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TMI Blog2017 (10) TMI 1626X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in these appeals. The appellant filed four C.O.Ps. under Section 9 of the 1996 Act requesting the Commercial Court to grant an injunction restraining the 1st respondent, its agents, servants, or any other persons claiming through or under it, from taking coercive action pursuant to the letter dated 23.02.2017 or otherwise, including but not limited to, restraining it from invoking or encashing the schedule bank guarantees issued by the 2nd respondent; and to further restrain the 2nd respondent from honouring/encashing the schedule bank guarantees at the request of the 1st respondent. In the petition filed by them under Section 9 of the 1996 Act, the appellant had stated that they had entered into various contracts in respect of the design, engineering, procurement, supply, assembly, construction, erection, mechanical completion, pre-commissioning, commissioning and full performance testing of a pulverized coal fired power plant consisting of 2 x 660 MW supercritical boiler based plant with NCC Power Projects Limited, and a consortium of China National Technical I & E Corporation and Tianjin Electric Power Construction Company ("CTC" for short); the equity stake of the first re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for noncompletion of the performance guarantee tests; the 1st respondent has been commercially operating Unit-1 from 15.11.2016, and Unit-2 from 18.02.2017, using coal (other than the design coal); they have been selling electricity commercially; and, on the other hand, the 1st respondent had implied, in the impugned letter, that the Units would not be treated as having been completed. The appellant further stated that, according to the clauses of the On-Shore Service Contract, they were entitled for extension of time to finish the project, since the reasons for the delay were not attributable to them, and were beyond their control; the reasons for the delay had been communicated to the 1st respondent regularly through various e-mails, correspondence, MPR's, in the meetings, and in accordance with the terms and conditions of the contract; the appellant had repeatedly sought extension of time, as the delay was either attributable to the 1st respondent or to CTC which would entitle the appellant for extension of time as per the contract; however, the same had been arbitrarily denied by the 1st respondent, despite admitting that the delay was because of belated supplies from CTC; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich showed that, according to the first respondent itself, the delay was due to CTC, and not the appellant; the 1st respondent had levied liquidated damages of USD 40,978.312 on CTC to be paid on or before 09.03.2017, failing which the same would be set off by the 1st respondent against payments required to be made to CTC; the 1st respondent was trying to unjustly enrich itself levying liquidated damages on the appellant, though the delay was on the part of the supplier; the first respondent was threatening to encash the bank guarantees furnished by the appellant; and this was clearly fraudulent, and contrary to the purpose for which the bank guarantees were submitted. In their petition, the appellant had stated that, in view of the categorical admission of the 1st respondent in their letter dated 23.02.2017, that the delay was due to CTC, levy of liquidated damages on the appellant, for the delay caused by the 1st respondent itself and CTC, was contrary to the provisions of the On Shore Service Contract Agreement and the Co-ordination Agreement; the onus on the appellant to prove delay on the part of CTC, had also been discharged by the categorical admission of the 1st respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceed in the main dispute by way of arbitration, they would not be able to recover the money illegally obtained on encashment of the bank guarantees; the project itself was given as security to the banks for the loans extended by them to the 1st respondent; a successful result in the arbitral proceedings would be futile, causing irreparable loss and damage to the appellant, its promoters, shareholders, stake holders and lenders; and it would also have an adverse effect on their employees and their family members. The appellant would further state that the On Shore Services Contract Agreement, and the Co-ordination Agreement, provide for adjudication of disputes by way of arbitration; since no amicable settlement had been reached between the parties, they intended to invoke the arbitration clause against the 1st respondent; the illegal coercive steps by the 1st respondent as threatened, including fraudulent encashment of the bank guarantees, was imminent; if stay of all coercive steps, including encashment of the bank guarantees, was not granted, the appellant would suffer irretrievable loss and injury; it would also frustrate all further legal remedies available to the appellant; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the works in such a manner that the scheduled completion date of Units-I and II would be achieved within 42 months and 45 months, from the date of issuance of notice to proceed, respectively; under the Co-ordination Agreement, the provisional acceptance test for Unit-I and Unit-II was required to have been achieved, and duly completed, by 10.11.2015 (inclusive of a three month grace period from 10.08.2015) and 10.02.2016 (inclusive of a three month grace period from 10.11.2015), respectively; it was agreed, among the parties, that time would be of essence for delivery of the equipment, and completion of works, under the EPC contract; they had requested the appellant to perform its obligations including expediting works to meet the completion schedule; because of the delay, in achieving provisional acceptance and final acceptance for Units-I and II, the 1st respondent incurred significant losses including in relation to payment of interest during construction to its lenders, cost overruns, overruns above the project cost, payment of penalty to Power Grid Corporation of India Limited due to delay in evacuation of power, etc; and such losses were of a value exceeding the pre-estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nits-I and II, attributable to them; and therefore the appellant's contention that the liquidated damages could not be levied on them for the delay caused by the 1st respondent, and its supplier- CTC, did not merit acceptance. The 1st respondent denied that the reasons, behind the delay in achieving provisional acceptance, were due to the delay in supplies by CTC, and because the 1st respondent did not provide the designed coal. It is also denied that they were not able to provide the specified type of coal till date. It is stated that the appellant has neither furnished details of the design coal that was to be used by the 1st respondent in terms of any agreed technical specification, nor have they explained how the actual coal, being used by the 1st respondent, did not match the design coal; the appellant had also failed to explain how the alleged non-usage of design coal had adversely affected the achievement of provisional acceptance; the appellant had failed to achieve final acceptance in terms of Article 6.4 of the 2nd amendment to the On-shore Services Contract Agreement; the Units could not, therefore, be treated as having been completed; the appellant had placed only one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely because the 1st respondent was owned and operated by a Singapore based entity i.e., M/s. Sembcorp Utilities Pte Ltd; or that the appellant would not be able to recover the money from the 1st respondent on encashment of the bank guarantees even if they were to succeed in the arbitral proceedings. The 1st respondent states that it is a Company incorporated in India under the Companies Act, 1956, and has significant assets in Nellore District of Andhra Pradesh. In their reply, to the counter-affidavit filed by the first respondent, the appellant denied the allegation of abuse of process of court. They submitted that the validity of the bank guarantees had been extended; and all essential ingredients, to restrain invocation of bank guarantees, had been pleaded and established. Reference is made by them to the report of the Central Electricity Authority, Bangalore dated 06.03.2017 to contend that Unit 1 was synchronized on 26.05.2016 and started operating commercially on 17.11.2016, and Unit 2 was synchronized on 02.02.2017, commissioned on 15.02.2017 and started operating commercially on 21.02.2017; the first respondent had publicly announced completion of construction of the Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussions and negotiation in an equitable manner; the appellant intended to go for arbitration for adjudication of the subject disputes; in reply to the first respondent's letter dated 23.02.2017 they had, by their letter dated 08.03.2017, disputed levy of liquidated damages, and had denied all the allegations made therein; and the first respondent could not set off liquidated damages, or encash the securities, for damages which were arbitrarily levied or were disputed as not due. In his order in C.O.P. No.63 of 2017 and batch dated 18.04.2017, (against which these appeals are preferred), the Learned Judge, Commercial Court-cum-XXIV Additional Chief Judge, City Civil Court, Hyderabad observed that there was no dispute with regards existence of an arbitration clause in the On- Shore Services Contract agreement and the Co-ordination agreement; the appellant had furnished the schedule bank guarantees in favour of the first respondent, and they were being extended from time to time; according to Clause 10.6 of the coordination agreement, it was agreed between the parties that the contracts were independent and separate contracts; and the coordination agreement was solely for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant, it is necessary, at the outset, to examine the purpose for which a bank guarantee is furnished. 