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: Retaining Bank Guarantees After Settled Award Unjustified Against ANS Construction
Once the underlying is settled and paid, the party cannot or , or fixed deposit receipts – the has firmly held while dismissing the 's twin petitions under .
Justice Tushar Rao Gedela, on , upheld an dated that the Union from encashing three bank guarantees and an FDR, and directed their to . The Court also awarded ₹7,08,375 as for bank charges incurred in keeping the guarantees alive.
A Tale of Two Arbitrations and a
The dispute originated from a construction contract awarded to ANS Construction on for building family quarters and development works at Balrampur, Uttar Pradesh. The contractor furnished an FDR of ₹9,50,487 as , along with bank guarantees for , EMD and .
Disputes led to arbitration before V.K. Malik, who passed a on granting ₹1.63 crore to the contractor after adjusting the Union's . That award was later between the parties through a dated , and the Union duly paid the agreed sum.
Six additional claims — primarily concerning the release of the guarantees — had been referred to a second arbitrator, S.K. Verma, but those proceedings were terminated on after the contractor failed to file its statement of claim. Undeterred, ANS Construction approached the by way of a Section 9 petition seeking protection against .
On , with both sides present and agreeing, the Court appointed former judge Justice Pratibha Rani as arbitrator to adjudicate the very same six additional claims. The order explicitly recorded that the Union's counsel had "" to this arrangement and continued in respect of three specified bank guarantees.
Union's Objections – Too Little, Too Late
Before the High Court, the Union argued that since the second arbitral proceedings had already been terminated for , a fresh reference of those claims was legally impermissible. It also challenged the award of ₹7,08,375 for , contending that the guarantees were kept alive because of the court's own .
Justice Gedela cut through both submissions. On the first objection, he noted that the Union had not raised any such plea when it consented to Justice Rani's appointment on
.
"Having regard thereto, raising the said argument at this
is not permissible,"
the Court observed.
As for the renewal charges, the September 4 order itself expressly authorised the arbitrator to
"adjudicate upon a claim, if any, filed by the petitioner for repayment of interest and/or charges paid to keep the aforementioned bank guarantees alive."
Since that direction was never challenged, the arbitrator acted well within the
.
The Core Principle: No Grounds to After Settlement
The Court found that the arbitrator's reasoning was in complete consonance with settled legal principles. Once the main contractual disputes had been fully and the resultant award settled, there remained no conceivable basis for the Union to or the .
In paragraph 18 of the
, the arbitrator had reasoned:
"After determination of the
of the parties under the contract agreement in the earlier arbitration,
in favour of the Respondent to allow it to
the Bank Guarantees/FDR in question."
The High Court endorsed this view, stating:
"If that be so, then once the main claims in respect of the dispute arising out of the contract between the parties is
and subsequently the
is settled between parties, there is no reason as to why and on what basis the
,
, FDRs in respect thereto, can be retained or sought to be invoked by the petitioner."
Key Observations from the Judgment
-
On the consent-order objection:
"Having regard thereto, raising the said argument at this is not permissible."
-
On the bank charges claim:
"It was specifically noted vide order 04.09.2018 that the parties by consent not only agreed for appointment of an Arbitrator but also to the claims noted therein."
-
On the effect of settlement:
"If that be so, then once the main claims... is and subsequently the is settled between parties, there is no reason as to why and on what basis the ... can be retained or sought to be invoked by the petitioner."
The Final Word
Finding no or violation of the in the arbitrator's findings, Justice Gedela dismissed both Section 34 petitions with no order as to costs. The ruling reinforces the principle that once a contractual dispute is finally resolved and the award settled, the furnished to secure performance must be returned — they cannot be by the employer.
Case Title: | | Coram: Justice Tushar Rao Gedela | Date of Decision:
