{"id":107148,"date":"2011-06-03T00:00:00","date_gmt":"2011-06-02T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/itd-cementation-india-ltd-vs-national-thermal-power-on-3-june-2011"},"modified":"2015-05-21T17:50:53","modified_gmt":"2015-05-21T12:20:53","slug":"itd-cementation-india-ltd-vs-national-thermal-power-on-3-june-2011","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/itd-cementation-india-ltd-vs-national-thermal-power-on-3-june-2011","title":{"rendered":"Itd Cementation India Ltd. vs National Thermal Power … on 3 June, 2011"},"content":{"rendered":"
Delhi High Court<\/div>\n
Itd Cementation India Ltd. vs National Thermal Power … on 3 June, 2011<\/div>\n
Author: V. K. Jain<\/div>\n
         THE HIGH COURT OF DELHI AT NEW DELHI\n\n%                    Judgment Reserved on: 31.05.2011\n                     Judgment Pronounced on: 03.06.2011\n\n+           CS(OS) No. 1878\/2010\n\n     ITD CEMENTATION INDIA LTD.                .....Plaintiff\n\n                            - versus -\n\n      NATIONAL THERMAL POWER\n      CORPORATION LTD. & ORS.               .....Defendants\n\nAdvocates who appeared in this case:\nFor the Plaintiff:      Mr. Niraj Kishan Kaul, Sr.\n                        Advocate with Mr. R.Sudhinder\n                        and Mr. Shivram, Advocates\nFor the Defendant:      Mr. Bharat Sangal, Advocate for\n                        D-1\n                        Mr. Rakesh Sinha & Ms. Srishti\n                        Sharma, Advocate for D-2\n\nCORAM:-\nHON'BLE MR JUSTICE V.K. JAIN\n\n1.<\/pre>\n
 Whether Reporters of local papers may
\n   be allowed to see the judgment?                       Yes<\/p>\n
2. To be referred to the Reporter or not?                 Yes<\/p>\n
3. Whether the judgment should be reported                Yes
\n   in Digest?\n<\/p>\n
V.K. JAIN, J<\/p>\n
IA No. 12229\/2010 (Order 39 Rule 1&2 CPC)<\/p>\n
            This is a suit for declaration and permanent<\/p>\n
injunction.      Both the defendants are Government of India<\/p>\n
CS(OS)No1878\/2010.                                  Page 1 of 25<\/span>
\n undertakings.           Defendant No.1 awarded a contract to<\/p>\n
defendant No.2 for construction of main plant civil works,<\/p>\n
stage-II, phase-II for its thermal power plant at Kahalgaon,<\/p>\n
for an aggregate value of Rs. 49,21,27,837\/-.            As per a pre<\/p>\n
tender arrangement between the plaintiff and defendant<\/p>\n
No.2, the sub-contract for piling work was to be awarded by<\/p>\n
defendant            No.2   which    did       not   have    requisite<\/p>\n
experience\/manpower for this purpose, to the plaintiff<\/p>\n
company.             Defendant   No.2    accordingly   awarded        the<\/p>\n
aforesaid sub-contract to the plaintiff company for an<\/p>\n
aggregate sum of Rs. 14,05,98,920.37.                   The plaintiff<\/p>\n
company, pursuant to the award of the aforesaid work<\/p>\n
furnished        a     performance      bank     guarantee    of      Rs.<\/p>\n
1,23,03,196\/-.\n<\/p>\n
2.          The case of the plaintiff is that the sub-contracted<\/p>\n
work was completed by it by 29.6.2005 and completion of<\/p>\n
the work was also acknowledged by defendant No.2.                    The<\/p>\n
defect liability period in respect of the work carried out by<\/p>\n
the plaintiff company also expired in June, 2006, thereby<\/p>\n
entitling the plaintiff company to return of the performance<\/p>\n
bank guarantee submitted by it.                Since, the cost of the<\/p>\n
CS(OS)No1878\/2010.                                           Page 2 of 25<\/span>
\n plaintiff company increased on account of reduction of work<\/p>\n
during the course of construction activities and the plaintiff<\/p>\n
company had to deploy additional staff and equipment, it<\/p>\n
called upon defendant No.2 to reimburse it to the extent of<\/p>\n
Rs. 1,53,23,456\/-.    Defendant No.2, however, did not pay<\/p>\n
the aforesaid amount to the plaintiff company. It is alleged<\/p>\n
that in order to prevent further erosion in its balance sheet,<\/p>\n
the plaintiff company at the instance of the defendants<\/p>\n
submitted a bank guarantee of Rs.70,30,000\/- on the<\/p>\n
specific understanding that the defendants would release<\/p>\n
the aforesaid sum which represented the retention amount.<\/p>\n
However, the aforesaid amount was not released despite<\/p>\n
bank guarantee having been accepted.        The performance<\/p>\n
bank guarantee which the plaintiff company had furnished<\/p>\n
was extended by it till 31.5.2011, at the instance of<\/p>\n
defendant No.1.      Defendant No.1 sought to invoke the<\/p>\n
performance guarantee which the plaintiff company had<\/p>\n
submitted and sent a letter to defendant No.3 bank which<\/p>\n
had issued the aforesaid bank guarantee, in this regard on<\/p>\n
6.9.2010, though defendant No.2 had requested it to keep<\/p>\n
the encashment of bank guarantee in abeyance.<\/p>\n
CS(OS)No1878\/2010.                                  Page 3 of 25<\/span>\n<\/p>\n
 3.           Thus, in nutshell, the case of the plaintiff company<\/p>\n
is    that      it    was   awarded   only    sub-contract       for<\/p>\n
14,05,98,920.37; it has already completed its work within<\/p>\n
the stipulated time to the satisfaction of the defendants and<\/p>\n
even the defect liability period is over and it is entitled to<\/p>\n
recover more than Rs.2 crores from defendant No.2.             The<\/p>\n
plaintiff company has sought a declaration that invocation<\/p>\n
of performance bank guarantee by defendant No.1 is void<\/p>\n
and illegal.         It has also sought an injunction against<\/p>\n
invocation\/encashment of performance bank guarantee<\/p>\n
which it had submitted in favour of defendant No.1.<\/p>\n
4.           In its Written Statement, defendant No.1 NTPC<\/p>\n
