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IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
Satyen Vaidya, J.
Supreme Infrastructure India Ltd. - Petitioner
Vs.
National Thermal Power Corporation Ltd. - Respondent
Arb. Case No. 76 of 2023
Decided On : 10-5-2023
Arbitration and Conciliation Act, 1996 - Sections 9 & 11 - Invocation of bank guarantee - Obtaining injunction - Petitioner sought a stay against communication whereby, respondent has invoked bank guarantees, furnished by petitioner – Petitioner can succeed in obtaining injunction against invocation of bank guarantees by respondent by proving fraud or irretrievable loss - Para 19.
Finding of the Court:
Bank guarantees in question were unconditional - Bank had bound itself to pay to respondent amount secured by guarantee on demand for purpose of indemnification of respondent against loss, damage or cost suffered by it at hands of petitioner - Petitioner can succeed in obtaining injunction against invocation of bank guarantees by respondent by proving fraud or irretrievable loss - No case of fraud has been made out - As regards irretrievable loss, Court is of considered view that petitioner has again failed to prove same - Admittedly, claims and counter claims of parties are subject to final adjudication - In case petitioner is able to prove all its claims against respondent, still it cannot be said that petitioner will not get its due - Mere existence of a dispute between parties is no ground to grant relief under Section 9 of Act, especially in respect of invocation of bank guarantee.
Result: Petition dismissed.
JUDGMENT :
Satyen Vaidya, J.
By way of instant petition, filed under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, the Act), the petitioner has sought a stay against communication dated 16.3.2023 (AnnexureP-7), whereby, respondent has invoked bank guarantees, furnished by the petitioner.
2. Petitioner was awarded certain civil works vide award letter dated 28.8.2012, issued by the respondent. The total cost of the works was Rs. 38,76,98,396.24/-. Formal agreement between the parties was executed. The time allotted to the petitioner for completion of the works was twenty four months.
3. In compliance to the conditions of the agreement, petitioner had furnished two separate bank guarantees in favour of the respondent in the sums of Rs. 1,25,11,000/- and Rs. 68,74,000/- respectively. The first bank guarantee was renewed from time to time and had its validity till 7.3.2023 and the second bank guarantee was valid till 30.3.2023. The claim period in both the bank guarantees was twelve months after the expiry of its validity date.
4. Vide communication dated 16.3.2023 (Annexure P-7) (colly) respondent invoked both the bank guarantees and submitted a demand on the Punjab National Bank to remit the secured amount in favour of the respondent.
5. Petitioner has made specific averments in the petition that on 16.3.2023, the respondent at one hand directed the petitioner to extend both the bank guarantees and on the other, issued communication to the bank for invoking the said bank guarantees. It is also submitted that 90% of the work has been completed. Rest of the work remained to be completed on account of reasons, viz, circumstances created by Covid-19 Pandemic etc. As per petitioner, an amount of Rs. 1,55,62,218/- also was wrongly withheld by the respondent, resulting in serious cash crunch for the petitioner. On such grounds, the petitioner prayed for the relief, as noticed above.
6. On notice, respondent has contested the claim of the petitioner. The petitioner has been accused of having not approached this Court with clean hands. It is further alleged that the petitioner doctored an e-mail dated 16.3.2023 (Annexure P-6) to use the same to file and maintain the present petition. As per respondent, it was on 28.2.2023, when respondent had required petitioner to extend the bank guarantees. The representative of the petitioner, for ulterior purpose, re-circulated the same e-mail from one of his mail account to another on 16.3.2023. The reasons for non completion of work have also been attributed to the petitioner. As per respondent, only 75% of the work was complete. Despite default of the petitioner to complete the work within the stipulated period, respondent had extended the period of completion from time to time and last such extension was granted till 30.6.2023 in favour of the petitioner. Since the petitioner had defaulted in completion of the work, respondent had suffered loss and finally, the respondent proceeded to cancel the contract by issuing a notice to the petitioner on 10.3.2023.
7. In its rejoinder, petitioner admitted that the respondent had not issued any communication on 16.3.2023, requiring the petitioner to extend the bank guarantees. The reason for incorporating averments in the petition to above effect has been assigned to over site on part of counsel to verify the contents of relevant documents. Further, the petitioner has tried to carve out a case of existing dispute between the parties capable of reference to arbitration under Clause 56 of the agreement. It is alleged that though the petitioner had completed 95% of the work, respondent had withheld substantial amount from the petitioner, which prevented the petitioner from completing the work. It is also alleged that the petitioner was ready to complete the work even after 30.6.2022, but it was prevented by the respondent.
8. I have heard the learned counsel for the parties and have also gone through the record carefully.
9. During the course of he
A confirmed Bank Guarantee/irrevocable Letter of Credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in case.
Bank guarantees are independent and unconditional contracts, and courts should refrain from interfering with their invocation unless exceptional circumstances such as fraud or irretrievable injury ar....
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
Bank guarantees can be invoked regardless of disputes, unless fraud or irretrievable harm is clearly established.
Courts should not interfere with the invocation or payment under an unconditional bank guarantee unless there is egregious fraud or special equity.
The court emphasized the independence and unconditional nature of bank guarantees, while recognizing exceptions such as fraud, irretrievable injustice, or special equities.
Bank guarantees cannot be interdicted on account of contractual disputes between the parties, and exceptions for interdicting bank guarantees include cases of egregious fraud and irretrievable injust....
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