Madhya Pradesh High Court
M/S Makhija Construction Company Thr. ... vs Madhya Pradesh Rural Road Development ... on 15 March, 2018
Author: P.K. Jaiswal
Bench: Virender Singh, P.K. Jaiswal
1 A. R. Nos.3 and 4 of 2018
HIGH COURT OF MADHYA PRADESH : BENCH AT INDORE
D.B.: Hon'ble Shri Pankaj Kumar Jaiswal
Hon'ble Shri Virender Singh, JJ.
Arbitration Revision No. 03 of 2018
M/s. Makhija Construction Company
Versus
Madhya Pradesh Rural Road Development
Authority and another
***************
&
Arbitration Revision No. 04 of 2018
M/s. Makhija Construction Company Through
its Partner Mr. Chandra Kumar Makhija.
Versus
Madhya Pradesh Rural Road Development
Authority and another
***************
Shri Gaurav Chhabra, learned Counsel for the
petitioner.
Shri V. P. Khare, learned Counsel for the
respondents.
*****
ORDER
(Passed on this 15/03/2018) Per P.K. Jaiswal, J.
As common question of law and facts are involved in both these revision, therefore, they are heard analogously and are being disposed of by this common 2 A. R. Nos.3 and 4 of 2018 order. For the sake of convenience, facts are taken from Arbitration Revision No.03/2018.
2. The undisputed facts of the case are that the petitioner's tender for construction/up-gradation of rural roads under Pradhan Mantri Gram Sadak Yojana (PMGSY) Package No.3904 District--Shajapur (M.P.) including maintenance for five years was accepted by the respondents' authority. Thereafter the petitioner entered into the contract with the respondents vide agreement bearing No.02/2002-03 dated 22.04.2002. The tender amount of the work was Rs.400.83 lacs. The period for completion of the work was 9 months including rainy season. The work was completed on 30.12.2003. As per condition No.7.8 of NIT and Clause 19 of the agreement, 50% amount of security deposit was released after 36 months of the completion of the work if the maintenance of road was carried out by the contractor and the 50% of the bank guarantee was released after 36 months. Thereafter the petitioner submitted bank guarantee Nos.41/13, 41/14, and 41/15 3 A. R. Nos.3 and 4 of 2018 dated 9.7.2007 for Rs.7 lakhs each totaling to Rs.21 lacs for the remaining maintenance period of 24 months. The said bank guarantees were valid up to 8.1.2009. The validity of the same had been extended up to 8.10.2009 as per directions of this Court in order dated 16.12.2008 passed in Writ Petition No.7530/2008. Clause 7.8 of the NIT and Clauses 16 and 19-B of the Agreement reads as under:-
"7.8-PERFORMANCE ARANTEE/MAINTENANCE GUARANTEE: The work under this contract shall be expected to be defect free till 60 months from the date of completion. The security deposit will not be returned after completion of work. The contractor shall be responsible for the performance for the work carried out by him for a period of 60 months from the date of completion of work and he shall also be liable for routine maintenance of the road for full period of the maintenance guarantee i.e. 60 months. The maintenance shall be done as per the Ministry of Surface Transport, Government of India Publication "Manual for maintenance of road" and as per Indian Road Congress Publication ITC 82-1982 "Code of practice for maintenance of bituminous surfaces of Highways". During this period the contractor shall have to carry out all necessary repairs/maintenance within 15 days of receipt of such communication from the Engineer/Employer failing which repairs will be carried out by the department and cost will be recovered from any sums that may be due or at any time become due thereafter or from the security deposit.
50% amount of Performance security will be referred after 36 months of the completion and taking over of the work and remaining 50% amount of Performance Security will be released after 60 months from the date of takeover if no defects are noticed or defects are rectified or repairs and routine maintenance is carried to the satisfaction of General Manager."
