Delhi High Court
M/S. Triveni Oil Field Service Ltd. vs Oil & Natural Gas Commission on 8 March, 1996
JUDGMENT Devinder Gupta, J.
1. This is an application for grant of interim relief under Section 41 of the Arbitration Act read with Second Schedule thereof and Section 151 of the Code of Civil Procedure praying for an injunction restraining the encashment of bank guarantee No. 57/92 dated 4.8.1992 for a sum of Rs. 30,00,000/- issued by the State Bank of Hyderabad, Surya Kiran Building, Kasturba Gandhi Marg, New Delhi.
2. Aforementioned application was moved by the petitioner along with a petition filed under Section 20 of the Arbitration Act praying for filing in court the original N.I.T. containing an arbitration clause 33 for a reference of disputes to an Arbitrator. Petitioner's case is that disputes have arisen amongst parties on account of the respondent not wanting to go ahead with the contract as per its own N.I.T. Conditions. The facts, as stated, in brief are :
That in June, 1992, global notice inviting tenders was issued by the respondent for charter-hire of land rigs for on-shore oil exploration in different parts of the country with a stipulation that one tenderer cannot be awarded more than four contracts. Petitioner submitted separate tenders in respect of four land-drilling rigs. One of the basic conditions of the respondent was that with each tender, the tendering party had to furnish a bank guarantee known as "Bid Bond" for a sum of Rs. 30,00,000/- for each rig. Petitioner also submitted bid bonds of Rs. 30,00,000/- each in respect of four rigs. The object of the bid bond was that the tenderer should not be allowed to back out from its bid either at the consideration stage or during the period which intervenes between acceptance of tender/offer and the execution of the finalised formal contract between the parties. The instant case pertains only with respect of one rig with Code Raja-I. Petitioner's offer dated 7.8.1992 was found acceptable by the respondent and a letter of intent dated 23/25.2.1993 for rig Code Raja-I was issued by the respondent to the petitioner.
3. Petitioner's case is that petitioner it has not backed out of the tender but it is the respondent which started proposing illegal and unilateral variation in the terms of the conditions of the notice inviting tender that the rig should be mobilized far beyond the stipulated time. Stipulated time, according to the petitioner, was 120-210 days from the date of issue of first letter of intent and since letter of intent was issued on 25.2.1993, the period of 150-210 days could have been only upto September, 1993. Instead of adhering to this condition No. 13. I in N.I.T. conditions, the respondent started proposing illegal and unilateral variation in the form of suggestion that the rig be mobilized in the first week of April, 1994. Respondent had been illegally insisting upon the petitioner to sign a contract containing the said innovated unilateral term without obtaining petitioner's consent or concurrence for such departure. Petitioner had submitted the tender for the rig in question on the basis of tender conditions embodied in clause 13.1. All conditions in the tender were based on the stipulation for mobilization within 150-210 days from the date of issue of the firm letter of intent. Notice inviting tender stipulated that any delay in mobilization beyond 210 days would result in claim for deterrent liquidated damages and then cancellation. Petitioner's offer and the bid bond were based upon the conditions contained in the notice inviting tender of mobilization period of 150-210 days with a stipulation of liquidated damages/rejection. Mobilization time of 150-210 days, according to the petitioner, being the essence of N.I.T. conditions, in clear violation of the same and by unilateral novation of the tender condition, the respondent declined to accept mobilization of the rig in question on any day prior to April, 1994. Thus, declining to accept the performance, in accordance with the notice inviting tender conditions and the act of respondent in not releasing the petitioner from the bid bond obligation, respondent was putting coercion and undue financial pressure upon the petitioner threatening to invoke petitioner's bid bond. The bid bond, according to the petitioner, can be invoked only on three conditions, namely, if the tender is withdrawn during validity period, if tender is varied or modified in a manner not acceptable to the respondent during validity period or if a tenderer whose tender has been accepted fails to furnish security deposit/performance bank guarantee within thirty days of letter of intent/before the expiry of bank guarantee bid bond. Petitioner alleges that it has neither withdrawn the offer, nor has tried to verify or modify, in any manner, the term of original offer. Petitioner has also not failed to furnish security deposit/performance bank guarantee. To the contrary the respondent, while sending acceptance has unreasonably and illegally tried to include a major change/innovation/departure from the essential tender condition regarding mobilization period of 150-210 days. Thus, the respondent has caused a situation to develop whereunder either its acceptance letter itself becomes invalid since the same is linked with respondent's counter proposal/novation, which is not acceptable to the petitioner or in the alternative departure from mobilization from 150-210 days as now desired by the respondent would become void and unenforceable.
