Gujarat High Court
Paras Motor Industries Through ... vs Managing Director, Gujarat State Road ... on 1 September, 2021
Author: Vaibhavi D. Nanavati
Bench: J.B.Pardiwala, Vaibhavi D. Nanavati
C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 15021 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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PARAS MOTOR INDUSTRIES THROUGH PROPRIETOR MR. ADISH
KUMAR N JAIN
Versus
MANAGING DIRECTOR, GUJARAT STATE ROAD TRANSPORT
CORPORATION & 1 other(s)
==========================================================
Appearance:
MR RASHESH SANJANWALA, SENIOR COUNSEL with MR ASHISH M
DAGLI(2203) for the Petitioner(s) No. 1
MR NIRAL R MEHTA(3001) for the Respondent(s) No. 1
NOTICE SERVED BY DS(5) for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 01/09/2021
ORAL JUDGMENT
(PER : HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI) Page 1 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021
1. By this writ-application under Article 226 of the Constitution of India, the writ-applicant has prayed for the following reliefs:
"(A). Your Lordships be pleased to admit this Special Civil Application;
(B). Your Lordships be pleased to allow this Special Civil Application by issuing writ of Mandamus or any other appropriate writ, order or direction thereby directing Respondents to reverse the encashment of Bank Guarantee No. J17GPGE162070002 holding the action of the respondent Corporation of encashing the Bank Guarantee to be unjust, illegal, arbitrary;
ALTERNATIVELY (C). Your Lordships be pleased to allow this Special Civil Application by issuing writ of Mandamus or any other appropriate writ, order or direction thereby directing respondents to refund to the petitioner, the amount of Bank Guarantee No. J17GPGE162070002 of Rs.2,38,90,000 along with bank charges and interest at 9% holding the action of respondent Corporation of encashing the Bank Guarantee to be unjust, illegal, arbitrary;
(D). Your Lordships be pleased to allow this Special Civil application by issuing appropriate writ, order or direction thereby restraining the corporation not to initiate the process of black-listing the petitioner pursuant to notices dated 08.07.2018;
(D). Your Lordships be pleased to allow this Special Civil Application by quashing and setting aside the notice dated 15.09.2018 and subsequent blacklisting proceedings.
(DD). Pending admission, hearing and final disposal of the present petition, Your Lordships may be pleased to stay the notice dated 15.09.2018 and further proceedings pursuant to such notice in the interest of justice;
(E). Pending the admission, hearing and final disposal of the present petition, Your Lordships may be pleased to direct respondents to deposit the amount of Bank Guarantee No. Page 2 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 J17GPGE162070002 of Rs.2,38,90,000 along with bank charges and interest at 9% before this Hon'ble Court;
(F). Pending the admission, hearing and final disposal of the matter, Your Lordships be pleased to direct respondents not to initiate the process of black-listing the petitioner pursuant to notices dated 08.07.2018;
(G). Grant such other and further relief(s) in favour of petitioner as may be deemed just and proper by this Hon'ble Court in the interest of justice."
2. The facts giving rise to this writ-application may be summarized as under:
2.1. The writ-applicant is engaged in the business of manufacturing of Hi-tech luxury coaches, air-conditioned coaches, Fire Tenders, Ambulances, LRVs and into fabrication of vehicles and is a proprietary firm being managed by its proprietor. The respondent Corporation floated a tender notice No. CWA/e-Tender/01/2015-16 dated 03.12.2015 inviting tenders from accredited bus body builders for fabrication of 850 different types of buses as follows:
"(A). 250 Semi Luxury bus bodies on Tata LPO/ Ley Viking / Eicher or equivalent diesel chassis (10 Meters) 5540 to 5900 mm WB;
(B). 200 Semi Luxury bus bodies on Tata LPO/ Ley Viking / Eicher or equivalent diesel chassis (12 Meters) 6200 mm WB;
(C). 200 Super Express bus bodies on Tata LPO/ Ley Viking / Eicher or equivalent diesel chassis (10 Meters) 5540 to 5900 mm WB;Page 3 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021
C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 (D). 200 Sleeper Coach bus bodies on Tata LPO/ Ley Viking / Eicher or equivalent diesel chassis (12 Meters) 6200 mm WB."
