M/S Garg Builders Through Shri Mohinder Pal Garg vs. Hindustan Prefab Ltd. And Another

2022:DHC:1670
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI

th
Reserved on: 17 September, 2021
nd
Pronounced on: 2 May, 2022

+ O.M.P.(I) (COMM.) 200/2021 & I.As. 7653-55/2021

M/S GARG BUILDERS THROUGH SHRI MOHINDER PAL
GARG ..... Petitioner
Through: Mr. Rajshekhar Rao, Sr. Adv.
assisted by Mr. Rahul Malhotra, Adv.

versus

HINDUSTAN PREFAB LTD. AND ANR ..... Respondents
Through: Mr. Ankit Jain, Mr. Varun
Nischal, Mr. Vaibhav Mishra, Advs. for R-1
with Mr. Mukesh Kumar (Law Officer-
HPL)
Mr. Amol Sharma, Adv. for R-2


+ O.M.P.(I) (COMM.) 201/2021 & I.As. 7656-58/2021

M/S GARG BUILDERS THROUGH SHRI MOHINDER PAL
GARG ..... Petitioner
Through: Mr. Rajshekhar Rao, Sr. Adv.
assisted by Mr. Rahul Malhotra, Adv.


versus

HINDUSTAN PREFAB LTD. AND ANR .... Respondents
Through: Mr. Ankit Jain, Mr. Varun
Nischal, Mr. Vaibhav Mishra, Advs. for R-1
with Mr. Mukesh Kumar (Law Officer-
HPL)
Mr. Amol Sharma, Adv. for R-2

+ O.M.P.(I) (COMM.) 202/2021 & I.As. 7659-61/2021
Page 1 of 56
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2022:DHC:1670

GARG BUILDERS ..... Petitioner
Through: Mr. Rajshekhar Rao, Sr. Adv.
assisted by Mr. Rahul Malhotra, Adv.

versus

HINDUSTAN PREFAB LIMITED & ANR. ..... Respondents
Through: Mr. Ankit Jain, Mr. Varun
Nischal, Mr. Vaibhav Mishra, Advs. for R-1
with Mr. Mukesh Kumar (Law Officer-
HPL)
Mr. Amol Sharma, Adv. for R-2

CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR

J U D G M E N T
% 02.05.2022


1. Hindustan Prefab Limited (HPL) invited tenders from interested
bidders for construction activities to be carried out at various locations
in the country. With respect to three of the tenders thus floated, the
petitioner Garg Builders was the successful bidder.

2. Tenders were awarded to the petitioner, by HPL, for carrying
out of construction activities at Ghaziabad, Uttar Pradesh, Raipur,
Chhattisgarh and Asansol, West Bengal vide Letters of Award dated
rd th th
3 March, 2016, 9 January, 2017 and 4 August, 2018, followed by
st th th
agreements dated 21 March, 2016, 25 January, 2017 and 25
September, 2018 respectively.

3. Each of these Agreements required the petitioner to provide
Bank Guarantees towards security deposit as well as Performance
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Bank Guarantee (PBGs). Bank Guarantees, as so required, were
undisputedly furnished by the petitioner to HPL. All the Bank
Guarantees were issued by HDFC Bank Ltd. (“the Bank”) which is,
accordingly, Respondent 2 in these three petitions.

4. Disputes arose between the petitioner and HPL in respect of all
these three contracts. The contracts provided for reference of the
disputes to arbitration. Accordingly, after following the pre-arbitral
regimen stipulated in that regard in the individual agreements, the
petitioner moved this Court by way of Arb. P 518 of 2021, Arb. P 473
of 2021 and Arb. P P47 of 2020, respectively.

5. Prior to filing Arb. P 518 of 2021, Arb. P 473 of 2021 and Arb.
P 47 of 2020, however, the petitioner moved the captioned three
OMPs, under Section 9 of the Arbitration and Conciliation Act, 1996
(“the 1996 Act”), seeking pre-arbitral interim reliefs.

6. The relief sought in these three cases is identical. In each of
these cases, the petitioner has averred that HPL had written to the
st
Bank on 1 July, 2021, invoking the Bank Guarantees furnished by
the petitioner, and calling upon the Bank to credit the amount secured
by the Bank Guarantees into HPL’s account. The petitioner has
sought a restraint against such invocation, pending resolution of the
disputes between the petitioner and HPL by arbitration.

7. The petitioner was represented, initially, by Mr. Jayant Mehta,
learned Senior Counsel, and later, by Mr. Raj Shekhar Rao, learned
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Senior Counsel, in these matters, whereas Mr. Ankit Jain appeared on
behalf of the contesting respondent HPL. They were heard at length.
The Bank was represented by Mr. Amol Sharma, who did not choose
to advance any argument, as the Bank has no stake in the matter.

8. I proceed to dispose of the captioned OMPs by the present
judgment. The relevant facts, and prevailing considerations, being the
same in all the three OMPs, they are dealt with together.

Facts


9. The details of the contracts in these three OMPs may be
tabulated as under:

Other specifics of the contracts are of no particular relevance to the
determination of the issue in controversy; ergo, reference thereto is
eschewed.

10. Nine Bank Guarantees, provided by the petitioner as required
by the aforenoted three contracts, form subject matter of these three
petitions. The petitioner also provided four Bank Guarantees towards
security deposit, the details of which may be tabulated thus:

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11. The operative terms of the aforesaid Bank Guarantees read thus:

th
Bank Guarantee No. 003GT02163520012 dated 17
December, 2016


“In consideration of Hindustan Prefab Limited having its
Head Office at Jangpura, New Delhi : 110 014 (hereinafter
called the “Employer” which expression shall unless
repugnant to the subject or context include its successors and
assigns) having issued Notice inviting Tender
No.HPL/DGM(C)/TC/ESIC/Raipur/2016-17/92 dated
06.12.2016 M/s Garg Builders having its Registered/Head
Office at 110, NDM-1, Netaji Subhash Place, Pitampura, New
Delhi-110034 (hereinafter called the “Tenderer” who wishes
to participate in the said tender for Construction of 100
bedded ESIC Hospital at Raipur, Chhattisgarh and you, have
agreed to accept an irrevocable and unconditional Bank Bid
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Guarantee for and amount of Rs.32,43,000.00 [Rupees Thirty
Two Lakh Forty Three Thousand Only] valid up to 20-JUN-
2017 on behalf of the tenderer in lieu of cash Deposit required
to be made by the tenderer, as a condition precedent for
participation in said tender.

We, the HDFC Bank LTD, a body corporate constituted
under the Companies Act 1956 having its Registered Office at
HDFC Bank House ,C.S.No.6/242, Senapati Bapat Marg,
Lower Parel (West), Mumbai 4000013 and other places, a
nd
Branch at E-13/29, 2 Floor, Harsha Bhavan, Middle Circle,
Connaught Place, New Delhi 110001 (hereinafter referred to
as the Bank) do hereby unconditionally and irrevocable
guarantee and undertake to pay to the “Employer” on demand
without any demur reservation, protest, contest, and recourse
to be extent of the said sum of Rs. 32,43,000.00 (Rupees
Thirty Two Lakh Forty Three Thousand Only).

Any such claim/demand made by the said “Employer” on us
shall be conclusive and binding on us irrespective of any
dispute or difference raised by the tenderer. This guarantee
shall be irrevocable and shall remain valid up to 20-JUN-
2017. If any further extension of this guarantee is required,
the same may be granted to such required period on receiving
instructions from M/s Garg Builders on whose behalf this
guarantee is issued.”


th
Bank Guarantee No. 003GT02192540009 dated 11
September, 2019


“In consideration of the Hindustan Prefab Ltd. having its
Head Office at Jangpura, New Delhi (hereinafter called “The
Employer”) having offered to accept the terms and conditions
of the proposed agreement between Hindustan Prefab Ltd
and M/s Garg Builders (hereinafter called “the said
Contractor(s)”) for the work Construction of 100 bedded
ESIC Hospital at Raipur, Chattisgarh (hereinafter called
“the said agreement”) having agreed to production of an
irrevocable Bank Guarantee for ₹2,974,000.00 as a
security/guarantee from the contractor(s) for compliance of
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his obligations in accordance with the terms and conditions in
the said agreement.

nd
1. We, HDFC Bank Limited , E-13/29, 2 Floor, Harsha
Bhavan, Middle Circle, Connaught Place, New Delhi 110001
(hereinafter referred to as “ the Bank ”) hereby undertake to
pay to the Employer an amount not exceeding ₹2,974,000.00
on demand by the Employer.

2. We HDFC Bank Limited do hereby undertake to pay
the amounts due and payable under this Guarantee without
any demure, merely on a demand from the Employer stating
that the amount claimed as required to meet the recoveries
due or likely to be due from the said contractor(s). Any such
demand made on the bank shall be conclusive as regards the
amount due and payable by the bank under this Guarantee.
However, our liability under this guarantee shall be restricted
to an amount not exceeding ₹2,974,000.00 .

3. We, the said bank further undertake to pay the
Employer any money so demanded notwithstanding any
dispute or disputes raised by the contractor(s) in any suit or
proceeding pending before any court or Tribunal relating
thereto, our liability under this present being absolute and
unequivocal. The payment so made by us under this guarantee
shall be a valid discharge of our liability for payment there
under and the Contractor(s) shall have no claim against us for
making such payment.”


th
Bank Guarantee No. 003GT02182790007 dated 6 October,
2018


“In consideration of the Hindustan Prefab Ltd. having its
Head Office at Jangpura, New Delhi (hereinafter called “The
Employer”) having offered to accept the terms and conditions
of the proposed agreement between Hindustan Prefab Ltd
and M/s Garg Builders (hereinafter called “the said
contractor(s)”) for the work Construction of 100 bedded
ESIC Hospital at Raipur, Chattisgarh (hereinafter called
“the said agreement”) having agreed to production of an
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irrevocable Bank Guarantee for ₹7,500,000.00
( Rupees.SEVENTY FIVE LAKHS ONLY ) as
security/guarantee from the contractor(s) for compliance of
his obligations in accordance with the terms and conditions in
the said agreement.

nd
1. We, HDFC Bank Limited , E-13/29, 2 Floor, Harsha
Bhavan, Middle Circle, Connaught Place, New Delhi 110001
(hereinafter referred to as “ the Bank ”) hereby undertake to
pay to the Employer an amount not exceeding ₹7,500,000.00
(Rupees SEVENTY FIVE LAKHS ONLY ) on a written
demand by Employer.

