2023 Supreme(Del) 4911

IN THE HIGH COURT OF DELHI AT NEW DELHI
Jyoti Singh, J.
Central Electronics Limited – Appellant
Versus
Energy Efficiency Services Limited & Anr. – Respondents
O.M.P.(I) (COMM.) 44 of 2023
Decided On : 06-07-2023

Headnote:

Invocation/encashment of unconditional Bank Guarantees (BGs) cannot be restrained by the Court unless there is egregious fraud or irretrievable harm or injustice to one party. Financial status of a party to the contract cannot be taken as a defence against encashment of an unconditional BG.

Fact of the Case:

Petitioner was awarded a work contract by Respondent No. 1 for designing, engineering, supplying, constructing, erecting, testing, commissioning and Operation and Maintenance (O&M) of 120 MW Solar Power Generating Systems (SPGS) at various sub-stations in Maharashtra under the Mukhyamantri Saur Krishi Vahini Yojana (MSKVY) or Chief Minister's Agriculture Feeder Scheme of Government of Maharashtra. Disputes arose between the parties and Petitioner claimed that it has installed and commissioned Solar Power Plants at designated sites successfully during the period September, 2018 till February, 2022 and yet against the total value of bills raised being Rs.221.29 Crores, it has received Rs.86.18 Crores and thus an amount of Rs.24.43 Crores is outstanding, while Respondent No. 1 adopted a position that Petitioner installed and commissioned a total of 57 sites with 59.80 MWp capacities and out of the 57 sites, 23 were under complete shutdown when the Default Notice cum Termination Letter dated 27.06.2022 was issued to the Petitioner. Petitioner was also not performing the O&M work at most of the sites resulting in degradation of system efficiency and consequent revenue loss of approximately Rs.1.67 Crore as on 08.06.2022 for shut down sites besides other defaults and lapses. When situation did not improve, Respondent No. 1 sent a final Default Notice dated 31.01.2023 to the Petitioner under Clause 42.2 of GCC for rectifying the breaches within 14 days, failing which contract shall be deemed to be terminated under Clause 22 with necessary consequences under the provisions of contract and in law. This Default Notice triggered the filing of the present petition and vide order dated 14.02.2023, this Court directed the parties to maintain status quo till the next date of hearing. Thereafter, Respondent No. 1 filed an application being I.A. 5355/2023 dated 13.03.2023 seeking modification of the interim order to the extent that the status quo order shall not come in the way of termination of the contract, as according to the final Default Notice, Respondent No. 1 was at liberty to terminate the contract at the end of 14 days, if the Petitioner failed to rectify the alleged breaches.

Finding of the Court:

The Court held that the invocation/encashment of unconditional BGs cannot be restrained by the Court unless there is egregious fraud or irretrievable harm or injustice to one party. The Court also held that the financial status of a party to the contract cannot be taken as a defence against encashment of an unconditional BG.

Issues: Whether invocation/encashment of unconditional Bank Guarantees (BGs) can be restrained by the Court.

Ratio Decidendi: The Court held that the invocation/encashment of unconditional BGs cannot be restrained by the Court unless there is egregious fraud or irretrievable harm or injustice to one party. The Court also held that the financial status of a party to the contract cannot be taken as a defence against encashment of an unconditional BG. The Court relied on the following judgments of the Supreme Court: Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P.) Ltd. and Another, (1997)6 SCC 450, Gujarat Maritime Board v. Larsen and Toubro Infrastructure Development Projects Limited and Another, (2016)10 SCC 46 and Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007)8 SCC 110.

Final Decision: The Court dismissed the petition and vacated the ad-interim order passed by the Court on 14.02.2023.