Gujarat High Court
Board Of Trustees Of Kpt vs Bhumi - Kwang Jv & 3 on 25 June, 2014
Author: Jayant Patel
Bench: Jayant Patel, Z.K.Saiyed
C/FA/1914/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
FIRST APPEAL NO. 1914 of 2014
With
CIVIL APPLICATION NO. 6442 of 2014
In
FIRST APPEAL NO. 1914 of 2014
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BOARD OF TRUSTEES OF KPT....Appellant(s)
Versus
BHUMI - KWANG JV & 3....Defendant(s)
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Appearance:
MR SANJANWALA, LD. SR. COUNSEL with MR DHAVAL D VYAS,
ADVOCATE for the Appellant(s) No. 1
MR SOPARKAR, LD. SR. COUNSEL with MR UTKARSH B JANI, ADVOCATE
for the Defendant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE JAYANT PATEL
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
Date : 25/06/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE JAYANT PATEL)
1. We have heard Mr.Sanjanwala, learned Sr. Counsel appearing with Mr.Vyas, learned Counsel for the appellant and Mr.Soparkar, learned Sr. Counsel appearing with Mr.Utkarsh Jani, learned Counsel on behalf of caveat - respondent No.1, the main contesting party. Respondents No.2, 3, and 4 are the Banks, whose guarantees are proposed to be Page 1 of 13 C/FA/1914/2014 ORDER encashed by the appellant and, therefore, it can be said that their presence may not be required at this stage, subject to their contention, if any, at the time of final hearing of the appeal.
2. It prima facie appears that there were, in all, three bank guarantees as per the contract; two were towards mobilization advance and one was towards performance of contract. The bank guarantees towards mobilization advance were, in total, for Rs.21,54,84,112/-, whereas the performance bank guarantee was of Rs.9,79,47,325/-. It is an admitted position that the contract is terminated and the parties have moved for arbitration. Pending the arbitration, the appellant wanted to encash both the aforesaid bank guarantees and at that stage the application was preferred by the respondent No.1 for interim measure under Section 9 of the Arbitration and Reconciliation Act, 1996. The learned trial Judge, prima facie, observed that respondent No.1 (applicant before him) has to recover the amount of Rs.117 crore towards damages and, therefore, if the appellant is permitted to invoke bank guarantees, irreparable Page 2 of 13 C/FA/1914/2014 ORDER loss and damage would be caused and instead of that, the bank guarantees be continued, but its encashment be prohibited.
3. It prima facie appears to us that the reasons recorded by the lower Court are not satisfactory, more particularly on the points, which were germane to the exercise of the power. We leave it at that stage, without observing further for the purpose of admission, since the appeal is yet to be finally decided. Suffice it to state that the matter deserves consideration and the appeal deserves to be admitted.
4. Hence, Admit.
5. On the aspect of interim order, we have also heard the learned Counsel appearing for the respective parties. It prima facie appears that the relief granted by the impugned decree is not properly modulated. The lower Court has passed the decree of injunction against the encashment of the bank guarantees and further mandatory order is passed for continuing of the bank guarantees. The interim injunction granted against the encashment of the bank guarantees, even if the Court was so satisfied, could be on Page 3 of 13 C/FA/1914/2014 ORDER condition to extend bank guarantees and to that extent the operative portion of the judgement and decree, in our prima facie view, is not properly modulated.
6. Apart from the above, it is hardly required to be stated that when the matter is for grant of interim order pending the appeal, this Court would more be guided by the equitable consideration by balancing the rights of both the sides and for such purpose, may also touch prima facie merits of the matter, so as to modulate the equitable order.
