DIRECTOR GENERAL PROJECT VARSHA vs NAVAYUGA VAN OORD JV

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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Pronounced on : 17 September 2024

+ ARB. A. (COMM.) 15/2024
DIRECTOR GENERAL PROJECT VARSHA …..Appellant
Through: Mr. K.K. Venugopal, Sr. Advocate with Ms. Aishwarya Bhati, ASG and Mr. Kapil Arora, Mr. P. Veer Misra, Ms. Palak Nagar, Ms. Kajal Arora, Mr. Siddhant Kohli, Mr. Kartik Sharma, Ms. Anuradha and Mr. Aryaman Vachher, Advocates.

versus

NAVAYUGA VAN OORD JV …..Respondent
Through: Mr. Saurav Agrawal, Mr. Shantanu Agarwal, Mr. Aadya Chawla, Mr. Harshit Malik, Mr. Manas Arora, Ms. Chandreyee Maitra, Ms. Sulekha Agarwal and Ms. Allaka, Advocates.

CORAM:
HON’BLE MR. JUSTICE C. HARI SHANKAR
JUDGMENT
% 17.09.2024

1. Consequent on completion of hearing, this Court, on 12 September 2024, allowed the present appeal and set aside the impugned Order dated 10 January 2024 passed by the learned Arbitral Tribunal, presently in seisin of the disputes between the parties, for reasons to follow.

2. This judgment sets out the reasons for the decision.

3. In order to avoid prejudice to the parties, the order dated 12 September 2024 and the present judgment are being released together, on 17 September 2024.

The Dispute

4. Arbitral proceedings are presently ongoing between the respondent Navayuga-Van OORD JV as the claimant and the appellant Director General Project Varsha, of the Indian Navy, as the respondent. An application under Section 171 of the Arbitration and Conciliation Act, 19962 stands decided by the learned Arbitral Tribunal, comprising three learned arbitrators, by order dated 10 January 2024. This appeal, under Section 37(2)(b)3 of the 1996 Act, assails the said order.

5. I have heard Mr. K.K. Venugopal, learned Senior Counsel for the appellant and Mr. Saurav Agrawal, learned counsel for the respondent, at length.

Facts

6. The appellant floated a tender, in November 2016, for construction of the outer Harbour Package at Project Varsha, South-West of Visakhapatnam, Andhra Pradesh. The respondent Joint Venture emerged as the successful bidder, and Letter of Acceptance was issued to the respondent by the appellant on 24 October 2017. This culminated in a contract dated 19 December 2017.

7. As required by the contract, the respondent issued, in favour of the appellant, two Performance Bank Guarantees4 dated 18 November 2017 and 29 November 2017 for ? 292.54 crores and ? 74,16,97,410/– respectively, an Advance Bank Guarantee5 dated 9 December 2017 for ? 188,82,87,026/– and four Retention Money Bank Guarantees6 for ? 32 crores, 3.7 crores, 22.5 crores and 20 crores. The impugned order restrains the appellant from invoking these Bank Guarantees7, for a total amount of ? 633,73,84,436/–.

8. It is necessary, here, to reproduce the relevant recitals contained in the BGs furnished by the respondent:

PBGs:
“In consideration of office of the Director General, Project Varsha, IHQ MoD (Navy), New Delhi -110011 acting on behalf of the President of India (hereinafter referred as ”the Employer”) having entered into a contract No. DGV /0113/OHMW/01 dated 24.10.2017 for “Construction Of Outer Harbour for Project Varsha” (hereinafter referred to as the said Contract) with M/s. Navayuga-Van Oord JV, Plot No.379, Road No. 10, Jubilee Hills, Hyderabad-500033, hereinafter referred to as the “Contractor” for Works of the said Contract to the said Contractor and whereas the Contractor has undertaken to produce a bank guarantee for ten percent (10%) of total Contract value amounting to Rs.292,54,00,000/- (Rupees Two Hundred Ninety Two Crores and Fifty Four Lakhs only) to secure its obligations to the Employer.

We the Union Bank of India, Industrial Finance Branch- Hyderabad, First floor, The Grand, Raj Bhavan Road, Somajiguda, Hyderabad – 500 082, Telangana, having our registered office at Union Bank Bhavan, 239, Vidhan Bhavan Marg, Narimanpoint, Mumbai – 400 021, hereby expressly, irrevocably and unreservedly undertake and guarantee as principal obligors on behalf of the Contractor that, in the event that the Employer declares to us that the Works have not been supplied according to the Contractual obligations under the aforementioned Contract, we will pay you, on demand and without demur, all and any sum up to a maximum of Rs.292,54,00,000/- (Rupees Two Hundred Ninety Two Crores and Fifty Four Lakhs only).

l. Your written demands shall be conclusive evidence to us that such repayment is due under the terms of the said Contract. We undertake to effect payment upon receipt of such written demand.”

ABG

“1. With reference to contract No.DGV/0113/0HMW/01 dated 24.10.2017 for “Construction of Outer Harbour for Project Varsha” concluded between the Director General, Project Varsha, IHQ MoD (Navy), New Delhi-110011 acting on behalf of the President of India, hereinafter referred to as “the Employer” and M/s.Navayuga-Van Oord JV, Plot No.379, Road No. 10, Jubilee Hills, Hyderabad-500033 hereinafter referred to as “the Contractor” for the Works as detailed in the above Contract which is hereinafter referred to as “the Said Contract” and in consideration of the Employer having agreed to make an advance payment in accordance with the terms of the Said Contract to the said Contractor, we the Union Bank of India, Industrial Finance Branch – Hyderabad, First floor, The Grand, Raj Bhavan Road, Somajiguda, Hyderabad- 500 082, Telangana, having our registered office at Union Bank Bhavan, 239, Vidhan Bhavan Marg, Narimanpoint, Mumbai – 400 021, hereinafter called “the Bank” hereby irrevocably undertake and guarantee to you that if the Said Contractor would fail to deliver the Works in accordance with the terms of the Said Contract for any reason whatsoever or fail to perform the Said Contract in any respect or should whole or part of the said on account payments at any time become repayable to you for any reason whatsoever, we shall, on demand and without demur pay to you all and any sum up to a maximum of Rs.199,94,47,196/- (Rupees One Hundred Ninety Nine Crores Ninety Four Lakhs Forty Seven Thousand One Hundred Ninety Six only) paid as advance to the Said Contractor in accordance with the provisions contained in Clause 14.2 of the Said Contract.

2. We further agree that the Employer shall be the sole judge as to whether the Contractor has failed to deliver the Works in accordance with the terms of the Said Contract or has failed to perform the Said Contract in any respect or the whole or part of the advance payment made to Contractor has become repayable to the Employer and to the extent and monetary consequences thereof by the Employer.

