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



Jindal Steel & Power Limited v/s State Tradings Corporation Of India Limited & Others


Company & Directors' Information:- U. P. POWER CORPORATION LIMITED [Active] CIN = U32201UP1999SGC024928

Company & Directors' Information:- JINDAL POWER LIMITED [Active] CIN = U04010CT1995PLC008985

Company & Directors' Information:- D B POWER LIMITED [Active] CIN = U40109MP2006PLC019008

Company & Directors' Information:- INDIA POWER CORPORATION LIMITED [Active] CIN = L40105WB1919PLC003263

Company & Directors' Information:- INDIA POWER CORPORATION LIMITED [Amalgamated] CIN = U40101WB2003PLC097340

Company & Directors' Information:- JINDAL STEEL AND POWER LIMITED [Active] CIN = L27105HR1979PLC009913

Company & Directors' Information:- B L A POWER PRIVATE LIMITED [Active] CIN = U40102MH2006PTC165430

Company & Directors' Information:- S A L STEEL LIMITED [Active] CIN = L29199GJ2003PLC043148

Company & Directors' Information:- L V S POWER PRIVATE LIMITED [Active] CIN = U40100TG1996PTC023552

Company & Directors' Information:- S L S POWER CORPORATION LIMITED [Active] CIN = U40109AP2005PLC047008

Company & Directors' Information:- S L V POWER PRIVATE LIMITED [Active] CIN = U40102KA2002PTC030448

Company & Directors' Information:- S. E. POWER LIMITED [Active] CIN = L40106GJ2010PLC091880

Company & Directors' Information:- E O S POWER INDIA PRIVATE LIMITED [Active] CIN = U32109MH1985PTC037094

Company & Directors' Information:- JINDAL (INDIA) LIMITED [Active] CIN = U51109WB1991PLC092393

Company & Directors' Information:- M M S STEEL PRIVATE LIMITED [Active] CIN = U27109TZ1996PTC006849

Company & Directors' Information:- G. O. STEEL PRIVATE LIMITED [Active] CIN = U27100PB2007PTC031033

Company & Directors' Information:- D C POWER LIMITED [Strike Off] CIN = U40109TG1996PLC025996

Company & Directors' Information:- C P S STEEL INDIA PRIVATE LIMITED [Active] CIN = U27104TZ2003PTC010552

Company & Directors' Information:- J M G STEEL PRIVATE LIMITED [Strike Off] CIN = U27105BR1992PTC004985

Company & Directors' Information:- POWER CORPORATION OF INDIA LIMITED [Amalgamated] CIN = U50101WB1997PLC084060

Company & Directors' Information:- H L STEEL PVT LTD [Active] CIN = U27107AS1992PTC003726

Company & Directors' Information:- K V M STEEL PRIVATE LIMITED [Active] CIN = U29141DL1988PTC031248

Company & Directors' Information:- K STEEL PRIVATE LIMITED [Strike Off] CIN = U27104JH1973PTC000998

Company & Directors' Information:- R. J. STEEL PRIVATE LIMITED [Active] CIN = U28112MH2009PTC193047

Company & Directors' Information:- B V POWER PRIVATE LIMITED [Active] CIN = U40106DL2011PTC213428

Company & Directors' Information:- M M STEEL PRIVATE LIMITED [Active] CIN = U27107MH2001PTC131270

Company & Directors' Information:- R AND H POWER COMPANY PRIVATE LIMITED [Active] CIN = U51109UP1965PTC003067

Company & Directors' Information:- B R POWER LTD [Active] CIN = U40106WB1995PLC073567

Company & Directors' Information:- B L STEEL PVT LTD [Active] CIN = U51909WB1981PTC034021

Company & Directors' Information:- B D STEEL AND POWER PRIVATE LIMITED [Active] CIN = U27100WB2010PTC144767

Company & Directors' Information:- N M S POWER PRIVATE LIMITED [Active] CIN = U51109WB1999PTC089747

Company & Directors' Information:- R K G STEEL PRIVATE LIMITED [Active] CIN = U27109DL2004PTC128852

Company & Directors' Information:- V B STEEL PRIVATE LIMITED [Active] CIN = U28112MH2010PTC211691

Company & Directors' Information:- I B STEEL COMPANY PRIVATE LIMITED [Strike Off] CIN = U28910MH2010PTC211344

Company & Directors' Information:- P R B POWER PRIVATE LIMITED [Strike Off] CIN = U40101TG1995PTC020647

Company & Directors' Information:- S V G POWER PRIVATE LIMITED [Active] CIN = U40300AP2012PTC084435

Company & Directors' Information:- Y D STEEL PRIVATE LIMITED [Strike Off] CIN = U27109WB1997PTC086155

Company & Directors' Information:- J S C STEEL PRIVATE LIMITED [Active] CIN = U27106UP2013PTC061568

Company & Directors' Information:- S. M. STEEL PRIVATE LIMITED [Active] CIN = U51101MH2013PTC239811

