Delhi District Court
Arbt No.79/18 & 80/18 M/S. Abb India Ltd. vs . Bhel & Anr. Page 1 Of 11 on 9 May, 2018
IN THE COURT OF SH. MUNISH MARKAN, ADDITIONAL
DISTRICT JUDGE01 (SOUTH), SAKET DISTRICT COURT,
NEW DELHI
ARBT no.79/18 & 80/18
M/s. ABB India Ltd.
ABB India Limited
(erstwhile known as ABB Ltd.)
Regd Office:
21st Floor, World Trade Centre,
Brigade Gateway, 26/1,
Dr. Rajkumar Road, Malleshwaram West,
Bengaluru560055
Also At:
14, Mathura Road,
Faridabad121003
Versus
1. Bharat Heavy Electricals Ltd.
BHEL House, Siri Fort,
New Delhi110049
Also at:
Power Sector, Northern Region,
Plot no.25, Sector16A,
P.B. No.55, Noida201301
2. ICICI Bank Ltd.
A9, Phelps Building,
First Floor, Cannaught Place,
New Delhi110001
ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 1 of 11
Also At:
Raosi Court,
20, R.N. Mukherjee Road,
Kolkata700001
Also at:
ICICI Bank Ltd.
Commercial Branch,
1st floor, West Wing no.1,
Commissariat Road, Banglore560025
........... Respondents
PETITION UNDER SECTION 9 OF THE ARBITRATION & CONCILIATION ACT, 1996 O R D E R 09.05.2018
1. Vide this common order, I propose to dispose off the two petitions filed under Section 9 of The Arbitration & Conciliation Act 1996 (hereinafter called 'The Act') filed by the petitioner against the two respondents as the petitioner feels aggrieved by attempt of the respondent no.1 in invoking of the two performance bank guarantees for a sum of Rs.41,80,242/ dated 25.08.2009 and Rs.4,64,315/ dated 01.09.2009 (one in each case) given by the petitioner to respondent no.1 for due performance of one contract (Bawana contract) and are sought to be encashed by respondent no.1 to settle the claims in respect of another contract (AnaparaD contract) wherein no performance guarantee has been given and the arbitration proceedings are under way.
2. The case of the petitioner is that petitioner was awarded a ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 2 of 11 contract for supply, erection, testing and commissioning of Air Conditioning system for 2x750 MW Pragti III CCPP Bawana vide PO no.PSNR/SCP/BOPBAWANA/AC/1926 & 1927 both dated 26.08.2009 (hereinafter called the 'Bawana Project'). For this project, two performance bank guarantees bearing no.0002BG00060609 for a sum of Rs.41,80,242/ dated 25.08.2009 and the performance bank guarantee bearing no.0002BG00063509 for a sum of Rs.4,64,315/ dated 01.09.2009 (one in each petition) both issued by respondent no.2 ICICI Bank were furnished by the petitioner. The petitioner successfully completed/commissioned the Bawana project and even the defect liability period for the said project has come to an end on 09.05.2017. The final bills of the Bawana project have been processed and the petitioner has an outstanding amount of Rs.47,45,023/ due from the respondent no.1 to the petitioner.
3. Petitioner further stated that petitioner company was also awarded another contract vide purchase order no.PSNR/SCP/ Anapara/AC (MAIN)SUP/2125 and another purchase order no.PSNR/ SCP/BOPBAWANA/AC (Mand)/SUP2126 and PSNR/SCP/Anapara/ ACE & C/2127 dated 31.03.2010 (hereinafter called the 'Anapara D Project'). The disputes arose between the parties in AnaparaD project wherein no performance bank guarantee was given by the petitioner and the said dispute is pending arbitration before the Arbitral Tribunal.
4. The petitioner further stated that the Bawana contract dated 26.08.2009 was duly completed/commissioned, inspite of that, the ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 3 of 11 respondent no.1 vide letter dated 09.02.2018 withheld the securities furnished under the Bawana project and adjusted the same towards the dues of Anapara D project on the basis of clause 9.0 of General Commercial Terms and Conditions (GCC) and vide letter dated 05.02.2018 written by the respondent no.1 to respondent no.2 ICICI Bank, presented the aforementioned two bank guarantees for invocation citing failure in performance by the petitioner and stating that the respondent no.1 has suffered loss, damage, costs, charges and expenses in consequence thereof. Clause 9 of the GCC is produced under:
"9.0 Recovery of Outstanding Amount In the event of any amount of money being outstanding at any point in time against the seller/contractor, due to excess payment or any other reason whatsoever, in the present order/contract or an other order/contract, the outstanding amount shall be recovered from the payments due to the seller/contractor or any other appropriate time and manner/mode as deemed fit by the Purchaser at its sole discretion."
