Madhya Pradesh High Court
Kec International Limited vs M.P. Madhya Kshetra Vidyut Vitaran Co. ... on 25 January, 2016
Author: S. K. Palo
Bench: S. K. Palo
1
HIGH COURT OF MADHYA PRADESH AT JABALPUR
A.A. No.13/2014
KEC International Limited
- V/s -
M.P. Madhya Kshetra Vidyut Vitrahn Co. Ltd. & Ors.
Present : Hon'ble Shri Justice Rajendra Menon.
Hon'ble Shri Justice S. K. Palo.
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Shri Naman Nagrath, learned Sr. counsel with Shri Himanshu Mishra,
advocate for the appellant.
Shri V. H. Waswani, Advocate with Shri S.K. Sharma, advocate for the
respondent.
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JUDGMENT
25/01/2016 This is an appeal filed by the appellant under Section 37 of the Arbitration and Conciliation Act, challenging the order Annexure A/1 dated 17.01.2014 passed by the 10th Additional District Judge, Bhopal in Arbitration Case No.181/2013 in a proceeding held under Section 9 of the Arbitration and Conciliation Act of 1996. An interim injunction in the matter of encashment of bank guarantees, total four in number having been rejected, this appeal is filed.
2. The question involved is as to whether the appellants are entitled for injunction restraining the respondents from encashment of the bank guarantee and whether now in the light of the fact that the bank guarantees already stand encashed whether status quo ante should be directed by restoring the recovery already made.
3. Appellant claims to be a company incorporated under the Provisions of the Companies Act, 1956 and engaged in the business of power transmission, 2 processing of power system and various other activities, particularly, with regard to infrastructural development. It is said that under the Rajiv Gandhi Gramin Vidyutikaran Yojna, respondent no.2 invited tenders for supplying erection, testing and commissioning of 11 KV & LT transmission line and distribution substations in Morena district, the appellant's tender was accepted and he was awarded the contract for supplying erection, testing and commissioning of the said LT line and distribution substation under Morena district. Based on two letters of award dated 26.11.2009, the first letter was with regard to supply contract valued at Rs. 62,16,43,327/- and the second letter pertaining to the erection contract valued at Rs. 11,64,36,900/-. The terms and conditions of the contract have been indicated in the contract, the contract contained an arbitration clause in case dispute arose, for redressal of dispute by way of arbitration and various other aspects of the matter. However, the contract also stipulated that the successful bidder has to furnish performance guarantee and advance payment guarantee for the purpose of securing the loan advanced by the respondent for execution of the work. Accordingly, it is said that four bank guarantees were furnished by the appellant, particulars of which are as under :-
Sr. Nature of Bank Bank Guarantee No. Amount (Rs)
No. Guarantee
1. Advance Bank 0393BG00228409 1,16,43,690
(i) Guarantee (issued
by ICICI Bank)
TOTAL
Advance Bank 20090041BGA0351 9,32,46,510
ADVANCE
(ii) Guarantee (IDBI
BG
Bank)
AMOUNT
10,48,90,200
2. Performance 20090041BGP0674 11,07,86,286
(i) Bank Guarantee TOTAL
(issued by IDBI ADVANCE
Bank) BG
Performance 20090041BGP0673 2,13,54,334
AMOUNT
(ii) Bank Guarantee
13,21,40,620
(IDBI Bank)
3
4. It is a case of the petitioner that Morena district in the State of M.P., is a very difficult district facing serious law and order problem, hooliganism etc., and therefore, execution of the work because of resistance by the local residents and the situation created the work as per the Contract could not proceed. It was said that there was resistance in the matter of appellant receiving the land and other requirement for completing the project. As a result, out of 422 villages covered under the agreement, the appellant could complete work only in all the villages except 81 villages where the work could not be completed due to various reasons. Attributing the default in getting the work executed and by vehemently contending that it was the default on the part of the respondent which resulted in delay in execution of the contract and in an arbitrary and illegal manner without grant of opportunity, the contract was rescinded and when coercive steps were proposed to be taken by issuance of show cause notice for encashment of the bank guarantee it is indicated that the proceedings were initiated in the trial Court and an application was filed for restraining the respondent from enchashing the bank guarantee. Initially the trial Court granted an order of status quo on 27.11.2013, finding a prima facie case to be established, in spite of the same the bank guarantee was encashed, however, by the impugned order as the injunction is refused and the appeal under Section 9 rejected, this appeal has been filed.
