Full Judgment Text
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on : 04.03.2020
Pronounced on : 04.06.2020
+ OMP (I)(COMM) 340/2019
SUZLON ENERGY LTD. ..... PETITIONER
Through: Mr. Sacchin Puri, Sr. Advocate with
Mr. Azmat H. Amanadullah, Mr. Dhananjay
Grover and Ms. Deepali Dobhal, Advocates
Versus
ZEMIRA RENEWABLE ENERGY LTD.
& ANR. ..... RESPONDENTS
Through: Mr. Divjyot Singh, Ms. Avsi M.
Sharma and Ms. Apporva Pandey, Advocates
for R-1 alongwith Mr. Sunei Kapur, AR in
person
+ OMP (I)(COMM) 341/2019
SUZLON ENERGY LTD. ..... PETITIONER
Through: Mr. Sacchin Puri, Sr. Advocate with
Mr. Azmat H. Amanadullah, Mr. Dhananjay
Grover and Ms. Deepali Dobhal, Advocates
Versus
OSTRO AP WIND PVT. LTD. & ANR. ..... RESPONDENTS
Through: Mr. Divjyot Singh, Ms. Avsi M.
Sharma and Ms. Apporva Pandey, Advocates
for R-1 alongwith Mr. Sunei Kapur, AR in
person
OMP (I)(COMM) 340/2019 & conn. Page 1 of 39
Mr. Sidhartha Barua and Mr. Aditya Gupta,
Adv. for R-2
+ OMP (I)(COMM) 342/2019
SUZLON ENERGY LTD. ..... PETITIONER
Through: Mr. Sacchin Puri, Sr. Advocate with
Mr. Azmat H. Amanadullah, Mr. Dhananjay
Grover and Ms. Deepali Dobhal, Advocates
Versus
OSTRO ANDHRA WIND PVT. LTD. ..... RESPONDENT
Through: Mr. Divjyot Singh, Ms. Avsi M.
Sharma and Ms. Apporva Pandey, Advocates
for R-1 alongwith Mr. Sunei Kapur, AR in
person
Mr. Sidhartha Barua and Mr. Aditya Gupta,
Adv. for R-2
+ OMP (I)(COMM) 346/2019
SUZLON ENERGY LTD. ..... PETITIONER
Through: Mr. Sacchin Puri, Sr. Advocate with
Mr. Azmat H. Amanadullah, Mr. Dhananjay
Grover and Ms. Deepali Dobhal, Advocates
Versus
KANAK RENEWABLES LTD. & ANR. ..... RESPONDENTS
Through: Mr. Divjyot Singh, Ms. Avsi M.
Sharma and Ms. Apporva Pandey, Advocates
for R-1 alongwith Mr. Sunei Kapur, AR in
person
OMP (I)(COMM) 340/2019 & conn. Page 2 of 39
Mr. Sunil Shukla and Mr.V.K. Gupta, Adv. for
R-2
+ OMP (I)(COMM) 347/2019
SUZLON ENERGY LTD. ..... PETITIONER
Through: Mr. Sacchin Puri, Sr. Advocate with
Mr. Azmat H. Amanadullah, Mr. Dhananjay
Grover and Ms. Deepali Dobhal, Advocates
Versus
RAJAT RENEWABLES LIMITED
& ANR. ..... RESPONDENTS
Through: Mr. Divjyot Singh, Ms. Avsi M.
Sharma and Ms. Apporva Pandey, Advocates
for R-1 alongwith Mr. Sunei Kapur, AR in
person
Mr. Sunil Shukla and Mr.V.K. Gupta, Adv. for
R-2
+ OMP (I)(COMM) 348/2019
SUZLON ENERGY LTD. ..... PETITIONER
Through: Mr. Sacchin Puri, Sr. Advocate with
Mr. Azmat H. Amanadullah, Mr. Dhananjay
Grover and Ms. Deepali Dobhal, Advocates
Versus
RENEW WIND ENERGY (SHIVPUR) PVT.
LTD. & ANR. ..... RESPONDENTS
OMP (I)(COMM) 340/2019 & conn. Page 3 of 39
Through: Mr. Divjyot Singh, Ms. Avsi M.
Sharma and Ms. Apporva Pandey, Advocates
for R-1
Mr. Sunil Shukla and Mr.V.K. Gupta, Adv. for
R-2
+ OMP (I) (COMM) 349/2019
SUZLON ENERGY LTD. ..... PETITIONER
Through: Mr. Sacchin Puri, Sr. Advocate with
Mr. Azmat H. Amanadullah, Mr. Dhananjay
Grover and Ms. Deepali Dobhal, Advocates
Versus
RENEW POWER LTD. & ANR. ..... RESPONDENTS
Through: Mr. Divjyot Singh, Ms. Avsi M.
Sharma and Ms. Apporva Pandey, Advocates
for R-1 alongwith Mr. Sunei Kapur, AR in
person
Mr. Sunil Shukla and Mr.V.K. Gupta, Adv. for
R-2
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
J U D G E M E N T
1. Present petitions have been filed under Section 9 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the „Act‟) seeking
restraint on invocation of Bank Guarantees (BGs) issued on behalf of
Petitioner by Respondent No.2 (hereinafter referred to as „Banks‟) in
favour of Respondent No.1.
OMP (I)(COMM) 340/2019 & conn. Page 4 of 39
2. Since a common question of law arises in all the seven petitions
and the parties are the same/inter-related, they are being decided by a
common judgment. The difference in the various petitions with regard to
the dates of the Purchase Orders (hereinafter referred to as „Orders‟), BGs
and other factual details will be referred to in the later part of the
judgment.
3. Petitioner (hereinafter referred to as „Suzlon‟) is one of the
Renewable Energy Solutions Providers engaged in manufacture and
supply of Wind Turbine Generators (WTGs) for generation, on a
commercial scale, of renewable and clean wind energy.
4. Respondent No.1 in respective petitions except in OMP (I)
(COMM) 349/2019 is the subsidiary of „ReNew‟ Group of Companies
and is a subsidiary Company of „ReNew Power Limited‟. In OMP (I)
(COMM) 349/2019 Respondent no.1 is the lead Company of ReNew
Group of Companies with host of other subsidiaries. For the sake of
convenience all are being referred to as „Respondent‟ hereinafter.
CASE OF THE PETITIONER :-
5. Respondent issued Purchase Orders to the Petitioner for supply of
Suzlon make S111_90 Type WTGs for its Wind Power Projects at
different locations. In addition, parties also executed certain other
Agreements for execution of works, ancillary to development of the Wind
Power Projects, such as civil works, etc. The details of the Power
Projects, their locations, and details of the BGs with respect to each of the
Purchase Orders in the different petitions herein are given in a tabular
form as under:-
OMP (I)(COMM) 340/2019 & conn. Page 5 of 39
Case No. Purchase
Bank Guarantee No. Amount of Bank
Co-
ordination
Agreement
Power
Project
Guarantee
Order
dated
and its
Location
dated
19.02.2018
14.03.2018
Borampall
Rs.20,11,80,000/-
OMP (I)
(COMM) No.
