Point of law: Absent a case of fraud, irretrievable injustice and special equities, the Court should not interfere with the invocation or encashment of a bank guarantee so long as the invocation was in terms of the bank guarantee.

ORDER :

The petitioner/P.G. Setty Construction Technology Private Limited (hereinafter referred to as ‘the Company’ for short) is knocking at the doors of this Court seeking stalling of the act of the 1st respondent/Karnataka State Police Housing and Infrastructure Development Corporation (‘the Corporation’ for short) in encashing the Bank Guarantee of Rs.1,15,13,500/- and has sought for a mandamus directing the respondents to restore/refund the bank guarantee that is encashed along with interest at 18% per annum.

2. Heard Sri Jayakumar S. Patil, learned senior counsel appearing for the petitioner and Sri G. Papi Reddy, learned senior counsel appearing for respondents 1 and 2.

3. Facts in brief, germane for consideration of the lis, are as follows:

The petitioner is a Private Limited Company incorporated under the provisions of the Companies Act, 1956 on 10-08-1999. It is the case of the petitioner that it has abundant experience in the construction of all projects in lumpsum on turnkey basis. Likewise, the Board of the Corporation awards a contract in favour of the petitioner for the purpose of construction of 144 Police Quarters in Mandya and Chamarajnagar Districts under a particular scheme – Police Gruha 2020 Scheme. The quarters were to be constructed in lumpsum on turnkey basis. The kind of construction was also indicated in such entrustment. The petitioner claims to have successfully completed the project among several other projects of the Corporation at various places. For the construction of the project, the petitioner and the Corporation entered into a contract and the contract contained certain conditions – one such condition was a defect liability period.

4. The operation of the defect liability period and the alleged shoddy construction upon which the Corporation encashed the bank guarantee of Rs.1,15,13,500/- furnished by the petitioner at the time of construction in furtherance of the contract is what drives the petitioner to this Court in the subject petition. The issue thus, in the petition, is not with regard to any other fact of the contract between the parties but confined to whether the act of the Corporation in encashing the Bank Guarantee furnished by the petitioner is in tune with the contract or illegal.

5. The learned senior counsel appearing for the petitioner would contend with vehemence that the construction is over, bills are completely paid and the quality of construction was checked before payment of bills and the contract between the parties stood concluded. The defect liability period that the contract recognizes was with regard to infrastructure facilities only and the reason for encashing the Bank guarantee now by the Corporation is for petty mistakes or general problems in the construction which do not relate to infrastructure facilities. Therefore, the Corporation which is a State under Article 12 of the Constitution of India could not have encashed the Bank Guarantee for any reason contrary to the contract. It is his submission that the Bank guarantee so encashed must be returned forthwith along with interest at 18% per annum from the date it is encashed till the date of payment. He would seek to place reliance on the judgment of the Apex Court in the case of HINDUSTAN CONSTRUCTION COMPANY LIMITED v. STATE OF BIHAR AND OTHERS, (1999) 8 SCC 436 to buttress his submissions.

6. Per-contra, the learned senior counsel appearing for the Corporation would vehemently refute the submissions of the petitioner to contend that the construction was of so poor quality that the building began to develop cracks the moment construction was completed. What the petitioner has claimed to have completed the construction is a shoddy construction coming within the defect liability period itself and not beyond the period of contract. He would submit that the nature of construction is such that there can be no human being living in those quarters as the walls have cracked, water is seeping in large quantity when it rai