$~26 * IN THE HIGH COURT OF DELHI AT NEW DELHI + [CASE NUMBER] ZILLION INRAPROJECTS PVT LTD Petitioner Through : Mr [ENTITY], Mr [ENTITY], & Ms [ENTITY], Advocates. versus ALSTOM SYSTEMS INDIA (P) LIMITED & ANR. Respondents Through : None. CORAM: HON'BLE MR. JUSTICE [ENTITY] ORDER
% 21.09.2016 [ENTITY], J IA No.11700-01/2016 1. Allowed, subject to all just exceptions. 2. The applications are disposed of. [CASE NUMBER]
3. The petitioner (hereafter '[ENTITY]') has filed the present petition under [SECTION] of the [ACT] (hereafter 'the Act'), inter alia, praying as under:-
"(i) Grant Ad-interim ex-parte Stay and Suspend the enforcement of the letter dated 16.09.2016 issued for the termination of the sub contract until the resolution or adjudication of disputes between the parties by way of mediation or arbitration ; and
(ii) Direct the Respondent No. 1 to maintain status quo at the work sites and permit the petitioner to proceed further with the execution of the project which is of a national importance until the resolution or adjudication of disputes between the parties and;
(iii) Restrain the Respondent no. 1 from encashing the Performance Bank Guarantee BG - 1003 dated 14.12.2015 for an amount of Rs.20,000,000/- (Rupees Two Crores only) and;
(iv) Restrain the Respondent No. 1 from encashing the Performance Bank Guarantee BG - 17115 Dated 14.12.2015 for an amount of Rs.30,000,000/- (Rupees Two Crores only) and;
(v) Restrain the Respondent No: 1 from encashing the Performance Bank Guarantee BG - 0013 dated 16.12.2015 for an amount of Rs. 91,06,047/- (Rupees Ninety One Lacs Six Thousand Forty Seven only) and;
(vi) Restrain the Respondent No. 1 from encashing the Bank Guarantee BG - 3116 dated 17.02.2016 for an amount of Rs. 59,06,047/- (Rupees Fifty Nine Lacs Six Thousand Forty Seven only) and;
(vii) Restrain the Respondent No. 1 from encashing the Bank Guarantee BG - 0000124 dated 18.02.2016 for an amount of Rs. 90,00,000/- (Rupees Ninety Lacs only) and;
(viii) Restrain the Respondent No. 1 from encashing the Bank Guarantee BG - 3516 dated 18.02.2016 for an amount of Rs. 14,100,000/- (Rupees One Crore Forty One Lacs only) and;
(ix) Restrain the Respondent No. 1 from encashing the Bank Guarantee BG - 0001 dated 19.02.2016 for an amount of Rs. 30,100,000/- (Rupees Three Crores One Lac only)."
4. Briefly stated, the controversy in the present petition arises in the following context:
4.1 Respondent no.2, a Public Sector Undertaking, had entered into a contract with respondent no.1 (hereafter '[ENTITY]') on 21.07.2015, for performance of works relating to design, construction, supply, installation, testing and commissioning of 2 x 25 KV AC 50 Hz electrification signalling 7 telecommunication and associated works of double track railway lines under construction for Bhaupur Khurja section of eastern dedicated freight corridor.
4.2 [ENTITY] in turn entered into a contract with [ENTITY] on 24.09.2015 (hereafter 'sub-contract agreement') whereby the works agreed to be performed by [ENTITY] under the contract dated 21.07.2015 with respondent no.2, were sub-contracted to [ENTITY]. In terms of the sub-contract agreement, [ENTITY] submitted bank guarantees - 7 in number - for an aggregate sum of `11,82,12,094/-. Three bank guarantees were furnished as performance securities and four bank guarantees were issued to secure the mobilisation advance advanced by [ENTITY] to [ENTITY]. The details of the bank guarantees are as under:-
S. BG Date BG Number Amount Type of BG No. 1. 14.12.2015 0480315BG0001003 20,000,000 Performance Security 2. 14.12.2015 1988ILG017115 30,000,000 Performance Security 3. 16.12.2015 003GT02153500013 9,106,047 Performance Security 4. 17.02.2016 1988ILG003116 5,906,047 ADVANCE 5. 18.02.2016 0480316BG0000124 9,000,000 ADVANCE 6. 18.02.2016 0007BGR0083516 14,100,3000 ADVANCE 7. 19.02.2016 499INGL160500001 30,100,000 ADVANCE 4.3 [ENTITY] alleges that the [ENTITY] had offered "unethical inducement" to
the Deputy Team Leader. It is also alleged that [ENTITY] had delayed the performance of the sub-contract agreement. And, for the aforesaid alleged reasons, [ENTITY] has - by a letter dated 16.09.2016 - terminated the sub-
contract agreement with effect from 23.09.2016. According to [ENTITY], [ENTITY] is also threatening to invoke the bank guarantees furnished by [ENTITY] and this has led [ENTITY] to file the present petition.