3. We further hereby undertake to pay the amount due and payable under this Guarantee without any demur merely on a demand from the Employer stating the amount claimed. Any such demand made on the Bank shall be conclusive and binding upon us as regards the amounts due and payable by us under this Guarantee and without demur. However, our liability under this Guarantee shall be restricted to an amount not exceeding Rs.199,94,47,196/- (Rupees One Hundred Ninety Nine Crores Ninety Four Lakhs Forty Seven Thousand One Hundred Ninety Six only).”
(Emphasis supplied)

RBGs

“1. In consideration of Director General, Project Varsha, IHQ MoD (Navy), New Delhi-110011 acting on behalf of the President of India (hereinafter referred as “the Employer” which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators and assignees) having awarded to M/s. Navayuga-Van Oord JV, having its Office at Plot No.379, Road No.10, Jubilee Hills, Hyderabad – 500 033 (hereinafter referred as “the contractors” which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators and executors), vide Contract No-DGV/0113/OHMW/01 dated 24.10.2017 amounting to Rs. 3635,35,85,389/- for the works know as “Construction of Inner/Outer Harbour” for Project Varsha (hereinafter referred to as “the Contract”).

2. We, Union Bank of India, Industrial Finance Branch – Hyderabad, First floor, The Grand, Raj Bhavan Road, Somajiguda, Hyderabad – 500 082, Telangana, have been informed by the Contractor that pursuant to provisions in Conditions of the aforesaid Contract, Retention Money is to be deduced at the rate Ten (10) percent from each Interim Payment Certificate, subject to a maximum of Ten (10) percent of the Accepted Contract Amount. However, no deduction for the Retention Money shall be made from the Interim Payment Certificates provided the Contractor submits an unconditional Bank Guarantee (the “RMBG”) for an amount equal to the Retention Money to be withheld on the anticipated certified amount for the following quarter, pursuant to Sub-Clause 14.3 of Contract conditions.

3. At the request of the Contractor, we, the undersigned Union Bank of India, Industrial Finance Branch – Hyderabad, First floor, The Grand, Raj Bhavan Road, Somajiguda, Hyderabad – 500 082, Telangana, having our registered office at Union Bank Bhavan, 239, Vidhan Bhavan Marg, Narimanpoint, Mumbai-400 021, (hereinafter referred to as “the Bank”) which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators, executors, representatives and assignees, do hereby irrevocably undertake to pay you, the Beneficiary/Employer, without any demur, reservations, recourse, contest or protest and/ or without referring to any other sources including the Contractor, merely on a written demand from the Employer stating that the claimed amount is due by way of breach by the said Contractor of any of the terms or conditions contained in the aforesaid Contract or by reason of the Contractor’s failure to perform the said Contract, any sum or sums not exceeding Rs. 32,00,00,000/- (Rupees Thirty Two Crore only) (the “guaranteed amount” or “Guarantee”) [10% of the anticipated certified amounts for the · following Quarter]. Any and all monies, but not exceeding Rs.32,00,00,000/- (Rupees Thirty Two Crore only) [Ten (10) percent of the Accepted Contract Amount] at any time up to 01 Sep 2023 (End of the Defect, Notification Period] any such demand made by the Employer on the Bank shall be conclusive and binding no withstanding any difference between the Employer and the Contractor or any dispute pending before any Court, Tribunal, Arbitrator or any other Authority. We hereby agree that the Guarantee herein contained shall be irrevocable and shall continue to be enforceable till the Employer discharge this Guarantee.”
(Emphasis supplied)

9. Disputes arose between the appellant and the respondent. On the premise that it anticipated coercive action by the appellant, the respondent approached this Court by means of OMP (I) (Comm) 208/20228, seeking two reliefs. The first was that an independent agency be appointed to work out an effective way forward and to enable expeditious completion of the contractual works, during which period the appellant be restrained from taking coercive steps against respondent. The second was a restraint against the appellant invoking or encashing the BGs furnished by the respondent during the pendency of the arbitral proceedings.

10. A learned Single Judge of this Court disposed of OMP (I) (Comm) 208/2022 by judgment dated 30 June 2022, which concluded, in para 36, thus:
“36. It was conceded on behalf of the respondent that the petitioner is continuing to work on the site even after April, 2022 and no express letter indicating termination of Contract has been served upon the petitioner. An ambivalent situation prevails wherein the respondent though has served Notice of Correction and the Delay Damages Notice, but has yet not served any Notice of termination or has notified the petitioner to stop the work at site after April, 2022. Therefore, as held in the cases of Hindustan Construction Limited9 that though invocation of Bank Guarantee cannot be prohibited or injuncted, it is held to be a fit case where the respondent is directed to give a prior Notice of 15 days expressing his intention to revoke the Bank Guarantee before revocation of Bank Guarantees.”

11. The respondent challenged the aforesaid judgment dated 30 June 2022, of the learned Single Judge, before a Division Bench of this Court by way of FAO (OS) (Comm) 175/202210. The Arbitral Tribunal, which has come to pass the impugned Order, was constituted in the meanwhile on 2 January 2023.

12. The respondent filed an application before the learned Arbitral Tribunal under Section 17 of the 1996 Act seeking, inter alia, restraint against the appellant invoking or encashing the BGs. In that view of the matter, the Division Bench of this Court disposed of FAO (OS) (Comm) 175/2022, on 16 March 2023, in the following terms:
“In view of the foregoing, the present appeal is dismissed as not pressed, and the interim order dated 18.07.2022, passed by this Court, in the instant appeal, is hereby vacated.

Needless to state that the appellant is at liberty to prosecute the aforesaid application under Section 17 of the Arbitration and Conciliation Act, 1996, before the Arbitral Tribunal, in accordance with law.

The appeal as aforestated, is dismissed as not pressed, and disposed of accordingly. Pending applications also stand disposed of.”

13. By the presently impugned Order dated 10 January 2024, the learned Arbitral Tribunal has allowed the respondent’s application and has restrained the appellant from invoking any of the BGs, pending disposal of the proceedings by the learned Arbitral Tribunal.

14. The appellant is in statutory appeal before this Court, under Section 37(2)(b) of the 1996 Act.

Reasoning of the learned Arbitral Tribunal

15. Paras 61 to 112 of the impugned order set out the reasoning of the learned Arbitral Tribunal in arriving at its conclusion.

16. In paras 63 to 72, the learned Arbitral Tribunal has set out the law relating to injunctions against invocation of BGs and has referred, inter alia, to the judgments of the Supreme Court in Ansal Engineering Projects Ltd v Tehri Hydro Development Corporation Ltd11, Standard Chartered Bank v Heavy Engineering Corporation Ltd12, Himadri Chemicals Industries Ltd v Coal Tar Refining Co13, Vinitec Electronics Pvt Ltd v HCL Infosystems Ltd14 and Gujarat Maritime Board v Larsen and Toubro Infrastructure Development Projects Ltd15.

17. Thereafter, in paras 73 and 74, the impugned order delineates the precise issue arising for consideration thus:
“73. On the contrary, at present, what needs to be determined is only whether the Tribunal shall be justified in granting stay of the invocation of the 7 (seven) BGs in question furnished in favour of the Respondent by the Bank at the Claimant’s behest. This consequently, requires a two-fold examination. Firstly, it needs to be ascertained whether or not the 7 (seven) BGs in question are in essence unconditional and if not, whether the Respondent validly invoked the said BGs by and through the means of the BG Invocation Letters dated 06 July 2022 duly in accord with the prescribed conditions. Secondly, whether any of the exceptions of egregious fraud or special equities prima facie come into play to support the Claimant’s prayer for stay of invocation of the subject BGs.

