Mridula Bhatkar, J.:— This is a petition under section 9 of the Arbitration and Conciliation Act for interim order as the arbitrator is not yet appointed. The petitioner seeks stay on the invocation by the respondent Nos. 1 and 2 of the bank guarantees, which were furnished by the petitioner and issued by respondent Nos. 3 and 4. There are two bank guarantees of advance payments of Rs. 9,68,75,000/- and two contract performance bank guarantees of Rs. 6,68,75,000/- each. In the year 2010, the National Highway Authority entered into a contract with Respondent No. 1 in respect of construction of a six-lane Pune - Satara National Highway 4 from 725 kms to 865.350 kms (140.350 kms). Respondent No. 1 got a tender of the work and it set up respondent No. 2. So, Respondent No. 2 had entered into a concession agreement with the National Highway Authority. After obtaining the said contract, Respondent No. 2 gave sub-contract to the present petitioner. The petitioner is addressed as construction contractor and respondent No. 1 is called as EPC contractor while entering into a contract on 15.4.2011 and it was for a period of two years i.e, from 28.4.2011 to 27.4.2013 and thereafter it was further extended. There was a delay in getting the work done within a stipulated period so on 30.7.2015, Respondent No. 1 gave preliminary notice to the petitioner on the ground of default informing the intention to terminate the contract on behalf of the Respondent No. 1 and 2. The petitioner immediately replied to the said notice on 1.8.2015 claiming stay as there was no breach on the part of the petitioner. There was a review meeting of the work between the petitioner and respondent Nos. 1 and 2 on 25.8.2015 Thereafter, on 1.12.2015, the work change order was issued by EPC Contractor to the petitioner and time to perform as per the new terms was extended upto December, 2016. On 25.12.2015, respondent No. 1 wrote to respondent No. 3 and 4 for extension of the validity of the bank guarantees. During the meetings, the documentation relating to the escalation in the work order was also agreed. Then, interim payments certificate was also issued on 26.12.2015 However, as per the case of the petitioner, Respondent No. 1 invoked the bank guarantees on 28.12.2015 and thereafter, issued notice of termination of the contract on 30.12.2015 The petitioner approached the civil Court, Pune on 31.12.2015 and obtained stay. However, it was found that the territorial jurisdiction does not lie with the Court at Pune and hence, as per the terms of the agreement between the EPC Contractor and the petitioner, the subject matter is within the jurisdiction of Mumbai and not in Pune, hence, this petition.
2. Mr. Kadam, the learned Senior Counsel appearing for the petitioner, has argued that having regard to the law in respect of bank guarantees, the case of the petitioner falls in both the two exceptions. He argued that the petitioner contends that there is a fraudulent transaction on the part of the EPC Contractor and it is the case of special equities due to the prevailing circumstances and, therefore, invocation of the bank guarantee is to be stayed. He went through the relevant clauses of the agreement dated 15.4.2011 so also supplementary agreement which was executed between National Highway Authority and respondent Nos. 1 and 2 on 31.8.2014 He further argued that the contract is required to be terminated and bank guarantees are to be invoked as per the terms and conditions mentioned in the agreement. In the present case, the termination clause 41.1 states that a preliminary notice is required to be given to the sub-contractor before terminating the contract. He pointed out that notice was given on 30.7.2015 and the contract was terminated by notice on 30.12.2015 However, in between this period, there was a review meeting between the parties and the escalation was agreed so also the work change order was given on 1.12.2015 with extension of time upto December, 2016. Thus, he submitted that if at all a different work order is given and the period was also extended, then, it is a different and new contract and therefore the earlier notice dated 30.7.2015 is waived and cannot be treated as a preliminary notice. Therefore, according to him, the notice of termination dated 30.12.2015 is in absence of preceding preliminary notice. He further pointed out that Respondent No. 1 has illegally invoked the bank guarantees on 28.12.2015 when as per the clause No. 41.1.4 of the contract, the bank guarantee can be invoked only upon issuance of the termination notice.
3. Mr. Kadam further submitted that thus, the work could not be done within the contract period not because the petitioner was at fault but there was considerable delay in handing over the present site of highway to the petitioner by the respondent. There was failure to hand over the drawings of ‘good for construction” (GFC) in time. So also, there is a default in making payment of running account bills on the part of the respondent Nos. 1 and 2. He submitted that Respondent Nos. 1 and 2 have failed to perform the contractual obligations and thus, for non-completion of the work, within stipulated period, the petitioner cannot be held responsible. The National Highway Authority did not hand over to Respondent No. 1, it ultimately has a cascading effect on the performance of the petitioner to complete the work within time. In support of his submissions, he relied on the letter dated 18.12.2015 given by EPC contractor to National Highway Authority wherein various reasons are stated for delay and interim extension of time was asked for. The learned Senior Counsel submitted that there is only a sub-contract of laning of 31 kms road which is given to this sub-contractor. As it was not handed over, it could not complete the work.
4. He argued that as per the supplementary agreement dated 31.10.2014, a finance of Rs. 1400 crores was made available to EPC contractor and the respondent No. 1 was supposed to keep this amount intact in escrow account. However, Respondent Nos. 1 and 2 have diverted the said amount to other work carried out by them and, therefore, as respondent Nos. 1 and 2 are now facing shortage of funds, they are illegally invoking the bank guarantee with intention to use the money of the petitioner for their own use.
