TMI Blog2017 (3) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... In the circumstances, there shall be no order as to costs. We clarify that the disputes and differences proposed to be referred to arbitration shall be decided, uninfluenced by any tentative and prima facie findings in the impugned order and our order on this appeal. All contentions of both sides are expressly kept open. At this stage, Mr. Saraf prays for continuation of the ad-interim order dated 26th October, 2016, and which is continued till date. The request is opposed by the respondent No.1. The alternate contention also need not detain us. Given the wording which is clear and unambiguous this is an unconditional, unequivocal and irrevocable bank guarantee. It is not an indemnity for losses. It cannot be said to be conditional merely because one sentence of clause 3.1 employ the words “indemnify the losses”. Merely because it seeks to indemnify the losses under the contract and the first respondent has to raise a demand by alleging such losses, will not empower the second respondent-bank to question the demand or the contents of the letter of invocation. It cannot, in any manner, call upon the employer, namely, the first respondent to satisfy it about the quantum of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Colabawalla, J.) holds the shares in the petitioner-appellant-company. If any party has objection, he would like to recuse himself. Both senior counsel, on instructions, stated that they have no objection to this Bench hearing and disposing of this appeal. On this understanding we have proceeded further. Hence, admit. Respondents waive service. By consent, heard finally. Paper-book dispensed with. 2 This appeal under section 10 of The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, (Act No.4 of 2015) is directed against the order passed by the learned single Judge on the above Commercial Arbitration Petition. By this order dated 9th January, 2017, the learned Judge has dismissed a petition filed under section 9 of The Arbitration Conciliation Act, 1996 by the petitioner-appellant. 3 Briefly stated, the facts are that this petition under section 9 of the said Act of 1996 was filed against one Shree Ahuja Properties Realtors Private Limited (for short respondent No.1 ) and Punjab National Bank (for short respondent No.2 ) alleging that the petitioner-appellant, a company registered under the provisions of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of this performance guarantee. The performance guarantee dated 16th July, 2014, was valid till 31st December, 2014, whereafter its validity came to be extended from time to time. It is alleged that as per the contract, the scope of work of the petitioner comprised procurement, construction and completion of the works and the facilities in accordance with the drawings and specifications, addendums and clarifications. The petitioner has stated as to how it commenced this work and endeavoured to complete it. However, it alleges that there were several changes and variations which resulted in delays. Delays were discussed and the issue sorted out at joint meetings and workshops held in the month of April, 2013. Relying upon these minutes and a supplementary agreement dated 1st August, 2013, the Revised Milestone Schedule, it is alleged there were several hurdles and obstacles resulting in delays. The petitioner alleges that the delays occurred only because of the manner in which respondent No.1 continued to directly deal with sub-contractors, changed material instructions, made direct payments to facade contractor, called upon the petitioner to shift focus of work to other spheres e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Petitioner as per particulars of claim annexed as Exhibit 'T to the Petition either by way of unconditional Bank Guarantee in favour of the Petitioner or depositing the said amount in this Hon'ble Court. 8 We are not concerned with the rest of the reliefs. The petition under section 9 was lodged on 26th October, 2016. Upon being duly served, the first respondent filed written submissions. In the written submissions, the first respondent denied all the contentions and allegations in the petition. It was specifically contended that the contention that the performance guarantee was not a bank guarantee per se, but in the form of a contract of indemnity and, therefore, the well settled legal principles pertaining to encashment of a bank guarantee would not apply, is entirely erroneous and incorrect. That contention has been raised by way of an amendment which was tendered before the Court at the time of final hearing of the Arbitration Petition on 4th November, 2016. This stand is clearly an after-thought. All throughout the parties have understood that the performance guarantee was a bank guarantee and nothing else. The amendment does not, therefore, change the pictu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement and particularly clause 8 at page 173 of the paper-book, clause 19.5 at page 209 of the paper-book, it is evident that this guarantee purports to cover 2.5% of the contract sum. Clause 30 of the agreement sets out the default of the contractor. That clause appears at page 238 of the paper-book. Clause 32 which is at page 243 of the paper-book speaks of dispute resolution. Mr. Chagla would submit that some of the documents and appearing at pages 460, 461, 467 and 469 of the paper-book would indicate that it is true that this Court is not concerned with the dispute under the parent contract. In other words, the underlying contract is not the subject matter of the present proceedings. The disputes thereunder have to be left out of consideration and are not relevant. The advocate's notice would reveal as to how the petitioner-appellant has a claim against the respondents and which is spelt out in details at 479, 480, 482 and 486 of the paper-book. The letter of invocation dated 25th October, 2016, copy of which is at pages 79 and 80 of the paper-book would denote that the parties understood the subject clause as a provision for indemnity and not a contract of guarantee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and and unilaterally raised by the first respondent. It is in these circumstances that this bank guarantee is not unconditional and unequivocal. 