74. Be it noted, learned Senior Counsel for the Claimant has not pressed the contention of fraud as a ground to seek an injunction on the invocation of the BGs. The Tribunal, therefore, need not delve into the same. However, the main thrust of the arguments advanced on behalf of the Claimant is that the invocation of the BGs in question not being in accordance with the terms thereof, is bad in law. The second plank of the Claimant’s contention is that special equities exist in favour of the Claimant as irreparable harm and injury will be caused to it if the invocation and encashment of the BGs is not restrained.”

18. From paras 75 to 97, the learned Arbitral Tribunal addresses the first aspect of whether the invocation letter dated 6 July 2022 was in terms of the concerned BGs.

19. For this purpose, the learned Arbitral Tribunal first refers to the decision of the Supreme Court in Hindustan Construction Company Ltd v State of Bihar16 and the judgment of a learned Single Judge of this Court in Basic Tele Services Ltd v UOI17, which was upheld by the Division Bench in UOI v Basic Tele Services Ltd18. The impugned Order extracts the clauses of the various BGs. Having done so, the learned Arbitral Tribunal proceeds, in paras 87 to 98, to examine whether the letter of invocation dated 6 July 2022 was in conformity with the requirements of the BGs. In this regard, the learned Arbitral Tribunal holds in paras 92, 93 and 95 to 98 as under:
“92. Simultaneously, however, on a plain reading of the terms of the respective BGs, it is also quite clear that the payment under:

(i) the 2 (two) PBGs is provisional to a situation or event whereby the Respondent/Employer makes an explicit declaration that the works have not been supplied by the Claimant/Contractor in accordance with the Contractual obligations;

(ii) the ABG is premised on circumstances where either the Claimant/Contractor has failed to deliver the works in accordance with the terms of the subject Contract or has failed to perform the subject Contract in any respect or when the whole or part of the advance payments become repayable to the Respondent/Employer;

(iii) the 4 (four) RMBGs is qualified to a situation whereby the Respondent/Employer again makes an explicit declaration that the Claimant/Contractor has committed a breach of the subject Contract and that the amount claimed under the RMBGs has become due by reason of breach by the Claimant/Contractor.

93. There are, therefore, pre-requisite stipulations expressly embedded in the 7 (seven) BGs specifying the foundational circumstances and consequent declarational requirements to be made by the Respondent that resultantly govern the Respondent’s entitlement to invoke and get the BGs en-cashed in the first place. The Tribunal may hasten to state that the aforesaid foundational circumstances are imperative for invoking the BGs in question and form the basis for invocation expressly stated in the BGs itself, but the same are conspicuously absent in the BG Invocation letters dated 06 July 2022. The Respondent/beneficiary, while striving to invoke the BGs in question, has even failed to assert in the said Invocation letters that the foundational circumstances have arisen, which, thus, makes such invocation invalid in law.

*****

95. In the present case, it is manifest that the BG Invocation letters dated 06 July 2022, all of which are similarly worded, invoke the BGs in question on the assertion that the “Notice for Termination of contract has been issued” to the Claimant and there has been a “breach of contractual terms and conditions”. It is, however, clear that the said BG Invocation letters nowhere even aver that the demand against the:

(i) 2 (two) PBGs is being made due to non-supply of works by the Claimant in accordance with the Contractual obligations;

(ii) ABG is being made due to the Claimant’s failure to perform/deliver the works in accordance with the terms of the subject Contract or that the whole or part of the advance payments have become repayable to the Respondent;

(iii) 4 (four) RMBGs is being made due to the Claimant’s breach of the subject Contract and, resultantly, the amount claimed under the RMBGs has become due consequent to such breach.

96. The Tribunal, therefore, is of the considered view that the wording of the BG Invocation Letters dated 06 July 2022 is not in accord with the requirements of the 7 (seven) BGs in question. That being the case, the invocation of the BGs is not in accordance with the terms thereof and is, accordingly, untenable in law.

97. In addition to the above, de hors the wording of the BG Invocation Letters dated 06 July 2022, it needs to be accentuated that the said Invocation Letters contain an identical paragraph in the form of paragraph 4, which quotes a distorted portion of the clause contained in the 4 (four) RMBGs, despite the fact that the 2 (two) PBGs and the ABG nowhere contain such a similarly worded clause. Besides, the fact remains that the Respondent also has placed on record subsequent letter dated 13 July 2022 with respect to one of the PBGs issued by the State Bank of India.

98. These two aforesaid facets, on a combined appreciation of all facts and circumstances, reinforce and substantiate the Tribunal’s finding that the invocation of the 7 (seven) BGs in question by the Respondent is not in accordance with the terms thereof and is, accordingly, unsustainable in law.”
(Emphasis supplied)

20. Thus, the learned Arbitral Tribunal has found the letter dated 6 July 2022 addressed by the appellant to the concerned Banks seeking to invoke the BGs not to be in conformity with the requirements of the BGs themselves.

21. The impugned Order proceeds, thereafter, to examine the aspect of “special equities”. There can be no dispute that, even where the letter of invocation is in terms of the Bank Guarantee, its invocation may be injuncted, where there exist “special equities” justifying such injunction.

22. For this purpose, the learned Arbitral Tribunal first observes that, in Ansal Engineering Projects, the Supreme Court has held interference with the enforcement of unconditional BGs to be justified where egregious fraud or special equities are found to exist. The learned Arbitral Tribunal proceeds to rely on the judgment of this Bench in CRSC Research and Design Institute Group Company Ltd v Dedicated Freight Corridor Corporation of India Ltd19 as well as the judgment of the Division Bench of this Court in the appeal preferred thereagainst in CRSC Research and Design Institute Group Company Ltd v. Dedicated Freight Corridor Corporation of India Ltd20.

23. In para 103, the impugned Order notes that while in BSES Ltd v Fenner India Ltd21, the Supreme Court held irretrievable injury and irretrievable injustice as species of the “special equities” genus, in some other cases they were held to be distinct and different. The learned Arbitral Tribunal thereafter refers in paras 104 and 105 to the decision of this Court in Hindustan Construction Co. Ltd v National Hydro Electric Power Corporation Ltd22, and Hitachi Energy India Ltd v Sterlite Power Transmission Ltd23.

24. Having thus cited judicial authorities on the point, the learned Arbitral Tribunal proceeds, in paras 106 to 112, to hold that the consideration of special equities would also justify injunctive invocation of the BGs provided by the respondent as, if they were invoked, the respondent would be subjected to irreversible financial prejudice. These paragraphs merit reproduction thus:
“106. The test of special equity or irrevocable injustice is a matter of assessment by the concerned adjudicatory body on the particular facts presented to it while seeking stay of invocation. The injury or injustice must be irrevocable, irremediable and irreversible. The party seeking an order for restraint must be able to demonstrate that the invocation and consequent payment by the bank to the intended beneficiary would set the party back irreversibly in monetary terms, which it may not be able to recover in the foreseeable future.

