[2012] 1 S.C.R. 456

YOGRAJ INFRAS. LTD. v.

SSANG YONG ENG. & CONSTRN. CO. LTD. & ANR.

(Special Leave Petition (C) No. 24746 of 2010)

JANUARY 31, 2012

[ALTAMAS KABIR AND JASTI CHELAMESWAR, JJ.]

BANK GUARANTEE: c Construction contract - Dispute between parties- Invocation of bank guarantees - Held: Since the petitioner's application uls 9 of Arbitration and Conciliation Act to restrain the respondent from invoking the bank guarantees was based mainly on a/legations of fraud, whicf] have been rejected, and

0 further the partial award has been made by arbitral tribunal, which has not been questioned by the petitioner, the plea relating to special equities, cannot be accepted - Arbitration and Conciliation Act, 1996-s.9.

Pursuant to a construction contract, the petitioner E furnished Bank guarantees whereby the bank undertook to pay to respondent no.1 on its first written demand any sum or sums within the limits of the respective bank guarantees. Dispute arose between the parties relating to the performance of the petitioner in completing the work.

F Respondent no.1 terminated the contract and invoked the bank guarantees. The petitioner made a prayer in an application filed uls 9 of the Arbitration and Conciliation Act 1996 before the District Judge seeking injunction against the respondent invoking the Bank guarantees.

G The application was dismissed. The appeal therefrom was also dismissed by the High Court. Aggrieved, the petitioner filed the instant special leave petition alleging fraud on the part of respondent no. 1. Supreme Court stayed invocation of the Bank Guarantees. The petitioner H 456

YOGRAJ INFRAS. LTD. v. SSA~G YONG ENG & 457

CONSTRN. CO. LTD. & ANR.

also filed a criminal complain, t against respondent no. 1 A making the same allegations wich were made in the Special Leave Petition. The complaint was quashed by the High Court. The Special Leave Petition of the petitioner was also dismissed by the Supreme Court.

Consequently, respondent No. 1 filed an application for B early hearing and disposal of the instant Special Leave Petition.

Disposing of the matters, the Court

HELD: Since the Petitioner's application u/s 9 of the C Arbitration and Conciliation Act, 1996, was based mainly on. allegations of fraud, which have been rejected, there was no foundation for the stay order passed in these proceedings to continue. Both in the criminal proceedings as also in the proceedings u/s 9 of the Act, D the petitioner proved to be unsuccessful, at least up to the High Court stage. In the criminal proceedings, the petitioner was unsuccessful right up to this Court. In the circumstances, the plea urged on behalf of the petitioner relating to special equities cannot be accepted, E particularly, in view of the fact that such a point had not been raised earlier. Besides, partial Award has been made by the Arbitral Tribunal which has not been questioned or challenged by the petitioner and respondent No.1 is entitled to the amount awarded in the F partial Award. [Para 10-11] [462-G-H; 463-A-C]

CIVIL APP~LLATE JURISDICTION : SLP (Civil) No. 24746 of 2010.

From the Judgment & Order dated 20.08.2010 of the High G Court of Madhya Pradesh, Principal Seat at Jabalpur in Abribtration Appeal No. 8 of 2010.

Gagan Gupta for the Petitioner.

A Meenakshi Arora for the Respondents.

The Judgment of the Court was delivered by

ALTAMAS KABIR, J. 1. The Special Leave Petition and the application filed on behalf of the Respondents for early 8 hearing and disposal of the Special Leave Petition were taken up together for consideration. The facts on which the Special Leave Petition is based, are set out hereinbelow.

2. By its letter of acceptance No.NHAl/PH 11/NHDP/ADB/ C GM-11/NS1/746 dated 30th December, 2005, the National

Highways Authority of India, hereinafter referred to as 'NHAI', awarded a contract to the Respondent, SSANG YONG Engineering & Construction Co. Ltd., for the National Highways Sector II Project, Package-ADB-11/C-8, which involved the four D laning of Jhansi-Lakhadon sector KM 297 to KM 351 of

National Highway 26 in the State of Madhya Pradesh. The total contract amount for the aforesaid project was more than 750 crores. An agreement was entered into by the NHAI with the Petitioner on 13th August, 2006. Clause 27 of the Agreement E incorporated an arbitration clause stipulating that all disputes and differences arising out of or in connection with the Agreement dated 13th August, 2006, would be referred to arbitration to be conducted in English in Singapore in accordance with the Singapore International Arbitration Centre F (SIAC) Rules. For the purpose of reference, Clause 27 of the Agreement relating to arbitration is extracted hereinbelow :

"27. Arbitration

27.1 All disputes, differences arising out of or in connection with the Agreement shall be referred to arbitration. The arbitration proceedings shall be conducted in English in Singapore in accordance with the Ssangyong International Arbitration Centre (SIAC) Rules as in force at the time of signing of this Agreement. The arbitration shall be final and binding.

27.2 The arbitration shall take place in Singapore and be A conducted in English language.

27 .3 None of the Party shall be entitled to suspend the performance of the Agreement merely by reason of a dispute and/or a dispute referred to arbitration,." B

3. According to Clause 1 of the Agreement read with the Appendix thereof, the Petitioner was to provide all adequate manpower, material, plant, machinery, construction equipment and all other resources, including finance, which would be required to perform the work Bank Guarantee was furnished C by the Petitioner on 31st October, 2006, whereby the Bank undertook to pay to the Respondent on its first written demand and without cavil or argument any sum or sums within the limits of Rs. 6,05,00,000/-, without there being need to prove or give any reasons for the demand for the said sum. The guarantor D also waived the necessity of the Respondent Company making a demand for the debt to the contractor/petitioner before presenting the demand. The guarantor also agreed that no change or addition or other modification of the terms of the contract or of the work to be performed thereunder or any of E the contract documents, which may be made between the Respondent and the Petitioner, would release the Bank from its liability under the Agreement. Similarly, three Bank Guarantees of Rs. 1 crore each and one Bank Guarantee for Rs. 3 crores were also furnished to secure mobilization F advance.

4. Disputes and differences arose between the parties relating to the performance of the Petitioner in completing the work contracted as per the Agreement dated 13th August, G

2006. Consequently, since the Petitioner failed to carry out the works entrusted and had allegedly been over-paid to the tune of Rs. 78 crores, the Respondent Company on 22nd September, 2009, terminated th~ contract under Clause 23.2 of the Agreement dated 13th August, 2006 and invoked the H

A Bank Guarantees referred to hereinbefore vide its letters dated 25th January, 2010, 27th January, 2010 and 5th March, 2010.

The Respondent No.1 also made a subsequent demand for encashment of the Bank Guarantees by its letter dated 6th May, 2010.

5. In the Special Leave Petition, the Petitioner has sought for an order of injunction against the Respondent No. 1 on the basis of alleged fraud on the part of the said Respondent. The Petitioner also filed a criminal complaint against the C Respondent No.1 alleging fraud and making the same allegations which have been made by it in the present Special Leave Petition. The learned Magistrate took cognizance on the said complaint and issued process on 5th February, 2010.

6. Aggrieved thereby, the Respondent No.1 challenged the D said order of the Magistrate dated 5th February, 2010, taking cognizance of the criminal complaint alleging fraud, by filing a petition under Section 482 of the Code of Criminal Procedure in the Jabalpur Bench of the Madhya Pradesh High Court, for quashing of the cognizanc; e taken by the learned Magistrate.

E The High Court by its order dated 13th October, 2010, quashed the criminal proceedings commenced against the Respondent No.1. Challenging the said order of the High Court, the Petitioner filed Special Leave Petition (Crl) No. Crl. M.P. 2872 of 2011, which was dismissed by this Court on 18th February, F 2011. On account of the above, an application for early hearing and disposal of the Special Leave Petition was filed on behalf of the Respondent No.1 urging that since the allegation of fraud had already been decided by this Court, the present Special Leave Petition could be finally disposed of in view of order G passed by this Court in Special Leave Petition (Crl) No. Crl.

M.P. 2872 of 2011. It is in this background that the present I.A. has been filed for early hearing and disposal of the Special Leave Petition.

7. Appearing for the Special Leave Petitioner, who is the

opposite party in the Interlocutory Application filed on behalf of A the Respondent No.1, Mr. Jaideep Gupta, learned Senior Advocate, contended that the stay order passed in these proceedings was liable to be continued in view of the special equities in this case. He submitted that the Petitioner Company had invested large sums cf money in the project and upon B termination of the contract, the dues of either party were yet to be decided and the same could only be done at the time of the final Award. Mr. Gupta submitted that his main emphasis in the Special Leave Petition was with regard to the special equities which existed and the order of stay granted by this C Court restraining the Respondent No.1 Company from invoking the Bank Guarantees was liable to be continued till the passing of the final Award by the learned Arbitrator.

8. Ms. Meenakshi Arora, learned Advocate, who appeared D for the Respondent Company, submitted that the prayer made on behalf of the Petitioner in the Section 9 application before the District Court, Narsinghpur, seeking injunction against the Respondent No.1 from invoking the Bank Guarantees, was dismissed by the District Judge on 4th March, 2010, and the E Appeal therefrom was dismissed by the Jabalpur Bench of the Madhya Pradesh High Court on 20th August, 2010. However, this Court had stayed the invocation of the Bank Guarantees by the Respondent No.1 Company by an interim order dated 31st August, 2010. Ms. Arora submitted that once the F cognizance taken by the magistrate on the petitioner's criminal complaint alleging fraud on the part of the Respondent No.1 was quashed by the Jabalpur Bench of the Madhya Pradesh High Court by its order dated 13th October, 2010, and even the Special Leave Petition preferred therefrom was dismissed by G this Court on 18th February, 2011, the very basis for seeking injunction in the, proceedings under Section 9 of the Arbitration and Conciliation Act, 19,96, stood removed. Ms. Arora submitted thatin addition to the above, a partial Award had been made by the Arbitral Tribunal in Singapore on 30th June, H

A 2011; in favour of the Respondent No, 1. Ms. Arora. submitted that in terms of the agreement between the parties, ttie.

Respondent Nq.1 Company had made huge cash advan~ to the PetitiQner for completion of the project, but the sarne !}ad not been fully repaid by the Petition13r and tha, tas a result, tne B Respondent No.1 should be perm, itted to invoke the Blink

Guarants to .re!llizethe outstanding amounts. According to Ms. Aror!l, the dues of the Respon9ent No, 1 Company. were

far beyond those claimed by the Petition~. Ms. Arora submitted that since the partial AY.'.iird had not been ctiallenged by the c Petiijoner, the eecution thereof could not be stayed ancj the

RspondentNo.1 was.therefore, entitled to fE!G<>ver the amount

under the partic:i! AWclrd, According to Ms. Arora, the plea 4lkef! by the Petitioner in the criminal <:omplaint and the present Special Leave Petition was the same and since the allegation o of fraud against the Respondent No. 1 by the Petitioner has been negated, the interim order restraining the Resj)(lndentNo.1 from invoking the Bank Guarantees was Hable.to be vacated~

9. Ms. Arora st,1l:>mitted thc:itsince payment u.nder a Bank E Guarantee can norm.ally be stopped only on t\11() grounds ancj

on no other, viz., on grounds of fraud and sMCial equtty, ar; id the groµnd of fraud having been rejected upto this Court, fll~ only other ground available to the Petitioner to stop the invocation of the 8, ank Guarantees as on aCCQIJDtof speeial F equities ancj in tile instal'\t case the Petit; c;>ner haa faile(:! ta,

in<!icate any such special equity which l"!ltitlei; I the Petitione.r to. an order of restraint against the Resppndent No .. J fr; om

invoking the Bank Guarantees in qi; iestion, , , . , . ,..,

'-1 -, - "1

10. Having heard leame.d counsel for th.e partie~. we are G inclined to accept Ms. Meenakshi Arora's submissions th<Jt

sincEl the Petitioner's application under Section 9 of the Arbitration and Conciliation Act, 1996, was based mainly on allegations of fraud, which have been rejected. tnere waii no foundation for the, stay order pasiie~ ir thee pr9ceedings to ' H continue. We cannot lose sight of the fact that both in the

YOGRAJ INFRAS. t.ro: v. SSANG VONG ENG. & 463

CONSTRN. CO. LTD. & ANR. [ALTAMAS KABIR, J.]

criminal proceedings as also in the proceedings under Section A 9 of the aforesaid Act, the Petitioner proved to be unsuccessful, at least upto the High Court stage. In the criminal proceedings, the Petitioner was unsuccessful right upto this Court. In the aforesaid circumstances, we. are unable to accept the submissions relatingto special equities urged by Mr. Jaideep B Gupta; l>articulatty In view of the fact that'such "a point had not been raised earlier.

t • ~~ ._ - ~

--J . . ' J1 .1ru1ddition tp .the above, we also have to keep in mind tl'le fact that a partial Award has be.en made.by the Arbitral C Trib®al whichtiasnot been questioned or challenged by the Petitioner and the Respondent No.1 is entitled to the amount awardedin. the partialAward ..

\)·,'"' . - .

- ' - ' ' ,, . . : . -1.2. Accordingly, we are not inclinE!d to disturb the order

f the tligh Court and the Special Leaye PetitionJs, Jherefore, D

dismiss.edwith.postof.R.~. 1 lakh to be paid by the Retitioner Company,\Q the Supreme Court Legal Services Committee.

TtieJnterlocu.tOfYApplication i!> also.disposed of by this order.

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'"'?T".,,. ·--~ \ _ Matters disposed of.

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