340/2019
0094118BG0000528
dated 03.07.2018
i, Andhra
(Amendmen
Pradesh
t dated
14.03.2018)
05.03.2016
05.03.2016
(Amendmen
Rs. 21,31,87,383/-
OMP (I)
(COMM) No.
341/2019
Ralla,
Andhra
Pradesh
170390IBGP01108
dated 27.12.2017
(renewed lastly on
t dated
29.09.2016)
04.09.2019)
05.03.2016
05.03.2016
(Amendmen
Rs 21,92,56,232/-
OMP (I)
(COMM) No.
342/2019
Ralla,
Andhra
Pradesh
170390IBGP01107
dated 27.12.2017
(renewed lastly on
t dated
29.09.2016)
04.09.2019)
30.01.2018 30.01.2018 Kustagi,
Rs. 14,02,50,000/-
OMP (I)
(COMM) No.
346/2019
10880014618 dated
01.08.2018
Karnataka
30.01.2018 30.01.2018 Kustagi,
Rs. 6,05,00,000/-
OMP (I)
(COMM) No.
347/2019
10880014718 dated
01.08.2018
Karnataka
06.01.2016 24.10.2016 Ellutala,
Rs. 3,32,84,335/-
OMP (I)
(COMM) No.
348/2019
10880002617 dated
Andhra
Pradesh
10.02.2017
(renewed lastly on
22.05.2019) and
10880002717 dated
Rs. 3,32,84,335/-
Ellutala,
10.02.2017
(renewed lastly on
Andhra
Pradesh
22.05.2019
OMP (I)(COMM) 340/2019 & conn. Page 6 of 39
28.07.2015 Nil Limbwas,
Rs. 32,00,00,000/-
OMP (I)
(COMM) No.
349/2019
10880018817 dated
04.09.2017
Madhya
Pradesh
(renewed lastly on
18.06.2019)
6. In terms of the Orders, Petitioner furnished both Advance and
Performance BGs. However, at present only the Performance Bank
Guarantees under each of the Orders are valid and are subject matter of
these petitions.
7. Petitioner supplied all the WTGs in accordance with its obligations
under the Orders and their components, to Respondent and also erected
and commissioned the entire Wind Power Project. Accordingly,
Commissioning Certificates were also issued, with respect to each of the
Orders.
8. On 18.03.2019, a meeting was held between the Petitioner and
representatives of the Respondent to discuss the pending issues and
concerns, raised by the Respondent qua various projects and the ancillary
Agreements, but at no point was any claim / demand raised by the
Respondent, under the Orders. On 31.07.2019, another meeting was held
where again all the works executed by the Petitioner were discussed, but
no claim or demand was raised. In fact, till date there is no demand by
the Respondent against the Petitioner.
9. Respondent fraudulently and in a clandestine manner, issued letters
(separately with respect to each of the Orders) to Respondent No.2
seeking invocation of the subsisting Bank Guarantees and demanded the
sum involved under the different Bank Guarantees.
OMP (I)(COMM) 340/2019 & conn. Page 7 of 39
10. Respective dates of invocation of the different Performance Bank
Guarantees involved in the present petitions are as under :-
Date of Invocation Bank Guarantee No.
0094118BG0000528
04.10.2019
dated 03.07.2018
170390IBGP01108
04.10.2019
dated 27.12.2017
(renewed lastly on
04.09.2019)
170390IBGP01107
04.10.2019
dated 27.12.2017
(renewed lastly on
04.09.2019)
10880014618 dated
09.10.2019
01.08.2018
10880014718 dated
09.10.2019
01.08.2018
10880002617 dated
09.10.2019
10.02.2017 (renewed
lastly on 22.05.2019)
10880002717 dated
09.10.2019
10.02.2017 (renewed
lastly on 22.05.2019
OMP (I)(COMM) 340/2019 & conn. Page 8 of 39
10880018817 dated
09.10.2019
04.09.2017
(renewed lastly on
18.06.2019)
11. Vide an email dated 17.05.2019, Petitioner wrote to the
Respondent, bringing to its notice a summary of the outstanding amounts,
due and payable to the Petitioner, being a sum of Rs.63.48 Crores,
cumulatively, under the different Orders. Respondent vide its email dated
21.06.2019, responded and gave its own calculation towards the amounts
due. Even as per the calculations of the Respondent, a sum of Rs.9.67
Crores was payable to the Petitioner under all the Agreements and thus,
vide email dated 08.08.2019, Petitioner reiterated its outstanding claims,
as also objected to the calculations made by the Respondent. Post this
email, there has been no response from the Respondent, despite
reminders.
12. The WTGs have been commissioned and are generating electricity
and revenue for the Respondent to its complete satisfaction and no
objection or any dispute in this regard has been raised by the respondent.
It is the fraudulent invocation of the Bank Guarantees which led the
Petitioner to file the present petitions seeking interim injunctions
restraining the respondent from invoking or encashing the Bank
Guarantees issued by the Banks. Vide interim orders passed by this Court
on various dates, Banks were restrained from encashing the Bank
Guarantees in question and the interim order is continuing.
OMP (I)(COMM) 340/2019 & conn. Page 9 of 39
13. Learned Senior Counsel for the Petitioner argues that the
Performance Bank Guarantees were furnished as a Security for the
performance of Petitioner‟s obligation towards successful completion of
warranty period and its other obligations, as agreed between the parties
under clause 4.2 of the Agreements. As a matter of record, Petitioner has
carried out the Work, as required under the Agreement and has achieved
almost 100% of the overall progress towards commissioning of each
WTG. He further argues that at no point in time, the Respondent raised
any grievance with respect to non-fulfilment of any of the obligations by
the Petitioner and till the filing of the petition, no claim / demand was
raised by the Respondent on the Petitioner.
14. Learned Senior Counsel has drawn the attention of the Court to
Clauses 4.2 (c) and 4.4 of General Clauses of Contract to argue that a
bare perusal of the provisions of these clauses would show that for the
Respondent to be entitled to invoke the Bank Guarantees, there had to be
an amount due and payable by the Petitioner to the Respondent.
However, the correspondence and the Minutes of Meeting appended to
the petition disclose that no dues are outstanding towards the Respondent.
Clauses 4.2(c) and 4.4 are as under :-
"4.2(c) The Supplier shall, as a pre-condition to the
progress payment due upon successful Commissioning
and operationalization of each WTG, provide
unconditional and irrevocable bank guarantee(s) from a
scheduled commercial bank with a value equivalent to Rs.
83, 82, 500/- (Rupees Eighty Three Lacs Eighty Two
Thousand and Five Hundred only) for each WTG (each
such bank guarantee is referred to as "Contract
Performance Bank Guarantee-3" or "CPBG-3 '')
OMP (I)(COMM) 340/2019 & conn. Page 10 of 39
aggregating to a maximum amount of Rs. 20,11,80,000/-
(Rupees Twenty Crore Eleven Lacs and Eighty Thousand
only) as security for the performance of the Supplier's
obligations towards successful completion of Warranty
Period and its other obligation, as agreed between the
Parties.
