Delhi District Court
M/S Hinsui Engineering Pvt. Ltd vs Oriental Bank Of Commerce on 25 May, 2016
Page no.1 /24
IN THE COURT OF Ms.SUNENA SHARMA
Addl. Distt Judge - 03 (SE)
SAKET COURTS COMPLEX: NEW DELHI
ARB No.:04/2016
Unique Case ID No. 02406C0080982016
Date of Institution : 27.02.2016
Arguments concluded: 19.05.2016
Date of Order: 25.05.2016
M/s Hinsui Engineering Pvt. Ltd.
Through D.K. Goyal
Having registered office at:
TA-98, 2nd Floor,
Goyal House, Main road,
Tughlakabad Extension,
New Delhi-110019 ........... Petitioner
Versus
1. Oriental Bank of Commerce
Through Branch Manager
Greater Kailash II Branch,
Having Registered office at
Harsha Bhawan, E- Block
Connaught Place, New Delhi-110001
2. M/s Punj Lloyd Ltd.
Through
Having registered office at
17-18, Punj Lloyd House,
New Delhi-110019 ....... Respondents
ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie
Page no.2 /24
ORDER
1. Vide this order, I shall decide the petition filed under Section 9 of Arbitration and Conciliation Act, 1996 for restraining respondents from invoking or extending performance bank guarantee bearing no. 06190002713 for an amount of Rs. 40 lacs, which was issued in favour of respondent no.2 by respondent no.1 on behalf of their customer M/s Hinsui Engineering Pvt. Ltd. i.e. petitioner herein.
2. As per petition, petitioner entered into a Subcontract Agreement with respondent no.2 for CW & ACW Piping work contract for a project: 2x300 MW Coal Based Thermal Power Plant at Haldia, West Bengal. The Subcontract Agreement which was to commence w.e.f. 03.08.2012, was entered into on 06.12.2010 and against performance of said Subcontract Agreement, petitioner through its banker i.e. respondent no.1 herein, furnished aforementioned bank guarantee of Rs.40 Lacs in favour of respondent no.2. Bank guarantee was executed on 28.02.2013 and same was valid uptill 12 months but the same was extended from time to time vide letters dated 21.02.2014, 27.08.2014, 25.02.2015, 11.06.2015, 24.08.2015 and 30.11.2015. As per the last extension, bank guarantee was to expire on 28.02.2016. During the course of project, petitioner received various communications from respondent no.2 and other stake holders ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.3 /24 regarding appreciation of its work. As per Article 6 of the Subcontract Agreement, the duration of completion of project was 13 months from the date of issue of letter of intent and as per Article 9, the bank guarantee was to remain valid till completion of subcontract work including any extension plus 3 months claim period. Article 9.1 of the subcontract provides that bank guarantee will be released within 30 days after expiry/successful completion of defect liability (warranty period) and issuance of final acceptance certificate by the owner. As per Article 19 of the subcontract, defect liability (warranty period) shall be 12 months from date of COD project. Article 22.7 of the Subcontract Agreement provides for arbitration for all the disputes that arise between the parties and provides the place of arbitration to be Delhi.
3. It is the case of petitioner that on 11.01.2016, respondent no.2 issued a letter thereby notifying its satisfaction regarding the work done by the petitioner during the execution of aforementioned thermal power plant at Haldia. But to utter surprise of the petitioner, respondent no.2 vide its letter dated 18.02.2016 addressed to respondent no.1, applied for extension of aforementioned bank guarantee for another three months or alternatively to encash the bank guarantee on 28.02.2016 alleging therein that object of same has not yet been fulfilled. This fact came as a surprise to the petitioner who had given a no due ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.4 /24 certificate to respondent no.2 on 19.02.2016. Respondent no.1 informed the petitioner regarding aforementioned request of respondent no.2 for encashment/extension of bank guarantee vide their letter dated 22.02.2016.
