2021 Supreme(Mad) 1539

IN THE HIGH COURT OF MADRAS
R. SUBBIAH, C. SARAVANAN, JJ.
Transtonnelstroy-Afcons (JV) and Ors. – Appellants
Versus
Chennai Metro Rail Ltd. and Ors. – Respondents
Original Side Appeal Nos. 173, 174 of 2020, Cross Objection Nos. 36, 37 of 2020, Civil Miscellaneous Petition Nos. 8772, 8774, 8780 and 8782 of 2020
Decided On : 24-03-2021

Headnote:

Arbitration and Conciliation Act 1966-Section 9(2),9(3),9,17-Invocation of Bank Guarantee should be strictly in accordance with the contract agreement. If it is not in consonance with the contract agreement, the invocation itself is bad. In this regard, the learned Senior Counsel invited the attention of this Court to Clause 5 of the Bank guarantee- the core or essence of the Bank gurantee is to indemnify the employer towards any liability or damages, resulting from any defect or shortcomings of the work undertaken by the contractor. Therefore, to "indemnify" is a condition to compensate or to make good the loss. While so, the employer must indicate a specific amount, either actual or estimated or expected loss/damages, as referred to in the Bank guarantee, which is one of the conditions precedent for invocation of the Bank Guarantees the validity of the BG must be for at least 28 days longer than the anticipated date of issue of the Taking Over Certificate- Core or essence of the BG is to indemnify the employer towards any liability or damages, resulting from any defect or shortcomings of the work undertaken by the contractor. Therefore, to "indemnify" is a condition to compensate or to make good the loss. While so, the employer must indicate a specific amount, either actual or estimated or expected loss/damages, as referred to in the BG, which is one of the conditions precedent for invocation of the Bank Guarantees- Held, Two underground tunneling contracts were awarded to the appellant(s) by the first respondent-CMRL. One relates to Corridor UAA-05 which pertains to construction of underground tunnelling the first respondent-CMRL sent a letter dated 06.07.2020 to the respective Banks to invoke the Bank Guarantees offered by the appellant(s). On coming to know about the attempt on the part of the first respondent-CMRL to invoke the Bank Guarantee, that too without specifying the amount corresponding to the proportionate alleged loss or damage, the appellant(s) filed O.A. Nos. 246 and 247 of 2020 before this Court. This Court granted an interim order. Even before the order passed by this Court was communicated, the Bank Guarantee was invoked in respect UAA-05. In respect of UAA-01, the amount was not paid to the first respondent-CMRL by the Bank from Anna Nagar East, Anna Nagar Tower and associated tunnels. The contract price is Rs. 1030,99,50,000/-. The other contract awarded to the appellant(s) for design and construction of underground stations are Washermanpet, Mannadi, High Court, Chennai Central and Egmore and associated tunnel work. The contract price was Rs. 1566,81,00,000/-. The award of the contracts are not disputed in these cases-As per Clause 4.2 of the GCC, the appellants have furnished performance Bank Guarantee, for 7.5% of the contract price in respect of UAE-05 performance BG for a sum of Rs. 77,36,250/- from Union Bank of India. In respect of UAA-01, the appellants have furnished performance Bank Guarantee of Rs. 117,51,07,500/- from IDBI Bank. In respect of UAA-05, after issuance of Taking Over Certificates, , as per Clause 4.2 of GCC read with CPA-7 and Clause 6 of BG, the first respondent reduced the BG to 2.5% from 7.5%. Thereafter, a revised performance BG dated 16.10.2018 for Rs. 25,77,48,750/- from Union Bank of India in favour of first respondent was issued with a validity was executed- So far as UAA-01 is concerned, the contract value was not reduced to 2.5% inspite of issuing Taking Over Certificate by the first respondent-CMRL-Now, both the projects covered under UAA-01 and UAA-05, have been put to public use. In other words, UAA-01 commenced commercial operations respectively and in respect of UAA-05, commercial operations commenced- The Bank Guarantees were invoked on the ground that several outstanding works left unattended and therefore, only a Partial Taking Over Certificate was issued in UAA-1 contract, with a list of balance works and snags. So far as UAA-05 contract is concerned, the Taking Over Certificate was issued, effective and on issuance of Taking Over Certificate, it was reduced from 7.5% to 2.5%, and the same is valid . But according to the appellant(s), the Bank Guarantees are not independent contracts and their invocation is subject to certain conditions. The invocation of Bank Guarantees depend on the underlying contract. Under such circumstances, as per Clause 4.2 of the GCC, the first respondent-CMRL ought to have notified the defects to the appellant(s) prior to invoking the Bank Guarantee, which has not been done in this case. But it is contended by the first respondent-CMRL that they have notified the defects through various correspondences-It is an independent contract, irrespective of the defects and shortcomings in execution of the work by the appellant(s), the first respondent-CMRL is entitled to invoke the Bank Guarantee. If it is not, the invocation of the Bank Guarantee depends upon the clauses contained in the underlying contract. But it should be borne in mind that the application was filed under Section 9 of the Arbitration and Conciliation Act, seeking interim protection pending the arbitration proceedings. In the instant case, the project was completed and it was put to public use. This is not a case as though the appellant(s) had abandoned the project or intended to rock the boat and made the first respondent-CMRL to complete the works left by the appellant by engaging another contractor. On the other hand, it is the case of the first respondent-CMRL that, though the appellant completed the work, there are some left over works and the same has to be completed by engaging a third party- Direct the parties to maintain "status-quo" as on date of this judgment, for a further period of 60 days from the date of receipt of a copy of this judgment, as far as the encashment of the respective Bank Guarantee(s) are concerned. The appellant(s) may therefore file appropriate application(s) before the Arbitral Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996, for such interim measure as regards the invocation of the Bank Guarantee(s) is concerned. The amount which has already been transferred to the first respondent-CMRL by the Union Bank of India is concerned, we leave it to the parties to work out their remedies before the learned Arbitrator(s) in accordance with law- Court set aside’s the order and the Original Side Appeals are allowed to the extent indicated above. As a consequence of allowing of the Original Side Appeals, the Cross Objections are dismissed. No costs. Consequently, C.M.Ps. are closed- Appeal allowed.