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High Court Of Delhi
G.S.ATWAL AND COMPANY (ENGINIRS) PRIVATE LIMITED - Appellant
Versus
NATIONAL PROJECTS CONSTRUCTION, LIMITED - Respondent
First Appeal Order 14 of 1977
Decided On : 03/25/1987
BANK GUARANTEE - ENFORCEMENT - CONDITIONS - INTERPRETATION - ARBITRATION - JURISDICTION - BANK GUARANTEE INDEPENDENT CONTRACT - FRAUD - SPECIAL EQUITY - PRIMA FACIE CASE.
Fact of the Case:
A sub-contractor (appellant) filed a petition under Section 41 read with Schedule II of the Arbitration Act, 1940, seeking an interim injunction to restrain the respondent from enforcing a bank guarantee furnished by the United Commercial Bank. The appellant claimed that the mobilization advance had been fully recovered by the respondent from the running bills, and that invoking the bank guarantee was a fraudulent act of recovering the advance twice over.
Finding of the Court:
The court held that the bank guarantee constituted an independent contract between the bank and the respondent, and that the bank's obligation to pay was absolute. The court found that the demand made by the respondent on the bank was in compliance with the terms of the bank guarantee, and that there was no convincing material on the record to show that the entire mobilization advance had been adjusted or recovered by the respondent.
Issues: 1. Whether the bank guarantee was an independent contract between the bank and the respondent, or whether it was subject to the terms of the underlying contract between the appellant and the respondent. 2. Whether the demand made by the respondent on the bank was in compliance with the terms of the bank guarantee. 3. Whether there was any convincing material on the record to show that the entire mobilization advance had been adjusted or recovered by the respondent.
Ratio Decidendi: 1. The court held that the bank guarantee was an independent contract between the bank and the respondent, and that the bank's obligation to pay was absolute. The court relied on the terms of the bank guarantee, which stated that the bank's decision as to whether the contractor had utilized the advance for the purpose of the contract and the amount of loss or damage caused to the respondent was final and binding on the bank. 2. The court found that the demand made by the respondent on the bank was in compliance with the terms of the bank guarantee. The demand letter stated that the appellant had neither completed the work nor paid back the mobilization advance with interest, and that this was resulting in loss to the respondent. 3. The court found that there was no convincing material on the record to show that the entire mobilization advance had been adjusted or recovered by the respondent. The appellant had produced an affidavit stating that a certain amount had been recovered against the mobilization advance, but the court found that this amount was not sufficient to cover the entire advance.
Final Decision: The court dismissed the appeal and vacated the interim injunction. The court held that the bank guarantee was an independent contract between the bank and the respondent, that the demand made by the respondent on the bank was in compliance with the terms of the bank guarantee, and that there was no convincing material on the record to show that the entire mobilization advance had been adjusted or recovered by the respondent.
( 1 ) THIS appeal under S. 10 of the Delhi High Court Act, 1966 is directed against the order dt. Feb. 4, 1987 passed by Hon ble Mr. Justice G. C. Jain, a learned single Judge of this Court dismissing an application of the appellant under S. 41 read with Schedule II of the Arbitration Act, 1940 for the grant of interim relief restraining the National Project Construction Corporation Ltd. from enforcing the bank guarantee dt. July 25, 1985 furnished by the United Commercial Bank at its branch at Calcutta.
( 2 ) M/s. National Hydro Electric Power Corporation Ltd. (for short called the NHPC) floated tenders in respect of the construction of one of the component units of the project known as the "power House Block". The National Projects Construction Corporation Ltd. , the respondent, was awarded the work. The appellant was awarded subsequently as a sub-contractor the work of Construction of Protection Block and Stage-11 Power House and ancillary work Salal Project at an estimated cost of Rs. 3,25,28,330. 00. An additional work was entrusted to the appellant on July 12, 1984 at an estimated value of Rs. 1,87,94,132. 00. A formal contract was executed between the parties. One of the terms of the contract was that a mobilisation advance to the extent of 8% of the total value of the contract would be paid to the appellant on furnishing a bank guarantee.
( 3 ) THE appellant in his petition under S. 41 read with Schedule II of the Arbitration Act for the grant of interim relief states that. although a sum of Rs. 41,09,796. 96 became payable as mobilisation advance, the respondent paid only a sum of Rs. 26,06,2667- and that the appellant had furnished two bank guarantees; one in the sum of Rs. 26,06,266. 00 and the other for Rs. 15,03,570. 00. A copy of the bank guarantee is filed. The bank guarantee was effective for a period of one year with effect from July 20, 1985 in the first instance and it was later on renewed from time to time and finally up to July 29, 1987.
( 4 ) CERTAIN disputes arose between the parties in the execution of the sub-contract and were referred to the sole arbitration of Shri B. N. Waghrey of Hyderabad in accordance with the arbitration agreement between the parties. The appellant filed a statement of facts and claims before the arbitrator claiming a total sum of Rs. 2,35,07,259. 08. The respondent filed a counter-claim of Rs. 1,40,98,562. 52. This includes the mobilisation advance of Rs. 26,06,266. 00 with interest calculated up to Dec. 31,1986, in all Rs. 35,69,095. 27.
( 5 ) DURING the pendency of the dispute before the arbitrator, the respondent invoked the bank guarantee furnished by United Commercial Bank, Calcutta. Along with the said petition under S. 41, the appellant filed a copy of the letter dt. Jan 14, 1987 addressed to the United Commercial Bank, Calcutta from the counsel for the respondent calling upon the bank to pay the amount of the guarantee. The appellant invoked the jurisdiction of this Court for the grant of a temporary injunction restraining the respondent from enforcing the bank guarantee dt. July 20, 1985. The learned single Judge dismissed the petition in limine by the order under appeal.
( 6 ) AT the time of the admission of the appeal, we were taken through the letter dt. Jan 14, 1987 addressed to the United Commercial Bank, Calcutta. The contention was that the demand made by the respondent was not in terms of the bank guarantee and thus not enforceable. The copy of the demand dt. Nov. 19, 1986 was neither before the learned single Judge nor on the record of the appeal and we called upon the respondent to place on record a copy of the demand dt. Nov. 19, 1986 made by the respondent on the United Commercial Bank. That letter has been placed on the record along with the additional affidavit.
( 7 ) IT is apposite to reproduce a part of the bank guarantee containing the following terms:
". . . . . . . . WE the United Commercial Bank, 10, Brabourne Road, Calcutta-7000
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