N. N. GLOBAL MERCANTILE PRIVATE LIMITED vs INDO UNIQUE FLAME LIMITED

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(SC) 13

SUPREME COURT OF INDIA
Dhananjaya Y. Chandrachud, Indu Malhotra, Indira Banerjee, JJ.
M/S. N.N. GLOBAL MERCANTILE PRIVATE LIMITED – Appellant
Versus
M/S. INDO UNIQUE FLAME LIMITED & OTHERS – Respondent
Civil Appeal Nos. 3802 - 3803 of 2020 (Arising out of SLP (Civil) Nos.13132-13133 of 2020)
Decided on : 11-01-2021

Advocates Appeared:
For the Appellant :Dhruv Mehta, Shyam Dewani, Gagan Sanghi, Sahil Dewani, Rameshwar Prasad Goyal, Advocates
For the Respondent:Sanjay Kapur, Megha Karnwal, Sambit Panja, Charu Ambwani, Advocates

Headnote:
Commercial Courts Act, 2015 - Section 13(1A) - Arbitration and Conciliation Act, 1996 - Section 8 and 37(1)(a) - Maharashtra Stamp Act - Application - Arbitration agreement - Fraudulent invocation of the bank - Respondent No.1-lndo Unique Flame Ltd. ("Indo Unique") applied for grant of work of beneficiation/washing of coal to Karnataka Power Corporation Ltd. ("KPCL") in an open tender. KPCL awarded Work Order vide letter of Award No.A1M1B3/Washed Coal/1052 dated to Indo Unique - Respondent No.1 herein, subsequently entered into a sub-contract termed as a Work Order dated with Appellant Company - M/s. N.N. Global Mercantile Pvt. Ltd., for transportation of coal from its washery at Village Punwat, District Yavatmal to stockyard, siding, coal handling and loading into wagons at Pandharpaoni siding, District - Global Mercantile filed a Civil (Commercial) Suit No.62 of against Indo Unique, and its banker SBI, as also banker of Appellant i.e. Union Bank of India, before Commercial Court, Nagpur praying inter alia for a declaration that Indo Unique was not entitled to encash bank guarantee as Work Order had not been acted upon - Whether an arbitration agreement would be non-existent in law, invalid or un-enforceable, if underlying contract was not stamped as per relevant Stamp Act; and, whether allegations of fraudulent invocation of bank guarantee furnished under substantive contract, would be an arbitrable dispute – Held, ground on which fraud was held to be non arbitrable earlier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration - In contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc - Ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete, and deserves to be discarded - In present case, since both parties have admitted existence of arbitration agreement between parties, as recorded in the judgment of the High Court, and even before this Court during oral submissions, parties may either appoint a sole arbitrator consensually; failing which, an application u/S. 11 for appointment of arbitrator may be made before High Court - Court are of considered view that finding in SMS Tea Estates and Garware that non-payment of stamp duty on commercial contract would invalidate even arbitration agreement, and render it non-existent in law, and un-enforceable, is not correct position in law – Order accordingly.

Judgement Key Points

The provided legal document does not specify a particular hearing date. It primarily discusses the legal principles, case proceedings, and judicial orders related to the arbitration agreement, stamp duty, and related procedural issues. If you are seeking a specific hearing date for a case, you may need to consult the court's schedule or the case management system where the matter is listed.

JUDGMENT

Indu Malhotra, J.

This case raises interesting issues with respect to the application of the doctrine of separability of an arbitration agreement from the underlying substantive contract in which it is embedded; whether an arbitration agreement would be non-existent in law, invalid or un-enforceable, if the underlying contract was not stamped as per the relevant Stamp Act; and, whether allegations of fraudulent invocation of the bank guarantee furnished under the substantive contract, would be an arbitrable dispute.

1.1 The Respondent No.1-lndo Unique Flame Ltd. ("Indo Unique") applied for grant of work of beneficiation/washing of coal to the Karnataka Power Corporation Ltd. ("KPCL") in an open tender. KPCL awarded the Work Order vide letter of Award No.A1M1B3/Washed Coal/1052 dated 18.09.2015 to Indo Unique.

In pursuance of the Work Order dated 18.09.2015, the Respondent No.1 Company furnished Bank Guarantees for Rs.29.29 crores in favour of KPCL through its bankers, State Bank of India ("SBI"), the Respondent No.2 herein.

1.2 Indo Unique, the Respondent No.1 herein, subsequently entered into a sub-contract termed as a Work Order dated 28.09.2015 with the Appellant Company - M/s. N.N. Global Mercantile Pvt. Ltd. ("Global Mercantile"), for the transportation of coal from its washery at Village Punwat, District Yavatmal to the stockyard, siding, coal handling and loading into the wagons at Pandharpaoni siding, District Chanderpur, Maharashtra.

Clause 9 of the Work Order provided for furnishing a security deposit which reads as :

"9. Security Deposit: You will submit the Bank Guarantee for Rs.5.00 crores for the average stock of washed coal lying at your stockyard. This Bank Guarantee can be issued from any nationalised Bank/first class bank, initially valid for a period of 18 (eighteen) months."

Clause 10 of the Work Order incorporates an arbitration clause, which reads as:

"10. Arbitration : In case of any dispute due to difference of opinion in interpretation of any clause or terms and conditions or meaning of the work or language the decision of the arbitrator appointed with mutual consent shall be treated as final and binding on both the parties."

1.3 As per Clause 9 of the Work Order, Global Mercantile furnished a Bank Guarantee for Rs.3,36,00,000/- on 30.09.2015, in favour of SBI-the banker of Indo Unique.

The Bank Guarantee was extended from time to time, and was last extended on 10.11.2017.

1.4 Under the principal contract with KPCL dated 18.09.2015, certain disputes and differences arose with Indo Unique, which led to the invocation of the Bank Guarantee by KPCL on 06.12.2017.

1.5 Indo Unique, on 07.12.2017, invoked the Bank Guarantee furnished by Global Mercantile under the Work Order.

It is the invocation of this Guarantee which has led to the present proceedings.

1.6 Global Mercantile filed a Civil (Commercial) Suit No.62 of 2017 against Indo Unique, and its banker SBI, as also the banker of the Appellant i.e. the Union Bank of India (Respondent No.3 herein), before the Commercial Court, Nagpur praying inter alia for a declaration that Indo Unique was not entitled to encash the bank guarantee as the Work Order had not been acted upon. It was expressly stated that Indo Unique had not allotted any work under the Work Order, nor were any invoices raised, or payments made by it. Consequently, there was no loss suffered which would justify the invocation of the Bank Guarantee. It was alleged that the invocation of the Bank Guarantee was fraudulent, since it was not in terms of the Work Order, being a conditional guarantee linked to the performance of work.

The Commercial Court vide an ex parte ad interim Order dated 15.12.2017 directed status-quo to be maintained with respect to the enforcement of the Bank Guarantee.

1.7 Indo Unique filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 ("Arbit

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