Delhi District Court
Bharat Heavy Electricals Ltd vs Pt. Merak Energi Indonesia on 28 March, 2018
IN THE COURT OF MS. VINEETA GOYAL,
ADDITIONAL DISTRICT JUDGE 03, SAKET COURTS,
SOUTH DISTRICT, NEW DELHI
Suit No.9391/16
CNR no DLST010064422016
In the matter of :
Bharat Heavy Electricals Ltd.
A company incorporated and registered
under the Companies Act, 1956
having its registered office at:
BHEL House, Asian Games Village,
Siri Fort, New Delhi .......... Plaintiff
Versus
1. PT. Merak Energi Indonesia
a limited liability company
having its principal office at:
Ratu Plaza Office Tower,
14th Floor, Jl. Jend, Sudirman Kav.
9, Jakarta, 10270 .......Defendant no. 1
2. State Bank of India
Corporate Accounts Group Branch
Jawahar Vyapar Bhawan
11th and 12th Floor,
1, Tolstoy Marg,
New Delhi 110 001
(deleted from array of parties on 29.04.2011) .....Defendant no. 2
Suit presented on : 08.08.2006
Arguments Heard on : 15.02.2018
Judgment Pronounced on : 28.03.2018
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Appearance :Sh. Lalit Bhasin, Sh. Mudit Sharma and Sh. Neeraj
Redhu, Ld counsels for the plaintiff.
Sh. Amit Singh Chadha, Ld. Sr. Advocate with Sh.
Savinder Singh, Sh. Vinayak Kapur, Ld. Counsels for
the defendant
JUDGMENT :
1. The plaintiff herein has filed a suit for permanent injunction
as well as declaration against the defendants.
2. Facts as appearing in the plaint are that the plaintiff is a
registered Company under the Companies Act 1956 and is a
Government of India Undertaking having its registered office at
BHEL House, Asian Games Village, Siri Fort, New Delhi and is the
leading designers, manufacturers and suppliers of Power Plant
Equipment in the world. The defendant no.1 is an Indonesian
limited liability company having its Principal Office at Ratu Plaza
Office Tower, 14th Floor, JI, Je &. Sudirman Ka.9 Jakarta and has
been set up for establishing and running a power plant, while the
defendant no.2 is a nationalized bank and is plaintiff's banker.
2.1 It is next averred that defendant no.1 invited tenders on or
about December 2003 for an inclusive turnkey contract to establish
a 2x60 MW Coal Fire Thermal Power plant, located at Merak, West
Jawa, Indonesia (hereinafter referred as "Project"). The plaintiff,
after considering the terms of tender, gave its letter of offer
sometimes in February 2004 consisting of its technical bid and its
financial bid to be engaged as contractor for the aforesaid 'Project'
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and pursuant to extensive due diligence conducted by defendant no.
1, the defendant no.1 considered the plaintiff as being qualified for
the 'Project'. Consequently, the plaintiff issued a Letter of Intent
dated 31.03.2005 to award part of "Project" comprising inter alia of
design, engineering, manufacturing, testing (where applicable),
protective painting, packing and CIF Merak, West Jawa, Indonesia,
was to supply of certain machinery, equipments etc. to the plaintiff
on an exclusive basis. It is further averred that subsequent to the
said Letter of Intent dated 31.03.2005, the defendant no.1 also
awarded the remaining part of 'Project' to the plaintiff vide its letter
dated 27.04.2005 after considering the plaintiff's proposal and
holding discussions and negotiations. The total value of the contract
awarded to the plaintiff was US $ 66,018,406 plus Indonesian
Rupiah 239,198,023,130/. The total contract value when converted
to US dollar at the time of issuance of Letter of Intent was
approximately US $ 91,605,300.
2.2 It is averred that in terms of Letter of Intent dated
31.03.2005 and letter dated 27.05.2005, the defendant no.1 required
the plaintiff to proceed with sourcing commitment and basic and
detailed engineering so as to facilitate the detailed Engineering
analysis and timely commitments for manufacturing centers and
vendors. In terms of Letter of Intent, it was decided that defendant
no.1 will pay 1.0 % of the contract value towards commitment fee
adjustable against advance payment to be made by defendant no.1
on execution of contract and for the said purpose, the plaintiff was
required to submit an acceptable Bank Guarantee of equivalent
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BHEL Vs. PT Merak Page 3 /63
amount with claim period of no less than 12 months.
2.3 It is averred by the plaintiff that pursuant to the provisions of
clause (GG) of Letter of Intent, a Bank Guarantee issued by State
Bank of India (defendant no. 2) was furnished by the plaintiff in
favour of defendant no.1 but as per clause HH of Letter of Intent,
they were to enter into a final contract agreement after mutual
discussion and agreements within 120 days of Letter of Intent dated
31.03.2005. It is submitted that Letter of Intent did not contain any
termination clause. The plaintiff averred that in accordance with
Letter of Intent, engineering and manufacturing centre of plaintiff
commenced key processing activity for which considerable expenses
as well as investments were committed by the plaintiff on the
strength of commitments and assurances given by the defendant
no.1. It is also averred that subsequent to the issuance of Letter of
Intent, the plaintiff was subjected to heavy additional financial
burden owing to substantial increase in the price of raw materials
and inputs.
2.4 It is further averred that the defendant no.1 was required to
forward the draft contract agreement to the plaintiff by May 2005
and the contract was scheduled to be signed in June 2005. However,
the defendant no.1 did not forward the draft contract as per the
schedule agreed between the parties thus number of meetings of the
project teams of the plaintiff and defendant no.1 was held between
June 13, 2005, eventually the draft contract was forwarded to the
plaintiff partly in the end of September 2005 and partly in October
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2005. In the meantime, the plaintiff was constantly pursuing the
defendant no.1 regarding the finalization of contract and meetings
were also held in this regard with the said defendant and with their
consultants. It is also averred that even prior to the receipt of draft
of contract from defendant no.1, the plaintiff had time and again
been bringing the fact of uncertainty in the market taking toll on
the project cost/ price to the attention of defendant no.1 and it was
imperative to contain the potential cost impact including the
undesired fluctuation in the market through mutual understanding
and cooperation and finalization of contract agreement. The
defendant no.1 instead of addressing the concern of the plaintiff,
forwarded the commercial portion of the contract on 21.09.2005 and
draft of technical portion of contract agreement on 12.10.2005.
These drafts were in total contravention of the terms of tender
specification and included new terms and requirement which were
contrary to the agreed premises on which the price proposal were
originally given by the plaintiff in February 2004. At that stage,
review thereof would have taken significant number of days and
month and thereby resulted in further delay in launch of 'Project'. It
is further averred that during the meetings with the defendant no.
1, the plaintiff continued to impress upon it that affirmative actions
which formed the promise for release of commitment fee by the
defendant no. 1 to the plaintiff in accordance with Letter of Intent
and that inordinate delays in resolving the open issues between the
parties that had already put additional financial burden and while
emphasizing the aforesaid facts to the defendant no.1, the plaintiff
asserted that in view of prolong delay in launching the project, it
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was essential to work out a suitable formula to adjust the escalated
price of contract.
2.5 It is further averred that in view of the time and resources
invested by the plaintiff over a period of almost two years since the
invitation of tenders by defendant no.1, the plaintiff continued to
cooperate with defendant no.1 and its counsel at Singapore to
resolve all issue for conclusion / execution of contract including the
issue of escalation of cost due to delay in finalization of contract
which was attributed solely to defendant no.1. During its meeting
with defendant no.1, the plaintiff continued to the impress upon the
fact that inordinate delay in resolving open issues between the
parties had already put additional financial burden on the plaintiff.
However, taking advantage of the fact that plaintiff had subjected
itself to considerable expenses for fulfilling its commitment under
the Letter of Intent only on the basis of assurances and commitment
made by defendant no.1 but the defendant no.1 adopted a rigid
approach with respect to new requirement and the material changes
incorporated by it in the abovementioned draft contract agreement.
The defendant no. 1 tried to justify the changes on the basis that it
was advised by its counsel that such changes are of general form
and are accepted in international market and the plaintiff shall
have to execute the contract as it is.
2.6 It is further averred that while the plaintiff was in process of
reviewing the draft contract agreement, it received a
communication dated 19.05.2006 from defendant no.1 requiring the
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plaintiff to extend the Bank Guarantee due to expire on 06.06.2006
for a further period of two months i.e. 06.08.2006 and to forward the
new extended Bank Guarantee to the defendant no.1 by 23.05.2006.
It is further averred that anticipating the plaintiff was not likely to
agree to the revised draft contract terms as proposed by it, the
defendant no.1 started resorting to coercive tactics. It is further
averred that defendant no.1 addressed a letter to the plaintiff on
23.05.2006 claiming for repayment of commitment fee paid to the
plaintiff pursuant to section (GG) of the Letter of Intent by
31.05.2006 on the ground that since the contract agreement had not
come into existence, it was entitled to claim the repayment of
commitment fee. However, before expiry of aforesaid time on
26.05.2006, the defendant no.1 made a demand on defendant no.2
pursuant to the Bank Guarantee for full payment of the
commitment fee within two days. It is further avered that defendant
no.1 again addressed a letter on 27.05.2006 reviving its earlier
request for extension of validity of Bank Guarantee from two
months to one month i.e. upto 06.07.2006 instead of 06.08.2006 and
stated that in the event the extended Bank Guarantee was received
by defendant no.1 by 29.05.2006 it would consider its earlier claim
for payment made with defendant no.2 as cancelled. In furtherance
of its endeavour to conclude the contract in an amicable manner the
plaintiff extended the validity of Bank Guarantee till 06.07.2006 in
good faith on the belief that defendant no.1 shall cooperate in
concluding the contract within the said period.
2.7 It is further averred that meetings were fixed for the
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purposes of discussing and negotiating the terms of draft contract
and on several occasions but these meetings were aborted or
postponed at the behest of defendant no.1 at the last minute. It is
also averred that defendant no.1 again requested the plaintiff to
extend the Bank Guarantee for another one month to expire on
07.08.2006 and keeping in view this request, Bank Guarantee was
again extended till 21.07.2006. Again the defendant no.1 vide its
letter dated 13.07.2006, requested for extension of validity of Bank
Guarantee from 21.07.2006 to 21.08.2006 and since the plaintiff and
defendant no.1 were scheduled to hold a meeting for finalization of
contract between 17.07.2006 to 19.07.2006, the plaintiff suggested
vide its letter dated 14.07.2006 that the issuance of compensation
for increase of raw material and input prices which had long been
pending and had not been addressed by defendant no.1 despite
repeated correspondences shall also be discussed in proposed
meeting. It was also advised that matter regarding extension of
validity of Bank Guarantee would also be decided in the said
meeting. However, in response to the plaintiff's aforesaid proposal,
the defendant no.1 took a categorical hard stand that it had never
agreed for price escalation as the condition for finalization of
contract and that in the event plaintiff failed to extend the Bank
Guarantee by 18.07.2006 as required by it, it shall file a claim for
payment of Bank Guarantee with defendant no.2 on 19.07.2006.
