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2020 Supreme(Mad) 650
IN THE HIGH COURT OF JUDICATURE AT MADRAS
N. SATHISH KUMAR, J.
M/s. Transtonnelstory Afcons JV, Comprising of M/s. Transtonnelstroy Ltd. – Appellant
Versus
M/s. Chennai Metro Rail Limited and Another – Respondents
O.A. Nos. 246, 247 of 2020
Decided On : 14-08-2020
Advocate Appeared:
For the Appellants : G. Masilamani, D. Balaraman.
For the Respondents: R. Yashod Vardhan, P.H. Arvindh Pandian, S. Arjun Suresh, Srinath Sridevan.
Headnote:
ARBITRATION - BANK GUARANTEE - INJUNCTION - MAINTAINABILITY - PERFORMANCE SECURITY - TAKING OVER CERTIFICATE
Fact of the Case:
The applicant, a joint venture of two companies, was awarded two contracts by the respondent, Chennai Metro Rail Limited (CMRL), for the construction of underground stations and tunnels. The contracts required the applicant to furnish performance security in the form of bank guarantees. The applicant furnished bank guarantees for both contracts. Disputes arose between the parties, and the applicant referred the disputes to arbitration. While the arbitration proceedings were pending, the respondent invoked the bank guarantees and encashed the amount. The applicant filed applications under Section 9 of the Arbitration and Conciliation Act, 1996, seeking injunctions to restrain the respondent from invoking and receiving the amounts from the bank guarantees.
Finding of the Court:
The court held that the bank guarantees were independent contracts and that the respondent was entitled to invoke them despite the pending arbitration proceedings. The court also held that the applicant had not made out a case for grant of injunctions. The court dismissed the applications.
Issues: 1. Whether the bank guarantees were independent contracts or whether they were subject to the terms of the underlying contracts. 2. Whether the respondent was entitled to invoke the bank guarantees while the arbitration proceedings were pending. 3. Whether the applicant had made out a case for grant of injunctions.
Ratio Decidendi: 1. The court held that the bank guarantees were independent contracts. The court relied on the following factors: * The bank guarantees were separate and distinct from the underlying contracts. * The bank guarantees were unconditional and irrevocable. * The bank guarantees were not subject to any conditions or contingencies. 2. The court held that the respondent was entitled to invoke the bank guarantees while the arbitration proceedings were pending. The court relied on the following factors: * The bank guarantees were independent contracts. * The bank guarantees were unconditional and irrevocable. * The bank guarantees were not subject to any conditions or contingencies. * The arbitration proceedings were not a bar to the respondent's right to invoke the bank guarantees. 3. The court held that the applicant had not made out a case for grant of injunctions. The court relied on the following factors: * The applicant had not shown that it would suffer irreparable injury if the injunctions were not granted. * The balance of convenience was in favor of the respondent. * The applicant had an adequate remedy in damages.
Final Decision: The court dismissed the applications.
ORDER :
Prayer: Original Applications filed under Order XIV Rule 8 of O.S. Rules read with Section 9(ii)(d) of Arbitration and Conciliation Act, 1996 for injunctions restraining the first respondent, including their officers, employees, agents, servants and representatives, from invoking and receiving the amounts from Bank Guarantee No. 49580IGL0074018, dated 16.10.2018, issued by Union Bank of India for Rs. 25,77,48,750/- and Bank Guarantee No. 1000041BGP00943, dated 29.12.2010, issued by IDBI Bank Ltd. for Rs. 117,51,07,500/- or any part thereof, pending disposal of Arbitration Proceedings under UAA-05 and UAA-01 Contracts, respectively.
1. These Original Applications have been filed for grant of injunctions restraining the 1st respondent from invoking and receiving the amounts from Bank Guarantees viz. Bank Guarantee No. 49580IGL0074018 dated 16.10.2018 issued by Union Bank of India for Rs. 25,77,48,750/- relating to O.A. No. 246 of 2020 and Bank Guarantee No. 1000041BGP00943 dated 29.12.2010 issued by IDBI Bank Ltd. for Rs. 117,51,07,500/- relating to O.A. No. 247 of 2020, pending Arbitration Proceedings.
2. Since the facts of the case are identical in both the applications, this Court is inclined to dispose both the applications by a common order.
3. For the sake of convenience, the applicants 1 and 2 shall hereinafter be jointly referred as “applicant.”
4. The brief facts leading to the filing of these applications are as follows:
4.1. The 1st respondent awarded the work of “Design and construction of underground stations at Shenoy Nagar, Anna Nagar East, Anna Nagar Tower, Thirumangalam and Associated Tunnels-Contract No. UAA-05” for a contract price of Rs. 1030,99,50,000/- to the applicant under letter of acceptance dated 28.12.2010. In pursuance of the same, a formal contract was entered into between the applicant and the 1st respondent on 31.01.2011 (hereinafter referred as “Contract No. UAA-05” for brevity), which relates to O.A. No. 246 of 2020.
4.2. Similarly, the 1st respondent awarded another work of “Design and Construction of underground stations at Washermenpet, Mannadi, High Court, Chennai Central and Egmore and Associated Tunnels-Contract No. UAA-01” for a contract price of Rs. 1566,81,00,000/- to the applicant vide letter of Acceptance dated 28.12.2010. In pursuance of the letter of acceptance, a formal contract was also entered into between the applicant and the 1st respondent on 31.01.2011 (hereinafter referred as “Contract No. UAA-01” for brevity), which relates to O.A. No. 247 of 2020.
4.3. As per Clause 4.2 of General Conditions of Contract (GCC), the applicant has to furnish Performance Security by way of Bank Guarantee. The relevant clause reads as follows:
“4.2. The Contractor shall obtain, at his cost, a performance security from a third party, in the amount and currencies specified in the Appendix to Tender and deliver it to the Employer by the date 28 days after the Effective Date. The performance security shall be provided by an entity approved by the Employer and shall be in the form annexed, or in another form approved by the Employer.
The performance security shall be valid until the Contractor has executed and completed the Works and remedied any defects. It shall be returned to the Contractor within 14 days of the issue of the Performance Certificate. Prior to making a claim under the performance security, the Employer shall, in every case, notify the Contractor stating the nature of the default for which the claim is to be made.”
4.4. According to the applicant, in respect of Contract No. UAA-05, the applicant had furnished a Performance Security vide Bank Guarantee No. 61410IGL0066010 dated 30.12.2010 for Rs. 77,32,46,250/- issued by Union Bank of India in favour of the 1st respondent and subsequent to that, had furnished a revised Bank Guarantee bearing No. 49580IGL0074018, dated 16.10.2018, is