5. The question warranting consideration in this appeal is as to whether in rejecting the prayer for injunction and in refusing to interfere in a proceeding under Section 9 of the Arbitration and Conciliation Act, an error has been committed by the trial court which warrants interference.
6. Shri Naman Nagrath, learned Sr. Counsel took us through various terms and conditions of the agreement. The provisions and conditions of the bank guarantee, the nature, terms and conditions of the guarantee and argued that under the contract two types of bank guarantees were to be given.
7. The first was the contract performance guarantee i.e. Performance bank guarantee as provided under Clause 32 and Clause 41 of the agreement and the second was a bank guarantee towards advance payment in accordance 4 to Clause 35 of the agreement which was for the purpose of mobilisation of the advance given by the respondent as already indicated hereinabove. Advance guarantee to the tune of Rs. 10,48,90,200/- furnished by the appellant and performance guarantee to the tune of Rs. 13,21,40,620/- was also furnished.
8. Shri Naman Nagrath, learned Sr. Counsel took us through various conditions of the agreement particularly the conditions with regard to issuance of performance guarantee and advance payment guarantee. The terms and conditions of the guarantee and canvassed four questions in support of the appellant. It was argued by him that two advance bank guarantees for securing the advance were purely conditional and were furnished only as a security towards the advance amount received by the appellant. It was said that out of the advance amount received, an amount of Rs. 5,60,51,949/- is already recovered and adjusted from the running bill and, therefore, encashment of the entire amount under these two bank guarantees is an illegal financial misappropriation. It was tried to be emphasised that in the bank guarantee the words like "unconditional" or "unequivocal" are not used and, therefore, the bank guarantees are conditional one and such a bank guarantee could not be encashed in the manner done. It was emphasised that as the bank guarantees are conditional bank guarantee unilateral encashment of the bank guarantee in the manner done is unsustainable, particularly, when a sum of Rs. 5.6 Crore have already been recovered from the loan advanced. Placing reliance on a judgment of the Supreme Court in the case of Larsen & Toubro Limited Vs. Maharastra State Electricity Board and Others - (1995) 6 SCC 68 it was argued that the purpose for which the bank guarantees were issued is already exhausted and it was tried to be argued that encashment of bank guarantee was not proper.
9. The second ground canvassed was that the bank guarantees were provided in the name of Addl. Chief Engineer who was the beneficiary of the contract and encashment of the bank guarantee by the Chief General Manager who is not the authorised person in the bank guarantee is unsustainable. It was argued that each bank guarantee is an individual contract between the 5 bank and the person on whose behalf to whom the bank guarantee is given namely the Addl. Chief Engineer in this case and, therefore, the Chief General Manager has no authority to encash this bank guarantee. In support of this, heavy reliance is placed on a judgment of the Supreme Court in the case of Hindustan Construction Limited Vs. State of Bihar and Ors. - AIR 1999 SC 3710(1) and Para 19 and 20 particularly thereof to say that under similar circumstances encashment of a bank guarantee by an unauthorised person is found to be unsustainable.