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. (U.P. State Sugar Corpn. v. Sumac International Ltd. (1997) 1 SCC 568). Between the bank and the beneficiary, the moment there is a written demand for invoking the bank guarantee, pursuant to a breach of the covenants, the bank is bound to make payment under the guarantee. (Gujarat Maritime Board 2016) 10 SCC 46 = MANUPATRA/SC/1105/2016). The commercial purpose, for which the system of confirmed irrevocable documentary credit has been developed in international trade, is to give to the seller an assured right to be paid before he parts with the control of the goods, and that does not permit of any dispute with the buyer, as to the performance of the contract bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ENDENT CONTRACT: Sri C.V. Mohan Reddy, Learned Senior Counsel appearing on behalf of the first respondent, would submit that the contract of guarantee is a complete and separate contract by itself; and the court/tribunal would only interfere if the invocation is against the terms of the guarantee itself. On the other hand Sri D.Prakash Reddy, Learned Senior Counsel appearing on behalf of the appellant, would submit that, in Tarapore & Co.3, the Supreme Court examined the disputes, with respect to the parent contract/underlying contract, to ascertain the existence of special equities. A bank guarantee constitutes a separate, distinct and independent contract. This contract is between the Bank and the beneficiary. It is independent of the main contract between the person who has furnished the bank guarantee and the beneficiary. (Hindustan Construction Co. Ltd. v. State of Bihar(1999) 8 SCC 436; Tarapore & Co. (1996) 5 SCC 34). A bank guarantee is the common mode of securing payment of money in commercial dealings as the beneficiary, under the guarantee, is entitled to realise the whole of the amount under that guarantee in terms thereof, irrespective of any pending dispute between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee for 10% of the contract price as performance guarantee. On the bank guarantee being invoked by the respondent, the appellant filed a Suit in the Bombay High Court, and an interim order was initially passed restraining invocation of the bank guarantee which was confirmed later. The order passed by the Learned Single Judge was challenged before the Division Bench of the Bombay High Court which vacated the injunction with respect to mobilisation advance, but maintained the injunction in respect of the performance guarantee. The respondents preferred an appeal against that part of the order of the Division Bench wherein the injunction order, in respect of the performance guarantee, was upheld. The Supreme Court noted that, while the bank guarantee used the expression "agree unconditionally and irrevocably" to guarantee payment to the Executive Engineer on his first demand without any right of objection, it had thereafter qualified it by using the expression "in the event that the obligations expressed in the said clause of the abovementioned contract had not been fulfilled by the contractor giving the right of claim to the employer for recovery of the whole or part of the Advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he on-shore service contract dated 10.04.2011 provided, in Article 2.7, for the addition of a new Article 4.8 to be added to the on-shore service contract. Clause 4.8 stipulated that, to secure the appellants performance of its obligations, the appellant acknowledged and agreed that the first respondent shall have the right to hold the Contract Performance Guarantee, issued by a reputable commercial bank acceptable to the first respondent, as security for the performance of the appellant's obligations under the agreement. The Article further records the appellants acknowledgment that, in the event amounts are due under the agreement (including late completion liquidated damages, and ancillary power guarantee liquidated damages and any amount due and payable from the appellant to the first respondent or to be paid by the appellant on behalf of the first respondent, and such amounts are not paid when due), the first respondent shall have the unconditional and irrevocable right to demand and draw such amounts under the Contract Performance Guarantee equal to the amount owing by the appellant without prejudice to the first respondent's rights and/or which are the remedies accrued under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive and binding notwithstanding any difference between the Owner and the Contractor or any dispute pending before any Court, Tribunal, Arbitrator or any other authority. The Bank undertakes not to revoke this Guarantee during its currency without previous consent of the Owner and further agrees that the Guarantee herein contained shall be enforceable till ninety (90) days after expiry of its validity." The bank guarantee also records that the first respondent shall have the fullest liberty, without affecting in any way the liability of the bank under the guarantee, from time to time, to extend the time for performance of the contract by the appellant; the first respondent shall have the fullest liberty, without affecting the guarantee, to postpone, from time to time, the exercise of any power vested in them or of any right which they might have against the appellant, and to exercise the same at any time in any manner; the bank would not be released of their obligations under the bank guarantee by any exercise by the first respondent of its liberty with reference to all the matters mentioned therein, or by reason of any other act or forbearance or other act of omission or commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. The demand made by the first respondent on the bank, in terms of the contract of bank guarantees, was to be conclusive and binding notwithstanding any difference between the appellant and the first respondent or any dispute pending between them before any Court, Tribunal, arbitrator or any other authority. III. EXCEPTIONS, TO THE RULE THAT AN INJUNCTION SHOULD NOT BE GRANTED AGAINST INVOCATION OF BANK GUARANTEES, ARE NOT LIMITED TO FRAUD, AND CANNOT BE PLACED IN A STRAIT JACKET: Sri D. Prakesh Reddy, Learned Senior Counsel appearing on behalf of the appellant, would submit that, besides fraud, encashment of the bank guarantees can be injuncted in cases of irretrievable injury, extra-ordinary special equities, and invocation of bank guarantee not being in terms of the bank guarantee itself; a straight jacket formula cannot, universally, be applied to all cases; and every case has to be decided with reference to the facts involved therein. On the other hand Sri C.V.Mohan Reddy, Learned Senior Counsel appearing on behalf of the first respondent, would submit that the only two exceptions,where invocation of the bank guarantee can be restrained, is if there is clear fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. State Bank of India 200 (2013) DLT 289 = MANU/DE/1273/2013). Let us now examine whether the appellant has conclusively established that, in the present batch of cases, the exceptions, to the Rule against injuncting invocation of the bank gurantees, are attracted. Before doing so, it is necessary to examine whether, and to what extent, the documents filed at a stage posterior to the filing of the O.Ps, under Section 9 of the 1996 Act on 06.03.2017, can be looked into, and then consider the rival contentions on whether or not the first respondent has committed breach of the contract justifying grant of