5. Mr. Kadam, while elaborating his point on considering the case of granting stay under special equities, submitted that a total bank guarantee including advance and performance bank guarantees are of Rs. 38.75 crores. He submitted that only for the reason of not expediting the work, preliminary notice was given on 30.7.2015 So that is the only default on the part of the petitioner. He pointed out his reply dated 1.8.2015 and denied the said breach by the petitioner. Thereafter on 25.8.2015, there was a meeting and the minutes of the meeting dated 25.8.2015 and the terms were agreed by the parties. He highlighted that escalation in the price as also joint survey of the site was agreed and was to be done in the first week of September, 2015. Pursuant to that, the work change order was issued on 1.12.2015 He pointed out the said work order and the clauses mentioned therein and submitted that because of the issuance of the work change order on 1.12.2015, the preliminary notice in fact is extinguished and the time was extended to carry out the work upto 31.12.2016 No clear site was handed over to the petitioner and therefore, it was not possible for it to carry out the work of 31 kms. He pointed out the documents showing the patch between 789 kms to 820 kms i.e, of 31 kms. There are a number of hindrances and they are to be cleared by the EPC contractor and then only the work can be carried out. He further relied on the Certificate of Interim Payment which was issued in favour of the petitioner where it is said that 75% of the amount to be paid of the total contract. Thus, he submitted that though it is a settled position of law that the stay is not to be granted by the Courts in the case of bank guarantee, however, the impugned contract is an additional contract and peculiar facts and circumstances of this case if considered then case for special equities is made out and Court can stay the invocation of bank guarantee. He further submitted that today, the bank guarantee are still alive.
6. Mr. Kadam pressed the point of invocation of performance bank guarantee that it was not as per the terms of the contract and, therefore, it is to be stayed. He pointed out the letter dated 28.12.2015 issued by the EPC contractor to the bank about invocation of performance bank guarantee and also advance bank guarantee but the letters issued in respect of performance bank guarantee which are at page No. 449C, 449D and 449E which is of approximately of Rs. 19 crores and is not in consonance with the terms and conditions of the agreement. In support of his submissions, he relied on page Nos. 326, 327 of the terms and conditions of the contract. He read over clauses 4, 6 and 9 of the said contract. He submitted that the EPC contractor made only demand of money to the bank. It is a bald invocation and such blanket invocation is against the terms of the contract and hence, is a good ground to grant stay. In support of his submissions, he relied on Crest Communication Ltd. v. State Bank of India 2000 3 Mh.L.J 163
7. He argued that when the performance bank guarantee is invoked, it should be in accordance with the terms and conditions of the guarantee, though the bank guarantee is unconditional. He relied on the case of Western Coalfields Ltd. v. Rajesh s/o Nandlal Biyani 2012 1 Mh.L.J 394. He also relied on the judgment of the Nagpur Bench of this Court in Appeal from Order No. 103 of 2012 in Mohan Nimdeokar v. A 2 Z Maintainance and Engineering Services Ltd. AO No. 103 of 2012 decided on 24.9.2012
8. He further relied on the judgment of the Division Bench of this Court in the case of ITD Cementation India Ltd. v. Reliance Infrastructure Ltd. 2014 2 Bom CR 1 He pointed out that the respondent in the present case was the respondent in the said appeal and the bank guarantee was furnished by the ITD Cementation i.e, the plaintiff therein and the defendant had sent a letter for invocation of the bank guarantee furnished by ITD, the plaintiff.
9. He submitted that special equities can also be considered as a third ground other than fraud and irretrievable injury. The Division Bench in the case of ITD Cementation India Ltd. v. Reliance Infrastructure Limited Appeal L No. 64 of 2014 decided on 13.2.2014 has upheld the order passed by the learned Single Judge and reliance is placed on the judgment of the Supreme Court in Hindustan Construction Company v. State of Bihar 1999 8 SCC 436 He relied on paragraphs 20 and 21 of the Hindustan Construction Company (supra).
10. Mr. Kadam also relied on Puri International (P) Ltd.Petitioner v. National Building Construction Co. Ltds 1997 41 DRJ 592 of the High Court of Delhi. On the point of Special Equities, he relied on the judgement of Delhi High Court in P.D Alkarma Pvt. Ltd. v. Canara Bank 1998 45 DRJ 423.
11. Per contra, Mr. Dwarkadas, the learned Senior Counsel appearing for Respondent Nos. 1 and 2, has submitted that neither fraud nor irretrievable injury is made out by the petitioner. He submitted that the ground of special equities argued by the learned Counsel for the petitioner cannot be considered and no stay to the invocation of bank guarantees can be granted. He submitted that this Court is not going to decide the issues on the facts by deciding the meaning of the terms and conditions of the agreement entered into between the parties. The parties will be approaching the arbitrator and the dispute will be decided by the arbitrator. He submitted that the respondents have answered each allegation made by the petitioner on the point of delay in handing over the possession of the project site, failure to hand over 100% “good for construction” (GFC) drawings, so also on default in making payments. He submitted that special equities itself is not a ground. The first time this term was used by the learned Single Judge of the Calcutta High Court in the case of Texmaco Ltd. v. State Bank of India AIR 1979 Cal 44
12. He submitted that in the case of UP Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. 1988 1 SCC 174, the Supreme Court has referred to the ratio laid down in Elian and Rabbath v. Matsas and Matsas 1966 2 Lloyd's List Law Reports 495. He submitted that the Court cannot pass an order of injunction in favour of the defendants which would amount to injunction to restrain the bank from performing the bank guarantee. Thus, what is not allowed to do directly, cannot be done indirectly. He submitted that there should be a situation which can be considered as special equities where injunction was sought for to bring injustice which was irretrievable. He further submitted that the law as to contractual obligations under bank guarantee has been well settled in a catena of cases. He also relied on the UP State Sugar Corporation v. Sumac International Ltd. 1997 1 SCC 568. He submitted that to make out a case of exceptional circumstance, it is necessary for the construction contractor i.e, the respondent, to establish that it is impossible to reimburse himself if he ultimately succeeds. Mere apprehension is not sufficient.
