Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2019 Supreme(Del) 2459

IN THE HIGH COURT OF DELHI AT NEW DELHI
JYOTI SINGH, J.
Larsen & Toubro Limited - Petitioner
Versus
Experion Developers Pvt. Ltd & Ors. - Respondents
O.M.P.(I) (Comm.) 234 Of 2019
Decided On : 03-12-2019

Advocates Appeared:
For the Petitioner:Mr. Rajiv Nayar & Mr. Akhil Sibal, Senior Advocates with Mr. Kirat Singh Nagra, Mr. Kartik Yadav, Mr. Pranav, Mr. Parinay T. Vasandani, Mr. Karanvir Singh, Mr. Shantanu Parashar & Ms. Manjira Dasgupta, Advocates
For the Respondent:Mr. Sandeep Sethi & Mr. Arvind Nayar, Senior Advocates with Mr. Krishna Vijay Singh, Mr. Manish Dembla, Mr. Nachiketa Goyal, Mr. Pradyuman Sewar & Mr. Parakram Roy, Advocates

Unconditional bank guarantees must be honored regardless of underlying contract disputes; injunctions against such invocations are permissible only in cases of egregious fraud or irretrievable injustice.

Headnote:(A) Arbitration & Conciliation Act, 1996 - Section 9 - Bank Guarantees - Petition for injunction against invocation of Retention Money Bank Guarantees and Performance Bank Guarantee due to lack of preconditions compliance - Court ruled BGs cannot be restrained unless egregious fraud or irretrievable injustice proven - PBG is a separate and independent contract; disputes between parties do not affect invocation rights - Clause 4.2 allows invocation upon certain conditions which were not fulfilled - The Court noted its previous order allowed fresh invocation but affirming contract terms remain binding. (Paras 59, 60, 70, 91, 94)

Facts of the case:
Petitioner filed a Section 9 petition seeking an injunction against the invocation of multiple Bank Guarantees worth approximately Rs. 45 crores, arguing against the delays and lack of payment by the respondent.

Findings of Court:
The Court found that the provisions of the Bank Guarantees were unconditional, emphasizing the separation of the BG claim process from underlying contract disputes.

Issues: The primary issues included the unconditional nature of the BGs, and the binding effect of past judgments regarding mandatory conditions for invocation prior to releasing funds.

Ratio Decidendi: The Court affirmed that unconditional BGs are to be honored without hesitation despite existing disputes and that prior judgments permit fresh claims as the contract's terms dictate the invocation protocol.

Result: Petition dismissed. Respondent is no longer bound by the oral undertaking against invoking the BGs.

Table of Content
1. details of contractual obligations and guarantees. (Para 1 , 2 , 3 , 4 , 5)
2. petitioner's argument on contract validity and performance. (Para 6 , 16 , 17 , 18 , 19)
3. court's observations on prior injunctions. (Para 8 , 9 , 14)
4. petitioner's continued arguments on contractual compliance. (Para 20 , 21 , 22)
5. respondent's arguments on invocation of guarantees. (Para 23 , 24 , 25 , 29 , 30 , 31)
6. discussion of previous judgments and their relevance. (Para 32 , 33 , 34 , 40 , 41)
7. legal principles governing bank guarantees. (Para 59 , 60 , 61 , 62 , 63 , 64)
8. court's detailed analysis on bank guarantees. (Para 65 , 66 , 67 , 68 , 69)
9. final determinations on guarantee validity. (Para 70 , 71 , 72)
10. conclusion of the court's judgment. (Para 88 , 94 , 96 , 97)

JUDGMENT :

JYOTI SINGH, J.

1. This is a petition under Section 9 of the Arbitration & Conciliation Act, 1996 (‘Act’) seeking interim injunction restraining the respondents from invoking Retention Money Bank Guarantees (‘RMBG’) for Rs.13,84,35,000/- each dated 18.04.2014 and 08.09.2014 respectively as well as Performance Bank Guarantee (‘PBG’) for Rs.31,68,44,008/- dated 15.03.2013.

2. The brief facts required to be captured for deciding the present petition are that on 29.09.2012, respondent No. 1 issued a letter of intent in favour of the petitioner intending to award the work of Design and Build of a Group Housing Project at a cost of Rs. 682 Crores. A letter of acceptance was issued on 05.02.2013 by respondent No. 1 and a contract was executed between the parties on 07.02.2013. The date of commencement of the work was 09.01.2013 and date of completion was 09.01.2016.

3. On 15.03.2013, respondent No. 4 issued PBG in favour of respondent No. 1 on behalf of the petitioner for an amount of Rs. 34,10,00,000/- valid upto 10.04.2016. As per the terms of the PBG, it was to remain valid till the petitioner’s obligations were fulfilled under the Contract or until its first expiry whichever was earlier. The PBG was however, extended from time to time and finally reduced to a sum of Rs. 31,68,44,008/-.

4. Likewise, on 18.04.2013, RMBG was issued by respondent No. 2 in favour of respondent No. 1 for an amount of Rs. 6,92,17,500/-, subsequently revised to Rs.13,84,35,000/-. The second RMBG was issued by respondent No. 2 in favour of respondent No. 1 on 08.09.2014 for an amount of Rs. 6,92,17,500/-, subsequently revised to Rs.13,84,35,000/-. The completion date of the project was later extended to 31.08.2016 by an addendum to the Contract executed on 20.01.2015. A partial extension of time for completion of the Project was made by respondent No. 1 on 20.01.2017 for a period of 11 days. Request of the petitioner for extension of time till 30.06.2019 elicited no response from respondent No. 1. Subsequent requests for extension were again not responded to. The PBG was however extended to 30.06.2019 and the second RMBG was also extended to 30.06.2019.

5. It is the case of the petitioner that pursuant to a meeting held on 02.05.2019 between the parties, a request was made by the petitioner to extend the time for completion of the Project till 30.10.2019, in accordance with clause 8.4 of the Contract.

6. On 11.06.2019, respondent No. 1 informed the petitioner by a letter that it was not in a position to accept the timelines proposed by the petitioner and requested the petitioner to complete the occupational certificate inspection by 15.06.2019 and to renew the PBG for full value. Attempts to resolve the disputes amicably between the parties were unsuccessful.

7. It is the case of the petitioner that in these circumstances, respondent No. 1 invoked four Bank Guarantees (hereinafter referred to as ‘BGs’) against the petitioner viz. the three aforementioned and one Advance Bank Guarantee. Constrained by this invocation, petitioner filed a petition in this Court under Se

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Judicial Analysis

2019 Supreme(Del) 2459

IN THE HIGH COURT OF DELHI AT NEW DELHIJYOTI SINGH, J.Larsen & Toubro Limited - PetitionerVersusExperion Developers Pvt. Ltd & Ors. - RespondentsO.M.P.(I) (Comm.) 234 Of 2019Decided On : 03-12-2019

Unconditional bank guarantees must be honored regardless of underlying contract disputes; injunctions against such invocations are permissible only in cases of egregious fraud or irretrievable injustice.

Cases Referred (32)

Judicial Analysis

IN THE HIGH COURT OF DELHI AT NEW DELHI
JYOTI SINGH, J.
Larsen & Toubro Limited - Petitioner
Versus
Experion Developers Pvt. Ltd & Ors. - Respondents
O.M.P.(I) (Comm.) 234 Of 2019
Decided On : 03-12-2019