Company & Directors' Information:- R K P STEEL LTD [Active] CIN = L27109WB1980PLC033206

Company & Directors' Information:- C P STEEL PRIVATE LIMITED [Active] CIN = U27100WB2008PTC127447

Company & Directors' Information:- A. K. J. STEEL PRIVATE LIMITED [Active] CIN = U28112WB2010PTC144880

Company & Directors' Information:- C D STEEL PVT LTD [Under Liquidation] CIN = U27109WB1981PTC034340

Company & Directors' Information:- T M S STEEL PRIVATE LIMITED [Strike Off] CIN = U02710TZ1996PTC007498

Company & Directors' Information:- INDIA POWER PRIVATE LIMITED [Active] CIN = U31900DL1995PTC070096

Company & Directors' Information:- M POWER INDIA PRIVATE LIMITED [Active] CIN = U31908MH2012PTC234343

Company & Directors' Information:- P M R STEEL PRIVATE LIMITED [Active] CIN = U51102DL2003PTC122675

Company & Directors' Information:- C T STEEL PVT LTD [Active] CIN = U27109WB2005PTC106634

Company & Directors' Information:- P G STEEL PVT LTD [Strike Off] CIN = U24111AS1998PTC005409

Company & Directors' Information:- A AND S STEEL PRIVATE LIMITED [Active] CIN = U63090DL1987PTC027835

Company & Directors' Information:- A N S INDIA POWER PRIVATE LIMITED [Active] CIN = U51101DL2014PTC266873

Company & Directors' Information:- S. G. POWER AND STEEL PRIVATE LIMITED [Active] CIN = U14290DL2012PTC240718

Company & Directors' Information:- R. S. STEEL AND POWER PRIVATE LIMITED [Active] CIN = U70100CT2009PTC021362

Company & Directors' Information:- M M K POWER PRIVATE LIMITED [Strike Off] CIN = U40106AP1998PTC030796

Company & Directors' Information:- J S STEEL PRIVATE LIMITED [Active] CIN = U52190CT1978PTC001432

Company & Directors' Information:- U M STEEL PRIVATE LIMITED [Strike Off] CIN = U27209TN1986PTC013670

Company & Directors' Information:- E & G STEEL INDIA PRIVATE LIMITED [Strike Off] CIN = U28113PN2009PTC134643

Company & Directors' Information:- L N STEEL PRIVATE LIMITED [Active] CIN = U27310WB2007PTC118206

Company & Directors' Information:- C R E M POWER PRIVATE LIMITED [Strike Off] CIN = U40101DL2001PTC111631

Company & Directors' Information:- D T POWER PRIVATE LIMITED [Strike Off] CIN = U40300AP2015PTC097226

Company & Directors' Information:- K. D. W. STEEL PRIVATE LIMITED [Active] CIN = U28910UP2011PTC043976

Company & Directors' Information:- R. N. STEEL PRIVATE LIMITED [Active] CIN = U27100WB2007PTC116588

Company & Directors' Information:- B R JINDAL (INDIA) PRIVATE LIMITED [Active] CIN = U27100MH1973PTC016358

Company & Directors' Information:- P M STEEL PRIVATE LIMITED [Active] CIN = U27105MP1982PTC001915

Company & Directors' Information:- M R STEEL (INDIA) PRIVATE LIMITED [Active] CIN = U27100TG2013PTC088808

Company & Directors' Information:- G S POWER LIMITED [Strike Off] CIN = U40102KA2010PLC054033

Company & Directors' Information:- C K STEEL PVT LTD [Active] CIN = U29150WB1975PTC030259

Company & Directors' Information:- POWER AND POWER PVT LTD [Active] CIN = U31300AS1989PTC003282

Company & Directors' Information:- A M Q STEEL PRIVATE LIMITED [Strike Off] CIN = U27310UP2012PTC053823

Company & Directors' Information:- P D M POWER PRIVATE LIMITED [Active] CIN = U40104AS2014PTC011780

Company & Directors' Information:- S B S POWER PRIVATE LIMITED [Strike Off] CIN = U40100AP2012PTC083965

Company & Directors' Information:- K STEEL & COMPANY PVT LTD [Strike Off] CIN = U51909WB1991PTC053960

Company & Directors' Information:- N S STEEL PVT LTD [Strike Off] CIN = U27106PB1980PTC004266

Company & Directors' Information:- B & G POWER LIMITED [Active] CIN = U40105PB2010PLC033765

Company & Directors' Information:- S POWER PRIVATE LIMITED [Active] CIN = U19202DL1986PTC026505

Company & Directors' Information:- G M POWER PRIVATE LIMITED [Strike Off] CIN = U40105PN2003PTC017857

Company & Directors' Information:- POWER INDIA PVT LTD [Strike Off] CIN = U31102WB1983PTC036315

Company & Directors' Information:- S AND S POWER PRIVATE LIMITED [Active] CIN = U40109PY2004PTC001824