2. We HDFC Bank Limited (indicate the name of the
Bank) do hereby undertake to pay the amounts due and
payable under this Guarantee without any demure, merely on
a demand from the Employer stating that the amount claimed
as required to meet the recoveries due or likely to be due from
the said contractor(s). Any such demand made on the bank
shall be conclusive as regards the amount due and payable by
the bank under this Guarantee. However, our liability under
this guarantee shall be restricted to an amount not exceeding
₹7,500,000.00 (Rupees.SEVENTY FIVE LAKHS ONLY ).

3. We, the said bank further undertake to pay the
Employer any money so demanded notwithstanding any
dispute or disputes raised by the contractor(s) in any suit or
proceeding pending before any court or Tribunal relating
thereto, our liability under this present being absolute and
unequivocal. The payment so made by us under this bond
shall be valid discharge of our liability for payment there
under and the Contractor(s) shall have no claim against us for
making such payment.”


th
Bank Guarantee No. 003GT02173030030 dated 30 October,
2017


“In consideration of the Hindustan Prefab Ltd. having its
Head Office at Jangpura, New Delhi (hereinafter called the
employer) having offered to accept the terms and conditions
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of the proposed agreement between Hindustan Prefab Ltd and
M/s Garg Builders (hereinafter called “the said contractor(s)”)
for the work Construction of 100 bedded ESIC Hospital at
Raipur, Chattisgarh (hereinafter called “The said agreement”)
having agreed to production of an irrevocable Bank
Guarantee for ₹3,243.,000.00 (Rupees Thirty Two Lack Forty
Three Thousand only) as security/guarantee from the
contractor(s) for compliance of his obligations in accordance
with the terms and conditions in the said agreement.

1. We HDFC Bank Limited, incorporated under the
Companies Act, 1956 and carrying on the business of banking
under the Banking Regulation Act having its registered office
at HDFC Bank House, C.S. No. 6/242, Senapati Bapat Marg,
Lower Parel (West), Mumbai 400013 and one of its branch
nd
office at HDFC Bank Limited, E-13/29, 2 Floor, Harsha
Bhavan, Middle Circle, Connaught Place, New Delhi 110001
(hereinafter referred to as “the Bank) hereby undertake to pay
to the Government an amount not exceeding ₹3,243,000.00
(Rupees Thirty Two Lakh Forty Three Thousand only) on a
written demand by employer.

2. We HDFC Bank Limited do hereby undertake to pay
the amount due and payable under this Guarantee without any
demure, merely on a written demand from employer stating
that the amount claimed is required to meet the recoveries due
or likely to be due from the said contractor(s). Any such
demand made on the Bank shall be conclusive as regards the
amount due and payable by the bank under this Guarantee.
However, our liability under this guarantee shall be restricted
to an amount not exceeding ₹3,243,000.00 (Rupees Thirty
Two Lakh Forty Three Thousand only).

3. We, the said bank further undertake to pay to employer
the guaranteed money so demanded notwithstanding any
dispute or disputes raised by the contractor(s) in any suit or
proceeding pending before any court or Tribunal relating
thereto, our liability under this present being absolute and
unequivocal.

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The payment so made by us under this bank guarantee shall
be valid discharge of our liability for payment there under and
the contractor(s) shall have no claim against us for making
such payment.”


th
Bank Guarantee No. 003GT02182190021 dated 7 August,
2018


“In consideration of the Hindustan Prefab Ltd.having its Head
Office at Jangpura, New Delhi (hereinafter called the
employer) having offered to accept the terms and conditions
of the proposed agreement between Hindustan Prefab Ltd.
and M/s Garg Builders (hereinafter called “the said
contractor(s)”) for the work Upgradation from 100 to 150
bedded ESIC Hospital at Asansol, West Bengal
(hereinafter called “The said agreement”) having agreed to
production of a irrevocable Bank Guarantee for Rs.
28773504/- (rupees TWO CRORE EIGHTY SEVEN
LAKHS SEVENTY THREE THOUSAND FIVE
HUNDRED AND FOUR RUPEES ONLY. ) as
security/guarantee from the contractor(s) for compliance of
his obligations in accordance with the terms and conditions in
the said agreement.

1. We HDFC Bank Limited We HDFC Bank Limited,
incorporated under the Companies Act 1956 and carrying on
the business of banking under the Banking Regulation Act
having its registered office at HDFC Bank House, C.S.
No.6/242, Senapati Bapat Marg, Lower Parel (West), Mumbai
st
400013 and one of its branch office at Hdfc Bank Limited, 1
Floor, Kailash Building, 26, K.g.Marg, New Delhi-110001
(hereinafter referred to as “the Bank) hereby undertake to pay
to the government an amount not exceeding Rs.28773504/-
(Rupees TWO CRORE EIGHTLY SEVEN LAKHS
SEVENTY THREE THOUSAND FIVE HUNDRED AND
FOUR RUPEES ONLY) on a written demand by
employer .

2. We HDFC Bank Limited do hereby undertake to pay
the amount due and payable under the Guarantee without any
demure, merely on a written demand from employer stating
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that the amount claimed is required to meet the recoveries due
or likely to be due from the said contractor(s). Any such
demand made on the Bank shall be conclusive as regards the
amount due and payable by the bank under this Guarantee.
However, our liability under this guarantee shall be restricted
to an amount not exceeding Rs. 28773504/- (Rupees TWO
CRORE EIGHTY SEVEN LAKHS SEVENTY THREE
THOUSAND FIVE HUNDRED AND FOUR RUPEES
ONLY)

3. We, the said bank further undertake to pay to employer
the guaranteed money so demanded not exceeding Rs.
28773504/- (Rupees TWO CRORE EIGHTY SEVEN
LAKHS SEVENTY THREE THOUSAND FIVE
HUNDRED AND FOUR RUPEES ONLY) notwithstanding
any dispute or disputes raised by the contractor(s) in any suit
or proceeding pending before any court tor Tribunal relating
thereto, our liability under this present being absolute and
unequivocal.”


th
Bank Guarantee No. 003GT02171670016 dated 16 June,
2017


“In consideration of the Hindustan Prefab Ltd. having its
Head Office at Jangpura, New Delhi (hereinafter called “The
Employer”) having offered to accept the terms and conditions
of the proposed agreement between Hindustan Prefab Ltd.
And M/s Garg Builders (hereinafter called “the said
contractor(s)”) for the work C/o. of Proposed Infrastructure
for 08 Battalion of National Disaster Response Force
(NDRF), Ghaziabad (U.P.) (hereinafter called “the said
agreement”) having agreed to production of an irrevocable
Bank Guarantee for Rs. 20,00,000.00 (Rupees Twenty lakh
Only) as a security/guarantee from the contractor(s) for
compliance of his obligations in accordance with the terms
and conditions in the said agreement.

1. We HDFC Bank LTD, a body corporate constituted
under the Companies Act 1956 having its Registered Office at
HDFC Bank House, C.S.No.6/242, Sengapati Bapat Marg,
Lower Parel (West), Mumbai 4000013 and other places,
nd
Branch at E-13/29, 2 Floor, Harsha Bhavan, Middle circle,
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Connaught Place, New Delhi 110001 (hereinafter referred to
as the Bank) hereby undertake to pay to the Hindustan Prefab
Ltd. acting for and on behalf of the Employer as an
Agent/Power of Attorney Holder, an amount not exceeding
Rs.20,00,000.00/- (Rupees Twenty Lakh Only) on demand by
Hindustan Prefab Ltd. for and on behalf of Employer as an
Agent/Power of Attorney Holder.

2. We HDFC Bank Limited do hereby undertake to pay
the amount due and Payable und this Guarantee without any
demur, merely on a demand form by Hindustan Prefab Ltd.
for and on behalf of the Employer as an Agent/Power of
Attorney Holder stating that the amount claimed is required to
meet the recoveries due or likely to be due from the said
contractor. Any such demand made on the Bank shall be
conclusive as regards the amount due and payable by the
Bank under this Guarantee. However, our liability under this
Guarantee shall be restricted to an amount not exceeding
Rs.20,00,000.00/- (Rupees Twenty Lakh Only).

3. We the Said Bank further under take to pay to the
Employer represented by Hindustan Prefab Ltd. for and on
behalf of the employer as an Agent/Power of Attorney Holder
any Money up to the guaranteed amount so demanded not
withstanding any dispute or disputes raised by the Contractor
in any suit or proceeding pending before any court or
Tribunal relating there to, our liabilities under this present
being absolute and unequivocal. The payment so made by us
under this Guarantee shall be a valid discharge of our liability
for payment there under and the Contractor shall have no
claim against us for making such payment.”


th
Bank Guarantee No. 003GT02192590021 dated 16
September, 2019


“In consideration of the Hindustan Prefab Ltd. having its
Head Office at Jangpura, New Delhi (hereinafter called “The
Employer” ) having offered to accept the terms and conditions
of the proposed agreement between Hindustan Prefab Ltd.
and M/s Garg Builders (hereinafter called “the said
Contractor(s)”) for the work C/o of Proposed Infrastructure
for 08 Battalion of National Disaster Response Force
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(NDRF), Ghaziabad (U.P) (hereinafter called “the said
agreement”) having agreed to production of an irrevocable
Bank Guarantee for Rs.3,50,000.00 as a security/guarantee
from the contractor(s) for compliance of his obligations in
accordance with the terms and conditions in the said
agreement.

nd
1. We, HDFC Bank Limited , E-13/29, 2 Floor, Harsha
Bhavan, Middle Circle, Connaught Place, New Delhi 110001
(hereinafter referred to as “the Bank”) hereby undertake to
pay to the Employer an amount not exceeding Rs.
3,500,000.00.

