Calcutta High Court
Sterling & Wilson Pvt. Ltd vs The Chief Electrical ... on 15 December, 2017
Author: Ashis Kumar Chakraborty
Bench: Ashis Kumar Chakraborty
OD-2
ORDER SHEET
A. P. No. 891 of 2017
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
IN THE MATTER OF:
STERLING & WILSON PVT. LTD.
Versus
THE CHIEF ELECTRICAL ENGINEER/CONSTRUCTION, METRO RAILWAY KOL
BEFORE:
The Hon'ble JUSTICE ASHIS KUMAR CHAKRABORTY
Date : December 15, 2017.
Appearance:
Mr. Rishad Medora, Adv.
Ms.Pooja Chakraborty, Adv.
For the petitioner
Ms. Aparna Banerjee, Adv.
For the respondent
The Court : This is an application under Section 9 of the Arbitration and Conciliation Act, 1996, as amended by Act 3 of 2016 (in short "the Act of 1996).
The petitioner prays for extension of the interim order dated October 12, 2017 passed in this application by a learned Single Judge of this Court restraining the respondent from taking any step in terms of the letter dated October 4, 2017 to forfeit the security deposit and encash the performance bank guarantee furnished by the petitioner through ICICI Bank Limited, Vashi 2 Commercial Branch (hereinafter referred to as "the bank"), on account of performance guarantee.
The said interim order dated October 12, 2017 was valid for a period six weeks. Subsequently, the said order was extended till December 15, 2017 or until further order which ever is earlier also. Thus, the petitioner has approached this Court for extension of the said interim order.
In order to consider the petitioner's prayer for extension of the said interim order dated October 12, 2017, this Court is required to examine the merit of the application.
On January 8, 2016, the respondent issued the letter of acceptance to the petitioner awarding the contract valued at Rs.14,18,39,173.85/- for augmentation of power supply arrangement (phase-1) of Metro Railway, Kolkata (hereinafter referred to as "the project"). As per the said letter of acceptance the time for completion of the contract was for a period of twelve months. In terms of the conditions mentioned in the said letter of acceptance dated January 8, 2016 and the terms of the General Condition of Tendering and Condition of Contract (hereinafter referred to as "GCTCC") the petitioner also furnished the performance bank guarantee dated February 04, 2016 of Rs. 70,91,960/- in favour of the respondent, through the bank. The earnest money deposited by the petitioner of Rs. 9,86,960/- along with its bid was retained by the respondent as security deposit.
Thereafter, on September 02, 2016 a contract was entered into between the parties, containing the conditions mentioned in the letter of acceptance dated January 8, 2016. The terms and conditions stipulated in the GCTCC were also made applicable to the contract between the parties. Clause 23.4 of the contract dated September 02, 2016 contained arbitral agreement 3 between the parties and all disputes arising between the parties relating to the contract are required to be adjudicated in the arbitral proceeding under the Act of 1996.
According to the petitioner, the completion of the contract by it were dependant upon the performance of various reciprocal obligations by the respondent and as the latter failed to discharge its obligations, there was no scope for completion of the contract within the stipulated period, mentioned above. Therefore, on January 13, 2017 the respondent extended the time for completion of the contract without imposing upon any damage upon the petitioner the same proves that the respondent had admitted its default to perform its own obligation under the contract, resulting in delay in competition of the contract. The petitioner alleged that when the respondent itself was at fault in discharging its obligation under the contract resulting delay in completion of project, by a notice dated October 4, 2017 the latter wrongfully and illegally terminated the contract in purported exercise of its right under Clause 1.2.20.5 of GCTCC.
By referring to some of the documents disclosed in this petition, Mr.Medora, learned counsel appearing for the petitioner strenuously contended that the wrongful actions on the part of the respondent did not stop with the illegal termination of the contract and by the said letter dated October 4, 2017, the respondent has also held out a threat to forfeit the security deposit and as also to invoke the performance bank guarantee furnished by the bank. It was strongly contended that in the present case, when the various breaches committed by the respondent itself resulted in delay in completion of the project and it extended the time for completion of the contract without imposing any damage on the petitioner, it is a fit case that the said respondent should be restrained from forfeiting the petitioner's security deposit, as well as from invoking the performance bank guarantee. It was argued that the conduct of the respondent in this case towards forfeiture of the security deposit of the petitioner and invocation of the bank guarantee furnished by it is fraudulent and there exists a special equity in favour of the petitioner for obtaining an order of injunction as prayed for in this application. The petitioner urged that the 4 order dated October 12, 2017, passed in the application is a well-reasoned order and this Court would extend the said interim order.