7. On merits, it prima facie appears that the mobilization advance of about Rs.19,58,94,650/- was to be released in two instalments and as per the conditions of the contract before release of the first instalment, the bank guarantee was to be furnished to the extent of 110% of the amount to be released and thereafter again some procedure was to be adopted for release of the second instalment. The first bank guarantee was submitted and first instalment was released. Thereafter, reporting was made of the utilization of the money by respondent No.1 and the second Page 4 of 13 C/FA/1914/2014 ORDER bank guarantee was furnished for release of the second instalment. The second instalment is also released. As per the terms of the contract, the mobilization advance was to be utilized for mobilization of the machineries and other infrastructure facility for the purpose of the contract and the recovery of such mobilization advance was to be made from the bills of the contractor, as may be raised from time to time to the extent of 10% from the running bill of the contractor, but such recovery was to start after 15% of the work is completed and the full recovery would end upon completion of 80% of the work. It prima facie appears that out of the total contract of about Rs.200 crore, the work completed was up to Rs.12 crore. The bills were raised, out of which Rs.11 crore is paid by the appellant, but thereafter the dispute started for performance of the contract and the contract has been terminated and the bank guarantees are proposed to be encashed. As a result thereof, since the contract could not reach up to the stage of 15%, no recovery from the mobilization advance has been made. As per respondent No.1, Page 5 of 13 C/FA/1914/2014 ORDER mobilization advance is already utilized and the machineries and other materials are lying on the site.
8. Mr.Sanjanwala, learned Counsel appearing for the appellant has not been able to show any correspondence entered into by the appellant with respondent No.1, showing that there was any mis- utilization of the mobilization advance. In the letter addressed to the bank by the appellant, such aspect is not stated. Therefore, it can, prima facie, be said that encashment invoking of bank guarantees could wait till the dispute is decided by the Arbitrator on the aspect of recovery of the amount of mobilization advance. In our prima facie view, even if the contract of bank guarantee is considered as independent, but the clause of the bank guarantee for mobilization advance is not unconditional, and the same is on condition of mis-utilization of the fund, for which there is no statement made by the appellant at the time of encashment of bank guarantee. Further, as the money is already utilized for machineries and other infrastructure, the same at the most can be permitted to be utilized by the Page 6 of 13 C/FA/1914/2014 ORDER appellant, since in any case, the machineries and other materials are hypothecated with the appellant as per the terms of the contract or in alternative, the money may be realized by sale of those infrastructure materials and the money so realized may be kept in a separate account.
9. Attempt was made by Mr.Sanjanwala, learned Counsel to contend that after the application was filed and the ad-interim injunction was granted in the earlier litigation at the stage of Exh.5, appellant had addressed another letter by supplementing the declaration for mis-utilization of the fund of the mobilization advance in the correspondence to the bank and his submission was that the same should be treated as sufficient for encashment the bank guarantees, apart from the dispute between the appellant and respondent No.1. In our prima facie view, such aspect is coupled with the circumstance that there is no prior correspondence, nor in the first letter for encashment of the bank guarantee(s) it is declared for mis-utilization of fund. Therefore, the final conclusion on the said aspect can await till the appeal is finally heard. Hence, Page 7 of 13 C/FA/1914/2014 ORDER considering the facts and circumstances, it appears to us that the interim protection granted against encashment of the bank guarantee towards mobilization advance can be continued on condition that the bank guarantee is kept alive by renewal one month prior to its expiry.
10. On the aspect of another bank guarantee towards performance of the contract amounting to Rs.9,79,47,325/-, it prima facie appears to us that the same was for loss caused towards non- performance of the contract by the contractor - respondent No.1 herein. Admittedly, the contract has not been performed exceeding about 10% and at that stage, the contract has been terminated. The total amount of contract is about Rs.200 crore. As per the appellant, on account of non- performance, the loss is caused and, therefore, they want to encash the bank guarantee. In the letter addressed to the bank by the appellant for encashment of the bank guarantee, non-performance and breach of condition is declared and, therefore, it prima facie appears to us that the same should be sufficient for encashment of the bank guarantee for performance of the contract, Page 8 of 13 C/FA/1914/2014 ORDER since the contract has come to an end at the stage of 10% of the contract. Further considering the fact that the total amount of contract is about of Rs.200 crore, the damages, in any case, may be more than the performance guarantee of Rs.9,79,47,325/- which is less than 5% of the total contract. Hence, the same can be permitted to be invoked, but with the further observations and directions that in the event it is found by the Arbitrator that there was no default on the part of respondent No.1 and the contract is terminated on account of the default on the part of the appellant, such amount with the interest, as may be ordered by the Arbitrator shall be required to be refunded. As the appeal is also yet to be finalized, we find it proper to put additional condition of filing undertaking by the authorized officer on behalf of the appellant Trust under the Resolution of the Trust.
