Case Note & Summary
The appellant, Rashtriya Chemicals & Fertilizers Ltd., a Government of India Undertaking, placed a purchase order on 8 November 2011 with the respondent for supply of 50,000 metric tonnes of Egyptian Rock Phosphate. A performance bank guarantee was furnished by the respondent. The appellant opened a Letter of Credit for US$ 2,09,468 for the first consignment of 25,000 metric tonnes. At the respondent's request, the quantity was reduced to 16,000 metric tonnes and the Letter of Credit was amended to US$ 67,030. The appellant invoked the bank guarantee. The respondent filed an Arbitration Petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief. The learned Single Judge, by ad-interim order dated 23 January 2012, permitted invocation but restrained the appellant from receiving the amount, directing it to be deposited with the bank. The respondent gave an undertaking to pay interest at 12% per annum if the injunction was vacated. By the impugned order dated 10 February 2012, the learned Single Judge continued the ad-interim order until the constitution and first meeting of the Arbitral Tribunal and for four weeks thereafter. The appellant appealed. The Division Bench allowed the appeal, setting aside the impugned order and permitting the appellant to receive the amount from the bank guarantee, subject to the appellant giving an undertaking to repay the amount with interest at 12% per annum if the arbitral tribunal so orders. The court held that the bank guarantee was an unconditional one and the balance of convenience was in favor of the appellant, especially since the appellant had given an undertaking to repay with interest.
Headnote
A) Arbitration - Interim Relief - Section 9 of Arbitration and Conciliation Act, 1996 - Bank Guarantee Invocation - The court considered whether the appellant could invoke a performance bank guarantee and receive the proceeds pending arbitration. The learned Single Judge had permitted invocation but restrained receipt, directing the amount to be deposited with the bank. The Division Bench allowed the appeal, permitting the appellant to receive the amount, subject to an undertaking to repay with interest if the arbitral tribunal so orders. Held that the balance of convenience favored the appellant, as the bank guarantee was an unconditional one and the appellant had given an undertaking to repay with interest at 12% per annum (Paras 3-6).
Issue of Consideration
Whether the appellant is entitled to invoke the bank guarantee and receive the amount pending arbitration, and whether the interim order restraining receipt of the amount should be continued.
Final Decision
Appeal allowed. Impugned order set aside. Appellant permitted to receive the amount from the bank guarantee, subject to giving an undertaking to repay the amount with interest at 12% per annum if the arbitral tribunal so orders.
Law Points
- Bank guarantee invocation
- interim relief under Section 9 of Arbitration Act
- balance of convenience
- undertaking to pay interest
