O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI + O.M.P. Nos.703/2009, 710/2009 & 711/2009 Date of decision : March 22, 2010 1. OMP 703/2009 DENEL (PROPRIETARY) LTD ... Petitioner. Through: Mr. N.K.Kaul, Sr. Advocate with Mr. Ravinder Singhania, Mr. Tarun Dua and Mr. Abhishek Kumar, Advocates. VERSUS UNION OF INDIA & ANR ....Respondents Through: Mr. Mohan Parasaran, ASG& Mr. Rajeev Mehra, Sr. Advocates with Mr. B.V.Niren, Ms. Arti and Mr. Alok Prasanna Kumar, Advocates. 2. OMP 710/2009 DENEL (PROPRIETARY) LTD ... Petitioner. Through: Mr. V.P.Singh, Sr. Advocate with . Mr. Ravinder Singhania, Mr. Tarun Dua and Mr. Abhishek Kumar, Advocates. VERSUS UNION OF INDIA & ANR ....Respondents Through: Mr. Mohan Parasaran, ASG & Mr.Rajeev Mehra, Sr. Advocates with Mr. B.V.Niren, Ms. Arti and Mr. Alok Prasanna Kumar, Advocates. O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 2 3. OMP 711/2009 DENEL (PROPRIETARY) LTD ... Petitioner. Through: Mr. V.P.Singh, Sr. Advocate with . Mr. Ravinder Singhania, Mr. Tarun Dua and Mr. Abhishek Kumar, Advocates. VERSUS UNION OF INDIA & ANR ....Respondents Through: Mr. Mohan Parasaran & Mr. Rajeev Mehra, Sr. Advocates with Mr. B.V.Niren, Ms. Arti and Mr. Alok Prasanna Kumar, Advocates. CORAM: HON’BLE MR. JUSTICE VALMIKI J.MEHTA 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes % JUDGMENT(ORAL) VALMIKI J. MEHTA, J 1 The aforesaid three petitions are being disposed of by this common order inasmuch as the facts of the three cases are more or less similar. Wherever the need arises to refer to a difference in an issue or fact for any individual case, then, the same would be adverted to. These petitions have been filed by the O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 3 petitioner under Section 9 of the Arbitration and Conciliation Act, 1996 seeking restraint against the invocation of the Bank Guarantees totalling to an amount of approx. USD 6,110,038 by the respondent no.1. The Bank Guarantees are given by the banks which have been arrayed as other respondents. 2 The facts of the case are that the petitioner was awarded various contracts by the respondent no.1/Union of India for supply of certain defence equipments such as AMR Rifles and ammunition. In pursuance of the requirements of these contracts, the petitioner gave two types of Bank Guarantees. The Bank Guarantees are Warranty Bank Guarantees and Performance Bank Guarantees. On the ground that the petitioner employed agents and gave commission for securing the contracts in question, disputes arose between the parties, and the respondents have sought to inter alia encash the Bank Guarantees. I may note that so far as OMP Nos. 710/2009 and 711/2009 are concerned, the arbitration proceedings were initiated between the parties way back in the year 2007. The Arbitration Tribunal was constituted and certain orders were passed by the Arbitration Tribunal. At the present stage, the Arbitration Tribunal is however non-functional firstly on account of the demise of the presiding Arbitrator, secondly