THE HON’BLE SRI JUSTICE V.ESWARAIAH AND THE HON’BLE SRI JUSTICE NOUSHAD ALI C.M.A. No.723 of 2010 Date : 06-09-2010 Between : Walchandnagar Industries Limited, a company incorporated and registered under the Indian Companies Act, 1882 with its registered office at 3, Walchand Terraces, Tardeo Road, Mumbai - 400 034, rep. by its Manager (Accounts) Mr.Satyendra Jha. .. Appellant And Trimex Sands Pvt. Ltd., a Company incorporated and registered under the Companies Act, 1956 with its registered Office at Trimex Towers, No.1, Subbaraya Avenue, C.R.Ramaswamy Road, Alwarpet, Chennai – 600 018, Tamilnadu, rep. by its Managing Director and another .. Respondents THE HON’BLE SRI JUSTICE V.ESWARAIAH AND THE HON’BLE SRI JUSTICE NOUSHAD ALI C.M.A. No.723 of 2010 JUDGMENT: (Per the Hon’ble Sri Justice V.Eswaraiah) - - The unsuccessful petitioner is the appellant, who seeks to assail the Judgment and Decree, dated 16-08-2010 passed in O.P.No.1424 of 2010 on the file of the II Additional Chief Judge, City Civil Courts, Hyderabad, wherein the application filed under Section 9 of Arbitration and Conciliation Act, 1996, for grant of an order of injunction restraining the first respondent from invoking the bank guarantee and restraining the second respondent from paying or crediting the amount of bank guarantee, was dismissed. 2. The parties hereinafter referred to as they are arrayed in the O.P. 3. The case of the petitioner in the said O.P. is that the first respondent desired to set up a Beach Sand Mineral Beneficiation Project (for brevity, ‘project’) at Srikakulam. Pursuant to the mining lease awarded to the first respondent, it invited tenders from the interested parties to bid for the project on an Engineering, Procurement and Construction basis. The project consisted of design, preparation of the process flowchart, basic and detailed engineering, plant and equipment design, sourcing/manufacturing, ordering inspection and receiving at the project site, complete erection, mobilization, fabrications, tests, trial runs leading to the successful commissioning, performance guarantees, spare and including spares and operating maintenance spares for the warranty period, training of the respondent No.1’s personnel with respect to the operation of the project, supervision of operation of the project, and the overall project management in an integrated manner. The bid of the petitioner was approved by the first respondent and the petitioner signed the letter of intent and subsequently the agreement dated 15-12-2007 was entered into for a consideration of Rs.1,27,10,00,000/-. Thereafter the original agreement dated 15-12-2007 was amended vide Amendment No.1, dated 16-05-2009 and as per the amended agreement, the contract value was revised from Rs.80 crores to Rs.93 crores in respect of the design, engineering and supply and Rs.47.10 crores to Rs.52.35 crores in respect of the services and thus the contract value was revised from Rs.127.10 crores to Rs.145.35 crores. The payment terms and the billing procedure of the Schedule-5 of the original agreement was amended and as per the amended terms, the contractor has to submit the performance bank guarantee equal to 5% of the contract price on the two heads i.e., design, engineering and supply as well as civil structural erection and commissioning valid for the warranty period. It is not in dispute that as per the amended agreement contract price is 145.35 crores and out of which the total amount payable to the contractor is 142.16 crores and out of which, the petitioner-contractor was paid Rs.131.49 crores and the balance amount of Rs.10.67 crores is payable against the milestones indicated therein. As per the said milestones, on completion of 100% of thickness Pre Concentration Plant (PCP) Rs.1 crore; on completion of water intake system including Pump House PCP Rs.1 crore; on completion of pipe rack system PCP Rs.1 crore; on completion of 100% wet zircon building Mineral Separation Plant (MSP) Rs.1 crore and on 100% completion of Intermediary Stock Pile (ISP) Mineral Separation Plant (MSP) Rs.1 crore and after completion of PCP Rs.2 crores and after completion of MSP Rs.3.67 crores. Thus, Rs.10.67 crores is payable on reaching the aforesaid milestones. 