Ashim Kumar Banerjee, J.
BACKDROP
1. VISA Power Limited (hereinafter referred to as "VISA") decided to set up a Thermal Power Plant at Raigarh in the State of Chattrishgarh. VISA issued a Letter of Award in favour of Larsen & Toubro Limited (hereinafter referred to as L&T) entrusting them to set up two units of a power project having capacity of six hundred mega watt at a cost of Rs. 1610.01 crores. The Letter of Award would require three bank guarantees to be executed by L&T in favour of VISA through their banker, one would relate to performance guarantee to the extent of Rs. 1610 crores and the other two against the advance that VISA would make to L&T that would be reduced in phases simultaneously, on payments being adjusted as against the running bills. L&T duly issued guarantees on September 23, 2010 and January 25, 2011 for advance guarantees of Rs. 40.25 crores each and on November 20, 2010 as performance guarantee for Rs. 161 crores. The work started in January 2011 however, the parties entered into four number of formal contracts on December 7, 2011. Initially, there was no dispute. The guarantees were being reduced in phases. As on the date of the controversy, the performance guarantee was reduced to Rs. 134.8 crores resulting as a consequence of reduction of the total cost and the other two advance guarantees to the extent of Rs. 38.98 crores and 32.74 crores. Pertinent to note, the scope of the contact was reduced to Rs. 1548 crores. Since the work commenced in January 2011 there was, initially, no dispute. Bills got discounted after adjustment of the advance.
CONTROVERSY
The point of controversy is also in dispute. L&T claimed, dispute arose as VISA could not clear pending running bills that ultimately, amounted to Rs. 148.5 crores as on May 31, 2012 whereas VISA contended, there had been collapse of a portion of the furnace. VISA got shaky about the quality of work. L&T admitted such fault and agreed to undo the faulty construction. Although, the parties were not ad idem on the issue we would find another important issue of controversy. VISA wanted to reduce the scope of the work. Some reason or the other, they no more wanted to go on with the existing contract and decided to reduce the scope by asking L&T to go with Unit 1 and be relieved of the responsibility in constructing unit II. L&T initially agreed. However, the proposal did not materialize as parties could not agree as to the ratio of reduction of value of the contract. We do not wish to deliberate further on the issue as such conciliation on reduction of work and the value would be strictly outside the purview of the litigation as the parties ventured such possibility through negotiation at the desire of this Court. The parties were however, unsuccessful. We do not wish to blame one against the other.
2. Mr. Mukherjee appearing for L&T however, strenuously contended that their bills got withheld as a pressure tactic to compel them to agree to the ratio of reduction as suggested by VISA.
PRESENT LITIGATION
3. From the records, we find that the parties were corresponding and the issue was not so ripe to knock the door of the Court, at least from the nature of the contents of the E-Mails that would be our first hand impression. The issue triggered when L&T threatened termination of contract vide letter dated July 4, 2012. We would come back to this letter very soon. VISA construed it as a letter of termination whereas L&T would not agree with such interpretation as, according to them, it was merely a threat to terminate on an eventuality stipulated in the said letter and could not be termed as a formal letter of termination under the agreement. VISA also wrote to its banker for invocation of the bank guarantee as would appear from the Photostat copy of the letter of invocation submitted after the close of the hearing before us. At the close of the hearing, Mr. Tilak Bose, learned senior counsel appearing for VISA submitted copies of three letters all dated July 6, 2012 recording their assurance given in Court not to invoke the guarantee till July 9, 2012. Subsequently, he submitted copies of letters of invocation.
4. From the letters, it appears that VISA invoked the guarantees on July 5, 2012, the day when L&T moved to Court. L&T approached to the learned Single Judge u/s 9 and prayed for an Order of Restraint on VISA from encashing the guarantees. His Lordship dismissed the application upon hearing both the parties vide judgment and order dated July 10, 2012. Being aggrieved, L&T carried an appeal next day. We initially directed the proceeds to be kept in a separate account. On July 13, 2012 we vacated the earlier order on a deposit of Rs. 140 crores in a fixed deposit with State Bank of India, Corporate Account Branch, Chowrangee to be kept earmarked for the present litigation. From the photostat copy of the fixed deposit receipt, we would find that the same would mature on January 10, 1013.
