Bombay High Court
M/S.Abg Ports Limited vs M/S.Psa International Pte Limited on 21 November, 2012
Author: D.D.Sinha
Bench: D.D. Sinha, V.K. Tahilramani
krs AppealL727.12
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO.727 OF 2012
In
NOTICE OF MOTION (L) NO.2890 OF 2012
In
SUIT (L) NO.2544 OF 2012
M/s.ABG Ports Limited, a company incorporated )
under the provisions of the Companies Act, 1956, )
having its registered office at 5th floor, Bhupati
ig )
Chambers, 13, Mathew Road, Mumbai--400 004. ) : Appellant
V/s.
1. M/s.PSA International Pte Limited, a company )
incorporated under the laws of Singapore, )
th
having its office at 38 floor, PSA Building, )
460, Alexandra Road, Singapore 119 963. )
2. M/s.PSA Mumbai Investments Pte Limied, a )
company incorporated under the provisions of )
the Companies Act, 1956, having its office at )
38th floor, PSA Building, 460 Alexandra Road, )
Singapore 119 963. )
3. Bank of Baroda, a body corporate constituted )
under the Banking Companies (Acquisition )
and Transfer of Undertakings) Act, 1970, )
having its Head Office at Mandavi, Baroda )
and a branch office at 3, Walchand Hirachand )
Marg, 1st Floor,Ballard Pier,Mumbai--400 001.)
4. The Board of Trustees of the Jawaharlal Nehru )
Port Trust, a body corporate constituted under )
the provisions of the Major Port Trusts Act,1963)
and having its office at the Port Planning and )
1/40
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krs AppealL727.12
Development Department, Administrative )
Building, Sheva, Navi Mumbai--400 707, )
and an office at Raheja Centre, No.1107, )
214, Nariman Point, Mumbai--400 021. ) : Respondents
....
Mr.T.N.Subramaniam, Senior Advocate, with Mr.Simil Purohit,
Mr.Indranil Deshmukh and Ms Ankita Godbole i/b. Amarchand
Mangaldas & S.A.Shroff & Co., for the appellant.
Mr.D.J.Khambata, Senior Advocate, with Mr.Nikhil Sakhardande,
Mr.Adhip Iyer and Ms Suruchi Rungta i/b. AZB Partners for respondent
nos.1 & 2.
Mr.N. Shah with Ms Saloni Shah i/b. Fox Mandal Partner for resp.no.3.
Mr.Himanshu Kode with Ms Amrita Joshi i/b. The Law Point for
respondent no.4.
....
CORAM : D.D. SINHA AND
SMT.V.K.TAHILRAMANI, JJ.
Date of Reserving )
the Judgement. ) : 18.10.2012.
Date of Pronouncing ) : 21.11.2012.
the Judgement. )
JUDGEMENT (Per D.D.Sinha,J.)
The appellant has filed the suit, inter alia, seeking a declaration that the Joint Bid Agreement (JBA), the Counter Guarantee, and its invocation by the respondent no.1 vide its letter dated 21.9.2012 is illegal, wrongful and vitiated by fraud and is, therefore, null and void, non-est 2/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 and of no effect whatsoever. The appellant has taken out a Notice of Motion for an order that pending the hearing and final disposal of the suit, direct and restrain by way of a temporary injunction the respondent no.3 from acting by themselves or through their servants, agents, representatives and/or all other persons claiming by, through or under them paying to the respondent no.1 or to anyone else any amount purportedly under the Counter Guarantee. Similar temporary injunction is sought against the respondent no.1 from receiving from the respondent no.3 any amount purportedly under the Counter Guarantee. The appellant has also claimed a temporary injunction restraining the respondent nos.1 & 3 from invoking and/or encashing the Counter Guarantee. The learned single Judge vide judgement dated 5.10.2012 dismissed the Notice of Motion. Being aggrieved by the said judgement of the learned single Judge, the appellant has filed the present appeal challenging the impugned judgement.
2. The learned counsel for the appellant has submitted that the brief facts of the case are as follows:-
(a) The appellant is a company incorporated in India. The respondent no.1 is a company incorporated in Singapore, wholly owned and 3/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 controlled by Tamsek Holdings, an investment company of the Government of Singapore. The respondent no.2 is a subsidiary of the respondent no.1.
(b) The present appeal impugns the judgement dated 5.10.2012 whereby the learned single Judge has dismissed the Notice of Motion filed by the appellant seeking an injunction against the encashment of the Bank Guarantee.
( c) It is the stand of the appellant that in view of the law declared by the Apex Court in a catena of decisions with respect to Bank Guarantee and the approach of Courts in granting injunctions restraining the invocation of Bank Guarantee, it is evident that the Court can and ought to grant an injunction for invocation of Bank Guarantee if a prima facie case of (i) fraud; (ii) irretrievable injustice; (iii) invocation of a Bank Guarantee not being in terms thereof; and (iv) special equities is made out. It is submitted that once the appellant prima facie satisfies the Court regarding the existence of any of the conditions enunciated above, the appellant is entitled to interim relief.
