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TMI Blog2014 (9) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the terms of the main contract in the guarantee documents. From the reading of the terms of the Bank guarantees Nos. 0910310BG0000163 and 0910310BG0000165, it can be seen that the bank has guaranteed to repayment to said amount to the employer without cavil in the event the contractor fails to commence or fulfil the obligations under the terms of the contract and in the event of such failure refuses to repay all or part of the said advance payment to the employer. It is thus apparent that the liability of the bank would commence when the bank is informed about the demand on the ground of the failure to commence or fulfilment of the obligations under the terms of the contract and the refusal to pay the said sum or part of the advanced sum. The repayment of the advance sum and/ or adjustment by way of the repayment and/or information as to refusal to repay by the contractor the said advance sum or part thereof are crucial facts which affect the liability of the bank as per the terms of the bank guarantee Nos.0910310BG0000163 and 0910310BG0000165. Accordingly, the said facts of the refusal to repay by the contractor or repayment of the advanced sum either in part or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest accrued on the said amount and same be put in the original position. The petitioner shall keep the said bank guarantees alive by renewing them, if need arises. It is hereby clarified that the above direction does not preclude the parties to deal with the said bank guarantees as per mechanism provided in the guarantee documents. The petition is accordingly disposed of. - HON'BLE MR.JUSTICE MANMOHAN SINGH For the Petitioner : Mr.Rajiv Nayar, Sr.Adv. with Mr.Kartik Nayar, Mr.Nikhil Rohatgi, Mr. Ayush Agarwal Mr.Himanshu Gupta, Advocates For the Respondent : Dr.Abhishek Manu Singhvi, Sr.Adv., Mr.A.S.Chandhiok, Sr.Adv. Mr.Sandeep Sethi, Sr.Adv. with Ms.Haripriya Padmanabhan, Mr.Sanyam Saxena, Mr.Aman Garg, Mr.Ritesh Kumar, Ms.Mallika Ahluwalia, Mr.Mayank Bamniyal Ms.Aditi Tyagi, Advs. JUDGMENT Manmohan Singh, J. 1. By the way of the present petition filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act ) the petitioner seeks to restrain respondent No. 1 from invoking, and respondents No. 2 and 3 from allowing any purported encashment of the bank guarantees submitted by the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Respondent No. 2 on 15th May, 2014 itself, the directions passed vide the aforestated order have become infructuous. (v) It is settled law that in case of a bank guarantee, when the proceeds have been debited from the account out of which the payment is to be made, the same is said to be encashed. [as held vide order dated 08.05.2014 passed by this Court in Thiess Minecs India Pvt. Ltd. Anr. v. NTPC Limited Anr., being OMP No. 522 of 2014]. 5. The respondent No. 1 (for short TPTL ) challenged the said order dated 16th May, 2014 by filing an appeal under Section 37 of the Act being FAO (OS) 250/2014. The said appeal was disposed of on 21st May, 2014 inter alia with certain directions. Relevant Paras 8 to 10 are reproduced hereunder: 8. In view of the fact that by the date of the order under appeal the Demand Drafts were already issued, Dr. Abhishek Manu Singhvi, the learned Senior Counsel appearing for the appellant submitted that it would be in the interest of justice to direct that the sum of Rs.47.90 Crores covered by the Demand Drafts shall be kept in Fixed Deposit till an appropriate order is passed by the learned Single Judge. Shri Rajiv Nayar, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gedly vide an alleged letter dated 9th May, 2014 (sent by e-mail on 15th May, 2014) fraudulently sought to contend that the petitioner was in default of the contract and gave 14 days time to the petitioner for curing the defects. However, despite granting 14 days time, respondent No. 1 vide letter dated 14th May, 2014 had written to respondent No. 2 to invoke the bank guarantees. Petitioner apprehends that the respondent No. 1 would also invoke the bank guarantee with respondent No. 3 in a fraudulent manner. Hence, the present petition has been filed. In the reply to the petition, respondent No. 1 has stated that the reliefs as prayed for in the present petition are infructuous as the Bank Guarantees have not only been invoked by respondent No. 1 on a day prior (i.e. 15th May, 2014) to the filing of the petition (i.e. 16th May, 2014) but have also been encashed on the same date. The bank guarantees are unconditional against which no restrain order could be passed in terms of the settled law and it is contractual right of the respondent No. 1 to invoke and encash the unconditional bank Guarantees. It has been stated that though the time for completion of the project was extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,49,74,199/- 5,49,74,199/- 4. 0910310BG0000161 SBI (See pg 84 of the petition) Performance Security Form 11,74,10,649/- 11,74,10,649/- 5. 0910310BG0000162 SBI (See pg 90 of the petition) Performance Security Form 10,83,99,960/- 10,83,99,960/- 6. 0910310BG0000164 SBI (See pg 103 of the petition) Performance Security Form 3,67,24,953/- 3,67,24,953/- 7. 0910311BG0001115 SBI (See pg 117 of the petition) BG for release of Balance payment 3,65,00,000/- 3,65,00,000/- 8. 0910311BG0000841 SBI (See pg 125 of the petition) BG for release of Balance payment 2,90,00,000/- 2,90.00,000/- TOTAL Rs.62,75,85,144 Rs.47,90,73,153/- 11. The petitioner submits that all the Bank Guarantees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the ones contained in the unconditional bank guarantee make them obvious that there are certain conditions laid down in the bank guarantees and upon fulfilment of the said conditions only, the bank guarantees can be put to encashment. b) Secondly, learned Senior counsel drawing the aid from the previous submissions has read over the terms and conditions provided in the bank guarantee No. 0910310BG0000163 and 0910310BG0000165 which are for the sums of Rs.8,83,85,339 and Rs.76,78,053 respectively. The said terms read as under : 2.9.2 It is submitted that the Bank Guarantee no. 0910310BG0000163 0910310BG0000165 for Advance Payment amounting to Rs. 8,83,85,339/- and 76,78,053/- respectively {aggregating to Rs. 9,60,63, 692/-} are completely conditional bank guarantees. The condition precedent for invocation of the aforesaid Bank Guarantees is reproduced hereunder; ...do hereby irrevocably guarantee repayment of