ORDER
K.S. Gupta, J.
1. This order will govern disposal of OMP Nos. 119/97 & 120/97.
2. In OMP No. 119/97 it is alleged that pursuant to an invitation to tender for the work of construction of 470. Incremental Janta Houses in Sector A-6, Pocket 7, at Narela, petitioner submitted a tender which was accepted by respondent No.1. Agreement bearing No.24/EE/N.D. 6/D.D.A./90-91 was executed between the parties. Under the said agreement six months time after completion of the work was to be treated as “Defect Liability Period”. Petitioner completed the work on September 9, 1994. However no defects were pointed out within six months thereafter by respondent No.1. It is stated that on May 6, 1995, respondent No.1 prepared the final bill and payment thereof was made. Since the final bill as prepared by respondent No.1 gave rise to disputes on account of wrongful deductions and short payments in respect of various itmes, the petitioner approach items the Chief Engineer (NZ) to marked reference to arbitration. On September 10, 1996, Chief Engineer(NZ) made reference in respect of claim of Rs. 95,82,091/- to Superintending Engineer (Arb.) II, Office Complex, Janak Puri, New Delhi.
3. It is further alleged that on February 19, 1992, petitioner furnished bank guarantee in the sum of Rs. 3 lakhs in lieu of the security deposit and this could be invoked by respondent No.1 only uptil the expiry of the “Defect Liability Period”. Bank guarantee stands revalidated upto February 18, 1998. Respondent No.1 by the letter dated May 28, 1997 , has asked the Bank, respondent No.2, to send a draft of the said amount of the bank guarantee. No amount is due from the petitioner to respondent No.1 nor any counterclaim has been raised by the latter. Invocation of the bank guarantee is, thus, a fraud committed on the petitioner. It is prayed that respondent No. 1 be restrained from encashing bank guarantee No. 35/91-92.
4. Under another agreement No. 23/EE/N.D.6/D.D.A./90-91, petitioner was awarded the work of construction of similar number of houses at the same site as in OMP No. 119/92 by respondent No.1 and the number of the bank guarantee furnished towards the security deposit in the sum of Rs. 3 lakhs is 34/91-92. In OMP No. 120/97 respondent No. 1 is sought to be restrained from invoking the said bank guarantee.
5. In the reply respondent No. 1 has alleged that completion certificate dated September 9, 1994, was issued subject to the execution of the work noted therein by the petitioner. Petitioner also acknowledged that fact in the undertaking dated January 17, 1996. Final bill was paid to the petitioner after obtaining the undertaking for execution of the remaining work. Respondent No.1 has to recover the following amounts from the petitioner:-
(1) Recovery on account of quantity of steel paid beyond deviation limit Rs. 1,61,631/-
(2) Recovery on account of interest for over payment in the rates of HD PE Overhead Tanks Rs. 33,335/-
(3) Recovery on account of balance work yet to be executed by the petitioner Rs. 8,80,000/-
6. Counter claims for the said amount have been duly referred by the Competent Authority to the arbitrator by the letter dated June 19, 1997. Since the work was still incomplete respondent No.1 had rightly invoked both the bank guarantees. It is denied that any fraud has been committed in invoking the bank guarantee, as alleged.
7. Before adverting to the submissions advanced on behalf of the parties I would like to refer to the legal position in regard to the encashment of bank guarantee as enunciated by the Supreme Court in U.P. State Sugar Corporation Vs. Sunmac International Ltd. 1996(8) Supreme Today 530. It was held thus:-
“The law relating to invocation of such bank guarantees is by now settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realise 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 realisation 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 of injustice to one of the parties concerned. Since in most cases payment of money under a such bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the hard or injustice contemplated under this head must be of 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. The two grounds are not necessarily connected, though both may coexist in some cases.”
8. Ratio in U.P. State Sugar Corporation’s case has been followed in a recent decision by the Supreme Court in Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engg. Works P. Ltd. 1997 Vs. AD S.C. 147.