4. According to the petitioner, disputes have arisen amongst parties, in terms of clause, contained in notice inviting tender which are required to be referred for adjudication by an Arbitrator. Bid bond could be invoked only in three situations, which do not exist. The petitioner made request to the respondent for recalling or keeping in abeyance its threatened invocation of the bid bond but the respondent has not obliged the petitioner and, thus, is bent upon in causing unjust enrichment to itself and irretrievable injustice to the petitioner by threatening to encash the bid bond even though there is no occasion or justification for the same. Rather it is the respondent who was now prepared to accept performance according to its own notice inviting tender.
5. In nutshell the petitioner's case, as it appears, is that as per notice inviting tender when its bid was accepted, respondent could not have unilaterally changed the conditions and called upon the petitioner to execute a contract, which was not stipulated in notice inviting tender particularly the change in the time schedule for mobilization of the rigs. Petitioner had submitted a bid bond, which could be invoked only in three situations and since three situations do not exist, the act of respondent in having invoked the bank guarantee by calling upon the bank to perform its contract, amounts to the respondent putting the petitioner in a situation, which amounts to causing irretrievable injustice to the petitioner and unjust enrichment to itself, which act deserves to be prohibited by issuing appropriate injunction restraining the respondent from invoking the bank guarantee.
6. Respondent's case is that on acceptance of the petitioner's offer, a letter of intent was issued by which the petitioner was required to mobilize the rig to the first site so as to be ready for spud ding in the first week of April, 1994. Any delay after 7.4.1994 was to attract liquidated damages as per conditions of the tender documents. Respondent is entitled to invoke bid bond/bank guarantee on petitioner's failure and refusal to deploy rig as per letter of intent. According to the respondent, successful bidder was required to execute a formal contract within fifteen days from the date of issue of letter of intent or within such period as may be extended by the respondent. The petitioner was also required to submit the performance bank guarantee of the required amount within a period of thirty days from the issue of letter of intent. But before expiry of the validity period of the bid bond, performance bank guarantee was to be kept valid by the petitioner for a period of 120 days from the date of expiry of the contract. The petitioner instead of executing the formal contract and furnishing performance bank guarantee within the stipulated period, requested from time to time extension of the bid bond, that is bank guarantee in question. The request of the petitioner was accepted by the respondent in good faith placing reliance upon him that it would execute the formal contract and furnish required performance bank guarantee in furtherance of the contract. Petitioner through letter dated 15.4.1993 submitted the lay out and load power drawings to the respondent in furtherance of the terms and conditions of the tender document. Petitioner furnished bid bond from time to time. Letter of intent and the contract as a whole was accepted. Petitioner in order to cover up its default and breaches filed this petition on false and incorrect allegations. Respondent has tried to meet the petitioner's case alleging that while issuing letter of intent and accepting the offer of petitioner it was stated that the rig would be mobilized to the first site so as to be ready for spud ding in the first week of April, 1994. Mobilization period was much more than the one which was provided for in the N.I.T. It was never detrimental to the interest of the petitioner. Rather on the other hand, it gave more time to the petitioner for mobilizing the rig. This was accepted by the petitioner who acted on the letter of intent, after acceptance its tender, when the petitioner submitted lay out and load bearing drawings and also submitted extended bank guarantee. It was the petitioner who had to furnish requisite performance bank guarantee and to execute formal contract, which it failed to do so. Increase in the period of mobilization of rig was not detrimental to the interest of the petitioner. Respondent has denied that there is any unilateral novation. According to the respondent, the petitioner was made aware of the situation, during the course of discussion and the petitioner accepted the increase in the period for mobilization. Petitioner later on requested for proponing the date of mobilization of rig from April, 1994, which was not acceptable by the respondent. The respondent has denied that there is any question of undue enrichment of the respondent. According to the respondent it is entitled to invoke the bank guarantee since the petitioner had failed to perform his part of contract and violated the terms of the bid bond.
7. Learned counsel for the parties have referred to number of documents in support of their submission. Before I proceed to the other documents, it will be necessary to reproduce to the entire bank guarantee but suffice it will be to quote only relevant paragraphs, relevant for the purpose of deciding this application.
