w w w . L a w y e r S e r v i c e s . i n



Ahluwalia Contracts (India) Ltd. v/s Reliance Infrastructure Limited & Others


Company & Directors' Information:- RELIANCE INFRASTRUCTURE LIMITED [Active] CIN = L75100MH1929PLC001530

Company & Directors' Information:- AHLUWALIA CONTRACTS (INDIA) LIMITED [Active] CIN = L45101DL1979PLC009654

Company & Directors' Information:- S K CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL1986PTC025351

Company & Directors' Information:- S. S. E. CONTRACTS PRIVATE LIMITED [Active] CIN = U74900WB2013PTC192042

Company & Directors' Information:- RELIANCE LIMITED [Active] CIN = U74999MH2006PLC218261

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- A B CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U74899DL2000PTC105814

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- R S CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U45202WB1997PTC084794

Company & Directors' Information:- RELIANCE INDIA PRIVATE LIMITED [Active] CIN = U52190MH2006PTC218260

Company & Directors' Information:- J D CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL2011PTC214287

Company & Directors' Information:- RELIANCE CORPORATION PVT LTD [Strike Off] CIN = U51909WB1948PTC017421

Company & Directors' Information:- D H CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL2010PTC198200

Company & Directors' Information:- AHLUWALIA INFRASTRUCTURE PRIVATE LIMITED [Strike Off] CIN = U70109DL2012PTC239949

Company & Directors' Information:- N J CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U74210HR2011PTC042559

Company & Directors' Information:- J P S CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U45201DL2000PTC107170

    Commercial Arbitration Petition (LODG) No. 145 of 2019

    Decided On, 02 April 2019

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE G.S. KULKARNI

    For the Petitioner: Zal Andhyarujina, Mayur Khandeparkar, Dhiraj Mhetre, Smiti Tewari, Sonal Alagh, Parth Dua I/b. Khaitan Legal Associates, Advocates. For the Respondents: R1, S.U. Kamdar, Senior Advocate with Sarosh Bharucha, Chirag Kamdar, Karan Bhosale, Shrey Fattarpekar, Kiran Padalkar, Ishita Bajaj I/b. India Law Alliance, Advocates.



Judgment Text


1. This is a petition under Section 9 of the Arbitration and Conciliation Act (for short 'the Act') whereby the petitioner prays for the following interim reliefs pending the arbitral proceedings:

a) This Hon'ble Court pass an order and direction restraining Respondent Nos.2 and 3 from making any payment under the Bank Guarantees;

b) This Hon'ble Court pass an order and directions restraining Respondent No.1 from receiving any payment under the Bank guarantees;

c) This Hon'ble Court pass an order and directions restraining Respondent No.1 from using the monies received by them towards the Bank Guarantees and deposit the said amount in this Hon'ble Court.

d) Ex parte Ad interim and interim relief in terms of prayer clauses (a) and (b) above be granted,”

2. Briefly the facts are :

i. The case of the petitioner is that the petitioner is involved interalia in the business of civil construction. Respondent nos.2 and 3 are the banks who have issued a performance bank guarantee and the advance bank guarantee which are subject matter of the reliefs as prayed by the petitioner.

ii. The petitioner contends that on 17 May 2010 a letter of award came to be issued in favour of the petitioner by respondent no.1Reliance Infrastructure Ltd. interalia for the work of completion of construction of a “GCWII Package02 for 6X660 MW Ultra Mega Power Project” at Sasan, MP. Clause 10 of the Award letter provides for Special Conditions of Contract (SCC), General Conditions of Contract (GCC) and Erection Conditions of Contract (ECC) forming a part of the contract.

iii. It is stated that as per Clause 11 of the Special Conditions of Contract, the petitioner was required to, interalia, furnish (I) a performance bank guarantee, being a defects liability guarantee for a value of 10% of the contract value; (ii) an advance bank guarantee for a value of 5% of the total contract value; and (iii) an advance bank guarantee for a value of 5% of the total contract value.

iv. It is the petitioner's case that pursuant to Clause 11 of the Special Conditions of Contract, three bank guarantees were issued namely Performance Bank Guarantee dated 24 November 2017 bearing reference no.003GM01173280002 issued by respondent no.3 for a value of Rs.10,75,40,758/- (which bank guarantee replaced the initial bank guarantees issued by IDBI Bank and Canara Bank). An Advance Bank Guarantee dated 26 April 2018 bearing reference No.0097218BG0000134 issued by respondent no.2 for an amount of Rs.5,37,70,379/- (which bank guarantee replaced the initial bank guarantee issued by SBI) which (the first Advance Bank Guarantee) and the Advance Bank Guarantee dated 26 April 2018 bearing no.097218BG0000136 issued by respondent no.2 for an amount of Rs.3,03,19054/- (which bank guarantee replaced the initial bank guarantee issued by SBI), it is second advance bank guarantee. The performance bank guarantee, the first Advance Bank Guarantee and the Second Advance Bank Guarantee are for convenience referred to as the “Bank Guarantees”.

