Delhi High Court - Orders
Injunction) Meinhardt Australia Pty ... vs Airport Authority Of India & Ors on 20 December, 2022
Author: Yashwant Varma
Bench: Yashwant Varma
$~26
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 386/2022 & I.A. 21801/2022(Interim
Injunction)
MEINHARDT AUSTRALIA PTY LTD ..... Petitioner
Through: Mr. Pallav Sisodia, Sr. Adv.
With Mr. Sandeep Tiwari, Mr.
Hemant Sharma, Advs.
versus
AIRPORT AUTHORITY OF INDIA & ORS. ..... Respondents
Through: Mr. Digvijay Rai, Mr. Archit
Mishra, Advs. For AAI
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
ORDER
% 20.12.2022 I.A. 21802/2022 (for exemption) Allowed, subject to all just exceptions.
The application shall stand disposed of.
O.M.P.(I) (COMM.) 386/2022 & I.A. 21801/2022(Interim Injunction)
1. This petition which has been instituted under Section 9 of the Arbitration and Conciliation Act, 19961 seeks the following reliefs:-
"a) Interim Relief:
It is most respectfully prayed to this Hon'ble Court to kindly grant ad-interim stay against impugned letter Dated 15-12- 2022 by the respondent for final notice to termination of Contract Agreement no. AAI/CHQ/Engg(C)/ER/PMC- Patna/2017-18 dated 05-12-2017.
And; restrain to respondent from encashment of Performance of Bank Guarantee dated 27-03-2018 for sum of Rs.4,10,84,645/- submitted on 02-04-2018 by the petitioner in compliance of Contract Agreement no. AAI/CHQ/Engg(C)/ER/PMC-Patna/ 2017-18 dated 05-12- 2017
b) Main Relief:
(i) to stay an operation of against impugned letter No.
Dated 15-12-2022 issued by the respondent for final Signature Not Verified 1 Digitally Signed the Act By:NEHA Signing Date:21.12.2022 17:34:08 notice to termination of Contract Agreement no. AAI/CHQ/Engg (C)/ER/PMC-Patna/2017-18 dated 05-12-2017 under clause 7.18 of the said agreement till the date of appointment of the Arbitral Tribunal as per the clause of the agreement and/ or till the final legal remedy exhausted.
(ii) to stay the respondents from encashment of Performance of Bank Guarantee dated 27-03-2018 for sum of Rs.4,10,84,645/- submitted on 02-04-
2018 by the petitioner in compliance of Contract Agreement no. AAI/CHQ/Engg(C)/ER/PMC-
Patna/2017-18 dated 05-12-2017 till the date of appointment of the Arbitral Tribunal as per the clause of the agreement and/ or till the final legal remedy exhausted.
If this Court will pass such desired relief as shout under para (i) & (ii) of this prayer clause, then applicants will proceeds for appointment of arbitral tribunal within period of 90 days or whatsoever time will be granted by this Court.
(iii) Pass such other Order(s) as this Hon‟ble Court may deem fit and proper in the interest of justice and in the facts and circumstances of the present case."
2. The aforesaid reliefs have been sought in the backdrop of the Airport Authority of India2 having issued a Notice for Final Action3 dated 15 December 2022 in terms of clause 7.18 of the contract dated 05 December 2017 for rescinding the contract, appropriation of earnest money and security deposits and forfeiture of the Performance Bank Guarantee4 which had been tendered by the petitioner.
3. The issues arise in the backdrop of the petitioner having been appointed as the Project Management Consultant5 for the construction of the New Domestic Terminal Building and other allied structures at Patna Airport. The petitioner is stated to have been awarded the aforesaid project and appointed as the PMC on 26 July 2017. The contract between the parties came to be executed on 05 2 AAI 3 final action notice 4 PBG Signature Not Verified 5 Digitally Signed PMC By:NEHA Signing Date:21.12.2022 17:34:08 December 2017. From the record it would transpire that apart from the action of termination which has given rise to the present petition, the respondents have also and in terms of a communication dated 26 November 2021, debarred the petitioner due to poor performance and restrained it from participating in further tenders of AAI for a period of two years or till the completion of the Patna Airport project, whichever be later. The aforesaid debarment order forms subject matter of O.M.P.(I) (COMM.) 301/2022, which is pending on the board of this Court.