"Clause 16 - If any time before the security deposit is refunded to the contractor, it shall appear to the Employer or his subordinate or Engineer in charge of the work, that any work has been executed with unsound, imperfect or unskillful workmanship or with materials of 4 A. R. Nos.3 and 4 of 2018 inferior quality, or that any materials or articles provided by him for the execution of the work are unsound, or of a quality inferior to that contracted for, or are otherwise not in accordance with the contract, it shall be lawful for the Engineer to intimate this fact in writing to the contractor and then notwithstanding the fact that the work materials articles complained of any have been inadvertently passed, certified and paid for, the contractor shall be bound forthwith to rectify or remove and reconstruct the work so specified in whole or in part as the case may require, or if so required shall remove the materials or articles so specified and provide other proper and suitable materials or articles at his own proper charge and cost; and in the event of his failing to do so within a period to be specified by the Engineer in writing as aforesaid. The Engineer may rectify or remove and, re-execute the work or remove and replace the materials or articles complained of as the case may be at the risk and expense in all respects of the contractor, which shall be recovered from the Security Deposit, performance Security of the Contractor."
"Clause 19(b): The contractor shall be responsible regarding the performance of the work carried out by him till the period of 60 months from the date of completion of work.
The contractor shall have to carry out all necessary repairs within 15 days on receipt of such communication from the Engineer Employer failing which repairs will be carried out by the department and cost will be recovered from any sums that may be then due or at any time become due thereafter or from the security deposit 50% amount of Performance security will be released after 36 months of the completion and taking over of the work and remaining 50% amount of Performance Security will be released after 60 months from the date of takeover if no defects are noticed or defects are rectified are rectified to the satisfaction of the Project Manager.
The work shall after the expiration of the defect liability period be delivered to the employer in the condition as required by the contract, FAIR WEAR AND TEAR EXPECTED."
3. As per condition No.7.8 of the NIT and Clause 19- B of the agreement it is mandatory that during the period of contract, the contractor shall have to carry out all necessary repairs/maintenance within 15 days of receipt of communication from the Engineer/ 5 A. R. Nos.3 and 4 of 2018 employer, failing which repairs and maintenance work would be carried out by the department and the cost of the same would be recovered from the petitioner.
4. The payments made to the petitioner from time to time during the period of 9 months for completion/construction of roads includes the payment of maintenance of the roads till the period of 60 months from the date of completion of the work. The same Clause also provides that petitioner will have to carry out all the necessary repairs within 15 days of the receipt of the said communication from the respondent Authority/Consultant. In the event of failure of the petitioner to carry out the said maintenance and repairs, it is specifically provided in the said clause that the respondent authorities are entitled to get the maintenance work executed by some other agency and recovery the cost of the same from the petitioner that may be then due or at any time become due thereafter or from the security deposits of the petitioner.
6 A. R. Nos.3 and 4 of 2018
5. The case of the respondents that after completion of the work they have to maintain the roads for a period of 60 months i.e. with effect from 1.1.2004 to 30th December, 2008. The petitioner - contractor maintained the roads and rectified the deficiencies during the first 36 months after the completion of construction of roads in a proper and satisfactory manner but he completely abandoned the work thereafter for the period from 31.12.2006 to 30.12.2008. On 16.1.2006 notice was issued to the petitioner to maintain the roads strictly as per terms and conditions of the agreement and carry out necessary repairs and maintain it properly and thereafter reminders were issued from time to time, the details are as under:-
1) Agreement No.2/2002-03, Dated 22-04-2002.
2) This Office Notice No.58, Dated 16-01-2006.
3) This Office Notice No.539, Dated 19-04-2006.
4) This Office Notice No.1243,Dated 29-08-2006.
5) This Office Notice No.1470, Dated 26-10-2006.
6) This Office Notice No.1681, Dated 28-09-2006.
7) This Office Notice No.2231, Dated 06-01-2007.
8) This Office Notice No.580, Dated 10-03-2008.
9) This Office Notice No.612, Dated 17-03-2008.
10) GM, PIU Agar Notice No.41, Dated 09-01-2008.
11) GM, PIU Agar Notice No.426, Dated 08-03-2008.
12) GM, PIU Agar Notice No.747, Dated 10-05-2008.
13) GM, PIU Agar Notice No.992, Dated 05-06-2008.
14) This Office Notice No.2091, Dated 29-08-2008.
The petitioner was directed for the following works:- 7 A. R. Nos.3 and 4 of 2018
S. No. Name of item Operation Remark
frequency
1 Restoration of rain cuts Once after rains
and dressing of hard
shoulders as per clause
1902 of the
Specifications.