on account of, the Arbitrator appointed by the petitioner having recused himself and thirdly because the petitioner has filed proceedings for removal of the Arbitrator appointed by the respondent no.1. O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 4 3 The cases on behalf of the petitioner were argued by Mr. N.K.Kaul and Mr. V.P.Singh, Sr. Advocates. So far as OMP 703/2009 is concerned, Mr. Kaul raised the following contentions: (i) The Warranty Bank Guarantees were specific Bank Guarantees meant to cover only specific situations pertaining to the equipment failing to meet the contractual specifications or being defective and since presently the Bank Guarantees in question are not being enforced for any breach of contractual conditions pertaining either to technical specifications or because of the fact that the equipments were in any manner defective, it was contented that the Bank Guarantees cannot be encashed. It is argued by Mr. Kaul that this is so when the language of the Bank Guarantees is read along with the relevant Clauses of the contract. (ii) The second argument put forth by Mr. Kaul was that the Bank Guarantees have been given for specific contracts and the same are being enforced for breaches in other contracts, and for which Bank Guarantees have not been given. (iii) The third and final argument raised by Mr. Kaul was that the Bank Guarantees were given for a specific period covering the guarantee period of the equipments and since the specific period has come to an end without the equipment being defective or the eventuality of requiring rectification of the O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 5 defects in any of the equipments, the Bank Guarantees in question have exhausted their purposes and hence cannot be encashed. Mr. Kaul relied upon the contractual Clauses 10.1 to 10.6 in support of his arguments. 4 Mr. V.P.Singh, Sr. Advocate in OMP 710/2009 and OMP 711/2009 has argued on the lines of point Nos.2 and 3 above as urged by Mr. Kaul and he has additionally relied upon Clause 12.2 of the contract to contend that the Performance Bank Guarantee exhausts itself after delivery is complete or when delivery cannot be effected because operation of one contract was suspended in this case. 5 In order to appreciate and deal with the arguments of the counsel for the petitioner, it is necessary to refer to the relevant Clauses of the Contract and which are Clauses 10.1 to 10.6 & 12.2 and the same read as under:- “10. WARRANTY BOND 10.1 For every consignment of the Products to be delivered to the Buyer in accordance with the delivery schedule as set out in Annex D, a warranty bond in the form of a Bank Guarantee from a first class bank duly confirmed by the Bank of Baroda, New Delhi Branch, equal to 5% (five percent) of the value of the relevant consignment, shall be furnished by the Seller, by not later than 30 (thirty) days before the FOB (Incoterms 2000) delivery of the relevant consignment. The warranty bond shall become effective on FOB delivery of the relevant consignment. The Buyer will be entitled to call on a warranty bond in the event that the Seller has failed to replace (delivered FOD) or rectify defective Products within a period of 150 days after receipt of the Buyer’s notice in terms of clause 9.3. 