10. The third ground canvassed was that the bank guarantee is not an unconditional bank guarantee it can be encashed only for recovery of money, if any, payable under the contract. No recovery without adjudication of the dispute pertaining to the money to be recovered can be made and as the bank guarantee is not an unconditional one which does not use the terms to show that it's an unconditional guarantee. The disputed amount recovered without any adjudication when the matter is pending, arbitration is unsustainable. In view of the law laid down by a full Bench of this Court in the case of B.B. Verma Vs. State of M.P., - 2007 (4) M.P.L.J. 601, it was argued that when the amount to be recovered is undisputed, recovery of the amount without any adjudication is unsustainable. Reliance was also placed on another judgment of the Supreme Court in this regard in the case of State Bank of India and another Vs. Maula Sahakari Sakhar Karkhana Ltd. - (2006) 6 SCC 293.
11. The fourth ground was also to the effect that no recovery without adjudication with regard to the default, if any, committed by the appellant can be made good as in this case the justification or otherwise of the appellant to say that they have not been committed any default is still pending for adjudication, therefore, the recovery is unsustainable.
12. Shri Naman Nagrath, learned Sr. Counsel, accordingly, in the background of the aforesaid sought for allowing the appeal and restoring for status quo ante.
13. Shri Waswani appears for the respondents and argues that in this case the contract in question is a work contract and as for the purpose of 6 adjudicating any dispute pertaining to execution of a work's contract for the State of M.P., a separate Arbitration Tribunal, statutory in nature has been constituted under the M.P. Madhyastham Adhikaran Adhiniyam 1983, the Arbitration and Conciliation Act 1996 is not maintainable and appellant should take recourse to the remedy available under the Adhiniyam of 1983. In support of the aforesaid contention he places reliance on a judgment of the Supreme Court in the case of M.P. Rural Road Development Authority Vs. M/S. L.G. Choudhary and Ors. - (2012) 3 SCC 495 and an unreported judgment of this Court i.e., A.C. No.49/2012 decided on 03.12.2013 and a judgment by a Division Bench of this Court in the case of Joint Venture of Envio Pure Aqua System (P) Ld. Vs. Municipal Corporation, Gwalior and others - 2013(1) M.P.H.T. 351. In support of the aforesaid contention he further argues that in the case in question both the bank guarantees are unconditional bank guarantee which can be encashed in the manner done. As the bank guarantees are loaded with terms like "without any demur", "reservation", "testing", "recourse or protest" and various other aspects of the matter. He further points out that in the bank guarantee in question, the Addl. Chief Engineer (work) is defined as an employer, which expression would also mean and include its successors, administrators and assignees. He points out that initially when the project was under construction, the Addl. Chief Engineer (work) was under the administrative control of the Chief General Manager and thereafter the entire scheme was assigned to the Chief General Manager and therefore, he became the successor and assignee for all purpose and had the power to encash the bank guarantee and, therefore, the law laid down in the case of Hindustan Construction (Supra) will not apply.
14. As far as mobilisiation of the advance and encashment of the two advance bank guarantees are concerned it was said that the appellant has received a sum of Rs. 10,48,90,200/- as advance against mobilisation of project and an advance of Rs. 19,31,64,635/- has been received against purchase of major material, accordingly, a total advance of Rs. 29,80,54,835/- was received by the appellant from the respondent and only a sum of Rs.5.60 Crore have been recovered from the advance bill and still a balance of more 7 than Rs. 18.98 Crore is to be recovered under this head. Accordingly, it was tried to be indicated that entire advance has been received is unsustainable.
15. Shri Waswani also argued that in the facts and circumstances as the appellant has committed default in the matter of completion of the work within the time. The resistance of the contract on account of default committed by the appellant or otherwise is pending consideration in the arbitration sought for by the appellant, at this stage, interference in a proceeding under Section 9 is not proper and reasonable. The order passed by the learned Court below after arising prima facie case balance of convience etc., does not call for any interference. Accordingly, he submits that in the facts and circumstances, no case is made out for interference.
