Point of Law : It is trite law that a Court can restrain encashment of bank guarantee in cases of established fraud in invocation of bank guarantee. The fraud has to be absolute and egregious, vitiating very foundation of bank guarantee.

JUDGMENT :

S.J. Kathawalla, Milind N. Jadhav, JJ.

1. The present Appeal was filed by the Appellant to challenge the Order dated 29th December 2021 passed by the Learned Single Judge rejecting the Appellant's Interim Application (L) No. 30927 of 2021 (“Interim Application”). The Appellant/ Original Plaintiff had sought a restraint against Respondent No. l from encashing the mobilization Advance Bank Guarantees issued by Respondent Nos.2 to 4 Banks in favour of the Respondent No. 1, at the Appellant's behest, under a Letter of Award dated 21st November 2016. The Ld. Single Judge before whom the ad-interim application was moved during Court vacation, refused to grant any reliefs. No reasons were given in support of Order refusing grant of ad-interim reliefs.

2. Since no reasons were given by the Learned Single Judge at the time of rejecting the Application seeking ad-interim reliefs, as recorded in our Order dated 17th January, 2022, the parties agreed to argue the Interim Application itself before us, after which the Appeal was heard on several dates.

3. Respondent No. 1 had, in the year 2015, floated a tender inviting bids for setting up two Thermal Power Stations comprising one unit of capacity 250 MW at Bithnok, Rajasthan, India (“BTPP”) and another unit of 250 MW at Barsingsar, Rajasthan (“BTPSE”). The Appellant emerged as a successful bidder.

4. On 21st November, 2016, Respondent No.1 issued a Letter of Award (“LOA”) to the Appellant for a total contract price of INR. 2302,36,80,813/- plus USD 20,48,58,356. The contract price was revised on 24th April, 2017 to INR 2279,07,02,306/- plus USD 21,11,56,205/-.

5. Clauses 6 and 10 of the LOA provide that an advance shall be extended to the Appellant subject to the Appellant providing Bank Guarantees, for 110% of the amount. Respondent No.1 extended an advance of INR 261,21,09,209/- to the Appellant against twelve (12) Advance Bank Guarantees furnished by Respondent Nos. 2 to 4. The Bank Guarantees were for the aggregate sum of INR 148,98,24,966/- and USD 20,454,402/-.

6. Respondent No.1 terminated the LOA on 6th September 2021 (with effect from 6th November 2021) citing “unforeseen circumstances” and “frustration” as the reasons for termination.

7. What happened between these two dates, namely 21st November 2016 and 6th September 2021 is seriously disputed. However, we are not required to examine or decide the merits of this dispute, save and except, to the extent it is relevant for the issue before us.

8. Briefly put, the Appellant and Respondent No.1 are “at issue” on the following broad points:

9. The Appellant contends that (i) pursuant to the LOA, it mobilised men and machinery on site; (ii) while it was advised by Respondent No.1 that the Project was put on hold, it was never asked to demobilise them; (iii) half-hearted instructions not to incur costs were given; (iv) this was not a mandate to demobilise; (v) it could not (and therefore did not) demobilise; (vi) this continued mobilisation resulted in costs and expenses; (vii) being entitled to, it has appropriated this against the Advance; (viii) there is now no Advance left. Instead it has to recover damages; and (ix) in these circumstances, Respondent No.1 cannot invoke the Advance Bank Guarantees. It relies on the fact that the LOA was terminated for reasons other than breach. No invocation citing “breach”, parrot-like, in an invocation letter ought to be accepted.

10. Respondent No.1, on the other hand, has controverted the Appellant’s case and asserted that (i) it had addressed repeated communications to the Appellant, conveying in plain, explicit and unequivocal terms that “all project activities shall be put on hold”; ‘no activities shall be carried out’; “stop the cost and expenditure” and “not to incur any sort of expenditure” (ii) it was made clear to the Appellant that Respondent No.1 would not be liable to pay any amount; (iii) the Appellant disregarded these and now claims to have run up huge bills; (iv) Respondent No.1