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2017 Supreme(Mad) 3191
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RAJIV SHAKDHER, N. SATHISH KUMAR, JJ.
M/s. BGR Energy Systems Limited, Chennai – Appellant
Versus
ICICI Bank Limited, Chennai & Others – Respondents
Original Side Appeal Nos. 292 to 295 of 2017 & C.M.P. Nos. 18285 to 18296 of 2017
Decided On : 15-12-2017
For the Appellant :Sathish Parasaran, Senior Counsel for R. Parthasarathy, Advocate.
For the Respondent:A.L. Somayaji, Senior Counsel for V. Adhivarahan, Gaurav Nataraj for M/s. Ramasubramaniam Assoc, Advocates.
Headnote:
The Court held that the counter guarantee was an unconditional guarantee, which was required to be honoured by ICICI Bank on a first written demand made in that behalf. The Court also held that the failure of BGR to disclose the existence of an arbitration clause in the main contract between BGR and GOR disentitled BGR from obtaining interim relief of injunction. The Court further held that the balance of convenience was in favour of ICICI Bank, and against BGR.
Fact of the Case:
BGR, an engineering, procurement, construction and execution of turnkey projects company, entered into a contract with GOR, a government entity in Iraq, for setting up of a gas turbine power plant project at Nasiriyah, Iraq. As a precursor to the contract, a tender was floated by GOR against which, BGR made an offer. Accordingly, a Letter of Intent dated 02.09.2013, was issued by GOR in favour of BGR. The contract was executed between BGR and GOR on 13.10.2013. As per the terms of the contract, BGR was required to submit a Performance Bond i.e., a Performance Bond Guarantee (PBG) in favour of GOR. However, the PBG which had to be of a value equivalent to 5% of the total contract price was required to be issued by an accredited Iraqi Bank. Resultantly, BOB, was roped into the arrangement subsisting between GOR and BGR. Accordingly, BOB agreed to furnish a PBG, provided it was backed by a Bank in India. This resulted in ICICI Bank stepping into the picture and furnishing a counter guarantee in favour of BOB. The counter guarantee, in turn, was furnished at the behest of BGR against 110% margin money.
Finding of the Court:
The Court held that the counter guarantee was an unconditional guarantee, which was required to be honoured by ICICI Bank on a first written demand made in that behalf. The Court also held that the failure of BGR to disclose the existence of an arbitration clause in the main contract between BGR and GOR disentitled BGR from obtaining interim relief of injunction. The Court further held that the balance of convenience was in favour of ICICI Bank, and against BGR.
Issues: Whether the counter guarantee was an unconditional guarantee, which was required to be honoured by ICICI Bank on a first written demand made in that behalf. Whether the failure of BGR to disclose the existence of an arbitration clause in the main contract between BGR and GOR disentitled BGR from obtaining interim relief of injunction. Whether the balance of convenience was in favour of ICICI Bank, and against BGR.
Ratio Decidendi: The Court held that the counter guarantee was an unconditional guarantee, which was required to be honoured by ICICI Bank on a first written demand made in that behalf. The Court also held that the failure of BGR to disclose the existence of an arbitration clause in the main contract between BGR and GOR disentitled BGR from obtaining interim relief of injunction. The Court further held that the balance of convenience was in favour of ICICI Bank, and against BGR.
Final Decision: The appeals are, accordingly, dismissed. Resultantly, all pending applications shall stand closed and order dated 25.10.2017, shall stand dissolved. There shall, however, be no order as to costs.
Rajiv Shakdher, J.
1. The captioned appeals are directed against a common judgment and order dated 20.10.2017. Via the impugned judgment, the learned Single Judge has disposed of four (4) applications, i.e. O.A.Nos.977 of 2014, 978 of 2014, 1495 of 2016 and 1496 of 2016.
1.1 While the first two (2) applications were filed by the appellant, who is the original plaintiff, the remaining two (2) applications were filed by the first respondent.
1.2. There are principally, four (4) protagonists in the matter. The appellant i.e. BGR Energy Systems Limited (hereafter referred to as “BGR”). The first respondent i.e., ICICI Bank Limited (hereafter referred to as “ICICI Bank”). The second respondent i.e. Bank of Baghdad (hereafter referred to as “BOB”) and the third respondent i.e. the Ministry of Electricity, General Directorate for Gas Power Plants Projects, the Republic of Iraq (hereafter referred to as “GOR”). There is a fifth entity also arrayed as party, which is the fourth respondent i.e., Export Credit Guarantee Corporation of India Limited (hereafter referred to as “ECGC”). Its role, if any, in the subject matter is only de minimis.
2. Before we proceed further, it may be necessary to note that the impugned judgment impacts BGR for the reason that the injunction which operated in its favour vis-a-vis the counter guarantee dated 11.09.2013, furnished by ICICI Bank in favour of BOB, equivalent to a value of USD 12.30 millions stands vacated.
3. The impugned judgment has, thus, given rise to the captioned four (4) appeals.
4. We had issued notice in the appeals on 25.10.2017, when, on behalf of ICICI Bank, a statement was made that it would not precipitate the issue pertaining to the subject bank guarantee i.e., counter guarantee in issue. This statement continues to operate to date.
5. The record shows that the other respondents i.e., BOB and ECGC have already been served, while, GOR could not be served. As a matter of fact, ECGC has entered appearance through Mr.Gaurav Nataraj. In so far as BOB and GOR are concerned, they have not participated in the present proceedings despite service.
5.1. However, we proceeded to hear the matter on account of the urgency expressed on behalf of ICICI Bank. ICICI Bank, in fact, informed us that the counter guarantee furnished by them in favour of BOB stood already invoked. We would be referring to the proceedings pending in Iraq in respect of that aspect of the matter during the later part of the discussion immediately - though, in our view, the following broad facts need to be noticed in order to adjudicate upon the aforementioned appeals placed before us.
6. BGR, which is a company involved in engineering, procurement, construction and execution of turnkey projects, executed a contract with GOR for setting up of a gas turbine, for implementing a gas turbine power plant project at Nasiriyah, Iraq.
6.1. As a precursor to the contract, a tender was floated by GOR against which, BGR made an offer. Accordingly, a Letter of Intent dated 02.09.2013, was issued by GOR in favour of BGR. As indicated above, this was followed by a contract that was executed between BGR and GOR on 13.10.2013.
6.2. The total value of the contract was pegged at USD 246 million. As per the terms of the contract, the project was to commence within 28 days from the effective date as defined in Article 3 of the aforementioned contract. The tenure for completion of the project was 750 days, which was to be counted from the effective date as defined in the contract.
6.3. Thus, BGR was obliged to complete the contract within the period defined thereto.
6.4. As per the terms of the contract, BGR was required to submit a Performance Bond i.e., a Performance Bond Guarantee (in short “PBG”) in favour of GOR. However, the PBG which had to be of a value equivalent to 5% of the total contract price was required to be issued by an accredited Iraqi Bank.
6.5. Resultantly, BOB, was roped into the arrangement subsisting between GOR and BGR.
6.6. A