13. Mr. Dwarkadas highlighted that the instances of injunction granted by various High Courts are disapproved by the Supreme Court in the case of Dwarikesh Sugar Industries ltd. v. Prem Heavy Engineering Works (P) Ltd. 1997 6 SCC 450.
14. Learned Senior Counsel relied on the judgment in Vinitec Electronics Pvt. Ltd. v. HCL Infosystems Ltd. 2008 1 SCC 544 and Svenska Handelsbanken v. Indian Charge Chrome 1994 1 SCC 502 to submit that irretrievable injustice or irretrievable injury should be specific and should be supported by evidence. He submitted that in the case of Svenska Handelsbanken (supra), the Supreme Court held that mere prima facie case of established fraud is of no consequence in restraining the encashment of bank guarantee. The learned Senior Counsel argued that special equities will only arise where a clear case of irretrievable injustice or injury is made out. The case of the petitioner does not fall within the exception of special equities.
15. On the point of honouring the bank guarantee, the learned Senior Counsel also relied on the case of BSES Ltd. (Now Reliance Energy Ltd.) v. Fenner India Ltd. 2006 2 SCC 728.
16. Mr. Dwarkadas took up all the points of objection in respect of failures and gave reply in writing. He also submitted that on 4.10.2013, amendment was executed in the construction agreement. Then, there are minutes of meeting dated 27.8.2015 where the petitioner withdrew all the allegations regarding the delays in payments and there were no outstanding payment issues. He placed heavy reliance on the case of ITD Cementation India Ltd. v. Reliance Infrastructure Ltd. Appeal L No. 64 of 20014 decided on 13.2.2014 (supra). He submitted that in the said case, identical contentions on special equities were raised. However, the Court refused to grant injunction to the encashment of bank guarantee. He submitted that performance bank guarantee is unambiguous. It is unconditional and irrevocable obligation undertaken by the bank. He has illustrated the clauses mentioned in performance bank guarantee, especially the clauses 4, 6, 7, 8 and 9 of the bank guarantee. In clause 7, he submitted that there is a specific mention that the bank guarantee is unconditional and irrevocable.
17. Mr. Dwarkadas highlighted the recitals in the clause 4 of the agreement between the parties. He also referred to cause No. 7 to show that the bank guarantee between the parties is unconditional and irrevocable. He also relied on clauses 8 and 9 of the contract to submit that it is specifically mentioned that the decision of the EPC contractor as to whether construction contractor has fulfilled its obligation or not shall be binding on the bank. He argued that the submissions of the learned Senior Counsel for the Petitioner that it was unconditional, is incorrect and the reliance placed by him on clause Nos. 41.1.4 of the construction agreement is wholly misplaced as it is not to be incorporated in the performance of the bank guarantee.
18. The learned Counsel extensively argued on the application of the ratio laid down in the cases relied on by the learned Senior Counsel for the petitioner and submitted that for this case, the same is not applicable. He also referred to the December 2015 events wherein the extension of time till December, 2016 was given and on the other hand, immediately the contract was terminated. He further argued that invocation of the bank guarantee prior to two days of termination of the agreement, is not illegal. He further argued that termination is not without cause. He relied on the clause 41 which speaks of termination and specifically sub-clause (m) of clause 41 of the said agreement which provides a ground for incompletion of the contract within the stipulated period as a good ground for termination. He relied on the notice given by the respondents dated 30.7.2015
19. He further submitted that the submission of the learned Counsel for the petitioner that the respondent No. 1 is in a precarious financial condition, is incorrect. He submitted that the respondents are not fly-by-13/38 night operators but are businessmen and having a business running in profits. He relied on the balance sheet of the company of 2014-2015 which showed Rs. 1,008 crore profit. He gave the particulars of the profits made by the company. He also pointed out that on the contrary, the petitioner is rather undergoing a financial crisis because in some other legal matters, the petitioner is facing attachment orders on property. He relied on the memorandum of correspondence between the parties where it was mentioned that the respondents have not completed satisfactory work.
20. Mr. Kadam has placed reliance on the point of special equities and fraudulent invocation on Hindustan Steel Works and Construction Ltd. v. Tarapore & Co. 1996 5 SCC 34. It was countered by Mr. Dwarkadas by relying on the same ruling and he submitted that in the said case, the Supreme Court has held that only in exceptional cases, i.e, to say in the face of fraud or in case of irretrievable injustice, the Courts should interfere. He submitted that there should be fraud and also irretrievable injustice existing together and then only invocation can be injuncted. He pointed out that the Supreme Court has held that irreparable harm or allegations should not be speculative but genuine and in the present case, the claim of the petitioners is based on speculations. He discussed the case of HCC Limited (supra), and submitted that in the said case, the facts were different.
