FAO No. 3518 of 2009 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
--
FAO No. 3518 of 2009 (O&M)
Date of decision: August 27, 2009
Uttari Haryana Bijli Vitran Nigam Ltd. And another ........ Appellants
Versus
M/s Modern Transformers Private Limited .......Respondent(s)
Coram: Hon'ble Ms Justice Nirmaljit Kaur
-.-
Present: Mr. Narender Hooda, Advocate
for the appellants
Mr. Ashwani Talwar, Advocate
for the respondent
-.-
1. Whether Reporters of local papers may be
allowed to see the judgement?
2. To be referred to the Reporter or not?
3. Whether the judgement should be reported in
the Digest?
Nirmaljit Kaur, J.
This is an appeal against the order dated 12.02.2009 passed by the
Additional District Judge, Panchkula, whereby the application under Section 9 of
the Arbitration and Conciliation Act, 1996 (in short ‘the 1996 Act’) filed by the
respondents for grant of interim relief has been allowed. Vide the impugned
order, the encashment of bank guarantee in question was blocked.
While challenging the aforesaid order, learned counsel for the
appellants submitted that the discretion under Section 9 of the 1996 Act for the
purpose of grant of relief particularly relating to restraining the appellants from
FAO No. 3518 of 2009 2
encashing the bank guarantee and from black listing the firm can be used only
sparingly. In order to substantiate his arguments, learned counsel for the
appellants has relied upon the judgements rendered by the Apex Court in the cases
of ‘General Electric Technical Services Company Inc., v Punj Sons (P) Ltd. And
another- AIR 1991 Supreme Court 1994, BSES Ltd. (Now Reliance Energy Ltd.)
v. Fener India Ltd. And another- (2006) 2 Supreme Court Cases 728 and Vinitec
Electronics Private Limited v. HCL Infosystems Limited – 2008 (1) Civil Court
Cases 377 (SC).
Learned counsel for the respondent while responding to the
arguments of the learned counsel for the appellants submitted that the Additional
District Judge, granted the interim relief to the respondent-firm by restraining the
respondents from invoking the bank guarantee in question and from black listing
the respondent-firm, subject to certain conditions, which are as follows:-
i) The restraint orders shall remain in force till such time,
Arbitrator is appointed and the parties appear before the
Arbitrator. The interim relief shall automatically stand
vacated after the appearance of the parties before the
Arbitrator.
ii) In case, no Arbitrator is appointed, the interim relief would
automatically stand vacated; and
iii) In case the parties do not go in arbitration proceedings
within six months from the orders, the interim relief shall
stand vacated.
It was stated that in fact the same has caused prejudice to the interest
of the respondent firm and rather, the order should be modified to the extent that
FAO No. 3518 of 2009 3
the encashment of the bank guarantee as well as black listing of the firm should be
stayed for a period of three years till the adjudication of the dispute between the
parties by an independent Arbitrator. It was further stated that the High Court is
already seized of the matter with respect to the appointment of the Arbitrator.
Learned counsel for the parties have been heard.
Dispute in the present case was with regard to the three Purchase
Orders dated 16.09.2004 for supply of 600 numbers of Transformers of 100 KVA,
Purchase Order dated 01.09.2004 for supply of 600 numbers of Transformers of
63 KVA and the third Purchase Order dated 06.12.2004 for supply of 1500
numbers of 25 KVA Transformers. As per the terms and conditions of the
Purchase order, the respondent-firm furnished the bank guarantee of
Rs.38,16,000/- against the first Purchase Order and Rs.25,53,000/- against the
second Purchase Order. There was no bank guarantee furnished in respect of the
third Purchase Order, but 10% of the purchase order amount was deducted from
the running bill of the respondent-firm towards the Bank guarantee amount. The
respondent firm could not supply the requisite number of Transformers, as per the
Purchase Order dated 06.12.2004. Likewise, in respect of the supply relating to
63 KVA and 100 KVA Transformers, a large quantity of Transformers supplied
by the respondent firm did not conform to the specifications. Accordingly, a
penalty of Rs.4.35 crores and another amount of penalty of Rs.3.56 crores relating
to various recoveries of damaged Transformers etc. was imposed. It was stated
that on failure of the respondent firm in furnishing an undertaking to the effect
that the sub standard Transformers shall be replaced, a notice dated 31.12.2007
was sent.
