Disposed

M/S Bansal Infra Projects Pvt. Ltd., Bolangir v. M/S Jindal Steel and Power Ltd., New Delhi

Orissa HC20 Aug 2024WP(C)/11848/2024

Case brief

AI extract

What is this about?

The High Court held that interlocutory orders rejecting ex parte injunctions in Section 9 applications are not appealable. It found prima facie evidence of special equities and potential irretrievable injustice if the bank guarantee were encashed, directing the Commercial Court to decide the merits on merit and extending the bank guarantee.

What did the court decide?

Stayed the invocation of the bank guarantee, directed extension of the guarantee until 31.12.2024, and remanded the Section 9 application to the Commercial Court for disposal on merits.

M/S Bansal Infra Projects Pvt. Ltd., Bolangir Vs M/S Jindal Steel… — Arbitration | Orissa HC (2024)

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IN THE HIGH COURT OF ORISSA, CUTTACK

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W.P.(C) No.11848 of 2024

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M/s Bansal Infra Projects Pvt. ...... Petitioner Ltd., Bolangir

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-Versus-

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M/s Jindal Steel & Power Ltd. …… Opp. Parties and others

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Advocate for the Parties

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For Petitioner

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: Mr. M.K. Mishra, Sr. Advocate

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& Mr. P.K. Nayak, Advocate

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For Opp. Parties : Mr. G. Mukherjee, Sr. Advocate & Mr. S. Nanda & S. Acharya, Advocates

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CORAM: JUSTICE SANJAY KUMAR MISHRA

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Date of Hearing: 20.05.2024 & 19.07.2024 Date of Judgment: 20.08.2024

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S.K. MISHRA, J.

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1. The Petitioner Company has preferred the Writ Petition challenging the order dated 30.04.2024 passed by the Senior Civil

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Judge (Commercial Court), Cuttack in ARBP No.14 of 2024, vide

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which the Court below rejected its application under Order 39 Rule 3 read with section 151 of the Code of Civil Procedure, 1908, shortly, “the CPC”, moved in a section 9 application filed under the Arbitration and Conciliation Act,1996, shortly, “the Act,1996”, to grant ex-parte ad interim injunction with an observation that, an order cannot be passed without hearing the Opposite Parties and accordingly, ordered for issuance of notice to the Opposite Parties fixing the date to 25.06.2024 for appearance.

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2. While issuing notice to the Opposite Parties, this Court, vide order dated 13.05.2024, as an interim measure, passed an order to maintain status quo as on the said date till the next date with regard to invocation of Bank Guarantee. Paragraph 3 of the Order dated 13.05.2024 passed in I.A. No.6416 of 2024, being relevant, is reproduced below for ready reference.

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“Taking into consideration the ratio decided by the apex Court in (2022) 1 SCC 712 ( Arcelor Mittal Nippon Steel India Limited Vs. Essar Bulk Terminal Limited), (2016) 11 SCC 720 (Gangotri Enterprises Limited Vs. Union of India and others ) & (2012) 5 SCC 370 ( Maria Margarida Sequeira Fernandes & others Vs. Erasmo Jack De Sequeira (dead) so also after going through the pleadings made in the Writ Petition and documents appended thereto, as an interim measure, it is ordered to maintain the status quo as on date with regard to encashment of Bank Guarantee No.32700IGL0001122, which is valid till 05.09.2024, till the next date.”

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3. Though it was ordered to list the matter in the week commencing from 17.06.2024, the present Opposite Parties appeared suo motu. Instead of filing Counter, dealing with the specific allegations made in the Writ Petition so also documents appended there to, I.A. No.6777 of 2024 has been filed for vacation of the aforesaid interim order. On being moved showing urgency, the matter was listed for orders and a short adjournment being granted, the Petitioner also filed its Objection to I.A. No.6777 of 2024 opposing to the prayer for vacation of stay. However, on consent of the learned Senior Counsel for the Parties, the Writ Petition along with all I.As. were taken up together for hearing and final disposal.

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4. The factual matrix(as pleaded in the Writ Petition), which led to filing of the Writ Petition, is that Work Order dated 24.01.2022 was issued in favour of the Petitioner by the Opposite Party No.2 for construction of 400 flats at Jindal Nagar, South Block (Sharmik Vihar) at Jindal Steel & Power Limited, shortly hereinafter “JSPL”. The total amount of the agreement value was Rs.4,39,946,924.13. To execute the said work, the Opposite Party No.2 (JSPL) had given an advance of 8.5% of the contract price amounting to Rs. 3,73,95,490/- and to secure the same, the

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Petitioner executed Bank Guarantee (B.G.) in favour of JSPL,

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drawn in Opposite Party Nos.3 and 4 Bank for the said amount.

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The contract dated 24.01.2022 is a reciprocal one

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without which it cannot be performed by the Petitioner. As per the said contract, the Petitioner was to complete the work within 8 months from the date of contract. But due to non-fulfillment of the reciprocal promises by JSPL in time, the work could not be executed as per the programme.

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There are provisions in the contract that the Management of JSPL is to supply free materials in time. However, due to delay in supply of materials, there was massive impact on the work. Further though the Petitioner, as per the work executed, submitted running bills, the same were not released in time which resulted in suffering from cash inflow and delay in work. The Management of JSPL, without any notice to the Petitioner, reduced the scope of work by 30-40 since March, 2023. It also did not provide sufficient hutment and facilities for the workers as per terms of the contract in terms of the requirement of the Petitioner, for which the work could not run in full swing.

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Due to non-fulfillment of reciprocal promises made by the JSPL, by various letters, the Petitioner drew attention of JSPL in between 22.08.2022 to 20.02.2024 indicating therein as to not

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handing over a hindrance free site for excavation, non-payment of the deviation quantity of excavation, rock strata found during excavation, nonpayment of deviation quantity of excavation (not estimated at the time of contract allocation) leading to increase in cost and time, continuous delays in providing free issue materials i.e. Backfill material, TMT bars, concrete, structural materials, PS Panel, L-Mesh, u-Mesh, sand, cement, paint etc. labour hutment, free electricity and water. Further there was various revision and rectification of drawings, delay in payment and non reconciliation of accounts and detail deduction sheets. Further the GST payment as per the contract was not released and unilaterally the work was reduced without any intimation or discussion, for which the Petitioner had deployed machinery, equipment, material and manpower. Despite intimation of such hindrances, the Opp. Party has not solved any problem and huge outstanding bill has not been released, for which the Petitioner suffered financial crisis.

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It is further case of the Petitioner that without clearing the hindrances, as pointed out by the Petitioner, the Opposite Party No.2 (Associate Vice President, Commercial, JSPL) vide letter dated 07.07.2023, issued notice to the Petitioner Company for revision in quantity / termination of contract due to alleged poor performance in the construction work. On receipt of the said letter

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dated 07.07.2023, the Petitioner, vide letter dated 26.07.2023, wrote to the Opposite Party No.2 that while extension of time has been approved and there is a copy of note sheet reflecting the reason of delay, which is approved by the Petitioner. The Petitioner vide letter dated 11.08.2023, requested the Manager-Contract Cell, JSPL for urgent action for critical material shortage threatening project timeline and considering the situation to take immediate intervention to expedite the resolution of the matter.

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However, in violation of terms of the contract from the side of the Management of JSPL, vide letter dated 25.03.2024, the Authorized Signatory of the Management of JSPL communicated to the Petitioner that as per the books of account, there is a debit balance of Rs.4,12,54,904/- towards unadjusted advance and other deductions and it was observed that the Petitioner is not responding to the directions of the Civil Department of the Company, which is allegedly impacting the site progress and such conduct of the Petitioner is against the terms of the work order dated 24.01.2022 and advance against the Petitioner is pending since 18.09.2023. If the payment is not received on or before 30.04.2024, the Management of JSPL will go for encashment of the B.G of Rs.3,73,95,490/- vide B.G. dated 08.03.2022, executed

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by the Petitioner.

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In response to the letter dated 25.03.2024, reiterating its stand in reminder letter dated 22.08.2022, a reply was given by the Petitioner to the Opposite Party No.2 vide letter dated 19.04.2024, indicating therein that as the Petitioner has not violated the terms of contract, such communication dated 25.03.2024 is illegal. However, being aggrieved by the action of the Opposite Parties, the Petitioner preferred Arbitration Petition under section 9 of the Arbitration and Conciliation Act, 1996, shortly hereinafter “the Act, 1996”, before the Senior Civil Judge (Commercial Court), Cuttack, along with Petitions under Order 39 Rules 1 and 2 and Order 39 Rule 3 of the CPC for granting exparte injunction, prohibiting the Opposite Parties not to encash the B.G. pursuant to the letter dated 25.03.2024. The said Petition was taken up for hearing by the Commercial Court on 30.04.2024. On the very day, the Court below rejected the Petition of the Petitioner Company for ex parte injunction and ordered to issue notice to the Opposite Parties.

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5. As detailed above, knowing about filing of the Writ Petition and passing of the interim order dated 13.05.2024 in I.A. No.6416 of 2024, the Opposite Parties filed I.A. No.6777 of 2024 for vacation of the interim order on the ground that in view of the judgment of this Court reported in AIR 2016 Orissa 103 ( M/s Sai

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Concrete Pavers Pvt. Ltd., Visakhapatnam vs. National Aluminium Company Ltd., Koraput ), the Writ Petition is not maintainable. Further, in view of the statutory bar under the Commercial Courts Act, 2015, the status quo order dated 13.05.2024 is liable to be vacated. A further stand has been taken in the I.A. that in the matter of invocation of B.G., the Courts can only interfere in exceptional circumstances. The Opposite PartyCompany being severely prejudiced due to non-refund of the debit balance totaling to Rs.4,12,54,904/- by the Petitioner, status quo order dated 13.05.2024 needs to be vacated.

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Apart from dealing with the judgments referred to in the order dated 13.05.2024 cited by the Petitioner, it has also been stated in the I.A. that Order 39 Rules 1, 2 and 3 of the CPC is not applicable to proceeding under section 9 of the Act, 1996. If such an application is filed, the same can only be considered to be an application under section 9 of the Act, 1996 and any order passed in a section 9 proceeding is appealable under section 37(1) (b) of the Act, 1996. Hence, the writ jurisdiction cannot be invoked to circumvent the procedure under the Act, 1996.

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A stand has also been taken in the I.A. that interpretation and implementation of clause in a contract cannot be the subject matter of a Writ Petition, since the Petitioner has

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already approached the Commercial Court by way of an Application under section 9 of the Act, 1996 and thus, intended to have the issues decided by an Arbitral Tribunal.

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A further stand has also been taken in the I.A. for vacation of stay on the ground that the Clause 58 of the contract/work order dated 24.01.2022 between the parties provides for arbitration in respect of all disputes and differences of any kind, arising out of or in connection with the contract, whether during the progress of work or after its completion, and whether before or after the termination of contract.

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It has also been stated in the I.A. that in view of the bar under sections 8 and 13 of the Commercial Courts Act, 2015, the Writ Petition assailing an order passed by the Commercial Court rejecting an application under Order 39, Rule 3 of C.P.C. is not maintainable.

