Case: SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION Vs. POWER MECH PROJECTS LTD

Indira Banerjee, J. 1. Leave granted. 2. These appeals are against a judgment and order dated 27.11.2020, passed by the Division Bench of Delhi High Court, dismissing the Appeal being FAO(OS) (COMM) No.136 of 2019, filed by the Appellant under Section 37 of the Arbitration and Conciliation Act 1996, hereinafter referred to, in short, as the A & C Act read with Section 13(1A) of the Commercial Courts Act 2015, and affirming an order dated 16.05.2019 passed by the Commercial Division of the Delhi High Court in OMP(I) (COMM) No.523/2017 under Section 9 of the A & C Act, whereby the Court refused to recall its earlier order dated 09.04.2019, directing the Appellant to substitute an irrevocable Bank Guarantee, issued by the Industrial and Commercial Bank of China Limited (ICBC), Mumbai Branch for Rs.30 Crores furnished pursuant to an order dated 12.02.2019 of the Court, with a Bank Guarantee of a Scheduled Indian Bank of the same amount. The Appellant has also impugned a judgment and order dated 12.03.2021 passed by the Division Bench dismissing Review Petition No.5/2021 filed by the Appellant for review of the said judgment and order dated 27.11.2020 dismissing the Appeal. 3. The short question in these Appeals is, whether the High Court was right in refusing to accept a legally valid irrevocable Bank Guarantee of Rs.30 Crores, issued by the Industrial and Commercial Bank of China Limited, Mumbai, hereinafter referred to as ICBC which is a Scheduled Bank included in the Second Schedule of the Reserve Bank of India Act, 1934, and insisting that the Appellant should furnish a fresh Bank Guarantee of the same amount, with identical terms, issued by a Scheduled Indian Bank, notwithstanding the expenditure incurred by the Appellant in obtaining the Bank Guarantee from ICBC. 4. These Appeals are restricted only to the question of legality of the direction of the High Court, requiring the Appellant to substitute a legally valid irrevocable Bank Guarantee, issued by ICBC, which is a Scheduled Bank, carrying on business in India, with a Bank Guarantee of equivalent amount issued by a Scheduled Indian Bank. 5. The Appellant, an entity incorporated in China was awarded contracts in relation to various coal based power projects in India and the Respondent, a company incorporated in India was engaged as a subcontractor of the Appellant. Disputes and differences between the Respondent and the Appellant were referred to Arbitration. The details of the contract between the Appellant and the Respondent, or the disputes and differences that arose therefrom, are irrelevant to the issues involved in these Appeals. Suffice it to mention that the Arbitration culminated in an Award dated 17.10.2017 of approximately Rs.1,42,00,00,000 (One hundred and forty two crores) in favour of the Respondent. 6. On 03.12.2017, the Appellant filed an application under Section 34 of the A & C Act being O.M.P. (COMM) No. 432 of 2017 challenging the Arbitral Award dated 17.10.2017 in the Commercial Division of the Delhi High Court, which is pending. 7. On the other hand, the Respondent filed an application being OMP (I) (COMM) No. 523/2017 in the Commercial Division of the High Court under Section 9 of the A & C Act seeking, inter alia, directions on the Appellant to secure the amount of the Arbitral Award. 8. On 12.02.2019, a Single Bench of the Commercial Court of the High Court passed an order in O.M.P.(I) (COMM.) No. 523/2017 directing the Appellant to furnish to the Registry of the High Court, a Bank Guarantee for a sum of Rs.30 Crores, from a Scheduled Bank located in India. The operative part of the order dated 12.02.2019 is set out hereinbelow:- 3. ….. It is ordered accordingly. 4. The Judgment Debtor will file the affidavit within two (2) weeks; with a copy being furnished to the counsel for the Decree Holder. 5. Insofar as the bank guarantee is concerned, it will be furnished within 6 weeks as indicated by the counsel. 6. Further, the bank guarantee in the sum of Rs.30 crores will be that of a scheduled bank located in India. 7. Renotify the matter on 31.7.2019. 8. In the meanwhile, the Judgment Debtor will continue to make deposit with the Registry of this Court in terms of the order dated 24.7.2018. 9. On 22.03.2019, the Appellant got ICBC to issue an unconditional, irrevocable Bank Guarantee for a sum of Rs.30 Crores payable on demand to the Registrar General of the Delhi High Court. An electronic copy of the Bank Guarantee was filed in the Registry on 26.03.2019. 