Andhra HC (Pre-Telangana)
M/S. Techtrans Construction India Pvt. ... vs M/S. Reliance Utility Engineers ... on 26 September, 2014
Bench: R. Subhash Reddy, A. Shankar Narayana
HONBLE SRI JUSTICE R. SUBHASH REDDY AND HONBLE SRI JUSTICE A. SHANKAR NARAYANA
C.M.A. Nos.518 OF 2014 and batch
26-09-2014
M/s. Techtrans Construction India Pvt. Ltd.,Ksheeraabd Constructions Pvt. Ltd.,
Joint Venture Represented by its authorized signatory Majid Khalil
Khalili..Appellant
M/s. Reliance Utility Engineers Limited (formerly known as M/s. Utility
Energytech and Engineers Pvt. Ltd.,) & another ..Respondents
Counsel for the appellant:Sri D. Prakash Reddy, Sr. Adv.
for Sri T. Sharath
Counsel for respondent No.1:Sri S. Ravi, Sr. Adv.
for Ch. Pushyam Kiran
<GIST:
>HEAD NOTE:
? CASES REFERRED:
1. (1994) 1 SCC 502
2. (1988) 1 SCC 174
3. (2006) 13 SCC 599
4. (2007) 8 SCC 110
5. (2007) 6 SCC 470
6. (2008) 1 SCC 544
7. (2008) 7 SCC 290
8. 566 Fed Supp. 1210
9. (1984) 1 A11E.R.351
10. (1997) 1 SCC 568
HONBLE SRI JUSTICE R. SUBHASH REDDY
AND
HONBLE SRI JUSTICE A. SHANKAR NARAYANA
C.M.A. Nos.518 AND 519 OF 2014
COMMON JUDGMENT:(Per Honble Sri Justice A. Shankar Narayana) These two miscellaneous appeals are preferred under Section 37 of Arbitration and Conciliation Act, 1996, aggrieved of the common order, dated 2nd April, 2014, in O.P. Nos.154 and 178 of 2014, passed by the learned II Additional Chief Judge, City Civil Court, Hyderabad, by the petitioner in both the O.Ps.
2. In O.P. No.154 of 2014 filed under Section 9 of the Arbitration and Conciliation Act, 1999 (for short the Act), the petitioner sought direction restraining the 1st respondent not to en-cash the bank guarantees invoked by it issued by the 2nd respondent and also restraining the 2nd respondent from honouring/disbursing the guarantee amount under both bank guarantees shown in the schedule furnished by the bank to the 1st respondent. In O.P. No.178 of 2014 filed under Section 9 of the very same provision, petitioner sought the relief to restrain the 1st respondent from presenting the D.D. No.169498, dated 31-12-2014 for Rs.10,00,00,000/- issued by the State Bank of India, Commercial Branch, Secunderabad 2nd respondent payable at State Bank of India, Main Branch, Mumbai and D.D. No.169498, dated 31-01-2014, for a sum of Rs.16,72,50,000/- issued by the 2nd respondent payable at the State Bank of India, Main Branch, Mumbai for encashment of the same and also to restrain the 2nd and 3rd respondents or any of their branches from honouring the said two D.Ds. and paying the amounts on presentation of the same by the 1st respondent for encashment and also to pass an injunction restraining the 2nd respondent from enforcing the securities deposited by the petitioner with them.
3. During the pendency of both the petitions before the Court below, the interim orders passed on 03-02-2014 and 05-02-2014 respectively in the said O.Ps., were vacated by the final common order, dated 02-04-2014.
4. The fact-situation occurring in both the original petitions for the purpose of disposal of these appeals are concerned is, originally, TK Toll Road Pvt. Ltd. entered into a concession agreement with National Highway Authority of India (NHAI) on 19-07-2007. The said company in turn entered into an EPC contract with M/s Reliance Utility Engineers Limited, the 1st respondent herein on 31-01-2008. The 1st respondent was formerly known as Utility Energy-tech and Engineers Pvt. Limited, but in the year 2010, its name was changed and came to be known by its present nomenclature. The 1st respondent, in turn, sub-delegated the work assigned to it by entering into a construction agreement with M/s. Techtrans Construction India Pvt. Ltd. and Ksheeraabad Constructions Pvt. Ltd., joint venture, the appellant herein on 14-03-2008.
i) The scope of the work so far as the contract between the petitioner and the 1st respondent is concerned, it was limited to laying the road chainage, which in turn was divided into two sections, wherein the 1st respondent covered the chainage from Km. 0.00 to Km.17.00 (Trichy by-pass) and Km.153.23 to Km.190.00, and the second section covered the chainage from Km.190.00 to Km.218.00, admeasuring a total length of about 80 Kms.
ii) The terms of contract makes a provision for completion of the road chainage within 27 months from the initiation of the contract.
A period of 30 months was provided for the said purpose and the land would be acquired and handed over to the Concessionaire within 12 months from the date of the concession agreement. The 1st respondent entered into the construction agreement three months after the date of concession agreement and, therefore, the period of completion was fixed as 27 months from the date of initiation as per the construction agreement. As per Article 5.1, responsibility is cast on the 1st respondent to procure the land and provide the same for construction to the petitioner.
iii) As per further terms, a performance bank guarantee for Rs.16,72,50,000/- was to be furnished by the petitioner in favour of the 1st respondent, and the petitioner got a counter guarantee issued by the bank Tejarat, Iran in favour of State bank of India, Overseas Branch, Mumbai, which in turn issued a bank guarantee to the petitioner for the said sum. The petitioner presented the said bank guarantee to the 2nd respondent with a request to issue a back-to-back guarantee in favour of the 1st respondent and executed a power of attorney in favour of the 2nd respondent empowering it to encash the bank guarantee lodged with them by the petitioner in the event of back-to-back guarantee issued by them is encashed. It is also stated that the banks had a cushioning period of one month where the bank guarantee of the 2nd respondent would expire first, and the other bank guarantees would follow. Along with that performance bank guarantee, the 2nd respondent issued another bank guarantee for Rs.10,00,00,000/- on stand alone basis in favour of the 1st respondent to secure the advance payment made to the petitioner by the 1st respondent under the contract.
iv) It is stated owing to the inability of the 1st respondent to provide the land under Trichy by-pass (17 Kms.), the scope of the contract value was reduced by about Rs.120 Crores, and had the said stretch also been made available to the petitioner, there would have no out-standing under the mobilization advance. The details of bank guarantees issued by the petitioner in favour of the 1st respondent are thus:
S.No. Type of BG Amount Bank BG No. Dated 1 ABG Rs.10,00,00,000 SBI 0325708BG0000009 13.03.2008 2 PBG Rs.16,72,50,000 SBI 0325708BG0000013 20.08.2008
v) The petitioners case is that performance of bank guarantee was initially issued on 20-08-2008 and the same was being extended from time to time and was valid up-till 20-12-2013 and the 1st respondent having lodged its demand for Extend or Pay before the expiry of said validity date, permitted the petitioner to submit duly validity extended bank guarantee bond on or before 31-01-2014.
