Delhi High Court
Isgec Heavy Engineering Ltd vs Indian Oil Corporation Ltd & Anr. on 31 December, 2020
Author: Prateek Jalan
Bench: Prateek Jalan
$~OS-1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP (I) (COMM) 442/2020
ISGEC HEAVY ENGINEERING LTD. ..... Petitioner
Through: Mr.Arun Varma, Sr. Advocate with &
Mr.Shambhu Sharan, Advocates
versus
INDIAN OIL CORPORATION LTD & ANR. ..... Respondents
Through: None.
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
ORDER
% 31.12.2020 The proceedings in the matter have been conducted through video conferencing.
I.A.12788/2020 (exemption from filing court fee, certified/original documents and dim, handwritten, illegible annexures) Exemption allowed, subject to all just exceptions. The application is disposed of.
I.A.12789/2020 (exemption from filing attestation affidavit) Allowed, subject to the petitioner filing the attested affidavit on 02.01.2021.
OMP (I) (COMM) 442/2020
1. Issue notice. Dasti, in addition. Notice may be served through the Standing Counsel, in addition.
2. Although it is stated that the present petition has been served upon the OMP (I) (COMM) 442/2020 Page 1 of 10 respondents, as well as the Standing Counsel for respondent no.1, Indian Oil Corporation Limited (hereinafter, "IOC"), there is no appearance on behalf of either of the respondents today. The matter is therefore taken up for consideration of grant of ad-interim relief.
3. The relief sought in this petition under Section 9 of the Arbitration & Conciliation Act, 1996 is as follows:
"a) Pass an Order restraining the Respondents No.1 /Agents/Employees from encashing the Bank Guarantee bearing No.069BG01191200001 dated 30.04.2019 and Bank Guarantee No. 069BG01191200002 dated 30.04.2019 issued by Respondent NO.2
b) Pass an order restraining the Respondent No.2 to give effect to the invocation letter dated 29.12.2020 and from releasing the monies pursuant thereto.
c) Pass an order directing the Respondent No. 1 to reverse the amounts in case the Respondent No.2 goes ahead and act upon the invocation and release the amounts to the Respondent No.1 pursuant to the letter of Invocation dated 29.12.2020.
d) Pass any such or further order which this Hon‟ble Court may deem fit and proper in the facts and circumstances of the case."
4. For the purposes of ad-interim relief, Mr.Arun Varma, learned Senior Counsel for the petitioner, presses only prayer (b) hereinabove.
5. By the letter dated 29.12.2020, referred to in prayer (b) of the present petition, IOC has sought to invoke the bank guarantee bearing No.069BG01191200002, dated 30.04.2019, to the extent of the amount of ₹86,03,686.71 [hereinafter, "the bank guarantee"]. The bank guarantee dated 30.04.2019 was furnished by respondent no. 2 (hereinafter, "the OMP (I) (COMM) 442/2020 Page 2 of 10 Bank") to IOC on behalf of the petitioner in connection with a contract dated 22.09.2016. The said contract, between the petitioner and IOC, provided for the installation of a boiler at a refinery of IOC. The total value of the contract was approximately ₹92.54 crores. Under the said contract, IOC furnished an advance amount of approximately ₹5 crores to the petitioner. It appears from the bank guarantee dated 30.04.2019 that it was furnished in order to secure the advanced amount. The principal clause of the bank guarantee states as follows:
"We, YES BANK Limited, a company incorporated under the Companies Act, 1956 and a banking company within the meaning of Banking Regulation Act,1949 and having Registered Office at YES BANK Tower, IFC - 2, 15th Floor, Senapati Bapat Marg, Elphinstone (W), Mumbai 400013, India and one of its branches at 1,Community Center, New Friends Colony, New Delhi-110065 (hereinafter called "The Bank" which expression shall include our successors and assigns) in consideration of the aforesaid promises and at the request of the Supplier DO HEREBY bind ourselves and our successor and assigns, and irrevocably undertake to pay the Owner on first demand in writing without protest of demur or proof or condition and without reference to the Supplier any and all amounts at any time and from time to time claimed by you, as due to you under or in respect of the said advance, and demanded by you from us, with reference to this undertaking upto an aggregate limit of INR 1,33,89,700.00 (Indian Rupees One Crore Thirty Three Lakh Eighty Nine Thousand Seven Hundred Only)."
(Emphasis supplied.)