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6. In response to the said I.A. filed by the Opposite Parties for vacation of stay so also regarding maintainability of the Writ Petition, the Petitioner has filed an Objection stating therein that the judgment of this Court cited by the Opposite Party Nos. 1 and 2 is not applicable to the present case, as in the said case it was decided that an Appeal under Order 43, Rule 1(r) of the CPC, out of an order passed in an Application under section 9 of the Act,

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1996, is not maintainable. In the instant case, the Petitioner has approached this Court under Article 227 of the Constitution of India to exercise its superintendence power against the order passed by the Commercial Court under Order 39, Rule 3 of the CPC.

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Apart from the said stand, it has also been stated that since the B.G. executed by the Petitioner is valid till 05.09.2024, the Opposite Party Nos. 1 and 2 will no way be prejudiced as the Petitioner is to get huge amount of pending bills along with other amounts from the Opposite Party.

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It has also been stated in the Objection that in view of specific allegations, as detailed in Paragraph 18 of the Writ Petition, the Opposite Party Nos. 1 & 2 issued letter dated 25.03.2024 through their authorized signatory stating therein that as per the books of account, there is a debit balance of Rs.4,12,54,904/towards unadjusted advance and other deductions. If the payment is not received before 30.04.2024, the Opposite Parties will go for encashment of the B.G. of Rs.3,73,95,490/- vide BG dated 08.03.2022 and the said letter is illegal as the Petitioner is entitled to more amount from the Opposite Parties.

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A stand has also been taken in the Objection that vide letter dated 11.05.2024, addressed to the Opposite Parties, the Petitioner has requested to release all pending bills and issue gate pass for removal of machinery, shuttering materials and other unused building materials, such as tiles, plumbing items etc. so also requested to withdraw the claim of invocation of B.G. and release all outstanding payments and dues.

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A further stand has been taken in the Objection that the contract executed between the parties requires reciprocal promise in which the Opposite Parties failed to discharge their obligations. The Petitioner, vide various letters, including letter dated 26.07.2023, intimated the Opposite Parties regarding nonperformance of their contractual obligations. The Petitioner, vide communication dated 26.06.2023, intimated the Opposite Parties regarding their failure to supply free material in time and also proposed to conduct a joint meeting to sort out the issues and prepare collective plan. However, the Opposite Parties have shown no interest, as proposed by the Petitioner.

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It has also been stated in the Objection that as per the condition of contract, electricity and water supply must be provided by the owner (Opposite Party) at one point free of cost to the Contractor. The Petitioner, vide letter dated 24.02.2022 and

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30.03.2022, pointed out that it did not receive the same properly at the beginning. In fact, almost for a month or two, the Petitioner was told that it must take the same from other Contractor namely, SPD, and the same would not be provided to the Petitioner by the Opposite Parties, which resulted in a huge hindrance to start the work. It has also been alleged in the Objection that the Petitioner has not received all the drawings as on 26.07.2023 from the Management of JSPL, which in fact, is one of the reasons for extension that has been applied and approved by the Opposite Parties. Further, there have been several revisions in drawing which also affected the progress of work.

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It has also been alleged in the Objection that the Opposite Party Nos.1 and 2 did not intend to pay the bills of the Petitioner and have incorrectly taken measurements to reduce the quantity of work completed and consequently, undervalued the bills. Also, the Opposite Parties have not released previously withheld quantities nor finalized the deviation items, for which payment is due. It has also been alleged that the Opposite Party Nos. 1 and 2 are refusing to allow the Petitioner to remove its machineries and materials from the site, which may have criminal conspiracy to exploit the Petitioner’s survival without payment.

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A stand has also been taken in the Objection that the issues regarding pending bills, deviation from the original scope, withheld amounts, claims for delay in supply of materials and idling of machinery, manpower, interest and overhead, have been pending since long and the Opposite Party Nos. 1 and 2 did not address these issues nor deputed any person for reconciliation or meeting, despite repeated reminders and letters given by the Petitioner. Further, the contract being a reciprocal one, due to non-fulfillment of the reciprocal promise by the Opposite Party Nos. 1 and 2 in time, the work could not be executed as per the programme. Further, the Opposite Party Nos. 1 and 2 arbitrarily stopped issuing gate pass from September, 2023 to February, 2024 for which the personnel of the Petitioner could not enter the premises and thereby work was stopped and it suffered loss of huge amount of money and the Petitioner is entitled to running bills and other cost and damage to the tune of near about Rs.20 crores from the Opposite Party Nos. 1 and 2.

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It has also been stated in the Objection that it is stand of the Opposite Party Nos. 1 and 2 that vide letter dated 07.07.2023 it issued notice for revision in quantity / termination of contract due to poor performance in the construction work. It is well evident from the documents appended to the I.A. that the

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Opposite Party Nos. 1 and 2 prepared minutes dated 30.04.2024 in which 30 days’ time was allowed to the Petitioner to rectify the defects. On the other hand, before expiry of 30 days, vide letter dated 07.05.2024 under Annexure-H to the I.A., the Opposite Party No.2 issued letter to the Bank for encashment of B.G., which shows that the Opposite Party No.2 has acted in a very unfair and mala fide manner. The prayer to vacate the interim order has also been opposed to on the ground that the Petitioner has huge outstanding against the Opposite Party and though it has submitted the R/A bills to the Opposite Parties, the same are yet to be cleared.

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Further, it has been averred that reconciliation of account would be sufficient to establish that allegation of refund towards unadjusted advance of Rs.3,12,64,904/- is incorrect whereas, the B.G. amount is Rs.3,73,95,490/-. As such, without reconciliation of the bills of the Petitioner, the letter dated 25.03.2024 for encashment of B.G. is illegal and arbitrary.

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A stand has also been taken in the Objection that the judgments cited by the Petitioner seeking for interim relief are applicable to the facts and circumstances of the present case and as per the letter dated 29.11.2023 submitted by the Petitioner, as at Annexure-9 of the Writ Petition, the payment due against the

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Opposite Parties is for an amount of Rs.514.01 lakhs. The Opposite Parties, without paying the same, arbitrarily issued letter dated 25.03.2024. After receiving the letter dated 25.03.2024, the Petitioner issued a letter dated 19.04.2024 under Annexure-11. Apart from that, the Petitioner has already invoked the arbitration clause and nominated Hon’ble Justice B.N. Rath (Former Judge of this Court) as its Arbitrator, but the Opposite Parties have not yet responded to the same.

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It has also been stated in the Objection that there is no clear bar in the Arbitration Act as well as in Commercial Courts Act not to exercise the power under Article 227 of the Constitution of India. Rather, in exceptional circumstances, when the action of a party is completely perverse and acted in bad faith, the interference of the writ court is permissible. A stand has also been taken in the Objection that if the encashment of BG is not stayed, it will cause irretrievable injustice to the Petitioner as the letter dated 07.05.2024 to encash the B.G. was only issued after notice was issued to the Opposite Parties by the Commercial Court pursuant to the impugned order dated 30.04.2024. Thus, the action of the Opposite Parties is not fair and mala fide. Accordingly, it has been stated that the prayer of the Opposite

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Parties to vacate the interim order passed by this Court is liable to be rejected.

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7. To substantiate the stand taken in the Application for vacation of stay, Mr. Mukherjee, learned Senior Counsel for the Opposite Parties, relying on the judgment in Perin Hoshang Davierwalla vs. Kobad Dorabji Davierwalla, reported in 2014 SCC Online Bombay 534 and in Deepak Mittal vs. Geeta Sharma, reported in 2017 SCC OnLine Del 10365, submitted that an order making or rejecting an Application for ex parte ad-interim injunction is essentially an order under section 9 of the Act, 1996 only and not otherwise. Mr. Mukherjee further submitted that the scope and ambit of the Act, 1996 does not empower the Commercial Court to entertain any Application beyond the scope of the Act, 1996 be it an Application under Order 39 Rules-1 and 2 or 3, CPC. Even if such an application is filed, the same can only be considered to be an application under section 9 of the Act, 1996.

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Mr. Mukherjee further submitted that in view of the specific provisions under section 37 (1)(b) of the Act, 1996, any order passed in a section 9 application, including interlocutory order, is an appealable order under the said provision. Hence, as there is a specific alternative remedy of Appeal against the

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interlocutory order passed in a section 9 proceeding, the Writ Petition is not maintainable. To substantiate such submission the following judgments were cited:-

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Mr. Mukherjee, learned Senior Counsel, relying on the judgment of the apex Court in Gujarat Maritime Board vs. L & T Infrastructure Development Projects Ltd. and others , reported in (2016) 10 SCC 46, submitted that the scope of interference with regard to encashment of B.G. is very limited and the Court can only interfere with regard to encashment of B.G., where allowing encashment of an unconditional B.G. or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned or in case of fraud of an egregious nature, which would vitiate the very foundation of such B.G. or letter of credit and the beneficiary seeks to take advantage of such situation.

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Mr. Mukherjee, learned Senior Counsel further submitted

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that whether the cancellation of contract is legal and proper, and whether on such cancellation, the B.G. could have been invoked on the extreme situation of the party justifying its inability to perform its obligations under the contract, etc. are not within the purview of an inquiry under Article 227 of the Constitution of India. Between the Bank and the Opposite Parties, the moment there is a written demand for invoking the B.G., pursuant to

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breach of the covenants between the parties is satisfied, the Bank is bound to honour payment under the guarantee. It was also submitted by the learned Senior Counsel that the Writ Petition is not maintainable and the Court below was justified to reject the Petition to pass an ad interim ex parte injunction before hearing the Opposite Party and since the section 9 Application is pending before the Court below, at this juncture, the Writ Petition is not maintainable. To substantiate the said submission, the following judgments were cited:

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i) National Highway Authority of India Vs. Ganga

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Enterprises and others , reported in (2003) 7 SCC 410.

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ii) Adani Agri Fresh Ltd. Vs. Mahaboob Sharif and

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others , reported in (2016) 14 SCC 517.

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iii) Andhra Pradesh Pollution Control Board vs. CCL

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Products (India) Ltd. , reported in (2019) 20 SCC 669.

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iv) Trafalgar House Construction (T) Satyam

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Shankaranarayana (JV) vs. State of Orissa and

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others , reported in 2007 (Suppl. 2) OLR 822 : CLT (2007) Supp 394.

