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2013 DIGILAW 1338 (MAD)

Ramanathan Infrastructure v. Gm Southern Railway

2013-03-14

VINOD K.SHARMA

body2013
Judgment :- Vinod K. Sharma, J. 1. This application under Order XIV Rule 8 of O.S. Rules r/w Order 39 Rule 1 and 2 C.P.C. r/w section 9(ii) (b) of Arbitration Act has been filed for injunction restraining the respondents from encashing the Bank Guarantee No.0528/GPER016910, dated 16.10.2010 furnished by the applicant in respect of LOA No. M/W 496/Works/6633 dt.24.5.2010 and from recovering the Security deposit of the applicant from other contract works of the applicant pending resolution of the disputes between the applicant and the respondents by Arbitral Tribunal to be appointed by the first respondent under Clause 64 of the General conditions of Contract. 2. It is pleaded case of the applicant that the second respondent issued a Tender Notice No.MAS/01/Works/2010, dated 22.1.2010 inviting tenders in respect of several items of work. The bid of applicant was accepted by the respondent No.4 vide Acceptance letter dated 24.5.2010, issued in favour of the applicant. In terms of the Letter of allotment, the applicant furnished Performance Guarantee by way of "Bank Guarantee" of Rs.10,40,460/- (Rupees ten lakhs forty thousand four hundred and sixty only). The work was to be completed on or before 23.2.2011 i.e., within a period of nine months. 3. The case of the applicant is that though applicant mobilized men and materials in order to commence work, but work could not be completed due to the failure on the part of the respondent in not furnishing drawings, etc. Therefore, without supplying necessary drawings, the applicants were directed to work out the Steel required for fabrication. The request of the applicant for supply of necessary drawings was not heeded to by the respondents. The third respondent thereafter issued a seven days notice, to cover up its own lapses. 4. It is the case of the applicant that the fourth respondent terminated contract on 18.4.2012. The applicant therefore invoked arbitration clause, to claim compensation for illegal termination of the contract by the respondent. 5. It is the case of the applicant that the respondents are now attempting to invoke the Bank Guarantee, and in case the Bank Guarantee is invoked, even prior to the settlement of the dispute by the Arbitral Tribunal, the applicant will be put to irreparable loss and hardship. This plea on the face of it cannot be accepted, as claim of money cannot be said to be irreparable loss or hardship. 6. This plea on the face of it cannot be accepted, as claim of money cannot be said to be irreparable loss or hardship. 6. On the pleadings referred to above, the learned counsel for the applicant vehemently contended, that the respondents cannot be permitted to enforce the Bank Guarantee, as the respondents failed to perform their obligations by not furnishing drawings, etc. in time, to carry out the work. Therefore, in case injunction is not granted, the applicant company would likely to suffer irreparable loss, as it would affect their business. 7. On consideration, I find that this application is not maintainable. It is now well settled law that Bank Guarantee issued by the Bank is independent contract between the Bank and beneficiary and Courts normally do not interfere with or grant injunction against invoking the Bank Guarantee. 8. Section 9 of the Arbitration and Conciliation Act reads as under: "9. Interim measures etc. by Court.-A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court- (i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure or protection in respect of any of the following matters, namely:- (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it." 9. It is only to secure the amount in dispute pending arbitration, interim direction can be issued or injunction can be granted with respect to the subject matter for arbitration dispute. In this case, claim is raised by the applicant against Railways. The Bank which is to honour Bank Guarantee, is neither party to arbitration agreement or to the arbitration proceedings. 10. The Bank also cannot be said to be third party connected with the dispute pending before the Arbitrator, in view of the fact that the contract of Bank Guarantee is independent of the contract entered into between the parties to execute the work. The clever drafting to seek injunction against the respondent from invoking Bank Guarantee cannot defeat the real intent which is to restrain Bank from honouring Bank Guarantee. 11. It is also now settled law that no injunction can be granted to restrain the Bank from honouring Bank Guarantee in view of the law laid down by the Hon'ble Supreme Court in U.P. State Sugar Corporation vs. Sumac International Ltd. ( (2006)2 SCC 728 ) which reads as under: "12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Sine in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may co-exist in some cases. In the case of U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (988 [1] SCC 174), which was the case of works contract where the performance guarantee given under the contract was sought to be invoked, this Court, after 3 (1997) 1 SCC 568 referring extensively to English and Indian cases on the subject, said that the guarantee must be honoured in accordance with its terms. The bank which gives the guarantee is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the suppler has performed his contractual obligation or not, nor with the question whether the supplier is in default or not. The bank must pay according to the tenor of its guarantee on demand without proof or condition. There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud that may absolve a bank from honouring its guarantee, this Court in the above case quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank (1984 [1] AER 351 at 352): "The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged". 12. For the reasons stated hereinabove, this application devoid of any merit, is ordered to be dismissed. No costs.