2005 Supreme(Del) 1032

Delhi High Court
SWATANTER KUMAR
Hindustan Construction - Appellant
Versus
Satluj Jal Vidyut Nigam - Respondent
O. M. P. No. 213 of 2005 and IA No. 5872 of 2005
Decided On : 11/24/2005

The invocation of bank guarantees by the respondent is intended to overreach the adjudicative process, provided under the terms of the agreement. This is a fraudulent attempt on the part of the respondent; The invocation of bank guarantees is contrary to the terms of the bank guarantee; The facts and circumstances of the case clearly demonstrate special equities in favour of the petitioners so as to justify grant of an injunction order; and The petitioners shall suffer irretrievable injustice and injury in the event the bank guarantees are permitted to be encashed.

Headnote:

BANK GUARANTEE - INVOCATION - IRRETRIEVABLE INJURY - SPECIAL EQUITIES - TERMS OF BANK GUARANTEE - ARBITRATION - DISPUTE RESOLUTION - CONTRACT INTERPRETATION - JUDICIAL REVIEW: The Court held that the invocation of bank guarantees by the respondent is intended to overreach the adjudicative process, provided under the terms of the agreement. This is a fraudulent attempt on the part of the respondent; The invocation of bank guarantees is contrary to the terms of the bank guarantee; The facts and circumstances of the case clearly demonstrate special equities in favour of the petitioners so as to justify grant of an injunction order; and The petitioners shall suffer irretrievable injustice and injury in the event the bank guarantees are permitted to be encashed.

Fact of the Case:

The Satluj Jal Vidyut Nigam Limited, formerly NJPC Ltd. Had engaged M/s. Hindustan Construction Company Limited-applicants for completion of a part of civil work for raising head tunnel Stn. 1642m to Stn. 2729m including shaft to its on-going project of hydro-electric project in terms of contract No. 2.2 dated 26th May, 1993. Under the terms of this contract, the applicants had to furnish one performance and 17 retention money guarantees under clause 10 and clause 60 of the general conditions of contract. The said bank guarantees relating to performance and retention money respectively were required to be returned to the petitioners after 12 months from the date of substantial completion of works. These bank guarantees were furnished by the applicants and were accepted by the respondent at the relevant time.

Finding of the Court:

The Court held that the respondent has not invoked the bank guarantees in terms of the clause, the action of the respondent in insisting upon encashment of bank guarantees is bound to cause irretrievable injustice and injury to the applicants, who otherwise have a case of special equities in their favour. Another very relevant factor is that after invoking the bank guarantees on 7th July, 2003, the respondents themselves have always agreed not to invoke the bank guarantees on the conditions that the applicants would keep the bank guarantees alive. This is true even as on July 2004, when the respondents wrote a letter dated 20-9-2003. Thus, no injustice would be caused to the respondents if the bank guarantees are not permitted to be encashed at this stage, subject to the condition that they are kept alive by the applicants. This course of action would even balance the equities between the parties and would be least prejudicial to the interest of any of the parties. But, if such bank guarantees are permitted to be invoked/encashed, the applicant would suffer an irretrievable injustice and injury because they may not even be able to bear such a financial imbalance, particularly when their claims against the respondents have been allowed by the domestic adjudicating process prescribed under the terms of the contract.

Issues: Whether the invocation of bank guarantees by the respondent is intended to overreach the adjudicative process, provided under the terms of the agreement.

Ratio Decidendi: The Court held that the invocation of bank guarantees by the respondent is intended to overreach the adjudicative process, provided under the terms of the agreement. This is a fraudulent attempt on the part of the respondent; The invocation of bank guarantees is contrary to the terms of the bank guarantee; The facts and circumstances of the case clearly demonstrate special equities in favour of the petitioners so as to justify grant of an injunction order; and The petitioners shall suffer irretrievable injustice and injury in the event the bank guarantees are permitted to be encashed.

Final Decision: The Court allowed the petition under Section 9 of the Arbitration and Conciliation Act, 1996 and restrained the respondents from invoking or encashing the Bank guarantees No. 900/5204, 900/5125, 900/5203, 900/5260, 900/5346, 900/5408, 900/5420, 900/-5430, 900/5454, 900/5468, 900/5484, 900/5485, 900/5559, 900/5574, 900/5591, 900/5640 and 900/5665 issued by Bank San Paolo IMI SPA and No.99/202 issued by State Bank of India, Frankfurt Branch, and from acting or taking any steps pursuant to the letters dated 13-4-2004 and 7-6-2005, subject to the condition that the applicants would keep the above mentioned bank guarantees alive and would not discharge the same without specific leave of the Court, or the Arbitral Tribunal, as the case may be.