CONTENTIONS (L&T)
5. Mr. Jishnu Saha, learned counsel advanced argument on behalf of the appellant. He took us to the Letter of Award to show the terms and conditions appearing at pages 40, 46 and 51 of the paper book. Subsequently, Mr. S.N. Mukherjee, learned senior counsel took it over from Mr. Saha and contended that the parties did not have any dispute till January 2012 as would be appearing from the correspondence. He referred to page 149 of the paper book being a letter dated February 1, 2012 wherein VISA pointed out that there had been suspension of work under Clause 18.2.1. They took exception to the letter dated January 13, 2012 issued under the said Clause referred to above. VISA power wanted to resolve the controversy through negotiation. They also complained that construction activities had been slow due to poor mobilization of resources of raw material, lack of manpower, equipment, non-availability of construction schedule. VISA blamed L&T and its sub-contractors for such shortcomings. He referred to page 160 wherein the parties resolved their dispute and agreed that VISA would take steps for release of payments as per the schedule and, accordingly, Suspension Notice was withdrawn. Mr. Mukherjee referred to the letters subsequent to the said minutes of the meeting held on March 9/10, 2012. He contended that despite payment schedule, being agreed upon, the payments were not forthcoming, as a result L&T could not proceed further to smooth the work although, they did not withdraw themselves fully. He referred to page 192 to show that, as on May 23, 2012 the amount of outstanding became Rs. 147.53 crores. He admitted that there was some defect in a part of the construction that L&T agreed to demolish and redo the whole thing that could not be used as a shield in defending the outstanding balance not being cleared of. He referred to the complaint made by VISA on October 21, 2011 appearing at page 130 to say that the same was promptly attended to and duly replied by L&T on October 25, 2011 appearing at page 117. By the said letter, they once again, reminded VISA about release of outstanding payments and pointed out that it would be difficult for L&T to proceed further in absence of payments. On the aspect of bank guarantee Mr. Mukherjee contended that the performance guarantee could not be invoked as they were prevented from performing by not clearing the outstanding payments. The advance guarantees could not be invoked as those were to be reduced in phases upon adjustment of the advance against the bills. Unless the bills were cleared the adjustment could not be given resulting in denial of reduction of the bank guarantee. He contended that defect in Chimney Plant appearing at page 244 was an isolated event and in any event, the L&T were always agreeable to attend to the complaint and undo the faulty construction and redo the same.
6. On the judgment and order impugned, Mr. Mukherjee contended, learned Judge did not consider a special equity involved in the present case that would warrant an order of restraint on invocation. Mr. Mukherjee contended, the learned Judge after being satisfied prima facie that L&T had a strong case, could not have refused order of injunction.
7. On the aspect of security, Mr. Mukherjee referred to paragraph 41 and 42 of the petition and contended that the averments made therein, would definitely attract an explanation from VISA. The learned Judge dismissed the application without even calling for affidavits. He contended, VISA did not make any grievance as to the work up till now except one or two isolated complaints including the Chimney complaint and, as such, withholding of payments did not have any logic. Unilateral invocation of guarantee would, thus, amount to irretrievable injury and denial of security would amount to irretrievable injustice for which L&T would be suffering. He contended, conduct of the parties was relevant to indicate as to whether the dispute could warrant invocation of guarantee. He contended, despite repeated request being made by them, the Letter of Invocation was not disclosed. He referred to the Delhi High Court decision in the case of M/s. Hindustan Construction Co. Ltd. & Anr. -VS- M/s. Satluj Jal Vidyut Nigam Ltd. reported in AIR 2006 Del 169 cited before His Lordship, in a compilation also handed over in Court to us that we would be referring soon after. In addition, he referred to the decision in the case of Elian And Rabbath (Trading as Elian & Rabbath) -VS- Matsas And Matsas; J.D. McLAREN & Co., Ltd.; and Midland Bank, Ltd. reported in 1966 II LLLR 495 and a Calcutta decision in the case of M. & M. Trading Corporation -VS- S. Sethi reported in 74 CWN 992.