107. Primarily, therefore, whether or not special equities exist depend on the facts and circumstances of each case and in the case at hand, the facts and circumstances of the case cumulatively demonstrate special equities in favour of the Claimant/Applicant, for the Tribunal is of the considered view that financial burden of almost Rs. 633 crores ought not to be imposed upon the Claimant/Applicant by allowing the Respondent to encash the BGs in question. The special equity also stands satisfied by reason of the Claimant facing an immediate and huge financial distress if the payment is made by the concerned Banks, for it is not the mandate of the law that encashment of a BG be permitted at the drop of a hat with eyes shut and with a obscured vision ignoring the totality of the facts and circumstances. Since irretrievable injustice is likely to ensue to the Claimant, invocation of the BGs in question certainly deserves to be restrained.

108. This finding of the Tribunal gets further bolstered by the Claimant’s Letter dated 11.07.2022 to the Respondent in reply to the BG Invocation Letters containing a previous ante-litem motam statement whereby the Claimant highlighted to the Respondent that it has incurred huge expenditure for executing the construction under the subject Contract and invocation of the BGs in question shall cause immense prejudice. The relevant part of the Claimant’s said Letter dated 11.07.2022 is reproduced below:

“Thus, as on the date, the Employer is in possession of bank guarantees, i.e., CPBGs ABGs and RMBG, from the Contractor for a total value of Rs. 633,73,84,4361-. If such invocation· of the above stated Bank Guarantees occurs, then the same is likely to cause immense prejudice to the Contractor.

4. It is stated that the Contractor has incurred huge expenditures for executing the construction under the contract, despite the Employer’s wilful default of its payment obligation”

109. Clearly, special equities emerge in favour of the Claimant as its financial position shall definitely become precarious and it will be left crippled, financially speaking, if the Respondent is permitted to realize the huge amounts covered under the 7 (seven) BGs in question furnished by the Claimant and a situation would arise in which restitution of the Claimant would become near impossible. In this context, it is profitable to allude to the decision of the Madras High Court in National Federation of Farmers Procurement Processing and Retailing Cooperatives of India Limited v NLC India Ltd24., wherein it has been held thus:

“71. The applicant/petitioner has pleaded irretrievable injury in the affidavit filed in support of this application as they have pleaded that if the bank guarantee for the huge sum, if invoked, they will be put to irreparable injury. The first respondent has also not disclosed in their counter affidavits, the details of the losses suffered by them on account of their alleged claim that the applicant/petitioner had submitted a fabricated document for the purpose of satisfying the tender conditions. The value of the contract if awarded to any bidder will be a huge one and the bank guarantee amount to be given along with the tender documents by any bidder is also for a huge sum of Rs.21,88,12,0001/- for 200 MW. Even though, the applicant / petitioner need not be put on notice by the first respondent before invoking the bank guarantee, this Court is of the considered view that being a huge sum and that too when the contract has not been awarded to the applicant/ petitioner, the invocation of the bank guarantee, even before the adjudication of the arbitral proceedings, will certainly cause the applicant, irretrievable harm / injustice. The Doctrine of proportionality, which is a special equity exception for granting injunction from invoking the bank guarantee also comes into play as the first respondent may not have suffered a huge loss equivalent to the value of the bank guarantee which is for a sum of Rs.21,88,12,000/-.

*****
74. For the foregoing reasons, since the applicant / petitioner has satisfied that irretrievable injustice will be caused to them and has also satisfied the special equities exception of proportionality for the grant of an order of injunction from invocation of bank guarantee, this Court is inclined to allow this application by granting an order of injunction against the first respondent from invocation of the bank guarantee as prayed for in this application”

110. Yet again, in the case of Chennai Metro Rail Limited v Transtonnelstroy-Afcons (JV) and Others25, the Madras High Court duly noted that likely irretrievable damage may entail on the Contractor – the Respondent therein if the beneficiary / Employer is allowed to en-cash the huge amounts involved in the BG. The relevant observations in this regard are as follows:

“27. xxxx
In case, the Appellant is allowed to encash the Bank Guarantee for Rs.117.5 Crores and later on it is found by the Arbitral Tribunal that no money is due by the respondents to the Appellant or a much lesser money is due by the respondents when compared to the Bank Guarantee value, the respondents will find it difficult to recover the unjust enrichment made by the Appellant as the amount involved is a huge sum. A balancing act will have to be done in this case as admittedly the Appellant has not crystallized its losses and there is no break-up details given by it for its alleged losses and there is also no prima-facie evidence to show that the respondents owe the Appellant the Bank Guarantee value. In the case on hand, the Arbitral Tribunal has rightly applied the test of balance of convenience and has granted the order of injunction restraining the Appellant from invoking the Bank Guarantee and at the same time protected the interest of the Appellant too by directing the respondents to keep the Bank Guarantee alive till the disposal of the Arbitration.”

111. Therefore, in the considered opinion of the Tribunal, in the instant Arbitration matter, the two exceptions against the invocation of BGs stand satisfied, namely, the Respondent’s BG Invocation Letters dated 06 July 2022 are not in terms of the BGs in question and special equity exists in favour of the Claimant/Applicant.

112. Lastly, it is worthwhile to mention that the Tribunal has also duly noted the other authorities relied upon by the learned Senior Counsel for the Respondent to bolster the Respondent’s case. However, it needs to be stated that the said decisions relate to the general position of law and deal with facts which are not applicable to the present case. As a result, the Tribunal is firmly of the view that the said judgments are distinguishable on facts and do not come to the aid of the Respondent.”
(Emphasis supplied)

Rival Contentions

Submissions of Mr. K.K. Venugopal for the appellant

25. Arguing for the appellant, Mr. Venugopal submits that the appellant was constrained to terminate the contract as the respondent had defaulted in ensuring proper and timely performance of the contract. Having thus justifiably terminated the contract, Mr. Venugopal submits that the appellant had equally justifiably invoked the BGs furnished by the respondent.

26. Mr. Venugopal submits that the decision of the learned Arbitral Tribunal is in the teeth of the law relating to injunction against invocation of unconditional BGs. He submits that the only circumstances in which invocation of an unconditional Bank Guarantee can be stayed is where there exist special equities, egregious fraud or irretrievable injustice. Where a BG is conditional, invocation may additionally be stayed where the invocation of the BG is not in terms of the BG itself.