v. The petitioner contends that as per the request of respondent no.1, the bank guarantees were extended from time to time and as per the last extension, the Performance Bank Guarantee is valid till 31 July 2019 and the first and the Advance Bank Guarantees are valid till 24 July 2019.

vi. It is the petitioner's case that as per the completion schedule provided under the Special Conditions of Contract, the petitioner fully mobilised all the resources comprising of manpower, plant and machinery, labour forces, prefab for labour hutment and also spent monies towards bank guarantees and insurance so as to achieve average monthly work of Rs.3,33 Crores for completion of the works as per the targets prescribed under the Contract. It is contended that however right from the commencement of the works, there were hindrances and hurdles, not attributable to the petitioner, interalia including (i) non availability of fronts and power supply for construction,; (ii) non availability of front due to poor approach; (iii) non availability of RFC drawings; (iv) non availability of free issue material, specially Ready Mix Concrete; (v) extra job and quantity variation; (vi) enforceable subsurface conditions; (vii) Bandh at site; (viii) deployment of unproductive labour; (ix) highly active monsoon and incessant rains; and (x) delay in payment of Running Account Bills.

vii. It is the petitioner's case that on 20 August 2013, due to the issues on wages of the labourers at site, it was agreed between the petitioner and respondent no.1 that the work under the contract will be discontinued. This fact was recorded in the petitioner's email dated 21 August 2013 addressed to respondent no.1 interalia, recording that as per the instructions of respondent no.1, the petitioner has agreed to discontinue the works at site and requested respondent no.1 to clear all the dues of the labourers, petty contractors and suppliers. The petitioner requested respondent no.1 to permit the petitioner to take out its machinery and material from the site. It is stated that on the basis of the instructions of respondent no.1, the works under the contract was accordingly discontinued and the site was handed over to respondent no.1 on 30 September 2013.

viii. The petitioner contends that thereafter respondent no.1 by its letter dated 16 October 2013 addressed to the petitioner, requested the petitioner to submit its final bill, FIN reconciliation and return of shuttering and staging materials. The petitioner says that the petitioner responded by its letter dated 31 October 2013 to respondent no.1, recording that since the work was abruptly stopped, the environment at site had also become violent due to non payment of labour payment/market commitment and recorded that its entire team had suffered on this account. Respondent no.1 was therefore called upon to clear the dues of labour, petty contractors and suppliers.

ix. It is the petitioner's case that between the period of 2013 to 2015, the parties were engaged in discussions and undertaking steps for formal closure of the contract and reconciliation of accounts. The petitioner accordingly addressed a letter dated 3 March 2015 setting out in detail, the hurdles that had occurred in completion of work and stated that the petitioner is “foreclosing the contract” and called upon respondent no.1 to take steps as detailed therein to complete the process of of closure of the contract.

x. Petitioner contends that thereafter by an email dated 9 December 2015 respondent no.1 was informed that the petitioner has completed the billing and reconciliation work for the project and will submit all the issues related to the site that were likely to be closed within a fortnight. The petitioner also recorded that since the contract work was completed more than a year back and even the defect liability period was also over, a request was made that the bank guarantees be released to avoid the petitioner incurring avoidable bank charges.

xi. Respondent no.1 responded to the said email of the petitioner by their email dated 28 December 2015 recording that the parties have been meeting continuously since December 2014 and January 2015 and were working on closure of the contract. It was stated that the petitioner should forward the contract closure to the Corporate Procurement Group (for short 'the CPG') so that before the expiry of the bank guarantees, the parties may close the contract.

xii. The Petitioner contends that pursuant to the request of respondent no.1 in its email dated 28 December 2015, in or about February, 2016 the petitioner forwarded a final bill and reconciliation matrix to the project team, which in turn forwarded the same to the Corporate Procurement Group (CPG) of respondent no.1. It is stated that the petitioner again by its email dated 25 March 2016, requested respondent no.1 for return of the bank guarantees. Respondent no.1 replied to the petitioner's email dated 25 March 2016 recording that since certain officers had left the team, the petitioner should check internally on the mutually signed off documents. The Managing Director of the petitioner thereafter on 15 September 2016 addressed an email to respondent no.1 recording that the petitioner had undertaken various projects for respondent no.1 for a value of Rs.234 crores wherein various bank guarantees had been submitted. It was stated that there are certain issues pertaining to reconciliation of accounts, these amounts are not yet settled, respondent no.1 was requested to expedite the settlement process.

