1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO.3624 OF 2009 IN SUIT NO.2604 OF 2009 Reliance Industries Ltd. .. Plaintiffs Versus Maharashtra State Road Transport Corporation .. Defendants Mr.Virag Tulzapurkar, Senior Advocate with Mr.Rahul Chitnis i/b. A.S.Dayal and Associates for plaintiffs Mr.G.S.Hegde for defendants. CORAM : S.C.DHARMADHIKARI, J. DATE : December 3, 2009. P.C.: 1] With the assistance of learned Counsel appearing for parties, the motion itself is disposed of by this order. The plaintiffs seek the following reliefs:- “(a) that pending the hearing and final disposal of the suit, defendant No.1 and its servants, officers and/or assigns or agents be restrained from invoking, or demanding or 2 recovering or receiving any amount under the two performance Guarantees dated 2nd January 2007.” (b) that pending the hearing and final disposal of the suit, the defendant No.1 be restrained, acting by themselves or through their servants, agents, rrepresentatives and/or all other persons claiming by, through or under them by an order and injunction from receiving from HDFC Bank Ltd., or signing or encumbering or transferring or disbursing any amount pursant to the two performance guarantees dated 2nd January 2007.” These interim prayers are sought in terms of the following final prayers in the plaint. “(a) For a declaration that the Agreement to Develop dated 28th April 2008 has ceased to subsist due to the defendant’s wrongful repudiation, breaches and defaults; (b) That this Hon’ble Court be pleased to order and decree the defendant to deliver up the said Agreement to 3 Develop dated 28th April 2009, for cancellation and that this Hon’ble Court be pleased to cancel the same.” 2] It is the case of the plaintiff that the defendant, Maharashtra State Road Transport Corporation, (MSRTC) which is a corporation registered under the Road Transport Corporation Act, 1950 claims ownership of a property in Borivali, Mumbai more particularly described in para 3 of the plaint. In or about January / February 2006, with a view to exploiting the land for commercial use by constructing bus-station and commercial complex, the defendants invited bids from interested developers/ bidders. It is stated in para 4 of the plaint that 1400 sq.mtrs. Built up area was required by defendant for its bonafide use and 7000 sq.mtrs. Built up area was required and to be used for prospective buyers. The project cost was Rs.766.50 lakhs. Investment of the defendant in the project was in the form of land which was made available on lease for 30 years. Instructions to bidders and conditions of contract form part of the bid document. 3] It is then contended that the plaintiffs submitted their bid and after requisite procedural formalities were complied with, by letter dated 8th 4 September 2006, the defendant awarded the contract to the plaintiffs by accepting their bid. It is stated that the plaintiffs submitted required bank guarantees and as far as bank guarantees involved in the present motion are concerned, they are performance bank guarantees in the form of guarantee towards construction for Rs.69 lakhs. These bank guarantees were issued by H.D.F.C. Bank on 2nd January 2007 and are valid upto 7th December 2009. Performance guarantee in the sum of Rs.1 Crore issued by the same bank bearing same number was also issued. 4] Mr.Tulzapurkar, learned Senior Counsel appearing for plaintiffs submitted that the defendant intimated to the plaintiffs that the land which is more particularly described in para 3 of the plaint belongs to the defendants. However, as far as the details of the property enlisted at page 122 of the paperbook is concerned, the MSRTC notified that the land at S.No.16 being C.T.S.No.2348 does not belong to MSRTC. It is in possession of the defendant but title is not that of MSRTC. Mr.Tulzapurkar submitted that as far as this land is concerned, the same was affected by encroachment, inasmuch as, some hutments are constructed thereon. This encroachment has to be removed or else it was not possible to have construction of a bus station. Mr.Tulzapurkar 5 submits that the defendants have admitted that the access to the bus- station will be affected by the hutments on this C.T.S. number. He submits that, therefore, making available the other parcels/ portion of the land is of no consequence. Ultimately, the plaintiff evinced interest in the project because it was entitled to exploit commercially the plots. While providing the services in the form of bus-station, it is apparent that the plaintiff was interested in developing the balance portion for commercial use. 5] Mr.Tulzapurkar invited my attention to the correspondence between the parties and stated that on 10th July 2008, the plaintiffs had intimated to the defendants that it has come to their notice that there are few hutments/ structures (encroachments) in the Northwest area of the plot. The encroached area is in front side of the property from where the entry and exit to the bus terminus is approved. These hutments are very close to the building and will block frontage of the same. It will also hinder the movement of bus traffic in that region. The apprehension of the plaintiff was genuine inasmuch as the encroachers may create opposition and impediment in future which would have delayed the project. Mr.Tulzapurkar submits that