2. We, HDFC Bank Limited (indicate the name of the
Bank) do hereby undertake to pay the amounts due and
payable under this guarantee without any demure, merely on a
demand from the Employer stating that the amount claimed as
required to meet the recoveries due or likely to be due from
the said contractor(s). Any such demand made on the bank
shall be conclusive as regards the amount due and payable by
the bank under this Guarantee. However, our liability under
this guarantee shall be restricted to an amount not exceeding
₹3,500,000.00

3. We, the said bank further undertake to pay the
Employer any money so demanded notwithstanding any
dispute or disputes raised by the contractor(s) in any suit or
proceeding pending before any court or Tribunal relating
thereto, our liability under this present being absolute and
unequivocal. The payment so made by us under this
guarantee shall be a valid discharge of our liability for
payment there under and Contractor(s) shall have no claim
against us for making such payment.”


th
Bank Guarantee No. 003GT02182810026 dated 8 October,
2018

“In consideration of the Hindustan Prefab Ltd. having its
Head Office at Jangpura, New Delhi (hereinafter called “The
Employer”) having offered to accept the terms and conditions
of the proposed agreement between Hindustan Prefab Ltd
and M/s Garg Builders (hereinafter called “the said
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Contractor(s)”) for the work C/o. of Proposed
Infrastructure for 08 Battalion of National Disaster
Response Force (NDRF), Ghaziabad (U.P) (hereinafter
called “the said agreement”) having agreed to production of
an irrevocable Bank Guarantee for ₹2,500,000.00
(Rupees.TWENTY FIVE LAKHS ONLY ) as
security/guarantee from the contractor(s) for compliance of
his obligations in accordance with the terms and conditions in
the said agreement.

nd
1. We, HDFC Bank Limited , E-13/29, 2 Floor, Harsha
Bhavan, Middle Circle, Connaught Place, New Delhi 110001
(hereinafter referred to as “ the Bank ”) hereby undertake to
pay to the Employer an amount not exceeding ₹2,500,000.00
(Rupees. TWENTY FIVE LAKHS ONLY ) on demand by
the Employer.

2. We HDFC Bank Limited (indicate the name of the
Bank) do hereby undertake to pay the amounts due and
payable under this Guarantee without any demure, merely on
a demand from the Employer stating that the amount claimed
as required to meet the recoveries due or likely to be due from
the said contractor(s). Any such demand made on the bank
shall be conclusive as regards the amount due and payable by
the bank under this Guarantee. However, our liability under
this guarantee shall be restricted to an amount not exceeding
₹2,500,000.00 (Rupees.TWENTY FIVE LAKHS ONLY ).

3. We, the said bank further undertake to pay the
Employer any money so demanded not exceeding
₹2,500,000.00 (Rupees.TWENTY FIVE LAKHS ONLY )
notwithstanding any dispute or disputes raised by the
contractor(s) in any suit or proceeding pending before any
court or Tribunal relating thereto, our liability under this
present being absolute and unequivocal. The payment so
made by us under this Guarantee shall be a valid discharge of
our liability for payment there under and the Contractor(s)
shall have no claim against us for making such payment.”


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th
12. On 14 June, 2021, HPL wrote the following letter to the Bank,
seeking to invoke the aforesaid nine bank guarantees:


“HPL/BG/ENCASHMENT/26 June 14, 2021

The Chief Manager
HDFC Bank
nd
E-13/29, 2 Floor
Harsha Bhawan
Cont. Circus
New Delhi-110001

Sub: Invocation of Bank Guarantee

Dear Sir,

Please refer to your following mentioned
Bank Guarantees

The validity period of the captioned bank guarantees is
expired and are under claim period on the date mentioned
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above. We have requested to extend the validity of BGs. As
bank guarantees have not been extended further and not
received by us as per request.

Now competent authority has decided to invoke the
above mentioned bank guarantees, accordingly you are
requested to remit the guarantee amount in terms of the
guarantee in its letter and spirit by means of Demand Draft in
favour of M/s Hindustan Prefab Limited, payable at New
Delhi OR remit the amount to the undersigned mentioned a/c
(a copy of cancelled cheque is also enclosed).

Name of the Party HINDUSTAN PREFAB LIMITED
Banker Punjab National Bank
Branch Jangpura, Bhogal, New Delhi-110014
Account No. 0147002100025853
RTGS CODE PUNB0014700


Thanking you

Yours faithfully,

For Hindustan Prefab Limited

Sd/-
V.K.Gupta,
FA& CAO ”

13. Challenging the proposed action, the petitioner approached this
Court by way of OMP (I) (Comm) 185-187/2021.

14. By order dated 7, 2021, a coordinate Single Bench of this Court
disposed of the said three OMPs, noting the fact that the letters dated
th
14 June, 2021 supra , whereby HPL was seeking to invoke the Bank
Guarantees furnished by the petitioner, was not in accordance with the
terms of the Bank Guarantees. Expressing this prima facie view, this
th
Court stayed the operation of the letter of invocation dated 14 June,
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2021, subject to the petitioner renewing the Bank Guarantees. Paras 8
th
to 10 of the order dated 16 June, 2010, passed by the coordinate
bench in OMPs (I) (Comm) 185-187/2021, may be reproduced thus:
“8. As far as the invocation in question by the letter dated
14.06.2021 is concerned, the same prima facie does not
appear to be in terms of the bank guarantees which requires
the respondent to also state that ' the amount claimed is
required to meet the recoveries dues or likely to be due from
the contractor' .

9. In view of the above, the invocation based on the letter
dated 14.06.2021 of the respondent shall not be given effect
to if not already given effect as on 8.10 p.m. today when this
order is being passed, till the next date of hearing, subject to
the condition that the petitioner renews the bank guarantees in
question within a week from today without prejudice to the
rights and contentions of the parties.

10. It is made clear that this Court has only considered and
passed the order on the basis of the invocation letter dated
14.06.2021. ”


15. Shortly and on the eve of the above order of this Court, HPL
st
proceeded, on 1 July, 2021, to address, to the Bank, the
communications with which the petitioner is, in these petitions,
principally aggrieved. The operative paragraphs of the said letters
were identical, except for the specifics of the Bank Guarantees with
respect to which they were issued. By way of example, the letter
st
dated 1 July, 2021, issued in respect of the four Bank Guarantees
forming subject matter of OMP (I) (Comm) 200/2021, and impugned
therein, read thus:
“ Ref. HPL/BG-ENCASHMENT/2021 Dated: 01.07.2021

The Chief Manager
HDFC Bank
nd
E-13/29, 2 Floor, Harsha Bhawan
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Connaught Circus
New Delhi-110001

Dear Sir,

Please refers to the Bank Guarantees issued by your bank
as per details given below:-

Hindustan Prefab Limited hereby demands to invoke the
above said BGs in terms of Clause 2 & 3 as stipulated in each
Bank Guarantee. It is stated here that the amount claimed is
required to meet the recoveries due or likely to be due from
the Contractors (M/s Garg Builders). Accordingly, this
written demand to pay of ₹ 2,36,72,278.00 is made to HDFC
Bank, by invocation of BGs and to either remit the amount by
means of Demand Draft in favour of M/s Hindustan Prefab
Limited, payable at New Delhi or by transferring the amount
to the under mentioned Bank Account details:-

Name of the Party HINDUSTAN PREFAB LIMITED
Banker Punjab National Bank
Branch Jangpura, Bhogal, New Delhi-110014
Account No. 0147002100025853
RTGS CODE PUNB0014700


Thanking you

Yours faithfully,

For Hindustan Prefab Limited

Sd/-
1.07.2021
Page 18 of 56
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CA V.K.Gupta,
Financial Advisor & Chief Accounts Officer
”


16. The petitioner, in these OMPs, seeks stay of operation of the
st
aforesaid letters dated 1 July, 2021.

Rival contentions

17. Learned Senior Counsel for the petitioner contend that, apart
from the aforesaid nine Bank Guarantees, Performance Bank
Guarantee No. 003GT02170190002 for ₹ 2,19,59,310/-, having
already expired before its invocation was attempted by HPL, the Bank
th
itself wrote, to HPL, on 14 June, 2021, that the letter of invocation
was null and void, as the Bank Guarantee had already expired. Insofar
as the remaining nine Bank Guarantees were concerned, learned
th
Senior Counsel contend that, in view of order dated 16 June, 2021,
and the extending, by the petitioner, of the Bank Guarantees, as
directed by this Court, the act of HPL in seeking to invoke the Bank
Guarantees cannot sustain in law. That apart, invocation of the Bank
Guarantees furnished by the petitioner towards security deposit could,
it is submitted, be justified only once, consequent on determination of
the contract, security deposit was forfeited. HPL having neither
terminated the contracts nor forfeited the security deposit provided by
the petitioner, the invocation of the security Bank Guarantees is, it is
submitted, completely unjustified, factually as well as legally. It is
pointed out, in this regard, that the respondent never addressed any
communication to the petitioner, demanding any amount from it and
st
that, therefore, the assertion, in the impugned letter dated 1 July,
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2022:DHC:1670
2021, that the “amount claimed (was) required to meet the recoveries
due or likely to be due from the contactors” was a mere recitation of
the covenants in the Bank Guarantees and was unjustified on facts.
Learned Senior Counsel submits that, far from any amount being due
from the petitioner to HPL, HPL was in arrears towards the petitioner,
for which the petitioner had already proceeded towards invocation of
the remedy of arbitration contractually available to it.

18. At this point, one may advert to the individual OMPs, though
the legal issues involved are the same.

OMP (I) (Comm) 200/2021

19. Learned Senior Counsel for the petitioner invited my attention
th
to a communication dated 17 August, 2021, from HPL to the
petitioner, the opening paragraph of which recorded the approval, of
the competent authority, for withholding of an amount of ₹ 25 lakhs
from the bills raised by the petitioner towards liquidated damages for
alleged delay, on the part of the petitioner, in carrying out its
obligation under the agreement. HPL having, thus, already effected
recovery from the petitioner, learned Counsel submits that there was
no justification for HPL seeking, all over again, to effect further
recovery by way of invocation of the Bank Guarantees, without even
prior notice to the petitioner, claiming any amount. While
th
acknowledging the fact that, on 16 April, 2021, HPL did address a
legal notice to the petitioner, para 10 of which quantified the demands
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2022:DHC:1670
of HPL against the petitioner, learned Counsel submits that such a
notice could not substitute the requirement of a formal demand.