Thus, the advance payment bank guarantee was valid up-till 12-03-2014. Since it was found that the finishing of project within the scheduled time was proving to be impossible as the site was not handed over by the 1st respondent, the 1st respondent issued a letter to the petitioner dated 08-06-2012, asking the petitioner to extend the time of the bank guarantee till 31-12-2012 which was the scheduled date of completion of the project. The petitioner, in turn, reverted to the letter stating that the project was to be completed within 27 months, and the 1st respondent failed in procuring the land as promised due to which, it (petitioner) incurred huge loss, but despite the same, the 1st respondent insisted on the petitioner to extend the date of bank guarantee on which alone, the petitioner has been extending the validity of the bank guarantee, even though they were not contractually bound to do so, as the original contract has expired long ago and under the threat of the 1st respondent.
vi) The petitioner also states that even by the date of filing the petition, the 1st respondent was yet to procure some of the land for completion of the road and, thus, it reflects the negligent attitude of the 1st respondent on account of which, the petitioner, who deployed a huge number of men and machinery, incurred great losses, despite extending the bank guarantees only with a good intent of finishing off the work.
vii) The petitioner states that according to the letter, dated 03- 05-2012 of NHAI, only 87% of the total stretch for the project was handed over as on 31-03-2012 which, thus, clearly shows that the land supposed to be provided for construction of the highway was not provided, thus, making it impossible for the completion of the project.
viii) The petitioner states that the extension of the bank guarantee by the State Bank of India, Overseas Branch, Mumbai was delayed by a few days, as the request for the extension went up to the extent of Managing Director which fact was informed by the petitioner to the 1st respondent with reasons, but the 1st respondent replied that the delay can be done away with if a letter on the official letter head of the 2nd respondent addressing the reasons for the delay was sent to it. Pursuant to the same, the petitioner requested the appropriate officer of the 2nd respondent seeking a letter to that effect. But, while the things stood thus, to its surprise, a letter of encashment of bank guarantee, dated 30-01-2014, was received from the 2nd respondent wherein the 1st respondent asked the 2nd respondent to honour the bank guarantee and disburse the amount.
ix) Thus, the petitioner sets out the fraud in paragraph Nos.13 and 14, alleging that dispute has arisen when the 1st respondent fraudulently invoked the bank guarantees in spite of being aware of the fact that there was a lapse on its part, and the fact that the petitioner had already extended the additional bank guarantee for Rs.10,00,00,000/- and was actively working on the process for the extension of the performance of bank guarantee for Rs.16,72,50,000/-.
x) The petitioner, thus, claiming that in view of default on the part of the 1st respondent in not providing the site for construction of work and suffering huge losses quantified at Rs.175 Crores, states that the action of the 1st respondent embarking upon a fraudulent course of invoking the bank guarantees with a fraudulent motive of blocking the funds of the petitioner, amounts to fraud.
xi) It is also stated that the 1st respondent despite knowing the fact that the present bank guarantee serving its performance of defect liability and that there are no defects identified by it (1st respondent), which makes the demand for encashment of performance of bank guarantee illegal and fraudulent. The petitioner, therefore, claims that he has a strong prima facie case and in case the relief is refused it would be put to irreparable loss and damage and even balance of convenience lies heavily in its favour.
xii) The petitioner also states that arbitration proceedings have been initiated by it on 03-02-2014 by issuing a notice for arbitration.
5. 1st respondent filed its counter on 28-02-2014, resisting the request and the allegations levelled by the petitioner.
i) The 1st respondent states that bank guarantee is an independent and separate contract and is absolute in nature; that the Honble Supreme Court held that the Courts ought to be slow in granting an injunction against realization of a bank guarantee except on the ground of fraud of an egregious nature which would vitiate the foundation of bank guarantee and encashment of bank guarantee would result in irretrievable harm or injury to one of the parties concerned, and in the present case, even assuming that the petitioner does not have a case on merits, there is no fraud involved in procuring the bank guarantee, its invocation and encashment. Even the allegation touching fraud made by the petitioner are vague and it is set up only for the purpose of obtaining the relief of interim measure.
ii) The 1st respondent also states that the petitioner is guilty of Suppressio veri Suggestio falsi, as the petitioner deliberately did not bring several facts that are relevant to the present case to the notice of the Court. According to the 1st respondent, there was no section-wise division of the project envisaged in the construction of contract and the contract was awarded on item rate basis for the construction of the entire Project Highway. It is according to the 1st respondent, the concession agreement is an independent contract between NHAI and the Concessionaire (TK Toll Road Pvt. Ltd.) and the date of commencement of work under the concession agreement was 15-01-2008 and the work for the project commenced on 12-01-2008 based on the terms of the letter of intent issued to the petitioner by it and the construction work was formally executed subsequently on 14-03-2008 which incorporated the actual commencement date as 12-01-2008.
iii) The 1st respondent also states that Clause 4.1 of the construction contract records the commencement date as 12-01-2008 and it is also evident from the Scheduled Project Completion Date referred as 11-04-2010 in clause 25.1 of the contract and, therefore, the statement of the petitioner that there was delay of three months in commencement of work and that the construction period of 27 months was fixed due to that delay is not correct. Even, Schedule H Site Handing Over and Project Completion Schedule of the construction contract shall be immediately upon the Concessionaire/EPC Contractor receiving the same from NHAI.
iv) It is stated that Clause 1.5.4 read with performance of bank guarantee format provided at Schedule F, obligates the petitioner to furnish the performance bank guarantee to the extent of 5% of the contract price and, accordingly, a bank guarantee of Rs.16.725 Crores by itself and Rs.9.25 Crores through its Sub-contractor totalling to Rs.25.975 Crores was furnished. Under Clause 39.3, the petitioner was entitled to a mobilization advance payment of 10% of the contract price towards mobilization against submission of bank guarantee of equivalent amount, and the recovery of mobilization advance shall start after 20% of financial progress or 8 months from the commencement date whichever is earlier and complete by the time 80% of the financial progress is achieved. Accordingly, based on the mobilization advance bank guarantee submitted by the petitioner and as per the contract conditions, the advance of Rs.51.95 Crores was paid to the Contractor.
