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when bank guarantee can be invoked ?=payment under a Bank Guarantee can normally be stopped only on two grounds and on no other, viz., on grounds of fraud and special equity, and the ground of fraud having been rejected upto this Court, the only other ground available to the Petitioner to stop the invocation of the Bank Guarantees was on account of special equities and in the instant case the Petitioner had failed to indicate any such special equity which entitled the Petitioner to an order of restraint against the Respondent No.1 from invoking the Bank Guarantees in question.

REPORTABLE

 

 

IN THE SUPREME COURT OF INDIA

 

CIVIL APPELLATE JURISDICTION

 

SPECIAL LEAVE PETITION (C) NO.24746 OF 2010

 

 

YOGRAJ INFRAS. LTD. … PETITIONER

 

Vs.

 

SSANG YONG ENG. & CONSTRN. … RESPONDENTS

CO. LTD. & ANR.

 

 

J U D G M E N T

 

 

ALTAMAS KABIR, J.

 
1. The Special Leave Petition and the application

 

filed on behalf of the Respondents for early hearing

 

and disposal of the Special Leave Petition were taken

 

up together for consideration. The facts on which the
Special Leave Petition is based, are set out

 

hereinbelow.

 

 

2. By its letter of acceptance No.NHAI/PH

 

11/NHDP/ADB/GM-11/NS1/746 dated 30th December, 2005, the

 

National Highways Authority of India, hereinafter

 

referred to as `NHAI’, awarded a contract to the

 

Respondent, SSANG YONG Engineering & Construction Co.

 

Ltd., for the National Highways Sector II Project,

 

Package-ADB-II/C-8, which involved the four laning of

 

Jhansi-Lakhadon sector KM 297 to KM 351 of National

 

Highway 26 in the State of Madhya Pradesh. The total

 

contract amount for the aforesaid project was more than

 
` 750 crores. An agreement was entered into by the NHAI

 

with the Petitioner on 13th August, 2006. Clause 27 of

 

the Agreement incorporated an arbitration clause

 

stipulating that all disputes and differences arising

 

out of or in connection with the Agreement dated 13th

 

August, 2006, would be referred to arbitration to be

 

conducted in English in Singapore in accordance with

 

the Singapore International Arbitration Centre (SIAC)
Rules. For the purpose of reference, Clause 27 of the

 

Agreement relating to arbitration is extracted

 

hereinbelow :

 

 

“27. Arbitration

 

27.1 All disputes, differences arising out of

or in connection with the Agreement shall be

referred to arbitration. The arbitration

proceedings shall be conducted in English in

Singapore in accordance with the Ssangyong

International Arbitration Centre (SIAC) Rules

as in force at the time of signing of this

Agreement. The arbitration shall be final and

binding.

 

27.2 The arbitration shall take place in

Singapore and be conducted in English language.

 

27.3 None of the Party shall be entitled to

suspend the performance of the Agreement merely

by reason of a dispute and/or a dispute

referred to arbitration.”

 

 

3. According to Clause 1 of the Agreement read with

 

the Appendix thereof, the Petitioner was to provide all

 

adequate manpower, material, plant, machinery,

 

construction equipment and all other resources,

 

including finance, which would be required to perform

 

the work Bank Guarantee was furnished by the Petitioner
on 31st October, 2006, whereby the Bank undertook to pay

 

to the Respondent on its first written demand and

 

without cavil or argument any sum or sums within the

 

limits of ` 6,05,00,000/-, without there being need to
prove or give any reasons for the demand for the said

 

sum. The guarantor also waived the necessity of the

 

Respondent Company making a demand for the debt to the

 

contractor/petitioner before presenting the demand. The

 

guarantor also agreed that no change or addition or

 

other modification of the terms of the contract or of

 

the work to be performed thereunder or any of the

 

contract documents, which may be made between the

 

Respondent and the Petitioner, would release the Bank

 

from its liability under the Agreement. Similarly,

 

three Bank Guarantees of ` 1 crore each and one Bank
Guarantee for ` 3 crores were also furnished to secure
mobilization advance.