4. In the instant petition, injunction for staying the encahsment/extension of aforementioned bank guarantee has been prayed on the following grounds :-
i) That respondent no.2 has played a fraud with petitioner because on the one hand vide letter dated 11.01.2016 respondent no.2 accepted the fact that petitioner had executed the contract to the satisfaction of respondent no.2, while on the other hand respondent no.2 proceeded to invoke the bank guarantee alleging that the 'object of same has not yet been fulfilled'.
ii) That respondent no.2 in a clandestine and surreptitious manner made a false statement to the bank and unlawfully/wrongfully retained the amount secured by petitioner.
Iii) That on one hand, respondent no.2 valued the work of the petitioner vide appreciation letter dated 11.01.2016 and also released final payments to the tune of about two crores on 20.02.2016 in favour of petitioner and also took no dues certificate from petitioner in respect of project in question, while on the other hand, it lodged claim with respondent no.
ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.5 /24 2 for extension/invocation of bank guarantee for wrongfully enriching itself to the tune of Rs. 40 lacs.
iv) That respondent no.2 actively concealed the fact of lodging reservation to respondent no.1 regarding encashment of bank guarantee and on false representation induced petitioner to issue a no dues certificate in its favour and in this way respondent no.2 shook the conscious and trust of business community in such commercial contracts.
v) That extension of bank guarantee according to the contractual obligations under the contract was permissible only with the written consent from the petitioner as is also evident from the past extensions which were granted upon the request of petitioner.
vi) That respondent no.2 had no authority under the contract to encash or extend the bank guarantee after issuance of completion work certificate.
vii) Because in absence of any official communication from respondent no.2 regarding any dispute in the execution of work done by the petitioner in the aforementioned project for which the bank guarantee had been furnished, an irreparable loss will be caused to the petitioner if respondent no.2 succeeds in getting the bank guarantee encashed.
5. As per record, respondent no.1 did not appear despite service hence, was proceeded ex parte vide order dated ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.6 /24 12.05.2016. Respondent no.2 however, contested the petition by filing a written reply wherein except admitting the fact that Subcontract Agreement dated 06.12.2012 was executed between petitioner and respondent no.2 and a performance bank guarantee for Rs. 40 lacs was furnished by petitioner in favour of respondent no.2, all the other averments relating to successful completion of project, expiry of defect liability period or regarding fraud allegedly played by respondent no.2 upon petitioner have been categorically denied. It is further stated that as per Article 9.2 of the Subcontract Agreement, the bank guarantee could not be released to petitioner unless the defects in the work carried out by the petitioner were rectified and unless the final acceptance/completion certificate was received from the owner i.e. Haldia Energy Ltd. (HEL). It is further averred that petitioner's work suffered from several defects such as pealing of PU coating which would ultimately result in choking of condenser, instrument as well as part of boiler in respect of which the owner of the project HEL informed respondent no.2 and in turn respondent no.2 informed petitioner and invited him for inspection by issuing a letter dated 20.09.2015 but the MD of petitioner company vide his e-mail dated 28.09.2015 refused to participate in the inspection work. Further, as per Article 20.6 of Subcontract Agreement, petitioner was notified to take corrective action for deficiency related to performance of their work but despite that petitioner failed to take any corrective measure within stipulated time and ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.7 /24 as a consequence respondent no.2 had to get the work executed through other agencies which led to increase of related cost by of 15% which as per the agreement between the parties, was liable to be deducted from the dues of the petitioner or otherwise recoverable from the bank guarantee. Petitioner not only refused to rectify the defects, but also refused to incur the cost of rectification. It is further submitted that respondent no.2 had also made excess payment of approximately Rs. 36,84,468/- which the petitioner failed to return till date and in said circumstances respondent is within his right to seek extension/invocation of bank guarantee. It is further averred that petitioner also left various works relating to underground piping and due to paucity of time and non performance of petitioner, the owner HEL got the said work carried out through an alternate contractor M/s PowerMech for a sum of Rs. 16,85,400/- and said amount was paid by answering respondent and petitioner was asked to clear the same vide letter dated 18.08.2015. It is further averred that petitioner also failed to execute various other works like cleaning of pipes and sand filling etc.
