Bangalore District Court
M/S Ss Exports vs M/S. Stcl Limited on 29 September, 2021
1
Com.A.S.71/2013
IN THE Court OF LXXXVII ADDL.CITY CIVIL & SESSIONS
JUDGE, (EXCLUSIVE DEDICATED COMMERCIAL COURT)
AT BENGALURU (CCH.88)
THIS THE 29th DAY OF SEPTEMBER 2021
PRESENT:
SRI.CHANDRASHEKHAR U., B.Sc., LL.M.,
LXXXVII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.71/2013
PLAINTIFF: M/s SS Exports,
A partnership Firm,
Having its at No.19,
Shivashankar Plaza,
Richmond Circle,
Lalbagh Road,
Bengaluru - 560 027.
And also at:
No. R.S Plaza, 4th Floor,
New BEL Road, RMV II Stage,
Bangalore 560 094
Represented by Senior GM
Shri Pran Nath,
Under the Letter of Authority
By its Managing Partner cum
CEO Shri Rajendra Pati
(Reptd by PS -Adv)
AND
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Com.A.S.71/2013
RESPONDENTS 1. M/s. STCL Limited,
Subsidiary of the STC of Indiaa Limited,
A Government of India Undertaking,
Registered udner the provisionsof the
Companies Act, 1956, having its
registered office at No.166/2,
13th Main Road, Vasantha Nagar,
Bangalore 560 052
represented by its Managing Director
RESPONDENTS 2. M/s Indian Bank,
Overseas Branch - Bangalore,
No. Manandi Plaza, St. Marks Road,
Bangalore 560 001
represented by its Chief Manager
Date of Institution of the 29.8.2013
suit
Nature of the suit (suit on
pronote, suit for
declaration & Possession, Arbitration Suit
Suit for injunction etc.)
Date of commencement of -
recording of evidence
Date on which judgment
was pronounced 29.09.2021
Total Duration Year/s Month/s Day/s
08 01 00
(CHANDRASHEKHAR U),
LXXXVII Addl.City Civil & Sessions Judge,
(Exclusive dedicated Commercial Court)
Bengaluru.
3
Com.A.S.71/2013
JUDGMENT
The petitioner has filed the above suit under Section 34 of the Arbitration & Conciliation Act, 1996, (hereinafter called as 'the Act') for setting aside the Award, dated 20.08.2013 passed in MFA No. 3454/2010 by learned Arbitrator and cost of the suit.
2. The brief facts of the case of the petitioner are as hereunder:-
The petitioner firm is engaged in the business of Import, Export and domestic trade of various items including Iron Ore Fines and other commodities. The respondent No.1 is also a similar organisation owned by the Government of India and it also does the business of facilitation etc., for renowned import and export business organisations by way of funding against good business margins. The petitioner and respondents have been in good relationship in business for long time and the nature of the business is that importing and exporting materials under export contracts. Since, the various business between the petitioner and the respondent is continuous in nature, the petitioner has secured three major bank 4 Com.A.S.71/2013 guarantees from its bankers namely, M/s Indian Bank, Overseas Branch, Bengaluru, the 2nd respondent herein in favour of the 1st respondent company and has kept it with the 1st respondent with timely renewals. Though, generally the Bank Guarantees are made and provided to suite and accommodate the particular business deal, as an exception and on good faith, the petitioner has availed and kept the three major bank guarantees with the 1 st respondent in order to ensure timely approvals and speedy business process as the generation of Bank Guarantee each time afresh is a tedious job. The petitioner has offered Bank Guarantees No.318/06 for Rs.4 crores and 318/06 for Rs.1 crore and 326/07 for Rs.3 crores in favour of the respondents and they were renewed from time to time. As usual, the petitioner and respondents entered into a new business contract, dated 30.7.2008, bearing No. STCL/SSE/IOF/08-09 and in terms of which, the 1st respondent agreed to facilitate and finance the deal of the petitioner firm procuring 40,000 MT of Iron Ore Fines and it is exported to a prospective buyer overseas by sourcing the Iron Ore Fines from Bellary region and shipment from Krisnapattnam Port. As per the terms of the contract 5 Com.A.S.71/2013 between the petitioner and 1st respondent, the 1st respondent agreed to deploy funds to the extent of 80% of the mine head cost fixed at Rs.2,850/- per MT and transportation cost of Rs.1,325/- per MT, thus totally Rs.4,175/- per MT in a phased manner physically 2000 