Bombay High Court
Rashtriya Chemicals & Fertilizers Ltd vs M/S.Sanmit International Fze & Anr on 18 June, 2012
Author: Chief Justice
Bench: Mohit S. Shah, N.M. Jamdar
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY.
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 231 OF 2012
IN
ARBITRATION PETITION LODGING NO. 110 OF 2012
Rashtriya Chemicals & Fertilizers Ltd. .. Appellant
Versus
M/s.Sanmit International FZE & Anr. .. .. Respondents.
Mr. Rahul Naricharia with Mr. Astad Randeria with Mr. M.S.
Bodhanwalla with Ms. Rajlaxmi i/b. M/s.Bodhanwalla & Co. for the
appellant.
Mr. S.U.Kamdar, Senior Counsel with Mer. Benny Joseph, Mr. Rohan
Cama, Mr. T.V. Lauis, Mr. Narayan Awate and Ms. Pooja i/b. Benny
Joseph Law Officers.
CORAM: MOHIT S. SHAH, C.J. &
N.M. JAMDAR, J.
DATE : 18 June 2012.
ORAL JUDGMENT (Per Chief Justice):
This appeal is directed against the order dated February 10, 2012 of the learned Single Judge in Arbitration Petition Lodging No.110 of 2012 under Section 9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "the Arbitration Act").
2. The subject matter of the above Arbitration Petition centers around the right of appellant-Rashtriya Chemicals & Fertilizers Ltd., a Government of India Undertaking, to invoke the bank guarantee dated 8 November 2011 for a sum of US Dollars 67,030.
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3. By ad-interim order dated 23 January 2012 the learned Single Judge had permitted the present appellant to invoke the bank guarantee issued by the respondent No.2 bank (Standard Chartered Bank), but the appellant was injuncted from receiving any amounts pursuant to the invocation. In other words the amount was required to be deposited with respondent No.2 bank itself. The injunction was passed in view of the undertaking given by the petitioner in the Arbitration Petition (respondent No.1 herein) to pay interest at 12% per annum to the appellant in the event of the injunction order being vacated. It was further directed that the rate of interest and the payment thereof shall only be on account of and subject to the final orders in the Arbitration Petition.
4. By the impugned order dated 10 February 2012, the learned Single Judge has continued the ad-interim order dated 23 January 2012 till the constitution and first meeting of the Arbitral Tribunal and for four weeks thereafter. In the meantime the amount lying with respondent No.2 bank was ordered to be invested in a fixed deposit of 90 days, with liberty to the Arbitral Tribunal to pass suitable orders. All contentions have been kept open.
5. The appellant had placed purchase order dated 8 November 2011 with the petitioner for purchase of 50,000 metric tonne ( + / - 10%) of Egyptian Rock Phosphate to be supplied in two consignments of 25,000 metric tonnes ( + / - 10%). A performance bank guarantee was 2/10 ::: Downloaded on - 09/06/2013 18:40:30 ::: gopi 3 app-231-12 required to be furnished in respect of supply of the goods. The appellant opened a Letter of Credit for a sum of US Dollar 2,09,468 for the quantity of 25,000 metric tonnes. However, at the request of the petitioner the Letter of Credit was amended as the petitioner was in a position to supply only 16,000 metric tonne and, therefore, the amount mentioned in the Letter of Credit was also reduced to US Dollar 67,030.
The petitioner furnished performance guarantee of respondent No.2 bank for an amount of US Dollar 67,030.
6. There is no dispute about the fact that the petitioner shipped the above quantity i.e. 16,000 metric tonnes. However, the correspondence between the parties indicates that the amendment in the quantity by way of reduction from 50,000 metric tonne to 16,000 metric tonne is only in the Letter of Credit and not in the purchase order. The petitioner sent e-mail indicating inability to supply the balance quantity on account of civil unrest/commotion in Egypt and mentioned in its letter dated December 24, 2011 that the shipments may be possible only if and when earlier cargo allocations are resumed by the producers. The petitioner mentioned that the civil unrest/commotion being a Force Majeure situation the appellant was requested to bear with the petitioner.
