THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on: 31.05.2011
Judgment Pronounced on: 03.06.2011
+ CS(OS) No. 1878/2010
ITD CEMENTATION INDIA LTD. .....Plaintiff
- versus -
NATIONAL THERMAL POWER
CORPORATION LTD. & ORS. .....Defendants
Advocates who appeared in this case:
For the Plaintiff: Mr. Niraj Kishan Kaul, Sr.
Advocate with Mr. R.Sudhinder
and Mr. Shivram, Advocates
For the Defendant: Mr. Bharat Sangal, Advocate for
D-1
Mr. Rakesh Sinha & Ms. Srishti
Sharma, Advocate for D-2
CORAM:-
HON'BLE MR JUSTICE V.K. JAIN
1.
Whether Reporters of local papers may
be allowed to see the judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported Yes
in Digest?
V.K. JAIN, J
IA No. 12229/2010 (Order 39 Rule 1&2 CPC)
This is a suit for declaration and permanent
injunction. Both the defendants are Government of India
CS(OS)No1878/2010. Page 1 of 25
undertakings. Defendant No.1 awarded a contract to
defendant No.2 for construction of main plant civil works,
stage-II, phase-II for its thermal power plant at Kahalgaon,
for an aggregate value of Rs. 49,21,27,837/-. As per a pre
tender arrangement between the plaintiff and defendant
No.2, the sub-contract for piling work was to be awarded by
defendant No.2 which did not have requisite
experience/manpower for this purpose, to the plaintiff
company. Defendant No.2 accordingly awarded the
aforesaid sub-contract to the plaintiff company for an
aggregate sum of Rs. 14,05,98,920.37. The plaintiff
company, pursuant to the award of the aforesaid work
furnished a performance bank guarantee of Rs.
1,23,03,196/-.
2. The case of the plaintiff is that the sub-contracted
work was completed by it by 29.6.2005 and completion of
the work was also acknowledged by defendant No.2. The
defect liability period in respect of the work carried out by
the plaintiff company also expired in June, 2006, thereby
entitling the plaintiff company to return of the performance
bank guarantee submitted by it. Since, the cost of the
CS(OS)No1878/2010. Page 2 of 25
plaintiff company increased on account of reduction of work
during the course of construction activities and the plaintiff
company had to deploy additional staff and equipment, it
called upon defendant No.2 to reimburse it to the extent of
Rs. 1,53,23,456/-. Defendant No.2, however, did not pay
the aforesaid amount to the plaintiff company. It is alleged
that in order to prevent further erosion in its balance sheet,
the plaintiff company at the instance of the defendants
submitted a bank guarantee of Rs.70,30,000/- on the
specific understanding that the defendants would release
the aforesaid sum which represented the retention amount.
However, the aforesaid amount was not released despite
bank guarantee having been accepted. The performance
bank guarantee which the plaintiff company had furnished
was extended by it till 31.5.2011, at the instance of
defendant No.1. Defendant No.1 sought to invoke the
performance guarantee which the plaintiff company had
submitted and sent a letter to defendant No.3 bank which
had issued the aforesaid bank guarantee, in this regard on
6.9.2010, though defendant No.2 had requested it to keep
the encashment of bank guarantee in abeyance.
CS(OS)No1878/2010. Page 3 of 25
3. Thus, in nutshell, the case of the plaintiff company
is that it was awarded only sub-contract for
14,05,98,920.37; it has already completed its work within
the stipulated time to the satisfaction of the defendants and
even the defect liability period is over and it is entitled to
recover more than Rs.2 crores from defendant No.2. The
plaintiff company has sought a declaration that invocation
of performance bank guarantee by defendant No.1 is void
and illegal. It has also sought an injunction against
invocation/encashment of performance bank guarantee
which it had submitted in favour of defendant No.1.