27. Mr. Venugopal submits that the learned Arbitral Tribunal is in serious error in holding that the letters dated 6 July 2022, issued by the appellant to the Banks whereby BGs provided by the respondent were invoked, was not issued in terms of the BGs themselves. He has taken me through the said letters and submits that the most serious error in the impugned Order, which stands reflected in para 87 thereof, is that, while reproducing the paragraphs of the letters of invocation, the opening paragraphs 1 and 2 have been omitted. This, submits Mr. Venugopal, is a serious lapse on the part of the learned Arbitral Tribunal inasmuch as, in para 1 of the letters dated 6 July 2022, the appellant had also referred to the notice dated 6 July 2022 whereby the contract between the appellant and the respondent was terminated. This notice of termination, he submits, set out, in detail, the various defaults committed by the respondent and how, on that basis, the appellant had become entitled not only to terminate the agreement but also to invoke the BGs and recover the amounts guaranteed thereunder. If this notice of termination were taken into consideration, Mr. Venugopal submits that it could never be said that the letters of invocation, simultaneously issued on 6 July 2022, did not contain the requisite recitals as envisaged in the BGs. Mr. Venugopal has taken me in detail through the notice of termination of the contract dated 6 July 2022.

28. Thus, submits Mr. Venugopal, the learned Arbitral Tribunal was in serious error in holding that the letters dated 6 July 2022, whereby the BGs furnished by the respondent were invoked were not issued in terms of the Bank Guarantee themselves.

29. Adverting next to the finding that injunction of invocation of the BGs was justified on the ground of special equities, Mr. Venugopal submits that the only ground on which the learned Arbitral Tribunal held in favour of the respondent on the aspect of special equities is that, were the amounts covered by the BGs to be recovered by the appellant, the respondent would be submitted to serious and irretrievable financial prejudice and would not be able to recover the amount so realized even if the respondent were to ultimately succeed in arbitration. He submits that, besides being factually incorrect, there is no basis for this finding, which is entirely presumptive in nature. There is no empirical data, submits Mr. Venugopal, on the basis of which the finding that the invocation of BGs would result in serious financial prejudice to the respondent, could be supported.

30. On facts, Mr. Venugopal submits that, as the appellant is a wing of the Indian Navy, there is no question of the respondent being unable to reap the benefit of any arbitral award, in the event that the award goes in its favour. He further submits that the respondent is engaged in several large contracts of considerable amounts and cannot therefore be said to be in any kind of precarious financial position, as would result in irretrievable prejudice to it, were the BGs to be invoked.

31. The reliance by the learned Arbitral Tribunal on the principle of special equities is also therefore, he submits, misguided.

32. These being the only grounds on which the impugned Order has come to be passed, Mr. Venugopal submits that the Order deserves to be set aside.

Submissions of Mr. Agrawal, learned counsel for the respondent

33. Arguing for the respondent, Mr. Agrawal has sought to contend that the finding, in the impugned Order, that special equities exist, as would justify a restraint on invocation of the BGs provided by the respondent, is justified on facts. He submits that, owing to intervening circumstances beyond the control of the respondent, including the COVID-19 pandemic, it had become impossible to complete the project within the originally envisaged contractual period of 42 months. Inasmuch as the contractually stipulated period for completion of the work had been envisaged on the basis of a report of the Indian Institute of Technology26, Madras, the respondent also referred the matter to Prof Nallayarasu of IIT Madras, who opined that it would take 88 months to complete the project and that the originally stipulated contractual period of 42 months had become impossible of performance.

34. The respondent had presented the aforesaid report of Prof Nallayarasu to the appellant under cover of a letter dated 2 February 2022. Though, prior to the submission of the said opinion, the appellant and respondent were actively in discussion on the aspect of extension of the period of contract, consequent on submission of the report of Prof Nallayarasu by the respondent, all discussions ceased.

35. In these circumstances, the respondent moved this Court by way of OMP (I) (Comm) 208/2022 under Section 9 of the 1996 Act, seeking the appointment of an agency to examine the report of Prof Nallayarasu to work out a way forward to complete the work, and to restrain the appellant from taking coercive steps against the respondent by way of invocation of the BGs.

36. OMP (I) (Comm) 208/2022 was disposed of by a coordinate Bench of this Court by the order dated 30 June 2022 supra. Though the respondent assailed the judgment dated 30 June 2022 of the coordinate Bench before the Division Bench in FAO (OS) (Comm) 175/2022, the appellant, in the interregnum, terminated the contract on 6 July 2022.

37. The Division Bench, in its initial order dated 18 July 2022, directed status quo to be maintained. The respondent, thereafter, issued a notice to the appellant under Section 21 of the 1996 Act on 15 October 2022, resulting ultimately in the constitution of the learned three-member Arbitral Tribunal, which came to pass the impugned Order on 10 January 2024. The respondent, therefore, moved an application before the learned Arbitral Tribunal under Section 17 of the 1996 Act, seeking, inter alia, a restraint against the appellant invoking the BGs.

38. The application was scheduled for hearing by the learned Arbitral Tribunal on 16 March 2023. In that view of the matter, the Division Bench disposed of FAO (OS) (Comm) 175/2022, reserving liberty with the respondent to prosecute its interim prayer before the learned Arbitral Tribunal under Section 17.

39. Before the learned Arbitral Tribunal, the appellant, on 16 March 2023, gave an undertaking that it would not take coercive steps against the BGs. The learned Arbitral Tribunal thereafter proceeded to hear the respondent’s Section 17 application, resulting in the passing of the impugned Order on 10 January 2024.

40. Mr. Agrawal also placed reliance on the Notice to Correct issued by the appellant to the respondent on 3 December 2021 under Clause 15.1 of the GCC. He submits that, by the said notice, the appellant imposed, on the respondent, an entirely unrealistic and impractical requirement of achieving a progress of 2.5% average per month for the period upto March 2022. It is worthwhile to reproduce the said letter in extenso, thus:
“Contractor’s Representative
NECVO JV
NAOB, Project Varsha,
Rambilli Mandal, Visakhapatnam District,
Andhra Pradesh – 531061.
Date: 03 December 2021
Our Ref: 200807/OH/42/13065
Your Ref: None
Kind Attention: Mr. C S Nagaraja

Dear Sir,

Project Varsha

Outer Harbour- Notice to Correct as per Sub Clause 15.1 of General Conditions of Contract (GCC)

1. This refers to

a. Engineer’s letter 200807 / OH/42/11992 dated 11 March 2020.

b. NECVO’s letter NECVO-HCI-L-1374 dated 02 March 2020.

c. Engineer’s letter 200807/OH/42/11938 dated 18 February 2020.

d. Engineer’s letter 200807/OH/31/11881 dated 28 January 2020- Sub-Clause 8.6 Rate of Progress.

e. Engineer’s letter 200807/OH/31/11868 dated 23 January 2020- Delay in Works as on 31 December 2019.

2. After almost 21 months of our letter referred in para-1 (c) above, it is a serious concern that the Contractor’s failure to perform his obligations under the Contract continues. The details are provided in the following paragraphs.

