The encashment of a performance bank guarantee does not require proof of loss, but must comply with the contract's terms; failure to evaluate these terms constitutes patent illegality.

JUDGMENT :

SUBRAMONIUM PRASAD, J.

1. The Petitioner/Airports Authority of India has filed the present petition under Section 34 of the Arbitration & Conciliation Act, 1996 challenging an Award dated 20.12.2022 passed by the learned Sole Arbitrator.

2. Shorn of unnecessary details, the facts leading to this petition are as under:-

i. The Petitioner issued a tender for 'resurfacing of existing runway at Biju Patnaik International Airport, Bhubaneswar'. It is stated that the Respondent participated in the tender and submitted its bid. It is stated that the bid of the Respondent was accepted by the Petitioner and the same was communicated to the Respondent on 24.10.2019. By the said communication, the Respondent was informed that the amount of earnest money deposit of Rs.46,78,000/- which was submitted along with the tender by the Respondent was treated and converted as a part of security deposit. The Respondent was further directed to deposit a sum of Rs. 71,07,816/- towards the security deposit. The Respondent was also directed to submit a performance bank guarantee for a sum of Rs.1,17,85,816/- as per the tender document.

ii. Material on record indicates that the Respondent submitted the performance bank guarantee of Rs.1,17,85,816/-. However, the sum of Rs. 71,07,816/- towards security deposit was not paid by the Respondent and the bank guarantee covering the security deposit was never renewed.

iii. Disputes arose between the parties and a show cause notice dated 25.09.2020 was issued by the Petitioner stating that there is a delay on the part of the Respondent in commencing the execution of the work entrusted under the agreement.

iv. The show cause notice indicates that even after time had been extended for completion, the work had not commenced. The show cause notice called upon the Respondent to state as to why action under Clause 3 of the GCC should not be initiated against the Respondent. This was followed by a second show cause notice dated 02.11.2020.

v. In the said show cause notice, the Petitioner stated that under the letter of acceptance, the Respondent had indicated that the Respondent is willing to complete the works by 31.03.2021 provided that the Respondent is compensated for the increase in the cost of stone aggregates and Petroleum, Oil and Lubricants (POL). The show cause notice also indicated that the Petitioner had communicated to the Respondent vide email dated 04.10.2020 and 05.10.2020 that in case of price variation of materials (Bitumen & Cement), it shall be dealt with Clause 10CA of the GCC and if there are further disputes regarding any issues, including the price variation of aggregates and POL, the same can be addressed through dispute resolution procedure as per Clause 25 of the GCC. The Petitioner expressed the difficulties it was facing because of the fact that the runway was not being made available as airlines flight timings are rescheduled as per the slot allocated and that any change in the allotted slot will not be agreed by the airlines since such changes can cause logistic problems and huge losses to the airlines.

vi. The Respondent was given one more chance of forwarding to the office of the Petitioner, a detailed programme schedule giving the exact date of commencement of resurfacing work. Vide letter dated 01.12.2020, the Petitioner exercised its powers under Clause 3 of the GCC. The Engineer-in-Charge determined the contract and directed that the earnest money deposit and the performance guarantee stand forfeited to the AAI. The Respondent therefore filed a petition under Section 9 of the Arbitration & Conciliation Act and vide Order dated 04.02.2021, this Court permitted the Respondent to withdraw the said petition with liberty to approach the Arbitral Tribunal as and when constituted.

vii. This Court vide Order dated 02.06.2021 passed in ARB.P.No.107/2021 appointed a Sole Arbitrator to adjudicate the disputes between the parties.

viii. The Respondent herein raised the following Claims before t