21. He referred to the additional affidavit of one Navjeet Gadhoke filed on behalf of the petitioner dated 15.2.2016 He submitted that the subsequent events which are mentioned in the affidavit are disputed. The Respondents have shown the balance of Rs. 24,000/- crores and however, the petitioners have pointed out that they are in debt of Rs. 42,000/- crores. Mr. Dwarkadas, the learned Senior Counsel, submitted that the respondents are going to sell a portion of road to some foreign companies, however, it does not mean that the respondents are going to wind up their company but if a portion of the road is sold, it is to clear the debt so that the debt of Rs. 42,000/- crores would be lessened.
22. In reply, Mr. Kadam relied on the affidavit of Navjeet Gadhoke filed on behalf of the petitioner, to show the news article that the respondents are in talks to sell road assets portfolio are published in the print media, is produced. He relied on the notice of termination dated 30.12.2015 He submitted that this notice should not have been issued because two days prior to that, a new contract change worker order was given. So it was a new contract. As per the agreement, it was binding on the respondents to give a preliminary notice. So, as soon as that contract is entered into, preliminary notice was waived. The conduct of the respondents is fraudulent and no reasons are given by the respondents while terminating the contract. These December events are special equities and they are different than the facts of the case of ITD Cementation (supra).
23. Heard. Perused all the relevant documents. It is an admitted position that the respondents are given highway project and the petitioners are given a sub-contract by the respondents to complete some portion of the project i.e, road of 31 kms only. As per the submissions made by the learned Counsel for both the sides, approximately 30% work of the worksite of national highway is completed by the respondents and so it is contended by the respondents that the action of termination is legal and the petition is to be disposed of.
24. Most of the facts regarding execution of the contract in the present matter are accepted by the parties, hence, no discussion is required on admitted facts. The reasons of termination of the contract and invocation of bank guarantee by the respondent company so also the grounds raised by the petitioner company for non-completion of the work are disputed and to be agitated before the arbitral Tribunal which is going to be formed in due course. The Tribunal is to examine and assess the validity of the grounds of termination of the contract and the allegations made against each other by the parties and then pass the award accordingly. A short question before the Court is whether invocation of the performance bank guarantee is prima facie illegal and, therefore, the bank to be injuncted from invoking the same and the transaction can be stopped by the Court. The illegality of invocation of bank guarantee should be within the parameters of the ratio laid down in the various pronouncements of the Supreme Court and to be tested accordingly.
25. In Dwarikesh Sugar Industries Ltd. (supra), the Supreme Court criticised the High Court and held that the position of law is well settled by the Supreme Court in respect of invocation of bank guarantee and this law cannot be ignored by the High Court at the time of passing judicial order which is contrary to the settled legal position. It held that the Courts cannot be liberal in granting injunction restraining encashment of bank guarantees.
26. In Svenska Handelsbanken (supra), it is held that not only irretrievable injustice is sufficient but the main ground is of fraud which is required to be established.
27. In the case of ABG Ports v. PSA International PTE Ltd. 2013 1 Mh.L.J 755, the learned Single Judge of this Court while considering the status of the contract of bank guarantee held that an unconditional bank guarantee is an independent contract and whether the encashment of bank guarantee is permitted or not has to be considered without any reference to the underlying or main contract or the disputes thereunder.
28. It is a settled position of law that the bank guarantee is a commitment of the bank and granting injunction amounts to restraining the bank from performing the bank guarantee except the case if on the ground of fraud or irretrievable injustice to the petitioner is made out. When the performance guarantee is conditional, then, the Court has scope to find out whether the terms of contract as agreed and the conditions imposed are to be observed or not. The terms and conditions which are mentioned in the bank guarantee should make it expressly clear that the guarantee is conditional. When the bank guarantee is unconditional, then, only in exceptional case, the injunction can be granted if the petitioner is successful in establishing the fact of fraud and irretrievable injustice to the petitioner. It is a settled position of law that the fraud which is alleged is also not to be of a superficial nature but it must be a egregious nature that it vitiates the entire transaction. The edifice of the transaction should stand on the fraud and thus, if it is proved, the entire edifice will collapse. On the background of the Supreme Court pronouncements on the point of invocation of bank guarantee, the present case and the relief prayed is appreciated.
29. The decision of the learned Single Judge of this Court in the case of ITD Cementation Ltd. (supra) is a favourable decision to the respondents. The respondent in the said case and in the present case is one and the same. The agreements were executed by the respondents with the petitioner and the nature of the job work is also similar i.e, of making of some portion of road i.e, Pune Satara highway and in the said matter, the respondent invoked advance bank guarantee and also performance bank guarantee by terminating the contract and therefore, the petitioner ITD Cementation prayed relief of injunction. However, the learned Single Judge rejected the same on the ground that no case of fraud or irretrievable injustice is made out. The said order was challenged before the Division Bench of Bombay High Court and the Division Bench confirmed the order passed by the learned Single Judge and dismissed the appeal.
30. Learned Senior Counsel Mr. Kadam tried to distinguish the facts of ITD Cementation (supra) and the present case. It was submitted that on facts and especially on the ground of special equities, in the said case, the Division Bench held that the plea for special equities is very vague and no averment is made to make out a case. The Division Bench in paragraphs 12 and 13 of its judgement has mentioned that “be that as it may, in our view, without going into the question whether special equities is part of the ground of irretrievable injury or it is a distinct ground over and above the fraud and irretrievable injury, taking into consideration all the facts of this case, no case is made out by the plaintiff for grant of injunction either on the ground of fraud, irretrievable injury or special equities”. Thus, it is true that in that case, the Division Bench did not decide the issue whether special equities is a distinct ground or is a part of the irretrievable injury. However, the Supreme Court has considered the principles of special equities and in the case of UP Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (supra), the words of Justice Denning M.R in Elian and Rabbath v. Matsas and Matsas, are referred to as “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 case of the petitioner cannot stand only on special equities but it is necessary to show first that the irretrievable injustice is going to be caused and then, special equities are such circumstances which ultimately will lead to irretrievable injustice. Without pointing out and establishing the plea of irretrievable injustice, a ground of special equities alone cannot stand independently. Thus, it can be said that special equities and irretrievable injustice are inseparable twins.
