Bangalore District Court
The Tata Power Company Limited vs Bangalore Electricity Supply Company on 30 January, 2024
47
Com.A.A.No.316/2023
KABC170018972023
IN THE COURT OF LXXXII ADDL. CITY CIVIL & SESSIONS
JUDGE,AT BENGALURU (CCH.83)
THIS THE 30th DAY OF JANUARY 2024.
PRESENT:
SMT. SUMANGALA S BASAVANNOUR.,B.COM,L.L.M.,
LXXXII ADDL. CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com. A.A. No. 316/2023
BETWEEN:
The Tata Power Company
Limited, a company validly
existing under the
provisions of Indian
Companies Act, 1919
Having its registered office
at Bombay House, 24,
Homi Mody Street Mumbai-
400 001
: APPLICANT
(Represented by M.P.K.,
Advocate)
AND
Bangalore Electricity
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Com.A.A.No.316/2023
Supply Company Limited A
Company validly existing
under the provisions of
The Companies Act, 1956
Having its registered office
at: BESCOM, K.R.Circle,
Bangalore-560001
: RESPONDENT
(Represented by G.M.-
Advocate).
ORDERS
This application is filed U/s 9 (1)(ii)(d) and (e) of the
Arbitration & Conciliation Act, 1996 Read With Rule 9 of the
High Court of Karnataka Arbitration. The applicant prays that,
pending initiation, during Arbitral proceedings Restrain the
respondent, its agents, assigns, authorised representatives, etc.
from invoking and encashing the Bank Guarantee having
reference No.0393NDLG00101721 amounting to Rs.15,12,000/-
issued by the applicant to the respondent
2. The Brief facts of the Petitioner are as follows:-
The present application pertains to the project management
consultancy agreement dated 07.09.2020 executed between
the Tata Power Company Ltd and Bangalore Electricity Supply
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Com.A.A.No.316/2023
Company Ltd, the detailed work award having reference No.
BESCOM/CGM(Proj)/DGM-3/AGM/BC-14/20-21/3042-54 dated
10.09.2020 ("DWA") issued by BESCOM in favour of TPCL and
the Bank Guarantee bearing No. 0393NDLG00101721 dated
28.08.2020 furnished by TPCL to BESCOM. On 25.04.2020,
BESCOM issued a 'Request for Proposal' having Tender
reference BESCOM/CGM (P)/UG/BMAZ/ JAL/BC-14/20-21/PMC-10
dated 25.04.2020 ("RFP"/ "Tender") which included the General
Conditions of Contract and Special Conditions of Contract for
appointing Project Management Consultant for construction
supervision and monitoring of work of conversion of 11kv/LT
overhead line into UG/AB cable and laying of optic fiber cable
along with UG cable and other capex works on firm price basis.
The applicant applied for award of the said tender and on
14.08.2020, BESCOM issued a letter of intent awarding the
tender to the applicant and appointing the applicant as per the
PMC for three divisions, Jalahalli, Koramangala and Peenya. In
compliance of Clause 8.1 of the SCC, the applicant had
furnished the Bank Guarantee bearing No. 0393NDLG00101721
dated 28.08.2020 of a sum of Rs.15,12,000/- to the respondent
towards guarantee for the performance. Accordingly, the PMC
Agreement was signed between the parties herein and the DWA
for the project site was awarded by the respondent in favour of
the applicant in this regard. The tenure of the engagement
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Com.A.A.No.316/2023
between the parties herein for the project site was from
10.09.2020 to 09.09.2022, i.e., for a period of 24 months, as
per Clause 5 of the DWA and Clause 9 of the PMC Agreement.
As per the provisions of the PMC Agreement and DWA, TPCL had
deployed resources to the Project Site. TPCL had stationed 12
skilled workers/manpower at the Project Site. The applicant, at
all times, carried out its mandate under the Consultancy
Agreements and provided all the services as required
thereunder at the Project Site without any delay or demur. In
fact, in the interest of Project, the applicant had provided
services/carried out activities in addition to its roles and
responsibilities entrusted to it under the Consultancy
Agreements. The applicant has also, at all times, kept the
respondent updated and abreast of the developments and work
progress at the Project Site. Despite the applicant fulfilling its
mandate/obligations in terms of the Consultancy Agreements,
the respondent has been in breach of its material obligations
under the same. There have been inordinate delays in the
award of work to turnkey contractors, shutdown issuance,
postponement due to petty item finalisation in bill of quantity
and unavailability of materials at turn key contract stores,
BESCOM, due to which a large portion of works at the Project
Site could not be completed till date. The respondent has
defaulted in its obligation of awarding the work of the total
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Com.A.A.No.316/2023
contract value to the applicant during the tenure of the
engagement between the parties in the Peenya project. Despite
the applicant carrying out all its obligations under the
Consultancy Agreements, there have been significant delays
and/or failure on the part of the respondent in clearing the
outstanding invoices of the applicant. The respondent, despite
the regular follow up by the applicant requesting for clearing of
its dues, has failed to clear the dues till date. Due to the above
reasons, none of which are attributable to the applicant, the
project work could not be compelled within the tenure of the
PMC Agreement and the DWA. Such material breaches by the
respondent which led to failure to complete the work within the
24 months, has adversely affected the interests of the
applicant. Despite the failure of BESCOM as mentioned above,
the applicant had to keep the resources at the Project Site from
10.09.2020 till date. BESCOM has been continuously failing to
timely clear the invoices, vide letter dated 11.02.2022, the
applicant demanded payment of pending dues, delayed by the
respondent even after 16 months from the date of signing of
the Consultancy Agreements, due to which the project was
becoming unviable. The applicant indicated that it would not be
in a position to continue the project further if the payments
were not released on an immediate basis. Accordingly, the
applicant requested the respondent to immediately release the
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Com.A.A.No.316/2023
outstanding payment, as set out under the DWA, to ensure the
continued financial viability of the project. The applicant
informed the respondent that in addition to its roles and
responsibilities entrusted to it under the consultancy
agreements, it had carried several other activities in interest of
project vide letter dated 11.02.2022.
The respondent, however, neither responded to the letter
dated 11.02.2022 nor cleared the dues owed to the applicant.
