Delhi High Court - Orders
Gannon Dunkerley And Co. Ltd vs National Institute Of Technology ... on 23 March, 2022
Author: Anup Jairam Bhambhani
Bench: Anup Jairam Bhambhani
$~11
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 63/2022
GANNON DUNKERLEY AND CO. LTD ..... Petitioner
Through: Mr. Jatin Sehgal and Mr. Ashish
Garg, Advocates.
versus
NATIONAL INSTITUTE OF TECHNOLOGY MEGHALAYA &
ORS. ..... Respondents
Through: None.
CORAM:
HON'BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI
ORDER
% 23.03.2022 (Released on : 28th March 2022) I.A. 2819/2022 (for exemption) Exemption granted, subject to just exceptions. Let requisite compliances be made within 01 week. The application is accordingly disposed of. O.M.P.(I) (COMM.) 63/2022 By way of the present petition filed under section 9 of the Arbitration & Conciliation Act, 1996, the petitioner M/s Gannon Dunkerley & Co. Ltd. (Gannon) seeks interim measure of protection against invocation of a performance bank guarantee dated 31.08.2015, as renewed thereafter from time-to-time, furnished by Gannon to respondent No. 2/RITES Ltd. (RITES) acting for and on behalf of the employer respondent No. 1/NIT Meghalaya (NIT)under the terms of an Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 1 of 8 11:30:24 Agreement dated 03.12.2015 read with the General Conditions of Contract ('GCC') dated July, 2011that govern the parties.
2. Mr. Jatin Sehgal, learned counsel appearing for the petitioner submits that there exists an arbitration agreement in clause 25 of the GCC, which reads as under :
"(2) Except where the decision has become final, binding and conclusive in terms of Sub Par (1) above, disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the Appointing Authority. The selection of Arbitrator by the Appointing Authority will be governed by the fact whether the dispute is (i) between two Public Sector Enterprises or
(ii) between a Public Sector Enterprise and a Government Department or (iii) Otherwise.
In case the dispute does not fall under item (i) or (ii) of this Para the Appointing Authority shall appoint the sole Arbitrator. Within 30 days of receipt of notice from the Contractor to refer the dispute for Arbitration, the Appointing Authority stipulated in Schedule I shall send to the Contractor a list of three serving officers of RITES of appropriate status depending on the total value of claim, who have not been connected with the work under the Contract. The Contractor shall, within 15 days of receipt of this list select and communicate to the Appointing Authority, the name of one officer from the list who shall then be appointed as the Sole Arbitrator. If the Contractor fails to communicate his selection of name within the stipulated period, the Appointing Authority shall without delay, select one officer from the list and appoint him as the Sole Arbitrator.
"3) In case the dispute falls under item (i) or (ii) of Sub Para (2) above, the Appointing Authority shall refer the dispute for Arbitration by one of the Arbitrators in the Department of Public Enterprises. The Arbitration & Conciliation Act 1996 shall not be applicable to the Arbitration in such a case. The Award of the Arbitrator shall be binding upon the parties to the dispute, provided however that any party aggrieved by such award may make a further reference for setting aside or revision of the Award to the Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 2 of 8 11:30:24 Law Secretary, Department of Legal Affairs, Ministry of Law & Justice, Govt. of India...
***** "7)The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or reenactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceeding under this clause, except for cases falling under para 2(i) or (ii)."
(emphasis supplied)
3. Mr. Sehgal points-out that by reason of the fact that NIT and RITES were facing paucity of funds, by letter dated 13.11.2017, RITES itself advised the petitioner "... to stop further execution of the work with immediate effects and till further advice. ...". Subsequently, over three years later, vidé letter dated 13.01.2021 RITES communicated that the petitioner "... is requested to resume the construction work at site with immediate effect".
4. Furthermore, it is submitted that, as is evident from letter dated 02.11.2020, the scope of work assigned to the petitioner had been reduced by NIT, since certain buildings that were part of the project had been 'foreclosed'. In that context, Gannon wrote to RITES a letter dated 11.05.2021, requesting that since the scope of work had been reduced, the latter should deploy its team for finalising the bill of quantities for the balance work and for revision of the contract value; which would have correspondingly reduced the value of the performance bank guarantee required from the petitioner.
5. Mr. Sehgal states that by reason of slowdown in the economy due to the pandemic, the Ministry of Finance (Department of Expenditure), Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 3 of 8 11:30:24 Government of India had also issued an Office Memorandum dated 12.11.2020 informing all public sector enterprises, such as RITES that the Government had "... decided to reduce Performance Security from existing 5-10 % to 3 % of the value of the contract for all existing contracts ... "; relying on which, counsel contends that in any case, the value of the performance bank guarantee ought to have been reduced from 5% at which it was originally issued to 3% of the contract value, which contract value itself ought to have come down upon reduction of the scope of work. This was communicated by Gannon to RITES vidé its letter dated 24.11.2020. However, it is submitted, that RITES did not act upon this request.
6. Despite the above position however, it is submitted, vidé notice dated 02.02.2022 issued by RITES acting on behalf of NIT, to Gannon, RITES has said :
"(1) It is noticed that in spite of the fact that considerable time has elapsed since issue of such instructions, you have not taken any action to restart the work.
