M/S.AMKV-TECPRO v. GAIL (INDIA) LIMITED & ANR

1. These are two petitions under Section 9 of the Arbitration and Conciliation Act, 1996 (‘Act’) seeking interim reliefs.

2. The Petitioner M/s AMKV-TECPRO is a consortium of TECPRO Systems Limited which undertakes turnkey projects. Mecon Limited 2015:DHC:950 (Respondent No.2), on behalf of Gail (India) Limited (Respondent No.1) floated an e-tender on 28th June, 2011 inviting bids on open international competition basis for laying of the Phase-II of the Kochi-Koottanad-Mangalore-Bangalore Pipeline Project (KKMBPP) which involved testing and commissioning of 884 Kms long steel pipeline for transportation and distribution of re-gasified Liquid Natural Gag (LNG) and associated facilities in the states of Kerala, Tamil Nadu and Karnataka from intermediate piping system (IPS) of Phase-I at FACT Udyogmandal to IPS of Phase-II at Kootanad and from there to Bangalore and Mangalore.

3. The Petitioner submitted two bids, one for Section-I and the other for Section-II. By separate letters dated 12th January 2012 Respondent No.1 intimated to the Petitioner the acceptance of both its above bids at the contract price of Rs.89,82,69650/- and Rs.68,97,37,075/respectively. The details of Section-I and Section-II awarded to the Petitioner were as under: “Section-I Pipeline from dispatch terminal at existing 30” x 91km I.P. Station-I at FACT Udyoghmandal of Phase-I at Ch.0.000Km to IP Station-1 of Phase-Ii at Approx. Ch. 90.615 Km at Koottand including piping works at despatch terminal at existing IP Station-I, SV-1, SV-2, SV-3, SV-4 & SV-5 Stations and IP Station-I at Kootanad.” “Section-II Pipeline from IP Station-1 at Approx. Ch. 24” x 114km 90.615 Km at Koottand to IP Station-2 at Ch.

188.80 Km plus IP Station-1 (Ch 90.615) to SV- 1M (Ch 15.99 Km on Mangalore spur line) including piping works at SV-1M, SV-6, SV-7, SV-8, SV-9 & SV-10 and IP Station-2.”

4. The work was to be completed and kept ready for commissioning within 12 months from the Fax of Acceptance (FOA) i.e. from 12th January 2012. The commissioning of gas including all stations/terminals was to be effected within three months after mechanical completion. Respondent No.1 issued letters of acceptance in respect of both bids on 2nd February 2012. In respect of each of the sections a separate contract agreement dated 20th January 2012 was executed by the Petitioner and Respondent No.1.

5. In terms of Clause 37 of the instructions to bidders (ITB) read with Clause 11 of the Special Conditions of Contract (SCC) and Clause 24 of the General Conditions of Contract (GCC) the Petitioner had to furnish, in respect of each contract, Performance Bank Guarantee (PBG) for 10% of the contract price within 15 days of the receipt of the FOA which was to be valid till expiry of 90 days after the end of the defect liability period. Further in terms of Clause 26 of the SCC, the Petitioner was to furnish Advance Bank Guarantees (ABGs) for 11% of the contract price. In respect of both sections the Petitioner furnished to Respondent No.1 the following bank guarantees: ADVANCE BANK GUARANTEE with IDBI BANK LTD CHENNAI

┌─────────────────────────────────────────────────────────────────────────────┐
│

┌────────────────────────────────────────────────────────────────────────────┐
│ Sl.No.        BG No.         Expiry               Amt(Rs)        Section   │
│                              Date                                          │
├────────────────────────────────────────────────────────────────────────────┤
│ 1             11650100001747 31.07.2015           89826765.00 I            │
│ 2             11650100001748 31.07.2015           68973708.00 II           │
└────────────────────────────────────────────────────────────────────────────┘

49.[4] kms was available as on 12th January 2013 whereas work was completed only to the extent of 0.51 kms. Likewise as regards Section-II of the 114 kms, ROU in respect of 78.096 kms was available and no work had been completed till then. It is submitted that while the question of invocation of PBGs would depend upon the outcome of the arbitral proceedings and that may be kept alive by the petition during the pendency of the arbitral proceedings, there was no justification whatsoever for restraining the encashment of the ABGs. According to the Petitioner, despite disbursement of over Rs. 9.88 crores for Section-I and over Rs.7.58 crores for Section-II as mobilisation advance, there was very little work completed and, therefore, Respondent No.1 is entitled to seek encashment of the ABGs. He submitted that this was not a case where any fraud was played on the Petitioner by Respondent No.1 which is a public sector undertaking. He relied upon the judgment of the Supreme Court in UP State Sugar Corporation vs. Sumac International Ltd. (1997) 1 SCC 568 to state that only in exceptional circumstances would the Court interdict the invocation and encashment of bank guarantees. He submitted that the Petitioner has failed to make out a such case for such interdiction.

