2016 (9) TMI 1623 - HC - Indian Laws

Seeking stay of invocation of the bank guarantees issued for securing the mobilization advance - whether ARIO has made out the necessary grounds for grant of interim stay on invocation of the Mobilization BG? - HELD THAT - There is also a dispute as to whether ARIO had mobilised the necessary resources at site as is claimed by ARIO. According to GGL, ARIO had merely drawn the resources from another contract/site that was being executed by ARIO at the material time - Although there are disputes between the parties as to which party is in breach of the terms of the LMC Contract, there is no dispute that the mobilization advance provided to ARIO has not been recovered. This is so because only a small fraction of the work as contracted has been completed and, therefore, ARIO has been unable to raise bills and, consequently, GGL has been unable to adjust the mobilization advance from the running bills as agreed. Whether GGL should be interdicted from invoking the mobilization BG only on the basis of the aforesaid disputes between the parties? - HELD THAT - The mobilization advance provided were in the nature of loan and, admittedly, GGL is entitled to recover the same. Whether ARIO is entitled to retain the advances and adjust the same against its claim is the subject matter of disputes between the parties? - HELD THAT - The terms of the Mobilization BG make it amply clear that GGL is entitled to recover the same notwithstanding the disputes between the parties. Indisputably, the purpose of Mobilization BG is to secure GGL in recovery of mobilization advance. The entire purpose for securing the mobilization advance by a bank guarantee would be frustrated if the invocation of the bank guarantee is interdicted till the adjudication of the disputes. In the present case, the bank guarantee in question expressly provides that we undertake to pay you, upon your first written demand declaring the Contractor to be in default under the contract and without caveat or argument, any sum or sums within the limits of (amount of guarantee) as aforesaid, without your needing to prove or show grounds or reasons for your demand or the sum specified therein. Thus, the bank guarantee in the present case is clearly an unconditional one. And, in terms of the bank guarantee, GGL is not required to provide any reasons or to show that ARIO is in breach of the terms of the contract. The invocation of Mobilization BG cannot be interdicted. The petition is disposed of.

Summary

Issues Involved:
1. Invocation of the Performance Bank Guarantee (Performance BG)
2. Invocation of the Mobilization Bank Guarantee (Mobilization BG)
3. Allegations of fraud and lack of necessary permissions by GGL
4. Recovery of mobilization advance and its adjustment against ARIO's claims
5. Legal principles governing the invocation of bank guarantees

Detailed Analysis:

1. Invocation of the Performance Bank Guarantee (Performance BG):
The respondent, GGL, agreed not to invoke the Performance BG until ARIO had the opportunity to seek relief from the Arbitral Tribunal. The court restrained GGL from invoking the Performance BG until ARIO's application under Section 17 of the Arbitration and Conciliation Act, 1996, was disposed of by the Arbitral Tribunal. This direction was conditional upon ARIO filing the application within two weeks of the Arbitral Tribunal being constituted.

2. Invocation of the Mobilization Bank Guarantee (Mobilization BG):
The controversy was limited to the invocation of the Mobilization BG to the extent of ?77,32,154/-. ARIO argued that GGL could not recover the unadjusted mobilization advance due to GGL's failure to provide necessary work fronts. ARIO claimed it had mobilized resources based on GGL's representations but could not perform the contracted work due to lack of permissions. ARIO raised bills for idling of labor and machinery and contended that the mobilization advance should be adjusted against these bills.

3. Allegations of Fraud and Lack of Necessary Permissions by GGL:
ARIO alleged that GGL perpetuated a fraud by misrepresenting that necessary clearances were in place for 38 consumers during the kick-off meeting on 12.08.2014. ARIO mobilized resources based on this representation but later found that the clearances were not available. GGL countered that obtaining permissions was within ARIO's scope of work and that ARIO was aware of the permissions required.

4. Recovery of Mobilization Advance and Its Adjustment Against ARIO's Claims:
ARIO argued that the mobilization advance provided by GGL was to be recovered from running bills, and since GGL failed to provide work fronts, the amount could not be adjusted. ARIO contended that it could not be called upon to refund the mobilization advance as it had utilized the same for mobilizing resources. GGL argued that ARIO was responsible for obtaining necessary permissions and that ARIO's claim of utilizing the mobilization advance for mobilizing resources was not credible.

5. Legal Principles Governing the Invocation of Bank Guarantees:
The court referred to several Supreme Court decisions to outline the legal principles governing the invocation of bank guarantees. It emphasized that bank guarantees are typically irrevocable and unconditional, and can only be interfered with in cases of established fraud or irretrievable injustice. The court found that ARIO's allegations did not constitute fraud of an egregious nature that would warrant interference with the invocation of the Mobilization BG. The court also noted that the terms of the Mobilization BG allowed GGL to recover the outstanding sum notwithstanding any disputes between the parties.

Reasoning and Conclusion:
The court concluded that there were serious disputes between the parties regarding the LMC Contract, including whether ARIO had mobilized necessary resources and whether GGL was responsible for obtaining permissions. However, the court found that GGL was entitled to recover the mobilization advance as per the terms of the Mobilization BG, which was unconditional and irrevocable. The court emphasized that the purpose of securing the mobilization advance with a bank guarantee would be frustrated if its invocation was interdicted. Consequently, the court held that the invocation of the Mobilization BG could not be interdicted and disposed of the petition.