v) The 1st respondent claims that right from the date of commencement of the work, the petitioners rate of progress of work was very slow and it has issued notices to the petitioner in that regard, due to which, it (1st respondent) could not recover the advances as envisaged under the construction contract. The 1st respondent also states that the mobilization advance yet to be recovered by the date of filing counter was Rs.8.09 Crores. Besides, as per Clause 39.3, the 1st respondent had paid advance against material brought by the construction contractor for the execution of the work and the advance has to be recovered when the material is incurred in the works through the running account bill. But, the material advance paid could not be recovered fully as the petitioner could not execute the work and the amount to be recovered is to the tune of Rs.8.1 Crore.
vi) The 1st respondent also states that in order to assist the petitioners cash flow, it had paid Rs.5.00 Crores as the advance amount and Rs.10.00 Crores as additional advance (Term Loan) without even getting any bank guarantee to which, Rs.3.00 Crores towards ad hoc amount paid stands due and on the date of filing counter, the petitioner was due to repay ad hoc advance of Rs.2.00 Cores and additional advance of Rs.10.00 Crores. Thus, the outstanding amount under various advances yet to be paid by the petitioner, stands at Rs.28.19 Crores (Mobilization Advance Rs.8.09 Crore; Material Advance Rs.8.1 Crore; Ad hoc Advance Rs.2.00 Crore; and Additional Advance Rs.10.00 Crore).
vii) The letters repeatedly addressed by the 1st respondent to the petitioner would reflect the tardy progress of the work that the petitioner was obligated under the contract to mitigate for completion and the petitioner deliberately did not file the said letters, despite fully aware of the fact that the delays in execution of work were only on its part.
viii) the 1st respondent specifically averred that since the petitioner could not execute the work at its own capacity, it (1st respondent) had to get some of the works executed by other contractors and payment was made to them directly by it on behalf of the petitioner, that too, since the petitioner has given its consent for payment by it (1st respondent) to the sub-contractors directly.
The 1st respondent also filed a copy of the letter reflecting the consent given by the petitioner to make payment to the sub-contractors by the 1st respondent.
ix) The 1st respondent states that there is a hold on the Trichy By-pass construction work based on Honble High Court of Madras, Madurai Benchs order for a length of 5 KMs. whereas, the petitioner stopped the entire works in the Bypass for a long time. But, the petitioner is trying to divert the attention of the Court by stating reduction in scope, whereas the petitioner did not work in other available stretches of Trichy Bypass.
x) The 1st respondent also states that even the interpretation that the bank guarantees are issued only for the security purpose or for safety of the parties in case of lapse on the part of other party, is incorrect. According to the 1st respondent, the petitioner stopped all the works at site and started demobilizing its resources, and it had addressed several letters to the petitioner advising not to demobilize its resources without obtaining its consent, but the petitioner did not pay heed to that request made through letters and persisted in demobilizing the resources. Thus, the advances to be recovered from the petitioner are to the tune of Rs.28.19 Crores, whereas, the bank guarantee available for such advances was only for Rs.10.00 Crore.
xi) Concerning extension of bank guarantees, the petitioners stand that they are not contractually bound to extend the bank guarantee, as the original contract has expired long ago is incorrect, for the reason that the petitioner had extended the bank guarantees and the said bank guarantees were unconditional and irrevocable.
xii) Concerning handing over of site, the 1st respondent states that Schedule H of the contract provides that the site would be handed over to the construction contractor (petitioner) immediately upon the EPC contractor (1st respondent) receiving the same from NHAI. The 1st respondent, accordingly, was handing over the land to the petitioner as and when the land was being handed over to it by NHAI, that too, encumbrance free land to the petitioner, but the petitioner failed to make construction on the land that was handed over to it, despite Clause 7.1.5 (p) of the construction agreement stipulating that The Construction Contractor (i.e. Petitioner) is to work in optimizing the use of site handed over to them, and as per Clause 7.1.5 (ee) that the Construction Contractor shall assist the EPC Contractor/NHAI/Govt. agency in performing functions under contract of National Highways (Land Traffic) Act,2002 to the extent directed by NHAI/Govt agency under Concessionaire Agreement. The 1st respondent, therefore, states that the petitioner was not prevented from carrying on work and completing the construction in the land handed over to it and the non-completion was on account of its own inefficiency and lethargy.
xiii) Concerning the statement of the petitioner that it is entitled for Rs.175 Crores towards compensation, 1st respondent states that it is without any basis and fanciful which requires to be substantiated with adequate evidence.
xiv) The details as regards the amount paid by the 1st respondent to the petitioner expressing that with a view to support the petitioner in early completion of the works such advances were paid which were already referred to in the above.
xv) The 1st respondent states that since the petitioner started demobilizing its resources, despite addressing various notices by it not to do so, as the works were not yet completed, it (1st respondent) was left with no other option but to encash the bank guarantee.
xvi) While summing up, the 1st respondent contends that the petitioner is not in the defects liability period, and the Trichy Bypass work has been left abandoned by the petitioner even after repeated notices to resume the works. It is according to the 1st respondent that neither there is strong prima facie case nor balance of convenience, nor the irreparable loss that cannot be recouped in favour of the petitioner to seek the relief of injunction.
6. The 2nd respondent State Bank of India, Commercial Branch at Secunderabad filed its counter on 18-03-2014.
i) It states that by the date of receipt of interim orders, dated 03-02-2014, received at their branch on 04-02-2014, it has already despatched the demand drafts to the respective beneficiaries i.e. the 1st respondent and M/s Reliance Innoventure Private Limited. It made its appearance on 03-03-2014 through its advocate.
ii) It also states that it received the interim order in arbitration O.P. No.178 of 2014 on 12-02-2014, requiring its appearance on 03- 03-2014 and it made its appearance through its advocate.
iii) 2nd respondent has referred to the bank guarantees which are adverted to in the above while narrating the pleadings of the petitioner and the 1st respondent.
iv) 2nd respondent also states that the 1st respondent moved this Court against the interim orders in O.P. Nos.154 of 2014 and 178 of 2014 and this Court directed the Court below to decide the interim orders on or before 18-03-2014. According to it, due to the interim orders, the 1st respondent beneficiary could not encash the bank guarantees and, stated that it agrees to abide by the orders of the Court in the matter of payment of the two bank guarantees.
