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IN THE HIGH COURT OF CALCUTTA
Ravi Krishan Kapur, J.
Bharat Heavy Electricals Limited - Appellant
Versus
West Bengal State Electricity Distribution Co. Ltd. And Another - Respondent
AP No. 242, 243, 244 of 2021
Decided On : 20-01-2022
arbitration and Conciliation act - Dispute arising out of a notice inviting an E-Tender for setting up a 10 MW Solar Photovoltaic Power Plant - Section 9 of the arbitration and Conciliation act, 1996 - [Section 9] - The court discussed the principles of bank guarantees, their unconditional and independent nature, and the limited circumstances under which a court can interfere with their invocation. The court found that the bank guarantee in question was unconditional and irrevocable, and the invocation by the respondent was in compliance with its terms. The court also emphasized that the disputes between the parties and the merits of the underlying contract were immaterial at the stage of considering the bank guarantee.
Fact of the Case:
The disputes between the parties arose from a notice inviting an E-Tender for setting up a 10 MW Solar Photovoltaic Power Plant. The petitioner was awarded a Letter of award containing terms and conditions, including a performance bank guarantee. The respondent invoked the guarantee after issuing a termination letter to the petitioner.
Finding of the Court:
The court found that the bank guarantee was unconditional and irrevocable, and its invocation was in compliance with its terms. The disputes between the parties and the merits of the underlying contract were deemed immaterial at the stage of considering the bank guarantee. The court dismissed the application seeking restraint on the guarantee.
Issues: The primary issue was whether the invocation of the bank guarantee was in compliance with its terms. The court also addressed the petitioner's contentions regarding the exact monies payable, breach of obligation, and irreparable injury.
Ratio Decidendi: The court emphasized the unconditional and independent nature of bank guarantees, the limited circumstances for court interference, and the immateriality of disputes and contract merits at the stage of considering the bank guarantee.
Final Decision: The court dismissed the application seeking restraint on the guarantee, and the interim order dated 21.06.2021 was automatically vacated.
JUDGMENT
Ravi Krishan Kapur, J. - This is an application under Section 9 of the arbitration and Conciliation act, 1996 ('the act').
The facts:-
2. The disputes between the parties arise out of a notice inviting an E-Tender for setting up a 10 MW Solar Photovoltaic Power Plant at Mejia, District-Bankura, West Bengal. Pursuant to the aforesaid notice, the petitioner was awarded a Letter of award dated 6 September, 2016 (LOa). The LOa contains all the terms and conditions of the contract between the parties. Clause 13 of the LOa provides that the petitioner was to submit a performance bank guarantee for an amount not less than 10% of the total value of the contract. Clause 32 of the LOa also provides for an arbitration clause.
3. In terms of clause 13 of the LOa, the petitioner through its banker furnished a performance bank guarantee to the respondent no.1. The bank guarantee dated 19 august, 2016 (the guarantee) inter alia provides as follows:
Dear Sirs,
In consideration of West Bengal State Electricity Distribution Company Ltd., (herein after referred to as the 'Owner' which expression shall unless repugnant to the context or meaning thereof include its successors, administrators and assigns) having awarded to Bharat Heavy Electricals Limited with registered/Head Office at BHEL House, Siri Fort, New Delhi - 110049 (hereinafter referred to as 'Contractor' which expression shall unless repugnant to the context or meaning thereof include its successors, administrators, executors and assigns), a Contract issued by Letter of Intent Memo No.SPGD/Mejia/55/04 dated 30.07.2016 for Design & Engineering, Manufacture / Procurement, Supply of Equipment and materials, testing at manufacture's works, inspection, necessary clearance, packing and forwarding, unloading at site, associated civil works, services, permits, installation and incidentals, erection, testing & commissioning with warranty obligation and 5 (five) years Comprehensive Operation and Maintenance of 10 MW Solar PV Power Plant at Mejia, Bankura, West Bengal (scope of work) and the same having been acknowledged by the Contractor, resulting in a Tender ID No.2016_WBSED_1 dated 27.01.2016 Contractor having agreed to provide a Contract Performance Guarantee for the faithful performance of the entire Contract equivalent to Rs.5,60,62,267/-(INR Five Crores Sixty Lacs Sixty Two Thousand Two Hundred Sixty Seven only) being (10%) (Ten percent) of the said value of the Contract to the Owner.
We, Punjab National Bank, Gate No.1, BHEL Campus, Deepanjali Nagar, Mysore Road, Bangalore 560026 having its Head Office at No.7, Bhikaji Cama Place, New Delhi 110607 (hereinafter referred to as the 'Bank', which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) do hereby guarantee and undertake to pay the Owner, on demand any or all monies payable by the Contractor to the extent of Rs.5,60,62,267/-(INR Five Crores Sixty Lacs Sixty Two Thousand Two Hundred Sixty Seven only) as aforesaid at any time up to 30/10/2017 without any demur, reservation, contest, recourse or protest and/or without any reference to this Contractor.
any such demand made by the Owner on the bank shall be conclusive and binding notwithstanding any difference between the Owner and the Contractor or any dispute pending before any Court, Tribunal arbitrator or any other authority. The Bank undertakes not to revoke this guarantee during its currency without previous consent of the Owner and further agrees that the guarantee herein contained shall continue to be enforceable till the Owner discharges this guarantee.
The Owner shall have the fullest liberty without affecting in any way the liability of the Bank under the guarantee from time to tome to extend the time for performance or the Contract by the Contractor. The Owner shall have the fullest liberty, without affecting this guarantee, to postpone from time to time the exercise of any powers vested in them
Bank guarantees are independent and unconditional contracts, and courts should refrain from interfering with their invocation unless exceptional circumstances such as fraud or irretrievable injury ar....
A confirmed Bank Guarantee/irrevocable Letter of Credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in case.
The court emphasized the independence and unconditional nature of bank guarantees, while recognizing exceptions such as fraud, irretrievable injustice, or special equities.
Bank guarantees can be invoked regardless of disputes, unless fraud or irretrievable harm is clearly established.
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
Courts should not interfere with the invocation or payment under an unconditional bank guarantee unless there is egregious fraud or special equity.
Invocation of an unconditional bank guarantee cannot be restrained unless fraud or irretrievable injustice is established; the nature of bank guarantees is independent and absolute.
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