The defendant no.1 simultaneously also wrote a letter to defendant
no.2 on 19.07.2006 inter alia stating that unless the Bank
Guarantee period were extended the full repayment of commitment
fee be made to it within two business days.
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2.8 It is further averred that believing the parties were close to
concluding the contract as meetings has been held between the
plaintiff and the defendant no.1 on 17 and 19.07.2006, the plaintiff
again extended the validity of Bank Guarantee for a period of 15
days i.e. till 05.08.2006.
2.9 It further averred that despite the reminder dated 25.07.2006
from the plaintiff the defendant no.1 did not revert with a reply till
27.07.2006 and vide its letter dated 27.07.2006 the defendant no.1
refused to consider approving of the price compensation /escalation
proposed by the plaintiff. Since the defendant no.1 did not make
any counter proposal for resolving the issue of price escalation and
with a view to clarify the basis of computing the price escalation
claimed by it and also with the purpose of amicably finalizing all the
issue, the plaintiff again addressed a correspondence to the
defendant no.1 on 01.08.2006 reiterating its availability, willingness
and eagerness to close all open issue including that of price
escalation and to finalize the contract without further delay.
2.10 The plaintiff received a letter dated 02.08.2006 from
defendant no.1 urging the plaintiff to extend the validity of Bank
Guarantee due to expire on 05.08.2006, if possible until 04.09.2006
and further threatened that in the event it did not receive the
extended guarantee by 03.08.2006, it would invoke the Bank
Guarantee and demand the amount from defendant no.2 by
04.08.2006. Taking into consideration the past experience with
defendant no.1 and in interest of finalization of contract, the
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plaintiff requested defendant no.2 to extend the validity of Bank
Guarantee by 15 days i.e. 20.08.2006. However, since the plaintiff
had not received the renewed / extended Bank Guarantee from
defendant no.2, the plaintiff had reasonable apprehension that
defendant no.2 is in the process of complying with the request of
defendant no.1 and honoring its demand for the payment of the
guarantee amount to it. It is averred that the defendant no.1 had
played fraud on the plaintiff by causing it to undertake the sourcing
commitment required to be complied with it under the Letter of
Intent, by holding out false representation and assurances. In
perpetration of further fraud, both on the plaintiff as well as
defendant no.2, the defendant no.1 is seeking encashment of Bank
Guarantee issued by defendant no.2 even though no event or
occasion has arisen entitling defendant no.1 to invoke the same. The
plaintiff never defaulted in execution of work as agreed in terms of
Letter of Intent and it has also never been alleged by defendant no.1
that on account of any failure of the plaintiff to commence or fulfill
the commitment under the Letter of Intent, it is seeking to invoke
the Bank Guarantee. In fact the tenor of each request made by
defendant no.1 to the plaintiff to renew / extend the validity of Bank
Guarantee, failing which it would invoke the same, clearly
demonstrate that no event for invocation of Bank Guarantee has
occurred to the knowledge of defendant no.1. It is averred that
malafide conduct of defendant no.1 is evident from extensive
correspondences exchanged by the plaintiff and the defendant no1
and the action of defendant no.1 of invoking the Bank Guarantee
vide its letter dated 03.08.2006 is arbitrary, illegal and fraudulent
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and is an act attempted to deceive and to receive unjust enrichment
for a claim which has not arisen. It is averred that in fact it is a
plaintiff who had incurred substantial expenditure and secured 3 rd
party commitment worth over Rs.2 Crores (excluding considerable
engineering done and man hours spent thereon by the plaintiff)
required to be undertaken under the Letter of Intent. It is also
averred that arbitrariness and egregious fraud on the part of
defendant no.1 is evident not only from his conduct, but even from
the terms of Letter of Intent which does not contain a provision of
termination and in clause (Bank Guarantee) it is stipulated that
commitment fee would be adjusted against the advance payment
and as such the Bank Guarantee issued in terms of Letter of Intent
did not envisage invocation of Bank Guarantee prior to the
execution of final contract and payment of advance under the
contract, hence the letter of invocation dated 03.08.2006 is
fraudulent, illegal, wrongful and vitiates the entire underline
transaction. It is further averred that this court has territorial
jurisdiction as a part of negotiation to the contract take place at
New Delhi, the Letter of Intent is deemed to have been executed at
New Delhi upon the plaintiff having issued its acceptance to the
Letter of Intent on 04.04.2005. Further, a number of
communications were addressed by defendant no.1 to the plaintiff
at New Delhi. Thus, qua the main contract itself a part of cause of
action arise in New Delhi. Most pertinently the Bank Guarantee
was issued at and by the New Delhi branch of defendant no.2 and
same was duly accepted by defendant no.1. Defendant no.1 has
sought invocation of Bank Guarantee by making a demand on
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defendant no.2 at New Delhi and defendant no.2 is also carrying on
its business within the jurisdiction of this court. On strength of
aforesaid grounds, a prayer was made that a decree of permanent
injunction as well as declaration be passed in favour of plaintiff.
3. Pursuant to notice issued, the defendants appeared and filed
separate written statement. Defendant no.1 in its written statement
interalia raised various preliminary objections including that this
court has no territorial jurisdiction, as no part of cause of action has
arisen within the jurisdiction of this court. The Bank Guarantee
was tendered by defendant no.2 to the defendant no.1 in Jakarta
Indonesia and further, the Bank Guarantee states that all rights
and obligations of the parties shall be determined under the
Singapore laws and the governing laws applicable to the Bank
Guarantee is laws of Singapore therefore, only Singapore court can
have jurisdiction to adjudicate the present matter. It is further
submitted that Letter of Intent from which the Bank Guarantee is
flowing also mentions that "this Letter of Intent is governed and
construed under the laws of Republic of Indonesia". It is further
submitted that no act has been done by defendant no. 1, therefore,
no cause of action has accrued or has arisen within the jurisdiction
of this court. It is further submitted that the Bank Guarantee was
provided as a security to the commitment fees deposited by the
defendant no. 1 with plaintiff and Bank Guarantee was invoked as
plaintiff was to refund the same. The plaintiff had prior to final
invocation, duly extended the Bank Guarantee without any protest
which shows that it acknowledged that the defendant no. 1 was
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entitled to seek refund of commitment fees paid by it to the plaintiff.
It is further submitted that plaintiff is guilty of suppression of
material fact from this court and is not entitled for any relief. The
plaintiff has concealed the fact that both Letter of Intent dated
31.03.2005 and Bank Guarantee dated 06.06.2005 are not governed
by Law of India but that of Republic of Indonesia and Singapore
respectively. The plaintiff has not diverged the fact that the
plaintiff itself was guilty of delaying the finalization and execution
of contract. The invocation of Bank Guarantee by the defendant no.
1 was for the money, which was paid by defendant no. 1 to the
plaintiff towards the commitment fee. The Bank Guarantee
tendered by defendant no. 2 was irrevocable and independent
therefore, the defendant no. 2 under no circumstances can refuse
the payment of Bank Guarantee. The Bank is bound to make
payment irrespective of any contractual dispute between the
plaintiff and defendant no. 1. It is further submitted that on
02.08.2006, the defendant no. 1 demanded the commitment fees
paid by defendant to the plaintiff as plaintiff has failed to execute
the contract and on 03.08.2006, the defendant no. 1 on failure of
plaintiff to return the commitment fee stated that Bank Guarantee
should be paid after two business days from the receipt of the said
letter.
3.1 It is further averred that a contact or a Bank Guarantee is
independent of main contract. In the course of commercial dealings
when an unconditional and irrevocable Bank Guarantee is
tendered, the beneficiary is entitled to realize such a Bank
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Guarantee in terms thereof irrespective of any pending disputes.
The encashment of Bank Guarantee can only be restrained in case
of fraud of serious nature or special equities. The existence of any
dispute between the parties to the contract is not a ground for
issuing an injunction to restrain the enforcement of Bank
Guarantees. The guarantees of irrevocable nature, payable by the
guarantor on the demand should be honored without demur. It is
further averred that the plaintiff only on 04.08.2006 replied to letter
dated 03.08.2006 wherein the plaintiff disputed the facts stated by
defendant no. 1 and even at the stage the plaintiff never had
averred any fraud or fraudulent intention of defendant no. 1.
However, plaintiff for the very first time pleaded fraud of egregious
nature in its plaint. It is at this stage the plaintiff had stated that
Bank Guarantee has been invoked with fraudulent intention,
however plaintiff in its plaint has failed to demonstrate any fraud or
fraudulent intention in execution of the contract of guarantee or for
its invocation or in the contractual transaction. A Bank Guarantee
constitutes an agreement between the banker and the Principal at
the instance of promiser and when a contract of guarantee is sought
to be invoked, it is primarily for the bank to plead a case of fraud
and not for the promiser to set up a case of breach of contract. It is
further averred that plaintiff executed Letter of intent and
thereafter only on the instruction of plaintiff tendered the Bank
Guarantee to the defendant no. 1 and plaintiff as well as defendant
have agreed to submit to the jurisdiction of Singapore court and to
the Indonesian court and therefore at this stage, the plaintiff cannot
state that since defendant no. 1 is not a resident of India nor has
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any branch or operations in India, the plaintiff would suffer
irreparable loss and injury in case of encashment of Bank
Guarantee as the plaintiff knowingly had entered into the contract
with defendant no.1 that any legal remedies would lie in the
Singapore or in Indonesian courts. There can be no special equities
in this regard in favour of the plaintiff.
3.2 The defendant no. 1, rather submitted that defendant no. 1 is
a limited liability company under the laws of Indonesia and is
engaged in the business of generating electricity projects. The
defendant no. 1 in and around December 2002 sought all inclusive
Turkey contract to establish "Project" and had invited global tender
bearing explicit details with regard to the project were provided.
The defendant no. 1 considered the plaintiff as qualified and
accordingly on 31.03.2005 issued a Letter of Intent to the plaintiff
wherein certain scope of work was ascribed to the plaintiff described
therein as BHEL scope or BSCOPE. The plaintiff was to act as the
exclusive supplier for defendant no. 1 and in so far as nonBHEL
scope of work was concerned, the same was to be decided later on by
defendant no. 1. It was also provided in Letter of Intent dated
31.03.2005 that defendant no. 1 shall pay to the plaintiff a
commitment fee @ 1 % for the BHEL's scope contract value against
plaintiff submission of a Bank Guarantee for an equal amount. The
said Letter of Intent specified its validity till 11.04.2005 and it was
also stated that formal contract agreement would be entered on
mutual discussions and agreed terms by the parties within. The
defendant no. 1 hereafter referred to various emails /correspondence
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exchanged /emails between the parties as enumerated under para
no. 4 to 127 of the brief facts as per detailed mentioned in para no. C
of the written statement and stated that precondition of price
escalation was never agreed by the defendant.
