Delhi High Court - Orders
Npcc-Jcpl (Jv) vs Union Of India And Ors on 28 January, 2019
Author: Valmiki J. Mehta
Bench: Valmiki J. Mehta
$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 20/2019
NPCC-JCPL (JV) ..... Petitioner
Through: Mr. Rakesh Tikku, Senior Advocate
with Mr. Paritosh Budhiraja,
Advocate, Ms. Surabhi Maheshwari,
Advocate and Mr. Ashwani Ahuja,
Advocate (M. No.9810100237).
versus
UNION OF INDIA AND ORS. ..... Respondents
Through: Mr. Ruchir Mishra, Advocate with
Mr. Mukesh Tiwari, Advocate for
respondent No.1 (M.
No.9811673689).
Mr. Santosh Kumar Rout, Advocate
with Mr. Pratap Chandra Rana,
Advocate for respondent No.2 (M.
No.9990432878).
Mr. Karan Khanna, Advocate with
Mr. Mohit Taneja, Advocate for
respondent Nos.3 to 13.
CORAM:
HON'BLE MR. JUSTICE VALMIKI J. MEHTA
ORDER
% 28.01.2019
I.A. No. 1255/2019 (exemption)
1. Exemption allowed subject to just exceptions.
I.A. stands disposed of.
O.M.P.(I)(COMM.) No. 20/2019 and I.A. No. 1256/2019 (permission to file lengthy list of dates)
2. This is a petition under Section 9 of the Arbitration & Conciliation Act, 1996 filed by the contractor seeking reliefs of injunction against invocation of bank guarantee and staying operation of the Termination of Contract Letter dated 09.01.2019. The following reliefs are prayed in this Section 9 petition:-
"A. Pass an ad-interim exparte order staying operation of the termination letter bearing No.85004/Chardham/Hathipahar/152/EPC Cell dt. 9.1.2019 issued by the Respondent No.1 (Document 24) till the matter is heard and finally decided by the Arbitrator;
B. Pass an ad-interim exparte order staying the operation of the Respondent No.1's letter No.85004/Chardham/Hathipahar/155/EPC Cell dt. 9.1.2019 (Document 26) issued for invocation of the Bank Guarantee bearing No.11/2018 in the sum of Rs.1,12,55,000/- dt. 1.8.2018 issued by Canara Bank, Millennium Plaza, Sector-27, Gurugram, Haryana. (Document 5) and in turn restrain the Respondent No.2 Bank from encashing the said Bank Guarantee till the matter is heard and finally decided by the Arbitrator.
C. Pass an interim order staying the operation of the Respondent No.1's letter No.85004/Chardham/Hathipahar/156/EPC Cell dt.9.1.2019 (Document 27) issued for invocation of the Bank Guarantee bearing No.IOB/NHB/19351118000127 Dt. 4.12.2018 in the sum of Rs.5,27,40,000/- issued by Indian Overseas Bank, NHB Branch, Plot N.85 Sector 18, Gurgaon. (Document 20) and in turn restrain the Respondent No.2 Bank from encashing the said Bank Guarantee till the matter is heard and finally decided by the Arbitrator.
D. Pass an interim order to stay the fresh bidding process initiated by the Respondent No.1 vide Notice Inviting Bid dt. 9.1.2019 (Document 34) till the matter is heard and finally decided by the Arbitrator;
E. Pass such other or further Order(s) as may be deemed fit and proper in the facts and circumstances of the case."
3. Ld. Senior Counsel for the petitioner without prejudice to the rights and contentions of the petitioner, in view of the provision of Section 14 of the Specific Relief Act, 1963 read with Section 41(e) thereof, does not seek any relief with respect to staying operation of the Termination Letter dated 09.01.2019 because the effect of such an injunction would be to grant specific performance of the contract which cannot be done under Section 14 of the Specific Relief Act and once specific performance cannot be enforced then by virtue of Section 41(e) of the Specific Relief Act, injunction cannot be granted which has the effect of grant of specific performance.
4. Therefore two issues remain before this Court, firstly regarding the stay of the invocation of the Bank Guarantee given as bid security for the amount of Rs. 1,12,55,000/- and which is sought to be invoked through the Invocation Letter dated 09.01.2019, and the second of the invocation of the Performance Bank Guarantee for a sum of Rs.5,27,40,000/- and which is sought to be invoked through an another Invocation Letter of the same date of 09.01.2019.