6. It is further submitted by respondent no.2 that the letter of appreciation dated 11.01.2016 was issued at the request of petitioner for enabling him to qualify for a contract in Oman and in said letter, it was clarified that said certificate shall not relieve the receiver from any obligation under the contract. It is further ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.8 /24 submitted that said letter is not a completion certificate as alleged by petitioner but it was merely a certificate of appreciation issued by respondent no.2 at petitioner's request. As per Subcontract Agreement, the completion certificate was to be issued by the owner HEL and not by the answering respondent. Further as per Clause (b) of Article 20.6, withholding of any payments by petitioner due to its sublet subcontractor or supplier without due cause and legitimate basis shall be deemed to be the petitioner's default. It is submitted that petitioner did not clear the dues of sublet subcontractor M/s Ariyan who wrote a letter to the owner to clear its dues and the owner HEL and answering respondent having left with no alternative jointly cleared the dues of Rs.30 lacs of said sublet subcontractor on 23.09.2015. In addition to the above, petitioner has till date not paid the dues of sublet subcontractor namely RUC Industries, Malik Associates, Laxmi trading, Tanushree Industrial services.
7. It is further alleged in reply that petitioner has deliberately placed the wrong facts before the Court for obtaining an ad interim ex parte order as the petitioner wrongly stated that the bank guarantee in question is the bank guarantee against advance whereas, as per Article 9.2, the bank guarantee in question is a performance bank guarantee which as per Article 19 was to remain valid till expiry of defect liability period. It is further submitted that as per the terms of Subcontract Agreement, ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.9 /24 respondent is legally entitled to seek extension of bank guarantee in case the petitioner fails to abide by the terms of said contract. Respondent no.2 categorically denied that it got the no dues certificate issued from petitioner by fraudulent mis-representation as alleged in the petition. It is further submitted that since no completion certificate has been issued till date, therefore, respondent no.2 was well within his right to encash or extend the bank guarantee.
8. In the rejoinder filed to the reply, besides the facts admitted by respondent no.2, all other averments of reply have been denied by the plaintiff as wrong and incorrect. It is further submitted by the petitioner that the contract in question was awarded to petitioner on 03.08.2012 with 13 months stipulated period of completion but the same got delayed on account of default on the part of respondent no.2 and petitioner had to continue with the work till March, 2015 with overhead cost for a period of 20 months. However, being satisfied with the performance and expertise of petitioner, respondent no.2 offloaded work from other agencies and requested petitioner to complete certain other civil and mechanical job of value of more than 46 crores and had there been any breach on the part of petitioner, there would have been no reason for respondent no.2 to assign petitioner with extra jobs of huge value. It is further submitted that no dues certificate was also issued by petitioner to ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.10 /24 respondent no.2 only on their assurance for release of bank guarantee in favour of petitioner.
9. In reply to the preliminary objections, it is submitted that the defect liability period of 13-15 months had got over in December,2015 and petitioner did not receive any communication from respondent no.2 regarding PU coating after September, 2015. Petitioner further denied that they ever refused to rectify the defective work and further stated that had it been so, respondent no.2 would not have issued the letter in the name of petitioner regarding successful operation of power plant at their website. It is further stated that since the project was worth more than 1000 crores therefore, there were bound to be other contractors but the same is not the subject matter of present petition as petition relates to performance bank guarantee not the financial bank guarantee. Further that, there is no privity of contract between the HEL and petitioner and respondent no.2 has raised false averments only to divert the attention of the court. Further that, if any claim remains due towards petitioner then remedy under arbitration is provided. Further that, petitioner has completed the defect liability period and all dues and claims have already been settled. Petitioner further denied that petitioner did not clear the dues to its sublet contractors and in support thereof, petitioner also placed on record the no dues certificate issued by Aryan Engineering and Tanushree Industrial. It is further stated ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.11 /24 that there is no communication from respondent no.2 that petitioner's performance under contract was not satisfactory.
