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2016 (5) TMI 516 - SUPREME COURT

2016 (5) TMI 516 - SUPREME COURT - TMI - Grant of an interim injunction restraining encashing of the Bank Guarantee refused - Held that:- On perusal of the record of the case, we find that firstly, arbitration proceedings in relation to the contract dated 22.08.2005 are still pending. Secondly, the sum claimed by the respondents from the appellant does not relate to the contract for which the Bank Guarantee had been furnished but it relates to another contract dated 22.08.2005 for which no bank .....

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in the nature of a performance guarantee furnished for execution work of contract dated 14.07.2006 (Anand Vihar works) and the work having been completed to the satisfaction of the respondents, they had no right to encash the Bank Guarantee.

We have, therefore, no hesitation in holding that both the courts below erred in dismissing the appellant's application for grant of injunction.

We are also of the view that the District Judge having decided the injunction application .....

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f injunction against the respondents so also they have made out a case of balance of convenience and irreparable loss in their favour as was held by this Court in the case of Union of India (DGS&D) (1974 (3) TMI 105 - SUPREME COURT ). Allow injunction application made by the appellant under Section 9 of the Act in Arbitration Suit no. 411/2011 in District Court, Allahabad and grant injunction in appellant's favour by restraining the respondents jointly and severally from encashing Bank Guarantee .....

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by the appellant herein and upheld the order of District Judge which had refused to grant an interim injunction restraining encashing of the Bank Guarantee by the respondents herein. 3) In order to appreciate the issue involved in this appeal, which lies in a narrow compass, it is necessary to set out the relevant facts in brief infra. 4) The respondents, i.e., North Central Railway invited tender for doing earth work in embankment and cutting including provision of machine crushed/blended mater .....

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l value of the contract was ₹ 14,62,46,742/-, the date of commencement of work was 14.03.2005 and the date of completion of work was 13.03.2007. As the work could not be completed within the prescribed time, on the request of the appellant-Company, the period of completion of work was extended twice by the respondents, firstly, from 14.03.2007 to 31.12.2007 and again upto 30.09.2008 without levy of penalty and with price variation clause benefit. 5) On 14.07.2006, the appellant-Company was .....

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connection with the grant of the Anand Vihar works, the appellant-Company submitted a Bank/Performance Guarantee bearing No. 12/2006 dated 04.08.2006 from its banker Indian Mercantile Co-operative Bank Ltd., Cantt. Road, Lucknow (hereinafter referred to as Bank ) for a sum of ₹ 1,32,78,820/-. 6) Since the work relating to contract dated 22.08.2005 could not be completed within the prescribed time/extended time by the appellant due to non-availability of site because of the agitation of th .....

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o the appellant-Company. 7) On 30.09.2010, the appellant got the completion certification from the respondents for the Anand Vihar works with a defect liability period of six months, which also came to an end on 30.03.2011. Thus the appellant became entitled to seek the release of the Bank/Performance Guarantee No. 12/2006 submitted by it for the said work from the respondents. 8) On 27.06.2011, the appellant, therefore, wrote a letter to the respondents-North Central Railway for return of the B .....

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ndents through their accounts department wrote a letter to the Bank which had furnished Bank Guarantee No.12/2006 for and on behalf of the appellant for the encashment of the said Bank Guarantee. 11) On 02.12.2011, the final bill for the Anand Vihar works were cleared by the respondents and the payment for the same was released by the respondents. 12) Since the disputes had arisen between the parties in relation to and arising out of the contract dated 22.08.2005, the appellant invoked Clause 36 .....

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s, against the respondents. It was inter alia alleged in the application that the respondents-North Central Railway have no right to encash the Bank Guarantee No.12/2006 furnished by the appellant in relation to dispute arising out of another contract dated 22.08.2005. It was alleged that firstly, Bank Guarantee was not furnished by the appellant in relation to contract dated 22.08.2005 but was furnished in performance of another contract dated 14.07.2006 (Anand Vihar works) which is a separate .....