4. In its Written Statement, defendant No.1 NTPC
Limited has stated that in terms of Clause 9.5.0 of Letter of
Award (in short LoA) dated 3.2.2004 , Clause 3.3.0 of the
Special Conditions of Contract and Clause 5 of the Joint
Deed of Undertaking submitted jointly by the plaintiff
company and defendant No.2; the plaintiff company, being
an associate of defendant No.2 was required to furnish an
on-demand bank guarantee for 2.5% of the total contract
price and this was to be over and above the security
deposited by defendant No.2. The bank guarantee of
CS(OS)No1878/2010. Page 4 of 25
Rs.1,23,03,196/- according to defendant No.1, was a
performance guarantee in relation to the whole of the work
awarded to defendant No.1 and was not confined to the sub-
contract awarded by defendant No.2 to the plaintiff
company. It is also stated that the plaintiff company as well
as defendant No.2 had jointly undertaken and declared that
they shall be fully responsible for the successful
performance of the contract. It was also agreed that it
would not be necessary for defendant No.1 to proceed
against defendant No.2 before it proceeds against the
plaintiff company. It is claimed that the plaintiff company
failed to fulfill its joint and several obligations under the LoA
dated 3.2.2004 read with Joint Deed of Undertaking dated
5.9.2003. It is also alleged that since defendant No.1 is not
a party to the alleged pre tender understanding between
plaintiff company and defendant No.2, it is not bound by the
terms and conditions of the aforesaid understanding.
Defendant No.1 has denied that the work was completed
within the stipulated time or to its satisfaction. It has been
stated that defendant No.1 had protested in writing against
delay in the work of piling and the plaintiff company had
failed to conduct Piling Integrity Test which was the most
CS(OS)No1878/2010. Page 5 of 25
crucial test to be carried out by it. It is further stated that
since defendant No.2 failed to complete the work awarded to
it, in terms of the LoA dated 3.2.2004, defendant No.1 was
constrained to issue notice to cancel the LoA and encash
the performance bank guarantee. It is also alleged that as
far as defendant No.1 is concerned, it has not kept any
retention amount of the plaintiff company with it. The case
of defendant No.1 is that since defendant No.2 failed to
complete the work, it had to offload the work and get it
completed by the other contractors at the sole risk and cost
of defendant No.2 and it had rejected the request for return
of the security deposit.
5. Defendant No.2 in its Written Statement has
alleged that the bank guarantee has been wrongly invoked
by defendant No.1 and though the plaintiff company had
completed the piling work, defendant No.1 had failed to
release payment to it in terms of the contract.
6. Clauses 3.1.0, 3.2.0 & 3.3.0 of the Special
Conditions of the Contract read as under:
3.1.0 The bidder should have achieved in the preceding
seven (7) years reckoned as on date of bid
opening, in the construction of
industrial/infrastructure projects, at least theCS(OS)No1878/2010. Page 6 of 25
following progress:
(i) Concreting of 25,000 cu.m. in any one (1) year in
one (1) or cumulative of two (2) concurrently
running contracts and
(ii) Fabrication of 6,000 MT of Structural Steel in any
one (1) year in one (1) or cumulative of two (2)
concurrently running contracts and
(iii) Erection of 6,000 MT of Structural Steel in any one
(1) year in one (1) of cumulative of two (2)
concurrently running contracts and,
(iv) Installation of 25,000 running meters of cast-in-
situ bored piles of minimum 600mm dia in any one
(1) year in one or more contracts, using rotary
hydraulic rigs. Alternatively, installation of 3,500
running metres of cast-in-situ bored piles of
minimum 1000 mm dia in any one (1) year in one
or more contracts, using rotary hydraulic rigs.
3.2.0 The average annual turnover of the bidder, in the
preceding three (3) financial years as on the date of
bid opening shall not be less than Rs.30 crores.
3.3.0 Bidder, who meets the requirements at clause
3.2.0 above and at least any two requirements of
clause 3.1.0 above, can also participate, provided
he associate with not more than two agencies of
repute, who should individually fully meet
requirements of the relevant part under clause
3.1.0 above for which he is being associated and
which the bidder himself is not able to meet. In
such a case, bidder shall along with the bid
furnish an undertaking jointly executed by him
and his associate(s), for successful performance of
the contract, as per format enclosed in the bid
documents. In case, of award, each associate
shall be required to furnish an On Demand Bank
Guarantee for 2.5% of total Contract Price over and
above the Security Deposit to be furnished by the
Contractor.
