Delhi District Court
Indo Alusys Industries Ltd vs India Bulls Construction Ltd on 29 January, 2016
IN THE COURT OF MS. VINEETA GOYAL, ADDITIONAL DISTRICT
JUDGE 01, PATIALA HOUSE COURTS, NEW DELHI DISTRICT,
NEW DELHI
Arbitration No. 7/16
Unique ID no. 02403C0006822016
Indo Alusys Industries Ltd.
606, Tolstoy House,
15, Tolstoy Marg,
New Delhi - 110 001 ......... Petitioner
Versus
India Bulls Construction Ltd.
India Bulls House,
448451, Udyog Vihar,
PhaseV, Gurgaon,
Haryana - 122 001 ........ Respondent
Petition presented On : 12.01.2016
Arguments Concluded On : 28.01.2016
Judgment Pronounced On : 29.01.2016
Appearance : Sh. Rajesh Banati, counsel for petitioner.
Sh. Vinod Kumar, counsel for respondent.
J U D G M E N T
1. The petitioner, Indo Alusys Industries Ltd is a company duly registered under the Companies Act, filed a petition u/s 9 of Arbitration and Conciliation Act 1996 against respondent for stay of operation of mail dated 22.12.2015 and restraining him from encashing the Bank Guarantee no.
Arbitration no. 7/16Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 1 of 17 INBG04615000058 dated 11.09.2014 renewed upto 10.10.2016 along with another reliefs.
2. It is alleged in the petition that the petitioner company was awarded a work order on 23.06.2014 for aluminium works in various towers being constructed by the respondent. A mobilization advance of Rs.93,95,691/ was issued to the petitioner company which was secured against a bank guarantee in Development Credit Bank, Barakhamba Road, New Delhi. In the petition, it is asserted that work was completed by the petitioner company in Tower F against which bills were raised.
Part payments were received leaving a balance of Rs.1,31,493/. It is alleged by the petitioner that subsequent to 30.12.2014 the respondent has not been approving the drawings and the plans of the project. There had been number of correspondences between the parties and eventually the respondent sent a courier dated 23.12.2015 terminating the contract and seeking refund of Rs.93,95,691/ through bank guarantee. In the petition, the petitioner has claimed that as on date Rs.28,00,000/ has been spent on design, consultancy, sight survey etc. and the petitioner admitted that on cancellation of contract Rs.65,76,984/ are payable which he has offered to refund in six installments of Rs. 10,00,000/ each. The petitioner has prayed that respondent is at fault and the petitioner has a good prima facie case of fraud in its favour and against respondent and has special equities in the form of preventing irretrievable injustice.
3. The respondent filed appearance and contested the contentions of the petitioner by refuting each and every allegation made in the petition inter alia stating Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 2 of 17 that petitioner has not performed the contractual obligations which resulted in delay of the project which is evident from the trail of emails exchanged between the parties. The respondent submitted that the petitioner was not able to provide technical acceptable product / design to the respondent and the respondent being the sufferer on account of petitioner's failure to complete even sample flats of Tower F and Tower A in the project, had finally written an email dated 02.12.2015 to the petitioner whereby terminated the said work order as per clause 20 (a) of work order on account of non adherence of technical acceptance, design / execution of work assigned. The respondent vide email dated 02.12.2015 also requested to the petitioner to return the mobilization advance alongwith interest by 12.12.2015 failing which the same will be recovered by encashment of mobilization bank guarantee.