4.4 In the event of occurrence of any breach or failure or
default by the supplier in fulfilling of its obligations under
the Order, proceeds of APBG, CG AND CPBG provided
by the Supplier pursuant to this Order may be
appropriated by the Purchaser, as part compensation for
any loss resulting from the Suppliers 's failure to perform
its respective obligations under this Order and without
prejudice to any of the Purchaser's other rights or
remedies under this Order towards such losses. "
15. Learned Senior Counsel next contends that it is evident from the
recital of the BGs itself that the BGs were to cover the obligations of
performance of the warranty period as stated in the various Contracts
executed for the Project.
16. Learned Senior Counsel submits that it is the case of the
Respondent in OMP (I) (COMM) 341 and 342/2019 (for the Ralla
Project) that parties also executed Coordination Agreements qua the
Projects, the clauses of which allow the Respondent to invoke the BGs
issued under the respective Orders, for their alleged claims under other
Agreements executed with other Companies mentioned in Schedule 1 of
the Coordination Agreements. It is argued that this stand of the
respondent is misconceived as the only other Company which was a party
to the said Coordination Agreements, in addition to the Petitioner and the
Respondent, was Suzlon Gujarat Wind Park Ltd. (SGWPL). It is also
OMP (I)(COMM) 340/2019 & conn. Page 11 of 39
argued that Suzlon Global Services Ltd. (SGSL), is neither a party to the
Coordination Agreement nor to the Operation and Maintenance (O&M)
Agreements. None of the other five petitions herein contain similar
Coordination Agreements, which entitle the Respondent to invoke the
BGs for other Agreements.
17. Learned Senior Counsel submits that it came as a shock to the
Petitioner when the Respondent invoked the BGs under the present
petitions involving a sum of little over Rs.100 Crores. Perusal of the BGs
in each case shows that they were issued under the respective Orders, for
supply of WTGs and not under any other Agreements. Learned Senior
Counsel also contends that this clearly is a fraudulent invocation of the
BGs, which serves to vitiate the BGs and also causes irretrievable loss to
the Petitioner. The Petitioner is undergoing a Corporate Debt
Restructuring Process (CDRP) and despite having knowledge of the
same, Respondent chose to invoke the BGs. It is for this reason that the
Court had, at the initial stage, stayed the invocation in all the petitions.
Respondent took more than 2 and a half months to file the replies, as in
the meantime, they were manufacturing claims to make out a case that
money was due from the Petitioner. As an illustration, the first alleged
claim in OMP (I)(COMM) 341/2019 is towards shortfall in resource
availability. This is an amount sought by the Respondent from SGSL and
not the Petitioner and that too, under a separate O&M Agreement
executed between SGCL and the Respondent. Even the letters raising the
claim were addressed to SGCL and not even copied to the Petitioner.
This is a clear case of egregious fraud on the part of the Respondent to
invoke the BGs and encash them.
OMP (I)(COMM) 340/2019 & conn. Page 12 of 39
18. Learned Senior Counsel relies on a judgment of a Coordinate
Bench of this Court in Larsen & Toubro Limited v. Experion Developers
Pvt. Ltd. in OMP (I)(COMM) 200/2019 decided by judgment dated
03.07.2019 where the Court has held that once a contract between the
parties circumscribes the power of a party to invoke a BG in a particular
manner, a Court under Section 9 of the Act must ensure that the BG is
invoked in accordance with the contractual provisions and the invoking
party cannot rely on the general law applicable to BG invocation. It is
pointed out that though the judgment is under challenge before the
Division Bench but there is no stay. Learned Senior Counsel also argues
that in a subsequent petition under Section 9 of the Act between the same
parties, another Bench of this Court has distinguished the earlier
judgment and declined to grant an injunction, vide judgment dated
03.12.2019 in OMP (I)(COMM) 234/2019, however, the said judgment
is also pending before a Division Bench and the Respondent therein has
been restrained from invoking the BG.
19. Learned Senior Counsel points out that there being an Arbitration
Agreement between the parties, Petitioner vide Notice dated 05.02.2020
has invoked the Arbitration Agreement. The Arbitration Clause reads as
under :-
42.2 Arbitration
In the event the Parties are unable to resolve any Dispute
in accordance with Clause 42.1, such Dispute shall be
resolved by arbitration in accordance with the following:
OMP (I)(COMM) 340/2019 & conn. Page 13 of 39
(a) Submissions of Disputes
Any Dispute shall be settled exclusively and finally by
arbitration. In any such arbitration, either Party shall be
entitled to present positions and rely upon information
supplemental to or different from those relied upon for
purposes of any attempted amicable dispute resolution
pursuant to Clause 42.1.
(b) Arbitration Act
The conduct of any arbitration proceedings and any
award rendered hereunder and the validity, effect and
interpretation of this Clause 42 shall be governed by the
laws of India and the enforcement of this Clause 42 and
any award rendered hereunder shall be governed by the
Arbitration and Conciliation Act, 1996 ( the “ Arbitration
Act”). Such arbitration shall be held in accordance with
the Rules of Arbitration of the International Centre for
Alternative Dispute Resolution, New Delhi, or such other
rules as may be mutually agreed by the Parties.
(c) Number of Arbitrators and appointment of Arbitrators
The arbitral tribunal shall consist of three arbitrators,
with each Party appointing one arbitrator and the third
arbitrator shall be appointed by such two Party
appointed arbitrators.
(d) Seat of Arbitration
The seat of arbitration shall be New Delhi, India.
20. Per contra, learned counsel for the Respondent submits that
Framework Agreements and Amendment Agreements were executed
OMP (I)(COMM) 340/2019 & conn. Page 14 of 39
between M/s ReNew Power Ventures Private Limited and Suzlon for
Turn Key development of 518.70 MW capacity Wind Power Projects,
across the States of Andhra Pradesh, Gujarat and any other State as
mutually decided between the parties. Subsequently, separate Agreements
were signed between Suzlon/its Group Companies and M/s ReNew
Power Ventures Private Limited/ its Group Companies.
21. Share Purchase Agreement dated 13.03.2018 was entered inter se
the Respondent and thereafter Co-ordination Agreements were entered
into with Suzlon, SGWPL and Suzlon Power Infrastructure Limited for
setting up the Projects at various locations. Separate Construction
Contracts were also executed between the parties including the Land
Agreement.
22. Learned counsel for Respondent submits that several claims of
Respondent are pending against Suzlon some of which have been detailed
in the reply reserving the rights of Respondent to raise further claims. It is
submitted that some of these claims mentioned elaborately in the replies
are : on account of failure to provide and install wind mast; failure to pay
vendors; bay maintenance charges levied by APTRANSCO; PSS panel
failure; pending works; under achievement of Machine Availability
Warranting etc. Respondent, therefore, has claims in excess of Rs.
