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TMI Blog1999 (11) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractors for encashment of their respective performance bonds given under their respective contracts with the petitioner. 3. The case of the petitioner as set out in the petition and urged before the Court may be stated as follows : ( i )The notice/threatened demand dated 2-8-1999, was not in accordance with the terms of the bank guarantee/performance bond. The form of demand requires respondent No. 2 to state that the contractors failed to rectify the breach under the contract, "as defined in the performance bond". It is urged that the performance bond/bank guarantee was given for the performance of the contract, as defined in the performance bond. The submission is that the performance bond is for completion of, the scope of supply as defined in the contract in Clause 1.1.46 at page 15 and as detailed in Schedule 3 at pages 110 to 112 of volume 2. In other words, the contention is that petitioner having supplied all the materials mentioned in Schedule 3 as duly verified by the engineer of respondent No. 2, the bank guarantee/performance bond could not be invoked. This, it is claimed is supported by 31 certificates, issued by respondent No. 2. Reference is also invited to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 2 for liquidated damages is said to be unconscionable and in contravention of clause 7 of the contract. The demand on the performance bond or bank guarantee towards the delay in construction of plant by other contractors under a separate contract would be nothing but perpetuating fraud and, therefore, the bank guarantee cannot be encashed as all the equipments mentioned in third schedule have been supplied to the satisfaction of the engineer of respondent No. 2. ( iii )Reliance is placed by the petitioner in support of its contentions on Larsen Toubro Ltd. v. Maharasthra State Electricity Board [1995] (7) SC 18, where the Apex Court granted stay against the invocation of bank guarantee as the performance of the contract was completed. The bank guarantee was to ensue only till successful completion of the trial operations of the plant till it was taken over. The event having ensued, the invocation of the bank guarantee was held to be not encashable on its terms and to prevent irretrievable justice injunction was issued. Further, reliance is placed on J.T. 1992 (2) S.C. 136, which enjoins that the encashment of the bank guarantee has to be in accordance with i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out in Schedule Three of the Contract. ( c )In terms of the contract, the equipment supplied by the petitioner has to be commissioned, erected and should pass a series of tests. After the successful completion of such tests and a certification to that effect from the Engineers, the power plant is liable to be taken over by respondent No. 2. The liability of the petitioner continues not just till the point of time of takeover of each unit, but also beyond that period, till the completion of the defects liability period for each unit. In other words, the liability of the petitioner does not come to an end by a mere mechanical dumping of equipment, enumerated in Schedule Three of the contract. The liability of the petitioner extends till after the actual take over of each section of the power plant by respondent No. 2 in terms of Clause 29.1, after all requisite tests on completion for each section have been conducted in accordance with Clause 28.1. ( d )As per clause 27.1 read with clauses 1.1.47, 1.1.55, 1.1.56, 25.1 and 28.1, the obligation of the petitioner is to perform the scope of supply in such a manner that each of the Sections is completed in accordance with the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foregoing, the learned counsel for respondent No. 2 submitted that the petitioner had been in breach of the contract due to failure to perform the scope of supply. There have been serious delays in delivering and even where deliveries have been made, the equipment supplied has been defective and had to be given back for repairs. Respondent No. 2 s project has been severely crippled and delayed causing immense loss to respondent No. 2 on account of omissions and commissions of the petitioner. Respondent No. 2 has filed Annexure 6 (colly) giving the summary of the letters/notices issued regarding the breaches of the petitioner. I find merit in this submission. The correspondence and documents placed on record prima facie support the submissions sought to be made by respondent No. 2. 8. The learned counsel for the respondent has also drawn the Court s attention to the decision of a Division Bench of this Court in CM. No. 2652 of 1999 in FAO (OS) 218/90, filed by respondent No. 2. A learned Single Judge of this Court in OMP No. 196 of 1999, filed by the petitioner herein, seeking a restraint on encashment of bank guarantee had granted a restraint on encashment of bank guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that the security was to be provided by the respondents under Cl. 10.1 for due performance of the contract . Performance of the contract would also include performance of Cl. 48.1. In our prima facie view restraining invocation of such an on demand guarantee was not justified. The Supreme Court has time and again deprecated the practice of Courts interfering in such cases. Accordingly, operation of the impugned order dated 21-7-1999 is stayed. It must be mentioned that under similar circumstances and under an identical contract and an identical guarantee the Bombay High Court had refused stay of invocation. This has been upheld all the way to the Supreme Court." [ Emphasis supplied ] The Division Bench also declined to grant stay of its order. The view taken by the Division Bench in respect of this very performance bond/bank guarantee is that it is not confined to the supply of equipment but rather covers compliance with other terms and conditions of the contract. 9. The legal position with regard to the grant of injunction against the enforcement of bank guarantee and irrevocable letter of credit is now fairly well-settled with a series of pronouncements by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idated and ascertained damages for delay in terms of clause 27. It is also this breach, which the petitioner has failed to rectify and cure. The submission of Mr. J.C. Seth that the encashment of the performance bond/bank guarantee sought was not as per the specified form is again without merit. Notice of 2-8-1998 given is the notice as contemplated under the contract for calling upon the petitioner to cure the breach by making the payment. The invocation of the bank guarantee is to be separately done as per the prescribed format. 13. In the passing I may also notice that during the course of proceedings both the parties had sought adjournment to attempt an amicable resolution of their differences. The petitioner had also filed an application IA, 9204 of 1999 wherein stay of encashment of the bank guarantee was sought on the basis of the said agreement. In terms of the agreement, as annexed to the application, the respondent No. 2 had agreed not to encash the performance bond until or after 31-9-1999 or such extended date as mutually be agreed on the condition. ( i )The appellant would not take any action by way of legal proceedings to prevent such encashment by respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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