xiii. The petitioner says that in or about September 2016, respondent no.1 invoked the bank guarantees. The petitioner by its email dated 27 September 2016 addressed to respondent no.1 expressed a surprise on respondent no.1 invoking the performance bank guarantee, recording that this was done despite resolution of the site issues, statutory compliance and finalisation of the bills. It was also recorded that the site was handed over to respondent almost two years back and the closure report on the contract was awaited. The petitioner therefore, requested respondent no.1 to withdraw the invocation of the performance bank guarantee.

xiv. The petitioner contends that thereafter by an email dated 22 February 2017 respondent no.1 recorded that a meeting was proposed with the petitioner on 27 February 2017 and 28 February 2017 for closure of all issues pertaining to the project. It was also recorded that a summary of detailed working/accounts done jointly by the parties had already been shared with the petitioner earlier.

xv. The petitioner contends that pursuant to detailed discussion on the accounts, by email dated 14 April 2017 respondent no.1 forwarded the accounts to the petitioner, on the basis of which the petitioner contends that an amount of Rs.1.17 crores was due and payable by the petitioner to respondent no.1 after adjusting mobilisation advance received by the petitioner from respondent no.1 for which the bank guarantees were furnished and the factoring payment of 5% retention amount of Rs.1.64 crores.

xvi. The petitioner contends that despite the clear statement of account as forwarded by respondent no.1 to the petitioner on 12 February 2019, the petitioner was shocked to learn that the bank guarantees had been invoked by respondent no.1 by its invocation notice addressed by the bank. The petitioner therefore contends that despite respondent no.1 expressly admitting that an amount of Rs.1.17 crores is payable by the petitioner, respondent no.1 has wrongfully and with malafide intention invoked the bank guarantees which are of Rs.20 crores thereby attempting to unjustly enrich itself. The petitioner contends that in good faith the petitioner has extended the bank guarantees. Accordingly, the petitioner has filed the present petition.

3. Respondent no.1 has appeared and has also filed reply affidavit of Mr.Omkar Raut, Senior Manager (Legal). In the affidavit, respondent no.1 has contended that the petitioner does not make out any case for an injunction on invocation of bank guarantee and that in fact the petition is a gross abuse of the process of the Court. Respondent no.1 has contended that the petitioner has suppressed material facts in seeking discretionary reliefs. Respondent no.1 contends that by a letter of award dated 17 May 2010 and subsequent work order dated 29 May 2010, respondent no.1 awarded the contract for Civil Works 2 (Package 2) in respect of 6X660 MW Sasan Ultra Mega Power Project, Sasan, Madhya Pradesh, to the petitioner for a composite sum of Rs.103,28,53,998.54/- (excluding taxes) and for which the Performance Bank Guarantee and the first and second Advance Bank Guarantees were furnished by the petitioner. It is stated that the petitioner was required to complete the entire contractual work within a period of 31 months from the notice to proceed dated 19 May 2010 that complete the same by 20 December 2012. It is the case of respondent no.1 that the petitioner failed to complete the work awarded within the stipulated time period. It is stated that there was substantial delay in mobilization and deployment of resources by the petitioner, as also inadequate resources were deployed at site, the milestones envisaged as per the project schedule were not achieved. Respondent no.1 has contended that during the execution of the project, respondent no.1 time and again highlighted these issues and communicated specific requirements to the petitioner interalia for deployment of additional manpower and resources. Respondent no.1 has stated that respondent no.1 was constrained to revise and reduce petitioner's scope of work and various packages, that were to be undertaken by it were offloaded to third parties. It is stated that in addition to the petitioner's failure, respondent no.1 was constrained to issue 24 amendments/revisions to the main work order. It is stated that consequent to this offloading, the contract value awarded to the petitioner was reduced to Rs.70,98,22,818.75. In paragraph 10 of the reply affidavit, respondent no.1 contends that the balance advance of Rs.7,58,00,296/- being 10% of Rs.71,54,49,368/is yet to be recovered from the petitioner by respondent no.1 which can be recovered from the first and second Advance Bank Guarantees. It is contended that the petitioner left the contractual work incomplete and did not even make payments to the labour and/or subcontractors engaged by it, creating serious unrest at the project site. This was informed by respondent no.1 to the petitioner on 27 August 2013. Respondent no.1 also was constrained to release additional payments to the extent of Rs.1,01,00,000/- in September 2013 in order to bring the situation under control at the Project site. This was the amount which is originally due and payable by the petitioner to his workers and which respondent no.1 had become entitled to recover. Respondent no.1 in reply affidavit has further stated that on the petitioner's failure and abandonment, respondent no.1 was also required to engage the services of third party contractors to complete the work forming part of the petitioner's scope of work. It is stated that respondent no.1 has placed various work orders on third party contractors amounting to Rs.4,92,67,608.5 and was also required to pay the said amounts. These amounts are therefore to the account of the petitioner.