temporary injunction on a prima facie case being made out. IV. CAN DOCUMENTS, FILED SUBSEQUENT TO THE FILING OF THE O.P, BE RELIED UPON? Sri C.V. Mohan Reddy, Learned Senior Counsel appearing on behalf of the first respondent, would submit that the additional documents, that the appellant is now relying upon to establish special equities, were filed before the Commercial Court only as an afterthought, that too because the first respondent had, in its reply to the Section 9 petition, contended that these allegations were unsupported by evidence; this Court should first consider w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the appellant herein, under Section 9 of the 1996 Act, is more than the specified value, they had invoked the jurisdiction of the Commercial Court under Section 10(3) of the 2015 Act. Section 9(1)(ii) of the 1996 Act enables a party to apply to a Court for interim measures with respect to the matters specified in Clauses (a) to (e) thereunder, and confers the same power on the Court for making orders as it has for the purpose of, and in relation to, any proceedings before it. Consequently the Commercial Court, before which the application under Section 9 of the 1996 Act was made, would have the same power to make orders under Section 9(1)(ii) of the 1996 Act as it has in relation to any proceedings before it. Section 2(e)(1) of the 1996 Act defines "Court" to mean, in case of an arbitration other than an international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in the exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration, if the same had been the subject matter of a suit. Consequently an application, under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Order XI Rule 1(a) requires the plaintiff to file a list of all documents and photocopies of all documents in its power, possession, control or custody, pertaining to the Suit, along with the plaint, including (a) documents referred to and relied on by the plaintiff in the plaint; (b) relating to any matter in question in the proceedings, in the power, possession, control or custody of the plaintiff, as on the date of filing of the plaint, irrespective of whether the same is in support of or adverse to the plaintiff's case. Clause (c) of Order XI Rule 1 stipulates that nothing in Rule (1) shall apply to documents produced by the plaintiff, and relevant only (i) for examination of the defendant's witness, or (ii) in answer to any case set-up by the defendant subsequent to the filing of the plaint, or (iii) handed over to a witness merely to refresh his memory. The submission, made on behalf of the appellant, that Order XI Rule 1 does not apply, since the appellant's case falls within the ambit of clause (c)(ii) of Order XI Rule 1 is only to be noted to be rejected. The appellant was required to plead and prove fraud of an egregious nature or special equities or irretrievable inju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted only upon the plaintiff establishing reasonable cause for non-disclosure along with the plaint. Neither did the appellant, while filing the Section 9 petition, seek leave of the Court to file such additional documents within thirty days of filing the O.P nor was leave sought by them at any time thereafter. It is only if leave had been sought would the question of the Court being satisfied, that the appellant had established reasonable cause for non-disclosure along with the plaint, arise for consideration. The appellant filed the O.P. before the Commercial Court on 06.03.2017. Along with the O.P, they filed a copy of the certificate of incorporation; a copy of the coordination agreement between them and the first respondent dated 23.03.2014; a copy of the onshore service contract dated 10.04.2011; a copy of the Supply (FOB contract) between the appellant, the first respondent and CTC dated 20.01.2012; a copy of the letter addressed by the first respondent separately to them, and to the CTC, on 23.03.2017 claiming liquidated damages; a copy of the letter addressed by the appellant to the first respondent on 02.01.2017 seeking extension of the contract period; and a copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould claim extension of time and additional costs; (iii) a copy of the Director's report of the first respondent wherein it is stated that, as at 31.07.2016, the first respondent had achieved overall EPC progress of 97.67%. It is only at the stage of filing an appeal, against the order of the Court below, i.e on 08.06.2017, have the appellants filed (i) a copy of the provisional balance sheet of the first respondent as at 31.03.2017; (ii) a copy of the balance confirmation letter of the first respondent as on 31.03.2017 forwarding a copy of the extract of the ledger balance of the appellant in the books of accounts of the first respondent as on 31.03.2017; (iii) a copy of the arbitration notice issued by the appellant to the first respondent dated 27.05.2017; (iv) a copy of the first respondent's e-mail dated 02.06.2017 to discuss the possibility of an amicable settlement; and (v) a copy of the e-mail sent by the appellant to the first respondent on 05.06.2017. While some of the aforesaid documents relate to a period posterior to the filing of the O.P. on 06.03.2017, the fact remains that even with regards documents anterior to the filing of the O.P, neither did the appellant see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O.Ps themselves were dismissed by the Commercial Court. The discretion of the Court is exercised to grant a temporary injunction only when the following requirements are made out by the plaintiff: (i) existence of a prima facie case as pleaded, necessitating protection of the plaintiff's rights by issue of a temporary injunction; (ii) when the need for protection of the plaintiff's rights is compared with or weighed against the need for protection of the defendant's rights or likely infringement of the defendant's rights, the balance of convenience tilting in favour of the plaintiff; and (iii) clear possibility of irreparable injury being caused to the plaintiff if the temporary injunction is not granted. In addition, temporary injunction being an equitable relief, the discretion to grant such relief will be exercised only when the petitioner's conduct is free from blame and he approaches the court with clean hands. (Seema Arshad Zaheer v. Municipal Corpn. of Greater Mumbai (2006) 5 SCC 282). While the aforesaid factors must be borne in mind in examining an application seeking temporary injunction, an application to injunct encashment of a bank guarantee stands on a different foot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s usually refrain from granting injunction to restrain the performance of contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker, restraining a bank from recalling the amount due when payment is made under reserve to another bank, or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail. In view of the banker's obligation under an irrevocable letter of credit to pay, his buyer- customer cannot instruct him not to pay. (Singh Consultants and Engineers (P) Ltd. (1988) 1 SCC 174; United Commercial Bank (1981) 2 SCC 766 = (1981) 3 SCR 300). The Court should not lightly interfere with the operation of irrevocable documentary credit, except where there is a serious dispute to be tried, and there is a prima facie act of fraud. (Edward Owen Engineering Ltd. [1978] 1 All E.R. 976; Singh Consultants and Engineers (P) Ltd. (1988) 1 SCC 174). Injunctions against the negotiating banks, for making payment to the beneficiary, must be given cautiously as constant judicial interference, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction Ltd. v. Satluj Jal Vidyut Nigam Ltd 2006 (1) ARBLR 321 (DELHI) = MANU/DE/8175/2006 (Delhi HC)). As the appellant has sought an injunction to restrain the first respondent from invoking the bank guarantee in the Section 9 petition, and in the appeal now filed before us, the scope and ambit of the contract of bank guarantee primarily necessitates examination, and not the underlying contract, for the rival claims, based on disputes arising from the underlying contract, are matters for examination and resolution in arbitral proceedings. Nonetheless, the contentions urged by the Learned Senior Counsel on either side are being noted to show that the appellant does not have a fool proof case of even the underlying contract being vitiated by fraud justifying an injunction being granted to restrain the first respondent from invoking the bank guarantees. (a) THE FIRST RESPONDENT HAS COMMENCED COMMERCIAL OPERATIONS: Sri D. Prakash Reddy, Learned Senior Counsel appearing on behalf of the appellant, would submit that the appellant has completed all erection works, and has fulfilled all its obligations ordained by the EPC Contracts, except