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dated 14.07.2006 (Anand Vihar works) and the same having been performed by the appellant to the satisfaction of the respondents, the appellant-Company was entitled to get its Bank Guarantee No.12/2006 released from the respondents. It was further alleged that in these circumstances, the respondents have no right to encash the Bank Guarantee in relation to any dues arising out of other contract with the appellant. It was also alleged that in any event, so long as the disputes arising out of the .....

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inter alia contended that Clause 62(1) of GCC empowers the respondents to make recovery of any dues from the appellant. It was contended that since the respondents have a claim/dues for payment of a sum of money against the appellant (contractor), they (respondents) would be entitled to exercise their right of recovery given to them under Clause 62(1) even if such claim is not for a sum due and sum payable and is a claim for damages though disputed by the appellant and remains to be adjudicated .....

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ot file any appeal against this order, which attained finality. 16) By letters dated 20.01.2012 and 29.01.2012, the appellant then requested the respondents for return of its Bank Guarantee. 17) On 13.03.2012, an arbitration Tribunal was constituted as per Clause 32 read with Clause 64 of the contract between the parties which comprised of Shri Arun Kumar, CCE/NCR/ALD, Shri A.K. Bijalwan FA&CAO/F&B/NCR/ALD and Shri R. Rajamani Former CCRS & Member/Arbitrator to look into the claims a .....

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Branch Manager of the Bank to encash the said Bank Guarantee in their favour. 20) Since the respondents went on insisting for encashment of the Bank Guarantee again and again saying that order dated 04.01.2012 passed by District Judge no longer survives as its life was only upto the date of constitution of arbitral Tribunal and hence the respondents became entitled to encash the Bank Guarantee, the appellant again filed a petition under Section 9 of the Act bearing Arbitration Suit No. 216 of 2 .....

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cover the dues relating to other contract. 22) Aggrieved by the said order, the appellant preferred an appeal bearing F.A.F.O. No. 2930 of 2012 before the High Court. 23) By impugned judgment dated 23.07.2012, the High Court concurred with the view taken by the District Judge and dismissed the appellant s appeal. 24) Challenging the said judgment, the appellant has filed this appeal by way of special leave. 25) Heard Mr. B. Adinarayan Rao, learned senior counsel for the appellant and Mr. Atul Ch .....

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by the appellant for due performance of one contract (Anand Vihar works) dated 14.07.2006 and the same having been admittedly performed by the appellant to the satisfaction of the respondents (North Central Railway), as is clear from the completion certificate dated 30.09.2010 issued by the respondents in appellant's favour, the purpose for which the Bank Guarantee had been furnished was over as soon as the Satisfaction Certification was issued by the respondents in appellant s favour. Learn .....

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judication of the liability, if any, and secondly, so long as the liability as to how much sum was payable and if so by whom it was payable was not finally determined in accordance with law in the arbitration proceedings by the arbitrators, there was no "sum due" and nor any "sum payable" in praesanti by the appellant to the respondents and vice versa in connection with another contract. 28) In the third place, learned counsel contended that the District Judge, in the first i .....

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life of first order dated 04.01.2012 instead of again going into the merits of the case. 29) Lastly, learned counsel urged that in the light of this legal position arising in the case, the appellant had made out a prima facie case for grant of injunction against the respondents (North Central Railway) from encashing the bank guarantee in question. 30) In reply, learned counsel for the respondents (North Central railway) supported the impugned order and contended that no case is made out to inter .....

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, (1974) 2 SCC 231. Since the issue stands already decided by this Court and hence it is necessary to examine the facts of the case and law laid down therein in detail and then apply the same to the facts of the case at hand. 33) The facts of the case of Union of India (DGS&D) (supra) were that the respondent (Raman Iron Foundry) entered into a contract with the Union of India (DGS&D)-the appellant for supply of certain quantity of "Foam compound". The contract, apart from seve .....