6. Mr. Arun Varma, learned Senior Counsel appearing for the petitioner, submits that the execution of the work under the contract between the petitioner and IOC was suspended on 06.08.2018 at the instance of IOC, OMP (I) (COMM) 442/2020 Page 3 of 10 pursuant to a notice dated 02.08.2018, received from Pollution Control Board, Assam. After the suspension of the work on 06.08.2018, substantial correspondence took place between the parties. Ultimately, the contract came to be terminated by the petitioner vide communication dated 24.12.2019 in terms of clause 2.8.4.0 of the General Conditions of Contract, which provides as follows:
"2.8.4.0 -- In the event that the suspension continues for a period of 84 (Eighty Four) days or more, the OWNER and the CONTRACTOR shall forthwith review the situation with a view to take suitable remedies, including termination of contract. If the parties are unable to agree upon a suitable remedy, either party may terminate the Contract by giving the other party written notice of such termination, provided that any notice of termination by the CONTRACTOR shall be operative only if the Engineer-in- Charge/ OWNER does not lift the suspension within 28 (Twenty Eight) days of receipt of the CONTRACTOR's notice in this behalf, and the CONTRACTOR's notice shall so specify."
7. As the suspension of the contract was not lifted within the period of 28 days thereafter, the contention of the petitioner is that the contract stood terminated on 21.01.2020. Mr. Varma states that the termination of the contract has not been disputed or challenged by IOC in any manner whatsoever.
8. It is further pointed out that after the termination of the contract as aforesaid, the petitioner raised various claims upon IOC vide a communication dated 03.03.2020 and also raised a final bill dated 18.08.2020. As the petitioner's claims were not satisfied, the petitioner served a notice dated 23.10.2020 upon IOC, invoking arbitration in terms of OMP (I) (COMM) 442/2020 Page 4 of 10 the said contract. By the communication dated 23.10.2020, the petitioner nominated its arbitrator and called upon IOC to nominate an arbitrator to adjudicate the disputes between the parties. IOC, however, declined to do so, and contended as follows in its response dated 23.11.2020:
"Sir, This has reference to your letter no. C-LG/Isgec/020 dated 23.10.2020, received in our office vide email dated 27.10.2020, wherein you have raised various issues along with different claims and have requested to invoke the arbitration mechanism in terms of Section 9.1.0.0 of General Conditions of Contract ("GCC"). In this regard, without prejudice to our rights and contentions under the contract and provisions of law, it may kindly be noted that we see no useful purpose in entering into controversy at this stage with regard to the allegations and claims made in your letter under reference, and reserve our right to do so at the appropriate stage and before the appropriate forum, should the necessity arise. Suffice it to state that for the purpose of this correspondence except as admitted hereinafter, the allegations as well as the claim(s) made in your letter under reply are denied in entirety. It may be noted that your letter dated 08.08.2018 cannot be considered as notice of arbitration in terms of Section 9.1.0.0 of the GCC. In this regard, it is informed that the invocation is not in accordance with the provisions of the Contract agreed between the Parties. Since no Final Bill has been drawn in accordance with the Contract nor had any part of its claims ever been notified in the manner prescribed and within the time frame stipulated (with reasons and supporting documents) in the contract, invocation of arbitration is legally and contractually unsustainable. Therefore, the invocation of the arbitration clause is invalid, and the claims made therein are pre-mature and cannot be entertained by the Arbitral Tribunal in terms of the Section 9 of the GCC.
In view of the above, no parawise and/or specific reply to your letter is warranted at this stage. You are also called upon to OMP (I) (COMM) 442/2020 Page 5 of 10 refrain from instituting any legal proceedings, which if made, shall be suitably defended by us at your risk, cost and consequences.
Please further note that this reply is without prejudice to our rights and contentions under contract and provisions of law."
9. Relying upon the above correspondence, Mr. Varma submits that IOC has invoked the subject bank guarantee while refusing to participate in the arbitral process as mandated in the contract. Relying upon the judgment of this Court in Hindustan Construction Co. Ltd. and Ors. Vs. Satluj Jal Vidyut Nigam Ltd. AIR 2006 Delhi 169, he argues that the invocation of the bank guarantee by IOC while seeking to avoid the adjudicatory process itself gives rise to special equities in favour of the petitioner. He further submits that the invocation of the bank guarantee is not relatable to any demand made by IOC upon the petitioner and the petitioner is unaware as to how the demanded amount of ₹86,03,686.71 has been arrived at. According to Mr. Varma, out of the entire advance amount of ₹5 crores, ₹4.5 crores have already been recovered by IOC from the running bills of the petitioner.
10. Keeping in mind the settled law on the grant of injunctions restraining encashment of an irrevocable and unconditional bank guarantee, the question to be examined is whether the petitioner has made out a case of egregious fraud or special equities, which alone would justify the grant of relief in its favour. The question of fraud not having been urged in the present case, I proceed to consider the question of special equities. In the recent judgment of the Division Bench of this Court in Hindustan Construction Company Ltd. vs. National Hydro Electric Power Corporation Ltd. 2020 SCC OnLine (Del) 1214 [FAO(OS) (Comm.) 106/2020, decided OMP (I) (COMM) 442/2020 Page 6 of 10 on 22.09.2020], the Division Bench has held as follows with regard to this requirement:
"21. The law relating to encashment of BGs under the second exception has attained wider dimensions over a period of time. The courts were initially very circumspect and required existence of fraud before it prevented encashment of unconditional BGs. Then it looked into the question of who was in breach of the contract to determine the relief to be granted under special equities. Through various judicial pronouncements the scope of what constitutes special equities was expanded to include cases of irretrievable injury, extraordinary special equities including the impossibility of the guarantor being reimbursed at a later stage if found entitled to the money and the invocation of the BG being not in terms of the BG itself. In the absence of any straight-jacket formula, the courts are required to examine each case to find out whether it falls within these heads."