2.2. Having been found suitable and qualifying on all the fronts, the contract of (i) 100 No. Super Express Buses (10 Mtr.); (ii) 170 No. Semi Luxury Buses (10 Mtr.); (iii) 90 No. Semi Luxury Buses (12 Mtr.) was issued in favour of the writ- applicant. After due inspection, the buses came to be accepted by the respondent Corporation. The respondent Corporation issued the work order in favour of the writ-applicant on 10.08.2016. As per the tender condition, the writ-applicant furnished bank guarantee being J17GPGE162070002 on 25.07.2016, as performance guarantee under the contract. On 29.06.2018, the respondent Corporation issued a communication to the writ-applicant that few cracks were detected on six buses supplied by the writ-applicant. A joint inspection in presence of the representatives of both, the writ- applicant as well as the respondent Corporation was carried out and inspection reports were prepared on 04.07.2018 and 05.07.2018 respectively. The writ-applicant thereafter received an e-mail from the respondent Corporation dated 6.7.2018 (page-126) calling upon the writ-applicant to extend the bank guarantee. In response to the said communication, the writ- applicant replied on 07.07.2018 through e-mail and showed its readiness and willingness to undertake the necessary repairs and also extended the bank guarantee. The writ-applicant thereafter received 12 legal notices from the respondent Page 4 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 Corporation through e-mail as well as in physical form with respect to 12 buses, mainly, calling upon the writ-applicant to extend the bank guarantee and to repair the buses, as the buses were within the warranty period. The respondent Corporation by various other communications informed the writ-applicant about the defects which were noticed in other buses as well and the writ-applicant was informed about the same through various other communications by the respondent Corporation. While the writ-applicant was in the process of carrying out the necessary repairs in accordance with the complaints received by the Corporation from time to time, which were communicated to the writ-applicant, the respondent Corporation sent an e-mail on 13.07.2018 to Canara Bank, Faridabad, Haryana for deduction of amount of Rs.2,38,90,000/- citing condition no.7 of the tender quoting the alleged defects. Further, by letter dated 19.07.2018 the respondent Corporation asked the bank to encash the bank guarantee. The writ-applicant being aggrieved by such conduct of the respondent Corporation of encashing the bank guarantee, approached this Court with the reliefs as stated in the writ-application.
2.3. Pending the writ-application, the respondent Corporation issued a show cause notice dated 15.09.2018, in view of substandard performance of the writ-applicant and supply of defectively constructed buses with inferior quality material amounting to cheating / fraud / breach of trust. It Page 5 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 further asked the writ-applicant to show cause under the relevant clauses of the terms of the tender, conditions of the contract and clause nos.(1) and (2) of the agreement dated 25.05.2016 as to why the firm of the writ-applicant including the subsidiaries and sister concerns to the writ-applicant should not be stopped dealing / blacklisted from all the future tenders / contracts / business relation of GSRTC. The writ-applicant was informed to file reply to the show cause notice within a period of 15 days from the receipt of the show cause notice, failing which appropriate action would be initiated against the writ-applicant by the respondent Corporation. The writ- applicant challenged the above-referred show cause notice before this Court by way of an amendment in the writ- application.
3. This Court by order dated 08.10.2018 allowed the draft amendment, issued notice and granted ad-interim relief in favour of the writ-applicant. The order dated 08.10.2018 is produced thus:
"Draft amendment is granted. Amendment be carried out forthwith.
Heard Mr. Rasesh Sanjanwala, learned Senior Advocate appearing with Mr. Ashish Dagli, for the petitioner. Issue notice returnable on 23.10.2018.