10. Mr. K.V. Vishwanathan, learned Senior Counsel appearing on behalf of the Appellant submitted that the Appellant incurred expenditure of Rs.30,00,000/- (Thirty Lakhs) approximately towards bank charges for furnishing the Bank guarantee. Furthermore, an amount of Rs.36,40,00,000/- was frozen in the Bank Account of the Appellant with ICBC in China. 11. However, by an order dated 09.04.2019, the Single Bench directed the Appellant to substitute the Bank Guarantee issued by ICBC, which had been filed in the Registry of the High Court, by a Bank Guarantee of equivalent amount from a Scheduled Indian Bank. The relevant paragraphs of the said order are extracted hereinbelow:- 5. Furthermore, Mr. Sethi says that in compliance of the order dated 12.02.2019 which required the respondent to furnish a bank guarantee of a Scheduled Bank, the respondent has complied with the same and submitted a bank guarantee of Industrial and Commercial Bank of China Limited (in short ICBC). 6. However, a careful perusal of the order would show that Mr. Sethi had offered to furnish a bank guarantee of a Scheduled Indian bank and that while dictating the operative part of the order, I had indicated that it would be a scheduled bank located in India, therefore, the confusion, if any caused is now removed. The respondent will substitute the bank guarantee filed with a guarantee of a Scheduled Indian bank of an equivalent value. 7. Pending the substitution, the Registry will hold on to the bank guarantee already submitted and the respondent will ensure that the same is kept alive. 8. As to whether the bank guarantee already filed is valid, the matter will be placed before Joint Registrar (Judicial) on 23.04.2019. 8.1 It is made clear that as and when the respondent is ready to replace the bank guarantee furnished by ICBC with a bank guarantee of a Scheduled Indian Bank, on a request being made in that behalf via an appropriate application, the Joint Registrar (Judicial) will release the bank guarantee furnished by ICBC provided the request is backed by an undertaking of the duly authorized representative of the respondent that it shall place the bank guarantee of the Scheduled Indian Bank on record within a defined time line not exceeding 10 days from the date of the request. 12. Pursuant to the direction of the Court, the Registrar (Judicial) of the High Court scrutinized the Bank Guarantee furnished by the Appellant, recorded the statement of Mr. Ayush Ganediwala, Vice President of ICBC, who had appeared before him, and passed an order dated 03.05.2019, recording that the said Bank Guarantee was valid with effect from 22.03.2019 till 19.03.2020. 13. Thereafter, the Appellant filed an application being IA No.7096 of 2019 for recall of the order dated 09.04.2019 of the Commercial Division (Single Bench) of the High Court directing the Appellant to substitute the Bank Guarantee issued by ICBC with a Bank Guarantee of equivalent value of a Scheduled Indian Bank. 14. By an order dated 16.05.2019, the learned Single Bench dismissed the said application, inter alia observing:- 5. I may clarify, at the outset, that it is not this courts endeavour to doubt in any manner the credentials of ICBC. The record, however, shows that the applicant/respondent had in fact, on its own, offered to furnish a bank guarantee of a Scheduled Indian Bank. The confusion, if any, in the mind of the applicant/respondent, as rightly pointed out by Mr. Nigam, was removed on 09.04.2019. The applicant/respondent has moved this application after nearly four weeks of the clarification issued in that behalf. Thus, having passed an order based, essentially, on the offer made by the counsel for the applicant/respondent, I do not see any good reason to recall the direction. 15. From the orders dated 09.04.2019 and 16.05.2019, it appears that the senior Counsel, representing the Respondent in the High Court had vehemently objected to the Bank Guarantee of ICBC, arguing emphatically, that the Appellant itself had, through Counsel, offered to furnish a Bank Guarantee of a Scheduled Indian Bank, but had retracted from its offer, taking advantage of an inadvertent typographical error in Paragraph 6 of the order dated 12.02.2019, which read Further the bank guarantee in the sum of Rs.30 crores will be that of a scheduled bank located in India. 