Case Note & Summary
The petitioner, IVRCL Ltd., had entered into a contract with the respondent, IOT Utkal Energy Service Ltd., for which the petitioner furnished a bank guarantee of Rs.52,58,33,000/- issued by IndusInd Bank, Secunderabad branch, dated 4th June 2010, towards mobilization advance under clause 14.3.1 of the contract. The bank guarantee was due to expire on 23rd November 2012. The petitioner did not renew the bank guarantee before expiry, and the respondent invoked the bank guarantee on 22nd November 2012 by addressing a letter to the bank. The petitioner, by its letter dated 20th November 2012, contended that the work had been completed to the extent of 96.14%, which it claimed was substantial completion, and therefore further extension of the bank guarantee was not required, requesting the respondent to return the bank guarantee. The respondent did not return it, leading the petitioner to file this petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction against the invocation. The court held that a bank guarantee is an independent contract between the bank and the beneficiary, and an injunction against its invocation can only be granted in cases of fraud or irretrievable injustice. The dispute regarding substantial completion of work does not constitute fraud or irretrievable injustice. The court dismissed the petition, finding no merit in the petitioner's contentions.
Headnote
A) Contract Law - Bank Guarantee - Injunction against invocation - Bank guarantee is an independent contract between the bank and the beneficiary - Injunction can be granted only in cases of fraud or irretrievable injustice - Dispute regarding substantial completion of work does not constitute fraud or irretrievable injustice - Held that the petition seeking injunction was not maintainable (Paras 1-7).
Issue of Consideration
Whether the court can grant an injunction restraining the invocation of a bank guarantee on the ground that the work has been substantially completed, when the contract provides for return of the guarantee upon substantial completion.
Final Decision
The petition is dismissed. No order as to costs.
Law Points
- Bank guarantee is an independent contract
- Injunction against invocation only in case of fraud or irretrievable injustice
- Dispute regarding substantial completion does not justify injunction
Case Details
2013 LawText (BOM) (01) 60
Arbitration Petition (L) No.1514 of 2012
Mr Anand Poojari i/b M/s S.I.Joshi & Co. for Petitioner, Mr S.U.Kamdar, Senior Advocate a/w Prakash Shinde and Ms Jaisy Mani i/b M/s MDP Partners for Respondent
IVRCL LTD. (formerly known as IVR Prime Urban Developers Ltd.)
IOT UTKAL ENERGY SERVICE LTD.
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Nature of Litigation
Petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking injunction against invocation of bank guarantee.
Remedy Sought
Petitioner sought injunction restraining the respondent from invoking the bank guarantee and directing the bank not to make payment.
Filing Reason
Petitioner contended that work was substantially completed (96.14%) and thus bank guarantee should be returned, not invoked.
Issues
Whether the court can grant injunction against invocation of bank guarantee on ground of substantial completion of work?
Whether the dispute regarding substantial completion constitutes fraud or irretrievable injustice?
Submissions/Arguments
Petitioner argued that since work was substantially completed, bank guarantee was no longer required and should be returned.
Respondent argued that bank guarantee is an independent contract and injunction can only be granted in case of fraud or irretrievable injustice.
Ratio Decidendi
A bank guarantee is an independent contract between the bank and the beneficiary. An injunction against its invocation can only be granted in cases of fraud or irretrievable injustice. A dispute regarding substantial completion of work does not constitute fraud or irretrievable injustice, and thus no injunction can be granted.
Judgment Excerpts
By this petition, petitioner seeks injunction in respect of the bank guarantee issued by IndusInd Bank, Secunderabad branch dated 4th June 2010 for the sum of Rs.52,58,33,000/ on behalf of the petitioner in favour of the respondent under clause 14.3.1 of the contract towards mobilization advance given by the respondent to the petitioner.
The bank guarantee was due to expire on 23rd November 2012. Since the petitioner did not renew the bank guarantee before 23rd November 2012, the respondent by its application dated 22nd November 2012 invoked the said bank guarantee by addressing a letter to the bank and demanded payment in respect thereof.
Procedural History
Petitioner filed Arbitration Petition (L) No.1514 of 2012 under Section 9 of the Arbitration and Conciliation Act, 1996 seeking injunction against invocation of bank guarantee. The petition was heard and dismissed by the High Court on 10th January 2013.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 9
