Case: Larsen and Toubro Limited  Vs.  Maharashtra state Electricity Board and others

2. The appellant, petitioner in arbitration petition Lodg. No. 240/94 in the High Court of Judicature at Bombay, initiated under Section 41 of the Arbitration Act, has filed this appeal by special leave against the order passed by N.D. Vyas, J. dated. The appellants prayer for injunction against the first respondent (Maharashtra State Electricity Board) from invoking or claiming or demanding or releasing any amount whatsoever under certain bank guarantees given by the respondent Nos. 2 to 5 was dismissed by the aforesaid order by the learned Judge. Respondent Nos.1 to 5 in the arbitration petition Lodg. No. 240/94 as also in this appeal are(1) Maharashtra State Electricity Board, Bombay; (2) Standard Chartered Bank, branch Bombay; (3) Grindlays Bank p.l.c., branch Bombay; (4) City Bank, N.A. branch Bombay; and (5) Bank of Baroda, branch Bombay3. The first respondent invited tenders for supply and commission of Coal Handling Plant. The appellants tender, which was accepted, culminated in a contract, executed between the parties, dated. The value of the contract was Rs.. The appellant furnished the following five Bank Guarantees; Name of the Bank No. of the Bank Guarantee Nature of the Bank Guarantee Amount of the Bank Guarantee in Rs. Last extended date 1. Standard 529/88/153 Chartered Bank/Respondent Security against 5,50,30,000 advance4 2. ANZ Grindlays Bank PLC, Respondent No.3 1101/88/384/G Performance 6,17,28,0004 3. Citi Bank, N.A. Respondent No. 26247 Partial release of retention money 2,72,39,850 19.11.94 4. Bank of Baroda, Respondent No.5 73/309 Security against liquidated damage 6,13,40,978The completion of the Plant seems to have been delayed. The parties are blaming each other for the delay. After taking the trial and performance test, the Plant was taken over by the first respondent on. On the same day a take over certificate was also issued. It is seen that earlier on, the appellant lodged its claim. The first respondent denied the claims so made. They did not make any, the appellant invoked the arbitration clause as per the contract. A meeting of the Arbitrators took place on. The Arbitrators gave certain directions. In pursuance thereto the appellant filed its claim on. The Arbitrators gave time to the first respondent to file their. In the meanwhile on4 the first respondent invoked all the Bank Guarantees except Guarantee No.2 mentioned hereinabove (Performance Guarantee). The Court passed an order directing the status quo to be maintained on. Appellant filed arbitration petition Lodg. No. 240/94 and contended that the Bank Guarantees have been fraudulently and dishonestly invoked. Regarding Guarantees in respect of advance and liquidated damages, it was further alleged that they were invoked after the date of expiry of the said Guarantees. Vyas, J. rejected the above pleas and declined to grant the interim relief as prayed for by the appellant. As agreed to by counsel on both sides, the interim order was made the order in the main petition itself. Arbitration Petition Lodg. No. 240/94 was dismissed. Hence this appeal by special leave.

Court's reasoning:
8. Having heard Counsel and on perusing the relevant records, we are of the view that the order of the Court below regarding Item No.3Partial release of retention money in the sum of Rs.2,72,39,850/9. The Guarantee given on this count by the Standard Chartered Bank for sum of Rs.5,50,30,000 is contained in paper book Volume II at pages 109 to 113. It was agreed at the bar that the Bank Guarantee has not been invoked for the entire sum of Rs.5.50 crores but is limited to a sum of Rs.8 lakhs only. We find that dispute exists with regard to the said, as is evident from the relevant papers(Volume II pages 312 and 316). It is seen from the communication dated4 addressed by the first respondent to the appellant, with an endorsement to the Standard Chartered Bank, that a request was made to extend the validity of the Bank Guarantee for a further period of 6 months, i.e.4 and in case the extension is not received before that date, the communication be treated as notice for encashment (Vol.II pages 33 to 34 of the paper book). We are of the view that the invocation of the Guarantee is in time. We hold that in the light of the disputes pending before the Arbitrator, the Court below was justified in declining to grant an injunction against the invocation of the Bank Guarantee on this countThe appellant wrote to the first respondent on4 that the plant was completed and so all Bank Guarantees have served their contractual requirements.On a perusal of the relevant clauses in the contract, executed between the appellants and the first respondent, and the communication of the first respondent dated, it is fairly clear that the stipulations or conditions mentioned as per Clauses 70.2, 70.3 and 70.4 have been successfully fulfilled