Gujarat High Court
M/S Nina Waterproofing Systems Private ... vs Icici Bank Limited on 29 November, 2021
Bench: N.V.Anjaria, A. P. Thaker
C/FA/2743/2021 CAV ORDER DATED: 29/11/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 2743 of 2021
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2021
In R/FIRST APPEAL NO. 2743 of 2021
==========================================================
M/S NINA WATERPROOFING SYSTEMS PRIVATE LIMITED Versus ICICI BANK LIMITED ========================================================== Appearance:
MR MEHUL SHAH, SR. ADVOCATE WITH MR JENIL M SHAH(7840) for the Appellant(s) No. 1 MR PUNIT B JUNEJA(3972) for the Defendant(s) No. 2 NOTICE SERVED BY DS(5) for the Defendant(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE DR. JUSTICE A. P. THAKER Date : 29/11/2021 CAV ORDER (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) Heard learned advocate Mr.Mehul Shah with learned advocate Mr.Jenil Shah for the appellant and learned advocate Mr.Punit Juneja for the respondent.
2. The present appeal under Section 37 of the Arbitration and Conciliation Act, 1996 is directed against judgment and order dated 24th September, 2021 passed by learned 12th Additional District Judge, Surat in Commercial Miscellaneous Application No.125 of 2021. The said application was under Section 9 of the Arbitration Act, 1996, which came to be rejected by the court below. It was further directed that the amount of bank guarantees lying before the said court shall be paid to respondent No.2 after due verification.
3. The appellant which is engaged in the Page 1 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 business of water proofing work and related services, was provided with work orders by respondent No.2. They were different work orders dated 25th July, 2017, 09th September, 2017, 21st August, 2020 as well as the amended work orders. The aggregate sum of the work orders was Rs.02,67,00,000/-. The appellant had given bank guarantees towards the said work orders to the extent of 10% retention amount.
3.1 It appears that disputes arose between the parties in relation to the execution of work contract. Respondent No.2 threatened to invoke the bank guarantees. At that time, application under Section 9 came to be filed by the appellant seeking the prayer to prohibit respondent No.2 from invoking the bank guarantees. In the said proceedings, parties reached to an amicable settlement. In view of the settlement, the parties executed irrevocable performance bond dated 19th February, 2021 and the proceedings under Section 9 came to be withdrawn. It further appears that in light of the agreement executed between the parties at that time, the appellant executed two unconditional bank guarantees of respondent No.1 Bank in favour of respondent No.2. The appellant stated that despite having employed specialised manpower to execute the work and though the appellant had incurred additional cost towards the same, respondent No.2 proceeded to fraudulently invoke the bank guarantee with an intention not to pay the outstanding dues of the appellant and usurp the payment illegally. With such premise of facts, application under Section 9 came to be filed by the Page 2 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 appellant.
3.2 Prayers made by the appellant in the application under Section 9 of the Act were as under.
"(a) restraining the Respondent No.1 Bank in acting furtherance to its emails dated 27 th July, 2021 at 7:54 pm sent by the Respondent No.1 Bank and or acting on letter dated 26th July, 2021 issued by the Respondent No.2 to Respondent No.1 being Exhibit - I & J.
(b) to restrain Respondent No.1 Bank in acting in furtherance to its emails dated 27 th July, 2021 at 7:54 pm sent by the Respondent No.1 Bank and or acting on letter dated 26th July, 2021 issued by the Respondent No.2 to Respondent No.1.
(c) to restrain the Respondent No.2 in taking any steps in invoking the bank guarantees at Exhibit I & J."
3.3 The aforesaid application under Section 9 of the Act for interim measures was replied to by respondent No.2 by filing reply at Exh.11. It was contended that as per the agreement, the appellant was required to complete the work at both the sites before 22nd March, 2021. The work was not effectively carried out, it was stated, and that as per the joint inspection report of June, 2021, the work was not upto the standard as the leakages were noticed which were admitted by the appellant.
3.4 It was further stated that on account of default of the appellant in carrying out the work as stipulated in the agreement, new contractor was required to be engaged. The work was completed and the amount payable to the appellant was deducted from the amount payable to such new contractor. At that time, pending dues of the appellant was Page 3 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 Rs.15,45,128/- minus the amount paid. It was, therefore, contended that respondent No.2 was entitled to encash the bank guarantee which was as of right and there was no mala fide intention on part of the respondent No.2. It was also the case that as the appellant did not complete the work on or before 22nd March, 2021, he became liable to penalty of Rs.20,000/- per day and that there was delay of 97 days in completing the work.
