O.M.P. (I) (COMM)--152/2019. Case: M/S. ICOMM TELE LTD. Vs. BHARAT SANCHAR NIGAM LTD. & ANR.. High Court of Delhi (India)
| Case Number | O.M.P. (I) (COMM)--152/2019 |
| Citation | NA |
| Judgement Date | May 23, 2019 |
| Court | High Court of Delhi (India) |
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 17th May, 2019 Pronounced on: 23rd May, 2019
+ O.M.P.(I) (COMM.) 152/2019
M/S. ICOMM TELE LTD. ..... Petitioner
Through: Mr. Karan Mehra, Ms. Simran
Mehrotra and Ms. Amrita Chatterjee, Advs.
versus
BHARAT SANCHAR NIGAM LTD. & ANR. ..... Respondents
Through: Mr.Sameer Agrawal, Adv. for R-1/BSNL.
Mr. Suman Kukrety, Adv. for R-2/Syndicate Bank.
CORAM: JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J
1. The present petition under Section 9 of the Arbitration and Conciliation
Act, 1996 (As Amended) ("Act") inter alia seeks protection of the subject
matter of arbitration and appropriate directions restraining the Respondent
No.1 from encashing the Bank Guarantee bearing No. 24/ICOMM/09 dated
6 October 2009 ("Bank Guarantee") for Rs. 2,64,00,000/- (Rupees Two
Crores Sixty Four Lacs Only) issued in its favour.
2. Petitioner is a product designing, engineering development and turnkey
solution providers company for the Telecom, Defence, Solar, Power and
Infrastructure Sectors. Respondent No.1 is an Indian State owned
Telecommunication Company having its headquarters in New Delhi.
Respondent No. 2 is Syndicate Bank who has issued the Bank Guarantee
behalf of Petitioner.
3. Shorn of unnecessary details, facts of the case are that on 14 March 2008,
the Respondent No.1 issued a Notice Inviting Tender (NIT) for procurement
of Next Generation Play Network (GE-PON) Equipment as per the schedule
of requirement of section-V of the Bid Document. Clauses 20 and 25 of the
General Conditions of the Contract ("GCC") provides for an arbitration
agreement and jurisdiction clause, respectively.
4. The Petitioner was declared as the successful bidder and issued
Advance Purchase Order dated 20 August 2009 ("APO"). In accordance
with the terms of the APO and pursuant thereto, the Petitioner Company
established a Performance Bank Guarantee bearing No. 24/ICOMM/09
dated 6 October 2009 ("PBG") for Rs.2,64,00,000/(Rupees Two Crores
Sixty Four Lacs Only). Subsequently, the Respondent No.1 also issued
Purchase Order dated 22 October 2009 ("PO") in favour of the Petitioner
Company. On the same day, i.e. on 22 October 2009, the Respondent No.1
herein above also entered into an Annual Maintenance Contract ("AMC").
In terms of the APO/PO, the contractor was required to set up Broadband
Next Generation Play Network as GE-PON, including supply of equipment,
warranty and followed by Annual Maintenance of above supplied
equipment, after expiry of warranty. Petitioner supplied the required
equipment to Respondent No.1 by 27th May 2010. Accordingly, the warranty
period started from 28th May 2010 for a period of 5 years.
5. Vide letter dated 12th February 2015, BSNL required Petitioner to submit
a PBG for Rs. 105.4 Crores (2% of PO value) (hereinafter, the “2% PBG”)
in terms of clause 8.2 (31)(c) of APO. However, the Petitioner failed
comply with the said request. During the course of the AMC period,
complaints were received by BBNW Circle of BSNL regarding non-return
of faulty cards sent to the Petitioner for repairs. A letter dated 17th February
2019 was issued to the Petitioner, re-iterating the non-receipt of the 2% PBG
and also the faulty cards. The Petitioner replied on 23rd February 2017,
stating that the submission of additional PBG for Rs. 105.4 lakhs does not
arise since the original PBG of Rs. 2.64 Crores, submitted against the APO,
is more than the required PBG amount. The Petitioner further submitted that
the already submitted 5% PBG, of Rs. 2.64 crores, may be returned once
AMC obligations are completed. Respondent alleges that Petitioner has not
honoured the AMC obligations and failed to maintain the turn-around time
of card repairing or maintain the EMS installed at Pune and Bangalore sites
of Respondent no. 1.
6. On 3rd May 2019, Respondent No.1 invoked the Bank Guarantee
(hereinafter, “the invocation letter”) for forfeiture of an amount of Rs.
1,07,37,699/- from the PBG amount, towards above defaults of ICOMM,
including the cost of equipment not returned by ICOMM to BSNL units.