Company & Directors' Information:- U S POWER PRIVATE LIMITED [Under Process of Striking Off] CIN = U40103MH2009PTC189364

Company & Directors' Information:- K P M POWER PRIVATE LIMITED [Strike Off] CIN = U40102KA2008PTC046804

Company & Directors' Information:- R C STEEL PVT LTD [Strike Off] CIN = U28112AS1980PTC001811

Company & Directors' Information:- POWER-X PRIVATE LIMITED [Strike Off] CIN = U99999DL1970PTC005331

Company & Directors' Information:- S K POWER INDIA PRIVATE LIMITED [Strike Off] CIN = U31101KA2006PTC039172

Company & Directors' Information:- M K G STEEL PRIVATE LIMITED [Strike Off] CIN = U74899DL1995PTC066480

Company & Directors' Information:- R G D POWER PRIVATE LIMITED [Strike Off] CIN = U41000TG1996PTC023809

Company & Directors' Information:- P D STEEL PRIVATE LIMITED [Strike Off] CIN = U74899DL1989PTC038426

Company & Directors' Information:- A K STEEL PVT LTD [Strike Off] CIN = U99999DL1961PTC003566

Company & Directors' Information:- M M R POWER PRIVATE LIMITED [Active] CIN = U31104DL2008PTC174079

Company & Directors' Information:- S J POWER PRIVATE LIMITED [Strike Off] CIN = U45207HR2012PTC045937

Company & Directors' Information:- H S P STEEL PRIVATE LIMITED [Strike Off] CIN = U27100MH2013PTC242983

Company & Directors' Information:- R B R STEEL PRIVATE LIMITED [Active] CIN = U51103PB2013PTC037791

Company & Directors' Information:- T C POWER PRIVATE LIMITED [Strike Off] CIN = U40101PB2009PTC033405

Company & Directors' Information:- D H STEEL PRIVATE LIMITED [Strike Off] CIN = U27109RJ2012PTC039742

Company & Directors' Information:- H. & T. POWER PRIVATE LIMITED [Active] CIN = U40106MH2016PTC287646

Company & Directors' Information:- S & O POWER PRIVATE LIMITED [Active] CIN = U40107MH2010PTC206447

Company & Directors' Information:- R A STEEL PRIVATE LIMITED [Active] CIN = U51909MH2014PTC253625

Company & Directors' Information:- V D M-POWER PRIVATE LIMITED [Active] CIN = U74999MH2015PTC262999

Company & Directors' Information:- A C R POWER PRIVATE LIMITED [Strike Off] CIN = U74900UP2010PTC040987

Company & Directors' Information:- W N POWER PRIVATE LIMITED [Strike Off] CIN = U40101JK2013PTC004009

Company & Directors' Information:- N. V. STEEL PRIVATE LIMITED [Strike Off] CIN = U27310DL2009PTC186541

Company & Directors' Information:- K. D. STEEL PRIVATE LIMITED [Strike Off] CIN = U28939DL2012PTC244467

Company & Directors' Information:- C K S POWER PRIVATE LIMITED [Strike Off] CIN = U40101KA2010PTC052199

Company & Directors' Information:- G C I POWER PRIVATE LIMITED [Active] CIN = U40107KA2010PTC053656

Company & Directors' Information:- R. C. POWER PRIVATE LIMITED [Strike Off] CIN = U40100GJ2009PTC058005

Company & Directors' Information:- J R J POWER PRIVATE LIMITED [Active] CIN = U40300GJ2015PTC082396

Company & Directors' Information:- STEEL INDIA PRIVATE LIMITED [Strike Off] CIN = U00349KA1958PTC001309

Company & Directors' Information:- JINDAL AND JINDAL PRIVATE LIMITED [Strike Off] CIN = U31200UR1975PTC004130

Company & Directors' Information:- D V N POWER PRIVATE LIMITED [Strike Off] CIN = U40101TG2007PTC053069

Company & Directors' Information:- A. R. POWER PRIVATE LIMITED [Strike Off] CIN = U74999DL2007PTC161616

Company & Directors' Information:- STEEL CO PVT LTD [Strike Off] CIN = U51109WB1947PTC015981

Company & Directors' Information:- JINDAL (INDIA) LIMITED [Strike Off] CIN = U74900DL1968PLC004852

    OMP.(I)(COMM.). No. 89 of 2020

    Decided On, 29 April 2020

    At, High Court of Delhi

    By, THE HONOURABLE MR. JUSTICE YOGESH KHANNA

    For the Petitioner: Gopal Jain, Sr. Advocate, Gauri Rasgotra, Saket Sikri, Sumit Attri, George Varghese, Nikitha Shenoy, Sidharth Sharma, Advocates. For the Respondents: Tarkeshwar Nath, Advocate, Jeyakumar, Director, Akhil Mathur, DGM.