4. Arguments were advanced for their respective cases by both the sides. It was submitted on behalf of the appellant that respondent No.2 fraudulently invoked the bank guarantees and disobeyed the conditions under Clause (5) and Clause (10) of the agreement. It was submitted that merely because the bank guarantee was unconditional, it would not discard the conditions of the agreement entered into. It was contended that the work was satisfactorily carried out by the appellant and there was no defect. It was further submitted that the time stipulated under the agreement had not yet ripened and invocation of the bank guarantee was premature.
4.1 On the other hand, on behalf of respondent No.2 it was submitted that the bank guarantee was independent agreement between the Bank and the beneficiary and the terms of the bank guarantee has to be considered. According to respondent No.2, joint inspection report suggested leakages in the structure. Therefore, the work done by the appellant was not satisfactory and the respondent No.2 was Page 4 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 entitled to recover the cost of additional work done by them. It was further submitted that in the correspondence, attention of the appellant was specifically drawn.
5. It appears that after the appearance of respondent No.2 before the court below, he gave undertaking at Exh.10 that during the pendency of the proceedings, respondent No.2 would not invoke the bank guarantee. Still however, as noted by the court below in the impugned order, on the very day after undertaking was given, bank guarantee was liquidated and the amount was debited from the amount of the appellant. In view of this development, appellant filed contempt application also.
5.1 While deciding the application under Section 9 in light of the above facts pleaded and the contentions raised, two issues were framed by the court below which were thus-(i) Whether the Invocation of Bank Guarantee by the Respondent No.2 is in accordance with the Agreement and (ii) Whether there is prima facie case in favour of the Applicant showing 'special equities and irretrievable injustice' so as to restrain Respondent No.2 from invoking Bank Guarantee.
5.2 The details of the bank guarantees executed in favour of respondent No.2 by the respondent No.1 Bank are as under.
Page 5 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 Bank Expiry Date Claim Currency Amount of Guarantee No. Expiry Bank & Date of date Guarantee Issue 0544 31-12-2021 31-12-2022 INR 17,74,693 NDLG00357621 18-02-2021 0544 31-12-2021 31-12-2022 INR 8,43,543 NDLG00357721 18-02-2021 5.3 Both the bank guarantees similarly worded, read as under. "BIG Number : 0544NDLG00357621 ISSUANCE DATE : 18/02/2021
BANK GUARANTEE FOR RETENTION DEPOSIT Bank Guarantee for retention deposit To, Rajhans Infracon (India) Pvt. Ltd.
Rajhans House, 3rd Floor, Opp. Gitanjali Petrol Pump, Varachha Road, Surat, Gujarat - 395006.
Dear Sir, Sub.: Supply & Application of Waterproofing work at Rajhans Synfonia Project at Surat.
In consideration of M. S. Rahjan Infracon (India) Pvt. Ltd., with its office at Rajhans House, 3rd Floor, Opp. Gitanjali Petrol Pump, Varachha road, Surat, Gujarat-395006 India (hereinafter called "the client") having awarded to M/s. NINA PERCEPT PVT. LTD., a company registered under the Companies Act, 2013, and having their registered and corporate office at Naman Midtown, A-Wing, 401, 4th Floor, near Kamgar Krida Kendra, Senapati Bapat Marg, Off Tulsi Pipe Road, Prabhadevi (West), Mumbai 400 013 and branch office at 412, 4 th Floor, Dev Arcade Plot No. 03, 04, 05, 06, Navin Park Co. Opp. Hsg. Soc. Ltd. Wadaj, City Ahmedabad - 380 013 Gujarat (hereinafter called "the contractor"), the Work Order no. 5100009011 dated 09.09.2017 (herein called 'the work order') for the purpose of supply and Apply of Waterproofing work at Rajhans Synfonia Project and upon the terms and conditions laid down in the said work order which includes inter alia the conditions of the contractors furnishing Page 6 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 security for the due performance of the said work by way of Retention amount during the period of 24 months from the completion of work by the contractors and the contractors obligations and or discharge of the contractors liability under and or in connection with the said agreement amount to 10% of the total contract value in the form of bank guarantee.