Despite correspondences and meetings the petitioner failed to return mobilization advance amount to the respondent. It is next contended that bank guarantee is an independent contract where by a bank undertakes to unconditionally and unequivocally abide by its terms and it cannot be affected by disputes between the parties. As per agreed clause 17 of duly executed work order dated 23.07.2014 between the parties the bank guarantee creates an irrevocable obligation on the bank to perform the contract in terms thereof and occurrence of events therein, the bank guarantee becomes enforceable. There is no iota of evidence suggestive of the suit falling under exceptional circumstances. The termination of a contract may only give rise to a dispute, the element of fraud is missing. In the absence of any fraud the respondent is entitled to realize the bank guarantee. It is contended that defendant is a listed entity having a turnover of about Rs.650 crores which clearly disentitles the petitioner to claim the discretionary relief from this court. It is Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 3 of 17 further submitted that there is a clear admission by the petitioner in para no. 18 of the petition that petitioner is ready and willing to pay a sum of Rs.65,76,984/ out of bank guarantee amounting to Rs.93,95,691/. It is further contended that the case of the petitioner does not fall within the parameters which were made for seeking an order of restrain for encashment of bank guarantee. In support of his contentions Ld. Counsel for respondent placed reliance upon following case laws :
(i) UP State Sugar Corporation vs Sumac International Ltd.
AIR 1997 SC 1644.
(ii) Dwarish Sugar Industries Ltd. vs. Prem Heavy Engineering Works Pvt. Ltd and Anr. AIR 1997 Supreme Court 2477.
(iii) Sikkim Subba Associates vs. Union Bank of India & Anr.
1993 R&R 39.
(iv) Ansal Engineering Projects Ltd. vs. Tehri Hydro Development Corporation Ltd and Anr. 1996 (5) SCC 450.
(v) Forcast vs. Steel Authority of India Ltd and Ors. 71 (1998) DLT 201.
(vi) PD Alkaram Pvt. Ltd. vs. Canara Bank and Anr. 1998 (1) AR BLR 566(Delhi).
4. I have heard arguments advanced by Ld. counsel for parties and have perused the relevant record.
5. The present dispute pertains to encashment of Bank Guarantee against the mobilization advance given by the respondent to the petitioner. In catena of judgments Hon'ble Supreme Court has laid down guiding principles for issues relating to grant of injunction of restraining the encashment of bank guarantee. In case of U.P. State Sugar Corporation vs. Sumac International Ltd AIR 1997 SC Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 4 of 17 1644, the Hon'ble Supreme Court of India has dealt with the law relating to invocation of bank guarantee and observed that court should be slow in granting injunction for realization of bank guarantee and carved out exceptions such as fraud and irretrievable injuries. The relevant paragraph nos. 11 to 15 are reproduced as under :
11. 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 realize 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 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. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country.
The two grounds are not necessarily connected, though both may coexist in some cases. In the case of U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (988 [1] SCC
174), which was the case of works contract where the performance Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 5 of 17 guarantee given under the contract was sought to be invoked, this Court, after referring extensively to English and Indian cases on the subject, said that the guarantee must be honoured in accordance with its terms. The bank which gives the guarantee is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the suppler has performed his contractual obligation or not, nor with the question whether the supplier is in default or not. The bank must pay according to the tenor of its guarantee on demand without proof or condition. 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 agregious nature such as to vitiate the entire 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 NA (1984 [1] AER 351 at 352): "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". This Court set aside an injunction granted by the High Court to restrain the realisation of the bank guarantee.
12. The same question came up for consideration before this Court in Svenska Handelsbanken v. M/s Indian Charge Chrome & Ors. (1994 [1] SCC 502). The Court once again reiterated 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. Irretrievable injury has to be of the Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 6 of 17 nature noticed in the case of Itek Corporation v. The First National Bank of Boston etc. (566 Fed Supp. 1210). On the question of fraud this Court confirmed the observations made in the case of U.P. Cooperative Federation Ltd. (supra) and stated that the fraud must be that of the beneficiary, and not the fraud of anyone else.
