Full Text
JUDGMENT
Through Mr.Manu Seshadri, Adv.
Through Mr.Pranaya Goyal, Adv. with Mr.Shubham Kulshreshtha, Adv. for R-1.
1. The petitioner has filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an interim order restraining the respondents from invoking the Bank Guarantees in question.
2. On 11th September, 2015, the following order was passed:- “I.A. No.19186/2015 Allowed subject to just exceptions. O.M.P.(I) 515/2015 Issue notice to the respondents by all modes, returnable on 01st October, 2015. Learned counsel for the petitioner submits that the petitioner installed the fire fighting system in the respondent’s factory as back as in December, 2013 and the respondents released all the payments under the two contracts to the petitioner. It is further submitted that the petitioner issued two bank guarantees to the respondent 2016:DHC:995 on 15th October, 2013 with respect to the defect liability period. The bank guarantees are valid up to 13th September, 2015. It is further submitted that there is a dispute with respect to the leakage in the fire fighting pipe lines. According to the petitioner there no defect in the system. It is further submitted that vide letter dated 08th September, 2015, the respondent has invoked both the bank guarantees. It is further submitted that there are special equities in favour of petitioner and therefore, the invocation of bank guarantees be stayed. In the facts and circumstances of this case, the invocation of bank guarantees number (i) BG No. GOOIBGP132880001 dated 15.10.2013 issued by Karur Vysya Bank for an amount of Rs.16,15,000/- and (ii) BG No. GOOIBGP132880002 dated 15.10.2013 issued by Karur Vysya Bank for an amount of Rs.3,20,000/- are stayed subject to the petitioner keeping the bank guarantees alive. This order is passed at 03.10 P.M. The competent officers of both the parties shall remain present in the Court on the next date of hearing. Copy of this order be sent to the respondents along with the notice. Copy of this order be given dasti to counsel for the petitioner under signature of Court Master. Sd/- (J.R.Midha) Judge”
3. After filing the reply, when the matter was taken up, the learned counsel for the respondent No.1 had argued that the present petition is not maintainable for the following reasons:-
(i) This Court does not have the jurisdiction to try and decide the present petition.
(ii) The Bank Guarantees in question are unconditional, as the petitioner has failed to set out any irretrievable injustice or special equities or fraud in order to justify an injunction on invocation of the Bank Guarantees. The petitioner has no basis whatsoever to seek an injunction on the said invocation. The interim order passed is liable to be vacated.
4. Learned counsel for the petitioner has not denied the fact that the Bank Guarantees in question are unconditional ones. However, he submits that the respondent No.1 has not suffered any loss due to non-performance. There is no further notice after the completion of the work, thus, the Bank Guarantees cannot be encashed. Counsel has referred to a decision of the Division Bench of this Court in the case of Jainsons Clothing Corporation v. The State Trading Corporation of India Ltd. and Another, (1986) 30 DLT 359 (DB), paras 16, 17 & 18. It is pertinent to mention here that the above said judgment has been overruled by the Supreme Court in the case of The State Trading Corporation of India Ltd. and Another v. Jainsons Clothing Corporation(1994) 6 SCC 597.
5. As far as the principle with respect to the grant of injunction in unconditional Bank Guarantee’s case is concerned, the same has been settled by the Supreme Court number of times, including in the recent judgment passed by the Division Bench of this Court speaking through Hon’ble Sh.Badar Durrez Ahmed and Sh.Sanjeev Sanchdeva, JJ. in the case of Zillion Infra Projects (P) Ltd. v. Fab-Tech Works & Constructions Pvt. Ltd. and Ors. 224(2015) DLT 371 where the following decisions of the Supreme Court have been discussed:-
(i) The Supreme Court in the case of U.P. Cooperative
Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174 has held that in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of Bank Guarantee, there should be serious dispute and there should be good prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Otherwise, the very purpose of Bank Guarantees would be negatived and the fabric of trading operation will get jeopardised. The Supreme Court further held that commitments of banks must be honoured free from interference by the Courts. Otherwise, trust in commerce internal and international would be irreparably damaged. It is only in exceptional cases, that is, to say in cases of fraud and irretrievable injustice that the Court could interfere.
(ii) In another case of U.P. State Sugar Corporation. v.
Sumac International Ltd., (1997) 1 SCC 568, the Supreme Court has held that 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 Guarantee would otherwise be defeated. The Courts should be, therefore, 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, which would vitiate the very foundation of such a Bank Guarantee. Hence, if there is such a fraud of which the beneficiary seeks to take 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. It was further held that where fraud is alleged it must be a clear fraud of which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud to be fraud of a nature that may absolve a bank from honouring its guarantee. 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. However, the evidence must be clear both as to the fact of fraud and as to the bank's knowledge.