 

 

4. Disputes and differences arose between the parties

 

relating to the performance of the Petitioner in

 

completing the work contracted as per the Agreement
dated 13th August, 2006. Consequently, since the

 

Petitioner failed to carry out the works entrusted and

 

had allegedly been over-paid to the tune of ` 78 crores,
the Respondent Company on 22nd September, 2009,

 

terminated the contract under Clause 23.2 of the

 

Agreement dated 13th August, 2006 and invoked the Bank

 

Guarantees referred to hereinbefore vide its letters

 

dated 25th January, 2010, 27th January, 2010 and 5th

 

March, 2010. The Respondent No.1 also made a

 

subsequent demand for encashment of the Bank Guarantees

 

by its letter dated 6th May, 2010.

 

 

5. In the Special Leave Petition, the Petitioner has

 

sought for an order of injunction against the

 

Respondent No.1 on the basis of alleged fraud on the

 

part of the said Respondent. The Petitioner also filed

 

a criminal complaint against the Respondent No.1

 

alleging fraud and making the same allegations which

 

have been made by it in the present Special Leave

 

Petition. The learned Magistrate took cognizance on the

 

said complaint and issued process on 5th February, 2010.
6. Aggrieved thereby, the Respondent No.1 challenged

 

the said order of the Magistrate dated 5th February,

 

2010, taking cognizance of the criminal complaint

 

alleging fraud, by filing a petition under Section 482

 

of the Code of Criminal Procedure in the Jabalpur Bench

 

of the Madhya Pradesh High Court, for quashing of the

 

cognizance taken by the learned Magistrate. The High

 

Court by its order dated 13th October, 2010, quashed the

 

criminal proceedings commenced against the Respondent

 

No.1. Challenging the said order of the High Court,

 

the Petitioner filed Special Leave Petition (Crl) No.

 

Crl. M.P. 2872 of 2011, which was dismissed by this

 

Court on 18th February, 2011. On account of the above,

 

an application for early hearing and disposal of the

 

Special Leave Petition was filed on behalf of the

 

Respondent No.1 urging that since the allegation of

 

fraud had already been decided by this Court, the

 

present Special Leave Petition could be finally

 

disposed of in view of order passed by this Court in

 

Special Leave Petition (Crl) No. Crl. M.P. 2872 of
2011. It is in this background that the present I.A.

 

has been filed for early hearing and disposal of the

 

Special Leave Petition.

 

 

7. Appearing for the Special Leave Petitioner, who is

 

the opposite party in the Interlocutory Application

 

filed on behalf of the Respondent No.1, Mr. Jaideep

 

Gupta, learned Senior Advocate, contended that the stay

 

order passed in these proceedings was liable to be

 

continued in view of the special equities in this case.

 

He submitted that the Petitioner Company had

 

invested large sums of money in the project and upon

 

termination of the contract, the dues of either party

 

were yet to be decided and the same could only be done

 

at the time of the final Award. Mr. Gupta submitted

 

that his main emphasis in the Special Leave Petition

 

was with regard to the special equities which existed

 

and the order of stay granted by this Court restraining

 

the Respondent No.1 Company from invoking the Bank

 

Guarantees was liable to be continued till the passing

 

of the final Award by the learned Arbitrator.
8. Ms. Meenakshi Arora, learned Advocate, who appeared

 

for the Respondent Company, submitted that the prayer

 

made on behalf of the Petitioner in the Section 9

 

application before the District Court, Narsinghpur,

 

seeking injunction against the Respondent No.1 from

 

invoking the Bank Guarantees, was dismissed by the

 

District Judge on 4th March, 2010, and the Appeal

 

therefrom was dismissed by the Jabalpur Bench of the

 

Madhya Pradesh High Court on 20th August, 2010.