However, Ms.Aparna Banerjee, learned counsel appearing for the respondent Railway submitted that in the present case all the disputes raised by the petitioner against the respondent relating to the contract are required to be adjudicated upon by an arbitrator, as per the arbitral agreement between the parties. She submitted that the validity of the contract by the respondent is a dispute which is to be decided by the arbitrator in the arbitral proceeding. It was urged that the forfeiture of the security deposit, as well as the invocation of performance guarntee by the respondent are consequences following the termination of the contract by the respondent. She further urged that it is well settled law that the bank guarantee is a separate contract between the bank and the beneficiary thereof and in application under Section 9 of the Act of 1996 between the party furnishing the bank guarantee and the beneficiary of the bank guarantee, the latter cannot be restrained from invoking the bank guarantee. The respondent, therefore raised serious objection to the extension of the interim order dated October 12, 2017 and urged for dismissal of the application.
I have considered the material facts on record as well as the arguments advanced by the learned advocates appearing for the respective parties.
In the present case all disputes arisen between the parties relating to the aforementioned contract are to be adjudicated upon in an arbitral proceeding before the arbitrator.
As per Clause 3.3.14.6 of the GCTCC, in case of the of the contract is rescined the respondent has a right to forfeit the security deposit and encash the performance bank guarantee furnished by the petitioner. Therefore, the validity of any action of the respondent to forfeit the security deposit and encash the performance bank guarantee is dependant upon the validity of the termination of the contract which has to be adjudicated upon by the arbitrator in an arbitral proceeding. If the arbitrator holds the termination of the contract by the respondent is wrongful, 5 the petitioner will obtain an award for refund of the security deposit, together with interest. Thus, there is no scope for any order for allowing the petitioner's prayer in this application relating to forfeiture its security deposit by the respondent.
So far as the petitioner's prayer relating to invocation of the performance bank guarantee, it is settled law that a bank guarantee is a separate contract between the bank and the beneficiary thereof and the bank must honour the contract and make payment of the guaranteed amount to the beneficiary upon its demand, irrespective of the merit of the disputes between the beneficiary and the party at whose instance the bank guarantee is issued. Therefore, in an application under Section 9 of the Act of 1996, pertaining to the contract between the beneficiary of the bank guarantee and the party furnishing the same, the Court cannot pass an order of injunction restraining the beneficiary of the bank guarantee from invoking the guarantee. There are, however, two exceptions to this rule. The first is when there is a clear fraud committed by the beneficiary of an egregious nature as to vitiate the entire underlying transaction. The second exception to the rule general rule of non intervention is when there are "special equities" in favour of injunction, such as when "irretrievable injury" or "irretrievable injustice" would occur if such an injunction were not granted.
In the present case, the petitioner has not been able to substantiate that the letter of acceptance dated January 08, 2016 or the contract dated September 02, 2016 is vitiated by any fraud. At any rate, whether the respondent defaulted in performing contract is to adjudicate in the arbitral proceeding between the parties. If the arbitrator holds the termination of the contract by the respondent to be wrongful, the petitioner shall have sufficient remedy to obtain refund of the proceeds of the performance bank guarantee from the respondent, together with interest and other consequential relief. Thus, I am unable to convince myself that the petitioner has any special equity in its favour to obtain any order of injunction as prayed in this application. 6
Accordingly, AP No. 891 of 2017 stands dismissed. However, there will be no order as to costs.
A prayer is made by Mr. Medora for stay of operation in this order for a period of one week.
However, having considered the facts of the case I am not inclined to entertain such prayer.
Urgent certified website copies of this order, if applied for, be made available to the parties upon compliance with all requisite formalities.
(ASHIS KUMAR CHAKRABORTY) G.S.Das/dg2