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TMI Blog2016 (9) TMI 1623X X X X Extracts X X X X X X X X Extracts X X X X ..... lization 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for execution of the LMC Contract and had utilized the mobilization advance for the said purpose; but, as work fronts were not available, it had raised bills for idling of labour and machinery. According to ARIO, the mobilization advance was liable to be adjusted against the said bills. ARIO had further pleaded that GGL had perpetuated a fraud by informing ARIO in the kick-off meeting held on 12.08.2014 that 38 consumers had clearances from Agra Marketing and gas connections were to be connected at the earliest. It is claimed that on the basis of the said representation, ARIO had mobilized the requisite resources but had later found that necessary clearances for providing connectivity to the 38 consumers were not in place. 4. The only question to be addressed is whether ARIO has made out the necessary grounds for grant of interim stay on invocation of the Mobilization BG. 5. Briefly stated, the relevant facts necessary to address the aforesaid controversy are as under:-- 5.1 GAIL Gas Limited (GGL) is a subsidiary of a Public Sector Enterprise, GAIL (India) Ltd. GGL invited bids for Industrial Consumer Connectivity, laying of steel pipeline network and associated wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to take up the said work unless the balance work fronts were also made available. It is stated that, thereafter, a meeting took place between ARIO and GGL on 12.04.2016 wherein ARIO was called upon to perform the work of laying pipe line of approximately 20 kms. in Shihana - Chatikara - Vrindavan Sector of the Taj Trapezium Zone. ARIO states that although the same was not a part of the LMC Contract, it nonetheless agreed to mobilize resources and commence the works. However, according to ARIO, the said works could also not be taken up as the proposed pipelines fell within a forest area and the requisite permission from the concerned authorities was not available. It is stated that ARIO informed the same to GGL by an email dated 14.05.2016. Thereafter, GGL terminated the LMC Contract by a letter dated 26.05.2016 which ARIO contends is illegal. 6. According to GGL, the fundamental assumption that it had the permissions to execute the LMC Contract is misconceived and the scope of work awarded to ARIO included getting permissions for laying the pipeline from various statutory authorities. It is pleaded that ARIO was called upon to start connectivity work for 15 Nos of Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisite clearances and, therefore, could not provide the necessary work fronts for ARIO to execute the works. He submitted that ARIO mobilized its resources to carry out the works on the basis that the work fronts were available but, subsequently, became aware that the requisite permissions were not available with GGL. 11. Next, Mr. Sharma referred to clause 26 of the Special Conditions of the Contract and submitted that mobilization advance provided by GGL was to be recovered from the running bills and ARIO could not be called upon to refund the same. However, since GGL failed to provide the work fronts, the said amount could not be adjusted. He submitted that ARIO cannot be called upon to refund the mobilization amount as it had already utilized the same for mobilization of the resources, and there was no provision to recover the amount except from the consideration payable for execution of the LMC Contract. 12. Mr. Sharma further submitted that GGL also did not have the requisite permissions in respect of alternate works that were allocated to ARIO. He referred to the minutes of the meeting held on 12.04.2016 which indicated that permissions from the Forest Department w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the submission that ARIO had mobilized the necessary resources. She submitted that ARIO was executing another contract in the vicinity and had used the resources from those works and, therefore, ARIO's claim that it had utilized the mobilization advance for mobilizing the resources for the LMC Contract cannot be accepted. She further contended that ARIO was always aware of the permissions that were available and those that were not as in terms of the LMC Contract, ARIO was required to survey the site and appraise itself of the situation on ground. She submitted that in the circumstances, GGL was entitled to recover the outstanding mobilization advance along with interest. Reasoning and conclusion 17. It is apparent from the pleadings and the submissions made that there are serious disputes between the parties in relation to the LMC Contract. According to GGL, ARIO's work progress was slow. This is not disputed by ARIO. But, it is contended that the works suffered on account of lack of permissions, which - according to ARIO - were to be obtained by GGL. This is disputed by GGL. 18. Clause 24 of the Schedule of Rates which specifically provides for the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud... ...irretrievable injustice which was made the basis for grant of injunction really was on the ground that the guarantee was not encashable on its terms... ...there should be prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Mere irretrievable injustice without prima facie case of established fraud is of no consequence in restraining the encashment of bank guarantee. 25. The aforesaid view was reiterated by the Supreme Court in Larsen Toubro Limited v. Maharashtra State Electricity Board and Others: (1995) 6 SCC 68. 26. In U.P. Cooperative Federation Limited v. Singh Consultants and Engineers Pvt. Ltd.: 1988 (1) SCC 174, the Supreme Court had held as under: 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. 27. Prima facie, even if it is accepted that ARIO was given an incorrect impression that all clearances are available, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R on the BANK shall be conclusive and binding. 31. The aforesaid terms 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. 32. In U.P State Sugar Corporation v. Sumac International Limited: (1997) 1 SCC 568, the Supreme Court had held that: 12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. 33. The decision of the Supreme Court in the case of Hindustan Construction Co. Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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