the plaintiffs had shown their 6 bonafides by depositing the entire premium amount of Rs.23.01 Crores as per the Schedule prescribed in bid document. Therefore, it is the plaintiff who took up the issue with defendants with regard to the encroachment and hutment and the possible delay in implementing and completing the project. Mr.Tulzapurkar submits that response was given to the letter dated 10th July 2008 wherein the fact that the hutments are affecting the project is not denied by the defendants. Their reply is that the issue of the hutments is being pursued on warfooting at higher level. The defendants requested the plaintiffs to identify and approve the plan of proposed bus station by reducing the required number of bus platforms and the plaintiffs must proceed with the proposal for obtaining building permission. The MSRTC informed the plaintiffs that the plaintiffs should take up actual work on the plot which is already available for development, if commencement certificate is obtained, before the hutments are removed. On removal of hutments, revised plans for bus station may be submitted for obtaining revised approval and accordingly, the work may be taken up to fulfill the tender requirements. 6] Mr.Tulzapurkar submits that the plaintiff pointed out to the defendants that the suggestion for revision of the plans to accommodate 7 encroachment in the first instance and, thereafter, re-submission thereof, once the MSRTC resolves encroachment issue, cannot be implemented as C.T.S. No.2348 on which the hutments/ encroachments are situated is strategically located at the entrance of the property. That would compromise visibility, vehicular access and commercial advantage to the developer. Plaintiffs stated that notwithstanding this, as advised by the defendants, they would submit plans as required, taking on record the defendants’ assurance that the encroachment on the subject plot and mutation will be fully and favorably addressed to. 7] Mr.Tulzapurkar submits that the matter was taken up from time to time with urgency and earnestness by the plaintiffs. They reminded the defendants of the urgency to remove the encroachment and mutation as that is a matter which prevents commencement of development work on the property. Substantial amount of plaintiffs is lying with the defendants. Since the pending issues with regard to the encroachment were not being cleared, the plaintiff had pointed out that they would be constrained to cancel the agreement. Mr.Tulzapurkar submits that the defendants while admitting this position upto January/ February 2009 suddenly shifted their stand and for the first time stated that the existing 8 area of the hutments does not obstruct the proposed construction work as portion of C.T.S.No.2350 (P) comes under the proposed parking area of bus station. As such, there is no hurdle in submission of plans for approval of Corporation. Mr.Tulzapurkar submits that plaintiff pointed out to the defendants that they were well aware that while preparing B.M.C. Drawing, plaintiffs will have to show existing structures over the land. If these structures and hutments are not shown on the drawings, then, the Corporation is not likely to entertain the application. Even if the said application is accepted, later on the issue will still remain as upon completion of construction the shifting of the hutments will have to be done or else occupation certificate would not be issued. That would vitally affect the commercial development at site, inasmuch as, the plaintiffs would not be able to pass on complete title to the purchasers. In the absence of the certificate to occupy and use the premises, the purchasers may not be interested in taking over the constructed area. For all these reasons, the suggestion then made and that too after a lapse of several months from the Award dated 9th May 2009 was not acceptable. Mr.Tulzapurkar submits that the defendants persisted in their correspondence with this stand and it was pointed out that the issue relating to hutments must be addressed. That was an agreed position. 9 The shift now cannot be justified. Mr.Tulzapurkar submits that not only there was shift in the stand but in March 2009, the defendant informed the plaintiffs that the plot in question was handed over on as is where is basis. This was never the stipulation in the contract and while being aware of the position at site, the defendant is shifting the stand deliberately. 8] Mr.Tulzapurkar invited my attention to the letters dated 17th March 2009 from the defendant and response thereto of the plaintiffs. He invited my attention to the letter dated 9th July 2009 so also the reply thereto dated 3rd August 2009. Mr.Tulzapurkar submits that on 21st August 2009, the defendant raised an issue that although the plaintiffs have complied with financial obligations and paid the entire amount of premium, action was not taken for late submission of drawings and now since the commencement certificate is not being obtained, the plaintiffs will be compelled to proceed with appropriate action i.e. to revoke the agreement as per the provisions of the contract. Mr.Tulzapurkar submits that no response was given to this letter. While relying upon the contents of the earlier letters it was reiterated that the defendant has by clear shift in its stand, brought about a situation where it