77,45,49,238/- against Suzlon and is entitled to invoke the BGs. Suzlon
has failed to complete the work with respect to various projects awarded
to it and is in breach of Contractual obligations. It is submitted that there
is no admission that Respondent owes any amount to Suzlon and on the
contrary there are outstanding dues towards the Respondent, details of
which have been mentioned in the replies to the petitions. Suzlon has
OMP (I)(COMM) 340/2019 & conn. Page 15 of 39
made false and incorrect statements and has filed selective documents to
suit its case.
23. Learned counsel argues that the BGs in question are unconditional
and irrevocable and Respondent No. 2 is obliged under the BGs to pay
the amounts to Respondent without demur and protest and without any
further proof or documents and notwithstanding any contest or dispute by
Suzlon with respect to the alleged outstanding dues.
24. I have heard the learned counsels for the parties and examined their
submissions.
25. Before examining the rival issues involved in the present petitions,
it is important to refer to certain clauses of the Purchase Orders, the Co-
ordination Agreements and the BGs in question. Since the documents are
more or less the same in all the petitions except for the differences as
brought out above, the Clauses incorporated in the Purchase Order in
O.M.P. (I) (COMM) 340/2019 is being referred to. The Purchase Order
in the said case is dated 19.02.2018 and was amended on 14.03.2018.
Relevant portions of the Purchase Order are as under :-
“…This has reference to our discussions on the cited
subject for Supply (as defined hereinafter) of 24 (twenty
four) number of WTGs (defined below), of Suzlon make S-
111_90 type 2.10 MW capacity wind turbine generators;
as described separately in the Technical Specifications,
for our proposed wind power project of 50.40 MW
capacity at Borampalli Site, district Anantpur, in the
State of Andhra Pradesh.
Pursuant to our discussions, we are pleased to issue this
Order for the Supply of 24 (twenty four) sets of WTG(s)
on the terms and conditions contained hereinafter.”
OMP (I)(COMM) 340/2019 & conn. Page 16 of 39
x x x
“The Order Value shall be firm and fixed and shall not be
subject to escalation under any circumstances, except in
accordance with the express provisions of this Order. It
is clarified that the Order Value includes but is not
limited to :
(i). WTG Supply, design, engineering and
manufacturing in accordance with the
Specifications as agreed between the parties;
(ii). WTG delivery and transportation upto
Project Site;
(iii). Cost of procuring the applicable Approvals,
licences, permits, clearances and consents;
(iv). Includes all duties, Taxes, cess and other
levies as of the date of this Order, including but not
limited to statutory payments, and any other costs
required for transfer of the Project to the
Purchaser or its Affiliates / nominees;
(v). Defects Liability, Serial Defect Liability and
Warranty;
(vi). All costs, unless otherwise specified,
incurred by Supplier to obtain and maintain the
Insurance Policies in accordance with the terms of
this Order.”
x x x
“6. GENERAL TERMS AND CONDITIONS
6.1 The supply shall be executed in accordance with
the provisions of this Order and GCC which shall be
separately agreed between the Parties. The GCC and
scope of Supply once agreed between the Parties shall
form an integral part of this Order and shall be in full
OMP (I)(COMM) 340/2019 & conn. Page 17 of 39
force and effect as though they were expressly set out in
the body of this order.
6.2 This Order shall be subject to governing laws
and dispute resolution mechanism as may be mutually
agreed between the parties and provided in the GCC.”
x x x
“ ANNEX -1
GENERAL CONDITIONS OF CONTRACT – SUPPLY
OF WTG(S).”
x x x
“Contract Performance Bank Guarantee (CPBG)” shall
have the meaning ascribed to it in Clause 4.2(a) of the
GCC.”
x x x
“Supplier” means Suzlon Energy Limited, a company
incorporated under the Companies Act, 1956, having its
registered office at 5, Shrimali Society, Near Shri Krishna
Complex, Navrangpura, Ahmedabad – 380 009 which
expression shall unless repugnant to the context and
meaning thereof be deemed to mean and include its
successors and permitted assigns.”
x x x
“4. Bank Guarantees”
x x x
“4.2 Contract Performance Bank Guarantee
(a). The Supplier shall, as a pre-condition to the
progress payment due upon successful Commissioning and
operationalization of each WTG, provide unconditional and
OMP (I)(COMM) 340/2019 & conn. Page 18 of 39
irrevocable bank guarantee(s) from a scheduled commercial
bank with a value equivalent Rs.41,91,250/- (Forty One
Lacs Ninety One Thousand Two Hundred and Fifty only) for
each WTG (each such bank guarantee is referred to as
“Contract Performance Bank Guarantee-I” or “CPBG-1”)
aggregating to a maximum amount of Rs.10,05,90,000/-
(Rupees Ten Crore Five Lacs and Ninety Thousand only), as
security for the performance of the Supplier’s obligations
towards successful performance of Warranty obligations
and its other obligations. The Parties agree that CPBG-1
shall be released upon the expiry of a period of one year
from the successful Commissioning of a WTG. The
Contract Performance Bank Guarantee shall be in the
format mutually agreed between the Parties.
(b). The Supplier shall, as a pre-condition to the
progress payment due upon successful Commissioning and
operationalization of each WTG, provide unconditional and
irrevocable bank guarantee(s) from a scheduled commercial
bank with a value equivalent Rs.41,91,250/- (Forty One
Lacs Ninety One Thousand Two Hundred and fifty only) for
each WTG (each such bank guarantee is referred to as
“Contract Performance Bank Guarantee-2” or “CPBG-2”)
aggregating to a maximum amount of Rs.10,05,90,000/-
(Rupees Ten Crore Five Lacs and Ninety Thousand only), as
security for the performance of the Supplier’s obligations
towards successful completion of Warranty Period and its
other obligations. The Parties agree that CPBG-2 shall be
released upon the later of the successful completion of
Power Curve Guarantee Test and the expiry of a period of
one year from the successful Commissioning of a WTG.
(c). The Supplier shall, as a pre-condition to the
progress payment due upon successful Commissioning and
operationalization of each WTG, provide unconditional and
irrevocable bank guarantee (s) from a scheduled
commercial bank with a value equivalent to Rs.83,82,500/-
(Rupees Eighty Three Lacs Eighty Two Thousand and Five
OMP (I)(COMM) 340/2019 & conn. Page 19 of 39
Hundred only) for each WTG (each such bank guarantee is
referred to as “Contract Performance Bank Guarantee-3”
or “CPBG-3”) aggregating to a maximum amount of
Rs.20,11,80,000/- (Rupees Twenty Crore Eleven Lacs and
Eighty Thousand only), as security for the performance of
the Supplier’s obligations towards successful completion of
Warranty Period and its other obligations, as agreed
between the Parties.”