7. The petitioner has also filed reply to the counter affidavit submitted by the 1st respondent, in order to controvert the allegations.
i) The petitioner states that even assuming that the bank guarantees are independent in nature, but they were specifically issued for the purpose of security till 12 months plus 90 days after completion of the work to serve defect liability period and the same can be invoked in case of non performance or if the petitioner is notified of the defect. According to the petitioner, the COD was achieved and the 1st respondent started collecting toll tax after entering into a supplementary agreement with NHAI, and that itself is sufficient enough to show that the project was complete, and the 1st respondent is falsely claiming that the project is not complete and, therefore, claims that the said circumstance is sufficient enough to show the fraudulent intent of the 1st respondent which is an egregious nature.
ii) It is contended that earlier, the petitioner mentioned in its affidavit that the claims may amount to Rs.175.00 Crores, but on computation of cost and time over runs on the basis of well- established trade practices applicable to the business of Engineers and Contractors Claims and Compensations, the figure went up to Rs.421.80 Crores and the petitioner has undertaken to keep the bank guarantee in force and valid till such time the arbitral award is passed by the Arbitrator and the petitioner should have no objection whatsoever for accepting the proposal and proposition put forth by the petitioner.
iii) The petitioner also states that the 1st respondent has made a serious insinuation that the petitioner is guilty of suppressing material facts. The petitioner states that in fact, the 1st respondent is guilty of suppressing the material facts, inasmuch as in their counter affidavit they stated about letters written by the 1st respondent to the petitioner, but failed to list out the letters written by the petitioner in reply to the 1st respondents letters, though, they were numbering as many as 47 letters addressed to the 1st respondent with regard to acquisition of land and 172 letters with regard to obstructions in the form of agricultural lands, dwelling units, electric and telephone poles and lines, temples, canals, bunds, sewerage pipelines and forest land clearance. So, it is, according to the petitioner, that mere handing over of the land is not sufficient to commence the work, and all the obstructions are to be removed before road laying work can be commenced which responsibility lies on the 1st respondent.
iv) The petitioner also states that as per the construction programme submitted by it the two major milestones are, one relating to furnishing of approved drawings of construction of Highway as well as Structures, shall commence from 57th day of Contract Commencement and should end on or before 479th day i.e., at the end of 16th month, and the second relating to acquisition of land and handing over the same free from encumbrances and obstructions which should commence from 57th day of commencement of contract and should terminate 510th day of contract of commencement i.e. by the end of 17th month, and progress under both the above parameters should be in a phased and progressive manner and accomplishing the same at the fag end cannot result in timely completion of the contract, and the same has been adequately captured in the Machinery Deployment Programme (Histogram).
v) The petitioner claims that considering the work done at the end of October, 2013 as the value of work that was executable under the contract, it accomplished 73.54% of the work by the end of June, 2011; 95.45% by the end of October, 2012 and barely 4.5% during the period of from November, 2013 to October, 2013, thus, the same would expose the hollowness of the allegations made by the 1st respondent against it in regard to the petitioners ability to perform and actual performance.
vi) The petitioner also claims that as per Clause 8.1 of the Agreement, it is entitled to get the select project work or whole of the work done by any Sub Contractors, and as per clause 39.11, the petitioner is also entitled to advise/request the 1st respondent to make direct payments to the suppliers/sub-contractors upon petitioners certification and, therefore, there is no illegality or unauthorized action on the part of the petitioner on this count and the 1st respondent attempted to deliberately mislead the Court that they have made such payments in view of petitioners failure to make those payments.
vii) According to the petitioner, the 1st respondent has admitted that the land in the project road chainage, that too, only 87% of the total chainage is given over a period of 60-66 months, as against the original contract tenor of 27 months, that too, in 168 installments which by itself would establish that delivery of land was not only delayed, but has taken place in such small bits and pieces, which is technically non-viable to ensure optimum and economic use of heavy plant and equipment. But, despite heavy odds including financial constraints, the petitioner continued and completed the work.
viii) It is, according to the petitioner, that on account of unprecedented time and cost over runs in the project, it suffered heavy financial losses in the project and all loan accounts with the Financiers and Banks turned irregular and non-performing assets attracting punitive recovery action from. The petitioner once again reiterated that its readiness to keep the bank guarantees furnished to the 1st respondent in force till the arbitral proceedings are completed shows its bonafides and, thus, claims that the balance of convenience lies in its favour.
8. During enquiry, the Court below, having referred to the factual aspect, respective contentions and the decisions, on which reliance was placed by the respective parties, observing that the petitioner failed to execute the work by delaying construction of works since beginning and abandoned the site by demobilising its resources despite the advice of the 1st respondent not to do so without its consent and since there was no response from the petitioner, the 1st respondent engaged third parties and got the work completed by making payment directly to them on behalf of the petitioner, for which the petitioner has given its consent for such payment by the 1st respondent to pay directly by its letter, dated 16-12-2013; second, the work performance guarantee and advance guarantee furnished by the petitioner in favour of the 1st respondent since unconditional, by rejecting the contention of the petitioner that they are deemed to be conditional bank guarantees, as no evidence was produced by the petitioner to support that the guarantees are conditional bank guarantees; third, the 1st respondent has advanced the amounts as ad-hoc advance, additional advance, and the amount stood due was to the tune of Rs.28.19 crores by the petitioner; fourth, the plea of fraud put-forth by the petitioner since stood unsubstantiated, in the light of the decisions relied on by the 1st respondent and opining that no irretrievable injury will be caused to the petitioner by refusal of grant of injunction; fifth, that the disputes between the parties to the contract is not a ground for issuing an order of injunction to dishonour the bank guarantees given by the bank; and last, that right to remedy to recover the amounts from the 1st respondent since available, if it establishes the same either before the arbitral Tribunal or in a suit, dismissed both the petitions.
9. It is the said common order, which is impugned in the instant appeals contending that the Court below did not appreciate the material on record on proper lines and instead of tendering finding that the bank guarantees are not unconditional and conditioned by the terms contained in them and that the 1st respondent could have invoked the bank guarantees only under the terms and conditions set out in clauses of the bank guarantees held otherwise. It is also stated that despite the factual aspect establishing that the bank guarantees were invoked by the 1st respondent in a fraudulent manner even after completion of the project and after entering into a supplementary agreement with NHAI for collecting toll taxes, still, rejected the request. It is, still, further contended that the appellant would suffer irretrievable loss as it has already completed the project and the notification would also have adverse effect on the future projects of the appellant apart from incurring huge monetary losses, still, the Court below, did not appreciate the said vital aspect of the case. It is, further more, contended that the Court below overlooked the fact that the central issue of the dispute is as to whether the notification of the bank guarantee by the 1st respondent was in accordance with the terms of the bank guarantee itself. Therefore, sought to set aside the order under challenge in both these appeals and grant the reliefs prayed in both the O.Ps.