Submissions
5. Mr [ENTITY], the learned counsel appearing for [ENTITY] contended that the termination of the sub-contract agreement by [ENTITY] was wrongful and would irretrievably prejudice [ENTITY]. He further submitted that the invocation of the bank guarantees would also cause an irretrievable harm to [ENTITY]. He referred to Minutes of Meeting held on 15.09.2016 under the Chairmanship of the director of respondent no.2 and drew the attention of this court to the following paragraph:-
"Question was put up to ASIPL representative by Director (DFCCIL) for the delay in the Design & drawings submission to SAI TYPSA and discussed regarding the progress of Slice 101, Slice 102 and Slice 103 and replied by ASIPL that they have completed the excavation work at Khurja, [ENTITY], Hathras, Bhadan and Layout at Makhanpur and Bhaupur has been done and excavation will be started at these stations by 19th September, he also confirmed that all the three slices are mobilized and already for starting the construction as soon as the drawings are finalized. SAI TYPSA also stated that they have already cleared the excavation drawings submitted by ASIPL for Khurja, [ENTITY], Hathras, Bhadan, Makhanpur, Kanchausi & Bhaupur. ASIPL also confirmed that they are starting the PCC at Bhadan Crossing Station on 17.09.16.
ASPIL also confirmed that Architectural Drawing for OCC Site is ready for submitting and they will submit the same to SAI TYPSA on 15.09.16 and complete set with CD on 19.09.16."
6. He submitted that it is apparent from the above that [ENTITY] had admitted that [ENTITY] had mobilized its resources and had also completed part of excavation works at certain sites; and, therefore, there could be no dispute that [ENTITY] had mobilized its resources. He contended that in the circumstances, there was no ground for [ENTITY] to invoke the bank guarantees furnished to secure the mobilization advance and such invocation would be fraudulent.
7. He further submitted that both the performance bank guarantees and bank guarantees furnished for securing mobilization advance, could not be invoked simultaneously. He submitted that the performance bank guarantees could be invoked only if [ENTITY] had not performed the sub- contract and the bank guarantees for mobilization advance could be invoked only if the [ENTITY] had failed to mobilize its resources. He submitted that if the [ENTITY] invoked the mobilization advance, it was obvious that the question of performance of the contract, which would be at much later point of time, had not arisen. Similarly, if [ENTITY] invoked the performance bank guarantees, it would imply that the stage of mobilisation had been successfully cleared.
Reasoning and Conclusion
8. In terms of the sub-contract agreement, [ENTITY] was to submit the drawings, which were to be finalised by [ENTITY]. In its petition, [ENTITY] has stated that [ENTITY] did not have any competent technical staff to provide the requisite inputs for designing and subsequent submission of drawings. It is further pleaded that although [ENTITY] had submitted its designs and drawings, the same were not approved by [ENTITY] for the aforesaid reason.
9. [ENTITY] has further stated that it was the responsibility of [ENTITY] to handover the sites free from all hindrances for carrying out the works under the sub-contract agreement but it had failed to do so. According to [ENTITY], it had mobilised all resources, however, the same remained idle for want of unhindered sites. It is stated that [ENTITY] had also raised claims for idling of staff and equipment which was mobilised at site. [ENTITY] alleges that from the very inception, [ENTITY] had the intention of cheating [ENTITY]. It is further alleged that [ENTITY] fraudulently released an advance mobilisation amount of only `5.91 crores as against the total expenditure of `10.43 crores (approximately) incurred by [ENTITY]. [ENTITY] further claims that despite [ENTITY] mobilising the resources and commencing works, [ENTITY] has fraudulently chosen to terminate the contract by the letter dated 16.09.2016. It is claimed that this has been done by [ENTITY] to hide its lack of capability and competence and to make [ENTITY] a scapegoat for non performance of the sub- contract agreement and [ENTITY]'s contract with respondent no.2.
10. A plain reading of the petition as well as documents annexed with the petition indicates that there are disputes between the [ENTITY] and [ENTITY] with regard to performance of the sub-contract agreement. In its communications
- particularly letters dated 13.05.2016 and 07.07.2016 - [ENTITY] has alleged that [ENTITY] has failed to perform the sub-contract agreement in accordance with its terms. The letters on record also indicate that [ENTITY] had sent other letters, presumably to the same effect, however the same have not been placed on record. According to [ENTITY], [ENTITY] is responsible for delay in performance of the sub-contract agreement as it is alleged that [ENTITY] had (a) delayed submission of the project document and design; (b) delayed carrying out site surveys and geo-technical investigation; and (c) delayed commencement and progress of construction activity. [ENTITY] does not dispute that the execution of the sub-contract has been delayed but disputes [ENTITY]'s allegation that the delay in execution of the sub-contract agreement is attributable to it; it is [ENTITY]'s case that the delay has been caused due to various grounds solely attributable to [ENTITY].
11. It is, thus, an admitted fact that performance of the sub-contract agreement has been delayed. The question whether [ENTITY] is responsible for the delay or whether delay has been caused due to [ENTITY], is a question to be decided by the Arbitral Tribunal as and when constituted. However, this dispute cannot be the ground for restraining invocation of the bank guarantees. It is well settled that bank guarantees can be interdicted only in exceptional circumstances such as egregious fraud, special equities and irretrievable injury.
