VIJETA PROJECTS AND INFRASTRUCTURE LTD vs. TATA POWER COMPANY LTD

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* IN THE HIGH COURT OF DELHI AT NEW DELHI
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% Reserved on: 12 February, 2018
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Pronounced on: 27 February, 2018

+ O.M.P.(I) (COMM.) 201/2017, IA No.6260/2017, 7869/2017

VIJETA PROJECTS AND INFRASTRUCTURE LTD.
..... Petitioner
Through : Mr.Sandeep Sethi, Sr. Adv. with
Mr.Vimal Kirti Singh,
Mr.Siddhartha and Ms.Pooja Dhar,
Advs.

versus

TATA POWER COMPANY LTD.
..... Respondent
Through : Mr.Dhruv Mehta, Sr. Adv. with
Ms.Ranjana Roy Gawai,
Mr.Krishna Keshav, Mr.Arjun
Asthana and Ms.Rishika Raha,
Advs. for R-1
Ms.Manjula Gandhi and
Mr.Shivanshu Kumar, Advs. for
Bank of India
CORAM:
HON'BLE MR. JUSTICE YOGESH KHANNA

YOGESH KHANNA, J.

1. This petition is under Section 9 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred as „the Act‟) restraining the respondent
Tata Power Company Ltd. for invoking the bank guarantees being
No.49951PEBG130007 for an amount of Rs.4,29,00,000/- and
No.49951PEBG130006 for an amount of Rs.4,00,00,000/-, submitted
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through Bank of India, Branch Sahjanad Chowk, Birsa Raj Marg, Harmu,
Ranchi, 834012, Jharkhand, India, as also from taking any other coercive
action.
2. On 19.5.2017 the Court passed the following order :
3. Mr Sethi, learned senior counsel for the
petitioner has referred to the bank guarantees in
question (BG No. No.49951PEBG130007 for an
amount of Rs.4,29,00,000/- and BG
No.49951PEBG130006 for an amount of
Rs.4,00,00,000/-) and has drawn the attention of
this Court to para 3 of the said bank guarantees
(identically worded in both the bank guarantees)
which reads as under:-
“3.0 In consideration thereof, we,
Bank of India, Ranchi Mid Corporate
Branch, Sahjanand Chowk, Harmu,
Ranchi having our registered office at
“Star House” C-5, G-Block, Bandra
Kurla Complex, Bandra (East),
Mumbai-400051 hereby irrevocably
and unconditionally guarantee to pay
to you on demand and without demur
and without reference to “the
Vendor” such amount or amounts not
exceeding the sum of `4,29,00,000/-
(Rupees four crore twenty nine lakhs
only) on receipt of your intimating
that “the Vendor has not fulfilled his
contractual obligations. You shall be
the sole judge for such non-fulfilment
and “the Vendor” shall have no right
to question such judgment.”
xxx
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6. Be that as it may, it is ex facie, apparent that the
letter of invocation is not in terms of the bank
guarantee inasmuch as there is no assertion by the
respondent “that the vendor has not fulfilled his
contractual obligations”.
7. It is well settled that a bank guarantee cannot be
invoked except in terms thereof (see Hindustan
Construction v. State of Bihar: (1999) 8 SCC 436
and Jyoti Structure Ltd. V. Dakshinanchal Vidyut
Vitran Nigam Ltd. And Ors.: 2016 SCC OnLine
Del 5035.)
3. Notice of this petition was issued and the respondent was
restrained from invoking the bank guarantees. The learned senior counsel
for the petitioner herein has raised the following issues:-
( a ) the invocation of the bank guarantees was not
in terms of the contract with the bank as earlier an MOU
was entered into between the parties on 3.3.2010 and
guarantees were given under MOU but later the MOU
was brought to an end and guarantees were returned and
instead the Service agreement dated 10.3.2013 was
entered into between the parties and fresh bank
guarantees were executed under the service agreement
dated 10.7.2013. However, the respondent now intends
to encash the bank guarantees given under the Service
Contracts against its claims based on the MOU dated
3.2.2010;
( b ) the service agreement was terminated not on
the ground of any default of the petitioner but due to coal
blocks being cancelled by the Supreme Court. The
agreement between the parties was the petitioner was to
arrange 1200 acres of land near the coalmines to set up
a power plant for the respondent but since the coal block
was cancelled, the agreement was frustrated; and
(c) the respondent repeatedly asked the petitioner
to extend the bank guarantees saying only in the event of
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not keeping it alive they would invoke it but instead
invoked it without the consent of the petitioner.
4. Learned counsel for the petitioner referred to various documents to
bring home his point viz. the bank guarantees were not invoked in terms
of the contract. He referred to two bank guarantees for Rs.4.29 crores
and Rs.4 crore respectively in respect of service agreement dated
10.7.2013 were to be valid till the date of achieving minimum contiguity
of 50 acres within overall land of 500 acres under the service agreement
or till validity of the guarantee whichever is earlier and secondly to be
valid till the date of possession of the entire land required for the project
or till the validity of the guarantee whichever is earlier .
5. One of the terms of the guarantee was the respondent to intimate
in its letter of invocation the vendor has not fulfilled his contractual
obligations . The learned counsel for the petitioner has referred to e-mail
dated 11.5.2017 sent at 12:39:05 hours written by bank to the petitioner,
as under:
Respected Sir/Mam,

