DADHEECH INFRASTRUCTURES PRIVATE LIMITED  Vs DTE GEN MD ACCN PROJECT & ANR.

OMP(I)(COMM) 3/2021 Page 1 of 9$~2
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Judgment: 7thJanuary, 2021
+ O.M.P.(I) (COMM.) 3/2021&I.A. 195/2021 & I.A. 196/2021
DADHEECH INFRASTRUCTURES
PRIVATE LIMITED ….. Petitioner
Through: Mr Sehagiri Vadhamani,
Advocate.
versus
DTE GEN MD ACCN PROJECT & ANR. ….. Respondents
Through: Mr Chetan Sharma, ASG with
Ms Monika Arora, Advocate
for UOI.
CORAM:
HON’BLE MR. JUSTICE VIBHU BAKHRU
[Hearing held through video conferencing]
VIBHU BAKHRU, J. (ORAL)
1. The petitioner has filed the present petition under Section 9 of
the Arbitration and Conciliation Act, 1996 (hereafter ‘the Act’), inter
alia, praying that the respondent may be restrained from invoking and
encashing the Performance Bank Guarantees – Bank Guarantee
No.0770171GPER0040 for an amount of ₹11,00,00,000/- and Bank
Guarantee No. 0770171GPER0042 for an amount of ₹2,91,00,000/-
2021:DHC:49OMP(I)(COMM) 3/2021 Page 2 of 9(hereafter referred to as the ‘Performance Bank Guarantees’) . The
petitioner further prays that the respondent may be injuncted from
encashing the Retention Guarantees being the Bank Guarantees
furnished by the petitioner against disbursal of Retention Money,
being Bank Guarantee No. 0770171GPER0037 for a sum of
₹20,76,000/-; Bank Guarantee No. 0770171GPER0039 for a sum of
₹2,07,50,000/-; and Bank Guarantee No. 0770171GPER0041 for a
sum of₹1,80,00,000/- (hereafter referred to as ‘Retention Bank
Guarantees’). In addition, the petitioner also prays that respondent
no.1 be restrained from giving effect to letter bearing no.
84828/MAP/PHASE-II/PKG- 25/R&C/1656/E8 dated 04.01.2021
unlawfully cancelling the Contract Agreement No.DG MAP/PHASE-
II/PKG-25 (R&C) 01 of 2013-14 (hereafter ‘the Contract’).
2. The petitioner was awarded the Contract for construction of
dwelling units including allied services at Ahmedabad, Gandhinagar
and Chiloda (“DGMAP/PHASE-II/PKG-25(R&C)/01 OF 2013-2014:
COMPLETION OFBALANCE WORKS OF CONSTRUCTION OF
DWELLING UNITS INCLUDING ALLIED SERVICES FOR
OFFICERS & JCOS/OR AT AHMEDABAD, GANDHINAGAR
ANP CHILODA” as detailed in Tender Enquiry vide letter no.
84828/MAP/PH-11/PKG-25/R&C/27/EB DT 12.07.2012 as amended
by letters dated 02.08.2013, 12.08.2013, 19.08.2013 and 22.08.2013)
3. The petitioner had tendered for the aforesaid works pursuant to
notices inviting tenders issued by respondent no.1. The petitioner’s
2021:DHC:49OMP(I)(COMM) 3/2021 Page 3 of 9tender was accepted and by a letter dated 11.10.2013, respondent no.1
informed the petitioner that it had accepted the petitioner’s offer for
completing the works for a sum of ₹2,78,16,52,390.08/-. The said
parties also signed a formal Contract.
4. In terms of the said Contract, the petitioner furnished the two
Performance Bank Guarantees, as mentioned above. Certain interim
payments were made to the petitioner after retaining a specified
proportion in terms of the Contract. The said retention money was also
disbursed against Retention Bank Guarantees.
5. The works were to be executed within a period of twenty-four
months. Admittedly, the execution of the works has been delayed and
according to the petitioner, about 62% of the works are complete. The
petitioner claims that the delay in completion of the Contract is not on
account of any reason attributable to the petitioner but mainly on
account of delay on the part of respondent no.1 in performing its
obligations. The petitioner states that there was a considerable delay in
handing over of the Site and the period of twenty-four months would
not commence only when the complete Site was handed over to the
petitioner. In addition, respondent no. 1 had also delayed handing over
drawings. The petitioner states that it had sent letters setting out the
reasons for the delay and seeking extension of time for completion of
the Contract. However, instead of addressing the issues and extending
the term of the Contract, respondent no.1 had blamed the petitioner for
not maintaining adequate progress.