MT, each time finally culminating to 40,000 MTs. It is further stated that the 1 st respondent had agreed to fund to the tune of Rs.6,70,00,000/- on a simple counter condition that 20% of the margin required for funding shall be brought in by the petitioner firm, either in the form of cash, cargo or Bank Guarantee, before the release of payment by the 1st respondent. Besides this, petitioner was subjected to provide personal/corporate Guarantee supported by a postdated cheques for the value of funds to be deployed by the 1st respondent. It is further case of the petitioner that the petitioner offered Bank Guarantee for Rs.1 crore on 10.6.2006 issued by the 2nd respondent as 20% margin amount. It is also agreed for the share of the petitioner by the dealings and the 1st respondent deployed a total sum of Rs.6,68,00,000/- in phased manner to the benefits of the petitioner after confirming the facts of the petitioners ancillary contracts with mine owners, stock holders, transport contractors, port 6 Com.A.S.71/2013 authorities, etc. Since, the petitioner could not supply on account of prevailing circumstances and various other impediments to ship the minerals from Bellary to Krisnapattanam Port for want of place and when it was brought to the notice of the respondents and sought for extension of time, the respondent has not extended the time.
On the other hand, issued letter, expressing its intention to invoke Bank Guarantees. The respondent by its letter, dated 24.10.2009, 26.10.2009, 12.11.2009 wrote to the petitioner with an instruction to look out for an alternative port other than Krisnapattnam Port or else to invoke Bank Guarantees given by the petitioner. Since, it was agreed to transport 40000 MT of the Iron Ore Fines, the time fixed for transportation was not sufficient and the above consignment is too heavy to complete in a short time and the request made by the petitioner was not considered by the 1 st respondent. In the meantime, when there was threat of invocation of the Bank Guarantee, the petitioner herein brought an order of Temporary Injunction by filing application under Section 9 of the Arbitration and Conciliation Act, 1996 and prevented the 1st respondent from encashing the Bank 7 Com.A.S.71/2013 Guarantee. Further, when, a place is fixed for dumping of Iron Ore Fines, it was not expected from the petitioner to go to another port and transport the materials as the movement of Cargo ship is not so easy as contended by the 1 st respondent. Since, the 1st respondent expressed, its intention to encash the Bank Guarantee, after obtaining the injunction order from the Court, the Arbitration proceedings were initiated by appointing learned Arbitrator. Learned Arbitrator, after hearing the parties, has rejected the claim of the petitioner herein by an impugned award, dated 21.8.2013.
3. Being aggrieved by the above award, the petitioner has filed the above petition on the ground that the award is highly perverse, opposed to the principles of law, the principles of natural justice and the settled legal positions, highly prejudicial, lacks application of mind and clearly one sided. Learned Arbitrator has not allowed the petitioner to examine the witness and his application for examining the witness came to be dismissed summarily and no further time was given. The award suffers from preconceptions and lacks fair treatment. The technical behaviour of the Tribunal has 8 Com.A.S.71/2013 caused serious miscarriage of justice to the applicant. No opportunities were given to put forward its case by learned Arbitrator. The Award under dispute is clanged with cloud of partisan consideration prima-facie and it is net result of pre determine favourable to considerations shown by Arbitral Tribunal in favour of the respondent No.1. The Award under dispute clearly falls under the exceptional category under Section 34 of the Act and thus requires to be set aside. The Tribunal has not allowed the petitioner to produce necessary documents and not given fair opportunities to put forward its case. Further, Tribunal has wholly forgotten presence of 2 nd respondent on dispute and no order or observation passed against the petitioner. Accordingly, it has prayed for setting aside the Award.