16. We have heard learned counsel for the parties and we have also taken note of various aspects of the matter, the first ground canvassed was with regard to encashment of the two bank guarantees which was the bank guarantees towards advance payment. According to the appellant, already a sum of Rs. 5.6 Crore has been recovered under this head and, therefore, nothing further remains to be encashed. However, from the return and the documents filed by the respondent, there is serious dispute in this matter and according to the respondent and the averments made by them in Para - 3 of the reply alongwith detailed statement of account and inventories Annexures RC & RD, a balance of more than Rs.13.98 Crore towards this head still remain. This being a disputed question of fact, we see no reason to interfere into the same. That apart, the petitioner's contention that the recovery is contrary to the law laid down in the case of Larsen & Toubro Limited (Supra) cannot be accepted. In the light of the dispute in the matter of recovery of this advance as is indicated hereinabove.
17. The second objection is with regard to authority of the Chief General Manager for encashment of the guarantee at the instance of the state authority it is stated by the learned Sr. Counsel by referring to the judgment in the case of Hindustan Construction (Supra) that every bank guarantee is an independent contract, separate and distinct in nature and as the bank guarantee is not furnished to the Chief General Manager, the Executive 8 Engineer had no authority to invoke the bank guarantee. It is said that the Addl. Chief Engineer is only authorised and not the Executive Engineer in this regard. We find that in the bank guarantee it is clearly stipulated that the bank guarantee is being furnished in consideration of the Addl. Chief Engineer which is referred to as the employer which expression repugnant to the contest shall also mean and include its successor, administrators and assignees. From the material and document available on record, we find that the assignment has been made in this regard to the Chief Engineer and in this case the bank guarantees have been invoked on the basis of communications made by the Chief General Manager of the project as is evident from Annexure A/8. The assignment, documents and other material available adduced by the respondents alongwith the return i.e. Annexure - RA dated 24.07.2013 and, therefore, prima facie the same seems to be in accordance to the terms and conditions of the bank guarantee and we see no reason to interfere into the matter. On such consideration, the law laid down in the case of Hindustan Construction (Supra) would also not apply. As far as the contention of the petitioner that bank guarantee is not unconditional, we are unable to accept the aforesaid contention also, the bank guarantees are in the following terms i.e. without any demur, reservation, contest, recourse or protest and/or without any reference to the contractor and on any demand made by the employer on the bank the bank shall not be liable to encash the bank guarantee. That being so, we are of the considered view that in this case the judgment relied upon by Shri Naman Nagrath, learned counsel for the appellant will not apply.
18. As far as the ground to say that if adjudications are contrary to law laid down in the case of Larsen and Toubro Ltd. (supra) the bank guarantee could not be revoked. We find that the law with regard to revocation of bank guarantee has been settled and it is an admitted position that in the matter of revocation of bank guarantee the law laid down is that an injunction against enforcement of bank guarantee can be granted by the court only in the event of fraud or irretrievable injustice. In the case of Larsen & Toubro Ltd. Vs. Maharashtra State Electricity Board and Others far back in the year 1995 9 (6) SCC 68 in para 5, after taking note of the judgments pertaining to injunction against encashment of bank guarantee the principle has been crystalized and it is a settled principle of law that in the event of fraud or irretrievable injustice an injunction can be granted in the matter of revocation of bank guarantee.
19. In the present case we have in detail dealt with various aspects of the matter and we find that an unconditional bank guarantee has been granted and, therefore, the action of the respondent in encashing the bank guarantee cannot termed as illegal. We have also gone in detail the reason given and we find that in refusing to grant injunction and in dismissing application under Section 9 of Arbitration and Conciliation Act, 1996 for the facts and circumstances of the case no error has been committed warranting reconsideration. The principle for grant of injunction in the matter of encashment of bank guarantee are not available in the present case and therefore, no ground for interference is made out, particularly when the aforesaid bank guarantee has already encashed, even before the impugned order was passed by the court below.
20. Accordingly, finding no ground, the appeal stands dismissed.
(Rajendra Menon) (S.K. Palo)
Judge Judge
SS / N.Mohan/-