JUDGMENT
Anil Dev Singh J.
1. The petitioner by means of the instant petition under section 11(6) of the Arbitration and Reconciliation Act, 1996, seeks appointment of an arbitrator and an order restraining the respondents from encashing the bank guarantees. The petitioner-company is a manufacturer of jelly filled telephone cables at Rohtak. On February 23, 1994, the Department of Telecommunication floated a tender for the purpose of purchase of various quantities of polythene insulated jelly filled cables (for short “PIJ”) on cash basis. In response to the invitation the petitioner submitted its tender. The tender was accepted and the parties thereafter entered into an agreement on September 20, 1994 (for short “the initial contract”), a copy whereof has been presented in court today. Subsequently, by letter dated February 2, 1995, the Assistant Director-General (LF), Government of India, DoT, wrote to the petitioner as follows :
“Subject : Supply of PIF/UG cable on deferred terms.
Reference : Tender No. 203-60/93-MMS-I, opened on April 22, 1994.
It has been decided by the Telecom. Commission to obtain PIJF/UG cable of various sizes (as per standard specifications issued, vide Tender No. 203-60/93-MMS-I, opened on April 22, 1994) on deferred payment terms.
You are requested to give your unconditional acceptance to the enclosed offer by February 9, 1995 (5 p.m.), following which formal contract shall be entered into.”
2. Pursuant to above the letter of the Assistant Director-General, the petitioner signified its consent to the offer, vide communication dated February 9, 1995 (page 65 of the paper book, Vol. III). Thereupon, after the receipt of the above said letter of the petitioner, the respondents by their letter dated March 6, 1995, requested the petitioner to enter into deferred payment agreements for procurement of the undermentioned quantities of PIJF/UG cables (page 66 of the paper book, Vol. III).
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Sl. No. Name of Telecom Circle Quantity (LCKM)
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1. Haryana 1.64
2. Punjab 2.40
3. Rajasthan 0.73
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Total 4.77
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3. The letter was accompanied by the terms and conditions for deferred payment agreement. Since the supplies related to three circles, therefore, the parties entered into three separate contracts on April 7, 1995, May 22, 1995, and April 24, 1995. It may be pointed out that at the time of entering into the initial contract on September 20, 1994, the petitioner had furnished a bank guarantee dated September 28, 1994, to the tune of Rs. 85 lakhs for due performance of the contract. Subsequently, when the respondents placed the order for PIJF cables on deferred payment, the petitioner in terms of the subsequent agreements furnished a second bank guarantee on April 5, 1995 (page 24, part III of the court record) for a sum of Rs. 15 lakhs. It appears that the parties differed on certain matters and disputes arose between them. On March 14, 1997, the respondents by means of two separate letters invoked the above said bank guarantees. The petitioner feeling aggrieved by the said invocations filed the instant petition for the following reliefs :
(i) to direct Agreement No. SP-2/34/IPO/UGC/DP/95-96-HTL, dated April 7, 1995, No. Engg./Agreement with HTL/CP/2, dated April 7, 1995, and No. Engg/Haryana/N4/DP(Har)/HTL/95-96/1, dated May 22, 1995, be filed and be further pleased to appoint arbitrator to arbitrate upon the disputes/differences arising between the parties.
(ii) the respondents be restrained from encashing Bank Guarantees No. PER/57/94-95, dated September 28, 1994, for Rs. 85 lakhs issued on behalf of the petitioner by the State Bank of Patiala, Rajpura (Pb.) and Bank Guarantee No. 34/95, dated April 5, 1995, for Rs. 15 lakhs issued on behalf of the petitioner by the Canara Bank, Barakhamba Lane, New Delhi, till the passing of the award.
4. In so far as the first prayer relating to the question of appointment of an arbitrator is concerned, learned counsel for the respondent states that a committee has been constituted by the Chairman, Telecommunication, for this purpose and an arbitrator will be appointed. In view of this statement of learned counsel for the respondent, the only direction which needs to be given in regard to the first prayer is that the respondent will appoint an arbitrator within four weeks.
