Back
IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, AMIT MAHAJAN, JJ.
Container Corporation Of India Ltd. – Appellant
Versus
M/s Shivakriti International Ltd & Anr. - Respondents
FAO (COMM) 90 of 2022 and CM Nos. 27091 of 2022, 27092 of 2022 & 27093 of 2022
Decided on : 03-06-2022
Bank Guarantees - Contract Dispute - Svenska Handelsbanken v. M/s Indian Charge Chrome and Ors., Larsen & Toubro Limited v. Maharashtra State Electricity Board and Others, Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. And Anr., Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company - [5, 9, 10, 12, 14, 15, 16, 18, 19, 22, 23, 26] - The court discussed the principles related to interdicting unconditional bank guarantees, emphasizing the need for established fraud or irretrievable harm to one of the parties. It highlighted that financial difficulties due to the pandemic do not give rise to special equities to interdict a bank guarantee. The court also clarified the conditions under which a bank guarantee can be invoked and set aside the impugned order, directing the voluntary deposit of the amount with the court by the respondent.
Fact of the Case:
The respondent filed a suit seeking injunctions against the appellant from invoking and encashing Performance Bank Guarantee and Security Deposit Bank Guarantee. The respondent claimed delays and financial difficulties due to alleged inaction by the appellant, seeking relief based on a circular issued by the Ministry of Finance. The appellant invoked the bank guarantees, leading to the respondent's appeal against the ex parte order.
Finding of the Court:
The court found that the respondent's allegations did not establish fraud or special equities justifying interdiction of the unconditional bank guarantees. It set aside the impugned order and directed the voluntary deposit of the amount with the court by the respondent.
Issues: The issues revolved around the invocation of bank guarantees, alleged delays, financial difficulties, and the applicability of special equities in favor of the respondent.
Ratio Decidendi: The court emphasized the need for established fraud or irretrievable harm to one of the parties to interdict unconditional bank guarantees. It clarified the conditions under which a bank guarantee can be invoked and highlighted that financial difficulties due to the pandemic do not give rise to special equities to interdict a bank guarantee.
Final Decision: The impugned order was set aside, and the respondent was directed to voluntarily deposit the entire amount with the Registry of the Court within a week. The appeal was disposed of accordingly, with the appellant being at liberty to approach the trial court for appropriate orders for release of the deposited amounts.
JUDGMENT :
VIBHU BAKHRU, J.
1. The appellant has filed the present appeal impugning an ex parte order dated 12.03.2021 passed by the learned District Judge, inter alia, directing that the status quo be maintained in respect of the Performance Bank Guarantee no. 3178120BG0000192 dated 21.08.2020 and the Security Deposit Bank Guarantee No.3178120BG0000272 dated 06.10.2020 (hereafter ‘the PBG’ and ‘SDBG’ respectively).
2. Respondent no.1 (M/s Shivakriti International Ltd. – hereafter ‘SIL’) filed a suit, inter alia, praying for a decree of permanent injunction restraining the appellant (hereafter ‘Concor’) from invoking and encashing the PBG and SDBG. SIL further sought a decree of permanent injunction restraining respondent no.2 (State Bank of India) from acting upon any letter received from Concor demanding the invocation of the two bank guarantees in question.
3. The case set up by SIL in its plaint is briefly stated as under:
3.1 Concor issued a Letter of Acceptance (LoA) dated 06.02.2017 awarding the work pertaining to Signalling and Telecommunication at Khemli Station on Chittorgarh-Udaipur Section of Ajmer Division on North Western Railway. SIL signed the said LoA on 01.03.2017. In terms of the LoA work was to be commenced on or before the 15th day of the issuance of the LoA.
3.2 On 04.03.2017, SIL furnished a Performance Bank Guarantee issued by State Bank of India for a sum of Rs.34,64,482/- being 5% of the contract value. Thereafter, on 23.03.2017, Concor and SIL entered into a formal contract. It was stipulated that the work would be completed within a period of six months from the date of commencement (that is, six months from the 15th day of issuance of LoA). SIL claims that Concor had failed and neglected to perform its obligations under the contract and consequently, the work could not be completed within the stipulated period of time. The time for completing the contract was extended and SIL was constrained to extend the term of the Performance Bank Guarantee. SIL has averred in its plaint that despite all obstacles, it continued to perform its obligations within the limited scope as available. However, it was unable to perform substantial work due to alleged inaction on the part of Concor. SIL set out various reasons resulting in delay in completion of the said works including the delay for a period of almost 6 months on the part of Concor in deciding the supervising agency; design and drawings submitted to the Sr. DTSE Ajmer had not yet been approved; and station building for signalling and telecommunication need had not been handed over as yet. It claims that in the circumstances, it sought a short closure of the contract in question but did not receive any response to the request. It claims that in order to avoid forfeiture of the security deposit and earnest money deposit, SIL sought extension of the contract up to 31.03.2019. The same was granted initially by Concor without levy of liquidated damages.
4. SIL raised Running Bills from time to time. However, there were considerable delays in releasing payment against the said bills. SIL claims that 4th RA Bill for a sum of Rs.55,37,878.83/- was submitted in June 2018 but remained unpaid for several months. In the circumstances, SIL once again sought for short closure of the contract on ‘as is where is basis’, as it was unable to carry out further works.
5. SIL claims that on insistence of Concor, it continued to extend the term of the Performance Bank Guarantee.
6. Ministry of Finance, Government of India had issued a Circular providing relief to contractors by partial release of bank guarantees to the extent of works already completed. SIL states that it sent a letter dated 09.06.2020 seeking relief in terms of the said Circular. Since it had completed work amounting to Rs.4,33,16,276/- out of a total contract value of Rs.6,92,89,621/-, SIL requested that the amount of Performance Bank Guarantee be reduced in the same proportion. Since the Performance Bank Guarantee w
The main legal point established in the judgment is that unconditional bank guarantees cannot be interdicted except in cases of established fraud or irretrievable harm to one of the parties. Financia....
Encashment of unconditional bank guarantees is permissible unless accompanied by established fraud or irremediable injustice; financial difficulties do not justify injunctions against such guarantees....
Bank - Bank guarantee cannot invoke - Bank guarantees cannot be interdicted on account of disputes between parties and any allegation that respondent has been reluctant to join proceedings for an ami....
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....
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 clarified that injunction against unconditional bank guarantees requires proof of egregious fraud, irretrievable injustice, or special equities, none of which were sufficiently substantiate....
Bank guarantees are independent contracts and should be honored as per their terms, and any dispute between the parties does not affect the invocation of the bank guarantee.
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.
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