3. The learned counsel for the appellant has submitted that the Bank Guarantee dated 13.10.2010 issued by the respondent no.3 in the sum of 4/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 Rs.17,42,00,000/- being the Bank Guarantee No.29101GPER018310 (Counter Guarantee) in favour of the respondent no.1 is not the kind of guarantee which is usually given in the course of ordinary commercial transactions. The appellant has entered into a Joint Bid Agreement dated 21.8.2009 with the respondent no.2. The respondent no.2 on behalf of the consortium submitted a Bid Bond (issued by Standard Chartered Bank) in the sum of Rs.67,00,00,000/- to the respondent no.4. The respondent no.1 issued an indemnity to Standard Chartered Bank for the Bid Bond submitted by the Respondent no.2. The appellant in turn submitted the Counter Guarantee to the respondent no.1. Thus, the transaction was not a regular commercial transaction and the Counter Guarantee is not a kind of Bank Guarantee usually issued in the course of commercial transactions. Therefore, the constraints and limitations normally associated with restraining payment under regular Bank Guarantee are not attracted in the present case.
3. The learned counsel for the petitioner further submitted that the suit guarantee is a conditional one and the same can be invoked only in terms of the guarantee. Clause 4 of the suit guarantee reads as under:-
5/40 ::: Downloaded on - 09/06/2013 19:24:43 :::krs AppealL727.12 "4. In consideration of PSA International Pte Ltd. Counter indemnifying Standard Chartered Bank for issue of the Bid Bond of Rs.67,00,00,000/- (Rupees Sixty Seven Crore Only) on behalf of the consortium of PSA Mumbai Investments Pte Ltd and ABG Ports Pvt.
Ltd. ("Consortium"), we Bank of Baroda
("Guarantor"), hereby irrevocably and
unconditionally undertake to pay to PSA
International Pte Ltd. "(Beneficiary"), on its first demand, an amount up to Rs.17,42,00,000/-
(Rupees Seventeen Crores and Forty Two Lakhs Only), as payment obligation to the Beneficiary pursuant to the Bid Bond, without any demur, reservation, recourse, contest or protest, without notice or reference to ABG Ports Pvt. Ltd., irrespective of whether the Beneficiary's demand is disputed by ABG Ports Pvt. Ltd. or any other person or not, within 3 business days of a written request from the Beneficiary for payment within 6/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 the Effective Period (as defined hereinafter), supported by the following documents:
(emphasis supplied) It is submitted that from the above, it is clear that the purpose of the Counter Guarantee was to indemnity the respondent no.1. The words "as payment obligation to the Beneficiary pursuant to the Bid Bond" which find place in paragraph 4 of the Counter Guarantee are of great significance and cannot be ignored.
4. It is submitted that the obligation of the respondent no.3 to pay to the respondent no.1., viz., the beneficiary under the Counter Guarantee is conditional on the respondent no.1's entitlement to receive payment. This means that unless there is an obligation to make payment on the part of the appellant to the respondent no.1, the Counter Guarantee cannot be invoked and the respondent no.3 is not obliged to make payment. It is submitted that in other words, unless the obligation fastens, the Counter Guarantee cannot be invoked and no liability fastens on the appellant.
The Bid Bond was submitted by the respondent no.2 to the respondent no.4 (JNPT) for and on behalf of the consortium. The appellant was under no obligation qua the respondent no.1 under the Bid Bond. The 7/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 learned single Judge completely overlooked the above factual position.
The Counter Guarantee was issued to the respondent no.1 as the respondent no.1 was indemnifying the claim of the Bid Bond issuing Bank, viz., Standard Chartered Bank. It would, therefore, follow that the respondent no.1 would be entitled to make a claim under the Counter Guarantee only if it establishes that the loss caused under the indemnity is attributable to the action/inaction of the appellant. The Counter Guarantee is, therefore, more in the nature of a Guarantee indemnifying the respondent no.1 for the loss caused to the respondent no.1, if any, due to the conduct of the appellant. The Bid Bond was submitted to JNPT.