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v) Deep Industries Limited Vs. Oil and Natural Gas

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Corporation Limited and others , (2020) 15 SCC

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vi) Deepak Mittal & another Vs. Geeta Sharma &

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others , 2017 SCC OnLine Del 10365,

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8. In response to the submissions made by the learned Senior Counsel for the Opposite Parties, Mr. Mishra, learned Senior Counsel for the Petitioner submitted that even if it is accepted that against an interim order passed in a Section-9 proceeding alternative remedy is available under section 37 (1)(b) of the Act, 1996 to prefer an Appeal, the present Writ Petition under Article 227 of the Constitution of India is maintainable. Mr. Mishra, further submitted that the Petitioner preferred the Writ Petition in view of lack of clarity under Section 37(1)(b) of the Act, 1996 that even interlocutory orders passed by the Commercial Court in a Section-9 application are also appealable and under such bonafide impression that only final order granting or rejecting an application under Section-9 is appealable, being remediless, the Petitioner has preferred the present Writ Petition. To substantiate such submission Mr. Mishra cited the following judgments:-

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i) Santosh Kumar Acharya Vs. Ratnakar Swain , reported in 2023 SCC OnLine Orissa 2301

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ii) Odisha State Road Transport Corporation, Bhubaneswar vs. ARSS Bus Terminal Pvt. Ltd., Bhubaneswar , reported in 2023 (I) ILR-CUT-253

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iii) Bhaven Construction through authorized signatory Premjibhai K. Shah Vs. Executive Engineer, Sardar Sarovar Narmada Nigam Limited and another , reported in (2022) 1 SCC 75.

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iv) Baburam Prakash Chandra Maheshwari vs. Antarim Zila Parishad Now Zila Parishad, Muzaffarnagar , reported in AIR 1969 SC 556

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Mr. Mishra, learned Senior Counsel for the Petitioner,

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relying on the judgment of the Supreme Court in Arcelor Mittal

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Nippon Steel India Ltd. Vs. Essar Bulk Terminal Ltd. , reported in (2022) 1 SCC 712, submitted that Applications for interim relief are inherent applications, which are required to be disposed of urgently. Interim relief is granted in aid of final relief. The object is to ensure protection of the property being the subject matter of arbitration and/or otherwise to ensure that the arbitration proceedings do not become infructuous and the arbitral award does not become an award on paper, of no real value.

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Similarly, relying on the judgment of the Supreme Court in Gangotri Enterprises Ltd. vs. Union of India and others , reported in (2016) 11 SCC 720, Mr. Mishra, learned Senior Counsel submitted that the Opposite Parties are now claiming alleged unadjusted amount given to the Petitioner as advance to carry out the contractual job so also penalty, which is yet to be adjudicated upon in an arbitral proceeding and the Petitioner’s running bills and other demands are yet to be honoured by the Opposite Parties. Hence, the Petitioner has made out a prima facie case in its favour for grant of injunction against the Opposite Parties not to invoke the B.G.

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Relying on the judgment of the Supreme Court in Union

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of India and another vs. Millenium Delhi Broadcast LLP and

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others reported in (2022) 7 SCC 67, Mr. Mishra, learned Senior Counsel submitted that the B.G. given by the Petitioner was executed as security against the advance given by the Opposite Party-Company and is not a performance B.G. Hence, the alleged unadjusted advance needs computation. Unless and until the claim made by the Petitioner is decided by the Arbitral Tribunal, the Opposite Parties will not be justified to encash the B.G.

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Relying on the judgment of the Supreme Court in Maria

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Margarida Sequeira Fernandes and others vs. Erasmo Jack De

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Sequeira (dead) through L.Rs. reported in (2012) 5 SCC 370, Mr. Mishra, learned Senior Counsel further submitted that unless the Petitioner is protected, so far as invocation of B.G., it will cause irretrievable injustice to the Petitioner, as huge amount in crores are laying unpaid at the end of the Opposite Party Company despite repeated demands made by the Petitioner to make the payment. If the Opposite Parties are permitted to encash the B.G., which is valid till 05.09.2024, there will be a great set back to the Petitioner Company affecting its financial condition, which may lead to irretrievable harm and injustice to the Petitioner Company, as the conduct of the Opposite Parties have weakened the financial condition of his client. Mr. Mishra further submitted that the pleadings made in the present Writ Petition and the documents annexed hereto to substantiate the said stand are same as in ARBP No.14 of 2024.The Court below failed to take note of the pleadings and contents of the documents appended to the section 9 Application.

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9. Upon hearing the learned Counsel for the parties and after going through the record so also case laws cited by the learned Senior Counsel for the parties, the following points emerge for consideration.

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(I) Whether an interlocutory order passed by the Commercial Court in a section 9 application under the Arbitration & Conciliation Act, 1996, rejecting the prayer of the petitioner for exemption of notice to the opposite party and pass an ad interim ex

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parte injunction, is appealable under section 37(1) (b) of the said Act, 1996 so also Section 13 of the C.C. Act, 2015?

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(II) If not what is the remedy available to an aggrieved party to challenge the said interlocutory order?

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(III) Whether the Commercial Court was justified to reject the application filed under Order 39, Rule 3 of the Code of Civil Procedure in the section 9 application?

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(IV) Whether injunction against invocation of unconditional bank guarantee is permissible? If so, when and under what circumstances?

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10. So far as Point Nos.i) & ii) , the same being interrelated, are dealt with and answered together.

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Before dealing with the said points, it would be apt to extract below Sections 8 and 13 of the Commercial Courts Act,

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2015, Order 43 Rule 1(r) of C.P.C and Sections 9 and 37 of the

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Act, 1996 for ready reference:

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Commercial Courts Act, 2015

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“ Section-8. Bar against revision application or petition against an interlocutory order. — Notwithstanding anything contained in any other law for the time being in force, no civil revision application or petition shall be entertained against any interlocutory order of a Commercial Court, including an order on the issue of jurisdiction, and any such challenge, subject to the provisions of section 13 , shall be raised only in an appeal against the decree of the Commercial Court.

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Section-13. Appeals from decrees of Commercial Courts and Commercial Divisions. —(1) 1[Any person aggrieved by the judgment or order of a Commercial Court below the level of a District Judge may appeal to the Commercial Appellate Court within a period of sixty days from the date of judgment or order.

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(1A) Any person aggrieved by the judgment or order of a Commercial Court at the level of District Judge exercising original civil jurisdiction or, as the case may be, Commercial Division of a High Court may appeal to the Commercial Appellate Division of that High Court within a period of sixty days from the date of the judgment or order:

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Provided that an appeal shall lie from such orders passed by a Commercial Division or a Commercial Court that are specifically enumerated under Order XLIII of the Code of Civil Procedure, 1908 (5 of 1908) as amended by this Act and section 37 of the Arbitration and Conciliation Act, 1996 (26 of 1996). ]

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(2) Notwithstanding anything contained in any other law for the time being in force or Letters Patent of a High Court, no appeal shall lie from any order or decree of a Commercial Division or Commercial Court otherwise than in accordance with the provisions of this Act.”

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(Emphasis supplied)

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Order XLIII C.P.C.

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“ 1. Appeals from orders -An appeal shall lie from the following orders under the provisions of section104,namely:-

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(r) an order under rule 1, rule 2 [rule 2-A], rule 4 or rule 10 of Order XXXIX; ”

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(Emphasis supplied)

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Arbitration and Conciliation Act,1996

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“ Section-9: Interim measures, etc., by Court .[(1)] A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court—

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(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or

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(ii) for an interim measure of protection in respect of any of the following matters, namely :— (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

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(b) securing the amount in dispute in the arbitration ;

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(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

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(d) interim injunction or the appointment of a receiver;

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(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

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2 [(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.

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(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under subsection (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.]

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Section-37:-Appealable orders .- (1) [Notwithstanding anything contained in any other law for the time being in force, an appeal] shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:--

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[(a) refusing to refer the parties to arbitration under section 8;

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(b) granting or refusing to grant any measure

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under section 9;

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(c) setting aside or refusing to set aside an arbitral

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award under section 34.]

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(2) Appeal shall also lie to a court from an order of the arbitral tribunal--

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(a) accepting the plea referred to in sub-section (2)

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or sub-section (3) of section 16; or

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(b) granting or refusing to grant an interim measure under section 17.

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(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”

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(Emphasis supplied)

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From the provisions under section 9 of the Act, 1996, it is

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amply clear that the party may, before or during arbitration proceedings or at any time after making of the arbitral award, but before it is enforced in accordance with section 36 of the Act,

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1996, can apply to a Court for the purpose, as detailed under the said provision.

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11. Though the High Court of Gouhati in Sati Oil Udyog Ltd.

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Vs. Avanti Projectrs & infrastructure, reported in 2010 1 GLT 141, High Court of Mumbai in Perin Hoshang Davierwalla and

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ors. Vs. Kobad Dorabji Davierwalla and ors) reported in 2014(3) BomCR 551: MANU/MH/0569/2014, High Court of Hydrabad in ICICI Bank Limited V. IVRCL Ltd., reported in 2015 SCC OnLine Hyd 311: AIR 2015 Hyd 179, and High Court of Delhi in Deepak Mittal V. Geeta Sharma , reported in 2017 SCC OnLine Del 10365 took a view that interlocutory orders passed by the Commercial Court in a section 9 application, including the final order, are appealable under section 37(1) (b) of the Act, 1996, High Court of Karnataka in Symphony Services

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Corporation (India) Private Limited, Bangalore V. Sudip Bhattacharjee, reported in 2007 SCC OnLine Kar 368: (2008) 2 KLJ 24, Division Bench of High Court of Mumbai in Conros

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Steels Pvt. Ltd. Vs. Lu Quin (Hong Kong) Co. Ltd. and other, reported in (2012) 6 BOMCR 149 , Division Bench of High Court of Meghalaya in National Thermal Power Corporation Limited

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Vs. Meghalaya Power Distribution Corporation Ltd. and

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others) reported in AIR 2021 Meghalaya 53 and High Court of

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Kerala in Pranathmaka Ayurvedics Pvt. Ltd. Vs. Cocosath

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Health Products, reported in 2020 SCC OnLine Ker 5476 have taken a contrary view as to maintainability of an Appeal under section 37(1) (b) of the Act, 1996 against an interlocutory order passed by the Commercial Court in a section 9 application, during pendency of the said application.

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12. So far as judgment of this Court in M/s. Sai Concrete Pavers Pvt. Ltd.(supra) , cited by the learned Senior Counsel for the Opposite Parties, the issue before the coordinate Bench was as to whether separate applications under Order 39 Rule 1 & 2 so also Rule 3 of CPC are required to be filed in application moved under section 9 of the Act,1996 and if an application moved before the Court under Order 39 Rule 3 of CPC seeking for an ad interim ex parte injunction stands rejected, is the said order appealable under Order 43 Rule-1(r) C.P.C.? Paragraphs 5 to 8, 11 and 12 of the said judgment, being relevant, are extracted below:

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“ 5. Mr. Rao, learned counsel for the appellant placing reliance upon paragraph-11 of the decision of the Hon'ble Supreme Court in the case of A. Venkatasubbiah Naidu v. S. Chellappan, reported in AIR 2000 SC 3032 contended that order passed either refusing or granting an application under Rule-3 of Order 39, CPC is appealable one. Mr. Rao further submits that there are two provisions under the Act, namely, Section-9 and Section 17 of the Act, which enable either the Court or the Arbitrator to pass interim orders or make an interim arrangement. Section 9 of the Act empowers

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the Court to pass interim orders or make interim arrangement in contemplation of an arbitral proceeding. Though the provisions of Section 9 of the Act deals with entertaining an application for interim measure it does not make any provision as to how the interest of the aggrieved party is to be protected before the petition under Section 9 of the Act is taken up on merit. Thus, the application filed for injunction can only be entertained under the provisions of Order 39 Rules 1 and 2, CPC and not otherwise. Thus, the appeal against the said order is maintainable before this Court .

