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2021 DIGILAW 399 (MP)

Cobra-CIPL JV v. Chief Project Manager

2021-03-23

PRAKASH SHRIVASTAVA, VIRENDER SINGH

body2021
ORDER : Prakash Shrivastava, J. 1. By this miscellaneous petition under Article 227 of the Constitution, the petitioner has challenged the order dated 29.02.2020 whereby the appeal preferred by the petitioner under Section 37(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') has been dismissed by the Commercial Judge, Jabalpur. 2. The case of the petitioner is that the petitioner was awarded the contract for the composite electrical work for design, supply, erection, testing and commissioning of single phase overhead equipment including THS and SPADA works in Manikpur (Excl)-Satna (Incl) and Satna to Rewa station of Jabalpur Division of West Central Railway. The total contract value was Rs. 60,42,06,825.25 and the work was to be completed within a period of 30 months from the date of issuance of Letter of Acceptance. The Letter of Acceptance was issued on 14.07.2016. The petitioner had executed as many as nine performance guarantee. According to the petitioner, the progress of the work at the site had suffered on account of the surprise check done by the CBI alongwith the Vigilance Officers of the Railway. The case of the petitioner is that the petitioner was asked by the railway to recast all foundation constructed by that time at its own cost. The time for execution of the work was extended upto 30th of September, 2016. On 17.12.2016, the petitioner had agreed to recast all the foundation which were cast prior to CBI-Railway Vigilance joint surprise check. Finally, the CBI had found that only ten out of 3553 foundation were defective but by that time petitioner had already recasted 983 foundation as on 06.06.2017. Respondent had issued the notice to make good the progress or else the action was proposed in terms of clause 62 of the Central General Conditions of Contract for termination of a contract and getting the balance work done without the petitioner's certification. Thereafter, the notice dated 27.06.2017 was given by granting further 48 hours time on the same terms and also informing that failure to do the work will result in forfeiture of the security deposit and encashment of performance guarantee. Thereafter, the respondent had issued fresh tender notice for the remaining work. On 17.7.2017 the contract of the petitioner was terminated and steps were taken for encashment of the bank guarantee. Thereafter, the respondent had issued fresh tender notice for the remaining work. On 17.7.2017 the contract of the petitioner was terminated and steps were taken for encashment of the bank guarantee. The petitioner had filed application under Section 9 of the Act of 1996 and the Commercial Court by order dated 04.07.2017 had stayed the encashment of bank guarantee. During the pendency of the application under Section 9 of the Act, the arbitration proceedings had commenced, therefore, the Commercial Court by order dated 21.8.2019 under Section 9(2) & (3) of the Act had restrained the encashment of the bank guarantee by further permitting the petitioner to file stay application under Section 17 of the Act before the Arbitral Tribunal. The interim order was made operative for a period of 45 days and the proceedings under Section 9 of the Act were terminated. The petitioner thereafter had filed an application under Section 17 of the Act before the Arbitrator with a prayer to restrain the respondent from encashing the nine bank guarantees. The learned Arbitrator after hearing both the parties by order dated 08.10.2019 had rejected the application under Section 17 of the Act. This order of the learned Arbitrator was subject matter of challenge before the Commercial Judge at the instance of the petitioner under Section 37(2) of the Act and by the impugned order dated 29.02.2020, the Commercial Court has dismissed the appeal. 3. Learned counsel appearing for the petitioner submits that the delay in execution of the contract is not attributable to the petitioner, therefore, termination of contract with a short notice of 7 days and 48 hours is arbitrary. He further submits that the bank guarantee cannot be encashed because in terms of the contract between the parties, the amount can be recovered only if the liability is determined as per the provisions. He further submits that the bank guarantee is conditional bank guarantee and in terms of the conditions of the guarantee, they could be encashed only after assessment of loss or damages and to the extent of amount found due thereafter. He further submits that the bank guarantee is conditional bank guarantee and in terms of the conditions of the guarantee, they could be encashed only after assessment of loss or damages and to the extent of amount found due thereafter. He has also submitted that the interim injunction is operating since 2017 and no prejudice has been caused to the other side, therefore, the same should be allowed to continue till the arbitration proceedings are concluded and that if the bank guarantee is encashed, the petitioner will have to amend the claim and agitate the issue in this regard which will delay the proceedings. In support of his submissions, he has placed reliance from the judgment of Supreme Court in the matter of Hindustan Construction Co. Ltd. v. State of Bihar, (1999) 8 SCC 436 , Union of India v. Raman Iron Foundry, (1974) 2 SCC 231 , H.M. Kamaluddin Ansari & Co. v. Union of India, (1983) 4 SCC 417 , State of Karnataka v. Shree Rameshwara Rice Mills, (1987) 2 SCC 160 , Gangotri Enterprises Ltd. v. Union of India, (2016) 11 SCC 720 and State of Gujarat v. Amber Builders, (2020) 2 SCC 540 . 