the said amounts upon the first demand of the Employer without cavil or argument in the event that the Contractor fails to commence or fulfill its obligations under the terms of the said Contract, and in the event of such failure, refuses to repay all or pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Senior counsel for the petitioner that none of the afore noted conditions provided in the bank guarantees are satisfied as there was neither a notice prior to invocation nor any demand coupled with the refusal and as such the invocation of the bank guarantees is required to be prevented by the Court as the invocation is clearly contrary to the conditions of the bank guarantees. It has been further argued by the learned Senior counsel for the petitioner that even the invocation letter does not state any fact of demand made by the respondent and/ or refusal there of or the non fulfilment of the obligations on the part of the petitioner or anything connected with the same, thus, the invocation letter is also bad. In support of the proposition that the conditions contained in the bank guarantee are to be strictly construed, learned Senior counsel for the petitioner has relied upon the judgment passed in the case of Hindustan Construction vs. State of Bihar, (1999) 8 SCC 436. e) Learned Senior counsel for the petitioner has argued that as regards bank guarantees bearing No. 0910311BG0000115 and 0910311BG0000841, the said two bank guarantees could only be invoked by the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrated the fraud by contending that the contract was granted on 18th November, 2009 for the period of 23 months and thereafter the extensions were granted by the respondent No. 1 from time to time. It has been argued that it was obligatory upon the respondent No. 1 to provide the Right of way to the petitioner and other statutory obligations, the works got delayed. It has been argued that as per the communication exchanged on 4th July, 2013, the respondent No. 1 granted the extension of time upto October, 2014. However, by way of letter dated 12th February, 2014, the respondent No. 1 unilaterally limit the extension of time to March, 2014 for the portion of the project and the same is disputed. It is thus argued that the respondent No. 1 with malafide and fraudulent intention of terminating the contract has first issued the letter 12th February, 2014 and thereafter invoked the bank guarantees. Learned Senior counsel for the petitioner has argued that there are communications where the respondent No. 1 have acknowledged the responsibility of providing the Right of way and other clearances to the petitioner and has admittedly failed to procure the same. It is further argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1. There is a dispute resolution mechanism by way of mutual consultation by referring the matter to the project manager which has been prescribed under clause 38 of GCC which has not been exercised prior to the invocation of the bank guarantees and as such the respondent No. 1 is also in breach of the terms of the contract and cannot allowed to take benefit out of the said breach. No liquidated damages were ever deducted by the respondent No. 1 against the extension of time granted earlier which clearly shows that the respondent No. 1 was acknowledging the defaults and the respondent No. 1 without examining the tenability of its claim as to the liquidated damages cannot be allowed to benefit out of the wrongs by way invocation of the bank guarantees The petitioner will suffer irretrievable injury because of the purported invocation, since the financial health of the company will be severely affected and there is a possibility that the company may have to be wound up. The respondent No. 1 itself acknowledged the claims of the contractor as late as on 12th May, 2014 which was 2 days prior to invocation of the Bank Guarantees. The involvement of Tata Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of the whole or part of the Advance Mobilisation Loan from the contractor under the contract. 14. This condition clearly refers to the original contract between the HCCL and the defendants and postulates that if the obligations, expressed in the contract, are not fulfilled by HCCL giving to the defendants the right to claim recovery of the whole or part of the Advance Mobilisation Loan , then the Bank would pay the amount due under the Guarantee to the Executive Engineer. By referring specifically to Clause 9, the Bank has qualified its liability to pay the amount covered by the Guarantee relating to Advance Mobilisation Loan to the Executive Engineer only if the obligations under the contract were not fulfilled by HCCL or the HCCL has misappropriated any portion of the Advance Mobilisation Loan . It is in these circumstances that the aforesaid clause would operate and the whole of the amount covered by the Mobilisation Advance would become payable on demand. The Bank Guarantee thus could be invoked only in the circumstances referred to in Clause 9 whereunder the amount would become payable only if the obligations are not fulfilled or there is misappropriation. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1's letter stating that the client has failed to pay the amount of Rs. 1,80,00,000.00 (Rupees One crore eighty lacs only) due from him/them as price and other charges, and b) pre - receipted claim for the said amount. 16. On a reading of the letter of invocation dated 21.08.2009 nowhere has it been stated that in terms of (a) above, the petitioner had failed to pay nor was the pre - receipted claim as in condition (b) enclosed with the letter of invocation. Therefore, on a careful reading of the letter dated 21.08.2009 the same is not in terms of the Bank Guarantee dated 25.03.2009 and warrants confirmation of the orders dated 24th August, 2009 and 9th September, 2009. 