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6. Right of appeal is not inherent one. It is a creature of the statute, and should be considered on interpretation of the relevant provision. Thus, it is to be examined as to whether the appellant has a statutory right to prefer an appeal against rejection of an application under Order 39 Rule-3, CPC. On a plain reading of Section 104 as well as Order 43 Rule-1, CPC, which provides an appeal against order does not include an order of rejection of an application under Order 39 Rule-3, CPC.

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7. Law is no more res integra on this issue. This Court in a decision in the case of Sri. Rabindra Kumar Mohanty v. Smt. Sujata Mohapatra (FAO No. 86 of 2012 disposed of on 10.07.2015) relying upon A. Venkatasubbiah Naidu (supra) as well as decisions reported in 1989 (II) OLR 455 and AIR 1993 (Orissa) 78 held as under : -

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“6. In view of the discussion made above and the law laid down (supra), I have no hesitation to hold that an appeal is maintainable as against an ex parte ad interim order of injunction as provided under Order XLIII Rule (1)(r) C.P.C., but not against the order refusing to exercise power under Order 39 Rule 3 C.P.C ……”

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8. Thus, it can be unhesitatingly held that no appeal lies against an order rejecting an application under Order 39 Rule-3, CPC ”.

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xxx xxx xxx

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11. Section 9(1)(ii)(d) of the Act empowers the Court, namely, the District Judge to make any interim

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arrangement including that of injunction or appointment of receiver. The language employed in Section 9 of the Act, more particularly the words “and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it” makes it clear that the Court shall have the same power to make any order in any proceedings under Section 9 of the Act. Thus, an order making or rejecting an application for ad-interim injunction is essentially an order under Section 9 of the Act only and not otherwise. Further, the scope and ambit of the Act does not empower the District Judge to entertain any application beyond the scope of this Act, be it an application under Order 39 Rules-1 and 2 or 3, CPC. Even if such an application is filed the same can only be considered to be an application under the provisions of Section 9 of the Act.

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12. Learned counsel for the parties made arguments at length on merits of the case relying upon different case laws of the Hon'ble Supreme Court. This Court does not feel it prudent to delve into the merit of the case at this stage which can be effectively gone into at the time of hearing of the petition under Section 9 of the Act. Thus, in view of the discussions made above, this Court holds that the appeal under Order 43 Rule-1(r), CPC is not maintainable and the same is accordingly dismissed. ”

¶218

(Emphasis supplied)

¶219

13. From the discussions made above, legal provisions enshrined under the relevant Acts and C.P.C., as extracted above, so also judgments of various High Courts for and against the point regarding maintainability of an Appeal under Section 37 (1)(b) of the Act,1996, this Court is in respectful agreement with the views taken by various High Courts to the effect that interlocutory order passed by the Court, refusing to entertain an application under Order 39, Rule 3 of C.P.C. to pass an ad interim

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exparte injunction order in a section 9 application filed under the Act,1996 is not appealable. However, the reasons to agree with the said views are slightly different, as detailed below:

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i) As per the settled position of law, it is to be presumed that while enacting the subsequent law i.e. C.C. Act, 2015, the legislature is conscious of the provisions of the Act, 1996 prior in time and therefore, the later Act shall prevail.

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ii) As provided under section 21 of the C.C. Act, 2015, the said Act shall have overriding effect. It provides that, save as otherwise provided, the provisions of the said Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

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iii) As held by the Supreme Court in Kandala Export Corporation & Another Vs. M/s OCI Corporation

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& Another , reported in (2018) 14 SCC 715, both the Act, 1996 and C.C. Act, 2015 call for a harmonious interpretation. If at all there is any conflict, as to the substantive provisions, the Act, 1996 prevails; but it has left the procedural niceties to the C.C. Act, 2015.

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iv) Section 8 of the Commercial Courts Act, 2015 provides, notwithstanding anything contained in any other law for the time being in force, no civil revision application or petition shall be entertained against any interlocutory order of a Commercial Court, including an order on the issue of jurisdiction, and any such challenge, “subject to the provisions of section 13” , shall be raised only in an Appeal against the decree of the Commercial Court.

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(Emphasis supplied)

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v) Proviso under section 13 of the C.C. Act, 2015 mandates that an Appeal shall lie from such orders passed by a Commercial Division or a Commercial Court, that are specifically enumerated under Order XLIII of C.P.C. and Section 37 of the Act, 1996.

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vi) In view of the proviso under section 13 of the C.C. Act, 2015, read with Order 43 Rule 1(r) C.P.C., orders passed by the Court, exercising power under Order 39 Rules 1, 2, 4 & 10, are appealable.

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vii) Order 39 Rule 3 of C.P.C. mandates, the Court shall in all cases, except where it appears that the object of granting the injunction would be defeated by the delay , before granting an injunction, direct notice of the application to the Opposite Party. However, if the Court grants injunction before noticing the Opposite Party, it shall record the reasons for ordering so .

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(Emphasis supplied) viii) There is no such provision of appeal under Order 43 or Section 104 of C.P.C, if the Court declines to exercise its exceptional/special power under Order 39, Rule 3 C.P.C. (which would be subject to recording the reasons for ordering so) to exempt notice to the Opposite Party before passing an ad interim injunction under Order 39 Rules 1 & 2 of C.P.C.

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ix) In view of the provisions under Order-43, Rule 1(r) of C.P.C., an order passed in a section 9 application filed under the Act, 1996, granting the injunction under Order 39 Rules 1 & 2 C.P.C. or refusing to vacate the order of injunction on filing application

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under Order 39 Rule 4 C.P.C. are appealable, but not an order declining to exempt notice to the Opposite Party before passing an ad interim injunction.

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x) As held by the coordinate Bench in M/s. Sai Concrete Pavers Pvt. Ltd. (supra), even if separate applications are filed under Order 39 Rule 1 & 2 or Rule 3 C.P.C. in a section 9 proceeding, the same is to be considered as an application under Section 9 of the Act,1996. In addition to the said views of the coordinate Bench, this Court is of the view that such an interlocutory order of refusal to exempt notice to the Opposite Party before passing an ad interim injunction in a section 9 proceeding, being akin to rejection of prayer made in an application under Order 39 Rule 3 C.P.C., is not appealable, as held in the said case.

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xi) In view of the above, this Court is of further view that interlocutory order passed in a section 9 application moved before the District Judge/ Commercial Court under the Act, 1996, rejecting the prayer of the Applicant to exempt notice to the

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Opposite Party and pass an ex parte ad interim injunction is not an appealable order and the party aggrieved has to approach the writ court under Article 227 of the Constitution of India.

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Both the Point Nos.i) & ii) are answered accordingly.

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14. So far as Point Numbers iii) and iv) , regarding justification to reject the application for exemption of notice to the Opposite Parties and scope of judicial interference as to granting injunction against invocation of an unconditional Bank Guarantee, the said points are dealt with together for the sake of clarity and being interconnected.

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15. A Bank Guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the terms of the underlying transaction, or the primary contract between the person at whose instance the bank guarantee is given and the beneficiary. As held by the Supreme Court in Hindustan Steel Works Construction Ltd. Vs.

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Tarapore & Co reported in (1996) 5 SCC 34), the nature of obligation of the bank is absolute, and not dependent upon the inter se disputes or proceedings. The bank is liable to pay as soon as the demand is made by the creditor as held in National

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Thermal Power Corpn. Ltd. Vs. Flowmore Pvt. Ltd, reported in (1995) 4 SCC 515.

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16. In Himadri Chemicals Industries Ltd. Vs. Coal Tar

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Refining Co, reported in (2007) 8 SCC 110, the Supreme Court has held that in the matter of invocation of a bank guarantee or of credit, a bank guarantee is an independent and a letter separate contract and is absolute in nature. The existence of disputes between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of a bank guarantee, or letter of credit. In the matter of invocation, it is not open to a bank to rely upon the terms of the underlying contract between the parties. The Supreme Court has enunciated the following principles in the matter of injunction for restraining encashment of a bank guarantee or a letter of credit:-

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“(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 realize such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

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(ii) The bank giving such guarantee is bound to honour it as per its terms, irrespective of any dispute raised by its customer.

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(iii) The courts should be slow in granting an order of injunction to restrain the realization of a bank guarantee or a letter of credit.

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(iv) Since a bank guarantee or a letter of credit is an independent and a separate contract and is absolute in

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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 guarantee or letter of credit.

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(v) Injunction against encashment may be granted if there is fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit, and the beneficiary seeks to take advantage of the situation.

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(vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned.”

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17. The principle laid down in Himadri Chemicals Industries

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Ltd. (supra) was followed by the Supreme Court in the matter of Vinitec Electronics Pvt. Ltd. v. HCL Info Systems Ltd, reported in (2008) 1 SCC 544 , wherein it was held that in the case of an unconditional bank guarantee, the same are payable by the guarantor on demand. When in the course of commercial dealings, unconditional guarantees have been given or accepted, the beneficiary is entitled to realise such a bank guarantee in terms thereof, irrespective of any pending disputes. The bank guarantee is an independent contract between the bank and the beneficiary thereof. For a party to claim that the case falls under the exception of fraud or special equities, proper pleadings must be made out which lay down the factual foundation of the allegation of fraud or special equities.

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18. However, in NHAI v. Ganga Enterprise , reported in AIR 2003 SC 3823 : (2003) 7 SCC 410, the Supreme Court has held that a bank guarantee has to be strictly construed as per the terms of the guarantee. The invocation must be in accordance with the terms of the bank guarantee, and any deviation therefrom, would render the invocation bad in law. If the enforcement is in terms of the guarantee, the courts would normally refrain from interfering with the enforcement of the bank guarantee. Interference would be justified if the invocation is contrary to the terms of the guarantee, or in the case of fraud.

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19. A bank guarantee must be honoured strictly in accordance with the terms of the guarantee, subject to two exceptions. The first is in a clear case of fraud, which the bank has notice of, and the beneficiary seeks to take advantage of.

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20. The Supreme Court in General Electric Technical Jasp Services Company Inc. v. M/s. Punj Sons (P) Ltd. and another, reported in AIR 1991 SC 1994, held that by interim injunction under Order 39 Rule 1 of the CPC, bank guarantee cannot be interdicted by Court in the absence of fraud or special equities in the form of preventing irretrievable injustice between the parties. It was further held that it is the fraud of beneficiary, not the fraud of somebody else.

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21. In Svenska Handelsnbanken v. Indian Charge Chrome,

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reported in (1994) 1 SCC 502, the Supreme Court has held that fraud in connection with the bank guarantee would vitiate the very foundation of the bank guarantee. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction.

¶275

22. As held by the Supreme Court in B.S.E.S. Ltd. (Now Reliance Energy Ltd.) v. Fenner India Ltd. , reported in (2006) 2 SCC 728,the second exception to the general rule of nonintervention is if there are 'special equities' in favour of injunction, such as when 'irretrievable injury or 'irretrievable injustice' would occur if such an injunction was not granted.