5. The relevant clauses of the bid security bank guarantee and the purpose for which this bank guarantee is given as regards its invocation, are as per the Clauses 1 and 2 of the Bid Security Bank Guarantee dated 01.08.2018 and these clauses 1 and 2 read as under:-
"1. In consideration of you, Chief Engineer, Project Shivalik, Border Road Organisation having its office at IDPL Complex, Virbhadra, Rishikesh- 249202(hereinafter referred to as the-Authority, which expression shall unless it be repugnant to the subject or context thereof include its, successors and assigns) having agreed to receive the BID of National Projects Construction Corporation Limited and having its registered office at Raja House, 30-31, Nehru Place, New Delhi-110019 (hereinafter referred to as the -Bidder which expression shall unless it be repugnant to the subject or context thereof include its/their executors, administrators, successors and assigns), for Stabilization of landslide at Hatipahar including construction & upgradation of existing road to 2- lane with paved shoulder from existing chainage Km 489.350 to Km 491.600 (Design chainage Km 471.400 to Km 473.675) (Shingdhar Bridge to Vishnuprayag Bridge) of NH-07 (Old NH-58) on EPC mode under improvement to NH connectivity to Chardham in the state of Uttarakhand (Design length 2.275 Km) project on EPC basis (hereinafter referred to as -the Project) pursuant to the RFP Document dated 18.06.2018 issued in respect of the Project and other related documents including without limitation the draft contract Agreement (hereinafter collectively referred to as -Bidding Documents), Canara Bank Millennium Plaza Gurgaon having our registered office at J C Road Bangalore and one of its branches at Millennium Plaza near Huda City Metro Station Gurgaon (hereinafter referred to as the -Bank), at the request of the Bidder, do hereby in terms of Clause 2.1.6 read with Clause 2.1.7 of the RFP Document, irrevocably, unconditionally and without reservation guarantee the due and faithful fulfilment and compliance of the terms and conditions of the Bidding Documents (including the RFP Document) by the said Bidder and unconditionally and irrevocably undertakes to pay forthwith to the Authority an amount of Rs. 112.55 Lakh (Rupees One hundred twelve lakh and fifty five thousands only) (hereinafter referred to as the -Guarantee) as our primary obligation without any demur, reservation, recourse, contest or protest and without reference to the Bidder if the Bidder shall fail to fulfil or comply with all or any of the terms and conditions contained in the said Bidding Documents.
2. Any such written demand made by the Authority stating that the Bidder is in default of the due and faithful fulfilment and compliance with the terms and conditions contained in the Bidding Documents shall be final, conclusive and binding on the Bank. However our liability is valid up to 28/01/2019."
(Underlining Added)
6. A reading of the aforesaid clauses clearly shows that where the petitioner/bidder is in default of compliance with the terms and conditions contained in the bidding documents, and these bidding documents form part of contractual documents, then the bid security bank guarantee can be invoked and encashed. The relevant Invocation Letter dated 09.01.2019 with respect to the bid security bank guarantee contains a statement with respect to non-compliance of the contractual terms, and hence entitlement of respondent no.1 to encash the bank guarantee. This is stated in para 4 of this Invocation Letter dated 09.01.2019 and this para reads as under:-
"4.That the Contractor has submitted fake Performance Security bank guarantee bond and hence committed breach of contract agreement in terms of fraudulent practice and the bank guarantee required to be forfeited, in terms of Clause 2.6.3 and Section 4 of RFP and Para 7.1.2, 7.1.3 and 7.3.1 of Contract Agreement."
(Underlining Added)
7. It is also relevant at this stage to refer to Clause 2.6.3 of the Contract and which allows enforcement of the bid security bank guarantee on account of the bidder/petitioner failing to meet the requirements of the contract, and further execution of the contract. This Clause 2.6.3 of the Request for Proposals (hereinafter RFP) reads as under:-
"2.6.3 In case it is found during the evaluation or at any time before signing of the Agreement or after its execution and during the period of defect liability, subsistence thereof, that one or more of the eligibility and/or qualification requirements have not been met by the Bidder, or the Bidder has made material misrepresentation or has given any materially incorrect or false information, the Bidder shall be disqualified forthwith if not yet appointed as the contractor either by issue of the LOA or entering into of the Agreement, and if the Selected Bidder has already been issued the LOA or has entered into the Agreement, as the case may be, the same shall, notwithstanding anything to the contrary contained therein or in this RFP, be liable to be terminated, by a communication in writing by the Authority to the Selected Bidder or the Contractor, as the case may be, without the Authority being liable in any manner whatsoever to the Selected Bidder or the Contractor. In such an event, the Authority shall be entitled to forfeit and appropriate the BID Security or Performance Security, as the case may be, as Damages, without prejudice to any other right or remedy that may be available to the Authority under the Bidding Documents and/or the Agreement, or otherwise."
(Underlining Added)
8. In my prima facie opinion, there is entitlement of the respondent no.1 to invoke and encash the bid security bank guarantee in view of Clauses 1 and 2 of the bid security guarantee, and invocation made in terms of the Bank Guarantee as per para 4 of the Letter dated 09.01.2019 which is reproduced above.
