Madras High Court
G.Sasidhara Karanavar vs Bgr Energy Systems Limited And Another on 18 February, 2025
Author: Abdul Quddhose
Bench: Abdul Quddhose
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 18.02.2025
CORAM
THE HONOURABLE MR JUSTICE ABDUL QUDDHOSE
O.A.No.758 of 2024
G.Sasidhara Karanavar .. Applicant
vs
BGR Energy Systems Limited and another .. Respondents
ORDER
This application has been filed under Section 9 of the Arbitration and
Conciliation Act seeking for an order of interim injunction to restrain the first
respondent from invoking the Bank Guarantee dated 09.01.2020 issued by the
second respondent for a sum of Rs.19,74,658/- pending disposal of the MSME
proceedings.
2.The first respondent had issued Service Orders dated 31.10.2019 and
27.11.2019 in favour of the applicant. As per the said Service Orders, the applicant
will have to carry fabrication and erection work in the first respondent's premises.
An advance Bank Guarantee of a sum of Rs.19,74,658/- was given by the
applicant as per the terms and conditions of the Service Orders. The applicant
claims that they have completed their work as per the Service Orders.
3.Admittedly, the first respondent was a contractor employed by the
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Hindustan Petroleum Corporation Limited (hereinafter referred to as 'HPCL').
Admittedly, their contract has been terminated on account of breach of contract.
The applicant has pleaded that a sum in excess of the Bank Guarantee of
Rs.19,74,658/- is due and payable to him by the first respondent. According to the
applicant, as seen from the averments contained in the affidavit filed in support of
this application, the first respondent is now attempting to invoke Advance Bank
Guarantee of Rs.19,74,658/-, which is the subject matter of this application.
4.A categorical averment has been made in the affidavit filed in support of
this application that fraudulent documents have been made by the first respondent
to invoke the Bank Guarantee. According to the applicant, if the Bank Guarantee is
invoked, it will cause irretrievable injustice to him since already a sum in excess of
the Bank Guarantee amount is due and payable to him by the first respondent.
There exists an arbitration clause in the Service Orders dated 31.10.2019 and
27.11.2019.
5.The applicant has referred the dispute for recovery of the said amount
from the first respondent to the MSME Council under the provisions of Section 18
of the MSME Act. According to the applicant, the MSME Council has also issued
notice to the applicant as well as the first respondent calling for conciliation.
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According to the applicant, the MSME Council has also directed the first
respondent to file their statement of defence pertaining to the claim made by the
applicant. To protect the interest of the applicant, pending disposal of the MSME
proceedings, this application has been filed seeking for an interim injunction to
restrain the first respondent from invoking the Bank Guarantee for a sum of
Rs.19,74,658/-, which has been issued by the second respondent Bank.
6.A counter has been filed by the first respondent, who is the contesting
respondent. They have contended as follows:
a)Arbitration is yet to commence. The MSME Council is presently
attempting to conciliate the dispute between the parties. Only if the conciliation
fails, arbitration will commence and only then, the present application is
maintainable;
b)No fraud has been established by the applicant against the first
respondent;
c)The question of seeking injunction from invocation of Bank Guarantee
does not arise.
d)Since the applicant is only acting on the instructions of HPCL on account
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of the termination of the contract of the first respondent by them, as on date there
is no privity of contract between the applicant and the first respondent
7.Admittedly, the contract of the first respondent earlier issued in their
favour by HPCL stands terminated on account of the alleged breach of contract
committed by the first respondent. The applicant was appointed as a Sub
Contractor under the Service Orders dated 31.10.2019 and 27.11.2019 by the first
respondent. The applicant claims that he has completed the work as per the Service
Orders issued by the first respondent and subsequent to the termination of the
contract of the first respondent by HPCL, he has completed the work and
submitted his invoices to the first respondent and also sought for certification to
enable him to receive payment from HPCL. According to the applicant, despite
completing the work and despite making a request to the first respondent to certify
his invoices, the first respondent failed to do so. The applicant also claims that a
sum of Rs.28,92,895/- is due and payable to him by the first respondent in respect
of the services rendered under the Service Orders issued by the first respondent.
The sum of Rs.28,00,000/- is in excess of the Bank Guarantee amount, which is
only for a sum of Rs.19,74,658/-. Admittedly, when the contract of the first
respondent with the HPCL stands terminated and the basis of the issuance of the
Service Orders in favour of the applicant is only on account of the said contract
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with HCPL, the question of invocation of the Bank Guarantee by the first
respondent does not arise. Any attempt made by the first respondent to invoke the
Bank Guarantee, which is the subject matter of the dispute may amount to unjust
enrichment and would cause irretrievable injustice to the applicant. Admittedly, the
invoices raised by the applicant towards the services rendered by him, have not
been paid till date. The value of the invoices also exceeds the Bank Guarantee
amount, which is the subject matter of this application.