5. Ld. Counsel for petitioner had argued that once the respondent no.1 vide letters dated 20.02.2017 and 09.02.2018 has admitted that the Bawana project has been successfully completed/commissioned and even the defect liability period for the said project has come to an end on 09.05.2017, there was no occasion for respondent no.1 to state that it has suffered any loss or damage on account of the nonperformance of any of the terms of the contract by ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 4 of 11 the petitioner. He argued that invocation of the bank guarantee given in one project for settling the disputed claims of some other project where no performance guarantee has been given, is not legally permissible and doing so is a fraud of the egregious nature. He further argued that the two bank guarantees has been kept alive till such time the Bawana project was completed and there was no occasion for the respondent no.1 to even ask the petitioner to keep the bank guarantees alive under the garb of the Anapara D project which is pending adjudication before the arbitrator on account of disputes. He argued that it is a clear case of fraud and the said invocation is bad in law and in support, he has relied upon judgment of Gangotri Enterprises Ltd. Vs. Union of India & Ors. (2016) 11 SCC 720 and stated that under the identical facts, the Hon'ble Supreme Court had granted the injunction in the said judgment. Perused the said judgment.
6. Ld. Counsel for petitioner further argued that the reliance of the respondent no.1 on clause 9 of the GCC is misplaced as there are no "outstanding amounts" even in respect of Anapara D project as the matter is pending adjudication before the arbitration. He argued that amount due or outstanding amount is ascertained only if it is admitted or it is adjudicated by a competent forum which is not the case here. Respondents' case:
7. On the other hand, the respondent no.1 filed its reply and has strongly opposed the application primarily on the ground that present petition seeking injunction from invoking the bank guarantees is ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 5 of 11 not maintainable in the eyes of law as the subject bank guarantees are unconditional and irrevocable and the respondent no.2 is bound to make the payment of the amount claimed thereunder merely on the demand of the beneficiary i.e. respondent no.1 without any demur. Respondent no.1 justified its letter of invocation dated 05.02.2018 and stated that the bank guarantees are separate and independent contracts between the bank and the beneficiary which is distinct from the underlying contract and the terms thereunder and it has no connection with any correspondence exchanged in relation to the underlying contract and it is only terms of the bank guarantee which have to be considered by the court while deciding the present application.
8. It is argued by the Ld. Counsel for respondent no.1 that the law contemplates only two exceptions to prevent the encashment of a bank guarantee. First is fraud of an egregious nature and second is irretrievable harm or injustice to one of the parties but the petitioner has not laid any foundation in the petition to establish fraud at the hands of the respondent no.1 and has also failed to point out any irretrievable injury to it. He further argued that there no special equities in favour of the petitioner so as to fall within the second exception and petitioner always has alternate remedy available in law to effect recovery. He further argued that the respondent no.1 is the best judge as to when to invoke the bank guarantee and cannot be asked to disclose the reason for such invocation. He stated that the bank guarantees have been invoked in terms of clause 9 of GCC. In support of his contentions, Ld. Counsel for respondent no.1 has relied upon a number of judgment, ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 6 of 11 however, only the latest one on these point are mentioned i.e. Vinitec Electronics Pvt. Ltd. Vs. HCL Infosystems Ltd. (2008) 1 SCC 544, Meghmala & Ors. VS. G. Narasimha Reddy & Ors. (2010) 8 SCC 383, Abir Infrastructure Pvt. Ltd. Vs. Teestavalley Power Transmission reported in 2014 214 DLT and Wig Brothers Construction Pvt. Ltd. Vs. Indiabulls Construction Pvt. Ltd. Reported in 217 240 DLT 747. Perused the said judgments.
9. Petitioner filed the rejoinder and reiterated its stand as taken out in the petition.
10. I have carefully gone through the record and heard the Ld. Counsels for the parties.
11. Perusal of the documents filed by the petitioner particularly the letters dated 20.02.2017 sent by the respondent no.1 shows that the respondent no.1 acknowledged that package ACs system was commissioned on 09.05.2016 and the guarantee shall be over after one year as per clause no.15.2 of Vol.1 PartD of GCC of Contract. Further the letter dated 09.02.2018 sent by respondent no.1 to the petitioner reflects that the final bill amount of Rs.47,45,023/ is there under the contract of Bawana. Further, the petitioner has also placed on record copy of the letter dated 29.12.2017 issued by the principal employer i.e. Pragati Power Corporation Ltd. addressed to Assistant Labour Commissioner (North), Delhi giving the notice of completion of contract work i.e. of Bawana contract clearly stating that the work has been completed on 30.08.2016. It being the case, it is clear that as far as ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 7 of 11 the Bawana project is concerned, it is complete in all its respects at the end of the petitioner including the defect liability period.
