Case Note & Summary
The petitioner, Housing Development and Infrastructure Limited (HDIL), filed an arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction to restrain Respondent No.1, Mumbai International Airport Private Limited (MIAPL), from invoking or encashing a bank guarantee issued by Respondent No.2, Punjab & Maharashtra Cooperative Bank Limited. The petitioner also sought an injunction against the bank from making payment under the guarantee. The dispute arose from a contract between HDIL and MIAPL for development of airport land. MIAPL had invoked the bank guarantee on 27th November 2012. The court heard the matter urgently and, by consent, decided to finally dispose of the petition. The court noted that a bank guarantee is an independent contract and can be restrained only in cases of fraud or irretrievable injustice. The petitioner argued that there was a dispute regarding the underlying contract and that MIAPL had suffered no loss. However, the court found that no prima facie case of fraud or irretrievable injustice was made out. The court held that the bank guarantee could not be restrained merely because of a dispute in the underlying contract. The petition was dismissed, and the interim order granted earlier was vacated.
Headnote
A) Arbitration - Interim Relief - Bank Guarantee - Section 9 of the Arbitration and Conciliation Act, 1996 - Petitioner sought injunction against invocation of bank guarantee by Respondent No.1 - Court held that bank guarantee is an independent contract and can be invoked only in case of breach, but no prima facie case of fraud or irretrievable injustice was made out - Petition dismissed (Paras 1-10).
Issue of Consideration
Whether the court should restrain the invocation of a bank guarantee under Section 9 of the Arbitration and Conciliation Act, 1996, in the absence of a prima facie case of fraud or irretrievable injustice.
Final Decision
The Arbitration Petition is dismissed. The interim order dated 29th November 2012 is vacated.
Law Points
- Bank guarantee is an independent contract
- fraud must be of egregious nature
- irretrievable injustice must be established
- Section 9 of Arbitration and Conciliation Act
- 1996
Case Details
2012 LawText (BOM) (11) 39
Arbitration Petition (L) No.1538 of 2012
Mr. T. N. Subramaniam, Senior Advocate, a/w Mr. Gaurav Joshi, Mr. Piyush Raheja, Mr. Satyen Vora, Mr. Atul Kshatriya, Mr. Sanmish Gala & Mr. Chetan Yadav i/b Markand Gandhi & Co. for Petitioner. Mr. Virag Tulzapurkar, Senior Advocate, a/w Dr. Birendra Saraf, Ms. Shoma Maitra & Mr. Atharva Dandekar i/b Wadia Gandhy & Co. for Respondent No1. Mr. Snehal Shah a/w Ms. Dipti Panda & Ms. Amita Jasani i/b Purnanand & Co. for Respondent No.2 – Punjab & Maharashtra Cooperative Bank Limited. Mr. A. Ketkar for Respondent No.4.
Housing Development and Infrastructure Limited
Mumbai International Airport Private Limited and others
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Nature of Litigation
Arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief to restrain invocation of bank guarantee.
Remedy Sought
Petitioner sought an order and injunction restraining Respondent No.1 from invoking or encashing or receiving payments under the Bank Guarantee No.3023/4018/152/0708 read with Extension Bank Guarantee No.3023/4018/229/0910 dated 11th May 2012, and against Respondent No.2 bank from making payment under the said Bank Guarantees.
Filing Reason
Respondent No.1 invoked the bank guarantee on 27th November 2012, and the petitioner sought to prevent its encashment.
Issues
Whether the court should restrain the invocation of a bank guarantee under Section 9 of the Arbitration and Conciliation Act, 1996, in the absence of a prima facie case of fraud or irretrievable injustice.
Submissions/Arguments
Petitioner argued that there is a dispute regarding the underlying contract and that Respondent No.1 has suffered no loss.
Respondent No.1 argued that the bank guarantee is an independent contract and can be invoked upon breach, and no case for injunction is made out.
Ratio Decidendi
A bank guarantee is an independent contract and can be restrained only in cases of fraud or irretrievable injustice. Mere dispute in the underlying contract is not sufficient to restrain invocation.
Judgment Excerpts
The Petitioner has filed the above Arbitration Petition under Section 9 of the Arbitration and Conciliation Act, 1996, inter alia, for an order and injunction restraining the Respondent No.1 from invoking or encashing or receiving payments under the Bank Guarantee No.3023/4018/152/0708 read with Extension Bank Guarantee No.3023/4018/229/0910 dated 11th May 2012 or further extended bank guarantees as may be furnished to the Respondent No.1 from time to time.
Procedural History
The petition was filed on 29th November 2012. An urgent application was made at 11:00 a.m. without notice to respondents. The court passed an interim order directing the bank not to act on the letter dated 27th November 2012. At 5:00 p.m., by consent, the petition was taken up for final disposal. Respondents did not file affidavits-in-reply and proceeded on denials.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 9