20. As the Bank Guarantee was conditional and the conditions not satisfied AIR (1996) SC 334 and AIR (1999) SC 3710 comes to the aid of the petitioner. iii) In Puri International (P) Ltd. v. National Building Construction Co. Ltd. (1997) 41 DRJ 592, this Court held failure of the beneficiary of the bank guarantee to state the pre- conditions of the bank guarantee in the invocation letter was against the terms of the bank guarantee and thereby the invocation was not in terms of the bank guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to be bad and held special equities to be in favour of the petitioner therein. The relevant extract of the judgment is reproduced hereunder :- 6. The plaintiff's case, succinctly stated, is that a bank guarantee for Rs.20 lakhs was furnished by it to defendant no. 2 for mobilization advance made by the said defendant in terms of the contract, which was utilised by it for procuring material worth over Rs.24 lakhs for executing the job; defendant no. 2 failed to discharge its primary obligations like: (i) timely disbursement of mobilization advance, despite plaintiff's furnishing of bank guarantee of defendant no. 1; (ii) making the site available despite repeated requests but assuring to do so all the while; and (iii) failure to get R beams casted, being pre-requisite for putting up contracted Aluminium Curtain Wall, which lapses on its part are admitted facts but the said defendant still, illegally purported to terminate the contract orally and sought to invoke the bank guarantee, which, if not stayed/restrained by injunction, would cause irreparable loss to it. 10. It would be appropriate at this stage to notice relevant stipulations in the bank guarantee, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. The plaintiff has also placed on record sufficient material, in the form of various invoices issued by M/s. Hindalco Industries Ltd.; bill-wise details of aluminium procured, corresponding to drawings filed per Annexure P-1 (Colly.), which, prima facie, shows that it had procured fabrication material worth more than Rs.20 lacs, advanced by the defendant. In the light of this material, over-emphasis of learned counsel for the defendant on the above extracted last part of the plaintiff's letter dated 29 May 1996, to the effect that it would start mobilising itself for the job only when the site is ready, renders it of no substance. It may not be out of place to mention that during the course of hearing it was suggested to learned counsel for the defendant that the purchased material stated to be lying at the premises of the plaintiff may be got inspected by the defendant and if deemed fit it could be released to the defendant for being used in the building under construction. It seems that the inspection was carried out because it was stated at the bar by learned counsel for the defendant that the material was not complete and it was on that plea that the defendant did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any of the terms or conditions contained in the said agreement or by reason of the said Contractor failure to perform the said Agreement. From this it is clear that the letter of invocation must include an averment that the amount claimed is due by way of loss and damage caused to or would be caused to or suffered by the Government by reasons any breach by the said Contractor of any of the terms or conditions contained in the said agreement or by reason of the said Contractor failure to perform the said Agreement. From the letter invoking the bank guarantees, I, however, find that there is no averment that the amount claimed is due by way of loss or damage cause to or would be caused or suffered by the Government. The only averment is that the plaintiff had failed to execute the contract as per terms of the contract. Since both the bank guarantees have not been invoked in accordance with the terms of the bank guarantees, the bank guarantees cannot be permitted to be encashed. vi) In the case of Nangia Construction India Ltd. v. International Airport Authority of India, DRJ 1992 (22) 379, this Court while dealing with a similar bank guarantee as the ones in the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instead of Rs.22 lacks, the total amount of Rs.28 lacs had been recovered from the running bills, could the authority still invoke the bank guarantee after having already recovered the advance as stipulated in the guarantee? The answer would naturally be in the negative. The liability of the petitioner under the guarantee is to the maximum extent of the amount mentioned therein, but that does not mean that the authority can invoke to the fullest extent the amount of the bank guarantee and also recover the amount from the running bills. This would tent amount to taking double benefit which is not permissible under law. vii) This Court in the case of ISCO Track Sleepers Pvt. Ltd. v. Delhi Airport Metro Express Pvt. Ltd., OMP No. 702 and 704 of 2013 decided on 4th June, 2013 granted injunction against the invocation of Bank Guarantees as the cure notice was sent subsequent to invocation of Bank Guarantees and lacked in particulars. It was observed as under : 33. At the midst of hearing in both the matters, respondent No. 1 has filed three documents in OMP No. 702/2013. One of them is a copy of letter dated 21st January, 2012 issued by respondent No. 1 to the petitioner. Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the petitioner is to approach the arbitral tribunal. The interim order shall continue during the arbitration proceedings unless it is modified and vacated by the Arbitral Tribunal on the petition filed by the respondent either on the basis of facts available or change of circumstances. viii) In the case of Satluj Jal Vidyut Nigam Ltd. v. Jaiprakash Hyundai Consortium, AIR 2006 Delhi 239, this Court has held that the Bank Guarantees cannot be invoked against the terms of underlying agreement. The relevant portion is reproduced as under : 24. Faith and reliance upon the integrity of standby payment is vital for international as well as national commercial activities. Therefore a non-interventionist approach has been adopted by the Courts. But the question which we have to answer is that what should be the approach if the issuer is about to make payment to the beneficiary in circumstances where the beneficiary has no ground to make a documentary demand or is doing so in contravention of its agreement with the third party contained in the underlying transaction. In TTI Team Telecom International Ltd. and Anr. v. Hutchison 3G UK Ltd. [2003] EWHC 762 : [2003] 1 ALL ER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... highest court of the land has laid down the above classes of exception repeatedly, and each one of them should be understood and permitted to operate in its own field. The principle of law do not command anything in vain. The role of interpretation of statute verba cum effectual accipienda sunt, the maxim of interpretation of statute is equally applicable to the dictum of law. The present case would squarely fall in the class of cases of 'exceptional special equities'. The judgment of this Court in the case of Hindustan Construction Company Ltd. (supra) would be applicable to the present case as it