The court can restrain the invocation of bank guarantees in a contract dispute, even if the petitioner owes a significant amount, if it deems it proper to do so.

Dharam Chand Chaudhary, J.

1. Petitioner is a Contractor and entered into a contract for the Design, Engineering, Manufacturing, Testing of Equipment, Erection, Commissioning along with other allied Works such as Earthmat & Civil Works on Turn Key Basis of 132/33KV, 1X25/31.5 MVA Sub Station at Maliana, (Near Shimla) with the respondent-Corporation previously known as State Electricity Board. The contract agreements in this behalf are Annexure P-2 and Annexure P-3. The petitioner started the execution of the work awarded, however, on certain disputes having arisen, expressed its intention to rescind the contract in terms of Clause 3.33 of the contract agreement vide letter dated 19th September, 2013 read with letter dated 19.12.2013 Annexure P-20 and P-24. The respondent-Corporation invoked the performance bank guarantee and bank guarantee in lieu of the mobilization advance vide its letter dated 07.07.2014, Annexure P-34. This has led in filing the present petition with the following prayers:-

"(a) Pass an order staying operation of the letter dated 04.07.2014 bearing No. SE(D)ES/ SSD-273/Maliana/2014-2168, of respondent No. 1, levying liquidated damages on the petitioner and further restraining respondent No. 1 and its agents, employees, servants etc. from giving any effect thereto and/or taking any coercive action on the basis thereof.

(b) Pass an order restraining respondent No. 1 by itself or through its employees, agents, servants etc from invoking the Bank Guarantees furnished by respondent No. 2 Bank on behalf of the petitioner, and as more specifically detailed in para 6 & 7 above, and further restraining respondent No. 2 Bank from encashing the said Bank Guarantees furnished by respondent No. 2 to respondent No. 1 on behalf of the petitioner.

(c) Pass ad-interim ex-parte orders in terms of prayers (a) and (b) above, and confirm the same after notice to the respondents.

(d) Award costs of the present proceedings in favour of the petitioner and against respondent No.1.

(e) Pass such other and further order or orders or such directions as this Hon’ble Court may deem fit and proper in the facts and circumstances of the case and to meet the ends of justice."

2. In the interim, vide order passed on 14.07.2014, the parties have already been directed to maintain status quo as on that day i.e. at 2.45 p.m. qua invoking of bank guarantees. Consequent upon the order passed on 22nd July, 2014, the bank guarantees which were going to be expired on 31.07.2014 and 04.08.2014 stands renewed for a further period of six months from the date of expiry thereof.

3. Mr. S.K. Maniktala, learned counsel representing the petitioner has urged that in view of its dues worth lacs of rupees under the bills duly certified by the officers of the company unpaid, the bank guarantees could have not been invoked. Also that, the bank guarantees have been sought to be invoked by a person not competent to do so under the terms and conditions of the bank guarantees. He has also highlighted from the other record and the circumstances under which the bank guarantee and performance guarantee can be invoked. Reliance has been placed on the judgment of the Apex Court in Hindustan Construction Co. Ltd. vs. State of Bihar and others, (1999) 8 Supreme Court Cases 436.

4. On the other hand, Mr. J.S. Bhogal, learned Senior Advocate assisted by Mr. Satish Sharma, Advocate has strenuously contended that the respondent-Corporation has made the payment in advance and as the petitioner-Contractor has failed to execute the work, therefore, has every right to realize its dues by invoking the bank guarantees. It has also been pointed out that letter dated 07.07.2014, Annexure P-34 whereby the bank guarantees have been sought to be invoked is issued by the competent authority i.e. the Deputy Chief Engineer (Designs), a post was nomenclatured as Director (Designs), at the time when contract agreement executed and the work awarded. Mr. J.S. Bhogal, has placed relia