31. In the case of Crest Communication Ltd. v. State Bank of India (supra), the plaintiffs had approached the Court for injunction to performance bank guarantee furnished by the plaintiffs. However, the defendants in the said case, invoked it by putting up a case that it is a bank guarantee which is unconditional and, therefore, by mere demand, the bank is liable to make the payment of the guarantee amount to the defendants. The Court held that the guarantee is unconditional. However, for invocation of the performance bank guarantee, it is necessary to make written declaration of the default of the plaintiffs and thus, in the said case, the injunction was granted.
32. In the case of Western Coalfields Ltd. v. Rajesh s/o Nandlal Biyani 2012 1 Mh.L.J 394, the learned Single Judge of this Court has distinguished between the contingent contract and unconditional contract and referred the relevant provisions of the contract act and held that whether particular bank guarantee is contingent or irrevocable contract, is to be determined from the terms of the bank guarantee in question.
33. In the present case, after perusal of the bank guarantee, it is found that the relevant conditions therein are as follows:
“4. AND WHEREAS in conformity with the provisions of the Contract, the Construction Contractor had agreed to furnish an unconditional and irrevocable Bank Guarantee for an amount which is Ten percent (10%) of the Contract Price (the “Contract Price”) for the timely completion and faithful and successful execution of the Contract.
6. NOW THEREFORE, the Bank undertakes the pecuniary responsibility of the Construction Contractor to the EPC Contractor for the due performance of the Contract and for the payment of any money by the Construction Contractor to the EPC Contractor and hereby issues in favour of the EPC Contractor this Guarantee in the amount of Rs. 6,68,75,000/- (Rupees Six Crore Sixty Eight Lakhs Seventy Five Thousand only)
9. The decision of the EPC Contractor as to whether the Construction Contractor has fulfilled its obligation or not shall be binding on the Bank. The Bank acknowledges that any such demand by the EPC Contractor of the amounts payable by the bank to the EPC Contractor shall be final, binding and conclusive evidence in respect of the amounts payable by the Construction Contractor to the EPC Contractor.”
34. It is to be noted that the demand and decision are two separate things. It was argued that the demand should manifest the decision. The demand is made by EPC contractor to the bank. The learned Senior Counsel for the petitioner has argued that the word ‘decision’ mentioned in the said clause necessarily expects that while giving the letter of demand, the EPC Contractor should convey the decision in the letter of demand. He submitted that the letter does not disclose the decision. It is just a demand of money, so, it is contrary to the terms of the bank guarantee. These submissions are not convincing. It is not necessary to inform actual decision as to whether the Construction Contractor has fulfilled the obligations are not as it is immaterial to bank when demand is placed. This decision of demand is communicated. How this decision is to be worded is a matter of expression and there cannot be any condition as such that the demand of money should manifest the decision itself. In commercial transactions, bank guarantee is a solemn assurance to which the party furnishing it, has to abide by the said assurance. However, the invocation should be in consonance with the terms and conditions of the bank guarantee. In the case of Hindustan Construction Company (supra), the Chief Engineer was empowered to invoke the bank guarantee and however, it was invoked by the Executive Engineer and so it was considered wrong and it was not in terms of the agreement. In the present case, it appears that the decision that the plaintiffs or the construction contractor is at default and, therefore, the money is demanded. Such decision undoubtedly cannot be questioned by the bank. Thus, it is not necessary to mention the decision while demanding the performance bank guarantee.
35. Both the learned Senior Counsel have relied on the relevant provisions of the construction agreement dated 15.4.2011 which was executed between the parties. As per the agreement, the EPC Contractor shall provide access to and possession of the project site to the construction contractor in accordance with the project completion schedule. So the EPC contractor is supposed to provide a project site delivery schedule to the construction contractor to enable him to submit its work programme. Clause No. 7.3 states about furnishing contract performance i.e, advance bank guarantee and performance bank guarantee. In clauses 36.4, 36.4.3, 36.4.7, the terms of payment are specified. Clauses No. 41, 41.1 are very important as they deal with termination. Clause 41.1 states about construction contractor's events of defaults. In the event of breach of obligations under the agreement, a preliminary notice is to be given stating that the EPC contractor has intention to terminate the agreement with the construction contractor. The instances of the breach are illustrated in the said paragraph. Clause 41.1.2 states that if the construction contractor fails to rectify the defaults which are mentioned in the preliminary notice, then, within 15 days from the receipt of preliminary notice, the EPC Contractor is entitled to terminate the contract forthwith by giving final termination notice. In clause No. 41.1.2 reference of sub-clause Nos. 41.1.1 (b), (f) and (r) is made as an exception. Under these sub clauses, EPC Contractor shall be entitled to terminate the contract immediately even without giving any preliminary notice. These sub-clauses (b), (f) and (r) specify the events i.e, if the agreement is suspended or abandoned by the contractor or if the winding up of the Construction Contractor has been admitted or liquidator is appointed or if the Construction Contractor admits in writing its failure and inability to pay the debts as they become due then, the EPC contractor is entitled to terminate the contract without giving any preliminary notice. This means that except for the breach under sub-clause (b), (f) and (r) in clause 41.1.1, it is binding on the EPC Contractor to give minimum 15 days preliminary notice to rectify the default and thereafter by issuing final termination notice, contract can be terminated.
