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2017 Supreme(Online)(Bom) 26
HIGH COURT OF BOMBAY
S.J. KATHAWALLA, J
Larsen & Toubro Limited – Appellant
Versus
Shree Ahuja Properties & Realtors Private Ltd. – Respondent
COMM. ARBITRATION PETITION (L) NO.243 OF 2016
For the Appellants/Petitioners: Dr. Birendra Saraf, Mr. Sachin Chandarana, Mr. Rashid Boatwalla, Lipsa Unadkat
For the Respondents: Mr. P. Chidambaram, Mr. Ankur Chawla, Mr. Aditya Raut, Ms. Sujata More, Ms. Kanika Singh, Mr. Bhuvneshwar Pathak
The court affirmed that a performance guarantee is an unconditional commitment, not requiring evidence of loss by the benefiting party prior to invocation.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 9 - Petition seeking relief in the form of security and injunction against invocation of a performance guarantee - Petitioner contends that the guarantee constitutes an indemnity and is thus conditional, requiring proof of default by the contractor - Court finds the performance guarantee to be unconditional, binding PNB to disburse funds without requiring Ahuja Properties to establish any defaults - The performance guarantee invoked by Ahuja Properties does not require evidence of loss to be provided before payment - Claims of irretrievable injustice and fraud by the petitioner were rejected as no compelling evidence was presented - Petition dismissed. (Paras 1, 12, 18, 20, 23)
(B) Indemnity vs Bank Guarantee - Distinction clarified, emphasizing the necessity for the clear language of contracts, with specific regard to the unconditional nature of the performance guarantee. (Paras 11, 13)
(C) Business Practices - The obligations and expectations of contractors and clients are outlined, including timelines and certifications of completion, underscoring the importance of these factors in contractual disputes. (Paras 3.3, 19)
JUDGMENT:
1. By the above Arbitration Petition filed under Section 9 of the Arbitration and Conciliation Act , 1996 (‘the Act’), the Petitioner -- Larsen & Toubro Limited (‘L & T’) has sought reliefs against Respondent No.1 -- Shree Ahuja Properties and Realtors Pvt. Ltd. (‘Ahuja Properties’) and the Respondent No. 2 -- Punjab National Bank (‘PNB’) in terms of prayer clauses (a) to (d) of the Petition, interalia for Ahuja Properties to furnish security towards the claim of L &T, appointment of Court Receiver for the unoccupied flats in the Residential Project at Prabhadevi, an order of injunction against Ahuja Properties, its servants, agents and officers from in any manner dealing with and/or creating third party rights in respect of the unoccupied flats in the Project. L & T is also seeking urgent reliefs in the nature of a temporary order and injunction to restrain Ahuja Properties from in any manner invoking or making any demand on, or receiving, or recovering any amount from PNB, under a document titled "Performance Guarantee" bearing No.2175ILGO16614 dated 16th July, 2014 (‘PG’) extended from time to time, the last being upto 31st December, 2016, and against PNB from making payment under the PG to Ahuja Properties and/or anyone else.
2. Since Ahuja Properties had issued an invocation letter dated 25-10-2016 to PNB, L & T on 26-10-2016 filed the present Petition and moved this Court for urgent ad- interim reliefs, when PNB was restrained from making any payment to Ahuja Properties under the PG upto 27-10-2016. On 27-10-2016, Ahuja Properties submitted in Court a copy of the invocation letter dated 25-10-2016, and it was contended on behalf of L & T that the same was not in accordance with the PG. Ahuja Properties therefore withdrew the said invocation letter with liberty to issue a fresh letter of invocation. In the evening of 27-10-2016 itself, Ahuja Properties by a fresh letter of invocation sought to invoke the PG. L & T therefore, on 28-10-2016, moved this Court in Chambers for urgent ad-interim reliefs. L & T was allowed to carry out amendments to the Petition, without prejudice to the rights and contentions of the parties. The matter was listed on 04-11-2016 for final hearing, and in the meantime the order restraining PNB from making any payment under the said PG was passed. The matter was finally heard on 04-11-2016, and the same was reserved for orders after the parties filed their written submissions.
3. The brief facts as set out by L & T in the above Petition are as under:
3.1 In or about November, 2009, Ahuja Properties floated a tender for construction of a world class residential complex at Prabhadevi, Mumbai ( ‘the said Project’). L & T was one of the many entities which participated in the bidding for the said tender.
3.2 L & T was appointed as a Contractor by Ahuja Properties under Contract dated 02-03-2010 ( ‘the Contract’) [ at page 64 Exhibit C to the Petition]. M/s. DTZ International Property Advisers Pvt. Ltd. were appointed as the Project Manager. 3.3 Under the said Contract, the stipulated date of completion of works by L & T was 28-02-2012 (‘original completion date’).
3.4 Under Clause 8.1 of the Contract, L & T was required to submit, interalia an unconditional and irrevocable, on demand: (A) Performance Bond ( ‘Performance Guarantee’) in the format attached to the conditions of the Contract as Annexure B, which Guarantee was to be issued by a reputed national or international bank in Mumbai, being 2.5% of the Contract sum and (B) the Performance Indemnity Bond, in the format attached to the conditions of the Contract as Annexure AA ( the ‘Performance Indemnity Bond’) for an amount of 2.5% of the Contract sum.
3.5 The works under the Contract were not completed on or before the original completion date i.e. 28-02-2012.
3.6 Extensive correspondence was exchanged between L & T and Ahuja Properties, with regard to the works not being completed on or before the original completion date.
3.7 After several me
