Sanjay Tractors and Automobiles v. CNH Industrial India Private Limited

1. This petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) has been filed by the petitioner inter-alia claiming the following reliefs: “b. Interim measures of protection be granted in favour of Applicant by restraining the Respondent from invoking Bank Guarantees more particularly described in Schedule till commencement and disposal of arbitral proceeding and till accounts are settled by arbitrator in accordance with law. c. Interim measures of protection be granted in favour of Applicant by restrain the Respondent from capriciously terminating the Dealer Agreement dated 8.3.2016 of Applicant till disposal of arbitral proceeding. d. Interim measures of protection be granted in favour of Applicant by restrain the Respondent from appointing new dealer in the territory of Applicant till commencement and disposal of arbitral proceeding.” 2018:DHC:3070 OMP(I)(Comm.) No.208/2018 Page 2

2. The petitioner claims that a Partnership Firm under the name and style of ‘Surya Tractors Company’ entered into a Dealership Agreement with the respondent for the purpose of purchase of Tractors, Agricultural Implements and its Spare Parts and also to provide after sales services to its customers. The partnership was reconstituted on 12.11.2012. The petitioner further claims that upon such reconstitution, Dealership Agreement dated 04.12.2012 was executed between the parties.

3. In terms of the said Dealership Agreement, the petitioner had submitted four Bank Guarantees to the respondent. The said Bank Guarantees, admittedly, are unconditional and unequivocal in nature.

4. There was a further change in the constitution of the Partnership pursuant to which, a Tripartite Agreement dated 14.08.2015 was executed between the parties. In the Tripartite Agreement it was admitted that the Partnership firm owed an amount of Rs.9,74,48,700.80 to the respondent. The erstwhile partners of the earlier Partnership Firm continued to remain liable towards such liability to the respondent.

5. A new Dealership Agreement was also executed between the parties on 08.03.2016 whereunder a new dealer code was given to the Partnership Firm by the respondent. A Tripartite Agreement was also executed between the earlier partners and the new Partnership on one hand and the respondent on the other, whereunder, the petitioner acknowledged the liability of Rs.8,44,82,939.95 owed to the respondent. It was a term of the Tripartite Agreement that incase the new Partnership is unable to discharge such liability, the earlier partners would remain liable towards the same. The Bank Guarantee(s) continued to remain alive and operative. OMP(I)(Comm.) No.208/2018 Page 3

6. The petitioner claims that while the petitioner was discharging the liability of the earlier Partnership Firm, the respondent unauthorizedly debited the account of the earlier Partnership Firm by an amount of Rs.1,46,12,000/- thereby increasing the liability of the earlier Partnership and on basis thereof is now seeking to invoke the Bank Guarantees of the petitioner.

7. The petitioner has filed an additional affidavit whereby it is further claimed that the emails dated 08.01.2018, 16.02.2018 and 13.02.2018 from the respondent to the petitioner show varying amounts as outstanding from the petitioner, though, there were absolutely no transaction transacted between the parties during such period. It is further submitted that the accounts of the respondent cannot be relied upon and this is a serious dispute to be adjudicated by the Arbitral Tribunal.

8. On the other hand, learned senior counsel for the respondent draws my attention to the averments made in the Brief Synopsis and List of Dates filed by the petitioner wherein it is admitted that the new Partnership is merely a change of name and not a reconstitution of the Firm and it is further admitted that the petitioner owed an amount of Rs.[6] crores to the respondent. Further, relying upon the Statement of Account filed by the petitioner alongwith its additional affidavit, it is contended that while the account of the petitioner under the earlier code had been debited by an amount of Rs[1],46,12,000/- an equivalent credit of the same amount had been given to the petitioner under the new dealership code, and therefore, as a final result, there was no difference in the amount owed by the petitioner due to such entries. It is submitted that these entries were made at the behest of the petitioner as the petitioner could not have transacted in the new OMP(I)(Comm.) No.208/2018 Page 4 dealership code due to the amount owed by it under the new dealership code exceeding the credit limit.