14. Mr. Sudhir Nandrajog, in rejoinder, seriously disputed the correctness of the chart at Annexure R-1/24 enclosed with the reply of the Respondent. He has referred to documents placed on record which showed that notifications were being issued under Section 6 of the Act for certain stretches of lands even as late as in August 2013. He has pointed out that where a continuous stretch was not available, it would be impossible to lay any pipeline. Also in several instances the actual handing over of the land was yet to take place and this could be established only in arbitral proceedings.

15. The above submissions have been considered. The first factor to consider is whether the Petitioner has a prima facie case in its favour. Clauses 5 and 35 of the ITB require the bidders to visit and examine the site of work and the pipeline route. Clause 5.[1] states “Claims and objections due to ignorance of existing conditions will not be considered after submissions of the bid and during implementation.” Clause 26 specifies the conditions for Force Majeure. Clause 29.[1] states that if the contractor refuses or fails to execute the work the employer i.e., Respondent No.1 can determine the contract or take over any part of the work.

16. Clause 28.[1] of the SCC which is relevant to the disputes between the parties reads as under: “28.[1] Company has acquired the ROU free of any encroachments/temporary/permanent structures under P&MP act in general. Acquiring of ROU means publishing of 3(1) and 6(1) Gazette notification under P&MP Act 1962. Contractor shall open the ROU with revenue team of competent authority appointed by GAIL and start the construction activities. Opening of ROU to start for construction and related activities & maintaining of ROU during entire period of construction shall be the responsibility of contractor. In case any obstruction by landowner(s)/farmers or encroachments or structures are encountered during execution, the same shall be got removed by the contractor. All costs towards such activities shall be to Contractor’s account. Necessary compensations applicable under P&MP act shall be paid by Company.”

17. Clause 28.[6] states that in case of any detour from the acquired ROU due to constructability problems or otherwise, the contractor would be permitted to do so after approval of Respondent No.1. It further states as under: “28.6......However, such activity shall not affect the construction schedule and overall completion period. In case of local detour due to non availability of Legal ROU, contractor has to negotiate and arrange the ROU for laying of pipe line without affecting the schedule. Compensation payable under P&MP act shall be paid by GAIL. All other costs if any shall be to the contractors account. Company shall proceed with regular notifications etc. In due course for the detoured portion.”

18. Respondent No.1 has with its reply annexed document R-1/17 giving details of acquisition as on 8th August 2013. This makes it clear that entire stretch in respect of both projects had not been acquired as on the date of the contract and this was completed in instalments after that date. Even if the site had been inspected by the Petitioner, that may not have revealed the fact which was exclusively in the knowledge of Respondent No.1. However, these are aspects for which evidence have to be led by both parties. The above observations of the Court at this stage are only of a prima facie nature. The stand of the Respondent “It is not mandatory that the entire ROU is made available to the Petitioner at the very beginning” will have to be established in the arbitral proceedings. To what extent the Petitioner failed in commencing and completing work on stretches made available to it from time to time will also be a matter of evidence and examined in the arbitral proceedings. However it does appear to the Court that question whether the Petitioner failed to perform its obligations under contract or whether the Respondent No.1 failed to make available the land necessary for performance of such work cannot be conclusively determined at this stage. However it does appear that the Petitioner has made out a prima facie case in its favour as far as restraining Respondent No.1 from invoking and encashing the PBGs is concerned.

19. As regards the ABGs, it is not the case of Respondent No.1 no manpower and machinery had been deployed of the Petitioner. Even as per the chart produced to Respondent No.1 some amount of work has already commenced and has been completed by the Petitioner. In other words, it is not as if the mobilisation advance released to the Petitioner has not been utilised by it. In the circumstances, at this stage to permit encashment of the ABGs would definitely cause irretrievable injustice to the Petitioner since the Petitioner also has its claims against the Respondent No.1 in respect of the work already done by it.