4. The respondent has filed objection stating that the application is not maintainable and the same is filed only to harass the respondent. The application is not maintainable as no grounds are made out as required under Section 34 of the Act 1996. None of the grounds shown in Section 34 of the Act complied, so as to bring the suit within the purview of the said 9 Com.A.S.71/2013 section. Without prejudice, the respondent has stated that both the companies are registered under the companies Act and being doing business in the matter of overseas transportation of iron ore etc. and considering length of relationship without entering into an agreement, for transportation of minerals from Bellary to Krisnapattnam port, in turn for overseas sale. The agreement dated, 30.7.2008 and petitioner was required to procure 40,000 MT and failed to transport the same as agreed. It was also agreed to offer Bank Guarantee, besides other securities and abide by the terms of the conditions. Though, the place was allotted to the petitioner at Krisnapattnam Port, it allowed the sister concern to dump the materials, which caused major delay in transportation, for which the respondent cannot be held responsible. The 1st respondent has invoked the Bank Guarantee as per the terms of the contract for the failure on the part of the petitioner to perform its part of contract on the agreement. In the said connection, so many letters were exchanged between the parties, they came to be produced as annexures before the Court. The respondent has further stated that the petitioner was given option of shipping with 10 Com.A.S.71/2013 transport from any port in India, despite the fact that the petitioner was taking advantage of this option. Further, the respondent was also under the obligation to pay the amount to its banker. Therefore, there was no other go, but to proceed for encashment of Bank Guarantee. The respondent was under the constant pressure of UCO Bank to pay back its due. The petitioner by allowing its sister concern to use the plot allotted to it at Krisnapattnam Port is the main reason for delay. Even after, appointment of Arbitrator, the petitioner failed to file claim petition within time and even during the course of proceedings, though, sufficient opportunities were given to adduce evidence, the petitioner did not adduce evidence and there was direction by the Arbitrator to terminate the arbitration proceedings. The petitioner belatedly filed the claim petition and evidence. Inspite of granting sufficient time for adducing evidence, the petitioner did not do so. Ultimately, the evidence was taken as not filed. Again after evidence of the respondent also, the petitioner attempted to file Affidavit evidence, which was summarily rejected by learned Arbitrator. Learned Arbitrator has given sufficient opportunity to the petitioner to give evidence and 11 Com.A.S.71/2013 also to address argument. The intention of the petitioner is to see that the proceeding is being delayed as it has obtained injunction order restraining the respondent from encashing the Bank Guarantee. Ultimately, the Award came to be passed. The petitioner having given up some of the witnesses, again attempted to take summons to some of the officials of petitioner, respondent and also the Port authority, which came to be rejected by learned Arbitrator. Ultimately, the Award came to be passed by rejecting the claim with cost of Rs.3 lakhs. The petitioner due to its conduct, failed to perform its part of contract under the terms of the contract and therefore, no grounds are made out to set aside the Arbitral Award as per Section 34 of the Act. Accordingly, it has prayed for dismissal of the suit.
5. Heard, learned counsel for the petitioner and respondents.
6. Now, the points that arise for my consideration are:-
1. Whether the petitioner has made out grounds under Section 34 (2) that the Award passed by the Arbitrator is against the public policy and non consideration of Section 129 of Indian Contract 12 Com.A.S.71/2013 Act, is patently illegal and as such, the Award is liable to be set aside?
2. What Order ?
7. My findings on the above Points are as under:
Point No.1 :- In the Negative.
Point No.2 :- As per the final Order for the following reasons.