3. Non-performance/further slippage in performance is observed as listed below:

a. Safety and Quality (QHSE)-List of letters which captures concerns during fortnightly QHSE meetings are enclosed as Annexure I. Some of the main concerns are:

i. Slippage in implementation of site safety plan which is reflected in a sub-optimal HSE score of 61% in July 2021 whereas the desirable HSE score is 80%.

ii. Absence of key site personnel in the QHSF, organization chart.

iii. Absence of the Contractor’s representative at site for 50% duration in the period from January 2021 till date. As per Sub Clause 4.3 temporary absence is only allowed subject to appointment of suitable replacement with Engineer’s prior consent.

iv. Poor workmanship in piling resulting in many piles showing defects.

v. Delay in testing of piles.

vi. Delay in application of protective coat to exposed reinforcement of piles and precast elements from corrosion.

vii. Sub-optimal action in carrying out Sand Stacking Area (SSA) monitoring surveys and reinstating beach profiles after finding that trigger levels have been breached. Non-compliance in this regard may become a serious impediment in renewal of environmental clearance for the overall project.

viii. Delay in closure of NCRs and QHSE observations.

b. Programme and Progress: The Engineer has highlighted to the Contractor, through letters at monthly intervals, his concerns regarding the accumulating delays in the Works. A revised programme with effective mitigation measures for the delays has also been sought.

To date, the Contractor has failed to provide a revised programme to the Engineer.

As on 31 October 2021, the status of the Works are as follows:

i Achieved progress is around 20% against planned progress of 92.5%

ii. Delay of 902 days (30.1 months) providing a forecast finish date of 23 August 2024 for Section 3 of the Works.

Therefore, the main concerns are:

iii. Insignificant progress achieved till date considering the due Time for Completion in accordance with Sub-Clause 8.2 to be 05 March 2022. Breach of obligation in timely completion is imminent, although it is acknowledged that the Contractor’s Claim for OH006 (excluding COVID-19 pandemic events) is yet to be agreed or determined.

iv. Non-submission of revised programme in accordance with Sub Clause 8.3.

Additional pertinent points to be noted:

v. The Contractor was allowed to propose alterations in the original design to suit his preferred methods of construction. After due deliberations with the designers during the period from May to July 2021, an in-principle acceptance was provided.

vi. Some alterations, like additional width in dredged trenches of seaside toe, were allowed during the actual execution of works during the ‘fair-weather working season’ from October 2020 to March 2021. The Employer sought and received from the Contractor details of the progress to be achieved over this period and the equipment that the Contractor would mobilise. The Contractor had committed to achieve considerably less progress than his planned progress as per baseline programme.

vi. The conservative forecast was not achieved. Furthermore, actual progress up to September 2021 was less than 50% of the forecast. Mobilisation of Equipment were also delayed a compared to the Contractor’s committed dates.

vii. With the onset of a further ‘fair weather working season’ from October 2021, in view of the in-principle acceptance of the Contractor’s preferred means and methods, a comprehensive revised programme was sought. The Contractor has refused to provide such programme until approval of additional cost and time sought in his proposal and continues to maintain that the original design is not constructible. It is to be noted that there is no provision in the Contract for additional cost and time as sought in the proposal.

Without dilution to the above and without prejudice to the Contract, it is acknowledged that the Parties and the Engineer have been in discussion to seek to reach a solution regarding the construction challenges projected by the Contractor. Until such time that a formal agreement has been reached in this regard (including any extension of time), the Employer is willing to take a pragmatic view of the Contractor’s progress against programme with a requirement to achieve a progress of average 2.5% per month for the period up to March 2022.

4. In view of the above, in accordance with Sub Clause 15.1 of GCC, this letter is being issued as a ‘Notice to Correct’. The Contractor is notified herein to make good the failures of his obligations under the Contract and to remedy such failures within the timescales as specified below:

a. Programme and progress:

i. Demonstration of achieving the required average rate of 2.5% per month progress for the period up to March 2022 after the receipt of this letter.

ii. Submission of revised programme as per Sub-Clause 8.3, within 14 days addressing Engineer’s comments in letter no 13021.

b. Sand Stacking Area (SSA): Reinstate the beach profiles within a month from the receipt of this letter and conduct monthly monitoring surveys without failure in future,

c. QHSE-Satisfactory close-out of all issues within two months from receipt of this letter.

Yours sincerely

Sam Eralil

Chief Resident Engineer”

41. Mr. Agrawal points out that, on the same date, i.e. 3 December 2021, the appellant’s engineer wrote to the respondent, thus:
“Contractor’s Representative
NECVO JV
NAOB, Project Varsha,
Rambilli Mandal, Visakhapatnam District,
Andhra Pradesh – 531061.

Date 03 December 2021
Our Ref 200807/OH/31/13063
Your Ref NECVO-HCI-L-2212
Kind Attention: Mr. C S Nagaraja

Dear Sir,

Project Varsha
Outer Harbour – Revised Programme with suggested completion date of April 2024

1. This refers to the following:

a. Contractor’s letter NECVO-HCI-L-2212 dated 02 December 2021.

b. Employer’s letter DGV/0113/OHMW/Contract dated 29 November 2021.

c. Engineer’s letter 200807/OH/31/13042 dated 23 November 2021.

d. Contractor’s letter NECVO-HCI-L-2188 dated 18 November 2021.

e. Engineer’s letter 200807/OH/31/13021 dated 06 November 2021 – Comments on revied programme.

f. Contractor’s transmittal NECVO-HCI-TRN-1604 dated 29 October 2021 enclosed with revised Programme for Section 3 of the Works.

g. Engineer’s letter 200807/OH/62/12992 dated 25 October 2021 – Proposal for technical issues.

h. Contractor’s letter NECVO-HCI-L-2150 dated 11 October 2021 – Proposal for technical issues.

i. Engineer’s letter 200807/OH/31/12951 dated 04 October 2021 – Revised programme.

j. Engineer’s letter 200807/OH/62/12850 dated 09 August 2021.

k. Contractor’s letter NECVO-HCI-L-2043 dated 04 August 2021 enclosed with Proposal for technical issues.

2. The Engineer has reviewed the Contractor’s submission under letter in para 1(a) above and his comments are as follows:

Comments on cover letter:

a.Para-1: Please refer the Employer’s letter DGV/0113/OHMW/Breakwater dated 15-Nov-21. The contents of this letter addresses comprehensively and voids the Contractor’s contention of unanticipated conditions.

b. Para-2: The Engineer disagrees and refutes the Contractor’s statement “Despite engaging to find a solution to these issues, none was provided to the Contractor.” The Engineer and the Employer had proactively engaged with the Contractor to address / resolve his construction difficulties. Accordingly, in consultation with the Designer an in-principle acceptance of the technical proposal submitted was provided for the Contractor to proceed with his preferred means and method. Further, the Contractor’s revised programme is not complying to Sub-Clause 8.2. Hence, the Contractor’s statement that he submitted a programme/plan with suggested means to overcome the issues showing completion by July 2025 is incorrect and misleading. Notwithstanding the non-complaint nature of the programme, the Engineer’s comments regarding matters like productivity, inadequate equipment planned, inadequate key personnel, lack of experienced manpower etc. have not been addressed.

c. Para-3: The Employer’s request to complete the outstanding Works by April 2024 is justified as the forecast completion indicated by the Contractor in his monthly report for October 2021 is of 23 August 2024 (per the updated programme as on 31-Oct-21). Further, the Contractor assured the Employer and the Engineer during the meeting with Vice Chief of Naval Staff (VCNS) on 22-Nov-21 that he will expedite the Works to complete by April 2024 by implementing revised techniques. Refer minutes issued by IN under letter DGV/0113/OHMW/Breakwater dated 02-Dec-21.

d. Para-4: The Contractor himself states that timelines are “unrealistic and not achievable”. This makes the submission of the programme infructuous. Even whilst making the statement, the Contractor has chosen not to elaborate quantitatively how the anticipated very large quantities are not fitting in against the timelines and no reasons have been provided on why the several dependencies are not in his control. Please clarify on these aspects.