7. By letter dated 6 January 2012 the appellant called upon the petitioner to perform the contract and to supply the balance quantity, failing which the appellant shall be constrained to take necessary action. By reply dated 10 January 2012 the petitioner contended that the parties had agreed to reduce the quantity to be supplied from 50,000 3/10 ::: Downloaded on - 09/06/2013 18:40:30 ::: gopi 4 app-231-12 metric tonne to 16,000 metric tonne ( + / - 10%) and, therefore, the bank guarantee was also computed as 3% of the value of 16,000 metric tonne as against the earlier required performance value of US Dollar 2,09,468 computed at 3% of 50,000 metric tonne.
8. In view of the above stand of the petitioner, the appellant by letter dated 23 January 2012 (Exhibit 2) to respondent No.2 bank, invoked the bank guarantee dated 8 November 2011 in the following terms:-
"As there has been breach of terms & conditions of the referred order by M/s.Sanmit International FZE Dubai, we are invoking the above referred Bank Guarantee for USD 07,030.00 (USD sixty Seven Thousand Thirty Only).
Kindly make the payment of equivalent Indian Rupees for USD 67,030 without any demur and issue a demand draft/pay order in favour of RASHTRIYA CHEMICALS AND FERTILIZERS LTD payable at Mumbai immediately".
9. We have heard the learned counsel for both sides. Both counsel have addressed us at length in respect of the interpretation of the bank guarantee.
10. The learned counsel for the appellant assailed the impugned order on the ground that the impugned order is passed in disregard of the settled law in respect of injunction restraining invocation of bank guarantee. According to the learned counsel no ground for restraining the appellant from invoking the bank guarantee was made out in the petition. He further submitted that the learned Single Judge erred in 4/10 ::: Downloaded on - 09/06/2013 18:40:30 ::: gopi 5 app-231-12 holding that since respondent No.1 had performed their obligation under the contract, the invocation of the bank guarantee was an inequitable act on part of the appellant. The learned counsel contended that the bank guarantee in question was unconditional and was given for performance of the entire contract especially the purchase order dated 8 September 2011 and it was completely within the discretion of the appellant to come to a conclusion that the said contract was breached and invoke the bank guarantee.
11. Learned counsel for the appellant relied on the following decisions:-
(i) M/s BSES Ltd. v. M/s Fenner India Ltd., AIR 2006 SC 1148 in support of the contention that the appellant is the best judge to decide as to when and for what reason the bank guarantees should be encashed.
It is no function of the second respondent-Bank, nor of this Court, to enquire as to whether due performance had actually happened when, under the terms of the guarantee, the second respondent-Bank was obliged to make payment when the guarantee was called in, irrespective of any contractual dispute between the appellant and the first respondent. The Bank must honour the bank guarantee free from interference by the Courts. Otherwise, trust in commerce internal and international would be irreparably damaged. It is only in exceptional cases, that is to say in case of fraud or in case of irretrievable injustice, the Court should interfere.
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(ii) Mytas Infra Limited v. Utility Energytech & Engineers Pvt.
Ltd., 2009 B.C.I. 133 in support of the contention that when in course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such bank guarantee in terms thereof irrespective of any pending disputes.
12. The learned counsel for respondent No.1 on the other hand submitted that the said purchase order/contract was amended and respondent No.1 instead of supplying 50,000 metric tonnes of Egyptian Rock Phosphate was required to supply only 16,000 metric tonnes and for that purpose the bank guarantee of US Dollars 67,030 was given and a plain reading of the bank guarantee demonstrates so. Relying on the decision in State Bank of India & Anr. vs. Mule Sahakari Sakhar Karkhana Ltd., (2006) 6 SCC 293, the learned counsel for respondent No.1 submitted that the bank guarantee has to be read on its own terms.
Relying upon the decision in Larsen & Toubro Limited v. Maharashtra State Electricity Board and others, (1995) 6 SCC 68, it is submitted that once the bank guarantee has served its purpose, then there is no question of invoking the same.
13. The impugned order was passed on 10 February 2012, which was a time bound arrangement, whereby the interim protection was to continue till the constitution of Arbitral Tribunal and the first meeting of the Arbitral Tribunal and four weeks thereafter. The bank guarantee was in fact invoked and the amount was directed to be deposited in a fixed deposit subject to the orders passed by the Arbitral 6/10 ::: Downloaded on - 09/06/2013 18:40:30 ::: gopi 7 app-231-12 Tribunal. The appellant in spite of the injunction passed against it did not choose to move the present appeal till 10 May 2012 i.e. just before the Courts closed for Summer Vacation. Thus the impugned order and the arrangement made therein is continuing since 23 January 2012. At the hearing before us, both the parties have agreed that they will decide on the name of the Arbitrator. The injunction is in operation since 23 January 2012 and the parties are willing to go for arbitration immediately. Thus we do not deem it appropriate to disturb the interim arrangement at this stage. Furthermore, the contention raised before us on merits of the dispute will be agitated before the Arbitrator when the parties have agreed to appoint and it will be prejudicial to the interest of one or the other party to decide those questions at this stage.