13. On the question of irretrievable injury which is the second exception to the rule against granting of injunctions when unconditional bank guarantees are sought to be realised the court said in the above case that the irretrievable injury must be of the kind which was the subjectmatter of the decision in the Itek Corporation case (supra). In that case an exporter in the U.S.A. entered into an agreement with the Imperial Government of Iran and sought an order terminating its liability on stand by letters of credit issued by an American bank in favour of an Iranian Bank as part of the contract. The relief was sought on account of the situation created after the Iranian revolution when the American Government cancelled the export licences in relation to Iran and the Iranian Government had forcibly taken 52 American citizens as hostages. The U.S. Government had blocked all Iranian assets under the jurisdiction of United States and had cancelled the export contract. The court upheld the contention of the exporter that any claim for damages against the purchaser if decreed by the American Courts would not be executable in Iran under these circumstances and relisation of the bank guarantee/Letters of credit would cause irreparable harm to the plaintiff. This contention was upheld. To avail of this exception, therefore, exceptional circumstances which make it impossible for the guarantor to reimburse himself if the 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. In the Itek case (supra) there was a certainty on this issue. Secondly, there was good reason, in that case for the court to be prima facie satisfied that the guarantors i.e. the bank and its customer would be found Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 7 of 17 entitled to receive the amount paid under the guarantee.
14. Our attention was invited to a number of decisions on this issue among them, to Larsen & Turbro Ltd. v. Maharashtra State Electricity Board & Ors. (1995 [6] SCC 58) and Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) Pvt. Ltd. (1995 [6] SCC 76) as also to National Thermal Power Corporation Ltd. v. Flowmore Pvt. Ltd. & Anr. (1995 [4] SCC
515). The latest decision is in the case of State of Maharashtra & Anr. v. M/s National Construction Company, Bombay & Anr. (JT 1996 [1] SC 156) where this Court has summed up the position by stating, "The rule is well established that a bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and make payment ordinarily unless their is an allegation of fraud or the like. The courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in the contract. The remedy arising excontract is not barred and the cause of action for the same is independent of enforcement of the guarantee." The other recent decision is in Hindustan Steelworks Construction Ltd. v. Tarapore & Co. & Anr. (JT 1996 [6] SC 295).
15. Clearly, therefore, 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. There must be a fraud in connection with the bank guarantee. In the present case we fail to see any such fraud. The High Court seems to have come to the conclusion that the termination of the contract by the appellant and his claim that the time was of the essence of the contract, are not based on the terms of the contract and, therefore, Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 8 of 17 there is a fraud in the invocation of the bank guarantee. This is an erroneous view. The disputes between the parties relating to the termination of the contract cannot make invocation of the bank guarantees fraudulent. The High Court has also refereed to the conduct of the appellant in invoking the bank guarantees on an earlier occasion on 12th of April, 1992 and subsequently withdrawing such invocation. The court has used this circumstance in aid of its view that the time was not of the essence of the contract. We fail to see how an earlier invocation of the bank guarantees and subsequent withdrawal of this invocation make the bank guarantees or their invocation tainted with fraud in any manner. Under the terms of the contract it is stipulated that the respondent is required to give unconditional bank guarantees against advance payments as also a similar bank guarantee for due delivery of the contracted plant within the stipulated period. In the absence of any fraud the appellant is entitled to realise the bank guarantees.
6. The latest decision is in the case of M/s Utc Fire & Security India Ltd vs. Bhartiya Rail Bijlee Company Limited and Anr in OMP no. 529/2014 pronounced on 27.01.2015. the Hon'ble Delhi High Court has dealt with the issue of invoking of Bank Guarantee. The relevant paragraph no. 8 of the said judgment is reproduced as under :
8. The present dispute relates to the release of the bank guarantees. The nature and purpose of the bank guarantees had been discussed by the Supreme Court in the case of Hindustan Construction vs. State of Bihar (1999) 8 SCC 436. The relevant paragraphs 8 and 9 of the said judgment are reproduced as under: "8. Now, a bank guarantee is the common mode of securing payment of money in commercial dealings as the beneficiary, under the Guarantee, is entitled to realise the whole of the amount under that Guarantee in terms thereof irrespective of Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 9 of 17 any pending dispute between the person on whose behalf the Guarantee was given and the beneficiary. In contracts awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, Bank Guarantees are usually required to be furnished in favour of the Government to secure payments made to the contractor as "advance" from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such Guarantees are excusable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back to the "Government Advance", the Guarantee is invoked and the amount is recovered from the Bank. It is for this reason that the Courts are reluctant in granting an injunction against the invocation of Bank Guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the Guarantor. This was the principle laid down by this Court in various decisions. In U.P. Cooperative Federation Ltd. v. Singh Consultants & Engineers Pvt. Ltd.: [1988]1SCR1124, the law laid down in Bolivinter Oil SA v. Chase Manhattan Bank [1984] 1 All E.R. 351 was approved and it was held that an unconditional Bank Guarantee could be invoked in terms thereof by the person in whose favour the Bank Guarantee was given and the Courts would not grant any injunction restraining the invocation except in the case of fraud or irretrievable injury. In Svenska Handelsbanken v. Indian Charge Chrome: AIR1994SC626;
Larsen & Toubro Ltd. v. Maharashtra State Electricity Board:
AIR1996SC334; Hindustan Steel Works Construction Ltd. v.
