The bank guarantee must be honored in accordance with its terms, except in cases of clear fraud or special equities.

ORDER :

Prakash Shrivastava, J.

1. By this miscellaneous petition under Article 227 of the Constitution, the petitioner has challenged the order dated 29.02.2020 whereby the appeal preferred by the petitioner under Section 37(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') has been dismissed by the Commercial Judge, Jabalpur.

2. The case of the petitioner is that the petitioner was awarded the contract for the composite electrical work for design, supply, erection, testing and commissioning of single phase overhead equipment including THS and SPADA works in Manikpur (Excl)-Satna (Incl) and Satna to Rewa station of Jabalpur Division of West Central Railway. The total contract value was Rs. 60,42,06,825.25 and the work was to be completed within a period of 30 months from the date of issuance of Letter of Acceptance. The Letter of Acceptance was issued on 14.07.2016. The petitioner had executed as many as nine performance guarantee. According to the petitioner, the progress of the work at the site had suffered on account of the surprise check done by the CBI alongwith the Vigilance Officers of the Railway. The case of the petitioner is that the petitioner was asked by the railway to recast all foundation constructed by that time at its own cost. The time for execution of the work was extended upto 30th of September, 2016. On 17.12.2016, the petitioner had agreed to recast all the foundation which were cast prior to CBI-Railway Vigilance joint surprise check. Finally, the CBI had found that only ten out of 3553 foundation were defective but by that time petitioner had already recasted 983 foundation as on 06.06.2017. Respondent had issued the notice to make good the progress or else the action was proposed in terms of clause 62 of the Central General Conditions of Contract for termination of a contract and getting the balance work done without the petitioner's certification. Thereafter, the notice dated 27.06.2017 was given by granting further 48 hours time on the same terms and also informing that failure to do the work will result in forfeiture of the security deposit and encashment of performance guarantee. Thereafter, the respondent had issued fresh tender notice for the remaining work. On 17.7.2017 the contract of the petitioner was terminated and steps were taken for encashment of the bank guarantee. The petitioner had filed application under Section 9 of the Act of 1996 and the Commercial Court by order dated 04.07.2017 had stayed the encashment of bank guarantee. During the pendency of the application under Section 9 of the Act, the arbitration proceedings had commenced, therefore, the Commercial Court by order dated 21.8.2019 under Section 9(2) & (3) of the Act had restrained the encashment of the bank guarantee by further permitting the petitioner to file stay application under Section 17 of the Act before the Arbitral Tribunal. The interim order was made operative for a period of 45 days and the proceedings under Section 9 of the Act were terminated. The petitioner thereafter had filed an application under Section 17 of the Act before the Arbitrator with a prayer to restrain the respondent from encashing the nine bank guarantees. The learned Arbitrator after hearing both the parties by order dated 08.10.2019 had rejected the application under Section 17 of the Act. This order of the learned Arbitrator was subject matter of challenge before the Commercial Judge at the instance of the petitioner under Section 37(2) of the Act and by the impugned order dated 29.02.2020, the Commercial Court has dismissed the appeal.

3. Learned counsel appearing for the petitioner submits that the delay in execution of the contract is not attributable to the petitioner, therefore, termination of contract with a short notice of 7 days and 48 hours is arbitrary. He further submits that the bank guarantee cannot be encashed because in terms of the contract between the parties, the amount can be recovered on