10. Heard Sri D. Prakash Reddy, learned senior counsel, appearing for Sri T. Sharath, learned counsel for the appellant in both the appeals, and Sri S. Ravi, learned senior counsel, appearing for Ch. Pushyam Kiran, learned counsel for the 1st respondent in both the appeals.
11. Learned counsel for the appellant contends that since the 1st respondent is obligated with the duty to provide land and handover the same free from encumbrances and obstructions as per the terms of contract and since the chainages were not provided sufficiently in advance before the expiry of period of work for completion thereof, it totally disabled the appellant from completing the project work. It is also his submission that only 87% of the total chainages was given over a period of 60 to 66 months as against the original contract tenure of 27 months that too in huge number of instalments, which disabled the appellant to complete the project work within the stipulated time. The learned counsel also contends, the very fact that at the instance of the 1st respondent, bank guarantees have been extended from time to time is sufficient enough to prove the bona fides of the appellant and the total lapses on the part of the 1st respondent. It is further contended that the 1st respondent on one hand made request for extension of bank guarantees and the appellant pursuant thereto made efforts to extend the bank guarantees as desired by the 1st respondent, still, strangely the 1st respondent invoked the bank guarantees without intimation to the appellant and that itself would reflect that the 1st respondent fraudulently did so, and, thus, that circumstance itself is sufficient enough to cull out the clear fraud of the 1st respondent which entitles the appellant for grant of injunctions as requested. It is also contended that the alleged consent said to have given by the appellant for payment of amounts to the third parties who executed the remaining work would not assist the 1st respondent to contend that there were no equities in favour of the appellant for the reason , as per Clause 8.1 of the agreement, appellant is entitled to get the select project work or whole of the work done by any sub-contractor and as per Clause 39.11, appellant is also entitled to advise/request the 1st respondent to make direct payments to the suppliers/sub-contractors upon appellants certification, and, therefore, there was no illegality or unauthorised action on the part of the appellant in giving consent, but the 1st respondent taking undue advantage of the same, attempted to deliberately mislead the Court stating that they have made such payments in view of the appellants failure to make those payments. It is also contended that on account of the lapse on the part of the 1st respondent in not making available the chainages and only 87% of total chainage was given over a period of 60 to 66 months and the fact that still, the balance was remaining on the date of filing of the petition, is sufficient enough to hold that special equities favour the appellant for grant of injunctions.
12. Learned counsel for the 1st respondent, while refuting the contentions of the learned counsel for the appellant, reiterated the submissions made in the counter affidavit filed by the 1st respondent. Learned counsel also projected the well settled propositions of law touching the power of the Court to grant injunctions in situations like the one obtaining in the instant case. The learned counsel contends that the Courts are empowered to grant injunctions when there is clear established fraud played by the beneficiary and such fraud must be of egregious nature as to vitiate the entire contract itself and when there are special equities in favour of persons seeking injunction, such as irretrievable injury or irretrievable injustice would occur if such injunction is not granted. It is, still, further contended that the Court below did not commit any error in refusing to grant the relief as it found that neither the appellant established clear fraud nor special equities and, therefore, the order under challenge does not warrant interference. It is, still, further contended that the bank guarantees are unconditional and constitute independent contracts, since the stipulation contained therein specifies that the banker is bound to honour any demand that may be made by the 1st respondent.
13. To fortify the above submissions, the learned counsel has placed reliance on the decisions of the Honble Supreme Court in Svenska Handelsbanken v. M/s Indian Charge Chrome and others ; U.P. Coop. Federation Limited v. Singh Consultants and Engineers (P) Limited ; Reliance Salt Limited v. Cosmos Enterprises and another ; Himadri Chemicals Industries Limited v. Coal Tar Refining Company ; Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. Ltd. And anr. ; Vinitec Electronics Private Limited v. HCL Infosystems Limited ; and Bank of India v. Nangia Constructions (I) Private Limited and others .
14. The learned counsel for the 1st respondent placed reliance on Svenska Handelsbankens Case (Supra 1) to project the proposition laid by the Honble Supreme Court that when fraud is alleged to invalidate the written agreement, the same has to be proved by material and evidence and, mere pleadings do not make a strong case of prima facie fraud as pleadings make only allegations or averments of fact, and that the Court prima facie debarred from looking at various proposals, drafts, project reports, before the contract executed. The learned counsel also relied on this decision for further proposition that a confirmed bank guarantee/irrevocable letter of credit cannot be interfered with unless there is established fraud and irretrievable injustice involved in the case, and the irretrievable injury has to be of the nature noticed in Itek Corporation v. The First National Bank of Boston etc.
15. The learned counsel also relied on the decision in U.P. Coop. Federations Case (Supra 2), wherein while dealing with the case of fraud, it was held by the Honble Supreme Court that the fraud must be egregious nature, such as to vitiate the entire underlying transaction, further holding that while coming to a conclusion as to what constitutes fraud, quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank and Ors , in paragraph No.56, by extracting the observations, thus:
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 banks 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 banks credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it discharged.
16. Concerning the second exception, the Honble Supreme Court extracted paragraph No.14 in U.P. State Sugar Corporation v. Sumac International Limited , to the effect that:
to avail of this exception, therefore, exceptional circumstances which make it impossible for the guarantor to reimburse himself if he 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 Itek case (Itek Corpn. V. First National bank of Boston, 566 Fed Supp 1210) 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 entitled to receive the amount paid under the guarantee.
17. In Reliance Salt Limiteds Case (Supra 3), the Honble Supreme Court referred to the definition of fraud occurring in Section 17 of the Indian Contract Act, 1872 in paragraph 15 thus:
15. "Fraud" is defined in Section 17 of the Indian Contract Act, 1872 in the following terms:
17. Fraud defined.- Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it;
(4) any other act fitted to deceive; (5) any such act or omission as the law specifically declares to be fraudulent.