Thereafter, the applicant, after around 2 months, sent another
letter dated 13.05.2022 reiterating its demand for immediate
payment of the pending dues and indicated that due to non-
payment by the respondent, the project was becoming
unsustainable for the applicant. Further, the applicant informed
the respondent that due to slow project progress, its project
expenses had increased. On 22.08.2022, a meeting was
conducted among the parties herein and the agencies working
for the project. In the meeting, among other issues, the issue of
pending bills of the applicant was also discussed. The applicant
once again informed the respondent that the non-payment of
its invoices raised by the respondent was seriously affecting the
cash flows of the applicant. The tenure of 24 months of the
Consultancy Agreements expired on 09.09.2022. As on
09.09.2022, the respondent had only paid a sum of
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Com.A.A.No.316/2023
Rs.1,64,73,091/-. However, in the interest of the project, the
applicant wrote to the respondent vide letter dated 09.09.2022
for extension of the period of engagement under the
Consultancy Agreements. In the said letter, the applicant
clarified the following:
(i) The total value of work for all three divisions/sites
awarded to the applicant in the 24 months tenure was
only Rs.7,40,00,000/- against the contract value of
Rs.10,20,00,000/-.
(ii) The major reason for non-completion of work in the 24
months period was inordinate delay in award of work to
turnkey contractors which had impacted the schedule of
the PMC Agreement for all the projects at all the three
sites, i.e., Koramangala, Peenya and Jalahalli
sites/divisions.
(iii) The other reasons were COVID 19 pandemic, right of way
issues for the network installation, delay in shutdown
issuance, postponement due to petty item finalization in
bill of quantity, unavailability of materials at TKC stores.
(iv) None of the reasons for delay in completion of work are
attributable to the applicant.
47
Com.A.A.No.316/2023
(v) Irrespective of the delays, the applicant had a deploy a
total of 33 resources, full time throughout the 24 months
tenure. Due to which the applicant had already incurred
its full cost in those 24 months, but corresponding
revenue could not be realized due to delay in award of
projects and award of less work against the commitment
as per Consultancy Agreements.
In the said letter dated 09.09.2022, the applicant also
informed the respondent that as per its estimation, the already
awarded work should get completed in another 12 months,
which would mean further costs incurred by the applicant.
Considering the past conduct of the respondent, the applicant
suggested to extend of the Consultancy Agreements for another
12 months on the following conditions:
(i) Milestone based payment as per the Consultancy
Agreements to be made to the applicant by the
respondent with the progress in the project in the
extended project period.
(ii) Additional work, apart from work already in progress, if
any to be allotted within two months of the date of
extension of the Consultancy Agreements so that the
same could get completed in an extended period of 12
months.
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Com.A.A.No.316/2023
(iii) Payment of fixed monthly payment for the extended
period of the project, to cover the fixed cost for the next
twelve months.
(iv) Fixed charges per manmonth=[Work Order Value
(Rs.10.2 crores)] divided by [No. of resources as per Work
Order (33) x 24 months].
(v) The shortage in PMC charges as per the difference
between the original estimated project value and final
awarded value, to be paid to the applicant on monthly
basis in equal installments during extended contract
period.
Once again, the respondent did not reply to the letter dated
09.09.2022. Thereafter, the applicant wrote to the respondent
vide letter dated 05.01.2023 once again requesting to consider
the suggestions given in the letter dated 09.09.2022 and
extend the Consultancy Agreements accordingly, it was also
clearly informed that until the extension of Consultancy
Agreements was not received by the applicant, it would not
accept any new job(s) at the site and viability of taking new
works would be evaluated on the basis of the respondent's
acceptance of terms and conditions of requested extension of
the Consultancy Agreements. The applicant further requested
the respondent to release the outstanding payment and provide
47
Com.A.A.No.316/2023
the approval for extension of projects within 15 days of
receiving the said letter, in absence of which the applicant
would not be in position to continue the project and it might
initiate withdrawal of manpower from site. As neither the
payment nor the extension was received from the respondent,
the applicant again wrote to the respondent vide letter dated
30.01.2023 requesting to release the outstanding payment.
The respondent did not respond to the said communications
dated 05.01.2023 and 30.01.2023 nor did it clear the
outstanding dues or send the approval of extension. From the
conduct of the respondent, it was clear to the applicant that the
respondent had no intention of paying the dues of the applicant
or extend the Consultancy Agreements on the fair and
reasonable terms and conditions suggested by the respondent.
Thus, the applicant ultimately sent a notice dated 16.02.2023 to
the respondent stating clearly that payments are overdue and
in view of the extant impasse caused by the respondent's
inaction and delayed payment, the applicant was no longer
seeking an extension under the Consultancy Agreement and
would be demobilizing its resources from the site within 30 days
from the date of the said notice. Only after the applicant had
clearly set out that it was no longer seeking an extension under
the Consultancy Agreements, the respondent, malafidely
attempted to extend the Consultancy Agreements till
47
Com.A.A.No.316/2023
09.09.2023. The respondent initially sent a letter dated
01.03.2023, wherein it unilaterally sought to extend the term of
the Consultancy Agreements from 10.09.2022 to 09.03.2023,
with no incremental payment for extension. Thereafter, the
respondent issued another letter dated 10.03.2023, wherein it
further sought to unilaterally extend the term of the
Consultancy Agreements from 10.03.2023 to 09.09.2023 with
no incremental payment for extension. Thereafter, the
respondent issued another letter dated 10.03.2023, wherein it
further sought to unilaterally extend the term of the
Consultancy Agreements from 10.03.2023 to 09.09.2023 with
no incremental payment for extension. The respondent also
wrote to the applicant vide letter dated 17.03.2023, where
under, without clearing the dues of the applicant, the
respondent asked the applicant not to demobilize/withdraw the
resources of the applicant from the site.