16. The direction in the operative part of the order dated 12.02.2019 was clear. It required the Appellants to furnish a Bank Guarantee of a Scheduled Bank located in India. The Appellant complied with the direction and furnished a Bank Guarantee of a sum of Rs.30,00,000,00/- (Thirty Crores) from the Mumbai Branch of ICBC. 17. May be, there was a mistake in passing the order dated 12.02.2019, in the sense that the Court had intended to pass an order in terms of the offer of the Appellant, to furnish a Bank Guarantee of a Scheduled Indian Bank. In the order dated 09.04.2019, the learned Judge very fairly stated that while dictating the operative part of the order, the learned Judge had said that the Bank Guarantee would be of a Scheduled Bank located in India. That is what the order read. A party cannot be faulted for acting in terms of the order as issued, particularly when there was no patent or obvious error in the direction to furnish a Bank Guarantee of a Scheduled Bank, located in India. 18. It is true, that the order dated 12.02.2019 records the oral offer made on behalf of the Appellant, through Counsel, to submit a bank guarantee of a Scheduled Indian Bank. However, the direction in the operative part of the order dated 12.02.2019 gives the impression, that the offer of the Appellant to furnish a Bank Guarantee may have persuaded the Court to secure the Arbitral Award by directing the Appellant to furnish a Bank Guarantee of a Scheduled Bank located in India. 19. As recorded in the order dated 09.04.2019, there may have been some confusion by reason of the direction to furnish a Bank Guarantee of a Scheduled Bank located in India. The language and tenor of the order dated 12.02.2019, as also the fact that the Respondent did not make any attempt to have the direction to furnish a Bank Guarantee of a Scheduled Bank located in India rectified and/or altered, shows that use of the expression Scheduled Indian Bank may have been understood by all concerned parties to include an Indian branch of a Scheduled Bank. 20. Contrary to the contention of the Respondent, as recorded in the order dated 16.05.2019 of the Court, there was no typographical error in the order dated 12.02.2019. One can say that there is a typographical error when there is an inadvertent mistake in a figure or the spelling of a word by reason of pressing a wrong key of the keyboard or the omission or duplication of a word or phrase or even a sentence/sentences. A typographical error is obvious. That was not the case here. 21. The direction to furnish a Bank Guarantee of a Scheduled Indian Bank located in India, is perfectly legal. There was no reason for the Appellant to proceed on the basis that the direction had been issued by mistake. The Respondent also did not take any steps to get the direction rectified or altered. The direction was allowed to remain intact for almost two months. In the meanwhile, the Appellant furnished a Bank Guarantee of an Indian Branch of ICBC, a Scheduled Bank in India. 22. In this case, perhaps the intention of the Court was not expressed in the order accurately. However, the order was otherwise correctly worded and legally valid. It is not uncommon for Courts to give directions, which might be at variance with an oral offer. The Appellant having acted in accordance with the order dated 12.02.2019 and changed his position to his detriment by incurring an expenditure of about Rs.30 lakhs to comply with the said order, it was not appropriate for the Court to change the order. 23. From the order dated 09.04.2019, it is clear that even the Single Bench accepted that there was a confusion due to the language and tenor of the direction in Paragraph 6 of the said order. Thus the Court, in effect, accepted that there may not have been any deliberateness on the part of the Appellant in furnishing a Bank Guarantee issued by ICBC. 24. Being aggrieved by the order dated 16.05.2019 refusing to recall the earlier order of the Court dated 09.04.2019, directing the Appellant to replace the Bank Guarantee of ICBC, with a Bank Guarantee of a Scheduled Indian Bank, the Appellant filed an appeal under Section 37 of the A & C Act, read with Section 13 (1A) of the Commercial Courts Act, 2015. The appeal was dismissed by the order of the Division Bench dated 27.11.2020 impugned before this Court. The prayer of the Appellant, for review of the Order dated 27.11.2020 was rejected by an order dated 12.03.2021, which is also under challenge before this Court. 25. There may not be any infirmity in the order dated 12.03.2021, rejecting the prayer of the Appellant for review, having regard to the limited scope of an application for review. A matter cannot be re-argued in the garb of an application for review. Nor does the Review Court exercise appellate powers. All applications for review are governed by the principles enshrined in Section 114 read with Order 47 Rule 1 of the Code of Civil Procedure, 1908. A court is empowered to review its own order only if the conditions precedent for a review, as laid down in Section 114 read with Order 47 Rule 1 of the Code of Civil Procedure exist. In this case the prerequisites for a review did not exist.