CONTENTIONS - VISA
8. Mr. Sudipta Sarkar, learned senior counsel while opposing the appeal contended, the learned Judge proceeded on the basis of the averments made in the petition and then observed that it did not warrant any interference by the Court. Hence, question of calling for affidavit would not arise.
9. On the question of security, he referred to paragraph 41 and 42 of the petition and contended that L& T referred to Balance-Sheet to say that VISA did not have sufficient means to pay off the decree in case it would be passed in favour of L& T. He referred to Order XXXVIII Rule 5 of the CPC to show that such eventuality would not warrant any security to be furnished. According to him, when the defendant was disposing of his assets or trying to remove the assets from the jurisdiction of the Court, the plaintiff having strong prima facie case for a decree to be passed as against the said defendant would be entitled to move Court for attachment before judgment. As and by way of interim measure, during pendency of any application made under the said provision the Court may ask the defendant to furnish security. The financial condition of the defendant was not relevant at all to decide the application under the said provision. In this regard he relied on the following decisions :
1.
2.
3.
4. Popular Jute Exchange Limited Vs. Murlidhar Ratanlal Exports Ltd. & Anr. reported in 2006 (4) CHCN 381.
10. On the issue of guarantee, Mr. Sarkar contended, Bank Guarantee is an independent contract that would not involve any arbitration clause. Hence, Section 9 of the said Arbitration and Conciliation Act, 1996 would not come into play. The contract between the parties being L&T and VISA would govern the rights and obligations of the parties therein. Under the contract L&T was supposed to give unconditional guarantee. Once such guarantee was furnished, the banker giving the guarantee was obliged to honour any demand to be made by VISA and the banker through the said contract would be obliged to honour such requisition unless there was a breach under the said contract of guarantee. He referred to the Delhi High Court decision cited by Mr. Mukherjee to say that those decisions would not indicate the correct position of law. He lastly contended, fraud or special equity talked about, must relate to the contract of Bank Guarantee. The default in performing obligation under the contract entered into by and between L&T and VISA would not be of any consequence that would bind the banker from dishonouring the request made by VISA. He referred to the following decisions :
1. Edward Owen Engineering Ltd. Vs. Barclays Bank International Ltd. reported in 1978 All ELR I 976.
2
3.
4.
5.
6.
11. He heavily relied on the Calcutta decision in the case of B.S. Aujla Company (supra) and the Apex Court decision in the case of Vinitech Electronics (supra) to support of his contention.
12. Mr. Sabyasachi Chaudhury, learned counsel also appearing for VISA contended, L&T construed their letter dated July 4, 2012 as a letter of termination. VISA accepted the same. Once the termination was accepted there could be no occasion to go back to the contract and ask for performance of the same. On the judgment and order impugned, Mr. Chaudhury commented, learned Single Judge took the case made out by L&T in its face value and thereafter held that it did not warrant any interference by the Court. He referred to the photographs to show that there had been defect in construction. He also contended, at least on two occasions risk-purchase notice was given to L&T and the L&T thus backed out from the contract by terminating the same. He contended, time-schedule was not adhered to as would be apparent from the records. He distinguished the Delhi High Court judgments to say that the same would not indicate correct position of law as settled by the Apex Court and referred to by Mr. Sarkar.
