Calcutta High Court
Ellenbarrie Industrial Gases Limited vs Bengal Energy Limited And Anr on 19 July, 2024
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
OCD-12
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
(Commercial Division)
AP-COM/695/2024
ELLENBARRIE INDUSTRIAL GASES LIMITED
VS
BENGAL ENERGY LIMITED AND ANR.
BEFORE :
THE HON'BLE JUSTICE SABYASACHI BHATTACHARYYA
Date : 19th July, 2024
Appearance:
Mr. Ratnanko Banerji, Sr. Adv.
Mr. Rishav Banerjee, Adv.
Mr. Aishwarya Kumar Awasthi, Adv.
Ms. P. Shaha, Adv.
...for the petitioner.
Mr. Jishnu Saha, Sr. Adv.
Mr. Rudraman Bhattacharya, Adv.
Mr. Sourojit Dasgupta, Adv.
Mr. Aasish Choudhury, Adv.
Mrs. Uma Bagree, Adv.
...for the respondents.
The Court : The present application under Section 9 of the Arbitration and Conciliation Act, 1996 arises from a parent contract between the parties whereby the petitioner was entrusted by the respondents to commission an air separation unit.
According to the petitioner, the petitioner commissioned the plant and subsequently cured certain defects which were pointed out by the respondents.
However, in the meantime, two bank guarantees dated December 26, 2022 and June 13, 2023, which had been furnished by the petitioner, were sought to be invoked by the respondents, giving rise to the present application under Section 9.
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Learned senior counsel appearing for the petitioner contends that the petitioner has already invoked the arbitration clause by issuance of a notice under Section 21 of the 1996 Act.
Learned senior counsel places stress on the fourth clause of the bank guarantees (the terms and conditions of both the guarantees are exactly same), to highlight that the bank guarantees were not unconditional but were subject to certain preconditions.
As per the terms of the bank guarantees, the bank unconditionally and irrevocably undertook to pay the amounts covered by those against any loss, damage, costs, charges and expenses caused to or suffered by the beneficiary (respondent), by reason of non-performance by the supplier (petitioner) of the terms and conditions of the contract, without any confiscation, demur or protest. However, the same was subject to the receipt of a simple written demand from the beneficiary by the bank on or before June 26, 2024, which was described as the "expiry date", indicating the amount to be received by the beneficiary.
Over and above, the beneficiary had to mention in the said written demand that the supplier had failed to perform its obligation before the expiry date of the guarantee under the contract and the contract was still valid and binding.
Thirdly, the demand should be accompanied by a copy of the beneficiary's letter to the supplier giving 30 days' notice during the guarantee validity period to make good the deficiency and a certificate from the beneficiary certifying that the period of 30 days had elapsed.
In the present case, although the first demand was made much prior to the expiry date, that is, June 26, 2024, it did not comply with the other 3 conditions as mentioned above. Such fact being pointed out by the bank, the respondents/beneficiary withdrew the said first invocation and thereafter issued a fresh notice on June 20, 2024 purportedly in terms of the third requirement of the above clauses of the bank guarantees which required a 30 days' notice to be given to the supplier to make good the alleged deficiency.
However, it is contended that even if the notice dated June 20, 2024 is taken to its logical culmination, the period of 30 days thereafter goes beyond the expiry date, that is, June 26, 2024. Hence, on the basis of such notice, when the invocation would ultimately be made by way of a written demand, the same would go beyond the expiry date, thus contravening the prior requirement envisaged in the bank guarantees.
That apart, it is submitted that the petitioner, in any event, has made good the deficiency, if any, pointed out by the respondents.
Learned senior counsel for the petitioner also points out to two non obstante clauses at the penultimate paragraph and the paragraph prior to the same of the bank guarantees. In the said clauses, it is mentioned that the bank would be liable to pay the guaranteed amount or any part thereof under the guarantee only and only if the beneficiary serves upon it a written claim or demand "in terms of the guarantee" on or before June 26, 2025.
Learned senior counsel seeks to distinguish between the claim contemplated in the said non obstante clauses and a simple demand in writing in the previous paragraph, arguing that although the period for making the claim in terms of the liability as per the parent contract would be till June 26, 2025, the expiry date of the bank guarantee on June 26, 2024, mandatorily requires the invocation in valid form to be made prior to the said expiry date. 4
Even if the respondents today proceed on the basis of the June 20, 2024 notice, it is submitted, the invocation after 30 days by way of a simple written demand with a copy of the said notice annexed would not be before the expiry date of June 26, 2024 and as such the respondents are precluded from invoking the bank guarantees any more.