4. As per the amended agreement it is clear that though the contract price is Rs.145.35 crores, the excess amount for the import equipment of Rs.35.65 crores, an amount of Rs.38,84,26,862/- was paid and after adjusting the said excess payment of Rs.3,18,26,862/-, the amount payable to the contractor comes to Rs.142.16 crores, out of which an amount of Rs.131.49 crores was paid and the balance amount payable is Rs.10.67 crores on completion of 100% work. As per the said amended agreement, the contractor shall provide 5% of the inclusive contract price of Rs.145.35 crores on the prorata basis for releasing the payment as per the milestones. Liquidated damages, if any, leviable would be adjusted against the aforesaid bank guarantee. The liquidated damages that can be levied is 5% of the contract price as per the clauses of the amended agreement. Accordingly, the petitioner gave the bank guarantee of 5% of the contract price of Rs.145.35 crores, which comes to Rs.7 crores. Accordingly, the performance of bank guarantee was submitted by the petitioner from the bank of the second respondent for a sum of Rs.7 crores vide bank guarantee dated 16-02-2009 valid up to 15-05-2010. A perusal of the said bank guarantee indicates that the first respondent agreed to release the security deposit of 5% of the value of the contract as provided in the contract and in consideration of releasing the 5% of the security deposit made by the petitioner and at the request of the petitioner the banker of the petitioner i.e., 2nd respondent gave a irretrievable guarantee for the payment of the said security deposit undertaking to pay the amount of Rs.7 crores on demand without notice or reference for any default either on proper execution of the contract or failure in providing warranty as per the contract. The said guarantee, which was given up to 15-05-2010, was extended by the bank guarantee, dated 12-05-2010 up to 07-06-2010 and again it was extended on 04-06-2010 up to 07-07-2010. The perusal of the amended agreement coupled with the said bank guarantee indicates that 5% of the security deposit was agreed to be released on submission of the bank guarantee and therefore the amended agreement goes to show that 5% of the retention money was also released on obtaining bank guarantee. 5. It is the case of the first respondent that the petitioner did not achieve the milestones by completing the works as indicated in the milestones and therefore the first respondent addressed a letter dated 08-06-2009 to the petitioner with regard to the delay in PCP commissioning pursuant to the original contract as amended by the amended agreement, dated 16-05- 2009 stating that the petitioner has not commenced the PCP on load by 31- 05-2009 and accordingly the said notice was given for the liquidated damages from 01-06-2009 in respect of the PCP as per clause 8.2 of the amended agreement. Thereafter, there are series of exchange of letters between the parties about their reciprocal obligations and the execution of the balance works and accordingly the first respondent addressed another letter dated 03-06-2010 to the petitioner stating that the petitioner has yet to complete the rectification and the defects already pointed out by the first respondent and since the performance of bank guarantee is expiring on 06- 06-2010, the first respondent requested the petitioner to extend the bank guarantee till 10-07-2010 and accordingly the petitioner extended the bank guarantee up to 07-07-2010 and thereafter the first respondent invoked the performance of the bank guarantee vide its letter dated 07-07-2010 stating that the petitioner herein has committed a breach of the terms of the contract dated 15-12-2007 as amended by amendment No.1, dated 16-05-2009, inter alia by not completing the works required to be completed by it under the said contract and the amendment within the period agreed. It is also stated that the first respondent has suffered a loss due to the breach of the petitioner, which comes to not less than Rs.40 crores. Accordingly, the first respondent demanded the second respondent to pay the bank guarantee amount. 6. The petitioner addressed a letter to the first respondent on 10-07-2010 requesting the first respondent to review the entire matter and to release the amount of Rs.7.2 crores by the first respondent and also release the performance of the bank guarantee stating that the security deposit of Rs.7 crores as stipulated in the bank guarantee is not paid. It is stated that the first respondent has already in excess of Rs.5 crores and thus the petitioner also raised the dispute stating that in fact the petitioner is liable for an additional claim of Rs.40 crores. Thus, there is serious dispute with regard to the completion of the works by the respective parties relating to Rs.10.67 crores. According to the petitioner, the retention amount of 5% amounting to Rs.7 crores has not been paid and according to the first respondent in agreement of release of 5% of the retention amount, the bank guarantee was given and therefore no retention amount is withheld and available as is evident from the amended agreement. 