Limited has stated that in terms of Clause 9.5.0 of Letter of<\/p>\n
Award (in short LoA) dated 3.2.2004 , Clause 3.3.0 of the<\/p>\n
Special Conditions of Contract and Clause 5 of the Joint<\/p>\n
Deed of Undertaking submitted jointly by the plaintiff<\/p>\n
company and defendant No.2; the plaintiff company, being<\/p>\n
an associate of defendant No.2 was required to furnish an<\/p>\n
on-demand bank guarantee for 2.5% of the total contract<\/p>\n
price and this was to be over and above the security<\/p>\n
deposited by defendant No.2.           The bank guarantee of<\/p>\n
CS(OS)No1878\/2010.                                     Page 4 of 25<\/span>
\n Rs.1,23,03,196\/- according to defendant No.1, was a<\/p>\n
performance guarantee in relation to the whole of the work<\/p>\n
awarded to defendant No.1 and was not confined to the sub-<\/p>\n
contract awarded by               defendant     No.2   to the     plaintiff<\/p>\n
company. It is also stated that the plaintiff company as well<\/p>\n
as defendant No.2 had jointly undertaken and declared that<\/p>\n
they     shall       be   fully   responsible    for   the   successful<\/p>\n
performance of the contract.            It was also agreed that it<\/p>\n
would not be necessary for defendant No.1 to proceed<\/p>\n
against defendant No.2 before it proceeds against the<\/p>\n
plaintiff company. It is claimed that the plaintiff company<\/p>\n
failed to fulfill its joint and several obligations under the LoA<\/p>\n
dated 3.2.2004 read with Joint Deed of Undertaking dated<\/p>\n
5.9.2003. It is also alleged that since defendant No.1 is not<\/p>\n
a party to the alleged pre tender understanding between<\/p>\n
plaintiff company and defendant No.2, it is not bound by the<\/p>\n
terms and conditions of the aforesaid understanding.<\/p>\n
Defendant No.1 has denied that the work was completed<\/p>\n
within the stipulated time or to its satisfaction. It has been<\/p>\n
stated that defendant No.1 had protested in writing against<\/p>\n
delay in the work of piling and the plaintiff company had<\/p>\n
failed to conduct Piling Integrity Test which was the most<\/p>\n
CS(OS)No1878\/2010.                                              Page 5 of 25<\/span>
\n crucial test to be carried out by it. It is further stated that<\/p>\n
since defendant No.2 failed to complete the work awarded to<\/p>\n
it, in terms of the LoA dated 3.2.2004, defendant No.1 was<\/p>\n
constrained to issue notice to cancel the LoA and encash<\/p>\n
the performance bank guarantee. It is also alleged that as<\/p>\n
far as defendant No.1 is concerned, it has not kept any<\/p>\n
retention amount of the plaintiff company with it. The case<\/p>\n
of defendant No.1 is that since defendant No.2 failed to<\/p>\n
complete the work, it had to offload the work and get it<\/p>\n
completed by the other contractors at the sole risk and cost<\/p>\n
of defendant No.2 and it had rejected the request for return<\/p>\n
of the security deposit.\n<\/p>\n
5.           Defendant No.2 in its Written Statement has<\/p>\n
alleged that the bank guarantee has been wrongly invoked<\/p>\n
by defendant No.1 and though the plaintiff company had<\/p>\n
completed the piling work, defendant No.1 had failed to<\/p>\n
release payment to it in terms of the contract.<\/p>\n
6.           Clauses 3.1.0, 3.2.0 & 3.3.0 of the Special<\/p>\n
Conditions of the Contract read as under:\n<\/p>\n
     3.1.0    The bidder should have achieved in the preceding
\n              seven (7) years reckoned as on date of bid
\n              opening,       in      the     construction    of
\n              industrial\/infrastructure projects, at least the<\/p>\n
CS(OS)No1878\/2010.                                    Page 6 of 25<\/span>
\n               following progress:\n<\/p><\/blockquote>\n
   (i)        Concreting of 25,000 cu.m. in any one (1) year in
\n              one (1) or cumulative of two (2) concurrently
\n              running contracts and\n<\/p>\n
   (ii)       Fabrication of 6,000 MT of Structural Steel in any
\n              one (1) year in one (1) or cumulative of two (2)
\n              concurrently running contracts and\n<\/p>\n
   (iii)      Erection of 6,000 MT of Structural Steel in any one
\n              (1) year in one (1) of cumulative of two (2)
\n              concurrently running contracts and,\n<\/p>\n
   (iv)       Installation of 25,000 running meters of cast-in-\n<\/p>\n
              situ bored piles of minimum 600mm dia in any one
\n              (1) year in one or more contracts, using rotary
\n              hydraulic rigs. Alternatively, installation of 3,500
\n              running metres of cast-in-situ bored piles of
\n              minimum 1000 mm dia in any one (1) year in one
\n              or more contracts, using rotary hydraulic rigs.\n<\/p><\/blockquote>\n
   3.2.0     The average annual turnover of the bidder, in the
\n             preceding three (3) financial years as on the date of
\n             bid opening shall not be less than Rs.30 crores.<\/p>\n
   3.3.0      Bidder, who meets the requirements at clause
\n              3.2.0 above and at least any two requirements of
\n              clause 3.1.0 above, can also participate, provided
\n              he associate with not more than two agencies of
\n              repute, who should individually fully meet
\n              requirements of the relevant part under clause
\n              3.1.0 above for which he is being associated and
\n              which the bidder himself is not able to meet. In
\n              such a case, bidder shall along with the bid
\n              furnish an undertaking jointly executed by him
\n              and his associate(s), for successful performance of
\n              the contract, as per format enclosed in the bid
\n              documents. In case, of award, each associate
