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2014 Supreme(Bom) 251
High Court of Judicature at Bombay
S.J. KATHAWALLA, J.
ITD Cementation India Ltd.
Versus
Reliance Infrastructure Limited & Others
Notice of Motion (L) No.160 of 2014 in Suit (L) No.57 of 2014
Decided On: 04-02-2014
For the Plaintiffs:D.D. Madon, Senior Advocate, instructed by Kunal Damle, Advocate.
For the Defendants:D1, Janak Dwarkadas, Senior Advocate, along with Dr. B.B. Saraf, D.J. Kakalia, Paresh Parkar, instructed by M/s. Mulla & Mulla & Cragie Blunt & Caroe, Advocates.
Headnote:Contract Act, 1872 - Section 136 - Invocation of unconditional bank guarantee. - Mere apprehension that other party will not be able to pay, cannot restrain invocation of unconditional bank guarantee. - The plaintiff has pleaded fraud in the plaint primarily on the basis that defendant No. 1 committed breaches of the underlying contract and as such the invocation of bank guarantees is illegal and fraudulent. The plaintiff has lost sight of the fact that the bank guarantees furnished by the plaintiff to the defendant No. 1 categorically provides that, “The bank‘s obligations shall not be reduced by any failure by the EPC contractor to timely pay or perform any of its obligations under the contract“. The plaintiff has not made out any case of fraud much less a case of an absolute and egregious fraud to the knowledge of the Bank, which would affect the very foundation of the bank guarantee as is required in law. In view thereof it cannot be held that the invocation of the bank guarantee by defendant No. 1 is fraudulent as alleged by the plaintiff.
The plaintiff has primarily pleaded in paragraph 10 of the plaint that if defendant Nos. 2 to 5 make any payment to defendant No. 1 under the bank guarantee, it will be difficult for the plaintiff to recover the amounts paid under the bank guarantee. It is pleaded in paragraph 12 that the encashment of the bank guarantee will damage the plaintiff‘s credential with the bank. The plaintiff has further merely stated without any substantiation that this is a case of special equities. None of these pleadings satisfy the requirement of establishing irretrievable injury as required in law. Special equities and irretrievable injury are aspects of the same contention. In any case, save and except stating that this is also a case of special equities, nothing further has been pleaded. The mere plea and that too without any basis that it will be difficult to recover the amount from defendant No. 1 does not fulfil the requirement of establishing irretrievable injury or special equities as laid down the various cases discussed hereinabove. As held by the Hon‘ble Courts, to avail of these exceptions, exceptional circumstances which make it impossible for the party to reimburse itself if it ultimately succeeds, has to be decisively established. A mere apprehension that the other party will not be able to pay is not enough. As regards the contention that it will cause damage to the plaintiff‘s credential with the Banks, the same is a vague statement and would lend no assistance to the plaintiff.
Contract Act, 1872 - Section 136 - Nature of bank guarantee. - Since language of bank guarantee clearly indicating that any demand made by beneficiary on bank shall be conclusive and binding hence bank guarantee is unconditional. - In fact, the said bank guarantees clearly and unequivocally provide that the bank unconditionally and irrevocably guarantees and undertakes as a direct responsibility, to immediately pay to the EPC Contractor on demand the amount or amounts set out therein without any demur, reservation, recourse, contest or protest and/or without reference to the Construction Contractor and without the EPC Contractor needing to provide or show to the bank, grounds or reasons for such demand for the sum specified. The said bank guarantees further provide that demand made by the EPC Contractor on the bank shall be conclusive and binding notwithstanding any difference between the EPC Contractor and the Construction Contractor or any dispute pending before any Court, Tribunal, arbitrator or any of authority. It is also provided in the said bank guarantees that the decision of the EPC Contractor as to whether the Construction Contractor has fulfilled its obligation or not shall be binding on the bank and the bank has acknowledged that any such demand by the EPC Contractor of the amounts payable by the bank to the EPC Contractor shall be final, binding and conclusive evidence in respect of the amounts payable by the Construction Contractor to the EPC Contractor. The language of the said bank guarantees therefore leaves no room for doubt that the said bank guarantees furnished by the plaintiff to defendant No. 1 are unconditional and irrevocable.
