2013 (1) TMI 504 - HC - Companies Law

Illegal, wrongful and fraud Joint Bid Agreement (JBA), the Counter Guarantee, and its invocation by the respondent no.1 - Held that - A perusal of the clauses of the guarantee would show that the Counter Guarantee is an unconditional irrevocable guarantee and contains equivocal promise to pay a sum of Rs.17.42 crores without any demur or protest. It is in these circumstances of the case that the finding recorded by the single Judge is just and proper and sustainable in law since Counter Guarantee is unconditional and irrevocable, as set out that it is clear that Defendant No.2 initially furnished a Bid Bond of Rs. 67 crores through the Standard Chartered Bank to Defendant No.4 on behalf of the Consortium which included the Plaintiff s contribution. Since the Plaintiff was required to make its contribution to the extent of 26 per cent of the said Bid Bond i.e. to the extent of 17.42 crores and since the Defendant No.1 counter indemnified the said Bid Bond of Rs. 67 crores, the Plaintiff furnished a Counter Guarantee dated 13th October 2010 issued by Defendant No.3 in favour of Defendant No.1 for a sum of Rs. 17.42 crores. The terms of the Counter Guarantee make it clear that the Counter Guarantee is for issue of Bid Bond of Rs. 67 crores by PSA on behalf of the Consortium. The payment under the Counter Guarantee is described as the payment obligation of the Plaintiff to the beneficiary pursuant to the Bid Bond. The payment under the Counter Guarantee is without demur, reservation, recourse, contest or protest. The only condition for such payment is that the demand or the payment must be supported by the documents listed in Clause 4 and must be in accordance with Clauses 5 and 6. Admittedly the demand complies with this requirement. Upon such demand being made, the Defendant No.3 Bank, within 3 days upon receipt of a written request from Defendant No.1, is bound to pay an amount upto Rs. 17.42 crores as payment obligation to Defendant No.1 pursuant to the Bid Bond, without any demur, reservation, recourse, contest or protest, without notice or reference to the Plaintiff, irrespective of whether the Defendant No.1 s demand is disputed or not by the Plaintiff or any other person. Mr. Khambata counsel for the respondent nos.1 & 2 is therefore correct in his submission that the expression payment obligation is merely descriptive of what the Counter Guarantee has been furnished for, and it cannot be contended that the same is a conditional guarantee. He is further correct in his contention that once the Bid Bond for a sum of Rs.67 crores is encashed, Defendant No. 1 is entitled to be reimbursed to the extent of Rs. 17.42 crores, which is the Plaintiff s share of the amount covered by the Bid Bond and which has been encashed by Defendant No.4. Thus the contention canvassed by the learned counsel for the appellant that the respondent no.1 would be entitled to make a claim under the Counter Guarantee only if it establishes that the loss caused under the indemnity is attributable to the action/inaction of the appellant is difficult to agree, in the facts and circumstances of the present case as already observed hereinabove, the Counter Guarantee is unconditional irrevocable guarantee, its legal complexion does not change merely because it is given in the context of an obligation to indemnify - no case is made out for showing indulgence in the present appeal which suffers from lack of merits.

Issues Involved:
1. Legality of the Joint Bid Agreement (JBA), Counter Guarantee, and its invocation.
2. Conditions for granting an injunction against the encashment of Bank Guarantee.
3. Allegations of fraud by the respondents.
4. Irretrievable injustice and special equities.
5. Nature of the Counter Guarantee (conditional or unconditional).

Detailed Analysis:

1. Legality of the Joint Bid Agreement (JBA), Counter Guarantee, and its Invocation:
The appellant sought a declaration that the JBA, Counter Guarantee, and its invocation by the respondent no.1 are illegal, wrongful, and vitiated by fraud, rendering them null and void. The appellant argued that the Counter Guarantee was not a typical commercial transaction and should not be subject to the usual constraints associated with Bank Guarantees. The learned single Judge dismissed the Notice of Motion for an injunction against the encashment of the Bank Guarantee, leading to the present appeal.

2. Conditions for Granting an Injunction Against the Encashment of Bank Guarantee:
The appellant contended that the Court should grant an injunction if a prima facie case of fraud, irretrievable injustice, non-compliance with terms of the Bank Guarantee, or special equities is made out. The appellant argued that the Counter Guarantee was conditional and could only be invoked under specific terms. The learned single Judge found that the Counter Guarantee was unconditional and irrevocable, and thus, the appellant failed to establish grounds for an injunction.

3. Allegations of Fraud by the Respondents:
The appellant alleged that the respondents committed fraud by leading them to believe they were interested in the project, knowing they had no such intention. The appellant cited section 17 of the Contract Act, claiming the respondents' actions vitiated the JBA and related agreements. The learned single Judge found the allegations to be bald assertions without establishing a case of egregious fraud. The Judge noted that the appellant had not rescinded the JBA, which undermined the seriousness of the fraud allegations.

4. Irretrievable Injustice and Special Equities:
The appellant argued that allowing the encashment of the Counter Guarantee would result in irretrievable injustice, as the respondent no.2 was a shell company with no assets, making any potential recovery merely a paper decree. The learned single Judge, referencing the Supreme Court's decision in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., held that the appellant failed to establish irretrievable injury or special equities. The Judge noted that the respondent no.1 was financially sound, being backed by the Government of Singapore.

5. Nature of the Counter Guarantee (Conditional or Unconditional):
The appellant contended that the Counter Guarantee was conditional, requiring the respondent no.1 to establish a loss attributable to the appellant's actions before invoking it. The learned single Judge found that the Counter Guarantee was unconditional and irrevocable, with an unequivocal promise to pay without demur or protest. The Judge held that the expression "payment obligation" was merely descriptive and did not render the guarantee conditional.

Conclusion:
The High Court upheld the learned single Judge's decision, dismissing the appeal with costs. The Court found that the appellant failed to establish a prima facie case of fraud, irretrievable injustice, or special equities. The Counter Guarantee was deemed unconditional and irrevocable, and the respondents were entitled to invoke it. The Court emphasized the well-settled legal position that injunctions against the encashment of Bank Guarantees should be granted only in exceptional circumstances involving egregious fraud or irretrievable harm.

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