5. As regards the second prayer of the petitioner pertaining to the question of the validity or otherwise of the invocation of bank guarantees, learned counsel for the petitioner contended that the respondent was not justified in invoking the bank guarantees as they pertain to the initial contract in regard to which there is no demand by the respondents. Learned counsel invited my attention to the following recitals in the bank guarantee dated September 28, 1994 :
Bank Guarantee No. PER/57/94-95, dated September 28, 1994 :
“In consideration of the President of India (hereinafter called ‘the Government’) having agreed to exempt Haryana Telecom Limited, Rohtak (hereinafter called ‘the said contractor’), from the demand, under the terms and conditions of Agreement No. 203-60/93-MMSI, dated September 20, 1994, made between the President of India, through Director (MMSI), Department of Telecommunication, New Delhi and Haryana Telecom Limited, Rohtak, for the supply of jelly filled telephone cables (hereinafter called ‘the said agreement’) of the security deposit for the due fulfillment by the said contractor of the terms and conditions contained in the said agreement, on the production of a bank guarantee for Rs. 85,00,000 (rupees eighty-five lakhs only) we, State Bank of Patiala, Rajpura (hereinafter referred to as ‘the bank’), at the request of Haryana Telecom Limited, Rohtak (contractor), do hereby undertake to pay to the Government an amount not exceeding Rs. 85,00,000 (rupees eighty-five lakhs only) against any loss or damage caused to or suffered or would be caused to or suffered by the Government by reason of any breach by the said contractor of any of the terms or conditions contained in the said agreement.”
6. Bank Guarantee No. 34/94-95, dated September 28, 1994 :
“In consideration of the President of India (hereinafter called ‘the Government’) having agreed to exempt Haryana Telecom Limited, Rohtak (hereinafter called ‘the said contractor’), from the demand, under the terms and conditions of Agreement No. 203-60/93-MMS-I, dated February 23, 1994, made between the President of India, through Director (MMSI), Department of Telecommunication, New Delhi and Haryana Telecom Limited, Rohtak, for the supply of jelly filled telephone cables (hereinafter called ‘the said agreement’) of the security deposit for the due fulfillment by the said contractor of the terms and conditions contained in the said agreement, on the production of a bank guarantee for Rs. 15,00,000 (rupees fifteen lakhs only) we, Canara Bank, Industrial Finance Branch, New Delhi (hereinafter referred to as ‘the bank’), at the request of the Haryana Telecom Limited, Rohtak (contractor), do hereby undertake to pay to the Government an amount not exceeding Rs. 15,00,000 (rupees fifteen lakhs only) against any loss or damage caused to or suffered or would be caused to or suffered by the Government by reason of any breach by the said contractor of any of the terms or conditions contained in the said agreement.”
7. He submitted that the bank guarantees clearly refer to the initial contract dated September 20, 1994, which has its genesis in Tender No. 203-60/93/MMI-S, dated February 23, 1994, and not to the contracts entered into by the parties on April 7, 1995, May 22, 1995, and April 24, 1995. Learned counsel also submitted that the bank guarantees have not been invoked as per the terms and conditions laid down therein. He canvassed that the respondent while invoking the bank guarantees was required to state that the respondents had suffered loss due to failure of the petitioner to perform the agreement. Learned counsel also invited my attention to the following decisions :
Hindustan Steelworks Construction Ltd. v. Tarapore and Co. ; Saraya Distillery v. Union of India, ; Hari parsad and Co. Ltd. v. Sudarshan Steel Rolling Mills ; Ansal Properties and Industries Ltd. v. Union of India .
8. On the other hand, learned counsel for the respondents submitted that the respondents have invoked the bank guarantees because of the failure of the petitioner to perform the contracts dated April 7, 1995, May 22, 1995, and April 24, 1995, and for the loss suffered as a consequence thereof. He further contended that the invocations are in terms of the bank guarantees. He also canvassed that there are no special equities in favour of the petitioner nor is it going to suffer any irretrievable loss in the event of encashment of the bank guarantees.
9. I have considered the respective submissions of learned counsel for the parties. While it is correct that the plaintiff furnished the first Bank Guarantee No. 57/94-95, dated September 28, 1994, in fulfillment of the conditions of the Tender Document No. 203-60/93, dated February 23, 1994, subsequently, however, when the respondents by their communication dated February 2, 1995, asked the plaintiff to give its acceptance to a further supply of PIJF/UG cables of various sizes it not only consented to furnish a fresh bank guarantee for a sum of Rs. 15 lakhs but also agreed that the bank guarantees already given at its instance by the State Bank of Patiala for a sum of Rs. 85 lakhs will also serve as a guarantee for the subsequent contracts. This is apparent from a reading of the agreements dated April 7, 1995, May 22, 1995, April 24, 1995. At this stage it will be convenient to extract the relevant clauses of one of the agreements dated, viz., April 7, 1995, as the recital in all the agreements are to the same effect.
“Whereas, in response to the supplier’s offer (hereinafter referred to as ‘initial tender’) against Tender Enquiry No. 203-60/93-MMS-I, dated February 23, 1994, the DoT placed some purchase order on the suppliers.