7. The petitioner filed the aforesaid O.P. for the following four reliefs : (a) To restrain the first respondent from invoking and/or encashing and/or demanding and/or receiving the money under the bank guarantee dated 16-02-2009. (b) Pending arbitration proceedings, making of the award and implementation thereof, to issue an order of injunction restraining the second respondent bank from paying or crediting to any account any money under or pursuant to or on the basis of the bank guarantee dated 16-02-2009. (c) To issue an order of injunction restraining the first respondent from introducing any third party in any manner whatsoever directly or indirectly in respect of the contract dated 15- 12-2007 or any part thereof. (d) To issue an order of injunction restraining the first respondent from in any manner causing any prejudice to any of the interests and rights of the petitioner under the said contract dated 15-12-2007. 8. From a perusal of the impugned order under this appeal it is clear that the petitioner has given up other reliefs except (a) and (b). Even before this Court also the petitioner has mainly argued with regard to the performance of the bank guarantee. 9. It is the case of the first respondent even before the Court below that Rs.10.67 crores was only retained towards the execution of the bank guarantee by paying the entire amount remaining and the contention of the petitioner that 5% of the security deposit was not released and the bank guarantee was in addition to the retention of the 5% security amount was denied. It is stated that the first respondent is not bound to release the amount of 5% of the contract value till the performance of the guarantee period expires at the request of the petitioner and the same was agreed to be released subject to the bank guarantee being executed by the petitioner. The first respondent has agreed for the aforesaid request and accordingly released 5% of the retention money i.e., Rs.7 crores by the agreement dated 16-05-2009 itself which made the total amount paid to the petitioner Rs.131.49 crores leaving only an amount of Rs.10.67 crores to be paid against the pending works. Clause (5) of the amended agreement dated 16-05-2009 is conclusive proof of payment of Rs.7 crores by the first respondent to the petitioner; since what was retained only an amount of Rs.10.67 crores, it is stated that instead of retaining 5% of the contract price i.e., Rs.7 crores, the first respondent was good enough to agree to release the same in advance against the bank guarantee. The first respondent accordingly released the amount and there was nothing due as on 16-05- 2009 except the amount against the pending works. There is no fraud on the part of the first respondent in invoking the bank guarantee and the averments by the petitioner are incorrect. All other specific averments and contentions are specifically denied. It is stated that the claim of the petitioner for Rs.40 crores for the alleged breach of the first respondent is on imaginary basis. 10. The Court below considering the rival contentions considered the points whether the petitioner is entitled for injunction restraining the first respondent from invoking and/or encashing and/or demanding and/or receiving the money on performance of the bank guarantee dated 16-02- 2009; if so, whether the second respondent can be restrained by way of injunction from paying or crediting the amount under the said bank guarantee, dated 16-02-2009. 11. No oral evidence has been adduced by either of the parties, but on behalf of the petitioner Exs.A1 to A20 were marked and on behalf of the first respondent Ex.B1 to B6 were marked. The original agreement dated 15-12- 2007 is marked as Ex.A3 and the amendment to the contract dated 16-05- 2009 is marked as Ex.A4. The Court below dismissed the said application only on the ground that the petitioner has failed to establish any fraud on the part of the first respondent or irretrievable injury to the petitioner. 12. The only question that arises for consideration is whether the first respondent retained 5% of the retention amount in respect of the works which are already been completed, apart from the bank guarantee for Rs.7 crores towards the liquidated damages. 