4. In regard to the petitioner's contention on the e-mail dated 14 April 2017, to contend that the petitioner was required to pay only an amount of Rs.1.17 crores to respondent no.1, it is submitted that the claims of the parties were never crystalized to Rs.1.17 crores as alleged by the petitioner. It is stated that a perusal of the email dated 14 April 2017 it is clear that the same only forwards an attachment, without even describing the same and thus by no stretch of imagination can it be deemed to be meant to be a conclusive settlement of accounts between the parties. It is further stated that the note annexed to the said email does not bear either party's seal or authorized representative's signature. It is further stated that the petitioner was executing more than one project at the relevant time, and there is nothing to show from the document itself that the same pertained to the project. It is further contended that such a note termed as a settlement by the petitioner was in the course of negotiations between the parties, with a view to discuss and consider the same and cannot be treated as final statement of account. It is thus contended that the petitioner's case that this statement was conclusive statement of accounts, as settled between the parties, is belied not only by the subsequent correspondence but also by the fact that if this indeed was to be a settled statement of accounts, the petitioner itself had not acted upon it for a period of almost two years. It is thus contended that the petitioner has approached this Court with a completely false case.

5. There is a rejoinder affidavit filed on behalf of the petitioner denying the case of respondent no.1 whereby the endeavour of the petitioner, is interalia to explain the statement of accounts/statements as attached to the email dated 14 April 2017 addressed by respondent no.1 to the petitioner. It is on the basis of the above pleadings, learned Counsel for the petitioner and respondent no.1 have made submissions.

6. Mr.Andhyarujina, learned Counsel for the petitioner would submit that respondent no.1 has acted fraudulently in invoking the bank guarantees. The main thrust of Mr.Andhyarujina's arguments is on the basis of statement as attached to the email dated 14 April 2017 of respondent no.1 on the basis of which the learned Counsel submits that only Rs.1.17 crores being the agreed amount was due and payable to respondent no.1 by the petitioner. It is submitted that this statement of accounts clearly shows the settlement on all the issues/financial claims between the petitioner and respondent no.1, and therefore invocation of bank guarantees which are of such huge amounts is patently illegal and fraudulent. Mr.Andhyarujina would next submit that it is clear from the record that the project itself was given up by the petitioner on or about August 2013 and thus, there was no question of performance of project being of any issue, so that respondent no.1 could invoke the performance bank guarantee or the advance bank guarantees. To support this contention Mr.Andhyarujina has drawn my attention to the correspondence placed on record which according to him, clearly shows that the project was abandoned as was given up by the petitioner. Mr.Andhyarujina has drawn my attention to the averments as made in the memo of the petition and the correspondence to show that time and again the petitioner had requested respondent no.1 to release the bank guarantees as no further work was to be undertaken by the petitioner in regard to the said project. Mr.Andhyarujina would submit that this is a clear case of special equities and of a fraud on the petitioner by respondent no.1, in invoking the bank guarantees. It is submitted that it is a case of special equities for the reason that since August 2013 the project is already given up and/or not being performed by the petitioner and therefore, there is no question of any invocation of bank guarantees. Mr.Andhyarujina would submit that the demobilization and the settlement between the parties has clearly come on record. Mr.Andhyarujina referring to the decision of this Court in “Seth Maneklal Mansukhbhai Vs. Jwaladutt Rameshwar Pillani” (1947 ILR 378)contended that once the account was settled as seen from email dated 14 April 2017, it was sufficient that the same be accepted and such acceptance is required to be inferred from the conduct of the parties. Mr.Andhyarujina would refer to the following observations of the Court in the said judgment:

“.... If accounts are submitted and if they are accepted as correct by the other side to whom the accounts have been rendered, then in law you have stated or settled accounts. It is not necessary that the settlement of accounts need be in writing nor is it necessary that parties should sit down, compare accounts and call for vouchers, etc. All that the Court has got to ascertain is whether in fact the party to whom accounts were rendered has accepted those accounts as correct. The acceptance need not be express; it can be inferred from conduct. In this case there is no evidence of express acceptance of accounts. What I have to find is whether there is sufficient evidence from which a legal presumption can arise that the accounts between the parties were settled. The principle which I have just enunciated is borne out by a series of authorities dating from the earliest times. I cannot accept Mr. Taraporewalla's contention that accounts can never be settled unless the party to whom they are rendered has actually seen all the accounts and all the particulars and has satisfied himself as to its correctness. It is true that there can be no acceptance or acquiescence without knowledge. But the knowledge which the law contemplates is not the knowledge of the actual correctness of the accounts but the knowledge of the right to claim particulars and vouchers with regard to the accounts submitted.”

