The Delhi High Court has held that no legal provision justifies withholding of Performance Bank Guarantee if the Contract is executed and due performance is acknowledged.
The single-judge Bench of Justice Vibhu Bakhru while adjudicating upon a petition filed challenging Arbitral Award, directing BSNL to refund the Performance Bank Guarantee amount as no failure to perform under contract claim was made by it.
Brief Facts of the Case
The present petition was filed by BSNL against Arbitration Tribunal's decision in favour of the respondent-Teracom. The Tribunal had awarded an amount of over ₹2 crore to the latter, being the amount recovered by former through encashing the Performance Bank Guarantee.
The genesis of the case trace back to when BSNL invited tender for purchase of Integrated Fixed Wireless Terminal Devices and Teracom applied for the same. After being declared as the successful bidder, an Advance Purchase Order was issued by BSNL in favour of Teracom for purchase of 3,75,000 units of WLL CDMA 2000 1x IFWTs for which Teracom furnished a Performance Bank Guarantee.
When Purchase Order was successfully carried out by Teracom, in terms of Article 11 of the Contract, it was entitled to 80% of the total payment on supply of the IFWT equipment at site, and the balance 20% payment after one year of the equipment’s satisfactory performance and on signing of the Annual Maintenance Contract (AMC) with the respective State Telecom Circles under BSNL along with submission of the Performance Bank Guarantee.
A delay in payment of 80% of the total payment that was due under the Contract was caused and Teracom extended time period at the instance of BSNL. Resultant, part of it was paid but an amount of ₹1,52,91,987/- remained outstanding. Teracom resisted a further request for extension received lastly.
Thereafter, in a letter, Teracom stated it had met all its obligations under the Contract and requested that the Performance Bank Guarantee be released. BSNL did not do so and invoked the Performance Bank Guarantee.
High Court Analysis
The Court at the outset shunned the contention by BSNL that it was entitled to forfeit the Performance Bank Guarantee even though Teracom had performed the Contract, as bereft of any merit.
After recalling the Arbitration Tribunal's decision, the Court pointed out that the Performance Bank Guarantee was invoked not because BSNL had claimed that any amount was due to it or that Teracom had failed to perform the Contract; it was done solely for the reason that the No Claim Certificates (NCCs) had not been issued by various Circles and therefore, BSNL was required to be secured for due performance of the Contract in question.
"There was no occasion for BSNL to forfeit any amount recovered against the Performance Bank Guarantee because BSNL had not made any claim regarding failure on the part of Teracom to perform its obligations under the Contract.", the Court remarked.
The Court noted that the contention of BSNL that it is entitled to forfeit the amount on encashment of the Bank Guarantee, apart from being unmerited, runs contrary to the defence set up by it wherein it has claimed that it was holding the money recovered from invoking the Performance Bank Guarantee as a security deposit, which would be refunded to Teracom after the NCCs were received from various Telecom Circles.
Upholding the Tribunal's view after analysing witness statements, the Court calrified that there is no principle in law whereby BSNL could be permitted to retain the Performance Security after it had acknowledged due performance of the Contract.
Another contention of BSNL was marked as unmerited by the Court.
"The contention that the impugned award is vitiated by patent illegality as the Arbitral Tribunal had rejected BSNL’s claim for a set off, is also unmerited. There is no dispute that in terms of the Contract between the parties, BSNL was entitled to claim a set off of any amount due to it against any amount payable to Teracom under the Contract. However, in this case, there was no such effective claim for various reasons."
The Tribunal had rejected BSNL's claim on one of the ground that there was no such claim for a set off made in the Statement of Defence filed by BSNL. The clarification given was that no such defence could have been raised as the claim for a set off had arisen after the Statement of Defence/Reply to the Statement of Claims, was filed.
Undisputedly, in order to claim a set off, it was necessary for BSNL to have established that an ascertained sum of money was due and payable to it. And, since no such defence was raised, this Court is unable to fault the decision of the Arbitral Tribunal to reject the said claim, the Court stated.
In view of the above, the Court uphled the award.
Case Title: Bharat Sanchar Nigam Limited versus Teracom Limited
Case Details: O.M.P. (COMM) 431/2019 & I.A. 14326/2019
Coram: Justice Vibhu Bakhru
Read Order Here:
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