Judgment Text


1. The hearing has been conducted through Video Conferencing.

2. This petition is filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as the ‘Act’) with the following reliefs:-

i) Direct the Respondent No. 1 to release the Performance Bank Guarantees No.2158IGPER003116 for INR 81,94,00,000 and No.2158IGPER003216 for INR 90,000/- respectively both dated March 3, 2016;

ii) Direct the Respondent No. 1 not to invoke and/or encash the Performance Bank Guarantees No. 2158IGPER003116 for INR 81,94,00,000 and No. 2158IGPER003216 for INR 90,000/- respectively both dated March 3, 2016 till further orders;

iii) Restrain the Respondent No.1 from taking any coercive steps against the Petitioner in relation to Performance Bank Guarantees No.2158IGPER003116 for INR 81,94,00,000 and No.2158IGPER003216 for INR 90,000/- respectively both dated March 3, 2016 till further orders;

iv) Pass ad-interim order(s) in terms of prayers (i) to (iii) above;

v) Direct that the costs of this application/petition be paid by the Respondent No. 1;

vi) Pass any other order(s) as this Hon’ble Court may deem fit and proper in the facts and circumstances of the present case.”

3. The brief facts as alleged in this petition are:-

a) on 14.03.2014, the respondent No.1 entered into an Memorandum of Understanding with the Foreign Buyer and thereafter on 24.09.2014 the petitioner No.1 and respondent No.1 entered into an agreement in the nature of back to back contract as per above MOU wherein the petitioner was to supply the steel rails to respondent No.1;

b) on 12.10.2014, purchase contract was entered into between respondent No.1 and foreign buyer and on the basis of this MOU Steel Rails were to be supplied by respondent No.1 to foreign buyer;

c) on 20.11.2014 an addendum to the agreement (addendum No.1) was executed between the petitioner and respondent No.1. In terms of clause No.17 of the agreement the petitioner had executed a Corporate Guarantee in favour of the respondent No.1 for an amount of Rs.88.40 Crores which was to be enforceable and shall remain in full force for a period of six years in the first instance from the date of the said guarantee;

d) on 17.06.2015 clause No.21A of the said Corporate Guarantee was amended by way of addendum

e) on 23.06.2015, another addendum to the agreement was executed between the petitioner and respondent No.1 (addendum No.2) by which the petitioner was required to provide Performance Bank Guarantee (PBG) for a total sum of Rs.81,94,90,000/-;

f) on 03.03.2016, following two performance bank guarantees were furnished viz i) No.2158IGPER003116 for INR 81,94,00,000; and ii) and No.2158IGPER003216 for INR 90,000/-

g) on 05.05.2016, the respondent No.2 wrote a letter to respondent No.3 stating interalia that respondent No.2 has no objection in assigning the said PBGs in favour of the foreign buyer and subjecting the same to the Iranian law and jurisdiction of Iran;

h) on 26.07.2016, respondent No.1 through the respondent No.3 also issued the PBGs through Parsian bank;

i) on 13.08.2016, the petitioner started the production of rails and the final shipment of rails under the agreement was supplied to the Iranian company on 11.11.2017. On 20.11.2017, an inspection certificate in relation to the final shipment was issued;

j) on 01.12.2017, the petitioner requested respondent No.1 to release the payment against 12th final shipment at the earliest. On 14.12.2017, the respondent No.1 requested the petitioner to extend validity of the bank guarantees till 11.01.2022;

k) on 16.01.2018 the petitioner wrote to respondent No.1 stating the PBGs were issued in terms of the agreement and they were valid for eight months from the date of release of final shipment i.e. only upto 03.06.2018. It was expressly stated in the said letter since the petitioner has already completed the shipment well within the contractual period, the said PBGs be released in terms of the agreement. The petitioner requested for release of the PBGs and the payments due to the petitioner from the respondent No.1;

l) on 13.11.2018, respondent No.1 wrote a letter to petitioner stating inter alia that vide letter dated 11.01.2018 the respondent No.1 had requested the foreign buyer for release of its counter PBGs, however, the foreign buyer informed as the custom clearance of rails is in process and hence condition of release of such PBGs by the foreign buyer having not been fulfilled as yet;

m) it is alleged though the PBGs were valid only till 8 months after the final shipment but the petitioner extended the validity of their performance till 21.04.2020;

n) on 11.07.2018 the counter PBGs of respondent No.1 were released by the foreign buyer. On 16.07.2018, the petitioner wrote to respondent No.1 informing and providing it the clearance received from the Parsian Bank, advising the respondent No.3 to release the PBGs of INR 81.94 Crores issued by it at the request of respondent No.1;

o) on 01.08.2018 the petitioner informed respondent No.2 regarding the release of the counter PBG issued by respondent No.1 to the Parsian Bank and even requested the respondent No.2 to take up this matter with the respondent No.3 for release of PBGs; hence this petition with aforesaid prayers.