conducting performance guarantee tests; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss could not have been 97.67% complete as on July 31, 2016. In the Director's Report, presented to the shareholders as part of the 8th Annual Report together with audited financial statements for the year ending 31.03.2016, the Directors of the first respondent stated that, as on July 31st 2016, the first respondent had achieved over all EPC progress of 97.67%; all BTG and BOP material supply had been completed, and supply of balance mandatory spares were on going. The fact, however, remains that, subsequently, the appellant, in its letter dated 2.01.2017, informed the first respondent that over a year had elapsed since they had lodged their first request for extension in the contract period without any constructive response from the first respondent, despite which they had continued to render services under the contract; and a number of delay events had occurred in the project which were beyond their control, and for reasons not attributable to them, but they had claimed only a few of them as justification for extension of time. This letter dated 02.01.2017 acknowledges that the appellant was likely to achieve provisional acceptance test for Unit -2 by 31.03.2017 by implementing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strates an electrical output equal to or greater than 97.5% of the electrical output guarantee, and a gross heat rate equal to or lower than 103% of the heat rate guarantee and, for the purpose of demonstrating the achievement of the gross heat rate and electrical output levels required for provisional acceptance for the facility, the provisional acceptance test shall consist of the operation of the units as a whole for not less than four hours at a load condition of 100% STG MCR and 80% STG MCR; (c) the units meets the ramp rates, reactive power capability, full load rejection capability; maximum capacity at value wide open conditions as per technical specifications; and (d) the units meet the guaranteed emission limits. It further stipulates that, once the Unit has successfully completed commissioning and start-up, and is capable of safe operation in accordance with applicable laws, applicable permits, prudent utility practices, the technical limitations and requirements of the operating manual, the appellant shall be entitled to perform a provisional acceptance test for the unit control tuning, and the operation used during the provisional acceptance test shall be identical to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works had not been completed by the appellant by then. Whether or not these works, which the appellant was required to complete, and had agreed to do so, by the last week of February and by mid March, 2017, are significant are again matters for consideration in the arbitral proceedings, and not in a Section 9 petition wherein the relief, of injunction against encashment of bank guarantee, was sought. While the first respondent does appear to have commenced commercial operations, it does also seem that the appellant did not conduct the provisional acceptance test for Units 1 and 2 till the filing of the O.P on 06.03.2017, or at any time thereafter. Whether inability of the appellant to conduct the provisional acceptance test is due to the failure of the first respondent to fulfill their obligations under the Contract, is for the arbitral tribunal to consider, and are not matters for examination either in Section 9 petition, or in an appeal arising from an order passed therein. (b) EFFECT OF THE DELAY ATTRIBUTABLE TO THE CHINESE CONSORTIUM, AND FAILURE TO CLAIM DAMAGES IN THE MONTHLY BILLS DURING EXECUTION OF THE WORKS: Sri D. Prakash Reddy, Learned Senior Counsel appearing on beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, have become due on account of the delay caused in performing different obligations under different agreements; the two claims are independent of each other, and can be invoked simultaneously without prejudice to one another; the appellant became liable to pay liquidated damages to the first respondent for failure to complete the works under the EPC Contracts, and for failure to achieve Provisional Acceptance; Clause 10.6 of the Co-ordination Agreement stipulates that the EPC Contracts are independent and separate contracts; irrespective of the belated supply of the BTG equipment by CTC, the appellant was bound to complete other works under the EPC Contracts which were not dependant on the supply of BTG equipment; the said works were not completed by the appellant on time; they caused delay in supply and erection of foundations, delay in construction of civil and steel structures, and delay in delivery of equipment; they failed to augment all necessary resources including skilled manpower, plant and tools, as a result of which the Project got delayed, and the first respondent had to incur significant losses; as time was of essence, the first respondent had requested the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent and the CTC on 22.02.2017 wherein the appellant and the CTC had acknowledged that several requirements were yet to be completed; and they would be completed on the dates, mentioned in the minutes, which are from 23.02.2017 till 15.03.2017. By their letter dated 23.02.2017, the first respondent informed the appellant that they had, time and again, requested the latter to expedite completion of the works under the EPC contracts, but they had not, till date, claimed liquidated damages from the appellant because of cash flow issues of the appellant, and in the interest of achieving project completion at the earliest; the appellant was yet to complete the works under the EPC contracts, and there had been inordinate delay in achieving provisional acceptance, as set forth in detail in Annexure-I; and the first respondent was invoking its right to claim the following liquidated damages in accordance with the terms of each contract i.e., (a) Rs.134 crores under the Civil and Construction Works Contract; (b) Rs.145.75 crores under the Supply (Ex-Works) Contract; (c) Rs.9.04 Million US Dollars under the Supply (C&F) Contract; and (d) Rs.8.5 crores under the ON-Shore Services Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , contain any allegation that the appellant is not entitled for the benefits of the exclusionary clause; the appellant is, therefore, not legally required to plead that they do not fall under any one of the said exceptions; and, at any rate, the appellant has pleaded that, according to the co-ordination agreement, it is entitled for exclusion of the delay caused by the CTC in supply of the BTG Equipment. On the other hand Sri C.V. Mohan Reddy, Learned Senior Counsel appearing on behalf of the first respondent, would submit that Clauses 2.3 and 2.4 of the co-ordination agreement make it clear that the contractual obligations of the appellant, under the co-ordination agreement, were much wider than mere facilitating co-ordination between the first respondent and the CTC; in terms of the proviso to Clauses 3.1 and 3.2 of the Co-ordination Agreement, the appellant is barred from claiming exclusion from liability for any delay liquidated damages and/or for delay in completion of Provisional Acceptance Test for Units 1 and 2, if such delay is attributable to them; in the present case the appellant has delayed completion of works; the appellant is, therefore, not entitled to claim exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hievement of provisional acceptance tests for Unit -1 by 10th November, 2015 and Unit 2 by 10th February, 2016 was attributable to the appellant's breach or default of any of the contracts; or (D) the appellant did not make every reasonable effort to mitigate the effect of such delay or non-achievement. Clause 3.3 stipulated that, where any delay by the CTC in meeting the BTG FOB delivery dates set out in Clause 3.1 did not fall under any of the exclusions set out in sub-clauses 3.1(A), (B), (C) and (D), or where any delay by the CTC, in meeting the performance test dates set out in Clause 3.2, did not fall under any of the exclusions set out in clause 3.2(A), (B), (C) or (D), the appellant should be granted a day-for-day extension on the overall completion schedule without any entitlement to any damages for prolongation costs in respect of any part of the work under the contracts in respect of such extension of time. Clause 3.3 places the onus of proving, that the delay was solely on account of CTC, on the appellant at all times. Clause 4.1 stipulated that, notwithstanding any provision to the contrary in the contracts, the appellant agreed that any trigger for late completion l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrears, against the first respondent's debit note, by wire transfer on the tenth day