In the meanwhile, ad-interim relief in terms of para 9(DD) is granted.
Direct service is permitted."Page 6 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021
C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 Submissions on behalf of the writ-applicant:-
4. Mr. Rashesh Sanjanwala, the learned senior counsel assisted by Mr. Ashish Dagli, the learned advocate appearing for the writ-applicant would submit that the writ-applicant was awarded the work order on 10.08.2016 and after completion of all the formalities, the tender of the writ-applicant was accepted being found suitable and the writ-applicant had qualified on all the fronts, as per the qualifying criteria and the respondent Corporation had accepted the buses supplied by the writ-applicant without any objection.
4.1 He would further submit that the alleged defects which were callously branded as manufacturing defects by the respondent Corporation were noticed nearly after two years of the buses in question having been put to use and extensively run, clearly demonstrates that there were no manufacturing defects and shortcoming in the bus bodies which were erected by the writ-applicant and were duly inspected and approved when the respondent Corporation accepted the delivery of the said buses.
4.2 He would submit that, however, on 29.06.2018, there was a first communication which was received from the respondent Corporation informing the writ-applicant that there were some cracks which were noticed on six buses supplied by the writ-applicant and the said defects were within the Page 7 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 warranty period, since the defects were noticed within the warranty period, the writ-applicant was required to carryout the necessary repairing work. He would further submit that, joint inspections were carried out in presence of the representatives of both, the writ-applicant as well as the respondent corporation and the writ-applicant showed readiness and willingness to carry out the repairing work. The writ- applicant also agreed for extension of bank guarantee in accordance with the communication received by the writ- applicant from the respondent Corporation on 06.07.2018. He would further submit that, though the bank guarantee was valid upto 24.07.2018, the writ-applicant was issued notice by the respondent corporation prior to that for the extension of the bank guarantee.
4.3 He would submit that, in fact, it was due to the faulty maintenance and upkeep of the bus bodies in question by the Corporation that the buses were required to be repaired. He submitted that, however without prejudice, the writ-applicant showed willingness to carry-out the repairing work of the buses in question by communication dated 18.07.2018. He would submit that the action of the respondent corporation informing the Canara Bank, Faridabad, Haryana through communication by e-mail dated 13.07.2018 for deduction of a sum of Rs.2,38,90,000/- relying on condition no.7 of the tender document quoting defects and consequently, encashing the bank guarantee unilaterally without informing Page 8 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 the writ-applicant by letter dated 19.07.2018 was clearly in violation of the conditions of the contract. He would submit that the contract did not provide for unilateral adjudication of dispute and invocation of bank guarantee and such action on the part of the respondent Corporation was absolute abuse of position and process of law. He would submit that, in fact, there were certain dues to the tune of Rs.45,55,200/- from the respondent Corporation, which were required to be collected by the writ-applicant. He would submit that, during the pendency of the writ-application, the writ-applicant has carried-out all the repairing works as pointed out by the respondent Corporation. The repairs have been carried-out by the writ-applicant at his own expense, though, the tender condition stipulates that, if there are any repairs, the same would be at the expense of the respondent Corporation. He fortified his submission by filing the affidavit (pg. 424), which states thus:
"1. I, Adishkumar Jain S/o. Shri N.C. Jain, aged 52 years, residing at: M8, Green Park Main, New Delhi-16 file this additional affidavit as during pendency of the petition, the intimation give to the petitioner company with regard to repairing of the bus were undertaken.
2. I say that as on 30.05.2019, the buses of different Divisions for which the intimation given to the petitioner company got repaired and the joint inspection carried out by the Corporation along with the officers of the petitioner and found upto the mark. It is submitted that report of joint inspection which is signed and countersigned by both the parties. I say that the detailed chart showing repairing of the buses undertaken by petitioner on 30.05.2019 with regard to different Divisions is attached herewith and marked Annexure-Page 9 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021
C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 I Coll. to this affidavit for the kind perusal of this Hon'ble Court.