7. On the other hand Mr.Kamdar, learned Senior Counsel for respondent no.1 in opposing the reliefs would contend that no case whatsoever has been made out by the petitioner to seek reliefs against invocation of the bank guarantees. It is submitted that the bank guarantees are unconditional bank guarantees. It is submitted that this settled principal of law that a bank guarantee is an independent contract between the bank and the beneficiary of the bank guarantee. Mr.Kamdar has drawn my attention to the specific clauses of the bank guarantee which according to Mr.Kamdar would unconditionally entitle respondent no.1 to receive the amounts under the bank guarantees without any reference to the petitioner to question such invocation and receipt of the amount. Mr.Kamdar would submit that an injunction can be granted only when there is clear case of fraud and irreparable injury being practised by the beneficiary of the bank guarantees and such a fraud ought to be to the knowledge of the bank in issuing these bank guarantees. Drawing the attention of the Court to the averments as made in the petition, Mr.Kamdar would submit that there is no case of fraud of any nature as pleaded in the petition. As regards the special equities, Mr.Kamdar would submit that the case of special equities is also totally untenable. It is submitted that there is no material whatsoever as placed on record which would in any manner, even remotely indicate that the amounts under the bank guarantees cannot be recovered by the petitioner, when the petitioner pleads special equities. It is submitted that the averments in the petition, without any material to support such contention, cannot be accepted by the Court to grant any reliefs of the nature as prayed by the petitioner. Mr.Kamdar has placed reliance on the decision of the learned Single Judge of this Court in the case “Fleguera Gruas India Pvt. Ltd. Vs. Tuticorin Coal Terminal Pvt.Ltd.” (2018 SCC Online Bom 33). It is submitted that this decision has been upheld by the Division Bench of this Court in Commercial Appeal (lodg) No.20 of 2018 and other connected matters on 10 April 2018. Mr.Kamdar has also placed reliance on the decision of the Division Bench of this Court in “M/s.S.Satyanarayana &b Co. Vs. 1.M/s.West Quay Multiport (Private Limited) & Anr.” (2015 SCC Online Bom 3352) to contend that the averments of the fraud of invocation of bank guarantees as orally argued on behalf of the petitioner is totally untenable. Mr.Kamdar would submit that the petitioner has suppressed material documents which would clearly go to show that respondent no.1 had in fact demanded an amount of Rs.70 crores in regard to the project in question. To support this contention, Mr.Kamdar has referred to email dated 23 May 2017 on the basis of which it is contended that reference on behalf of the petitioner to email dated 14 April 2007 was a part of negotiations and the parties have not reached any conclusive settlement. It is submitted that this email dated 23 May 2017 is suppressed by the petitioner.

Reasons and Conclusion

8. I have heard the learned Counsel for the parties, I have perused the record. Some basic facts are required to be noted. It is not in dispute that by a letter of award dated 17 May 2010 respondent no.1 awarded the project work to the petitioner and under the conditions of the contract the petitioner was required to furnish bank guarantees in question to respondent no.1. It also appears to be quite clear that the petitioner is no more undertaking the contractual work which has stopped since August 2013. It is the petitioner's case that the petitioner for the reasons as noted in detail in the foregoing paragraphs had given up the contractual work. It is the case of respondent no.1 that the petitioner abandoned the work. However, the fact remains that the petitioner was no more discharging its contractual obligation. The case of respondent no.1 is also that the work which was abandoned by the petitioner, was got performed by repsondent no.1 by appointing third party contractors and for which respondent no.1 was required to pay these third party contractors. It is further the case of respondent no.1 that an amount of Rs.17 crores was recoverable from the petitioner. It also appears to be undisputed that there are business relations between the parties not only in regard to the project in question but also certain other projects. 10. Another significant aspect which needs to be noted is that, on one hand, when the petitioner contends that the petitioner was no more performing the contractual work from August 2013, however, the petitioner continued extending validity of the performance bank guarantee upto 31 July 2019 and the advance bank guarantees upto 24 July 2019. These bank guarantees are of substantial amounts as noted above. The amount of the bank guarantees are of some relevance when the petitioner on the basis of settlement of accounts contends that only an amount of Rs.1.17 crores is the amount which had become payable under the settlement accounts dated 14 April 2017, as forwarded by respondent no.1 to the petitioner. Obviously the first question which would occur to a prudent mind is as to how, for a meager amount of Rs.1.17 crores the petitioner would keep extended the bank guarantees in question which are almost to the tune of about Rs.18 crores.

9. Be that as it may, it would be necessary to consider whether the petitioner has made out any case on the well settled principal of law which would be available to a party to seek injunction on invocation of bank guarantees. The bank guarantee is an independent contract between the bank and the party in whose favour the bank guarantee is issued. The clauses as contained in the bank guarantee are required to be taken into consideration by the Court, so as to consider the nature of the bank guarantee. If the bank guarantee is unconditional and irrevocable, the Court can restrain the bank in not honouring its obligation under the bank guarantee only on two basic grounds namely that there is a clear fraud of which the bank has a notice. The fraud is required to be of a egregious nature which would vitiate the very foundation of the bank guarantee and when the parties seeking injunction pray for special equities it should result in an irreparable injury and injustice.