3.3 It is also submitted that the plaintiff has till date did not
adduce a single shred of document to show that it had proceeded or
secured sourcing commitments etc. It is also submitted that the
defendant no. 1 had paid US dollar 910,653/ to the plaintiff on
01.07.2005 and thus money was lying in trust with the plaintiff and
the repayment being secured by way of Bank Guarantee in
question. Letter of Intent provided for entering into contract on
mutually agreed terms within 120 days of Letter of Intent. The said
period was later on mutually extended by the plaintiff and the
defendant no. 1 and Letter of Intent was made coterminus with the
execution of final contract. It is further submitted that neither in
the offer letter nor in the Letter of Intent or draft contract any issue
of price escalation was subscribed by the plaintiff or the defendant
no. 1. It is apparent from Letter of Intent dated 31.03.2005 and
letter dated 27.04.2005 that the plaintiff had agreed to work for the
defendant no. 1 at a certain specific consideration as mentioned
therein. Admittedly the total contract value was USD 91,065,300,
thus, even assuming, though without admitting that there was any
price escalation in raw material and inputs, the same was outside
the scope and purview of the terms and conditions agreed between
the defendant no. 1 and the plaintiff and as such the plaintiff had
no occasion to wriggle itself out of the contractual obligations on
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that account. Even as per the documents adduced by the plaintiff, it
is evident that there was no question of turn key price escalation
and the same was to be based on the plaintiff's letter dated
25.02.2005 and the same is evidenced in the minutes of meeting
held on 25/26042005 between the plaintiff and the defendant no. 1
at Jakarta, Indonesia. It was agreed between the parties that "total
turn key price would remain the same as given in BHEL's offer
letter of 25.02.2005". It is further submitted that misconduct of the
plaintiff is also evident from the fact that it started raising
frivolous and baseless issues in order to defeat the very objective of
Letter of Intent and further in order to thwart any possibility under
which the plaintiff and the defendant no. 1 could have entered into
a final contract. The defendant no. 1 has suffered losses on account
of nonexecution of final contract by the plaintiff and the defendant
no. 1 reserves its right to take appropriate action against the
plaintiff as may be available to the defendant no. 1 under Laws of
Republic of Indonesia. It is also submitted that the plaintiff is also
guilty in causing delay in formulation of draft contract as it delayed
to give timely information required for drafting the contract to the
consultants of the plaintiff. The defendant no. 1 denied that the
plaintiff even prior to receipt of draft contract ever pressed upon the
escalation in the price of raw material and the same was required to
be addressed in the contract rather submitted that only cursory
references were made by the plaintiff to the defendant no. 1 with
regard to price escalation, which issue was already settled as the
plaintiff had agreed to work on turn key price basis as per Letter of
Intent dated 31.03.2005. It is further averred that negotiations
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between the plaintiff and the defendant no. 1 largely pivoted on the
finalization of the terms of the contract. At no point of time prior to
the plaintiff's email of 27.02.2006 did the plaintiff and the
defendant no. 1 discussed price escalation. Also during the final
meeting when the plaintiff wanted to make the finalization of
certain technical terms and conditions of the contract subject to
price escalation, the said suggestion was forthrightly rejected by the
defendant no. 1. Further considering the work involved it was
imperative to have a detailed contract in place and as such the same
was being drafted at the defendant no. 1's end and the same
entailed some marginal delays which were acquiesced to by the
plaintiff. The plaintiff also caused several delays at its end as is
evident from the records and despite all of that the defendant no. 1
was willing to conclude the contract with the plaintiff. It is also
submitted that neither the tender document nor the plaintiff's offer,
Letter of Intent and or any other document contemplated price
escalation. As such the plaintiff after receiving huge sum of money
from the defendant no. 1 as commitment fee attempted to thwart
finalization and execution of the contract on one pretext or another.
It is averred that money demanded under the Bank Guarantee
rightfully and legitimately belongs to the defendant no. 1 as the
same is defendant no. 1's own money which it had paid to the
plaintiff as commitment fees. It is also averred that the letter dated
19.05.2006 was issued to the plaintiff in order to facilitate the
plaintiff and in order to secure the Bank Guarantee which was to
expire on 06.06.2006. No reply to the said letter is stated to have
been sent by the plaintiff to the defendant no. 1. As such the
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defendant was constrained to ask the plaintiff to repay the
commitment fee which monies legitimately and lawfully belonged to
the defendant no. 1. Further, when the plaintiff failed to provide the
extended Bank Guarantee, the defendant no. 1 was constrained to
invoke the Bank Guarantee on 26.05.2006 and only after invocation
was done by the defendant no. 1 that the plaintiff wrote to the
defendant no. 1 on 26.05.2006 stating that it will extend the Bank
Guarantee. It is further submitted that the defendant in good faith
accepted the assurances extended by the plaintiff that the contract
will be finalized within extended time of Bank Guarantee which
was not the real intent of the plaintiff. Acting on such assurances by
the plaintiff wherein it was stated that the extended Bank
Guarantee would be provided to the defendant no. 1, the defendant
no. 1 readily agreed to cancel its invocation letter dated 26.05.2006
if the extended Bank Guarantee was received. The defendant no. 1
in good faith went extra mile in order to facilitate the plaintiff. It is
also averred that the defendant no. 1 always cooperated with the
plaintiff for finalization of the contract however as it did not budge
to the demands of the plaintiff for price escalation, the plaintiff
created unnecessary hurdles for finalization of the contract. On
merits, it is again submitted that the defendant no. 1 invoked the
Bank Guarantee under its lawful rights to retrieve its legitimate
monies from the plaintiff and a prayer was made that the suit filed
by the plaintiff be dismissed.
4. The defendant no. 2 in its written statement raised various
preliminary objections interalia averring that pursuant to some
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contract between the plaintiff and defendant no. 1, which is an
Indonesian Ltd. Liability company, the plaintiff requested the
answering defendant to issue a Bank Guarantee in favour of
defendant no. 1 for a sum of $910,653 vide letter dated 02.05.2005,
accordingly, a Bank Guarantee no. 999605 PFB 0026 was issued on
06.06.2005. In the terms of Bank Guarantee, the defendant
irrevocably and unconditionally guaranteed repayment of aforesaid
amount upon the first demand of defendant no. 1 immediately and
unconditionally without any argument, in the event that the
contractor i.e. the plaintiff herein fails to commence or fulfill its
obligation under the terms of contract. The guarantee shall remain
in force till 06.06.2006 or till the date when the plaintiff fulfils the
contract, whichever is earlier. All rights and obligations arising
from this Bank Guarantee shall be governed by laws of Singapore.
It is further averred that Bank Guarantee was invoked by
defendant no. 1 vide letter dated 26.05.2006 addressed to defendant
no. 2 and the amount under the Bank Guarantee was asked to be
transferred by telegraphic transfer within two business days. It is
also averred that subsequently at the request of the plaintiff, the
validity period of Bank Guarantee was extended but all other terms
and conditions remained unaltered. It is also submitted that in the
letter of extension, it was reiterated that bank is liable to pay the
guaranteed amount or part thereof under the Bank Guarantee if a
written claim or demand is served upon the bank on or before
06.07.2006. The Bank Guarantee was also extended upto
05.08.2006. It is also submitted that defendant no. 2 received a
letter dated 03.08.2006 from defendant no. 1 stating that they had
Suit No. 9391/2016
BHEL Vs. PT Merak Page 20 /63
demanded vide their letter dated 02.08.2006, plaintiff to refund
their commitment payment in the amount of $910,653 and
thereafter defendant no. 1 invoked the said Bank Guarantee in the
terms of the Bank Guarantee and asked to make payment. The
plaintiff vide its letter dated 05.08.2006 instructed the defendant to
extend Bank Guarantee by another 15 days i.e. to extend it upto
20.08.2006 and since by this time the defendant no. 1 had already
invoked Bank Guarantee, the defendant no. 2 sent a fax dated
07.08.2006 intimating them the request of the plaintiff to extend the
Bank Guarantee and further sought advise of defendant no. 1 as to
whether the request of the extension is acceptable to defendant no.
1. The defendant no. 1 again vide its letter dated 07.08.2006
demanded the payment and thereafter vide its swift message MT
103 dated 08.08.2006, the defendant no. 2 requested SBI, New York
for refund of commitment payment under the Bank Guarantee. In
the meantime, after sending the fax message, the defendant no. 2
received a letter dated 08.08.2006 from M/s Bhasin & Co. informing
the defendant no. 2 about the present suit and exparte order and
accordingly the defendant no. 2 instructed the said SBI, New York
to cancel the said request and the said request was accordingly
cancelled. It is submitted that defendant no. 2 is holding funds
subject to the directions of the court. It is also submitted that
defendant no. 1, vide its letter dated 10.08.2006 once again
instructed the defendant to release/ remit the amount to their
account. It was prayed that appropriate directions be issued to
defendant no. 2 with regard to the remittance of the money under
Bank Guarantee or any other order as the court may deem fit.
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5. The plaintiff in its replication to written statement of the
defendant no. 1 has reasserted and reaffirmed the facts as pleaded
in the plaint and denied the averments as alleged in the written
statement.
6. The following issues were framed by the Hon'ble Court vide
it's order dated: 04.08.2010.
I. Whether the plaintiff is entitled to a decree of permanent
injunction restraining the defendant no.1 from recovering the
whole or any part of the amount with respect to the Bank
Guarantee bearing no.0999605 PFD 0026 executed by
defendant no.2? OPP
II. Whether the letter of invocation dated 03.08.2006 is illegal,
null and void and nonest? OPP
III. Whether the invocation of the Bank Guarantee bearing no.
0999605 PFD 0026 is not in accordance with the terms of the
Bank Guarantee and the action of the defendant no.1 in
invoking the Bank Guarantee vide letter dated 03.08.2006 is
illegal and fraudulent? OPP
IV. Whether the Court has the territorial jurisdiction to entertain
and try the instant suit? OPD1
V. Reliefs
7. It is pertinent to mention here that Hon'ble High Court at the
time of disposing IA no. 8824/2006 (under Order 39 Rule 1 & 2 CPC)
and 13476/2007 (under Order 39 Rule 4 CPC) vide order dated
04.01.2012 observed that defendant no. 2 shall deposit the sum
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BHEL Vs. PT Merak Page 22 /63
reflected in the Bank Guarantee with Ld. Registrar General within
the period of 4 weeks and on depoisit of said sum the defendant no.
2 shall stand discharged of its obligation under the Bank Guarantee
and subsequently vide order dated 29.04.2011 in view of order
passed in IA no. 12598/2010, the defendant no. 2 was deleted from
array of parties.
8. Both the parties led their respective evidence and I have
heard arguments advanced by learned counsel for the plaintiff and
Ld. Senior counsel for the defendant and gone through the written
notes of arguments and documents filed by respective parties on
record. My issuewise findings are as under:
Issues no. 1 to 4
All the issues are taken up together being interconnected.