JNPT in turn invoked the Bid Bond as the respondent no.2 failed to execute the concession agreement for the said project within the stipulated time. Admittedly, the appellant is not responsible in any manner whatsoever for the invocation of the Bid Bond by JNPT, and consequently, the respondent no.1 is not entitled to make any claim under the Counter Guarantee. The learned counsel for the appellant has further contended that despite the aforesaid facts having been pointed out to the learned single Judge, the learned single Judge erroneously held that as the appellant was a member of the consortium, it was liable for proportionate loss under the JBA for non-fulfilment of obligations by the respondent 8/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 no.2. The finding of the learned single Judge is patently erroneous and proceeds on an erroneous premise that the Counter Guarantee was given to the respondent no.2 towards the Bid Bond. The learned single Judge failed to appreciate that the liability of the appellant, as aforesaid, if any, was towards the respondent no.2 and not the respondent no.1. The parties had carefully worded the terms of the Bank Guarantee to include the term "payment obligation" in the guarantee. The impugned judgement completely ignores the specific term used by the parties. In order to enable the respondent no.1 to invoke the Counter Guarantee, it was imperative that the respondent no.1 ought to have suffered a loss on account of the conduct of the appellant. It is, therefore, contended that under the JBA, all obligations were to be performed by the respondent no.2 which in turn is a subsidiary of the respondent no.1. The respondent no.2 having failed to comply with the same, cannot ask and seek contribution to indemnify any loss of the respondent no.1 arising out of its own inaction.
5. It is contended that if the encashment of the Counter Guarantee is not injuncted, the same would tantamount to a party profiteering from its own wrongs/inaction. It is submitted that there is no declaration in the 9/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 respondent no.1's letter dated 21.9.2012 that the payment obligation has fastened on the appellant pursuant to the Bid Bond which was mandated by the terms of the Counter Guarantee. The impugned order loses sight of the fact that there has to be a loss caused to the respondent no.1 which must be the result of direct actions/inactions on the part of the appellant.
The invocation of the counter guarantee thus not being in terms of the guarantee is bad in law, non est and an injunction to restrain the encashment thereof ought to have been granted by the learned single Judge.
6. The learned counsel for the petitioner has submitted that the action of the respondent nos.1 & 2 (collectively "PSA") of leading the appellant to believe that it was interested in participating in and implementing the development of the 4th Container Terminal project at Jawaharlal Nehru Port, on Design, Build, Finance, Operate and Transfer (DBFOT) basis (the "said Project"), despite being very well aware that it had no such intention to implement the said project, is clearly an act of fraud as defined under section 17 of the Contract Act. Such an act of egregious fraud vitiates the JBA and all contractual agreements entered into between the parties and steps taken pursuant thereto, including the Counter 10/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 Guarantee. It is contended that the fraudulent conduct of the PSA is further substantiated from a perusal of exh.`K' wherein the Board Member of JNPT has opined that PSA never intended to commence setting up of terminal at JNPT.
7. The learned counsel for the petitioner has submitted that the PSA never intended the project to take off so that all container traffic can be diverted from the Middle East to Singapore port which is run and controlled by the Holding Company of PSA/it's associates/affiliates. This is evident from the unprecedented, unrealistic and commercially unviable bid (which, at its time of making was the highest revenue share quoted for all similar projects in the country) submitted by PSA for the said project.
The said intent is also clearly plausible in view of the fact that the parent company of the respondent no.1 being Tamsek holding is an investment arm of the Government of Singapore. Thus, the appellant had clearly made out a strong prima facie case of the egregious fraud perpetuated by PSA. It is contended that despite these facts, the learned single Judge has erroneously held as under:-
"In my view, in the present case, the Plaintiff 11/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 has failed to make out any case of fraud. On a reading of the averments made in paragraph 8 of the Suit it is clear that the said averments by no stretch of imagination can be said to have made out a case of fraud. The allegations of fraud made by the Plaintiff are merely bald assertions and do not establish a case of fraud much less a fraud of a egregious nature.
.............."
8. The counsel for the appellant has further contended that the learned single Judge has also negatived the appellant's contentions on fraud on the ground that the appellant had till date not rescinded the JBA, which according to the learned single Judge "speaks volumes about the seriousness of the allegation of fraud made by them against Defendant Nos.1 and 2." The conclusion of the learned single Judge is clearly erroneous. The appellant specifically pleaded discharge of the contract which fact has been completely ignored by the learned single Judge.
9. It is further submitted that the learned single Judge completely 12/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 overlooked the fact that the respondent no.2 has allowed the invocation of the Bid Bond by JNPT without any protest. The learned Judge has held that there are serious disputes between the respondent no.2 and JNPT, however, the learned Judge overlooked that:-
(a) The respondent no.2 has till date not protested against/challenged the invocation and/or encashment of the Bid Bond by JNPT;
(b) The respondent no.2 had also not initiated any proceedings to prevent the invocation and/or encashment of the Bid Bond by JNPT;
( c) The respondent no.2 has not initiated any proceedings against JNPT for the recovery of the Bid Bond amount of Rs.67 crores.
(d) No steps were taken by the respondent no.2 to ensure that the Letter of Award for the said project is not terminated/withdrawn, despite it being the respondent no.2's case that it was not in default.