20. In any event, as the Bank Guarantees had been renewed, as
directed by this Court, learned Counsel submits that no prejudice
would result to the petitioner if, till the resolution of the dispute by
arbitration, status quo were directed to be maintained with respect to
the Bank Guarantees.

21. Responding to the submissions of learned Senior Counsel for
the petitioner, Mr. Ankit Jain, appearing for HPL, draws my attention
th
to the fact that, in the legal notice dated 16 April, 2021, HPL had
clearly set out the basis for its contention that it had valid claims
against the petitioner. The following passages, from the said legal
notice, were especially pressed into service in this regard:
“10. That even without submitting Tax invoice and lodging
proper claim, you the addressee have indulged in raising
alleged 'Dispute' unethically to drag my client in unwanted
litigation and usurp undue money under the guise of framing
a 'Dispute'. My client informs that previously payments were
made against interim RA Bills and amount was released at
your request subject to scrutiny and verification· to expedite
the project. However, on detailed scrutiny of the bills
submitted by you and assessment of your defaults and
violation of agreed terms of the said contract, my client has
ascertained the following amount which are due from you:-

a. Clause no.44 of SCC - You have not completed
the project within specified completion period which
was to be completed on 15.07.2018. My client has
imposed Liquidity Damages (LD) for an amount
Rs.153.71 Lacs. You are therefore called upon to
deposit the said amount within 07 days failing which,
the same will be recovered/adjusted from your pending
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dues if any/Bank Guarantees or other security
including dues payable to you if any.

b. As per Clause no.13 of SCC, you have failed to
provide labour record i.e. wages sheet, attendance
sheet, monthly / annual returns / challans for
verification of ESI & PF amount of employees / labour
who were engaged by you at site, thus there is clear
breach of contract on your part. You have failed to
deposit PF / ESI dues of workers, the cost of which
was the part of your quoted rates. As per the
assessment of my client Labour cost estimated to be
25% of total work done, comes to amount of
Rs.12,94,17,891.00, therefore recovery of 24%
contribution of employer & employees amounting to
Rs.3,10,60,294.00 is to be made from you. You are
therefore called upon to deposit the said amount within
07 days. You are further informed that my client
reserves its rights to take steps and inform the
concerned authorities to investigate and take action
against you for the violation of statutory provisions at
your end.

c. In terms of Clause no.17 of SCC, you were
responsible to control noise and air pollution at site as
per norms of Pollution Control Board / Local
Authority. You have failed to comply with the same,
thus there is another breach of contract on your part.

d. As per clause no.21 of SCC, you were required
to build and complete a mock-up room within the
limits of area of the building under construction before
progressing for further finishing/works. You have
failed to comply with this requirement, thus there is a
breach of contract at your part hence my client is
entitled to a recovery of Rs. 10 Lacs against you.

e. As per clause no.23 of SCC, you had to provide
a suitable area approx. 600 sq.ft. equipped with basic
facilities such as tables, chairs, record keeping almirah,
two number Air Conditioner, telephone, fax, internet,
photocopier, computer and HP printer & scanner
alongwith operator, regular electricity & filtered
drinking water supply and staff carrying vehicle one
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number like INDIGO (AC) or equivalent approved by
Engineer In-Charge with fuel, driver, toll tax, parking
charges and maintenance for average running upto
3000 KM/month etc. complete within 15 days of the
award of work. Charges of the above facilities are also
included in the rates quoted by the contractor and
nothing extra shall be payable on this account. The
maintenance charges were also to be borne by you.
You have failed to provide the same, thus there is a
breach of contract term at your part and thus you are
called upon to pay to my client Rs.30 Lacs (30
months@ Rs.l,00,000/- per month).

f. As per clause no.24, you were required to make
arrangements for ground breaking ceremony /
inaugural function etc. for the projects as required and
the cost towards it, is included in your quoted rates /
offer. You have failed to comply with the same, thus
on account of breach of this term at your part, hence
you are liable to pay sum of Rs.5 Lacs on this account.

g. As per clause no.35 of SCC, you had to obtain
the labour license within one month of the award of the
work but you have failed to comply this requirement,
thus there is clear breach of contract at your part and a
sum of Rs.5 Lacs is due and payable by you. You are
further informed that my client is taking steps to
inform the concerned authorities to take action against
you for the violation of statutory provisions at your
end.

h. Clause no.19 b (v) of GCC, you have to comply
with the provisions of the Payment of Wages Act
1936, Minimum Wages Act, 1948, Employees
Liability Act 1938, Workmen's Compensation Act
1923, Industrial Disputes Act 1947, Maternity Benefit
Act 1967 and the Contractor's Labour (Regulation and
Abolition) act 1970 or the modifications therefore or
any other laws relating thereto and the rules made
thereunder from time to time. You have not submitted
any record as above for compliance, thus there is clear
breach of contract at your part and a sum of Rs.10 Lacs
is due and payable by you. You are further informed
that my client is taking steps to inform the concerned
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authorities to take action against you for the violation
of statutory provisions at your end.

i. As per clause no.36 of GCC, you have to
intimate in writing to Engineer In-charge, HPL about
deployment of. principal & technical representative's
name, qualification, experience, age, address & other
particulars alongwith certificates. You have failed to
comply with the same, thus there is clear breach of
contract at your part and a sum of Rs.10 Lacs is due
and payable by you.

j. As per clause no.37 of GCC, you have to
deposit the royalty and obtain necessary permit of
supply of red bajri, stone, kankar etc. from local
authority. You have not submitted the deposit challan
of the same, thus a breach of contract on your part,
hence a sum of Rs.50 Lacs is due and payable by you.

k. As per clause no.44 of GCC, you have not
complied with the provision of Apprentice Act 1961
and the rule & order issued thereunder from time to-
time which is a breach of contract on your part
therefore, a sum of Rs.5 Lacs is due and payable by
you.

l. In compliance with the clause of Safety Code of
GCC, you have failed to comply the safety code
definrd under the rule, thus a breach of contract on
your part, hence a sum of Rs.10 Lacs is due and-
payable by you.

m. In compliance with the clause of GCC "model
rules for protection of health & sanitary
arrangements for workers", you have failed to
provide the facility under above model rule, thus a
breach of contract on your part, hence a sum of Rs.50
Lacs is due and payable by you.

n. As per Labour Regulations of GCC, you have
not obtained certificate under the signature of Engineer
In-charge at the end of the entries in the register of
wages or the Wages cum Muster Roll, thus a breach of
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contract at your part hence, a sum of Rs.10 Lacs is due
and payable by you.

o. As per GCC's Labour Regulation Rule -7, you
have not provided register of person employed, Muster
Roll register, wages register under the Central Rule,
1971, thus a breach of contract at your part hence, a
sum of Rs.10 Lacs is due and payable by you.”

22. Mr. Jain further invokes Clauses 1A and 2 of the Agreement, as
entitling HPL to invoke the bank guarantees furnished by the
petitioner. These Clauses read thus:

“ CLAUSE 1 A

The person/persons whose tender(s) may be accepted
(hereinafter called the contractor) shall permit Government at
the time of making any payment to him for work done under
the contract to deduct a sum at the rate of 2.5% of the gross
amount of each running and final bill till the sum deducted
will amount to security deposit of 2.5% of the tendered value
of the work. Such deductions will be made and held by
Government by way of Security Deposit unless he/they
has/have deposited the amount of Security at the rate
mentioned above in cash or in the form of Government
Securities or fixed deposit receipts. In case a fixed deposit
receipt of any Bank is furnished by the contractor to the
Government as part of the security deposit and the Bank is
unable to make payment against the said fixed deposit receipt,
the loss caused thereby shall fall on the contractor and the
contractor shall forthwith on demand furnish additional
security to the Government to make good the deficit.

All compensations or the other sums of money payable by the
contractor under the terms of this contract may be deducted
from, or paid by the sale of a sufficient part of his security
deposit or from the interest arising therefrom, or from any
sums which may be due to or may become due to the
contractor by Government on any account whatsoever and in
the event of his Security Deposit being reduced by any such
deductions or sale as aforesaid, the contractor shall within 10
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days make good in cash or fixed deposit receipt tendered by
the State Bank of India or by Scheduled Banks or
Government Securities (it deposited for more than 12 months)
endorsed in favour of the Engineer-in-Charge, any sum or
sums which may have been deducted from, or raised by sale
of his security deposit or any part thereof. The security
deposit shall be collected from the running bills and the final
bill of the contractor at the rates mentioned above.

The security deposit as deducted above can be released
against bank guarantee issued by a scheduled bank, on its
accumulations to a minimum of Rs. 5 lac subject to the
condition that amount of such bank guarantee, except last one,
shall not be less than Rs. 5 lac. Provided further that the
validity of bank guarantee including the one given against the
earnest money shall be in conformity with provisions
contained in clause 17 which shall be extended from time to
time depending upon extension of contract granted under
provisions of clause 2 and clause 5.

In case of contracts involving maintenance of building and
services/any other work after construction of same building
and services/other work, then 50% of Performance Guarantee
shall be retained as Security Deposit. The same shall be
returned yearwise proportionately.

Note-1 : Government papers tendered as security will be taken
at 5% (five per cent) below its market price or at its face
value , whichever is less. The market price of Government
paper would be ascertained by the Divisional Officer at the
time of collection of interest and the amount of interest to the
extent of deficiency in value of the Government paper will be
withheld if necessary.

Note-2 : Government Securities will include all forms of
Securities mentioned in Rule No. 274 of the G. F. Rules
except fidelity bond. This will be subject to the observance of
the condition mentioned under the rule against each form of
security.

Note-3 : Note 1 & 2 above shall be applicable for both clause
1 and 1A.


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CLAUSE 2

If the contractor fails to maintain the required progress in
terms of clause 5 or to complete the work and clear the site on
or before the contract or extended date of completion, he
shall, without prejudice to any other right or remedy available
under the law to the Government on account of such breach,
pay as a weed compensation the amount calculated at the
rates stipulated below as the authority specified in schedule 'F'
(whose decision in writing shall be final and binding) may
decide on the amount of tendered value of the work for every
completed day/month (as applicable) that the progress
remains below that specified in Clause 5 or that the work
remains incomplete.

This will also apply to items or group of items for which a
separate period of completion has been specified.