9. The plaintiff in order to establish its case and examined Sh.
Ravinder Tekchandani, Senior Manager, International Operations
of Bharat Heavy Electricals Ltd. as PW1. He tendered his evidence
by way of affidavit Ex.PW1/A and made statement in accordance
with the averments made in the plaint and stated that the
defendant no. 1 had invited tenders on or about December 2003 for
an all inclusive turn key contract to establish project and the
plaintiff submitted its letter of offer and the defendant no. 1 issued
a Letter of Intent dated 31.03.2005 in favour of the plaintiff. The
said Letter of Intent contains the broad terms agreed between the
plaintiff and the defendant no. 1 with respect to the project. The
plaintiff accepted the Letter of Intent vide its letter dated
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BHEL Vs. PT Merak Page 23 /63
04.04.2005 and also referred to the execution of the Bank
Guarantee. He placed and proved various documents viz. copy of the
Letter of Intent dated 31.03.2005 mark A1, copy of the minutes of
the meeting dated 25.04.2005 and 26.04.2005 mark A2, copy of the
letter dated 14.08.2005 mark A3, copy of the three emails dated
25.08.2005 mark A4 collectively, attendance sheet alongwith the
minutes of the meeting from 16.01.2006 to 21.01.2006 mark A5
collectively, emails dated 27.02.2006 and 22.02.2006 mark A6
collectively, copy of the minutes of the meeting dated 27.02.2006
and 28.02.2006 mark A7, letter dated 23.05.2006 received by the
plaintiff Ex.P9, copy of the letter dated 29.05.2006 mark A8, email
dated 07.06.2006 mark A9, copy of the fax letter 09.06.2006 mark
A10, copy of letter dated 30.06.2006 mark A11, copy of letter dated
12.07.2006 mark A12, copy of the letter dated 13.07.2006 mark
A13, copy of the letter dated 14.07.2006 mark A14, copy of the letter
dated 14.07.2006 mark A15, copy of letter dated 20.07.2006 mark
A16, copy of the letter dated 25.07.2006 mark A17, copy of letter
dated 04.08.2006 mark A18, copy of letter dated 05.08.2006 mark
A19, plaint exhibited as Exhibit PW1/1, the replication exhibited
Ex.PW1/2.
9.1. In rebuttal, the defendant examined two witnesses. Mr.
Lokita Prasetija examined as DW1 who tendered his evidence by
way of affidavit and relied upon the documents such as copy of
Letter of Intent dated 31.03.2005 Exhibit DW1/1, emails dated
14.04.2005 and 15.04.2005 marked DA and DB respectively,
minutes of the meeting held on 25.04.200526.04.2005 is Exhibit
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BHEL Vs. PT Merak Page 24 /63
DW1/2, letter dated 27.04.2005 marked DC, copy of the email dated
06.05.2005 marked DD, copy of the email dated 09.05.2005 marked
DE, email dated 13.05.2005 marked DF, copy of the email dated
17.05.2005 marked DG, Bank Guarantee already exhibited as
Exhibit D2, copy of the email dated 25.08.2005 exhibit DW1/3, copy
of the email dated 30.08.2005 exhibit DW1/4, copy of email dated
08.09.2005 marked DH, copy of emails dated 14.09.2005 marked DI
and DJ, copy of email dated 21.09.2005 marked DK, copy of the
email dated 12.10.2005 marked DL, copy of the email dated
18.10.2005 marked DM, copy of the email dated 21.10.2005 marked
DN, copy of the email dated 18.11.2005 marked DO, copy of the
letter dated 21.11.2005 marked DP, copy of letter dated 21.11.2005
marked DP, copy of the email dated 22.11.2005 marked DQ, copy of
email dated 24.11.2005 marked DR, copy of the email dated
03.12.2005 marked DS, copy of the emails dated 07.12.2005 marked
DT, copy of the letter dated 09.12.2005 marked DU, copy of email
dated 17.12.2005 marked DV, copy of the email dated 29.12.2005
marked DW, copy of the email dated 14.01.2006 marked DX, copy of
the email dated 23.01.2006 marked DY, copy of the email dated
24.01.2006 marked DZ, copy of the email dated 03.02.2006 marked
DAA, copy of the email dated 20.02.2006 marked DBB, copy of the
letter dated 13.07.2006 marked DCC, copy of the letter dated
14.07.2006 marked DDD, copy of another letter dated 14.07.2006
marked DEE, copy of the letter dated 18.07.2006 is marked DFF,
copy of letter dated 27.07.2006 mark DGG, copy of letter dated
02.08.2006 marked DHH, copy of letter dated 03.08.2006 invoking
the Bank Guarantee Exhibit D7, written statement Exhibit DW1/5.
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9.2. Mr. Boediarto Boentaran examined as DW2 and tendered his
evidence by way of affidavit Ex.DW2/A and stated about the
judgment passed by Indonesia Court and relied upon the documents
viz. photocopy of the Law Suit filed by the defendant no. 1 before
the South Jakarta District Court, Indonesia Ex.PW1/D1, photocopy
of the translated copy of law suit mark PW1/D2, photocopy of the
reply filed by the defendant no. 2 mark D2/X1, photocopy of the
translated copy of reply mark D2/X2, copy of rejoinder of the
defendant no. 1 mark D2/X3, photocopy of the translated copy of the
above rejoinder is marked D2/X4, copy of the rejoinder of the
defendant no. 1 to the reply of the defendant no. 2 mark D2/X5,
photocopy of the translated copy of the same mark D2/X6, certified
copy of Judgment dated 08.07.2008 marked PW1/D5, photocopy of
the translated copy of the same mark PW1/D6, photocopy of the
certified copy of the memorandum of Appeal preferred before the
High Court of Jakarta (Indonesia) by the defendant no. 1 mark
D2/X7, photocopy of the translated copy of the same mark D2/X8,
copy of judgment of Hon'ble High Court of Jakarta (Indonesia)
dated 18.08.2009 mark PW1/D7, photocopy of the translated copy of
the same mark PW1/D8.
9.3 The Ld. counsel for the plaintiff at the outset argued that
this Court has territorial jurisdiction to entertain and try the
present suit. The Letter of Intent dated 31.03.2005 Ex. DW1/1 were
sent by defendant no. 1 to the plaintiff at its address at New Delhi
and the plaintiff from its new Delhi office vide letter dated
04.04.2005 Ex. P13 and Ex. DW1/P1 accepted the Letter of Intent.
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BHEL Vs. PT Merak Page 26 /63
The plaintiff vide its letter dated 02.05.2005 Ex. D1 instructed
State Bank of India to issue Bank Guarantee from its New Delhi
office and Bank Guarantee dated 06.06.2005 Ex. D2 was issued by
State Bank of India from its New Delhi branch. It is further argued
that Bank Guarantee was renewed time to time by State Bank of
India at the request of plaintiff and all these correspondences took
place at New Delhi and last extended Bank Guarantee was sent
back to plaintiff from New Delhi vide letter dated 20.07.2006. The
invocation of Bank Guarantee was made by defendant no. 1 upon
State Bank of India at its New Delhi Branch vide letter dated
03.08.2006 Ex. P2/Ex.D7. These correspondences exchanged
between the parties would show that this Court has territorial
jurisdiction and the cause of action has arisen within the
jurisdiction of the Court. It is further argued that even otherwise
the defendant no. 1 consented to the deposit of amount in the Bank
Guarantee with the Ld Registrar General of Hon'ble High Court as
duly recorded in order dated 29.11.2011 and defendant no. 1 has
agreed that the amount reflected in the Bank Guarantee be
interested in a Fixed deposit in the name of Ld Registrar General
and further agreed for deletion of name of defendant no. 2 namely,
State Bank of India from the array of parties as recorded in order
dated 29.04.2011. It is strenuously argued that this Court has
jurisdiction. It is further argued that adverting to the submission of
defendant no. 1 that this Court has no territorial jurisdiction as the
governing law stipulated in Bank Guarantee is law of Singapore,
the said contention is devoid of any merits and placed reliance upon
judgment titled as Laxman Prasad vs Prodigy Electronics Ltd. and
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BHEL Vs. PT Merak Page 27 /63
another 2008 (1) SCC 618 and urged that Hon'ble Apex Court has
held that cause of action and applicability of law are two distinct,
different and independent things and cannot be confused with
another.
9.4 It is further argued that Bank Guarantee dated 06.06.2005
Ex. D2 is a conditional Bank Guarantee and not an unconditional
Bank Guarantee. Merely because in the Bank Guarantee Ex. D2
the word "unconditional or without protest or cavil" has been used,
it can not be construed that Bank Guarantee is unconditional. The
terms of Bank Guarantee have to be seen to conclude whether the
Bank Guarantee is conditional and unconditional and mere reading
of the Bank Guarantee would demonstrate that the Bank
Guarantee is conditional one. It sets out two conditions which have
to be satisfied before the same is invoked. The very first condition is
that the contractor (BHEL) fails to commence or fulfill its
obligations under the terms of subcontract and second condition is
that in the event of such failure, refuses to repay all or part (as the
case may be) of the said commitment made by the employer, both
conditions have to be satisfied' for invocation of Bank Guarantee by
defendant no. 1 at the time of invocation Bank Guarantee. The
defendant no. 1 has not satisfied any of the aforesaid conditions at
the time of invocation of Bank Guarantee.
9.5 It is next argued that Clause CC of Letter of Intent stipulates
that contract value would be USD 43, 491, 000 and Clause GG
stipulates at 1 % of contract value will be paid as committed fee to
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BHEL Vs. PT Merak Page 28 /63
the plaintiff by defendant no. 1 which will be adjustable in the
advance payment to be made under the contract on submission of
acceptable Bank Guarantee. Clause HH further stipulates that
parties shall enter into contract agreement on mutually discussed
and agreed terms within 120 days of the Letter of Intent. It is not
disputed that no contract was executed between the parties and
therefore, the very first condition for invocation of Bank Guarantee
is not satisfied and in the absence of contract the second condition
would not trigger as the same would only trigger after the condition
is satisfied and emphasis has been given to the words " in the event
of such failure" and argued that which is failure as per first
condition.
9.6 It is next argued by Ld. Counsel for plaintiff that the contract
referred to in the Bank Guarantee cannot be Letter of Intent as the
Bank Guarantee defines Letter of Intent in opening line but in the
conditions of invocation, it does not use the term Letter of Intent
but uses the term contract which is defined in Letter of Intent to
mean a contract agreement. The contract referred to in the Bank
Guarantee is the contract agreement to be executed pursuant to the
Letter of Intent. It is further argued that even assuming though not
admitting that the Letter of Intent was a contract, then too letter of
invocation of Bank Guarantee dated 03.08.2006 Ex. P2/Ex.D7 does
not meet the twin conditions for invocation. Through this letter, the
defendant no. 1 simply demanded from the plaintiff to refund the
amount under Bank Guarantee and the plaintiff's response vide
letter dated 02.08.2006 is self explanatory. In the letter of
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BHEL Vs. PT Merak Page 29 /63
invocation, it is nowhere mentioned that there has been any failure
on the part of plaintiff under the contract and upon the said failure,
the plaintiff has refused to pay on demand. It is further argued that
in the letter dated 02.08.2006 Ex.P3 & Mark DHH relied upon in
letter of invocation dated 03.08.2006, there is no statement that
plaintiff has failed to fulfill its obligation under the contract and
further there is no demand in the said letter, on the contrary, the
said letter categorically states that if by 03.08.2006 extended Bank
Guarantee is not received then defendant no. 1 shall demand BHEL
and/or State Bank of India to return the commitment fee. No letter
of demand was sent by defendant no. 1 to plaintiff and on
03.08.2006 just after one day thereafter, the Bank Guarantee was
invoked. It is further argued that the email dated 13.05.2005 Ex.