was impossible for the plaintiffs to commence the contract work. Mr.Tulzapurkar submits that the 10 admitted position is that the hutments are there. They affect the ingress and egress to the bus station complex. The hutments affect atleast the bus station platforms, if not the entire complex. Mr.Tulzapurkar submits that the bank guarantees in question were for construction of bus station and commercial complex. They are in pursuance of this contract. The participation of the defendants was investment in the form of land only and obtaining the bus station free of cost. However, if conditions precedent for performance of the contract have not been performed by the defendants on whom the obligation lies or in any event they failed to comply with the obligations to remove the hutments, then, they cannot invoke the Bank Guarantee in question. 9] For all these reasons, Mr.Tulzapurkar submits that a prima facie case is made out for grant of interim injunction in terms of prayers in the notice of motion. Balance of convenience is in favour of plaintiffs and they will suffer irreparable harm and loss as they have already blocked Rs.23 Crores in the project, over and above which the bank guarantees would be invoked. Therefore, the motion be made absolute. He relies upon a decision of the Supreme Court in the case of Nathulal Vs. Phoolchand, reported in 1969 (3) SCC 120. Mr.Tulzapurkar submits that 11 if under the terms of contract the obligations of the parties have to be performed in certain sequence, one of the parties to the contract cannot require compliance with the obligations of the other party, without in the first instance performing its own contractual obligations. Mr.Tulzapurkar submits that this is the sequence agreed in this agreement as well and, therefore, the decision squarely applies to the instant case. 9] On the other hand, Mr.Hegde, learned Counsel appearing for defendants submit that no prima facie case is made out for grant of interim injunction as prayed. The law on the point is well settled. Injunction to restrain encashment of bank guarantees is granted in exceptional cases. The exception is fraud, irretrievable injustice and special equities. Mr.Hegde submits that nothing of this kind has been pleaded, far less even proved, prima facie by the plaintiffs. Mr.Hegde submits that it is false to suggest that the invocation is fraudulent or that there is a breach of reciprocal obligations. On the other hand, it is the plaintiffs who are in breach. There are several properties/ C.T.S. Numbers involved. The hutments are on a very small portion of the property. They do not affect the bus station as ultimately the bus station is required for passengers and has to be designed to meet the 12 requirements of the defendants. The defendants did not complain of any inconvenience nor did they state, at any point of time that the entry and exit of vehicles to the bus station is affected by hutments. This is just a bogie raised for not proceeding in accordance with the contract and development of properties. 10] Mr.Hegde submits that initially the issue of existing nullah coming in way of the project was raised. After that was sorted out, the issue of hutments has been raised. This is nothing but an attempt to delay the project inasmuch as, the plaintiff wants to develop the property for commercial use. They have been awarded a contract but they do not want to fulfill the other part of putting up a bus station. If the hutments are to be removed for the purpose of commercial development of the balance portion that is an aspect which could have been looked into later on and it is not as if there was any impediment in law by which the development could not have been undertaken. 11] Inviting my attention to the affidavit in reply, Mr.Hegde submits that the correspondence must be taken in its entirety and the letters must be read as a whole. So read, it is apparent that there is no breach on the 13 part of the defendants. For all these reasons and the plaintiffs having failed to make out a prima facie case, the motion be dismissed. 12] With the assistance of learned Counsel for parties, I have perused the plaint and the annexures so also affidavits on record. At the out set, it must be stated that it is not necessary to reiterate the principles on which such reliefs are granted. Encashment of the bank guarantees by permitting the banks to perform their obligations is a rule and restraint in such cases is an exception. Bank guarantees are independent obligations and contracts. The banks are not concerned with the disputes between parties under the parent contract. That is something which must be the concern of parties and not in the least of the banks if the guarantees are irrevocable and unconditional. Mr.Tulzapurkar does not dispute that the bank guarantee is irrevocable and unconditional. Once it is so, then, there is no question of granting any interim injunction, unless the exceptions are proved even prima facie. That is the settled principle and the judgement in Nathulal’s case (supra) is no exception thereto. In almost identical circumstances, reliance was placed before a Division Bench of this Court on the decision of Nathulal and while dealing with the aspect of grant of interim injunction and applicability of the principle of 14 Nathulal, this is what the Division Bench