Delhi High Court - Orders
Taikisha Engineering India Pvt Ltd vs Euler Motors Pvt Ltd & Anr on 23 May, 2023
Author: Prateek Jalan
Bench: Prateek Jalan
$~49
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 157/2023
TAIKISHA ENGINEERING INDIA PVT LTD ..... Petitioner
Through: Mr. Gaurav Mitra, Mr. N.P.S.
Chawla, Ms. Deepika Vijay
Sawhney, Mr. Sujoy Datta, Ms.
Nishtha Khurana, Ms. Sejal Sethi,
Ms. Lavanya Pathak, Advocates.
versus
EULER MOTORS PVT LTD & ANR. ..... Respondents
Through: Mr. Tushar Singh, Mr. Nikhil
Sabri, Ms. Akshra Arshi,
Advocates with Mr. Ninesh Gupta,
AR of R-1.
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
ORDER
% 23.05.2023
1. This petition under Section 9 of the Arbitration and Conciliation Act, 1996 ["the Act"] was first listed on 19.05.2023, when the following order was passed: -
"1. Issue notice. Notice may be served upon the respondents by all permissible modes, including email. Dasti service, in addition, is also permitted. Affidavit of service be filed by 22.05.2023.
2. By way of this petition under Section 9 of the Arbitration and Conciliation Act, 1996 ["the Act"], the petitioner seeks interim measures of protection in anticipation of arbitration proceedings between the parties under a Purchase Order bearing No. 3199 dated 16.11.2022 ["the PO"], by which respondent No. 1 placed an order upon the petitioner for supply of "customised equipments for automotive painting". The total value of the PO was of ₹46 crores plus Goods and Service Tax. The PO was amended on 16.11.2022, and Purchase Order no. 5677 was issued, terms and conditions whereof O.M.P.(I) (COMM.) 157/2023 Page 1 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:37 are identical in all material particulars to the PO.
3. Payment was to be made by respondent No. 1 in various tranches as provided in the PO. In the present petition, we are concerned with the first two tranches of payment of 20% each. The first instalment was to be paid alongwith the PO, against an advance bank guarantee of the same amount with validity until 30.07.2023. The second instalment was to be paid against design approval from respondent No. 1, with advance bank guarantee for the same amount with validity until 30.07.2023.
4. The PO contains a termination clause which empowers respondent No. 1 to cancel the order prior to shipment upon return notice. In the event of cancellation after shipment, respondent No. 1's right to terminate is contingent upon breaches by the petitioner, or the petitioner becoming insolvent, or being subjected to proceedings under bankruptcy or insolvency laws.
5. Clause 19 of the Purchase Order Terms and Conditions provides for resolution of disputes by arbitration of a sole arbitrator in New Delhi. Exclusive jurisdiction has also been vested upon the courts in Delhi.
6. The petitioner contends that it has furnished bank guarantees in respect of the first two tranches of payment, but has received payment of only of the first instalment of 20%, and not of the second instalment.
7. The contention of the petitioner is that it commenced supply of the goods, and has supplied goods worth approximately ₹20 crores. Mr. Gaurav Mitra, learned counsel for the petitioner, draws my attention to Document 22 annexed to the petition, wherein respondent No. 1 has confirmed outstandings of ₹12,26,22,660/- due to the petitioner as on 31.03.2022. He, however, points out that respondent No. 1 has thereafter sought to assert that there is some confusion with the balance confirmation, and that it would share the updated balance confirmation shortly. Mr. Mitra states upon instructions that no updated balance confirmation has been shared by respondent No. 1 with the petitioner.
8. The grievance of the petitioner is that, despite the petitioner's supply of equipments in terms of the PO, respondent No. 1 has sought to suspend supply under the PO, and thereafter proposed to terminate it, and return the equipments supplied by the petitioner. Mr. Mitra contends that such an attempt is in breach of contractual terms which would not confer any right upon respondent No. 1 to terminate the PO after commencement of supply. The petitioner apprehends that respondent No.1 will also seek to invoke the bank guarantees.
9. At this stage, Mr. Mitra seeks an ex-parte order of injunction, as far as invocation of the second bank guarantee is concerned. He submits O.M.P.(I) (COMM.) 157/2023 Page 2 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:37 that the second bank guarantee [Document No.11 annexed to the petition] is related to the payment to be made by respondent No. 1 at the stage of design approval. He draws my attention to a clause of the bank guarantee which provides that it would be effective from the date of the receipt of INR 8,28,00,000/- by the petitioner. As the petitioner has not received the second instalment at all, Mr. Mitra submits that the invocation of this bank guarantee may be injuncted at this stage.
10. In general, bank guarantees are regarded as independent tripartite contracts between the guarantor bank, and the two parties to the contract, which the beneficiary is entitled to invoke on its own terms. Irrevocable and unconditional bank guarantees are susceptible to an order of injunction only in very narrow circumstances, confined to fraud and special equities, which would cause irretrievable injury to the contracting party.
