1999 (11) TMI 800 - HC - Companies Law

Issues Involved:
1. Whether the notice/threatened demand dated 2-8-1999 was in accordance with the terms of the bank guarantee/performance bond.
2. Whether the construction and commissioning of the power plant is part of the scope of the equipment supply contract.
3. Whether the petitioner has fulfilled its obligations under the contract and if the respondent is entitled to liquidated damages.
4. Whether the invocation of the bank guarantee/performance bond is justified.

Detailed Analysis:

Issue 1: Compliance of Notice with Terms of Bank Guarantee/Performance Bond
The petitioner argued that the notice dated 2-8-1999 was not in accordance with the terms of the bank guarantee/performance bond. They contended that the performance bond was issued for the completion of the scope of supply as defined in the contract and that the petitioner had supplied all materials mentioned in Schedule 3, verified by the respondent's engineer. The petitioner claimed that there was no breach or default in the equipment supply contract, and thus, the invocation of the bank guarantee was fraudulent. The petitioner relied on precedents such as Larsen & Toubro Ltd. v. Maharashtra State Electricity Board and other cases to support their contention that the invocation must be in accordance with the terms of the bank guarantee.

Issue 2: Scope of Equipment Supply Contract
The petitioner argued that the construction and commissioning of the power plant were covered by a separate contract awarded to another contractor, and any delay in the completion of the power plant was not attributable to the petitioner. They claimed that the performance bond could not be legally encashed for delays under a separate contract. The respondent countered that the petitioner was jointly and severally responsible for the timely and successful completion of the power plant, including engineering, construction, erection, procurement, and successful completion as defined in Schedule 3 of their respective contracts.

Issue 3: Fulfillment of Contractual Obligations and Entitlement to Liquidated Damages
The respondent argued that the petitioner failed to adhere to the time for completion of the scope of supply, leading to delays in the project. They provided evidence of notices and letters issued to the petitioner regarding breaches and delays. The respondent maintained that the petitioner's liability extended beyond the mere supply of equipment and included commissioning, erection, and passing a series of tests. The respondent cited a Division Bench decision of the High Court, which held that the performance bond covered compliance with all terms and conditions of the contract, not just the supply of equipment.

Issue 4: Justification of Bank Guarantee Invocation
The legal position regarding the grant of injunctions against the enforcement of bank guarantees is well-settled. The Supreme Court in Svenska Handelsbanken v. Indian Charge Chrome and Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engg. Works (P.) Ltd. established that bank guarantees cannot be interfered with unless there is an established fraud or irretrievable injustice. The court found that the petitioner failed to prima facie show or establish any fraud or irretrievable injustice. Financial hardship or onerous conditions were not sufficient grounds for restraining the encashment of the bank guarantee. The court held that the invocation of the bank guarantee was in accordance with the terms of the contract and dismissed the petition.

Conclusion:
The court concluded that the petitioner did not make out a prima facie case of fraud or irretrievable injustice. The petition was dismissed, and the invocation of the bank guarantee by the respondent was upheld as justified and in accordance with the terms of the contract.

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