4. The final action of termination was preceded by the issuance of a show cause notice dated 21 October 2022. The aforesaid notice and the validity of the action of AAI formed subject matter of O.M.P.(I) (COMM.) 315/2022. While considering the aforesaid petition, a learned Judge of the Court on 10 November 2022 had taken on board the statement made by counsel appearing for AAI who had submitted that in the event the contract is finally terminated, they would not take any action consequent thereto for a period of one week in order to enable the petitioner to take its remedies. The aforesaid statement was duly recorded and accepted by the Court and the petition thereafter disposed of with liberty being reserved to the petitioner here to take appropriate remedies in the event the contract came to be ultimately terminated.
5. Appearing in support of the present petition, Mr. Sisodia, learned Senior Counsel, has principally prayed for directions being framed calling upon AAI to extend the statement which had come to be recorded by the Court in the earlier petition filed under Section 9 of the Act till such time as the dispute is referred to arbitration and an Arbitral Tribunal duly constituted. According to Mr. Sisodia, a direction on the aforesaid lines would clearly be warranted and would secure the interests of both parties since upon constitution it would be Signature Not Verified Digitally Signed By:NEHA Signing Date:21.12.2022 17:34:08 open for the petitioner to obtain appropriate reliefs from the Arbitral Tribunal itself in terms of Section 17 of the Act. It was further contended that in case such an order is not made, the respondents would proceed to invoke the PBG thus causing irreparable loss to the petitioner.
6. Mr. Rai, learned counsel appearing for AAI, on the other hand submits that the statement which came to be recorded in the previous round of litigation was one which was made at a time when the contract had not been finally terminated. Learned counsel submitted that the aforesaid statement cannot in any case bind the AAI beyond the terms of what was recorded in the previous round of litigation. Learned counsel contended that because of the breaches attributable to the petitioner, a project of immense public importance has come to be jeopardized and thus no injunctive relief is liable to be accorded to the petitioner.
7. Mr. Rai further submitted that, in any case, no injunction can be granted to the petitioner since a terminable contract has come to be determined by AAI in accordance with the provisions of the contract which binds parties. In view of the aforesaid, it was his submission that no interim injunction could be issued and nor could the respondents be restrained from giving effect to the final action notice. Mr. Rai in support of the aforesaid submission placed reliance upon the judgment rendered by a Division Bench of the Court in M/S Inter ADS Exhibition Pvt. Ltd. vs. Busworld International Cooperative Vennootschap Met Beperkte Anasprakelijkheid6 where it was observed: -
"13. Whether the termination notice dated 15.03.2019, met the requirements of Article 12.4 or not and thus, whether the termination was a valid termination or not, would be questions that have to be examined and adjudicated upon by the learned Arbitrator, to be appointed by the parties to resolve their disputes.Signature Not Verified 6
Digitally Signed FAO(OS) (COMM) 23/2020 By:NEHA Signing Date:21.12.2022 17:34:08
It would also be for the learned Arbitrator to reconcile Article 7.1 with the recitals in the JVA-II dated 25.10.2011, as reproduced hereinabove, limiting the agreement to four editions. Under Article 7, termination can be either mutually agreed to under Article 7.2 or at the option of either party, on the occurrence of certain events, as listed under Article 7.3, which contemplates a termination with penalty. Again, the question whether the respondent had given 30 days‟ time to the appellant to make good the default, duly specified in reasonable detail in the communications exchanged between the parties, is not for this court to inquire into. Suffice it is to state that in either event, the agreement was terminable and therefore, the conclusion arrived at by the learned Single Judge that specific performance of the contract could not be granted and nor could any injunction be issued restraining the respondent from giving effect to the notice dated 15.03.2019, as that would in effect amount to enforcement of the contract beyond the said date i.e. 15.03.2019, cannot be faulted.
14. The learned Single Judge has rightly relied on a decision of this court in MIC Electronics Ltd. and Ors. vs. Municipal Corporation of Delhi and Ors., 2011 II AD (DEL) 625, to hold that legality of the termination and the justification of the appellant of not paying the balance due to the respondent, would have to be examined by the learned Arbitrator. Reliance was rightly placed on the following observations made in the captioned case:-
"12.... ... Therefore, the licence stood terminated, as correctly observed by the learned Single Judge, in the impugned order, and the legality or illegality of termination would be a matter to be determined in arbitration. Further, the justification given by the Appellant for not paying the licence fee will be examined in the arbitral proceedings. The case of the Appellant that, owing to the failure of the Respondent to perform obligations under the agreement, and the latter's refusal to decrease the number of 20 of LED screens in terms of clause 6 of-the-agreement, would also be considered by the Arbitral Tribunal. In this behalf, we, therefore, find considerable merit in the submission made on behalf of the Respondent that if the cancellation of the contract by the Respondent constitutes a breach of contract on their part, the Appellant would be entitled to damages. In other words, the questions whether the termination is wrongful or not or whether the Respondent was not justified in terminating the agreement, are yet to be decided. However, from the facts of the case there is no manner of doubt that the contract was by its very nature terminable, in terms of the contract between the parties themselves."