10.2 Should the Buyer intend to call up a Warranty Bond, the Buyer shall give the Seller 30 days prior written notice of its intention to do so, setting out valid reasons as to why the bond is to be called up. Should the Seller fail to remedy the default within 30 (thirty) days after receipt of notice of Buyer’s intention to call up the Warranty Bond, the Buyer may proceed to call up the Warranty Bond. O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 6 10.3 The Warranty Bond shall be valid for a period of 60 (sixty) months after lot acceptance of the relevant Products in accordance with Annex A, chapter 5. 10.4 The Seller shall have the option to, instead of establishing a warranty bond in respect of each consignment, establish a single warranty bond for all Products supplied under this Contract and to amend the value of such single bond to 5% (five percent) of the value of Products delivered FOB in respect of which the warranty has not yet expired. The Seller will upon expiry of the warranty of Products be entitled to proportionately decrease the value of such single warranty bond. 10.5 In the event that the Seller exercise its option in terms of clause 10.4 to establish a single warranty bond, the relevant lot numbers of the Products covered by the warranty bond will be recorded in the warranty bond and the Buyer will only be entitled to claim against the portion of the warranty bond covering the relevant lot (s) of defective Products. 10.6 The Warranty Bond shall be in the format as set out in Annex G hereto.” “12.2 The Performance Bond will automatically and in full terminate 90 days after FOB delivery of the last production lot. In case of delay in deliveries the Seller will extend the validity of the Performance Bond at his expense by an adequate period to cover 90 days from actual last FOB delivery as stated in Annex D (Delivery 14).” 6. (i) It is also necessary to refer to two sample Bank Guarantees and the same reads as under :- FIRST TYPE “ SWIFT-MT :760 NORMAL DM-2 SWIFT-DEST: SBINZAJJ SENT TO : State Bank of India 3rd Floor, Cnr Baker / Cradock Ave Rosebank South Africa :27: SEQUENCE OF TOTAL 1/1 :20: TRANSACTION REFERENCE NUMBER 821-02-0009989-G :23: FURTHER IDENTIFICATION: REQUEST :30: DATE 031121 :77C: DETAILS OF GUARANTEE: O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 7 UNDER OUR FULL AND IRREVOCABLE RESPONSIBILITY AND OUR COUNTER GUARANTEE NO: 821-02-0009989-G PLEASE ISSUE A WARRANTY BOND IN FAVOUR OF THE PRESIDENT OF INDIA THROUGH THE JOINT SECRETARY (ORDNANCE), MINISTRY OF DEFENCE, AS PER THE TEXT PROVIDED HEREUNDER, QUOTE: TO :THE PRESIDENT OF INDIA THROUGH THE JOINT SECRETARY (ORDNANCE) MINISTRY OF DEFENCE, GOVERNMENT OF INDIA, NEW DELHI, INDIA. WARRANTY BOND NUMBER : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LOT:M91(1)A1 LOT 002 AND M92(1) A1 LOT 004 WHEREAS YOU HAVE ENTERED INTO A CONTRACT REFERENCE NUMBER 18(6)/99/D(GS-IV)/D(01) DATED 23 APRIL 2002 WITH M/S DENEL (PTY) LTD ACTING THROUGH ITS DIVISION SOMCHEM (HEREINAFTER REFERRED TO AS THE “THE SELLER”) HAVING ITS PRINCIPLE OFFICE IN SOUTH AFRICA FOR THE TOTAL CONTRACT VALUE OF USD 50.900.000,00 (FIFTY MILLION NINE HUNDRED THOUSAND UNITED STATES DOLLARS) (HEREINAFTER REFERRED TO AS THE “SAID CONTRACT”) AND: WHEREAS THE SELLER HAS UNDERTAKEN TO PRODUCE A BANK GUARANTEE FOR 5 PCT (FIVE PERCENT) OF THE VALUE OF EACH CONSIGNMENT TO SECURE ITS OBLIGATIONS TO THE PRESIDENT OF INDIA. WE, STATE BANK OF INDIA, HEREBY EXPRESSLY, IRREVOCABLY AND UNRESERVEDLY UNDERTAKE AND GUARANTEE AS PRINCIPLE OBLIGERS ON BEHALF OF THE SELLER THAT IN THE EVENT THAT THE PRESIDENT OF INDIA SUBMITS A WRITTEN DEMAND TO US THAT THE SELLER HAS NOT PERFORMED ACCORDING TO THE WARRANTY OBLIGATIONS UNDER AFOREMENTIONED CONTRACT, WE WILL PAY YOU, ON DEMAND AND WITHOUT DEMUR, ANY SUM UP TO A MAXIMUM OF USD 186.750.00 (ONE HUNDRED AND EIGHTY SIX THOUSAND SEVEN HUNDRED AND FIFTY UNITED STATES DOLLARS). YOUR WRITTEN DEMAND SHALL BE CONCLUSIVE EVIDENCE TO US THAT SUCH REPAYMENT IS DUE UNDER THE TERMS OF THE SAID CONTRACT. WE UNDERTAKE TO EFFECT PAYMENT UPON RECEIPT OF SUCH WRITTEN DEMAND. WE SHALL NOT BE DISCHARGED OR RELEASED FROM THIS UNDERTAKING AND GUARANTEE BY ANY ARRANGEMENTS, VARIATIONS MADE BETWEEN YOU AND THE SELLER, INDULGENCE TO THE SELLER BY YOU, OR ANY ALTERATIONS IN THE OBLIGATIONS OF THE SELLER OR BY ANY FORBEARANCE WHETHER. AS TO PAYMENT, TIME PERFORMANCE OR OTHERWISE. THIS GUARANTEE SHALL REMAIN VALID UNTIL 22 DECEMBER, 2008, UNLESS A DEMAND OR CLAIM UNDER O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 8 THIS GUARANTEE IS MADE TO US IN WRITING ON OR BEFORE THE AFORESAID EXPIRY DATE AS PROVIDED ABOVE IN THE REFERRED SAID CONTRACT OR UNLESS THIS GURANTEE IS EXTENDED BY US, ALL YOUR RIGHTS UNDER THIS GUARANTEE SHALL BE PROFEITED AND WE SHALL BE DISCHARGED FROM THE LIABILITIES HEREUNDER. THIS GUARANTEE SHALL BE A CONTINUING GUARANTEE (WHICH MEANS THE GUARANTEE WILL ALSO BE VALID IF THE BANK IS IN LIQUIDATION OR BANKRUPTCY) AND SHALL NOT BE DISCHARGED BY ANY CHANGE IN THE CONSTITUTION OF THE BANK OR IN THE CONSTITUTION OF THE SELLER. UNQUOTE IN CONSIDERATION OF YOUR ISSUING THE WARRANTY BOND IN FAVOUR OF THE PRESIDENT OF INDIA THROUGH THE JOINT SECRETARY (ORDNANCE), MINISTRY OF DEFENCE, AT OUR REQUEST AGAINST OUR COUNTER GUARANTEE NO.821-02-0009989-G, WE, ABSA BANK LIMITED, TRADING AS ABSA CORPORATE AND MERCHANT BANK, INTERNATIONAL BANKING SA – PRETORIA CENTRE, HEREBY IRREVOCABLY AND UNCONDITIONALLY CONFIRM THAT WE UNDERTAKE TO PAY YOU ON YOUR FIRST WRITTEN DEMAND BY AUTHENTICATED S.W.I.F.T. / TELEX MESSAGE STATING THAT YOU HAVE BEEN CALLED UPON TO MAKE PAYMENT UNDER AND IN TERMS OF YOUR GUARANTEE, NOTWITHSTANDING ANY CONTESTATION OR PROTEST BY THE SELLER, BY OURSELVES OR ANY OTHER THIRD PARTY, THE SUM NOT EXCEEDING THE MAXIMUM AMOUNT OF