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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR
ASHOK KUMAR GAUR, J.
M/s. Continental Engineering Corporation, through its Authorised Signatory Mr. Rajiv Kumar - Appellant
Versus
M/s. Jaipur Metro Rail Corporation Limited – Respondent
S.B. Civil Miscellaneous Appeal No.1549 Of 2023
Decided On : 12-09-2023
Arbitration and Conciliation Act, 1996 - Section 37, 16, 17 - Modification of interim order - Release and return of Bank Guarantees - Appellant has preferred instant appeal against portion of Procedural Order dismissing application filed by appellant seeking modification of an earlier interim order passed by Arbitral Tribunal in relation to bank guarantees submitted by appellant – Held, Tribunal without considering purpose of keeping bank guarantees or return them for encashing, can always pass an order in accordance with law, as settled by Apex Court in respect of bank guarantee being given by parties, while executing contract - Application filed by respondent has also been dismissed and as such, dispute which is pending between parties will be decided as per claim which has been put forward and defence which has been taken by respondent - Court finds that issue relating to grant/refusal/modification is to be considered by Arbitral Tribunal under Section 17 of Act of 1996 and as such, Court under Section 37 of Act of 1996 will not substitute its findings in view of said power being available to Tribunal but by exercising it judiciously by keeping in mind well settled principles of passing/continuing/varying interim order - Court finds that impugned order is required to be quashed and set-aside and matter is remanded back to Arbitral Tribunal to consider application filed by appellant in accordance with law and reasoned and speaking order may be passed - Appeal allowed.
ORDER :
1. The instant appeal has been filed by the appellant-claimant by making the following prayers:-
2. Direct the release and return of the Bank Guarantees to the Appellant herein expiring now on 15th September, 2023;
3. Pass any other orders in the interest of justice as the nature and circumstances of the case may require.”
2. The appellant-Company has pleaded that it had entered into a contract agreement dated 05.10.2013 for a design and build construction contract.
3. The appellant is a company incorporated in Taiwan having its Corporate Office at Gurgaon, India and it is a leading company in civil engineering and infrastructure industry, globally.
4. The respondent-M/s.Jaipur Metro Rail Corporation Limited (hereinafter ‘JMRC’) is a State-owned company and entrusted with the construction, maintenance and operation of the Jaipur Metro.
5. The appellant has preferred the instant appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act of 1996’) against the portion of the Procedural Order No.12, dated 19.05.2023, dismissing the application filed by appellant under Section 17 of the Act of 1996 seeking modification of an earlier interim order passed by the Arbitral Tribunal in relation to the bank guarantees submitted by the appellant.
6. The appellant has pleaded that the respondent- JMRC had invited bids from eligible bidder for execution of work for carrying out design and construction of the underground Metro in Jaipur.
7. The appellant has pleaded that a Letter of Acceptance (‘LOA’) was issued in favour of appellant- Company dated 09.09.2013, for a value of Rs.507,36,81,960/- with a scheduled time for completion of 36 months from the commencement date.
8. The appellant has pleaded that the parties had entered into a contract agreement dated 05.10.2013 and thereafter, certain amendments were made by way of Particular Conditions of Contract (‘PCC’) along-with two addendums dated 09.07.2013 and 11.07.2013.
9. The appellant has pleaded that the appellant- Company and respondent-JMRC, later on, entered into a supplementary agreement dated 26.05.2020. The appellant under the GCC and PCC had submitted two sets of bank guarantees i.e. Performance Security Bank Guarantee and Retention Bank Guarantee in lieu of retention money.
10. The appellant has pleaded that on account of significant delay by the respondent-JMRC in performing its obligations under the contract agreement, huge financial losses, were suffered and there was also total blockage of working capital for the appellant.
11. The appellant, vide its letter dated 24.04.2018, gave a notice of intention under Clause 20.4 of the GCC to refer the dispute relating to payment of compensation for additional costs and losses suffered due to delays and disruptions. The Dispute Adjudication Board (hereinafter ‘DAB’) gave its decision on 30.08.2019 and the appellant was held entitled to extend the claim for period upto December, 2019 for an amount of Rs.40.39 Crore and Rs.47.57 Crore against overheads total amounting to Rs.87.97 Crore, plus release of withheld amounting to Rs.2 Crore.
12. The appellant-Company has pleaded that the respondent-JMRC had issued a notice of dissatisfaction under Clause 20.4 of GCC questioning the decision given by DAB and suggested that the parties may settle their dispute through arbitration.
13. The appellant, vide letter dated 19.11.2019, invoked the arbitration clause between the parties and thereafter, the Arbitral Tribunal was duly constituted in accordance with law to adjudicate the claims of appellant- Company against respondent-JMRC.
14. The appellant-Company has pleaded that it filed its statement of claim and respondent-JMRC file
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.
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.
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.
Point of Law : Non-payment of escalation - Issue of whether the circumstances in which the appellant was placed, entitled him to plead force majeure, or not, is a pure question of fact.
Courts should not interfere with the invocation or payment under an unconditional bank guarantee unless there is egregious fraud or special equity.
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