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IN THE HIGH COURT OF BOMBAY
D.R. Dhanuka, J.
M/s. Andhra Civil Construction Co..... Plaintiffs.
Versus
The Board of Trustees of the Port of Bombay... Defendants.
Arbitration Suit No. 3795 of 1990 with A.P. No. 224 of 1990, decided on 27-1-1992.
Advocates appeared :
N.G. Thakkar with S.P. Kanuga, for the plaintiffs.
U.J. Makhija i/b Mulla Mulla Cragie Blunt Caroe, for defendants.
The question as to whether the Bank should be restrained from honouring the Bank Guarantee or not and whether the defendant should be restrained from invoking the Bank guarantee or not cannot be referred to arbitration. Bank cannot be compelled to submit to arbitration as it is not a party to the arbitration agreement. If the petitioner makes a money claim against the respondent for refund of amount collected by the respondent by encashing the bank guarantee and for other consequential claims like damages after the Bank guarantee is encashed, such a claim can be referred to arbitration as the Bank would not be then concerned with the dispute of this kind arising between the petitioner and respondent only. To this limited extent only, the Arbitrator is entitled to arbitrate upon the money claim arising between the petitioner and the respondent. If the petitioner seeks an order of injunction restraining enforcement encashment of the Bank guarantee, it would have to file a suit after impleading the bank as a party defendant in the suit. In such suit also very rarely an order of injunction can be granted on well-recognised ground like fraud.
Guarantee is furnished by the Bank in pursuance of the request made by one of the parties to the original contract Nevertheless, a contract of Bank guarantee particularly when it contains an absolute undertaking to pay an amount on demand which may be made by the beneficiary thereof constitutes an independent contract i. e., a contract independent of and unqualified by the contract independent of and unqualified by the contract of sale or underlying transaction is enforceable on its own terms notwithstanding the dispute between the parties to the original contract.
No Bank guarantee can be furnished without the concurrence of the party at whose instance the Bank guarantee is furnished. To this extent, there can be no dispute. The Bank guarantee has its genesis in the original contract. To this extent also, there can be no dispute. The question nevertheless arises as to whether the contract of Bank guarantee containing an absolute undertaking to pay the amount on demand executed by the Bank is a separate independent contract between the Bank and the beneficiary unqualified by the parent contract, and whether the claim relating to enforcement of Bank guarantee can be arbitrated upon unless he is willing to submit to arbitration. The party at whose instance the guarantee has been furnished is in a way, stranger to the said contract of bank guarantee as the Bank guarantee is a bilateral agreement between bank and party at whose instance the guarantee has been furnished. Therefore the bank guarantee can not be arbitrated upon.
Section 126.
2. The petitioner has also made an application under section 41 of the Arbitration Act, 1940 for an order of injunction restraining the respondent from encashing the Bank guarantee, copy whereof is Exhibit 'A' to the petition/plaint or the renewal thereof in Arbitration Suit No. 3795 of 1990.
3. It is necessary to summarise the material facts having bearing on the petition.
(a) In or about the year 1977, the Defendant/Respondent floated Tender No. E/16A/1977 for the work of Sassoon Fish Harbour Project, Bombay, construction of quay wall and anciallary works including dredging and reclamation as more particularly set out therein. The tender submitted by the plaintiff-petitioner for the said work was accepted by the respondent. Ultimately, on 6th December 1980, a written contract was executed between the petitioner and the respondent whereunder the petitioner agreed to construct marine works of Sassoon Fish Harbour Project and carry out other contractual work. Even prior to the execution of the formal contract dated 6th December 1980, sometime in the month of October 1979, the petitioner commenced the said work. The said work was required to be suspended at the instance of the respondent on certain occasions. The original stipulated date for completion of the contract work expired. A public interest litigation was filed in this Court to stop the project. The petitioner made a claim for escalation in respect of the rates fixed for carrying out the work under the said contract. The said claim was disputed by the respondent. The above referred contract contained an arbitration clause in terms of Clause 18 of the General Conditions of Contract forming part of the contract.
(b) On 28th April 1986, Shri J.G. Bodhe, a well known Architect, who is unfortunately no more, made his Award in his capacity as an Umpire directing the respondent to pay a sum of Rs. 25,67,000/- to the petitioner within six months from the date of the said Award. By the said Award, the petitioner was directed to commence the work on payment of the said amount and complete the work within a period of 15 months from the date thereof. On 27th October 1986, the respondent paid the said amount to the petitioner. The petitioner resumed the work. The period of 15 months expired.
(c) During the period when the contract was being executed, once again the petitioner had to face certain problems as briefly indicated hereinafter. The petitioner was required to carry out blasting operations for carrying out of the work. Disputes and differences arose between the parties in respect of user of explosives. The work was not completed in time. Expert opinion of Central Water Power Research Station, Khadakwala, Pune, was required to be obtained on certain aspects of the work. The work was suspended for some time. Once again the petitioner claimed escalation in prices. The respondent disputed the said claim of the petitioner. The petitioners invoked the arbitration clause in respect of some of their claims. The petitioner filed Arbitration Suit No. 3530 of 1989, in this Court. By an order dated 27th March 1989, passed by this Court, claims specified in paragraph 7 of award dated 4th October 1990 referred to in later part of the order were referred to be arbitration of Shri J.G. Bodhe as a Sole Arbitrator. On 4th October 1990, Shri J.G. Bodhe made his Award directi
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