( 1 ) THIS is an application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter REFERRED TO to as the Act), seeking to restrain the respondent, M/s. Bharat Heavy Electricals Limited (for short the BHEL), from encashing and receiving any amount under the bank guarantee No. Bom/60/236 dated 24 July 1996 in the sum of Rs. 7,86,750. 00 issued on behalf of the petitioner by the Bank of Baroda, India Exchange Place, Calcutta, in favour of the BHEL.

( 2 ) THE facts relevant to the controversy involved are as follows;

( 3 ) THE respondent BHEL, a Public Sector Undertaking, for the purpose of executing a contract awarded to it by National Thermal Power Corporation Limited (for short the NTPC), awarded a sub-contract to the petitioner for erection, testing, commissioning and trial operation of 2x210 MW Boilers, Part B at FGTPP, Unchahar, ST-2, District Rai Bareilly, Uttar Pradesh, and issued a letter of intent dated 21 June 1996, in favour of the petitioner, which was received by the petitioner on 6 July 1996. The value of the work awarded was Rs. 3,13,20,000. 00. It was scheduled to commence from 6 July 1996 and was to be completed by 5 December 1998. Formal contract between the parties was, however, executed on 12 November 1996.

( 4 ) UNDER the terms of letter of intent, the petitioner was required to furnish a security deposit guarantee for a sum of Rs. 7,86,750. 00 for due and faithful performance of the contract, which the petitioner did by furnishing the aforenoted bank guarantee in favour of the respondent. The bank guarantee is stated to be valid upto 31 December 1998. In the bank guarantee the respondent - BHEL is REFERRED TO to as the company the petitioner as the contractor; and the bank as the guarantor. The relevant portion of the bank guarantee reads as under :-

"the Guarantor do hereby guarantee to the company the due and faithful performance, observance or discharge of the contract by the contractor and without demur and merely on a demand to the extent of Rs. 7,86,750. 00 (Rupees seven lakhs eighty six thousand seven hundred fifty only) against any claim by the company on them for any loss, damage costs, charges and expenses caused to or suffered by the company by reasons of the contractor making any default in the performance, observance or discharge of the terms, conditions, stipulation or undertakings or any of them as contained in the contract. The decision of the company whether any default has occurred or has been committed by the contractor in the performance observance or discharge of any of the terms, conditions, stipulations or undertakings or any one of them as contained in the contract and/or as to the extent of loss, damage, costs, charges and expenses caused to or suffered by the company by reason of the contractor making any default in the performance, observance or discharge of any of the terms, conditions, stipulations or undertakings or any of them shall be conclusive and binding on the guarantor irrespective of the fact whether the contractor admits or denies the default or questions the correctness of any demand made by the company in any Court Tribunal or Arbitration proceedings or before any other Authority".

( 5 ) IT appears that not being satisfied with the performance of the petitioner the respondent terminated the contract on 15 January 1997 and on the next date invoked the bank guarantee by addressing letter dated 16 January 1997 to the guarantor bank. It would be expedient to extract here the relevant portion of the letter which reads as follows :-

"as M/s. Delkon (India Pvt. Ltd. , Calcutta have defaulted in the performance, observance and discharge of the terms and conditions stipulated in L. O. I. No. BHEL NR (BCT) FGT : TP : BLR : 42 (59) dated 21. 06. 96 and BHEL have suffered/would suffer loss - we hereby lodged our claim for encashment of the captioned Bank Guarantee. It is requested that an amount of Rs. 7,86,750. 00 (Rupees seven lakhs eighty six t