10. It is hereby agreed that the terms and conditions fixed under the initial tender with regard to specifications – rates, excise duty, sales tax, bank guarantee, etc. – would apply to supplies as per annexure-I of this agreement except for the changes incorporated hereinafter in this agreement. In case of contradiction between the terms of the initial tender and the agreement, the latter will prevail.
11. 1.0. Scope of the agreement :
The DoT hereby places an order on the supplier to supply PIJF/UG cable as per specifications attached to Tender No. 203-60/93-MMS-I, dated February 23, 1994, in accordance with details of quantity ordered, rates applicable, consignor and delivery schedule indicated in annexure-I and annexure-II, on the basis of supplier’s credit subject to the terms of this Agreement No. E-19/Agreement with HTL/CF/2 (hereinafter referred to as the “agreement”). Any supplementary schedule shall be deemed to form an integral part of this agreement as if the same were annexed hereto.
2.0. Concerned references :
1. Tender Enquiry No. 203-60/93-MMS-I, dated February 23, 1994.
2. Offer No. 80-24/PIJF-2/94/VLF, dated February 2, 1995.
3. Acceptance Letter No. HTL/Sales/640, dated February 9, 1995.
4.0. Performance bank guarantee :
4.1. Performance bank guarantee 95 per cent. of the order value (exclusive of excise duty, sales tax, etc.) up to Rs. 4 crores and 2 per cent. for every extra crore order value subject to a total ceiling of Rs. 1 crore is to be submitted by the supplier to the purchaser in the prescribed proforma enclosed herewith, from any nationalised scheduled bank before signing of the agreement. The supplier has already submitted a Performance Bank Guarantee No. Per/57/94-95, issued by State Bank of Patiala, Rajpura, for Rs. 85,00,000 (rupees eighty-five lakhs only), i.e., valid for three years up to September 27, 1997, and the Bank Guarantee No. 34 of 1995, issued by the Canara Bank, New Delhi, for Rs. 15,00,000 (rupees fifteen lakhs only) is valid for three years up to April 4, 1993. The extension of the performance bank guarantee shall be arranged by supplier/bank as and when requested by the DoT till it is allowed to be lapsed by DoT.
4.2. The performance guarantee shall be encashed by the DoT on the supplier’s failure to meet its obligations under the agreement.”
12. Thus, it is obvious that the petitioner agreed that the respondents will be entitled to encash the performance guarantees mentioned in para. 4.1 in case of its failure to meet its obligation under the agreement. Thus, the underlying contracts clearly permitted the respondents to invoke not only the bank guarantee No. 34/95 for Rs. 15 lakhs but also Bank Guarantee No. 57/94-95, for a sum of Rs. 85 lakhs in the event of the failure of the petitioner to comply with the terms and conditions thereof. Therefore the petitioner cannot, at this stage, turn back and raise a challenge to the invocation of the bank guarantees including Bank Guarantee No. 57/94-95, on the ground that the same were furnished, at its instance, by the above said banks only in fulfillment of the initial contract and not for the purpose of ensuring due performance of the underlying contracts dated April 7, 1995, or agreements dated May 22, 1995, and April 24, 1995. Besides, it seems to me that the petitioner cannot take up the plea that Bank Guarantees Nos. 34/95 and 57/94-95 furnished by the above said banks are not continuing guarantees as the petitioner is not a surety.
13. The next question to be considered is whether the invocation of the bank guarantees are as per their terms. In order to appreciate the question it is necessary to refer to clause 4.0 of the bank guarantee already quoted above. Under the said clause the respondents being the beneficiaries of the bank guarantees can invoke the same in the event of loss suffered or likely to be suffered by them due to the breach of the above said contracts by the petitioner. The respondents in their reply to the petition have stated that the bank guarantees have been invoked for the reason of the failure of the petitioner to comply with the terms and conditions contained in the underlying contracts. The respondents by their letters dated May 9, 1995, and May 14, 1995, to the above said banks have stated that the claim is being made for the loss/damages suffered in terms of the bank guarantees. One of such letters reads as follows (annexure-A) to respondent’s reply :
"To 9-5-1997
The Chief Manager,
Canara Bank, IFB,
World Trade Tower,
Barakhamba Lane,
New Delhi-110 001.
Subject : Encashment of bank guarantee No. 34/95, dated April 5,
1995, for Rs. 15,00,000 issued on behalf of HTL Ltd.,
Rohtak against DoT Agreement Nos. (i)
No. SP-2/34/PO/UGC/DP/95-96/HTL/5, dated April 24, 1995;
(ii) No. Engg./agreement with HTL/CP/2, dated April 7, 1995
(iii) No. Engg./Haryana/N84/DP (Haryana) HTL/95-96/1, dated
May 22, 1995.