Explanation. - Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
The Honble Supreme Court while referring to the definition contract of guarantee defined under Section 126 of the Contract Act in the same case held that when a contract of guarantee was sought to be invoked, it was primarily for the bank to plead a case of fraud and not for a promisor to set up a case of breach of contract, which observations are contained in paragraphs 18 and 19 thus:
18. "Contract of guarantee" is defined under Section 126 of the Indian Contract Act in the following terms:
126. 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor' - A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor' and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written.
19. Bank Guarantee constitutes an agreement between the Banker and the Principal, albeit, at the instance of the promisor. When a contract of guarantee is sought to be invoked, it was primarily for the bank to plead a case of fraud and not for a promisor to set up a case of breach of contract.
18. In Himadri Chemicalss Case (Supra 4), the Honble Supreme Court referring to the decision in U.P. State Sugar Corporations Case (Supra 10) stated that two exceptions for grant of an order of injunction to restrain enforcement of bank guarantee or letter of credit, laid down in the said decision were, (1) fraud committed is in the notice of the bank, which would vitiate the very foundation of guarantee and (2) injustice of the kind which would make it impossible for the guarantor to reimburse himself.
The Honble Supreme Court referred to the principles laid down in U.P. Coop. Federation Limiteds Case (Supra 2), touching what constitutes fraud and the exceptions which were already referred to in the above by us.
19. Having referred to the observations in U.P. State Sugar Corporations Case (Supra 8) and U.P. Coop. Federation Limiteds Case (Supra 9), the Honble Supreme Court laid down the following principles that should be noted in the matter of injunction to restrain the encashment of bank guarantee or letter of credit, thus:
(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realize such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.
(ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.
(iii) The courts should be slow in granting an order of injunction to restrain the realization of a bank guarantee or a letter of credit.
(iv) Since a bank guarantee or a letter of credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit.
(v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation.
(vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned.
20. The learned counsel also relied on the decision in Mahatma Gandhi Sahakra Sakkare Karkhanes Case (Supra 5) for the proposition that if the bank guarantee furnished is an unconditional and irrevocable one, it was not bound to the bank to raise any objection whatsoever to pay the amounts under the guarantee, in the context of answering the question whether the bank guarantee is a conditional one or not.
21. In Vinitec Electronicss Case (Supra 6), the Honble Supreme Court while reiterating the principles summarized in the decision in Himadri Chemicals Industries Ltd. (Supra 1), further held that the encashment of bank guarantee would cause any irretrievable injury or irretrievable injustice and special equities, if any, must be pleaded specifically to injunct the beneficiary from invoking the bank guarantee.
22. In Nangia Constructionss Case (Supra 7), the Honble Supreme Court while dealing with invocation of bank guarantee in relation to banker and customer held in paragraph 12 thus:
12. It is unfortunate that a nationalized bank is finding excuses for refusing to make the payment on totally untenable and frivolous grounds. The Division Bench was fully justified in making observations regarding the conduct of the nationalized bank. The entire trust, faith and confidence of people depends on the conduct and credibility of the nationalised bank. In the present day world, the national and international commercial transactions largely depend on bank guarantees. In case the banks are permitted to dishonour their commitments by adopting such subterfuges, the entire commercial and business transactions will come to a grinding halt. This principle has been reiterated in large number of cases by this Court. We do not deem it appropriate to burden this judgment by reiterating all those judgments.
23. In the light of the averments made in the pleadings and the contentions raised during the course of arguments by the rival parties, we are of the view to extract the relevant clauses of the contract between the appellant and the 1st respondent which do have a direct bearing in resolution of the controversy between the parties.
24. The 1st respondent referred to Clause 4.1 of the construction contract which records the commencement date as 12-01-2008 and the Scheduled Project Completion Date referred as 11-04-2010 in Clause 25.1 of the contract, states that the statement of the appellant that there was delay of three months in commencement of work and the construction period of 27 months was fixed due to that delay, is incorrect.
25. Clause 4.1 reads thus:
4.1 The Notice to Proceed Within 30 days of receipt of LOI, the Construction Contractor shall obtain a Notice to Proceed from the EPC Contractor prior to commencing the Execution of the Works and prior to the handover of the Project Site from EPC Contractor to Construction Contractor. In case of failure of such notice being given to the Construction Contractor, Notice to proceed shall be implied to have been issued on the 31st day from the date of LOI (i.e.12th January 2008), unless the EPC Contractor in writing indicates otherwise. The same shall be reckoned as the Project start date i.e. 12th January, 2008.
26. Clause 25.1 reads thus:
25.1 Notice of Project Completion Date The Construction Contractor shall serve on the Concessionaire and the Concessionaires/EPC Contractors Representative, at least two (2) months notice of the date upon which the Construction Contractor anticipates that Project shall be completed. However, the Project shall be completed in 27 (Twenty Seven) months from Notice to Proceed i.e. on or before 11th April 2010 or such extended Time for Completion as may be granted under this Agreement.
27. Schedule H dealing with Site Handing Over and Project Schedule Completion work, reads thus:
SCHEDULE H SITE HANDING OVER AND PROJECT COMPLETION SCHEDULE The Site handing over to the Construction Contractor shall be immediately upon the Concessionaire/EPC Contractor receiving the same from NHAI.
The Project Completion Date shall be 27 months from the date of Notice to Proceed or as may be extended under the provisions of this Agreement.
28. Concerning performance bank guarantee, Clause - 1.5.4 reads thus:
1.5.4: The construction Contractor shall, within 15 days from the date of notice to proceed, furnish to the EPC Contractor as its own cost the Performance Bank Guarantee to the extent of 5% of the Contract Price from a recognized bank in India and in the form acceptable to the EPC Contractor and for which the EPC Contractor has given his prior approval in writing. In the event of the Construction Contractor being in default in the due and diligent performance of its obligations under this Agreement and failing to remedy such default within the Cure Period, the EPC Contractor shall, without prejudice to its other rights and remedies hereunder, be entitled to encash and appropriate the Performance Guarantee as Damages for default. Upon encashment and appropriation of the Performance Bank Guarantee, the EPC Contractor shall grant a period of Ten (10) days to the Construction Contractor to provide a fresh Performance Bank Guarantee and the Construction Contractor shall, within the time so granted furnish to the EPC Contractor such Performance Bank Guarantee, failing which the EPC Contractor shall be entitled to terminate this Agreement. The provisions set forth in this Article shall apply mutatis mutandis to such fresh Performance bank Guarantee. The Performance bank Guarantee shall be valid for a period up to 90 days beyond end of Defect Liability Period and shall be released thereupon. The guarantee shall be reduced to 2.5% of the Contract Price on issue of Final Completion Certificate.