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entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor, and for the purpose aforesaid, shall be entitled to sell and/or realise securities forming the whole or part of any such security deposit. In the event of the security being insufficient, the balance and if no security has been taken from the contractor, the entire sum recoverable shall be recovered by appropriating any sum then due or which at any time thereafter may become due .....

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itted a breach of the contract and was, therefore, liable to pay to the respondent a sum of ₹ 2,35,800/- by way of damages suffered by the respondent by reason of the breach of the contract whereas the appellant, on the other hand, said that it was the respondent who committed the breach of the contract and was, therefore, liable to pay to the appellant by way of damages a sum of ₹ 2,28,900/-. In the meantime, the appellant through Assistant Director of Supplies sent a letter to the .....

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appellant from recovering the amount of damages claimed by it from several pending bills of the respondent. The learned Single Judge dismissed the injunction application on the ground that it could not be proved that there were any pending bills but at the same time allowed the application made under Section 20 of the Indian Arbitration Act and referred the matter to arbitration as per Clause 24 of GCC. This is how the claim/counter claim of the parties became the subject matter of the arbitrati .....

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espondent's application. He took the view that Clause 18 did not authorize the appellant to appropriate the amounts of any pending bills of the respondent towards satisfaction of its claim for damages against the respondent unless such claim for damages was either admitted by the respondent or adjudicated upon by the arbitrator or suit in civil court. Accordingly, the injunction, as prayed for, was granted to the respondent against the appellant. It is this issue, which was carried by the Un .....

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on proceedings from the contractor and lastly, whether in such case, contractor is entitled to claim injunction against the Union of India from making recovery of such sum. 38) Justice Bhagwati (as His Lordship then was) speaking for the Bench examined the issue in great detail in the light of law laid down by English and Indian Courts. The learned Judge in his distinctive style of writing after examining the entire case law on the subject held that an expression "sum due" occurring in .....

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retain such sums until his claim against the contractor is satisfied. It was also held that a claim for damages for breach of contract is not a claim for a sum presently due and payable and the purchaser is not entitled in exercise of the right conferred upon it under Clause 18 to recover the amount of such claim by appropriating other sums due to contractor. 39) Their Lordships approved the view taken by Chagla C.J. in the case of Iron and Hardware (India) Co. vs. Firm Shamlal and Bros., AIR 19 .....

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nd Bros., AIR 1954 Bom 423. Chagla, C.J. in the last mentioned case, stated the law in these terms: (at pp. 425-26) 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 breach 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 .....

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sed, 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. This statement in our view represents the correct legal position and has our full concurrence. A claim for damages for breach of contract is, therefore, not a claim for a sum .....

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either admitted by the contractor, or in case of dispute, adjudicated upon by a court or other adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under clause 18 to appropriate the amounts of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim injunction restraining the appellant from doing so. 12. We accordingly dismiss the appeals. Th .....

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se 62 of GCC provides for determination of contract owing to default of contractor. The relevant portion of Clause 62 reads as under: The amounts thus to be forfeited or recovered may be deducted from any moneys then due or which at any time thereafter may become due to the Contractor by the Railway under this or any other contract or otherwise. 42) On perusal of the record of the case, we find that firstly, arbitration proceedings in relation to the contract dated 22.08.2005 are still pending. .....

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claimed by the respondents is neither an admitted sum and nor a sum which stood adjudicated by any Court of law in any judicial proceedings but it is a disputed sum and lastly, the Bank Guarantee in question being in the nature of a performance guarantee furnished for execution work of contract dated 14.07.2006 (Anand Vihar works) and the work having been completed to the satisfaction of the respondents, they had no right to encash the Bank Guarantee. 43) We have, therefore, no hesitation in ho .....

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al Ltd., (1997) 1 SCC 568, which laid down general principle relating to Bank Guarantee. There can be no quarrel to the proposition laid down in those cases. However, every case has to be decided with reference to the facts of the case involved therein. The case at hand was similar on facts with that of the case of Union of India (DGS&D) (supra) and hence the law laid down in that case was applicable to this case. Even in this Court, both the learned counsel did not bring to our notice the l .....

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