9. I do not agree with the argument urged on behalf of the petitioner that Clause 5 of the Letter dated 09.01.2019 as regards invocation of the bid security bank guarantee is not in accordance with the invocation requirement language of the bank guarantee inasmuch as the Invocation Letter dated 09.01.2019 has to be read as a whole and para 4 of this Invocation Letter dated 09.01.2019 in my opinion satisfies the requirements of the demand being in accordance with invocation and encashment with the terms and requirements of the bid security bank guarantee, and which is on account of violation of contractual terms and especially para 2.6.3 reproduced above.
10. So far as the second issue of enforcement of the Performance Bank Guarantee for a sum of Rs.5,27,40,000/-, in my opinion, prima facie the petitioner has made out a case for grant of ad interim order inasmuch as the performance bank guarantee in the present case had to be given for performance of the Terms and Conditions of the Contract entered into between the parties on 22.09.2018 for award of contract for stabilization of landslide at Hatipahar including construction & upgradation of existing road to 2-lane with paved shoulder from existing Chainage Km 489.350 to Km 491.600(Design Chainage Km 471.400 to Km 473.675) (Shingdhar Bridge to Vishnuprayag Bridge) of NH-07(Old NH-58) on EPC mode under improvement to NH connectivity to Chardham in the state of Uttarakhand (Design length 2.275 Km) at an estimated project cost of Rs. 112,55,00,000/-. One of the terms of the entering into of the contract was that the petitioner had to give a performance bank guarantee in terms of Clause 7.1.3 of the Estimated Project Cost (EPC) Contract and this Clause 7.1.3 reads as under:-
"7.1.3 In the event the Contractor fails to provide the Performance Security within 10(ten) days of this Agreement, it may seek extension of time for a period not exceeding 30(Thirty) days on payment of Damages for such extended period in a sum calculated at the rate of 0.01% (zero point zero one per cent) of the Contract Price for each day until the Performance Security is provided. For the avoidance of doubt the agreement shall be deemed to be terminated on expiry of additional 30 days time period and Bid security shall be encashed by the Authority."
(Underlining Added)
11. In the present case, the respondent no.1 seeks to terminate the contract on account of the default of the petitioner as per Clause 7.1.3 to give performance bank guarantee in time. Therefore, it cannot be that the performance bank guarantee is not given within time and so the contract is terminated and yet the respondent no.1 can enforce the very same performance bank guarantee although the said bank guarantee is not taken as being validly given. Only if the performance bank guarantee was validly given, and which was towards performance of the contract, then the subject performance bank guarantee could have been invoked and encashed for non- compliance of the performance of the contractual conditions i.e. it cannot be that the contract is terminated for non-giving of the performance bank guarantee, but it is the very performance bank guarantee which is given which is then sought to be invoked and encashed.
12. In my opinion, the invocation of the bank guarantee is also not in accordance with the terms of the performance bank guarantee because the performance bank guarantee requires for its encashment default by the petitioner/ contractor of faithful performance of the obligations under and in accordance with the agreement, but it is noted that the concerned Invocation Letter dated 09.01.2019 issued on behalf of the respondent no.1 does not seek invocation and encashment of the performance bank guarantee by alleging that there is a default of the petitioner/contractor in due and faithful performance of all or any of its obligations in accordance with the agreement. The relevant paras of this invocation letter are paras 2 to 5, and these paras read as under:-
"2. That the Contractor was required to submit an irrevocable and unconditional bank guarantee from a bank in the form set forth in Schedule G towards Performance Security accordingly thereafter the Contractor has submitted a Performance Security Bank Guarantee dated 03 Oct 2018, bearing No.3000018BG2788149 purported to have been issued by State Bank of India JVPD Scheme Branch, Plot No.9, Yogi Smruti, 10th Road JVPD, Juhu, Mumbai- 400049 amounting to Rs.5,27,40,000.00 (Rupees Five Crore Twenty Seven Lakh Forty Thousand Only). The Performance Security Bank Guarantee as submitted by the Contractor was forwarded to the issuing branch for verification of the genuineness of the BG bond. The issuing branch vide letter No. BR/JVPD/109/2018-19 dated 20 Nov 2018 has intimated that the aforementioned Performance Security Bank Guarantee for Rs.5,27,40,000/- has not been issued by them and appears to be fraud.
3. That thereafter the Contractor had submitted a fresh bank guarantee bond bearing no.IOB/NHB/193571118000127 dated 04 Dec 2018 and valid upto 03 Dec 2020 from Indian Overseas Bank, National Horticulture Board Branch, Plot No.85, Sector-18, Industrial Area, Gurgaon-122015 for Rs.5,27,40,000.00 (Rupees Five Crore Twenty Seven Lakh Forty Thousands Only) as fresh Performance Security.