29. Concerning mobilisation advance payment of 10% of contract price towards mobilisation is dealt with under Clause 39.3, which reads thus:
39.3 Advance Payment The EPC Contractor shall make available to the Construction Contractor an Advance Payment of 10% of Contract Price as a Mobilisation advance in the manner as detailed below:
The first instalment of an advance payment (i.e. 5% of Contract price) shall be made available to the Construction Contractor on submission of Advance Bank Guarantee for an amount equivalent to the advance payment and other relevant documents against the same.
The second instalment of an advance payment i.e. 5% of Contract price shall be made available to the Contraction Contractor after NTP and on submission of the following:
i) Advance Bank Guarantee of 5% of Contract Price,
iii) Performance Bank guarantee of 5% of Contract Price and
iv) other relevant documents if any.
The Advance Bank Guarantees shall be reduced proportionately based on the deductions made against the Mobilisation Advance from the invoices raised during the progress of the work.
The recovery of Mobilisation Advance shall start after 20% of financial progress or 8 months from the commencement date, whichever is earlier. The monthly recovery shall be made @ 10% of the net payable amount in each running bill so as to ensure the complete recovery of advance by the time that 80% of financial progress is achieved.
All such BGs shall be as per the format already provided and shall be issued from a bank with prior approval of the EPC Contractor.
In addition to above advance the EPC Contractor shall pay another advance with respect to materials brought by the construction Contractor to the site for incorporation in the Permanent Works, the Constructions Contractor shall (i) receive a credit in the month in which these materials are brought to the Site and (ii) be charged a debit in the month in which they are incorporation in to the Permanent Works, both such credit and debit to be determined by the EPC Contractors representative in accordance with the provisions of article 39.2.2.
30. Concerning obligation cast on the appellant that the appellant has to work in optimising the use of site handed-over to it, Clause 7.1.5 (p) of the construction agreement stipulates thus:
(p) Work in optimizing the use of existing Site handed over to them;
31. Further obligation cast on the appellant to assist the 1st respondent / NHAI / Government Agency in performing their respective functions, Clause 7.1.5 (ee) reads thus:
(ee) shall assistant the EPC Contractor / NHAI / Government Agency in performing functions under Control of National Highways (Land & Traffic) Act, 2002 to the extent directed by NHAI / Government Agency and under the Concession Agreement.
Provided, however, the obligations, functions and all such acts already covered under this Agreement shall be governed by this Agreement.
32. To substantiate the stand taken by the appellant, appellant relied on Clause 8.1 of the contract, which gives liberty to the appellant to get the selected project work or whole of the work done by any sub-contractor, reads thus:
8.1 Subcontracting the works The Construction Contractor may take up the execution of the Works or be entitled to engage any subcontractors to undertake the Execution of the whole or part of the Works. Provided that any such appointment of any sub-contractor/supplier shall be only with the prior written consent of the Concessionaires/EPC Contractors Representative, (which consent shall not be unreasonably withheld).
The construction Contractor shall furnish to the Concessionaire/EPC Contractor particulars of the subcontractors or suppliers he proposes to use to enable the concessionaires/EPC Contractors Representative to provide his consent. Any such consent shall not relieve the construction Contractor from any liability or obligation under this Agreement. The construction Contractor shall be responsible for the acts, defaults, omissions, and neglects of any Subcontractor or Supplier, sub-subcontractor and sub-suppliers, their agents, or servants and workmen, fully and to the extent as if they were the acts, defaults, omissions, or neglects of the Construction Contractor, his agents, servants or workmen. Neither any approval of subcontractors by the concessionaires/EPC Contractors Representative nor the requirements of this Article 8 shall in any way affect, limit, or relieve the Construction Contractor in any respect from his responsibility for such subcontracts or supply contracts, or that from any of its obligations under this Agreement.
33. For the submission that the appellant is advised / requested the 1st respondent to make direct payment to the supplier / sub- contractors upon its (appellants) certification, the appellant relied on Clause 39.1.1, which reads thus:
39.1 Application for Payment 39.1.1 On the Seventh (7th) of every month from the date of issue of the Notice to Proceed, the Construction Contractor may submit the interim Payment Application to the EPC Contractors Representative (Request for Payment) requesting payment of the sum, which it considers to be due (Monthly Sum) in respect of the work done during the preceding month (Monthly Period) which shall include:
(a) The amounts which the Construction Contractor claims to be payable in respect of the Works Executed in the relevant Monthly Period;
(b) The cumulative amount of the Monthly Sums certified till the preceding month; (c) Any amount, which the Construction Contractor
considers himself to be otherwise entitled to;
(d) The cumulative amount of any other amounts previously certified by the EPC Contractors Representative; and
(e) Any amounts due under Article 31; and
(f) Any amount to be added in respect of any goods and materials which have been properly but not prematurely delivered to the Project Site in accordance with the Design Requirements for incorporation into the Permanent Works as per the requirement of the Article 39.3.
The following amount shall be deducted from the Construction Contractors statement of claim before payment:
a. the cumulative amount of payments made on account of previous certification by the EPC Contractor; b. any deduction against mobilisation advance and material advance; c. any amounts due and owing from the
Construction Contractor to the EPC Contractor pursuant to this Agreement.
34. Reverting to the fact situation occurring in the instant case, Clauses 1.5.4 and 39.3 are concerned with contract performance bank guarantee and advance bank guarantee, respectively.
35. We have perused the bank guarantees. On thorough scanning of the terms thereof, we unhesitatingly hold that they are unconditional, though, the appellant contended that they are conditional. Though, we are not acceding to that submission, still, the very fact that the appellant had extended the bank guarantees from time to time is sufficient enough to repel that submission. In that view of the matter, the appellant cannot be permitted to raise any dispute to prevent the 1st respondent from encashing the bank guarantee already invoked and simultaneously, even the 2nd respondent cannot be injuncted from making payment to the 1st respondent, however, subject to the exceptions, if only the appellant is successful in establishing that its case falls in either of the exceptions or under both.
36. So, the question that falls for our consideration is whether there is a clear fraud of which the 2nd respondent has noticed and the fraud of the 1st respondent from which it seeks to benefit and the other exception whether there are any special equities in favour of granting injunction?