10. The learned counsel for the appellant has submitted that the appellant in paragraph 3 as well as in paragraph 12 of the plaint has categorically stated that the respondent no.2 is a shell company and has no assets either in India or in Singapore and the said factual position is not controverted. The obligation of the appellant was joint and several with 13/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 the respondent no.2 qua JNPT. The impugned order erroneously records and refuses an injunction on the erroneous ground that the appellant was a "joint promisor" and had jointly promised performance of its obligation being a member of the consortium. It is contended that the impugned judgement fails to consider that the joint promise, if any, was by the appellant with the respondent no.2 qua JNPT. There was no joint promise between the appellant and the respondent no.1. JNPT having invoked the Bid Bond, the right to claim moneys from the appellant, if any, would devolve only on the respondent no.2. In the absence of any joint promise with the respondent no.1, the respondent no.1 could not invoke the Counter Guarantee.
11. It is contended that if the Counter Guarantee is allowed to be invoked/encashed, the eventual decree, if any, which would be passed in favour of the appellant, in proceedings the appellant would initiate for recovery of the amounts paid pursuant to the Counter Guarantee, would be a mere paper decree against the respondent no.2 which is only a shell company, with no assets either in India or in Singapore. The learned single Judge has proceeded to reject the appellant's contentions on the ground that the respondent no.1 is backed by the Government of 14/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 Singapore. It is contended that in view of the joint obligation under the JBA, being between the appellant and the respondent no.2, the financial soundness of the respondent no.1 cannot be a ground to deny injunctive reliefs to the appellant.
12. The learned counsel for the appellant has specifically pleaded that the facts and circumstances of the case clearly give rise to special equities being invoked by the appellant to protect the rights of the appellant. The sole ground taken by JNPT for invoking the Bid Bond is the failure on the part of the respondent no.2 to sign the concession agreement for the said project. This has clearly been on account of PSA and the appellant has had no role to play in this. The default, if any, is therefore of PSA alone. If the default and the consequent invocation of the Bid Bond is solely due to PSA's failure to execute the concession agreement, the respondent no.1 is not entitled to pass that burden or any part thereof upon the appellant and claim benefit under the Counter Guarantee. Allowing the respondent no.1 to do so would tantamount to rewarding the respondent no.1 for its own inaction and fraudulent conduct. The fraud is of the beneficiary (as it controls the respondent no.2 absolutely) who cannot be allowed to take any benefit therefrom.
15/40 ::: Downloaded on - 09/06/2013 19:24:43 :::krs AppealL727.12 However, the learned single Judge failed to consider the same. The impugned judgement, therefore, fails to render findings on the issues specifically raised by the appellant. It is, therefore, respectfully submitted by the appellant that this is a fit case for this Court to restrain the invocation/encashment of the counter guarantee.
13. Mr.Khambata, the learned counsel for the respondent nos.1 & 2, on the other hand, supported the impugned judgement passed by the learned single Judge. It is contended that the law in regard to special equities/irretrievable injury for injuncting the encashment of a Bank Guarantee has been laid down by the Apex Court in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. & Anr.
(1997) 6 SCC 450 in the following terms:-
"22. The second exception to the rule of granting injunction, i.e., the resulting of irretrievable injury, has to be such a circumstance which would make it impossible for the guarantor to reimburse himself, if he ultimately succeeds.
This will have to be decisively established and it 16/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 must be proved to the satisfaction of the court that there would be no possibility whatsoever of the recovery of the amount from the beneficiary, by way of restitution."
It is contended that in the present case, the beneficiary of the Bank Guarantee is the respondent no.1/defendant no.1. Hence, on an application of the test laid down by the Apex Court in the case of Dwarikesh Sugar Industries Ltd. (supra), it is necessary for the appellant to plead and establish that recovery of the amount from the respondent no.1 (beneficiary) is impossible. It is submitted that the test in the case of Dwarikesh Sugar Industries Ltd. has not been satisfied as is evident from the pleading of the appellant/plaintiff in the plaint which reads thus:-
"2. Defendant no.1 is a limited liability company incorporated under the laws of Singapore and has its office at the address stated in the cause title above.
Defendant No.1 is ultimately owned by the Government of Singapore and is engaged in the business of construction, development, maintenance 17/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 and operation of various container terminals at various ports in around twenty nine countries.
Defendant no.1 is one of the largest container terminal operators in the world."
It is contended that a reading of the above pleading in the plaint shows that the respondent no.1 is one of the largest container terminal operators in the world and, therefore, irretrievable injury/special equities for injuncting the encashment of Bank Guarantee has not been established as required in law by the appellant.
14. The learned counsel has further contended that the plaintiff has pleaded special equities in paragraph 12 of the plaint which reads thus:-
"12. The Plaintiff states and submits that irretrievable injustice will be caused to it in case appropriate orders are not passed restraining encashment of the Counter Guarantee. It is submitted that Defendant No.2 is a shell company and has no assets in either India or 18/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 Singapore and thereby any order that the Plaintiff may obtain against Defendant No.1 will be a mere paper decree."