The applicant had raised certain invoices dated 06.03.2023
to the respondent qua the work done at the project site. The
respondent failed to make timely payment against the pending
invoices. Having not received any payments from the
Respondents, the applicant vide its letter dated 30.05.2023,
clarified that invoices are pending for more than 45 days,
however, respondent had not made any payments against the
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Com.A.A.No.316/2023
pending invoices and thus applicant is at liberty to take
appropriate legal and contractual remedies available to it. The
letter dated 30.05.2023, made part payment but again failed to
clear all the dues. Apart from the invoices dated 06.0.2023, the
applicant had also raised certain invoices dated 28.04.2023
which are pending till date. In respect of other two divisions i.e.,
Jalahalli and Koramanagala as the respondent failed to make
any payments despite the notice and had been in other
material breaches, the applicant terminated the consultancy
agreements for those two divisions and withdrew the resources
from those two divisions. Presently, application under section 9
of Arbitration and Conciliation Act bearing no Com. A.A. No. 175
and 176/2023 are sub judice before this court seeking directions
to the Respondent for refraining from invoking and/or encashing
the bank guarantee submitted by the applicant in respect of
Jalahalli and Koramangala division. Notably, in the said
applications, this court vide orders dated 18.04.2023, passed
ex-parte interim orders restraining the respondent, its relatives,
affiliates, employees, agents, representative, servants,
directors, principle officers and any person acting for, under or
through respondent, from invoking and/or encashing the bank
guarantee issued by the applicant to respondent. In respect of
jalahalli and koramangala divisions, the applicant also issued
notice invoking arbitration on 12.06.2023. In reply to the said
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Com.A.A.No.316/2023
notice, vide its letter dated 27.06.2023, the respondent
requested that parties may attempt to settle the disputes
amicably. The applicant in good faith agreed for the same. The
parties had multiple meetingsin July 23 to settle the disputes in
respect of all three divisions i.e., Koramangala, Peenya and
Jalahalli but the disputes have not been settled amicably till
date. After lapse of more than 2 months, the respondent has
failed to clear the dues and has been in material breach of the
consultancy agreements, the applicant has decided to
terminate the consultancy agreements. The applicant will
sending the termination notice to BESCOM on 11.08.2023 in
terms of clause 18 (B) of the DWA dated 10.09.2020 and clause
45 of the PMC terminating the consultancy agreement. As the
applicant has terminated the Consultancy Agreements and
demobilized the resources, due to the actions/inactions of the
respondent, the applicant strongly apprehends that the
respondent is in the process of unjustifiably and illegally
invoking and encashing the Bank Guarantee furnished by the
applicant. The applicant has at all times complied with its
obligations under the Consultancy Agreements. It is in fact the
respondent that hes failed to comply with its obligations under
the Consultancy Agreements and failed to pay the applicant its
dues under the raised invoices, as per the terms of the
Consultancy Agreement.
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That Clause 18 of the DWA deals with Termination of Contract
by the respondent. Sub Clause (e) of the said Clause provides
for Liquidated Damages for Non-performance of Consultant i.e.,
applicant.
Similarly, clause 45 of the PMC agreement stated that the
termination shall be as per Clause 2.7 of GCC, Clause 2.7.1 of
GCC read with SCC deals with termination by respondent. Sub
clause (e) of the said clause.
The aforesaid Clauses of DWA, PMC Agreement, GCC and
SCC are not applicable in the present case as (i) the DWA has
not been terminated by the respondent but by the applicant (ii)
the events mentioned in the said clause which entitles the
respondent to invoke and/or encash the Bank Guarantee has
not arisen in the present case. There has not been any non-
compliance of the work or obligation under the Consultancy
Agreements or non-adherence of the provisions by the
applicant. Nor has the applicant failed to deploy the key and
sub key manpower or submit the report. Thus, the respondent is
not entitled to invoke and/or encash the Bank Guarantee under
the aforesaid clauses of DWA, PMC Agreement, GCC and SCC. It
is settled position of law that even in cases of unconditional or
unequivocal bank guarantees, a bank guarantee cannot be
invoked until the event given in the concerned contract for
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Com.A.A.No.316/2023
invocation of Bank Guarantee arises. The applicant does not
owe any money to the respondent as it had duly complied with
its obligations. On the contrary, it is the respondent who owes
outstanding dues towards the work performed by the applicant
in respect of the Project Site. Further, there is no breach of any
obligation under the Consultancy Agreement on the part of the
applicant. The respondent is not legally or under the terms of
the Consultancy Agreements entitled to invoke and/or encash
the Bank Guarantee. The applicant is owed outstanding dues
from the respondent along with applicable interest. In addition,
thereto, the respondent is in possession of Bank Guarantee of a
sum of Rs.15,12,000/-. In the event, the rights of the applicant
are not enforced, and the apprehended invocation and/or
encashment of the Bank Guarantee is not stayed, the applicant
shall face irreparable loss and injury. The applicant intends to
pursue its remedies under the Arbitration and Conciliation Act,
1996, as provided under the Clause 30 of the PMC Agreement
and Clause 20 of the DWA, by invoking the dispute resolution
mechanism, under the said Consultancy Agreements. Vide the
instant application, the applicant is seeking protection from the
coercive steps which may be taken by the respondent,
unjustifiably, illegally and in violation of the terms and
conditions of the Consultancy Agreements. If the present
application is not allowed and the respondent is allowed to
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Com.A.A.No.316/2023
invoke and/or encash the Bank Guarantee in favour of the
applicant, then the CIBIL score of the applicant may also be
adversely impacted, which cannot be cured by any amount of
financial compensation. Further, the applicant is a reputed
company which is well-known to abide by and respect its
obligations. If the respondent is permitted to invoke and/or
encash the Bank Guarantee, it will adversely affect the hard
earned reputation and good will of the applicant, despite the
fact that the applicant has complied with its obligations under
the Consultancy Agreement and is at no fault. The balance of
convenience lies in the favour of the applicant and against the
respondent, since respondent has failed to perform its
obligations under the Consultancy Agreements. Hence this suit.
3. The Respondent has filed statement of objections by
stating that it is based on the incorrect appreciation of the
payment terms. The payment terms clearly intertwind the
payment of the applicant with the turnkey contractors. Hence,
as and when a turnkey contractor would raise its invoice on
completion of a particular work, the said turnkey contractor will
raise the invoice and along with it the applicant was authorized
to raise the invoices. It may also be noted that when compared
to peenya, both Jalahalli and koramangala zones, had very little
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Com.A.A.No.316/2023
development in terms of work on the ground. This fact has been
admitted by the applicant in various letters sent to the
Respondent. The applicant has abandoned the performance of
the PMC agreement and the DWA. The respondent had prepared
DPR and finalized the tenders as per the KTPP Act following the
direction given by Government of Karnataka and issued letter of
awards to various turnkey contractor to execute the work of
conversion of 11kV OH line into UG cable system, running new
feeder for bifurcation of load and conversion of LT oh line to UG/
AB cable system and laying of optic fiber along with UG cable in
BMAZ area. The respondent intended to engage the service of
PMC on division basis for the said work in the aspect of
supervision and monitoring, quality checks of works, assisting
the department officers to ensure adherence to quality
standards in the construction of works, verification and
certification of bills and top avoid time and cost overrun. The
applicant applied for the tender and on 14.08.2020, respondent
issued of intent awarding the tender to applicant and appointing
the applicant as per the PMC, inter-alia, for Peenya division of
Respondent.