4. The learned senior counsel for petitioner argues the contract between the petitioner and foreign buyer regarding the supply of steel rails have been fully performed and the work being completed; last shipment having been sent on 11.11.2017. Further, the foreign buyer has issued two certificates; one dated 06.10.2018; and another dated 21.01.2020 qua the satisfactory performance of the rails being in use since the year 2018 and as the work having been satisfactorily executed and there being no dues or claim of the foreign buyer; the contract since having been fully performed to its satisfaction, hence per Clause No.11 of the contract, both the PBGs need to be released in favour of the petitioner.

5. In support of his arguments, the learned senior counsel for the petitioner besides referring to various clauses of the agreement dated 24.09.2014 has also referred to certificates issued by the foreign buyer i.e. Ministry of Roads and Urban Development, Iranian Islamic Republic Railway, Tract and Technical Structures Dep. The certificate dated 21.01.2020, inter alia notes:-

This is to certify that JSPL India has produced and supplied 1,49,982MT of Rails to Iranian Islamic Republic Railways. The details of rails supplied are given below:

xxx xxxx

These rails are used for passenger / mixed traffic carrying railway systems in operation and performance has been found to be satisfactory.

and the certificate dated 06.10.2018 issued by abovesaid Department inter alia notes:-

This is to certify that JSPL India has produced and supplied 1,49,982MT of Rails to Iranian Islamic Republic Railways. The details of rails supplied are given below:

xxx xxx

Over 42,000 MT of these Rails have been in use for more than 2 years in passenger / mixed traffic carrying Railway systems in operation and the performance is found to be satisfactory.

6. It was argued as eight months of performance, noted in Clause 11 of the agreement dated 24.09.2014 have since been completed, hence as a matter of right, the PBGs be released to the petitioner.

7. It was also argued any apprehension of respondent No.1 can be safeguarded by way of a Corporate Guarantee already given and also by way of an Indemnity Bond; Undertaking or by any other mode as the Court may deem fit, per Section 9(1)(e) of the Arbitration and Conciliation (Amendment)Act, 2015, which read as under:-

“such other interim measure of protection as may appear to the court to be just and convenient.

8. The petitioner is also inclined to issue the Post Dated Cheques (PDCs) as an alternative for the PBGs and can even undertake in the event of any defect being reported by the foreign buyer, it shall be the sole responsibility of the petitioner to cure such defect and not of the respondent No.1. It is also contended the contract and relationship was between the petitioner and the foreign buyer and that the respondents were only the intermediaries, hence there is no justification in withholding such a huge amount of the petitioner, especially, in this extra ordinary situation with which the country is confronted with and there being huge scarcity of liquidity. The petitioner requires the money to be paid to the workers as their salaries, hence the petition be allowed and the PBGs be directed to be released in favour of the petitioner.

9. Reference was made to Marathon Electric Motors (India) vs North Eastern Electric Power 2011 SCC Online Del 1208 wherein this Court noted:-

“6. There is no dispute about the fact that the law regarding performance guarantee is well-settled in the sense that once the performance guarantee is furnished by a contracting party and the opposite side is fully satisfied regarding performance of the contract, having been successfully executed, the guarantee deserves to be released……………”

10. Heard.

11. This prayer at this stage, as alleged, must fail because of the following reasons - a) the release of PBGs at this stage would amount to grant of final relief at an interim stage, which cannot be allowed; and b) the petitioner has failed to raise any dispute so as to be referred to arbitration.

12. Admittedly, if the PBGs are allowed to be released in favour petitioner today, it shall be granting of the final relief in the petition under Section 9 of the Act, which would rather make this petition infructuous for the reasons the interim relief has to be in the aid of the final order, but cannot be the final order itself. Secondly, the petition fails to raise any dispute between the parties so as to bring a petition under Section 9 of the Act. Section 9(2) of the Act rather notes as under:-

“9. Interim measures, etc. by Court.—

(1) xxx

(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.”

There is no averment in para No.61 of the petition, disclosing cause of action that the petitioner has any intention to refer the dispute to arbitration. Rather the petitioner itself urges there being no dispute, the contract having been satisfactorily completed, the PBGs need be released.

13. In Sundaram Finance Limited vs. NEPC India Limited (1999) 2 SCC 479 the Court noted:-

"18. It was submitted by Mr. Subramaniam that even if the Court can exercise jurisdiction under Section 9 before the arbitral proceedings have commenced the party seeking to invoke Section 9 must express a manifest intention to arbitrate. The learned counsel submitted that this intention can take the following forms :

(a) In an application under Section 9, the party would have to state that it unequivocally relies on the arbitration agreement and makes an averment that it would invoke the arbitration Clause;

(b) At the time when the Court passes an interim order under Section 9, an express undertaking is given by the party before the Court that it would invoke the arbitration clause forthwith and within a fixed period; and

(c) a notice invoking arbitration clause should have been issued to the opposite party.

It was contended that mere filing of an application under Section 9 was not sufficient to establish manifest intention to this extent.

