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IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, J.
Gammon Engineers And Contractors Pvt. Ltd. - Appellant
Versus
Rail Vikas Nigam Limited - Respondent
Original Miscellaneous Petition (I) (COMM.) No. 68 of 2022
Decided On : 28-02-2022
Bank Guarantee - Construction Contract Dispute - Section 9 of the Arbitration and Conciliation Act, 1996 - Svenska Handelsbanken v. M/s Indian Charge Chrome and Others: (1994) 1 SCC 502; Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co.: (2007) 8 SCC 110; and Larsen & Toubro Limited v Maharashtra State Electricity Board and Others: (1995) 6 SCC 68
Fact of the Case:
The petitioner sought to restrain the respondent from invoking bank guarantees due to a construction contract dispute. The respondent claimed an additional amount for works not completed by the petitioner.
Finding of the Court:
The court dismissed the petition, citing the well-settled law that an unconditional bank guarantee cannot be interdicted except on the grounds of egregious fraud and special equities.
Issues: Dispute over performance of construction contract, invocation of bank guarantees, and claims for additional amounts due.
Ratio Decidendi: Unconditional bank guarantees cannot be interdicted except on grounds of egregious fraud and special equities.
Final Decision: The petition was dismissed, and all rights and contentions of the parties were reserved.
JUDGMENT
Vibhu Bakhru, J. - Ia No. 3262/2022
1. Exemption is allowed, subject to all just exceptions.
2. The application stands disposed of.
O.M.P.(I) (COMM.) 68/2022
3. 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 that an order be passed restraining the respondent from taking any further action in terms of the letters dated 11.02.2022 and 16.02.2022.
4. In terms of the said letters, the respondent had called upon the petitioner to pay an amount of ?9,21,22,006.33/- failing which, it would be recovered by encashment of the Bank Guarantees available with the respondent. The petitioner, thus, also prays that an order be passed restraining the respondent from making any claim for payment under the Performance Bank Guarantees submitted by the petitioner.
5. The controversy in this case arises in the following context:
6. The respondent had issued a Notice Inviting Tender (NIT) for 'construction of Behala Bazar, Taratala and Majerhat stations including all related works (architecture, electrical and mechanical (E&M), HVaC, fire detection and fire suppression system and Public health engineering works) in Joka BBD Bag corridor of Kolkata Metro Railway Line (JMS2)'.
7. The petitioner submitted its bid in response to the said NIT on 09.02.2012. The petitioner was selected as the successful bidder and by a Notice of award dated 14.04.2012, the respondent awarded the contract to the petitioner for a total value of ?1,62,66,53,074/-.
8. In terms of the tender conditions, the petitioner was required to deposit 10% of the contract amount, being ?16,26,65,307/- as performance security as well as an additional performance security of ?7,26,560/.
9. The petitioner states that the value of the contract was subsequently reduced to ?80.76 crores, however, the Bank Guarantees furnished by the petitioner were not correspondingly reduced.
10. Mr Mehta, learned senior counsel appearing for the petitioner, supported the prayers made in the present petition by contending that it was incumbent upon the respondent to reduce the value of the Performance Bank Guarantee, as in terms of the tender conditions, the value of the Performance Bank Guarantee was pegged at 10% of the contract value. Since the contract value had been reduced by removing certain works from the scope of works of the petitioner, commensurate with the reduced value of the contract, the Performance Bank Guarantees were required to be reduced as well.
11. He further submitted that apart from the fact that the respondent possessed the Performance Bank Guarantees of higher value, there were certain amounts due and payable by the respondent to the petitioner and therefore, there was no question of the respondent invoking any Bank Guarantee.
12. He submitted that the petitioner had made a claim amounting to ?156.35 crores, which was being considered by the committee constituted for resolving the claims as raised by the petitioner. He submitted that encashment of the Performance Bank Guarantee(s) at this stage would amount to mulcting the petitioner with an additional burden while delaying the resolution of the claims made by the petitioner.
13. Mr Udit Seth, learned counsel appearing for the respondent had sought time to take instructions as to whether any amount was otherwise due and payable to the petitioner for the work done or was under process. He states that the respondent has since, filed an affidavit clearly stating that no amount is payable to the petitioner. On the contrary, the respondent claims a sum of ?46,46,152.41/- from the petitioner.
14. He submitted that the Performance Bank Guarantee will be invoked only for a sum of ?9,21,22,006.33/- as that is the additional amount incurred by the respondent for executing the works, which were earlier contracted to the petitioner. He submits that the petitioner could not complete part of the works and therefore, had requested that c
Unconditional bank guarantees can only be interdicted on grounds of egregious fraud and special equities.
Unconditional bank guarantees can only be interdict on grounds of egregious fraud or special equities; mere disputes about contract performance are insufficient for such a relief.
The court ruled that bank guarantees must be honored regardless of existing disputes, affirming their unconditional nature and limiting judicial intervention to cases involving fraud or irretrievable....
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 unconditional nature of bank guarantees requires them to be honored despite disputes between the parties, and specific enforcement of a contract is impermissible under the Specific Relief Act, 19....
An interim order can restrain the encashment of bank guarantees pending arbitration if there is a risk of irreparable harm to the aggrieved party.
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.
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.
Bank guarantees cannot be interdicted due to contractual disputes unless fraud or irretrievable injustice is established.
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