4. That the Contractor has submitted the fake Performance Security bank guarantee bond initially and hence committed breach of contract agreement in terms of fraudulent practice and the bank guarantee required to be forfeited, in terms of Clause 2.6.3 and Section 4 of the RFP and para 7.1.2, 7.1.3 and 7.3.1 of Contract Agreement.
5. Accordingly, I on behalf of the President of India through the Ministry of Road Transport & Highways represented by Chief Engineer, Project Shivalik, Border Roads Organisation, IDPL Complex, Rishikesh-249202 (Hereinafter referred to as the "Authority") hereby place a demand of sum of Rs.5,27,40,000.00/- (Rupees Five Crore Twenty Seven Lakh Forty Thousands Only) on account of loss/damage caused to or suffered by the Authority. Therefore it is required that the bank guarantee bearing No.IOB/NHB/193571118000127 dated 04 Dec 2018 issued by Indian Overseas Bank, Gurgaon as demanded be encashed in the following bank account-
In favour of Account No with IFSC Branch and Address
Code
E-Payment A/C HQ CE SBI A/C No 31837446432 State Bank of India (P) Shivalik Project IFSC Code SBIN0001180 Main Branch, Railway Shivalik Road, Indralok Hotel Rishikesh, Dehradun, Uttarakhand-249201
13. It is therefore seen that the invocation with respect to the performance bank guarantee is for giving of a fake performance bank guarantee by the joint venture partner of the petitioner and it is not towards an issue of performing of the contractual obligations under the contract. Performance of the contractual obligation will commence after the giving of the performance bank guarantee which is accepted as a performance bank guarantee under the contract.
14. I would like to note that the argument urged on behalf of the respondent no.1 with reference to Clause 4.1 of the RFP, that performance bank guarantee cannot be encashed does not have substance because Clause 4.1 deals with fraudulent practice in the bid process and in the present case there is no fraud in the bidding process because the bidding process was correctly completed and only therefore which resulted in entering into of the Contract between the parties dated 22.09.2018. For the sake of convenience, Clause 4.1, and which will not apply in support of respondent no.1 to prevent encashment of performance bank guarantee, reads as under:-
"4.1 The Bidders and their respective officers, employees, agents and advisers shall observe the highest standard of ethics during the Bidding Process and subsequent to the issue of the LOA and during the subsistence of the Agreement. Notwithstanding anything to the contrary contained herein, or in the LOA or the Agreement, the Authority may reject a BID, withdraw the LOA, or terminate the Agreement, as the case may be, without being liable in any manner whatsoever to the Bidder, if it determines that the Bidder, directly or indirectly or through an agent, engaged in corrupt practice, fraudulent practice, coercive practice, undesirable practice or restrictive practice in the Bidding Process. In such an event, the Authority shall be entitled to forfeit and appropriate the BID Security or Performance Security, as the case may be, as Damages, without prejudice to any other right or remedy that may be available to the Authority under the Bidding Documents and/or the Agreement, or otherwise."
(Emphasis Added)
15. Though Ld. Counsel for the respondent no.1 seeks to place reliance upon the judgment of the Hon'ble Supreme Court in the case of Northern Coalfield Ltd. v. Heavy Engineering Corp. Ltd. and Ors. (2016) 8 SCC 685 to argue that there cannot take place arbitration in this case under the Arbitration & Conciliation Act, however in my opinion, at this stage I do not find that there is any prohibition contained in this judgment from entertaining and passing any ad interim order in a petition under Section 9 of the Arbitration & Conciliation Act. Of course, I must hasten to add that this issue as regards the lack of jurisdiction of this Court, as also Arbitration & Conciliation Act not being applicable, and as argued by the respondent no.1, would be finally decided after hearing the parties.
16. In view of the aforesaid, till further orders unless varied by the Court, respondent no.1 is restrained from encashing and respondent no.3- Bank is injuncted from making any payment to the respondent no.1/Union of India any amount of the Bank Guarantee dated 04.12.2018 for a sum of Rs. 5,27,40,00/- and pursuant to the Invocation Letter dated 09.01.2019 bearing no.85004/Chardham/Hathipahar/156/EPC Cell dt. 09.01.2019.
17. Notice.
18. Counsels for the respondents accept notice.
19. Replies be filed within four weeks Rejoinder affidavits thereto be filed within four weeks thereafter.
20. List on 26th March, 2019.
Dasti to the counsels for the parties.
JANUARY 28, 2019 VALMIKI J. MEHTA, J Ne