2 Making up of hard As and when
shoulders as per clause required
1903 of the
Specifications.
3 Maintenance of As and when
Bituminous surface eoad required.
and/or gravel road and/or
WBM road including
filling pot holes and
patches repair etc. as per
clause 1907 of the
Specifications.
4 Maintenance of drains as Twice in a year
per clause 1907 of the
Specifications.
5 Maintenance of culverts Twice in a year
and causeways as per
clause 1908 and 1909 of
the Specifications.
6 Maintenance of road Maintenance as
signs as per clause 1910 and when
of the Specifications. required.
7 Maintenance of road Maintenance as
protection work as per and when
the Specifications. required.
8 Maintenance of 200 m Maintenance as
and Kilo meter Stones as and when
per clause 1912 of the required.
Specifications.
9 White washing of guard Twice in a year
stones.
10 Re-fixing displaced Once in a year
guard stones.
11 Cutting of unwanted
branches of tree, shrubs
and trimming of grass
and weeds etc. as per
clause 1914 of the
Specifications.
12 White washing of Once in a year
parapets of C.D. Works.
13 Maintenance of side Once in a year
8 A. R. Nos.3 and 4 of 2018
slops of embankment
but he failed to execute the maintenance work and completely abandoned the work. In view of the aforesaid, the department had to get estimate prepared regarding the maintenance work of the road and after taking necessary approval issued tender and completed the maintenance work through different agency at the risk and cost of the petitioner. Vide Ex.D.1 dated 31.1.2007 the department had informed the petitioner regarding the proposed action for encashment of the bank guarantee for recovery of cost of maintenance of the roads through its letter dated 31.1.2007 and the petitioner failed to submit a quantified claim before the C.E.O. within 30 days from 31.1.2007. In terms of order passed in W. P. No.7530 of 2008, the petitioner vide letter dated 30.12.2008 Ex. P.6 submitted its representation to the C.E.O. and the same was rejected by the C.E.O. vide letter dated 17.4.2009 Ex. P.7.
6. Being aggrieved with the order dated 17.4.2009 9 A. R. Nos.3 and 4 of 2018 the petitioner again filed Writ Petition No.2665/2009. The learned Writ Court vide order dated 23.4.2009 directed that the petitioner firm may approach the M.P. Arbitration Tribunal by raising appropriate challenges, in accordance with law, on or before May 29, 2009. In pursuance to the observations made by the learned Writ Court the petitioner filed a claim to the tune of Rs.26,23,533/- in reference Case No.59 of 2009 and separate claim in reference Case No.60 of 2009 before the M. P. Arbitration Tribunal, Bhopal. The petitioner also challenged the action of the respondents regarding encashment of bank guarantees amounting to Rs.21 lacs and Rs.30 lacs respectively. The learned Tribunal after appreciating the material on record came to the conclusion that the respondents have spent more than Rs.21 lakhs and Rs.30 lacs respectively in repairs and maintenance work for the period from 31.12.2006 to 30.12.2008 and, therefore, no amount is left to be released to the petitioner and rejected the claim. Paras 10 to 10.6 are relevant which 10 A. R. Nos.3 and 4 of 2018 reads as under:-
"10. Claim No.1: Claim on account of release/refund of Bank Guarantee No.41/13, 41/14 and 41/15 for Rs.7,00,000/- each:- Rs.21,00,000/-
The learned Counsel for the petitioner submitted that bank guarantee Nos. 41/13, 41/14, 41/15 all dated 9.7.2007 (Ex. P.1 to Ex. P.3) were submitted by the petitioner towards balance performance security after 36 months, since 50% of the performance security was released by the respondents and the said bank guarantees were submitted as balance performance security as the petitioner was required to maintain the roads for a period of 60 months from the date of completion. Date of completion was 30.12.2003 and the period of 60 months was up to 29.12.2008. Initially the bank guarantees were valid up to 8.7.2008 but were extended up to 8.1.2009 vide guarantee Nos.42/11, 42/12 and 42/13 dated 12.7.2008 (Ex. P.09 to Ex. P.11).