3. I say that the security deposit of petitioner company more than 2 crores is lying with the Corporation and also outstanding amount of the petitioner deserves release forthwith in the interest of justice."
4.4 He would lastly submit that the action of the respondent Corporation was bad and illegal as the respondent Corporation could not have invoked the bank guarantee as submitted earlier and consequent notice of black-listing the writ-applicant was also bad in law and both the actions of the respondent Corporation, viz. (i) encashing the bank guarantee unilaterally to the tune of Rs.2,38,90,000/- and (ii) the action of the respondent Corporation of issuing show cause notice dated 15.09.2018 are bad in law and the same are required to be quashed and set aside.
Submissions on behalf of the respondent-Corporation:-
5. Mr. Niral Mehta, the learned counsel appearing for the respondent-Corporation would submit that the petitioner was awarded the contract / tender for body building of 360 buses, viz. (1) 100 super express buses 10 mtrs. chassis, (2) 170 Semi Luxury buses 10 mtrs. chassis and (3) 90 Semi Luxury buses 12 mtrs. chassis, pursuant to the tender being No. CWA/E-Tender/ 01/2015-16. He submitted that letter of acceptance dated 31.05.2016 issued in favour of the writ-applicant wherein major terms and conditions were prescribed in addition to the Page 10 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 other conditions in the tender documents by amended letter. He relied on Clauses-(8), (9) and (10) of the letter of acceptance and submitted that they were germane to the present dispute. He submitted that as per the agreed terms and conditions, inspection of buses were segregated into 2 parts, i.e. (1) inspection of Proto Bus, which consist of three stages inspection with regard to structure inspection, panelling inspection and the final inspection and (2) except the Proto Bus, which is called regular buses to be inspected into parts i.e. after completion of structure at the factory and final inspection shall be done after receipt at Central Workshop at Ahmedabad. He submitted that, as per clause-8 which is the warranty clause (pg. 98) in the letter of acceptance, unconditional warranty of 24 months was given by the writ- applicant against any such defect. Over and above, by way of tender Clause No. 4(A)(c)7, which clearly stated that the certificate issued by the inspecting team in no way relieve the contractor for any loss, injury or damage, which may result from the use of improper material or defective workmanship which might have escaped the attention of the inspecting authority. Clause No. 4(A)(c)7 of the tender is reproduced hereinbelow:
"4(A)(c)7. A certificate from the Inspecting Team shall in no way relieve the contractor for any loss, injury or damage, which may result from the use of improper material or defective workmanship which might have escaped the attention of the Inspecting Authority. The Page 11 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 contractor shall also be liable for the replacement of the improper material and attending to the defective workmanship."
5.1. Mr. Mehta submitted that, Clause-7(d) of the tender document clearly states that if any defects were reported and if the same are not removed by the contractor within a period of 15 days, the respondent Corporation would be free to remove the defects and cost thereof shall be recovered from the outstanding amount. The clause further provides that, repetition of continuous three such incidents may lead to take action of disqualification and upto termination of contract.
5.2. Mr. Mehta would submit that, in view of the aforesaid stipulated terms and conditions of the contract, the writ-applicant accepted the contract and supplied the buses between the period from 25.07.2016 & 20.03.2017. The writ- applicant issued bank guarantee of Rs.2,38,90,000/- in accordance with the tender condition towards the performance guarantee which was to be over on 24.07.2018, which, however, as per the tender conditions should have been upto 19.03.2019 i.e. 24 months from the date of receipt of delivery of last bus supplied by the writ-applicant, which was on 20.03.2017. He would submit that, while issuing the work order dated 10.08.2016, it was made clear to the writ- applicant that the writ-applicant would have to extend the bank guarantee for further period of 24 months from the day, the last completed bus was delivered to the respondent Page 12 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 Corporation.
