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IN THE HIGH COURT OF KERALA AT ERNAKULAM
C. JAYACHANDRAN, J.
Airports Authority Of India – Appellant
Versus
M/s.Lite Bite Foods Private Limted – Respondent
OP(C) No. 2612 of 2023, OP(C) No. 2650 of 2023
Decided on : 24-01-2024
Bank Guarantee - Contract Dispute - Arbitration and Conciliation Act, 1996 - Section 36(3), Section 34, Article 227 - Arbitration and Conciliation Act, 1996, Section 36(3), Section 34, Article 227 - The court addressed the issue of invoking a bank guarantee after an award found no default, and the refusal of interim relief under Section 9. The court found that the bank guarantee could not be invoked as there was no default on the part of the respondent company, and the interim relief was not maintainable under Section 34. The court also discussed the limited scope of interference under Article 227 and the obligation to obtain a stay of the award before seeking any interim relief.
Fact of the Case:
The case involved disputes between the Airports Authority of India and a private limited company regarding the invocation of a bank guarantee after an award found no default on the part of the respondent company. The court addressed the refusal of interim relief under Section 9 and the challenges under Article 227 of the Constitution.
Finding of the Court:
The court found that the bank guarantee could not be invoked as there was no default on the part of the respondent company, and the interim relief was not maintainable under Section 34. The court also dismissed the challenges under Article 227, emphasizing the limited scope of interference.
Issues: The main issues included the invocation of a bank guarantee after an award found no default, the refusal of interim relief under Section 9, and the challenges under Article 227 of the Constitution.
Ratio Decidendi: The court held that the bank guarantee could not be invoked in the absence of default on the part of the respondent company, and the interim relief was not maintainable under Section 34. The court also emphasized the limited scope of interference under Article 227.
Final Decision: The court dismissed the petitions and upheld the decision that the bank guarantee could not be invoked and the interim relief was not maintainable under Section 34. The challenges under Article 227 were also dismissed.
JUDGMENT :
These two Original Petitions under Article 227 of the Constitution are intertwined and hence disposed of by this common judgment. The following questions surface for consideration in these Original Petitions:
2. When an interim relief under Section 9 is refused by the Court considering a petition under Section 34 of the Act, whether the High Court can interfere under Article 227 of the Constitution, especially in the absence of the four parameters culled out in Whirlpool Corporation v. Registrar of Trademarks, Mumbai[(1998) 8 SCC 1]? When the order impugned is not one which patently lacks inherent jurisdiction, whether the High Court can justifiably exercise its power of superintendence under Article 227?
By the discussion to follow, this Court answers both the questions in the negative.
2. The petitioner herein is the Airports Authority of India ('the petitioner authority', for short) and the respondent is a private limited company ('the respondent company', for short). The Original Petition first above referred to, stems from the order dated 09.11.2023 of the Commercial Court, Manjery, which declined the petitioner authority's application seeking to encash the bank guarantee in terms of the agreement embodying the business arrangement between the petitioner authority and respondent company. The Original Petition second above referred to, arise from an order dated 22.11.2023 of the same court, which declined the petitioner authority's interlocutory application, preferred in a petition under Section 34 of the Arbitration and Conciliation Act (the Act, for short), seeking to keep the bank guarantee alive, for a further period of six months.
3. Essential Facts:
The following list of events in the chronological order will unfurl the facts leading to the impugned orders.
| Sl. No. | Date | Event | Remarks |
| 1. | 07.12.2017 | Letter of Intent to Award the contract issued by the petitioner authority to the respondent company, accepting the bid of the latter, to set up and operate food and beverages outlets at the Calicut International Airport. | --- |
| 2. | 14.02.2018 | The respondent company furnished bank guarantee for Rs.4,94,64,000/- | Ext.P8 in O.P. No. 2612/2023. |
| 3. | 22.03.2018 | An agreement was executed between the petitioner authority and the respondent company to set up and operate food and beverages outlets at Calicut International Airport. | Ext.P1 in both the O.Ps. |
| 4. | 26.08.2019 | The petitioner authority sought to invoke the bank guarantee alleging violation of the contract by the respondent company. | -- |
| 5. | 05.09.2019 | The respondent company filed O.P. No.293/2019 (Arbitration)in the Sub Court, Manjeri and obtained an ad-interim order of injunction restraining encashment of the bank guarantee by the petitioner authority. |
|
| 6. | 06.01.2020 | The above O.P. (Arbitration) No.293/2019 was dismissed. |
|
| 7. | 28.10.2020 | Allowing Arbitration Request No.103/2019 preferred by the respondent Company, the High Court appointed the Arbitrator. |
|
| 8. | 24.11.2020 | Arbitration Appeal No. 1/2020 preferred by the respondent Company before the High Court, challenging dismissal of O.P.(Arbitration) No.293/2019, was also dismissed. |
|
| 9. | 15.01.2021 | A Review Petition preferred against dismissal of Arbitration Appeal No.1/2020 was also dismissed by the High Court. |
|
| 10. | 13.04.2021 | S.L.P.(C) No.4355 -4356/2021, preferred by the respondent company, was disposed of, directing the respondent company to avail the remedy under Sec.17 of the Act before the Arbitrator; and to enable the same, th | |
The main legal point established in the judgment is that a bank guarantee cannot be invoked in the absence of default on the part of the respondent company, and the interim relief is not maintainable....
Bank Guarantee – Courts should be reluctant in granting injunction against invocation of Bank Guarantee, except in cases of established fraud, or where irretrievable injury is likely to be caused to ....
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.
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....
Unsuccessful party may invoke post-award Section 9 for interim measures like bank guarantee extension in rare compelling cases meeting higher threshold, preserving disputed amounts pending Section 34....
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