The applicant was entitled to payment as follows:
Stage-I: 60% of the consultancy contract amount was
payable on the completion of the individual work wise
basis by the concerned turnkey contractor and after
obtaining the approval from the electrical inspectorate
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BESCOM for the work subject to certification from SEE,
MPD and TCD, Corporate office, BESCOM.
Stage-II : 30% of the consultancy contract amount was
payable upon the commissioning of the individual work
wise basis by the concerned turnkey contractor subject
to certification from SEE, MPD and TCD, corporate
office, Respondent.
Stage-III : 10% of the consultancy contract amount was
payable upon the acceptance of the final project
completion report, pre & post analysis report and
mapping of assets in GIS subject to certification from
SEE, MPD and TCD, corporate office, Respondent.
There was no concept of milestone based payments, rather,
the payment to the applicant was linked with the payment to
the relevant trunkey contractor. The amount was payable on
actual basis or the services rendered and the invoice/bill should
accompany with the following:
verification and certification from the SEE, MPD and
TCD for the activities performed, which are listed in the
table.
Attendance certificate for the site engineer/project
engineer/team, corporate office, BESCOM.
The consultancy contract was valid for a period of 24 months
from the date of issued of DWA i.e., on 10.09.2020 and was
going to expire on 09.09.2022. However in case of delay in
implementation of the proposed works under the contract, the
agreement allowed will be extension of term till the completion
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Com.A.A.No.316/2023
of the proposed works on the same terms and conditions of the
contract. No incremental payment will be imposed for such
extension. The respondent has requested for the extension of
contract period duly stating the reasons for delay in execution
of works by executing agencies and due to covid 19 pandemic
and government rules vide a letter bearing T&D/BD/DOM/FY23/
BESCOM/311 dated 09.09.2022. This letter clearly shows that
the percentage of work which was completed till that then was
only 28% for jalahalli division. The respondent after receiving of
the extension letter from applicant and many other OMC had
formulated a technical expert committee for examining the
extension time and other proposals vide order dated
29.09.2022. Thereafter the extension request made by
applicant for jalahalli division was placed before the technical
expert committee meeting held on 19.10.2022 and 15.11.2022
for consideration and examination of extension of time for
completion of work. That after considering the same the
technical expert committee recommended to consider the
request of agencies for extension of PMC contract period for one
year to complete the work because the provision of contract
clearly says that in case of delay in implementation of proposed
work, the duration of consultancy period will be extended till
the completion of the proposed work with same terms and
conditions and no incremental payment for such extension will
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be imposed. The 121st BESCOM Board of Directors meeting held
on 10.01.2023 seeking approval of PMC contract period. The
board after considering the facts had accorded approval for
extension of PMC contract period from 10.09.2022 to
09.03.2023. And the board had also directed BESCOM to take
action with respect to extension of time or variation of
proposals within its financial capacity. The Respondent after
considering all the pending work which is to be performed by
the applicant, the respondent had again extended the PMC
contract period and provided maximum extension upto
09.09.2023. The applicant had issued a notice dated
16.02.2023 intimidating the respondents that applicant is
demobilizing/withdrawing their resources from the project site
within 30 days. Meanwhile the Respondent on 17.03.2023
made part payment of Rs. 8,84,392/- in respect of work done
bhe applicant in project site. Though the various invoices were
still pending and overdue. The respondent had conveyed the
applicant through a letters dated 01.03.2023 and 10.03.2023
that there PMC agreement has been extended from 10.09.2022
to 09.09.2023 with no incremental payment. The respondent
again wrote to the applicant and asked not to
demobilize/withdraw the resources from the project site, and
also that the respondent is extending the time period for the
maximum for the completion of the work. The respondent had
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also requested the applicant to complete all the pending work
as this is a prestigious project of the respondent and assured
the applicant that the necessary payment will be arranged as
per the conditions of the contract. On 20.07.2023 the
respondent had again released the payment in favour of
applicant. On 11.08.2023, the applicant without any justifiable
ground had terminated the PMC contract. The outstanding
payments of the applicant had also been duly paid from time to
time by the Respondent. That due to this unjustifiable act of
applicant, the respondent is facing severe issues with regard to
the other ongoing works on the project site which has not struck
in between. That there are many other agencies which were
conducting their operational works and they are in urgent need
of PMC services for JMC certification, material inspection and
other assistance. The applicant is now anticipating a bundle of
other claims from other agencies if the PMC services will not be
provided to them on urgent basis. The respondent is getting
impacted due to the act of the applicant as the work of project
site is hampered at a very large scale, which is effecting the
respondent financially.
The somewhat the applicant in raising the invoices without
following the conditions stipulated in the terms of payment. The
term of contract make it clear that the applicant was eligible for
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payment only when the turnkey contractor, completed the
milestones. Hence, the applicants payment was dependent
upon the completion of milestones by the relevant turnkey
contractor. The applicant delayed the completion of work within
time. Thereafter the tenure of the PMC had also been extended
but till date the applicant has not completed the assigned work.
The applicant has kept its resources at the project site till date
but no work is carried out by the applicant. The letter dated
05.01.2023 only, the applicant had admitted that they will stop
accepting any new job on project site. Clause 15.0: terms of
payment very clearly states that there will a procedure of
payment which depends on the percentage of work completed
and percentage of work in progress. It does not deal with the
any time period for the payment. The payment should also be
done after verification and certification from SCC, MPD&TCD for
the activities performed and after fulfilling other conditions. As
per DWA clause 1.3 the scope of PMC is detailed and agency
has not carried out any other activity apart from DWA.