\n              shall be required to furnish an On Demand Bank
\n              Guarantee for 2.5% of total Contract Price over and
\n              above the Security Deposit to be furnished by the
\n              Contractor.\n<\/p>\n
CS(OS)No1878\/2010.                                      Page 7 of 25<\/span>\n<\/p>\n
 7.          Clause 9.5.0 of LoA reads as under:\n<\/p>\n
              In terms of Clause No. 3.3.0 of Special
\n              Conditions of Contract, in case of association,
\n              the Associate shall be required to furnish an \u201eOn
\n              Demand Bank Guarantee\u201f for 2.5% of Total
\n              Contract Price over and above the Security
\n              Deposit to be furnished by the Contractor. You
\n              have     associated     with    M\/s      Skanska
\n              Cementation India Ltd., Mumbai for Piling
\n              Works included in this Contract. Accordingly,
\n              you have confirmed that in addition to the
\n              security deposit to be provided by you, your
\n              Associate M\/s Skanska Cementation India Ltd.,
\n              Mumbai shall submit a Performance Bank
\n              Guarantee to NTPC for 2.5% of the total
\n              Contract Price i.e. for Rs.1,23,03,196\/-, within
\n              two weeks of issue of LoA in line with the
\n              provisions of bidding documents.\n<\/p><\/blockquote>\n
8.          Some     of   the   Clauses   of   the   Joint Deed      of<\/p>\n
Undertaking submitted by plaintiff company and defendant<\/p>\n
No.2 to defendant No.1 read as under:\n<\/p>\n
           1. That in consideration of the Signing of
\n              Contract Agreement between the Owner and
\n              the Contractor, we the Associate and the
\n              Contractor, do hereby declare and undertake
\n              that we shall be jointly and severally
\n              responsible to the Owner for the execution
\n              and successful performance of the Contract
\n              to the satisfaction of the Owner.\n<\/p><\/blockquote>\n
           2. In case of any breach of the Contract
\n              committed by the Contractor, we the
\n              Associate do hereby undertake, declare and
\n              confirm that we shall be fully responsible for
\n              the successful performance of the contract
\n              and undertake to carry out all the obligations
\n              and responsibilities under this Deed of Joint<\/p>\n
CS(OS)No1878\/2010.                                        Page 8 of 25<\/span>
\n                 Undertaking in order to discharge the
\n                Contractor\u201fs obligations and responsibilities
\n                stipulated in the contract. Further, if the
\n                Owner sustains any loss or damage on
\n                account of any breach of the Contract, we the
\n                Associate\/Contractor jointly and severally
\n                undertake to promptly indemnify, and pay
\n                such loss\/damages caused to the Owner on
\n                its written demand without any demur,
\n                reservation, contest or protest in any manner
\n                whatsoever. This is without prejudice to any
\n                rights of the owner against the contractor
\n                under the contract and all guarantees. It
\n                shall not be necessary or obligatory for the
\n                owner to first proceed against the contractor
\n                before proceeding against the associate, nor
\n                any extension of time or any relaxation given
\n                by the owner to the contractor shall prejudice
\n                any rights of the owner under this deed of
\n                Joint Undertaking to proceed against the
\n                Associate and Contractor.\n<\/p><\/blockquote>\n
           3.          x        x         x\n<\/p><\/blockquote>\n
           4. The Contractor and the Associate will be
\n              fully responsible for the quality of all the
\n              Works and their repair or replacement if
\n              necessary and timely execution thereof to
\n              meet the completion schedule under the
\n              contract.\n<\/p><\/blockquote>\n
           5. Apart from the Contractor\u201fs Performance
\n              Bank Guarantee\/Security Deposits, the
\n              Associate shall, furnish “as Security” the
\n              Performance Bank Guarantee, from any
\n              reputed Bank as per list enclosed at
\n              Annexure-XIII to SCC in favour of the Owner
\n              in a form acceptable to Owner. The value of
\n              such Bank Guarantee (BG) shall be equal to
\n              two and a half percent ( 2 \u00bd %) of total
\n              Contract Price and it shall be towards
\n              guaranteeing            the          faithful
\n              performance\/compliance of this Deed of
\n              Undertaking in accordance with the terms
\n              and conditions specified herein. The Bank<\/p>\n
CS(OS)No1878\/2010.                                       Page 9 of 25<\/span>
\n                 Guarantees       shall      be     unconditional,
\n                irrevocable and valid for the entire period of
\n                the contract, i.e. till ninety (90) days beyond
\n                the end of the Defect Liability Period of the
\n                Works under the contract. The guarantee
\n                amount shall be promptly paid to the Owner
\n                on demand without any demur, reservation,
\n                protest or contest.\n<\/p><\/blockquote>\n
           6.           x         x           x\n<\/p><\/blockquote>\n
           7. We, the Associate, and the Contractor agree
\n              that this Undertaking shall be irrevocable