L&T IN REPLY
13. Mr. Jishnu Saha, learned counsel replied to the contentions raised by Mr. Sarkar and Mr. Chadudhury. He referred to the bunch of documents filed by the respondent before the learned Single Bench to say that the learned Judge should have called for an affidavit to the said effect. On the letter dated July 4, 2012 he contended that the same could not be construed as a notice of termination. It was merely a threat to terminate the contract. He lastly contended, L&T was not being paid their outstanding, hence, VISA was at fault and they should have been restrained by an order of injunction from invoking guarantee. He contended that the conduct of VISA would show that there was wrongful inducement by them that would amount to fraud deserving interference by this Court. He lastly referred to Section 54 of the Indian Contract Act, 1872 to say that since the contract would involve reciprocal promises to be performed, one could not claim benefit of the contract after not performing his obligation under the same.
OUR VIEWS :
14. Two issues would emerge Bank Guarantee and Security.
15. On the issue of Bank Guarantee, compilation was handed over to us containing Delhi High Court judgments. Let us first deal with the same. The cases are as follows :
1.
2.
3.
4. M/s. Hindustan Construction Co. Ltd. & Anr. Vs. M/s. Satluj jal Vidyut Nigam Ltd. reported in AIR 2006 Del 169.
5. Unreported decision in the case of Satluj Jal Vidyut Nigam Vs. Hindustan Construction Co. Ltd. & Anr.
6. Unreported decision in the case of Satluj Jal Vidyut Nigam Vs. Jai Prakash Hyundai Corsortium.
16. In the case of M/s. Hindustan Construction (supra) the learned Single Judge dealt with the issue of like nature. While dealing with the issue, the learned Single Judge considered the earlier decisions of the Apex Court and came to a finding that to decide on an issue relating to Bank Guarantee, Court would have to consider whether it would fall within the exception. The exceptions are, irretrievable injury, fraud, extraordinary special equities and invocation not in terms of the Bank Guarantee itself. The learned Single Judge said, the Court would have to examine each case in order to find out whether the case would fall in any or more of the aforesaid cases. The Court considered the factual matrix involved in the said case and came to the conclusion that it came within the exception as above. While doing so, the learned Single Judge further observed, "the exceptions aforenoticed are merely indicative of the kind of cases where the Court may injunct encashment of a Bank Guarantee. It is neither possible nor permissible to exhaustibly classify the cases where the Court would not intervene in such matters."
17. On a combined reading of the said decision, we would find, according to the learned Judge, four exceptions were not exhaustive enough to deny injunction in cases not falling within those four exceptions, there might be other cases too. The Division Bench did not go into the details and affirmed the decision of the leaned single Judge as we find from the unreported decision.
18. In the case of Satluj Jal Vidyut Nigam (supra) a performance guarantee was being invoked giving rise to an application u/s 9 of the said Act of 1996. The Division Bench of the Delhi High Court considered the issue and observed, "performance guarantee which was to be invoked in terms of contract of guarantee but same is being sought to be invoked not in terms of agreement but for something which is alien to the agreement would be unconscionable and would lack in bona fides."
19. The Apex Court did not interfere with the said decision as we find from page 34 of the compilation. Same view was taken by the learned Single Judge of the Delhi High Court in the case of P.D. Alkarma Pvt. Ltd. (supra) and found that the case would came within the exception of special equity warranting injunction. Another Single Bench decision in the case of Victor Cables Industries Ltd. (supra) also granted injunction in a case of the like nature.
20. On a combined reading of the decisions of the Delhi High Court referred to and discussed above, we would find that the Delhi High Court was of the consistent view, the order or injunction in the case of invocation of Bank Guarantee would be considered on factual matrix involved therein to find out whether it would come within the exception. The Court also observed that the exceptions so long recognised were not exhaustive. There might be other circumstances warranting interference restraining invocation. Our Court however was having a different stand as we find from the decision of the Division Bench in the case of B.S. Aujla Company Pvt. Ltd. (supra) and Texmaco Ltd. (supra). In the case of Texmaco Ltd. (supra) our Division Bench held, "Where the performance bank guarantee provided that the decision of the beneficiary under the guarantee on the question of loss or damages suffered by him or on the question of default or negligence by reason of which the guarantee becomes enforceable would be final then in such circumstances such decision is binding on the parties." If the guarantee was irrevocable and unconditional the decision of the beneficiary would be final.