9. Obviously, when an unconditional bank guarantee is given the beneficiary is entitled to realise it and the Bank giving the guarantee is bound to honour it as per its terms. The Supreme Court has, however, carved out two exceptions – (i) the same being a fraud committed in connection with such a bank guarantee, and (ii) allowing encashment of the bank guarantee would cause an irretrievable injustice to one of the concerned parties. Fraud in connection with the bank guarantee is to be examined in relation to the time factor during which the underlying contract was executed.
10. It was contended by the learned counsel for the petitioner that taking the entire work as having been completed by the petitioner the final bill was prepared and passed on May 6, 1996 and thus the invocation of the bank guarantees in question by respondent No.1 is fraudulent. In support of the contention my attention was drawn to item No. 8 of the final bill at page 39-B in OMP No. 120/97. On the other hand, it was urged by the learned counsel for respondent No. 1 that completion certificate dated September 9, 1994, was issued subject to the completion of works/removal of defects noted therein by the petitioner. Final bill was prepared and passed on May 6, 1995 and payment thereof made later on also subject to the completion of that works/removal of defects as acknowledged by the petitioner in the letter dated January 17, 1993 at page 37 in OMP No. 120/97. Since the petitioner failed to execute the remaining works and remove defects, the bank guarantees in question have been rightly invoked by respondent No.1.
11. Aforesaid item No. 8 of the final bill which is relevant, runs thus:-
“Completion Certificate recorded in M.B. No……….” .
12. In the completion certificate dated September 9, 1994 recorded in the measurement book (M.B.) completion of the work is recorded subject to the following:-
(1) Providing & fixing of brass stop cock;
(2) Providing & fixing of brass bib-cock;
(3) Providing & fixing of cisterns;
(4) Providing & fixing of glass panes including stays in windows;
(5) Cleaning of mainholes S.W. Drains, G.I. pipe, sanitary fittings and china wares;
(6) Any seepage or leakage observed to be rectified;
(7) Removal of mortar, chipping from the floors, skirting & dado;
(8) Removal of dead mortar from the terraces;
(9) Final coat of painting on wood work, steel work and white washing;
(10) Final coat of painting on G.I. Pipe & S.C.I. pipe;
(11) Rectification of defects pointed out by the OC Cell to the satisfaction of Engineer Incharge and OC Cell including rectification of defects as pointed out by Defect Register;
(12) Rectification of defects as pointed out vide Defects Register and got noted down from your representative at site;
(13) Any other defects noticed within six months;
(14) Rectification of defects of undulated roads physically pointed out at site by the field staff;
(15) Repair of damaged drains as pointed out by the field staff at site;
(16) Testing of sewerage lines & Water mains including sanitary installations, n a combined reading of said item No. 8 and the completion certificate, it is manifest that the final bill was not prepared and passed taking the entire work as having been completed by the petitioner. In the letter dated January 1, 1996 petitioner himself stated thus:-
1. “I am hereby giving undertaking that I will fix the fittings and fixtures required to be fixed in the houses as and when required by the D.D.A. and I also undertake that I will complete all the items which have been entered as incomplete in the completion certificate and I am fully aware of the incomplete items entered in the completion certificate.” .
13. Thus, the submission referred to above advanced on behalf of the petitioner being devoid of merit is repelled.
14. As noticed earlier, plea of fraud in connection with the bank guarantee is to be examined in relation to the time factor during which the underlying contract was executed. Fraud alleged by the petitioner evidently does not fall in that category. Further by encashment of the bank guarantees in question petitioner is not likely to suffer any irretrievable injustice as it can recover the amount thereof from the DDA if the counterclaim filed by the DDA is disallowed by the arbitrator. On this sole ground both the petitions deserve to be dismissed.
15. For the foregoing discussion, both the O.M.P.Nos. 119/97 & 120/97 are dismissed. No order as to costs.