"that the contract consisting of N.I.T./tender documents as the OFFER and the submission of the tender as the ACCEPTANCE shall be a separate contract distinct from the Contract which will come into existence when the tender is finally accepted by ONGC. The consideration for this separate initial contract, proceeding the main contract is that ONGC is not agreeable to sell the NIT/tender documents to the tenderer and to consider the tender to be made except on the condition that the tender shall be kept open for the period indicated above and the tenderer desires to make a tender on this condition and after entering into this separate initial contract with ONGC, ONGC promises to consider the tender on this condition and the tenderer agrees to keep this tender open for the required period. These reciprocal promises form the CONSIDERATION for this separate initial contract between the parties ....... tenderer having agreed to furnish as a condition precedent for participation in tender an unconditional and irrevocable bank guarantee of Rs. 30,00,000/- (Rupees Thirty Lacs only) for the due performance of tenderer's obligation as contained in the terms of the Notice Inviting Tenders (NIT) and other terms and conditions contained in the Tender Documents supplied by ONGC specially the conditions that (a) tenderer shall keep his tender open for a period of 120 days i.e. from 10.8.1992 to 9.12.1992 or any extention thereof, and shall not withdraw or modify it in a manner not acceptable to ONGC, (b) the tenderer will execute the contract, if awarded, and shall furnish performance guarantee in the format prescribed by ONGC within the required time. The tenderer has absolutely and unconditionally accepted these conditions."
"2. Therefore, we, State Bank of Hyderabad, 19, Kasturba Gandhi Marg, New Delhi-110001, registered under the laws of India having its Registered Office at Gunfoundry, Hyderabad-500117 (hereinafter referred to as the "Bank" which expression shall, unless repugnant to the context or meaning thereof, include all its successors, administrators and executors) hereby issue irrevocable and unconditional bank guarantee and undertake to pay immediately on first demand in writing in rupees or in such convertible currency as acceptable to ONGC any and all money to the extent of Rs. 30,00,000/- (Rupees Thirty Lacs only) at any time immediately on such demand without any demur, reservations, recourse, contest or protest and/or without any reference to the tenderer and any such demand made by ONGC on the Bank shall be conclusive and binding notwithstanding any difference between ONGC and the tenderer or any dispute pending before any court, Arbitrator or any other matter whatsoever. We also agree that Guarantee herein contained shall be irrevocable unless it is discharged earlier by ONGC in writing. This guarantee shall not be determined/discharged/affected by the liquidation, winding up, dissolution, or insolvency of the tenderer and will remain valid, binding and operative against the Bank."
8. The bank guarantee furnished in the instant case is unconditional by which bank has undertaken to pay immediately on first demand in writing a sum of Rs. 30,00,000/- at any time without any demur, reservation, recourse, contest or protest and without any reference to the tenderer. As per the terms of the bank guarantee demand made by the respondent on the bank "shall be conclusive and binding", irrespective of or notwithstanding any difference or dispute between the petitioner and the respondent.
9. Thus the conditions of the bank guarantee in so far as the bank and respondent are concerned, is a demand by respondent in writing at any time, which obliges the bank to make payment unconditionally.
10. Grant of injunction, as has been prayed for in this case, is a discretionary power with the courts in equity jurisdiction. Injunctions can be granted only when there is a strong prima facie case of fraud or irretrievable injury and the balance of convenience is in favour of issue of injunction to irremediable injury. In the State Trading Corporation of India Ltd. v. Jainsons Clothing Corporation and another , it was held that court should normally insist upon enforcement of the bank guarantee and not interfere with the enforcement of the contract unless there is a specific plea of fraud or special equities in favour of the plaintiff. He must necessarily plead and produce all the necessary evidence in proof of the fraud in the execution of the contract of the guarantee, but not the contract either of the original contract or any of the subsequent events that may happen as a ground for fraud. The contract of terms, the contract of guarantee is a tripartite contract by which the bank undertakes unconditionally and unequivocally to abide by the terms thereof. It is an act of trust with full faith to facilitate free flow of trade and commerce in national or international trade or business. It creates an irrevocable obligation to perform the contract in terms thereof. The bank guarantee becomes enforceable on the occurrence of the events mentioned therein. Neither the subsequent disputes in the performance of the contract does give rise to a cause, nor is the court justified on that basis, to issue an injunction from enforcing the contract of bank guarantee. The parties are not left with no remedy. In the event of the dispute the remedy of the party is to claim damages or other consequential reliefs.