21. In the case of B.S. Aujla Company Pvt. Ltd. (supra) our Division Bench held, once a letter of credit is established, there is a contract between the issuing bank and the seller. The buyer has no right to intervene. If the bank pays in violation of the letter of credit, the buyer can always sue the bank for any damages or breach of his contract. If, on the other hand, there are certain other claims of the buyers against the seller the buyers can file a suit for recovery of such damages and money from the seller. But as between the seller and the issuing bank the injunction should not be granted. Our Division Bench also held, "In view of well-settled principle of balance of convenience, in the instant case, in the absence of the bank, the Court should not grant injunction restraining payment in terms of the letter of credit, as though in this case the letter of credit was irrevocable one, it has not yet been revoked."
22. Mr. Sarkar also relied upon English decision in the case of Edward Owen Engineering (supra), where the English Court observed, "A performance guarantee was similar to a confirmed letter of credit. Where, therefore, a bank had given a performance guarantee it was required to honour the guarantee according to its terms and was not concerned whether either party to the contract which underlay the guarantee was in default. The only exception to that rule was where fraud by one of the parties to the underlying contract had been established and the bank had notice of the fraud."
23. Mr. Mukherjee relied on the decision of the Court of appeal where Lord Dening considered the case within the exception and observed that denial of injunction would amount to irretrievable injustice to the plaintiff. In the said case the shipper shipped goods on a charter. There was delay in unloading and ship owners claimed lien on the goods. The shippers were not liable for the demurrage. They wanted goods to be released to the buyers. The shipper wanted to give a Bank Guarantee for discharge of cargo. As soon as the guarantee was given, the ship owners sent a cable to the master to lift the lien for demurrages. At that juncture master imposed a second lien that involved further delay. The buyer had to pay the demurrage on account of the second lien. Two years later ship owners claimed right to go for arbitration to assess the demurrage on the first lien and claimed to enforce the guarantee. The shippers then asked for a Court''s intervention on the issue. This case, in our view, would squarely fall within the exception.
24. Mr. Mukherjee further relied upon a Division Bench decision of our Court in the case of M. & M. Trading Corporation (supra). Our Division Bench therein held that Bank Guarantee would not enjoy autonomy of irrevocable letter of credit and it would depend upon a contingency on the occurrence for which the guarantee would become enforceable. This decision is no longer a good law, particularly in case where performance guarantee is given unconditionally.
25. From the cases discussed above, we feel, the learned Judge very rightly declined to interfere on the issue of invocation. In our view, if the invocation was wrongful, the aggrieved party would definitely have a right to claim for compensation and/or damage in the arbitration. Bank Guarantee is an independent contract between the bank and the beneficiary. When it is unconditional it would depend upon the decision of the beneficiary to have it encashed at any time as he likes. His decision is final and binding upon the bank. If his decision is wrong that would give rise to a right to the aggrieved party to sue him for damage. However, the Court cannot pass an order of injunction restraining the bank to dishonour the said requisition, if any, or any order of injunction which would in effect stop invocation of an unconditional guarantee. We do not find any inference on that score.
SECURITY
26. The petition would contain 47 paragraphs. Paragraphs 1 to 40 would relate to Bank Guarantee whereas paragraphs 41 and 42 would deal with prayer for security. The paragraphs 41 and 42 are quoted below:
"Inasmuch as the petitioner''s dues of Rs. 149.26 crores has for all intents and purposes been admitted by the respondent by the certification of the bills/invoices of equivalent value, the petitioner is entitled to security for the said sum from the respondent, particularly as it appears that the respondent does not have the means to pay the outstanding dues of the petitioner. In this context, the petitioner craves leave to refer any rely on copies of its bills/invoices duly certified by the respondent at the time of hearing, if necessary."