9. I have considered the submissions made by the learned counsels for the parties. Admittedly, the Bank Guarantees in question are unequivocal and unconditional in nature. The law relating to the Bank Guarantees is now well settled by a catena of judgments of the Supreme Court including in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., (1997) 6 SCC 450, wherein the Supreme Court held as under: “21. Numerous decisions of this Court rendered over a span of nearly two decades have laid down and reiterated the principles which the courts must apply while considering the question whether to grant an injunction which has the effect of restraining the encashment of a bank guarantee. We do not think it necessary to burden this judgment by referring to all of them. Some of the more recent pronouncements on this point where the earlier decisions have been considered and reiterated are Svenska Handelsbanken v. Indian Charge Chrome [(1994) 1 SCC 502], Larsen & Toubro Ltd. v. Maharashtra SEB [(1995) 6 SCC 68], Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd.[(1995) 6 SCC 76] and U.P. State Sugar Corpn. v. Sumac International Ltd. [(1997) 1 SCC 568] The general principle which has been laid down by this Court has been summarised in the case of U.P. State Sugar Corpn. [(1997) 1 SCC 568] as follows: (SCC p. 574, para 12) “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 OMP(I)(Comm.) No.208/2018 Page 5 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 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.” Dealing with the question of fraud it has been held that fraud has to be an established fraud. The following observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank [(1984) 1 All ER 351, CA] are apposite: “… The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear, both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it discharged.” (emphasis supplied) The aforesaid passage was approved and followed by this Court in U.P. Coop. Federation Ltd. v. Singh Consultants OMP(I)(Comm.) No.208/2018 Page 6 and Engineers (P) Ltd. [(1988) 1 SCC 174]

22. 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.

10. In Vinitec Electronics Private Ltd. v. HCL Infosystems Ltd. (2008) 1 SCC 544, the Supreme Court after relying upon various earlier judgments of the Court reiterated that the allegation with regard to alleged breach of contract by the Respondent is not a plea of fraud of a egregious nature so as to vitiate the entire transaction. Paragraphs 24 to 28 of the Judgment are quoted herein below: “24. The next question that falls for our consideration is as to whether the present case falls under any of or both the exceptions, namely, whether there is a clear fraud of which the Bank has notice and a fraud of the beneficiary from which it seeks to benefit and another exception whether there are any “special equities” in favour of granting injunction.

25. This Court in more than one decision took the view that fraud, if any, must be of an egregious nature as to vitiate the underlying transaction. We have meticulously examined the pleadings in the present case in which no factual foundation is laid in support of the allegation of fraud. There is not even a proper allegation of any fraud as such and in fact the whole case of the appellant centres around the allegation with regard to the alleged breach of contract by the respondent. The plea of fraud in the appellant's own words is to the following effect: OMP(I)(Comm.) No.208/2018 Page 7 “That despite the respondent HCL being in default of not making payment as stipulated in the bank guarantee, in perpetration of abject dishonesty and fraud, the respondent HCL fraudulently invoked the bank guarantee furnished by the applicant and sought remittance of the sums under the conditional bank guarantee from Oriental Bank of Commerce vide letter of invocation dated 16-12-2003.”

26. In our considered opinion such vague and indefinite allegations made do not satisfy the requirement in law constituting any fraud much less the fraud of an egregious nature as to vitiate the entire transaction. The case, therefore does not fall within the first exception.

27. Whether encashment of the bank guarantee would cause any “irretrievable injury” or “irretrievable injustice”. There is no plea of any “special equities” by the appellant in its favour. So far as the plea of “irretrievable injustice” is concerned the appellant in its petition merely stated: “That should the respondent be successful in implementing its evil design, the same would not only amount to fraud, cause irretrievable injustice to the applicant, and render the arbitration nugatory and infructuous but would permit the respondent to take an unfair advantage of their own wrong at the cost and extreme prejudice of the applicant.”

28. The plea taken as regards “irretrievable injustice” is again vague and not supported by any evidence.