1. The Plaintiff in the present Suit is seeking a restraint order against Defendant No.1 from in any manner demanding and/or receiving the amounts under Bank Guarantees (Exhibits A to A-10 of the Plaint) bearing Nos. 1100041BGP00335, 1201261BGA00008, 1201261BGA00010, 1201261BGA00011, 032821GPER002011, 03821GPER002111, 03821GPER002211, 03821GPER002311, 13940100000510, 13940100000511 and 0156111IPG000052 (“the said Bank Guarantees”).
2. The Plaintiff has also taken out the present Notice of Motion seeking adinterim and interim injunction against the Defendant No.1 from receiving and against Defendant Nos.2 to 5 from making any payments to the Defendant No.1 under the said Bank Guarantees.
3. The Defendant No.1 had entered into a concession agreement with the National Highways Authority of India for designing, engineering, construction, development, finance, operation and maintenance of the Pune-Satara Section of National Highway-4. The Defendant No.1 entered into an Agreement dated 12th April, 2011 under which the Plaintiff was appointed as a subcontractor of Defendant No.1 (“the said Agreement”).
4. Clauses 5 (a) and 13.4 (a) of the said Agreement provided as under:
“5. Mobilization Advance
The EPC Contractor, at its own discretion, may provide to the Contractor an interest free advance upto 10% of Contract Value and an interest bearing advance upto 5% of Contract Value as “mobilization advance” in the following manner:
5% (Five percent) of the total Contract value shall be paid as first advance upon submission of Advance Bank Guarantee (ABG) from a nationalized/scheduled bank approved by EPC contractor for equal amount and upon signing of this Agreement and submission of Contract Performance Bank Guarantee (CPBG).”
“13.4 ADVANCE BANK GUARANTEE (ABG)
(a)The Contractor shall, within thirty (30) days from date of Letter of Award provide an advance bank guarantee in an amount equal to five percent (5%) of total Contract value being referred as First Advance calculated in accordance with terms and procedures of payment of the contract agreement, and in the currency or currencies of the Contract, with an initial validity of up to ninety (90) days beyond the schedule date of completion of the contract.”
Pursuant to the above terms of the said Agreement dated 12th April, 2011, the Plaintiff got issued various Bank Guarantees of which Defendant No.1 was the beneficiary. The format of the Advance Bank Guarantee and Performance Bank Guarantees are set out in Schedule F of the Contract at pages 179 and 183 respectively of the Construction Agreement. The Bank Guarantees furnished by the Plaintiff were therefore in the format provided by the Defendant No.1 in the Construction Agreement. In the said Bank Guarantees the Plaintiff is referred to as “the Construction Contractor” and the Defendant No.1 is referred as the “EPC Contractor”.
5. The essential terms of the Mobilization Advance Guarantees are set out hereunder.
“3. AND WHEREAS in conformity with the provisions of clause 5 (a) and 13.4 (a) of Special conditions of Contract, the Construction Contractor has agreed to furnish a Bank Guarantee for an amount equivalent to the Advance Payment of Rs.4,60,00,000/-(Rupees Four Crore Sixty Lakh only) extended by the EPC Contractor to the Construction Contractor for the faithful execution of the Contract.
4. And whereas the Construction Contractor has agreed to provide the EPC Contractor and the EPC Contractor has agreed to accept the Advance Bank Guarantee for five per cent (5%) of the total Contract Value from BANK OF BARODA having its head/registered office at Mandvi, Baroda, through its Backbay Reclamation Branch, Ram Mahal, Dinshaw Vachha Road, Churchgate, Mumbai 400 020, hereinafter referred to as “the bank”, (which expression shall unless it be repugnant to the context or meaning thereof be deemed to include its successors and permitted assigns).
5. NOW THEREFORE, in consideration inter alia of the EPC Contractor granting the Construction Cont