of each month, with the last such payment to occur on provisional acceptance with respect to the facility; if the appellant is obligated to pay any late completion liquidated damages to the first respondent under Article 7.2, and such undisputed amount is not paid within the time period referred to above, the first respondent shall have the right to offset any such amount against any amounts then or thereafter due from the first respondent to the appellant, or to exercise its rights against any security provided by the appellant, in such order as the first respondent may elect in its reasonable discretion. The construction of the aforesaid clauses, to determine whether or not the appellant is liable for liquidated damages, for the delay in achieving provisional acceptance test by the prescribed dates, is again a matter for the arbitral tribunal to consider. Suffice it to note that Clause 4.1 of the co-ordination agreement confers, on the first respondent, the right to claim late completion liquidated damages for each day's delay subject to the limit of 10% of the aggregate of the contract price; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests; it is the responsibility of the supplier to test the performance of the boiler and related equipment, and the appellant is required to act merely as a facilitator for the conduct of the tests; in their letter dated 27.03.2017 the first respondent stated that coal was heterogeneous in nature, it could not exactly match the design coal, they had obtained, and were now holding sufficient quantity of the design coal and were willing to make available such design coal for the purposes of conducting the performance guarantee tests; and this was said after running the units commercially using non-design coal. On the other hand Sri C.V. Mohan Reddy, Learned Senior Counsel appearing on behalf of the first respondent, would submit that the appellant has neither pleaded in the Section 9 petition, nor have they proved on the basis of any supporting document, that the contractual conditions have been complied with by them till date; the appellant has not even issued a notice of provisional acceptance, supported with a preliminary report, to claim completion of Provisional Acceptance; at the stage of arguments it was contended, for the first time (without any pleading to that effect), tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 6.4 stipulates that the arbitration panel shall consist of three arbitrators; one to be appointed by the appellant and the other by the first respondent; and the two arbitrators, appointed by the parties, shall in turn jointly appoint the third arbitrator. The disputes, claims/differences arising out of any of the contracts or the coordination agreement are required, on failure of such dispute being resolved by mutual consultation and negotiation, to be resolved by an arbitral Tribunal consisting of three arbitrators. Disputes, such as whether the appellant is liable to pay liquidated damages; whether they are deemed to have achieved provisional acceptance consequent upon the first respondent having commenced commercial operations; whether the appellant's delay in completing the project, and in achieving provisional acceptance, is because of the failure of the first respondent to supply design coal; whether the delay in supply of BTG equipment by the CTC would absolve the appellant of payment of liquidated damages etc., all arise out of the contracts/coordination agreement, and are required to be resolved by way of arbitration before the arbitral tribunal. As both the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts payable to the contractor; and in Gangotri Enterprises Limited (2016) 11 SCC 720 the Supreme Court, following Raman Iron Foundry (1974) 2 SCC 231, has held that, in the event the sum claimed by the beneficiary from the guarantor is in the nature of damages, which is not yet adjudicated upon in arbitration proceedings and which is not the sum admitted by the guarantor, injunction may be granted against encashment of the bank guarantee, subject to a prima-facie case being made out on merits that the guarantor has a strong ground to succeed in the arbitration or any competent forum of law. On the other hand Sri C.V. Mohan Reddy, Learned Senior Counsel appearing on behalf of the first respondent, would submit that, under the EPC Contracts and the Co-ordination Agreement, the appellant is required to pay liquidated damages to the first respondent for delay in the agreed delivery schedule, and/or if the project does not achieve provisional acceptance by the specified dates; as the appellant failed to comply with their request for payment of liquidated damages, the first respondent has contractually and lawfully become entitled to encash the bank guarantees in lieu of liquidated damag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent which had committed breach of contract, and was liable to pay damages to the appellant. On being called upon to make payment, the respondent failed to do so. The respondent filed an application under the Arbitration Act before the Delhi High Court. They also sought an injunction restraining the appellant from recovering the amount, claimed by them as damages, from the pending bills of the respondent. The claim of the respondent against the appellant, and the counter-claim of the appellant against the respondent, was the subject matter of reference to arbitration. During the pendency of the arbitration some amounts became payable by the appellant in respect of the contracts entered into between the parties. Apprehending that the appellant would appropriate these amounts claimed by it, even though their claim for damages was disputed by the respondent, an application was made by the respondent requesting the Delhi High Court to restrain the appellant from recovering its claim for damages from the amounts due and payable to the respondent in respect of the pending bills. The Delhi High Court took the view that Clause 18 did not authorise the appellant to appropriate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the bank guarantee. The appellant invoked the arbitration clause, and then moved an application under Section 9 of the 1996 Act seeking injunction against encashment of the bank guarantee, contending that the respondent had no right to encash the bank guarantee furnished by the appellant in relation to a dispute arising out of another contract. The respondent, however, contended that Clause 62(1) of the general conditions of contract enabled it to recover any dues from the appellant even if such claim was not for the "sum due" and "sum payable"; and it was a claim for damages, though disputed by the appellant, and remained to be adjudicated in a Court. The Supreme Court relied on its earlier judgment in Raman Iron Foundry5, and held that Clause 62 of the contract in issue was identical to Clause 18 of the contract in Raman Iron Foundry5 which stipulated that the amounts to be forfeited or recovered may be deducted from any moneys then due or which, at any time thereafter, may become due to the Contractor by the Railways under this work or any other contract or otherwise; the arbitration proceedings, in relation to the earlier contract, was still pending; the sum claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a breach of the contract; it was for the Court or the arbitrator to decide as to who had committed the breach; and till the liability was ascertained, it could not be said that there was a "debt due or debt owing". On these grounds, this High Court rejected the contention, urged on behalf of the appellant, that it was the sole Judge to decide as to whether the contractor had committed a breach of the contract, and what was the extent of damage caused to it. This High Court further held that, in the absence of any determination by the Court or the arbitrator, no amount could be said to be payable by the respondent to the appellant by way of damages; it was, therefore, just and proper to restrain the appellant from enforcing the bank guarantees; no irretrievable injustice would be caused to the appellant as it could recover damages, from the bank and the contractor, in case it succeeded in the case; and the interest of the appellant could be safeguarded by directing the contractor to keep on extending the bank guarantees till the matter was settled by the arbitrator. The appellant was restrained from enforcing the bank guarantee. Aggrieved thereby, the appellant carried the matter i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the question of breach of contract but also with respect to the amount of loss or damages, the obligation of the bank would remain the same and that obligation has to be discharged in the manner provided in the bank gurantee. In General Electric Technical Services Company Inc. vs. Punj