satisfies the basic essentials of ratio descendi. Court can look into the underlining contract- 17. The court certainly cannot go into the merits of the disputes, nor pendency of disputes would be a relevant consideration before the Court, while deciding the application for such relief. But, it may not be a sound argument of law to say that the Court cannot even look into the underlining contract to examine whether the bank guarantee has been encased as per its terms or is not a result of fraud or an act falling in the classification of irretrievable injustice or injury ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of each case. The court has to give such construction which would avoid reduncing, hardship or even repugnancy. The clauses of the agreement between the parties would have to be construed in their simple language so as to implement the essence of the contract. There is no doubt that court has to look into the terms of the bank guarantee and letter of invocation primarily for the purposes of deciding the fate of a prayed injunctive relief. The undue influence and pressure caused by the respondents on the applicant in extracting extensions, undertakings may not be completely proved on record at this stage of the proceedings, but this is a relevant factor to determine the extent of irretrievable injustice/injury to which the applicant would be exposed, if the encashment of the bank guarantee is permitted. There is an apparent attempt on the part of the respondents to frustrate the findings recorded by the internal determinative adjudicating machinery i.e. CMD's findings as well as the finding of DRB, as afore-referred. Once these findings are against the respondents and it has been held that the applicant is entitled to extension of period, it will be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation proceedings. 17. The respondent No. 1 has also provided a chart containing the details of bank guarantee and encashed amount handed over to the respondent No. 1 which is reproduced as under : Bank Guarantee No Issue Date Valid Upto BG Amount Encashed Amount Remark Clause TYPE I a) 0910310BG0000160 12-Mar-10 21-Jan-15 5,49,74,199 5,49,74,199 Performance Bank Guarantee do hereby irrevocably guarantee payment to you up to Rs . i.e., ten percent (10%) of the Contract Price until ninety (90) days beyond the Defect Liability Period, i.e., upto and inclusive of . We undertake to make payment under this Letter of Guarantee upon receipt by us of your first written demand signed by your duly authorized officer declaring the Contractor to be in default under the Contract and without cavil or argument any sum or sums within the above named limits, without your need to prove or show gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,90,00,000 Sub Total (B) 6,55,00,000 6,55,00,000 TYPE-3 g) 0910310BG0000163 12-Mar-10 31-Dec- 14 15,85,05,417 8,83,85,339 Advance Payment BG .do hereby irrevocably guarantee repayment of the said amounts upon the first demand of the Employer without cavil or argument in the event that the Contractor fails to commence or fulfill its obligations under the terms of the said Contract, and in the event of such failure, refuses to repay all or part (as the case may be) of the said advance payment to the Employer. h) 0910310BG0000165 12-Mar-10 31-Dec- 14 2,80,69,966 76,78,053 Sub Total (C) 18,65,75,383 9,60,63,392 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditional in nature and this Court should not interfere with the invocation of the bank guarantee in view of the extremely limited scope of the interference as per the well settled law by Supreme Court and this Court in the cases involving invocation of unconditional bank guarantees. Dr. Singhvi has read over the terms of the bank guarantees and construed them to mean that the said bank guarantees are unconditional in nature. Essentially, Dr. Singhvi divided the bank guarantees into three types by way of wordings of the bank guarantees which reads as under: Type 1: do hereby irrevocably guarantee payment to you... We undertake to make payment under this Letter of Guarantee upon receipt by us of your first written demand signed by your duly authorized officer declaring the Contractor to be in default under the Contract and without cavil or argument any sum or sums within the above named limits, without your need to prove or show grounds or reasons for your demand and without the right of the Contractor to dispute or question such demand. [BGs at Page 78, 81 and 87 of the Petition] [NOTE: The Petitioner has admitted these BGs to be unconditional] Type 2: .do hereby under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that the petitioner would furnish the advance payment in the form of unconditional bank guarantees. The intention of the parties was always that the bank guarantees be unconditional. It is contended that the invocation of the bank guarantee is not dependent upon any dispute between the parties. Thus, merely the fact that the petitioner disputes the position that there are breaches on their part nowhere come in the way of the respondent No. 1 from invocation of the bank guarantee once it is the belief of the respondent No. 1 that the bank guarantee is required to be invoked. It is well settled principle of law that the bank is in no position to decide the breach on the invocation of an unconditional bank guarantee. Thus, if the bank guarantees are not conditional in nature as per the understanding of the parties in clause 9.2.2 of the contract, the breach for the purposes of invocation is the discretion/decision of the respondent No. 1 which would suffice for the banks as the banks cannot decide the said question. The order dated 16th May, 2014 also records that the bank guarantees are unconditional in nature. In view of the said reasons, Dr. Singhvi argue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise them as fraud which is impermissible in law as the bank has no concern with such allegations and by no stretch of imagination, the said allegations of putting the responsibility of the breaches on the respondent No. 1 can enable this Court to infer any fraud out of the same which could also be within the knowledge of the bank vitiating the transaction/ contract of the bank guarantee. In the absence of the same, the contentions of the petitioner as per Dr. Singhvi are required to be rejected and the petitioner has failed to prove any circumstance of the fraud of the egregious nature as per the law. Likewise Dr. Singhvi argued that the irretrievable injustice in the cases involving