26. Performance Bank Guarantee dated 03.07.2018 furnished by the
Bank on behalf of the Petitioner in OMP (I) (COMM) 340/2019, as an
illustration, reads as under:-
“A. Zemira Renewable Energy Limited, having its
registered office at 101-104, GCP Business Centre,
Opposite Memnagar Fire Station, Vijay Char Rasta,
Memnagar, Ahmedabad – 380014 and a corporate office at
Commercial Block-1, Zone 6, Main Sector Road, Phase-V,
Commercial Complex, Golf Course Road, Gurugram –
122009, Haryana, India (hereinafter referred to as the
“Owner”, which expression shall unless repugnant to the
context or meaning thereof, include its successors,
administrators and permitted assigns) has entered into a
Contract for Supply bearing No.Zemira/17-18/AP-
Borampalli / WTG/001 dated February 19, 2018 and further
amended on March 14, 2018 (hereinafter referred to as the
“Contract”) with Suzlon Energy Limited, having its
registered office at “Suzlon”, 5, Shrimali Society, Near Shri
Krishna Complex, Navrangpura, Ahmedabad-380009 and a
corporate office at One Earth, Hadapsar, Pune-411028
(hereinafter referred to as the “Supplier”, which expression
shall unless repugnant to the context or meaning thereof,
include its successors, administrators, executors and
permitted assigns) to cover the obligation of performance of
the warranty period as stated in various Contracts executed
for the Project (hereinafter referred to as the “Obligation”)
consisting of 24 (twenty four) numbers of Suzlon make
OMP (I)(COMM) 340/2019 & conn. Page 20 of 39
S111_90 type wind turbine generators (hereinafter referred
to as “WTGs”) of 2.10 MW capacity aggregating to 50.40
MW wind power project at Mudigallu village, Kalyanadurg
Taluk, District Anantpur, in the State of Andhra Pradesh
(hereinafater referred to as the “Project”).
B. In accordance with the terms of the Contract, the
Supplier has agreed to furnish the Owner an irrevocable
and unconditional performance bank guarantee in a form
and from a bank acceptable to the Owner, as security for
the performance of the Obligation, for an amount of INR
20,11,80,000/- (Rupees Twenty Crores Eleven Lacs and
Eighty Thousand Only) hereinafter referred to as the
(“Guaranteed Amount”) as per the Contract from Bank of
Maharashtra, a company under the Banking Regulation Act,
1949, having its registered office at Lokmangal, 1501,
Shivaji Nagar, Pune and amongst other places a branch
office at Corporate Finance Branch, Yashomangal, 1183/A,
F.C. Road, Pune-411005 (hereinafter referred to as the
“Bank”, which expression shall unless repugnant to the
context or meaning thereof, include its successors,
administrators, executors and permitted assigns).
NOW THEREFORE, the Bank hereby, unconditionally and
irrevocably, guarantees and affirms as follows:-
1. This Bank Guarantee is issued for and shall be effective
from the date of its issuance (hereinafter referred to as the
“Effective Date”) and shall be and remain valid till 30th
June, 2020 (hereinafter referred to as the Validity Period)
subject to further claim period of 1 month i.e. upto 31st
July, 2020 (“Claim Period”).
2. The Bank hereby unconditionally and irrevocably
guarantees and undertakes to pay to the Owner forthwith,
upon the first written demand made by the Owner and
received at Bank counter on or before 31st July 2020,
without any demur, reservation, recourse, contest or
OMP (I)(COMM) 340/2019 & conn. Page 21 of 39
protest, and without any reference to the Supplier, and
without the Owner being required to prove or show grounds
or reasons for its demand and / or for the sum specified
therein. A written demand from the Owner to the Bank shall
be conclusive and binding on, and shall not be questioned
by, the Bank as to the correctness of the contents thereof
and the Owner’s right to demand payment from the Bank
under the Bank Guarantee.
3. The Owner shall have the right to file / make a claim on
the Bank under this Bank Guarantee on or before the expiry
of the Claim Period.”
27. Law relating to unconditional and irrevocable BGs is no longer res
integra . Supreme Court and this Court in several judgments have from
time to time emphasized and re-emphasized the restraints on the power of
a Court to interfere in invocation of these BGs, when invoked by the
beneficiaries. Instead of referring to each one of these judgments, in my
opinion, referrence to a recent judgment of a Co-ordinate Bench of this
Court would succinctly bring out the law on the subject. In the case of
Classic-KSM Bashir JV v. Rites Limited 2018 SCC OnLine Del 8888,
the Court held as under:-
" 33. The law of injunction in the case of bank guarantee is
no longer res integra. In Dwarikesh Sugar Industries Ltd. v.
Prem Heavy Engineering Works (P) Ltd. (1997) 6 SCC 450,
Supreme Court reiterated this law as under:
"21. Numerous decisions of this Court rendered over a
span of nearly two decades have laid down and reiterated
the principles which the courts must apply while
considering the question whether to grant an injunction
OMP (I)(COMM) 340/2019 & conn. Page 22 of 39
which has the effect of restraining the encashment of a
bank guarantee. We do not think it necessary to burden
this judgment by referring to all of them. Some of the
more recent pronouncements on this point where the
earlier decisions have been considered and reiterated
are Svenska Handelsbanken v. Indian Charge
Chrome [(1994) 1 SCC 502] , Larsen & Toubro Ltd. v.
Maharashtra SEB [(1995) 6 SCC 68] , Hindustan Steel
Workers Construction Ltd. v. G.S. Atwal & Co.
(Engineers) (P) Ltd.[(1995) 6 SCC 76] and U.P. State
Sugar Corpn. v. Sumac International Ltd. [(1997) 1 SCC
568] The general principle which has been laid down by
this Court has been summarised in the case of U.P. State
Sugar Corpn. [(1997) 1 SCC 568] as follows: (SCC p.
574, para 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 the 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. Since 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
OMP (I)(COMM) 340/2019 & conn. Page 23 of 39
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."
Dealing with the question of fraud it has been held that
fraud has to be an established fraud. The following
observations of Sir John Donaldson, M.R. in Bolivinter
Oil SA v. Chase Manhattan Bank [(1984) 1 All ER 351,
CA] are apposite:
“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 discharged."
34 . In Vinitec Electronics Private Ltd. v. HCL Infosystems
Ltd. (2008) 1 SCC 544, the Supreme Court after relying
upon various earlier judgments of the Court reiterated that
the allegation with regard to the alleged breach of a
contract by the respondent is not a plea of fraud of a
egregious nature so as to vitiate the entire transaction.
Paragraphs 24 to 28 of the Judgment are quoted herein
below:
"24. The next question that falls for our consideration is
as to whether the present case falls under any of or both
the exceptions, namely, whether there is a clear fraud of
which the Bank has notice and a fraud of the beneficiary
from which it seeks to benefit and another exception
OMP (I)(COMM) 340/2019 & conn. Page 24 of 39
whether there are any "special equities" in favour of
granting injunction.
25. This Court in more than one decision took the view
that fraud, if any, must be of an egregious nature as to
vitiate the underlying transaction. We have meticulously
examined the pleadings in the present case in which no
factual foundation is laid in support of the allegation of
fraud. There is not even a proper allegation of any fraud
as such and in fact the whole case of the appellant
centres around the allegation with regard to the alleged
breach of contract by the respondent. The plea of fraud in
the appellant's own words is to the following effect:
"That despite the respondent HCL being in default of not
making payment as stipulated in the bank guarantee, in
perpetration of abject dishonesty and fraud, the
respondent HCL fraudulently invoked the bank guarantee
furnished by the applicant and sought remittance of the
sums under the conditional bank guarantee from Oriental
Bank of Commerce vide letter of invocation dated 16-12-
2003."