CS(OS)No1878/2010. Page 7 of 25
7. Clause 9.5.0 of LoA reads as under:
In terms of Clause No. 3.3.0 of Special
Conditions of Contract, in case of association,
the Associate shall be required to furnish an „On
Demand Bank Guarantee‟ for 2.5% of Total
Contract Price over and above the Security
Deposit to be furnished by the Contractor. You
have associated with M/s Skanska
Cementation India Ltd., Mumbai for Piling
Works included in this Contract. Accordingly,
you have confirmed that in addition to the
security deposit to be provided by you, your
Associate M/s Skanska Cementation India Ltd.,
Mumbai shall submit a Performance Bank
Guarantee to NTPC for 2.5% of the total
Contract Price i.e. for Rs.1,23,03,196/-, within
two weeks of issue of LoA in line with the
provisions of bidding documents.
8. Some of the Clauses of the Joint Deed of
Undertaking submitted by plaintiff company and defendant
No.2 to defendant No.1 read as under:
1. That in consideration of the Signing of
Contract Agreement between the Owner and
the Contractor, we the Associate and the
Contractor, do hereby declare and undertake
that we shall be jointly and severally
responsible to the Owner for the execution
and successful performance of the Contract
to the satisfaction of the Owner.
2. In case of any breach of the Contract
committed by the Contractor, we the
Associate do hereby undertake, declare and
confirm that we shall be fully responsible for
the successful performance of the contract
and undertake to carry out all the obligations
and responsibilities under this Deed of JointCS(OS)No1878/2010. Page 8 of 25
Undertaking in order to discharge the
Contractor‟s obligations and responsibilities
stipulated in the contract. Further, if the
Owner sustains any loss or damage on
account of any breach of the Contract, we the
Associate/Contractor jointly and severally
undertake to promptly indemnify, and pay
such loss/damages caused to the Owner on
its written demand without any demur,
reservation, contest or protest in any manner
whatsoever. This is without prejudice to any
rights of the owner against the contractor
under the contract and all guarantees. It
shall not be necessary or obligatory for the
owner to first proceed against the contractor
before proceeding against the associate, nor
any extension of time or any relaxation given
by the owner to the contractor shall prejudice
any rights of the owner under this deed of
Joint Undertaking to proceed against the
Associate and Contractor.
3. x x x
4. The Contractor and the Associate will be
fully responsible for the quality of all the
Works and their repair or replacement if
necessary and timely execution thereof to
meet the completion schedule under the
contract.
5. Apart from the Contractor‟s Performance
Bank Guarantee/Security Deposits, the
Associate shall, furnish “as Security” the
Performance Bank Guarantee, from any
reputed Bank as per list enclosed at
Annexure-XIII to SCC in favour of the Owner
in a form acceptable to Owner. The value of
such Bank Guarantee (BG) shall be equal to
two and a half percent ( 2 ½ %) of total
Contract Price and it shall be towards
guaranteeing the faithful
performance/compliance of this Deed of
Undertaking in accordance with the terms
and conditions specified herein. The BankCS(OS)No1878/2010. Page 9 of 25
Guarantees shall be unconditional,
irrevocable and valid for the entire period of
the contract, i.e. till ninety (90) days beyond
the end of the Defect Liability Period of the
Works under the contract. The guarantee
amount shall be promptly paid to the Owner
on demand without any demur, reservation,
protest or contest.
6. x x x
7. We, the Associate, and the Contractor agree
that this Undertaking shall be irrevocable
and shall form an integral part of the
Contract. We further agree that this
Undertaking shall continue to be enforceable
till the successful completion of Contract and
till the Owner discharges it.