seeking restraint on Bank Guarantees is the one which cannot be mere burdensome loss caused to the petitioner but the one wherein the aggrieved party is rendered remediless. In support of the said proposition, the judgment in the case U.P. State Sugar Corporation vs. Sumac International Ltd., AIR 1997 SC 1644 was relied upon. It has been argued that such is not the case in the present case as the arbitration proceeding are yet to commence and the petitioner if at all has any claims, the same can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and foremost, it is noteworthy to mention that there are 8 bank guarantees which have been invoked by the respondent on 14th May, 2014 and the said bank guarantees contain different terms and conditions in the guarantee documents which are worded distinctly. The said aspect needs consideration in view of the well settled principle of law that the bank guarantee is a contract independent from the underlying contract and in order to test as to whether the invocation of the bank guarantee is as per the contract, the stipulations contained in the document of bank guarantee are germane as against the terms of the underlying contract/ main contract which may or may not be relevant depending upon the incorporation of the terms of the main contract in the guarantee documents. Furthermore, to find out an answer to the question, whether the nature of bank guarantees is unconditional or the terms of the bank guarantees prescribe some prerequisites in order to attract the liability, the terms and the wordings of the bank guarantee are relevant. 22. Let me therefore see the terms of the bank guarantees in order to find out the answers to the aforementioned questions. a. There is a perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed hereunder in respect of any demand duly made hereunder prior to expiry of the Letter of Guarantee, without being entitled to inquire whether or not this payment is lawfully demanded. This Letter of Guarantee shall remain in full force and shall be valid from the date of issue until ninety (90) days beyond the Defect Liability Period of the Facilities i.e. upto and inclusive of 22.01.2013 and shall be extended from time to time for such period (not exceeding one year), as may be desired by the Contractor on whose behalf this Letter of Guarantee has been given. Except for the documents herein specified, no other documents or other action shall be required, notwithstanding any applicable law or regulation. Our liability under this Letter of Guarantee shall become null and void immediately upon its expiry, whether it is returned or not, and no claim may be made hereunder after such expiry or after the aggregate of the sums paid by us to you shall equal the sums guaranteed hereunder, whichever is the earlier. All notices to be given under shall be given by registered posts to the addressee at the address herein set out. We hereby agree that any part of the contract may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 400 KV D/C (Quad) Teesta-III HEP Panighata section of Teesta III Kishanganj Transmission Line associated with 1200 MW Teesta III HEP at North Sikkim. By this letter we, the undersigned, State Bank of India, Industrial Finance Branch, Raj Bhavan Road, Somajiguda, Hyderabad 500082, a Bank (which expression shall include its successors, administrators, executors and assigns) having its Registered/Head Office at State Bank Bhavan, Central Office, 8th Floor, Madame Cama Marg, Mumbai-400021, Maharashtra, do hereby irrevocably guarantee payment to you up to Rs.5,49,74,199/- i.e., ten percent (10%) of the Contract Price until ninety (90) days beyond the Defect Liability Period i.e., upto and inclusive of 22.01.2013. We undertake to make payment under this Letter of Guarantee upon receipt by us of your first written demand signed by your duly authorized officer declaring the Contractor to be in default under the Contract and without cavil or argument any sum or sums within the above named limits, without your need to prove or show grounds or reasons for your demand and without the right of the Contractor to dispute or question such demand. Our liability under this Letter of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this Bank Guarantee only and only if Employer serve upon Bank a written claim or demand on or before 22.01.2013. c. The third bank guarantee is bearing No. 0910310BG0000162 dated 12th March, 2010 for sum of Rs.10,83,99,960/- which has been extended 21st January, 2015. The clauses contained in the bank guarantee are also worded on the same lines as contained in the bank guarantee Nos.0910310BG0000160 and 0910310BG0000161. The said clauses being identical in nature are not reproduced again. d. The fourth bank guarantee is bearing No. 0910310BG0000164 dated 12th March, 2010 for the sum of Rs.3,67,24,953 which is also renewed up till 21st January, 2015. The clauses contained in the document of the bank guarantee are also on the same lines which are mentioned in bank guarantees Nos.0910310BG0000160, 0910310BG0000161 and 0910310BG0000162 and therefore not reproduced again. Upon reading of the afore noted clauses contained in the documents of 4 bank guarantees along with the respective amounts, it can be said that the wordings of the clause clearly provide that the bank has undertaken to make the payment upon receipt of the first written demand by the beneficiary/respondent N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmediately to the following account. Bank Account No. : 2158020000073 IFSC Code : BARB9INDELX Bank Name : Bank of Baroda Branch Address : CFS New Delhi The copies of the said bank guarantee along with extension letters is enclosed and upon receipt of the claimed amount the original bank guarantee shall be duly returned to the Bank. For Teestavalley Power Transmission Limited (T.K. Wali) (V. Vasu) Authorized Signatories Encl : 1. Copy of BG alongwith extension letters. 2. Letter from Bank of Baroda, New Delhi for Attesting signature of the Authorized Signatories. 