and the Plant was admittedly taken over by the first respondent. The Guarantee given by the Citi Bank. N.A. dated 10th May, 1989 appearing in Volume II at pages 122 to 126 will ensure only till successful completion of the trial operations and the plant is taken over. That event having ensued, the invocation of the Guarantee given by the Citi Bank dated5 in the sum of Rs.2.72 crores is not encashable on its terms and in order to prevent irretrievable injustice, an injunction as prayed for, to respondents 1 and 4 deserves to be issued on that score. The Court below was in error in not doing so. We hereby restrain respondents 1 and 4 from invoking the Bank Guarantee aforesaid12. But item No.5 partial release of retention money, for which the second respondent. Standard Chartered Bank has given a Bank Guarantee for Rs.1,12,00,000 (Rs.1.12 crores) stands on a different footing. The relevant Guarantee is contained in paper book Volume II at pages 134 to 138. The first respondent made an ad hoc payment of Rs.1.11 crores out of the total retention amount for which the Guarantee was furnished by the Standard Chartered Bank. It is an unequivocal and unconditional Guarantee. We hold that no fraud or irretrievable injustice has been made out by the appellant. The Court below was justified in declining to issue an order of injunction on this count14. The Bank has given Guarantee for Rs.6.13 crores against the liquidated damages recoverable by the first, from the appellant. The relevant clauses regarding levy of liquidated damages is contained at pages 99 and 100 of the paper book. (Clause 75.01), to the following effect :75.01 If the Contractor fails to complete the works as per the Clause 72.01, items 1, 2 and 3 within a period of 25 months from the date of letter of intent or within any extension of time granted by the owner then the liquidated damages shall be levied by the Owner on the Contractor at the rate of 1/2% (one half of one percent) per week of delay of the contract price for the works limited to 10% (ten percent) of the contract price of the worksAppellants Counsel argued that before invoking the Bank Guarantee the first respondent should have levied the liquidated damages and only for the sum so determined, and intimated to the appellant, the Bank Guarantee can be invoked. It was further argued that the Guarantee was due for expiry on4 and it has been invoked after the expiry of the said period.There is no force in the above pleas. It is common ground that the arbitration proceeding for resolving the dispute between the parties (appellant and the respondent) is pending before the Arbitrator. The parties are at issue as to whether the Plant was completed in time or was delayed. They are blaming each other for the delay. That is a matter to be adjudicated in the proceedings. It is also brought to our notice that the first respondent has claimed liquidated damages as per Clause 75.01 of the contract of more than eight croresmuch more than the amount of Rs.6.13 crores guaranteed. Since the decision in the arbitration proceedings has an impact on this aspect, we are of the view that no prima facie case of fraud of irretrievable injustice is made out to restrain respondents 1 and 5 from invoking the Bank Guarantee. Perusal of the communication dated, sent by the first respondent to the appellant and also to the Bank of Baroda appearing in paper book Volume I at pages 35 to 36, will show that a request to extend the validity of the Bank Guarantee which was to expire on, was made and if not so done, the communication was to be treated as notice for encashment of the Bank Guarantee. The plea that the invocation was not in proper time is also without substanceIt is common ground that the arbitration proceeding for resolving the dispute between the parties (appellant and the respondent) is pending before the Arbitrator. The parties are at issue as to whether the Plant was completed in time or was delayed. They are blaming each other for the delay. That is a matter to be adjudicated in the proceedings. It is also brought to our notice that the first respondent has claimed liquidated damages as per Clause 75.01 of the contract of more than eight croresmuch more than the amount of Rs.6.13 crores guaranteed. Since the decision in the arbitration proceedings has an impact on this aspect, we are of the view that no prima facie case of fraud of irretrievable injustice is made out to restrain respondents 1 and 5 from invoking the Bank Guarantee. Perusal of the communication dated, sent by the first respondent to the appellant and also to the Bank of Baroda appearing in paper book Volume I at pages 35 to 36, will show that a request to extend the validity of the Bank Guarantee which was to expire on, was made and if not so done, the communication was to be treated as notice for encashment of the Bank Guarantee. The plea that the invocation was not in proper time is also without