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High Court Of Calcutta
BIMAL CHANDRA BASAK, AMARENDRA CHANDRA SENGUPTA
HINDUSTHAN PAPER CORPORATION LTD - Appellant
Versus
KENEILHOUSE ANGAMI - Respondent
Suit 62 Of 1986
Decided On : 08/14/1989
ARBITRATION - Bank Guarantee - Enforcement - Contract - Dispute - Jurisdiction - Arbitration Clause - Interpretation.
Fact of the Case:
A dispute arose between the parties to a contract regarding the enforceability of a bank guarantee furnished by the plaintiff in favor of the defendant. The plaintiff filed a petition under Section 20 of the Arbitration Act, seeking to refer the dispute to arbitration. The defendant challenged the arbitrability of the dispute, arguing that the bank guarantee was a separate contract between the bank and the defendant and that the arbitration clause in the original contract did not extend to disputes arising under the bank guarantee.
Finding of the Court:
The court held that the dispute regarding the enforceability of the bank guarantee was not covered by the arbitration clause in the original contract. The court reasoned that the bank guarantee was a separate contract between the bank and the defendant, and that the rights and liabilities under the bank guarantee were governed by the terms and conditions of the bank guarantee itself, not by the terms and conditions of the original contract. Therefore, the court held that the arbitration clause in the original contract could not be imported into the bank guarantee.
Issues: Whether the dispute regarding the enforceability of the bank guarantee was covered by the arbitration clause in the original contract.
Ratio Decidendi: The court held that the dispute regarding the enforceability of the bank guarantee was not covered by the arbitration clause in the original contract because: * The bank guarantee was a separate contract between the bank and the defendant. * The rights and liabilities under the bank guarantee were governed by the terms and conditions of the bank guarantee itself, not by the terms and conditions of the original contract. * The arbitration clause in the original contract could not be imported into the bank guarantee.
Final Decision: The court allowed the appeal in part and modified the trial court's order to exclude the dispute regarding the enforceability of the bank guarantee from the matters to be referred to arbitration.
( 1 ) THIS appeal is directed against an order d 23rd March, 1989 whereby th8 learned Trial Judge allowed the applications made under section 20 of the Arbitration Act (hereinafter referred to as the said Act) and gave necessary directions in connection with the arbitration proceedings. The facts of this case as alleged in the petition as follows :
( 2 ) THERE was an agreement in writing between the plaintiff, who are respondents herein, and the defendants, who are the appellants herein regarding construction of some plants. Clause 23. 1 of this agreement contained an arbitration clause which provides as follows :"in the event of any question or disputes arising under or out of these conditions or in connection with this or relating to this contract except as to any matters the decision of which is specifically provided for in these conditions the matter in dispute shall be referred to two Arbitrators, one to be nominated by the company and one to be nominated by the contractor, or in case of the said Arbitrators not agreeing then to an umpire to be appointed by the Arbitrators in writing before proceeding on the reference and the decision of the Arbitrators or in the event of their not agreeing, of the said umpire shall be final and conclusive and the provisions of the Indian Arbitration Act, 1940 and the Rules hereunder and any statutory modification thereof shall be deemed to apply and to be incorporated in this contract. "
( 3 ) CLAUSES 7. 01, 24. 02. 1, 24. 02. 2 (a) and (c) of the contract provided furnishing Bank Guarantee. It is stated that the plaintiff furnished the Bank Guarantee as mentioned in the said clauses of the contract from Vijaya Bank, G. S. Road, Shilong in favour, of the defendant. The Bank Guarantee provided as follows :"non-JUDICIAL Paper Rs. 22. 50 P. Bank Guarantee against refund of Security Deposit name of the Bank : Vijaya Bank address : G. S. Road, Shillong 793 001 gurantee No. : 13/85 date of Expiry : 30. 4. 1986 limit of Liability : Rs. 5,67,000 (Rupees Five lakhs Sixtyseven thousand)only. Ref. Purchase Order No. : PUR/ch/po/245 date : 31. 5. 1982 for (Name of Work) : Construction of Effluent treatment Plant for Cachar paper Project. Sub: Refund of Security Deposit Hold Back amount against Completion to m/s. Hindustan Paper Corporation Ltd. Cachar Paper Project, panchgram 788202. Dear Sirs, in consideration of M/s. Hindustan Paper Corporation Ltd. having its registered office at Vishal Bhavan, 85, Nehru Place, New Delhi 110 024 (hereinafter call the Corporation (having agreed to REFUND THE SECURITY DEPOSIT TO M/s. The United Assam Construction Company, Kher Mohal, Dinapur (hereinafter referred to as the "contractor") from the demand under the terms and conditions of the agreement No. PUR/ch/po/245 dated 31. 5. 1982 made between the Corporation and said Contractor inter alia for construction of EFFLUENT TREATMENT PLANT for Cachar Paper Project (hereinafter called the "agreement") of the Security Deposit for the due fulfilment by the said Contractor of the terms and conditions contained in the said agreement, on production of Bank Guarantee for Rs. 5,67,000 (Five Lakhs sixty seven thousand) only, We Vijaya Bank, G. S. Road, Shillong (hereinafter referred to as the "bank") do hereby undertake to pay to the Corporation an amount not exceeding Rs. 5,67,000 (Rupees Five Lakhs Sixty seven thousand) only against any loss or damage) caused to or suffered by or would be caused to suffer by the Corporation by reason of any breach by the said Contractor of any of the terms and conditions contained in the said Agreement arising out of the Security Deposit. 2. We, Vijaya Bank, G. S. Road, Shillong, do hereby undertake to pay the amount due and payable under this Guarantee without any demur, merely on a demand from the said Corporation stating that the amount claimed is due by way of loss or damage caused to or would be caused to or suffered by the said Corporation by reason of any bre
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