FACTS
The appeal titled, Classic KSM Bashir JV vs. Rites Ltd. and Ors. 2018 SCC OnLine Del 9056, challenges the order of the learned Single Judge which had declined the grant of interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 (hereafter 'the Act').
A tender was floated, whereby the appellant was granted the Letter of Acceptance on December 03, 2012, for a project to be completed within a period of 15 months. An agreement dated January 18, 2013 was also executed by the parties in this regard. The date of completion of the work was extended several times until the appellant was aggrieved by the termination of the contract on September 20, , 2017. The grievance of the appellant was threefold - i) the invocation of performance guarantee, ii) mobilization of advance bank guarantee and iii) the alleged unlawful termination of the contract by Rail India Technical and Economic Service (hereafter 'RITES'). The Court vide order dated October 13, 2017, restrained the HDFC Bank, who has been impleaded, from taking any steps in relation to the encashment of the bank guarantee. However, RITES had already invoked the bank guarantees submitted by the appellant vide its invocation letter dated October 05, 2017.
The learned Single Judge stated that invocation of the performance guarantee could not be prohibited in view of the settled principles of law. However, he granted limited relief to the appellant with respect to the invocation of the mobilisation advance, holding that the invocation was not in terms of the bank guarantee.
Legal propositions upheld by the division bench in the said appeal:
- The division bench stated that it could not be accepted that the performance guarantee cannot be invoked at all in a case of undetermined or inchoate sums claimed on the principal on account of damages.
- The Division Bench upheld that the bank cannot adjudicate as to whether the claim by the beneficiary was in fact determined by it in accordance with the underlying contract between it and a third party in order to invoke the bank guarantee.
- Furthermore, emphasis was laid on the fact that the guarantee is an independent contract and that a contract of guarantee is divorced from the obligations of the parties towards each other, in their bilateral enforcement.
The bank guarantees in question are unconditional in nature and thereof the bank had undertaken to pay the amount due and payable under the guarantee(s) without any demure and merely on a demand from RITES.
CONCLUSION
In view of the above, RITES and HDFC Bank are restrained from giving effect to the invocation letter dated October 05, 2017, in so far as the Mobilization Advance Guarantee was concerned. However, it was clarified that this would not preclude RITES to issue fresh letter of invocation in accordance with the terms of the Mobilization Advance Bank Guarantee.
No stay was granted on invocation and encashment of the Performance Bank Guarantee(s) in view of settled principles of law thereby, upholding the High Court judgment that no stay can be granted under Section 9 of the Arbitration & Conciliation Act, 1996, without establishing the set principles of law.
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