- (1.) THE Judgment of the Court was as follows: THE Court: GA No. 1394 of 2009 is an application by the respondent to the proceedings under section 9 of the Arbitration and Conciliation Act, 1996 seeking, principally, a direction on the petitioner in the section 9 proceedings to renew certain bank guarantees that have now lapsed.
(2.) THE applicant is the National Highways Authority of India and the contract related to the construction or maintenance of a stretch of a national highway in the State of Andhra Pradesh. In AP No.239 of 2008, the contractor complains of a letter of December 31, 2007 by which the contract was sought to be terminated and the orders prayed for are as follows: a. Injunction restraining the respondent from giving any effect to and/ or any further effect to and/or taking any step pursuant to the notice of termination purporting to bear the date 31st December, 2007 being annexure "CCC" hereof; b. Direction upon the respondent to forthwith pay the sum of Rs. 11,04,80,372/- due and payable to the petitioner, as more fully stated in paragraph 98 hereof; c. Alternatively, the respondent be directed to furnish security for the sum of Rs. 11,04,80,372/-; d. Injunction be issued restraining the respondent, its men, agents and servants from circulating the letter purporting to bear the date 31st December, 2007 and/or the contents thereof in any manner whatsoever; e. Ad-interim order in terms of prayers above; f. Such further or other order or orders be passed and/or direction or directions be given as to this Hon'ble Court may deem fit and proper. Upon such petition being received an order was made on May 15, 2008, the material part whereof needs to be noticed in its entirety: "Counsel for NHAI submits that in such contract value is of importance. Clause 53 empowers the respondent to terminate the contract for any of the fundamental breaches as stated under clause 53.2 of the said agreement. Therefore, under clause 53.2(h) and 53.2(i) the letter dated 31st December, 2007 has been issued. There is no scope to pass any interim order as the petitioner has filed the instant application after a delay of five months. Therefore, there is no urgency. Having considered the submissions of the parties, the parties are directed to maintain the status quo as on date. This order is passed without prejudice to the rights and contentions of both parties and this order will not debar the parties from relying on the letter dated 31st December, 2007. The parties will be free to agitate their claims and counter claims before the learned Arbitrator." It is the applicant's case that the parties understood the order of status quo (which, incidentally, did not specify the status that was required to be preserved) to imply that the bank guarantees that had been furnished by way of performance guarantees or the other bank guarantees that had been furnished on behalf of the contractor could not be encashed even if valid grounds existed or arose for encashing the same. The applicant says that, as a corollary, it was incumbent on the contractor to keep the bank guarantees alive till the order of status quo was vacated or till the reference was concluded.
(3.) IN furtherance of the applicant's contention that the parties understood the order of status quo as such, the applicant has referred to its letter of June 17, 2008 by which advocates representing the applicant wrote to advocates representing the contractor as follows: "Please note that in terms of the order passed by the Hon'ble High Court at Calcutta in the above matter, the parties have (sic, have been) directed to maintain status quo in respect of the notice of termination dated 31st December, 2007. We have been informed by our client that the following Bank Guarantees are expiring on the dates shown here in below: (Some particulars indicated) IN view of the above, you are requested to advise your clients to renew the bank guarantees for further period till the arbitration in the matter is disposed off (sic, of) by keeping the same valid. Copies of the said bank guarantees are enclosed for your ready reference, record and taking necessary steps in the matter." The applicant says that the letter of June 17, 2008 was issued almost within a month the order of status quo being made on May 15, 2008. The applicant demonstrates that within a week of the demand, the bank guarantees were renewed and/or the due dates thereof were extended. The applicant was informed of the extension of the bank guarantees by a letter of June 24, 2008 issued by the contractor.;