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2012 Supreme(Del) 1850
High Court of Delhi
THE HONOURABLE MR. JUSTICE V.K. SHALI
Bharat Heavy Electricals Ltd.
Versus
Mass Global Investment Company & Others
CS(OS) No. 583 OF 2010
Decided on : 31-08-2012
For the Appellant:A.S. Chandhiok, ASG with Bhagat Singh, Vidit Gupta, Akshay Patani & Ms. Harlen Singh, Advocates.
For the Defendant:N.K. Kaul, Sr. Adv. with D1 -Ms. Diya Kapur, Advocate.
Headnote:
The Delhi High Court, in the case of Bharat Heavy Electricals Ltd. v. Mass Global Investment Company, dealt with an application for an ad interim injunction to restrain the defendant from encashing three bank guarantees and an application for disposal of the suit in terms of a settlement agreement. The court analyzed the relevant legal provisions, including the principles governing the invocation of bank guarantees, the concept of fraud and irretrievable injury, and the enforceability of settlement agreements.
Fact of the Case:
The plaintiff, Bharat Heavy Electricals Ltd. (BHEL), entered into a contract with the defendant, Mass Global Investment Company (MGI), for the turnkey execution of a power plant project in Iraq. Disputes arose between the parties during the execution of the contract, and MGI sought to invoke three bank guarantees provided by BHEL. BHEL filed a suit seeking an injunction to restrain MGI from encashing the bank guarantees and also filed an application for disposal of the suit in terms of a settlement agreement reached between the parties.
Finding of the Court:
The court held that the bank guarantees were unconditional and independent contracts between MGI and the bank, and that the existence of a dispute between the parties to the underlying contract was not a ground for issuing an injunction to restrain the enforcement of the bank guarantees. The court also found that the plaintiff had failed to establish fraud or irretrievable injury that would justify the grant of an injunction. Regarding the settlement agreement, the court held that it was contingent on the signing of a supply agreement, which had not occurred, and therefore, the settlement agreement was not valid and could not be used as a basis for disposing of the suit.
Issues: 1. Whether an ad interim injunction should be granted to restrain the defendant from encashing the three bank guarantees? 2. Whether the suit should be disposed of in terms of the settlement agreement reached between the parties?
Ratio Decidendi: 1. The court applied the settled legal principles governing the invocation of bank guarantees, which recognize that bank guarantees are independent contracts and that the existence of a dispute between the parties to the underlying contract is not a ground for issuing an injunction to restrain the enforcement of the bank guarantees. The court also considered the exceptions to this general rule, namely, fraud and irretrievable injury, and found that the plaintiff had failed to establish either of these exceptions. 2. The court held that the settlement agreement was contingent on the signing of a supply agreement, which had not occurred, and therefore, the settlement agreement was not valid and could not be used as a basis for disposing of the suit.
Final Decision: The court dismissed both the application for an ad interim injunction and the application for disposal of the suit in terms of the settlement agreement.
V.K. SHALI, J. IA No.4049/2010
1. This order shall dispose of an application under Order XXXIX Rules 1 and 2 read with Section 151 of the Code of Civil Procedure, 1908 (hereinafter referred to as „CPC’), by virtue of which the plaintiff had originally prayed for passing an ad interim injunction restraining the defendant no.1 from encashing Advance Payment Guarantee-1, Advance Payment Guarantee-2 and the Performance Bank Guarantee from the Defendant No.2. It was also prayed that the defendant no.2 be restrained from making any payment to the defendant no.1 in pursuance to the said Guarantees.
2. The matter had come up for hearing on 27.3.2010 when the Court had recorded the statement of the learned counsel for the defendant no.1 that it shall maintain status quo vis-à-vis all the three Bank Guarantees. It was also observed that the said order shall be applicable qua the defendant no.2 also. This status quo order was to continue till the next date of hearing unless otherwise ordered. Although no specific order thereafter has been passed, extending the order, but the statement of the learned counsel for the defendant no.1 has been treated as if the stay order was in operation till date.
3. One of the issues which is being dealt with by the present order is as to whether the said stay order or rather the statement of the learned counsel for defendant no.1 prohibiting itself from encashing the Bank Guarantees is to be continued or not or in other words, whether an ad interim order restraining the defendant no.1 from encashing the three bank guarantees and the defendant no.2 from making any payment to the defendant no.1 in pursuance to the said Bank Guarantees could be passed.
4. This order shall also dispose of an application bearing IA No.2852/2011 filed by the plaintiff during the pendency of the suit, by virtue of which it has been prayed that (1) the suit itself may be disposed of in terms of the Settlement Agreement dated 22.8.2010 arrived at between the plaintiff and the defendant no.1 and/or alternatively allow the plaintiff to withdraw the present suit in terms of the prayer (1) above.
5. Briefly stated, the facts of the case are that the plaintiff, Bharat Heavy Electricals Ltd. (hereinafter referred to as “BHEL”), is a company incorporated under the provisions of the Indian Companies Act, 1956 and is owned and controlled by the Government of India. The plaintiff company is a leading manufacturer and engineering public sector enterprise engaged in the business of design, manufacturing and installation services of power generating equipment on turnkey basis for Thermal, Hydro, Gas and Nuclear Power Plants, both in domestic and international markets. The Suit has been filed on behalf of the company through one of its authorized representatives.
6. The defendant no.1, Mass Global Investment Company (hereinafter referred to as “MGI”) is a company registered under the law of Jordan, having its Registered Office at Amman, the capital of Jordan. The defendant no.2 is the State Bank of India (hereinafter referred to as “SBI”), having its Registered Office at Jawahar Vyapar Bhawan, 11th Floor, Tolstoy Marg, New Delhi. It is the case of the plaintiff that the defendant no.1 was in the process of acquiring a turnkey basis power plant being 4xFr9E Gas Turbine in Sulaymaniyah Power Project, Kurdistan, Iraq (hereinafter referred to as the “Project”) and it was desirous of hiring the services of a contractor who had the requisite skill, know-how and the resources for design, supply, installation, testing, starting, commissioning and operating the project of such magnitude. In pursuance to the said requirements of the defendant no.1, it contacted the plaintiff, which was having all such requisite skills. The negotiations between the plaintiff and the defendant no.1 resulted in signing of a contract No.4/2007 on 4.3.2007 for turnkey execution of the Project (hereinafter referred to as the “Contract”). The contract was allegedly s