10. In M/s.S.Satyanarayana &b Co. Vs. 1.M/s.West Quay Multiport (Private Limited) & Anr.” (supra) the Division Bench of this Court in the context of an injunction being prayed on invocation and encashment of a bank guarantee, has made the following observations:

“11. It is wellsettled that a bank guarantee is an independent contract between the bank and the beneficiary and thus the bank guarantee is required to be honoured in accordance with its terms. If the bank guarantee is unconditional and irrevocable the exceptions in the bank not honouring its obligations under the bank guarantee are firstly a fraud of which the bank has a clear notice. Such a fraud must be of an egregious nature so as to vitiate in its entirety the underlying transaction. The nature of the fraud should be such that the beneficiary of the bank guarantee is seeking to be benefited from such fraud. The second exception are the 'special equities; such as an irretrievable injury or irretrievable injustice which would be caused to the party at whose instance the bank guarantee is issued and if an injunction at the relevant time is not granted the party can never be compensated for such an injury. [U. P. Cooperative Sugar Ltd Vs. Singh Engineers Pvt. Ltd. (1988) 1 SCC 174 and BSES Ltd vs. Fenner Ltd (supra)] Adverting to these settled principles of law we consider facts of the present case.

… … … ….

13. The contention as urged on behalf of the appellant that there is a fraud on the part of respondent no.1 in invoking the bank guarantee is misconceived and without any basis. There is no material whatsoever placed on record even to remotely suggest that there is any fraud which is to the knowledge of the respondent no.2bank of which respondent no.2-bank is seeking to take benefit in invoking the bank guarantees in question. It is therefore, rather surprising as to how such a submission is being advanced.”

11. Learned Single Judge of this Court in Fleguera Gruas India Pvt. Ltd. Vs. Tuticorin Coal Terminal Pvt.Ltd,(supra) considering law in this context made the following observations:

“31. It is settled law that a bank guarantee is an independent contract and a challenge to the invocation/encashment of an irrevocable and unconditional bank guarantee has to be considered without any reference to the underlying or main contract or to the disputes/claims thereunder. However, the two exceptions which have been carved out by several decisions of the Hon'ble Supreme Court under which the invocation/encashment of such Bank Guarantee/s could be restrained are fraud and irretrievable injury. FGIPL has averred in the Petitions that the invocation of the Bank Guarantees would be fraudulent, more so because TCTPL has not challenged the suspension of the works by FGIPL. It is trite law that a Court can restrain encashment of bank guarantee in cases of established fraud in issuance of the bank guarantee. The fraud has to be absolute and egregious, vitiating the very foundation of the bank guarantee.

32. On the issue of the first exception viz. fraud, the Hon'ble Supreme Court in the case of Vinitec Electronics Pvt. Ltd. v. HCL Infosystems Ltd. (supra) held thus :

"25. This Court in more than one decision took the view that fraud, if any, must be of an egregious nature as to vitiate the underlying transaction. We have meticulously examined the pleadings in the present case in which no factual foundation is laid in support of the allegations of fraud. There is not even a proper allegation of any fraud as such and in fact the whole case of the appellant centres around the allegation with regard to the alleged breach of contract by the respondent. The plea of fraud in the appellant's own words is to the following effect:

"That despite the respondent HCL being in default of not making payment as stipulated in the bank guarantee, in perpetration of abject dishonesty and fraud, the respondent HCL fraudulently invoked the bank guarantee furnished by the applicant and sought remittance of the sums under the conditional bank guarantee from Oriental Bank of Commerce vide letter of invocation dated 16-12-2003."

26. In our considered opinion such vague and indefinite allegations made do not satisfy the requirement in law constituting any fraud much less the fraud of an egregious nature as to vitiate the entire transaction. The case, therefore does not fall within the first exception."

34. As regards the second exception viz. irretrievable injury, it has been repeatedly held by the Hon'ble Apex Court that to avail of the said ground it must be decisively established and proved to the satisfaction of the court that there would be no possibility whatsoever of recovering the amount by the beneficiary....... … ...

39. The Learned Senior Advocate appearing for TCTPL has submitted that special equities and irretrievable injustice are not two independent and separate grounds for granting injunction against invocation of the Bank Guarantee and the above submissions advanced by Mr. Khambatta cannot be accepted in view of the several decisions of the Hon'ble Apex Court having clearly laid down that the only two grounds on which a beneficiary can be restrained from invoking the Bank Guarantee are in case of absolute and egregious fraud vitiating the very foundation of the Bank Guarantee and in case where injunction is sought to prevent irretrievable injustice, which must be of the kind which was the subject matter of the decision in the Itek Corporation case as held in paragraph 19 of the decision in U.P.Sugar Corporation (supra) set out in paragraph 29 above. In this regard Mr. Kamdar has also relied on the decision of the Calcutta High Court in the case of Texmaco Ltd Vs. State Bank of India and the decision of the Hon'ble Supreme Court in the case of U.P. Cooperative Federation Ltd. (supra).........

