - which, as the learned Solicitor
General correctly submits, is a reputed Indian Company - in India.
The two cases are as alike as chalk and cheese.
48. Which leaves us with the third circumstance, in which stay of
invocation of an unconditional bank guarantee can be legitimately
directed by the court, i.e. the existence of special equities. Again, the
petitioner has, undoubtedly, averred, in the petition, that such "special
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equities" do exist; the justifiability of the averment, however, requires
to be examined.
49. Without extracting the specific references, to the existence of
"special equities", as made in the petition, suffice it to state that the
only ground, on which the petitioner has urged the existence of such
"special equities", is its averment that its claim, against Respondent
No.1, is far in excess of the amounts of the bank guarantees. There is
no other ground, on which the existence of "special equities" has been
pleaded.
50. Can a mere claim, of the petitioner, against the respondent - the
sustainability of which is yet to be adjudicated - constitute "special
equities", so as to justify injuncting the invocation of unconditional
bank guarantees, issued by the bank, at the petitioner's instance, in
favour of Respondent No. 1, even if such a claim is in excess of the
amount covered by the bank guarantees? In my considered opinion, it
cannot.
51. Extrapolating from the principle enunciated in Fenner India
Ltd23 in the context of irretrievable injury, I have already opined,
hereinbefore, that "special equities" must be so special as to override
the twin considerations of the sanctity of the terms of the bank
guarantee, and the deleterious effect which the grant of injunction,
against honouring of unconditional bank guarantees, would have on
the commercially transacting public. The Supreme Court has held, in
Meet Singh v. State of Punjab39, that the word "special" means
39(1980) 3 SCC 291
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"distinguished by some unusual quality, peculiar or out of the
ordinary" and that it "has to be understood in contradistinction to the
word 'general' or 'ordinary'." Viewed in this background, Respondent
No. 1 is entitled, on the express terms of the bank guarantees, to their
invocation in its favour, subject to Respondent No. 1 submitting the
required signed statements. The Performance Guarantee goes so far as
to specifically stipulate that Respondent No. 1 was not required to
prove or establish the breach of contract, on the part of the petitioner,
before being entitled to the invocation of the bank guarantee. These
are strong equities in favour of Respondent No. 1, and the sanctity
attached to bank guarantees, and to the credibility of the banking
system which provides such guarantees, serves to augment the
equities. Can these equities be offset by the mere fact that the
petitioner may have a yet to be established claim, against Respondent
No.1, so as to justify restraining the Bank from honouring the
covenants of the bank guarantees? The answer, in my opinion, has
necessarily to be in the negative.
52. As none of the three circumstances, in which stay of invocation
of unconditional bank guarantees, can be granted by the Court, exists
in favour of the petitioner in the present case, in my view, the prayer
for stay of invocation has, necessarily, to fail.
53. Several submissions were advanced by Mr. Nayar, and refuted
by the learned Solicitor General, regarding the issue of whether, in
fact, the petitioner was in breach of the terms of the contract and,
therefore, whether Respondent No.1 was justified in terminating the
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contract. These disputes, in view of the law laid down in the
judgements of the Supreme Court, to which I have adverted
hereinbefore, cannot impact the present proceedings, especially as the
bank guarantee constitutes a distinct contract, between the bank and
the beneficiary. Following some of the decisions cited hereinabove, a
coordinate Single Bench of this Court has in IVRCL Ltd2, rejected the
prayer for stay of invocation of the bank guarantees, as advanced in
the said case. A reading of the decision reveals that, prima facie, the
covenants in the contract between the parties, were similar to those
which exist in the present case. Needless to say, the learned Solicitor
General placed reliance on the said decision.
54. Mr. Nayar, however, relied, instead, on a later decision, of the
same learned Single Judge, in Larsen & Toubro Ltd1. This case,
again, involved a contract with clauses similar to those in the present
case, and here, the Court allowed the prayer for stay of invocation of
the bank guarantees in question. A careful reading of the said decision
reveals that the learned Single Judge has, in that case, even while
acknowledging the fact that bank guarantees constitute independent
contracts, as well as the judicial interdictions against stay of
invocation of bank guarantees, granted relief on the ground that the
covenants, of the contract between the parties, did not permit the
respondents to invoke the bank guarantees at that stage. Mr. Nayar
sought to submit that there was no way in which the said decision
could be distinguished, on facts, from the present and that, therefore,
in the interests of judicial consistency, the approach adopted in the
said case deserves to be adopted in the present case, as well. Apropos
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IVRCL Ltd2 - which, too, involved similar facts, but in which no
relief was granted - it is sought to be contended that Larsen &
Toubro Ltd1, having been rendered at a later in point of time, by the
same learned Single Judge, ought to prevail.