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23. The Supreme Court in Andhra Pradesh Pollution Control Board , reported in (2019) 20 SCC 669 , while taking note of its earlier decisions in the matters of Ansal Engg. Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., reported in (1996) 5 SCC 450, SBI v. Mula Sahakari Sakhar Karkhana Ltd., reported in (2006) 6 SCC 293, and Hindustan Construction Co. Ltd. v.

¶277

State of Bihar, reported in (1999) 8 SCC 436, held that in absence of a case of fraud, irretrievable injustice and special equities, the Court should not interfere with the invocation or

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encashment of a bank guarantee so long as the invocation was in terms of the bank guarantee.

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24. Thereafter, in Standard Chartered Bank , reported in

¶282

(2020) 13 SCC 574 the Supreme Court again noticed its earlier decision in Himadri Chemicals Industries Ltd. (supra) and held that bank guarantee is an independent contract between bank and the beneficiary and the bank is always obliged to honour its guarantee as long as it is unconditional and irrevocable one. It has been further held that the dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence, however, exceptions to this rule are when there is a clear case of fraud, irretrievable injustice or special equities. It was also held that the Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee. It was held that once the demand was made in due compliance with bank guarantees, it was not open for the bank to determine as to whether the invocation of the bank guarantee was justified so long as the invocation was in terms of the bank guarantee. Relevant paragraphs of the said judgment are reproduced below:

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“ 19. The law relating to invocation of bank guarantees with the consistent line of precedents of this Court is well settled and a three-Judge Bench of this Court in Ansal Engg. Projects Ltd. v. Tehri Hydro Development Corpn. Ltd. [Ansal Engg. Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., (1996) 5 SCC 450] held thus: (SCC p. 454, paras 4-5)

¶286

“4. It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud 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

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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.”

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(emphasis supplied)

¶291

20. A bank guarantee constitutes an independent contract. In Hindustan Construction Co. Ltd. v. State of Bihar [Hindustan Construction Co. Ltd. v. State of Bihar, (1999) 8 SCC 436] , a two-Judge Bench of this Court formulated the condition upon which the invocation of the bank guarantee depends in the following terms: (SCC p. 442, para 9)

¶292

“9. What is important, therefore, is that the bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the bank guarantee or the person on whose behalf the guarantee was furnished. The terms of the bank guarantee are, therefore, extremely material. Since the bank guarantee represents an independent contract between the bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the bank guarantee, or else, the invocation itself would be bad.”

¶293

22. Taking note of the exposition of law on the subject in Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co. [Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110] , a two-Judge Bench of this Court in Gujarat Maritime Board v. Larsen & Toubro Infrastructure Development Projects

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Ltd. [Gujarat Maritime Board v. Larsen & Toubro Infrastructure Development Projects Ltd., (2016) 10 SCC 46 : (2017) 1 SCC (Civ) 458] has laid down the principles for grant or refusal for invocation of bank guarantee or a letter of credit. The relevant paragraph is as under: (Himadri Chemicals Industries Ltd. case [Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110] , SCC pp. 117-18, para 14)

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“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:

¶298

(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.

¶299

(ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.

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(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.

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(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 letters of credit.

¶304

(v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation.

¶305

(vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned.”

¶306

23. The settled position in law that emerges from the precedents of this Court is that the bank guarantee is an independent contract between bank and the beneficiary and the bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence. There are, however, exceptions to this rule when there is a clear case of fraud, irretrievable injustice or special equities. The Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee.

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26. In our considered view, once the demand was made in due compliance with bank guarantees, it was not open for the appellant Bank to determine as to whether the invocation of the bank guarantee was

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justified so long as the invocation was in terms of the bank guarantee . The demand once made would oblige the bank to pay under the terms of the bank guarantee and it is not the case of the appellant Bank that its defence falls in any of the exception to the rule of case of fraud, irretrievable injustice and special equities. In absence thereof, it is not even open for the Court to interfere with the invocation and encashment of the bank guarantee so long as the invocation was in terms of the bank guarantee and this is what has been observed by the Division Bench of the High Court in the impugned judgment [Heavy Engg. Corpn. Ltd. v. Standard Chartered Bank, 2019 SCC OnLine Cal 617 : (2019) 3 Cal LT 133] and that reflected the correct legal position.”

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(Emphasis supplied)

¶312

25. So far as the judgment cited by the Petitioner, in

¶313

Arcelormittal Nippon Steel (India) Ltd. (supra), the Supreme Court has held as follows:-

¶314

“ 88. Applications for interim relief are inherently applications which are required to be disposed of urgently. Interim relief is granted in aid of final relief. The object is to ensure protection of the property being the subject-matter of arbitration and/or otherwise ensure that the arbitration proceedings do not become infructuous and the arbitral award does not become an award on paper, of no real value .”

¶315

(Emphasis supplied)

¶316

In Gangotri Enterprises Ltd. (supra) , the Supreme Court, vide

¶317

Paragraph Nos.39, 40 & 43, held/observed as follows:-

¶318

“ 39. Coming now to the facts of the case at hand, we find that wordings of Clause 62 of the contract in question with which we are concerned is identical to

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¶321

that of Clause 18 of Raman Iron Foundry case [Union of India v. Raman Iron Foundry, (1974) 2 SCC 231] . Clause 62 of GCC provides for determination of contract owing to default of contractor. The relevant portion of Clause 62 reads as under:

¶322

“The amounts thus to be forfeited or recovered may be deducted from any monies then due or which at any time thereafter may become due to the contractor by the Railways under this or any other contract or otherwise.”

¶323

40. On perusal of the record of the case, we find that firstly, arbitration proceedings in relation to the contract dated 22-8-2005 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 22-8-2005 for which no bank guarantee had been furnished. Thirdly, the sum claimed by the respondents from the appellant is in the nature of damages, which is not yet adjudicated upon in arbitration proceedings. Fourthly, the sum claimed is neither a sum due in praesenti nor a sum payable. In other words, the sum 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 14-7-2006 (AnandVihar works) and the work having been completed to the satisfaction of the respondents, they had no right to encash the bank guarantee.

¶324

43. In the light of foregoing discussion, we hold that the appellants have made out a prima facie case in their favour for grant of 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 Raman Iron Foundry case [Union of India v. Raman Iron Foundry, (1974) 2 SCC 231] . They are, therefore, entitled to claim injunction against the respondent in relation to encashment of Bank Guarantee No. 12/2006 dated 4-8-2006. ”

¶325

(Emphasis Supplied)

¶326

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¶328

In Union of India (supra), the Supreme Court, vide Paragraph Nos.14 and 15, held/observed as follows:-

¶329

“ 14. Clause 9 of the tender document enables the appellant to encash the bank guarantee, in case of failure on the part of the licensee either to deposit licence fee within 7 days of the beginning of each year or if the licensee stops the service without giving one year's notice. The bank guarantee can also be invoked if the licensee is declared or applies for being declared insolvent or bankrupt. There is no dispute that the licensee did not commence its operations and therefore the second condition does not apply. Admittedly, the third condition is not applicable to the facts of the case. According to the appellant, bank guarantee was invoked due to failure on the part of the licensee to deposit the licence fee within 7 days of beginning of the year. Essentially, the bank guarantee given by the respondent is a performance bank guarantee and was intended to ensure the due performance of the licence agreement. A perusal of the conditions of the relevant clauses of the agreement clearly shows that according to Article 1.1 of Schedule ‘C’ to the agreement, the licence was granted for period of 10 years which has to be reckoned from the date of issuance of WOL by the WPC. Admittedly, WOL was never issued by WPC. A Deemed Operational Licence, which was to be issued by the appellant, was not contemplated in the agreement.

¶330

15. We are of the opinion that the Tribunal did not commit any error in its interpretation of the clause pertaining to bank guarantee by holding that the conditions provided therein have not been satisfied for the invocation of the bank guarantee. ”

¶331

(Emphasis Supplied)

¶332

In Maria Margarida Sequeira Fernandes(supra) the Supreme

¶333

Court ,vide Paragraph No.84, held/observed as follows:-

¶334

“ 84. In order to grant or refuse injunction, the judicial officer or the Judge must carefully examine the entire pleadings and documents with

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¶336

Page 47 of 73

¶337

utmost care and seriousness. The safe and better course is to give a short notice on the injunction application and pass an appropriate order after hearing both the sides. In case of grave urgency, if it becomes imperative to grant an ex parte ad interim injunction, it should be granted for a specified period, such as, for two weeks. In those cases, the plaintiff will have no inherent interest in delaying disposal of injunction application after obtaining an ex parte ad interim injunction. ”

¶338

(Emphasis Supplied)

¶339

26. After analysing the judgments of the Supreme Court on

¶340

the point, as detailed above, and summarizing the principles decided there in as to the scope of interference / injunction

¶341

against invocation of BG, this Court is of the following views:-

¶342

i) The Courts should be slow in granting the injunction to restraint the realization of a bank guarantee

¶343

ii) However, there are two well recognized exceptions to this rule which are:

¶344

(a) A fraud of egregious nature.

¶345

(b) The invocation/encashment of bank guarantee

¶346

would result in irretrievable harm or injustice to one of the parties.

¶347

iii) In some cases third exception is also carved out viz.

¶348

when there are special equities in favour of the person seeking injunction.

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¶351

iv) In case the bank guarantee is not invoked in terms thereof, the bank can refuse to honour the bank guarantee, as in that case it would not be in accordance with the agreed stipulation and invocation would be improper. This can be treated as the fourth exception, as in such a case injunction can be granted.

¶352

Point No.iv) is answered accordingly.

¶353

27. Now the question is, whether any of the above established grounds for injunction against invocation of BG, has been made out by the Petitioner.

¶354

To determine Point Nos. iii) and iv), it would be appropriate to examine the averments made in the section 9 application so also the documents appended there to in support of such averments, which are in ditto , as made in the writ petition , so also averments made in the I.A. for vacation of stay and Objection filed by the Petitioner in response to the said I.A.

¶355

28. Paragraph Nos.18, 19, 31 to 33 of the application under section 9 of the Act, 1996, where in the Petitioner has allegedly pleaded the grounds for interference regarding invocation of BG on the ground of special equities, so also contents of some of the documents appended to such application as Annexures 1 to 13 ,

¶356

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¶358

which were filed by both the parties during rehearing of the matter on 19.07.2024, being so directed by this Court, are extracted below:-

¶359

“ 18. That in violation of terms of the contract from the side of the employer, vide letter dated 25.03.2024 the authorized signatory of the employer stated that as per books there is a debit balance of Rs.4,12,54,904.00 towards unadjusted advance and other deductions and it has been observed that you are not responding to our civil department direction and it is impacting out site progress and it is totally against our contract vide work order dated 24.01.2022 and advance is pending since 18.09.2023 and if the payment is not received on our before 30.04.2024, we will go for encashment of the BG of Rs.3,73,95,490.00 vide BG No.327001GL00001122 dated 8.3.2022. Copy of letter dated 25.03.2024 is filed herewith as Annexure-10.