5.3. Mr. Mehta would submit that, after the delivery of 360 buses to the respondent Corporation the same were allocated to 16 Divisions (Districts) for the purpose of plying the buses on the road for the public. He submitted that, from the various Divisions, the respondent Corporation received complaints with major and minor defects from various divisions. Mr. Mehta referred to the communication dated 13.03.2018 sent by the respondent Corporation to the writ- applicant informing the writ-applicant about the defects found in new vehicle bus body built by the writ-applicant. The complaints were received by the respondent Corporation from its operating divisions, viz. Godhra, Jamnagar, Junagadh, Nadiad, Bharuch, Bhuj, Mehsana, Bhavnagar, Vadodara, Himmatnagar, Rajkot, Valsad and Surat indicating the defects in semi luxury buses and super expressed type vehicles supplied by the writ-applicant. The communication further stated that defects were found within a short period of operation i.e. within the warranty period of two years and the writ-applicant was asked to attend the defects at the earliest. The said communication is produced (at page. 270) by the respondent. Mr. Mehta, further relied upon the letter dated 02.04.2018 informing the writ-applicant about the defects, so found in the buses supplied by the writ-applicant. Further, by communication dated 02.05.2018, the respondent Corporation Page 13 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 informed about the defects found in new vehicle body supplied by the writ-applicant with regard to the complaints received from operating divisions of Mehsana and Amreli. The defect was within short period of operation i.e. within the warranty period of two years and the writ-applicant was directed to attend the same. Likewise, the Corporation made several communications to the writ-applicant by the letters dated 07.05.2018, 25.05.2018 and 07.06.2018 pointing out to the writ-applicant that the defects were found in the buses supplied by the writ-applicant during the warranty period. Mr. Mehta submitted that the communications which were made to the writ-applicant were deliberately not brought on record.
5.4. Mr. Mehta would submit that out of 360 buses, 84 buses including 16 buses were identified with major and serious defects, the buses having cracks in the body as well as structure. He submitted that in view of the above, a legal notice came to be issued to the writ-applicant on 08.07.2018 for replacement / reconstruction of body, damages, extension of bank guarantee, re-inspection of each of the bus supplied and for showing the cause as to why the order of blacklisting should not be passed against the writ-applicant. Mr. Mehta would submit that, though, the show cause notice was issued on 08.07.2018 by the respondent Corporation, the writ- applicant did not act in accordance with the show cause notice, neglecting the notice issued by the respondent Page 14 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 Corporation and did not take the dispute seriously. He further submitted that, on one hand the writ-applicant was not cooperating with the respondent Corporation and on the other hand, the bank guarantee was to expire on 24.07.2018. Keeping in mind the fact that total 276 buses were to be examined and 50% of the inspected buses were found with major defects, the respondent Corporation was constrained to encash the bank guarantee so as to secure the public exchequer. He lastly submitted that the writ-applicant having supplied inferior quality of buses was not entitled for any equitable relief and prayed for dismissal of the writ-application in limine in view of above submissions.
6. Heard Mr. Rasesh Sanjanwala, the learned senior counsel assisted by Mr. Ashish Dagli, the learned counsel appearing for the writ-applicant and Mr. Niral Mehta, the learned counsel appearing for the respondent Corporation.
Analysis:-
7. We are called upon to decide two issues in the present writ-application:
(I) Whether the bank guarantee No. J17GPGE162070002 amounting to Rs.2,38,90,000 encashed by the respondent Corporation is unjust, illegal or arbitrary and if so the same be directed to be refunded to the writ-applicant along with bank Page 15 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 charges and interest at 9% ? And (II) Whether the show cause notice dated 15.09.2018 (at page.266) calling upon the writ-applicant to show cause as to why the writ-applicant should not be stopped dealing / blacklisting for all future tender / contract / business relations of GSRTC deserves to be quashed in view of subsequent developments ?
Bank Guarantee :-
8. The contract of guarantee is defined under Section 126 of the Indian Contract Act, 1872 which is reproduced herein-below:
"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."