Comments on enclosure:

e. Annexure I (revised programme with completion date April 2024): The Contractor is advised to submit the following.

i. Detailed narrative/ general description of the method of execution of works.

ii. Detailed programme – Level 4 or 6 (the current submission is very high level).

iii. Inter alia works like dredging, revetment beyond SCB, revetment adjacent to Groyne, electrical and mechanical works are not included in the subject programme. Please include all items of work and make it comprehensive.

iv. Resources (equipment/ marine fleet) for better understanding.

v. Reasonable estimate of manpower required to execute the works.

vi. Quarry production details.

Yours sincerely

Sam Eralil
Chief Resident Engineer”

42. This, however, submits Mr. Agrawal, is only one of a series of communications. On 29 November 2021, the appellant wrote to the respondent stating that the concerns of the respondent would be expeditiously addressed and that a revised plan for completion of the project with target completion by April 2024 would be presented to Vice Chief of Naval Staff27 by the end of November 2021. On 2 December 2021, the respondent, even while providing a revised program for completion of the project by April 2024, emphasized in para 4, as under:
“4. Although a revised programme aiming for the suggested completion dated of April 2024 is enclosed herewith, such plan will require achievement of very large quantities within very short timelines along with several dependencies, which are clearly outside the Contractor’s control. The Contractor humbly submits that the estimated volumes and timelines required by this programme are unrealistic and not achievable.”

43. On the next day, i.e., 3 December 2021, the appellant issued, to the respondent, a Notice to Correct and the revised program especially envisaging completion of the project by April 2024, which stands reproduced supra. On 2 February 2022, the respondent wrote to the appellant, in response to the Notice to Correct issued by the appellant, stating that the appellant’s Engineer had failed to objectively appreciate the difficulties which were being faced in performing the contract. It was also alleged that the inability of the respondent to perform the contract within the initially stipulated period was attributable to some extent to the defaults on the part of the appellant in adhering to its contractual obligations. Specifically drawing attention to the report of Prof Nallayarasu, the respondent submitted that it was entitled to reasonable time to perform the remainder of the contract, which had to be computed taking into account the opinion of Prof Nallayarasu. The appellant was, therefore, requested to examine the respondent’s contentions and its entitlement, including reasonable time to comply with the contract.

44. The appellant, in response, issued another Notice to Correct on 4 March 2022, in which the submissions of the respondent were refuted and denied.

45. Mr. Agrawal also placed reliance on Clause 15.6 of the contract, as amended, which provided thus:
“Without prejudice to the generality of the provisions of the Contract, if the Contractor unsuccessfully challenges any action of the Employer before a court of law regarding invocation of bank guarantee furnished under the Contract or termination of the Contract and any interim directions are obtained against the Employer, which are subsequently vacated by the court, then the Contractor shall be liable to pay:

(a) in case of a bank guarantee interest at 12% of the bank guarantee amount; or

(b) in case of termination of the Contract an amount equivalent to 1/2500 per day of the Accepted Contract Amount.

for the intervening period starting from the date of the interim directions till the final disposal of the case by the court.

Both the Parties agree that the damages stated in sub-paragraph (a) and (b) above are a genuine pre-estimate of the losses suffered by the Employer.”

The above clause, submits Mr. Agrawal, recognizes the possibility of interim directions being passed, restraining invocation of the BGs furnished by the respondent, and safeguards the interests of the appellant in such an event by providing that, if the interim injunction were to be subsequently vacated, the contractor would have to pay interest @ 12% of the Bank Guarantee amount for the period between during which the injunction remained in force as damages, which have contractually been made a genuine pre-estimate of the losses suffered by the appellant. Thus, Mr. Agrawal submits that there was no justification for the appellant invoking the respondent’s BGs, even while the issue of whether the respondent was entitled to extension of time for completion of contract was under active consideration, and the respondent had with it a report of Prof Nallayarasu of the IIT Madras in its favour.

46. Mr. Agrawal also submits that, in breach of the stipulation, in the contract, that payments against bills raised by the respondent were to be made within a particular time, the appellant was in default of payment, to the respondent, of over ? 100 crores, against the bills raised by the respondent. He submits that it is impossible for any contractor to perform the contract sufficiently or expeditiously, if the payment due to it is held up by the employer. In such circumstances, any invocation of the BGs by the employer would, in his submissions, be completely unjust and inequitable.

47. The above facts, Mr. Agrawal submits, constitute “special equities” as would justify injunction against invocation, by the appellant, of the BGs provided by the respondent.

48. He submits that all these aspects were set out in detail by the respondent in its written submissions, filed before the learned Arbitral Tribunal, but the learned Arbitral Tribunal has, unfortunately, not adverted thereto.

49. Mr. Agrawal further submits that the finding, of the learned Arbitral Tribunal, that there existed special equities which would justify injuncting the appellant from invoking the BGs furnished by the respondent, is liable to be upheld on these grounds, even if these do not form the part of the reasoning of the learned Arbitral Tribunal in the impugned award.

50. Mr. Agrawal also relies on Office Memorandum28 dated 12 November 2020, issued by the Department of Expenditure, Ministry of Finance29, particularly emphasizing the following paragraphs from the OM:
“2. The Government is in receipt of many representations that on account of slowdown in economy due to the pandemic, there is acute financial crunch among many commercial entities and contractors, which in turn is affecting timely execution of the contracts. It has also been represented that this may affect the ability of contractors to bid in tenders and hence reduce competition. Requests are being received for reduction in quantum of Security Deposits in the Government contracts.

3. In view of all above, it is decided to reduce Performance Security from existing 5-10% to 3% of the value of the contract for all existing contracts.However, the benefit of the reduced Performance Security will not be given in the contracts under dispute wherein arbitration/ court proceedings have been already started or are contemplated.”

51. Mr. Agrawal submits that, applying the aforesaid OM dated 12 November 2020, the respondent was entitled to reduction of the PBG value from 10% to 3 % of the value of the contract which would result in a reduction from ? 633.73 crores to about ? 110 crores. He points out that, on 26 November 2020, the respondent had specifically written to the appellant asking for reduction of the PBG amount. The aspect of special equities, he submits, cannot be examined de hors this request of the respondent.