Kindly find the attached letter of invocation and
scanned BG copies. Request you to kindly encash
the same and credit the amount.

Thanks

Regards,

Pravin Chaudhary
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6. Learned counsel for the petitioner also refer to a letter dated
12.5.2017 written by the respondent to the Branch Manager, Bank of
India attached to email dated 11.05.2017 sent at 12:39:05 and it is as
under :
Dear Sir,
You have issued the below-mentioned Bank
Guarantee on behalf Vijeta Projects &
Infrastructure Ltd.

We have separately requested the party to extend
the bank guarantee before expiry of the same. In
the absence of any other communication from our
end, you may treat this letter as an encashment
request and effect payment to us of the guarantee
amount forthwith to our following Bank a/c.
Beneficiary Name : The Tata Power Co. Ltd.
Bank Name : HDFC Bank Ltd.
Branch Name : Fort branch, Mumbai
Account No. : 00600110000763
IFSC Code : HDFC0000060

In case you receive confirmation of extension of
the bank guarantee from our end on or before the
date of expiry our encashment notice be
considered as withheld. It will stand withdrawn as
soon as extended BG is received by us.

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Yours faithfully,

Authorized Signatory
7. Then an e-mail dated 15.5.2017 at 11.48 AM from respondent to
petitioner :
Respected Sir/Mam,
Kindly find the attached BG invocation request
letter. Request you to kindly proceed further for
encashment and credit the amount to our account.
Required documents are attached herewith.
Thanks

8. Then an e-mail dated 15.5.2017 written by the bank to the
petitioner herein which is as under :
Respected Sirs/ Madam
Please refer trailing email received from
TATAPOWER.
It appears that, the benefeciary has invoked the
BG worth Rs. 8.29 Crores.
Please arrange to remit the funds at your earliest.
9. Learned counsel for the petitioner also referred to a letter dated
15.5.2017 at 5:36:12 from respondent to bank which is as under :
Respected Sir/Mam
Kindly ignore the attached mail sent you earlier
regarding the BG invocation. Further updates will
be sent to you as and when required.
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Thanks

