- (1.) THIS is the defendant's revision petition against which an ad interim injunction has been issued by both the courts below, restraining it from receiving payment of the amount from the Syndicate Bank guarantee, till the disposal of the dispute inter se between the arbitrator and also restraining the Syndicate Bank from making payment of the amount of the bank guarantees to the defendant-petitioner, the Hindustan Petroleum Corporation Ltd.
(2.) THE case set up by the plaintiff company, i. e. , Uppal Construction Co. Pvt. Ltd. , is that it is carrying on the business of construction engineers having its registered office at Delhi and having one of its branches at Gurgaon whereas defendant No. 1, the Syndicate Bank, is a nationalised banking corporation and defendant No. 2, the Hindustan Petroleum Corporation Ltd. , is a Government of India enterprise. The Hindustan Petroleum Corporation issued notice inviting tenders. The plaintiff-company, accordingly, entered into a contract for construction of an L. P. G. Bottling Plant at Unnao, with the Hindustan Petroleum Corporation, the brief particulars whereof are as under :-Date of tender 14-7-1987 Date of award 9-12-1987 The stipulated date of completion 15-9-1988 Actual date of completion The work is still in progress. It was further provided in the notice inviting tenders that the plaintiff deposit earnest money. On negotiations, the defendant Corporation required the plaintiff to furnish a bank guarantee to cover the agreed earnest money in the sum of Rs. 2,70,892 which was furnished by it, copy of the bank guarantee No. 46 of 1987 dated December 24, 1987, vide annexure P-2 to the plaint. According to the plaintiff, the Hindustan Petroleum Corporation represented in the notice inviting tender that the site for work was available, but later on, it turned out that the said site was not available. Thus, according to the plaintiff, the Hindustan Petroleum Corporation made a misrepresentation with regard to the aforesaid fact. Moreover, the Hindustan Petroleum had to obtain permission for the proposed construction from the Unnao Development Authority and the Environment and Pollution Board, Uttar Pradesh. According to the plaintiff, the notice inviting tenders was issued by the Hindustan Petroleum Corporation without obtaining permission from the aforesaid authority. Because of the aforesaid reasons, the construction could not commence or could not be completed within the stipulated date of completion despite the fact that the plaintiff organised its resources to commence, progress and complete the construction in question by the stipulated date of completion, i. e. , September 14, 1988, under the impression that the requisite permission had been obtained from the concerned authorities. Without permission from the aforesaid authority, the starting of work would have involved civil as well as criminal liability for the plaintiff-company. Therefore, it was stated that the Hindustan Petroleum Corporation was guilty of misrepresentation of facts which it made in the notice inviting tender that the site was available for construction and the construction work will be completed by the stipulated date of construction as per drawings. It was further stated that the Hindustan Petroleum Corporation handed over to the plaintiff seven drawings for the work, but the work could not make any progress due to the changes made by the Hindustan Petroleum Corporation in the drawings. Thus, the plaintiff could not start work earlier till the finalisation of the drawings by the defendant company. It has also stated that the defendant-company recklessly or falsely misrepresented that the construction could go ahead in accordance with the seven drawings involving work of the value of about Rs. 8. 2 lakhs. However, the work could not be commenced and progress further for the reasons that the competent authority, i. e. , the Unnao Development Authority and the Environment and Pollution Board, Uttar Pradesh, had not been furnished with the said plans for the proposed construction, nor had they approved the same. Belatedly, on March 16, 1988, the defendant company admitted, vide letter dated March 16, 1988, that there were serious impediments in the way of the plaintiff's construction as per the said seven drawings. It was further stated that the said impediments were because of the lack of approval by the competent authority which had been removed. Therefore, the plaintiff was required to start and progress with the works. The defendant company, consequently, unilaterally extended the date of completion up to November 15, 1988, to cover its own breaches. The plaintiff also alleged that some of the drawings involving work of the value of Rs. 10 lakhs had not been approved for implementation even on this date. Thus, the delay, if any, in completing the work was due to the entire fault of the defendant company. Moreover, the defendant company was under an obligation to furnish 12 mm. dia and 16 mm. dia torsel I, required for the construction of the foundation of columns, etc. As the defendant did not supply this material for a sufficiently long time, it also resulted in delay in completion of the work. Apart from the earnest money, the plaintiff also furnished two bank guarantees, i. e. , bank guarantee No. 44 of 1987, dated December 24, 1987, for Rs. 10,83,929 and bank guarantee No. 2 of 1989 dated February 3, 1989, for Rs. 10,00,000. The bank guarantee dated December 24, 1987, was to cover mobilisation advance and that was to be adjusted by the