According to the clause 30 of the PMC agreement in case of
dispute between the parties will try to resolve the dispute
mutually within 30 days. And if fails to do that the dispute will
be referred to arbitration under the Arbitration and Conciliation
Act, 1996, to be adjudicated by the sole arbitrator to be
47
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appointed by mutual agreement of both the parties. Hence, the
Respondent prays to dismiss the application.
4. I have heard the arguments for the both Advocates.
5. I formulate the following Points for my consideration:-
(1) Whether the Petitioner is entitled for a
relief of Interim Measure under Section 9 of
Arbitration and Conciliation Act as prayed in
the Petition?
(2) What Order?
6. My findings are as follows:-
Point No. 1 : - In the Affirmative.
Point No. 2 : - As per my final orders for
the following reasons.
REASONS
7. Point No. 1: - Section 9 in the Arbitration And Conciliation
Act, 1996 reads as under:
"9. Interim measures, etc. by Court.--A party may, before or
during arbitral proceedings or at any time after the making of
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the arbitral award but before it is enforced in accordance with
section 36, apply to a court--
(i) for the appointment of a guardian for a minor or a
person of unsound mind for the purposes of arbitral
proceedings; or
(ii) for an interim measure of protection in respect of any
of the following matters, namely:
(a) the preservation, interim custody or sale of any
goods which are the subject-matter of the
arbitration agreement;
(b) securing the amount in dispute in the
arbitration;
(c) the detention, preservation or inspection of any
property or thing which is the subject-matter of the
dispute in arbitration, or as to which any question
may arise therein and authorizing for any of the
aforesaid purposes any person to enter upon any
land or building in the possession of any party, or
authorising any samples to be taken or any
observation to be made, or experiment to be tried,
which may be necessary or expedient for the
purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a
receiver;
(e) such other interim measure of protection as
may appear to the court to be just and convenient,
and the Court shall have the same power for
making orders as it has for the purpose of, and in
relation to, any proceedings before it."
8. This application is filed for restrain the respondent from
invoking and encashing the Bank Guarantee having reference
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Com.A.A.No.316/2023
No. 0393NDLG00101721 amounting to Rs. 15,12,000/- issued
by the applicant to the Respondent.
9. It is the case of the applicant that the Respondent issued a
detailed work order bearing reference No.
BESCOM/CGM(Proj)/DGM-3/AGM/BC-14/20-21/3045-54 dated
10.09.2020 favour of the applicant. In compliance of clause 8.1
of the special conditions of contract, the applicant submitted a
bank guarantee bearing No. 0393NDLG00101721 dated
28.08.2020. Respondent issued a tender for construction
supervision and monitoring of work of conversion of 11kv/LT
overhead line into UG/AB cable and laying of optic fiber cable
along with UG cable and other capex works on firm price basis.
The applicant applied for the tender and on 14.08.2020, the
Respondent conveyed its intent awarding the tender to
applicant and appointing the applicant as project management
consultant, i.e., PMC, for three divisions, Jalahalli, Koramangala
and Peenya division of respondent. Thereafter the project was
awarded by Respondent in favor of applicant. The applicant was
required to complete the works within 2 years (period between
10.09.2020 and 09.09.2022). Applicant deployed 9 skilled
workers/manpower and project engineers at the project site in
order to provide services. The larger portion of the work could
not be completer till date due to the delay caused by the
47
Com.A.A.No.316/2023
Respondent. The respondent also defaulted in its obligation of
awarding the work of the total contract value to the applicant
during the tenure of engagement. There are delays on part of
respondent in clearing the invoices of applicant. Despite a
failure from respondent, the applicant kept the resources at the
project site from 10.09.2020 till date. Vide letter dated
11.02.2022, applicant had demanded the payment of pending
dues in immediate basis. However, the Responded neither
responded to the letter dated 11.2.2022 nor cleared the dues.
The applicant again sent a letter dated 13.05.2022 but the
respondent did not respond to the said letter as well. That on
expiry of 24 months, respondent had only paid a sum of Rs.
1,64,73,091/-. The applicant had wrote a letter dated
09.09.2022 for extension of the period of engagement.
Thereafter also several letters had been sent by applicant. The
applicant sent a notice dated 16.02.2023 to the Respondent for
the payment of overdue amount, applicant no longer sought
extension. The respondent with malafide intent attempted to
extend the PMC agreement till 09.09.2023. Respondent initially
sent a letter dated 01.03.2023, wherein it is unilaterally sought
to extend the term of the PMC agreement from 10.09.2022 to
09.03.2023 with no incremental payment for extension and
again through a letter dated 10.03.2023 unilaterally extended
the agreement from 10.03.2023 to 09.09.2023. The respondent
47
Com.A.A.No.316/2023
again wrote a letter dated 17.03.2023 to applicant and asked
the respondent not to the demobilize resource from the project
site. The applicant now apprehends that the respondent will
unjustifiably and illegally try to encash the bank guarantee
furnished by the applicant.
10. The Clause "18.0 deals with Termination of the
contract: reads as under
A. By the BESCOM:
.......
(e) Liquidated Damages for Non-performance of
Consultant:
i. Consultant is expected to fully adhere to all the
provisions of terms of reference and shall be fully
responsible for successful implementation of the
project in accordance with the provisions of the
works contract agreement and other schedules
agreed between the BESCOM Representative and the
works contractors. Any failure of Consultant in
notifying to the BESCOM and work contractor on non-
compliance of the work contract agreement and
other schedules by the work contractor, non-
adherence to the provisions of terms of reference
and non-adherence to the time schedule prescribed
under terms of reference amounts to non-
performance of the Consultant. In such a condition,
BESCOM has the right to en-cash the performance
security and terminates the contract.
47
Com.A.A.No.316/2023
ii. If the Consultant fails to deploy the key and sub
key manpower as agreed in the terms of reference,
will amount to non-performance of consultant. In
such a condition BESCOM has the right to en-cash
the performance security and terminates the
contract.
Iii. During the execution of works; if the Consultant
fails to perform their obligations as specified in terms
of reference either with respect to progress
monitoring and or quality control by the Consultant
team the same shall be treated as non-performance
of contract.
iv. If the consultant fails to submit the reports as per
the terms of reference within the time frame
prescribed, will attract a penalty of Rs.100 per day.
However if the delay is more than a month BESCOM
has a right to en-cash the performance security and
terminate the contract."