26. In our considered opinion such vague and indefinite
allegations made do not satisfy the requirement in law
constituting any fraud much less the fraud of an
egregious nature as to vitiate the entire transaction. The
case, therefore does not fall within the first exception.
27. Whether encashment of the bank guarantee would
cause any "irretrievable injury" or "irretrievable
injustice". There is no plea of any "special equities" by
the appellant in its favour. So far as the plea of
"irretrievable injustice" is concerned the appellant in its
petition merely stated:
OMP (I)(COMM) 340/2019 & conn. Page 25 of 39
"That should the respondent be successful in
implementing its evil design, the same would not only
amount to fraud, cause irretrievable injustice to the
applicant, and render the arbitration nugatory and
infructuous but would permit the respondent to take an
unfair advantage of their own wrong at the cost and
extreme prejudice of the applicant."
28. The plea taken as regards "irretrievable injustice" is
again vague and not supported by any evidence.”
35. In Gujarat Maritime Board v. Larsen and Toubro
Infrastructure Development Projects Limited and Anr.
(2016) 10 SCC 46, the Supreme Court once again cautioned
that bank guarantee is a separate contract and is not
qualified by the contract under which it is given. Whether
the cancellation was just and proper is a question to be
decided by the Arbitrator and not by this Court
under Section 9 of the Act. I would only quote the relevant
paragraphs of the said Judgment:
"9. Unfortunately, the High Court went wrong both in its
analysis of facts and approach on law. A cursory reading
of LoI would clearly show that it is not a case of
forfeiture of security deposit "... if the contract had
frustrated on account of impossibility..." but invocation of
the performance bank guarantee. On law, the High Court
ought to have noticed that the bank guarantee is an
independent contract between the guarantor Bank and
the guarantee appellant. The guarantee is unconditional,
no doubt, the performance guarantee is against the
breach by the lead promoter viz. the first respondent. But
between the bank and the appellant, the specific
condition incorporated in the bank guarantee is that the
decision of the appellant as to the breach is binding on
the Bank. The justifiability of the decision is a different
matter between the appellant and the first respondent and
OMP (I)(COMM) 340/2019 & conn. Page 26 of 39
it is not for the High Court in a proceeding under Article
226 of the Constitution of India to go into that question
since several disputed questions of fact are involved.
xxxxx
11. It is contended on behalf of the first respondent that
the invocation of bank guarantee depends on the
cancellation of the contract and once the cancellation of
the contract is not justified, the invocation of bank
guarantee also is not justified. We are afraid that the
contention cannot be appreciated. The bank guarantee is
a separate contract and is not qualified by the contract
on performance of the obligations. No doubt, in terms of
the bank guarantee also, the invocation is only against a
breach of the conditions in the LoI. But between the
appellant and the Bank, it has been stipulated that the
decision of the appellant as to the breach shall be
absolute and binding on the Bank.
12. An injunction against the invocation of an absolute
and an unconditional bank guarantee cannot be granted
except in situations of egregious fraud or irretrievable
injury to one of the parties concerned. This position also
is no more res integra. In Himadri Chemicals Industries
Ltd. v. Coal Tar Refining Co. [Himadri Chemicals
Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC
110], at para 14: (SCC pp. 117-18) "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
OMP (I)(COMM) 340/2019 & conn. Page 27 of 39
given or accepted, the beneficiary is entitled to
realise 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 realisation of a
bank guarantee or a letter of credit.
(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."
13. The guarantee given by the Bank to the appellant
contains only the condition that in case of breach by the
lead promoter viz. the first respondent of the conditions
of LoI, the appellant is free to invoke the bank guarantee
and the Bank should honour it "... without any demur,
merely on a demand from GMB (appellant) stating that
the said lead promoter failed to perform the
OMP (I)(COMM) 340/2019 & conn. Page 28 of 39
covenants...". It has also been undertaken by the Bank
that such written demand from the appellant on the Bank
shall be "... conclusive, absolute and unequivocal as
regards the amount due and payable by the Bank under
this guarantee". Between the appellant and the first
respondent, in the event of failure to perform the
obligations under the LoI dated 6-2-2008, the appellant
was entitled to cancel the LoI and invoke the bank
guarantee. On being satisfied that the first respondent
has failed to perform its obligations as covenanted, the
appellant cancelled the LoI and resultantly invoked the
bank guarantee. Whether the cancellation is legal and
proper, and whether on such cancellation, the bank
guarantee could have been invoked on the extreme
situation of the first respondent justifying its inability to
perform its obligations under the LoI, etc. are not within
the purview of an inquiry under Article 226 of the
Constitution of India. Between the Bank and the
appellant, the moment there is a written demand for
invoking the bank guarantee pursuant to breach of the
covenants between the appellant and the first respondent,
as satisfied by the appellant, the Bank is bound to honour
the payment under the guarantee."
28. Having the benefit of the various judgments referred to above, this
Court can only observe that when a BG is unconditional and irrevocable,
the Rule is that the Courts should refrain from injuncting their invocation
or encashment by the beneficiary. This Rule is subject to only two
exceptions and which are : (a). egregious fraud which vitiates the entire
underlying transactions and of which the Bank has notice; or (b).
irretrievable injury of an exceptional circumstance, where it is impossible
for the Guarantor to reimburse itself, if it ultimately succeeds in final
adjudication of the disputes. The Courts in exceptional circumstances
OMP (I)(COMM) 340/2019 & conn. Page 29 of 39
would invoke the doctrine of Special Equities to restrain the injunction
but other than these exceptions there cannot be any interference in the
invocation of an Unconditional BG.
29. The question therefore that this Court needs to consider in all the
seven petitions is whether the BGs in question are Unconditional and
Irrevocable and if so, whether any of the exceptions to the Rule exists and
has been established by the Petitioner, so as to be entitled to an injunction
against the encashment of the BGs.
30. A perusal of the BGs in question, one of which has been extracted
above, makes it abundantly clear that the BGs are Unconditional and
Irrevocable and the Banks have undertaken to honour the claim of the
beneficiary, without any demur or protest and de hors and irrespective of
any disputes between the beneficiary and the Guarantor. Petitioner has
not been able to set up any case of egregious fraud with respect to the
invocation of the BGs in question. There is only a vague pleading to this
effect which is not enough for this Court to pass a restraint Order.