11. However, even on these narrow grounds, I am prima facie of the view that the petitioner has made a good case for an injunction on the invocation of the second bank guarantee. A reading of the terms of the PO shows that the bank guarantees were to be furnished as security against payment of the first two tranches by respondent No. 1. As the petitioner's unequivocal case is that it has not received the second tranche of payment at all, the question of recovery thereof does not arise. In such circumstances, the petitioner has made out a case of special equities. The terms of the bank guarantee with regard to the effective date also show that any attempted invocation at this stage would be contrary to the terms of the bank guarantee itself.
12. I am also of the view that the balance of convenience is in favour of such an ad interim order being granted at this stage, and that the petitioner would suffer irreparable injury if the bank guarantee is invoked in the absence of the concomitant payment having been made by respondent No. 1.
13. For the aforesaid reasons, at this stage, respondent No.1 is restrained from invoking the second bank guarantee [BDC-793- 000069-402] dated 23.01.2023, issued by respondent No. 2- Mizuho Bank Limited, in favour of respondent No. 1, at the instance of the petitioner.
14. Mr. Mitra is at liberty to press his other prayers after the appearance of the respondents.
15. A copy of the order be given dasti under the signatures of the Court Master.
16. List on 23.05.2023."
2. Pursuant to notice issued on 19.05.2023, Mr. Tushar Singh, learned O.M.P.(I) (COMM.) 157/2023 Page 3 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:38 counsel, enters appearance on behalf of respondent No. 1.
3. Mr. Singh submits that as far as the second bank guarantee is concerned [in respect of which the Court passed an ex-parte ad-interim injunction on 19.05.2023], respondent No. 1 will abide by the order of injunction until the constitution of the Arbitral Tribunal and subject to any orders that may be passed by the Arbitral Tribunal. He also submits that respondent No. 1 is agreeable to appointment of an arbitrator in these proceedings itself, with liberty to the parties to raise all rights and contentions before the learned arbitrator. He submits that respondent No. 1 is also agreeable to an attempt at resolution of disputes in mediation.
4. As far as mediation and arbitration are concerned, Mr. Gaurav Mitra, learned counsel for the petitioner, has no objection to the course suggested by Mr. Singh. However, Mr. Mitra presses for an order of injunction with regard to invocation of the bank guarantee furnished by the petitioner against the first tranche of advance payment made by respondent No. 1. Mr. Singh opposes the grant of any interim orders in this regard.
5. As noted in order dated 19.05.2023, the Purchase Order provides for the first instalment of 20% of the amount to be advanced by respondent No. 1 to the petitioner against a bank guarantee with validity until 30.07.2023. At the petitioner's instance, respondent No. 2- bank furnished a bank guarantee bearing No. BDC-793-000069-395, of which respondent No. 1 is the beneficiary. The relevant terms of the bank guarantee are as follows:
"The Bank Guarantee is being established to enable the Company to O.M.P.(I) (COMM.) 157/2023 Page 4 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:38 advance a sum of INR 8,28,00,000/- (Indian Rupees Eight Crore Twenty Eight Lakh only) to the Service provider/ Supplier to commence execution of the contract and complete the same within time frame.
The Bank hereby irrevocably & unconditionally undertakes and guarantees to Company that if the Service provider/ Supplier fails to supply the goods in conformity with the terms of the Agreement for any reason whatsoever the Bank shall merely on receipt of a written demand and without any demur reservation contest recourse or protest and/ or without any reference to the Service provider/Supplier pay to Company all and any sum up to a maximum of INR 8,28,00,000/- (Indian Rupees Eight Crore Twenty Eight Lakh only) (i.e., "Guarantee Amount") without any reference to the Service provider/ Supplier and irrespective of the fact whether the Service provider/ Supplier admits or denies such claim. The Bank undertakes not to revoke this Guarantee during its currency without previous consent of the Company and further agrees that the Guarantees herein contained shall continue to be enforceable till the Service provider/ Supplier discharges this Guarantee or till July 30, 2023 (i.e., "Expiry Date" and "Last date of Lodgment of Claim"), whichever is earlier. The Bank further agrees, that the Company shall be the sole judge as to whether the Service provider/ Supplier has failed to abide by the terms of said Agreement or has failed to perform the said Agreement in any respect, or the whole or part of the payment made by the Company has become re-payable. Any demand, to the extent of Guarantee Amount, made on the Bank by the Company shall be conclusive and binding upon the Bank.
The Bank shall pay forthwith the amount, to the extent of Guarantee Amount, demanded by the Company not-withstanding any dispute, if any between the Company and the Service provider/ Supplier, the Bank further undertakes to pay the Company any amount claimed under this Guarantee, notwithstanding any suit proceeding before any Court or Tribunal the liability of Bank under this Guarantee being absolute and unequivocal."
[Emphasis Supplied.]