11. Clause 45 of the PMC Agreement states that the
termination shall be as per Clause 2.7 of GCC. Clause 2.7.1 of
GCC read with SCC reads as under:
"2.7 Termination
2.7.1 By the Client
.....
(e) Performance of Consultant:
i. Consultant is expected to fully adhere to all the
provisions of terms of reference and shall be fully
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Com.A.A.No.316/2023
responsible for successful implementation of the project in
accordance with the provisions of the works contract
agreement and other schedules agreed between the Client/
Client's representative and the works contractors. Any
failure of Consultant in notifying to the Client and work
contractor on non-compliance of the work contract
agreement and other schedules by the work contractor,
non-adherence to the provisions of terms of reference and
non-adherence to the time schedule prescribed under
terms of reference amounts to non-performance of the
Consultant. In such a condition, Client has the right to
encash the performance security and terminates the
contract.
ii. If the Consultant fails to deploy the key and sub key
manpower as agreed in the terms of reference, will amount
to non-performance of consultant. In such a condition,
Client has the right to encash the performance security and
terminates the contract.
iii. During the execution of works; if the Consultant fails to
perform their obligations as specified in terms of reference
either with respect to progress monitoring and or quality
control by the Consultant team the same shall be treated
as non-performance of contract.
iv. If the consultant fails to submit the reports as per the
terms of reference within the time frame prescribed, will
attract a penalty of Rs.100 per day. However if the delay is
more than a month Client has a right to encash the
performance security and terminate the contract."
47
Com.A.A.No.316/2023
12. Clause 8.3 of the SCC which deals with bank guarantee
provides the following pre-condition for invocation of bank
guarantee:
(a) There must be a default.
(b) BESCOM must notify TPCL of the nature of default prior to
invocation of Bank Guarantee.
The relevant provision is reproduced herein below for the
convenience of this court :
8.3 claims under performance guaranteed
" Prior to including a claim under the performance
Guarantee the client shall in every case notify the
consultant stating the nature of the default in respect of
which the claim is made.
13. It is also an evident on record that the letters have been
issued by TPCL (letters dated 11.02.2022, 13.05.2022,
05.01.2023 and 30.01.2023) to BESCOM seeking payment of
the outstanding dues in respect of the invoices issued by TPCL
for the work undertaken by it under the consultancy
agreements. None of these letters or the liability towards the
outstanding due has ever been refuted/disputed by BESCOM.
47
Com.A.A.No.316/2023
14. The respondent initially sent a letter dated 01.03.2023,
wherein it unilaterally sought to extend the term of the
Consultancy Agreements from 10.09.2022 to 09.03.2023, with
no incremental payment for extension. Thereafter, the
respondent issued another letter dated 10.03.2023, wherein it
further sought to unilaterally extend the term of the
Consultancy Agreements from 10.03.2023 to 09.09.2023 with
no incremental payment for extension. Thereafter, the
respondent issued another letter dated 10.03.2023, wherein it
further sought to unilaterally extend the term of the
Consultancy Agreements from 10.03.2023 to 09.09.2023 with
no incremental payment for extension. The applicant ultimately
sent a notice dated 16.02.2023 to the respondent stating
clearly that payments are overdue and in view of the extant
impasse caused by the respondent's inaction and delayed
payment, the applicant was no longer seeking an extension
under the Consultancy Agreement and would be demobilizing
its resources from the site within 30 days from the date of the
said notice.
15. Further the learned counsel of the applicant has argued
that the BESCOM had any claim against TPCL, it should have
issued notice invoking arbitration against TPCL in terms of
clause 30 of the PMC agreement read with clause 20 of the
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Com.A.A.No.316/2023
DWA. The applicant has issued notice invoking arbitration and
also issued letter seeking appointment of arbitrator. Therefore,
it is evident that BESCOM has no claim whatsoever against
TPCL. As there is no claim of BESCOM against TPCL, there is no
reason for BESCOM to invoke the Bank Guarantee.
16. The learned counsel for the respondent argued that the
Bank guarantee is issued by ICICI Bank in favour of the
respondent. The Bank has not addressed the bank guarantee in
favour of the applicant. (ii) The Bank Guarantee does not refer
to any clauses in the agreements executed the applicant and
the respondent. (iii) Paragraphs 25 and 26 clearly lay down that
the Respondent is not required to prove or to show ground or
reasons for the Respondent's demand for the sum specified
therein. The referred clauses make the bank guarantee
unconditional. (iv) Paragraphs 29 to 32 clearly establish that the
Bank Guarantee is independent of the agreements between
applicant and the Respondent. The said paragraphs read as
under:
"we further agree that no change or addition to or
other modification of the terms of the contract or of the
services to be performed there under or any of the
contract documents which may be made between you
and the consultants which may be made between you
and the consultant shall in any way release us from any
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Com.A.A.No.316/2023
liability under the guarantee, and we hereby waive
notice of any such change/addition or modification".
17. Re- Exception to the invocation of the Bank Guarantee. In
the present case applicant had not raised the issue of fraud.
The Hon'ble Supreme Court and Hon'ble High Courts have laid
down the said exception, which are fraud and irretrievable
injustice/harm. The learned respondent has relied Judgment of
Hon'ble Supreme court in Dwarikesh Sugar Industries Limited
vs. Prem Heavy Engineering Works (P) Limited and others. AIR
1997 SC 2477 wherein held that:
"21. Numerous decisions of this court rendered over
a span of nearly two decades have laid down and
reiterated the principles which the courts must apply
while considering the question whether to grant an
injunction which has the effect of restraining the
encashment of a bank guarantee. We do not think it
necessary to burden this judgment by referring to all of
them. Some of the more recent pronouncements on this
point where the earlier decision have been considered
and reiterated are Svenska Handelsbanken vs. Mis.
Indian Charge Chrome and Other. MANU/SC/0138/1994 :
AIR 1994 SC 626; Larsen and Toubro Limited Types
citation RRR
18. The learned counsel for the Respondent further argued
that this referred case law stated that the court before granting
an injunction on a Bank Guarantee must take two exceptions
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Com.A.A.No.316/2023
into accounts. First is that there is a fraud in connection to the
bank guarantee and second is that enhancement of such bank
guarantee would result is irreparable damage to the Plaintiff.