10. It is submitted by the learned Senior counsel for the petitioner
besides the above documents no other document was received by the
petitioner and hence was not filed with the petition and since none of the
e-mails/letters above show the petitioner has not fulfilled its obligations,
the bank did not encash the bank guarantees and rather intimate this fact
to the petitioner and the petitioner then came to this Court and obtained
an interim order. It is submitted the email dated 15.05.2017 at 11:48
hours having an attachment also could not be opened by the bank and
hence the letter attached to the said email could not be filed which now
has been filed by the respondent to allege the petitioner has concealed the
said letter and obtained an interim order and the courier receipt annexed
as Annexure R-1 (colly) show the said letter of invocation was received
by the bank on 18.05.2017 at 4:25 hours but whereas the petition was
filed on the same date itself.
11. The learned senior counsel for the petitioner referred to the various
terms and conditions of MoU dated 03.02.2010 to say in the said MoU
there was a time lag of purchasing of 1200 acres of land which the
petitioner had agreed to purchase for the respondent in different tranches.
The agreement had a duration of 25 months and it also gave the mode of
making payment in advance. The agreement could have been extended at
the option of the respondent herein but could be terminated if either party
commits a material breach of its obligations or if the petitioner failed to
execute the sale deed of first tranche of land 300 acres; or 1200 acres by
expiring of third purchase period or failure to execute the sale deed etc.
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and in case the entire land was not purchased by the petitioner then the
petitioner was to refund the advance payment to the respondent and
would purchase back the entire land if the sale deeds have not been
executed.
12. There is no controversy the said MoU expired on 03.02.2013 by
afflux of time and the bank guarantees which were given by the
respondent to the petitioner were returned. It was only thereafter service
agreement dated 10.07.2013 was executed. The service agreement do
clarify as per the MoU the petitioner has transferred 338.4 acres of land
in favour of the respondent and to speed up the land acquisition process
both the parties agreed to enter into this service agreement in place of
MoU dated 03.02.2010 wherein the role of the petitioner was left only to
liaison work and of documentation for the sale deed of various lands .
Two performance guarantees, as aforesaid, one of Rs.4.9 crores and
another of Rs.4 crores were given by the petitioner. The learned counsel
for the petitioner referred to a letter dated 06.08.2015 of the respondent
stating interalia the cancellation of coal block project and the respondent
was not inclined to procure more land hence the contract was frustrated.
It is argued since the MoU had come to an end the respondent could not
have claimed any amount towards it, especially when the bank
guarantees qua such MoU have already been returned after entering into
the service agreement dated 10.07.2010. It is further argued as per
minutes of meeting dated 11.12.2015 between the petitioner and the
respondent the amount payable by the petitioner under MoU was around
(Rs.28,80,00,000-Rs.21,93,96,187) Rs.6,86,03,813/-. It is alleged there
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is no dispute the petitioner has achieved minimum contiguity of 50 acres
within overall land of 500 acres under the service agreement and hence
there was no occasion for the respondent to encash the bank guarantees
since it was pertaining to the Service Agreement and not pertaining to
MoU which has come to an end by efflux of time. The learned counsel
for the petitioner referred to the Gangotri Enterprises Ltd. vs. Union of
India 2016(11) SCC 720 to highlight his contention the bank guarantees
could not be encashed in lieu of dues outstanding against some other
contract. Para 40 of the judgment is relevant and it runs as under:
“ 40 . On perusal of the record of the case, we find
that firstly, arbitration proceedings in relation to
the contract dated 22.08.2005 are still pending.
Secondly, the sum claimed by the respondents from
the appellant does not relate to the contract for
which the Bank Guarantee had been furnished but
it relates to another contract dated 22.08.2005 for
which no bank guarantee had been furnished.
Thirdly, the sum claimed by the respondents from
the appellant is in the nature of damages, which is
not yet adjudicated upon in arbitration
proceedings. Fourthly, the sum claimed is neither
a sum due in praesenti nor a sum payable. In other
words, the sum claimed by the respondents is
neither an admitted sum and nor a sum which
stood adjudicated by any Court of law in any
judicial proceedings but it is a disputed sum and
lastly, the Bank Guarantee in question being in the
nature of a performance guarantee furnished for
execution work of contract dated 14.07.2006
(Anand Vihar works) and the work having been
completed to the satisfaction of the respondents,
they had no right to encash the Bank Guarantee.”