observed:- 36] We are afraid that we cannot approach the matter in this manner. Assuming that Mr.Seervai is right in urging that the learned Single Judge should have seen all these aspects at the prima facie stage, yet, having seen the materials produced, we are unable to uphold the contention of Mr.Seervai. If Mr.Seervai’s contentions are to be upheld, then, we must ignore and brush aside the terms of the bank guarantee. Once the bank guarantee is an independent contract and its terms alone are to be considered, then, all this is irrelevant even at this prima facie stage. It is not as if breach of obligations, which may be inter se or interlinked to some extent, cannot be seen even at this prima facie stage itself, but as held by the Supreme Court that must have a direct bearing to the obligations of the bank under the bank guarantee. If the case falls within the four corners of the law laid down in M/s.Hindustan Construction’s case (supra), then, possibly Mr.Seervai’s contentions could have been upheld. However, in the instant case, when the bank guarantee is not dependent 15 upon due fulfillment and satisfaction of the obligations under the parent contract so also the bank not being concerned with the same, then, we do not see as to how the letter of M/s.Su- toll or the contract clauses can be of any assistance to Mr.Seervai. 39] In this view of the matter, even this decision is of no assistance to Mr. Seervai. The judgement in Nathulal’s case would not have any bearing at this stage, inasmuch as, the obligations under the parent contract would have to be considered before any conclusion can be recorded. That is a matter which must be looked into by the Arbitral Tribunal and we have no doubt in our mind that it will be so looked into. We must clarify that none of our observations and findings at this prima facie stage and that too, on the limited request to restrain the encashment of bank guarantee, would influence the arbitral tribunal in any manner while adjudicating upon the merits of the matter and dispute raised before it. That the Arbitral Tribunal will do it without being so influenced and render its award on the basis of the materials produced by both 16 sides is beyond doubt. All pleas on merits are kept open. 13] The decision in Nathulal’s case may apply but that is qua performance of the obligations under the parent contract with which I am not concerned at this stage. For the reasons aforementioned, reliance on Nathulal’s case is misplaced. 14] The only contention of Mr.Tulzapurkar is that when the plea raised is failure to perform conditions precedent of the contract or breach of the reciprocal obligations, then, it is not necessary to put the case under the exception of fraud. Fraud does not have to be made out and assuming it has to be made out, in this case, it has been proved that failure to perform the obligations by MSRTC would not permit them to invoke the bank guarantees and that act would be a fraudulent act. It is not possible to accept this contention either. To accept Mr.Tulzapurkar’s argument would amount to go into the contractual obligations. The contractual obligations of both sides are duly reflected in the parent contract. It may be that the plaintiff is alleging breach of the obligations on the part of the defendants but as held above, that cannot have any bearing on the question of restraining invocation of a unconditional and irrevocable bank 17 guarantee. That must be decided on the terms of the guarantee itself. Unless the guarantee makes it obligatory and incumbent for invocation that the obligations under the parent contract should be complied with, it would not be possible to import these obligations while encashing and invoking the Bank Guarantee. To me the instant guarantees do not make their invocation conditional. It is not dependent upon the performance under the parent contract. That is plain and clear. Once this is the position, then, I am afraid, I cannot accept the contentions of Mr.Tulzapurkar. 15] For the aforementioned reasons, the notice of motion fails and it is accordingly dismissed. 16] At this stage Mr.Tulzapurkar submits that the ad-interim arrangement agreed be continued for a period of four weeks to enable the plaintiffs to challenge this order further. This Court on the notice of motion passed an order dated 1st October 2009 recording without prejudice statements of Mr.Hegde that the defendants would not encash the bank guarantee but its term should be extended. The bank guarantees are alive till 7th December 2009. Mr.Tulzapurkar on instructions makes a 18 statement that the plaintiffs are ready and willing to extend the term of guarantees for a period of four weeks from today and equally the defendants should continue their without prejudice statement which has been continuing till date. 17] To my mind, since final orders are passed and on account of ensuing Christmas vacation, interest of justice would be served if it is directed that the plaintiffs should extend the term of bank guarantees in question till 28th February 2010 and if they are so extended the defendants would not invoke them till 31st January 2010 so as to enable the plaintiffs to challenge this order. However, this is without prejudice to the rights and contentions of parties. Motion is dismissed accordingly. No costs. (S.C.DHARMADHIKARI, J)