4. Learned counsel for the respondent opposing the prayer has submitted that the petitioner was required to lay the foundation for erection work and the foundation work done by the petitioner was defective, therefore, he was asked to recast the foundation and since the work was not completed within time, therefore, the contract was rescinded. He has further submitted that the bank guarantees are unconditional bank guarantees and any condition prescribed in the contract between the petitioner and the respondent have no effect on the bank guarantee which is a separate contract. In support of his submission, he has placed reliance upon the judgment of Supreme Court in the matter of BSES Ltd. v. Fenner India Ltd., (2006) 2 SCC 728 , Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 , Vinitec Electronics (P) Ltd. v. HCL Infosystems Ltd., (2008) 1 SCC 544 , CCE v. Dunlop India Ltd., (1985) 1 SCC 260 , Reliance Salt Ltd. v. Cosmos Enterprises, (2006) 13 SCC 599, Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., (1997) 6 SCC 450 and the judgment of this Court in the matter of Madhya Pradesh Poorv Kshetra Vidyut Vitran Co. Ltd. v. Easun Reyrolle Ltd. reported in (2016) 4 MP LJ 716. He has also submitted that the scope of interference in a miscellaneous petition filed under Article 227 of the Constitution is very limited and in this regard he has placed reliance upon the judgment of Supreme Court in the matter of Haji Mohd. Yusuf Ansari and others vs. Salim, 2015 (4) MPLJ 424 and Suryadeep Garg v. Neha Garg, (2016) 3 MPLJ 689 . 5. Having heard the learned counsel for the parties and perusal of the record, it is noticed that the contract which was awarded to the petitioner has already been terminated and fresh tender has been issued for the remaining work. The issue relating to the legality, validity and correctness of the termination of the contract is pending for decision before the learned Arbitrator. The main issue which is involved in the present case is in respect of the right of the respondent to get the bank guarantee encashed during the pendency of the proceedings before the Arbitrator. 6. The bank guarantee executed by the State Bank of India contains the following clause which has been relied upon by counsel for both the parties: "2. We State Bank of India, Corporate Accounts Group Branch, 11th Floor, 1, Tolstoy Marg, Jawahar Vayopar Bhawan, New Delhi-110001, A Bank constituted/registered under the SBI Act, 1955 having our Corporate Center at Madame Cama Road, Nariman Point, Mumbai, India, do hereby undertake to pay the amount 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 breach by the said contractors of any of the terms or conditions contained in the said agreement or by reason of the contractors 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. 3,32,31,400.00/- (RUPEES Three Crores Thirty Two Lakhs Thirty One Thousand Four Hundred Only). 3. 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. 3,32,31,400.00/- (RUPEES Three Crores Thirty Two Lakhs Thirty One Thousand Four Hundred Only). 3. We State Bank Of India, Corporate Accounts Group Branch, 11th Floor, 1, Tolstoy Marg, Jawahar Vayopar Bhawan, New Delhi-110001, A Bank constituted/registered under the SBI Act, 1955 having our Corporate Center at Madame Cama Road, Nariman Point, Mumbai, India, undertake to pay to the Government any money so demanded notwithstanding any dispute or disputes raised by the contractors/suppliers in any suit for proceeding pending before any Court or Tribunal relating thereto our liability under this present contract being absolute and unequivocal. the payment so made by us under this bond shall be a valid discharge of our liability for payment thereunder and the contractors/suppliers shall have no claim against us for making such payment." A perusal of the clause (2) reveals that the bank had undertaken to pay the amount due and payable under the guarantee without any demur merely on a demand from the government stating the reason assigned for the encashment of bank guarantee. Clause (3) makes it clear that on making the demand under Clause (2), the bank had undertaken to pay the government any money so demanded notwithstanding any disputes raised by the contractor. The aforesaid clause makes it clear that the bank guarantee was unconditional bank guarantee. 