ORDER
Madan B. Lokur, J.
1. Since learned Counsel for the caveator has put in appearance, the caveat stands disposed of.
OMP194/2006
2. The petitioner has filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 for an interim measure restraining respondent No. 1 (NTPC) from invoking or encashing four bank guarantees given for performance of the contract between the parties. It is also prayed that respondent No. 2 bank be restrained from making any payment in respect of the these bank guarantees.
3. NTPC awarded a contract to the petitioner for supply and installation of fireproof cable penetration sealing system for its thermal plant in Uttar Pradesh.
4. According to the petitioner, it completed the work under the contract as per the technical specifications stipulated therein to the satisfaction of NTPC in March, 2003. This is so stated by the petitioner in paragraph 5 of the petition. The additional work was also completed in March, 2004 and thereafter joint measurements were recorded and final bill raised by the petitioner.
5. Towards the satisfactory performance of the contract, the petitioner had given four bank guarantees which were initially valid up to March, 2004 and then up to March, 2005. There is no dispute that the bank guarantees were renewed and are alive even today, although it is stated that the extension of the bank guarantees was granted because of the illegal demands of NTPC.
6. The petitioner submits that the work was successfully executed by it but even then, much after expiry of the warranty period, the petitioner was asked to deposit an amount of Rs. 43,19,207/-. This was objected to by the petitioner and NTPC revised the amount to a little over Rs. 40 lakhs and then again to the initial amount of Rs. 43,19,207/-.
7. It is submitted that with a view to pressurize the petitioner, NTPC invoked the four bank guarantees earlier this year. This was challenged by the petitioner by filing OMP No. 119/2005 in this Court. By an order dated 29th March, 2006, a learned Single Judge of this Court in the operative part of his decision held as follows:
It is made clear that only the question of a bad invocation and payment has been dealt with in this order. Once the extended bank guarantees are returned to the respondent No. 1, it will always be open to them to invoke the bank guarantees in terms of the guarantees.
8. Thereafter, by a letter dated 21st April, 2006, NTPC informed the petitioner that its claim for allowance of cable density was not justified. In view of this, the cost implication on account of execution of the work not in line with the type tested materials requirement as per the contract remains as Rs. 43,19,207/-. As such, this amount was said to be due from the petitioner.
9. The petitioner did not respond to this letter with the result that on 2nd May, 2006, NTPC invoked the four bank guarantees.
10. Challenging this invocation, learned Counsel for the petitioner raised three contentions, namely, that the invocation was not in terms of the bank guarantees, that NTPC had fraudulently invoked the bank guarantees and that there were special equities in favor of the petitioner as a result of which the interim measure prayed for should be granted.
11. I am not in agreement with learned Counsel for the petitioner in respect of any of these submissions.
12. The bank guarantees state that the bank does “hereby guarantee and undertake to pay the owner, on demand any and all monies payable by the Contractor to the extent of without any demur, reservation, contest, recourse or protest and/or … without any reference to the Contractor.” It is submitted that the letter of invocation must give the amount that is payable by the contractor and since this has not been stated in the invocation letter, the invocation itself is bad.
13. In National Thermal Power Corporation Ltd. v. Flowmore Pvt. Ltd. II , a bank guarantee using similar language was invoked and the invocation challenged. The Supreme Court held that a bank guarantee which is payable on demand implies that the bank is liable to pay as and when a demand is made upon the bank by the beneficiary. Since the language used in the bank guarantees in that case and the language used in the bank guarantees in the present case is the same, following the decision of the Supreme Court, the amount is payable on demand. Learned Counsel for the petitioner stressed on the words “all monies payable by the Contractor”. I do not think he can derive any mileage from these words inasmuch as the beneficiary can either demand full payment in terms of the bank guarantees or such other amount as may be payable to it. It is in this context that the words “all monies payable by the Contractor” have been used. In other words, an amount less than the guaranteed amount can also be invoked by the beneficiary and if it does so, it has to specify the amount payable. In the present case, the invocation was for the entire amount as mentioned in the invocation letter itself since, according to the beneficiary, that was the sum payable. There is, therefore, no merit in this submission of learned Counsel for the petitioner.
14. Insofar as the second submission is concerned, the Supreme Court has recently in BSES Ltd. v. Fenner India Ltd. , reiterated the view that it is not simply fraud that has to be pleaded but that the fraud must be of an egregious nature as to vitiate the entire underlying transaction. It is submitted by learned Counsel for the petitioner that the technical specifications were not mentioned in the contract and, therefore, the invocation was fraudulent. As already mentioned above, it is the say of the petitioner in paragraph 5 of the petition that it completed the work under the contract as per the technical specifications stipulated therein. The pleading, therefore, contradicts the oral submission made by learned Counsel. Even assuming, for the sake of argument, that the technical specifications were not mentioned in the contract, that would hardly make any difference. The admitted case of the petitioner is that it has completed the contract. This would not have been possible if the contract was vague. Therefore, I have to proceed on the basis that the contract was not vague and was capable of being performed. Consequently, the invocation of the bank guarantees cannot be described as a fraud which vitiates the entire underlying transaction, which has been completed.
15. In Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. II , the Supreme Court reiterated the well settled principle that not only has the fraud to be an established fraud but it has to be a fraud which would vitiate the very foundation of the bank guarantee, meaning thereby, virtually touching upon the fraudulent nature of the principal contract itself.
16. The fraud being of such a serious nature as indicated by the Supreme Court, I find from the petition that there are no particulars given by the petitioner of any established or egregious fraud. All that has been said is that repealed invocations are fraudulent and that NTPC has been fraudulently obtaining extension of the bank guarantees. This is, to my mind, totally inadequate.
17. The final contention of learned Counsel for the petitioner is that there are certain special equities in his favor inasmuch as the amount has already been received by NTPC. The question of special equities is linked with irretrievable injury or irretrievable injustice. While dealing with this, the Supreme Court in BSES Ltd. took into consideration the fact that arbitration proceedings were pending between the two disputants and one of the prayers made to the Arbitrator was to declare the bank guarantees null and void. Consequently, even if the bank guarantees are encashed, justice can always be rendered to the parties before the Arbitrator.
18. In the present case also, a demand for arbitration has been made and one of the claims made by the petitioner is with regard to the illegal and fraudulent invocation of the bank guarantees on an earlier occasion. The bank guarantees are not said to be null and void. If that be the position, the petitioner can always be compensated adequately if it succeeds before the Arbitrator. To that extent, there is no irretrievable injustice that is caused to the petitioner if the bank guarantees are allowed to be encashed.
19. I do not see any justification for granting any interim measure in favor of the petitioner.