Dismissed

Punj Lloyd Ltd. v. Tata Value Homes Ltd. and 4 Ors.

Bombay HC8 Aug 2014APP/404/2014

Case brief

AI extract

What is this about?

The High Court dismissed the appeal against an order refusing interim injunction against encashment of bank guarantees. The court held that subsequent letters notifying breach cured initial defects and no fraud or irretrievable injury was pleaded. An arbitrator was appointed.

What did the court decide?

Appeal dismissed; no order as to costs; ad-interim relief extended until 22 August 2014; Mr. Shailesh Shah appointed sole arbitrator.

Punj Lloyd Ltd. Vs Tata Value Homes Ltd. and… — Contract and Commercial Disputes | Bombay HC (2014)

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1 of 9 APP(L).489.2014

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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APPEAL (L) NO.489 OF 2014 WITH

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NOTICE OF MOTION (L) NO.1789 OF 2014 IN

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ARBITRATION PETITION (L) NO.1145 OF 2014

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Punj Lloyd Limited versus Tata Value Homes Limited and others

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Appellant

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Respondents

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Mr.Pravin Samdani, Sr.Advocate with Ms.Dipti Pandya i/by Maniar Srivastava Associates for Appellant.

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Mr.J.P.Sen, Sr.Advocate with Mr.Vaibhav, Mr.Prashant Phophale and Ms.Rachita Romani, Advocates i/by India Law for Respondent no.1.

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CORAM : MOHIT S. SHAH, C.J. AND M.S.SONAK, J.

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DATE : 8 August 2014

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PC :

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This appeal is directed against the judgment and order dated 1 August 2014 of the learned Single Judge of this Court refusing to grant interim injunction against encashment of the bank guarantees at serial nos.3, 5 to 7 bearing Nos.2027811BG0000078, 316020437475LA, 172013ILAPG0220 and 172013ILAPG0226, which were issued towards mobilization and further advance.

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The Respondent-principal employer had entrusted a contract for construction to the Appellant-contractor. The Respondent had

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2 of 9 APP(L).489.2014

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advanced certain amounts to the appellant by way of mobilization advances and to secure repayment of such mobilization advances, the Appellant had given four bank guarantees for the following amounts :

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Sr. No.	Bank Guarantee number	Amount of Bank Guarantee
3	2027811BG0000078	2,51,21,058=00 redeemed to Rs.1,75,35,575/-
5	316020437475-LA	1,50,00,000=00
6	172013ILAPG0220	1,60,00,000=00
7	172013ILAPG0226	1,00,00,000=00

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When the Respondent invoked the bank guarantee at sr.no.5 referred above vide letters dated 15 July 2014/18 July 2014, the Appellant filed arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking injunction against encashment of all the seven bank guarantees till conclusion of the arbitration proceedings, which the appellant proposes to institute by seeking appointment of an arbitrator.

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The principal contention of the Appellant before the learned Single Judge was that as per the contract between the parties, the mobilization advance was to be recovered by adjusting the same against running account bills (`R.A.Bills') to the extent of 7.5% of each of the R.A.Bill. It is submitted that the Respondent has invoked the bank guarantees but the invocation is not in accordance with the terms and conditions of the bank guarantees. It was submitted that the encashment of bank guarantees was conditional upon the

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3 of 9 APP(L).489.2014

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Respondent notifying the breach/default of the Appellant to the bank. However, the letters of invocation sent by the Respondent to the bank on 15/18 July 2014 did not notify any breach or default to the bank.

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The Respondent contended before the learned Single Judge that the Appellant was given total amount of Rs.8.71 crores approximately by way of mobilization advance and the Respondent was to deduct 7.5% amount of each of the R.A.Bill against the mobilization advance on prorata basis till the completion of the work. However, after the Respondent had deducted/retained Rs.75 lakhs approximately against the mobilization advance out of bank guarantee no.3 for Rs.2,51,21,058/-, the said bank guarantee no.3 stood proportionately reduced to Rs.1,75,35,573/-. Similarly, against the other mobilization advances, the Respondent had deducted and retained Rs.2.26 crores from the R.A.Bills and adjusted the same on prorata basis against mobilization advance as permitted by the contract and as specifically mentioned in the bank guarantee. However, the Appellant pleaded for releasing those amounts on the ground of cash crunch by letter dated 25 July 2012 and requested to treat the existing bank guarantees as bank guarantees for the said amount to be released by the Respondent. It is, therefore, submitted that having obtained the advantage from the Respondent by getting released amounts deducted by the Respondent from the R.A.Bills against existing bank guarantees, it is not open to the Appellant to contend that invocation of the bank guarantees is not in accordance with the terms of bank guarantees.