55. The argument is, unquestionably, attractive. In order to
examine its merit, however, one would have to juxtapose the
reasoning, of the learned Single Judge in Larsen & Toubro Ltd1, with
the facts of the present case.
56. The impugned notice of termination, dated 3 rd July, 2020, was
issued under Sub-Clause 15.2(a) of the Contract. The said sub-clause
clearly entitles the employer, i.e. Respondent No.1, to terminate the
contract, if the petitioner, fails to comply with Clause 4.2, or with the
notice issued under Sub-Clause 15.1. The decision in Larsen &
Toubro Ltd1 does not, however, indicate that any such notice,
invoking Sub-Clause 15.2(a) was issued in that case.
57. The learned Single Judge has, in holding that the circumstances,
which contractually entitled the respondents to invoke the bank
guarantees, had not arisen, in that case, noticed Sub-Clause 4.2(d),
which entitled the employer to make a claim under the performance
security, for amounts to which the employer was entitled under the
contract, in the event of circumstances, which entitled the employer to
terminate the contract under Clause 15.2, irrespective of whether the
notice of termination had, or had not, been given. This is the clause
which has been invoked by Respondent No. 1, specifically, in the
present case. The learned Single Judge has held that the
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circumstances, in which the respondent could invoke the performance
security, having been contractually delineated in Clause 4.2, the
respondent was bound by the said clause. Sans the existence of such
circumstances, therefore respondent would, in the opinion of the
learned Single Judge, not be entitled to invoke the performance
security, in the form of the bank guarantees furnished by the
petitioner. The fact that none of the said circumstances existed, in the
case before him, constitutes one of the grounds on which the learned
Single Judge granted relief, in Larsen & Toubro Ltd1.
58. I confess, with respect, my inability to subscribe to the above
view, as it conflicts with the following statement of the law, contained
in Mahatma Gandhi Sahakra Sakkare Karkhane24:
"If the bank guarantee furnished is an unconditional and
irrevocable one, it is not open to the bank to raise any
objection whatsoever to pay the amounts under the guarantee.
The person in whose favour the guarantee is furnished by the
bank cannot be prevented by way of an injunction in
enforcing the guarantee on the pretext that the condition for
enforcing the bank guarantee in terms of the agreement
entered between the parties has not been fulfilled. Such a
course is impermissible. The seller cannot raise the dispute of
whatsoever nature and prevent the purchaser from enforcing
the bank guarantee by way of injunction except on the ground
of fraud and irretrievable injury."
(Emphasis and underscoring supplied)
To my mind, in view of the afore-extracted categorical exposition of
the law, it is clear that the condition, in the agreement between the
parties, under which the bank guarantees could be enforced, cannot
be cited as a ground to stay the invocation and encashment thereof.
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This principle of the law, as enunciated in Mahatma Gandhi Sahakra
Sakkare Karkhane24, was quoted, with approval, by the Supreme
Court, in Vinitec Electronics12, which went on, on the basis thereof, to
hold that "what is relevant are the terms incorporated in the
guarantee executed by the bank".
59. There is yet another reason, pertinently highlighted by the
learned Solicitor General, why, even on facts, the decision in Larsen
& Toubro Ltd1 cannot come to the aid of the petitioner. The notice of
termination, dated 3rd July, 2020, was issued in exercise of the power
conferred by Sub-Clause 15.2(a) of the Contract. This sub-clause
entitled Respondent No. 1 to terminate the contract in the event of
failure, on the part of the petitioner, to comply with a Notice to
Correct, issued under Sub-Clause 15.1. There is no dispute about the
fact that, in the present case, as many as ten such Notices to Correct
were issued, by Respondent No. 1 to the petitioner. In Larsen &
Toubro Ltd1, per contra, it is specifically found that "for the first
time, the defects in the work have been alleged by the Respondent No.
1 only by its letter dated 28.06.2019, that is, after the invocation of the
Bank Guarantees". The learned Single Judge also goes on to observe
that Respondent No. 1 (in the said case) had "not been able to refute
the said submission of the petitioner". In these circumstances, it was
held that, at least prima facie, the stage of invoking Sub-Clause 4.2(d)
of the Contract, had not arisen, on the date of invocation of the Bank
Guarantees. Even on facts, therefore, Larsen & Toubro Ltd1 is
distinguishable.
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60. Mr. Nayar has also placed reliance on the order, dated 26th July,
2007, of the Division Bench of this Court in FAO(OS) 77/2006
(Satluj Jal Vidyut Vikas Nigam Ltd v. Hindustan Construction Co
Ltd), the judgement of the Division Bench of this Court in Satluj Jal
Vidyut Nigam Ltd v. Jai Prakash Hyundai Consortium7 read with
the order, dated 3rd April, 2006, of the Supreme Court in SLP (C)
5456/2006 (Satluj Jal Vidyut Nigam Ltd v. Jai Prakash Hyundai
Consortium), the judgement of a learned Single Judge of this Court in
Continental Construction Ltd v. Satluj Jal Vidyut Nigam Ltd 8.