defendant company at the rate of ten per cent. of the value of each running account bill payable to the plaintiff between the period December 24, 1987, to November 15, 1988. As regards the second guarantee for Rs. 10,00,000, it was towards the advance paid by the defendant company and the said advance was to be adjusted at the rate of 10 per cent. from each running account bill payable to the plaintiff. According to the plaintiff, the material terms of the three bank guarantees contained identical Clauses to the effect that the first defendant, at the request and on behalf of the plaintiff, agreed to pay to the second defendant without any demur, on first demand, an amount not exceeding the amount covered by the bank guarantee, against any loss or damage, costs, charges and expenses caused to or suffered by or that would be caused or suffered by the second defendant by reason of non-appearance and non-fulfilment of or for any breach on the part of the plaintiff. According to the plaintiff, to his utter disappointment, he received the letter dated June 9, 1989, informing the plaintiff that the defendant-company had invoked the bank guarantees which were furnished by the Syndicate Bank for and on behalf of the plaintiff. According to the plaintiff, this action of the defendant company was Void ab initio, non est, a nullity, illegal, arbitrary and did not adversely affect the right of the plaintiff in the said bank guarantees and that the defendant-company was not entitled to invoke, enforce and mobilise the said bank guarantees for the reasons given in the plaint. Along with the suit, the plaintiff also filed an application for ad interim injunction. On the receipt of the notice, the defendant company immediately moved an application for setting aside the ex parte ad interim order of injunction and simultaneously also moved an application for staying the proceedings in the suit under Section 34 of the Arbitration Act as there was an arbitration agreement between the parties and the arbitrator was already seized of the matter, which fact was never disclosed by the plaintiff. However, no written statement could be filed by the defendant company as it had invoked the provisions of Section 34 of the Arbitration Act. It was stated on behalf of the defendant-company that the plaintiff had procured the ex parte interim order without disclosing the true and correct facts. The suit was hit by the arbitration clause between the parties and the Syndicate Bank had no concern with the amount in dispute. The bank was liable to encash the bank guarantee without any excuse and irrespective of the existence of any dispute or arbitration proceedings between the parties and the defendant-company. It was further stated that the defendant had exercised its right to encash the guarantees and put up the demand to defendant No. 1 on June 12, 1989, and that the bank was liable to pay immediately on demand. The plaintiff had got no prima facie case or balance of convenience restraining the defendant from encashing the bank guarantee.
(3.) THE trial court, after going through the various documents filed by the parties, came to the conclusion that in the present case the plaintiff has to recover Rs. 18,60,000 as due from defendant No. 2. The aforesaid pleas raised by the plaintiff have not been rebutted by defendant No, 2 whereas the defendant has to recover only Rs. 20. 3 lakhs against these bank guarantees. If the defendant is allowed to recover the amount of bank guarantee, in that eventuality the plaintiff is bound to suffer irreparable loss and so the plaintiff has a prima facie case in his favour and balance of convenience lies in his favour. The defendant has suggested the names of three persons, out of whom the plaintiff had to opt one name as arbitrator as is clear from the letter dated July 9, 1989, issued by the defendant to the plaintiff. Since the arbitrator was going to be appointed as per terms of notice inviting tenders and the arbitrator will decide which party has committed the breach of conditions to the contract and will also fix the liability and will also decide the quantum of damages and so in view of the aforesaid position of the case, it will be proper if the defendant is restrained from receiving the payment of the amount of the aforesaid bank guarantees from defendant No. 1 till the decision of the dispute inter se between the parties by the arbitrator and, further, the defendant is also restrained from making the payment of the amount of bank guarantee to defendant No. 2 till the decision of the dispute by the arbitrator. In appeal, the learned district judge observed : "after having considered the pros and cons of the case, I am of the view that respondent No. 1 had a plateful of difficulties which it had to encounter in the execution of the work for the most part of which the appellant must take the blame. Thus, the contract work due to the nonavailability of the site and requisite permissions of the Unnao Development Authority and the Environment and Pollution Board, U. P. , proved a non-starter. These were the biggest stumbling blocks in the way of execution of the contract work due to which a still-born venture on December 9, 1987, was not still alive till March 16, 1988. " After making these observations, the learned district judge further observed : "of course, the arbitrator/court will go into the merits of the questions involved in the case irrespective of the opinion expressed by me above which will not, in any way, prejudice the case of either of the parties. ";