12. In [PRECEDENT], the Supreme Court had held as under:-
" in case of confirmed bank guarantees/irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud
irretrievable injustice which was made the basis for grant of injunction really was on the ground that the guarantee was not encashable on its terms there should be prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Mere irretrievable injustice without prima facie case of established fraud is of no consequence in restraining the encashment of bank guarantee."
13. The aforesaid view was reiterated by the Supreme Court in [PRECEDENT].
14. In [PRECEDENT], the Supreme Court had held as under:
"The nature of the fraud that the Courts talk about is fraud of an "egregious nature as to vitiate the entire underlying transaction". It is fraud of the beneficiary, not the fraud of somebody else."
15. Although, in [PRECEDENT] the Supreme Court has held that fraud could be at subsequent stage also, the law that the fraud must be of egregious nature affecting the underlying transaction has not been differed with. In that case, the Court held as under:
"We are, therefore, of the opinion that the correct position of law is that commitment of banks must be honoured free from interference by the courts and it is only in exceptional cases, that is to say, in case of fraud or in a case where irretrievable injustice would be done if bank guarantee is allowed to be encashed, the court should interfere. In this case fraud has not been pleaded and the relief for injunction was sought by the contractor/Respondent 1 on the ground that special equities or the special circumstances of the case required it. The special circumstances and/or special equities which have been pleaded in this case are that there is a serious dispute on the question as to who has committed breach of the contract, that the contractor has a counter-claim against the appellant, that the disputes between the parties have been referred to the arbitrators and that no amount can be said to be due and payable by the contractor to the appellant till the arbitrators declare their award. In our opinion, these factors are not sufficient to make this case an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees. The High Court was, therefore, not right in restraining the appellant from enforcing the bank guarantees."
16. The allegation that [ENTITY] intended to cheat [ENTITY] from the inception cannot be readily accepted. Further, it is also not disputed that [ENTITY] had provided the mobilization advance to [ENTITY] and thus, would be entitled to recover the same. Merely stating that the invocation of the bank guarantees is fraudulent or that [ENTITY] intended to cheat [ENTITY] from the inception is not sufficient. It is necessary that particulars indicating an egregious fraud are pleaded and a prima facie case of such fraud is established for securing an order interdicting an unconditional bank guarantee. The present case is, plainly, one of contractual disputes as to which party has delayed the performance of the works to be executed under the sub-contract agreement. The entire purpose of insisting on an unconditional bank guarantee would be frustrated if the beneficiary is required to have such disputes adjudicated as a precondition for invoking the bank guarantee.
17. Mr [ENTITY]'s contention that the bank guarantees furnished for securing the mobilization advance and for securing the performance of the sub-contract agreement cannot be invoked simultaneously, is also bereft of any merit. Clearly, the bank guarantees for mobilization advanced were furnished for securing the recovery of the mobilization advance, which in terms of the sub-contract would be recovered through deductions from the amounts payable to [ENTITY] against its invoices. In the present case, [ENTITY] has terminated the sub-contract agreement and, therefore, the question of adjusting any amount from [ENTITY]'s invoices does not arise. The performance bank guarantees have been furnished for performance of the sub-contract agreement and according to [ENTITY], [ENTITY] has failed to perform the sub-contract agreement. Thus, there is no intrinsic conflict or repugnancy in invoking both kinds of bank guarantees. The contention that invocation of performance bank guarantees and bank guarantees furnished against mobilization advanced are mutually exclusive cannot be accepted.
18. Mr [ENTITY]'s contention that the bank guarantees furnished to secure mobilisation cannot be invoked as [ENTITY] had mobilized its resources at site is also unmerited. Even if it is assumed that [ENTITY] had mobilized its resources, the fact that the contract has been terminated, would entitle [ENTITY] to recover the advance provided by [ENTITY] by invoking the bank guarantees notwithstanding the dispute whether the termination is wrongful on not. In [PRECEDENT], the Supreme Court had held that:
"12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated."
19. In [PRECEDENT], the Supreme Court observed as under:
"8. Now, a Bank Guarantee is the common mode, of securing payment of money in commercial dealings as the beneficiary, under the Guarantee, is entitled to realise the whole of the amount under that Guarantee in terms thereof irrespective of any pending dispute between the person on whose behalf the Guarantee was given and the beneficiary. In contracts awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, Bank Guarantees are usually required to be furnished in favour of the Government to secure payments made to the contractor as "Advance" from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such Guarantees are encashable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back to the Government "Advance", the Guarantee is invoked and the amount is recovered from the Bank."
20. Insofar as the prayer for staying the letter of termination dated 16.09.2016 is concerned, the same would not be permissible. Admittedly, the sub-contract agreement is a determinable agreement and in terms of [SECTION] of the [ACT], the sub-contract agreement cannot be specifically performed.
21. For the reasons stated above, the petition is dismissed.
22. [ENTITY] under signatures of the court master.
[ENTITY], J SEPTEMBER 21, 2016 RK/MK