¶360

19. That in reply to letter dated 25.3.2024 the petitioner on 19.04.2024 reiterated its reminder letter from 22.08.2022 till such letter and stated that the letter dated 25.03.2024 is illegal because, the petitioner has not violated terms of contract. Rather bill of the petitioner is not released timely and not reconciled and no deduction is provided . Further suo moto work is reduced without any intimation. Since March 2023, stopping the contractor from taking out its materials and machinery. Petitioner requested to intervention to review our bills, approve necessary deviation and promptly settle out outstanding payment. Copy of letter dated 19.04.24 is filed herewith as Annexure-11.

¶361

31. That it is submitted that the petitioner has huge outstanding against the op.party and submitted the R/A bills which list is filed herewith as Annexure13. If the op.parties is directed to reconcile the account then it will be sufficient towards allegation of refund towards unadjusted advance of Rs.3,12,64,904.00 whereas, the B.G. amount is Rs.3,73,95,490.00. As such without reconciliation of the petitioner bill the letter dated 25.3.2024 for

¶362

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¶364

encashment of bank guarantee is illegal and arbitrary .

¶365

32. That it is submitted that the dispute to the contract to be settled by Arbitration. But before commencement of Arbitration Proceeding, if the owner/op.party encashed the Bank guarantee, the bank shall debit the BG amount from the account of the petitioner and will proceed recovery proceeding and will not wait till the result of the arbitration proceeding . Further if the Bank Guarantee is stayed, the op.party shall not suffer any loss because the petitioner has to get huge outstanding dues from the op.parties. Further huge material, machineries and equipments are in the custody of the op.party/owner.

¶366

33. That the petitioner has a prima facie case in his favour and balance of conveniences lies in favour of the petitioner and if interim order staying the encashment of bank guarantee vide letter dated 25.03.2024 is not passed the petitioner shall suffer irreparable loss and injury. It is submitted that dispute will be decided by the Arbitral Tribunal which has not yet constituted. As such, Section-9 petition is filed for an interim measure of protection and such power is vested with your Honour restraining the Opp.paties not to proceed further in respect of termination notice dated 07.07.2023 and letter dated 25.3.2024 for encashment of Bank Guarantee.”

¶367

(Emphasis supplied)

¶368

Clauses-37.1, 41.0 and 66 of the Work Order dated

¶369

24.01.2022, being relevant, are extracted below:-

¶370

“37.1 Payment of all works done by the Contractor shall be made on the basic of the measurement recorded on the measurement sheets in pro-forma prescribed by the Owner/Engineer/consultants. The Contractor shall submit along with each bill the following documents:

¶371

A) Certificate complying statutory obligation of labour.

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¶374

B) Copies of the labour license and insurance policies.

¶375

C) Copies of the proof of the payment of provident fund certified monthly wage sheets.

¶376

D) Detailed measurement sheets/books and bill forms.

¶377

E) Unstamped acknowledgements for the material received from employer.

¶378

F) Material issue statements along with copies of the store issue notes and safe custody certificate indicating that the materials are in good condition, material consumption statements and material reconciliation statement based on working drawings.

¶379

G) Royalty/seigniorage statements along with proof payment of the royalty /seigniorage to mines department for the minor minerals consumed in the works.

¶380

The Contractor shall submit the bill to Owner/Engineer once in a month for the work done, unit wise in the prescribed pro forma as given in Annexure-VIII in six(6) copies with the above documents based on measurements as accepted by the Owner or his authorized representative/Engineer . If the Contractor fails to submit any of the documents mentioned above along with the bill, then the Owner/ # consultant will return the bill. Owner will not be liable to pay any amount under said bill and the Contractor shall re-submit the same along with all the documents mentioned above for payment.”

¶381

“41.0 PAYMENT TERMS: (Refer Clause No-66 of SCC) ”

¶382

“66. PAYMENTS (to be read in conjunction with Clause37)

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¶385

The payments shall be released only on submission of invoices/bills complete in all respects by Contractor, along with all requisite commercial documents.

¶386

a) Ten percent (10%) of total Contract Value shall be payable on issuing W.O. against submission of Advance Bank Guarantee of equivalent amount & submission of invoice.

¶387

b) Running Payment: Hundred(100%) of the Contract Value shall be paid on Running bills for Works performed for, correct & complete in all respects, to be raised by Contractor on monthly basis based on joint measurement, material reconciliation statement by Contractor and Owners appointed agency. The bills of Contractor shall be certified by Owner within 30(Thirty) days of submission of bill, only if bills are correct & complete in all respects. The Payment shall

¶388

be released after deduction of 5 percent (5%) as retention amount, recover of the advance amount

¶389

on pro rata basis , and any other recoveries are due. The bills shall be submitted in triplicate. If bills are found to be incorrect & incomplete, the same shall be intimated by Owner to Contractor for correction. The breakup of details of payment under this clause is as given below:

¶390

c) Retention Amount of Five (5) percent shall be deducted from on account bills, shall be paid by Owner to Contractor against submission of PBG of equivalent amount. OR

¶391

After 01 year from the date completion of issuance of “Completion Certificate and after fulfillment of the following conditions:

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¶394

1) Submission of Final Bill.

¶395

2) Finishing, cleaning, housekeeping etc. of the fabrication yard & erection site.

¶396

3) Receipt of as-built drawings (hard & soft copy is reproducible Auto Cad format) as certified by Owner.

¶397

4) Final reconciliation statement for free issue materials duly accepted by Owner.

¶398

5) Return of balance material including scrap to Owner at any location within plant site.

¶399

6) Return of any material taken from Owner on returnable basis.

¶400

7) Proof of final settlement of labour dues engaged at site by Contractor.

¶401

8) Proof of compliance with statutory requirements like payment of PF.

¶402

9) Return of all gate passes issued to the workmen engaged by the Contractor during the execution of work. 10) Submission of No Claim / No Demand Certificate by the Contractor.”

¶403

( Emphasis supplied )

¶404

Clause-66(a) of the Work Order dated 24.01.2022

¶405

mandates to pay 10% advance against advance submission of BG. The Opposite Party Management was to deduct 5% as retention amount from each bill submitted by the Petitioner, apart from recovering the advance amount on pro rata basis from the running bills submitted by the Petitioner from time to time in terms of Clause 66(b) of the Work Order. As prescribed under Clause 66(c)

¶406

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¶408

of the Work Order, retention amount of five (5) percent deducted from on account bills, is to be paid by Owner to the Contractor against submission of PBG of equivalent amount or after 01 year from the date issuance of Completion Certificate and after fulfillment of conditions detailed under the said clause.

¶409

Apart from the same, it would be apt to extract below the contents of letters dated 29.11.2023, as at Annexure-9, and dated 19.04.2024, as at Annexure-11, which were given to the Chairman and the Project Incharge, JSPL respectively, referring to fifty (50) previous correspondences made by the Petitioner Company in the said regard:-

¶410

Letter Dated 29.11.2023:

¶411

“To, Mr. Naveen Jindal Chairman Jindal Steel & Power Ltd. Angul Odisha

¶412

Sub: Concerns regarding Housing Construction of site of 400 Flats of Jindal Nagar South Block (ShramikVihar) at JSPL vide our WO No. 4563501345, Dated: 25.02.2022

¶413

Sir,

¶414

In reference to the subject cited above, we would like to bring to your kind attention that we have been awarded the subject work vide WO No. 4563501345, Dated: 25.02.2022. Since the beginning of the work, there were multiple hindrances such as non-timely supply of materials and shortages of materials,

¶415

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¶416

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¶417

Pending COS of many lines of items, etc. This has been repeatedly reported to the concerned officials but there was never any concrete step taken by them for resolution of the hindrances. Due to the same the work progress was hampered badly and it could not be completed as per the targeted timelines which was categorically explained in our different letters & intimated to the concerned authorities in personal meeting time to time but unfortunately nobody is taking any pain even to properly reply via letter. However always verbal assurance has been given that the issues will be resolved.

¶418

After a lot of persuasions and intervention of the head office of JSPL represented by Mr. Ashok Mahunta (Chairman Commercial), finally on 18th October 2023, a Video Meet was organized and it was decided that the contract would be short closed and a physical meeting will be organized to decide a way forward. However, till date even after our repeated persuasion, multiple letters and requests, there has been no response from any officials.

¶419

Further we have invested a huge amount of funds for execution of the project which is now completely stuck due to negligence and unpreparedness of the JSPL field officers. Details of our pending payments with your company are tabulated below:

¶420

Sl.No	PARTICULARS	AMOUNT
1	Against RA 1 to 14	Rs. 38.14 Lakhs
2	Against RA 15	Rs. 278.99 Lakhs
3	_GST Withheld against RA 11 & 12 _	Rs.31.71 Lakhs
4	Against Security Deposit	Rs.15.17 Lakhs
5	Against COS (Deviation of Item & Quantity) (approx)	Rs.150.00 Lakhs
	Total	*Rs.514.01 Lakhs*

¶421

Apart from the above, our work worth approximately Rs. 2 Cr is executed but is not measured and considered yet. Also, about 1 Cr of materials is in stock.

¶422

Further we also express our concern for security of our machinery, equipment and material, left on site without proper measures in place. Currently no gate pass has been issued since first week of

¶423

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¶424

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¶425

October and our workers are unable to access the premises. The absence of adequate security measures poses a risk of loss or theft. Also idling of manpower and machinery is resulting huge financial losses for us.

¶426

Hence, in light of the above submission, we request your urgent intervention for resolution of the same and an amicable settlement.

¶427

Thanking You

¶428

Yours Sincerely

¶429

For, Bansal Infraprojects Pvt. Ltd. Sd/(Authorised Signatory)”

¶430

(Emphasis Supplied)

¶431

Letter Dated: 19.04.2024

¶432

“To,

¶433

Project Incharge Jindal Steel and Power Limited CCD Office, Angul Plant Angul, Odissa .