It is submitted that this pleading is irrelevant as the respondent no.2 is not the beneficiary under the Bank Guarantee and as such, pleading in regard to the respondent no.2 being a shell company for establishing irretrievable injury is immaterial and ought to be discarded on the test laid down by the Apex Court in the case of Dwarikesh Sugar Industries Ltd. (supra). It is, therefore, contended that no irretrievable injury has been established and, as such, the said recognised exception to the rule that a Bank Guarantee ought not to be injuncted has not been satisfied in the present case.
15. The learned counsel for the respondent nos.1 & 2 further contended that the appellant's reliance on a newspaper article dated 12.9.2012 to make out a case of fraud is entirely misplaced. The said newspaper article has not even been pleaded in support of the case of fraud in paragraph 8 of the plaint which is the only basis on which fraud has been alleged in the plaint. It is further submitted that the respondent no.1 took all necessary steps in regard to withdrawal of the appellant from 19/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 the consortium which steps were taken pursuant to the appellant's own request in this regard, as evident from the appellant's letter dated 31.3.2012. Based on this request, the respondent no.2 by its letter dated 2.4.2012 wrote to the respondent no.4 seeking its consent for the appellant's withdrawal from the consortium. The said request was rejected by the respondent no.4 for which the respondent nos.1 & 2 cannot in any manner be held responsible. Thus, it cannot be contended that there is a fraud practised upon the appellant.
16. The learned counsel for the respondent nos.1 & 2 has submitted that insofar as the allegation of fraud in the context of non-signing of the Concession Agreement is concerned, it is submitted that a show cause notice in that regard had been issued and a detailed reply has been submitted by the respondent no.2 explaining the reasons for not signing the Concession Agreement. It has been clearly stated that the respondent no.2 had been ready and willing to execute the Concession Agreement, but the same could not be executed only because of stamp duty issues and because of which it was mutually agreed to postpone the signing of agreement. It is submitted that it could never have been the intention of the respondent no.1 to defraud the plaintiff of Rs.17.42 crores covered by 20/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 the Counter Guarantee and in the process suffer a loss of Rs.50 crores (in view of the encashment of Bid Bond of Rs.67 crores) and also further lose the valuable right to enter into a Concession Agreement which was for a period of 30 years. It is, therefore, submitted by the counsel for the respondent nos.1 & 2 that the contention of the appellant regarding fraudulent intention on the part of the respondent no.1, in the facts and circumstances of the present case, is absurd.
17. It is further contended that the appellant who has alleged fraud has not terminated the Joint Bid Agreement (JBA). It is important to note that the appellant has not avoided the transaction nor has it avoided the same in the plaint. The appellant, therefore, is estopped from raising the plea of fraud.
18. The learned counsel for the respondent nos.1 & 2 has contended that the Supreme Court in the case of Svenska Handelsbanken v.
M/s.Indian Charge Chrome & Ors. (1994) 1 SCC 502) has held in paragraph 71 thus:-
"71. Shetty, J. speaking for the Bench noticed the 21/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 earlier observations of Mukharji, J. in the case of U.P. Cooperative Federation Ltd. and stated that the nature of the fraud that the courts talk about is fraud of an "egregious nature as to vitiate the entire underlying transaction". It is fraud of the beneficiary, not the fraud of somebody else."
19. The learned counsel for the respondent nos.1 & 2 has placed reliance on the observations made by the Apex Court in paragraph 28 of the judgement in the case of Dwarikesh Sugar Industries Ltd. (supra). It is, therefore, contended that for a Court to restrain encashment of a Bank Guarantee, the fraud has to be absolute and egregious, vitiating the very foundation of the Bank Guarantee. The averments on fraud are to be found in paragraphs 8 to 10 of the plaint. On a reading of the same, it is clear that the averments by no stretch of imagination can be said to have made out a case of such fraud apart from the fact that the allegations are incredible and does not establish that the respondent nos.1 & 2 practised any fraud whatsoever.
20. The learned counsel for the respondent nos.1 & 2 further 22/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 contended that the appellant and the respondent no.2 are part of the consortium. A consortium is in the nature of a partnership and consortium members must, in law, bear the liabilities of the consortium to the extent of their share in the consortium. It is further submitted that section 43 of the Indian Contract Act provides as under:-
"43. Any one of joint promisors may be compelled to perform.--When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the promise.
Each promisor may compel contribution -
Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.
Sharing of loss by default in contribution.-
If any one of two or more joint promisors 23/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.
Explanation.-- Nothing in this section shall prevent a surety from recovering, from his principal, payments made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety on account of payment made by the principal."
21. The learned counsel for the respondent nos.1 & 2 further contended that there is no contract to the contrary in the JBA. Indeed, the JBA reaffirms the liability by providing as follows:-
"5. Joint and Several Liability The Parties do hereby undertake to be jointly and severally responsible for all Obligations and liabilities relating to the Project and in accordance with the terms of the RFQ, RFP and the Concession Agreement, till such time as the Financial Close for the Project is achieved 24/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 under and in accordance with the Concession Agreement."