\n              and shall form an integral part of the
\n              Contract.      We further agree that this
\n              Undertaking shall continue to be enforceable
\n              till the successful completion of Contract and
\n              till the Owner discharges it.\n<\/p><\/blockquote>\n
9.          The      relevant   Clause   of       the   bank   guarantee<\/p>\n
furnished to defendant No.1 reads as under:<\/p>\n
                We, Union Bank of India having our Registered
\n                Office at Union Bank Bhavan, 239, Widhan
\n                Bhavan Marg, Nariman Point, Mumbai 400 021
\n                and one of its branch offices at Veer Nariman
\n                Road Branch, 84, Raj Mahal, Churchgate,
\n                Mumbai-400 020 (hereinafter referred to as the
\n                \u201eBank”    which    expression     shall,  unless
\n                repugnant to the context or meaning thereof,
\n                include    its   successors,      administrators,
\n                executors and assigns) do hereby guarantee
\n                and undertake to pay to NTPC on demand any
\n                and all monies to the extent of Rs.1,23,03,196\/-
\n                (Rupees One Crore Twenty Three Lakh Three
\n                Thousand One Hundred Ninety Six Only) as
\n                aforesaid at any time upto 31\/05\/2010 @ 5 PM
\n                without any demur, reservation, contest,
\n                recourse or protest and\/or without any
\n                reference to “Associate” or “Contractor”. Any
\n                such demand made by NTPC on the Bank shall
\n                be conclusive and binding, notwithstanding any<\/p>\n
CS(OS)No1878\/2010.                                             Page 10 of 25<\/span>
\n               difference between NTPC and Contractor
\n              and\/or between NTPC and Associate pending
\n              before any Court, Tribunal, Arbitrator or any
\n              Authority.\n<\/p><\/blockquote>\n
                                      x         x         x<\/p>\n
              The Bank also agrees that NTPC at its options
\n              shall be entitled to enforce this Guarantee
\n              against the Bank as a principal debtor, in the
\n              first instance, without proceeding against
\n              Contractor or Associate and notwithstanding
\n              any security or other guarantee that NTPC may
\n              have in relation to Contractor\u201fs or Associates\u201f
\n              liabilities.\n<\/p><\/blockquote>\n
10.         It would thus, be seen that defendant No.2 which<\/p>\n
did not meet the requirements of clause 3.2.0 and at least<\/p>\n
one of the two requirements laid down in clause 3.1.0 of the<\/p>\n
Special     Conditions         of    the   Contract,    could   not    have<\/p>\n
participated in the bidding process without associating the<\/p>\n
plaintiff company, since it was the plaintiff company which<\/p>\n
met that requirement of clause 3.1.0 which defendant No.2<\/p>\n
did not meet.           In view of the requirement laid down in<\/p>\n
clause 3.3.0 above, it was also necessary for defendant No.2<\/p>\n
as well as plaintiff company, which defendant No.2 had<\/p>\n
associated       with    it,    to    furnish   joint   undertaking       for<\/p>\n
successful performance of the contract and the plaintiff<\/p>\n
company being an associate of defendant No.2 was also<\/p>\n
CS(OS)No1878\/2010.                                              Page 11 of 25<\/span>
\n required to furnish an on-demand bank guarantee of 2.5%<\/p>\n
of the total contract price. This bank guarantee was to be<\/p>\n
over and above the security deposit required to be furnished<\/p>\n
by defendant No.2.          Had the plaintiff company and<\/p>\n
defendant No. 2 not furnished the joint undertaking in<\/p>\n
terms of clause 3.3.0 and\/or had the plaintiff company not<\/p>\n
furnished on-demand bank guarantee for 2.5% of the total<\/p>\n
contract price, the bid given by defendant No.2 would not<\/p>\n
have even been considered eligible by defendant No.1.<\/p>\n
There is no dispute that the predecessor of the plaintiff<\/p>\n
company, ITD Cementation India Ltd. had furnished the<\/p>\n
bank guarantee in terms of Clause 3.3.0 of the Special<\/p>\n
Conditions of Contract and this bank guarantee was in<\/p>\n
addition to the performance guarantee which defendant<\/p>\n
No.2 had furnished to defendant No.1.\n<\/p>\n
11.         In view of Clause 3.3.0 of the Special Conditions of<\/p>\n
the Contract, Clause 9.5.0 of the LoA dated 3.2.2004 and<\/p>\n
the above referred terms of the Joint Deed of Undertaking<\/p>\n
submitted by plaintiff company and defendant No.2, to<\/p>\n
defendant No.1; both, defendant No.2 as well as the plaintiff<\/p>\n
company became jointly and           severally   responsible to<\/p>\n
CS(OS)No1878\/2010.                                    Page 12 of 25<\/span>
\n defendant No.1 for successful execution of the whole of the<\/p>\n
contracted work, to the satisfaction of defendant No.1 NTPC.<\/p>\n
The liability of the plaintiff company therefore was not<\/p>\n
restricted only to sub-contract or to that part of the work<\/p>\n
which was sub-contracted to it by defendant No.2. Both of<\/p>\n
them were liable to defendant No.1 in case of any loss or<\/p>\n
damage being suffered by it on account of breach of the<\/p>\n
contract by defendant No.2.             It was not necessary for<\/p>\n
defendant No.1 to first proceed against defendant No.2<\/p>\n
before it proceeds against the plaintiff company.                 The<\/p>\n
performance          bank   guarantee    submitted   by     plaintiff<\/p>\n
company therefore covered the whole of the contract<\/p>\n
awarded to defendant No.2.\n<\/p>\n