2021:DHC:49OMP(I)(COMM) 3/2021 Page 4 of 96. It is apparent that disputes arisen between the parties in relation
to the execution of the said Contract. According to respondent no.1,
the petitioner has failed to perform the Contract, therefore, it has
terminated the same by its letter dated 04.01.2021.
7. By a letter dated 04.01.2021 addressed to the Andhra Bank
(now the Union Bank of India), respondent no.1 has invoked the Bank
Guarantees in question: the Performance Bank Guarantees as well as
the Retention Bank Guarantees.
8. Mr Sheshagiri, learned counsel appearing for the petitioner
submitted that the said invocation is not in terms of the Bank
Guarantee, inasmuch as, no loss has been caused to respondent no.1.
He also earnestly contended that there has been no breach of the
Contract by the petitioner and, therefore, the action taken by
respondent no.1 is unsustainable. He submitted that the invocation of
the Bank Guarantees in question is predicated on respondent no.1
terminating the Contract. And, since the said termination is illegal and
unwarranted, the invocation/encashment of the Bank Guarantees in
question are liable to be stayed. He also submitted that the termination
the letter (bearing no. 84828/MAP/PHASE-II/PKG- 25/R&C/1656/E8
dated 04.01.2021) terminating the Contract is also liable to be stayed.
9. This Court does not find any merit in the aforesaid contentions.
The plain language of the Bank Guarantees in question indicates that
the payment of the Guaranteed amounts are not contingent upon
cancellation of the Contract. The terms on which the Bank Guarantees
2021:DHC:49OMP(I)(COMM) 3/2021 Page 5 of 9can be invoked are similarly worded. The second Paragraph of one the
Performance Bank Guarantees is set out below:-
“2. We Andhra Bank Chowringhee Branch. do hereby
undertake to pay the amounts due and payable
under this guarantee without any demur, merely on
a demand from the Government stating that the
amount claimed is due by way of loss or damage
caused to or would be caused to or suffered by the
Government by reason of any breach by the said
Contractor(s) of any of the terms or conditions
contained in the said Agreement or by reason of the
Contractor(s) failure to perform the said Agreement
Any such demand made on the Bank shall be
conclusive as regards the amount due and payable
by the Bank under this guarantee. However, our
liability .under this guarantee shall be restricted to
an amount not exceeding Rs. 11,00,00,000/-
(Rupees Eleven Crore Only).”
10. It is clear from the plain language of the Bank Guarantees that
they are unconditional and the issuer bank (Andhra Bank) is obliged to
pay the amount on the respondent stating that “ the amount claimed is
due by way of loss or damage caused or would be suffered by the
Government by reason of any breach by the petitioner ”.
11. The letter of invocation dated 04.01.2021 clearly states that the
demand is made on account of “loss/damage, which would be caused
to or suffered by the government” . In this view, this court does not
find any merit in the contention that the invocation of the Bank
Guarantees is not in terms thereof.
12. The contention that the invocation of the Bank Guarantees
2021:DHC:49OMP(I)(COMM) 3/2021 Page 6 of 9liable are liable to be injuncted as the petitioner disputes that it is in
breach of the contract, is also unsubstantial. The law relating to
interdicting invocation of the bank guarantee is now well settled.
13. InSvenska Handelsbanken v. M/s. Indian Charge Chrome
and Others: (1994) 1 SCC 502 , the Supreme Court had held as
under:-
“…in case of confirmed bank guarantees/irrevocable
letters of credit, it cannot be interfered with unless there is
fraud and irretrievable injustice involved in the case and
fraud has to be an established fraud…
…irretrievable injustice which was made the basis for
grant of injunction really was on the ground that the
guarantee was not encashable on its terms… …there
should be prima facie case of fraud and special equities in
the form of preventing irretrievable injustice between the
parties. Mere irretrievable injustice without prima facie
case of established fraud is of no consequence in
restraining the encashment of bank guarantee.”
14. InLarsen & Toubro Limited v Maharashtra State Electricity
Board and Others: (1995) 6 SCC 68 , the Supreme Court reiterated the
aforesaid view.
