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J.CHELAMESWAR, A.M.SAPRE
Gangotri Enterprises Ltd. – Appellant
Versus
Union of India – Respondent
What is the scope of arbitration to adjudicate damages before encashment of a bank guarantee in contract disputes? What are the conditions for granting or denying an injunction against encashment of a bank guarantee where damages are disputed but not yet adjudicated? What is the correct interpretation of Clause 62 (GCC) or equivalent provisions regarding recovery of sums due and their relation to bank guarantees?
Key Points: - The court held that damages claims must be adjudicated in arbitration before encashment of the bank guarantee (Para 42, 43, 45, 46) (!) (!) (!) (!) . - The grant of injunction depends on prima facie case, balance of convenience, and irreparable loss, following Union of India (DGS&D) precedent (!) . - The bank guarantee under consideration could not be encashed because the sum claimed was not due or payable and related to a separate contract, with arbitration pending (Para 42) (!) . - The decision distinguished prior interpretations under Clause 62 and aligned with Union of India (DGS&D) (Para 43) (!) . - The arbitral proceedings for the relevant contract remained pending, and the guarantee pertained to a different contract, affecting encashment rights (Para 42) (!) . - The High Court and District Court were deemed to have jurisdictional errors for not applying the Union of India (DGS&D) standard (Para 43) (!) . - The arbitral tribunal was constituted for claims and counterclaims, with ongoing proceedings (Para 17) (!) . - The appellant was granted injunction restraining encashment of Bank Guarantee No. 12/2006 dated 04.08.2006 (Para 46) (!) . - The case cites Union of India vs. Raman Iron Foundry and Iron and Hardware (India) Co. v. Firm Shamlal and Bros. for recovery principles (Para 32, 38-39) (!) (!) (!) . - The court emphasized that a claim for damages is not a sum presently due and payable and cannot be recovered under Clause 18/62 by appropriating other sums (Para 38-46) (!) (!) .
JUDGMENT :
Abhay Manohar Sapre, J.
1. Leave granted.
2. This appeal is filed against the final judgment and order dated 23.07.2012 of the High Court of Uttar Pradesh Judicature at Allahabad in F.A.F.O. No. 2930 of 2012 whereby the High Court dismissed the appeal filed by the appellant herein and upheld the order of District Judge which had refused to grant an interim injunction restraining encashing of the Bank Guarantee by the respondents herein.
3. In order to appreciate the issue involved in this appeal, which lies in a narrow compass, it is necessary to set out the relevant facts in brief infra.
4. The respondents, i.e., North Central Railway invited tender for doing “earth work in embankment and cutting including provision of machine crushed/blended material blanketing layer and construction of RCC Box type minor bridges at CH-84700-M to 114100-M”, in connection with laying down of Agra-Etawah new BG Rail Line. The appellant-a Limited Company applied for the said tender and its tender being the lowest one was accepted by the respondents on 14.03.2005 and accordingly the letter of acceptance was issued in appellant’s favour. The contract agreement No. CE(C) ‘North’ ALD/A-E/Contract/
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