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2013 Supreme(Bom) 131
High Court of Judicature at Bombay
R.D. DHANUKA
M/s. ANCL & Co. (India) Pvt. Ltd.
Versus
Corporation Bank & Others
Arbitration Petition (L) No. 67 of 2013
Decided on : 17-01-2013
For the Petitioner:S.U. Kamdar, Senior Advocate, a/w. Vineet Naik, Senior Advocate, a/w. Rohan Cama, i/b. Sita Kapadia & Associates, Advocates.
For the Respondent:R1, Ms. Kavita Anchan, i/b. M.V. Kini & Co., R2, R3 & R4, Dr. Milind R. Sathe, Senior Advocate, a/w. Ms. M.D’souza, i/b. A.S. Dayal & Associate, Advocates.
Headnote:
Petitioner, a contractor, sought an injunction against the respondent from invoking bank guarantees furnished by the petitioner. The court examined the terms of the bank guarantees, the circumstances leading to the invocation, and the legal principles governing bank guarantees.
Fact of the Case:
Petitioner, a contractor, engaged by the respondent to carry out civil and structural work, furnished bank guarantees to secure mobilization advance and performance. Disputes arose, and the respondent terminated the contract. The petitioner vacated the site, and the respondent invoked the bank guarantees, alleging default by the petitioner. The petitioner sought an injunction against the invocation, claiming that the guarantees were given for specific purposes and could not be invoked for other reasons.
Finding of the Court:
The court found that the bank guarantees were unconditional and irrevocable, and the respondent was entitled to invoke them without having to prove failure or negligence on the part of the petitioner. The court also found that the invocation was in accordance with the terms of the bank guarantees and that the petitioner had not established any fraud or irretrievable harm that would justify an injunction.
Issues: 1. Whether the bank guarantees were unconditional and irrevocable, or subject to conditions that were not met by the respondent. 2. Whether the invocation of the bank guarantees was in accordance with the terms of the guarantees. 3. Whether the petitioner had established fraud or irretrievable harm that would justify an injunction.
Ratio Decidendi: The court held that the bank guarantees were unconditional and irrevocable, and the respondent was entitled to invoke them without having to prove failure or negligence on the part of the petitioner. The court also found that the invocation was in accordance with the terms of the bank guarantees and that the petitioner had not established any fraud or irretrievable harm that would justify an injunction. The court relied on the principles that bank guarantees are independent contracts between the bank and the beneficiary, that the bank is not concerned with the underlying contract between the parties, and that injunctions against the enforcement of bank guarantees should be granted only in exceptional circumstances.
Final Decision: The court dismissed the petition and vacated the ad-interim injunction that had been granted. The respondent was allowed to proceed with the invocation of the bank guarantees.
Key Points: - The bank guarantees in question are concluded to be unconditional and irrevocable, and encashable on demand, absent fraud or irretrievable injustice (!) (!) (!) - (!) . - Invocation must align with the bank guarantee’s terms and the contract; non-compliance with procedural/quantitative requirements can render invocation unenforceable (contingent/conditional analysis) (!) - (!) (!) - (!) . - Courts should grant injunctions restraining encashment only in exceptional cases such as fraud of egregious nature or irretrievable injustice; generally, banks must honor guarantees on demand (!) - (!) . - Reliance on contemporaneous documents outside the guarantee is not permitted when the guarantee is unambiguous; the guarantee must be construed as a separate transaction (!) - (!) . - Facts here show termination/non-performance and attempted encashment; court held no grounds to stop encashment and dismissed petition, allowing banks to encash (!) - (!) .
How to determine whether a bank guarantee is unconditional and irrevocable or conditional and subject to contract terms?
What is the proper test for whether invocation of a bank guarantee complies with its terms and is enforceable?
What are the circumstances under which a court may grant an injunction to restrain encashment of an unconditional bank guarantee?
By this Petition under Section 9 of the Arbitration and Conciliation Act, 1996, petitioner seeks injunction against respondent nos. 2 to 4 from in any manner whatsoever from invoking the bank guarantees all dated 3rd September, 2012 bearing Nos. 2012/247 to 2012/255 being Exs. ‘D’ to ‘L’ to the petition. Some of the relevant facts for the purpose of deciding this petition are setout hereinafter:-
2. Pursuant to the Letter of Intent dated 5th September, 2011 by respondent no.2 through respondent no.4, petitioner was engaged as a contractor to carry out civil/structural work and interior for the shell portion of the project described in the Letter of Intent.
3. On 23rd September, 2011, the 4th respondent issued a work order on behalf of the 2nd respondent for civil and structural work and common interior work for the shell portion of the said project for the total value of Rs. 19,32,86,971.85.
4. On 24th October, 2011, the petitioner was issued another work order for carrying out the work of water proofing for the value of Rs.1,04,62,151/-. The petitioner was given mobilization advance of Rs.2,43,04,012/-towards civil/contractual work and Rs.10,04,817/-towards water proofing work and in lieu thereof, the petitioner furnished mobilization advance bank guarantees aggregating to Rs. 2,53,07,000/-towards civil/contractual work and Rs. 10,46,817/-towards water proofing work in favour of the 2nd respondent.
5. It is the case of the petitioner that the 2nd respondent adjusted and recovered various amounts on a pro rata basis from running account bills submitted by the petitioner from time to time towards recovery of the mobilization advance. It is the case of the petitioner that after effecting such recovery, the balance mobilization advance was of Rs.1,13,06,063/-and Rs. 5,11,956/-towards civil/contractual work and towards water proofing respectively.
6. It is the case of the petitioner that in the month of June, 2012, the petitioner was issued a fresh work orders in the name of the 3rd respondent altering the value of the work in view of the completion of certain amount of work under the earlier work orders dated 23rd September, 2011 and 24th October, 2011.
7. A fresh work order was issued on 25th June, 2012 for civil and contractual work and common area interiors for a total value of Rs. 11,77,75,049.30 and another work order dated 24th June, 2012 for the water proofing for a total value of Rs.34,09,638.91. The petitioner was called upon to issue a fresh bank guarantee in favour of the 3rd respondent under the work orders on 24th June, 2012 and 25th June, 2012.
8. The earlier bank guarantees were accordingly discharged and returned back to the petitioner by the 2nd respondent. As on the date of the filing this petition, total nine bank guarantees were furnished by the petitioner under the work orders dated 24th June, 2012 and 25th June, 2012 partly towards mobilization advance, as and by way of performance guarantee and partly towards performance bond in lieu of retention money.
9. On 30th July, 2012, the petitioner alleged default on the part of the 2nd and 3rd respondents and sought extension of time till 2nd January, 2013 to complete the work under work orders dated 24th June, 2012 and 25th June, 2012.
10. By letter dated 9th August, 2012, respondent no.4 alleged that the petitioner was a non performing contractor and deleted some of the terms pertaining to interior and external development works from the scope of the work orders. It was pointed out that a sum of Rs. 1 crore was outstanding of the steel vendors from the petitioner, towards material procured by the petitioner from the said vendors.
11. By letter dated 24th August, 2012, the petitioner alleged default on the part of 2nd and 3rd respondents.
12. It is the case of the petitioner that on 29th August, 2012, a meeting was held where various issues were resolved, including with regard to the payment to the steel vendors and the construction period was extended t