15. InU.P. Cooperative Federation Limited v. Singh Consultants
and Engineers Pvt. Ltd.: 1988 (1) SCC 174 , the Supreme Court had
held as under:-
“The nature of the fraud that the Courts talk about is fraud
of an “egregious nature as to vitiate the entire underlying
2021:DHC:49OMP(I)(COMM) 3/2021 Page 7 of 9transaction”. It is fraud of the beneficiary, not the fraud of
somebody else.”
16. InUP State Sugar Corporation v. Sumac International Ltd.:
1997 (1) SCC 568 the Supreme Court authoritatively held that
“..the existence of any dispute between the parties to the
contract is not a ground for issuing an injunction to restrain
enforcement of bank guarantees”
17. InHimadari Chemicals Industries Ltd. v Coal Tar Refining
Company:2007 (8) SCC 110 , the Supreme Court summarized the
principles distilled in earlier decisions in the following words:
“14. From the discussions made hereinabove relating to
the principles for grant or refusal to grant of injunction to
restrain enforcement of a Bank Guarantee or a Letter of
Credit, we find that the following principles should be
noted in the matter of injunction to restrain the
encashment of a Bank Guarantee or a Letter of Credit :-
(i) While dealing with an application for injunction in the
course of commercial dealings, and when an
unconditional Bank Guarantee or Letter of Credit is given
or accepted, the Beneficiary is entitled to realize such a
Bank Guarantee or a Letter of Credit in terms thereof
irrespective of any pending disputes relating to the terms
of the contract.
(ii) The Bank giving such guarantee is bound to honour it
as per its terms irrespective of any dispute raised by its
customer.
(iii) The Courts should be slow in granting an order of
injunction to restrain the realization of a Bank Guarantee
or a Letter of Credit.
2021:DHC:49OMP(I)(COMM) 3/2021 Page 8 of 9(iv) Since a Bank Guarantee or a Letter of Credit is an
independent and a separate contract and is absolute in
nature, the existence of any dispute between the parties to
the contract is not a ground for issuing an order of
injunction to restrain enforcement of Bank Guarantees or
Letters of Credit.
(v) Fraud of an egregious nature which would vitiate the
very foundation of such a Bank Guarantee or Letter of
Credit and the beneficiary seeks to take advantage of the
situation.
(vi) Allowing encashment of an unconditional Bank
Guarantee or a Letter of Credit would result in
irretrievable harm or injustice to one of the parties
concerned.”
18. Although, in Hindustan Steel Works Construction Ltd. v.
Tarapore & Co. and Anr.: AIR 1996 SC 2268 , the Supreme Court
had observed as under:-
“We are, therefore, of the opinion that the correct position
of law is that commitment of banks must be honoured
free from interference by the courts and it is only in
exceptional cases, that is to say, in case of fraud or in a
case where irretrievable injustice would be done if bank
guarantee is allowed to be encashed, the court should
interfere. In this case fraud has not been pleaded and the
relief for injunction was sought by the
contractor/Respondent 1 on the ground that special
equities or the special circumstances of the case required
it. The special circumstances and/or special equities
which have been pleaded in this case are that there is a
serious dispute on the question as to who has committed
breach of the contract, that the contractor has a counter-
claim against the appellant, that the disputes between the
parties have been referred to the arbitrators and that no
amount can be said to be due and payable by the
2021:DHC:49OMP(I)(COMM) 3/2021 Page 9 of 9contractor to the appellant till the arbitrators declare their
award. In our opinion, these factors are not sufficient to
make this case an exceptional case justifying interference
by restraining the appellant from enforcing the bank
guarantees. The High Court was, therefore, not right in
restraining the appellant from enforcing the bank
guarantees.”
19. It is settled law that invocation of the Bank Guarantees cannot
be withheld on account of any disputes between the parties. Thus, the
Bank Guarantees are required to be honoured notwithstanding the
disputes that have arisen between the parties. In view of the above, the
petitioner’s prayer that respondent no.1 be restrained from invoking
the Bank Guarantees cannot be acceded to.
20. The petitioner’s prayer that the letter dated 04.01.2021
terminating the Contract be stayed, also unmerited. Indisputably, the
Contract is determinable. Interdicting the operation of the letter
terminating the Contract, would in effect amount to directing specific
enforcement of the Contract, which is impermissible in terms of
Section 14 (d) of the Specific Relief Act, 1963.
21. The petition is, accordingly, dismissed. The pending
applications are disposed of.
VIBHU BAKHRU, J
JANUARY 07, 2021
MK
2021:DHC:49