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13. I have heard the argument of the senior counsel for the petitioner.
A perusal of the documents would reveal the e-mail dated 11.05.2017
sent at 12:39:05 hours to the bank by the respondent attached to it is the
letter of invocation and scanned bank guarantee copies and it requested
the bank to encash the same and credit the amount. The letter dated
11.05.2017 is also annexed giving details of the bank guarantees to be
encashed, giving the beneficiary name, bank name, branch name, account
number and IFSC code by the respondent to the bank and also requested
it in case the bank guarantees are not extended before the expiry, this e-
mail/letter would be treated as request for encashment and payment be
made in the name of the beneficiary in the bank as stated in the letter.
Though at about 05:36:12 hours the respondent yet wrote an e-mail and
asked the bank to ignore it till further updates are sent by the respondent
to the bank. A fresh invocation made vide e-mail dated 15.05.2017 at
about 11.48 AM having attachment could not be opened by the bank.
Though the bank wrote to the petitioner the following letter on receipt of
the e-mail dated 15.05.2017 which is as under :
“Respected Sirs/ Madam
Please refer trailing email received from
TATAPOWER.
It appears that, the beneficiary has invoked the BG
worth Rs. 8.29 Crores.
Please arrange to remit the funds at your
earliest.”
14. The stand taken by the bank viz., files were corrupt and its stand
taken in its reply to the IA No.7869/2017 in paras No.6 (c) and (d) are
relevant and its notes :-
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“ c) further, on 15.05.2017 at 05.36 hrs., Bank of
India again received an e-mail from the
Respondent - Tata Power Company Limited,
stating to ignore the earlier mails sent to us
regarding invocation of the Bank Guarantee and
we would be further updated, as and when
required, by the Respondent. As such, Bank of
India- proposed Respondent No.2 ignored the mail
dated 11.05.2017 and 12.05.2017 and closed the
matter. A copy of the said e-mail dated 15.05.2017
at 05.36 hrs. is annexed hereto as Annexure C.
d) again, on 15.05.2017 at 11.48 AM, Bank of
India received an e-mail from the Respondent -
Tata Power Company Limited allegedly invoking
the Bank Guarantee on the basis of alleged letters
for invocation of the said Bank Guarantee. In the
said e-mail although the alleged letter for
invocation of the Bank Guarantee along with other
requisite documents were stated to be attached,
however, the said attachments did not open with
Bank of India for the reason "A POLICY
VIOLATED FILE WAS DETECTED AND
REMOVED.TXT". As such, the Bank of India,
pending further action, as an abundant precaution
forwarded the said mail to the Petitioner and
requested it to arrange for the remittance of funds
provided under the said Bank Guarantees.
However , as the alleged invocation was not clear
and as per the terms of the said Bank Guarantees,
Bank of India - proposed Respondent No.2 did not
honour it. A copy of the said e-mail dated
15.05.2017 at 11.48 AM is annexed hereto as
Annexure D.”