"(2) It is accordingly felt that you are not in a position to discharge your obligation under the contract. I therefore hereby on behalf of the General Manager, CP-II, RITES (Engineer-in-charge) give you notices that if the said restarting of the work is not taken up by you within 7 days of issue of this letter and you complete the same within the contract period the undersigned will be obliged to recommend to the Competent Authority for determination of the Contract on account of your default in the discharge of your contractual obligation. In the event of such a Determination of the Contract, in terms of Clause 3(ii) of the Contract, the Earnest Money Deposit, Security Deposit already recovered and Performance Guarantee shall be forfeited by the Employer and further action will be taken as stipulated in Clause 3 of the Contract, without prejudice to the Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 4 of 8 11:30:24 other rights or remedies available to the Employer under the terms of the Contract or under law."
7. In these circumstances, it is submitted that RITES's threat of invocation of the performance bank guarantee is wholly misconceived, apart from being unlawful and unfair.
8. On a prima-facie consideration of the submissions made, issue notice, returnable 20.07.2022.
9. Upon the petitioner taking steps, let notice be served upon the respondents for the returnable date. Let counter affidavit be filed within four weeks of date of service. Rejoinder thereto, if any, be filed within four weeks thereafter; after exchanging copies with the opposing counsel.
10. Although the law on restraining invocation of bank guarantees including performance bank guarantee, is stringent, yet the position of law has been enunciated as under.
11. In UP Cooperative Federation Ltd vs. Singh Consultants & Engineers (P) Ltd reported as (1988) 1 SCC 174, the Hon'ble Supreme Court has said :
"28. I am, however, of the opinion that these observations must be strictly considered in the light of the principle enunciated. It is not the decision that there should be a prima facie case. In order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serious dispute and there should be good prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation will get jeopardised."
(emphasis supplied) Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 5 of 8 11:30:24
12. In Gangotri Enterprises Ltd. v. Union of India, reported as (2016) 11 SCC 720, the Hon'ble Supreme Court has held :
"41. We have, therefore, no hesitation in holding that both the courts below erred in dismissing the appellant's application for grant of injunction. We are indeed constrained to observe that both the courts committed jurisdictional error when they failed to take note of the law laid down by this Court in Raman Iron Foundry case [Union of India v. Raman Iron Foundry, (1974) 2 SCC 231] which governed the controversy and instead placed reliance on Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co. [Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 : AIR 2007 SC 2798] and U.P. State Sugar Corpn. v. Sumac International Ltd. [U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568], which laid down general principle relating to bank guarantee. There can be no quarrel to the proposition laid down in those cases. However, every case has to be decided with reference to the facts of the case involved therein. The case at hand was similar on facts with that of Raman Iron Foundry case [Union of India v. Raman Iron Foundry, (1974) 2 SCC 231] and hence the law laid down in that case was applicable to this case. Even in this Court, both the learned counsel did not bring to our notice the law laid down in Raman Iron Foundry case [Union of India v. Raman Iron Foundry, (1974) 2 SCC 231] ."
(emphasis supplied)
13. Again, in Standard Chartered Bank vs. Heavy Engg. Corpn. Ltd., reported as (2020) 13 SCC 574, the Hon'ble Supreme Court has held as follows:
"23. The settled position in law that emerges from the precedents of this Court is that the bank guarantee is an independent contract between bank and the beneficiary and the bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence. There are, however, exceptions to this Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 6 of 8 11:30:24 rule when there is a clear case of fraud, irretrievable injustice or special equities.The Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee."
(emphasis supplied)
14. Upon a conspectus of the facts and circumstances of the present case, including in particular :
i. The fact that RITES appears to have by itself, vidé letter dated 13.11.2017, directed the petitioner to stop work on site, which was subsequently directed to be commenced only much later vidé letter dated13.01.2021;
ii. It also appears, that on their own reckoning, the scope of work assigned to the petitioner was reduced by NIT and RITES by reason of foreclosure of some of the buildings to be constructed; and yet, the contract value was not revised, which would have correspondingly reduced the value of the performance bank guarantee required to be furnished by the petitioner;
iii. By notification dated 12.11.2020 issued by the Government of India, public sector enterprises such as RITES have been directed by their nodal Ministry to reduce the proportion of performance bank guarantees required from 5-10% to 3% of the contract value, including for all existing contracts; which was also not done in the present case.
15. This court is accordingly persuaded to accept on a prima-facie basis, the contentions raised by the petitioner against invocation of the performance bank guarantee in question; and that there exist special Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 7 of 8 11:30:24 equities in favour of the petitioner and irretrievable injustice may result to the petitioner if invocation of the performance bank guarantee is not restrained.
16. In this view of the matter, respondents Nos. 2 and 3 are restrained from invoking or in any other manner encashing Performance Bank Guarantee bearing No. 0607015BG0001144 dated 31.08.2015 amounting to Rs. 4,62,05,292/- till the next date of hearing.
17. A copy of this order be communicated to the respondents within three days of the order being released; and acknowledgement of receipt be placed on record.
18. List for consideration on 20th July, 2022.
ANUP JAIRAM BHAMBHANI, J MARCH 23, 2022 v Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:29.03.2022 O.M.P. (I) (COMM) 63/2022 Page 8 of 8 11:30:24