1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 532 OF 2009 IN NOTICE OF MOTION (L) NO. 3739 OF 2009 IN SUIT (L) NO. 3264 OF 2009 with NOTICE OF MOTION NO. 4198 OF 2009 Shapoorji Pallonji & Co. Ltd. .......Appellants versus Seimens India Limited & anr.........Respondents. Mr. R.A. Kapadia Sr. adv. i/b Maneksha Sethana for the Appellants. Mr. V.R. Dhond i/b. Megabdhi, Shah & Himayatullah for the Respondents. CORAM: J.N. PATEL ACTING C.J. AND B. R. GAVAI, J. DATED : 14th January, 2010. P.C.: 1. The present appeal is filed by the appellant (original Plaintiff) challenging the order passed by the learned Single Judge of this Court dated 9-11-2009 in Notice of Motion (L) No. 3739/09 in Suit (L) No. 3264/09, thereby rejecting the prayers made by the appellants for an ad-interim relief restraining the respondent no.1 from invoking the bank guarantee. 2 2. The defendant no.1 was awarded the work of construction of 1100 MW Combined Cycle Power Plant “Sugen” at Surat by Torrent Power Generation Limited. A part of the work of the said project was assigned by the defendant no.1 to the Plaintiffs and accordingly a contract was executed between the Plaintiff and the defendant no.1. As per the said contract the Plaintiff was required to submit a bank guarantee and also advance payment guarantee. Accordingly two bank guarantees were furnished by the plaintiff in the sum of Rs. 11.96 crores on 8-12-2005. It is alleged that the work which was assigned to the plaintiff could not be completed for the reasons attributable to defendant no.1 and as such there were disputes and differences between the plaintiff and the defendant no.1. Further alleging that though the work assigned to the plaintiffs was completed and that the project was already handed over by the defendant no.1 to M/s. Torrent Power Generation Limited and even inspite of that the Project Accepts Certificate (hereinafter referred to as PAC) was not issued to the plaintiffs by the defendant no.1 and that the plaintiffs were entitled to recover a huge amount from the defendant no.1, a suit came to be filed for declaration that the defendant no.1 was not entitled to invoke the bank guarantee and advance payment guarantee, until completion of the adjudication proceedings as provided in clause 25 of the contract. In the said suit a Notice of Motion was filed by the plaintiff seeking an order to restrain the defendant no.1 from invoking and encashing the advance payment guarantee and the bank guarantee. An order was also sought praying for restraining 3 the defendant no.2 from making any payment to the defendant no.1. 3. When the Motion was moved before the learned Vacation Judge the following order came to be passed: “Mr. Dhond learned Counsel for defendant no.1 states that one bank guarantee has already been invoked on Saturday, 24th October, 2009 and another one may have been invoked today. However he has not received any payment under the bank guarantee from respondent no.2- bank. He however, submits that the payment received under the above bank guarantees will be deposited in this Court within a period of 3 working days from the date of receipt thereof. Statement is accepted. Needless to mention that the deposit will be without prejudice to the rights and contentions of the respective parties and subject to further orders that may be passed by this court. Put the Notice of Motion for further orders on 5th November 2009.” 4. However, since passing of the said order, both the bank guarantees were invoked, the amount encashed was deposited in this court by the defendant no.1. It was contended on behalf of the plaintiff that though the bank guarantees were invoked, still the Notice of Motion survives and that the Court should not permit the beneficiary from withdrawing the amount of bank guarantees deposited in this court. The learned Single Judge of this court vide order impugned in the present appeal, found that the appellant 4 failed to make out a case for grant of ad-interim relief and as such rejected the prayer for the same. The said order is impugned in the present appeal. 5. Shri Kapadia the learned Sr. counsel appearing on behalf of the appellant has raised the following three contentions in support of appeal : i) That the bank guarantee was to expire upon the receipt of the project acceptance certificate, to be issued by the defendant no.1 and that inspite of the completion of the work, the defendant no.1 has failed to issue the PCA for no valid reason. Therefore due to unequitable act on account of the defendant no.1 in not granting PAC, the defendant no.1 was not entitled to invoke the bank guarantee in equity. ii) That clause 25 of the main contract between the parties provides for complete dispute adjudication mechanism, which in fact has been invoked and as such till the adjudication proceedings were completed as provided in the contract, the bank guarantee could not have been invoked. iii) That though the second guarantee was not invoked when the order was passed by the learned Vacation Judge, the second bank guarantee was invoked during the pendency of the Notice of Motion and as such the defendant no.1 has attempted to over-reach the court. As such on this ground also the relief sought by the plaintiff was entitled to be granted. 6. Shri Kapadia the learned Sr. counsel appearing on behalf of the appellant has relied on a judgment of the learned 5 Single Judge of the Delhi High Court in the case of Continental Construction Ltd & anr. Vs. Satluj Jal Vidyut Nigam Ltd. Reported in 2006(1) Arb.LR 321 in support of his submission that the provisions in the main contract could be read by the court while considering the application for restraining invocation of bank guarantee. 