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2018 Supreme(Del) 989
IN THE HIGH COURT OF DELHI AT NEW DELHI
NAVIN CHAWLA, J.
Rail Vikas Nigam Ltd. - Appellant
Versus
Railone-Tarmat-Durga (JV) - Respondent
ARB. A. (COMM.) 45 of 2017 & I.A. 13053 of 2017
Decided On : 11-01-2018
For the Appellant :Mr. Anil Seth with Mr. Udit Seth, Advocate
For the Respondent:Mr. Sashidhar Sivakumar with Ms. Mani Gupta, Advocates
The strict test for restraining invocation of Bank Guarantees requires exceptional circumstances such as fraud of egregious nature or irretrievable harm or injustice. Lack of cooperation in arbitral proceedings does not justify restraining the Bank Guarantees.
Headnote:
Arbitration - Bank Guarantees - Arbitration and Conciliation Act, 1996 - Section 37(2)
Fact of the Case:
Dispute arose regarding the construction work contract. Appellant terminated the contract and sought to invoke the Bank Guarantees. Respondent filed for injunction under Section 9 of the Act and later under Section 17 before the Arbitral Tribunal. The Tribunal passed an interim order restraining the encashment of the Bank Guarantees.
Finding of the Court:
The Court found that the Arbitral Tribunal did not examine the prima facie case in favor of the claimant and did not find any exceptional or irretrievable harm or injustice to warrant restraining the invocation of the Bank Guarantees. The Court also noted that the allegations of fraud and corruption were not directly related to the Bank Guarantees.
Issues: Prima facie case for grant of interim injunction, exceptional and irretrievable harm or injustice, jurisdiction over allegations of fraud and corruption, cooperation in expeditious disposal of arbitral proceedings.
Ratio Decidendi: The Court emphasized the strict test for restraining invocation of Bank Guarantees, requiring exceptional circumstances such as fraud of egregious nature or irretrievable harm or injustice. It highlighted the independence and absolute nature of Bank Guarantees, and the need for parties to make their case before the Arbitral Tribunal. The Court also clarified that lack of cooperation in arbitral proceedings does not justify restraining the Bank Guarantees.
Final Decision: The Court allowed the appeal and set aside the Arbitral Tribunal's order, with no order as to costs.
NAVIN CHAWLA, J.
1. This is an appeal under Section 37 (2) of the Arbitration and Conciliation Act, 1996 (herein after referred to as the ‘Act’) filed by the appellant challenging the interim order dated 26th September, 2017 passed by the Arbitral Tribunal directing the appellant to maintain status quo with respect to the Bank Guarantees and restraining it from en-cashing the same.
2. The disputes between the parties have arisen in relation to the award of work of "Package-3-Construction of Roadbed, Major & Minor bridges, Track Linking(excluding supply of rails, ordinary track sleepers and thick web switches), Outdoor Signalling and Electrical (General) works in connection with Doubling of ARAND (Ex)-Raipur (Ex) section (57.404 kms) part of RAIPUR-TITLAGARH Doubling in SAMBALPUR & RAIPUR Division of East Coast & South East Central Railway in the state of CHATTISGARH, India.”
3. Claiming breach of the agreement by the respondent, the appellant terminated the Contract vide its letter dated 21st June, 2016 and proceeded to invoke the Bank Guarantees submitted by the respondent in terms of the Contract.
4. The respondent filed an application under Section 9 of the Act before the Court and Additional Chief Judge (ACJ), City Civil Court, Hyderabad, seeking an injunction to restrain the encashment of the Bank Guarantees. An order dated 15th June, 2016 was passed by the Court of ACJ restraining the encashment of the Bank Guarantees.
5. In the meantime, the Arbitral Tribunal was constituted and the respondent filed an application under Section 17 of the Act before the Arbitral Tribunal seeking release of the Bank Guarantees in question. The application (in the form of an affidavit) was rather cryptic and as a ground, paragraph 5 of the same submitted as under:
“I submit that attempt to en-cash the bank guarantee would be illegal and without the authority of law. Therefore the Claimant is entitled an order of Temporary injunction restraining the respondents from en-cashing the. Bank Guarantee. Otherwise I will be put to irreparable injury and hardship. The, respondents are guilty of breach in not discharging the reciprocal obligation and on account of breach committed by the Respondents, the claimant has lost huge amount. Therefore there is a prima facie case for grant of order of Temporary injunction under Section 17 of the Arbitration and Conciliation Act restraining the respondents from en-cashing the Bank Guarantee. If the order of Temporary Injunction is not granted, the claimant will be put to irreparable injury and hardship.”
6. The appellant has contended that even while the application under Section 9 was pending before the Court of ACJ, the Arbitral Tribunal took cognizance of the said application and passed an interim order in favour of the respondent and that this itself is a ground for setting aside the Impugned Order. However, in my opinion, as the interim protection granted earlier has culminated into the Impugned Order after the application under Section 9 of the Act had been withdrawn by the respondent, this Court will confine its scrutiny only to the Impugned Order dated 26th September, 2017 passed by the Arbitral Tribunal.
7. The Impugned Order (passed by the majority of two Arbitrators) after recording submissions made by the parties and the law cited before it, concludes that the allegations of “fraud” by either party is yet to be adjudicated. However, a reading of paragraph 9.11.3 of the Impugned Order would indicate that the “fraud” being discussed by the Arbitral Tribunal is not in relation to the Bank Guarantees but in relation to the conduct of the main Work Order/Contract itself and the allegations of breach thereof. Paragraph 9.11.3 of the Impugned Order is reproduced herein below:-
“9.11.3 The claimant contended a delay of 1400 days while the respondent contended that there was no delay in respect of handling over of the site and hence the entire extension was granted with Liquidated damages. Similar is the