Decision reasoning: 0[ds]25. There may not be any infirmity in the order dated 12.03.2021, rejecting the prayer of the Appellant for review, having regard to the limited scope of an application for review. A matter cannot be re-argued in the garb of an application for review. Nor does the Review Court exercise appellate powers. All applications for review are governed by the principles enshrined in Section 114 read with Order 47 Rule 1 of the Code of Civil Procedure, 1908. A court is empowered to review its own order only if the conditions precedent for a review, as laid down in Section 114 read with Order 47 Rule 1 of the Code of Civil Procedure exist. In this case the prerequisites for a review did not exist.27. Even in the proceedings before the Division Bench, the Respondent only harped on the offer of the Appellant to furnish a Bank Guarantee of a Scheduled Indian Bank and further contended that the Bank Guarantee of ICBC being conditional, the Respondent feared that the purpose of the Bank Guarantee might not be served.28. Significantly, there is no finding of the Single Bench that the bank guarantee is conditional. A copy of the Bank Guarantee is included in the Paper Book.29. The ICBC has unequivocally agreed to honour the Bank Guarantee on an order and/or judgment of the High Court allowing enforcement of the Arbitral Award, and as per Order/Direction/Judgment by the High Court in the pending legal proceedings. The statement that the Bank Guarantee is subject to the Uniform Rules for Demand Guarantees (URDG) 2010 Revision, does not dilute the terms of the Bank Guarantee. Nor does the URDG render the Bank Guarantee any less effective. Furthermore, the High Court did not direct the Appellant to furnish an unconditional guarantee.39. It appears that all the concerned parties proceeded on the understanding that there was no difference between a Scheduled Indian Bank and Scheduled Bank located in India, in the absence of any specific definition of the expression Scheduled Indian Bank in the RBI or the Banking Regulation Act.41. ICBC is also a Scheduled Bank within the meaning of Section 2 (e) of the RBI Act, which defines a Scheduled Bank to mean a bank included in the Second Schedule to the RBI Act. ICBC has its branch office at the Bandra Kurla Complex, Mumbai, India. The Mumbai branch of ICBC has been granted license by RBI to carry on banking business in India pursuant to a Memorandum of Understanding between the Governments of India and China.42. The Mumbai branch of ICBC commenced operations in September 2011 and was included in the Second Schedule to the RBI Act by Notification DBOD IBD. No.8137/23.03.026/2011-12 dated 01.12.2011 published in the Gazette of India (Part III Section 4).43. ICBC evidently continues to be in the Second Schedule to the RBI Act till date. In this context, it may be pertinent to point out that some banks have been excluded from the Second Schedule to the RBI Act by Gazette Notifications.48. However, since there is a list of Scheduled Foreign Banks in India categorized separately in the Second Schedule by Gazette Notifications, it may be presumed that all other banks listed in the Second Schedule in the various categories except the category of Scheduled Foreign Banks, that is, Scheduled Public Sector Banks, Scheduled Private Sector Banks, Scheduled Small Finance Banks, Scheduled Payments Banks, Scheduled Regional Rural Banks are all Scheduled Indian Banks, even though Scheduled Indian Banks do not constitute any distinct category in the Second Schedule to the RBI Act. Since ICBC has its principal branch registered in the Peoples Republic of China and is listed in the category of Scheduled Foreign Banks in India, the High Court made a distinction between ICBC and a Scheduled Indian Bank.49. The Annexures to the Special Leave Petition filed in this Court, which form part of the Paper Book in these appeals show that ICBC is not only a Scheduled Bank in India, but it also ranks very high in terms of asset value in atleast three extremely authoritative lists being The Bankers Top 1000 World Banks 2018, The Forbes Global 2000 2019 and The Fortune Global 500 Sub-list of Commercial Banks.51. It appears that the Mumbai branch of ICBC has set up a fund