Section 126 of the Contract Act, 1872 provides that, a guarantee is a contract to perform the promise or discharge the liability of third person in case of breach or default by that person. In bank guarantee the lending institution i.e. the Bank acts as a surety for the creditor. The person for whom guarantee is given is called 'principal debtor' and the Page 16 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 person to whom guarantee is given is called the 'creditor'. Bank guarantee is a tripartite agreement between banker, the beneficiary and the person or the creditor in which 'Bank' becomes the surety for the transactions between the debtor and creditor. A bank guarantee is a written contract given by a bank on the behalf of a customer which undertakes to pay or discharge the liability of the debtor in case of any default. The concept of bank guarantee is basically introduced for the free flow of the trade as guarantee given by bank secures the creditor from loss and also enables the creditor to claim the debt in case of any default without opting for the cumbersome process of litigation. Since the bank guarantee secures the third party as in case of default by the debtor, all the liability of the debtor will be discharged by the bank.
9. The Supreme Court in case of Tarapur & Co.v. VO Tractors Export (AIR 1970 SC 891) held that the contract created between the creditor and the bank is separate from the original contract between the buyer and the seller, because of that the banks undertaking to the creditors is absolute and unconditional, so there is no need of any intervention from Courts, as intervention from the Court may destroy the very essence of bank guarantee. The Bank guarantee enables the individual to recover their debts by avoiding the long strength of legal proceedings and if there will always be any judicial intervention, then the very Page 17 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 purpose will be defeated.
10. In case of United Commercial Bank v. Bank of India (AIR 1981 SC 1426), the Hon'ble Supreme Court has ruled that Courts ought not to intervene in the matter of bank guarantee as more intervention may lead to delay and can affect the transaction procedure. Only in cases of fraud and irretrievable harm or injustice, intervention of judicial forum would be necessitated.
11. The Hon'ble Supreme Court in the case of M/s. Adani Agri Fresh Ltd. v. Mahaboob Sharif reported in AIR 2016 SC 92, has observed as under:
"12. During the course of hearing, learned counsel for the appellant candidly submitted, that the communication dated 14.01.2011 relied upon by respondent No.1 in its defence, is a fabricated and doctored document, which was never executed by the appellant. The position adopted by the rival parties lead us to record the following conclusions. Firstly, that the concerned bank guarantees, are clearly unconditional. This is apparent from the extracts thereof, reproduced above. Secondly, the veracity and truthfulness of defence of respondent No.1 - M/S RMSFC, based on the communication dated 14.01.2011, cannot be opined on at the present juncture, and will have to await the final outcome of the civil suit filed by M/s RMSFC at Mysore. Thirdly, M/s RMSFC has not levelled any allegations of the commission of a flagrant fraud by M/s AAFL, for engineering the invocation of the bank guarantees executed by the State Bank of Mysore. Fourthly, no submissions have been advanced on behalf of M/s RMSFC to establish, that the invocation of the bank guarantees would lead to an irreparable injury or some irretrievable injustice. The instant eventuality is therefore ruled out.
13. In deciding the present controversy, we will therefore have to adopt the principles laid down by this Court in Page 18 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 U.P.Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd. (supra), and in Vinitec Electronics Private Ltd. vs. HCL Infosystems Ltd.(supra). Having given our thoughtful consideration to the law laid down by this Court, in respect of grant/refusal of an injunction of an unconditional bank guarantee, and keeping in mind the terms and conditions, more particularly of the contractual conditions extracted and narrated above, we are satisfied that the courts below were not justified in injuncting the invocation of the three bank guarantees, executed by the State Bank of Mysore, at the instance of M/s RMSFC. We accordingly hereby direct respondent Nos.2 and 3 - the State Bank of Mysore to honour the same forthwith."