REASONS
8. POINT NO.1 : Learned counsel for the petitioner would argue that the scope of Section 34 has been enhanced periodically and incapacity of the party also depends upon the defences, which strengthen the contract taken by the 1 st respondent, which made the petitioner to suffer a lot and on account of various obstruction faced by the petitioner in shifting the Iron Ore Fines from Bellary to Krishnapattanam Port, so as to send the same to overseas purchaser vide agreement entered into between the petitioner and the 1 st respondent, which came to be produced before learned Arbitrator at Ex.C6, which is dated 30.7.2008. By relying upon 13 Com.A.S.71/2013 the said Ex.C6, agreement, he would argue that the agreement reveals that the petitioner approached STCL with a proposal to procure 40,000 MT Iron Ore Fines and export as physical shippers by Iron Ore Fines from Bellary region and shipment from Krisnapattanam Port. It is agreed under Ex.C6 agreement that the 1st respondent shall consented to release the amount to the extent of 80% and the petitioner was bear 20% of the amount and it was physically agreed as per clause No.2 that the 1st respondent shall deploy, main head cost for Rs.2,850/- per MT in a phased manner 20,000 MT, each was and shall release transport cost at Rs.1,325/- per MT, at the request of STCL. Since, the petitioner and respondents were in good commercial relationship for so many years and the fact that the petitioner has accomplished so many such contracts with the 1st respondent by raising fund by the 1st respondent as per the condition enumerated in Ex.C6 agreement. It is also specifically agreed between the parties as per the clause No.3 that 20% of the margin required for funding shall be brought in by SSE before release of payment by STCL either in the form of cash, cargo or Bank Guarantee.
Clause No.4 provides that SSE shall provide 14 Com.A.S.71/2013 personal/corporate guarantee supported by postdated
cheques for raising of fund to be deployed by the STCL. It is also agreed at clause No.8 that advance payment for every 20,000 MTs will be released at the request of SSE on ex-mine head cost basis. Subsequent payment towards transport by Railway Rakes/Trucks to Port shall be released only after arrival of every 5,000 MTs in STCL's plot at Krisnapatnam Port. The vessel to be nominated only after arrival of minimum of 40,000 MTs in STCL's plot at Port. Further, clause No.14 stipulates about breach of contract, which reads as "In the event of committing a breach of any terms of contract or non- performance of the contract entered into between STCL and SSE, STCL shall have the right to invoke the Bank Guarantee/ Deed of personal guarantee/encash cheques deposited as security with STCL without informing or without assigning any reasons to SSE. SSE shall have no right to question the discretion exercised thereupon by STCL in invoking the Deed of Personal Guarantee/Bank Guarantee for breach of contract. With this back ground, learned counsel for the plaintiff would argue that as per clause No.14, if there is any breach in the conditions of the contract, then, the 1 st respondent shall have 15 Com.A.S.71/2013 forward for encashment of Bank Guarantee without any intimation. Since, there was some legal hurdles on account of restriction for mining during the relevant period, they could not get iron ores fines from Bellary region that too of required quality, which was brought to the notice of the respondent many a times, by way of letter and requested them to grant further time. On the other hand, instead of granting further time, as sought, till May 2010, as per earlier letter issued by the 1st respondent, they submitted three Bank Guarantees given by the petitioner as per the terms of the agreement, Ex.C6. The Bank Guarantees are produced before the Court and also before the Arbitrator, which discloses that, the same has to be renewed from time to time and the agreement is silent about a particular Bank Guarantee given to particular contract, so, whatever the Bank Guarantees which were lying with the 1st respondent were continued, which according to learned counsel for the plaintiff is against the Section 129 of Contract Act. The first Bank Guarantee was taken on 10.6.2006, which is having No. 319/2006. Second Bank Guarantee was having No. 318/06, which is dated 3 rd May 2006 and 3rd Bank Guarantee was taken on 3 rd September 16 Com.A.S.71/2013 2007. All these Bank Guarantees were given prior to the so called agreement Ex.C6, with a common understanding that since, they were carrying on various contracts for the last so many years, it was the understanding that the Guarantees already given would be continued. But, according to learned counsel for the plaintiff, it is against the Section 129 of Indian Contract Act. Section 129 of the Indian Contract Act, reads as "continued a Guarantee - a guarantee which extended to a series of transportation is called a continued guarantee". Section 130 of the Contract Act reads that "a continuing guarantee may at any time be revoked by surety as per contract, by notice to