Since most of the bank guarantee is between the bank and the
beneficiary it is the duty of the Plaintiff to prove that the Bank
Guarantee falls under the two exceptions. It is also settled law
that existence of any dispute between the parties to the main
contract is not a ground for issuing an order of injunction to
restrain enforcement of bank guarantee (Ansal Engineering
Projects Limited vs. Tehri Hydro Development Corporation
Limited and Another: (1996) 5 SCC 450. The general rule is that
the beneficiary cannot be restrained from encashing the bank
guarantee, even if a dispute arises in the performance of the
underlined contract. The dispute, between the beneficiary and
the party at whose instance the bank has given the guarantee,
is immaterial and is of no consequence. Ordinarily, the court
should not interfere with the invocation or encashment of the
bank guarantee so long as the invocation is in terms of the bank
guarantee. (Standard Chartered Bank vs. Heavy Engg. Corpn.
Ltd., (2020) 13 SCC 574).
19. The Bank Guarantee is an independent and separate
contract, and is absolute in nature, existence of any dispute
between the parties to the contract is not a ground for issuing
47
Com.A.A.No.316/2023
an order of injunction to restrain enforcement of the bank
Guarantee. (Himadri Chemicals Industries Limited vs. Coal Tar
Refining Co., (200) 8 SCC 110 and Adani Agri Fresh vs. Mehboob
Sharif and Others, AIR 2016 14 SCC 517, Gujarat Maritime
Board vs. L&T Infrastructure Development Projects Limited and
Another ( 2016) 10 SCC 46. Invocation of a bank guarantee
does not depend on termination of the underlying contract. The
Bank Guarantee is a separate contract, and is not qualified by
the contract on performance of obligation. Whether the action
of the beneficiary is legal and proper, and whether on the basis
of such a decision, the bank guarantee could have been
invoked, are not matters of inquiry. Between the bank and the
beneficiary, the moment there is a written demand for invoking,
the bank is bound to honour the payment under the guarantee.
20. The Respondent contention that had already paid Rs.
1,64,73,091/- as on 09.09.2022 to the applicant according to
the terms of payment. The applicant had only completed 28%
of the work till date, 43% work was still in process and 29%
work is yet to start. The applicant cannot claim the payment for
the work which has not even completed. The work percentage
which has been completed and which are still pending is very
clearly stated in the letters exchanged by the applicant only.
The contract was initially valid for 24 months, but the
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Com.A.A.No.316/2023
agreement could be extended without incremental payment if
the proposed works were delayed. After the expiry of the
agreement, the applicant wrote a letter for extension. The
applicant were knowing the fact that if they have not completed
the work in 24 months, they will be in dire need of the
extension. But even after completing only 28% of work in 24
months, the applicant wrote a letter and requested for
extension on the date of expiry of the agreement. The
respondent thereafter considered the request for the extension
of PMC and confirmed the extension till 09.09.2023 without any
incremental payment. But in the meantime when the
respondent was considering the extension of the tenure, the
applicant terminated the agreement and removed their
resources from the project site. Meanwhile the Respondent on
17.02.2023 made part payment of Rs. 8,84,392/-.
21. In this regard the Respondent has relied upon a following
decisions:
Gowrishankara Swamigalu vs. Sri Siddhaganga Mutt 1989 (2)
Kar LJ 548 the Hon'ble High Court of Karnataka Held that
" II need hardly add the existence of a prima facie
case in these matters of granting injunction is really the
harbinger or the all clear sign to go ahead in
investigating other aspects of the question governing
the grant or refusal of injunction. If there was no prima
47
Com.A.A.No.316/2023
facie case at all or the case put forward was so weak
and tainted having very little prospect of being
accepted by the Court, further questions of balance of
convenience and irreparable loss need not be
considered since the plaintiff would fall at the very first
stile itself. But if there was a prima facie case then
other considerations governing the grant of injunction
"would come into play and will also have to be
evaluated before granting or refusing the injunction.
Best Sellers Retail (India) Private Limited vs. Aditya Birla
Nuvo Limited and others (AIR 2012 SC 2 448 )the Hon'ble
Supreme Court held that
Yet, the settled principle of law is that even where prima
facie case is in favour of the plaintiff, the Court will refuse
temporary injunction if the injury suffered by the plaintiff on
account of refusal of temporary injunction was not irreparable.
In Dalpat Kumar & Anr. v. Prahlad Singh & Ors. [(1992) 1 SCC
719] this Court held:
"Satisfaction that there is a prima facie case by itself is
not sufficient to grant injunction. The Court further has
to satisfy that non-interference by the Court would
result in "irreparable injury" to the party seeking relief
and that there is no other remedy available to the party
except one to grant injunction and he needs protection
from the consequences of apprehended injury or
dispossession. Irreparable injury, however, does not
mean that there must be no physical possibility of
repairing the injury, but means only that the injury must
be a material one, namely, one that cannot be
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Com.A.A.No.316/2023
adequately compensated by way of damages."
Dwarikesh Sugar Industries Limited vs. Prem Heavy
Engineerings Works (P) Limited and Others AIR 1997 SC 2 477
the Hon'ble Supreme Court held that
"It is unfortunate that the High Court did not
consider it necessary to refer to various judicial
pronouncements of this Court in which the principles
which have to be followed while examining an
application for grant of interim relief have been clearly
laid down. The observation of the High Court that
reference to judicial decisions will not be of much
importance was clearly a method adopted by it in
avoiding to follow and apply the law as laid down by
this Court. Yet another serious error which was
committed by the High Court, in the present case, was
not to examine the terms of the bank guarantee and
consider the letters of invocation which had been
written by the appellant. If the High Court had taken
the trouble of examining the documents on record,
which had been referred to by the trial court, in its
order refusing to grant injunction, the court would not
have granted the interim injunction. We also do not
find any justification for the high court in invoking the
alleged principle of unjust enrichment to the facts of
the present case and then deny the appellant the right
to encash the bank guarantee. If the High court had
taken the trouble to see the law on the point it would
have been clear that in encashment of bank guarantee
the applicability of the principle of undue enrichment
has no application."