Sons (p) Ltd. (1991 (4) SCC 230) while dealing with a case of bank guarantee given for securing mobilisation advance it has been held that the right of a contractor to recover certain amounts under running bills would have no relevance to the liability of the bank under the guarantee given by it. In that case also the stipulations in the bank guarantee were that the bank had to pay on demand without demur, and the beneficiary was to be the sole judge as regards the loss or damage caused to it. This Court held that notwithstanding the dispute between the contractor and the party giving the contract, the bank was under an obligation to discharge its liability as per the terms of the bank guarantee. Larsen and Toubro Limited vs. Maharashtra State Electricity Board (6) SCC 68 and Hindustan Steel Workers Construction Ltd. Vs. G.S. Atwal & Co (Engineers) Pvt. Ltd. 1995 (6) SCC 76 were also cases of wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, furnished by the Bank to the appellant, were unconditional; the appellant was the sole judge regarding the question as to whether any breach of contract had occurred and, if so, the amount of loss to be recovered by the appellant from the respondent; the entire dispute was pending before the Arbitrator; whether and if so what was the amount due to the appellant was to be adjudicated in the arbitration proceeding; and the reasoning of the Learned Single Judge of the Calcutta High Court that, before invoking the performance guarantee, the appellant should assess the quantum of loss and damages, and mention the ascertained figure, was not a ground to restrain invocation of the bank guarantee. In Ansal Engineering Projects Limited (1996) 5 SCC 450, the appellant sought an injunction, under the Arbitration Act, 1940 to restrain the respondent from invoking the bank guarantee. The contract was for construction of residential quarters. While a period was stipulated for its completion, the construction was not completed by then. The contract was terminated by the first respondent. As the respondent sought to encash the bank guarantee, after termination of the contract, the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go into the question and until a finding after trial, or decision is given by a court or tribunal that amount is due and payable by the petitioner, it cannot be held to be due and payable. Therefore, the High Court committed manifest error of law in refusing to grant injunction as the petitioner has made out a prima facie Strong case. We find no force in the contention. All the clauses of the contract of the bank guarantee are to be read together. Bank guarantee/letters of credit is an independent contract between the bank and the beneficiary. It does not depend on the result of the dispute between the person on whose behalf the bank guarantee was given by the bank and the beneficiary. Though the question was not elaborately discussed, it was in sum answered by this Court in Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) Pvt. Ltd.. [1995] 6 SCC 76 at 79. This Court had held in part 6 that the entire dispute was pending before the arbitrator. Whether, and if so, what is the amount due to the appellant was to be adjudicated in the arbitration proceedings. The order of the learned Single Judge proceeds on the basis that the amounts claimed were not and cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay according to the tenor of its guarantee on demand without proof or condition. Thereafter the Supreme Court, in Sumac International Ltd (1997) 1 SCC 568, observed: "....... Our attention was invited to a number of decisions on this issue -- among them, to Larsen & Turbro Ltd. v. Maharashtra State Electricity Board & Ors. (1995 [6] SCC 58), Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) Pvt. Ltd. (1995 [6] SCC 76) and to National Thermal Power Corporation Ltd. v. Flowmore Pvt. Ltd. & Anr. (1995 [4] SCC 515). The latest decision is in the case of State of Maharashtra & Anr. v. M/s National Construction Company, Bombay & Anr. (JT 1996 [1] SC 156) where this Court has summed up the position by stating, "The rule is well established that a bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and make payment ordinarily unless their is an allegation of fraud or the like. The courts will not interfere directly or indirectly to withhold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be accepted; and the parameters, for avoiding payment of bank guarantee by the bank, could not be applied as, if the decision of the appellant to cancel the contract and to award the penalty of forfeiture was found to be erroneous and was set aside, the question of allowing the appellant to encash the bank guarantee would not arise. Aggrieved thereby the appellant carried the matter in appeal, and it is in this context that the Supreme Court observed that the bank guarantee is an independent contract between the guarantor-bank and the guarantee-appellant; the guarantee was unconditional; no doubt, the performance guarantee was against the breach by the lead promoter viz. the first respondent, but between the bank and the appellant, the specific condition incorporated in the bank guarantee was that the decision of the appellant, as to the breach, was binding on the bank; and the justifiability of the decision was a different matter between the appellant and the first respondent. After referring briefly to its earlier judgment, in Himadri Chemicals Industries Ltd. (2007) 8 SCC 110, the Supreme Court observed:- ".....The guarantee given by the Bank to the appellant contains only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given and the beneficiary; what the High Court had observed would apply only to the parties to the underlying transaction or to the primary contract, but could have no relevance to the bank guarantee given by the bank, as the transactions between the bank and the beneficiary were independent, and of a different nature; and in the case of an unconditional bank guarantee, the nature of obligation of the bank was absolute, and was not dependent upon any dispute or proceeding between the party, at whose instance the bank guarantee was given, and the beneficiary. A similar view has been taken in the subsequent judgment of the Supreme Court in G.S. Atwal & Co. (Engineers) Pvt. Ltd. (1995) 6 SCC 76 Ansal Engineering Projects Ltd. (1996) 5 SCC 450; Sumac International Ltd., (1997) 1 SCC 568; and Gujarat Maritime Board (2016) 10 SCC 46 = MANUPATRA/SC/1105/2016. Reliance placed, on behalf of the appellant, on Raman Iron Foundry (1974) 2 SCC 231 and Gangotri Enterprises Ltd. (2016) 11 SCC 720, to contend that, till the claim of the first respondent for delay liquidated damages is adjudicated by the arbitral tribunal, there was no debt due justifying invocation of bank guarantee is only to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rimary contract, but can have no relevance to the bank guarantee given by the bank, as the transaction between the bank and the beneficiary is independent and of a different nature. In the case of an unconditional bank guarantee, the nature of obligation of the bank is absolute and not dependent upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the beneficiary. (Tarapore & Co. (1996) 5 SCC 34 ; G.S. Atwal & Co. (Engineers) Pvt. Ltd.18; Ansal Engineering Projects Ltd. (1996) 5 SCC 450). Where the bank gurantee is irrevocable and unconditional, and the beneficiary is made the sole judge on the question of breach of performance of the contract and the extent of loss or damages, an injunction restraining the beneficiary from invoking the bank guarantees cannot be granted. (Tarapore & Co. (1996) 5 SCC 34; Larsen and Toubro Limited (1995) 6 SCC 68; G.S. Atwal & Co (Engineers) Pvt. Ltd. (1995) 6 SCC 76). Notwithstanding the dispute between the contractor and the party giving the contract, the bank is under an obligation to discharge its liability as per the terms of the bank guarantee. (Tarapore & Co. (1996) 5 SCC 34; General Electric Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecution of the works by the appellant; this conduct is fraudulent, and a false claim is made only to avoid making payment of the amounts legitimately due to the appellant, and to encash the performance guarantees illegally; and the first respondent has simultaneously claimed liquidated damages from the appellant and CTC, though the entire delay is attributable to CTC alone. On the other hand Sri C.V. Mohan Reddy, Learned Senior Counsel appearing on behalf of the first respondent, would submit that the delay liquidated damages are claimed under two contracts which are neither inter-linked/connected nor dependent on each other; the quantum of damages has been calculated on the basis of different contract prices, and different number of days of delay in completing separate