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IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, Tushar Rao Gedela, JJ.
Gannon Dunkerley and Company Ltd. - Appellant
Versus
Ministry of Road Transport and Highways and Others - Respondents
FAO(OS) (COMM) 68 of 2023 and CM No. 18631 of 2023
Decided On : 17-04-2023
Bank Guarantee - Arbitration & Conciliation Act, 1996 - Section 37 - Bank Guarantee (No. 5031316BG0000009, No. 0607017BG1000040, No. 1908IGFIN000719) - Summary of Acts and Sections: The court discussed the provisions of the Arbitration & Conciliation Act, 1996, particularly Section 37, and the legal principles related to bank guarantees as established in various case laws. The court highlighted the principles that unconditional bank guarantees cannot be interdicted on account of contractual disputes and can only be restrained in exceptional cases of egregious fraud and special equities.
Fact of the Case:
The appellant filed an appeal under Section 37 of the Arbitration & Conciliation Act, 1996, impugning an order passed by the learned Single Judge and seeking to restrain NHIDC from invoking bank guarantees. The dispute arose from an agreement for highway construction, with NHIDC alleging default by the appellant and terminating the agreement.
Finding of the Court:
The court found that the bank guarantees could not be interdicted pending resolution of the disputes between the parties, as unconditional bank guarantees cannot be restrained due to contractual disputes. The court directed NHIDC to complete the exercise of joint inspection to determine the value of unpaid works and allowed NHIDC to encash the Advance Bank Guarantees for any amount remaining due from the appellant.
Issues: The issues involved the invocation of bank guarantees, the dispute over the performance of the agreement, and the repayment of advances by the appellant to NHIDC.
Ratio Decidendi: The court's decision was based on the legal principle that unconditional bank guarantees cannot be interdicted on account of contractual disputes, and can only be restrained in exceptional cases of egregious fraud and special equities.
Final Decision: The court disposed of the appeal, allowing NHIDC to encash the Advance Bank Guarantees for any amount remaining due from the appellant, and directed NHIDC to complete the exercise of joint inspection to determine the value of unpaid works.
ORDER :
VIBHU BAKHRU, J.
Issue notice. The learned counsel for the respondents accept notice.
2. The appellant (hereafter ‘GDC’) has filed the present appeal under Section 37 of the Arbitration & Conciliation Act, 1996 (hereafter ‘the A&C Act’) impugning an order dated 12.04.2023 (hereafter ‘the impugned order’) passed by the learned Single Judge and further praying that respondent no. 1 (hereafter ‘NHIDC’) be restrained from invoking the bank guarantees issued by GDC : Bank Guarantee (No. 5031316BG0000009) dated 24.02.2016 for a sum of Rs. 22,06,27,500/- issued by the State Bank of India, Patiala (respondent no. 2); Advance Payment Bank Guarantee (No. 0607017BG1000040) dated 16.05.2017 for a sum of Rs. 6,47,17,400/- issued by the State Bank of India; and, Advance Payment Bank Guarantee (No. 1908IGFIN000719) dated 28.03.2019 for a sum of Rs. 9,70,76,100/- issued by the UCO Bank (respondent no. 3).
3. The impugned order is not on record. The learned counsels for the parties state that the same has not been uploaded and hence is not available to the parties. However, they state that the impugned order merely directs relisting of the petitions filed by GDC under Section 9 of the A&C Act, inter alia, seeking interim measure of protection, restraining NHIDC from invoking the aforementioned bank guarantees.
4. Mr. Rajshekhar Rao, the learned senior counsel appearing for GDC, contends that NHIDC had been restrained from invoking the bank guarantees in question pursuant to an ad-interim order passed by the Gauhati High Court in W.P.(C) No. 2969/2022 captioned Gannon Dunkerley & Co. Ltd. v. Union of India. The said writ petition was withdrawn on 13.02.2023, however, the parties had agreed that NHIDC will not take any coercive steps for a period of two months from the date of the said order. In the meanwhile, GDC moved this Court under Section 11 of the A&C Act, seeking appointment of an arbitrator (ARB.P. No. 1073/2022) and also filed an application under Section 9 of the A&C Act [OMP(I)(COMM) No. 384/2022] seeking interim measures of protection.
5. The said petitions were listed before the learned Single Judge on 03.03.2023 and were adjourned to 12.04.2023.
6. In the meanwhile, GDC filed another petition under Section 9 of the A&C Act [OMP(I)(COMM) No. 103/2023] praying that NHIDC be restrained from invoking, encashing and/or taking any coercive steps in relation to the aforementioned bank guarantees. The said petition was listed before the learned Single Judge along with ARB.P. No. 1073/2022 and OMP(I)(COMM) No. 384/2022 on 12.04.2023. However, these petitions were adjourned as the matters could not be taken up on account of paucity of time.
7. GDC is, essentially, aggrieved, as the interim protection afforded to it by the order dated 13.02.2023 passed by the Gauhati High Court, in respect of the bank guarantees in question, has not been extended and has since lapsed.
8. Mr. Rao contends that oral requests were made to the learned Single Judge to take up the application under Section 9 of the A&C Act at an earlier date, however, the said request has not been acceded to. He submits that in the circumstances, GDC has no other remedy except to approach this Court.
9. The dispute between the parties arises in relation to an agreement dated 09.02.2016 (hereafter ‘the Agreement’) entered into between the parties for “Four Laning of NH37 of Demow (Km 534.800) to End of Moran Bypass (Km 561.700) under SARDP-NE, Phase - A on EPC Mode in the state of Assam”.
10. GDC was required to complete the works under the Agreement within a period of thirty-six months from the appointed date, which was fixed as 16.05.2016. However, according to GDC, since 90% of the highway was not handed over to it, the appointed date was required to be extended.
11. The parties entered into a Supplementary Agreement on 23.02.2017, inter alia, fixing the appointed date as 17.08.2016.
12. NHIDC alleges that GDC had failed to maintain the highway in question or to achieve the agreed mi
AI
Unconditional bank guarantees cannot be interdicted on account of contractual disputes and can only be restrained in exceptional cases of egregious fraud and special equities.
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
Invocation of an unconditional bank guarantee cannot be restrained unless fraud or irretrievable injustice is established; the nature of bank guarantees is independent and absolute.
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 invocation of bank guarantees must adhere strictly to the contractual terms; courts may intervene to prevent encashment if it risks undermining arbitration.
Bank guarantees can be invoked regardless of disputes, unless fraud or irretrievable harm is clearly established.
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.
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.
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