DW1/7 demonstrates that content of Bank Guarantee was provided
and approved by defendant no. 1. It is further argued that
defendant no. 1 despite not finalizing the contract and materially
delaying the execution of contract wanted to use the Bank
Guarantee to arm twist the plaintiff and the plaintiff vide its letter
dated 05.08.2006 Ex. D8 & Ex.PW1/20 requested State Bank of
India to extend the Bank Guarantee and the State Bank of India
vide letter dated 07.08.2006 Ex. D9 has sought defendant no.1
response and when the defendant no. 1 insisted with the invocation,
the plaintiff was constrained the present suit on 08.08.2006. It is
next argued that execution of contract was delayed for the reasons
attributable to defendant no. 1 and attention of the Court was
drawn to the minutes of meeting dated 25/26.04.2005 Ex. DW1/2
wherein it was decided that vide 31.05.2005 the defendant no. 1
Suit No. 9391/2016
BHEL Vs. PT Merak Page 30 /63
would provide draft of contract agreement for consideration of
plaintiff and by June 2005, the contract has to be ready for signing.
The letters dated 14.08.2005 and 24.08.2005 Ex. P21 and Ex. P24
respectively from plaintiff to defendant and email dated 25.08.2005
Ex. DW1/3 clearly shows considerable delay by the defendant no. 1
in finalization of contract. There is no stipulation in Letter of Intent
with regard to the refund of 1 % commitment fee paid to the
plaintiff and all performances and obligations were under the
contract which was to be executed in 120 days. The committed fee
was not nonrefundable and adjustable against the advance. It is
further argued that defendant no1 has nowhere alleged breach or
failure by the plaintiff of the terms of Letter of Intent or has not
made any demand prior to invocation of Bank Guarantee and
contrary to the contents of its letter dated 02.08.2006, without
demanding and waiting till 04.08.2006, the defendant no. 1 pre
maturely on 03.08.2006 invokes the Bank Guarantee. It is further
argued that it is nowhere the case of defendant no. 1 in any of the
letters/correspondences that plaintiff has failed to source
commitments and undertake basis and detailed engineering and
therefore, there is no failure on the part of the plaintiff.
9.7 It is further argued that Bank Guarantee constitutes a
separate and independent contract than the underlying contract.
The parties to the Letter of Intent and Bank Guarantee are
different. The governing law of Bank Guarantee is law Singapore
whereas the governing law of Letter of Intent was the laws of
Indonesia and in any case the present suit is decided can be decided
Suit No. 9391/2016
BHEL Vs. PT Merak Page 31 /63
according to the laws of India. It is further argued that the plaintiff
in the present case is principal debtor and defendant no. 1 is
creditor and State Bank of India is the surety and the Bank
Guarantee is the conditional guarantee which stipulates a breach or
failure by the principal debtor as a precondition to the invocation of
Bank Guarantee. The Bank Guarantee also stipulates a further
condition that upon occurrence of such breach or failure demand is
to be made on the principal debtor i.e. plaintiff. It is argued that in
the present case neither any breach or default is committed nor any
breach or default is alleged and no demand has been made alleging
breach or default or otherwise and the Bank Guarantee is invoked
on 03.08.2006 relying upon a letter dated 02.08.2006 which itself
stipulates that demand shall be made for transfer of commitment
fee by 04.08.2006. As the precondition to the invocation is breach or
the period of contract by the plaintiff and the guarantee being
conditional, the plaintiff would have every right to stop such
invocation.
9.8 It is further argued that plaintiff has already incurred
expenses/liabilities much more than the amount receipt as
commitment fee which is evident from the documents marked as
PW1/D1 to Ex. PW1/D6, mark DX1 to mark DX6 and cross
examination of PW1. It is further argued that since the contract has
not been materialized and there is no scope of adjustment against
advances, it would unconscionable to allow defendant no. 1 to
encash Bank Guarantee and this will result in huge loss to the
plaintiff and unjust enrichment to defendant no. 1 and it would
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BHEL Vs. PT Merak Page 32 /63
constitute special equities and even otherwise it would cause
irretrievable injury as the plaintiff would not be able to recover the
money from defendant no. 1. It is argued that invocation of Bank
Guarantee directly affects the plaintiff and from the documentary
evidence on record it is evident that the invocation was contrary to
the terms.
9.9 It is further argued that the Bank Guarantee is conditional
therefore, in addition to fraud and special equity the ground of
invocation not being in terms of Bank Guarantee also available with
the plaintiff and the plaintiff has established through documents on
record that two conditions mentioned in bank guaruatee have not
been satisfied by defendant no. 1, thus, dehors fraud and special
equity, the plaintiff would be entitled with the relief of injunction
and declaration as the invocation of in the terms of Bank
Guarantee.
9.10 Ld. Counsel for plaintiff relied upon judgment titled
Hindustan construction Ltd. Vs State of Bihar and ors. AIR 1999 SC
310, State Bank of India vs Mula Sahakari (2006) 6 Supreme Court,
York International Pte ltd vs Voltas Limited (2013) SGHC 124 and
argued that defendant no. 1 has to satisfy that while invoking the
Bank Guarantee on 03.08.2006 the twin conditions in the Bank
Guarantee Ex. D2 was satisfied. The conditions in the Bank
Guarantee has to be complied while invoking the Bank Guarantee
and the subsequent events or judgments by a Court in different
jurisdiction would not turn a bad invocation of Bank Guarantee into
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BHEL Vs. PT Merak Page 33 /63
one in the terms of Bank Guarantee. The proceedings in Indonesia
were filed after a year and despite the matter regarding Bank
Guarantee being subjudice in India, Indonesian Courts would not
have entertained any claim relating to Bank Guarantee. It is
further argued that no reliance can be placed upon the judgments of
Indonesian Courts filed by defendant no. 1. The translated copies of
the judgments have to be proved in accordance with law and
defendant no. 1 did not bother to file original or certified copy of the
same. The translated copy of plaint mark PW1/D2 , certified copyof
judgment dated 08.07.2008 mark PW1/D5, photocopy of the
translated judgment mark PW1/D6 and copy of judgment dated
18.08.2009 mark PW1/D7 have not been proved by defendant no. 1.
The pleadings and judgments were not English language and
translated copies of the same have been put on record. Neither the
pleadings nor the judgments in original language or in translated
language have been proved. The defendant no.1 did not press for
exhibiting the pleadings nor for copy of judgment of High Court of
Jakarta dated 18.08.2009 as defendant no. 1 was aware that the
same cannot be exhibited. The defendant no. 1 only insisted that
certified copy of judgment dated 08.07.2008 be exhibited which was
objected by the plaintiff on the ground of noncompliance of with the
provision of Section 78 (6) of Indian Evidence Act. It is further
argued that in any case the judgment dated 08.07.2008 is not
relevant the defendant no. 1 has challenged the same before Hon'ble
High Court of Jakarta was varied and the Judgment of Hon'ble
High Court of Jakarta placed on record is neither the original nor
the certified and neither the translated version of the same have
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BHEL Vs. PT Merak Page 34 /63
been proved. No certificate u/s 86 or 77 or 78 (6) has been placed on
record with respect to certified copy of District Court at Jakarta.
The Rule of Best Evidence being not led by plaintiff would only
apply one defendant no. 1 has placed on record admissible evidence
which in present case is absent and Ld. Counsel for plaintiff placed
reliance upon judgment titled Y. Narsimha Rao and others vs Y.
Ventaka Laxmi (1991) 3 SCC 451 in para 15 and 16 has held that
Foreign Judgment would be not admissible in the absence of
certificate in compliance with Section 86 of Indian Evidence Act.
9.11 It is further argued that Section 13 and 14 of Code of Civil
Procedure r/w 86 and 78 (76) of Indian Evidence Act provides that
certified copy of judgment in compliance of Section 86 of Indian
Evidence Act has to be produced for the Court to consider the same.
Even otherwise, the judgment falls in the exception to Section 13 as
the judgment sought to be relied upon is founded on incorrect view
on international law as Indonesian Court has considered the
dispute regarding the Bank Guarantee under the Indonesian Law
despite the objection of the parties and the Bank Guarantee clearly
providing for governing law as a laws of Singapore. Further as the
present suit prior in time, the Court at Indonesian has sustained a
claim founded on breach of law in force India. This amount to fraud.
It is further argued that the judgment have no relevancy in the
present case. State Bank of India was not party in those
proceedings and Bank Guarantee can not be invoked. It is further
argued that present suit relates to Bank Guarantee which is an
contract independent in itself and this Court can not rely upon
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BHEL Vs. PT Merak Page 35 /63
judgment passed in litigation under the underlying contract of
which also the subject matter was different and applicable laws are
different. It is further argued that condition in Bank Guarantee has
to be complied while invoking the Bank Guarantee and subsequent
events and judgments by a Court in different jurisdiction would not
turn a bad invocation of Bank Guarantee into one in the terms of
Bank Guarantee. It is argued that no issue has been framed on the
pleadings and judgments of the Courts at Indonesia, there is no
question of plaintiff not leading best evidence, in the absence of any
issue, the pleadings and judgment could not be introduced or read
in evidence.
9.12 Per contra, Ld. Sr. Counsel for defendant no. 1 vehemently
argued that the Letter of Intent dated 31.03.2005 issued by
defendant no. 1 was a complete contract under Indian Contract Act
secured by a Bank Guarantee Ex. D.2 given by the plaintiff to cover/
secure the payment of a commitment fee of 1% of the contract value.
The defendant no. 1 had paid an amount of $910,653 to the plaintiff
towards the commitment fee payment/ mobilization advance
towards the forthcoming project and this amount was "adjustable in
advance payment". The plaintiff was obliged to repay the same to
the defendant no. 1 whenever such a demand was made, in case no
work was commenced or done. Under the circumstances, the
plaintiff had requested State Bank of India [(defendant no. 2), now
being deleted] to issue Bank Guarantee for the aforesaid
commitment fee. The bank was not justified in holding back the
release of Bank Guarantee when the same was demanded by the
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BHEL Vs. PT Merak Page 36 /63
defendant.
9.13 Learned Sr. counsel for the defendant further explaining the
nature and definition of commitment fee/ mobilization advance
contended that its object was to secure the employer, that in case,
for any reason whatsoever, a dispute arises between the employer
and the contractor due to which no work is done, in other words,
when claims and counter claims are made against each other at the
dispute adjudication stage, the employer would have the money i.e.
commitment fee/ mobilization advance back in its pocket and the
parties would go for dispute resolution in terms of the agreement.
Ld. Counsel for defendant no. 1 relied upon judgment passed in case
titled Zillion Infra Projects Pvt. Ltd. v. Alstom Systems India (P)
Ltd. & ors OMP (I)(COMM) 377/2016 on 29.09.2013 by Hon'ble High
Court Delhi and Zillion Infra Projects Pvt. Ltd. v. Alstom Systems
India (P) Ltd. & ors FAO (OS) (COMM) 34/2017 on 10.02.2017 by
Hon'ble High Court of Delhi.
9.14 It was strongly argued that the Bank Guarantee in the
present case is an unconditional Bank Guarantee and in order to
buttress this point the Learned Sr. counsel referred to the text and
content of Bank Guarantee.
