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IN THE HIGH COURT OF DELHI AT NEW DELHI
MANMOHAN SINGH, J.
TECPRO SYSTEMS LIMITED - Petitioner
Vs.
INDURE PRIVATE LIMITED & ANR. - Respondents
O.M.P. (I) No.553/2015
Decided On : 10-06-2016
Arbitration and Conciliation Act, 1996 - Bank Guarantee - Sections 9, 13 - The court discussed the validity and unconditional nature of the Bank Guarantee, the terms of the contract, and the invocation of the Bank Guarantee. The court emphasized that it was not proper to go into the merit of the case at that stage when the disputes were sub-judice before the Arbitral Tribunal. The court also highlighted the effect of the invocation letter and the continuation of the interim order during the pendency of arbitration proceedings.
Fact of the Case:
The petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 to restrain the respondent from encashing a Bank Guarantee. The petitioner had entered into a contract with the respondent for the execution of a project, and the respondent sought an extension of the Bank Guarantee, threatening to invoke it if not extended. The petitioner alleged the threat was unlawful and filed the petition.
Finding of the Court:
The court found that it was not proper to go into the merit of the case at that stage when the disputes were sub-judice before the Arbitral Tribunal. The court also noted the effect of the invocation letter and continued the interim order during the pendency of arbitration proceedings.
Issues: The issues revolved around the validity and unconditional nature of the Bank Guarantee, the terms of the contract, the threat of invocation, and the continuation of the interim order during the arbitration proceedings.
Ratio Decidendi: The court emphasized that it was not proper to go into the merit of the case at that stage when the disputes were sub-judice before the Arbitral Tribunal. The court also highlighted the effect of the invocation letter and the continuation of the interim order during the pendency of arbitration proceedings.
Final Decision: The present petition was disposed of, and the interim order passed by the court on 24th September, 2015 was to continue during the pendency of arbitration proceedings unless vacated or modified in the Arbitral Tribunal due to a change of circumstances.
MANMOHAN SINGH, J.
1. The petitioner has filed the present petition under Section 9 of Arbitration and Conciliation Act, 1996 for restraining the respondent No.1 from encashing the Bank Guarantee in question.
2. The predecessor Bench by order dated 24th September, 2015 after hearing both sides has passed the directions by staying the encashment of the Bank Guarantee No.0702411BG0000246 dated 20th May, 2011 for Rs.69,56,000/-, subject to the petitioner keeping the said Bank Guarantee alive till the next date of hearing.
3. The said order was continued from time to time and both parties have also made their submissions on many occasions.
4. The statement was made on behalf of both the parties that Arbitral Tribunal has already been constituted.
5. The brief facts as per petition are as under:-
5.1 Bhavnagar Energy Corporation Limited ("BECL") entered into a contract with respondent No.1 for the execution of their project. The said respondent in-turn floated a tender for part of the work to be performed by it as per its contract with BECL. The tender was floated for design, manufacture, supply, transportation, supervision of erection, testing and commissioning and PG test of 2 Nos. Hammer Mill Crusher and 22 Nos. of Flip Flow Screens with all its accessories, mandatory spares, electrical instrumentation for 2x250 MW Lignite base TPP at Bhavnagar-Gujarat.
5.2 The petitioner participated in the bidding process and was declared successful bidder. Pursuant to the said tender, the LOA was issued in favour of the petitioner vide LOA No.I-3066/BHAVNAGAR/TECHPRO/01 dated 23rd September, 2011. The total scope of work was only limited to supply of the Hammer Mill Crusher and the Flip Flow Screens along with its accessories etc. and the contract dated 23rd September, 2011 was executed in this regard.
As per the said contract, the total contract value was Rs.6,75,60,000/-. The petitioner was required to provide Bank Guarantee amounting to 10% of the aggregate contract value being Rs.69,56,000/-. The details of the Bank Guarantee provided by the petitioner to the respondent No.1 under the present contract are as follow:
S.NO.
BG NO.
DATE
AMOUNT
VALIDITY
CLAIM UPTO
1.
0702411BG0000246
20.05.11
69,56,000/-
30.09.15
31.12.15
5.3 As per the terms of contract, the abovementioned Bank Guarantee was to be given for the period of the agreement with extensions from time to time and for a further period of 15 months from the date of handover as a defect liability warranty period. The total period for the completion of the agreement was a period of 12 months from the date of the LOI issued to the petitioner. The respective clause of the LOA pertaining to the Bank Guarantee is reproduced herein below:-
"7.0 SECURITY DEPOSIT/PERFORMANCE BANK GUARANTEE
In order to secure I assure due fulfillment of the order, supplier on receipt of a preliminary acceptance letter/ detailed order as the case may be shall furnish within a period of fifteen days a Security deposit equivalent to 10% (ten percent) of the accepted bid value in cash/crossed Bank Draft, or by way of Bank Guarantee from any scheduled bank in India in the prescribed Performa to be obtained from the INDURE on a non judicial stamp paper of Rs.100/- (Hundred) such Bank guarantee shall be valid Up to Warranty period and three months thereafter."
6. It is the case of petitioner that in terms of the abovementioned contract, the petitioner initiated the supplies and the work of erection as per the scope of the work mentioned in the contract and the petitioner was successful in making the supplies and performing in its work. Further, as per the contract, the terms of the payment provided that 5% of the amount would be paid as mobilization advance against the Bank Guarantee and another 5% payment against the approval of drawings by BECL/TCE against Advanced Bank Guarantee of
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