(i) Compensation @ 1.5 % per month of delay for delay of
work to be computed on per day basis Provided always that
the total amount or compensation for delay to be paid under
this Condition shall not exceed 10% of the Tendered Value of
work or of the Tendered Value of the item or group of items
of work for which a separate period of completion is
originally given.

The amount of compensation may be adjusted or set-off
against any sum payable to the Contractor under this or any
other contract with the Government. In case, the contractor
does not achieve a particular milestone mentioned in schedule
F, or the re-scheduled milestone(s) in terms of Clause 5.4, the
amount shown against that milestone shall be withheld, to be
adjusted against the compensation levied at the final grant of
Extension of Time. With-holding of this amount on failure to
achieve a milestone, shall be automatic without any notice to
the contractor. However, if the contractor catches up with the
progress of work on the subsequent milestone(s). the withheld
amount shall be released. In case the contractor fails to make
up for the delay in subsequent milestone(s), amount
mentioned against each milestone missed subsequently also
shall be withheld. However. no interest. whatsoever, shall be
payable on such withheld amount.”


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23. Adverting to the bank guarantees themselves, Mr. Jain submits
that the covenants of the individual bank guarantees are clear and
categorical. They require the bank to pay, to HPL, on demand,
without demur, reservation or protest, the amount covered by the bank
th
guarantees. While the bank guarantee dated 17 December, 2016 for
₹ 32,43,000/- did not even specify the contents of the letter of
invocation, to be issued by HPL to the bank, the remaining three bank
th th th
guarantees dated 30 October, 2017, 6 October, 2018 and 11
September, 2019 required HPL to state that the amount claimed was
required to meet the recoveries due or likely to be due from the
contractor. For want of such a recital, in the earlier letter of
th
invocation issued by HPL on 14 June, 2021, this Court, vide its order
th
dated 16 June, 2021 had stayed the operation of the letter of
st
invocation. That lacuna now stood remedied by the letter dated 1
July, 2021 which contained a recital in the terms as required by the
bank guarantees. That being so, the invocation of the bank guarantees
was in accordance with the terms of the bank guarantees, and, absent
egregious fraud, special equities and irretrievable injustice, Mr. Jain
submits that a Court could not injunct invocation of the bank
guarantees.

24. He submits that the petitioner has not pleaded, much less
established, the existence of any egregious fraud, irretrievable
injustice or special equities, which are the only circumstances in
which invocation of an otherwise unconditional bank guarantee can be
interdicted by a Court. The particulars of the dispute between the
parties, he submits, are irrelevant in this regard. In any event, even if
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the bank guarantees were to be invoked, it would always be open to
the petitioner to seek restitution in the arbitral proceedings so that,
even on the test of irreparable prejudice, no case for grant of any
interim protection under Section 9 of the 1996 Act can be said to exist.

25. In rejoinder, Mr. Mehta submits that it was not his case that the
invocation of the bank guarantees was vitiated by fraud. There is,
however, in his submission, a clear case justifying stay of invocation
on the principle of irretrievable injustice, as the financial position of
HPL is so precarious that, were HPL to be permitted to realise the
amounts covered by the bank guarantees furnished by the petitioner, a
situation could well arise in which it restitution of the petitioner would
become impossible, even were it to succeed in the arbitral
proceedings. Mr. Mehta has invited my attention, in this context, to
the audited statement of accounts and balance sheets of HPL. He has
drawn my attention to the following recitals in the auditor’s report:

“ Emphasis of Matter

We draw attention to Note No. 23.5 and 23.7 of the financial
statements: Accumulated losses have resulted in erosion of
substantial net worth of the Company and also the outcome of
the decision of Government of India on closure of the
Company could effect the continuity of the Company.
However, the financial statements have been prepared on a
going concern basis on the grounds as disclosed in the said
notes. Our opinion is not modified in respect of above
matter.”

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26. Further, in the notes to the financial statements of HPL for the
st
year ending 31 March, 2019, Mr. Mehta has invited attention to para
23.5 which reads as under:

“ 23.5 There is erosion of substantial net worth of the
Company due to accumulated losses. However, the financial
statements have been prepared on a going concern basis as
the Company is a profit making concern since last many years
with no borrowings and on the basis of improved business
operations.”

27. He points out from para 23.5 of the same notes to the financial
statement, that the contingent liabilities of HPL were as provided for
in the said note to the financial statement. He also drew my attention
to Clause 23.6 of the notes on financial statements, which dealt with
handing over of various land and properties of HPL to the land and
th
development office (L&DO) on 20 March, 2018, and read thus:

“ 23.6 Hand-over of various Land and Properties to Land
& Office Development (L&DO) on 20.03.2018

a) As per the order dated 22.02.2018 of Ministry
of Housing & Urban Affairs (MoHUA), Government
of India, being the administrative ministry, HPL was
directed to hand-over various Land and properties, as
mentioned in PIM to L&DO, without any express
compensation, on 20.03.2018. The said decision has
been approved and ratified in the Board meeting held
on 23.03.2018. Accordingly, the net block of Land of ₹
9.07 lakhs and Roads of ₹ 0.37 lakh as at 20.03.2018
were written off during the year 2017-18. The
Company on 07.01.2019, requested MoHUA to
provide suitable compensation for the acquired land
and properties, which were valued at ₹ 1427.89 crores
as per the valuation done by MoHUA appointed valuer
as part of the disinvestment process.

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b) As per the said order of MoHUA and the
directions received from L&DO, the built up portion of
existing properties and other immovable assets i.e.
registered office of HPL, residential quarters, presently
being used by staffs and families of HPL will remain
with HPL, till further decision is taken on the matter.
Accordingly, Office Buildings and Residential
Buildings, the net block of which is ₹ 225.66 lakhs
(Previous Year: ₹ 251.72 lakhs) and ` 6.85 lakhs
(Previous Year: ₹ 7.41 lakhs) respectively as at
31.03.2019, have continued to be shown under
Property, Plant & Equipments in note no. 9. In case,
the decision is taken by L&DO to take over these
buildings from HPL in future, corresponding effect
will be given in the accounts in that year.

c) Property (Housing) at Jangpura, let out to
Hudco was also handed over to L&DO on 20.03.2018.
Since L&DO is yet to initiate the steps for transfer of
legal title of said property hence it has been shown
under the Residential Buildings as at 31.03.2019 in (b)
above.

Pending transfer of legal title of above property, rent
has not been provided for in the accounts.

d) Municipal taxes of ₹ 8.57 lakhs due to SDMC
for the year 2018-19 i.e. subsequent to the date of
handing over of Land and Properties is payable by
L&DO. Accordingly, no provision towards the said
amount has been provided for in the accounts.

e) Office Buildings includes office at Scope
Minar, Laxmi Nagar with Original Cost of ₹
1,16,45,125/- (Previous Year : ₹ 1,16,45,125/-) of
which the title deed in favour of Company is yet to be
executed by SCOPE. However, land allotted to SCOPE
by DDA is leasehold land. Further, the said office has
since been handed over to the Land and Development
Office (L&DO) on 20.03.2018. The said office, let out
to EPFO was vacated w.e.f 27.06.2018. Since L&DO
is still to initiate the steps for transfer of legal title of
said property with SCOPE hence it has been shown
under Office Buildings as at 31.03.2019 in (b) above.
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The rent received from EPFO for the period
21.03.2018 to 27.06.2018 i.e. subsequent to the date of
its handing over to L&DO has been shown as payable
in note no. 7. Accordingly, demand of ₹ 22.72 lakhs
raised during the year by SCOPE towards property tax,
maintenance charges and electricity for the year 2018-
19 is payable by L&DO. Management intends to take
up this matter with SCOPE to raise these demands
directly to L&DO and considering the same, no
provision towards such charges has been made as the
same will be paid either directly by L&DO or
recovered from them if paid by the Company.”

28. Mr. Mehta thereafter drew my attention to the balance sheet of
st
HPL as on 31 March, 2019, to point out that, as against the cash in
hand available with HPL, of ₹ 153.9624 crores, ₹ 103.4204 grade
payables were figuring in the current liabilities of HPL for the said
financial year.

29. The audited financial statements of HPL, therefore, submits Mr.
Mehta, indicate that the financial condition of HPL is not such as
could inspire confidence that HPL would continue to possess the
financial wherewithal to restore, to the petitioner, the status quo ante,
were HPL to be permitted to invoke the bank guarantees and the
petitioner, thereafter, to succeed in arbitration.

30. Mr. Jain has seriously contested the submission, of Mr. Mehta,
regarding the allegedly precarious financial condition of HPL. He
submits that 100% shareholding of HPL was with the Hon’ble
President of India. Apropos the financial position of HPL as reflected
from its balance sheet, Mr. Jain points out that, against the total
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liabilities of HPL of ₹ 176.37 crores, its current assets were to the tune
of ₹ 249.90 crores. Referring to the paragraph titled “Emphasis of
Matters” cited by Mr. Mehta, Mr. Jain points out that, while noting the
fact that substantial net worth of HPL had been eroded by
accumulated losses, it was, nonetheless, a going concern as was
reflected in the very same passage, and its financial statements had
also been prepared on a going concern basis. In this context, Mr. Jain
has also invited my attention to Clause 23.5 of the notes on financial
statements of HPL, which record the fact that HPL was “a profit
making concern since last many years with no borrowings and on the
basis of improved business operations”. Mr. Jain points out that HPL
had earned profits both in 2017-18 and 2018-19. Adverting to the
handing over of land and properties of HPL to L&DO, Mr. Jain points
out that Clause 23.6(a) of the notes on financial statements (which had
earlier been reproduced) records the request, of HPL, to the Ministry
th
of Housing and Urban Affairs (MoHUA), on 7 January, 2019, for
suitable compensation against the acquired land and properties, which
were valued at ₹ 1427.89 crores as per the valuation done by the
valuer approved and appointed by the MoHUA. It was not, therefore,
submits Mr. Jain as though the land of the company was thrown away
for a song.