for an amount of 200 million US Dollars for investment in Indian Micro, Small and Medium Enterprises (MSMEs).52. In the Second Schedule to the RBI Act, ICBC is listed in the same category of Scheduled Foreign Banks in India as Standard Chartered Bank, Citi Bank, American Express Banking Corporation, HSBC Limited etc. which are household names in India in the arena of banking. On the other hand, Scheduled Indian Bank, as stated above would include all categories of banks in the Second Schedule except those in the category of Scheduled Foreign Banks. Scheduled Banks would therefore, include Scheduled Private Sector Banks such as Bandhan Bank Limited, City Union Bank Limited, Ratnakar Bank Limited, Dhanalaxmi Bank Limited, Kotak Mahindra Bank Limited, Lakshmi Vilas Bank Limited, Nainital Bank Limited, Yes Bank Limited etc.53. Mr. Abhishek Manu Singhvi, learned Senior Counsel opposing these appeals on behalf of the respondents could not demonstrate any real prejudice likely to be caused by reason of furnishing of a Bank Guarantee of ICBC in preference to Scheduled Indian Banks nor could he show any plausible reason for preference of Scheduled Private Sector Banks in India to Scheduled Foreign Banks like ICBC.54. As pleaded in the appeal being FAO (OS) (COMM) No.136 of 2019 the Respondents have not been able to advert to a single instance of default, fraud or any other malpractice of ICBC which could cast any doubt over ICBCs ability or inclination to honour the Bank Guarantee issued by it.55. It is incomprehensible why Scheduled Private Banks in India should be preferred to Scheduled Foreign Banks in India with high global rating, even though, some Scheduled Private Sector Banks have not even been running well. It would perhaps not be out of place to take judicial notice of reports that in March, 2020, Yes Bank, a private Sector bank, which was on the brink of complete financial collapse, had to be placed under a moratorium by RBI. Yes Bank has been cited by this Court as an example only to illustrate the fallacy of insistence upon the Bank Guarantee of a Scheduled Indian Bank in preference to that of Scheduled Foreign Bank in India, and not to cast any aspersion on the present functioning of Yes bank or any other Scheduled Bank in the Private Sector in India.56. There can be no doubt that the Court has the discretion to insist on a Bank Guarantee from any specific bank or class of banks to safeguard the interests of the beneficiary of the Bank Guarantee. The Court may legitimately disapprove a Bank Guarantee of a bank with a history which raises doubts with regard to its credibility. In this case, there is nothing on record to give rise to any doubts with regard to the credibility of ICBC or its financial ability or willingness to honour guarantees.57. In the absence of any adverse material against ICBC and in the light of a plethora of reports showing its financial soundness, I am of the view that the High Court erred in directing the Appellant to replace the Bank Guarantee of ICBC, already furnished pursuant to an order of Court passed on 12.02.2019, with another Bank Guarantee, oblivious of the practical realities in the arena of banking activities, specially the difficulties in obtaining a Bank Guarantee from banks with which the applicant has no transaction and ignoring the cost already incurred by the Appellant by way of bank charges for obtaining the guarantee.59. As discussed above, all that is required for invocation of the Bank Guarantee is an order of the High Court in the proceedings relating to the Arbitral Award. The statement that the guarantee is subject to the URDG does not dilute the guarantee or make it conditional. Mr. Singhvis client has not been able to demonstrate how the URDG can cause any prejudice to the beneficiary of the Bank Guarantee. Having passed an order on 12.02.2019 which directed ..Further, the bank guarantee in the sum of Rs.30 crores will be that of a scheduled bank located in India... on the basis of which the Appellant altered its position to its detriment by extending Rs.30 lakhs in obtaining a Bank Guarantee of ICBC. The High Court was not justified in altering and/or modifying the said direction after almost two months and after its compliance.