IMPORTANT POINT
Invocation of Bank guarantee – grounds for restrain.

JUDGMENT

Altamas Kabir, J.

1. The Special Leave Petition and the application filed on behalf of the Respondents for early hearing and disposal of the Special Leave Petition were taken up together for consideration. The facts on which the Special Leave Petition is based, are set out hereinbelow.

2. By its letter of acceptance No.NHAI/PH 11/NHDP/ADB/GM-11/NS1/746 dated 30th December, 2005, the National Highways Authority of India, hereinafter referred to as ‘NHAI’, awarded a contract to the Respondent, SSANG YONG Engineering & Construction Co. Ltd., for the National Highways Sector II Project, Package-ADB-II/C-8, which involved the four laning of Jhansi-Lakhadon sector KM 297 to KM 351 of National Highway 26 in the State of Madhya Pradesh. The total contract amount for the aforesaid project was more than ‘ 750 crores. An agreement was entered into by the NHAI with the Petitioner on 13th August, 2006. Clause 27 of the Agreement incorporated an arbitration clause stipulating that all disputes and differences arising out of or in connection with the Agreement dated 13th August, 2006, would be referred to arbitration to be conducted in English in Singapore in accordance with the Singapore International Arbitration Centre (SIAC) Rules. For the purpose of reference, Clause 27 of the Agreement relating to arbitration is extracted hereinbelow :

“27. Arbitration

27.1 All disputes, differences arising out of or in connection with the Agreement shall be referred to arbitration. The arbitration proceedings shall be conducted in English in Singapore in accordance with the Ssangyong International Arbitration Centre (SIAC) Rules as in force at the time of signing of this Agreement. The arbitration shall be final and binding.

27.2 The arbitration shall take place in Singapore and be conducted in English language.

27.3 None of the Party shall be entitled to suspend the performance of the Agreement merely by reason of a dispute and/or a dispute referred to arbitration.”

3. According to Clause 1 of the Agreement read with the Appendix thereof, the Petitioner was to provide all adequate manpower, material, plant, machinery, construction equipment and all other resources, including finance, which would be required to perform the work Bank Guarantee was furnished by the Petitioner on 31st October, 2006, whereby the Bank undertook to pay to the Respondent on its first written demand and without cavil or argument any sum or sums within the limits of ‘ 6,05,00,000/-, without there being need to prove or give any reasons for the demand for the said sum. The guarantor also waived the necessity of the Respondent Company making a demand for the debt to the contractor/petitioner before presenting the demand. The guarantor also agreed that no change or addition or other modification of the terms of the contract or of the work to be performed thereunder or any of the contract documents, which may be made between the Respondent and the Petitioner, would release the Bank from its liability under the Agreement. Similarly, three Bank Guarantees of ‘ 1 crore each and one Bank Guarantee for ‘ 3 crores were also furnished to secure mobilization advance.

4. Disputes and differences arose between the parties relating to the performance of the Petitioner in completing the work contracted as per the Agreement dated 13th August, 2006. Consequently, since the Petitioner failed to carry out the works entrusted and had allegedly been over-paid to the tune of ‘ 78 crores, the Respondent Company on 22nd September, 2009, terminated the contract under Clause 23.2 of the Agreement dated 13th August, 2006 and invoked the Bank Guarantees referred to hereinbefore vide its letters dated 25th January, 2010, 27th January, 2010 and 5th March, 2010. The Respondent No.1 also made a subsequent demand for encashment of the Bank Guarantees by its letter dated 6th May, 2010.

5. In the Special Leave Petition, the Petitioner has sought for an order of injunction against the Respondent No.1 on th