Delhi High Court
M/S Gayatri Projects Ltd vs Tecpro System Ltd & Anr on 11 August, 2016
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
$~2 * IN THE HIGH COURT OF DELHI AT NEW DELHI + CS(COMM) 293/2016 & IAs No.4189/2016 (u/O 39 R-1&2 CPC), 4192/2016 (u/S 80 CPC), 5119/2016 (of D-1 u/S 8 of Arbitration Act) & 5121/2016 (of D-1 u/O 39 R-4 CPC) M/S GAYATRI PROJECTS LTD. ..... Plaintiff Through: Mr. Arun Kathpalia, Sr. Adv. with Mr. Angad Mehta and Mr. Ram Batra, Advs. Versus TECPRO SYSTEM LTD. & ANR ..... Defendants Through: Mr. Ankit Sibbal, Adv. CORAM: HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW ORDER
% 11.08.2016
1. The plaintiff has sued for permanent injunction restraining encashment of bank guarantees.
2. Vide ex-parte ad-interim order dated 31st March, 2016, subject to the bank guarantees being kept alive, encashment of the bank guarantees was stayed. FAO(OS)(COMM) No.27/2016 preferred thereagainst was dismissed as withdrawn.
3. Application of the defendant No.1 being IA No.5119/2016 (defendant No.2 is the bank which had issued the bank guarantees and is not a contesting defendant) under Section 8 of the Arbitration and Conciliation Act, 1996 and the application of the plaintiff being IA No.4189/2016 for interim relief are for hearing.
CS(COMM) 293/2016 Page 1 of 84. The defendant No.1 seeks to non-suit the plaintiff under Section 8 of the Arbitration Act on the basis of the clause "The terms of payment and all other terms will be as per NTPC, on back to back basis" in the letter dated 17th December, 2010 of the defendant no.1 to the plaintiff and acknowledged by the plaintiff and citing the arbitration clause contained in the Agreement dated 9th December, 2010 between the defendant No.1 and Bhartiya Rail Bijlee Company Limited (BRBCL), a joint venture of Indian Railways and NTPC.
5. The said arbitration clause (in Clause 6) titled "Settlement of Disputes" first provides for reference of the disputes between BRBCL and the defendant No.1 to the „adjudicator‟ and provides for arbitration only, if either of BRBCL or the defendant No.1 are dissatisfied with the decision of the adjudicator or if the adjudicator fails to give a decision within 28 days of the dispute being referred to it.
6. Adjudicator is defined in the said agreement dated 9th December, 2010 as the person or persons named as such in the Standard Conditions of Contract (of BRBCL) to make a decision on or to settle any dispute or differences between BRBCL and the defendant No.1.
7. I have enquired from the counsel for the defendant No.1 that since as per the arbitration clause in the contract between BRBCL and defendant no.1, the arbitration is to be kicked in only upon either party being dissatisfied with the decision of the adjudicator and/or in the event of the adjudicator failing to render a decision and there being no possibility of the adjudicator, as per the Standard Conditions of Contract of BRBCL being approached in the dispute between the plaintiff and the defendant No.1, how CS(COMM) 293/2016 Page 2 of 8 on the basis of the clause aforesaid in the letter dated 17th December, 2010 can it be said that the arbitration clause in the agreement dated 9 th December, 2010 between BRBCL and defendant no.1 also stands incorporated in the contract between the plaintiff and the defendant No.1.
8. The counsel for the defendant No.1 has argued that the contract between the plaintiff and the defendant No.1, as contained in the letter dated 17th December, 2010 is simple owing to being on the back to back basis; else there are plethora of terms and conditions which are not mentioned therein. It is his contention that all the terms of the contract between BRBCL and defendant No.1 thus stand incorporated in the contract between the defendant no.1 and the plaintiff. Reliance is placed on Chloro Controls (I) P. Ltd. Vs. Severn Trent Water Purification Inc. (2013) 1 SCC 641.
9. Per contra the senior counsel for the plaintiff has referred to M.R. Engineers & Contractors Pvt. Ltd. Vs. Som Datt Builders Ltd. (2009) 7 SCC 696 laying down the parameters, as to in which cases the arbitration clause contained in another contract can be said to have been incorporated in the contract between the parties. Supreme Court in para 24 of the said judgment has laid down five tests only on satisfaction of which it can be said that an arbitration clause would so get incorporated into a contract by reference and I am afraid neither of the said parameters satisfied in the present case. The reference to the agreement dated 9th December, 2010 between BRBCL and defendant no.1 in the letter dated 17th December, 2010 between the plaintiff and the defendant No.1 does not clearly indicate an intention to incorporate the arbitration clause into the contract. The arbitration clause contained in the agreement dated 9th December, 2010 CS(COMM) 293/2016 Page 3 of 8 between BRBCL and defendant No.1 is also not capable of being applied to the contract between the plaintiff and the defendant No.1.
10. I may add that the Supreme Court in Zonal General Manager, IRCON International Ltd. Vs. Vinay Heavy Equipments MANU/SC/0584/2015 ratified the reasoning given by the arbitrator and the High Court that "Back to back"only meant that the terms and conditions relating to technical specifications, quality, quantum, manner and method of work to be done, in the main contract, stood transposed to the sub contracts and did not effect the liability of the main contractor to the sub contractor and did not transfer the liability of the main contractor (to the sub contractor) to the principal/client.