13. Admittedly, there is a dispute with regard to non-completion of work of the value of Rs.10.67 crores. If the value of Rs.10.67 crores work is completed, as stipulated in the amended agreement, the petitioner is entitled for the release of the performance guarantee. The contention of the learned counsel appearing for the petitioner is that there cannot be any justification on the part of the first respondent to withheld the retention of 5% of the retention money amounting to Rs.7 crores as well as the performance bank guarantee of Rs.7 crores as against the alleged pending works valued at Rs.10.67 crores. We are unable to appreciate the contention of the learned counsel appearing for the petitioner in view of the amended agreement dated 16-05-2009 marking as Ex.A4. As per clause 5.1.4 of the amended agreement the first respondent paid an excess amount of Rs.3,18,26,862/- and thus out of the total contract price of Rs.145.35 crores after adjusting excess payment of Rs.3,18,26,862/- the amount payable to the contractor comes to Rs.142.16 crores, out of which the contractor paid a sum of Rs.131.49 crores. It is not in dispute about the payment of Rs.131.49 crores, out of the amount payable to the contractor of Rs.142.16 crores. As per the amended agreement, the remaining amounts of Rs.10.67 crores shall be payable by the first respondent on achieving milestones indicated therein and not on the basis of the invoices submitted by the contractor. Whether the milestones have been achieved or not is a subject matter of the dispute to be decided by the Arbitrator. In fact, a perusal of the performance of bank guarantee given by the second respondent-bank to the first respondent makes it clear that the first respondent is agreed to release the security deposit of 5% of the value of the contract as provided in the contract and in consideration of the payment of the security deposit made by the first respondent to the petitioner as per the request of the petitioner, the second respondent-bank gave the irrevocable guarantee in favour of the first respondent towards the performance of the contract which can be invoked for the default either on proper execution of the contract or failure to provide warranty as per the contract. Thus, we do not see any force or merits in the contention of the learned counsel appearing for the petitioner that the first respondent has retained the 5% of the security deposit. Admittedly, there is a dispute with regard to the execution of the bank guarantee and also about the warranty of the works already executed. The bank guarantee is for the performance of the contract as well as for the warranty of the executed work. Admittedly, the bank guarantee is irrevocable and unconditional and therefore it cannot be said that the invocation of bank guarantee by the first respondent is by playing fraud and ultimately if the petitioner succeeds before the arbitrator, the amount determined by the Arbitrator can always be recovered from the first respondent. It is not the case of the petitioner that in the event of arbitrator awarding the amounts in favour of the petitioner, it is not possible to recover the said amount from the first respondent. The financial capability or the credibility of the first respondent is not at all doubted or questioned in any way. If the petitioner succeeds before the Arbitrator, it is always open for him to recover the amounts, if any. Therefore, it cannot also be said that the petitioner will suffer irreparable injury, if the injunction is not granted. We are of the opinion that the Court below rightly rejected the said petition based on the valid and cogent reasons relying on the various judgments of the Supreme Court, particularly in a case of Vinitec Electronics Private Ltd Vs. HCL Infosystems Ltd.[1]. The Apex Court in the aforesaid case held that where encashment of bank guarantee would cause any irretrievable harm or injustice to one of the parties concerned, the specific equities must be established. If the petitioner succeeds before the Arbitrator it is always open to him to recover the said amount and therefore it cannot be said that the petitioner has no remedy or that injury cannot be retrievable. 14. In view of the above, we do not see any merits in the appeal. The Civil Miscellaneous Appeal is accordingly dismissed. There shall be no order as to costs. _______________ V .ESWARAIAH, J. ______________ NOUSHAD ALI, J. 06th September, 2010. skmr [1] 2008 (1) SCC 544