12.         It is by now settled proposition of law with respect<\/p>\n
to invocation of bank guarantees that its invocation is not in<\/p>\n
any manner dependent on any dispute between the person<\/p>\n
at whose instance the bank guarantee is given and the<\/p>\n
person, who is its beneficiary. The only grounds on which<\/p>\n
invocation of bank guarantee can be disputed are a) fraud<\/p>\n
and b) special equities in favour of the person at whose<\/p>\n
instance the bank guarantee has been given. As observed<\/p>\n
CS(OS)No1878\/2010.                                        Page 13 of 25<\/span>
\n by Supreme Court in Vinitec Electronics Private Ltd. vs.<\/p>\n
HCL Infosystems Ltd.<\/a> (2008) 1 SCC 544, the bank<\/p>\n
guarantee which provides that it is payable by the<\/p>\n
guarantors           is   considered   to    be   unconditional    bank<\/p>\n
guarantee and the bank guarantee is an independent<\/p>\n
contract between the bank and the beneficiary.                    It is a<\/p>\n
contractual          obligation   of   the    bank   to   honour      the<\/p>\n
unconditional and irrevocable bank guarantee irrespective<\/p>\n
of any dispute between the beneficiary and the person at<\/p>\n
whose instance the bank guarantee is given.<\/p>\n
13.         Recently, I had an occasion to examine this issue<\/p>\n
while deciding IA No. 8635\/2011 in CS(OS) No 1295\/2011<\/p>\n
on 31.5.2011.             During the course of the judgment the<\/p>\n
following decisions were noted by this Court:<\/p>\n
              In Hindustan Steelworks Construction
\n              Ltd. vs. Tarapore and Co.<\/a> (1996) 5 SCC
\n              34, Supreme Court held that in case of an
\n              unconditional bank guarantee, the nature
\n              of obligation of the bank is absolute and
\n              not dependent upon any dispute or
\n              proceeding between the party at whose
\n              instance the bank guarantee is given and
\n              the beneficiary, there being only two
\n              exceptions – fraud and special equities. In
\n              that case Special equities were claimed on
\n              the basis as to who had committed breach<\/p>\n
CS(OS)No1878\/2010.                                           Page 14 of 25<\/span>
\n               of the contract. Determination of disputes
\n              was held not to be a factor, which would
\n              be sufficient to make the case as
\n              exceptional case justifying interference by
\n              the court restraining invocation of the bank
\n              guarantee.\n<\/p><\/blockquote>\n
                     In Ansal Engineering Project
\n              Ltd. vs. Tehri Hydro Development
\n              Corporation Ltd. and Anr.<\/a> (1996) 5
\n              SCC 450, Supreme Court inter alia held
\n              as under:-\n<\/p><\/blockquote>\n
              “4. It is settled law that bank guarantee is an
\n              independent and distinct contract between
\n              the bank and the beneficiary and is not
\n              qualified by the underlying transaction and
\n              the validity of the primary contract between
\n              the person at whose instance the bank
\n              guarantee was given and the beneficiary.
\n              Unless fraud or special equity exists, is
\n              pleaded and prima facie established by
\n              strong evidence as a triable issue, the
\n              beneficiary cannot be restrained from
\n              encashing the bank guarantee even if dispute
\n              between the beneficiary and the person at
\n              whose instance the bank guarantee was
\n              given by the Bank, had arisen in performance
\n              of the contract or execution of the works
\n              undertaken         in   furtherance    thereof.\n<\/p><\/blockquote>\n
              x x         x<\/p>\n<\/blockquote>\n
              5.       …….The court exercising its power
\n              cannot interfere with enforcement of bank
\n              guarantee\/letters of credit except only in
\n              cases where fraud or special equity is prima
\n              facie made out in the case as triable issue by
\n              strong evidence so as to prevent irretrievable
\n              injustice to the parties. The trading operation
\n              would not be jettisoned and faith of the
\n              people in the efficacy of banking transactions
\n              would not be eroded or brought to disbelief.”\n<\/p><\/blockquote>\n
CS(OS)No1878\/2010.                                      Page 15 of 25<\/span><\/p>\n
                        In U.P. State Sugar Corporation
\n              Vs. Sumac International Ltd. (1997) 1
\n              SCC 568, the Supreme Court held as under:-
\n              “The law relating to invocation of such bank
\n              guarantees is by now well settled. When in
\n              the course of commercial dealings an
\n              unconditional bank guarantee is given or
\n              accepted, the beneficiary is entitled to realize
\n              such a bank guarantee in terms thereof
\n              irrespective of any pending disputes. The
\n              bank giving such a guarantee is bound to
\n              honour it as per its terms irrespective of any
\n              dispute raised by its customer. The very
\n              purpose of giving such a bank guarantee
\n              would otherwise be defeated. The courts
\n              should, therefore, be slow in granting an
\n              injunction to restrain the realization of such a
\n              bank guarantee. The courts have carved out
\n              only two exceptions. A fraud in connection
\n              with such a bank guarantee would vitiate the
\n              very foundation of such a bank guarantee.