It is submitted that the appellant has itself admitted its joint and several liability under Clause 5 of the JBA for any/all obligations and liabilities relating to the project. This is evident from the appellant's letter to the respondent no.1 dated 31.3.2012.
22. The counsel for the respondent nos.1 & 2 further submitted that under the Request for Proposal issued by the respondent no.4 (RFP), a Bid Bond of Rs.67 crores was required to be furnished by the consortium of which the appellant is a 26% member/partner. The sum of Rs.17.42 crores (Counter Guarantee) thus represents the appellant's share (26%) of the total amount of Rs.67 crores covered by the Bid Bond. It is submitted that the respondent nos.1 & 2 could have submitted their share of 74% of the Bid Bond amount the appellant would have required to submit its share of the Bid Bond directly to the respondent no.4 and the effect would have been that the respondent no.4 would have invoked two Bank Guarantees aggregating to Rs.67 crores. However, the respondent no.4 wanted a single Bank Guarantee and, therefore, the Counter Guarantee 25/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 was obtained.
23. It is contended that the Counter Guarantee is unconditional and irrevocable guarantee and contains an unequivocal promise to pay a sum of Rs.17.42 crores without any demur or protest and the same could be encashed. The Counter Guarantee is an independent contract and whether an injunction ought to be granted or not has to be considered without any reference to the underlying contract. Even the ground of unjust enrichment has been rejected by the Apex Court in the case of Dwarikesh Sugar Industries Ltd. (supra) by observing thus in paragraph 29 of the judgement:-
"29. .................... We also do not find any justification for the High Court in invoking the alleged principle of unjust enrichment to the facts of the present case and then deny the appellant the right to encash the bank guarantee.
If the High Court had taken the trouble to see the law on the point it would have been clear that in encashment of bank guarantee the 26/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 applicability of the principle of undue enrichment has no application."
It is submitted that the appellant's argument that the Counter Guarantee is a conditional one is erroneous: (i) the expression `payment obligation' is merely descriptive of what the Counter Guarantee has been furnished for.
Once the Bid Bond for a sum of Rs.67 crores is encashed, the respondent no.1 is entitled to be reimbursed to the extent of Rs.17.42 crores which is the appellant's share of the amount covered by the Bid Bond encashed by the respondent no.4. The Counter Guarantee provides that the encashment of the Bid Bond is to be established by providing a copy of the respondent no.4's invocation letter to the respondent no.3 Bank. In the present case, this has been done.
24. The appellant's contention that the respondent no.1 would be entitled to make a claim under the Counter Guarantee only in case it establishes that the appellant is obligated to make payment to the respondent no.1 due to the loss it has suffered under the counter indemnity, is erroneous in law. The present case is one of an unconditional Bank Guarantee and not an indemnity. Therefore, it is clear 27/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 that the respondent no.1 is entitled to call upon the respondent no.3 to pay under the Counter Guarantee dated 13.10.2010 once there is a letter of invocation of the Bid Bond by the respondent no.4. That letter of invocation by the respondent no.4, therefore, establishes the right to invoke the Counter Guarantee. The counsel for the respondent nos.1 & 2 further submitted that even otherwise, the Counter Guarantee was given as consideration of the respondent no.1 indemnifying Standard Chartered Bank for issuing the Bid Bond in favour of the respondent no.4 and was not an indemnity given by the appellant to the respondent no.1. Thus, the reliance placed by the appellant on section 124 of the Indian Contract Act, 1872 is entirely misplaced as the said section does not apply. It is, therefore, contended that the order of the learned single Judge is a well-
reasoned order and does not warrant any interference. The appeal, therefore, deserves to be dismissed with costs.
25. We have given anxious thought to the various contentions canvassed by the respective learned counsel for the appellant as well as the respondents, considered the decisions cited as well as the impugned judgment passed by the learned single Judge. We feel it appropriate to express the well-settled legal position relating to encashment of Bank 28/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 Guarantee in view of the decision of the Apex Court. A Bank Guarantee is one which is payable by the guarantor on demand if the Bank Guarantee is the unconditional Bank Guarantee. Similarly, in the course of commercial dealings, unconditional guarantees have been given or accepted, the beneficiary is entitled to realise 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 a customer. The law on this subject settled by the decision of the Apex Court clearly demonstrates that the Court should be slow in granting an injunction to restrain the realisation of such a Bank Guarantee and there are two exceptions to the general rule. A fraud in connection with such a Bank Guarantee would vitiate the very foundation of such a Bank Guarantee and, therefore, such beneficiary can be injuncted from encashing the Bank Guarantee. The second exception relates to cases where allowing the encashment of an unconditional Bank Guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a Bank Guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as 29/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 would over-ride the terms of the guarantee.