19. When a party applies under Section 9 of the 1996 Act it is implicit that it accepts that there is a final and binding arbitration agreement in existence. It is also implicit that a dispute must have arisen which is referable to the arbitral tribunal. Section 9 further contemplates arbitration proceedings taking place between the parties. Mr.Subramaniam is, therefore, right in submitting that when an application under Section 9 is filed before the commencement of the arbitral proceedings there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings if, at the time when the application under Section 9 is filed, the proceedings have not commenced under Section 21 of the 1996 Act. In order to give full effect to the words "before or during arbitral proceedings" occurring in Section 9 it would not be necessary that a notice invoking the arbitration clause must be issued to the opposite party before an application under Section 9 can be filed. The issuance of a notice may, in a given case, be sufficient to establish the manifest intention to have the dispute referred to arbitral tribunal, but a situation may so demand that a party may choose to apply under Section 9 for an interim measure even before issuing a notice contemplated by Section 21 of the said Act. If an application is so made the Court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. Once it is so satisfied the Court will have the jurisdiction to pass orders under Section 9 giving such interim protection as the facts and circumstances warrant. While passing such an order and in order to ensure that effective steps are taken to commence the arbitral proceedings, the Court while exercising jurisdiction under Section 9 can pass conditional order to put the applicant to such terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing the arbitral proceedings. What is apparent, however, is that the Court is not debarred from dealing with an application under Section 9 merely because no notice has been issued under Section 21 of the 1996 Act."

14. In Minochar vs Deenyar Sheiar Jehani 2015(2) R.A.J.46 (Bombay) the Court noted:-

"61. Supreme Court in case of Sunderam Finance Limited (supra) has held that when an application under section 9 is filed before the commencement of the arbitral proceedings, there has to be manifest intension on the part of the applicant to take recourse to the arbitral proceedings. In case of M/s. Firm Ashok Traders (supra) Supreme Court has held that party invoking section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the court that the arbitral proceedings are actually contemplated or manifestly intended and/or positively going to commence within a reasonable time. It is held by the Supreme Court that the party having succeeded in securing an interim measure of protection before arbitral proceedings cannot afford to seek and sleep over the relief, conveniently forgetting the proximately contemplated or manifestly intended arbitral proceedings itself. In my view a party who has no intension to ultimately refer the dispute to arbitration and seek final relief cannot be permitted to seek interim relief. Interim relief is in aid of final relief. The petitioner in this case has not taken any steps to appoint an arbitrator though notice invoking arbitration agreement was given as far back as on 30th January, 2008. In my view, the petitioner is not entitled to seek any interim measures on this ground alone.”

15. Thus, the above law clarifies an interim relief is an aid to final relief and the applicant must demonstrate its intention to refer the matter to arbitration by raising a dispute before Section 9 petition could be entertained.

16. Further, I may say the record does not show if respondent No.1 had any intention to invoke the PBGs, rather they have been requesting the petitioner to extend the same till the guarantee period is over. The averments made in paragraphs No. FF and GG of the petition though urges for stay against the respondent No.1 qua encashment of PBGs, but the petitioner has not made out any case of irrepairable loss or fraud of any egregious nature. The law relating to the encashment of BGs has been clarified in Himadari Chemical Industries Limited vs Coal Tar Refining Company (2007) 8 SCC 110 which notes as under:-

“14. From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a Bank Guarantee or a Letter of Credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a Bank Guarantee or a Letter of Credit :-

(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional Bank Guarantee or Letter of Credit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or a Letter of Credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

(ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.

(iii) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.

(iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit.

(v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation.

(vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.”

17. Nevertheless, as stated above, and even per submissions of the learned counsel for the respondent No.1, it has no intention to encash the bank guarantees rather those have been extended at least seven times before. I may here refer to a letter dated 09.04.2020 issued by respondent No.1 which notes of earlier letters whereby PBGs were extended at least six times. The respondent No.1 in this letter has sought extension of PBGs till November 2021. Its relevant portion notes:-

“The said Agreement between STC and JSPL was to cover the entire period for supply as well as a further guarantee period of 4 years from the date of bill of lading. As per the supplies effected, the guarantee period, in terms of the contract would expire in November, 2021.

As per the terms of the Agreement, JSPL is under obligation to keep STC indemnified during the said guarantee period of 4 years with respect to any manufacturing defect and any claim being made by the foreign buyers of STC with respect to any defects as enumerated in Clause 13 of the said Agreement, which defines the guarantee period.”

18. Now, coming to the terms and conditions of the PBG dated 03.03.2016, having its validity till 03.06.2018, it inter alia notes:-

2. xxx ….. do hereby undertake to pay the amounts due and payable under this guarantee without any demur, merely on a demand from BENEFICIARY stating that the amount claimed is due by way of loss or damage caused to or breach by the said JSPL or any of the terms and conditions contained in the said Agreement or by reason of the JSPL’s failure to perform the said Agreement. Any such demand made on BG ISSUING BANK shall be conclusive as regards the amount due and payable by BG ISSUING BANK under this guarantee. However, our liability under this guarantee shall be restricted to an amount not exceeding Rs.81,94,00,000/.