7. Shri Dhond the learned counsel submits that the learned Single Judge of this court by applying well settled principle concerning the grant/refusal of injunction for invoking bank guarantee, as deduced from various judgment of the Apex Court, has passed the impugned order and therefore the same needs no interference. 8. For considering the rival submission, it will be relevant to refer to the following clauses in the bank guarantee. i) “In consideration of the fact that according to the terms and conditions of the contract no. IND 696 SUGEN dated 17-11-2005, concluded between SHAPOORHI PALLONJI & CO. LTD., having registered office at 70, Nagindas Master Road, Fort, Mumbai -400 001, (the contractor) and you, as customer, for consutructio0n of main civil works for the 1100 MW Sugen CCAP at Surat, in respect of construction of main civil works for the 1100 MW Sugen CCAP at Surat (the ‘contract’) the contractor is obliged to provide you with an advance payment guarantee as security 6 for an advance payment by you under the contract, we STANDARD CHARTERED BANK, registered under th laws of U.K. Carrying on the business of banking with its registered office at 1, Aldermanbury Square, London. And having a branch office in India, at 90 Mahatma Gandhi Road, Fort, Mumbai 400 001, irrespective of the validity and the legal effects of the contract and waiving all rights of objection and defence arising therefrom, hereby irrevocably guarantee to pay to you any amount upto a maximum amount of Rs. 11,96,18,900/- (Rupees Eleven Crores Ninety Six Lacs Eighteen Thousand Nine Hundred only) without delay and without the necessity of any judicial or administrative action to be lodged. Any payments under this advance payment guarantee shall be made upon your first written demand. The clause on which the plaintiff strenuously relies is as under: ii) This advance payment guarantee shall become valid on 8-12-2005 and shall expire upon our receipt of a copy of the Provisional Acceptance Certificate issued by you under the contract.” 9. It can thus clearly be seen that the bank guarantee is irrevocable and the payment is required to be made upon the demand by the beneficiary thereof. The Apex Court in case of Vinitec Electronics Private Ltd. Vs. HCL Infosystems Ltd. Reported 7 in (2008) 1 S.C.C. 544 has observed thus : 11. The law relating to invocation of bank guarantees is by now well settled by a catena of decision of this Court. The bank guarantees which provided that they are payable by the guarantor on demand is considered to be an unconditional bank guarantee. When in the course of commercial dealings, unconditional guarantees have been given or accepted the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. In U.P. State Sugar Corpn. Vs. Sumac International Ltd. This court observed that :(SCC p.574 para 12) “12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the 8 beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an 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. The two grounds are not necessarily connected, though both may coexist in some cases.” 10. It is equally well settled in law that bank guarantee is an independent contract between bank and the beneficiary thereof. The bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and of no consequences. In BSES Ltd. Vs. Fenner India Limited, this court held (SCC pp 733-34, para 10). “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 9 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 non-intervention 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.Sugar Corpn. Vs/sumac International Ltd. This court correctly declared that the law was `settled’. 13. In Himadri Chemicals Industries ltd. Vs. Coal Tar Refining Co. this court summarized the principles for grant of refusal to grant of injunction to restrain the enforcement of a bank guarantee or a letter of credit in the following manner: (SCC pp 117-18, para 14). “14....(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realize such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract. ii) The bank giving such guarantee is bound to 10 honour it as per its terms irrespective of any dispute raised by its customer. iii) The courts should be slow in granting an order of injunction to restrain the realization of a bank guarantee or a letter of credit. iv) Since a bank guarantee or a letter of credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit. v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation. vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned.” 14. In Mahatma Gandhi Sakkara Karkhane Vs. National Heavy Engg. Coop. Ltd. the court observed : (SCC p. 471 b-d). “ If the bank guarantee furnished is an unconditional and irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the amounts under 11 the guarantee. The person in whose favour the guarantee is furnished by the bank cannot be prevented by way of an injunction from enforcing the guarantee on the pretext that the condition for enforcing the bank guarantee in terms of the agreement entered into between the parties has not been fulfilled. Such a course is impermissible. The seller cannot raise the dispute of whatsoever nature and prevent the purchaser from enforcing the bank guarantee by way of injunction except on the ground of fraud and irretrievable injury. What is relevant are the terms incorporated in the guarantee executed by the bank. On careful analysis of the terms and conditions of the guarantee in the present case, it is found that the guarantee is an unconditional one. The respondent, therefore, cannot be allowed to raise any dispute and prevent the appellant