the creditors. So, when there is no specific guarantee given to the 1 st respondent as per Ex C6, agreement, then, the 1st respondent was not expected to proceed to invoke all the Bank guarantees to release the amount as it is against Section 129 of the Contract Act. Learned Arbitrator in his award at Page No.24 has observed that when the claimant in Ex.C34 made it clear that they would not effect the shipment before 30.3.2010 as per their commitment, notice has been served by the respondent dated 12.3.2010 to invoke the Bank Guarantee. The claimant by 17 Com.A.S.71/2013 writing Ex.C34 committed anticipatory breach and the respondent had the right to seek their relief immediately. According to him, this part of the award is against the reference made to the Arbitrator. Therefore, it is a patent illegality committed by the Arbitrator and it is opposed to public policy of India. The total value of the Bank Guarantee is Rs.8 crores and the amount is due of less than the value given. Therefore, according to learned counsel for the petitioner, the 1st respondent should not have tried to invoke Bank Guarantees. Further, other Bank Guarantees were given in connection with some other contract. The Bank Guarantee given in the particular contract cannot be made use of in connection of another contract, unless there is specific consent by the petitioner. Therefore, the observation of learned Arbitrator regarding these aspect is again illegal and beyond the scope of reference and therefore, it is liable to be set aside. After referring to Section 129 and 130, he took the Court to Section 207, which deals with revocation and renewals may be express or may be implied in the conduct of principal or agent respectively. While, canvassing his argument, he took the court to Ex.C32, i.e., the letter issued 18 Com.A.S.71/2013 by the 1st respondent, dated 24.2.2010, whereby the 1 st respondent informed the Krisnapattanam Port Authority that they have no objection to allot plot, which was in their possession, which they have already dumped 522014.40 MT of Iron Ore fines and permitting the petitioner to dump Iron Ore Fines in the said place. After issue of Ex.C32, on 12.3.2010, again, the 1 st respondent issued letter to the petitioner requesting to complete the shipment by 31.3.2010 or else the Bank Guarantees will be invoked for the recovery of the funds deployed by it, for which the petitioner expressed its inability to complete the task, before May 2010 and urged that the time given is very short, but, the same was not considered by 1st respondent, which culminated in encashment of Bank Guarantees vide letter dated 27.3.2010 issued by the Indian Bank to the petitioner informing about attempt made by the 1st respondent to encash the Bank guarantees to the tune of Rs.8 crores. As per Ex.C.36, the 1 st respondent informed the Chief Manager Indian Bank to encash the Bank Guarantees and credit the same to the UCO Bank, through RTGS. Immediately, the petitioner wrote to the Chief Manager, Indian Bank not to honour the Bank Guarantees as it 19 Com.A.S.71/2013 is excess to the amount paid by 1st respondent to procure iron ore fines. Similarly, the petitioner moved the Hon'ble 6 th Addl. City Civil Judge, Benaluru in AA No. 541/ 2020 under Section 9 of the Act and obtained an order of temporary injunction, restraining the respondent No.1 from invoking the Bank guarantees to the tune of Rs.8 crores, thereafter, proceeded for arbitration. So, the sum and substance of argument of learned counsel for the plaintiff is that the invocation of the Bank Guarantees is against the law as those guarantees were not given in connection with the very agreement entered into between the petitioner and 1st respondent. Learned arbitrator has not considered these aspects and proceed to pass the impugned order without giving fair opportunity to examine some of the witnesses and the request came to be rejected. However, the award reveals that the petitioner got examined one witness and got marked certain documents and similarly respondent got examined one witness and got marked certain documents on its behalf and after hearing, the award came to be passed. Further, he would argue regarding incapacity and what is the meaning of incapacity of the parties as per Section 34 which not only as 20 Com.A.S.71/2013 mentioned in the Section, but, also circumstances, which made the plaintiff to get the Irone Ore Fines from Bellary mines to Krisnapattanam Port on account of the decision and in view of the Judgment of the Apex Court and also the fall of market after returning of the Chinees Traders from the market. Since, it is a bonafide mistake on the part of the petitioner, which incapacitated it to perform its part of obligation, therefore, the respondent ought to have considered this aspect and permitted to transport the iron ore fines till end of May 2010, so that entire consignment could have been ready for transportation to Port. This aspect has not been considered by learned Arbitrator in his impugned order, therefore, according to him on that ground also it is liable to be set aide.