USD186.750.00 (ONE HUNDRED AND EIGHTY SIX THOUSAND SEVEN HUNDRED AND FIFTY UNITED STATES DOLLARS). OUR RESPONSIBILITIES TO YOU IN RESPECT OF OBLIGATIONS UNDER THIS COUNTER-GUARANTEE SHALL BE GOVERNED BY SOUTH AFRICAN LAW AND WE HEREBY SUBMIT IRREVOCABLY TO THE EXCLUSIVE JURISDICTION OF THE COURTS IN SOUTH AFRICA. WE CONFIRM THAT THE COUNTER-GUARANTEE WILL BECOME EFFECTIVE IMMEDIATELY UPON ISSUANCE OF YOUR WARRANTY BOND TO THE PRESIDENT OF INDIA AND WILL CEASE TO BE VALID ON 22 JANUARY 2009. PLEASE NOTE THAT THE GUARANTEE MUST BE DELIVERED TO THE FOLLOWING JOINT SECRETARY (ORDNANCE) IN INDIA: ALOK RANJAN TEL NO: 09 91 11 23014222 FAX NO:09 91 11 23794602 PLEASE CONFIRM YOUR ACTIONS BY AUTHENTICATED S.W.I.F.T. O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 9 MENTIONING YOUR / OUR REFERENCE NUMBER AND FORWARD TWO COPIES OF YOUR GUARANTEE TO OURSELVES IN DUE COURSE. THANK YOU IN ADVANCE FOR YOUR KIND CO-OPERATION. REGARDS ABSA BANK LTD. TRADING AS ABSA CORPORATE AND MERCHANT BANK INTERNATIONAL BANKING SA – PRETORIA CENTRE PHYSICAL ADDRESS: POSTAL ADDRESS: 31 ST FLOOR, VOLKSKAS CENTRE P.O. BOX 1748 230 VAN DER WALT STREET PRETORIA 0002 PRETORIA TELEPHONE : 27 12 3107667 FASCIMILE : 27 12 3207607 TELEX : 320275 IBPTA SA / 322201 IBPTA S.W.I.F.T. : ABSAZAJJCPT” SECOND TYPE “ Bank of Baroda (1:F01ABSAZAJJACPT7492700512) (2:I760BARBINBBXONDN) (4: :27:1/1 :20:821-02-0009435-g :23:REQUEST :30:030819 :77C:ATTENTION: MR JS ARORA – INTERNATIONAL BUSINESS BRANCH YOUR FACSIMILE MESSAGE OF 16 AUGUST 2003 TO OUR ANDRE SNYMAN OF OUR HEAD OFFICE IN JOHANNESBURG REFERS. WE ACCEPT YOUR CHARGES OF 0.45 PERCENT P.A. HOWEVER THE APPLICANT, DENEL (PTY), LTD HAS REQUESTED YOUR KIND RECONSIDERATION TO EXCEPTIONALLY CHARGE YOUR COMMISSION ON A QUARTERLY BASIS INSTEAD OF IN ONE AMOUNT UP-FRONT, FOR GUARANTEES RELATING TO THE CONTRACT OF USD50.900.000.00 WITH THE INDIAN GOVERNMENT. UNDER OUR FULL AND IRREVOCABLE RESPONSIBILITY AND OUR COUNTER GUARANTEE NO.821-02-0009435-G PLEASE ISSUE A PERFORMANCE GUARANTEE IN FAVOUR OF THE PRESIDENT OF INDIA THROUGH THE JOINT SECRETARY (ORDNANCE), MINISTRY OF DEFENCE, AS PER THE TEXT PROVIDED HEREUNDER, O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 10 QUOTE: TO : THE PRESIDENT OF INDIA, NEW DELHI THROUGH THE JOINT SECRETARY (ORDNANCE) MINISTRY OF DEFENCE GOVERNMENT OF INDIA NEW DELHI, INDIA PERFORMANCE GUARANTEE NUMBER: . . . . . . . . . . . . . . . . . . . . . . . . . . WHEREAS YOU HAVE ENTERED INTO A CONTRACT REFERENCE NUMBER 18(6)/99/D(GS-IV)/D(01) (HEREINAFTER REFERRED TO AS THE “SAID CONTRACT”) DATED 23 APRIL 2002 WITH M/S. DENEL (PTY) LTD ACTING THROUGH ITS DIVISION SOMCHEM (HEREINAFTER REFERRED TO AS “THE SELLER”) HAVING ITS PRINCIPLE OFFICE AT REEB ROAD, FIRGROVE, 7130, REPUBLIC OF SOUTH AFRICA FOR THE SUPPLY OF 155 MM BI-MODULAR ARTILLARY CHARGES AND WHEREAS THE SELLER HAS UNDERTAKEN TO PRODUCE A BANK GUARANTEE FOR AN AMOUNT OF USD2.545.000,00 (TWO MILLION FIVE HUNDRED AND FORTY FIVE THOUSAND UNITED STATES DOLLARS ONLY) BEING 5 PCT (FIVE PERCENT) OF THE TOTAL