42. The Learned Senior Advocate appearing for FGIPL has only tried to infer from various sentences of the judgments of the Hon'ble Supreme Court that there could be other species of special equities. The submission is directly contrary to the above Judgments of the Hon'ble Supreme Court, where it has repeatedly held that there are only two exceptions to the principle that Bank Guarantee invocation and encashment should not be stopped by the Court except in cases of fraud and special equities. Both these words have been interpreted by the Hon'ble Supreme Court in a series of judgments. Fraud has been held to be a fraud of an egregious nature vitiating the entire underlying contract of bank guarantee; and special equities, to be such special equities which result in irretrievable injustice.

44. In any event, the alleged admitted nonpayment of claim by TCTPL to FGIPL cannot create a special equity so as to injunct the invocation of the Bank Guarantee. Whether there is any payment due or not under the underlying contract is not the subject matter which can be considered or taken into account while granting or refusing to grant injunction against invocation and/or encashment of bank guarantee. The Hon'ble Supreme Court has in its decision in the case of Mahatma Gandhi Sahakra Sakkare Karkhane (supra) held as under:

"25. ... It is specifically alleged that required funds were not available with the appellant. On account of non availability of funds there were two halts of nine months and five months during the execution of the project from 03.12.2001 to 14.08.2002 and from 14.08.2002 to 10.01.2003. It is further alleged that the appellant failed to arrange for all the prerequisites. It is not necessary for the purpose of disposal of this appeal to notice all the allegations and averments filed by the respondents except to note that the main thrust of the allegation relate to alleged breach of the conditions of the agreement by the appellant. ... Once it is held that the bank guarantee furnished by the banker is an unconditional one, the appellant in our considered opinion cannot be restrained from encashing the bank guarantee on the ground that a serious dispute had arisen between the parties and on the allegations of breach of terms and conditions of the agreement entered between the parties."

12. Adverting to the above principles of law, the facts of the present case are required to be seen. The only substantive averments on which the petitioner tries to make out a case for injunction on the invocation and encashment of the bank guarantees can be seen as contained in paragraphs 5 to 10 of the petition. The petitioner has merely contended that the petitioner will suffer irreparable loss and injury and that respondent no.1 with malafide intention has invoked the bank guarantees. These averments indicate that there is no case of a fraud and/or any case of established fraud to the knowledge of the bank as pleaded on behalf of the petitioner. The only averment which the petitioner feels relevant to make out a case in this petition is contained in paragraph 10 of the petition which reads thus:

“10. The petitioner submits that unless the orders as prayed for herein are granted, the petitioner will suffer irreparable loss and injury as its bank guarantee limits will be exhausted and its entire business may come to a standstill. On the contrary, as the plant at the site is already up and running, no harm or prejudice will be caused to Respondent No.1, if the reliefs prayed for herein after granted. Further, basis the factual narration and the documents disclosed with the present petition, the Petitioner has made out a prima facie case in its favour. The balance of convenience is also in favour of the petitioner. The balance of convenience is also in favour of the Petitioner. The Petitioner states that Respondent No.1 is with malafide intention invoked the Bank Guarantees and attempting to take the monies under the Bank guarantees outside the jurisdiction of this Hon'ble Court and/or deal with the same with an intent to defeat the orders of this Hon'ble Court and/or the award that may be passed in favour of the Petitioner. The Petitioner states that in the above facts and circumstances, it is unequivocally clear that special equities lie in favour of the Petitioner. Accordingly, sufficient cause has been made out by the petitioner for the orders as prayed for, being granted by this Hon'ble Court.”

13. It is thus clear that no case of a egregious fraud to the knowledge of the bank has been made out. There is also no case on special equities being made out which can be accepted by Court applying the settled principles of law as noted above. The bank guarantees in question are admittedly unconditional as can be seen from the following clauses of the performance bank guarantee:

4. NOW THEREFORE, in consideration inter alia of the contractee granting the Contractor the Contract, the Bank hereby unconditionally and irrevocably guarantees and undertakes, on receipt of a written demand, to immediately pay to the Contractee amount so demanded (by way of one or more claims) not exceeding in the aggregate INR 10,75,40,758.00 (Indian Rupees Ten Crore Seventy Five Lakh Forty Thousand Seven Seven Hundred Fifty Eight Only) without any demur, reservation, recourse, contest or protest and/or without reference to the Contractor and without the Contractee needing to provide or show to the Bank, grounds or reasons or give any justification for such demand for the sum demanded.