"Although the Balance Sheet filed by the respondent for the financial year ended on 31st March, 2011 discloses that the respondent has net assets valued approximately at Rs. 88 crores, to the best of the petitioner''s knowledge and information most of them are charged with banks and financial institutions from whom the respondent has obtained substantial financial loans and accommodation. The petitioner, as such calls upon the respondent to provide full particulars of its assets and properties so that in the event of the respondent failing to secure the dues of the petitioner, its properties may be attached pending passing of an award in the reference to arbitration that the petitioner is preparing to make."
27. The rest of the paragraphs would relate to jurisdiction and usual submissions made to the Court.
28. On a combined reading of the paragraphs quoted (supra) it would appear that the petitioner had a claim of Rs. 149.26 crores and had a grievance of encashment of the Bank Guarantee that would amount to Rs. 217 crores whereas the VISA''s net asset was estimated to Rs. 88 crores as per the Balance-Sheet. Hence, a decree, if passed, in favour of L&T, would be defeated as VISA did not have sufficient assets to satisfy the same.
29. Order XXXVIII would relate to arrest and attachment before judgment. Rule 1 would entitle the plaintiff to approach the Court at any stage of a suit, with grievance that the defendant, with intent to delay the plaintiff, or to avoid any process of the Court or the execution of any decree that may be passed against him was absconding or left the local limits of the jurisdiction of the Court or was about to abscond or leave the local limits of the jurisdiction of the Court or has disposed of or removed any property from the local limits or about to leave India, the Court may issue Warrant of Arrest unless he would pay any sum specified by the warrant as sufficient to satisfy the plaintiff''s claim. Rule 2 would provide for appropriate measure to be taken when defendant fails to show cause why he would not be asked to furnish security. Rule 3 would relate to discharge of surety guaranteeing appearance of a defendant. Rule 4 would deal with a situation where defendant fails to furnish security. Rule 5 would deal with attachment before judgment where at any stage of the suit the Court upon being satisfied would ask the defendant to secure the claim in case he was found to dispose of whole or any part of his property or was about to remove any property from the local limits of the jurisdiction of the Court to defeat a decree which is likely to be passed against him. Rule 6 would provide for attachment of the property in case of failure to furnish security whereas other rules under Order XXXVIII would deal with the process of attachment. The four decisions so relied upon by Mr. Sarkar would deal with a situation where Order XXXVIII Rule 5 would be applicable. The decision in the case of Saraswat Co-operative Bank (supra) the Division Bench of Bombay High Court held that initial status of the defendant could not be sole consideration in an application under Order XXXVIII Rule 5. It observed, "Order XXXVIII of the CPC does not warrant attaching the debtor''s property merely because the debtor may be unable to pay the debt. It contemplates specific situations or specific acts of the debtor which show an intention to put the property beyond the reach of execution of a decree." Even if the facts so stated by the petitioner L&T in its petition particularly in paragraphs 41 and 42 are given full credence and are accepted on its face value the provision of Order XXXVIII Rule 5 would not warrant any direction for payment of security.
30. The learned Judge in our view, very rightly declined to pass any order for security.
31. Lot was said as to the disposal of the application even before calling for affidavits. We are of the view that a petitioner must discharge his onus to show at least, the case made out would require an interference of the Court. If the case made out in the petition, even on its face value, would not warrant any interference, calling for affidavits would not improve the situation.
32. We grant L&T liberty to approach the learned Judge again with the prayer for security if occasion would arise in future with appropriate materials renewing the self-same prayer for security. The guarantees were already invoked. Mr. Sarkar on instruction volunteered to keep Rs. 140 crores set apart to show their bona fide. We appreciate the gesture. We find from the record that the said fixed deposit would expire on January 10, 2013. We hope and trust, VISA would renew the same from time to time and keep L&T informed about it until the dispute between them are resolved finally through arbitration and/or any other mode available in law.
33. Appeal is disposed of.
34. There will be no order as to costs.
35. Urgent certified copy of this judgment, if applied for, be given to the parties on their usual undertaking.
Shukla Kabir Sinha, J.
I agree.