works; and the appellant has not established fraud, much less a fraud in relation to the contract of bank guarantee which is independent of the underlying contract; it is not even the case of the appellant that the first respondent had obtained bank guarantees from the banks on the basis of fraudulent representations, and the banks had knowledge of such fraud when it issued the bank guarantees; simultaneous letters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion relating to the encashment of the bank guarantees.............." (emphasis supplied) Pleadings are only allegations or averment of facts. Mere pleading do not make a strong case of prima facie fraud. The material and evidence has to show it. (Svenska Handelsbanken (1994) 1 SCC 502). A mere allegation in the pleadings that the contractee, fraudulently, invoked the bank guarantee would not amount to establishing clear fraud or fraud of an egregious nature. (Techtrans Construction India Pvt Ltd & Ksheeraabad Constructions Pvt. Ltd. 2015 (1) ALT 275 (DB); Himadri Chemicals Industries Limited (2007) 8 SCC 110). Fraud, like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond reasonable doubt. A finding as to fraud cannot be based on suspicion and conjecture. (Svenska Handelsbanken (1994) 1 SCC 502; A.L.N. Narayanan Chettyar v. Official Assignee, High Court Rangoon AIR 1941 P.C. 93). Unless fraud is pleaded and, prime facie, established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if the dispute between the beneficiary and the person, at whose instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, and the said fraud is known to the parties, including the party representing as well as the bank. (Bhandari Engineers and Builders Pvt. Ltd. v. Vijaya Bank 168 (2010) DLT 47 = MANU/DE/0120/2010). The Court would be slow in granting an order of injunction, restraining realisation of a bank guarantee, except when it is clearly shown that a fraud of a grievous nature has been committed and to the notice of the Bank. (Millenium Wires (P) Ltd. 2015 (4) SCALE 62; ICICI Bank Ltd 2015 (6) ALD 486 (DB)). Commission of fraud must be confined to acts committed by a party to a contract with the intention to deceive another party or to induce him to enter into a contract. Fraud, which vitiates the contract, must have a nexus with the acts of the parties prior to entering into the contract. Subsequent breach of contract on the part of a party would not vitiate the contract itself. (Reliance Salt Ltd. (2006) 13 SCC 599; ICICI Bank Ltd 2015 (6) ALD 486 (DB) ). Fraud, which vitiates the contract, must have a nexus to the acts of the parties prior to entering into the contract. No such allegation is made by the appellant in the petition filed by them under Section 9 of the 1996 Act. They hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such fraud must be known to the parties and to the bank. The appellant does not allege fraud on the part of the first respondent in obtaining the bank guarantee. Their entire case is founded on the allegation that the first respondent made a false claim for liquidated damages in execution of the works by the appellants two days after the commencement of commercial operations of Unit II, and such a false claim was made only to avoid making payment of the amounts due to the appellant, and to illegally encash the bank guarantee. The appellant alleges fraud because the first respondent's claim for liquidated damages is contrary to the terms of the underlying contract. The amounts which the appellant claims as due to them is also based on their claim of having performed their obligations under the primary contracts. It is not even pleaded by the appellant, much less proved, that the first respondent had fraudulently obtained the bank guarantee. It is evident, therefore, that the first exception to rule against grant of injunction for invocation of bank guarantee, i.e., the bank guarantee has been obtained by fraud, is not attracted. VIII. SPECIAL EQUITIES: Sri D. Prakash Reddy, Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said monies from the first respondent even if they succeed before the arbitral tribunal; the Director's Report, of the first respondent for the year 2015- 2016, establishes that the first respondent made a loss of Rs.15.48 crores for the year ending 31.03.2015, and by the year ending 31.03.2016 the losses jumped to more than Rs.42.76 crores; the audited Balance Sheet of the first respondent for the year 2016- 2017, as e-mailed by the officer of the first respondent upon the request of their shareholder, establishes that the first respondent has suffered losses of around Rs. 328.46 Crores during the Financial Year 2016-17; the accumulated losses of the first respondent, for the three years 2014-15 to 2016-17, exceed Rs.386.49 Crores; it is clear that they have been supplying electricity incurring huge losses, and the losses would continue to mount year on year; the details of the Mortgaged Assets in the Director's Report, and the Audited balance sheet, establish that all its movable and immovable assets have been mortgaged to banks/secured creditors against loans exceeding Rs.6000 crores; even the performance bank guarantees, furnished by the appellant, have been assigned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the first respondent, would submit that no case of irretrievable/irreparable injury was pleaded, or established. by the appellant to seek an injunction against encashment of the Bank Guarantees; the nature of irretrievable injury, required to be established in the case of bank guarantees, must be of the nature referred to in Itek Corporation v. First National Bank of Boston 566 F. Supp.1210 (1983). ; in the present case, admittedly, the facility is into commercial operation and is generating revenue; the appellant has an adequate remedy available in law, in the form of arbitration, to recover its dues, if any, from the first respondent; the first respondent's parent company i.e Sembcorp Utilities Pvte. Limited has extended its Corporate Guarantee (to the tune of Rs. 7604 Crores) as part of the overall security package to the lenders, which covers the term loan and the working capital facilities enjoyed by the first respondent; in addition, Sembcorp Utilities Pvte. Limited has infused Rs. 4,240 Crores into the first respondent to repay part of the term loan facilities, and to support the cash flows; this demonstrates the parent company's commitment towards the projects, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not become due as on date since provisional acceptance has not been achieved by the appellant; since the conditions stipulated in Article 6.3 has not been satisfied, and provisional acceptance has not been achieved as on date, the said amount is not payable to the appellant; the amounts, mentioned in the first respondent's letter dated February 02, 2017, are not retention amounts, but milestone payments which are to be paid only upon successful completion of the milestone of provisional acceptance test, and not otherwise; and the same ought not to be treated as an admission of outstanding liability by the first respondent to the appellant. In Gammon-OJSC Mosmetrostroy JV v. Chennai Metro Rail Limited MANU/TN/2876/2015 (Mad) = 2015(6) ARBLR 340 , the Madras High Court held:- ".............It is claimed that 60% of the work was already completed by Joint Venture and therefore, the remaining work to be completed is only 37%. Even to complete the said work, the lead party namely GAMMON sought permission from CMRL to exercise the step in right as contemplated under Clause 19.11. The said request was not considered by CMRL for various reasons. Admittedly, the CMRL has extended the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........ .............Admittedly, the Bank Guarantees given by the applicant are alive and the CMRL can at any time, invoke the same. Therefore, the interest of the CMRL is well protected by the Bank Guarantees furnished by the applicant. If those Bank guarantees are continued to be alive during the arbitral proceedings and even thereafter, during the pendency of the proceedings under Section 34 of the said Act, the interest of the CMRL is in no way be affected or prejudiced. On the other hand, if the Bank guarantees are invoked in the mean time, certainly, the applicant would be put to great financial strain as the concerned Banks which had given Bank Guarantee would ultimately, bounce upon the applicant to pay the money. In my considered view, this would certainly make the applicant to suffer even before the Arbitral Tribunal decides the main dispute between the parties........." (emphasis supplied) In P.D. Alkaram Pvt. Ltd. v. Canara Bank 1998 (1) ARBLR 566 (Delhi) = MANU/DE/0504/1998 , the Delhi High Court held:- "............The plaintiff has also placed on record sufficient material, in the form of various invoices issued by M/s. Hindalco Industries Ltd.; bill-wise det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts pleaded by the parties in respect of both the bank guarantees as also the documents filed before us and we are, prima facie, of the opinion that the lapse was on the part of the defendants who were not possessed of sufficient funds for completion of the work. The allegation of the defendants that HCCL itself had abandoned the work does not, prima facie, appear to be correct and it is for this reason that we are of the positive view that the "special equities" are wholly in favour of HCCL............" (emphasis supplied) In Universal Publishers Pvt. Ltd. v. Australian Executor Trustees Limited (2013) NSWSC 2021, the Supreme Court of New Southwales held:- ".............According to AET's audited accounts for the year ended 30 June 2013, it had net assets of $33,029. AET however is a trustee. It is said that it holds the land at Macquarie Park as custodian for Hyperion Properties Syndicates Limited which in turn is a responsible entity of a managed investment scheme. Prima facie, AET would be entitled to be indemnified out of the assets of the trust, that is the managed investment scheme, in respect of liabilities it properly incurred in discharge of its functions as tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work did not, prima facie, appear to be correct; and they were of the view that special equities were wholly in favour of the appellant. As noted hereinabove, the Supreme Court, in Hindustan Construction Company Ltd (1999) 8 SCC 436 , was satisfied that the subject bank guarantees were neither unconditional nor unequivocal. As the Supreme Court was satisfied that invocation of bank guarantee was subject to fulfillment of certain conditions in the underlying contract, it took note of the dispute between the parties, under the said contract, to examine whether there were special equities in favour of the appellant. In Universal Publishers Pvt. Ltd (2013) NSWSC 2021, the Supreme Court of New South Wales observed that the respondent would not be able to meet an award of damages for restitution; and damages were unlikely to be an adequate remedy if it were ultimately held that the respondent was not entitled to call on the bank guarantee. As shall be detailed hereinafter, the Supreme Court, in Sumac International Ltd (1997) 1 SCC 568 , has held that irretrievable injury must be of the kind which was the subject matter of the decision in Itek Corporation 566 F. Supp.1210 (1983).. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enough. (Sumac International Ltd (1997) 1 SCC 568; Singh Consultants and Engineers (P) Ltd. (1988) 1 SCC 174). For irretrievable injury to result, the circumstance must be such which would make it impossible for the guarantor to reimburse himself, if he ultimately succeeds, or when irretrievable harm or injustice, to one of the parties concerned, has resulted. This should be decisively established, and it must be proved to the satisfaction of the Court that there would be no possibility, whatsoever, of recovery of the amount from the beneficiary, by way of restitution. (Dwarikesh Sugar Industries Ltd. (1997) 6 SCC 450; Millenium Wires (P) Ltd. 2015 (4) SCALE 62; ICICI Bank Ltd 2015 (6) ALD 486 (DB)). The question, which necessitates examination, is whether the appellant has made out a case of irreparable injury, by proof of special equities for the Court to grant injunction to restrain the first respondent from encashing the bank guarantee. As noted hereinabove, mere apprehension that the first respondent would not able to repay the amounts, which it would receive on encashment of the bank guarantees, is not enough to restrain them from invoking the bank guarantees. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ran under these circumstances; and realisation of the bank guarantee/letters of credit would cause irreparable harm to the plaintiff. (Sumac International Ltd. (1997) 1 SCC 568; Singh Consultants and Engineers (P) Ltd. (1988) 1 SCC 174 ). The exceptional circumstances which make it impossible for the guarantor to reimburse himself, if he ultimately succeeds, should be decisively established, and a mere apprehension, that the other party will not be able to pay, is not enough. In Itek, there was certainty on this issue and there was good reason in that case for the Court to be, prima facie, satisfied that the guarantors i.e. the bank and its customer would be found entitled to receive the amount paid under the guarantee. In the cases on hand the petitions, filed under Section 9 of the 1996 Act, do not conclusively establish that the appellant is likely to suffer irretrievable injury, or that it is impossible for them to reimburse themselves, from the first respondent, even if they were to succeed later before the arbitral Tribunal. In Sumac International Ltd (1997) 1 SCC 568, it was contended, on behalf of the respondent, that irretrievable injustice would be caused to them if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in addition, infused Rs.4,340 Crores into the first respondent, among others, to support its cash flows. As in the case of Sumac International (1997) 1 SCC 568, no material has been placed by the appellant to show that the first respondent would not, under any circumstances, be in a position to repay the amount, received by them on encashment of the bank guarantees, in case the appellant were to succeed in the arbitration proceedings later. Unlike in Itek Corporation 566 F. Supp.1210 (1983)., where there was no possibility whatsoever of recovering any amounts from the other party, the extent of support extended to the first respondent by its parent company shows that the appellant's apprehension, to the contrary, is unfounded. The appellant's far fetched and outlandish prophecy of a complete collapse, of the Indian thermal energy industry, would also not constitute "special equities" justifying an order of injunction being granted restraining the first respondent from invoking the bank guarantees. While claiming that the amounts due to it from the appellant is far higher than the amounts which they have sought to recover towards liquidated damages together with the retention mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to decide on the action plan to achieve provisional acceptance of Unit- I. It does appear, from these documents, that provisional acceptance of Units 1 and 2 were not achieved till the jurisdiction of the Commercial Court was invoked by the appellant on 06.03.2017. It does appear that their plea, in the petition filed by them under Section 9 of the 1996 Act, that provisional acceptance was achieved for Unit - I on 25.05.2016, and for Unit II on 02.02.2017, are false. It is the duty of a party seeking injunction to bring to the notice of the Court all facts material to the determination of his right to that injunction; and it is no excuse for him to say that he was not aware of the importance of any facts which he has omitted to bring forward. (Amar Singh (2011) 7 SCC 69; Dalglish v. Jarvie 42 ER 89 = (1950) 2 Mac & G 231). Litigants, who come to Court with "unclean hands", are not entitled to be heard on the merits of their case. (Amar Singh (2011) 7 SCC 69). A litigant, who attempts to pollute the stream of justice, or who touches the pure fountain of justice with tainted hands, is not entitled to any relief, interim or final. (Amar Singh (2011) 7 SCC 69; Dalip Singh v. State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 486 (CA)). Suppression of facts by the party against the beneficiary, and prima facie evidence to show that there is truth in these allegations, would not entitle the party to seek injunction restraining invocation of the bank guarantee. (Synthetic Foams Ltd MANU/DE/0214/1987: AIR 1988 Delhi 2007 and Satluj Jal Nigam Ltd. AIR 2006 Delhi 169 ; State Trading Corporation of India Ltd. 200 (2013) DLT 289 = MANU/DE/1273/2013 ). While the ex facie false plea, of having already achieved provisional acceptance, in the Section 9 petition filed by the appellant, would have, by itself, necessitated denying them any relief, and in non-suiting them on this short ground, we have examined their claim on merits, including that the invocation of the bank guarantee is fraudulent and special equities are in their favour, as the increase in the number of cases seeking injunction, restraining invocation of bank guarantees, under the 2015 Act, made us feel the need to reiterate the law declared by the Supreme Court on these aspects. X. CONCLUSION: Viewed from any angle, we see no reason to restrain the first respondent from invoking the bank guarantees furnished by the appellant, as these ban ..... X X X X Extracts X X X X X X X X Extracts X X X X
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