TMI Blog2015 (2) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is an independent contract between the beneficiary and the bank. So, if it is unconditional, then this contract between the beneficiary and the bank has to be honoured. The Court cannot restrain the two contracting parties to honour their agreement, unless except on the two grounds, i.e., an egregious nature of fraud has been played upon the petitioner, which had issued this bank guarantee, or that he shall suffer an irretrievable loss. The bank guarantees in dispute had been issued towards mobilization, advance purpose/execution of the works awarded. The language used in all the three bank guarantees is the same, except that one qualifies as bank guarantee towards mobilization and other towards advance purpose/execution of work. The language and the title of subject bank guarantees emphatically show that it is an unconditional irrevocable bank guarantee and not the conditional one, as argued by learned counsel for the petitioner. The contention that this bank guarantee is in relation to MoU does not make the bank guarantee as conditional one because all the bank guarantees are given by the contractors, pursuant to the some agreement and thus all the bank guarantees are purs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner, therefore, has failed to satisfy this Court that he has been induced by respondent No.1 into this MoU and has put him in a position of undue disadvantage, while putting respondent in a position of undue advantage. Both parties have voluntarily as part of a settlement entered into MoU and pursuant to that while the respondent refunded the cash amount of ₹ 4,28,00,000/-, the petitioner executed the present unconditional bank guarantee. The petitioner, therefore, has failed miserably to show that any egregious fraud had been played upon him for execution of the present bank guarantees. There is no dispute to the fact that the respondent is a company worth of ₹ 6270.83 crores as an individual and worth of ₹ 7568.69 crores as a group and is not a sick company, as stated by respondent No.1 on affidavit. - It, therefore, cannot be said that the petitioner shall suffer an irretrievable injury if the stay is not granted to it. - petitioner is not entitled to any relief - Decided against Petitioner. - O.M.P. 1117/2014 - - - Dated:- 10-12-2014 - MS. DEEPA SHARMA For the Appellant : Mr. P.K. Sharma and Mr.Sanjay Grover, Advocates For the Respondent : Ms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Arbitrator was appointed to resolve that dispute vide order dated 30.08.2013. Subsequent thereon, the parties entered into a negotiation. The petitioner sought an adjournment on 11.09.2013 from Arbitrator and subsequently, the petitioner and respondent No.1 entered into a settlement and pursuant to that settlement, a Memorandum of Understanding (MoU) dated 18.09.2013 was drawn. Pursuant to the terms of this MoU, respondent No. 1 refunded the sum of ₹ 4,28,00,000/-, which the respondent was having pursuant to the encashment of three bank guarantees of the petitioner and in turn the petitioner furnished fresh bank guarantees for ₹ 3,39,56,750/-. Respondent No.1 also agreed to compensate the petitioner by way of escalation charges which was quantified at ₹ 1,25,00,000/- and agreed to pay in four equal instalments in the following manner:- S. No. Date Amount (Rs.) 1. 18.12.2013 31,25,000/- 2. 18.03.2014 31,25,000/- 3. 18.06.2014 31,25,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that on account of inability of respondent No.1 to pay debts, the petitioner has issued a winding up notice dated 13.09.2014 to respondent No.1 at its registered office at Hyderabad. The petitioner had received a letter dated 13.09.2014 from respondent No.1, wherein various false allegations have been made by respondent No.1 and they had also threatened the petitioner that they were going to encash the bank guarantees and would get the balance work executed at petitioner's risk and cost. This letter was received by the petitioner on 13.09.2014 by e-mail at 3.00 PM. It is submitted that this threat to encash the bank guarantees amounts to a clear and egregious fraud by respondent No.1. It is further pleaded that in terms of MoU, it was agreed between the parties that respondent No. 1 shall pay escalation charges amounting to ₹ 1.25 crores to petitioner upon the submission of bank guarantee. Thus, for the release of the escalation charges amounting to ₹ 1.25 crores, the petitioner had submitted bank guarantees to the extent of ₹ 3.39 crores. The respondent is in the breach of MoU has failed to release the escalation amount and has caused losses to the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract that the fresh bank guarantees were furnished. The petitioner had also submitted a progress schedule dated 17.09.2013 along with the MoU. This schedule had shown the expected completion date as 20.09.2014 and the petitioner has not intentionally placed this document on the Court file along with his petition. It is submitted that it was only on account of the assurance and representation on the part of the petitioner, that he would be able to complete the work by 20.09.2014, that the respondent No. 1 