10.1 Learned Counsel for the petitioner further submitted that in utter violation of provisions of Condition No.7.8 and Clause 19 of the agreement, out of prejudice and to cause undue harassment to the petitioner, the respondents vide letter dated 5.12.2008 wrote to the bank for encashment of aforesaid three bank guarantees amounting to Rs.21,00,000/- for which the petitioner had to approach the Hon'ble High Court by filing Writ Petition which was registered as W.P. No.7530/08. In pursuance to the order dated 16.12.2008 petitioner had also submitted representation before the C.E.O., M.P.R.R.D.A. vide letter dated 30.12.2008 and C.E.O. vide order dated 17.4.2009 rejected the representation filed by the petitioner without considering the provisions of Clause 19 and Condition No.7.8 of the agreement. The petitioner has claimed refund/release of the bank guarantee Nos. 41/13, 41/14 and 41/15 amounting to Rs.21,00,000/- in his favour.
10.2. In rebuttal, learned Counsel for the respondents submitted that it is apparent that the respondents were entitled to get the amount of bank guarantee furnished by the petitioner encashed by way of recovering the cost of maintenance work of the roads. In doing so the respondent- authorities intimated the Bank invoking the provision of Clause 19 of the agreement and, therefore, the above action was valid and justified. 10.3 It is pertinent to note that respondents have filed document Ex. D.6 and Ex. D.14, these documents are regarding repair estimates of the roads of Package No.3904. Ex. D.6 is the estimate of the road of Package No.3904 which is as follows:-
**mijksDr fo"k;kUrxZr ys[k gS fd esllZ ekf[ktk dUl- bUnkSj ds iSdst dz- ,e-ih- 3904 ds varxZr ekxZ vfgjcfMZ;k ls ikpk:.Mh ekxZ yEckbZ 430 fd- eh- ,oa H;kuk ls vkxj ekxZ yEckbZ 8-80 fd-eh- tks orZeku esa {kfrxzLr gks jgh gS iSdst ls lacaf/kr vuqca/k ds fjdkMZ bl dk;kZy; esa miyC/k ugha gS] ftl dkj.k Bsdsnkj ls lh/ks i=kpkj ugh fd;k tk ik jgk gSA vr% ekxksZ ds ejEer izkDdyu cukdj vfxze dk;Zokgh gsrq vkidh vksj izsf"kr fd;k tk jgk gSA d iSdst dz- EkkxZ dk uke YkEckbZ ¼fd-eh-½ Bsdsnkj dk uke vko';d ¼ejEer½ jkf'k 1 iSdst dz- vfgjcfMZ;k ls 4.30 es- ekf[ktk ikpk:.Mh H;kuk ls vkxj 11 A. R. Nos.3 and 4 of 2018 ekxZ 2 ,e-ih- 3904 H;kuk ls vkxj 8.80 dUl dz- bUnkSj 547000-00 ekxZ Similarly in Ex. D.14 at Sr. No.3 of the letter dated 8.3.2008 repair estimate of the Package No.3904 is which is as under:-
** mijksDr lanHkZ eas lwfpr fd;k x;k gS esllZ ek[khtk dUl- dEi- bUnkSj ds iSdst dz- ,e-ih- 55-2 ,oa ,e-ih- 3904 ds lacaf/kr leLr ewy jsdkMZ muds dkk;Zy;hu i= dz- 2312@e-iz-xzk-l-fo-izk-@05@nsokl fnukad 17-11-05 }kjk 'kktkiqj bdkbZ dks lkSik tk pqdk gSA vr% iSdst ls lacaf/kr ekxksZ dks esUVsusal izkDdyu cuk dj mfpr dk;Zokgh gsrq izsf"kr gSA d iSdst dz- EkkxZ dk uke YkEckbZ ¼fd-eh-½ Bsdsnkj dk uke vko';d ¼ejEer½ jkf'k 1 iSdst Ekuklk ls 2.88 es- ekf[ktk dUl 275400-00 dz- ,e-ih- dksgfM;k dz- bUnkSj 3904 10.4. Repair estimate of the constructed roads of Package No.3904 according to Ex. D.6 is Rs.5,47,000/- and according to Ex. D.14 is Rs.2,75,400/- total amount is Rs.8,12,400/-, whereas the respondents have retained bank guarantee of the petitioner of Rs.21,00,000/-. During the course of the arguments, Officer-in-charge of the respondents submitted that defects and deficiencies of the constructed roads of the Package No.3904 had already been rectified by the debitable agency which was fixed by the respondents. In our opinion it is improper on the part of the respondents that during pendency of the petition, respondents had neither indicated the amount of expenditure in the pleading nor did they file any document concerning that expenditure incurred by them. 10.5. As it is clear from the record of the case that petitioner has already received his 50% security deposit and other dues from the respondents. At present the only amount which is left with the respondents is performance deposit (in shape of bank guarantees) of Rs.21,00,000/-.