31. Mr. Jain has pressed into service the judgments of the Supreme
1
Court in UP State Sugar Corporation v. Sumac International Ltd.
2
and Svenska Handelsbanken v. Indian Charge Chrome , to contend
that the requirement of the existence of the element of egregious fraud

1
(1997) 1 SCC 568
2
(1994) 1 SCC 502
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actually permeates all three considerations, i.e. of irretrievable
injustice, special equities and egregious fraud itself, on which alone
invocation of an unconditional and irrevocable bank guarantee could
be interdicted by a Court. Irretrievable injury, he submits, must
partake of the character of impossibility of execution. Mere financial
hardship being faced by the beneficiary of the bank guarantee,
submits Mr. Jain, even if it were shown to exist, could not justify
interdiction of invocation.


Analysis

32. This is yet another a case in which valuable time of this Court
has been expended in dealing with a prayer for a restraint against
invocation of “unconditional” and irrevocable bank guarantees. In its
decision in CRSC Research and Design Institute Group Co Ltd v.
3
Dedicated Freight Corridor Corporation of India Ltd , a Division
Bench of this Court, while upholding the judgment of this Bench in
CRSC Research and Design Institute Group Co Ltd v. Dedicated
4
Freight Corridor Corporation of India Ltd , lamented the fact that,
despite the law in that regard being practically fossilized, Courts were
being inundated with repeated requests for stay of unconditional bank
guarantees. Apparently, with a view to discourage such litigation in
future, the appellant before the Division Bench was burdened with
costs of ₹ 5 lacs.


3
(2020) SCC Online (Del.) 1526
4
MANU/1803/2020
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33. The following passages from the report of the judgment of the
3
Division Bench in CRSC Research and Design Institute speak for
themselves:
“7. The settled law with respect to grant of an injunction
which has the effect of restraining encashment of a bank
guarantee, is (a) 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; (b) the
Bank giving such a guarantee is bound to honour it as per its
terms, irrespective of any dispute raised by its customer; (c)
the very purpose of giving such a bank guarantee would
otherwise be defeated; (d) the Courts should therefore be slow
in granting an injunction to restrain the realization of such a
bank guarantee; (e) the Courts have carved out only two
exceptions i.e. (i) a fraud in connection with such a bank
guarantee would vitiate the very foundation of such a bank
guarantee - if there is such a fraud of which the beneficiary
seeks to take the advantage, he can be restrained from doing
so; fraud has to be an established fraud which the bank knows
of and the evidence must be clear, both as to the fact of fraud
and as to the bank's knowledge; and, (ii) 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 effect the bank and its customers at whose
instance the guarantee is given, the harm or injustice
contemplated under this head must be of such an exceptional
and irretrievable nature as would override the terms of the
guarantee and the adverse effect of such an injunction on
commercial dealings in the country; it must be proved to the
satisfaction of the Court that there would be no possibility
whatsoever of the recovery of the amount from the
beneficiary, by way of restitution.

*

15. We are unable to agree with the contention of the
senior counsel for the appellant that this Court, when
approached for the interim measure of interference with
unequivocal, absolute and unconditional BGs, is required to
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interpret the contract and/or form a prima facie opinion
whether the beneficiary of the BGs has wrongfully invoked
the BGs. Such exercise, in our view, is to be done in a
substantive proceeding to be initiated by the appellant for
recovery of the monies of the BGs, if averred to have been
wrongly taken by the respondent No. 1 by encashment of
BGs. If any interim relief is also claimed in the said
substantive proceedings, the need for taking a prima facie
view, will arise therein; however not while dealing with an
application for the interim measure of restraining
invocation/encashment of BGs. In the said proceedings, no
question of taking a prima facie view arises and the enquiry is
confined to, whether on the basis of the documents, a case of
fraud of egregious nature in the matter of
obtaining/furnishing BGs, is made out. As far as the argument
of the senior counsel for the appellant, of special equities is
concerned, the same is but a facet of the second exception
aforesaid of irretrievable harm or injustice. Needless to state
that from the entire arguments of the senior counsel for the
appellant, no case of fraud of egregious nature in the matter
of making/obtaining of the BGs is made out. All that emerges
is that there are disputes between the appellant and the
respondent No. 1 and it is not even whispered that the
respondent No. 1 built the entire charade of entering into the
contract, only to obtain BGs and to profiteer from the
appellant. With respect to the ground urged by the senior
counsel for the appellant, of special equities, the Solicitor
General has stated that the appellant is a Chinese entity and
if ultimately in arbitration, which has already commenced
between the parties, the monies are found due to the
respondent No. 1 from the appellant, the respondent No. 1
would have no means or ways available to it for recovering
the same from the appellant and/or to enforce the arbitral
award in China. On the contrary, it is contended that the
respondent No. 1 is a Public Sector Undertaking and the
monies, if ultimately found due to the appellant from the
respondent No. 1, can always be recovered by the appellant
from the respondent No. 1.

16. Fraud, as an exception to the rule of non-interference
with encashment of BGs, is not any fraud but a fraud of an
egregious nature, going to the root i.e. to the foundation of
the bank guarantee and an established fraud. The entire case
of the appellant, we are afraid, fails to qualify so. The Single
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Judge has written at length on the subject and save for as
aforesaid, we need not say more.

17. Irretrievable injustice, as an exception to the rule of
non-interference with encashment of BGs, is again not a mere
loss, which any person at whose instance bank guarantee is
furnished, suffers on encashment thereof. It is always open to
such person to sue for recovery of the amount wrongfully
recovered. What has to be proved and made out to obtain an
injunction against encashment, is that it will be impossible to
recover the monies so wrongfully received by encashment.
There is not even a whisper to this effect, neither in the
pleadings nor in the arguments.”
(Emphasis supplied)


34. Despite the clear enunciation of the law as above, and at least
till I sat in that roster, petition after petition continued to be filed,
seeking stay of invocation of unconditional irrevocable bank
guarantees. In nearly every such case – including the present petitions
– reliance was placed, by the petitioners, on the disputes between the
parties relating to the performance/non-performance of the original
contract. The fact that the petitioner, seeking stay of invocation of the
bank guarantees, had a subsisting claim against the respondent
beneficiary of the bank guarantees is also inevitably taken as a ground
for seeking stay of invocation.


35. In view of the well crystallized law on the subject, any
reference to the original dispute between the parties, relating to the
performance of the contract, is completely irrelevant, insofar as the
issue of stay of invocation of the bank guarantees is concerned. That
dispute has necessarily to form substratum of an entirely different
proceeding, to be resolved either by arbitration or by adjudication by a
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Court. While I have recorded the submissions of learned Senior
Counsel for the petitioner regarding the petitioner’s substantive
grievances against HPL, I do not, in view of the law that stands settled
in that regard, propose to deal with the said contentions here.

36. With these prefatory observations, I deem it appropriate, before
applying the law to the facts of the present case, to itemize the basic
principles relating to bank guarantees, their invocation and the
interdiction of such invocation, thus:

(i) Commercial contracts often contain clauses requiring the
contractor to furnish bank guarantees.

(ii) These bank guarantees are, principally, either bank
guarantees provided towards security, for having been awarded
the contract, or performance bank guarantees, to guarantee
performance of the contract, though, on occasion, other bank
guarantees such as bank guarantees towards mobilization
advance etc. may also be required to be provided.

(iii) The contract, in such cases, also provides for the
circumstances in which the bank guarantees could be invoked,
as well as the purpose for requiring the bank guarantees to be
provided in the first place.

(iv) No bank guarantees payment to anyone gratis. Every
bank guarantee is of necessity issued by a bank on instructions.
In case of a commercial contract, such as the contract in the
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present petition, the instruction to the bank, to provide a bank
guarantee, is given by the person to whom the contract is
awarded; in the present case, the petitioner. The party to whom
the contract is awarded, in other words, instructs the bank, in
lieu of having been awarded the contract, to issue a bank
guarantee in favour of the person awarding the contract. In the
present case, as required by the agreements between the
petitioner and the HPL, and that the petitioner’s instance, bank
guarantees were issued by the bank in favour of HPL which,
therefore, is the beneficiary of the bank guarantee.

(v) These bank guarantees are, however, bilateral contracts
between the bank and the beneficiary, i.e. HPL, even if they
were issued at the instance of the petitioner. The petitioner is
not a party to the bank guarantees. It is, therefore, legally a
stranger to the contract, insofar as the bank guarantees are
concerned.

(vi) Like all independent commercial contracts, every bank
guarantee has to abide strictly by its terms. Honour and
compliance of a bank guarantee, as per its terms, is, therefore,
mandatory. In the case of bank guarantees, especially, the
Supreme Court has stressed this aspect, as there is an
overwhelming element of public interest involved in requiring
banks to honor their commitments towards customers and
clients. If a bank is to be interdicted, at the instance of a third
party, who is a stranger to the bank guarantee between the bank
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and the beneficiary, from honouring the bank guarantee, the
Supreme Court has held in United Commercial Bank v. Bank
5
of India and Hindustan Steelworks Construction Ltd. v.
6
Tarapore & Co , that it would erode the public faith in the
banking institution of the country.

(vii) The bank is, therefore, concerned only with the terms of
the bank guarantee. The elements of any dispute between the
contractor and the beneficiary of the bank guarantee, or the
conditions existing in the contract between the contract awardee
and the beneficiary of the bank guarantee, i.e. in the present
case between the petitioner and HPL, are, therefore, generally
irrelevant to the aspect of invocation of the bank guarantee.
Even the circumstances stipulated in the contract between the
beneficiary and the contract awardee, in which the bank
guarantee could be invoked, are also of no relevance insofar as
the liability of the bank to honour the bank guarantee is
concerned.

(viii) In order for the aspect of performance, or failure of
performance, of the parent contract, by either party, to become
relevant as a consideration for invocation of the bank guarantee,
they have necessarily to be incorporated by express reference in
the bank guarantee itself . In other words, if the bank guarantee
were to stipulate that the bank would be required to make
payment to the beneficiary only in the event of failure, on the

5
(1981) 2 SCC 766
6
(1996) 5 SCC 34
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part of the contract awardee, to abide by its obligations under
the Contract, then the aspect of performance of the contract by
the contract awardee would become a relevant consideration,
while assessing the obligation of the bank to make payment to
the beneficiary.

(ix) Similarly, oftentimes, a contract may stipulate the
particular stage at which, or exigency in which, the bank
guarantee could be invoked by the beneficiary. Such a
stipulation in the contract would, however, become relevant for
the bank, when called upon by the beneficiary to honour the
bank guarantee, only if that stipulation figures expressly in the
body of the bank guarantee itself .