G.S. Atwal & Co. (Engineers) (P) Ltd.: AIR1996SC131; National Thermal Power Corporation Ltd. v. Flowmeore (P) Ltd.: AIR1996SC445 ; State of Maharashtra v. National Construction Co.: [1996]1SCR293; Hindustan Steel Works Construction Ltd. v.Tarapore & Co :AIR1996SC2268 as also Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 10 of 17 in U.P. State Sugar Corporation v. Sumac International Ltd .:
AIR1997SC1644 , the same principle has been laid down and reiterated.
9. What is important, therefore, is that the Bank Guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the Bank Guarantee or the person on whose behalf the Guarantee was furnished. The terms of the Bank Guarantee are, therefore, extremely material. Since the Bank Guarantee represents an independent contract between the Bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the Bank Guarantee; or else, the invocation itself would be bad."
Accordingly, the Courts are required to see the nature of the bank guarantee furnished by the petitioner. No dispute to the fact that the petitioner had furnished three bank guarantees to respondent No.1. Two were of the nature of performance bank guarantees and the other bank guarantee is a security bank guarantee against the advance. The copies of all the three bank guarantees have been placed on record by the petitioner. All the bank guarantees were payable on demand by respondent No.2. Para 2 in all the three bank guarantees provides that "We Citibank,.....do hereby guarantee and undertake to pay the Employer immediately on demand any or, all monies payable by the Contract, without any demur, reservation, contest, recourse, or protest and /or without any reference to the Contract. Any such demand made by the Employer and the Contractor or any dispute pending notwithstanding any difference between the Employer and the Contract or any dispute pending before any Court, Tribunal, Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 11 of 17 Arbitrator or any other authority. The bank undertakes not to revoke this guarantee during its currency without previous consent of the Employer and further agrees that the guarantee herein contained shall be enforceable till ninety (90) days after expiry of its validity".
In para no. 11 onwards , the Hon'ble Courts has observed :
11. The petitioner has contended that the bank guarantees have been obtained by fraud because the respondent No.1 was aware from the very beginning that it would not be able to handover the vacant possession of the site and since it has failed to handover the vacant possession of the site, the petitioner could not complete his part of obligation under the contract. The respondent, on the contrary, has alleged that it was the petitioner who had defaulted in performance and had not fulfilled his part of the contract. Hence, the dispute has arisen between the parties regarding the fulfilment of the obligations under the contract by both the parties and this has arisen during performance of the contract. The bank guarantees, on the other hand, were submitted at the initial stage at the time of entering the contract. It is not shown by the petitioner that it was at that time that any fraud of egregious nature had been played upon him. The petitioner had entered into the contract on its own free will and has not alleged that it was forced into this contract. It has been admitted on behalf of the petitioner that before bidding, the petitioner was required to do the site inspection and the same was done. It, therefore, cannot be said that any fraud, what to say of egregious nature, had been played upon it, at the time of execution of the present bank guarantees.
