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2018 Supreme(Del) 2173
IN THE HIGH COURT OF DELHI AT NEW DELHI
NAVIN CHAWLA, J.
NHPC LTD. - Appellant
Versus
HCC LTD. - Respondent
ARB. A. (COMM.) 42 of 2018 & I.A. No.11373 of 2018
Decided On : 24-09-2018
For the Appellant : Ms. Maninder Acharya, ASG with Mr. Piyush Sharma, Mr. Viplav Acharya, Adv.
For the Respondent: Mr. Dayan Krishnan, Sr. Adv. with Mr. Rishi Agrawal, Mr. P. Lodha, Ms. Shruti Arora, Advs.
The main legal point established in the judgment is that an unconditional bank guarantee is payable by the guarantor on demand, irrespective of any pending disputes, and the court cannot restrain the invocation and encashment of such a bank guarantee based on claims pending before the Arbitral Tribunal or the appellant.
Headnote:
Arbitration - Contract Dispute - Arbitration and Conciliation Act, 1996 - Section 37 - NHPC/CC/KG-TURNKEY/02 - 1996 Act, Section 17 - The court discussed the disputes related to the Contract Agreement No. NHPC/CC/KG-TURNKEY/02 dated 09.03.2009 for Civil Works of the Kishanganga Hydro-Electric Project and the invocation and encashment of Bank Guarantee No.20090041 BGP 0050. The court analyzed the jurisdiction of the Arbitral Tribunal, the validity of the demand raised by the appellant, and the unconditional nature of the Bank Guarantee. The court referred to various judgments to support its decision.
Fact of the Case:
The appellant challenged the Interim Order passed by the Arbitral Tribunal restraining the appellant from invoking and encashing the Bank Guarantee No.20090041 BGP 0050 and/or other Bank Guarantee pursuant to the Letter of Invocation dated 09.06.2018 for the recovery of amount mentioned therein. The disputes in relation to the Contract Agreement No. NHPC/CC/KG-TURNKEY/02 dated 09.03.2009 for Civil Works of the Kishanganga Hydro-Electric Project have been referred to the Arbitral Tribunal.
Finding of the Court:
The court found that the Arbitral Tribunal lacked jurisdiction to adjudicate on the invocation of the Bank Guarantee, as the dispute regarding the recovery of the advance payment was not a subject matter of the disputes referred to the Arbitral Tribunal. The court also held that the Bank Guarantee was unconditional and unequivocal in nature, and therefore, the invocation and encashment of the same could not be restrained.
Issues: The issues revolved around the jurisdiction of the Arbitral Tribunal, the validity of the demand raised by the appellant, and the unconditional nature of the Bank Guarantee.
Ratio Decidendi: The court's decision was based on the principle that the Arbitral Tribunal cannot travel beyond its own terms of reference and that an unconditional bank guarantee is payable by the guarantor on demand, irrespective of any pending disputes. The court also emphasized that the harm or injustice contemplated under the head of irretrievable injury or injustice must be of such an exceptional and irretrievable nature as would override the terms of the guarantee.
Final Decision: The court modified the Impugned Order to allow the appellant to invoke/encash the Bank Guarantee by issuing a Letter of Invocation in terms of the Bank Guarantee, and disposed of the appeal with no order as to cost.
NAVIN CHAWLA, J.
1. This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) has been filed by the appellant challenging the Interim Order dated 01.08.2018 passed by the Arbitral Tribunal restraining the appellant from invoking and encashing the Bank Guarantee No.20090041 BGP 0050 and/or other Bank Guarantee pursuant to the Letter of Invocation dated 09.06.2018 for the recovery of amount mentioned therein.
2. The disputes in relation to the Contract Agreement No. NHPC/CC/KG-TURNKEY/02 dated 09.03.2009 for Civil Works of the Kishanganga Hydro-Electric Project (3 x 110 MW) at Bandipora, Jammu & Kashmir have been referred by the parties to the Arbitral Tribunal.
3. The Arbitral Tribunal in paragraph 2 of the Impugned Order itself, records the claims raised by the respondent before it in the following words:
“(2) After invoking the arbitration clause, the Claimant has filed the Statement of Claim dt. 19.04.2018 wherein the reliefs sought for are:-
(i) to annul the Respondents determination of extension of time (EoT) as set out in its communication dt. 07.07.2015,
(ii) hold the Claimant's entitlement to EoT,
(iii) award an amount of Rs. 320,23,27,555/- inclusive of interest for costs and loss suffered by the Claimant, (iv) interest on the above amount to the tune of Rs.17,66,36,596/-.”
4. During the execution of the work by the respondent, the respondent by its letter dated 19.05.2016 had requested the appellant to release certain advance for meeting monthly requirement of funds for the material requirement that is Cement, Steel, Diesel, Spares, PRW’s etc. The letter gave a schedule of monthly advance required as also stated that the recovery of the same can be made from the IPC on monthly basis as given in the table in the said letter. It was further stated by the respondent that if the recovery could not be affected as per schedule, interest may be charged for such unrecovered amount at the rate as defined in the contract.
5. The appellant by its letter dated 02.08.2017 accepted the request of the respondent and it is not in dispute that certain advance payments were made by the appellant to the respondent based thereon.
6. The appellant claiming that the recovery of the full advance payment could not be made from IPC raised by the respondent, vide letter dated 16.03.2018 called upon the respondent to make payment of Rs.28,95,10,537/- allegedly due from the respondent to the appellant.
7. The appellant by further letters dated 03.04.2018 and 26.04.2018 called upon the respondent to pay an amount of Rs.32,76,65,649/- allegedly due from the respondent to the appellant against the above advance.
8. Finally, the appellant by its letter dated 09.06.2018 invoked the bank guarantee in question for an amount of Rs.32,98,47,083/-.
9. The respondent filed an application under Section 17 of the Act before the Arbitral Tribunal seeking a stay on the invocation and encashment of the said Bank Guarantee and the Tribunal by its order dated 12.06.2018 stayed such invocation and encashment.
10. The application of the respondent has been finally allowed by way of the Impugned Order.
11. Learned ASG appearing for the appellant submits that the dispute with respect to the advance given by the appellant to the respondent vide its letter dated 02.08.2017 was not a subject matter of the disputes referred to the Arbitral Tribunal and, therefore, the Arbitral Tribunal lacked jurisdiction to adjudicate on the invocation of the Bank Guarantee which was only on the basis of the amount remaining outstanding against such advance. In this regard, the learned ASG has placed reliance on the judgment of Booz Allen and Hamilton INC. vs. SBI Home finance Ltd. & Ors. (2011) 5 SCC 532. She further submits that the Bank Guarantee was unconditional and unequivocal in nature and, therefore, the Arbitral Tribunal ha