6. Applying the above said decisions, it is quite settled that an interim order with regard to the unconditional Bank Guarantee cannot be passed, unless the two other conditions are satisfied by the party who is seeking the injunction against the respondent. With regard to the case of fraud and equity, ex facie, there is no material on record to show that the respondent No.1 is not entitled to encash the Bank Guarantees in question which are unconditional in nature and the petitioner is remediless as far as the recovery of the sum in future is concerned. The petitioner, in any case, is entitled to recover or adjust the said sum in the arbitration proceedings when the matter is decided on merits.
7. In the case of Abir Infrastructure Pvt. Ltd. v. Teestavalley Power Transmission Limited & Ors., 214(2014) DLT 235, in paras 31, 33 and 34, this Court has dealt with the issue of special equity. The said paras are reproduced herein below:- “31. The same view has been taken by the Supreme Court in the case of BSES Ltd (Now Reliance Energy Ltd.) vs. Fenner India Ltd, (supra) wherein the Supreme Court observed at para 28 and 29 that no such special equities existed on facts as the petitioner in the said case can always has remedy in case it succeeds in the arbitral proceedings and no such case of special equities and irretrievable injustice is made. In the words of the Supreme Court, it was observed thus:
32. x x x x x
33. The reliance of the petitioner of the judgment passed in the case of Continental Construction Ltd v. Satluj Jal Vidyut Nigam Ltd., I (2005) SLT 305 = I (2005) CLT 13 (SC) = 2006(1) Arb LR 321, in order to support the plea of the special equities is completely misplaced. This is due to the reason that the said judgment is distinguishable on facts which can be seen as follows: (a) In the case of Continental (supra), the respondent were intending to frustrate the internal adjudicative mechanism where the said decision was agreed to be final between the parties under the agreement. The liability under the said mechanism was already determined and the respondent was intending to frustrate the same by taking recourse to the encashment of the bank guarantee. No such final and binding the adjudicatory mechanism exists in the facts of the present case nor the said adjudication has taken place determining the liability and further no attempts to frustrate or over reach the process has been done by the respondent No.1 in the present case. In the instant case, the clause 38 merely provides for mutual consultative process but that does not preclude the parties to raise the dispute or to arbitrate the matter. Thus, the factual position in the case of Continental (supra) cannot be compared to the facts of the present case. (b) In the case of the Continental (supra) the claims were awarded by the internal adjudicatory mechanism in favour of the petitioner which have attained finality partially by the appellate forum and the respondent by encashing the bank guarantees were actually nullifying the impact of the said findings which was in the nature of irretrievable injustice of the nature contemplated by the law as the petitioner in the said case despite having award of claims in its favour were faced with the situation of loosing out monies which was subject matter of adjudicated claims between the parties and the said case was really case of irretrievable injustice. In the present case, the liability of the respective parties are yet to be determined and the breaches on the part of the petitioner are required to be adjudicated and there is no finding in favour of the petitioner as it was existing in Continental (supra), therefore assumption of irreparable injustice when the petitioner and the respondent’s version is yet to be examined and determined by drawing corollary from the case where there was finding by the internal adjudicatory process in favour of the petitioner and therefore encashment was done would be improper one. The case of Continental (supra) is thus distinct from the present one factually.
(c) In the case of Continental (supra), there was a term in the contract under clause 48, the bank guarantees were required to be discharged after the maintenance period was over and the said plea was upheld by the court under the head of irretrievable injustice. No such circumstances exists which discharge the bank guarantee from the encashment. Thus, on this ground also, no special equities can assumed in favour of the petitioner in the instant case. In view of the above, the case of the Continental (supra) was factually different from the instant case and the reliance of the petitioner on the said case may not aid the case of the petitioner. Thus, this court is not persuaded by any plea of special equities or irretrievable injustice in the manner raised by the petitioner.
34. With regard to the argument of the petitioner about the exception of irretrievable injustice, the argument of Dr. Singhvi is that the irretrievable injustice is not just the adverse effect due to payment of money but must be of an exceptional and irretrievable nature. The injury should override the terms of the guarantee and the adverse effect shall have an impact on the commercial dealings as a whole in the country. [U.P. State Sugar Corporation v. Sumac International Ltd. (supra)]. Thus, the irretrievable injustice cannot be mere burdensome loss caused to the Petitioner. An injunction can be granted only when the injury is of the kind in Itek Corpn. Case (566 Fed. Suppl. 1210) where the aggrieved party is left remediless [U.P. State Sugar Corporation v. Sumac International Ltd. (supra)]. The irretrievable injustice should be of serious nature that the party is not able to reimburse itself and is not able to reclaim its loss [U.P. Coop. Federation Limited v. Singh Consultants and Engineers (P) Limited, (supra); Dwarikesh Sugar Industries v. Prem Heavy Engineering Works (P) Ltd., (1997) 6 SCC 450].