10. I have given my thoughtful consideration to the submissions raised from both the sides and also perused the entire record. Before adverting to the respective contentions of the parties, I deem it appropriate to briefly discuss the proposition of law laid down by various superior courts in connection with the question of invocation of bank guarantee.
11. The law relating to invocation of bank guarantee is now well settled which says that in case of an unconditional bank guarantee the beneficiary is entitled to realize the bank guarantee in terms thereof irrespective of any pending dispute and bank giving such guarantee is bound to honour it as per its terms irrespective of dispute raised by its customer as the very purpose of giving such bank guarantee would otherwise be defeated. The court should be slow in granting injunction to restrain realization of such bank guarantee. To this general rule, two exceptions have been carved out. First exception is a fraud in connection with such a bank guarantee vitiating the very foundation of such bank guarantee. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injury to one of the parties concerned.
ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.12 /24
12. In Hindustan Construction Co. Ltd. vs. Satluj Jal Vidhyut Nigam Ltd. AIR 2006 Delhi 169, while discussing with the catena of previous judgments of Hon'ble Apex court as well as Hon'ble Delhi High Court, it was held that:-
"12. The various judgments relied upon by the learned counsel appearing for the parties would show that the law in relations to encashment of bank guarantee has attained wider dimensions with the passage of time. Originally, the only exception carved out to encashment of bank guarantee unconditionally was, fraud. However, subsequent judicial pronouncements have extended this scope by adding other class of cases which would fall in this exception - Cases of irretrievable injury, fraud, extraordinary special equities and invocation of bank guarantee being not in terms of the bank guarantee itself. It is very difficult to draw any straitjacket formula which would universally apply to all the cases. The Court would have to examine each case in order to find out whether the case falls in any or more of the afore-stated classes."
13. In case of U.P. State Suger Corporation vs. Sumac International Ltd., AIR 1997 SC 1644, the Hon'ble Supreme Court after detailed discussion of law on the subject while spelling out the principles guiding invocation of bank guarantee and the circumstances where the court would or would not grant an injunction held as under:
"There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.13 /24 underlying transaction. Explaining the kind of fraud that may absolve a bank from honouring its guarantee, this Court in the above case quoted with approval the observations of Sir John Donaldson, M. R. In Bolivinter Oil SA v. Chase Manhattan Bank (1984) 1 All ER 351 (All ER at p. 352), (at SCC p. 197 of (1988) 1 SCC
174)."
"The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged."
14. In Continental Construction Ltd. & Ors. vs. Satluj Jal Vidyut Nigam Ltd., 2006 (1) Arb. LR 321 (Delhi) decided on 12.01.2006, while referring to the judgment of Hon'ble Apex Court in U.P. State Suger Corporation (supra), it was held that to avail the second exception of irretrievable injury, exceptional circumstances which make it impossible for guarantor to reimburse himself if he ultimately succeeds will have to be decisively established. Clearly, a mere apprehension that the other party will not be able to pay is not enough. It was further held that irretrievable injury must be of the kind which was the ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.14 /24 subject matter of decision in Itek Corpn. case wherein the court upheld the contention of the exporter that any claim for damages against the purchaser if decreed by American courts would not be executable in Iran and in those circumstances, it was held that realization of bank guarantee would cause irreparable harm to the plaintiff.
15. In the instant case, Article 9.2 of Subcontract Agreement dated 06.12.2012 provides for the nature and period of validity of the bank guarantee and same reads as under:-
9.2 5% Performance bank guarantee as per the contract requirement shall be submitted prior to the submissions of 1st running account bill. The format of bank guarantee is given in Annexure-F1. The performance guarantee shall remain valid till the defect liability (warranty period) as per Article (19). Said bank guarantee will be released within 30 (Thirty) days after the expiry/successful completion of defect liability (warranty) period and issuance of final acceptance certificate by owner.