61. The judgement dated 26th July, 2007 in FAO (OS) 77/2006
merely followed the earlier decision of the Division Bench of this
Court in Satluj Jal Vidyut Vikas Nigam Ltd7, as the said decision had
been upheld by the Supreme Court vide its order dated 3rd April, 2006
(supra).
62. The judgement of the Division Bench of this Court in Satluj Jal
Vidyut Vikas Nigam Ltd7 is prior, in point of time, to the decision of
the Supreme Court in Mahatma Gandhi Sahakra Sakkare
Karkhane24, as well as the latter decision in Vinitec Electronics12,
which clearly held that an injunction, from enforcement of a bank
guarantee, cannot be granted on the ground that the condition for
enforcement of the bank guarantee in terms of the agreement between
the parties has not been fulfilled.
63. It is not possible, therefore, to rely on the decision of the
Division Bench of this Court in Satluj Jal Vidyut Vikas Nigam Ltd7
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in preference to the latter decision of the Supreme Court in Mahatma
Gandhi Sahakra Sakkare Karkhane24 and Vinitec Electronics12.
64. The Supreme Court order, dated 3rd April, 2006, merely
dismissed the SLP, preferred by Satluj Jal Vidyut Vikas Nigam Ltd.
against the judgement of the Division Bench and did not, therefore,
declare any law within the meaning of Article 141 of the Constitution
of India.
65. The decision of the single Bench of this Court in Continental
Construction Ltd8, for its part, held thus:
"20. Favourable determination by the internal
determinative mechanism, findings by appellate forum
partially having attained finality, the claim of the
respondents solely being of liquidated damages after the
maintenance period was over, the bank guarantee having
become liable to discharge in terms of Clause 48 and
particularly a motivated arbitrary attempt on the part of
the respondent to frustrate the benefit of the decided
matters or results of the adjudicative process by enforcing
encashment, are the factors which would show that the
bank guarantee itself has not been invoked as per terms
of the bank guarantee and the petitioners at least prima
facie have been able to make out a case of special
extraordinary equities in their favor. "
As such, the learned Single Judge proceeded, in this case, on the
premise that facts disclosed the existence of special equities in favour
of the contractor. This case is also, therefore, distinguishable.
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66. Before parting with this judgement, I deem it appropriate to
reiterate the fact that, unlike the situation which existed in Larsen &
Toubro Ltd1, in which steps towards invocation of the bank
guarantees had already been taken by the respondent in that case, the
petitioner has chosen to approach this Court against the 14 day notice
of termination of the contract, issued under Sub-Clause 15.2(a)
thereof. Neither was the contract terminated, nor was any step taken
towards invocation of the Bank Guarantees, at the time when the
present petition was filed before this Court. There is no prayer, to
restrain Respondent No. 1 from terminating the contract. There is no
prayer, seeking an injunction against Respondent No. 1 from acting on
the impugned letter dated 3rd July, 2020. What is sought, directly, is
a restraint, against Respondent No. 1, from invoking/encashing the
bank guarantees furnished by the petitioner, and to restrain the banks
from releasing any payment to the respondent (wrongly referred to, in
prayer (b) in the petition, as "the petitioner"), against such bank
guarantees. The only additional prayer is for a restraint, against
Respondent No. 1 from making any statement, to any third party, to
the effect that the petitioner had delayed the works or had been unable
to complete the works in time. Quite obviously, this additional prayer
cannot be granted in a proceeding under Section 9 of the 1996 Act. In
essence, therefore, the petition is premature. I have, nevertheless,
proceeded on merits, with the issue of whether Respondent No. 1 had
the right to invoke, and encash, the bank guarantees furnished by the
petitioner only because the submissions, advanced before me, make it
clear that such invocation and encashment is the inevitable sequitur to
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the termination of the contract which, in turn, would inexorably
follow on the issuance of the impugned notice dated 3rd July, 2020.
Conclusion
67. For the reasons stated above, I am of the view that the prayers,
in the petition, cannot be granted.
68. The petition is, therefore, dismissed, with no orders as to costs.
69. Needless to say, all observations in this judgement, are intended
only to ascertain whether a case for grant of interim protection, by the
Court, in exercise of its jurisdiction under Section 9 of the 1996 Act,
exists or not, and are not to be treated as an expression of opinion,
even prima facie, on the merits of the dispute, which may find its way,
eventually, to the Arbitral Tribunal, or on the merits of any
application that either party may choose to move before such
Tribunal.
70. Pending applications, if any, do not survive for consideration,
and are disposed of as such.
C. HARI SHANKAR, J.
SEPTEMBER 30, 2020
HJ
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