3. State of outstanding Advance. Upon reading of the contents of the letter dated 14th May, 2014 issued to bank - respondent No. 2 along side the wordings of the guarantee, it cannot be said that the respondent No. 1 has wrongfully mentioned anything in the said letter or misrepresented the bank or withheld anything of any sort to which the bank has any knowledge in relation to the invocation of these three bank guarantees. The letters issued by the respondent No. 1 are in accordance with the wordings of the guarantee and the petitioner has not raised the dispute to the wordings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which expression shall unless repugnant to the context or meaning thereof, include its administrators, successors, executors and assigns) having awarded to M/s. Abir Infrastructure Private Limited (in Joint Venture with M/s. Deepak Cables (India) Limited having its Registered Office at No. 7, N.S. Iyenger Street, Sheshadripuram, Bangalore-560020) having its Registered Office at SF-2, Bhikaji Cama Bhawan, Bhikaji Cama Place, New Delhi- 110066 (hereinafter called the Contractor ) which expression shall unless repugnant to the context or meaning thereof, include its administrators, successors, executors and assigns) Contracts bearing Nos.(1) TPTL/Tower-A1/01 dated 22.02.2010 (2) TPTL/Tower- A2/01 dated 22.02.2010 for the work of Supply for execution of Tower Packages for Teesta-III HEP Panighata section of Teesta III Kishangunj Transmission Line associated with 1200 MW Teesta III HEP, North Sikkim (hereinafter referred as Contract ) the Beneficiary has, in terms of said contracts, agreed to release the balance payment on submission of Bank Guarantee and therefore, the Contractor has agreed to provide a Bank Guarantee for Rs.3,65,00,000/- (Rupees Three Crores Sixty Five Lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bank before the expiry of the said period. The Beneficiary shall have the fullest liberty without affecting in any way the liability of the Bank under this Guarantee or indemnity, from time to time to vary any of the terms and conditions of the said Contracts or to extend time of performance by the said contractor or to postpone for any time and from time to time any of the powers exercisable by it against the said contractor and either to enforce or forbear from enforcing any of the terms and conditions governing the said contracts or securities available to Beneficiary and the said bank shall not be released from its liability under these presents by any exercise by the Beneficiary of the liberty with reference to the matters aforesaid or by reason of time being given to the said contractor or any other forbearance, act or omission on the part of the Beneficiary or any indulgence by the Beneficiary to the said contractor or any other matter or thing whatsoever which under the law relating to sureties would but for this provision have effect of so releasing the Bank its such liability. It shall not be necessary for the Beneficiary to proceed against the contractor before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 and 3rd amendment dated February 13, 2014 as issued by the State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 valid upto February 19, 2015. We hereby intimate you that the Contractor named in the said guarantee has breached and failed to fulfil its obligations under the Contract (as named in the said guarantee) and that such breaches by the Contractor may result in losses, damages, costs, charges or expenses being caused to or suffered by us, Teestavalley Power Transmission Limited. Accordingly, we hereby make a claim for an amount of INR 2,90,00,00.00 (Rupees Two Crores Ninety Lakhs) only pursuant to the said guarantee No. 0910311BG0000841 as the value of the losses, damages, costs, charges and expenses caused to or suffered by us on account of the breach by the contractor of its obligations under the contract and call upon you State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 to forthwith pay the claimed amount to us, Teestavalley Power Transmission Limited, New Delhi by way of demand draft immediately. Alternatively, remit through RTGS immediately to the following account. Bank Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot come to the aid of the petitioner to alleged that there is fraud of egregious nature emanating from the respondent No. 1 while invoking the bank guarantee which is directed towards the bank and the bank has some information about the same. Such not being the case, the petitioner's allegation that there is fraud by merely raising a dispute when the bank guarantees are plainly unconditional in nature and there is no infirmity at the time of invocation of bank guarantees, the said ground has no relevance with the contract of the bank guarantee which is an independent contract between the bank and the beneficiary and is governed by the terms contained in guarantee document and the bank is to honour the guarantee irrespective of the dispute between the parties unless the terms of the main contract are incorporated in the terms of the guarantee. In the instant case, the respondent No. 1 is the sole judge to ascertain the breach and inform the bank and the decision of the respondent No. 1 is binding. Thus, the disputed question cannot be raised before the bank and this Court cannot substitute its own reasoning or dispute with the reasoning of the bank when the contract itself doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the pleadings. In the instant case, the petitioner has merely mentioned the work 'fraud' in the petition [para 27, 29, 30 of the Petition] without providing any specific pleading, material particular or establishing the same. g. There is a bank guarantee No. 0910310BG0000163 for the sum of Rs.26,17,42,403 which is renewed up till 31st December, 2014. The terms and conditions of the said bank guarantee reads as under: Bank Guarantee Form For Advance Payment Contract No. TPTL/TOWER-A-1/01 TPTL/TOWER-A-1/02 Specification No. TPTL/Tower-A1 Ex-works supply contract for Tower Package A1 for 400 KV D/C (Quad) Teesta III HEP Panighata section of Teesta III Kishanganj Transmission Line associated with 1200 MW Teesta III HEP at North Sikkim. and Service contract for Tower Package-A1 for 400 KV D/C (Quad) Teesta III HEP Panighata section of Teesta-III-Kishanganj Transmission Line associated with 1200 MW Teesta III HEP at North Sikkim. We refer to the Contract ( the contract ) signed on 22.2.2010 between you and Joint Venture of M/s. Abir Infrastructure Private Limited having its Registered Office at Ground Floor, C-Block, Plot No. 14, Facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (90) days beyond the date on which the entire advance so advanced along with the interest if any due thereon has been fully adjusted in the terms of the contract i.e., upto of ninety (90) days beyond the date of completion of the Facilities under the contract. This Guarantee may be extended from time to time, as may be desired by the Contractor on whose behalf this Guarantee has been issued. Any claims to be made under