4: WE, BG ISSUING BANK ……… or until the Beneficiary certifies that the terms and conditions of the said Agreement have been fully and properly carried out by the said JSPL and accordingly discharged this guarantee. Unless a demand or claim under this guarantee is made on us in writing on or before the 03.06.2018, we shall be discharged from all liabilities under this guarantee thereafter.”

para No.4 above is clear to an extent that it could be enforceable at the option of respondent No.1 stated therein. Further, in para No.9 it notes:-

“9. …… Notwithstanding anything contained herein:

i) We, BG ISSUING BANK undertakes and agree with the Beneficiary that in case there is occurrence of an event which entitles the Beneficiary a right to raise a demand in terms of associate agreement STL/JSPL/EXPORT/2014-2015/1 dated 24th September 2014 and its amendment on dated 20th November 2014 and June 23, 2015 above, ……..”

thus, the PBG has to be kept in full force till the conditions in the agreement dated 24.09.2014 are satisfied.

19. Before dwelling further, let us examine various clauses of the Associateship Agreement dated 24.09.2014 executed between the petitioner and respondent No.1. The same are as under:-

“6. Shipment, Load Readiness and Delivery Schedule

Delay Penalties

III. The date of the B/L shall be the only basis for calculating the delay in shipment and determining the amount of delay penalty to be imposed.

11. Performance Bank Guarantee

JSPL will submit to STC within 15 days from STC’s request a Performance Bank Guarantee (PBG) for an amount of Rs.88.40 Crores (Indian Rupees Eight Eight Crores and Forth Lakhs only) and the said PBG shall be as per the format provided in ‘Annexure-V’. The PBG shall be valid for the period of 8 (eight) months from the date of last shipment (last shipment is the shipment when the entire quantity of Rails as per the Delivery Schedule is shipped) JSPL shall pay in advance to STC, the actual charges to be incurred by STC for issuing the PBG in favour of STC’s Foreign Buyer. Xxxx

13. Guarantee Period

JSPL irrevocable and unconditionally undertakes and guarantees to remove the defects at its own costs, risk and consequences and shall keep STC indemnified in all respects. In case of occurrence of any manufacturing defects during the guarantee period, the Guarantee period shall be at least four (4) years after the completion of delivery of each consignment of the Rails to Foreign Buyer.

14. Effectiveness of Contract

Once executed by the Parties, this Agreement will be operational and effective after occurrence of all the following events: (a) JSPL issuing the APBG in accordance with the provisions of clause 10; (b) JSPL issuing the PBG in accordance with the provisions of clause 11 within 15 days; and (c) STC making advance payment to JSPL after receiving advance payment from Foreign Buyer (‘Effective Date’). However, in case of any delay that may be caused, it is agreed between the parties that this Agreement and / or amendments effective date will start from the date of effectiveness of Foreign Contract signed between STC and the Foreign Buyer which shall be with retrospective effect. The said date of the Foreign Contract will be communicated to JSPL.

16. Representations and Warranties

xxx In case of any defect or discrepancy is established in the Rails as material defect during the Guarantee Period and if JSPL does not replace the defective or discrepant Rails or rectifies the defect / discrepancy during the Guarantee Period then STC shall be fully entitled to recover the equivalent amount from the PBG/CG/ indemnity bond submitted by JSPL or in any other manner as STC may deem fit and proper. Xxx

The execution, delivery and performance of this Agreement does not violate, conflict with, or result in a breach of the terms, conditions or provisions of any governmental approval obtained by STC.

17. Indemnification / Corporate Guarantees/ NoC/Undertaking

(a) JSPL hereby irrevocably and absolutely indemnifies and shall at all times keep STC fully indemnified and hold harmless against any and all actions, sanctions, litigations, arbitration, claims, losses, demands, damages, expenses or liabilities and costs that STC may incur and / or suffer on account of any default under the terms of this agreement, negligent act, omissions / commissions on the part of JSPL in the discharge of their obligations under this Agreement, the L/C including but not restricted to the claims from STC’s Foreign Buyer on account of any claims whatsoever including but not limited to claims of quality, quantity, packing, delay in shipment, load port demurrage and any other circumstances directly or in directly attributable to JSPL.

(b) xxx

(c) JSPL shall also indemnify STC towards product guarantee claims from the foreign buyer during the guarantee period. In case, JSPL refuses to honour this commitment for whatever reasons, STC shall be fully entitled to recover the equivalent amount from PBG/CG/indemnity bond submitted by JSPL or in any other manner as STC may deem fit and proper.

22. Term

Unless this Agreement has been terminated in accordance with clause 23, it shall be valid and binding on the Parties till the entire quantity of the Rails has been supplied by JSPL to STC, JSPL has received the price payable by STC under this Agreement ( which shall only be paid on receipt of the price by STC) and the Guarantee Period has expired.”