15. Now, the question is if the attachment were not opened then how
bank authorities came to know the invocation was not as per the terms of
the bank guarantees and why did they intimate the petitioner to arrange
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the funds. The record shows the respondent even sent an intimation to the
bank through the courier as alleged in reply to the main petition in para
No.3, which notes as under:-
“3.As explained hereinafter in detail, the
Petitioner had breached its contractual obligations
under the MOU dated 03.02.2010 and Service
Agreement dated 10.07.2013. In view of the same,
the Respondent vide its email dated 11.05.2017,
addressed to Bank of India, Ranchi MCB, invoked
the PBG(s) furnished under clause 1.4 (f) & (g) of
the Service Agreement dated 10.07.2013 and
attached a letter of invocation of PBG(s) dated
12.05.2017, with the email dated 11.05.2017.
However , the invocation of PBG(s) by the email
dated 11.05.2017 was subsequently withdrawn by
the Respondent on 15.05.2017 and a fresh email
dated 15.05.2017 was addressed to Bank of India,
Ranchi MCB invoking the PGB(s) furnished under
clause 1.4 (f) & (g) of the Service Agreement dated
10.07.2013 and attached a letter of invocation of
PBG(s) dated 12.05.2017, along with the email
dated 15.05.2017. It is pertinent to mention here
that the above said fresh invocation letter dated
12.05.2017 attached with the email dated
15.05.2017 was also sent via courier, bearing
Waybill No.33722731976, to the banker on
15.05.2017 which was duly received by the banker
on 18.05.2017.”
16. Despite the courier being duly received by the bank on 18.05.2017
it did not encash the bank guarantee and an injunction was granted on
19.05.2017 and hence urged by the respondent the bank was rather in
collusion with the petitioner. The fresh letter dated 12.05.2017 of
invocation/encashment of the Bank Guarantees issued to the Bank of
India on behalf of the petitioner notes the vendor has not fulfilled his
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contractual obligations . (Page 41 of the reply to main petition). The
proof of delivery of such letter of BLUE DART DHL shows it was
delivered on 18.05.2017 at 04.25 PM to the Bank but despite this, the
bank did not encashed the bank guarantee but waited till 19.05.2017 till
the stay was granted.
17. I would like to refer to the rejoinder of petitioner herein and at its
page No.40 the bank rather had written a letter dated 15.07.2017 to the
petitioner wherein they interalia had stated the following:-
“d. On 15.05.2017, we have received the email
having date 15.05.2017 at 5.36 hrs, having
subject ignore the mail and narration as „Kindly
ignore the attached mail sent to you earlier
regarding the BG invocation. Further updates will
be sent to you as and when required‟. Therefore
we have ignored the mail dated 11.05.2017 and
12.05.2017 and treated the matter closed.
e. On 15.05.2017 we have received the mail sent
on 15.05.2017 at 11.48AM with subject BG
invocation request along with three files having
the file names as „A_ POLICY_VIOLATED_ FILE
WAS_DETECTED_AND_REMOVED.TXT‟. Thus
the invocation was not clear and was not clear
and was not as per the terms of guarantee.”
18. Hence, all this show that the bank did not act fairly and despite the
receipt of the letter by courier they did not invoke the Bank Guarantee till
19.05.2017 when the interim order was granted, hence the petition needs
to be dismissed at the threshold on this score only.
19. Yet another issue, though not relevant in the context, but since
raised is if there could be second invocation of the Bank Guarantees. The
High Court of Punjab and Haryana i n M/s International Transmission
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Limited through its authorised representative Raghunath Madhukar
Gawli vs. ISOLUX Corsan India Engineering and Constructions Private
Limited & Another FAO (CARB) No.3/2017 (O&M) decided on
28.09.2017 had observed :-
“6. Mr. Mittal, however, made an oral application
to restrain payment even pursuant to this fresh
letter of invocation dated 13.09.2017. He
submitted that second invocation of a guarantee is
not permissible. According to him the guarantee
having been invoked once, the first respondent‟s
right to invoke the guarantee stood exhausted.
Though this application was without amending the
pleadings we entertained it.
7. There is nothing in principle or in law that
prevents a creditor from invoking a guarantee
more than once. It often happens that by an error
the language of the letter invoking the guarantee is
not strictly in terms of the guarantee itself. The
creditor is thereby not prevented from rectifying
that error. To restrain a subsequent invocation of
a guarantee, it would be necessary to establish
that the second or subsequent invocation had itself
prejudiced the principal debtor i.e. the appellant.
In the present case nothing to this effect has been
indicated. If the invocation is fraudulent or if
special equities arise in favour of the principal
debtor, he would be entitled to an injunction
restraining the invocation of the guarantee. The
mere fact that the guarantee had been invoked
earlier does not render the subsequent invocation
void. The cause of action to invoke a guarantee is
not extinguished once it is invoked.”
20. Lastly, the learned senior counsel for the petitioner raised concern
over the fact the amount due under the Memorandum of Understanding is
claimed under the Service Contract which per terms of bank guarantee is
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illegal. It is an admitted fact the respondent intended to buy different
land admeasuring 900 to 1200 acres so they appointed the petitioner to
purchase the land for it for taking requisite permissions; to transfer
immovable title of the land in favour of the respondent; large sums were
given to the respondent and under the MOU some 388 acres of land was
given to the respondent. There was later an amendment to the MOU as
the respondent wanted the contiguity of the land, hence Service
Agreement was entered into as respondent wanted direct transfer of the
land in their name. The Service Agreement dated 10.07.2013 though
replaced the MOU dated 03.02.2010 but was in its continuity, since
delays were taking place due to various decisions of the Supreme Court,
so a letter of closure was issued and reconciliation of the dues was done.
21. Clauses No.5 and 6 of the Service Agreement dated 10.07.2013 is
relevant and it runs as under :
“5. As per the above MoU, First Party transferred
338.4114 acres of Land in Favor of Second Party.
6. To speed up the land acquisition process, Both
Parties mutually agree to enter in to the service
agreement in place of the Memorandum of
rd
Understanding dated 3 February, 2010.”
22. Though the agreement along with all its schedules constitute an
understanding between the parties and it superseded the Memorandum of
Understanding but the clause above would show it was merely an
extension of the earlier MOU.
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th
23. If one may peruse the letter dated 6 August, 2015 written by the
rd
respondent to the petitioner it is in reference to both the MOU dated 3
February, 2010 and the Service Agreement dated 10.07.2013 and it notes:
Dear Mr.Singh ,
xxx
You are requested to submit your final claim with
supporting documents of technical & financial
reconciliation, for full & final settlement of the
Contract, within 16 days from the date of this
letter.
Please consider this as a formal notice for closure
of this contract.
Thanking you,
The Tata Power Company Limited
24. The petitioner then authorised S/Sri Lal Dharmendra Nath Shah
Deo, Vijay Bahadur Singh, Anup Shah Deo, Supryo Chatterjee(CS),
Kumar Saurav and Paraveen Kumar (CA) as well as I.B.Jha, advisor.
The reconciliation was done between the parties and the reconciliation
statement is at page 152 of the reply of the respondent. Such
reconciliation is signed by the representatives of the petitioner as well as
of the respondent and they had settled the accounts and the net amount
payable by the petitioner to the respondent was Rs.8,37,41,285/-.
25. In rejoinder of the petitioner in para 2(I)(e) it is averred:-
2(I)
(a) to (d) xxxx
(e) The reliance on the Minutes of Meeting held on
11.12.2015 regarding alleged admission of the
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sum of Rs. 8,37,41,285/- by the petitioner payable
to the respondent is misconceived, misplaced and
false. The representatives of the petitioner
participating in the Minutes of Meeting on both the
two dates i.e. on 02.12.2015 and 11.12.2015 had
no authority to accept any financial liabilities. This
is clear from letter no.VPIL/2015/515 dated
31.10.2015 (annexed as Annexure-11) of the
respondent's reply at page- 150, where it is stated
in no uncertain terms that "the persons to
participate in the meeting were authorized on
behalf of the petitioner (Vijeta Projects and
Infrastructure Ltd.) to hold discussions with the
respondent (Tata Power Company Ltd.). It is
abundantly clear that mere signing the Minutes of
Meeting held on 11.12.2015, in no way amounted
to acceptance of liability of Rs. 8,37,41,285/- as
contented by the respondent, especially in light of
the reconciliation statement issued by the
Respondent prior to this meeting, i.e., on
17.09.2014.
26. The petitioner has thus alleged the representatives of the petitioner
who participated in the minutes of the meetings dated 02.12.2015 and
11.12.2015 had no authority to accept the financial liability but I may
here refer to a letter dated 16.12.2015 written by the petitioner to the
respondent with subject “ claim of VPIL under MOU dated 03.02.2010
since replaced by service agreement dated 10.07.2013 .” Such letter is
signed by the authorised signatory of the petitioner itself. This letter
itself says the MOU was replaced by the Service Agreement for reasons
stated in paras 4 and 5 of the Service Agreement dated 10.07.2013
(supra). The letter is as follows:
Sir,
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This has to reference to your letter at Ref (1)
whereunder, after summary closure of the service
agreement, we were requested to submit our final
claims towards full and final settlement of the
contract.
In response to your above letter, we, vide our letter
at Ref (2), broadly touched upon all the issues for
deciding the respective right and obligation of the
parties to be considered by TATA Power limited;
to be followed by claim from our side.
As desired in your letter dated 06.08.15 we are
now submitting herewith a claim for Rs.
11,89,82,610/- (Rs.Eleven Crore Eighty Nine lacs
Eighty Two Thousand Six Hundred And Ten) being
the amount toward actual expenditures as incurred
by us during the execution of the MOU dated
03.02. 2010 as well as service agreement dated
10.07.2013.
We hope that our claim may be considered on due
merit it deserve.
Thanking you
Your faithfully
For Vijeta Projects and Infrastructures Ltd.