It is settled proposition of law that the bank guarantee is an
independent contract between the bank and the beneficiaries. Learned counsel for
FAO No. 3518 of 2009 4
the respondents is also not able to dispute the settled proposition of law. Thus, it
is evident that the bank must pay on demand without any further dispute. The
Hon’ble Supreme Court in the case of Reliance Energy Limited (Supra) chalked
out two exceptions to this rule, which are as follows:
“10. There are, however, two exceptions to this rule. The first
is when there is a clear 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” or
“irretrievable injustice” would occur if such an injunction were
not granted. The general rule and its exceptions has been
reiterated in so many judgements of this Court, that in U.P.
State Sugar Corpn. v. Sumac International Ltd. (hereinafter ”
U.P. State Sugar Corpn.”), this Court, correctly declared that
the law was settled.”
Admittedly, in the present case, no such allegation of fraud has been
alleged. As such, the facts of the present case do not fall under the first exception.
As regards the second exception, no such circumstances are shown by
the respondent-firm, which could justify for restraining the appellant from
encashing the bank guarantee, except that the appellant has already moved the
High Court for appointment of an independent arbitrator under Section 11(6) of
the 1996 Act and the matter is pending adjudication before this Court. Thus, there
is no plea of any special ‘equity’ by the respondent firm in their favour. No plea of
irretrievable injustice is made out. Pendency of the petition under Section 11(6)
FAO No. 3518 of 2009 5
of the 1996 Act is not sufficient ground to fall under the second exception.
In a judgement rendered by the Hon’ble Supreme Court in the case of
Vinitec Electronics (supra), as relied upon by the learned counsel for the
appellants, in some what similar circumstances, held:-
“28. There is no dispute that arbitral proceedings are pending.
The appellant can always get the relief provided he makes his
case before the Arbitral Tribunal. There is no allegation that it
would be difficult to realise the amounts from the respondent
in case the appellant succeeds before the Arbitral Tribunal.”
Thus, in these circumstances, no irretrievable injustice would be done
to the respondent firm, if the bank guarantee furnishing by it, is encashed subject
to the final outcome of the arbitration proceedings.
In ‘General Electric Technical Services Company’ (supra), the Hon’ble
Supreme in para 10 of the judgement while observing that an injunction to restrain
the encashment of the bank guarantee cannot be granted in absence of fraud or
likelihood of irretrievable injustice between the parties, held:-
“10. ……………………….in the absence of fraud or special
equities in the form of preventing irretrievable injustice between
the parties. The High Court in the absence of prima facie case
on such matters has committed an error in restraining the Bank
from honouring its commitment under the Bank guarantee.”
Thus, the respondents can succeed only if a case was made out under
the two exceptions to the general rule. In the present case, there is neither any
fraud, nor will encashment of the bank guarantee prima facie create special
“equities” or irretrievable injury.
Above being the position, the order dated 12.02.2009 passed by the
Additional District Judge, Panchkula deserves to be set aside only to the extent
vide which the appellant has been restrained from encashing the bank guarantee.
FAO No. 3518 of 2009 6
Learned counsel for the appellant, however, has no objection if the
order dated 12.02.2009 passed by the Additional District Judge, Panchkula, black
listing the respondent firm, is stayed till the appearance of the respondent firm
before the Arbitrator in the first instance.
In this view of the matter, the present appeal is partly allowed to the
following terms:-
a) The order dated 12.02.2009 passed by the Additional District
Judge, Panchkula is set aside only to the extent vide which the
appellant has been restraining from encashing the bank
guarantee.
b) There shall be no restrain on the appellant to encash the bank
guarantee furnished by the respondent firm;
c) The order dated 12.02.2009 passed by the Additional District
Judge, Panchkula, black listing the respondent firm shall remain
stayed till the appearance of the respondent firm before the
Arbitrator at the first instance with liberty to the respondent firm
to move the Arbitrator for staying the operation of the part of the
order, vide which it is blacklisted.
(Nirmaljit Kaur)
Judge
August 27, 2009
mohan