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4 of 9 APP(L).489.2014

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It is submitted by the learned counsel for the Respondent that the bank guarantees are unconditional and that in absence of any pleading of fraud or retrievable injury, it is not open to the Appellant to resist invocation of the bank guarantees and this Court should not grant any injunction against invocation of the bank guarantees by the Appellant during contemplated arbitration proceedings. It is submitted that the disputes between the parties arising from the underlying contract between the parties will be decided by the arbitrator and this Court is not supposed to go into the disputes between the parties on merits, which will be within the domain of the arbitrator.

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In support of the appeal, the learned counsel for the Appellant sought to invite our attention to various amounts which were indicated in the letter dated 9 July 2014 of the Respondent wherein it was mentioned that the Respondent had made total payments of Rs.22,29,98,245/- against R.A.Bills and Rs.9,34,47,931/- was paid by the Respondent to the Appellant by way of various advances including mobilization advance of Rs.8,87,21,057/-. Thus, the sum of all payments made by the Respondent to the Appellant under the contract was to the tune of Rs.31,64,46,176/-. It is further mentioned in the said letter dated 9 July 2014 that the Appellant had done the work of the value of Rs.29,86,17,798/-. It was further submitted that the Respondent has already encashed the bank guarantee of Rs.98,86,000 and therefore, the Appellant has not been over paid for the work done by the Appellant and from the equity point of view also, the injunction prayed for should be granted particularly because

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5 of 9 APP(L).489.2014

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the respondent is now seeking to recover amounts of Rs.1,77,90,015/against the debit notes and also the amount of Rs.2,37,45,810/- which are the amounts outstanding from the Appellant to the sub contractors and suppliers.

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We have given anxious consideration to the rival submissions.

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As far as bank guarantee for Rs.1,75,35,575/- is concerned i.e. bank guarantee no.3, there is no dispute about the fact that the original bank guarantee was for Rs.2,51,21,058/- which was against the mobilization advance. Pursuant to the contract, upon the Appellant submitting R.A.Bills, the Respondent deducted and retained 7.5% amount of the R.A.Bills towards recovery of mobilization advance and in that manner, in respect of bank guarantee no.3, the amount deducted was to the tune of Rs.75 lakhs approximately and, therefore, after adjusting the said amounts, the amount of bank guarantee no.3 was reduced to Rs.1,75,35,573/-. Hence, no objection could have been raised to the encashment of the said bank guarantee no.3 of Rs.1,75,35,573/-. However, learned counsel for the Appellant submitted that invocation letter dated 15/18 July 2014 merely invoked the bank guarantee no.3 without notifying any breach or default on the part of the Appellant. Therefore, the Appellant is entitled to get an injunction against the encashment of the said bank guarantee.

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That argument would have been required to be considered. However, learned counsel for the Respondent has placed on record of these proceedings a compilation of documents including letters dated

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6 of 9 APP(L).489.2014

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4 August 2014 invoking the bank guarantee for Rs.1,75,35,573/- in the following terms :

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“Sub. : SECURITY DEPOSIT GUARANTEE

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This is further to our letters dated 15^th July 2014 and 18^th July 2014 addressed to you in respect of, inter alia, the below mentioned bank guarantee :

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Descr- iption	B.G.No.	B.G. Date	Amount	Valid upto
Initial	2027811BG	13.4.2011	62,80,265	31.12
Secur-	0000077			.2014
ity
Depos it

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We hereby notify you (which notification under the terms of the guarantee is conclusive) :

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(i) Breach/default on the part of M/s.Punj Lloyd Ltd. in the due performance of the work contract;

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(ii) Breach/default on the part of M/s.Punj Lloyd Ltd. in not completing the entire work under the work contract, and

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(iii) Breach/default on the part of M/s.Punj Lloyd Ltd. in not rectifying defects and replacing defective material in workmanship notified to them.