(x) Else, the bank is not expected, much less required, to
advert to the covenants of the original contract between the
contract awardee and the beneficiary, to which the bank is a
stranger – just as the contract awardee is a stranger to the bank
guarantee. Nor is it required to enter into the disputes between
the contract awardee and the beneficiary of the bank guarantee,
or into the aspect of performance, or non-performance, of the
contract. Nor, for that matter, is the bank entitled to examine
whether the stage at which the contract between the parties
envisages invocation, or enforcement, of the bank guarantee,
has, or has not, been reached. The bank, being a stranger to the
contract between the contract awardee and the beneficiary of
the bank guarantee, has no authority to probe into the said
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contract, unless the terms of the bank guarantee expressly
require it to do so . The bank has necessarily to be concerned
only with the terms of the bank guarantee, to which alone it is a
party.

(xi) If the invocation of the bank guarantee by the beneficiary
thereof is, therefore, in terms of the bank guarantee, the Court
cannot interdict the bank from honouring the bank guarantee,
by referring to the covenants in the contract between the
contract awardee and the beneficiary of the bank guarantee.
Any such attempt by the Court would amount to directing the
bank to violate the contract, with the beneficiary of the bank
guarantee, to which it is a party and, therefore, to direct the
bank to commit an illegality. This, quite obviously, is
completely impermissible.

(xii) Equally, it is not permissible, either, for the Court to
interdict the invocation of a bank guarantee on the ground that
the stage for such invocation, as per the contract, has not been
reached, or that the exigency in which the bank guarantee could
be invoked as per the contract, does not exist, unless that stage,
or that the exigency, is incorporated as a condition for
invocation in the bank guarantee itself.

(xiii) Interdiction of invocation of unconditional bank
guarantees would be justified, where the invocation is otherwise
in terms of the covenants in the bank guarantees, only where
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there is found to exist egregious fraud, or special equities, or
where irretrievable injustice would ensue were invocation not to
be injuncted. In this regard, I deem it appropriate to reproduce,
with humility, the following passages from my decision in
7
Kuber Enterprises v. Doosan Power Systems India Pvt Ltd , in
which I have followed the Division Bench pronouncement in
3
CRSC Research and Design Institute :
“18 Admittedly, the Bank Guarantee provided by
the petitioner to the respondents is unconditional. Stay
of invocation of an unconditional bank guarantee can
be granted only in exceptional circumstances. This
Court in SES Energy Services India Ltd. v. Vedanta
8
Ltd has noted these exceptions and observed thus:-

“9. In cases where the bank guarantee is
unconditional, the law recognizes only three
circumstances in which Courts could injunct
invocation or encashment of the bank
guarantee. These three circumstances,
essentially, dovetail into two, with the
pronouncement of Courts in that regard. The
three circumstances, in which the Courts may
interfere, and may injunct the invocation of
unconditional bank guarantees, is where there is
egregious fraud, special equity exists, or where
irretrievable injustice or prejudice is likely to
result, if the bank guarantee is invoked or
encashed. The latter two circumstances have
been treated, by the Supreme Court, as well as
by the Division Bench of this Court in CRSC
3
Design to be interconnected, in that special
equities would be set to exist if the invocation
of the bank guarantee would result in
irretrievable injustice to the opposite party. The
following passage, from BSES Ltd. v. Fenner
9
India Ltd. , neatly encapsulates this position:

7
2021 SCC OnLine Del 5049
8
2021 SCC OnLine Del 4196
9
(2006) 2 SCC 728
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“10. There are, however, two
exceptions to this rule. The first is when
there is a clear fraud of which the bank
has notice and a fraud of the beneficiary
from which it seeks to benefit. The fraud
must be of an egregious nature as to
vitiate the entire underlying transaction.
The second exception to the general rule
of nonintervention is when there are
'special equities' in favour of injunction,
such as when 'irretrievable injury' or
'irretrievable injustice' would occur if
such an injunction were not granted. The
general rule and its exceptions has been
reiterated in so many judgments of this
Court, that in U.P. State Sugar Corpn. v.
1
Sumac International Ltd. , that this
Court, correctly declared that the law
was 'settled'." "
(Italics and underscoring in original)

Additionally, in para 72 of the report in Svenska
2
Handlesbaken v. Indian Charge Chrome , a bench of
three Hon'ble Judges of the Supreme Court has held
that mere irretrievable injustice, in the absence of
established fraud, does not make out a case for
injuncting invocation of an unconditional bank
guarantee. Having said that, a bench of two Hon'ble
Judges, in Hindustan Steelworks Construction Co.
6
Ltd. v. Tarapore & Co. held, after noticing and
2
interpreting Svenska Handlesbaken , that, in Svenska
2
Handlesbaken , the Court was "not called upon to
decide whether apart from the case of fraud there can
be any other exceptional case wherein the Court can
interfere in the matter of encashment of a bank
guarantee". As such, it was held, "not much
importance" could be attached "to the use of the word
'and' in the observation that 'it cannot be interfered
with unless there is fraud and irretrievable injustice
involved in the case". Vinitec Electronics Private
10 9
Limited v. HCL Infosystems Ltd and BSES Ltd.

10
(2008) 1 SCC 544
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hold that special equities, if pleaded as ground for stay
of invocation of bank guarantee, should be in the
nature of irretrievable injustice.

19. While, therefore, there appears to be some fluidity in
judicial thinking on the issue of whether the "fraud" element
would permeate the other two considerations of "special
equities" and "irretrievable injustice", there does appear to be
consensus on the position, in law, that fraud, if pleaded, has to
be egregious in nature, and that special equities, if pleaded,
have to be in the nature of irretrievable injustice. To that
extent, therefore, these considerations, to one extent or
another, juxtapose."

37. In this context, it is necessary to distinguish between recitals in
a bank guarantee which set out the purpose for issuing the bank
guarantee and recitals which set out the conditions for invoking the
bank guarantee. These are aspects which are often confused with
each other. Bank guarantees issued in compliance with the
requirements in commercial contracts often set out, in their
preambular or opening recitals, the fact that they are being furnished
to ensure performance of the contract by the contractor/contract
awardee. That recital, by itself, does not make performance of the
contract by the contract awardee, a condition for invocation of the
bank guarantee. A bank guarantee has, therefore, to be carefully read
in order to understand the exact governing condition in which the
bank guarantee would become invocable, and in which the bank
would be obligated to honor the bank guarantee.

38. This aspect would become clear if one refers, in the present
th
case, for example, to the bank guarantee dated 6 October, 2018. The
opening preambular recital in the bank guarantee states that the bank
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guarantee was being provided, “as a security/guaranteeing from the
contractor(s) for compliance of his obligations in accordance with the
terms and conditions in the said agreement”. This opening recital
does not make the fact of compliance or non-compliance by the
contractor, i.e. by the petitioner, of its obligations under the
agreement with HPL, a relevant consideration, where the aspect of
invocability of the bank guarantee is concerned. That has to be
decided by the covenants governing invocation as contained in the
bank guarantee, which read thus:
“1. We, HDFC Bank Limited, E-13/29, 2nd Floor, Harsha
Bhavan, Middle Circle, Connaught Place, New Delhi 110001
(hereinafter referred to as "the Bank") hereby undertake to
pay to the Employer an amount not exceeding Rs.
7,500,000.00(Rupees SEVENTY FIVE LAKHS ONLY) on
demand by the Employer .

2. We, HDFC Bank Limited (indicate the name of the
Bank) do hereby undertake to pay the amounts due and
payable under this guarantee without any demure, merely on a
demand from the Employer stating that the amount claimed as
required to meet the recoveries due or likely to be due from
the said contractor(s). Any such demand made on the bank
shall be conclusive as regards the amount due and payable by
the bank under this Guarantee . However, our liability under
this guarantee shall be restricted to an amount not exceeding
Rs. 7,500,000.00 (Rupees SEVENTY FIVE LAKHS ONLY).

3. We, the said bank further undertake to pay the
Employer any money so demanded notwithstanding any
dispute or disputes raised by the contractor(s) in any suit or
proceeding pending before any court or Tribunal relating
thereto, our liability under this present being absolute and
unequivocal. The payment so made by us under this bond
shall be a valid discharge of our liability for payment there
under and Contractor(s) shall have no claim against us for
making such payment.”

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39. Though, therefore, the opening preambular recital, identifies the
purpose for providing of the bank guarantee as ensuring compliance,
by the contractor, i.e. by the petitioner, of its obligations under the
agreement with HPL, the only condition requiring fulfilment, by HPL,
to be entitled to the benefit of the bank guarantee is “a demand …
stating that the amount claimed (was) required to meet the recoveries
due or likely to be due from” the petitioner.

40. To that extent, one may say that the use of the expression,
“unconditional”, in respect of bank guarantees, is actually a misnomer.
Bank guarantees are, etymologically, never “unconditional”. (Courts
have, however, classically referred to bank guarantees such as those
issued in the present petitions as “unconditional”.) What has to be
identified is the condition in the bank guarantee which governs the
obligation(s) of the bank thereunder. Even in the present case, the
bank guarantees furnished by the petitioner were, stricto sensu , not
unconditional; the only condition was, however, that a demand letter
was required to be issued by HPL.

41. It is a important to note the specific stipulation, in the bank
guarantee, that the only requirement to be met by HPL was raising of
a demand on the bank, stating that the amount claimed was required
to meet recoveries due or likely to be due from the petitioner.
Whether these amounts were actually due or likely to be due is, for the
purposes of the bank guarantees forming subject matter of the present
petition, completely irrelevant. What was required was a statement
from HPL to the bank, stating that these amounts were due or likely to
be due from the petitioner.
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42. Once such a statement was made, neither could the Bank refuse
to honour the bank guarantee by going behind the statement or
seeking to verify whether the statement was right or wrong, nor could
any Court interdict such invocation on that ground. To repeat, what
was required by the bank guarantees was a statement by HPL that the
amounts in question were required to meet the recoveries due or likely
to be due from the petitioner, and no more. Once such a statement
was made, any interdiction against invocation of the bank guarantee
by examining whether, in fact, any such amount was, or was not, due
from the petitioner to HPL, would be an unjustified exercise and
would also be in the teeth of the express covenants of the bank
guarantee.

