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IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, J.
Atindra Construction Private Limited - Appellant
Versus
Gail India Limited & Ors. - Respondents
O.M.P. (I) (Comm) No. 184 of 2021
Decided On : 15-07-2021
Bank Guarantee - Interim Measures of Protection under Section 9 of the Arbitration and Conciliation Act, 1996 - Section 9 of the Arbitration and Conciliation Act, 1996 - [Section 9 of the Arbitration and Conciliation Act, 1996] - The court discussed the contractual disputes between the parties, the limited grounds for interdicting a bank guarantee, and the requirement of establishing fraud or irretrievable injustice to warrant interdiction of a bank guarantee. The court emphasized that mere allegations of misrepresentation are insufficient for interdicting a bank guarantee and that fraud must be of an egregious nature to warrant such interdiction.
Fact of the Case:
The petitioner sought interim measures of protection under Section 9 of the Arbitration and Conciliation Act, 1996, to restrain the respondents from invoking the Bank Guarantee furnished by the petitioner in respect of a contract for Horizontal Directional Drilling works for a pipeline project. The petitioner alleged misrepresentation of facts and sought to interdict the Bank Guarantee.
Finding of the Court:
The court found that the disputes between the parties were contractual in nature and that the petitioner's contention of misrepresentation was difficult to accept. The court emphasized the limited grounds for interdicting a bank guarantee, requiring established fraud or irretrievable injustice. The court dismissed the petition, clarifying that its observations would not prejudice the parties in other proceedings, including before the Arbitral Tribunal.
Issues: The issues involved contractual disputes, the grounds for interdicting a bank guarantee, and the requirement of establishing fraud or irretrievable injustice to warrant such interdiction.
Ratio Decidendi: The court emphasized that mere allegations of misrepresentation are insufficient for interdicting a bank guarantee and that fraud must be of an egregious nature to warrant such interdiction. It clarified that the commitment of banks must be honored free from interference by the courts, and interdiction of a bank guarantee can only occur in exceptional cases of fraud or irretrievable injustice.
Final Decision: The court dismissed the petition, clarifying that its observations would not prejudice the parties in other proceedings, including before the Arbitral Tribunal.
JUDGMENT
Vibhu Bakhru, J. - I.A. NO. 7508/2021
1. Exemption is allowed, subject to all just exceptions.
2. The application is disposed of.
O.M.P.(I) (COMM.) 184/2021
3. The petitioner has filed the present petition seeking interim measures of protection under Section 9 of the Arbitration and Conciliation Act, 1996 (hereafter the 'A&C Act').
4. The petitioner prays that respondent no.1 (hereafter 'GAIL') be restrained from acting in furtherance of a letter dated 08.06.2021 whereby GAIL had invoked Clause 29 of the General Conditions of the Contract (GCC) and had terminated the contract awarded to the petitioner for the work of Horizontal Directional Drilling works for Haridwar-Rishikesh-Dehradun Pipeline Project (Part B). The petitioner further prays that the respondent nos. 1 and 2 be restrained from invoking the Performance Bank Guarantee furnished by the petitioner in furtherance of the decision to terminate the contract in question.
5. Respondent no.2 (TEPL) had issued a notice inviting tender on behalf of GAIL for Horizontal Directional Drilling works for HaridwarRishikesh-Dehradun Pipeline Project. The petitioner had bid for the said works and by a letter dated 21.07.2020, TEPL confirmed the acceptance of the petitioner's offer. Thereafter, on 07.08.2020, TEPL issued a Fax of Acceptance (FOA) confirming acceptance of the petitioner's offer for Part B of the contract in question at a value of Rs. 9,89,88,817.92/- plus 18% GST. The FOA of the petitioner's offer for Part A was also issued on the same date. It is stated that the Kick-Off Meeting (KOM) was held on 14.08.2020. Subsequently, on 20.08.2020, separate Detailed Letters of Acceptance (DLOA) were issued by GAIL accepting the petitioner's offer in respect of Part A and Part B of the works in question.
6. The petitioner submitted the profile drawings in respect of the works and by an email dated 18.08.2020, the petitioner requested TEPL to approve the same. The petitioner claims that on 22.08.2020, it submitted revised profile drawings to TEPL as the profile drawings submitted by it earlier were rejected.
7. On 03.10.2020, TEPL sent an email calling upon the petitioner not to exceed the SOR rates and requested the petitioner to re-plan the length of the pipelines. The petitioner, on the other hand, requested TEPL to revise the SOR rates as according to the petitioner, the same was necessary on account of alteration in the specifications of the pipelines. However, the petitioner's request was rejected. On 14.12.2020, TEPL sent a letter to the petitioner stating that the petitioner's progress regarding the works (both Part A and Part B) were poor and there was a risk that the works would not be completed within the stipulated time. TEPL further highlighted that the Contract Performance Bank Guarantee (CPBG) had not been submitted in time; the petitioner had not complied with the Minimum Construction Equipment Deployment Scheme as per the tender conditions; it had delayed submission of design calculations and profile; it had delayed critical items for execution; the conditions of HDD rigs at site were in poor condition; and the construction management at site was poor.
8. In view of the policy of the Government, to offer certain reliefs to Contractors, GAIL by its letter dated 19.12.2020 amended the condition of submitting CPBG equivalent to 10% of the contract value to submitting CPBG equivalent to 3% of the contract value.
9. In view of the alleged defaults on the part of the petitioner, TEPL issued separate show cause notices dated 30.12.2020 to the petitioner in respect of Part A and Part B of the contract calling upon the petitioner to show cause why action should not be taken on account of the petitioner failing to submit the CPBG and failing to mobilise minimum equipment as required under the contract.
10. Thereafter, on 31.12.2020, the petitioner submitted a CPBG of Rs. 29,69,665/- in favour of GAIL for Part B of the contract. Thereafter, by a letter dated 06.01.2021, the pe
Allegations of misrepresentation do not substantiate grounds to restrain the invocation of a bank guarantee unless accompanied by egregious fraud or irretrievable injustice.
Bank guarantees cannot be interdicted due to contractual disputes unless fraud or irretrievable injustice is established.
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
Bank guarantees cannot be interdicted on account of contractual disputes between the parties, and exceptions for interdicting bank guarantees include cases of egregious fraud and irretrievable injust....
Bank guarantees are independent and unconditional contracts, and courts should refrain from interfering with their invocation unless exceptional circumstances such as fraud or irretrievable injury ar....
A confirmed Bank Guarantee/irrevocable Letter of Credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in case.
Point of Law : Work Contract – Termination of Contract – Stay of invocation of Bank guarantees – BGs to be conditional upon a demand being made in express terms thereof - Court did not hold that cond....
The invocation of bank guarantees must adhere strictly to the contractual terms; courts may intervene to prevent encashment if it risks undermining arbitration.
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