\n              Hence if there is such a fraud of which the
\n              beneficiary seeks to take the advantage, he
\n              can be restrained from doing so. The second
\n              exception relates to cases where allowing the
\n              encashment of an unconditional bank
\n              guarantee would result in irretrievable harm
\n              or injustice to one of the parties concerned.
\n              Since in most cases payment of money under
\n              such a bank guarantee would adversely
\n              affect the bank and its customer at whose
\n              instance the guarantee is given, the harm or
\n              injustice contemplated under this head must
\n              be such an exceptional and irretrievable
\n              nature as would override the terms of the
\n              guarantee and the adverse effect of such an
\n              injunction on commercial dealings in the
\n              country.”\n<\/p><\/blockquote>\n
14.         If the bank guarantee furnished by the plaintiff<\/p>\n
company is read without reference to other documents, the<\/p>\n
CS(OS)No1878\/2010.                                       Page 16 of 25<\/span>
\n obligation of the bank to pay to defendant No.2 is absolute<\/p>\n
and unqualified and the bank must necessarily remit the<\/p>\n
amount of the bank guarantee to defendant No.2 without<\/p>\n
demur or protest merely on demand from it. It is not open<\/p>\n
to the bank to go into the question as to whether there was<\/p>\n
breach       of      the   contract   on   the   part   of     plaintiff<\/p>\n
company\/defendant No.2 or not. The bank is duty bound to<\/p>\n
honour the bank guarantee unless a case of fraud or special<\/p>\n
equity is made out.\n<\/p>\n
15.         In the present case, no fraud has been pleaded or<\/p>\n
made out. The contentions of the learned Sr. Counsel for<\/p>\n
the plaintiff company is that since the plaintiff company<\/p>\n
performed that part of the work which was sub-contracted<\/p>\n
to it by defendant No.2, there can be no justification for<\/p>\n
invoking the bank guarantee submitted by it.            It was also<\/p>\n
contended by him, that NTPC being State within the<\/p>\n
meaning of Article 12 of the Constitution of India, it needs<\/p>\n
to act fairly and reasonably and therefore invocation of bank<\/p>\n
guarantee furnished by the plaintiff company without there<\/p>\n
being any breach of the contract on the part of the plaintiff<\/p>\n
company can neither be just nor reasonable.              I, however,<\/p>\n
find no merit in these contentions. As noted earlier, it was<\/p>\n
CS(OS)No1878\/2010.                                           Page 17 of 25<\/span>
\n one of the conditions of the bid document that if the bidder<\/p>\n
was not fully eligible in terms of Clause 3.1.0 and Clause<\/p>\n
3.2.0 of the Special Conditions of Contract, it could have<\/p>\n
associated another person with it provided, the other person<\/p>\n
was able to meet the requirement which the bidder itself did<\/p>\n
not meet. Not only a joint performance undertaking making<\/p>\n
the bidder as well as the associate jointly as well as<\/p>\n
severally liable in case of breach of the contract on the part<\/p>\n
of the bidder but also furnish the on-demand bank<\/p>\n
guarantee for 2.5% of the total contract price was furnished<\/p>\n
by the plaintiff.    Had the plaintiff company not submitted<\/p>\n
the joint undertaking and bank guarantee in terms of the<\/p>\n
tender document, the work would not have been awarded to<\/p>\n
defendant No.2 and consequently, there would have been no<\/p>\n
sub contract awarded to the plaintiff company by defendant<\/p>\n
No.2. Having furnished the joint undertaking coupled with<\/p>\n
the unconditional and payable on demand bank guarantee<\/p>\n
extending to the whole of the contract, the plaintiff company<\/p>\n
cannot say that the bank guarantee furnished by it should<\/p>\n
not be encashed unless there is default in performance of<\/p>\n
that part of the contract which was sub contracted to it.<\/p>\n
The plaintiff company has become liable in law not only in<\/p>\n
CS(OS)No1878\/2010.                                  Page 18 of 25<\/span>
\n respect of that part of the contract which it had to execute<\/p>\n
in terms of the work between it and defendant No.2 but also<\/p>\n
to the parts which were not to be executed by it.<\/p>\n
16.         The legal proposition with respect to irretrievable<\/p>\n
injury was summarized by this Court in the case of<\/p>\n
Dwarikesh            Sugar   Industries   Ltd.   vs.   Prem   Heavy<\/p>\n
Engineering Works (P) Ltd. and Anr.,<\/a> (1997) 6 SCC 450,<\/p>\n
as under:-\n<\/p>\n
             “The second exception to the rule of
\n             granting injunction, i.e., the resulting of
\n             irretrievable injury, has to be such a
\n             circumstance which would make it
\n             impossible for the guarantor to reimburse
\n             himself, if he ultimately succeeds. This
\n             will have to be decisively established and
\n             it must be proved to the satisfaction of the