9. The relevant Clause of the bank guarantee
furnished to defendant No.1 reads as under:
We, Union Bank of India having our Registered
Office at Union Bank Bhavan, 239, Widhan
Bhavan Marg, Nariman Point, Mumbai 400 021
and one of its branch offices at Veer Nariman
Road Branch, 84, Raj Mahal, Churchgate,
Mumbai-400 020 (hereinafter referred to as the
„Bank” which expression shall, unless
repugnant to the context or meaning thereof,
include its successors, administrators,
executors and assigns) do hereby guarantee
and undertake to pay to NTPC on demand any
and all monies to the extent of Rs.1,23,03,196/-
(Rupees One Crore Twenty Three Lakh Three
Thousand One Hundred Ninety Six Only) as
aforesaid at any time upto 31/05/2010 @ 5 PM
without any demur, reservation, contest,
recourse or protest and/or without any
reference to “Associate” or “Contractor”. Any
such demand made by NTPC on the Bank shall
be conclusive and binding, notwithstanding anyCS(OS)No1878/2010. Page 10 of 25
difference between NTPC and Contractor
and/or between NTPC and Associate pending
before any Court, Tribunal, Arbitrator or any
Authority.
x x x
The Bank also agrees that NTPC at its options
shall be entitled to enforce this Guarantee
against the Bank as a principal debtor, in the
first instance, without proceeding against
Contractor or Associate and notwithstanding
any security or other guarantee that NTPC may
have in relation to Contractor‟s or Associates‟
liabilities.
10. It would thus, be seen that defendant No.2 which
did not meet the requirements of clause 3.2.0 and at least
one of the two requirements laid down in clause 3.1.0 of the
Special Conditions of the Contract, could not have
participated in the bidding process without associating the
plaintiff company, since it was the plaintiff company which
met that requirement of clause 3.1.0 which defendant No.2
did not meet. In view of the requirement laid down in
clause 3.3.0 above, it was also necessary for defendant No.2
as well as plaintiff company, which defendant No.2 had
associated with it, to furnish joint undertaking for
successful performance of the contract and the plaintiff
company being an associate of defendant No.2 was also
CS(OS)No1878/2010. Page 11 of 25
required to furnish an on-demand bank guarantee of 2.5%
of the total contract price. This bank guarantee was to be
over and above the security deposit required to be furnished
by defendant No.2. Had the plaintiff company and
defendant No. 2 not furnished the joint undertaking in
terms of clause 3.3.0 and/or had the plaintiff company not
furnished on-demand bank guarantee for 2.5% of the total
contract price, the bid given by defendant No.2 would not
have even been considered eligible by defendant No.1.
There is no dispute that the predecessor of the plaintiff
company, ITD Cementation India Ltd. had furnished the
bank guarantee in terms of Clause 3.3.0 of the Special
Conditions of Contract and this bank guarantee was in
addition to the performance guarantee which defendant
No.2 had furnished to defendant No.1.
11. In view of Clause 3.3.0 of the Special Conditions of
the Contract, Clause 9.5.0 of the LoA dated 3.2.2004 and
the above referred terms of the Joint Deed of Undertaking
submitted by plaintiff company and defendant No.2, to
defendant No.1; both, defendant No.2 as well as the plaintiff
company became jointly and severally responsible to
CS(OS)No1878/2010. Page 12 of 25
defendant No.1 for successful execution of the whole of the
contracted work, to the satisfaction of defendant No.1 NTPC.
The liability of the plaintiff company therefore was not
restricted only to sub-contract or to that part of the work
which was sub-contracted to it by defendant No.2. Both of
them were liable to defendant No.1 in case of any loss or
damage being suffered by it on account of breach of the
contract by defendant No.2. It was not necessary for
defendant No.1 to first proceed against defendant No.2
before it proceeds against the plaintiff company. The
performance bank guarantee submitted by plaintiff
company therefore covered the whole of the contract
awarded to defendant No.2.
12. It is by now settled proposition of law with respect
to invocation of bank guarantees that its invocation is not in
any manner dependent on any dispute between the person
at whose instance the bank guarantee is given and the
person, who is its beneficiary. The only grounds on which
invocation of bank guarantee can be disputed are a) fraud
and b) special equities in favour of the person at whose
instance the bank guarantee has been given. As observed
CS(OS)No1878/2010. Page 13 of 25
by Supreme Court in Vinitec Electronics Private Ltd. vs.
HCL Infosystems Ltd. (2008) 1 SCC 544, the bank
guarantee which provides that it is payable by the
guarantors is considered to be unconditional bank
guarantee and the bank guarantee is an independent
contract between the bank and the beneficiary. It is a
contractual obligation of the bank to honour the
unconditional and irrevocable bank guarantee irrespective
of any dispute between the beneficiary and the person at
whose instance the bank guarantee is given.
