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TMI Blog2013 (1) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /or all other persons claiming by, through or under them paying to the respondent no.1 or to anyone else any amount purportedly under the Counter Guarantee. Similar temporary injunction is sought against the respondent no.1 from receiving from the respondent no.3 any amount purportedly under the Counter Guarantee. The appellant has also claimed a temporary injunction restraining the respondent nos.1 3 from invoking and/or encashing the Counter Guarantee. The learned single Judge vide judgement dated 5.10.2012 dismissed the Notice of Motion. Being aggrieved by the said judgement of the learned single Judge, the appellant has filed the present appeal challenging the impugned judgement. 2. The learned counsel for the appellant has submitted that the brief facts of the case are as follows:- (a) The appellant is a company incorporated in India. The respondent no.1 is a company incorporated in Singapore, wholly owned and controlled by Tamsek Holdings, an investment company of the Government of Singapore. The respondent no.2 is a subsidiary of the respondent no.1. (b) The present appeal impugns the judgement dated 5.10.2012 whereby the learned single Judge has dismissed the Notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pte Ltd and ABG Ports Pvt. Ltd. ( Consortium ), we Bank of Baroda ( Guarantor ), hereby irrevocably and unconditionally undertake to pay to PSA International Pte Ltd. (Beneficiary ), on its first demand, an amount up to Rs.17,42,00,000/- (Rupees Seventeen Crores and Forty Two Lakhs Only), as payment obligation to the Beneficiary pursuant to the Bid Bond, without any demur, reservation, recourse, contest or protest, without notice or reference to ABG Ports Pvt. Ltd., irrespective of whether the Beneficiary's demand is disputed by ABG Ports Pvt. Ltd. or any other person or not, within 3 business days of a written request from the Beneficiary for payment within the Effective Period (as defined hereinafter), supported by the following documents: (emphasis supplied) It is submitted that from the above, it is clear that the purpose of the Counter Guarantee was to indemnity the respondent no.1. The words as payment obligation to the Beneficiary pursuant to the Bid Bond which find place in paragraph 4 of the Counter Guarantee are of great significance and cannot be ignored. 4. It is submitted that the obligation of the respondent no.3 to pay to the respondent no.1., viz., the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent no.2 and not the respondent no.1. The parties had carefully worded the terms of the Bank Guarantee to include the term payment obligation in the guarantee. The impugned judgement completely ignores the specific term used by the parties. In order to enable the respondent no.1 to invoke the Counter Guarantee, it was imperative that the respondent no.1 ought to have suffered a loss on account of the conduct of the appellant. It is, therefore, contended that under the JBA, all obligations were to be performed by the respondent no.2 which in turn is a subsidiary of the respondent no.1. The respondent no.2 having failed to comply with the same, cannot ask and seek contribution to indemnify any loss of the respondent no.1 arising out of its own inaction. 5. It is contended that if the encashment of the Counter Guarantee is not injuncted, the same would tantamount to a party profiteering from its own wrongs/inaction. It is submitted that there is no declaration in the respondent no.1's letter dated 21.9.2012 that the payment obligation has fastened on the appellant pursuant to the Bid Bond which was mandated by the terms of the Counter Guarantee. The impugned order loses sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d averments by no stretch of imagination can be said to have made out a case of fraud. The allegations of fraud made by the Plaintiff are merely bald assertions and do not establish a case of fraud much less a fraud of a egregious nature. ........... 8. The counsel for the appellant has further contended that the learned single Judge has also negatived the appellant's contentions on fraud on the ground that the appellant had till date not rescinded the JBA, which according to the learned single Judge speaks volumes about the seriousness of the allegation of fraud made by them against Defendant Nos.1 and 2. The conclusion of the learned single Judge is clearly erroneous. The appellant specifically pleaded discharge of the contract which fact has been completely ignored by the learned single Judge. 9. It is further submitted that the learned single Judge completely overlooked the fact that the respondent no.2 has allowed the invocation of the Bid Bond by JNPT without any protest. The learned Judge has held that there are serious disputes between the respondent no.2 and JNPT, however, the learned Judge overlooked that:- (a) The respondent no.2 has till date not protested aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... injunctive reliefs to the appellant. 12. The learned counsel for the appellant has specifically pleaded that the facts and circumstances of the case clearly give rise to special equities being invoked by the appellant to protect the rights of the appellant. The sole ground taken by JNPT for invoking the Bid Bond is the failure on the part of the respondent no.2 to sign the concession agreement for the said project. This has clearly been on account of PSA and the appellant has had no role to play in this. The default, if any, is therefore of PSA alone. If the default and the consequent invocation of the Bid Bond is solely due to PSA's failure to execute the concession agreement, the respondent no.1 is not entitled to pass that burden or any part thereof upon the appellant and claim benefit under the Counter Guarantee. Allowing the respondent no.1 to do so would tantamount to rewarding the respondent no.1 for its own inaction and fraudulent conduct. The fraud is of the beneficiary (as it controls the respondent no.2 absolutely) who cannot be allowed to take any benefit therefrom. However, the learned single Judge failed to consider the same. The impugned judgement, therefore, fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial equities for injuncting the encashment of Bank Guarantee has not been established as required in law by the appellant. 