31. Both the Petitioner and the Respondent have raised disputes
regarding the completion of the work under the Agreements as well as the
amounts outstanding against each other. Alleged deficiencies in the work
carried out by the Petitioner, have been brought out by the Respondent,
which has been vehemently denied by the Petitioner. However, the
serious disputes on the merits of the respective claims raised by the
parties herein cannot be a ground to interfere and restrain the
invocation/encashment of the BGs in question. It is a settled law that BG
is an independent contract between the bank and the beneficiary. Once
the beneficiary invokes the BG, the Bank is obliged to honour the
OMP (I)(COMM) 340/2019 & conn. Page 30 of 39
Guarantee without any demur or protest and irrespective of any dispute
between the beneficiary and the Guarantor. In Ansal Engineering
Projects Ltd. v. Tehri Hydro Development Corporation Ltd. & Anr.
1996 5 SCC 450 , the Supreme Court held as under:-
“5. It is equally settled law that in terms of the bank
guarantee the beneficiary is entitled to invoke the bank
guarantee and seek encashment of the amount specified in
the bank guarantee. It does not depend upon the result of
the decision in the dispute between the parties, in case of the
breach. The underlying object is that an irrevocable
commitment either in the form of bank guarantee or letters
of credit solemnly given by the bank must be honoured. The
court exercising its power cannot interfere with enforcement
of bank guarantee/letters of credit except only in cases
where fraud or special equity is prima facie made out in the
case as triable issue by strong evidence so as to prevent
irretrievable injustice to the parties. The trading operation
would not be jettisoned and faith of the people in the
efficacy of banking transactions would not be eroded or
brought to disbelief. The question, therefore, is whether the
petitioner had made out any case of irreparable injury by
proof of special equity or fraud so as to invoke the
jurisdiction of the Court by way of injunction to restrain the
first respondent from encashing the bank guarantee. The
High Court held that the petitioner has not made out either.
We have carefully scanned the reasons given by the High
Court as well as the contentions raised by the parties. On
the facts, we do not find that any case of fraud has been
made out. The contention is that after promise to extend
time for constructing the buildings and allotment of extra
houses and the term of bank guarantees was extended, the
contract was terminated. It is not a case of fraud but one of
acting in terms of contract. It is next contended by Shri G.
Nageshwara Rao, the learned counsel for the petitioner,
that unless the amount due and payable is determined by a
competent court or tribunal by mere invocation of bank
OMP (I)(COMM) 340/2019 & conn. Page 31 of 39
guarantee or letter of credit pleading that the amount is due
and payable by the petitioner, which was disputed, cannot
be held to be due and payable in a case. The Court has yet
to go into the question and until a finding after trial, or
decision is given by a court or tribunal that amount is due
and payable by the petitioner, it cannot be held to be due
and payable. Therefore, the High Court committed manifest
error of law in refusing to grant injunction as the petitioner
has made out a prima facie strong case. We find no force in
the contention. All the clauses of the contract of the bank
guarantee are to be read together. Bank guarantee/letters of
credit is an independent contract between the bank and the
beneficiary. It does not depend on the result of the dispute
between the person on whose behalf the bank guarantee was
given by the bank and the beneficiary. Though the question
was not elaborately discussed, it was in sum answered by
this Court in Hindustan Steel Workers Construction
Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd. [(1995) 6
SCC 76] (SCC at p. 79). This Court had held in para 6 that
the entire dispute was pending before the arbitrator.
Whether, and if so, what is the amount due to the appellant
was to be adjudicated in the arbitration proceedings. The
order of the learned Single Judge proceeds on the basis that
the amounts claimed were not and cannot be said to be due
and the bank has violated the understanding between the
respondent and the bank in giving unconditional guarantee
to the appellant. The learned Judge held that the bank had
issued a guarantee in a standard form, covering a wider
spectrum than agreed to between the respondent and the
bank and it cannot be a reason to hold that the appellant is
in any way fettered in invoking the conditional bank
guarantee. Similarly, the reasoning of the learned Single
Judge that before invoking the performance guarantee the
appellant should assess the quantum of loss and damages
and mention the ascertained figure, cannot be put forward
to restrain the appellant from invoking the unconditional
guarantee. This reasoning would clearly indicate that the
final adjudication is not a precondition to invoke the bank
OMP (I)(COMM) 340/2019 & conn. Page 32 of 39
guarantee and that is not a ground to issue injunction
restraining the beneficiary to enforce the bank guarantee.
In Hindustan Steelworks Construction Ltd. v. Tarapore
& Co. [(1996) 5 SCC 34 : JT (1996) 6 SC 295] , it was
contended that a contractor had a counter-claim against the
appellant; that disputes had been referred to the arbitrator
and no amount was said to be due and payable by the
contractor to the appellant till the arbitrator declared the
award. It was contended therein that those were exceptional
circumstances justifying interference by restraining the
appellant from enforcing the bank guarantee. The High
Court had issued interim injunction from enforcing the bank
guarantee. Interfering with and reversing the order of the
High Court, this Court has held in para 23 that a bank must
honour its commitment free from interference by the courts.
The special circumstances or special equity pleaded in the
case that there was a serious dispute on the question as to
who has committed the breach of the contract and that
whether the amount is due and payable by the contractor to
the appellant till the arbitrator declares the award, was not
sufficient to make the case an exceptional one justifying
interference by restraining the appellant from enforcing the
bank guarantee. The order of injunction, therefore, was
reserved with certain directions with which we are not
concerned in this case.
6. A conjoint reading of the bank guarantee and the letter of
invocation demanding payment of amount due and payable
by the petitioner would show that the first respondent had
specified and quantified in terms of the bank guarantee a
total sum with interest due thereon in a sum of Rs 57,57,970
as on 5-4-1995. A demand in terms of clause (i) of the bank
guarantee was made. The bank had irrevocably promised
and undertaken to pay to the Corporation without any
demur or damage an amount not exceeding Rs 57,57,970
plus interest as per terms and conditions contained in the
bank guarantee untrammeled by the bilateral agreement
between the petitioner and the first respondent-Corporation
OMP (I)(COMM) 340/2019 & conn. Page 33 of 39
stating the amount claimed was due and payable on account
of loss or damage caused to or likely to be caused to or by
the Corporation by reason of any breach by the said
contract or any of the terms and conditions contained in the
said agreement notwithstanding any dispute or disputes
raised under the contract in any suit or proceedings
pending before any court or tribunal relating thereto. The
liability of the bank is absolute and unequivocal; it would
thereby be clear that the bank is not concerned with the
ultimate decision of a court and a tribunal in its finding
after adjudication as to the amount due and payable by the
petitioner to the first respondent. What would be material is
the quantification of the liability in the letter of revocation.
The bank should verify whether the amount claimed is
within the terms of the bank guarantee or letter of credit. It
is axiomatic that any payment by the bank, obviously be
subject to the final decision of the court or the tribunal. At
the stage of invocation of bank guarantee, the need for final
adjudication and decision on the amount due and payable
by the petitioner, would run contrary to the terms of the
special contract in which the bank had undertaken to pay
the amount due and payable by the contractor. Thus we
hold that there is no question of making out any prima facie
case much less strong evidence or special equity or
exceptional circumstances for interference by way of
injunction.”