6. The first instalment of ₹8,28,00,000/- was released by respondent No. 1 to petitioner. However, Mr. Mitra's submission is that the supply of equipment under the Purchase Order could not be completed due to a communication from respondent No. 1 to stop supply. In this regard, the O.M.P.(I) (COMM.) 157/2023 Page 5 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:38 petitioner has placed on record an e-mail dated 27.03.2023 from respondent No. 1 in which respondent No. 1 has requested the petitioner not to send the material after in transit material, and to resume despatch only after confirmation from respondent No. 1 in the month of April, 2023. He has also drawn my attention to a communication from the petitioner, in which the request of respondent No. 1 to stop the supply of material has been noted.
7. The contention of Mr. Mitra is that respondent No. 1 has, in fact, received material worth more than ₹20 crores, which has been acknowledged by communication dated 04.05.2023, as noted in the order dated 19.05.2023. In these circumstances, Mr. Mitra submits that there exist special equities which entitle the petitioner to an injunction against the invocation of the first bank guarantee also.
8. Mr. Singh disputes these submissions. He contends that the obligations of the petitioner with regard to design, which were admittedly part of the same purchase order, remain unfulfilled, as a result of which parties mutually agreed to terminate the agreement.
9. The law on injunction against invocation of unconditional and irrevocable bank guarantees is clear. The bank guarantee constitutes a separate contract between the parties to the substantive contract and the bank. The rights and obligations of parties under the bank guarantee are not dependent upon disputes which may exist with regard to the underlying contract between them. As far as irrevocable and unconditional bank guarantees are concerned, an injunction can be granted only in very limited circumstances of fraud or special equities O.M.P.(I) (COMM.) 157/2023 Page 6 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:38 which would cause irreparable injury to the contracting party. Reference in this connection may be made inter alia to the judgment of the Supreme Court in Standard Charted Bank vs. Heavy Engineering Corporation Ltd. & Anr. [(2020) 13 SCC 574].
10. Having regard to the facts of this case, the disputes raised by the petitioner with regard to the fulfilment or breach of the conditions of the Purchase Order do not make out a case of special equities as far as the first bank guarantee is concerned. Mr. Mitra's arguments are centred on disputes as to the fulfilment of contractual arrangements between the parties, which cannot be a ground to injunct the invocation of an unconditional and irrevocable bank guarantee. The express terms of the bank guarantee itself (highlighted in the extract above) suggest that the bank guarantee in the present case was irrevocable and unconditional. It has been expressly stated that respondent No. 2- Bank would make payment without demur, upon a written remand from respondent No. 1; that no reference to the petitioner would be made; and that respondent No. 1 would be the sole judge as to whether the petitioner has failed to abide by the terms of the agreement.
11. I am, therefore, unable to accede to Mr. Mitra's request for injunction as far as the first bank guarantee is concerned.
12. For the aforesaid reasons, the petition is disposed of with the following directions: -
A. The disputes between the parties arising out of the Purchase Order No. 3199 dated 16.11.2022 and amended Purchase Order No. 5677 dated 16.11.2022 are referred to Samadhan, Delhi High Court O.M.P.(I) (COMM.) 157/2023 Page 7 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:38 Mediation and Conciliation Centre, Delhi High Court, Shershah Road, New Delhi. The parties will appear before the learned mediator on 26.05.2023.
B. In the event the parties are unable to resolve their disputes in mediation, the disputes will be adjudicated by arbitration. Hon'ble Mr. Justice Jayant Nath, former Judge of this Court [Tel:
8527959494], is appointed as the arbitrator for this purpose.
C. The learned arbitrator is requested to furnish a declaration in terms of Section 12 of the Act, prior to entering upon the reference.
D. The remuneration of the learned arbitrator will be computed in accordance with the Fourth Schedule of the Act.
E. The learned arbitrator is requested to defer the reference for a period of two weeks so that the parties can attempt to resolve their disputes in mediation. In the event the parties require further time for this purpose, they may jointly request the learned arbitrator for a further deferment. Conversely, if the mediation proceedings are closed unsuccessfully prior to the aforesaid period, either party may request the learned arbitrator to enter into the reference forthwith.
F. The parties are free to make an application under Section 17 of the Act before the learned arbitrator, which the learned arbitrator may consider on merits.
G. The parties will be at liberty to request for variation/vacation/ modification/continuation of the interim order passed herein.O.M.P.(I) (COMM.) 157/2023 Page 8 of 9
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:38 H. Subject to the above, Mr. Singh states that the ad-interim order dated 19.05.2023 will bind respondent No. 1 until the learned arbitrator has entered upon the reference and considered the matter for grant of ad-interim relief. The petitioner is directed to keep the bank guarantee alive until such time.
PRATEEK JALAN, J MAY 23, 2023 "Bhupi"/ O.M.P.(I) (COMM.) 157/2023 Page 9 of 9 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/09/2023 at 00:06:38