CONTRACT VALUE, TO SECURE ITS OBLIGATIONS TO THE PRESIDENT OF INDIA. WE, BANK OF BARODA, . . . . . . . . . . . . . , HEREBY EXPRESSLY, IRREVOCABLY AND UNRESERVEDLY UNDERTAKE AND GUARANTEE AS PRINCIPLE OBLIGOR ON BEHALF OF THE SELLER THAT IN THE EVENT THAT THE PRESIDENT OF INDIAN SUBMITS A WRITTEN DEMAND TO US THAT THE GOODS HAVE NOT BEEN SUPPLIED ACCORDING TO THE CONTRACTUAL, OBLIGATIONS, WE WILL PAY YOU, ON DEMAND AND WITHOUT DEMUR, ANY SUM UP TO A MAXIMUM OF USD2.545.000.00 (TWO MILLION FIVE HUNDRED AND FORTY FIVE THOUSAND UNITED STATES DOLLARS ONLY). YOUR WRITTEN DEMAND SHALL BE CONCLUSIVE EVIDENCE TO US THAT SUCH REPAYMENT IS DUE UNDER THE TERMS OF THE SAID CONTRACT. WE UNDERTAKE TO EFFECT PAYMENT UPON RECEIPT OF SUCH WRITTEN DEMAND. WE SHALL NOT BE DISCHARGED OR RELEASED FROM THIS UNDERTAKING AND GUARANTEE BY ANY ARRANGEMENTS, VARIATIONS MADE BETWEEN YOU AND THE SELLER, INDULGENCE TO THE SELLER BY YOU, OR ANY ALTERATIONS IN THE OBLIGATIONS OF THE SELLER OR BY ANY FORBEARANCE WHETHER AS TO PAYMENT, TIME PERFORMANCE OR OTHERWISE. O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 11 IN NO CASE SHALL THE AMOUNT OF THIS GUARANTEE BB INCREASED. THIS GURANTEE SHALL REMAIN VALID UNTILL 15 MARCH 2007 (HEREINAFTER REFERRED TO AS “EXPIRY DATE”). UNLESS A DEMAND OR CLAIM UNDER THIS GUARANTEE IS MADE TO US IN WRITING ON OR BEFORE THE AFORESAID EXPIRY DATE AS PROVIDED ABOVE ON UNLESS THIS GUARANTEE IS EXTENDED BY US, ALL YOUR RIGHTS UNDER THIS GUARANTEE SHALL BE PROSCRIBED AND WE SHALL BE DISCHARGED FROM THE LIABILITIES HEREUNDER. THIS GUARANTEE SHALL BE A CONTINUING GUARANTEE (WHICH MEANS GUARANTEE WILL ALSO BE VALID IF THE BANK IS IN LIQUIDATION OR BANKRUPTCY) AND SHALL NOT BE DISCHARGED BY ANY CHANGE IN THE CONSTITUTION OF THE BANK OR IN THE CONSTITUTION OF THE SELLER. UNQUOTE IN THE CONSIDERATION OF YOUR ISSUING THE PERFORMANCE GUARANTEE IN FAVOUR OF THE PRESIDENT OF INDIA THROUGH THE JOINT SECRETARY (ORDNANCE), MINISTRY OF DEFENCE, AT OUR REQUEST AGAINST OUR COUNTER GUARANTEE NO. 821-02-0009435-G, WE, ABSA BANK LIMITED. TRADING AS ABSA CORPORATE AND MERCHANT BANK, INTERNATIONAL BANKING SA – PRETORIA CENTRE, HEREBY IRREVOCABLY AND UNCONDITIONALLY CONFIRM THAT WE UNDERTAKE TO PAY YOU ON YOUR FIRST WRITTEN DEMAND BY AUTHENTICATED S.W.I.F.T. / TELEX MESSAGE STATING THAT YOU HAVE BEEN CALLED UPON TO MAKE PAYMENT UNDER AND IN TERMS OF YOUR GUARANTEE, NOTWITHSTANDING ANY CONTESTATION OR PROTEST BY THE SELLER, BY OURSELVES OR ANY OTHER THIRD PARTY, THE SUM NOT EXCEEDING THE MAXIMUM AMOUNT OF USD2-545.000.00 (TWO MILLION FIVE HUNDRED AND FORTY FIVE THOUSAND UNITED STATES DOLLARS ONLY). OUR RESPONSIBILITIES TO YOU IN RESPECT OF OBLIGATIONS UNDER THIS COUNTER GUARANTEE SHALL BE GOVERNED BY SOUTH AFRICAN LAW AND WE IMMEDIATELY UPON ISSUANCE OF YOUR PERFORMANCE GUARANTEE TO THE BENEFICIARY AND WILL CEASE TO BE VALID ON 15 APRIL 2007. PLEASE CONFIRM YOUR ACTIONS BY AUTHENTICATED S.W.I.F.T. MENTIONING YOUR / OUR REFERENCE NUMBER AND FORWARD TWO COPIES OF YOUR GUARANTEE TO OURSELVES IN DUE COURSE. THANK YOU IN ADVANCE FOR YOUR KIND CO-OPERATION. O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 12 REGARDS ABSA BANK LTD. TRADING AS ABSA CORPORATE AND MERCHANT BANK INTERNATIONAL BANKING SA – PRETORIA CENTRE PHYSICAL ADDRESS : POS 6.