Learned senior counsel cites a judgment of a Learned Single Judge of the Delhi High Court in the matter of Explore Computers Pvt. Ltd., vs. Cals Ltd. & Anr., reported at 2006(90) DRJ 480, where the Learned Single Judge, while considering a similar situation, observed, inter alia, that the controversy therein really related to two different dates specified in the bank guarantees and the meaning to be given to the said two dates.
The initial portion of the bank guarantee in the said case stipulated that it would continue to be enforceable till all dues of the buyer had been fully paid and its claim satisfied and the obligations performed by the supplier whereupon the purchaser discharges the guarantee. It was followed by 'unless a demand or claim under the guarantee is made on us in writing on or before 12.02.1997, we shall be discharged from all liability under this guarantee thereafter'.
The said date of 12.02.1997 was held to stand extended up to 11.08.1997 as per the extended bank guarantee. Ultimately, the Court came to a finding that the earlier clause only provided the extinguishment of right unless a demand or claim was made by that date and if the same was read with the last paragraph, which clearly implied that the endeavour was to limit the period of limitation for filing of a suit or a claim which could not be sustained but insofar as the time period of the bank guarantee was concerned, that was not the same date.
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Learned senior counsel next cites Hindustan Construction Co. Ltd. vs. State of Bihar and Others reported in (1999) 8 Supreme Court Cases 436, where it was observed that if the bank guarantee is conditional, the beneficiary cannot have unfettered rights to invoke the guarantee and the Court can issue an injunction against invocation of the guarantee in view of the facts of the case. In the said judgment, it was observed by the Supreme Court that if the guarantee as furnished by the bank was not invoked as per the clauses of the bank guarantee, the invocation was bad in law.
Learned senior counsel appearing for the respondent argues that the clauses of the bank guarantees are to be read harmoniously to give appropriate meaning to the same, since it cannot be the mode of interpretation that a particular part of the clauses would be rendered otiose.
Read from such perspective, it is argued that the latter non obstante clause of the bank guarantees should be deemed to be an extension of the expiry date from June 26, 2024 to June 26, 2025 and the latter clauses ought to be construed as clarificatory of the earlier one.
It is contended that the bank guarantees are to be read in expansive fashion in order to attribute purpose and meaning to the same.
Learned senior counsel places reliance on a co-ordinate Bench judgment of this Court reported at 2010 SCC Online Cal 943 in support of his contentions.
Upon hearing learned counsel, it transpires that the judgment cited by the respondents is not apt in the present context.
In the said case, what was laid down was that if an injunction was granted in respect of the invocation of a bank guarantee, the said bank 6 guarantee should also be directed to be renewed from time to time, to keep the same alive.
The judgment of the Delhi High Court is more appropriate in the context, since the factual scenario therein has some bearing on the present factual matrix.
In the present case, as in the said case, there are two contradictory clauses, one of which requires the written demand to be made in a particular fashion and before a particular expiry date, whereas the last portion of the bank guarantees provide that the claim as mentioned therein can be made beyond such expiry date, till June 26, 2025.
The proposition laid down in Hindustan Construction Company Limited (supra) is well settled. In fact, the respondents accepted such proposition that a bank guarantee, to be invoked, the clauses stipulated therein and the modality as provided therein are to be complied with. In doing so, the respondents in fact withdrew their first invocation and gave a further notice on June 20, 2024, apparently to comply with the clauses of the bank guarantees.
The question which remains is whether even if the notice dated June 30, 2024 is taken to its logical conclusion, it would satisfy the mandatory requirement of the bank guarantees.
There are three-fold prerequisites for invocation of the bank guarantee as per the fourth clause thereof.
The first is that there has to be loss, damage, costs, charges and expenses accrued to the beneficiary by reason of non-performance by the supplier.
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That apart, the beneficiary has to tender a simple written demand to the bank before the expiry date of June 26, 2024, indicating the amount to be received by the beneficiary.
In the said written demand, the beneficiary has to mention that the supplier had failed to perform its obligations, also before the expiry date of the guarantee under the contract, and that the contract was still valid and binding.