10.6. Under such circumstances, the respondents are ordered to adjust the amount which they have incurred to get the rectification work done by the debitable agency of Package No.3904, from the bank guarantees of Rs.21,00,000/- of the petitioner. After adjustment of the above expenditure if any amount is left, the same be released to petitioner. Hence claim No.1 is decided accordingly."
7. Learned Counsel for the petitioner has submitted that after the completion of work under contract, the petitioner has maintained the roads for a period of five years till 29.12.2008 as per terms and conditions of the contract. The action of the respondents to encash the 12 A. R. Nos.3 and 4 of 2018 bank guarantee is illegal. No material has been produced before the M.P. Arbitration Tribunal to prove that the petitioner had failed to maintain the work for a period of two years i.e. from 30th December, 2006 to 29th December, 2008 (24 months) and in absence of the petitioner the same was awarded to some other contractor at the risk and costs of the petitioner. He further submitted that this fact was also not considered by the learned Arbitration Tribunal and action of the respondents for encashment of bank guarantee was illegal and without considering the aforesaid the learned Arbitration Tribunal dismissed the reference Case of the petitioner.
8. Per contra, Shri V. P. Khare, learned Counsel for respondents--Madhya Pradesh Rural Road Development Authority has submitted that the petitioner had maintained the aforesaid road for three years but remaining two years the petitioner had not maintained the aforesaid roads and thus violated the condition No.7.8 of the NIT and Clause 19 (B) of the 13 A. R. Nos.3 and 4 of 2018 condition of contract. The payment made to the petitioner from time to time during the period of 9 months for completion/construction of roads includes the payment of maintenance of the roads till the period of 60 months from the date of completion. He submitted that the petitioner has performed the work of profitable and left the work of non profitable. From 31.1.2007 to 11.8.2008 notices were issued to the petitioner and in all these letters petitioner was constantly directed by the respondent No.2 regarding periodical and routine maintenance of roads constructed under Package No.3904 of the PMGSY within 15 days from the receipt of the notices otherwise the work would be taken up departmentally and the cost and expenditure to be incurred on it would be adjusted against its security deposit. Thereafter, the respondent No.2 had sent the letter dated 13.2.2008 to the Bank of India for encashment of the bank guarantee. It is also submitted that the petitioner had filed a Writ Petition No.7530 of 2008 against the 14 A. R. Nos.3 and 4 of 2018 encashment of the bank guarantee and the same was decided on 16.12.2008 with a direction to the respondent No.1--C.E.O. to re-consider the matter. The petitioner had submitted the application under Clause 24 of the agreement and the C.E.O. after giving due opportunity to the parties decided the same by order dated 17.4.2009. The order of 17.4.2009 was impugned in Reference Case No.59 of 2009 filed by the petitioner under Section 7 of M.P. Madhyastham, Adhikaran Adhiniyam, 1983. All those claims were considered and rejected by the learned Tribunal vide impugned order.
9. The Arbitration Tribunal after considering pleadings, documents and affidavits of both the side and further considering the notices and provisions of Clause 7.8 of the NIT and Clause 19-B of the condition of contract and recorded the finding in para 8.17 of the impugned order and came to the conclusion that petitioner failed to fulfill the responsibilities regarding the performance of the work carried out by it under 15 A. R. Nos.3 and 4 of 2018 Package No.3904 from 30th December, 2006 to 29th December, 2008 (24 months). The Adhikaran has further ordered in para 10.6 that under such circumstances, the respondents are ordered to adjust the amount which they have incurred to get the rectification work done by the debitable agency of Package No.3904, from the Bank guarantees of Rs.21 lakhs of the petitioner. After adjustment of the above expenditure if any amount is left, the same be released to the petitioner.