43. A plea for stay of invocation of a bank guarantee would be
predicated either on the premise that the invocation was contrary to
the terms of the agreement between the parties or contrary to the terms
of the bank guarantee itself.

44. Once, however, the beneficiary of the bank guarantee proceeds
towards invocation of the bank guarantee by writing to the bank, the
first argument, of the invocation being contrary to the terms of the
parent contract between the parties, ceases to be available to the
contractor. The reason is simple. Referring to the facts of the present
case, the petitioner has instructed the bank to issue bank guarantees
favouring HPL, for availing the benefit of which HPL merely had to
communicate to the bank stating that the amount claimed was required
to meet the recoveries due from the petitioner. Once, therefore, such a
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communication was made by HPL to the bank, the petitioner could not
seek, thereafter, to interdict invocation of the bank guarantee by
referring to the terms of the original contract. No equities could sway
in favour of the petitioner in such a situation, predicated on the terms
of the contract, breach of the contract, default or absence of default,
etc. The petitioner cannot, in such circumstances, seek to come
between the two independent contractual parties, namely the bank and
HPL, in the matter of performance of the contract between those
parties, to which the petitioner is a stranger.

45. If, therefore, the grievance of the petitioner is that the
invocation of the bank guarantee by HPL, though otherwise in
accordance with the covenants in the bank guarantee, is contrary to the
covenants in the parent agreement, the remedy with the petitioner
would be to proceed against HPL to recover the monies released by
HPL by invocation of the bank guarantees, not to interdict such
invocation, which is a matter between the bank and HPL, and to
which the petitioner is a complete stranger. The grievance of the
petitioner, in such an event, is vis-à-vis HPL, and not the Bank. The
grievance between the petitioner and HPL, being relatable not to the
covenants of the bank guarantee, but to the covenants of the
agreement between the petitioner and HPL, would have to be decided
on the basis of the appropriate protocol in that regard; if arbitrable, by
arbitration, else by judicial adjudication.

46. In the present case, the covenants in the contract, as well as the
aspect of compliance/non-compliance with the contractual obligations
have not been made conditions governing honouring of the bank
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th
guarantees by the bank. The bank guarantee dated 17 December,
2016, merely requires HPL to demand, of the bank, the amount
governed by the bank guarantee and the bank would become
immediately liable to transmit the amount to HPL. The remaining
three bank guarantees are a trifle more specific, in requiring the
demand from HPL to state that the amount claimed was required to
meet the recoveries due or likely to be due from the petitioner. Once
such a demand, with such a statement, is made by HPL, the demand is
conclusive regarding the amount covered thereby and operates proprio
vigore, rendering the bank liable to honour the bank guarantee and to
pay, to HPL, the amount covered by the bank guarantee, as demanded
by it. All the four bank guarantees are equally categorical in
stipulating that the demand by HPL would be conclusive regarding the
liability of the bank, notwithstanding any dispute raised by the
contractor, i.e. the petitioner.

st
47. There is no dispute that the letter dated 1 July, 2021, from HPL
to the bank specifically stated that the amount claimed was required to
meet the recoveries due or likely to be due from the petitioner. The
contractual pre-condition in the bank guarantees, thereby, stood
completely satisfied. The bank became, thereby, bound, by law, to
credit the amount covered by the bank guarantees into the account of
HPL.

48. Applying the above principles to the fact of the present case, it
is clear that no case for interdicting invocation of the subject bank
st
guarantees, consequent on the letter of invocation dated 1 July, 2021,
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issued by HPL to the bank, can be said to exist. As already noted, the
stipulation, in the letter, to the effect that the amount claimed was
required to meet the recoveries due or likely to be due from HPL
satisfied the pre-invocation requirement as contained in the bank
guarantee. Whether, in fact, these amounts were due or likely to be
due, from the petitioner are beyond the scope of inquiry by the Court-
and, indeed, was also beyond the scope of inquiry by the bank when
approached by HPL. Once HPL made the requisite statement in terms
of the concerned clauses in the bank guarantees, the matter had to
address there. Subsequently, if it was found that the statement was
incorrect-as the petitioner would seek to contend-the remedy with the
petitioner would be to seek restitution in the substantive arbitral
proceedings. There are several ways in which this can be done, and it
is not for this Court to offer any suggestion in that regard. Suffice it to
state that no case for restraining invocation of the bank guarantees, as
having been invoked contrary to the terms of the bank guarantees, can
be said to exist.

49. There are, however, as already noted earlier, select
circumstances in which invocation of an “unconditional” bank
guarantee, even if superficially in terms of the covenants in the bank
guarantee governing its invocation, may be interdicted by a Court.
These are (ii) where the bank guarantee is vitiated by egregious fraud,
(iii) where irretrievable injustice would result if the bank guarantee
were permitted to be invoked, and, (iv) where special equities exist, as
would justify interdiction or invocation of the bank guarantees.

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Applying the above principles:

50. Fraud has not even been pleaded by the petitioner and, indeed,
Mr. Mehta was candid in submitting that he was not seeking to
contend that the invocation of the bank guarantees was justified on the
ground of egregious fraud. Egregious fraud, in any case, as already
noted, would have had to vitiate the bank guarantees themselves, in
order for it to be pleaded as a ground to restrain invocation. The bank
guarantees having been issued by the bank at the instance of the
petitioner and as required by the covenants of the agreement, it cannot
be said that the bank guarantees were fundamentally vitiated on the
ground of egregious fraud.

51. The petitioner’s contention that HPL owes, to the petitioner,
amounts in excess of the amount covered by the bank guarantees is
obviously completely tangential to the issue at hand. Any amounts
owed by HPL to the petitioner would have to form subject matter of
resolution by arbitral proceedings. This Court does not require to
return any finding, in the present case, regarding the petitioner’s
entitlements against HPL, or vice versa .

52. Nor can the present case be said to be one of special equities or
irretrievable injustice. Indeed, the contention of learned Senior
Counsel for the petitioner was essentially predicated on the
irretrievable injustice principle, as learned Senior Counsel sought to
contend that the financial condition of HPL was so precarious that,
were the bank guarantees to be permitted to be encashed and the
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amounts credited into the account of HPL, there was every likelihood
of HPL not being financially in a position to restitute the petitioner,
even though the petitioner to succeed in arbitration.

53. I have already alluded to the rival contentions of learned
Counsel regarding the financial condition of HPL. Learned Counsel
for both sides have invited my attention to certain recitals in the
audited statement of accounts and balance-sheet of HPL. They cannot
all be said to be pointing one way, or to be making out a case of HPL
being in such straitened financial circumstances as to be unable to pay
the amount covered by the subject bank guarantees to the petitioner, if
so directed at a later stage in the arbitral proceedings. No case of
irretrievable injustice can, therefore, be said to exist.

54. Special equities, as held by the Supreme Court in UP State
1 2
Sugar Corporation and in Svenska Handelsbanken , have to partake
the character of irretrievable injustice. Even otherwise, it cannot be
said that any such case of special equities has been made out by the
petitioner, as would justify interdicting invocation of the subject bank
guarantees. Indeed, the contentions of learned Senior Counsel for the
petitioner essentially revolved around compliance with the conditions
stipulated in the bank guarantee for transfer of the guaranteed amount
to the credit of HPL, and on the aspect of irretrievable injustice.

55. In view thereof, it cannot be said that, within the boundaries of
the law relating to interdiction of invocation of the irrevocable bank
guarantees, a case for such interdiction has been made out by the
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petitioner in the present case, insofar as the subject bank guarantees
are concerned.

56. The prayers in the petition would, therefore, necessarily have to
be rejected.

OMP (I) (COMM) 201/2021

57. The factual matrix of this petition is largely similar to that of
OMP (I) (COMM) 200/2021. The contract in question was relating to
upgradation of a hospital situated at Asansol, West Bengal. The other
relevant contractual stipulations were identical to those contained in
the agreement forming subject matter of OMP (I) (COMM) 200/2021.

58. This petition concerns, as already noted, a single Bank
th
Guarantee No.003GT02182190021 dated 7 August, 2018 for ₹
2,87,73,594.00. The covenants in the bank guarantee, governing its
invocation, are identical to those in the bank guarantees forming
subject matter of OMP (I) (Comm) 200/2021.

59. Clearly, the factual and legal position which obtains in the
present case is identical to that obtains in OMP (I) (COMM)
200/2021. The observations and finding of this Court in the OMP (I)
(COMM) 200/2021 would, therefore, apply mutatis mutandis to the
present case.

60. The prayer for restraining invocation of the Bank Guarantee,
forming subject matter of OMP (I) (COMM) 201/2021 would also,
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clearly, have to be rejected.

OMP(I) (COMM.) 202/2021


61. The factual matrix of this petition is largely similar to that of
OMP (I) (COMM) 200/2021. The contract in question was in relation
to completion of a project of the National Disaster Response Force,
Ghaziabad, Uttar Pradesh. The other relevant contractual stipulations
were identical to those contained in the agreement forming subject
matter of OMP (I) (COMM) 200/2021.

62. This petition concerns four Bank Guarantees, tabulated in para
10 supra. The governing covenants of the Bank Guarantees are
identical to those forming subject matter of OMP (I) (Comm)
200/2021.

63. Clearly, the factual and legal position which obtains in the
present case is identical to that obtains in OMP (I) (COMM)
200/2021. The observations and finding of this Court in the OMP (I)
(COMM) 200/2021 would, therefore, apply mutatis mutandis to the
present case.

64. The prayer for restraining invocation of the Bank Guarantee,
forming subject matter of OMP (I) (COMM) 202/2021 would also,
clearly, have to be rejected.



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Conclusion

65. All three OMPs are, therefore, dismissed. Pending applications,
if any, also stand disposed of.

66. It is made clear that the above decision is limited to the aspect
of the prayer for stay of invocation of the Bank Guarantees. It shall
not operate as a restraint on the petitioner seeking any other remedy
under Section 9 of the 1996 Act before the learned Arbitral Tribunal.
Any such application if made shall be considered by the learned
Arbitral Tribunal on its own merits.

67. There shall be no orders as to costs.



C. HARI SHANKAR, J.
MAY 2, 2022
kr /r.bararia/dsn/ss




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