14. The learned counsel has further contended that the plaintiff has pleaded special equities in paragraph 12 of the plaint which reads thus:- 12. The Plaintiff states and submits that irretrievable injustice will be caused to it in case appropriate orders are not passed restraining encashment of the Counter Guarantee. It is submitted that Defendant No.2 is a shell company and has no assets in either India or Singapore and thereby any order that the Plaintiff may obtain against Defendant No.1 will be a mere paper decree. It is submitted that this pleading is irrelevant as the respondent no.2 is not the beneficiary under the Bank Guarantee and as such, pleading in regard to the respondent no.2 being a shell company for establishing irretrievable injury is immaterial and ought to be discarded on the test laid down by the Apex Court in the case of Dwarikesh Sugar Industries Ltd. (supra). It is, therefore, contended that no irretrievable injury has been established and, as such, the said recognised exception to the rule that a Bank Guarantee ought not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt who has alleged fraud has not terminated the Joint Bid Agreement (JBA). It is important to note that the appellant has not avoided the transaction nor has it avoided the same in the plaint. The appellant, therefore, is estopped from raising the plea of fraud. 18. The learned counsel for the respondent nos.1 2 has contended that the Supreme Court in the case of Svenska Handelsbanken v. M/s.Indian Charge Chrome Ors. (1994) 1 SCC 502) has held in paragraph 71 thus:- 71. Shetty, J. speaking for the Bench noticed the earlier observations of Mukharji, J. in the case of U.P. Cooperative Federation Ltd. and stated that the nature of the fraud that the courts talk about is fraud of an egregious nature as to vitiate the entire underlying transaction . It is fraud of the beneficiary, not the fraud of somebody else. 19. The learned counsel for the respondent nos.1 2 has placed reliance on the observations made by the Apex Court in paragraph 28 of the judgement in the case of Dwarikesh Sugar Industries Ltd. (supra). It is, therefore, contended that for a Court to restrain encashment of a Bank Guarantee, the fraud has to be absolute and egregious, vitiating the very foundatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and several liability under Clause 5 of the JBA for any/all obligations and liabilities relating to the project. This is evident from the appellant's letter to the respondent no.1 dated 31.3.2012. 22. The counsel for the respondent nos.1 2 further submitted that under the Request for Proposal issued by the respondent no.4 (RFP), a Bid Bond of Rs.67 crores was required to be furnished by the consortium of which the appellant is a 26% member/partner. The sum of Rs.17.42 crores (Counter Guarantee) thus represents the appellant's share (26%) of the total amount of Rs.67 crores covered by the Bid Bond. It is submitted that the respondent nos.1 2 could have submitted their share of 74% of the Bid Bond amount the appellant would have required to submit its share of the Bid Bond directly to the respondent no.4 and the effect would have been that the respondent no.4 would have invoked two Bank Guarantees aggregating to Rs.67 crores. However, the respondent no.4 wanted a single Bank Guarantee and, therefore, the Counter Guarantee was obtained. 23. It is contended that the Counter Guarantee is unconditional and irrevocable guarantee and contains an unequivocal promise to pay a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as consideration of the respondent no.1 indemnifying Standard Chartered Bank for issuing the Bid Bond in favour of the respondent no.4 and was not an indemnity given by the appellant to the respondent no.1. Thus, the reliance placed by the appellant on section 124 of the Indian Contract Act, 1872 is entirely misplaced as the said section does not apply. It is, therefore, contended that the order of the learned single Judge is a well-reasoned order and does not warrant any interference. The appeal, therefore, deserves to be dismissed with costs. 25. We have given anxious thought to the various contentions canvassed by the respective learned counsel for the appellant as well as the respondents, considered the decisions cited as well as the impugned judgment passed by the learned single Judge. We feel it appropriate to express the well-settled legal position relating to encashment of Bank Guarantee in view of the decision of the Apex Court. A Bank Guarantee is one which is payable by the guarantor on demand if the Bank Guarantee is the unconditional Bank Guarantee. Similarly, in the course of commercial dealings, unconditional guarantees have been given or accepted, the beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fraud has to be absolute and egregious vitiating the very foundation of the Bank Guarantee. In my view, in the present case, the Plaintiff has failed to make out any case of fraud. On a reading of the averments made in paragraph 8 of the Suit it is clear that the said averments by no stretch of imagination can be said to have made out a case of fraud. The allegations of fraud made by the Plaintiff are merely bald assertions and do not establish a case of fraud much less a fraud of a egregious nature. In view thereof, the decisions cited by the Learned Senior Counsel for the Plaintiff in the cases of U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd. (supra) and Yog Systems India Ltd. Vs. SU-KAM Power Systems Ltd. (supra) are of no assistance to the Plaintiff. As held hereinafter, the said Counter Guarantee is an unconditional and irrevocable Guarantee. It is settled law that encashment of an unconditional and irrevocable Bank Guarantee ought not to be injuncted by the Courts unless the case falls within the recognized exceptions laid down by the Hon ble Supreme Court in a catena of decisions in which case an injunction restraining the encashment of a Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n practised by the respondent nos.1 2 to vitiate the very foundation of Bank Guarantee in order to injunct the respondent no.1 from invoking the Counter Guarantee. 29. As regards the contention canvassed by the learned counsel for the appellant that irretrievable injustice would be caused if the Counter Guarantees permitted to be encashed by the respondent no.1 is concerned, the law is well-settled on this subject and when applied to the facts of the present case, it must show that if the respondent no.1 is permitted to encash the Counter Guarantee, it would be impossible for the guarantor to reimburse himself if he ultimately succeeds. In the instant case, it is not disputed that the consortium is in the nature of partnership and the consortium member in law bears liabilities of consortium to the extent of their share in consortium. Clause 5 of the Joint Bid Agreement (JBA) affirms that the nature of liability is joint and several and there is no contract to the contrary in the JBA. In the plaint, it is stated by the appellant that the respondent no.1 is owned by the Government of Singapore and is one of the largest container terminal operators in the world. The learned single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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