this Guarantee must be received by the Bank during its period of validity, i.e. upto of ninety (90) days beyond the date of Completion of the Facilities by the Employer i.e., upto and inclusive of 22.01.2012. Notwithstanding anything contained herein: i) Our liability under this Guarantee shall not exceed Rs.26,17,42,403/- (Rupees Twenty Six Crore Seventeen Lac Forty Two Thousand Four Hundred Three Only). ii) This Bank Guarantee shall be valid upot 22.01.2012. iii) We are liable to pay the guaranteed amount or any part thereof under this Bank Guarantee only and only if Employer serve upon Bank a written claim or demand on or before 22.01.2012. The respondent No. 1 has written the letter dated 14th May, 2014 to State Bank of India, Hyderabad res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 which has been renewed and valid up till 31st October, 2014 and the terms and conditions of the said bank guarantee reads on similar lines as contained in bank guarantee No. 0910310BG0000163. The letter of the invocation issued by the respondent to the bank reads as under: May 14, 2014 To : State Bank of India, Industrial Finance Branch, 6-3-1109/1 Raj Bhawan Road, Somajiguda Hyderabad-500082 Sub : Guarantee No. 0910311BG0000165 issued on behalf of applicant Abir Infrastructure Private Limited Dear Sir, We refer to the guarantee No. 0910311BG0000165 dated March 12, 2010 as amended through a 1st Amendment dated January 21, 2012 and further amended through a 2nd amendment dated December 29, 2012 and further amended through a 3rd amendment dated December 24, 2013 as issued by the State Bank of India, Industrial Finance Branch, Raj Bhawan Road, Somajiguda, Hyderabad 500082 valid upto December 31, 2014. We hereby intimate you that the Contractor named in the said guarantee has breached and failed to fulfil its obligations under the Contract (as named in the said guarantee), we hereby make a claim for an amount equal to the outstanding balance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of the advanced sum either in part or in full and adjustment of the advanced sum by way of the payment are pre- requisite conditions on the basis of which, the bank can honour the guaranteed sum after getting itself satisfied in terms of the bank guarantee. 24. The objection of the petitioner is that so far as the letters of invocation of bank guarantees Nos.0910310BG0000163 and 0910310BG0000165 are concerned, the said letters dated 14th May, 2014 though claims the alleged outstanding balance of the advance payments Rs.15,85,05,417/- and Rs.2,80,69,966/- respectively, but the respondent No. 1 nowhere informed the respondent No. 2 as to when did the respondent No. 1 refused to repay the said sum and when did actually the respondent No. 1 called upon the petitioner to repay the advanced sum. In the absence of the same, as per the petitioner, the letter of invocation is contrary to the conditions contained in the bank guarantee and the bank could not have encashed the two bank guarantees Nos.0910310BG0000163 and 0910310BG0000165. On the other hand, the response of the respondent No. 1 to this objection is that the terms of the contract has to be read alongside the terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the demand has to be made to the bank and should contain the necessary ingredients including the petitioners failure to fulfil the obligations contained in the contract and its refusal to repay. The said position is possible once the petitioner is alarmed about the repayment of the advanced sum or the part thereof and has been given chance to repay the same and the guarantee of the bank shall commence once the petitioner/contractor refuses to repay. The invocation letters dated 14th May, 2014 do not contain the said ingredients nor the respondent's counsel in their arguments oral as well in the writing suggest the said position. On the contrary, the respondent continued to argue that the said bank guarantees are unconditional in nature and the wordings are to be understood in context. The said submissions are rejected as meritless in view of my reasons stated in the present paragraph b) The clauses of these two bank guarantees Nos. 0910310BG0000163 and 0910310BG0000165 are distinctly worded from the other ones in as much as in the cases of unconditional bank guarantees where the bank has no role to play in the transactions, the stipulations like beneficiary is the sole ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank guarantees towards the advanced sum. I have examined the said submission of Dr. Singhvi and would say that the same runs contrary to the submission of learned counsel for the respondent that the bank guarantee is a contract independent to that of the underlying contract. If the terms of the bank guarantees plainly condition the liability of the bank by fulfilment of certain pre-requisites like the failure of the petitioner to perform the obligation and in that event his refusal to repay. The said mechanism is required to be followed by the respondent at the time of the invocation and non following of the same cannot be justified by substituting the terms of underlying agreement in the guarantee document. If the submission of the respondent is that the petitioner was mandated to furnish an unconditional bank guarantee and now is arguing that the bank guarantee is conditional, that by itself does not absolve the Court from examining the terms of the bank guarantees in order see through the true import of the terms of the bank guarantees. Therefore, whatever is the effect of the clause 9.2.2, if the terms of the bank guarantee are clear and plain, the court cannot go contrary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of 3 years and as such the said period was 1.5 times the original period of the contract. It is argued that there are several emails and correspondences furnished by the petitioner which go on to demonstrate that the failures were on the part of the respondent to fulfil its obligations under the contract. It is the admitted position between the parties that the forest clearance has not been obtained for the whole project till date. Thus, the reasons for the delay in the progress of the work were not attributable to the petitioner but to the respondent. The respondent in such a case cannot be allowed to encash the bank guarantees which will be allowing the respondent to take advantage of its own wrongs. As such, the special equities are in favour of the petitioners. Learned senior counsel have also narrated certain following facts which as per the learned Senior counsel