9911796707
TMI Blog2024 (8) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Impugned Order has allowed the I.A. No. 2478/PB/2019 filed by the Resolution Professional (`RP'). Aggrieved by the Order, this Appeal has been filed. 2. Brief facts necessary to be noticed for deciding the Appeal are: i. In the year 2014, Indian Oil LNG Pvt. Ltd. (IOLPL) issued tender documentation for the construction of Liquified Natural Gas (`LNG') Tanks in Ennore/Chennai. In 2015, Contract was entered between IOLPL and the Appellant. ii. On 15.09.2015, Appellant executed the formal Contract with Respondent No. 1 M/s. Punj Lloyd Ltd., sub-Contracting parts of the work relating to construction/installation of LNG Tanks in Ennore. iii. Under the General Conditions of the Contract, the Respondent No. 1 was obliged to provide an unconditional and irrevocable Bank Guarantee as security for punctual, proper and Contract performance of the obligations under the Contract. Performance Bank Guarantee of an amount of Rs.47,72,34,933/- was issued by the State Bank of India in favour of the Appellant. iv. Under the Contract with Respondent No. 1 agreed date for Mechanical Completion was 23.03.2018. Appellant issued a Mechanical Completion Certificate with a Mechanical Complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of M/s. GAIL (India) Ltd. (`GAIL), which Application was rejected permitting an encashment of the Bank Guarantee in favour of GAIL. While passing the said Order, the Adjudicating Authority has relied on the Order passed by this Tribunal dated 26.07.2021 passed in `C&C Construction Ltd., through Navneet Kumar Gupta (RP)' (Supra). xv. By Order dated 27.05.2022, Adjudicating Authority directed for Liquidation of the Corporate Debtor as a going concern. Application I.A. 247/PB/2019 was heard and has been allowed by the Order impugned dated 30.10.2023 against which Order, this Appeal has been filed. 3. We have heard Learned Sr. Counsel Mr. Krishnendu Dutta appearing for the Appellant and Learned Sr. Counsel Mr. Sunil Fernandes appearing for the Respondent No. 1 and Mr. Ankur Mittal Learned Counsel appearing for Respondent No. 2. 4. Learned Counsel for the Appellant, Mr. Krishnendu Dutta challenging the Order impugned submits that the Performance Bank Guarantee given by the State Bank of India in favour of the Appellant was irrevocable and unconditional Performance Bank Guarantee. Respondent No. 1 had to complete the work and agreed date of Mechanical Completion is 23.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy against the Corporate Debtor on 08.03.2019. It is submitted that Adjudicating Authority itself has rejected Application filed by the RP in the same CIRP against the invocation of Guarantee by IOCL and GAIL, which Applications filed by the RP restraining the invocation of Bank Guarantee was dismissed, whereas Adjudicating Authority in the Impugned Order has allowed the Application filed by the RP in case of the Appellant. It is further submitted that the Adjudicating Authority noticed that issue is pending consideration before this Tribunal in `C&C Construction Ltd. through Navneet Kumar Gupta (RP)' (Supra), which Appeal was decided on 26.07.2021 holding that Moratorium period under Section 14 does not cover Performance Bank Guarantee, hence the Application filed by the RP was liable to be rejected. 7. Learned Counsel for the Appellant in support of his submissions has placed reliance on various Judgments of the Hon'ble Supreme Court and this Tribunal. We shall refer to it by considering the submission in detail. 8. Learned Sr. Counsel Mr. Sunil Fernandes appearing for the Respondent submits that the Adjudicating Authority has ample jurisdiction to adjudicate the Application f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to entertain and examine all aspects pertaining to Bank Guarantee invocation including its factual aspects. It is submitted due to the special equities in favour of the Corporate Debtor the Bank Guarantee could not have been invoked, by the invocation of the Bank Guarantee, Corporate Debtor shall suffer irretrievable injury. 9. We have considered the submission of the Counsel for the parties and perused the record. 