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High Court Of Delhi
PREM CHAND SHARMA AND COMPANY - Appellant
Versus
DELHI DEVELOPMENT AUTHORITY - Respondent
ORIGINAL MISCELLANEOUS PETITION 120 of 1997
Decided On : 01/09/1997
BANK GUARANTEE - INVOCATION - CONDITIONS - FRAUD - IRRETRIEVABLE INJUSTICE - ARBITRATION - REFERENCE OF DISPUTES - DDA HOUSING CONSTRUCTION CONTRACT - FINAL BILL - COMPLETION CERTIFICATE - DEFECT LIABILITY PERIOD - BANK GUARANTEE IN LIEU OF SECURITY DEPOSIT - ENCASHMENT OF BANK GUARANTEE - CONDITIONS - COURT'S JURISDICTION TO RESTRAIN ENCASHMENT.
Fact of the Case:
Petitioner, a contractor, entered into an agreement with respondent DDA for the construction of houses. A bank guarantee was furnished by the petitioner in lieu of the security deposit. After completion of the work, a final bill was prepared and paid to the petitioner. However, disputes arose between the parties regarding wrongful deductions and short payments in respect of various items. The petitioner approached the Chief Engineer (NZ) to refer the matter to arbitration. The Chief Engineer referred the claim to the Superintending Engineer (Arb.). Subsequently, DDA invoked the bank guarantee. The petitioner filed two petitions seeking to restrain DDA from encashing the bank guarantee.
Finding of the Court:
The court held that the invocation of the bank guarantee was not fraudulent and that the petitioner was not likely to suffer any irretrievable injustice as it could recover the amount thereof from DDA if the counter-claim filed by DDA was disallowed by the Arbitrator. The court also held that the final bill was not prepared and passed taking the entire work as having been completed by the petitioner and that the petitioner had acknowledged that certain works were yet to be completed.
Issues: 1. Whether the invocation of the bank guarantee by DDA was fraudulent? 2. Whether the petitioner would suffer any irretrievable injustice if the bank guarantee was encashed? 3. Whether the final bill was prepared and passed taking the entire work as having been completed by the petitioner?
Ratio Decidendi: 1. The court held that the plea of fraud in connection with the bank guarantee was to be examined in relation to the time factor during which the underlying contract was executed. The fraud alleged by the petitioner evidently did not fall in that category. 2. The court held that the petitioner was not likely to suffer any irretrievable injustice as it could recover the amount thereof from DDA if the counter-claim filed by DDA was disallowed by the Arbitrator. 3. The court held that the final bill was not prepared and passed taking the entire work as having been completed by the petitioner and that the petitioner had acknowledged that certain works were yet to be completed.
Final Decision: Both the petitions were dismissed.
( 1 ) THIS order wili govern disposal of OMP Nos. 119/97andl20/
( 2 ) IN OMP No. 119/97 it is alleged that pursuant to an invitation to tender for the work of construction of 470. Incremental Janta Houses in Sector A-6, Pocket 7, at Narela, petitioner submitted a tender which was accepted by respondent No. 1. Agreement bearing No. 24/ee/n. D. 6/d. D. A. /90-91 was executed between the parties. Under the said agreement six months time after completion of the work was to be treated as "defect Liability Period". Petitioner completed the work on September 9, 1994. However no defects were pointed outwithin six months thereafter by respondent No. 1. It is stated that on May 6, 1995, respondent No. 1 prepared the final bill and payment thereof was made. Since the final bill as prepared by respondent No. 1 gave rise to disputes on account of wrongful deductions and short payments in respect of various items, the petitioner approach items the Chief Engineer (NZ) to marked reference to arbitration. On September 10, 1996, Chief Engineer (NZ) made reference in respect of claim of Rs. 95,82,091. 00 to Superintending Engineer (Arb.) II, Office Complex, Janak Puri, New Delhi.
( 3 ) IT is further alleged that on February 19, 1992, petitioner furnished Bank guarantee in the sum of Rs. 3 lakhs in lieu of the security deposit and this could be invoked by respondent No. 1 only uptil the expiry of the "defect Liability Period". Bank guarantee stands revali dated up to February 18,1998. Respondent No. 1 by the letter dated May 28,1997, has asked the Bank, respondent No. 2, to send a draft of the said amount of the Bank guarantee. No amount is due from the petitioner to respondent No. 1 nor any counter-claim has been raised by the latter. Invocation of the Bank guarantee is, thus, a fraud committed on the petitioner. It is prayed that respondent No. 1 be restrained from encashing Bank guarantee No. 35/91-92.
( 4 ) UNDER another agreement No. 23/ee/n. D. 6/d. D. A. /90-91, petitioner was awarded the work of construction of similar number of houses at the same site as in OMP No. 119/97 by respondent No. 1 and the number of the Bank guarantee furnished towards the security deposit in the sum of Rs. 3 lakhsis34/91-92. In OMP No. 120/97 respondent No. 1 is sought to be restrained from invoking the said Bank guarantee. In the reply respondent No. 1 has alleged that completion certificate dated September 9, 1994, was issued subject to the execution of the work noted therein by the petitioner. Petitioner also acknowledged that fact in the undertaking dated January 17, 1996. Final bill was paid to the petitioner after obtaining the undertaking for execution of the remaining work. Respondent No. 1 has to recover the following amounts from the petitioner:
(1) Recovery on account of quantity of steel paid beyond deviation limit Rs. 1,61,631. 00.
(2) Recovery on account of interest for over payment in the rates of HD PE Overhead Tanks Rs. 33,335. 00.
(3) Recovery on account of balance work yet to be executed by the petitioner Rs. 8,80,000. 00.
( 5 ) COUNTER-CLAIMS for the said amount have been duly REFERRED TO by the Competent Authority to the Arbitrator by the letter dated June 19,1997. Since the work was still incomplete respondent No. 1 had rightly invoked both the Bank guarantees. It is denied that any fraud has been committed in invoking the Bank guarantee, as alleged.
( 6 ) BEFORE adverting to the submissions advanced on behalf of the parties I would like to refer to the legal position in regard to the encashment of Bank guarantee as enunciated by the Supreme Court in U. P. State Sugar Corporation v. Sunmac International Ltd. , 1996 (8) Supreme Today 530. It was held thus :
"the law relating to invocation of such Bank guarantees is by now settled. When in the course of commercial dealings an unconditional Bank guarantee is given or accepted, the beneficiary is entitled to realise such a Bank guarantee in terms thereof irrespective of any pending
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