8.Therefore, on a prima facie consideration, the averments contained in the
affidavit filed in support of this application by the applicant that a fraudulent
attempt has been made by the first respondent to invoke Bank Guarantee has to be
believed by this Court.
9.Insofar as the contention raised by the first respondent that since the
arbitration has not commenced before the MSME Council and the MSME
proceedings are only in the conciliation stage, this application is not maintainable
is concerned, the same has to be rejected for the following reasons:
a)Admittedly, reference has been made by the applicant to the MSME
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Council as per provisions of Section 18 of the MSME Act. The first stage before
the MSME is for the MSME Council to conciliate the dispute between the parties;
b)A notice has already been issued by the MSME Council to both the
parties, namely, the applicant and the first respondent calling for conciliation;
c)Only after the conciliation fails, the MSME Council will refer the dispute
to arbitration;
d)Under Section 9 of the Arbitration and Conciliation Act, a party is entitled
to seek for an interim relief from this Court either before, during or after the
arbitration. Even if the arbitration between the parties to the dispute is yet to
commence, this Court is having the power to grant an order of interim injunction
prior to arbitration under Section 9 of the Arbitration and Conciliation Act.
10.Learned counsel for the applicant also drew the attention of this Court to
a judgment of the Calcutta High Court in the case of Indian Oil Corporation
Limited and another vs. Union of India and others rendered in W.P.O.
No.1624 of 2023 dated 17.11.2023. In the said judgment, a similar issue was
under consideration. The learned Single Judge of the Calcutta High Court held that
the application filed under Section 9 of the Arbitration and Conciliation Act
seeking for interim protection is maintainable, once a reference has been made to
the MSME Council as per the provisions of Section 18 of the MSME Act.
11.Admittedly, the contract granted in favour of the first respondent by
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HPCL stands terminated on account of the alleged breach of contract by the first
respondent. The applicant also claims that he has completed the work as per the
Service Orders issued by the first respondent and he has also requested the first
respondent to certify those invoices to enable him to receive payment from HPCL.
Despite those requests, admittedly, the first respondent has not certified the
invoices raised by the applicant. Though the first respondent may say that they
were unable to certify the invoices since their contract has been terminated by
HPCL, the applicant cannot be left high and dry on account of the said
termination.
12.Having rendered the services based on the Service Orders issued by the
first respondent, whether the applicant has to receive payments for the quantum of
payment claimed by him, can only be decided in the arbitration, but when a prima
facie case has been made out that a sum in excess of the Bank Guarantee amount is
payable to the applicant, the applicant has to be protected, pending disposal of the
MSME proceedings by granting the relief as prayed for in this application.
13.This Court, after giving due consideration to the contentions of the
applicant, which are supported by documents and in view of the fact that the
applicant is ready and willing to complete the arbitration process before the
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MSME Council in accordance with the MSME Act, this Court will have to
necessarily protect the interest of the applicant by granting an order of interim
injunction as prayed for in this application. If the Bank Guarantee is allowed to be
invoked by the first respondent, irretrievable injustice will be caused to the
applicant, pending disposal of the MSME proceedings. Since the Bank Guarantee
was furnished by the applicant and it is an Advance Bank Guarantee as per terms
and conditions of the Service Orders issued by the first respondent, necessarily the
said Bank Guarantee will have to be kept alive till the disposal of the MSME
proceedings.
14.Since a prima facie case has been made out by the applicant for the grant
of an order of interim injunction as prayed for in this application and balance of
convenience and irreparable hardship have been established, this Court is inclined
to grant an order of interim injunction as prayed for in this application, subject to
the condition that the applicant keeps the Bank Guarantee alive till the disposal of
MSME proceedings.
15.Accordingly, this application is allowed as prayed for and there shall be
an order of interim injunction restraining the first respondent from invoking Bank
Guarantee till the disposal of the MSME proceedings. It is made clear that the
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applicant shall renew the Bank Guarantee within one week prior to the expiry date
periodically till the disposal of the MSME proceedings and failure to do so, the
first respondent is granted liberty to invoke the Bank Guarantee.
18.02.2025
vga
https://www.mhc.tn.gov.in/judis
ABDUL QUDDHOSE,J.
vga
18.02.2025
https://www.mhc.tn.gov.in/judis