12. Moreover, this Court in a recent judgment Consortium of Deepak Cable India Limited vs. Teestavalley Power Transmission Limited, FAO (OS) 397 and 398/2014, has held that the existence or pendency of Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 12 of 17 dispute relating to the violation of terms of contract is no ground to grant injunction to invocation of Bank Guarantee. The relevant para is reproduced as under: "145..............Disputes pertaining to the main contract cannot be considered by a court when a claim under a bank guarantee is made and the court would be precluded from embarking on an enquiry pertaining to the prima facie nature of the respective claim of the litigating parties relatable to the main dispute. The dispute between the parties to the underlying contract has to be decided at the civil forum i.e. a civil suit if there exists no arbitration clause in the contract or before the arbitral tribunal if there exists an arbitration clause in the contract. Pendency of arbitration proceedings is no consideration while deciding on the issue of grant of an interim injunction. That certain amounts have been recovered under running bills and have to be adjusted for is of no concern in matters relating to invocation of bank guarantee. That there are serious disputes on questions as to who committed the breach of the contract are no circumstances justifying granting an injunction pertaining to a bank guarantee. Plea of lack of good faith and/or enforcing the guarantee with an oblique purpose or that the bank guarantee is being invoked as a bargaining chip, a deterrent or in an abusive manner are all irrelevant and hence have to be ignored. There are only two well recognized exceptions to the rule against permitting payment under a bank guarantee. The same are: A. A fraud of egregious nature;
B. Encashment of the bank guarantee would result in irretrievable harm or injustice of an irreversible kind to one of the parties."
13. The petitioner has also contended that since the intention of the respondent in invoking the bank guarantee is to enrich itself and this not only is a fraudulent act on its part, but also inequitable. As discussed above, the fraud of egregious nature played upon the petitioner has to be fraud which has been played upon the petitioner at the time when the bank guarantees were executed by him. The fraud should be of such a Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 13 of 17 nature which shows that the petitioner was deceptively asked to issue the bank guarantees. As discussed above, in the present case, the petitioner has neither pleaded nor has shown on record any facts which can show that a fraud had been played upon it at the time when the bank guarantees were executed by it. It has also been held by this Court in Consortium of Deepak Cable India Limited (supra) that Courts are precluded from considering the disputes between the parties arising out of the main contract, while dealing with the matters relating to the encashment of the bank guarantees. The existence of a dispute between the parties on account of failure of the terms of the contract does not in any way affect the right of the beneficiary to encash the bank guarantee. The petitioner has also failed to show that he shall suffer an irretrievable injury if the stay is not granted to it.
7. The Hon'ble Courts while dealing with the question of fraud has held that fraud was to be established fraud. The fraud should be such which would vitiate the very foundation of the bank guarantee. If such a fraud of which the beneficiary intends to take advantage, the other party must show that the bank guarantee has been fraudulently obtained. The second exception to the rule of granting injunction i.e. restitution of irretrievable injury, has to be such a circumstance which would make it impossible for guarantor to reimburse himself if he ultimately succeeded.
8. In the instant case, petitioner is seeking stay of operation of mail dated 22.12.2015 and restraining respondent from encashing the bank guarantee. At this stage, it is expedient to notice the relevant terms of bank guarantee which are as under: NOW THEREFORE THIS DEED WITNESSTH AS FOLLOWS:
2. The Contractor shall be the sole Judge as regards the Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 14 of 17 performance of the contract and the Bank shall neither question the judgment or declaration of the Contractor nor ask for any evidence on any account whatsoever. The Bank agrees that any demand made in such demand notice by the Contractor shall be final, conclusive and binding on the Bank as to the amount payable by the Bank under this Bank Guarantee, not exceeding Rs.93,96,000/ (Rupees Ninety three Lac and Ninety Six Thousand Only). The demand of the Contractor under this Bank Guarantee shall not be objected, affected or suspended by reasons of any dispute or disputes pending before any forum, Tribunals, Arbitrators, Court or any other statutory authority with regard thereto or in connection therewith.
3. This Bank Guarantee shall be independent, distinct and in addition to and not in substitution or derogation of any guarantee executed by the Bank in favour of the Contractor or any other security of the Sub Contractor in favour of the Contractor.
4. The Contractor will be at liberty to vary and modify any of the term (s) and condition (s) of the said Contract without affecting this Bank Guarantee, notice of such variations or modifications to the Bank is hereby waived.
