Wrongful encashment of a bank guarantee can be claimed as restitution rather than strictly under damages, highlighting the sufficiency of entitlement rather than extensive evidence. This determination refines principles related to arbitration and the validity of awarded claims.

JUDGMENT :

SANDEEP V. MARNE, J.

1. By this Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), Petitioner challenges Award dated 9 November 2023 of the learned Sole Arbitrator. By the impugned Award, the Arbitral Tribunal has allowed the claim of the Respondent by directing Petitioner to pay to the Respondent sum of Rs.23,97,000/- together with interest at the rate of 12% per annum from 12 August 2008 till the date of realization.

2. Petitioner is an incorporated entity under the Companies Act, 2013, which was formerly known as Lloyds Steels Industries Limited. It is engaged in the business of engineering and infrastructure solutions, encompassing designing, manufacturing, fabrication and installation of heavy equipment, machinery and systems for customers of hydro-carbon (oil and gas) sector, steel processing industries, captive power plants used in steel plants, marine sector, ports, heat exchangers used by nuclear power plants, other projects, boilers and execution of turnkey projects etc. M/s. Arya Iron & Steel Co. Pvt. Ltd. (Arya) appointed Petitioner as an Engineering, Procuring and Construction Contractor for the proposed 1.2 Million Ton Pellet Plant at Barbil, Orissa. Petitioner floated an enquiry for supply of pollution control equipment package for its de-dusting system for setting up 1.2 MTPA iron ore pelletizing plant for Arya. A sister concern of the Respondent M/s. Ecokleen Pollution Control Pvt. Ltd. (Ecokleen) submitted its commercial offer. Petitioner issued Letter of Intent (LoI) in favour of the Respondent on 25 March 2006 which contained condition inter alia for submission of performance guarantee to the extent of 10% of the contract value. Respondent accordingly submitted advance bank guarantee for amount of Rs.35,95,500/-. A formal purchase order was issued by Petitioner to Respondent on 31 March 2006. Thereafter on 10 December 2006, Respondent submitted performance bank guarantee (PBG) of Rs.23,97,000/- in favour of the Petitioner.

3. It appears that certain correspondence was exchanged between the parties relating to manner of performance of contractual obligations by the Respondent. Petitioner complained to the Respondent about problems faced in performance of equipment supplied by the Respondent. Petitioner claims that the principal employer Arya complained about systems supplied by the Respondent on 4 and 9 August 2008. Arya sent debit note for Rs.42,00,000/- to the Petitioner on 11 August 2008.

4. In the above background, Petitioner issued notice to the banker of the Respondent on 12 August 2008 invoking PBG dated 10 December 2007 for Rs.23,97,000/-. Petitioner simultaneously issued notice to the Respondent on 12 August 2008 informing Respondent about invocation of bank guarantee and raising a demand of Rs.58,55,500/- towards liquidated damages as per the contract and for non-supply of items. Respondent’s banker paid to the Petitioner amount of Rs.23,97,000/- towards bank guarantee on 16 August 2008. Respondent disputed the allegations made by the Petitioner. After some correspondence between them, Respondent invoked arbitration clause by issuing notice dated 18 October 2008. Petitioner appointed its nominee Arbitrator on 21 November 2008. Ultimately the Arbitral Tribunal comprising of Presiding Officer and two co-Arbitrators was constituted. Petitioner filed its Statement-of-Claim raising the following claims: