Delhi High Court

Tecnimont Private Limited & Anr. vs Ongc Petro Additions Limitedm on 20 June, 2020

Equivalent citations: AIRONLINE 2020 DEL 972

Author:
V. Kameswar Rao

Bench:
V. Kameswar Rao

IN THE HIGH COURT OF DELHI AT NEW DELHI

Judgment delivered on: June 20, 2020

+ O.M.P. (I) (COMM)87/2020
TECHNIMONT PRIVATE LIMITED & ANR. ..... Petitioners
Through: Mr. Ritin Rai, Sr. Adv. with Ms.
Shally Bhasin, Mr. Karan Luthra,
Mr. Prateek Gupta, Mr. Abhipsit
Misra and Ms. Kritika Bhardwaj,
Advs.
versus
ONGC PETRO ADDITIONS LIMITED ..... Respondent
Through: Mr. Nakul Dewan, Sr. Adv. with
Mr. K.R. Sasiprabhu, Mr. Aditya
Swarup and Mr. Robin V.S., Advs.

CORAM:
HON'BLE MR. JUSTICE V. KAMESWAR RAO
JUDGMENT

V. KAMESWAR RAO, J

1. This is a petition filed under
Section 9
of the Arbitration &
Conciliation Act, 1996 ('Act', for short) with the following prayers:-

"In the circumstances, it is most humbly and respectfully prayed
that this Hon'ble Court may be pleased to:

(a) Restrain the Respondent from invoking and/or encashing
and/or seeking extension of the following Bank Guarantees
furnished by the Petitioners and consequently restrain the
Respondent from acting upon or giving effect to the Impugned
Communications dated 05.04.2020, 07.04.2020 and 10.04.2020;

S. No. BG No. Date of Issuing Amount Valid till

Issue Bank

Advance Bank Guarantee

1 171020560469-LA 21.7.2018 Standard Euro 14.04.2020

Chartered

OMP (I) (COMM) 87/2020 Page 1
Bank 4,36,367/-

2 171020560450-LA 21.7.2018 Standard Euro 14.04.2020

Chartered 62,36,099/-
Bank

Performance Bank Guarantee

3 464840 22.7.2011 BBVA US$ 14.04.2020

8,232,465/-

Euro

4,219,234/-

4 110126IBGP00064 26.07.2011 IDBI INR 14.12.2019

64,27,00,845/- Claim Expiry

Date-
14.12.2020

5 DLG211/11 17.06.2011 ING NV Euro 17.04.2020

17,46,251/-

USD

13,42,627/-

INR

16,98,57,433/-

* IDBI Bank Guarantee at Sl. No. 4 in the table above is counter
guaranteed by BBVA Bank vide its Counter Bank Guarantee No:

464841 dated 22.07.2011 of an equivalent amount i.e.
Rs.64,27,00,845/- and with the same claim expiry date of
14.12.2020.

(b) Direct the Respondent to deliver up to the Petitioner the
originals Bank Guarantees mentioned in Prayer (a) above;

(c) Pass any such other/further order(s) as this Hon'ble Court
may deem fit in the facts and circumstances of the present case
and in the interest of justice."

2. The facts as noted from the record are, a Petrochemical Complex
consisting of several interdependent units viz. Dual Fee Cracker Units
('DFCU', for short), the Polyethylene Unit ('PE unit', for short) the
Polypropylene Unit ('PP unit', for short), a Pyrolysis Gasoline Hydrogenation
Unit, a Benzene Extraction Unit, Butadiene Extraction Unit and other units
OMP (I) (COMM) 87/2020 Page 2
for manufacturing variety of petrochemical and allied products has come up at
Dehaj.

3. For the purpose of construction and setting up of the PE unit and the PP
unit, the respondent selected the petitioners as the successful bidder. Pursuant
thereto, the parties herein entered into two contracts both dated September 02,
2011 for the PE unit and the PP unit respectively.

4. Under the contracts, the petitioners were required to construct, develop
and successfully commissioned a PE unit and PP unit within 28 months of the
execution of the contract.

5. As per Clause 3.3 of General Conditions of Contract ('GCC', for short),
the petitioners were required to furnish performance bank guarantees,
guaranteeing the execution and performance of the works under the contracts.

6. In terms of Clause 3.8 of the GCC, the petitioners were also required to
furnish advance bank guarantee to secure the mobilization advance paid by
the respondent to the petitioners for execution of the contracts. In furtherance
of the above, the petitioners furnished bank guarantees to the respondent as
mentioned in the prayer clause. It may be stated here that the bank guarantees
were reduced from 10% to 5% of the contract value.

7. The scheduled date of completion of commissioning of both the units
was on or before October 02, 2013. There is no dispute that the actual date of
commissioning of the units was April 14, 2017 (in respect of PE unit) and
February 12, 2017 (in respect of PP unit).

8. It is averred by the respondent that the contract included several stages,
viz construction and commissioning of the PE unit and the PP unit, to carry
out Performance Guarantee Test Runs ('PGTR', for short), post
commissioning services for six months, providing as built drawings, supply of
test reports, fulfilling of all warranty obligations.

OMP (I) (COMM) 87/2020 Page 3

9. It is also averred by the respondent that the contracts also contemplated
that the performance of the contracts would be completed only upon issuance
of Certificate of Completion and Acceptance of Works (Clause 5.10 of GCC)
and Discharge Certificate (Clause 5.14). It is averred by respondent that even
before achieving the mechanical completion, pre-commissioning and
commissioning of the project on May 18, 2015, the petitioners issued
arbitration notices under the relevant provisions of the contracts for several
reliefs. However, the petitioners did not proceed with the arbitration
proceedings, or sought appointment of the Presiding Arbitrator until it
obtained commissioning certificate for the PP and PE units in 2017.

10. It is the conceded case of the parties that disputes and differences arose
between them. The primary claim of the petitioners was for damages on
account of delay on the part of the respondent in the completion and
commissioning of the project.

11. The respondent had also filed counter claims contending it is entitled to
liquidated damages for the delay in commissioning of both PE and PP units
attributable to the petitioners and also for the losses and damages incurred by
the respondent on account of defects and damages discovered in the PE unit.
It is the case of the respondent in paragraph 30 of its counter-affidavit that the
petitioners were in breach of their obligation to complete the PGTR of the
respective units.

12. It is noted that the arbitration proceedings were finally heard between
September 15, 2017 to September 18, 2017. At the time of the culmination of
proceedings, the bank guarantees were alive. It appears, that as the validity of
some of the bank guarantees were expiring on December 14, 2019, the
respondent addressed e-mails dated December 06, 2019 to the petitioners. It

OMP (I) (COMM) 87/2020 Page 4
also appears, that the petitioners extended the validity of all the five bank
guarantees.

13. On January 06, 2020, the Arbitral Tribunal rendered its award
('Award', hereinafter). It is the case of the petitioners, that the majority
awarded an amount of Rs.162 Crores to them and dismissed the respondent's
counter-claim in its entirety. Suffice would it be to state, application for
clarifications were filed on March 06, 2020. The respondent filed the petition
under
Section 34
of the Act challenging the impugned Award. On March 07,
2020, the respondent wrote an e-mail to the petitioners asking them to extend
the validity of the bank guarantees on the ground that the disputes between the
parties about the obligation under the contracts are pending before the Court
under
Section 34
of the Act.

14. It is the case of the respondent that as the petitioners failed to extend
the bank guarantees, that were expiring, the respondent, invoked the bank
guarantees by e-mails dated March 09, 2020 and March 10, 2020. Aggrieved
by the invocation of the bank guarantees, the petitioners filed
OMP(I)(COMM) 73/2020 before this Court. The petition was disposed of by
this Court on March 13, 2020. Paragraphs 5 and 6 of the order reads as
under:-

"5. Noting the submissions, this court deem it appropriate to dispose
of the petition by directing the petitioners to extend the validity of the
aforesaid three bank guarantees for a period of one month within which
time, the respondent shall get their petition under
Section 34
listed and
seek appropriate orders.

6. A question arose, as to who shall bear the expenses for extending the
validity of the three bank guarantees. Mr. Nayar states, as similar
claim(s) of the petitioners was also allowed in favour of the petitioner

OMP (I) (COMM) 87/2020 Page 5
by the Arbitral Tribunal it should be the respondent who shall bear the
cost."

15. Pursuant thereto, the petitioners filed an application in
OMP(I)(COMM) 73/2020 seeking clarification of order dated March 13,
2020. The application for clarification was dismissed stating that the said
order is clear. The petitioners filed an appeal challenging the orders dated
February 13, 2020 and March 17, 2020 before the Division Bench, being
FAO(OS)(COMM) 58/2020. It appears, the Division Bench clarified that
even though the petitioners have not extended the bank guarantee provided by
IDBI Bank, in view of the fact that the claim expiry period of the said bank
guarantee was expiring only in December 2020, the respondent is suitably
protected. The appeal was accordingly disposed of.

16. The
Section 34
petition of the respondent herein being OMP(COMM)
424/2020, was listed for hearing on March 23, 2020, when this Court passed
the following order: -

"1. This is a petition challenging the Award dated January 06, 2020, as
corrected on February 11, 2020.

2. The award is by majority members. Mr. Dewan challenges the award
on various grounds and presses for the interim relief. He also, on
instructions, states that subject to the awarded amounts being paid by
the petitioner to the respondents and simultaneously, the respondents
furnishing bank guarantee(s) for the said amounts, the operation of the
impugned award be stayed.

3. This submission of Mr. Dewan is acceptable to Mr. Sethi, on
instructions.

4. Accordingly, the petitioner shall pay to the respondents, the amounts
as per the award in five days. The respondents shall simultaneously, on

OMP (I) (COMM) 87/2020 Page 6
receipt of the amounts, furnish to the petitioner bank guarantee(s) for
the amounts received. The bank guarantee(s) shall be kept alive till
further orders of this Court. On such payment / receipt of the amounts,
the operation of the impugned award dated January 06, 2020 as
corrected on February 11, 2020 shall remain stayed.

5. The payment to be made by the petitioner to the respondents, in
terms of this order shall be subject to the outcome of this petition.

6. Parties to file their written submission before the next date of
hearing with advance copy to the other side.

7. Renotify on 24th September, 2020.

Dasti."

17. It is a conceded position, that the parties have implemented the order
dated March 23, 2020 by discharging each other's obligation by April 21,
2020. As the validity of the bank guarantees was expiring, the respondent on
April 05, 2020 wrote a letter to the petitioners and called upon them to extend
the validity of the bank guarantees. The said letter was responded to by the
petitioners by stating (i) the order dated March 13, 2020 only directed
extension of bank guarantees (a) 464840; (b) DLG211/11; (c)
1101261BGP00064; (ii) the bank guarantees were to be extended for a period
of one month to enable the respondent obtain orders in their petition under

Section 34
; (iii) the direction regarding extension of bank guarantee issued by
IDBI stood modified vide order dated March 19, 2020 of the Division Bench,
therefore there is no requirement to extend the bank guarantee; (iv) the
respondent had failed to obtain any orders regarding extension of bank
guarantees furnished by the petitioners in its petition under
Section 34
of the
Act.

OMP (I) (COMM) 87/2020 Page 7

18. In response to the aforesaid letter of the petitioners, the respondent vide
its letter dated April 07, 2020, decided to invoke the bank guarantees on
failure on the part of the petitioners to extend the same on or before April 09,
2020. The petitioners responded to the aforesaid letter of the respondent vide
letter dated April 09, 2020, which was also responded to by the respondent on
April 10, 2020. In any case, the petitioners filed this petition on April 12,
2020. The matter was initially listed on April 15, 2020 when this Court
passed the following order:-

"1. This petition has been taken up by video conferencing in view of the
emergent nature of the controversy involved, consequent to listing
thereof having been allowed by the Registry.

2. The petitioners, in this petition under
Section 9
of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as " the Act"), seeks an
order restraining the respondent from invoking or encashing the
following Performance Bank Guarantees, furnished by the petitioner
during the course of execution of the work contract with the
respondent, as well as a direction to the effect that the petitioner would
not be required to keep these bank guarantees alive any further.

3. Issue notice to the respondent, returnable on 27th May, 2020.
Counter-affidavit by way of response to the OMP, if any, be filed within
two weeks with advance copy to the petitioner who may file rejoinder
thereto, if so advised, within one week thereafter.

4. Notice is accepted by Mr. K Sasiprabhu, learned Counsel on behalf
of Respondent.

5. Though the matter was heard at considerable length, learned Senior
counsel for the parties, on instructions, submit that they are agreeable
to an ad interim arrangement, whereby and whereunder the petitioner

OMP (I) (COMM) 87/2020 Page 8
would keep the Performance Bank Guarantees at serial nos. 1, 2, 3 and
4 in the tabular statement contained in the prayer clause in the OMP
alive, till the next date of hearing, and the respondent would not take
take any further steps, towards invocation of the said Bank Guarantees,
till the next date of hearing, be passed. Learned Senior Counsel is
agreeable, on these terms, to the invocation of the said Bank
Guarantees remaining in abeyance, till the next date of hearing.
Charges, for keeping the said Bank Guarantees alive till the date next
of hearing, would continue as per the terms set out in the order dated
13th March, 2020 of the learned Single Judge in O.M.P. (I) (Comm)
73/2020.

6. The said submissions are noted, and the parties shall remain bound
thereby."

Submissions:

19. Mr. Ritin Rai, learned Senior Counsel for the petitioners would submit
that, the return of the bank guarantees sought for by the petitioners in this
petition are those, which the petitioners provided to the respondent during the
performance of the two contracts for the construction of PE unit and PP unit at
a Petrochemical complex at Dehaj. The petitioners admittedly performed the
contracts as far back as in 2017, and the respondent issued two separate
Commissioning Certificates dated February 15, 2017 and April 14, 2017. It is
a conceded case of the respondent as well that the plants were commissioned
in 2017 and have achieved 100% capacity utilization. That apart, an arbitral
Award directing the respondent to pay a sum of Rs. 201 Crores to the
petitioners has already been passed. That apart, all the counter claims of the
respondent as regards the performance of the contract have been rejected and
the respondent has no live and subsisting claim.

OMP (I) (COMM) 87/2020 Page 9

20. According to Mr. Rai, the short issue that arises for consideration, in
this petition is, whether the respondent who has lost the arbitral proceedings
and had all its counter claims in relation to the performance of the contract
rejected by the Arbitral Tribunal, can seek extension of the bank guarantees
furnished by the petitioners for the performance of the contracts pending
adjudication of the respondent's petition under
Section 34
of the Act
challenging the Award.

21. According to Mr. Rai, this issue is no longer res-integra and has been
settled by this Court, inasmuch as a losing party in an arbitration cannot seek
an extension of the contractual Bank Guarantees or invoke them once it has
suffered an Award. Such an extension or pay demand is not only barred
under
Section 9
of the Act but also under
Section 34
read with
Section 36
of
the Act. In this regard, he had relied upon the judgments of this Court in the
case of Nussli Switzerland Ltd. vs. Organizing Committee FAO(OS)
121/2014 and Bombay High Court in Dirk India Private Limited vs. MSEGC
(2013) 7 Bom. CR 493.
For the same proposition, he relied upon a judgment
wherein Nussli (supra) was followed that is
Singhania Horizons vs. HRC
Engineers Estates (P) Ltd.
2016 (1) HCC (Delhi) 59.

22. It was the submission of Mr. Rai, when a losing party cannot seek an
order in
Section 9
petition, it cannot seek such an order in
Section 34
petition.
[Ref. ONGC vs. Consortium of SimeDarby Engineering Sdn. Bhd. And
another 2018 SCC OnLine Bom 6034]. Mr. Rai stated under similar
circumstances, this Court, during the pendency of petitions under
Section 34

of the Act directed the return of bank guarantees in a petition filed under

Section 9
of the Act in the case of Mukti Credits Pvt. Ltd. vs. Indra Prastha
Power Generation Co. Ltd., OMP(I) (COMM) 113/2019. He also stated that
the respondent demanded, the bank guarantees be extended only on the

OMP (I) (COMM) 87/2020 Page 10
ground of purported challenge to the final Award. According to him, the
respondent in its e-mail dated March 07, 2020 did not aver that the extension
is being sought in respect of an additional claim the respondent had against
the petitioners. It is only later on, on April 10, 2020, the respondent has taken
a stand that the bank guarantees are required to be extended as the petitioners
failed to perform its obligation under the contracts. That apart, the subsequent
invocation of the bank guarantees is egregious case of fraudulent invocation.

23. That apart, it was his submission that the Court vide order dated
March 13, 2020, had directed the petitioners to extend the bank guarantees by
a period of only one month, within which time, the respondent was to satisfy
the condition of securing 'appropriate order' in its
Section 34
petition, which
they failed to secure. He stated, no positive direction for extension of bank
guarantees could have been sought in a petition under
Section 34
of the Act.
In fact, it was his submission that the stay application does not refer at all to
the subject bank guarantees. He qualifies his submission by stating that a
petition under
Section 34
of the Act is only for setting aside an arbitral Award
on the limited grounds provided under
Section 34
of the Act. Therefore, at
the highest, even accepting the respondent's position for the sake of argument,
the final Award may be set aside, even then the respondent's counter claims
cannot be allowed in
Section 34
petition. Therefore, according to Mr. Rai, the
mere pendency of
Section 34
proceedings cannot afford a ground for a party
to assert that it has a dispute regarding contractual performance.

24. So, it was his submission, the respondent interpreting the order dated
March 23, 2020, which only stays the operation of the impugned Award as an
'appropriate order' would amount to the respondent getting indirectly what it
cannot achieve directly in a petition under
Section 9
or 34 of the Act.

OMP (I) (COMM) 87/2020 Page 11

25. It was his submission, even otherwise the order dated March 23, 2020
was not passed on merits but on the respondent's agreement to deposit the
entire awarded amount with the petitioners. The order only stayed the
operation of the impugned Award, which has the effect of staying the
enforcement of the Award. According to Mr. Rai, it follows that, there is no
positive direction to the petitioners to keep on extending the bank guarantees
at their own cost.
In support of his submission Mr. Rai relied on the judgment
of the Supreme Court in the case of
Shree Chamundi Mopeds Ltd. vs.
Church of South India Trust Association CSI Cinod Secretariat, Madras
,
1992 (3) SCC 1.

26. Mr. Rai also stated in the absence of any live and pending claim against
the petitioners, there is no ground for the respondent to seek extension of bank
guarantees.

27. That apart, he stated that the respondent wrongly contends that it has
certain unadjudicated claims regarding PGTR. According to him, claims
regarding PGTR have been expressly dealt by the Arbitral Tribunal in
paragraphs 336 to 339 of the Award and have been rejected. Further, the
respondent did not make any claims in relation to any defects in PP unit.
Further, with regard to two advance bank guarantees, despite having
recovered the entire mobilization advance and made no claim before the
Arbitral Tribunal, their invocation is clearly fraudulent. In fact, this plea of
the petitioners in paragraphs 27 to 29 of the petition has not been denied.
Thus, he seeks the grant of prayers in the petition.

28. On the other hand, Mr. Nakul Dewan, learned Sr. Counsel appearing
for the respondent submits that the five bank guarantees of which return is
sought, are unconditional and irrevocable and out of which four have already
been invoked by the respondent. According to him, contrary to the

OMP (I) (COMM) 87/2020 Page 12
submissions advanced by Mr. Rai, this case does not raise any important
principles related to arbitration jurisprudence in India. According to him the
issue is whether the petitioners have been able to demonstrate that bank
guarantees should be injuncted by this Court by meeting the twin test for grant
of an injunction restraining the invocation of bank guarantees. These two tests
are egregious fraud and irretrievable harm on which principles there are
catena of cases and which tests the petitioners have failed to meet. He
justifies the invocation of the bank guarantees on the ground that the
respondent has protectable interest related to performance of the contract. It
was also the submission of Mr. Dewan that the petitioners cannot get the relief
of return of the bank guarantees in a petition under the
Section 9
of the Act as
similar prayer of the petitioners was not granted by the Arbitral Tribunal and
also such a relief being final in nature cannot be granted.

29. He in the alternative submitted that this Court on March 13, 2020 and
on April 15, 2020 required the petitioners to extend the bank guarantees and
the respondent was required to deposit the extension charges before this court.
The said orders be extended till a decision is arrived at, in a petition filed by
the respondent under
Section 34
of the Act and in that regard, he sought an
early disposal of the said petition.

30. On merits, it was his submission that two contracts between the parties
is out of a USD 4.2 billion mega grassroot petrochemical project in Asia both
dated September 2, 2011 for construction of Polyethylene Unit (the PE Unit)
and a Propylene Unit (PP Unit) respectively. The contracts contained identical
terms and obligations and were for a cumulative value of about INR 2500
Crores. Out of that the petitioners have already been paid a sum of INR 1622
Crores for PE Contract and INR 835 Crores for PP Contract approx.

OMP (I) (COMM) 87/2020 Page 13

31. The schedule completion date under the contract was October, 2013.
However, on that date only barely 40% of the work was completed and the
Project was still at the stage of construction. He stated as on date all the
contracts are still valid and subsisting and the petitioners have not been
discharged from their obligations under the contracts. In this regard he states
the following:

1. Claims based on delays caused by the respondent were filed by
the petitioners.

2. Counter-claims for (a) delays by way of liquated damages
(aggregating to 5% of the contract price) and (b) defects were
filed by the respondents against the petitioners.

3. The majority award held that the petitioners were entitled to
their claim for delays inter alia on (a) the basis of a concept of
sustained pre-commissioning which was not a concept found
under the contract and (b) on an interpretation of a contractual
provision which was not argued by either party. The minority
award held that on plain reading of the contracts, the respondent
was not liable for delays and the concept sustained pre-

commissioning which was alien to the contract could not be
imported to foist a contractual liability on the respondent.

4. The majority award rejected the counter-claims completely,
which was not entirely agreed to in the minority award.

32. Mr. Dewan stated that in the event this Court set asides the Award in
the
Section 34
Petition, the respondent would be automatically entitled to
invoke the subject bank guarantees for any of the breaches / non-performance
and there is no requirement for an order or decree of a Court / Tribunal. At
the very least the respondent would be entitled to invoke the subject bank

OMP (I) (COMM) 87/2020 Page 14
guarantee to recover its liquidated damages in respect of which it is settled
law that there is no requirement of an order of a Court or Tribunal for a party
to invoke a performance guarantee to recover liquidated damages. He stated
that the bank guarantees were furnished by the petitioners in favour of the
respondent in accordance with clauses 3.3 and 3.8 of the GCC and the same
are required to be kept valid until the schedule completion date for the works
of the contract. In this regard, he has drawn my attention to the definition of
'works' and 'scope of works' in the contracts. Further, he by drawing my
attention to clause 10.14 of the GCC which stated that the petitioners are
required to achieve PGTR. He stated that even if the petitioners are entitled
to a claim of deemed PGTR in terms of the Award, the respondents' claims
for monies to conduct the PGTR were not granted. The petitioners are
nonetheless required to assist the respondent with completion of the PGTR at
their costs in a contract which continues to subsist.

33. According to him, in so far as PE Unit is concerned, the PGTR has not
been achieved till date which fact has been acknowledged in the Award. He
qualifies his submission by stating as under:

1. The petitioners asserted before the Tribunal that they were
entitled to a milestone payment of deemed PGTR.

2. The respondent asserted before the Tribunal that it ought to be
allowed to complete PGTR on its own and claimed a sum of INR
111.70 million and JPY 38.14 million towards additional cost to
achieve PGTR.

3. The Tribunal allowed the claim of PGTR and disallowed the
respondents claim of additional costs to achieve PGTR. In this
regard he has drawn my attention to Paras 336 and 337 of the

OMP (I) (COMM) 87/2020 Page 15
Award. He also drawn my attention to the conclusion arrived at
by the minority.

34. Mr. Dewan stated that in view of the findings of the Arbitral Tribunal
and in a contract which continues to subsist between the parties, the only
manner by which PGTR can now be achieved would be in terms of clause
14.10 (b), which is with the assistance of the petitioners and through costs
payable by them. That apart, he stated that there are other aspects of the
contracts which have not been completed which is a fact that even the
Tribunal recognized that the petitioners had failed to prove in the arbitration.
He supports his submission by drawing my attention to Para 32 of the
counter-affidavit wherein the respondent has stated that the petitioners have
abandoned the contract.

35. Mr. Dewan further stated that initially on invocation of the bank
guarantees, the petitioners filed OMP (I) (COMM) 73/2020 before this Court.
This Court by its order dated March 13, 2020, had disposed of the petition
whereby it directed that the bank guarantees be extended for a period of one
month within which time, the respondent was to get its
Section 34
petition
listed and secure appropriate orders.

36. According to him, pursuant thereto the respondent got its
Section 34

petition listed and this Court by way of its order dated March 23, 2020 stayed
the operation of the Award. Therefore, the disputes between the petitioners
and the respondent continued to subsist and the respondent continues to have
protectable interests at this juncture.

37. It was his submission that as the respondent has secured appropriate
orders in its
Section 34
petition, and the validity of this bank guarantees was
expiring, the respondent rightly addressed the communications on April 5,
2020 and April 7, 2020, calling the petitioners to extend the bank guarantees.

OMP (I) (COMM) 87/2020 Page 16
In fact, he further stated that the respondent again vide its communication
dated April 10, 2020 by inter alia stating therein that the petitioners have not
complied with their obligation as contemplated under the contract but not
limited to accomplishment of PGTR in case of PE Contract. Notwithstanding
the Award the petitioners are fully aware that under the contract, the
petitioner's obligation to complete the PGTR remains. That apart the
petitioners are liable for various defects in the commissioning of the PE Unit
in respect of which the respondent has filed counter-claim aggregating to over
INR 750 Crores in the arbitration proceedings. It is his submission that the
entire issue in this petition needs to be considered in the aforesaid
background.

38. On bank guarantees, Mr. Dewan, by drawing my attention to the bank
guarantees itself stated those are unconditional bank guarantees. The bank
guarantees are independent contracts between the respondent and the bank
and the same do not make any reference to the contact between the petitioners
and the respondents; to any pending arbitration, litigation or appeals and the
fact they are irrevocable in nature. Therefore, it is his submission despite the
pendency of the proceedings under
Section 34
, the respondent is entitled to
invoke the bank guarantees. He by saying so challenges the stand of the
petitioners that the invocation of the bank guarantees is not in accordance with
the terms therein.
In support of this submission that the court should not
interfere with the invocation of unconditional bank guarantees unless a case of
egregious fraud or irretrievable harm is made out, he relied upon the
judgment of the Supreme Court in the case of
Himadri Chemicals Industries
Ltd. v. Coaltar Refining Company
, 2007 8 SCC 110.

He also relied upon a
recent Judgment of the Supreme Court on a similar proposition in the case of

Standard Chartered Bank v. Heavy Engineering Cooperation Limited
, 2019

OMP (I) (COMM) 87/2020 Page 17
SCC Online SC 1638. Mr. Dewan would submit that the plea of Mr. Rai that
the invocation of the bank guarantees is fraudulent as the respondent has gone
behind the arbitral Award as well as the orders of this Court which required
the respondent to get their petition listed under
Section 34
and secure
appropriate orders and the respondent has failed to secure such appropriate
orders is concerned, he stated that such a submission is without any basis and
the respondents continues to have disputes with the petitioners and for that
reason the respondent is entitled to invoke the bank guarantees. According to
him merely because an arbitral Award has been pronounced against the
respondent does not mean that pending its challenge, the disputes cease to
exist.

In this regard he has relied upon the Judgment of the Supreme Court in

K. Kishan v. Vijay Nirman Company Pvt. Ltd.
, 2018 (10) SCALE 256,
wherein the Court has inter alia stated that the filing of petition under
Section
of the Act against an arbitral award shows that a pre-existing dispute which
culminates at the first stage of the proceedings in an award continues even
after the award, at least till the final adjudicatory process under
Section 34
and
has taken place.

Therefore, the reliance placed by Mr. Rai on the judgment
of the Supreme Court in
Shree Chamundi Mopeds Ltd.
(supra) is irrelevant.
In other words, it was his submission that once dispute between the parties has
culminated into an award and the subject matter of a challenge under
Section
of the Act, there is a continuation of the dispute between the parties.
Therefore, the distinction between a stay on the award and a stay on the
operation of the award are really not relevant for this case. He highlights the
fact that the invocation was necessitated because of failures on the petitioners
to extend the validity of the bank guarantees until the culmination of the
disputes between the parties. Therefore, the petitioners have failed to make
out case for injunction on the ground of irretrievable harm or injustice or

OMP (I) (COMM) 87/2020 Page 18
special equities.

He by relying upon the Judgement of this Court in the case
of
Indu Projects Ltd. v. Union of India
, 2013 (139) DRJ 260, wherein it is
held inter alia that overall judgments pertaining to the bank guarantees would
show that Courts have interchangeably used the expression special equities
with expression such as irretrievable injury or irretrievable injustice.

39. It was his submission that the Courts have consistently held that in
order to make out a case for injunction on the ground of irretrievable injury or
special equities an aggrieved party must be able to prove that it would be
impossible to recover the amount paid out under the bank guarantee, if it
ultimately succeeds in the disputes between the parties.
In this regard he has
relied upon the Judgment in the case of
U.P. State Sugar Corporation v.
SUMAC International Ltd.
, 1997 1 SCC 568.

40. That apart it was his submission that the respondent is a Public Sector
Undertaking and the petitioners will not be impeded in any manner from
recovering the money encashed by the respondent under the bank guarantees
if the petitioner ultimately succeeds.

41. He stated that the plea of Mr. Rai that if it is ultimately found that the
invocation was wrong, the petitioners have to initiate separate arbitration
proceedings to recover the monies paid out to the respondent under the bank
guarantees and therefore the special equities are in their favour is an untenable
argument. In this regard, he reiterated his submission that the bank
guarantees are unconditional and irrevocable guarantees, invocation of which
can only be rejected under the two exceptions which have been stated above.
Further, the plea of Mr. Rai of irretrievable injury is also without evidence.

42. On the Judgment of Mukti Credits Pvt. Ltd.(supra) as relied upon by
Mr. Rai, Mr. Dewan submitted that the said judgment cannot be binding
precedent on this Court because apart from the fact that it is based on a report

OMP (I) (COMM) 87/2020 Page 19
by DIAC and (not the Arbitral Tribunal) which quantified a claim that does
not consider
Section 9
of the Act and the limitation of the powers set out
therein (b)does not consider the law related to invocation of bank guarantees
and the limitation of the exercise of powers by the Court in such matters.

43. On the judgments relied upon by Mr. Rai, he stated that the same are
entirely misplaced. On Nussli (supra), he stated that the respondent has not
filed a petition under
Section 9
of the Act for the Judgment to be applicable
and in any case in appeal against Nussli(supra) judgment, the Supreme Court
directed for the extension of the bank guarantees pending adjudication of the
dispute which was consistent with approach adopted by the Single Judge of
this Court in the same case.

44. Finally, he stated that the present petition is liable to be dismissed
alternatively as suggested that the orders dated April 13, 2020 and April 15,
2020 be continued till the disputes between the parties culminates with the
hearing of the petition under
Section 34
of the Act on a date convenient to this
Court.

45. In his rejoinder submissions, Mr. Rai, contested the arguments
advanced by Mr. Dewan, that the respondent is entitled to seek the extension
of the Bank Guarantees for the reason, it has a fresh-claim on account of
PGTR against the petitioners and
Section 34
petition is pending.

46. Mr. Rai stated that all the claims that the respondent had qua
petitioner's obligation to conduct PGTR were made before arbitral tribunal,
which rejected them, as can be seen from the Award that the counter-claim
was "for additional costs to achieve PGTR". He also stated that till date no
new demand or claim has been made by respondent against the petitioner qua
any obligations to conduct a PGTR. According to Mr. Rai, the argument is an

OMP (I) (COMM) 87/2020 Page 20
after thought to defend and unsustainable invocation of the Bank Guarantees.
In this regard he has highlighted the following:

1. In its first mail seeking extension dated March 7,2020, the
respondent referred to
Section 34
petition for seeking extension of the
Bank Guarantees.

2. Even subsequently, when communicating its extend or pay demand
for the second time on March 05, 2020, the respondent only referred to
the pendency of
Section 34
petition as the basis for seeking an
extension of the Bank Guarantees.

3. The reliance placed by Mr. Dewan on paragraphs 24-31 of the
respondent's counter-affidavit for its new/fresh PGTR claim, do not
relate to any fresh claim or refer to Clause 10.14(b) and therefore,
reliance on the said clause is clearly an after-thought to somehow create
a claim.

47. According to Mr. Rai, the PGTR was to be conducted within 12
months from the date of successful completion of commissioning. This
according to Mr. Rai, is important because the respondent's counter-claim
was filed on April, 02, 2018. In fact, according to him, no defect was raised
for PP unit and the PGTR was successfully completed by the petitioner and
payment for the same was made by the respondent.

48.
Insofar as the reliance placed by Mr. Dewan on the judgment of the
Supreme Court in the case of
K. Kishan
(supra) is concerned, Mr. Rai stated
that
the said decision
is in the context of Insolvency and Bankruptcy Code,
2016 ('IBC', for short) and only deals with the concept of pre-existing dispute
as defined in IBC, in respect of commencement of the insolvency process by
an operation creditor.

OMP (I) (COMM) 87/2020 Page 21

49. He also stated that the submission of Mr. Dewan that petitioner is a
foreign entity and therefore the respondent is required to be secured is a
misplaced-argument. He stated, a similar argument was rejected in Nussli
(supra). He also stated the plea of Mr. Dewan that the Bank Guarantees be
encashed and the money thereof be deposited in the Court is also an absurd
argument and need to be rejected. He reiterated the prayers in the petition.

50. Mr. Dewan also made rejoinder submissions wherein he primarily
reiterated his earlier submissions in the following manner:

1. No novel issue arises in these proceedings. It is simply an issue
related to injunction/return of the Bank Guarantees.

2. The test for injunction has not been made out.

3. The contractual security in favour of the respondent ought to be
protected and adjudication of statutory rights given to the respondent.

4. The judgments of Dirk Industries (supra) and Nussli (supra) on
which reliance is placed by Mr. Rai is totally misplaced.

51. Having heard the learned counsel for the parties and considered the
record, before I deal with the submissions made by the Sr. Counsels for
parties, the submissions of Mr. Rai as noted above can summed up as (i) the
bank guarantees are those which were provided to the respondent during the
performance of the contracts; (ii) the petitioner performed the contracts and
commissioning certificates dated February 15, 2017 and April 14, 2017 have
been issued and plants have achieved 100% capacity utilization; (iii) the
petitioners' claims have been allowed by the Arbitral Tribunal and the
counter-claims of the respondent rejected; (iv) a losing party in an arbitration
cannot seek extension of the bank guarantees or invoke them once it has
suffered an Award; (v) the respondent demanded the extension of validity of
bank guarantees on the ground it has challenged the final Award; (vi) for the

OMP (I) (COMM) 87/2020 Page 22
first time, on April 10, 2020, the respondent has taken a stand that bank
guarantees are required to be extended as petitioner failed to perform the
contracts, which is an incorrect stand; (vii) by order dated March 13, 2020,
this court directed the petitioner to extend the bank guarantees for one month
within which time, the respondent was to seek appropriate orders in its

Section 34
petition which the respondent failed to secure; (viii) no direction
for extension of bank guarantees was given in
Section 34
petition; (ix) the
stay application in the petition under
Section 34
of the Act does not refer at all
to the bank guarantees; (x) mere pendency of
Section 34
proceedings does not
mean dispute regarding contractual performance exist between the parties;

(xi) there is no live or pending claim against the petitioners to seek extension
of bank guarantees; (xii) there were no claims regarding defects in PP Unit.
Further, the claim of the respondent regarding PGTR expressly dealt with by
the Tribunal in paragraphs 336 to 339 of the Award and rejected the same;

(xiii) with regard to two bank guarantees, despite having recovered the entire
mobilization advanced and the counter-claims before Arbitral Tribunal having
been rejected, the invocation is fraudulent; and (xiv) the petitioners have to
initiate separate arbitration proceedings to recover the monies paid out to the
respondent under the bank guarantees and therefore the special equities are in
their favour.

52. On the other hand, the submissions made by Mr. Nakul Dewan can be
summed up as follows (i) the bank guarantees are unconditional and
irrevocable, out of which four have already been invoked; (ii) this case needs
to be seen and decided on the principles governing grant of injunction,
restraining the invocation of the bank guarantees on the twin test of egregious
fraud or irretrievable harm, which are not satisfied; (iii) the invocation of
bank guarantees is justified as the respondent has protectable interest related

OMP (I) (COMM) 87/2020 Page 23
to the performance of the contract; (iv) the petitioners cannot get the relief of
return of bank guarantees as similar prayer was rejected by the Arbitral
Tribunal, more so in a petition under
Section 9
of the Ac; (v) alternatively,
this Court extend the orders dated March 13, 2020 and April 15, 2020 which
requires the petitioners to extend the validity of the bank guarantees and the
respondent shall deposit the charges in the Court till the decision of
Section
Petition; (vi) as of today, all the contracts are still valid and subsisting and
the petitioners have not been able to discharge their obligations under the
contracts; (vii) merely because an arbitral Award has been pronounced against
the respondent does not mean that pending its challenge, the disputes cease to
exist; and (viii) if the Court set asides the Award in the
Section 34
Petition,
the respondent would automatically be entitled to invoke bank guarantees for
any breaches / non-performance and recover its liquidated damages in respect
of which it is settled law that there is no requirement of an order of Court /
Tribunal.

53. Having noted the broad submissions made by the Senior Counsels it is
a fact that as per the contracts, the petitioners had in terms of Clauses 3.3 and
3.8 of the GCC, had furnished performance bank guarantees, guaranteeing the
execution and performance of the contract and advanced bank guarantees to
secure the mobilization advance paid by the respondents to the petitioners.
Out of the five bank guarantees, two are advanced bank guarantees and three
are performance bank guarantees. It is a conceded case of the parties that the
scheduled date of completion of commissioning of both the Units was on or
before October 2, 2013. But in fact, the units were commissioned on April
14, 2017 and February 12, 2017 respectively. Disputes arose between the
parties which went to arbitration. The primary claim of the petitioner was for
damages on account of delay on the part of the respondent in completing and

OMP (I) (COMM) 87/2020 Page 24
commissioning of the project. The respondent had also filed counter-claims
seeking liquidated damages for the delay in commissioning both the units
attributable to the petitioners and also for losses and damages incurred by
respondent on account of defects and damages discovered in the PE Unit and
claim on PGTR. The Arbitral Tribunal speaking through majority allowed
the claims of the petitioners and rejected the counter-claims. The respondent
has challenged the Award in a
Section 34
petition which is pending
consideration of this court. When the said petition was listed on March 23,
2020, this Court on the submission made by Mr. Dewan, directed that the
awarded amount shall be paid by the respondent to the petitioners on the
petitioners furnishing bank guarantee for the awarded amount stayed the
operation of the Award.

54. So, it follows that the Award of the Arbitral Tribunal enures to the
benefit of the petitioners being a successful party. It is the successful party
who can seek its enforcement under
Section 36
of the Act and also secure the
Award under
section 9
of the Act and not the respondent being the losing
party. This position of law is well settled by the judgment of the Bombay
High Court as upheld by the Supreme Court in case of Dirk (Supra) wherein
in paragraphs 13 & 14, the Court has held as under:

"13. The Court which exercises jurisdiction under
Section 34
is
not a court of first appeal under the provisions
of the Code of
Civil Procedure
. An appellate court to which recourse is taken
against a decree of the trial Court has powers which are co-
extensive with those of the trial Court. A party which has failed in
its claim before a trial Judge can in appeal seek a judgment of
reversal and in consequence, the passing of a decree in terms of
the claim in the suit. The court to which an arbitration petition
challenging the award under
Section 34
lies does not pass an
order decreeing the claim. Where an arbitral claim has been
rejected by the arbitral tribunal, the court under
Section 34
may
OMP (I) (COMM) 87/2020 Page 25
either dismiss the objection to the arbitral award or in the
exercise of its jurisdiction set aside the arbitral award. The
setting aside of an arbitral award rejecting a claim does not
result in the claim which was rejected by the Arbitrator being
decreed as a result of the judgment of the court in a petition
under
Section 34
. To hold that a petition under
Section 9
would
be maintainable after the passing of an arbitral award at the
behest of DIPL whose claim has been rejected would result in a
perversion of the object and purpose underlying
Section 9
of the
Arbitration and Conciliation Act, 1996. DIPL's application under

Section 9
, if allowed, would result in the grant of interim specific
performance of a contract in the teeth of the findings recorded in
the arbitral award. The interference by the Court at this stage to
grant what in essence is a plea for a mandatory order for interim
specific performance will negate the sanctity and efficacy of
arbitration as a form of alternate disputes redressal. What such a
litigating party cannot possibly obtain even upon completion of
the proceedings under
Section 34
, it cannot possibly secure in a
petition under
Section 9
after the award. The object and purpose
of
Section 9
is to provide an interim measure that would protect
the subject-matter of the arbitral proceedings whether before or
during the continuance of the arbitral proceedings and even
thereafter upon conclusion of the proceedings until the award is
enforced. Once the award has been made and a claim has been
rejected as in the present case, even a successful challenge to the
award under
Section 34
does not result an order decreeing the
claim. In this view of the matter, there could be no occasion to
take recourse to
Section 9
. Enforcement for the purpose of

Section 36
as a decree of the Court is at the behest of a person
who seeks to enforce the award. (Emphasis supplied)

55. The judgment of Dirk (Supra) is followed by this Court in Nussli
Switzerland (Supra) wherein the Division Bench agreed with the reasoning of
the Court in Dirk (Supra).

OMP (I) (COMM) 87/2020 Page 26

56.
In fact, I in the case of
Singhania Horizons
(supra), has also followed
judgments in Dirk (supra) and Nussli Switzerland (supra) to hold that a
losing party cannot file a petition under
Section 9
of the Act.
It is the
submission of Mr. Dewan that the Nussli Switzerland (Supra) is pending
consideration before the Supreme Court in SLP(C) No. 026876 -
026876/2014. He has placed before me the order dated September 26, 2014 in
the said special leave petition wherein the Supreme Court has directed the
extension of the Bank guarantees till further orders. Mr. Dewan, however,
concedes to the fact that the Supreme Court has not stayed the judgment of the
Division Bench in Nussli Switzerland (Supra).

57. It appears that the respondent being a losing party, in order to overcome
the Judgment in Dirk (Supra), as it could not have approached the Court in

Section 9
and sought an order against the petitioners that they shall keep the
bank guarantees alive till
Section 34
petition is decided, proceeded to invoke
the bank guarantees. Mr. Rai is right to contend that the respondent by
invoking the bank guarantees, did what they could not have done directly.
Mr. Rai is also right in stating that when this Court vide order dated March
13, 2020 disposed of OMP (I) (COMM) 73/2020 directing the petitioners to
extend the bank guarantees by a period of one month to enable the respondent
to get its petition under
Section 34
listed and secure appropriate orders, which
the respondent failed to secure at least with regard to securing bank
guarantees, they are precluded from invoking the same.

58. It was the submission Mr. Dewan that (1) disputes continue to exist till
such time the arbitral Award attains finality in the Supreme Court; (2) there
are other obligations under the contracts which have not been completed by
the petitioner for which reason the respondent can invoke the bank guarantees.
On the first aspect, he has relied upon the judgment of the Supreme Court in

OMP (I) (COMM) 87/2020
Page 27
K. Kishan
(Supra). The issue involved in
the said judgment
was whether IBC
can be invoked against an operational debtor against whom an arbitral award
has been passed which is challenged in a
Section 34
petition under the Act
and is pending adjudication.

The Supreme Court after referring to its earlier
judgment in
Mobilox Innovations Private Limited v. Kirusa Software Private
Limited
, (2018) 1 SCC 353, held that when a 'dispute' pre-exists or is on-
going between the parties, operational creditors cannot use IBC either
prematurely or for extraneous considerations or as a substitute for debt
enforcement procedures. The judgment further holds that the challenge to the
arbitral award means the 'dispute' between the parties continue, in which case
an application preferred by the operational creditor must be rejected. So, the
judgment of the Supreme Court has been considered in the context of IBC that
a 'dispute' continues to exist between the parties when the arbitral award is
under challenge. The said judgment has no applicability in the facts of this
case as it does not relate to a litigation under the IBC.

59. On the second submission he drew the attention of the Court to an e-
mail dated April 10, 2020 of the respondent to the petitioners and also Para 32
of the counter-affidavit. To understand the submission, it is necessary to
reproduce Para 11 of the e-mail dated April 10, 2020 and Para 30 to 33 of the
counter-affidavit, as under :

"11. The bank guarantees were created under Clause 3.3 and 3.8
of the Contracts dated 02.09.2011 ("Contracts") to secure the
performance of your clients' obligations under the Contracts.
You are well aware that till date, your clients have not complied
with their obligations as contemplated under the contracts
including but not limited to accomplishment of Performance
Guarantee Test Run ("PGTR") in case PE Contract.
Notwithstanding the Award, you are fully aware that under the
Contract your clients' obligation to complete the PGTR remains.
Furthermore, your clients are liable for various defects in the
OMP (I) (COMM) 87/2020 Page 28
commissioning of the PE Unit in respect of which our client had
filed a counterclaim aggregating to over INR 750 Crores in the
arbitration proceedings. In view of the stay of the Impugned
Award, your clients are now required to keep the Subject Bank
Guarantees alive so as to secure our client's interests and claims
under the Contracts. Since the validity of the bank guarantees in
question are expiring by 14.04.2020 and 17.04.2020, our client
has no option but to invoke them in order to prevent those
guarantees from lapsing. Our client cannot afford to lose the
security available. In this time of pandemic and resultant
restrictions, as a matter of necessity these guarantees have to be
saved from lapsing and our client will resort, in good faith ,such
actions which are necessary to protect its security and also to
mitigate the situation until the Hon'ble Court rule on matters
pending before it."

XXX XXXX XXXX XXX

COUNTER-AFFIDAVIT

XXXXXXXX

"30. By way of its Counterclaim, OPaL contended that it is entitled
to Liquidated damages for the delay in commissioning of both PE
and PP Units due to the delays caused by Tecnimont and also for
the losses and damages incurred by OPaL on account of the defects
and damages discovered in the PE Unit. OPaL also claimed that
Tecnimont was in breach of its obligations to complete the PGTR of
the respective units. The Respondent craves leave to refer to the
Statement of Claim, Counterclaim and other pleadings in the
arbitration proceedings when produced

31. It is submitted that under the Contracts, OPaL is entitled to
recover the following amounts by invoking the bank guarantees
issued in its favour under the terms of the Contracts, without
resorting to a fresh arbitration, in the event the Impugned Award is
set aside by this Hon'ble High Court:

OMP (I) (COMM) 87/2020 Page 29
S. No Particulars Amounts

1. Liquidated Damages of 5 percent INR 491.21 million
of the contract value for both PP USD 5.46 million
Unit and PE Unit under Clause EUR 3.86 million
6.3.2 of GCC of both PE and PP
Contract

2. Defects caused to the PE Unit (a) INR 2,819.82
and for non-achievement of million towards
PGTR of the PE Unit under loss of incremental
Clause 6.1 and Clause 10 of the profits of the PE
GCC of the PE Contract Unit

(b) INR 4,773.42
million towards
impact on DFCU
and

(c) INR 111.70
million and JPY
38.14 million for
additional cost to
achieve PGTR

3. Interest on mobilization advance INR 136.28 million

4. Additional insurance premium INR 183.23 million

5. Change orders INR 79.43 million
and USD 0.46
million

OMP (I) (COMM) 87/2020 Page 30

32. Further, undisputedly, Tecnimont's entire technical team abandoned
OPaL's Dahej Plant during the pendency of the arbitration proceedings
without any proper intimation to OPaL and without completing the
entire Scope of Works including PGTR of the PE Unit and closure of
punch points and others. Till date, in spite of several requests from
OPaL, Tecnimont flagrantly failed and neglected to supply the complete
set of mandatory spares under the Contracts. In this regard, it is
pertinent to mention that Clause 11 of the Contracts provides that
Tecnimont is obligated to perform the works under the Contract
notwithstanding pendency of the arbitration proceedings. Clause 11 is
reproduced below:

"11.0 Continuation of the Contract
Notwithstanding the fact that settlement of dispute(s) (if
any) under arbitration may be pending, the Contractor
shall continue to be governed by and perform the work in
accordance with the provisions under this Contract."

Therefore, Tecnimont's assertion that the entire Scope of Work
under the Contracts has been completed is incorrect.

33. It is submitted that if the Impugned Award is set aside, OPaL
would be entitled to recover the amounts by invoking the bank
guarantees without resorting to fresh arbitration. The bank
guarantees are furnished as security towards OPaL's claims
against Tecnimont and under the Contracts OPaL is entitled to
recover the said amounts without first resorting to any dispute
resolution including arbitration."

60. On a reading of the above paras as reproduced it is clear that the
respondent in its counter-claims before the Arbitral Tribunal had sought:

i. Liquidated damages for the delay in commissioning of both
PE and PP Units caused by the petitioners.

ii. Losses and damages incurred by the respondent on account
of defects and damages discovered in PE Unit.
iii. Interest on mobilization advance.

OMP (I) (COMM) 87/2020 Page 31
iv. Additional Insurance Premium.
v. Charge Orders

61. During his submissions, Mr. Dewan would contend that the respondent
has fresh claims regarding PGTR, by referring to para 11 of e-mail dated
April 10, 2020 (reproduced above). In other words, he tries to draw a
distinction between the counter-claims made before the Tribunal and the
claims over and above the counter-claims to justify the invocation. Such a
plea does not flow either from the e-mail dated April 10, 2020 nor from the
counter-affidavit (reproduced above) filed by the respondent. The said e-mail
only narrates the stand of the respondent that the petitioners have not
accomplished the PGTR. It is not the case of the respondent that in its
counter-claims, the respondent has not sought the sums to achieve PGTR
themselves. Even otherwise, I find that the respondent in its written
arguments filed in the court has stated "the respondent asserted before the
Hon'ble Tribunal that it ought to be allowed to complete to PGTR on its own
and claimed a sum of INR 111.70 million and JPY 38.14 million towards
additional cost to achieve PGTR" . This statement of respondent corresponds
with the final Award which reads "for additional cost to achieve PGTR", and
the claim was rejected.

62. Mr. Rai is justified in stating the plea of Mr. Dewan, is an afterthought
as no such stand was taken by the respondent in its earlier e-mails dated
March 7, 2020 and April 5, 2020.

63. It is clear that the respondent by invoking the bank guarantees intends
to secure counter-claims which were rejected by the arbitral tribunal, which is
clearly impermissible in view of the position of law noted above.

OMP (I) (COMM) 87/2020 Page 32

64. Insofar as the plea of Mr. Dewan that if the arbitral Award is set aside,
the respondent can invoke the Bank Guarantees to satisfy its claims without
resorting to arbitration / Court is a fallacious argument.

65. It is settled law that the claims (counter-claims in this case) so rejected
are not deemed to have been allowed in favour of respondent as held by the
Bombay High Court in Dirk (supra) in Para 13, the relevant part reads as
under:

"13. The Court which exercises jurisdiction under
Section 34

is not a court of first appeal under the provisions
of the Code
of Civil Procedure
. An appellate court to which recourse is
taken against a decree of the trial Court has powers which are
co-extensive with those of the trial Court. A party which has
failed in its claim before a trial Judge can in appeal seek a
judgment of reversal and in consequence, the passing of a
decree in terms of the claim in the suit. The court to which an
arbitration petition challenging the award under
Section 34

lies does not pass an order decreeing the claim. Where an
arbitral claim has been rejected by the arbitral tribunal, the
court under
Section 34
may either dismiss the objection to the
arbitral award or in the exercise of its jurisdiction set aside
the arbitral award. The setting aside of an arbitral award
rejecting a claim does not result in the claim which was
rejected by the Arbitrator being decreed as a result of the
judgment of the court in a petition under
Section 34
"

66. The aforesaid view has been reiterated by another Division Bench of
Bombay High court in the case of
Oil and Natural Gas Corporation Ltd. v.
Consortium of Sime Darby Engineering Sdn
. Bhd. and Swiber Offshore
Construction Pte. Ltd., 2018 SCC Online Bom 6034, wherein in Para 11
states as under:

"11. The Division Bench of this Court in Dirk India Pvt.
Ltd. (supra) has held that the enforcement of an award enures

OMP (I) (COMM) 87/2020 Page 33
to the benefit of the party who has secured an award in the
arbitral proceedings and the party whose claim has been
rejected in the course of arbitral proceedings cannot have
arbitral award enforced in accordance with
Section 36
of the
Act. The Court to which the arbitration petition challenging
the award under
Section 34
of the Act lies does not pass an
order decreeing the claim. Where an arbitral claim has been
rejected by the arbitral tribunal, the Court under
Section 34
of
the Act either may dismiss the objection to the arbitral award
or in exercise of its jurisdiction may set aside the arbitral
award. The setting aside of the arbitral award in rejecting the
claim does not result in the claim which was rejected by the
arbitral tribunal being decreed as a result of the judgment of
the Court in a petition under
Section 34
. It was held that the
interference by the court to grant a mandatory order will
negate the sanctity and efficacy of the arbitration as a form of
alternate dispute redressal."

67.
In fact, a similar view has been taken by the Division Bench of this
Court in the case of
State Trading Corporation of India Ltd. v. Toepfer
International Asia PTE Ltd.
, 2014 (144) DRJ 220, wherein in paragraph 7,
the Division Bench held as under:

"7. Arbitration is intended to be a faster and less expensive
alternative to the courts. If this is one's motivation and
expectation, then the finality of the arbitral award is very
important. The remedy provided in
Section 34
against an
arbitral award is in no sense an appeal. The legislative intent
in
Section 34
was to make the result of the annulment
procedure prescribed therein potentially different from that in
an appeal. In appeal, the decision under review not only may
be confirmed, but may also be modified. In annulment, on the
other hand, the decision under review may either be
invalidated in whole or in part or be left to stand if the plea for
annulment is rejected. Annulment operates to negate a
decision, in whole or in part, thereby depriving the portion

OMP (I) (COMM) 87/2020 Page 34
negated of legal force and returning the parties, as to that
portion, to their original litigating positions. Annulment can
void, while appeal can modify.
Section 34
is found to provide
for annulment only on the grounds affecting legitimacy of the
process of decision as distinct from substantive correctness of
the contents of the decision. A remedy of appeal focuses upon
both legitimacy of the process of decision and the substantive
correctness of the decision. Annulment, in the case of
arbitration focuses not on the correctness of decision but
rather more narrowly considers whether, regardless of errors
in application of law or determination of facts, the decision
resulted from a legitimate process."

68. It is clear that the even if the respondent succeeds in its
Section 34

petition, the setting aside of the arbitral Award in rejecting the counter-claims
of the respondent does not result in the same being decreed in its favour. It
would be open to the respondent to commence fresh proceedings against the
petitioners (Ref.
International Inc. v. Burn Standard Co. Ltd.
, (2006) 11
SCC 181).

69 It follows that, till such time there is an adjudication of the counter-
claims, in favour of the respondent, no sum is due in praesenti nor any sum is
payable to the respondent, for it to invoke the bank guarantees. This I say so
in view of the Judgment of the Bombay High Court in Iron Hardware (India)
Company a Firm v. Shyamlal Brothers, A Farm, AIR 1954 BOM 523,
wherein the Court inter alia held as under:

"7. Now, this principle has been accepted by the learned
Judge below, but the reason why he has taken a different view
is that the definition of "debt" given in this Act is an artificial
definition and is not the definition which has been accepted for
the purpose of the
Transfer of Property Act
, and what is
emphasised is that debt is not merely a liability which is
ascertained, but it is also a liability which is to be ascertained,
OMP (I) (COMM) 87/2020 Page 35
and therefore the view is taken that unliquidated damages
would constitute a debt within the meaning of this Act. In my
opinion, with respect to the learned Judge, greater emphasis
should be placed on the expression "any pecuniary liability"

rather than on the expression "whether ascertained or to be
ascertained". Before it could be said of a claim that it, is a
debt, the Court must be satisfied that there is a pecuniary
liability upon the person against whom the claim is made, and
the question is whether in law a person who commits a breach
of contract becomes pecuniarily liable to the other, party to
the contract. In my opinion it would not be true to say that a
person who commits a breach of the contract incurs any
pecuniary liability, nor would it be true to say that the other
party to the contract who complains of the breaches has any
amount due to him from the other party.

As already stated, the only right which he has is the right to go
to a Court of law and recover damages. Now, damages are the
compensation which a Court of law gives to a party for the
injury which he has sustained. But, and this is most important
to note, he does not get damage or compensation by reason of
any existing obligation on the part of the person who has com
mitted the breach. He gets compensation as a result of the fiat
of the Court. Therefore, no pecuniary liability arises till the
Court has determined that the party complaining of the breach
is entitled to damages. Therefore, when damages are assessed,
it would not be true to say that what the Court is doing is
ascertaining a pecuniary liability which already existed. The
Court in the first place must decide that the defendant is liable
and then it proceeds to assess what that liability is. But till that
determination there is no liability at all upon the
defendant......"

70. A similar view had been taken by the Calcutta High Court in the case of

Jabed Sheikh v. Taher Mallick
, AIR 1941 Cal. 629.

71. The submission made by Mr. Dewan that the invocation of the bank
guarantees has to be strictly seen as per the law relating to the bank guarantees
OMP (I) (COMM) 87/2020 Page 36
by referring to the judgments in the case of
Himadri Chemicals Industries
Ltd.
(supra);
Standard Chartered Bank
(supra);
Indu Project Ltd.
(supra)
and
U.P. State Sugar Corporation
(supra), is misplaced. The said proposition
is not applicable in the facts of this case and in view of my conclusion above.
Even otherwise, a reading of these judgments reveal that a bank is bound to
honor the bank guarantee irrespective of disputes between the party at whose
instance the guarantee was issued and the beneficiary, subject to two
exceptions i.e. when it is a case of egregious fraud, irretrievable injustice or
irretrievable harm, the Court can grant injunction. It also emerges that every
case has to be decided with reference to the facts and circumstances as
existing.

It is also noted that in
Indu Projects Ltd.
(supra), a Coordinate
Bench of this Court held that the expression irretrievable injury or
irretrievable injustice have been used interchangeably with expression special
equities.

However, the Apex Court in the judgment of
Standard Chartered

(Supra) as relied upon by Mr. Dewan, visualized the irretrievable injustice
and special equities as distinct circumstances.

This is so held by a Coordinate
Bench of this Court in the case of
Halliburton Offshore Services Inc v.
Vedanta Ltd. and Anr.
, 2020 SCC Online Delhi 542, by relying upon the
Supreme Court judgment in the case of
Standard Chartered Bank Ltd.

(Supra) in paragraph 17, which reads as under:

"17. In my view, it is not necessary to multiply references to
precedents, the law with respect to injunction of encashment,
or invocation, of unconditional bank guarantees, being fairly
well settled. It is significant, however, that, where the earlier
understanding of the expression "special equities", as a
circumstance in which invocation of bank guarantees could
be inducted, was that such equities were limited to cases
where irretrievable injustice resulted, the recent decision
in Standard Chartered Bank Ltd, 8 seems to visualize
irretrievable injustice, and special equities, as distinct
OMP (I) (COMM) 87/2020 Page 37
circumstances, the existence of either of which would justify
an order of injunction. Viewed any which way, there appears
to be no gainsaying the proposition that, where "special
equities" exist, the court is empowered, in a given set of facts
and circumstances, to injunct invocation, or encashment, of a
bank guarantee. Where such special circumstances do exist,
no occasion arises, to revert to the general principle
regarding the contractually binding nature of a bank
guarantee, or the legal obligation of the bank to honour the
bank guarantee, these special circumstances having, in all
cases, being treated as exceptions to this general principle."

(Emphasis supplied)

72. In the case in hand, the following facts also cumulatively demonstrate
special equities in favour of the petitioners:

i. The petitioners have an arbitral Award in its favor;
ii. The counter-claims have been dismissed;
iii. The respondent did not secure any order with regard to
extension of the bank guarantees;

iv. It is the case of the petitioners that advance bank
guarantees were furnished against mobilization advance
given by the respondent which have since been recovered
by the respondent through running account bills, the said
aspect has not been denied by the respondent in Para 27
and 29 of its reply to the petition;

v. The bank guarantees given during the contract cannot be
said to have been given in perpetuity even for the period,
after the adjudication of claims / counter-claims, between
the parties;

OMP (I) (COMM) 87/2020 Page 38
vi. There is no sum due in praesenti or sum payable to the
respondent;

vii. Even if the respondent succeeds in its challenge to the
Award under
Section 34
, it has to resort to fresh arbitration
proceedings with regard to the counter-claims and;
viii. That after invocation/encashment of the bank guarantees
by the respondent, the petitioners have to resort to the
process of arbitration to claim the amount.

73. In fact, I also rely on a Coordinate Bench judgment of this Court in
M/s. Mukti Credits Pvt. Ltd. (supra), wherein the Court has restrained the
respondent therein from invoking a bank guarantee, post an arbitral award on
the ground that no sum was due to the respondent and the objections of both
the parties to arbitral award under
Section 34
were pending. The plea of Mr.
Dewan on the non-applicability of this judgment is misplaced.

74. During his submissions, Mr. Dewan had stated that the petitioner be
directed by this Court to continue to extend the validity of the bank guarantees
with charges for such extension to be deposited by the respondent in this
Court or in the alternative, the respondent be allowed to invoke the bank
guarantees and deposit the money in this Court. This submission, is clearly
inequitable in view of the facts and circumstances of this present case. If such
a plea is allowed every party even after losing before an Arbitral Tribunal, on
the pretext that the bank guarantees cannot be injuncted or it shall deposit the
amount in the Court, shall achieve what it could not achieve before the
Arbitral Tribunal, through claims / counter-claims (as in the case of the
respondent).

OMP (I) (COMM) 87/2020 Page 39

75. In view of my above discussion, the present petition is allowed. The
respondent is restrained from invoking / encashing the bank guarantees as
referred to in para (a) of the prayer clause. It is also directed that the
respondent shall return to the petitioners the said bank guarantees.

76. The direction to return the bank guarantees by the respondent to the
petitioners shall not be given effect till June 29, 2020 (including the said
date). The petition is disposed of. No costs.

V. KAMESWAR RAO, J

JUNE 20, 2020/ak/jg

OMP (I) (COMM) 87/2020 Page 40