26. On the back-drop of the above referred well-settled position in law on the subject, it will be appropriate to consider whether the appellant was able to establish a prima facie case in respect of these two exceptions along with other circumstances for injuncting the respondent no.1 from encashing the Counter Guarantee and whether the finding recorded by the learned single Judge in this regard are consistent with the law declared by the Apex Court on the subject.
27. Insofar as the contentions canvassed by the learned counsel for the appellant, in order to demonstrate that fraud has been practised by the respondent nos.1 & 2 is concerned, we have already recorded the contentions canvassed by the learned counsel for the appellant as well as the respondent nos.1 & 2 in this regard as mentioned hereinabove and it is, therefore, not necessary for us to reiterate the same. We have perused paragraphs 8 to 10 of the suit filed by the appellant. The learned single Judge, after taking into consideration all these aspects in paragraph 27 of the impugned judgement has observed thus:-
30/40 ::: Downloaded on - 09/06/2013 19:24:43 :::krs AppealL727.12 "27. It is trite law that a Court can restrain encashment of Bank Guarantee in cases of established fraud in issuance of the Bank Guarantee. The fraud has to be absolute and egregious vitiating the very foundation of the Bank Guarantee. In my view, in the present case, the Plaintiff has failed to make out any case of fraud. On a reading of the averments made in paragraph 8 of the Suit it is clear that the said averments by no stretch of imagination can be said to have made out a case of fraud. The allegations of fraud made by the Plaintiff are merely bald assertions and do not establish a case of fraud much less a fraud of a egregious nature. In view thereof, the decisions cited by the Learned Senior Counsel for the Plaintiff in the cases of U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd. (supra) and Yog Systems India Ltd. Vs. SU-KAM Power Systems Ltd.
(supra) are of no assistance to the Plaintiff. As 31/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 held hereinafter, the said Counter Guarantee is an unconditional and irrevocable Guarantee. It is settled law that encashment of an unconditional and irrevocable Bank Guarantee ought not to be injuncted by the Courts unless the case falls within the recognized exceptions laid down by the Hon'ble Supreme Court in a catena of decisions in which case an injunction restraining the encashment of a Bank Guarantee can be granted.
An unconditional and irrevocable Bank Guarantee is an independent contract and whether encashment of the same ought to be permitted or not has to be considered without any reference to the underlying or main contract or to the disputes/claims thereunder. It is also pertinent to note that though the Plaintiff has alleged fraud on the part of Defendant Nos. 1 and 2, the Plaintiff has till date not rescinded the JBA which speaks volumes about the seriousness of the allegation of fraud made by them against Defendant Nos. 1 and 32/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12
2. The allegation therefore made by the Plaintiff that the invocation of the Bank Guarantee is vitiated by fraud cannot be accepted and the said contention is rejected."
28. In paragraph 8 of the plaint, the appellant in sub-paragraphs (f) and (h) made allegation of fraud being practised by the respondent nos.1 & 2 which read thus:-
"(f) The Plaintiff has acted on the false and fraudulent representation made by PSA and altered its position to its detriment."
"(h) Further, PSA continued to act fraudulently and deceitfully even after Defendant No.4 had terminated the contract and invoked the Bid Bond, when PSA assured the Plaintiff that they are pursuing the matter with Defendant No.4 and the situation will be salvaged."
Sub-paragraphs (a) to (e), (g), (i) and (j) of paragraph 8 are bald 33/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 assertions which do not establish absolute and egregious fraud practised by the respondent nos.1 & 2 to vitiate the foundation of Bank Guarantee at this stage. On the other hand, they pertain to the implementation of the project if selected and obligations under the RFQ and RFP documents as well as Joint Bid Agreement, responsibility of lead member of the consortium requiring it to sign concessional agreement with the respondent no.4, etc. We agree with the observations made by the learned single Judge that unconditional and irretrievable Bank Guarantee is an independent contract and whether encashment of the same ought to be permitted or not has to be considered without reference to the underlying or main contract or to the disputes/claim thereunder. Even a perusal of the allegations made in paragraphs 9 and 10 are also not specific to establish absolute fraud as required in law and, therefore, mere allegation/bald assertions of fraud made by the appellant, in our view, does not prima facie establish that fraud has been practised by the respondent nos.1 & 2 to vitiate the very foundation of Bank Guarantee in order to injunct the respondent no.1 from invoking the Counter Guarantee.