10. As noticed above, the Contract between the Parties dated 15.09.2015, provided an unconditional and irrevocable Bank Guarantee to the Appellant. Appellant has referred to Clause 6.4.1.4.1 of the Contract, which is part of General Condition. Clause 6.4.1.4 has been extracted by the Adjudicating Authority in Paragraph 31 of the Judgment, which is as follows: "31. Before examining this issue, we would like to cite relevant clauses of the agreement which took place between the parties. Clause 6.4.1.4 of General Conditions- Contents (GCC) is as follows: 6.4.1.4 PERFORMANCE BANK GUARANTEE 6.4.1.4.1 Within thirty (30) calendar days of the Effective Date of the Contract and before any payment whatsoever, the Contractor shall provide the Employer, at the address given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Letter dated 30.10.2019, Respondent No. 1 filed an I.A. before the Adjudicating Authority being I.A. 2478/2019. In the I.A., RP of the Respondent No. 1 prayed for following reliefs: "(a) Allow the present application; and (b) Restrain the Respondent No. 2 from taking any steps towards encashment of Performance Bank Guarantees no. 0480314BG0000756; (c) Restrain the Respondent Nos. 3, 4 and 5 from encashing the Counter Guarantees as described in para 2 above; and (d) Quash the invocation letter issued by the Respondent No. 1 dated 30.10.2019 to the Respondent No. 2; and (e) Quash the invocation letters dated 07.11.2019 issued by the Respondent No. 2 to the Respondent Nos. 3, 4 & 5 respectively; (f) Restrain Respondent No. 2 to 5 from releasing any money against the Performance Bank Guarantee and Counter Guarantees to Respondent No. 1. (g) Pass such further and other directions as this Hon'ble Adjudicating Authority may deem fit and expedient." 13. Adjudicating Authority on the I.A. after hearing the parties passed an Interim Order on the same date, restraining the encashing of Performance Bank Guarantee. 14. We have perused the Order dated 30.10.2023 passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 in Paragraph 34, which is as follows : "34. On perusal of the Clause 6.4.1.4.3 (supra), there is a prohibition on the power of invocation of the bank guarantee by the Employer (in this case, Mitsubishi) on the Contractor (Punj Lloyd) merely for the sake of its similar Bank Guarantee(s) being invoked by the Owner (IOCL) under the Main Contract unless such invocation is caused due to the reasons solely attributable to the Contractor (in this case Punj Lloyd, the Applicant). It is not the case of Respondent No. 1 that IOCL has invoked the Bank Guarantee on Mitsubishi which is due to the reason solely attributable to the Applicant / Contractor/ CD." 16. The basis of Judgment of the Adjudicating Authority is that Performance Bank Guarantee is not unconditional and sufficient ground has not made out by the Appellant to prove the fault on the part of Corporate Debtor, hence the Guarantee could not be invoked. 17. The issue as to invocation of Performance Bank Guarantee during the period of Moratorium is now well settled. It is useful to refer to definition of Section 3(31) which define "Security Interest". The proviso of Section 3(31) makes it clear that "Security Interest" shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport of the said Committee makes it clear that the object of the amendment was to clarify and set at rest what the Committee thought was an overbroad interpretation of Section 14. That such clarificatory amendment is retrospective in nature, would be clear from the following judgments: ....." 20. Thus, it is well settled that Section 14 in no manner impact the right of the Appellant to invoke the Bank Guarantee during pendency of the Moratorium and in the present case, it was during currency of the Moratorium 30.10.2019, the Guarantee was invoked. We have noted the observation made by the Adjudicating Authority in Paragraph 33 that reading of Clauses of Performance Bank Guarantee does not give the impression of it being unconditional. 21. We have already referred to the Bank Guarantee which was issued by the State Bank of India in favour of Appellant. It is useful to extract the terms of Guarantee as contained in the Letter of Guarantee as follows: ".....This letter of guarantee is issued in the following terms: 1. The Bank unconditionally and irrevocable guarantees, as a primary obligation and not as a surely, to pay to MHI on its first written demand, without any right of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgments were relied by the Appellant before the Adjudicating Authority. We may refer to the Judgment of the Hon'ble Supreme Court in the matter of `Himadri Chemical Industries Ltd.' Vs. `Coal Tar Refining Co.' reported in (2007) 8 SCC 110. In para 14 of the Judgment principles for grant or refusal to grant injunction to restrain enforcement of Bank Guarantee has been noticed, which are as follows: "14. From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a bank guarantee or a letter of credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit: (i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the Contract. (ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the Contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking transactions unhedged by pending disputes between the beneficiary and the Contractor. 