Case Note & Summary
The petitioner, Larsen & Toubro Limited (L&T), filed an arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim reliefs against respondent No.1, Shree Ahuja Properties & Realtors Pvt. Ltd. (Ahuja Properties), and respondent No.2, Punjab National Bank (PNB). The dispute arose out of a construction contract for a residential project at Prabhadevi, Mumbai. Ahuja Properties had obtained a performance guarantee from PNB in favor of L&T, which Ahuja Properties sought to invoke. L&T contended that the invocation was fraudulent and not in accordance with the terms of the guarantee. The court noted that Ahuja Properties had initially issued an invocation letter dated 25-10-2016, which was withdrawn after L&T objected. A fresh invocation letter was issued on 27-10-2016. L&T moved the court urgently, and an interim order was passed restraining PNB from making payment under the guarantee. The court, after hearing both sides, found that L&T had made out a prima facie case of fraud and irretrievable injustice. The court held that the invocation was not in accordance with the terms of the performance guarantee, and that the balance of convenience was in favor of granting an injunction. The court directed that the injunction against PNB from making payment under the performance guarantee would continue until the disposal of the arbitration proceedings. The court also directed Ahuja Properties to furnish security for L&T's claim. The judgment was pronounced on 9th January 2017.
Headnote
A) Arbitration Law - Interim Measures - Section 9 of Arbitration and Conciliation Act, 1996 - Performance Guarantee - Court may restrain invocation of bank guarantee if there is a prima facie case of fraud or irretrievable injustice - The court examined the terms of the performance guarantee and the invocation letter, and found that the invocation was not in accordance with the terms, and that there was a serious dispute regarding the underlying contract - Held that the petitioner made out a prima facie case for grant of interim relief (Paras 1-10). B) Contract Law - Performance Guarantee - Invocation - Fraud - The court considered the allegations of fraud by the petitioner against the respondent, including misrepresentation and concealment of material facts - The court found that the petitioner had made out a prima facie case of fraud, which vitiated the invocation of the guarantee - Held that the balance of convenience was in favor of granting injunction (Paras 11-20).
Issue of Consideration
Whether the court should restrain the invocation of a performance guarantee under Section 9 of the Arbitration and Conciliation Act, 1996, on grounds of fraud and irretrievable injustice.
Final Decision
The court allowed the petition and directed that the injunction against PNB from making payment under the performance guarantee shall continue until the disposal of the arbitration proceedings. Respondent No.1 was directed to furnish security for the petitioner's claim.
Law Points
- Section 9 of Arbitration and Conciliation Act
- 1996
- Performance Guarantee
- Fraud
- Irretrievable Injustice
- Prima Facie Case
- Balance of Convenience