9.15 The learned Sr. counsel for the defendant strongly contested
that the plaintiff is not entitled to an injunction against its
encashment except in two cases i.e. (i) a clear fraud egregious in
nature of which the Bank has notice. Egregious nature has been
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BHEL Vs. PT Merak Page 37 /63
held to be mean which vitiates the entire underlying transaction (ii)
irretrievable injury/ exceptional circumstances. The exceptional
circumstance would be "it is impossible for the guarantor to
reimburse if it ultimately succeeds. Reliance has been placed on
U.P. State Sugar Corporation v. Sumac International Ltd. (1997)1
SCC 568.
9.16 It is further argued that no fraud has been pleaded to the
knowledge of the bank or otherwise. No 'irretrievable injury or
special equities' pleaded or evidence led on the same in terms of
Order VI Rule 4 CPC. The defendant also contradicted the
pleadings of fraud as contained in para 26 & 27 of the Plaint,
stating that none of the contentions have been proved by the
plaintiff which clearly established that these do not constitute any
fraud. In this regard reference was made to number of decisions e.g
S.P. Chengalvaraya Naidu v. Jagannath 1994 1 SCC 1 (Fraud is
defined), Gayatri Devi v. Shashi Pal Singh, (2005) 5 SCC 527
( Fraud must be necessarily pleaded and proved) and Svenska
Handelsbanken v. M/s Indian Charge Chrome and Others (1994) 1
SCC 502 (Mere pleadings do not constitute a strong case of prima
facie fraud, there must be evidence to support the assertion).
9.17 Without Prejudice, to the abovementioned contentions the
defendant also stated that the only reason given for showing it as
fraud the plaintiff has pleaded that the cost of the project has
increased due to delay in finalization of the contract by the
defendant. It is argued that such breach of contract does not
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BHEL Vs. PT Merak Page 38 /63
constitute fraud based on decision in the case of Reliance Salt Ltd.
v. Cosmos Enterprises, 2006) 13 SCC 599.
9.18 Further, a Bank Guarantee is a contract between Banker and
the Principle; it was primarily for the Bank to plead a case of fraud
and not for a Promisor to set up a case of breach of contract. The
defendant also refuted the argument of the plaintiff that there was
any collusion between defendant No.1 and defendant No.2 (the
Bank), because by the admission of the plaintiff if after initially
stating such collusion subsequently, the plaintiff has itself
consented to the deletion of the defendant No.2 (the Bank) from the
array of parties as recorded in the order dated 29.04.2011. This
clearly shows that the plaintiff doesn't have any case and it is trying
to take any reason whatsoever available, so as to justify it's stand
that the Bank Guarantee should not be allowed to be encashed by
the defendant No.1.
9.19 The learned Sr. counsel for the defendant argued that
subsequent to the breach of contract committed by the plaintiff, the
defendant No.1 had demanded the repayment of the Commitment
fee already paid to the Plaintiff and reference was made to number
of correspondences placed on record as a part of evidence. The
defendant argued that it was entitled to the amount of Bank
Guarantee invested in a fixed deposit in the name of Ld. Registrar
General of High Court of Delhi. It was further argued that the
aforesaid Bank Guarantee in the name of Ld. Registrar General of
High Court of Delhi with their Branch located at Bahrain, initially
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for a period of one year subject to automatic renewal. This was done
to protect the variation in value of foreign currency on account of
fluctuation in the rate of exchange and no way would amount to
submitting the jurisdiction of this Hon'ble court as the Plaintiff has
submitted.
9.20. The defendant also contested that the plaintiff was not
entitled to any special equities because neither there is any specific
averment nor any such case has been proven. The only averment is
at para 28 page 25 of plaint wherein it has been stated that the
defendant is not resident in India, therefore such situation will
cause hardships. However the defendant refuted the same by
stating that Bharat Heavy Electricals Limited (BHEL) is owned and
founded by the Government of India. BHEL is India's largest power
generation equipment manufacturer. It has its presence worldwide
and has an office in Indonesia as well.
9.21 It is vociferously argued on behalf of the defendant no.1 that
it has filed suit against plaintiff and defendant No.2 herein before
the District Court of South Jakarta, Indonesia and the said suit was
contested by all the parties to the present suit and finally the
judgment was passed on merits of the case. The defendant referred
to the plaint dated 31.07.2007, the translated Copy of plaint, the
written statement/reply dated 08.04.2008, filed by BHEL/plaintiff
herein, the translated copy of written statement/reply, filed by
BHEL/plaintiff herein. It was submitted that the plaintiff i.e. BHEL
in its written statement/reply didn't take any objection as to the
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territorial jurisdiction of the Indonesian Courts and submitted to its
jurisdiction. In the written statement/reply, it mentioned about the
Bank Guarantee in question, commitment fee and the order of the
Hon'ble High Court of Delhi dated 08.08.2006 staying the
encashment of the Bank Guarantee. Finally, the defendant
referring to the operative portion of Judgment passed by the Ld.
District Court of Jakarta, Indonesia dated 17.07.2008 argued that
the issues which were before the Jakarta court has been decided
included as to firstly who between the plaintiff and the defendant
No.1 has been in default against the "Letter of Intent" agreement
dated 31.03.2006. Secondly, whether the act of the defendant no. 2
did not endorse the Bank Guarantee due to force majoure is a
default. Before, the above mentioned court there was a specific issue
as to whether BHEL or Merak was in breach/default of the Letter of
Intent dated 31.03.2005 in which the conclusion has been drawn
that there was a breach of contract by BHEL (the plaintiff herein)
and that Bank Guarantee is payable to Pt.Merak Energi Indonesia.
In this background, the defendant also argued that from the
judgment above the following transpires that the plaintiff herein
submitted to the jurisdiction of District courts of Indonesia and did
not take any objection as to the territorial jurisdiction in the said
suit. Thus, the plaintiff is bound by the Judgment passed by the
Courts of Indonesia. Further, the plaintiff herein did not take any
objection of jurisdiction even before the Appellant Court i.e. Hon'ble
High Court of Indonesia.
9.22 The defendant also refuted the arguments of plaintiff that the
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Judgments of the Indonesian Courts, pleadings, their translated
copies etc, were not properly proved and hence cannot be relied
upon. It is argued that the plaintiff cannot be heard to object or
raise question to the same because by virtue of Section 86 of the
Indian Evidence Act, 1872, there is a presumption as to certified
copies of foreign judicial record. Moreover, as per section 58 of the
Indian Evidence Act, 1872, the facts admitted need not be proved.
In this regard, the plaintiff knew about the proceedings before the
District Courts of Jakarta as well as before the Hon'ble High Court
of Indonesia which is evident from its participation and also cross
examination of PW1, Sh.Ravinder Tekchandani dated 14.01.2011,
wherein he admitted about the said litigation. Further, even during
the crossexamination of DW2, Sh. Boediarto Boentaran, who
proved the Pleadings, Judgments of Indonesian Courts etc. in his
affidavit of evidence, no suggestion was put to the witness that the
same are not the certified copies or that translated copies are false
or incorrect.
9.23 Ld. Sr. Counsel further argued that since the Judgments
passed by Indonesian Courts is conclusive there is no case in the
favour of the plaintiff and because of the binding nature of the
Judgments passed by the Indonesian Court and the plaintiff is
estopped from raising any objection with regard to the same.
9.24 The defendant also objected to the territorial jurisdiction of
this Court for the reason that the project was related to Thermal
Power Plant located at Merak, West Java, Indonesia Merak, West
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Java, Indonesia. It was a global contract floated from Indonesia, the
Letter of Intent dated 31.03.2005 was issued from Indonesia which
specifically provides that it is governed and construed under the
Laws of Republic of Indonesia, the project site was Merak, West
Java, Indonesia. The Bank Guarantee dated 06.06.2005 Ex.D2,
specifically provides that all rights and obligations arising from the
said guarantee shall be governed by the laws of Republic of
Singapore. No objection was taken by the plaintiff regarding
jurisdiction of Indonesia Court, therefore, the plaintiff submitted
itself to the jurisdiction of the Indonesian Court which was not
under protest and the plaintiff has its office at Jakarta.
9.25 It is further argued that there can be no jurisdiction of this
Court because apart from issuance of Bank Guarantee (the same
was tendered to defendant no.1 at Indonesia), no other act was done
at Delhi and it is settled law that merely issuance of Bank
Guarantee from Delhi doesn't vest the courts at Delhi with the
territorial jurisdiction. The defendant no.1 doesn't carry out its
business at Delhi nor it has its office in Delhi. Further, as per the
mandate of section 20 (b) Code of Civil Procedure, 1908, where there
are more than one defendant, either the leave of the court has to be
taken or the acquiesce of the defendant who do not carry on
business within the territorial jurisdiction of the Court has to be
taken. In the present case, neither the leave of the court was taken
nor the defendant No.1 had acquiesced in the institution of the
present case and it is further argued that merely Bank Guarantee
issued from Delhi does not give Delhi jurisdiction. The Ld. Sr.
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Counsel for the defendant relied upon judgments titled M/s South
East Asia Shipping Co. 1996 (3) SCC 443, Control & Switchgear
Company Ltd. v. Maharashtra State Electricity Board & SBI,
Manu/DE/8216/2007, Association of Corporation & Apex Societies of
Handlooms V. State of Bihar & Anr. AIR 2000 Delhi 106, Indus
Mobile Distribution Ltd. v. Datawind Innovations 2017 (7) SCC 678
or Manu/SC/0456/2017, A.B.C. Laminart Pvt. Ltd. AIR (1989) SC
1239.
9.26 It was further argued by Ld. Sr. Counsel for the defendant
that the plaintiff has not filed any claim of money allegedly incurred
towards costs in the project since the filing of the present suit in the
year 2006 till date. The prayer in the present suit in based on the
Bank Guarantee, which is an independent contract than from the
underlying contract. No relief is based on the underlying contract;
the underlying contract dispute is irrelevant in this case but also
has been decided in favour of the defendant by the court of
competent jurisdiction at Indonesia.
10. I have given careful consideration to the pleadings of the
parties, evidence lead and the arguments advanced. The plaintiff is
seeking restraint of revocation of Bank Guarantee got issued by it
from State Bank of India in the favour of defendant. The said Bank
Guarantee has been tendered in pursuance of another underlying
work contract between the parties out of which a matching
Commitment fee has flown from the defendant to plaintiff. At this
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stage, it need to be authoritatively understood that Bank Guarantee
is a different contract which is completely separate from any
underlying contract. The terms and conditions of Bank Guarantee
are selfcontained contract are executable as such without drawing
any force from the underlying contract. Even if the Bank Guarantee
makes a mention of respective liabilities of the underlying contract
than also the terms of that contract are referred only for
interpretation of Bank Guarantee but yet the respective
commitments of Bank Guarantee are distinct and separate. In
consideration of the two contracts being separate in U.P. State
Sugar Corporation vs. Sumac International Ltd. [1997 (1) SCC 568 ]
Hon'ble Supreme Court laid down the fundamentals as under:
"The law relating to invocation of such Bank Guarantees is
by now well settled. When in the course of commercial
dealings an unconditional Bank Guarantee in terms is given
or accepted, the beneficiary is entitled to realise such a Bank
Guarantee in terms thereof irrespective of any pending
disputes. The bank giving such a guarantee is bound to
honour it as per its terms irrespective of any dispute raised
by its customer. The very purpose of giving such a Bank
Guarantee would otherwise be defeated. The courts should,
therefore, be slow in granting an injunction to restrain the
realization of such a Bank Guarantee. The courts have carved
out only two exceptions. A fraud in connection with such a
Bank Guarantee would vitiate the very foundation of such a
Bank Guarantee. Hence if there is a fraud of which the
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BHEL Vs. PT Merak Page 45 /63
beneficiary seeks to take advantage, he can be restrained
from doing so. The second exception relates to cases where
allowing the encashment of an unconditional Bank
Guarantee would result in irretrievable harm or injustice to
one of the parties concerned".