5. This Bank Guarantee shall not be affected by any change in the Constitution of the Bank or of the Sub Contractor nor shall the benefit of this Bank Guarantee be affected by any change in the constitution of the Contractor or by any amalgamation or merger of the Contractor with any other body corporate and this Bank Guarantee will be fully enforceable during its currency.
6. The Bank shall not be relieved of its obligations under these presents until the expiry date by any exercise by the Contractor of its powers with reference to the performance of the contract or extension of time for performance or any other acts of omission or commission on the part of the Contractor or any other indulgence shown by the Contractor or vary any terms of the warranty or any other matters or thing whatsoever, which under law would but for this provision, have the effect of relieving the Bank.
7. The Bank also agrees that the Contractor at its option shall Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 15 of 17 be entitled to enforce this Bank Guarantee against the Bank as a principal debtor, in the first instance, without proceeding against the Sub Contractor and notwithstanding any security or other guarantees that the Contractor may have in relation to Sub Contractor's liabilities.
8. This bank guarantee is a continuing guarantee during its currency an the Bank undertakes not to revoke this Bank Guarantee during its currency without previous written consent of the Contractor and the Bank agrees that the Guarantee contained herein shall continue to be enforceable till the owner discharges the same.
9. It is evident from aforesaid terms and conditions of the bank guarantee that bank guarantee is independent and distinct and bank has unconditionally undertaken to pay to the respondent on demand, the amount demanded by it. Clause 2 of said guarantee clarify that respondent is sole judge as regards the performance of contract. Consequently, the right of respondent to recover the guaranteed amount is not affected or suspended by reasons of any dispute or disputes pending before any forum, Tribunals, Arbitrators, Court or any other statutory authority with regard thereto or in connection therewith.
10. It is well settled that breach of terms and conditions of any work contract is beyond the scope of judicial scrutiny. The controversy erupted in this case relates to commercial contract duly entered into between the parties. The petitioner is recharacterizing the normal difference of opinions and communications as a fraud through emails without appreciating that fraud as contemplated in the judicial pronouncements is related to obtaining of bank guarantee. The element of fraud as envisaged by Hon'ble Higher Courts in various judicial pronouncements had to be Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 16 of 17 blatant and potent in magnitude. Therefore the contention of the petitioner cannot be accepted. Moreover, the breach of main contract relates to the merits of the case which is beyond the scope of proceedings and is within the preview of arbitration which is yet to be claimed.
11. Further, the present case does not require any special equity which would prick the judicial conscience of the court in consideration of settled legal position that the bank guarantee is an independent contract in the favour of respondent. For an order of securing the amount in dispute, the petitioner has to prove that the respondent's intention to defeat, delay or obstruct the realisation of award amount. There is no averments and allegations in the petition that respondent action was indicative of its intention to deprive the fruits of award. The petitioner cannot seek the interim protection on the ground of protection of financial interest.
The petitioner has no prima facie case to succeed. The balance of convenience also is not in favour of petitioner. No relief of the nature prayed for by the petitioner under Section 9 of Arbitration and Conciliation Act can be granted.
12. The petition is hereby dismissed. There is no case for interference into the encashment of bank guarantee, therefore, the order dated 20.01.2016 stands vacated. No order as to the cost. File be consigned to record room.
Pronounced in open Court
on 29.01.2016 (Vineeta Goyal)
Additional District Judge01,
NDD/PHC/New Delhi/29.01.2016
Arbitration no. 7/16
Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 17 of 17
Arbitration No. 7/16
Indo Alusys Industries Ltd. vs. India Bulls Construction Ltd.
29.01.2016 Present : Sh. Rajesh Banati, counsel for petitioner.
Sh. Vinod Kumar, counsel for respondent.
Vide separate judgment of even date the petition is dismissed. There is no case for interference into the encashment of bank guarantee, therefore, the order dated 20.01.2016 stands vacated. No order as to the cost. File be consigned to record room.
(Vineeta Goyal) Additional District Judge01, NDD/PHC/New Delhi/29.01.2016 Arbitration no. 7/16 Indo Alusys Industries Ltd V. India Bulls Construction Ltd. Page no. 18 of 17