 

However, this Court had stayed the invocation of the

 

Bank Guarantees by the Respondent No.1 Company by an

 

interim order dated 31st August, 2010. Ms. Arora

 

submitted that once the cognizance taken by the

 

magistrate on the petitioner’s criminal complaint

 

alleging fraud on the part of the Respondent No.1 was

 

quashed by the Jabalpur Bench of the Madhya Pradesh

 

High Court by its order dated 13th October, 2010, and

 

even the Special Leave Petition preferred therefrom was

 

dismissed by this Court on 18th February, 2011, the very

 

basis for seeking injunction in the proceedings under
Section 9 of the Arbitration and Conciliation Act,

 

1996, stood removed. Ms. Arora submitted that in

 

addition to the above, a partial Award had been made by

 

the Arbitral Tribunal in Singapore on 30th June, 2011,

 

in favour of the Respondent No.1. Ms. Arora submitted

 

that in terms of the agreement between the parties, the

 

Respondent No.1 Company had made huge cash advances to

 

the Petitioner for completion of the project, but the

 

same had not been fully repaid by the Petitioner and

 

that as a result, the Respondent No.1 should be

 

permitted to invoke the Bank Guarantees to realize the

 

outstanding amounts. According to Ms. Arora, the dues

 

of the Respondent No.1 Company were far beyond those

 

claimed by the Petitioner. Ms. Arora submitted that

 

since the partial Award had not been challenged by the

 

Petitioner, the execution thereof could not be stayed

 

and the Respondent No.1 was, therefore, entitled to

 

recover the amount under the partial Award. According

 

to Ms. Arora, the plea taken by the Petitioner in the

 

criminal complaint and the present Special Leave
Petition was the same and since the allegation of fraud

 

against the Respondent No.1 by the Petitioner has been

 

negated, the interim order restraining the Respondent

 

No.1 from invoking the Bank Guarantees was liable to be

 

vacated.

 

 

9. Ms. Arora submitted that since payment under a Bank

 

Guarantee can normally be stopped only on two grounds

 

and on no other, viz., on grounds of fraud and special

 

equity, and the ground of fraud having been rejected

 

upto this Court, the only other ground available to the

 

Petitioner to stop the invocation of the Bank

 

Guarantees was on account of special equities and in

 

the instant case the Petitioner had failed to indicate

 

any such special equity which entitled the Petitioner

 

to an order of restraint against the Respondent No.1

 

from invoking the Bank Guarantees in question.

 

 

10. Having heard learned counsel for the parties, we

 

are inclined to accept Ms. Meenakshi Arora’s

 

submissions that since the Petitioner’s application
under Section 9 of the Arbitration and Conciliation

 

Act, 1996, was based mainly on allegations of fraud,

 

which have been rejected, there was no foundation for

 

the stay order passed in these proceedings to continue.

 

We cannot lose sight of the fact that both in the

 

criminal proceedings as also in the proceedings under

 

Section 9 of the aforesaid Act, the Petitioner proved

 

to be unsuccessful, at least upto the High Court stage.

 

In the criminal proceedings, the Petitioner was

 

unsuccessful right upto this Court. In the aforesaid

 

circumstances, we are unable to accept the submissions

 

relating to special equities urged by Mr. Jaideep

 

Gupta, particularly in view of the fact that such a

 

point had not been raised earlier.

 

 

11. In addition to the above, we also have to keep in

 

mind the fact that a partial Award has been made by the

 

Arbitral Tribunal which has not been questioned or

 

challenged by the Petitioner and the Respondent No.1 is

 

entitled to the amount awarded in the partial Award.
12. Accordingly, we are not inclined to disturb the

 

order of the High Court and the Special Leave Petition

 

is, therefore, dismissed with cost of ` 1 lakh to be
paid by the Petitioner Company to the Supreme Court

 

Legal Services Committee. The Interlocutory Application

 

is also disposed of by this order.

 

 

……………………………………………………J.

(ALTAMAS KABIR)

 

 

……………………………………………………J.

(JASTI CHELAMESWAR)

New Delhi

Dated: 31.01.2012.

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