11. Mr.Soparkar, learned Sr. Counsel for the respondent No.1 did submit that the interim relief, if granted, pending the appeal may result into allowing the appeal or changing the position otherwise than had prevailed pending the Page 9 of 13 C/FA/1914/2014 ORDER proceedings before the lower Court and, therefore, this Court may not grant any interim injunction and let the bank guarantees be continued until final disposal of the appeal.
12. Considering the facts and circumstances and more particularly in view of the reasons recorded by us herein above, it appears that it is a case where the Court may be required to balance the rights of both the sides on equitable consideration. Moreover, considering the fact that huge public monies are involved, the interim order deserves to be passed and, therefore, we find it proper to consider the matter for interim orders.
13. We may also record that the reasons are recorded by us since it was so insisted by the learned Counsel appearing for the respondent No.1. However, all reasons recorded are for the purpose of interim order and rights and contentions of either side shall not be prejudiced, in any manner, at the time of final hearing of appeal and suffice it to state that any observations made in the present order shall not prejudice the rights of either side at the Page 10 of 13 C/FA/1914/2014 ORDER time of final hearing of the appeal.
14. Hence, the following interim orders:-
(a) The judgement and decree of the lower Court is stayed so far as it relates to granting stay against encashment of the bank guarantee for performance of contract for Rs.9,79,47,325/-, on condition that the undertaking is filed by the authorized person under the Resolution of the appellant Trust to the effect that in the event it is found by the Arbitrator that there was no default on the part of respondent No.1 and the damages are made recoverable by respondent, the amount realized of the performance bank guarantee shall be refunded by the appellant to respondent No.1 with interest, as may be ordered by the learned Arbitrator within a period of three months from the order passed by the Arbitrator without prejudiced to the rights to prefer appeal and the interim order, as may be passed therein.
The aforesaid order shall not be construed to mean that Arbitration or arbitrability of the dispute is admitted by either side. Further, the judgement and decree of the lower Court so far as it relates to encashment of the bank guarantee of Page 11 of 13 C/FA/1914/2014 ORDER Rs.21,54,84,112/- shall continue on condition that;
(i) respondent No.1 keeps the bank guarantee alive by renewal thereof, at least one month prior to its expiry with the further observation that in the event the bank guarantee is not renewed one month prior to its expiry, the interim injunction shall automatically stand vacated and the appellant shall be at liberty to encash the bank guarantee. It is further observed and directed that in the event the bank guarantee is continued and the condition is complied with, the appellant shall be at liberty to utilize the machineries and other infrastructure material procured by respondent No.1 lying on the site for its performance of completion of the contract or otherwise or in alternative it would also be open to the appellant to dispose of the machineries and the materials lying on the site in association with respondent No.1 and the amount so realized shall be kept in a separate bank account.
15. The aforesaid interim order shall operate, subject to final order, which may be passed in Page 12 of 13 C/FA/1914/2014 ORDER the appeal. The appeal be fixed for hearing on 12.8.2014. R & P be called for.
16. After the pronouncement of the order, the learned Counsel for respondent No.1 Trust prayed that the operation of this order be stayed for some time, so as to enable his client to approach before the higher forum. Mr.Sanjanwala, learned Counsel objects to such request.
17. Considering the facts and circumstances, status-quo as prevailing today shall continue for a period of four weeks.
18. The Civil Application shall stand disposed of with liberty to respondent bank to apply, if they are aggrieved by the order. Direct service is permitted.
(JAYANT PATEL, J.) (Z.K.SAIYED, J.) vinod Page 13 of 13