Article 19 of Subcontract Agreement defines defect liability (warranty period) as under:-
19.1 Subcontractor warrants that the Works executed under the Subcontract shall be free from material discrepancies, errors or omissions. Subcontractor shall at its own cost rectify any such discrepancies, errors or omissions in the Subcontract Works. Defect Liability (Warranty) period for the Subcontract Works shall means a period of 12 months (Twelve months) from the date C.O.D. Of Project.
ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.15 /24
16. It is an undisputed position on record that the bank guarantee no.06190002713 dated 28.02.2013 after its last extension was valid up till 28.02.2016. As per the terms of said bank guarantee, the subcontractor shall be obliged to keep it valid/alive till completion of defect liability period. The relevant clauses of said bank guarantee are reproduced as under:-
WHEREAS the Subcontractor is required to furnish a Performance Guarantee for Rs.40,00,000/- (Rupees Forty Lakhs Only) constituting of the 5% value of the subcontract for the due performance of the subcontract by the subcontractor, which the subcontractor shall be obliged to keep it valid/alive till completion of the defect liability period as per the terms of the contract.
And WHEREAS, Oriental Bank of Commerce, Greater Kailash-II Branch, New Delhi-110048, having its registered office at- Harsha Bhawan, E- Block, Connaught Place, New Delhi-110001 and Head Office at Plot No.5, Sector-32, Institutional Area, Gurgaon- 122001 (hereinafter referred to as the Bank, which expression shall, unless repugnant to the context or meaning thereof, includes its administrators, executors and assigns), guarantee the due performance by Subcontractor of Subcontracts' obligations under the Subcontract and accordingly do hereby undertake to pay, immediately on demand, irrevocably and unconditionally, without any demur, reservation, contest, recourse or protest and without any reference to the subcontractor, the Contractor any/or all money(ies) payable by the Subcontractor under this guarantee to the extent of Rs.40,00,000/- (rupees ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.16 /24 Forty Lakhs only) as aforesaid at any time up to 12 months.
Any such demand made by the contractor on the Bank shall be conclusive and binding notwithstanding any difference between the contractor and the subcontractor or any dispute pending before any Court, Tribunal, Arbitration and shall continue to be enforceable till the Contractor discharges this guarantee.
As per the term of aforementioned bank guarantee, the bank further undertook to pay the guaranteed amount only upon the written claim or demand raised by the beneficiary on or before 28.02.2014, after which all the rights of the beneficiary under said bank guarantee shall be forfeited and the bank shall be relieved or discharged from all its liabilities under said bank guarantee.
17. Now what falls for consideration before this court is to see whether the bank guarantee has been invoked in accordance with the terms thereof and if so, whether the case of the petitioner falls under any of above mentioned exceptions for seeking injunction against invocation of bank guarantee. As per the terms of Subcontract Agreement, the performance guarantee shall remain valid till the expiry of defect liability period and said bank guarantee shall be released within 30 days after expiry/successful completion of defect liability (warranty) period and issuance of final acceptance certificate by the owner. As per Article 19 of ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.17 /24 Subcontract Agreement, the defect liability period for the subcontract works shall mean a period of 12 months from the date of C.O.D. of project. However, none of the parties in their pleadings have mentioned the date of C.O.D. of project nor the said term C.O.D. seems to have been defined anywhere in the Subcontract Agreement.
18. During the course of arguments, counsel for respondent no.2 submitted that C.O.D. is the date of commercial operation of the project and the same was in September, 2015. Per contra, counsel for petitioner submitted that date of commercial operation for first and second unit of 2x300 MW project was 28.01.2015 & 21.02.2015 respectively and in support thereof she has placed on record the Tariff Order of West Bengal Electricity Regulatory Commission in case no. TP 64/14-15 dated 29.01.2016 wherein it was noted by the Commission that the commercial operation of first and second unit of 2x300 MB project was achieved w.e.f. 28.01.2015 & 21.02.2015 respectively and the same was observed in view of the communication received from Haldia Energy Ltd. i.e. the owner who awarded the contract of aforementioned project to respondent no.2. In this regard, no document in rebuttal has been placed on record by the respondent no.2.