¶434

Ref: 1 Construction of 400 flats of Jindal Nagar South Block (ShramikVihar at JSPL, Angul, Odisha)

¶435

2 Our letter dated: 22.08.2022 3 Our letter dated: 09.09.2022 4 Our letter dated: 12.09.2022 5 Our letter dated: 19.09.2022 6 Our letter dated: 22.09.2022 7 Our letter dated: 01.10.2022 8 Our letter dated: 06.10.2022 9 Our letter dated: 07.10.2022 10 Our letter dated: 15.10.2022 11 Our letter dated: 19.10.2022 12 Our letter dated: 31.10.2022 13 Our letter dated: 27.10.2022 14 Our letter dated: 18.11.2022 15 Our letter dated: 02.12.2022

¶436

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¶437

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¶438

16 Our letter dated: 07.01.2023 17 Our letter dated: 13.01.2023 18 Our letter dated: 19.01.2023 19 Our letter dated: 23.01.2023 20 Our letter dated: 31.01.2023 21 Our letter dated: 07.02.2023 22 Our letter dated: 08.02.2023 23 Our letter dated: 23.02.2023 24 Our letter dated: 28.02.2023 25 Our letter dated: 03.03.2023 26 Our letter dated: 15.03.2023 27 Our letter dated: 16.03.2023 28 Our letter dated: 18.03.2023 29 Our letter dated: 21.03.2023 30 Our letter dated: 28.03.2023 31 Our letter dated: 29.03.2023 32 Our letter dated: 06.04.2023 33 Our letter dated: 14.04.2023 34 Our letter dated: 26.04.2023 35 Our letter dated: 29.04.2023 36 Our letter dated: 06.05.2023 37 Our letter dated: 11.05.2023 38 Our letter dated: 15.05.2023 39 Our letter dated: 22.05.2023 40 Our letter dated: 29.05.2023 42 Our letter dated: 16.10.2023 43 Our letter dated: 27.10.2023 41 Our letter dated: 14.08.2023 44 Our letter dated: 07.11.2023 45 Our letter dated: 16.11.2023 46 Our letter dated: 22.11.2023 47 Our letter dated: 29.11.2023 48 Our letter dated: 15.01.2024 49 Our letter dated: 23.01.2024 50 Our letter dated: 29.02.2024

¶439

Sub: Concerns and Challenges Regarding Contractual Obligations

¶440

Dear Sir,

¶441

With reference to the subject cited above, we would like to inform you that from the first day, this contract has been delayed from the employer side. This includes not handing over a hindrance-free site for excavation, non-payment of the deviation quantity of excavation, rock strata found during excavation (which

¶442

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¶443

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¶444

was not estimated at the time of contract allocation by JSPL), leading to increased cost and time that has not yet been paid or accounted for. There were continued delays in the provision of free-issue material to be provided by JSPL as per contract, which includes, but is not limited to, backfill material, TMT bars, concrete, structural material, PS panel, L-mesh, U-mesh, sand, cement, paint, etc.

¶445

Furthermore, as per the provisions of the contract, JSPL was supposed to provide labour hutment, free electricity, and water, which was not provided. Even after repeated requests, the same was not provided as per our requirement, which we have pointed out via many letters and presentations.

¶446

Moreover, there were various revisions and rectifications of drawings done by JSPL, due to which a lot of work was delayed. Furthermore, as per the condition of the contract, payment must be made by JSPL within 1 month of the submission of the bill, but it was made within an average of 3 months that too partially. During this time, we received partial payment, and even after repeated requests to provide reconciliation of accounts and detailed deduction sheets, the same has not been done till date.

¶447

Additionally, many GST payment of our invoice by JSPL. have not been made, which is a criminal offense. Also, suo-moto our scope of work was reduced by JSPL without any intimation or discussion, whereas we had deployed machinery, equipment, material, and manpower for the complete project and not the reduced scope, which leads to much higher costs than ascertained before the time of bidding.

¶448

Till date, the entire deviation quantity from the original scope has been submitted to JSPL multiple times, but no payment has been made regarding the same.

¶449

Despite all these issues, the contractor had been working, but since March 2023, JSPL has been making arbitrary decisions without proper consultation and representation of the contractor, keeping the contractor at their mercy, illegally stopping the contractor from taking out its material and machinery. This is a criminal

¶450

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¶451

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¶452

conspiracy to steal or misuse the contractor's material by not providing the contractor and their people access to the site, and subsequently not providing the labour hutment, and blaming the contractor för slow-progress of work and not releasing payments.

¶453

Again, the company has also denied meeting the contractor's high-level management multiple times and seized all forms of communication by not responding to the contractor's mails, letters, etc., and only raising their issues without responding to the contractor's issues to handicap the contractor from executing its obligations.

¶454

Furthermore, the civil department has arbitrarily refused to review the contractor's bill, citing vague reasons . It is evident that JSPL is engaging in a criminal conspiracy to avoid paying the contractor and impede their work by withholding essential resources such as drawings, electricity, water, site access, and accommodation. Additionally, they are blackmailing the contractor by neglecting to verify the bill and threatening to invoke the bank guarantee, all while neglecting their contractual obligations as the project owner/employer .

¶455

Therefore, we urgently request your intervention to review our bills, approve necessary deviations, and promptly settle our outstanding payments. Failure to comply will leave us with no choice but to take the shelter of court .

¶456

Thank you,

¶457

Yours faithfully, For, BANSAL INFRAPROJECTS PVT LTD Sd/(Authorised Signatory)”

¶458

(Emphasis Supplied)

¶459

29. Since one of the issues involved in the present lis is

¶460

regarding right of the Petitioner seeking for injunction not to invoke the Bank Guarantee, it would be relevant to extract below Clause-2, 3, 7 and special clauses prescribed in the BG under the

¶461

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¶463

heading “Notwithstanding anything contained herein” for ready

¶464

reference:-

¶465

“2) At the request of Applicant and in consideration of your making an advance payment of Rs.3,73,95,490 (Rupees Three Crores Seventy Three Lakhs Ninety Five Thousand Four Hundred Ninety Only) (Amount in words) subject to deduction of tax at source (TDS), if applicable as per the prevailing rules against Invoice No.BIPL/OD/148, Dated 07/03/2022 to Applicant. We the Union Bank of India, having our registered office at Nariman point Mumbai and a branch at Ajit Tower near Sindhi School, Main Branch, Ramsagar Para, Raipur (C.G.) (Name and complete address of the Applicant’s Bank) hereby irrevocably and unconditionally guarantee as Principal obligator to pay to you on your first demand, irrespective of the validity of the Agreement and waiving all rights of objection and defence arising out of and/or from the Agreement or otherwise whatsoever, payments not exceeding a maximum aggregate amount of Rs.3,73,95,490 (Rupees Three Crores Seventy Three Lakhs Ninety Five Thousand Four Hundred Ninety Only) within two (2) days from the date of receipt of your demand in writing, stating that Applicant has failed to perform its obligations under the AGREEMENT without demur or without reference to the Applicant.

¶466

3) This Guarantee shall automatically become effective from the date of issue of the Guarantee the date of receipt of the advance payment by the Applicant in its account with us and shall remain valid until close of banking hours at this office on date 07.12.2022 and shall be automatically reduced by 10% of the 100% invoice value of each shipment against presenting of copies of invoices and copies of corresponding LR details, the receipt of which is duly acknowledged by your authorized representative and submitted to us by Applicant, which we will be entitled to accept as conclusive evidence of such reduction. This Guarantee can be invoked in one or more tranches and you will not be required to submit the original Guarantee along with submission of claim.

¶467

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¶469

7) We further undertake to pay you the amount demanded by you notwithstanding any dispute raised by Applicant in any suit or proceeding pending before any arbitrator or courts. This Guarantee will not be affected, altered or reduced (except as per the provisions of Clause-3 above) by any amendment to the AGREEMENT without your prior written agreement.

¶470

Notwithstanding anything contained herein ,

¶471

1. Our liability under this Bank Guarantee shall not exceed INR 3,73,95,490 (Rupees Three Crores Seventy Three Lakhs Ninety Five Thousand Four Hundred Ninety Only).

¶472

2. This Bank Guarantee shall be valid up to 07.12.2022.

¶473

3. Further the claim of 12 months from the expiry date of the Bank Guarantee is available to make a demand under this Bank Guarantee. We are liable to pay the guarantee 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 07.12.2023. (Date of Expiry of the guarantee PLUS the claim period if any)*****

¶474

4. At the end of expiry of the validity period, unless an action to enforce the claim under this guarantee is initiated before the court or Tribunal on or before 07.12.2022 after the expiry of the validity period, all your rights under this Bank Guarantee shall stand extinguished and we shall be relieved and discharge from all our liabilities and obligations under this bank Guarantee irrespective of return of original Bank Guarantee.

*Amount of BG

*Expiry date of BG

*Claim Period

5. Confirmation of this Extension of Bank Guarantee may be directly obtained from our E-Confirmation Cell (ECC) mentioned below:

¶479

E-Confirmation Cell Union Bank of India 4th Floor, CP & MSME Department Central Office, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai-400021,

¶480

Tell No-022-22892211

¶481

E-Mail- [email protected]”

¶482

(Emphasis Supplied)

¶483

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¶485

Though Clause-66(a) of the Work Order dated 24.01.2022

¶486

mandates to pay 10% advance, as is revealed from the B.G., the Opposite Party gave an advance of Rs.3,73,95,490/- i.e. 8.5%, instead of 10% of the total contract value, as agreed upon, on furnishing BG to secure the said amount paid to the Petitioner as advance.

¶487

30. Similarly, it would be apt to reproduce below the contents of letter dated 25.03.2024, vide which the Opposite Party asked the Petitioner to arrange for refund of an amount of Rs.4,12,54,904.00 (Rupees Four Crore Twelve Lac Fifty Four

¶488

Thousand Nine Hundred Four Only) within 30^th April, 2024 .

¶489

Letter dated 25.03.2024

¶490

“To

¶491

M/s BANSAL INFRA PROJECTS PVT LTD OPP- HOTEL SUSHILA, NEAR INDIRA CHOWK, Balangir-767039 Mobile No.9866684408

¶492

Subject : Refund towards unadjusted advance of Rs.3,12,64,904.00 and penalty towards project delay of Rs.1,00,00,000.00 amounting to total Rs. 4,12,54,904.00

¶493

Dear Sir,

¶494

As per our books there is a debit balance of Rs. 4,12,54,904.00 (Rupees Four Crore Twelve Lac Fifty Four Thousand Nine Hundred Four Only) towards unadjusted advance and other deductions and it has been observed that you are not responding to our

¶495

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¶497

civil department direction and it is impacting our site progress. It is totally against our contract vide work order number 4563501345 dt. 24.01.2022 and advance is pending since 18.09.2023. Due to this type of indiscipline activities from your side, our project progress is stuck.

¶498

Hence it is hereby asked to arrange for refund of above amount of Rs.4,12,54,904.00 (Rupees Four Crore Twelve Lac Fifty Four Thousand Nine Hundred Four Only) within 30^th April, 2024.

¶499

If the payment is not received on or before 30.04.2024 we will go for encashment of the BG of Rs.3,73,95,490.00 vide BG No.32700IGL00001122 dt. 08.03.2022 and further we will initiate legal course of action.