9. Learned counsel for the 1st respondent has filed detailed argument contending that the petition itself is not maintainable as none of the grounds available under Section 34 of the Act available to the petitioner, to challenge the impugned order. By referring to Section 34 of the Act, he would argue that the award can be set aside only when a 21 Com.A.S.71/2013 party was under incapacity, arbitration agreement was not valid, there is no scope for arbitration, the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of submission to arbitration and further the award is conflict with public policy. Therefore, according to learned counsel for the 1 st respondent none of the grounds made out by the petitioner and when the documents produced before the Court are read, it is very clear that there has been so many correspondences between the 1 st respondent and the petitioner to complete the task within 30.1.2010. Though the time was granted till 30.1.2010 and the agreement was terminated on 27.3.2010, which according to the plaintiff is incorrect, but, according to learned counsel for the 1st respondent it is a correct steps taken by the 1 st respondent after taking a long time. In the said regard, he took the Court to the documents produced by the petitioner, as well as respondent at anenxure R1, which is dated 21 st July 2008, written by the petitioner to the 1st respondent stating that it has procured 40,000 MTs of Iron Ore Fines of grade 63, with M/s S A Minerals with list of cost and requested to 1 st 22 Com.A.S.71/2013 respondent to release a sum of Rs.6,32,50,000/-. Further, by letter dated, 23rd July 2008, petitioner once again requested the 1st respondent to transport of shipment to Krisnapattanam port and requesting 1st respondent to use the plot at the Port stating that it is ready with iron ore fines. The agreement was entered into on 30.7.2008 as I have already stated and after entering the agreement, on 5 th November 2008, the petitioner writes to the 1st respondent stating that the petitioner has paid advance amount to the mine owners for procurement of 40,000 MTs iron ore fines and since, there is some problem with China traders, he would go to China and set right the same and return back within 10 days. Therefore, on 20.10.2008, again petitioner writes to the respondent stating that he could not visit China and sought for extension of time up to 30.1.2009. On 11.12.2008, the 1 st respondent writes to the petitioner that the petitioner has already drawn 696.50 lakhs in the month of July, August 2008 for procurement of iron ore fines and export of iron ore fines to M/s Eaden Burg Ltd,. Even though, the contract was signed by overseas buyers as early as 10.8.2008, no shipment has taken place till date and total amount due is Rs.7,13,89,789/- which is 23 Com.A.S.71/2013 including of interest. Since, the petitioner has already drawn the amount which was paid by the 1 st respondent by taking loan from its banker and the pressure created by the banker to pay the interest or balance or to treat the account as NPA and made the1st respondent to request the petitioner to start transporting the Iron Ore Fines to dump at Krisnapattanam Port. Again on 30.1.2008, 1st respondent writes to the petitioner to pay a sum of Rs.2 crores towards the amount already drawn or to invoke Bank Guarantee before 5 th January 2009. Again on 8.1.2009, the 1 st respondent issued a letter to the petitioner express its displeasure of it, failure to shipment of iron ore fines to Krisnapattanam port and nonpayment of money and it is also made known to the petitioner that Bank Guarantee would be encashed. Similarly, on 20.1.2009, 2.4.2009, 5.5.2009, 24.10.2009, 26.10.2009, 12.11.2009, 1.12.2009, 1st respondent addressed request letters to the petitioner to transport iron ore fines and as per Ex.C32, as agreed to Krisnapattanam or else their intention to encash the Bank Guarantees. For very letter issued by the respondent, the petitioner has sought for extension of time that it will