19. Thus, assuming that the date of C.O.D. of second unit ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.18 /24 was 21.02.2015 even in that case, the defect liability period as per the terms of Subcontract Agreement expired on 21.02.2016. Whereas, the claim/demand for invocation/extension of bank guarantee was raised by respondent no.2 vide their letter dated 18.02.2016 addressed to respondent no.1. Hence, apparently the demand for invocation of bank guarantee has been made before the expiry of defect liability period which was to expire on 21.02.2016. Furthermore, as per the terms of bank guarantee the same was payable on demand, irrevocably and unconditionally, without any demur, reservation, contest, recourse or protest and without any reference to the subcontractor. However, it is contended by petitioner's counsel that in absence of any previous claim of liquidated damages raised by respondent no.2 from petitioner, respondent no.2 played a fraud by invoking the bank guarantee especially when upon the assurance of respondent no.2 to release the bank guarantee, petitioner issued a no dues certificate to respondent no.2 after settling its account at much less value. But terms of bank guarantee nowhere contemplates any such condition for raising the claim for invocation of bank guarantee. Under the guarantee, bank had undertaken to release the amount unconditionally and irrevocably without any contest, protest and reference to the subcontractor. The terms of bank guarantee further stipulate that any demand made by the contractor i.e respondent no.2 herein upon the bank shall be conclusive and binding notwithstanding any difference between ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.19 /24 the contractor and subcontractor or any dispute pending before any court, Tribunal, Arbitrator.
20. Furthermore, there is nothing on record to show that respondent no.2 had ever given any assurance for release of bank guarantee upon issuance of no dues certificate by the petitioner in its favour. The letter dated 11.01.2016 whereupon petitioner's counsel has placed strong reliance for supporting her contention that petitioner had completed the project work to the satisfaction of the respondent no.2 and no claims or dues were outstanding against petitioner, is nothing but a letter of appreciation which the respondent no.2 claimed to have issued at the request of petitioner for enabling him to apply for another project in Omaan and in the very same letter it was duly mentioned that issuance of such certificate shall not relieve Punj Lloyd of any obligation coming under the terms and conditions of the contract.
21. Counsel for respondent no.2 has urged that bank guarantee was to be released/discharged only upon successful completion of defect liability period during which petitioner was required to rectify all the defects as and when brought into their notice by the respondent no.2, in the project work. Whereas, petitioner despite having been asked repeatedly to rectify the defect of peeling of CW pipes failed to discharge their obligation and consequently, respondent no.2 had to engage some other ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.20 /24 agency/contractor for getting the work executed and the same led to increase of administrative charges by 15% which are liable to be deducted from the payments due to the petitioner or from the bank guarantee. In this regard, counsel has also drawn my attention to the letter dated 27.07.2015 received by respondent no.2 from Haldia Energy Ltd. wherein respondent no.2 was informed about the peeling of PU coating from CW pipes, and letter dated 25.09.2015 issued by respondent no.2 to the petitioner to ask them to rectify the aforementioned defects, and letter dated 28.09.2015 received by respondent no.2 from petitioner, whereby petitioner expressed their inability to depute any staff for inspection of the site in first week of October, 2015.
22. After analyzing the circumstances of the case in the light of the above discussed proposition of law, I am of the view that none of the ground set out in present petition are sufficient to bring the case within any of the exceptions carved out to the general rule for staying the invocation of bank guarantee. Petitioner has not pleaded any fraud in connection with the execution of the bank guarantee or principle contract. The invocation of bank guarantees is in inconsonance with its terms firstly, because the invocation has been sought on 18.02.2016 i.e. before the expiry of defect liability period, secondly, there was no obligation under the term of guarantee to require respondent no.2 to cite or mention the liquidated damages/dues allegedly ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.21 /24 recoverable from petitioner before lodging the claim of invocation/extension of bank guarantee. The bank guarantee in question was unconditionally payable on demand raised by the beneficiary within its validity period.