37. In an attempt to establish the plea of fraud, the appellant set out the same in paragraph Nos.13 and 15 in O.P. No.154 of 2014. For better appreciation in assessing whether the pleas put-forth by the appellant constitute fraud, we intend to extract the averments in paragraph Nos.13 and 15, which are thus:
13. The dispute arose when the 1st respondent fraudulently invoked the Bank Guarantees inspite of being aware of the fact that there was a lapse on its part and the fact that the petitioner had already extended the Additional Bank Guarantee for Rs.10,00,00,000 and was actively working on the process for the extension of the Performance Bank Guarantee for Rs.16,72,50,000.
15. The 1st respondent herein has utterly failed to procure the land required for the purpose of laying roads and has never experienced any kind of trouble from the petitioner. In fact, even on this day, the complete land which is required for completion of the project has not been procured by the 1st respondent and even the land which was procured was given to the petitioner in 160 installments, which itself shows the deliberate negligence of the 1st respondent in cooperating with the petitioner in completion of the project. In view of the this default and breach, the Petitioner had suffered huge losses which have been quantified at Rs.175 crores and the Petitioner has also raised these disputes with the respondent no.1, by way of letters dated 20.8.2010 and 17.10.212. The respondent No.1 having realized the huge liability which would have to be paid to the petitioner, has now embarked upon a fraudulent course of invoking the Bank Guarantees with a fraudulent motive of blocking the funds of the Petition and has now invoked the Bank Guarantees in a fraudulent manner and not for the purpose for which the Bank Guarantees have been given.
38. There is complete denial by the 1st respondent as to the allegations levelled against it touching the alleged fraud on its part by attributing total lapses on the part of the appellant that had compelled the 1st respondent to get the balance of work done through the third party contractors with the consent of the appellant.
39. We have already adverted to in the above, the definition of fraud, extracted by the Honble Supreme Court and as to what constitutes fraud and further, at what stage, commencement of fraud should arise. We intend to mention that the appellant introduced the alleged fraud at the stage when the 1st respondent has invoked the bank guarantee, but not at the inceptive stage. At the cost of repetition, we would like to refer to the principles laid down by the Honble Supreme Court in Himadri Chemicals Industries Limiteds Case (Supra 4) in Bolivinter Oil SAs Case (Supra 9), that the grant of exceptional relief of an injunction, the party seeking has to prove that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent and that the evidence must be clear both as to the fact of fraud and as to the bankers knowledge, and it would, certainly, not normally be sufficient that it rests on the uncorroborated statement of the customer, for irreparable damage can be done, to banks credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it discharged. So, a mere allegation in the pleadings that the 1st respondent fraudulently invoked the bank guarantee despite being aware of the fact that there was lapse on its part and that the appellant had already extended the additional bank guarantee for Rs.10.00 crores, would not amount to establishing clear fraud or fraud of egregious nature. Even the averments in paragraph No.15, extracted above, when intrinsically examined, would not amount to proving strong prima facie fraud by the appellant.
40. The vital aspect that touches the conduct of the appellant is, according consent to the 1st respondent to make payments directly to the third party-contractor by getting the work carried out which was left over by the appellant by even demobilising its resources from the site. It is not as though, a mere consent by the appellant was given for getting the balance work executed through other sub-contractor, which the appellant was supposed to execute, but even the payments were made by the 1st respondent, through the appellant. This circumstance attains greater significance since it affects vitally not only the fraud alleged by the appellant, but even it disfavours the appellant in proving the irretrievable injury or irretrievable injustice and further disfavours the appellant from seeking equitable relief of injunction based on special equities. The attempt made by the appellant to take shelter under Clause 8.1 relating to sub-contracting the works, gets completely condemned when the purport of the said sub-clause is examined. The obligations cast on sub-contractor/supplier, who is the appellant herein have been specifically mentioned in that sub-clause, which envisages that such consent shall not relieve the construction contractor from any liability or obligation under the agreement and that construction contractor shall be responsible for the acts, omissions, defaults and other contingencies referred to therein. Thus, the attempt of the appellant to deprive advantage under the said clause, in our view, is a concrete attempt to take undue advantage of the said clause to wriggle itself out of the obligations cast on it and consequences thereof. Therefore, in our considered view, the case of the appellant neither falls in the first exception nor in the second exception nor the appellant is successful in establishing special equities favouring it to seek the equitable relief of injunction in these two appeals.
41. We also intend to point out that the 1st respondent has provided 87% of the total stretch for the project and was handed over as on 31-03-2012, which the appellant terms it as only 87%. Thus, by 31-03-2012, the obligation cast on the 1st respondent was to provide the balance of 13% of stretch, which the 1st respondent could have handed over with encumbrance free without any difficulty. Thus, even that allegation and the incidental facts touching the fraud alleged by the appellant are of any assistance to accord the relief sought in these appeals.
42. Concerning the other allegations touching the outstanding amounts to be paid by the appellant at Rs.28.19 crores, as ad-hoc advances were made by the 1st respondent, with the object of getting the work executed within the time frame or even earlier also, stands adverse to the case of the appellant. No doubt, the appellant has initially stated that the loss it sustained was to the tune of Rs.175.00 crores and in its reply affidavit, it has expanded the alleged quantified loss to the tune of Rs.421.80 crores, but these aspects have to be gone into by the arbitral Tribunal. Even the other aspects which the appellant has pressed into service constitute the subject before the arbitral Tribunal.
43. The appellant has specifically mentioned in paragraph No.20 of its application in O.P. No.154 of 2014 that arbitration proceedings have been initiated by it on 3rd February, 2014 by issuing a notice for arbitration. In our view, the rest of allegations and counter allegations, which constitute disputes between the parties, fall within the purview of arbitral Tribunal, and, therefore, we are not inclined to enter into that arena.
44. To sump up, when the principles laid down by the Honble Supreme Court in the afore-referred decisions are applied to the facts of this case, the inevitable conclusion is that the appellant failed to establish not only the ground of established fraud, but also the ground of special equities in its favour. Therefore, the common order under challenge cannot be withheld, as such, while confirming the same, we dismiss both these appeals.
45. Accordingly, both the appeals are dismissed confirming the orders under challenge. We make it clear that whatever findings have been arrived at by us in these appeals while dealing with the prayers for grant of injunction shall have no bearing on the merits of the case, if any, pending before the arbitral Tribunal. We make no order as to costs.
46. As a sequel thereto, Miscellaneous Applications, if any, pending in these appeals stand disposed of.
__________________________ R. SUBHASH REDDY, J ___________________________ A. SHANKAR NARAYANA, J September 26, 2014.