Submissions on behalf of Petitioner
7. Learned counsels for the parties have been heard at length. It was
strenuously argued by the learned counsel for the Petitioner that the
Respondent no. 1 has illegally invoked the Bank Guarantee. He contended
that the Bank Guarantee was issued towards the performance obligations
under the APO/ PO. The Bank Guarantee could not be invoked for alleged
defaults arising under the AMC which is a separate and totally different
contract. The invocation is in violation of the terms and conditions of the
Bank Guarantee. Furthermore, the counsel strongly relied upon a Take Over
Certificate/No Claim Certificate dated 2nd June 2018 issued by Respondent
No.1 and argued that the said document undoubtedly proves that all the
supplies under the APO/PO were completed and the PBG against the
captioned PO had to be released, as has been certified therein. He also
argued that the terms of the PBG should be analysed carefully and the
invocation has to be strictly in accordance with the terms thereof. T
invocation impugned in the present petition is contrary to the terms of the
Bank Guarantee, and thus Respondents should be restrained from encashing
the BG. Further, it was argued that the AMC period of five years
commenced on 28.11.2011 and has expired on 27.11.2016 and therefore the
invocation letter dated 3rd May 2019 for the alleged claims under the AMC
is bad in law. In support of his contentions, learned counsel relied upon the
judgment of the Apex Court in Hindustan Construction Co. Ltd. v State
Bihar (1999) 8 SCC 436 .
Submissions on behalf of Respondent
8. Per contra, the learned counsel for the Respondent No.1 submitted that
beneficiary under a bank guarantee can be restrained from en
cashing/invoking a bank guarantee only under two special circumstances
namely, a fraud being committed by the beneficiary in connection with the
bank guarantee and/or irreparable loss or injury resulting to one of the
parties. None of these conditions are fulfilled in the present case. It was also
argued that the bank guarantee is unconditional and the
beneficiary/Respondent No.1 is legally entitled to realize the unconditional
guarantee irrespective of any pending dispute and the Respondent no. 2/bank
is bound to honour the same. It was also argued that equipment under the
APO/PO was supplied to BSNL by 27th May 2010, the warranty period
commenced on 28th May 2010 and was up to 27th November 2011 and after
27th November 2011, the AMC & CRC (Comprehensive Repair Contract)
period started from 28th November 2011 for a period of five years. The Take
Over Certificate/ No Claim Certificate relied upon by the Petitioner was
issued in respect of fulfillment of obligations up to warranty period only and
does not pertain to AMC obligations. The contractual obligations under the
contract have not been fulfilled and the Respondent is thus entitled to invoke
the PBG partially forfeiting the amount of PBG relating to claim under
AMC and non-return of BSNL's equipment sent for repair to the Petitioner.
In support of his submissions, learned counsel placed reliance on the
judgment in Dwarikesh Sugar Industries ltd v Prem Heavy Engineering
Works Pvt Ltd AIR 1997 SC 2477 .
Analysis and Findings
9. The law relating to invocation of such bank guarantees is no longer res
integra. In the course of commercial dealings, if an unconditional bank
guarantee is given or accepted, the beneficiary is entitled to realize such
bank guarantee in terms thereof irrespective of any pending disputes. It
equally well settled in law that bank guarantee is an independent contract
between bank and the beneficiary thereof. The bank is always obliged
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 of no consequence. There
are, however, two exceptions to this Rule that the courts have recognized.
The first is when there is a clear case of fraud of which the Bank has notice
and a fraud of the beneficiary from which it seeks to benefit. The fraud must
be of an egregious nature as to vitiate the entire underlying transaction. The
second exception to the general rule of non- intervention is when there are
special equities in favour of injunction, such as when irretrievable injury
irretrievable injustice would occur if such an injunction were not granted.
There are several Judgments of the Supreme Court reiterating and
reinforcing the above noted principles for dealing with cases relating to the
encashment of Bank Guarantees. In Classic-KSM Bashir JV v Rites
Limited MANU/DE/1731/2018, this Court has succinctly summarized the
law relating to bank guarantee:
“33. The law of injunction in the case of bank guarantee is no longer res integra. In Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. (1997) 6 SCC 450, Supreme Court reiterated this law as under:
"21. Numerous decisions of this Court rendered over a span of nearly two decades have laid down and reiterated the principles which the courts must apply while considering the question whether to grant an injunction which has the effect of restraining the encashment of a bank guarantee. We do not think it necessary to burden this judgment by referring to all of them. Some of the
more recent pronouncements on this point where the earlier decisions have been considered and reiterated are Svenska Handelsbanken v. Indian Charge Chrome [(1994) 1 SCC 502] , Larsen & Toubro Ltd. v. Maharashtra SEB [(1995) 6 SCC 68] , Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd.[(1995) 6 SCC 76] and U.P. State Sugar Corpn. v. Sumac International Ltd. [(1997) 1 SCC 568] The general principle which has been laid down by this Court has been summarised in the case of U.P. State Sugar Corpn. [(1997) 1 SCC 568] as...
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