36. The case of the petitioner is not covered under sub-clause (b), (f) or (r). Thus, preliminary notice and thereafter final termination notice is necessary for termination of the contract.
37. Clause No. 41.1.4 states as under:
41.1.4 Upon termination of the Contract under Clause 41.1.2, the EPC Contractor shall also be entitled to:
(a) Call the whole or such portion of the Performance Bank Guarantee amount as the EPC Contractor may consider fit; and
(b) Recover from the Construction Contractor the cost of carrying out the balance Works in excess of the sum which the Construction Contractor would have been paid. …..”
(emphasis placed)
38. Clause 41.2 states about termination of contract by EPC Contractor for convenience. It states that the EPC Contractor shall have right to terminate the agreement at any time by giving 30 days written notice (which is called EPC Contractor's preliminary notice) to remedy the breaches. Clause 41.2 opens with the words “notwithstanding anything contrary contained in article 41.1”. Thus, clause 41.2 reserves the right of the EPC Contractor to terminate the agreement at any time.
39. Upon a collective reading of the clause 41.1.1, 41.1.2 and 41.2 in respect of the termination of the contract, it appears that the preliminary written notice is a condition precedent for termination of the agreement to remedy the breaches. So, preliminary notice is required to be given if there are breaches under clauses 41.1 which will subsequently be followed by the final notice under 41.1.2 Clause 41.1.2 reads that if construction contractor fails to rectify the default stated in preliminary notice within 15 days from the receipt of the preliminary notice, then the EPC contractor is entitled to terminate the agreements forthwith after giving a final termination notice. However, if the termination is by EPC contractor for convenience under clause 41.2, then, a written notice which is named as EPC contractor's preliminary notice is required to be given 30 days prior to the termination and provide the time to the construction contractor to remedy the breaches and if there is a failure to remedy the breaches, under the said clause, then, no further notice is required and termination will be in force immediately after the expiry of the notice period.
40. In the present case, it is admitted that the preliminary notice for default was given on 30.7.2015 Thereafter, the said notice was replied by the petitioner. The review meetings and joint visits had taken place between the parties and on 1.12.2015, Respondent No. 1 issued work change order in favour of the petitioner to proceed for increase in contract value by a substantial sum of Rs. 14 crores and time for completion of the construction agreement was extended upto 31.12.2016 Thereafter, on 28.12.2015, respondent Nos. 1 and 2 sent letters to respondent Nos. 3 and 4, the banks, for invocation of bank guarantees and on 30.12.2015, respondent Nos. 1 and 2 purported to terminate the construction agreement pursuant to the preliminary notice dated 30.7.2015 If the notice of termination dated 30.12.2015 is based on the preliminary notice dated 30.7.2015, then, the termination is not under clause 41.2 for convenience. Then, it is necessarily a termination under clause 41.1.1 of the agreement. If it is under 41.1.1, then it should follow the termination notice as per clause 41.1.2 The final notice of termination in the present case is admittedly given few days after the notice of invocation of the bank guarantees. The learned Senior Counsel Mr. Kadam has submitted that the issuance of work change order on 1.12.2015 and extension of time of the agreement till 31.12.2016 amounted to a fresh contract itself and, therefore, the preliminary notice dated 30.7.2015 was extinguished. This argument may hold good while determining the validity of the termination, however, as pointed out by Mr. Dwarkadas in the work change order, it is mentioned that the terms and conditions of the earlier original agreement to continue and are applicable. Whether the termination is a condition precedent for invocation of the bank guarantee is the issue much emphasised and it is to be answered in negative in view of the manner in which the bank guarantee is worded. The time gap between the preliminary notice dated 30.7.2015 and the final notice which was given n 28.12.2015 and the meetings took place between the parties show that the parties were trying to proceed with the work and tried to keep the contract alive. However, it did not work out and it was terminated.
41. The clause No. 41.1.4 is the most relevant clause which states about the invocation of the bank guarantee. It is worded specifically that “upon termination of the contract under clause 41.1.2, the EPC contractor shall also be entitled to call the whole or such portion of the performance bank guarantee amount as the EPC Contractor may consider fit”. Thus, in article 41.1.4 of invocation of the bank guarantee, clause No. 41.1.2 is referred. Thus, the words “upon termination” lays down a sequence which the parties are expected to follow at the time of termination of the agreement and invocation of the bank guarantee. Though it is not a condition precedent, for invocation, initially advance bank guarantee was issued on 29.7.2011 and it was extended upto 30.9.2015 and later on further extended. There is no issue about advance bank guarantee but invocation of two performance bank guarantees of Rs. 6,68,75,000/- each is disputed. In clause 3 of the said bank guarantee, there is a reference to the construction contract entered into by the parties. In clause 6, the bank has given undertaking of the pecuniary responsibility of the EPC contractor and clause 7 casts unconditional undertaking on payment of demand by the EPC Contractor without any demur, reservation or contest.