are special equities in favour of petitioner. The respondent is only entitled to the liquidated damages under the contract and the bank guarantees can only be invoked in terms of clause 36.2.6 of the GCC and even the said amount would come under Rs.10 crores while the bank guarantees sought to be invoked were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equities are ones in the manner raised by the petitioner. It has been argued that the special equity or irretrievable injustice are to be read in the manner which leaves the petitioner as remediless or it is almost impossible for him to seek the recovery of the said sums by preferring any remedy. In such cases, the principle of the special equities or irretrievable injustice are applicable and not in the cases where there are allegations as to who is at breach or countering the breach as the bank has nothing to do with the dispute between the parties for the breach of the contract at the time of invocation of the unconditional bank guarantees. 28. I have considered submissions advanced by the learned counsel for parties on the aspect of the special equities. The petitioner has raised the plea of special equity by urging that the delay in the execution of the works has been on account of the fault of the respondent No. 1 by not providing the right of the way and other forest clearances etc, thus, the respondent cannot be allowed to take advantage of its own wrongs. In order to support the said plea, the petitioner has relied upon certain correspondences exchanged between the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent who was at fault in not providing the right to way, forest clearances or other requirement would be preference of one set of facts over the other without in depth examination. Suffice it to say that the disputed question of the said kinds as narrated by the petitioner cannot act as the special equities in favour of the petitioner. The question relating to providing of the right to way or forest clearances by the respondent is a disputed question and cannot aid the petitioner at this stage by seeking to prevent the invocation of the bank guarantees at this stage and more so when the petitioner is not remediless and can always lodge its claim in arbitral proceedings if it has any in relation to breaches as alleged by the petitioner and the tenability of the same shall be examined by the Arbitral Tribunal. 30. Likewise, the other grounds narrated by the petitioner including non following of the settlement procedure as per clause 38 of the agreement, non imposition of the liquidated damages, non issuance of the notice to cure prior to 15th May, 2014 and violation of clause 36.2.2 are all the grounds which can be urged by the petitioner at the time of the preferring claims befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the First Respondent, if he succeeds before the Arbitrators. Nor do we see any special equity in favour of the First Respondent, when there is in fact a dispute that performance was prima facie not satisfactory, which enabled the Appellant to encash all or any of the four bank guarantees. 32. Applying the said proposition of law to the facts of the present case, it can be safely said that there is no such case of the special equities which is made out by the petitioner which leaves the petitioner as remediless to recover the said sum nor the said special equities as alleged by the petitioner are such which unequivocally establish the facts the complete non entitlement of the respondent to invoke the bank guarantees by the respondent. The respondent No. 1 has its own version of the nature of breaches done by the petitioner and the evaluation of the same cannot be done by this court on merits while deciding the application seeking interim measures at this stage. The said questions are disputed ones which are required to be examined and adjudicated by the arbitral tribunal to be appointed in the matter. 33. The reliance of the petitioner of the judgment passed in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore encashment was done would be improper one. The case of Continental (supra) is thus distinct from the present one factually. c) In the case of Continental (supra), there was a term in the contract under clause 48, the bank guarantees were required to be discharged after the maintenance period was over and the said plea was upheld by the court under the head of irretrievable injustice. No such circumstances exists which discharge the bank guarantee from the encashment. Thus, on this ground also, no special equities can assumed in favour of the petitioner in the instant case. In view of the above, the case of the Continental (supra) was factually different from the instant case and the reliance of the petitioner on the said case may not aid the case of the petitioner. Thus, this court is not persuaded by any plea of special equities or irretrievable injustice in the manner raised by the petitioner. 34. With regard to the argument of the petitioner about the exception of irretrievable injustice, the argument of Dr. Singhvi is that the irretrievable injustice is not just the adverse effect due to payment of money but must be of an exceptional and irretrievable nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14th May, 2014 are in consonance with the terms of the guarantee documents relating to the said bank guarantees. So far as the bank guarantee Nos.0910310BG0000163 (Rs.8,83,85,339) and 0910310BG0000165 (Rs.76,78,053) which are encashed and invoked by respondent No. 1 are concerned, the same are in the nature of conditional bank guarantees in view of the prima facie finding arrived by me in the preceding paragraphs. Thus, the same are required to be kept alive and are required to be dealt with as per the mechanism provided under the guarantee documents. Accordingly, the interim order dated 16th May, 2014 is modified to the extent it restrains the encashment of Bank guarantee Nos. 0910310BG0000163 and 0910310BG0000165 only. Vide Demand Draft No. 157817 dated 24th May, 2014 drawn on State Bank of India, Industrial Finance Branch (HYD), a sum of Rs.47,90,73,153/- was deposited in the Court as FDRs for one year in the name of Registrar General of this Court in compliance of order dated 21st May, 2014 passed by the Division Bench of this Court in FAO(OS) No. 250/2014. The Registrar General of this Court is accordingly directed to release the sum of Rs.38,30,09,761 in total out of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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