47
Com.A.A.No.316/2023
22. The applicant has relied upon a decision:
Hindustan Construction Co. Ltd. vs State of Bihar and
Ors., (1999) 8 SCC 436, the Hon'ble Supreme Court has held
that where the party which invokes the Bank Guarantee, prima
facie, is at fault or breach of contract, the "special equities" lies
in the favour of the other party who had furnished the bank
guarantee. The relevant extract of the said judgment is
reproduced below:
"We have scrutinized the facts pleaded by the parties
in respect of both the Bank Guarantees as also the
document filed before us and we are, prima facie, of
the opinion that the lapse was on the part of the
defendants who were not possessed of sufficient funds
for completion of the work. The allegation of the
defendants that HCCL itself had abandoned the work
does not, prima facie, appear to be correct and it is for
this reason that we are of the positive view that the
"special equities" are wholly in favour of HCCL."
23. In the present case also the applicant has issued a several
letters by TPCL dated 11.02.2022, 13.05.2022, 05.01.2023 and
30.01.2023 to BESCOM seeking payment of the outstanding
dues in respect of the invoices issued by TPCL for the work
undertaken by it under the consultancy agreements. None of
these letters or the liability towards the outstanding due has
ever been refuted/disputed by BESCOM.
47
Com.A.A.No.316/2023
24. The Clauses of DWA, PMC Agreement, GCC and SCC are
not applicable in the present case as (i) the DWA has not been
terminated by the respondent but by the applicant (ii) the
events mentioned in the said clause which entitles the
respondent to invoke and/or encash the Bank Guarantee has not
arisen in the present case. There has not been any non-
compliance of the work or obligation under the Consultancy
Agreements or non-adherence of the provisions by the
applicant. Nor has the applicant failed to deploy the key and sub
key manpower or submit the report. Thus, the respondent is not
entitled to invoke and/or encash the Bank Guarantee under the
aforesaid clauses of DWA, PMC Agreement, GCC and SCC. It is
settled position of law that even in cases of unconditional or
unequivocal bank guarantees, a bank guarantee cannot be
invoked until the event given in the concerned contract for
invocation of Bank Guarantee arises.
25. It is a settled position of law that where the party which
invokes the bank guarantee is in breach of contract, special
equities lie in favour of the other party who had furnished the
bank guarantee. (Hindustan construction Co. Ltd vs. State of
Bihar and others, (1998) 8 SCC 436. The BESOM should not be
permitted to take advantage of its own wrong. Further, after a
long delay of months, BESCOM has now made part payment of
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Com.A.A.No.316/2023
the outstanding dues and if BESCOM is allowed to invoke and
encash the Bank Guarantee, it will unjustly enrich BESCOM,
which is not permissible under law. It is a settled position of law
that where a party commits breach of its obligation, it cannot
be allowed to take undue and unfair advantage of its own
wrong. In this regard relied upon a decisions that (Kusheshwar
Prasd Singh vs. State of Bihar and Others, (2007) 11 SCC 447,
State of Karnataka vs. Shree Rameshwara Rice Mills (1987) 2
SCC 160.
26. The work under the consultancy agreement could not be
completed in the specified period of two years. As it was a
consultancy agreement which required TPCL to supervise the
work allotted to turnkey contractor, TPCL could have supervised
the work only when the work was allotted by BESCOM to
turnkey contractor. The multiple correspondences issued by
TPCL establishes that it was due to the failure of BESCOM to
award work to turnkey contractor due to which the consultancy
agreement could not be completed within the specified period
of two years.
27. Ofcourse as per the consultancy contract that 60% of the
consultancy contract amount shall be paid upon completion of
the individual work wise basis. 30% of the consultancy contract
amount shall be paid upon the commissioning of the individual
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Com.A.A.No.316/2023
work wise basis. 10% of consultancy contract amount shall be
paid upon the acceptance of the final project completion report.
28. It is the case of the applicant that it has incurred huge
cost. The Respondent contention that they had already paid
1,64,73,091/- to the applicant according to the terms of the
payment and applicant had only completed 28% of the work till
date, 43% of work was still in process and 29% work is yet to
start all these allegations and counter allegations are subject to
adjudication of the arbitration.
29. It is evident on the record that the respondent after
considering all the pending work which is to be performed by
the applicant, the respondent had again extended the PMC
contract period and provided maximum extension upto
09.09.2023. Whether the delay of completion of work is
attributable on the part of the applicant or on the part of the
respondent this point has to be considered before the
arbitration. So, at this stage there is no allegation by the
Respondent against the applicant regarding the non-
completion of work, till the termination of agreement issued by
the applicant. The Respondent has not communicated any
correspondence regarding the non satisfaction of the work or
delay in work by the applicant and further they have extended
the work only after issuance of the termination of contract. So,
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Com.A.A.No.316/2023
at this stage in view of decision of (Hindustan construction Co.
Ltd vs. State of Bihar and others). In the present case also,
there is no document before this court to shows that the lapse
was on the part of the applicant for non-completion of the
work . Further till the issuance of termination of contract notice
the Respondent to the Applicant for payment of outstanding
and also in respect of extension of work. As above discussed, till
the issuance of termination of notice, the Respondent were not
made any allegations against the applicant regarding the work
performance of the applicant. So, I hold that the applicant is
made out a prima-facie case for grant of interim protection
order in view of Special equities. Further, balance of
convenience lies in favour of the Respondent.
30. Further in case special equities lie in favour of the other
party who had furnished the bank guarantee. If the present
application is not allowed and the respondent is allowed to
invoke and/or encash the Bank Guarantee in favour of the
applicant, then the CIBIL score of the applicant may also be
adversely impacted, which cannot be cured by any amount of
financial compensation. So, by considering all these facts to
necessitates passing the present injunction as sought by the
Applicant. Therefore, I answer this Point in the
"Affirmative".
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Com.A.A.No.316/2023
31. Point No. 2 :- Therefore, I proceed to pass the following
Order.
ORDER
The Petition filed under Section 9 of Arbitration and Conciliation Act 1996, is allowed.
The Respondent their its agents, assigns, authorized representatives etc., restrained from invoking and encashing the Bank Guarantee bearing No. 0393NDLG00101721 amounting to Rs. 15,12,200/- issued by the applicant to the respondent.
The Office is directed to send copy of this Order to the Petitioner and Respondents to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Stenographer, typed by her directly on the computer, verified and pronounced in the open court on 30th day of January 2024).
(SUMANGALA S BASAVANNOUR) LXXXII Addl. City Civil & Sessions Judge, Bengaluru.