10. As per performance guarantee, the Contractor shall be responsible regarding performance of the work carried out by him till the period of 60 months from the date of completion of contract. During the period from 2006 to 2008 total 13 notices were issued to the petitioner and finally the respondents had issued a notice dated 23.10.2008 indicating therein to complete the periodical and routine maintenance as per Clause 7.8 of the agreement and prayed for dismissal of the arbitration revisions.
16 A. R. Nos.3 and 4 of 2018
11. We have heard the learned Counsel for the parties and perused the record.
12. The petitioner-contractor has furnished the unconditional bank guarantee. Copy of one of such Bank Guarantee, reads as under:-
"1. In consideration of the Chief Executive Officer/General Manager Madhya Pradesh Rural Road Development Authority (herein after called "the Authority") having agreed to grant M/s Makhija Construction Company, 404, Alankar Point A. B. Road, Indore (herein after called "the said Contractor(s)") from the demand, under the terms and conditions of an Agreement dated 06/04/02 made between General Manager, M.P. R.R.D.A. PIU DEWAS and M/s Makhija Construction Company for Construction and maintenance of Rural Roads under Pradhan Mantri Gram Sadak Yojana Pkg. No.3904 (herein after called "the said Agreement") of security deposit for the due fulfillment by the said Contractor(s) of the terms & conditions contained in the said agreement on production of Bank Guarantee for Rs.7,00,000/- (Rupees Seven lack only. We Bank of India, Khajrana Branch (herein referred to as "the Bank") do hereby undertake to pay to Authority an amount not exceeding Rs.7,00,000/- (Rupees Seven lacs only) against any loss or damage caused to or suffered or would be caused to or suffered by the Authority by reason of any breach by the said Contractor(s) of any terms and conditions contained in the said agreement.
2. We Bank Of India, Khajrana Branch, do hereby undertake to pay the amount due and payable under this Guarantee without any demure merely on a demand from the Authority starting that the amount claimed is due by way of loss or damage caused to or suffered by the Authority by reason of any breach by the said Contractor (s) of any of the terms or condition contained in the said agreement 17 A. R. Nos.3 and 4 of 2018 or by reason of any of the Contractor(s) failure to perform the said agreement. Any such demand made on the Bank shall be conclusive as regard the amount due and payable by the Bank under this Guarantee. However, our liability under this Guarantee shall be restricted to an amount not exceeding Rs.7,00,000/- (Rupees Seven lack only).
3. We, Bank Of India, Khajrana Branch, further agree that the Guarantee herein contained shall remain in full force and effect during the period that would be taken for the performance of the said agreement and that it shall be continue to be enforceable till all dues of the Authority under or by virtue off the said Agreement have been fully paid and its claim satisfied or till Authority certifies that the terms of the said Agreement have been fully and properly carried out by the said Contractor(s) and accordingly discharges the Guarantee. Unless a demand or claim under this Guarantee is made on in writing on or before 08/07/2008 we shall be discharged from all liability under this Guarantee thereafter.
4. We, Bank Of India, Khajrana Branch, further agree with the Authority that the Authority shall have the fullest liberty, without our consent and without affecting in any manner obligations here under, vary any of the terms and condition of the said agreement or to extend time of performance by the said contractor(s) from time to time or to postpone for any time or from time to time any of the powers exercisable by the Authority against the said Contractor(s) and to fore-bear or enforce any of the terms and conditions relating to the said Agreement and we shall not be relieved from our liabilities by reasons of any such variation of extension having granted to the said Contractor(s) for any forbearance act, or commission on the part of the Authority or any indulgence by the Authority of the said Contractor(s) or by any such matter or thing whatsoever which under the law relating to sureties would but for this provision have effect of so relieving us.
5. We, Bank Of India, Khajrana Branch, herey also undertake to have the signature of Branch Manager issuing the Bank Guarantee verified from the local branch of the Bank in M.P.