20. Reference is also made to the addendum No.2 to the Associateship Agreement dated 24.09.2014, more particularly clause No.3 which inter alia notes:-

“3) Clause No.11 – Performance Bank Guarantee, 1st line to be amended and read as:

JSPL will submit to STC within 15 days from STC’s request a Performance Bank Guarantee (‘PBG’) for an amount of Rs.49,03,70,000/- Crs towards first PI and Rs.32,91,20,000 Crs towards Second PI as per mutually agreed format.”

21. Though the contention of the learned senior counsel for the petitioner is per clause 11 of the Agreement the Bank guarantees shall be valid only for a period eight months from the date of last shipment, but the other provisions of the agreement cannot be ignored. Clause 13 of the agreement, specifically says the guarantee period, to remove the defects in the product supplied, would be four years after the completion of the delivery of each consignment of rails to the foreign buyer. Admittedly, such period is to expire in the year 2021. Even clause 16 of the Agreement clarifies in case of any defect or discrepancy during the guarantee period it shall be responsibility of petitioner to replace such defective or discrepant rails or rectify the defect/ discrepancy during the guarantee period or lest the STC shall be fully entitled to recover the equivalent amount from PBGs/CG etc. Even sub clause c of Clause 17 of the agreement notes the petitioner would indemnify respondent No.1 towards product guarantee claim from the foreign buyer during the guarantee period and if the petitioner refuses to honour such commitment, the respondent No.1 shall be entitled to recover the equivalent from performance bank guarantees and / or other CG etc. Clause 22 of the agreement specifies the agreement would be finally over once the guarantee period has also expired.

22. If one gives an harmonious construction to the above clauses of the agreement dated 24.09.2014 as also to the clauses of the PBGs, it would lead to only one irresistible conclusion the PBGs could be enforced by respondent No.1 till the guarantee period is over i.e. till 2021.

23. Now, let us examine the provisions of the Corporate Guarantee dated 20.01.2015 which inter alia notes:-

“C. Pursuant to terms of the Agreement, ……… In case, the Guarantor refuses to honour this commitment, the Beneficiary shall be entitled to recover total value of such defective, deficient or non-conforming materials and the relevant costs through the performance bank guarantee / corporate guarantee / indemnity bond submitted by the Guarantor to the Beneficiary and also other remedies / actions as the Beneficiary may deem fit and proper.

D. xxx

E. In order to crystalize the obligations of the Guaran

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tor stated in the Agreement and aforementioned recitals, in addition to and above any such bank guarantees / indemnity bond / NOC/ undertaking submitted by the Guarantor, the Beneficiary is obtaining this Corporate Guarantee from the Guarantor herein. 19. it is further agreed that guarantor shall furnish the following security: a. xxx b. First/Second charge is already created in favour of lenders of the guarantor including financial institutions and bank(s), wherein, wherein properties stand mortgage to lenders / banks / financial institutions by way of deposit of title deed to them as a security towards loans. The charge on properties listed in Annexure A shall be subservient charge in favour of beneficiary undue until the entire amount under this Corporate Guarantee along with the interest is repaid, to secure the Beneficiary’s interest / exposures. All concern / lenders / banks / financial institutions have to hold the title deeds relating to the properties of the guarantor also for and behalf of beneficiary on creation of further mortgage/charge. 24. As submitted there are already two charges created on the assets of the company and in fact this Corporate Guarantee creates a third charge which would mean nothing to respondent No.1. Even otherwise, CG per terms of the agreement between the parties would be in addition to the PBGs, noted above. Even the PDCs would never be an alternative option to respondent No.1 as if in future any claim arises, the respondent No.1 cannot be made to run after the petitioner, who even today claims of liquidity crunch. The decision of Marathon Electric Motors (supra) would be of no aid to the petitioner herein since it was delivered in a case where an arbitration was already pending before the learned arbitrator and secondly the counter claim was also filed by the respondent therein; hence these two counts does not exist in the present case. 25. The Satisfactory Certificates, issued by the Iranian Railway Department, does not talk about the liability which may be incurred during the guarantee period due to any material defect etc, hence cannot be considered at this stage. 26. In view of the above submissions, I may say that a) the respondent No.1 had not exhibited any intention to invoke the PBGs; b) the parties were ad-idem on continuation of the PBGs till the contract was over i.e. till on expiry of the guarantee period; c) even the conduct of the petitioner in extending the PBGs at least seven times prior, would indicate such intention; and d) the CG or the PDCs as offered cannot be considered to be an alternative for the PBGs; and e) a bare perusal of the terms and conditions of the agreement dated 24.09.2014 as also of the PBGs would only show these PBGs need to be continued till the term of the agreement is over. Accordingly, no relief as sought for regarding release of PBGs can be granted. Thus, while directing the petitioner to extend the PBGs till the disposal of this petition and further directing respondent No.1 not to encash / invoke it till such time, this petition be listed before the Roster Bench for directions on 15.07.2020.
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