(ii) A sample invocation letter is as under :- “{1:F01ABSAZAJJACW10390238519}-{2:O7671846091016 SBINZAJJAXXX75241331770910161846N}-{3:{10B:SC28298}}-{4: :27:1/1 :20:SBI/GUAR/83/91 :21:9989G/9756G :23: REQUEST :30:091016 :26E:2 :31C:091016 :77C:KIND ATTENTION: GUARANTEE DEPARTMENT WE HAVE RECEIVED A MESSAGE DATED 15.10.2009 FROM THE BENEFICIARY OF THE GUARANTEE, GOVERNMENT OF INDIA, MINISTRY OF DEFENCE, SOUTH BLOCK, NEW DELHI 110011 WHICH IS BEING REPRODUCED BELOW FOR YOUR NECESSARY ACTION- “QUOTE EXTENSION OF TWO BANK GUARANTEES (1) PERFORMANCE BANK GUARANTEE NO SBI/GUAR/83 DATED 07.10.2003 FORUS DOLLARS 195000.00 WHICH IS VALID UPTO 31.10.2009 AND (2) WARRANTY BOND NO SBI/GUAR/91 DATED 27.11.2003 FOR USD186750.00 WHICH IS VALID UPTO 22.12.2009 M/S DENEL (PTY) LTD SOUTH AFRICA ACTING THROUGH ITS DIVN SOMCHEM SOUTH AFRICA FOR SUPPLY OF DEFENCE STORES AGAINST CONTRACT NO 18(6)/99/D(GS-IV)/D/(O-1) DATED 23.4.2002 DEAR SIR AS THE GOODS HAVE NOT BEEN SUPPLIED ACCORDING TO THE CONTRACTUAL OBLIGATIONS BY THE SELLER UNDER THE SAID CONTRACT THE VALIDITY OF ABOVE MENTIONED BANK GUARANTEES BE EXTENDED UPTO 31.10.2010 AND 22.12.2010 RESPECTIVELY FAILING WHICH THIS LETTER MAY BE TREATED AS NOTICE FOR ENCASHMENT OF BOTH THE ABOVE BANK GUARANTEE AND DEMAND DRAFTS / CHEQUES FOR THE FULL VALUE OF GUARANTEES IN FAVOUR OF PCDA HQRS MINISTRY OF DEFENCE NEW DELHI MAY BE SENT IMMEDIATELY. RECEIPT OF THIS COMMUNICATION MAY PLS BE ACKNOWLEDGED BY RETURN FAX AT 011-23018304 YOURS FAITHFULLY SD/- JOINT SECRETARY TO THE GOVT OF INDIA FOR AND ON BEHALF OF THE PRESIDENT OF INDIA UNQUOTE” WITH REGARD TO THE ABOVE MESSAGE WE REQUEST YOU TO EITHER EXTEND THE GUARANTEE AS REQUIRED OR ARRANGE FOR PAYMENTS OF THE SUM IN TERMS OF YOUR COUNTER GUARANTEE. O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 13 REGARDS CREDIT DEPARTMENT STATE BANK OF INDIA, JOHANNESBURG -)-(5:{CHK:310FD1E2AB3E)-(MAC:00000000))” (Underlining is provided by me) 7. The learned senior counsel for the petitioner has taken me through the aforesaid relevant contractual clauses, the Bank Guarantees and the invocation letters, and then on the basis of co-relation between language employed in the Bank Guarantees, the contractual clauses and the invocation letters it was contended that the Bank Guarantees were given for specific contracts and only for the warranty obligations specified in Clause 10.1 in the main contract but since the invocation was not for warranty obligations as stated in the sub-clauses of clause 10, hence the invocation of the Bank Guarantees were stated to be in fraud of the purposes for which they were given and thus invocation was not in accordance with the purpose of the Bank Guarantees. It was also contended that by the invocation letter, what were the contractual obligations which were breached were not mentioned, and consequently, it was contended that the invocation is for that reason also not in terms of the Bank Guarantee. By reference to clause 10.3 it was contended that since the period specified therein has admittedly come to an end, thus, the Bank Guarantees have exhausted themselves. 