had agreed to enter into an MoU and returned the earlier encashed bank guarantees of ₹ 4,28,00,000/- furnished at the time of earlier work order. As a good gesture, the respondent No.1 also agreed to pay the escalation price, but it was for the future work as the petitioner had agreed to finish the work on the same price on which the contract in the year 2010 was entered into between them. This escalation was to be paid in four instalments as per schedule keeping in mind the schedule of the progress submitted by the petitioner. It is submitted that as per industry practice, there could be no payment, including that of escalation, if the contractor fails to execute the work a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oached the petitioner for completion of the work and agreed to the petitioner's main demand, i.e, to provide escalation on the work already carried out by the petitioner. It was on these grounds that the MoU was executed. It is further prayed that respondent be restrained from invoking the bank guarantee. 7. The contention of the petitioner on 17.09.2014, before this Court was that in terms of MoU, the respondent had to pay a sum of ₹ 1,96,77,486/- to petitioner, but instead of paying the said sum, the respondents had proceeded to invoke the bank guarantee and thereby playing fraud upon the petitioner. On that day, the counsel for respondent was also present and while the respondent was given time to file its short-affidavit, an order of status quo in respect of the bank guarantees was passed. That order is still operative till date. 8. Parties have also furnished their written synopsis. In the written synopsis, the submissions made by the petitioner is that the fraud has been played upon the petitioner since the respondents by making misrepresentation and fraudulent representation, induced the petitioner to execute the MoU dated 18.09.2013 and secured three bank gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering Works Pvt. Ltd. (1997) 6 SCC 450. 11. It is argued that the respondent No.1 is a solvent company having huge turnover and so the petitioner is not going to suffer any irretrievable loss. It is further argued that even in the cases of Sick Companies, the Supreme Court has declined to restrain encashment of the bank guarantee. (Reliance is placed on U.P. State Sugar Corporation (supra)). It is further submitted that the petitioner has not been able to show that a fraud has been played upon him. It is further submitted that whether the escalation price was payable in relation to the previous work or the work done under MoU is a matter which qualifies the contractual dispute and does not constitute fraud which can vitiate the transition of issuance of bank guarantee. Similarly, whether any amount is payable by the respondent No.1 is again the subject matter, to be adjudicated upon in the proceedings and is not the scope of present proceedings. It is submitted that the petition is liable to be dismissed. 12. I have heard the arguments of learned counsel for the parties at length. I have also gone through the synopsis submitted by the parties and the case laws supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in paying back to the Government Advance , the Guarantee is invoked and the amount is recovered from the Bank. It is for this reason that the Courts are reluctant in granting an injunction against the invocation of Bank Guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the Guarantor. This was the principle laid down by this Court in various decisions. In U.P. Cooperative Federation Ltd. v. Singh Consultants Engineers Pvt. Ltd.: [1988]1SCR1124, the law laid down in Bolivinter Oil SA v. Chase Manhattan Bank [1984] 1 All E.R. 351 was approved and it was held that an unconditional Bank Guarantee could be invoked in terms thereof by the person in whose favour the Bank Guarantee was given and the Courts would not grant any injunction restraining the invocation except in the case of fraud or irretrievable injury. In Svenska Handelsbanken v. Indian Charge Chrome: AIR1994SC626; Larsen Toubro Ltd. v. Maharashtra State Electricity Board: AIR1996SC334; Hindustan Steel Works Construction Ltd. v. G.S. Atwal Co. (Engineers) (P) Ltd.: AIR1996SC131; National Thermal Power Corporation Ltd. v. Flowmeore (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Voltas House 'A', Baba Saheb Ambedkar Road, Chinchpokli, Mumbai-400033 ( Obligee ), we, State Bank of India, CAG Branch, Ballard Estate, Mumbai-400 001 (Bank) having its Registered Office/Head Office at Nariman Point, Mumbai, a Corporation organized and existing under the laws of India, hereby issue our irrevocable and unconditional Bank Guarantee No. 999513BG0002397 (Guarantee) in favour of CRSSG-NCC (JV), having its Registered Office 9th Floor, JMD Regent Square, DLF Qutub Enclave, Phase-II, Mehrauli-Gurgaon Road, Gurgaon-100022, Haryana, together with its successors and assigns ( Beneficiary ). We understand that M/s Voltas Limited (oblige) was awarded the work of HVAC Works at ESIC Mandi by CRSSG-NCC (JV) (Beneficiary), vide Sub-Contract Agreement No. CRSSG- NCC(JV)/NBCC/ESIC/WO/008/10-11 dated 12.05.2010. (such Sub-Contract Agreement, as amended and supplemented from time to time, the sub-Contract Agreement ) valued at ₹ 21,90,00,000/- (Rupees Twenty one Crore Ninety Lac only). We further understanding that M/s Voltas Limited (Obligee) is providing the Guarantee seeking release of Mobilization Advance in connection with the Sub- Contract Agreement dated 12.05. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide Beneficiary with an amendment hereto. Any notice to Beneficiary in connection with this Guarantee shall be in writing and shall be delivered by hand with receipt acknowledged, or by Registered mail, postage prepaid, to Beneficiary. Any amendment reducing the amount of this Guarantee or otherwise limiting or impairing Beneficiary's rights hereunder shall not be effective, unless consented to in writing by the Beneficiary. This Guarantee will not be discharged due to the change in the constitution of the Bank or the Obligee or the Beneficiary. This Guarantee shall be governed by and construed in accordance with the laws of India. Notwithstanding anything contained hereinabove: a) Our liability under the Bank Guarantee shall not exceed ₹ 1,30,56,750/- (Rupees one Crore Thirty Lac Fifty Six Thousand Seven Hundred Fifty only) b) This Bank Guarantee shall be valid up to 30.09.2014; and c) We are liable to pay the guaranteed amount or any part thereof under this Bank Guarantee only and only if you serve upon us a written claim or demand on or before 31.12.2014. Unless a claim in writing is presented to us or a suit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decided at the civil forum i.e. a civil suit if there exists no arbitration clause in the contract or before the arbitral tribunal if there exists an arbitration clause in the contract. Pendency of arbitration proceedings is no consideration while deciding on the issue of grant of an interim injunction. That certain amounts have been recovered under running bills and have to be adjusted for is of no concern in matters relating to invocation of bank guarantee. That there are serious disputes on questions as to who committed the breach of the contract are no circumstances justifying granting an injunction pertaining to a bank guarantee. Plea of lack of good faith and/or enforcing the guarantee with an oblique purpose or that the bank guarantee is being invoked as a bargaining chip, a deterrent or in an abusive manner are all irrelevant and hence have to be ignored. There are only two well recognized exceptions to the rule against permitting payment under a bank guarantee. The same are:- A. A fraud of egregious nature; B. Encashment of the bank guarantee would result in irretrievable harm or injustice of an irreversible kind to one of the parties. Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich constitute fraud. 22. In rejoinder also, the petitioner has not pleaded any facts which constitute fraud, except that the egregious fraud is made out from documents and pleadings. In written synopsis and during arguments, it has been submitted that the fraud on the part of respondent No.1 is clear from the fact that the respondent did not pay the escalation charges under MoU and also failed to pay the balance amount of RA bills and that the encashment of bank guarantee was a consideration towards such payment. From the bare reading of the MoU, it is apparent that payment of escalation charges was not the condition precedent of submitting the bank guarantee. Encashment of the bank guarantee was also not made conditional to the clearance of RA bills. It is thus clear that the submission of bank guarantee was unconditional. During the course of arguments, however, it is argued by the learned counsel for the petitioner in a desperate attempt to succeed that the petitioner was induced into the MoU by misrepresentation and fraudulent representations by respondent with the sole intention to obtain the three bank guarantees with sole purpose to encash them in order to save themselv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent petition and the parties are free to raise this dispute before appropriate forum. The meaning of the word fraud in Oxford English Dictionary is 'the use of false representation to gain unjust advantage'. In the present case by entering into an MoU, the petitioner has failed to show that respondent No.1 had put himself in a position of undue advantage. As shown earlier, not only they had paid a cash of ₹ 4,28,00,000/- to the petitioner, but also agreed to pay a sum of ₹ 1,25,00,000/- towards escalation charges to the petitioner. The petitioner, therefore, has failed to satisfy this Court that he has been induced by respondent No.1 into this MoU and has put him in a position of undue disadvantage, while putting respondent in a position of undue advantage. Both parties have voluntarily as part of a settlement entered into MoU and pursuant to that while the respondent refunded the cash amount of ₹ 4,28,00,000/-, the petitioner executed the present unconditional bank guarantee. The petitioner, therefore, has failed miserably to show that any egregious fraud had been played upon him for execution of the present bank guarantees. There is no dispute to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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