27. The aforesaid letter shows the claims being made by the petitioner
not only for the amount due under MOU but also under the Service
Agreement in one go and it says the service agreement was an extension
of the MOU . Further the petitioner had given a chart of cost incurred
towards the land purchase as per MOU and per Service Agreement. The
correspondence show the petitioner never differentiated between the
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MOU and Service Agreement and this fact makes this case different from
Gangotri ‟s case where the parties entered into two contracts and for dues
of one contract, the bank guarantee of another contract for which no
bank guarantee was furnished were sought to be encashed .
28. Nevertheless, these disputes are not necessary to be decided in this
petition. Since the law on encashment of bank guarantees is clear as held
in Dwarikesh Sugar Industries Limited vs Prem Heavy Engineering
Works (Pvt) Limited & Another (1997) 6 SCC 450 wherein the Supreme
Court observed:-
“21. xxxxx The general principle which has
been laid down by this court has been summarised
in the case of U.P. State Sugar Corporation's case
as follows:
"The law relating to invocation of
such bank guarantees in by now well
settled. When in the course of
commercial dealings an
unconditional bank guarantee is given
or accepted, the beneficial 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 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
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bank guarantee would vitiate the very
foundation 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 case 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 override the terms of the
guarantee and the adverse effect of
such an injunction 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 observation of sir John Donaldson, M.R.
in Bolivinter oil SA V. Chase Manhattan Bank
(1984) 1 All ER 351, 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
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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 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."
(emphasis supplied)
The aforesaid passage was approved and
followed by this court in U.P. cooperative
Federation Ltd. Vs. Singh consultants and
Engineers (P) Ltd. [(1988) 1 SCC 174].