42. The clauses in the bank guarantee reveal that termination of the contract is not a condition precedent for invocation of bank guarantee. It can be understood that after giving notice of termination, the party can call off the bank guarantee. It is to be read as an enabling clause. If these terms in this clause would have been mentioned specifically in the bank guarantee, then, giving notice of termination ought to have been considered as a condition precedent for invocation of bank guarantee. Reliance can be placed on Vinitec Electronics Pvt. Ltd. v. HCL Infosystems Ltd. (supra), wherein it is held that “mere fact that the bank guarantee refers to the principal agreement in the preamble of the deed of guarantee does not make the guarantee furnished by the bank to be a conditional one unless any particular clause of the agreement has been made part of the deed of guarantee. The recitals in the preamble in the deed of guarantee do not control the operative part of the deed. After careful analysis of the terms of the guarantee the guarantee is held to be an unconditional one”
43. For redressal of the dispute regarding timely fulfillment of the obligations and termination of the contract, the parties have to go before the arbitral Tribunal and seek relief by proving the facts as to who is at fault. This petition is only for interim relief under section 9 of the Act whether the respondents can be injuncted from invoking bank guarantee at this stage. As discussed earlier, the petitioner has not pleaded fraud but fradulent invocation on the basis of subsequent events and a case of irretrievable injustice, with special equities. In the present case, the submissions of the learned Counsel for the petitioner that the respondent is having financial crisis cannot be accepted. A mere mention that the respondents are facing monetary problems is not sufficient and cannot be believed. Thus, the bank guarantees if invoked, at this stage, then, the petitioner has always a remedy before the arbitral Tribunal to set up its case and the amount can be recovered from the respondents. It is to be noted that the word ‘injustice’ is not used singly but it is coupled with an adjective as ‘irretrievable injustice’. Similarly, the word equities is not used alone but is used with an adjective “special” equities. It can be said that the petitioner may face injustice because of invocation of the bank guarantee, however, it is necessary to show at this stage that the petitioner is going to suffer irretrievable injustice. Thus, injustice is such which cannot be compensated or a person becomes remediless. In every commercial transaction, the promise of bank guarantee is to be honoured as it is a solemn undertaking of financial assurance in the commercial world. Thus, generally, while granting interim relief of injunction three criteria i.e, prima facie case, irreparable loss and balance of convenience are taken into account by the Court, however, in the case of injunction on invocation of bank guarantee, a standard of judicial conviction to use this discretionary power in respect of these yardsticks is raised to a much higher degree.
44. In the case of Western Coalfields (supra), the learned Single Judge of this Court of Nagpur bench, confirmed the order of injunction passed by the Civil Judge, Senior Division, Nagpur by holding that in the said case, it was considered that the bank guarantee which permits the creditor to invoke the bank guarantee, is an independent contract between the bank and the beneficiary. However, if the bank guarantee is to be invoked upon happening of uncertain future events, then that becomes a contingent contract and then, the beneficiary has no unfettered right to invoke the bank guarantee and demand immediate payment. It was held that principal debtor has locus to complaint about the non-fulfillment of the conditions of the bank guarantee. In the said case, the bank guarantee was invoked after lapse of 5 months from the date of termination of the contract. Therefore, the Court held that it is an after thought and not bonafide and the invocation of the bank guarantee thus, was not for the purposes or reasons mentioned in the bank guarantee. However, in the present case, nearly five months after the preliminary notice, final notice of termination was given and invocation of the bank guarantee is two days prior to the termination of the contract.
45. In the case of HCC Limited (supra), the Supreme Court held that the bank guarantee against mobilisation advance was not unconditional and, therefore, the injunction was justified. In the said case, the bank guarantee was between the bank and the Chief Engineer. However, it was not invoked by the Chief Engineer but by the Executive Engineer and it was held that the bank was under no obligation to pay the amount covered by the performance guarantee to the Executive Engineer and the Supreme Court also formed opinion that there was a lapse on the part of the defendants who were not possessed of sufficient funds for completion of the work and therefore, it was held that special equities were wholly in favour of the HCC Limited.
46. On the point of irretrievable injustice, Hindustan Steel Works and Construction Ltd. v. Tarapore & Co. (supra), the Court considered whether the respondent did not have funds. These averments are to be supported by concrete grounds and that irreparable harm should not be speculative but genuine. Mr. Kadam relied on the ratio laid down in this case, as he pointed out that in the said case, the Supreme Court has referred and reproduced the relevant observations in the case of UP Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (supra) and held as follows:
“18. …. A demand by the beneficiary under the bank guarantee may become fraudulent not because of any fraud committed by the beneficiary while executing the underlying contract but it may become so because of subsequent events or circumstances. We see no good reason why the Courts should not restrain a person making such a fraudulent demand from enforcing a bank guarantee.”
47. Mr. Kadam pressed into service these observations of the Supreme Court in the Hindustan Steel Works and Construction Ltd. v. Tarapore & Co. (supra) mainly on the background of the subsequent events and circumstances. The issuance of change work order in December, 2015, the extension of the period of the agreement till 31.12.2016 and also not handing over a clear work site without any hindrances by the EPC contractor to the construction contractor are the events subsequent to the preliminary notice. However, in the same case, the Supreme Court has relied further on the judgment of the UP Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (supra), and reproduced the opinion of Justice Mukherji as “It is only in exceptional cases that is to say in face of fraud or in case irretrievable injustice be done the courts should interfere”. It held that fraud and other exceptional circumstances leading to irretrievable injustice are exceptions to the rule. The decision of the three-Judges bench in the case of Svenska Handelsbanken v. Indian Charge Chrome (supra), it is held that in case of confirmed bank guarantee/irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case and fraud has to be established fraud.