12. It is also not disputed that the two bank guarantees were furnished by the petitioner for the execution of the Bawana project. In this regard, perusal of the bank guarantee bonds dated 25.08.2009 and 01.09.2009 categorically reflect that the same pertain to the 'agreement' i.e. for supply of air conditioning system for Pragati CCPP2x750 MW. This being the case, it is clear that the two bank guarantees were furnished for proper execution of the Bawana Contract. The bank guarantees also stipulate an undertaking to pay to the company against any loss or damage caused or suffered or would be caused/suffered by the company by the reasons of any breach by the said contractor of any of the terms and conditions contained in the said "agreement". Therefore, it is clear that the bank guarantees were given as the security deposit for the proper execution of the Bawana agreement.
13. This being the case, now the respondent no.1 has sought to invoke the bank guarantees by relying upon clause 9.0 of the GCC. In this regard, since the dispute regarding the Anapara D project is pending adjudication before the Arbitrator, therefore it cannot be said that as on date, there is any sum due or outstanding amount which is to be paid by the petitioner to respondent no.1. Law in this regard is well settled and has been reiterated by the Hon'ble Supreme Court in the judgment of Gangotri Enterprises (supra) wherein, inter alia, it has been held that a claim for damages for breach of contract is not a claim ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 8 of 11 for a sum presently due and payable and purchaser/employer is not entitled in exercise of the right conferred upon it under such a recovery/forfeiture clause to recover the amount of such claim by appropriating other sums due to the contractor. It is also held that it is not true that a person who commits a breach of the contract incurs any pecuniary liability nor would the other party to the contract who complains of the breach has any amount due to him from the other party and no pecuniary liability arises till the court has determined that the party complaining of the breach is entitled to damages.
14. In the present case also, since the disputes under the Anapara D project are pending adjudication before the Arbitral Tribunal, it cannot be said that there are any outstanding dues qua the said project to be paid by the petitioner to the respondent no.1. Not only that, the respondent no.1 under the shield of clause 9, cannot appropriate the bank guarantees furnished by the petitioner for the Bawana Project, to satisfy the disputed claims of the Anapara D project. Perusal of the judgment of Gangotri Enterprises (supra) reflects that in that case also, the bank guarantee furnish in respect of Anand Vihar contract dated 14.07.2006 was sought to be invoked by relying upon clause 62 of GCC for disputed claims in respect of another contract i.e. AgraEtawaha contract dated 22.08.2005 wherein no performance guarantee was given and arbitration was pending. The Hon'ble supreme court had granted the injunction therein.
15. As far as the stand of the respondent is concerned, there is ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 9 of 11 no dispute to the fact that the bank guarantee is an independent and separate contract between the bank and the beneficiary and the courts have to be slow in granting injunction for restraining the invocation of the bank guarantee. It is equally true that ordinarily, the existence of any dispute between the parties to the contract is not a ground for issuance of an order of injunction to restrain the enforcement of bank guarantees and this admits only two exceptions i.e. a fraud of an egregious nature, and the irretrievable harm or injustice to one the parties as laid down by the Hon'ble Supreme Court in the judgment of Himadri Chemicals Industries Ltd. Vs. Coal Tar Refining Company (2007) 8 SCC 1110.
16. However, it is worthwhile to note that as far as the Bawana project wherein the bank guarantees were given, is concerned there is no claim by the respondent no.1 against the petitioner. On the contrary, it is the petitioner who claims that certain amounts are due and petitioner shall take appropriate recourse for the same as per law. Further, the bank guarantees specifically referred to the agreement of Bawana and in view of the law laid down by the Hon'ble Supreme Court in Gangotri Enterprises (supra), in my considered opinion, this is a fit case where the petitioner is entitled to the injunction as prayed for. It is also worthwhile to note that Hon'ble Supreme Court in the judgment of Gangotri Enterprises (supra) has taken due note of the General Principles relating to bank guarantee as reflected in para 40 of the said judgment and thereafter held that every case has to be decided ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 10 of 11 with reference to the facts of the case involved therein. In the present petition, the petitioner has not only made out a prima facie case but the given facts and circumstances also reflects balance of convenience in favour of the petitioner and if the injunction is not granted the petitioner shall suffer the irreparable loss as invocation of the bank guarantees will mar the image/brand of the petitioner. The petitioner has therefore passed the triple test for grant of interim injunction and is entitled for the same in view of the law laid down by the Hon'ble Supreme Court in Gangotri Enterprises (supra).
17. Therefore, both the injunction applications are allowed and both the respondents are restrained from invoking the two performance bank guarantees bearing no.0002BG00060609 and no.0002BG00063509 (renewed from time to time) submitted by the petitioner in the Bawana project pending invocation, duration and passing of the final award in arbitration. Both the files be consigned to Record Room.
Announced in the open court on 09.05.2018.
(Munish Markan) Additional District Judge01 District Courts, Saket, New Delhi ARBT no.79/18 & 80/18 M/s. ABB India Ltd. Vs. BHEL & Anr. Page 11 of 11