\n             court that there would be no possibility
\n             whatsoever of the recovery of the amount
\n             from     the  beneficiary,   by    way of
\n             restitution.”\n<\/p><\/blockquote>\n
17.           In Hindustan Construction Co. Ltd. and Anr.<\/p>\n
Vs. Satluj Jal Vidyut Nigam Ltd., AIR 2006 Delhi 169,<\/p>\n
this Court held that the exceptional case pleaded against<\/p>\n
encashment of bank guarantee needs to fall within any of<\/p>\n
the following limited categories:\n<\/p>\n<\/p>\n
       i)   If there is a fraud in connection with the
\n              bank guarantee which would vitiate the<\/p>\n
CS(OS)No1878\/2010.                                        Page 19 of 25<\/span>
\n              very foundation of such guarantee and the
\n             beneficiary seeks to take advantage of such
\n             fraud.\n<\/p><\/blockquote>\n
       ii) The applicant, in the facts and circumstance
\n             of the case, clearly establishes a case of
\n             irretrievable   injustice   or   irreparable
\n             damage.\n<\/p><\/blockquote>\n
       iii) The applicant is able to establish
\n             exceptional or special equities of the kind
\n             which would prick the judicial conscience
\n             of the court.\n<\/p><\/blockquote>\n
       iv) When the bank guarantee is not invoked
\n             strictly in its terms and by the person
\n             empowered to invoke under the terms of
\n             the guarantee. In other words, the letter of
\n             invocation is in apparent violation to the
\n             specific terms of the bank guarantee.\n<\/p><\/blockquote>\n
18.         In ITEK Corporation vs. The First National Bank<\/p>\n
of Boston 566 F. Supp 1210, which is a judgment referred<\/p>\n
by Supreme Court quite often in the matters relating to<\/p>\n
bank guarantee, an exporter in USA entered into an<\/p>\n
agreement with the Imperial Government of Iran and sought<\/p>\n
an order terminating its liability on standby letters of credit<\/p>\n
issued by an American Bank in favour of an Iranian Bank<\/p>\n
as part of the contract. The relief was sought on account of<\/p>\n
the situation created after the Iranian revolution when the<\/p>\n
American Government cancelled the export licences in<\/p>\n
CS(OS)No1878\/2010.                                   Page 20 of 25<\/span>
\n relation to Iran and the Iranian Government had forcibly<\/p>\n
taken     52     American           citizens   as   hostages.          The     US<\/p>\n
Government had blocked all Iranian assets under the<\/p>\n
jurisdiction of United States and had cancelled the export<\/p>\n
contract. The Court upheld the contention of the exporter<\/p>\n
that any claim for damages against the purchaser if decreed<\/p>\n
by the American Courts would not be executable in Iran<\/p>\n
under these circumstances and realization of the bank<\/p>\n
guarantee\/letters of credit would cause irreparable harm to<\/p>\n
the plaintiff company.\n<\/p>\n
19.         In       the     case     before    this      Court,      no     such<\/p>\n
circumstance is shown as existing and therefore, it is<\/p>\n
difficult to say that an exceptional circumstance justifying<\/p>\n
grant of injunction against encashment of the bank<\/p>\n
guarantee is made out.\n<\/p>\n
20.         As       held    by     Supreme     Court      in the      case      of<\/p>\n
Dwarikesh            Sugar     Industries       Ltd.      v.    Prem       Heavy<\/p>\n
Engineering Works (P) Ltd. & Anr.<\/a> (1997) 6 SCC 450, the<\/p>\n
resulting      of     irretrievable      injury     has    to    be    such       a<\/p>\n
circumstance which would make it impossible for the<\/p>\n
guarantor to reimburse himself if he ultimately succeeds<\/p>\n
CS(OS)No1878\/2010.                                                    Page 21 of 25<\/span>
\n and it must be proved to the satisfaction of the Court that<\/p>\n
there would be no possibility whatsoever of the recovery of<\/p>\n
the amount from the beneficiary by way of restitution. No<\/p>\n
such circumstance exists in this case since the defendant<\/p>\n
No.1 happens to be an Undertaking of Government of India.<\/p>\n
21.         In my view the plaintiff company has not been able<\/p>\n
to make out a case of special equity in its favour nor it can<\/p>\n
be said that there will be irreparable injury to it if the<\/p>\n
encashment of bank guarantee is not injuncted. The case of<\/p>\n
defendant No.1 is that there has been breach of contract on<\/p>\n
the part of defendant No.2.      In fact the breach is alleged<\/p>\n
even on the part of the plaintiff company.       It has been<\/p>\n
pointed out that the plaintiff company did not carry out<\/p>\n
breaking and integrity test in respect of the piling work done<\/p>\n
by it.     Vide letter dated 24.3.2006 the plaintiff company<\/p>\n
informed defendant No.2 that it had not been able to finish<\/p>\n
Pile Breaking and Integrity Test due to non-exposure of piles<\/p>\n
and other reasons beyond its control and not attributable to<\/p>\n
it. Vide its letter dated 9.8.2006 written to defendant No.2,<\/p>\n