12. The Hon'ble Supreme Court in the case of Standard Chartered Bank v. Heavy Engineering Corporation Limited and Another reported in (2020) 13 SCC 574, has observed as under:
"19. The law relating to invocation of bank guarantees with the consistent line of precedents of this Court is well settled and a threeJudge Bench of this Court in Ansal Engineering Projects Ltd. Vs. Tehri Hydro Development Corporation Ltd. and Another held thus:
"4. It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object behind is to inculcate respect for free flow of commerce and trade Page 19 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 and faith in the commercial banking transactions unhedged by pending disputes between the beneficiary and the contractor."
13. Undisputedly the writ-applicant furnished the bank guarantee being J17GPGE162070002 of Rs.2,38,90,000 on 25.07.2016 for a period of two years. The bank guarantee would have expired on 24.07.2018. The writ-applicant supplied the buses to the respondent Corporation between 25.7.2016 & 20.3.2017. As per the tender conditions since the last bus was delivered on 20.03.2017 by the writ- applicant, the bank guarantee was required to be continued till 19.3.2019 i.e. 24 months from the date of receipt of delivery of the last bus. The writ-applicant renewed the bank guarantee on 9.07.2018.
14. Having regard to the position of law relating to invocation of bank guarantee as discussed above, we are of the view that in the facts and circumstances of the present case we should not express any opinion on the question whether the Corporation was justified in encashing the unconditional bank guarantee. By now it is well settled that the writ-court should be loath in adjudicating the question as regards the legality and validity of the encashment of the bank guarantee. It is only in a very gross case like one of fraud etc., that the writ-court may be justified in interfering. The case on hand is not one of fraud but what is sought to be argued before us is that the Corporation could not have Page 20 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 encashed the bank guarantee having regard to the fact that the writ-applicant agreed to undertake the necessary repairs at his own cost. However, the bank guarantee came to be invoked at a point of time when there was no clarity whether the Corporation would have agreed to undertake the necessary repairs or not. Be that as it may, this issue remains in the realm of a disputed question of fact. As it is open for the parties to go for arbitration, we are of the view that we should not touch the issue of bank guarantee and we leave it open to the parties, more particularly the writ-applicant to avail appropriate legal remedy before the appropriate forum in accordance with law.
15. So far as second issue of show cause notice is concerned, pursuant to the tender notice issued by the respondent Corporation tender notice No. CWA/e-Tender/01/2015-16 on 03.12.2015, the respondent Corporation issued work order in favour of the writ- applicant on 10.8.2016. The writ-applicant accepted the work order in accordance with the terms and conditions of the contract and supplied buses to the respondent Corporation for a period from 25.7.2016 to 20.3.2017. The respondent Corporation received complaints with regard to major and serious defects of buses supplied by the writ- applicant i.e. cracks on the body as well as the structure of the buses. The respondent Corporation detected the defects within a short period of operation i.e. within a warranty of Page 21 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 two years and the writ-applicant was directed to attend the same. Clause (2) of the warranty certificate reads thus :-
"(2) If Structural damage occurs during warranty period of five years the vehicle will be jointly inspected by the body builders representative and GSRTC official/Representative.
During joint inspection, if the defects found due to quality of material / workmanship / improper treatment on MS / GI material the contractor (Bodybuilder) here by agree to rectify the same at his cost to the satisfactory of the corporation within a period of 10 days of being called upon to do so. by the corporation, at the operating units of the corporation. The contractor here by further agree in case its failure to repair and recondition such bus bodies according to the agreed specification, the corporation for any of its authorized officer of any unit will be entitled to have the necessary repairs carried out at its own works or from any outside agency and recover the cost incurred thereof from the contractor."
By letter dated 31.5.2016 the respondent Corporation informed the writ-applicant that your offer is accepted. 'Performance of guarantee' Clause (9) of the letter reads thus :-
"After receiving this acceptance letter, you are requested to furnish a performance guarantee in the amount of Ten percent (10%) of the contract price i.e. Rs. 2,38,90,000=00 within 30 (Thirty) working days from the date of this acceptance letter in form of Bank Guarantee of nationalized Page 22 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 bank or or FDR.