be too difficult to transport the same and 24 Com.A.S.71/2013 expressed its inability owing to certain legal hurdles, restrictions, pursuant to the Apex Court Judgment and failure on the part of the China market to bid for the iron ore fines. So, after entering into the agreement for supply of 40,000 MTs of iron ore fines from Bellary, the petitioner has not made any attempt to supply the same and dump it at Krisnapattanam port, which ultimately made the 1 st respondent to invoke the Bank Guarantees on 27.3.2010 by issuing a letter to the Chief Manager, Indian Bank, Bengaluru. When, the 1st respondent expressed its intention to encash the Bank guarantees, it was brought to the notice of the petitioner, who obtained injunction order, etc., etc. But, the question is that whether the 1st respondent could have encashed the Bank Guarantees, which are not find a place in Ex.P34 agreement. According to learned counsel for the plaintiff, if the Bank guarantee is given to particular contract, it cannot be made use of to another contract between the same parties, without there being express consent. But, the argument that would be canvassed by the learned counsel for the 1st respondent is that when the documents are perused i.e., particularly, the letters written by the petitioners and 25 Com.A.S.71/2013 replies given by the 1 st respondent, who availed loan from the UCO Bank and paid to the petitioner by way of RTGS, but, petitioner thinking that it has got long standing relation with 1st respondent, went on postponing the shipment of iron ore fines, to consider the long time which ultimately made the 1 st respondent to go for invocation of Bank Guarantees.
10. Learned counsel for the plaintiff substantiates his contention with regard to non-availability of Bank Guarantees that has been proposed for encashment on the ground that when a Bank Guarantee is given to a particular contract, just because, there are some other contracts entered into between the parties, such other party cannot make use of the Bank Guarantee given in connection with some other contract. So, according to learned counsel, the observation of learned Arbitrator that the Bank Guarantee can be utilised as there is a long standing and there was no dispute cannot be accepted. In the said connection he has cited the decision in the case of Gangotri Enterprises Limited Vs. Union of India and others, reported in (2016) 11 SCCC 720, wherein, it is held that :
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Com.A.S.71/2013 "A contract agreement dt: 22.8.2005 was first entered into between the parties in connection with laying down of Agra-Etawah new BG rail line and the same did not re3quire furnishing of a bank guarantee - Later another, separate contract dt. 14.7.2006 was entered into between he same parties for some other project viz., in connection with the development of New Passenger Terminal at Anand Vihar in which the appellant Company submitted a bank/performance guarantee - Respondent Raiwlays sought to encash bank guarantee issued in the subsequent contract for the alleged dues, etc. pertaining to the contract dt. 22.8.2005 by virtue of Cl. 62 of GCC thereof whilst the arbitration proceedings in relation to the contract dt. 22.8.2005 were still pending.
- Held, the sum claimed by respondent Railways was neither an admitted sum nor a sum which stood adjudicated by any court of law in any judicial proceedings but it was a disputed sum, and bank guarantee in question being in the nature of a performance guarantee was furnished for execution work of contract dt. 14.7.2006 (Anand Vihar works) and the work having been completed to satisfaction of respondents, respondents had no right to encash that bank guarantee - Further, appellants held to have made out a prima-facie case in their favour for grant of injunction against encashment of bank guarantee by respondents as also a case of balance of convenience and irreparable loss in their favour - Arbitration and Conciliation Act, 1996, S.9".