52. In this context, Mr. Agrawal reiterates his contention that the delay in performance of the contract was entirely owing to the situation created by the appellant. He has drawn my attention to the following paragraphs from the SOC, in which this point was raised before the learned Arbitral Tribunal:

“357. The COVID-19 pandemic caused a slowdown in the economy causing an acute financial crunch among commercial entities and contractors. To address this economic disruption, the Ministry of Finance (Government of India) on 12.11.2020 issued an Office Memorandum bearing no.F.9/42020- PPD providing for reduction of the PBGs from 5% – 10% to 3% of the value of the Contract. Accordingly, the Claimant issued letter dated 26.11.2020 to the Respondent seeking reduction of the PBG to 3% of the value of the Contract in terms of the Government of India’s office memorandum.

358. The Engineer vide its letter dated 30.11.2020, unscrupulously stated that only on the Claimant giving a declaration to the effect that it was not contemplating any arbitration or court proceedings for its claims till date would its request be taken forward for internal approvals by the Respondent.

*****

361. In response thereto, on 21.12.2020, the Claimant confirmed the fact that it was not then contemplating any arbitration/court proceedings. Due to lack of response from the Respondent or Engineer, the Claimant issued reminders to the Engineer for the reduction of the PBG as assured by the Engineer in its letter dated 30.11.2020.”

53. With respect to the ABG, Mr. Agrawal further submits that the ABG was furnished by the respondent against the advance payment made by the appellant to the respondent. He submits that, against works performed by the respondent, bills were raised, which were examined by the Engineer, after which interim payments were released and interim payment certificates issued. These payments, he submits, were adjusted against the advance paid by the appellant to the respondent. Over a period of time, he submits that the entire advance payment stands adjusted. Having thus adjusted the entire advance payment, he submits that the appellant could not justifiably seek to encash the ABG.

54. Mr. Agrawal further submits, apropos the ABG, that the advance payment made by the appellant to the respondent had already been spent by the respondent against temporary and enabling works undertaken by it. Consequent on the termination of the contract with the respondent, he submits that the appellant is availing of these works in the new contract, executed with the respondent’s successor.

55. These circumstances, submits Mr. Agrawal render the invocation of the ABG by the appellant, liable to be injuncted applying the principle of special equities.

56. Mr. Agrawal cites paragraphs 20, 21 and 22 of the judgment of the Supreme Court in Hindustan Construction Company to submit that the appellant could not be permitted to invoke the BGs after having financially strangulated the respondent by holding up its bills to the extent of almost ? 100 crores. He submits that the respondent had never abandoned the work as alleged by the appellant, but that adherence to the contracted time schedule had become impossible on account of defects in the design configuration in the contract as well as the intervening COVID-19 pandemic. The parties were, at the time, in the process of working out a revised schedule. In such circumstances, he submits that the appellant could not be permitted to encash the BGs provided by the respondent. He also relies on the judgment of the learned Single Judge of this court in PD Alkarma Pvt Ltd v. Canara Bank30.

57. These contentions, he submits, were raised in paragraphs 429 and 430 of the SOC:
“429. Based on Respondent’s/ Engineer’s expectation that the Works would be completed in 42 months, the Contractor budgeted for the mobilization advance given to the Claimant to be repaid with interest by the 27th month of the said 42 months. The total interest liability of the Claimant for such mobilization advance would have been less than ?20 crores (?19.989 crores) after recovery of the total advance amount.

430. However, due to aforesaid delays arising out of the failures of the Respondent and Engineer, as of April 2022, the Claimant incurred ?81,88,88,433/- towards recovery of mobilization advance, out of which ?71,78,19,003/- was wrongly adjusted by the Respondent and its Engineer towards interest on mobilization advance. The recovery of the principal amount of mobilization advance has thereby been wrongly restricted to only about ?10 crores when it should have been reduced by over Rs. 61 Crores. Therefore, for reasons attributable to the Respondent and Engineer, the Claimant has been wrongly charged interest liability over ?70 crores on principal recovery of only about ?10 crores instead of the anticipated interest of only less than ?20 crores on the overall principal amount.”

58. Mr. Agrawal next addresses the issue of invocation of the RBGs. He drawn my attention to paragraphs 50 to 58 of the written submissions filed by the respondent before the learned Arbitral Tribunal:
“50. In all the said RMBGs, the invocation requires:

” … a written demand from the Employer stating that the claimed amount is due by way of breach by the said Contractor of any of the terms or conditions contained in the aforesaid Contract or by reason of the Contractor’s failure to perform the said Contract…”

51. Thus, the Respondent was not just required to state that the Claimant breached the Contract, but that “claimed amount is due by way of” such “breach”.

52. However, in its BG Invocation Letters, the Respondent has failed to comply with and adhere to terms of the bank guarantee, as it wrote stating that:

“3. Notice for Termination of Contract has been issued to M/s Navayuga- Van Oord JV (Contractor) on 06 Jul 22 vide letter at Para 1 above. In accordance with Terms and Conditions of the Contract Bank Guarantees (BGs), it has been decided to invoke the aforementioned BGs in view of the breach of contractual terms and conditions.

4. It may be noted that your Bank has “irrevocably undertake to pay us, the Beneficiary /Employer, without, any demur, reservations, recourse, contest or protest and/ or without referring to any other sources including the Contractor; merely on a written demand from the Employer stating that the claimed amount is due by way of breach by the said Contract”.

53. The Respondent has neither specified the alleged breach of the Contract nor identified any alleged claim amount nor stated that the claimed amount is due by way of the purported breaches by the Claimant. Quoting the provisions of the Bank Guarantee is not an assertion that the Claimant has breached the Contract nor that “claimed amount is due” that too “by way of breach”. On the contrary, it only states a clause of the bank guarantee but does not comply with the requirements of the RMBGs at all.

54. As the BG Invocation Letters are not in terms of the RMBGs, for the reasons stated herein above and as per the well settled law, the Claimant is entitled to an injunction restraining any payment under the RMBG.

55. Without prejudice to the above, it is submitted that even otherwise, before any amount can even be purportedly due under the Contract, the Respondent had to comply with the requirements of the Contract, without which compliance, no amount could at all be due by way of breach.

56. The law is also well settled that when a contract provides that something is to be done in a particular manner then it must be done in that manner or not at all. (See G+H Schallschutz Gmbh v. Bharat Heavy Electricals Ltd.31)

57. The due process for making the claim in terms of the Contract is as follows:

a) The Respondent must make a claim under Sub-clause 2.5 of the Contract;

b) Such claim must be assessed/determined by Engineer under Subclause 3.5 (in present case, because of Engineer’s bias, it had to be an independent Engineer); and

c) The Claimant must accept the determination or can challenge it as per dispute resolution procedure.

58. Admittedly the Respondent did not follow such a procedure and the Engineer did not even purport to determine any claim by following the procedure in the Contract prior to the purported invocation letter being issued and thus had no right to even call on the RMBGs.”

In this context, Mr. Agrawal relies on the decision of a learned Single Judge of this Court in Ansal Properties & Industries Ltd v UOI32.

59. Mr. Agrawal then refers me to the findings of the learned Arbitral Tribunal with respect to the compliance o