32. The argument of the learned Senior Counsel for the Petitioner that
the Petitioner is undergoing the Corporate Debt Restructuring Process
and encashment of the BGs worth over Rs. 100 crores would cause
irretrievable injury, cannot be a ground to injunct the invocation of the
BGs. In the case of Zillion Infra Projects (P) Ltd. v. Fab-Tech Works &
Constructions Pvt. Ltd., (2015) 224 DLT 371 the Court while dealing
with „irretrievable injury‟ held as under:-
OMP (I)(COMM) 340/2019 & conn. Page 34 of 39
"13. On the question of irretrievable injury, the Supreme
Court in U.P. State Sugar Corpn. (Supra), held that to avail
of this exception, the party seeking an injunction would have
to show that exceptional circumstances exist which make it
impossible for the guarantor to reimburse himself if he
ultimately succeeds and this will have to be decisively
established. Clearly, a mere apprehension that the other
party will not be able to pay, is not enough. The existence of
any dispute between the parties to the contract is not a
ground for issuing an injunction to restrain the enforcement
of Bank Guarantees. There must be a fraud in connection
with the Bank Guarantee".
In the case of U.P. State Sugar Corporation vs. Sumac
International Ltd. AIR 1997 SC 1644 , Supreme Court held as under:-
"…..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. Since 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 over
ride 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 coexist in some cases……”
Supreme Court also laid down the high threshold of irretrievable
injury that must be met for seeking injunction against invocation and held
as under:-
OMP (I)(COMM) 340/2019 & conn. Page 35 of 39
“14. On the question of irretrievable injury which is the
second exception to the rule against granting of injunctions
when unconditional bank guarantees are sought to be
realised the court said in the above case that the
irretrievable injury must be of the kind which was the
subject-matter of the decision in the Itek Corporation case
(supra). In that case an exporter in the U.S.A. entered into
an agreement with the Imperial Government of Iran and
sought an order terminating its liability on stand by letters
of credit issued by an American bank in favour of an
Iranian Bank as part of the contract. The relief was sought
on account of the situation created after the Iranian
revolution when the American Government cancelled the
export licences in relation to Iran and the Iranian
Government had forcibly taken 52 American citizens as
hostages. The U.S. Government had blocked all Iranian
assets under the jurisdiction of United States and had
cancelled the export contract. The court upheld the
contention of the exporter that any claim for damages
against the purchaser if decreed by the American Courts
would not be executable in Iran under these circumstances
and relisation of the bank guarantee/Letters of credit would
cause irreparable harm to the plaintiff. This contention was
upheld. To avail of this exception, therefore, exceptional
circumstances which make it impossible for the guarantor to
reimburse himself if the ultimately succeeds, will have to be
decisively established. Clearly, a mere apprehension that
the other party will not be able to pay, is not enough. In the
Itek case (supra) there was a certainty on this issue.
Secondly, there was good reason, in that case for the court
to be prima facie satisfied that the guarantors i.e. the bank
and its customer would be found entitled to receive the
amount paid under the guarantee.”
In the said case the Company before the Supreme Court was a
Sick Industrial Company and Reference was pending before BIFR, yet,
Supreme Court declined to injunct invocation of the BG. Supreme Court
OMP (I)(COMM) 340/2019 & conn. Page 36 of 39
relied on an earlier judgment of the Court in U.P. Cooperative
Federation Ltd. v. Singh Consultants & Engineers (P) Ltd., (1988) 1
SCR 1124 where the Court has held that Bank is not in the least
concerned with the relations between the supplier and the customer and
nor with the performance of the contractual obligations.
33. Recently, a Co-ordinate Bench of this Court in Umaxe Projects
Private Limited v. Air Force Naval Housing Board and Another, in
O.M.P. (I) (COMM.) 206/2019 declined to restrain the invocation of an
unconditional BG and observed that merely because invocation of the BG
would cause financial distress to the Petitioner, cannot be a ground to
invoke the exception or irreparable injury. Thus the argument of financial
distress cannot be of any help to the Petitioner herein.
34. Learned Senior Counsel relying on the judgment of the Co-ordinate
Bench in Larsen & Toubro (supra) had contended that the BG can only
be invoked in the manner provided in the terms of the Contract and in the
present case the invocation is not in accordance with clauses 4.2 (c) and
4.4 of General Clauses of the Contract. Suffice would it be to observe that
this Court in a subsequent judgment between the same parties has
distinguished the said judgment based on the law laid down by the
Supreme Court and has rejected the prayer for grant of restraint against
invocation of unconditional and irrevocable BGs. The obligations of the
parties under Clauses 4.2 (c) and 4.4 and their interpretations will be in
the domain of the Arbitral Tribunal and cannot be adjudicated in the
present petitions.
35. Learned Senior Counsel for the Petitioner had argued that in two
out of the seven petitions i.e. for the Ralla Project, the parties had
OMP (I)(COMM) 340/2019 & conn. Page 37 of 39
executed Co-ordination Agreement, the clauses of which allowed the
Respondent to invoke the BGs under the said Orders and the only other
Company which was a party to the said Agreements apart from the
Petitioner and Respondent was SGWPL. SGSL was not a party to the
said Agreements and therefore, in the five out of seven petitions, there
being no Co-ordination Agreements, the BGs cannot be invoked by the
Respondent. In my view, this contention merits rejection. It is true that
in OMP (I)(COMM) 349/2019, there is no Co-ordination Agreement but
it is equally true that the Petitioner is a party to all the said Co-ordination
Agreements and the Purchase Orders alongwith the Respondent. What is
of significance is that the BGs have been issued by the Banks on behalf of
the Petitioner and under the respective Orders and not on behalf of SGSL.
The Clause which allows Respondent to invoke the BGs, other than in
default of Purchase Orders, is relevant to O.M.P. (I) (COMM)
Nos.341/2019 and 342/2019 only. The BGs have been invoked under the
Orders and not under the Co-ordination Agreement. The relevant portions
of the Purchase Orders have been extracted in the earlier part of the
judgment and a bare reading indicates that the PBG was given under the
Purchase Orders and have thus been rightly invoked by the Respondent.
In any event, the dispute with respect to the Co-ordination Agreements
and the other Agreements regarding the reciprocal obligations of the
parties would be in the domain of the Arbitrator and cannot be
adjudicated in this petition.
36. Petitioner has been unable to make out a prima facie case for grant
of injunction against the invocation/encashment of the BGs and has failed
to establish that its case falls under any of two exceptions aforesaid i.e
OMP (I)(COMM) 340/2019 & conn. Page 38 of 39
egregious fraud and irretrievable injury. This Court thus finds no merit in
the Petitions.
37. Petitions are accordingly dismissed. All pending applications are
disposed of.
38. The Interim Orders dated 11.10.2019 in OMP (I) (COMM)
Nos.340/2019; 341/2019 and 342/2019 as well as Interim Orders dated
14.10.2019 in O.M.P. (I) (COMM) Nos.346/2019; 347/2019; 348/2019
and 349/2019 are hereby vacated.
JYOTI SINGH, J
th
JUNE 4 , 2020
yg/yo
OMP (I)(COMM) 340/2019 & conn. Page 39 of 39