11. The burden to be discharged by the petitioner seeking such relief is undoubtedly an onerous one. However, I am of the view that the petitioner has made out a strong prima facie case for grant of an ad-interim order in the present case, protecting it until the respondents enter appearance on the returnable date and a contested hearing takes place. Two factors persuade me to take this view:
(a) The bank guarantee in question was, on its terms, in respect of advance furnished by IOC to the petitioner. The Bank guaranteed the amounts claimed by IOC "as due to you under or in respect of said advance". I find prima facie that an assertion to this effect is missing in the letter of invocation dated 29.12.2020. The said letter does not indicate that the amount of ₹86,03,686.71 is claimed by IOC in OMP (I) (COMM) 442/2020 Page 7 of 10 respect of the amount advanced by it to the petitioner. Further, it is stated by Mr. Varma on behalf of the petitioner that an amount of approximately ₹ 4.5 crores out of the total advance of ₹ 5 crores has already been recovered by IOC, and IOC has never communicated to the petitioner regarding any amount due in respect of the advance.
(b) Further, the Single Bench judgment of this Court in Hindustan Construction Co. Ltd. (supra) cited by Mr.Varma, also appears to be directly on point as far as IOC's refusal to enter into the arbitral process is concerned. Paragraph 21 of the aforesaid judgment reads as follows:
"21. The exceptional cases would be few but it could never be stated as an absolute proposition of law that under no circumstances the court could injunct encashment/invocation of a bank guarantee which might have been furnished by a party as an independent contract. A beneficiary is not vested with an unquestionable or unequivocal legal right to encash the bank guarantee on demand. The obligation of the bank furnishing the bank guarantee to pay would be subject to a limited exceptional circumstance afore-noticed. As a matter of rule, the bank would be under obligation to encash the bank guarantee, once it is invoked in its terms. The exceptions afore-noticed are merely indicative of the kind of cases where the court may injunct encashment of a bank guarantee. It is neither possible nor permissible to exhaustively classify the cases where the court would not interfere and where the court would judicially intervene in such matters. Every case would have to be decided keeping in view its peculiar facts and circumstances. Despite the principal contract and bank guarantee being Ejusdem negotii, the bank guarantee is an independent and self- contained contract enforceable on its own terms. Except in the exceptional cases where definite material is available before the court to prima facie satisfy itself that on the basis of the pleadings of the parties; documents supporting has such a plea;OMP (I) (COMM) 442/2020 Page 8 of 10
the case falls in one or more of the categories afore-indicated, the bank guarantee would be encashable per se. It has an obligation which is not dependent upon adjudication of main disputes. The concept of irretrievable injustice, or damages, or special equities would come into play where the parties to a contract having been provided with internal adjudicative mechanism, attempts to frustrate results of such an internal adjudication by recourse to encashment of bank guarantee, particularly when under the terms and conditions of the contract, including the terms of the guarantee, such determination is 'final', of course subject to the limitations spelled out in such contracts. An attempt to over-reach the process of adjudication with intent to cause irreparable prejudice to the other side would be a circumstance which would influence the decision or tilt the special equities in favor of the applicant before the Court."
(Emphasis supplied.)
12. In the aforementioned facts and circumstances, I am satisfied that the petitioner has made out a prima facie case of special equities and the balance of convenience is in favour of granting an ad interim order until the returnable date. I am also satisfied that the petitioner would suffer irretrievable prejudice and injury in the absence of such an order being passed.
13. For the reasons aforesaid, the respondents are directed to maintain status quo regarding encashment of the bank guarantee No.069BG01191200002 dated 30.04.2019, issued by the Bank in favour of IOC, until the next date of hearing.
14. Needless to say, the observations in this order are tentative in nature and intended only for the consideration of grant of ad interim orders until the matter can be taken up by the Roster Bench at a contested hearing. All OMP (I) (COMM) 442/2020 Page 9 of 10 rights and contentions of the respondents are expressly reserved.
15. List before the Roster Bench on 04.01.2021.
16. Learned counsel for the petitioner is permitted to communicate the present order to the respondents.
PRATEEK JALAN (VACATION JUDGE) DECEMBER 31, 2020 „hkaur‟ OMP (I) (COMM) 442/2020 Page 10 of 10