Dear Sir,
This has reference to your letter No. 49CR : 711 : GGRK : 97, dated April 4, 1997, and No. 49CR : 807 : SS : 97, dated May 2, 1997, on the subject captioned above. It is hereby confirmed that the claim is by way of loss/damage suffered in terms of para. 4 of the abovementioned bank guarantee.
2. You are, therefore, requested to send a Demand Draft (crossed payee A/c only) payable at Delhi, for Rs. 15,00,000, i.e., equivalent to the amount of bank guarantee drawn in favour of “Pay and Accounts Officer DoT (Hqrs.), New Delhi” immediately on receipt of this letter. The demand draft may be sent under registered cover to :
Accounts Officer (VLF),
DoT, VLF Branch, Room No. 315,
Sanchar Bhawan, 20, Ashoka Road,
New Delhi-110 001.
3. The matter is pending with you for last two months as such requisite demand draft may please be sent by return of post latest by May 15, 1997. In case of any failure in this regard department will be constrained to refer the matter to the Reserve Bank of India for getting compliance.
4. The receipt of the letter may please be acknowledged.
(Sd.) R. S. Thiyagarajan,
Asstt. Director-General (VLF).”
14. Therefore, a reading of the above letter clearly shows that the requirement laid down in para. 4 of the bank guarantee stands satisfied.
It may be recalled that the plaintiff had submitted that the respondents without suffering any loss have invoked the bank guarantees. I am afraid I cannot go into this question as the bank guarantees specifically state that the bank will pay the amount under the guarantee without any demur merely on a demand from the Government stating that the amount claimed is due by way of loss or damage caused to or would be caused to or suffered by the Government by reason of breach of any of the terms and conditions contained in the said agreements or by any reason of the contractor’s failure to perform the said agreements. They further stipulate that any such demand made on the bank shall be conclusive as regards the amount due and payable by the bank under the bank guarantees and the decision of the Government shall be final and binding on the banks. Therefore, as per the bank guarantees the beneficiary has been made the sole judge as to the question whether the amount under the bank guarantees is due or not. Once the beneficiary takes that decision the bank is under an obligation to remit the amount claimed under the bank guarantee to the Government.
15. Learned counsel for the petitioner invited my attention to para. 20 of the petition where it is alleged that the DoT, in fact, has purchased the ordered material from other suppliers without incurring any loss. Learned counsel also invited my attention to the reply filed by the respondents to para. 20 of the petition and submitted that the respondents have not traversed the above said fact. Since it is not open to go into the question as to whether the Government has suffered any loss as it has been made the sole judge under the agreement, I refrain from going into that question. I also find that the decision of the Supreme Court in Hindustan Steelworks Construction Ltd. v. Tarapore and Co. [1996] 87 Comp Cas 344, cited by learned counsel is of no avail to the plaintiff as neither a case of special equity nor a case of irretrievable injustice has been made out. Further, the demand made by the respondents under the bank guarantee cannot be said to be fraudulent because on the own showing of the petitioner, the PIJF cables were not supplied to the respondent by it under the underlying contracts. While it is true that a demand by the beneficiary under the bank guarantee may become fraudulent not because of any fraud committed by the beneficiary at the time of executing the underlying contract, but it may become so because of subsequent events or circumstances. However, the instant case does not fall in that category as there are no subsequent events or circumstances which render the demand of the respondents fraudulent. The decision of this court in Hari parsad and Co. Ltd. v. Sudarshan Steel Rolling Mills [1980] 50 Comp Cas 709 also does not come to the rescue of the petitioner inasmuch as the invocation of the bank guarantees have been made in terms of the bank guarantees. All that the above said decision lays down is that the duty of the beneficiary in making the demand is like the duty of the petitioner to disclose the cause of action in the plaint. It seems to me that the respondents have disclosed the cause of action in their favour while invoking the bank guarantees. Even the decision of a Division Bench of this court in Saraya Distillery v. Union of India, , is not helpful to the case of the petitioner as this was not a matter arising under the bank guarantee.
16. In view of the above said discussion, I seem no ground to interfere with the invocation of the bank guarantees made by the respondents. The above said second prayer made in the petition, therefore, merits rejection and is accordingly rejected. As regards the first prayer, the Chairman, DoT, is directed to appoint an arbitrator within four weeks for resolution of disputes between the parties.
17. The arbitration application and the I.A. disposed of.
18. Copies of this order may be given dasti to the learned counsel for the parties.