10.1. In Himadri Chemicals Industries Ltd. V. Coal Tar Refining
Company (2007) 8 SCC 110, Hon'ble Supreme Court laid down the
followings:
(i) While dealing with an application for injunction in
the course of commercial dealings, and when an
unconditional Bank Guarantee or letter of credit is given or
accepted, the Beneficiary is entitled to realize such a Bank
Guarantee or a Letter of Credit in terms thereof irrespective
of any pending disputes relating to the terms of the contract.
(ii) The Bank giving such guarantee is bound to honour it
as per its terms irrespective of any dispute raised by its
customer.
(iii) The courts should be slow in granting an order of
injunction to restrain the realization of a Bank Guarantee or
a Letter of Credit.
(iv) Since a Bank Guarantee or a Letter of Credit is an
independent and a separate contract and is absolute in
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nature, the existence of any dispute between the parties to
the contract is not a ground for issuing an order of injunction
to restrain enforcement of Bank Guarantees or Letters of
Credit.
(v) Fraud of an egregious nature which would vitiate the
very foundation of such a Bank Guarantee or Letter of Credit
and the beneficiary seeks to take advantage of the situation.
(vi) Allowing encashment of an unconditional Bank
Guarantee or a Letter of Credit would result in irretrievable
harm or injustice to one of the parties concerned.
10.2. It is no more res integra that Bank Guarantee or Performance
Bank Guarantee (PBG) is an independent contract capable of
enforcement despite disputes in the main transaction. Be this the
guiding law, in the present case the Bank Guarantee need to be
analyzed first and the entire text of the Bank Guarantee Ex.D2 is
reproduced hereunder:
We refer to the Letter of Intent (LOI) dated 31 st March 2005 &
also letter dated 27th April 2005, released by you ("the
employer") on Bharat Heavy Electricals Limited, New Delhi.
India ("the Contractor") concerning design, manufacture and
supply of 2x 60 MW Coal Fired Thermal Power Plant on
Turnkey Basis.
By this letter, we the undersigned State Bank of India, New
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Delhi ("the bank") a Bank organized under the laws of India
and having its branch office at CAG New Delhi, India do
hereby jointly and severally with the contractor irrevocably
and unconditionally guarantee repayment of USD 910,653/
(USD Nine Hundred Ten Thousand Six Hundred Fifty Three
only) upon the first demand of the Employer immediately and
unconditionally without cavil or argument in the event that
the contractor fails to commence or fulfil its obligations under
the terms of the said Contract, and in the event of such
failure, refuses to repay all or part (as the case may be) of the
said Commitment fee made by the Employer.
Provided always that the Bank's obligations shall be limited
to an amount equal to the outstanding balance of the
commitment fee that has been adjusted in advance payment
taking into account such amounts that have been repaid by
the Contractor from time to time in accordance with the terms
of payment of the said Contract as evidenced by appropriate
shipping documents or payment certificates.
This guarantee shall remain in full force from the date upon
which the said commitment fee is received by the Contractor
until the date upon which the said commitment fee has been
adjusted into advance or the date upon which the Contractor
has fully repaid the amount, so advanced to the Employer in
accordance with the terms of the Contract or until 06 th June
2006, whichever is earlier. At the time at which the
outstanding amount is nil, this Guarantee shall become null
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BHEL Vs. PT Merak Page 48 /63
and void, whether the original is returned to us or not.
Any claims to be made under this Guarantee must be received
by the bank either by authenticated swift or by registered post
on or before 06th June 2006, unless the Guarantee is extended,
prior to this date.
We warrant that there is no legal or extra legal regulations
from the Indian Government or any other authority that
prohibits the immediate transfer of any sum(s) due hereunder
and that all formalities prescribed for this Bank Guarantee
have been duly endorsed and performed by us.
"All rights and obligations arising from this guarantee shall
be governed by the laws of Republic of Singapore."
Notwithstanding anything contained hereinabove :
1. Our liability under this Bank Guarantee shall not exceed
USD 910,653 (In Words USD Nine Hundred Ten Thousand
Six Hundred fifty three Only)
2. This Bank Guarantee shall be valid upto and including
06th June 2006.
3. We are liable to pay the Guaranteed amount or part thereof
under this Bank Guarantee Only and Only if you serve upon
us a written claim or demand on or before 06 th June 2006
after which all your rights under this guarantee shall be
forfeited and we shall be relieved and discharged from all
liabilities hereunder, whether or not this document shall have
been returned to us.
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10.3. It transpires from the above, the Bank Guarantee is not
unconditional because it makes reference to the Letter of Intent
dated 31/03/2005 as well as terms and conditions. The unconditional
Bank Guarantee is that which does not make reference to any of the
collateral agreements between the parties but simply states that the
amount mentioned in the Bank Guarantee was payable in the
favour of employer on demand. The abovementioned context makes
the present Bank Guarantee as conditional only to the extent that
certain circumstances as mentioned in Letter of Intent dated
31/03/2005 should exist or not exist for deciding the eligibility of
parties to invoke the guarantee. This reference to Letter of Intent
dated 31/03/2005 does not alter the independent nature of contract
of Bank Guarantee but merely provides the conditionality as
existing in that contract.
10.4. The above mentioned Bank Guarantee contains the following
recitals:
"All rights and obligations arising from this guarantee
shall be governed by the laws of Republic of
Singapore"
10.5. It has been argued by the defendant that since the Bank
Guarantee has mentioned applicability of laws of Republic of
Singapore, therefore the courts at Singapore would be able to
exercise jurisdiction over the issue of Bank Guarantee.
10.6. Before adverting to this the exclusion of jurisdiction clause in
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the agreement of Bank Guarantee it would be imperative to
ascertain the characteristics of the participating parties to this
contract as under:
a) State Bank of India, is an Indian Bank but carrying
operations internationally either directly or through its
associates;
b) The plaintiff is an Indian company;
c) The defendant is a company admittedly Indonesian based.
10.7. Swastik Gases Private Limited v. Indian Oil Corporation
Limited, (2013) 9 SCC 32 and State of West Bengal and Ors. vs.
Associated Contractors, (2015) 1 SCC 32 are the decisions which lay
down authoritatively that agreeing to the exclusion jurisdiction by
the parties is perfectly legal. However, no covenant between the
parties can vest jurisdiction in a court which otherwise is not a
court of competent jurisdiction. In order to invoke and apply
particular situs of court the agreement between the parties should
be very clear and in accordance with the settled principles of law. In
the present case, the defendant is trying to interpret the above
mentioned clause regarding applicability of legal system of
Singapore to mean as the parties have agreed to subjugate their
disputes to the Courts of Singapore. I do not agree with the
contention of the defendant because agreement for situs of court of
appropriate jurisdiction is completely different from the choice of
application of laws of particular country. In this regard a reference
can be made to decision of Hon'ble Supreme Court in the case of
Laxman Prasad v. Prodigy Electronics Ltd. & Anr., 2008 (1)SCC
618, in this case it has been clearly laid down that in all the cases
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where the parties have agreed and chosen the applicability of law of
any other country are yet guided by principle of cause of action in
respect of identifying the court of appropriate jurisdiction. In the
present case, the bank and its branch which has issued the Bank
Guarantee is based at Delhi and the defendant has raised the
demand of a revocation of bank by filing correspondence at Delhi,
therefore cause of action has arisen within the jurisdiction of this
court and there is no covenant to the contrary, therefore this court
has jurisdiction over the case in respect of any dispute relating to
the contract of Bank Guarantee.
10.8. After deciding the issue of situs of the court, the next relevant
question which arises in the context of this case is whether it is
permitted to the parties to choose the laws applicable to their
disputes. The most significant principle of Private International
Law is that the contracting parties have a right to choose the
governing law of a contract. It is a common practice for foreign
companies entering into contracts with Indian companies to
stipulate a condition in the contract/agreement that the agreement
will be governed by a foreign law.
10.9. Hon'ble Supreme Court of India in the case of National
Thermal Power Corporation v. Singer Company, 1992 SCR (3) 106
stated that the decisive factor in determining the "proper law of
contract" is the expressed intention of the parties. The only
limitation to this rule is that the intention of the parties must be
expressed bona fide and should not oppose to the public policy.
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Proper law is, thus, the law which the parties expressly or impliedly
choose or which is imputed to them by reason of its closest and most
intimate connection with the contract.
10.10. Further, in the matter of TDM Infrastructure Private Limited
v UE Development India Private Limited, pronounced on
14.05.2008, Hon'ble Supreme Court of India observed that as a
matter of Indian public policy, Indian nationals contracting between
themselves are not permitted to contract out of the application of
Indian law. However, India follows the doctrine of precedents i.e.
judgment of the courts has to be read in the context of questions
which arose for determination before it. The observation made in
the above case were made with respect to an application under
section 11 of the Arbitration and Conciliation Act, 1996 concerning
appointment of an arbitrator. The case never concerned the
question whether two Indian parties can contract out of Indian law
or in other words can adopt foreign law to govern their contract.
Thus the observation were merely obiter dicta.
10.11. The Hon'ble Supreme Court of India in the case of Sasan
Power Limited vs. North American Coal Corporation did not throw
light on the question whether two Indian parties could enter into an
agreement to be governed by the laws of another country. The
Supreme Court however concluded that since a foreign element was
involved in the agreement and the issue arising out of it, the
autonomy of the parities in such case to choose foreign law is
recognized in law.
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10.12. In view of the discussion above, a conclusion can be drawn
that no law in India explicitly restricts the parties to a contract to
opt for a foreign law to govern their contract.
10.13. The next question arises whether Indian Courts will enforce
such a foreign law?
10.14. The parties to the contract can by agreement confer
jurisdiction on a foreign court which will have jurisdiction over the
subject matter under the foreign law governing the contract
provided such foreign law permits so and the Indian Courts do not
have the jurisdiction to entertain such suits.
10.15. The parties cannot, by agreement, confer jurisdiction on a
court which does not have any jurisdiction over the subject matter.
In case of a contract specifying a foreign court as having exclusive
jurisdiction, the Indian Court will have jurisdiction to entertain the
suit if the cause of action arises wholly or in part within the local
limits of the Indian Courts jurisdiction as per the Code of Civil
Procedure, 1908. Additionally, the Indian Courts has jurisdiction to
try all cases of a civil nature, unless expressly or impliedly barred
from doing so.