We ICICI BANK Ltd., a company incorporated under the Companies Act, 1956 and licensed as a bank within the meaning of the Banking Regulation Act, 1949 having our branch office at 1 st Floor, Trans Trade Centre, near Floral Deck Plaza, Near SEEPZ, Andheri MIDC, Mumbai 400 093, (hereinafter called 'the bank') hereby undertake and agree to pay to the client an amount forthwith on demand in writing of any and all moneys payable by the contractors to the clients under, in respect or in connection with the Work Order upto a sum of rs. 17,74,693/- (Rupees Seventeen Lakhs Seventy Four thousand Six Hundred and Ninety Three only) and against any loss or damage caused to or suffered or would be caused to or suffered by the Client by reason of any breach by the contractors of any of the terms and conditions contained in the said work order with reference to the Retention amount.
"The liability of the Guarantor under this Guarantee shall not exceed Rs. 17,74,693/- (Rupees Seventeen Lakhs Seventy Four thousand Six Hundred and Ninety Three only) (the "Guaranteed Amounts").
This Guarantee shall be valid up to 31-12-2021 (the "Expiry Date").
Notwithstanding anything to the contrary contained herein, no obligation of the Guarantor to pay any amount under this Guarantee shall arise prior to the fulfillment of the following conditions precedent;
(a) written claim demand (s) in terms of this Guarantee of an aggregate amount less than or equal to the Guaranteed Amounts is are made by the Beneficiary hereunder; and
(b) such written claim demand (s) is/are delivered to the Guarantor on or before 31-12-2022 Date at the ICICI Bank branch located at ICICI Bank Ltd.
Trans trade Centre near Floral Deck Plaza Seepz Mide Andheri (E) Mumbai - 400093.
for ICICI BANK LTD.
Authorised Signatories."
Page 7 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 5.4 The court below, while rejecting the application under Section 9, proceeded to observe that since the bank guarantees were unconditional, terms of the agreement were not incorporated in the bank guarantees and there was no special equities in the nature of irretrievable injustice, therefore no ground was made out to restrain the respondent No.2 from invoking the bank guarantees, even if, it was further observed, that invocation of the bank guarantees was premature. At the same time, the court below noted that though the say of respondent No.2 was that the work was incomplete and defective, no third party contractor was appointed to get the incomplete work done. The court below, however, in its reasoning, justified the invocation of the bank guarantees in view of the nature of the bank guarantees etc. and dismissed the application under Section 9.
5.5 There will be no gainsaying that the bank guarantees executed by appellant through respondent No.1 Bank were in connection with the agreement with respondent No.2 which bank guarantees were in respect of 10% retention amount under the agreement. While the prayer in Section 9 application was to restrain the respondent No.1 Bank from encashing the bank guarantees and to restrain the respondent No.2 from taking any steps in invoking the bank guarantees, despite undertaking of respondent No.2 to not invoke the bank guarantees, they were invoked. Be as it may.
Page 8 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 5.6 Upon an attentive reading of the impugned order rejecting the application under Section 9 of the Act, the court below has adverted to the aspects whether work done by the appellant was incomplete, whether respondent No.2 got it completed by appointing another contractor. The court below further dealt with the aspect about the nature of bank guarantees and the encashment thereof. All these aspects were relevant to be decided in the main arbitral proceedings when the parties to take recourse to the arbitration. What was to be considered by the court below was the prayers under Section 9 of the Act. Section 9 provides for interim measures before commencement of the arbitration and during the pendency of the arbitration.
5.7 Section 9 of the Act reads as under.
"9. Interim measures, etc., by Court.--[(1)]A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court-- (i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:--
(a) the preservation, interim custody or sale of any goods which are the subject-
matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to Page 9 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.
(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.
(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious."
5.8 A tentative reading of the impugned order would go to show that the court below has adverted itself to the aspect as to whether the bank guarantee was liable to be encashed and the fact that it was subsequently encashed. The entire discussion ranges on that count. It was recorded that the bank guarantee was already invoked and application was filed. The bank guarantee invoked was automatically encashed, observed the court because of the automatic system of liquidation of the bank guarantee. It was reasoned that in commercial transactions, banks must be allowed to freely honor its obligation. In other Page 10 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 words, all focus of the court remained on the legal principles about nature of bank guarantee and encashability thereof.
5.9 The application which was considered by the court below was an application under Section 9 of the Arbitration and Conciliation Act. It deals with the interim measures, as is clear from Section 9 quoted hereinabove, during the arbitral proceedings or at the time after making of arbitral award. It is well settled that principles apply to the grant or otherwise of the prayers made under section 9 of the Act are analogous to the ingredients and principles applicable for granting interim injunction under Order 39 Rule 1(2) of the Code of Civil Procedure, 1908. Section 9 suggests the very idea of granting interim measures to preserve/protect any goods which are the subject matter of arbitration agreement or to secure the amount in dispute in the arbitration. The interim measures are intended to lay the parties to such a position during pendency of the arbitration proceedings that no prejudice occurs to them. Interim measures are intended to reserve and protect the rights of the parties during the process of arbitration.