11. In Larsen & Toubro Limited v. Maharashtra State Electricity Board and others , and Hindustan Steel Workers Construction Ltd. v. G. S. Atwal & Co. (Engineers) Pvt. Ltd. , also the well settled principles have been reiterated that in case of confirmed guarantee/irretrievable letter of credit, courts will not interfere with the same unless a strong prima facie case is made out of fraud and irretrievable damages.
12. In the instant case, ground of fraud has neither been pleaded nor made out. Petitioner is banking upon the second lime of the exception which has been carved out in the matter of grant of injunction, namely, irretrievable damages. It is contended that the fault lies with the respondent. The petitioner having from the very beginning insisted upon complete adherence to the tenders conditions in pursuance to which the petitioner sent telex dated 3.3.1993 in response to the respondent's letter of intent dated 25.2.1993. Petitioner conveyed its surprise over the respondent's counter offer regarding unilateral change in mobilization period and petitioner called upon the respondent to confirm that it will revert back to mobilization period in accordance with the tender condition. On 11.3.1993 once again the petitioner called upon the respondent to accept mobilization within 210 days as stipulated in NIT condition. When on 15.4.1993 the petitioner submitted lay out and load bearing drawings respondent neither cared to proceed on its own tender condition nor had taken any steps to mutually work out convenient terms and conditions for its unilateral proposed novation or in other words departure from tender condition. Instead the respondent had been insisting upon the petitioner to extend the validity period of the bid bond from time to time. The petitioner in response to the respondent's message dated 17.9.1993 extended the validity of the bid bond for a period of one month with the result that the extended bid bond became valid upto 31.10.1993 with two months further claim period upto 31.12.1993. On 4.12.1993 the petitioner sent a detailed representation pointing out that mobilization period as per tender condition is only 150-210 days and the time of 150-210 days is very essence of the tender. It was through telex message dated 2.10.1993 that the respondent conveyed to the petitioner that it had no requirement at all for charter-hire of land rig in question before April, 1994. Thus, it is contended that the respondent's stand has been that it had no requirement whatsoever for complying with the mobilization period which was the essence of the tender condition. On 27.9.1993 the petitioner pointed out the losses likely to be suffered by it and insisted upon the contract being signed in accordance with the NIT condition. But it was on 16.11.1993 that the respondent proposed that it was agreeable to pre-pone the mobilization date to February 1994 provided the petitioner agreed to accept the payment in April, 1994. February 1994, as proposed by respondent was not even remotely, close to the NIT stipulated period which expired in September, 1993. In the communication dated 16.11.1993 the respondent proposed a second departure, which would show that the respondent was neither prepared to adhere to the mobilization period, nor to the payment term as per NIT condition. Petitioner being a company to repute is engaged in the charter-hire of land rigs for onshore oil exploration and working on regular basis with both the respondent and Oil India. It has an excellent track record. Despite petitioner's request for recalling the letter which the respondent had written for invoking the bank guarantee the respondent was still proceeding ahead, thus, was sent upon in causing unjust enrichment to itself and irretrievable injustice to the petitioner.
13. In order to ascertain the prima facie nature of good case reference may be made to the three clauses in the bid document. Clause 2.3 says that "bid shall conform to scope of the work as detailed in Part I, II and III and prices shall be quoted separately for each type of rig area-wise and as per the format given in priced format of Part V". Clause 11.1 deals with the signing of the contract and says that successful bidder, shall be required to execute a formal contract in accordance with the requirements of ONGC within 15 days from the date of issue of letter of intent from ONGC or within such extended time as may be permitted by ONGC. failing which bid bond shall be forfeited. Clause 27 pertains to the acceptance of offer and says :
"Acceptance by the purchaser may be normally communicated by TLX/telegram. With the issue of telegram/TLX of acceptance the contract shall be deemed to have concluded. Contract shall mean and include the invitation to tender, instructions to tenderers, tender, acceptance of tender, contract particulars and the general and special conditions specified in the acceptance of tender."