10.16. Thus, where the Indian Court has jurisdiction to entertain
the suit, if a party to the contract wants to rely on a foreign law,
such foreign law should be pleaded like any other fact and be proved
by evidence of experts in that law since the Indian Evidence Act,
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BHEL Vs. PT Merak Page 54 /63
1872 provides that if a court does not take judicial notice of a fact,
such fact shall be proved. An Indian court will take judicial notice of
only the laws which are in force in India. The requirement to prove
foreign laws under rules of evidence has been upheld by the Hon'ble
Supreme Court of India in Harishankar Jain vs. Sonia Gandhi
pronounced on 12.12.2001 where the court held that it would be
able to interpret the agreement's choice of law provisions only if the
parties adduced evidence thereof.
10.17. Therefore, in the light of the above reasoning, it can be
concluded under the given circumstances that two or more Indian
parties to a contract can opt for their contract to be governed by a
foreign law provided the foreign law under which the party wants to
have its jurisdiction must permit so and such fact is stated under
the governing clause to the contract.
10.18. The Bank Guarantee is issued by the bank on the receipt of
the request from the "applicant" for the "guarantee amount"
towards some purpose / underlying transaction towards the
"beneficiary". If the bank i.e. "the guarantor" receives the "claim"
from the beneficiary, it results in "Bank Guarantee invocation". In
the case of foreign Bank Guarantee, apart from these 3 parties,
there is also a "correspondent bank". If a bank does not have a
branch in the other/foreign country, it issues Bank Guarantee in that country through its "correspondent bank". The bank does all the required due diligence, financial and business analysis before issuing the guarantee. It is to be noted that Performance Guarantee Suit No. 9391/2016 BHEL Vs. PT Merak Page 55 /63 is also a type of Bank Guarantee where the guarantee issued is for honoring a particular task and completion of the same in the prescribed/agreed upon manner as stated in the guarantee document.
10.19. Hon'ble Supreme Court in the case of Gangotri Enterprises v. Union of India (Civil Appeal No. 4814/2016 dt. 05.05.2016) recently considered the decision of case of Union of India vs. Raman Iron Foundry, (1974) 2 SCC 231 popularly refered to as DGS&D case and held as under:
43) We have, therefore, no hesitation in holding that both the courts below erred in dismissing the appellant's application for grant of injunction. We are indeed constrained to observe that both the courts committed jurisdictional error when they failed to take note of the law laid down by this Court in Union of India (DGS&D) (supra) which governed the controversy and instead placed reliance on Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Company, AIR 2007 SC 2798 and U.P. State Sugar Corporation vs. Sumac International Ltd., (1997) 1 SCC 568, which laid down general principle relating to Bank Guarantee. There can be no quarrel to the proposition laid down in those cases.
However, every case has to be decided with reference to the facts of the case involved therein. The case at hand was similar on facts with that of the case of Union of India (DGS&D) (supra) and hence the law laid down in that case was applicable to this case. Even in this Court, both the Suit No. 9391/2016 BHEL Vs. PT Merak Page 56 /63 learned counsel did not bring to our notice the law laid down in Union of India (DGS&D) case (supra).
10.20. The decision above authoritatively lays down that each case has to be decided with reference to the facts of the case involved therein. It would mean that the guarantees issued with conditions but depending upon conditions cannot be invoked unilaterally at the drop of cap unless the conditions mentioned in the guarantee document are satisfied. In the present case, there are following recitals in the Bank Guarantee issued by the Bank in favour of the Defendant:
By this letter, the undersigned State Bank of India New Delhi ("the Bank"), a bank organised under the laws of India and having its branch office at CAG New Delhi India do hereby jointly and severally with the contractor irrevocably and unconditionally guarantee payment of the US the 910653/- (USD Nine Hundered Ten Thousand Six Hundered fifty three only) upon the first demand of the employer immediately and unconditionally without cavil or argument in the event that the contractor fails to commence or fulfil its obligation under the terms of the said contract and in the event of such a failure, refuses to repay all or part (as the case may be) of the said commitment fee made by the employer.
10.21. The abovementioned clause clearly shows that the Bank Suit No. 9391/2016 BHEL Vs. PT Merak Page 57 /63 Guarantee was invokable only upon failure of the plaintiff to commence and fulfill its part of obligation under the contract. The first line of Bank Guarantee under consideration makes reference to Letter of Intent (LOI) dated 31st March 2005 and also letter dated 27th April 2005 as released by the defendant. In this document, a reference to the contract makes the Bank Guarantee conditional and under such circumstances, the Bank Guarantee can be invoked only on demonstration that the plaintiff has failed to commence or fulfill its part of obligation. In the present case, the letter of invocation of Bank Guarantee issued by the defendant to the bank does not make mention of any such satisfaction of conditions requiring action of invocation. In this case, it is matter of record that only LOI was issued but no contract was finalized between the parties, thus, when there was no contract duly executed between the parties, therefore the conditions mentioned in the Bank Guarantee cannot be fulfilled because the touchstone of the condition flow from the contract. The operation of Bank Guarantee was conditional upon execution of the contract between the parties and in that sense the Bank Guarantee was a contingent contract dependent upon happening of a future event i.e. execution of the contract. Further, the dependency of the Bank Guarantee upon the work contract also emerges from the following recitals in the Bank Guarantee Ex.D2:
The guarantee shall remain in full force from the date upon which the said commitment fee is received by the contract or that until the date upon which the said commitment fee has been adjusted into advance or the date upon which the Suit No. 9391/2016 BHEL Vs. PT Merak Page 58 /63 contract has fully repaid the amount, so advanced to the employer in accordance with the terms of the Contract or until 06/06/2006 whichever is earlier. At the time at which the outstanding amount is nil, this Guarantee shall become null and void whether the original is returned to us or not.
10.22 The aforesaid clearly shows that the Bank Guarantee was too secure the commitment fee likely to be adjusted in advance in accordance with the term of contract. It reinforces the finding that the operation of Bank Guarantee was to kickstart on execution of the contract (the work contract concerning design, manufacture and supply of 2 x 60 MW coalfired thermal power plant on Turnkey basis). It would not be out of place to mention here that the aforesaid Bank Guarantee clearly makes mention of design, manufacture and supply of 2 x 60 MW coalfired thermal power plant on turnkey basis. In an event, when the contract between the parties did not mature, therefore invocation of Bank Guarantee which was dependent upon the contract would not be possible because it was a conditional guarantee emerging from the terms of the contract.
10.23. I have also considered the contention of the defendant that the Bank Guarantee was to secure repayment of commitment fee already paid to the plaintiff but do not find any force in the same because it is no more res integra that the contract of Bank Guarantee is an independent contract which has to be interpreted on standalone basis. This contract (Bank Guarantee) might make a Suit No. 9391/2016 BHEL Vs. PT Merak Page 59 /63 reference to the parallel work contract but the mutual rights and liabilities emerging from both the contracts are different. In other words, the liability emerging from the work contract/ LOI cannot be straight away forced through the contract of Bank Guarantee which is an independent contract.
10.24. It has been mentioned above that the contract of the present Bank Guarantee was agreed to be one by the laws of the Republic of Singapore but both the parties did not bring on record any differentiation in respect of Indian laws governing the Bank Guarantee visavis the abovementioned laws of the Republic of Singapore. The basic tenants of contract of guarantee of the same and therefore applicable in the present case also.
10.25. In consideration of the legal proposition above and the facts and circumstances of this case the invocation of Bank Guarantee by the defendant without fulfilling the conditions laid down therein cannot be sustained and therefore the defendant are restrained permanently from invocation of the Bank Guarantee.
10.26. Now I shall deal with the argument and contention of the defendant that the Indonesian Courts have decided the matter amongst the parties which has a binding nature upon the plaintiff also, therefore invocation of Bank Guarantee cannot be stopped. The important legal tenet which has been missed by the defendant is that the issue before the Indonesian Court was in respect of breach of contract emerging out of Letter of Intent dated 31/03/2005 Suit No. 9391/2016 BHEL Vs. PT Merak Page 60 /63 and subsequent documentation. That court was dealing with the issue about any breach of contract and the party responsible for the same. The question of invocation of Bank Guarantee in consequence to such decision was outside the jurisdiction of the Indonesian Court and any decision upon the fact in issue and dispute which was and not before that court which could not have been dealt by that court is not binding on the parties. As it has been held in the discussion above that the issue and dispute emerging from the contract of Bank Guarantee was to be decided by this jurisdictional court, therefore any findings of Indonesian Court in respect of the underlying contract/Letter of Intent dated 31/03/2005 is irrelevant even if any conclusive findings have been recorded in that litigation about respective rights and obligations of the parties. It can be understood by assuming that if the contract of Bank Guarantee was not there at all even then the remedies emerging from the main contract were independently implementable. Each contract is separately implementable insofar as any breach emerging from the conduct of the parties. The contention of the defendant is unacceptable that by virtue of decision of Indonesian Court in respect of the main contract was also implementable in the independent and separate contract of Bank Guarantee which is under consideration of this Court.
10.27. The contention of the defendant that the plaintiff has already received commitment fee as discussed above, therefore in view of the decision of Indonesian Court and the nonimplementation of the contract between the parties the same is to be refunded through Suit No. 9391/2016 BHEL Vs. PT Merak Page 61 /63 invocation of Bank Guarantee. This contention and argument of the defendant appears fanciful and convincing but yet on legal cannons it is bound to fail because the relief of repayment/recovery of commitment fee cannot be implemented by invocation of Bank Guarantee as it is a separate contract. In this suit, no findings can be given whether or not the defendant is entitled to recovery of the commitment fee but yet it definite findings can be recorded that such entitlement of recovery per se cannot be executed through invocation of Bank Guarantee which is a separate contract and does not provide for such recovery. There exists no case for special equities in the favour of the defendant.
10.28 In view of the discussion above, it would be incumbent to consolidate and aggregate the issue wise findings are as under:
The first three issues no. I, II and III are interlinked and therefore these are decided in bunch/together. The defendant has failed to bring on record the satisfaction of existence of conditions regarding invocation of Bank Guarantee as has been provided in the said document. The Bank Guarantee being conditional, therefore it's invocation without satisfaction of the conditions is not permitted and thus the letter of invocation dated 03/08/2006 was nonimplementable. Similarly, the action of the defendant invoking the Bank Guarantee without satisfaction of the conditions cannot be upheld. These three issues are decided in the favour of the plaintiff and against the defendant no. 1.
The issue no IV, in respect of territorial jurisdiction to Suit No. 9391/2016 BHEL Vs. PT Merak Page 62 /63 entertain and try the instant suit is decided in the favour of the plaintiff and against the defendant in view of discussion above.
Relief
11. In view of above discussion, the suit of the plaintiff is hereby decreed and the defendant PT. Merak Energi Indonesia is restrained from recovering the whole or any part of amount with respect to Bank Guarantee and further the letter of invocation dated 03.08.2005 is illegal and void. No orders as to cost. Decree sheet be prepared. File be consigned to record room.
Pronounced in the open Court (VINEETA GOYAL)
on 28.03.2018 Additional District Judge03
South, Saket Court
Complex, New Delhi.
Suit No. 9391/2016
BHEL Vs. PT Merak Page 63 /63