29. As regards the contention canvassed by the learned counsel for 34/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 the appellant that irretrievable injustice would be caused if the Counter Guarantees permitted to be encashed by the respondent no.1 is concerned, the law is well-settled on this subject and when applied to the facts of the present case, it must show that if the respondent no.1 is permitted to encash the Counter Guarantee, it would be impossible for the guarantor to reimburse himself if he ultimately succeeds. In the instant case, it is not disputed that the consortium is in the nature of partnership and the consortium member in law bears liabilities of consortium to the extent of their share in consortium. Clause 5 of the Joint Bid Agreement (JBA) affirms that the nature of liability is joint and several and there is no contract to the contrary in the JBA. In the plaint, it is stated by the appellant that the respondent no.1 is owned by the Government of Singapore and is one of the largest container terminal operators in the world. The learned single Judge in paragraph 30 of the judgement considered these facts and decision of the Apex Court in the case of U.P. State Sugar Corporation v. Sumac International Ltd. (1997) 1 SCC 568) and, in our view, has rightly held that the appellant has not made out a case of irretrievable injustice as required in law. Similarly, the learned single Judge has also justified in holding that the appellant has failed to decisively establish and prove to the satisfaction of the Court that there 35/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 would be no possibility of recovery of the amount from the beneficiary by way of restitution in view of the law laid down by the Apex Court in the case of Dwarikesh Sugar Industries Ltd.
30. In the instant case, whether the Bank Guarantee is a conditional one or not, it is necessary to consider paragraphs 4, 5 and 6 of the Guarantee (which are already reproduced in the impugned judgement). A perusal of these clauses of the guarantee would show that the Counter Guarantee is an unconditional irrevocable guarantee and contains equivocal promise to pay a sum of Rs.17.42 crores without any demur or protest. Once the Bid Bond for the sum of Rs.67 crores is encashed, the respondent no.1 is entitled to be reimbursed to the extent of Rs.17.42 crores which is the appellant's share of the amount covered by the Bid Bond which in the present case has been encashed by the respondent no.4. It is in these circumstances of the case that the finding recorded by the learned single Judge in paragraph 29 of the impugned judgement, in our view, is just and proper and sustainable in law since Counter Guarantee is unconditional and irrevocable, the relevant portion of which reads thus:-
36/40 ::: Downloaded on - 09/06/2013 19:24:43 :::krs AppealL727.12 "29. As set out hereinabove, it is clear that Defendant No.2 initially furnished a Bid Bond of Rs. 67 crores through the Standard Chartered Bank to Defendant No.4 on behalf of the Consortium which included the Plaintiff's contribution. Since the Plaintiff was required to make its contribution to the extent of 26 per cent of the said Bid Bond i.e. to the extent of 17.42 crores and since the Defendant No.1 counter indemnified the said Bid Bond of Rs. 67 crores, the Plaintiff furnished a Counter Guarantee dated 13th October 2010 issued by Defendant No.3 in favour of Defendant No.1 for a sum of Rs. 17.42 crores. The terms of the Counter Guarantee make it clear that the Counter Guarantee is for issue of Bid Bond of Rs. 67 crores by PSA on behalf of the Consortium. The payment under the Counter Guarantee is described as the payment obligation of the Plaintiff to the beneficiary pursuant to the Bid Bond. The payment under the Counter Guarantee is without 37/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 demur, reservation, recourse, contest or protest.
The only condition for such payment is that the demand or the payment must be supported by the documents listed in Clause 4 and must be in accordance with Clauses 5 and 6. Admittedly the demand complies with this requirement. Upon such demand being made, the Defendant No.3 Bank, within 3 days upon receipt of a written request from Defendant No.1, is bound to pay an amount upto Rs. 17.42 crores as payment obligation to Defendant No.1 pursuant to the Bid Bond, without any demur, reservation, recourse, contest or protest, without notice or reference to the Plaintiff, irrespective of whether the Defendant No.1's demand is disputed or not by the Plaintiff or any other person. Mr. Khambata is therefore correct in his submission that the expression "payment obligation" is merely descriptive of what the Counter Guarantee has been furnished for, and it cannot be contended that the same is a 38/40 ::: Downloaded on - 09/06/2013 19:24:43 ::: krs AppealL727.12 conditional guarantee. He is further correct in his contention that once the Bid Bond for a sum of Rs.67 crores is encashed, Defendant No. 1 is entitled to be reimbursed to the extent of Rs. 17.42 crores, which is the Plaintiff's share of the amount covered by the Bid Bond and which has been encashed by Defendant No.4."
31. The contention canvassed by the learned counsel for the appellant that the respondent no.1 would be entitled to make a claim under the Counter Guarantee only if it establishes that the loss caused under the indemnity is attributable to the action/inaction of the appellant is difficult for us to agree, in the facts and circumstances of the present case. As we have already observed hereinabove, the Counter Guarantee is unconditional irrevocable guarantee, its legal complexion does not change merely because it is given in the context of an obligation to indemnify.
32. Similarly, the contention canvassed by the learned counsel for the appellant in respect of special equities, in the circumstance of the present case, cannot be accepted, for the reasons stated hereinabove.
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33. In our view, no case is made out for showing indulgence in the present appeal which suffers from lack of merits and is, therefore, dismissed with costs.
(D. D. SINHA, J.)
ig (SMT.V.K.TAHILRAMANI,J.)
Suundaresan
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