5. ... The court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties." (emphasis supplied) 20. A bank guarantee constitutes an independent Contract. In Hindustan Construction Co. Ltd. v. State of Bihar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to the principles for grant or refusal to grant of injunction to restrain enforcement of a bank guarantee or a letter of credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit : (i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the Contract. (ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit. (iv) Since a bank guarantee or a letter of credit is an independent and a separate Contract and is absolute in nature, the existence of any dispute between the parties to the Contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the Judgment of the Hon'ble Supreme Court in the matter of `UP State Sugar Corporation' Vs. `Sumac International Ltd.' reported in (1995) 5 SCC 568. Above was a case where a Bank Guarantee was required to be furnished by the Contractor to the `UP State Sugar Corporation' (Supra), Bank Guarantee was furnished Contract having not been carried within the time envisaged under the Contract, the `UP State Sugar Corporation' (Supra) invoke three Bank Guarantees in respect of advance payments after giving credit to the Respondent for material. Petition was filed under the Arbitration Act. In the above case, one of the submissions raised on behalf of the Contractors was that of irretrievable injury. In Paragraphs 11 & 12 following was held : "11. These bank guarantees which are irrevocable in nature, in terms, provide that they are payable by the guarantor to the appellant on demand without demur. They further provide that the appellant shall be the sole judge of whether and to what extent the amount has become recoverable from the respondent or whether the respondent has committed any breach of the terms and conditions of the agreement. The bank guarantees further provide that the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his Contractual obligation or not, nor with the question whether the supplier is in default or not. The bank must pay according to the tenor of its guarantee on demand without proof or condition. There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud that may absolve a bank from honouring its guarantee, this Court in the above case quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank [(1984) 1 All ER 351] (All ER at p. 352): (at SCC p. 197) "The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le time, it may adopt measures specified in Section 18 and provide for a scheme for appropriate measures in relation to that company. There can, therefore, be no presumption that the company will, in no circumstance, be able to discharge its obligations." 28. Similarly, in the matter of `Maharashtra State Electricity Board Bombay' Vs. `Official Liquidator, High Court, Ernakulam & Anr.' reported in (1982) 3 SCC 358. Hon'ble Supreme Court held that the fact that the Company has gone into Liquidation could not have any effect on the liability of Bank i.e., Guarantor. In Paragraph 7, following was held : "7. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rs 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any defaul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself after making payment of the amount guaranteed by it. It is the responsibility of the Bank to deal with the securities held by it in accordance with law. It was not, however, open to the Company Judge to make any order under the Companies Act prohibiting the Electricity Board from realising the amount guaranteed by the Bank as this had nothing to do with the assets of the Company in liquidation. The order of the Company Judge and the judgment of the Division Bench in appeal are, therefore, liable to be set aside and they are accordingly set aside." 29. Thus, the above Judgment clearly dispel the submission of the Counsel for the Respondent that injunction could have been issued on the exceptions of irretrievable injury and special equity as laid down by the Hon'ble Supreme Court in `Standard Chartered Bank' (Supra). Now coming to the findings, we have noticed above that the Adjudicating Authority for allowing the Application gave the reason that Appellant failed to prove default of Contract by the Respondent. As per the law laid down by the Hon'ble Supreme Court, any dispute raised by the Contractor against the invocation of the Bank Guarantee was not to be looked into when t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
