The court affirmed that a performance security cannot be withheld post-acknowledgment of contract performance, and interim relief must balance equities in arbitration under Section 17 of the Act.

JUDGMENT

V. Kameswar Rao, J. (Oral)--This appeal has been filed by the appellant Union of India through Director General, Married Accommodation Project, Integrated HQ of Ministry of Defence (Army) under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 (`Act of 1996', for short) to set aside the order dated January 12, 2022, as modified by order dated February 19, 2022 passed by the learned Arbitrator allowing the application under Section 17 of the Act of 1996 filed by the respondent RCCIVL-LITL (JV), wherein, inter alia, a direction has been given to the appellant to release the Bank Guarantee amounting to Rs.10,00,00,000/-, while retaining the Bank Guarantee amounting to Rs.4,05,56,000/-.

2. At the outset, I may provide a brief background of the instant case, as noted from the appeal. The appellant entered into a contract with the respondent/contractor on November 5, 2014 for Rs.281.11 crore. The scheduled dates of commencement and completion of project were January 1, 2015 and January 31, 2017 respectively. However, the project was completed on June 30, 2018 and the defect liability period expired on June 30, 2020. While securing the contract from the appellant in 2014, the respondent had deposited Performance Bank Guarantees amounting to Rs.14,05,56,000/- in terms of the contractual provisions. Further, Bank Guarantee (s) amounting to Rs.3,00,00,000/- against retention money was also retained after completion of work. In October, 2018 the respondent submitted pre-final bill worth Rs.75,00,00,000/- and final bill worth Rs.4,84,01,955/-, which were returned to him by the Project Manager, Bathinda as these were neither complete nor as per the required format. The respondent was asked to submit final bill as per format multiple times but to no avail. Subsequently, the final bill was prepared by a consultant of the appellant in February, 2021 and the respondent was asked to sign the final bill. The respondent signed the final bill under protest and forwarded its claims vide order dated April 7, 2021.

3. After completion of work, the respondent invoked arbitration and approached this Court in September 2021 for appointment of an Arbitrator and also for release of its Performance Bank Guarantees. This Court appointed a retired Judge of the Supreme Court as the Sole Arbitrator to adjudicate the disputes vide order dated October 3, 2021.

4. The respondent filed its Statement of Claims amounting to approximately Rs.171 crore plus interest along with an application under Section 17 of the Act of 1996 seeking interim relief for release of its Performance Bank Guarantees of Rs.14,05,56,000/- and alleged undisputed amount of final bill for Rs.4,84,01,955/-. The appellant submitted its reply to the application under Section 17 along with its Statement of Defence and Statement of Counter-Claims.

5. It is stated in the appeal that the retention Bank Guarantee of the respondent amounting to Rs.3,00,00,000/- was encashed by the appellant in October, 2021 since these were not extended by the bank. It was stated before the learned Arbitrator that the final bill prepared by the appellant is under scrutiny, and that the amount of the final bill till submission of counter claims by the appellant in December 2021 is Rs.5,98,62,665.68/- after adjusting Rs.3,00,00,000/- of the Bank Guarantee (s) encashed