defendant No.1 brought to its notice that nothing had been<\/p>\n
done towards the Pile Integrity Test of piling of various<\/p>\n
CS(OS)No1878\/2010.                                   Page 22 of 25<\/span>
\n foundations in Unit 7. Defendant No.1 again requested to<\/p>\n
take immediate action for remaining PIT of piling as per<\/p>\n
specifications.       There is no material on record to indicate<\/p>\n
that even thereafter the plaintiff company had carried out<\/p>\n
Pile Integrity Test in respect of piling of various foundations<\/p>\n
in Unit 7. However, even if it is assumed that the plaintiff<\/p>\n
company        had     successfully   completed   the   work     sub<\/p>\n
contracted to it by defendant No.2, it would still be liable<\/p>\n
even if there was breach of any part of the contract on the<\/p>\n
part of defendant No.2 and defendant No.1 is entitled in law<\/p>\n
to invoke the bank guarantee furnished by the plaintiff<\/p>\n
company. I fail to appreciate, how the plaintiff company can<\/p>\n
claim any special equity in its favour when it is a<\/p>\n
contractual obligation to compensate defendant No.1 in case<\/p>\n
of breach of contract on the part of defendant No.2 and it<\/p>\n
has chosen to become jointly as well as severally liable to<\/p>\n
defendant No.1 in this regard.\n<\/p>\n
22.         Defendant No.1 NTPC is a large Public Sector<\/p>\n
Undertaking.         It cannot be said that in the event of bank<\/p>\n
guarantee being encahsed, it would be impossible or even<\/p>\n
difficult for the plaintiff company to reimburse itself in case<\/p>\n
CS(OS)No1878\/2010.                                       Page 23 of 25<\/span>
\n it sues the defendant No.1 for recovery of amount of the<\/p>\n
bank guarantee.       Considering the contractual obligation<\/p>\n
undertaken by the plaintiff company, I find no exceptional<\/p>\n
circumstances warranting issue of an injunction against<\/p>\n
encashment of the bank guarantee.\n<\/p>\n
23.         It was pointed out by the learned Counsel for the<\/p>\n
plaintiff that plaintiff company submitted a bank guarantee<\/p>\n
of Rs.70,30,000\/- in order to get that much amount<\/p>\n
released from defendant No.2 but since NTPC did not agree<\/p>\n
for release of retention money\/security deposit, neither the<\/p>\n
aforesaid amount has been released nor the bank guarantee<\/p>\n
of Rs.70,30,000\/- has been returned to it. Admittedly, the<\/p>\n
aforesaid bank guarantee of Rs.70,30,000\/-was submitted<\/p>\n
by the plaintiff company to defendant No.2 and not to<\/p>\n
defendant No.1. Therefore, defendant No.1 does not come<\/p>\n
into the picture as far as the aforesaid bank guarantee is<\/p>\n
concerned and the matter rests solely between the plaintiff<\/p>\n
company and defendant No.2.        If the plaintiff company is<\/p>\n
aggrieved on account of failure of defendant No.2 to release<\/p>\n
the amount of Rs.70,30,000\/- despite receiving the bank<\/p>\n
guarantee for the aforesaid amount, it can initiate such<\/p>\n
CS(OS)No1878\/2010.                                  Page 24 of 25<\/span>
\n proceedings against defendant No.2 as are open to it in law<\/p>\n
but, the plaintiff company is not entitled to injunction<\/p>\n
against encashment of the bank guarantee submitted by it<\/p>\n
to defendant No.1 merely because defendant No.2 has<\/p>\n
neither paid the amount of          Rs.70,30,000\/- to it nor<\/p>\n
returned the bank guarantee of the aforesaid amount.<\/p>\n
24.         For the reasons given in the preceding paragraphs,<\/p>\n
I am of the view that the plaintiff has no prima facie case for<\/p>\n
grant of injunction against encashment of bank guarantee.<\/p>\n
The application therefore is dismissed.     The interim order<\/p>\n
passed by this Court on 17.9.2010 is hereby vacated.<\/p>\n
            The IA stands disposed of.\n<\/p>\n
CS(OS) No. 1878\/2010<\/p>\n
            The matter be listed before Joint Registrar on24th<\/p>\n
August, 2011 for admission\/denial of the documents and<\/p>\n
before this Court on 16th December, 2010.\n<\/p>\n<\/p>\n
                                           (V.K. JAIN)
\n                                             JUDGE
\nJUNE 03, 2011
\nvn<\/p>\n
CS(OS)No1878\/2010.                                   Page 25 of 25<\/span>\n <\/p>\n","protected":false},"excerpt":{"rendered":"
Delhi High Court Itd Cementation India Ltd. vs National Thermal Power … on 3 June, 2011 Author: V. K. Jain 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. & […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[14,8],"tags":[],"class_list":["post-107148","post","type-post","status-publish","format-standard","hentry","category-delhi-high-court","category-high-court"],"yoast_head":"\nItd Cementation India Ltd. vs National Thermal Power ... on 3 June, 2011 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/itd-cementation-india-ltd-vs-national-thermal-power-on-3-june-2011\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Itd Cementation India Ltd. vs National Thermal Power ... on 3 June, 2011 - 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