2014 (9) TMI 1252 - HC - Indian Laws

Seeking to grant injunction - whether there is a clear fraud of which the 2nd respondent has noticed and the fraud of the 1st respondent from which it seeks to benefit and the other exception whether there are any special equities in favour of granting injunction? - HELD THAT - There is complete denial by the 1st respondent as to the allegations levelled against it touching the alleged fraud on its part by attributing total lapses on the part of the appellant that had compelled the 1st respondent to get the balance of work done through the third party contractors with the consent of the appellant. The vital aspect that touches the conduct of the appellant is, according consent to the 1st respondent to make payments directly to the third party-contractor by getting the work carried out which was left over by the appellant by even demobilising its resources from the site. It is not as though, a mere consent by the appellant was given for getting the balance work executed through other sub-contractor, which the appellant was supposed to execute, but even the payments were made by the 1st respondent, through the appellant. This circumstance attains greater significance since it affects vitally not only the fraud alleged by the appellant, but even it disfavours the appellant in proving the irretrievable injury or irretrievable injustice and further disfavours the appellant from seeking equitable relief of injunction based on special equities . The attempt made by the appellant to take shelter under Clause 8.1 relating to sub-contracting the works, gets completely condemned when the purport of the said sub-clause is examined - the attempt of the appellant to deprive advantage under the said clause, in our view, is a concrete attempt to take undue advantage of the said clause to wriggle itself out of the obligations cast on it and consequences thereof. The case of the appellant neither falls in the first exception nor in the second exception nor the appellant is successful in establishing special equities favouring it to seek the equitable relief of injunction in these two appeals. Concerning the other allegations touching the outstanding amounts to be paid by the appellant at ₹ 28.19 crores, as ad-hoc advances were made by the 1st respondent, with the object of getting the work executed within the time frame or even earlier also, stands adverse to the case of the appellant. No doubt, the appellant has initially stated that the loss it sustained was to the tune of ₹ 175.00 crores and in its reply affidavit, it has expanded the alleged quantified loss to the tune of ₹ 421.80 crores, but these aspects have to be gone into by the arbitral Tribunal. Even the other aspects which the appellant has pressed into service constitute the subject before the arbitral Tribunal. Thus, the appellant failed to establish not only the ground of established fraud , but also the ground of special equities in its favour. Therefore, the common order under challenge cannot be withheld, as such, while confirming the same, appeal dismissed.

Summary

Issues Involved:
1. Whether the bank guarantees were conditional or unconditional.
2. Whether the invocation of the bank guarantees by the 1st respondent was fraudulent.
3. Whether there were special equities in favor of granting an injunction to restrain the encashment of the bank guarantees.
4. Whether the appellant would suffer irretrievable injury or injustice if the injunction was not granted.

Analysis of Judgment:

1. Conditional or Unconditional Bank Guarantees:
The court examined the terms of the bank guarantees and concluded that they were unconditional. Despite the appellant's argument that the guarantees were conditional, the fact that they had been extended multiple times indicated otherwise. The court held that the appellant could not dispute the 1st respondent's right to encash the guarantees unless exceptions such as fraud or special equities were established.

2. Alleged Fraud by the 1st Respondent:
The appellant claimed that the 1st respondent fraudulently invoked the bank guarantees despite being aware of its own lapses. The court scrutinized the allegations and found them insufficient to establish "clear fraud" or "fraud of egregious nature." The court emphasized that mere allegations without substantial evidence do not constitute fraud. The appellant's consent for the 1st respondent to make payments directly to third-party contractors further weakened the fraud claim.

3. Special Equities for Granting Injunction:
The appellant argued that special equities existed in its favor, citing the 1st respondent's failure to provide land and the financial losses incurred. The court found that the appellant's conduct, including demobilizing resources and consenting to third-party payments, did not support the claim of special equities. The court also noted that 87% of the project land had been handed over by the 1st respondent, undermining the appellant's argument.

4. Irretrievable Injury or Injustice:
The court considered whether the appellant would suffer irretrievable injury or injustice if the injunction was not granted. The court concluded that the appellant had not demonstrated such injury or injustice. The court highlighted that the disputes between the parties were subject to arbitration, where the appellant could seek remedies.

Conclusion:
The court dismissed the appeals, confirming the lower court's order. The court held that the appellant failed to establish both the grounds of "established fraud" and "special equities." The findings in the judgment were stated to have no bearing on the merits of any ongoing arbitration proceedings. The court also disposed of any pending miscellaneous applications related to the appeals.