(emphasis added)
15. Since the contract in the present case was terminable and as the issue of the legality of the action of termination has yet to be determined and further, since wrongful termination can be restituted by awarding of damages, in the event the appellant is Signature Not Verified able to establish that the said termination was illegal and invalid, Digitally Signed By:NEHA Signing Date:21.12.2022 17:34:08 the learned Single Judge has rightly declined the reliefs prayed for by the appellant in the Section 9 petition. We do not find any reason to interfere with the view taken in the impugned judgment."
8. Mr. Rai further submitted that the PBG was unconditional and in the absence of the petitioner having even prima facie established fraud or special equities, the Court would refrain from issuing any directions which may impede the invocation of those PBGs in light of the well settled position in law dealing with the invocation of bank guarantees and the circumstances in which an injunction may be granted.
9. For the purposes of considering the prayers which are made in the instant petition, the Court need not delve deep into the facts which have led to the disputes having arisen between the parties. This since it would, at the outset, have to consider whether an injunction, interim or otherwise, could be issued consequent to the contract itself having been terminated.
10. As the Division Bench of the Court in Inter ADS had found, once a terminable contract comes to be determined specific performance thereof can neither be granted nor can an injunction issue restraining the respondents from giving effect to the notice of termination. This since that would clearly amount to enforcing the contract beyond the date of termination itself. The Court notes that the validity of the act of termination would essentially form subject matter of arbitration which is yet to commence. In such a situation, while it would be open for the petitioner to seek appropriate reliefs in the course of arbitration including its entitlement to damages, the Court cannot possibly issue an injunction placing the final action notice in abeyance and which in essence would perpetuate the contract even though it has come to be determined by the respondents.
11. Insofar as the issue of invocation of PBGs is concerned, the Signature Not Verified Court only notes that injunctions in respect thereof must necessarily Digitally Signed By:NEHA Signing Date:21.12.2022 17:34:08 be guided by the oft repeated principles enunciated in that respect by numerous precedents rendered in the past. For the purposes of the present case, the Court deems it apposite to notice the following principles as were laid down by the Supreme Court in Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Co.7:-
"10. The law relating to grant or refusal to grant injunction in the matter of invocation of a bank guarantee or a letter of credit is now well settled by a plethora of decisions not only of this Court but also of the different High Courts in India. In U.P. State Sugar Corpn. v. Sumac International Ltd. [(1997) 1 SCC 568] this Court considered its various earlier decisions. In this decision, the principle that has been laid down clearly on the enforcement of a bank guarantee or a letter of credit is that in respect of a bank guarantee or a letter of credit which is sought to be encashed by a beneficiary, the bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. Accordingly this Court held that the courts should be slow in granting an order of injunction to restrain the realisation of such a bank guarantee. It has also been held by this Court in that decision that the existence of any dispute between the parties to the contract is not a ground to restrain the enforcement of bank guarantees or letters of credit. However, this Court made two exceptions for grant of an order of injunction to restrain the enforcement of a bank guarantee or a letter of credit: (i) fraud committed in the notice of the bank which would vitiate the very foundation of guarantee; and
(ii) injustice of the kind which would make it impossible for the guarantor to reimburse himself.
11. Except under these circumstances, the courts should not readily issue injunction to restrain the realisation of a bank guarantee or a letter of credit. So far as the first exception is concerned i.e. of fraud, one has to satisfy the court that the fraud in connection with the bank guarantee or letter of credit would vitiate the very foundation of such a bank guarantee or letter of credit. So far as the second exception is concerned, this Court has held in that decision that it relates to cases where allowing encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. While dealing with the case of fraud, this Court in U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. [(1988) 1 SCC 174] held as follows: (SCC p. 197, para 53) The fraud must be of an egregious nature such as to vitiate the entire underlying transaction.
(emphasis supplied) While coming to a conclusion as to what constitutes fraud, this Court in the above case quoted (at SCC p. 197, para 54) with Signature Not Verified 7 Digitally Signed (2007) 8 SCC 110 By:NEHA Signing Date:21.12.2022 17:34:08 approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank [(1984) 1 WLR 392 : (1984) 1 All ER 351 (CA)] , All ER at p. 352g-h which is as follows:
"The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear, both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it discharged."