5. The decision of the Contractee to invoke this Guarantee and as to whether the Contractor has not performed its obligations under the Contract shall be binding on the Bank. The Bank acknowledges that any such written demand by the Contractee of the amount payable by the Bank to the Contractee shall be final, binding and conclusive evidence in respect of the amounts payable by the Contractor to the Contractee. Any such written demand made by the Contractee on the bank shall be conclusive and binding, notwithstanding any difference between the Contractee and the Contractor or any dispute raised, invoked, threatened or pending before any court, tribunal, arbitrator or any other authority. Bank to honour / contest / Court / Tribunal order.

… … … …

9. The Bank further unconditionally and unequivocally agrees with the Contractee that the Contractee shall be at liberty, without the Bank's consent and without affecting in any manner its rights and the Bank's obligation under this guarantee, from time to time, to: ...”

14. Clauses in the Advance Bank Guarantee are also similar. Paragraphs 5, 6 and 9 read thus:

“5. NOW THEREFORE, in consi

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deration inter alia of the Contractee granting the Contractors the Contract, the Bank hereby unconditionally and irrevocably guarantees and undertakes, on a written demand, to immediately pay to the Contractee any amount so demanded (by way of one or more claims) not exceeding in the aggregate Rs.5,37,70,379/( Rupees Five Crores Thirty Seven Lacs Seventy Thousand Three Hundred Seventy Nine Only), without any demur, reservation, recourse, contest or protest and/or without reference to the Contractor and without the Contractee needing to provide or show to the Bank, grounds or reasons or give any justification for such demand for the sum/s demand. 6. The decision of the Contractee as to whether the Contractor has fulfilled its obligation or not towards setoff of Advance Payment extended by the Contractee to the Contractor shall be final and binding on the Bank and the Contractor. The Bank acknowledges that any such demand by the contractee of the amounts payable by the Bank to the Contractee shall be final, binding and conclusive evidence in respect of the amounts payable by the Contractor to the Contractee. Any such demand made by the Contractee on the Bank shall be conclusive and binding, notwithstanding any difference between the Contractee and the Contractor or any dispute raised, invoked, threatened or pending before any court, tribunal, arbitrator any any other authority. ….. 9. The Bank's obligations under this Guarantee shall not be reduced by reason of any partial performance of the Contract. The Bank's obligations shall not be reduced by any failure by the Contractee to timely pay or perform any of its obligations under the Contract.” 15. As regards the petitioner's contention, that the statement of accounts as attached to the email of respondent no.1 dated 14 April 2017 (“Exhibit N” page 69 and 70 to the petition) is required to be accepted as complete settlement between the parties and only an amount of Rs.1.17 crores is due and payable by the petitioner to respondent no.1, also cannot be accepted. A bare perusal of the email and the purported statement of account in no manner can be accepted as a conclusive settlement between the parties. The very contents of the statement of account itself shows that it is not a conclusive settlement as item “C” provides for “Debit waives off under consideration by Reliance”. There are other heads like “Under Discussion (taken up with O&M)”. There is also a subheading “Risk & Cost” under the head “Debit waived off under consideration by Reliance” at Rs.1391 lakhs. There is no material on record that the parties have executed any document under their signature to accept this to be a settlement. In any event, the argument of settlement between the parties cannot be a valid agreement to injunct respondent no.1 from invoking or encashing the bank guarantees. These are disputes between the parties and which are required to be adjudicated and in the present case in the arbitral proceedings. Thus the decision of this Court in Seth Maneklal Mansukhbhai Vs. Jwaladutt Rameshwar Pillani (supra) as relied by Mr.Andhyarujina is wholly inapplicable in the fact of the present case. 16. A perusal of the record would also indicate that there is substantial correspondence between the parties which is suppressed by the petitioner. There is no explanation forthcoming from the petitioner in this regard, as to why this material was not disclosed. If the petitioner was to invoke the discretionary jurisdiction of this Court under Section 9 of the Act, the petitioner ought not to have kept away such material from the Court. 17. In view of the above deliberation, in my opinion, no case is made out for any reliefs as prayed for. The petition is accordingly rejected. The cause being a commercial cause, keeping in view the requirement of law under the Commercial Courts Act, 2015, the rejection of the petition shall be with cost of Rs.1,00,000/- to be paid by the petitioner to respondent no.1 within two weeks from today. 18. At this stage Mr.Andhyarujina, learned Counsel for the petitioner prays for continuation of the adinterim orders passed by this Court. The prayer as made by Mr.Andhyarujina is opposed by Mr.Bharucha, learned Counsel for Respondent no.1. Considering the facts and circumstances of the case, the request is required to be rejected.
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