8 The learned Senior counsel for the petitioner also relied upon Larsen and Toubro Ltd. Vs. Maharashtra State Electricity Board and others AIR 1996 SC O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 14 334 for the proposition that since the warranty period had expired the Bank Guarantees therefore could not be encahsed. Reliance was then placed upon Hindustan Construction Co. Ltd. Vs. State of Bihar & ors. (1999) 8 SCC 436 to contend that there is a fraud upon the petitioner and an unjust enrichment of the respondent and also that there are special equities in favour of the petitioner because the Bank Guarantees were only warranty Bank Guarantees which could only be enforced for the breach of the warranty conditions pertaining to technical specifications of the equipments or qua the warranty period of are not being admittedly enforced for these purposes. It was also, relying on this judgment, contended that the Bank Guarantees were not being enforced as per its terms because the invocation letters were not in accordance with the Bank Guarantees. Reliance was also placed upon the decisions of two learned Single Judges of this Court in the cases of Hindustan Construction Company Vs. Satluj Jal Vidyut Nigam Ltd. AIR 2006 Delhi 169 and Continental Construction Ltd. Vs. Satluj Jal Vidyut Nigam Ltd. 2006 (1) Arb LR 321 (Delhi). These judgments are also relied upon for the same purposes as already stated above. 9 In response to the arguments of the petitioner, Mr. Mohan Parasaran, ASG and Mr. Rajiv Mehra, Sr. Advocate for the respondent No. 1 have relied upon Clause 17.2 of the contract and which reads as under:- “17.2 Giving or offering of any gift, bribe or inducement, or any attempt to any such act on behalf of the Seller towards any officer/employee of the Buyer, or to any O.M.P. Nos.703/2009, 710/2009 & 711/2009 Page 15 other person in a position to influence the decision of the Buyer, directly or indirectly, or any attempt to influence any officer/employee of the Buyer for showing any favour in relation to this or any other Contract, shall render the Seller to such liability/penalty as the Buyer may deem proper, including, but not limited to, termination of the Contract, imposition of penal damages, forfeiture of the Bank Guarantee and refund of the amounts paid by the Buyer.” It was contended, relying upon Clause 17.2, that in terms of the contract, forfeiture is permissible of the Bank Guarantees either when there is an attempt to influence any officer/employee of the respondent no.1 whether in relation to the subject contract or in relation to any other contract or giving any inducement by appointing an agent and when such position emerges then this directly or indirectly causes breach