from encashing the bank guarantee. The mere fact that the bank guarantee refers to the principal agreement without referring to any specific clause in the preamble of the deed of guarantee does not make the guarantee furnished by the bank to be a conditional one.” 10. From the aforesaid judgment of the Apex Court it can clearly be seen that it has been held by the Apex court that when in case of commercial dealings, unconditional bank guarantee is 12 given and accepted, the beneficiary is entitled to realize the bank guarantee irrespective of any pending dispute. It has further been held that the bank, giving such a guarantee as per terms is liable to make the payments, irrespective of any dispute raised by its customers. The Apex Court has further held that the bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. It is further held that the dispute between the beneficiary and the party at whose instance the bank has given guarantee is immaterial and of no consequences. 11. Perusal of the conditions in the bank guarantee would clearly show that the guarantee is irrevocable and the payment is required to be made to the beneficiary upon his first demand. In so far as the contention raised by the learned counsel for the plaintiff that the bank guarantee is to subsist only till the grant of PAC and since the defendant no.1 itself has with-held grant of PAC for no valid reasons the defendant no.1 is not entitled to invoke the bank guarantee is concerned, in our opinion the said contention is without any substance. The Apex Court in clear terms has held that even if the dispute exists between the parties, the injunction for revoking the bank guarantee cannot be granted, however subject to two exceptions i.e. fraud and irretrievable injury or irretrievable injustice. From the perusal of the judgment of the learned Single Judge, it is clear that upon perusal of the pleadings in the plaint the learned Single Judge has come to a conclusion 13 that the parties have failed to make out a case of fraud. We see no reason to defer with the view taken by the learned Single Judge which is taken upon detailed perusal of the pleadings. The other ground, in so far as the irretrievable injustice is concerned, in our view no valid averments to that effect have been made in the plaint. In any case the claim of the parties is clearly such which can be compensated in the monetary terms. It can further be seen that under clause 25 of the main contract between the parties, there is a mechanism provided for adjudication of dispute which is already invoked by the plaintiffs. We are therefore of the considered view that no case of irretrievable injury has also been made out by the plaintiff. 12. We are also unable to accept the contention of the learned counsel appearing on behalf of the plaintiff, that unless there is an adjudication as per the dispute resolution mechanism as provided under the main contract, the bank guarantee cannot be permitted to be invoked. We find that if such a contention is accepted, it will result in introducing a new condition in the bank guarantee, which is not there. At the cost of repetition, we find that the bank guarantee is irrevocable and the payment is required to be made upon written demand by the beneficiary thereof. The invocation of the bank guarantee is not depended on any of the condition in the main contract. The contention therefore has to be rejected. 13. In so far as the the clause in the bank guarantee relied on by the learned counsel on behalf of the appellant is concerned, 14 the said clause only provides that the bank guarantee shall expire upon the receipt of the copy of PAC issued by the defendant no.1. It is thus clear that what is provided is that the bank guarantee would expire on the issuance of PAC by defendant no.1. However, we find that the contention raised by the appellant that on account of withholding issuance of PAC on the bank guarantee could not be invoked is without substance. Whether the plaintiffs are entitled to PAC or not is a matter of dispute between the parties. As clearly held by the Apex Court in the case of `Vinitec Electronics Private Limited’ inspite of the dispute between the beneficiary and the party at whose instance the bank guarantee is given, the bank is always obliged to honour its guarantee as long as it is unconditional and irrevocable one. We therefore find that the said submission is also without any substance. 14. In so far as reliance placed on the judgment of learned Single Judge of Delhi High Court by the parties, the Division Bench of this court in the case of Appeal (Lodging) No. 350/09 in Maytas Infra Limited Vs. Utility Energytech & Engineers P.Ltd. & anr. has distinguished the judgment of the learned Single Judge. We find that the facts in the present case are similar to the facts on the case which is decided by the Division Bench of this court. In any case, we find that the law regarding invocation of the bank guarantee has been re-stated by the Apex Court in the case `Vinitec Electronics Private Limited’ (supra). We find that applying the principles of law as enunciated in the aforesaid judgment, no error 15 could be found with the reasons given by the learned Judge in passing the impugned order. In the result the appeal is without any merit and as such is dismissed. 15. At this stage Mr. Kapadia the learned Sr. counsel on behalf of the plaintiff requests that the order passed by this court, not to permit the plaintiff to withdraw the amount deposited in the court, be continued for four weeks time. In the interest of justice, we extend the said order for a period of four weeks from today. (Acting C.J.) (B.R. Gavai, J.)