However to execute / start the work ( lifting of chassis ) firm should have to furnish the minimum amount of Rs. 10,00,000/- (Ten Lac Only) as a part of performance guarantee in form of B.G. or FDR, within 05 calendar days ( but not later than lifting of First / Proto chassis ) after receiving of this acceptance letter. This amount of Rs. 10 Lac will be adjusted against performance guarantee. In the event of failure of acceptance of the business allotted or failure to submit performance guarantee, the EMD will be forfeited, allocation of business will be cancel & action for risk purchase and black listing will be carried out."
The acceptance letter was issued in anticipation of fulfillment of performance guarantee, indemnity bond and contract agreement in the prescribed performa given in the contract. In the event of failure, submission of a performance guarantee, the EMD would be forfeited. Since the writ-applicant could not perform in accordance with the conditions of the contract, the respondent Corporation encashed the bank guarantee. The respondent Corporation being a public body encashed the bank guarantee to secure the interest of public at large.
16. According to the respondent Corporation, the Corporation was constrained to issue the show cause notice dated 15.09.2018, because of poor quality of work Page 23 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 undertaken by the writ-applicant and supply of defectively constructed buses with inferior quality material amounting to cheating / fraud / breach of trust.
17. After issuance of the show cause notice for blacklisting by the respondent Corporation dated 15.09.2018 the writ-applicant approached this Court challenging the said show cause notice. This Court passed an order dated 08.10.2018 staying the show cause notice dated 15.9.2018. During the pendency of the writ-application the writ- applicant has carried out all the repairs of the buses to the satisfaction at its own cost. The writ-applicant has filed an affidavit which is produced at page-424. We have gone through the contents of the said affidavit which states that on 30.5.2019 the writ-applicant got all the buses repaired and a joint inspection was carried out by the respondent Corporation alongwith officers of the writ-applicant and found all the buses upto the mark. The report of the joint inspection is signed and counter signed by both the parties. The detailed chart dated 30.5.2019 indicating repairing of the buses was duly undertaken by the writ-applicant with regard to different divisions is also attached at page-426 of the writ-application.
18. From the further affidavit which is produced by the writ-applicant, the certificates are also produced showing Page 24 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 that the nature of work allotted to the writ-applicant is completed. Having gone through the same, we are of the opinion that, the proceedings so far as the blacklisting is concerned, are required to be dropped because the show cause notice issued by the respondent Corporation dated 15.9.2018 remained stayed vide the order of this Court dated 8.10.2018 as also pending the writ-application the writ-applicant has carried out all the repairs to the satisfaction of the respondent Corporation.
19. In view of settled principles of law and the facts of the present case, we are of the view that no case of fraud or irretrievable harm is made out by the writ-applicant for interference by this Court under Article 226 of the Constitution of India. The law is also well settled that in the cases of bank guarantee the writ Court should be slow in intervening so far as contract of bank guarantee is concerned. At the same time we clarify that, it is open for both the parties to initiate arbitration proceedings in accordance with the arbitration clause of the contract or any other proceedings available in law. In view of above, no case is made out for interference under Article 226 of the Constitution of India so far as encashment of the bank guarantee is concerned.
20. In such circumstances, this Court is not inclined to Page 25 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021 C/SCA/15021/2018 JUDGMENT DATED: 01/09/2021 interfere so far as encashment of bank guarantee is concerned, keeping it open for the parties to avail appropriate remedy as available in the law.
20.1 So far as blacklisting is concerned, the show cause notice dated 15.09.2018 calling upon the writ-applicant to appear before the respondent Corporation as to why the writ-applicant should not be blacklisted is required to be quashed and set aside and the same is quashed and set aside.
21. In view of the above, the writ-application stands partly allowed.
(J. B. PARDIWALA, J) (VAIBHAVI D. NANAVATI,J) K.K. SAIYED Page 26 of 26 Downloaded on : Thu Oct 07 14:53:20 IST 2021