14. In view of the above, we do not propose to express any opinion on the correctness or otherwise of the findings recorded by the learned Single Judge in the order under appeal and the findings given and observations made by the learned Single Judge may not be treated as approved by us on merits. We may not also be treated to have approved the observations made by the learned Single Judge in para 8 of the order under appeal insofar as the learned Single Judge did not accept the legal submissions made on behalf of the appellant.
15. Since the respondent (petitioner in Arbitration Petition under Section 9 of the Act giving rise to the present appeal) as well as the appellant have agreed to the appointment of arbitrator at the very first hearing of the appeal, we are not dealing with the submission of the 7/10 ::: Downloaded on - 09/06/2013 18:40:30 ::: gopi 8 app-231-12 learned counsel for the appellant that the respondent had not taken the necessary steps for getting appointment of arbitrator made within reasonable time. The learned counsel for the respondent herein states that the application was already filed under section 11 of the Act before the summer vacation and the learned counsel for the appellant would submit that the said application is not made in accordance with law.
16. Without expressing any opinion on the above debate which no longer survives, we can not help observing that in the course of hearing appeals against orders passed by the learned Single Judge of this Court under Section 9 of the Act, we have found that in several cases the petitioners do not take the requisite steps for appointment of the Arbitrator/Arbitral Tribunal for considerable time after filing of the petition under Section 9 of the Act or even after disposal thereof in terms of interim injunction.
17. We are, therefore, of the view that while granting interim or even ad-interim injunction, the Court hearing Section 9 petitions should consider whether the petitioner has shown bonafides by taking necessary steps for appointment of Arbitrator/Arbitral Tribunal. The Court should also direct the Prothonotary of this Court to intimate to the Bench taking up Section 11 applications about pendency/disposal of Section 9 petitions arising from the same disputes. The Court hearing such Section 9 petitions may also grant ad-interim injunction under Section 9 restricted to some particular date or for a period during which the petitioner in Arbitration Petition should move the application under Section 11 of the Act.
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18. In view of the above discussion, the following order is passed:-
(i) The learned counsel for the appellant as well as the learned counsel for respondent No.1 state that their respective clients pray that Mr. Justice F.I. Rebello, former Chief Justice of Allahabad High Court be appointed as the sole Arbitrator to decide the disputes between the parties.
In view of the above consensus, ig Mr. Justice F.I. Rebello is appointed as the sole Arbitrator to decide the disputes between the parties.
(ii) The preliminary meetings before the learned Arbitrator will be held within two weeks from today and the parties will agree to the schedule for filing pleadings before the learned Arbitrator as expeditiously as possible and preferably within six weeks from the date of preliminary meeting.
(iii) The learned Arbitrator shall endeavour to decide the disputes between the parties as expeditiously as possible and preferably by 31 October 2012.
(iv) The ad-interim order passed by the learned Single Judge on 23 January 2012 shall continue till 31 October 2012 or the date when the learned Arbitrator makes the award whichever is earlier. While 9/10 ::: Downloaded on - 09/06/2013 18:40:30 ::: gopi 10 app-231-12 making the final award it will be open to the learned Arbitrator to issue appropriate directions regarding the amounts lying deposited with respondent No.2 bank pursuant to the order dated 23 January 2012.
(v) In case the learned Arbitrator holds that the appellant is entitled to claim any amount from the petitioner in Arbitration Petition Lodging No.110 of 2012, the learned arbitrator shall permit the appellant to withdraw the amount, which is presently lying as deposit with respondent No.2 bank, to the extent the appellant's claim is allowed by the learned Arbitrator.
19. For the reasons set out hereinabove, the impugned order of the learned single Judge is modified in the above terms with a clarification that we may not be treated to have expressed any opinion on the merits of the controversy between the parties which will be raised before the learned Arbitrator. All contentions are kept open.
20. The appeal stands disposed of in the above terms.
CHIEF JUSTICE (N.M. JAMDAR, J.) 10/10 ::: Downloaded on - 09/06/2013 18:40:30 :::