14 Looked at from any angle, therefore, Mr. Chagla would contend that the injunction should have been granted by the learned Judge. If it was initially granted, it should have been continued given all parameters necessary for grant of the same being satisfied. He would, therefore, submit that the appeal be allowed. 15 Mr. Devitre, learned senior counsel for the contesting respondent supports the impugned order. Mr. Devitre would submit that there is no merit in any of the contentions of Mr. Chagla. The document was always understood as a performance guarantee. There was never any doubt or confusion about its nature. The first respondent has not relied upon only its nomenclature, but understood it as a bank guarantee which can be invoked by referring to clause 8.1 and other clauses of the contract. Mr. Devitre would reiterate the settled principle that the bank guarantee is an independent contract. It has nothing to do with the parent contract nor any of its terms can be linked to the parent contract unless and until there is any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 The Contractor undertakes to obtain and deliver to the Employer simultaneous with the Commencement Date: (a) An unconditional and irrevocable on demand: (A) Performance Bond in the form attached to these Conditions of Contract as Annexure B: (the Performance Guarantee ), which shall be issued by a reputed national or international bank in Mumbai approved by the Employer at its sole and absolute discretion for the purpose, for an amount of 2.5% (two point five per cent) of the Contract Sum; and (B) Performance Indemnity Bond, in the form attached to these conditions as Annexure AA (the Performance Indemnity Bond ) for an amount of 2.5% (two point five per cent) of the Contract Sum. The Performance Guarantee and the Performance Indemnity Bond are collectively referred to as the Performance Bond . (b) An unconditional an irrevocable on demand: (A) Advance Payment Guarantee in the form attached to these Conditions of Contract as Annexure B (the Advance Payment Guarantee ) which shall be issued by a reputed national or international bank in Mumbai approved by the Employer at its sole and absolute discretion for the purpose, for an amount equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered or may be suffered by the Employer and/or asserted or may be asserted against the Employer, in each case, arising in connection with and/or as a consequence of any delay in meeting the Time for Completion of any Section or Portion of the Works or the whole of the Works or for any delay or failure in meeting the Specifications or the environment, health and safety requirements under the Contract. 20 A perusal of the same would indicate as to how the contract envisages two distinct arrangements. One is a bond and when that is made, it is styled as a performance bond in the form of a performance guarantee and a performance indemnity bond. Two separate formats are devised by the parties for the purpose of the same. It is not as if the understanding is that it means one and the same. Annexure AA sets out the approved draft of the advance payment indemnity bond and Annexure A is the approved draft of the advance payment guarantee. That is also a bank guarantee. That bears a bank guarantee number. What is then material for our purpose is the document itself. The document appears at page 342 of the paper-book. It is a performance guarantee addressed to the first respondent. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke to pay to you any money so demanded from time to time notwithstanding any dispute or disputes raised by the Contractor in any suit or proceeding pending before any court or tribunal or arbitration relating thereto, our liability under these presents being absolute and unequivocal. (iv) An assignment of the Contract to any third party by you shall not affect the terms of this Performance Guarantee and the benefit of this Performance Guarantee shall accrue to such assignee. (v) Any amendment in the Contract between the Contractor and you shall not in any manner affect our obligations under this Performance Guarantee. (vi) The Payment(s) so made by us under this Performance Guarantee shall be a valid discharge of our liability for payment hereunder. This Performance Guarantee will also be discharged upon return of the original to us. (vii) This Performance Guarantee shall come into force from the date of this Performance Guarantee and shall not be revoked by us any time during its currency without your previous consent in writing. (viii) Unless extended, this Performance Guarantee shall remain in force till 31/12/2014 provided however that, should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Performance Guarantee during its currency, except with your prior consent in writing or upon such return of this Performance Guarantee in original. 