Also, the demand should be accompanied by a copy of the beneficiary's letter to the supplier giving 30 days' notice during the guarantee validity period to make good the deficiency and a certificate from the beneficiary certifying that such period had elapsed.
Hence, even on a plain reading of the said clause, it is evident that the lapse in performance as well as the simple written demand have to be prior to the expiry date, that is, June 26, 2024.
More importantly, the said written demand has to be accompanied by a prior 30 days' notice giving an opportunity to the supplier to make good the lapses alleged by the beneficiary and a certificate that such 30 days have elapsed.
Hence, it is mandatory as per the said clause that the 30 days' period has to elapse prior to the expiry date, that is, June 26, 2024, and the simple written demand has to be subsequent to such expiry of 30 days, but also before the expiry date, that is, June 26, 2024.
In the present case, even if the June 20, 2024 notice has been given by the beneficiary, 30 days thereafter takes us well into the month of July 2024.
As such, even if such notice and the certificate of such period having elapsed is now annexed to a simple written demand to be made by the beneficiary, such demand has to go beyond the expiry date of June 26, 2024. 8
Thus, the mandatory requirement of making a simple written demand preceded by a prior notice of 30 days, attaching a certificate of expiry of such 30 days, cannot now be fulfilled in any manner by the beneficiary before the expiry date.
Coming to the interplay of the said clause with the non obstante clauses at the end of the bank guarantees, it is well-settled, as rightly contended by learned senior counsel for the petitioner, that in cases of construction of contracts, a settled rule is the doctrine of an earlier clause prevailing over the latter clauses.
Hence, in the event the latter non obstante clauses cannot be reconciled with the prior clause requiring the written demand to be made before the expiry date, the earlier clause prevails over the non obstante clauses even at the cost of the non obstante clauses being rendered nugatory and meaningless.
However, in line with the judgment of the Delhi High Court in Explore Computers Pvt. Ltd (supra), a harmonious interpretation may be lent to the two sets of clauses in the manner that whereas the invocation by a simple written demand has to be "preceded by a 30 days' notice" made before June 26, 2024, which is the expiry date, the legal claim or demand on the premise of the alleged non-performance by the supplier on the strength of the parent contract can be made even thereafter.
Any other meaning would defeat the purpose of the earlier clause of the bank guarantees and cannot thus be accepted by the Court. Insofar as the question of strict rule in case of grant of restraint orders regarding invocation of bank guarantees is concerned, it is quite well-settled that if a bank guarantee is unconditional, the Court would be loath in granting injunction, 9 since the same comprises of an independent contract between the bank and the beneficiary.
However, in the instant case, the root of the dispute lies not in the parent contract but in the terms and conditions of the bank guarantee itself.
Since the bank guarantees here are not unconditional, but the expression "unconditionally and irrevocably" used therein is circumscribed by the subsequent clauses which mandate certain prior requisites to be fulfilled, the clause has to be read as a whole and it cannot but be interpreted that the bank guarantee, if at all to be invoked, has to be in terms of the clauses thereof.
Seen in such context, in the present case, it is no longer possible for the beneficiary to invoke the bank guarantee before the expiry date, that is, June 26, 2024.
It is, however, made clear that the above observations are tentative and confined to the adjudication of the present ad interim prayer on the application under Section 9 and do not and cannot in any manner prejudice the rights and contentions of the parties in the main arbitration proceeding and/or the final hearing of the present application.
However, in view of the petitioner having made out a very strong prima facie case for getting an injunction, in view of the respondents beneficiaries having not been able to invoke the bank guarantee in terms of its clauses, the respondents are restrained by an order of injunction from invoking the bank guarantees in question, respectively dated December 26, 2022 and June 13, 2023, as annexed at pages 88 and 83 of the present application, till August 31, 2024 or until further order, whichever is earlier.
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The respondents shall file their affidavit-in-opposition within three weeks from date. Affidavit-in-reply thereto, if any, shall be filed within a week thereafter.
The matter shall be listed on August 19, 2024 for hearing. Affidavit of service filed in Court today be kept on record. It is expected that the parties shall take expeditious steps for referring the matter to arbitration in the meantime.
(SABYASACHI BHATTACHARYYA, J.) s.pal/s,bag