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Please treat this letter as an invocation of the aforementioned bank guarantee and arrange to pay through RTGS Rs.62,80,265/- to our bank account as per the details given below.... ….. ….. ”

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Please note, however, that by an order dated 1^st August 2014, a copy of which is enclosed, the Hon'ble High Court of Bombay has issued an injunction restraining you from paying any amount under the aforementioned bank guarantee till 5^th August 2014.”

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7 of 9 APP(L).489.2014

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In view of the above, it is clear that the Respondent has notified to the bank the breach/default on the part of the Appellant in making payment of mobilization advance of Rs.1,75,35,573/- and that no part of the amount has been recovered from the R.A.Bills by the Appellant or otherwise. In our view, though original invocation by letter dated 15 July 2014 may not have been in accordance with the terms of the bank guarantee, the letter dated 4 August 2014 has removed the deficiency which was to be found in the original invocation and we cannot ignore the same while considering the question whether any injunction should be granted against invocation of the bank guarantee during contemplation of the arbitration proceedings.

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As far as three other bank guarantees for Rs.1.50 crores, Rs.1.60 crores and Rs.1 crore are concerned, the learned counsel for the Appellant has vehemently submitted that for invocation of the said bank guarantees also, the Respondent was supposed to notify to the bank whether the deductions/retentions of 7.5% amounts against R.A.Bills were made or not and whether after adjusting such deductions/retentions, there was any breach or default on the part of Appellant in making payment of mobilization advances. It, however, needs to be noted that when the Respondent had deducted and retained 7.5% amounts of R.A.Bills and in that manner, retained Rs.2.26 crores, the amount of bank guarantee was required to be reduced by Rs.2.26 crores. However, the Appellant by its letter dated 25 July 2012 requested the Respondent to pay Rs.1.3 crores to the Appellant against existing bank guarantees provided towards

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8 of 9 APP(L).489.2014

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mobilization advances. In pursuance of the said request, a meeting was held between the representatives of the Appellant and the Respondent on 27 and 29 September 2012 and at the said meeting, the Appellant again requested for giving Rs.2 crores as advance against the existing bank guarantees. In response to the requests of the Appellant, the Respondent gave three demand drafts of Rs.50 lakhs each and again of Rs.76 lakhs i.e. total Rs.2.26 crores against the existing bank guarantees. Thus, the Respondent gave Rs.2.26 crores to the Appellant against the existing bank guarantees. We, therefore, find considerable substance in the submission made on behalf of the Respondent that the Appellant having obtained Rs.2.26 crores against existing bank guarantees which were initially given by the Appellant towards mobilization advances, it is not open to the Appellant now to turn around and to contend that the bank guarantees could not have been invoked on the ground that 7.5% amounts from the R.A.Bill nos.1 to 18 were already deducted/retained by the Respondent.

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Having regard to the fact that no deduction was made by the Respondent of any amount against any R.A.Bills towards recovery of mobilization advances covered by bank guarantee nos.5 to 7, the arguments urged by the learned counsel for the Appellant in respect of bank guarantee no.3 are not even available in respect of bank guarantee nos.5 to 7. In our view, when the Appellant has not pleaded any fraud or irretrievable injury for claiming injunction against invocation of the bank guarantees and when the letter dated 4 August 2014 removed the defect, if any, in invocation of the bank guarantees, we would not be justified in granting any injunction against

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9 of 9 APP(L).489.2014

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invocation of the bank guarantees merely on the ground that it has an arguable case on merits of the controversy touching the recovery of amounts.

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In the result, the appeal is dismissed. There shall be no order as to costs.

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At this stage, learned counsel for the Appellant prays for continuing the ad-interim stay which was granted earlier, for two weeks, in order to facilitate it to adopt further course of action in accordance with law. In the interests of justice, the ad-interim relief granted earlier shall continue to operate till 22 August 2014.

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Learned counsel for the parties agree that Mr.Shailesh Shah, Senior Counsel, be appointed as the arbitrator for adjudicating upon the disputes between the parties. Acordingly, we appoint Mr.Shailesh Shah, Senior counsel as the sole arbitrator.

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(CHIEF JUSTICE)

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(M.S.SONAK, J.)

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MST

Punj Lloyd Ltd. v. Tata Value Homes Ltd. and 4 Ors.

Case brief

What is this about?

What did the court decide?

Punj Lloyd Ltd. v. Tata Value Homes Ltd. and 4 Ors.

Case brief

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What did the court decide?

What the court decided

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