21 Mr. Devitre is right in contending that this clause would have to be read in its entirety and it is not permissible to single out and read out of context sub-clause (i). It is clear that, that clause employs the words indemnify and indemnified . However, if the opening part of clause 3 is read and perused carefully, it is apparent that it is in consideration of the contract or agreement to provide a performance guarantee in terms of clause 8.1 of the contract for an amount of ₹ 10 crore in the form of a bank guarantee, that the second respondent - Punjab National Bank covenants and undertakes firstly to indemnify and keep the first respondent indemnified to the extent of the sum of ₹ 10 crores from and against all losses and damages that may be caused or suffered by the first respondent for any default or defaults on the part of the contractor in performance of the contract or carrying out any works under the contract or otherwise in the observance and performance of any of the terms and conditions rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty's liability as clarified by sections 127 and 128 make the position clear further. It is well settled that bank guarantee is an autonomous contract. It is an independent contract by which, as in the present case, the banker agrees and undertakes to pay, as in the instant case, on demand and without any demur or protest, the sum guaranteed. The unconditional and unequivocal nature of the obligation, as in this case, is also spelt out when irrespective of any dispute between the employer and the contractor, its pendency in any court or tribunal, the moment the demand is raised, the bank would make the payment. It would not question the parties like an employer in this case in any manner with regard to the nature of the dispute. The demand would not be questioned or disputed. The satisfaction, based on which the demand is raised by the employer, will be decisive and conclusive. It is the employer who will determine whether there is a breach committed of the terms and conditions of the contract (the underlying or parent contract) and so long as this independent or autonomous contract is not linked or made dependent upon the parent or underlying contract, the obligation to honour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation. He relies upon the wording of clause 3(ix). However, the wording of that clause instead of assisting the petitioner-appellant, would belie their contentions as raised before us. It states that in order to give full effect to the performance bond, the bank understands the employer proceeding against it as if it is a principal debtor in respect of the claims of the employer against the contractor under the contract and bank expressly waives the suretyship and other rights, if any, which are, in any event, inconsistent with the above or any other provisions of the performance guarantee. This will clearly indicate as to how the bank understood this to be a performance guarantee in the form a bank guarantee and to be furnished by it. Once this is an independent and autonomous contract which must be construed on its own and its interpretation is not controlled by the parent or the underlying contract, then, Mr. Chagla's reliance on clause 3(ix) is misplaced and, in fact, further fortifies our view that the document in question is nothing but a bank guarantee given by respondent No.2. 27 Mr. Chagla then submits that the communication at page 80 of the compilation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is clear and unambiguous this is an unconditional, unequivocal and irrevocable bank guarantee. It is not an indemnity for losses. It cannot be said to be conditional merely because one sentence of clause 3.1 employ the words indemnify the losses . Merely because it seeks to indemnify the losses under the contract and the first respondent has to raise a demand by alleging such losses, will not empower the second respondent-bank to question the demand or the contents of the letter of invocation. It cannot, in any manner, call upon the employer, namely, the first respondent to satisfy it about the quantum of the loss or the manner in which the same was suffered or whether that was indeed suffered at all. The demand by the first respondent and in terms of the above clauses is decisive. It has been so raised and by the letter of invocation dated 27th October, 2016. Once the demand is raised, the bank cannot question it. It is an unconditional performance guarantee in the form of a bank guarantee. The bank cannot call upon the employer to satisfy it as to how the appellant has failed to perform its terms and obligations under the parent contract. In the absence of any linking and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court reproduced the relevant clauses in paragraphs 13, 14, 15 and 16 of the judgment. The High Court further read into the contract the words such as unequivocal and unconditional without any demur or protest . That is how the High Court committed a gross error in terming the operative portion of the document as a preamble. The High Court was wrong in inserting terms and expressions which did not find place in the document in question. That is how the further observations are made in paragraph 23 to 26 relied upon by Mr. Chagla and eventually paragraph 34. 32 To our mind, the facts and circumstances of this case are completely distinguishable and do not apply to the matter before us. 33 Even in the case M/s. Hindustan Construction Company Limited (supra) it was apparent that the bank guarantee itself contained a stipulation linking its invocation to the terms and conditions in the parent contract which are required to be fulfilled. That is why the obligations expressed in the said clause having not been fulfilled by the contractor that the employer derives the right for recovery of whole or part of the advance mobilisation loan from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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