14. Contract has been defined in the above Clause 27 to mean and include invitation to tender. Instructions to tenderers, tender, acceptance of tender, contract particulars and general and special conditions specified in the acceptance of tender. General terms and conditions of contract are in Part II of the bid document. Clause 16 thereof deals with liquidated damages which says that if the contractor (i) fails to make the Drilling unit available with his crew at first drilling site in India ready for spud ding within stipulated period of 210 days (or extended period, if so extended by ONGC at its option) or (ii) at any time repudiates the contract before expiry of the contract period, ONGC may without prejudice to any other right or remedy available to it, recover, from the contractor as ascertained and agreed, liquidated damages and not by way of penalty a sum equivalent to 1/2% of one year's operating day rate. Clause 2.3 of the bid document in Part I required the bid to conform to the scope of work as detailed in Parts, I, II and III. Clause 27 of Part I, namely, the guidelines stipulates that the contract shall be deemed to have concluded on the acceptance by the bidder of the letter of intent. Successful bidder, as per Clause 28, could be asked to extend the validity of the bid bond for a further period, as may be required by ONGC. Conditions for forfeiture of money or bid money are contained in Clause 28.2.1 which says :
"28.2.1. The earnest money/Bid Bond shall be forfeited by commissions in the following events :
(a) If tender is withdrawn during the validity period or any extension thereof.
(b) If tender is varied or modified in a manner not acceptable to ONGC during the validity period or any extension of the validity duly agreed by the bidder.
(c) If a tenderer, whose tender has been accepted fails to furnish Security Deposit/Performance Bank Guarantee within 30 days of LOI before the expiry of bank guarantee bid bond."
Clause 29 requires a successful bidder, within thirty days from the issuance of letter of intent, to send performance bank guarantee in format, annexure, II, Clause 31, says that contract against the tender will be governed in accordance with the "Instructions to Bidders." and also the "General Terms and Conditions", as detailed, in Part II. Thus, Part II of the bid papers is by this deeming fiction stands incorporated and also forms part of Part I, namely, "Guidelines to bidders" or "Instructions to Bidders". Submission of the learned counsel for the petitioner that contract had not come into being cannot be accepted in view of the aforementioned clauses.
15. In case on issuance of the letter of intent, the same was accepted by the petitioner (which is also the petitioner's case), there is no manner of doubt that contract came into being. On coming into being of the contract, the petitioner was required to furnish a performance bank guarantee within a period of 30 days in Format II. At page 206 of the paper book is a communication, which was addressed on 15.4.1993 by the petitioner to the respondent, received in respondent's office on 19.4.1993 conveying the petitioner's acceptance to the letter of intent. It says :
"This has reference to Letter of Intent No. MM/07 dated 25.2.1993 for Charter Hire of One No. TYPE-III (6000 Mtrs. capacity) Land Drilling Rig Code RAJA-I, issued against tender No. MAT/DBG/IMP/CHR/1773/92 by ONGC, Dehradun.
We are enclosing herewith copy of Layout and Load Bearing Drawings for Rig Triveni VIII (IDECO-2100), offered against RAJA-I code.
Kindly acknowledge receipt of same."
16. It was in pursuance to the letter of intent that the petitioner forwarded copy of layout and load bearing drawings for Rig Triveni offered against RAJA-I Code. On this acceptance of the bid, clause 27 of Part I became operative and contract will be deemed to have concluded. In case contract stood concluded there is no manner of doubt that clause 16 in Part II will operate, which entitles the respondent to liquidate damages on the happening of an event namely on failure to make the drilling unit available with crew at the first drilling site in India ready for spud ding within stipulated period of 210 days (or excluded period if was extended by ONGC at its option).
17. I need not go into the other questions raised in this case since on acceptance of the letter of intent by the petitioner, contract will be deemed to have come into being and clause 16 will apply, under which the extension of the period is at the option of the respondent. This clause is a complete answer to the petitioner's entire case that period of mobilization could not have been extended without it concurrence. All other questions at this stage will not be relevant since no prima facie case is made out in petitioner's favour and for the self same reason there is no case of any irretrievable injury or undue enrichment. All questions on which reference is sought will have to be decided by the Arbitrator, but prima facie on reading of clause 16 contained in Part II under the heading Liquidated Damages, it cannot be said that the respondent had no option or the respondent could not have unilaterally extended the mobilization period. Thus, it is not a case in which the petitioner will be entitled to any injunction against the invoking of the bank guarantee by the respondent. All other questions will not be relevant at this stage of the proceedings since on the basis of the three decisions of the Supreme Court quoted above, no cause for grant of injunction can be said to have been made out. Needless to add that observations made while deciding the application are only for the purpose of this application and will not prejudice the rights of the parties in the main matter.
18. In view of the above the application is dismissed. Interim injunction stands vacated.