48. Thus, the pronouncements of the Supreme Court have laid down specific law and the principles about granting injunction on the invocation of the bank guarantee. In the present case, the petitioner has extended the agreement for completion of the work till December, 2016. However, it suddenly terminated the contract on 30.12.2015 At this stage, as held earlier, the act of the respondents of cancelling the agreements and invoking the bank guarantee are assumed to be unjust. However, petitioner is not remediless as the arbitral Tribunal is a forum available for redressal. Why the EPC contractor issued work change order 28 days prior to invocation of the bank guarantee and also agreed to extend the period for completion of the work upto 31.12.2016 is not satisfactorily answered. On the point of possession of the project site and access thereto, at this stage, it is not clear who is having a better case and who is at fault. The meaning of fraud is defined under section 17 of the Contract Act and that is to be considered while demonstrating fradulent action or behaviour. Therefore any action or behaviour may be unfair or unjust but it cannot be said fradulent behaviour unless it is covered under section 17 of the Contract Act. Therefore, though there is work change order after preliminary notice, whether preliminary notice was condoned or not is a contentious issue and termination of the contract within a short period after giving extension by one year may be unfair and unjust but it prima facie cannot be, at this stage, labelled as fradulent behaviour and so, invocation of the bank guarantee is not fradulent invocation. If there would have been glaring circumstance of deception, exposing the EPC Contractor of not facilitating the fulfillment of the obligation on the part of the construction contractor, then, that could have been appreciated as a special equity leading to irretrievable injustice. Such instance would have uncovered the malafides of the respondent if any. However, in the absence of such specific instances, the termination of agreement much before the extended time itself, cannot be considered as a fradulent invocation to stop the invocation of the bank guarantee which is unconditional.
49. Moreover, both the parties are equipped with many documents, minutes of meetings, allegations and counter allegations on the point of default and compliance/non-compliance of the terms and conditions on the point of the legality of the termination. Insofar as the invocation of the bank guarantee is concerned, it being a distinct and separate contract between the bank and the beneficiary and it is unconditional and irrevocable, unless some special facts of special equities are brought before the Court leading to irretrievable injustice, no injunction on invocation can be granted. The invocation of unconditional bank guarantee cannot be challenged otherwise and Court is slow in interfering with such invocation.
50. In UP State Sugar Corporation v. Sumac International Ltd. (supra), it is held that the duty of the bank under a performance guarantee is created by documents itself. Once the documents are in order, the bank giving guarantee must honour the same and make payment ordinarily unless there is allegation of fraud or the like. It is further held that the disputes between the parties relating to termination of the contract cannot make invocation of the bank guarantee fraudulent. This ratio laid down in UP State Sugar Corporation v. Sumac International Ltd. (supra), is an answer to the submissions made by Mr. Kadam, the learned Senior Counsel, on the point of events in December, 2015 wherein the period of contract was extended upto December, 2016 and immediate termination. Thus, it may be unexpected or unwarranted termination but it cannot be said at this stage is a fraudulent invocation of bank guarantee.
51. While dealing with this point, clause 4 of the bank guarantee is found important as it states about the agreement or consent of the construction contractor to furnish unconditional and irrevocable bank guarantee. Clause 4 reads as under:
“4. AND WHEREAS in conformity with the provisions of the Contract, the Construction Contractor had agreed to furnish an unconditional and irrevocable Bank Guarantee for an amount which is Ten percent (10%) of the Contract Price (the “Contract Price”) for the timely completion and faithful and successful execution of the Contract.
52. Clause 4 requires proper interpretation on the background of the ratio laid down in Vinitec (supra). No specific provision in the agreement is mentioned in the bank guarantee. Under this clause, the contractor agreed to furnish unconditional bank guarantee for a particular amount for the timely completion and faithful and successful execution of the contract. So, it is an assurance towards timely completion and faithful and successful execution of the contract. Thus, the bank guarantees are undoubtedly unconditional and irrevocable and as on today, the bank guarantees are not revoked and kept alive by the petitioner. The clause reads that “AND WHEREAS in conformity with the provisions of the contract, the Construction Contractor had agreed…”. It means that the Construction Contractor had agreed to furnish unconditional bank guarantee, pursuant to or in conformity with the provisions of the contract.
53. The preliminary notice was given and contract was terminated by giving final written notice. Under such circumstances, the invocation cannot be stopped as the petitioner has failed to make out a case of fraud and irretrievable injustice.
54. It is further pointed out by Mr. Kadam that in the case of ITD Cementation (supra), the EPC Contractor had invoked the bank guarantees. The matter was litigated and contested before the learned Single Judge and the Division Bench of the High Court, where the invocation of the bank guarantee was refused. Thereafter, the matter was referred to the arbitrator and then immediately the EPC Contractor again entered into a contract with the same Construction Contractor on fresh terms and conditions. Though it shows the antecedents of the conduct of the EPC contractor, this fact is not having a direct bearing on the present case and is not helpful to establish a fraud, which at the most can only be said that the respondents tend to use pressurising methods while subcontracting. It was argued that this petitioner cannot financially afford to face invocation of the bank guarantee at this stage of work where he is giving work of Rs. 49 lacs per day when there is a target of Rs. 50 lacs per day and if these bank guarantees are invoked, the petitioner will face financial civil death. This aspect may be considered sympathetically by the Tribunal, however, it is not a good ground to stop invocation of the bank guarantee.
55. In the above circumstances, the Petition is dismissed accordingly.