11. Now, the Court has to see whether the contention of learned counsel for the plaintiff can be accepted. Learned Arbitrator, while discussing this aspect has referred to various correspondence exchanged between the parties, whereunder, the 1st respondent went on stating that it would encash the Bank Guarantees, available with it to the tune of Rs.8 crores, for which the petitioner has requested by way of many letters 27 Com.A.S.71/2013 which were produced before the Arbitrator that Bank Guarantee encashment may be deferred and time may be granted. At no point of time, the petitioner has stated that the 1st respondent is not entitled to encash any of the Bank Guarantee given in connection with some other contract. It is admitted that when there is a long standing commercial relationship between the petitioner and the 1st respondent and when it is a practice that whatever the Bank Guarantee is given, by the petitioner in connection with some other contracts, continued to be the Bank Guarantees to subsequent contract all these years and for the first time, the petitioner failed to get extension of the time, then, the petitioner comes before the Court, with this claim, according to me, it cannot be considered. In this regard, it is necessary to go through the copy of the Award at page No.12 and 13, wherein, learned Arbitrator has in detail discussed, how the parties were utilised the Bank Guaratnees and even the Bank Guarantee given by the petitioner was also used in connection with a contract between M/s K-Mark in whose favour the petitioner stood as guarantor, after completion of the contract, it was returned to the petitioner, but, the petitioner 28 Com.A.S.71/2013 let it as it is for future contract. So, here, the intention of the parties is very important, how it has to be invoked and utilised. So, learned Arbitrator has in detail considered about invocation of the Bank Guarantees and conduct of the parties in offering the Bank Guarantees and utilising the Bank Guarantees given in a contract, which has already been completed for future contract, etc. Therefore, in view of the above fact, the contention of the petitioner that the Bank Guarantees given to one contract cannot be used for another contract is of no water in view of facts and circumstances of the present case. If, that is the case, as soon as the contract came to an end, the Petitioner should have taken back the Bank Guarantees and why it allowed to continue the Bank Guarantees, which were given prior to the date of contract. Now, with this back ground, we have to see, the date of Bank Guarantees given. First guarantee is 319/06, which is for Rs.1 crore and second guarantee is of the year 2006 for Rs. 4 crores, i.e., Bank Guarantee No. 318/06, third guarantee relates for Rs.3 crores, i.e., for the year 2007. The total amount lent by 1st respondent is more than Rs. 6 crores. Therefore, it cannot expect that the petitioner has offered only 29 Com.A.S.71/2013 Bank Guarantee pertaining to No.318/06. When the amount lent was more than the Bank guarantee, we cannot expect that petitioner offered one Bank Guarantee etc. cannot be considered. As far as other aspects are concerned, as I have already discussed in the above said paras and in total, the petitioner has failed to bring the case within the purview of Section 34 of the Act. In order to set aside the Award, there must be certain incapacity and the incapacity which has happened to the petitioner for want of materials from Bellary and its transportation to Krisnapattanam Port for want of time, etc., cannot be considered as incapacity, as the parties are bound by the terms of the contract and learned arbitrator is not expected to go beyond the contract and invocation of the bank guarantees cannot be termed as a patent illegality or opposed to public policy under Section 129 of Contract Act. So, the petitioner has miserably failed to show any of the grounds urged by it in the above petition and therefore I am of the view that the petition filed under section 34 is liable to be dismissed. Hence, I answer point No.1 in the Negative.
12. Point No.2 :- For the aforesaid reasons, I proceed to pass the following Order.
30
Com.A.S.71/2013 ORDER The suit/petition filed by the petitioner U/S. 34 of Arbitration & Conciliation Act, 1996 is hereby dismissed with costs.
(Dictated to the Stenographer, typed by him, corrected and then pronounced by me in open Court on this the 29th day of September, 2021).
(CHANDRASHEKHAR U), LXXXVII Addl.City Civil & Sessions Judge, (Exclusive dedicated commercial Court) Bengaluru.
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