7. It is settled that bank guarantee is an independent contract between the bank and the beneficiary thereof, therefore, bank is always obliged to honour the guarantee if it is unconditional and irrevocable. The dispute between the beneficiary and the party at whose instance bank guarantee is given is of no consequence and has no effect on the right relating to the encashment of the bank guarantee. It is also settled that the bank guarantee which provides that the amount is payable by the guarantor on demand is considered to be the unconditional bank guarantee and that once the unconditional guarantee in course of commercial dealing is given, the beneficiary is entitled to realize the bank guarantee as per the terms contained therein. [See 2008 (1) SCC 544 (Vinitec Electronics Private Ltd. Vs. [See 2008 (1) SCC 544 (Vinitec Electronics Private Ltd. Vs. HCL Infosystems Ltd.), 1997 (1) SCC 568 (U.P. State Sugar Corporation vs. Sumac International Ltd.)]. The general rule that bank guarantee must be honoured in accordance with its terms has two exceptions; firstly when there is clear fraud of egregious nature vitiating the entire transaction and the bank has notice of such a fraud and; secondly when there are special equities such as irretrievable injury or irretrievable injustice in favour of injunction. Leaving aside the above two exceptions, the beneficiary has right of encashment of unconditional bank guarantee. [See 2006 (2) SCC 728 (BSES Ltd. (Now Reliance Energy Ltd. vs. Fenner India Ltd. And another), 2007 (8) SCC 110 (Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Co.), 2006 (13) SCC 599 (Reliance Salt Ltd. vs. Cosmos Enterprises and another) and 1997 (6) SCC 450 (Dwarikesh Sugar Industries Ltd. vs. Prem Heavy Engineering Works (P) Ltd. and another)]. 8. Having regard to the aforesaid pronouncements and considering the relevant clauses of the bank guarantee, we are of the opinion that it is a case of unconditional bank guarantee and the beneficiary has a right of its encashment. 9. Counsel for the petitioner has placed reliance upon the judgment in the case of Union of India vs. Raman Iron Foundary (supra) but that is not a case of bank guarantee but it is a case of entitlement to recover the amount from the pending bills in respect of another contract and interpretation of clause 18 of that contract. He has also placed reliance upon the judgment of the Supreme Court in the case of M/s. H.M. Kamaluddin Ansari and Company (supra) but that was a case of grant of injunction against purchaser restraining it from withholding payment to the suppliers under other contracts which were not the subject matter of arbitration proceedings before the Court. It was also not a case of encashment of bank guarantee. He has also placed reliance upon the judgment in the matter of State of Karnataka vs. Shri Rameshwara Rice Mills (supra). In that case, the issue relating to government's right under the contract to recover damages as arrears of land revenue was involved. It was also not a case of encashment of bank guarantee. He has also placed reliance upon the judgment in the matter of State of Karnataka vs. Shri Rameshwara Rice Mills (supra). In that case, the issue relating to government's right under the contract to recover damages as arrears of land revenue was involved. In the matter of Gangotri Enterprises Ltd. (supra) relied upon by counsel for the petitioner, the issue relating to encashment of bank guarantee furnished in an unrelated contract between the same parties was involved. That is not so in the present case. So far as the judgment in the case of Amber Builders (supra) is concerned, the issue involved was in respect of the jurisdiction of the statutory Tribunal to grant interim injunction. Hence, these judgments are distinguishable and the petitioner is not entitled to the benefit of these judgments. 10. Record further reflects that the learned Arbitrator by a well-reasoned order has rejected the petitioner's application under Section 17 of the Act for grant of restrained order about the encashment of nine bank guarantees. The Commercial Court has also dismissed the statutory appeal by assigning due reason. These orders do not suffer from any patent illegality. 11. This petition has been filed under Article 227 of the Constitution wherein the scope of interference is limited. This power can be exercised in appropriate case where there is a patent perversity in the order of the Tribunal or the Subordinate Court or where there has been a gross and manifest failure of justice or the basic principles of natural justice have been flouted. (See: 2015 (4) MPLJ 424 (Haji Mohd. Yusuf Ansari vs. Mohd. Salim). The Supreme Court in the matter of Jai Singh and others Vs. Municipal Corporation of Delhi and another reported in 2010 (9) SCC 385 while considering the scope of interference under Article 227 of the Constitution, has held that the jurisdiction under Article 227 cannot be exercised to correct all errors of judgment of a court, or tribunal acting within the limits of its jurisdiction. Correctional jurisdiction can be exercised in cases where orders have been passed in grave dereliction of duty or in flagrant abuse of fundamental principles of law or justice. 12. In view of the aforesaid factual and legal position, no case for exercise of limited supervisory jurisdiction is made out. Hence, petition is dismissed.