23. As per the law laid down in UP State Suger Corporation (supra), the fraud must be of egregious nature such as to vitiate the entire underline transaction. Whereas, the pleaded case of the petitioner nowhere suggests that any such fraud vitiating the underline transaction has been played by the respondent no.2. No dues certificate alleged by the petitioner was not issued by respondent no.2 rather the same was issued by petitioner in favour of respondent no.2 and as noted above, the petitioner has failed to place anything on record to show that the same was obtained by respondent no.2 on misrepresentation or false assurance as alleged by the petitioner.
24. The second exception of irretrievable injury is also not attracted as no exceptional circumstances have been cited by the petitioner which would make it impossible for petitioner to reimburse himself or to seek restitution, if he ultimately succeeds in proving due performance of contract on his part. Furthermore, respondent no.2 has placed on record various letters of different sublet subcontractor vide which they requested respondent no.2 for releasing the payments which were due to them (sublet ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.22 /24 subcontractor) against petitioner herein with the request to adjust the same from petitioner's bill. One such letter is dated 04.01.2016 of Laxmi Trading Company. There is one more letter dated 18.08.2015 written by respondent no.2 to the petitioner whereby, petitioner was informed about debiting of amount of Rs. 16,85,400/- from the dues of the petitioner as said amount was paid by HEL to PowerMech for execution of work done on behalf of petitioner. Respondent no.2 has also alleged that excess payment to the tune of Rs.36,84,468/- has been made to the petitioner and in support thereof it has also placed on record letter dated 17.07.2015 vide which the final bill RA-24 was submitted by the petitioner with the respondent no.2 after making due correction of excess payments reflected in the bill.
25. As per the judgment of U.P. State Suger Corporation (supra), for availing the second exception of irretrievable injury, exceptional circumstances which make it impossible for the guarantor to reimburse himself if he ultimately succeeds, will have to decisively established. Whereas, from the material on record, there is no good reason for the court to prima facie make any such view. The general rule is that courts will not interfere directly or indirectly to withhold payment under bank guarantee. Otherwise, trust in commerce internal or international would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle the disputes with ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.23 /24 respect to allegation of breach by resorting to litigation or arbitration as stipulated in the contract and cause of action for same is independent of enforcement of guarantee.
26. The judgment of Hindustan Construction Co. Ltd. (supra) as relied upon by petitioner's counsel, wherein injunction against invocation of bank guarantee was granted by the Hon'ble High Court is distinguishable on facts in as much as in said case an internal determinative process prescribed under the terms of contract was already initiated by the parties and to obviate the finding recorded by internal determinative adjudicating machinery i.e. CMD's findings as well as findings of DRB which were passed against the respondents therein, the respondents opted to invoke bank guarantee and in said circumstances, it was held that action of respondents in insisting upon encashment of bank guarantee is bound to cause irretrievable injustice and injury to the applicants, who otherwise, have a case of special equities in their favour. In said case, the applicants' claim against respondents was already allowed by the domestic adjudicating process prescribed under the terms of contract, which is not the case herein. The second judgment of Continental Construction Ltd. & Anr. (supra), relied upon by petitioner is also distinguishable for the same reason as even in said case invocation of bank guarantee by the respondents therein was held by the court to be a motivated arbitrary attempt of respondents to frustrate the benefit of the ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie Page no.24 /24 decided matters or results of the internal adjudicative process.
27. Having regard to the aforementioned discussion, I am of the view that petitioner has failed to make out any prima facie case so as to invoke the discretionary power of the court u/s 9 of Arbitration and Conciliation Act, 1996. For the aforementioned reasons, the petition u/s 9 of Arbitration and Conciliation Act, 1996 is dismissed. File be consigned to Record Room.
(Sunena Sharma) Addl. Distt Judge-03/South-East Saket Courts Complex, New Delhi Announced & dictated in the Open Court on 25.05.2016.
ARB No. 04/2016 M/s Hinsui Engineering Pvt. Ltd. vs. Oriental Bank of Commercie