11. There is thus no merit in IA No.5119/2016 which is dismissed.
12. Qua the interim relief against encashment of bank guarantees, the position which emerges is that the bank guarantees for a total sum of Rs.6.64 crores were furnished by way of security for the mobilisation advance given by the defendant No.1 to the plaintiff; the said mobilisation was to be adjusted in the running bills and out of the sum of Rs.6.64 crores, a sum of Rs.3.52 crores has admittedly been recovered, leaving the balance of Rs.3.12 crores; however the invocation by the defendant No.1 is of all the bank guarantees of Rs.6.64 crores.
13. It is argued by the senior counsel for the plaintiff (i) that the bills of Rs.4.82 crores of the plaintiff are lying unpaid; (ii) that the defendant No.1 is also withholding retention of Rs.3.75 crores of the plaintiff; (iii) that BRBCL has already asked the plaintiff to perform the remaining work under the contract directly under the BRBCL and agreed to pay the amount CS(COMM) 293/2016 Page 4 of 8 thereof.
14. I have however still enquired from the senior counsel for the plaintiff as to under which of the well known exceptions to the rule against interference with encashment of bank guarantees would the plaintiff fall. Fraud, which is one of the exceptions has to be in the matter of obtaining the bank guarantee and which is not the case of the plaintiff.
15. The senior counsel for the plaintiff has contended that the plaintiff is seeking stay against encashment of bank guarantees on the ground of special equities. It is stated that the defendant No.1 has as far back as on 15th July, 2015 made a reference, of its net worth having become negative, to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and today if the defendant No.1 is permitted to encash the bank guarantees and to receiveRs.6.64 crores, the plaintiff would be left with no means of recovering the said amount or of even instituting any suit therefor in view of the provisions of Section 22 of SICA.
16. Inspite of my asking, the counsel for the defendant No.1 has no reply to the aforesaid aspect.
17. In my view, the encashment of bank guarantees cannot be permitted where no possibility exists of the plaintiff in a appropriate proceeding recovering back the amount, if wrongly recovered under the bank guarantees.
18. The only argument of the counsel for the defendant No.1 is that the defendant No.1 is attempting rehabilitation and it is a possibility, as the defendant No.1 has a large quantum of receivables including from BRBCL.
CS(COMM) 293/2016 Page 5 of 819. However on that possibility, the plaintiff cannot be left in a irretrievable position, if the possibility does not convert into reality.
20. Supreme Court in U.P. State Sugar Corporation Vs. Sumac International Ltd. (1997) 1 SCC 568 while holding that irretrievable injury is an exception to the rule against granting of injunctions when unconditional bank guarantees are sought to be realised was also faced with the situation of the defendant in that case which was sought to be so restrained being a sick company within the meaning of SICA. Though it was observed that mere fact that a reference under SICA is pending before the BIFR would not be sufficient to bring the case in the ambit of irretrievable injustice exception and that there cannot be presumption that the defendant company in no circumstances will be able to discharge its obligations and that even Section 22 of SICA is no absolute bar against any suit for recovery of money but the statement of the counsel for the defendant to the effect that the defendant company would earmark the amounts realized from the bank guarantee for the purpose of recovery of monetary claim if any made by the plaintiff and directing that any scheme which BIFR may frame would be subject to the said statement / undertaking given by the defendant, the said proceedings was disposed of. It would thus be evident that the Supreme Court ultimately accepted the plea of irretrievable injustice in the event of encasher / invoker of the bank guarantee being a sick company and made provision for ensuring that the plaintiff if files a monetary claim is able to recover back the said money. No such offer has been made by the defendant in the present case. Moreover, the experience since the said judgment of proceedings under SICA and the fate of the CS(COMM) 293/2016 Page 6 of 8 applications under Section 22 of SICA has not been very happy and it has been found that it is impossible to recover money from a sick company. The said development in the last about 20 years since the said judgment of the Supreme court cannot be ignored and has to be considered while dealing with the applications for injunction. I am thus of the view that the plaintiff on this ground is entitled to interim injunction.
21. The counsel for the defendant no.1 has then argued that the bank guarantees furnished by the defendant no.1 in favour of BRBCL have been encashed and the monies recovered thereunder and the defendant no.1 should immediately be permitted to recover the monies under the bank guarantee furnished by the plaintiff.
22. I am unable to accept the aforesaid contention of the counsel for the defendant no.1. Merely because the bank guarantees furnished by the defendant no.1 in favour of BRBCL have been encashed would not mean that the bank guarantees furnished by the plaintiff should also be permitted to be encashed. BRBCL is not stated to be a sick company as defendant no.1 is.
23. It is therefore deemed appropriate to make the interim order in force absolute with liberty to the defendant No.1 to apply for vacation, if there is any change in the financial health of the defendant No.1.
24. IA No.4189/2016 is accordingly allowed. The ad-interim order dated 31st March, 2016 is made absolute till the decision of the suit.
25. IA No. 4189/2016 is disposed of.
CS(COMM) 293/2016 Page 7 of 8CS(COMM) 293/2016 & IAs No.4192/2016 (u/S 80 CPC) & 5121/2016 (of D-1 u/O 39 R-4 CPC)
26. The counsel for the plaintiff informs that though the defendant No.2 Bank had prepared bank drafts for encashment of the bank guarantees but now the said bank drafts have been cancelled and the bank guarantees stand renewed.
27. The plaintiff to keep the bank guarantees alive till further orders.
28. For the reasons for which the encashment of bank guarantees has been injuncted, no trial is needed in the suit.
29. The counsels to on the next date of hearing suggest the mode in which the suit can be finally disposed of.
30. List on 30th August, 2016.
RAJIV SAHAI ENDLAW, J.
AUGUST 11, 2016 Bs/gsr..
CS(COMM) 293/2016 Page 8 of 8