(emphasis supplied)
12. In Svenska Handelsbanken v. Indian Charge Chrome [(1994) 1 SCC 502] it has also been held that a confirmed bank guarantee/irrevocable letter of credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in the case. In fact, on the question of fraud, this decision approved the observations made by this Court in U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. [(1988) 1 SCC 174]
14. From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a bank guarantee or a letter of credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit:
(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 realise 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 realisation 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 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 Signature Not Verified injustice to one of the parties concerned." Digitally Signed By:NEHA Signing Date:21.12.2022 17:34:08
12. The issue of injunctions against invocation of bank guarantees again fell for consideration of the Supreme Court in Mahatma Gandhi Sarkara Karkhane vs. National Heavy Engg. Coop. Ltd.8.
Dealing with the aforesaid question, the Supreme Court held as follows: -
"20. In U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. [(1988) 1 SCC 174] the respondent therein entered into an agreement with the appellant for constructing a vanaspati manufacturing plant for the latter. The contract required the respondent to furnish two bank guarantees for proper construction and successful completion of the plant. Bank of India executed two bank guarantees in favour of the appellant. Under the terms of guarantee the bank undertook to make unconditional payments on demand without reference to the respondent. The guarantees also provided that the appellant would be the sole judge for deciding whether the respondent had fulfilled the terms of the contract or not. Disputes arose between the parties as to the erection and performance of the plant. The seller approached the civil court seeking injunction restraining the purchaser from invoking the bank guarantee. The High Court, proceeding on the basis that the injunction was sought not against the bank but against the appellant, restrained the appellant from invoking the bank guarantee. This Court after elaborate consideration of the matter held: (SCC p. 190, para 34) "[C]ommitments of banks must be honoured free from interference by the courts. Otherwise, trust in commerce internal and international would be irreparably damaged. It is only in exceptional cases that is to say in case of fraud or in case of irretrievable injustice be done, the court should interfere."
This Court relied upon its own earlier decision in United Commercial Bank v. Bank of India [(1981) 2 SCC 766] in which it is observed: (SCC p. 783, para 40) "[T]hat a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit are created by the document itself...."
21. In General Electric Technical Services Co. Inc. v. Punj Sons (P) Ltd. [(1991) 4 SCC 230] this Court observed: (SCC pp. 237-38, paras 9-10) "If the documentary credits are irrevocable and independent, the Bank must pay when demand is made. Since the bank pledges its own credit involving its reputation, it has no defence except in the case of fraud. The Bank's obligations of Signature Not Verified 8 Digitally Signed (2007) 6 SCC 470 By:NEHA Signing Date:21.12.2022 17:34:08 course should not be extended to protect the unscrupulous party, that is, the party who is responsible for the fraud. But the banker must be sure of his ground before declining to pay. The nature of the fraud that the courts talk about is fraud of an „egregious nature as to vitiate the entire underlying transaction‟. It is fraud of the beneficiary, not the fraud of somebody else. ... The Bank cannot be interdicted by the court at the instance of [purchaser] in the absence of fraud or special equities in the form of preventing irretrievable injustice between the parties."
22. In our considered opinion if the bank guarantee furnished is an unconditional and irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the amounts under the guarantee. The person in whose favour the guarantee is furnished by the bank cannot be prevented by way of an injunction in enforcing the guarantee on the pretext that the condition for enforcing the bank guarantee in terms of the agreement entered between the parties has not been fulfilled. Such a course is impermissible. The seller cannot raise the dispute of whatsoever nature and prevent the purchaser from enforcing the bank guarantee by way of injunction except on the ground of fraud and irretrievable injury.
23. In U.P. State Sugar Corpn. v. Sumac International Ltd. [(1997) 1 SCC 568] this Court had laid down the principle as to the enforcement of the bank guarantees as under: (SCC p. 574, para
12) "12. 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 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 realisation 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 such a fraud of which the 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."
13. Undisputedly the PBG in the present case is unconditional and stands forfeited in terms of the final action notice. The Court notes that this is not a case where fraud is either alleged or established by Signature Not Verified the petitioner. The Court also finds itself unable to discern the Digitally Signed By:NEHA Signing Date:21.12.2022 17:34:08 existence of any special equity that may be recognized to exist or operate in favour of the petitioner.
14. Accordingly, and for all the aforesaid reasons, the petition fails and shall stand dismissed.
YASHWANT VARMA, J.
DECEMBER 20, 2022 bh Signature Not Verified Digitally Signed By:NEHA Signing Date:21.12.2022 17:34:08