Back
IN THE HIGH COURT OF GAUHATI
DEVASHIS BARUAH, J.
The Union of India and Others – Appellants
Versus
BEB-DDS-RKD (JV)-NAYAK (JV) A Joint Venture – Respondent
Arb. Appeal No. 10 of 2020
Decided On : 14-06-2022
Arbitration and Conciliation Act - Bank Guarantee - Sections 37(1)(b), 9 - [ARBITRATION AND CONCILIATION] - [Section 37(1)(b), Section 9] - The court discussed the principles for granting interim relief under Section 9 of the Act, emphasizing the need for a good prima-facie case, balance of convenience, and irreparable injury. It also highlighted the legal position on the invocation of bank guarantees, stating that unless fraud or special equity exists, the beneficiary cannot be restrained from encashing the bank guarantee. The court set aside the impugned order and directed the lower court to proceed with the adjudication of the case expeditiously.
Fact of the Case:
The appellants challenged an order restraining them from invoking a performance bank guarantee and forfeiting the security deposit and earnest money deposited by the respondent. The respondent had filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim measures by way of injunction.
Finding of the Court:
The court found that the principles for granting interim relief under Section 9 were not considered by the lower court, and the impugned order did not provide any reason for its decision. It emphasized the independence of bank guarantees and the need for fraud or special equity to restrain the beneficiary from encashing the guarantee.
Issues: The issues revolved around the legality and validity of the impugned order, the principles for granting interim relief under Section 9, and the independence of bank guarantees.
Ratio Decidendi: The court emphasized the need for a good prima-facie case, balance of convenience, and irreparable injury for granting interim relief under Section 9. It also highlighted that unless fraud or special equity exists, the beneficiary cannot be restrained from encashing the bank guarantee.
Final Decision: The court set aside the impugned order and directed the lower court to proceed with the adjudication of the case expeditiously.
JUDGMENT :
DEVASHIS BARUAH, J.
1. Heard Mr. G. Goswami, the learned counsel for the appellants and Mr. U.K. Nair, the learned senior counsel assisted by Mr. R. Singha, the learned counsel appearing on behalf of the respondent.
2. This is an application under Section 37 (1) (b) of the Arbitration and Conciliation Act, 1996 (for short, the Act of 1996) challenging the order dated 15.11.2019, passed in Misc. (Arb) Case No. 57/2019 whereby the Court of the Additional District Judge, No. 1, (Kamrup (M) at Guwahati vide the said order had restrained the appellants herein from invoking or encashing the performance bank guarantee amounting to Rs.8,01,88,780/- furnished by the respondent herein and also from forfeiting the security deposit and earnest money deposited by it for the work allotted to it.
3. At this stage, it may be relevant herein to mention certain relevant facts before entering into the adjudication of the appeal. The order impugned is an ex-parte order. The appellants had filed the written objection in the said Misc (Arb.) Case No. 57/2019 and the Court of the Additional District Judge, No. 1, (Kamrup (M) at Guwahati is presently in seisin of the Section 9 proceedings. Further to that, it is also relevant to mention that on 21.09.2020, this Court while taking up the instant appeal had also made an observation that there shall be no bar on the part of the learned Court of the Additional District Judge to give final consideration to the Misc. (Arb) Case No. 57/2019, even during the pendency of this appeal and before the next date fixed for consideration of the appeal. Mr. G. Goswami, the learned counsel for the appellants submits that in spite of the said observation made by this Court, till date, the said Misc. (Arb) Case No. 57/2019 is still pending before the court below and the order impugned and the delay in disposal of the said Section 9 proceedings has seriously affected the rights of the appellants.
4. As the said Misc. (Arb) Case No. 57/2019 is still pending adjudication before the Court of the Additional District Judge, No. 1, (Kamrup (M) at Guwahati, this Court would confine its adjudication to the legality and validity of the impugned order keeping the said aspect of the matter in mind.
5. The brief fact of the instant case is that pursuant to a tender process the respondent which is a Joint Venture was entrusted with the work, namely, 'supplying, fabrication, assembling and erection of composite girders for 20 Nos. Major bridges having total 128 spans (18.3m X 4 Nos., 24.4m X 29 Nos. & 30.50m X 95 Nos.) in between stations Bairabi and Sairang, including metalizing of construction of new BG Railway line from Bairabi to Sairang (Mizoram)'. The letter of acceptance was issued to the respondent on 10.07.2018 and the contract value was Rs.160,37,75,608.74. The performance guarantee in terms of a bank guarantee issued by the Allahabad Bank was submitted on 28.08.2018 for a value of Rs.8,01,88.780/- and the contract agreement was signed on 06.07.2019. The completion period was 18 months from the letter of acceptance.
6. It is the case of the appellants that the respondent failed to perform its part of the contract as per the terms of the contract and as such a termination notice was issued vide Letter No. W/60/CON/B-S/MB/2017/12/2560 dated 06.11.2019 as per Clause 62 of the General Conditions of the Contract.
7. The respondent herein, after receiving the termination notice dated 06.11.2019, filed an application under Section 9 of the Act of 1996 before the Court of the Additional District Judge, No. 1, (Kamrup (M) at Guwahati which was registered and numbered as Misc. (Arb) Case No. 57/2019 praying for grant of interim measure by way of injunction restraining the appellants herein from invoking the relevant clauses of the contract invoking the bank guarantee dated 28.08.2018 for an amount of Rs.8,01,88,780/- issued by the Allahabad Bank, Zonal Office, Ulubari, Guwahati-781007 and also from forfeiting the security deposit a
The main legal point established in the judgment is the need for a good prima-facie case, balance of convenience, and irreparable injury for granting interim relief under Section 9 of the 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 are independent contracts and can only be restrained from invocation in cases of fraud or special equities, which were not established in this case.
A confirmed Bank Guarantee/irrevocable Letter of Credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in case.
Courts should not interfere with the invocation or payment under an unconditional bank guarantee unless there is egregious fraud or special equity.
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
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
