FAO (OS) COMM. 17/2022 Page 1 of 20

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IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 23^rd SEPTEMBER, 2022

IN THE MATTER OF:

+

FAO (OS) COMM. 17/2022 & C.M. APPLs. 4701/2022 &

10471/2022

CANARA BANK

..... Appellant

Through:

Mr. Pradeep Dewan, Sr. Advocate

with Ms. Anupam Dhingra, Advocate.

versus

THE STATE TRADING CORPORATON OF INDIA LTD. AND

ANR

...... Respondents

Through:

Mr. Tarkeshwar Nath, Mr. Lalit

Mohan, Mr. Shivam Roy and Mr.

Harshit

Singh,

Advocates

for

respondent No.1/ STC.

Mr. Amit Dhingra and Mr. Rohit

Mahajan, Advocates for respondent

No.2.

CORAM:

HON'BLE THE CHIEF JUSTICE

HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD

J U D G M E N T

SUBRAMONIUM PRASAD, J

1.

The present appeal under Section 37 of the Arbitration and

Conciliation Act, 1966 (hereinafter referred to as the„Arbitration Act‟) has

been preferred by Canara Bank against the Order and Judgment dated

21.12.2021 passed by the Ld. Single Judge in OMP (COMM) 376/2016

dismissing the application filed by Canara Bank under Section 34(4) of the

Arbitration Act (hereinafter referred to as the„Impugned Order‟), and also

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/003844

FAO (OS) COMM. 17/2022 Page 2 of 20

setting aside the majority award of the Arbitral Tribunal dated 29.04.2016 to

the extent that nil amount was awarded as interest to Canara Bank

(hereinafter referred to as the„Impugned Judgment‟).

2.

The facts of the case indicate that back in 2008, Helm Dungemittel

GMBH („Helm’) entered into a contract to supply 3 lakh tonnes of urea @

685.50 per metric tonne (“Contract”) to the State Trading Corporation of

India (“STC”). Clause 13 of the Contract called for Helm to furnish an

irrevocable performance bank guarantee in favour of STC, for 3% of the

total contract value, through any first-class international bank having its

branch office in New Delhi (hereinafter referred to as „PBG’). Since

Helm‟s banker (hereinafter referred to as the „German Bank’) did not have

any branch office in New Delhi, Canara Bank issued a PBG of USD

67,86,450/- in favour of STC. This PBG was duly secured by a back-to-back

counter-guarantee issued by German Bank in favour of Canara Bank for an

identical amount (hereinafter referred to as„counter-guarantee‟).

3.

However, certain disputes arose between Helm and STC regarding

the price of the goods to be supplied. Helm insisted on the contract price,

whereas STC sought for reduction. Helm contended that as the contract

stood discharged by performance, the PBG also stood discharged.

4.

On 10.02.2009, STC invoked the PBG issued by Canara Bank. On

the same date, Canara Bank also sought to invoke the counter-guarantee.

However, the German Bank declined payment, contending that the demand

was not in terms of its guarantee. The very next day, Canara Bank released

the PBG, although German Bank did not release monies under the counter-

guarantee.

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/003844

FAO (OS) COMM. 17/2022 Page 3 of 20

5.

On 12.02.2009, Helm filed a suit being CS(OS) 313/2009 titled

„Helm Dungemittel Gmbhv. The State Trading Corporation & Ors.‟ before

a bench of this Court impleading STC, Canara Bank, and German Bank

seeking a permanent injunction against Canara Bank restraining it from

invoking the counter-guarantee. An application seeking ad-interim

injunction was also filed in the suit.

6.

On 13.02.2009, vide an Order passed in CS(OS) 313/2009, an ad-

interim ex-parte injunction was granted in favour of Helm, thereby

restraining Canara Bank and German Bank from releasing the perfo