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IN THE HIGH COURT OF DELHI
C. Hari Shankar, J.
SMS Limited - Appellant
Versus
Oil & Natural Gas Limited - Respondent
OMP (I) (COMM) 428 of 2020 & I.A. 12771 of 2020
Decided On : 12-01-2021
| Table of Content |
|---|
| 1. petition under section 9 of arbitration act for pre-arbitral injunction. (Para 1 , 2) |
| 2. overview of contract and its clauses. (Para 3 , 4) |
| 3. chronology of events leading to delays and expansions. (Para 5 , 6 , 7 , 8 , 10 , 11) |
| 4. discussions on project delays and extensions. (Para 9 , 12 , 14) |
| 5. communications regarding bank guarantees and liquidated damages. (Para 15 , 16 , 18 , 19 , 20) |
| 6. sms's response to ongc's demands for additional bank guarantees. (Para 21 , 22 , 23 , 31) |
| 7. discussions of legal positions and contentions. (Para 38 , 42 , 46) |
| 8. court's conclusion on the unlikelihood of granting injunctions. (Para 55 , 76 , 93 , 96) |
| 9. final dismissal of the petition. (Para 100) |
JUDGMENT
(Video-Conferencing)
1. By this petition, under Section 9 of the Arbitration & Conciliation Act 1996 (hereinafter referred to as "the 1996 Act"), the petitioner SMS Ltd. prays for pre-arbitral injunction, restraining the respondent ONGC Ltd. from acting in furtherance of a letter dated 15th December, 2020, issued by the latter to the former. The letter reads thus:
"OIL AND NATURAL GAS CORPORATION LIMITED
Onshore Engineering Services
Materials Management Section
2nd Floor, Tower-B Deendayal Urja Bhavan, 5,
Nelson Mandela Road, Delhi-110070
| Ref No. DLH/OES/MM/ETP-NADA & AF/X11PC11001/2011 Dated: 15.12.2020 | |
| From: Office of GGM (MM)-i/c MM, Onshore Engineering Services, DDU Bhawan, Delhi | |
| TO: M/s. SMS Limited (Formerly M/s. SMS Infrastructure Limited) (Consortium of M/s. SMS Limited, Nagpur, M/s. Zen Marketing & Technologies, Kolkata and M/s. Tolani Projects Pvt. Ltd., Ankleshwar) IT PARK. 20 S.T.P.I GAYATRI NAGAR | PARSODI, NAGPUR-440022 |
| Sub: Amendment No. 11 to the Contract No. DLH/OES/MM/ETP-NADA & AF/X11PC11001/2011 dtd. 27.06.2012 for the Project 'Construction of ETP at Nada, Additional Handling Facilities alongwith laying of associated Pipelines in Area-Nat Ankleshwar Asset (ETP-Nada & AF)' | |
Dear Sir(s),
Please refer the Contract No. DLH/OES/MM/ETP-NADA & AF/X11PC11001/2011 dated 27.06.2012 for the Project for "Construction of ETP at Nada, Additional Handling Facilities alongwith laying of associated Pipelines in Area-IV at Ankleshwar Asset (ETP-Nada & AF)". ONGC hereby extends the scheduled completion period of the LSTK contract (Refer clause 6.3 of General conditions of contract for LSTK portion, Annexure-A, Part-A of the contract) from 31.07.2014 to 31.07.2018 with levy of 10 % Liquidated Damages amounting to Rs.12,09,83,122.10 as per the clause no.6.3.2 of General conditions of contract for LSTK portion, Annexure-A Part-A of the contract, plus GST thereon of Rs.2,17, 76,961.97 (as per GST legislation effective from 01.07.2017) totalling to Rs.14,27,60,084.00 as detailed below:
| Delay solely attributable to Consortium as on 18.07.2018 | a) 3 Years 5 Months and 12 days in completion of standalone facilities (at Padra, Dabka, Jambusar, North Gandhar, GGS-Nada and ETP-Nada) b) 3 Years 11 Months and 18 days in completion of GRE Pipelines. |
| Liquidated Damages@ 0.5% per week & part thereof for the delay | 10% (maximum) |
| Liquidated Damages amount | Rs.12,09,83,122.10 |
| GST on Liquidated Damages amount @ 18% | Rs.2,17,76,961.97 |
| Total Liquidated Damages + GST | Rs.14,27,60,084.00 |
Accordingly, ONGC hereby requests you to remit the amount of Rs.14,27,60,084.00 towards Liquidated damages and GST thereon to ONGC by 22.12.2020.
In case the amount of Rs.14,27,60,084.00 is not remitted to ONGC by 22.12.2020, then LD and GST shall be recovered by invoking and encashing the Bank Guarantees submitted by you towards Liquidated damages and GST thereon as per provisions of the contract, as detailed below:
| Bank Guarantee particulars | (i) Bank Guarantee No. 0713614BG0000139 for Rs.12,09,90,000.00 issued by SBI, Industrial Finance Branch, Nagpur. (ii) Bank Guarantee No. 3761ILG003620 for Rs.2,66,17,800.00 issued by Punjab National Bank, Dharmpeth, Nagpur. |
| Total amount of bank Guarantees | Rs.14,76,07,800.00 (i.e. Rs.12,09,90,000.00 + Rs.2,66 |
| GST@ 18% on the total amount of Bank Guarantees | Rs.2, |
The court clarified that injunction against unconditional bank guarantees requires proof of egregious fraud, irretrievable injustice, or special equities, none of which were sufficiently substantiate....
A confirmed Bank Guarantee/irrevocable Letter of Credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in case.
The Court held that the invocation of the bank guarantees by HPL was in accordance with the terms of the bank guarantees and that there was no case for interdicting invocation of the bank guarantees.....
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
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