8. Applying the said proposition of law to the facts of the present case, there is no such case of the special equities made out by the petitioner which leaves the petitioner as remediless to recover the said amount. The plea of the petitioner is disputed one which is required to be examined and adjudicated by the Arbitral Tribunal.
9. Thus, it is clear that no case on merit for continuation of the interim order is made out by the petitioner. The petitioner, however, is entitled to raise the issue during the arbitration proceedings and would also be entitled to adjust the said amount if the Award is passed in favour of the petitioner.
10. Even otherwise, this Court does not have the jurisdiction to hear and decide the present petition, if the clauses of the Bank Guarantees in question are read in a meaningful manner. Clause 12 of each of the Bank Guarantees, which are the subject matter of the present petition, confer exclusive jurisdiction upon the Courts in "Mumbai Urban District" in respect of any matter arising out of the Bank Guarantees and specifically exclude the jurisdiction of all other Courts. Moreover, Clause 18 of the Purchase Order dated 8th February, 2013, which is the underlying contract between the petitioner and respondent No.1, also confers exclusive jurisdiction on the Courts of Mumbai to adjudicate upon all matters, claims and disputes in respect of the Purchase Order and all transactions arising therefrom.
11. The law on the issue of territorial jurisdiction is quite settled. If the Court has no jurisdiction to entertain the present petition, the petitioner cannot obtain the relief otherwise. The said objection raised by the respondent No.1 has been discussed time and again. Reliance is placed on the following judgments:-
(i) Balaji Coke Industry Pvt. Ltd. v. Maa Bhagwati Coke
Gujarat Pvt. Ltd., (2009) 9 SCC 403, paras 24 to 30 reads as under:-
30. In the instant case, the parties had knowingly and voluntarily agreed that the contract arising out of the high-seas sale agreement would be subject to Kolkata jurisdiction and even if the courts in Gujarat also had the jurisdiction to entertain any action arising out of the agreement, it has to be held that the agreement to have the disputes decided in Kolkata by an arbitrator in Kolkata, West Bengal, was valid and the respondent Company had wrongly chosen to file its application under Section 9 of the Arbitration and Conciliation Act before the Bhavnagar Court (Gujarat) in violation of such agreement. The decisions of this Court in A.B.C. Laminart (P) Ltd. as also Hakam Singh are very clear on the point.”
(ii) Swastik Gases Private Limited v. Indian Oil
Corporation Limited, (2013) 9 SCC 32, paras 7, 28 and 57 read as under:-
57. For the reasons mentioned above, I agree with my learned Brother that in the jurisdiction clause of an agreement, the absence of words like “alone”, “only”, “exclusive” or “exclusive jurisdiction” is neither decisive nor does it make any material difference in deciding the jurisdiction of a court. The very existence of a jurisdiction clause in an agreement makes the intention of the parties to an agreement quite clear and it is not advisable to read such a clause in the agreement like a statute. In the present case, only the courts in Kolkata had jurisdiction to entertain the disputes between the parties.”
(iii) Jyothi Turbopower Services Pvt. Ltd., Biswajit Nath,
J Nath v. Shenzhen Shandong Nuclear Power Construction Company Ltd., Deputy Project Manager, Liu Yan Zheng and Syndicate Bank, Branch Manager, (2011) 3 Arb. LR 442 (AP), paras 17, 18, 30 and 31 reads as under:-
31. In the case on hand, as noted supra, the parties have specifically, in Article 10 of the agreement, have agreed to the place of arbitration as the State of Orissa. That being so, we are of the considered opinion that the appellant cannot be permitted to invoke the theory of cause of action by application of the provisions of the Code of Civil Procedure, so as to confer jurisdiction upon the Court at Hyderabad, for entertaining application under Section 9 of the Act, and if such argument of the appellant is accepted, then the very purpose of the parties agreeing to the place of arbitration as State of Orissa in Article 10 of the agreement, would be defeated.”
(iv) DLF Industries Ltd. v. ABN Amro Bank and Ors.,
2000(55) DRJ 470, para 19, which reads as under:-
12. In view of the above settled law and as per above mentioned clause of the Bank Guarantees and the agreement between the parties, I am of the clear view that this Court has no territorial jurisdiction to entertain the present petition. The same is accordingly dismissed. The interim order already granted by order dated 11th September, 2015 is vacated.
JUDGE FEBRUARY 08, 2016