¶500

Thanking you, Yours faithfully, For Jindal Steel & Power Ltd. Sd/Authorized Signatory”

¶501

(Emphasis supplied)

¶502

31. From the pleadings made in the Writ Petition so also Application filed by the Opposite Party Nos. 1 and 2 for vacation of stay as well as Objection filed by the Petitioner in response to the said Application, it is amply clear that despite various allegations made by the Petitioner regarding the reasons of its failure to act in terms of its contractual obligations in time, the said allegations have not been denied by the Opposite Parties by filing Counter to the Writ Petition. Rather, as is revealed from the alleged Minutes of Meeting (MoM) for construction site C3G and C4H dated 30.04.2024, as at Annexure-E series, at running page 35 of the

¶503

W.P.(C) No.11848 of 2024

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Page 64 of 73

¶505

application for vacation of stay, the Management of JSPL allegedly offered 30 days’ time to the Petitioner for rectification and completion of the job indicating therein that it shall submit the work breakdown structure latest by 03.05.2024 and the progress shall be monitored by the PBO on daily basis and in case of deficiency, JSPL will be free to take over the job on recommendation of PBO at the cost and risk of the Petitioner. The so called Minutes of Meeting, which has been annexed to the I.A., has not been signed by the authorized person of the Petitioner Company and it seems to be one sided. The contents of the alleged minutes of meeting, being relevant, are extracted below for ready

¶506

reference:-

¶507

“ Minutes dated 30.04.2024

¶508

WO no.4563501345 Dtd. 24 Jan. 2022 Location : South Block JSPL Angul

¶509

Attendees:

¶510

JSPL Members Raj Kumar – (Project Head) Jai Prabhu (Project Manager) Biswajit Pattanaik (Site Engineer) Apporva Anant (Site Engineer) Nisha Bharti (Site Engineer)

¶511

M/s Bansal Infra,

¶512

Addideb Dutta-Site Eng. Bansal Infra

¶513

Regarding the assessment of quality and readiness of the towers C3G and C4H

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W.P.(C) No.11848 of 2024

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Page 65 of 73

¶516

This refers the site visit of Mr. Aayush Bansal- Director (Bansal Infra) Mr. Sovan Nanda on 26.04.2024 Regarding the assessment of quality and readiness of the towers C3G and C4H. Accordingly they deputed Mr. Adideb Dutta – Site Eng. Bansal Infra for the detailed assessment of the towers C3G and C4H (total 56 Flats).

¶517

The Team visited the each flat and assessed the quality and readiness of the towers C3G and C4H on Date. The assessment was done jointly. The detailed report is attached herewith.

¶518

Observation summary.

¶519

1. None of the flat out of 56 was ready for handover on date.

¶520

2. Workmanship of tower no.C3G and C4H is very poor and in most of the flats, fixation of door and windows needs to be re-installed.

¶521

3. Many walls are misaligned and need to be reconstructed. Putty and plaster need re-work. Shotcrete work needs to be completed.

¶522

4. Tile work in bathrooms and kitchens need to the rectified.

¶523

5. Parapet walls are completely misaligned and need to be rectified.

¶524

(Detailed work sheet flatwise with observation is attached herewith)

¶525

No manpower is engaged in other tower since Oct. 2023. Abandoned towers C4D, C4G, C4F,C4E, C4A,C4B and C4C is allocated to other contractors.

¶526

JSPL offer 30 days time for rectification and completions of the job to M/s Bansal Infra. M/s. Bansal Infra shall submit the WBS (work breakdown structure) latest by 03.05.2024 and the progress shall be monitored by PBO on daily basis.

¶527

W.P.(C) No.11848 of 2024

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Page 66 of 73

¶529

In case of any deficiency, JSPL will be free to take over the job on recommendation of PBO at cost and risk of M/s. Bansal Infra .”

¶530

(Emphasis supplied)

¶531

32. As it ascertained from the alleged MoM dated 30.04.2024,

¶532

before expiry of the said period, on getting notice from the Commercial Court, the Opposite Party has made a communication to the Opposite Party Bank for invocation of Bank Guarantee, that to contrary to the terms of BG, which is not permissible under law.

¶533

33. It is further revealed from the records, series of communications were made to the Opposite Parties regarding nonfulfillment of its contractual objections enabling the Petitioner Company to carry out its job in time, which resulted in misunderstanding against the parties.

¶534

34. So far as allegation of non-payment of running bills as well as non-issuance of gate pass, rather restricting the Petitioner to enable its Officers and workers to enter into the premises of the Opposite Parties to carry out its contractual obligation so also take away the machineries held up inside the premises of the Opposite Parties have also not been denied by filing a Counter to the said effect or in the Reply to the Objection filed by the

¶535

W.P.(C) No.11848 of 2024

¶536

Page 67 of 73

¶537

Petitioner in response to I.A. filed by the Opposite Parties for vacation of the interim order.

¶538

35. As held by the Supreme Court in Maria Margarida

¶539

SequeiraFernandes (supra), in order to grant or refuse injunction, the Judicial Officer or the Judge must carefully examine the entire pleadings and documents with utmost care and seriousness. However, as is revealed from the impugned order, the Commercial Court rejected the application filed under Order 39 Rule 3 C.P.C. with an observation that the Petitioner has failed to explain the irreparable mischief, which is impending and mere allegation of irreparable injury will not be sufficient and the Court is of the opinion that the Petitioner has failed to explain exceptional circumstances for grant of relief in the said Petition, which can cause serious loss to the Petitioner. Admittedly, the Court below has not taken in to consideration the documents filed before it to substantiate the prayer made in the section 9 application, as has been detailed above.

¶540

36. As held by the Supreme Court in Arcelormittal Nippon Steel (India) Ltd. (supra), interim relief is granted in aid of final relief. The object is to ensure protection of the property being the subject-matter of arbitration and/or otherwise ensure that the arbitration proceedings do not become infructuous and the

¶541

W.P.(C) No.11848 of 2024

¶542

Page 68 of 73

¶543

arbitral award does not become an award on paper, of no real value. Hence, this Court is of the view that the Court below, while considering the application under Order 39 Rule 3, read with Section 151 Application, failed to appreciate the settled position of law so also take note of the contents of the documents filed along with the section 9 application. Point No.iii) is answered accordingly.

¶544

37. Admittedly, during pendency of the present Writ Petition, the Opposite Party (JSPL) has made a communication to the Opposite Party-Bank on 07.05.2024, as at Annexure-H of the I.A., for invocation of Bank Guarantee on the ground that the Petitioner has failed to perform its obligation under the agreement, though the said BG is not a performance BG. However, due to interim order dated 20.05.2024, which is still in vogue, the Opposite Parties were restrained from invoking the bank guarantee. The contents of the said letter dated 07.05.2024, being relevant, are extracted below:

¶545

Letter dated 07.05.2024

¶546

“Ref No: JSPL/BG/EN/4080 Date : 07.05.2024

¶547

The Manager, Union Bank of India Ajit tower, Near Sindhi School, Main Branch, Ramsagar para,

¶548

W.P.(C) No.11848 of 2024

¶549

Page 69 of 73

¶550

Raipur(CG)-492001 Tel: 7525003213

¶551

Subject – Encashment of Bank Guarantee Dear Sir,

¶552

The following Bank Guarantee was issued by your bank in our favour on behalf of M/s BANSAL INFRA PROJECTS PRIVATE LIMITED As Advance Bank Guarantee.

¶553

Type of BG ABG	Bank guarantee No. 32700IGL00001122	BG Amount (Rs.) 37395490.00	BG Date 08.03.2022	Valid Date 05.09.2024	Claim Date 05.12.2025

¶554

The bank guarantee is expiring on 05 Sep.24. We would like to inform you that M/s BANSAL INFRA PROJECTS PRIVATE LIMITED has failed to perform its obligation under the agreement and an amount of Rs.37395490.00 (RUPEES THREE CRORE SEVENTY THREE LAKHS NINTELY FIVE THOUSAND FOUR HUNDRED AND NITELY ONLY.) due to us. So we hereby request you to please encash the same guarantee immediately and remit the proceeds in our following Bank Account.

¶555

JINDAL STEEL & POWER LIMITED A/C NO.31740999687 IFSC CODE : SBIM0012066 STATE BANK OF INDIA NISHA, JINDAL CAMPUS DIST-ANGUL-759111

¶556

Thank you Yours faithfully, For Jindal Steel & Power Ltd. Sd/Authorized Signatory”

¶557

(Emphasis supplied)

¶558

38. On conjoint reading of the terms of Bank Guarantee,

¶559

which mandates as to reduction by 10% of Invoice Value of each shipment, communication dated 25.03.2024 made to the Petitioner, which well demonstrates that in addition to alleged refund towards unadjusted advance, a penalty of

¶560

W.P.(C) No.11848 of 2024

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¶562

Rs.1,00,00,000/- was claimed towards project delay and the contents of the letter dated 07.05.2024, which was issued during pendency of the Writ Petition, which indicates that the Opposite Party wanted to invoke the BG on the ground that the Petitioner failed to perform its obligation under the agreement, this Court is of the prima facie view that the Opposite Party has acted contrary to the terms of Bank Guarantee, which was furnished to secure the advance given by the Opposite Parties to the Petitioner. This Court is also of prima facie view that there are special equities in favour of the Petitioner and if the Opposite Parties are permitted to encash the BG, it may cause irretrievable injustice to the Petitioner Company.

¶563

39. Admittedly, the section 9 application is still pending for consideration by the Commercial Court, Cuttack on merit and if at this stage the Opposite Parties are permitted to invoke the Bank Guarantee, the prayer made in the section 9 application shall become infructuous. Further, the Petitioner has already moved before this Court under Section 11(6) of the Act, 1996 for appointment of Arbitrator.

¶564

40. Hence, the parties are directed to appear before the Senior Civil Judge, Commercial Court, Cuttack in ARBP No.14 of 2024 on 27.08.2024. If so required, the Commercial Court shall

¶565

W.P.(C) No.11848 of 2024

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Page 71 of 73

¶567

pre-pone the date to the said date, if the said case stands posted to any date beyond the said date. The Opposite Parties shall file their Objection with all relevant documents, if any, to the application filed under section 9 of the Act, 1996, within ten days from the said date.

¶568

41. On filing of Objection, the Senior Civil Judge, Commercial Court, Cuttack shall proceed further in accordance with law and shall try to conclude the said proceeding at the earliest, preferably within a period of six weeks from the date of filing of the objection and documents by the Opposite Parties.

¶569

42. Since the Bank Guarantee furnished by the Petitioner is going to expire on 05.09.2024, the Petitioner is directed to extend the said BG until 31.12.2024 well before the expiry of the said period.

¶570

43. As the Opposite Parties contested the present Writ Petition on technical grounds of maintainability so also scope regarding interference by the Court regarding invocation of Bank Guarantee and are yet to file their Objection in ARBP No.14 of 2024, it is made clear that after filing of Objection by the Opposite Parties, the Senior Civil Judge, Commercial Court, Cuttack shall proceed further in accordance with law and decide the prayer made in ARBP No.14 of 2024 on merit taking into consideration

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W.P.(C) No.11848 of 2024

¶572

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¶573

the pleadings and documents on record, without being influenced by the observations made above. However, the interim order dated 20.05.2024 passed in the present case shall remain in force till disposal of the ARBP No.14 of 2024, subject to extension of Bank Guarantee by 31^st August, 2024.

¶574

44. Accordingly, the Writ Petition stands disposed of. No order as to cost.

¶575

…….….……………………

¶576

S.K. MISHRA, J.

¶577

Orissa High Court, Cuttack Dated, the 20^th August , 2024/Prasant

¶578

Signature Not Verified

¶579

Digitally Signed Signed by: PRASANT KUMAR PRADHAN Designation: Secretary Reason: Authentication Location: High Court of Orissa, Cuttack. Date: 21-Aug-2024 18:46:40

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W.P.(C) No.11848 of 2024

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M/S Bansal Infra Projects Pvt. Ltd., Bolangir v. M/S Jindal Steel and Power Ltd., New Delhi

Case brief

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M/S Bansal Infra Projects Pvt. Ltd., Bolangir v. M/S Jindal Steel and Power Ltd., New Delhi

Case brief

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What did the court decide?

What the court decided

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