13. Recently, I had an occasion to examine this issue
while deciding IA No. 8635/2011 in CS(OS) No 1295/2011
on 31.5.2011. During the course of the judgment the
following decisions were noted by this Court:
In Hindustan Steelworks Construction
Ltd. vs. Tarapore and Co. (1996) 5 SCC
34, Supreme Court held that in case of an
unconditional bank guarantee, the nature
of obligation of the bank is absolute and
not dependent upon any dispute or
proceeding between the party at whose
instance the bank guarantee is given and
the beneficiary, there being only two
exceptions – fraud and special equities. In
that case Special equities were claimed on
the basis as to who had committed breachCS(OS)No1878/2010. Page 14 of 25
of the contract. Determination of disputes
was held not to be a factor, which would
be sufficient to make the case as
exceptional case justifying interference by
the court restraining invocation of the bank
guarantee.
In Ansal Engineering Project
Ltd. vs. Tehri Hydro Development
Corporation Ltd. and Anr. (1996) 5
SCC 450, Supreme Court inter alia held
as under:-
“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.
x x x
5. …….The court exercising its power
cannot interfere with enforcement of bank
guarantee/letters of credit except only in
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. The trading operation
would not be jettisoned and faith of the
people in the efficacy of banking transactions
would not be eroded or brought to disbelief.”
CS(OS)No1878/2010. Page 15 of 25
In U.P. State Sugar Corporation
Vs. Sumac International Ltd. (1997) 1
SCC 568, the Supreme Court held as under:-
“The law relating to invocation of such bank
guarantees is by now well settled. When in
the course of commercial dealings an
unconditional bank guarantee is given or
accepted, the beneficiary is entitled to realize
such a bank guarantee in terms thereof
irrespective of any pending disputes. The
bank giving such a guarantee is bound to
honour it as per its terms irrespective of any
dispute raised by its customer. The very
purpose of giving such a bank guarantee
would otherwise be defeated. The courts
should, therefore, be slow in granting an
injunction to restrain the realization of such a
bank guarantee. The courts have carved out
only two exceptions. A fraud in connection
with such a bank guarantee would vitiate the
very foundation of such a bank guarantee.
Hence if there is such a fraud of which the
beneficiary seeks to take the advantage, he
can be restrained from doing so. The second
exception relates to cases where allowing the
encashment of an unconditional bank
guarantee would result in irretrievable harm
or injustice to one of the parties concerned.
Since in most cases payment of money under
such a bank guarantee would adversely
affect the bank and its customer at whose
instance the guarantee is given, the harm or
injustice contemplated under this head must
be such an exceptional and irretrievable
nature as would override the terms of the
guarantee and the adverse effect of such an
injunction on commercial dealings in the
country.”
14. If the bank guarantee furnished by the plaintiff
company is read without reference to other documents, the
CS(OS)No1878/2010. Page 16 of 25
obligation of the bank to pay to defendant No.2 is absolute
and unqualified and the bank must necessarily remit the
amount of the bank guarantee to defendant No.2 without
demur or protest merely on demand from it. It is not open
to the bank to go into the question as to whether there was
breach of the contract on the part of plaintiff
company/defendant No.2 or not. The bank is duty bound to
honour the bank guarantee unless a case of fraud or special
equity is made out.