6. When considered in the context of Section 9 and the scope and the principle underlined therein, the impugned order cannot be said to be supported by reasons. Reasons by themselves are vital to any judicial pronouncements and are considered to be the soul of the decision. It lends propriety and Page 11 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 justification both to the decision, when properly offered. The application of mind and decision making process of the Judge is reflected in the recording of the reasons.
6.1 The Supreme Court in Union of India v. Ibrahim Uddin [(2012) 8 SCC 148] highlighted the importance of reasons in the following words.
"It is a settled legal proposition that not only administrative order, but also judicial order must be supported by reasons, recorded in it. Thus, while deciding an issue, the Court is bound to give reasons for its conclusion. It is the duty and obligation on the part of the Court to record reasons while disposing of the case. The hallmark of order and exercise of judicial power by a judicial forum is for the forum to disclose its reasons by itself and giving of reasons has always been insisted upon as one of the fundamentals of sound administration of the justice delivery system, to make it known that there had been proper and due application of mind to the issue before the Court and also as an essential requisite of the principles of natural justice. The reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same, the order becomes lifeless. Reasons substitute subjectivity with objectivity. The absence of reasons renders an order indefensible/unsustainable particularly when the order is subject to further challenge before a higher forum. Recording of reasons is principle of natural justice and every judicial order must be supported by reasons recorded in writing. It ensures transparency and fairness in decision making. The person who is adversely affected must know why his application has been rejected. (Vide: State of Orissa v. Dhaniram Luhar, AIR 2004 SC 1794; State of Uttaranchal & Anr. v. Sunil Kumar Singh Negi, AIR 2008 SC 2026; The Secretary & Curator, Victoria Memorial Hall v. Howrah Ganatantrik Nagrik Samity & Ors., AIR 2010 SC 1285; and Sant Lal Gupta & Ors. v. Modern Cooperative Group Housing Society Limited & Ors., (2010) 13 SCC 336). (Para 44) 6.2 While the above observations highlights the necessity and significance of reasons in general perception, the relevant reasons have to guide the Page 12 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022 C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 final decision. When the order is discretionary, the reasons should justify the exercise of discretion. Reasons to be germane, must adhered to the subject matter of the decision dealt with. In this case, it is the premise of Section 9 which have to be addressed to, to be applied in the facts of the case by good supportive reasons.
6.3 In the entire discussion in the impugned order, the court has failed to consider the scope and import of section 9 of the Arbitration and Conciliation Act and has consequentially failed to evaluate the rival merits in the context of section
9. Whether the case of the applicant seeking interim measure was meritorious in terms of the principles to be applied under section 9, was the question to be dealt with by the court below in the context of the facts obtained. The court has misdirected itself in not adverting to such process.
7. In the above view, on the said ground alone, the impugned order dated 24th September, 2021 passed by 12th Additional District Judge, Surat rejecting the Commrcial Miscellaneous Application No. 125 of 2021 under section 9 of Arbitration and Conciliation Act, 1996, is hereby set aside. The proper course would be to remand the proceedings before the court below for decision afresh. Accordingly, the proceedings of Commercial Miscellaneous Application No.125 of 2021 are remanded to the court of 12th Additional District Judge, Surat, who shall decide the application afresh by supplying proper reasons in accordance with law.
Page 13 of 14 Downloaded on : Wed Jan 12 05:13:59 IST 2022C/FA/2743/2021 CAV ORDER DATED: 29/11/2021 It is observed that fresh decision shall be taken without being influenced by earlier order as well as by the present order.
7.1 Fresh decision shall be taken by the court below within a period of ten weeks from the date of receipt of the present order.
8. This court has not gone into nor has expressed any opinion on the case of either side.
9. The First Appeal is allowed in the aforesaid terms and to the said extent. No orders as to costs.
Direct service is permitted.
ORDER IN CIVIL APPLICATION The amount of Bank Guarantee already invoked and lying deposited with the court below shall not be permitted to be disbursed till the proceedings are decided afresh as per the above direction.
With the above direction, the Civil
Application stands disposed of.
(N.V.ANJARIA, J)
(DR. A. P. THAKER, J)
ANUP
Page 14 of 14
Downloaded on : Wed Jan 12 05:13:59 IST 2022