Back
IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, J.
M/s. BSP - Shc (jv) - Appellant
Versus
Dedicated Freight Corridor Corporation Of India Limited & Anr. - Respondents
Original Miscellaneous Petition (I)(Comm) No. 53 of 2021
Decided On : 09-02-2021
Bank Guarantees - Arbitration and Conciliation - Section 9 of the Arbitration and Conciliation Act, 1996 - [Section 9, A&C Act] - The court discussed the principles related to interdicting invocation and encashment of unconditional bank guarantees, emphasizing that bank guarantees cannot be interdicted on account of contractual disputes between the parties. The court highlighted the exceptions for interdicting bank guarantees, including cases of egregious fraud and irretrievable injustice. The judgment emphasized that mere irretrievable injustice without a prima facie case of established fraud is of no consequence in restraining the encashment of a bank guarantee.
Fact of the Case:
The petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking injunctions to restrain the respondent from invoking and encashing bank guarantees. The disputes arose in connection with a construction contract awarded to the petitioner by a Government of India Enterprise.
Finding of the Court:
The court dismissed the petition, emphasizing that the grounds for interdicting the bank guarantee were not established. It highlighted that the petitioner's case was mainly founded on alleged breach of contract on the part of the respondent, and the mere assertion of fraudulent termination of the contract or invoking the bank guarantee was insufficient to secure an order interdicting invocation/encashment of a bank guarantee.
Issues: The issues involved the invocation and encashment of bank guarantees, alleged delay in execution of works, and termination of the contract by the respondent.
Ratio Decidendi: The court emphasized that bank guarantees cannot be interdicted on account of contractual disputes between the parties, and highlighted the exceptions for interdicting bank guarantees, including cases of egregious fraud and irretrievable injustice.
Final Decision: The petition was dismissed, and pending applications were also disposed of.
JUDGMENT
Vibhu Bakhru, J. - The petitioner has filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereafter "the A&C Act"), inter alia, praying as under:
"i. In view of the above facts and circumstances mentioned hereinabove, it is most respectfully prayed that the Hon'ble Court may graciously be pleased to allow the present petition and restraint by way of injunction the Respondent No. 1 from invoking and encashing the following Bank Guarantees:
(i) Performance bank Guarantee No. 0767ILG004020 dated 14.08.2020 amounting to Rs. 1,59,88,000/- issued by Respondent No. 2.
ii) Bank Guarantee No. 0767ILG004220 dated 24.08.2020 amounting to Rs. 2,56,39,000/- deposited in lieu of release of Security Deposit.
iii) Bank Guarantee No. 0767ILG001519 dated 12.09.2019 amounting to Rs. 66,00,000/- and Bank Guarantee No. 0767ILG001719 dated 27.09.2019 amounting to Rs. 48,87,569/- deposited for the release of mobilization advance.
Till the (i)Appointment of the Arbitrator for Adjudicating the disputes (ii) Till the Arbitral Award is passed and (iii) Till the enforcement of the award in accordance with Section 36 the Arbitration & Conciliation Act, 1996 as amended;
ii. Hon'ble Court may graciously be pleased restraint by way of injunction the Respondent No. 2 Bank from remitting the Following Bank guarantees to the Respondent No. 1:
(i) Performance bank Guarantee No. 0767ILG004020 dated 14.08.2020 amounting to Rs. 1,59,88,000/- issued by Respondent No.2.
ii) Bank Guarantee No. 0767ILG004220 dated 24.08.2020 amounting to Rs. 2,56,39,000/- deposited in lieu of release of Security Deposit.
iii) Bank Guarantee No. 0767ILG001519 dated 12.09.2019 amounting to Rs. 66,00,000/- and Bank Guarantee No. 0767ILG001719 dated 27.09.2019 amounting to Rs. 48,87,569/- deposited for the release of mobilization advance.
Till the (i)Appointment of the Arbitrator for Adjudicating the disputes (ii) Till the Arbitral Award is passed and (iii) Till the enforcement of the award in accordance with Section 36 the Arbitration & Conciliation Act, 1996 as amended;"
2. The respondent is a Government of India Enterprise and it had issued a Notice Inviting Tender (NIT) on 02.02.2016 for construction of 2 Nos. Two Lane ROBs (including the approaches & LHS) in lieu of Level Crossing No. 104 and 108 at Km. 555/4-5 at Sirohi Road Yard & Km. 565/0-1 at Banas Yard of Madar-Palanpur Section of Ajmer Division of North Western Railways. The said two Road Over Bridges are hereafter referred to as "ROB 104" and "ROB 108".
3. The petitioner submitted its tender for the aforesaid works and was declared successful. The respondent issued a Letter of Acceptance (LOA) dated 26.05.2016. The agreed contract value was fixed at Rs. 41,77,29,781.72/-. Subsequently, the agreement dated 04.07.2016 was executed between the parties. In terms of the NIT, the petitioner submitted a performance bank guarantee in the sum of Rs. 2,08,86,500/- being 5% of the contract value. The petitioner states that in addition to the above, it also furnished a security deposit being 5% of the contract value.
4. The petitioner claims that it commenced the construction works and also provided bank guarantee (Bank Guarantee No. 1002816BG000177) in lieu of the security deposit.
5. The petitioner claims that it sought advance for mobilisation of its resources and a sum of Rs. 2,29,75,138/- was released to the petitioner on its furnishing two bank guarantees in the sum of Rs. 1,14,87,569/- each.
6. The petitioner claims that it being conscious of its contractual obligations has kept the bank guarantees alive. The earlier performance bank guarantee issued by the State Bank of India was replaced by a bank guarantee furnished by Punjab National Bank (Bank Guarantee No. 0767ILG004020 dated 14.08.2020). The said bank guarantee was valid till today (that is, 09.02.2021). Although the initial performance bank guarantee was in the sum of Rs. 2,08,86,500/-, respondent no.1 had agreed to accept a reduced amount in
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....
The court reinforced that unconditional bank guarantees cannot be restrained unless egregious fraud or irretrievable injustice is established, which was not proven by the petitioner.
Bank guarantees cannot be interdicted due to contractual disputes unless fraud or irretrievable injustice is established.
Bank guarantees can be invoked regardless of disputes, unless fraud or irretrievable harm is clearly established.
A confirmed Bank Guarantee/irrevocable Letter of Credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in case.
A party seeking to restrain the invocation of a bank guarantee must demonstrate either clear fraud or irretrievable injustice; mere contractual disputes do not suffice for injunctions.
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
Bank guarantees can only be interdicted in exceptional circumstances such as fraud or irretrievable injustice. Mere contractual disputes do not give rise to special equities for interdicting a bank g....
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....
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