6. We, Bank, Of India, Khajrana Branch, 18 A. R. Nos.3 and 4 of 2018 hereby unequivocally undertake that if the Authority invokes the Guarantee the Bank, Khajrana, will make the payment to the Authority without any reference and demure.
7. We, Bank Of India, Khajrana Branch, lastly undertake not to revoke this Guarantee during its currency except with the previous consent of the Authority in writing."
13. From the perusal of the aforesaid, it is clear that Bank Guarantee which was originally furnished by the petitioner was unconditional. The law on the subject is well settled. The Hon'ble Supreme Court has said that commitments of banks must be honoured free from interference by the Courts. An irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with. In order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serious dispute and there should be good prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation will get jeopardised. 19 A. R. Nos.3 and 4 of 2018 Paras 53 to 55 of the law laid down in the case of U. P. Cooperative Federation Ltd. Versus Singh Consultants and Engineers (P.) Ltd, are relevant which reads as under:-
"53. Whether it is a traditional letter of credit or a new device like performance bond or performance guarantee, the obligation of the banks appears to be the same. If the documentary credits are irrevocable and independent, the banks must pay when demand is made. Since the bank pledges its own credit involving its reputation, it has no defence except in the case of fraud. The bank's obligations of course should not be extended to protect the unscrupulous seller, that is, the seller who is responsible for the fraud. But, the banker must be sure of his ground before declining to pay. 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 the fraud of the beneficiary, not fraud of somebody else. If the bank detects with a minimal investigation the fraudulent action of the seller, the payment could be refused. The bank cannot be compelled to honour the credit in such cases. But it may be very difficult for the bank to take a decision on the alleged fraudulent action. In such cases, it would be proper for the bank to ask the buyer to approach the court for an injunction.
54. The court, however, should not lightly interfere with the operation of irrevocable documentary credit. In order to restrain the operation of irrevocable letter of credit, performance bond or guarantee, there should be a serious dispute to be tried and there should be a good prima facie acts of fraud. As Sir John Donaldson, M. r. said in Bolivinter Oil SA v. Chase Manhattan Bank.
"The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it discharged."20 A. R. Nos.3 and 4 of 2018
55. From the above discussion, what appears to me is this: The sound banking system may, however, require more caution in the issuance of irrevocable documentary credits. It would be for the banks to safeguard themselves by other means and generally not for the court to come to their rescue with injunctions unless there is established fraud. In the result, this appeal must be allowed. The judgment and order of the Allahabad High Court dated February 20, 1987 must be set aside and the order of learned Civil Judge, Lucknow dated August 8, 1986 restored."
14. From the aforesaid, we are of the view that the petitioner has not fulfilled the responsibility regarding the performance of the work carried out by it for the period of two years i.e. from 30th December, 2006 to 29th December, 2008 (24 months).
15. From the record it is also clear that the petitioner was notified defects and deficiencies by the respondents as regards the maintenance of roads of package No.3904 from time to time but despite receipt of notices, the petitioner failed to carry out all necessary repairs within 15 days from the receipts of communication from the Engineer in charge of the respondent No.1.
16. The jurisdiction of this Court under Section 19 of the M.P. Madhyastham Adhikaran Adhiniyam, 1983 is 21 A. R. Nos.3 and 4 of 2018 limited. This Court cannot exercise the powers of Appellate Court. Findings recorded by the Tribunal are neither perverse nor illegal. In revision findings of fact cannot be interfered, though different view may be possible. The Tribunal has not misconducted itself or the proceedings.
17. On due consideration of the aforesaid and the law laid down by the Apex Court in respect of encashment of unconditional and unequivocal bank guarantee, no case is made out to interfere with the impugned order.
18. Consequently, Arbitration Revision No.3/2018 and Arbitration Revision No.4/2018 are, accordingly, dismissed but without any order as to costs.
A copy of this order be retrained in A. R. No.4 of 2018.
(P.K. JAISWAL) (VIRENDER SINGH)
JUDGE JUDGE
pp
Digitally signed by Pankaj Pandey
Date: 2018.03.20 14:27:55 +05'30'