15. In the present case, no fraud has been pleaded or
made out. The contentions of the learned Sr. Counsel for
the plaintiff company is that since the plaintiff company
performed that part of the work which was sub-contracted
to it by defendant No.2, there can be no justification for
invoking the bank guarantee submitted by it. It was also
contended by him, that NTPC being State within the
meaning of Article 12 of the Constitution of India, it needs
to act fairly and reasonably and therefore invocation of bank
guarantee furnished by the plaintiff company without there
being any breach of the contract on the part of the plaintiff
company can neither be just nor reasonable. I, however,
find no merit in these contentions. As noted earlier, it was
CS(OS)No1878/2010. Page 17 of 25
one of the conditions of the bid document that if the bidder
was not fully eligible in terms of Clause 3.1.0 and Clause
3.2.0 of the Special Conditions of Contract, it could have
associated another person with it provided, the other person
was able to meet the requirement which the bidder itself did
not meet. Not only a joint performance undertaking making
the bidder as well as the associate jointly as well as
severally liable in case of breach of the contract on the part
of the bidder but also furnish the on-demand bank
guarantee for 2.5% of the total contract price was furnished
by the plaintiff. Had the plaintiff company not submitted
the joint undertaking and bank guarantee in terms of the
tender document, the work would not have been awarded to
defendant No.2 and consequently, there would have been no
sub contract awarded to the plaintiff company by defendant
No.2. Having furnished the joint undertaking coupled with
the unconditional and payable on demand bank guarantee
extending to the whole of the contract, the plaintiff company
cannot say that the bank guarantee furnished by it should
not be encashed unless there is default in performance of
that part of the contract which was sub contracted to it.
The plaintiff company has become liable in law not only in
CS(OS)No1878/2010. Page 18 of 25
respect of that part of the contract which it had to execute
in terms of the work between it and defendant No.2 but also
to the parts which were not to be executed by it.
16. The legal proposition with respect to irretrievable
injury was summarized by this Court in the case of
Dwarikesh Sugar Industries Ltd. vs. Prem Heavy
Engineering Works (P) Ltd. and Anr., (1997) 6 SCC 450,
as under:-
“The second exception to the rule of
granting injunction, i.e., the resulting of
irretrievable injury, has to be such a
circumstance which would make it
impossible for the guarantor to reimburse
himself, if he ultimately succeeds. This
will have to be decisively established and
it must be proved to the satisfaction of the
court that there would be no possibility
whatsoever of the recovery of the amount
from the beneficiary, by way of
restitution.”
17. In Hindustan Construction Co. Ltd. and Anr.
Vs. Satluj Jal Vidyut Nigam Ltd., AIR 2006 Delhi 169,
this Court held that the exceptional case pleaded against
encashment of bank guarantee needs to fall within any of
the following limited categories:
i) If there is a fraud in connection with the
bank guarantee which would vitiate theCS(OS)No1878/2010. Page 19 of 25
very foundation of such guarantee and the
beneficiary seeks to take advantage of such
fraud.
ii) The applicant, in the facts and circumstance
of the case, clearly establishes a case of
irretrievable injustice or irreparable
damage.
iii) The applicant is able to establish
exceptional or special equities of the kind
which would prick the judicial conscience
of the court.
iv) When the bank guarantee is not invoked
strictly in its terms and by the person
empowered to invoke under the terms of
the guarantee. In other words, the letter of
invocation is in apparent violation to the
specific terms of the bank guarantee.
18. In ITEK Corporation vs. The First National Bank
of Boston 566 F. Supp 1210, which is a judgment referred
by Supreme Court quite often in the matters relating to
bank guarantee, an exporter in USA entered into an
agreement with the Imperial Government of Iran and sought
an order terminating its liability on standby letters of credit
issued by an American Bank in favour of an Iranian Bank
as part of the contract. The relief was sought on account of
the situation created after the Iranian revolution when the
American Government cancelled the export licences in
CS(OS)No1878/2010. Page 20 of 25
relation to Iran and the Iranian Government had forcibly
taken 52 American citizens as hostages. The US
Government had blocked all Iranian assets under the
jurisdiction of United States and had cancelled the export
contract. The Court upheld the contention of the exporter
that any claim for damages against the purchaser if decreed
by the American Courts would not be executable in Iran
under these circumstances and realization of the bank
guarantee/letters of credit would cause irreparable harm to
the plaintiff company.
19. In the case before this Court, no such
circumstance is shown as existing and therefore, it is
difficult to say that an exceptional circumstance justifying
grant of injunction against encashment of the bank
guarantee is made out.
20. As held by Supreme Court in the case of
Dwarikesh Sugar Industries Ltd. v. Prem Heavy
Engineering Works (P) Ltd. & Anr. (1997) 6 SCC 450, the
resulting of irretrievable injury has to be such a
circumstance which would make it impossible for the
guarantor to reimburse himself if he ultimately succeeds
CS(OS)No1878/2010. Page 21 of 25
and it must be proved to the satisfaction of the Court that
there would be no possibility whatsoever of the recovery of
the amount from the beneficiary by way of restitution. No
such circumstance exists in this case since the defendant
No.1 happens to be an Undertaking of Government of India.