22. The secondly exception to the rule of granting
injunction, i.e., the resulting of irretrievable injury,
has to be such a circumstance which would make
it impossible for the guarantor to reimburse
himself, if he ultimately succeeds. This will have to
be decisively established and it must be proved to
the satisfaction of due Court that there would be
no possibility whatsoever of the recovery of the
amount from the beneficiary by way of
restitution.”
29. Further this Court in TRF Limited vs Energo Engineering Projects
Limited & Another 2017 SCC OnLine Del 7011 noted as:-
“56. It might appear on first blush that in some of
the decisions of the High Courts as well as the
Supreme Court a different line of reasoning has
been adopted but, in fact, it does not appear to be
so. In Hindustan Construction Company Limited v.
State of Bihar (supra), the Court interfered with
the enforcement of the BG only because of the
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particular wording of the BGs involved in that
case which required certain conditions to be
fulfilled. Even in Gangotri Enterprises Limited v.
Union of India (supra) which has extensively been
referred to by Mr. Sibal, the underlying contract
and the precise wording of the BGs weighed with
the Supreme Court in holding that the Courts
below were in error in declining to grant the
injunction against the encashment of the BGs in
question. It was held that every case has to be
decided with reference to the facts. In Gangotri
Enterprises Limited v. Union of India (supra), the
facts were held to be more or less similar to the
facts in Union of India v. Raman Iron Foundry
(1974) 2 SCC 231. In particular, in Gangotri
Enterprises Limited v. Union of India (supra),
certain circumstances were noticed which
persuaded the Court to proceed to grant the
injunction. These were noted in para 42 as under:
“42. On perusal of the record of the
case, we find that firstly, arbitration
proceedings in relation to the contract
dated 22.08.2005 are still pending.
Secondly, the sum claimed by the
respondents from the appellant does
not relate to the contract for which
the Bank Guarantee had been
furnished but it relates to another
contract dated 22.08.2005 for which
no bank guarantee had been
furnished. Thirdly, the sum claimed by
the respondents from the appellant is
in the nature of damages, which is not
yet adjudicated upon in arbitration
proceedings. Fourthly, the sum
claimed is neither a sum due in
praesenti nor a sum payable. In other
words, the sum claimed by the
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respondents is neither an admitted
sum and nor a sum which stood
adjudicated by any Court of law in
any judicial proceedings but it is a
disputed sum and lastly, the Bank
Guarantee in question being in the
nature of a performance guarantee
furnished for execution work of
contract dated 14.07.2006 (Anand
Vihar works) and the work having
been completed to the satisfaction of
the respondents, they had no right to
encash the Bank Guarantee.”

30. Thus, in view of the above submissions the petitioner fails on all
the counts. The petition along with pending applications is thus
dismissed.
31. No order as to costs.

YOGESH KHANNA, J
FEBRUARY 27, 2018
VLD/M
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