21. In my view the plaintiff company has not been able
to make out a case of special equity in its favour nor it can
be said that there will be irreparable injury to it if the
encashment of bank guarantee is not injuncted. The case of
defendant No.1 is that there has been breach of contract on
the part of defendant No.2. In fact the breach is alleged
even on the part of the plaintiff company. It has been
pointed out that the plaintiff company did not carry out
breaking and integrity test in respect of the piling work done
by it. Vide letter dated 24.3.2006 the plaintiff company
informed defendant No.2 that it had not been able to finish
Pile Breaking and Integrity Test due to non-exposure of piles
and other reasons beyond its control and not attributable to
it. Vide its letter dated 9.8.2006 written to defendant No.2,
defendant No.1 brought to its notice that nothing had been
done towards the Pile Integrity Test of piling of various
CS(OS)No1878/2010. Page 22 of 25
foundations in Unit 7. Defendant No.1 again requested to
take immediate action for remaining PIT of piling as per
specifications. There is no material on record to indicate
that even thereafter the plaintiff company had carried out
Pile Integrity Test in respect of piling of various foundations
in Unit 7. However, even if it is assumed that the plaintiff
company had successfully completed the work sub
contracted to it by defendant No.2, it would still be liable
even if there was breach of any part of the contract on the
part of defendant No.2 and defendant No.1 is entitled in law
to invoke the bank guarantee furnished by the plaintiff
company. I fail to appreciate, how the plaintiff company can
claim any special equity in its favour when it is a
contractual obligation to compensate defendant No.1 in case
of breach of contract on the part of defendant No.2 and it
has chosen to become jointly as well as severally liable to
defendant No.1 in this regard.
22. Defendant No.1 NTPC is a large Public Sector
Undertaking. It cannot be said that in the event of bank
guarantee being encahsed, it would be impossible or even
difficult for the plaintiff company to reimburse itself in case
CS(OS)No1878/2010. Page 23 of 25
it sues the defendant No.1 for recovery of amount of the
bank guarantee. Considering the contractual obligation
undertaken by the plaintiff company, I find no exceptional
circumstances warranting issue of an injunction against
encashment of the bank guarantee.
23. It was pointed out by the learned Counsel for the
plaintiff that plaintiff company submitted a bank guarantee
of Rs.70,30,000/- in order to get that much amount
released from defendant No.2 but since NTPC did not agree
for release of retention money/security deposit, neither the
aforesaid amount has been released nor the bank guarantee
of Rs.70,30,000/- has been returned to it. Admittedly, the
aforesaid bank guarantee of Rs.70,30,000/-was submitted
by the plaintiff company to defendant No.2 and not to
defendant No.1. Therefore, defendant No.1 does not come
into the picture as far as the aforesaid bank guarantee is
concerned and the matter rests solely between the plaintiff
company and defendant No.2. If the plaintiff company is
aggrieved on account of failure of defendant No.2 to release
the amount of Rs.70,30,000/- despite receiving the bank
guarantee for the aforesaid amount, it can initiate such
CS(OS)No1878/2010. Page 24 of 25
proceedings against defendant No.2 as are open to it in law
but, the plaintiff company is not entitled to injunction
against encashment of the bank guarantee submitted by it
to defendant No.1 merely because defendant No.2 has
neither paid the amount of Rs.70,30,000/- to it nor
returned the bank guarantee of the aforesaid amount.
24. For the reasons given in the preceding paragraphs,
I am of the view that the plaintiff has no prima facie case for
grant of injunction against encashment of bank guarantee.
The application therefore is dismissed. The interim order
passed by this Court on 17.9.2010 is hereby vacated.
The IA stands disposed of.
CS(OS) No. 1878/2010
The matter be listed before Joint Registrar on24th
August, 2011 for admission/denial of the documents and
before this Court on 16th December, 2010.
(V.K. JAIN)
JUDGE
JUNE 03, 2011
vn
CS(OS)No1878/2010. Page 25 of 25